hnst-20210630
000153097912/312021Q2FALSE.5.500015309792021-01-012021-06-30xbrli:shares00015309792021-08-09iso4217:USD00015309792021-06-3000015309792020-12-31iso4217:USDxbrli:shares00015309792021-04-012021-06-3000015309792020-04-012020-06-3000015309792020-01-012020-06-3000015309792019-12-310001530979us-gaap:CommonStockMember2019-12-310001530979us-gaap:AdditionalPaidInCapitalMember2019-12-310001530979us-gaap:RetainedEarningsMember2019-12-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001530979us-gaap:RetainedEarningsMember2020-01-012020-03-3100015309792020-01-012020-03-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001530979us-gaap:CommonStockMember2020-01-012020-03-310001530979us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100015309792020-03-310001530979us-gaap:CommonStockMember2020-03-310001530979us-gaap:AdditionalPaidInCapitalMember2020-03-310001530979us-gaap:RetainedEarningsMember2020-03-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001530979us-gaap:RetainedEarningsMember2020-04-012020-06-300001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001530979us-gaap:CommonStockMember2020-04-012020-06-300001530979us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-3000015309792020-06-300001530979us-gaap:CommonStockMember2020-06-300001530979us-gaap:AdditionalPaidInCapitalMember2020-06-300001530979us-gaap:RetainedEarningsMember2020-06-300001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001530979us-gaap:CommonStockMember2020-12-310001530979us-gaap:AdditionalPaidInCapitalMember2020-12-310001530979us-gaap:RetainedEarningsMember2020-12-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001530979us-gaap:RetainedEarningsMember2021-01-012021-03-3100015309792021-01-012021-03-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001530979us-gaap:CommonStockMember2021-01-012021-03-310001530979us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100015309792021-03-310001530979us-gaap:CommonStockMember2021-03-310001530979us-gaap:AdditionalPaidInCapitalMember2021-03-310001530979us-gaap:RetainedEarningsMember2021-03-310001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001530979us-gaap:RetainedEarningsMember2021-04-012021-06-300001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001530979us-gaap:CommonStockMember2021-04-012021-06-300001530979us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-300001530979us-gaap:CommonStockMember2021-06-300001530979us-gaap:AdditionalPaidInCapitalMember2021-06-300001530979us-gaap:RetainedEarningsMember2021-06-300001530979us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001530979us-gaap:IPOMember2021-05-072021-05-0700015309792021-05-070001530979hnst:IPOSoldByCompanyMember2021-05-072021-05-070001530979hnst:IPOSoldByExistingShareholdersMember2021-05-072021-05-070001530979hnst:IPOOtherOfferingExpenseMember2021-05-072021-05-070001530979us-gaap:IPOMember2021-05-070001530979us-gaap:OverAllotmentOptionMember2021-05-072021-05-0700015309792021-05-072021-05-070001530979us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-06-300001530979us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-04-012021-06-300001530979us-gaap:ResearchAndDevelopmentExpenseMember2021-04-012021-06-300001530979us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-06-3000015309792021-05-0600015309792021-05-062021-05-06hnst:segmentxbrli:pure0001530979us-gaap:RedeemableConvertiblePreferredStockMember2021-04-012021-04-300001530979us-gaap:CommonStockMember2021-04-012021-04-300001530979hnst:DigitalMember2021-04-012021-06-300001530979hnst:DigitalMember2020-04-012020-06-300001530979hnst:DigitalMember2021-01-012021-06-300001530979hnst:DigitalMember2020-01-012020-06-300001530979us-gaap:RetailMember2021-04-012021-06-300001530979us-gaap:RetailMember2020-04-012020-06-300001530979us-gaap:RetailMember2021-01-012021-06-300001530979us-gaap:RetailMember2020-01-012020-06-300001530979hnst:DiapersAndWipesMember2021-04-012021-06-300001530979hnst:DiapersAndWipesMember2020-04-012020-06-300001530979hnst:DiapersAndWipesMember2021-01-012021-06-300001530979hnst:DiapersAndWipesMember2020-01-012020-06-300001530979hnst:SkinAndPersonalCareMember2021-04-012021-06-300001530979hnst:SkinAndPersonalCareMember2020-04-012020-06-300001530979hnst:SkinAndPersonalCareMember2021-01-012021-06-300001530979hnst:SkinAndPersonalCareMember2020-01-012020-06-300001530979hnst:HouseholdAndWellnessMember2021-04-012021-06-300001530979hnst:HouseholdAndWellnessMember2020-04-012020-06-300001530979hnst:HouseholdAndWellnessMember2021-01-012021-06-300001530979hnst:HouseholdAndWellnessMember2020-01-012020-06-300001530979hnst:TradeAgreementsMember2021-03-310001530979hnst:TradeAgreementsMember2021-01-012021-06-300001530979hnst:TradeAgreementsMember2021-04-012021-06-300001530979us-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:CertificatesOfDepositMember2021-06-300001530979us-gaap:USTreasuryAndGovernmentMember2021-06-300001530979us-gaap:CorporateBondSecuritiesMember2020-12-310001530979us-gaap:CommercialPaperMember2020-12-310001530979us-gaap:CertificatesOfDepositMember2020-12-310001530979us-gaap:USTreasuryAndGovernmentMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USTreasuryAndGovernmentMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueInputsLevel2Member2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasuryAndGovernmentMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMember2021-06-300001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateBondSecuritiesMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CorporateBondSecuritiesMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CertificatesOfDepositMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USTreasuryAndGovernmentMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueInputsLevel2Member2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasuryAndGovernmentMember2020-12-310001530979us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasuryAndGovernmentMember2020-12-310001530979us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMemberhnst:AssetBackedLoanFacilityMember2020-06-040001530979us-gaap:RevolvingCreditFacilityMemberhnst:A2021CreditFacilityMemberhnst:JPMorganChaseBankMember2021-04-300001530979hnst:A2021CreditFacilityMemberus-gaap:LetterOfCreditMember2021-04-300001530979us-gaap:RevolvingCreditFacilityMembersrt:MinimumMemberhnst:A2021CreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-04-012021-04-300001530979us-gaap:RevolvingCreditFacilityMemberhnst:A2021CreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-04-012021-04-300001530979us-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMemberhnst:A2021CreditFacilityMember2021-04-012021-04-300001530979hnst:A2021CreditFacilityMemberus-gaap:LetterOfCreditMember2021-06-300001530979hnst:A2021CreditFacilityMemberhnst:JPMorganChaseBankMember2021-06-300001530979hnst:NevadaDepartmentOfTaxationVsTheHonestCompanyIncMemberus-gaap:PendingLitigationMember2021-06-300001530979hnst:NevadaDepartmentOfTaxationVsTheHonestCompanyIncMember2021-06-300001530979hnst:NevadaDepartmentOfTaxationVsTheHonestCompanyIncMember2020-12-310001530979hnst:NevadaDepartmentOfTaxationVsTheHonestCompanyIncMember2021-01-012021-06-300001530979hnst:NevadaDepartmentOfTaxationVsTheHonestCompanyIncMember2021-04-012021-06-300001530979hnst:StockOptionsWithLiquidityEventVestingConditionsMember2021-05-072021-05-070001530979hnst:StockOptionsWithLiquidityEventVestingConditionsMember2021-05-070001530979hnst:StockOptionsWithLiquidityEventVestingConditionsMember2021-04-012021-06-300001530979hnst:StockOptionsWithLiquidityEventVestingConditionsMember2021-01-012021-06-300001530979hnst:A2021EquityIncentivePlanMember2021-04-010001530979hnst:A2021EquityIncentivePlanMember2021-04-012021-04-300001530979hnst:A2021EquityIncentivePlanMember2021-04-300001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:NonEmployeeDirectorsMember2020-12-310001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:DirectorsOfficersAndEmployeesMember2020-12-310001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:NonEmployeeDirectorsMember2021-01-012021-06-300001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:DirectorsOfficersAndEmployeesMember2021-01-012021-06-300001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:NonEmployeeDirectorsMember2021-06-300001530979us-gaap:RestrictedStockUnitsRSUMemberhnst:DirectorsOfficersAndEmployeesMember2021-06-300001530979hnst:A2011StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMembersrt:OfficerMember2021-02-012021-02-280001530979us-gaap:RestrictedStockUnitsRSUMember2021-06-300001530979us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-300001530979us-gaap:EmployeeStockMemberhnst:A2021EmployeeStockPurchasePlanMember2021-04-300001530979us-gaap:EmployeeStockMemberhnst:A2021EmployeeStockPurchasePlanMember2021-04-012021-04-300001530979us-gaap:EmployeeStockMemberhnst:A2021EmployeeStockPurchasePlanMember2021-04-012021-06-300001530979us-gaap:EmployeeStockMemberhnst:A2021EmployeeStockPurchasePlanMember2021-01-012021-06-300001530979us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001530979us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-04-012020-06-300001530979us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-06-300001530979us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-300001530979us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-3000015309792021-04-012021-04-3000015309792021-06-292021-06-290001530979us-gaap:RedeemableConvertiblePreferredStockMember2021-04-012021-06-300001530979us-gaap:RedeemableConvertiblePreferredStockMember2020-04-012020-06-300001530979us-gaap:RedeemableConvertiblePreferredStockMember2021-01-012021-06-300001530979us-gaap:RedeemableConvertiblePreferredStockMember2020-01-012020-06-300001530979us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001530979us-gaap:EmployeeStockOptionMember2020-04-012020-06-300001530979us-gaap:EmployeeStockOptionMember2021-01-012021-06-300001530979us-gaap:EmployeeStockOptionMember2020-01-012020-06-300001530979us-gaap:RestrictedStockUnitsRSUMember2021-04-012021-06-300001530979us-gaap:RestrictedStockUnitsRSUMember2020-04-012020-06-300001530979us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-300001530979us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-06-300001530979us-gaap:EmployeeStockMember2021-04-012021-06-300001530979us-gaap:EmployeeStockMember2020-04-012020-06-300001530979us-gaap:EmployeeStockMember2021-01-012021-06-300001530979us-gaap:EmployeeStockMember2020-01-012020-06-300001530979hnst:SummitHouseStudiosLLCMember2021-04-012021-06-300001530979hnst:SummitHouseStudiosLLCMember2021-01-012021-06-300001530979hnst:SummitHouseStudiosLLCMember2020-04-012020-06-300001530979hnst:SummitHouseStudiosLLCMember2020-01-012020-06-30


