Q1 2021 Honest Company Inc Earnings Call

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Good day, and thank you for standing by and welcome to the the honest company first quarter 2021, and its conference call. At this time, all participants on a listen only mode.

After the speaker presentation, there will be a question and answer session.

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I would now like to hand, the conference over to your first speaker today, 2 song Kim Vice President Finance and strategy. Thank you. Please go ahead.

Thank you good.

Good afternoon, everyone.

Thank you for joining us for our first quarter fiscal year 2021 conference call.

Joining me today, our net flows Chief Executive Officer, and Kelly Kennedy Chief Financial Officer.

Before we start I would like to remind you of our legal disclaimer and then we will make certain statements today and are forward looking within the meaning of the federal Securities law.

Including statements about the outlook of our business and other matters referenced and our earnings release issued today.

These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results.

Please also note that these forward looking statements reflect our opinions only as of the date on this call.

And we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results and eliminate the impact on certain items.

You will find additional information regarding these non-GAAP financial measure and a reconciliation of these non-GAAP to GAAP measures in todays financial results earnings release.

A live broadcast of this call and also available on the Investor Relations section of our website at Investor day on its dot com.

With that I'll turn the call over to Nick.

Thanks, Sean.

Your new and everyone. We're excited to speak with you on our first call as a public company.

Honest is dedicated to providing safe clean and effective products to consumers around the world and becoming a public company represented a significant milestone.

And further empowered our team to drive our mission of inspiring everyone. The love living consciously.

I want to thank the entire honest organization for their dedication and passion to our business and mission.

Their contributions led to our successful offering and position us well to execute our strategy going forward.

And you saw on our earnings release, we're off to a strong start with double digit top line growth and solid progress against our strategic initiatives.

These initiatives focus on broadening awareness.

Introducing breakthrough product innovation.

Increasing our digital and retail presence and.

Continuing our commitment to ESG.

Before I share the highlights of the quarter for those new to be honest story on.

I'll take a moment and outline what makes our company uniquely positioned to drive good growth in the near and long term.

First and foremost we're digitally native mission driven brand.

We're a leading lifestyle brand and clean baby beauty and personal care with top rankings across 3 key loyalty drivers and our product categories better for your credibility.

Suppressive brand personality and functional excellence.

Our products have garnered strong ratings and reviews across categories with industry, leading NPS scores, while formulating according to our honest standard and no list.

Avoiding over 2500 chemicals and materials, we choose not to use.

Our brand promises to always strive to provide clean sustainable effective and thoughtfully designed products for our consumers.

Second.

We're focused on disrupting large consumer categories. The total addressable market for our categories of diapers and wipes skin and personal care and household and wellness is estimated to be 130 billion with $17 billion, representing the clean and natural market in those categories importantly.

Our clean and natural market is projected to grow and the high single digits through 2020.5.

6 times the rate of the conventional market, giving us a unique advantage.

As we create products and our attractive consumer categories were focused on 3 key differentiators to give us a competitive advantage.

Number 1 we're focused on driving marketing innovation to increase consumer awareness of our products.

Since inception, we've grown our brand and deepened our consumer relationships through our content community and commerce strategy, as we educate and entertain and build long lasting consumer connections with over 43 million followers on social media.

And allow us to move faster to bring new and improved products to market.

Number 2.

We have built a high performance and house product development team with a proven track record of bringing breakthrough.

A word winning products to market.

This capability has allowed us to diversify our revenue across product categories and to drive accretive innovation through our cost deviation process.

And number 3 our integrated omni channel approach drive discovery and accessibility and allows us to efficiently scale, our business, while making us agnostic.

So the channel our consumer chooses to shop.

In fact, our sales were balanced with 55% transacted digitally and 45% at retail and 2020.

Now, let's pivot to our Q1, 2020.1 results. Our Q1 accomplishments reflect the continued execution of our strategy against these key priorities.

Number 1 starting with marketing innovation, we continued to expand brand awareness and consumer touch points through the use of key marketing campaigns that leverage our content community and commerce strategy.

And sparring authentic dialogue and creating lasting connections, we were able to draw and 42% growth and our skin and personal care business.

This is a strategic focus for us is more than 1 third of new honest dot com consumers enter through our skin and personal care products.

Let me highlight 1 key campaign that we launched in Q1, our morning routine campaign feature Jessica Alba showcasing a variety of morning routines for the whole family.

Emphasizing the versatility of our personal care offering through multiple life stages.

The content underscore the breadth of personal care product line by utilizing our solution set afford hero personal care items are.

Shampoo and body wash conditioner.

Based on body lotion and conditioning to Taylor.

We engaged our honest community by launching and compelling and comprehensive campaign and utilize paid media and was supported by strategic endpoints are gifting and pressed features and premium and publications.

The campaign had a total reach of over 90 million impressions across social media Influencer press and paid media.

Core to our consumer engagement strategy, we created unique solution oriented content.

Drove advocacy per our honest community and ultimately generating commerce through unique on a stock comp solution sets around the morning routine campaign and this is.

As just 1 example of how we leaned into marketing innovation to drive strategic growth and the quarter through incremental marketing investment.

Second we introduced product innovation with strong consumer response during the quarter, we introduced breakthrough innovation and diapers and wipes, we launched our clean conscious diaper that delivers improvements and performance.

Sustainability and margin.

With regards to performance, our new diaper features advanced leak protection.

This indicator and product features designed for every stage of a child's development.

In addition to the improved performance features the clean conscious diapers also are most sustainable diaper yet.

Our diapers continue to feature sustainably harvested totally corrine free fluff pulp and.

And a 100% plant based back sheet.

We were able to further improve the sustainability and environmental impact of this offering by moving to a more efficient type of design that uses less material and the diaper and 100% post consumer recycled cardboard and our paper boxes.

Finally in addition to improved performance and sustainability and we're very proud and achieve improved margins on our diaper due to a more efficient type of design.

Early consumer and marketplace response has been strong over the course of the year, we expect to release and consistent cadence of new product innovation.

Third we're.

We were pleased to deliver growth across both our digital and retail channels as our integrated omni channel strategy continues to accelerate digital and retail share of shelf.

This quarter, we delivered double digit revenue growth on top of 36% growth and Q1.2020, our 2 year stack is 48% growth.

Overall.

We have seen increased consumer willingness to get back into stores as consumer behavior. In response to the COVID-19, pandemic changes and have seen a channel shift and an acceleration and revenue growth within our retail channel.

And we're well positioned with our omni channel strategy to come.

Capture this growth as evidenced by our retail growth and Q1.2021.

Significant white space opportunity still exists to expand our on shelf presence and the depth of our product offering with new and existing retail partners.

For example, and Q1.2021, we increased both our penetration and our assortment on beauty and target increasing from roughly 900 stores to over 200 stores with skincare and color now sitting in an integrated share.

Offset and the beauty and.

In total we added approximately 10 additional items to our core target beauty side.

Before I turn it over to Kelly I wanted to take a moment to reiterate our commitment to ESG.

And which has been part of our DNA since our founding.

We have a deep sense of purpose and infuse the ethical values of transparency sustainability diversity and inclusion and all that we do.

From developing products designed to be safe.

Working hand in hand, with our charity partners to serve those and need to embracing diversity and inclusion we're on a mission to create real and meaningful impact.

And the first quarter, we launched several breakthrough initiatives that have deepened our commitment to offering environmentally friendly products. In addition to the launch of our claim conscious diaper.

And we're also proud to launch our conscious cleaning essentials.

Sustainable solution that seeks to reduce waste without compromising on and effectiveness occur.

According to our estimates approximately 600 million household plastic bottles and up and landfill each share is.

As part of our effort to reduce the amount of single use plastic thrown away each year. The essentials collection features reusable strict spray top models.

Along with cleaning concentrates for bathroom.

Glass and multi surface cleaning.

In addition to reducing plastic waste the lightweight concentrate plants cut down on the amount of water shipped around the country, providing us with an opportunity to lower our carbon footprint and so.

And the response has been strong and we're inspired by the impact that simple sustainable changes to make.

Regarding social impact, we're very proud of our partnership with Archer will partner baby the baby.

Since inception, we've now donated over $25 million products, making an impact with individuals and families in need.

As it relates to our governance efforts in May and we're pleased to welcome James White, and Susan and to lead to our board of directors Mr.

And these are white brings nearly 30 years and professional experience and the CPG and retail industries and Mr. Beasley brings more than 25 years of experience and the finance sector across industries.

The background may bring to honest and will help ensure we continue to reflect the needs and wants of our consumers and the communities, we serve and all that we do.

With these 2 new additions we are very proud to have a board that is 56% people of color.

And 33% women.

In summary, we believe we have built the foundation for on US to continue to grow as a leading clean and natural wellness brand. We continue to capitalize on our strong content community and commerce platform to drive good growth across product categories, and all consumer touch points.

We are pleased with our strong start to the year and believe we are well positioned to continue to advance our strategic growth plan and.

I'd like to turn the call over to Kelly Kennedy, Our Chief Financial Officer to review, our first quarter results.

And more detail.

Thank you, Nick and welcome everyone and delighted to speak to you today and share our strong start to the fiscal year, achieving the single highest revenue quarter and the company history.

Selecting double digit revenue growth versus the first quarter of 2020.

This performance reflects the positive momentum.

Honest brand and the successful implementation of our strategic priorities by our team on.

