The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Honest Company second quarter 2024 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 call over to Ms. Elizabeth Buchard, Senior Director Investor Relations at the Honest Company. Please go ahead.

Good afternoon, everyone. Thank you for joining our second quarter 2024 conference call. Joining me today are Carla Vernon, our Chief Executive Officer, and Dave Loretta, our Chief Financial Officer. Before we start, I would 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 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 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 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 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 .honest.com. And with that, I'll turn the call over to Carla.

Thanks, Elizabeth. Hello, everyone, and thank you for joining us today. As we exit the first half of 2024, I'm pleased to share that we achieved another quarter of improved financial results on both the top and bottom line, exceeding our expectations. This strong performance is evidence of our team's commitment to strengthening the financial foundation of The Honest Company, while also accelerating the growth momentum of The Honest Brand. Our achievements in the second quarter illustrate that our transformation pillars of brand maximization, margin enhancement, and operating discipline are driving improved performance and a stronger financial foundation. In the quarter, our results included four notable financial achievements. First, we delivered the highest quarterly revenue in the history of The Honest Company, with $93 million in sales, which was an increase of 10% year over year. Second, we achieved a gross margin of 38%, representing more than 1,100 basis points of growth year over year. Third, we improved our profitability by achieving positive adjusted EBITDA of $8 million, which is our third consecutive quarter of delivering positive adjusted EBITDA. And finally, in Q2, we saw our fifth consecutive quarter of positive cashflow. This strong performance and momentum for the first half of the year gives us confidence to increase our full year guidance for both revenue and adjusted EBITDA. Our success this quarter was broad-based across our portfolio and business model. In particular, The Honest Brand is performing notably well in our baby personal care categories as the appeal of our clean and sustainably designed lotions, body washes, and bath products continues to grow. According to the National Center for Health Statistics, the presence of skin allergies among children has nearly doubled since 1997. Also, estimates by KBV research, as outlined in our investor presentation earlier this year, indicate that the market for sensitive skincare products is expected to be $80 billion by 2030, which is nearly double the market size today. These consumer trend indicators are well aligned with the high standards that Honest delivers in our clean and gentle products. For example, our newly relaunched fragrance-free sensitive skin collection not only fits these important trends, but its performance in the quarter is a great example of our brand maximization pillar. We doubled the revenue of our sensitive skin collection year over year by expanding these items into all Target stores, and our sensitive skin shampoo plus body wash has become one of our top five selling baby items on Amazon this year. In addition to our clean product benefits, our community looks to Honest for our approach to sustainable design. The early success of our new milk carton style refills for our bubble bath and shampoo plus body wash products are proving to be a great solution in reducing the plastic footprint of our most loyal community members. These 32 ounce refills use 89% less plastic when swapped with three of our 10 ounce size bottles, and the milk carton style packaging allows them to be easy to pour. Having recently launched in Target and on Amazon, these new refills are off to a strong start, and for anyone who loves a good hot bubble bath, with these refills by your side, we give you permission to enjoy the bubbliest of spa moments as much as you want. Another key driver of our success this quarter is the strong alignment we have across our retailer partnerships. As you know, the Honest brand is a little over 13 years old this year, and we are celebrating the 10th anniversary of our original launch into Target stores. In fact, if you visit a Target store over the next two months, you'll see a festive collection of limited edition diapers and wipes, featuring whimsical red and white prints. To bring this partnership to life, our community of content creators have been finding adorable ways to bring Honest's 10th Target birthday to life with trend setting baby birthday parties full of these limited edition wipes and diapers, along with matching decorations and party treats. We hope you'll check out our Honest social media channels on TikTok, Instagram, and Pinterest to be part of the birthday fun. Overall, our second quarter results are evidence that our transformation pillars are creating a stronger financial foundation and that we are well-poised to advance our strategy to be in all the places that our community shops with the hero products they love in the formats they want. And now I'll turn it over to Dave to share the financial results of our second quarter and details on our updated financial outlook.

