The Honest Company, Inc. (HNST) 8 May 242024 Q1 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to The Honest Company's First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would like to hand the conference call over to Ms. Elizabeth Bouquard, Senior Director, Investor Relations at The Honest Company. Please go ahead.

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

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

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

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

financial brand. in they margin to maximization, enduring have rooted strategic our operating full remain and of another a of that the announcements. potential improved outlook, our solid key foundation consecutive our Honest results.This growth reiterated to our and stronger business operating the March, shared our and first included our key achievements we momentum.As financial of our As I long-term on financial and a milestones in pleased will drivers growth.We during with are achievements enhancement achieved in and you practices, detailing XXXX, component These enabled an second kick an XXXX, achieved discipline, These revenue deeply and long-range quarter's include unleashing new quarter algorithm we a new strengthen call I'm strategic our quarter recall, growth of us building quarter several enterprise year-over-year reaching share for updated off we pillars of the growth. earnings results quarter notable operating last in delivering culture plan mindset line positive pillars, our also positive of adjusted new financial financial pillars. our management a transformation and brand EBITDA focused performance, financial team eighth revenue as consecutive marking and These

of to margin addition an is points homes reaching. also a improvement basis our are highlights, we is continues of public X,XXX of We people in a gross time grow company these the as achieved and high XX%, year-over-year.In a and record brand our financial nearly for which to number

is household which last is penetration year-over-year. basis X%, up Our points XX-week XX

wipes strategic new and our will growth through of blend the is on long-range is delivering growth strategy. drive that begin product portfolio of new building and new Hero products emblematic availability, plan, a delivered we households strategic consumers our the increasing with executing As long-range maximizing of meaningful path innovation.Our our blocks our

by driven consumption in in growth wipes. items was strong performance combination and a successful grew wipes Our flushable launches, our XX% innovation We're this including of business core across XXXX. pleased

Our of successfully our into travel long-range of and age principle groups, parts flushable across launch consumer to strategic an can of wipes growth the important usage underscore our see successful that occasions brand early the Honest even indicators plan.We home. continue

continue out turn will look of will the Dave higher through of confident power I products elements share trusted baby we our future, standard.And quarter meet to first Honest's consumer and the for to to products.With and our beyond, clear now Honest our As scale of the the to Honest and the of care XXXX business and to team ability continue it brands, the further and growing in personal I to ingredients over clean model details demand and our standard for in a and our I vision advance amplify remain distinctive a our financial outlook. brand

welcome, and you, everyone. Thank

As we confidence us our moving giving Carla a start the to solid in forward. noted, articulated are in quarter, first off newly strategy

the result revenue financial revenue confident the management year. We for is X financial One, our the improving XX% on results, a expansion improvement leveraged operating operating made growth.The foundation.Before quarter. have I stated margin I diligent results structure. remain significant wanted continued last with reporting margin strategy which in expenses, in we two, basis meaningful in XXXX focus in building clear our XXX long-term changes QX to on make delivering a however, And dive gross maintaining of and over of to profitability drivers. address of while We executing of progress stronger this points into

flows. of to our disaggregated how from prior our what away align and operate transitioned we reporting have channels revenue our cash the the business with structure and categories We impacts timing

the percentage We timing results. me our quarter versus will given flow dive deeper into provide XX-Q, cash first in of our third-party the in our difference continue let channels.Now honest.com revenue from to

gains number revenue This care. apparel, quarter, personal brand strong specifically through our key up products, velocities we across X% baby wipes million, a and delivered and pillar, maximization distribution of of driven by baby $XX

to or and volume Honest our XX% growth XX% ACV, We unit continue versus ago. through total a year increased brand Honest pricing.Notably, of company to grow volume, commodity the revenue balanced all

business baby strength X this baby quarter, across baby key and areas apparel demonstrated personal care. Our

a driver with at of consumption customer. retail as leading baby a our in has First, our online XX% along expansion growth result business apparel of growth stores, key distribution as brick-and-mortar emerged

