# Grove Collaborative Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Grove Collaborative Holdings, Inc.](/companies/grov.md) (CIK 1841761)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 21:46 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038302
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1841761/000162828023038302/grov-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1841761/000162828023038302/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $61.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $199.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $28.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $94.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $33.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $104.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $3.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $11.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $29.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $102.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$4.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$27.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $4.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $11.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $7.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $28.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$9.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$33.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.31 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.31 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 35,253,756 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 34,433,760 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$9.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $2.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $86.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $130.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $161.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $37.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $136.9m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $70.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $14.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,525 characters.

*The following discussion and analysis of the financial condition and results of operations of Grove Collaborative Holdings, Inc. (“Grove,” “we,” “us,” and “our”) should be read with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties. Grove’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section entitled “Risk Factors” herein or in our Annual Report on Form 10-K for the year ended December 31, 2022 or in other parts of this Quarterly Report on Form 10-Q. Grove’s historical results are not necessarily indicative of the results that may be expected for any period in the future. Except as otherwise noted, all references to 2022 refer to the year ended December 31, 2022.*

*References to Virgin Group Acquisition Corp. II. or “VGAC II” refer to the Company prior to the consummation of the Business Combination (described below).*

### OVERVIEW

Grove Collaborative Holdings, Inc., formerly Virgin Group Acquisition Corp. II, is a digital-first, sustainability-oriented consumer products innovator. We use our connection with consumers to create and curate authentic, disruptive brands and products. We build natural products that perform as well as or better than many leading CPG brands (both conventional and natural), while being healthier for consumers and the planet.

Our omnichannel distribution strategy enables us to reach consumers where they want to shop. We operate an online direct-to-consumer website and mobile application (“DTC platform”) where we both sell our Grove-owned brands (“Grove Brands”) and partner with other leading natural and mission-based CPG brands, providing consumers the best selection of curated products across many categories and brands.

Grove is a public benefit corporation and a Certified B Corporation, meaning we adhere to third party standards for prioritizing social, environmental, and community well-being. We have a history of doing well by doing good, which is supported by our flywheel: as we have grown, our product development capabilities and data have improved. Over the long term, we believe that improved innovation will fuel both top line growth and margin expansion as our innovation has historically tended to be both market expanding and margin accretive. Since inception, we have grown and invested heavily in building out both our e-commerce platform and Grove Brands, and over this period we have operated at a loss and have an accumulated deficit of $611.6 million as of September 30, 2023. Beginning in the second half of 2022, we have moved to substantially reduce our operating expenses across the business in support of our drive toward profitability. These expense reductions, particularly in advertising, have resulted in a substantial decline in our revenue. While we have made significant progress, we anticipate that we will continue to incur losses in the future unless and until we can rekindle revenue growth to the point where our revenue exceeds our operating expenses. Refer to Liquidity, Capital Resources and Requirements below for more information.

### Business Combination

On June 16, 2022 (the “Closing Date”), we became a publicly traded company as a result of the consummation of Grove Collaborative, Inc.’s (“Legacy Grove”) merger with Virgin Group Acquisition Corp. II, a Cayman-domiciled blank check company (“VGAC II”), which we refer to herein as the “Business Combination”. Prior to the Business Combination, VGAC II’s public shares, and public warrants were listed on the New York Stock Exchange (the “NYSE”) under the symbols “VGII” and “VGII.WS,” respectively. On June 17, 2022, the Company's Class A common stock and public warrants (“Public Warrants”) began trading on the NYSE, under the symbols “GROV” and “GROV.WS,” respectively. Due to a low trading price, the Public Warrants were delisted by the NYSE on June 12, 2023.

### Reverse Stock Split

On May 24, 2023, our board of directors and stockholders approved a one-for-five reverse split (the “Reverse Split”) of our issued and outstanding Class A and Class B common stock. The Class A common stock began trading on a split-adjusted basis on the NYSE at the market open on June 6, 2023. No fractional shares were issued in connection with the reverse stock split.

### Key Factors Affecting Our Operating Performance

We believe that the growth of our business and our future success are dependent on many factors. While each of these factors presents significant opportunities for us, they also pose important challenges that we must successfully address to enable us to sustain the growth of our business and improve our operations while staying true to our mission, including those discussed below and in the section entitled “Risk Factors”.

### Ability To Grow our Brand Awareness

Our brand is integral to the growth of our business and is essential to our ability to engage with our community. Our performance will depend on our ability to attract new customers and encourage consumer spending across our product portfolio. We believe the core elements of continuing to grow our awareness, and thus increase our penetration, are highlighting our products’ qualities of being natural, sustainable and effective, the efficacy of our marketing efforts and the success of our continued retail rollout. Beyond preserving the integrity of our brand, our performance will depend on our ability to augment our reach and increase the number of consumers aware of Grove and our product portfolio.

### Ability to Continue to Innovate in Products and Packaging

Our continued product innovation is integral to our future growth. We have successfully developed and launched over 500 individual products in recent years. The research, development, testing and improvement has been led by our R&D team, which includes experienced chemists and formulators, who work closely with our Sustainability team. These new and innovative products, as well as our focus on environmentally responsible packaging, have been key drivers of our value proposition to date. An important element of our product development strategy is our ability to engage directly with customers through our DTC platform to assess demand and market preferences. To the extent our customers increasingly access our products through retail channels, we will need to innovate our modalities of customer engagement to maintain this important feedback loop. Our continued success in research and development and ability to assess customer needs and develop sustainable and effective products will be central to attracting and retaining consumers in the future and to growing our market penetration and our impact on human and environmental health.

