grov-20220930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40263

_____________________________________

Grove Collaborative Holdings, Inc.

(Exact name of registrant as specified in its charter)

_____________________________________


Delaware						88-2840659
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1301 Sansome Street

San Francisco, California 94111

Tel.: (800) 231-8527

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001

GROV

New York Stock Exchange

Redeemable warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share

GROV.WS

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The registrant had outstanding 86,370,812 shares of Class A common stock and 80,627,804 shares of Class B common stock as of November 4, 2022.

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		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Convertible Preferred Stock, Contingently Redeemable Convertible Common Stock and Stockholders’ Equity (Deficit ) for the three and nine months ended September 30, 2022	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30 , 2022 and 2021	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	53
Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
Item 3.	Defaults Upon Senior Securities	82
Item 4.	Mine Safety Disclosures	82
Item 5.	Other Information	83
Item 6.	Exhibits	84
Signatures		87

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this "Form 10-Q”), including, without limitation, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Generally, statements that are not historical facts, including statements concerning Grove Collaborative Holdings, Inc. (the “Company,” “we,” “us,” or “our”) possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "plans," "may," "will," "potential," "projects," "predicts," "continue," or "should," or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations.

The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, without limitation, those factors described under Part II, Item 1A: "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. These risks and others described under Part II, Item 1A: "Risk Factors" may not be exhaustive.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

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Part I - Financial Information

Item 1. Financial Statements

Grove Collaborative Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)


	September 30, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	103,791	$	78,376
Inventory, net	56,045		54,453
Prepaid expenses and other current assets	7,240		8,104
Total current assets	167,076		140,933
Property and equipment, net	15,390		15,932
Operating lease right-of-use assets	18,628		21,214
Other long-term assets	2,097		4,394
Total assets	$	203,191	$	182,473
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	13,642	$	21,346
Accrued expenses	35,809		20,651
Deferred revenue	10,816		11,267
Operating lease liabilities, current	3,820		3,550
Other current liabilities	863		1,650
Debt, current	28,447		10,750
Total current liabilities	93,397		69,214
Debt, noncurrent	37,773		56,183
Operating lease liabilities, noncurrent	17,089		20,029
Derivative liabilities	27,737		—
Other long-term liabilities	2,160		5,408
Total liabilities	178,156		150,834
Commitments and contingencies (Note 7)
Convertible preferred stock, $0.0001 par value – 100,000,000 and 115,527,580 shares authorized at September 30, 2022 and December 31, 2021, respectively; no and 114,795,034 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	—		487,918
Stockholders’ equity (deficit):
Common stock - Class A shares, $0.0001 par value – 600,000,000 shares authorized at September 30, 2022 and no shares authorized at December 31, 2021; 70,039,246 and no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively; Class B shares, $0.0001 par value – 200,000,000 and 194,046,918 shares authorized at September 30, 2022 and December 31, 2021, respectively; 96,181,701 and 9,368,167 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	16		1
Additional paid-in capital	590,194		33,863
Accumulated deficit	(565,175)		(490,143)
Total stockholders’ equity (deficit)	25,035		(456,279)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	203,191	$	182,473

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue, net	$	77,733	$	95,178	$	247,491	$	296,421
Cost of goods sold	39,566		47,194		127,630		147,179
Gross profit	38,167		47,984		119,861		149,242

Operating expenses:
Advertising	8,668		32,459		59,359		90,611
Product development	5,765		5,586		17,927		16,436
Selling, general and administrative	46,295		46,100		155,160		140,609
Operating loss	(22,561)		(36,161)		(112,585)		(98,414)

Interest expense	2,546		1,213		6,918		3,272
Loss on extinguishment on debt	—		—		—		1,027
Change in fair value of Additional Shares liability	(1,045)		—		970		—
Change in fair value of Earn-Out liability	(28,791)		—		(46,136)		—
Change in fair value of Public and Private Placement Warrants liability	(2,803)		—		(3,983)		—
Other expense, net	(140)		113		4,643		1,157
Interest and other expense (income), net	(30,233)		1,326		(37,588)		5,456
Income (loss) before provision for income taxes	7,672		(37,487)		(74,997)		(103,870)
Provision for income taxes	10		11		35		39
Net income (loss)	$	7,662	$	(37,498)	$	(75,032)	$	(103,909)
Net income (loss) per share attributable to common stockholders, basic	$	0.05	$	(4.24)	$	(1.13)	$	(12.42)
Net income (loss) per share attributable to common stockholders, diluted	$	0.05	$	(4.24)	$	(1.13)	$	(12.42)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, basic	154,995,402		8,837,011		66,393,538		8,366,464
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders, diluted	166,104,259		8,837,011		66,393,538		8,366,464

