Q2 2024 The Honest Company Inc Earnings Call

Elizabeth Bouchard: Good afternoon, everyone. Thank you for joining our second quarter 2024 conference. Joining me today are Carla Vernon, our Chief Executive Officer, and Dave Loretta, our Chief Financial Officer. Before we start, I would like to remind you that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially.

Speaker Change: i

Speaker Change: Good afternoon, everyone. Thank you for joining our second quarter 2024 conference call.

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

Elizabeth Bouchard: Please refer to our earnings release issued today, as well as our SEC filings, 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 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, except as required by law.

Speaker Change: Before we start, I would like to remind you that we will make certain statements today that are forward-looking, within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today.

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

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

Speaker Change: Please also note that these board-looking statements reflect our opinions only, as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these board-looking statements.

Elizabeth Bouchard: Also, during this call, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in the financial results section of today's earnings release. A live broadcast of this call is also available on the Investor Relations section of our website at investors.honest.com. And with that, I'll turn the call over to Carla.

Speaker Change: in light of new information or future events except as required by law.

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

Speaker Change: you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in the financial results section of today's earnings release.

Speaker Change: A live broadcast of this call is also available on the Investor Relations section of our website at Investors.Honest.com.

Carla Vernon: Thanks, Elizabeth. Hello, everyone, and thank you for joining us today.

Speaker Change: And with that, I'll turn the call over to Carla.

Carla Vernon: Thanks, Elizabeth. Hello, everyone, and thank you for joining us today. As we exit the first half of 2024, I'm pleased to share that we achieved another quarter of improved financial results on both the top and bottom line.

Carla Vernon: As we exit the first half of 2024, I'm pleased to share that we achieved another quarter of improved financial results on both the top and bottom lines, exceeding our expectations. This strong performance is evidence of our team's commitment to strengthening the financial foundation of the Honest Company while also accelerating the growth momentum of the Honest brand. Our achievements in the second quarter illustrate that our transformation pillars of brand maximization, margin enhancement, and operating discipline are driving improved performance and a stronger financial foundation.

Speaker Change: Exceeding Our Expectations

Carla Vernon: This strong performance is evidence of our team's commitment to strengthening the financial foundation of the Honest Company while also accelerating the growth momentum of the Honest brand.

Carla Vernon: Our achievements in the second quarter illustrate that our transformation pillars of brand maximization, margin enhancement, and operating discipline are driving improved performance and a stronger financial foundation.

Carla Vernon: In the quarter, our results included four notable financial achievements. First, we delivered the highest quarterly revenue in the history of The Honest Company, with $93 million in sales, which was an increase of 10% year over year. Second, we achieved a growth margin of 38 percent, representing more than 1,100 basis points of growth year over year. Third, we improved our profitability by achieving positive adjusted EBITDA of $8 million, which was our third consecutive quarter of delivering positive adjusted EBITDA. And finally, in Q2, we saw our fifth consecutive quarter of positive cash flow.

Carla Vernon: In the quarter, our results included four notable financial achievements.

Carla Vernon: First, we delivered the highest quarterly revenue in the history of The Honest Company, with $93 million in sales, which was an increase of 10% year over year.

Carla Vernon: Second, we achieved a gross margin of 38%, representing more than 1,100 basis points of growth year over year.

Carla Vernon: Third, we improved our profitability by achieving positive adjusted EBITDA of $8 million, which is our third consecutive quarter of delivering positive adjusted EBITDA.

Carla Vernon: And finally, in Q2, we saw our fifth consecutive quarter of positive cash flow.

Carla Vernon: This strong performance and momentum for the first half of the year gives us confidence to increase our full-year guidance for both revenue and adjusted EBIT. Our success this quarter was broad-based across our portfolio and business model. In particular, the Honest brand is performing notably well in our baby personal care categories as the appeal of our clean and sustainably designed lotions, body washes, and bath products continues to grow. According to the National Center for Health Statistics, the presence of skin allergies among children has nearly doubled since 1997.

Carla Vernon: This strong performance and momentum for the first half of the year gives us confidence to increase our full year guidance for both revenue and adjusted EBITDA.

Carla Vernon: Our success this quarter was broad-based across our portfolio and business model.

Carla Vernon: In particular, the Honest brand is performing notably well in our baby personal care categories as the appeal of our clean and sustainably designed lotions, body washes, and bath products continues to grow.

Speaker Change: According to the National Center for Health Statistics, the presence of skin allergies among children has nearly doubled since 1997.

Carla Vernon: Also, estimates by KBV Research, as outlined in our investor presentation earlier this year, indicate that the market for sensitive skincare products is expected to be $80 billion by 2030, which is nearly double the market size today. These consumer trend indicators are well-aligned with the high standards that Honest delivers in our clean and gentle products. For example, our newly relaunched, fragrance-free, sensitive skin collection not only fits these important trends, but its performance in the quarter is a great example of our brand maximization pillar.

Speaker Change: Also, estimates by KBV Research, as outlined in our investor presentation earlier this year,

Speaker Change: indicate that the market for sensitive skin care products is expected to be 80 billion dollars by 2030, which is nearly double the market size today.

Speaker Change: These consumer trend indicators are well aligned with the high standards that Honest delivers in our clean and gentle products.

Speaker Change: For example, our newly relaunched, fragrance-free, sensitive skin collection not only fits these important trends, but its performance in the quarter is a great example of our brand maximization pillar.

Carla Vernon: We doubled the revenue of our Sensitive Skin collection year over year by expanding these items into all Target stores, and our Sensitive Skin Shampoo Plus Body Wash has become one of our top five selling baby items on Amazon this year.

Speaker Change: We doubled the revenue of our sensitive skin collection year over year by expanding these items into all Target stores.

Speaker Change: And, our Sensitive Skin Shampoo Plus Body Wash has become one of our top five selling baby items on Amazon this year.

Carla Vernon: In addition to our clean product benefits, our community looks to Honest for our approach to sustainable design. The early success of our new milk carton style refills for our bubble bath and shampoo plus body wash products is proving to be a great solution for reducing the plastic footprint of our most loyal community members. These 32-ounce refills use 89% less plastic when swapped with three of our 10-ounce size bottles. And the milk carton style packaging allows them to be easy to pour.

Speaker Change: In addition to our clean product benefits, our community looks to honest for our approach to sustainable design.

Speaker Change: The early success of our new milk carton style refills for our bubble bath and shampoo plus body wash products are proving to be a great solution in reducing the plastic footprint of our most loyal community members.

Speaker Change: These 32-ounce refills use 89% less plastic when swapped with three of our 10-ounce size bottles and the milk carton style packaging allows them to be easy to pour.

Carla Vernon: Having recently launched in Target and on Amazon, these new refills are off to a strong start. And for anyone who loves a good hot bubble bath, with these refills by your side, we give you permission to enjoy the bubbliest of spa moments as much as you want.

Speaker Change: Having recently launched in Target and on Amazon, these new refills are off to a strong start. And for anyone who loves a good hot bubble bath, with these refills by your side, we give you permission to enjoy the bubbliest of spa moments as much as you want.

Carla Vernon: Another key driver of our success this quarter is the strong alignment we have across our retailer partnership. As you know, the Honest brand is a little over 13 years old this year, and we are celebrating the 10th anniversary of our original launch into Target stores. In fact, if you visit a Target store over the next two months, you'll see a festive collection of limited edition diapers and wipes featuring whimsical red and white prints that bring this partnership to life.

Speaker Change: Another key driver of our success this quarter is the strong alignment we have across our retailer partnerships.

Carla Vernon: Our community of content creators has been finding adorable ways to bring Honest's 10th target birthday to life with trend-setting baby birthday parties full of these limited-edition wipes and diapers along with matching decorations and party treats. We hope you'll check out our Honest social media channels on TikTok, Instagram, and Pinterest to be part of the birthday fun. Overall, our second-quarter results are evidence that our transformation pillars are creating a stronger financial foundation and that we are well-poised to advance our strategy to be in all the places that our community shops with the hero products they love in the formats they want. Now, I'll turn it over to Dave to share the financial results of our second quarter and details on our updated financial outlook.

Speaker Change: As you know, the honest brand is a little over 13 years old this year and we are celebrating the tenth anniversary of our original launch in the target stores.

Speaker Change: In fact, if you visit a Target store over the next two months, you'll see a festive collection of limited edition diapers and wipes featuring whimsical red and white prints.

Speaker Change: To bring this partnership to life, our community of content creators has been finding adorable ways to bring on a 10th target birthday to life with trend setting baby birthday parties, full of these limited edition wipes and diapers.

Speaker Change: along with matching decorations and party treats. We hope you'll check out our Honest social media channels on TikTok, Instagram, and Pinterest to be part of the birthday fun.

Speaker Change: Overall, our second quarter results are evidence that our transformation pillars are creating a stronger financial foundation.

Speaker Change: and that we are well-poised to advance our strategy to be in all the places that our community shops with the hero products they love in the formats they want.

Speaker Change: And now I'll turn it over to Dave to share the financial results of our second quarter and details on our updated financial outlook.

Dave Loretta: Thank you, and welcome, everyone. We are pleased to report our second quarter results, reflecting strong growth momentum that accelerated as the quarter progressed and landed ahead of our expectations. Shipments to our key retail customers were driven by positive consumption trends, inventory builds in preparation for several notable retailer events, and expansion of key hero items into more doors. The actions we took over the last year to address product and supply chain costs and adjust to a more strategic approach with our trade promotion dollars have continued to support an expanded gross margin reaching a new high of 38% for the company.

Dave Loretta: Thank you and welcome everyone. We are pleased to report our second quarter results reflecting strong growth momentum that accelerated as the quarter progressed and landed ahead of our expectations.

Speaker Change: shipments to our key retail customers were driven by positive consumption trends, inventory builds and preparation for several notable retailer events and expansion of key hero items into more doors.

Speaker Change: The actions we took over the last year to address product and supply chain costs and adjusting to a more strategic approach with our trade promotion dollars have continued to support an expanded gross margin reaching a new high of 38% for the company.

Dave Loretta: The benefits we are realizing from all aspects of our transformation pillars continue to materialize and improve financial results that are approaching operating income profitability and have strengthened our foundation to support growth. With the first half of 2024 outpacing our initial guidance on the top and bottom lines, we are providing an update to our full-year outlook, which I will touch on shortly. But first, I'll review the details of our second quarter results.

Speaker Change: The benefits we are realizing from all aspects of our transformation pillars continue to materialize and improve financial results that are approaching operating income profitability and have strengthened our foundation to support growth.

Speaker Change: With the first half of 2024 outpacing our initial guidance on the top and bottom line, we are providing an update to our full year outlook, which I will touch on shortly. But first, I'll review the details of our second quarter results.

Dave Loretta: Net revenue for the second quarter was $93 million, up 10%, driven by distribution gains and strong consumption growth in the retail channels. In particular, baby apparel, wipes, and baby personal care are growing market share. Our track channel data was up high single digits in the quarter, driven by expanded product assortment and baby personal care and wipes, including new flexible wipes and incremental pack size configuration. We're leaning into what is working across our baby portfolio to offer more options on our best selling innovations and expanding shelf space with our newer, large-scale customer Walmart.

