Honest Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2024

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to The Honest Company's 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to turn the conference over to your host, Ms. Elizabeth Boukhard, Senior Director, Investor Relations at The Honest Company. Please go ahead.

Speaker 1

Good afternoon, everyone, and thank you for joining our Q4 2023 conference call. Joining me today are Carla Vernon, our Chief Executive Officer Dave Loretta, our Chief Financial Officer and Kate Barton, our Chief Growth Officer. Before we start, I would like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release issued today as well as our SEC filings for a more detailed description of the risk factors that may affect our results.

Speaker 1

Please also note that these forward looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events, except as required by law. Also during this call, we will discuss non GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non GAAP financial measures and a reconciliation of these non GAAP to GAAP measures in the Financial Results section of today's earnings release. A live broadcast of this call is also available on the Investor Relations section of our website at investors. Onus.com.

Speaker 1

With that, I'll turn it over to Carla.

Speaker 2

Thanks, Elizabeth. Good afternoon, everyone, and thank you for joining us today. On today's call, we hope to achieve several objectives. 1st, we're excited to share our successful results for the Q4 and details on key financial milestones that leave us strengthened as we close out 2023. 2nd, we will share our outlook for 2024.

Speaker 2

And 3rd, we will provide our new long range financial algorithm and a strategic update detailing the differentiated attributes of our company and key drivers for our long term growth. To complement our discussion today, please find our new investor presentation available on Honest's Investor Relations website. As I round the corner on my 1st year as CEO of The Honest Company, I'm extremely proud of the results we will share today, but I must acknowledge that 2023 has been a year of tremendous change. As I mentioned when I was with you a year ago, we were not satisfied with our past results. We were a company in need of a transformation and our teams quickly went into action to define our transformation initiative and a new operating mindset.

Speaker 2

As a result of these efforts, we strengthened our business performance, our team culture and our financial results. These 2023 improvements include expanding our gross margins by 9.30 basis points since Q1, doubling our cash position year over year and achieving a major milestone in the 4th quarter by delivering positive adjusted EBITDA and positive net income. We expanded margins and achieved our profitability goal, while also driving double digit top line growth in the quarter. But among our most meaningful accomplishments this year is the way our honest team collaborated to drive focus, clarity and alignment on our ambitious business goals. So I want to take a moment to thank our entire Honest team for the remarkable ways that they strengthened our culture and delivered and even exceeded their commitments this year.

Speaker 2

Our transformation initiative pillars of brand maximization, margin enhancement and operating discipline have each contributed meaningfully to our business model improvements. We exited 2023 with growth in both units and dollar sales, strong marketing efficiency, a healthier balance sheet and a clear path to ongoing profitability. And our brand continues to grow in relevance and scale as shown by the growth of our household penetration, which has now crossed the threshold of 5%. I'm confident that with our stronger foundation, growing consumer residents and a clear vision for the future, we will continue to advance Honest's mission as a personal care company that courageously challenges ingredients, ideals and industries through the power of our brand, our team and our Honest standard. And now, I'll turn it over to Dave to share the financial details of our strong Q4 and our 2024 outlook.

Speaker 3

Thank you, Carla, and welcome everyone. Our team's work over the last 12 months has helped us to build a strong financial foundation. We achieved 10% revenue growth both for the Q4 and full year 2023, while also expanding gross margins and reducing operating expenses. We mark 2023 as a significant turnaround period for the company, and we expect the improving financial trends to continue in 2024 and beyond as we will share today in our strategic update. But first, let me dive deeper into the 4th quarter results.

Speaker 3

This quarter, we delivered a record high revenue of $90,000,000 up 10% driven by strong results in the digital channel, including robust consumption at Amazon price increases implemented across the portfolio over the course of 2023 and increased volume growth due to both greater velocity and distribution gains. By product category, our diapers and wipes revenue increased 15% in the 4th quarter, driven by new distribution, price increases and strong sales momentum in wipes. Wipes growth was especially strong in the quarter through increased velocity, larger pack sizes and innovation, including our new flushable wipes. Next, our skin and personal care revenue declined 6% in the quarter due to exiting distribution in low margin channels. This was partially offset by strong consumption growth in baby personal care.

