Grove Collaborative Holdings Inc

Previous wording

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 other leading natural and mission-based CPG brands, providing consumers with a selection of curated products across many categories and brands. We refer to this part of our business as “DTC.” We expanded into brick-and-mortar retail in April 2021 with the launch of a curated assortment of Grove Co. best sellers in cleaning, laundry, hand and dish categories at Target and have since established additional retail partnerships with CVS, Meijer, and Kroger. Our products were sold in over 10,000 stores across these retail partnerships and on Amazon.com as of June 30, 2024. We believe our retail strategy will generate additional brand awareness, especially as consumer concerns about single-use plastic continue to rise.

Current wording

We operate an online direct-to-consumer website and mobile application (“DTC platform”) where we both sell our Grove-owned brands (“Grove Brands”) and other leading natural and mission-based CPG brands, providing consumers with a selection of curated products across many categories and brands. We refer to this part of our business as “DTC.” We recently made the decision to exit the business of selling Grove Co. products in brick and mortar retail channels. We expect our exit from brick and mortar retail to improve our profitability while having an insignificant impact on our revenue, and to be completed in 2025.

Previous wording

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 believe that improved innovation grows both revenue and, over the long term, can expand margins as our innovation has historically tended to be both market expanding and margin accretive. Since inception, we have invested heavily in building out both our e-commerce platform and Grove Brands, and over this period we have operated at a loss. We have an accumulated deficit of $634.5 million as of June 30, 2024. Beginning in the second half of 2022, we substantially reduced 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.

Current wording

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 believe that improved innovation grows both revenue and, over the long term, can expand margins as our innovation has historically tended to be both market expanding and margin accretive. Since inception, we have invested heavily in building out both our e-commerce platform and Grove Brands, and over this period we have operated at a loss. We have an accumulated deficit of $635.9 million as of September 30, 2024. Beginning in the second half of 2022, we substantially reduced 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.

Previous wording

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 profitably attract new customers and encourage consumer spending across our product portfolio. We believe the core elements of continuing to grow our brand awareness in a manner that increases our market penetration are highlighting our products’ qualities of being natural, sustainable and effective, the effectiveness of our marketing efforts and the success of our continued retail rollout.

Current wording

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 profitably attract new customers and encourage consumer spending across our product portfolio. We believe the core elements of continuing to grow our brand awareness in a manner that increases our market penetration are highlighting our products’ qualities of being natural, sustainable and effective and the effectiveness of our marketing efforts.

Previous wording

Our continued product innovation is integral to our future growth. We have developed and launched over 500 individual products in recent years. The research, development, testing and improvement has been led by our research and development 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 find ways to maintain this important feedback loop. As a result of our cost reductions in recent periods, we have substantially reduced our investment in product innovation. Our future 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.

Current wording

Our continued product innovation is integral to our future growth. We have developed and launched over 500 individual products in recent years. The research, development, testing and improvement of our products has been led by our research and development 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. As a result of our cost reductions in recent periods, we have substantially reduced our investment in product innovation. Our future 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.

Previous wording

Our ability to attract new customers is a key factor for our future growth. To date we have successfully acquired new customers through online and offline marketing channels. In recent years, 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 in these channels to increase consistently. We made changes in 2023 to our online purchase flow and subscription process. During the transition, we experienced a reduction of the rate at which visitors convert into subscribers, which has made it more difficult to cost-effectively acquire subscribers. We began to launch further improvements to this process in 2024, which initially caused a negative impact on conversion, but we have since experienced improving conversion and are still seeing improvement. Failure to effectively adapt to changes in online marketing dynamics or changes to our internet platform, or to otherwise attract customers on a cost-efficient basis would adversely impact our path to revenue growth, profitability and our operating results. Recently, we implemented a lower-spend strategy to optimize the cost of acquiring new customers but as conversion improves, we plan to spend more on advertising to drive growth in future quarters. Our ability to balance cost-efficient acquisitions while driving consumer awareness may impact the cost of acquiring new customers, profitability and operating results.

Current wording

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

Previous wording

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 application 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. A lack of success in these areas would materially impact our operating results and financial performance.

