Honest Company, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 66 Consolidated Balance Sheets 67 Consolidated Statements of Comprehensive Loss 68 Consolidated Statements of Stockholders’ Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 71 65 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of The Honest Company, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Honest Company, Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 25, 2026 We have served as the Company’s auditor since 2012. 66 The Honest Company, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2025 December 31, 2024 Assets Current assets Cash and cash equivalents $ 89,581 $ 75,435 Accounts receivable, net 33,761 43,476 Inventories 72,501 85,266 Prepaid expenses and other current assets 6,590 9,741 Total current assets 202,433 213,918 Operating lease right-of-use asset 11,351 17,239 Property and equipment, net 7,477 11,394 Goodwill 2,269 2,230 Intangible assets, net 162 235 Other assets 1,715 2,377 Total assets $ 225,407 $ 247,393 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 15,134 $ 22,807 Accrued expenses 35,685 35,869 Deferred revenue — 1,213 Total current liabilities 50,819 59,889 Long term liabilities Operating lease liabilities, net of current portion 4,919 13,197 Total liabilities 55,738 73,086 Commitments and contingencies (Note 10 ) Stockholders’ equity Preferred stock, $ 0.0001 par value, 20,000,000 shares authorized at December 31, 2025 and 2024, none issued or outstanding as of December 31, 2025 and 2024 — — Common stock, $ 0.0001 par value, 1,000,000,000 shares authorized at December 31, 2025 and 2024; 112,809,637 and 109,159,697 shares issued and outstanding as of December 31, 2025 and 2024, respectively 11 11 Additional paid-in capital 670,536 659,488 Accumulated deficit ( 500,878 ) ( 485,192 ) Total stockholders’ equity 169,669 174,307 Total liabilities and stockholders’ equity $ 225,407 $ 247,393 The accompanying notes are an integral part of these Consolidated Financial Statements. 67 The Honest Company, Inc. Consolidated Statements of Comprehensive Loss (in thousands, except share and per share amounts) For the year ended December 31, 2025 2024 2023 Revenue $ 371,317 $ 378,340 $ 344,365 Cost of revenue 247,562 233,683 243,833 Gross profit 123,755 144,657 100,532 Operating expenses Selling, general and administrative 79,510 99,044 94,582 Marketing 51,200 45,093 36,440 Restructuring 4,159 — 2,205 Research and development 7,347 6,851 6,214 Total operating expenses 142,216 150,988 139,441 Operating loss ( 18,461 ) ( 6,331 ) ( 38,909 ) Interest and other income (expense), net 2,979 282 ( 254 ) Loss before provision for income taxes ( 15,482 ) ( 6,049 ) ( 39,163 ) Income tax provision 204 75 75 Net loss $ ( 15,686 ) $ ( 6,124 ) $ ( 39,238 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.14 ) $ ( 0.06 ) $ ( 0.42 ) Weighted-average shares used in computing net loss per share attributable to common stockholders: Basic and diluted 111,209,322 100,245,394 94,516,690 Other comprehensive loss Unrealized gain on short-term investments, net of taxes — — 32 Comprehensive loss $ ( 15,686 ) $ ( 6,124 ) $ ( 39,206 ) The accompanying notes are an integral part of these Consolidated Financial Statements. 68 The Honest Company, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Amount Balance at December 31, 2022 92,907,351 $ 9 $ 586,213 $ ( 439,830 ) $ ( 32 ) $ 146,360 Net loss — — — ( 39,238 ) — ( 39,238 ) Other comprehensive loss — — — — 32 32 Stock options exercised 2,300 — 4 — — 4 Stock-based compensation — — 15,804 — — 15,804 Vested restricted stock 2,831,801 — — — — — 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 ) Stock options exercised 8,007,999 1 41,453 — — 41,454 Stock-based compensation — — 15,675 — — 15,675 Vested restricted stock 5,187,447 1 ( 1 ) — — — Shares issued under 2021 ESPP 95,830 — 163 — — 163 Balance at December 31, 2024 109,159,697 $ 11 $ 659,488 $ ( 485,192 ) $ — $ 174,307 Net loss — — — ( 15,686 ) — ( 15,686 ) Stock options exercised 75,000 — 384 — — 384 Stock-based compensation — — 10,512 — — 10,512 Vested restricted stock 3,527,358 — — — — — Shares issued under 2021 ESPP 47,582 — 152 — — 152 Balance at December 31, 2025 112,809,637 $ 11 $ 670,536 $ ( 500,878 ) $ — $ 169,669 The accompanying notes are an integral part of these Consolidated Financial Statements. 69 The Honest Company, Inc. Consolidated Statements of Cash Flows (in thousands) For the year ended December 31, 2025 2024 2023 Cash flows from operating activities Net loss $ ( 15,686 ) $ ( 6,124 ) $ ( 39,238 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,901 2,843 2,740 Stock-based compensation 10,512 15,675 15,804 Fixed asset impairment 2,878 — — Amortization of operating ROU assets 6,649 6,444 6,257 Apparel inventory write-down 15,899 — — Other 6,175 746 ( 1,369 ) Changes in assets and liabilities: Accounts receivable, net 10,202 ( 378 ) ( 682 ) Inventories ( 7,465 ) ( 10,934 ) 43,475 Prepaid expenses and other assets 3,557 ( 1,437 ) 8,005 Accounts payable, accrued expenses and other long-term liabilities ( 11,183 ) 3,809 ( 9,347 ) Deferred revenue ( 375 ) ( 998 ) 1,396 Operating lease liabilities ( 8,943 ) ( 8,105 ) ( 7,688 ) Net cash provided by operating activities 15,121 1,541 19,353 Cash flows from investing activities Proceeds from maturities of short-term investments — — 5,683 Purchases of property and equipment ( 1,510 ) ( 530 ) ( 1,838 ) Purchases of intangible assets — — ( 10 ) Net cash provided (used in) provided by investing activities ( 1,510 ) ( 530 ) 3,835 Cash flows from financing activities Proceeds from exercise of stock options 384 41,453 4 Proceeds from 2021 ESPP 152 163 176 Payments on finance lease liabilities ( 1 ) ( 19 ) ( 58 ) Net cash provided by financing activities 535 41,597 122 Net increase in cash and cash equivalents 14,146 42,608 23,310 Cash and cash equivalents Beginning of the period 75,435 32,827 9,517 End of the period $ 89,581 $ 75,435 $ 32,827 Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ — $ — $ 1 Income Taxes $ 110 $ 89 $ 116 Supplemental disclosures of noncash activities Capital expenditures included in accounts payable and accrued expenses $ 496 $ 44 $ 25 The accompanying notes are an integral part of these Consolidated Financial Statements. 70 The Honest Company, Inc. Notes to Consolidated Financial Statements As of December 31, 2025 (in thousands, except share and per share amounts, percentages and as otherwise indicated) 1. Nature of Business The Honest Company, Inc. (the “Company” or “Honest”) 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 cleanly-formulated and sustainably-designed products for everyone from babies to adults. The Honest Standard, the Company’s rigorous set of guiding principles that shape every step of product innovation and development, reflects Honest’s ongoing dedication to safety, transparency and integrity. As a leader in clean and sustainable products, Honest continues to set a new standard for clean formulations, bringing joy to a community that seeks authenticity, transparency and efficacy in everyday essentials. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). 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. Restructuring The Company incurred restructuring costs in connection with the Transformation 2.0: Powering Honest Growth ("Powering Honest Growth"). Powering Honest Growth is aimed at improving simplicity, focus and profitability, which includes exiting certain lower margin, non-strategic categories and channels, including exiting Honest.com fulfillment and apparel, as well as exiting retail and online stores in Canada, optimizing the Company's cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies. Such costs include employee termination benefits (one-time arrangements), termination of contractual obligations, non-cash asset charges, primarily including technology taken out of service, and other direct incremental costs. The Company recorded employee termination liabilities once the Company committed to a plan and communicated such terminations to employees. Other costs associated with a restructuring initiative, such as consulting and professional fees, product or geographical exit costs, are recognized in the period in which the liability is incurred. Accrued restructuring costs as of December 31, 2025 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. Segment Reporting and Geographic Information 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) to monitor budget versus actual results and period-over-period comparisons. 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, prior to December 31, 2025 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 the Company's 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. 