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from    to

Commission File Number: 001-40378

https://cdn.kscope.io/9a17598bc15183c81f0d95ad8360e84c-hnst-20210630_g1.jpg
The Honest Company, Inc.

(Exact Name of Registrant as Specified in its Charter)



Delaware
90-0750205
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
12130 Millennium Drive, #500
Los Angeles, CA
90094
(Address of Principal Executive Offices)
(Zip Code)
(888) 862-8818
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities Registered Pursuant to Section 12(b) of the Act:
Trading
Symbol(s)
Title of each class
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
HNST
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No ☒

As of August 9, 2021, the registrant had 90,272,332 shares of common stock, $0.0001 par value per outstanding.



The Honest Company, Inc.

Table of Contents


Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



1



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended) about us and our industry that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, those set forth in Part II, Item 1A, “Risk Factors,” if any, and other factors set forth in other parts of this Quarterly Report on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. These forward-looking statements include, but are not limited to, statements concerning the following:

our expectations regarding our revenue, cost of revenue, operating expenses, gross margin, adjusted EBITDA and other operating results;
the effect of COVID-19 or other public health crises on our business and the global economy;
our ability to effectively manage our growth;
our ability to acquire new consumers and successfully retain existing consumers, including their level of spend with us;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;
the costs and success of our marketing efforts, and our ability to grow brand awareness and maintain, protect and enhance our brand;
our ability to effectively manage our inventory;
our ability to gauge consumer trends and changing consumer preferences;
our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;
our ability to obtain, maintain, protect and enforce our intellectual property rights and any costs associated therewith;
our ability to compete effectively with existing competitors and new market entrants;
our ability to successfully enter new markets and expand internationally;
our ability to identify and complete acquisitions that complement and expand our reach and platform;
seasonality;
the financial condition of, and our relationships with, our suppliers, manufacturers, distributors and retailers;
our ability to offset commodity prices, input cost and transportation cost inflation with productivity or pricing improvements;
the ability of our suppliers and manufacturers to comply with safety, environmental or other laws or regulations;
our ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to our business in the United States, such as the U.S. Food and Drug Administration governmental regulation and state regulation; and other jurisdictions where we elect to do business;
economic conditions and their impact on consumer spending;
outcome of legal or administrative proceedings; and
the growth rates of the markets in which we compete.
2


PART I—FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements.

The Honest Company, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
June 30, 2021December 31, 2020
Assets
Current assets
Cash and cash equivalents$41,438 $29,259 
Restricted cash 1,752 
Short-term investments53,673 34,425 
Accounts receivable, net27,396 22,795 
Inventories, net82,413 76,669 
Prepaid expenses and other current assets10,698 8,657 
Total current assets215,618 173,557 
Restricted cash, net of current portion 6,189 
Property and equipment, net54,774 56,703 
Goodwill2,230 2,230 
Intangible assets, net476 511 
Other assets4,010 1,542 
Total assets$277,108 $240,732 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable$32,709 $31,132 
Accrued expenses17,612 22,222 
Deferred revenue775 716 
Total current liabilities51,096 54,070 
Long term liabilities
Lease financing obligation, net of current portion37,983 38,426 
Other long-term liabilities8,242 8,657 
Total liabilities97,321 101,153 
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock, $0.0001 par value, 49,192,248 shares authorized at December 31, 2020; 49,100,928 shares issued and outstanding as of December 31, 2020; (liquidation preference of $396,726 as of December 31, 2020)
 376,404 
Stockholders’ equity (deficit)
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at June 30, 2021, none issued or outstanding as of June 30, 2021
 — 
Common stock, $0.0001 par value, 1,000,000,000 and 150,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 90,288,407 and 34,089,186 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
9 3 
Additional paid-in capital557,285 116,055 
Accumulated deficit(377,495)(352,977)
Accumulated other comprehensive income (loss)(12)94 
Total stockholders’ equity (deficit)179,787 (236,825)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)$277,108 $240,732 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3


The Honest Company, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands, except share and per share amounts)

For the three months ended June 30,For the six months ended June 30,
2021202020212020
Revenue$74,576 $72,354 $155,607 $144,726 
Cost of revenue47,633 45,867 100,284 92,434 
Gross profit26,943 26,487 55,323 52,292 
Operating expenses
Selling, general and administrative30,091 14,940 46,788 29,646 
Marketing14,009 10,625 28,182 19,818 
Research and development2,345 1,100 3,991 2,266 
Total operating expenses46,445 26,665 78,961 51,730 
Operating income (loss)(19,502)(178)(23,638)562 
Interest and other income (expense), net(510)(175)(836)(334)
Income (loss) before provision for income taxes(20,012)(353)(24,474)228 
Income tax provision22 22 44 44 
Net income (loss)$(20,034)$(375)$(24,518)$184 
Net income (loss) per share attributable to common stockholders:
Basic$(0.17)$(0.01)$(0.32)$0.00 
Diluted$(0.17)$(0.01)$(0.32)$0.00 
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic68,079,387 34,069,346 51,184,615 34,065,173 
Diluted68,079,387 34,069,346 51,184,615 35,064,356 
Other comprehensive income (loss)
Unrealized gain (loss) on short-term investments, net of taxes(24)169 (106)162 
Comprehensive income (loss)$(20,058)$(206)$(24,624)$346 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


The Honest Company, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except share amounts)
Redeemable Convertible Preferred Stock Common Stock Additional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity (Deficit)
Shares Amount Shares Amount
Balances at December 31, 2019
49,100,928 $376,404 34,033,074 $3 $108,109 $(338,511)$122 $(230,277)
Net income— — — — — 559 — 559 
Other comprehensive loss— — — — — — (7)(7)
Stock options exercised— — 29,420 — 13 — — 13 
Stock-based compensation— — — — 1,923 — — 1,923 
Balances at March 31, 202049,100,928 $376,404 34,062,494 $3 $110,045 $(337,952)$115 $(227,789)
Net loss— — — — — (375)— (375)
Other comprehensive loss— — — — — — 169 169 
Stock options exercised— — 21,500 — 6 — — 6 
Stock-based compensation— — — — 2,325 — — 2,325 
Balances at June 30, 202049,100,928 $376,404 34,083,994 $3 $112,376 $(338,327)$284 $(225,664)
















5


The Honest Company, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except share amounts)

Redeemable Convertible Preferred StockCommon Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)
Shares Amount Shares Amount
Balances at December 31, 2020
49,100,928 $376,404 34,089,186 $3 $116,055 $(352,977)$94 $(236,825)
Net loss— — — — — (4,484)— (4,484)
Other comprehensive loss— — — — — — (82)(82)
Stock options exercised— — 38,188 — 33 — — 33 
Stock-based compensation— — — — 1,838 — — 1,838 
Balances at March 31, 202149,100,928 $376,404 34,127,374 $3 $117,926 $(357,461)$12 $(239,520)
Net loss— — — — — (20,034)— (20,034)
Other comprehensive loss— — — — — — (24)(24)
Stock options exercised— — 53,694 — 295 — — 295 
Dividends paid ($0.42 per share)
— — — — (35,000)— — (35,000)
Issuance of common stock pursuant to initial public offering, net of underwriting commissions and discounts and offering costs of $12.2 million
— — 6,451,613 1 91,038 — — 91,039 
Conversion of redeemable convertible preferred stock to common stock upon initial public offering(49,100,928)(376,404)49,649,023 5 376,400 — 376,405 
Vested restricted stock units— — 6,703 — — — — — 
Stock-based compensation— — — — 6,626 — — 6,626 
Balances at June 30, 2021 $ 90,288,407 $9 $557,285 $(377,495)$(12)$179,787 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6