Speaker 3

In fact, we remain the number one natural baby personal care brand at Target and Walmart as we continue to grow our breadth of products in the baby category. And finally, our household and wellness revenue increased 28% in the 4th quarter, reflecting strong performance of the baby clothing business. Turning to results by channel in the 4th quarter, digital revenue increased 28%, driven by meaningful growth with Amazon. Our Amazon business has benefited from high return marketing and improved supply chain planning. Retail revenue decreased 3% due to exiting distribution in low margin channels, partially offset by continued benefit from distribution into new retail outlets.

Speaker 3

Our gross margin in the 4th quarter was 34%, up 9.30 basis points from the Q1 of 2023 and 600 basis points from the Q4 of last year due to improvements from cost savings and pricing. This represents our highest quarterly gross margin in over 2 years. Operating expenses decreased $6,000,000 in the 4th quarter compared to last year, reflecting higher marketing efficiency and lower SG and A expenses. Adjusted EBITDA for the Q4 was positive $4,000,000 which surpassed our original guidance. This also resulted in positive operating income for the quarter, marking the first time achieving this as a public company.

Speaker 3

Turning to the balance sheet, we ended the quarter with $33,000,000 in cash, more than doubling our cash position of $15,000,000 at the end of 2022. We also achieved positive operating cash flow for the 3rd consecutive quarter. Our cash position improved from continued discipline in managing working capital including significant reductions in inventory. For 2023, inventory was reduced by 36 percent or $42,000,000 while also supporting 10% revenue growth. Our balance sheet remains strong with 0 debt outstanding.

Speaker 3

Overall, these results strengthen our confidence in the strategic direction we are sharing today. With that, let's turn to our annual outlook for 2024. Our full year 2024 financial outlook includes lowtomidsingledigitpercentagerevenuegrowth and positive adjusted EBITDA in the low single digit to mid single digit millions range. We are expecting a softer first half of the year compared to an improved second half due to retailer ordering patterns and exiting distribution in low margin channels. We expect higher revenue growth in the back half of the year due to timing of our distribution gains and new product innovation launches.

Speaker 3

Our adjusted EBITDA outlook includes operating margin expansion derived from improved gross margin and operating expense leverage. Our transformation pillars will continue to enable our profitable growth. We envision 2024 as a year of continued strengthening of our financial foundation in order to accelerate strategic growth in 2025 and beyond. And now, I will turn the discussion back over to Carla to share our vision for Honest's next chapter.

Speaker 2

Thank you for the comprehensive overview of the team's great work in 2023 and a look ahead at 2024. Now I'm pleased to share our updated vision for the company. We believe Honest is truly a consumer products company built for modern times. Now that we have an improved financial foundation, we are in a great position to further unleash the distinctive elements of the Honest brand. Honest was born out of a desire to bring a higher standard for clean ingredients and sustainable design to baby and personal care products.

Speaker 2

And to this day, we hold every product we sell to the honest standard. This standard is a set of guiding principles that puts our mission into action. The Honest standard is the compass that guides how we deliver on consumers' expectations. At Honest, our standard always begins with clean ingredients. As we noted in our investor presentation, the market for sensitive skin care products is expected to be $80,000,000,000 by 2,030, which is nearly double today's $41,000,000,000 market.

Speaker 2

Additionally, the presence of skin allergies in children has nearly doubled since 1997. This is why our entire portfolio distinguishes itself by eliminating more than 3,500 chemicals and materials of concern from our products. Our own honest standard is a more strict benchmark than the restrictions dictated by either EU or U. S. Regulations.

Speaker 2

But our success goes beyond our approach to ingredients. We are reshaping and revolutionizing categories in other ways. For example, we revolutionized baby care with our approach to seasonal fashion inspired diaper prints, matching baby apparel, baby gifting and inspiring wellness rituals that take baby bath time to a whole new level. In the most recent period of SIRCONA data, Honest ranks as the number one natural brand in baby care. With the successful launch of our plant based flushable wipes and the great success of our extreme lengthening mascara, which is Amazon's leading climate pledge friendly mascara, we have seen that the ANZ brand is as meaningful to adults for products that they use themselves.

Speaker 2

With this evidence, we are confident that Honest meets a broad set of needs that are growing in demand. This was the cornerstone of the comprehensive strategic research we performed to define the business landscape and market opportunities. We studied the needs and preferences of thousands of consumers and hosted personal conversations with people who use Honest products and people who do not. Through the assessment of consumer needs and the available opportunity, we have crafted a clear vision of how to continue growing the power of the Honest brand by scaling distribution, introducing strong innovation, entering new categories and our continued leadership as a modern brand builder. We will do this while maintaining our disciplined financial and operating mindset.

