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Item 8. Financial Statements and Supplementary Data

2025-02-26 compared with 2024-03-08 · 180 added, 275 removed, 816 unchanged (36% of the section changed)

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Consolidated Statements of Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of The Honest Company, Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive loss, of redeemable convertible preferred stock and stockholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of comprehensive loss, of stockholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal year 2022.

Basis for Opinion

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Los Angeles, California

March 8, 2024

February 26, 2025

We have served as the Company’s auditor since 2012.

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Cash and cash equivalents $ 75,435 $ 32,827

Short-term investments — 5,650

Accounts receivable, net 43,476 43,084

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Accumulated deficit ( 485,192 ) ( 479,068 )

Accumulated other comprehensive loss — ( 32 )

Total stockholders’ equity 174,307 123,139

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Other comprehensive loss

Unrealized gain (loss) on short-term investments, net of taxes 32 9 ( 135 )

Unrealized gain on short-term investments, net of taxes — 32 9

Comprehensive loss $ ( 6,124 ) $ ( 39,206 ) $ ( 49,010 )

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The Honest Company, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Redeemable Convertible Preferred Stock Common 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 )

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)

Shares Amount

Balance at December 31, 2021 91,512,140 $ 9 $ 570,794 $ ( 391,656 ) $ ( 41 ) $ 179,106

Net loss — — — ( 49,019 ) — ( 49,019 )

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Vested restricted stock 1,263,963 — — — — —

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

Shares issued under 2021 ESPP 95,742 — 256 — — 256

Common stock withheld for tax obligation and net settlement ( 8,050 ) — ( 37 ) — — ( 37 )

Shares issued under employee stock purchase plan — — 39,490 — 291 — — 291

ASC 842 transition effect — — — 845 — 845

Balance at December 31, 2022 92,907,351 $ 9 $ 586,213 $ ( 439,830 ) $ ( 32 ) $ 146,360

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Vested restricted stock 2,831,801 — — — — —

Shares issued under employee stock purchase plan — — 95,742 — 256 — — 256

Common stock withheld for tax obligation and net settlement — — ( 8,050 ) — ( 37 ) — — ( 37 )

ASC 842 transition effect — — — — — 845 — 845

Shares issued under 2021 ESPP 126,969 — 177 — — 177

Balance at December 31, 2023 95,868,421 $ 9 $ 602,198 $ ( 479,068 ) $ — $ 123,139

Net loss — — — ( 6,124 ) — ( 6,124 )

Other comprehensive loss — — — — — — 32 32

Stock options exercised 8,007,999 1 41,453 — — 41,454

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Vested restricted stock 5,187,447 1 ( 1 ) — — —

Shares issued under employee stock purchase plan — — 126,969 — 177 — — 177

Shares issued under 2021 ESPP 95,830 — 163 — — 163

Balance at December 31, 2024 109,159,697 $ 11 $ 659,488 $ ( 485,192 ) $ — $ 174,307

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Stock-based compensation 15,675 15,804 15,078

Amortization of operating ROU assets 6,444 6,257 6,180

Other 746 ( 1,369 ) ( 558 )

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Purchases of short-term investments — — ( 12,782 )

Proceeds from sales of short-term investments — — 27,394

Proceeds from maturities of short-term investments — 5,683 49,362

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Cash flows from financing activities

Proceeds from initial public offering, net of underwriting commissions and discounts — — 96,517

Dividends paid — — ( 35,000 )

Proceeds from exercise of stock options 41,453 4 122

Payment of initial public offering costs — — ( 5,477 )

Taxes paid related to net share settlement of equity awards — — ( 37 )

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Net cash provided by financing activities 41,597 122 38

Net increase (decrease) in cash, cash equivalents and restricted cash 23,310 ( 41,274 ) 13,591

Cash, cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents 42,608 23,310 ( 41,274 )

Cash and cash equivalents

Beginning of the period 32,827 9,517 50,791

End of the period $ 75,435 $ 32,827 $ 9,517

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets

Cash and cash equivalents $ 32,827 $ 9,517 $ 50,791

Restricted cash, current — — —

Restricted cash, non-current — — —

Total cash, cash equivalents and restricted cash $ 32,827 $ 9,517 $ 50,791

Supplemental disclosures of cash flow information

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Supplemental disclosures of noncash activities

Equipment acquired under capital lease obligations $ — $ — $ 123

Capital expenditures included in accounts payable and accrued expenses $ 44 $ 25 $ 54

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(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 personal care company dedicated to creating clean- and sustainably-designed products.

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.

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 consolidated statements of comprehensive loss upon completion of the IPO.

In April 2021, the Company's board of directors declared a cash dividend of $ 35.0 million to the holders of record of its common stock and its redeemable convertible preferred stock as of May 3, 2021, which the Company paid on June 29, 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 on extinguishment of the redeemable convertible preferred stock 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.

See Note 10 " Redeemable Convertible Preferred Stock and Stockholders’ Deficit " for more information on the Company’s redeemable convertible preferred stock as of December 31, 2020.

The Company is personal care company dedicated to creating cleanly-formulated and sustainably-designed products.

Summary of Significant Accounting Policies

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The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries after elimination of intercompany transactions and balances.

Certain reclassifications to the Company's previously reported financial information have been made to conform to the current period presentation.

The Company made reclassifications to the consolidated statement of cash flows, including a reclassification of $ 6.3 million and $ 6.2 million, respectively, was made from "Other" to "Amortization of operating right-of-use ("ROU") assets" in the "adjustments to reconcile net loss to net cash provided by (used in) operating activities" section of the consolidated statements of cash flow for the years ended December 31, 2023 and 2022 to conform to the current year presentation, among other immaterial reclassifications.

Additionally, the Company made immaterial reclassifications to separately present the lease liability within the deferred tax assets and the right-of-use asset within the deferred tax liabilities related to the implementation of Accounting Standards Codification No.

842 (" ASC 842") in Note 13, "Income Taxes", for the year ended December 31, 2023 to conform to the current year presentation.

Restructuring

The Company incurs restructuring costs in connection with the exiting of certain products and geographical locations, workforce reductions, and other actions.

In 2023, the Company incurred restructuring costs in connection with the exiting of certain products and geographical locations, workforce reductions, and other actions.

