Q1 2021 Mohawk Group Holdings Inc Earnings Call

And about one minute.

[music].

Welcome to of Terrien, H Q1 earnings report conference call.

My name is James and that'd be your operating for today's call.

At this time, all participants are and they listen only mode. Later, we will conduct of question and answer session. During the Q&A session. If you have a question. Please press star one on your phone.

And and like you turn the color of of it'll be it goes off the.

Director of Investor Relations and corporate development and Leah. Please go ahead.

Thank you.

Thank you for joining us on today's call to discuss the Terrien first quarter 2021 earnings results.

Today's call or you need surgery, co founder and CEO and.

And Arturo Rodriguez R Chief Financial Officer.

A copy of today's press releases available on the Investor Relations sections of Italians website at of Terrien Dot I O.

I would like to remind you that certain statements we make and this presentation are forward looking statements and these forward looking statements reflect the terrans judgment and analysis only as of today and actual results may differ materially from current expectations based on of Numb.

For a factors affecting of Terrines business.

Accordingly, you should not place undue reliance on these forward looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made and this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included on our first quarter earnings release as well as our filings with the S. E C.

We do not undertake any obligation to update or alter any forward looking statements, whether as a result of the new information future events or otherwise.

In addition, and the company name refer to certain non-GAAP metrics on this call explanation.

Explanation of these metrics can be found and the earnings release filed earlier today.

With that I will turn the call over T N E.

[laughter].

Thank you and good afternoon, everyone.

I'm really sorry for the first conference calls of cute pet.

Following of rebranding announcement last week.

Ginger of the company name too, it's here and with unemployment decision with possibly considered of a significant cleared of the time.

First of all of it was about telling us the way more concisely.

Of the company out of intersection of of ecommerce technology and consumer products. We often found of those new towards the way he had a difficult time grasping of full of breath of of it.

Think of the strong work of our team on your website does a great job of explaining our business and the differentiation our team is driving the consumer <expletive> industry.

And if any of you are aware of this week and anonymous shorts out of there and made various I'm proud of the claims against their business practices and integrity and and now for three three profit from a decline and our staff.

We welcome questions from all of the shareholders and I've always been proud to showcase what are incredible team of build through the years, and what technology and marketing and supply chain.

Yesterday day, we you should of relief when we address the factually inaccurate the the news characterization.

If you wish to spend time with us to learn more about our efforts to build the scalable consumer product thoughts on for ecommerce.

Tried to that goes osco director of I R, whose name of that can be found at the bottom of of anybody.

And we welcome investors at the lab demonstration of Omnipod for them to answer the questions about our business to go to I'll go to market strategy all of the subject of your idea of the of course.

We hope that the content and we share how it goes and what I'm interested in our company understand why don't take both of them actually does the nuances of online and marketing and the efforts. We are made to be competitive while remaining complied with rules and regulations.

Q1, with an incredible of learning opportunity for a company.

Why are we faced and was difficult supply chain challenges and the history of of from the the.

Spot all of our efforts.

And not able to maximize the full potential o'clock portfolio revenue, regardless I know that we learn a lot and improve and on many from.

And my seven years, and I think that's the company I've learned that every time our team is tested for you come out stronger and more capable.

For our sort of thing so glad you and operation theme I've watched you fight for the incredible of complexity of the daily supply chain disruption, both domestically and internationally, while continuing to work on the subway and optimization of a recent acquisitions and.

On behalf of all shareholders of thank you for your efforts and dedication and as well as the ability to create the accretively solve difficult problems on the flight.

Did you more contact the the audience the day regarding the scale of of the crisis. According to the jewelry and married and research and consulting service.

And so it goes shortage of containers and queue for and Q1 2021 has led to three to four times increase and cost of shipping while the reliability of of marine and schedule. The plummeted the 55% by September 2021.

Reported by the the intelligence.

<unk> and by the increase the man for ecommerce side of and continued growth of of certain pop products. We struggled to keep inventory on hand and missed the approximately 6 million in south for the quota.

For the past three quarters, we believe that we missed the cumulative approximately 20 million and revenue as a result of of inventory of shortages, we continue tomorrow and the other challenging international shipping environment, and and I've chosen to the main conservative with our adjusted EBITDA guidance and case shipping rates container of congestion pricing of of the last mile shifting and other stuff like and factors continue to increase.

And effect of the bottom line, we expect of more clarity on the the normalization of of the supplies and irregularities in the coming months.

The most of of you already ready and I already press release today, we're probably going out of the officially adding to your brand throw up what for that's probably mentioned we closed the acquisition of of photo paper and Iraq of leaving on line brand and the office and printing business basically and <unk> in the United Kingdom for.

One of the paper the right is established itself with the category leader and various inkjet and you get product categories and created a strong mode on Amazon. The strong addition to of portfolio of photo of Diversifies are part of the categories as well as the footprint from various market places and your.

We've done to the level of the companies vocal theme expertise and the European market the accelerated of international expensive and.

Additionally, we're super excited too and off the squad of your body of joining it too and family outing of National and he loves Brian and throw a portfolio Squatty body has brought the market housing first of all of their products of that type of humor and abundance of caring for other while creating an entire category and the state.

According to a lot of estimate the an average of of millions searches of squat of your body products of current Amazon Dot Com every month with the product appearing early on shark diet and video lots of October 30 million times on you tube. We believe Squatty Party is poised the continues the dominate the market it's created and.

And she significant opportunity of spending the brand success and the United States and through international child, as well as developing additional price of the light of the brand followers.

And Ah brought her us and we continue to pursue all of them and your strategy and review of new up with you and you're going to waste the basis, when you're going to get you need to invest and Oh. It gave me infrastructure and deal flow of capability for drive growth through the acquisition.

When it comes to launch and your products this quarter of amongst the record for a company with 21 and your box introduced.

While the initially we projected launching higher and higher him out of the product, we recalibrated in favor of quality and Tommy and I'm very happy with our achievements on that from given the complex challenges supply chain that affected or manufacturing partners as well.

Certain products that suffer of delay have been put on hold and the launch could of misses an allergy related windows.

Additionally, COVID-19 travel restrictions of prevented Ikea and for being able to completely.

And fully Ron control quick all of your control procedures, which resolved and and some cancellation of the late.

