hnst-20250630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40378

The Honest Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

90-0750205

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

12130 Millennium Drive, #500

Los Angeles, CA

90094

(Address of Principal Executive Offices)

(Zip Code)

(888) 862-8818

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities Registered Pursuant to Section 12(b) of the Act:

Trading

Symbol(s)

Title of each class

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

HNST

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2025, the registrant had 111,269,491 shares of common stock, $0.0001 par value per share outstanding.

The Honest Company, Inc.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Comprehensive Income (Loss )	2
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit )	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Under Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	33
	Signatures	34

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) about us and our industry that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, those set forth in Part II, Item 1A, “Risk Factors,” and other factors set forth in other parts of this Quarterly Report on Form 10-Q as well as in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on February 26, 2025. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. These forward-looking statements include, but are not limited to, statements concerning our expectations regarding our future results of operations and financial condition, including our ability to achieve or maintain profitability; our ability to continue to launch new products; our ability to attract and retain customers; our ability to execute on and to continue driving benefits from our Transformation Pillars of Brand Maximization, Margin Enhancement, and Operating Discipline; our tariff mitigation strategy; our marketing and distribution strategies; our continued focus on research, development and innovation; our expectations regarding consumer demand and the timing and amount of orders from our largest retail customers; the effect of macroeconomic factors, including supply chain disruptions, tariffs, and inflationary pressures; anticipated trends, growth rates, and challenges in our business and in the markets in which we operate; and our ability to execute on other business strategies, including strategic shift away from lower margin channels, plans and objectives of management for future operations.

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	June 30, 2025		December 31, 2024

Assets
Current assets
Cash and cash equivalents	$	72,077	$	75,435

Accounts receivable, net	45,146		43,476
Inventories	95,033		85,266
Prepaid expenses and other current assets	8,657		9,741
Total current assets	220,913		213,918
Operating lease right-of-use asset	13,946		17,239
Property and equipment, net	10,035		11,394
Goodwill	2,230		2,230
Intangible assets, net	199		235
Other assets	1,705		2,377
Total assets	$	249,028	$	247,393
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	21,171	$	22,807
Accrued expenses	31,092		35,869
Deferred revenue	995		1,213
Total current liabilities	53,258		59,889
Long term liabilities
Operating lease liabilities, net of current portion	8,742		13,197

Total liabilities	62,000		73,086
Commitments and contingencies (Note 7)

Stockholders’ equity
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at June 30, 2025 and December 31, 2024, none issued or outstanding as of June 30, 2025 and December 31, 2024	—		—
Common stock, $0.0001 par value, 1,000,000,000 shares authorized at June 30, 2025 and December 31, 2024; 111,600,237 and 109,159,697 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively	11		11
Additional paid-in capital	665,085		659,488
Accumulated deficit	(478,068)		(485,192)

Total stockholders’ equity	187,028		174,307
Total liabilities and stockholders’ equity	$	249,028	$	247,393

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands, except share and per share amounts)


	For the three months ended June 30,				For the six months ended June 30,
	2025		2024		2025		2024

Revenue	$	93,459	$	93,049	$	190,709	$	179,266
Cost of revenue	55,707		57,437		115,287		111,772
Gross profit	37,752		35,612		75,422		67,494
Operating expenses
Selling, general and administrative	20,352		26,431		41,393		48,850
Marketing	12,552		11,512		24,822		20,608

Research and development	1,960		1,714		3,812		3,395
Total operating expenses	34,864		39,657		70,027		72,853
Operating income (loss)	2,888		(4,045)		5,395		(5,359)
Interest and other income (expense), net	1,026		(19)		1,812		(82)
Income (loss) before provision for income taxes	3,914		(4,064)		7,207		(5,441)
Income tax provision	44		13		84		38
Net income (loss)	$	3,870	$	(4,077)	$	7,123	$	(5,479)
Net income (loss) per share attributable to common stockholders:
Basic	$	0.03	$	(0.04)	$	0.06	$	(0.06)
Diluted	$	0.03	$	(0.04)	$	0.06	$	(0.06)
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic	110,991,363		99,078,930		110,275,931		97,676,049
Diluted	114,041,772		99,078,930		114,310,420		97,676,049



