HNST - Earnings call 4 2023 | The Honest Company, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to The Honest Company's Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Elizabeth Bouchard, Senior Director, Investor Relations at The Honest Company. ahead. go Please

Elizabeth Bouchard

and XXXX everyone, for our joining Good call. thank quarter conference fourth afternoon, you

Joining Carla Kate today our Growth me are Chief Dave Executive Officer. Financial Loretta, Officer; Officer; and Barton, Chief Vernon, our our Chief

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

These our results results Please forward-looking to risks issued to no also any cause undertake required opinions our as these and this affect forward-looking description except our number events, uncertainties and detailed the the of of obligation release these more as of by of statements involve information may statements to our that a risk SEC results. light that statements law. as could release a that the of call, filings publicly only today earnings refer of date Please note new actual as in or well we future materially. for forward-looking revision revise or differ to factors reflect

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

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

Carla Vernon

hope achieve On you thank several today's and objectives. everyone, call, joining for afternoon, Good us Elizabeth. today. to we Thanks,

close the and our XXXX. financial excited out successful on First, we us leave results share key strengthened fourth as to quarter for milestones that details we're

for key share of long-range XXXX. detailing company algorithm and differentiated will we new attributes the Second, long-term our our our growth. strategic our financial And a outlook drivers for we provide third, and update will

our on discussion investor complement our Relations presentation find today, available please To new website. Honest Investor

first CEO tremendous proud of that the of my I'm acknowledge on I been corner change. the a year round has must The Honest Company, XXXX today, year of I as will but results share we As extremely

when with I were mindset. quickly to went past were year a results. As a teams in action ago, Initiative a our new I we with operating our not was transformation, you define and a our mentioned company Transformation need of satisfied and into We

our our As culture a result strengthened of and we efforts, team business performance, financial results. these our

points margins meaningful our way our margins and EBITDA adjusted among QX, quarter. net major expanding doubling most XXXX team alignment clarity the since quarter double-digit on and by position and We income. growth our our goal positive and honest achieved year-over-year basis in the our the XXX top this include profitability These is to business milestone But improvements positive cash by collaborated delivering our a year gross goals. also in line while fourth driving accomplishments expanded achieving focus, ambitious drive

the for a they So even thank and and ways remarkable our strengthened this delivered commitments team want their entire to take culture to audit our year. I moment that exceeded

balance exited transformation strong marketing Operating contributed to clear sales, business a path dollar Our sheet growth and ongoing each meaningfully of and a Enhancement XXXX Brand units to improvements. have Margin profitability. and both pillars Discipline model initiative our in We efficiency, Maximization, healthier with

Standard. a XXXX And brand, of will and crossed future, clear the fourth details continues the growth shown which threshold to for and grow advance ideals residents brand challenges X%. has now our of and confident vision our Dave power to the scale, our of growing our through turn our industries that with strong financial over I'll ingredients, And our of courageously consumer company I'm that stronger quarter now we the I Honest household relevance it our our continue outlook. Honest penetration, the a as as mission foundation, to team in by personal to care share and and

David Loretta

and Carla, you, welcome, Thank everyone.

over and to operating XX turnaround significant share achieved last both months we foundation. in margins Our growth, year team's for fourth will has improving the build as work strong and a also reducing trends us continue update. the the in expanding a expenses. and expect full gross XXXX we the and helped today strategic company, We our quarter XXXX period for beyond to marked revenue XX% financial while financial as We XXXX,

into But me quarter the results. fourth deeper dive first, let

of we and delivered the and by quarter, consumption strong implemented increases the Digital This channel, portfolio increased course driven price XXXX; Amazon; XX%, due robust velocity distribution $XX a including in the revenue up record of greater at million, growth across over to high both volume results gains.

by By innovation, distribution, in momentum sales pack the growth new Wipes Wipes. product our new especially and larger increases our increased including category, Diapers XX% through fourth was wipes. strong revenue in price and driven sizes the quarter in flushable quarter, velocity, strong Wipes increased and

