Q2 2024 Grove Collaborative Holdings Inc Earnings Call

Good afternoon and thank you for standing by. Welcome to Grove Collaborative Holding, Inc. 2nd quarter, 2024, earnings conference call. At this time, all lines have been placed on mute to prevent any background noise.

Operator: Following the speaker's remarks, we will open the line for questions. As a reminder, this conference call is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin, and CFO, Sergio Cervantes.

Speaker Change: Following the speaker's remarks, we will open your line for questions. As a reminder, this conference call is being recorded. Hosting today's call are groves CEO Jeff Yurcisin and CFO Sergio Cervantes. Before they begin their prepare remarks, I will review the forward-looking statement safe harbor.

Operator: Before they begin their prepared remarks, I will review the forward-looking statement, Safe Harbor. Some of the statements made today about future prospects, financial results, business strategy, industry trends, and Grove's ability to successfully respond to business risks may be considered forward-looking, including statements relating to the impacts of their relocation to Shopify and its projected completion date. The quenchyl revenue growth in the fourth quarter, their plan to increase advertising spend in the fourth quarter, and their net revenue and adjusted EBITDA margin guidance.

Some of the statements made today about future prospects, financial results, business strategy, industry trends, and Grove's ability to successfully respond to business risks.

Speaker Change: may be considered forward-looking, including statements relating to the impacts of their replatforming to Shopify and its projected completion date, sequential revenue growth in the fourth quarter, their plan to increase advertising spend in the fourth quarter, and their net revenue and adjusted EBITDA margin guidance.

Operator: Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those factors discussed in our filings with the Securities and Exchange Commission. All of these statements are based on Grove's view today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as may be required under applicable security laws.

Speaker Change: Such statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including those factors discussed in our filings with the Security and Exchange Commission.

Speaker Change: All of these statements are based on Grove's view today, and Grove assumes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as may be required under applicable security laws.

Operator: For more information, please refer to the risk factors discussed in Grove's most recent filings with the SEC, which are available on Grove's Investor Relations website at investors.growth.co. During today's call, Grove will also discuss certain non-gap financial measures. Reconciliation of these non-gap items to the most directly comparable gap financial measures is provided in their earnings release.

Speaker Change: For more information, please refer to the risk factors discussed in Grove's most recent filings with the SEC, which are available on Grove's Investor Relations website at investors.grove.co.

Speaker Change: During today's call, Grove will also discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in their earnings release, which is also available on their Investor Relations website.

Speaker Change: I will now turn the call over to Jeff Yurcisin to begin.

Jeff Yurcisin: Today marks my fourth earnings announcement and nearly my one-year anniversary as CEO. It's a privilege to lead this team and drive a business transformation that sets us apart as the destination for conscientious consumers who want the best for their families, their wallets, and the planet. In the last 12 months, we have transformed the e-commerce experience while also prioritizing profitability. As we reshape our business amidst this turnaround, we have refocused our priorities to be profitability and balance sheet strength, the foundational elements of financial stability. Stabilizing revenue and ultimately driving revenue growth by improving the customer experience and differentiating ourselves with sustainability, which is why customers shop with us. I'm proud of our work today.

Jeff Yurcisin: Thank you, operator. Today marks my fourth earnings announcement and nearly my one year anniversary as CEO. It's a privilege to lead this team and drive a business transformation that sets us apart as the destination for conscientious consumers who want the best for their families, their wallets, and the planet.

Speaker Change: In the last 12 months, we have transformed the e-commerce experience, while also prioritizing profitability. As we reshape our business amidst this turnaround, we have refocused our priorities to be profitability and balance sheet strength, the foundational elements of financial stability.

Speaker Change: Stabilizing Revenue, an ultimately driving revenue growth by improving the customer experience. And differentiating ourselves with sustainability, which is why customers shop with us.

Jeff Yurcisin: We are delivering on profitability and have strengthened our balance sheet and the innovations in our customer experience of energized arts. Let's dive into the updates on our four priority pillars. First, profitability. We have delivered positive adjusted EBITDA for four consecutive quarters. positive Operating Cash Flow, and three of the last five courses, which are the first steps in our profitability journey. We continue pursuing vendor and contract negotiations to increase operating leverage. During the quarter, we signed a new lease for our fulfillment center operations in Reno, Nevada, avoiding a significant increase in our current facility.

Speaker Change: I'm proud of our work to date. We are delivering on profitability and have strengthened our balance sheet. And the innovations in our customer experience have energized our team.

