Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s First Quarter 2024 Earnings Conference Call. At this time, all lines have been placed on mute 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. As a reminder, this conference call is being recorded. 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 statement 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 including statements relating to our intention to increase marketing spend, the addition of products to our subscribe and save program, future improvement in first order conversion rates and payback period, our net revenue and adjusted EBITDA margin guidance, sequential revenue growth in the second half of the year and adjusted EBITDA profitability for 2024. Such statements are based on current expectations and beliefs in our 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 statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. 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.com. 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 the earnings release, which is also available on their 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'm going to share our financial performance for the first quarter of 2024 as well as certain operational updates. This is my third earnings announcement with Grove as CEO, and I remain deeply confident in our incredible team's ability to, first, deliver incremental ongoing results against our strategy. Our focus on our core pillars of customer, sustainability and profitability guides our decision-making activities and progress. Second, evolve our brand into the destination for conscientious consumers. We've expanded our own brand and third-party product assortment significantly in recent years to meet our customers' needs. We will continue to be a trusted destination for conscientious consumers who want the best for their family and in. Third, transform growth collaborative. The early results of our strategy represent the beginning of a multiyear transformation of the company, building a new foundation for our company and our brand to expand into a household name for sustainable products. We know that a significant percentage of shoppers in the United States prioritize sustainability in their purchases, especially as the plastic and climate crisis and our society expand rapidly. The opportunity for Grove to fill a void in the consumer products and retail industries is remarkable. And for us to meet that opportunity, we must remain focused on operating a sustainable business to ensure we can continue pursuit of our sustainable mission. This pursuit continues to be guided by our three pillars, customer, sustainability and profitability. First, I'll begin with our customer pillar where we made significant changes to our customer experience and expanded our product offerings in an effort to make Grove more meaningful in the daily lives of our customers. Last quarter, we shared that we launched an updated experience for new customers.…

Thank you, Jeff. Similar to previous calls, we will provide quarter-over-quarter comparisons in addition to the year-over-year changes as we continue to believe that sequential comparisons reflect trends in the business and provide a measure of effectiveness of the steps we have taken to position ourselves for long-term sustainable and profitable growth. Starting with the top line. Net revenue in the first quarter was $53.5 million, down 10.5% from the fourth quarter of 2023 and 25.2% year-over-year. The ongoing impact of lower advertising continues to impact revenue. As we navigate the transformation of the first quarter experience and prioritize market efficiency, advertising as a percentage of revenue was a record low during the quarter. We expect to scale our advertising spend in coming quarters to support revenue growth as we continue to improve our first quarter conversion rate and payback period. Total orders were down 10.5% quarter-over-quarter and 29.5% year-over-year to $0.8 million and active customers were down 12.3% quarter-over-quarter and 35% year-over-year to $0.8 million. Both total orders and active customers continue to be impacted by lower advertising spend. DTC net revenue per order was down 0.8% quarter-over-quarter, but up 7.5% year-over-year to $66.27. The year-over-year improvement was driven by a mix shift to existing customer orders as well as an increase in the number of units for existing customer orders, particularly within health and wellness as we continue to expand our product offering in category, as well as paper goods. Gross margin was up 110 basis points quarter-over-quarter and 350 basis points year-over-year to 55.5%. The sequential improvement was mostly due to an increase in the estimated trend of funding allowance to better reflect the sell-through of third-party inventory. The year-over-year improvement was further benefited by reductions to our inventory reserve charges and a decrease in the number…

Thank you, Sergio. These results are just the beginning as we pursue a multiyear transformation for growth. You've heard me speak about how our sustainable mission is needed now more than ever before. Just look at the headlines about our environment and climate as this is our differentiation. We are committed to building a sustainable business to pursue that mission. Our efforts are focused on building a business that drives shareholder value creation through the generation of cash. Our first step is sequential revenue growth by the end of the year, while being profitable on an adjusted EBITDA basis for the full year. We're laser focused on our strategy and are excited to keep implementing our plan to drive results for our shareholders. With that, we're happy to answer any questions you have. Operator, please open the line for questions.

[Operator Instructions] And the first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.

Hi, good evening. Thanks for taking my question. Yeah. So I was wondering just on kind of how we should think about the cadence of sales as we go throughout the year. I guess, should we think about it just sequentially improving, I guess, quarter-to-quarter in terms of the decline? And then also maybe if you could talk about what the driver of the sales improvement will be as we go throughout the year. Thanks.

Appreciate it, Susan. Thank you. First, I would say we're only guiding towards sequential growth this year. But we believe that we are near a bottoming out of those unusual comps that occurred when we spent so heavily on marketing back in 2022. What we're doing is just being focused on initiatives around the customer experience. This opening up the shopping experience to more new customers, following our existing customers into wellness where we're seeing great success and improving the overall experience while browsing and shopping on growth. That's where we're putting our energy. And so when you start looking at what the revenue impacts are that we are forecasting, we see this sequential growth this year -- and more importantly, this will be sustainable growth going forward as we go into 2025.

Great. And then I was wondering if you had any initial reads on the new products that you rolled out in terms of the ones with new packaging at retail. And also if you're seeing them at all bring any new customers into the brand? Thanks.

