HNST 10-K & 10-Q changes, risk factors and insider trading

These investments may not result in the growth of our business. Even if these investments do result in the growth of our business, if we do not effectively manage our growth we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy consumer requirements or maintain high-quality product offerings, any of which could adversely affect our business, financial condition, results of operations and prospects. You should not rely on our historical rate of revenue growth as an indication of our future performance or the rate of growth we may experience in any new category.category, as well as revenue growth may be different in light of Powering Honest Growth.

In addition, to support continued growth, we must effectively integrate, develop and motivate a large number of new employees while maintaining our corporate culture. For example, on January 8, 2025, our Chief Financial Officer notified the Company of his intention to retire during the 2025 fiscal year, effective as of a mutually acceptable date. While we have initiated a search to identify a successor for the Chief Financial Officer position, there is no assurance that we will be able to find an appropriate officer to fill the role quickly or at all or be able to effectively integrate a new Chief Financial Officer once such officer is appointed. We continue to face significant competition for personnel. To attract top talent, we have had to offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees. We may also need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. In the past few years we have also seen heightened demand for labor and escalating labor prices in the market. The risks associated with a rapidly growingevolving workforce will be particularly acute as we expandexecute intoPowering newHonest product categories.Growth. Additionally, we may not be able to hire new employees quickly enough to meet our needs or retain our existing employees in the face of competitive hiring trends. If we fail to effectively manage our hiring needs, successfully integrate new hires or retain existing employees, our efficiency, ability to meet forecasts and employee morale, productivity and retention could suffer, which could have an adverse effect on our business, financial condition, results of operations and prospects.

We are also required to manage numerous relationships with various retailers and distribution partners, vendors and other third parties. Further growth of our operations, retailers and distribution partners, vendor base, fulfillment centers, information technology systems or internal controls and procedures may not be adequate to support our operations. If we are unable to manage the growth of our organization effectively, our business, financial condition, results of operations and prospects may be adversely affected.

•inflation in key input costs, including the cost to import products,products and tariff costs, transportation, labor and warehouse costs;

Fluctuations in our quarterly operating results and the price of our common stock may be particularly pronounced in the current economic environment due to the uncertainty caused by inflationinflation, tariffs and other macroeconomic factors and consumer and customer spending patterns. Fluctuations in our quarterly operating results may cause those results to fall below our financial guidance or other projections, or the expectations of analysts or investors, which could cause the price of our common stock to decline. Fluctuations in our results could also cause other problems, including, for example, analysts or investors changing their models for valuing our common stock. We could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish, and other unanticipated issues may arise.

Achieving our long-term strategy will require investment in new capabilities, employees, products, distribution channels, supply chain facilities and technologies. These investments may result in short-term costs without any current sales and, therefore, may be dilutive to our earnings. In addition, we have in the pastpast, will in the near term, and may in the future dispose of or discontinue select products or streamline operations and incur costs or restructuring and other charges in doing so. For example, during the year endedeffective December 31, 20232025, we ceased our fulfillment of orders via Honest.com, and exited certain retail and online stores in unprofitable geographical locations, in AsiaCanada and Europe,on November 5, 2025 we sent notice of termination of our Supplier Services Agreement with Butterblu for the sale of Honest apparel as part of Powering Honest Growth. We have updated our strategic focus, which could impact our business and we incurred restructuring costs in connection with the Transformation Initiativeresults of $2.2 million.operations. Although we believeare committed to ensuring that our updated strategy will lead to long-term growth in sales and profitability, we may not realize the anticipated benefits. The failure to realize benefits,benefits from our updated strategy, which may be due to our inability to execute plans, global or local economic conditions, geopolitical instability, competition, changes in our industry and the other risks described herein, could have an adverse effect on our business, financial condition, results of operations and prospects.

Our omnichanneldistribution strategy includes selling our products through third-party ecommerce and retail customers (including their websites), which have been undergoing consolidation in recent years. This consolidation has produced larger, more sophisticated organizations with increased negotiating and buying power that are able to resist price increases, demand higher levels of marketing and promotional support, operate with lower inventories, decrease the number of brands that they carry and increase their emphasis on private label products, all of which has in the past and could in the future negatively impact our business.

In 2024,2025, our three largest retailers, Target,Amazon, AmazonTarget and Walmart accounted for approximately 30%,39%, 34%28% and 9%8% of our total revenue, respectively. We sell products to Target,Amazon, AmazonTarget and Walmart under each of their standard vendor agreements. Our vendor agreements with Target,Amazon, AmazonTarget and Walmart do not include a term or duration as sales under each vendor agreement are generally made on a purchase order basis. Our vendor agreement with Amazon provides that either party may terminate the agreement with 60 days’ prior written notice, provided that we are required to fulfill any purchase orders that we accept before the effective date of termination and our vendor agreement with Walmart provides that either party may terminate the agreement with 30 days’ prior written notice. Our vendor agreement with Target does not include any termination provisions. The loss of Target,Amazon, AmazonTarget and Walmart or any other large customer, the reduction of purchasing levels or the cancellation of any business from Target,Amazon, AmazonTarget or Walmart or any other large customer for an extended length of time could negatively impact our sales and ability to achieve or maintain profitability. For example, during 2024,2024 weand experienced2025, distribution losses with two of our largest retail customers on certain diaper SKUsSKUs, mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints, which has impacted our revenue and we expect will continue to negatively impact our diaper revenue in the future.

Third-party ecommerce or retail customers may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. For example, a few of our retail customers filed for bankruptcy in 2023, which has impacted the timing of payment,payments, the ability for us to collect amounts due to usus, and impacted our gross margin due to markdowns.markdowns in 2023. Our third-party ecommerce or retail customers may also change their purchasing levels. For example, induring 2022,2024 Amazonand held2025, fewerwe weeksexperienced diaper distribution losses with two of inventory supply on hand, which impacted the consumer experience and ultimate consumption, and negatively impacted our resultslargest ofretailer operations.customers as noted above. In light of tariffs and macroeconomic conditions, we may seesaw some of our third-party ecommerce or retail customers hold different inventory levels or change the frequency and/or levels of their orders in 2025, which may have a negative impact onimpacted our business and results of operations. Despite operating in different channel categories, our third-party ecommerce and retail customers sometimes compete for the same consumers. BecauseFor of actual or perceived conflicts resulting from this competition, third-party ecommerce or retail customers may take actions that negatively affect us. Consequently,example, our financialdiaper resultsrevenue mayhas fluctuatefluctuated significantly from period to period based on the actions of onetwo orof moreour significant third-party ecommerce orlargest retail customers, suchincluding asdistribution alosses, changethe lapping of certain retailer promotional events and changes in quantityconsumer orshopping numberbehavior. of SKUs purchased, store placement of our products, or amount of shelf space. For example,Additionally, in 2025, we expect that there will be a change in size of diaper box assortment at a key retail customer,customer impacted sales velocities and revenue, which maywe impactexpect velocities.to continue in the future.

Revenue and results of operations are difficult to forecast because they generally depend on the volume, timing and type of orders we receive across our various channels, all of which are uncertain. Forecasts have been and may continue to be particularly challenging in the current macroeconomic environment.environment as well as the U.S. government's evolving trade policy. We base our expense levels and investment plans on our estimates of revenue and gross margin. We cannot be sure prior growth rates and trends are meaningful predictors of future growth. For example, induring the third quarter of 2022, some of our customers reduced inventory on hand2024 and changed their fulfillment schedules, which negatively impacted our fulfillment operations in 2022. Furthermore, during 2024, we experienced2025, distribution losses with two of our largest retail customers on certain diaper SKUsSKUs, mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints, which has impacted our revenue in 2025 and we expect will negatively impact our diaper revenue in the future. In addition, we have seen certain retailer promotional events on our diaper SKUs that did not repeat in 2025 and slower conversion to our new diaper SKUs at certain retailers, which have negatively impacted our diaper revenue in 2025. If our assumptions prove to be wrong, we may generate lower revenue or gross margin than anticipated or may spend more than we anticipate acquiring and retaining consumers either of which could have an adverse effect on our business, financial condition, results of operations and prospects.

The markets in which we operate are highly competitive and rapidly evolving, with many new brands and product offerings emerging in the marketplace. We face significant competition from both established, well-known legacy CPG players and emerging naturalclean brands. Numerous brands and products compete for limited shelf space in the retail channel, and for favorable positioning and promotion among ecommerce channels. We compete based on various product attributes including clean formulation, sustainability, effectiveness and design.

