The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company's second quarter 2022 earnings call at our 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 Ostenfeld, Vice President, Investor Relations at the Honest Company. Please go ahead, sir.

Good morning, everyone. Thank you for joining our second quarter 2022 conference call. Joining me today are Nick Vlahos, Chief Executive Officer, and Kelly Kennedy, our Chief Financial Officer. Before we start, I'd like to remind you 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 result 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 the 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 adjusts 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 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 morning, everyone, and thanks for joining us today. As noted in today's earnings release, we delivered strong top-line growth, up 5% in the quarter versus a year ago, in line with our expectations. We saw positive growth across both our digital and retail channels as we continue to expand our omnichannel presence. Consistent with our prior guidance, as we look to the second half of the year, we anticipate delivering mid-single-digit revenue growth, as we will see the full benefit of two rounds of price increases taken in the first half, combined with the impact of product innovation and expanded retail distribution. Based on consumption trends in the quarter, I feel confident that the Honest brand continues to resonate with the conscious consumer. Looking at 12-week track channel data ending June 12th, Honest continues to gain market share as our growth continues to outpace the category. Second, our unit velocities remain healthy following recent pricing. As we see solid growth in both volume and sales, this indicates the brand has pricing power even in this challenging economic environment. The overall category growth for diapers and wipes was 9% and 10% respectively. coming almost exclusively from pricing. Honest diapers grew 12% and wipes 20%, respectively, predominantly from volume. The overall personal care category declined, while honest grew 15%. In the highly competitive categories in which we compete, honest growth outpaced the category, in some cases, quite significantly. And the growth was of high quality. balance between volume and pricing. As we execute against our key growth strategies, I wanted to provide an update on progress today, starting with marketing, which is the lever we pull to drive brand awareness, trial, and share of wallet. We continue to invest at a high level in support of our brand with marketing spend at approximately 15% of sales in the second quarter. Recognizing the rising cost of digital marketing, which we touched on last quarter, as well as our meaningful retail expansion in the second half of the year, we are shifting a portion of our marketing investment from digital to shopper marketing to drive awareness and support retail distribution. A great example is our quarterly beauty edit with a key strategic partner, Target, which recently had a co-marketing campaign with our founder on a segment titled Spring Clean Your Beauty Bag with Jessica Alba. which highlighted nine of our best-selling clean beauty products. This shopper marketing investment is driving awareness and consumption, as demonstrated by 13% consumption growth in beauty at this customer. For our total honest business at Target, we delivered our 70th consecutive week of positive year-over-year sales growth. Turning to innovation, our initiatives are on track. So far this year, we launched our new Fresh Flex Concealer at a variety of retailers, our new Acne Skin Clearing line exclusively at Ulta and Honest.com, and expanded our Wellness Supplements line with a launch at GNC. In the back half, we're on track to deliver additional beauty, diaper, and personal care innovation both online and with strategic partners. On the distribution side, We are well underway on our retail expansion plan. Specifically, you can now find honest products at walmart.com, over 630 Ulta stores, and roughly 1,400 GNC stores nationwide. The Ulta expansion solidifies our position in clean beauty with the largest beauty retailer in the US. Our new supplements line focuses on wellness-oriented sleep, stress, immunity, and hair health, all of which are now available in-store and online at GNC and at honest.com. New this quarter, we're announcing distribution with Publix, a strategic grocery retailer in the Southeast, and DJ's, a club retailer with a strong presence on the East Coast. As a result of these distribution wins, we achieved a brand ACV of over 50% for the first time in the company's history, which demonstrates the strength of the honest brand proposition. We expect further ACV expansion with the upcoming distribution launch into Walmart stores. In July, we launched on walmart.com. And in Q4, we will be expanding into over 2,000 Walmart stores across the country. This will include an assortment of honest diapers, wipes, and personal care items. As we continue to grow market share, the opportunity with Walmart to expand honest penetration into the south and southeast regions, as well as across the country, will make honest products more accessible as we reach consumers with the leading diaper retailer in the U.S. On the international side, we're expanding our skin and personal care business with the largest beauty retailer in Canada, Shoppers Drug Mart. This past week, we launched Honest Beauty products in China through our partnership with Super Ordinary, with a flagship store on Tmall. We are pleased to be partnering with Super Ordinary, who has a proven track record of launching premier US beauty brands in Asia. This new partnership will set the foundation for future global expansion. We also remain focused on driving growth in a responsible manner. Honest was founded nearly 10 years ago with ESG principles at heart, and we remain committed to diversity and inclusion, environmental sustainability of our products, and strong governance practices. We plan to publish a summary on the progress of our ESG program in early 2023 overall we continue to focus on executing against our key growth initiatives in marketing innovation and distribution that will drive growth for the remainder of 2022 and beyond as we continue to see positive top line trends and reaffirm our full year revenue outlook we need to recognize the headwinds we face in today's input cost and inflationary environment We've continued to experience rising costs across the supply chain and expect these pressures to continue across the balance of 2022. This cost inflation is putting additional downward pressure on gross margin, requiring us to update our outlook for the year. In response, we plan to take additional pricing, execute incremental cost savings, and focus on key initiatives to improve margins. I feel confident in our ability to sequentially improve our margins as we continue to execute these plans. In closing, the Honest brand remains strong, delivering on its commitment to the clean and natural consumer. We've significantly grown our brand awareness and household penetration over the last two years, while our market share continues to increase. We maintain our conviction that Honest can be the new modern CPG brand, while driving our mission to inspire everyone to love living consciously. Now, I will turn it over to our CFO, Kelly Kennedy.