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, Contingently Redeemable Convertible Common Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands)


	Convertible Preferred Stock			Contingently Redeemable Convertible Common Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balances at June 30, 2022 (Unaudited)	—	—		—	—		162,870	16		564,343		(572,837)		(8,478)
Issuance of shares under ELOC Agreement	—	—		—	—		41	—		138		—		138
Issuance of shares to settle Additional Shares Liability	—	—		—	—		3,275	—		16,310		—		16,310
Incremental direct transaction costs related to the Business Combination	—	—		—	—		—	—		(513)		—		(513)
Issuance of common stock upon exercise of stock options	—	—		—	—		11	—		21		—		21
Issuance of common stock upon exercise of warrants	—	—		—	—		24	—		12		—		12
Stock-based compensation	—	—		—	—		—	—		9,883		—		9,883
Net income	—	—		—	—		—	—		—		7,662		7,662
Balances at September 30, 2022 (Unaudited)	—	$	—	—	$	—	166,221	$	16	$	590,194	$	(565,175)	$	25,035

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, Contingently Redeemable Convertible Common Stock and Stockholders’ Equity (Deficit)

(In thousands)


	Convertible Preferred Stock (1)			Common Stock (1)			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balances at June 30, 2021 (Unaudited)	97,611	$	487,918	7,516	$	1	$	25,382	$	(420,658)	$	(395,275)
Recapitalization	17,184	—		1,323	—		—		—		—
Balances at June 30, 2021 (Unaudited)	114,795	487,918		8,839	1		25,382		(420,658)		(395,275)
Issuance of common stock upon exercise of stock options	—	—		59	—		74		—		74
Vesting of early exercise of options	—	—		—	—		168		—		168
Issuance of common stock upon exercise of warrants	—	—		286	—		150		—		150
Stock-based compensation	—	—		—	—		3,663		—		3,663
Net loss	—	—		—	—		—		(37,498)		(37,498)
Balances at September 30, 2021 (Unaudited)	114,795	$	487,918	9,184	$	1	$	29,437	$	(458,156)	$	(428,718)

(1) The shares of the Company’s common and convertible preferred stock prior to the Closing of the Business Combination (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 1.1760 established in the Merger Agreement as described in Note 3.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, Contingently Redeemable Convertible Common Stock and Stockholders’ Equity (Deficit)

(In thousands)


	Convertible Preferred Stock (1)			Contingently Redeemable Convertible Common Stock (1)			Common Stock (1)			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount		Shares	Amount
Balances at December 31, 2021	97,611	$	487,918	—	$	—	7,966	$	1	$	33,863	$	(490,143)	$	(456,279)
Recapitalization	17,184	—		—	—		1,402	—		—		—		—
Balances at December 31, 2021	114,795	487,918		—	—		9,368	1		33,863		(490,143)		(456,279)
Issuance of preferred stock and common stock upon exercise of warrants	168	989		—	—		180	—		12		—		12
Conversion of preferred stock warrant liability to common stock warrants	—	—		—	—		—	—		2,182		—		2,182
Convertible preferred stock and contingently redeemable common stock conversion	(114,963)	(488,907)		(2,750)	(27,473)		118,205	12		516,368		—		516,380
Issuance of common stock in connection with Business Combination, net of $17.6 million in transaction costs	—	—		—	—		20,921	2		79,466		—		79,468
Additional Shares liability, Earn-Out liability and Public and Private Placement Warrants recognized upon Business Combination	—	—		—	—		—	—		(93,196)		—		(93,196)
Issuance of Earn-Out Shares	—	—		—	—		14,000	1		—		—		1
Issuance of Class A common stock issued to employees, net of withholding taxes	—	—		—	—		32	—		(96)		—		(96)
Issuance of convertible common stock	—	—		2,750	27,473		—	—		—		—		—
Issuance of common stock upon exercise of stock options	—	—		—	—		216	—		354		—		354
Vesting of early exercised options	—	—		—	—		—	—		125		—		125
Repurchase of early exercise of options	—	—		—	—		(17)	—		—		—		—
Issuance of shares under ELOC Agreement	—	—		—	—		41	—		138		—		138
Issuance of shares to settle Additional Shares Liability	—	—		—	—		3,275	—		16,310		—		16,310
Stock-based compensation	—	—		—	—		—	—		34,668		—		34,668
Net loss	—	—		—	—		—	—		—		(75,032)		(75,032)
Balances at September 30, 2022 (Unaudited)	—	$	—	—	$	—	166,221	$	16	$	590,194	$	(565,175)	$	25,035