Next, X% our strong in low-margin growth personal baby offset exiting Skin in partially and in This channels. Personal due consumption to distribution by care. the Care quarter was revenue declined

baby as at our natural category. Walmart the brand breadth the remain we personal of fact, #X products Target in continue baby we grow and In to care

And increased baby the revenue the Household and business. strong clothing quarter, in fourth XX% reflecting finally, of Wellness our performance

by fourth growth Digital increased Turning meaningful XX%, in the quarter. to by Amazon. revenue results with channel driven

continued partially benefited new into low-margin from chain improved offset Our distribution return planning. supply by and has Retail marketing outlets. due distribution X% retail Amazon revenue from decreased in business exiting benefit high channels, to

lower over and SG&A represents efficiency first last was compared basis from XXXX points highest up improvements margin in quarter of XXX our expenses. the decreased to of from to XX%, basis XXX Operating reflecting This quarter and points fourth higher fourth years. cost fourth pricing. the gross quarterly million in gross due from the quarter and expenses Our in year, $X the savings margin year X marketing quarter last

Adjusted the first the EBITDA This $X the operating time quarter as was fourth achieving resulted positive this surpassed marking company. also income positive our quarter, million, in a original public which for guidance. for

the balance the our in end to sheet. position $XX doubling cash at with Turning of ended of XXXX. quarter cash, the $XX than more million million We

for positive also the consecutive quarter. cash operating achieved We flow third

cash position Our in inventory. improved from reductions significant discipline in working capital, including continued managing

For while XXXX, inventory million, by growth. revenue was or $XX supporting reduced XX% also XX%

debt the With Overall, turn Our strong direction to XXXX. in results balance strengthen confidence our today. remains our X that, sheet outstanding. outlook are strategic we sharing for annual with these let's

low range. revenue mid-single-digit in single-digit millions year percentage low includes to full XXXX adjusted growth EBITDA outlook financial to mid-single-digit Our and the positive

a year to second to and first retailer the of softer low-margin expecting an are half and patterns We improved channels. ordering compared distribution half exiting due

back growth in timing our half due distribution of the revenue of We year and new gains to expect higher launches. product the innovation

derived operating expense improved expansion and leverage. Our adjusted includes margin EBITDA gross from outlook operating margin

to continue our order will in We envision pillars of XXXX of transformation XXXX financial year strategic Our and foundation enable to growth. beyond. growth in as a strengthening accelerate profitable our continued

vision I the Carla now to And Honest's our will turn discussion for over to chapter. next back share

Carla Vernon

a work of the comprehensive look for at in and XXXX great the you overview ahead XXXX. team's Thank

modern is our updated vision We truly share times. for to for company Honest pleased built I'm a believe company. consumer products Now the

out elements products. improved to higher in the Honest and clean foundation, we of was design position Honest a born a sustainable we ingredients have standard bring brand. of personal further financial Now an the great and are to a that care desire distinctive baby for to unleash

that principles puts And At is to this our how on guides day, that a to of Standard set we compass we Honest, expectations. Standard. our This begins sell guiding with action. ingredients. product Honest into standard standard every hold always The deliver the clean consumers' the we Honest is mission

care is by presentation, expected XXXX, double in to sensitive for market. is skin today's noted $XX the products which billion be As market we billion nearly our investor $XX

XXXX. allergies the nearly children distinguishes is our by of Additionally, and concern X,XXX portfolio products. of than entire since from more chemicals skin our itself presence eliminating why This has in materials doubled

Standard success ingredients. EU U.S. dictated is approach strict benchmark by beyond but a our to restrictions own the more Honest our goes than either or regulations, Our

categories reshaping and ways. in other are revolutionizing We

gifting For to a example, care level. baby approach bath diaper take baby baby revolutionized that matching we've seasonal inspiring rituals apparel, our new whole time and to fashion-inspired baby with prints, wellness

period of natural data, brand Circana baby ranks Honest the recent #X care. as most in the In

successful launch Amazon's is plant-based which our flushable climate brand friendly Mascara, is leading adults they the Lengthening themselves. Extreme With our wipes we of use the of have and to as mascara, for great the that pledge Honest success products meaningful that seen