Current wording

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 application 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, are necessary for our future growth. A lack of success in these areas would materially impact our operating results and financial performance.

Previous wording

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 creating and curating planet-first, high-performance brands and products. After experiencing high rates of growth prior to and in part driven by the COVID-19 pandemic, in 2022 and 2023 we 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. To grow and achieve profitability over the longer term, we will need to re-invest 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.

Current wording

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 creating and curating planet-first, high-performance brands and products. After experiencing high rates of revenue growth prior to and in part driven by the COVID-19 pandemic, in 2022 and 2023 we 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. To grow and achieve profitability over the longer term, we will need to re-invest to expand our DTC business and achieve scale that will allow us to drive efficiencies in generating brand awareness, acquiring and retaining 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 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.

Previous wording

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. Our total DTC net revenue includes revenue from both Grove Brands and third-party brands that we carry, while our retail sales total net revenues is comprised exclusively of revenue from Grove Brand products. In the three and six months ended June 30, 2024, 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 offerings and a decrease in new customer orders, which typically include more Grove Brands products.

Current wording

We define Grove Brands % Net Revenue as total net revenue across all channels attributable to Grove Brands, divided by our total net revenue. Our total DTC net revenue includes revenue from both Grove Brands and third-party brands that we carry. In the three and nine months ended September 30, 2024, 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 offerings. We recently made the decision to exit sales of our products in brick and mortar retail channels which may result in Grove Brands as a percentage of our net revenue decreasing.

Previous wording

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 six months ended June 30, 2024, DTC Total Orders declined primarily due to our reduction in advertising spend, resulting in fewer new customers and therefore fewer overall orders.

Current wording

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 the engagement and retention of existing customers. In the three and nine months ended September 30, 2024, DTC Total Orders declined primarily due to our lower advertising spend strategy, resulting in fewer new customers and therefore fewer overall orders.

Previous wording

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 six months ended June 30, 2024, DTC Active Customers declined primarily due to our reduction in advertising spend resulting in fewer new customers and therefore fewer overall orders.

Current wording

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, 2024, DTC Active Customers declined primarily due to our lower advertising spend strategy, resulting in fewer new customers and therefore fewer overall orders.

Previous wording

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 six months ended June 30, 2024 compared to the prior year comparative period as a result of a decrease in the number of lower-net revenue first orders, increased number of products sold per order due to our expanded product offering.

Current wording

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, 2024 compared to the prior year comparative periods as a result of increased number of products sold per order due to our expanded product offering along with favorable product mix and strategic price increases.

Previous wording

We calculate Adjusted EBITDA as net income (loss), adjusted to exclude: stock-based compensation expense; depreciation and amortization; changes in fair values of derivative liabilities; transaction costs allocated to derivative liabilities upon closing of the transaction where we became a publicly traded company; interest income; interest expense; restructuring and severance related costs; provision for income taxes and certain litigation and legal settlement expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net 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.

Current wording

We calculate Adjusted EBITDA as net loss, adjusted to exclude: stock-based compensation expense; depreciation and amortization; changes in fair values of derivative liabilities; transaction costs allocated to derivative liabilities upon closing of the transaction where we became a publicly traded company; interest income; interest expense; restructuring and severance related costs; provision for income taxes and certain litigation and legal settlement expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net 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.

Previous wording

(1)Restructuring expenses for the three months ended June 30, 2024 consisted of $1.2 million of severance-related charges, $0.7 million of asset impairment charges and $0.3 million of costs related to the closure of our facility in Missouri. Restructuring expenses for the six months ended June 30, 2024 consisted of $3.1 million gain from the Company’s modification of its lease at its San Francisco headquarters offset by $1.5 million in severance-related charges, $0.7 million of asset impairment charges and $0.3 million of costs related to the closure of our facility in Missouri. For the three and six months ended June 30, 2023, restructuring expenses consisted solely of severance-related charges.

Current wording

(1)Restructuring expenses for the three months ended September 30, 2024 consisted solely of costs related to the move to a new distribution facility in Nevada. Restructuring expenses for the nine months ended September 30, 2024 consisted of a $3.1 million gain from our modification of the lease at our San Francisco headquarters offset by $1.5 million in severance-related charges and $2.1 million of costs related to the closure of our facility in Missouri and our move to a new distribution facility in Nevada. For the nine months ended September 30, 2023, restructuring expenses consisted solely of severance-related charges.