### Ability to Expand our Retail Distribution

We have a significant opportunity to expand our distribution in retail channels, both broadening our partner reach and introducing our products across more doors, as well as deepening our retail distribution in terms of the number of individual products. Our success and speed of doing so will impact our financial performance. We are pursuing partnerships with a wide variety of retailers, including big-box retailers, online retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as retailers’ satisfaction with the sales and profitability of our products. In the near-term, retail expansion will require partnerships with retailers on launches and we may choose to invest in promotions to drive sales and awareness over time. To the extent we are successful in retail expansion over the next several years, we expect to see potential negative effects on gross margins resulting from the retail cost structure to be approximately offset by savings in fulfillment costs driven by bulk shipping to retailers versus individualized fulfillment to consumers, through our fulfillment centers.

### Cost-Efficient Acquisition of New Customers and Retention of Existing Customers on our DTC Platform

Our ability to attract new customers is a key factor for our future growth. To date we have successfully acquired new customers through many online and offline marketing channels. In recent periods, changes in the algorithms used for targeting and purchasing online advertising, changes to privacy and online tracking, supply and demand dynamics in the market, and other factors have caused the cost of marketing on these channels to increase consistently. Failure to effectively adapt to changes in online marketing dynamics or otherwise to attract customers on a cost- efficient basis would adversely impact our path to profitability and operating results. Recently, we have implemented a lower-spend strategy to optimize the cost of acquiring new customers. Our ability to balance cost-efficient acquisitions while driving consumer awareness may impact the cost of acquiring new customers, profitability and operating results.

The future activity level and profitability of our DTC customer base will depend on our ability to continue to offer a compelling value proposition to consumers including strong selection, pricing, customer service, smooth and compelling web and mobile app experience, fast and reliable fulfillment, and curation within natural and sustainable products. Our success is also dependent on our ability to maintain relevance with our consumers on a regular basis through high performing products and a consumer-friendly refill and fulfillment process, and most importantly to provide consumers with products that consistently outperform their expectations. Our ability to execute on these key value-driving areas for consumers, and to remain competitive and compelling in a post-pandemic landscape, are necessary for our future growth. Failure to achieve these things would materially impact our operating results and financial performance.

### Ability to Achieve Profitable Growth; Positive Cash Flow and Scale

We believe we are in the early stages of realizing a substantial opportunity to transform the consumer products industry into a force for human and environmental good by relentlessly creating and curating planet-first, high-performance brands and products. After experiencing very high rates of growth prior to and in part driven by the COVID-19 pandemic, in recent periods we have substantially reduced our expense structure and operations in light of declining revenue, and as a result we have reduced our operating losses and cash consumption commensurately. To re-ignite growth and achieve profitability over the longer term, we will need to expand our DTC business, continue to grow our retail presence and achieve scale that will allow us to drive efficiencies in generating brand awareness, acquiring customers, creating operating leverage over headcount and other overhead, and fulfilling orders. Our recent gains in approaching profitability may not be sustainable in the near term due to the effects of seasonality, steps we may take to drive growth or other factors. If we are unable to achieve profitable growth, our prospects may be materially and adversely affected.

### Key Operating and Financial Metrics

In addition to our condensed consolidated financial statements, included elsewhere in this Form 10-Q, we assess the performance of our overall business based on the following metrics and measures, including identifying trends, formulating financial projections, making strategic decisions, assessing operational efficiencies and monitoring our business.

Over the coming years, we expect to grow our omnichannel presence both in core assortment, adjacent categories and sales channels.

We believe that the future of CPG brand building and consumer demand is omnichannel. Our DTC platform remains a core part of our strategy and customer value proposition in addition to providing key data and customer feedback driving our innovation process. We kicked off our expansion into brick and mortar retail in April 2021 with the launch of a curated assortment of Grove Co. products at Target. We continued to expand into other retailers, including Amazon, CVS, Walmart, Meijer, and Kroger. As we aim to continue our leadership in both omnichannel and sustainability, we will aggressively expand our presence into physical retail over the next few years to reach more consumers no matter where they shop.

Our current operating metrics reflect our core strategic focus on growing Grove Brands’ omnichannel presence and revenue, as well as our key DTC platform metrics.

*(in thousands, except DTC Net Revenue Per Order and percentages)*

| Financial and Operating Data | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Grove Brands % Net Revenue | 45% | 47% | 46% | 49% |
| DTC Total Orders | 917 | 1,242 | 2,988 | 4,116 |
| DTC Active Customers | 1,019 | 1,460 | 1,019 | 1,460 |
| DTC Net Revenue Per Order | $65 | $61 | $64 | $58 |

### Grove Brands % Net Revenue

We define Grove Brands % Net Revenue as total net revenue across all channels attributable to Grove Brands, including: Grove Co., Honu, Peach, Rooted Beauty and Superbloom divided by our total net revenue. On our DTC Platform, our total net revenue includes revenue from both Grove Brands and third-party brands that we carry, whereas for our retail sales total net revenues is comprised exclusively of revenue from Grove Brand products. We view Grove Brands % Net Revenue as a key indicator of the success of our product innovation and growth strategy, and customers’ acceptance of our products. In the three and nine months ended September 30, 2023, Grove Brands % Net Revenue declined due to a decrease in Grove Brands products in existing customer orders as we continue to expand our third-party offering and a decrease in new customer orders, which include more Grove Brands products.