The Honest Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

For the six months ended June 30,
20212020
Cash flows from operating activities
Net income (loss)$(24,518)$184 
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization2,117 2,557 
Stock-based compensation8,464 4,248 
Other93 39 
Changes in assets and liabilities:
Accounts receivable, net(4,601)3,083 
Inventories(5,744)667 
Prepaid expenses and other assets(4,507)(1,896)
Accounts payable, accrued expenses and other long-term liabilities(3,969)4,721 
Deferred revenue58 (117)
Net cash (used in) provided by operating activities(32,607)13,486 
Cash flows from investing activities
Purchases of short-term investments(54,009)(4,459)
Proceeds from sales of short-term investments25,362 5,830 
Proceeds from maturities of short-term investments9,207 31,932 
Purchases of property and equipment(100)(56)
Net cash (used in) provided by investing activities(19,540)33,247 
Cash flows from financing activities
Proceeds from initial public offering, net of underwriting commissions and discounts96,517  
Dividends paid (35,000) 
Proceeds from exercise of stock options328 19 
Payment of initial public offering costs(4,892) 
Payments on lease obligations(568)(496)
Net cash provided by (used in) financing activities56,385 (477)
Net increase in cash, cash equivalents and restricted cash4,238 46,256 
Cash, cash equivalents and restricted cash
Beginning of the period37,200 13,543 
End of the period$41,438 $59,799 
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets
Cash and cash equivalents$41,438 $51,858 
Restricted cash, current 1,313 
Restricted cash, non-current 6,628 
Total cash, cash equivalents and restricted cash$41,438 $59,799 
Supplemental disclosures of noncash activities
Equipment acquired under capital lease obligations$95 $46 
Deferred IPO costs included in accounts payable and accrued expenses$585 $ 
Capital expenditures included in accounts payable and accrued expenses$9 $18 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7


The Honest Company, Inc.
Notes to Condensed Consolidated Financial Statements
As of June 30, 2021
(in thousands, except share and per share amounts, percentages and as otherwise indicated)

(Unaudited)
1.     Nature of Business

The Honest Company, Inc. (the “Company”) was incorporated in the State of California on July 19, 2011 and on May 23, 2012 was re-incorporated in the State of Delaware under the same name. The Company is a mission-driven lifestyle brand that formulates, designs and sells clean products with a focus on sustainability and thoughtful design. The Company sells its products through digital and retail sales channels in the following product categories: Diapers and Wipes, Skin and Personal Care, and Household and Wellness.
Initial Public Offering

The Company’s registration statement on Form S-1 (“IPO Registration Statement”) related to its initial public offering (“IPO”) was declared effective on May 4, 2021, and the Company’s common stock began trading on the Nasdaq Global Select Market on May 5, 2021. On May 7, 2021, the Company completed its IPO of 25,807,000 shares of the Company's common stock, $0.0001 par value per share at an offering price of $16.00 per share. The Company sold 6,451,613 shares and certain existing stockholders sold an aggregate of 19,355,387 shares. The Company received aggregate net proceeds of approximately $91.0 million after deducting underwriting discounts and commissions of $6.7 million and other offering expenses of $5.5 million, $0.6 million of which was unpaid at June 30, 2021. The Company granted the underwriters an option for a period of 30 days to purchase up to an additional 3,871,050 shares of common stock from the selling stockholders at $16.00 per share less the underwriting discounts and commissions. In May 2021, the underwriters fully exercised the option to purchase these additional shares from the selling stockholders. The Company did not receive any proceeds from the sale of shares of its common stock by the selling stockholders.

Upon completion of the IPO, the Company paid $9.5 million in cash bonuses to certain employees including members of management, as well as $0.2 million in related payroll taxes and expenses. Cash bonuses of $9.1 million were recorded in sales, general and administrative expenses and $0.4 million were recorded in research and development expenses in the accompanying condensed consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2021.

Immediately prior to the completion of the IPO, the Company filed an Amended and Restated Certificate of Incorporation, which authorized a total of 1,000,000,000 shares of common stock and 20,000,000 shares of preferred stock. Upon the filing of the Amended and Restated Certificate of Incorporation, 49,100,928 shares of the Company’s redeemable convertible preferred stock then outstanding with a carrying value of $376.4 million were automatically converted into 49,649,023 shares of the Company’s common stock. Upon completion of the IPO, the Company recognized a gain for earnings per share purposes of $29.0 million from the conversion of redeemable convertible preferred stock to common stock. Following the completion of the IPO, the Company has one class of authorized and outstanding common stock.

2.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2020. The condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements. The consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP.     
The condensed consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries after elimination of intercompany transactions and balances. There have been no changes in the accounting policies from those disclosed in the audited consolidated financial statements and related notes for the year ended December 31, 2020.
8



Stock Split

In April 2021, the Company effected a 1-for-2 forward stock split of its common and redeemable convertible preferred stock. In connection with the forward stock split, each issued and outstanding share of common stock, automatically and without action on the part of the holders, became two shares of common stock and each issued and outstanding share of redeemable convertible preferred stock, automatically and without action on the part of the holders, became two shares of redeemable convertible preferred stock. The par value per share of common and redeemable convertible preferred stock was not adjusted. All share, per share and related information presented in the condensed consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the impact of the stock split.

