Honest Company, Inc.

(in thousands, except share and per share amounts, percentages and as otherwise indicated)

1. Nature of Business

The Honest Company, Inc. (the “Company”) was incorporated in the State of California on July 19, 2011 and on May 23, 2012 was re-incorporated in the State of Delaware under the same name. The Company is a personal care company dedicated to creating cleanly-formulated and sustainably-designed products for everyone from babies to adults. The Honest Standard, the Company’s rigorous set of guiding principles that shape every step of product innovation and development, reflects Honest’s ongoing dedication to safety, transparency and integrity. As a leader in clean and sustainable products, Honest continues to set a new standard for clean formulations, bringing joy to a community that seeks authenticity, transparency and efficacy in everyday essentials.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2025. The condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements. The consolidated balance sheet as of December 31, 2025 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. The condensed consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries after elimination of intercompany transactions and balances.

Restructuring

As further described in Note 12, “Restructuring” during 2025, the Company commenced a restructuring plan, Transformation 2.0: Powering Honest Growth (“Powering Honest Growth”). Powering Honest Growth is aimed at driving growth, improving simplicity, focus and profitability, which includes exiting certain lower margin, non-strategic categories and channels, including Honest.com fulfillment and the apparel category as a seller of merchandise, retail and online stores in Canada, as well as optimizing the Company's cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies. Such restructuring costs include employee termination benefits (one-time arrangements), termination of contractual obligations, non-cash asset charges, primarily including technology taken out of service, and other direct incremental costs. The Company recorded employee termination liabilities once the Company committed to a plan and communicated such terminations to employees. Other costs associated with a restructuring initiative, such as consulting and professional fees, product or geographical exit costs, are recognized in the period in which the liability is incurred. Accrued restructuring costs as of June 30, 2026 and December 31, 2025 are recorded within Accrued Expenses in the condensed consolidated balance sheets. Refer to Note 12, “Restructuring” included in these condensed consolidated financial statements for more information on the Company's restructuring initiatives.

Segment Reporting and Geographic Information

The Company’s principal business primarily focuses on creating cleanly-formulated and sustainably-designed products. The Company’s Chief Executive Officer (“CEO”), as the chief operating decision maker (“CODM”), organizes the Company, manages resource allocations, and measures performance on the basis ofone operating segment.

The Company evaluates performance based on consolidated net income (loss) to monitor budget versus actual results and period-over-period comparisons. The CODM additionally considers forecasted information on a quarterly basis for net income (loss) when making decisions regarding capital and personnel needs. The CODM reviews information at the consolidated entity level, and does not distinguish the principal business, or group the operations, by geographic locations or industry types for purposes of measuring performance or allocating resources. While the Company creates products that are sold across retail channels and, prior to December 31, 2025, direct-to-consumer (“DTC”), all products are managed as one brand of products underone operating and reportable segment. Furthermore, the Company notes that monitoring financial results asone reportable segment helps the CODM manage expenses on a consolidated basis, consistent with the Company’s operations.

The Company does not regularly provide the CODM with more detailed segment expense information beyond what is included in the condensed consolidated statements of comprehensive income. The significant expense categories which are used to manage operations are those reflected in the Company's condensed consolidated statements of comprehensive income. Refer to the condensed consolidated statements of comprehensive income included in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.

All of the Company’s long-lived assets are located in the United States and substantially all of the Company’s revenue is from customers located in the United States.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. The Company’s estimates, which are subject to varying degrees of judgment, include the valuation of inventories, sales returns and allowances, allowances for credit losses, valuation of short-term investments, capitalized software, useful lives associated with long-lived assets, goodwill impairment, incremental borrowing rates associated with leases, valuation allowances with respect to deferred tax assets, accruals and contingencies, recoverability of non-cash marketing credits, and the valuation and assumptions underlying stock-based compensation. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

The Company assessed certain accounting matters and estimates that generally require consideration of forecasted information in context with the information reasonably available to the Company as of June 30, 2026 and through the date these condensed consolidated financial statements were issued. Management is not aware of any specific event or circumstance that would require an update to estimates or judgments or a revision to the carrying value of assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the Company’s consolidated financial statements in future periods.

Cash and Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with stated maturities of three months or less from the date of purchase. Cash equivalents comprise amounts invested in money market funds.

