Grove Collaborative Holdings, Inc. Q3 FY2024 earnings call

• Profitability: Breakeven adjusted EBITDA, positive operating cash flow for fourth time in six quarters, inventory reduced from $27.8M to $24.5M, optimized operating expenses including relocating fulfillment center.
• Balance sheet strength: Received $15M investment from Volition Capital, plan to pay off remaining term debt, leaving $7.5M in asset-based loan.
• Revenue growth: Third-party brands sold on e-commerce up 18.3% y-o-y, Subscribe & Save program expanded with 67% of products opted in, expect sequential revenue growth in Q4 2024.
• Sustainability: Expanded definition of sustainability, launched Beyond Plastic Impact Tracker, disclosed plastic intensity metrics.
• Exiting brick-and-mortar: Beginning to exit Grove Co-branded products from brick-and-mortar by early 2025, as it constitutes <4% of business and is unprofitable.
• Revenue guidance: Reduced revenue guidance for 2024 due to e-commerce experience changes and brick-and-mortar underperformance, still expect Q4 sequential growth but at lower baseline.

Net revenue for the third quarter was $48.3 million, down 7.3% from the second quarter of 2024 and 21.8% year-over-year. Gross margin was 53%, down 80 basis points from the second quarter and 80 basis points year-over-year due to retail markdowns and changes in product mix. Growth brand products as a percentage of net revenue decreased to 38.5%, down from prior quarters. Advertising expenses increased 15.6% q-o-q but decreased 30.6% y-o-y to $2.8 million. Product development expense decreased 11.7% q-o-q but increased 34.2% y-o-y to $4.8 million. SG&A expense decreased 8.8% q-o-q and 16.7% y-o-y to $24.7 million. Adjusted EBITDA was breakeven this quarter compared to prior periods.

• Revised 2024 net revenue guidance to $200M-$205M from previous range.
• Expect sequential revenue growth in the fourth quarter of 2024, but at a lower baseline than originally anticipated.

Q: Any update on digital transformations announced last quarter? Is transition to Shopify on track and any uplift from Shopify tools?

A: Still guiding towards sequential growth, cohorts stabilizing, starting to get right economics on advertising. Transition to Shopify still on track, expect to be fully on platform early Q1 2025.

Q: What are the puts and takes for sequential growth in Q4? Potential headwinds?

A: Brick-and-mortar has been a headwind, could impact Q4, but D2C business is working, transformed business with new acquisition model and offering.

Q: When will you still be selling on Amazon? Thoughts on consumer health heading into holiday?

A: Intend to remain on Amazon. AOV has been increasing year-over-year, D2C customer is woman with household income >$100k, confident in serving her with disposable income and interest in planet-first products.