I'll walk you through our financial results and key drivers for the quarter.

My remarks will include adjusted non-GAAP results.

You can find reconciliation tables to GAAP financials, and our earnings release.

First quarter revenue totaled 81 million and 12% increase over Q1 and 2020.

As Nick highlighted this was on top of 36% growth.

Each represents 2 year stack.

And 8% top line growth.

Now diving into the key drivers by product category.

It's actually Piper and why the.

And the category decreased 2% as we transition to a clean conscious Piper and lastly, acceleration and diapers and wipes related to COVID-19, pantry loading and the first quarter of 2020.

Of note diaper growth was positive in Q1 behind our new diaper and months, but was offset by a decrease and 1 as we lap consumer stock up behavior from Q1.2020.

Based on consumption data for the last 12 weeks ending may 16 or <unk>.

<unk> business was up 13%, while the overall market declined 1%.

Skin and personal care grew 42% driven by sales volume from our incremental investments and digital marketing and expanded distribution with a retail partner.

We invested meaningfully and marketing innovation behind our skin and personal care products.

And many innovative campaign that Nick highlighted earlier and.

And we were also able to expand distribution with our key retail partners such as target.

During the first quarter, we were able to reduce our legacy beauty inventory, which puts us and a great position for the beauty relaunch launching in Q3 of 2021.

Our beauty be stage features tree free packaging across the line, while achieving significant margin improvement.

Skin and personal care strong growth, even as compared to the first quarter of 2020, when revenue grew 63% versus the first quarter of 2019.

Household and wellness grew 53%.

Fueled by our standardization and disinfecting products that we introduced in the second half of 2020.

While we were still able to see significant growth and household and wellness.

We are starting to see household and retailer destock standardization and disinfecting products as more consumers to come back to need it and return to their pre COVID-19 and the team.

Now turning to results by channel.

E tail channel revenue increased 2% to $42.5 million on.

On a 2 year stack basis growth was 25%.

Retail channel revenue increased 25% to $38.

$6 million.

Retail 2 year stacked growth was 83%.

Outside and price retail growth was aided by a strong rebound and store traffic and vaccinated consumer increasingly return to in store shopping.

We also benefited from expanded distribution and the sale of our existing inventory as well and promotional and merchandising events with partners like target hosted and regional grocery.

Gross profit increased $2.6 million to $28.4 million, primarily due to increased value.

And the percentage of revenue gross margin achieved 35% per quarter.

This compares to 36% in Q1, and 2020, which benefited from the lower levels of trade spend as retailers pulled back on events during the pandemic.

Overall input costs were higher in Q1 of 2021 versus Q1, and 2020, including higher transportation and freight costs.

Getting record levels of cost inflation. This is a focus area for us and 'twenty slate line.

We have a number of cost and Asian initiatives launching in 2021, including a clean conscious diaper, which launched in Q1 and our upcoming BBB staged and launches in Q3.

We will continue to evaluate the input cost environment to ensure that our productivity plans are sufficient to offset current inflation levels.

Total operating expenses increased $7.5 million versus Q1, and 2020, primarily driven by increased investments to support growth as well as increased cost of operating and the public company.

We invested an incremental $5.5 million and marketing and R&D versus Q1 and 2020.

We supported and accelerated growth of our skin and personal care business and.

The launch of our new clean conscious diaper and invested in our upcoming innovation pipeline.

Adjusted EBITDA for the first quarter of 2021 was roughly breakeven.

A couple of items to note on the balance sheet.

And we ended the quarter and a healthy position with $58 million and cash restricted cash and short term investments with no debt on our balance sheet and just 1.

Wanted to note that this is before the impact of the IPO proceeds, which will be reflected and the second quarter.

As evidenced by our double digit growth and Q1 and 2021 and our 2020 results. We continue to feel good about our strategy and growth prospects.

Our consumption remains strong and we continue to be extremely proud of our deep connection with consumers Our award winning products and our omni channel approach and.

And we believe these differentiators continue to position honest Kristin Scott, both now and into the future.

We want to reinforce our long term target.

First consistent double digit top line growth over the next few years.

Second ongoing gross margin expansion with a path to 45% long term and.

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EBITDA profitability with our long term target of 20%.

With that I'll turn the call over to the operator to begin the Q&A portion of the call.

Okay.

Thank you as a reminder to ask a question you would need to press star 1 on your telephone to withdraw your question. Please press the pound key.

Due to the essence of time, we ask that you. Please limit yourselves to 1 question and 1 follow up and re queue for further questions. Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Steph Wissink from Jefferies. Please go ahead.

Thank you good afternoon, everyone. Our question is just on the business momentum if Kelly on Nick you could talk a little bit about what youre seeing and Q2, and then I think it would be helpful. Just to rationalize the lap to Covid lost share in the Q2 quarter is there anything we should be aware of and the base from a comparability perspective.

Yes, sure I'll take that thank you for the question Scott.

And.

Obviously, it and see why you can see lots of momentum and the business and we're seeing strength based on our visibility to detract from function data, we look at IRI on.

But really underlying this shift and something you'll be hearing a lot about is the shift from digital and some detail because as the economy starts to open and strengthen on.

And so for US it's kind of creating this volatility as an example, you saw on Q1, our retail business represented 48% of our total business and Q1 and 2021, while a year and that was 43% on.

And while they would typically and it's going to be volatility on our business from quarter to quarter on.

And this quarter's meeting benefit of what we're currently seeing and our business right now really is consumption outpacing shipments.

And so we do want to highlight kind of as you think about the business right now on.

And that this could have on potentially material impact on the quarter back on.

It's happening real time, where net.

And it'll hard quarter on and it's something that we're monitoring.

We have a significant digital events and it takes place at the end of the quarter and said on kind of a lot of ice and kind of visibility to I'm coming out of this event and our trend here, obviously, we always manage bearing on the long term underlying consumption remains really strong.

We're not giving specific quarterly guidance, but certainly a trend that we wanted to get some visibility too.

And we will be getting back together here, and obviously being able to share and kind of a lot more on about the business and kind of be Brazil kind of this kind of mega event, that's happening at the end of our quarter.

Okay, that's great and maybe if I could just on a follow up question on beauty and skincare and you talked a lot about target as an illustration of the white space opportunity, but that category seems to be a real important power driver of the models and talk a little bit about where you think you are in terms of SKU assortment breadth opportunity to build out.

Those full brand experience just like you talked about a target where are you with some of your other retail partners and and really harvesting that opportunity to grow that fleet of the business.

Yes.

Thanks for the question and I think number 1 the way we look at it is first and foremost we're really pleased with the strength that we're seeing within target.

Dance and put it into.

None.

2 we're also from a digital perspective as you look at kind of skin.

Personal care results and up 42% growth and we drill down and beauty.

On acceleration within that.

Part of the business. So we're seeing it and we're seeing a nice mix between both cosmetic and the color side as well and brisket and start to move and now as things start to open up and I'm here in California.

And I walked into a store today and it was April 1.

And with my math and we're starting on.

And we're about to more and more so we're starting to see the consumer start to gravitate more and more to our mix being both on the cosmetic as well as on the skin side.

What we're seeing is from a distribution from an assortment standpoint is in different retail. So for example target Ultra is I'll call and another example, as well as our results internationally. When you look at Duke lifts over the last quarter. We saw actually was about 23% growth on this.

And last quarter.

We're seeing definitely the depth that we're driving around distribution and the digital as well as the physical shelf and we're starting to see how it and see the repeat and that's why when you see the results from Q1, and Thats, 42%, 63% a year ago and that's over 100 plus percent on the stock.

So again, a lot of opportunity still with a lot of good.

Momentum as you look at the results coming out of Q1, and that's going to position us well and when you think about the beauty restage, which is going to hit in Q3, because just a reminder, that's going to be not only from a packaging perspective is 100% free free packaging that we're thrilled about when you look at the improvements around a business that's already.

And doing extremely well, but also importantly, new products, we have a new daily defense collection that we are going to be introducing as well as a new Washington, just serum initiative around that from the innovation perspective. So a lot there and then coupled with that is roughly about 800 basis points of gross margin expansion thats going to take place.

Against that initiative when you look at.

Thank you.

Okay.

Great. Thank you.

Okay.

Thank you.

I show. Our next question comes from the line of Wendy Nicholson from Citi. Please go ahead.

Thanks, and actually Kelly I wanted to go back and just just here a little bit more about what you were just saying and that line of questioning about how consumption is outpacing shipments on.

And you've got the big.

Digital promotion coming up at the end of them on so I'm just trying to understand are you worried about having out of stocks is there a chance that you would move that promotion, but how's everything working from a supply chain just wanted to really understand if there was a risk but either at the time and that promotion or at the retail level. There was a channel.

You couldn't sell demand.

Yeah, Great question I'm glad you asked the follow up Wendy it is not where and in good inventory position and what we're seeing really is around this shift and we're seeing on and retail partner.

And their shipments are not reflective of the underlying consumption. So we mentioned volatility from time to time from quarter to quarter, we can see shifts sometimes it goes in our favor sometimes it goes the other direction on and right now, what we're seeing and the business and specific to.

Kind of a shift between digital and retail and 1 of our partners on essentially kind of managing their working capital.

Got it.

And that is not and.

And a worry that gosh, maybe theyre going to cease to carry honest diapers or something like that there was nothing untoward or anything we should be worried about in terms of that relationship.