Speaker Change: Let's dive into the updates on our four priority pillars.

Speaker Change: First Profinability.

Speaker Change: We have delivered positive adjusted EBITDA in four consecutive quarters.

Speaker Change: and Positive Operating Cash Flow in three of the last five quarters.

Speaker Change: which are the first steps in our profitability journey.

Speaker Change: We continue pursuing vendor and contract negotiations to increase operating leverage.

Speaker Change: During the quarter, we signed a new lease for our fulfillment center operations in Reno, Nevada.

Jeff Yurcisin: We also officially ceased operations in our St. Peter's, Missouri Fulfillment Center, savings for which will be reflected in our P&L in the coming quarter. 2, Balance Sheet Strength. Subsequent to the end of the quarter, we voluntarily repaid $42 million of term debt and delayed our term debt principal payments until January of 2026.

Speaker Change: Avoiding a significant rent increase in our current facility. We also officially seized operations in our St. Peter's Missouri Fulfillment Center, savings for which will be reflected in our P&L in the coming quarters.

Speaker Change: Two, balance sheet strength. Subsequent to the end of the quarter, we voluntarily repaid 42 million dollars of term debt and delayed our term debt principal payments until January of 2026. This reduces our interest expense and is a first step towards reducing our overall debt burden.

Speaker Change: 3. Revenue growth.

Speaker Change: Revenue growth is a natural output of delivering a great experience that encourages customers to regularly visit, browse and shop, coupled with identifying efficient advertising channels to consistently engage with and meet them on their shopping journeys.

Speaker Change: Our customers shop with us because they trust us to curate high-performing, planet-first products.

Speaker Change: Co., we continue to expand our product selection during the second quarter, increasing the number of third-party brands sold on Grove Co. by 12% compared to the second quarter of 2023.

Jeff Yurcisin: We also continue to expand our subscribe and save program, with 63% of all products now available for customers to subscribe to at a discounted rate, providing customers an incentive to build a larger planet and wallet friendly box. We have earned trust, not just in home essentials but in personal care, health and wellness, and beauty.

Speaker Change: We also continue to expand our Subscribe and Save program, with 63% of all products now available for customers to subscribe to at a discounted rate, providing customers an incentive to build larger, planet- and wallet-friendly boxes.

Speaker Change: We have earned trust not just in home essentials, but in personal care, health and wellness, and beauty. We see strong internal data linking selection expansion with higher net revenue per order and ultimately overall revenue growth.

Jeff Yurcisin: We see strong internal data linking selection expansion with higher net revenue per order and ultimately overall revenue growth. As we become customers' trusted partner to help them on their sustainability journeys, we are giving them even more reasons to shop at Grove. Today, we also announced a major transition for our direct-to-consumer business as we revitalize our technology infrastructure by migrating to Shopify's platform. This replatforming will free up resources and enable Grove to leverage the most scalable, innovative platform in e-commerce and further optimize our customer experience to fuel our future growth. This transition began in July 2024 and is expected to be completed in the first quarter of 2025. Now we'll turn to our fourth and final pillar.

Speaker Change: As we become customers' trusted partner to help them on their sustainability journeys, we are giving them even more reasons to shop at Grove.

Speaker Change: Today, we also announced a major transition for our direct to consumer business as we revitalize our technology infrastructure by migrating to Shopify platform.

Speaker Change: This report forming will free up resources and enable growth to leverage the most scalable, innovative platform in e-commerce, and further optimize our customer experience to fuel our future growth.

Speaker Change: This transition began in July of 2024 and is expected to be completed in the first quarter of 2025.

Jeff Yurcisin: Sustainability, which continues to serve as our foundation, mission, and point of differentiation. In May, we published our 5th Annual Sustainability Report, providing comprehensive reporting on our key company commitments, progress, and partnerships, while simultaneously announcing our B Corporation recertification, where we saw our overall score improve from 80.3 to 100.3. We've been a B-Corp since June 24th, a significant milestone that marks Grove joining the 5% of companies that have maintained a B-Corp certification for more than 10.

Speaker Change: and now we'll turn to our fourth and final pillar.

Speaker Change: Sustainability, which continues to serve as our foundation, mission, and point of differentiation.

Speaker Change: In May, we publish our 5th Annual Sustainability Report, providing comprehensive reporting on our key company commitments, progress, and partnerships.