(1) The shares of the Company’s common, convertible preferred stock and contingently redeemable convertible common stock prior to the Closing of the Business Combination (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 1.1760 established in the Merger Agreement as described in Note 3.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock, Contingently Redeemable Convertible Common Stock and Stockholders’ Equity (Deficit)

(In thousands)


	Convertible Preferred Stock (1)			Common Stock (1)			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balances at December 31, 2020	97,611	$	487,918	7,200	$	1	$	14,605	$	(354,247)	$	(339,641)
Recapitalization	17,184	—		1,268	—		—		—		—
Balances at December 31, 2020	114,795	487,918		8,468	1		14,605		(354,247)		(339,641)
Issuance of common stock for services	—	—		4	—		49		—		49
Issuance of common stock upon exercise of stock options	—	—		581	—		591		—		591
Issuance of common stock upon exercise of warrants	—	—		286	—		150		—		150
Vesting of early exercise of options	—	—		—	—		1,413		—		1,413
Repurchase of early exercised options	—	—		(155)	—		—		—		—
Issuance of common stock warrants	—	—		—	—		1,622		—		1,622
Stock-based compensation	—	—		—	—		11,007		—		11,007
Net loss	—	—		—	—		—		(103,909)		(103,909)
Balances at September 30, 2021 (Unaudited)	114,795	$	487,918	9,184	$	1	$	29,437	$	(458,156)	$	(428,718)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities
Net loss	$	(75,032)	$	(103,909)
Adjustments to reconcile net loss to net cash used in operating activities:
Remeasurement of convertible preferred stock warrant liability	(1,616)		1,526
Stock-based compensation	34,348		10,858
Depreciation and amortization	4,291		3,633
Changes in fair value of derivative liabilities	(49,149)		—
Transaction costs allocated to derivative liabilities upon Business Combination	6,873		—
Non-cash interest expense	447		509
Inventory reserve	3,540		1,933
Loss on extinguishment of debt	—		1,027
Other non-cash expenses	170		396
Changes in operating assets and liabilities:
Inventory	(5,132)		(14,819)
Prepaids and other assets	715		(2,081)
Accounts payable	(7,550)		7,400
Accrued expenses	(1,826)		5,431
Deferred revenue	(451)		159
Operating lease right-of-use assets and liabilities	(84)		62
Other liabilities	909		(878)
Net cash used in operating activities	(89,547)		(88,753)

Cash Flows from Investing Activities
Purchase of property and equipment	(3,580)		(4,268)
Net cash used in investing activities	(3,580)		(4,268)

Cash Flows from Financing Activities
Proceeds from issuance of common stock upon Closing of Business Combination	97,100		—
Proceeds from issuance of contingently redeemable convertible common stock	27,500		—
Proceeds from issuance of shares under the ELOC Agreement	138		—
Payment of transaction costs related to the Closing of the Business Combination, the ELOC Agreement and convertible preferred stock issuance costs	(5,358)		(340)
Proceeds from the issuance of debt	—		50,000
Repayment of debt	(865)		(21,523)
Payment of debt issuance costs	(211)		(375)
Payment of debt extinguishment	—		(2,499)
Proceeds from exercise of stock options, net of withholding taxes paid related to common stock issued to employees, and warrants	270		749
Repurchase of common stock	(32)		(297)
Net cash provided by financing activities	118,542		25,715

Net increase (decrease) in cash and cash equivalents	25,415		(67,306)
Cash and cash equivalents at beginning of period	78,376		176,523
Cash and cash equivalents at end of period	$	103,791	$	109,217

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Grove Collaborative Holdings, Inc.

