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 cleanly-formulated 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, seeking to ensure 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 availability.

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 cleanly-formulated and sustainably-designed products spanning categories across diapers, wipes, baby personal care, beauty, apparel, household care and wellness. Launched in 2012, the Company is on a mission to challenge ingredients, ideals, and industries through the power of the Honest brand, the Honest team, and the Honest Standard. Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products. We have cultivated deep trust around what matters most to our consumers: their health, their families and their homes. We seek to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and availability. Our distribution strategy positions us for continued growth through our trusted brand and award-winning multi-category product offerings.

Previous wording

Our omnichannel presence seeks to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and availability. Since our launch, we have built a well-integrated omnichannel presence by expanding our product availability, 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 also increase the availability of our products to more consumers through our leading retailers and their websites, and third-party ecommerce sites. Our integrated omnichannel presence provides meaningful benefits to our consumers which we believe are not easily replicated by our competitors.

Current wording

Our omnichannel presence seeks to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and availability. Since our launch, we have built a well-integrated omnichannel presence by expanding our product availability, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively. We expect beyond 2025, we will transition away from Honest.com as a shipping and fulfillment channel, while maintaining Honest.com as a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase through our leading retailers and their websites, and third-party ecommerce sites. Our integrated omnichannel presence provides meaningful benefits to our consumers which we believe are not easily replicated by our competitors.

Previous wording

The core of our growth strategy centers around increasing physical availability of our products through expanded stores, doors, aisles, shelves and facings. While we have made significant progress in our distribution gains, we are still under indexed compared to competition. Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage. With the higher costs of shipping and fulfillment activities related to our DTC business and other related costs, we will continue to shift our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers. As we move forward beyond 2025, we will gradually transition away from Honest.com as a shipping and fulfillment channel, while ensuring the site remains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite. We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period.

Current wording

The core of our growth strategy centers around increasing physical availability of our products through expanded stores, doors, aisles, shelves and facings. While we have made significant progress in our distribution gains, we are still under indexed compared to competition. Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage. With the higher costs of shipping and fulfillment activities related to our DTC business and other related costs, we will continue to shift our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers. As we move forward beyond 2025, we will transition away from Honest.com as a shipping and fulfillment channel, while ensuring the site remains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite. We expect that our transition from Honest.com as a shipping and fulfillment channel will negatively impact revenue in 2026 and will enable improved gross margin in future years. We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period. For example, we experienced distribution losses with two of our largest retail customers on certain diaper SKUs mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints with one of these retailers, which has impacted our revenue in 2025 and we expect will negatively impact our diaper revenue in the future.

Previous wording

Our brand is integral to the growth of our business and is essential to our ability to engage and stay connected with the growing clean products consumer market. In order to increase the share of wallet of our existing consumers and to attract new consumers, our brand has to maintain its trustworthiness and authenticity. Our ability to attract new consumers will depend on, among other things, the efficacy of our marketing efforts, our ability to successfully produce products that are free of defects and our ability to communicate the value of those products as cleanly-formulated and sustainably-designed and effective and the offerings of our competitors. Beyond preserving the integrity of our brand, our performance will depend on our ability to augment our reach and increase the number of consumers aware of Honest and our product portfolio. We believe our brand strength will enable us to continue to launch new products, allowing us to deepen relationships with consumers. Our performance depends significantly on factors that may affect the level and pattern of consumer spending in the product categories in which we operate.

Current wording

Our brand is integral to the growth of our business and is essential to our ability to engage and stay connected with the growing clean products consumer market. In order to increase the share of wallet of our existing consumers and to attract new consumers, our brand has to maintain its trustworthiness and authenticity. Our ability to attract new consumers will depend on, among other things, the efficacy of our marketing efforts, our ability to successfully produce products that are free of defects, our ability to communicate the value of those products as cleanly-formulated, sustainably-designed and effective, and the offerings of our competitors. Beyond preserving the integrity of our brand, our performance will depend on our ability to augment our reach and increase the number of consumers aware of Honest and our product portfolio. We believe our brand strength will enable us to continue to launch new products, allowing us to deepen relationships with consumers. Our performance depends significantly on factors that may affect the level and pattern of consumer spending in the product categories in which we operate.

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. Based in Los Angeles, California, our research and development team, including experts in chemistry and toxicology, develop innovative cleanly-formulated 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. 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

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. Based in Los Angeles, California, our research and development team, including experts in chemistry and toxicology, develop innovative cleanly-formulated products. 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. 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

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 revenue. 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. In addition, current or future tariffs or other restrictive trade measures may raise the cost of raw materials, components or finished goods, which may adversely impact both our product offerings and our operational expenses. 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 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. Additionally, 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.