No I would say this is an extremely strategic relationships and we have on we will be getting some great prominence and we've been working with them on as well and have just behind this event and event that we've done kind of in past years, but again, we're leaning into it.

And we're really excited it's just that it is not represented in overall and the on your mind typically we've seen replenishment. Following this event.

And the timing is at the end of our quarter and it kind of different and it's been in the cash.

Understood. Okay, I really appreciate that clarification thats very helpful. And then maybe for you Nick I had a question just about the competitive environment. You know some of your competitors have announced price increases.

On the baby care side, and as we start to see those higher prices maybe show up on shelf over the next couple of months do you think it impacts your pricing at all I mean, obviously, you're more premium price generally, but do you intend to keep the same price GAAP I E raise your prices as well or.

We think that the more compelling proposition because the price gap won't be as large if you don't raise price is just how do you think about sort of the elasticity of demand from honest diapers, depending on what the competitive pricing environment is like thank you.

Yeah. Thank you Wendy a couple of things on that number 1 I would think about it this way so the conscious diaper that we just introduced in Q1 really started to hit the market kind of the second past.

Q1, and you look at our marketing investment we put in about an incremental $5 million on marketing this quarter and relates to driven against the conscious diaper initiative as well as our skin personal care businesses kind of benefited disproportionately from that standpoint, so by introducing that in the market with the features that we referenced.

This is the most sustainable Viper as we look at the comparison versus kind of where we've been as we look to continue to improve.

From an innovation perspective, what we're starting to see and the market behind that investment and that new product again still early but hitting the market and we're starting to see our share start to pick up from a truck perspective. So at the start of the quarter our share. So it's and this is looking at all outlet IRI on Mueller data over the last 12.

<unk> our share so it's not about a 1.4 on the diaper starting the quarter. It was sitting at about 1.2 so we like the fact that we're starting to see share start to pick up and then importantly, and what we're seeing now is from a category perspective, and Kelly referenced this we've seen about over the last 12 weeks about 13%.

Growth versus the category declining at 1%. So we like the position that we're in because coupled with that as a second part of the question around input costs. Remember. This initiative was also a constipation so not only a product improvement for us from an innovation perspective, but we also picked up additional.

Gross margin on this product so it was a margin.

And when for US also that second component that youre referencing that we're looking at we understand that there are some of these.

Manufacturers that have taken price, we're closely monitoring the input cost and kind of the volatility that sits in the market right now right now and when you look at our plans we have sufficiency around productivity and this cost deflation that we're driving both and our diaper business and the second half it will be our beauty restage and IRA.

Ernst earlier, but it's 1 that we're taking a very close look at.

Right now we like the fact that the conscious diaper.

And to reduce debt, we're starting to take a little bit of share. We've got a lot of momentum from that standpoint, what's going to be important is to really understand and see where the cost structure is going to sit and moving forward around some of the inflation that everyone is seeing and we're monitoring that right now and again today, we have sufficiency with.

Our plans as it pertains to mitigation, but that's something that we are closely looking at.

Terrific that's very helpful. Thank you.

Thank you thank you weighted.

Thank you on next question comes from the line of Lawrence <unk> from Guggenheim. Please go ahead.

Hey, good morning, and good morning, everyone and thanks for for these first going on and you can get a very good job. So I do have a rich.

Per your question about commence you made in your in your per Rocco and your press release.

We're getting to $3.4 million on ours and enough personal care you sold in the quarter.

Just wanted to understand is it is it on top of what's your plan or journey.

Or is it something that was already planned and.

And really when you say in exchange for future marketing and trustful fishing credits and not really like to understand this a bit more and you can thanks.

Sure I'll take that 1 and I'll give you a context always part of the plan.

So when you see that level of innovation and the cadence that you see from honest that we continue to introduce and a very rapid pace.

We have and this example legacy and inventory approximately $3.4 million that we partnered with active international on to be able to prior to this Q4 restage to be able to sell through that inventory. The good news. There is that inventory is being sold and accretive.

Gross margin to where the company had landed Q1 and so thats a positive too. We're also putting outside of our warehouses getting this product and move through the system to position the new product that we're going to be bringing in and be able to start staging our inventory. So it is a benefit.

The second part of that question is around really the credit component and the way. This works is we have marketing credits as well as transportation and.

And how we use those.

It's really against current digital media partners that are already part of the honest.

Go to market as well as in store visual merchandising vendors that we use so as we start to transition.

This product and the marketplace, we have both the marketing component as well as the in store component with current vendors that we can utilize those individual credits against so it's a strategic play for us as part of our transition plan and puts us on a good position as we talk about this new beauty restage that's tough.

As it pertains to Q3 to be able to start to really start to accelerate not only great innovation with the 100% 3 free packaging as well as the new items, but also start to capture the additional incremental gross margin that we're driving and about 800 basis points against that initiative.

Thanks, Jesse and thank you very much thanks.

Yes.

Thank you I show. Our next question comes from the line of Dana Telsey.

Telsey Advisory group. Please go ahead and.

Good afternoon, everyone.

And you think about diapers and obviously the share that you've gained and and the growth and the first quarter and how you've outpaced the market is very impressive how do you see this clean conscious diaper initiative going forward is that a margin enhancer to and how you're planning wipes go forward and then just on another note on the beauty restage.

What type of marketing investment you make there and does that continue through the balance of the year. Thank you.

Yes, I'll take the first 1 and Dan. Thank you for the question and I would say on the conscious diaper is we've kind of built out that innovation. We do we do this type of work when it comes to the performance and being able to address these key consumer to satisfy errors and we've done this in a way now where we're all.

And so increasing the margin structure against that business.

It's got the right proposition for us because we talk about good growth always which is this consistency around not just driving top line, but also the margin expansion components that we want on the business. So that's rooted and the current proposition the key for us will be as I referenced earlier.

Earlier, the earlier question, we will be maintaining the sufficiency within our consistent annual productivity plans and we have 3 year productivity plans, but we drive against the business to really mitigate the cost environment and that again is something that we're we're closely looking at and then I'll, let Kelly pick up on the second part of the question.

Yeah I think on.

And we think about marketing spend we think the right level for us is kind of and is 14% to 17% revenue range. We did have some great kind of marketing and leasing and marketing spend because of the great innovation that we had on.

And we will support the BTB stage, that's coming in Q3, we continue to see skin and personal care will be just a great driver.

And for Us and growth and you would expect that over the back half as well on.

And so.

We think it's the right place for marketing and.

We will continue to lean in and so we see the return on and see it drive top line growth.

But you could expect for us to kind of stay within that guidance range of a 14% to 17%.

Yes.

Got it thank you and just on the digital and retail channel growth did you see the digital piece of your retail partners.

Accelerate and as <unk>.

As you saw this store improvement come back on what did you see as stores reopen on the digital performance of the retail channel.

Yes, I think and I think I mentioned this earlier as we think about kind of looking at digital versus retail. It's helpful to look at 2 year stack as well because we wanted to remind everyone. The COVID-19 kind of COVID-19 trend that happened.

In Q1 with all around kind of a shift on the consumer stock up behavior on and on there was a kind of a growth both on retail and digital last year and Q1 and 2020 retail grew 58% and digital grew 23%. So when you think about digital on a 2 year stack.

We are seeing a significant shift versus what was happening a year ago.

So yes.

And the key trends that we spoke about earlier is really the shift from digital back to retail on.

But again, we also saw on digital acceleration as well, yes, and built the thing that I would.

And on that is from some of our key retail partners on the digital side.

In 2020.

Early this migration from kind of.

And the 20% range is.

And moving more associates at 30% plus and you look at the amount of business that theyre doing but coupled with that is a lot of also a click and collect pickup that's taking place within retail. So it's not just the digital component, but also the visitation as it pertains to the stores and that's where we're seeing more and more both within our own datasets and with some of our.

Strategic partners.

People are more and more gravitating towards the retail side now the good news is and that's why we're always strategy led is that we have and omni channel strategy that we built and that we're agnostic when it comes to consumers that want to shop. It honest dotcom right you want to shop, Amazon Dot Com, you want to shop at target.

Want to shop at HEB, you have that opportunity with us and that's why I think we're well positioned as we look at based on where that consumer shops, and our consumers at the end of the day. They don't shop channels Vishal brands at the end of the low day, So we're well positioned.

Thank you.

Thank you.

Our next question comes from the line of Bryan Spillane from Bank of America. Please go ahead.

Okay.

Hey, good afternoon, everyone.

Just I guess 2 quick ones related to the channel..1 is just I guess following up on an earlier question with regards to the <unk>.

I guess the shipments being behind consumption is that specific to retail or is it spread it spread across retail and digital.

And then the second question I had is when we're thinking about channel agnostic.

Agnostic by channel going forward on margins.

Assuming that that's.

That's true today as we think about the margin expansion that you're expecting over the next few years.

Would that also would that relationship hold meetings I guess is the margin opportunity bigger and 1 channel versus the other or would you expect that even if margins are expanding.

And sort of agnostic, whether it's digital and retail.

Yes. Thank you Brian for the follow up question.

The.

The trend that we were mentioning earlier.

Turning to the digital channel.

As it relates to thinking about the margin between right now they're relatively in line on.

And we expect that to continue over the next few years to be not materially different in the longer term. We do think there is an opportunity as we leverage the business and leverage the fixed cost within our digital channel.

