Honest Company Inc

Previous wording

The Honest Company, Inc. (“Honest” and, together with its consolidated subsidiaries, the “Company,” “we,” “us” and “our”) is a personal care company dedicated to creating clean- and sustainably-designed products. Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products. Since our launch in 2012, we have been dedicated to developing clean, sustainable, effective and thoughtfully-designed products. By doing so with transparency, we have cultivated deep trust around what matters most to our consumers: their health, their families and their homes. We are an omnichannel brand, ensuring our products are available wherever our consumers shop. Our differentiated platform positions us for continued growth through our trusted brand, award-winning multi-product offerings and omnichannel accessibility.

Current wording

The Honest Company, Inc. (“Honest” and, together with its consolidated subsidiaries, the “Company,” “we,” “us” and “our”) is a personal care company dedicated to creating clean- and sustainably-designed products. Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products. Since our launch in 2012, we have been dedicated to developing clean, sustainable, effective and thoughtfully-designed products. By doing so with transparency, we have cultivated deep trust around what matters most to our consumers: their health, their families and their homes. We are an omnichannel brand, ensuring our products are available wherever our consumers shop. Our differentiated platform positions us for continued growth through our trusted brand, award-winning multi-category product offerings and omnichannel accessibility.

Previous wording

Our omnichannel approach seeks to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and accessibility. Since our launch, we have built a well-integrated omnichannel presence by expanding our product accessibility, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively. We maintain direct relationships with our consumers via our flagship digital platform, Honest.com, which allows us to influence brand experience and better understand consumer preferences and behavior. We increase accessibility of our products to more consumers through both the third-party pureplay ecommerce sites, Honest.com and leading retailers and their websites. As of March 31, 2024, our products can be found in approximately 49,000 retail locations across the United States and Canada. The decline in retail locations compared to December 31, 2023 relates to the exit of our low-margin business in Europe and Asia and a few smaller retail customer bankruptcies. Our integrated omnichannel presence provides meaningful benefits to our consumers which we believe are not easily replicated by our competitors. This distinctive business model has allowed us to efficiently scale our business while remaining agnostic as to the channel where consumers purchase our products.

Current wording

Our omnichannel approach seeks to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and accessibility. Since our launch, we have built a well-integrated omnichannel presence by expanding our product accessibility, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively. We maintain direct relationships with our consumers via our flagship digital platform, Honest.com, which allows us to influence brand experience and better understand consumer preferences and behavior. We increase accessibility of our products to more consumers through both the third-party pureplay ecommerce sites, Honest.com and leading retailers and their websites. As of June 30, 2024, our products can be found in approximately 50,000 retail locations across the United States and Canada. The decline in retail locations compared to December 31, 2023 relates to the exit of our low-margin business in Europe and Asia and a few smaller retail customer bankruptcies. Our integrated omnichannel presence provides meaningful benefits to our consumers which we believe are not easily replicated by our competitors. This distinctive business model has allowed us to efficiently scale our business while remaining agnostic as to the channel where consumers purchase our products.

Previous wording

For further details on the restructuring element of the Transformation Initiative, refer to Note 13, “Restructing” included in these condensed consolidated financial statements.

Current wording

For further details on the restructuring element of the Transformation Initiative, refer to Note 13, “Restructuring” included in our unaudited condensed consolidated financial statements.

Previous wording

Research, development and innovation are core elements underpinning our growth strategy. Through our in-house research and development laboratories, we are able to access the latest advancements in clean ingredients and continue to innovate in the clean conscious space. Based in Los Angeles, California, our research and development team, including chemists, an in-house toxicologist and an eco-toxicologist, develops innovative clean products based on the latest green technology. At Honest, product innovation never stops. The improvement of existing products and the introduction of new products have been, and continue to be, integral to our growth. We have made significant investments in our product development capabilities and plan to continue to do so in the future. We believe our rigorous approach to product innovation has helped redefine and grow the clean and natural product categories in which we operate. Our continued focus on research and development will be central to attracting and retaining consumers in the future. Our ability to successfully develop, market and sell new products will depend on a variety of factors, including our continued investment in innovation, integrated business planning processes and capabilities.

