Grove laborative (GROV) - 2023 Q4 - Annual Results

Company Overview & Q4 2023 Highlights Executive Summary & Strategic Direction Grove Collaborative achieved a second consecutive quarter of positive Adjusted EBITDA and operating cash flow in Q4 2023, targeting sustainable growth and profitability in 2024 - Achieved a second consecutive quarter of positive Adjusted EBITDA and positive operating cash flow in Q4 2023[2][3] - Set a new record for net revenue per order, reaching $66.83[2][6] - Expects to achieve sequential revenue growth in the second half of 2024, positive Adjusted EBITDA for the full year 2024, and plans for full-year growth and profitability in 2025[3] Q4 2023 Financial Performance Summary Q4 2023 net revenue declined 19.2% YoY to $59.9 million due to reduced ad spend, though gross margin improved significantly to 54.4% Q4 2023 Key Financial Performance | Metric | Q4 2023 | Q3 2023 | Q4 2022 | YoY Change | QoQ Change | | :---------------------- | :-------- | :-------- | :-------- | :--------- | :--------- | | Net Revenue | $59.9M | $61.8M | $74.0M | -19.2% | -3.1% | | Gross Margin | 54.4% | 53.8% | 47.0% | +740 bps | +60 bps | | Operating Expenses | $40.5M | $37.3M | $63.2M | -35.9% | +8.5% | | Net Loss Margin | (15.8%) | (15.9%) | (17.1%) | +130 bps | +10 bps | | Adjusted EBITDA | $0.1M | N/A | -$9.5M | N/A | N/A | | Adjusted EBITDA Margin | 0.2% | 0.3% | (12.9%) | +1310 bps | -10 bps | | Operating Cash Flow | $1.1M | N/A | N/A | N/A | N/A | | Net Revenue per Order | $66.83 | N/A | $63 | +5.4% | +2.4% | Q4 2023 Detailed Financial Results Income Statement Highlights Net revenue declined from lower DTC orders, but improved margins and significantly lower operating expenses YoY narrowed the net loss and improved Adjusted EBITDA Q4 2023 Income Statement Highlights | Metric | Q4 2023 (in thousands) | Q4 2022 (in thousands) | YoY Change | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | | Net Revenue | $59,857 | $74,036 | -19.2% | | Cost of Goods Sold | $27,295 | $39,245 | -30.5% | | Gross Profit | $32,562 | $34,791 | -6.4% | | Loss from Operations | $(7,943) | $(28,398) | +72.0% | | Net Loss | $(9,485) | $(12,683) | +25.2% | - Operating expenses increased 8.5% quarter-over-quarter, including $3.3 million in restructuring charges and a $1.5 million increase in stock-based compensation[5] Balance Sheet & Cash Flow Snapshot The company ended Q4 2023 with $94.9 million in cash, cash equivalents, and restricted cash, supported by positive operating cash flow Q4 2023 Balance Sheet Snapshot | Metric | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Cash and Cash Equivalents | $86,411 | $81,084 | +6.6% | | Restricted Cash | $5,650 | $11,950 | -52.7% | | Total Current Assets | $124,196 | $142,010 | -12.5% | | Total Assets | $150,742 | $174,045 | -13.4% | | Total Current Liabilities | $35,043 | $57,473 | -39.0% | | Total Liabilities | $132,620 | $147,512 | -10.1% | | Total Stockholders' Equity | $8,122 | $26,533 | -69.4% | - Cash, cash equivalents, and restricted cash increased by $0.2 million from the prior quarter, driven by $1.1 million in operating cash flow, partially offset by $0.5 million in capital expenditures[7] Key Business & Operational Metrics Grove-branded revenue share declined slightly amid third-party expansion, while lower ad spend reduced active customers but drove record-high net revenue per order Q4 2023 Key Business Metrics | Metric | Q4 2023 | Q4 2022 | YoY Change | | :---------------------- | :-------- | :-------- | :--------- | | Grove Brands Net Revenue % | 44% | 46% | -200 bps | | Total DTC Orders | 864K | 1,132K | -23.7% | | Active DTC Customers | 920K | 1,377K | -33.2% | | DTC Net Revenue per Order | $66.83 | $63 | +5.4% | - The decline in Grove Brands' net revenue percentage was primarily due to the expansion of third-party product offerings, especially in the Health & Wellness category[8] - The decrease in total DTC orders and active customers resulted from reduced advertising spend in 2022 and 2023[9] - Record growth in DTC net revenue per order was driven by a mix shift toward existing customer orders and an increase in the average number of items per order[10] Customer-Driven Growth - Implemented a new growth model incentivizing customers through subscription and savings programs to align with e-commerce best practices[14] - Expanded third-party brand offerings, adding brands such as Ancient Nutrition, Compostic, The Honest Company, and WishGardens[14] - Launched