What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-08 compared with 2023-03-16 · 118 added, 134 removed, 142 unchanged (64% of the section changed)

Overview Of Business

The Honest Company (the "Company," which may also be referred to as “we,” “us” or “our”) is a digitally-native consumer products company born in the Gen Z era to make purpose-driven consumer products designed for all people .

The Honest Company (the "Company," which may also be referred to as “we,” “us” or “our”) is a personal care company dedicated to creating clean- and sustainably-designed products .

Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products.

4 unchanged sentences

Our differentiated platform positions us for continued growth through our trusted brand, award-winning multi-category product offering, deep digital-first connection with consumers and omnichannel accessibility.

We completed the initial public offering ("IPO") of our common stock on May 7, 2021, and our common stock began trading on the Nasdaq Global Select Market on May 5, 2021.

Our Products and Product Categories

2 unchanged sentences

• Diapers and Wipes.

Primary components of our Clean Conscious™ diapers are made with sustainably harvested, chlorine-free fluff pulp and other plant-derived materials.

Our diapers are also packaged with a more efficient design than our previous diaper product that uses less material.

Our diapers serve as a strategic customer acquisition tool, as new parents often proceed to also purchase baby wipes and products from our Skin and Personal Care and Household and Wellness categories.

Primary components of our diapers include responsibly sourced, plant-based fluff pulp and other plant-derived materials.

Our diapers have an extensive modern and efficient design that uses less material.

Our Clean Conscious TM wipes are compostable and plant-based, made with over 99% water and gentle on sensitive skin.

• Skin and Personal Care .

2 unchanged sentences

Our products are formulated to perform and our ingredients and formulas are toxicologist-audited for potential health concerns.

For example, our award-winning (1) Fresh Flex Concealer is made without harmful parabens or paraffin, synthetic fragrances, cyclomethicone or mineral oil and our Clean Power Technology™ to create lasting wear.

For example, our award-winning (1) Daily Green Juice Antioxidant Super Serum is made without harmful parabens or paraffin, synthetic fragrances, cyclomethicone or mineral oil and is formulated to improve the appearance of uneven skin tone and help your skin feel hydrated for a healthy glow.

• Household and Wellness.

We offer clean products that are designed to be safe for the whole family without compromising efficacy.

Some of the category products include baby clothing, pre and post natal vitamins, wellness supplements, sanitizing wipes, and hand sanitizer made with key plant-based ingredients.

In 2022, we introduced new product innovation that has diversified our offering in this category, including our wellness supplement line and Honest Baby Clothing ® .

Some of the category products include baby clothing (2) made with organic cotton, pre and post natal vitamins, wellness supplements, sanitizing wipes, and hand sanitizer made with plant-based ingredients.

___________________

(1) Allure's 2023 "Best of Beauty" award winner in the "Clean Beauty" category.

(2) Our "Holiday Fam Jams" were voted one of "Oprah's Favorite Things" in 2023.

Our Integrated Omnichannel Presence

Since our launch, we have built a well-integrated omnichannel presence by expanding our product availability across both Digital and Retail channels, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively.

Since our launch, we have built a well-integrated omnichannel presence by expanding our product accessibility across both Digital and Retail channels, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively, as well as distribution with several other retailers nationwide.

This business model has allowed us to efficiently scale our business while remaining agnostic as to the channel where consumers purchase our products.

1 unchanged sentence

In 2023, we generated 49% of revenue through our Digital channel, which includes our flagship digital platform, Honest.com, and third-party pureplay ecommerce sites.

Through Honest.com, we are able to establish a direct relationship with our consumers, to more effectively influence brand experience and better understand consumer

preferences and behavior.

Our website showcases the entirety of our product portfolio, offers exclusive products and services including our subscription service and loyalty program Honest Rewards™, houses branded content featured on product detail pages and our blog, and facilitates new product feedback via exclusive pre-launch access across all our channels.

In addition to shopping our products a la carte, consumers have the option to subscribe to our popular Diapers and Wipes bundle subscription, as well as customizable single item subscriptions.

Through Honest.com, we are able to establish a direct relationship with our consumers, to more effectively influence brand experience and better understand consumer preferences and behavior.

Our website showcases the entirety of our product portfolio, offers exclusive products and services including our subscription service, houses branded content featured on product detail pages and our blog, and facilitates new product feedback.

In addition to shopping our products a la carte, consumers have the option to subscribe to our popular Diapers and Wipes bundle subscription.

In 2023, 19% of our revenue was generated from Honest.com.

In January 2023, we launched Honest Rewards™ loyalty program aimed to increase long-term customer value with the brand through consumer incentives.

Additionally, we have strong relationships with Amazon and other third-party ecommerce platforms which allow us to further our brand experience and leverage engaging assets and content featured on Honest.com.

6 unchanged sentences

Additionally, these partnerships support our differentiated value proposition by making our products conveniently accessible in the many places where our consumer shops.