Accounts Receivable

Accounts receivable are presented as net of allowance for credit losses. The Company does not accrue interest on its trade receivables. The Company evaluates accounts receivable estimated to be uncollectible by considering the lifetime expected credit losses of the Company's accounts receivable at time of inception, and records an allowance for credit losses, as necessary, with the balance of the Company's accounts receivable presented at the amortized cost. The Company considers factors in its allowance for credit losses such as historical analysis, credit quality of customers, the age of the accounts receivable balances and macroeconomic conditions that may have an impact on the Company's customers' ability to pay. As discussed further below, the Company elected the practical expedient to assume that current conditions as of the balance sheet date will not change for the remaining life of the accounts receivable. The allowance for credit losses was $0.2 million as of June 30, 2026 and December 31, 2025.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Fair value is based on quoted market prices, if available. If listed prices or quotes are not available, fair value is based on internally developed models that primarily use market-based or independently sourced market parameters as inputs. Cash equivalents, consisting primarily of money market funds, represent highly liquid investments with maturities of three months or less at purchase. Market prices, which are Level 1 in the fair value hierarchy, are used to determine the fair value of the money market funds. Investments in debt securities are measured using broker provided indicative prices developed using observable market data, which are considered Level 2 in the fair value hierarchy. Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. The fair value of such assets is measured using Level 3 inputs in the fair value hierarchy.

Recent Accounting Pronouncements

As an “emerging growth company,” the Jumpstart Our Business Startups Act allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.

Recently Issued Accounting Pronouncements - Adopted

In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This update creates a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from transactions under ASC 606 by assuming that current conditions at the balance sheet date will remain unchanged over the life of the asset. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. The adoption of ASU No. 2025-05 did not have a material impact on the Company's consolidated financial statements or related disclosures.

Recently Issued Accounting Pronouncements - Not Yet Adopted

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update is to improve the disclosures of components of certain income statement expense items. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact that ASU No. 2024-03 will have on its consolidated financial statements or related disclosures.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This update is to modernize the accounting for software costs that are accounted for under Subtopic 350-40, Intangibles-Goodwill and Other-Internal-Use Software. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The adoption of ASU No. 2025-06 is not expected to have a material impact on the Company's consolidated financial statements or related disclosures.

3. Revenue

Disaggregated Revenue

(1) Includes $1.5 million reduction to revenue related to write-off of uncommitted marketing and transportation credits. See below under "Non-Monetary Transactions" for additional information for the three and six months ended June 30, 2026.

(2) For the three and six months ended June 30, 2026, represents revenue related to the partial liquidation of the Company's remaining apparel inventory. See below under "Licensing and Inventory Purchase Agreement" for additional information.

Retail and Third-Party Ecommerce

For retail and third-party ecommerce sales, the Company’s performance obligation consists of the sale of finished goods to retailers and third-party ecommerce customers. Revenue is recognized when control of the promised goods is transferred to those customers at time of shipment or delivery, depending on the contract terms. After the completion of the performance obligation, the Company has the right to consideration as outlined in the contract. Payment terms vary among the retail and third-party ecommerce customers although terms generally include a requirement of payment within 30 to 45 days of product shipment.

Direct-to-Consumer

Effective December 31, 2025, the Company no longer sells direct-to-consumer through the Company’s website. For direct sales to the consumer through the Company's website, Honest.com, the Company's performance obligation consisted of the sale of finished goods to the consumer. Consumers may have purchased products at any time or entered into subscription arrangements. Consumers placed orders online in accordance with the Company's standard terms and conditions and authorized payment when the order was placed. Credit cards were charged at the time of shipment and payments were typically processed within two to three business days. For subscription arrangements, consumers signed up to receive products on a periodic basis. Subscriptions were cancellable at any time without penalty, and no amounts were collected from the consumer until products were shipped. Revenue was recognized when transfer of control to the consumer took place, which is when the product was delivered to the carrier. Sales taxes collected from consumers were accounted for on a net basis and were excluded from revenue. The Company didnot generate any revenue from Honest.com for three and six months ended June 30, 2026. Revenue generated from Honest.com was 11% of the Company's total revenue during both the three and six months ended June 30, 2025.