Speaker Change: Net revenue for the second quarter was $93 million, up 10%, driven by distribution gains and strong consumption growth in track channels.

Speaker Change: In particular, baby apparel, wipes, and baby personal care are growing market share.

Speaker Change: Our track channel data was up high single digits in the quarter, driven by expanded product assortment and baby personal care and wipes, including new flushable wipes and incremental pack size configurations.

Speaker Change: We're leaning into what is working across our baby portfolio to offer more options on our best-selling innovations and expanding shelf space with our newer, large-scale customer, Walmart.

Dave Loretta: This year, we have increased our wipes category footprint in our Walmart assortment, including launching our new Toddler Flushable Wipes in a subset of Walmart stores and offering larger pack sizes on shelf. In addition, I mentioned revenue growth driven by notable retailer events. This includes limited edition diapers and white prints in Walmart stores in celebration of Hispanic Heritage Month, beginning this month and extending through October.

Speaker Change: This year, we have increased our wipes category footprint in our Walmart assortment, including launching our new Toddler Flushable Wipes in a subset of Walmart stores and offering larger pack sizes on shelf.

Speaker Change: In addition, I mentioned revenue growth driven by notable retailer events. This includes limited edition diapers and white prints in Walmart stores in celebration of Hispanic heritage month, beginning this month and extending through October.

Dave Loretta: Also, our annual focus on Amazon Prime Day in July drove a healthy growth in shipments in the second quarter. During the two-day event, our unit volume on Amazon increased over 30 percent, driven by baby personal care and women's wear, and our skincare assortment doubled in volume compared to last year. Gross margin for the second quarter was 38%, reaching a new high and expanding over 1,100 basis points versus last year. Of this improvement, roughly 500 basis points are attributable to price increases and trade spending efficiencies. 400 basis points are due to product and supply chain cost savings, and 200 basis points are due to a mix of higher margin products and sales channels.

Speaker Change: Also, our annual focus on Amazon Prime Day in July drove a healthy growth in shipments in the second quarter.

Speaker Change: During the two-day event, our unit volume on Amazon increased over 30%, driven by baby personal care and wipes.

Speaker Change: and our skin care assortment doubled in volume compared to last year.

Speaker Change: Gross margin for the second quarter was 38% reaching a new high and expanding over 1,100 basis points versus last year.

Speaker Change: Of this improvement, roughly 500 basis points is attributable to price increases and trade spending efficiencies.

Speaker Change: 400 basis points is due to product and supply chain cost savings and 200 basis points is due to mix of higher margin products and sales channels.

Dave Loretta: We began adjusting prices in early 2023 on our diaper assortment and entered 2024 with a lower cost structure that will continue through most of the year. In mid-2023, we raised prices on baby personal care, cosmetics, and skin care, which we have now largely lapped midway through Q3. Our sales teams continue to strike a good balance between pricing and trade promotion investments tailored by customer and product growth objectives. We expect to continue to maintain spending flexibility and trade promotions through the balance of the year to drive category and hero item performance as needed.

Speaker Change: We began adjusting prices in early 2023 on our diaper assortment and entered 2024 with a lower cost structure that will continue through most of the year.

Speaker Change: In mid-2023, we raised prices on baby personal care, cosmetics, and skin care, which we have now largely laughed midway through Q3.

Speaker Change: Our sales teams continue to strike a good balance between pricing and trade promotion investments tailored by customer and product growth objectives.

Speaker Change: We expect to continue to maintain spending flexibility and trade promotions through the balance of the year to drive category and hero item performance as needed.

Dave Loretta: Cost savings initiatives within our supply chain are in full effect and support a sustainable benefit to margin. However, we continue to monitor certain transportation and shipping costs for volatility that may emerge as global activity ramps up in the back half of the year.

Speaker Change: Cost savings initiatives within our supply chain are in full effect and support a sustainable benefit to margins.

Elizabeth Bouchard: Good afternoon, everyone. Thank you for joining our second quarter, 2024 conference call. Joining me today are Carla Vernon, our chief executive officer and Dave Loretta, our chief financial officer.

Speaker Change: However, we continue to monitor certain transportation and shipping costs for volatility that may emerge as global activity ramps up in the back half of the year.

Dave Loretta: Our actions that have impacted our portfolio's profitability, as guided by our Margin Enhancement Pillar, continue to realize a healthy flow-through of unit volume growth to gross profit growth. Operating expenses overall increased $3 million compared to the second quarter last year, but they realized 30 basis points of improvement as a percentage of revenue. Included in this quarter's SG&A expense of $26 million was a one-time accelerated restricted stock grant expense related to our previously disclosed separation agreement with Honest's founder. Absent this expense, our SG&A would have been $19 million for the quarter.

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

Speaker Change: Our actions that have impacted our portfolios profitability as guided by our margin enhancement pillar continue to realize a healthy flow through of unit volume growth to gross profit growth.

Speaker Change: Operating expenses overall increased $3 million compared to the second quarter last year, but realized 30 basis points of improvement as a percentage of revenue.

Speaker Change: Included in this quarter's SG&A expense of $26 million was a one-time accelerated restricted stock grant expense related to our previously disclosed separation agreement with Honest's founder.

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

Speaker Change: Absent this expense, our SGA would have been 19 million for the quarter.

Dave Loretta: Marketing expense in the quarter of $11 million increased $2 million versus last year and reflects the commitment to brand building that is integral to our brand maximization pillar. We continue to seek a balanced approach to marketing investment, through upper funnel awareness driving spend and mid to lower funnel spend to drive digital conversion, drive trial, and accelerate retail velocity. Adjusted EBITDA for the second quarter was positive $8 million, compared to negative $4 million last year.

Speaker Change: Marketing expense in the quarter of $11 million increased $2 million versus last year and reflects the commitment to brand building that is integral to our brand maximization pillar.

Operator: Also, during this call, we will discuss non gap financial measures, which adjust our gap results to eliminate the impact of certain items. You will find additional information regarding these non gap financial measures and a reconciliation of these non gap to gap measures in the financial results section of today's earnings release.

Speaker Change: We continue to seek a balanced approach to marketing investments through upper funnel awareness driving spend and mid to lower funnel spend to drive digital conversion, drive trial, and accelerate retail velocities.

Operator: A live broadcast of this call is also available on the investor relations section of our website at investors.honest.com.

Speaker Change: I just said even though for the second quarter was positive 8 million compared to negative 4 million last year.

Dave Loretta: This was our third consecutive quarter of positive adjusted EBITDA and further demonstrates our ability to generate consistent profitable growth, which is a key tenet of our strategic growth objective. Turning to the balance sheet, we ended the quarter with $37 million in cash, an increase of $19 million versus last year. We continue to operate with disciplined management of our balance sheet by driving revenue growth year to date of 7% on lower working capital, excluding cash, over the same period. We also have no debt outstanding and no expected needs to draw on our line of credit.

Speaker Change: This is our third consecutive quarter of positive adjusted EBITDA and further demonstrates our ability to generate consistent, profitable growth, which is a key tenant of our strategic growth objective.

Elizabeth Bouchard: And with that, I'll turn the call over to Carla. Thanks, Elizabeth.

Carla Vernon: Hello, everyone, and thank you for joining us today. As we exit the first half of 2024, I'm pleased to share that we achieved another quarter of improved financial results on both the top and bottom line exceeding our expectations. This strong performance is evidence of our team's commitment to strengthening the financial foundation of the honest company while also accelerating the growth momentum of the honest brand. Our achievements in the second quarter illustrate that our transformation pillars of brand maximization margin enhancement and operating discipline are driving improved performance and a stronger financial foundation.

Speaker Change: Turning to the balance sheet, we ended the quarter with 37 million in cash, an increase of 19 million versus last year.

Speaker Change: We continue to operate with disciplined management of our balance sheet by driving revenue growth year-to-date of 7% on lower working capital excluding cash over the same time.

Speaker Change: We also have no dead outstanding and no expected needs to draw on our line of credit.

Dave Loretta: Overall, our second quarter financial results support our continued confidence in our long-term strategic plan and our updated outlook for 2024. Due to the strong momentum and financial results achieved in the first half, we are raising our full-year financial outlook for both revenue and adjusted EBITDA. This includes full year revenue to be up mid to high single-digit percentage growth over the prior year. Previously, we expected revenue to be at low to mid-single-digit percentage growth.

Speaker Change: Overall, our second quarter financial results support our continued confidence in our long-term strategic plan and our updated outlook for 2024.

Speaker Change: Due to the strong momentum and financial results achieved in the first half, we are raising our full-year financial outlook for both revenue and adjusted EBITDA.

Carla Vernon: In the quarter, our results included four notable financial achievements. First, we delivered the highest quarterly revenue in the history of the honest company with $93 million in sales, which was an increase of 10% year over year. Second, we achieved a growth margin of 38% representing more than 1100 basis points of growth year over year. Third, we improved our profitability by achieving positive adjusted EBITDA of $8 million, which is our third consecutive quarter of delivering positive adjusted EBITDA, and finally, in Q2, we saw our fifth consecutive quarter of positive cash flow.

Speaker Change: This includes full-year revenue to be up mid to high single-digit percentage growth over prior year.

Speaker Change: Previously, we expected revenue to be up low to mid-single-digit percentage growth.

Dave Loretta: The updated revenue outlook reflects continued distribution gains and strength across our baby products and women's portfolio as we continue to make investments in growing the business. We expect revenue growth in the second half of the year to be similar to growth of 7% achieved in the first half of the year. While we are pleased with our overall growth momentum to date, keep in mind that our largest category, diapers, is experiencing competitive activity and overall softening category trends.

Speaker Change: The updated revenue outlook reflects continued distribution gains and strength across our baby products and wipes portfolio as we continue to make investments in growing the business.

Speaker Change: We expect revenue growth in the second half of the year to be similar to growth of 7% achieved in the first half of the year.

Speaker Change: While we are pleased with our overall growth momentum to date, keep in mind that our largest category, diapers, is experiencing competitive activity and overall softening category trends.

Carla Vernon: This strong performance and momentum for the first half of the year gives us confidence to increase our full-year guidance for both revenue and adjusted EBITDA. Our success this quarter was broad-based across our portfolio and business model. In particular, the Honest brand is performing notably well in our baby personal care categories as the appeal of our clean and sustainably designed, lotions, body washes and bath products continues to grow. According to the National Center for Health Statistics, the presence of skin allergies among children has nearly doubled since 1997.

Dave Loretta: We'll continue to monitor closely and react to any changes needed to support our business for the long term. We are also raising our outlook for adjusted EBITDA for the full year. We now expect adjusted EBITDA to be in the $15 million to $18 million range. Previously, our guidance called for adjusted EBITDA to be in the positive low single-digit to mid-single-digit millions range. This updated Adjusted EBITDA outlook reflects our higher revenue outlook for the full year, structural cost savings, and marketing investments that we have plans to increase relative to the first half.

Speaker Change: We'll continue to monitor closely and react to any changes needed to support our business for the long term.

Speaker Change: We are also raising our outlook for adjusted EBITDA for the full year.

