Grove Collaborative Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the provided filing text does not give a clear standalone fourth-quarter results breakdown. Grove is a sustainability-oriented consumer products company selling Grove-owned and third-party brands through its direct-to-consumer (DTC) platform and retail partners. It completed its business combination and began trading publicly in June 2022.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net revenue | $321.5 million | $383.7 million | Down 16% |
| Grove Brands revenue | $154.9 million | $187.1 million | Down 17%; 48% of FY2022 revenue |
| Third-party product revenue | $166.7 million | $196.6 million | Down 15% |
| Gross profit / margin | $154.7 million / 48% | $188.5 million / 49% | Margin down about 103 basis points |
| Operating loss | $(141.0) million | $(128.9) million | Loss widened |
| Net loss | $(87.7) million | $(135.9) million | Improvement includes a $66.4 million non-cash gain from revaluing earn-out liabilities |
| Adjusted EBITDA | $(79.9) million | $(108.8) million | Non-GAAP; margin was (24.8)% versus (28.4)% |
| Cash used in operations | $(96.3) million | $(127.1) million | Still substantial negative operating cash flow |
At year-end, cash and cash equivalents were $81.1 million; restricted cash was $14.9 million. Working capital was $84.5 million. Total debt was $61.2 million net of debt discounts, against $72.0 million of principal under the new Structural Debt Facility. That facility has a minimum 15% annual interest rate (effective rate reported at 20.09%), is secured by company assets, and includes a $57.0 million minimum unrestricted-cash covenant and revenue targets. Grove reported covenant compliance at December 31, 2022.
Business changes and operating metrics
- DTC orders fell to 5.25 million from 6.66 million, and active customers declined to 1.38 million from 1.64 million. DTC net revenue per order rose to $59 from $56, partly reflecting price increases.
- Retail presence expanded to more than 4,000 stores. Retail remained an immaterial share of results in 2022, but management expects the channel to become more important.
- Advertising expense fell 38% to $66.3 million as Grove reduced marketing to manage cash use and customer-acquisition costs. SG&A rose 11% to $206.9 million, including higher stock-based compensation and restructuring costs.
- Grove Brands generated 48% of revenue, compared with 49% in 2021. Retail mix, product and freight costs, and higher inventory reserves pressured gross margin; price increases partly offset those effects.
Outlook, risks, and unusual items
Management expects revenue to decline further in 2023 as it reduces marketing and exits unprofitable revenue, with retail making up a larger share, before returning to growth beginning in 2024. Its stated goal is profitable growth in 2024. Management also expects advertising expense to decrease from 2022, product development costs as a share of revenue to remain broadly consistent, and higher interest expense and cash interest payments.
- Grove reported an accumulated deficit of $577.9 million and expects further operating losses and negative operating cash flow. Management said available resources should fund operations for at least one year from the financial statements’ issuance, but additional financing will be needed over the longer term.
- The $100 million standby equity purchase agreement is subject to a 19.99% share cap and market conditions. At a cited 2023 average share price of $0.48, Grove estimated it could raise approximately $14.6 million net of costs without considering trading-volume and demand constraints.
- In March 2023, Grove entered a revolving credit facility of up to $35 million; reported borrowing capacity was $16.5 million and outstanding borrowings were $7.5 million as of March 10, 2023. Capacity depends on eligible collateral and other conditions.
- Grove recorded $5.3 million of office lease impairment and $3.6 million of severance charges in connection with reorganizations; it reduced corporate headcount by more than 30%. Stock-based compensation was $45.7 million, including expense associated with the business combination and award changes.
- Santa Clara County prosecutors and the FTC were investigating Grove’s automatic-renewal and billing practices; the filing said no legal proceeding had commenced as of its date. The company identified regulatory exposure relating to product, environmental and health claims, privacy, and subscription practices.
- NYSE notified Grove in December 2022 that its average share price was below the $1.00 continued-listing standard; the company had six months from notice to regain compliance.
- Disclosure controls were deemed effective at year-end. A previously reported material weakness was remediated, but management did not assess internal control over financial reporting for 2022 under the applicable transition relief. The auditor did not attest to ICFR.
Key facts for investors to verify
- Whether 2023 revenue and cash use track management’s forecast, and what evidence supports a return to growth and profitable growth in 2024.
- Available unrestricted cash, restricted-cash changes, revolver availability, and compliance with the Structural Debt Facility’s cash and revenue covenants.
- Structural debt’s total cost, including the 15% interest floor, minimum-return provisions, and potential share issuance; also assess dilution from equity facilities, warrants, and awards.
- Retail sell-through, profitability, retailer concentration, and whether retail growth offsets DTC customer and order declines without further margin deterioration.
- Developments in the automatic-renewal investigations, NYSE listing compliance, and the company’s controls and reporting processes.