Ladies and gentlemen, thank you for standing by and welcome to The Honest Company’s Second Quarter 2022 Earnings Call. We are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Mr. Steve Austenfeld, Vice President, Investor Relations at The Honest Company. Please go ahead, sir.

Good morning, everyone. Thank you for joining our second quarter 2022 conference call. Joining me today are Nick Vlahos, our Chief Executive Officer; and Kelly Kennedy, our Chief Financial Officer. Before we start, I’d 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. We undertake no obligation to revise or publicly release results of any revision to these forward-looking statements in light of new information or future events, except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures which adjust 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 Investor Relations section of our website at investors.honest.com. With that, I’ll turn the call over to Nick.

Thanks, Steve. Good afternoon, everyone, and thanks for joining us today. As noted in today's earnings release, we delivered strong top-line growth up 5% in the quarter versus a year ago, in line with our expectations. We saw positive growth across both our digital and retail channels as we continue to expand our omnichannel presence. Consistent with our prior guidance, as we look to the second half of the year, we anticipate delivering mid-single-digit revenue growth as we will see the full benefit of two rounds of price increases taken in the first half combined with the impact of product innovation and expanded retail distribution. Based on consumption trends in the quarter, I feel confident that the Honest brand continues to resonate with a conscious consumer. Looking at 12-week track channel data ending June 12, Honest continues to gain market share as our growth continues to outpace the category. Second, our unit velocities remain healthy following recent pricing, as we see solid growth in both volume and sales. This indicates the brand has pricing power, even in this challenging economic environment. The overall category growth for diapers and wipes was 9% and 10% respectively, coming almost exclusively from pricing. Honest diapers grew 12% and wipes 20% respectively, predominantly from volume. The overall personal care category declined, while Honest grew 15%. In the highly competitive categories in which we compete, Honest growth outpaced the category, in some cases quite significantly. And the growth was of high quality, balanced between volume and pricing. As we execute against our key growth strategies, I wanted to provide an update on progress to date, starting with marketing, which is the lever we pull to drive brand awareness, trial, and share of wallet. We continue to invest at a high level in support of our brand with marketing spend at approximately 15% of sales in the second quarter. Recognizing the rising cost of digital marketing, which we touched on last quarter, as well as our meaningful retail expansion in the second half of the year, we are shifting a portion of our marketing investment from digital to shopper marketing to drive awareness and support retail distribution. A great example is our quarterly beauty edit with a key strategic partner Target, which recently had a co-marketing campaign with our Founder on a segment titled Spring Clean Your Beauty Bag with Jessica Alba, which highlighted nine of our bestselling Clean Beauty products. This shopper marketing investment is driving awareness and consumption as demonstrated by 13% consumption growth in beauty at this customer. For our total Honest business at Target, we delivered our 70th consecutive week of positive year-over-year sales growth. Turning to innovation, our initiatives are on track. So far this year, we launched our new Fresh Flex Concealer at a variety of retailers, our new Acne Skin Clearing Line exclusively at Ulta and honest.com, and expanded our wellness supplements line with a launch at GNC. In the back half, we're on track to deliver additional beauty, diaper, and personal care innovation both online and with strategic partners. On the distribution side, we're well underway on our retail expansion plan. Specifically, you can now find Honest products at walmart.com, over 630 Ulta stores, and roughly 1,400 GNC stores nationwide. The Ulta expansion solidifies our position in Clean Beauty with the largest beauty retailer in the U.S. Our new supplements line focuses on wellness-oriented sleep, stress, immunity, and hair health, all of which are now available in-store and online at GNC and honest.com. New this quarter, we're announcing distribution with Publix, a strategic grocery retailer in the Southeast, and DJs, a club retailer with a strong presence on the East Coast. As a result of these distribution wins, we achieved a brand ACV of over 50% for the first time in the company's history, which demonstrates the strength of the Honest brand proposition. We expect further ACV expansion with the upcoming distribution launch into Walmart stores. In July, we launched on walmart.com and in Q4, we will be expanding into over 2,000 Walmart stores across the country. This will include an assortment of Honest diapers, wipes, and personal care items. As we continue to grow market share, the opportunity with Walmart to expand Honest penetration into the South and Southeast regions, as well as across the country will make Honest products more accessible as we reach consumers with the leading type of retailer in the U.S. On the international side, we're expanding our skin and personal care business with the largest beauty retailer in Canada, Shoppers Drug Mart. This past week, we launched Honest beauty products in China through our partnership with SuperOrdinary with a flagship store on Tmall. We are pleased to be partnering with SuperOrdinary, who has a proven track record of launching premier U.S. beauty brands in Asia. This new partnership will set the foundation for future global expansion. We also remain focused on driving growth in a responsible manner. Honest was founded nearly 10 years ago with ESG principles at heart and we remain committed to diversity and inclusion, environmental sustainability of our products, and strong governance practices. We plan to publish a summary on the progress of our ESG program in early 2023. Overall, we continue to focus on executing against our key growth initiatives in marketing, innovation, and distribution that will drive growth for the remainder of 2022 and beyond. As we continue to see positive top-line trends and reaffirm our full-year revenue outlook, we need to recognize the headwinds we face in today's input cost and inflationary environment. We've continued to experience rising costs across the supply chain and expect these pressures to continue across the balance of 2022. This cost inflation is putting additional downward pressure on gross margin, requiring us to update our outlook for the year. In response, we plan to take additional pricing, execute incremental cost savings, and focus on key initiatives to improve margins. I feel confident in our ability to sequentially improve our margins as we continue to execute these plans. In closing, the Honest brand remains strong, delivering on its commitment to the clean and natural consumer. We've significantly grown our brand awareness and household penetration over the last two years, while our market share continues to increase. We maintain our conviction that Honest can be the new, modern CPG brand while driving our mission to inspire everyone to love living consciously. Now, I will turn it over to our CFO, Kelly Kennedy.

