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United States securities and exchange commission logo
February 26, 2021
Nikolaos Vlahos
Chief Executive Officer
Honest Company, Inc.
12130 Millennium Drive, #500
Los Angeles, CA 90094
Re: Honest Company,
Inc.
Draft Registration
Statement on Form S-1
Submitted January
29, 2021
CIK No. 0001530979
Dear Mr. Vlahos:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form S-1 submitted January 29, 2021
Founder Letter, page iii
1. Please include support
for the statement that people continue to choose Honest over the
status quo.
Prospectus Summary
Overview: The Honest Difference, page 1
2. Please characterize the
statements throughout this section relating to characteristics of
your consumers as your
beliefs, or otherwise provide support for such statements. Please
also define the term
"digitally-native." Please also explain how you have disrupted
multiple product
categories and provide support for such statement.
Nikolaos Vlahos
FirstName LastNameNikolaos Vlahos
Honest Company, Inc.
Comapany26,
February NameHonest
2021 Company, Inc.
February
Page 2 26, 2021 Page 2
FirstName LastName
3. We note your reliance on a third-party study that you commissioned.
Please disclose the
entity from which you commissioned the report. Please also file the
written consent of this
entity as an exhibit to your registration statement. Refer to Rule 436
and Section 7 of the
Securities Act.
4. We note your statement that "[o]ur integrated multi-category product
architecture helps
drive loyalty, increase our consumer wallet share and generate
attractive consumer
lifetime value." Please revise to provide support for these statements
and quantify such
measurements, to the extent possible. Please also tell us how you
measure each of these
categories and disclose how these measurements have changed from prior
years. We note
in particular that you have been in business since 2011, with newer
product categories in
Skin and Personal Care and Household and Wellness. Please tell us how
this impacts
your measurement of "consumer lifetime value."
5. You state that your direct connection with your community enables you
to understand in
real time what consumers needs are and inspires your product
innovation pipeline.
Please explain how you receive feedback from your consumers and what
it means to "join
the community of Honest loyalists."
6. We note your statement that you "strive to reduce our environmental
footprint and expect
our domestic Honest.com shipments to be carbon neutral during the
first quarter of 2021."
Please provide additional detail on this statement and explain whether
your shipments are
carbon neutral currently, given that you expect that this will be
achieved by the end of the
current quarter.
7. Please disclose in your summary that you have incurred net losses each
year since your
inception.
Our Industry
Rapidly Growing Clean and Natural Segment in Large Market, page 2
8. We note your statement that "[t]he historical leading brands in these
categories generally
focus on single categories and offer products made with conventional
ingredients that are
less aligned with increasing consumer preference for clean and natural
solutions." Please
disclose which brands you are referring to and how you define
"conventional" versus
"clean/natural" in the charts used on page 91, including the number of
brands in each
category. Please also explain what is meant by the "implied" clean and
natural penetration
of the "broader markets."
Our Strengths
Mission-Driven Brand Inspiring Deep Consumer Affinity Across Categories, page 4
9. We note your statements that "[o]ur brand promise results in deep
consumer affinity,
loyalty and broad desire to shop our brand across categories" and
"[a]s we have become
an increasingly integral part of consumers lives, serving them
across their pregnancy,
baby, beauty and household care needs, we have achieved significant
wallet share, high
Nikolaos Vlahos
FirstName LastNameNikolaos Vlahos
Honest Company, Inc.
Comapany26,
February NameHonest
2021 Company, Inc.
February
Page 3 26, 2021 Page 3
FirstName LastName
repeat purchasing rates and attractive consumer lifetime value."
Please quantify these
measurements so that investors understand what you consider to be
"significant" and
"high repeat" and "attractive" and include a description of how you
measure these results
and how they have changed in recent years.
10. We note that, according to a third-party study that you commissioned
among then-current
diaper, personal care and beauty buyers of certain brands, "Honest is
ranked #1 or #3
across indices of better-for-you credibility, expressive brand
personality and functional
excellence." Please tell us how many consumers were surveyed in the
study, the date of
the study, and the number of other brands included in each category
and whether such
brands were conventional or part of the "clean and natural" segment.
Please also provide
additional detail on what "better-for-you credibility," "expressive
brand personality," and
"functional excellence" means with respect to the study, including how
each of these
categories are defined.
Deep Connection with our Customers, page 6
11. We note your statement that "[o]ur ability to own and nurture our
consumer relationships
represents a meaningful competitive advantage over traditional CPG
peers, who largely
rely on retailers and traditional mediums to sell their products."
Please provide support
for this statement with respect to your traditional CPG peers or
revise to state that this is
your belief.
In-House Product Development Capabilities that Power Innovation, page 6
12. We note your statement that "traditional CPG peers are generally less
nimble and typically
take one to two years to bring new products to market." Please provide
additional support
for this statement.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
IPO-Related Expenses, page 75
13. We note you expect to pay $9.5 million in bonuses to certain employees
upon the closing
of this offering. Please tell us what consideration was given to
showing the pro forma
balance sheet and EPS effect of this payment.
