The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Honest Company's third quarter fiscal 2021 earnings call. At this time, all participants are on a listen-only 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 turn the conference over to Mr. Sung Kim, VP Finance and Strategy at the Honest Company. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us for our third 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 Law, including statements about the outlook of our business and other matters referenced in our earnings relief issue 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 issue 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 is the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to be 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, Sung. Good afternoon, everyone. We're excited to speak with you today. Honest is dedicated to providing safe, clean, and effective products to consumers around the world. We continue to work tirelessly to drive our mission of inspiring everyone to love living consciously. As noted in our earnings release, We delivered a solid quarter with top line growth versus the third quarter of 2020 and gross margin expansion from the first half of 2021. Revenue growth was primarily driven by volume reflecting increased productivity in existing distribution and new omnichannel expansion. Honest grew market share in the quarter across our core product categories and accelerated household penetration reflective of our brand values and efficacious products that resonate strongly with consumers. Overall, we're proud of our team's contribution to our results. We delivered on our brand mission while navigating headwinds stemming from a dynamic operating environment with significant inflationary pressure and supply chain challenges. We recorded our eighth consecutive quarter of year-over-year revenue and volume growth, delivered 20% year-over-year growth in our diapers and wipes and skin and personal care categories, and improved gross margin performance by 40 basis points from the first half of the year. Our financial results demonstrate the ongoing strength of our business. Our priority continues to be executing against our strategic initiatives. We're focused on broadening awareness of our brand, introducing breakthrough innovative products, and expanding our digital and retail presence. Now, I'll provide an update on our progress across these initiatives in Q3 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 increased our household penetration to 3.5% this quarter, up over 10%. as compared to Q3 of 2020. We continue to invest in driving household penetration within our skin and personal care business, where we drove 28% year-over-year revenue growth, both for this quarter and for the first nine months of 2021. This remains a strategic priority for us, as more than 40% of year-to-date new honest.com consumers have been acquired through our skin and personal care products. Second, we continue to support our breakthrough innovative products. In the third quarter of 2021, we saw strong results from our clean, conscious diaper that we introduced in the middle of the first quarter. Behind the improvements in performance and sustainability of this product, we witnessed nearly 20% year-over-year revenue growth for the quarter on our diaper business. Our diaper market share continued to increase this quarter as our diaper retail consumption growth outpaced the market. Honest grew 24% compared to the total diaper market, up 14%. In the third quarter of 2021, we also introduced our sustainable packaging initiative for beauty. The line now features tree-free packaging on all our secondary cartons. As part of this launch, we also introduced our daily defense collections. a new line of skincare products designed to defend the skin against environmental aggressors. The beauty restage has already begun to show signs of positive performance and has led to retail distribution gains. We expect this restage to be a growth driver for the business going forward. Third, we are pleased to deliver strong growth in our retail channel as our integrated omnichannel strategy has led to a more balanced mix of revenue across our channels. Our retail channel accounted for 53% of our total revenue in the third quarter, as opposed to only 44% in the third quarter of 2020, when consumers remained at home and shifted significantly to online shopping. In line with this macro trend, we've 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 28 percent in the third quarter of 2021 compared to 2020. We believe we're well-positioned with our omnichannel strategy to capture growth wherever our consumers choose to shop. Significant white space opportunity exists to expand our on-shelf presence and the depth of our product offering with new and existing retail partners. In the third quarter, the number of stores selling Honest products expanded to over 40,000 retail locations, up double digits compared to the same period in 2020, led by a significant increase in stores selling our skin and personal care products. Behind our sustainable packaging initiative for beauty, We're excited to announce that we will continue expanding into an additional 385 Target stores with our beauty products in Q1 of 2022. This will bring our beauty line into over 1,600 total Target stores and will increase our total points of distribution in beauty at Target by approximately 30%. In addition, We have gone exciting new distribution wins on our beauty restage with a key strategic retail partner in the drug channel. In Q4 of 2021, we are adding an incremental seven skincare items in line in roughly 3,000 Walgreens stores. In addition to that distribution in Q4, We are setting 1,500 end caps at Walgreens in Q1 of 2022 that will add 15 new items to our current assortment. Before I turn it over to Kelly, I want to take a moment to reiterate our commitment to ESG, which has been part of our DNA since our founding. 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 on society. 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 are pleased with our solid progress this year and believe we are well-positioned 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 third quarter results.