Thank you, Nick and welcome, everyone. I'll start by saying I'm very pleased with our strong top-line performance in the quarter, as well as our ability to reiterate our revenue outlook for the year, which reflects mid-single-digit growth in the second half. Input costs have accelerated further, leading us to update our gross margin and adjusted EBITDA outlook. But we believe through pricing and other cost-saving measures, we'll be able to offset these headwinds over time. Now, turning to the financials. Revenue increased 5% to $78 million for the second quarter of 2022 compared to the second quarter of 2021. Growth was broad-based across both digital and retail channels, although we did see stronger than anticipated growth in the digital channel this quarter, due to strong shipments ahead of Prime Day. Diving into key drivers by product category, first, diapers and wipes. Our diapers and wipes business, representing over 65% of the portfolio was up 9% as we continue to see acceleration after the 2021 launch of our Clean Conscious Diaper and benefit from improved inventory levels on wipes. Both diapers and wipes grew consumption at double-digit rates in the quarter, outpacing category growth. Skin and personal care, representing over 30% of total revenue, declined 2%. The decline was driven by two things. First, we have a timing shift on our shampoo and body wash shipments ahead of our annual promotion at a Key Club retailer. We were also negatively impacted by key items out of stock, which were most pronounced in the beauty business. Excluding these impacts, the skin and personal care business would have grown double-digit. We were particularly pleased that both our personal care and beauty business, color and skin, outpaced category growth. Our health and wellness business, although a small part of the portfolio, had a rebound in the second quarter of 15%, due in part to strong sales of our sanitizing wipes and the expansion of our wellness supplements line. Growth in this category was also driven by increased loyalty sales on our Honest beauty clothing line, which has seen strong demand in the marketplace. Now, turning to results by channel. Our revenue was balanced between channels with digital at 48% of sales and retail 52% of sales in the quarter. Digital saw a rebound growth this quarter up 9% behind stronger performance in orders ahead of Prime Day as compared to last year. As a reminder, at times, we've experienced our key digital partner optimizing their weeks of supply, which can result in shipments outpacing or underpacing demand, and our revenue can shift from one quarter to the next, despite positive consumption trends. Separately, we're actively investing in our digital platform, which has driven improved site speed at honest.com, enabled frictionless ordering, and providing customers more options and customization for subscriptions. These investments will support our digital business in 2023 and beyond. In the near term, however, we expect headwinds in our digital business as we face the continued rising costs of paid advertising and the industry-wide shift of consumers back into stores. Retail revenue increased 2%, reflecting consumption growth across our key customer. Revenue growth this quarter reflects a shift in timing of shipments for promotional events for a Key Club customer that negatively impacted overall revenue growth in the channel by 5%. With sales nearly equal, we split across digital and retail, we continue to believe our omnichannel model is a competitive advantage, especially given volatility and consumer shopping behavior. Given our balanced digital retail visits and upcoming distribution expansion, we are well-positioned to support the consumer wherever they choose to shop. Now, turning to gross margin. Gross margin was 30% in the second quarter of 2022 compared to 36% in the second quarter of 2021. This reflects approximately 875 basis points of additional costs versus the prior year, offset by roughly 275 basis points from pricing and other actions taken to date to offset the impact. The biggest impact came from higher product costs, including inbound freight, which increased approximately 500 basis points versus a year ago. In the second quarter, we saw an acceleration in input cost inflation above our original forecasts, particularly as we strove to get back in stock and build up our inventory position on baby wipes and key components in our beauty business that faced