As of December 31, 2022, our products can be found in approximately 50,000 retail locations across the United States, Canada and Europe.

As of December 31, 2023, our products can be found in approximately 51,000 retail locations across the United States and Canada.

All-commodity volume ("ACV") is the measurement of a product’s distribution weighted by the overall dollar retail sales attributable to the retail location distributing such product;

1 unchanged sentence

This metric provides a measurement of retail penetration that takes into account the importance of selling through retail locations with higher overall retail sales volumes, and as a result we believe that our competitors generally use the same measurement.

For the 13-weeks ended January 1, 2023, in total we had approximately 72 points ACV in national multi-outlet stores, as compared with 49 points in the year ago period, primarily driven by the launch of diapers, wipes, and personal care products into over 2,500 Walmart stores.

For the 13-weeks ended December 31, 2023, in total we had approximately 83 points ACV in national multi-outlet stores, as compared with 72 points in the year ago period, primarily driven by new distribution and growth at one of our key retailers.

Below is our ACV weighted distribution for the 13-week period ended:

Our Growth Strategy

Marketing Strategy

The core of our Content, Community, Commerce marketing strategy is centered upon creating a brand for all people that leverages rich content to drive brand awareness around clean, conscious living through marketplaces where our products are sold.

Included in our Content, Community, Commerce marketing strategy is our digital strategy that is geared towards creating lifetime value while fueling our omnichannel growth by converting one-time purchasers to a community of like-minded consumers

aligned with Honest’s mission (the "Digital Strategy").

This conversion will be facilitated through the curation of value-driven digital experiences, including personalized shopping experiences, loyalty rewards, optimized mobile and desktop experiences and overall improvements within our digital assets to delight and excite our consumers.

Innovation Strategy

We use connectivity to our community of consumers to provide valuable insights that power innovation across categories.

We use innovation to support our growth objectives across our portfolio, as highlighted in the three core pillars of our Innovation Framework:

that we bring product innovation that 1) feeds and nurtures our core values, 2) expands within our existing product categories, and 3) grows into new potential product categories adjacent to existing categories that fit with our value proposition to the consumer.

We continue to innovate in each of our product categories in areas such as breakthrough new product formulations, innovative packaging, costovation (defined below) and marketing strategy, with a focus on driving “big bets” across potential product adjacencies where we have:

1) ability to build on our premium positioning, 2) ability to lead and win in a category, and 3) the opportunity to expand into more places within an existing Honest home while positioning ourselves as a premium brand.

We are also focused on building a portfolio of products in complementary categories through our Innovation Strategy and the investment in our Digital Strategy.

We are building an Honest community with the goal of creating a more holistic clean, conscious home for consumers and customers alike.

We strive for continuous improvement in our existing products’ safety, sustainability, efficacy and design profile while achieving better performance often at lower cost, which we refer to as costovation.

Omnichannel Strategy

The core of our marketing strategy is focused on building a purpose driven brand with deep connection to the community of shoppers we serve.

We take a modern marketing approach and are constantly innovating on new ways to reach and connect with our community.

We believe this includes a best-in-class social media strategy, a deep creator/ influencer network, and a highly strategic approach to paid media.

We are committed to bringing our Honest Standard, as further described below, to new products and new categories where we believe there is a need for a higher standard for clean personal care.

We reach our consumers through a strategic omnichannel approach across complementary Digital and Retail channels to maximize consumers’ connection, experience and access to our brand.

In 2023, Target, Amazon and Walmart accounted for approximately 31%, 30% and 7% of our total revenue, respectively.

We are enhancing our technology to allow digital orders to be delivered to customers faster and providing content and community digital offerings to take advantage of our subscriptions program.

1 unchanged sentence

Our omnichannel approach seeks to meet consumers however they want to shop, balancing deep consumer connection with broad convenience and accessibility.

10 Years of Growth

In 2023, we executed a broad-based Transformation Initiative designed to build the Honest brand and drive growth in higher-margin areas of the portfolio, strengthen our cost structure, drive focus on the most productive areas of our business, deliver greater impact from brand-building investments, and improve executional excellence across the enterprise.

Throughout 2023, we made meaningful progress across our Transformation Initiative pillars of Brand Maximization, Margin Enhancement, and Operating Discipline, including delivering cost savings throughout our supply chain, reducing marketing spend on low-return campaigns, emphasizing best-selling items, and exiting the Asian, European, and portions of our sanitization business, while building a culture that emphasizes executional excellence and discipline.

In addition, we continued our improved working capital position, including our discipline in inventory management and we executed price increases across a large portion of our portfolio that supports Brand Maximization, recognizing the value Honest provides consumers.

In fiscal year 2024, we expect to steadily improve our operating results by expanding gross margin, leveraging operating expenses and generating positive Adjusted EBITDA.

Our updated strategic plan is grounded in our Transformation Initiative Pillars, which set the building blocks for long-term value creation.