71 Use of Estimates 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 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. The Company assessed certain accounting matters and estimates that generally require consideration of forecasted information in context with the information reasonably available to the Company as of December 31, 2025 and through the date these consolidated financial statements were issued. Management is not aware of any specific event or circumstance that would require an update to estimates or judgments or a revision to the carrying value of assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the Company’s consolidated financial statements in future periods. Cash and Cash Equivalents Cash equivalents consist of short-term, highly liquid investments with stated maturities of three months or less from the date of purchase. Cash equivalents comprise amounts invested in money market funds. Investments Investments consists of highly liquid investments in debt securities. Investments comprises commercial paper, certificates of deposit, corporate bonds and U.S. government and agency securities, which are classified as available-for-sale investments. The Company includes its available-for-sale investments in current assets because the securities represent investments of cash available for current operations. Available-for-sale investments are recorded at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Unrealized holding gains and losses are excluded from earnings and are reported as a component of comprehensive income (loss). Realized gains or losses are recorded in interest and other income (expense), net. As of December 31, 2025 and 2024, the Company did not hold any investments. Concentrations Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents and accounts receivable. The Company places its cash with high credit quality financial institutions, which typically exceed federally insured limits. The Company invests its excess cash primarily in highly rated money market funds, diversifies its investments and, by policy, invests only in highly rated securities to minimize credit risk. The Company’s customers that accounted for 10% or more of total accounts receivable, net, were as follows: As of December 31, 2025 2024 Customer A 51 % 41 % Customer B 34 % 16 % The Company’s customers that accounted for 10% or more of total revenue were as follows: For the Year Ended December 31, 2025 2024 2023 Customer A 28 % 30 % 31 % Customer B 39 % 34 % 30 % The Company currently buys all of its diapers from one supplier. Additionally, the Company currently buys substantially all of its wipes from one supplier. Management believes that other suppliers could provide similar products on reasonable terms. 72 A change in suppliers, however, could cause a delay in manufacturing and a possible inventory shortage and loss of revenue, which would adversely affect the Company's operations. Accounts Receivable 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 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 have an impact on the Company's customers' ability to pay. The allowance for credit losses was $ 0.2 million and $ 0.4 million, respectively, as of December 31, 2025 and 2024. 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 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. 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. Effective December 31, 2025, the Company will no longer sell direct-to-consumer through the Company’s website as part of Powering Honest Growth. Inventories Inventories consist of finished goods and are stated at the lower of cost or estimated net realizable value. Cost is computed based on weighted average historical costs. The Company allocates certain overhead costs to the carrying value of its finished goods. The carrying value of inventories is reduced for any excess and obsolete inventory. Excess and obsolete inventory reductions are determined based on assumptions about future demand and sales prices, estimates of the impact of competition, and the age of inventory. If actual conditions are less favorable than those previously estimated by management, additional inventory write-downs could be required. Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in the consolidated statements of comprehensive loss. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets as follows: Machinery and equipment 3 - 20 years Computer and office equipment 3 - 5 years Capitalized software and website development costs 1 - 5 years Furniture and fixtures 3 - 5 years Building 40 years Leasehold improvements Lesser of the estimated useful life or the remaining lease term Leases 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. Real estate leases generally include office and warehouse facilities and non-real estate leases generally include office equipment and machinery. 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 less than six 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 the Company's leases do not contain an implicit interest rate, the Company uses judgment to determine an incremental borrowing rate to use at lease commencement. 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. Generally, the Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants. 73 Capitalized Software and Website Development Costs The Company accounts for its internal-use software costs and website development costs in accordance with ASC No. 350-40, Internal-Use Software , and ASC No. 350-50, Website Development Costs , respectively. The Company capitalizes costs to purchase and develop its websites and internal-use software and amortizes such costs on a straight-line basis over the estimated useful life of the software once it is available for its intended use. Capitalization of internal-use costs begins when the preliminary project stage is completed, management with the relevant authority authorizes and commits to the funding of the project, and it is probable that the project will be completed and will be used to perform the function intended. 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, 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. Such capitalized costs are included within prepaid expenses and other current assets, for the current portion, and other assets, for the noncurrent portion, in the consolidated balance sheets and are expensed on a straight-line basis over the term of the service arrangement as selling, general and administrative expense. Capitalized implementation costs from cloud computing service arrangements were $ 0.4 million, net of $ 2.3 million of accumulated amortization as of December 31, 2025 and $ 0.8 million, net of $ 3.2 million of accumulated amortization as of December 31, 2024. Goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but evaluated for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that the value may not be recoverable. Events or changes in circumstances which could trigger an impairment review include significant adverse changes in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner in which the Company uses the acquired assets or the strategy for the Company’s overall business, significant industry or economic trends, or significant underperformance relevant to expected historical or projected future results of operations. 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. 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. Valuations of similar public companies may also be evaluated when assessing the fair value of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference. The Company tests goodwill for impairment annually at October 31. The Company performed its annual goodwill impairment qualitative and quantitative test as of October 31, 2025 and no impairment was identified. Intangible Assets, Net Intangible assets are stated at cost, net of accumulated amortization. Intangible assets consist of tradenames and domain names. Tradenames and domain names are amortized on a straight-line basis, which approximates the pattern in which the economic benefits are consumed, over the estimated useful lives of the assets of 15 years. Impairment of Long-Lived Assets The Company assesses the carrying value of its long-lived assets, consisting primarily of property and equipment and intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. 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. 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. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and 74 tax basis of assets and liabilities and are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates or tax law on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recorded on deferred tax assets when it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense. Foreign Currency Transactions 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. dollar. During the years ended December 31, 2025, 2024 and 2023, realized and unrealized foreign currency losses, net were immaterial. Contingent Liabilities If a potential loss contingency is considered probable, and the amount can be reasonably estimated, the Company accrues a liability for an estimated loss. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible. However, if the Company determines that a contingent loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the consolidated financial statements. Legal costs are expensed as incurred. Stock-Based Compensation Restricted Stock Units 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 initial public offering ("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 - 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. • Expected term - For stock options with only service vesting conditions the expected term is determined using the simplified method, which estimates the expected term using the contractual life of the option and the vesting period. For stock 75 options with performance or market conditions, the term is estimated in consideration of the time period expected to achieve the performance or market condition, the contractual term of the award, and estimates of future exercise behavior. • Risk-free interest rate - The risk-free interest rate is based on the U.S. Treasury yield of treasury bonds with a maturity that approximates the expected term of the options. • Expected dividend yield - The dividend yield is based on the Company’s current expectations of dividend payouts. 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. New shares are issued from authorized shares of common stock upon the exercise of stock options. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Fair value is based on quoted market prices, if available. If listed prices or quotes are not available, fair value is based on internally developed models that primarily use market-based or independently sourced market parameters as inputs. Cash equivalents, consisting primarily of money market funds, represent highly liquid investments with maturities of three months or less at purchase. Market prices, which are Level 1 in the fair value hierarchy, are used to determine the fair value of the money market funds. Investments in debt securities are measured using broker provided indicative prices developed using observable market data, which are considered Level 2 in the fair value hierarchy. Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. The fair value of such assets is measured using Level 3 inputs in the fair value hierarchy. Revenue Recognition The Company sells its products through 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, and, until December 31, 2025, the Company sold its products direct-to-consumer through the Company’s website. Effective December 31, 2025, the Company no longer sells direct-to-consumer through the Company’s website and no longer offers gift card purchases on its website. The Company accounts for revenue contracts with customers by applying the following steps in accordance with ASC No. 606, Revenue from Contracts with Customers : • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the Company satisfies a performance obligation The Company elected as an accounting policy to record all shipping and handling costs as fulfillment costs. 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. In addition, the Company adopted the practical expedient to exclude from the transaction price all amounts collected from direct-to-consumer customers for sales and other taxes." 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 76 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 Effective December 31, 2025, the Company no longer sells direct-to-consumer through the Company’s website as part of Powering Honest Growth. For direct sales to the consumer through the Company’s website prior to December 31, 2025, the Company’s performance obligation consisted of the sale of finished goods to the consumer. Consumers may have purchased products at any time or entered into subscription arrangements. Consumers placed orders online in accordance with the Company’s standard terms and conditions and authorized payment when the order was placed. Credit cards were charged at the time of shipment. For subscription arrangements, consumers signed up to receive products on a periodic basis. Subscriptions were cancellable at any time without penalty, and no amounts were collected from the consumer until products was shipped. Revenue was recognized when transfer of control to the consumer took place, which was when the product was delivered to the carrier. Sales taxes collected from consumers were accounted for on a net basis and are excluded from revenue. Previously, consumers may have purchased gift cards, which were recorded as deferred revenue at the time of purchase. The Company recognized revenue when these gift cards were redeemed for products and the revenue recognition criteria as described above were met. For the years ended December 31, 2025, 2024 and 2023, revenue recognized from the use of gift cards was $ 1.3 million, $ 0.6 million and $ 0.6 million, respectively. Effective December 31, 2025, the Company no longer offers gift card purchases on its website. As such, as of December 31, 2025, the Company accrued for the reimbursement of gift cards to consumers and wrote-off $ 1.1 million of deferred revenue related to direct-to-consumer gift card purchases. As of December 31, 2025, the Company did not have any deferred revenue outstanding. As of December 31, 2024, deferred revenue related to gift card purchases was $ 1.1 million. Sales Incentive Programs For retail and third-party ecommerce sales, the Company routinely commits to one-time or ongoing sales incentive programs with its customers that may require the Company to estimate and accrue the expected costs of such programs, including trade promotion activities and contractual allowances. The Company records these programs as a reduction to revenue unless it receives a distinct benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the benefit received, in which case the Company records it as a marketing expense. The Company recognizes a liability or a reduction to accounts receivable, and reduces revenue based on the estimated amount of credits that will be claimed by customers. 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 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. Judgment is required to determine the timing and amount of recognition of sales incentive program accruals which the Company estimates based on past practice with similar arrangements. The following table summarizes the changes in the allowance for sales incentive programs for retail and third-party ecommerce customers: For the year ended December 31, (In thousands) 2025 2024 2023 Beginning balance $ 13,514 $ 8,380 $ 6,396 Charged to revenue 73,080 69,716 49,724 Charged to selling, general and administrative expense 1 10 659 Charged to marketing expense 25,098 19,612 17,056 Utilization of accrual for trade promotions ( 101,300 ) ( 84,487 ) ( 64,522 ) Reclassification to prepaid expenses and other current assets/accrued expenses 269 283 ( 933 ) Ending balance $ 10,662 $ 13,514 $ 8,380 As of December 31, 2025 and 2024 , $ 8.7 million and $ 12.6 million, respectively, of the ending allowance balances were recorded as a reduction to accounts receivable. The Company's current retail and third-party ecommerce customers typically do not have the right of return; therefore, no estimate is made for sale returns. Prior to December 31, 2025, the Company recorded returns as incurred for direct-to-consumer customers, as the amount has historically been immaterial. Any sales returns allowance is recorded as a reduction of revenue. As 77 part of exiting Honest.com as a fulfillment center, all direct-to-consumer sales were final as of December 31, 2025, with no right of return. For retail and third-party ecommerce sales (and prior to December 31, 2025, for direct-to-consumer sales), the Company offers credits in the form of discounts, which are recorded as reductions in revenue and are allocated to products on a relative basis based on their respective standalone selling price. Contract Assets There are no material assets related to incremental costs to obtain or fulfill customer contracts. Cost of Revenue Cost of revenue includes the purchase price of merchandise sold to customers, inbound and outbound shipping and handling costs, freight, duties and tariffs, 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 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 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 apparel products; and, depreciation and amortization expenses. Marketing 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. Media production costs are expensed the first time the advertisement is aired. 