Segment Reporting and Geographic Information

The Company’s Chief Executive Officer, as the chief operating decision maker, organizes the Company, manages resource allocations, and measures performance on the basis of one operating segment. All of the Company’s long-lived assets are located in the United States and substantially all of the Company’s revenue is from customers located in the United States.
Use of Estimates
    
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s estimates, which are subject to varying degrees of judgment, include the valuation of inventories, sales returns and allowances, allowances for doubtful accounts, valuation of short-term investments, valuation of build-to-suit lease, capitalized software, useful lives associated with long-lived assets, valuation allowances with respect to deferred tax assets, accruals and contingencies, recoverability of goodwill and long-lived assets, and the valuation and assumptions underlying stock-based compensation and common stock. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) a pandemic. The full extent to which the outbreak of the COVID-19 pandemic will impact the Company’s business, results of operations and financial condition is still unknown and will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
In light of the currently unknown ultimate duration and severity of COVID-19, the Company faces a greater degree of uncertainty than normal in making certain judgments and estimates needed to apply significant accounting policies. The Company assessed certain accounting matters and estimates that generally require consideration of forecasted information in context with the information reasonably available to the Company as of the respective balance sheet dates and through the date these condensed consolidated financial statements were issued. Management is not aware of any specific event or circumstance that would require an update to estimates or judgments or a revision to the carrying value of assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the Company’s consolidated financial statements in future periods. For example, based on macro-Household & Wellness trends, consumer demand for sanitizing and disinfecting products has decelerated at a more rapid than expected rate as more consumers have become vaccinated and retailers continue to manage heavy inventories of sanitization and disinfecting products in stores. The Company will continue to monitor and evaluate the uncertainty and volatility of these conditions and the ultimate impact on the Company’s inventory valuations in the future.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents consist of short-term, highly liquid investments with stated maturities of three months or less from the date of purchase. Cash equivalents comprise amounts invested in money market funds. Restricted cash consisted of deposits in a bank account used to collateralize the letters of credit for certain lease arrangements. The Company is no longer required to post collateral in a restricted cash account. Refer to Note 6 included in these condensed consolidated financial statements for additional information on the restricted cash account.

Accounts Receivable

Accounts receivable is presented net of allowances. The Company does not accrue interest on its trade receivables. On a periodic basis, the Company evaluates accounts receivable estimated to be uncollectible, and provides allowances as necessary for doubtful accounts. The allowance for doubtful accounts was $1.4 million as of June 30, 2021 and December 31, 2020.
9


Deferred IPO Costs
Deferred offering costs consist of costs incurred in connection with the sale of the Company’s common stock in its IPO, including certain legal, accounting, and other IPO-related costs. As of June 30, 2021, the deferred offering costs of $5.5 million were recorded in stockholders’ equity (deficit) as a reduction from the proceeds of the offering. As of December 31, 2020, deferred offering costs of $0.5 million had been recorded in other assets on the Company’s condensed consolidated balance sheets.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:
Level 1    - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Fair value is based on quoted market prices, if available. If listed prices or quotes are not available, fair value is based on internally developed models that primarily use market-based or independently sourced market parameters as inputs. Cash equivalents, consisting primarily of money market funds, represent highly liquid investments with maturities of three months or less at purchase. Market prices, which are Level 1 in the fair value hierarchy, are used to determine the fair value of the money market funds. Investments in debt securities are measured using broker provided indicative prices developed using observable market data, which are considered Level 2 in the fair value hierarchy. Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. The fair value is measured using Level 3 inputs in the fair value hierarchy.
Recent Accounting Pronouncements

As an “emerging growth company”, the Jumpstart Our Business Startups Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU No 2016-02, Leases (Topic 842), as subsequently amended, collectively codified under Topic 842. Topic 842 requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet. ASU 2016-02 was effective for public business entities for fiscal years beginning after December 15, 2018. In June 2020, FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) – Effective Dates for Certain Entities, which extended the effective date of this guidance for certain non-public entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the adoption of this guidance and the potential effects on its consolidated financial statements. The Company anticipates the adoption of this guidance may result in a material impact to the Company’s consolidated financial statements as it relates to its build-to-suit lease and recording other operating leases on the consolidated balance sheets.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to amend the accounting for credit losses for certain financial instruments. This guidance replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. In November 2019, FASB issued ASU No. 2019-10 which delayed the effective dates of the guidance. This guidance is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) for fiscal
10


years beginning after December 15, 2019 and all other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the adoption of this guidance and the potential effects on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this guidance eliminate Step 2 from the goodwill impairment test, whereby an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under this amendment, an entity should perform its goodwill impairment test by comparing the value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective dates of this guidance. This guidance is effective for public business entities excluding entities eligible to be SRCs for annual and any interim impairment test performed for periods beginning after December 15, 2019. For all other entities the guidance is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the adoption of this guidance and the potential effects on the consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 as well as by improving consistent application of the topic by clarifying and amending existing guidance. For public business entities, the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company does not expect ASC 740 to have a material impact on the Company’s consolidated financial statements.

