Q1 2025 Grove Collaborative Holdings Inc Earnings Call
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Good afternoon, and thank you for standing by welcome to throw collaboratively Holdings incorporated first quarter 2025 earnings conference call.
At this time all lines have been placed on mute to prevent any background noise.
Speaker Change: Hello, English speakers remarks, we will open up your lines for questions. As a reminder, this conference call is being recorded.
Speaker Change: Hosting todays call are growth C O, Jeff Jacobsen and interim CFO, Tom Sarah Kosta.
Speaker Change: Before they begin their prepared remarks I will.
Speaker Change: Review the forward looking statement Safe Harbor.
Speaker Change: Some of the statements made today about future prospects financial results business strategies industry trends and brothers ability to successfully respond to.
Speaker Change: <unk> business risk may be considered forward looking.
Speaker Change: Leading statements relating to revenue and profitability expectations expansion of product assortment and future improvements in net revenue per order and order frequency. The first quarter of 'twenty 25, being the lowest revenue quarter of 2020 five and going forward.
Speaker Change: The new improving through the second and third quarters at 2025 fourth quarter 'twenty to 'twenty five revenue grows 2025 revenue declining approximately mid single digit to low double digit percentage points.
Speaker Change: Year over year 2025, adjusted EBITDA being negative low single digits to positive low single digit millions.
Speaker Change: That's had impact on the e-commerce platform transition expectations regarding the impact of tariffs and our ability to offset.
Speaker Change: Forest impacts.
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 risks discussed in gross filings with the securities and Exchange Commission.
Speaker Change: All of these statements are based on trust fees today and growth 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 for more information. Please refer to the right.
Speaker Change: Factors discussed and grows most recent filings with the SEC, which are available on group's Investor relations website at investors that drove that C O D.
Speaker Change: During todays call well also discuss certain non-GAAP financial measures, which are adjusted GAAP results to eliminate the impact of certain items you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP items to the most directly comparable.
Speaker Change: GAAP financial measures and Grubbs earnings release, which is also available on group's Investor Relations website.
Speaker Change: I would now like to turn the call over to Jeff Eric has said to begin.
Speaker Change: Thank you operator, good afternoon, everyone and thank you for joining us today.
Speaker Change: Our strategy is centered on creating the best possible experience for the 57 million conscientious consumers, who are actively seeking a trusted partner to help them make healthier more sustainable choices for their families and the planet.
Speaker Change: We're building relevant to a destination defined by trust high standards sustainability and personal wellness.
Speaker Change: We believe this clear point of differentiation will drive long term customer loyalty and profitable growth.
Speaker Change: We are still in the middle of our transformation and while we are disappointed with the first quarter results that we will discuss today. We are encouraged by the internal progress we've seen in recent weeks, including stronger first quarter conversion rates and order economics.
Speaker Change: As I've shared in previous.
Speaker Change: We remain focused on four strategic pillars, one sustained profitability to balance sheet strength three revenue growth for environmental and human health. These priorities continue to guide our decisions.
Speaker Change: Our teams and drive measurable progress toward building a stronger more resilient company.
Speaker Change: Before we dive into the pillars I want to address two important topics, our ecommerce platform migration and the evolving tariff landscape.
Speaker Change: In early March you had in the migration of our E Commerce platform, which we announced in August of 'twenty four.
Speaker Change: <unk> represents a foundational shifts, which we transitioned from internally built technology is scalable industry, leading platform supported by external partners.
Speaker Change: Systems provide enhanced flexibility faster development cycles, and a stronger infrastructure for future growth.
Speaker Change: In the weeks following launch order conversion and volume for negatively impacted.
Speaker Change: We estimate the migration resulted in like two to 3 million revenue impact in Q1 based on a comparison of pre and post launch water volume and revenue per order.
Speaker Change: The impact of this disruption along with its potential downstream effects on customer retention has been factored into our revised full year guidance, which Tom will cover shortly.
Speaker Change: We are actively implementing strategies to reengage affected customers and rebuild trust due to the outages.
