The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to The Honest Company's second quarter fiscal 2021 earnings conference call. At this time, all participants are on a list and all in mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Sung Kim, VP Finance and Strategy at The Honest Company. Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us for our second quarter fiscal year 2021 conference call. Joining me today are Nick Vlahos, Chief Executive Officer, and Kelly Kennedy, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filing, as well as our earnings release issued today, for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's financial results earnings release. A live broadcast of this call is also available on the investor relations section of our website at investors.honest.com. With that, I'll turn the call over to Nick.

Thanks, Sean. Good morning, everyone. We're excited to speak with you on our second earnings call as a public company. Honest is dedicated to providing safe, clean, and effective products to consumers around the world. We continue to tirelessly work to drive our mission of inspiring everyone to love living consciously. As you saw in our earnings release, we had a solid quarter with top-line growth, sequential gross margin expansion, and continued progress against our strategic initiatives despite facing a challenging environment. We saw our seventh consecutive quarter of year-over-year revenue and volume growth, even in light of the significant COVID-19 demand in the second quarter of 2020. Revenue grew 3% in the second quarter of 2021 on top of the 16% growth that we saw in the second quarter of 2020 versus 2019. Additionally, we achieved solid gross margins of 36% in the second quarter as our cost evasion initiatives and improved product mix offset inflation headwinds and normalized levels of trade spend. As we mentioned in our Q1 earnings call, we were impacted by a reduction of inventory at a key digital partner. Even in the face of the $6 million headwind, our first half revenue and volume grew 8% compared to the first half of 2020. That's on top of the 25% growth rate in the first half of 2020 versus 2019. Our focus continues to be executing against what we can control. Our strategic initiatives have remained constant. We continue to focus on broadening awareness of our brand, introducing breakthrough product innovation, increasing our digital and retail presence, and continuing our commitment to ESG. Now, I will provide an update on our progress across these initiatives in Q2 2021. Starting with marketing innovation, we continue to expand brand awareness and consumer touchpoints through the use of marketing campaigns leveraging our content, community, and commerce strategy. By inspiring authentic dialogue and creating lasting connections, we drove 16% growth in our skin and personal care business this quarter and 28% growth for the first half of 2021. This continues to remain a strategic focus for us as more than 40% of new Honest.com consumers are acquired through our skin and personal care products. Throughout the second quarter of 2021, we continued to invest in integrated marketing campaigns supporting our skin and personal care business, which combined earned media coverage, sponsored influencer content, earned user-generated content, and paid media. Two campaigns that exemplify These full funnel tactics were our Honest Beauty Radiance Campaign that featured our Vitamin C Serum and Gloss C Lip Gloss in our See Your Beauty Campaign around our eye portfolio, including our Hero Mascara product. In total, these campaigns generated roughly 900 million total impressions across over 70 earned media placements. 100 pieces of sponsored content and paid media including white listing and brand handle amplification. Jessica Alba created original content to support each campaign and amplified influencer content to help expand their reach. These campaigns led to a strong consumer engagement. increased traffic to Honest.com, and featured our award-winning products, including our most recent award win, an Allure Reader's Choice Award for our Extreme Life Mascara and Lash Primer. We believe these campaigns positioned our beauty business extremely well as we launched our sustainable packaging initiatives for beauty in the third quarter of 2021. Given the continued success of these programs, we expect to lean into marketing in the back half to continue to support the restage and pursue growth in skin and personal care. Second, we continue to support our breakthrough product innovation. In the first quarter of 2021, we introduced our Clean Conscious Diaper that delivered improvements in performance, sustainability, and margin. This innovative product fully phased into the market in the second quarter of 2021, driving a lift on diaper consumption trends in the marketplace. Our new diaper is our best performing and most sustainable diaper yet. Behind these improvements in performance and sustainability we saw mid-single-digit growth for the quarter on our diaper business despite COVID-19 stock-up impact in the year-ago period. Our diaper market share increased this quarter as our diaper retail consumption growth outpaced the market. Honest grew 33% compared to the total diaper market up 20%. Beyond the breakthrough diaper innovation, We also introduced new innovation in our wipes, household and wellness, and beauty categories in the second quarter with items such as our benefit wipes, which hydrate and nourish skin as they clean, our scented sanitizing wipes, which introduce natural fragrances to our sanitizing wipes line, and our honestly healthy serum-infused lash tint and plant-based brow gel. which helped to build our eye portfolio around our hero beauty product, our Extreme Length Mascara. Third, we were pleased to deliver strong growth in our retail channel as our integrated omnichannel strategy led to a more balanced mix of revenue across our channels. Our retail channel accounted for 53% of our total revenue in the second quarter, as opposed to only 36% in the second quarter of 2020 when consumers sheltered in place and shifted to online shopping. In line with this macro trend, we have seen increased consumer willingness to get back into stores as more people have become vaccinated. As a result, we have seen a channel shift from digital to retail, causing an acceleration in revenue growth within our retail channel. Our retail channel grew 51% in the second quarter of 2021 compared to 2020. We believe we're well positioned with our omni-channel strategy to capture growth wherever our consumer chooses to shop. Significant white space opportunities exist to expand our on-shelf presence and the depth of our product offering with new and existing retail partners. For example, we've secured new physical and digital distribution for the back half of 2021 in line with our expectations with over 30,000 new distribution points with approximately half coming in the skin and personal care product category. Highlights of this distribution expansion include the launch of our diapers with Walmart Canada, a launch of diapers and wipes on BJs.com, launch of a digital strategic partnership with GoPuff, and the expansion of our total brand assortment with key grocery partners including Kroger, Aho, Hannaford, and Wakeford. Before I turn it over to Kelly, I wanted to take a moment to reiterate our commitment to ESG, which has been part of our DNA since our founding. We have a deep sense of purpose and infuse the ethical values of transparency, sustainability, diversity and inclusion in all that we do. From developing products designed to be safe, to working hand-in-hand with our charity partners to serve those in need, to embracing diversity and inclusion, We're on a mission to create real and meaningful impact. This quarter, we're excited to highlight our renewed partnership with our official charitable partner, Baby to Baby. Since inception, Honest has donated over 26 million products, making an impact with individuals and families in need. To celebrate Baby to Baby's 10-year anniversary, we have committed to donating 10 million products over the course of 2021 and 2022 to further support our community and help Baby to Baby distribute essential items to underserved communities. In summary, we believe we have built the foundation for Honest to continue to grow as a leading clean and natural wellness brand. We continue to capitalize on our strong content, community, and commerce platform to drive good growth across product categories and all consumer touchpoints. We're pleased with our solid start to the year and believe we're well positioned to continue to advance our strategic growth plan. Now, I would like to turn the call over to Kelly Kennedy, our Chief Financial Officer, to review our second quarter results.