Non-GAAP Financial Measure, page 82
14. We note your adjustment Non-ordinary course litigation expenses
to arrive at Total
Adjusted EBITDA. Please expand note (2) to explain specifically what
this adjustment
relates to.
Business
Continued Execution of Omnichannel Strategy to Drive Product Accessibility,
page 95
15. We note that ACV is calculated as the dollar value of stores in which
a product has
Nikolaos Vlahos
FirstName LastNameNikolaos Vlahos
Honest Company, Inc.
Comapany26,
February NameHonest
2021 Company, Inc.
February
Page 4 26, 2021 Page 4
FirstName LastName
scanned in a geography divided by the dollar value of all the stores
in that geography.
Please explain what is meant by the dollar value of stores, product
has scanned, and
geography. Please also disclose how you define legacy brands, the
specific brands that
you are including for comparison here, and how you determined that
these legacy brands
have 95% to 100% ACV, as well as whether your competitors generally
use the same
measurement. Please also supplementally tell us how you obtain the
data that you used
for the calculations included here.
Business
Our Products, page 98
16. We note your claim that the materials in your diapers "differentiate
them from over 90%
of diapers produced by competitors in the marketplace, by volume."
Please provide
additional support for this statement, including whether this claim is
based on one of the
materials used in your diapers, multiple materials, or all the
materials. Please also tell us
how you define competitors in this context and how many competitors
this includes.
17. Please explain what it means that your surface disinfecting spray is
approved by the EPA.
To the extent that this means that the spray meets certain criteria
put forth by the EPA for
a particular use, please disclose this and and remove any implication
that the EPA has
approved this product specifically.
Our Marketing Strategy, page 100
18. We note your social media platform presence, with over 43 million
followers. Please tell
us how you account for this number and whether this number includes
the same followers
using different multiple social media platforms.
Segment Reporting and Geographic Information, page F-7
19. We note your CODM organizes the Company, manages resource allocations
and measures
performance on the basis of one operating segment. You also state that
Our category mix
is a driver of our financial performance given each category s
different margin profile.
Even though our growth strategy aims to boost sales across all
categories, we intend to
prioritize growth in Skin and Personal Care given its attractive
margin characteristics... .
You further state that We intend to continue to prioritize our
investments in Skin and
Personal Care. It appears that discrete financial information
related to your product
categories is available and reviewed, and is also used to make
resource allocation
decisions. Please tell us how you determined that you have one
reportable operating
segment.
Additionally, if you have more than one operating segment and you have
aggregated them
into one reportable operating segment, tell us how you how you met the
aggregation
criteria in ASC 280-10-50-11. Please specifically address how you
determined that your
product categories have similar economic characteristics.
Nikolaos Vlahos
Honest Company, Inc.
February 26, 2021
Page 5
Impairment of Long-Lived Assets, page F-11
20. We note that you perform impairment testing at the asset group level
that represents the
lowest level for which identifiable cash flows are largely independent
of the cash flows of
other assets and liabilities. Please tell us how you have grouped your
assets for purposes
of impairment testing.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition
Sales Returns and Allowances, page F-13
21. Please tell us, and disclose if material, the amount of sales
incentives recorded as a
marketing expense in the periods presented.
Index to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 3. Revenues, page F-20
22. We note that in 2019 you entered into an agreement to license your
trademarks for the
manufacture and distribution of baby apparel products in exchange for
royalties. Please
tell us where these royalties are recognized on the income statement,
and to the extent
they are material, provide a policy for your recognition of the
related revenue.
Exhibits
23. We note that one of your customers accounts for 58% of your total
accounts receivable
and 26% of the total revenue for the year ended December 31, 2019. We
note that another
customer accounts for 14% of your total revenue for the year ended
December 31, 2019.
We also note that you currently buy all of your diapers from one
supplier and substantially
all of your wipes from one supplier. Please disclose these customers
and suppliers and the
material terms of your agreements with them and file the agreements as
exhibits to your
registration statement. In the alternative, please explain why you are
not required to do
so.
24. We note that your products are manufactured by a limited number of
third-party
manufacturers, that you purchase significant amounts of product supply
from a limited
number of suppliers, a single distribution partner, and one major vendor
for DTC shipping
FirstName LastNameNikolaos Vlahos
requirements. To the extent you have an agreements with these parties,
please file them as
Comapany NameHonest
material contracts Company,
or explain Inc.
why you are not required to do so. Please
also ensure all
material
February terms
26, 2021 of 5such agreements are disclosed in the registration
statement.
Page
FirstName LastName
Nikolaos Vlahos
FirstName LastNameNikolaos Vlahos
Honest Company, Inc.
Comapany26,
February NameHonest
2021 Company, Inc.
February
Page 6 26, 2021 Page 6
FirstName LastName
You may contact Aamira Chaudhry at 202-551-3389 or Theresa Brillant at
202-551-3307
if you have questions regarding comments on the financial statements and
related
matters. Please contact Cara Wirth at 202-551-7127 or Erin Jaskot at
202-551-3442 with any
other questions.
Sincerely,
Division of Corporation
Finance
Office of Trade &
Services