I appreciate it. It is very early on some of these new products, but we are quite energized. We're excited about the launch of the Grove Co. rebrand, the new products, the summer limited edition collection. We didn't mention this in our release, but we were awarded an award by the Guideline Awards. It's almost like the Oscars of the design world around packaging within the category of home shopping. And so what we're seeing right now is anecdotally, we've heard that we've sold out of some targets already in the first week. We're really quite energized about the from the packaging to the positioning for me, I'm as excited about the underlying product, the efficacy of it and the price. No new guidance that we're giving right now, just really excited about what we're doing and just recognizing it's very early.

Great. That sounds exciting. And then I was wondering if you could maybe talk about gross margin for the remainder of the year. And should we think about it for the next few quarters as being consistent to first quarter in terms of the gross margin percent, the drivers or impacts we should think about or seasonality there? Thanks.

I appreciate it. So, Sergio, do you want to take that?

Yes, I can. Thank you, Jeff. So thank you for the question, Susan. In terms of gross margin, bear in mind that Q1 has a couple of, say, one-off that you shouldn't be thinking of continuing during the following quarters. So apart from that, I will just simply say that we obviously do not guide on gross margins going forward. But the way to think about it is -- we continue, as we have done over the past 24 months, we continue to put all the efforts and priorities in terms of becoming profitable and gross margin continues to be one of those milestones. So the way to think about it is we continue to put emphasis on gross margin, and we will put all the efforts behind increasing it in upcoming quarters.

Okay. Great. And then last one for me, maybe if you could just talk about advertising. I think you had talked about before maybe picking up that advertising in the back half of the year. I guess, is that still the plan for this year? And should we -- I guess, is there any thoughts around the level of advertising and where it should be going forward?

I appreciate that, Susan. I would say right now we’re operating with really strict discipline, expecting and demanding strong paybacks from our advertising spend. And so what's happening is as we've transformed this customer experience, as we have opened up the shopping experience, we are unlocking new channels, and we're testing and learning. And what we're seeing is week-over-week improvement since that launch on February 29. And so as those efficiencies continue to improve, we see a world where we can invest with very high confidence on paybacks and that will lead to a higher advertising percent of revenue spend. Right now, I'm not guiding to a specific number there. I will say that what is most important is we think about this on an incremental level and we will only invest where it makes rational sense. So when we do see that marketing spend increase as a percentage of revenue, I think investors can have confidence that we are treating their cash carefully and we are investing with high expectations of returns.

Okay. Great. Thanks so much. Good luck the rest of the year.

Thanks, Susan. Really appreciate it.

And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.

Hi, good afternoon, everyone. Can you -- Jeff, can you talk a little bit about third-party brands what you're seeing there? How it's performing? Is there differences between brands or what you see in attributes of brands to perform better than others. And on the Grove brand, which I think was 43% of the business this quarter, where does that settle out? And how are you thinking about it?

I appreciate the chance to talk a little bit more about products. So first, as the data suggests, third-party is growing faster. This is primarily driven because we're able to grow more SKUs and selection faster in that channel. However, I've mentioned this before. We really are not working backwards from an ideal percentage mix. What we are doing is working backwards from customer needs. So the percent owned brand versus third party is truly going to be more of an output metric than an input metric. If investors are worried, I think you could point towards our gross margin continues to improve quarter-over-quarter even as third party has taken more share. Our focus is presenting the highest performing planet first products that are wallet friendly, and we'll keep putting them in front of our customers. If I can put an exclamation mark on one set of products and categories, it would be around wellness. So there was a survey that we did among our customers and nine out of 10 of our customers trust us more than other retailers on selling them wellness items. We've earned that trust by the high standards that we have from an environmental perspective, but also from an ingredient perspective. And so what we've seen this past quarter, orders with a VMS item increased from 8% last year to 13.8% this year. This is also an increase of 290 basis points quarter-over-quarter as we continue to add more relevant selection, introduce our customers to great brands and products that are really meeting their needs. And so it is a category that we're energized by and one that we're seeing some strong success and we're just following our customers there.

Got it. And then following up on a numbers question on metrics, orders active customers, AOV how are you thinking of those progressing as we move through the year? When -- how do you think about stabilization increases? How should those metrics evolve in terms of cadence?

Yeah. Good question. So I mentioned earlier in the first Q&A with Susan that we see some of the natural cohort curves bottoming out in the back half of the year, and we can see a world towards sequential growth, and we -- that's where we are marching towards. When you look at some of the math, revenue per order this quarter was at $66.27 I believe, and it was up 7.5% year-over-year. Those type of expectations on revenue per order are reasonable to continue to maintain, that's what enables the wallet economics to work, so that customers are getting a great deal and we're able to pay our bills and deliver the right type of gross margin. So I think what you'll see is more of a stabilization of orders as we get to the back half of the year and a continued year-over-year improvement in revenue per order.

Thank you.

Thank you, Dana.

And there are no further questions at this time. I would like to turn the floor back over to Jeff Yurcisin for any closing comments.

Thank you very much. I appreciate your time. I want to thank everyone for joining the call, and I hope you have a great night. Thank you.

And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.