Thank you and welcome everyone. We are pleased to report our second quarter results reflecting strong growth momentum that accelerated as the quarter progressed and landed ahead of our expectations. Shipments to our key retail customers were driven by positive consumption trends, inventory builds and preparation for several notable retailer events, and expansion of key hero items into more doors. The actions we took over the last year to address product and supply chain costs and adjusting to a more strategic approach with our trade promotion dollars have continued to support an expanded gross margin reaching a new high of 38% for the company. The benefits we are realizing from all aspects of our transformation pillars continue to materialize and improve financial results that are approaching operating income profitability and have strengthened our foundation to support growth. With the first half of 2024 outpacing our initial guidance on the top and bottom line, we're providing an update to our full year outlook, which I will touch on shortly. But first, I'll review the details of our second quarter results. Net revenue for the second quarter was 93 million, up 10% driven by distribution gains and strong consumption growth and track channels. In particular, baby apparel, wipes, and baby personal care are growing market share. Our track channel data was up high single digits in the quarter, driven by expanded product assortment and baby personal care and wipes, including new flushable wipes and incremental pack size configurations. We're leaning into what is working across our baby portfolio to offer more options on our bestselling innovations and expanding shelf space with our newer large scale customer Walmart. This year, we have increased our wipes category footprint in our Walmart assortment, including launching our new toddler flushable wipes in a subset of Walmart stores and offering larger pack sizes on shelf. In addition, I mentioned revenue growth driven by notable retailer events. This includes limited edition diapers and white prints in Walmart stores in celebration of Hispanic Heritage Month, beginning this month and extending through October. Also, our annual focus on Amazon Prime Day in July drove a healthy growth in shipments in the second quarter. During the two day event, our unit volume on Amazon increased over 30%, driven by baby personal care and wipes. And our skincare assortment doubled in volume compared to last year. Gross margin for the second quarter was 38%, reaching a new high and expanding over 1,100 basis points versus last year. Of this improvement, roughly 500 basis points is attributable to price increases and trade spending efficiencies. 400 basis points is due to product and supply chain cost savings. And 200 basis points is due to mix of higher margin products and sales channels. We began adjusting prices in early 2023 on our diaper assortment and entered 2024 with a lower cost structure that will continue through most of the year. In mid 2023, we raised prices on baby personal care, cosmetics and skincare, which we have now largely lapped midway through Q3. Our sales teams continue to strike a good balance between pricing and trade promotion investments tailored by customer and product growth objectives. We expect to continue to maintain spending flexibility and trade promotions through the balance of the year to drive category and hero item performance as needed. Cost savings initiatives within our supply chain are in full effect and support a sustainable benefit to margins. However, we continue to monitor certain transportation and shipping costs for volatility that may emerge as global activity ramps up in the back half of the year. Our actions that have impacted our portfolio's profitability as guided by our margin enhancement pillar continue to realize a healthy flow through of unit volume growth to gross profit growth. Operating expenses overall increased $3 million compared to the second quarter last year, but realized 30 basis points of improvement as a percentage of revenue. Included in this quarter's SG&A expense of 26 million was a one-time accelerated restricted stock grant expense related to our previously disclosed separation agreement with Honest Founder. Absent this expense, our SG&A would have been 19 million for the quarter. Marketing expense in the quarter of 11 million increased 2 million versus last year and reflects the commitment to brand building that is integral to our brand maximization pillar. We continue to seek a balanced approach to marketing investments through upper funnel awareness driving spend and mid to lower funnel spend to drive digital conversion, drive trial, and accelerate retail velocities. Adjusted EBITDA for the second quarter was positive 8 million compared to negative 4 million last year. This is our third consecutive quarter of positive adjusted EBITDA and further demonstrates our ability to generate consistent profitable growth, which is a key tenet of our strategic growth objective. Turning to the balance sheet, we ended the quarter with 37 million in cash and increase of 19 million versus last year. We continue to operate with discipline management of our balance sheet by driving revenue growth year to day of 7% on lower working capital excluding cash over the same time. We also have no debt outstanding and no expected needs to draw on our line of credit. Overall, our second quarter financial results support our continued confidence in our long-term strategic plan and our updated outlook for 2024. Due to the strong momentum and financial results achieved in the first half, we are raising our full year financial outlook for both revenue and adjusted EBITDA. This includes full year revenue to be up mid to high single digit percentage growth over prior year. Previously, we expected revenue to be up low to mid single digit percentage growth. The updated revenue outlook reflects continued distribution gains and strength across our baby products and wife's portfolio as we continue to make investments in growing the business. We expect revenue growth in the second half of the year to be similar to growth of 7% achieved in the first half of the year. While we are pleased with our overall growth momentum to date, keep in mind that our largest category diapers is experiencing competitive activity and overall softening category trends. We'll continue to monitor closely and react to any changes needed to support our business for the long term. We are also raising our outlook for adjusted EBITDA for the full year. We now expect adjusted EBITDA to be in the 15 million to 18 million range. Previously, our guidance called for adjusted EBITDA to be in the positive low single digit to mid single digit millions range. This updated adjusted EBITDA outlook reflects our higher revenue outlook for the full year, structural cost savings and marketing investments that we have plans to increase relative to the first half. The combination of the strength of our team's execution with a focus on operating discipline and healthy first half results gives us confidence in raising our full year financial outlook. We remain focused on executing our plan with the goal of building long term shareholder value through a stronger and more scaled honest brand and company. And with that, I'll turn the call over to the operator.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Aaron Gray from Alliance Global Partners.