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 less than one to two years . As of December 31, 2025 and 2024 , the current portion of deferred advertising costs was $ 0.7 million and $ 0.6 million, respectively, which is included in prepaid expenses and other current assets. As of December 31, 2025, there was no deferred advertising costs that was considered noncurrent. As of December 31, 2024, there was an immaterial amount of deferred advertising costs that was considered noncurrent. Advertising expense was $ 48.4 million, $ 41.7 million and $ 33.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. Research and Development Research and development expenses relate to costs incurred for the development of new products, improvement in the quality of existing products and the development and implementation of new technologies to enhance the quality and value of products. Research and development expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense. Research and development expenses also include allocated depreciation and amortization and overhead costs. The Company expenses research and development costs in the period they are incurred. Recent Accounting Pronouncements As an “emerging growth company,” the Jumpstart Our Business Startups Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. Recently Adopted Accounting Pronouncements - Adopted In December 2023, the FASB issued ASU No. 2023-09, I ncome Taxes: Improvements to Income Tax Disclosures . This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. For public business entities, the amendments in this update are effective for annual periods 78 beginning after December 15, 2024. The adoption of ASU No. 2023-09 did not have a material impact on the Company's consolidated financial statements or disclosures and the Company adopted this standard on a retrospective basis. Recently Issued Accounting Pronouncements – Not Yet Adopted 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. In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . This update creates a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from transactions under ASC 606 by assuming that current conditions at the balance sheet date will remain unchanged over the life of the asset. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. Early adoption permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The adoption of ASU No. 2025-05 is not expected to have a material impact on the Company's consolidated financial statements or related disclosures. In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software . This update is to modernize the accounting for software costs that are accounted for under Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The adoption of ASU No. 2025-06 is not expected to have a material impact on the Company's consolidated financial statements or related disclosures. 3. Revenue 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 Effective December 31, 2025, the Company will no longer sell direct-to-consumer through the Company’s website as part of Powering Honest Growth. For direct sales to the consumer through the Company's website, Honest.com, the Company's performance obligation consisted of the sale of finished goods to the consumer. Consumers may have purchased products at any time or entered into subscription arrangements. Consumers placed orders online in accordance with the Company's standard terms and conditions and authorized payment when the order was placed. Credit cards were charged at the time of shipment and payments were typically processed within two to three business days. For subscription arrangements, consumers signed up to receive products on a periodic basis. Subscriptions were cancellable at any time without penalty, and no amounts were collected from the consumer until products were shipped. Revenue was recognized when transfer of control to the consumer took place, which is when the product was delivered to the carrier. Sales taxes collected from consumers were accounted for on a net basis and were excluded from revenue. Revenue generated from Honest.com was 10 %, 13 % and 17 %, respectively, of the Company's total revenue during the years ended December 31, 2025, 2024 and 2023. Non-Monetary Transactions The Company has in the past and may in the future enter into trade agreements with a vendor to exchange excess inventory for future marketing and transportation credits. The Company recognizes revenue reflecting the fair value of the marketing and transportation credits upon delivery of goods, with the corresponding short and long-term asset included in prepaid expenses and other current assets and other assets in the accompanying consolidated balance sheets. 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, 2025, the Company did no t enter into any new trade agreements. For the years ended December 31, 2025, 2024 and 2023, the Company did no t recognize any revenue or associated cost of revenue related to these marketing and transportation credits. The Company assesses the recoverability of the marketing and 79 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 marketing expense in the consolidated statements of comprehensive loss as they become determinable. For the years ended December 31, 2025, 2024 and 2023, the Company used an aggregate of $ 0.7 million, $ 1.6 million and $ 0.3 million of credits, respectively. For the year ended December 31, 2025, the Company recorded an impairment of $ 0.5 million related to these credits. For the years ended December 31, 2024 and 2023, the Company recorded no impairment losses related to these credits. 4. Intangible Assets, Net Intangible assets consisted of the following: As of December 31, 2025 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (in thousands) Tradenames $ 780 $ ( 649 ) $ 131 Domain names 287 ( 256 ) 31 Total intangible assets, net $ 1,067 $ ( 905 ) $ 162 As of December 31, 2024 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net (in thousands) Tradenames $ 780 $ ( 596 ) $ 184 Domain names 287 ( 236 ) 51 Total intangible assets, net $ 1,067 $ ( 832 ) $ 235 As of December 31, 2025 and 2024, the weighted average remaining useful lives for tradenames and domain names was 4.2 years and 2.3 years, respectively, and 4.8 years and 3.0 years, respectively. Amortization expense was $ 0.1 million for each of the years ended December 31, 2025, 2024 and 2023, respectively. Estimated future amortization expense for each of the following five years ending December 31 and thereafter is as follows: (in thousands) 2026 $ 71 2027 29 2028 23 2029 19 2030 13 Thereafter 7 Total future amortization expense $ 162 5. Property and Equipment, Net Property and equipment consisted of the following: 80 As of December 31, 2025 2024 (in thousands) Machinery and equipment (1) $ 8,832 $ 12,885 Computer and office equipment 1,236 1,189 Capitalized software 5,308 5,238 Furniture and fixtures 4,253 4,259 Leasehold improvements 15,418 15,761 Subtotal 35,047 39,332 Accumulated depreciation and amortization (1)(2) ( 27,570 ) ( 27,938 ) Total property and equipment, net $ 7,477 $ 11,394 ________ (1) In connection with Powering Honest Growth, machinery and equipment write-offs were $ 2.5 million related to exiting Honest.com fulfillment. These charges are included in cost of revenue in the accompanying consolidated statements of comprehensive loss. (2) The Company recorded accelerated depreciation of $ 0.4 million, which represents the remaining net book value of affected fixed assets depreciated over their revised estimated service periods. These charges are included in cost of revenue in the accompanying consolidated statements of comprehensive loss. Total depreciation and amortization expense for property and equipment consisted of the following: For the year ended December 31, 2025 2024 2023 (In thousands) Cost of revenues $ 1,178 $ 1,048 $ 931 Selling, general and administrative 1,464 1,495 1,515 Research and development 188 225 223 Total depreciation and amortization expense (1) $ 2,830 $ 2,768 $ 2,669 _______________ (1) Refer to footnotes in the above table for more information. 6. Investments All investments in debt securities, if any, are classified as available-for-sale investments. All investments are reported within current assets because the securities represent investments of cash available for current operations. As of December 31, 2025 and 2024 , 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). There was no realized or unrealized gains and losses on investments in debt securities for the years ended December 31, 2025 . Realized and unrealized losses on investments for the years ended December 31, 2024 and 2023 were immaterial . 7. Fair Value Measurements Financial assets measured and recorded at fair value on a recurring basis consist of the following as of: December 31, 2025 Level 1 Level 2 Level 3 Total (In thousands) Cash equivalents Money market funds $ 65,607 $ — $ — $ 65,607 Total cash equivalents $ 65,607 $ — $ — $ 65,607 81 December 31, 2024 Level 1 Level 2 Level 3 Total (In thousands) Cash equivalents Money market funds $ 55,280 $ — $ — $ 55,280 Total cash equivalents $ 55,280 $ — $ — $ 55,280 The carrying amounts for the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturities. 