The Honest Company, Inc. (HNST) 9 May 232023 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to The Honest Company First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded.

to Austenfeld. conference like speaker to now Steve today, would hand over the your I ahead. go Please

Good morning, you call. everyone. Thank XXXX first conference quarter for joining our

me Officer; Chief Chief Joining Officer. Carla Kennedy, Financial Kelly our Executive are today and Vernon,

and you our statements statements Before make involve that we of about forward-looking the the certain to SEC federal forward-looking earnings the today number of results release differ description business uncertainties These are will issued as refer meaning that filings outlook issued a risks that of and more we detailed earnings of other today could to our securities like today. in start, a as well release within actual I'd cause matters for remind to materially. referenced statements laws, Please our our including the that the affect revision or as call, that to no Please these opinions also to the obligation statements results. and date note our only our of reflect items. any these of release this results of results non-GAAP our or as undertake except financial of risk forward-looking events, factors we will Also, new which call, by light publicly may revise law. measures, adjust forward-looking future required during eliminate discuss certain information to this statements impact in of we GAAP

of site Relations financial section and the of these this on of investors.honest.com. reconciliation results a non-GAAP section of is earnings find will measures live also measures these information available our additional in GAAP financial You Web call release. Investor broadcast the non-GAAP regarding to at A today's

turn will the over call With to that, Carla. I

joining and and fundamental confidence that retailer, our were growth Honest can and because brand. share morning, and recent lives. of with demonstrated recent greater across sustainable not was and design categories we as a the I quality Last mission taken of a in and by With of clean will company our the assured the And my our the Good has the structure my quarter, the with bringing more in strength and today. potential discipline set strength behind to experience today, everyone of the portfolio days the announced place first Builder conviction we now us decades brand Thanks, I business me, performance to way operating first to the value homes a also in cost our expectations. opportunity product, of we Honest remains and that my as XXX broad strong. shareholder the model consumers' drive Brand strong of and modern to product transform opportunity growth QX of strength also satisfied the revenue experience my approach. the is It the about exceeded thanks The the I drawn growth reflected potential which our you business. for Steve. CPG of of was indicated a digital

raising As outlook our year. we the a revenue result, now for are

retail distribution and revenue omnichannel illustrating expand drive are XX%, retail physical performance from last channel, both we And successfully channels. the and evenly roll the while growth QX our across the to was channels over executed strength with our growth the we've balanced greater Over of plan growing approach. retail with our year, in pleased digital of

you line are emphasized margin cost we our as quarter, performance, our improving with focused last relentlessly I structure performance. top with While pleased are and we on

operating of brand reduce are on these the across of business, three productive and greater workstreams most executional margin transformation QX, the of investments focus working announce discipline. value. enhancement our pillars; maximization, transformation drive launch across long The structure, This which building will shareholder our areas impact to improve and pillars I'm our initiative margin improve profitability and the pleased encompasses term capital, drive in sustained expected excellence initiative to brand enterprise. deliver

team of on identify in to more transformation further strategies ongoing our this our that review some efforts growth. the our redoubled work accelerate sustainable, While initiative. builds over turn you on of has a to pleased it to robust to work set I'm to achieve financials, profitable our and months Kelly, recent I'll to streams, initiatives including path share details

Thank you, everyone. and welcome Carla,

and reflected our revenue performance. in initiatives. with strong Starting as transformation the first continued as top inflation quarter line performance Our results, costs well cost with associated

retailer. with channels. was where healthy and categories our our in digital by First growth $XX outpace key expanded quarter rates both in channels, represents comparable to consumption pricing was consumption and of quarter up revenue, as healthy orders revenue from quarter continues which in half million, ago market and incremental year the first half driven track coming trends, retail distribution, organic the growth half a our Growth digital roughly we which XX% reflecting growth the actions a year gaining distribution. versus Honest prior was Honest is XX% share up now compete. with in from was

in of growth was we of over consumption see our diapers significantly in in taken of example, the consistent growth value pleased our our largest XX%, increases volume Reflecting resiliency indicating QX outpacing and price are For consumers. growth the category, XXXX, and Honest on X%. overall brands wipes, category to