Select competitors of diapers andour wipes include Kimberly-ClarkZURU CorporationEdge Limited (maker of HuggiesMillie Moon and CottonelleRascals), ProcterWaterWipes &UC, GambleDUDE Wipes, Inc., Edgewell Personal Care Company (maker of Pampers,Wet PampersOnes Pure, Luvs and Charminwipes), WaterWipes UC and other private label brands. Select competitors of our skin and personal care products include Kimberly-Clark Corporation (pending acquiror of Kenvue Inc. (maker of Johnson’s Baby and Aveeno), The Clorox Company (parent company of Burt’s Bees, Inc.), Unilever PLC (maker of Shea Moisture), Estée Lauder Inc., L’Oréal S.A. and Pacifica Beauty LLC. Select competitors of our baby clothingdiapers include Carter'sKimberly-Clark Inc.Corporation (maker of Huggies diapers and Cottonelle wipes) and Procter & Gamble Company (maker of Pampers, Pampers Pure, Luvs and Charmin). Many of these competitors have substantially greater financial and other resources than us and some of whose products are well accepted in the marketplace today. Many also have longer operating histories, larger fulfillment infrastructures, greater technical capabilities, faster shipping times, lower-cost shipping, lower operating costs, greater financial, marketing, institutional and other resources and larger consumer bases than we do. These factors may also allow our competitors to derive greater revenue and profits from their existing consumer bases, acquire consumers at lower costs or respond more quickly than we can to new or emerging technologies and changes in product trends and consumer shopping behavior. These competitors may engage in more extensive research and development efforts, enter or expand their presence in any or all of the ecommerce or retail channels where we compete, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing policies, which may allow them to build larger consumer bases or generate revenue from their existing consumer bases more effectively than we do. As a result, these competitors may be able to offer comparable or substitute products to consumers at similar or lower costs. This could put pressure on us to lower our prices, resulting in lower revenue and margins or cause us to lose market share even if we lower prices.

Further, competitors with substantially greater operations and resources than us may be less affected by the current macroeconomic conditions. Current macroeconomic conditions, such as uncertainty around tariffs, inflation and interest rates, the health of the U.S. consumer (such as increasing debt and delinquency rates and resumption of student loan repayments), and geopolitical events,instability, could increase the risk of a potential recession and can negatively impact consumer discretionary spend for our products. Although we are monitoring the situation, we cannot predict for how long, or the ultimate extent to which, the current geopolitical and macroeconomic conditions may disrupt our operations, or our suppliers’ operations, or if we will be required to implement other changes, such as further price increases or cost savings initiatives, in addition to the onesprice increases already implemented in 2023.2023 and cost savings initiatives implemented in 2025. Any significant disruption resulting from geopolitical conflict, global pandemics or similar events on a large scale or over a prolonged period of time could cause significant delays and disruption to our business until we would be able to resume normal business operations or shift to other third-party vendors, negatively affecting our revenue and other financial results, which would adversely affect our business, financial condition, results of operations and prospects. A prolonged disruption of our business could also damage our reputation and brand strength.

Our success, and our ability to increase revenue and achieve profitability, depend in part on our ability to cost-effectively acquire new consumers, retain existing consumers and keep existing consumers engaged so that they continue to purchase our products. Our diaper business is also a strategic consumer acquisition tool that fuels growth for baby wipes, personal care, Honest baby clothing and other products. While we intend to continue to invest significantly in sales and marketing to educate consumers about our brand, our values and our products, there is no assurance that these efforts will generate further demand for our products or expand our consumer base. Our ability to attract new consumers and retain our existing consumers will depend on, among other items, the perceived value and quality of our products, consumer demand for cleanly-formulated, sustainably-designed and effective products at a premium price, competitive offerings, the elasticity of our price increases, our ability to offer new and relevant products and the effectiveness of our marketing efforts. We may also lose loyal consumers to our competitors if we are unable to meet consumer demand in a timely manner. If we are unable to cost-effectively acquire new consumers, retain existing consumers and keep existing consumers engaged, our business, financial condition, results of operations and prospects could be adversely affected.

Any strategies we employ to pursue this growth are subject to numerous factors outside of our control. Our retail and ecommerce competitors continue to aggressively market their private label or competitive products, which could reduce demand for our products. The expansion of our business also depends on our ability to increase sales through ecommerce channels and increase breadth and depth of distribution at retail customers. Any growth within our existing distribution channels may also affect our existing consumer relationships and present additional challenges, including those related to pricing strategies. For exampleexample, throughout 2023, we rolled-out mid-single digit price increases across approximately two-thirds of our product portfolio, including in diapers, wipes, skin and personal care and diaper products which has in the past and may in the future negatively impact consumer demand. To a lesser extent, in 2023, we rolled-out price increases on certain beauty and personal care products. We plan to take additional price increases in the future as needed to offset input cost inflation. Our direct connections to our consumers may become more limited as we expand our non-DTC channels. Further in 2023,2023 and 2025, we exited distribution in low-margin products and channels which negatively impacted our revenue. Additionally, we may need to increase or reallocate spending on marketing and promotional activities, such as temporary price reductions, off-invoice discounts, retailer advertisements, product couponscoupons, emphasis on specific product categories, and other trade activities, and these expenditures are subject to risks, including risks related to consumer acceptance of our efforts. Our failure to obtain new consumers, or expand our business with existing consumers, could have an adverse effect on our business, financial condition, results of operations and prospects.

We also drive a significant amount of traffic to our website via social networking or other ecommerce channels used by our current and prospective consumers. As social networking and ecommerce channels continue to rapidly evolve, we may be unable to develop or maintain a presence within these channels. We had also historically depended on Ms. Warren’s social media reach and influence to connect with consumers and provide insight on current trends. For example, the Honest Beauty social channels where Ms. Warren was featured frequently in the past have lost significant viewership and engagement over the past two years. If our online or offline presence declines, our ability to acquire new consumers could be adversely affected. Additionally, if we fail to increase our revenue per active consumer, generate repeat purchases or maintain high levels of consumer engagement, our business, financial condition, results of operations and prospects could be adversely affected.

Overall macroeconomic trends, including due to pandemicsgeopolitical or disease outbreaks,uncertainty, have had and may continue to have an adverse effect on our business, financial condition, results of operations and prospects.

Recent macroeconomic trends, including those resulting from thegeopolitical pandemicsuncertainty, have impacted our business, financial condition, results of operations and prospects, in particular due to the negative impact from supply chain disruptions, tariffs, increasing commodity costs and shifting consumer demand. The impact of overall macroeconomic trends on any of our suppliers, manufacturers, retail or ecommerce customers or transportation or logistics providers has and may continue to negatively affect the price and availability of our raw materials and products and impact our supply chain. If the disruptions caused by overall macroeconomic trends continue for an extended period of time, our ability to meet the demands of our consumers may be materially impacted. The conditions caused by macroeconomic conditions may negatively impact collections of accounts receivable (including as a result of retail customer bankruptcies),receivable, result in reduced orders from retail or digital customers or cause some of our retail customers to go out of business, all of which could adversely affect our business, financial condition, results of operations and prospects. For example, a few of our retail customers filed for bankruptcy in 2023, which has impacted the timing of payment, the ability for us to collect amounts due to us and impacted our gross margin due to markdowns.markdowns in 2023.

In addition, any depression or recession resulting from macroeconomic factors could change customer and consumer behavior and demand, including with respect to our products, which could have an adverse effect on our business, financial condition, results of operations and prospects. For example, economic conditions, including inflationary pressures such as price increases in commodity prices, changes to trade policies, tariffs, import/export regulations of the U.S. and other nations, labor costs, input costs and transportation costs have impacted our gross margin and could impact consumer spending decisions to choose lower priced products, particularly as a result of our price increases implemented in 2022 and 2023 intended to offset these input costs. We may not be able to increase our prices or productivity sufficiently enough to offset these costs. For example, as part of our Transformation Initiative in 2023, we exited low-margin elements of the cleaning and sanitization business as the demand for sanitizing and disinfecting products declined significantly after the COVID-19 pandemic. The current macroeconomic conditions, including as a result of global pandemics, changing consumer attitudes or behaviorbehaviors or other macroeconomic conditions,conditions (such as inflation, tariffs ortariffs, supply chain disruptionsdisruptions, inflation,trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and theseany macroeconomicresulting conditionsrecession or slowed economic growth) can negatively impact consumer discretionary spend for our products.

Our business requires us to manage a large volume of inventory effectively. We depend on our forecasts of demand for various products to make purchase decisions and to manage our inventory. Demand for products, however, can change significantly between the time inventory or package components are ordered and the date of sale. Demand may be affected by new product launches of our competitors, rapid changes in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, unseasonable weather conditions, weakening of economic conditions or consumer or customer confidence in future economic conditions, our failure to accurately forecast acceptance for our new products or our consumers not purchasing products in the quantities that we expect and unanticipated changes in general market conditions or other factors. It may be difficult to accurately forecast demand and determine appropriate levels of product. We generally do not have the right to return unsold products to our suppliers. If we fail to manage our inventory effectively or negotiate favorable credit terms with third-party manufacturers and suppliers, we may be subject to a heightened risk of inventory obsolescence, a shortage of product to deliver to our consumers and customers, a decline in inventory values, and significant inventory write-downs or write-offs. For example, in connection with Powering Honest Growth, we recorded a discrete apparel inventory write-down of $15.9 million, inclusive of overhead costs and tariffs. If we are required to lower sale prices or fund markdowns in order to reduce inventory level or to pay higher prices to our suppliers, our gross margins might be negatively affected.

Inventory levels in excess of consumer or customer demand have resulted and may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices or in less preferred distribution channels, which could impair our brand image and harm our business. For example,example givenin the significantfirst decline in consumer demand for sanitizing and disinfecting products following the heightquarter of the COVID-19 pandemic,2025, we recorded an inventory write-down of $4.3$3.2 million, inclusive of overhead and tariffs, which included a $3.0 million duringwrite-down the year ended December 31, 2022, relatingrelated to certainour sanitizationnew anddiaper disinfecting productsrenovation as thewe amounttransitioned ofto inventoryour wasnew significantlydiaper in excess of existing and projected demand,products, and we may record inventory write-downs in the future. Additionally, unrelated to Powering Honest Growth, we earmarked donations of $2.1 million related to diaper inventory forecast reductions with a key retailer. In addition, if we underestimate the demand for our products, our third-party manufacturers may not be able to produce products to meet our consumer or customer requirements, and this could result in delays in the shipment of our products and our ability to recognize revenue, lost sales, as well as damage to our reputation and retailer and distributor relationships. Future out-of-stock disruptions may negatively impact our results of operations, reputation and distributor relationships.

