The Honest Company, Inc. Price & Performance (HNST)

Good afternoon, everyone. Thank you for joining our fourth quarter twenty twenty four conference call. Joining me today are Carla Vernon, our Chief Executive Officer and Dave Loretta, our Chief Financial Officer. Before we start, would like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release issued today as well as our SEC filings for a more detailed description of the risk factors that may affect our results. Please also note that these forward looking statements reflect our opinions only, as of the date of this call and we undertake no obligation to revise publicly release the results of any revision to these forward looking statements light of new information or future events, except as required by law. Also during this call, we will discuss non GAAP financial measures, which adjusts our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non GAAP financial measures and a reconciliation of these non GAAP to GAAP measures in the Financial Results section of today's earnings release.

A live broadcast of this call is also available on the InvestorRelationssectionofourwebsite@investors.honest.com The. And with that, I'll turn the call over to Carla. Thanks, Elizabeth. Good afternoon, everyone, and thank you for joining us today. Before diving into our results, I would like to take a moment to acknowledge the heartache and tragic impact many people in our Los Angeles community have experienced as a result of the recent wildfires. Our company is based in LA And as a company based in LA, we care deeply about the safety and well-being of our employees and our community. Our long standing partnership with community service organizations like Baby2Baby and others allow us to support fire relief efforts by donating supplies that are essential to families in need. We're deeply grateful for the first responders, and volunteers in California and in communities across the country. Who provided support during these challenging times. I would also like to take this time to welcome back Elizabeth Buchard, our host today and our Senior Director of Investor Relations as she returns from parental leave. As the newest member of the Honest family. Today, there are three key messages I would like to share. First, we delivered strong results in both the quarter and the full year.

Reaching new financial milestones in the history of our company and exceeding our guidance. Second, we delivered these results by And third, we're introducing our 2025 outlook today in line with our long term algorithm Let's begin by taking a closer look at the financial milestones for our full year results. For the full year of 2024, we delivered revenue of $378,000,000 which was up 10% year over year and our gross margins expanded 900 basis points to 38%, This was our highest annual revenue and gross margin ever as a [indiscernible] We also delivered our first full year of positive adjusted EBITDA as a public company. As I reflect back on this year, we accomplished what we set out to achieve. Simply put, we are an organization that does what we say we're going to do. Since introducing our transformation initiative two years ago, our results have been delivered through the strong execution of our three transformation pillars, which are brand maximization, margin enhancement and operating discipline. These pillars provide our teams with clear operating principles which enables us to drive profitable growth for honest, to create long term value for shareholders, and to unlock the power of the organization.

Let me bring these three pillars to life with a few examples. We always lead with our brand maximization pillar. This pillar is inspired by the growth vision we have for the Honest brand across our incredible portfolio of cleanly designed personal care products.

The brand maximization pillar focuses on growing honest, and our product portfolio through the increased availability of our products pricing strategy, and through investments in innovation and marketing. We've made significant advancements in this pillar over the last year. Our revenue is up 10%, and our household penetration has reached 7%. This growth represents more than a 20% increase in the number of households who use Honest products since we went public in 2021. In addition, our repeat rate [indiscernible] Let me provide some specific examples of how we're driving brand maximization. Our Wipes portfolio grew in strength and scale this year. Our Wipes growth was due to increased velocities, the introduction of larger pack sizes, and the launch of new innovations. And now according to track channel data, our clean conscious wipes have led us to the top spot as the number one natural wipes brand across the country.

In Q4, our wipes velocities were up 17% and repeat was up 26% for the year. With the introduction of larger pack sizes, we've expanded the distribution of our wipes collection at our top three retailers. So now our community has many more options allowing them to choose the right quantities for their needs. In fact, during Amazon's most recent October Prime Day, our seven twenty count Clean Conscious Wipes landed in the top 100 performing deals across the store by unit volume sold. Our increases in both repeat rate and sales of larger sizes are strong indicators of how satisfied our community is when they experience the performance of our wipes. We're also driving brand maximization by expanding the breadth of our portfolio We launched flushable wipes last year and now they are available in a variety of pack sizes. And for the littlest members of our Honest community, we have introduced sniffer soothers to help kiddos through that cold and flu season. Are perfectly sized for toddlers on their journey to independence. Building upon the role of Wipe in our brand maximization pillar, we are also pleased with the growth of our collection of baby personal care products.

