Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.’s Third Quarter 2022 Earnings Conference Call. At this time, all lines have been placed on me to prevent any background noise. Following the speakers’ remarks, we will open your lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Alexis Tessier, Director of Investor Relations to begin.

Thank you, operator. Hello, and thank you all for joining us today. With me on today’s call are Grove’s Co-Founder and CEO, Stuart Landesberg; and CFO, Sergio Cervantes. Before we get started, I’ll quickly cover the forward-looking statements Safe Harbor. Some of the statements that we will make today about our future prospects, financial results, business strategies, industry trends and our ability to successfully respond to business risks may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause our actual results to differ materially. All of these statements are based on our view of the world and our business as we see it today. As described in our SEC filings, the underlying facts and assumptions for these statements can change as the world and our business changes. For more information, please refer to the risk factors discussed in our most recent SEC filings, which are available on our Investor Relations website at investors.grove.co. During today’s call, we 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 our earnings release and supplemental earnings presentation, which are also available on our Investor Relations website. With that, I’ll turn the call over to Stu.

Thank you, Alexis. Good afternoon, everyone, and thank you all for joining us. On today’s call, I’ll start with a brief overview of Grove, before reviewing our performance in the third quarter and discussing how our value creation plan is positioning us for success, as we lead the home and personal care industries to transformational change. At Grove, we believe that consumer products can be a positive force for human and environmental health. This thesis is consistent with the long-term trends in our sector and the inevitable transformation of the CPG industry from polluter to sustainability leader. By creating and curating products that are better for us and for the environment, we are changing the way that the $1 trillion global home and personal care industry operates. The current plastic and carbon footprints of our industry are simply not sustainable. Change is inevitable, and Grove is leading that transformation. The overwhelming majority of consumers, 84% are concerned about plastic waste. Grove is a core innovator in zero plastic home care, and we are focused on being the market leader in solving the plastic problem our industry faces. We set the goal of being plastic-free by 2025, and aim to bring the entire industry along in our journey. Leveraging the trust from our core position in home care, we’ve also begun to address other categories, like personal care and wellness that impact human health. When I started the business in 2012, we were a direct-to-consumer company, offering a curated portfolio of products from the best natural and sustainable brands in home and personal care. Over time, we built a loyal and engaged user base, along with a massive and rich data set. We’ve leveraged this unique data, along with our strong relationships with consumers to create our own disruptive, authentic brands…

Thank you, Stu. Third quarter net revenue was $77.7 million, down 18% year-over-year and 2% from the second quarter of 2022. Both comparisons were impacted by the strategic decision to reduce advertising spend, as the company focuses on profitability as Stu discussed. Furthermore, the year-over-year decline was also impacted by consumers returning to pre-pandemic shopping patterns. Similarly, total orders were down 26% year-over-year and 6% quarter-over-quarter to $1.2 million, and active customers were down 15% year-over-year and 7% quarter-over-quarter to $1.46 million on a trailing 12-month basis. Partially offsetting the declines in total orders were continued positive trends in DTC net revenue per order, which was up 7% year-over-year and 4% quarter-over-quarter to $60.63. This increase was driven primarily by continued strength in existing customer average order value, as well as by the impact of the net revenue management initiatives, including the introduction of strategic price increases on Grove brands and third-party products. Gross margin was down 130 basis points year-over-year and flat quarter-over-quarter at 49.1%. The year-over-year decline was driven by increased product costs, including inbound freight costs and increasing sales from retail sales, which produced lower margins at our DTC channel sales, and higher inventory reserves, partially offset by the impact of the above-mentioned net revenue management initiatives. Grove brands as a percentage of net revenue declined 120 basis points year-over-year and 130 basis points quarter-over-quarter to 46.9%. The decline was driven by strong third-party seasonal performance, a year-over-year decrease in new customer orders, which tend to include more Grove brand products and a shift in advertising mix into channels with less Grove brands promotion. Advertising expenses fell 73% year-over-year and 52% quarter-over-quarter to $8.7 million, reflecting our strategic pullback in advertising spend and focus on improving marketing investment efficiency. We did see an improvement in advertising efficiency…

Thank you. [Operator Instructions] Thank you. Our first question is from Darla Whitlock with Telsey Advisory Group. Please proceed with your question.