Current wording

Research, development and innovation are core elements underpinning our growth strategy. Through our in-house research and development laboratories, we are able to access the latest advancements in clean ingredients and continue to innovate in the clean conscious space. Based in Los Angeles, California, our research and development team, including chemists, an in-house toxicologist and an eco-toxicologist, develops innovative clean products based on the latest green technology. At Honest, product innovation is top of mind. The improvement of existing products and the introduction of new products have been, and continue to be, integral to our growth. We have made significant investments in our product development capabilities and plan to continue to do so in the future. We believe our rigorous approach to product innovation has helped redefine and grow the clean and natural product categories in which we operate. Our continued focus on research and development will be central to attracting and retaining consumers in the future. Our ability to successfully develop, market and sell new products will depend on a variety of factors, including our continued investment in innovation, integrated business planning processes and capabilities.

Previous wording

Our product mix is a driver of our financial performance given our focus on accretive product launches and innovation to increase product margins. Even though our growth strategy aims to boost sales across all products, we intend to prioritize growth in products with attractive margin characteristics, including skin care, and leverage our brand equity and consumer insights to extend into new products. We are also committed to bringing our Honest Standard to new products where we believe there is a need for a higher standard for clean personal care.

Current wording

Our product mix is a driver of our financial performance given our focus on accretive product launches and innovation to increase product margins. Even though our growth strategy aims to boost sales across all products by increasing total distribution, we intend to prioritize growth in products with attractive margin characteristics, including skin care, and leverage our brand equity and consumer insights to extend into new products. We are also committed to bringing our Honest Standard to new products where we believe there is a need for a higher standard for clean personal care.

Previous wording

Our marketing model is inclusive of a best-in-class modern approach across paid, owned, and earned marketing channels. Additionally, we have optimized our spend in an omnichannel distribution model, which has led to spending less media driving directly to Honest.com and investing more driving to our retailer and other digital partners.

Current wording

Our marketing model is inclusive of a best-in-class modern approach across paid, owned, and earned marketing channels. Additionally, we have optimized our spend in an omnichannel distribution model, which has led to spending less on media driving directly to Honest.com and investing more in driving to our retailer and other digital partners.

Previous wording

We have strategically positioned ourselves to benefit from several macro trends related to changes in consumer behavior. We believe consumers’ increasing interest in purpose-designed products has contributed to higher demand for certain of our products. At the same time, changes in macro-level consumer spending trends, including as a result of global pandemics or other macroeconomic conditions, such as inflation, have resulted and could in the future result in fluctuations in our operating results.

Current wording

We have strategically positioned ourselves to benefit from several macro trends related to changes in consumer behavior. We believe consumers’ increasing interest in purpose-designed products has contributed to higher demand for certain of our products. At the same time, changes in macro-level trends, including as a result of global pandemics or other macroeconomic conditions, such as inflation, have resulted and could in the future result in fluctuations in our operating results.

Previous wording

There has been and continues to be an adverse impact on global economic conditions, specifically inflationary pressures, which has adversely affected our supply chain in regards to cost of goods sold. We have experienced and anticipate continued increases in product costs and labor costs due to inflationary pressures and higher transportation costs from ocean container delivery, which has in the past and could continue to hamper our ability to drive margin expansion. We have taken measures to bolster key aspects of our supply chain, such as ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our Operating Discipline Transformation Pillar. We expect to continue to receive fulfillment costs savings due to warehouse and labor operational efficiencies gained with our newer Las Vegas, Nevada fulfillment center partner. If we are not successful in negotiating future renewals with our other fulfillment partner such that these renewals are at increased costs to us, our business, financial condition, results of operations and prospects could be adversely affected. In January 2024, we negotiated better purchase price terms with one of our third-party manufacturers, Ontex. However, we had experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future.

Current wording

There has been and continues to be an adverse impact on global economic conditions, specifically inflationary pressures, which has adversely affected our supply chain in regards to cost of goods sold. We have experienced and anticipate continued increases in product costs and labor costs due to inflationary pressures and higher transportation costs from ocean container delivery, which has in the past and could continue to hamper our ability to drive margin expansion. We have taken measures to bolster key aspects of our supply chain, such as ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our Operating Discipline Transformation Pillar. We expect to continue to receive fulfillment costs savings due to warehouse and labor operational efficiencies gained with our newer Las Vegas, Nevada fulfillment center partner. If we are not successful in negotiating future renewals with our other fulfillment partner such that these renewals are at increased costs to us, our business, financial condition, results of operations and prospects could be adversely affected. In January 2024, we negotiated better purchase price terms with one of our third-party manufacturers, Ontex. However, we have experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future.

Previous wording

We believe in the power of our omni-channel distribution model. We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with.

Current wording

We believe in the power of our omnichannel distribution model. We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with.

