Grove Collaborative Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Grove sells sustainability-oriented household, personal care, beauty and other consumer products through its direct-to-consumer (DTC) platform and retail partners. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net revenue | $53.5 million | $71.6 million |
| Gross profit / margin | $29.7 million / 55.5% | $37.3 million / 52.1% |
| Operating loss | $0.5 million | $13.7 million |
| Net loss | $3.4 million | $13.1 million |
| Adjusted EBITDA | $1.9 million | $(6.8) million |
| Operating cash flow | $(12.4) million | $(6.7) million |
- Revenue declined 25% year over year. Grove Brands revenue fell 34% to $23.0 million; third-party product revenue fell 17% to $30.5 million.
- Gross margin rose about 348 basis points. The filing attributes the improvement to vendor funding allowances, lower inventory reserve charges and fewer lower-margin first orders, partly offset by a lower Grove Brands mix.
- Advertising expense decreased 76% to $2.1 million; selling, general and administrative expense decreased 35% to $24.6 million. Product development expense was $3.6 million, down 14%.
- Interest expense rose 11% to $4.1 million. The company reported a $3.4 million net loss, or $0.10 per share, compared with $13.1 million, or $0.39 per share, in Q1 2023.
- Cash, cash equivalents and restricted cash totaled $81.6 million at quarter-end, including $77.8 million unrestricted and $3.8 million restricted. Cash and cash equivalents declined from $86.4 million at December 31, 2023.
- Debt, net of discounts, was $72.5 million. The Structural Debt Facility had $72.0 million principal outstanding; the Siena Revolver had $7.5 million outstanding and $9.1 million of additional borrowing capacity.
Changes, outlook and material items
- DTC Total Orders fell to 773,000 from 1.097 million; DTC Active Customers declined to 807,000 from 1.241 million. DTC net revenue per order increased to $66 from $62. Management attributed lower orders and customers mainly to reduced advertising spend.
- Management says recent changes to the online purchase flow initially reduced conversion, but conversion has since improved. It expects to increase advertising as conversion improves, while managing customer-acquisition costs and cash flow. It also expects continued SG&A efficiencies and product development spending as a percentage of revenue to be consistent with 2023. These are expectations, not quantified financial guidance.
- Adjusted EBITDA turned positive, but Q1 included a $3.1 million noncash gain from amending the San Francisco headquarters lease. Grove paid $4.8 million in connection with the amendment, reduced leased space and rent, and extended the amended lease through May 2027. The filing’s Adjusted EBITDA reconciliation treats the net restructuring gain and charges as an adjustment.
- Operating cash use increased year over year, reflecting working-capital outflows and a one-time lease-related payment, partly offset by lower operating expenses. Investing cash use was $0.5 million; financing cash use was $0.4 million.
- Management believes existing cash and cash equivalents will fund operations for at least one year from the report’s issuance. It also says additional capital will be needed over the longer term before positive operating cash flow is achieved; future financing may be unavailable or dilutive.
- The Structural Debt Facility requires at least $57.0 million of unrestricted cash and compliance with revenue covenants. Grove reported compliance at March 31, 2024. The facility has a 15% minimum interest rate and principal repayments begin July 1, 2025; a further $9.9 million share issuance may be required if debt remains outstanding on July 21, 2025.
- California authorities consider a loss probable in an investigation of automatic-renewal and consumer-protection practices, but Grove cannot reasonably estimate the loss. The FTC is also investigating billing and automatic-renewal practices; outcome and potential loss are not estimable. No proceeding had commenced in the FTC matter as of the filing.
- Grove plans to close its Missouri fulfillment facility in Q2 2024. It also disclosed dependence on a limited supplier base: its top five suppliers represented about 40% of Q1 inventory purchases.
- Other key risks include sustained revenue declines, consumer acquisition and retention, competition, discretionary spending, product and environmental marketing claims, supply-chain and fulfillment execution, cybersecurity, and access to capital. The filing reports effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether customer conversion and order trends improve enough to support revenue recovery as advertising spend increases.
- How much of the positive Adjusted EBITDA reflects sustainable operating performance versus the lease modification and other adjustments.
- Cash runway and covenant headroom, including the $57.0 million minimum-cash requirement, cash burn, and availability under the Siena Revolver.
- The cost and resolution of the California and FTC investigations, and any changes required to subscription practices.
- Debt servicing and refinancing plans ahead of 2025 principal repayments and the potential $9.9 million share issuance; also verify the filing’s stated Structural Facility interest figures, which include a 16.00% contractual rate and a 20.84% effective rate.
- Potential dilution from equity financing and outstanding securities. The SEPA’s stated $100 million commitment is constrained by a share cap; Grove said it could raise approximately $9.3 million under the agreement as of April 30, 2024.