consumers and studied are and we define cornerstone Honest performed that do a market strategic opportunities. with set that are the people preferences evidence, confident broad the conversations the use who With was the not. and thousands in demand. of to people and research who of of we We This comprehensive products means growing needs Honest hosted landscape of personal business this needs

opportunity, vision scaling introducing crafted have Through our the as brand builder. continued assessment a of continue strong to of by consumer modern needs leadership the a available we entering of brand Honest innovation, clear the categories distribution, and the growing power new how and

it this while I our now disciplined this long-range growth to back and our financial We share algorithm, vision operating turn To mindset. maintaining will do will more on and detail over Dave.

David Loretta

drive ensure principles growth. distribution scalable We profitable, availability; profitable velocities; management cost underpin modern our to include elements: that Carla. key X expand long-term to believe to for key building Thanks, the growth plan brand and

within First, distribution.

to available These opportunities new We multifaceted growth will current retail distribution the opportunities include retailers. are through us. and distribution our at maximize extensive and partnerships

further Target current long-standing toiletries, other a opportunity for and recently Target expanding and in-store we partnership space shelf with expansion with see have baby and We retailers. retail our

runway new see our a expansion including We also Walmart. for with retailers,

the to We underpenetrated shown remain to still but distribution, ability competition. have grow an relative

segments, example, beauty including to with have in retailers. and more specialty more channels opportunity drug expand discount, we large an For club, and grocery retailer

through with retailers. and an addition, aisles expand expanding In shelf doors, distribution and facings opportunity we new stores to to have current

number SKUs In less leading has than than on categories, Honest fact, shelf in competitors. half the of most

growing moisturizing is are our distribution One ACV. which underpenetrated. cream, hydrogel items, top-rated less our than best-selling XX% is opportunity has Another which we example hero believe

We categories within aisle on will support to our are and product the also beyond. Innovation increased core innovation focused availability. adjacent our objective baby bringing new of and

that And mentioned, the significantly opportunity care consumer indicates care expected research universe. aisle. than market we categories natural in category. into within grow personal care personal Carla Honest the the personal is care broader new As baby is brand a large take than larger personal to to have opportunity faster The the

driver brand-building be building. focused approach. velocities To targeting, our supported modern velocities, The brand by messaging strategy improved of be a ways connecting. best-in-class consumer will we'll This accelerate marketing include clear and penetration, second and modern differentiated with of our will key growth on

revitalizing effectiveness key media, cutting-edge our campaigns. creative be images to Our creators paid our and amplify marketing will by leveraging more activating tailored content

the quadrupling of that are by We of new in brand have number QX. see started Amazon already enhancements our to benefits these at new to households

is of third The cost driver profitable management. growth focus on an ongoing

We margins on improving portfolio. committed We remain will results. expanding on cost savings of the the progress and through in build improved our made we mix to financial gross XXXX

we across path to the will with gaining actions, and with sustainable positive Similarly, to spend operating will margins grows nonstrategic our reducing began and line scale. as operating continue cost of leadership bottom a put which we than faster benefits us These the structure team, the efficiency line. improve top a from new that leverage fixed on

financial updated financial X% value well annually as adjusted This Operating This Together, for Maximization, transformation creation. grounded our our and pillars long-term revenue blocks Enhancement us continued strategic of long-term which brings our growth algorithm, frameworks of set Margin expansion. view introducing these in building as and expected long-term Discipline. is Brand includes margin new plan EBITDA X% to the to

outlines on detail. more I goals the over a the And leading and review realize strategic encourage that remain company. modern to vision we can the to profitable presentation stabilizing from confident CPG In in growth last our turn to our build we operator. now results I'll that updated you call continue closing, the year as investor

Operator

Instructions] first Global question [Operator Aaron comes Our Partners. Alliance of Grey of from line the

Unknown Analyst

the questions. quarter for here, thank and you Nice

the Amazon terms top line, the It like paid quarter. dividends. some looks a investments in of had Just Digital nice of

of levers going number a to driving pointed You forward. growth

versus look distribution guidance, Digital? sales term we and long-term about channels the leverage your about long of how so think as So our should pull between term XXXX brick-and-mortar you think to to we in as near more in how the

you color can any believe pulled? a for pricing on much be of you lever also And is to there more how then provide