Speaker Change: We now expect Adjusted EBITDA to be in the $15 million to $18 million range.

Speaker Change: Previously our guidance called for adjusted EBITDA to be in the positive low single-digit to mid single-digit millions range.

Speaker Change: This updated Adjusted EBITDA outlook reflects our higher revenue outlook for the full year.

Speaker Change: structural cost savings, and marketing investments that we have plans to increase relative to the first half.

Dave Loretta: The combination of the strength of our team's execution with a focus on operating discipline and healthy first-half results gives us confidence in raising our full-year financial outlook. We remain focused on executing our plan with the goal of building long-term shareholder value through a stronger and more scaled, honest brand and company. And with that, I'll turn the call over to the operator. Thank you.

Carla Vernon: Also, estimates by KBV research, as outlined in our investor presentation earlier this year, indicate that the market for sensitive skin care products is expected to be $80 billion by 2030, which is nearly double the market size today. These consumer trend indicators are well aligned with the high standards that Honest delivers in our clean and gentle products. For example, our newly relaunched fragrance-free, sensitive skin collection not only fits these important trends, but its performance in the quarter is a great example of our brand maximization pillar.

Speaker Change: The combination of the strength of our team's execution with a focus on operating discipline and healthy first half results gives us confidence in raising our full year financial outlook.

Speaker Change: We remain focused on executing our plan with the goal of building long-term shareholder value through a stronger and more scaled honest brand and company.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A transcript. Our first question comes from the line of Aaron Grey from Alliance Global Partners.

Speaker Change: And with that, I'll turn the call over to the operator.

Speaker Change: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question, please press star 11 again.

Carla Vernon: We doubled the revenue of our sensitive skin collection year over year by expanding these items into all target stores, and our sensitive skin shampoo plus body wash has become one of our top five selling baby items on Amazon this year. In addition to our clean product benefits, our community looks to Honest for our approach to sustainable design. The early success of our new milk carton style refills for our bubble bath and shampoo plus body wash products are proving to be a great solution in reducing the plastic footprint of our most loyal community members.

Speaker Change: Please stand by when we compile the Q&A roster.

Speaker Change: www.HonestCompany.com

Speaker Change: Our first question comes from the line of Aaron Grey from Alliance Global Partners.

Aaron Grey: Hi, good evening. Thank you for the questions and congratulations on the strong quarter there. First question for me, just in terms of Walmart, you highlighted the continued progress you have made with the retailer there, including toddler flushable wipes and some limited edition prints as well. Just wondering if you could provide some additional commentary, maybe in terms of how it's progressing, some more data points on, you know, permanent shelf space and queues that you'll be planning to have available at Walmart, because I know you've been taking the initiative to move from Thank you.

Speaker Change: I could even ask you, thank you for the questions and congratulations on the strong court of there.

Speaker Change: First question for me, just in terms of Walmart, you know, you highlighted the continued progress you have with the retail there. A toddler plus for wives is limited edition price as well. Just wondering if you could provide some additional commentary, maybe in terms of how it's progressing for more.

Speaker Change: Dad appoints on permanent cell space and excuse that you'll be planning to have a live-a wallwork that has been having the initiative to move from NCAP to the end of that. Thank you.

Carla Vernon: These 32 ounce refills use 89% less plastic when swapped with three of our ten ounce size bottles, and the milk carton style packaging allows them to be easy to pour. Having recently launched in Target and on Amazon, these new refills are off to a strong start, and for anyone who loves a good hot bubble bath with these refills by your side, we give you permission to enjoy the bubbliest of spa moments as much as you want.

Carla Vernon: Hi Aaron, this is Carla. Great to hear from you. And thank you. Yes, we are. We are so pleased with how well the execution came together in this quarter, resulting in strong revenue, record revenue, 10% growth. Walmart plays a very important role in that growth. And we are pleased with our, we're in the, our consumption growth at Walmart for this quarter was in the mid teens at around 16% year over year versus the previous quarter.

Speaker Change: Hi Aaron, this is Carla. Great to hear from you and thank you. Yes, we are

Speaker Change: We're so pleased with how well the execution came together in this quarter, resulting in the trauma revenue, record revenue, 10% growth.

Speaker Change: Walmart plays a very important role in that growth, and we are pleased with our consumption growth at Walmart for this quarter is in the mid-teens at around 16% year-over-year versus the previous quarter.

Carla Vernon: Another key driver of our success this quarter is the strong alignment we have across our retailer partnerships. As you know, the Honest brand is a little over 13 years old this year, and we are celebrating the 10th anniversary of our original launch into target stores. In fact, if you visit a target store over the next two months, you will see a festive collection of limited edition diapers and wipes featuring whimsical red and white prints, to bring this partnership to life.

Carla Vernon: That is a result of both really excellent performance of the expanded distribution and portfolio that we have at Walmart that we've been building together over time, as well as the velocity is really taking hold on the items that have been there, and you heard Dave talk about in the recorded remarks.

Carla Vernon: Our community of content creators has been finding adorable ways to bring honest 10th target birthday to life with trend setting baby birthday parties, full of these limited edition wipes and diapers, along with matching decorations and party treats. We hope you'll check out our honest social media channels on TikTok, Instagram, and Pinterest to be part of the birthday fun. Overall, our second quarter results are evidence that our transformation pillars are creating a stronger financial foundation and that we are well poised to advance our strategy to be in all the places that our community shops with the hero products they love in the formats they want.

Speaker Change: That is as a result of both really excellent performance.

Speaker Change: of the expanded distribution and portfolio that we have at Walmart that we've been building together over time, as well as the velocities really taking hold on the items that have been there. As you heard Dave talk about in the recorded remarks,

Carla Vernon: Right now, we're in the beginnings of an execution of something that is unique to Walmart, which is our celebration of Hispanic Heritage Month, which is a 12-week NCAP execution that will take us through mid-October. And along with that, we are always in conversation with Walmart about the strategy that we articulated in our investor presentation around expanding availability. At Walmart, we really believe we have the ability to expand some of the items into more doors at Walmart, as well as certain new items that are not in Walmart yet.

Speaker Change: did right now, we're in the beginnings of an execution of something that is unique to Walmart, which is our celebration of Hispanic heritage month, which is a 12-week end cap execution which will take us through mid-October. And along with that, we are always in conversation with Walmart against the strategy that we are articulated in our investor presentation around expanding availability. At Walmart, we really believe we have an ability to expand both.

Speaker Change: some of the items into more doors at Walmart, as well as certain new items that are not in Walmart yet. A great example that we executed that you can see that was shipped in Q2 is our toddler flushable wipe. That's a great example of how, even though we are already in Walmart doors, there is so much more opportunity to drive our distribution based strategy by the types of items, the quantity of items and the number of aisles that we find ourselves in.

Carla Vernon: A great example that we executed that you can see that was shipped in Q2 is our toddler flushable wipe. That's a great example of how, even though we are already in Walmart stores, there is so much more opportunity to drive our distribution-based strategy through the types of items, the quantity of items, and the number of aisles that we find ourselves in.

Dave Loretta: And now I'll turn it over to Dave to share the financial results of our second quarter and details on our updated financial outlook.

Aaron Grey: Okay, great. I really appreciate that color there.

Dave Loretta: Thank you and welcome everyone. We are pleased to report our second quarter results reflecting strong growth momentum that accelerated as the quarter progressed and landed ahead of our expectations. Shipments to our key retail customers were driven by positive consumption trends, inventory builds and preparation for several notable retailer events and expansion of key hero items into more doors. The actions we took over the last year to address product and supply chain costs and adjusting to a more strategic approach with our trade promotion dollars have continued to support and expanded gross margin reaching a new high of 38% for the company.

Speaker Change: Okay, great. Really appreciate that, Carla, there. Second question for me, just in terms of...

Speaker Change: The EBITDA guidance you provided there, so it implies margins should fully around, you know, 4 to 5% range versus just under 6% in the first half, so some of my thoughts in the back half, you spoke to increased marketing spend, so are we right to think in terms, if we think about the gross market part of it,

Speaker Change: Any implication there in terms of moving gross margin in the back half or will the majority of that softness on the EBITDA margin be due to the additional marketing spend? And if you could also provide just in terms of what we can expect to see where that marketing spend is being targeted to, that'd be helpful as well. Thank you.

Aaron Grey: Second question for me, just in terms of the EBITDA guidance you provided there. So it implies margins from full year around, you know, the four to 5% range versus just under 6% in the first half. So some of my thoughts in the back half, you spoke to increased marketing spend. So are we right to think in terms, if we think about the gross market part of it, any implications there, in terms of moving gross margin in the back half, or will the majority of that softness on the EBITDA margin be due to the additional marketing spend? And if you could also provide just in terms of what we can expect to see, where that marketing spend is being targeted, that'd be helpful as well. Thank you.

Dave Loretta: The benefits we are realizing from all aspects of our transformation pillars continue to materialize and improve financial results that are approaching operating income profitability and have strengthened our foundation to support growth with the first half of 2024 outpacing our initial guidance on the top and bottom line.

Dave Loretta: Yeah, hi Aaron. Dave here. I can I can help with those?

Speaker Change: Yeah, hi Aaron. Dave here, I can help with those.

Speaker Change: Those questions, you know, we certainly are pleased with how well the organization executed on the transformation pillars driving these strong bottom-line results.

Dave Loretta: Those questions, you know, we certainly are pleased with how well the organization executed on the transformation pillars driving these strong, strong bottom line results. And, you know, and the progress we made this quarter was a function of, certainly, revenue growth and the expansion of the margin, which contributed to those bottom line results. Expense management was also a key contributor to the bottom line results, seeing some leverage there. So, as we look at the back part of the year and our guidance of 15 to 18 million, there are a couple of functions that you can think about in looking at that.

Speaker Change: And, you know, and the progress we made this quarter was a function of.

Dave Loretta: We are providing an update to our full year outlook which I will touch on shortly, but first I'll review the details of our second quarter results. Net revenue for the second quarter was 93 million up 10% driven by distribution gains and strong consumption growth and track channels. In particular baby apparel wipes and baby personal care are growing market share. Our track channel data was up high single digits in the quarter driven by expanded product assortment and baby personal care and wipes including new flushable wipes and incremental pack size configurations.

Speaker Change: Certainly, revenue, growth, and the expansion of the margin, which contributed to those bottom line results. Expense management was also a key contributor to the bottom line results, seeing some leverage there.

Speaker Change: So, as we look at the back part of the year in our guidance of 15 to 18 million, a couple of functions that you can think about in.

Dave Loretta: First, our gross margin rate of 38% in Q2 is likely a high watermark in the near term. We're comfortable within a 36 to 38% range, still reflecting that upper end potential, but somewhere in the middle is how we're thinking about gross margin. And one of the key factors that we're looking at in gross margin in the back half of the year is preserving some flexibility around trade promotion spend, which was one element of particular efficiency in the first half of the year.

Speaker Change: and looking at that.

Speaker Change: First Star Art Rose margin rate of 38% in Q2 is likely a high watermark in the near term.