Condensed Consolidated Statements of Cash Flows - Continued

(Unaudited)

(In thousands)


Supplemental Disclosure
Cash paid for taxes	$	64	$	52
Cash paid for interest	4,803		3,285
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchase of property and equipment in accounts payable and accrued liabilities	$	91	$	102
Conversion of contingently redeemable convertible common stock and preferred stock to common stock	516,365		—
Assumption of derivative liabilities upon Business Combination	93,196		—
Reclassification of Grove's preferred stock warrant liability to equity	2,182		—
Net exercise of preferred stock warrants	989		—
Settlement of Additional Shares liability	16,310		—
Transaction costs and convertible preferred stock included in accounts payable and accrued liabilities	18,799		1,198
Vesting of early exercised stock options	125		1,413
Initial measurement of common stock warrants recorded as debt fees	—		1,622

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Grove Collaborative Holdings, Inc., a public benefit corporation, (formerly known as Virgin Group Acquisition Corp. II) and its wholly owned subsidiaries (collectively, the “Company” or “Grove”) is a digital-first, sustainability-oriented consumer products innovator specializing in the development and sale of household, personal care, beauty and other consumer products with an environmental focus and headquartered in San Francisco, California. In the United States, the Company sells its products through two channels: a direct-to-consumer (“DTC”) platform at www.grove.co and the Company’s mobile applications, where the Company sells products from Grove-owned brands (“Grove Brands”) and third-parties, and the retail channel into which the Company sell products from Grove-owned brands at wholesale. The Company develops and sells natural products that are free from the harmful chemicals identified in the Company’s “anti-ingredient” list and designs form factors and product packaging that reduces plastic waste and improves the environmental impact of the categories in which the Company operates. The Company also purchases environmental offsets that have made it the first plastic neutral retailer in the world, and we plan to become 100% plastic-free by 2025. Grove Collaborative, Inc. (herein referred to as “Legacy Grove”), the Company’s accounting predecessor, was incorporated in Delaware in 2016.

On June 16, 2022 (the “Closing Date”), the Company consummated the previously-announced transactions contemplated by the Agreement and Plan of Merger, dated December 7, 2021, amended and restated on March 31, 2022 (the “Merger Agreement”), among Virgin Group Acquisition Corp. II, a blank check company incorporated as a Cayman Islands exempt company in 2020 (“VGAC II”), Treehouse Merger Sub, Inc. (“VGAC II Merger Sub I”), Treehouse Merger Sub II, LLC (“VGAC II Merger Sub II”), and Legacy Grove (“the Merger”). In connection with the Merger, VGAC II changed its jurisdiction of incorporation from the Cayman Islands to the State of Delaware and changed its name to Grove Collaborative Holdings, Inc (the “Domestication”), a public benefit corporation. On the Closing Date, VGAC Merger Sub II merged with and into Legacy Grove with Legacy Grove being the surviving corporation and a wholly-owned subsidiary of the Company (the “Initial Merger”), and, immediately following the Initial Merger, and as part of the same overall transaction as the Initial Merger, Legacy Grove merged with and into VGAC Merger Sub II, the separate corporate existence of Legacy Grove ceased, and Merger Sub II continued as the surviving company and a wholly-owned subsidiary of the Company and changed its name to Grove Collaborative, Inc.(together with the Merger and the Domestication, the “Business Combination”).

The Business Combination is accounted for as a reverse recapitalization with Legacy Grove being the accounting acquirer and VGAC II as the acquired company for accounting purposes. Accordingly, all historical financial information presented in the unaudited condensed consolidated financial statements represents the accounts of Legacy Grove. The shares and net loss per common share prior to the Closing have been retroactively restated as shares reflecting the exchange ratio established in the Closing.

Prior to the Business Combination, VGAC II’s public shares, and public warrants were listed on the New York Stock Exchange (“NYSE”) under the symbols “VGII” and “VGII.WS,” respectively. On June 17, 2022, the Company's Class A common stock and public warrants began trading on (“NYSE”), under the symbols “GROV” and “GROV.WS,” respectively. See Note 3, Recapitalization for additional details.

2. Summary of Significant Accounting Policies

Basis of Presentation and Liquidity

The Company’s unaudited condensed consolidated financial statements (the “condensed consolidated financial statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiary in which it holds controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared in accordance with GAAP applicable to interim financial statements. These financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. As such, the information included herein should

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

be read in conjunction with Legacy Grove’s financial statements and accompanying notes as of and for the year ended December 31, 2021 (the “audited financial statements”) that were included in the Company’s Proxy Statement/Prospectus filed with the SEC on May 17, 2021. In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and the results of operations for the three and nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future interim or annual period.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The Company has historically incurred losses and negative cash flows from operations and had an accumulated deficit of $565.2 million as of September 30, 2022. The Company’s existing sources of liquidity as of September 30, 2022 include cash and cash equivalents of $103.8 million. Prior to the Business Combination, the Company historically funded operations primarily with issuances of convertible preferred stock and contingently redeemable convertible common stock and the incurrence of debt. Upon the Closing of the Business Combination, the Company received $72.6 million in cash proceeds, net of transaction costs. The Company believes the Business Combination eliminated the substantial doubt about the Company’s ability to continue as a going concern from at least one year after the date of issuance of this quarterly report on Form 10-Q (the “Quarterly Report”). Over the longer-term, the Company will need to raise additional capital through debt or equity financing to fund future operations until it generates positive cash flows from profitable operations. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to the Company, or at all.

