Grove Collaborative Holdings, Inc. Price & Performance (GROV)

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 risks relating to potential disruptions relating to the implementation Shopify changes in business, market, financial political and legal conditions, legal and regulatory matters and developments, competition, effectiveness of the company's e commerce platform and and selling and marketing efforts and those factors discussed in their filings with the Securities and Exchange Commission. All of these statements are based on Grove' 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 securities laws. More information, please refer to the risk factors discussed in Grove 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. Is also available on their Investor Relations website. [indiscernible] would now like to turn the call over to Jeff Yurchison to begin.

Thank you, operator. 2024 was a transformative year for Grove.

And we entered 2025 with strong momentum. Driven by our focus on profitability, balance sheet strength and revenue growth. For the first time, since early twenty twenty two, we achieved sequential revenue growth, an encouraging milestone in our journey toward long term sustainable growth. Additionally, we maintain positive operating cash flow, reinforcing our commitment to deploying capital efficiently as we grow. Our strategic approach is yielding promising results and we're optimistic about our trajectory as we start the year. With this progress, I wanted to discuss changes to our leadership team.

This past quarter, we announced that our Chief Financial Officer, Serafios Cervantes and Chief Technology Officer and Co Founder, Chris Clark, were moving on from Grove. These leaders helped build this company helped to drive our turnaround and played a key role the progress and success that we report today. We recently appointed Tom Syrogusa, who is our VP of Finance, Interim CFO, while we partner with our Board to identify the right candidate to drive our future growth. With our transition to Shopify, we do not plan to search for a new Chief Technology Officer as the platform provides a robust managed infrastructure that eliminates the need for extensive in house technical oversight in the long term. We are in the middle of the Shopify transition as we speak, And as expected, we are navigating early stage challenges related to platform performance and customer experience, which our teams are actively addressing. Now, let's dive into our four priority pillars for the fourth quarter. We have been undergoing a multi year turnaround effort. And we believe we are now in the late stages of successfully completing that transformation. The financial pillars guiding this turnaround have been balance sheet strength, sustainable profitability and revenue growth.

The fourth pillar, environmental and human health, remains our foundation, mission and key differentiator. [indiscernible] the fourth quarter of twenty twenty four, we achieved our first pillar, balance sheet strength by fully eliminating the 72,000,000 in term debt significantly improving our financial position and reducing future interest expense. Following the $42,000,000 voluntary prepayment in the third quarter, we prepaid the remaining $30,000,000 of our term debt facility using proceeds from the Volition investment and cash on hand. As a result, our only remaining debt is $7,500,000 outstanding under our asset based loan facility. We will continue to strategically manage our liquidity to preserve our strength and balance sheet while positioning the company for long term success. The second pillar, sustainable profitability was also realized in 2024 by delivering full year positive adjusted EBITDA for the first time in the company's history. We expect to build on this momentum in 2025 by delivering a second year of positive adjusted EBITDA. Further reinforcing the financial stability we have worked hard to achieve. Additionally, we generated $300,000 in positive operating cash flow in the fourth quarter, making our third consecutive quarter of positive Our focus on these two pillars first was by design as they represent the critical financial foundation of our business.

With that foundation now firmly in place, we're shifting our primary focus to the third pillar, revenue growth. [indiscernible] During this turnaround process, we experienced 10 consecutive quarters of sequential revenue decline leading to a natural question, when will the decline stop?

As noted already, we're pleased to share that this trend reversed in the fourth quarter of twenty twenty four, marking our first sequential quarterly revenue increase in three years. A significant milestone for our company. While the first quarter of twenty twenty five is expected to be lower than the fourth quarter of twenty twenty four due to seasonality, In addition to navigating the Shopify transition, we expect progression throughout the rest of the year. This will culminate in a return to year over year revenue growth by the fourth quarter of twenty twenty five.

Also supported by the revenue contributions from our recent acquisition of Grab Green and Eight Greens, as well as the continued revenue stabilization of our most tenured and largest I'd like to spend a bit more time diving deeper into our revenue growth strategy. In 2024, we transformed our online experience, shifting from a gated model with default subscriptions to a more flexible incentive driven approach. By introducing options such as subscribe and save, we empowered customers with greater ease and autonomy enhancing exploration and discovery. At the same time, we aggressively expanded our third party category offerings, increasing the number of third party brands sold on our e commerce platform by 30% compared to the fourth quarter of twenty twenty three. This growth reflects our commitment to listening to our customers, curating and vetting products, and expanding our platform's offering. Building on this momentum in 2025, we expect to continue aggressively expanding third party products on our platform and to focus on high potential areas such as clean beauty, personal care, kitchen and pantry, baby and wellness. Simultaneously, we plan to optimize our Grove Co portfolio by accelerating innovation, as an exclusive brand to our platform, ensuring our direct to consumer offerings better align with evolving consumer demands.