3.Revenue

Disaggregation of Revenue
Revenue by sales channel:
For the three months ended June 30,For the six months ended June 30,
2021202020212020
(In thousands)
Digital$34,820 $46,065 $77,281 $87,561 
Retail39,756 26,289 78,326 57,165 
Total revenue$74,576 $72,354 $155,607 $144,726 
Revenue by product category:
For the three months ended June 30,
For the six months ended June 30,
2021202020212020
(In thousands)
Diapers and wipes$47,831 $48,744 $97,404 $99,227 
Skin and personal care23,866 20,558 50,111 39,040 
Household and wellness2,879 3,052 8,092 6,459 
Total revenue$74,576 $72,354 $155,607 $144,726 
Non-Monetary Transaction

In March 2021, the Company entered into $4.0 million in trade agreements with a vendor for the exchange of legacy beauty inventory for future marketing and transportation credits. The fair value of the marketing and transportation credits are recognized as revenue, with the corresponding asset included in prepaid expenses and other current assets and other assets in the accompanying condensed consolidated balance sheets. The Company may use the marketing and transportation credits over four years, with an option to extend for another two years if agreed upon by both parties. For the three and six months ended June 30, 2021, the Company recognized $0.5 million and $3.9 million, respectively, of revenue and $0.3 million and $2.2 million, respectively, of associated cost of revenue based on timing of delivery of goods. The Company assesses the recoverability of the
11


marketing and transportation credits periodically. Factors considered in evaluating the recoverability include management’s plans with respect to advertising, freight and other services for which these credits can be used. Any impairment losses are charged to operations as they are determinable. During the three and six months ended June 30, 2021, the Company recorded no impairment losses related to these credits and an immaterial amount of credits have been used.

4.     Investments

As of June 30, 2021 and December 31, 2020, all investments in debt securities are classified as available-for-sale investments. All investments are reported within current assets because the securities represent investments of cash available for current operations. As of June 30, 2021 and December 31, 2020, the Company held $36.9 million and $27.5 million, respectively, of investments with contractual maturities of less than one year. As of June 30, 2021 and December 31, 2020, the Company held $16.8 million and $6.9 million, respectively, of investments with contractual maturities between one and two years. Available-for-sale investments are recorded at fair value, and unrealized holding gains and losses are recorded as a component of other comprehensive income (loss). The following table summarizes the Company’s available-for-sale investments:
As of June 30, 2021
Cost or Amortized CostGross Unrealized GainsGross Unrealized LossesTotal Estimated Fair Value
(In thousands)
Corporate bonds$22,787 $1 $(12)$22,776 
Certificates of deposit24,904  (3)24,901 
U.S. government and agency securities5,995 1  5,996 
Total investments$53,686 $2 $(15)$53,673 

As of December 31, 2020
Cost or Amortized CostGross Unrealized GainsGross Unrealized LossesTotal Estimated Fair Value
(In thousands)
Corporate bonds$22,894 $58 $(3)$22,949 
Commercial paper538   538 
Certificates of deposit4,447 1  4,448 
U.S. government and agency securities6,452 38  6,490 
Total investments$34,331 $97 $(3)$34,425 

Realized gains and losses on investments in debt securities were immaterial for the three and six months ended June 30, 2021 and 2020.

5.     Fair Value Measurements

Financial assets measured and recorded at fair value on a recurring basis consist of the following as of:
12


June 30, 2021
Level 1Level 2Level 3Total
(In thousands)
Cash equivalents
Money market funds$17,300 $ $ $17,300 
Corporate bonds(1)
 433  433 
Certificates of deposit(1)
 3,500  3,500 
Total cash equivalents17,300 3,933  21,233 
Short-term investments
Corporate bonds 22,776  22,776 
Certificates of deposit 24,901  24,901 
U.S. government and agency securities 5,996  5,996 
Total short-term investments 53,673  53,673 
Total$17,300 $57,606 $ $74,906 
(1) Consists of short-term corporate bonds and certificates of deposit with stated maturities of three months or less.
December 31, 2020
Level 1Level 2Level 3Total
(In thousands)
Cash equivalents
Money market funds$12,696 $ $ $12,696 
Total cash equivalents12,696   12,696 
Short-term investments
Corporate bonds 22,949  22,949 
Commercial paper 538  538 
Certificates of deposit 4,448  4,448 
U.S. government and agency securities 6,490  6,490 
Total short-term investments 34,425  34,425 
Total$12,696 $34,425 $ $47,121 

The carrying amounts for the Company’s accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturities.
6.     Credit Facilities

On June 4, 2020, the Company terminated its Asset Backed Loan facility (“ABL Revolver”). The Company had no outstanding borrowings under the ABL Revolver immediately prior to termination. Upon termination of the ABL Revolver, the Company was required to post collateral of $7.9 million in a restricted cash account to collateralize the letters of credit related to certain facility leases. As of December 31, 2020, the letters of credit issued related to facility leases of $7.7 million were collateralized by the Company’s restricted cash of $7.9 million. Upon entering into the 2021 Credit Facility (defined below), the Company is no longer required to maintain collateral in a restricted cash account.
2021 Credit Facility

In April 2021, the Company entered into a first lien credit agreement (“2021 Credit Facility”), with JPMorgan Chase Bank, N.A., as administrative agent and lender, and the other lenders party thereto, which provides for a $35.0 million revolving credit facility that matures April 2026. The 2021 Credit Facility includes a subfacility that provides for the issuance of letters of credit in an amount of up to $10.0 million at any time outstanding, which reduces the amount available under the 2021 Credit Facility. The 2021 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee based on the average daily undrawn portion of the revolving credit facility. The Company expensed the commitment fee and included it in interest and other expense, net in the consolidated statement of operations and comprehensive income (loss). For the three and six months ended June 30, 2021, the commitment fee incurred was immaterial. The interest rate applicable to the 2021 Credit Facility is, at the Company’s option, either (a) the LIBOR (or a replacement rate established in accordance with the terms of the 2021 Credit Facility) (subject to a 0.00% LIBOR floor), plus a margin of 1.50% or (b) the CB floating rate minus a margin of 0.50%. The CB floating rate is the higher of (a) the Wall Street Journal prime rate and (b)(i) 2.50% plus (ii) the adjusted LIBOR rate for a one-month interest period. As of June 30, 2021, there was no outstanding balance under the 2021 Credit Facility.

13


The Company is subject to certain affirmative and negative covenants including the requirement that it maintains a total net leverage ratio of not more than 3.50:1.00 during the periods set forth in the 2021 Credit Facility. Failure to do so, unless waived by the lenders under the 2021 Credit Facility pursuant to its terms, as amended, would result in an event of default under the 2021 Credit Facility. As of June 30, 2021, the Company was in compliance with the net leverage ratio covenant.

