The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Honest Company's fourth quarter in year-end 2021 earnings call. At this time, all participants are in 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 hand the conference over to Mr. Steve Austinfeld, VP, Investor Relations at the Honest Company. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining our fourth quarter and year-end 2021 conference call. Joining me today are Nick Vlahos, our Chief Executive Officer, and Kelly Kennedy, our Chief Financial Officer. Before I begin, I'd 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 earnings release issued today as well as our SEC filings 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 any results of any revision to these forward-looking statements in light of new information or future events, except as required by law. Also, during this call, we will discuss non-GAAP financial measures, which adjust our results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and the reconciliation of these non-GAAP to GAAP measures in the financial results section of today's 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, Steve. Good afternoon, everyone. Thanks for joining us today. As noted in our earnings release, our fourth quarter reflected continued revenue growth and market share gains in our core product categories. Importantly, we saw 19% revenue growth in our core categories of diapers and wipes and skin and personal care behind our clean conscious diaper and our beauty restage innovation. Honest also grew market share in the quarter across these core categories. Total revenue growth for the fourth quarter was 3%, with strong core category growth of 19%, offset by decline in household and wellness, as demand for our household sanitizing and disinfecting products remained lower than the prior year. As a result, we have refocused our investments on the core parts of the business, and invested in new innovation in the wellness subcategory that will launch in the second half of 2022. While gross margin adjusted EBITDA for the fourth quarter were challenged due to inventory reserves taken on certain sanitizing and disinfecting products in response to demand declines, we believe that the actions we're taking will improve our margin profile starting in the second half of 2022. Looking at our full year 2021 results, I'm proud of our Honest team for dealing with multiple macroeconomic challenges head-on and continuing to execute against our long-term growth strategies around marketing innovation, product innovation, omnichannel distribution, and social responsibility. As we celebrate our 10-year anniversary this year, the Honest brand is poised to continue to lead the clean, conscious consumer movement As we embark on our next decade, let me illuminate what gives our team confidence and conviction that we're creating a modern consumer brand for the future. First, the power of the honest brand remains resilient in a highly volatile environment reflected in our strong core category revenue growth of 13% in 2021 behind our diapers and wipes and skin and personal care business. Second, our focus on driving growth with our content community commerce marketing strategy yielded an increase in unaided brand awareness on diapers from 25 percent a year ago to 29 percent today, and we were able to expand and grow our household penetration to 4.9 percent by the end of 2021, an increase of 2.7 million new, honest households over the last two years. Third, our investment in product innovation behind our clean, conscious diaper and beauty restage continues to pay off as we grew overall honest retail market share and outpaced category growth in diapers, wipes, and personal care for 52 weeks ending December 26, 2021. Fourth, Our omnichannel go-to-market strategy is continuing to advance as we expanded distribution to 43,000 retail locations as of the end of 2021, representing 49% ACV for the entire Honest brand, up from 40% two years ago. Lastly, we expanded our ESG efforts with a continued focus on diversity and inclusion, environmental sustainability of our products, and strong governance practices. Our R&D team has worked to increase the number of ingredients we choose not to use from 2,500 to 3,500 ingredients. We've donated over 26 million products to date, supporting our commitment to social responsibility. Also, we are proud of the progress we continue to make with our honest team. 65% of our leadership is female, and 50% of our workforce is diverse. As we look towards 2022, I'd like to provide an update on our long-term strategy and what has evolved since our initial public offering last year. The Honest Brand continues to resonate with the modern consumer as we celebrate our 10-year anniversary as evidenced by core category growth, increased brand awareness, growth in household penetration, increased market share, and new omnichannel distribution. Our core categories of diapers and wipes and skin and personal care are expected to continue to drive top-line growth and grow market share. We play in a large addressable market and are continuing to see clean and natural brands outpace conventional brands across our core categories of diapers and wipes and skin and personal care. For example, in our diapers and wipes category, both clean and natural diapers and wipes grew approximately seven times faster than their conventional counterparts for the 52 weeks ending December 26, 2021. In our baby personal care category, clean and natural brands grew over 10 times faster than conventional brands during that same time period. The household and wellness category continues to be challenged and has not met sales expectations. Although only representing 5% of our 2021 total company sales, we have not seen the stickiness in demand from our sanitizing and disinfecting portfolio that we launched in 2020. As a result, we will be deprioritizing these products. We've shifted investment and innovation resources into the wellness subcategory and will be launching new product innovation mid-year in our vitamin and supplements platforms. to reinvigorate growth and leverage our honest.com subscription and omnichannel distribution partners. In the digital channel specifically, we, like many others in the industry, have seen softening traffic, rising consumer acquisition costs, and stronger than expected return to in-store shopping. In response, in 2022, we are increasing our investment in people and technology to improve our consumer online experience and revitalize growth in the digital channel. Our main areas of focus include further optimizing the shopping experience on honest.com, improving our mobile experience, streamlining our subscription business, and building a personalization and rewards program for our honest.com consumers. As a result of the headwinds that we're seeing on household and wellness and digital, along with the sale of our legacy beauty inventory in Q1 2021, we're expecting revenue in the first quarter of 2022 to decline prior to the launch of our new innovation and new strategic retail partnerships that will drive growth in the subsequent three quarters. As we look at our growth strategies, we continue to see strong progress against our three core drivers of marketing, innovation, and distribution. On the marketing side, we continue to focus on driving brand awareness through our content, community, and commerce strategy and expanding our shared wallet with consumers by cross-selling our products across our portfolio. We have seen strong results in 2021 on expanding awareness and deepening our household penetration, and that continues to remain a focus for the brand in 2022 and beyond. On product innovation, we continue to focus on delivering breakthrough innovation for our consumers across categories. In 2022, we have exciting new products coming to include a new line of acne-focused skin care products, expansion of our mascara platform, new concealer lineup, and a packaging restage on both our baby wipes and personal care business. As we look to revitalize householder wellness, we are launching a new wellness supplements platform focusing on hair, sleep, stress, and immunity support. We also have a long-term pipeline of category adjacencies that we plan to methodically enter over the coming years where the Honest brand has a right to play and win. We're excited to continue to bring newness to our categories in 2022 and drive growth through continued innovation. Finally, we continue to grow our distribution footprint and expect to expand our ACV over time. In 2022, capitalizing on the strength of our omnichannel strategy, we feel we are well positioned to capture the shift that we're seeing from digital to retail. We are excited to announce key partnerships for each of our categories. For our diapers and wipes and skin and personal care business, we're launching with Walmart.com in the back half of 2022 with an in-store Walmart launch slated for late 2022. In skin and personal care, building upon the strength of our beauty restage, we will be launching a set of skincare products with Ulta in store to complement our Ulta.com business in the back half of 2022. Finally, we have partnered with GNC on our new supplement platform within household and wellness that we are launching in 2022. In summary, our long-term growth strategy still reflects our belief that honest growth and our core categories will outpace market growth. Consumer demand for clean and natural products is more relevant today than ever before. Our core categories of diapers and wipes and skin and personal care continue to perform and capture market share. We recognize that the household subcategory of household and wellness has not met our expectations. As a growth company, we are shifting our focus with new innovation in the wellness subcategories. As more consumers seek out our brand, we believe we're well positioned as a 10-year-old omnichannel business to deliver growth starting in the second quarter of 2022 and consistent growth in 2023 and beyond. Now, I will turn it over to Kelly.