Our inability to secure, maintain and increase our presence inwith retail storesretailers could adversely impact our revenue, and in turn our business, financial condition, results of operations and prospects could be adversely affected.

Our operations include sales to retail storesretailers and their related websites, which in 2024,2025, accounted for approximately 87%91% of our revenue. The success of our business is largely dependent on our continuing development of strong relationships with major retail chains. Amazon, Target and Walmart represented 30%39%, 28% and 9%,8%, respectively, of our retail sales in 2024.2025. The loss of our relationship with Amazon, Target, Walmart or any other large retail customer could have a significant impact on our revenue. For example, in 2023 and 2025 we exited distribution in low-margin products and channels and our rotational program with Costco was not renewed. We have no assurance of future rotational programs or ongoing revenue with Costco. Additionally, in 2024, we exited selling certain products with a drug store customer and in 2024 and 2025 we experienced distribution losses with two of our largest retail customers on certain diaper SKUs, which has impacted our revenue and we expect will negatively impact our diaper revenue in the future. In addition, we may be unable to secure adequate shelf space in new markets, or any shelf space at all, until we develop relationships with the retailers that operate in such markets. We also may not be successful in executing our launches with new retailers. Consequently, growth opportunities may be limited and our revenue, business, financial condition, results of operations and prospects could be adversely affected if we are unable to successfully establish or maintain relationships with other retailers in new or current markets.

A key element of our growth strategy depends on our ability to developincrease the physical availability of our products through expanded stores, doors, aisles, shelves and marketfacings while developing and marketing new and innovative ways to use our products that meet our standards for quality and appeal to our consumers. The success of our innovation and product development efforts is affected by our ability to anticipate changes in consumer preferences, the technical capability of our innovation staff, including chemists, a toxicologist and an eco-toxicologist, developing and testing product formulas and prototypes, our ability to comply with applicable governmental regulations, and the success of our management and sales and marketing teams in introducing and marketing new products. Our product offerings have changed since our launch, which makes it difficult to forecast our future results of operations. Demand for certain product offerings can be volatile. There can be no assurance that demand for our products will be maintained or grow after introduction or that we will successfully develop and market new products that appeal to consumers. For example, product formulas we develop may not contain the product attributes desired by our consumers. Any such failure may lead to a decrease in our growth, sales and ability to achieve profitability, which could adversely affect our business, financial condition, results of operations and prospects.

In order to remain competitive and expand and keep market share for our products across our various channels, we may need to increase our marketing and advertising spending to maintain and increase consumer awareness, protect and grow our existing market share or promote new products, which could impact our operating results. Additionally, we may choose to change one of our marketing or advertising partners, which may prove to be unsuccessful. Substantial advertising and promotional expenditures have been required in the past and may be required in the future to maintain or improve our brand’s market position or to introduce new products to the market, and we are increasingly engaging with non-traditional media, including consumer outreach through social media and web-based channels, which may not prove successful. An increase in our marketing and advertising efforts may not maintain our current reputation or lead to increased brand awareness. In addition, since 2022 the industry experienced an increasedincrease in paid advertising which impacted our ability to cost-effectively drive traffic to Honest.com. Further, social media platforms frequently change the algorithms that determine the ranking and display of results of a user’s search and may make other changes to the way results are displayed, which may negatively affect the placement of our links. In addition, we had also historically depended on Ms. Warren’s social media reach and influence to connect with consumers and provide insight on current trends. For example, the Honest Beauty social channels where Ms. Warren was featured frequently in the past have lost significant viewership and engagement over the past two years. Moreover, socialSocial media platforms and other digital advertising platforms have increased the costs of digital advertising which has made such marketing less cost effective and partially led us to shift our advertising budget toward retail channels, and in turn reduced the number of visits to our website and social media channels. For example, since the second half of 2022, we made a strategic choice to significantly reduce digital media spending in the face of higher advertising costs, which has and may continue to impact our revenue.

In many product categories, we compete not only with other widely advertised branded products, but also with private label products that generally are sold at lower prices. Consumers are more likely to purchase our products if they believe that our products provide greater value than less expensive alternatives. If the difference in perceived value between our brand and private label products narrows, or if there is a perception of such a narrowing, consumers may choose not to buy our products at prices that are profitable for us. We believe that in periods of economic uncertainty, such as the current economic uncertainty surrounding changes to trade policies and tariffs, the continuing effects of inflation, increased interest rates, increasing prices of our products, and risk of a recession, consumers may purchase more lower-priced private label or other economy brands. To the extent this occurs, we could experience a reduction in the sales volume of our products or an unfavorable shift in our product mix, which could have an adverse effect on our business, financial condition, results of operations and prospects.

We have positioned our brand to capitalize on growing consumer interest in cleanClean consciousConscious® products. The clean consumer product industry is sensitive to national and regional economic conditions and the demand for the products that we distribute may be adversely affected from time to time by economic downturns that impact consumer spending, including discretionary spending. Current macroeconomic conditions, including as a result of global pandemics, changing consumer attitudes or behaviorbehaviors or other macroeconomic conditions,conditions (such as inflation, tariffs ortariffs, supply chain disruptionsdisruptions, trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and theseany macroeconomicresulting conditionsrecession or slowed economic growth) can negatively impact consumer discretionary spend for our products. These external economic conditions, including geopolitical uncertainty, have become more challenging and uncertain in recent years. Current and any future economic conditions such as employment levels, business conditions, housing starts, market volatility, interest rates, inflation rates, potential changes in tariffs and trade barriers, energy and fuel costs and tax rates, or our actions in response to these conditions, such as price increases, including our price increases in 2022 and 2023, could reduce consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of clean consumer products that consumers purchase where there are alternatives, given that many products in this category often have higher retail prices than do their conventional counterparts.

Jessica WarrenAlba departed as our Chief Creative Officer on April 9, 2024. Jessica WarrenAlba is a globally recognized Latina business leader, entrepreneur, advocate, actress, and New York Times bestselling author. We believe that the success of our brand has historically been based in part on our affiliation with Jessica Warren.Alba. We had an agreement with Jessica Warren,Alba, or the Likeness Agreement, which, among other things, included a license for her likeness and imposed various obligations on us. The Likeness Agreement was terminated as part of Ms. Warren'sAlba's departure from her Chief Creative Officer position. Resulting from the termination of the Likeness Agreement, we are required to remove certain licensed property from our website, digital assets, social media and Company-owned or -controlled assets, digital assets and sell existing inventory that use the licensed intellectual property on its packaging. Our obligations from the termination of the Likeness Agreement could result in a reduction of our operating margins and cash flow from operations or otherwise adversely affect our business. In connection with the termination of the Likeness Agreement we recorded an inventory write-down of $0.8 million during the year ended December 31, 2024, inclusive of overhead costs and tariffs. Additionally, we earmarked donations of $0.4 million, inclusive of overhead costs and tariffs. We anticipatemay have future inventory write-offs as we are prohibited from selling existing inventory that uses certain specified licensed intellectual property on its packaging. Additionally, the loss of our ability to use Ms. Warren’s likeness could result in marketplace confusion, loss of goodwill and/or similar negative consequences. We have also historically depended on Ms. Warren’sAlba’s social media reach and influence to connect with consumers and provide insight on current trends. For example, the Honest Beauty social channels where Ms. WarrenAlba was featured frequently in the past have lost significant viewership and engagement over the past two years. The loss of the services of Ms. WarrenAlba and the loss of our ability to use Ms. Warren’sAlba’s likeness, could have an adverse effect on our business, financial condition and results of operations.

In addition, our future success depends on our continued ability to attract, develop, motivate and retain highly qualified and skilled employees, including Carla Vernón, who became our CEO effectivein January2023 9,and 2023.Curtiss Bruce, who became our CFO in 2025. The market for such positions is competitive. Qualified individuals, like Ms. Vernón with her extensive experience in CPG and with founder-built businesses, are in high demand and we may incur significant costs to attract them. In addition, the loss of any of our senior management or other key employees or our inability to recruit and develop mid-level managers could adversely affect our ability to execute our business plan and we may be unable to find adequate replacements. All of our employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. For example, on January 8, 2025, our Chief Financial Officer notified the Company of his intention to retire during the 2025 fiscal year, effective as of a mutually acceptable date. While we have initiated a search to identify a successor for the Chief Financial Officer position, there is no assurance that we will be able to find an appropriate officer to fill the role quickly or at all or be able to effectively integrate a new Chief Financial Officer once such officer is appointed. The loss of one or more of our executive officers could harm morale, cause additional personnel to depart, or introduce operational delays or risks as successor executives learn our business, each of which could harm our operating results. If we fail to retain talented senior management and other key personnel, or if we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business, financial condition and results of operations could be adversely affected.

In addition, an increase in the use of social media influencers for product promotion and marketing may cause an increase in the burden on us to monitor compliance of the content they post and increase the risk that such content could contain problematic product or marketing claims in violation of applicable laws and regulations. For example, in some cases, the Federal Trade Commission, or the FTC, has soughtbrought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser. We do not control the content that our influencers post, and if we were held responsible for any false, misleading or otherwise unlawful content of their posts or their actions, we could be fined or subjected to other monetary liabilities or forced to alter our practices, which could have an adverse impact on our business.