Beyond 2024, the Company expects to realize revenue growth of 4% to 6% annually and continued Adjusted EBITDA margin expansion.

Supply Chain and Operations

We manage a global supply chain of highly qualified, third-party manufacturing and logistics partners to produce and distribute our products.

We look to manufacturing partners who share our commitment to quality, Current Good Manufacturing Practices ("cGMPs"), sustainability, and design.

We conduct quality audits of our third-party manufacturing partners and require that they follow our high standards of controlled documentation, cleaning and safety protocols, and laboratory controls.

Our third-party manufacturing partners are located in various locations including the United States, Mexico and China.

Our supply chain team manages these relationships and processes and, with the support of our innovation team, researches materials and equipment, approves and manages purchasing plans, and oversees product fulfillment.

The primary raw materials and components of our products include sustainably harvested fluff pulp in our diapers and plant-based substrate in our baby wipes, among other materials.

We manage a global supply chain of highly qualified, third-party suppliers, including materials, components, manufacturing and logistics partners to produce and distribute our products.

We look to identify and work with partners who share our commitment to quality, current Good Manufacturing Practices ("cGMPs"), clean ingredients in partnership with our Honest Standard, sustainability, and design.

We conduct quality audits of our third-party partners and require that they follow our high standards of quality, including controlled documentation, cleaning and safety protocols, and laboratory controls.

Our third-party partners are located in various locations including the United States, Mexico and China.

Our supply chain team manages these relationships and processes and, with the support of our innovation team, researches materials, components and equipment, approves and manages purchasing plans, and oversees product fulfillment.

The primary raw materials and components of our products include responsibly sourced, plant-based fluff pulp in our diapers and plant-based substrate in our baby wipes, among other materials.

Just as important as what goes into our products, we actively work with suppliers to avoid certain materials, including parabens, paraffins, synthetic fragrances, and mineral oil, that don’t meet our standards but are commonly used by mainstream brands.

Our distribution network includes three warehouses in Nevada, Pennsylvania and the Netherlands and other short-term inventory storage locations with retail and direct-to-consumer ("DTC") fulfillment capabilities and value-added services operated by GEODIS Logistics LLC, or GEODIS.

Our distribution network includes two warehouses in Nevada and Pennsylvania, respectively, with retail and direct-to-consumer (“DTC”) fulfillment capabilities and value-added services operated by National Distribution Centers, LLC, or NFI, and GEODIS Logistics LLC, or GEODIS, respectively.

The warehouse in Las Vegas is a state-of-the-art facility leased by Honest with a focus on automated large scale DTC fulfillment.

We manage inventory by forecasting demand, analyzing product sell-through, and analyzing our supply chain to ensure sufficient capacity to support demand.

As a result of the COVID-19 pandemic and other macroeconomic trends, we and our distribution partners have in the past experienced and may experience in the future some disruptions to the operations of our fulfillment centers.

Sustainability is a key component of our supply chain and distribution.

We have transitioned to 100% pre-consumer or post-consumer recycled ("PCR") cardboard shipping cartons for our Honest.com shipments.

We manage inventory by forecasting demand tied to consumption and marketing campaigns, as well as analyzing product sell-through, and analyzing our supply chain to ensure sufficient capacity to support demand.

As a result of global pandemics or other macroeconomic trends, we and our distribution partners have in the past experienced and may in the future experience some supply-related disruptions to the operations of our fulfillment centers.

The markets in which we operate are highly competitive and rapidly evolving, with many new brands and product offerings emerging in the marketplace.

3 unchanged sentences

• Skin and Personal Care.

Select competitors include Johnson & Johnson Consumer Inc.

Select competitors include Kenvue Inc.

(maker of Johnson’s Baby and Aveeno), The Clorox Company (parent company of Burt’s Bees, Inc.), Unilever PLC (maker of Shea Moisture), LVMH Moët Hennessy Louis Vuitton (maker of Benefit Cosmetics LLC), Estée Lauder Inc., L’Oréal S.A.

4 unchanged sentences

We believe that we compete favorably across these factors taken as a whole.

We believe that the “clean and natural” product categories of the Diapers and Wipes, Skin and Personal Care and Household and Wellness markets are growing at outsized rates, as a result of the increasing shift in consumer demand for “better-for-you” products.

Based on independent third-party consumption data for the 52 weeks ended January 1, 2023, the dollar amount of sales of the clean and natural products of Honest wipes, diaper and baby personal care grew 22.9%, 15.2% and 12.8%, respectively, significantly outpacing the products in the industry as a whole which grew in diapers and wipes 7.7% and 7.1%, respectively, and declined in baby personal care by 1.6%.

Our product-level revenue growth in 2023 significantly outpaced the category in wipes, diapers and baby personal care.