Previous wording

Inventory is reflected at net realizable value which includes a reserve for excess inventory. We estimate reserve requirements based on current and forecasted demand, including the ability to liquidate excess inventory and estimated liquidation value. As a part of the Transformation Initiative, we exited certain low-margin household products and implemented an inventory, or SKU rationalization, program in 2023, which resulted in our recording an inventory write-down and earmarking donations mainly related to the liquidation of low-margin household products. We continue to incur inventory write-downs each quarter, as necessary. Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we expect to incur in the future additional inventory write-downs, customer returns or incur donation expense or disposal costs as we reduce excess inventory.

Current wording

Inventory is reflected at net realizable value which includes a reserve for excess inventory. We estimate reserve requirements based on current and forecasted demand, including the ability to liquidate excess inventory and estimated liquidation value. As a part of the Transformation Initiative, we exited certain low-margin household products and implemented an inventory, or SKU rationalization, program in 2023, which resulted in our recording an inventory write-down and earmarking donations primarily related to the liquidation of low-margin household products. We continue to incur inventory write-downs each quarter, as necessary. Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we have and expect to incur in the future additional inventory write-downs, customer returns or incur donation expense or disposal costs as we reduce excess inventory.

Previous wording

We had previously presented our revenue by sales channel of Digital and Retail and by product category of Diapers and Wipes, Skin and Personal Care and Household and Wellness. In determining the appropriate categories to use to disaggregate revenue in accordance with the requirements of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we had considered the information regularly reviewed by our chief operating decision maker (“CODM”) for evaluating our financial performance and making resource allocation decisions and the guidance to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. In 2023, we executed a broad-based Transformation Initiative with Brand Maximization as one of the Pillars designed to leverage the strength of the Honest brand. As part of our strategy to build the Honest brand, our CODM is now evaluating our financial performance and making resource allocation decisions across our products as one brand of a portfolio of multiple products. As a result, in the first quarter of 2024, we decided to remove the disaggregation of revenue by product category to align with changes made to our long-term strategy. We are now disaggregating revenue by direct-to-consumer and retail and third-party ecommerce customers. The change had no effect on our results of operations or timing of revenue recognition.

Current wording

We had previously presented our revenue by sales channel of Digital and Retail and by product category of Diapers and Wipes, Skin and Personal Care and Household and Wellness. In determining the appropriate categories to use to disaggregate revenue in accordance with the requirements of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we had considered the information regularly reviewed by our chief operating decision maker (“CODM”) for evaluating our financial performance and making resource allocation decisions and the guidance to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. In 2023, we executed a broad-based Transformation Initiative with Brand Maximization as one of the Pillars designed to leverage the strength of the Honest brand. As part of our strategy to build the Honest brand, our CODM evaluates our financial performance and makes resource allocation decisions across our products as one brand of a portfolio of multiple products. As a result, in the first quarter of 2024, we removed the disaggregation of revenue by product category to align with changes made to our long-term strategy and we began disaggregating revenue by direct-to-consumer and retail and third-party ecommerce customers. The change had no effect on our results of operations or timing of revenue recognition.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Revenue was $86.2 million for the three months ended March 31, 2024, as compared to $83.4 million for the three months ended March 31, 2023. The increase of $2.8 million, or 3.4%, was primarily due to an increase in baby apparel revenue of $5.4 million and an increase in wipes revenue of $1.6 million due to distribution gains and strong velocities, partially offset by a decline in diaper revenue of $3.1 million and a decline of $1.1 million in color cosmetics revenue due to timing of shipments to customers. We estimate that pricing increases taken in 2022 and 2023 contributed $3.3 million to revenue for the three months ended March 31, 2024.

Current wording

Revenue was $179.3 million for the six months ended June 30, 2024, as compared to $167.9 million for the six months ended June 30, 2023. The increase of $11.3 million, or 6.7%, was primarily due to an increase in baby apparel revenue of $9.7 million, an increase in wipes revenue of $5.0 million and an increase in baby personal care revenue of $4.0 million, as well as lower trade spend compared to the six months ended June 30, 2023, partially offset by a decline in Honest.com revenue of $5.6 million and a decline in skincare and color cosmetics of $2.8 million. We estimate that pricing increases taken in 2023 contributed $5.8 million to revenue for the six months ended June 30, 2024.