are additional pricing ability poised our premium our take are achieve that actions premiums brands. to we in As are XXXX, aligned we in with price to confident

wipes. drivers to first, and by category, key Turning diapers product

benefit over distribution we've particular, Our uses beyond XX% the reflected revenue our XX% and as diapers have we increases, expansion on seen capitalized and Antioxidant quarter. driven recent which In We're selling in up particular multiple including uses with represented X% focused gain, and the due XX% and and Serum, the significantly on household. with quarter Growth retail this items campaigns outpacing our innovation, by the of a increased beauty increased nearly double represented Green retail consumption Target. assortment price was wipes which growth strength growth in of assortment. first in [hero] to Juice Skin care, seeing diapering, total on wipes personal this of business at XX% focused category. launched with revenue up over quarter, in consumption business Daily more best consumption Super digits,

nearly wellness increased household revenue due Our to business this integrating of quarter and the and XX% represented clothing of XX% business. baby the benefit

retail XX% retailers. key Now distribution channel recent channel. as results robust was split consumption, reflecting Digital while and by wins, XX% QX digital, well revenue turning to channel retail increased track digital by Revenue equally to XX% in our as XX%. retail purchases strong increased

saw continued strength at at double-digit largest during growth behind customer. consumption of quarter; believe all year, digital continued included: highlights and our existing new incremental Target, and items point we the diapers, record retail across strong highly Some performance to time beauty at key business; secured Walmart is our sales wipes last where distribution our customer, we which

of as transformation to on operating pillars quarter, the I taking the its the brands want initiative; Before actions key reported to further the enhancement, maximization, statement, results transformation I rest drive our as in recognizing initiatives income key and of share margin our three cover margin discipline. through first we're well details impact on expansion

brand we to First, on the the to of plan to brand leverage core focus maximization, Honest and new deliver items. innovation drive growth through strength

higher will we and and velocities products drive portfolio. distribution of margin grow our Specifically, creative in

quickly our existing claims make our products within growth drive impact marketing the and as elevating imagery simple as of packaging can an and in revenue products. and benefit, Something our

Results significant Another recent our strong. that our believe proposition pricing component with critical in taking return align strategy to value of is maximization pricing. premiums is positioning. XXXX brand of brand We're indicate pricing to consumers actions that actions historical our

in we pillar our From can focus actions margin enhancement. immediate standpoint, lead can two this taken transform quarter decisive portfolio are aligning we improved We've cost to and win, structure. where that profitability. and drive second initiative The margins actions is transformation our our including a

have resources. America scale will deploy drive will cost complexity, where we costs, to our the decision we levels Asia This and This exiting most and greater focus on growth. our and inventory on and efficiently us Europe. focus First, business we reduce how ability associated North international we give impacts are where

exiting rationalize are and portfolio to We associated with reduce these meaningfully Costs across in margin are in contract portions of line and today's earnings waning the demand we household reflected as SKUs the face changes structural drive higher inventory. look the to opportunities of also category [standardization] for release.

which SKUs retailers, likely impact certain XXXX has in Exiting reflected our beginning offerings revenue outlook been quarter. at is to the second in

multiple contract manufacturing currently We of cost shipping and executing and reduced supply cost and the logistics strategies, are product of include, reduce costs projects products. to our landed optimization. focus chain Areas sourcing

we're low select reduction our quarter, will inventory warehousing ensure including extend can and costs or business. SG&A to opportunities parts recognized managing will of costs, to being including related our within businesses and of to revenue, beyond reflected generate costs our $X pillar in We In noncash discipline. invest of is multiple our with anticipate XXXX of to cost cash anticipate generating and estimated incur the fulfillment operating restructuring of costs our aggressively revenue, and first reflect the million we talent, initiative prepaid income expenses. managing Initiative $XX we we expenses $XX in million in which aligning pricing, prioritization The million noncash. tightly and In monetize transformation charges, we resulted operating as working P&L transformation SG&A This the margin capital, includes to inventory, drive million to initiative the statement, reflected products. and higher $XX total, operating exit majority charges $XX an starting discipline impacted reducing write-offs. million reduce also cost resources and operating the the annualized and our of initiatives are skills to and thereby expenses. the And in late benefit which third savings priority the

