Good afternoon and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc.'s Second 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 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. 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 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. 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. 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. 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. 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. I will now turn the call over to Jeff Yurcisin to begin.

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. 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 in sustainability, which is why customers shop with us. 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. Let's dive into the updates on our four priority pillars. First, profitability. We have delivered positive adjusted EBITDA in four consecutive quarters, positive operating cash flow in three of the last five quarters, 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 rent increase in our current facility. We also officially ceased operations in our St. Peters, Missouri, fulfillment center, savings for which will be reflected in our P&L in the coming quarters. Two, 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. This reduces our interest expense and is a first step towards reducing our overall debt burden. Three, revenue growth. Revenue growth is the…

Thank you, Jeff. Given our two 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 effectiveness of the steps we have taken to position ourselves for long-term sustainable and profitable growth. 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. We are starting to see revenue from repeat customers stabilize, 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 it is a significant factor in our confidence that we will be able to drive sequential growth in the fourth quarter. Total orders were down 5.4%, quarter-over-quarter, and 24.9% year-over-year to $0.7 million, and active customers were down 7.8%, quarter-over-quarter, and 34.3% year-over-year to $0.7 million. Both total orders and active customers continue to be impacted by lower advertising spend in 2023 and year-to-date 2024. DTC net revenue per order was up 2.2% quarter-over-quarter and 4.5% year-over-year to $67.73. The sequential and year-over-year improvements are due to an increase in units per order and sales of higher-priced products, including vitamins, minerals, and supplements, as we expand our product offering beyond home and personal care. Gross margin was down 170 basis points quarter-over-quarter, but up 200 basis points year-over-year to 53.9%. The sequential decline was mostly due to a decrease in recognized third-party vendor allowances, from an accounting true-up in the first quarter of 2024, the discontinuation of certain customer fees, and an increase in discounts. Of note, absent accounting adjustment, third-party…

Thank you, Sergio. For the past four quarters, we've reported to our shareholder community that we are pursuing a bold transformation for Grove. 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. 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 and a platform for those conscientious customers. 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 anticipate that consistent, sequential revenue growth is around the corner. I want to reiterate Sergio's comments that we expect to be growing revenue 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 in future calls. With that, we're happy to answer any questions you have. Operator, please open the line for questions.

Thank you, sir. Ladies and gentlemen, at this time, we will be conducting the question-and-answer session. [Operator Instructions]. The first question that we have comes from Susan Anderson.

Hi, Jeff and Sergio. It's Alec on for Susan today. I was wondering how to think about the top line relative into the second half. I know you said fourth quarter would step up sequentially, but I guess how should we think about third quarter versus second quarter? Thank you.

Thank you for the question. In short, we believe we're nearing the bottom of the unusual comps that we had when we spent heavily on marketing back in 2022. 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're down 10.5%, and then from Q1 to Q2, we're only down 2.7%. So if you were modeling this out, you will see the flattening of those cohort curves. And we plan on growing sequentially in Q4. I also 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 the last four months. And then in terms of marketing spend and the efficiency, I think we've probably earned investors' trust that we will not spend inefficiently. And what we are seeing is week over week improvement since we launched our new customer experience on February 29th. So with that, by Q4, we really are planning for sequential revenue growth.

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 drop higher basket sizes and order sizes?

Yeah. I think 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 SKUs to our customers faster than we are in our own brand. We're 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, we see it in beauty, but what we are finding is our customers trust us. We remain excited that 9 out of 10 of our customers trust us more than other retailers on selling the wellness product, and that type of trust extends to other categories. 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 in the plan.

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 promo dollars and some support from third-party companies. I guess, how much of that was a contribution to the year-over-year gross margin leverage or any way to conceptualize that? Thank you.

I appreciate that, too. Alec Legg, 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 we let customers subscribe and build boxes. They could build the most planet-friendly, wallet-friendly box out there. So in terms of the third-party products, we continue to see improvement in the number of unique SKUs sold on our site week over week. We are launching new brands like Nellie's, and Freestyle World, and Fresh Wave, and Caboo. And then from a contra COGS 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 competitively as possible.

Ladies and gentlemen, just a final reminder. [Operator Instructions]. There are no further questions. I will now hand the call back to Jeff Yurcisin. Please go ahead, sir.

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

Thank you. Ladies and gentlemen, that does conclude today's call. Thank you for joining us. You may now disconnect your lines.