Non-Monetary Transactions

The Company has in the past entered into trade agreements with a vendor to exchange excess inventory for future marketing and transportation credits. The Company recognizes revenue reflecting the fair value of the marketing and transportation credits upon delivery of goods, with the corresponding short and long-term asset included in prepaid expenses and other current assets, and other assets in the accompanying condensed consolidated balance sheets. The Company may use the marketing and transportation credits over four years from the date of the respective agreement, with an option to extend for anothertwo years if agreed upon by both parties. For the six months ended June 30, 2026 and 2025, the Company didnot enter into any new trade agreements.

As of June 30, 2026, the Company made the decision to discontinue further utilization of the uncommitted marketing and transportation credits. As a result, the Company recorded a $1.5 million reduction to revenue in the condensed consolidated statements of comprehensive income and a corresponding write-off of $1.5 million of remaining uncommitted marketing and transportation credit assets, consisting of a $0.8 million reduction to prepaid expenses and other current assets and a $0.7 million reduction to other assets in the condensed consolidated balance sheets. As of June 30, 2026, $0.1 million committed trade credits remain that are expected to be utilized in the third quarter of 2026.

Other than above, the Company didnot recognize any revenue or associated cost of revenue related to these credits during the three and six months ended June 30, 2026 and 2025. The Company assesses the recoverability of the marketing and transportation credits periodically. Factors considered in evaluating the recoverability include management’s history of credit usage and future plans with respect to advertising, freight and other services for which these credits can be used. For the six months ended June 30, 2026 and 2025, the Company recordedno impairment losses related to these credits and used an aggregate of $0.4 million and $0.3 million of credits, respectively.

Licensing and Inventory Purchase Agreement

On June 1, 2026, the Company entered into a License Agreement (the “License Agreement”) and an accompanying Inventory Purchase Agreement with O5-MD, LLC and O5 North ULC (collectively, the “Licensee”). The License Agreement grants the Licensee an exclusive license to manufacture, distribute, promote, and sell certain apparel, accessories, bath and bedding products, and footwear under "The Honest Company" and "Honest Baby" trademarks. The primary territory for the License Agreement covers the United States, Canada, and Mexico, as well as specified international club and off-price accounts. Under the License Agreement, the Company will earn royalty revenue on the Licensee's net sales. The initial term of the License Agreement expires on December 31, 2030. The Licensee holds the option to renew the agreement fortwo additional successive five-year terms, provided it complies with all material terms, meets required notice periods, among other requirements. For the three and six months ended June 30, 2026, the Company didnot recognize any royalty revenue with respect to the License Agreement.

In connection with the License Agreement, the Licensee agreed to purchase the Company's remaining on-hand inventory of licensed apparel products for a total purchase price of $10.0 million, subject to certain adjustments for inventory deficiencies or missing certifications. The purchase price is payable in installments, with four 25% payments tied to the delivery timeline. For the three and six months ended June 30, 2026, the Company recognized $3.1 million in revenue and $3.1 million in cost of revenue related to the partial liquidation of the remaining apparel inventory, that was delivered to the Licensee at its carrying value, resulting inno gross profit. These transactions resulted in a corresponding increase in accounts receivable and a decrease in inventory of $3.1 million each.

4. Fair Value Measurements

Financial assets measured and recorded at fair value on a recurring basis consist of the following as of:

The carrying amounts for the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short maturities.

5. Credit Facilities

In March 2026, the Company entered into a First Amendment to Credit Agreement and First Amendment to Pledge and Security Agreement (the “Amendment”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent and lender, and the other lenders party thereto (together with JPMorgan, the “Lenders”), which amended the terms of the then existing first lien credit agreement (the “2023 Credit Facility”), extended the maturity date of the senior secured revolving credit facility (the “2026 Credit Facility”) and modified the borrowing formula and modified the interest rate.

The 2026 Credit Facility provides a revolving credit facility in an aggregate principal amount of up to $35.0 million (the “Commitment Amount”) and 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. If more than 50% of the Commitment Amount is outstanding, availability of the 2026 Credit Facility will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of the Company’s accounts receivable and inventory as reduced by certain reserves, if any. The 2026 Credit Facility includes an uncommitted accordion feature that allows for increases in the Commitment Amount to as much as an additional $35.0 million, for up to $70.0 million in potential revolving commitments. The 2026 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 2026 Credit Facility. The Company recognizes the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive income. For the three and six months ended June 30, 2026, the commitment fee incurred was immaterial. As of June 30, 2026, there was $2.7 million of outstanding letters of credit. As of June 30, 2026, there wasno outstanding borrowing under the 2026 Credit Facility, but the letters of credit reduce the amount available under the 2026 Credit Facility on a dollar-for-dollar basis.