### DTC Total Orders

We determine our number of DTC Total Orders by counting the number of customer orders submitted through our website and mobile application that have been shipped within the period. The metric includes orders that have been refunded, excludes reshipments of customer orders for any reason including damaged and missing products, and excludes retail orders. Refunded orders are included in DTC Total Orders as we believe this provides more meaningful order management performance metrics, including fulfillment cost efficacy and refund rates. Changes in DTC Total Orders in a reporting period capture both the inflow of new customers, changes in order frequency of existing customers and customer attrition. We view the number of Total DTC Orders as a key indicator of trends in our DTC platform, and our future success in this channel will depend in part on our ability to drive growth through new customer acquisition and by increasing existing customer engagement. In the three and nine months ended September 30, 2023, DTC Total Orders declined primarily due to our reduction in advertising spend, resulting in fewer new customers and therefore fewer overall orders. We expect this trend to continue through 2023 as advertising remains at current levels.

### DTC Active Customers

As of the last day of each reporting period, we determine our number of DTC Active Customers by counting the number of individual customers who submitted orders through our DTC platform, and for whom an order has shipped, at least once during the preceding 364-day period. The change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days. We view the number of active customers as one of the key indicators of growth in our DTC channel. In the three and nine months ended September 30, 2023, DTC Active Customers declined primarily due to our reduction in advertising spend resulting in fewer new customers and therefore fewer overall orders.

### DTC Net Revenue Per Order

We define DTC Net Revenue Per Order as our DTC Total Net Revenue in a given reporting period, divided by the DTC Total Orders in that period. We view DTC Net Revenue per Order as a key indicator of the performance of our DTC business. DTC Net Revenue Per Order increased in the three and nine months ended September 30, 2023 compared to the prior year comparative periods as a result of launching the Supply Chain Fee, which allows us to continue prioritizing sustainability and maintain our commitment to fair wages, a higher percentage of higher DTC Net Revenue Per Order from existing customer orders compared to new customer orders, as well as the introduction of strategic price increases on Grove Brands and third party products.

### Non-GAAP Financial Measures: Adjusted EBITDA and Adjusted EBITDA Margin

We prepare and present our financial statements in accordance with U.S. GAAP (“GAAP”). In addition, we believe that Adjusted EBITDA, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. For these reasons, management uses Adjusted EBITDA in evaluating our operating performance and resource allocation and forecasting. As such, we believe Adjusted EBITDA provides investors with additional useful information in evaluating our performance.

We calculate Adjusted EBITDA as net income (loss), adjusted to exclude: (1) stock-based compensation expense; (2) depreciation and amortization; (3) remeasurement of convertible preferred stock warrant liability; (4) changes in fair values of Additional Shares, Earn-out Shares, Public Private Placement Warrant, Structural Derivative liabilities; (5) transaction costs allocated to derivative liabilities upon Business Combination; (6) interest income; (7) interest expense; (8) restructuring and severance related costs; (9) provision for income taxes and (10) certain litigation and legal settlement expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. Because Adjusted EBITDA excludes these elements that are otherwise included in our GAAP financial results, this measure has limitations when compared to net loss determined in accordance with GAAP. Further, Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. For these reasons, investors should not consider Adjusted EBITDA in isolation from, or as a substitute for, net loss determined in accordance with GAAP.

The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with GAAP, to Adjusted EBITDA, for each of the periods presented.

*(in thousands)*

| Reconciliation of Net Loss to Adjusted EBITDA | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(9,811) | $7,662 | $(33,747) | $(75,032) |
| Stock-based compensation | 2,100 | 9,814 | 11,941 | 34,348 |
| Depreciation and amortization | 1,462 | 1,427 | 4,359 | 4,291 |
| Remeasurement of convertible preferred stock warrant liability | — | — | — | (1,616) |
| Change in fair value of Additional Shares liability | 600 | (1,045) | 920 | 970 |
| Change in fair value of Earn-Out liability | 1,408 | (28,791) | 350 | (46,136) |
| Change in fair value of Public and Private Placement Warrants liability | 125 | (2,803) | (1,262) | (3,983) |
| Change in fair value of Structural Derivative liability | 600 | — | 1,290 | — |
| Deferred offering costs allocated to derivative liabilities upon Business Combination | — | 200 | — | 6,873 |
| Reduction in transaction costs allocated to derivative liabilities upon Business Combination | — | — | (3,745) | — |
| Interest income | (1,180) | — | (2,625) | — |
| Interest expense | 4,145 | 2,546 | 11,918 | 6,918 |
| Restructuring and severance related costs | — | 1,356 | 553 | 2,992 |
| Provision for income taxes | 7 | 10 | 28 | 35 |
| Litigation and legal settlement expenses | 700 | — | 700 | — |
| Total Adjusted EBITDA | $156 | $(9,624) | $(9,320) | $(70,340) |
| Net loss margin | (15.9)% | 9.9% | (16.9)% | (30.3)% |
| Adjusted EBITDA margin (loss) | 0.3% | (12.4)% | (4.7)% | (28.4)% |

### Components of Results of Operations

### Revenue, Net

We generate revenue primarily from the sale of both third-party and our Grove Brands products through our DTC platform. Customers purchase products through the website or mobile application through a combination of directly selecting items from the catalog, items that are suggested by our recommendation engine, and featured products that appear in marketing on-site, in emails and on our mobile app. Most customers purchase a combination of products recommended by us based on previous purchases and new products discovered through marketing or catalog browsing. Customers can opt to have orders auto-shipped to them on a specified date or shipped immediately through an option available on the website and mobile application. We also generate revenue from the sale of our Grove Brands products to the retail channel.

We recognize revenue from the sale of our products through our DTC platform net of discounts, sales tax, customer service credits and estimated refunds. Sales tax collected from customers is not considered revenue and is included in accrued liabilities until remitted to the taxing authorities.

### Cost of Goods Sold

Cost of goods sold consists of the product costs of merchandise, inbound freight costs, vendor allowances, costs associated with inventory shrinkage and damages and inventory write-offs and related reserves.