longer lead times and supply challenges. In addition, fulfillment costs increased approximately 150 basis points versus a year ago. We now expect these input cost headwinds, product costs, inbound freight, and labor rates to remain elevated versus our prior forecast. In order to support new retail distribution and offset headwinds in digital due to declining traffic and higher marketing costs, we invested at a higher trade promotion rate to drive sales in-store. This had roughly a 225 basis point impact to gross margin versus last year. To offset input cost inflation, we've executed mid to high single-digit price increases across approximately two-thirds of the portfolio in the first half. Pricing and cost savings benefited second-quarter margin by approximately 275 basis points. Since our second pricing action just went into place in early June of this year, the full benefit of those price increases will impact the second half of the year. So far, we've been very pleased with the execution at retail as our price gaps versus conventional products remain in line. As Nick noted, we continue to grow both volume and sales. Given the favorable elasticity impact so far, competitive actions were seen in the market and the continuing inflationary environment, we plan to take additional pricing that will benefit 2023. We're also being as aggressive as possible to drive cost savings. For example, in Q2, we consolidated distribution centers on the West Coast, which provides savings of roughly $22 million annually. We're also optimizing our operating expenses, prioritizing areas with higher return, reducing discretionary spend, and looking to offset some of the cost headwinds with SG&A savings. Turning to operating costs and profitability, as anticipated, operating expenses were down materially, primarily due to year-ago costs associated with our IPO. As we move into Q3, we've now comped this one-time cost and going forward will be a light comparison. Of note this quarter, marketing expense was at 15% of sales, in line with our plan in support of the Honest brand, and reflected a higher level of retail marketing support versus a year ago. Adjusted EBITDA for the second quarter of 2022 was negative $5 million, which reflects a $5 million improvement versus the first quarter of 2022. We ended the second quarter with $67 million in cash, cash equivalents, and short-term investments with no debt. The cash balance reflects an increase in our inventory position due to longer supply chain lead-time and in anticipation of the new distribution gain coming into the back half. Turning to our fiscal year 2022 outlook. As Nick highlighted, we are reaffirming our full-year revenue outlook, reflecting mid-single-digit growth in the back half of the year, with high single-digit growth in the fourth quarter as we roll out new store retail distribution. From a channel standpoint, we anticipate the consumer shift to retail to continue impacting our digital visit, offset by acceleration in our retail business. Recognizing the current cost pressures, we expect gross margins for the second half of the year to be in the range of 31% to 32% versus 33% a year ago. This reflects approximately 700 basis points of additional costs versus the prior year, offset by roughly 550 basis points in actions taken to date to offset the impact. The 700 basis points includes 550 basis points of higher input costs, 50 basis points of higher fulfillment costs, and 100 basis points of higher trade spend to support new retail distribution. Pricing will benefit the second half approximately 375 basis points and cost savings mix and other items are expected to provide about 175 basis points of benefit. We expect the gross margin headwinds to be partially offset by optimization of operating expenses. Taking these factors into account, adjusted EBITDA is now expected to be in the range of negative $10 million to negative $20 million with sequential improvement over the back half, achieving positive adjusted EBITDA for the fourth quarter. The fourth quarter will benefit from the highest revenue of the year, additional pricing action, reductions in low-return marketing, and prudent management of SG&A. Overall, I'm pleased with the momentum in the business as we expand our omnichannel footprint and make Honest products more accessible to consumers in the U.S. and abroad. With that, I'll turn the call over to the operator. We look forward to answering any questions.