Overall of the team of work tirelessly to overcome these challenges and I think we made the best possible judgement cause when our extra day.

Given our expectations and this is the reality, that's been and pose on us.

We're looking forward to the challenges and he kind of opportunity that hadn't kitchen and beyond.

And lastly, I thought it was and put her on this call to address the question around some of the management team selling of thoughts during the last the open trading window as.

And I was gonna ask you and the previous earnings call most of the vitamins thoughtful of the and clean mine and a form of restricted stocks and as you may know Baptist for the shares of do at the time of the best thing and no individual of the team and is able to cover the taxes without seven.

Also we would like to preserve the company's cash for growth versus covering management and significant backed out of the like.

Most of the shares was so.

Most of the shows that were so without the cover of doctor's with some individuals chosen for thought of additional shares after many years of hard work with the.

And I want to mention too, but we require of the management team several times the delay the best thing of their shares and even on one occasion for for for those shares in order to protect the potential downward pressure on the company's share price that could have resulted from the bachelorette. It's Kelly.

A management team include some of the hardest working and with dedicated people that I've ever had the privilege of partnering with and the remain extremely invest into the company's long term success.

And the personal load as part of my lungs, and wealth learning and as reported and two 2019 and I decided to give the significant portion of my whole thing and the company to any of the Vocable of trust on behalf on the the benefit of my children.

The this company is my life's work and I'm going to have to do everything and my other to lead and a way to drive the Max and a Muslim shareholder value.

And with that I'll pass it onto already for a finance update.

Thanks, you need and good afternoon, everyone here of the operational performance details of our first quarter.

For the first quarter of 2021, net revenue increased 88% to $48.1 million and $25 6 million and the year ago quarter.

The strong game was primarily from growth and a sustained products of 25.1 million to 42 million from $16.9 million, including a recently acquired products and wholesale revenue of 1.9 million, including point 6 million of P P versus ear and the prior year period the.

Quarter also saw a decrease and launch product revenue of 2.6 million versus prior year period $6.2 million is the majority of the 21 products and launched and the period happened to happen and the late period of March.

We suffered from inventory shorts, and the quarter, which we estimate the beat impact of approximately 6 million. Many we estimated and we could sell household and additional 6 million with normal inventory levels.

Gross margin for the first quarter increased the 54.1 per cent from 42% a year ago quarter and increased from 45 six per cent in queue for 2020.

This year over year and sequential improvement and gross margin was due to both favorable product mix, including new price acquired pursuant M&A and pricing from vendors all set by wholesale revenue, which carries a much lower gross margin.

Our overall Q1 2021 contribution margin was 12.7 per cent as the result of previously mentioned factors, which improved compared to price here see them loss of 2.9 per cent.

Within C. M R sales and distribution costs were negatively impacted by the supply chain crisis, which drove higher cost and the last of the last mile fulfilling giving the carriers tightness and the quarter U.

E Commerce platform commissions online advertising logistic expenses included with and sales and distribution expenses I E R variable sales and distribution expenses and.

As a percentage of the interview increased the 45 two per cent for the three months ended March the first 2021 as compared to 43.1 per cent for the three months ended March 31st 2020.

We continue to see some of the these increased cost impacting our queue too.

Q1, 2021, which is historically are soft this quarter. So are sustained products contribution margin grow to 18 two per cent when excluding the 1.8 million non-cash inventory step up related to M&A versus six four per cent and queue and 2020 and we.

And we continue to see year over year improvement and our product unit economics from mixing pricing.

Adjusted EBITDA, which of schools stock-based compensation change and fair market value of Burnett liabilities net.

Charges from cheeses, and fair value of warrants and the loss of the issuance of the warrants amortization of inventory step up from acquisitions and other M&A related cost for the first quarter of 2021 and prove to a loss of $1.3 million from of loss of $6 for a million and the first quarter of 2020.

Oh I'd like the highlight if not for the inventory sorts of the described earlier and we believe that adjusted EBITDA would have been approximately breakeven.

Excluding M&A related costs from professional fees and transition the healing solutions are fixed cost increased approximately $1.5 million compared to the prior year period.

Our head count Rose as previously mentioned to 220 people as of March 31st 2020, and we added headcount, primarily and customer service and the other customer related roles predominant in the Philippines.

We expect to see our revenue per full time employee equivalent to be neater $1.4 million for 2021 versus 20 twenties of approximately $1.2 million. This is the continued example of our operating leverage and our technology led business model.

And that loss, which has been impacted from charges of changes and fair value on warrants and the losses and the issuance of warrants and the net pieces of 53 million.

As part of a refinancing complete and in April we have amended the warrants to be treated of equity as opposed to debt and expect to avoid these and packed in the future.

Turning to the balance sheet and March 31st 2021, we had cash of 35 million compared to $26 7 million at the end of December 31st 2020.

The increase and cash and friendly driven by findings and cash proceeds from the exercise of warrants of 25 million. The high trills no two for 14 million offset by cash portion of the purchase of healing solutions of 53 million repayment from cellar notes from smash of for 7 million working capital uses of 36, as we build up for inventory and the summer season and.

Cash net loss.

The company does have approximately 9.7 million and escrow accounts as of March 31st 2020 related to the deposits of certain inventory purchases, which has been treated as restricted cash and.

As previously announced the company closed the 210 million.

Debt refinancing on of April 8th.

The company views, it's the financing at the step approach as we continue to execute our M&A strategy and other strategic initiatives, we do expect opportunities to prove our debt profile over time.

The historical Smash audit, which is for the period of 2018, and 2019 has been completed and and we expect the file a delayed haa, including performers no later than May 14th as previously mentioned the delay was related to the earlier periods, including the opening balance sheet period of December 31st 2017, the <unk>.

The results, including the reviewed and nine months period of 930, 2020, which will be included in the 8-K performers are in line with previously disclosed financial results for the Smash acquisition.

For guidance the pull your guidance for 2021 on revenue the company now expects net ready to be and the range of 360 million for 390 million up from $350 million of 380 million, reflecting the addition of Squatty Party.

For the full year 2021, adjusted EBIT of guidance. The company expect the adjusted EBITDA to remain in the range of $30 million for $34 million adjusted EBITDA increase of Squatty potty of approximately 2.5 million based off the timing of closing of that acquisition is offset by some cautious of planning is and costs related to the current global crisis and the supply chain. So we do.