### Gross Profit and Gross Margin

Gross profit represents revenue less cost of goods sold. Gross margin is gross profit expressed as a percentage of revenue. We generally record higher gross margins associated with sales of Grove Brands products compared to sales of third-party products. To help motivate first-time customers to purchase on our DTC platform, we generally offer higher discounts and free product offerings, and as a result our overall margins can be adversely affected in periods of rapid new customer acquisition. Our gross margin also fluctuates from period to period based on promotional activity, product and channel mix, the timing of promotions and launches, and inbound transportation rates, among other factors. Our gross profit and gross margin may not be comparable with that of other retailers because we include certain fulfillment related costs in selling, general, and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

### Operating Expenses

Our operating expenses consist of advertising, product development, and selling, general and administrative expenses.

#### Advertising

Advertising expenses are expensed as incurred and consist primarily of our customer acquisition costs associated with online advertising, as well as advertising on television, direct mail campaigns and other media. Costs associated with the production of advertising are expensed when the first advertisement is shown. We expect advertising costs to continue to decrease from the 2022 fiscal year as we implement a lower-spend strategy which optimizes the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management.

#### Product Development

Product development expenses are related to the ongoing support and maintenance of our proprietary technology, including our DTC platform, as well as amortization of capitalized, internally developed software, and related to the product and packaging innovation in our Grove Brands products. Product development expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense. Product development costs also include allocated facilities, equipment, depreciation and overhead costs. We expect product development costs as a percentage of revenue to be consistent with 2022 as we balance our investments in our proprietary technology, the expansion of our product line, innovative packaging and product improvements with revenue growth.

#### Selling, General and Administrative

Selling, general and administrative expenses consist primarily of compensation and benefit costs for personnel involved in general corporate functions, including stock-based compensation expense, and certain fulfillment costs, as further outlined below. Selling, general and administrative expenses also include the allocated facilities, equipment, depreciation and overhead costs, marketing costs including qualified cost of credits issued through our referral program, costs associated with our customer service operation, and costs of environmental offsets. While selling, general and administrative expenses increased as a result of activities related to the Business Combination and becoming a public company, since 2022, selling, general and administrative expenses have declined as a result decreases in fulfillment costs, the absence of IPO related charges and transactional expenses and cost management initiatives offsetting inflationary pressures in 2023.

Fulfillment costs represent those costs incurred in operating and staffing our fulfillment centers, including costs attributable to receiving, inspecting and warehousing inventories, picking, packing and preparing customer orders for shipment (“Fulfillment Labor”), shipping and handling expenses, packing materials costs and payment processing and related transaction costs. These costs are included within selling, general and administrative expenses in the statements of operations. We expect fulfillment costs to continue improving in the future on a per order basis, compared to the 2022 fiscal year.

#### Interest and Other Income, Net

Interest expense consists primarily of interest expense associated with our debt financing arrangements. Due to higher interest rates on our Structural Debt Facility (as defined below) and increases in the prime rate, we anticipate cash payments for interest and interest expense to fluctuate as interest rates change in the future.

Other income, net consists primarily of changes in fair values of Additional Shares, Earn-Out Shares, Public and Private Placement Warrant and Structural Derivative liabilities, transaction costs allocated to derivative liabilities upon Business Combination, interest income and losses or gains on remeasurement of our convertible preferred stock warrant liabilities. With increases in the prime rate, we expect increasing interest income on our deposits to partially offset the significant increase in interest expense related to our borrowings. Changes in the fair value of our derivative liabilities may fluctuate significantly in future periods primarily due to fluctuations in the fair value of our common stock.

### Provision for Income Taxes

We account for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are determined based on the difference between the financial statements and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize the benefits of tax-return positions in the financial statements when they are more likely than not to be sustained by the taxing authority, based on the technical merits at the reporting date. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments, and which may not accurately forecast actual outcomes. We recognize interest and penalties related to unrecognized tax benefits, if any, as income tax expense.

### Results of Operations

The following table sets forth our results of operations for each period presented:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenue, net | $61,750 | $77,733 | $199,421 | $247,491 |
| Cost of goods sold | 28,516 | 39,566 | 94,624 | 127,630 |
| Gross profit | 33,234 | 38,167 | 104,797 | 119,861 |
| Operating expenses: |  |  |  |  |
| Advertising | 4,062 | 8,668 | 17,392 | 59,359 |
| Product development | 3,578 | 5,765 | 11,846 | 17,927 |
| Selling, general and administrative | 29,699 | 46,295 | 102,879 | 155,160 |
| Operating loss | (4,105) | (22,561) | (27,320) | (112,585) |
| Interest expense | 4,145 | 2,546 | 11,918 | 6,918 |
| Change in fair value of Additional Shares liability | 600 | (1,045) | 920 | 970 |
| Change in fair value of Earn-Out liability | 1,408 | (28,791) | 350 | (46,136) |
| Change in fair value of Public and Private Placement Warrants liability | 125 | (2,803) | (1,262) | (3,983) |
| Change in fair value of Structural Derivative liability | 600 | — | 1,290 | — |
| Other expense (income), net | (1,179) | (140) | (6,817) | 4,643 |
| Interest and other expense (income), net | 5,699 | (30,233) | 6,399 | (37,588) |
| Income (loss) before provision for income taxes | (9,804) | 7,672 | (33,719) | (74,997) |
| Provision for income taxes | 7 | 10 | 28 | 35 |
| Net income (loss) | $(9,811) | $7,662 | $(33,747) | $(75,032) |