Speaker Change: while simultaneously announcing our B Corporation recertification where we saw our overall score improve from 80.3 to 100.9.

Speaker Change: We've been at B Corp since June of 2014, a significant milestone that marks Grove joining the 5% of companies that have maintained B Corp certification for more than 10 years.

Jeff Yurcisin: We also disclosed our latest plastic intensity metrics in our earnings release this afternoon to continue providing accountability for the pace at which we'd be coupled, and our revenue from the use supply. These are just a handful of the changes we have made so far. But there is more change coming, and the work is far from done. I remain confident in our ability to deliver incremental ongoing results towards long-term sustainable and profitable growth and evolve our brand to meet the needs of and support our current and future customers. I will now turn the call over to Sergio to review our financial results in more detail. Sergio, please go ahead.

Speaker Change: We also disclosed our latest plastic intensity metrics in our earnings release this afternoon to continue providing accountability for the pace at which we decouple our revenue from the use of plastic.

Speaker Change: These are just a handful of the changes we have made so far, but there is more change coming and the work is far from done.

I remain confident in our ability to deliver incremental, ongoing results towards long-term sustainable and profitable growth and evolve our brand to meet the needs of and support our current and future customers.

Speaker Change: I will now turn the call over to Sergio to review our financial results in more detail. Sergio, please go ahead.

Sergio Cervantes: Similar to previous calls, we will provide quarter-on-quarter comparisons in addition to the year with your changes, as we continue to believe the sequential comparisons reflect trends in the business and provide a measure of the effectiveness of the steps we have taken to position ourselves for long-term sustainable and profitable growth. Starting with the top line.

Sergio: Thank you, Jeff.

Sergio: Similar to previous calls, we will provide quarter-over-quarter comparisons in addition to the year-over-year changes as we continue to believe the sequential comparisons reflect trends in the business and provide a measure of the effectiveness of the steps we have taken to position ourselves for long-term, sustainable, and profitable growth.

Sergio Cervantes: Revenue in the second quarter was $52.1 million, down 2.7% from the first quarter of 2024 and 21.2% year-over-year, resulting from a decline in orders, partially offset by an increase in net revenue per order. We are starting to see revenue from repeat customers, resulting in a smaller sequential revenue decline than in the previous quarter. The strength of our core base is one of our most valuable assets and a significant factor in our confidence that we will be able to drive sequential growth in the fourth quarter.

Sergio Cervantes: Starting with the top line, revenue in the second quarter was $52.1 million, down 2.7% from the first quarter of 2024, and 21.2% year-over-year, resulting from a decline in orders partially offset by an increase in net revenue per order.

Sergio Cervantes: We are starting to see revenue from repeat customers stabilize, resulting in a smaller sequential revenue decline than in the previous quarter.

Sergio Cervantes: The strength of our core base is one of our most valuable assets, and it is a significant factor in our confidence that we will be able to drive sequential growth in the fourth quarter.

Sergio Cervantes: Todor Loders were down 5.4 percent, quarter of a quarter, and 24.9 percent of the over here to 0.70, and Uptick customers were down 7.8% quarter over quarter and 34.3% year over year to 0.7%. Both total orders and active customers continue to be impacted by lower advertising spend in 2023 and year to date in 2020. DTC net revenue per order was up 2.2% quarter over quarter and 4.5% of a year to 67

Sergio Cervantes: Total orders were down 5.4%, quarter over quarter, and 24.9% year over year to 0.7 million.

Sergio Cervantes: Anaptic customers were down 7.8% quarter of a quarter, and 34.3% the over year, 2.7 million.

Sergio Cervantes: Both Toronto Losers and African Customers continue to be impacted by Lower Advertising Spend in 2023 and year-to-date 2024.

Sergio Cervantes: DTC net revenue per order was up 2.2% quarter of a quarter and 4.5% the over year to 67.73.

Sergio Cervantes: The sequential and year of a year in provenance, but due to an increase in unit per order and sales of higher-priced products, including vitamins, minerals, and supplements, as we expand our product offering beyond home and personal, cross margin was down 170 basis points, square over quarter, and 200 basis points year over year to 53.9. The sequential decline was mostly due to the increase in re-collector party vendor allowances from an account in through up in The discontinuation of certain customer fees and then an increase in this scale. I have made some accounting adjustments. Third-party vendor allowances increased in the second quarter as the company onboarded more vendors to the subscribe and save program.