We do expect the raise prices to offset the impact of of this global crisis, the timing of the speed of raising the prices. It's always managed not the impact of the long term listening position of our products and market places.

With that I'll turn back the the call for the operator to open the call for questions.

Very good we can now begin our question and answer session. If you have a question. Please for a star one on your phone.

If you wish to be removed from the crushing queue you may press the pound sign of the Husky.

And if you're using a speaker phone you may need to pick up the handset first before pressing the numbers and once again and if you have a question pretty stressed star one on your phone.

Our first question comes from Thomas for D. A Davidson.

Great. Thanks for taking my question. So I have one question of the one follow up so you need that of high level I wanted to know how you leverage your of technology to identify opportunities to build and byproduct because some of the market places to advertise those products and market places and and manage the logistics of those products.

Sure. Thanks.

So yeah. So let the touch on all of these points, we use technology along the three ways, you mentioned first and foremost by capturing and large amounts of data for.

Different sources, including of public sources, and at the eyes, and and basically build through models visibility into.

[noise] different categories of products, what is moving those categories, one of the trends and dislocation windows and where do we see the opportunity to potentially make better products.

Yeah. Once those are the fine we use the software to also build.

Of P&L and of forward looking forecasts for that product based on data that we have accumulated to help us quickly understand the opportunity qualified if we qualify of the opportunity. That's when we will engage our sourcing game too.

Levers of data and the opportunity information that we collected to find the right supplies to help us get the right product and market. The suppliers typically it's more than one we try and get products for many suppliers, we compare the cost and other parameters through the software and and can compare different scenarios.

Tell us really what is the best product the launch and wants me move forward with launching the product obviously it takes thinking of of your big six to eight months from the moment of we identify the idea of until the price is ready to say I want it to the right.

And it into the target market.

And we launched the product basically of using marketing across the board to basic to basically outperform the incumbents, what we saw so and and weakness and the market.

And at that point in time, you know everything flows of the software in terms of like managing the of pianos.

P&L as of the plot of the statistics every day of how 'bout the doing we automate the marketing on Amazon for this products and then and so.

Certain cases, especially for oversize items and software also manages the last mile fulfillment and and got instead of relying on Amazon and fulfillment centers.

Or on it or Walmart. So so unsatisfied I said if the item is large we would typically use our own. So yeah. It's V. P. L partners centers that are connected to our software.

To to manage the last mile shipping.

The the answer your question.

Yes. It does thank you. So then for my follow up question and you sort of touched on this and your opening remarks, but can you walk through the impact of the adjusted EBITDA and the quarter from the inventory shortfalls.

Alright, Alright, and you wanted.

Yeah, and so thanks.

Yeah. Thanks, you need Hey, Tom So yeah, we we estimate of a short for the six 6 million and obviously our car sustained contribution margin was roughly 18 per cent. So when you multiply those those numbers. That's that's how you get that.

And <unk>.

Excellent. Thank you needed thanks already.

Thanks So.

Our next for questions from Brian Nagel Oppenheimer.

Yeah, good afternoon guys.

[laughter].

Alright, I hope of course, Okay. A couple of course the first my first question just on the on the supply chain and I know and and we talked about this a lot and Queen last quarter, but and you mentioned to hear of give it could you size and I think the private question talked about the the top one of the impact, but maybe just understand better the the the the impact of EBITDA.

And then philosophically is it still is.

And you still basically eating these higher shipping costs.

There's been some changed your and how and what have you seen in terms of just the within the supply chain me and how how how long how how much longer do you think the these pressures could persist for Ya.

Alright, and you want to take the financial for it and I'll answer them the business day.

Yeah. So so the key Brian and so yeah listen and as you saw our our sales and distribution number and it was a little higher than the.

And prior year period, right by 2.2, we did the Tom right, but I think as we continue to go through this this crisis you know and this global crisis and everyone does right. We're we're expecting and raise prices as I mentioned right and.

And and I do think we can all set a good portion of it with with with pricing increases the <unk>.

And it's just the timing of that and and and we have to be delicate not the not the impact of long term value of our listings right considering the how the marketplaces work. It's it's not something you just jam through you guys sort of two of very thoughtfully and delicately.

But that is that is kind of the plan to sort of really offset the majority of the stuff as we approach to tune into the queue three.

Yeah, if I can add to that Brian just just to touch on what are the third right.

And you know the the market places of very competitive right and the dilemma is always.

You know as you kind of see increasing prices of chipping.

If you if you start increasing your price, so obviously absorbed out and and and produce better of contribution margin, it's going to potentially come at the expense of a more aggressive credit or was going to try to keep it the price low take more market share of from you and potentially and the long term effect. Your the the performance of of your product right. So.

And of pay per case basis. The decision has to be made given many factors and you know we tried to find that sweet spot between optimizing for contribution margin and also a long-term conserving the market share that we have.

<unk> got it sort of a just a follow up on on that is already have you where you could you and.

Is is or where you can say the actual impact on an adjusted EBITDA from from the from the supply chain of yours.

And Brian and can't disclose and at this point I think you know, we measure of the guidance and and the even overall right and I think we pointed to.

And I think you'll see it with the cute and he did mentioned and the scriptures about the two point impact right in the sense of of what you saw and the sales and distribution side, which I think is probably where we saw the impact for for you want it's the the last mile but to quantify what we think the futures and I I can't do that right now.

And then I think the quite a bit of was on the one right sorry, Brian and you want them to what I was looking for.

Yeah, Oh, Yeah, I thought you meant on line and it's got it you one yeah and I would say two points.

Okay. Two point, okay. So it says and we'll do the mouth and.

And I guess my final question probably.

Probably more for you and eve, but there's there's any update on on the on the on the on the on the true Rio product within your portfolio.

Yeah sure.

So true.

The joy of product was.

Basic attack and one of the most of the aggressive weighted by the end of Black Eyed seller.

Which has cause of the decline and sales.

And you know, they're actually is the still evidence of that on Amazon and that somebody who's blackout sellers are still appearing on the page we are working with Amazon and all of that problem.

Alright the.

Obviously, though with the decline and it's sales and one thing I would caution is to try to estimate the those numbers using some external tools that are very inaccurate and from what we've seen but again and this is an ongoing issue. We're working with Amazon on this and I'll tell you exactly what to get resolved, but at the one of the ones that we just a black cat.

