The Honest Company, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Honest Company third quarter 2024 earnings call. At this time, all participants are in the 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 like now to turn the conference over to Allison Malkin of ICR. Please go ahead.

Good afternoon, everyone. Thank you for joining our third quarter 2024 conference call. Joining me today from the Honest Company are Chief Executive Officer Carla Vernon and Chief Financial Officer Dave Loretta. 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 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 earnings release issue 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 investors.honest.com. With that, I'll turn the call over to Carla.

Thanks, Allison. Hello, everyone, and thank you for joining us today. I'm pleased to share the details of our strong performance for the third quarter of 2024. The continued financial improvement of Honest is due in large part to the dedication of our teams and their commitment to delivering a collection of cleanly designed and consumer-loved personal care products. Our transformation pillars of brand maximization, margin enhancement, and operating discipline provide our teams with a framework that puts our product mission in balance with our financial mission. For the third quarter of fiscal 2024, Our results include three notable financial achievements. First, we delivered our highest quarterly revenue in the history of The Honest Company with $99 million in sales, which was an increase of 15% year over year. Second, we achieved a gross margin of 39%, representing an expansion of 710 basis points over the same period last year. And lastly, we generated adjusted EBITDA of $7 million, representing our fourth consecutive quarter of positive adjusted EBITDA. With this momentum and strong performance in the third quarter, we are raising our full year 2024 guidance for both revenue and adjusted EBITDA. In addition to these strong financial measures, we're pleased that the consumption of honest products was stronger than the competitive set of personal care categories. In this quarter, according to CERCANA tracked channel data, Honest's portfolio grew 9% year-over-year compared to a 2% decline in the consumption for the comparable personal care sector. This serves as further evidence of the strength of the Honest brand and how we uniquely meet the needs of today's families. Despite challenging macroeconomic factors and consumer spending pressures, we continue to see increasing interest in clean product solutions. According to Mintel, over 70% of consumers are concerned about the effects of certain chemicals in personal care products and prioritize safe for sensitive skin claims to meet the needs of their families. Sometimes the importance of our mission comes to life most powerfully through the personal interactions we have with the people who use Honest products. This happened for me during a photo shoot we held here at our Honest office. We wanted to feature real Honest users, so we hosted an open casting call and reached out to our community to invite them to come and be part of our campaign. It was such a beautiful and wide array of people of every age. As the photo shoot was wrapping up, I was approached by a woman who was probably in her 20s or 30s. She wanted to tell me the story of her journey fighting and recovering from cancer. During her treatment, she tried product after product to keep her skin soft and moisturized through the brutal cancer treatment. She told me that when she discovered our Hydrogel Cream, which is a very lightweight moisturizer, it was the first product she found gentle enough and moisturizing enough to use without irritating her delicate skin. She even showed me an app that she used as a frequent resource because it rates products for their clean ingredients. And there we were, our honest products, doing what they were created to do, provide safe, efficacious personal care for whoever may need it. So it comes as no surprise to me that our hydrogel cream is growing 34% year-to-date in consumption at Amazon and yet has so much runway. with only 21% ACV distribution in national retail stores. At Honest, we are so fortunate because we often hear consumer testimonials like the one I just shared, and that inspires us every single day to deliver solutions to our community by committing to what we call the Honest Standard. This standard provides our teams with an important set of formulation and design principles that make Honest products well-suited to meet the moment. I'm an honest mom now, but our products didn't exist when my own teenagers were babies. Today, I'm so pleased that as my grand-niece Kyla was born last month, her parents, the many new parents on our own Honest team, and all of the parents in our extended community of Honest shoppers can rest at ease knowing that our rigorous honest standard includes a list of over 3,000 ingredients of concern that we choose not to use in our products. We are very proud that our honest standard is so high and is a higher standard than is required by any U.S. or European Union regulations. It is through this standard that we meet the high expectations of honest families and stand out in the market of personal care products. And it also helps drive the brand growth at the heart of our brand maximization transformation pillar. Our brand's strength is evident through our consumption growth of 9% nationally and 19% at Amazon. The resonance of our honest standard can also be seen in the growth of our community and our distribution. This quarter, our household penetration among honest users reached 6.7%. an increase of 23 basis points versus last year. And our retail distribution grew by 4%, while sustaining strong sales momentum with velocities up 5%. Together, our performance and our alignment with growing consumer needs has made Honest the leading natural baby personal care brand in the United States. While we're confident in our top-line growth, Our number one priority remains margin improvement and strengthening our financial foundation through our transformation pillars of margin enhancement and operating discipline. On a recent visit to our Las Vegas distribution center, my team and I saw how this focus across the organization is paying off. During our visit, our supply chain and logistics teams shared how they optimized a previously cumbersome approach to our pallet management. In prior years, When our order quantities were smaller, the team would receive pallets that needed to be broken down to apply a product identity label to each case, only to then reassemble the labeled cases back into partial and mixed pallets prior to shipping. This year, in partnership with our largest retailers, the team identified a set of items that are frequently ordered in full pallet quantities. And now, those pallets get labeled simply and correctly. without the need to break down and reassemble them. This optimization allowed us to save on labor, order turnaround time, and retail pickup speed. This process improvement demonstrates the ability of our transformation pillars to unlock the power and scale of the honest brand and our business model. As I close, I would like to thank our entire honest team for their commitment to driving continued financial improvement and performance momentum for the Honest brand. I'm incredibly proud of this team and the extraordinary execution this quarter. And with that, I will turn it over to Dave to share the financial results of our third quarter and details on our updated financial outlook.