Dave Loretta: We are leaning into what is working across our baby portfolio to offer more options on our best selling innovations and expanding shelf space with our newer large scale customer Walmart. This year we have increased our wife's category footprint in our Walmart assortment including launching our new toddler flushable wipes and a subset of Walmart stores and offering larger pack sizes on shelf. In addition, I mentioned revenue growth driven by notable retailer events.

Speaker Change: we're comfortable within a 36 to 38 percent.

Speaker Change: Still reflecting that upper end potential, but somewhere in the middle there is how we're thinking about Rose Margin and one of the key factors that we're looking at in Rose Margin in the back half of the year is preserving some

Speaker Change: Flexibility around trade promotion spent.

Speaker Change: You know, that was one element of a particular efficiency in the first half of the year.

Dave Loretta: As we look in the back half, we know that we want to maintain flexibility there and drive and have that flexibility on trade promotion dollars similar to what we had last year in the back half of the year.

Speaker Change: As we look in the back half, we know that we want to maintain flexibility there and have that flexibility on trade promotion dollars, similar to what we had last year in the back half of the year.

Dave Loretta: This includes limited edition diapers and white prints in Walmart stores in celebration of Hispanic Heritage Month, beginning this month and extending through October. Also, our annual focus on Amazon Prime Day in July drove a healthy growth and shipments in the second quarter. During the two-day event, our unit volume on Amazon increased over 30% driven by baby personal care and wipes. And our skincare assortment doubled in volume compared to last year. Gross margin for the second quarter was 38% reaching a new high and expanding over 1100 basis points versus last year.

Aaron Grey: So, I'd expect that, you know, that plays into a bit of the adjusted EBITDA margin rate question you've got. And then on marketing as well, we increased the amount of spend in this second quarter, as we kind of indicated we were thinking of doing on our last call, and it proved to be a good outcome for us. So, we'll see marketing in the back half of the year likely tick up. You know, if you think about first half marketing as a percent of sales at around eleven and a half percent, we'll likely see that closer to, you know, up fifty to a hundred basis points.

Speaker Change: So I'd expect that, you know, that that plays into a bit of the atrocity-betaugh, margin-rate question you've got. And then...

Speaker Change: On marketing as well, we increased the amount of spend in this second quarter as we kind of indicated we were thinking of doing from our last call.

Speaker Change: And it proved to be a good outcome for us. So we'll see marketing in the back half of the year likely tick up, you know, if you think about first half marketing as a percent of sales at around eleven and a half percent.

Dave Loretta: Of this improvement, roughly 500 basis points is attributable to price increases and trade spending efficiencies. 400 basis points is due to product and supply chain cost savings. And 200 basis points is due to mix of higher margin products and sales channels. We began adjusting prices in early 2023 on our diaper assortment and entered 2024 with a lower cost structure that will continue through most of the year. In mid 2023, we raised prices on baby personal care, cosmetics and skincare, which we have now largely lapped midway through Q3.

Aaron Grey: So, in the back half of the year, that's another area that we're focused on using as a lever to continue to drive the momentum of the brand, brand awareness, and also drive conversion, and it sets us up well as we head into 2025. So, those are key aspects of the modeling that hopefully provide some clarity there.

Speaker Change: will likely see that closer up 50 to 100 basis points in the back half of the year. So that's another area that's...

Speaker Change: You know, that we're focused on using as a lever to continue to drive the momentum.

Speaker Change: of the brand, brand awareness, and also drive conversion, and it sets us up well as we head into 2025. So those are key aspects of the modeling that hopefully provides some clarity there.

Operator: No, that's great. We really appreciate the color there, and I'll go ahead and jump back into the queue.

Speaker Change: You're that great, really appreciate the color, they're not going to jump back into the tube

Laura Champine: Thank you. Our next question comes from the line of Laura Champine from Loop.

Dave Loretta: Our sales teams continue to strike a good balance between pricing and trade promotion investments tailored by customer and product growth objectives. We expect to continue to maintain spending flexibility and trade promotions through the balance of the year to drive category and hero item performance as needed. Cost savings initiatives within our supply chain are in full effect and support a sustainable benefit to margins. However, we continue to monitor certain transportation and shipping costs for volatility that may emerge as global activity ramps up in the back half of the year.

Speaker Change: Thank you. Our next question comes from the line of Laura Champine from Loop.

Carla Vernon: Thanks for taking my question. It's a lot about the how. So the track channel consumption outperforming the category this much seems a little counterintuitive given that macro pressure has caused trade down in a lot of categories. So I wanted to get a better sense of, first of all, just to confirm that baby products and wipes include strong performance for diapers. And then to get a sense of how much of this outperformance came from e-commerce compared to brick and mortar.

Laura Champine: Thanks for taking my question. It's a lot about the how, so the track channel consumption outperforming the category.

Speaker Change: This much seems a little counterintuitive given that the macro...

Speaker Change: Pressure has caused trade down in a lot of categories.

Speaker Change: So I wanted to get a better sense of first of all, just confirmed that baby products and wipes.

Speaker Change: includes strong performance for diapers, and then to get a sense of, you know, how much of this outperformance came from e-commerce compared to brick-and-mortar.

Laura Champine: Hi Laura. Why don't I give that a try?

Dave Loretta: Our actions that have impacted our portfolio's profitability as guided by our margin enhancement pillar continue to realize a healthy flow through of unit volume growth to gross profit growth. Operating expenses overall increase $3 million compared to the second quarter last year, but realize 30 basis points of improvement as a percentage of revenue. Included in this quarter's SGNA expense of 26 million was a one time accelerated restricted stock grant expense related to our previously disclosed separation agreement with honest founder.

Speaker Change: Hi Laura, why don't I give that a start and Dave, if I've missed anything, you feel free to layer on for me. Thank you. Good to hear your voice today.

Carla Vernon: And Dave, if I miss anything, you feel free to layer it on for me. Thank you. Good to hear your voice today. Our performance is one of the reasons I feel so, so pleased with the results, because what you're seeing in the 10% growth that we demonstrated in revenue is really quite broad-based across the portfolio. In the remarks, I know we highlighted the strength of our baby personal care category as well as our wipes category.

Speaker Change: Our performance is one of the reasons I feel so pleased

Speaker Change: results is what you're seeing in the 10% growth that we demonstrated in revenue is really quite broad-based across the portfolio. In the remarks I know we highlighted the strength of our baby personal care category as well as our wipes category. We still we continue to have

Carla Vernon: We still, we continue to have, a stronger role in the portfolio than in previous years. And for diapers overall, I would say we know that the diaper category has, as you said, some macroeconomic dynamics and category dynamics that make it a rather muted category relative to other categories in our portfolio. But we did hold share and grow 2% in diaper consumption this quarter. So we feel that diapers are playing the role as intended in our overall plan and is reflected as we look at the numbers that Dave talked to you about for the remainder of the year at about that 7% growth rate.

Speaker Change: a stronger role in the portfolio than it has in previous years. And for diapers overall, I would say, we know that the diaper category has, as you said, some macroeconomic dynamics and category dynamics that have it be a rather muted category relative to other categories in our portfolio, but we did hold share and grew 2% in diapers, in diaper consumption this quarter. So we feel that diapers is playing the role as intended in our overall plan and is reflected as we look at the numbers that Dave talked to you about for the remainder of the year at about that 7% growth rate.

Dave Loretta: Absent this expense our SGNA would have been 19 million for the quarter. Marketing expense in the quarter of 11 million increase 2 million versus last year and reflects the commitment to brand building that is integral to our brand maximization pillar. We continue to seek a balanced approach to marketing investments through upper funnel awareness driving spend and mid to lower funnel spend to drive digital conversion. Drive trial and accelerate retail the last.

Dave Loretta: Agenda for the Second Quarter was positive 8 million compared to negative 4 million last year. This is our third consecutive quarter of positive Agenda for the second quarter and further demonstrates our ability to generate consistent profitable growth, which is a key tenant of our strategic growth objective. Turning to the balance sheet, we ended the quarter with 37 million in cash, an increase of 19 million versus last year. We continue to operate with discipline management of our balance sheet by driving revenue growth year-to-date of 7 percent on lower working capital, excluding cash over the same time. We also have no debt outstanding and no expected needs to draw on our line of credit.

Laura Champine: Got it. And anything in the channel mix that's notable for e-commerce versus brick and mortar?

Speaker Change: Got it. And anything on the channel mix that's notable, e-commerce versus brick and mortar?

Dave Loretta: Yeah, hi, Laura. You know, our channel mix continues to be balanced with digital being largely through Amazon. That continues to be our primary digital channel for us. Consumption in the quarter was up in the high teens, which we're happy with. And as we prepared ourselves for Amazon Prime Day, you know, there were some nice shipments out of the quarter to support that event, with the two-day event actually seeing some unit volume growth of a little over 30%. So we're pleased with that digital growth and finding it to be, you know, the right balance for us. And we expect that to continue going forward.

Speaker Change: Yeah, hi Laura. You know, our channel mix.

Speaker Change: continues to be balanced with digital being largely through Amazon. That continues to be our primary digital channel for us.

Speaker Change: Consumption in the quarter was up high teens.

Speaker Change: which we're happy with, and as we prepared ourselves for Amazon Prime Day, you know, there was some nice shipments out of the quarter to support that event, with the two-day event actually seeing some unit volume growth of a little over 30%.

Dave Loretta: Overall, our second quarter financial results support our continued confidence in our long-term strategic plan and our updated outlook for 2024. Due to the strong momentum and financial results achieved in the first half, we are raising our full year financial outlook for both revenue and adjusted EBITDA. This includes full year revenue to be up mid-to-high single-digit percentage growth over prior year. Previously, we expected revenue to be up low to mid-single-digit percentage growth.

Speaker Change: So, we're pleased with that digital growth and finding it to be, you know, the right balance for us, and we expect that going forward.

Laura Champine: If you'll allow me just one more, just given what you just disclosed, like how do you drive growth like that? Is that just staying in stock? Was the product much better? Like why would you be able to service 30% unit growth on prime days?

Speaker Change: If you'll allow me just one more just given that what you just disclosed like how do you drive growth like that? Is that just staying in stock? Was the product much better? Like why would you be able to to service you know 30% unit growth on prime days?

Carla Vernon: Thank you, Laura. You know, I would love to answer an Amazon question. Overall, I think you are seeing how our transformation pillars are all coming together as a collective to deliver the strategy that we really have always envisioned. What is helping our Amazon growth is, first of all, our products are very well suited and aligned for the broad base of Amazon shoppers. The Honest brand has been one that has performed well at Amazon for a long time and continues to do so because what we have is what consumers are looking for.

Speaker Change: Thank you, Laura. You know I would love to answer an Amazon question. Overall, what I think you are seeing works so well in our execution is how our transformation pillars are all coming together as a collective to deliver the strategy that we really have always had envisioned.

Dave Loretta: The updated revenue outlook reflects continued distribution gains and strength across our baby products and wife's portfolio as we continue to make investments in growing the business. We expect revenue growth in the second half of the year to be similar to growth of 7 percent achieved in the first half of the year. While we are pleased with our overall growth momentum to date, keep in mind that our largest category, diapers, is experiencing competitive activity and overall softening category trends. We will continue to monitor closely and react to any changes needed to support our business for the long term.