8. Credit Facilities 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 certain reserves. 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. The 2023 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee based on the average daily undrawn portion of the 2023 Credit Facility. The Company recognizes the commitment fee as incurred in interest and other income (expense), net in the consolidated statements of comprehensive loss. For the years ended December 31, 2025 and 2024, the commitment fee incurred was immaterial. As of December 31, 2025, there were $ 1.5 million outstanding letters of credit and $ 31.6 million available to be drawn upon. 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, 2025 and 2024, 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 %. The margin is based upon the Company’s fixed charge coverage ratio. The CB floating rate is the higher of (a) the Wall Street Journal prime rate and (b) 2.50 %. The 2023 Credit Facility will terminate and borrowings thereunder, if any, would be due in full on April 30, 2026. Debt under the 2023 Credit Facility is guaranteed by substantially all of the Company’s material domestic subsidiaries and is secured by substantially all of the Company’s and such subsidiaries’ assets. The 2023 Credit Facility contains covenants that restrict, among other things, the Company's ability to sell assets, make investments and acquisitions, grant liens, change the Company’s lines of business, pay dividends and make certain other restricted payments. The Company is subject to certain affirmative and negative covenants including the requirement that it maintains a minimum total fixed charge coverage ratio during the periods set forth in the 2023 Credit Facility. Failure to do so, unless waived by the lenders under the 2023 Credit Facility pursuant to its terms, as amended, would result in an event of default under the 2023 Credit Facility. As of December 31, 2025, the Company is in compliance with all covenants under the 2023 Credit Facility. 9. Accrued Expenses Accrued expenses consisted of the following: As of December 31, 2025 2024 (In thousands) Payroll and payroll related expenses (1) $ 4,390 $ 8,410 Accrued inventory purchases 8,387 13,095 Accrued marketing 1,181 255 Accrued rent (2) 9,042 8,541 Accrued restructuring (3) 4,534 — Other accrued expenses 8,151 5,568 Total accrued expenses $ 35,685 $ 35,869 _______________ 82 (1) Includes $ 0.2 million and $ 0.3 million of executive transition related expenses as of December 31, 2025 and 2024, 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 15, "Restructuring" included in these consolidated financial statements for more information on the Company's restructuring. 10. Commitments and Contingencies Litigation From time to time, the Company is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to its business, including those related to regulation, business transactions, employee-related matters and taxes, among others. When the Company becomes aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount or range of the loss can be reasonably estimated, the Company records a liability for the loss and discloses the possible loss in the consolidated financial statements . 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. 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. On April 8, 2025, CAPA served its Notice of Appeal in the matter. On August 4, 2025, the Court dismissed CAPA's appeal. Following the dismissal of CAPA's appeal, the Company does not believe that a loss is probable or estimable in this matter. On September 15, 2021, Cody Dixon filed a putative class action complaint in the U.S. District Court for the Central District of California alleging federal securities law violations by the Company, certain current officers and directors, and certain underwriters in connection with the Company’s IPO ("Securities Litigation Case"). A second putative class action complaint containing similar allegations against the Company and certain current officers and directors was filed by Stephen Gambino on October 8, 2021 in the U.S. District Court for the Central District of California. These related complaints were transferred to the same court and a Lead Plaintiff was appointed in the matter, and a putative consolidated class action complaint was filed by the Lead Plaintiff on February 21, 2022, alleging claims and seeking relief under Sections 11 and 15 of the Securities Act of 1933 relating to the Company’s IPO. Defendants’ motion to dismiss the putative consolidated class action complaint was filed on March 14, 2022. On July 18, 2022, the Company's motion to dismiss was granted in part and denied in part. On May 1, 2023, the Lead Plaintiff’s motion for class certification in the consolidated class action was granted in part and denied in part, with the U.S. District Court for the Central District of California limiting the certified class to only those persons and entities that purchased or otherwise acquired the Company’s publicly traded common stock pursuant and traceable to the Company’s IPO offering documents prior to August 19, 2021, as well as all persons and entities that acquired ownership of a trading account, retirement account, or any other similar investment account or portfolio containing the Company’s publicly traded common stock that was purchased or otherwise acquired pursuant and traceable to the IPO offering documents prior to August 19, 2021, and were damaged thereby. On August 14, 2023, the Lead Plaintiff filed an amended consolidated class action complaint naming as additional defendants Catterton Management Company L.L.C., L Catterton VIII, L.P., L. 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 amended consolidated 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 second amended consolidated complaint against the additional defendants. The additional defendants filed a motion to dismiss the second amended consolidated 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. On April 14, 2025, the court preliminarily approved the parties’ settlement. Under the terms of the settlement, in exchange for the release and dismissal with prejudice of all claims against the defendants in the second amended consolidated complaint, we agreed to pay $ 20,000,000 to resolve the dispute, to be fully funded by the Company’s insurance carriers. The settlement does not constitute an admission of fault or wrongdoing by the Company, the named individual defendants, or the underwriters. The Company recorded the settlement amount of $ 20,000,000 within accrued expenses and a corresponding insurance recovery of $ 20,000,000 within prepaids and other current assets related to the legal settlement on the consolidated balance sheet as of March 31, 2025. The determination that the recorded insurance recovery receivable was probable of collection was based on the terms of the applicable insurance policies, settlement agreement, and communications with the insurers. On July 28, 2025, the court held a hearing on the plaintiffs' motion for final approval of the class settlement. The settlement was fully funded by the insurance carriers into plaintiff’s escrow in May 2025 and on July 30, 2025, the court entered a final order approving the settlement and judgment disposing of the Securities Litigation Case. 83 A derivative complaint was filed by Hayato Ono on behalf of the Company on November 29, 2021 in the U.S. District Court for the Central District of California, alleging breach of fiduciary duties, unjust enrichment, waste, gross mismanagement, and federal securities law violations by the Company’s directors and certain officers. On December 17, 2021, a second derivative complaint containing similar allegations against the Company’s directors and certain officers was filed by Mike Wang in the U.S. District Court for the Central District of California. These two federal derivative cases have been transferred to the same judge who is presiding over the securities class action complaints. A third derivative complaint was filed by Leah Bisch and Raluca Corobana in California Superior Court for the County of Los Angeles on January 3, 2022 with similar allegations. A fourth derivative complaint was filed by David Butler in the U.S. 