Sergio Cervantes: The sequential and year-over-year improvements are due to an increase in unit per order and sales of higher-priced products, including vitamins, minerals, and supplements, as we expand our product offering beyond home and personal care.

Sergio Cervantes: Cross-margin was down 170 basis points quarter over quarter, but up 200 basis points year over year to 53.9%.

Sergio Cervantes: The Sequential Decline was mostly due to the increase in Recoconnector Party Vendor allowances, from an accounting through up in the 1st quarter of 2024, the Viscontinuation of Certain Customer Feas.

Sergio Cervantes: and an increase in discounts.

Sergio Cervantes: Of note, absent the counted adjustment.

Sergio Cervantes: Third-party vendor allowances increase in the second quarter as the company onboards more vendors to the Subscribe and Save program.

Sergio Cervantes: The year-over-year improvement is mostly due to the sell-through of previously reserved inventory and an increase in vendor allowances offset by a decrease in growth percentage of net revenue. Growth from products as a percentage of net revenue was down 190 basis points quarter over quarter and 390 basis points year over year to 41.1%. The sequential and year-over-year declines were largely due to the expansion of our third-party product offering, especially as it relates to the health and wellness category, and the recent transformation of the new customer experience, which no longer utilizes recommended baskets in first orders that included a higher percentage of Grove-branded products.

Speaker Change: The year of a year improvement is mostly due to the self-true of previously reserved for inventory

Sergio Cervantes: Brand, and an increase in vendor allowances offset by a decrease in Grove Brand percentage of net revenue. Grove Brand products as a percentage of net revenue was down 190 basis points quarter over quarter and 390 basis points year over year to 41.1%.

Sergio Cervantes: The sequential and year of a year declines was largely due to the expansion of our third party product offering, especially a city related to the health and wellness category, and the recent transformation of a new customer experience.

Sergio Cervantes: It's no longer utilizes recommended baskets in personas that included a higher percentage of growth-branded products.

Sergio Cervantes: Advertising expense increased 18.8% in the second quarter, compared to the first quarter, but decreased 47.6% compared to the second quarter of 2023, to $2.4 million. The sequential increase is primarily due to an increase in retail-specific advertising to support the launch of our new and rebranded Grove co-product. The year-over-year decline continues to reflect our pullback in advertising spend and focus on efficiency as we transform the first-order customer experience, which is going to transform our customer experience in the first quarter. We have been disciplining our deployment of advertising in dollars, prioritizing efficiency to ensure that Spain has the right cost of acquisition and paper.

Sergio Cervantes: Advertising expense increased 18.8% in the second quarter compared to the first quarter, but decreased 47.6% compared to the second quarter of 2023 to $2.4 million.

Sergio Cervantes: The sequential increase is primarily due to an increase in retail-specific advertising to support the launch of our new and rebranded growth co-products.

Sergio Cervantes: The year-over-year decline continues to reflect our pullback in advertising spend and focus on efficiency as we transform the first-order customer experience.

Sergio Cervantes: Since we transform our customer experience in the first quarter, we have been disciplining our deployment of advertising dollars, prioritizing efficiency to ensure advertising a spent asset right cost of acquisition and payback period.

Sergio Cervantes: To the extent we continue to see improvements, we plan to increase DTC advertising spend in the fourth quarter of this year. Product development expense increased 49.9%, quarter over quarter, and 34.2% year over year, to $5.4 million.

Sergio Cervantes: To the extent we continue to see improvements, we plan to increase DTC advertising spend in the fourth quarter of this year.

Sergio Cervantes: Product development expense increased 49.9% quarter over quarter and 34.2% year over year to $5.4 million.

Sergio Cervantes: The sequential and year-over-year increases are mostly due to severance and accelerated depreciation costs as a result of our decision to transition our e-commerce platform to Shopify. His DNA expense increased 10.3% quarter over quarter but decreased 22.9% year over year to 27.1%. The quarter over quarter increase is primarily due to the 2.9 million gain on restructuring recorded in the first quarter of 2024 that did not recur, as said by lower fulfillment costs from fewer orders and lower professionals.

Sergio Cervantes: The sequential and year-over-year increases are mostly due to severance and accelerated depreciation costs as a result of our decision to transition our e-commerce platform to Shopify.

Sergio Cervantes: His DNA expense increased 10.3% quarter over quarter, but decreased 22.9% year over year to $27.1 million.