Thank you. Our first question comes from Dana Telsey with Telsey Advisory Group.

Good afternoon, everyone. As you unpack these fulfillment costs and price increases, along with the positive reception of expanded distribution, how are you envisioning fulfillment costs and price increases going forward? And with the mid-singles to high single-digit price increases that have been taken already, what percentage of the portfolio gets additional price increases and by what range? And how do you envision fulfillment costs? And lastly, with digital and retail, with the expanded distribution, what do you see as the penetration rates that you're ultimately looking at with the Publix announcement that just happened? How do you see that scaling? Thank you.

Hi, Dana. This is Kelly. I'll start first with your question about what we see in the input cost environment. I think you heard us mention that the biggest headwinds that you're seeing are in the inbound costs both ocean and trucking, as well as within labor rates in our fulfillment center. And so we did outline the outlook for the balance of the year. We anticipate that the current rates, which are kind of at historic highs, we're assuming that those will continue to the balance of the year. So, when you think about the change in the margin and the headwind, now forecast to be 31% to 32% in the back half, that's really reflecting about 700 basis points, predominantly from input costs, some fulfillment, and then some additional spend as we look at supporting the new distribution with trade. We will offset that. We mentioned that pricing is the biggest component to offset those headwinds at 375 basis points. But we also will be benefiting from cost savings, some mix and certainly, just other cost impacts to the tune of about 175 basis points. So, headwinds, we're seeing about on a year-over-year basis, roughly 200 basis points of additional pressure versus where we were a year ago.

Dana, it's Nick. I can address a second question regarding distribution and its implications for us. We're quite optimistic about our presence in the Southeast corridor, which allows us to make Honest more accessible to consumers in that region. Notably, about 42% of all new births in the country occur in the Southeast. Hence, our partnerships with Walmart and Publix enhance our accessibility to consumers, both online and in physical retail locations. Of the 2,000 Walmart stores we've announced for distribution, around 1,000 are located in the Southeast, with the remainder spread across the nation. This provides some context. Regarding Publix, a significant portion of our business there will initially focus on personal care products, specifically in our skin and personal care category. We will share more details next quarter about the specific footprint and product mix. This strategy presents an excellent opportunity to expand our distribution in the Southeast, where we currently estimate about 50% ACV, indicating that we still have considerable opportunities nationwide as we pursue this accessibility strategy.

And I think you had a last question on pricing, Dana. You'll recall that our January price increase is on about a third of our portfolio, which was primarily diapers. The second price increase that we took was not on the same products; it was on wipes and personal care. So, as we think about taking pricing on roughly two-thirds, additional pricing action, we still have about a third of our portfolio that we have not taken pricing on. In addition, unlike competition, taking a second price increase on the same product is not something that we've chosen not to do, but we do think we have some ability. As we look on into later in the year into 2023, we still feel that when we look at elasticity and the impact, and the fact that we continue to be able to outpace category growth, and have a nice balance between price and volume, we feel confident in our pricing actions and abilities, and that the timing was right to be a follower behind everyone else's pricing.

Thank you.

Thanks, Dana.

Thank you. And our next question comes from the line of Laura Champine with Loop Capital.

Thanks for taking my question. In Q4, could you provide more details about the sales benefit you expect from the initial shelf stocking at Walmart?

Yes, when we talk about and think about top-line revenue for the back half, I think it's pretty important to point out that we're talking about sequential improvement where we are in Q2 to Q3, but being much more heavily weighted in terms of where we're going to see the new distribution in Q4. So, the way to think about the mid-single-digit growth that we've given for our outlook for the second half, basically, it's high single-digits in Q4 and predominantly focused on growth in Q4 versus Q3. And one highlight I'll just mention is last year, Q3 was our largest quarter, so we had some big shipments going out, particularly around a rotational program in personal care. When we think of Q4, it will be our largest revenue quarter. When you think about the new distribution at Walmart, but also continued consumption trends, which we're seeing extremely good consumption trends, particularly in volume balanced with price, with growth in bathing up in the quarter 12% and really strong trends as well within beauty, skin, and color, with double-digit growth kind of across mass, Amazon, and honest.com. We do anticipate continued consumption trends, balanced between pricing and volume in the back half.

And the only thing that I would add, Laura, is just kind of a finer point on it: if you look at Q3 and then you look at Q4, as we talked about mid-single-digit growth, one thing that existed in Q3 a year ago was our largest quarter, and we also had a significant program at a club customer, which really was roughly about $6 million of revenue that will not be repeated. So, that has about a mid-single-digit impact in Q3. However, you'll see Q4 really kind of high single-digit as Kelly referenced from a growth perspective as we start to see some of the pipe come in from a Walmart perspective, as well as the new distribution. But relative to consumption, we continue to see kind of the trends; the latest IRI data through July 10th shows that we continue to keep a trend in diapers, wipes, as well as personal care, and our growth outweighs the category growth across those businesses. So, that gives you some context around the balance between shipments as well as consumption.