Speaker Change: As of today, we have addressed the most critical issues identified in our team is now focused on improving the overall customer experience.
Speaker Change: Yes, he navigation for discovery embedding content into the shopping experience fine tuning merchandising and rolling out new features and LD type performance and engagement and.
Speaker Change: Importantly, this new platform enables capabilities. We previously didn't have such as faster deployment of customers landing pages more flexible promotional strategies and new customer acquisition offers beyond our historical free gift mall.
Speaker Change: These tools are important to our driving scalable growth and deeper customer engagement in the quarters ahead.
Speaker Change: Despite the challenges we experience we still firmly believe that this transition was the right decision for our business. We are excited for the expanded capabilities that will provide us.
Turning to chat with many of the consumer goods space, we're navigating a macroeconomic environment with newly implemented tariffs we've taken several steps to protect both our margins and our customers, including targeted pricing adjustments on the most impacted items renegotiations with suppliers in a strategic review of our sourcing.
Speaker Change: China, Mexico, Canada, and the U S.
Speaker Change: Something like Airbnb Pizza products, we are evaluating sourcing alternatives outside of China, The China, China produces the majority of the world's standard <unk>.
Speaker Change: Our teams are actively exploring diversified sourcing strategies and monitoring policy developments closely well, there's still uncertainty around how these tariffs will evolve we believe our mitigation efforts will position us to adapt quickly.
Speaker Change: With that let's move into the strategic pillars at the core of our transformation starting with the first pillar sustained profitability.
Speaker Change: EBITDA for the first quarter was negative $1 6 million or margin of negative three 7%. This reflects the seasonal softness typical of Q1 as well as the impact of our e-commerce platform disruption.
Speaker Change: We remain committed to strengthening our underlying cost structure and driving operating efficiencies across the business.
Speaker Change: As we stabilize our e-commerce platform scale, new revenue initiatives, we expect profitability to improve we continue to take deliberate actions to position <unk> for long term sustainable margin expansion.
Speaker Change: This includes the reduction in technology head count in the first quarter following our platform transition as well as a heightened focus on advertising efficiency and first order economics to drive healthy sustainable customer acquisition. These changes are showing early signs of positive impact and set a stronger foundation as we look ahead to the rest of the year.
Speaker Change: Next we move to our second balance sheet strength.
Speaker Change: Following the end of the quarter, we amended our asset based loan facility extending its maturity to April 2020, among other changes Tom will share more details later.
Speaker Change: Our third pillar is revenue growth.
Speaker Change: The first quarter of 2025 delivered $43 $5 million of revenue down 18, 7% year over year and below the fourth quarter of 2024. Despite the decline we made progress on several key growth drivers. We're seeing early from a refined messaging and media strategy our expanded tagline your.
Speaker Change: Home healthier is resonating with customers and we're leaning into creative that showcases growth differentiated value across home care personal care wellness and more.
Speaker Change: We have enhanced the shopping experience with more guided inspirational content and launched a new customer offer that physicians growth as the go to destination for a broader range of home and lifestyle needs.
Speaker Change: Building beyond our heritage in home cleaning.
Speaker Change: In addition, as previously announced we completed the asset acquisition from existing third party brand grab green as well as wellness brand decrease we are still integrating the brand into our operation, but we have migrated their customers to the grub website and are beginning to advertise these brands to our existing customers.
Speaker Change: We also significantly expanded our third party assortment broadening the number of brands offered by 41% year over year individual products by 54% New additions include well known names like Philly Coca Cola Hydro flask solar array the neighbor goods and Unscented company.
Speaker Change: Throughout 2025, we plan to continue expanding our assortment, particularly in clean beauty personal care kitchen, and pantry baby and wellness, which we expect will drive improvements at both net revenue per order and order frequency.
Speaker Change: Our fourth and final pillar is environmental and human health.
Speaker Change: We continue to lead with our mission our focus on sustainability and personal health is resonating with customers and guiding our strategy.