Such costs include employee termination benefits (one-time arrangements), termination of contractual obligations, non-cash asset charges, including asset impairments, and other direct incremental costs.

The Company records employee termination liabilities once they are both probable and estimable for severance provided under the Company’s existing severance policy.

The Company recorded employee termination liabilities once they were both probable and estimable for severance provided under the Company’s existing severance policy.

Other costs associated with a restructuring initiative, such as consulting and professional fees, product or geographical exit costs, accelerated amortization associated with a restructuring initiative, are recognized in the period in which the liability is incurred.

Accrued restructuring costs are recorded within Accrued Expenses in the consolidated balance sheets.

Accrued restructuring costs as of December 31, 2023 are recorded within Accrued Expenses in the consolidated balance sheets.

Refer to Note 15, "Restructuring" included in these consolidated financial statements for more information on the Company's restructuring initiatives.

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 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.

The Company’s principal business primarily focuses on creating cleanly formulated- and sustainably-designed products.

The Company’s Chief Executive Officer ("CEO"), as the chief operating decision maker ("CODM"), organizes the Company, manages resource allocations, and measures performance on the basis of one operating segment.

The Company evaluates performance based on consolidated net income (loss).

The CODM additionally considers forecasted information on a quarterly basis for net income (loss) when making decisions regarding capital and personnel needs.

The CODM reviews information at the consolidated entity level, and does not distinguish the principal business, or group the operations, by geographic locations or industry types for purposes of measuring performance or allocating resources.

While the Company creates products that are sold across retail channels and direct-to-consumer ("DTC"), all products are managed as one brand of products under one operating and reportable segment.

Furthermore, the Company notes that monitoring financial results as one reportable segment helps the CODM manage expenses on a consolidated basis, consistent with the Company’s operations.

The Company does not regularly provide the CODM with more detailed segment expense information beyond what is included in the consolidated statements of comprehensive loss.

The significant expense categories which are used to manage operations are those reflected in our consolidated statements of comprehensive loss.

Refer to the consolidated statements of comprehensive loss included in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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.

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The preparation of the 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 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, capitalized software, useful lives associated with long-lived assets, incremental borrowing rates associated with leases, valuation allowances with respect to deferred tax assets, accruals and contingencies, recoverability of non-cash marketing credits, recoverability of goodwill and long-lived assets, and the valuation and assumptions underlying stock-based compensation.

Actual results could materially 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 credit losses, valuation of short-term investments, capitalized software, useful lives associated with long-lived assets, goodwill impairment, incremental borrowing rates associated with leases, valuation allowances with respect to deferred tax assets, accruals and contingencies, recoverability of non-cash marketing credits, and the valuation and assumptions underlying stock-based compensation.

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.

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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 trends within our Household and Wellness product category, consumer demand for sanitizing and disinfecting products decreased over the past few years.

As a result, the Company made a decision to exit certain elements of these products during the quarter ended March 31, 2023.

Refer to Note 17, "Restructuring" included in these consolidated financial statements for more information on the Company's restructuring initiatives.

Cash and Cash Equivalents

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Cash equivalents comprise amounts invested in money market funds.

Investments consist of highly liquid investments in debt securities.

Investments consists of highly liquid investments in debt securities.

Investments comprises commercial paper, certificates of deposit, corporate bonds and U.S.

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As of December 31, 2024, the Company did not hold any investments.

The Company evaluates the potential impairment through review of unrealized losses associated with its investments to determine if the impairment is “temporary” or “other-than-temporary.” A “temporary” unrealized loss is recorded in the accumulated other comprehensive loss component of stockholders’ deficit.

Such an unrealized loss does not reduce net income for the applicable accounting period because the loss is not viewed as “other-than-temporary”.

If the impairment is determined to be “other-than-temporary” the loss is recorded as an impairment charge in the period any such determination is made.

The factors evaluated to differentiate between “temporary” and “other-than-temporary” include the projected future cash flows, credit rating actions, and assessment of the credit quality of the underlying collateral, as well as other factors.

For debt securities with an amortized cost basis in excess of estimated fair value, the Company determines what amount of that deficit, if any, is caused by expected credit losses.

The portion of the deficit attributable to expected credit losses is recorded as an allowance for credit losses with an offsetting entry to interest and other income (expense), net in the Company's consolidated statements of comprehensive loss.

The portion of the loss related to non-credit factors (if any) is generally recorded as a component of comprehensive loss.

Concentrations

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Sales made to consumers through the Company’s Honest.com website are conducted with credit cards, and the Company records its credit card sales in transit as accounts receivable at selling price less applicable deductions.

The Company also extends credit in the normal course of business to its third-party ecommerce customers and retailers and performs credit evaluations on a case-by-case basis.

The Company may extend credit in the normal course of business to its third-party ecommerce customers and retailers and performs credit evaluations on a case-by-case basis.

The Company does not obtain collateral or other security related to its accounts receivable.

Accounts receivable is presented as net of allowance for credit losses.

The Company will consider, among other factors, write-offs of uncollectible accounts receivable that have a contractual maturity of one year or less if the invoice is six months or older.

Accounts receivable are presented as net of allowance for credit losses.

The Company does not accrue interest on its trade receivables.

The Company evaluates accounts receivable estimated to be uncollectible by considering the lifetime expected credit losses of our accounts receivable at time of inception, and records an allowance for credit losses, as necessary, with the balance of our accounts receivable presented at the net realizable value.

The Company evaluates accounts receivable estimated to be uncollectible by considering the lifetime expected credit losses of the Company's accounts receivable at time of inception, and records an allowance for credit losses, as necessary, with the balance of the Company's accounts receivable presented at the amortized cost.

The Company considers factors in its allowance for credit losses such as historical analysis, credit quality of customers, the age of the accounts receivable balances and macroeconomic conditions that may impact on the Company's customers' ability to pay.

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Leasehold improvements Lesser of the estimated useful life or the remaining lease term

Deferred IPO Costs

Deferred offering costs consisted 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 expenses.

Immediately upon the completion of the Company's IPO, deferred offering costs of $ 5.5 million were reclassified into stockholders’ equity from other assets as a reduction from the proceeds of the offering.

Effective January 1, 2022, the Company accounts for leases in accordance with Accounting Standards Codification No.

842, Leases (“ASC 842”).

Effective January 1, 2022, the Company accounts for leases in accordance with ASC 842.