Previous wording

We generate revenue primarily from the sale of both third-party and our Grove Brands products through our DTC platform. Customers purchase products through our 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 application. 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 through the retail channel.

Current wording

We generate revenue primarily from the sale of both third-party and our Grove Brands products through our DTC platform. Customers purchase products through our 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 application. 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 subscribe and 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 have generated revenue from the sales of our Grove Brands products through the brick and mortar retail channel. While our historical financial results have included these sales, we have made the decision to exit selling in the brick and mortar retail channels. We do not expect this decision to have a significant impact on our financial results.

Previous wording

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 2023 as we balance our investments in our proprietary technology, the expansion of our product line, innovative packaging and product improvements with revenue growth.

Current wording

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. As a result of our decision to transition to the Shopify platform, we expect product development costs as a percentage of revenue to be elevated for the remainder of 2024 due to the accelerated amortization of previously capitalized internally developed software.

Previous wording

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. Selling, general and administrative expenses have declined from 2023 as a result of decreases in fulfillment costs, the absence of charges and transactional expenses related to our becoming a publicly traded company and cost management initiatives. We expect to continue to drive efficiencies in selling, general & administrative expenses throughout 2024.

Current wording

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. Selling, general and administrative expenses have declined from 2023 as a result of decreases in fulfillment costs largely driven by lower sales, the absence of charges and transactional expenses related to our becoming a publicly traded company and cost management initiatives. We expect to continue to drive efficiencies in selling, general & administrative expenses throughout 2024.

Previous wording

Interest expense consists primarily of interest expense associated with our debt financing arrangements. In recent periods we have recorded higher interest expense due to higher interest rates on our Structural Debt Facility (as defined below) and increases in the prime rate. To the extent there are changes in prevailing interest rates in future periods we anticipate cash payments for interest and interest expense to fluctuate as interest rates change in the future.

Current wording

Interest expense consists primarily of interest expense associated with our debt financing arrangements. In recent periods, we have recorded higher interest expense due to higher interest rates on our Structural Debt Facility (as defined below) and increases in the prime rate. We expect the interest expense to decline following our repayment of $42.0 million of our term debt under the Structural Debt Facility in the third quarter of 2024. To the extent there are changes in prevailing interest rates in future periods we anticipate cash payments for interest and interest expense to fluctuate as interest rates change in the future.

Previous wording

Comparisons of the Three and Six Months Ended June 30, 2024 and June 30, 2023

Current wording

Comparisons of the Three and Nine Months Ended September 30, 2024 and September 30, 2023

Previous wording

Revenue decreased by $14.0 million, or 21%, and $32.0 million or 23% for the three and six months ended June 30, 2024, respectively, as compared to the three and six months ended June 30, 2023. This decline was primarily driven by a decrease in DTC Total Orders, partially offset by increases in DTC Net Revenue Per Order. Revenue decreased primarily as a result of a reduction in our advertising spend.

Current wording

Revenue decreased by $13.5 million, or 22%, and $45.5 million, or 23%, for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023. This decline was primarily driven by a decrease in DTC Total Orders and the elimination of certain per order fees, partially offset by increases in DTC Net Revenue Per Order.

Previous wording

Cost of goods sold decreased by $7.8 million, or 24%, and $18.3 million, or 28%, for the three and six months ended June 30, 2024, respectively, as compared to the three and six months ended June 30, 2023, due to recoveries related to the inventory reserve and a decrease in DTC Total Orders partially offset by higher cost of goods per order.

Current wording

Cost of goods sold decreased by $5.8 million, or 20%, and $24.1 million, or 25%, for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023, due to a decrease in DTC Total Orders partially offset by higher cost of goods per order.

Previous wording

Gross margin in the three and six months ended June 30, 2024 increased by 197 basis points and 273 basis points, respectively, compared to the three and six months ended June 30, 2023 due to recoveries related to the inventory reserve and a decrease in lower-margin first time orders. Increases in gross margin were partially offset by changes in sales mix of Grove brands and third-party products.