Additionally, as we transition to Shopify's e commerce platform, we expect to unlock efficiencies and capabilities that were previously limited by our We also intend to explore additional acquisition opportunities that we expect to be accretive to our financial results similar to those we've recently announced. As highlighted in two separate press releases, in the first quarter of twenty twenty five, we announced two strategic acquisitions. Grove Green, a pioneer in eco friendly high performance cleaning products and Eight Greens, a leading wellness brand known for its nutrient rich Effipheasant tablets, gummies and more. The acquisition of Our while strengthening our leadership in home cleaning. A third party vendor on Grove platform since 2019, Grab Green has consistently ranked as a top performing brand of both sales and market share.

Driven by its beloved laundry and specialty cleaning products that complement Grove existing portfolio of sustainable home essentials. With the purchase of eight greens, Grove expands into the high priority wellness category with a first party offering. This acquisition enhances Grove ability to provide customers with high quality wellness solutions, while aligning with its renewed emphasis on wellness as a category and human health as a strategic focus. Both Grab Green and Eight Greens align with our values and commitment to sustainability innovation and personal health. And we're excited to integrate these brands into the Grove family. We believe acquisitions can enhance our competitive positioning and drive long term value creation for our shareholders. As we continue evaluating potential acquisitions, we will remain disciplined in our approach, seeking brands that align with our values and contribute positively to our financial results. We remain confident in the significant market opportunity ahead. With an estimated 57,000,000 conscientious consumers seeking a trusted resource for their purchasing decisions. By positioning ourselves as a trusted partner in our customers' environmental and human health journeys, we draw a contrast to mass e commerce. And traditional retailers positioning us well to capture and grow within this And lastly, pillar number four, environmental and human health.

We're proud to continue our industry leadership in moving consumer products beyond plastic as we curate a selection that prioritizes environmental health. But as noted last quarter, we are also expanding our focus to human health Through content and guided recommendations, we aim to build on the trust we've established in environmental sustainability by integrating human health education throughout our platform, helping consumers make informed choices that support the health of their families, their homes and our planet. We know that our customer regardless of the category wants the best product which they define as formulas with natural and nontoxic ingredients that are also contained in packaging that has less of an impact on the environment. We're the only retailer that is vetting every brand and product in their assortment against high standards and have a right to win where others do not. Based on our expanded focus, we're updating our tagline from go beyond plastic which has championed our environmental sustainability strategy to your home healthier. We believe this better captures our differentiation and helps define our brand based on what customers are looking for, a healthier home, and planet. By the end of twenty twenty five, we expect to have completed the financial turnaround that we've been working towards for multiple years.

Our balance sheet will remain strong.

We will have demonstrated two consecutive years of full year consistent revenue growth. From this strengthened position, we believe Grove will be poised to create substantial value as we execute on our expanded mission, creating and curating the best products that prioritize both human and environmental health.

Before we review our financial results in more detail, I wanted to spend a bit more time introducing our Interim CFO, Tom Syrogusa. Tom has been part of the Grove team for six years, most recently leading our finance function and helping us chart the course for and navigate the waters related to our turnaround. He has been an incredible partner, an integral driver of our strategy and progress to date. And I'm thrilled to be working more closely with him and I'm confident in his ability to drive growth journey forward. Tom, please go ahead. Thank you, Jeff. I share your enthusiasm for the progress we've made in reshaping growth and I'm eager to continue strengthening its financial foundation. As in previous calls, I will provide those quarter over quarter and year over year comparisons. As we believe sequential comparisons reflect business trends and measure the effectiveness of our strategic initiatives. Starting with the top line, revenue for the fourth quarter 2.5% from the third quarter. But down 17.4% year over year. The sequential increase was driven by higher repeat orders and increased first orders due to incremental advertising spend as we invested in growth. The increase was also due to higher retail revenue, following the estimated brick and mortar markdowns recorded in the third quarter.

While the brick and mortar markdowns contributed to the sequential growth, it's worth highlighting that revenue would have grown in the fourth quarter without it.

