hnst-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40378

The Honest Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

90-0750205

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

12130 Millennium Drive, #500

Los Angeles, CA

90094

(Address of Principal Executive Offices)

(Zip Code)

(888) 862-8818

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities Registered Pursuant to Section 12(b) of the Act:

Trading

Symbol(s)

Title of each class

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

HNST

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2023, the registrant had 95,469,322 shares of common stock, $0.0001 par value per share outstanding.

The Honest Company, Inc.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit )	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Under Senior Securities	39
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
	Signatures	42

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) about us and our industry that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, those set forth in Part II, Item 1A, “Risk Factors,” if any, and other factors set forth in other parts of this Quarterly Report on Form 10-Q as well as in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on March 16, 2023. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. These forward-looking statements include, but are not limited to, statements concerning the following:

•our expectations regarding our revenue, cost of revenue, operating expenses, gross margin, adjusted EBITDA and other operating results, including as a result of the Transformation Initiative;

•our expectations regarding the costs, impacts and benefits of the Transformation Initiative;

•our ability to execute a broad-based Transformation Initiative to strengthen the Company’s cost structure and to enable profitable growth;

•our ability to execute the restructuring initiatives to improve margin structure, support a focus on the core of the business, and guide the Company’s allocation of resources to its most critical priorities, including in connection with the Transformation Initiative;

•our strategic initiatives and priorities, including the timing, focus and cadence of our marketing, innovation, and distribution and costovation strategies;

•our ability to offset the high inflationary environment, including commodity prices, labor costs, input cost and transportation cost inflation with price increases, productivity and a growing revenue base;

•our ability to implement our strategy to deliver sustained long-term growth and profitability, including as part of the Transformation Initiative;

•the effect of macroeconomic factors, such as supply chain disruptions and inflation on our business and the global economy, including our costs and expenses and shifting consumer demand between our Digital and Retail channels;

•economic conditions, including a potential recession and inflationary pressures and their impact on consumer spending and our operating results;

•our continued revenue growth and gross margin improvement;

•our ability to effectively manage our growth;

•the costs and success of our marketing efforts, and our ability to grow brand awareness and maintain, protect and enhance our brand;

•our ability to drive household penetration and increase market share in our product categories;

•our investments in innovation and digital capabilities to fuel growth;

•the market shift towards clean and natural products and the whitespace opportunity it provides for further market penetration and category growth in the clean and natural segments;

•our strategies to address the reduction in demand of certain products in our Household and Wellness product category and the related impact on our business, including as a result of the Transformation Initiative;

•our ability to acquire new consumers and successfully retain existing consumers, including their level of spend with us;

•our expansion with retail and digital customers;

•our ability to retain new distribution partners;

•our ability to bring new products to market and to identify and successfully launch new category adjacencies;

•anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

•expectations regarding consumer demand and the timing and amount of orders from key customers;

•our ability to achieve or sustain our profitability;

•our practices, commitments and performance related to environmental, social and governance matters;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

•our ability to offset rising consumer uncertainty and tighter inventory management by retailers;

•our ability to effectively manage our inventory and maintain sufficient inventory to satisfy customer demands and meet revenue targets;

•our ability to liquidate excess inventory related to drops in consumer demand for our products, product discontinuations or product restages;

•our ability to gauge consumer trends and changing consumer preferences;

•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;

•our ability to obtain, maintain, protect and enforce our intellectual property rights and any costs associated therewith;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to successfully enter new markets;

•our ability to identify and complete acquisitions that complement and expand our reach and platform;

•seasonality;

•the financial condition of, and our relationships with, our suppliers, manufacturers, distributors and retailers;

•the ability of our suppliers and manufacturers to comply with safety, environmental or other laws or regulations;

•our ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to our business in the United States, such as the U.S. Food and Drug Administration governmental regulation and state regulation, and in other jurisdictions where we elect to do business;

•outcome of legal or administrative proceedings; and

•the growth rates of the markets in which we compete.

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022

Assets
Current assets
Cash and cash equivalents	$	23,103	$	9,517
Short-term investments	—		5,650
Accounts receivable, net	38,203		42,334
Inventories	79,507		115,664
Prepaid expenses and other current assets	8,770		15,982
Total current assets	149,583		189,147
Operating lease right-of-use asset	25,266		29,947
Property and equipment, net	13,883		14,327
Goodwill	2,230		2,230
Intangible assets, net	327		370
Other assets	4,249		4,578
Total assets	$	195,538	$	240,599
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	18,491	$	24,755
Accrued expenses	31,164		38,010
Deferred revenue	1,861		815
Total current liabilities	51,516		63,580
Long term liabilities
Operating lease liabilities, net of current portion	23,791		29,842
Other long-term liabilities	222		817
Total liabilities	75,529		94,239
Commitments and contingencies (Note 8)

Stockholders’ equity
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at September 30, 2023 and December 31, 2022, none issued or outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, $0.0001 par value, 1,000,000,000 and 150,000,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; 95,562,477 and 92,907,351 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	9		9
Additional paid-in capital	600,211		586,213
Accumulated deficit	(480,211)		(439,830)
Accumulated other comprehensive loss	—		(32)
Total stockholders’ equity	120,009		146,360
Total liabilities and stockholders’ equity	$	195,538	$	240,599

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022

Revenue	$	86,169	$	84,580	$	254,101	$	231,792
Cost of revenue	58,964		58,963		183,796		161,984
Gross profit	27,205		25,617		70,305		69,808
Operating expenses
Selling, general and administrative	24,146		23,491		74,995		63,068
Marketing	9,110		12,140		28,605		38,121
Restructuring	357		—		2,104		—
Research and development	1,584		1,725		4,638		5,643
Total operating expenses	35,197		37,356		110,342		106,832
Operating loss	(7,992)		(11,739)		(40,037)		(37,024)
Interest and other income (expense), net	(71)		(29)		(269)		657
Loss before provision for income taxes	(8,063)		(11,768)		(40,306)		(36,367)
Income tax provision	35		20		75		60
Net loss	$	(8,098)	$	(11,788)	$	(40,381)	$	(36,427)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.09)	$	(0.13)	$	(0.43)	$	(0.40)

Weighted-average shares used in computing net loss per share attributable to common stockholders:
Basic and diluted	95,179,604		92,460,987		94,137,244		92,020,423


Other comprehensive income (loss)
Unrealized gain (loss) on short-term investments, net of taxes	—		37		33		(42)
Comprehensive loss	$	(8,098)	$	(11,751)	$	(

SEC Form 10-Q filed by The Honest Company Inc.