Based on independent third-party consumption data for the 52 weeks ended December 31, 2023, the dollar amount of sales of the clean and natural products of Honest wipes, diaper and baby personal care grew 39%, 23% and 19%, respectively, significantly outpacing the products in the industry as a whole which grew in wipes, diapers and baby personal care of 6%, 4% and 3%, respectively.

We believe that consumers' need for clean products will continue to grow in years to come and as consumers become more knowledgeable about clean credentials and our Honest Standard.

We believe that certain historical leading brands that have produced products in these categories for decades 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.

We believe that given consumers’ growing focus on their health and wellness, reducing waste and promoting social impact, we are well-positioned to continue to take market share from these legacy brands.

We believe that this market shift towards clean and natural products is in its early stages and provides whitespace opportunity for further market penetration and category growth in the clean and natural product categories.

Our Purpose-Driven Organization

At Honest, we prioritize transparency, trust, safety and human health in all that we do.

Our purpose-driven mission has always been guided by our commitment to philanthropic partnerships and community engagement with a focus on diversity and inclusion.

Our Environmental, Social and Governance ("ESG") initiatives are focused around three key pillars, Planet;

We recently published an Investor tear sheet on our investor relations website that aligns with both the Sustainability Accounting Standards Board ("SASB") and the Task Force on Climate-related Financial Disclosures ("TCFD") frameworks.

We are a personal care company on a mission to challenge ingredients, ideals , and industries so people can protect more of what they love.

We decided the rules for mass personal care were outdated, so we made our own.

We call this “The Honest Standard” and it drives our standard for quality across the three dimensions below.

Our ingredients, ideals and industries drive our Environmental, Social, Governance ("ESG") strategy.

The Nominating and Corporate Governance Committee is responsible for overseeing management of risk related to our ESG practices, including risks related to our operations and our supply chain.

In 2022, we also formed an ESG Council which comprises certain executive management and various cross-functional leaders across the organization that share oversight of ESG matters.

• We strive for sustainable packaging.

Our commitment to environmental sustainability shows up through our product development, packaging processes and in all parts of our business on a daily basis.

For example, we use sustainable cartons in some of our Skin & Personal Care products that are environmentally-friendly, Forest Stewardship Council ("FSC")-certified, and made from 100% recycled, PCW (pre/post consumer waste) materials.

• We strive to lessen our environmental footprint—minimizing our impact by offsetting carbon emissions and working to responsibly source materials and packaging.

We have transitioned our Honest.com shipping cartons to 100% PCR cardboard.

In 2020, Honest entered into an agreement to participate in a six-month carbon offset program to reduce greenhouse gas emissions resulting from our domestic Honest.com shipments.

We began our participation in this program in 2020 and have participated in consecutive six-month periods through 2021 and 2022.

We plan to continue to participate in this six-month program through the end of 2023.

Our Clean Conscious™ diaper features an innovative design including our plant-based backsheet, sustainably harvested fluff pulp and a more efficient design than our previous diaper product that uses less material helping to avoid using over 7,000 trees every single year.

• We prioritize waste reduction, focusing on reusable, refillable and recyclable materials.

100% of our baby personal care and household cleaning bottles are recyclable or include recycled materials and we are regularly looking to increase the amount of post-consumer resin in our components.

We eliminated plastic in many of our Skin and Personal Care products by moving to aluminum tubes, refillable tin compacts and glass jars.

• We are committed to the health, safety and well-being of our consumers by providing clean, effective, well-designed products consumers can feel great about using.

We place an emphasis on ingredient and formula assessments, including external third-party certifications and in-house Toxicologist and Eco-toxicologist Audit protocols where we review the final formula for potential chemical hazards, dose-response, and anticipated exposure to determine if our products meet a health-protective margin of safety, not only for single product use, but over the consumer’s lifetime.

Our NO List™ contains over 3,500 chemicals and materials we choose not to use, including parabens, sulfate surfactants, phthalates, formaldehyde donors and synthetic fragrances.

• We prioritize naturally-derived resources over synthetic, petroleum-derived ingredients in our product formulas and designs.

The majority of our Baby Personal Care and Mama Care formulas meet the United States Department of Agriculture's ("USDA") BioPreferred® Program requirements for biobased content.

The alcohol used in our alcohol wipes, hand sanitizer gel and hand sanitizer spray is plant-derived and our fragrances are naturally derived, never synthetic.

Primary components of our diapers are made with sustainably harvested, chlorine-free fluff pulp and other plant-derived materials, including our plant-based backsheet.

Our baby clothing is made with organic cotton.

• We comply with the requirements of many independent organizations or certification authorities for several of our products.

This includes the USDA's, National Organic Program, the USDA’s BioPreferred® Program for biobased content, the National Eczema Association’s Seal of Acceptance, EWG Verified™, the U.S.

EPA’s Safer Choice Program, Green Seal®, the NSF/ANSI 305 standards set by Quality Assurance International and the Global Organic Textile Standard for organic cotton in our baby clothing and bedding.