Our sensitive skin collection nearly doubled in consumption with year over year growth of 96% according to track channel data. This collection of fragrance free personal care items which includes Bubble Bath, Shampoo Body Wash, body lotion, leave in hair detangler and conditioner is a fan favorite for people who are sensitive to the scent of perfumes and fragrances on their body all day. In particular, the shampoo body wash in our sensitive skin collection is a true standout. With more than 6,005 star ratings on Amazon, our fragrance free shampoo body wash has become a trusted part of the daily routine for many honest families. We have supported this growth with our biggest brand campaign for the year. The campaign clean ingredients for life's most sensitive skin, is a compelling emotionally driven marketing campaign that resonates with our communities' preference for clean ingredients and products that work. This campaign, which increased Honest's brand impressions, by more than 150% quarter over quarter, strongly resonated with consumers and achieved six times the industry engagement benchmark on key social media platforms. And with the sensitive skin product space expected to double by 02/1930, we're driving full steam ahead with what we see as a significant opportunity to continue growing and innovating sensitive skin product offerings from Honest.

Another very exciting milestone on our journey of brand maximization is the rollout of our improved packaging design. Whether you're walking through the aisle of a grocery store or looking through the cabinets in your home, packaging is the most important marketing lever of any consumer brand. Packaging is the one marketing lever that every product user sees and experiences. It is an essential element in capturing shoppers' attention and in communicating the most important product information. Recently, we introduced refreshed and optimized packaging across our adult skincare portfolio. And it really pops off the shelf. This rollout began with the launch of two new luxurious skincare additions to our collection of adult skincare. Our new ageless firming cream, and Ageless Firm and Even Serum have quickly become two of my favorite products and a go to part of my morning and evening routine. Before launching, the packaging for these two items and the updated designs on our We love how the new look elevates the brand, with product imagery that's more clear, and color blocking that is a handy way finding tool to help busy shoppers find their favorite Honest skincare products more quickly. We also improved the readability of our product descriptions with larger and more modern typefaces, And most importantly, the packaging improves the communication of our product benefits and science backed claims.

At its core, our brand maximization pillar is focused on growing our unique and special honest brand. As a portfolio that leverages one single consumer brand, across a wide array of categories, aisles and consumer demographics. We have the rare ability to scale our marketing investments in a way that are both efficient and powerful. As we build our brand trust, we build the awareness and trust that no matter where Honest goes, regardless of the product category or the people using it, our Honest brand stands for clean products that are trustworthy, reliable and safe. We've also made meaningful progress on our margin enhancement pillar. We expanded gross margin 900 basis points basis points to 38% for the year. This was driven by our teams giving great focus to strong revenue management and significant cost savings projects. For example, we transitioned our warehousing and fulfillment operations to a more efficient partner. Because of the large scale of this project, our partner was able to drive meaningful cost savings through automation and technology improvements making our fulfillment more efficient. We also drove cost savings by consolidating our personal care manufacturers in The United States, using scale to boost our productivity.