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. On December 18, 2025, the parties to the derivative cases reached an agreement in principle to settle the matters. The settlement remains subject to preliminary and final approval by the court and certain other conditions and contingencies out of our control. The Company recorded the settlement amount of $ 1.2 million within accrued expenses and a corresponding insurance recovery of $ 1.2 million within prepaids and other current assets related to the legal settlement on the consolidated balance sheet as of December 31, 2025. The determination that the recorded insurance recovery receivable was probable of collection was based on the terms of the applicable insurance policies, settlement agreement, and communications with the insurers. On November 5, 2025, the Company filed a complaint in the U.S. District Court for the Central District of California (the "Court") alleging that Butterblu, LLC (“Butterblu”) breached the supplier services agreement, as amended, that the Company and Butterblu had entered into as of August 15, 2022 (the "Supplier Services Agreement") pursuant to which Butterblu provides certain design, manufacturing, sales and marketing services to the Company in connection with the Company's apparel products. The Company voluntarily dismissed the complaint on November 21, 2025 related to a temporary extension of the Supplier Services Agreement. Following the conclusion of the temporary extension of the Supplier Services Agreement in December 2025, the Company filed an updated complaint on January 2, 2026. The Company has requested monetary damages and declaratory relief as determined by the Court. On February 11, 2026, Butterblu filed a complaint against the Company in the California Superior Court for the County of Los Angeles alleging breach of contract, breach of implied contract, breach of implied covenant of good faith and fair dealing, quantum meruit, promissory estoppel, intentional interference with contract, and intentional interference with prospective economic relations related to the parties' obligations under the Supplier Services Agreement. These matters are in the preliminary stages of litigation with uncertain outcomes at this time. Therefore, the Company cannot estimate the probability of gain or loss, or make an estimate of the gain or loss or range of gain or loss in these matters. As of December 31, 2025 and 2024, 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. 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. The maximum potential number of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never been involved in litigation in connection with these indemnification arrangements. As of December 31, 2025 and 2024, the Company has not accrued a liability for these guarantees as the likelihood of incurring a payment obligation, if any, in connection with these guarantees is not probable or reasonably estimable due to the unique facts and circumstances involved. Purchase Commitments The Company has unconditional purchase commitments for software service subscriptions, advertising services and certain other services. Future minimum payments under these unconditional purchase commitments are as follows: 84 (In thousands) Years Ending December 31, 2026 $ 879 2027 763 2028 220 2029 — 2030 — Thereafter — Future minimum payments $ 1,862 11. Stock-Based Compensation 2011 Stock Incentive Plan The Company’s 2011 Stock Incentive Plan (the “2011 Plan”), which is stockholder-approved, permits the grant of incentive and non-qualified stock options, stock awards, stock units or stock appreciation rights of common stock. Generally, stock options vest 25 % on the first anniversary of the vesting commencement date and then monthly thereafter for 36 months, or pursuant to another vesting schedule as approved by the Board and set forth in the option agreement. Certain options and share awards provide for accelerated vesting upon certain events as described in the terms of the option and award agreements. Stock options have a maximum term of ten years . Prior to the IPO, all of the stock options and restricted stock units the Company granted were made pursuant to the 2011 Plan. Following the IPO, the Company grants equity incentive awards under the terms of the 2021 Plan (defined below). The following table summarizes the stock option activity: Number of Options Weighted Average Exercise Price Weighted Average Contractual Term (Years) Intrinsic Value (in thousands) Outstanding at December 31, 2023 13,315,796 $ 5.25 3.0 $ — Granted — $ — Exercised ( 8,007,999 ) $ 5.18 Forfeited/Cancelled ( 321,911 ) $ 4.55 Outstanding at December 31, 2024 4,985,886 $ 5.41 2.2 $ 7,600 Granted — $ — Exercised ( 75,000 ) $ 5.13 Forfeited/Cancelled ( 658,396 ) $ 5.13 Outstanding at December 31, 2025 4,252,490 $ 5.45 2.0 $ — Exercisable at December 31, 2024 4,985,886 $ 5.41 2.2 $ 7,600 Exercisable at December 31, 2025 4,252,490 $ 5.45 2.0 $ — The intrinsic value of options exercised during the years ended December 31, 2025, 2024 and 2023 were immaterial , $ 12.6 million 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, 2025, 2024 and 2023 were $ 0.0 million , $ 0.1 million and $ 0.7 million, respectively. As of December 31, 2025 and 2024, there was no unrecognized stock-based compensation expense related to unvested stock options. 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. There were no changes to the exercise price or other terms of these stock options, and these stock options were already fully vested prior to the modification. As a result of this modification, we recognized incremental stock-based compensation expense of $ 0.5 million for the year ended December 31, 2023. 2021 Equity Incentive Plan 85 In April 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. All equity-based awards granted on or after the effectiveness of the 2021 Plan are granted under the 2021 Plan. The 2021 Plan provides for grants of incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and its subsidiary corporations’ employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) awards, performance awards and other forms of awards to the Company’s employees, directors and consultants and any of its affiliates’ employees and consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under its 2021 Plan will not exceed 25,025,580 shares of the Company’s common stock. In addition, the number of shares of the Company’s common stock reserved for issuance under its 2021 Plan will automatically increase on January 1 of each year for a period of ten years , beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1) 4 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors prior to the date of the increase. On January 1, 2025, 4,356,092 additional shares were reserved for issuance pursuant to this provision . The maximum number of shares of the Company’s common stock that may be issued on the exercise of ISOs under its 2021 Plan is 75,100,000 shares. 2023 Inducement Plan In March 2023, the Company's Compensation Committee adopted the 2023 Inducement Plan (the “2023 Inducement Plan”). The 2023 Inducement Plan reserved 4,000,000 shares of the Company’s common stock for issuance under the 2023 Inducement Plan to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. As of December 31, 2025, there were 738,806 shares available for future grant under the Inducement Plan. On July 1, 2025, the Company granted 202,880 RSUs to the Chief Financial Officer under the 2023 Inducement Plan. On March 16, 2025, the Company granted 115,122 RSUs to the Senior Vice President of Supply Chain under the 2023 Inducement Plan. On February 29, 2024, the Company granted 208,757 RSUs to the Chief People Officer under the 2023 Inducement Plan. On March 21, 2023, the Company granted 1,845,238 RSUs to the Chief Executive Officer under the 2023 Inducement Plan. On May 18, 2023, the Company granted 843,565 RSUs to the Chief Growth Officer under the 2023 Inducement Plan. On November 1, 2023, the Company granted 827,357 RSUs to the Chief Financial Officer under the 2023 Inducement Plan. The following table summarizes the RSU activity under the 2021 Equity Incentive Plan and the 2023 Inducement Plan: Number of Shares Weighted Average Grant Date Fair Value Per Share Non-Employee Directors Directors, Officers and Employees Non-Employee Directors Directors, Officers and Employees Unvested RSUs at December 31, 2023 957,199 7,299,254 $ 2.19 $ 2.38 Granted 545,178 4,890,798 $ 2.81 $ 3.63 Vested (1) ( 775,804 ) ( 4,411,643 ) $ 2.15 $ 2.96 Forfeited — ( 821,805 ) $ — $ 3.10 Unvested RSUs at December 31, 2024 726,573 6,956,604 $ 2.70 $ 2.81 Granted 345,077 2,629,375 $ 5.11 $ 5.04 Vested ( 652,726 ) ( 2,874,632 ) $ 2.96 $ 3.01 Forfeited — ( 1,444,879 ) $ — $ 2.44 Unvested RSUs at December 31, 2025 418,924 5,266,468 $ 4.28 $ 3.92 _______________ (1) The Company modified certain former executives' RSUs to accelerate vesting, resulting in stock-based compensation expense of $ 6.7 million during the year ended December 31, 2024. As of December 31, 2025 and 2024, there was $ 18.7 million and $ 17.6 million, respectively, of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.3 years and 2.6 years, respectively. 