Attach that we've seen and we think it's very very limited the fifth category and the nature of of these products and cannot necessarily affect the other one of our.

The products.

And again, we're working on with all of the night.

Alright, thank you.

Our next question from Marvin phone of B T I G.

Thank you got a good ER good afternoon, thanks for taking my questions.

Couple of for me you know actually just building on the on the last question you know maybe it would be helpful. For for investors also here you know how some of the other deals that you you executed of how how performed you know maybe smash being the next oldest you can you can provide some insight and how that's progressed against your.

And I can share expectations, and then I have a couple of follow ups.

Yeah.

In general we don't want to break the acquisition of the regular basis I can tell you that smash for the first of all month of the year of glue, a little over 20% versus the same time, the last year, but but he and let it let me explain.

R. R. A pro tried and and and help understand how we think about this right. So it looks.

We manage all of the box what are the acquire the launch as one large portfolio who uses the same pool of resources right. So we think of it the what does the data tell us we have all of these different assets way of a certain amount of of resources that we can invest and growth and I'll go and that was at the drive both of course, the entire portfolio of the best possible positive.

And with the lowest possible fixed costs and and you remember like the investments, we're making and tech and.

It really to be able to manage thousands and thousands of products over time of course, many different channels.

The optimal fixed cost of with the best decisions on a per product basis around controversial margin or growth or boat light. So I'm going to give you. An example of item and if we out of seven point in time and the data shows us more opportunities and and appliances for example.

And you know and we think we do lots of them all caught up in that category.

And we invest more and the growth there are the expense for example of some products that we have and the beauty of category that doesn't mean that those products and I'll go ahead, and we're going to stop selling them or.

Because of because again as long as the amount of it profitably inefficiently, that's the beauty of them all right, so and you'll have to sit and and limited resources to invest and growth whether the threat building more product or doubling down of the market. The category that decision is down and force the and talk but for the or not for Bryan, but really based on what the date of tells US where I can tell you also that for example.

Aw.

88 per cent of the revenue generated by all of the products lots of by us or acquired outgrew on the loss and LTM basis right. So again, we'd take a portfolio of you and eight per cent of all of the revenue generated by all of the product has been on and of growth pattern right.

So does that does that makes sense yeah. The that's the approach and we take is not of traditional of the <unk> as a certain brand that is for one particular category. We look at this entire portfolio and where the day that tells us the dismal what's your already basketball of double not and <unk>. That's why it's difficult to necessarily start breaking it down and and and trying to figure out what are the me and right. The.

This product is not growing as much of the other one.

Yes. Thank you that makes perfect sense and then moving on question. Please so you've talked to and the release of how you know evaluating and expanded M&A pipeline compared to last quarter. I'm. Just wondering if you could kind of dull dive into the dynamics. So is this kind of building on.

The top of the pipeline, but yeah, the last quarter or has there been actual like some of the prospect from last quarter of actually dropped off and and you know if you could just help us understand that and and then.

And what's Squatty Party you know one of the companies that was in the pipeline from last quarter, Yeah, I'm only asking that the kind of figure and if you were actually executing of <unk>. The pipelines that you're you were mentioning and use the updates. Thank you.

Yeah, that'd be great question and that that by the line is obviously a revolving right.

Some deals.

You know are going to be moving.

Moving to L Y some of them will close some of them will be dismissed.

Either maybe even after we went to do other why why would you have to deal with this for sudden and reasons right.

And so the Python revolves and yes, the sweaty body was wasn't that number right.

And so again, you know some deals and we might lose all sorts of someone else right and they'll leave the pipeline for for the the seller on the other side might say that the they decided to go and do a deal with someone else right. So that number is really out there to give us a sense of how much revenue. We're looking at any point in time, how much opportunity there.

Is vitamin and it's it's a drop and the water and the size of the time of of of acquisition of that's out there, but we think it's important and to get us convey the amount of revenue debt. What we're looking at and are competitive around in terms of just the putting out of the of the line and clothing.

Terrific and if I could just get one more and just very quickly you know with all of the the plane supply chain of issues out. There are are you are you still expecting you know the number of product lunches that you mentioned last quarter around 70 or or should we think about that as the number.

Being affected by all of the supply chain of issues. Thanks.

Mmm, Yeah. So you know we we we definitely are still same pressure you know will probably planning like 17 to 20 products at this point and the second quarter of 21, you know, it's it's the challenging.

The situation for us because of the end of the day. The all the way of product of sustainable of long term and it just has to have that sweet spot of quality and price. There's just no other way to make up a successful and we can cut corners and definitely you know we want to be cautious not to try to rush too. Many part of thought I spent with some of the limitations the.

The COVID-19 is creating not just don't us, but also on our suppliers of suppliers of having a hard time.

Making sure that they have all of the raw materials, the the delays that for where it's hard to to get trucks.

And various parts of of the World, where where your money talks of the products and so you know again, and we were doing our best and and working as hard as we can to lots of as many products, but without sacrificing quality of value for customers and and and all of a.

The.

The constraints on the supply chain and I'll call out across all types.

Yeah, Okay that makes perfect sense. Thank you so much I appreciate it.

Thank you.

The next question from Brian Canceling your of of Lions Global partners.

Great. Thanks, so much for taking my questions.

I'm curious how management and inventory strategy has changed at all and while much of it not in your control right now obviously after learning more over the last six months, what can you control of the limit the and <unk> inventory sure of Jason I guess I Wonder if you have read about owning versus renting containers and that's something that companies like yourself or evaluating the differences.

Mmm. Thanks for the question, Yeah, obviously inventory management the crucial P. C of and one of the things I love about the model of the business is that because we control.

Things like pricing.

And and the inventory levels that we.

And can allow for example, the retail slots from through which we sales the show customers that gives us a lot of flexibility in terms of trying to basically as much as possible.

Control the the velocity of sales and on a regular basis fried and so you know often times, we might we might the lower the marketing levels right or slightly increase the price to to adjust and and try to do our best to obviously makes.

And make sure that we have a sustainable supply and demand and now again with the level of disruption that would see here that that becomes a little more challenging really the we've we've not seen of this type of constraints in terms of how long it takes for containers to arrive for the poor. It's in terms of of how difficult the date to find the dinners and so.