And we would be able to expand the margins and the longer term better and the digital channel so but we are.

We do feel by net we're pretty well balanced between the ceiling and expect that to continue over the next few years.

And you would have to look farther out and just kind of.

1 to 2 years to see it.

A material difference between the margin structure and digital versus retail.

Okay, great. Thank you.

Thank you Brian.

Thank you I show and next question comes from the line of large and Pine from loop capital. Please go ahead.

Hi, Thanks for taking my question and I wanted to talk a little bit about your international opportunity, which I think management has acknowledged is very significant but that its longer term. How would you get started there and what's on deck for you to do and the next couple of years and in terms of international growth.

Hello, Thank you for the question.

Couple of things on this 1 when it comes to international.

We've already represents about 2% of our business in 2020.

What we have done and international we haven't been moving.

And built a lot of businesses over the years, we haven't been planting flags, we have been very strategic and methodical and so when you take a look at.

Quarters will reintroduce the brand with.

Was Duke was in Europe and.

And I referenced earlier.

Consumption trends as it pertains to Q1 and 2 it was up about 23% and Thats. An example of we're going to build this business and a methodical way and when it comes to driving both the digital side of the business and with the partner.

And as well as a.

The retail side and example, also is cult beauty and the UK is another strategic partner of ours, and the skin and personal care space. So number 1 you will see us be methodical and going deeper and wider and the geographies that we've already built out because we've got and awareness behind our marketing.

<unk>, we started to see the repeat again, we're and our early innings as it pertains to international and then we're going to continue to drive strategically what we do here, which is this kind of omni channel component that youre going to see through the retailer partnerships that we've established and as we look at the rest.

And this year and you start looking further out youre going to see us continue to build off kind of that 4 and those principles that we have established in 2020 moving forward. So I hope that gives you cause you some concepts.

So Nick if I can can try to summarize that it sounds like youre going to you expect to move partner by partner rather than geography by geography, So even though some of the markets in Asia and look very exciting to us you'd rather find the right partner and then take it from there is that a reasonable assessment to NAV.

And a lot over the years where businesses are challenged.

And when they don't have the right kind of beachhead from a partnership perspective, because that localization is so important, especially when you're a young brand like ours. So being very strategic has the right alignments from a partnership perspective, and our principle around really building something together.

And because there is added value for both parties and the examples that we've leveraged and Europe.

And both partners like our digital capabilities, our content community and commerce strategies. So those are enablers for them as well as the initiatives around innovation and the cadence we have around clean beauty that actually works. So when you put those things together, that's how we're going to continue to approach it.

We look at Europe number 1 and.

And as we start talking strategically and we share broader strategy and the future will go into greater detail with other geographies.

Great. Thank you.

Thank you Laura.

Yes.

Thank you I show on next question comes from the line of share from J P. Morgan. Please go ahead.

Thank you so on and I have a question on distribution and then a follow up on on gross margin on the distribution side. If you can break down the 12% growth you had in the quarter. How much was distribution philosophy, we think the same doors.

And or shelf.

And price mix and then a clarification on the gross margin commentary I think you mentioned the constant type of being accretive to margin and and not contributing into I think half of the quarter.

And also the 100 basis points benefit from Restaging in Q3. So I was just wondering if we should be prepared from more impacting gross margin in Q2 against the Q1 so sequentially.

Or this increase and quite the channel mix that you're seeing from all line to wholesale.

And also being a negative and.

Specifically said that if you can clarify 1 commentary and Kelly you were saying that the shipments trailing consumption and in particularly in digital.

Is that something specific to this customer which may be putting a lot more emphasis on new on the retail side from basically increasing and.

And I'm thinking of that of that 1 that you are online and youre not in in store is that something that has happened so youre gaining more distribution.

And the physical stores and then that's going to be shifting because of that because they are staging you Neil.

And in store.

Yeah, I know, we had a lot there.

And that's okay, I'll speak to all 3 and the person and the laughter actually related because as we think about kind of Q1 growth and the sources of that growth. It was actually balance between philosophy innovation and distribution, which is of course on the power between our growth strategies as they complement and work together on.

And you are right as we're seeing some of the consumer behavior shifts between digital and retail.

And I do think that just create some volatility and.

And as people ramp up on kind of there.

Inventory days and weeks of inventory and to reflect the change in demand.

Thank the 2 are related.

And as we go in to Q2, we're seeing again a lot.

Demand come from velocity and the retail channel so that can be kind of that and you think about current trends and the business.

Velocity is a little more heavily weighted to what we're seeing today predominantly on the retail channel.

As it relates to the gross margin impact.

<unk>.

Nick highlighted we have a really robust cost deflation.

Uh huh.

And cadence.

And the introduction of the clean concentrate from Q1 beauty lease stage.

Materially different on.

Overall margin structure, although a growing a small but growing piece of our overall business.

We are as we kind of think about gross margin. We're looking at the input costs versus the cost base and that we have lined up and right now. They are they are in line and we're feeling.

Good about our ability.

To deliver our gross margin structure I think when Nick was alluding to earlier is we have a level of inflation and.

Dissipated and we do have some contracts that protect us against some on.

And some inflation in certain parts of our business, but we're seeing and strong inflation on in transportation on.

And freight and that is an area that we're offsetting that that cost per patient. So I think as we go through the year, we'll be coming back and let me know if we see anything different in August.

Right now and we chose on.

The 1 thing that we didn't talk about is the driver of growth as pricing because it was really all volume we didn't take any anything material pricing at this point, we haven't announced any pricing. We are really excited about some of the opportunity is and how to grow our share as other people.

Take their pricing up and we're going to continue to evaluate as we go through the year and keep an eye on input cost inflation on.

And again at this moment on.

No additional action, we feel is needed, but we want to keep that.

As an open option price for the feature.

That's great. Thank you.

Thank you.

Thank you our last question comes from the line of Jon Andersen from William Blair. Please go ahead.

Yes, hi, Thanks for taking my question and congrats on the start.

Nick and Kelly I have a just a broad based question on customer acquisition, you mentioned earlier I think nearly a third of honest users are coming in through the skin and <unk>.

Small care the beauty franchise, what is the right mix is.

And a customer acquisition by product category as you move the business forward over the next 2 to 3 to 4 years and.

And how does that influence your.

Your marketing kind of tactics and innovation Tech as you move forward. Thanks.

And so the question. So couple of couple of things on how to think about this and kind of give you some insight as it pertains to you now on our Stockholm, and maybe zero in on kind of the skin and personal care component.

To that what we're seeing.

And from an acquisition perspective versus 2020, and we referenced this when we were together last we had about and 2020, 34% of new consumers that came to on a stock com entered through the skin and personal care. What we saw in Q1 is about 44% and.

<unk> through skin and personal care and what's important there is we are balancing obviously the investment profile.

Accordingly, and and what we're doing is and this is why we leverage kind of our honest on the analytics and being able to have early this idea around as we're acquiring are we number 1 sourcing them specifically through on our Stockholm, and then where are we turning around and tracking that second and third purchase.

From a dataset standpoint, and what I mean by that is we look at then how do we appropriate the additional dollars to be able to continue to kind of fuel that element from a strategy perspective on whether it's new acquisition or how do we monetize that consumer on that second or third item.

Within the marketplace now what we're seeing again through the skin and personal care side of the business, we're seeing stickiness.

And we are starting to drive over this past quarter, and Youre seeing and and the results with the growth rates and skin and personal care based on that strap.

Our strategy from an omni channel perspective, and what Kelly and the shortfall, yeah, and we think about really broadening the appeal of the honest brand I mean, we're looking at multiple levers clearly we want there to be balance in terms of customer acquisition across our different products that we're particularly focused as Nick mentioned on skin and personal care. The other thing we wanted to highlight and we continue to keep our eye.

On kind of the overall metrics as it relates to Gen. Z acquisition is balance between male female and we saw some good progress and Q1 and 2021 on.

And on both of those metrics Gen Z and particular with 9% and.

And if our.

Our customers and 2020 up 14% and 'twenty 'twenty, 1 and that's really exciting because it means we have more appeal and across a broader audience and as well you know we track we've predominantly been kind of a female focused brand, but we as we highlighted on these great campaigns and we really are trying to make them appeal beyond.

And it feels it appear that the male consumer as well and so as we think that market as you think about campaigns and we try to keep that and.

And does that appeal, a much broader and the overall percentage is kind of our customer base and went from 18% to 20 in Q1, 'twenty 1 versus prior years and I'm really excited about momentum were seeing there as well and we'll continue to track on it and keep an eye on and make sure that that appeal is well balanced and we are growing and the appeal and kind of.

Across our customer base.

That's super helpful. Thank you very much.

And Scott.

Thank you.

Concludes our Q&A session at this time I would like to turn the call back over to Mr. Nick.

<unk> for closing comments.

Very good well thanks, everybody for all the questions on behalf of the team I want to thank you for participating today, we look forward to sharing our progress with you on our quarterly earnings calls going forward and speaking with hopefully many of you at the Jefferies Conference later this month so.

Take care everybody. Thank you. Thank you.

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

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Good day, and thank you for standing by and welcome to the the honest company first quarter 2021 earnings Conference call. At this time, all participants on a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during this session and you would need to press star 1 on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I.

I would now like to hand, the conference over to your first speaker today to song Kim Vice President Finance and strategy. Thank you. Please go ahead.