And we did all of this while maintaining our rigorous, honest standard, which is our unwavering commitment to clean ingredients and thoughtful design. Since day one, we've been raising the bar on ingredient formulation. And we continue pushing boundaries by avoiding the use of more than 3,500 ingredients of concern which is far beyond both The U. S. And EU regulations. Our operating discipline pillar is our third and final pillar. Operating discipline underscores our focus, on building a culture of executional excellence. We are on a journey to continue improving how we execute and this can be seen by how we build our team, with people who bring strong consumer products expertise and experience to honest. Earlier this week, we announced that Etienne von Kuntzberg has joined Honest as our Senior Vice President of Supply Etienne is a seasoned executive with supply chain experience across top global consumer brands, including his recent leadership role at Joel Packaged Foods, and his prior experience at Procter and Gamble Cody and Henkel. This addition to our executive team is further evidence of our commitment to optimizing and driving greater operating discipline across our supply chain. Welcome, Etienne. We also recently announced Dave Loretta will be [indiscernible] As we actively work to identify our next finance leader, Dave remains committed to leading the financial strategy of the enterprise and facilitating a seamless transition.

I would like to take this opportunity to thank Dave for the impact he's made on the financial stability of the business and the organization as a whole Finally, we begin 2025 with a powerful brand successful strategies and a talented team to build upon our performance from 2024. Our 2025 financial outlook includes expectations for revenue growth of between 46% and adjusted EBITDA margin expansion. This remains consistent with our long term algorithm and aligns with our goal to create value for shareholders. I'm incredibly proud of our team for their hard work and extraordinary execution this year. And now, I will turn it over to Dave to share the financial results of our fourth quarter and more details on our 2025 financial outlook.

Thank you, Carla, and welcome everyone. Our team's hard work over the last year has been instrumental in advancing our strategic objectives and building a stronger financial foundation. The progress we have made across our transformation pillars has led to strong top line growth and improved profitability. In 2024, we achieved double digit revenue growth of 11% for the fourth quarter and 10% for the full year. Through a combination of expanded distribution, velocity gains and product innovation. We expanded gross margins five thirty basis points in the fourth quarter and 900 basis points for the full year through focused cost management. And we surpassed our bottom line improvement plans and exceeded adjusted EBITDA guidance. We believe the executional excellence will continue in 2025 and beyond as demonstrated by the outlook we will share today. But first, let me dive deeper into our fourth quarter results. This quarter, we delivered a record high revenue of $100,000,000 up 11% driven by strong performance across our baby apparel and wipes portfolio. We continue to see growth across our customers' retail and digital More specifically, our retail track channel consumption grew 7% in Q4 compared to the comparative categories, which were down 2%.

At Amazon, our largest digital customer, consumption was up 35% in the quarter driven by baby personal care, wipes and baby apparel. In the diaper category, which remains our most competitive category and was a soft spot for us in the quarter, we are committed to bringing meaningful innovation and product performance to our lineup of diapers. And we look forward to sharing more in our upcoming quarters about the innovations that we will be rolling out later this year. Our gross margin in the fourth quarter was 39% up five thirty basis points versus last year, primarily driven by cost savings and efficiencies. This included 300 basis points from reduced supply chain costs and two thirty basis points from reduced product costs. Our ability to expand gross margins is due in large part to the successful collaboration with our In addition to our sourcing and operations teams, we have identified and took action to generate portfolio savings through raw material cost reductions packaging updates and robust rebidding of manufacturing contracts. Another key driver of margin improvement this year came from our strategic shift towards higher margin channels while moving away from lower margin channels. Including our own DTC channel through honest.com.

The shape of our business model has changed since we launched as a solely direct to consumer company thirteen years ago. Consumer shopping patterns have changed over the last decade and our digital customers provide honest products with same day delivery and subscription service optionality that our consumers are looking for. And we benefit from their broader access to new consumers. With the higher cost of shipping and fulfillment activities related to our DTC business, and other related costs we will continue to shift our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers. As we move forward beyond 2025, we'll gradually transition away from Honest.com as a shipping and fulfillment channel while ensuring that the site remains a resource for educating consumers, showcasing our complete product portfolio and driving consumers to purchase off-site. Next, turning to operating expenses. Total expenses increased $11,000,000 in the fourth quarter compared to last year, primarily driven by an increase in selling, general and administrative expenses, and retail marketing expenses. Selling, general and administrative expenses as a percentage of revenue increased over five ten basis points mainly driven by non reoccurring legal costs as I shared on our Q3 earnings call.