37

The following table sets forth our statements of operations data expressed as a percentage of revenue:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenue, net | 100% | 100% | 100% | 100% |
| Cost of goods sold | 46 | 51 | 47 | 52 |
| Gross profit | 54 | 49 | 53 | 48 |
| Operating expenses: |  |  |  |  |
| Advertising | 7 | 11 | 9 | 24 |
| Product development | 6 | 7 | 6 | 7 |
| Selling, general and administrative | 48 | 60 | 52 | 63 |
| Operating loss | (7) | (29) | (14) | (45) |
| Interest expense | 7 | 3 | 6 | 3 |
| Change in fair value of Additional Shares liability | 1 | (1) | — | — |
| Change in fair value of Earn-Out liability | 2 | (37) | — | (19) |
| Change in fair value of Public and Private Placement Warrants liability | — | (4) | (1) | (2) |
| Change in fair value of Structural Derivative liability | 1 | — | 1 | — |
| Other expense (income), net | (2) | — | (3) | 2 |
| Interest and other expense (income), net | 9 | (39) | 3 | (15) |
| Income (loss) before provision for income taxes | (16) | 10 | (17) | (30) |
| Provision for income taxes | — | — | — | — |
| Net income (loss) | (16)% | 10% | (17)% | (30)% |

### Comparisons of the Three and Nine Months Ended September 30, 2023 and September 30, 2022

### Revenue, Net

*(in thousands)*

| Revenue, net: | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Grove Brand | $27,648 | $36,425 | $(8,777) | (24)% | $92,397 | $121,489 | $(29,092) | (24)% |
| Third-party product | 34,102 | 41,308 | (7,206) | (17)% | 107,024 | 126,002 | (18,978) | (15)% |
| Total revenue, net | $61,750 | $77,733 | $(15,983) | (21)% | $199,421 | $247,491 | $(48,070) | (19)% |

Revenue decreased by $16.0 million, or 21%, and $48.1 million, or 19%, for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022, primarily driven by a decrease in DTC Total Orders caused by a reduction in DTC Active Customers due primarily to the reduction in advertising spend, partially offset by increases in DTC Net Revenue Per Order.

### Cost of Goods Sold and Gross Profit

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of goods sold | $28,516 | $39,566 | $(11,050) | (28)% | $94,624 | $127,630 | $(33,006) | (26)% |
| Gross profit | 33,234 | 38,167 | (4,933) | (13)% | 104,797 | 119,861 | (15,064) | (13)% |
| Gross margin | 54% | 49% |  |  | 53% | 48% |  |  |

Cost of goods sold decreased by $11.1 million, or 28%, and $33.0 million, or 26%, for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022, primarily due to a decrease in DTC Total Orders and reductions to our inventory reserve charges as compared to the prior period.

Gross margin in the three months ended September 30, 2023 increased by 472 basis points compared to the three months ended September 30, 2022 due to reductions to our inventory reserve charges as compared to the prior period and a decrease in the number of lower-margin first orders as a percentage of total orders, partially offset by a decrease in Grove Brands mix as a percentage of total revenue.

Gross margin in the nine months ended September 30, 2023 increased by 412 basis points compared to the nine months ended September 30, 2022 due to launching the Supply Chain Fee, a decrease in the number of lower-margin first orders as a percentage of total orders, and reductions to our inventory reserve charges as compared to the prior period, partially offset by a decrease in Grove Brands mix as a percentage of total revenue.

### Operating Expenses

#### Advertising Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Advertising | $4,062 | $8,668 | $(4,606) | (53)% | $17,392 | $59,359 | $(41,967) | (71)% |

Advertising expenses decreased by $4.6 million, or 53%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to implementing a lower-spend strategy which optimizes the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Television advertising expenses decreased by $1.2 million, other advertising campaigns, including advertising focused specifically to attract retail customers declined by $1.2 million and online advertising expenses decreased by $1.1 million.

Advertising expenses decreased by $42.0 million, or 71%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to implementing a lower-spend strategy which optimizes the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Online advertising expenses decreased by $17.1 million, television advertising expenses decreased by $12.7 million, creative content production costs decreased by $3.9 million and audio advertising decreased by $2.0 million.

#### Product Development Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product development | $3,578 | $5,765 | $(2,187) | (38)% | $11,846 | $17,927 | $(6,081) | (34)% |

39

Product development expenses decreased by $2.2 million, or 38% for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a $1.4 million decrease in salaries and benefits from reductions in headcount and a $0.5 million decrease in stock based compensation.

Product development expenses decreased by $6.1 million, or 34% for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a $3.8 million decrease in salaries and benefits from reductions in headcount and a $1.3 million decrease in stock-based compensation expense.

#### Selling, General and Administrative Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $29,699 | $46,295 | $(16,596) | (36)% | $102,879 | $155,160 | $(52,281) | (34)% |

Selling, general and administrative expenses decreased by $16.6 million, or 36% for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Stock-based compensation expense decreased by $6.9 million driven by lower expense under the accelerated attribution method for awards granted prior to the closing of the Business Combination and reductions of headcount. Fulfillment costs decreased by $5.9 million, including a $4.0 million decrease in shipping and handling expenses and $1.3 million decrease in Fulfillment Labor. The decrease in shipping and handling expenses was driven by a decrease in the volume of orders and carrier mix, partially offset by an increase in carrier rates. The decrease in Fulfillment Labor was due to a decrease in the volume of orders and the ability to fulfill orders more efficiently. Other general and administrative expenses, excluding stock-based compensation expense and fulfillment costs, decreased by $3.8 million, from decreases in corporate salaries and benefits from reductions in headcount related to our cost management initiatives, offset by an increase in costs related to being a public company.