Thank you good.

Good afternoon, everyone.

Thank you for joining us for our first quarter fiscal year 2021 conference call.

Joining me today are Nick.

Chief Executive Officer, and Kelly Kennedy Chief Financial Officer.

Before we start I would like to remind you of our legal disclaimer and we will make certain statements today and are forward looking within the meaning of the federal Securities law.

Including statements about the outlook of our business and other matters referenced and our earnings release issued today.

These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results.

Please also note that these forward looking statements reflect our opinions only as of the date of this call and.

And we undertake no obligation to revise or publicly release the results of any revision to the forward looking statements in light of new information or future events.

Also during this call we may discuss non-GAAP financial measures, which adjust our GAAP results and eliminate the impact on certain items.

You will find additional information regarding these non-GAAP financial measure and a reconciliation of these non-GAAP to GAAP measures and today's financial results earnings release.

A live broadcast of this call and also available on the Investor Relations section of our website at investors honest Dot com.

With that I'll turn the call over to Nick.

And then Sean.

Good afternoon, everyone. We're excited to speak with you on our first call as a public company.

Honest is dedicated to providing safe clean and effective products to consumers around the world and becoming a public company represented a significant milestone.

Is it further empowered our team to drive our mission of inspiring everyone to love living consciously.

And I want to thank the entire honest organization for their dedication and passion to our business and mission.

Their contributions led to our successful offering and position us well to execute our strategy going forward.

And you saw on our earnings release, we're off to a strong start with double digit top line growth and solid progress against our strategic initiatives.

These initiatives focus on broadening awareness.

Introducing breakthrough product innovation.

Increasing our digital and retail presence.

And continuing our commitment to ESG.

Before I share the highlights of the corner for those new to be honest story.

I'll take a moment and outlined what makes our company uniquely positioned to drive good growth in the near and long term.

First and foremost we're digitally native mission driven brand.

We're a leading lifestyle brand and clean.

Beauty and personal care with top rankings across 3 key loyalty drivers and our product categories better for you credibility expressive brand personality and functional excellence.

Our products have garnered strong ratings and reviews across categories with industry, leading NPS scores, while formulating according to our honest standard and no list.

Avoiding over 2500 chemicals and materials, we choose not to use.

Our brand promises to always strive to provide clean sustainable effective and thoughtfully designed products for our consumers.

We're focused on disrupting large consumer categories. The total addressable market for our categories of diapers and wipes skin and personal care and household and wellness is estimated to be 130 billion with 17 billion, representing the clean and natural market in those categories importantly.

Our clean and natural market is projected to grow and the high single digits through 2020.5 6 times the rate of the conventional market, giving us a unique advantage.

As we create products and our attractive consumer categories were focused on 3 key differentiators to give us a competitive advantage.

Number 1.

We're focused on driving marketing innovation to increase consumer awareness of our products.

Since inception, we've grown our brand and deepened our consumer relationships through our content community and commerce strategy, as we educate and entertain and build long lasting and sewer connections with over 43 million followers on social media.

These relationships with our consumers and former product development.

And allow us to move faster to bring new and improved products to market.

Number 2.

We have built a high performance and house product development team with a proven track record of bringing breakthrough.

Award winning products to market.

And this capability has allowed us to diversify our revenue across product categories and to drive accretive innovation through our cost deviation process.

And number 3 our integrated omni channel approach drive discovery and.

And express ability and allows us to efficiently scale, our business, while making us ignostic. So.

So the channel our consumer chooses to shop.

In fact, our sales are balanced with 55% transacted digitally and 45% at retail and 2020.

Now, let's pivot to our Q1 'twenty 'twenty 1 results our Q1 accomplishments reflect the continued execution of our strategy against these key priorities.

Number 1 starting with marketing innovation, and we've continued to expand brand awareness and consumer touch points through the use of key marketing campaigns that leverage our content and community and commerce strategy.

And inspiring authentic dialogue and creating lasting connections, we were able to drive a 42% growth and our skin and personal care business.

This is a strategic focus for us is more than 1 third of new honest dot com consumers and.

Through our skin and personal care products.

Let me highlight 1 key campaign that we launched in Q1, our morning routine campaign feature Jessica Alba showcasing a variety of morning routines for the whole family.

Emphasizing the versatility of our personal care offering through multiple life stages.

The contest underscored the breath of personal care product line by utilizing our solutions that are for hero personal care items are.

Shampoo and body wash conditioner.

Based on body lotion and conditioning to Tanger.

We engaged our honest community by watching it and selling and comprehensive campaign and utilized paid media and was supported by strategic endpoints are gifting and press features and premium obligations.

The campaign had a total reach of over 90 million impressions across social media Influencer press and paid media.

Core to our consumer engagement strategy, we created unique solution oriented content.

Drove advocacy for our honest community and ultimately generate commerce through unique on a stock comp solution sets around the morning routine campaign and this is just 1 example of how we leaned into marketing innovation to drive strategic growth and the quarter through incremental marketing.

<unk>.

Second we introduced product innovation with strong consumer response during the quarter, we introduce breakthrough innovation and diapers and wipes, we launched our clean conscious diaper that delivers improvements and performance.

And sustainability and margin.

With regards to performance, our new diaper features advanced leak protection.

Our new wet this indicator and product features designed for every stage of a child's development.

In addition to the improved performance features the clean conscious diapers also our most sustainable diaper yet.

Our diapers continue to feature sustainably harvested.

Totally Corey and create fluff pulp and.

And a 100% plant based back sheet, we were able to further improve the sustainability and environmental impact of this offering by moving to a more efficient type of design that uses less material and the diaper and 100% post consumer recycled cardboard and our take or boxes.

Yeah.

Finally in addition to improved performance and sustainability and we're very proud to achieve improved margins on our diaper due to our more efficient diaper design.

Early consumer and marketplace response has been strong over the course of the year, we expect to release, a consistent cadence of new product innovation.

Third.

We were pleased to deliver growth occurred across both our digital and retail channels as our integrated omni channel strategy continues to accelerate digital and retail share of shelf.

And this quarter, we delivered double digit revenue growth on top of 36% growth and Q1, 2020, our 2 year stack is 48% growth.

Overall.

We have seen increased consumer willingness to get back into stores as consumer behavior. In response to the COVID-19, pandemic changes and have seen a channel shift and an acceleration and revenue growth within our retail channel.

We're well positioned with our omni channel strategy to capture this growth as evidenced by our retail growth and Q1 'twenty 'twenty 1.

Significant white space opportunity still exists to expand our on shelf presence and the depth of our product offering with new and existing retail partners.

For example, and Q1.2021, we increased both our door penetration and our assortment on beauty at target and.

Creasing from roughly 900 stores to over 200 stores with skincare and color now sitting and integrated shelf set and the beauty of it.

In total we added approximately 10 additional items to our core target beauty set.

Before I turn it over to Kelly I wanted to take a moment to reiterate our commitment to ESG.

Which has been part of our DNA since our founding.

We have a deep sense of purpose and infuse the ethical values of transparency sustainability diversity and inclusion and although we do.

From developing products designed to be safe to working hand in hand, with our charity partners to serve those and need to embracing diversity and inclusion we're on a mission to create real and meaningful impact.

And the first quarter, we launched several breakthrough initiatives that have deepened our commitment to offering environmentally friendly products. In addition to the launch of our claim conscious diaper.

We're also proud to launch our conscious cleaning essentials.

Sustainable solution that seeks to reduce waste without compromising on effectiveness.

According to our estimates approximately 600 million household plastic bottles may end up and landfill linked share as.

As part of our effort to reduce the amount of single use plastic thrown away each year. The essentials collection features reusable strict spray top models.

Along with cleaning concentrates for bathroom.

Glass and multi surface cleaning.

In addition to reducing plastic waste the lightweight concentrate plants cut down on the amount of water shipped around the country, providing us with an opportunity to lower our carbon footprint and so.

And the response has been strong and we're inspired by the impact that simple sustainable changes can make.

Regarding social impact, we're very proud of our partnership with Archer will partner baby the baby.

Since inception, we've now donated over 25 million products, making an impact with individuals and families in need.

As it relates to our governance efforts and May we're pleased to welcome James White, and Susan Jim Chile to our board of directors Mr.

These are white brings nearly 30 years and professional experience and the CPG and retail industries and Mr. Until he brings more than 25 years of experience and the finance sector across industries.

The background and brings a honest and will help ensure we continue to reflect the needs and wants of our consumers and the communities, we serve and all that we do.

With these 2 new additions we are very proud to have a board that is 56% people of color.

And 33% women.

In summary, we believe we have built the foundation for on US to continue to grow as a leading clean and natural wellness brand. We continue to capitalize on our strong content community and commerce platform to drive good growth across product categories, and all consumer touch points.

We are pleased with our strong start to the year and believe we are well positioned to continue to advance our strategic growth plan.

And I'd like to turn the call over to Kelly Kennedy, Our Chief Financial Officer to review, our first quarter results and <unk>.

More detail.

Thank you, Matt and welcome everyone and.

And why did you speak to you today and share our strong start to the fiscal year, achieving the single highest revenue quarter and the company history, reflecting double digit revenue growth versus the first quarter 2020.

This performance reflects the positive momentum.

On this brand and the successful implementation of our strategic priority by our team.

And I'll walk you through our financial results.