Sergio Cervantes: The quarter-over-quarter increase is primarily due to the $2.9 million gain on restructuring recorded in the first quarter of 2024, but did not recur, offset by lower fulfillment costs from fewer orders and lower professional fees.

Sergio Cervantes: The year of a year decrease is mainly due to the lower fulfillment cost from fewer orders, and lower Personal Cost due to a decrease in the stock base compensation expense and reductions in headcount and lower professional skills. A just a rivita for the second quarter was 1.1 billion, compared to 1.9 million in the first quarter of Tony Tony Ford and a 2.6 million loss in the second quarter of Tony Tony.

Sergio Cervantes: The year-over-year decrease is mainly due to the lower fulfillment costs from fewer orders, lower personal costs due to a decrease in stock-based compensation expense, and reductions in headcount, and lower professional fees.

Sergio Cervantes: A Joe's derivative for the second quarter was 1.1 billion, compared to 1.9 million in the first quarter of Tony Tony Ford, and a 2.6 million loss in the second quarter of Tony Tony Ford.

Sergio Cervantes: Our adjusted EBITDA margin for the second quarter was positive 2% compared to positive 3.5% in the first quarter of 2024 and negative 3.9% in the second quarter of 2020. As Jeff mentioned, we are proud of having delivered positive adjusted EBITDA in each of the last four quarters, demonstrating our commitment to profitability and, ultimately, positive cash. Turning now to the balance sheet. We ended the quarter with 82.6 million in cash, cash equivalents, and restricted cash, an increase of 1 million from the previous quarter, mainly due to a reduction in working capital, partially said by net in 36.

Sergio Cervantes: Our adjusted EBITDA margin for the second quarter was positive 2% compared to positive 3.5% in the first quarter of 2024 and negative 3.9% in the second quarter of 2023.

Sergio Cervantes: As Jeff mentioned, we are proud of having delivered positive adjusted EBITDA in each of the last four quarters, demonstrating our commitment to profitability and ultimately positive cash flow.

Sergio Cervantes: We also ended the quarter with an inventory balance of $27.8 million, down $3.6 million quarter over quarter, mainly driven by a reduction in Grove-branded inventory as we continue to improve our inventory ownership. Lastly, as Jeff also mentioned, subsequent to the end of the quarter, we made a voluntary repayment of $42 million of term debt and delayed the term debt principal payments until January 2020. This paydown will save us at least $6.3 million in interest expense over the next 12 months, reducing our cash flow. More specific details can be found in our Form 8K, filed with the SEC on July 19, 2020. Now turn to our outside.

Speaker Change: Turning now to the balance sheet.

Speaker Change: We ended the quarter with 82.6 million in cash, cash equivalent and restricted cash, an increase of 1 million from the previous quarter, mainly due to a reduction in working capital, partial offset by net interest expense.

Sergio Cervantes: We also ended the quarter with an inventory balance of $27.8 million, down $3.6 million quarter over quarter, mainly driven by a reduction in Grove-branded inventory as we continue to improve our inventory ownership position.

Speaker Change: Lastly, as Jeff also mentioned, subsequent to the end of the quarter, we made a voluntary repayment of $42 million of term debt and delayed the term debt principal payments until January 2026.

Sergio Cervantes: This way down will save us at least 6.3 million in interest expense of the next 12 months, reducing our cash burn.

Sergio Cervantes: More specific details can be found in our Form 8K filed with the SEC on July 19, 2024.

Sergio Cervantes: For the 12-month period ending December 31st, 2024, we have revised our guidance to be net revenue of $205 to $215 million, a decrease from 215 to 225, adjusted it with a margin of 0.5% to 1.5%, and increased from zero to one person. Our business wall transformation has taken longer than anticipated at the beginning of the year, and therefore, we have lowered our revenue guidance to reflect that. Our plan had us increasing advertising spend sooner than the fourth quarter.

Sergio Cervantes: Now turn it to our outlook.

Sergio Cervantes: For the 12-month period ending December 31st, 2024, we have revised our guidance to be

Sergio Cervantes: Net revenue of $205 to $215 million, a decrease from $215 to $225 million.

Sergio Cervantes: Adjusted it with a margin of 0.5% to 1.5%.

Sergio Cervantes: and increased from 0 to 1%.

Sergio Cervantes: Our business model transformation has taken longer than anticipated at the beginning of the year, and therefore we have lowered our revenue guidance to reflect that.