Speaker Change: Is what differentiates us.
Speaker Change: New educational content to help consumers make healthier more sustainable choices, including a new blog planet, which acts as a trusted companion for eco conscious.
Speaker Change: The loss of a greener product pages and published rich editorial content that explains not just which products we recommend.
Speaker Change: But why the our standards. These efforts are building customer trust essential for long term loyalty and further strengthening the growth brand.
Speaker Change: Last week, we also released our 'twenty four 'twenty five sustainability report outlining progress on key commitments around plastic carbon ingredients theaters for us.
Speaker Change: Equity.
Speaker Change: This report also highlights the partnerships and innovation fueling our long term environmental and social goals, including the approval of science based targets to reduce emissions.
Speaker Change: Lastly, when it comes to human health our teams.
Our team has been working cross functionally to develop new category level standards, making our vetting process, even more transparent for customers through new certification requirements and expanded list of fat ingredients.
Speaker Change: Our strategy and mission remain our Northstar backed by creative collaborative team, that's solving hard problems with focus and resilience I remain confident that we are on the right path with that I'll turn it over to Tom for a deeper dive into our financials. Tom. Please go ahead.
Tom: Thank you, Jeff or Mike previous calls, where we shared both quarter over quarter and year over year comparisons were now focusing primarily on year over year comparisons unless otherwise noted as we shifted our focus from sequential improvements through year over year improvements.
Tom: Starting with the top line revenue for the first quarter was $43 5 million down 18, 7% year over year.
Tom: The decline was primarily driven by lower repeat order volume, which reflects both a smaller active customer base and the temporary disruptions from our e-commerce platform transition.
Tom: It reduced the customer base is largely the result of lower advertising spend across 2024 and prior years, which in turn by two fewer new customer acquisitions in those years and given that many of our customers placed multiple orders overtime. This drop in acquisition impacted repeat order volume and revenue in the current period.
Tom: It's consistent with our deliberate strategy to prioritize holistic P&L transformation and profitable growth amidst our turnaround.
Tom: That continues to put near term pressure on the topline.
Tom: As Jeff previously mentioned further contributing to the decline we estimate that E. Commerce platform transition contributed a $2 million to $3 million revenue headwinds in the current quarter.
Jeff: Partially offsetting these pressures was higher revenue from new customer was supported by improved advertising efficiency and stronger first order economics.
Jeff: Gains allowed us to responsibly increased customer acquisition spend in the quarter.
Jeff: Total orders for the quarter were 622008.
Jeff: A decline of 20% year over year, primarily driven by a smaller base of active customers and short term disruption during our e-commerce platform migration.
Jeff: Active customers totaled 678000 at quarter end down 16% compared to the prior year.
Jeff: These declines reflect the lagging impact of reduced advertising spend throughout 2024, and earlier, which resulted in lower customer acquisition and retention leading into this year.
Jeff: D T, stating that revenue per order was $66.49, a 0.3% increase primarily driven by a change in order mix to include higher priced items, especially as a result of our expanded third party assortment.
Jeff: This was partially offset by the elimination of certain customer fees in 2024.
Jeff: Our gross margin was 53% a decline of 260 basis points.
Jeff: Reduction reflects the absence of certain customer fees previously charged along with a smaller benefit from the sell through of previously reserved inventory.
Jeff: Turning to advertising, we invested $2 8 million in the quarter is there a point 8 million increase year over year.
Jeff: Despite the challenges presented by the platform migration, we leaned into channels that we're delivering improved returns our investment was driven by improved new customer conversion in order economics resulted from improved messaging and new customer acquisition strategies.
Jeff: These gains allowed us to scale spend while maintaining healthy customer acquisition costs. Our focus remains on allocating spend to our highest performing channels, while diversifying through new formats, including connected television and influencer campaigns in the coming quarters.
Jeff: Product development expense was $1 8 million a decline of 59% year over year, reflecting our continued effort to streamline operations. This includes reductions in technology head count following the platform migration and lower depreciation costs, resulting from our legacy platform, which was fully depreciated for financial statement purposes in 2024.