The interest rate applicable to the 2026 Credit Facility will be, at the Company’s option, either (a) the Adjusted Term SOFR Rate (subject to a 0.00% floor), plus a margin ranging from 1.75% to 2.25% or (b) the CB floating rate, (i) plus a margin of 0.00% or 0.25% or (ii) minus a margin of 0.25%. The margin will be based upon the Company’s leverage ratio. The CB floating rate is the higher of (a) the Wall Street Journal prime rate and (b)2.50%.

The 2026 Credit Facility will terminate and borrowings thereunder, if any, will be due in full on March 31, 2029. Debt under the 2026 Credit Facility will be guaranteed by substantially all of the Company’s material domestic subsidiaries and will be secured by substantially all of the Company’s and such subsidiaries’ assets.

The Company is subject to certain affirmative and negative covenants including financial covenants related to a minimum total fixed charge coverage ratio and a maximum total leverage ratio, each calculated on a trailing four fiscal quarter basis at the end of each fiscal quarter. The 2026 Credit Facility also includes customary events of default. The 2026 Credit Facility contains covenants that restrict, among other things, the Company’s ability to sell assets, make investments and acquisitions, incur indebtedness, grant liens, change the Company’s lines of business, pay dividends and make certain other restricted payments, each subject to customary exceptions. Failure to do so, unless waived by the Lenders under the 2026 Credit Facility pursuant to its terms would result in an event of default under the 2026 Credit Facility. As of June 30, 2026, the Company is in compliance with all covenants under the 2026 Credit Facility.

6. Accrued Expenses

Accrued expenses consisted of the following:

(1) Includes $0.2 million of executive transition related expenses as of December 31, 2025.

(2) Represents short-term operating lease liabilities. Refer to Note 11, "Leases" included in these condensed consolidated financial statements for more information on leases.

(3) Refer to Note 12, "Restructuring" included in these condensed consolidated financial statements for more information on the Company's restructuring.

(4) Includes estimated tariff refund obligations to third-party manufacturers. Refer to Note 7, "Commitments and Contingencies" included in these condensed consolidated financial statements for more information on tariff refunds.

7. Commitments and Contingencies

Litigation

From time to time, the Company is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to its business, including those related to regulation, business transactions, employee-related matters and taxes, among others. When the Company becomes aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount or range of the loss can be reasonably estimated, the Company records a liability for the loss and discloses the possible loss in the condensed consolidated financial statements.

A complaint was filed by Hayato Ono derivatively on behalf of the Company on November 29, 2021, in the U.S. District Court for the Central District of California (“Central District of California”), alleging breach of fiduciary duties, unjust enrichment, waste, gross mismanagement, and federal securities law violations by the Company’s directors and certain officers (the “Ono Action”). On December 17, 2021, a second derivative complaint containing similar allegations against the Company’s directors and certain officers was filed by Mike Wang in the Central District of California and consolidated with the Ono Action (together, the “California Federal Derivative Action”). A third derivative complaint was filed by Leah Bisch and Raluca Corobana in California Superior Court for the County of Los Angeles on January 3, 2022 (the “California State Derivative Action”), with similar allegations. A fourth derivative complaint was filed by David Butler in the U.S. District Court for the District of Delaware (the “District of Delaware Action”) on October 19, 2022, with similar allegations. Each of these federal and state court derivative cases have been stayed. On December 18, 2025, the parties to all derivative cases reached an agreement in principle to settle the matters. On March 26, 2026, a motion for preliminary approval of the settlement was filed in the California Federal Derivative Action. A hearing on the motion for preliminary approval was held on April 29, 2026 and the final approval hearing was held on July 13, 2026. The settlement received final approval from the Central District of California on July 13, 2026. The Company recorded the settlement amount of $1.2 million within accrued expenses and a corresponding insurance recovery of $1.2 million within prepaids and other current assets related to the legal settlement on the consolidated balance sheet as of June 30, 2026, and December 31, 2025. The determination that the recorded insurance recovery receivable was probable of collection was based on the terms of the applicable insurance policies, settlement agreement, and communications with the insurers. Pursuant to the final approval of settlement in the California Federal Derivative Action, on July 17, 2026, the parties in the District of Delaware Action filed a stipulation to voluntarily dismiss the action with prejudice, which the court granted on July 20, 2026. On July 28, 2026, the parties in the California State Derivative Action filed a stipulation to voluntarily dismiss the action with prejudice, which the court granted on July 30, 2026.