Marketing expenses of $11,000,000 increased $3,500,000 from the prior year fourth quarter 11.3% of revenue. This increased investment in our brand and product advertising across a diversified mix of media platforms has been a key strategy resulting in capturing new honest consumers and expanded household penetration. Adjusted EBITDA for the fourth quarter was positive $9,000,000 compared to $4,000,000 for the prior year fourth quarter. We also achieved full year positive adjusted EBITDA of $26,000,000 exceeding our original outlook. Our adjusted EBITDA margin improved from negative 3.3% in 2023 to positive 6.8% in 2024. These results are in line with our long term algorithm of adjusted EBITDA margin expansion and are the base we expect to build on in 2025 as I will share shortly. Turning to the balance sheet. We ended the quarter with $75,000,000 in cash an increase of $43,000,000 at the end of last year due to the continued discipline in managing working capital and proceeds of $41,000,000 of pre IPO stock options that were exercised. Mostly in the fourth quarter. As of year end, there remains 5,000,000 The pre IPO options with an exercise price of $5.41 Our free cash flow for the full year was $1,000,000 inclusive of spending over $12,000,000 in non recurring legal costs in 2024, combined with $18,000,000 of free cash flow generated in 2023, this represents a significant improvement since we announced our transformation pillars in spring of twenty twenty three, and has contributed to a solid balance sheet with zero debt outstanding.

Our strong financial footing provides greater flexibility in our growth model and allows us to invest in the business in support of expanding the availability of Honest products. With that, let's turn to our outlook for 2025. One year ago, on our Q4 twenty twenty three earnings call, we introduced our long term financial algorithm of revenue growth of 4% to 6%, and continued adjusted EBITDA margin expansion. As we shared at that time, our long term financial view is grounded in our strategic plan and our transformation pillars of brand maximization, margin enhancement and operating discipline. We continue to believe that these frameworks set the building blocks for long term value creation as we demonstrated in in our results this year. With this in mind, our full year 2025 financial outlook we expect to be in line with our long term financial The. We expect year over year revenue growth of 4% to 6% and adjusted EBITDA to be in the range of $27,000,000 to $30,000,000 supported by sustainable gross margin levels similar to 2024 and continued expense management disciplines. We expect our first quarter revenue growth will be higher than our full year outlook of 4% to 6% revenue growth due to the comparable period from last year.

Given the dynamic consumer and tariff environment, this outlook includes what we know today about tariffs as related to our product sourcing in China and Mexico. We currently manufacture our wipes in China and diapers in Mexico. It's important to note that we've been managing with tariffs in portions of our portfolio for several years and believe we are in order to mitigate new tariffs. Although the full degree and duration of exposure remains uncertain, our teams have a playbook in place and are diligently monitoring in partnership with our valued sourcing partners. Our proactive and cross functional approach to addressing cost pressures from tariffs or other consumer spending impacts will continue as we closely monitor and address emerging risks. We believe our financial outlook reflects the dynamic environment and we are confident in our ability to deliver our plans. In closing, as I look back over the past two years, our financial performance has improved significantly by growing revenues over 20% increasing gross margin eight eighty basis points and increasing our cash position over five times while maintaining zero debt on our balance sheet. And now I'll turn the call back over to Carla. Thank you, Dave.

We are proud of the record results we delivered in Q4 and 2024, exceeding our outlook.

Our results tell a powerful story, one of dedication, and the focused execution of our transformation pillars. Honest is more than just a brand.

We are part of people's lives. We are in the most personal parts of their homes, and we are trusted to be safe and effective for their most important uses. As our community of honest users has grown, our business has become stronger. Our financial foundation has become healthier, and we are driving shareholder value while unleashing the power of the Honest brand. Thank you for joining our call today. And now I will turn it back over to the operator The.

Our first question comes from Aaron Grey with A. P. You may proceed.

