The Honest Company, Inc. (HNST) 8 Nov 232023 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to The Honest Company's Third Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Mr. of of President Honest Vice Austenfeld, Investor The Relations Company. Steve ahead, sir. go Please

Good joining you XXXX thank afternoon, and everyone, for conference our call. quarter third

Joining Executive our our Carla Financial me Dave Chief and Loretta, Chief Officer. today are Officer; Vernon,

factors our like are of forward-looking matters we that including statements well that that we statements within statements results. our release to securities Please involve our filings of a laws, risks that as and the other meaning risk more to earnings our about remind will as Before to in These number differ may you outlook could making uncertainties of business a affect today. earnings be refer today and referenced I'd description for results certain our cause issued federal the SEC start, release forward-looking actual today detailed issued of the materially. the

that the to or information by opinions the events, these statements to future our revise of forward-looking publicly reflect this Please of light in required undertake forward-looking obligation except or we revision any of law. also and results date as note no statements of these release as new only call,

which we discuss call, items. this the during Also impact certain GAAP non-GAAP adjust financial will results measures, our of eliminate to

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

the turn call Carla. I'll With to that, over

thank and afternoon, today. Good Steve. you for everyone, joining Thanks, us

is consecutive for have to second you we've It's and quarter XXXX. improved a revenue outlook quarter we results be consecutive of third EBITDA. quarter adjusted our pleasure the the the outlook to third our for increased our share with This

we've and working made committed This execute result I'm year, of period with in financial strength coming brand progress in to time. to our team, and together and a continues business, is transforming pleased hard health collaborative the market. Honest of and this to the initiative meaningful short Honest the we a show the Earlier the transformation consumer the of

always and everything bring diapers, onesies products and to themselves the of wipes, for the their do. committed these of And providing designed uncertain Even formulated focus from community standards times, consumers for they families. to we're that high is at the heart keep consumers Honest we and to a wide Our economic we household see of have products sustainably products. care, beauty cleanly home momma in array

Our done we've products for of and business up community our this trustworthy. standard clean, unique Honest and model. to the And expects effective our while rigorous the this improving live to efficiency year,

comes our to to third Let's intentionality turn this see beginning quarter with how together, revenue. results

the This track quarter, of Revenue and up growth X% the double-digit our recent quarter in year-to-date consumption, strong we by channel actions. and XX%. all-time delivered record our up was revenue led revenue, growth digital benefits third pricing positive revenue channel with

flow. positive consecutive higher-margin of traditional actions disciplined quarter contributed Margin This a year. leading our Our laid we to and rationalization, XX% successful SKU cash operating restore position to to introduced is was our X Operating gross three in management Maximization, highest improved of our hero through outcome Initiative working out an our quarter, and margin our the Transformation prioritization the premium categories; Enhancement we our of to as Honest key years. cost improved margin earlier the for pillars three pricing Brand is our pillars: the and items; of performance, capital, this which execution including of savings Discipline, performance Each across second of improvement

to continue and quarter revenue fourth we the growth improvement. Transformation advance continued enter Initiative, and our we year-over-year margin anticipate As

joined as Dave management promising recently depth addition Loretta, Dave these record of build strong who ability to to to stronger is results, CFO. drive sharing and With financial a addition delighted in experience, brings our I'm transformation he team, of I'm a forward and our his our driving introduce confident Honest a strength. to In robust track Dave's help Honest.

and Thank Carla, you, everyone. welcome,

on the the X to I balance drive by brand, am me saying margin months the Honest Honest strong I significant commitment nearly sheet. maintain and ago, generate flow and Let call in positive with cash start with healthy how a the to joined potential pleased of to today. you a opportunities improvement our be belief

the is current year positioned the this presence, operating expand building market solidifying well In team dynamic on what discipline, has on results. demonstrated financial consumer to improved Honest already while our environment,

the quarter trends track retail Turning and expansion. reflects of retail more in this an with pipeline a Amazon top line associated on continues actions over of XXXX. quarter. We shipments level implemented a to pricing Strong XX% channel, reflect million, $XX course channel, last was the growth. significant in consumption our record when This year for performance in strength the the of saw we at channel the Revenue X% than results healthy grew digital high all-time to consumption company. top which including robust quarter record

elasticities our that grow underscores to expectations for through Looking exceed with pricing, products. both has trust Having Honest deep and clean our our the and sustainably at revenue healthy. community designed and consumption, remaining revenue we volume continue appreciation

to drivers by product category. Turning key

X% and distribution. Diapers against pipeline to ago reflected business our expanded retail First, Wipes due for which volume, comparisons declined year shipments

wipes continues quarter, the growth growth X%. in of Notably, category increased While Honest flushable rate shipments one were already category. to top items the consumption our newly are this pleased our launched We're in on lead XX%, outpacing track Amazon. channel of significantly down selling