Selling, general and administrative expenses decreased by $52.3 million, or 34% for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Stock-based compensation expense decreased by $20.4 million as the Company was required to record $11.0 million of catch-up of expense in June 2022 for the Company’s restricted stock units and certain stock options as a result of meeting the performance vesting condition when the Company went public and reductions in headcount. Fulfillment costs decreased by $18.7 million, including a $11.8 million decrease in shipping and handling expenses and $5.0 million decrease in Fulfillment labor. The decrease in shipping and handling expenses was driven by a decrease in the volume of orders and carrier mix, partially offset by an increase in carrier rates. The decrease in Fulfillment Labor was due to a decrease in the volume of orders and the ability to fulfill orders more efficiently. Other general and administrative expenses, excluding stock-based compensation expense and fulfillment costs, decreased by $13.2 million, from decreases in corporate salaries and benefits from reductions in headcount and decrease in professional fees and marketing expenses related to our cost management initiatives, offset by an increase in costs related to being a public company.

### Interest expense

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense | $4,145 | $2,546 | $1,599 | 63% | $11,918 | $6,918 | $5,000 | 72% |

Interest expense increased by $1.6 million, or 63%, and $5.0 million, or 72%, for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended September 30, 2022 primarily due to increases in rates incurred on our debt facilities. See the section titled “Liquidity and Capital Resources” below for further details.

### Changes in fair value of liabilities and other expense (income), net

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Change Amount% |  | Nine Months Ended September 30, 2023 | 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Change in fair value of Additional Shares liability | $600 | $(1,045) | $1,645 | \* | $920 | $970 | $(50) | \* |
| Change in fair value of Earn-Out liability | 1,408 | (28,791) | 30,199 | \* | 350 | (46,136) | 46,486 | \* |
| Change in fair value of Public and Private Placement Warrants liability | 125 | (2,803) | 2,928 | \* | (1,262) | (3,983) | 2,721 | \* |
| Change in fair value of Structural Derivative liability | 600 | — | 600 | \* | 1,290 | — | 1,290 | \* |
| Other expense (income), net | (1,179) | (140) | (1,039) | 742% | (6,817) | 4,643 | (11,460) | (247)% |

\*Percent change not meaningful

The change in the fair value of Additional Shares liability, Earn-Out liability and Public and Private Placement Warrants liability for the three and nine ended September 30, 2023 was driven by the changes in our stock price from December 31, 2022 through September 30, 2023. The change in fair value of the Structural Derivative liability for the three and nine ended September 30, 2023 was driven by the passage of time to when the Structural Subsequent Shares could be issued.

Other expense (income), net increased by $1.0 million, or 742% for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 primarily due to a $0.5 million increase in interest income from our operating accounts due to increases in market rates and a $0.2 million reduction of transaction costs allocated to liability instruments acquired in the Business Combination.

Other expense, net decreased by $11.5 million, or 247% for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to a $10.5 million reduction of transaction costs allocated to liability instruments acquired in the Business Combination and a $2.6 million increase in interest income from our operating accounts due to increases in market rates.

### Liquidity, Capital Resources and Requirements

As of September 30, 2023, we had $86.1 million in unrestricted cash (excluding restricted cash of $8.7 million) and cash equivalents and working capital of $92.5 million. We incurred negative cash flows from operating activities of $9.1 million for the nine months ended September 30, 2023. We have incurred significant losses since inception and have an accumulated deficit of approximately $611.6 million. To date, we have funded our operations principally through convertible preferred stock and common stock financings, the incurrence of debt and the Closing of the Business Combination. We have total outstanding indebtedness of $79.5 million as of September 30, 2023.

On August 11, 2023 (the “Preferred Stock Closing Date”), we entered into a subscription agreement (the “Preferred Stock Subscription Agreement”) with Volition Capital Fund IV, L.P. (“Volition”) and received gross proceeds of $10.0 million in exchange for 10,000 shares of our Series A Redeemable Convertible Preferred Stock (the “Preferred Stock”), a warrant to purchase 1,579,778 shares of our Class A common stock at an exercise price of $6.33 (the “Volition Warrants”) and a warrant to purchase 20,905 shares of our Class A common stock at an exercise price of $0.01 per share (the “Volition Penny Warrants”). Following the seventh anniversary of the Preferred Stock Closing Date, Volition can redeem for cash all shares of Preferred Stock. The holders of the Preferred Stock are entitled to receive cumulative dividends at the rate of 6% per annum of the original issuance price of each share. Such accruing dividends are payable only when, as and if declared by our Board of Directors.

On March 10, 2023, we entered into the Siena Revolver (defined below) with Siena Lending Group, LLC (“Siena”) which permits us to receive funding through a revolving line of credit with an initial commitment of $35.0 million. The total borrowing capacity under the Siena Revolver is subject to certain conditions, including our inventory and accounts receivable balances and other limitations as specified in the agreement. Additional borrowing capacity from the Siena Revolver was $11.5 million as of September 30, 2023.

In December 2022, we repaid other outstanding debt obligations with a prior lender with the Structural Debt Facility (as defined below) and will begin to make principal payments on the Structural Debt Facility beginning on July 1, 2025 over a period of 18 months.