quarter Returning from reserving including included was first quarter gross parts costs, as business, XXXX business for the to pivot first portfolio. portions initiative rationalization financial back margin of This compared our related XXXX. sanitizing to our international XXX XX% higher basis QX to SKU we our of and transformation the points inventory of XX% of of in exiting our nearly results, in margin to

sequentially Excluding inefficiencies margin chain part basis the to to levels approximately pricing costs These have inventory cost been due supply driven expected improve inventory. down. over reflected term would points throughout charges in are of higher gross costs benefit by impacted and levels also margin basis come points initiative, by related of XXX as short our year transformation elevated Gross savings. Gross to XXX the our was margin also XX%. from of

legal CEO increased to $X expenses, initiative $XX transition for fees $X including costs quarter Turning to expense. million higher million expenses of securities and in million the Adjusted first in to profitability. was quarter XXXX XX% greater negative of costs included transformation associated spend initiative. litigation for million, other XXXX. Operating the of our sales, reflecting of retail restructuring of XXXX support in first in costs was nonrecurring expenses, compared returns and Operating related transformation $X the Marketing EBITDA quarter related expenses to million in operating first $X $X million with $X including related expansion. the million and

Excluding adjusted the have EBITDA initiatives, charges million. would our transformation been we for recorded the negative $X

sheet. ended balance $XX million the quarter with no investments We to term cash in and with equivalents the cash, debt. short Turning

costs we and that positive cash anticipate first operating in in that paid XXXX, the in quarter. transition quarter, such CEO was items don't XXXX first were in occurring accrued the flow as Excluding again

quarter in were As mentioned predominantly noncash. transformation earlier, the the costs initiative

our we quarter, for reduce to continue As our the quarter. inventory decreased significant million which exceeding we inventory balance, in reduction last the initial and now to $XX progress operating of it million anticipate $XX believe We committed made by our offset loss to year. will goal

into line credit this As borrowed million to call, liquidity initiative we not to working and we based facility investments. and mentioned in our in March we our future asset plan to date implement January profitability. for entered aggressively growth manage provide to a We've transformation $XX as capital on drive

for XXXX. Now turning our to outlook

lower adjusted full versus $XX company's XXXX. $X quarter the new including are trends continued of is against in range product low in in the to second distribution our million increasing outlook first and revenue margin outlook positive channel XXXX XXXX. reflects and $XX we comparing related half consumption full line combined strong year expected second negative up and be beginning revenue in low be of to single quarter, to impact the to of year the to exit negative significant full of related $XX the revenue actions, initiative will the pricing to Adjusted digits EBITDA. benefit EBITDA midyear million transformation costs low by in priority that charges million million, The consumption XXXX year Following track offset the with

With Carla we for open that, before it up turn let it back to questions. me

it take from to Happy over here.

the foundation that will As Later margin long growth we roadmap brand of and relentlessly will our beyond. Kelly goals in present the of I transformation strategic will indicated, and XXXX, ongoing delivering maximization, more improved profitable operational our in for on be guide term growth. set year, focused enhancement will this discipline initiative. the This path XXXX

Officer leading high read category food our release signature imagination press redefine growth we combination our I'm joined of our strong global and management and innovation management of growth horsepower Brand driving recently, skills. Chief at issued of earlier an announce passionate building, record make a and she in brands about of omnichannel and Barton As lifestyle that that Kate to to brand path, the was team brings beauty brand, business Most role founder-built history her a Growth perfect in has Honest track today. Honest inspire pleased leader can has new of Kate's heart the consumers. Officer. loyalty and the brands Chief the Kate both you Kate of also the and profile discerning

With forward turn the call to over operator look we the answering that, questions. your I'll and to

[Operator of Capital. Loop line question Our Laura from first from Champine the Instructions] comes

parter to related It's outlook. a two the

it First through if seem part, guide, the beat. the amount full of on QX revenue you've the passed doesn't as

the QX and more adjusted expect So some a for QX? you'll out? I'm after on I'm transformation customer which costs guidance. stay you on initiative confused question little So whether from Second on number guide. ones clarification digital is retrenchment wondering a EBITDA in from the the strong that just this some in looking key pull which

we Happy organic we from with the consumption is half to revenue into year. strong start which consumption, roughly back first, as of half is highlighted see Laura. and great as that maybe the and move new Certainly, distribution XX% underlying the we half question