This scaled will Initiative. result club and X a Transformation on business will consistent Skin channel the margin products part Care quarters, revenue improvement. of our to low-margin the but significant Next, with X% over declined in channel, margin we Personal in as next club continue our as back our focus enhancement unwind

both and In our business increased Skin Wellness clothing and strong XX%, channel, growth double baby of business. our digital finally, expanded digits. Care the distribution reflecting Household and the underlying retail grew Personal And

to channel. by results Digital XX%, retail revenue channel X%. while increased turning decreased Now

channel experienced year, the driven strong meaningful our growth, During performance has digital by last with Amazon.

offset at the channel has low-margin expanded quarter the versus distribution higher XX% benefit pipeline in exiting Looking to offerings year. which year expanded shipments retail from we over in This ago the continue from the to ACV, over our as as significantly channel, reflected distribution. XX% in well lapping was support club by prior to increased

consumption Walmart include: diapers, saw sales our which growth wipes, through double-digit Target, continues versus remain strong this items at in-line personal set. last year; quarter continued and a at highlights transition double-digit to to and consumption skin Some care Amazon; strong growth across shelf

chain XX basis points efficiencies, transformation quarter of and approximately and benefit basis the focus offset trade turning Gross roughly the favorable supply points mix, year, XX% transformation XX% XXX higher of Gross in Now XXXX. third of promotion by driven quarter initiative. the points basis and compared reflects gross and of year savings initiatives. related of XXX points in cost improved quarter to costs the was margin margin the discipline Gross points input quarter pricing of margin basis has third reflecting basis the and to cost by margin. of to XXX ago during each XXX versus the

for third million quarter marketing decreased included the the related $X XXXX expenses $X efficiency. third reflecting quarter basis year, EBITDA the was million costs in to compared Initiative. in quarter to $X XXX third leveraging Adjusted of Transformation improved which Operating last the overall, of XXXX negative of points million,

Turning versus balance last increase equivalents, million $XX quarter. with $X million the cash sheet. quarter and the to cash of We ended an in

or our improved reduced Our reducing of inventory goal $XX XX% levels. growth. capital, working cash managing quarter $XX from year-to-date supporting continued while position our by consecutive third inventory million, significantly exceeding million, reducing also including we've revenue in initial inventory by Year-to-date, discipline of XX%

carry bank Our consideration loan continue increasing debt. as been This market. strong, balance is our we've balance and cash important remains today's in sheet an to no

to our for the XXXX. EBITDA quarter. QX our we Now revenue increasing the outlook Behind for results, our outlook adjusted full year second consecutive third outlook and quarter turning for strong are consecutive

the we the an revenue expected includes now strong and revenue range expect expect EBITDA increase to a to million, single of million earlier be and $X better QX, digits to low expectations, million at outlook which in Both down $X EBITDA momentum adjusted in our solely of reflecting costs. Looking business. are $X than flat to transformation adjusted

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

Dave. Thanks,

the I wrap stage I up what to want my for ahead. is set Before remarks,

forward to plan with team strengthening the phase has spring. We our long-term of financial sharing in this to strategic into carry all a our addition Honest development that been to Honest vision our growth. look In next of engaged forward foundation, you

we round XXXX, As on. the trajectory on close we're I remain excited corner about the of the

of adjusted high while pressure And to our are value our we help the evidenced continue revenue by Honest consumer As fundamentals. such on outlook, the we Transformation factors, optimistic about deliver Initiative sustained spending, business continues and us the EBITDA as economic improved improved to provides. monitor interest and brand impact rates

and to I more brands pressures, our this true Premium, remain And make as continue be economic shown despite hold to Honest. for financially sound purpose-led larger, in ahead, Honest. more up look a has to path vibrant well and we confident

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

Laura question first Champine with Our from Instructions] comes [Operator Loop.

the declined being what into in a I is able for Congratulations to the outlook why full guide QX. about want did segment business for particular that raise the diaper And year. QX? little information the more on

Carla. Laura, it's

diaper on have us. good to business to hear your Yes, the So you for Thank call. joining continues the strong fundamentals. voice

movement will you data in XX% messaging, Diapers our quarter. consumer Wipes remember is and the consumption or our from up As

of seeing impact impact the are largely is new at you the a retailer of time this launch year. lapping What us into onetime last a

at have outlook revenue challenging Wipes quarter year our to the Walmart which as quarter. going But last we business. forward. year-over-year We concern recall, and was Diapers our this with now the may a see to expected revenue all-time you into have quarter As highest that related this launch this vested year, all-time we always until a don't time

you've of performance Okay. down sort in year. job good QX? continue done a inventory Would expect you And that this to pulling then

progress we're certainly this The end are Loretta. improvement the at fourth year. going Dave the year, on We've that so And the quarter largely I don't significant levels to is most further inventory point significant. we're of made we've of of while this any claimed the this far where see decline. be Laura, think

year. further by put So of I wouldn't any end reductions

with Andrea Teixeira next comes Our question JPMorgan. from

stronger even you Good and from question, like just mentioned Carla, Carla, in I XX% to strong to welcome, believe diapers. consumption, already. -- and you hear the now obviously, David. a prior

you expect I if we into So fourth these out was retailers. pipeline quarter? the in of I should what not was there wondering parse can some fill that perhaps understand

lap what next year? to setup So XXXX? think the or by as time or go that's what pipeline the is is into you your Do -- the you going comps for you create those, probably clear

and And then keeping of related your the intact. to and lifestyle the a ecosystem that, tremendous you're doing job brands

