The Honest pany(HNST) - 2024 Q1 - Quarterly Results

Executive Summary and Q1 2024 Highlights The Honest Company delivered strong Q1 2024 results, driven by strategic transformation, achieving revenue growth, significant gross margin expansion, and reaffirming its full-year outlook First Quarter 2024 Performance Overview The Honest Company reported a strong start to 2024, driven by its Transformation Pillars, achieving revenue growth and significant gross margin expansion, and reaffirming its full-year financial outlook - The Honest Company reported strong Q1 2024 results, with revenue growth and record gross margin, reaffirming its full-year financial outlook[1][2] Q1 2024 Key Financial Highlights (YoY Change): | Metric | 2024 (in thousands) | 2023 (in thousands) | Change | Change (%) | | :----- | :------------------ | :------------------ | :----- | :--------- | | Revenue | $86,217 | $83,388 | $2,829 | 3% | | Gross margin | 37.0% | 24.2% | 12.8% | 1275 bps | | Operating expenses | $33,197 | $38,860 | $(5,663) | -14.6% | | Net loss | $(1,403) | $(18,867) | $17,464 | -92.6% | | Adjusted EBITDA | $2,642 | $(10,334) | $12,976 | N/A (swing to positive) | Strategic Transformation Pillars The company's 'Transformation Pillars' – Brand Maximization, Margin Enhancement, and Operating Discipline – were key drivers for Q1 2024 results, contributing to revenue growth, gross margin expansion, and reduced operating expenses - Transformation Pillars (Brand Maximization, Margin Enhancement, Operating Discipline) are deeply rooted in operating practices and supported Q1 revenue growth and cost structure improvements[2][3] - Brand Maximization drove distribution gains and strong velocities, leading to 7% growth in total tracked channel consumption for the Company, against a 1% decline in categories[4][5] - Margin Enhancement led to a 1,275 basis point increase in gross margin due to lower transportation costs, price increases, efficient trade spending, and reduced product and fulfillment costs[6] - Operating Discipline resulted in a $6 million decrease in operating expenses and an 810 basis point reduction as a percentage of revenue[7] First Quarter 2024 Financial Results The Honest Company achieved a 3% revenue increase, significant gross margin expansion, and substantially reduced its net loss, while turning Adjusted EBITDA positive Key Financial Metrics The Honest Company achieved a 3% increase in revenue, a significant 12.8 percentage point expansion in gross margin to 37.0%, and substantially reduced its net loss to $1.4 million, while turning Adjusted EBITDA positive for the second consecutive quarter Q1 2024 vs Q1 2023 Financial Performance: | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Change | | :----- | :------------------- | :------------------- | :----- | | Revenue | $86,217 | $83,388 | +$2,829 | | Cost of revenue | $54,335 | $63,186 | -$8,851 | | Gross profit | $31,882 | $20,202 | +$11,680 | | Operating loss | $(1,315) | $(18,658) | +$17,343 | | Net loss | $(1,403) | $(18,867) | +$17,464 | | Basic and diluted net loss per share | $(0.01) | $(0.20) | +$0.19 | - Revenue growth was primarily driven by increases in baby apparel, wipes, and baby personal care[4] - Adjusted EBITDA turned positive at $2.6 million, compared to a negative $10.3 million in Q1 2023, marking the second consecutive quarter of positive Adjusted EBITDA[4][8] Balance Sheet and Cash Flow The company ended Q1 2024 with a stronger cash position and no debt, demonstrating improved working capital management and a positive shift in operating cash flow Q1 2024 Balance Sheet and Cash Flow Highlights: | Metric | March 31, 2024 (in thousands) | March 31, 2023 (in thousands) | Change | | :----- | :---------------------------- | :---------------------------- | :----- | | Cash, cash equivalents and short-term investments | $34,000 (approx) | $12,000 (approx) | +$22,000 | | Net cash provided by operating activities | $336 | $(3,000) (approx) | +$3,336 | - The Company had no debt on the balance sheet as of March 31, 2024[10] - Net cash provided by operating activities was $336 thousand, a significant improvement from net cash used of $2.761 million for the first quarter of 2023[10][27] 2024 Financial Outlook and Long-Term Strategy The company reaffirmed its 2024 financial outlook for revenue growth and positive Adjusted EBITDA, while outlining long-term strategic goals for sustained growth and margin expansion Reaffirmed 2024 Outlook The Honest Company reaffirmed its full fiscal year 2024 financial outlook, expecting low-to-mid single-digit percentage net revenue growth and positive Adjusted EBITDA in the low-single digit to mid-single digit millions range - Reaffirmed full fiscal year 2024 financial outlook for revenue and Adjusted EBITDA[2][11] - Net revenue growth of low-to-mid single digit percentage[15] - Positive Adjusted EBITDA in the low-single digit to mid-single digit millions range[15] Long-Term Strategic Goals Beyond 2024, the company remains confident in its long-term strategy targeting 4% to 6% annual revenue growth and continued Adjusted EBITDA margin expansion - Long-term strategy beyond 2024 targets 4% to 6% annual revenue growth and continued Adjusted EBITDA margin expansion[11] - Additional strategic plan information is available in the Investor Presentation on the Company's Investor Relations website[11] Additional Information This section provides details on the Q1 2024 webcast, forward-looking statement disclaimers, company overview, and contact information Webcast and Conference Call The company scheduled a webcast and conference call for May 8, 2024, to discuss Q1 2024 results, with replay available online - A webcast and conference call for Q1 2024 results was scheduled for May 8, 2024, at 1:30 p.m. Pacific time/4:30 p.m. Eastern time[12] - A replay of the webcast will be available on the Company's website for one year[12] Forward-Looking Statements The report contains forward-looking statements regarding future financial performance, strategic initiatives, and operations, which are subject to substantial