We have over 100 EWG Verified™ SKUs across

the organization, which are products that do not include EWG's chemicals of concern while also meeting their strict health-based guidelines.

This year, w e plan to publish our first Corporate Social Responsibility report for the 2022-2023 period, which will be available on our investor relations website.

We believe that consumers should never have to worry about the safety of the products they bring into their home.

That’s why we rigorously test and research every product.

We maintain a NO List™ of over 3,500 chemicals and materials we will not formulate with, including parabens, sulfate surfactants, phthalates, formaldehyde donors and synthetic fragrances.

We have an in-house Toxicologist and an Eco-toxicologist with in-depth audit protocols.

We review each formula for potential chemical hazards, dose-response, and anticipated exposure to ensure our products are safe not only for single use, but over the consumer’s lifetime.

Our in-house R&D team selects ingredients with care.

For example, we prioritize naturally-derived resources over synthetic, petroleum-derived ingredients in our product formulas and designs.

The alcohol used in our alcohol wipes and hand sanitizer spray is plant-derived and our fragrances are naturally derived, never synthetic.

Primary components of our diapers are made with responsibly sourced, plant-based fluff pulp and backsheet, and other plant-derived materials.

Our Honest Baby Clothing® is made with organic cotton.

We meet the requirements of many independent organizations or certification authorities for several of our products.

This includes the USDA's, National Organic Program, the USDA’s BioPreferred® Program for biobased content, the National Eczema Association’s Seal of Acceptance, Environmental Working Group ("EWG") Verified™, the U.S.

EPA’s Safer Choice Program, Green Seal®, the NSF/ANSI 305 standards set by Quality Assurance International and the Global Organic Textile Standard for organic cotton in our Honest Baby Clothing and bedding.

We have over 100 EWG Verified™ SKUs across the organization, which are products that do not include EWG's chemicals of concern while also meeting their strict health-based guidelines.

We conduct quality audits of our third-party manufacturing partners.

We require our third-party manufacturers to follow our high standards of controlled documentation, cleaning and safety protocols, and laboratory controls.

We require our third-party manufacturers to commit to follow our high standards of controlled documentation, cleaning and safety protocols, and laboratory controls.

We partner with trusted science-based industry groups driving change in green chemistry.

1 unchanged sentence

We are also members of the Green Chemistry & Commerce Council (GC3), a multi-stakeholder collaboration driving for commercial adoption of green chemistry by forging meaningful connections across the supply and value chain.

Community Impact

We work closely with our charity partners, including Baby2Baby, to help provide children and families around the world with the basic essentials and resources they need to live healthy lives.

Since the start of our relationship with Baby2Baby and other partners, we have donated more than 28 million family personal care, feminine care, clean beauty products and other essentials to those in need and our compassionate team has volunteered countless hours giving back to our communities and providing disaster relief.

Our partnership with March of Dimes helps fund research, advocacy and service programs addressing maternal and infant mortality with critical healthcare and support.

The partnership will also fund the creation of new advocacy content about environmental justice for moms and babies, helping further spread the important work this organization has set out to do.

In 2022, we announced that our Head of Toxicology co-authored the Personal Care Product & Beauty Justice brief through March of Dimes' Mom and Baby Action Network (M-BAN), highlighting cosmetic ingredients of potential concern for a pregnant person and their unborn child as well as inequities experienced by marginalized populations;

the brief is expected to be published in 2023.

Through this partnership, we have donated more than $0.4 million, reaching more than an estimated 455,000 mothers with health education and programs to support the organization, including its new Mom and Baby Action Network.

Human Capital Management

Our Board of Directors and Compensation Committee provide important oversight on certain human capital matters, including the strategic direction for various people-related business goals and strategies, such as compensation and benefit programs, leadership succession planning, culture and talent development.

Our human capital planning process strategically aligns our business needs with the goal of ensuring we have the capability and capacity we need to meet consumer demand.

As of December 31, 2022, we had a total of 198 full-time employee equivalents, as well as a limited number of temporary employees and consultants.

In building our high-performing teams, we have invested in leadership, marketing, digital and technology capabilities.

Embedded in the Honest culture are core values that honor diversity and inclusion, making The Honest Company a workplace that values different perspectives and ideas.

Honest offers a competitive compensation and benefits program, and our award-winning learning and development platform, Honest University, delivers opportunities for all employees to grow and develop personally, professionally and financially.

Our corporate social responsibility efforts provide opportunities for employees to give back to communities in need through volunteerism, donation matching and paid volunteer time off.

We foster an environment of community and support within our organization through our employee resource groups (discussed below), which offer a safe forum to inspire and develop employee-led initiatives addressing issues that matter most to them.

As a health and wellness brand, we ensure our employees have competitive benefits and access to a range of wellness offerings to empower them to live healthy, happy lives.

Diversity and Inclusion

We believe that every day is an opportunity to reinvent and break the mold in ways that serve the human spirit.