We have incurred net losses each yearperiodically since our inception and we may not be able to achieve or maintain profitability in the future. We incurred net losses of $6.1$15.7 million, $39.2$6.1 million and $49.0$39.2 million in the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. Even as we try to manage our expenses and despite executing the Transformation Initiative,Initiative and Powering Honest Growth, these efforts may be more costly than we expect and may not result in increased revenue or growth or margin improvements in our business in the future. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, financial condition, results of operations and prospects could be adversely affected. If we are unable to generate adequate revenue growth and manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability.

We rely on independent third-party certification, such as certifications of some of our products or ingredients as “organic”certification to differentiate themour products from others. We must comply with the requirements of independent organizations or certification authorities in order to label our products with specific certification claims, such as the Global Organic Textile Standard for organic cotton in our baby clothing and bedding, the USDA’s BioPreferred Program for certified biobased products, the National Eczema Association’s NEA Seal of Acceptance, and the NSF/ANSIIWSFG 305standard standardsfor setflushable by Quality Assurance International.wipes. For example, we can lose our certifications if we use unapproved raw materials or incorrectly use a certification on product labels or in marketing materials. The loss of any independent certifications could adversely affect our market position and brand reputation as a maker of clean products, and our business, financial condition, results of operations and prospects could be adversely affected.

We allow our DTC consumers to return products and we offer refunds, subject to our return and refunds policy. In addition, someSome of our agreements with our retail or third-party ecommerce partners provide that we are responsible for the costs of certain returns. If product returns or refunds are significant or higher than anticipated and forecasted, our business, financial condition, results of operations and prospects could be adversely affected. Further, we and our retail and third-party ecommerce partners modify policies relating to returns or refunds from time to time, and may do so in the future, which may result in consumer dissatisfaction and harm to our reputation or brand, or an increase in the number of product returns or the amount of refunds we make. Additionally, from time to time our products are damaged in transit, which can increase return rates and harm our brand.

Our business may be adversely affected if we are unable to provide our consumers with a technology platform that is able to respond and adapt to rapid changes in technology.

Additionally,The number of people who access the Internet through devices other than personal computers, including mobile phones, handheld computers such as newnotebooks and tablets and television set-top devices, has increased dramatically over the past decade. The versions of our website and mobile applications developed for these devices may not be compelling to consumers and platformsmay arebe released, it is difficultcostly to predict the problems we may encounter in developing applications for alternative devices and platforms and we may need to devote significant resources to the creation, support and maintenance of such applications.maintain. If we or our retail or ecommerce partners are unable to attract consumers to our or their websites or mobile applications through these devices or are slow to develop a version of such websites or mobile applications that are more compatible with alternative devices, we may fail to capture a significant share of consumers in our product categories and could also lose consumers, which could have an adverse effect on our business, financial condition, results of operations and prospects.

Further, we continually upgrade existing technologies and business applications and we may be required to implement new technologies or business applications in the future. The implementation of upgrades and changes requires significant investments and may cause disruption to our business. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure. For example, we have not yet integrated honestbabyclothing.com into our systems and our integration efforts for honestbabyclothing.com may not be successful and may negatively impact our consumer growth. In the event that it is more difficult for our consumers to buy products from us on their mobile devices, or if our consumers choose not to buy products from us on their mobile devices or to use mobile products or platforms that do not offer access to our website, we could lose consumers and fail to attract new consumers. As a result, our consumer growth could be harmed and our business, financial condition, results of operations and prospects could be adversely affected.

Our services and operations, including several of our fulfillment centers, customer service centers, data centers and corporate offices are located in California, Minnesota, Nevada and Pennsylvania, and other areas and cross dock facilities that are vulnerable to damage or interruption from natural disasters, power losses, telecommunication failures, terrorist attacks, human errors, break-ins and similar events. The occurrence of a natural disaster or other unanticipated problems at our facilities could result in lengthy interruptions in our services as well as higher insurance premiums. We may not be able to efficiently relocate our fulfillment and delivery operations due to disruptions in service if one of these events occurs and our insurance coverage may be insufficient to compensate us for such losses. Because the Los Angeles area, where our corporate offices are located, is in an earthquake fault zone and because the Los Angeles area is subject to the increased risk of wildfires, we are particularly sensitive to the risk of damage to, or total destruction of, our primary offices and one of our key fulfillment and delivery centers. Although we are insured up to certain limits against any certain losses or expenses that may result from a disruption to our business due to earthquakes or wildfires, either of these events, if incurred, could adversely affect our business, financial condition, results of operations and prospects.

We depend heavily on ocean container delivery to receive shipments of certain of our products such as wipes from our third-party manufacturers located in China and contracted third-party delivery service providers to deliver our products to our fulfillment centers located in Las Vegas, Nevada and Breinigsville, Pennsylvania, and from there to our consumers and retail customers. Our third-party manufacturers also rely on ocean container delivery to receive shipments of raw materials and components for our products. Further, we rely on parcel carriers for the delivery of products sold directly to consumers through Honest.com and one major carrier for our domestic freight. Interruptions to or failures in these international and domestic transportation and delivery services have in the past prevented and could in the future prevent the timely or successful delivery of our products. These interruptions or failures may also be due to unforeseen events that are beyond our control or the control of our third-party delivery and transportation service providers, such as truck shortages, labor unrest, political turmoil or natural disasters. There is no assurance that these interruptions or failures will not happen again. For example, a labor strike at a port could negatively impact the delivery of our imported wipes, and the escalating trade dispute between the United States and China, United States and Mexico, and United States and Canada, including any potential tariff or trade barriers, and the increased demand for shipping containers have and may in the future restrict the flow of the goods, including our components and wipes from China to the United States and our diapers from Mexico to the United States. Any failure to provide high-quality delivery services to our consumers may negatively affect the shopping experience of our consumers, damage our reputation and cause us to lose consumers.

We may in the future incur losses from various types of fraud, including stolenfrom creditphishing cardattempts numbers, claims that a consumer did not authorize a purchase,and merchant fraud and consumers who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments.fraud. Although we have measures in place to detect and reduce the occurrence of fraudulent activity in our marketplace,activity, those measures may not always be effective. In addition to the direct costs of such losses, if the fraud is related to credit card transactions and becomes excessive, it could potentially result in us paying higher fees or losing the right to accept credit cards for payment. In addition, under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder’s signature for online purchases on Honest.com. Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and additional expenses and our business, financial condition, results of operations and prospects could be adversely affected.

Acquisitions, investments and other strategic alliances, including our supplier services agreement with Butterblu,alliances involve numerous risks, including:

WeFor areexample, currentlywe inhave discussionsterminated our strategic alliance with Butterblu regardingand oursued respectiveButterblu obligationsfor underalleged breaches of the supplier services agreement pursuant to which Butterblu providesprovided certain design, manufacturing, sales and marketing services to us. AsLitigation part of the supplier services agreement, we have agreedrelated to purchase and own inventory for the term of the supplier service agreement, which is until December 31, 2026, unless terminated sooner. Butterblu continues to operate and maintain our babyrespective apparel offerings independently through the honestbabyclothing.com websiteobligations under our supplier services agreement and Honest baby clothing sales are reflected as revenue in our consolidated statements of comprehensive loss. These discussions could result in termination of the supplier services agreement prior to its termination date, potential disputes over our respective obligations orand the terms of termination, and costs to us related to the inventory we agreed to purchase and own for the term of the agreement.supplier service agreement have adversely affected our results of operations for the year ended December 31, 2025 and will continue to adversely affect our results of operations in the future. In addition, anythe loss of the relationship with Butterblu maywill negatively impact sales of our baby apparel, which will adversely affect our results of operations. For additional information regarding termination of the supplier services agreement with Butterblu and related litigation, see section titled “Supplier Services Agreement” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Revenue generated from baby apparel was 12%10% and 8%,12%, respectively, of our total revenue during the year ended December 31, 20242025 and 2023.2024.

We have incurred substantial losses since inception. As of December 31, 2024,2025, we had federal and state net operating loss carryforwards of $313.0 million and $272.0$274.0 million, respectively. The federal loss carryforwards, except the federal loss carryforwards arising in tax years beginning after December 31, 2017, begin to expire in 2032 unless previously utilized. Federal net operating losses, or NOLs, arising in tax years beginning after December 31, 2017 have an indefinite carryforward period and do not expire, but the deduction for these carryforwards is limited to 80% of current-year taxable income for taxable years beginning after 2020. In general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We may have experienced ownership changes in the past and may experience ownership changes in the future. We performed a study to determine whether net operating losses and credit carryover limitations exist under Section 382 as of December 31, 2020,2025, and determined that a portion of the net operating losses that were generated during 20132022 and prior are subject to Section 382 annual limitations. As of December 31, 20242025 and 2023,2024, these limitations did not cause any of the limited net operating losses to be permanently lost. In addition, for state income tax purposes, there may be periods during which the use of NOLs or tax credits is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.owed, including California tax legislation that, with certain exceptions, suspends the ability to use California net operating losses to offset California income and limits the ability to use California business tax credits to offset California taxes, for taxable years beginning after 2023 and before 2027.