Emerging Growth Company

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, the Company’s condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

Comprehensive Loss

Comprehensive loss represents all changes in stockholders’ deficit. The Company’s net income (loss) was equal to its comprehensive loss for all periods presented.

Significant Accounting Policies

Except for the addition of the Business Combination and related derivative liabilities, there have been no significant changes in the Company's significant accounting policies from those that were disclosed in Note 2, Summary of Significant Accounting Policies, included in the Company’s audited financial statements and the notes thereto for the year ended December 31, 2021.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. These estimates made by management include the determination of reserves amounts for the Company’s inventories on hand, useful life of intangible assets, sales returns and allowances and certain assumptions used in the valuation of equity awards, the estimated fair value of common stock liability classified Public and Private Placement Warrants, the fair value of Earn-Out liabilities, and

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

stock-based compensation expense. Actual results could differ from those estimates, and such estimates could be material to the Company’s financial position and the results of operations.

The novel coronavirus (“COVID-19”) pandemic has created significant global economic uncertainty and resulted in the slowdown of economic activity. As of the date of issuance of these condensed consolidated financial statements, the extent to which COVID-19 may impact the future financial condition or results of operations is still uncertain. The Company is not aware of any specific event or circumstance that would require revisions to estimates, updates to judgments, or adjustments to the carrying value of assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the condensed consolidated financial statements.

Concentration of Risks

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains the majority of its cash and cash equivalents in accounts with one financial institution within the United States, generally in the form of demand accounts. Deposits in this institution may exceed federally insured limits. Management believes minimal credit risk exists with respect to this financial institution and the Company has not experienced any losses on such amounts.

The Company depends on a limited number of vendors to supply products sold by the Company. For the three and nine months ended September 30, 2022 and 2021, the Company’s top five suppliers combined represented approximately 50% of the Company’s total inventory purchases.

Revenue Recognition

The Company primarily generates revenue from the sale of both third-party and Grove Brands products through its 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 the Company’s recurring shipment recommendation engine, and features that appear in marketing on-site, in emails and on the Company’s mobile application. Most customers purchase a combination of products recommended by the Company based on previous purchases and new products discovered through marketing or catalog browsing. Customers can have orders auto-shipped to them on a specified date or shipped immediately through an option available on the website and mobile application. In order to reduce the environmental impact of each shipment, the Company has a minimum total sales order value threshold policy which is required to be met before the order qualifies for shipment. Payment is collected upon finalizing the order. The products are subsequently packaged and shipped to fill the order. Customers can customize future purchases by selecting products they want to receive on a specified cadence or by selecting products for immediate shipment.

The Company also offers a VIP membership to its customers for an annual fee which includes the rights to free shipping, free gifts and early access to exclusive sales, all of which are available at the customers’ option, should they elect to make future purchases of the Company’s products within their annual VIP membership benefit period. Many customers receive a free 60-day VIP membership for trial purposes, typically upon their first qualifying order. After the expiration of this free trial VIP membership period, customers will be charged their annual VIP membership fee, which automatically renews annually, until cancelled. The customer is alerted before any VIP membership renews.

In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods, in an amount that reflects the consideration that it expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration, if any, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods it transfers to a customer.

A contract with a customer exists when the customer submits an order online for the Company’s products. Under this arrangement, there is one performance obligation which is the obligation for the Company to fulfill the

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

order. Product revenue is recognized when control of the goods is transferred to the customer, which occurs upon the Company’s delivery to a third-party carrier.

The VIP membership provides customers with a suite of benefits that are only accessible to them at their option, upon making a future qualifying order of the Company’s products. The VIP membership includes free shipping, a select number of free products and early access to exclusive sales. Under ASC 606, sales arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options; therefore, the Company must assess whether these options provide a material right to the customer and if so, they are considered a performance obligation. The Company concluded that its VIP membership benefits include two material rights, one related to the future discount (i.e., free shipping) on the price of the customer’s qualifying order(s) over the membership period and the second one relating to a certain number of free products provided at pre-set intervals within the VIP membership benefit period, that will only ship with a customer’s next qualifying order (i.e., bundled).