The Company’s lease portfolio includes both real estate and non-real estate type leases which are accounted for as either finance or operating leases.

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The Company determines if a contract is or contains a lease at inception.

The Company’s leases have remaining lease terms of less than one to six years .

Renewal options that are deemed reasonably certain are included as part of the lease term for purposes of calculating the right-of-use ("ROU") assets and lease liability.

The Company elected the practical expedient to not separate lease and non-lease components, as such non-lease components are included in the calculation of the ROU asset and lease liability and included in the lease expense over the term of the lease.

The Company’s leases have remaining lease terms of less than one to less than three years .

Renewal options that are deemed reasonably certain are included as part of the lease term for purposes of calculating the ROU assets and lease liability.

The Company elected the practical expedient to not separate lease and non-lease components, as such non-lease components are included in the calculation of the ROU asset and lease liability

and included in the lease expense over the term of the lease.

As most of the Company's leases do not contain an implicit interest rate, the Company uses judgement to determine an incremental borrowing rate to use at lease commencement.

Operating lease ROU assets and lease liabilities are recorded on the date the Company takes possession of the leased assets with expense recognized on a straight-line basis over the lease term.

Operating lease ROU assets and lease liabilities are recorded at the lease commencement date with expense recognized on a straight-line basis over the lease term.

Leases with an estimated total term of 12 months or less are not recorded on the balance sheet and the lease expense is recognized on a straight-line basis over the lease term.

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Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose.

Capitalized internal-use software and website development costs, including purchased software, is recorded in property and equipment, net in the consolidated balance sheets.

Capitalized internal-use software and website development costs, including purchased software, are recorded in property and equipment, net in the consolidated balance sheets.

For cloud-computing service arrangements, the Company capitalizes implementation costs consistent with internal-use software costs.

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Goodwill is assessed for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If factors indicate that the fair value of the asset is less

than its carrying amount, the Company will perform a quantitative test by determining the fair value of the reporting unit.

If factors indicate that the fair value of the asset is less than its carrying amount, the Company will perform a quantitative test by determining the fair value of the reporting unit.

The estimated fair value of the reporting unit is based on a projected discounted cash flow model that includes significant assumptions and estimates, including discount rate, growth rate, and future financial performance.

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The Company tests goodwill for impairment annually at October 31.

The Company performed its annual goodwill impairment test as of October 31, 2023 and no impairment was identified.

The Company performed its annual goodwill impairment qualitative and quantitative test as of October 31, 2024 and no impairment was identified.

Intangible Assets, Net

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Such events or changes in circumstances may include a significant decrease in the market price of a long-lived asset, a significant change in the extent or manner in which an asset is used, a significant change in legal factors or in the business climate, a significant deterioration in the amount of revenue or cash flows expected to be generated from a group of assets, a current expectation that, more likely than not a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life, or any other significant adverse change that would indicate that the carrying value of an asset or group of assets may not be recoverable.

The Company performs 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.

The Company performs 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.

If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable and the expected undiscounted future cash flows attributable to the asset group are less than the carrying amount of the asset group, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.

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Foreign Currency Transactions

The Company records foreign currency gains or losses in other income, net in the consolidated statements of comprehensive loss, related to transactions denominated in currencies other than the U.S.

During the years ended December 31, 2023, 2022 and 2021, realized and unrealized foreign currency losses, net were immaterial, $ 0.2 million and $ 0.1 million, respectively.

The Company records foreign currency gains or losses in interest and other income (expense), net in the consolidated statements of comprehensive loss, related to transactions denominated in currencies other than the U.S.

During the years ended December 31, 2024, 2023 and 2022, realized and unrealized foreign currency losses, net were $ 0.2 million, $ 0.03 million and $ 0.2 million, respectively.

Contingent Liabilities

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Stock-Based Compensation

The Company recognizes stock-based compensation expense for employees and non-employees based on the grant-date fair value of stock award over the applicable service period.

For awards that vest based on continued service, stock-based

compensation cost is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the awards.

For awards with performance vesting conditions, stock-based compensation cost is recognized on a graded vesting basis over the requisite service period when it is probable the performance condition will be achieved.

The grant date fair value of restricted stock awards that contain service vesting conditions is estimated based on the fair value of the underlying shares on the grant date, with a cumulative adjustment for the portion of the service period that occurred for the period prior to the performance condition becoming probable of being achieved.

For awards that contain service, performance or a combination of both vesting conditions, the grant date fair value of restricted stock award is estimated based on the fair value of the underlying shares on grant date while the Black-Scholes option-pricing model is used to estimate the grant date fair value of stock option awards.

For stock option awards that contain service, performance and market vesting conditions, where the performance condition is an initial public offering or a change in control event, performance condition is not probable of being achieved for accounting purposes until the event occurs.

The Company recognizes stock-based compensation expense for employees and non-employees based on the grant-date fair value of the stock award over the applicable service period.

For awards that vest based on continued service, stock-based compensation cost is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the awards.

Stock Options

For stock option awards that contain service, performance or a combination of both vesting conditions, the grant date fair value is estimated based on the fair value of the underlying shares on grant date while the Black-Scholes option-pricing model is used to estimate the grant date fair value of stock option awards.

For stock option awards with performance vesting conditions, stock-based compensation cost is recognized on a graded vesting basis over the requisite service period when it is probable the performance condition will be achieved.

For stock option awards that contain service, performance and market vesting conditions, or a change in control event, the performance condition is not probable of being achieved for accounting purposes until the event occurs.

Thereafter, stock-based compensation expense is recognized when the event occurs even if the market condition was not or is not achieved, provided the employee continues to satisfy the service condition.

The Company has not granted stock options since the IPO, and for the stock options that were granted pre-IPO the below assumptions were used.

The Monte Carlo simulation model is used to estimate the fair value of stock options that have market vesting conditions.

Determining the fair value of stock option awards requires judgment and the assumptions used in the option-pricing models require the input of subjective assumptions which are as follows:

• Fair value - Prior to the Company's IPO, the fair value of the common stock underlying the Company’s stock-based awards was determined by the Company’s Board of Directors (the “Board”).

The Company’s Board determined the common stock fair value at the stock option grant date by considering several objective and subjective factors, including the price paid for its common and preferred stock, actual and forecasted operating and financial performance, market conditions and performance of comparable publicly traded companies, developments and milestones within the Company, the rights, preferences, and privileges of its common and preferred stock, and the likelihood of achieving a liquidity event.