Speaker 2

To share more detail on this growth vision and our long range algorithm, I will now turn it back over to Dave.

Speaker 3

Thanks Carla. We believe the key principles that underpin our long term plan for profitable, scalable growth include 3 key elements: distribution to expand availability modern brand building to drive velocities and cost management to ensure profitable growth. First, within distribution, we will maximize the extensive distribution opportunities available to us. These opportunities are multifaceted and include distribution through new retail partnerships and growth at our current retailers. We have a long standing retail partnership with Target, recently expanding our shelf space and baby toiletries and we see opportunity for further in store expansion with Target and other current retailers.

Speaker 3

We also see a runway for expansion with our new retailers, including Walmart. We have shown an ability to grow distribution, but still remain underpenetrated relative to the competition. For example, we have an opportunity to expand in more channels with large retailer segments including club, discount, drug and grocery and more beauty specialty retailers. In addition to expanding distribution through new stores and doors, we have an opportunity to expand aisles and shelf facings with current retailers. In fact, in most categories, Honest has less than half the number of SKUs on shelf than leading competitors.

Speaker 3

Another distribution opportunity is growing our best selling hero items, which we believe are under penetrated. One example is our top rated hydrogel moisturizing cream, which has less than 20% ACV. We are also focused on bringing new product innovation to the baby aisle and beyond. Innovation within our core and adjacent categories will support our objective of increased availability. As Carla mentioned, consumer research indicates that we have a large opportunity to take the Honest brand into new categories within the personal care universe.

Speaker 3

The market opportunity in personal care is significantly larger than the baby aisle and natural personal care is expected to grow faster than the broader personal care category. The second key driver of growth will be improved velocities supported by our modern brand building approach. To accelerate our velocities and penetration, we'll be focused on a marketing strategy with best in class brand building. This will include clear consumer targeting, differentiated messaging and modern ways of connecting. Our marketing effectiveness will be more tailored by activating cutting edge paid media, revitalizing our creative images and leveraging our content creators to amplify key campaigns.

Speaker 3

We have already started to see benefits of these enhancements by quadrupling the number of new households that are new to our brand at Amazon in Q4. The 3rd driver of profitable growth is an ongoing focus on cost management. We will build on the progress we made in 2023 on improving the financial results. We remain committed to expanding gross margins through cost savings and improved mix of our portfolio. Similarly, we will continue to improve the efficiency of our operating structure with benefits from reducing non strategic spend and gaining leverage across fixed costs as we scale.

Speaker 3

These actions, which began with the new leadership team, will put us on a path to sustainable positive operating margins and a bottom line that grows faster than the top line. This brings us to introducing our new long term financial algorithm, which includes expected revenue growth of 4% to 6% annually and continued adjusted EBITDA margin expansion. This long term financial view is grounded in our updated strategic plan, as well as our transformation pillars of brand maximization, margin enhancement and operating discipline. Together, these frameworks set the building blocks for long term value creation. I encourage you to review our updated investor presentation that outlines the strategic vision in more detail.

Speaker 3

In closing, we remain confident that we can continue to build on the stabilizing results from last year and realize our profitable growth goals as a leading modern CPG company. And now, I'll turn the call over to the operator.

Operator

Thank you. Our first question comes from the line of Aaron Grey of Alliance Global Partners. Your line is open.

Speaker 4

Hi, good evening here. Nice quarter here and thank you for the question. Just in terms of the top line, digital had a nice quarter. It looks like some of the Amazon investments paid dividends. You pointed to a number of levers driving growth going forward.

Speaker 4

So as we look to 2024 and your long term sales guidance, how should we think about how the levers are pulled more so in the near term versus the long term as we think about between channels of brick and mortar distribution and digital? And then can you also provide any color on how much more of a lever you believe those for pricing to be pulled? Thank you.

Speaker 3

Yes. Hi, Aaron, this is Dave here. We are looking at the future with a balanced model that does reflect some of the success that you just saw in the Q4. Digital was a strong driver for us and that was a lot of growth that we got from Amazon, which continues to have some big opportunity for us. So as I talked about the long term growth opportunity between with distribution being a big component of top line That will be a balance, a continued balance of brick and mortar distribution and the digital channel with large of that being Amazon.