Comprehensive income (loss)	$	3,870	$	(4,077)	$	7,123	$	(5,479)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share amounts)


	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders' Equity (Deficit)
		Shares			Amount
Balances at December 31, 2023		95,868,421	$	9		$	602,198	$	(479,068)		$	123,139
Net loss		—	—			—		(1,403)			(1,403)

Stock options exercised		126,000	—			508		—			508
Stock-based compensation		—	—			2,523		—			2,523
Vested restricted stock units		1,174,282	—			—		—			—

Balances at March 31, 2024		97,168,703	$	9		$	605,229	$	(480,471)		$	124,767
Net loss		—	—			—		(4,077)			(4,077)


Stock-based compensation		—	—			8,905		—			8,905
Vested restricted stock units		2,924,878	—			—		—			—
Shares issued under employee stock purchase plan		63,393	—			86		—			86
Balances at June 30, 2024		100,156,974	$	9		$	614,220	$	(484,548)		$	129,681

The Honest Company, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share amounts)


	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Total Stockholders' Equity (Deficit)
		Shares			Amount
Balances at December 31, 2024		109,159,697	$	11		$	659,488	$	(485,192)		$	174,307
Net income		—	—			—		3,254			3,254

Stock options exercised		75,000	—			384		—			384
Stock-based compensation		—	—			2,412		—			2,412
Vested restricted stock units		1,253,999	—			—		—			—

Balances at March 31, 2025		110,488,696	$	11		$	662,284	$	(481,938)		$	180,357
Net income		—	—			—		3,870			3,870


Stock-based compensation		—	—			2,716		—			2,716
Vested restricted stock units		1,093,352	—			—		—			—
Shares issued under employee stock purchase plan		18,189	—			85		—			85
Balances at June 30, 2025		111,600,237	$	11		$	665,085	$	(478,068)		$	187,028

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	For the six months ended June 30,
	2025		2024
Cash flows from operating activities
Net income (loss)	$	7,123	$	(5,479)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	1,458		1,426
Stock-based compensation	5,128		11,428
Amortization of operating ROU assets	3,293		3,154
Other	2,200		2,425
Changes in assets and liabilities:
Accounts receivable, net	(1,601)		(588)
Inventories	(11,386)		(766)
Prepaid expenses and other assets	1,012		(211)
Accounts payable, accrued expenses and other long-term liabilities	(6,462)		(3,609)
Deferred revenue	(218)		(529)
Operating lease liabilities	(4,230)		(3,970)
Net cash (used in) provided by operating activities	(3,683)		3,281
Cash flows from investing activities



Purchases of property and equipment	(143)		(91)
Net cash used in investing activities	(143)		(91)
Cash flows from financing activities

Proceeds from exercise of stock options	384		508
Proceeds from 2021 ESPP	85		86
Payments on finance lease liabilities	(1)		(18)
Net cash provided by financing activities	468		576
Net (decrease) increase in cash and cash equivalents	(3,358)		3,766
Cash and cash equivalents
Beginning of the period	75,435		32,827
End of the period	$	72,077	$	36,593











Supplemental disclosures of noncash activities

Capital expenditures included in accounts payable and accrued expenses	$	120	$	155

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

The Honest Company, Inc.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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.

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, 2024. 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, 2024 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.

Certain reclassifications to the Company's previously reported financial information have been made to conform to the current period presentation. The Company made reclassifications to the condensed consolidated statement of cash flows, including a reclassification of $3.2 million was made from "Other" to "Amortization of operating right-of-use (“ROU”) assets" in the "adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities" section of the consolidated statements of cash flow for the six months ended June 30, 2024 to conform to the current year presentation, among other immaterial reclassifications.