Grove Co. Bottle Wash Power Packs and consolidated the Grove owned-brand strategy under the flagship Grove Co. brand[14] - The Health & Wellness category's share of orders grew by over 75% year-over-year, supported by the formation of a Health & Wellness Advisory Council[14] - Enhanced the customer website experience through improved personalized product recommendations and an updated VIP program[14] Sustainability Initiatives - Recovered 15 million pounds of single-use plastic from nature and oceans since 2020 through plastic neutrality commitments and partnerships[14] - Launched the "Beyond Plastic™" digital badging system to identify products meeting Grove's plastic standards (100% plastic-free, 95%+ plastic-free, or no single-use plastic)[14] Profitability Initiatives - Continued to improve operating costs through negotiations with suppliers, partners, and contracts to enhance operating leverage and profitability[14] - Took additional actions in Q1 2024 to further optimize operating costs and expense structure, including reducing headquarters lease footprint and optimizing the fulfillment network[14] Plastic Intensity Score Q4 2023 Plastic Intensity Score | Metric | Q4 2023 | Q3 2023 | Q4 2022 | YoY Change | QoQ Change | | :------------------------------------------------ | :-------- | :-------- | :-------- | :--------- | :--------- | | Plastic Intensity (Total Business) | 1.07 lbs/$100 | 1.11 lbs/$100 | 1.08 lbs/$100 | -0.01 lbs | -0.04 lbs | | Plastic Intensity (Grove Brands Only) | 1.07 lbs/$100 | 1.14 lbs/$100 | 0.98 lbs/$100 | +0.09 lbs | -0.07 lbs | - The year-over-year increase in Grove Brands' plastic intensity was primarily driven by the Grove Co. 100% recycled plastic trash bag product category[11] Full Year 2023 Financial Results Full Year Income Statement Highlights FY2023 net revenue decreased 19.4% to $259.3 million due to lower ad spend, while gross margin improved significantly to 53.0% FY2023 Income Statement Highlights | Metric | FY2023 (in thousands) | FY2022 (in thousands) | YoY Change | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | | Net Revenue | $259,278 | $321,527 | -19.4% | | Gross Margin | 53.0% | 48.1% | +490 bps | | Operating Expenses | $172,622 | $295,635 | -41.6% | | Net Loss Margin | (16.7%) | (27.3%) | +1060 bps | | Adjusted EBITDA Margin | (3.5%) | (24.8%) | +2130 bps | - Gross margin improvement was driven by the full-year impact of online order-related fees, a reduction in lower-margin first orders, and the sale of previously reserved inventory[15] - The decrease in operating expenses was due to reductions in advertising expenses, product development costs, and selling, general, and administrative expenses[15] Full Year Plastic Intensity The company's overall plastic intensity improved in FY2023, decreasing to 1.10 pounds of plastic per $100 of revenue FY2023 Plastic Intensity | Metric | FY2023 | FY2022 | YoY Change | | :---------------------- | :-------- | :-------- | :--------- | | Plastic Intensity | 1.10 lbs/$100 | 1.17 lbs/$100 | -0.07 lbs | Financial Outlook Fiscal Year 2024 Guidance The company projects FY2024 net revenue between $215-$225 million and an Adjusted EBITDA margin of 0.0% to 1.0%, expecting sequential growth in H2 - Expects a revenue decline in Q1 2024 but anticipates sequential revenue growth in the second half of the year while balancing advertising efficiency and profitability[18] FY2024 Guidance | Metric | Guidance Range | | :---------------------- | :------------- | | Net Revenue | $215M to $225M | | Adjusted EBITDA Margin | 0.0% to 1.0% | Additional Information About Grove Collaborative Grove Collaborative is a certified B Corporation offering over 200 eco-friendly brands with a mission to move 'Beyond Plastic™' - Founded in 2016, it is a certified B Corporation dedicated to transforming consumer products into a force for good for people and the planet[20] - Offers and curates over 200 high-performance, eco-friendly brands across categories like home cleaning, personal care, and health & wellness[20] - All products are vetted against the "Grove Feel Good Standard", ensuring ingredient standards, 100% plastic-neutral orders, carbon-neutral shipping, cruelty-free practices, and ethical production[21] - As a public benefit corporation, its mission is to be "Beyond Plastic™" and its products are available at select national retailers[21][23] Conference Call Details The company held an investor conference call on March 6, 2024, to review