On November 5, 2025, the Company filed a complaint in the Central District of California alleging that Butterblu, LLC (“Butterblu”) breached the supplier services agreement, as amended, that the Company and Butterblu had entered into as of August 15, 2022 (the "Supplier Services Agreement") pursuant to which Butterblu provides certain design, manufacturing, sales and marketing services to the Company in connection with the Company's apparel products. The Company voluntarily dismissed the complaint on November 21, 2025 related to a temporary extension of the Supplier Services Agreement. Following the conclusion of the temporary extension of the Supplier Services Agreement in December 2025, the Company filed an updated complaint on January 2, 2026 (the "Federal Court Action"). The Company has requested monetary damages and declaratory relief as determined by the Central District of California. On February 11, 2026, Butterblu filed a complaint against the Company in the California Superior Court for the County of Los Angeles alleging breach of contract, breach of implied contract, breach of implied covenant of good faith and fair dealing, quantum meruit, promissory estoppel, intentional interference with contract, and intentional interference with prospective economic relations related to the parties' obligations under the Supplier Services Agreement. On May 8, 2026, Butterblu filed a motion to dismiss the Federal Court Action. On July 29, 2026, the Central District of California granted in part and denied in part Butterblu's motion to dismiss the Federal Court Action. These matters are in the preliminary stages of litigation with uncertain outcomes at this time. Therefore, the Company cannot estimate the probability of gain or loss, or make an estimate of the gain or loss or range of gain or loss in these matters.

As of June 30, 2026 and December 31, 2025, the Company was not subject to any other currently pending legal matters or claims that based on its current evaluation are expected to have a material adverse effect on its financial position, results of operations, or cash flows should such matters be resolved unfavorably.

Tariffs

Following the February 2026 U.S. Supreme Court ruling that invalidated specific tariffs under the International Emergency Economic Powers Act (“IEEPA”), the Company is evaluating its eligibility for refunds of previously paid import duties. Beginning in April 2026, the Company began filing refund claims with U.S. Customs and Border Protection related to eligible IEEPA tariff payments made. During the three and six months ended June 30, 2026, the Company received IEEPA tariff refunds totaling $11.9 million, which were recognized as a $6.6 million reduction in cost of revenue and a $0.5 million increase in interest income on the condensed consolidated statements of comprehensive income, and as a $0.6 million reduction in inventory on the condensed consolidated balance sheets. Due to the inherent uncertainty surrounding the timing and recoverability of additional refunds, no receivable or corresponding offset to expense or asset was recognized for future refunds as of June 30, 2026. Management continues to monitor these developments, including potential refund obligations to third-party manufacturers. As of June 30, 2026, the Company estimated a liability of $4.2 million included in accrued expenses on the condensed consolidated balance sheets related to these refund obligations to third-party manufacturers.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential number of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential number of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never been involved in litigation in connection with these indemnification arrangements. As of June 30, 2026 and December 31, 2025, the Company has not accrued a liability for these guarantees as the likelihood of incurring a payment obligation, if any, in connection with these guarantees is not probable or reasonably estimable due to the unique facts and circumstances involved.

8. Stockholders' Equity

Stock Options

The following table summarizes the stock option activity:

2021 Equity Incentive Plan

In April 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for grants of incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and its subsidiary corporations’ employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) awards, performance awards and other forms of awards to the Company’s employees, directors and consultants and any of its affiliates’ employees and consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under its 2021 Plan will not exceed 25,025,580 shares of the Company’s common stock. In addition, the number of shares of the Company’s common stock reserved for issuance under its 2021 Plan will automatically increase on January 1 of each year for a period often years, beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1)4% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors prior to the date of the increase. On January 1, 2026,4,498,671 additional shares were reserved for issuance pursuant to this provision. The maximum number of shares of the Company’s common stock that may be issued on the exercise of ISOs under its 2021 Plan is 75,100,000 shares.