David Loretta

Dave Aaron, here. this is

from balanced Amazon, of Digital a opportunity a success lot that We of got are reflect we looking just does that at some with us, future some you the which us. have saw that growth model was strong the in was big driver fourth that continues a for the for and quarter. to

being top growth be the of with a line, Digital So with the will big distribution as a be largely brick-and-mortar of distribution -- long-term channel that opportunity a balance balance component about and continued between talked that Amazon. I

in entering new So and which those presentation, you can of I of between even stores, playing the opportunities. within see the how stores outlined number and out see facing locations that we investor the elements shelf distribution increasing

those about the opportunities beyond. growth for that see us XXXX in really maximizing it's driving And we and

think In to strong in growth top terms a but line gives lot the faster I than you look us advantages And for foundation And potential that model. set the as a of time. driving us growth, We're of, of to future. top the between long-range line shared, that bottom I think leveraging line. we balance a brand the it's said, beyond at going for our period up

Unknown Analyst

Okay. appreciate Great. it. Really

for Second quick one me.

and Just there drive the be behind rate, make you growth run might EBITDA for implies it current some based plan on the guidance investments the to year. the brand

So uptick color in would appreciated? any might be have build otherwise, you year terms to in innovation, or greater drive of awareness it in brand investment the planned

David Loretta

Yes.

strong quarter I the model that think we're is line was allows with drop the what And to it revenue bottom revenue illustrates proud incremental period, period. $XX the results. million. to a of really that really It in power the fourth

and from a sight Now year. particularly for be do it have line. will called looking half EBITDA of I'd forward, soft positive straight top we full some out line. first I periods, year the say, adjusted we're a wouldn't paint the There clear as But the on

drive We're are and to just that expecting we're able flexibility for that to in to we're are And to the get terms But be going might to -- through going in to we demand help of have top this be in line periods maintain investments that side. investments pressures there maintain innovation to maintain drive to going marketing. R&D flexibility model continue consumer momentum.

say on in I we're that that the through conditions is that provided and that So that might see something would we year we -- full we face. outlook EBITDA adjusted can weather any confident

Operator

comes JPM. next Our from of Chaudhry line the Savanna question of

Unknown Analyst

quarter. the on Congrats

focus big distribution a So is on gains.

us So if a -- onwards. second you gains give you retail of had half can please 'XX tremendous distribution

when And current distribution space you shelf So what space -- can you give frame? much please time us looks like? of And of how a sense kind more your expecting? what do you're

that from question, Are doing And getting of believe we started part a in resets question. as And there? have Walmart the you summer. any space another additional I

Carla Vernon

it's going. been distribution we joining call the hear the we've to put the Savanna, so for sure the Thank you Carla. to I'd you in really take and question voice. your and of love the thank journey journey make questions. It's that about on context today, and great we're that much for

slide no, the There's excuse talks and we've a that As points distribution fact think distribution you got of in further the total CAGR can I since really about for or that Page presentation it's not Page XXXX so, year reflects XX, see in XX XX% in -- the that. on or XX% that me, a document. the investor it's about

most in we driven for grew lot not at a recent was But period year, the so. X% of distribution exclusively that rate. by this Walmart, A

portfolio look have categories we of that we many been overall, distribution in in though the presence of have a portfolio into or However, Target there. your is quite doors. that opportunity even our we your big we and like in and do all our When stores mega we other our not large at retail Walmart, instances, all chains getting know have

in on we shelf, category, about even have we us look for diaper and our presence the in at when example, the of XX% only is key competitor our in skin about care. facial ratio in the same shelf of wipes that That presence same For category.

our -- opportunity we an when even versus So that we what know faced in at under are are we really is. aisle,

conversations going on have retailers. our We great with

very and plan will add-up quarters aisles to new we as sight within We numbers. the banners, line the those really distribution doors Dave banners, broader clear to new to of back how you in give said, come have will coming the exact a new unlock, of