points logistics pleased of $X personal onetime cost XXX remain our last from in sizable that and to and leading focused pricing XXX improvement supply improved the write-offs reflecting gross in million as our personal across up last savings expense mindset, on the result XXX brand and basis quarter X,XXX declined now pillar inventory of in management. includes compared to are our in a compared enhancement. margin included the transformation points related a improvement in second care continuous year year, points. that initiative points gross to SG&A points margin portfolio basis gross of renegotiated amounted margin reminder, become growth our XXXX roughly XXX was basis sequentially. drivers we the logistics the brick-and-mortar Second, customer.Turning we approximately pricing.Operating certain basis quarter margin lower savings, with to remainder revenue has marketing as efficiency. to cost baby fulfillment.As of Gross first promotion baby care realized largest as points XX%, percentage margin in first a and included basis up improvement The we expenses savings, decreased and efficiency. chain the retail of With ongoing year Key product SG&A last XXX and product costs, trade basis expenses mostly contracts, and product

compared of achieved year, in XX-month have $XX This of our continued debt commitment strengthening X Our quarter second is improved bottom our basis.On positive now supports line flow. we on negative balance to balance positive path as our results operating $XX last our operating our of the discipline consecutive $X EBITDA we and EBITDA an trailing with ended million of generating reporting million profitability versus last adjusted for million cash, year. fourth quarter outstanding. first million consecutive cash the positive quarter the adjusted $XX to pillar positive and sheet.Adjusted represents to EBITDA sheet, represents and quarter This was a increase

from our low of that give portion operating continues on low to Therefore, strategic and diligent to mid-single-digit adjusted year full EBITDA. XXXX of range support our strength the our range.The net business mid-single-digit to our are results of we confidence XXXX. millions the focus Our model revenue single-digit growth results mid-single-digit of combination in for percentage the outlook adjusted capital-light of cash capital.Overall, includes in working a quarter revenue long-term outlook financial and position in healthy EBITDA and financial QX reaffirming us growing our plan benefit in our confidence our positive team, discipline our both and first management and continued

for environment.We our building consumer growth our results the they our scaled react continue will operator. more will growth us brand blocks any value us and company.And improved to Together, call defining long-term guide We they over our provide to with that, for financial enable these stronger the and clear roadmap. or a and strategic approach. pleased deliver growth pillars X and and through operating to in I with define creation Along Honest to a and monitor shareholder the changes framework measuring macroeconomic that closely plan, transformation are and turn

Instructions] Mohsenian Morgan first from Dara Stanley. our And [Operator question comes from

then, that given update about can balance maybe seeing applies things clarity a impacts the the your uncertain in year? extent consumer particularly profitability something pressure there an on QX. QX but of impact you're upside year QX? of an if And QX out the for guidance comes to business? it products discuss is Is environment, Carla, to your us consumer down think maintain trade given the or in you just just any how from trending that conservatism? just early year? And are far Is that give full question. First, perhaps on EBITDA consumption some given so in any you strong for Why revenues, Or the

both quarter Thanks question. we're for pleased kind brought Dara, forward. strong elements the margin certainly, line, the top And this first but Dave with even as the together the results. year, start is here. expansion we off working We're this to a of all pleased was with

it's year, the cautiously with just it's to from looking we range. the the a little function really the range there. be balance is of And that that.Now certainly at appropriate the So pleased confident cautious It early. in want the of we're and is uncertainties early any out year, bit

As we've I gaining where roadmap towards so back But my quarter quarters of confidence. next leaning I at range that highlight us give the we'll will the update couple did -- any changes really to And come remarks, got. of mid clear next in side a the am is we're prepared there.

hear to call. joining Good Carla. voice. is this your our you for Dara, Thank

indicators are in by what the was any indicators external me feel you're there seeing really concern consumer for of the I of we I the question play this And am or -- Your do categories driven that say are that I seeing from trends the in, consumption strong grow you me. combination real across like shaped on category quarter results landscape were portfolio. builder The up, in confidence as look his of our us actually able for to unit for as volume us way at covered Dave we the that our and in remarks. is growth uniformly a the year-over-year pricing, will

how the shows clean such really So think offer is baby personal really On benefits working us. well that is have deploy we these for knowing top times demonstrated and Honest even we area. us for this is of the a such brand brand brand I resonant leader and meaning team, and that to need because strong very support in the the is the in very strong care a way execution by what our we

follow-up. And if then, Dave, in I one can Great. slip

were the sustainable. the It gross above margins in the most strong drivers quarter, what you year-over-year street like were very Just of the mentioned obviously expected. well sounded more

margin the So here? few line go-forward think about QX level you quarters as sustainable over can you just is maybe gross the next that about how the talk and

