Business context and reporting period
Grove Collaborative Holdings, Inc. is a sustainability-focused consumer products company selling Grove-owned and third-party brands through its direct-to-consumer (DTC) platform and retail partners. This Form 10-K covers the fiscal year ended December 31, 2023; it does not provide a clear standalone Q4 financial summary. Grove Brands generated 46% of 2023 net revenue. Products were sold in more than 7,500 retail stores.
Key financial metrics
Amounts in U.S. dollars; financial figures in millions unless stated otherwise.
| Metric | 2023 | 2022 |
|---|---|---|
| Net revenue | $259.3 | $321.5 |
| Gross profit / margin | $137.4 / 53% | $154.7 / 48% |
| Operating loss | $(35.3) | $(141.0) |
| Net loss | $(43.2) | $(87.7) |
| Adjusted EBITDA / margin (non-GAAP) | $(9.2) / (3.5)% | $(79.9) / (24.8)% |
| Cash used in operating activities | $(8.0) | $(96.3) |
| Cash and cash equivalents at year-end | $86.4 | $81.1 |
| Total debt, net of issuance costs | $71.7 | $61.2 |
| Current assets / current liabilities | $124.2 / $35.0 | $142.0 / $57.5 |
Restricted cash was $8.5 million at year-end 2023. The company reported an accumulated deficit of $621.1 million. Interest expense was $16.1 million, while cash interest paid was $12.1 million.
Material changes versus the prior year
- Revenue fell 19% to $259.3 million: Grove Brands revenue declined 23% to $119.0 million, and third-party product revenue fell 16% to $140.3 million.
- DTC total orders decreased to 3.852 million from 5.248 million; active customers fell to 920,000 from 1.377 million. DTC revenue per order rose to $64 from $59.
- Gross margin increased about 488 basis points, attributed to an order fee, fewer lower-margin first orders, and lower inventory reserves.
- Advertising expense fell 68% to $21.3 million, while selling, general and administrative expense declined 35% to $134.9 million. Lower spending and fulfillment costs helped reduce losses and cash burn.
- Operating cash outflow improved to $8.0 million from $96.3 million. Financing activities provided $9.9 million in 2023, including $10.0 million of preferred-stock proceeds and $7.5 million borrowed under the Siena revolver.
Outlook, risks and unusual items
- Management expects revenue to decline further in 2024 as it removes unprofitable revenue and maintains marketing spending around current levels. Its stated goals are adjusted EBITDA profitability and sequential quarterly revenue growth by the end of 2024; these are goals, not assured results.
- Management says current resources are expected to fund operations for at least one year from issuance of the financial statements, but expects continued operating losses and negative operating cash flow and anticipates needing additional capital over the longer term.
- The $72.0 million Structural Debt Facility carries interest at the greater of 15% or 7.5% plus prime; principal payments begin July 2025. Its covenants include maintaining at least $57 million in unrestricted cash and meeting revenue targets. Grove reported covenant compliance at year-end 2023. The Siena revolver had $7.5 million outstanding and $8.1 million of additional borrowing capacity at year-end, subject to borrowing-base conditions.
- The Standby Equity Purchase Agreement permits up to $100 million of share sales, subject to a 6,511,532-share cap and other conditions. As of February 29, 2024, the company estimated about $11.9 million of gross proceeds were available under the agreement; further sales could dilute shareholders.
- In August 2023, Grove issued $10 million of Series A redeemable convertible preferred stock. It carries cumulative 6% annual dividends, is convertible at the holder’s option, and may be redeemed for cash after its seventh anniversary.
- California prosecutors are investigating automatic-renewal practices; management says a loss is probable but cannot estimate the amount. The FTC is also investigating billing and automatic-renewal practices; no proceeding had commenced as of filing, and the outcome and potential loss were not estimable.
- Grove recorded $3.8 million of 2023 restructuring charges. It announced plans to close its Missouri fulfillment center in Q2 2024 and expected additional exit, severance and impairment charges. In March 2024 it also amended its San Francisco office lease, paid $4.8 million, and reduced leased space.
- Other significant risks include persistent revenue declines, discretionary consumer spending and inflation, customer acquisition and retention, supplier concentration, product-claim and regulatory exposure, cybersecurity and privacy, and reliance on financing. The filing states that cash and cash equivalents are concentrated largely at one financial institution, with deposits potentially above insured limits.
Important facts for investors to verify
- Whether revenue and customer activity stabilize despite planned reductions in unprofitable sales and lower marketing spend.
- Progress toward management’s 2024 adjusted EBITDA and quarterly revenue goals, including the effect of fulfillment-center consolidation.
- Liquidity headroom under the $57 million unrestricted-cash covenant, revenue covenants, revolver borrowing-base limits and future debt-service requirements.
- Availability and dilution cost of additional financing, including SEPA share capacity, preferred-stock conversion and outstanding warrants.
- Developments, potential costs and any reserves related to the California and FTC subscription-practice investigations.
- The filing reports an unqualified audit opinion and management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal control effectiveness because of the company’s emerging-growth-company status.