As a company founded by a woman of color, we have always been passionate about ensuring a diverse and inclusive workforce that reflects our consumers and the communities we serve.

1 unchanged sentence

publicly traded company, bringing a new era of leadership that reflects the diversity of Honest’s consumers.

We are proud to say that as of December 31, 2022, people of color represented nearly half of our workforce, and women represented more than 65% and 60% of our workforce and leadership, which includes director level and above, respectively.

We currently have four Employee Resource Groups:

Women Excelling in Leadership and Living , or W.E.L.L,

Parents & Friends , Black Leadership, Allies & Community , or B.L.A.C and Honest Asian-American Pacific Islanders , or H.A.A.P.I.

W.E.L.L supports the personal and professional development of women at Honest.

Parents & Friends provides a valuable network of parenting resources and information.

B.L.A.C was created to lift, engage and empower Black voices within The Honest Company and across the community.

We are proud to say that as of December 31, 2023, people of color represented more than half of our workforce, and women represented approximately 65% and 60% of our workforce and leadership, which includes director level and above, respectively.

As of December 31, 2023, we had a total of 176 full-time employees, as well as a limited number of temporary employees and consultants.

We seek to breakdown old standards of what “parenthood” and “beauty” should be, with a commitment to support diversity in how these standards come to life in our marketing.

We currently have five Employee Resource Groups ("ERGs"):

Women Excelling in Leadership and Living (W.E.L.L), Black Leadership, Allies & Community (B.L.A.C), Honest Orgulloso Latine & Allies (H.O.L.A), Honest Asian-American Pacific Islanders (H.A.A.P.I) and P.R.I.D.E.

Collective (Provide a Respectful, Inclusive, and Diverse Environment for the LGBTQIA+ community within and surrounding the Honest Company).

W.E.L.L was the first ERG created to support the personal and professional development of women at Honest.

B.L.A.C was created in 2020 to lift, engage and empower Black voices within The Honest Company and across the community.

H.A.A.P.I was launched in 2021 to create a supportive and inclusive community for Asian Americans and Pacific Islanders and allies.

We have made a commitment to provide training and a platform for important dialogue about diversity, inclusion and equity.

Hiring, Development and Retention

We look to attract and retain the best talent to help the Company deliver against our strategies.

We prioritize career growth and leadership development because growing our talent and building our capabilities supports our retention efforts and helps us establish a strong foundation for long-term success.

We believe a firm commitment to our values will continue to drive our success going forward and that employee engagement is an integral component.

The ongoing training and development of our employees through our Honest University program provides continued growth for employees in areas of leadership, as well as technical skills.

Employee Safety and Well-Being

As a values-driven organization, the Company takes a holistic approach to caring for its employees, with benefits and programs designed to support physical, mental, emotional and financial well-being.

We prioritize safety for all employees and third-party warehouse partners through a combination of education, training and safety-related policies, while also operating in compliance with applicable regulations, including Occupational Safety and Health Administration guidelines in the U.S.

This approach was particularly important as the Company continued to navigate the COVID-19 pandemic and implemented enhanced safety protocols across our facilities, including preventive detection measures, contact tracing, frequent cleaning and sanitizing, required use of personal protective equipment and the adjustment of work schedules to reduce exposure.

The Company continued to support employees emotional well-being during the pandemic by offering additional physical and mental health benefits, including our partnership with Thrive Global which offers employees learning and development through training sessions, resources and virtual guides to support and promote emotional well-being.

Additionally, the Company provides an Employee Assistance Program (EAP) at no cost to employees to support emotional health and a fitness reimbursement through Global Fit Rewards to encourage a healthy lifestyle for Honest employees.

To support our people’s financial well-being, the Company provides competitive compensation – including short- and long-term incentives – to attract and retain top talent.

Our commitment to pay equity helps ensure our compensation is fair and rewards employees for their contributions.

In addition, we offer a competitive employee matching 401(k) plan.

H.O.L.A and P.R.I.D.E.

Collective were launched in 2023 to uplift and support an inclusive community that promotes diversity, professional development and cultural awareness.

Each ERG has an executive sponsor.

Community Impact is also very important to us.

We work closely with our charity partners, including Baby2Baby, to help provide children and families around the world with the basic essentials and resources they need to live healthy lives.

Since the start of our relationship with Baby2Baby and other partners in 2012, we have donated more than 30 million family personal care, feminine care, clean beauty products and other essentials to those in need and our compassionate team has volunteered over 20,000 hours giving back to our communities and providing disaster relief.

Our partnership with March of Dimes helps fund research, advocacy and service programs addressing maternal and infant mortality with critical healthcare and support.

The partnership will also fund the creation of new advocacy content about environmental justice for moms and babies, helping further spread the important work this organization has set out to do.

Through this partnership, in 2023 we have donated more than $0.7 million, reaching more than an estimated 1.2 million mothers with health education and programs to support the organization, including its new Mom and Baby Action Network.