Hi, good evening. And thank you very much for the questions and congrats on the strong quarter and finish to the year. So first question for me, just wanted to talk a bit about the guidance, right? So I know you gave some color in terms of the first quarter being at a higher growth rate than for the full year. But just as we think about the cadence of that, right? So for the back half of the year, you're at a run rate of nearly $400,000,000 You were at that for the fourth quarter. So just how best to think about that cadence? If you match 4Q, that'd be mid teens growth rate year over year. So just how much higher growth rates should we be thinking about for the first quarter versus the full year? And just how best to think about that cadence? Yes. Hi, Aaron.

Good to hear from you. And yes, let me address kind of the cadence of across the year of our revenue growth. As you did share, 2024 was a healthy growth period for us and maybe it'd be good to context that with how that year played out for guidance on '25. The first quarter in twenty twenty four was our soft prior year and so that was a soft period for us and and why I provided some color about this Q1 of twenty twenty five being on the higher end and probably slightly above our guidance range But as we look through and then the rest of the year in 2024, we went up against some pretty interesting retail events that drove some volume for us both at Target and at Walmart, incremental distribution The those events carried for us. And our fourth quarter was really strong in 2024 with apparel leading the way there. So we do see that the comps are going to be a little more challenging in the back part of the year because of those activities. And where we sit today, we know that across the balance of the year, there's it's a dynamic environment.

Right now and there's a macro factor that we want to simply understand. This guidance of 4% to 6% for the full year is for a full year period and we'll provide updates as we move each quarter. Through The, But we've got high confidence that it's a level we're comfortable in achieving.

Okay, great. Thank you for the color there. And then second question for me, Jess, we've talked a lot about distribution in terms of depth and breadth. And I know you guys are attacking both initiatives there in terms of the prepared remarks. But just as we think about 2025 and potential growth opportunities or upside to the growth given the guidance, Do you feel like there's more lower hanging fruit in terms of getting more debt or breadth in terms of that distribution? Thank you. Hi, Aaron. This is Carla. Great to hear from you. And yes, distribution remains a very key lever to our strategy. And I would just remind folks that we have an investor presentation that has a really nice explanatory section in it. You can find the presentation at investors.honest.com that gives you some very granular detail with a specific approach to how we see the distribution opportunities philosophically as you asked it, but also specifically related to some of our most important products. So I'd encourage folks to look there. We saw that the success of 2024 was very much supported by distribution growth in the year. So for the year, our distribution growth was up 2%.

But on our hero items, which is where we're really emphasizing the distribution gains were double that. Underneath really looking at distribution gains, I would say some distribution gains are not obvious when you look into those metrics. And for the most recent year that we're finishing in 2024, we saw gains in what we like to say as aisles So we are new in our CVS distribution of diapers this year. And so we already had some items in CVS in our baby personal care line, but getting diapers in was new for us this year We also have an array of products and categories across our grocery retailers where we saw distribution gains. Also this year, our distribution at Walmart was actually up 33% of points of distribution Some of that was because with our very strong wipes portfolio, sometimes we only had one of the patterns, or we didn't have all of the sizes. So we really partnered with Walmart because those wipes are so popular. To make sure that we have an even greater presence of our large sizes in Walmart. But that's not the only thing that drove the gains at Walmart. The gains at Walmart also were driven in our Baby Personal Care set and previous years.

Sometimes when we launch into a retailer, we like to create a very unique launch strategy that just fits them and their shopper. At Walmart, we launched into baby personal care with a signature flavor just for or fragrance just for Walmart, but not with our most popular fragrance, Lavender. So this year, we added to our baby care set the lavender items that are our top performing items. As we look to the future, I would say The great news is The is so much opportunity and sometimes you do multiple versions all at the same time. There are still stores we're not in at all. We're not in the dollar The. We're not in the club channel as examples. And yet The are still sections of our very top retailers where we're still not represented. We have parts of our beauty and adult portfolio that are not yet in Walmart's brick and mortar. We have some of our wipes collection that is not in any brick and mortar yet, but doing very well online. So we will keep chasing this down we believe that there is lots of opportunity that will continue to be available to us in the long term, which is why when we give you our long term algorithm of four to The% That takes into consideration that we believe that there is distribution that will drive The.