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 revenue. We have experienced and anticipate continued increases in product costs and labor costs due to inflationary pressures, which has in the past and could continue to hamper our ability to drive margin expansion. In addition, past and current tariffs have increased, and may continue to increase, the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components. We have taken measures to bolster key aspects of our supply chain and mitigate the impact of tariffs, such as creating an agile supply chain, 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 tariff mitigation strategy. If we are not successful in our attempts to bolster our supply chain and mitigate the impact of tariffs, our product and fulfillment costs may increase and our business, financial condition, results of operations and prospects could be adversely affected. Additionally, 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. In 2025, we have agreed to increased purchase costs from our diaper manufacturer and received requests to renegotiate purchase costs from other third-party manufacturers. As a result, we expect those increased purchase costs to negatively impact our cost of revenue in 2025.

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. Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we have in the past 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. For the three months ended March 31, 2025, we recorded an inventory write-down of $3.2 million, inclusive of overhead costs and tariffs, which included a $3.0 million write- down related to our new diaper renovation as we transition our new diaper products and replace our prior diaper products in the marketplace, which is included in cost of revenue on the consolidated statements of comprehensive income (loss).

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. Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we have in the past 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. As part of our efforts to mitigate the impact of tariffs, we increased our inventory on hand during the first half of 2025 to potentially delay the impact of incremental tariffs during 2025.

Previous wording

In connection with the termination of the Likeness Agreement with Jessica Warren, as part of Ms. Warren's departure from her Chief Creative Officer position, after April 4, 2025 we are prohibited from selling existing inventory that uses certain specified licensed intellectual property on its packaging, which resulted in inventory write-offs in the past and may result in future inventory write-offs.

Current wording

In connection with the termination of the Likeness Agreement with Jessica Alba, as part of Ms. Alba's departure from her Chief Creative Officer position, after April 4, 2025 we are prohibited from selling existing inventory that uses certain specified licensed intellectual property on its packaging, which resulted in inventory write-offs in the past.

Previous wording

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provides certain design, manufacturing, sales and marketing services to us. As part of the supplier services agreement, we have agreed to purchase and own inventory for the term of the supplier service agreement, which is until December 31, 2026, unless terminated sooner. We are currently in discussions with Butterblu regarding our respective obligations under the supplier services agreement. Butterblu continues to operate and maintain our baby apparel offerings independently through the honestbabyclothing.com website under our supplier services agreement and its sales are reflected as revenue in our condensed consolidated statements of comprehensive income (loss). These discussions could result in termination of the supplier services agreement prior to its termination date, potential disputes over the terms of termination, and costs to us related to the inventory we agreed to purchase and own for the term of the agreement. In addition, any loss of the relationship with Butterblu may negatively impact sales of our baby apparel, which will adversely affect our results of operations.

Current wording

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provides certain design, manufacturing, sales and marketing services to us. As part of the supplier services agreement, we have agreed to purchase and own inventory for the term of the supplier service agreement, which is until December 31, 2026, unless terminated sooner. We continue to discuss with Butterblu our respective obligations under the supplier services agreement. Butterblu continues to operate and maintain our baby apparel offerings independently through the honestbabyclothing.com website under our supplier services agreement and its sales are reflected as revenue in our condensed consolidated statements of comprehensive income (loss). These discussions could result in termination of the supplier services agreement prior to its termination date, potential disputes over the terms of termination, and costs to us related to the inventory we agreed to purchase and own for the term of the agreement. In addition, any loss of the relationship with Butterblu may negatively impact sales of our baby apparel, which will adversely affect our results of operations.

Previous wording

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation 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, our baby apparel business; and, depreciation and amortization expenses. We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We expect in the future to incur additional third-party professional fees related to compliance obligations as a public company.

Current wording

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation 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, our baby apparel business; and, depreciation and amortization expenses. We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Previous wording

Comparison of the Three Months Ended March 31, 2025 and 2024

Current wording

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Previous wording

Cost of revenue was $59.6 million for the three months ended March 31, 2025, as compared to $54.3 million for the three months ended March 31, 2024. The increase of $5.2 million, or 9.7%, was primarily driven by an increase in product costs due to sales volume growth and an increase in inventory reserve related to our new diaper renovation, partially offset by supply chain cost savings. Cost of revenue as a percentage of revenue decreased by 176 basis points compared to the three months ended March 31, 2024.

Current wording

Cost of revenue was $115.3 million for the six months ended June 30, 2025, as compared to $111.8 million for the six months ended June 30, 2024. The increase of $3.5 million, or 3.1%, was primarily driven by sales volume growth and tariff costs, partially offset by a change in inventory reserves. Cost of revenue as a percentage of revenue decreased by 190 basis points compared to the six months ended June 30, 2024.

