Good afternoon, and thank you for standing by. Welcome to Grove Collaborative Holdings, Inc. Third 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 is being recorded. Hosting today's call are Grove's CEO, Jeff Yurcisin; and CFO, Sergio Cervantes. Before they begin their prepared remarks, I'll 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, including statements relating to plans to exit the retail channel. Delivering higher returns by focusing its investments in DTC, sequential revenue growth in the fourth quarter, repayment of remaining amounts outstanding under their term debt facility 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 the 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.co. During today's call, Grove will discuss certain non-GAAP financial measures. Reconciliation 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 would now like to turn the call over to Jeff Yurcisin to begin.

Thank you, operator. I'm excited to share progress and updates with you all today on the turnaround underway at Grove. I've now had the privilege of leading this remarkable team for over a full calendar year and continue to be proud of the work we're doing to not only build the destination for our conscientious customers, but to also serve as the trusted brand that prioritizes both environmental and human health. We are still laser-focused on operating a sustainable business in pursuit of our sustainable mission. And we're making essential progress on our priorities of fostering revenue growth, driving profitability, strengthening our balance sheet and highlighting our differentiation as the retailer that creates and curates products that are good for you and good for the planet. Let's dive into updates on our four priority pillars. Starting with pillar number one, profitability. This quarter saw us breakeven on adjusted EBITDA with four previous consecutive quarters of positive adjusted EBITDA, demonstrating our commitment to profitability in spite of a revenue decline. We also achieved positive operating cash flow again this quarter, marking the fourth quarter we have done so out of the last six. Contributing to the positive operating cash flow, we reduced our inventory position from $27.8 million at the end of Q2 2024 to $24.5 million at the end of Q3 2024, further rightsizing our ownership for the current scale of our business. And lastly, we continue to optimize operating expenses by maintaining strict expense discipline, including relocating our fulfillment center operations in Reno, Nevada, which is now fully up and running and helped us to avoid a significant rent increase in our previous facility. We're continuing to identify other areas to increase operating leverage in our ongoing transformation. Our second pillar is balance sheet strength. This quarter, we announced…

Thank you, Jeff. I'm also happy to see the progress we have achieved in the transformation of growth so far. Similar to previous calls, I will provide quarter-over-quarter comparisons in addition to the year-over-year changes as we continue to believe the sequential comparisons reflect the trends in the business and provide a measure of effectiveness of the steps we have taken to help position ourselves for long-term sustainable and profitable revenue growth. Starting with the top line, net revenue was $48.3 million in the third quarter, down 7.3% from the second quarter of 2024 and down 21.8% year-over-year, mainly due to fewer repeat orders and lower advertising spend throughout 2024 compared to prior years. This decline was also impacted by a $0.8 million markdown to brick-and-mortar retail revenue. However, as we look toward the fourth quarter, we are encouraged by the gradual stabilization of revenue from repeat customers, which is a significant factor in our continued confidence that we will see sequential revenue growth. Total orders were $0.7 million in Q3, down 3.3% quarter-over-quarter and 22.8% year-over-year, while active customers were also 0.7 million, down 4.8% quarter-over-quarter and 30.4% year-over-year, both of which were influenced by reduced advertising spend relative to prior periods. However, the sequential decline has slowed as our customer base stabilizes in the aggregate and advertising spend has increased to support our initiatives. As a reminder, we define active customers as those customers who have placed an order in the last 12 months. DTC net revenue per order was $67.02 in Q3, down 1% from Q2, but up 2.7% year-over-year. This sequential decline was driven by a higher percentage of first orders, which have lower average net revenue per order. The year-over-year improvements reflect an increase in the average number of units per order, particularly of third-party…

Thank you, Sergio. I've worked in e-commerce for over two decades, and it excites me to know that Grove is getting back to the fundamentals of direct-to-consumer, centering our customer in everything we do, building a brand that is meaningful in their everyday life and reaching them through channels that are strategic and efficient. We want to create that emotional connection and loyalty so that we truly matter in their life, which comes from understanding their needs and meeting those needs, not from being an omnichannel company. We've made fantastic progress going back to basics on our business fundamentals, brand building, e-commerce experience and curated selection. We have plenty more to do, but these turnaround efforts are essential for building the foundation for our new company and setting ourselves up for sustainable, profitable growth. With that, we're happy to answer any questions you have. Operator, please open the line for questions.

Our first question comes from the line of Susan Anderson with Canaccord Genuity.