Subsequent to the Company's IPO, the fair value of the Company's common stock is determined based on the closing stock price on the date of grant.

• Fair value - The fair value of the Company's common stock is determined based on the closing stock price on the date of grant.

• Expected volatility - Expected volatility is based on historical volatilities of a publicly traded peer group based on weekly price observations over a period equivalent to the expected term of the stock option grants.

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The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.

The determination of stock-based compensation cost is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment.

If the Company had made different assumptions, its stock-based compensation expense and its net loss could have been significantly different.

New shares are issued from authorized shares of common stock upon the exercise of stock options.

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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.

The fair value of such assets is measured using Level 3 inputs in the fair value hierarchy.

Revenue Recognition

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.

The digital sales channel includes direct-to-consumer sales through the Company’s website and sales to third-party ecommerce customers, who resell the Company’s products through their own online platforms.

The retail sales channel includes sales to traditional brick and mortar retailers, who may also resell the Company’s products through their own online platforms.

The Company sells its products direct-to-consumer through the Company’s website, retail and third-party ecommerce customers, who resell the Company’s products through traditional brick and mortar retailers, who may also resell the Company’s products through their own online platforms.

The Company accounts for revenue contracts with customers by applying the following steps in accordance with ASC No.

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The Company accrues the cost of shipping and handling and recognizes revenue and costs at the point in time that control of the goods transfers to the customer.

Retail and Third-Party Ecommerce

For retail and third-party ecommerce sales, the Company’s performance obligation consists of the sale of finished goods to retailers and third-party ecommerce customers.

Revenue is recognized when control of the promised goods is transferred to those customers at time of shipment or delivery, depending on the contract terms.

After the completion of the performance obligation, the Company has the right to consideration as outlined in the contract.

Payment terms vary among the retail and third-party ecommerce customers although terms generally include a requirement of payment within 30 to 45 days of product shipment.

Direct-to-Consumer

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As of December 31, 2024 and 2023, deferred revenue related to gift card purchases was $ 1.1 million and $ 1.0 million, respectively.

Retail and Third-Party Ecommerce

For retail and third-party ecommerce sales, the Company’s performance obligation consists of the sale of finished goods to retailers and third-party ecommerce customers.

Revenue is recognized when control of the promised goods is transferred to those customers at time of shipment or delivery, depending on the contract terms.

After the completion of the performance obligation, the Company has the right to consideration as outlined in the contract.

Payment terms vary among the retail and third-party ecommerce customers although terms generally include a requirement of payment within 30 to 45 days of product shipment.

Sales Returns and Allowances

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When estimating returns, the Company also considers future business initiatives and relevant anticipated future events.

Estimated sales returns and ultimate losses may

vary from actual results, which could be material to the consolidated financial statements.

Estimated sales returns and ultimate losses may vary from actual results, which could be material to the consolidated financial statements.

The estimated sales returns allowance is recorded as a reduction of revenue.

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An allowance is recorded as a reduction to accounts receivable if the customer can deduct the program amount from outstanding invoices.

Estimates for these sales incentive programs are developed using the most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved.

In developing its estimate, the Company uses historical analysis and contractual rates in determining the accruals for these activities.

Estimates for these sales incentive programs are developed using the most likely amount and contractual allowances are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved.

In developing its estimate, the Company uses the expected value method considering all reasonably available information in determining the accruals for these activities, including historical analysis and contractual rates.

The Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts.

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Cost of revenue includes the purchase price of merchandise sold to customers, inbound and outbound shipping and handling costs, freight and duties, shipping and packaging supplies, credit card processing fees and warehouse fulfillment costs incurred in operating and staffing warehouses, including rent.

Cost of revenue also includes depreciation and amortization, allocated overhead and direct and indirect labor for warehouse personnel.

Cost of revenue also includes depreciation and amortization for warehouse fulfillment facilities and equipment, allocated overhead and direct and indirect labor for warehouse personnel, inventory reserves and destruction costs.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions.

These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense.

Selling, general and administrative expenses also include technology expenses, professional fees, facility costs, including insurance, utilities and rent relating to our headquarters, depreciation and amortization, and overhead costs.

Marketing expenses includes costs related to the Company’s branding initiatives, retail customer marketing activities, point of purchase displays, targeted online advertising through sponsored search, display advertising, email marketing campaigns, market research, content production and other public relations and promotional initiatives.

Selling, general and administrative expenses consist primarily of personnel costs, principally for the Company's selling and administrative functions.

These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses.

Selling, general and administrative expenses also include technology expenses;

professional fees, including audit and legal expenses;

donation expenses including overhead and tariffs;

facility costs, including insurance, utilities and rent relating to our headquarters;

third-party service fees related to our supplier services agreement for Honest baby clothing, the Company's baby apparel business;

and, depreciation and amortization expenses.

Marketing expenses includes costs related to the Company’s branding initiatives, retail customer marketing activities, point of purchase displays, targeted online advertising through sponsored search, display advertising, email and influencer marketing campaigns, market research, content production and other public relations and promotional initiatives.

Advertising costs are expensed as incurred.

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Deferred advertising costs consist mainly of point of purchase displays that are specifically branded for the Company’s products and provided to retailers in order to facilitate the marketing of the Company’s products within retail stores.

The point of purchase display costs are capitalized as deferred advertising costs and charged to marketing expense over the expected period of benefit, which generally ranges from one to three years .

As of December 31, 2024 and 2023 , the current portion of deferred advertising costs was $ 0.6 million and $ 0.4 million, respectively, which is included in prepaid expenses and other current assets.

As of December 31, 2023 and 2022 , the noncurrent portion of deferred advertising costs was immaterial, respectively, which is included in other assets.

As of December 31, 2024 and 2023 , there was an immaterial amount of deferred advertising costs that was considered noncurrent.

Advertising expense was $ 41.7 million, $ 33.8 million and $ 44.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("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 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.

Effective January 1, 2023, the Company adopted this standard, which did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in the ASU require that a public entity discloses, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

The amendments in the ASU require that a public entity discloses, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's CODM, a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Retrospective application is required for all prior periods presented, and early adoption is permitted.

The Company does not expect the adoption of ASU No.