All of the products we offer are manufactured by a limited number of third-party manufacturers, and as a result we have been and may continue to be subject to price fluctuations or demand disruptions. Our operating results have been negatively impacted by increases in the costs of manufacturing our products, and we have no guarantees that costs will not continue to rise. For example, some of our contracts with third-party manufacturers have clauses that trigger good faith renegotiation of purchase costs in the case of significant raw material cost escalation. We renegotiated and agreed to higher purchase prices in 2024 with one of our third-party manufacturers, which may negatively impact our cost of revenue and may have a negative impact on our results of operations in the future. We implemented price increases that took effect in 2022 and 2023 and plan to implement additional price increases in the future as needed to offset input cost inflation. The implementation of these price increases areis dependent on acceptance from our customers and accurate input of these pricing changes into our systems and our customers' systems. We have also continued to experience record-high freight and shipping costs. As we expand into new categories and product types, we expect that we may not have strong purchasing power in these new areas, which could lead to higher costs than we have historically seen in our current product categories. Failure to incorporate these price increases into our and our customers' systems may negatively impact our revenue and business results. We may also be limited in our ability to pass increased costs on to consumers, and may experience reduced demand from consumers as a result of our price increases, which could adversely affect our operating results. Moreover, in the event of a significant disruption in the supply of the materials used in the manufacture of the products we offer, we and the vendors that we work with might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price.

We purchase significant amounts of product supply from a limited number of suppliers with limited supply capabilities. There can be no assurance that our current suppliers will be able to accommodate our anticipated growth or continue to supply current quantities at preferential prices. An inability of our existing suppliers to provide materials in a timely or cost-effective manner could impair our growth and have an adverse effect on our business, financial condition, results of operations and prospects. In addition, we do not maintain long-term supply contracts with many of our suppliers and these suppliers could discontinue selling to us at any time. We do have a long-term supply agreement with Ontex for the manufacture and supply of certain diaper products that ends on January 1, 2027, which either party may terminate if the other party materially breaches the agreement and does not cure the breach within a specified notice period, or upon the other party’s insolvency. If the agreement with Ontex is terminated, is not renewed, or if Ontex becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, or if any environmental, economic or other outside factors impact their operations, our ability to procure diaper manufacturing services may be impaired, and we may not be able to obtain, or may face increased costs related to, such services. The loss of Ontex, or of any of our other significant suppliers, or the discontinuance of any preferential pricing or exclusive incentives they currently offer to us could have an adverse effect on our business, financial condition, results of operations and prospects. In Decemberthe 2022,fourth wequarter amendedof our agreement with2025, Ontex to increase pricing on certain items, among other terms, which appliedasked for theadditional balanceprice of our agreement with Ontex through 2023 and increased our cost of revenue in 2023. In January 2024, we amended and restated our agreement with Ontex, which included improved pricing on certain items, among other terms, which were reflected in our results of operationsincreases for the year ended December 31, 2024.2026. If we are not successful in negotiating this requested price increase or future renewalsrenewals, or if we are subject to increased pricing terms, our business, financial condition, results of operations and prospects could be adversely affected.

In 2023, we entered into an agreement with National Distribution Centers, LLCLLC, (“or NFI”) that replaced GEODIS in providing services at our Las Vegas, Nevada fulfillment center. GEODIS Logistics LLC, or GEODISGEODIS, still manages our warehouse fulfillment center located in Breinigsville, Pennsylvania. NFI and GEODIS provide warehousing, distribution and fulfillment services to us. Our agreements with NFI or GEODIS may be terminated for any reason by us or by NFI or GEODIS, as applicable, on delivery of prior written notice, and are renewable on an annual basis. In December 2025, we notified GEODIS, pursuant to the terms of the contract, that we are terminating the agreement with them for the Pennsylvania warehouse use and services effective June 30, 2026. If the agreement with NFI or GEODIS is terminated, is not renewed or if one fulfillment center is consolidated into another warehouse fulfillment center or if NFI or GEODIS becomes insolvent, ceases or significantly reduces its operations or experiences financial distress, or if any environmental, economic or other outside factors impact their operations, our ability to procure warehousing, distribution and fulfillment services may be impaired, and we may not be able to obtain, or may face increased costs related to, such services and our business, financial condition, results of operations and prospects could be adversely affected. If we are not successful negotiating such renewals,renewals or consolidating our warehouses, our business, financial condition, results of operations and prospects could be adversely affected as we may have to work with a new provider of warehousing, distribution and fulfillment services which could be disruptive to our operations and further increase our costs.

We rely on third-party suppliers, manufacturers, retail and ecommerce customers and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could adversely affect our business, harm our brand, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.

We do not own or operate any manufacturing facilities. We use multiple third-party suppliers and manufacturers based primarily in the United States, China and Mexico and other countries to a lesser extent, to source, manufacture and partner with us for the innovation of all of our products, including product components, under our owned brand. We engage many of our third-party suppliers and manufacturers on a purchase order basis and in some cases are not party to long-term contracts with them. The ability and willingness of these third parties to supply, manufacture and to partner in innovation of our products may be affected by raw material availability and prices, competing orders placed by other companies and the demands of those companies. Our operating results have been negatively impacted by increases in the costs of manufacturing our products, and we have no guarantees that costs will not continue to rise. For example, some of our contracts with third-party manufacturers have clauses that trigger good faith renegotiation of purchase costs in the case of significant raw material cost escalation. InWe 2021,have we were informed by two third-party manufacturers that those hurdles had been met. In addition, in 2022, we received requests from the same two third-party manufacturers to renegotiate purchase costs due to continued increases in raw material costs. As a result, wepreviously negotiated and agreed to higher purchase pricesprices, which has negatively impacted our cost of revenue, and additional negotiations could negatively impact our cost of revenue in 2022the future. In 2025, we agreed to increased purchase costs from our diaper manufacturer and 2023.received requests to renegotiate purchase costs from other third-party manufacturers. In the fourth quarter of 2025, Ontex asked for additional price increases for 2026. If we experience significant increases in demand, or need to replace a significant number of existing suppliers or manufacturers, there can be no assurance that additional supply and manufacturing capacity will be available when required on terms that are acceptable to us, or at all, or that any supplier or manufacturer will allocate sufficient capacity to us in order to meet our requirements. In addition, if we experience significant decreases in demand, our third-party manufacturers may increase product purchase costs. Furthermore, our reliance on suppliers and manufacturers outside of the United States, the number of third parties with whom we transact and the number of jurisdictions to which we sell complicates our efforts to comply with customs dutiesduties, tariffs and excise taxes; any failure to comply could adversely affect our business.

In addition, quality control problems, such as the use of materials and delivery of products that do not meet our quality control standards and specifications or comply with applicable laws or regulations, could harm our brand and business or cause consumer dissatisfaction. For example, as disinfecting and sanitization products faced supply chain challenges during the COVID-19 pandemic, decelerating market demand and aging and slower turning inventory, we had received some product quality complaints from customers and consumers that resulted in additional refunds, returns, write-offs and remediation costs. Remediation costs would be significant, including the cost to rework a product to be in sellable condition or the cost to destroy a product that cannot be remediated, and while immaterial as of December 31, 2024,2025, itthey could have an adverse effect on our business, financial condition and results of operations. Quality control problems could result in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 20232024 filed with the Securities and Exchange Commission (“SEC”) on MarchFebruary 8,26, 2024.2025.

Founded in 2012, The Honest Company, Inc.Company (“Honest” and, together with its consolidated subsidiaries, the “Company,” or “Honest,” or which may also be referred to as “we,” “us” andor “our”) is a personal care company dedicated to creating cleanly-formulated and sustainably-designed products.products for everyone from babies to adults. By combining thoughtful design with science-based innovation, we deliver personal care products for everyone from babies to adults, spanning categories across wipes, personal care, diapers, and beauty. Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products. Since our launch in 2012, we have been dedicated to developing clean, sustainable, effective and thoughtfully-designed products. By doing so with transparency,launch, we have cultivated deep trust around what matters most to our consumers: their health, their families and their homes. We areseek anto omnichannelmeet brand,consumers ensuringwherever they want to shop, balancing deep consumer connection with broad convenience and availability. We believe our productsdistribution are available wherever our consumers shop. Our differentiated platformstrategy positions us for continued growth through our trusted brand,brand and award-winning multi-category product offerings, and omnichannel availability.offering.

Transformation Initiative2.0: Powering Honest Growth

TheWe Company expectsexpect to continue driving benefits from itsthe three Transformation Initiative Pillars of Brand Maximization, Margin Enhancement, and Operating Discipline:

•Pricing strategy as a driver of revenue is also a component of Brand Maximization. This includes the ongoing benefit of pricing increases across the majority of our product portfolio in 2022 and 2023.

•Focusing our resources on Norththe America,United States, which included the exit of our low-margin businessproducts in Europe and Asia.Asia in 2023 and, most recently, Canada in 2025.

•Exiting low-margin elements of the cleaning and sanitization businessproducts in 2023.2023 and apparel in 2025.

•Re-directing resources to accelerate cost savings, including optimization of our contract manufacturing strategies, optimization of our supply chain footprint and inventory management, along with leveraging technology to improve systems, reduced shipping and logistic costs, and product costs.

•Realigning resources to reflect the prioritization of higher-margin opportunities, including strategic shift away from our lower margin channels, including exiting our direct-to-consumer (“DTC”) business.channel in 2025.