Speaker Change: What is helping our Amazon growth is, first of all, our products are very well suited and aligned for the broad base of Amazon shoppers.

Speaker Change: The Honest brand has been one that has performed well at Amazon for a long time, continues to do so because what we have is what consumers are looking for. That's why we grew 18% in consumption at Amazon in the quarter.

Carla Vernon: That's why we grew 18% in consumption at Amazon in the quarter. It is also very important to have an effective supply chain strategy with Amazon in advance of something big like Prime Day or a holiday. Our teams work very well in alignment with their supply chain teams to make sure we are prepared with shipments in advance of the execution because you do need to have shipments in order to make sure that you continue to perform well on page searches and on page views.

Speaker Change: These are also very important to have an effective supply chain strategy with Amazon in advance of something big like prime day or holiday. Our teams work very well in alignment with their supply chain teams to make sure we are prepared with shipments and advance of the execution because you do need to have shipments in order to make sure that you continue to perform well on page searches and on page views.

Dave Loretta: We are also raising our outlook for adjusted EBITDA for the full year. We now expect adjusted EBITDA to be in the 15 million to 18 million range. Previously, our guidance called for adjusted EBITDA to be in the positive low-single-digit to mid-single-digit millions range. This updated adjusted EBITDA outlook reflects our higher revenue outlook for the full year, structural cost savings and marketing investments that we have plans to increase relative to the first half. The combination of the strength of our team's execution with a focus on operating discipline and healthy first half results gives us confidence in raising our full year financial outlook.

Carla Vernon: We also continue to make sure we bring our new products forward on Amazon. We know that Amazon, as that infinite shelf, doesn't have the same physical limitations as the other retailers of brick and mortar, but Amazon is just as exciting when we bring something like our milk carton-style gable top refills, those 32-ounce refills. When we launch those and are able to bring them to life both on Amazon and in brick and mortar stores, that kind of new product introduction also drives growth for us in the e-commerce channel.

Speaker Change: We also continue to make sure we bring our new products forward on Amazon. So we know that Amazon has that infinite shelf, doesn't have the same

Speaker Change: physical limitations as the other retailers of brick-and-mortar, but Amazon, it's just as exciting when we bring something like our milk carton style gable top refills, those 32-ounce refills, when we launch those and are able to bring them to life both on Amazon and brick-and-mortar, that kind of new product introduction also drives growth rate for us in the e-commerce channel.

Dave Loretta: We remain focused on executing our plan with the goal of building long-term shareholder value through a stronger and more scaled honest brand end company.

Laura Champine: Got it. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. We ask that you please limit yourselves to one question and one follow-up question. Our next question comes from Owen Rickert from Northland Security.

Speaker Change: Got it. Thank you.

Speaker Change: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again.

Operator: And with that, I'll turn the call over to the operator. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by where we compile the Q&A roster.

Speaker Change: We ask that you please limit yourselves to one question and one follow-up question.

Speaker Change: Our next question comes from the line of Owen Rickard from Northland Securities.

Owen Rickert: Hi Carla. Hi Dave.

Carla Vernon: Congratulations on the stellar quarter there. I just have a quick question in terms of subscriptions. Is there anything to call out there, and are subscriptions continuing to become a bigger part of the picture, and are they growing in some of the other segments, maybe besides diapers and wipes? Thank you.

Owen Rickard: Hi Carla, hi Dave, congrats on the stellar quarter there.

Aaron Grey: Our first question comes from the line of Aaron Grey from Alliance Global Partners. Thank you for the questions and congratulations on the strong quarter there. First question for me, just in terms of Walmart, you highlighted the continued progress you have with the retail there. There are a lot of other flexible wipes and some limited edition prints as well. Just wondering if you could provide some additional commentary maybe in terms of how it's progressing some more data points on permanent shelf space and use that you'll be planning to have available at Walmart. I know you've been having the initiative to move from the NCAP to the NIO there. Thank you.

Owen Rickard: I just have a quick question in terms of subscriptions. Is there anything to call out there and are subscriptions continuing to become a bigger part of the picture and are they growing in some of the other segments maybe besides diapers and wipes? Thank you.

Carla Vernon: Oh, and it's so great to hear from you. This is Carla. I'm also going to introduce our Chief Growth Officer, Kate Barton. Kate manages all the portfolios individually. I will just start this by saying, I love that you asked that question.

Owen Rickard: Oh, and it's so great to hear from you. This is Carla. I'm also going to introduce that with us on the call is our Chief Growth Officer, Kate Barton. Kate manages all the portfolios individually. I will just start this to say I love that you asked that question. I don't know if you know, but I used to work at Amazon running these categories. And so when we think of subscription here at Honest, we know that while Honest was a pioneer in the subscription business through our own Honest.com channel,

Carla Vernon: I don't know if you know, but I used to work at Amazon running these categories. And so when we think of subscriptions here at Honest, we know that while Honest was a pioneer in the subscription business through our own Honest.com channel, we also have a very strong Amazon Subscribe and Save subscription business. That's not something we break out separately in our numbers. I don't know if Kate wants to build any nuance into that about how we're working with Amazon, but subscription is very important to the way a digital shopper shops today, and we're in a great position there. Hi, it's me.

Carla Vernon: Hi, Aaron. This is Carla, great to hear from you and thank you. Yes, we are so pleased with how well the execution came together in this quarter, resulting in strong revenue, record revenue, 10% growth, that in Walmart plays a very important role in that growth. We are pleased with our consumption growth at Walmart for this quarter is in the mid teens at around 16% year over year versus the previous quarter. That is as a result of both really excellent performance of the expanded distribution and portfolio that we have at Walmart that we've been building together over time. As well as the velocities really taking hold on the items that have been there.

Kate Barton: We also have a very strong Amazon subscribe and save subscription business. That's not something we break out separately in our numbers. I don't know if Kate wants to build any nuance to that of how we're working with Amazon. But subscription is very important to the way a digital shopper shops today, and we're in a great position there.

Kate Barton: Hi, it's nice to meet you. As Carla said, I'm Kate Barton.

Kate Barton: I'm Chief Growth Officer. To answer your question, our subscription model business on our own Honest.com site continues to be a robust part of that business. It's a diapers and wipes subscription that conveniently packages them together. And it will continue to be an ongoing part of our Honest.com strategy for the rest of the year. All of our sales on honest.com are subscription based. We actually have our whole portfolio on honest.com, where you can buy our adult skin care products as well as our baby personal care. And so what we try to do is keep it consumer-first and ensure that the options that we see consumers asking for are available.

Kate Barton: Hi, it's nice to meet you. As Carla said, I'm Kate Barton. I'm Chief Growth Officer. To answer your question, our subscription model business on our own Honest.com site continues to be a robust part of that business. It's a diapers and wipes subscription which conveniently packages them together and it will continue to be an ongoing part of our Honest.com strategy for the rest of the year.

Carla Vernon: As you heard Dave talk about in the recorded remarks, right now we're in the beginnings of an execution of something that is unique to Walmart, which is our celebration of Hispanic Heritage Month, which is a 12 week end cap execution, which will take us through mid October. Along with that, we are always in conversation with Walmart against the strategy that we articulated in our investor presentation around expanding availability. At Walmart, we really believe we have an ability to expand both some of the items into more doors at Walmart as well as certain new items that are not in Walmart yet.

Speaker Change: here. All of our things on honest.com are a description and we actually have our whole course. We'll go on honest.com where you can buy our adults. Getting care products as well as the baby personal care. And so what we try to do is keep it a consumer first.

Owen Rickard: and ensure that the options that we see consumers asking for are available.

Owen Rickert: Great, thank you. Very, very helpful. And then quickly as a follow-up, obviously, some increased marketing spend this quarter and going forward, but in terms of that marketing strategy, what channels are succeeding? And is there anything to call out, maybe for the remainder of the year, in terms of that marketing strategy?

Tracy: Tracy, thank you very, very helpful. And then quickly as a follow-up, obviously, you may increase marketing spend this quarter and going forward, but in terms of that marketing strategy, what channels are succeeding, and is there anything to call out maybe for the remainder of the year in terms of that marketing strategy?

Kate Barton: Wonderful, I'll take that one as well. In our investor presentation, we actually showcased some of the improvements that we've made in our marketing model and some of the improved ROAS that we've had quarter over quarter. We have an incredible team that works cohesively across paid, owned, and earned to have a full-funnel modern approach. We are a company of innovators, and we will continue to innovate and stay modern as the marketing landscape evolves.

Carla Vernon: A great example that we executed that you can see that was shipped in Q2 is our toddler flushable wife. That's a great example of how even though we are already in Walmart doors, there is so much more opportunity to drive our distribution based strategy by the types of items that quantity of items and the number of aisles that we find ourselves in. Okay, great. Really appreciate that color there.

Speaker Change: Wonderful. I'll take that one as well. In our investor presentation, we actually showcased some of the improvements that we've made in our marketing model and some of the improved ROAS that we've had quarter over quarter.

Speaker Change: We have an incredible team that works cohesively across paid, owned, and earned to have a full-funnel modern approach.

Speaker Change: We are a company of innovators, and we will continue to innovate and stay modern as the marketing landscape evolves, but we are very pleased with the results that we're seeing in our consumption.

Aaron Grey: Second question for me just in terms of the EBITDA guidance you provided there. So it implies March is full year round, you know, 4 to 5% range versus just under 6% in first half.

Kate Barton: But we are very pleased with the results that we're seeing in our consumption and how. We're excited about our Q3 campaign that's launching right now, and so we just continue to use that as a lever for growth as we're finding it to be very effective and efficient.

Speaker Change: Sumerding for a messaging to please feature our humorous products.

Aaron Grey: So some of my softens in the back half, you spoke to increased marketing spend. So are we right to think in terms of if we think about the gross market part of it. Any implication there in terms of moving gross margin in the back half or will the majority of that softness on the EBITDA margin be due to the additional marketing spend. And if you could also provide just in terms of what we can expect to see where that marketing spend being targeted to then be helpful as well. Thank you.

Speaker Change: and really feature what's unique and special about the Honest brand. We're excited about our Q3 campaign that's launching right now, and so we just continue to use that as a lever for growth, as we're finding it to be very effective and efficient.

Owen Rickert: Awesome. Thanks. It's on. I got it.

Speaker Change: Awesome. Thanks a ton, guys.

Operator: Our next question comes from the line of Eric Serrata from Oregon Stanley.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Eric Sorada from Oregon Stanley.

Eric Serrata: Hi, good afternoon, everyone, and congratulations on a great quarter. Carla, as you know, we're approaching, I think it's been a year and a half on the job, significant progress on the turnaround over, you know, particularly over the last several quarters. But, you know, it clearly didn't happen overnight. As you look ahead, how do you think about sort of what the next phase for Honest is going to be? And then, you know, a little bit more concretely, you know, how are you thinking about driving household penetration in your existing categories? You know, clearly, you've made a lot of progress, but there's a lot of white space ahead. Thank you.