Drivers for the quarter.

My remarks on the adjusted non-GAAP results.

And find reconciliation tables to GAAP financial and our earnings release.

First quarter revenue totaled 81 million, a 12% increase over Q1, 2020.

And as Nick highlighted this was on top of 36% growth, which represents 2 year stack, 48% top line growth.

And now dive into the key drivers by product category.

Starting with paper and why.

The category decreased 2% as we transition to a clean conscious diaper, and lastly, acceleration and diapers and wipes related to COVID-19, pantry loading and the first quarter of 2020.

Of note diaper growth was positive in Q1 behind on used iPhone launch, but was offset by a decrease and white as we lap consumer stock up behavior from Q1, 2020.

Based on consumption data for the last 12 weeks ending May 16, our diaper business was up 13%, while the overall market declined 1%.

Skin and personal care grew 42% driven by sales volume from our incremental investments and digital marketing and expanded distribution with a retail partner.

We invested meaningfully and marketing innovation behind our skin and personal care products.

And how many innovative campaign that Nick highlighted earlier and.

And we were also able to expand distribution point with our key retail partners such as target.

During the first quarter, we were able to reduce our legacy beauty inventory, which puts us and a great position for the beauty relaunch launching in Q3, 2020.1.

<unk> features tree greif packaging across the line, while achieving significant margin improvement.

And in personal care saw strong growth, even as compared to the first quarter of 2020, when revenue grew 63% versus the first quarter of 2019.

I'll hold on wireless group <unk> 53 per se.

Fueled by our standardization and disinfecting products that we introduced in the second half of 2020.

While we were still able to see significant growth and household and wellness. We are starting to see household and retailers destock standardization and disinfecting products as more consumers to come vaccinated and return to their pre COVID-19 and the team.

Now turning to results by channel.

E tail channel revenue increased 2% to $42.5 million.

On a 2 year stack basis growth was 25%.

Retail channel revenue increased 25% to $38.6.

$6 million.

Retail 2 year stacked growth was <unk> 83 per se.

Our pricing and price retail growth was aided by a strong rebound and store traffic and vaccinated consumer increasingly returned to in store shopping.

We also benefited from expanded distribution and the sale of our existing duty inventory and.

Well and promotional and merchandising events with partners like target hopefully and retail grocer.

Gross profit increased $2.6 million to $28.4 million.

Primarily due to increased rapidly.

As a percentage of revenue gross margin achieved 35% for the quarter.

This compares to 36% and Q1 of 'twenty, and 'twenty, which benefited from the lower levels of trade spending as retailers pulled back on events during the pandemic.

Overall input costs were higher in Q1 of 2021 versus Q1, and 2020, including higher transportation and freight costs.

Given our record levels of cost inflation. This is a focus area for us in 2020..1 we have a number of combination initially launching in 2020, 1, including a clean conscious diaper, which launched in Q1 and our upcoming bvb's, aged and launch it in Q3, we.

We will continue to evaluate the input cost environment to ensure that our productivity plans are sufficient to offset current inflation levels.

Total operating expenses increased $7.5 million versus Q1, and 2020, primarily driven by increased investment to support growth as well as increased cost of operating and the public company.

We invested an incremental $5.5 million and marketing and R&D versus Q1, 2020.

We supported and accelerated growth of our skin and personal care business and.

And the launch of our new clean conscious diaper and inducted in our upcoming innovation pipeline.

Adjusted EBITDA for the first quarter of 2021 was roughly breakeven.

A couple of items to note on the balance sheet.

We ended the quarter and a healthy position with 58 million and cash restricted cash and short term investments with no debt on our balance sheet and just why.

And note that this is before the impact of the IPO proceeds, which will be reflected and the second quarter.

As evidenced by our double digit growth and Q1 and 2021 and our 2020 results. We continue to feel good about our strategy and growth prospects.

Our consumption remains strong and we continue to be extremely proud of our deep connection with consumers Our award winning products and our omni channel approach.

And we believe these differentiators continue to position honest, Chris and Scott, both now and into the future.

We want to reinforce our long term target.

First consistent double digit top line growth over the next few years.

Second ongoing gross margin expansion with a path to 45% long term and.

Sure.

<unk> EBITDA profitability with a long term target of 20 per se.

With that I'll turn the call over to the operator to begin the Q&A portion of the call.

Thank you as a reminder to ask a question you would need to press star 1 on your telephone to withdraw your question. Please press the pound key.

Due to the essence of time, we ask that you. Please limit yourselves to 1 question and 1 follow up and re queue for further questions. Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Steph Wissink from Jefferies. Please go ahead.

Thank you good afternoon, everyone. Our question is just on the business momentum if Kelly on Nick you could talk a little bit about what youre seeing and Q2, and then I think it would be helpful. Just to rationalize the lap to Covid last year in the Q2 quarter is there anything we should be aware of and the base from a comparability perspective.

Yes, sure I'll take that thank you for the question Scott.

And.

Obviously, it and see why you can see lots of momentum and a business and we are seeing strength based on our visibility of the tracks and function data, we look at IRI on.

But really underlying the shift and something you never hear you'll be hearing a lot about the shift from digital to retail and kind of as the economies start to open and strengthen on.

And so this shift for us is kind of creating this volatility and you know as an example, and you saw in Q1, our retail business represented 48% of our total business and Q1 and 2021, while a year ago was 43% on.

And while that would typically and it's going to be volatility on our business from quarter to quarter.

And this quarter's meeting benefit of what we're currently seeing and our business right now really is consumption outpacing shipments.

And so we do want to highlight kind of and you think about the business right now on.

This could have on potentially material impact on the quarter, but.

It's happening real time, and you know we're a net right.

It'll hard quarter on and it's something that we're monitoring.

We have a significant digital events and it takes place at the end of the quarter and so you know kind of a lot of items and kind of visibility to I'm coming out of this event and our trends here you know obviously, we always manage bearing on the long term underlying consumption remains really strong.

And we're not giving specific quarterly guidance, but certainly a trend that we'd want to get some visibility too.

And and we'll be getting back together and here in August we'll be able to share and had a lot more on about the business and kind of the results kind of assess kind of mega event, that's happening at the end of our quarter.

Okay, that's great and maybe if I could just on a follow up question on beauty and skincare and you talked a lot about target as an illustration of the white space opportunity, but that category seems to be a real important power driver of the model. So talk a little bit about where you think you are in terms of SKU assortment breadth opportunity to build out.

And those full brand experience is like you talked about a target where are you with some of your other retail partners and and really harvesting that opportunity to grow that sleeve of the business.

Yeah. Thanks for the question I think number 1 the way we look at it is first and foremost we're really pleased with the strength that we're seeing within target.

And whether it's.

Number 2 we're also from a digital perspective as you look at kind of the skin.

Personal care results net 42% growth when we drill down and beauty we're.

And we're seeing acceleration within that.

Part of the business. So we're seeing it and we're seeing a nice mix between both cosmetic and the core side as well and with skin and start to move and now as things start to open up and here in California.

Walk into a store today and it was a bit lumpy.

And my math, and we're starting on wear masks and more and more so we're starting to see the consumer and start to gravitate more and more to our mix and both on the cosmetic as well as on the skin side.

What we're seeing is from a distribution from an assortment standpoint is in different retail. So for example target oleds as I'll call and another example, as well as our results internationally. When you look at Duke list over the last quarter, we saw actually was about 23% growth.

<unk> quarter.

We're seeing definitely the depth that we're driving around distribution on the digital as well as the physical shelf and we're starting to see how it and see the repeat and that's why when you see the results from Q1, and Thats, 42%, 63% a year ago and that's over 100 plus percent on the stock.

And so again a lot of opportunity still with the audit.

Momentum and as you look at the results coming out of Q1, and that's going to position us well and when you think about the beauty restage, which is going to hit in Q3, because just a reminder, that's going to be not only from a packaging perspective is 100% free free packaging that we're thrilled about when you look at the improvements around the business that's already.

And doing extremely well, but also importantly, new products, we have a new daily defense collection that we're going to be introducing as well as a new Washington, just serum initiative around that from an innovation perspective. So a lot there and then coupled with that is roughly about 800 basis points of gross margin expansion, that's going to take place.

Against that initiative when you look at.

Thank you.

And.

Okay.

Great. Thank you.

Okay.

Thank you.

And I show. Our next question comes from the line of Wendy Nicholson from Citi. Please go ahead.

Thanks, and actually Kelly I wanted to go back and just just here a little bit more about what you were just saying and that line of questioning about how consumption is outpacing shipments.

And you've got the big.

Digital promotion coming up at the end of them on so I'm just trying to understand are you worried about having out of stock is there a chance that you would move that promotion, but how's everything working from a supply chain just wanted to really understand if there was a risk but either at the time and that promotion or at the retail level there was a chance.

You couldn't sell demand.

Yeah, Great question I'm glad you asked the follow up Wendy and if not more and a good inventory position and what we're seeing really is around this shift and we're seeing on a retail partner.

Their shipments are not reflective of the underlying consumption. So we mentioned volatility from time to time from quarter to quarter, we can see shift sometimes it goes in our favor sometimes it goes the other direction on and right now what we're seeing and the business and specific to kind of day shift between digital and.

Retail and 1 of our partners on essentially.

Managing their working capital.

Got it yeah.