For further details on the restructuring element of thePowering TransformationHonest Initiative,Growth, refer to Note 15, "“Restructuring"” included in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

To grow our business, we intend to continue to improve our operational and marketing efficiency, which includes attracting new consumers, increasing community engagement and connection with our brand, and improving fulfillment and distribution operations. Our marketing model is inclusive of a best-in-class modern approach across paid, owned, and earned marketing channels. We invest significant resources in marketing and content generation, use a variety of brand and performance marketing channels and work continuously to improve brand exposure at our retail customers to acquire new consumers. It is important to maintain reasonable costs for these marketing efforts relative to the revenue we expect to derive from our consumers. We leverage proprietary consumer insights and best-in-class analytics to guide our omnichanneldistribution strategy and inform our marketing spend optimization. Our future success depends in part on our ability to effectively attract consumers on a cost-efficient basis and achieve efficiencies in our operations. In addition, we believe we have been able to achieve some operational and marketing efficiency as part of cost savings in connection with our Brand Maximization Transformation Pillar.

Ability to Execute Increasing Physical and Digital Availability

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

Our product mix is a driver of our financial performance given our focus on accretive product launches and innovation to increase product margins. Even though our growth strategy aims to boost sales across products by increasing total distribution, we intend to prioritize growth in products with attractive margin characteristics, including wipes,wipes and personal care, and leverage our brand equity and consumer insights to extend into new products.

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

Research, development and innovation are core elements underpinning our growth strategy. Through our in-house research and development laboratories, we are able to access the latest advancements in clean ingredients. Based in Los Angeles, California, our research and development team, including chemists,experts anin in-house toxicologistchemistry and antoxicology, eco-toxicologist, developsdevelop innovative cleanly-formulated products based on the latest green technology.products. At Honest, product innovation is top of mind.mind, including wipes pack size expansion and kids personal care. The improvement of existing products and the introduction of new products have been, and continue to be, integral to our growth. We have made significant investments in our product development capabilities and plan to continue to do so in the future. We believe our rigorous approach to product innovation has helped redefine and grow the clean and naturalnaturally-derived product categories in which we operate. Our continued focus on research and development will be central to attracting and retaining consumers in the future. Our ability to successfully develop, market and sell new products will depend on a variety of factors, including our continued investment in innovation. We are also committed to bringing our Honest Standard to new products where we believe there is a need for a higher standard for clean personal care.

We have strategically positioned ourselves to benefit from several macro trends related to changes in consumer behavior. We believe consumers’ increasing interest in cleanly-designed products and purpose-driven companies has contributed to higher demand for certain products.products, which we believe we are strategically positioned to benefit from. At the same time, changes in macro-level trends, including as a result of global pandemics, changing consumer attitudes or behaviorbehaviors or other macroeconomic conditions,conditions (such as inflation, tariffs ortariffs, supply chain disruptions, trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and any resulting recession or slowed economic growth), have resulted and could in the future result in fluctuations in our operating results.

Global economic and political uncertainty have increased due to the impact of continued inflationary pressures, adverse impact on confidence in financial markets and geopolitical events.events, including recently imposed tariffs on certain foreign goods, the possibility of expanding the tariffs to capture other types of goods, and related legal challenges. Additionally, the extent of the impact of macroeconomic trends on the Company’sour operational and financial performance in the future will depend on future developments. Prolonged unfavorable economic conditions, including as a result of global pandemics, changing consumer attitudes or behaviorbehaviors or other macroeconomic conditions,conditions (such as inflation, tariffs ortariffs, supply chain disruptions, trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and any resulting recession or slowed economic growth), have had and may continue to have an adverse effect on our salessales, margins and profitability. All of these factors are difficult to predict considering the rapidly evolving landscape as thewe Company continuescontinue to expect a variable operating environment going forward.

There has been and continues to be an adverse impact on global economic conditions, specifically tariffs and inflationary pressures, which has adversely affected our supply chain in regards to cost of sales.revenue. We have experienced and anticipate continued increases in product costs and labor costs due to inflationary pressures and higher transportation costs from ocean container delivery,pressures, which has in the past and could continue to hamper our ability to drive margin expansion. In addition, notwithstanding legal challenges, we expect tariffs to continue to negatively impact the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components. We have taken measures to bolster key aspects of our supply chain,chain and mitigate the impact of tariffs, such as creating an agile supply chain, ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our Operatingtariff Disciplinemitigation Transformationstrategy. Pillar.In Weaddition, expectin early 2025 we hired a Senior Vice President of Supply Chain, a newly created role, which has enabled us to continueaccelerate tosome receiveof fulfillmentthe costscost savings dueopportunities towe warehousehave and labor operational efficiencies gained with our Las Vegas, Nevada fulfillment center partner.developed. If we are not successful in negotiatingour futureattempts renewalsto withbolster our othersupply chain and mitigate the impact of tariffs, our product and fulfillment partner such that these renewals are at increased costs tomay us,increase and our business, financial condition, results of operations and prospects could be adversely affected. InFor Januaryexample, 2024,the wefluctuation negotiatedin bettertariff purchaserates priceduring termsthe withyear oneended December 31, 2025 and the ongoing uncertainty of ourthose third-partyrates, manufacturers,has Ontex.primarily However, we have experienced purchase price increases fromimpacted our third-partywipes manufacturersproduct costs during this period, and may in the pastfuture andimpact couldour faceability escalationto offorecast purchasethe coststariff andimpacts on our cost of revenuerevenue. inAs thepart future.of Powering Honest Growth, we are also taking action to optimize our supply chain footprint and inventory management, along with leveraging technology to improve systems.

We believe in the power of our omnichannel distribution model. We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with. Given changing macroeconomic conditions, we also believe that consumers have changed their shopping behaviors and have become more price sensitive when purchasing products in some of our product categories, including diapers.

Inventory is reflected at the lower of cost or net realizable value which includes a reserve for excess inventory. We estimate reserve requirements based on current and forecasted demand, including the ability to liquidate excess inventory and estimated liquidation value. Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we have in the past and expect to incur in the future additional inventory write-downs, customer returns or incur donation expense or disposal costs as we reduce excess inventory. As part of our efforts to mitigate the impact of tariffs, we increased our inventory on hand during the first half of 2025 to delay the impact of incremental tariffs during 2025.

In connection with thePowering terminationHonest of the Likeness Agreement with Jessica Warren, as part of Ms. Warren's departure from her Chief Creative Officer position, after April 4, 2025 we are prohibited from selling existing inventory that uses certain specified licensed intellectual property on its packaging, which resulted in inventory write-offs and we anticipate will result in future inventory write-offs. For the year ended December 31, 2024,Growth, we recorded ana discrete apparel inventory write-down of $0.8$15.9 million, inclusive of overhead costs and tariffs, related to the termination of theour LikenessSupplier Agreement,Services Agreement (defined below), which is included in cost of revenue on the consolidated statements of comprehensive loss. Additionally, unrelated to Powering Honest Growth, we earmarked donations of $0.4$2.1 million, inclusive of overhead costs and tariffs,million related to thediaper terminationinventory offorecast thereductions Likenesswith Agreementa duringkey the year ended December 31, 2024,retailer, which is included in selling, general and administrative expenseexpenses on the consolidated statements of comprehensive loss.

We generate revenue through the sale of our products through our leading retailers and their websites, third-party ecommerce sites andand, prior to December 31, 2025, Honest.com. Our revenue is recognized net of allowances for returns, discounts, credits and any taxes collected from consumers.

Our operating expenses consist of selling, general and administrative, marketingmarketing, restructuring and research and development expenses.

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses. Selling, general and administrative expenses also include technology expenses; professional fees, including audit and legal expenses; donation expenses including overhead and tariffs; facility costs, including insurance, utilities and rent relating to our headquarters; third-party service fees related to our supplierSupplier servicesServices agreementAgreement for Honest baby clothing, our baby apparel businessproducts; and, depreciation and amortization expenses. We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Marketing expenses include costs related to our branding initiatives, retail customer marketing activities, point of purchase displays, targeted online advertising through sponsored search, display advertising, email and influencer marketing campaigns, market research, content productionproduction, consumer insights research, and other public relations and promotional initiatives. Given the dynamic macro-environment, higher costs in digital marketing and increased retail distribution, we havewill shiftedcontinue theto focus ofoptimize our marketing spendactivities towardsfor supporting retail marketing programsimpact and top of funnel marketing activities.efficiency. We will continue to investprioritize investment in marketing initiatives inaround our best-sellingmost productsstrategic withand profitable categories, through strategic key retailers,retailers activities, as well as expand brand awareness,building introduce new product innovation across multiple product categoriescampaigns and implement new marketing strategies.initiatives. As we launch new products, we expect to make marketing investments to support growth at key retailers, build brand awareness, driveencourage trialfirst-time use and set the foundation for future revenue growth.