2023-07 to have a material impact on the Company’s consolidated financial statements or disclosures.

The adoption of ASU No.

2023-07 did not have a material impact on the Company’s consolidated financial statements or disclosures.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In December 2023, the FASB issued ASU No.

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For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024.

The Company does not expect the adoption of ASU No.

2023-09 to have a material impact on the Company’s consolidated financial statements or disclosures.

Disaggregation of Revenue

Revenue by sales channel:

For the year ended December 31,

2023 2022 2021

(In thousands)

Digital $ 169,015 $ 141,403 $ 157,546

Retail 175,350 172,248 161,093

Total revenue $ 344,365 $ 313,651 $ 318,639

Revenue by product category:

For the year ended December 31,

2023 2022 2021

(In thousands)

Diapers and Wipes $ 218,263 $ 200,429 $ 200,923

Skin and Personal Care 88,104 89,316 101,697

Household and Wellness 37,998 23,906 16,019

Total revenue $ 344,365 $ 313,651 $ 318,639

The Company is currently evaluating the impact that ASU No.

2023-09 will have on its consolidated financial statements or related disclosures.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

This update is to improve the disclosures of components of certain income statement expense items.

For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact that ASU No.

2024-03 will have on its consolidated financial statements or related disclosures.

The Company previously presented its revenue by sales channel of Digital and Retail and by product category of Diapers and Wipes, Skin and Personal Care and Household and Wellness.

In determining the appropriate categories to use to disaggregate revenue in accordance with the requirements of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, the Company considered the information regularly reviewed by its CODM for evaluating its financial performance and making resource allocation decisions and the guidance to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows.

In 2023, the Company executed a broad-based Transformation Initiative with Brand Maximization as one of the Pillars designed to leverage the strength of the Honest brand.

As part of its strategy to build the Honest brand, the Company’s CODM is evaluating the Company’s financial performance and making resource allocation decisions across the Company’s products as one brand of a portfolio of multiple products.

As a result, in the first quarter of 2024, the Company removed the disaggregation of revenue by product category to align with changes made to the Company’s long-term strategy and began disaggregating revenue by (i) direct-to-consumer and (ii) retail and third-party ecommerce customers.

The change had no effect on the Company's results of operations or timing of revenue recognition.

Presentation of disaggregated revenue by direct-to-consumer and retail and third-party ecommerce customers in prior periods have been modified to conform to the current period presentation.

Retail and Third-Party Ecommerce

For retail and third-party ecommerce sales, the Company's performance obligation consists of the sale of finished goods to retailers and third-party ecommerce customers.

Revenue is recognized when control of the promised goods is transferred to those customers at time of shipment or delivery, depending on the contract terms.

After the completion of the performance obligation, the Company has the right to consideration as outlined in the contract.

Payment terms vary among the retail and third-party ecommerce customers although terms generally include a requirement of payment within 30 to 45 days of product shipment.

Direct-to-Consumer

For direct sales to the consumer through the Company's website, Honest.com, the Company's performance obligation consists of the sale of finished goods to the consumer.

Consumers may purchase products at any time or enter into subscription arrangements.

Consumers place orders online in accordance with the Company's standard terms and conditions and authorize payment when the order is placed.

Credit cards are charged at the time of shipment and payments are typically processed within two to three business days.

For subscription arrangements, consumers sign up to receive products on a periodic basis.

Subscriptions are cancellable at any time without penalty, and no amounts are collected from the consumer until products are shipped.

Revenue is recognized when transfer of control to the consumer takes place, which is when the product is delivered to the carrier.

Sales taxes collected from consumers are accounted for on a net basis and are excluded from revenue.

Revenue generated from Honest.com was 13 % and 17 %, respectively, of the Company's total revenue during the years ended December 31, 2024 and 2023.

Non-Monetary Transactions

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The Company may use the marketing and transportation credits over four years from the date of the respective agreement, with an option to extend for another two years if agreed upon by both parties.

For the year ended December 31, 2023, the Company did not enter into any new trade agreements.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized $ 0.0 million , $ 3.2 million and $ 4.2 million, respectively, of revenue and $ 0.0 million , $ 1.7 million and $ 2.2 million, respectively, of associated cost of revenue based on the timing of delivery of goods, related to these marketing and transportation credits.

For the year ended December 31, 2024, the Company did no t enter into any new trade agreements.

For the years ended December 31, 2024 and 2023, the Company did no t recognize any revenue or associated cost of revenue related to these marketing and transportation credits.

For the year ended December 31, 2022, the Company recognized $ 3.2 million of revenue and $ 1.7 million of associated cost of revenue related to these marketing and transportation credits.

The Company assesses the recoverability of the marketing and transportation credits periodically.

Factors considered in evaluating the recoverability include management’s history of credit usage and future 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 become determinable.

For the years ended December 31, 2023, 2022 and 2021, the Company recorded no impairment losses related to these credits and used an aggregate of $ 0.3 million, $ 1.4 million and $ 0.4 million, respectively, of credits.

Any impairment losses are charged to marketing expense in the consolidated statements of comprehensive loss as they become determinable.

For the years ended December 31, 2024, 2023 and 2022, the Company recorded no impairment losses related to these credits and used an aggregate of $ 1.6 million, $ 0.3 million and $ 1.4 million of credits, respectively.

Intangible Assets, Net

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(in thousands)

Total future amortization expense

Property and Equipment, Net

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$ 11,394 $ 13,486

For each of the years ended December 31, 2023, 2022 and 2021, depreciation of equipment under capital lease obligations was $ 0.0 million , $ 0.3 million and $ 0.4 million, respectively.

Total depreciation and amortization expense for property and equipment, inclusive of depreciation expense for equipment under capital lease obligations consisted of the following:

Total depreciation and amortization expense for property and equipment consisted of the following:

For the year ended December 31,

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All investments are reported within current assets because the securities represent investments of cash available for current operations.

As of December 31, 2023, the Company did not hold any investments in debt securities.

As of December 31, 2022, the Company held $ 5.7 million of investments with contractual maturities of less than one year.

As of December 31, 2022, the Company did not have any investments with contractual maturities between one and two years.

As of December 31, 2024 and 2023 , the Company did not hold any investments in debt securities.