Segment Reporting and Geographic Information

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

The Company evaluates performance based on consolidated net income (loss). 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 direct-to-consumer (“DTC”), all products are managed as one brand of products under one operating and reportable segment. Furthermore, the Company notes that monitoring financial results as one reportable segment helps the CODM manage expenses on a consolidated basis, consistent with the Company’s operations.

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

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, 2025 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. The allowance for credit losses was $0.3 million and $0.4 million as of June 30, 2025 and December 31, 2024, respectively.

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

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. For public business entities, the amendments in this update are effective for annual periods

beginning after December 15, 2024. The adoption of ASU No. 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

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.

3.Revenue

Retail and Third-Party Ecommerce

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

Direct-to-Consumer

For direct sales to the consumer through the Company’s website, Honest.com, the Company's performance obligation consists of the sale of finished goods to the consumer. Consumers may purchase products at any time or enter into subscription arrangements. Consumers place orders online in accordance with the Company’s standard terms and conditions and authorize payment when the order is placed. Credit cards are charged at the time of shipment and payments are typically processed within two to three business days. For subscription arrangements, consumers sign up to receive products on a periodic basis. Subscriptions are cancellable at any time without penalty, and no amounts are collected from the consumer until products are shipped. Revenue is recognized when transfer of control to the consumer takes place, which is when the product is delivered to the carrier. Sales taxes collected from consumers are accounted for on a net basis and are excluded from revenue. Revenue generated from Honest.com was 11% and 13%, respectively, of the Company's total revenue during the three months ended June 30, 2025 and 2024, and 11% and 14%, respectively, of the Company's total revenue during the six months ended June 30, 2025 and

2024.

Non-Monetary Transactions

The Company has in the past and may in the future enter into trade agreements with a vendor to exchange excess inventory for future marketing and transportation credits. The Company recognizes revenue reflecting the fair value of the marketing and transportation credits upon delivery of goods, with the corresponding short and long-term asset included in prepaid expenses and other current assets, and other assets in the accompanying 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 another two years if agreed upon by both parties. For the six months ended June 30, 2025, the Company did not enter into any new trade agreements.

For the three and six months ended June 30, 2025 and 2024, the Company did not recognize any revenue or associated cost of revenue related to these marketing and transportation credits. 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. Any impairment losses are charged to marketing expense in the condensed consolidated statements of comprehensive income (loss) as they become determinable. For the six months ended June 30, 2025 and 2024, the Company recorded no impairment losses related to these credits and used an aggregate of $0.3 million and $1.5 million of credits, respectively.

4. Fair Value Measurements

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


	June 30, 2025
	Level 1		Level 2		Level 3		Total
(In thousands)

Money market funds	$	56,452	$	—	$	—	$	56,452


Total cash equivalents	$	56,452	$	—	$	—	$	56,452


	December 31, 2024
	Level 1		Level 2		Level 3		Total
(In thousands)

Money market funds	$	55,280	$	—	$	—	$	55,280
Total cash equivalents	$	55,280	$	—	$	—	$	55,280

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

5. Credit Facilities

In January 2023, the Company entered into a first lien credit agreement (the “2023 Credit Facility”), with JPMorgan Chase Bank, N.A., as administrative agent and lender, and the other lenders party thereto, which provides for a $35.0 million revolving credit facility that matures on April 30, 2026. The 2023 Credit Facility includes a sub-facility that provides for the issuance of letters of credit in an amount of up to $15.0 million at any time outstanding. Availability of the 2023 Credit Facility is based upon a borrowing base formula and periodic borrowing base certifications valuing certain of the Company’s accounts receivable and inventory as reduced by certain reserves. The 2023 Credit Facility includes an uncommitted accordion feature that allows for increases in the revolving commitment to as much as an additional $35.0 million, for up to $70.0 million in potential revolving commitment. The 2023 Credit Facility is subject to customary fees for loan facilities of this type, including a commitment fee based on the average daily undrawn portion of the 2023 Credit Facility. The Company recognizes the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive income (loss). For the three and six months ended June 30, 2025 and 2024, 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.