Of know in course, against the filled distribution the that be we'll new up you half. pipeline back

growth, XX% ago. quarter about against we -- low just up growth we're a as certainly think QX year So the reflects in a

as the those the in coming and that in But moving taken you that into the we're driving of will outlook about thoughtful balance announced SKU we a that, as year. also, on half, then allow pulled certainly, QX, we half thoughtful mentioned, international accretive and new reasons the we've we you the foward, that's kind as we of lines that significant certainly, back for reflected we initiative, the of the out have, were with, back we We which with as have yet revenue we the take reallocate growth elasticities move revenue forward some of associated be And hadn't drag if approach against pricing pricing growth resources that the and outlook. half be product we into rationalization, of think kind move kind QX what And margin the the a as back be conservative the going And not future. will go we're coming But tending of into revenue main and really out. the of a of about those off exit future kind we up year. on the and us to to think the transformation what action. did of are towards

that's So reason. the predominantly

from partner. great question, channel. with our in to key QX, saw results In Specific line in the your we digital digital we consumption had shipments

support inhale levels the any in we're further inventory that are the the of back the business. not But year. or We are levels anticipating. not exhale We half to anticipating think right that

moves As EBITDA, P&L. that million the to the question going transformation is with the adjusted million to actually $XX on it initiative, certainly just across $XX to be

And $XX $X adjusted is is million back that $XX sure EBITDA, out so million, which of to excludes wanted we restructuring which million the already out adjusted make to the to EBITDA. $XX which taken component, range need you of million, to

is to from then EBITDA. into going write and through restructuring termination moved exit Separate noncash So of our headcount, continue won't be forward anything inventory those liabilities away million so also that SKU, write to and predominantly fees that revenue $X and going prepaid inventory we And fees component had or restructuring. or would the that, as we go kind impact contracts, the that severance cover of to in to anticipate be would related $X cost offs be million. restructuring we is reserved with example, adjusted nature. really These and we the for contract go of termination costs, around be will in off

need is $X million will you were predominantly inventory costs, exclude cost revenue. taken which of to taken million, to in that in So $XX be reserves

notice that you'll that If slight improvement. adjusted a out, you EBITDA back is

up Of took course, we our revenue outlook.

is talking improvement slight it we so not And is a about the fourth what -- quarter. in versus it what were

Instructions] from Andrea line JP of Teixeira Morgan. from next the question [Operator Our comes

and done for basically been process. ask those just how forward company, underlying you we thinking you're also a to have bridge I new have -- and on regions? on obviously, come and mean, business work products on and Honest like the excluded is the of some I how should the transformation understand be to move in itself. us perspective give that the Just What margins of of thinking as we sales the to to underlying be

how marching beyond or the for as it's underlying XXXX? recurrent see and you patterns to progress like growth Just

and really enhancing around on, jump and that pricing products maximization. I’ll and of and kind with transformation you about we’re buckets better the first driving really start can we premium historically, getting three in. focused being really back support there and on and into our the initiative, are packaging about is pricing think to margin focusing brand which of core also performance. talked driving we our kind When this And Kelly can is that you big marketing

So anticipate that's was some of three additional really is kind expansion which into the million area cost we the And costs around and in really I $X break in way of components. generated that maximization. that for coming year. would The business, the margin later the QX

really category drags it think is through of margin business, as were complexity getting other And volume, some The those focus one, these drag lower first we of the get see international. the higher of focus, be the lower And and of more about the that us we we or and and getting as we to, return. kind product of where that margin some piece more less that there's whether complexity products, those out international within product, on on think core but and allows of think out about overall importantly, business. also those exits of a