Dave Loretta: Yeah, hi, Aaron. Dave here, I can help with those questions. You know, we certainly are pleased with how well the organization executed on the transformation pillars driving the strong bottom line results. And, you know, in the progress we made this quarter was a function of certainly revenue growth and the expansion of the margin, which was contributed to those bottom line results. Expansment was also a key contributor to the bottom line results, seeing some leverage there.

Eric Sorada: Hi, good afternoon, everyone, and congratulations on a great quarter. Carla, as you know, we're approaching, I think it's a year and a half on the job, significant progress on the turnaround over, you know, particularly over the last several quarters, but clearly didn't happen overnight. You know, as you look ahead, how do you think about sort of what the next phase for Honest is going to be? And then, you know, a little bit more concretely, you know, how are you thinking about driving household penetration in your existing category?

Dave Loretta: So, as we look at the back part of the year and our guidance of 15 to 18 million, a couple of functions that you can think about in looking at that. First, our growth margin rate of 38% in Q2 is likely a high watermark in the near term. We're comfortable within a 36 to 38% still reflecting that upper end potential, but somewhere in the middle there is how we're thinking about growth margin.

Carla Vernon: Eric, hi, it's great to hear your voice. Thank you for celebrating that year and a half milestone. What I will say is results like this are a team sport, absolutely.

Speaker Change: Clearly, you've made a lot of progress, but there's a lot of white space ahead. Thank you.

Carla Vernon: Eric, hi, it's great to hear your voice. Thank you for celebrating that year and a half milestone. What I will say is results like this are a team sport absolutely and the the first thing that I look to as I look out at

Carla Vernon: And the first thing that I look to as I look ahead is this really is grounded in that concept we've talked about a few times previously, which is this operating discipline mindset that our third transformation pillar brings to life. Internally, we call that our FIFO mindset. So, we expect ourselves to be... operationally focused, executionally excellent, fast, and aligned.

Speaker Change: Pedd.

Speaker Change: This really is grounded in that concept we've talked about a few times previously, which is this operating discipline mindset that our third transformation pillar brings to life. Internally, we call that our FIFA mindset. So, we expect ourselves to...

Dave Loretta: And one of the key factors that we're looking at in the back half of the year is preserving some flexibility around trade promotion spend. That was one element of a particular efficiency in the first half of the year. As we look in the back half, we know that we want to maintain flexibility there and drive and have that flexibility on trade promotion dollars. That's similar to what we had last year in the back half of the year.

Carla Vernon: So we've articulated a strategy that will serve us in an evergreen way for a long time to come that's based on the availability of our strong hero portfolio and continuing to build out the items in our strong hero portfolio. But I'll say that availability, it's still early days for us. So when we think at the item level for some of our, even some of our top performing items, I'll use our lavender bubble bath as a great example.

Speaker Change: Operated focused, executionally excellent, fast and aligned. So, we've articulated a strategy that will serve us in an evergreen way for a long time to come that's based on availability of our Strong Hero portfolio and continuing to build out the items in our Strong Hero portfolio. But I'll say that the availability, it's still early days for us.

Dave Loretta: So, I'd expect that, you know, that that plays into a bit of the agility, but dog margin rate question you've got. And then on marketing as well, we increase the amount of spend in this second quarter, as we kind of indicated, we were thinking of doing from our last call and approved to be a good outcome for us. So we'll see marketing in the back half of the year, likely tick up.

Dave Loretta: You know, if you think about first half marketing as a percent of sales in around 11 and a half percent, we'll likely see that closer, you know, up 50 to 100 basis points. So, in the back half of the year, so that's another area that's that, you know, that we're focused on using as a lever to continue to drive the momentum of the brand brand awareness and also drive, drive conversion. And it sets us up well as we head into into 2025.

Speaker Change: So when we think at the item level for some of our, even some of our top performing items, I'll use our lavender bubble bath as a great example. While you will see in some of our presentation materials that as an

Carla Vernon: While you will see in some of our presentation materials that, as an average, we have 85% ACV availability, that's looking at the entire portfolio of the collection. Any individual item, though, is rarely at that high level.

Speaker Change: and your...

Speaker Change: We have 85% ACV availability that's looking at the entire portfolio as a collection.

Carla Vernon: Our lavender bubble bath, as a great example, just a classic popular SKU that really appeals to our core demographic, is only available in 35% of retailers right now. And that's an SKU we know, we love it, it works. We've introduced a gable top refill. That's how confident we are in where we have to go. And I would say that while you say the next phase, I would say we've really only recently introduced you to the phase we are in.

Speaker Change: Any individual item, though, is rarely at that high level. Our lavender bubble bath is a great example.

Speaker Change: Plastic popular scoops that really appeals to our core demographic is only available in 35% of retailers right now.

Speaker Change: And that's the skew we know, we love it, it works.

Speaker Change: We've introduced a gable top refill. That's how confident we are and in where we have to go. And I would say that

Carla Vernon: And the phase is working, and we've got a lot of opportunity in order to deliver it by expanding into new retail accounts, by expanding into aisles that we are not in. I always like to give us an example because I think those of us that shop at some of these big boxes have really been to a lot of places, but there are a lot of places we aren't yet. For example, the dollar channel is a really important high growth channel, but Honest does not have a presence there to the degree we can.

Speaker Change: While you say the next phase, I would say we're really only just recently introduced you to the phase we are in. And the phase is working and we've got a lot of opportunity in order to deliver it by expanding into new retail accounts.

Aaron Grey: So, so those are key aspects of the modeling that hopefully provides some clarity there. No, that's great. We really appreciate the color there and I'll go and jump back into the few. Thank you.

Speaker Change: by expanding into aisles that we are not in. I always like to give as an example, because I think those of us that shop at some of these big boxes.

Laura Champine: Our next question comes in the line of Laura Shampin from Loop. Thanks for taking my question. It's a lot about the how so the track channel consumption outperforming the category this much seemed a little counterintuitive given that the macro pressure has caused. Trade down in a lot of categories. So I wanted to get a better sense of first of all just confirmed that baby products and wipes include strong performance for diapers and then to get a sense of, you know, how much of this outperformance came from e-commerce compared to brick and mortar.

Speaker Change: really spin a lot of places, but there are a lot of places we aren't yet. For example, the Dollar Channel is a really important high-growth channel. Honest does not have a presence there to the degree we can, so we see lots of opportunities in that way. We are also innovating in new need states. Our toddler flushable wipes are a great example of something that we know the potty training families need and want.

Carla Vernon: So we see lots of opportunities in that way. We are also innovating in new need states. Our toddler flushable wipes are a great example of something that we know potty training families need and want. And so we just recently shipped and introduced them last quarter. There is so much more opportunity for us to expand heroes and the format options and locations where you can buy them. So that's what I think you will continue to hear us talk about. And every quarter, there's so much opportunity for us to reflect on how those great partnerships are working with our retailers.

Speaker Change: And so we just recently shipped and introduced that last quarter. There is so much more opportunity for us to expand heroes and the formats, options, and locations where you can buy them.

Speaker Change: So that's what I think you will continue to hear us talk about and every quarter there's so much opportunity for us to reflect how those great partnerships are working with our retailers.

Carla Vernon: Hi, Laura. Why don't I give that a start? And, Dave, if I've missed anything, you feel free to layer on for me. Thank you. Good to hear your voice today. Our performance is one of the reasons I feel so pleased with the results. Is what you're seeing in the 10% growth that we demonstrated in revenue is really quite broad-based across the portfolio. In the remarks, I know we've highlighted the strength of our baby personal care category as well as our wife's category.

Kate Barton: Great, and then a little bit shorter term, I know you called out the sort of macro and category dynamics in diapers. As you look across the rest of your key categories, are you seeing any macro impact yet from changing consumer demand trends? And, you know, are you seeing any changes in retail or support for the clean or natural segment given the macro situation?

Speaker Change: Great, and then a little bit shorter term, I know you called out the sort of macro and category dynamics in diapers.

Speaker Change: As you look across the rest of your key categories, are you seeing any macro impact yet from changing consumer demand trends?

Speaker Change: And, you know, are you seeing any changes in retail or support for the clean or natural segment, you know, given the macro situation?

Carla Vernon: We continue to have a stronger role in the portfolio than has in previous years. And for diapers overall, I would say, we know that the diaper category has, as you said, some macroeconomic dynamics and category dynamics that haven't be a rather muted category. Relative to other categories in our portfolio, but we did a full share and grew 2% in diapers in diaper consumption this quarter. So we feel that diapers is playing the role as intended in our overall plan and is reflected as we look at the numbers that Dave talked to you about for the remainder of the year at about that 7% growth rate. Got it.

Kate Barton: Hi Kate Barton here. I'll take that one.

Speaker Change: Hi, Pete Barton here, I'll take that one. I will say first and foremost that our results of 10% growth in this quarter.

Kate Barton: I will say first and foremost that our results of 10% growth in the quarter really articulate and represent the strength of the Honest brand. And within that growth, we see our competitive set, not just in the natural categories but also within conventional. We are actually now the number one baby personal care brand in Target, and that is across all segments of baby personal care. And so, as we think about the consumer demand behind our products, I think that represents the relevance of the brand and the relevance of sensitive skin and clean options.

Speaker Change: really articulate and represent the strength of the Honest brand. And within that growth, we see our competitive set not just in the natural category,

Pete Barton: But also within conventional, we are actually now the number one baby personal care brand in target, and that is over all segments of baby personal care. And so, as we think about the consumer demand behind our products.

Pete Barton: I think that represents the relevance of the brand and the relevance of sensitive skin and clean options.

Kate Barton: And that's something that we don't think will go away over time. And even in the macroeconomic times that we find ourselves in, we still see that to be a very relevant consumer need that we are meeting. So, we are absolutely watching the macroeconomic environment, and that is factored into our guidance for the year ahead. But we also are very confident in our brand positioning and the part that makes our brand and our products different and special.

Dave Loretta: And anything on the channel mix that's notable e-commerce versus brick and mortar?

Speaker Change: And that's something that we don't think will go away over time, and even in the macroeconomic

Laura Champine: Yeah, hi, Laura. You know, our channel mix continues to be balanced with digital being largely through Amazon. That continues to be our primary digital channel for us. Consumption in the quarter was a high team, which we're happy with. And as we prepared ourselves for Amazon Prime Day, you know, there was some nice shipments out of the quarter to support that event with the two day event actually seeing some unit volume growth of little over 30%. So we're pleased with that digital growth and finding it to be the right balance for us and we expect that going forward.

Speaker Change: Times that we find ourselves, we still see that to be a very relevant consumer need that we are meeting. So we are absolutely watching the macroeconomic environment and that it's factored into our guidance for the year to go. But we also are very confident in our brand positioning and the part that makes our brand and our products different and special.

Eric Serrata: Great. I'll pass it on. Thanks. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourselves to one question and one follow-up question. Our next question comes from Shobhana Chowdhury from JMP.

Speaker Change: Great. I'll pass it on. Thank you.

Speaker Change: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up question.

Laura Champine: If you'll allow me just one more given that what you just disclosed, how do you drive growth like that? Is that just staying in stock was the product much better? Like why would you be able to service 30% unit growth on prime days?