Jeff: Sure.
Jeff: SG&A expense was $22 million down 10.6% year over year, the reduction was driven by lower stock compensation reduced depreciation and amortization.
Jeff: And lower fulfillment costs from fewer orders.
Jeff: Notably the first quarter of 2024 included a one time $2 9 million gain from restructuring primarily related to the amendment of our corporate headquarters lease which did not repeat this year.
Adjusted EBITA was negative $1 6 million or a margin of negative three 7% compared to positive $1 9 million or three 5% margin in the first quarter of 2020 for this.
Jeff: This concludes the flow through of lower revenue in the quarter as long as the negative impact from the E Commerce platform transition.
Jeff: Operating cash flow was negative $6 9 million. This was primarily driven by an increase in working capital related to assets acquired in our recent acquisitions.
Jeff: Well as a negative net income net of noncash expenses.
Jeff: Turning to the balance sheet.
Jeff: We ended the quarter with $13 5 million in cash cash equivalents and restricted cash down from $24 3 million in the fourth quarter.
Jeff: The reduction was primarily driven by negative operating cash flow and the asset acquisition of Graham Greene and eight Greens.
Jeff: We also ended the quarter with an inventory balance of $22 1 million, an increase of $2 7 million from Q4, largely due to inventory acquired through the Graham Greene and at Greens transactions.
Jeff: And lastly, as Jeff noted, we finalized an amendment to our asset based loan facility subsequent to the end of the quarter.
Jeff: This amendment extends the maturity to April 2028 increases availability under the facility by removing the minimum liquidity covenant and includes other modifications, including amending the interest rate and searching other covenants.
Jeff: Details can be found in our 8-K filing from May 19 2025.
Jeff: Now turning to our outlook for the 12 month period, ending December 31, 2025, we are providing the following revised guidance.
Jeff: For revenue, we still expect Q1 to be our lowest revenue quarter of 2025 and going forward.
Jeff: Revenue is still expected to improve through the second and third quarters, leading to slight year over year growth in the fourth quarter.
Jeff: And we now expect full year 2025 revenue to decline approximately mid single digit to low double digit percentage points year over year.
Jeff: Yeah.
Jeff: Full year 2025, adjusted EBITDA is now expected to be negative low single digits to positive low single digit millions.
Jeff: This guidance includes our estimates of the full year impact of the e-commerce platform transition, including the first quarter impact as long as the projected ongoing effect throughout the remainder of the year from reduced order volume tied to customer attrition during the transition.
Jeff: The adjusted EBITDA outlook also incorporates the known tariff related impact inclusive of mitigation strategies. Currently underway. We have a soon we are able to offset most of the tariff impact through a combination of targeted pricing adjustments supplier renegotiations and strategic sourcing chess if necessary.
Jeff: However, there remains some uncertainty around the duration and scope of trade policy changes all of which could affect product costs in gross margin in future quarters, if mitigation efforts fall short.
Jeff: I'll conclude by saying that it's never easy to revise our annual guidance. So soon after initially providing it and be sharing that disappointment. However, we remain firmly committed to transparency accountability and executing the strategy that will position grow for long term sustainable growth.
Jeff: While we are encouraged by recent improvements in new customer metrics. We recognize that these gains will take time to meaningfully impact our financial results.
Jeff: I would like to turn the call back over to Jeff for some closing remarks.
Jeff: Thank you Tom.
Speaker Change: I want to emphasize that Q1 was a revenue trough and that we are guiding towards year over year growth in Q4, we're seeing green shoots across the business and know that our transformation is working.
Speaker Change: At Grove, we often talk to our customers about progress over perfection. The idea that meaningful impact comes from taking consistent steps forward. Despite it not being the ideal we plan for that.
Speaker Change: That mindset is one we fully embraced and our turnaround journey.
Speaker Change: This remains on cumulative progress and long term transformation.