Speaker 3

So, I outlined in the investor presentation, which you can see the elements of how we see that distribution playing out, which we entering new stores, increasing the number of locations within those stores and even shelf and facing opportunities. And it's really about maximizing those opportunities that we see driving the growth for us in 2024 and beyond. In terms of I think you said leveraging the potential for the brand beyond that period of time. We're going to look at our long range model. And as I shared, it's a balance between driving top line growth, but bottom line growth faster than the top line.

Speaker 3

And we think that gives us a lot of advantages to set us up for a strong foundation in the future.

Speaker 4

Okay, great. Thanks for that color. Really appreciate it. Second quick one for me. Just based on the EBITDA guidance and the current run rate, it implies there might be some investments you plan to make behind the brand to drive growth for the year.

Speaker 4

So any color in terms of planned uptick in investment you might have in the year to drive innovation, build brand awareness or otherwise would be greatly appreciated. Thanks.

Speaker 3

Yes. I think we're really proud with the 4th quarter results. It was a strong revenue period, 90,000,000 dollars and what it really illustrates is the power of the model that allows incremental revenue to drop to the bottom line in that period. Now I'd say looking forward, we do have clear sight on positive adjusted EBITDA for the full year, but I wouldn't paint it as a straight line. There will be some periods and we're particularly called out a soft first half of the year from the top line.

Speaker 3

But there are investments that we are going to maintain in terms of flexibility in this model to continue to drive demand from marketing. We're expecting investments in R and D to help drive the innovation side. And we're just going to be we're going to maintain flexibility to get through periods that might have consumer pressures and be able to maintain that top line momentum. So I would say that the full year outlook that we provided on adjusted EBITDA is something that we're confident in and can weather through any conditions that we might see that we face.

Speaker 4

Okay, great. Thanks for the color. I'll jump back in the queue.

Operator

Thank you. One moment, please. Our next question comes from the line of Shavana Chowdhury of JMP. Your line is open. Our next question yes, Shavana Chowdhury, your line is open.

Speaker 5

Hi. Congrats on the quarter and thank you for taking our question. So a big focus is on distribution gains. So if you can please give us a you had a tremendous retail distribution gains second half of twenty twenty two onwards. So can you please give us a sense of what your current shelf space looks like and when do you how much more distribution space you're expecting and what kind of timeframe?

Speaker 5

And as a part of that question, we believe Walmart started doing resets in the summer. Are you getting any additional space from there? And I have another question. Thank you.

Speaker 2

Lana, it's Carla. Thank you so much for joining the call today and thank you for the question. It's great to hear your voice. I'd love to take that question about distribution and really make sure we put that in the context of the journey we've been on and the journey we're going. As you can see in the investor presentation on page 13, no, excuse me, it's not Page 13, it's further in the document.

Speaker 2

There is a slide that talks about the fact that we've got about a 12% or 13% CAGR in distribution and total points of distribution for the year since 2019 or so.

Speaker 6

I think that

Speaker 2

really reflects that. But in the most recent period for this year, we grew distribution at a 6% rate. A lot of that was driven by Walmart, not exclusively so, however, we have been getting into other retail stores and doors. When we look at our portfolio overall, we know that the opportunity is that even though we've now got quite a large presence in big mega chains like your Target and your Walmart, in many instances, we do not have all of our categories or all of our portfolio in distribution there. For example, when we look at our presence on shelf, even in our diaper category, we only have about 20% of the shelf presence of the key competitor in that category.

Speaker 2

That same ratio is about the same for us in wipes and in facial skincare. So even when we are in an aisle, we know that we are under faced at versus what our opportunity really is. We have great conversations going on with our retailers. We have a really very clear line of sight to how we will plan to unlock, as Dave said, new banners, new doors within the banners, new aisles and broader distribution. Will come back in the coming quarters to give you the exact add up of those numbers.

Speaker 5

Thank you for the color on that. And I just quickly wanted to touch base on the track channel data. I believe in the previous quarter you had mentioned you were expecting something in the tractional data to remain pretty high double digit or so. And but then most recently it's showing like about mid single, low high single digits. If you could please comment on that and how you see as you gain distribution to your point, how quickly can we see an uptick in the track channel data as well?

Speaker 5

Thank you.