We across of rationalization also do did our fee a categories. all

transformation part our and is think piece every And years the portfolio, done then the which really take. right move we thought as new something many into for has about touched generate, some last cost So thing that business. also are lower the not costs we kind that in incur to in to of we just was of company it initiatives that packaging, there cost, we’ll the as savings move around that savings initiatives cost can we we that

our our get on of but predominantly significant going will the other us are areas So we were as business. to close, And smaller international about we exits have forward, the impact business percentage going to breaking impact, being these and of place. in you be allowing But think specifically right structure the about as this business product a of the we're be our cost that think small really down parts margin not impact. revenue not the a revenue

about our at creation themes, of in base couple business, I'll were going margins of I the and about are that and heart in the driving asking terms because of just we believe value really portfolio. build you to a of know your growing question, additional underlying the the reasons where

things efforts explaining is, of bridge. loud one So sure great here portfolio. make clear, our structure the to how have and opportunities there is job done foremost, cost just which first are of out to team the in our discipline items we Kelly the our drive want and redoubled operationalize themes did is couple come I we existing a found we've improve the in of approach to on we've that

wonderful, of that's is because in address And we like margins the so we something begin really to can expanding near that is have. the already term really that things the we

in opportunities Additionally, we best our also believe items. there's some great growth of

Our against very distribution productive items small our remain in will levels and that items some our of most highest core. are velocity

many opportunity really items the of drive really which growth. an have to that majority majority talk top true is the portfolios portfolio. and the to Often the the it's we the the I So CPG about Pareto for that productivity of of love principle, revenue drive

margins be of and sure about, to role making that by in is have to we portfolio the know with growth there enhancing will the going to talk opportunities we importance mix like and that to going about going that hear is those forward enhancing I as as of we that you're of I drive where our back strategy roadmap so what opportunity. leadership categories we need. to reimagining the And we we in growth That we categories in mix top where we mindfulness a to our our my lead where categories the drive that see said, see also and can And the core, strategy. year in we addition the win items and later innovation then understand growth so more important, lastly, are be

we think Is and that clear, level should home all focus. highest of that it is the are return on we super terms and that be appreciate we you the the top rebase? also of that basically focused of given in to growth just basically the the the retailers, you key like much of sure on do partner? into retail make have visibility large them, the from come extent not planograms one you're visibility the rebasing, the investors But kind growth, seeing this at say you some of the that on going products back by kind be converge, that of there your burned and you being and XX/XX you sell number rule when to line on at the tell point going obviously, CPG front? all that that of have and in to sort any you're on And margin of to rebase to I least come out new confidence drive selling how Like was were further

I your me I'm make think let -- sure understanding question, Andrea.

you're fundamentally the whether with consumption that's think momentum underlying think along we're is it? that If overall XX% growth consumption will we or in seeing channel if of nature current if that top-line of at it, fundamentals regard, expect if about we talking remain that track that our the strong surprises, XX%, our we

Yes, you Carla know and I there. for sure there's thank making -- in a lot

some EBITDAs XX growth, to or how be your strategy, I that downside? is, So have the far part of much vein, that one balance this question. top visibility in think two that do and that number into Is with rather other and And you sorry, number the have you then XX when adjusted what need words, do line is back come is more it's on of the negative, much upside, than number so year? you the XX to going to embedding XX XX back you come up one that EBITDA is XX, to more conservatism range. pretty the don't to

creation, I'm philosophically, some start I'm to margin going the hit our have great we're very specific really identifying think to have in things of path in us profit initiative. it's already to what early But going our we a grounding we have towards transformation by Kelly creation, evident blocks. conveying hope on expansion, is building value do glide philosophically, ability I just is that we to I'm the very confidence -- continue really that as

that already path. in an initiative, transformation specifically to strategy growth our continue the the then to we in glide accretive and on that that designed strengthen strategy liked, to direction continue to top that and grow, to places that but are that have is move really addition our project In and lives portfolio of growth small opportunity margin of

because let feel and bumps even very the Kelly specific any before that to confident So one is that answer are you building in margin greater path value there the I structural growth road, we towards about expansion. if of blocks. us, I'm the creation glide we're of on see going amount