Unknown Analyst

single to base like believe low the high previous about quarter, -- something or in quickly in pretty then I the data. -- were the it's digits. mentioned And had wanted I track just track to digit remain on channel showing recently, touch channel expecting double you you so. And data mid-single, most high but

track please the we and uptick well? can point, could on data distribution you If comment an as how gain as your quickly in channel see see that you how to you

Carla Vernon

I I'll know. if start let miss Dave, this me off. anything, please And

in know total. you the XXXX about we XX% benefit of a to the question. for some shifts for brand retailers don't XX% was for we the of well, or pipeline behind lapping some gotten. ACV second the retailers of I as very find those year the What ACV from timing remember part ourselves distribution new build instances we've overall got the As is of an either -- going timing

David Loretta

current of single in overall digits, With the business. track channels the consumer are channel, the more channel seeing that those in is that high of which what a which reflection spend XX% our track about is we're Well, part of area.

Carla Vernon

our growing consumer as you've about Yes, -- such consumer the space, in really not happening distinctiveness overall, the growth. us over when what's the brand top about the that serve our still the have able a good what feel still even they're really we needs, dollars years, for best watching making delivered which their us. for we're are we're feel velocity demonstrate distribution, on actually to products indicator On but and good growing we great units last that of is been with additional year, we is about brands advances choices consumers only these of that values X.X both price as that which,

Operator

of comes question Champine next Our line of the Loop. Instructions] [Operator Laura from

Laura Champine

achieving lot ask profitability of we expect that flattish bit or faster beat should which wanted Or about quarter than our little A also Is came on year. and cash worse Congratulations that the repeatable inventory even in expectations free we a expecting. were XXXX? event? to from though. a cash in free I flow, an drawdown the flow

David Loretta

the 'XX right earnings cash cash balance the to of $XX will inventory well think as certainly, we have that flows a gain better us. that I expect opportunity fourth generated strong and say, in 'XX, were rightsized it cash gains quarter flow flow of in million. the on size course that results kind the that just pretty not are Laura, land inventory the do was pronounced, as, that I'll year. We over to demand of to the of levels front do our

to we'll be managing so what cash free don't And that but to positive. keep we can, flow out eke we expect

And $XX want The of cash that on. in additional ending cash that we're ability flow. in and our have balance cases to call costs any we would million, to certainly do we'll needs are XXXX already of at hard cash see out that to expenses the through But related cover today, are XXXX, those flow year. I where the positive have legal reported some items balance we the will and costs impact

will not that flow it the to very 'XX. be of cash in down, flat generated kind So we've positive slightly but

Laura Champine

it. Got

adjusted cash, the but not today, correct? impact will that So provided that outlook EBITDA obviously you

David Loretta

add be an back. would That's correct. That

a is it but outflow. -- cash so And

Operator

question comes of Telsey the Telsey from next of line Advisory. Our Dana

Dana Telsey

the mindful launches? Is are the of and line distribution? XXXX in new it? given half puts and you see as you something half? EBITDA How the as year, second we it you the year, you year, the on first comparisons top do about and the versus drivers half takes the categories Is guidance with growth thinking of? what the about think we about adjusted through any the as tougher And of the think go second gave should the then the of in half second it be As with the you

Carla Vernon

us This think you. hear Thanks great today. I joining is -- Carla. it's for Dana, to

we'll think take two I those parts. in

in about really how talking this by all can think the our on you few about growth map. within overall the Page road would investor over context out X, as start say presentation articulate we a see still we me course years, our our Let I of of journey right? fits --