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 December 31, 2022

Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated Fair Value

(In thousands)

Corporate bonds $ 3,216 $ — $ ( 24 ) $ 3,193

Commercial paper 582 — — 582

Certificates of deposit 1,884 — ( 9 ) 1,875

Total investments $ 5,682 $ — $ ( 33 ) $ 5,650

Realized gains and losses on investments in debt securities for the years ended December 31, 2023, 2022 and 2021 were immaterial .

Unrealized losses on investments for the year ended December 31, 2023 was immaterial.

There was no realized or unrealized gains and losses on investments in debt securities for the years ended December 31, 2024 .

Realized and unrealized losses on investments for the years ended December 31, 2023 and 2022 were immaterial.

Fair Value Measurements

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Credit Facilities

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 provided for a $ 35.0 million revolving credit facility that matures on April 30, 2026.

The 2021 Credit Facility included a subfacility that provided for the issuance of letters of credit in an amount of up to $ 10.0 million at any time outstanding, which reduced the amount available under the 2021 Credit Facility.

As of December 31, 2022, there were outstanding standby letters of credit of $ 4.8 million related to lease obligations with $ 30.2 million available to be drawn upon.

The 2021 Credit Facility was 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 recognized the commitment fee as incurred in interest and other expense, net in the consolidated statements of comprehensive loss.

For the year ended December 31, 2022, the commitment fee incurred was immaterial.

As of December 31, 2022, there was no outstanding balance under the 2021 Credit Facility.

In January 2023, the 2021 Credit Facility was terminated and replaced in its entirety with the 2023 Credit Facility (defined below).

2023 Credit Facility

In January 2023, the Company entered into a first lien credit agreement (the “2023 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 on April 30, 2026.

The 2023 Credit Facility includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $ 15.0 million at any time outstanding.

Availability of the 2023 Credit Facility is based upon a borrowing base formula and periodic borrowing base certifications valuing certain of the Company’s accounts receivable and inventory as reduced by an availability block and certain reserves, if any.

The 2023 Credit Facility includes an uncommitted accordion feature that allows for increases in the revolving commitment to as much as an additional $ 35.0 million, for up to $ 70.0 million in potential revolving commitment.

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The Company recognizes the commitment fee as incurred in interest and other income (expense), net in the consolidated statements of comprehensive loss.

For the year ended December 31, 2023, the commitment fee incurred was immaterial.

For the years ended December 31, 2024 and 2023, the commitment fee incurred was immaterial.

As of December 31, 2024, there were $ 2.5 million outstanding letters of credit and $ 30.4 million available to be drawn upon.

As of December 31, 2023, there was no outstanding balance under the 2023 Credit Facility.

As of December 31, 2023, there were $ 3.7 million outstanding letters of credit and $ 17.7 million available to be drawn upon.

As of December 31, 2024 and 2023, there was no outstanding balance under the 2023 Credit Facility.

The interest rate applicable to the 2023 Credit Facility is, at the Company’s option, either (a) the Adjusted Term SOFR rate (subject to a 0.00 % floor), plus a margin ranging from 1.50 % to 2.25 % or (b) the CB floating rate, (i) plus a margin of 0.25 % or (ii) minus a margin ranging from 0.25 % to 0.50 %.

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_______________

(1) Includes $ 1.2 million and $ 4.3 million of Chief Executive Officer and Chief Financial Officer executive transition related expense as of December 31, 2023 and 2022, respectively.

(1) Includes $ 0.3 million and $ 1.2 million of executive transition related expenses as of December 31, 2024 and 2023, respectively.

(2) Represents short-term operating lease liabilities.

Refer to Note 14, "Leases" included in these consolidated financial statements for more information on leases.

(3) Refer to Note 17, "Restructuring" included in these consolidated financial statements for more information on the Company's restructuring initiative.

Redeemable Convertible Preferred Stock and Stockholders’ Deficit

Following the completion of the IPO, the Company has one class of authorized and outstanding common stock.

The following table summarizes the Company's redeemable convertible preferred stock information as of December 31, 2020:

Shares Issued and

Shares Carrying

Value Liquidation

Series A Redeemable Convertible Preferred Stock 11,347,518 11,347,518 $ 6,000 $ 6,000

Series A-1 Redeemable Convertible Preferred Stock 11,554,016 11,554,016 20,796 21,000

Series B Redeemable Convertible Preferred Stock 4,551,572 4,551,572 42,106 50,000

Series C Redeemable Convertible Preferred Stock 5,174,204 5,174,204 90,586 100,000

Series D Redeemable Convertible Preferred Stock 4,545,944 4,454,624 101,239 101,911

Series E Redeemable Convertible Preferred Stock 6,918,204 6,918,204 67,685 67,815

Series F Redeemable Convertible Preferred Stock 5,100,790 5,100,790 47,992 50,000

Total 49,192,248 49,100,928 $ 376,404 $ 396,726

Shares Available for Issuance

As of December 31, 2021, there were no shares of Series A, Series A-1, Series B, Series C, Series D, Series E, or Series F redeemable convertible preferred stock available for issuance.

As of December 31, 2020, the number of common shares available for issuance under the Company’s amended certificate of incorporation were as follows:

Authorized number of common shares

Common shares outstanding

( 34,089,186 )

Stock awards outstanding under the 2011 Plan

( 18,038,042 )

Stock awards available for grant under the 2011 Plan

( 2,595,078 )

Reserve for the conversion of preferred stock

( 49,100,928 )

Available for issuance 6,176,766

(3) Refer to Note 15, "Restructuring" included in these consolidated financial statements for more information on the Company's restructuring.

Commitments and Contingencies

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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.

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The Nevada Tax Commission upheld the Company's appeal and overturned the Department's Deficiency Notice.

The Company submitted a refund request for the taxes and interest paid, following the Department's June 9, 2021 decision, that were subject to abatement under the December 2016 Abatement Agreement.

The Company submitted a refund request for the taxes and interest paid, following the Department's June 9, 2021 decision, which were subject to abatement under the December 2016 Abatement Agreement.

The Company recognized $ 0.7 million in other income in interest and other expense, net on the consolidated statements of comprehensive loss during the year ended December 31, 2022 related to the refund of taxes and interest paid.

On September 23, 2020, the Center for Advanced Public Awareness (“CAPA”) 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.