The interest rate applicable to the 2023 Credit Facility is, at the Company’s option, either (a) the Adjusted Term SOFR rate (subject to a 0.00% floor), plus a margin ranging from 1.50% to 2.25% or (b) the CB floating rate, (i) plus a margin of 0.25% or (ii) minus a margin ranging from 0.25% to 0.50%. The margin is based upon the Company’s fixed charge coverage ratio. The CB floating rate is the higher of (a) the Wall Street Journal prime rate and (b) 2.50%.

The 2023 Credit Facility will terminate and borrowings thereunder, if any, would be due in full on April 30, 2026. Debt under the 2023 Credit Facility is guaranteed by substantially all of the Company’s material domestic subsidiaries and is secured by substantially all of the Company’s and such subsidiaries’ assets.

The 2023 Credit Facility contains covenants that restrict, among other things, the Company's ability to sell assets, make investments and acquisitions, grant liens, change the Company’s lines of business, pay dividends and make certain other restricted payments. The Company is subject to certain affirmative and negative covenants including the requirement that it maintains a minimum total fixed charge coverage ratio during the periods set forth in the 2023 Credit Facility. Failure to do so, unless waived by the lenders under the 2023 Credit Facility pursuant to its terms, as amended, would result in an event of default under the 2023 Credit Facility. As of June 30, 2025, the Company is in compliance with all covenants under the 2023 Credit Facility.

6. Accrued Expenses

Accrued expenses consisted of the following:


	June 30, 2025		December 31, 2024
(In thousands)
Payroll and payroll related expenses(1)	$	4,549	$	8,410
Accrued inventory purchases	10,886		13,095
Accrued returns	48		102
Accrued rent(2)	8,765		8,541


Other accrued expenses	6,844		5,721
Total accrued expenses	$	31,092	$	35,869

____________________

(1) Includes $0.5 million and $0.3 million of executive transition related expenses as of June 30, 2025 and December 31, 2024, respectively.

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

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 consolidated financial statements.

On September 23, 2020, the Center for Advanced Public Awareness (“CAPA”) served a 60-Day Notice of Violation on the Company, alleging that the Company violated California’s Health and Safety Code (“Prop 65”) because of the amount of lead in the Company’s Diaper Rash Cream and seeking statutory penalties and product warnings available under Prop 65. On October 22, 2021, CAPA filed a complaint in California Superior Court in the County of San Francisco (the “Court”) for the alleged Prop 65 violations contained in its 60-Day Notice of Violation. The Company filed its answer and notice of related cases against Prestige Consumer Healthcare, Inc., Burt's Bees, Inc., and Hain Celestial Group, Inc. on January 7, 2022 and has stipulated to relate these cases and transfer them to the Court's Complex Division. On April 30, 2024, the Company filed its motion for summary judgment. On January 23, 2025, the Court granted the Company's motion for summary judgment. On April 8, 2025, CAPA served its Notice of Appeal in the matter. The Company intends to vigorously defend itself in this matter. The matter’s outcome and materiality are uncertain at this time. Therefore, the Company cannot estimate the probability of loss or make an estimate of the loss or range of loss in this matter.