Previous wording

Cost of revenue was $54.3 million for the three months ended March 31, 2024, as compared to $63.2 million for the three months ended March 31, 2023. The decrease of $8.9 million, or 14.0%, was primarily driven by lower transportation, product, and fulfillment costs and a one-time reduction of $2.6 million in costs as a result of the Transformation Initiative recognized during the three months ended March 31, 2023. Cost of revenue as a percentage of revenue decreased by 1,275 basis points primarily due to price increases and costs savings.

Current wording

Cost of revenue was $111.8 million for the six months ended June 30, 2024, as compared to $124.8 million for the six months ended June 30, 2023. The decrease of $13.1 million, or 10.5%, was primarily driven by lower transportation, product, and fulfillment costs as we focus on operating discipline, as well as a one-time reduction of $3.0 million in costs as a result of the Transformation Initiative recognized during the six months ended June 30, 2023. Cost of revenue as a percentage of revenue decreased by 1,198 basis points primarily due to these cost savings, price increases and lower trade promotion levels as compared to the six months ended June 30, 2023.

Previous wording

Selling, general and administrative expenses were $22.4 million for the three months ended March 31, 2024, as compared to $25.8 million for the three months ended March 31, 2023. The decrease of $3.4 million, or 13.2%, was primarily due to a $2.3 million decrease in donations expense primarily related to our SKU rationalization under the Transformation Initiative, $1.3 million decrease in stock-based compensation expense, $1.3 million decrease in CEO transition costs incurred during the three months ended March 31, 2023, and $0.7 million decrease in advanced shipping vendor violation charges related to the implementation of our new order management system, partially offset by a $1.1 million increase in service fees related to baby apparel and $0.9 million increase in employee-related expenses. Selling, general and administrative expenses as a percentage of revenue decreased 5.0% as compared to the three months ended March 31, 2023.

Current wording

Selling, general and administrative expenses were $48.9 million for the six months ended June 30, 2024, as compared to $50.8 million for the six months ended June 30, 2023. The decrease of $2.0 million, or 3.9%, was primarily due to a $2.7 million decrease in donations expense primarily related to our SKU rationalization program under the Transformation Initiative, $1.1 million decrease in advanced shipping vendor violation charges related to the implementation of our new order management system, a $0.7 million decrease in professional fees and a $0.6 million decrease in legal expenses, partially offset by a $2.0 million increase in service fees related to baby apparel and a $1.1 million increase in stock-based compensation expense primarily related to the acceleration of RSUs held by our founder and former Chief Creative Officer. Selling, general and administrative expenses as a percentage of revenue decreased 3.0% as compared to the six months ended June 30, 2024.

Previous wording

Marketing expenses were $9.1 million for the three months ended March 31, 2024, as compared to $10.2 million for the three months ended March 31, 2023. The decrease of $1.1 million, or 11.1%, was primarily due to a $0.9 million reduction in retail marketing and a $0.6 million reduction in digital brand advertising, partially offset by a $0.5 million increase in marketing to support new distribution at a key digital retailer. Marketing expenses as a percentage of revenue decreased 1.7% as compared to the three months ended March 31, 2023.

Current wording

Marketing expenses were $11.5 million for the three months ended June 30, 2024, as compared to $9.3 million for the three months ended June 30, 2023. The increase of $2.3 million, or 24.3%, was primarily due to a $2.7 million increase in retail marketing, partially offset by a $0.9 million reduction in digital brand advertising. Marketing expenses as a percentage of revenue increased 1.4% as compared to the three months ended June 30, 2023.

Previous wording

Research and development expenses were $1.7 million for the three months ended March 31, 2024, as compared to $1.5 million for the three months ended March 31, 2023. The increase of $0.2 million, or 15.2%, was primarily related to an increase in research and development spend in claims testing, pilot trials and certifications, consistent with our focus on continued innovation. Research and development expenses as a percentage of revenue increased 0.2% as compared to the three months ended March 31, 2023.

Current wording

Research and development expenses were $1.7 million for the three months ended June 30, 2024, as compared to $1.6 million for the three months ended June 30, 2023. The increase of $0.1 million, or 7.5%, was primarily related to an increase in research and development spend in safety testing, pilot trials, and related-employee expenses, consistent with our focus on continued innovation. Research and development expenses as a percentage of revenue decreased 0.04% as compared to the three months ended June 30, 2023.

Previous wording

Interest and other income (expense), net was net expense of $63 thousand for the three months ended March 31, 2024, as compared to net expense of $189 thousand for the three months ended March 31, 2023.