Sergio Cervantes: Our plan has, of increasing other ties in a spend sooner than the fourth quarter. However, we have decided to maintain spent at current levels, giving us more time to evaluate repeat orders of acquired customers, an important part of our other ties in efficiency equation.

Sergio Cervantes: However, we have decided to maintain spend at current levels, giving us more time to evaluate repeat orders of acquired customers, an important part of our advertising efficiency. We are less than two quarters into reshaping our e-commerce experience, and we are carefully evaluating these trends to ensure we are delivering the right payback period. We only plan to increase spend when we have confidence in these metrics to ensure we are growing with a sustainable business model. Despite the lower revenue guidance, we have increased our adjusted EBITDA margin guidance.

Sergio Cervantes: We are less than two quarters into reshaping our e-commerce experience and we are carefully evaluating these trends to ensure we are delivering the right payback periods.

Sergio Cervantes: We only plan to increase spend when we have confidence in these metrics to ensure we are growing with a sustainable business model.

Sergio Cervantes: Despite the lower revenue guidance, we have increased our adjusted EBITDA margin guidance. We continue to maintain strict margin and expense discipline throughout the business and delivered positive cash flow in the second quarter, as well as our fourth consecutive quarter of positive adjusted EBITDA.

Sergio Cervantes: We continue to maintain strict margin and expense discipline throughout the business and delivered positive cash flow in the second quarter, as well as our fourth consecutive quarter of positive adjustments. We believe that this trend is reversing. The planning revenue trend is a part of that importance, but we are proud of an energized by our consistent bottom line performance. I would now like to turn the call back over to Jeff for some closing remarks. Thank you.

Sergio Cervantes: We believe that reversing

Sergio Cervantes: The declining revenue trend is of paramount importance, but we are proud of and energized by our consistent bottom-line performance.

Sergio Cervantes: I would now like to turn the call back over to Jeff for some closing remarks.

Jeff Yurcisin: For the past four quarters, we've reported to our shareholder community that we are pursuing a bold transformation for growth. Our customers seek a trusted partner to help them on their sustainability journey, and the marketplace is hungry for a leader that can serve these conscientious customers. Today's results show steady progress toward that goal of being the destination for sustainable everyday essentials, but we clearly have more to do, and I'm confident we can be the industry leader in a platform for those conscientious cuts.

Sergio Cervantes: Thank you, Sergio.

Jeff Yurcisin: For the past four quarters we've reported to our shareholder community that we are pursuing a bold transformation for growth.

Jeff Yurcisin: Our customers seek a trusted partner to help them on their sustainability journey, and the marketplace is hungry for a leader that can serve these conscientious consumers.

Jeff Yurcisin: Today's results show steady progress toward that goal of being the destination for sustainable everyday essentials.

Jeff Yurcisin: but we clearly have more to do. And I'm confident we can be the industry leader and a platform for those conscientious customers.

Jeff Yurcisin: In my first quarter as CEO, I said, we can't chase a sustainable mission without a sustainable business, and that still rings true today. One year later, our business is more sustainable. We have delivered four straight quarters of positive adjusted EBITDA while also strengthening our balance sheet, and we anticipate consistent sequential revenue growth is around the corner. I want to reiterate Sergio's comments that we expect to be growing revenues sequentially in Q4, which is the next step in our multi-year transformation to deliver sustainable, profitable growth. There's more work to be done, and I'm excited to share updates on future calls. With that said, we're happy to answer any questions you have. Operator, please open the line for questions.

Jeff Yurcisin: In my first quarter as CEO , I said, we can't chase a sustainable mission without a sustainable business. And that still rings true today. One year later, our business is more sustainable.

Jeff Yurcisin: We have delivered four straight quarters of positive adjusted EBITDA while also strengthening our balance sheet and anticipate that consistent sequential revenue growth is around the corner.

Jeff Yurcisin: I want to reiterate Sergio's comments that we expect to be growing revenues sequentially in Q4, which is the next step in our multi-year transformation to deliver sustainable, profitable growth. There's more work to be done, and I'm excited to share updates and future calls.

Jeff Yurcisin: With that, we're happy to answer any questions you have.

Jeff Yurcisin: Operator, please open the line for questions.

Operator: Thank you so much. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate that your line is in the question cube. You may press star and then two if you would like to remove your question from the cube. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. Again, if you would like to ask a question, please press the star and then one now. The first question that we have comes from Susan Anderson of Cancor Genuity. Please go ahead.