Previous wording

Gross profit was $37.7 million for the three months ended March 31, 2025, as compared to $31.9 million for the three months ended March 31, 2024. The increase of $5.8 million, or 18.2%, was primarily related to sales volume growth, supply chain cost savings, and product mix, partially offset by the increase in inventory reserve related to our new diaper renovation, which is included in cost of revenue.

Current wording

Gross profit was $75.4 million for the six months ended June 30, 2025, as compared to $67.5 million for the six months ended June 30, 2024. The increase of $7.9 million, or 11.7%, was primarily related to sales volume growth, supply chain cost savings and change in inventory reserves, partially offset by an increase in tariff costs.

Previous wording

Selling, general and administrative expenses were $21.0 million for the three months ended March 31, 2025, as compared to $22.4 million for the three months ended March 31, 2024. The decrease of $1.4 million, or 6.2%, was primarily due to a $0.6 million decrease in general administrative expenses, a $0.5 million decrease in donation expense and a $0.3 million decrease in legal expenses. Selling, general and administrative expenses as a percentage of revenue decreased 4.4% as compared to the three months ended March 31, 2024.

Current wording

Selling, general and administrative expenses were $41.4 million for the six months ended June 30, 2025, as compared to $48.9 million for the six months ended June 30, 2024. The decrease of $7.5 million, or 15.3%, was primarily due to a $6.4 million decrease in stock-based compensation expense due to the acceleration of RSUs held by our founder and former Chief Creative Officer in the six months ended June 30, 2024 and a $1.5 million decrease in legal expenses, partially offset by a $0.9 million increase in general administrative expenses. Selling, general and administrative expenses as a percentage of revenue decreased 5.5% as compared to the six months ended June 30, 2024.

Previous wording

Marketing expenses were $12.3 million for the three months ended March 31, 2025, as compared to $9.1 million for the three months ended March 31, 2024. The increase of $3.2 million, or 34.9%, was primarily due to a $1.6 million increase in digital brand advertising and a $1.5 million increase in retail marketing. Marketing expenses as a percentage of revenue increased 2.1% as compared to the three months ended March 31, 2024.

Current wording

Marketing expenses were $12.6 million for the three months ended June 30, 2025, as compared to $11.5 million for the three months ended June 30, 2024. The increase of $1.0 million, or 9.0%, was primarily due to a $1.6 million increase in retail marketing, partially offset by a decrease of $0.6 million in direct brand advertising. Marketing expenses as a percentage of revenue increased 1.1% as compared to the three months ended June 30, 2024.

Previous wording

Research and development expenses were $1.9 million for the three months ended March 31, 2025, as compared to $1.7 million for the three months ended March 31, 2024. Research and development expenses as a percentage of revenue decreased 0.05% as compared to the three months ended March 31, 2024.

Current wording

Research and development expenses were $2.0 million for the three months ended June 30, 2025, as compared to $1.7 million for the three months ended June 30, 2024. Research and development expenses as a percentage of revenue increased 26 basis points as compared to the three months ended June 30, 2024.

Previous wording

Interest and other income (expense), net was net income of $0.8 million for the three months ended March 31, 2025, as compared to net expense of $0.1 million for the three months ended March 31, 2024.

Current wording

Interest and other income (expense), net was net income of $1.0 million for the three months ended June 30, 2025, as compared to net expense of $19.0 thousand for the three months ended June 30, 2024. The increase of $1.0 million primarily relates to interest income earned on our money market account.

Previous wording

As of March 31, 2025, we had $72.8 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 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, 2025.

Current wording

As of June 30, 2025, we had $72.1 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 condensed consolidated financial statements. We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs in the future. We also have availability under our 2023 Credit Facility, which was not drawn as of June 30, 2025.

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 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 income (loss). For the three months ended March 31, 2025, the commitment fee incurred was immaterial. As of March 31, 2025, there were $2.5 million of outstanding letters of credit and $30.3 million available to be drawn upon. As of March 31, 2025, 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 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 income (loss). For the three and six months ended June 30, 2025, the commitment fee incurred was immaterial. As of June 30, 2025, there were $1.6 million of outstanding letters of credit and $31.3 million available to be drawn upon. As of June 30, 2025, there was no outstanding balance under the 2023 Credit Facility.

Previous wording

Our largest source of operating cash is from the sales of our products to our consumers and customers. Our primary uses of cash from operating activities are for cost of revenue, selling, general and administrative expenses, marketing expenses and research and development expenses. We have in the three months ended March 31, 2025 and in the past generated negative cash flows from operating activities and have in the past supplemented working capital requirements through net proceeds from the sale and maturity of short-term investments.