While complete? that the SKUs the heroes as of hard process your should that of How cleaning you keeping job expect we to also and timeline? should think be And successful. were about do how that not we up some

wonderful glad to yes, an meet we're opportunity today. have And to Dave. so to Andrea, you talk you

with Thank Looking in the forward you you. together to future. being

want them take I to to as answering think going you your I'm in I make two sure try intended. I'm questions, question really parts. the to

think the question in strong said first is, our we quarter. and remains given that you're been has have asking the strong So particularly I consumption

as then wipes for And consumption with of Honest was Overall, -- down that quarter, up indicated brand, consumption what Honest XX%. alignment consumption in consumer continued quarter and channel affinity broke tracked our we categories. consumer see brand was up reflects belief, diapers XX% double-digit the really and across strong. and the that in that for fundamental the we the kind Then the

future. consumption consumer-driven only do will we that remain into in we not true, the fundamentals we then still future, have As those expectations look strong think the

levers While predict there all the particular lot will a strong are double-digit of future. because good, am certainly don't to in remain in we I consumption that to at elements I territory. want the as need watch in consumer we them optimistic we to look

I concerns forward, no there. look we As see

portfolio we that performs while of And we know, -- remain well. control. of relatively increased that number do that, major our We retailers on levers a really a based we small in those of And strong have seeing as some retailers, at many of portfolio. you feel are it's which cross-section feeling still our that's we distribution

As the an stores identify example, when now forward. those care, body support baby a has launch opportunities. of our going consumption Walmart their footprint of wash broader continue XXX% body and to we continue outlook to into stores, our have at how we among look will half portfolio And from that expand in care growth the to we initial

I frame to I want so want don't miss it take make I again, to of your sure question, I willing Would anything? understand you second but sort it. to me just be for that

sales, basically right? you through appreciate right, Super to like helpful, going and driving away tie this that hard consumption this the changing sure And same all you're replace we the items. have I was just and and you those the that as potentially, with that that SKUs I wanted driving decisions, some were taking Taking hit make caused products. you you of to precisely car the fast-growing tremendous would your thinking that job ideas. hero then

I'm So you you we have rationalization question process with more asking like period, that the tremendous innovation I brings to the was at feel And from that right? returns -- time in that intended make type much sure a profitability. And pretty you're just my done SKU to. now experience this on, CPG of know the point? Are

after like enter thinking just clean you going next XXXX the Or we're going year? the into beginning some to this do of to how cleaning to So have up setup, how process? are still you're

this what team. incredible thank you Wonderful. of the work recognizing coordinated I Can I be whole just to consider say for

important same highest love focus We've been the on right. I we gum very doing quick to places changing at are driving and work want finding say cars, great has of to our done this the opportunities chewing most job and to for return whatever time, identify and walking tires, You the it, efforts. us clear team things a

drive things time, over away scale. long-term and help, drive to whittle prune our us to we our for think strategy, And going don't the that are long-term

done have a rationalization we SKU that. that, is and example the So of great

of our this you XX% year, number the revenues SKUs, know, year-to-date. As we fiscal reduced overall up while we are actually --

is I that, more love make truth, if thesis do So less, focus that to I your on we've especially actually is which that core. true statement you CPG with that the think shown you and can

practice brick-and-mortar to team shelf adding context evaluating, are will with while always which So in mind, the on that in I have a that healthy where especially items would say meaningful, our grow. trying our we value be of of to

in you'll coming I done what believe direction we have -- that on made to a life And are this in the our ways hero the best to years we bring effort that focused core items. executing see big is year. really

practice. said think which I can, it I is that said, that a you With better it true CPG is than

I as a of monitoring that component must the as declarative a you've is that line as You look with items have stronger That discipline on after always expansion of I feeling our and portfolio you would the about margin see growth drive your that strategic ahead, as winning well I top execute winners. the the can growing year our emphasis year. both and us mix say, improved focus imperatives. But got

showing [Operator further over Carla. this the And I'm I'd Instructions] questions like to time. call not any back at turn to

believe I us much products. want strong in foremost, at want and so questions, company. team Thank to there this for how our and partners Honest opportunity, incredible want thank more that community this of first retail Since for just to to to are much no joining I take I Honest our help this results, today. you have the the us thank employees they thank

can And the to remain see, brand continues healthy. as Honest you

of making I to vibrant this us Initiative, back going we Honest. Transformation are you strategy. to with look more next to We and XXXX forward stronger a long-term picture our you are our we a give as conversation committed come in where with bigger

and to Thanks, soon. forward we look again talking

and gentlemen, presentation. Ladies today's does this conclude

a have now You day. wonderful disconnect, and may