As a values-driven organization, we take a holistic approach to caring for our employees, with benefits and programs designed to support physical, mental, emotional and financial well-being.

We offer a competitive compensation and benefits program, and our award-winning learning and development program, Honest University, delivers opportunities for all employees to grow and develop personally, professionally and financially.

Our corporate social responsibility efforts provide opportunities for employees to give back to communities in need through volunteerism, donation matching and paid volunteer time off.

The Honest Company supports employees’ emotional well-being through our partnership with Thrive Global which offers employees many resources to promote emotional well-being.

Additionally, we provide an Employee Assistance Program (EAP) at no cost to employees to support emotional health and a fitness reimbursement through Global Fit Rewards to encourage a healthy lifestyle for Honest employees.

We believe small changes in the right direction start ripple effects that have the potential to change entire industries and how products are made.

Our commitment to environmental mindfulness shows up through our product development, packaging processes and in many parts of our business on a daily basis.

For example, the cartons used in our baby personal care line are environmentally-friendly, Forest Stewardship Council ("FSC")-certified, and made from 100% recycled, PCW (pre/post consumer waste) materials.

We have transitioned our Honest.com shipping cartons to 100% PCR cardboard.

Our diapers feature an innovative design that uses less material.

We strive to lessen our environmental footprint—minimizing our impact by offsetting carbon emissions and working to responsibly source materials and packaging.

In 2020, we entered into an agreement to participate in a carbon offset program to reduce greenhouse gas emissions resulting from our domestic Honest.com shipments.

We also have made a commitment to a 42% reduction in scope 1 and scope 2 emissions for all Honest operated facilities by 2030.

Government Regulation

9 unchanged sentences

Inspections also may arise from consumer or competitor complaints filed with the FDA.

In the event the FDA identifies false or misleading labeling or unsanitary conditions or otherwise a failure to comply with FDA requirements, we may be required by a regulatory authority or we may independently decide to conduct a recall or market withdrawal of our product or to make changes to our manufacturing processes or product formulations or labels.

In addition, the Modernization of Cosmetics Regulation Act, enacted in December 2022, is expected to expand the FDA’s regulatory authority over cosmetic products, including by providing the FDA with new mandatory recall authority over cosmetics and by

requiring the registration of cosmetic manufacturing facilities, the reporting of certain adverse events, the issuance of cGMP requirements and the establishment of safety substantiation requirements.

In the event the FDA identifies false or misleading labeling or unsanitary conditions or otherwise a failure to comply with FDA requirements, we may be required by a regulatory authority or we may independently decide to conduct a recall or marke t withdrawal of our product or to make changes to our manufacturing processes or product formulations or labels.

In addition, the Modernization of Cosmetics Regulation Act ("MoCRA"), enacted in December 2022, expanded the FDA’s regulatory authority over cosmetic products, including by providing the FDA with new mandatory recall authority over cosmetics and by requiring the registration of cosmetic manufacturing facilities, the reporting of certain adverse events, the issuance of cGMP requirements and the establishment of safety substantiation requirements.

The registration and listing requirements became applicable on December 29, 2023, although the FDA has announced its intention not to enforce the registration and listing requirements until July 1, 2024 in order to provide regulated industry additional time to comply with those requirements.

The cGMP regulations under MoCRA are to be proposed by December 29, 2024.

If a product is intended for use in the diagnosis, cure, mitigation, treatment or prevention of a disease condition or to affect the structure or function of the human body, the FDA will regulate the product as a drug.

28 unchanged sentences

The Endorsement Guides provide that an endorsement must reflect the honest opinion of the endorser and cannot be used to make a claim about a product that the product’s marketer couldn’t itself legally make.

They also say that if there is a connection between an endorser and the marketer that

consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed.

They also say that if there is a connection between an endorser and the marketer that consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed.

Another principle in the Endorsement Guides applies to ads that feature endorsements from people who achieved exceptional, or even above average, results from using a product.

If the advertiser doesn’t have proof that the endorser’s experience represents what people will generally achieve using the product as described in the ad, then an ad featuring that endorser must make clear to the audience what results they can generally expect to achieve and the advertiser must have a reasonable basis for its representations regarding those generally expected results.

Although the Endorsement Guides are advisory in nature and do not operate directly with the force of law, they provide guidance about what the FTC staff generally believes the Federal Trade Commission Act, or FTC Act, requires in the context using of endorsements and testimonials in advertising and any practices inconsistent with the Endorsement Guides can result in violations of the FTC Act’s proscription against unfair and deceptive practices.

To the extent we may rely on endorsements or testimonials, we will review any relevant relationships for compliance with the Endorsement Guides and we will otherwise endeavor to follow the FTC Act and other legal standards applicable to our advertising.