Speaker 2

Sure. I'll start us off. And Dave, if I miss anything, please let me know. As you know very well, 2023 was the year we got the benefit of going from 50% ACV overall to about an 80% ACV for the brand as a total. What we found ourselves lapping in some of those instances is either timing for retailers, timing shifts for retailers or pipeline build behind some of the new distribution we've gotten.

Speaker 2

What I don't remember the second part of the question, did I?

Speaker 3

Well, the current track channel in the high single digits, which is more a reflection of what we're seeing in the consumer spend area with those track channels that are part of that channel, which is about 50% of our overall business.

Speaker 2

Yes. We feel good about what we feel really good about is that we're growing on both dollars and units for overall, which as you've been watching what's happening in the consumer products space, that is such a great indicator for us that our consumer really values not only the distinctiveness of the brand, but that when they're making these choices about which brands best serve their needs, even as we have delivered price advances over the last year, year and a half, our consumers are actually still growing with us on top of the additional distribution. We're still able to demonstrate velocity growth.

Speaker 5

Thank you so much. I'll pass it on.

Operator

Thank you. One moment please. Our next question comes from the line of Laura Champine of Loop. Your line is open.

Speaker 7

Thanks and congratulations on achieving profitability faster than we were expecting. I wanted to ask about free cash flow, which also beat our expectations in the quarter and the year. A lot of that came from an inventory drawdown though. Is that a repeatable event or should we expect free cash flow flattish or even a little bit worse in 2024?

Speaker 3

Yes. Hi, Laura. Certainly, the cash flow gains in 2023 were pretty pronounced and it was that opportunity to right size the inventory that generated it, as well as I'll say that 4th quarter strong earnings results that just flows through to land on our cash balance of 33,000,000 dollars 24,000,000 I do not expect we will have that kind of a cash flow gain over the course of the year. We do think the inventory levels are better right sized to the demand in front of us. And so we'll keep managing that to eke out what we can, but we don't expect free cash flow to be positive.

Speaker 3

The ending cash balance of $33,000,000 where we're at today will certainly cover any additional needs through the balance of the year. But I do want to call out in 2024, we have some costs related to legal expenses of the cases that are already reported on and those are hard costs and cash flow items that we will have at 2024 that would impact our ability to see positive cash flow. So it will be very flat to slightly down, but not the kind of positive cash flow that we generated in 2023.

Speaker 7

Got it. So that will impact cash, but obviously not the adjusted EBITDA outlook that you provided today, correct?

Speaker 3

That's correct. That would be an add back and so but it is a cash outflow.

Speaker 2

Got it. Thank you.

Operator

Thank you. One moment please. One moment please. Our next question comes from the line of Dana Tinsley of Tinsley Advisory. Your line is open.

Speaker 6

Thank you. Good afternoon, everyone. As you think about 2024 and the guidance you gave versus the first half and the second half of the year, given the more tougher comparisons on the top line in the second half of the year, what do you see as the drivers of growth in the second half? Is it distribution? Is it something with the categories with new launches?

Speaker 6

How are you thinking about it? And then as you think about the adjusted EBITDA as we go through the year, any puts and takes we should be mindful of? Thank you. Hi.

Speaker 2

I think Dana, it's great to hear you. Thanks for joining us today. This is Carla. I think we'll take those in 2 parts. Let me start out by talking about how we think about our overall growth roadmap.

Speaker 2

I would say this all still fits within the context of as you can see in our investor presentation on Page 9, we really articulate our journey over the course of a few years, right? And so 2023 was absolutely defined as a transformation year for us. We I think we've been really candid about that and hard at work and proud of those results. We still believe in 2024, there are some activities that we want to continue in the vein of our 3 pillars, our brand maximization pillar, our margin enhancement pillar and our operating discipline pillar. And as we do that, that will mean that we're still really helping to drive a very strong and stable foundation of our core portfolio.

Speaker 2

We I've talked to you before about our real strong belief in the Pareto principle in any CPG company and that every CPG brand you look at has this sort of stable of core items that really, really make or break the portfolio. We call those our hero items. We really only defined that strategy as a beginning strategy in 2023. As we look at those hero items, I know that my that our Chief Growth Officer, Kate, who's here today is absolutely reflecting on where are the growth opportunities you might also see in the slides and we've talked to you before. Many of our hero items are very well under distributed even though we know that they are so popular.