On October 22, 2021, CAPA filed a complaint in California Superior Court in the County of San Francisco ("the Court") for the alleged Prop 65 violations contained in its 60-Day Notice of Violation.

22, 2021, CAPA filed a complaint in California Superior Court in the County of San Francisco (“the Court”) for the alleged Prop 65 violations contained in its 60-Day Notice of Violation.

The Company filed its answer and notice of related cases against Prestige Consumer Healthcare, Inc., Burt's Bees, Inc., and Hain Celestial Group, Inc.

on January 7, 2022 and has stipulated to relate these cases and transfer them to the Court's Complex Division.

On April 30, 2024, the Company filed its motion for summary judgment.

On January 23, 2025, the Court granted the Company's motion for summary judgment.

The Company intends to vigorously defend itself in this matter.

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Catterton VIII Offshore, L.P., THC Shared Abacus, LP, Catterton Managing Partner VIII, L.L.C., and C8 Management, L.L.C.

On October 16, 2023 those additional defendants filed a motion to

dismiss the Second Amended Complaint with respect to the claims against them.

On October 16, 2023, those additional defendants filed a motion to dismiss the Second Amended Complaint with respect to the claims against them.

On January 31, 2024, that motion to dismiss was granted by the court to the extent those additional defendants challenged the claims as untimely.

The court granted Lead Plaintiff leave to amend within fourteen days of that order.

On February 14, 2024, the Lead Plaintiff filed a further amended Second Amended Complaint against the additional defendants.

The additional defendants filed a motion to dismiss the further amended Second Amended Complaint, which was denied by the court on April 22, 2024.

On January 21, 2025, the parties filed a joint stipulation stating that they had reached an agreement in principle to fully settle all pending claims in the action and asking the court to stay the case so the parties could have additional time to negotiate the terms of a formal stipulation of settlement and related documentation.

The court entered an order staying the case on the same day.

Lead Plaintiff must file a motion for preliminary approval of the settlement by March 12, 2025.

A derivative complaint was filed by Hayato Ono on behalf of the Company on November 29, 2021 in the U.S.

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District Court for the District of Delaware on October 19, 2022 with similar allegations.

Each of these federal and state court derivative cases have been stayed pending the outcome of a motion for summary judgment in the securities class action.

Each of these federal and state court derivative cases have been stayed.

These matters are in the preliminary stages of litigation with uncertain outcomes at this time.

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On February 20, 2024, the parties filed a Notice of Settlement to notify the court that the parties have agreed to settle the matter on an individual, non-class basis.

The plaintiffs will file a Stipulation of Dismissal upon finalization of the settlement agreement.

The Court granted the plaintiffs' Stipulation of Dismissal on July 2, 2024.

As of December 31, 2024 and 2023, the Company was not subject to any other currently pending legal matters or claims that based on its current evaluation are expected to have a material adverse effect on its financial position, results of operations, or cash flows should such matters 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 parties.

such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties.

These indemnifications may survive termination of the underlying agreement and the maximum potential number of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses.

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4,985,886 $ 5.41 2.2 $ 7,600

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 upon the effective date of the IPO registration statement.

The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 were immaterial , $ 0.1 million and $ 6.0 million, respectively.

The intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 were $ 12.6 million , immaterial and $ 0.1 million, respectively.

This intrinsic value represents the difference between the fair value of the Company’s common stock on the date of exercise and the exercise price of each option.

The total fair value of options vested during the years ended December 31, 2024, 2023 and 2022 were $ 0.1 million , $ 0.7 million and $ 2.0 million, respectively.

As of December 31, 2023 and 2022, there was $ 0.1 million and $ 1.0 million, respectively, of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 0.5 years and 1.3 years, respectively.

As of December 31, 2024, there was no unrecognized stock-based compensation expense related to unvested stock options.

As of December 31, 2023, there was $ 0.1 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 0.5 years.

During the year ended December 31, 2023, the Company extended the post-termination exercise period for each outstanding stock option held by certain former executives such that the post-termination exercise period will end on the earlier of (i) the original expiration date of the stock option, or (ii) the date that is the 3-year anniversary of certain former executives no longer providing services to the Company.

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All equity-based awards granted on or after the effectiveness of the 2021 Plan are granted under the 2021 Plan.

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.

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.

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452,951 4,165,403 $ 3.44 $ 8.09

Transfer from Employee to Non-Employee Director (1)

1,147,566 ( 1,147,566 ) $ 9.02 $ 9.02

Granted 1,376,563 7,505,557 $ 2.01 $ 1.71

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957,199 7,299,254 $ 2.19 $ 2.38

Transfer from Employee to Non-Employee Director (2)

1,147,566 ( 1,147,566 ) $ 9.02 $ 9.02

Granted 545,178 4,890,798 $ 2.81 $ 3.63

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_______________

(1) The Company extended the post-termination stock option exercise period for certain former executives, resulting in stock-based compensation expense of $ 0.5 million during the year ended December 31, 2023.

Additionally, the Company modified certain former executives' RSUs to accelerate vesting, resulting in stock-based compensation expense of $ 3.1 million during the year ended December 31, 2023.

(2) Relates to former Chief Executive Officer ("CEO") RSUs that were reclassified to non-employee director shares for disclosure purposes.

(1) Relates to former Chief Executive Officer ("CEO") RSUs that were reclassified to non-employee director shares.

The former CEO was not re-nominated for election by the Board in connection with the annual stockholder meeting in May 2023.

(2) The Company modified certain former executives' RSUs to accelerate vesting, resulting in stock-based compensation expense of $ 6.7 million and $ 3.1 million, respectively, during the years ended December 31, 2024 and 2023.

As of December 31, 2024 and 2023, there was $ 17.6 million and $ 16.6 million, respectively, of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.6 years and 3.0 years, respectively.

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The first offering period under the 2021 ESPP commenced in May 2021 and the second offering in November 2021.

For the year ended December 31, 2023 and 2022, employees who elected to participate in the ESPP purchased 126,969 and 95,742 shares of common stock, respectively, under the 2021 ESPP, resulting in cash proceeds to the Company of $ 0.2 million and $ 0.3 million, respectively.

average price at purchase was $ 1.39 and $ 2.68 per share, respectively.

For the years ended December 31, 2024 and 2023 , employees who elected to participate in the 2021 ESPP purchased 95,830 and 126,969 shares of common stock, respectively, under the 2021 ESPP, resulting in cash proceeds to the Company of $ 0.2 million and $ 0.2 million, respectively.