Hi, good evening. Thank you for the questions and congratulations on the strong quarter there. First question for me, just in terms of Walmart, you highlighted the continued progress you have with retail there. A child with flexible wives is limited edition prices as well. Just wondering if you could provide some additional commentary, maybe in terms of how it's progressing, some more data points on permanent shelf space in cubes that you'll be planning to have available at Walmart, because I know you've been having the initiative to move from the NCAPS to the NIL there. Thank you.

Hi, Aaron. This is Carla. Great to hear from you and thank you. Yes, we are so pleased with how well the execution came together in this quarter, resulting in strong revenue, record revenue, 10% growth. That in Walmart plays a very important role in that growth and we are pleased with our, we're in our consumption growth at Walmart for this quarter is in the mid teens at around 16% year over year versus the previous quarter. That is as a result of both really excellent performance of the expanded distribution and portfolio that we have at Walmart that we've been building together over time, as well as the velocities really taking hold on the items that have been there. As you heard Dave talk about in the recorded remarks, right now we're in the beginnings of an execution of something that is unique to Walmart, which is our celebration of Hispanic Heritage Month, which is a 12 week end cap execution, which will take us through mid October. And along with that, we are always in conversation with Walmart against the strategy that we articulated in our investor presentation around expanding availability. At Walmart, we really believe we have an ability to expand both some of the items into more doors at Walmart, as well as certain new items that are not in Walmart yet. A great example that we executed that you can see that was shipped in Q2 is our toddler flushable wipe. That's a great example of how even though we are already in Walmart doors, there is so much more opportunity to drive our distribution based strategy by the types of items, the quantity of items and the number of aisles that we find ourselves in.

Okay, great, really appreciate that color there. Second question for me, just in terms of the EBITDA guidance you provided there. So it implies market should fully around, four to 5% range versus just under 6% in the first half. So some of my thoughts in the back half, you spoke to increased marketing spend. So are we right to think in terms, if we think about the gross margin part of it, any implication there in terms of moving gross margin in the back half or will the majority of that softness on the EBITDA margin be due to the additional marketing spend? And if you could also provide just in terms of what we can expect to see where that marketing spend is being targeted to, that'd be helpful as well, thank you.

Yeah, hi Aaron, Dave here, I can help with those questions. You know, we certainly are pleased with how well the organization executed on the transformation pillars, driving these strong bottom line results. And, you know, in the progress we made this quarter was a function of certainly revenue growth and the expansion of the margin, which contributed to those bottom line results. Expense management was also a key contributor to the bottom line results, seeing some leverage there. So as we look at to the back part of the year and our guidance of 15 to 18 million, a couple of functions that you can think about in looking at that. First, our gross margin rate of 38% in Q2 is likely a high watermark in the near term. We're comfortable within a 36 to 38% still reflecting that upper end potential. But somewhere in the middle there is how we're thinking about gross margin. And one of the key factors that we're looking at in gross margin in the back half of the year is preserving some flexibility around trade promotion spend. You know, that was one element of particular efficiency in the first half of the year. As we look in the back half, we know that we wanna maintain flexibility there and drive and have that flexibility on trade promotion dollars, similar what we had last year in the back half of the year. So I'd expect that that plays into a bit of the -but-doff margin rate question you've got. And then on marketing as well, we increased the amount of spend in this second quarter as we kind of indicated we were thinking of doing from our last call and it proved to be a good outcome for us. So we'll see marketing in the back half of the year likely tick up, you know, if you think about first half, marketing as a percent of sales at around 11 1 1⁄2%, we'll likely see that closer, you know, up 50 to 100 basis points in the back half of the year. So that's another area that we're focused on using as a lever to continue to drive the momentum of the brand, brand awareness, and also drive conversion. And it sets us up well as we head into 2025. So those are key aspects of the modeling that hopefully provides some clarity there.

No, that's great, really appreciate the color there and I'll go ahead and jump back into the queue.

Thank you. Our next question comes from the line of Laura Champin from Loop.