7.     Accrued Expenses

Accrued expenses consisted of the following as of:
June 30, 2021December 31, 2020
(In thousands)
Payroll and payroll related expenses$1,750 $6,115 
Accrued inventory purchases4,330 4,588 
Accrued returns1,983 2,585 
Other accrued expenses9,549 8,934 
Total accrued expenses$17,612 $22,222 

8.Commitments and Contingencies

Litigation

From time to time, the Company is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to its business, including those related to regulation, litigation, business transactions, employee-related matters and taxes, among others. When the Company becomes aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount or range of the loss can be reasonably estimated, the Company records a liability for the loss and discloses the possible loss in the consolidated financial statements. Legal costs are expensed as incurred.

On September 17, 2019, the Nevada Department of Taxation (the “Department”) issued a Deficiency Notice against the Company to initiate administrative legal proceedings before the Department for the alleged non-compliance with employee retention requirements provided in exchange for tax benefits in establishing the Company’s Las Vegas distribution center in a December 2016 Abatement Agreement the Company had executed with the State of Nevada via its Governor’s Office of Economic Development. The Company has denied the allegations. An administrative hearing was held in the matter on January 15, 2021. On June 9, 2021 the court upheld the Department's Deficiency Notice against the Company in its entirety. The loss resulting from this matter is $0.7 million including penalties and interest, for which the Company has recorded an accrual of $0.6 million in accrued expenses on the consolidated balance sheets as of June 30, 2021 and December 31, 2020. During the three and six months ended June 30, 2021, the Company recorded interest expense of $0.1 million in interest and other expense, net on the consolidated statement of operations and comprehensive income (loss). The Company filed its Notice of Appeal on July 1, 2021.

On September 23, 2020, the Center for Advanced Public Awareness served a 60-Day Notice of Violation on the Company, alleging that the Company violated California’s Health and Safety Code (“Prop 65”) because of the amount of lead in the Company’s Diaper Rash Cream and seeking statutory penalties and product warnings available under Prop 65. The Company intends to vigorously defend itself in this matter. The matter’s outcome and materiality are uncertain at this time. Therefore, the Company cannot estimate the probability of loss or make an estimate of the loss or range of loss in this matter.

On January 28, 2021, Rosaura Navar filed a putative class action complaint (Rosaura Navar, et al. v. The Honest Company, Inc.—Los Angeles County Superior Court, Case No. 21STCV03381) alleging that the Company violated California’s Unfair Competition Law by failing to comply with California’s Automatic Renewal Law. The complaint demands restitution, injunctive and declaratory relief. This matter was settled in April 2021 for an immaterial amount. The loss on settlement was recorded in accrued expenses in the accompanying condensed consolidated balance sheets as of June 30, 2021.

As of June 30, 2021 and December 31, 2020, the Company is not subject to any other currently pending legal matters or claims that could have a material adverse effect on its financial position, results of operations, or cash flows should such litigation be resolved unfavorably.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third
14


parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has the Company been involved in litigation in connection with these indemnification arrangements. As of June 30, 2021 and December 31, 2020, the Company has not accrued a liability for these guarantees as the likelihood of incurring a payment obligation, if any, in connection with these guarantees is not probable or reasonably estimable due to the unique facts and circumstances involved.

9.Stock-Based Compensation

Stock Options

The following table summarizes the stock option activity for the three months ended June 30, 2021:

Number of OptionsWeighted Average Exercise Price
Outstanding at March 31, 202117,829,264 $5.24 
Granted $ 
Exercised(53,694)$5.49 
Forfeited(99,007)$5.34 
Outstanding at June 30, 2021
17,676,563 $5.24 

From 2018 to 2020, the Company granted stock options that vest based upon achieving a qualifying liquidity event, provided the employee remains employed on the date the vesting condition is satisfied. In conjunction with the IPO, 2,442,918 stock option awards with a weighted average exercise price of $5.54 vested based on the achievement of the IPO qualifying liquidity event, which resulted in the recognition of stock-based compensation expense of $3.1 million during the three and six months ended June 30, 2021.

2021 Equity Incentive Plan

In April 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. All equity-based awards granted on or after the effectiveness of the 2021 Plan will be granted under the 2021 Plan. The 2021 Plan provides for grants of incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock units ("RSUs") awards, performance awards and other forms of awards to the Company’s employees, directors and consultants and any of its affiliates’ employees and consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under its 2021 Plan will not exceed 25,025,580 shares of the Company’s common stock. In addition, the number of shares of the Company’s common stock reserved for issuance under its 2021 Plan will automatically increase on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1) 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors prior to the date of the increase. The maximum number of shares of the Company’s common stock that may be issued on the exercise of ISOs under its 2021 Plan is 75,100,000 shares.

15


RSU Awards

The following table summarizes the RSU activity for the six months ended June 30, 2021:

Number of SharesWeighted Average Grant Date Fair Value Per Share
Non-Employee DirectorsDirectors, Officers and Employees Non-Employee DirectorsDirectors, Officers and Employees
Unvested RSUs at December 31, 2020
  $ $ 
Granted(1)
110,267 2,605,555 $16.00 $14.31 
Vested6,703  $16.00 $ 
Forfeited  $ $ 
Unvested RSUs at June 30, 2021
116,970 2,605,555 $16.00 $14.31 

(1) Includes 200,000 RSUs granted to an officer of the Company in February 2021 under the 2011 Stock Incentive Plan.

As of June 30, 2021, there was $36.2 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.12 years.

2021 Employee Stock Purchase Plan

In April 2021, the Company’s board of directors adopted the Company’s 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The Company authorized the issuance of 1,175,000 shares of common stock under the 2021 ESPP. In addition, the number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031 by the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the immediately preceding year; and (ii) 3,525,000 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute (in the form of payroll deductions or otherwise to the extent permitted by the administrator) an amount established by the administrator from time to time in its discretion to purchase common stock at a discounted price per share.