So I team and doing really I mean, amazing work and and and working for the most of the solution you know, including sometimes and then it goes back to the question of though without before right.

And you know because we're so accused of the performance of the product and the implication of the performance has over the long term market share of of the product and the space right. We sometimes I have to make tough decisions around paying more of a containers that we feel like and and the <unk>.

The of the cost of of the contribution margin, because we know that being out of stock for too long and could open the door for competitive with the take too much Wanna get you right. So yeah and you know, we're we're really kind of like turning every stone and and on a per product basis, managing and already given many variables again, including.

The effect that the losing inventory for too long would happen and market chair and the amount of C. M. The we need to start the produce for the company to to me that the expectations right. So.

[noise] and then can you remind us are there I know of line of the global so try and supply issues are shifting from China are there reminder of other areas when you're manufacturer from or other investments being made and alternative geographic locations.

Yeah. There are there are still just one day right at the phone and definitely the walls of the bulk of it is done and China.

But there are other areas and Asia for me to take the the the global supply chain crisis effect pretty much every route at least to my knowledge right. The it's it's not something that we could resolved by going into another country and at least not within and also the call backs of meeting other requirements of the products right.

And so the best thing we can do it again, you know manage visibility for the suppliers as far as we can try to give them out of somebody visibility and to our forecast and our challenges.

Work with them very closely having our own team on the ground and China is extremely helpful for that perspective, and again, you know and the other and Oh optimizing for you know for the situation right and when it comes to marketing spend and and and the price et cetera, right. So.

Uhm I T and my Dad, and I think is doing the best they can within the the the situation and and it will continue to monitor every development and and anything we can take advantage of when it comes to improving the situation.

Great and last question and I have is and and and a let's assume and I don't know the average credit. The average is about four times EBITDA, you're paying and trailing EBITDA and.

And the earn out is achieved for what you generally been paying does that.

Keep it at about four times, given the upside they've delivered for what does the valuation with like generally after the Internet and is it is it much easier and much better is it is it you know how does it change verses what the initial evaluation looks like.

Yeah. The deal structure, the very you know and a depending on obviously of negotiations and other things.

And yeah, sometimes obviously of 10 end up being you know a higher multiple rights the than than that if it really the the company has done really well, which we're very excited about glad we're happy to pay more if the company has the and the assets that we bought have performed the really well right. So it really is and it it really is something that the.

Go ahead and repair the old basis Wood again, soon and kind of multiple range of prompt and and sort of and multiple range.

On the earn out the depending on and there is various day right.

Okay, great. Thank you so much.

Yep. Thank you.

[noise] and a question from kind of scalar of Roth capital partners.

Hi, guys. Just quick question on and Sweaty body. So you guys of reason and the guidance the midpoint, sorry about 10 million.

And and they deliver 70 million over the food and 12 months just wanted to understand the got there.

Mmm.

And do you want to take that.

Yep, So and I think.

And I think some of it's timing and seasonality, they're gosh, alright. So I think you know and we just close today, so you're not gonna get the full year and that's number one and number two there's a little of seasonality baked and their business. So we're just you know kind of true.

And on that number, but that's kind of how you get there.

Okay, and and have a soldier so.

Just looking at the <unk> not.

Earlier this week.

Just wanted to clarify the security and over and give away.

For this.

I'm, sorry, I'm, sorry can you ask the question and again I couldn't hear it.

Oh, sorry, so I just wanted to know does appear and ever.

Pay per views will give away from it.

Right now we we we don't we do not pay for reviews, Yeah, We we would do promotions and cooling sweepstakes giveaways and other things like that and.

And you know look and general we ask customers for reviews ride like sometimes I got a lot of times right through the retail the.

Emailed assistant of themselves right, but we never.

We don't take yeah any any of these promotions of any benefits that we give contingent of leaving of review it right. So yeah. The the the challenges of those are very separate marketing tactics that people can confuse right, though we obviously.

Ask ask consumers for reduced both purchase would again, sometimes the retail system itself, but we'd never again and make those promotion and do any of the type of benefits contingent and I'm, leaving bridges.

Okay, Great and one last question, just forgot and Yemeni pipeline can kind of talk about the average size of of the target.

Looking at the new acquisition and what the cash someone's gonna be at the end of the two Q and.

And how much the firepower and do you have.

With the current impasse levels, how do you think about using stuff for a moment.

Are you lots of good.

Yeah. So I I think we we said before guy. So I think you know the the pipeline is dynamic there's a lot of different entities and there or or opportunities right. There's there's some big there's some small and depending on what's next.

And we've said previously we would need to raise money or or raise debt to sort of clothes and the the the next big one or something like that right or depending on on on what what's the next one I I I think you know excluding the M and a I think we got sufficient cash to run the business right, but if if depending on what's in the pipeline what we decided to go for next and you'll <unk>.

Would be faced potentially you know doing some type of financing or debt raised.

Great. Thanks for taking my question goes.

Mmm.

<unk>.

And there are no more questions and so I turn the call back to and Leah.

Thank you.

He upcoming calendar.

Aterian management will be participating in the 16th annual Needham Technology and media conference may 17th of the 20th.

The 2021 R. B C capital markets Global consumer and retail conference June 22nd and 23rd.

And the Jeffries virtual consumer confidence June 22nd to 24th.

Thank you for joining us on the call today, and we look forward to speaking with you on future calls and.

And the sense of our call.

Thank you, ladies and gentlemen, and this concludes today's conference. Thank you for your participation you.

You may now disconnect.

[music].

[music].

[music].

Welcome to of Terry and Inc. Q1 earnings report conference call.

My name is James and I'll be your operator for today's call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the Q&A session. If you have a question. Please press star one on your phone.

And I'd like to turn the call of right it'll be outgrows the Asti.

Director of Investor Relations and corporate development and Leah. Please go ahead.

Thank you.

Thank you for joining us on today's call to discuss the Terry and his first quarter 2021 earnings results.

On today's call are you and Ive Shriek co founder and CEO.

And our tour of Rodriguez, our Chief Financial Officer.

A copy of today's press release is available on the Investor Relations sections of Italians website at of Terry and Dot IL.

I would like to remind you that certain statements. We make in this presentation are forward looking statements and these forward looking statements reflect the Terry and his judgment and analysis only as of today and actual results may differ materially from current expectations based on the.