However, if our advertising claims or claims made by our social media influencers or by other endorsers with whom we have a material connection do not comply with the Endorsement Guides or any requirement of the FTC Act or similar state requirements, the FTC and state consumer protection authorities could subject us to investigations and enforcement actions, impose penalties, require us to pay monetary consumer redress, require us to revise our marketing materials and require us to accept burdensome injunctions, all of which could harm our business, reputation, financial condition and results of operations.

We are also subject to a number of U.S.

federal and state and foreign laws and regulations that affect companies conducting business on the Internet, including consumer protection regulations that regulate retailers and govern the promotion and sale of merchandise.

We are also subject to a number of data privacy and security obligations, including U.S.

federal, state, local and foreign laws, regulations guidance, and industry standards related to data privacy, security, and protection that affect companies conducting business on the Internet, including consumer protection regulations that regulate retailers and govern the promotion and sale of merchandise.

Many of these laws and regulations are still evolving and being tested in courts, and could be interpreted in ways that could harm our business.

4 unchanged sentences

In addition, the application, interpretation and enforcement of these laws and regulations are often uncertain, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

In the European Union, the General Data Protection Regulation, or GDPR, has stringent operational requirements relating to the processing of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

The GDPR also significantly increases penalties for non-compliance.

The California Consumer Privacy Act, or CCPA imposes obligations on covered businesses that process information on California residents to provide specific disclosures to consumers about their data collection, use and sharing practices, and to respond to certain requests from California residents related to their personal data (for example, requests to know of the business’s personal data processing activities, to delete the individual’s personal data, and to opt out of certain personal data disclosures).

Also, the CCPA provides for civil penalties and provides a private right of action which may include an award of statutory damages for certain data breaches.

In addition, the California Privacy Rights Act of 2020, or CPRA, that went into effect on January 1, 2023, expands the CCPA.

The CPRA, among other things, gives California residents the ability to limit the use of certain sensitive information, establishes restrictions on personal data retention, expands the types of data breaches that are subject to the CCPA’s private right of action, provides for penalties for CPRA violations concerning California residents under the age of 16, and establishes a new California Privacy Protection Agency to implement and enforce the law.

Data privacy and security laws impose significant and complex compliance obligations on entities that are subject to those laws.

The General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) are examples of the increasingly stringent and evolving regulatory frameworks related to personal data processing that may increase our compliance obligations and exposure for any noncompliance.

The EU GDPR applies to any company established in the European Economic Area (EEA) and to companies established outside the EEA that process personal data in connection with the offering of goods or services to data subjects in the EEA or the monitoring of the behavior of data subjects in the EEA.

These obligations may include limiting personal data processing to only what is necessary for specified, explicit, and legitimate purposes;

requiring a legal basis for personal data processing;

requiring the appointment of a data protection officer in certain circumstances;

increasing transparency obligations to data subjects;

requiring data protection impact assessments in certain circumstances;

limiting the collection and retention of personal data;

increasing rights for data subjects;

formalizing a heightened and codified standard of data subject consents;

requiring the implementation and maintenance of technical and organizational safeguards for personal data;

mandating notice of certain personal data breaches to the relevant supervisory authority(ies) and affected individuals;

and mandating the appointment of representatives in the UK and/or the EU in certain circumstances.

In the United States, the CCPA imposes obligations on covered businesses to provide specific disclosures related to a business’s collecting, using, and disclosing personal data and to respond to certain requests from California residents related to their personal data (for example, requests to know of the business’s personal data processing activities, to delete the individual’s personal data, and to opt out of certain personal data disclosures).

Also, the CCPA provides for civil penalties and a private right of action for data breaches which may include an award of statutory damages.

In addition, the California Privacy Rights Act of 2020 (“CPRA”), that went into effect on January 1, 2023, expands the CCPA.

The CPRA, among other things, gives California residents the ability to limit use of certain sensitive personal data, establishes restrictions on personal data retention, expands the types of data breaches that are subject to the CCPA’s private right of action, and establishes a new California Privacy Protection Agency to implement and enforce the new law.

Comprehensive privacy legislation has also been enacted in four other states, imposing similar compliance obligations.

There are also a number of legislative proposals pending before the U.S.

Congress, various state legislative bodies and foreign governments concerning privacy and data protection which could affect us.

Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business, results of operations, and financial condition.

If our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices, fines or other liabilities, as well as negative publicity and a potential loss of business.

See the section titled “Risk Factors – Risks Related to Legal and Governmental Regulation” for additional information about the laws and regulations to which we may become subject and about the risks to our business associated with such laws and regulations.

Trademarks and Other Intellectual Property

2 unchanged sentences

We have applied to register or registered many of our trademarks in the United States and other jurisdictions, and we will pursue additional trademark registrations to the extent we believe they would be beneficial and cost- effective.

We have one patent issued and one patent application pending in the United States and one pending international Patent Cooperation Treaty application.

We have one patent issued in the United States.

Our issued patent will expire in April 2037.

15 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business