Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Hosting today's call are Grove's CEO, Jeff Yurcisin; and CFO, Sergio Cervantes. Before they begin their prepared remarks, I will review the forward-looking statements, safe harbor. Some of the statements made today about future prospects, financial results, business strategies, industry trends and Grove's ability to successfully respond to business risks may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All of these statements are based on Grove's view of the world and their business as they see it today. As described in the SEC filings, the underlying facts and assumptions for these statements can change as the world and their business changes. For more information, please refer to the risk factors discussed on their most recent filings with the SEC, which are available on Grove's Investor Relations website at investors.grove.co. During today's call, they 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 the earnings release, which is also available on our Investor Relations website. I would now like to turn the call over to Jeff Yurcisin to begin.

Thank you, operator. Hello, everyone, and thank you for joining the call today. I want to start this call by saying how honored and excited I am to be joining Grove as CEO. I'd like to thank my predecessor and our Executive Chairman of the Board Stuart Landesberg, the Board of Directors, the Grove leadership team and all of our employees who have put their trust in me to lead the next chapter. We have all been incredibly supportive during my transition. I joined Grove because, fundamentally, I believe that every individual can make a positive impact and drive change beyond themselves. What unites growth team is that we are all committed to a singular purpose, one that is bigger than ourselves. We create and curate high-performing Planet First products and aspire to transform the consumer product industry into a force for human and environmental good. Having followed Grove for some years before joining, I have made a number of assumptions about the business. And after 75 days into the role, I am reaffirmed by 4 core themes. First, we have an incredible brand. Grove is the leading platform for natural shoppers and is well positioned with our customers, including both active customers and those that haven't made a recent purchase will continue to come back to us because they believe in our mission. When you listen to these "inactive customers", you realize they too love our product and brand. With the home and personal care market amounting to roughly $180 billion, we know there is room for our trucked brand to grow. Second, we are the leaders in sustainable home care and have strong potential to expand beyond that category. Our formidable foothold in home care is an entry point and a springboard for growth to expand our presence,…

Thank you, Jeff. Similar to previous calls, we will provide quarter-over-quarter comparisons in addition to the year-over-year changes as we believe the sequential comparisons reflect the trends in the business and the steps we have taken to position ourselves for long-term sustainable and profitable growth. Net revenue in the third quarter was $61.8 million, down 6.6% from the second quarter of 2023 and 20.6% year-over-year. Both comparisons continue to be impacted by the strategic decision to reduce advertising spend as the company focuses on profitability. Due to our reduced advertising spend, total orders were down 5.9% quarter-over-quarter and 26.2% year-over-year to $0.9 million, and active customers were down 10.1% quarter-over-quarter and 30.2% year-over-year to $1 million on a trailing 12-month basis. DTC net revenue per order was up 0.7% quarter-over-quarter and 7.6% year-over-year to $65.2, a new record high level surpassing our previous record of $64.8 from last quarter. The year-over-year improvement continues to be benefited by our net revenue management initiatives, including a shift in mix towards existing customer orders, which have a higher DTC net revenue per order as well as introduction of strategic price increases on growth brands and third-party products taken in Q4 2022 and Q1 2023. Gross margin was up 190 basis points quarter-over-quarter and 470 basis points year-over-year to 53.8%, another record high for the company. The year-over-year improvement is due to reductions in inventory reserves from the sell-through of inventory and price increases taken on growth brands and third-party products in Q4 2022 and Q1 2023. Similarly, the quarter-over-quarter improvement was mainly due to a reduction in the inventory reserves. Gross products as a percentage of net revenue was down 20 basis points quarter-over-quarter and 210 basis points year-over-year to 44.8%. The year-over-year decline is due to a decrease in growth brand products…

Thank you, Sergio I'm truly proud of our accomplishments in our first year as a public company, including the incredible milestone of positive adjusted EBITDA for the first time and continued progress on our mission. Our team deserves credit for the difficult decisions that have been made to get us to this point, but we must continue transforming ourselves, pushing ourselves to be more profitable while better serving our customers. We have fantastic order economics, more than 1 million active customers, a trusted brand that delivers trustworthy products and a mission that unites us. And moving forward, we will continue to be ruthlessly focused on our customer, improve the core shopping experience, expand selection and deliver new innovation. With our incredibly strong foundation and renewed focus on the core of our business, I am confident about our future and excited about what's in store for growth -- thank you all for listening to our prepared remarks. We are now happy to answer any questions you have. Operator, please open the line for questions.

[Operator Instructions] We'll move first to Dana Telsey with Telsey Advisory Group.

Welcome, Jeff, and nice to see the progress on the adjusted EBITDA. As you think about the balancing act, investing and the path to profitability, how are you planning going forward? What do you think of how you're planning marketing spend going forward, what you're looking at? And when you think about new customers and existing customers, given the pull down in the active customers, what are you looking for to show continued growth, awareness and market share gains? And lastly, as you think about the balancing act with adjusted EBITDA, should this be a -- as you think about qualitatively for next year, is it breakeven adjusted EBITDA more for the back half of the year? Or is it more in 2025?