Speaker Change: Our next question comes with a line of Shovana Chowdhury from JMP.

Shobhana Chowdhury: Hi, thanks for taking our questions and congratulations on a stellar quarter. Most companies that have reported this season thus far have commented on a more stressed consumer, trade-down dynamics, and a pickup in promotions. You did comment that you are going to be ramping up your marketing spend in the second half, but wanted to get a better sense of how much of it would be trade promotions versus marketing to bring about awareness and conversion. And also could give us a little bit more color on the trade-down aspects you're seeing in our categories. And I have another follow-up question as well. Thanks.

Speaker Change: i

Shovana Chowdhury: Hi, thanks for taking our questions and congrats on a stellar quarter.

Carla Vernon: Thank you, Laura. You know I always love to answer an Amazon question. Overall, what I think you are seeing works so well in our execution is how our transformation pillars are all coming together as a collective to deliver the strategy that we really have always had envisioned. What is helping our Amazon growth is, first of all, our products are very well suited and aligned for the broad base of Amazon shoppers. The honest brand has been one that has performed well at Amazon for a long time, continues to do so because what we have is what consumers are looking for.

Shovana Chowdhury: Most companies have reported this season the far commented on a more stress consumer, trade-down dynamics, and a pick-up in promotions. You did comment that you are going to be ramping up your marketing spend in the second half, but wanted to get a better sense of...

Speaker Change: how much of it would be trade promotions versus marketing to bring about awareness and conversion and also could give us a little bit more color on the trade down aspects you're seeing in our categories and I have another follow-up question as well. Thanks.

Carla Vernon: Shobana, nice to hear your voice. I think Dave and I should probably split this one. Some of the questions about where the investments will go and how we've seen the efficiency work, Dave will handle that. Trade down is an interesting one. As you look at our first half growth, our revenue of 7% overall for the first half, really with a capstone of our record revenue of $93 million in Q2.

Chobana: Chobana, nice to hear your voice. I think David and I should probably split this one. Some of the questions about where the investments will go and how we've seen these efficiency work, they will handle. Tray down is an interesting one.

Carla Vernon: That's why we grew 18% in consumption at Amazon in the quarter. These are also very important to have an effective supply chain strategy with Amazon in advance of something big like Prime Day or holiday. Our teams work very well in alignment with their supply chain teams to make sure we are prepared with shipments in advance of the execution. Because you do need to have shipments in order to make sure that you continue to perform well on page searches and on page views.

Speaker Change: As you look at our first half growth, our revenue of 7% overall for the first half, really with a capstone of our record revenue of $93 million in Q2.

Carla Vernon: What we've seen thus far is that the quality of the products we deliver and the consumer need is not only matched, but it's growing. And so, as we think about making sure that we make what Honest brings to bear more available, we have confidence that we have still not yet brought the Honest portfolio to its full scale of really being available in all of the places and all of the formats. What consumers are looking for in clean and sustainably designed products that we.

Speaker Change: What we've seen thus far is that the quality of the products we deliver and the consumer need is not only matched but is growing.

Carla Vernon: We also continue to make sure we bring our new products forward on Amazon. We know that Amazon has that infinite shelf, doesn't have the same physical limitations as the other retailers of brick and mortar. But Amazon is just as exciting when we bring something like our milk carton style gable top refills, those 32 ounce refills. When we launch those and are able to bring them to life both on Amazon and brick and mortar, that kind of new product introduction also drives growth rate for us in the e-commerce channel.

Operator: Thank you.

Speaker Change: and so as we think about making sure that we make what honest brings to bear more available, we have confidence that we have still not yet brought the honest portfolio to its full scale of really being available in all of the places and all of the formats.

Carla Vernon: Some of those trade-down dynamics we do need to keep our eye on, and that is, as Dave and Kate have said, it is reflected in our model that we understand that we always have to be aware of what's going on with consumers. We see more of that trade-down behavior happening from conventional products down to the lower value price products in the category rather than trading down from our products all the way to those value price categories.

Speaker Change: that consumers are looking for in clean and sustainably designed products that we have.

Speaker Change: Some of those trade-down dynamics, we do need to keep our eye on, and that is, as Dave and Kate have said, it is reflected in our model that we understand that we always have to be aware of what's going on with consumers.

Operator: As a reminder to ask a question, please press store 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press store 1-1 again. We ask that you please limit yourself to one question and one follow-up question.

Speaker Change: We see more of that trade-down behavior happening from conventional products down to the lower value price products in the category rather than trading down from our products all the way to those value price.

Carla Vernon: But we do think that the role of larger sizes plays a very important role in consumers getting the value that they need, which is why we are very pleased that a lot of the growth that we are delivering is demonstrating that if we can provide our hero product in larger and more value sized options, that's another great way for people to get into the honest collection. Dave, maybe you want to answer about some of the trade specific questions. Yeah.

Speaker Change: categories, but we do think that the role of larger sizes

Owen Rickert: Our next question comes from the line of Owen Rickert from Northland Securities. Hi, Carla. Hi, Dave.

Speaker Change: plays a very important role in consumers getting the value that they need, which is why we are very pleased that a lot of the growth that we are delivering is demonstrating that if we can provide our hero products in larger and more value-sized options, that's another great way for people to get into the Honest Collection.

Owen Rickert: Congrats on the stellar quarter there. I just have a quick question in terms of subscriptions. Is there anything to call out there in our descriptions, continuing to become a bigger part of the picture and are they growing in some of the other segments, maybe the size, type, or is in white? Thank you. Oh, and it's so great to hear from you.

Dave Loretta: Yeah, absolutely. I think, first of all, we can say we're pleased with how we deployed the investments in the second quarter, driving $93 million in revenue growth. So it was a balanced approach in this period that we want to apply in the back half of the year. I would expect that trade promotion dollars to increase anywhere from 15% to 20% in the back half of the year relative to the first half. And that's going to be really targeted by the customer, the retail customer, and the product category that we want to gain some momentum in. So those are very strategic in how they come about.

Speaker Change: Dave, maybe you want to answer about some of the trade specific questions.

Dave Loretta: Yeah, absolutely. You know, I think, first of all, we can say we're pleased with how we deployed the investments in the second quarter, driving the $93 million.

Carla Vernon: This is Carla.

Kate Barton: I'm also going to introduce that with us on the call is our Chief Growth Officer, Kate Barton. Kate manages all the portfolios individually.

Dave Loretta: and Revenue Growth. So it was a balanced approach in this period that we want to apply in the back half of the year. I would expect that trade promotion.

Carla Vernon: I will just start this to say, I love that you ask that question. I don't know if you know, but I used to work at Amazon running these categories. And while honest was a pioneer in the subscription business through our own honest.com channel, we also have a very strong Amazon subscribe and save subscription business. That's not something we break out separately in our numbers. I don't know if Kate wants to build any new ones to that of how we're working with Amazon, but subscription is very important to the way a digital shopper shops today and we're in a great position there.

Dave Loretta: Dollars.

Dave Loretta: are flexible to increase anywhere from 15% to 20%.

Dave Loretta: in the back half of the year relative to the first half and that's it.

Dave Loretta: This is going to be really targeted by the customer, the retail customer, and the product category that we want to gain some momentum in. So those are very strategic.

Dave Loretta: And our sales team, having that kind of flexibility and ammunition to drive velocity through trade promotions is a critical element to that. Marketing, I also mentioned the increase that we've got available to us to do there. That'll be a balance across brand awareness investments to make sure that the honest brand continues to be relevant in all media channels, and we're seeing, as Kate mentioned, great results from the traction that those brand awareness investments have on retail marketing.

Dave Loretta: in how they come about, and our sales team having that kind of flexibility and ammunition to drive velocities.

Kate Barton: Hi, it's nice to meet you. As Carla said, I'm Kate Barton and Chief Growth Officer. To answer your question, our subscription model business on our own honest.com site continues to be a robust part of that business. It's a diaper than white subscription, which conveniently packages them together. And it will continue to be ongoing a part of our honest.com strategy for the rest of the year. All of our stay on honest.com are subscription.

Dave Loretta: through trade promotions is a critical element to that. Marketing, I also mentioned the increase that we've got available to us to do there. That'll be a balance across

Dave Loretta: Brand Awareness Investments.

Dave Loretta: to make sure that the Honest brand continues to be relevant in all media channels, social media channels, and we're seeing, as Kate mentioned, great results.

Kate Barton: from the traction that those brand awareness investments make.

Kate Barton: We actually have our whole portfolio on honest.com where you can buy our adult skincare products as well as our baby personal care. And so what we try to do is keep it consumer first and ensure that the options that we see consumers asking for are available. Great. Thank you. Very, very helpful.

Dave Loretta: So working with our retail customers on marketing within the store and on their digital presence to drive customers into the stores. So it'll be very much of a balanced approach, but the good thing is we've got the ammunition to apply for that back half of the year will be strategic in how we invest.

Kate Barton: but also specific to retail marketing. So, working with our retail customers on the marketing within the store and on their digital presence to drive customers into the stores.

Kate Barton: So, it'll be very much of a balanced approach, but the good thing is we've got the ammunition to apply for that back half of the year, and we'll be strategic in how we invest it.

Kate Barton: And then quickly as a follow-up, obviously some increased marketing spend this quarter and going forward. But in terms of that marketing strategy, what channels are succeeding? And is there anything to call out maybe for the remainder of the year in terms of that marketing strategy?

Shobhana Chowdhury: Thanks for the color. And I think you mentioned that you got space, additional space in Walmart. Can you give us a sense of how much more it was before and what you will be? You've been awarded. Thanks.

Speaker Change: Thanks for the color. And I think you mentioned that you got space, additional space in Walmart. Can you give us a sense of how much more what it was before and what you'll be, you've been awarded? Thanks.

Kate Barton: Wonderful. I'll take that one as well. In our investor presentation, we actually showcase some of the improvements that we've made in our marketing model and some of the improved broads that we've had quarter over quarter. We have an incredible team that works cohesively across, paid, owned, and earned to have a full funnel modern approach. We are a company of innovators and we will continue to innovate and stay modern as the marketing landscape of all.

Carla Vernon: We don't comment retailer by retailer on space gains, but what I can tell you is that in Q2, our distribution grew 5% across the board in our tracked channels. So that distribution expansion is through, again, a number of approaches we take, whether that is distribution gains by gaining new stores in retailers, introducing new items into those retailers, or even sometimes just expanding the hero portfolio so that there are multiple sizes and offerings in a given hero collection.

Speaker Change: We don't comment retailer by retailer on space gains, but what I can tell you is that in Q2, our distribution grew 5%.

Speaker Change: across the board in our tracked channels. So that distribution expansion is through, again, a number of approaches we take, whether that is distribution gains by gaining new stores, in retailers, introducing new items, into those retailers, or even sometimes, just expanding the hero course polio so that there are multiple sizes and offerings.

Kate Barton: But we are very pleased with the results that we're seeing in our consumption and Thank you for your messaging. We feature a few real products. And really feature what's unique and special about the Honest brand. We're excited about our Q3 campaign that's launching right now. And so we just continue to use that as a word for growth as we're finding it to be very effective and efficient. Awesome. Thanks a ton, guys.