At inception of the VIP membership benefit period, the Company allocates the VIP membership fee to each of the two material rights using a relative standalone selling price basis. Generally, standalone selling prices are determined based on the observable price of the good or service when sold separately to non-VIP customers and the estimated number of shipments and free products per benefit period. The Company also considers the likelihood of redemption when determining the standalone selling price for free products and then recognize these allocated amounts upon the shipment of a qualifying customer order. To date, customers buying patterns closely approximate a ratable revenue attribution method over the customers VIP Membership period.

The Company deducts discounts, sales tax, customer service credits and estimated refunds to arrive at net revenue. Sales tax collected from customers is not considered revenue and is included in accrued liabilities until remitted to the taxing authorities. The Company has made the policy election to account for shipping and handling as activities to fulfill the promise to transfer the good. Shipping, handling and packaging expenses are recognized upon shipment and classified within selling, general and administrative expenses. Discounts are recorded as a reduction to revenue when revenue is recognized. The Company records a refund reserve based on historical refund patterns. As of September 30, 2022 and December 31, 2021 the refund reserve, which is included in accrued liabilities in the condensed consolidated balance sheets, was $0.1 million.

Disaggregation of Revenue

The following table sets forth revenue by product type (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue, net:
Grove Brands	$	36,425	$	45,762	$	121,489	$	145,516
Third-party products	41,308		49,416		126,002		150,905
Total revenue, net	$	77,733	$	95,178	$	247,491	$	296,421

Contractual Liabilities

The Company has three types of contractual liabilities from transactions with customers: (i) cash collections for products which have not yet shipped, which are included in deferred revenue and are recognized as revenue upon the Company’s delivery to a third-party carrier, (ii) cash collections of VIP membership fees, which are included in deferred revenue and (iii) customer service credits, which are included in other current liabilities and are recognized as a reduction in revenue when provided to the customer. Contractual liabilities included in deferred revenue and other current liabilities were $10.8 million and $0.3 million, respectively, as of September 30, 2022 and $11.3 million and $0.3 million, respectively, as of December 31, 2021. The contractual liabilities included in deferred revenue are generally recognized as revenue within twelve months from the end of each reporting period. Revenue recognized during the nine months ended September 30, 2022 that was previously included in deferred revenue and other current liabilities as of December 31, 2021 was $10.9 million and $0.2 million, respectively.

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Customer Referral Credits

The Company has a customer referral program under which credits are issued for future purchases to customers when the referral results in the generation of a new customer order. The Company records a liability at the time of issuing the credit and reduce the liability upon application of the credit to a customer’s purchase. The liability for customer referral credits was $0.1 million as of September 30, 2022 and December 31, 2021 and is included within other current liabilities in the condensed consolidated balance sheets.

Fulfillment Costs

Fulfillment costs represent those costs incurred in operating and staffing the Company’s fulfillment centers, including costs attributable to receiving, inspecting and warehousing inventories, picking, packaging, and preparing customer orders for shipment (“Fulfillment Labor”), shipping and handling expenses, packaging materials costs and payment processing and related transaction costs. These costs are included within selling, general and administrative expenses in the condensed consolidated statements of operations. For the three months ended September 30, 2022 and 2021, the Company recorded fulfillment costs of $19.5 million and $23.5 million, respectively, which included $12.3 million and $14.3 million in shipping and handling expenses, respectively, and $4.3 million and $5.7 million in Fulfillment Labor, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded fulfillment costs of $64.2 million and $72.5 million, respectively, which included $39.4 million and $43.2 million in shipping and handling expenses, respectively, and $15.4 million and $17.8 million in Fulfillment Labor, respectively. The Company's gross profit may not be comparable to other retailers or distributors.

Warrant Liabilities

The Company classifies Private Placement Warrants and Public Warrants (both defined and discussed in Note 9, Common Stock and Warrants) as liabilities. At the end of each reporting period, changes in fair value during the period are recognized within the condensed consolidated statements of operations. The Company will continue to adjust the warrant liability for changes in the fair value until the earlier of a) the exercise or expiration of the warrants or b) the redemption of the warrants, at which time the warrants will be reclassified to additional paid-in capital.