Under the 2021 ESPP, eligible employees are granted the right to purchase shares of common stock at the lower of 85% of the fair value at the time of grant or 85% of the fair value at the time of exercise. The right to purchase shares of common stock is granted in May and November of each year for an offering period of approximately six months. The first offering period under the 2021 ESPP commenced in May 2021. For the three and six months ended June 30, 2021, no shares were purchased under the 2021 ESPP.

The following table summarizes the key input assumptions used in the Black-Scholes option-pricing model to estimate the grant-date fair value of the 2021 ESPP:
For the three months ended June 30, 2021
Expected life of options (in years)0.50
Expected stock price volatility54.83%
Risk free interest rate0.04%
Expected dividend yield%
Weighted average grant-date fair value per share $4.86

16


Stock-based Compensation Expense
Stock-based compensation expense related to RSU awards, ESPP purchases and stock options, as applicable, are as follows:

For the three months ended June 30,For the six months ended June 30,
2021202020212020
(In thousands)
Selling, general and administrative$6,194 $2,242 $7,942 $4,087 
Research and development432 83 522 161 
Total stock-based compensation expense$6,626 $2,325 $8,464 $4,248 


10.Net Income (Loss) per Share Attributable to Common Stockholders

The Company computes net income (loss) per share using the two-class method required for participating securities. The two-class method requires net income be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. In periods where the Company has net losses, losses are not allocated to participating securities as they are not required to fund the losses. The Company considers its redeemable convertible preferred stock to be participating securities as preferred stockholders have rights to participate in dividends with the common stockholders.

Basic net income (loss) attributable to common stockholders per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding. The Company computes diluted net income per share under a two-class method where income is reallocated between common stock, potential common stock and participating securities. Diluted net income (loss) per share attributable to common stockholders adjusts the basic net income (loss) per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potentially dilutive impact of stock options using the treasury stock method.
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share attributable to common stockholders:
For the three months ended June 30,
For the six months ended June 30,
(In thousands, except for share and per share values)2021202020212020
Numerator:
Net income (loss)$(20,034)$(375)$(24,518)$184 
Less: undistributed earnings allocated to redeemable convertible preferred stock   (109)
Add: gain on conversion of preferred stock(1)
28,994  28,994  
Less: dividends paid to preferred stockholders(2)
(20,637) (20,637) 
Net income (loss) attributable to common stockholders - basic$(11,677)$(375)$(16,161)$75 
Add: undistributed earnings reallocated to common stockholders   2 
Net income (loss) attributable to common stockholders - diluted$(11,677)$(375)$(16,161)$77 
Denominator:
Weighted average shares of common stock outstanding - basic68,079,387 34,069,346 51,184,615 34,065,173 
Add: effect of dilutive stock options   999,183 
Weighted average shares of common stock outstanding - diluted68,079,387 34,069,346 51,184,615 35,064,356 
Net income (loss) per share, attributable to common shareholders:
Basic$(0.17)$(0.01)$(0.32)$0.00 
Diluted$(0.17)$(0.01)$(0.32)$0.00 
17


(1) The conversion price of the Company’s Series C and Series D redeemable convertible preferred stock was adjusted as the offering price in the initial public offering was below a certain threshold resulting in the preferred stockholders receiving a fixed dollar amount on conversion settled into a variable number of shares, or a stock-settled redemption feature. Upon the settlement of this redemption feature, the Company recorded a gain on extinguishment of the redeemable convertible preferred stock of $29.0 million as an adjustment to net loss to arrive at net loss attributable to common stockholders to calculate earnings per share. The extinguishment gain was measured as the difference between the carrying amount of the redeemable convertible preferred stock and the fair value of common stock upon the IPO date that the preferred stock converted into.
(2) In April 2021, the Company's board of directors declared a cash dividend of $35.0 million to the holders of record of our common stock as of May 3, 2021, that was contingent upon the closing of the Company's IPO. On June 29, 2021, the Company paid the dividend, of which $20.6 million was paid to the holders of the Company's redeemable convertible preferred stock.

The following potentially dilutive shares were excluded from the computation of diluted net income (loss) per share because including them would have been antidilutive:
For the three months ended June 30,
For the six months ended June 30,
2021202020212020
Redeemable convertible preferred stock(1)
 49,100,928  49,100,928 
Stock options to purchase common stock17,676,563 17,414,024 17,676,563 11,963,528 
Unvested restricted stock units2,709,119  2,709,119  
Employee stock purchase plan30,789  30,789  
Total20,416,471 66,514,952 20,416,471 61,064,456 

(1) Immediately prior to the completion of the IPO, 49,100,928 outstanding shares of redeemable convertible preferred stock with a carrying value of $376.4 million converted into 49,649,023 shares. of common stock.

11.     Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against net deferred tax assets, stock-based compensation, state taxes, and other permanent differences.
The Company has evaluated the available positive and negative evidence supporting the realization of its gross deferred tax assets, including cumulative losses, and the amount and timing of future taxable income, and has determined it is more likely than not that the assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against the U.S. federal and state deferred tax assets as of each balance sheet date presented.
During the three and six months ended June 30, 2021 and 2020, the Company has not recorded any uncertain tax positions and has not recognized interest or penalties in the consolidated statement of operations and comprehensive income (loss).

12.     Related Party Transactions

In April 2020, the Company engaged Summit House Studios LLC, a third-party consultant, to provide digital ad production services. Summit House Studios LLC is owned by a major shareholder of the Company. Based on services provided, the Company incurred $0.2 million and $0.3 million, respectively, of advertising costs for the three and six months ended June 30, 2021, and $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2020 which is reported as marketing expense in the Company’s consolidated statements of comprehensive income (loss).

13.     Subsequent Events

None.






18


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.