Hi, great. Thanks for taking my question. Can you speak to the customers that you’ve maintained on Grove DTC platform, and are you able to keep the cohort that you intend to and you try to?

Hi, Darla, it’s a great question. This is Stu. I’ll take a crack at that. I think it really speaks to the overall ability of the company to maintain scale and drive profitability. I think one of the things we saw in the quarter that we were really pleased about, and this is one of the things that’s led us to raise guidance both this quarter and the last, is the durability of our customer relationships. And specifically, as we’ve been able to drive more dollars of margin per shipment, we’ve been able to do that while maintaining relationships with our best customers. So overall, we feel really good about the health of our customer base. And then when you drill one level deeper and you look at the cohorts, many of our cohorts have been with us for years now, and those are very, very sticky customers. And we continue to see trends there that are in line with historical, despite challenges in the macro. And so we’re certainly cautious given the macro going forward. But right now, we feel really good that our existing customer cohorts and the cohorts that we’re acquiring health behavior, and it’s materially similar to what we’ve always seen, which gives us a good grasp of the overall P&L as we drive the business to profitability with – and growth in the next several years.

Okay. Great. And sort of along those lines, looking at the decline in total orders and active customers year-over-year, how do those metrics compare to your expectations based on the pulling back on advertising in the quarter?

So one of the things that Sergio commented on, is that we’ve seen real efficiency in our advertising. And it goes without saying that, when you first acquire a customer, they’re active. And so our marketing budget has a really big impact on active customers. And so the reduction in marketing budget is the biggest driver of the reduction in sort of customer counts and order counts. With that said, we feel really good about the customer quality that we’re bringing in, and we feel good about the efficiency of our marketing spend. And so those have allowed us to drive not just more dollars per order, but a number of orders that we feel really good about relative to plan. And so this is – this has been one of the big bright spots, is that we’ve been able to improve our profitability so much overall, while still maintaining what I’ll call, the most important orders. Because if you look at the mix of the orders in this quarter compared to a year ago, for example, many fewer orders in this quarter were from first-time customers, a much higher percentage are from loyal customers, which when you sort of get into the cohort analysis, means those orders are more likely to recur in future quarters. So we feel really good about that overall.

Okay. Great. And then one more, if I can. In your prepared remarks, you mentioned higher margin categories and products that you’re going to introduce, can you provide some detail around those and timing, and if you anticipate those to be Grove brand or third party? Thank you.

So this is an initiative that we’ve looked at over the next several years. I think we find that our brand has been very successful in relating to consumers and making consumers really feel like they’re making the right decision for their homes, from both the human and environmental health perspective. And over time, it’s absolutely our goal to leverage that trust that we’ve built with our consumers, to deliver for them in more categories. And so when we look out at the biggest opportunities in front of us, and we look at sort of the intersection of what are our consumers asking for, where do we know our brands can play, and what is the best financial opportunity from a market size and margin perspective. So the categories within wellness are very compelling to us. Our overall positioning and job is to create brands, but our competitive advantage in creating brands comes from the data on our direct-to-consumer platform. So as we push into wellness and into other higher-margin categories, our approach is likely to be similar to the approach we’ve taken in Home Care, which is to – Home and Personal Care, which is to build a strong business in direct-to-consumer, leverage that data to create an innovation flywheel that’s faster than anyone else in the industry, and use that flywheel to build true market-leading brands over time. So this is not a hey I will share X category next quarter, I’m really talking about how do we grow for example, the percent of customers that have $100 shipments year-after-year-after-year and serve our consumers in more and more categories. And we think that’s a really big value creation opportunity over the coming quarters and years and I’m excited to give more color as we make progress.

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Stuart Landesberg for any closing comments.

Thanks all for joining. I’ll just say again, I’m quite proud of the way our team has continued to execute against our long-term goal. And I continue to believe today, as much and probably more than ever, that it is necessary and inevitable that our industry transform, to be one that can have not just a less bad impact on the environment, but truly position ourselves to change the industry for the better with products and services that consumers truly love. So thank you all again for your time. I feel grateful for the opportunity to go out and serve this mission every day. Much appreciated.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.