Revenue was $371.3 million for the year ended December 31, 2025, as compared to $378.3 million for the year ended December 31, 2024, as compared to $344.4 million for the year ended December 31, 2023.2024. The increasedecrease of $34.0$7.0 million, or 9.9%,1.9%, was primarily due to the discrete exits related to Powering Honest Growth of $21.9 million (inclusive of a decrease in DTC revenue of $13.2 million, a decrease in apparel revenue of $7.7 million and a decrease in Canada revenue of $1.0 million), partially offset by an increase in retail customer revenue of(excluding $45.0apparel million,and partially offset by a decrease in DTCCanada revenue) of $11.0$14.9 million. The increase in retail customer revenue is primarily due to an increase in wipes revenue of $22.6 million, an increase in baby apparel revenue of $18.8$27.6 million and an increase in baby personal care revenue of $6.2$6.7 million, partially offset by a decline in adult facial care, including skin and color cosmetics,diaper revenue of $4.5$14.4 million. The decrease in DTC revenue ismillion primarily related to adistribution declinelosses, the lapping of certain retailer promotional events and changes in diaperconsumer revenueshopping of $6.6 millionbehavior, and a decline in adult facial care revenue(including skin care and cosmetics) of $1.7$5.7 million. WeRefer estimateto thatthe pricingOrganic increasesRevenue takentable inunder 2023“Non-GAAP contributedFinancial $3.3Measures” million,below for further details of revenue excluding pricethe packrevenue architecture,associated with the discrete exits related to revenuePowering forHonest the year ended December 31, 2024.Growth.

Selling, general and administrative expenses were $79.5 million for the year ended December 31, 2025, as compared to $99.0 million for the year ended December 31, 2024, as compared to $94.6 million for the year ended December 31, 2023.2024. The increasedecrease of $4.5$19.5 million, or 4.7%,19.7%, was primarily due to ana $7.9$12.5 million increasedecrease in legal expenses related to litigation settlement, a $5.4 million decrease in stock-based compensation expense, a $2.3 million decrease in commission and sales service fees, and a $3.7$1.4 million increasedecrease in serviceemployee-related fees related to baby apparel,costs, partially offset by a $3.1$2.0 million decreaseincrease in donations expense primarilymainly related to ourdiaper SKU rationalization program under the Transformation Initiative in 2023, a $1.2 million decrease in executive transition related expenses, a $1.1 million decrease in employee related expenses, a $1.0 million decrease in insurance premiums and a $0.8 million decrease in violations and compliance charges related to vendor violations.inventory. Selling, general and administrative expenses as a percentage of revenue decreased 1.3%4.8% as compared to the year ended December 31, 2023.2024.

Marketing expenses were $51.2 million for the year ended December 31, 2025, as compared to $45.1 million for the year ended December 31, 2024, as compared to $36.4 million for the year ended December 31, 2023.2024. The increase of $8.7$6.1 million, or 23.7%,13.5%, was primarily due to a $5.9$4.9 million increase in retail marketing, a $1.5$0.9 million increase in direct brand advertising and a $0.9 million increase in marketing agency fees and $0.5 million increase in photo and video production fees. Marketing expenses as a percentage of revenue increased 1.3%1.9% as compared to the year ended December 31, 2023.2024.

Restructuring expenses were $2.2 million for the year ended December 31, 2023. Restructuring expenses are one of the elements of Powering Honest Growth. Restructuring expenses included contract and external obligation costs of $2.5 million, employee and personnel-related costs of $0.9 million and asset and other restructuring-related costs of $0.8 million for the Transformationyear Initiative.ended December 31, 2025. For the year ended December 31, 2023,2024, we did not incur any restructuring expenses included employee-related costs of $1.1 million, contract termination costs of $0.9 million, and asset-related costs of $0.2 million.expenses. For further details on thePowering TransformationHonest Initiative,Growth, refer to “Transformation 2.0: Powering Honest Growth” above and Note 15, "“Restructuring"” in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Interest and other income (expense), net was net income of $0.3$3.0 million for the year ended December 31, 2024,2025, as compared to net expense of $0.3 million for the year ended December 31, 2023.2024. The increase of $2.7 million primarily relates to interest income earned on our money market account.

As of December 31, 2024,2025, we had $75.4$89.6 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our consolidated financial statements. We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs.needs in the future. We also have availability under our 2023 Credit Facility, which was not drawn as of December 31, 2024.2025.

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

In October 2025, our Board of Directors approved Transformation 2.0: Powering Honest Growth ("“Powering Honest Growth,"Growth”), which builds upon our 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, as well as retail and online stores in Canada, optimizing our cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies.

◦During the three and six months ended MarchJune 31,30, 2026, we have recognized $1.3$1.0 million and $2.3 million, respectively, of costs related to Powering Honest Growth, for a total of approximately $25.3$26.3 million recognized to date. See table below for additional details of the costs recognized in the three and six months ended MarchJune 31,30, 2026.

•The cash impact of costs related to Powering Honest Growth is expected to be in the range of approximately $13.0$10.0 million to $18.0$13.0 million for the full years 2026 and 2027, with $3.7$6.5 million cash paid tothrough datethe first half of 2026 and the remainder to be paid throughoutin the second half of 2026 and in 2027.

Costs associated with Powering Honest Growth for the three months ended March 31, 2026 were as follows (in thousands):

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

(2) Includes an adjustment related to contract and external obligation costs for the three months ended June 30, 2026. For further details on the restructuring element of Powering Honest Growth, refer to Note 12, “Restructuring” included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The core of our growth strategy centers around increasing physical availability through expanded stores, doors, aisles, shelves and facingfacings and increasing digital availability of our products in retail customers websites, and third-party ecommerce sites. While we have made significant progress in our distribution gains, we are still under indexed compared to competition. Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage.

We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers. Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period. For example, we experienced distribution losses with two of our largest customers on certain diaper SKUs mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints with one of these retailers, which has impacted our revenue since 2025, and we expect will continue to negatively impact our diaper revenue in the future. Product offerings in the diaper category remain competitive and retailer decisions related to the sale or promotion of competitive diaper products has negatively impacted our diaper revenue in 2026, which we expect to continue in the future.

Due to higher costs of shipping and fulfillment activities related to our DTC channel and other related costs, we no longer utilize Honest.com as a shipping and fulfillment channel or sell products through this channel as of December 31, 2025 and instead have shifted our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers. The Honest.com website will remainremains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite. Our discontinuation of Honest.com as a direct shipping and fulfillment channel negatively impacted our revenue for the year ended December 31, 2025 and the first half of 2026; however, we also expect that it will enable improved gross margin in future years.

There has been and continues to be an adverse impact on global economic conditions, specifically tariffs and inflationary pressures, which has adversely affected our supply chain in regards to cost of revenue. We have experienced and anticipate continued increases in product costs due to inflationary pressures, which has in the past and could continue to hamper our ability to drive margin expansion. In addition, notwithstanding legal challenges, we expect tariffs to continue to negatively impact the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components. We have taken measures to bolster key aspects of our supply chain and mitigate the impact of tariffs, such as creating an agile supply chain, ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our tariff mitigation strategy. In addition, in early 2025 we hired a Senior Vice President of Supply Chain, a newly created role, which has enabled us to accelerate some of the cost savings opportunities we have developed. If we are not successful in our attempts to bolster our supply chain and mitigate the impact of tariffs, our product and fulfillment costs may increase and our business, financial condition, results of operations and prospects could be adversely affected. For example, the fluctuation in tariff rates since 2025 and the ongoing uncertainty of those rates, has primarily impacted our wipes product costs, and may in the future impact our ability to forecast the tariff impacts on our cost of revenue. As part of Powering Honest Growth, we are also taking action to optimize our supply chain footprint and inventory management, along with leveraging technology to improve systems. We expect that the ongoing military conflicts may further increase our global shipping costs and could negatively impact the cost of petrochemicals which are used in the raw materials and packaging in our personal care products.

We have experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future. In 2025, we agreed to increased purchase costs from our diaper manufacturer and received requests to renegotiate purchase costs from other third-party manufacturers, which negotiations are ongoing. We have implemented price increases in the past and we may implement additional price increases in the future as needed to offset current and future input cost inflation and to pursue productivity initiatives to offset inflation. However, we may not be able to increase our prices or productivity sufficiently enough to offset these costs. Customer demand for our products may change based on price increases.

We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products. We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with. Given changing macroeconomic conditions, we also believe that consumers have changed their shopping behaviors and have become more price sensitive when purchasing products in some of our product categories, including diapers. In the second quarter of 2026, we implemented price reductions on our diapers, which impacted revenue and margin in this product category.

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provided certain design, manufacturing, sales and marketing services to us (the “Supplier Services Agreement”). As part of the Supplier Services Agreement, we agreed to purchase and own inventory for the term of the agreement, which was originally until December 31, 2026, unless terminated sooner. On November 5, 2025, we sent a Notice of Termination to Butterblu and sued the company for alleged breaches of the Supplier Services Agreement. Through agreement of the parties following our Notice of Termination, Honest and Butterblu extended the Supplier Services Agreement on a temporary basis through December 26, 2025. The Supplier Services Agreement was formally terminated on December 26, 2025. Upon termination, Butterblu was required to discontinue using Honest’s trademarks and prints and to consummate all pending purchase orders received in writing as of the November 5, 2025 termination date, and Honest has the right to sell off all products sourced by Butterblu until and through December 26, 2026 and shall pay Butterblu the Base Service Fee, defined as 22% of Honest's net revenue for product sales and adjusted to ensure that the Base Service Fee does not exceed Honest's gross profit for product sales in the applicable quarter, for product sales through December 26, 2026. The parties are in litigation, which is described in Note 7, "Commitments and Contingencies," included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Litigation related to our respective obligations under the Supplier Services Agreement, the termination of this Supplier Services Agreement, any disputes over the terms of the termination, and costs related to the apparel inventory we own have negatively impacted revenue and gross profit, partially offset by lower operating costs forsince the fourth quarter ended December 31, 2025 and full year 2025, and are expected to continue to adversely impact our results of operations goingin forward.2026. In addition, the loss of the relationship with Butterblu negatively impacted apparel revenue and will negatively impact apparel revenue in the future, which may adversely affect our results of operations.