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

3. Recapitalization

As discussed in Note 1, Description of Business, on the Closing Date, VGAC II completed the acquisition of Legacy Grove and acquired 100% of Legacy Grove’s shares and Legacy Grove received gross proceeds of $97.1 million, which includes proceeds from issuance of common stock upon the consummation of the Business Combination, including the Backstop Tranche 2 shares, and proceeds from the PIPE investment (as defined below). The Company recorded $24.5 million of transaction costs, which consisted of legal, accounting, and other professional services directly related to the Business Combination. Transaction costs were allocated on a relative fair value basis between the issuance of common stock, Public and Private Placement Warrants, Grove Earn-Out Shares, Downside Protection feature and Backstop Warrants (as defined below). Direct and incremental transaction costs allocated to equity-classified instruments have been recorded within equity as an offset against proceeds upon accounting for the consummation of the Business Combination in the condensed consolidated financial statements. Direct and incremental transaction costs allocated to liability-classified equity instruments were expensed in the condensed consolidated financial statements and included in other expense, net in the condensed consolidated statements of operations. The cash outflows related to these costs were presented as financing activities on the Company’s condensed consolidated statement of cash flows. On the Closing Date, each holder of Legacy Grove common stock received approximately 1.1760 shares of the Company’s Class B common stock, par value $0.0001 per share. See Note 8, Convertible Preferred Stock and Note 9, Common Stock and Warrants for additional details of the Company's equity balances prior to and subsequent to the Business Combination.

All equity awards of Legacy Grove were assumed by the Company and converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class B common stock. As a result, each outstanding stock option was converted into an option exercisable for the Company’s Class B common stock based on an exchange ratio of approximately 1.1760, each outstanding restricted stock unit was converted into restricted stock units of the Company that, upon vesting and issued, will be settled for shares of the Company’s Class B common stock based on an exchange ratio of approximately 1.1760 and each outstanding warrant to purchase Legacy Grove common stock or preferred stock was converted into a warrant to purchase shares of the Company’s Class B common stock based on an exchange ratio of approximately 1.1760.

Each public and private warrant of VGAC II that was unexercised at the time of the business combination was assumed by the Company and represents the right to purchase one share of the Company’s Class A common stock upon exercise of such warrant.

The Merger was accounted for as a reverse recapitalization with Legacy Grove as the accounting acquirer and VGAC II as the acquired company for accounting purposes. Legacy Grove was determined to be the accounting acquirer since Legacy Grove’s shareholders prior to the business combination had the greatest voting interest in the combined entity, Legacy Grove's shareholders appointed the initial directors of the combined Board of Directors and control future appointments, Legacy Grove comprises all of the ongoing operations, and Legacy Grove's senior management directs operations of the combined entity. Accordingly, all historical financial information presented in these condensed consolidated financial statements represents the accounts of Legacy Grove. Net assets were stated at historical cost consistent with the treatment of the transaction as a reverse recapitalization of Legacy Grove.

Earn-Out

At the closing of the Business Combination, Class B common stock shareholders (including Grove stock option, restricted stock unit, and warrant holders) were issued 13,999,960 shares of New Grove Class B Common Stock (“Earn-Out Shares”), which will vest (i) with respect to 7,000,173 of the Earn-Out Shares, upon the closing price of the Company’s Class A common stock equaling or exceeding $12.50 per share for any 20 trading days within any 30-trading-day period and (ii) with respect to 6,999,787 of the Earn-Out Shares, upon the closing price of the Company’s Class A common stock equaling or exceeding $15.00 per share for any 20 trading days within any 30-trading-day period. Such events can occur during a period of ten years following the Mergers (the “Earn-Out Period”).

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

If, during the Earn-Out Period, there is a Change of Control Transaction (as defined in the Merger Agreement), then all remaining triggering events that have not previously occurred and the related vesting conditions shall be deemed to have occurred.

If, upon the expiration of the Earn-Out Period, any Earn-Out Shares shall have not vested, then such Earn-Out Shares shall be automatically forfeited by the holders thereof and canceled by the Company. The settlement amount to be paid to the selling shareholders of the Earn-Out Shares can change and is not indexed to the Company’s stock. Due to the change in control event contingency and variable number of Earn-Out shares to be settled to the holders, the Earn-Out Shares fail the equity scope exception and are accounted for as a derivative in accordance with ASC 815 and it will be remeasured on a recurring basis at fair value, with changes in fair value recorded in the condensed consolidated statements of operations. As of September 30, 2022, the Company did not meet any Earn-Out thresholds.

PIPE Investment

On December 7, 2021, concurrently with the execution of the Merger Agreement, VGAC II entered into subscription agreements with certain investors (the “PIPE Investors”) to which such investors collectively subscribed for an aggregate of 8,707,500 shares of the Company’s Class A common stock at $10.00 per share for aggregate gross proceeds of $87,075,000 (the “PIPE Investment”). 8,607,500 shares of the Company’s Class A common stock have been issued for aggregate proceeds of $86,075,000, which consummated concurrently with the closing to the Business Combination.

