In the first quarter of 2023, the Company began executing a broad-based Transformation Initiative designed to build the Honest brand and drive growth in higher-margin areas of the portfolio, strengthen the Company’s cost structure, drive focus on the most productive areas of our business, deliver greater impact from brand-building investments, and improve executional excellence across the enterprise.

Restructuring costs are one of the elements of the Transformation Initiative and are included in restructuring on the condensed consolidated statements of comprehensive loss:

•Employee-Related Costs – Employee-related costs are primarily comprised of severance and other post-employment benefit costs, calculated based on salary levels, prior service and other statutory minimum benefits, if applicable.

•Asset-Related Costs – Asset-related costs consist of accelerated amortization related to visual merchandise in an international retail store taken out of service prior to its existing useful life as a direct result of the restructuring initiatives.

•Contract Terminations – Costs related to contract terminations include continuing payments to a third party after the Company has ceased benefiting from the rights conveyed in the contract, or a payment made to terminate a contract prior to its expiration.

Other costs associated with the Transformation Initiative are comprised of the following:

•Sales Returns and Cost of Revenue – Product returns, chargebacks and markdowns are recorded as a reduction to revenue and inventory write-offs, write-downs or destruction costs as a direct result of the restructuring

initiatives to exit certain products or geographic locations are recorded as a component of cost of revenue on the condensed consolidated statements of comprehensive loss when estimable and reasonably assured.

•Other Exit Costs – The Company incurred other exit costs related to the restructuring initiatives, which are included in selling, general and administrative expense on the condensed consolidated statements of comprehensive loss and primarily include the following:

Costs associated with the Transformation Initiative for the three months ended March 31, 2023 were as follows (in thousands):


				Operating Expenses
Net Revenue(1)		Cost of Revenue		Restructuring Costs(2)		Other Exit Costs(3)		Total
$	456	$	2,725	$	1,350	$	2,431	$	6,962

(2) Refer to the table below for further detail of expenses included in restructuring costs.

(3) Refer to description above for types of expenses included in Other Exit Costs.


	Restructuring Costs
	Employee-Related Costs		Asset-Related Costs		Contract Terminations		Total
Cumulative through March 31, 2023	$	462	$	138	$	750	$	1,350

Changes in accrued expenses as of March 31, 2023 relating to the Transformation Initiative were:


	Restructuring Costs
	Employee-Related Costs(1)		Asset-Related Costs		Contract Terminations		Inventory Reserves		Total
Balance at December 31, 2022	$	—	$	—	$	—	$	—	$	—
Charges (adjustments)	462		—		494		3,843		4,799
Cash payments	(34)		—		—		—		(34)
Non-cash asset write-offs	—		—		—		—		—
Balance at March 31, 2023	$	428	$	—	$	494	$	3,843	$	4,765

(1) Included in accrued expenses as of March 31, 2023. Refer to Note 7, "Accrued Expenses" included elsewhere in these condensed consolidated financial statements.