Right. As I'm trying to get a better sense of what's happening with volumes and move back up a little bit, half the year is over, you're expecting revenues to be flat; what's the expected change for the full year in volumes?

Yes. In Q2 specifically, if you break down our 5% growth, it was roughly half from pricing and half from volume. So, we would expect in the second half as we move into that to be relatively balanced between pricing and volume.

Got it. Thank you.

Thank you. And our next question comes from the line of Steph Wissink with Jefferies.

Thank you. We have a follow-up question on Walmart and Publix. If you could share a little bit about the merchandise strategy. I think, Nick, you mentioned diapers and wipes, maybe even a little bit of personal care into Walmart and then more personal care focus at Publix; are those curated assortments, special makeup items, or do they come from your existing line and just more of a curated selective assortment?

Excellent question, Steph. Number one, when it pertains to Walmart, we're making sure that we've got an offering that makes sense for that Walmart consumer across the country. So, you're going to see larger count sizes across the wipes business, again, additional value on a price-per-item basis when it comes to price per diaper, and the third is on personal care and skin, you'll see a curated collection of skincare products that are going to be unique to Walmart. So, that's going to be the offering. It's going to be holistic as it pertains to diapers, wipes, as well as skin and personal care. As it pertains to Publix, we'll get more context in the next fall; it will be a subset of our personal care items that are going to be highlighted within Publix as we enter that Southeast corridor for personal care skin standpoint. So, that gives you some context on both of those.

Okay, that's great. And Kelly, just really quickly to help us bridge the adjusted EBITDA step function from Q3 to Q4. If you could help us think how much of that is related to the high single-digit revenue growth into Q4 and the leverage versus something else within the body of the P&L that might be improving to get you to that positive EBITDA influx in the fourth quarter? Thank you.

Thank you, Steph. Yes, the inflection point—I would point to three impacts. The first is revenue; as we ship additional distribution, we will, of course, benefit from that, having the highest revenue in the fourth quarter. So, that's the first impact. The second is we mentioned sequential improvement, not just in revenue between Q3 and Q4, but also margin. Part of that is pricing; we talked about additional pricing actions we're taking, as well as cost savings. So, we'll get additional benefit in Q4 versus Q3. Lastly, I'll highlight, which you probably have noticed from last year, as we think about how we spend our marketing in Q4, unlike other retailers and brands that are very seasonal in nature, we're not. We tend to see a little bit of a shift up in the overall cost of media; we really focus our marketing on shopper marketing and temper our expenses. We see that shopper marketing for us is much more efficient. If you think about marketing, it tends to be a better percentage in Q4 versus Q3. Often, on a dollars basis, it tends to be a lower quarter for us in terms of marketing spend. All three of these benefits together will shift us and take us into this positive adjusted EBITDA territory, which we're excited about.

Thank you. That's very clear. Much appreciated.

Thank you. And our next question comes from the line of Andrea Teixeira with JPMorgan.

Thank you, operator. Good morning there. I just want to go back to the channel and marketing and merchandising shopper marketing commentary you gave, vis-à-vis the digital spend reduction, you called out in your prepared remarks. So, a question to Nick and next a question to Kelly. So, to start with Nick, more broadly on the strategy there. So, the comments on the volatility for digital sales; I understand you're getting into Walmart and several other more in-store level customer. So, I wonder what's happening with your key partner? And you highlighted the shipments to them may be a bit volatile and consumption may diverge even more—so, is that a function of your walmart.com move or is that them kind of reducing inventory or seeing that it's basically similar overlap final consumer that is switching from Prime into walmart.com?