And we also like the role that mix can play as we drive that distribution to continue advancing our margin accretive elements of our portfolio.

Thanks, Rob. Really appreciate the detailed answer there and I'll go the queue. Thank you.

Our next question comes from Andrea Teixeira with JPMorgan. You may proceed.

Thank you, operator, and I hope all is well. And congrats again on the numbers. Carla, you spoke just now about the balance of potentially mix and volume and pricing and getting the distribution sets and you had some very good inroads and still have a lot of opportunities as you said in some channels in club and dollar.

So how should we be thinking to 2025? What is the balance of I'm assuming it's mostly volume at this point But if you have anything about like the 5% that can help us understand And also for I know Keith has been working and you are course in getting not only the hero products that you were so focused on the transformation over the past year. And that was super successful to get The products to be more available, the pack architecture also more I think on point. But how we should be thinking about innovation as we as we go into the years into your algorithm. And just a clarification also what Dave had said in the prepared remarks, I think you actually when you were talking about margin, you were saying I think you're assuming gross margin will be similar to last year. I just want to understand if that's the message. And if can you also touch on cash flow? I'm sorry for all these questions, but I wanted to just lay out, so you can both discuss. [indiscernible] [indiscernible] No problem, Andrea. Good to hear from you. And let me take a few of those and then Carla can jump in as well.

But you kicked it off with questions around the mix. And our guidance on revenue, how much might be volume, distribution. And as we look back at what we were able to achieve in 2024 with the complement of distribution gains of product into stores and more product onto incremental shelves with blended with velocity gains, we're expecting that those elements will continue to be the supporting our '25 sales goals as well. Pricing increases was a factor that helped drive it, not that we took prices, but the average price of the mix of products was a positive outcome in 2024. And and a lot of that came through introduction of products earlier and mid in the year. And so we'll continue to benefit from that in 2025. So I would expect it to be a blend similar to what we've articulated And when we look at our consumption trends, across the full year of 8% in Mulu The our Amazon, over 30% It's all supported with the same mix of portfolio dynamics that we're expecting. Now on innovation, I think we do have some innovation coming. We highlighted our diapers is one new category that's got some product coming in that's new, enhancements that are being made.

And that will be introduced in 2025 But I would expect also to see The the highlights around skincare and and the new packaging will be new and in terms of highlighting the consumers that we've got innovation happening in the market Now you also asked about margin. The gross margin 600 basis points to $24,000 and 900 basis points up. It's obviously a reflection of where our transformation pillars were really driving that enhancement margin enhancement pillar for across the supply chain and into the product set. So those are all sustainable elements of what drove our gross margin [indiscernible] and those are in place that we'll continue to benefit from at a structural level So I do see that our gross margin, while similar in 2024, still has room for expansion. What we're comfortable with is a gross margin range in the 38% to 39% which would suggest some expansion that's helped contributing to the bottom line results. And And that's also going to be combined with some expense leverage that we also expect will be part of the earnings growth for us. So And then lastly, on my list of ways you asked here, the cash flow The rigoriness of our inventory management, being a capital light business model, continuing to improve their earnings and the flow through from that will give us what we expect a positive free cash flow period in 2025.

I think looking back over the last two years where positive free cash flow was an important element of the transformation initiative, We [indiscernible] in a great place with how much The cash has been built up. We do expect it to continue in 2025. So that's questions you had The, Andrea.

Yes. No, Dave, that's super helpful. The one last thing that may not be as clear to everyone, but when you don't just The Like your legal fees, right, that were penalized in the second The. Would we expect and I think you alluded to just probably behind you is that the reason like we are basically out of it? Or you're still going to have some lingering expenses into the first half?