financial results, with replay details available - The investor conference call and webcast were held on March 6, 2024, at 5:00 p.m. ET / 2:00 p.m. PT[19] - The webcast is accessible at https://investors.grove.co/; a telephone replay is available until March 20, 2024[19] Non-GAAP Financial Measures Explanation The report includes non-GAAP measures like Adjusted EBITDA, which management uses for analysis, with a full reconciliation to GAAP net loss provided - Non-GAAP measures like Adjusted EBITDA and Adjusted EBITDA Margin are supplemental to, not a substitute for or superior to, GAAP financial results[25] - Management uses these non-GAAP measures for trend analysis, budgeting, and planning, and for comparison with similar companies[25] - Adjusted EBITDA is calculated by adding back items such as stock-based compensation, depreciation and amortization, change in fair value of derivative liabilities, interest, and restructuring charges to net income (loss)[26] Cautionary Note on Forward-Looking Statements This release contains forward-looking statements involving risks and uncertainties, and the company does not assume an obligation to update them - The press release includes forward-looking statements regarding profitable revenue growth in H2 2024, positive Adjusted EBITDA for 2024, and the 2024 guidance[24] - These statements are subject to risks and uncertainties, including changes in business, market, financial, political, and legal conditions, competition, and inflation[24] - Grove undertakes no obligation to update any forward-looking statements, except as required by applicable securities laws[24] Consolidated Financial Statements Consolidated Balance Sheets The balance sheets show a year-over-year decrease in total assets and liabilities as of December 31, 2023 Consolidated Balance Sheets (Selected Items) | Item | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $86,411 | $81,084 | | Inventories, net | $28,776 | $44,132 | | Total current assets | $124,196 | $142,010 | | Total assets | $150,742 | $174,045 | | Accounts payable | $8,074 | $10,712 | | Accrued expenses | $16,020 | $31,354 | | Total current liabilities | $35,043 | $57,473 | | Non-current liabilities | $71,662 | $60,620 | | Total liabilities | $132,620 | $147,512 | | Total stockholders' equity | $8,122 | $26,533 | Consolidated Statements of Operations These statements detail revenues, costs, and expenses, showing a narrowing of net loss for Q4 and the full year 2023 Consolidated Statements of Operations (Selected Items) | Item | Q4 2023 (in thousands) | Q4 2022 (in thousands) | FY2023 (in thousands) | FY2022 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net revenues | $59,857 | $74,036 | $259,278 | $321,527 | | Gross profit | $32,562 | $34,791 | $137,359 | $154,652 | | Loss from operations | $(7,943) | $(28,398) | $(35,263) | $(140,983) | | Net loss | $(9,485) | $(12,683) | $(43,232) | $(87,715) | | Net loss per share (basic and diluted) | $(0.27) | $(0.39) | $(1.28) | $(4.85) | Consolidated Statements of Cash Flows These statements show a significant reduction in net cash used in operating activities for the year ended December 31, 2023 Consolidated Statements of Cash Flows (Selected Items) | Item | FY2023 (in thousands) | FY2022 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | | Net cash used in operating activities | $(7,993) | $(96,261) | | Net cash used in investing activities | $(2,985) | $(4,222) | | Net cash provided by financing activities | $9,856 | $118,092 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(1,122) | $17,609 | | Cash, cash equivalents, and restricted cash at end of period | $94,863 | $95,985 | Non-GAAP Reconciliation (Adjusted EBITDA) This section provides a detailed reconciliation of GAAP net loss to non-GAAP Adjusted EBITDA for Q4 and the full year 2023 Reconciliation of Net Loss to Adjusted EBITDA (Selected Items) | Item | Q4 2023 (in thousands) | Q4 2022 (in thousands) | FY2023 (in thousands) | FY2022 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net loss | $(9,485) | $(12,683) | $(43,232) | $(87,715) | | Stock-based compensation expense | $3,572 | $11,312 | $15,513 | $45,660 | | Depreciation and amortization | $1,465 | $1,425 | $5,824 | $5,716 | | Interest expense | $4,159 | $2,767 | $16,077 | $9,685 | | Restructuring costs | $3,258 | $5,887 | $3,811 | $8,879 | | Total Adjusted EBITDA | $137 | $(9,514) | $(9,183) | $(79,854) | | Adjusted EBITDA Margin | 0.2% | (12.9%) | (3.5%) | (24.8%) |