Yes, I'll start just by talking — reminding you that in the quarter a year ago, we did have this disconnect between shipments and consumption that we saw; that was predominantly around them reducing supply ahead of their big national event. This year, we actually saw consumption and shipments in line, and so we didn't have that impact this year. As we think about results coming out of that big national event, we were highlighted as one of the brands that was really driving growth within their fantastic results for that event, which we're pretty excited about. Also, around consumption at retail, I know it's a little math between personal care and beauty, but we're pretty excited about the consumption trends that we're seeing in beauty right now. For example, Nick highlighted on the quarterly beauty edit, which is the surround sound around shopper marketing that we do and are able to do with our largest, kind of, customer and our largest partner around clean beauty. We did see, in addition to having the 70th consecutive week of positive year-over-year growth within beauty at Target, we had 13% growth and we had 25% growth on Amazon, and honest.com was also double-digit. So, we see really good traction overall, which we're excited as we layer in Ulta and being in over 600 stores and one of the premier retailers in the country, Clean Beauty with the launch of the Acne line. I think as we think and invest behind retail and shopper marketing, we're seeing good results and we're able to measure it. As we've mentioned, that shift will continue to happen as we go into retailers, such as Walmart, and we are seeing them more efficiently support some of our digital spend.

And the way I would think of it, Andrea, just to give some additional context is when you think of target.com, ulta.com, Walmart.com, retail, our strategy is focused on driving content, limiting their digital footprint. So, when we say shopper marketing, that's where you're gaining the eyeballs, the awareness. And then we're fulfilling also within the store; whether it's the digital shelf or the physical shelf in store, that's the commentary around things like the beauty edit that we did at Target. You're going to see more of that as we go into the back half because you're seeing in the marketplace that digital spend right now is really coming from an increased perspective and reach. And closure is really continuing to go up. We're seeing more efficiency and effectiveness, leveraging the shopper marketing component of this, and that plays well with the added distribution we’re building upon as we go into Q3, Q4, and then really the impact when you start looking at next year.

So, that's helpful. So, just to kind of go back to the beauty reset. I appreciate, Kelly, you clarifying the commentary about that key digital customer is on the base period, right? So, going back to the numbers you gave for the beauty Clean Beauty numbers, can you clarify that 13% up at Target and then 25% on amazon.com—is that also going to be reflected in that type of inventory or initiative that you had for the beauty edit? Is that something you were looking to do as well as at Ulta? Is it similar in other words, like the same kind of success you're hoping to achieve in the other channels?

Absolutely. We're launching, of course, with the Acne line to focus on skin at Ulta. But absolutely, one of the things we're excited about too as we go into the back half is we have been challenged, like everyone else's, supply chain that has been a drag on both personal care and the beauty business, and we're out-of-stock on some key items. We’re getting back in inventory in Q3 on the majority of items, which will help. We've also seen some of our key retailers struggle with labor and getting the labor in the store to reset the shelves. We haven't had the best execution. As the labor market softens as we go into the back half of the year, we feel like we'll be better positioned with our personal care and beauty. What we've done at Target and Amazon as it relates to SKU count, impressive SKUs, and power on the shelf, as well as with the support Nick mentioned in sharper marketing. We plan to replicate as retail distribution comes on board.

And going back, that was my second question on the numbers on the promo spend in the second half. I think that puts and takes, correct me if I'm wrong. You had a lot of spend, and I understand it's part of it is above the line, so it's part of the impact that you had in the reduction in gross margin. But I was wondering what happens below the line, in other words, the SG&A line, as you shift more from digital into merchandising and store promo?

Yes, I think, in Q2, when you think below the line, our marketing spends in the back half is going to be kind of in the range that we've highlighted, kind of, in that mid-teen. The way we think about R&D and certainly SG&A, we've continued to take a very cautious approach. Overall, we've always had caution as it relates to headcount and growth. But we feel we have the right kind of level of SG&A support and team to support what are some really ambitious growth initiatives as we go into 2023. We think of R&D and SG&A more on a dollar basis and relatively flat. So, certainly, as the top-line comes on, we can leverage our SG&A. We highlighted that we're going to offset a small portion of the headwinds we're seeing in margin with some SG&A savings. Those are predominantly around things where we're in support of growth, things where we can just be more cautious in terms of how quickly we ramp up and grow our internal team, as well as our overall expenses.

Great. I'll pass it on. Thank you.

Thank you.

Thank you. And I’m showing no further questions at this time. So, with that, I’ll hand the call back over to CEO, Nick Vlahos for any closing remarks.

Great. Well, thanks, everybody for participating. As you've heard, we have a lot of conviction as it pertains to the plan that we've put into place as we embark on, kind of, the second half of the year. And on behalf of the team, I want to thank you for your participation today. We look forward to sharing our progress with you on our next quarterly earnings call. Take care, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.