Current wording

Interest and other income (expense), net was net expense of $19 thousand for the three months ended June 30, 2024, as compared to net expense of $9 thousand for the three months ended June 30, 2023.

Previous wording

As of March 31, 2024, we had $33.6 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our unaudited condensed consolidated financial statements. We will need to generate sufficient cash from operations or raise additional capital to meet our long-term working capital and capital expenditure needs. We also have availability under our 2023 Credit Facility, which was not drawn as of March 31, 2024.

Current wording

As of June 30, 2024, we had $36.6 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our unaudited condensed consolidated financial statements. We will need to generate sufficient cash from operations or raise additional capital to meet our long-term working capital and capital expenditure needs. We also have availability under our 2023 Credit Facility, which was not drawn as of June 30, 2024.

Previous wording

In January 2023, we 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 our accounts receivable and inventory as reduced by an availability block and 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. We recognize the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive loss. For the three months ended March 31, 2024, the commitment fee incurred was immaterial. As of March 31, 2024, there were $3.7 million of outstanding letters of credit and $17.7 million available to be drawn upon. As of March 31, 2024, there was no outstanding balance under the 2023 Credit Facility.

Current wording

In January 2023, we 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 our accounts receivable and inventory as reduced by an availability block and 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. We recognize the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive loss. For the three and six months ended June 30, 2024, the commitment fee incurred was immaterial. As of June 30, 2024, there were $2.7 million of outstanding letters of credit and $20.5 million available to be drawn upon. As of June 30, 2024, there was no outstanding balance under the 2023 Credit Facility.

Previous wording

Net cash used in operating activities of $2.8 million for the three months ended March 31, 2023 was primarily due to net loss of $18.9 million, non-cash adjustments of $6.0 million and a net increase in cash related to changes in operating assets and liabilities of $10.1 million. Non-cash adjustments primarily consisted of stock-based compensation of $3.8 million, amortization of operating ROU assets of $1.5 million and depreciation and amortization of $0.7 million. Changes in cash flows related to operating assets and liabilities primarily consisted of cash provided by a $17.2 million decrease in inventory and a $7.9 million decrease in prepaid expenses and other assets, offset by uses of cash including a $2.9 million increase in accounts receivable due to increased revenue and $10.8 million lower accounts payable and accrued expenses driven by lower inventory purchases in the three months ended March 31, 2023.

Current wording

Net cash provided by operating activities of $3.3 million for the six months ended June 30, 2024 was primarily due to non-cash adjustments of $17.5 million, partially offset by a net loss of $5.5 million and a net decrease in cash related to changes in operating assets and liabilities of $8.8 million. Non-cash adjustments primarily consisted of stock-based compensation of $11.4 million, amortization of operating Right-of-Use ("ROU") assets of $3.2 million, utilization of marketing credits of $1.5 million and depreciation and amortization of $1.4 million. Changes in cash flows related to operating assets and liabilities primarily consisted of a $4.0 million use of cash due to operating lease obligations and a $3.6 million decrease in accounts payable and accrued expenses.

Previous wording

Net cash provided by operating activities of $0.3 million for the three months ended March 31, 2024 was primarily due to non-cash adjustments of $4.8 million, partially offset by a net loss of $1.4 million and a net decrease in cash related to changes in operating assets and liabilities of $3.1 million. Non-cash adjustments primarily consisted of stock-based compensation of $2.5 million, amortization of ROU assets of $1.6 million and depreciation and amortization of $0.7 million. Changes in cash flows related to operating assets and liabilities primarily consisted of cash provided by a $2.6 million decrease in accounts receivable due to improved collections and a $0.5 million decrease in prepaid expenses and other assets, offset by uses of cash including a $2.9 million higher accounts payable and accrued expenses driven by higher inventory purchases of $1.0 million in the three months ended March 31, 2024.

Current wording

Net cash provided by operating activities of $3.8 million for the six months ended June 30, 2023 was primarily due to net loss of $32.3 million, non-cash adjustments of $14.6 million and a net increase in cash related to changes in operating assets and liabilities of $21.4 million. Non-cash adjustments primarily consisted of stock-based compensation of $10.2 million, amortization of operating ROU assets of $3.1 million and depreciation and amortization of $1.3 million. Changes in cash flows related to operating assets and liabilities primarily consisted of cash provided by a $33.6 million decrease in inventory, a $7.4 million decrease in prepaid expenses and other assets and a $6.5 million decrease in accounts receivable due to improved collection efforts, partially offset by a decrease of $23.1 million in accounts payable and accrued expenses driven by lower inventory purchases in the six months ended June 30, 2023 due to our disciplined inventory management.