The weighted average price at purchase was $ 1.70 and $ 1.39 per share, respectively.

As of December 31, 2024 and 2023, the Company had 3,616,908 and 2,756,394 , respectively, remaining authorized shares available for purchase.

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The Inducement Plan reserved 4,000,000 shares of the Company’s common stock for issuance under the Inducement Plan to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules.

As of December 31, 2024, there were 275,083 shares available for future grant under the Inducement Plan.

On February 29, 2024, the Company granted 208,757 RSUs to the Chief People Officer under the Inducement Plan.

On March 21, 2023, the Company granted 1,845,238 RSUs to the Chief Executive Officer under the Inducement Plan.

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(1) Includes $ 6.7 million and $ 3.1 million, respectively, of stock-based compensation expense during the years ended December 31, 2024 and 2023 related to the acceleration of RSUs held by certain former executives.

The Company extended the post-termination stock option exercise period for certain former executives, resulting in stock-based compensation expense of $ 0.5 million during the year ended December 31, 2023.

Additionally, the Company modified certain former executives' RSUs to accelerate vesting, resulting in stock-based compensation expense of $ 3.1 million during the year ended December 31, 2023.

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 considered 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.

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, if any.

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.

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Net loss $ ( 6,124 ) $ ( 39,238 ) $ ( 49,019 )

gain on conversion of preferred stock (1)

dividends paid to preferred stockholders (2)

— — ( 20,637 )

Net loss attributable to common stockholders - basic and diluted $ ( 6,124 ) $ ( 39,238 ) $ ( 49,019 )

Weighted average shares of common stock outstanding - basic 94,516,690 92,201,806 71,126,218

Weighted average shares of common stock outstanding - diluted 94,516,690 92,201,806 71,126,218

Weighted average shares of common stock outstanding - basic and diluted 100,245,394 94,516,690 92,201,806

Net loss per share, attributable to common shareholders:

Basic and diluted $ ( 0.06 ) $ ( 0.42 ) $ ( 0.53 )

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(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:

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( 3,918 ) 4,654 8,047

Nondeductible parking

Other adjustments 83 ( 233 ) —

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Intangible assets

Property and equipment

Lease liability 5,402 7,476

Accrued expenses

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Deferred tax liabilities

Property and equipment

( 548 ) ( 676 )

Right-of-use asset ( 4,284 ) ( 5,933 )

Prepaid expenses

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The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses.

As of December 31, 2023 and 2022 , the Company's deferred tax assets related to capitalized research and development expenses were $ 4.3 million and $ 1.5 million, respectively.

As of December 31, 2024 , the Company had federal and state net operating loss carryforwards tax effect of $ 313.0 million and $ 272.0 million, respectively.

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The Company does not currently expect any material changes on its consolidated financial position, results of operations and cash flows.

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 $ 0.04 million, $ 0.2 million and $ 0.6 million of advertising costs for this related party during the years ended December 31, 2023, 2022 and 2021, respectively, which is reported as marketing expense in the Company’s consolidated statements of comprehensive loss.

In May 2022, the Company engaged, Vault Co., a third-party consultant, to develop and deliver an ongoing brand tracker for the Company.

is owned by a major shareholder of the Company.

Based on services provided, the Company incurred $ 0.03 million and $ 0.1 million, respectively, of advertising costs for this related party during the year ended December 31, 2023 and 2022, which is reported as marketing expense in the Company’s consolidated statements of comprehensive loss.

The Company’s lease portfolio includes both real estate and non-real estate type leases which are accounted for as either finance or operating leases.

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The Company determines if a contract is or contains a lease at inception.

The Company’s leases have remaining lease terms of less than one to six years .

The Company’s leases have remaining lease terms of less than one to less than three years .

In connection with two of the Company’s facilities leases, the Company is required to obtain irrevocable letters of credit in lieu of security deposits.

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For the year ended December 31,

2024 2023 2022

Finance lease expense:

Amortization $ 8 $ 50 $ 263

Interest on lease liabilities — 7

Short-term lease expense — — 7

Operating lease expense:

Operating lease expense (1)

7,168 7,168 7,153

Sublease income ( 2,006 ) ( 2,006 ) ( 2,006 )

2 unchanged sentences

(1) Represents the straight-line lease expense of operating leases, inclusive of amortization of ROU assets and the interest component of operating lease liabilities.

For the year ended December 31, 2021, rent expense under ASC 840 was $ 5.0 million.

For the year ended December 31, 2021, sublease rent income was $ 2.5 million .

Based on the nature of the ROU assets, amortization of finance leases and amortization of operating ROU assets, operating lease expense and other lease expense are recorded within either cost of revenue or selling, general and administrative expenses and interest on finance lease liabilities is recorded within interest and other expense, net in the consolidated statements of comprehensive loss.

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Operating cash flows used in operating leases $ 8,105 $ 7,688

Finance cash flows used in finance leases $ 58 $ 303

Financing cash flows used in finance leases $ 19 $ 58

The Company did no t have any non-cash ROU assets obtained in exchange for lease liabilities during the year ended December 31, 2024 for either finance or operating leases.

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Transformation Initiative

In 2023, the Company executed a broad-based Transformation Initiative designed to build the Honest brand and drive growth in higher-margin areas of the portfolio, strengthen the Company’s 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.

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

The restructuring element of the Transformation Initiative was substantially completed by December 31, 2023.

For the year ended December 31, 2024, the Company did not incur any restructuring costs related to the Transformation Initiative.

Restructuring costs are one of the elements of the Transformation Initiative and are included in restructuring on the consolidated statements of comprehensive loss:

17 unchanged sentences

$ 356 $ — $ 2,581 $ 2,937

Charges (adjustments) 1,142 479 5,166 6,787

Cash payments ( 356 ) — — ( 356 )

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The Company records costs associated with the restructuring initiatives once the relevant accounting criteria have been met.

Accrued restructuring costs of $ 0.4 million related to severance costs as of December 31, 2023 are expected to result in cash expenditures funded from cash provided by operations in future periods and is included in accrued expenses on the consolidated balance sheets.

As of December 31, 2024, there were no accrued restructuring costs outstanding.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

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 8. Financial Statements and Supplementary Data