2023 Inducement Plan

In March 2023, the Company's Compensation Committee adopted the 2023 Inducement Plan (the “2023 Inducement Plan”). The 2023 Inducement Plan reserved 4,000,000 shares of the Company’s common stock for issuance under the 2023 Inducement Plan to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. As of June 30, 2026, there were 738,806 shares available for future grant under the 2023 Inducement Plan.

The following table summarizes the RSU activity under the 2021 Equity Incentive Plan and the 2023 Inducement Plan:

As of June 30, 2026, there was $23.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.9 years.

2021 Employee Stock Purchase Plan

In April 2021, the Company’s board of directors adopted the Company’s 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The Company initially authorized the issuance of 1,175,000 shares of common stock under the 2021 ESPP. In addition, the number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each year for a period often years, beginning on January 1, 2022 and continuing through January 1, 2031 by the lesser of (i)1% of the total number of shares of common stock outstanding on December 31 of the immediately preceding year; and (ii)3,525,000 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). On January 1, 2026,1,124,667 additional shares were reserved for issuance pursuant to this provision. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute (in the form of payroll deductions or otherwise to the extent permitted by the administrator) an amount established by the administrator from time to time in its discretion to purchase common stock at a discounted price per share.

Under the 2021 ESPP, eligible employees are granted the right to purchase shares of common stock at the lower of 85% of the fair value at the time of grant or 85% of the fair value at the time of exercise. The right to purchase shares of common stock is granted in May and November of each year for an offering period of approximatelysix months. For the six months ended June 30, 2026,47,524 shares were purchased under the 2021 ESPP. As of June 30, 2026, the Company had 5,735,492 remaining authorized shares available for purchase.

The following table summarizes the key input assumptions used in the Black-Scholes option-pricing model to estimate the grant-date fair value of the 2021 ESPP:

Share Repurchase Program

On February 20, 2026, the Company’s Board of Directors approved the Company’s first share repurchase program for up to$25 million of its outstanding common stock. Under the program, share repurchases may be made at the Company’s discretion from time to time in open market transactions or privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans. The timing and number of shares repurchased under the new program will depend on a variety of factors, including, without limitation, stock price, trading volume, and general business and market conditions. The repurchase program does not obligate the Company to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time. The Company expects to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations. The Company repurchased approximately 5.6 million shares of common stock, at a weighted average share price of $3.35 per share, for an aggregate amount of approximately $18.7 million, during thesix months ended June 30, 2026. As of June 30, 2026, approximately$6.3 million remained available under the share repurchase program. As of August 5, 2026, the Company repurchased approximately the full$25.0 million of its outstanding common stock under the share repurchase program.

Stock-Based Compensation Expense

Stock-based compensation expense related to RSU awards under the 2021 Equity Incentive Plan and the 2023 Inducement Plan, 2021 ESPP purchases and stock options, as applicable, are as follows:

9. Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) attributable to common stockholders per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding. The Company computes diluted net income (loss) per share under a two-class method where income is reallocated between common stock, potential common stock and participating securities, if any. Diluted net income (loss) per share attributable to common stockholders adjusts the basic net income (loss) per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potentially dilutive impact of stock options using the treasury stock method.

The following table sets forth the computation of the Company’s basic and diluted net income per share attributable to common stockholders:

The following potentially dilutive shares were excluded from the computation of diluted net income per share because including them would have been antidilutive:

10. Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income or loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of a valuation allowance against net deferred tax assets, stock-based compensation, state taxes, nondeductible executive compensation and other permanent differences.

The Company has evaluated the available positive and negative evidence supporting the realization of its gross deferred tax assets, including cumulative losses, and the amount and timing of future taxable income, and has determined it is more likely than not that the assets will not be realized. Accordingly, the Company has recorded a full valuation allowance against the U.S. federal and state deferred tax assets as of each balance sheet date presented. However, given the Company's recent profitability, the Company believes that there is a reasonable possibility that, in the near term, sufficient positive evidence may become available that supports the release of a portion of the Company's valuation allowance, which would result in the recognition of certain U.S. deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. The exact timing and amount of the valuation allowance release if any would be subject to change based on the level of profitability that the Company can achieve.