Thanks for taking my question. It's a lot about the how. So the track channel consumption outperforming the category this much seems a little counterintuitive given that the macro pressure has caused trade down in a lot of categories. So I wanted to get a better sense of, first of all, just to confirm that baby products and wipes include strong performance for diapers. And then to get a sense of, you know, how much of this outperformance came from e-commerce compared to brick and mortar.

Hi Laura, why don't I give that a start? And Dave, if I've missed anything, you feel free to layer on for me. Thank you, good to hear your voice today. Our performance is one of the reasons I feel so pleased with the results so far is what you're seeing in the 10% growth that we demonstrated in revenue is really quite broad-based across the portfolio. In the remarks, I know we highlighted the strength of our baby personal care category as well as our wipes category. We still, we continue to have a stronger role in the portfolio than has in previous years. And for diapers overall, I would say, we know that the diaper category has, as you said, some macro economic dynamics and category dynamics that have it be a rather muted category relative to other categories in our portfolio, but we did hold share and grew 2% in diapers in diaper consumption this quarter. So we feel that diapers is playing the role as intended in our overall plan and is reflected as we look at the numbers that Dave talked to you about for the remainder of the year at about that 7% growth rate.

Got it, and anything on the channel mix that's notable, e-commerce versus brick and mortar?

Yeah, hi, Laura. You know, our channel mix continues to be balanced with digital being largely through Amazon. That continues to be our primary digital channel for us. Consumption in the quarter was up high teens, which we're happy with, and as we prepared ourselves for Amazon Prime Day, there was some nice shipments out of the quarter to support that event with the two-day event actually seeing some unit volume growth of a little over 30%. So we're pleased with that digital growth and finding it to be the right balance for us, and we expect that going forward.

If you'll allow me just one more, just given what you just disclosed, how do you drive growth like that? Is that just staying in stock? Was the product much better? Like, why would you be able to service 30% unit growth on Prime Days?

Thank you, Laura. You know I would love to answer an Amazon question. Overall, what I think you are seeing work so well in our execution is how our transformation pillars are all coming together as a collective to deliver the strategy that we really have always had envisioned. What is helping our Amazon growth is, first of all, our products are very well-suited and aligned for the broad base of Amazon shoppers. The Honest brand has been one that has performed well at Amazon for a long time, continues to do so because what we have is what consumers are looking for. That's why we grew 18% in consumption at Amazon in the quarter. It is also very important to have an effective supply chain strategy with Amazon in advance of something big like Prime Day or Holiday. Our teams work very well in alignment with their supply chain teams to make sure we are prepared with shipments in advance of the execution because you do need to have shipments in order to make sure that you continue to perform well on page searches and on page views. We also continue to make sure we bring our new products forward on Amazon. We know that Amazon has that infinite shelf, doesn't have the same physical limitations as the other retailers of brick and mortar, but Amazon is just as exciting when we bring something like our milk carton style gable top refills, those 32 ounce refills, when we launch those and are able to bring them to life both on Amazon and brick and mortar, that kind of new product introduction also drives growth rate for us in the e-commerce channel. Got it, thank you.

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourselves to one question and one follow-up question. Our next question comes from the line of Owen Rickert from Northland Securities.

Hi Carla, hi Dave, congrats on the stellar quarter there. I just have a quick question in terms of subscriptions. Is there anything to call out there and are subscriptions continuing to become a bigger part of the picture and are they growing in some of the other segments, maybe the side stifers and wipes? Thank you.

Oh and it's so great to hear from you, this is Carla. I'm also gonna introduce that with us on the call is our Chief Growth Officer, Kate Parton. Kate manages all the portfolios individually. I will just start this to say, I love that you asked that question, I don't know if you know, but I used to work at Amazon running these categories and so when we think of subscription here at Honest, we know that while Honest was a pioneer in the subscription business through our own Honest.com channel, we also have a very strong Amazon subscribe and save subscription business. That's not something we break out separately in our numbers. I don't know if Kate wants to build any nuance to that of how we're working with Amazon, but subscription is very important to the way a digital shopper shops today and we're in a great position there.

Hi, it's nice to meet you. As Carla said, I'm Kate Parton, I'm Chief Growth Officer. To answer your question, our subscription model business on our own Honest.com site continues to be a robust part of that business. It's a diapers and wipes subscription which conveniently packages them together and it will continue to be ongoing a part of our Honest.com strategy for the rest of the year. All of our sales on Honest.com are subscription. We actually have our whole portfolio on Honest.com where you can buy our adult skin care products as well as of our baby personal care. And so what we try to do is keep it consumer first and ensure that the options that we see consumers asking for are available.