Okay, and that is not and a worry that gosh, maybe theyre going to cease to carry honest diapers or something like that there was nothing untoward or anything we should be worried about in terms of that relationship.

No I would say this is an extremely strategic relationships and we have on <unk>.

And we'll be getting some great prominence and we've been working with them on.

Well you have adjusted behind this event and event that we've done kind of in past years, but again, we're leaning into it.

And we're really excited it's just that it is not represented in overall and the underlying typically we've seen replenishment follow this event.

And the timing is at the end of our quarters, and it's kind of different and it's been in the cash.

Understood. Okay, I really appreciate that clarification thats very helpful. And then maybe for you Nick I had a question just about the competitive environment. You know some of your competitors have announced price increases.

On the baby care side, and as we start to see those higher prices maybe show up on shelf over the next couple of months.

You think it impacts your pricing at all I mean, obviously, you're more premium price generally, but do you intend to keep the same price GAAP I E raise your prices as well or do you think that the more compelling proposition because the price gap won't be as large if you don't raise price is just how do you think about sort of the elasticity of demand from <unk>.

Honest diapers, depending on what the competitive pricing environment is like thank you.

Yeah. Thank you Wendy couple of things on that number 1 I would think about it this way so the conscious diaper that we just introduced in Q1 really started to hit the market kind of the second half of <unk>.

Q1, and you look at our marketing investment we put in about an incremental $5 million of marketing this quarter and relates to driven against the conscious diaper initiative as well as our skin and personal care businesses kind of benefited disproportionately from that standpoint, and so by introducing out and the market with the features that we reference.

This is the most sustainable Viper as we look at the comparison versus kind of where we've been as we look to continue to improve.

From an innovation perspective, what we're starting to see and the market behind that investment and that new product again still early but hitting the market and we're starting to see our share start to pick up from a truck perspective. So at the start of the quarter our share space and this is looking at all outlet IRI on Mueller data over the last 12.

<unk> our share so it's not about a 1.4 on the diaper starting the quarter. It was sitting at about 1.2 so we like the fact that we're starting to see share start to pick up and then importantly, and what we're seeing now is from a category perspective, and Kelly referenced this we've seen about over the last 12 weeks about 13%.

Growth versus the category declining at 1%. So we like the position that we're in because coupled with that is the second part of the question around input costs. Remember. This initiative was also a constipation so not only a product improvement for us from an innovation perspective, but we also picked up additional.

Gross margin on this product so it was a margin.

On a win for Us also.

The second component that you're referencing that we're looking at we understand that there are some of these.

Manufacturers that have taken price, we're closely monitoring the input cost and kind of the volatility that sits in the market right now right now and when you look at our plans, we are sufficient and see around productivity and this cost deflation that we're driving both and our diaper business and the second half it'll be our beauty restage that IRA.

Ernst earlier, but it's 1 that we're taking a very close look at.

And right now we like the fact that the conscious diaper, we've introduced it and we're starting to take a little bit of share. We've got a lot of momentum from that standpoint, what's going to be important is to really understand and see where the cost structure is going to set moving forward around some of inflation and that everyone is seeing and we're monitoring that right now.

And again today, we have sufficiency within our plans as it pertains to mitigation, but that's all.

And we're closely what going on.

Terrific that's very helpful. Thank you.

Thank you. Thank you on it.

Thank you on next question comes from the line of Lawrence <unk> from Guggenheim. Please go ahead.

Hey, good morning, and good morning, everyone and thanks for for the stress going on and you can't get a very good job. So I do have a.

And I really am per your question about the comments you made in your in your per rock or in your press release.

We're getting to the $3.4 million on ours enough personal care you sold in the quarter.

Just wanted to understand is it is it on top of what's your plan or journey or is it something that was already planned and.

And really when you say in exchange for future marketing and Trustable fish and credits I mean, not really like to understand this a bit more and you can thanks.

Sure I'll take that 1 and I'll give you context always part of the plan.

And so when you see the level of innovation and the cadence that you see from on US that we continue to introduce and a very rapid pace.

We have and this example legacy and inventory approximately $3.4 million that we partnered with active international on to be able to prior to this Q4 restage and to be able to sell through that inventory and the good news. There is that inventory is being sold and accretive.

Gross margin to where the company Atlanta, and Q1, and so Thats a positive too. We're also putting outside of our warehouses getting this product move through the system to position the new product that we're going to be bringing in and be able to start staging our inventory. So it is a benefit.

The second part of that question is around really the credit component and the way. This works is we have marketing credits as well as transportation and.

And how we use those.

It's really against current and digital media partners that are already part of the honest.

Go to market as well as in store visual merchandising vendors that we use so as we start to transition.

This product and the marketplace, we have both the marketing component as well as the in store component with current vendors that we can utilize those individual credits against so it's a.

T J play for US, it's part of our transition plan and puts us on a good position as we talk about this new beauty restage thats coming.

As it pertains to Q3 to be able to start to really start to accelerate not only great innovation with the 100% 3 free packaging as well as the new items, but also start to capture the additional incremental gross margin that we're driving and about 800 basis points against that initiative.

Thanks, Jesse and thank you very much thanks.

Okay.

Thank you and I show. Our next question comes from the line of Dana Telsey.

Telsey Advisory group. Please go ahead.

Good afternoon, everyone. As you think about diapers and obviously the share that you've gained and and the growth and the first quarter and how you've outpaced the market is very impressive how do you see this clean conscious diaper initiative going forward is that a margin enhancer too and.

And how you're planning wipes to go forward and then just on another note on the beauty restage.

What type of marketing investment you make there and does that continue through the balance of the year. Thank you.

Yes, I'll take the first 1 and Dan. Thank you for the question and I would say on the conscious diaper is we've kind of built out that innovation. We do we do this type of work when it comes to the performance and being able to address these key consumer to satisfy errors and we've done this in a way now where we're also.

So increasing the margin structure against that business. So it's got the right proposition for us because we talk about good growth always which is this consistency around not just driving top line, but also the margin expansion components that we want on the business. So that's rooted and the current proposition the key.

And for us will be as I referenced earlier.

Earlier, the earlier question, we will be maintaining the sufficiency within our consistent annual productivity plans and we have 3 year productivity plans, but we drive against the business to really mitigate kind of the cost environment and that again is something that we're we're closely looking at and then I'll, let Kelly pick up on the second part of the question.

Yeah I think on.

And we think about marketing spend we think the right level for us is kind of and is 14% to 17% revenue range. We did have some great kind of marketing and leasing and marketing spend because of the great innovation that we had on.

And we will support the beauty of these days is coming in Q3, we continue to see skin and personal care be just a great driver.

And for us of growth and you would expect that over the back half as well on.

And so.

We think it's the right place for marketing and.

We will continue to lean and as we see the return on it.

And see it drive top line growth.

But you could expect for us to kind of stay within that guidance range of 14% to 17%.

Got it thank you and just on the digital and retail channel growth did you see the digital piece of your retail partners.

Accelerate and as much as you saw this store improvement come back on what did you see as stores reopen on the digital performance of the retail channel.

Yeah, I think and I think you've heard that I mentioned on this earlier, we think about kind of looking at digital versus retail. It's helpful to look at 2 year stack as well because we wanted to remind everyone. The COVID-19 kind of you know the COVID-19 trend that happened.

In Q1, it was all around kind of a shift on that.

Consumer stock up behavior on.

And on there was a kind of a growth both on retail and digital last year and Q1 and 2020 retail grew 58% and data book grew 23%. So when you think about digital on a 2 year stack, we're seeing a significant shift versus what was happening a year ago.

So yes.

The key trends that we spoke about earlier is really the shift from digital back to retail.

But again, we also saw digital acceleration as well, yes milk and things.

That is from some of our key retail partners on the digital side in.

In 2028.

Early this migration from kind of.

And the 20% range deals.

And moving more closer to 40% plus and you look at the amount of business that theyre doing but coupled with that is a lot of also a click and collect pickup that's taking place within retail. So it's not just the digital component, but also the visitation as it pertains to the stores and that's where we're seeing more and more both within our own datasets and with some of our.

Strategic partners.

People are more and more gravitating towards the retail side now the good news is and that's why we're always strategy led is that we have and omni channel strategy that we built and that we're agnostic when it comes to consumers that want to shop. It honest dotcom right you want to shop, Amazon Dot Com, you want to shop at target.

Want to shop at HEB, you have that opportunity with us and that's why I think we're well positioned as we look at based on where that consumer shops, and our consumers at the end of the day. They don't shop channel Vishal brands at the end of the day, So we're well positioned.

Thank you.

Thank you.

Our next question comes from the line of Bryan Spillane from Bank of America. Please go ahead.

Thank you.

Hey, good afternoon, everyone.

Just I guess 2 quick ones related to the channel..1 is just I guess following up on an earlier question with regards to the <unk>.

I guess the shipments being behind consumption is that specific to retail or is it spread it spread across retail and digital.

And then the second question I had is when we're thinking about channel agnostic.

Agnostic by channel going forward on margins.

Assuming that that's.

That's true today as we think about the margin expansion that you're expecting over the next few years with that also would that relationship hold meetings I guess is the margin opportunity bigger and 1 channel versus the other or would you expect that even if margins are expanding.

<unk> sort of agnostic, whether it's digital or retail.

Yes. Thank you Brian for the follow up question.

Yes.

Trend and we were mentioning earlier.

Moving to the digital channel.