During the three months ended June 30, 2026 and 2025, the Company hasnot recorded any uncertain tax positions and hasnot recognized interest or penalties in the condensed consolidated statements of comprehensive income.

11. Leases

The Company’s lease portfolio includes both real estate and non-real estate type leases, which are accounted for as either finance or operating leases. Real estate leases generally include office and warehouse facilities and non-real estate leases generally include office equipment and machinery. The Company determines if a contract is or contains a lease at inception. The Company’s leases have remaining lease terms less thanone to less than five years.

On June 14, 2026, the Company entered into a corporate office lease agreement (the "Lease") which will commence on the later of (i) March 1, 2027, and (ii) the date of “substantial completion” of the “tenant improvements” (each as defined in the Lease) (the “Contractual Lease Commencement Date”). As of June 30, 2026, the Company has not reached the lease commencement date under ASC 842, which could be earlier than the Contractual Lease Commencement Date. The initial term of the Lease isten years from the Contractual Lease Commencement Date (the “Initial Term”) withone five-year renewal option. The Company will receive aten-month rent abatement applied to the firstten months of the third lease year. During the Initial Term, the total base rent over the Initial Term, net of rent abatement, is expected to be approximately $30.7 million. In addition to base rent, the Company will be required to pay certain additional amounts for taxes, insurance, maintenance and other operating expenses. The Landlord will provide the Company with a one-time tenant improvement allowance totaling approximately $6.9 million. To secure its obligations under the Lease, the Company was required to provide to the Landlord an irrevocable $1.2 million letter of credit.

The components of lease expense were as follows (in thousands):

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

Based on the nature of the Right-Of-Use (“ROU”) assets, amortization of operating ROU assets, operating lease expense and other lease expense are recorded within either cost of revenue or selling, general and administrative expenses and interest on finance lease liabilities is recorded within interest and other expense, net in the condensed consolidated statements of comprehensive income.

The following tables set forth the amount of lease assets and lease liabilities included in the Company’s condensed consolidated balance sheets (in thousands):

Supplemental information related to the Company’s leases for the six months ended June 30, 2026 was as follows:

The Company didnot have any non-cash ROU assets obtained in exchange for lease liabilities during the six months ended June 30, 2026 for either finance or operating leases.

12. Restructuring

Transformation 2.0: Powering Honest Growth

In October 2025, the Company's Board of Directors approved Transformation 2.0: Powering Honest Growth (“Powering Honest Growth”) which builds upon the Company's original Transformation Pillars of Brand Maximization, Margin Enhancement and Operating Discipline. Powering Honest Growth is aimed at driving growth, improving simplicity, focus and profitability, which includes exiting certain lower margin, non-strategic categories and channels, including Honest.com fulfillment and the apparel category as a seller of merchandise, retail and online stores in Canada, as well as optimizing our cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies.

Restructuring costs are one of the elements of Powering Honest Growth and are included in Restructuring on the condensed consolidated statements of comprehensive income:

•Contract and External Obligation Costs — includes expense to terminate contracts prior to expiration, litigation and professional fees, and other costs associated with external obligations arising from restructuring.

•Employee and Personnel-Related Costs — primarily severance and other post-employment benefit costs, calculated based on salary levels, prior service, statutory minimum benefits, and other personnel-related expenses incurred as a result of restructuring.

•Asset and Other Restructuring-Related Costs — consist primarily of technology taken out of service.

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

Costs associated with Powering Honest Growth were as follows (in thousands):

(1) Represents costs in connection with a warehouse closure which is included in cost of revenue on the condensed consolidated statements of comprehensive income.

(2) Includes an adjustment related to contract and external obligation costs for the three months ended June 30, 2026. Refer to the restructuring table below for additional details of the costs included in restructuring costs for the six months ended June 30, 2026.

Charges incurred to restructuring costs for the six months ended June 30, 2026 were:

Changes in accrued expenses as of June 30, 2026 were:

(1) Included in accrued expenses as of June 30, 2026. Refer to Note 6, "Accrued Expenses" included elsewhere in these condensed consolidated financial statements.