Current wording

Gross margin in the nine months ended September 30, 2024 increased by 164 basis points, compared to the nine months ended September 30, 2023 due to recoveries related to the inventory reserve and a decrease in lower-margin first time orders. Increases in gross margin were partially offset by a decrease in revenue from the elimination of certain order per fees.

Previous wording

Advertising expenses decreased by $2.2 million, or 48%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to the implementation of a lower-spend strategy to optimize the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Performance partnerships advertising decreased by $1.0 million, advertising specifically aimed at attracting retail customers decreased by $1.0 million, and social media and other online advertising decreased by $0.1 million.

Current wording

Advertising expenses decreased by $1.2 million, or 31%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to the implementation of our lower-spend strategy to optimize the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Performance partnership advertising decreased by $0.7 million and advertising specifically aimed at attracting retail customers decreased by $0.7 million. The decrease was partially offset by a net increase in online advertising of $0.2 million.

Previous wording

Advertising expenses decreased by $8.8 million, or 66%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to the implementation of a lower-spend strategy to optimize the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Performance partnerships advertising decreased by $2.9 million, social media and other online advertising decreased by $2.4 million, advertising specifically aimed at attracting retail customers decreased by $2.2 million, audio and mailer advertising decreased by $0.6 million, and creative content production costs decreased by $0.5 million.

Current wording

Advertising expenses decreased by $10.1 million, or 58%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the implementation of our lower-spend strategy to optimize the cost of acquiring new customers, while balancing driving consumer awareness and cash flow management. Performance partnerships advertising decreased by $3.6 million, advertising specifically aimed at attracting retail customers decreased by $2.9 million, online and social media advertising decreased by $2.2 million, audio and mailer advertising decreased by $0.5 million, and creative content production costs decreased by $0.5 million.

Previous wording

Product development expenses increased by $1.4 million, or 34% for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to increases in severance related expenses.

Current wording

Product development expenses increased by $1.2 million, or 34%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to accelerated amortization related to internally developed software.

Previous wording

Product development expenses increased by $0.8 million, or 10% for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to increases in severance related expenses.

Current wording

Product development expenses increased by $2.0 million, or 17%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to increases in severance related expenses and accelerated amortization related to internally developed software.

Previous wording

Selling, general and administrative expenses decreased by $8.0 million, or 23% for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Stock-based compensation expense decreased by $1.4 million driven by lower expense relating to the vesting of RSU awards resulting from the terms of the option exchange we effected in October 2022, lower expense under the accelerated attribution method for awards granted prior to the closing of the Business Combination and reductions in headcount. Fulfillment costs decreased by $3.9 million, including a $2.4 million decrease in shipping and handling expenses and $0.8 million decrease in fulfillment labor both due to a decrease in the volume of orders. Other general and administrative expenses, excluding stock-based compensation expense and fulfillment costs, decreased by $2.7 million, mainly due to reductions in corporate salaries and benefits and professional fees. These decreases were partially offset by an increase of $0.7 million in asset impairment charges.

Current wording

Selling, general and administrative expenses decreased by $5.0 million, or 17%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Fulfillment costs decreased by $2.7 million, including a $1.7 million decrease in shipping and handling expenses and $0.6 million decrease in fulfillment labor both due to a lower volume of orders. Other general and administrative expenses, excluding fulfillment costs, decreased by $3.2 million, mainly due to reductions in headcount and legal fees. These decreases were partially offset by an increase of stock-based compensation of $0.7 million.

Previous wording

Selling, general and administrative expenses decreased by $21.5 million, or 29% for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. Stock-based compensation expense decreased by $2.8 million driven by lower expense relating to the vesting of RSU awards resulting from the terms of the option exchange we effected in October 2022 and reductions of headcount. Fulfillment costs decreased by $8.8 million, including a $5.5 million decrease in shipping and handling expenses and $2.0 million decrease in fulfillment labor both due to a decrease in the volume of orders. Other general and administrative expenses, excluding stock-based compensation expense and fulfillment costs, decreased by $9.8 million, which includes $4.1 million in reductions to corporate salaries and benefits, a $3.1 million gain from our modification of the lease related to our headquarters and reductions in professional and other fees. These decreases were partially offset by an increase of $0.7 million in asset impairment charges.