Operator: Thank you, Sal. Ladies and gentlemen, at this time, we will be conducting a question and answer session.

Operator: If you would like to ask a question, please press star and then 1 on your telephone keypad.

Operator: A confirmation tone will indicate U-line is in the question cube.

Operator: You may press star and N2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: Again, if you would like to ask a question, please press star and then 1 now.

Operator: The first question that we have comes from Susan Anderson of Cancord Genuacy. Please go ahead.

Susan Anderson: and I'm just wondering how to think about the top line keyed intent to second half, I now you said fourth quarter would step up sequentially, but I guess how should we think about third quarter versus second quarter? Thank you.

Jeff Yurcisin: Thank you for the question. In short, we believe we're nearing the bottom of the unusual comp that we had when we spent heavily on marketing back in 20. So by Q4, we're going to be growing sequentially. But if you were to look at our quarter-over-quarter growth from Q4 to Q1 of this year, we were down 10.5%. And then from Q1 to Q2, we were only down 2.7%.

Jeff Yurcisin: Thank you for the question.

Jeff Yurcisin: In short, we believe we're nearing the bottom of the unusual comp that we had when we spent heavily on marketing back in 2022.

Jeff Yurcisin: So, by Q4, we're going to be growing sequentially, but if you were to look at our quarter-over-quarter growth from Q4 to Q1 of this year, we were down 10.5%, and then from Q1 to Q2, we were only down 2.7%.

Jeff Yurcisin: So if you were modeling this out, you would see the flattening of those cohort curves, and we plan on growing sequentially in Q4. I also would just want to say that when you think about revenue growth, you can grow with efficient marketing spend or with a superior customer experience. And it's the latter that we have been putting so much energy into in the last four months, and then in terms of Marketing Spend and efficiency, I think we've probably earned investors trust that we will not spend inefficiently. And what we are seeing is week over week improvements since we launched our new customer experience on February 29th. So with that, by Q4, we are really planning for sequential revenue growth.

Jeff Yurcisin: So, if you were modeling this out, you will see the flattening of those cohort curves.

Jeff Yurcisin: We plan on growing sequentially in Q4. I also would just want to say that when you think about revenue growth,

Jeff Yurcisin: You can grow with efficient marketing spend or with a superior customer experience. And it's the latter that we have been putting so much energy into in the last four months. And then in terms of...

Jeff Yurcisin: Marketing Spend and the efficiency I think we probably earned investors trust that we will not spend it inefficiently.

Jeff Yurcisin: and what we are seeing is week over week improvements since we launched our new customer experience on February 29th. So with that, by Q4, we really are planning for sequential revenue growth.

Jeff Yurcisin: That's really helpful, and we can see it with the average revenue per order reaching a record right now. So just a quick follow-up on that, I guess. Is there any white space that you see in addition to wellness that you could continue to add just to help drop higher basket sizes and order sizes?

Jeff Yurcisin: That's really helpful, and we can see it with the average revenue per order reaching record right now. So, just a quick follow-up on that, I guess, is there any white space that you see in addition to wellness that you could continue to add just to help drive higher basket sizes and order sizes?

Jeff Yurcisin: Yeah, you know, I think what you will see when you look at our revenue mix is that 3P continues to grow faster. And it grows faster because we're able to launch more relevant SKUs to our customers faster than we are with our own brand. I'm really proud of our own brand product. But when I think about categories, we see it not just in health and wellness, we see it in personal care, and we see it in beauty.

Jeff Yurcisin: Yeah, you don't.

Jeff Yurcisin: Yeah, you don't, I think um...

Jeff Yurcisin: What you will see when you look at our revenue mix is that 3P remain continues to grow faster. It grows faster because we're able to launch more relevant skis to our customers faster than we are in oil and brand.

Jeff Yurcisin: I'm really proud of our own brand product. But when I think about categories, we see it not just in health and wellness.

Jeff Yurcisin: But what we are finding is that our customers trust us. We remain excited that nine of our customers trust us more than other retailers in selling the wellness product, and that type of trust extends to other categories. And so, what you will see is that we'll keep testing and learning, but we will follow the customer, follow the regular comments that we receive about new products that they are looking for so that we can be that trusted platform, that trusted destination, a trusted brand for conscientious customers who are trying to make the right decision for their family.

Jeff Yurcisin: We see it in personal care, we see it in beauty, but what we are finding is our customers trust us. We remain excited that 9% of our customers trust us more than other retailers on selling the wellness product and that type of trust.