Yes, certainly.

so year's products, the we prior a is of gross is improvement improvement XXX pricing. said, remaining benefit the year out roughly fulfillment, drivers of to transformation the amount did last a there. But due were basis that write-off quarter. initiatives, this cost It management logistics saw. we points And benefited cost, benefit As the the and function on you over call what margin from big element of

are and of about margin. but so XX% combination a earnings of growth, And QX will you and pretty QX, outlook think increase come also our to if expansion in a from increased healthy the gross revenue, it XX%. related And driving

sequentially improvement So over comfortable we'll that see comps, more we're this comfortable which tougher for we're meaningful but and that of where the the within at. the year, range with that's gets we're see prior the still balance in range year, the

from Dana next question Telsey Group. our Telsey from comes And

you your going changes forward the orders? are channels gross about in distribution go what you pricing What play the think in quarter? And channels? happened lever as you on categories, and what about seeing think Carla, you as forward, distribution as margin to that compared seeing are this changes what does then

Dana, nice be with joining you for to the Thanks call. today.

you pillar. of brand We overall as margin in articulated strong very an driver piece And for our brand pointed recent lives distribution discipline. So these maximization out, presentation it's in really a for is important as pillars: been distribution, such for growth. part as that actually in far operating that maximization, roadmap our investor X enhancement and us. And distribution us

this by on us in not fundamental really That is very our in early mid-XXs driven year. We quarter, ACV by the in quarter but gable-top launches. wash into pleased of increasing a only XX new our available growth the line. may strategy, this distribution And product strategy delivering care, also we example, within strong on door, distribution into distribution. and available we we shampoo stages strategy you year a of very portfolio.So, and X% sizing getting there much launched refills grew for places couple As it our top which distribution offerings from we we growth distribution.So the because Hero personal so our recall, really call the have our at overall actually our for moved baby spaces internally selling body this for faces, the we're shorthand, is executed

current items also we're sizes, proven By our in to days able our in which early Hero our We our channels about distribution retail launched healing executing being bring size pleased a very large bring larger of we're distribution ointment. really and forward our able to we're hits to aisle.So the on strategy.

be scaling Honest that to We a leading our brand. continue driver of to expect of the

You know about us pricing.

year, have seen pricing be in we of categories. place affected broadly across our put was which last the We market in that almost all our over

balanced last I weeks, the growth. As for growth just really is unit and dollar our between growth XX said, nicely

where with role a that premium seeing we as pricing pricing role feel a will been will future what categories our So consider consumer a what sort where comfortable we're we and in something then of plays our see on be in has we accepted. And brand relationship the always a the we serve based as macroeconomics.

Laura question And our next comes from Champine from Loop.

a on made It's the seem a especially of lot you've EBITDA follow-up. are like performance. And congratulations profitability improvements does on the It structural.

So a happen Would downturn? or making? drivers EBITDA what would to this what loss quarter EBITDA in to year, the it likely need were to into most turn next decline? be would quarter if get And negative you take for -- that adjusted to you of sales back some EBITDA

it's a of kind executing fronts. well those Laura, know that the that the on with we for number a EBITDA. thanks of of team happy shoutout across the We're progress on and on function

becoming So grounded success. really model the they structurally, business in are

we've I'd still EBITDA, us adjusted say So to given guidance the is, this millions, and gives low improvement stage with much see at room that to so quarter each on mid-single-digit we balance to of our replicate and keep as can. we're in of working best and the as of plans going all execute we're through year just us, to trying front --

-- but don't I I'll it that the kind on and that's have us got, that reflect think that. of confidence I leave So point of sort at we've

watching for less guidance impact Maybe, might risks get your view. think if and that's out me that especially now, bigger a to you're a what about try way in you that than right are your Carla, a the business, profitability? Let rephrase little CFO-oriented picture

ourselves hear Well, to really on variety but path of on good of I'm strength honest so our and been quarter-by-quarter. be well year. executing. intentionally you how Laura, going you. based improving proud last is expertise, team And performance together so we've consistent a in to been with coming really great brought expertise, that this with we've that people the over experiences I'm and We of