Current wording

Our largest source of operating cash is from the sales of our products to our consumers and customers. Our primary uses of cash from operating activities are for cost of revenue, selling, general and administrative expenses, marketing expenses and research and development expenses. We have in the three and six months ended June 30, 2025 and in the past generated negative cash flows from operating activities and have in the past supplemented working capital requirements through net proceeds from the sale and maturity of short-term investments.

Previous wording

Net cash used in operating activities of $2.9 million for the three months ended March 31, 2025 was primarily due to a net decrease in cash related to changes in operating assets and liabilities of $12.1 million, partially offset by non-cash adjustments of $5.9 million and net income of $3.3 million. Change in inventory reserves and accounts receivable reserves and utilization of marketing credits are included in "other" in the accompanying condensed consolidated statements of cash flows. Changes in cash flows related to operating assets and liabilities primarily consisted of a $5.8 million increase in inventory, a $5.8 million decrease in accounts payable and accrued expenses due to timing of employee related expenses, a $2.1 million use of cash due to operating lease obligations, partially offset by a $0.9 million decrease in prepaid expenses and other assets and a $0.7 million decrease in accounts receivable. Non-cash adjustments primarily consisted of stock-based compensation of $2.4 million, amortization of operating ROU assets of $1.6 million, change in inventory reserves of $0.8 million, depreciation and amortization of $0.7 million and utilization of marketing credits of $0.4 million.

Current wording

Net cash used in operating activities of $3.7 million for the six months ended June 30, 2025 was primarily due to a net decrease in cash related to changes in operating assets and liabilities of $22.9 million, partially offset by non-cash adjustments of $12.1 million and net income of $7.1 million. Non-cash adjustments for accounts receivable reserves, inventory reserves and utilization of marketing credits are included in "other" in the accompanying condensed consolidated statements of cash flows. Cash used in operating activities primarily consisted of a $11.4 million increase in inventory, a $6.5 million decrease in accounts payable and accrued expenses due to timing of payments, a $4.2 million use of cash due to operating lease obligations, and a $1.6 million increase in accounts receivable, partially offset by a $1.0 million decrease in prepaid expenses and other assets. Non-cash adjustments primarily consisted of stock-based compensation of $5.1 million, amortization of operating Right-of-Use (“ROU”) assets of $3.3 million, and depreciation and amortization of $1.5 million.

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 $2.7 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 $1.0 million. Non-cash adjustments primarily consisted of change in inventory reserves of $2.1 million, which is included in "other" in the accompanying consolidated statements of cash flows, stock-based compensation of $2.5 million, amortization of operating 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 a $1.1 million decrease in inventory, a $2.6 million decrease in accounts receivable due to improved collections and a $0.5 million decrease in prepaid expenses and other assets, partially offset by uses of cash including $2.9 million higher accounts payable and accrued expenses due to timing of payments to vendors and a $2.0 million use of cash due to operating lease obligations.

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 $18.4 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 $9.7 million. Non-cash adjustments primarily consisted of stock-based compensation of $11.4 million, amortization of operating ROU assets of $3.2 million, utilization of marketing credits of $1.5 million and depreciation and amortization of $1.4 million. Cash used in operating activities 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

Our primary source of investing cash historically has been the sale and maturity of short-term investments. Our primary use of investing cash historically has been the purchase of short-term investments and currently is property and equipment.

Current wording

Our primary use of investing cash is property and equipment.

Previous wording

Net cash used in investing activities of $0.1 million for the three months ended March 31, 2025 was due to purchases of property and equipment.

Current wording

Net cash used in investing activities of $0.1 million for the six months ended June 30, 2025 was due to purchases of property and equipment.

Previous wording

Net cash used in investing activities of $0.1 million for the three months ended March 31, 2024 was 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 financing activities of $0.4 million for the three months ended March 31, 2025 consisted primarily of $0.4 million of proceeds from stock option award exercises.

Current wording

Net cash provided by financing activities of $0.5 million for the six months ended June 30, 2025 consisted primarily of $0.4 million of proceeds from stock option award exercises.

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

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; and (6) founder and former Chief Creative Officer (“CCO”) transition expenses.

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; and (6) executive officer transition expenses.

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) it 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 founder/CCO transition expenses. 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) it 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 executive officer transition expenses. 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 separation costs related to the termination of our former founder and CCO.

Current wording

(1) For the three and six months ended June 30, 2025, this includes separation, bonus and recruiting costs related to our Chief Financial Officer transition. For the three and six months ended June 30, 2024, this includes sign-on bonus and relocation costs related to the appointment of our Chief Executive Officer and separation costs related to the termination of our founder and former Chief Creative Officer.

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, 2025, 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, 2025, there were no material changes to our critical accounting estimates from those discussed in our Annual Report.