On July 18, 2022, we entered into the Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD. (“Yorkville”), whereby we have the right, but not the obligation, to sell to Yorkville up to $100.0 million of our shares of common stock at our request until July 18, 2025, subject to certain conditions. The shares of our common stock that may be issued under the SEPA may be sold by us to the Yorkville at our discretion from time to time and sales of our common stock under the SEPA will depend upon market conditions and other factors. Additionally, in no event may we sell more than 6,511,532 shares of our common stock to Yorkville under the SEPA, which number of shares is equal to 19.99% of the shares of the Company's common stock outstanding immediately prior to the execution of the SEPA (the “Exchange Cap”), unless we obtain stockholder approval to issue shares of common stock in excess of the Exchange Cap in accordance with applicable NYSE rules or comply with certain other requirements as described in the SEPA. As a result, unless our average stock price under the SEPA exceeds $15.33 we will be unable to sell the full $100.0 million commitment to Yorkville without seeking stockholder approval to issue additional shares in excess of the Exchange Cap. As of September 30, 2023, our average trading price in 2023 was $2.35, without considering our average daily trading volumes and other market demand factors for our stock, we would be able to raise approximately $14.2 million, net of issuance costs, under the SEPA. As of September 30, 2023, we have sold 147,965 shares under the SEPA and there were 6,363,567 shares available to be sold to Yorkville under the Exchange Cap.

Management believes that currently available resources will provide sufficient funds to enable the Company to meet its obligations for at least one year past the date these condensed consolidated financial statements are available to be issued. We anticipate that we will continue to incur operating losses and generate negative cash flows from operations in the future as we continue to invest in advertising and other strategic incentives planned for future growth. Cash from operations could be affected by our customers and other risks detailed in the section of our titled “Risk Factors.” As a result, we will need additional capital resources to execute strategic initiatives and fund our operations, prior to achieving break even or positive operating cash flow. We expect to continue to opportunistically seek access to additional funds by utilizing the SEPA, through additional public or private equity offerings or debt financings, through partnering or other strategic arrangements, through the exercise of certain of our warrants, or a combination of the foregoing. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to the Company, or at all.

Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide, including the trading price of common stock. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to pay dividends or other distributions on our common stock or incur further indebtedness. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. In addition, our Class A Common Stock trading price may not exceed the respective exercise prices of our Public Warrants, Private Placement Warrants, warrants granted to HGI (as defined below), Volition Warrants and/or our Legacy Grove Warrants before the respective warrants expire, and therefore we may not receive any proceeds from the exercise of warrants to fund our operations. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected.

### Contractual Obligations and Other Commitments

Our most significant contractual obligations relate to our loan facilities, purchase commitments on inventory and operating lease obligations on our fulfillment centers and corporate offices. As of September 30, 2023, we had $13.7 million of enforceable and legally binding inventory purchase commitments predominantly due within one year. For information on our contractual obligations for operating leases, see “Leases” in Note 8 of the Notes to our audited consolidated financial statements as of and for the years ended December 31, 2022, 2021 and 2020 included in Form 10-K filed with the SEC on March 16, 2023.

On April 19, 2023, the Company entered into an amendment to the lease agreement for its warehousing facility located in St. Peters, Missouri to provide for, among other things, an extension of the lease term to September 2028. At the option of the Company, the lease may be extended an additional 5 years. The amendment requires the Company to make escalating undiscounted annual payments of up to $0.7 million, payable monthly.

### Loan Facilities

#### Structural Debt Facility

In December 2022, we entered into a Loan and Security Agreement (“Structural Debt Facility”) with third-party lenders to borrow gross proceeds of $72.0 million which was used primarily to settle other outstanding obligations with a prior lender. The Structural Debt Facility bears an annual rate of interest at the greater of 15.00% or 7.50% plus the prime rate, payable monthly. As of September 30, 2023, the Company’s contractual interest rate on the Structural debt facility was 16.00%. The principal repayment period commences on July 1, 2025 and continues until the maturity date of December 21, 2026. The Company may prepay all outstanding amounts under this facility at any time. Under the agreement, when amounts are prepaid or repaid in full at the Maturity Date, the Company may be obligated to pay additional fees which would allow for the lenders to reach a Minimum Return.

The Structural Debt Facility is collateralized by the assets of the Company and includes financial covenants we must meet in order to avoid an Event of Default, as defined by the agreement. Such covenants include (i) maintaining a minimum of $57.0 million in unrestricted cash at all times and (ii) achieving certain revenue targets for the trailing four quarter period beginning with the fiscal quarter ending March 31, 2023. The Structural Debt Facility contains a subjective acceleration clause in the event that lenders determine that a material adverse change has or will occur within the business, operations, or financial condition of the Company or a material impairment of the prospect of repaying any portion of this financial obligation. In accordance with the loan agreement, Structural has been provided with our periodic financial statements and updated projections to facilitate their ongoing assessment of the Company. We believe the likelihood that lenders would exercise the subjective acceleration clause is remote. As of September 30, 2023, we were in compliance with these covenants.

#### Siena Revolver

On March 10, 2023, we entered into a Loan and Security Agreement (the “Siena Revolver”) with Siena Lending Group, LLC which permits us to receive funding through a revolving line of credit with an initial commitment of $35.0 million. The borrowing capacity under the Siena Revolver is subject to certain conditions, including our inventory and accounts receivable balances and other limitations as specified in the agreement. Additional borrowing capacity from the Siena Revolver was $11.5 million as of September 30, 2023, of which there was an outstanding principal amount of $7.5 million.