On September 15, 2021, Cody Dixon filed a putative class action complaint in the U.S. District Court for the Central District of California alleging federal securities law violations by the Company, certain current officers and directors, and certain underwriters in connection with the Company’s initial public offering (“IPO”) (“Securities Litigation Case”). A second putative class action complaint containing similar allegations against the Company and certain current officers and directors was filed by Stephen Gambino on October 8, 2021 in the U.S. District Court for the Central District of California. These related complaints have been transferred to the same court and a Lead Plaintiff has been appointed in the matter, and a putative consolidated class action complaint was filed by the Lead Plaintiff on February 21, 2022, alleging claims and seeking relief under Sections 11 and 15 of the Securities Act of 1933 relating to the Company’s IPO. Defendants’ motion to dismiss the putative consolidated class action complaint was filed on March 14, 2022. On July 18, 2022, the Company's motion to dismiss was granted in part and denied in part. On May 1, 2023, the Lead Plaintiff’s motion for class certification in the consolidated class action was granted in part and denied in part, with the U.S. District Court for the Central District of California limiting the certified class to only those persons and entities that purchased or otherwise acquired the Company’s publicly traded common stock pursuant and traceable to the Company’s IPO offering documents prior to August 19, 2021, as well as all persons and entities that acquired ownership of a trading account, retirement account, or any other similar investment account or portfolio containing the Company’s publicly traded common stock that was purchased or otherwise acquired pursuant and traceable to the IPO offering documents prior to August 19, 2021, and were damaged thereby. On August 14, 2023, the Lead Plaintiff filed an amended consolidated class action complaint naming as additional defendants Catterton Management Company L.L.C., L Catterton VIII, L.P., L. Catterton VIII Offshore, L.P., THC Shared Abacus, LP, Catterton Managing Partner VIII, L.L.C., and C8 Management, L.L.C. On October 16, 2023, those additional defendants filed a motion to dismiss the amended consolidated complaint with respect to the claims against them. On January 31, 2024, that motion to dismiss was granted by the court to the extent those additional defendants challenged the claims as untimely. The court granted Lead Plaintiff leave to amend within fourteen days of that order. On February 14, 2024, the Lead Plaintiff filed a second amended consolidated complaint against the additional defendants. The additional defendants filed a motion to dismiss the second amended consolidated complaint, which was denied by the court on April 22, 2024. On January 21, 2025, the parties filed a joint stipulation stating that they had reached an agreement in principle to fully settle all pending claims in the action and asking the court to stay the case so the parties could have additional time to negotiate the terms of a formal stipulation of settlement and related documentation. The court entered an order staying the case on the same day. On April 14, 2025, the court preliminarily approved the parties’ settlement. Under the terms of the settlement, in exchange for the release and dismissal with prejudice of all claims against the defendants in the second amended consolidated complaint, we have agreed to pay $20,000,000 to resolve the dispute, to be fully funded by the Company’s insurance carriers. The Company has recorded the settlement amount of $20,000,000 within accrued expenses and a corresponding insurance recovery of $20,000,000 within prepaids and other current assets related to the legal settlement on the consolidated balance sheet as of March 31, 2025. The determination that the recorded insurance recovery receivable is probable of collection is based on the terms of the applicable insurance policies, settlement agreement, and communications with the insurers. The proposed settlement does not constitute an admission of fault or wrongdoing by the Company, the named individual defendants, or the underwriters. On July 28, 2025, the court held a hearing on the plaintiffs' motion for final approval of the class settlement. On July 30, 2025, the court entered a final order and judgement disposing of the case.

A derivative complaint was filed by Hayato Ono on behalf of the Company on November 29, 2021 in the U.S. District Court for the Central District of California, alleging breach of fiduciary duties, unjust enrichment, waste, gross mismanagement, and federal securities law violations by the Company’s directors and certain officers. On December 17, 2021, a second derivative complaint containing similar allegations against the Company’s directors and certain officers was filed by Mike Wang in the U.S. District Court for the Central District of California. These two federal derivative cases have been transferred to the same judge who is presiding over the securities class action complaints. A third derivative complaint was filed by Leah Bisch and Raluca Corobana in California Superior Court for the County of Los Angeles on January 3, 2022 with similar allegations. A fourth derivative complaint was filed by David Butler in the U.S. District Court for the District of Delaware on October 19, 2022 with

similar allegations. Each of these federal and state court derivative cases have been stayed. These matters are in the preliminary stages of litigation with uncertain outcomes at this time. Therefore, the Company cannot estimate the probability of loss or make an estimate of the loss or range of loss in these matters.