Speaker Change: We're building the right customer experience and solving a unique customer problem and this will drive revenue growth.
Speaker Change: We are making significant changes to grow this business to help position us for lasting success and that work is actively underway for removing arcata and experienced in early 'twenty for completing the migration of our ecommerce platform in early 'twenty five we are rebuilding the foundation of growth for greater resiliency scalability and growth.
Speaker Change: With that we're happy to answer any questions you have operator, please open the line for questions.
Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing this.
Speaker Change: He is one moment, while we poll for questions.
Speaker Change: Our first question is from Susan Anderson with Canaccord Genuity. Please proceed.
Susan Anderson: Hi, good evening. Thanks for taking my questions. I was wondering I think you mentioned that marketing help to drive some new customers to the platform I'm. Just curious have you been able to layer on some additional marketing yet and where are you at now with your marketing as a percent of thousand how should we think about it.
Speaker Change: As well as we go throughout the rest of the year.
Speaker Change: Appreciate it. Thank you, yes, Susan so well I think.
Speaker Change: When we looked at our performance in Q1, we were happy with the progress until this platform transition now the platform transition like we worked through some of those hiccups.
Speaker Change: We've gotten through most of the critical problems, but what has been inspiring and what we're seeing real green shoots on are these new customers and in this kind of neither migration, we've been able to create new landing pages. New offers that are more dynamic and we are seeing strain.
Speaker Change: Every single day compared to our initial projections on the new customer front, we are not disclosing right now.
Speaker Change: New customer growth or specifics, but I will say that internally.
Speaker Change: We are really energized by the type of performance that we're seeing.
Speaker Change: You also asked what percent of spend did we invest in advertising.
Speaker Change: Hmm.
Speaker Change: This year this quarter, we were at six 4% and again, what we are trying to do we are now seeing the right type of returns and we are trying to increase that over time.
Speaker Change: Because we are seeing better returns than we have in years.
Speaker Change: New customer acquisition.
Speaker Change: Okay, great. Thanks for the details there and then just really quick a follow up on the platform transition I guess did you mention where you're at with that is that complete now do you think your beyond those issues and or how long should we think about it impacting them the rest of the.
Speaker Change: Thanks.
Speaker Change: Great question I think we are the language we are through the most challenging parts of this transition period now in any transition you have a new customer experience.
Speaker Change: That has its own nuances and impacts to the financials, but all impacts have been kind of baked into our revenue guidance that we just updated.
Speaker Change: And we are seeing progress week over week.
Speaker Change: Okay, Great and then maybe if I could just add one more just for how youre thinking about kind of a threat to secondary.
Speaker Change: Secretary of sales for <unk>.
Speaker Change: The third party and then your brands him as he kind of go throughout the rest of the year should we think of it is just kind of like a steady improvement each quarter to get to that positive growth in fourth quarter or is it going to be more lumpy than that thanks.
Speaker Change: I think think of it as a little bit more steady obviously, we're guiding towards year over year growth in Q4.
Speaker Change: And you'll see sequentially a bit of a more steady type of growth pattern in terms of owned brands versus third party brands. A few things have happened in the last few years, one of which is the customer experience now doesn't necessarily funnel customers towards our own brand product and the same way, we once had with our basket and so given that.
Speaker Change: Context owned brands as a percentage of revenue continues to decrease.
Speaker Change: But it's less alarming than it would've been a few years ago, because what we're finding is the right type of partnership with our third party partners.
Speaker Change: And we are finding a.
Speaker Change: Margins that are you know the gap in margins not to be as significant as it was a few years ago. So as we can.
Speaker Change: <unk> third party sales capture a larger portion of our total sales you still see stability of the gross margin line.
Speaker Change: Alright.
Speaker Change: Yeah.
Speaker Change: Great. Thank you sounds good thanks, so much.
Speaker Change: There are no further questions I would like to turn the conference back over to management for closing comments.
Speaker Change: Thank you very much appreciate you joining the call and I Hope you have a great evening. Thank you.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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