Revenue Retail and Third-Party Ecommerce
For retail and third-party ecommerce sales, the Company's performance obligation consists of the sale of finished goods to retailers and third-party ecommerce customers. Revenue is recognized when control of the promised goods is transferred to those customers at time of shipment or delivery, depending on the contract terms. After the completion of the performance obligation, the Company has the right to consideration as outlined in the contract. Payment terms vary among the retail and third-party ecommerce customers although terms generally include a requirement of payment within 30 to 45 days of product shipment.
Direct-to-Consumer
Effective December 31, 2025, the Company will no longer sell direct-to-consumer through the Company’s website as part of Powering Honest Growth. For direct sales to the consumer through the Company's website, Honest.com, the Company's performance obligation consisted of the sale of finished goods to the consumer. Consumers may have purchased products at any time or entered into subscription arrangements. Consumers placed orders online in accordance with the Company's standard terms and conditions and authorized payment when the order was placed. Credit cards were charged at the time of shipment and payments were typically processed within two to three business days. For subscription arrangements, consumers signed up to receive products on a periodic basis. Subscriptions were cancellable at any time without penalty, and no amounts were collected from the consumer until products were shipped. Revenue was recognized when transfer of control to the consumer took place, which is when the product was delivered to the carrier. Sales taxes collected from consumers were accounted for on a net basis and were excluded from revenue. Revenue generated from Honest.com was 10%, 13% and 17%, respectively, of the Company's total revenue during the years ended December 31, 2025, 2024 and 2023.
Non-Monetary Transactions
The Company has in the past and may in the future enter into trade agreements with a vendor to exchange excess inventory for future marketing and transportation credits. The Company recognizes revenue reflecting the fair value of the marketing and transportation credits upon delivery of goods, with the corresponding short and long-term asset included in prepaid expenses and other current assets and other assets in the accompanying consolidated balance sheets. The Company may use the marketing and transportation credits over four years from the date of the respective agreement, with an option to extend for another two years if agreed upon by both parties. For the year ended December 31, 2025, the Company did not enter into any new trade agreements.
For the years ended December 31, 2025, 2024 and 2023, the Company did not recognize any revenue or associated cost of revenue related to these marketing and transportation credits. The Company assesses the recoverability of the marketing and
transportation credits periodically. Factors considered in evaluating the recoverability include management’s history of credit usage and future plans with respect to advertising, freight and other services for which these credits can be used. Any impairment losses are charged to marketing expense in the consolidated statements of comprehensive loss as they become determinable. For the years ended December 31, 2025, 2024 and 2023, the Company used an aggregate of $0.7 million, $1.6 million and $0.3 million of credits, respectively. For the year ended December 31, 2025, the Company recorded an impairment of $0.5 million related to these credits. For the years ended December 31, 2024 and 2023, the Company recorded no impairment losses related to these credits.