<unk> of factors affecting <unk> business.

Accordingly, you should not place undue reliance on these forward looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included on our first quarter earnings release as well as our filings with the SEC.

We do not undertake any obligation to update or alter any forward looking statements, whether as a result of the new information future events or otherwise.

In addition, the company may refer to certain non-GAAP metrics on this call explanation.

Explanation of these metrics can be found and the earnings release filed earlier today.

With that I will turn the call over to Yaniv.

Okay.

Yeah.

Thanks, Julia and good afternoon, everyone.

I'm really excited for the first conference call of the QA following our rebranding announcement last week.

And the company name to it too and with unemployment decision and we thoughtfully considered all of the Cigna.

Difficult period of the time.

First of all of it was about dialing a slower and more concisely as the cause.

The idea of a section of E Commerce technology and consumer products, we often found that those new towards the way you had a difficult time grasping the food and breadth of our vision.

For the strong work of our team our new website does a great job of explaining our business and the differentiation of our team is driving the consumer the bike industry.

And as many of you are aware this week and anonymous short seller of made various Anthony the claims against the business practices and integrity and and now for three of three profit from a decline of our stock.

We welcome questions from all of the shareholder and I've always been proud of the showcase what our incredible team was built for the years, and what technology and marketing and supply chain side.

Yesterday, we issued a release, where we address the factually inaccurate and mischaracterization.

If you wish to spend time with us to learn more about our efforts to build a scalable the consumer product platform for ecommerce.

And that goes all the other director of IR, whose name of it can be found at the bottom of that range.

We welcome investors at the lab demonstration of what anybody wants to answer questions about our business to go to our go to market strategy.

The right you have the of course.

We hope that the content and we share helped those who are interested and a company understand what are the platform actually does the nuances of online marketing and the efforts we have made to the competitive while we remain in compliance with rules and regulations.

Q1 was an incredible learning opportunity for our company.

While we faced the most difficult supply chain challenges and the history of our firm.

Despite all of our efforts.

Not able to maximize the full potential of product portfolio of revenue.

Regardless of how that we learned a lot and improve the on many fronts and.

And my seven years, leading the company I've learned that every time, our team is tested and we come out stronger and more capable.

So our sourcing and supply chain and operations team I've watched you fight for the incredible complexity of the daily supply chain disruption, both domestically and internationally, while continuing to work on the supply chain optimization of our recent acquisitions.

I have all shareholder of that thank you for your efforts and dedication of the one of the ability to create the.

And the creatively solve difficult problems on the fly.

Could you give more context for the audience today regarding the scale of the crisis, According to jewelry and married and research and consulting service line.

The shortage of containers and Q4 and.

And Q1, 2020, one has led to a three to four times increase and cost of shipping while the reliability of the marine schedule of the plummeted the 55% by September 2020.

And by the intelligence.

And by the increased demand for e-commerce side of it and then continued growth of a certain type of products, we struggled to keep inventory on hand, and Miss the approximately $6 million in cash for the quarter.

Over the past three quarters, we believe that we miss the cumulative of approximately 20 million and revenue as a result of inventory shortages.

We continue tomorrow and the other challenging international shipping environment and have chosen to remain conservative with our adjusted EBITDA guidance and the case shipping rates continuing of congestion pricing of the last mile of shipping and other supply chain factors continued to increase and.

The bottom line.

Thanks to have more clarity of the normalization of the supply and irregularities in the coming months.

As most of you already read and our earnings press release today, and we're proud to announce the we officially adding two new brands to our portfolio and further mentioned we closed the acquisition of a photo of paper with Iraq, a leading online brand and the office and printing business based on and in the United Kingdom.

The photo paper of direct has established itself as a category leader and various inkjet media product categories and created a strong mode on Amazon and the strong addition to our portfolio of further diversifies, our product categories as well as the footprint and various marketplaces and Europe.

We intend to leverage the company's local theme of expertise and the European market, the accelerate our international expenses and.

Additionally, we're super excited to announce the Squatty body of joining the team and finally, adding of nationally and loved brands of our portfolio.

Quality of body has brought the market health and personal care products for the types of Humira and the abundance of caring for others, while creating an entire category and the space. According to our estimate for an average of 1 million searches and quantify the product the CRO and Amazon Dot Com every month with the product. The hearing early on the chart banked and video ads and flex over 30 million tonnes on Youtube, we believe squad.

<unk> is poised for continued to dominate the market has created.

We see significant opportunity expanding the brand success and the United States and the international channels as well as developing additional price the light of the brand's followers.

On a broader growth we continue to pursue our M&A strategy and review of new opportunities and on a week the basis, we intend to continue to investing in infrastructure and deal flow capability to drive growth from the acquisitions.

When it got the launching new products this quarter of amongst the record for our company with 21 new products introduced.

While the initially we projected launching.

The hiring him out of the product, we recalibrated in favor of quality and timing and I'm very happy with our achievement on that front given the complex challenges of supply chain that affected our manufacturing partners as well.

And certain products the tougher delay have been put on hold as the launch could have missed seasonality related windows.

Surely COVID-19 travel restrictions of prevented our team for being able to completely and.

Fully run control the quality control procedures, which resulted in some cancellation and delay.

Overall the team has worked tirelessly to overcome these challenges and I think we made the best possible judgment calls when our extra day, given our expectations versus the reality has been imposed on us.

We're looking forward to the challenges and exciting opportunities ahead and get to and beyond.

And lastly, I thought it was important on this call to address the question around some of the management team and selling our stock during the last the open trading window.

And when they have seen in previous earnings call and most advisors and it's thoughtful of the including mine and full of restricted stock and as you may know that just for the shares of due at the time of vesting and no individual of the team is able to cover those passes without some of it.

Also we would like to preserve the company's cash for growth versus covering management and significant tax liabilities.

Most of the shares were sold most.

Most of the sales that were sold without the cover the doctor and with some individuals chosen to set of additional shares after many years of hard work.

And as I mentioned too that we require the management team several times the delay the vesting of those shares and even on one occasion for for fiduciary in order to protect the potential downward pressure on the company's share price. They could've resulted from tax related Kelly.

Our management team includes some of the hardest working on with dedicated people I've ever had the privilege of partnering with and they remain extremely invested into the company's long term success.