Year over year decline reflects fewer repeat orders, which continues to be impacted by lower advertising spend throughout 2024. As Jeff mentioned, this marks our first quarter of sequential revenue growth since 2022, an encouraging sign of stabilization. While we don't expect sequential revenue growth every quarter in 2025, this milestone underscores the progress of our turnaround strategy. Despite active customers declining 3.1% quarter over quarter to 688025.2% year over year. Total orders were 717,000, up 1.3% sequentially. Down 17% year over year.

Similar to revenue, the sequential increase in orders marks the first time since the first quarter of twenty twenty two that total orders increased quarter over quarter. [indiscernible] DTC net revenue per order was $66.94 down 0.1% from the third quarter and flat year over year.

Despite sequential decline was due to increased promotional activity, mostly offset by a higher average number of units per order. Year over year, the metric remains stable as the elimination of certain customer fees was offset by an increase in the average number of units per order. Our gross margin was 52.4% down 60 basis points from the third quarter. Primarily due to increased promotional activity, partially off Year over year, gross margin declined 200 basis points. Also impacted by the elimination of certain customer fees and a higher percentage of third party product revenue. Growth brand products as a percentage of net revenue was 40.1% up 160 basis points from the third quarter but down four seventy basis points year over year. The sequential increase was due to higher seasonal discounting and promotions on Grove brand products, while the year over year decline reflects continued third party expansion. As previously mentioned, we plan to stop sharing this metric after this quarter given our focus on our direct to consumer business and on order economics whether the product is from third party or our own brands. Advertising expense totaled $3,000,000 in the fourth quarter, up 4.7% quarter over quarter, but down 24.3% year over year.

The sequential increase was primarily driven by higher spend on existing customers, aligning with our strategy to encourage repeat orders earlier in the customer journey. Enabled by our expanded assortment. Additionally, we increased DTC specific advertising on new customers, capitalizing on improving first order conversion rates. These increases were partially offset by a decrease in brick and mortar specific advertising. On a year over year basis, advertising expense remain lower. As we progress through our transformation, we remain disciplined in our advertising approach, balancing revenue growth with profitability and focusing investments on the channels that deliver the highest return on investment. Product development expense was 4,600,000.0 down 4.4% quarter over quarter, but up 0.8% year over year. The sequential decline is due to reductions in personnel expenses, while the year over year increase is due to accelerated depreciation costs. Those were driven by our decision to transfer to transition our homegrown e commerce platform to Shopify technology. SG and A expense was $26,700,000 up 8.1% quarter over quarter but down 16.6% year over year. The quarter over quarter increase was primarily driven by a $1,600,000 restructuring charge and higher fulfillment costs due to increased orders. The year over year decline reflects lower fulfillment costs from fewer orders and savings mainly from reductions to personnel, facility, professional fees and technology costs as we right side our cost structure Adjusted EBITDA was negative $1,600,000 or a negative 3.3% margin compared to breakeven in the third quarter and $100,000 or a 0.2% margin in the fourth quarter of twenty twenty three. [indiscernible] However, despite negative adjusted EBITDA in the fourth quarter, operating cash flow was positive $300,000 marking our third consecutive quarter of positive operating cash flow.

In the fourth quarter, we used a targeted discounting approach to move through aged inventory. While this negatively impacted our our inventory position heading into 2025. [indiscernible] Turning now to the balance sheet.

We ended the quarter with $24,300,000 in cash, cash equivalents and restricted cash. [indiscernible] down from $55,600,000 in the third quarter. The approximately $31,000,000 reduction primarily reflects our recent voluntary prepayment of term debt. [indiscernible] We also ended the quarter with an inventory balance of $19,400,000 down to $5,200,000 quarter over quarter, mainly driven by reduced growth brand inventory as we optimize Before we discuss our outlook, we want to take a moment to address the impact of tariffs on our business Our projections take into account the current tariff environment as it relates to our product sourcing from China, Mexico and Canada. Given the evolving nature of trade policies, we are actively monitoring the situation and working closely with our international partners to assess potential risks and opportunities. Our priority is to ensure a stable supply chain while exploring strategic alternatives to mitigate any potential cost impacts. We remain committed to adapting swiftly and effectively as new developments arise. Now turning to our outlook.

For the twelve month period ending 12/31/2025, we are providing the following guidance. For revenue, first quarter revenue is expected to be the lowest revenue quarter in 2025 and going forward. Including the negative revenue impact of the Shopify transition. Revenue is expected to improve through the second and third quarters leading to year over year growth in the low single digit percentage range in the fourth quarter. In full year 2025 revenue, is expected to be approximately flat to down mid single digit percentage year over year. Adjusted EBITDA is expected to be breakeven to positive low single digit millions. Our outlook includes the revenue and adjusted