Speaker 2

For example, our Extremely Xening Mascara, can never stop talking about it. I'm having always great eyelash day when I choose to put on my primer and then my Extreme Lengthening. And that's the that the consumer loves that also, right? It's the number one turning climate pledge friendly mascara in all of Amazon and yet its distribution remains less than half of all stores, that we play in. So we do believe that distribution in all of its forms is going to be a very rewarding journey for us not only this year, not only next year, but a company like ours has a long runway for growth on distribution.

Speaker 2

And that some of those distribution efforts will be against new items and some of those distribution efforts will be against hero items. We believe those are both levers. We have to play in balance. So I think that the answer is you will see some of all of that from us because there's actually so much opportunity.

Speaker 3

Yes, Dana, I can touch on the adjusted EBITDA question. There will be some puts and takes across the year. We're comfortable that the model is set up to deliver on a full year basis the positive outcome that we've articulated. But in the very near term, some of the revenue pressures that relate to inventory that was orders that were pulled into our Q4 will impact our Q1. And so we want to call out that Q1 in particular will be a little more muted on the top line and that would impact the bottom line opportunity for us.

Speaker 3

But we do see the top line progressing in a positive way going through the balance of the year as Carla articulated those back half of the year opportunities. And really this is a reflection of setting up this model that we see developing bottom line results growing faster than the top line. It's going to be a consistent gross margin expansion opportunity through it for us across the periods and expense leverage as well that will help get us to that adjusted EBITDA positive level.

Speaker 6

Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of Dara Mohsenian of Morgan Stanley. Your line is open.

Speaker 8

Hey, good afternoon guys. Hi. So can we talk about long term EBITDA margin potential and what you guys are thinking looking out 3 to 5 years, obviously you made some nice progress in 2023. But what do you think is a reasonable level looking out long term? And how do you think about the pace of improvement over the next few years?

Speaker 3

Yes. Hi, Dara. The algorithm that we think is the best way to express the opportunity has got obviously, a function of the progress that we've made that we've demonstrated in 2023. The model that we believe is best to allow revenue gains to kind of flow through at a faster pace to the bottom line. And but it's also balanced with what we think is things that are out of our control, the uncertainty of the macro environment, pressures from the consumer that we might face.

Speaker 3

And so we think that this model allows us to weather through any of those periods that we might encounter those. And it gives us the flexibility to be strategic over time with that growth in the bottom line. I think it's safe to say that continually expanding margin from an adjusted EBITDA standpoint is what we're comfortable expressing at this time given that we're still in the early stages of a transformation journey. And as time goes through, I think you'll see that we kind of deliver behind that.

Speaker 8

Okay. And maybe a more specific question leaving 2024, are there big opportunities left from a cost perspective as you think about maximizing profit and driving longer term profitability? And how do you think about that from a cost perspective after 2024?

Speaker 3

Yes. I believe we definitely see continued cost savings opportunities beyond 2024 both within our supply chain, our cost structure of the products we bring to market and maintaining a real vigilance on expense control. So those are going to be aspects of opportunity beyond 2024. And I'll say, we always benchmark ourselves against other CPG companies out there and use the opportunity that we see in those best in class companies as guides for us is what we can get to as well.

Speaker 8

Great. Thanks.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Carla for any closing remarks.

Speaker 2

Well, on behalf of the entire Honest team or as we like to call them our Butterfley family, we are so thankful that you dialed in today to join us for our Q4 and full year results. And we look forward to talking to you next time. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

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Key Takeaways

  • In Q4 2023, The Honest Company delivered record revenue of $90 million (+10% YoY), driven by strong digital channel growth on Amazon, strategic price increases, and expanded volume via velocity and distribution gains.
  • The company achieved its first profitable quarter as a public company with positive adjusted EBITDA of $4 million and net income, and expanded its gross margin to 34%, the highest in over two years.
  • Throughout 2023, Honest executed a transformation plan that raised gross margins by 930 basis points since Q1, doubled its cash position to $33 million, reduced inventory by 36%, and recorded positive operating cash flow for three consecutive quarters with zero debt.
  • For 2024, Honest forecasts low-to-mid single digit revenue growth and positive adjusted EBITDA in the low- to mid-single-digit millions, anticipating a softer H1 and stronger H2 driven by distribution gains and new product innovation.
  • The long-term strategy centers on three pillars—brand maximization, margin enhancement and operating discipline—with a goal of 4–6% annual revenue growth and continued EBITDA margin expansion through modern brand building, cost management, and expanded distribution.
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Earnings Conference Call
Honest Q4 2023
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