As of June 30, 2025 and December 31, 2024, the Company was not subject to any other currently pending legal matters or claims that based on its current evaluation are expected to have a material adverse effect on its financial position, results of operations, or cash flows should such matters be resolved unfavorably.

Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential number of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential number of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never been involved in litigation in connection with these indemnification arrangements. As of June 30, 2025 and December 31, 2024, the Company has not accrued a liability for these guarantees as the likelihood of incurring a payment obligation, if any, in connection with these guarantees is not probable or reasonably estimable due to the unique facts and circumstances involved.

8. Stock-Based Compensation

Stock Options

The following table summarizes the stock option activity:


	Number of Options	Weighted Average Exercise Price



















Outstanding at December 31, 2024	4,985,886	$	5.41
Granted	—	$	—
Exercised	(75,000)	$	5.13
Forfeited/Cancelled	(1,351,750)	$	5.31
Outstanding at June 30, 2025	3,559,136	$	5.45

2021 Equity Incentive Plan

In April 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. All equity-based awards granted on or after the effectiveness of the 2021 Plan are granted under the 2021 Plan. The 2021 Plan provides for grants of incentive stock options (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s employees and its subsidiary corporations’ employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) awards, performance awards and other forms of awards to the Company’s employees, directors and consultants and any of its affiliates’ employees and consultants. Initially, the maximum number of shares of the Company’s common stock that may be issued under its 2021 Plan will not exceed 25,025,580 shares of the Company’s common stock. In addition, the number of shares of the Company’s common stock reserved for issuance under its 2021 Plan will automatically increase on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1) 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors prior to the date of the increase. On January 1, 2025, 4,356,092 additional shares were reserved for issuance pursuant to this provision. The maximum number of shares of the Company’s common stock that may be issued on the exercise of ISOs under its 2021 Plan is 75,100,000 shares.

2023 Inducement Plan

In March 2023, the Company's Compensation Committee adopted the 2023 Inducement Plan (the “2023 Inducement Plan”). The 2023 Inducement Plan reserved 4,000,000 shares of the Company’s common stock for issuance under the 2023 Inducement Plan to individuals who satisfy the standards for inducement grants under the relevant Nasdaq Stock Market rules. As of June 30, 2025, there were 625,349 shares available for future grant under the 2023 Inducement Plan.

On March 16, 2025, the Company granted 115,122 RSUs to the Senior Vice President of Supply Chain under the 2023 Inducement Plan.

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


	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	Non-Employee Directors	Directors, Officers and Employees	Non-Employee Directors		Directors, Officers and Employees
Unvested RSUs at December 31, 2024	726,573	6,956,604	$	2.70	$	2.81

Granted	39,061	2,287,532	$	6.93	$	5.10
Vested	(520,287)	(1,827,064)	$	2.91	$	3.01
Forfeited	—	(799,396)	$	—	$	2.10
Unvested RSUs at June 30, 2025	245,347	6,617,676	$	2.93	$	3.63

As of June 30, 2025, there was $22.8 million of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 1.4 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 of ten years, beginning on January 1, 2022 and continuing through January 1, 2031 by the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the immediately preceding year; and (ii) 3,525,000 shares, except before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). On January 1, 2025, 1,089,023 additional shares were reserved for issuance pursuant to this provision. Subject to any limitations contained therein, the 2021 ESPP allows eligible employees to contribute (in the form of payroll deductions or otherwise to the extent permitted by the administrator) an amount established by the administrator from time to time in its discretion to purchase common stock at a discounted price per share.

Under the 2021 ESPP, eligible employees are granted the right to purchase shares of common stock at the lower of 85% of the fair value at the time of grant or 85% of the fair value at the time of exercise. The right to purchase shares of common stock is granted in May and November of each year for an offering period of approximately six months. For the three and six months ended June 30, 2025, 18,189 shares were purchased under the 2021 ESPP. As of June 30, 2025, the Company had 4,687,742 remaining authorized shares available for purchase.