risks and uncertainties detailed in SEC filings - This press release contains forward-looking statements about future financial performance, liquidity, strategic initiatives, and operations, identifiable by words like 'anticipate,' 'expect,' 'plan,' etc[13] - Forward-looking statements are subject to risks and uncertainties described in the Annual Report on Form 10-K for the year ended December 31, 2023, and subsequent SEC filings[15] - Investors should not unduly rely on these statements as actual results may differ materially[16][18] About The Honest Company The Honest Company, founded in 2012, is a personal care company offering clean- and sustainably-designed products across various categories, available online and in approximately 49,000 retail locations in the US and Canada - The Honest Company (NASDAQ: HNST) is a personal care company founded in 2012, focused on clean- and sustainably-designed products[19] - Product categories include diapers, wipes, baby personal care, beauty, apparel, household care, and wellness[19] - Products are available via Honest.com, leading online retailers, and approximately 49,000 retail locations across the United States and Canada[19] Contacts Contact information for investor relations and media inquiries is provided - Investor Contacts: Elizabeth Bouquard (ebouquard@thehonestcompany.com), investors@thehonestcompany.com[20] - Media Contact: Jennifer Kroog Rosenberg (jrosenberg@thehonestcompany.com)[20] Condensed Consolidated Financial Statements This section presents the company's Q1 2024 comprehensive loss, balance sheets, and cash flow statements, highlighting improved financial health Statements of Comprehensive Loss The condensed consolidated statements of comprehensive loss show a significant reduction in net loss from $18.9 million in Q1 2023 to $1.4 million in Q1 2024, driven by increased gross profit and reduced operating expenses Condensed Consolidated Statements of Comprehensive Loss (Q1 2024 vs Q1 2023): | (in thousands) | 2024 | 2023 | | :------------- | :--- | :--- | | Revenue | $86,217 | $83,388 | | Cost of revenue | $54,335 | $63,186 | | Gross profit | $31,882 | $20,202 | | Total operating expenses | $33,197 | $38,860 | | Operating loss | $(1,315) | $(18,658) | | Net loss | $(1,403) | $(18,867) | | Basic and diluted net loss per share | $(0.01) | $(0.20) | Balance Sheets The balance sheet as of March 31, 2024, shows total assets of $198.1 million and total liabilities of $73.3 million, with a slight decrease in total assets from December 31, 2023, and no long-term debt Condensed Consolidated Balance Sheets (March 31, 2024 vs Dec 31, 2023): | (in thousands) | March 31, 2024 | December 31, 2023 | | :------------- | :------------- | :---------------- | | Total current assets | $156,364 | $157,772 | | Total assets | $198,071 | $201,621 | | Total current liabilities | $53,662 | $56,710 | | Total liabilities | $73,304 | $78,482 | | Total stockholders' equity | $124,767 | $123,139 | - Cash and cash equivalents increased to $33.6 million from $32.8 million at year-end 2023[25] - No preferred stock issued or outstanding, and common stock shares increased to 97.2 million from 95.9 million[25] Statements of Cash Flows The cash flow statement indicates a positive net cash flow from operating activities of $336 thousand in Q1 2024, a significant improvement from a net cash outflow in the prior year, contributing to an overall increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Q1 2024 vs Q1 2023): | (in thousands) | 2024 | 2023 | | :------------- | :--- | :--- | | Net cash provided by (used in) operating activities | $336 | $(2,761) | | Net cash (used in) provided by investing activities | $(76) | $2,480 | | Net cash provided by (used in) financing activities | $498 | $(15) | | Net increase (decrease) in cash and cash equivalents | $758 | $(296) | | Cash and cash equivalents, end of period | $33,585 | $9,221 | - The positive shift in operating cash flow was partly due to changes in accounts receivable and inventories[27] Use of Non-GAAP Financial Measures This section explains the definition and reconciliation of Adjusted EBITDA, a non-GAAP measure used to assess the company's operational performance Explanation of Adjusted EBITDA Adjusted EBITDA is presented as a non-GAAP financial measure to provide additional insight into operating performance by excluding certain non-recurring or non-cash items, though it has limitations and should be considered alongside GAAP results - Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate performance, determine incentive compensation, and for internal planning[29][31] - It excludes interest, income tax, depreciation, amortization, stock-based compensation, litigation fees, CEO/Founder transition expenses, and restructuring expenses[30] - Adjusted EBITDA has limitations, such as not reflecting capital commitments, tax payments, or certain non-ordinary cash expenses, and may not be comparable to other companies' measures[32] Reconciliation to Net Loss The reconciliation table details the adjustments made to net loss to arrive at Adjusted EBITDA, showing a significant improvement from a negative $10.3 million in Q1 2023 to a positive $2.6 million in Q1 2024 Reconciliation of Net Loss to Adjusted EBITDA (Q1 2024 vs Q1 2023): | (in thousands) | 2024 | 2023 | | :------------- | :--- | :--- | | Net loss | $(1,403) | $(18,867) | | Interest and other (income) expense, net | $63 | $189 | | Income tax provision | $25 | $20 | | Depreciation and amortization | $717 | $668 | | Stock-based compensation | $2,523 | $3,772 | | Securities litigation expense | $402 | $1,178 | | CEO and Founder transition expense | $158 | $1,277 | | Restructuring costs | $— | $1,350 | | Payroll tax expense related to stock-based compensation | $157 | $79 | | Adjusted EBITDA | $2,642 | $(10,334) | - Adjustments for Q1 2024 primarily included stock-based compensation ($2.5M), depreciation and amortization ($0.7M), and securities litigation expense ($0.4M)[34] - Restructuring costs, which were $1.35 million in Q1 2023, were zero in Q1 2024[34]