Yes. We are pretty close to having that behind us. I'd say The we do expect In the first half of the year, some remaining Legal costs that are in the neighborhood of $1,000,000 to $2,000,000 so significantly below what we absorbed in 2024. But not 100% gone away yet. And so The those would be again kind of add backs as we would see it. And that's the range that I would expect to to see.

And so as a Mosaic probably you will finally you had inflected earnings in the third quarter, but then probably coming out of the $30,000,000 $28,000,000 to $8,000,000 The your guidance for EBITDA. Obviously, if you don't have that finalization for like such a big headwind you pause to kind of reflect on EPS obviously?

It continues to be our our number one priority of improving that bottom line. And where we are within the transformation journey it's a multiyear journey I'd say The modeling should suggest that and but our guidance today still going to be based on adjusted EBITDA just given The transitory items that may still happen like those legal expenses Okay. Thank you very much. I'll pass it on. [indiscernible] Thank you. I'd like to start with gross margin, a little bit of a follow-up to the previous question. [indiscernible] clearly, you had strong gross margin expansion in 2024 of roughly 900 basis points. As we look to 2025, I understand you answered that expecting in the range of 38% to 39%. As we think about some of the onetime benefits in 2024 such as changing warehousing partners I was wondering if you could share a little bit more perspective on the shape of gross margin expansion in '25 as we contemplate lapping those benefits and what the underlying kind of gross margin expansion should be as you strip away those more onetime [indiscernible] Yes. Sure thing, Anna. I'd say from a lapping gross margin impacts in 2024, The probably the more notable item would be some of the price increases that we did have benefiting in the early part of the year The we did lap through the back part of the year.

So The helped contribute to the 900 basis points increase roughly 200 to 300 basis points could have been attributed to that pricing. And so we're now behind that that event. But the cost savings are real and they're in place and structurally with with the business model as it's set One element that I did share around [indiscernible] is the shape of the fulfillment operations. Our DTC platform as it just continues to become less of a driver of what's happening in the model. That adds another benefit that will continue to be realized for us. And I'd say The product mix within our set. So all of the introductory of items that we've done over the last two years have been rigorously set against hurdles of a higher margin than historically and where we're focusing on The hero items thereof, a margin that meets the criteria that we've got. And so mix of those products, wipes in particular, being a strong growth driver for us.

We would expect that helps some of our margin expansion in [indiscernible] So we obviously, we do not expect another 900 basis point expansion. I don't want to set that expectation. But But we do see that it's going to continue to be a contributor through the mix of channel and products that we sell.

Great. Thanks for that. And now turning to the comments you made about deemphasizing or shifting away from the honest web site in favor of existing digital partners Understanding that this would be beyond 2025, like to understand a little bit better the margin delta between those existing partners and maybe your own DTC as we think about the longer term margin opportunity particularly as you mentioned, the rising fulfillment and distribution The. Thanks.

Yes. I can touch on a little bit of The. And let me take maybe a step back and also talk about how much has really changed our business model over this period of time. The shape of the business model, since we launched solely as a DTC company, fifteen years ago has really changed and our consumer behavior has also changed in terms of where they're able to to buy our product. The advancement of our retail customers, our partners and the development of their digital platforms has made it much more compelling for consumers to move in that direction So it's only natural at The stage of our companies kind of life cycle that we start to benefit from the scale of retail distribution. And where we've seen our own DTC channel only two years ago at roughly a quarter of our revenues is down in the low teens. The That's manifesting itself into more efficient operations at the fulfillment center, We can't compete on the speed of delivery, on the shipping costs. That we can against the big guys, the Amazon and the Walmart.com. The so we're The understand that that's an important asset of finding the profit opportunity in our own business model.

And And that's something that we're committed to over time, but we want it to be a seamless transition The the way.

Great. Thanks.