On a personal note as part of my long term wealth planning and as reported and throughout 2019, and I decided to give the significant portion of my holding of the company to an irrevocable trust on behalf of the.

A benefit of my children.

But this company is my life's work and consisted of everything in my part of the lead and a way that drive the maximum long term shareholder value.

With that I'll pass it onto already for a finance update.

Thank you and Ive and good afternoon, everyone here of the operational performance details of our first quarter for the.

The first quarter of 2021, net revenue increased 88% to $48 1 million from $25 6 million and the year ago quarter.

The strong gain was primarily from growth and a sustained products of $25 1 million to 42 million from $16 9 million, including our recently acquired products and wholesale revenue of $1 9 million, including $6 million of PPE versus zero in the prior year period.

The quarter also saw a decrease and launched product revenue of $2 6 million versus prior year period of $6 2 million as the majority of the 21 products launched in the period happened to happen and the elite period of March.

We suffered from the inventory shorts and the quarter, which we estimate to be the impact of approximately 6 million, meaning we estimated that we could sell or have sold and an additional 6 million with normal inventory levels.

Gross margin for the first quarter increased to 54, 1% from 42% a year ago quarter and increased from 45, 6% and Q4 2020.

This year over year and sequential improvements in gross margin was due to both favorable product mix, including new products acquired pursuant to M&A and pricing from vendors offset by wholesale revenue, which carries a much lower gross margin.

Our overall Q1 2021 contribution margin was 12, 7% as the result of previously mentioned factors, which improved compared to prior year of C. M of loss of two 9%.

With MCM, our sales and distribution costs were negatively impacted by the supply chain crisis, which drove higher cost and the last for last mile fulfillment, giving the carriers tightness in the quarter.

E Commerce platform commissions online advertising and logistic expenses included within sales and distribution expenses I E. Our variable sales and distribution expenses.

As a percentage of net revenue increased to 45, 2% for the three months ended March 31st 2021, as compared to 43, 1% for the three months ended March 31 2020.

We continue to see some of the these increased costs impacting our Q2.

Q1, 2021, which is historically, our softest quarter. So our sustained products contribution margin grow to 18, 2% when excluding the $1 8 million noncash inventory step up related to M&A versus six 4% and Q1 and 2020.

We continue to see year over year improvement and a product unit economics from mix and pricing.

Adjusted EBITDA, which excludes stock based compensation change in fair market value of earn out liabilities.

The net charges from changes in fair value of warrants and the loss of the issuance of the warrants amortization inventory step up from acquisitions and other M&A related costs for the first quarter 2021 improved to a loss of $1 3 million from a loss of $6 4 million and the first quarter of 2020.

I would like the highlight if not for the inventory sorts of as described earlier, we believe that adjusted EBITDA would have been approximately breakeven.

Excluding M&A related costs and professional fees and transition of the healing solutions, our fixed cost increased approximately $1 $5 million as compared to the prior year period.

Our head count Rose as previously mentioned and to 220 people as of March 31, 2020, as we added head count primarily and customer service and other customer related roles predominant in the Philippines.

We expect to see our revenue per full time employee equivalents to be need of one 4 million for 2020 one versus 2000 Twenty's of approximately $1 2 million. This is the continued example of our operating leverage and our technology led business model.

Our net loss, which has been impacted from charges of changes in fair value on warrants and losses and the issuance of warrants on the net basis of $50 3 million.

As part of our refinancing completed in April we have amended the warrants to be treated as equity as opposed to debt and expect to avoid these impacts and the future.

Turning to the balance sheet at March 31, 2021, we had cash of $35 million compared to $26 7 million at the end of December 31 2020.

The increase in cash of strongly driven by findings and cash proceeds from the exercise of warrants of $25 million. The hi, Charles no two for $14 million offset by cash portion of the purchase of healing solutions of $15 3 million repayments on seller notes from smash of $4 7 million working capital uses and $13 six as we build up for inventory and the summer season and.

Our cash net loss.

The company does have approximately $9 $7 million and escrow accounts as of March 31, 2020, the latest to deposits of certain inventory purchases, which had been treated as restricted cash and.

As previously announced the company closed the $210 million.

Debt refinancing on the April 8th company.

The company views its debt financing at the step approach as we continue to execute our M&A strategy and other strategic initiatives, we do expect opportunities to improve our debt profile over time.

The historical Smash audit, which is for the period of 2018 and 2019 has been completed and we expect to file our delayed 8-K, including performance. No later than May 14th as previously mentioned the delay was related to the earlier periods, including the opening balance sheet period of December 31 2017.

The audit results, including the reviewed and nine months period of 932020, which will be included and the 8-K per foremost are in line with previously disclosed financial results for the Smash acquisition.

For guidance the full year guidance for 2021 on revenue the company now expects net revenue to be and the range of $360 million for $390 million up from $350 million of $380 million, reflecting the addition of Swati Party.

For the full year 2021, adjusted EBITDA guidance the company expects adjusted EBITDA to remain in the range of 30 million for 34 million and.

Adjusted EBITDA increase of Squatty party of approximately $2 5 million based on the timing of the closing of that acquisition is offset by some cautious planning and costs related to the current global crisis and the supply chain.

We do expect the raise prices to offset the impacts of this global crisis, the timing and speed of raising prices has always managed and that's the impact of long term lifting position of our products on marketplaces.

With that I'll turn it back to the call for the operator to open the call for questions.

Yeah.

Very good we can now begin our question and answer session. If you have a question. Please press star one on your phone.

And wish to be removed from the question queue. You May press, the pound sign of the Husky and.

And if you're using a speakerphone and you may need to pick up the handset first before pressing the numbers.

Once again and if you have a question and produce press star one on your phone.

Our first question comes from Thomas Forte of D. A Davidson.

Great. Thanks for taking my question. So of one question and one follow up so you need a at a high level and I wanted to know how you leverage your technology to identify opportunities to build and buy products you sell and marketplaces to advertise those product of the marketplaces, and then manage logistics of those products.

Sure. Thanks, Tom.

Yes.

And let's touch on all of these points.

We use technology, along the three ways, you mentioned first and foremost by capturing and large amounts of data.

From different sources, including public sources and at the <unk> and basically build through models the.

Ability into.

And different categories of products, what is moving those categories, what are the trends and dislocations and dose and where do we see opportunity to potentially make better products.