Maximization a been And still candid we've of that foundation there really year a at helping do -- that, work Discipline activities pillar. the our and some those transformation pillar; results. our so and Enhancement that about Operating XXXX mean we're XXXX, for was and in Brand our that our us. X And drive I Margin proud We strong core stable think to We absolutely our we vein defined really continue hard of that pillar; and as to very in are still pillars: we will portfolio. want as believe of

break the talked at really in hero about in We that defined or call really items CPG every of our before -- only any principle CPG Pareto a the of I've that our you has real We this core We beginning items. strong as strategy to brand you sort XXXX. in make that those strategy portfolio. and belief look company stable

hero opportunities. where Kate, are is at -- absolutely we on reflecting today, the Chief As our Growth those I Officer, growth who's know that here that items, my look

see you before. in also slides talked might the You to we've and

though our that hero underdistributed are are they we even of well items know so popular. Many very

to example, Extreme my put I'm than talking For It's stop also, mascara lengthening. it. Mascara, never that right? less pledge yet friendly stores remains distribution of play all loves last Amazon its that and Lengthening climate And great on and of in. that's we about turning choose all half when consumer the #X our can the extreme and day having I eye then always

will all year, not journey ours not for distribution of So rewarding only levers. those items. believe like be are We company some against next long runway is those distribution for a only its some efforts those going in forms distribution that a that believe be and efforts year, both a this growth we against us, to be And of has new of distribution. but items, do on very hero will

balance. We play have in to

answer So see because that will from I opportunity. think is much us all you that actually of there's so the some of

David Loretta

Yes, that can basis, across deliver takes the is the EBITDA be We're on Dana, model puts a adjusted on the and year. set year will to full question. some I the articulated. positive into relate that near impact the pressures we've that pulled that the quarter. will orders in inventory first some But outcome very of fourth term, that touch our There comfortable quarter our up was to revenue were

want quarter, And would the that little call to will the be on so and we line, out muted us. first more bottom in for a impact opportunity particular, top that line

the us But this this And as top results going get model periods across developing really, we we a help a opportunity line. see be as bottom level. a of in those for line growing consistent of line up back leverage do year will adjusted positive is the expense faster margin of see opportunities. way half well than that articulated, It's the progressing that balance gross positive reflection us top through and the going the expansion Carla to the that setting year, EBITDA to

Operator

question Morgan Stanley. of the next Mohsenian of from Our Dara line comes

Dara Mohsenian

how do you XXXX. EBITDA nice made the potential years? and over years? you X margin guys of we few think to some term? about think And what level what the out next Obviously, long in can progress a reasonable looking talk you pace do So you is are out about improvement long-term thinking But looking X

David Loretta

to we've has to we progress -- from the the that consumer are And also environment, of it's is with flow kind our believe through think the best we is best think of revenue The algorithm uncertainty might macro in function model what that gains faster but to line. the the obviously, the that a we got, demonstrated that face. the that to things made, of the Dara, opportunity allow is of we we've that balanced pressures a way express pace at bottom out control, 'XX.

to allows line. over any the that encounter weather in this the think through with might we us that gives And time that of it model strategic periods growth bottom flexibility to those so And those. us we be

standpoint early say time deliver of that still an in safe a see what think transformation given I EBITDA we're of this that. at stages time it's I goes adjusted think we're journey. through, to that behind is margin from comfortable can that the we expanding expressing And continually kind you'll as

Dara Mohsenian

leaving Okay. perspective maybe a XXXX, you there longer-term think driving as big how XXXX? maximizing cost opportunities from And left a a specific after think that more And cost are do question, you profitability? and perspective from about about profit

David Loretta

Yes. chain, control. cost I within we both beyond XXXX, see a believe real the and opportunities continued cost vigilance savings of definitely we market supply our maintaining to our expense structure products bring on

best-in-class the I'll get companies So us be we for guides what in we opportunity XXXX. is And well. see aspects those to can beyond use and as of we ourselves always CPG those are going as to opportunity say, benchmark against other companies that there out

Operator

any further remarks. the like to at Carla I'm to turn showing I'd no call closing back questions over for this time.

Carla Vernon

team, on us dialed you we family, thankful quarter or Well, as today look behalf for to and Thank results. you our Butterfly full in them are that of join to to Honest call forward fourth entire you. we year we talking our to And so next the like time.

Operator

Thank this you Thank participating. and today's all conference. you. gentlemen, does for conclude Ladies

day. You may disconnect. great a now Have

The Honest Company, Inc. (HNST) 6 Mar 242023 Q4 Earnings call transcript