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


	For the three months ended June 30, 2025
Expected life of options (in years)	0.50
Expected stock price volatility	63.1%	—	70.18%
Risk free interest rate	4.32%
Expected dividend yield	—%
Weighted average grant-date fair value per share	$1.81

Stock-Based Compensation Expense

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


	For the three months ended June 30,				For the six months ended June 30,
	2025		2024		2025		2024
(In thousands)
Selling, general and administrative	$	2,495	$	8,739	$	4,736	$	11,153
Research and development	221		166		392		275
Total stock-based compensation expense	$	2,716	$	8,905	$	5,128	$	11,428

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 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 (loss) per share attributable to common stockholders:


	For the three months ended June 30,				For the six months ended June 30,
(In thousands, except for share and per share values)	2025		2024		2025		2024
Numerator:
Net income (loss)	$	3,870	$	(4,077)	$	7,123	$	(5,479)



Net income (loss) attributable to common stockholders — basic	$	3,870	$	(4,077)	$	7,123	$	(5,479)

Net income (loss) attributable to common stockholders - diluted	$	3,870	$	(4,077)	$	7,123	$	(5,479)

Denominator:
Weighted average shares of common stock outstanding — basic	110,991,363		99,078,930		110,275,931		97,676,049

Add: effect of dilutive RSUs	3,050,409		—		3,888,732		—
Add: effect of dilutive stock options	—		—		145,757		—
Weighted average shares of common stock outstanding - diluted	114,041,772		99,078,930		114,310,420		97,676,049

Net income (loss) per share, attributable to common shareholders:
Basic	$	0.03	$	(0.04)	$	0.06	$	(0.06)
Diluted	$	0.03	$	(0.04)	$	0.06	$	(0.06)

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


	For the three months ended June 30,		For the six months ended June 30,
	2025	2024	2025	2024

Stock options to purchase common stock	3,683,015	13,131,408	1,867,008	13,131,408
Unvested restricted stock units	472,924	8,921,046	391,643	8,921,046
Employee stock purchase plan	23,555	44,245	22,154	44,245
Total	4,179,494	22,096,699	2,280,805	22,096,699

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 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 and six months ended June 30, 2025 and 2024, the Company has not recorded any uncertain tax positions and has not recognized interest or penalties in the condensed consolidated statements of comprehensive income (loss).

On July 4, 2025, the 2025 budget reconciliation bill, officially known as the One Big Beautiful Bill Act of 2025 (the “Act”) was enacted into law. The Act includes a broad range of tax reforms. The Company is still in the process of evaluating the impact of the Act to its consolidated financial statements and an estimate of the impact cannot be made at this time.

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 of less than three years.

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


	For the three months ended June 30,				For the six months ended June 30,
	2025		2024		2025		2024
Finance lease expense:
Amortization	$	—	$	1	$	—	$	8

Operating lease expense:
Operating lease expense(1)	1,792		1,792		3,584		3,584
Sublease income	(501)		(501)		(1,003)		(1,003)
Total lease expense, net	$	1,291	$	1,292	$	2,581	$	2,589

______________________

(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 finance leases and amortization of operating ROU assets, operating lease expense and other lease expense are recorded within either cost of revenue or selling, general and administrative expenses and interest on finance lease liabilities is recorded within interest and other expense, net in the condensed consolidated statements of comprehensive income (loss).

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

Assets

Financial Statement Line Item

June 30, 2025

Operating lease assets

Operating lease right-of-use asset

13,946

Total lease assets

13,946

Liabilities

Current

Operating lease liabilities

Accrued expenses

8,765

Non-current

Operating lease liabilities

Operating lease liabilities, net of current portion

8,742

Total lease liabilities

17,507

Supplemental information related to the Company’s leases for the six months ended June 30, 2025 was as follows:


Weighted-average remaining lease term (in years)
Finance leases	—
Operating leases	2.1
Weighted-average discount rate
Finance leases	—	%
Operating leases	2.29	%

SEC Form 10-Q filed by The Honest Company Inc.