We generate revenue through the sale of our products through our leading retailers and their websites, third-party ecommerce sites and, prior to December 31, 2025, Honest.com.Honest.com, as well as through royalty revenue under the License Agreement. Our revenue is recognized net of allowances for returns, trade and other discounts, creditsretailer violations and credits, and any taxes collected from consumers.

Cost of revenue includes the purchase price of merchandise sold to customers, inbound and outbound shipping and handling costs, freight, tariffs and duties, shipping and packaging supplies, credit card processing fees related to Honest.com, and warehouse fulfillment costs incurred in operating and staffing warehouses, including rent. Cost of revenue also includes depreciation and amortization for warehouse fulfillment facilities and equipment, allocated overhead and direct and indirect labor for warehouse personnel, inventory reserves and destruction costs.

Selling, general and administrative expenses consist primarily of personnel costs, principally for our selling and administrative functions. These include personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expenses. Selling, general and administrative expenses also include technology expenses; professional fees, including audit and legal expenses; donation expenses including overhead and tariffs; facility costs, including insurance, utilities and rent relating to our headquarters; third-party service fees related to our Supplier Services Agreement for our exited apparel products and, depreciation and amortization expenses. We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies. We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Restructuring costs are one of the elements of Powering Honest Growth and are included in Restructuring on the condensed consolidated statements of comprehensive income (loss).income. Restructuring costs include contract and external obligation costs, employee and personnel-related costs, and asset and other restructuring-related costs. For further details on the restructuring element of Powering Honest Growth, refer to Note 12, “Restructuring” included in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The following table sets forth our condensed consolidated statements of comprehensive income (loss) data for each of the periods indicated:

The following table sets forth our condensed consolidated statements of comprehensive income (loss) data expressed as a percentage of revenue*:

Comparison of the Three and Six Months Ended MarchJune 31,30, 2026 and 2025

Revenue was $78.1$83.3 million for the three months ended MarchJune 31,30, 2026, as compared to $97.3$93.5 million for the three months ended MarchJune 31,30, 2025. The decrease of $19.2$10.2 million, or 19.7%,10.9%, was primarily due to the strategic exits related to Powering Honest Growth and a decline in diaper revenue, partially offset by an increase in revenue mainly within wipes and personal care and other products. Refer to the Organic Revenue table under “Non-GAAP Financial Measures” below for further details of revenue excluding the revenue associated with the discrete exits related to Powering Honest Growth.

Cost of revenue was $44.8$42.9 million for the three months ended MarchJune 31,30, 2026, as compared to $59.6$55.7 million for the three months ended MarchJune 31,30, 2025. The decrease of $14.8$12.8 million, or 24.8%,22.9%, was primarily driven by a decline in product, shipping and fulfillmentlower costs dueassociated towith salesstrategic volumeexits decline related tounder Powering Honest Growth strategic exits and lower freight costs, partially offset by an increase in tariff costs.refunds. Cost of revenue as a percentage of revenue decreased by 390800 basis points compared to the three months ended MarchJune 31,30, 2025.

Gross profit was $33.3$40.4 million for the three months ended MarchJune 31,30, 2026, as compared to $37.7$37.8 million for the three months ended MarchJune 31,30, 2025. The decreaseincrease of $4.4$2.6 million, or 11.7%,6.9%, was primarily related to atariff declinerefunds inand favorable product mix, partially offset by sales volume declines and restructuring-related costs related to Powering Honest Growth strategic exits, coupled with a decline in associated cost of revenue.Growth.

Selling, general and administrative expenses were $17.5$15.0 million for the three months ended MarchJune 31,30, 2026, as compared to $21.0$20.4 million for the three months ended MarchJune 31,30, 2025. The decrease of $3.6$5.4 million, or 17.0%,26.5%, was primarily due to a $2.1$2.6 million decline in third-party apparel service fees, a $1.1$1.4 million decrease related to retailer violations adjustments and a $0.9 million decrease in legalexecutive expensesofficer and a $1.0 million decrease in employee-relatedtransition expenses. Selling, general and administrative expenses as a percentage of revenue increaseddecreased 0.7%3.8% as compared to the three months ended MarchJune 31,30, 2025.

Marketing expenses were $14.0$14.5 million for the three months ended MarchJune 31,30, 2026, as compared to $12.3$12.6 million for the three months ended MarchJune 31,30, 2025. The increase of $1.7$1.9 million, or 14.0%,15.3%, was primarily due to increased marketing investment to support our higher growth, higher margin wipes and personal care platforms. Marketing expenses as a percentage of revenue increased 5.3%3.9% as compared to the three months ended MarchJune 31,30, 2025.

Restructuring expenses included employee and personnel-related costs of $0.3 million, and asset and other restructuring-related costs of $0.3 million for the three months ended March 31, 2026. For the three months ended March 31, 2025, we did not incur any restructuring expenses. For further details on Powering Honest Growth, refer to “Transformation 2.0: Powering Honest Growth” above and Note 12, “Restructuring” in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For the three and six months ended June 30, 2025, we did not incur any restructuring expenses.

Research and development expenses were flat at $1.9$1.7 million for both the three months ended MarchJune 31,30, 20262026, andas compared to $2.0 million for three months ended June 30, 2025.

Interest and other income (expense), net was net income of $0.7$1.2 million for the three months ended MarchJune 31,30, 2026, as compared to net income of $0.8$1.0 million for the three months ended MarchJune 31,30, 2025.

As of MarchJune 31,30, 2026, we had $90.4$105.9 million of cash and cash equivalents. Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our condensed consolidated financial statements. We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs in the future. We also have availability under our 2026 Credit Facility, which was not drawn as of MarchJune 31,30, 2026.

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 our 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. We recognize the commitment fee as incurred in interest and other income (expense), net in the condensed consolidated statements of comprehensive income (loss).income. For the three and six months ended MarchJune 31,30, 2026, the commitment fee incurred was immaterial. As of MarchJune 31,30, 2026, there were $1.5$2.7 million of outstanding letters of credit. As of MarchJune 31,30, 2026, there was no 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.

We are 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, our ability to sell assets, make investments and acquisitions, incur indebtedness, grant liens, change our 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 MarchJune 31,30, 2026, we are in compliance with all covenants under the 2026 Credit Facility.

Our largest source of operating cash is from the sales of our products to our consumers and customers. Our primary uses of cash from operating activities are for cost of revenue, selling, general and administrative expenses, marketing expenses and research and development expenses.

Net cash used in operating activities of $2.9$3.7 million for the threesix months ended MarchJune 31,30, 2025 was primarily due to a net decrease in cash related to changes in operating assets and liabilities of $12.1$22.9 million, partially offset by non-cash adjustments of $5.9$12.1 million and net income of $3.3$7.1 million. ChangeCash used in inventory reserves and accounts receivable reserves and utilization of marketing credits are included in "Other" in the accompanying condensed consolidated statements of cash flows. Changes in cash flows related to operating assets and liabilitiesactivities primarily consisted of a $5.8$11.4 million increase in inventory, a $5.8$6.5 million decrease in accounts payable and accrued expenses due to timing of employee related expenses, andpayments, a $2.1$4.2 million use of cash due to operating lease obligations, and a $1.6 million increase in accounts receivable, partially offset by a $0.9$1.0 million decrease in prepaid expenses and other assets and a $0.7 million decrease in accounts receivable.assets. Non-cash adjustments primarily consisted of stock-based compensation of $2.4$5.1 million, amortization of operating ROU assets of $1.6$3.3 million, change in inventory reserves of $0.8 million,and depreciation and amortization of $0.7 million and utilization of marketing credits of $0.4$1.5 million.

Net cash used in investing activities of $1.7$2.5 million and $0.1 million for the threesix months ended MarchJune 31,30, 2026, and MarchJune 31,30, 2025, respectively, was due to the purchase of property and equipment.

Our financing activities primarily consisted of share repurchases, proceeds from sales of securities, proceeds from stock option award exercises and principal payments of financing lease obligations.

Net cash used in financing activities of $3.0$19.0 million for the threesix months ended MarchJune 31,30, 2026 primarily consisted of repurchases of common stock.

Net cash provided by financing activities of $0.4$0.5 million for the threesix months ended MarchJune 31,30, 2025 consisted primarily of $0.4 million of proceeds from stock option award exercises.

On February 20, 2026, our Board of Directors approved our first share repurchase program for up to $25.0 million of our outstanding common stock. Under the program, share repurchases may be made at our 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 and trading volume. The repurchase program does not obligate us to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time. We expect to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations. We repurchased 1,052,672 shares of common stock at an average share price of $2.85 per share, for an aggregate amount of approximately $3.0 million, during the three months ended March 31, 2026. As of March 31, 2026, approximately $22 million remained available under the share repurchase program. Refer to Note 8, “Stockholders' Equity” included in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information on the share repurchase program. Between April 1, 2026 and May 1, 2026, we repurchased 3,471,969 shares of common stock at an average share price of $3.26 per share, for an aggregate amount of approximately $11.3 million. Accordingly, as of May 1, 2026, approximately $10.7 million remained available under the share repurchase program.