Instead of selling certain excess inventory for money, The Honest Company (HNST), a maker of diapers, wipes, and personal care products, is accepting marketing and transportation credits from an unnamed vendor. The Honest Company recognizes the fair value of those credits as revenue. In the latest quarter, the company booked $800,000 in credits as sales, or approximately 1.16% of total revenue.

The company describes the transaction— getting rid of its legacy beauty inventory— as a non-monetary sale.

The company has four years to use the credits with an option to extend the arrangement another two years if the vendor agrees. If one day the company determines some of the credits are unrecoverable, the asset— a prepaid expense, other current asset, or other asset— would be impaired and charged to operations.

Notably, we discovered a discrepancy in The Honest Company’s SEC filings related to the amount of non-monetary sales recognized as revenue in the prior year. Though the credits were initially valued at $4.7 million, The Honest Company’s latest annual report (page 84) says it recognized $4.2 million in related revenue for the year ended December 31, 2021. Yet the latest quarterly report— which was filed just seven weeks after the annual— says the company recognized $4.7 million in credits as sales.

At minimum, the credits account for approximately 1.31% of the company’s 2021 revenue.

DuDil has requested an explanation from The Honest Company. Specifically, we’ve asked the company to reconcile the half-million dollar discrepancy. We’ll update investors when we develop new information.