Current wording

Selling, general and administrative expenses decreased by $26.4 million, or 26% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Fulfillment costs decreased by $11.5 million, including a $7.2 million decrease in shipping and handling expenses and a $2.5 million decrease in fulfillment labor both due to a lower volume of orders. Stock-based compensation expense decreased by $2.1 million driven by lower expense relating to the vesting of RSU awards resulting from the terms of the option exchange we effected in October 2022 and reductions of headcount. Other general and administrative expenses, excluding stock-based compensation expense and fulfillment costs, decreased by $12.9 million, which includes $5.5 million in reductions to corporate salaries, benefits, and bonus due to decreases in headcount, a $3.3 million reduction in professional fees, and a $3.1 gain on lease modification relating to our San Francisco office that occurred in March 2024.

Previous wording

Interest expense increased by $0.1 million, or 2%, and $0.5 million or 6% for the three and six months ended June 30, 2024, respectively, as compared to the three and six months ended June 30, 2023 primarily due to increases in the amount of our outstanding debt and interest rates. See the section titled “Liquidity and Capital Resources” below for further details.

Current wording

Interest expense decreased by $1.2 million, or 29%, and $0.7 million, or 6%, for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023 primarily due to the $42.0 million repayment of part of our debt under the Structural Debt Facility partially offset by an increase in interest rates. See the section titled “Liquidity and Capital Resources” below for further details.

Previous wording

The change in the fair value of derivative liabilities for the three and six ended June 30, 2024, other than the Structural Derivative liability, was primarily driven by the changes in our stock price from December 31, 2023 through June 30, 2024. The change in fair value of the Structural Derivative liability for the three and six ended June 30, 2024 was primarily driven by the length of time before the Structural Subsequent Shares could be issued.

Current wording

The change in the fair value of derivative liabilities for the three and nine ended September 30, 2024, other than the Structural Derivative liability, was primarily driven by the changes in our stock price from December 31, 2023 through September 30, 2024. The fair value of the Structural Derivative liability decreased by $7.0 million and $6.8 million for the three and nine months ended September 30, 2024, respectively, primarily due to changes in the likelihood the Company will be required to issue the Structural Subsequent Shares.

Previous wording

Other income, net decreased by $3.6 million, or 63% for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 primarily due to the $3.7 million gain recorded in the first quarter of 2023 as a result of reaching settlement with Morgan Stanley related to the de-SPAC fees allocated to derivative instruments.

Current wording

Other income, net decreased by $4.2 million, or 61% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily due to the $3.7 million gain recorded in the first quarter of 2023 as a result of reaching settlement with Morgan Stanley related to the de-SPAC fees allocated to derivative instruments and due to lower on-hand cash as a result of the $42 million payment of Structural Debt Facility.

Previous wording

As of June 30, 2024, we had $78.8 million in unrestricted cash and cash equivalents, which excludes restricted cash of $3.8 million. We incurred negative cash flows from operating activities of $10.8 million for the six months ended June 30, 2024. We have incurred significant losses since inception and have an accumulated deficit of approximately $634.5 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 $73.4 million, net of debt issuance costs, as of June 30, 2024. As described more fully below, in July 2024, we used $42.0 million of cash to prepay a portion of our outstanding indebtedness.

Current wording

As of September 30, 2024, we had $50.8 million in unrestricted cash and cash equivalents, which excludes restricted cash of $4.8 million. We incurred negative cash flows from operating activities of $10.0 million for the nine months ended September 30, 2024. We have incurred significant losses since inception and have an accumulated deficit of approximately $635.9 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 $32.2 million, net of debt issuance costs, as of September 30, 2024. As described more fully below, in July 2024, we used $42.0 million of cash to prepay a portion of our outstanding indebtedness.

Previous wording

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.

Current wording

On August 11, 2023 (the “Series A Preferred Stock Closing Date”), we entered into a 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 “Series A 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”). The Series A Preferred Stock was redeemable, at the option of the holder, for the original issuance price plus any declared but unpaid dividends following the seventh anniversary of the Series A Preferred Stock Closing Date (“Optional Redemption”).

