Grove Collaborative Holdings Inc (GROV) 2024 Q2 法說會逐字稿

Good afternoon, and thank you for standing by. Welcome to Growth Collaborative Holding Inc's second-quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

Hosting today's call are Growth'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 strategy, industry trends and growth ability to successfully respond to business risks may be considered forward-looking, including statements relating to the impacts of their replat forming 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 Securities and Exchange Commission.

All of these statements are based on Group's view today and Group 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 Group's most recent filings with the SEC, which are available on Group's Investor Relations website at investors.growth.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 the earnings release, which is also available on their Investor Relations website.

I will now turn the call over to Jeff, your casino to begin.

Thank you, operator. Today marks my fourth earnings announcements 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 plan. 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 with 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 and 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 levels. 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 quarter. 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 a natural output of delivering a great experience that encourages customers to regularly visit browse and shop, coupled with identifying efficient advertising channels to consistently engage with and meet them on their shopping journey.

Our customers shop with us because they trust us to curate high-performing Planet first products, we continued to expand our product selection during the second quarter, increasing the number of third party brands sold on growth co by 12% compared to the second quarter of 2023. We also continue to expand our subscribers a program with 63% of all products now available for customers to subscribe to at a discounted rate providing customers an incentive to build larger planet and wallet friendly boxes.

We have earned trust, not just in Home Essentials, but in personal care, health and wellness and beauty, we see strong internal data, linking selection expansion with higher net revenue per order and ultimately overall revenue growth as we become customers' trusted partner to help them on their sustainability journeys, we are giving them even more reasons to shop at growth.

Today, we also announced a major transition for our direct to consumer business as we revitalize our technology infrastructure by migrating to Shopify's platform this re-platforming will free up resources and enable growth to leverage the most scalable, innovative platform in e-commerce and further optimize our customer experience to fuel our future growth. This transition began in July of 2024 and is expected to be completed in the first quarter of 2025.

And now I will turn to our fourth and final pillar. Sustainability which continues to serve as our foundation mission and points of differentiation.

In May, we published our Fifth Annual Sustainability Report, providing comprehensive reporting on our key company commitments, progress and partnerships while simultaneously announcing our B Corp recertification, where we saw our overall score improved from 80.3 to 100.9. We've been a big Corp since June of 2014, a significant milestone that marks growth joining the 5% of companies that have maintained B Corp certification for more than 10 years.

We also disclosed our latest plastic intensity metrics in our earnings release this afternoon to continue providing accountability for the pace at which we decouple our revenue from the use of Flex. These are just a handful of the changes we have made so far, there is more change coming and the work is far from done. I remain confident in our ability to deliver incremental ongoing results towards long-term, sustainable and profitable growth and evolve our brand to meet the needs of and support our current and future customers.

I will now turn the call over to Sergio Cervantes to review our financial results in more detail. Sir, here, please go ahead.

Thank you, Jeff. And similar to 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 the 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's 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 [$27 million], and that's the customers were down 7.8% quarter over quarter and 34.3% year over year to [$0.7 million]. Both total orders domestic customers continued to be impacted by lower advertising spend in 2023 and year to date 2024, BTC 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 by due to an increase in units per order and sales of higher priced products in building 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%.

Sequential decline was mostly due to a decrease in recognized third party vendor allowances from an accounting true-up in the first quarter of 2020 for the discontinuation of certain customer fees and an increase in discounts of note, absent accounting adjustment, third party vendor allowances increase in the second quarter as a company on boards, more vendors to the Subscribe & Save program.

The year-over-year improvement is mostly due to the sales through of previously reserved for inventory and an increase in vendor allowances, offset by a decrease in gross rent. Percentage of net revenue. Growth from products as a percentage of net revenue was down 190 basis points quarter over quarter and 390 basis points year over year to 41.1%.

The sequential and year-over-year declines were largely due to tax function of our third party product offering, especially as it relates to the health and wellness category and the recent transformation of a new customer experience, which no longer utilizes recommended baskets in first orders that included a higher percentage of growth brands, correct.

Other expense increased 18.8% in the second quarter compared to the first quarter but decreased 47.6% compared to the second quarter of 2023 to $2.4 million. The sequential increase is primarily due to an increase in retailer specific advertising to support the launch of our new and rebranded growth co products.

The year-over-year decline continues to reflect our pullback in advertising spend and focus on efficiency as we transformed the first or the customer experience as we transform our customer experience in the first quarter, we have been disciplined in our deployment of advertising dollars, prioritizing efficiency to ensure advertising spend has the right cost of acquisition and payback period.

To the extent we continue to see improvements, we plan to increase DTC advertising spend in the fourth quarter of this year. Product development expense increased 49.9% quarter over quarter and 34.2% year over year to $5.4 million. The sequential and year-over-year increases are mostly due to severance and accelerated depreciation costs as a result of our decision to transition our e-commerce platform to Shopify.

SG&A expense increased 10.3% quarter over quarter, but decreased 22.9% year over year to $27.1 million. A quarter-over-quarter increase is primarily due to the $2.9 million gain on restructuring recorded in the first quarter of 2024 that did not recur offset by lower fulfillment costs from fewer orders and lower professional fees.