Previous wording

Net cash used in investing activities of $0.1 million for the three months ended March 31, 2024 was primarily due to purchases of property and equipment of $0.1 million.

Current wording

Net cash used in investing activities of $0.1 million for the six months ended June 30, 2024 was due to purchases of property and equipment.

Previous wording

Net cash provided by investing activities of $2.5 million for the three months ended March 31, 2023 was primarily due to proceeds from maturities of short-term investments of $3.0 million, offset by purchases of property and equipment of $0.5 million.

Current wording

Net cash provided by investing activities of $4.5 million for the six months ended June 30, 2023 was primarily due to proceeds from maturities of short-term investments of $5.7 million, partially offset by purchases of property and equipment of $1.2 million.

Previous wording

Net cash provided by financing activities of $0.5 million for the three months ended March 31, 2024 consisted of $0.5 million of proceeds from stock option award exercises.

Current wording

Net cash provided by financing activities of $0.6 million for the six months ended June 30, 2024 consisted primarily of $0.5 million of proceeds from stock option award exercises.

Previous wording

Net cash used in financing activities of $15 thousand for the three months ended March 31, 2023 consisted of principal payments of financing lease obligations.

Current wording

Net cash provided by financing activities of $73 thousand for the six months ended June 30, 2023 consisted of proceeds from the 2021 Employee Stock Purchase Plan (“2021 ESPP”), partially offset by principal payments of financing lease obligations.

Previous wording

We calculate adjusted EBITDA as net income (loss), adjusted to exclude: (1) interest and other (income) expense, net; (2) income tax provision; (3) depreciation and amortization; (4) stock-based compensation expense, including payroll tax; (5) litigation and settlement fees associated with certain non-ordinary course securities litigation claims; (6) CEO and Founder transition expenses and (7) restructuring expenses in connection with the Transformation Initiative.

Current wording

We calculate adjusted EBITDA as net income (loss), adjusted to exclude: (1) interest and other (income) expense, net; (2) income tax provision; (3) depreciation and amortization; (4) stock-based compensation expense, including payroll tax; (5) litigation and settlement fees associated with certain non-ordinary course securities litigation claims; (6) Chief Executive Officer (“CEO”) and founder and former Chief Creative Officer (“CCO”) transition expenses and (7) restructuring expenses in connection with the Transformation Initiative.

Previous wording

Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Some of the limitations of adjusted EBITDA include that (1) it does not reflect capital commitments to be paid in the future; (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and adjusted EBITDA does not reflect these capital expenditures; (3) it does not consider the impact of stock-based compensation expense; (4) it does not reflect other non-operating expenses, including interest expense; (5) it does not reflect tax payments that may represent a reduction in cash available to us; and (6) does not include certain non-ordinary cash expenses that we do not believe are representative of our business on a steady-state basis, such as CEO and Founder transition expenses and restructuring expenses in connection with the Transformation Initiative. In addition, our use of adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA alongside other financial measures, including our revenue, net income (loss) and other results stated in accordance with GAAP.

Current wording

Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Some of the limitations of adjusted EBITDA include that (1) it does not reflect capital commitments to be paid in the future; (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and adjusted EBITDA does not reflect these capital expenditures; (3) it does not consider the impact of stock-based compensation expense; (4) it does not reflect other non-operating expenses, including interest expense; (5) it does not reflect tax payments that may represent a reduction in cash available to us; and (6) does not include certain non-ordinary cash expenses that we do not believe are representative of our business on a steady-state basis, such as CEO and founder/CCO transition expenses and restructuring expenses in connection with the Transformation Initiative. In addition, our use of adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA alongside other financial measures, including our revenue, net income (loss) and other results stated in accordance with GAAP.

Previous wording

(1) Includes sign-on bonus, relocation costs and separation costs.

Current wording

(1) Includes sign-on bonus and relocation costs related to the appointment of our CEO and separation costs related to the termination of our former founder and CCO.

Previous wording

Our critical accounting estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report and the notes to the audited consolidated financial statements appearing in our Annual Report. During the three months ended March 31, 2024, there were no material changes to our critical accounting estimates from those discussed in our Annual Report.

Current wording

Our critical accounting estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report and the notes to the audited consolidated financial statements appearing in our Annual Report. During the three and six months ended June 30, 2024, there were no material changes to our critical accounting estimates from those discussed in our Annual Report.