Previous wording

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 $6.4 million as of June 30, 2024.

Current wording

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 $6.8 million as of September 30, 2024.

Previous wording

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 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 June 30, 2024, 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. As of July 31, 2024, under the terms of the SEPA we would be able to raise gross proceeds of approximately $8.6 million.

Current wording

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. Unless our average stock price 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, 2024, 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. As of October 31, 2024, under the terms of the SEPA we would be able to raise additional gross proceeds of approximately $7.9 million.

Previous wording

Management believes that currently available resources will provide sufficient funds to enable the Company to meet its obligations for at least one year following 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.

Current wording

Management believes that currently available resources will provide sufficient funds to enable the Company to meet its obligations for at least one year following the date these condensed consolidated financial statements are available to be issued. Cash from operations could be affected by our customers and other risks detailed in the section of our titled “Risk Factors.” In the event we must raise additional capital resources to execute strategic initiatives and fund our operations, our ability to raise additional capital may be adversely impacted by the trading price of common stock. We may also 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.

Previous wording

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.

Current wording

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), 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.

Previous wording

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 June 30, 2024, we had $10.3 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, 2023 and December 31, 2022 included in Form 10-K filed with the SEC on March 20, 2024.

Current wording

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, 2024, we had $10.5 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, 2023 and December 31, 2022 included in Form 10-K filed with the SEC on March 20, 2024.

Previous wording

In March 2024, we entered into an amendment to the lease agreement (the “Amendment”) for our headquarters located in San Francisco, California, to provide for, among other things, a reduction of the amount of space being leased and a reduction in the monthly lease payments owed to the lessor. At execution of the Amendment, we paid $4.8 million. The Amendment requires us to make escalating undiscounted annual base rent payments of up to $0.4 million, payable monthly. The lease term under the Amendment expires in May 2027.

Current wording

In March 2024, we entered into an amendment to the lease agreement (the “Amendment”) for our headquarters located in San Francisco, California, to provide for, among other things, a reduction of the amount of space being leased and a reduction in the monthly lease payments owed to the lessor. At execution of the Amendment, we paid $4.8 million. The Amendment requires us to make escalating undiscounted annual base rent payments of up to $0.4 million, payable monthly. The lease term under the Amendment expires on May 31, 2027.

Previous wording

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. In July 2024, we entered into an amendment to the Structural Debt Facility (the “Structural Amendment”) which required us to prepay $42.0 million of the outstanding principal amount and delayed the principal repayment period until January 1, 2026 and modified covenants related to our cash balances. The Structural Amendment did not modify interest terms of the Structural Debt Facility. 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 June 30, 2024, the contractual interest rate on the Structural Debt Facility was 16.00%. We 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, we may be obligated to pay additional fees which would allow for the lenders to reach a minimum return.

Current wording

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. In July 2024, we entered into an amendment to the Structural Debt Facility (the “Structural Amendment”) which required us to prepay $42.0 million of the outstanding principal amount and delayed the principal repayment period until January 1, 2026 and modified covenants related to our cash balances. The Structural Amendment did not modify interest terms of the Structural Debt Facility. 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, 2024, the contractual interest rate on the Structural Debt Facility was 15.50%. We 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, we may be obligated to pay additional fees which would allow for the lenders to reach a minimum return.

Previous wording

The Structural Debt Facility, as modified by the Structural Amendment, is collateralized by our assets 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 $23.8 million in unrestricted cash at all times and (ii) achieving certain revenue targets for the trailing four quarter period beginning with the fiscal quarter ended 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 June 30, 2024, we were in compliance with these covenants.

Current wording

The Structural Debt Facility, as modified by the Structural Amendment, is collateralized by our assets 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 $23.75 million in unrestricted cash at all times and (ii) achieving certain revenue targets for the trailing four quarter period beginning with the fiscal quarter ended March 31, 2023. 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. As of September 30, 2024, we were in compliance with these covenants. In connection with the issuance of Series A’ Preferred Stock, the Company is required to prepay $10.0 million of the principal amount on the Structural Debt Facility on or before November 30, 2024. We expect to repay the remaining principal amount outstanding under the Structural Debt Facility during the fourth quarter of 2024.