And with going what the can within the us I changes, in you're will predominantly invest getting be that initiative, including the but think own our that is we're to and the asset is we the headcount within advantages expand of we And investments contemplated are and we've the as the in, areas that this away owning there to towards think realigned Andrea, we're model products there those SG&A, it innovation. new get think are be business is around out light beauty headcount which growth disadvantages into from resources, plan, manufacturing, and innovation. in transformation areas not is, talked getting And quickly investing about about absolutely that your is I need an of we that implementing to make. investments allows be and of

capital in other growth predominantly the predominantly that really The it's it’s a to investments piece and not driving as growth XXXX, And is can time plan that XXXX make that forward. we'll need imagine at you we those. working launch is

the to we need we that fund able And self capital of and investments available have in investments XXXX on our then liquidity we path move etiologies, to be forward. going kind forward to those profitability, so -- as those that take to going to make in utilize we’ll and able investments be our working on

think of any do visibility, around transformation XXXX that provided. expenses anticipate have the incur in of the for that we foundation numbers we've terms we the initiative, we growth, I the entire which will is question, In your there costs within contemplated

that sufficient, that we’ve ranges So to growth. will is given cover that that cover the the activities also

question William Blair. Jon Andersen next of line Our comes from

for what top it guidance today. just to would can where lays kind be the going further outlook sales terms reset opportunity strategy would stab the enhance the to in point, more takes that more international, it in some of as kind of or year understand a clear outlook one exits, that reset, there The to I that, of line the to household. let's an I'm was relative account sit come key guidance, the prior of work kind pruning, I growth we year, the later wouldn't sales of of the the at SKU, so of Carla, it. be -- into the top takes at this on then, of fair? be the Is question, say, take And on

I think we’ve Thank way a really to you. communicated. that's capture great what

I why appreciate are, not you've determine on they I year, a much guess, pricing, did I Thank and that? price part see makes you're a portfolio? talking scene really that. companies that the you. a increase And pricing done that did what the what you that of evidence like Okay, about sense. last. provide as of as brand the elasticities we sounds won't this confident it to price Could And around greater to of you are such elasticities lot ask on the want homework more what you again, going that of forward level on little kind maybe bit that are detail have

the X/XX as only volume next that to in happy about maybe this we speak call, and half highlighted quickly. out we the We we and to When and the some really looked premium pricing in table, not the we were And we to and the earlier. that our kind to round ending that consumption as the we be. the at little, continue grow data, you data, predominantly we taken like of the recent it. pricing a even track about thing the taking but not is speak by if products. brand talked we've actually component of Carla, competitive pricing see Yes, channel's to depressed the one to where see, can we really data Jon, And has pleased versus to basically coming last pricing on of would money can left you and by felt

about single we're over year, scaled and is it cover revenue taking, think mid the of we course roughly to the but pricing timing is our it's half as high -- of out in will base digit. kind the of which So the

also so across categories. our And it is product

we've you taking of pricing some And so pricing I don't additional in will in be, that know, Carla, taken if already And XXXX. it atop to… cases, want

in. to categories typically Yes, we forward. thing for our XX% about and to One right brand leaders that had and do, in category. related is that talk one the that price That to factors the our key our the are feel product, retail in our impacts often estimating that's what not understand way the I’ll partners us players is the Honest true is all that just of we that but relationship good the the about branded across me. why categories, the of has of we feel of are share A going brand that, many why our premium really for stands premium quality only pricing know the inputs they the product, is, for in we're few this the

we've having so strategy. the conversations with been our retailers, this And they in pricing understand

our approximate we And return the are on we're far, alignment and getting XX% agreement so price of premium. finding that

The that other category we've across that are been in. growing see every we we is, thing

with important we seeing a quarter, share market the for So that the addition to is in the growth that invest to as deliver. of though and we structure differentiated value that lot continue the gaining our benefits a deliver the and brand that in brand brand is, that that pricing strong in of we XX% have believe shareholder and matches reason us a believe, to and we to invest It consumption lot serve. reason allows see, that consumers have is have premium to we we the

So accepted to and we the be market strategies signal that retail believe categories. the is have fit in going in our this every to really with

the I'm Thank conference any Carla you to for turn to now I [Operator And would showing any the remarks. Instructions]. queue. not back questions closing like further in

The Thank speaking you forward support quarter. Wonderful. look for Honest everyone and Company. joining We to again your us you for interest with and next

This call. participating. Thank concludes today's for you conference

You a may day. have Everyone, great disconnect. now