The interest rates applicable to borrowings under the Siena Revolver are based on a fluctuating rate of interest measured by reference to either, at our option, (i) a Base Rate, plus an applicable margin, or (ii) the Term SOFR rate then in effect, plus 0.10% and an applicable margin. The Base Rate is defined as the greatest of: (1) Prime Rate as published in the Wall Street Journal, (2) Federal Funds Rate plus 0.5% and (3) 5.0% per annum. The applicable margin for Siena Revolver borrowings is based on the Company’s monthly average principal balance outstanding and ranges from 2.75% to 4.50% per annum in the case of Base Rate Borrowings and 3.75% to 5.50% per annum in the case of Term SOFR borrowings. The Siena Revolver also contains various financial covenants we must maintain to avoid an Event of Default, as defined by the agreement, including a subjective acceleration clause in the event that Siena determines that a material adverse change has or will occur with the business. We believe the likelihood of Siena exercising the subjective acceleration clause is remote. In accordance with the agreement, Siena has been provided with our periodic financial statements and updated projections to facilitate their ongoing assessment of the Company. The Siena Revolver matures at the earlier of March 10, 2026 or the maturity date of the Structural Debt Facility. As of September 30, 2023, we were in compliance with all covenants related to the Siena Revolver.

### Cash Flows

The following table summarizes our cash flows for the periods presented:

### Nine Months Ended September 30,

*(in thousands)*

|  | 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(9,102) | $(89,547) |
| Net cash used in investing activities | (2,383) | (3,580) |
| Net cash provided by financing activities | 10,246 | 118,542 |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $(1,239) | $25,415 |

### Operating Activities

Net cash used in operating activities decreased by $80.4 million for the nine months ended September 30, 2023 compared to September 30, 2022, primarily attributable to a decrease in net loss, net of noncash activities, of $60.3 million. This decrease in net loss, net of non-cash activities, was primarily driven by a decrease in advertising expenses of $42.0 million and a decrease in selling, general and administrative expenses of $52.3 million and an increase of inflow related to changes in net operating assets and liabilities of $20.1 million primarily driven by a decrease in inventory and accrued expenses. This was offset by decreases accounts payable due to timing of invoices from and payments to our vendors and suppliers.

### Investing Activities

Net cash used in investing activities of $2.4 million and $3.6 million for the nine months ended September 30, 2023 and 2022, respectively, was due to purchases of property and equipment.

### Financing Activities

Net cash provided by financing activities of $10.2 million for the nine months ended September 30, 2023 primarily consisted of $10.0 million in proceeds from the issuance of the Preferred Stock and related warrants, $7.5 million in proceeds from the Siena Revolver offset by the payment of transaction costs related to the Business Combination and redeemable convertible preferred stock issuance costs of $4.3 million, net outflows related to the settlement of stock options and restricted stock units of $1.5 million and payment debt fees of $0.9 million.

Net cash provided by financing activities of $118.5 million for the nine months ended September 30, 2022 primarily consisted of proceeds of $97.1 million from issuance of common stock upon the Closing of the Business Combination, including proceeds from the PIPE financing, and proceeds from issuance of contingently redeemable convertible preferred stock of $27.6 million, partially offset by $5.4 million payment of transaction issuance costs.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements, as defined in Item 303 of Regulation S-K, as of September 30, 2023.

### Critical Accounting Estimates

There have been no significant changes to our critical accounting policies since December 31, 2022, except as noted below. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K.

### Public Warrants and Private Placement Warrants

Historically, we have relied on the public trading price of the Public Warrants to value the related Public Warrant and Private Placement Warrant Liabilities. On June 12, 2023, the Public Warrants were delisted by the New York Stock Exchange due to the low trading price. As of June 12, 2023, the Public Warrants that were previously traded on the NYSE under the symbol GROV.WS may be quoted and traded in the over-the-counter market. As there is no longer a publicly available trading price for the Public Warrants, we estimate the value of the Public Warrant and Private Placement Warrants using a Black-Scholes pricing model. The Black-Scholes option-pricing model utilizes inputs and assumptions which involve inherent uncertainties and generally require significant judgment. As a result, if factors or expected outcomes change and significantly different assumptions or estimates are used, our Public Warrant and Private Placement Warrant liabilities could be materially different. Significant inputs and assumptions include:

Fair value of Common Stock – The fair value of the shares of common stock underlying the warrants has been determined based on market prices

Expected Term – The Company’s expected term represents the period that the Company’s Public Warrant and Private Placement Warrant are expected to be outstanding and is determined to be the contractual term of such warrants

Expected Volatility – Because we were privately held prior to the Business Combination and there was no active trading market for our common stock, the expected volatility is estimated based on the average volatility for publicly traded companies that we consider to be comparable, over a period equal to the expected term of the warrants.

Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the Public Warrant and Private Placement Warrants.

Expected Dividend – We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

### Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. The JOBS Act permits companies with emerging growth company status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. Following the closing of the Business Combination, the Company uses this extended transition period to enable it to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (1) is no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

### Smaller Reporting Company Status

The Company is a “smaller reporting company” meaning that the market value of the Company’s stock held by non-affiliates is less than $250 million. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements in the Company’s Annual Report on Form 10-K, and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. The Company will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of the Company’s common stocks held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter and the Company’s annual revenue exceeds $100 million during such completed fiscal year, or (ii) the market value of the Company’s common stock held by non-affiliates exceeds $700 million.

## Market risk

As filed, 163 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

## Controls and procedures

As filed, 2,599 characters.

#### (a) Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company evaluated, with the participation of the current chief executive officer and chief financial officer (the “Company’s Certifying Officers”), the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023, the end of the period covered by the Quarterly Report on Form 10-Q, pursuant to Rule 13a-15(b) under the Exchange Act. The Company’s Certifying Officers concluded that our disclosure controls and procedures were effective as of September 30, 2023.

#### (b) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the nine months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

#### Limitations on the Effectiveness of Controls

The Company does not expect that its disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

## Risk factors

As filed, 262 characters.

There have been no material changes to our risk factors that we believe are material to our business, results of operations and financial condition from the risk factors previously disclosed in our Annual Report on Form 10-K filed with the SEC on March 16, 2023.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038302. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.