Thank you. Our next question comes from Ryan Meyers with Lake Street Capital Markets. You may proceed. Hey guys, thanks for taking my question.

First one for me, Dave, wondering if you could kind of call out some of the areas in operating expenses where you think you guys can gain additional leverage here in 2025? Yes, certainly operating expenses where we have seen probably the biggest improvement is not having as much of a legal cost overhang The we articulated previously. And so The that frees up operating expense dollars But where we also have taken a really sharp eye towards is across across the structure of what's needed to operate and in our new strategic parameters and what kind of organization we have to be. So we're very diligent about managing the expense profile of this business model and finding ways to do things more efficiently in under a lot of different places. But where the savings that we do see in operating expenses The will realize [indiscernible] marketing, for example, or R and D. And while total operating expense, we do see the leverage We're not going to be shy about putting some of those investments back into marketing and research and development since those are drivers of of growth in both near term and long term. So again, we're committed to having expense leverage and reinvesting some of that back in to drive the long term outlook for the company.

Got it. And then forgive me if you guys talked about this in the prepared remarks, but did you give what the ACV is across the retail distribution that you guys [indiscernible] Hi, Ryan. This is Carla. Good to hear from you. We did not specifically reference ACV. Because you can find that in our investor presentation. And I think our ACV right now is about 84% on a national level. But the reason why it's so important because to take a look at our investor presentation is because ACV when you are a multi category single brand is actually a slightly what can I say It's a metric that can give you the wrong perspective about how much room is left at the top? So that ACV number saying that somewhere in the retail world, in 84% of the retail world, there's at least one honest item on the shelf does not really give you an opportunity to understand the grade scale across our portfolio at the item level, the ACVs are much lower item by item. And so we made sure that in our investor portfolio, you can see that some of our items, for example, are Lavender Bubble Bath The I just told you about is one of our top turning items and recently gained distribution at Walmart.

Still only has a 34% ACV and it is one of our top items and one of our fan favorites. So 34 ACV on that item, We've got our HydraGel Cream. That is our fastest turning facial cream. Less than 20% ACV on that item. And our sales organization, one of the big changes that might not be visible to investors is that to go along with the importance of our distribution strategy, we have also increased the number of people in our organization devoted to each key customer and each strategic account. And so The is real focus now with not only a clear strategy, a clear designation in our portfolio of which items matter, But now also very experienced CPG talent that knows these customers well and is selling and driving the growth.

Got it. Thank you for taking my questions.

Thank you.

Our next question comes from Owen Ricard with Northland Capital Markets. You may proceed.

Hey, Carla. Hey, Dave. Congrats on a great way to end 2024. Just quickly, can you guys dive into how your relationships with Target and maybe Walmart are progressing.

And are you seeing any shifts in shelf space allocation or some updates on promotional activity going into 2025?

Owen, thank you so much. It's nice to hear from you. I think that the context that I want to ground all of this in is we look back on the results of 2024, whether you look at our revenue growth in Q4 of 11% or our full year revenue growth of 10%. The business is performing in a very balanced and successful way across our set of retail partners. Our consumption overall for year is up 7%. And that consumption growth is really balanced in both units and dollars. When I look at that at our top accounts that you asked about Target, Amazon, Walmart for the year, you will also find that our consumption is up at all of those accounts whether you're looking at total 2024 or you are looking at Q4. So we have fantastic relationships We have discussions at the highest levels with those companies. Make sure that we understand as they're going to attract the high upper income customer to their stores The honest plays a very important role, not only as a brand that attracts that kind of consumer base, but a brand that attracts that consumer base both in store and online.

So we're very pleased with not only the partnership, but the performance in the year.

Perfect. Thank you.

Thank you. I would now like to turn the call back over to Carla for any closing remarks.

It's been a pleasure to talk with you about how we close 2024. Thank you so much for joining us. We are looking forward to spending time with some of you throughout the rest of the week and we look forward to meeting up with you next quarter.

Thank you. This concludes the conference. Thank you for your participation.