2021 Employee Stock Purchase Plan In April 2021, the Company’s board of directors adopted the Company’s 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The Company initially authorized the issuance of 1,175,000 shares of common stock under the 2021 ESPP. In addition, the number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each year for a period of ten years , beginning on January 1, 2022 and continuing through January 1, 2031 by the lesser of (i) 1 % of the total number of shares of common stock outstanding on December 31 of the immediately preceding year; and (ii) 3,525,000 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set 86 forth in clauses (i) and (ii). On January 1, 2025, 1,089,023 additional shares were reserved for issuance pursuant to this provision. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute (in the form of payroll deductions or otherwise to the extent permitted by the administrator) an amount established by the administrator from time to time in its discretion to purchase common stock at a discounted price per share. Under the 2021 ESPP, eligible employees are granted the right to purchase shares of common stock at the lower of 85 % of the fair value at the time of grant or 85 % of the fair value at the time of exercise. The right to purchase shares of common stock is granted in May and November of each year for an offering period of approximately six months . For the years ended December 31, 2025 and 2024 , employees who elected to participate in the 2021 ESPP purchased 47,582 and 95,830 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 $ 3.19 and $ 1.70 per share for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, the Company had 4,658,349 and 3,616,908 , respectively, remaining authorized shares available for purchase. The following table summarizes the key input assumptions used in the Black-Scholes option-pricing model to estimate the grant-date fair value of the 2021 ESPP: For the Year Ended December 31, 2025 2024 Expected life of options (in years) 0.50 0.50 Expected stock price volatility 63.10 % — 75.59 % 69.20 % — 79.27 % Risk free interest rate 3.80 % — 4.44 % 4.44 % — 5.43 % Expected dividend yield — % — % Grant-date fair value per share $ 0.95 $ 2.56 $ 0.56 — $ 2.56 Stock-Based Compensation Expense Stock-based compensation expense related to RSU awards under the 2021 Equity Incentive Plan and the 2023 Inducement Plan, 2021 ESPP purchases and stock options, as applicable, are as follows: For the year ended December 31, 2025 2024 2023 (In thousands) Selling, general and administrative (1) $ 9,734 $ 15,105 $ 15,465 Research and development 778 570 339 Total stock-based compensation expense $ 10,512 $ 15,675 $ 15,804 __________________ (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. 12. Net Income (Loss) per Share Attributable to 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, 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. 87 The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders: For the year ended December 31, (In thousands, except for share and per share values) 2025 2024 2023 Numerator: Net loss $ ( 15,686 ) $ ( 6,124 ) $ ( 39,238 ) Net loss attributable to common stockholders - basic and diluted $ ( 15,686 ) $ ( 6,124 ) $ ( 39,238 ) Denominator: Weighted average shares of common stock outstanding - basic and diluted 111,209,322 100,245,394 94,516,690 Net loss per share, attributable to common shareholders: Basic and diluted $ ( 0.14 ) $ ( 0.06 ) $ ( 0.42 ) The following potentially dilutive shares were excluded from the computation of diluted net income (loss) per share because including them would have been antidilutive: For the year ended December 31, 2025 2024 2023 Stock options to purchase common stock 4,413,917 4,985,886 13,315,796 Unvested restricted stock units 7,394,489 7,683,177 8,256,453 Employee stock purchase plan 27,006 20,753 71,142 Total 11,835,412 12,689,816 21,643,391 13. Income Taxes Loss from continuing operations before income tax was as follows: For the year ended December 31, 2025 2024 2023 (In thousands) Domestic $ ( 15,482 ) $ ( 6,049 ) $ ( 39,163 ) Foreign — — — $ ( 15,482 ) $ ( 6,049 ) $ ( 39,163 ) The components of income tax provision consisted of the following: For the year ended December 31, 2025 2024 2023 (In thousands) Current Federal $ — $ — $ — State 204 75 75 Foreign — — — 204 75 75 Deferred Federal — — — State — — — Foreign — — — — — — Income tax provision $ 204 $ 75 $ 75 88 The reconciliation of the income tax benefit computed at the U.S. federal statutory rate of 21% to the Company’s income tax provision is as follows: For the year ended December 31, 2025 2024 2023 (In thousands, except percentages) U.S. federal statutory rate $ ( 3,199 ) 21.0 % $ ( 1,252 ) 21.0 % $ ( 8,203 ) 21.0 % State and local income taxes (net of federal income tax effect) (1) 204 ( 1.3 ) % 75 ( 1.3 ) % 75 ( 0.2 ) % Change in valuation allowance 1,792 ( 11.8 ) % ( 3,314 ) 55.6 % 4,489 ( 11.5 ) % Nontaxable or nondeductible items: Share-based payment awards ( 62 ) 0.4 % 3,437 ( 57.6 ) % 3,151 ( 8.0 ) % Nondeductible compensation under §162(m) 1,358 ( 8.9 ) % 947 ( 15.9 ) % 654 ( 1.7 ) % Nondeductible parking 69 ( 0.5 ) % 71 ( 1.2 ) % — ( 0.2 ) % Other 42 ( 0.3 ) % 21 ( 0.4 ) % 81 ( 0.2 ) % Changes in unrecognized tax benefits — — % — — % 61 — % Other adjustments — — % 90 ( 1.5 ) % ( 233 ) 0.6 % Effective tax rate $ 204 ( 1.3 ) % $ 75 ( 1.3 ) % $ 75 ( 0.2 ) % ___________ (1) State taxes in Texas and New York comprised the majority (greater than 50 percent) of the tax effect in this category. The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities were as follows: As of December 31, (In thousands) 2025 2024 Deferred tax assets Intangible assets $ 42 $ 55 Lease liability 3,545 5,402 Accrued expenses 706 171 Deferred revenue 462 175 Allowances, reserves and other 5,076 1,810 Stock-based compensation 2,333 3,192 Section 174 capitalized expenses 5,215 5,854 Net operating loss and other carryforwards 88,242 88,066 Total deferred tax assets 105,621 104,725 Valuation allowance ( 97,185 ) ( 94,859 ) Net deferred tax assets 8,436 9,866 Deferred tax liabilities Property and equipment ( 319 ) ( 548 ) Right-of-use asset ( 2,883 ) ( 4,284 ) Prepaid expenses ( 155 ) ( 241 ) State taxes ( 5,079 ) ( 4,793 ) Total deferred tax liabilities ( 8,436 ) ( 9,866 ) Net deferred taxes $ — $ — On July 4, 2025, the 2025 budget reconciliation bill, officially known as the One Big Beautiful Bill Act of 2025 (the “Act”), was enacted into law. The Act includes a broad range of tax reforms such as deductions for domestic research and development expenditures and federal bonus depreciation. The Company has evaluated the provisions of the Act and determined that, because it maintains a full valuation allowance against its deferred tax assets, the Act does not have a material impact on the Company’s condensed consolidated financial statements or effective tax rate. The amounts of income taxes paid (net of refunds received) by jurisdiction are as follows: 89 For the year ended December 31, 2025 2024 2023 (In thousands) Federal $ — $ — $ — State 110 89 116 Foreign — — — For the applicable periods all tax cash payments were immaterial and are therefore not being separately disclosed. Net Operating Loss Carryforwards As of December 31, 2025, the Company had federal and state net operating loss carryforwards tax effect of $ 313.0 million and $ 274.0 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. Federal and state net operating loss carryforwards begin to expire in 2032. As of December 31, 2025 and 2024, the Company did no t have any state tax credits. Federal net operating losses generated after January 1, 2018 would not expire, but would only be available to offset up to 80% of the Company’s future taxable income. The IRC imposes substantial restrictions on the utilization of net operating losses and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use pre-change net operating loss and research tax credits may be limited as prescribed under IRC Sections 382 and 383. Events which may cause limitation in the amount of the net operating losses and credits that the Company utilizes in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The Company performed a study to determine whether net operating losses and credit carryover limitations exist under Section 382 as of December 31, 2025, and determined that a portion of the net operating losses that were generated during 2022 and prior are subject to Section 382 annual limitations. As of December 31, 2025 and 2024 , these limitations did not cause any of the limited net operating losses to be permanently lost. Valuation Allowance In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible or includable in taxable income. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2025 . Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. To the extent that a valuation allowance has been established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered, the valuation allowance will be released. At December 31, 2025 , based on all available evidence, a full valuation allowance has been recorded since it is more likely than not that the deferred tax assets will not be realized. The following table summarizes the changes in the valuation allowance: For the year ended December 31, 2025 2024 2023 (In thousands) Beginning balance $ 94,859 $ 98,771 $ 94,103 Changes to valuation allowance 2,326 ( 3,918 ) 4,654 Other increases (decreases) — 6 14 Ending balance $ 97,185 $ 94,859 $ 98,771 Uncertain Tax Positions The Company is subject to taxation in the U.S. federal and various state jurisdictions. During the years ended December 31, 2025 and 2024, the Company has no t recorded any uncertain tax positions and has no t recognized interest or penalties in the consolidated statements of comprehensive loss. The Company is subject to examination from federal tax authorities for years 2022, 2023 and 2024. To the extent allowed by law, the federal and state tax authorities may have the right to 90 examine prior periods where net operating losses or tax credits were generated and carried forward and make adjustments up to the amount of the net operating loss or credit carryforward. 14. Leases 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. Real estate leases generally include office and warehouse facilities and non-real estate leases generally include office equipment and machinery. 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 less than six years . In connection with two of the Company’s facility leases, the Company is required to obtain irrevocable letters of credit in lieu of security deposits. The letters of credit totaled $ 1.5 million and $ 2.5 million as of December 31, 2025 and 2024, respectively, and expire within a set number of days after the expirations of the facilities leases. In connection with one of the Company’s office facility lease, following the fourth year of the lease, the letter of credit balance can be reduced annually by a stated amount in the lease agreement, so long as the Company complies with certain covenants. In connection with the Company’s warehouse lease, the letter of credit balance is reduced annually by a stated amount in the lease agreement, so long as the Company complies with certain covenants. The components of lease expense were as follows (in thousands): For the year ended December 31, 2025 2024 2023 Finance lease expense: Amortization $ — $ 8 $ 50 Operating lease expense: Operating lease expense (1) 7,195 7,168 7,168 Sublease income ( 2,006 ) ( 2,006 ) ( 2,006 ) Total lease expense, net $ 5,189 $ 5,170 $ 5,212 ______________________ (1) Represents the straight-line lease expense of operating leases, inclusive of amortization of ROU assets and the interest component of operating lease liabilities. 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. The following tables set forth the amount of lease assets and lease liabilities included in the Company’s consolidated balance sheets (in thousands): As of December 31, Assets Financial Statement Line Item 2025 2024 Operating lease assets Operating lease right-of-use asset $ 11,351 $ 17,239 Total lease assets $ 11,351 $ 17,239 Liabilities Current Operating lease liabilities Accrued expenses 9,042 8,541 Non-current Operating lease liabilities Operating lease liabilities, net of current portion 4,919 13,197 Total lease liabilities $ 13,961 $ 21,738 91 Supplemental information related to the Company’s leases for the year ended December 31, 2025 was as follows: For the year ended December 31, 2025 2024 Weighted-average remaining lease term (in years) Operating leases 1.8 2.5 Weighted-average discount rate Operating leases 2.45 % 2.29 % Cash paid for amounts included in the measurement of lease liabilities (in thousands) Operating cash flows used in operating leases $ 8,943 $ 8,105 Financing cash flows used in finance leases $ 1 $ 19 During the year ended December 31, 2025, ROU assets obtained in exchange for new operating lease liabilities were $ 0.8 million . During the year ended December 31, 2025, the Company did not have any finance leases. Future minimum lease payments required under operating leases as of December 31, 2025, were as follows (in thousands): Operating Leases 2026 $ 9,291 2027 4,414 2028 184 2029 190 2030 195 Thereafter 67 Future minimum lease payments $ 14,341 Less: Amount representing interest ( 380 ) Present value of future lease payments $ 13,961 15. Restructuring Transformation 2.0: Powering Honest Growth In October 2025, the Company's Board of Directors approved Transformation 2.0: Powering Honest Growth ("Powering Honest Growth") which builds upon the Company's original Transformation Pillars of Brand Maximization, Margin Enhancement and Operating Discipline. Powering Honest Growth is aimed at improving simplicity, focus and profitability, which includes exiting certain lower margin, non-strategic categories and channels, including exiting Honest.com fulfillment and apparel, as well as exiting retail and online stores in Canada, optimizing our cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies. Restructuring costs are one of the elements of Powering Honest Growth and are included in Restructuring on the consolidated statements of comprehensive loss: • Contract and External Obligation Costs — include expense to terminate contracts prior to expiration, litigation and professional fees, and other costs associated with external obligations arising from restructuring. • Employee and Personnel-Related Costs — primarily severance and other post-employment benefit costs, calculated based on salary levels, prior service, statutory minimum benefits, and other personnel-related expenses incurred as a result of restructuring. • Asset and Other Restructuring-Related Costs — consist primarily of technology taken out of service. The Company records costs associated with the restructuring once the relevant accounting criteria have been met. Costs associated with Powering Honest Growth, including restructuring costs, are expected to be approximately $ 30.0 million to $ 35.0 million to be recognized through the first quarter of 2027. Of this range, the Company expects approximately $ 5.0 million to $ 8.0 million to be related to restructuring costs, primarily comprising contractual and external obligation costs, employee and personnel-related costs and asset and other restructuring-related costs, and approximately $ 25.0 million to $ 27.0 million to be related to other costs included in cost of revenue, primarily related to a discrete inventory write-down related to exiting apparel, 92 fixed asset impairments, and costs associated with the warehouse closure, some of which have already been incurred. During the year ended December 31, 2025, we have recognized $ 24.0 million of total costs related to Powering Honest Growth. See table below for additional details of total costs. Costs associated with Powering Honest Growth for the year ended December 31, 2025 were as follows (in thousands): For the year ended December 31, 2025 Cost of Revenue (1) $ 19,837 Restructuring Costs (2) 4,159 Total $ 23,996 ______________ (1) The Company recorded a discrete inventory write-down of $ 15.9 million, inclusive of overhead costs and tariffs, related to exiting apparel; machinery and equipment write-offs of $ 2.5 million; apparel purchase commitments of $ 1.1 million; and accelerated depreciation of $ 0.4 million which is included in cost of revenue on the consolidated statements of comprehensive loss. (2) Refer to the restructuring table below for additional details of the costs included in restructuring costs. Charges incurred to restructuring costs for the year ended December 31, 2025 were: Restructuring Costs Contract and External Obligation Costs Employee and Personnel-Related Costs Asset and Other Restructuring-Related Costs Total Charges for the year ended December 31, 2025 $ 2,523 $ 884 $ 752 $ 4,159 Changes in accrued expenses as of December 31, 2025 were: Restructuring-Related Costs (1) Contract and External Obligation Costs Employee and Personnel-Related Costs Asset and Other Restructuring-Related Costs Total Balance at December 31, 2024 $ — $ — $ — $ — Charges 2,535 852 1,147 4,534 Cash payments — — — — Other adjustments — — — — Balance at December 31, 2025 $ 2,535 $ 852 $ 1,147 $ 4,534 ___________ (1) Included in accrued expenses as of December 31, 2025. Refer to Note 9, "Accrued Expenses" included elsewhere in these consolidated financial statements. 16. Subsequent Events On February 20, 2026, the Company’s Board of Directors approved the Company’s first share repurchase program for up to $ 25 million of its outstanding common stock. Under the program, share repurchases may be made at the Company’s discretion from time to time in open market transactions or privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. The timing and number of shares repurchased under the new program will depend on a variety of factors, including, without limitation, stock price, trading volume, and general business and market conditions. The repurchase program does not obligate the Company to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time. The Company expects to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.