The Honest pany(US:HNST)2023-08-08 20:21Revenue Distribution - For the three months ended June 30, 2023, revenue distribution was 65% from Diapers and Wipes, 27% from Skin and Personal Care, and 8% from Household and Wellness [110]. - The company generated 49% of its revenue from Digital channels and 51% from Retail channels for the three months ended June 30, 2023, compared to 48% and 52% respectively for the same period in 2022 [112]. - Revenue for Q2 2023 was $84.544 million, an increase from $78.493 million in Q2 2022, representing a growth of 3.3% year-over-year [151]. - Revenue for the three months ended June 30, 2023, was $84.5 million, an increase of $6.1 million or 7.7% compared to $78.5 million in the same period of 2022 [154]. - Revenue for the six months ended June 30, 2023, was $167.9 million, an increase of $20.7 million or 14.1% compared to $147.2 million in 2022 [156]. - The company estimates that pricing increases contributed $4.5 million to revenue for the six months ended June 30, 2023 [157]. Financial Performance - Cost of revenue for Q2 2023 was $61.646 million, up from $54.929 million in Q2 2022, leading to a gross profit of $22.898 million, down from $23.564 million in Q2 2022 [151]. - Gross margin decreased to 27.1% in Q2 2023 from 30.0% in Q2 2022, indicating increased cost pressures [152]. - The operating loss for Q2 2023 was $13.387 million, compared to a loss of $10.739 million in Q2 2022, indicating a worsening financial performance [151]. - Net loss for Q2 2023 was $13.416 million, compared to a net loss of $10.012 million in Q2 2022, representing a 34.0% increase in losses [151]. - The company generated a net loss of $32.3 million for the six months ended June 30, 2023, with significant non-cash adjustments contributing to cash flow improvements [184]. - For the three months ended June 30, 2023, the net loss was $13.416 million, compared to a net loss of $10.012 million for the same period in 2022 [196]. - Adjusted EBITDA for the six months ended June 30, 2023, was $(14.432) million, an improvement from $(15.378) million in the same period of 2022 [196]. Cost Management - Cost of revenue for the three months ended June 30, 2023, was $61.6 million, a 12.2% increase from $54.9 million in 2022, primarily due to higher product and transportation costs [160]. - Selling, general and administrative expenses rose to $25.032 million in Q2 2023 from $19.965 million in Q2 2022, reflecting a 25.5% increase [151]. - Marketing expenses decreased to $9.261 million in Q2 2023 from $12.515 million in Q2 2022, a reduction of 26.0% [151]. - Inventory write-downs for the six months ended June 30, 2023, totaled $3.3 million, primarily due to international product exits and SKU rationalization [136]. - The company has experienced increased fulfillment costs due to supply chain disruptions, which negatively impacted the cost of revenue for the six months ended June 30, 2023 [133]. - The company plans to implement additional price increases in 2023 to offset rising input costs and inflation pressures [134]. Strategic Initiatives - The Transformation Initiative is projected to incur costs of approximately $10.0 million to $13.0 million for the full year 2023, with $1.4 million and $8.3 million recognized during the three and six months ended June 30, 2023 [119]. - Annualized benefits to adjusted EBITDA from the Transformation Initiative are expected to be in the range of $15.0 million to $20.0 million, with benefits anticipated to begin in late 2023 [119]. - The company is focusing on North America and exiting low-margin businesses in Europe and Asia as part of its Transformation Initiative [120]. - Honest aims to enhance its product margins by prioritizing growth in the Skin and Personal Care category, which has attractive margin characteristics [127]. - The company plans to execute additional pricing increases across the majority of its product portfolio throughout 2023, following previous increases that contributed to revenue growth [120]. Research and Development - The company is committed to continuous innovation, with significant investments in research and development to improve existing products and introduce new ones [124]. - Research and development expenses decreased to $1.6 million for the three months ended June 30, 2023, down 12.5% from $1.8 million in the same period of 2022 [170]. - For the six months ended June 30, 2023, research and development expenses were $3.1 million, a decrease of 22.1% from $3.9 million in the same period of 2022 [171]. Cash and Liquidity - As of June 30, 2023, the company had $17.8 million in cash and cash equivalents, which is expected to meet short-term operational needs for the next 12 months [175]. - The 2023 Credit Facility provides a $35.0 million revolving credit line, maturing on April 30, 2026, with $19.3 million available to be drawn upon as of June 30, 2023 [176]. - Net cash provided by operating activities was $3.8 million for the six months ended June 30, 2023, compared to a net cash outflow of $25.4 million in the same period of 2022 [181]. - Net cash provided by investing activities was $4.5 million for the six months ended June 30, 2023, primarily due to proceeds from maturities of short-term investments [186]. - The company does not anticipate declaring or paying any cash dividends in the foreseeable future due to restrictions in the 2023 Credit Facility [190]. Accounting and Compliance - Adjusted EBITDA is used by management to assess business health and is calculated by excluding certain items from net income, providing a clearer view of operational performance [192][194]. - Stock-based compensation increased to $6.413 million for the three months ended June 30, 2023, from $3.912 million in the same period of 2022 [196]. - Restructuring costs amounted to $1.747 million for the six months ended June 30, 2023, with no costs reported in the same period of 2022 [196]. - The company reported a depreciation and amortization expense of $1.340 million for the six months ended June 30, 2023, compared to $1.386 million in 2022 [196]. - There were no material changes to critical accounting estimates from those discussed in the Annual Report [200]. - The company has elected to take advantage of the extended transition period for complying with new or revised accounting standards as an emerging growth company [202]. - The income tax provision remained consistent at $20,000 for both the three months ended June 30, 2023, and 2022 [196].