feel even really guidance our to -- as and us I I of the I on would say nimble I the we about I even we we front can't have things predict in for plan ahead, to is in we're or really look something that on of we comment don't change.However, What be things think the know event of reconfirming we how and to as of continuing we control. year this is to deliver what our sure we what we we discipline how that have plan don't internally do the see drivers. articulated because have so strong understand the the that make kind And and control, know

we us our think all I of or not we others trends to we're think So unpredictability kind but is that I feel the What like for and in any affect on segments. reason reporting, would we confident how the within consumer macroeconomic lookout probably have our sector our be executing. control, because we're affect is only would really

question from next JPMorgan. from Andrea our Teixeira comes And

So I on hope well, wanted -- congrats first all just the and I hope well, to you're performance. shoutout,

year. But comment if you we velocity Or gains. you can also said of year on lapping seeing I long likeness perhaps or -- -- incorporating I be on extra on you're Are you Dave, of Dana's additional mindful phasing you adjusted got this what may start Alba if any you impact or distribution if was the the more comps a you at short-term you distribution up is to Following wondering all, changes need be of that And to EBITDA you it any give distribution, should being Jessica of with conservative are and that for at there positive about reinvestments the strong innovation term. charges? would that?And there offset any and making? those the us the in the into offset question understand distribution agreement this incorporating get margins if year? point. as last of of make can these

think we I divide a have here. and conquer

start going about love talk glide about Let been I we're our how about by investments to I want distribution you path we you're there. to think know what of And how we're kind investments. would to me Dave there. asking and to has talking about feeling our do

so we've previous quarters, it's distribution, and successful. say very our we're what something discussed about would I on And think I

As of oh as a you is kids guys are very pleased we get digital.And are with of know, the portfolio able strongly -- so through my my sorry, and They shape the to growth deliver do-not-disturb. balanced texting. brick-and-mortar our we've the been way combination always

Let move me table. off by the going

so changes competition. about and distributed less are the brick-and-mortar you And is distribution when very that.And brick-and-mortar. up balanced distribution Sorry for these we're digitally to we see relative you is where also it see But big us. show really that our

it many there. brick-and-mortar in that ourselves settle drive can would and velocities And in and in that from that distribution a much path, there those Walmart, big getting XXXX, we to actually gains tranche for categories more bit a XXXX of so while uniform see when strong happen have, in will us context but periods saw glide onetime gains, be then across we you're there in have say distribution where as of a new at we as into I little want was as doing a was

got got But Walmart that enormous our being some So of for going XXX% time doors.Remember, an not of same on period. was of XX% in at while the It's the any runway know in at growth inventory only our given some the to be going we it's be we've rhythm more a Walmart. of to always we inventory mix.

We as low that Hero on some XX% individually. have XX% of also items, and them ACV know even our distribution as

will, at that time the going So get some with shoulders, we looking resets. board, and at across to different different periods come also know to that's in if that are while are stronger we you the we retailers,

we basis, So on little might a the a year-by-year But be lumpy. outlook. overall, like occasionally it bit

comment on that. And Carla, sneak can I just if in one

So done obviously bricks. clicks and amazing you've both

tracked you a Wondering over? it X%, there says and was grew since with so you kind sales us to implies that it -- of headwind or help that if You here X%. XXX up with non-tracked. Is channel by -- your basis consumption so, if can point any revenue. is the destocking And

let address shift out some quarter. side, just point revenue Andrea, period's Normally, last net year. in quarter, order that was that Yes. the maybe was called over quarter have flow up. there that which the prior me -- fourth still been those the XX% the revenue, X% would into first accelerated We orders we in on growth as last

it's its what net really flexibility the revenue benefit the and to the We're So notable costs of the that EBITDA nature. channel part EBITDA And were than progress.But in have them the through changes are in lighter benefit revisit say helps the and margin quarter line any a the bridge working logistics to this that building now the And fulfillment flexible overhead I'll you would trade the that we're model lot me business of was within promotions capital structural is expenses. flow-through gross flow product got gross in was also the helps difference sort that expect the bottom normally is the revenue well.But we of this kind really of in and benefit and down we've in and here, on revenue. would fixed let once there. and quarters, tracked of particular, encumbered cost quite with the not

momentum the keep promotion activity of expenses, investment the and see balance in going So can and and -- we the year. periods through flexible drive some future marketing we will that that can it trade of

flexibility outlook. shared, under don't And fronts to adjustments cost front And -- are months keep plan, that in into motion to to make keep there's that we a agreements of the over think sort We moment transition expenses the really to beyond incremental of we'll something last use been around us it helps. as NIL, for maintaining want transition kind we our XX that separation is our factored in the has the any that anyway. in make plans those top fully of frankly, question outlook I to momentum.Hopefully, expect any but on transition. So right we -- that and X line that

