The Honest Company — Third Quarter 2026 Earnings Summary

Financial Performance:

• Reported revenue of $84.6 million for the quarter ended September 30, 2026, a decrease of 8.6% compared to the prior year period.
• Organic revenue increased 9.2% year-over-year to $79.3 million.
• Gross margin expanded 770 basis points to 45.0% from 37.3% in the prior year period.
• Underlying Adjusted Gross Margin increased 1,160 basis points to 48.9%, compared to 37.3% in the prior year period.
• Reported net income was $91.3 million, an increase of $90.6 million from $0.8 million in the prior year period, primarily driven by a discrete income tax benefit of $89.4 million related to the release of a valuation allowance against net deferred tax assets.
• Underlying Adjusted Net Income was $3.1 million, an increase of $2.3 million from $0.8 million in the prior year period.
• Underlying Adjusted Net Income Margin increased 290 basis points to 3.9% from 1.0% in the prior year period.
• Underlying Adjusted EBITDA was $6.3 million, an increase of $2.8 million from $3.5 million in the prior year period.
• Underlying Adjusted EBITDA Margin increased 300 basis points to 7.9% from 4.9% in the prior year period.
• Operating expenses increased $2.7 million to $36.9 million, driven by higher marketing investment partially offset by lower selling, general and administrative expenses.
• Cash and cash equivalents totaled $103.0 million as of September 30, 2026, an increase of $31.5 million from the prior year period.
• The company had no debt outstanding as of September 30, 2026.
• Net cash provided by operating activities was $33.3 million for the nine months ended September 30, 2026, compared to net cash used of $4.2 million in the prior year period.
• Free Cash Flow was $30.5 million for the nine months ended September 30, 2026, compared to negative Free Cash Flow of $4.5 million in the prior year period.

Guidance and Future Outlook:

• Raised full-year 2026 revenue guidance to a range of $322 million to $325 million, up from the prior range of $319 million to $325 million.
• Raised full-year 2026 Organic Revenue growth guidance to 6% to 7%, up from the prior range of 5% to 7%.
• Raised full-year 2026 Adjusted Gross Margin guidance to 45.5% to 46.5%, up from the prior guidance of the mid-40s.
• Raised full-year 2026 Adjusted EBITDA guidance to a range of $25.0 million to $26.0 million, up from the prior range of $23.0 million to $25.0 million.
• Outlook assumptions include current tariff levels and tariff mitigation measures, which are subject to change given the macroeconomic environment.

Business Segments and Product Lines:

• Revenue decline was driven by strategic exits under the "Powering Honest Growth" initiative and diaper revenue declines.
• Growth was driven by continued expansion in wipes and personal care products.
• Tracked channel consumption for the company increased 1.3% compared to 2.1% growth for comparative categories.
• Consumption of higher-growth, higher-margin wipes and personal care platforms increased 13.2% in aggregate, compared to 3.3% aggregate growth for their comparative categories.
• Gross margin expansion was driven by favorable supply chain rates, favorable product mix, and improvements related to strategic exits, partially offset by the partial liquidation of remaining apparel inventory and restructuring expenses.
• Apparel revenue was excluded from Organic Revenue calculations, with $5.3 million recognized in revenue and $5.3 million in cost of revenue related to the partial liquidation of remaining apparel inventory in the quarter.
• Revenue from the Honest.com website as a fulfillment center and sales to Canadian retailers were also excluded from Organic Revenue calculations.

Market and Competitive Landscape:

• The company competes in categories including baby, big kid, and adult personal care products.
• Honest products are available nationwide at major retailers including Amazon, Target, and Walmart.
• The company aims to drive brand scale across baby, big kid, and adult households.

Risks and Challenges:

• Forward-looking statements regarding future results are subject to risks and uncertainties, including macroeconomic conditions and consumer demand or behaviors.
• The company faces risks related to evolving tariff levels and the effectiveness of tariff mitigation strategies.
• Risks include the durability of growth in fastest-growing product platforms and the ability to successfully implement the "Powering Honest Growth" transformation.
• Actual results may differ materially from forward-looking statements due to factors described in the company's Form 10-K and subsequent filings.

Management Commentary and Tone:

• CEO Carla Vernón stated that the results demonstrate what a modern personal care company can deliver when the brand, portfolio, and P&L are aligned.
• Management highlighted achieving over 9% Organic Revenue growth and a record Underlying Adjusted Gross Margin of 49%.
• The company expressed confidence in its clear strategic vision, strong financial foundation, and executional discipline to become the most iconic personal care brand of the generation.
• Management indicated plans to build on current investments to continue driving brand scale.

Other Key Points:

• The Board of Directors approved a new share repurchase program authorizing up to $30 million of outstanding common stock on October 30, 2026.
• The prior $25 million share repurchase program was completed as of August 6, 2026.
• During the nine months ended September 30, 2026, the company repurchased approximately 7.2 million shares of common stock for $25.0 million at a weighted average price of $3.47 per share.
• The new share repurchase program 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.
• Restructuring-related costs associated with "Powering Honest Growth" totaled $1.1 million for the quarter, including $715,000 in cost of revenue and $418,000 in restructuring costs.