The year-over-year decrease is mainly due to the lower fulfillment costs from fewer orders, lower personnel costs due to a decrease in stock-based compensation expense and reductions in headcount, lower professional fees.

Adjusted EBITDA for the second quarter was $1.1 million compared to $1.9 million in the first quarter of 2024 and a $2.6 million loss in the second quarter of 2023. Our adjusted EBITDA margin for the second quarter was positive 2% compared to positive 3.5% in the first quarter of 2024, a negative 3.9% in the second quarter of 2023. As Jeff mentioned, we are proud of having delivered positive adjusted EBITDA in each of the last four quarters, demonstrating our commitment to profitability and ultimately positive cash flow.

Turning now to the balance sheet. We ended the quarter with $82.6 million in cash, cash equivalents and restricted cash, an increase of $1 million from the previous quarter, mainly due to a reduction in working capital, partially offset by net interest expense.

We also ended the quarter with an inventory balance of $27.8 million, down $3.6 million quarter-over-quarter, mainly driven by a reduction in Grove branded inventory as we continue to improve our inventory ownership position.

Lastly, as Jeff also mentioned, subsequent to the end of the quarter, we made a voluntary repayment of $42 million of term debt and delayed the term debt principal payments until January 2023. This paydown will save us at least $6.3 million in interest expense over the next 12 months, reducing our cash burn. More specific details can be found in our Form 8-K filed with the SEC on July 19th, 2024.

For Now turning to our outlook for the 12-month period ending December 31, 2024, we have revised our guidance to be net revenue of $205 million to $215 million. It decreased from $215 million to $225 million, adjusted EBITDA margin of 0.5% to 1.5%, an increase from 0% to 1%. Our business model transformation has taken longer than anticipated at the beginning of the year, and therefore, we have lowered our revenue guidance to reflect that our plan had was increase in advertising expense sooner than the fourth quarter.

However, we have decided to maintain spend at current levels, giving us more time to evaluate repeat orders of acquired customers, an important part of our advertising efficiency equation. We are less than two quarters into reshaping our e-commerce experience, and we are carefully evaluating these trends to ensure we are delivering the right payback periods.

We only plan to increase spend when we have confidence in these metrics to ensure we are growing with a sustainable business model. Despite the lower revenue guidance, we have increased our adjusted EBITDA margin guidance.

We continued to maintain a strict margin and expense discipline throughout the business and delivered positive cash flow in the second quarter as well as our fourth consecutive quarter of positive adjusted. We believe that reversing the declining revenue trend is of paramount importance, but we are proud of and energized by our consistent bottom line performance.

I would now like to turn the call back over to Jeff for some closing remarks.

Thank you, Sergio. For the past four quarters, we've reported to our shareholder community that we are pursuing a bold transformation for growth. 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's 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 revenues sequentially in Q4, which is the next step in our multiyear 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. So ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions)

Susan Anderson, Cannacord Genuity.

Hi, Jeff and Sergio. Alec on for Susan today. I am just wondering how to think about the top line cadence into 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 are down 10.5%. And then from Q1 to Q2, we were only down 2.7%. So if you were modeling this out, you'll see the flattening of those cohort curves and we content we plan on growing sequentially in Q4.

I also would just want to say that. And 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 in the last four months. And then in terms of marketing spend and the efficiency, I think we probably earned investors trust that we will not spend inefficiently and what we are seeing is week-over-week improvements 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 for preorder reaching record right now. So just a quick follow-up on that. I guess, is there any whitespace that you see in addition to wellness that you could continue to add just to help drive higher basket sizes and order sizes?

Yeah I think what you'll see when you look at our revenue mix is that 3P remain continues to grow faster than it grows faster because we're able to launch more relevant SKUs to our customers faster than we are in owned brands 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 none of our customers trust us more than other retailers are selling the wellness products and that type of trust extend to other categories.

And so what you will see is we'll keep testing and learning, but we will follow the customer followed by 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 and trusted brands for conscientious customers who are trying to make the right decision for their family.

And that. Thanks. And then just the last follow up kind of around that third party vendors. So last quarter, you talked about a big initiative and getting some of that promo dollars and some support from third party companies. And I guess how much of that was a contribution to the year-over-year gross margin leverage or any way to conceptualize that thing.

And I appreciate that, too. Like look, 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 brand, but we are partnering with existing brands to offer a better customer.

So as of now, 63% of revenue offered on growth is eligible for Subscribe & Save in the customer experience was exceptional. We already have competitive fair prices and all of a sudden when customers subscribe and build boxes, they can build the most Planet from the 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 Neles and FreeStyle world and fresh wave and Kaboom. And then from a contra COGS perspective and a gross margin perspective, we see great partnership and continued to make headwind as we partner with these brands to make sure that we are serving these conscientious customers safely and competitively as possible.

Got it. Thank you. I'll turn it back.

Thank you. (Operator Instructions) At this stage, 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 and hope you all have a great day. Thank you.

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