I appreciate the question. I'm going to break this up into a few kind of parts. First, yes, we are prioritizing profitability, but we are still investing in marketing and new customers. I think compared to our previous levels that which were unsustainable, we have pulled back. And for those that study cohort curves and are deep into cohort modeling, you realize that the subsequent quarters right after that type of pullback in advertising are the hardest comps and the greatest challenge is to Grove. So we see those kind of curves bottoming out in the back half of next year. And so when we think about where Grove will come from, there will be just a natural benefit of our cohort curves. But also, we see a real path of drop of driving innovation and an initiative that both improve profitability while still improving revenue. So first thing that jumped out is we're really going to obsess over this customer experience that I believe will do great things from a retention perspective. The second thing we're going to do that we referenced was increasing assortment to grow lifetime value of customers. The third thing that you referenced in your question was this trade-off between new customers and some of these existing customers. What I love about this business is the 5 million customers who try Grove And when you go speak to those that are "inactive", there's still a lot of. And so we see a big opportunity as we improve that core customer experience for us to go back, reintroduce ourselves to those customers and to continue to drive [growth] there. I think from a profitability perspective, as you go down the P&L, I see opportunities at the gross margin level, we mentioned efficiencies across our fulfillment ecosystem. I still think in terms of advertising, we can keep getting more and more efficient. And those are some of the big areas where we see both this balance of dry focusing on profitability first, but still with high confidence of being able to deliver growth -- sequential growth and ultimately, year-over-year growth towards the end of the year. And the last question I think you had is specific to profitability. Some of these changes that we're talking about where we see opportunities will take some time to flow through the P&L, but we are expecting to be EBITDA positive for the full year 2024 period.

[Operator Instructions] We'll move next to Susan Anderson with Canaccord Genuity. Your line is open.

Nice to see the profitability and welcome, Jeff on board. I guess just looking at fourth quarter, I'm curious that you talked about it moving kind of back to the nonprofitable range. I guess, is that because marketing spend will be higher in fourth quarter than what it had been in the third quarter. We're just curious the different levers there that you're going to have for fourth quarter versus what we saw in third quarter?

Great question. Yes, primarily marketing spend, you will see continued investment marketing as a percentage of revenue. We will stay there. And then I think what we see is we just see new paths to find leverage in the P&L that may take more than the next 90 days for us to unlock. And that's why we're much more confident about 2024. And then there's also just a seasonal arc to our business when you think about the quarter that will have a little pressure on profitability in Q4.

Great. And then just I'm curious the performance that you saw in the quarter between your wholesale business, which I think is still pretty small in DTC. And then how you're thinking about those 2 as we look out over the next 3 to 5 years?

All right, I appreciate it. So look, I see us as both a platform and an omnichannel player. I think when you work backwards from our mission, we want to relentlessly create carry high performance, Planet First products. But like we also aspire to transform the industry. And what that means is you have to meet customers where they are. And so what I'm proud of on the retail side on this omnichannel side, we are making progress. It's been a big learning experience, but we are gaining distribution, as we mentioned on the call, with KeHE and Wegmans. Outside of that, I've personally looked at our product lineup for 2024. And like Target, I think -- I am personally excited about what we'll be showing up on the shelves in 2024. So we've seen retail still -- like that retail channel as a clear growth arm. But I still see opportunity in DTC. There is just such a large TAM and we are the leading sustainable products player. We have 5 million customers, which is this tremendous asset. Yes, some of them are inactive, but just give us a chance to get back in front of them, tell our story and as we keep innovating on the core customer experience, I just see big opportunity on DTC. So as we look forward, yes, we see growth in the retail channel on an ongoing basis going forward, but I see DTC as also a [bit limitless].

Great. And then if I could just ask one more question. I'm curious just how you're seeing the consumer handle the macro environment, if you've seen any pullback, I guess, in purchases? Or if you think there's any trade down going on right now that's impacting growth?

Well, I think consumers still feel pressure, but I actually believe our tailwinds are greater than any headwinds. I mean we are really well positioned as this DTC companies has made the hard decision to yes, comping some of that advertising spend and pull back. But I think unlike some of these other companies that have kind of had a similar experience, they haven't made the hard decisions on the cost structure that we have. So in terms of the macro environment, we're just not seeing that many headwinds compared to what our cohort curves would suggest. This is really a story around where we're positioned today and in terms of the next 12 months, how we can really drive improvement in the core customer experience while still winning with sustainability and doing that all in a profitable manner.

Great. That sounds good. And good luck for the rest of the year.

Of course. Thank you. Appreciate it.

And it does appear that there are no further questions at this time. I will now turn it back to the speakers for any closing remarks.

Thank you very much for joining us today, and we look forward to future results going forward. Thank you so much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.