Backstop Financing

On March 31, 2022, VGAC II entered into a subscription agreement (the “Backstop Subscription Agreement”) with Corvina Holdings Limited (the “Backstop Investor”) and Legacy Grove. As part of the Backstop Subscription Agreement, the Backstop Investor subscribed for and purchased 2,338,352 shares of Legacy Grove Common Stock (the “Backstop Tranche 1 Shares”) for aggregate proceeds of $27,500,000. The Company initially classified the Backstop Tranche 1 Shares as mezzanine (or temporary) equity on its balance sheet because the Backstop Tranche 1 Shares were contingently redeemable upon the occurrence of certain events not solely within the control of the Company that allow for the effective redemption of such shares in cash at the option of the holder. Upon Closing of the Business Combination, the Backstop Tranche 1 Shares were converted into 2,750,000 shares of Class A Common Stock and the Tranche 1 Shares were no longer contingently redeemable. The Company has classified these shares in permanent equity on its balance sheet at September 30, 2022.

In addition, the Backstop Investor agreed to subscribe for and purchase, on the closing date of the Business Combination, certain shares of New Grove class A common stock at a purchase price of $10.00 per share (“Backstop Tranche 2 Shares”) for aggregate gross proceeds in an amount equal to (x) $22.5 million minus (y) the amount of aggregate cash remaining in VGAC II’s trust account, after deducting any amounts paid to VGAC II shareholders who exercise their redemption rights in connection with the Business Combination. The Company issued to the Backstop Investor, as of immediately following the closing of the Mergers, 1,671,524 Backstop Tranche 2 Shares for aggregate proceeds of $16,715,240.

The Backstop Subscription Agreement also provided that the Company would issue additional shares of Class A common stock to the Backstop Investor for Backstop Tranche 1 Shares and Backstop Tranche 2 Shares if the volume weighted average price of Class A common stock was less than $10.00 during the 10 trading days commencing on the first trading date after the Company’s first quarterly earnings call for the fiscal quarter ended June 30, 2022 (“Additional Shares”). In August 2022, the Company settled this obligation by issuing 3,275,182 shares of Class A common stock to the Backstop Investor.

As part of the Backstop Subscription Agreement, the Company issued to the Backstop Investor 3,875,028 warrants to purchase New Grove Class A Common Stock (each warrant exercisable to purchase one share of New Grove Class A Common Stock for $0.01) (such warrants, the “Backstop Warrants”). The Backstop Warrants are exercisable by the Backstop Investor at any time on or before June 16, 2027, and are on terms customary for warrants of such nature. The Backstop Warrants were recorded in equity on the Company’s balance sheet at September 30, 2022.

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Grove Collaborative Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

4. Fair Value Measurements and Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. These levels are:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Financial instruments consist of cash equivalents, accounts payable, accrued liabilities, debt and convertible preferred stock warrant liability, Additional Shares, Earn-Out Shares and Public and Private Placement Warrants. Cash equivalents, convertible preferred stock warrant liability, Earn-Out Shares and Public and Private Placement Warrant are stated at fair value on a recurring basis. Accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short period time to the expected receipt or payment. The carrying amount of the Company’s outstanding debt approximates the fair value as the debt bears interest at a rate that approximates prevailing market rate.

The Public Warrants are classified as Level 1 due to the use of an observable market quote in an active market. Private Placement Warrants are classified as Level 2 as the fair value approximates the fair value of the Public Warrants. The Private Placement Warrants are identical to the Public Warrants, with certain exception discussed in Note 9, Common Stock and Warrants. The Earn-Out Shares are classified as Level 3 and their fair values were estimated using a Monte Carlo options pricing model utilizing assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimated the expected volatility assumption based on the implied common stock volatilities of a set of publicly traded peer companies. Changes in this assumption, including the selection of or quantities of companies with the peer company set, could materially affect the estimate of the fair value of these instruments and the related change in fair value of these instruments.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 by level within the fair value hierarchy (in thousands):


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents:
Money market funds	$	102,094	$	—	$	—	$	102,094
Total	$	102,094	$	—	$	—	$	102,094
Financial Liabilities:
Earn-Out Shares	—		—		24,345		24,345
Public Warrants	1,851		—		—		1,851
Private Placement Warrants	—		1,541		—		1,541
Total	$	1,851	$	1,541	$	24,345	$	27,737