Jeff Yurcisin: extends to other categories.

Jeff Yurcisin: And so what you will see is we'll keep testing and learning, but we will follow the customer, follow the regular comments that we receive about new products that they are looking for so that we can be that trusted platform, that trusted destination, a trusted brand for conscientious customers who are trying to make the right decision for their family and the planet.

Jeff Yurcisin: Thanks, and then just the last follow-up kind of around that third party vendor. So last quarter, you talked about a big initiative and getting some of that promotion dollars and some support from third-party companies. I guess, how much of that was a contribution to the year-end margin, or any way to conceptualize that. Uh, take.

Jeff Yurcisin: Thanks, and then just the last follow-up kind of around that third-party vendor, so

Jeff Yurcisin: Last quarter you talked about a big initiative and getting some of that promo dollars and some support from third-party Companies, I guess how much of that was a contribution to the year-of-the-year Gross margin leverage or any way to conceptualize that? Thank you

Jeff Yurcisin: I appreciate that too. You know, like, look, I'm really proud of our third-party partnerships that we have. When you think about how we are partnering with our brands, we're not just launching new brands, but we are partnering with existing brands to offer a better customer experience. So as of now, 63% of revenue offered on Grove is eligible for subscribe and save. And the customer experience is exceptional. We already have competitive fare prices, and all of a sudden, when customers subscribe and build boxes, they can build the most planet-friendly, wallet-friendly box. So in terms of the third-party products, we continue to see improvement in the number of unique skews.

Jeff Yurcisin: and I appreciate that too. You know, like, look, I'm really proud of our third party partnerships that we have. When you think about how we are partnering with our brands, we're not just launching new brands, but we are partnering with a existing brand to offer a better customer experience.

Jeff Yurcisin: So as of now, 63% of revenue offered on Grove is eligible for subscribe and save. And the customer experience is exceptional.

Jeff Yurcisin: We already have competitive fair prices, and all of a sudden when customers subscribe and build boxes, they can build the most planted friendly wallet friendly box out there.

Jeff Yurcisin: So, in terms of third-party products, we continue to see

Jeff Yurcisin: Soled on our site week over week, we're launching new brands like Nellies and Freestyle Wood and Freshway and Kaboo, and then from a college perspective and a gross margin perspective, we see great partnerships and continue to make headwinds as we partner with these brands to make sure that we are serving these conscientious customers as fairly and competitively as, Got it. Thank you. I'll turn it back. Thank you.

Jeff Yurcisin: Improvement in the number of unique SKUs.

Jeff Yurcisin: Souls on our site week over week, we are launching new brands like Nellies and Freestyle Wood and Fresh Wave and Kagu.

Jeff Yurcisin: and then from a contract hogs perspective and a gross margin perspective, we see great partnership and continue to make headwind as we partner with these brands to make sure that we are serving these conscientious customers as fairly and competitively as possible.

Operator: Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then 1 now. We'll pause for a moment to see if we have any further questions. At this stage, there are no further questions. I will now hand the call back to Jeff Yurcisin. Please go ahead, sir. Thank you.

Jeff Yurcisin: Yana, thank you. I'll turn it back.

Operator: Thank you. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then 1 now. We'll pause a moment to see if we have any further questions.

Operator: [inaudible]

Operator: that

Operator: i

Operator: At the stage, there are no further questions. I will now hand the cold back to Jeff Yurkinson. Please go ahead, self.

Jeff Yurcisin: Thank you. I want to thank everyone again for joining our call and hope you all have a great night. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You and I now disconnect your lines.

Operator: [inaudible]

Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.

Operator: [inaudible]

Jeff Yurcisin: Thank you. I want to thank everyone again for joining our call and hope you all have a great night. Thank you.

Susan Anderson: I'm just wondering how to think about the top line keyed intent for the second half. I know you said the fourth quarter would step up sequentially, but I guess how should we think about third quarter versus second quarter?

Jeff Yurcisin: This reduces our interest expense and is a first step towards reducing our overall debt burden. Revenue growth is the natural output of delivering a great experience that encourages customers to regularly visit, browse, and shop. Coupled with identifying efficient advertising channels to consistently engage with and meet them on their shopping journey, our customers shop with us because they trust us to curate high-performing products. We continue to expand our product selection during the second quarter, increasing the number of third-party brands sold on GroveCo by 12% compared to the second quarter of 2023.