As it relates to thinking about the margin between right now they're relatively in line.

And we expect that to continue over the next few years to be not materially different in the longer term. We do think there is an opportunity as we leverage the business and leverage the fixed cost within our digital channel.

We would be able to expand the margins and the longer term better and the digital channel so but we are.

We do feel right now, we're pretty well balanced between the <unk> and expect that to continue over the next few years and.

So you would have to look farther out and just kind of you know.

1 to 2 years to see it.

Real difference between the margin structure and digital versus retail.

Okay, great. Thank you.

Thank you Brian.

Okay.

I show. Our next question comes from the line of Laura Champine from Loop capital. Please go ahead.

Hi, Thanks for taking my question and I wanted to talk a little bit about your international opportunity, which I think management has acknowledged this is very significant but that its longer term how would you get started there and what's on deck for you to do and the next couple of years and in terms of international growth.

Hello, Thank you for the question.

Couple of things on this 1 when it comes to international.

We've already represents about 2% of our business and 2020.

What we have done and international we haven't been moving.

And built a lot of businesses over the years, we haven't been planting flags, we have been very strategic and methodical and so when you take a look at.

Partners will reintroduce the brand with.

Was Duke was on in Europe, and as I referenced earlier the <unk>.

<unk> revenues as it pertains to Q1, it was up about 23%, although as an example of how we're going to build this business and a methodical way and when it comes to driving both the digital side of the business and with a partner like <unk>.

And as well as.

And the retail side and example, also is cult beauty and the UK is another strategic partner of ours, and the skin and personal care space. So number 1 you will see us be methodical and going deeper and wider and the geographies that we've already built out because we've got and awareness behind our marketing.

<unk>, we started to see the repeat again, we're and our early innings as it pertains to international and then we're going to continue to drive strategically what we do here, which is this kind of on omnichannel component that youre going to see through the retailer partnerships that we've established and as we look at the rest.

And this year and you start looking further out youre going to see us continue to build off kind of that core and those principles that we have established in 2020 and are moving forward. So I hope that gives you some phone calls.

So Nick if I can can try to summarize that it sounds like youre going to you expect to move partner by partner rather than geography by geography, So even though some of the markets and Asia look very exciting to us you'd rather find the right partner and then take it from there or is that a reasonable assessment correct.

And seen a lot over the years for businesses and I get the challenge is when they don't have the right kind of beachhead from a partnership perspective, because that localization is so important, especially when you're a young brand like ours, and so being very strategic have the right alignments from a partnership.

Perspective, and our principle around really building something together because there is added value for both parties and the examples that we've leveraged and Europe.

And both partners like our digital capabilities, our content community and commerce strategies and those are enablers for them as well as the initiatives around innovation and the cadence we have around clean beauty that actually works. So when you put those things together, that's how we're going to continue to approach it.

We look at Europe number 1 and then.

And as we start talking strategically and we share broader strategy and the future will go into greater detail with other geographies.

Great. Thank you.

Thank you Laura.

And.

Thank you I show on next question comes from the line of share from J P. Morgan. Please go ahead.

Thank you so on and I have a question on distribution and then a follow up on on gross margin on the distribution and side. If you can break down to 12% growth you had in the quarter, how much was distribution philosophy within the same doors and.

And or shelf.

And price mix and then a clarification on the gross margin commentary I think Nick you mentioned, the constant type of being accretive to margin and and not contributing and 2 I think half on the quarter.

And also the 100 basis points benefits on Restaging in Q3. So I was just wondering if we should be prepared from more impacting gross margin in Q2 against the Q1 sequentially.

Or this increase and quite the channel mix that you're seeing from all lines of wholesale.

And also being a negative and he specifically said that if you can clarify 1 commentary Kelly you were saying that the shipments trailing consumption and in particularly in digital.

Is that something specific to this customer which may be putting a lot more emphasis on new on the retail side from basically increasing and.

And I'm thinking of that of that 1 that you are on line and Youre not in in store is that something that has happened so youre gaining more distribution.

And the physical stores and then that's going to be shifting because of that because they are staging you Neil on it.

And in store.

Yeah, I know, we had a lot there.

And that's okay, I'll speak to all 3 and the person and the laughter actually related because as we think about kind of Q1 growth and the sources of that growth. It was actually balance between philosophy innovation and distribution, which is of course, some and the power between our growth strategy as a complement and work together on.

And you are right as we're seeing some of the consumer behavior shifts between digital and retail.

And I do think that just create some volatility and kind of as people ramp up on you know kind of there.

Inventory days and weeks of inventory and to reflect the change and demand. So I think the 2 are related.

And as we go in to Q2, we're seeing again a lot of.

Demand company velocity and the retail channel so that could be kind of debt and as you think about current trends and the business you know.

Velocity is a little more heavily weighted to what we're seeing today predominantly on the retail channel.

And as it relates to the gross margin impact.

We have as Nick highlighted we have a really robust cost deflation on.

And as a.

Cadence with the introduction of the clean concentrate for and keep 1 beauty lease stage is materially different on.

Overall margin structure, although a growing a small but growing piece of our overall business.

And we are and we kind of think about gross margin. We're looking at the input costs versus the cost of based on that we have lined up and right. Now. They are they are in line and we're feeling.

And good about our ability.

As to deliver our gross margin structure I think when Nick was alluding to earlier is that we have a level of inflation.

Anticipated, we do have some contracts that protect us against some and.

Some inflation in certain parts of our business, but we're seeing and strong inflation and transportation.

And freight and that is an area that we're offsetting with that cost base and so I think as we go through the year, we'll be coming back from <unk>.

Anything different in August right.

Now and we chose on.

The 1 thing that we didn't talk about is the driver of growth as pricing because it was really all volume we didn't take any anything material pricing at this point, we haven't announced any pricing. We are really excited about some of the opportunity to kind of grow our share as other people.

Their pricing up and we're going to continue to evaluate as we go through the year and keep an eye on input cost inflation on and again at this moment.

No additional action, we feel is needed, but we want to keep that and.

And as an open option price for the feature.

That's great. Thank you.

Thank you.

Thank you and last question comes from the line of Jon Andersen from William Blair. Please go ahead.

Yeah, Hi, Thanks for taking my question and congrats on the start.

And Kelly I have a just a broad based question on customer acquisition, you mentioned earlier I think nearly a third of honest users are coming in through the skin and per.

The small carrier of the beauty franchise, what is the right mix is.

Kind of customer acquisition by product category as you move the business forward over the next 2 to 3 to 4 years.

And how does that influence your.

Marketing and kind of tactics and innovation Tech so as you move forward. Thanks.

And so the question. So couple of couple of things on how to think about this and kind of give you some.

Some insight as it pertains to you now on our stock on and maybe zero in on kind of the skin and personal care component.

To that what we're seeing.

And from an acquisition perspective versus 2020, and we referenced this when we were together last we had about and 2020, 34% of new consumers that came to on our Stockholm entered through the skin and personal care. What we saw in Q1 is about 44% and.

<unk> through skin and personal care and what's important there is we are balancing obviously the investment profile.

Accordingly, and and what we're doing is and this is why we leverage kind of our honest on the analytics and being able to have early this idea around as we're acquiring are we and number 1 sourcing them specifically through on our Stockholm, and then where are we turning around and tracking that second and third purchase.

From a dataset standpoint, and what I mean by that is we look at then how do we appropriate the additional dollars to be able to continue to kind of fuel that element from a strategy perspective on whether it's new acquisition or how do we monetize that consumer on that second or third item.

Within the marketplace now what we're seeing again through the skin and personal care side of the business. We're seeing stickiness now as we're starting to drive over this past quarter and Youre seeing it and the results with the growth rates and skin and personal care based on that.

Strategy from an omni channel perspective on what Kelly ads and the shortfall, Yeah, and you know and we think about really broadening the appeal of the honest brand I mean, we're looking at multiple levers clearly we want there to be balance in terms of customer acquisition across our different products over particularly focused as Nick mentioned on skin and personal care.

And the thing we wanted to highlight and we continue to keep our eye on kind of the overall metrics as it relates to Gen Z acquisition, if balance between male and female we saw some good progress and Q1 and 2021 on.

And on both of those metrics Gen Z and particular with 9% and.

And if our.

Our customers and 2020 up 14% and 'twenty 'twenty, 1 and that's really exciting because it means we have more appeal and across a broader audience and as well and we track we predominantly been kind of a female focused brand, but we as we highlighted on his way campaigns and we really are trying to make them appeal.

And it feel that appeal to the male consumer as well until we are as we think about marketing do you think about campaigns and try to keep that.

That appeal, a much broader and the overall on a percentage of kind of our <unk> customer base and went from 18% to 20 in Q1 'twenty 1 versus prior year. So I'm really excited about momentum were seeing there as well and we'll continue to track on it and keep an eye on and make sure that that is well balanced and we're growing it and see appeal and kind of across our <unk>.

Customer base.

That's super helpful. Thank you very much.

And Scott.

Thank you that.

That concludes our Q&A session at this time I would like to turn the call back over to Mr. Nick <unk> for closing comments.

Very good well thanks, everybody for all the questions on behalf of the team I want to thank you for participating today, we look forward to sharing our progress with you on our quarterly earnings calls going forward and speaking with hopefully many of you at the Jefferies Conference. Later this month, so take care everybody. Thank you.

Thank you.

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