Operator: Thank you.

Shobhana Chowdhury: Thank you. One last question, if I may. You called out pressures in the diaper category, and I wanted to get a sense of, like, if you could give us more color and track channel show, like significant market share gains for brands like Millie Moon and Rascal and Friends. Can you please comment on some of the dynamics you're seeing in this category and what you are doing to overcome the pressure?

Dave Loretta: and a given hero collection.

Speaker Change: Thank you, one last question if I may. You called up a pressure-sman diaper category and I wanted to get a sense of like if you could give a smart color and track channel show like significant markets share games or brands like Millie Moon and Rascal and Friends, can you please comment on some of the dynamics you're seeing in this category and what you are doing to overcome the pressure. Thanks.

Eric Serotta: Our next question comes from the line of Eric Serotta from Oregon Stanley. Hi. Good afternoon, everyone.

Kate Barton: Thank you for the question. The diaper category is one we are all watching very closely. It is one that has had slower total growth as a category overall, and we're absolutely watching the competitive activity across innovation, trade, and new entrants. I won't comment on any competitor in particular, but I will say that our diapers grew, as Carla mentioned earlier, 2% in net revenue in the quarter and was a contributor to the growth, but it is one that we are cautious on going forward and are watching very closely.

Carla Vernon: And congratulations on a great quarter. Carla, as you know, we're approaching, I think it's a year and a half on the job. Significant progress on the turnaround over, you know, particularly over the last several quarters, but you know, Chloe didn't happen overnight. You know, as you look ahead, how do you think about sort of what the next phase for Honest is going to be. And then, you know, a little bit more concretely. You know, how are you thinking about driving household penetration in your existing categories. You know, clearly you've made a lot of progress, but there's a lot of white space ahead.

Speaker Change: Thank you for the question. The diaper category is one we are all watching very closely. It is one that has a slower total growth as a category overall, and we're absolutely watching the competitive activity across innovation, trade, and new entrants.

Speaker Change: I won't comment on any competitor in particular, but I will say that our diapers grew as Carla mentioned earlier 2% in that revenue in the quarter, and was a contributor to the growth, but it is one that we are cautious on going forward, watching very closely, I'm very proud of our team and how they're executing, and I believe we have the right strategy within the diaper category, as it continued a holding growth share, but all of that is reflected again in our guidance for years ago.

Kate Barton: I'm very proud of our team and how they're executing, and I believe we have the right strategy within the diaper category to continue to hold and grow share, but all of that is reflected again in our guidance for a year to go.

Carla Vernon: Thank you. Eric, hi. It's great to hear your voice. Thank you for celebrating that year and a half milestone. What I will say is results like this are a team sport, absolutely. And the first thing that I look to as I look out at. That's really is ground in that concept we've talked about a few times previously, which is this operating discipline mindset that our third transformation pillar brings to life internally.

Shobhana Chowdhury: Thank you. I'll pass it on.

Carla Vernon: Thank you. At this time, I would like to turn the conference back over to Carla Vernon for closing remarks.

Elizabeth Bouchard: and Steve Austenfeld, David Loretta, Elizabeth Bouchard, Elizabeth Bouchard, Elizabeth

Speaker Change: Thank you. I'll pass that on.

Speaker Change: Thank you. At this time, I would like to turn the conference back over to Carla Vernon for closing remarks.

Operator: Thank you so much to everyone who joined us today for the call. We really appreciate it, and we look forward to joining you next quarter with updated results.

Carla Vernon: Thank you so much to everyone who joined us today for the call. We really appreciate that and we look forward to joining you next quarter with updated results.

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

Carla Vernon: We call that our FIPO mindset. So we expect ourselves to operate and focused, accidentally excellent, fast and aligned. So we've articulated a strategy that will serve us in an evergreen way for a long time to come that's based on availability of our strong hero portfolio and continuing to build out the items in our strong hero portfolio. But I'll say that the availability, it's still early days for us. So when we think at the item level for some of our, even some of our top performing items, I'll use our lavender bubble bath as a great example.

Speaker Change: This concludes today's conference call, thanks for participating, you may now disconnect.

Carla Vernon: While you will see in some of our presentation materials that as an enter, we have 85% ACV availability that's looking at the entire portfolio of the collection. Any individual item though is rarely at that high level. Our lavender bubble bath as a great example to double. A classic popular skew that really appeals to our core demographic is only available in 35% of retailers right now. And that's a skew. We know we love it.

Carla Vernon: It works. We've introduced a gable top refill. That's how confident we are in where we have to go. And I would say that while you say the next phase, I would say we're really only just recently introduced you to the phase we are in. And the phase is working and we've got a lot of opportunity in order to deliver it by expanding into new retail accounts, by expanding into aisles that we are not in.

Carla Vernon: I always like to give us an example because I think those of us that shop at some of these big boxes, really sent a lot of places. But there are a lot of places we aren't yet. For example, the dollar channel is a really important high growth channel. Honest does not have a presence there to the degree we can. So we see lots of opportunities in that way. We are also innovating in new needs states.

Carla Vernon: Our toddler flushable lives are a great example of something that we know the pie training families need and want. And so we just recently shipped and introduced that last quarter. There is so much more opportunity for us to expand heroes and the format options and locations where you can buy them. So that's what I think you will continue to hear us talk about.

Carla Vernon: And every quarter there's so much opportunity for us to reflect how those great partnerships are working with our retailers.

Kate Barton: Great. And then a little bit shorter term. I know you you called out the sort of macro and category dynamics and diapers. As you look across the rest of your key categories, are you seeing any macro impact yet from changing consumer demand trends?

Kate Barton: And you know, are you seeing any changes in retail or support for the clean or natural segment, you know, given the macro situation.

Kate Barton: Hi, Kate Barton here. I'll take that one. I will say first and foremost that our results of 10% growth in the quarter really articulate represent the strength of the honest brand. And within that growth, we see our competitive set not just in the natural categories, but also within conventional. We are actually now the number one baby personal tear brand in target. And that is over all segments of baby personal hair. And so as we think about the consumer demand behind our products, I think that represents the relevance of the brand and the relevance of sensitive skin and clean options.

Kate Barton: And that's something that we don't think will go away over time. And even in the macro economic times that we find ourselves, we still see that to be a very relevant consumer needs that we are meeting. So we are absolutely watching the macro economic environment in that is factored into our guidance for the year to go. But we also are very confident in our brand positioning and the part that makes our brand in our products different and special.

Eric Serotta: Great. I'll pass it on. Thank you.

Operator: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask you please limit yourself to one question and one follow-up question.

Shovana Chowdhury: Our next question goes to the line of Shovanna Chowry from JMP. Hi, thanks for taking our questions and congrats on the stellar quarter. Most companies that reported this season were commented on a more stress consumer trade-down dynamics and a pickup in promotions.

Carla Vernon: You did comment that you are going to be ramping up your marketing spend in the second half, but wanted to get a better sense of how much of it would be trade promotions versus marketing to bring about awareness and conversion, and also could give us a little bit more color on the trade-down aspect of yourself. So I think we're seeing in our categories and have another follow-up question as well, thanks. Shovana, nice to hear your voice.

Carla Vernon: I think, David, I should probably split this one. Some of the questions about where the investments will go and how we've seen the efficiency work, what a day will handle trade-down is an interesting one. As you look at our first half growth, our revenue of 7% overall for the first half, really with a capstone of our record revenue of $93 million in Q2, what we've seen so far is that the quality of the products we deliver and the consumer need is not only matched but is growing.

Carla Vernon: And so as we think about making sure that we make what Honest brings to bear more available, we have confidence that we have still not yet brought the Honest portfolio to its full scale of really being available in all of the places and all of the formats that consumers are looking for in clean and sustainably designed products that we have. Some of those trade-down dynamics, we do need to keep our eye on and that is as Dave had in Kate has said, it is reflected in our model that we understand that we always have to be aware of what's going on with consumers.

Carla Vernon: We see more of that trade-down behavior happening from conventional products down to the lower value price products in the category, rather than trading down from our products all the way to those value priced categories. But we do think that the role of larger sizes plays a very important role in consumers getting the value that they need, which is why we are very pleased that a lot of the growth that we are delivering is demonstrating that if we can provide our hero products in larger and more value sized options, that's another great way for people to get into the honest collection.

Carla Vernon: Dave, maybe you want to answer about some of the trade-specific questions. Yeah, absolutely. I think, first of all, we can say we're pleased with how we deployed the investment in the second quarter, driving the 93 million in revenue growth. So it was a balance approach in this period that we want to apply in the back half of the year. I would expect that trade promotion dollars are flexible to increase anywhere from 15 to 20% in the back half of the year relative to the first half.

Carla Vernon: And that's going to be really targeted by the customer, the retail customer, and the product category that we want to gain some momentum in. So those are those are very strategic in how they come about and our sales team, having that kind of flexibility and ammunition to drive drive velocities through trade, trade promotions is a critical element to that marketing. I also mentioned the increase that we've got available to us to do there.

Carla Vernon: That will be a balance across brand awareness investments to make sure that the honest brand continues to be relevant and in all media channels, social media channels. And we're seeing, as Kate mentioned, great results from from the traction that those brand awareness investments make, but also specific to retail marketing. So working with our retail customers on the marketing within the store and on their on their digital presence to drive customers into the stores.

Carla Vernon: So it will be very much of a balanced approach, but but the good thing is we've got the we've got the ammunition to apply for that back half of the year will be strategic and how and how we invest. Thanks for the color. And I think you mentioned that you got space, additional space in Walmart. Can you give us a sense of how much more what it was before and what you will be you've been awarded?

Carla Vernon: Thanks. We don't comment retailer by retailer on space gains, but what I can tell you is that's in queue to our distribution group 5% across the board in our track channels. So that distribution expansion is through again a number of approaches we take, whether that is distribution gains by gaining new stores in retailers, introducing new items into those retailers or even sometimes just expanding the hero course, polio so that there are multiple sizes and offerings in a given hero collection. Thank you.

Carla Vernon: One last question if I may, you called out of pressures and diaper category and I wanted to get a sense of like if you could give us more color and track channel show like significant market share gains for brands like millimoon and rascal and friends can you please comment on some of the dynamics you're seeing in this category and what you are doing to overcome the pressure. Thank you for the question.

Carla Vernon: The diaper category is when we are all watching very closely and it is one that has a lower total growth as a category overall and we're absolutely watching the competitive activity across innovation trade and new entrance. I won't comment on any competitor in particular, but I will say that our diapers grew as Carla mentioned earlier 2% in that revenue in the quarter and was a contributor to the growth, but it is one that we are cautious on going forward watching very closely.

Carla Vernon: I'm very proud of our team and how they're executing and I believe we have the right strategy within the diaper category to continue to hold and grow share, but all of that is reflected again in our guidance for a year to go. Thank you all. Pass it on.

Operator: Thank you.

Carla Vernon: At this time, I would like to turn the conference back over to Carla Vernon for closing remarks. Thank you so much to everyone who joined us today for the call. We really appreciate that and we look forward to joining you next quarter with updated results.

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

Operator: Thank you.