Great, thank you, very, very helpful. And then quickly as a follow-up, obviously some increased marketing spend this quarter and going forward, but in terms of that marketing strategy, what channels are succeeding and is there anything to call out maybe for the remainder of the year in terms of that marketing strategy?

Wonderful, I'll take that one as well. In our investor presentation, we actually showcase some of the improvements that we've made in our marketing model and some of the improved grow ads that we've had quarter over quarter. We have an incredible team that works cohesively across paid, owned and earned to have a full funnel modern approach. We are a company of innovators and we will continue to innovate and stay modern as the marketing landscape evolves. But we are very pleased with the results that we're seeing in our consumption and how consumer thanks for our messaging as we feature our humoral products and really feature what's unique and special about the Onyx brand. We're excited about our Q3 campaign that's launching right now. And so we just continue to use that as a lever for growth as we're finding it to be very effective and efficient.

Awesome, thanks for coming guys.

Thank you. Our next question comes from the line of Eric Serrata from Oregon Stanley.

Hi, good afternoon everyone and congratulations on a great quarter. Carla, as you were approaching, I think it's a year and a half on the job, significant progress on the turnaround particularly over the last several quarters, but clearly didn't happen overnight. As you look ahead, how do you think about sort of what the next phase for Onyx is going to be? And then a little bit more concretely, how are you thinking about driving household penetration in your existing categories? Clearly you've made a lot of progress but there's a lot of white space ahead. Thank you.

Eric, hi, it's great to hear your voice. Thank you for celebrating that year and a half milestone. What I will say is results like this are a team sport, absolutely. And the first thing that I look to as I look out ahead and it's really is grounded in that concept we've talked about a few times previously which is this operating discipline mindset that our third transformation pillar brings to life. Internally, we call that our FIFA mindset. So we expect ourselves to operate in focus, executionally excellent, fast and aligned. We've articulated a strategy that will serve us in an evergreen way for a long time to come that's based on availability of our strong hero portfolio and continuing to build out the items in our strong hero portfolio. But I'll say that the availability, it's still early days for us. So when we think at the item level for some of our, even some of our top performing items, I'll use our lavender bubble bath as a great example. While you will see in some of our presentation materials that as an entry, we have 85% ACV availability, that's looking at the entire portfolio as a collection. Any individual item though is rarely at that high level. Our lavender bubble bath as a great example, just a classic popular skew that really appeals to our core demographic is only available in 35% of retailers right now. And that's as few we know, we love it, it works. We've introduced the gable top refill, that's how confident we are in where we have to go. And I would say that while you say the next phase, I would say we really only just recently introduced you to the phase we are in. And the phase is working and we've got a lot of opportunity in order to deliver it by expanding into new retail accounts, by expanding into aisles that we are not in. I always like to give us an example because I think those of us that shop at some of these big boxes really spend a lot of places, but there are a lot of places we aren't yet. For example, the dollar channel is a really important high growth channel, honest does not have a presence there to the degree we can. So we see lots of opportunities in that way. We are also innovating in new needs states, our toddler flushable wipes are a great example of something that we know the potty training families need and want. And so we just recently shipped and introduced that last quarter. There is so much more opportunity for us to expand heroes and the format options and locations where you can buy them. So that's what I think you will continue to hear us talk about and every quarter, there's so much opportunity for us to reflect how those great partnerships are working with our retailers.

Great, and then a little bit shorter term, I know you called out the sort of macro and category dynamics in diapers. As you look across the rest of your key categories, are you seeing any macro impact yet from changing consumer demand trends? And are you seeing any changes in retail or support for the clean or natural segment given the macro situation?

Hi, Kate Barton here, I'll take that one. I will say first and foremost that our results of 10% growth in the quarter really articulate and represent the strength of the honest brand. And within that growth, we see our competitive set, not just in the natural category, but also within conventional, we are actually now the number one baby personal care brand in target and that is over all segments of baby personal care. And so as we think about the consumer demand behind our products, I think that represents the relevance of the brand and the relevance of sensitive skin and clean options. And that's something that we don't think will go away over time. And even in the macroeconomic times that we find ourselves, we still see that to be a very relevant consumer need that we are meeting. So we are absolutely watching the macroeconomic environment and that is factored into our guidance for the year to go, but we also are very confident in our brand positioning and the part that makes our brand and our products different and special.

Great, I'll pass it on, thank you.