Alec on for Susan. Just a question on the digital transformations announced last quarter. I guess any update there? Is it still on track? And then with the transition over to Shopify, have you seen any uplift with the digital tools that they offer?

We are still guiding towards sequential growth. And sequential growth for us is really significant. it implies that profitable and year-over-year growth is around the corner. That is clearly our ultimate goal. So what we've seen is with this transformation, our cohorts are stabilizing, and we're starting to get the right type of economics on advertising that you will see us continue to lean into advertising when it makes sense. This could create a fluctuation in quarterly EBITDA going forward. But again, the long-term focus is profitable growth. The second part of your question is Shopify. We announced the Shopify migration, but we don't expect to be fully on the platform until early Q1. We are really excited about what that will enable. But right now, what we're trying to do is to make sure that as we transition to Shopify, we maintain a customer experience that really resonates with the loyal customers who have been visiting Grove and shopping with us over the years.

Got it. And I think you mentioned fourth quarter for sequential growth. And I think the guidance kind of gives some leeway there. I guess what are the puts and takes that need to happen to get that sequential growth in fourth quarter? What needs to work and what could be some potential headwinds?

Yes. Mike, if you were to dig into the numbers, Alex, you'll see that we've just -- the brick-and-mortar has been a real headwind. It was a headwind if you look at our quarter-over-quarter growth even in Q3, where we believe the quarter-over-quarter decline was pushed by about 300 to 330 basis points of pressure from the brick-and-mortar channel. The same type of pressure could exist in Q4 in terms of brick-and-mortar not fully hitting the expectations that we had when we set this out. But they're going to be offset by a D2C business that is that we believe in that is working. We transformed this business, obviously, a little over six months ago. We now have a new acquisition model, a new offering to our customers. As one of our Board members describes it, we have a new scene where we can have a specific offering serving our customer segment that is differentiated from everyone else. And what you'll see is when we see that scene working, we will continue to lean into advertising and you'll even see some of that lean in, in the Q3 numbers.

Got it. And then just a follow-up on the exiting of brick-and-mortar. I don't know if you're able to say, but you have a time line, I think you said early 2025 of when you stop selling in. I guess, how to think about how that might impact the overall P&L? I think you said you said 330 bps of gross margin headwinds in the quarter. Is that a good number to kind of base?

Sorry, the 330 bps were more of a quarter-over-quarter year-over-year growth impact, less on the gross margin line. Look, I think the idea that we are struggling on brick-and-mortar shelves and still guiding towards sequential growth is the real signal and the exclamation mark that I would make. When we start talking about 2025, we'll give more clear guidance in our next earnings call. But we really do want to emphasize that profitable growth is our ultimate goal. And so if you were to think about the brick-and-mortar channel, if we really are growing in 2025, then our D2C business has to be strong enough to offset any brick-and-mortar type of losses and/or we may find the right type of acquisition targets. We've talked in the past how M&A could still be a great possibility for us. We believe there is this scene, this 57 million conscientious customers who are looking for planet-first type of products that are natural and environmentally friendly. We think we're differentiated from almost everyone else in the space, and we believe this can serve as a real platform going forward. So there -- we always kind of talk about M&A being on the table. But the key here is in terms of brick-and-mortar, we expect to be able to be growing and profitable and is the ultimate goal. And to do that, we would have to offset the brick-and-mortar with...

That's really helpful. And then one quick one and then one kind of question heading into the holiday about the health of the consumer. But the quick hit just silly when will you still be selling on Amazon? And then the follow-up is, I guess, the health of the consumer heading into the holiday. Your DTC platform is pretty interesting in that you get a lot of first-party data, so you can see if consumers are trading up, trading down, what their habits are. Have you seen any consumers trading down to lower cost items?

Great question. On Amazon, we don't see the brick-and-mortar strategy impacting our Amazon strategy going forward. So we intend to be on Amazon. In terms of overall macro trends with consumers, if you look at our AOV, average order value, you will see that we have been able year-over-year to offset changes offset the supply chain fee that we removed from every order with an increase in AOV. What that signals is that our customers are actually moving up. And I think the other big emphasis that I would highlight would be when you look at our D2C customer, it is a woman who has a household income of $100, $150,000 plus. And so that customer is different a bit than the customer on that's shopping brick-and-mortar shelves. And so we just are quite confident that we can meet that customer that she has the disposable income, that she cares about product that is good for her family and for the planet. And we think we're going to be the right ones to serve her and enable that.

There are no further questions at this time. I'd like to pass the call back over to Jeff for any closing remarks.

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

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