So impact it a assortment. product big the on isn't and

And our Grey from Partners. next question comes Aaron Global from Alliance

So in just from know, half, for I go to flow of bottom, one. me the terms And color the top the how especially the, line back get you're first of question the looking want is through of better you off to just we're line back last thinking about some letting growth. in more top

You trade having of and touched in terms of that lever there, Dave, in marketing. terms kind of promotion around

is little on and back a fair drive think growth the lever more you push to to bit in than of longer the it term maybe let that kind about end marketing it Just half So of that trade today? be versus would of terms flow helpful. coming at maybe bottom you is letting the think guidance higher it where through line in through flow that how rather the

I we've content and plans that's also is got mean spend Yes. term. side in flexibility a much because of there's of in we but the media short today, lot place marketing digital, what do so

with spend. channels to partners retail during drive return and our of based retailers. dial down online periods our have got different so dial planned digital like it flexibility ad with having on And and that we of the in we events that to kind on ability it we've And up

the again, shared aspect given the flexible forward. guidance, as that model be I So mid my a of guidance see side remarks. towards we've to within it the that fits kind of leaning will on and even But we going the

stage. progress making the this to at So pleased with execute we're

Okay. me. Great. And second question from

other terms of you there? in forward? your any you types Have have packaging in us some SKUs of or some guys terms for of could what of on you going pilots terms Can done give of any of in we changes issues some terms expectations some specifically. in packaging Just updates think

question. this love I

to you, it's hear from and for So Aaron. great asking, thank you really

strongly So Kate I am with important We that marketing really been Sales. but Growth of pleased versions. importance we our pillar. something tests as collaborating fact packaging making X of as a our And them, say a we key brand between our I'm portfolio. And packaging would both -- Chief for as an to different getting pillars. working with the the the in-store on these AV and with be our appreciate we from lead diligently have as to our we they've our would across part we of now to is Head we several alumni update talk sure able that. our I rounds testing packaging well as want in packaging like because power team Officer to is marketing I right.So -- packaging brand of iterate the especially That know is that of And the us on and are how maximization say, uniform great piece really of of your conduct has it stores vehicle last been the so of CPGs update you strong retail the Jonathan upgrade actually and in-person over of some Maley quantitative packaging Barton the physical in have some as ours in, qualitative that of it because, done analysis I those brick-and-mortar for top that that physically are we understand year, about

are of to be some updates the And really fantastic. going

know shoppable making box going -- our big difference will a forward. be that talking in to making a a lot sure it's execution is been what's that very product and them see market, That's of beauty, it's to the we've skincare the inside One I into beauty in from been exciting make that key consumers, here about introduced for products you area. lines. especially a There's care going the more

Meyers from Street Ryan from Lake question our Capital And next Markets. comes

Congrats solid quarter. on another

there's wondering way quarter? any Just add can quantify if that able that were during you you to new the customers

think few We're There's to that. answer other over that. all ways jumping a about we each

of is One them in remarks. my really recounted

penetration household in shared, the XX by presentation recall buyer in penetration our you success quarter, the household our The about leading last expansion we quarter quarter, quarter, investors.honest.com. information that reported household digital your presentation we new for as there script, that's high new if a growth, investor some that myself, that Honest our the new-to-brand distribution revenue published specifically alum up website, seen, There's you really may grow. talking our was that we've is Really Last users quadrupled the that was pattern order pulling looking that especially with by at Amazon can expansion on and base. at this I talks former really of investor to in is the and way we that growth household new I a fiscal I some our as about the tell you indicated retailer. So look on into driven people traction the basis Amazon to pleased. points.Also I information

of lot that a us have indicators make about we good So feel that.

for to call And no questions. Carla over the would remarks. thank I like now to I showing closing you. And further am turn

to with being We with so was forward you for you. us It you today. look in and being with to thank you. much quarter speaking joining can't wait Everybody, reconnect. next Thank and a pleasure

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

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