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question and one follow-up question. Thank you. Our next question comes from the line of Shovana Chowri from JMP. Hi,

thanks for taking our questions and congrats on a stellar quarter. Most companies that reported this season thus far commented on a more stressed consumer, trade-down dynamics and a pickup in promotions. You did comment that you are going to be ramping up your marketing spend in the second half, but wanted to get a better sense of how much of it would be trade promotions versus marketing to bring about awareness and conversion. And also could give us a little bit more color on the trade-down aspect you're seeing in your categories. And I have another follow-up question as well,

thanks. Shovana, nice to hear your voice. I think Dave and I should probably split this one. Some of the questions about where the investments will go and how we've seen the efficiency work, Dave will handle. Trade-down is an interesting one. As you look at our first half growth, our revenue of 7% overall for the first half, really with a capstone of our record revenue of $93 million in Q2, what we've seen thus far is that the quality of the products we deliver and the consumer need is not only matched, but is growing. And so as we think about making sure that we make what Honest brings to bear more available, we have confidence that we have still not yet brought the Honest portfolio to its full scale of really being available in all of the places and all of the formats that consumers are looking for in clean and sustainably designed products that we have. Some of those trade-down dynamics, we do need to keep our eye on and that is as Dave and Kate have said, it is reflected in our model that we understand that we always have to be aware of what's going on with consumers. We see more of that trade-down behavior happening from conventional products down to the lower value price products in the category, rather than trading down from our products all the way to those value price categories. But we do think that the role of larger sizes plays a very important role in consumers getting the value that they need, which is why we are very pleased that a lot of the growth that we are delivering is demonstrating that if we can provide our hero products in larger and more value size options, that's another great way for people to get into the Honest collection. Dave, maybe you wanna answer about some of the trade-in specific questions.

Yeah, absolutely. I think first of all, we can say we're pleased with how we deploy the investments in the second quarter driving the 93 million in revenue growth. So it was a balanced approach in this period that we want to apply in the back half of the year. I would expect that trade promotion dollars are flexible to increase anywhere from 15 to 20% in the back half of the year, relative to the first half. And that's gonna be really targeted by the customer, the retail customer, and the product category that we wanna gain some momentum in. So those are very strategic in how they come about and our sales team having that kind of flexibility and ammunition to drive velocities through trade promotions is a critical element to that. Marketing, I also mentioned the increase that we've got available to us to do there. That'll be a balance across brand awareness investments to make sure that the Honest brand continues to be relevant in all media channels, social media channels. And we're seeing, as Kate mentioned, great results from the traction that those brand awareness investments make, but also specific to retail marketing. So working with our retail customers on the marketing within the store and on their digital presence to drive customers into the stores. So it'll be very much of a balanced approach, but the good thing is we've got the ammunition to apply for that back half of the year and we'll be strategic in how we invest it.

Thanks for the color. And I think you mentioned that you got space, additional space in Walmart. Can you give us a sense of how much more, what it was before and what you've been awarded with? Thanks.

We don't comment retailer by retailer on space gains, but what I can tell you is that in Q2, our distribution grew 5% across the board in our tracked channels. So that distribution expansion is through, again, a number of approaches we take, whether that is distribution gains by gaining new stores in retailers, introducing new items into those retailers, or even sometimes just expanding the hero portfolio so that there are multiple sizes and offerings in a given hero collection.

Thank you. One last question, if I may. You called out a pressures and diaper category, and I wanted to get a sense of like, if you could give us more color and track channel show, like significant market share gains for brands like Millie Moon and Rascal and Friends. Can you please comment on some of the dynamics you're seeing in this category and what you are doing to overcome the pressure?

Thanks. Thank you for the question. The diaper category is one we are all watching very closely. It is one that has a slower total growth as a category overall, and we are absolutely watching the competitive activity across innovation, trade, and new entrants. I won't comment on any competitor in particular, but I will say that our diapers grew, as Carla mentioned earlier, 2% in that revenue in the quarter, and was a contributor to the growth, but it is one that we are cautious on going forward, watching very closely. I'm very proud of our team and how they're executing, and I believe we have the right strategy within the diaper category to continue to hold and grow share. But all of that is reflected again in our guidance for a year to go.

Thank you. I'll pass that on.

Thank you. At this time, I would like to turn the conference back over to Carla Vernon for closing remarks.

Thank you so much to everyone who joined us today for the call. We really appreciate that, and we look forward to joining you next quarter with updated results.

This concludes today's conference call. Thank you for participating. You may now disconnect.