Yeah and once those are the fine we use the software to also build.

Our P&L and our forward looking forecast for that product based on data that we have accumulated to hell.

Help us quickly understand the opportunity qualified for.

And we quantify the opportunity that's when we will engage our sourcing team too.

Leverage the data and the opportunity of inflammation that we collected to find the right suppliers to help us get the right product and market.

<unk> typically it's more than one we tried to get products from many suppliers.

And we compare the cost and other parameters through the software and can compare different scenarios.

And that's really what is the best product the launch and once we move forward with launching the product obviously it takes a big very big.

Six to eight months from the moment of we identified the idea of until the price is ready to sell wanted to the ride.

In the into the target market.

And we launched the product.

Basically of using marketing across.

Across the board to basic basically outperformed the incumbents, where we saw sort of weakness in the market.

And at that point of time everything flow through the software and in terms of like managing.

The P&L of the product the statistics every day of how well theyre doing we automate the marketing.

And Amazon for those products and then.

And in certain cases, especially for oversight of that and our software also manages the last mile fulfillment and.

And that instead of relying on Amazon fulfillment centers.

On the or Walmart fulfillment and satisfied.

The Ita and <unk>.

Large we would typically use our own sorry.

Partners are centers that are connected to our software.

And to manage the last mile shipping.

So the answer to your question.

Yes. It does thank you so and then for my follow up question, you sort of touched on this and your opening remarks, but can you walk through the impact of adjusted EBITDA and the quarter from the inventory shortfall.

Oh do you want to.

Yes, and yes.

Yeah, Thanks, Hey, Tom So, yes, we estimated our short for the six 6 million and obviously our sustained contribution margin was roughly 18%. So when you multiply the those numbers that's how you get that.

The bigger.

Excellent. Thanks, you need to think of already.

Okay.

Thanks, Tom.

Our next question is from Brian Nagel Oppenheimer.

Hey, good afternoon guys.

Okay.

And I hope of questions.

Couple of questions. The first my first question just on the on the supply chain and I know and we've talked about the slide and clean last quarter, but.

And you mentioned it here again could you size and I think the prior question you talked about the the top line impact, but maybe just understand better the the.

The impact to EBITDA.

And then philosophically is it still is.

Are you still basically eating these higher shipping costs.

And some change there and how and what are you seeing in terms of just the within the supply chain and how how long how long of how much longer do you think the these pressures could persist for you.

Alright, and you want to take the financial part and I'll answer on the.

Business day.

Yeah.

So hey, Brian So yeah listen.

As you saw our sales and distribution number.

It's a little higher than prior year period or about two point to we did the Tom right, but I think as we continue to go through this crisis and this global crisis as everyone does right. We're expecting the raise prices as I mentioned right and and I do think we can offset a good portion of it with pricing increases. The question is just the timing of that and and and we have to be the.

<unk> got the not the impact of long term value of our listings right considering that how the marketplaces work its and its not something you just jam through you've got to sort of do it very thoughtfully and delicately.

But that is that is kind of the plan to sort of really offset the majority of the stuff as we approach Q2 into Q3.

Yes, if I can add to that Brian just to touch more on what our debt rights and.

The the market places of very competitive right and the dilemma as always.

And you kind of see increasing prices of chipping.

Yes.

If you start increasing your price. So obviously I have no doubt and produce better contribution margin.

Going to potentially come at the expense of a more aggressive competitor of what's going to try to keep its price low take more market share from you and potentially and the long term affect your the performance of your products right. So.

On a price per case basis.

Vision has to be made given many factors and we try to find that sweet spot between optimizing for contribution margin and also.

Long term conserving the market share that we have.

Got it.

Follow up on that and so already have you could you.

And as is or where you can see the actual impact on adjusted EBITDA for them from the from the supply chain issues.

And Brian I cant disclose that at this point I think you know we measure of the guidance and the EBIT overall, right and I think we pointed to.

And I think you'll see when the Q and we did mentioned in the script. There was about a two point impact right in the sense of of what you saw and the sales and distribution side, which I think is probably where we saw the impact for Q1, it's the last mile.

To quantify what we think the futures and I can't do that right now.

Got it.

And I think the question was on.

And you want right sorry, Brian.

And if you want.

The amount of what guidance got it and you one yeah I would say two points.

Okay to your point, Okay. So that's it and we'll do the mouth.

And then I guess my final question.

Probably more for you and Ive just.

And just any update on the on the on the on the.

And the true real product within your portfolio.

Yes sure.

So.

The trio product.

Was.

Basic and attack and one of the most of the aggressive weighted by end of the blackout seller.

Which has caused the decline in sales.

And.

There actually is still evidence of that on Amazon and that somebody the blackout sellers are still appearing on the page.

Working with Amazon and all of that problem.

Alright.

The thing that was a decline in net sales.

And one thing I'd caution is to try to estimate.

And those numbers using some external tools that are very inaccurate and from what we've seen.

But again this is an ongoing issue we're working with Amazon on this.

And we won't get resolved, but it's the one of the ones that we just the.

Black at the attacks that we've seen and.

We think it's very very limited.

And this category and the nature of these products and cannot necessarily affect the.

And the role of our product.

And again, we're working on with all the nuts.

Alright, thank you.

Okay.

Our next question from Marvin Fong of <unk>.

Thank you good or good evening, good afternoon, and thanks for taking my questions.

A couple for me actually just building on the on the last question you know maybe it'd be helpful. For investors also here of how some of the other deals that you executed and how outperformed maybe smash being.

The next oldest you can you can provide some insight into.

And how that's progressed against your and I guess your expectations and then I have a couple of follow ups.

Yeah in general we don't want to break the acquisition of the regular basis I can tell you that's mash.

For the first four months of the year of glue, a little over 20% versus the same time last year, but let me explain.

And our approach right and help understand how we think about this right. So the.

We manage all of the products what are they acquire the launch of one large portfolio.

Use of the same pool of resources right. So we think of it the what does the data tell us we have all of these different assets. We are of a certain amount of resources that we can invest in growth and our goal is obviously the drive growth across the entire portfolio and the best possible positive year and.

With the lowest possible fixed cost I mean, you remember like the investments, we're making and tech is really to be able to manage thousands and thousands of products over time across many different channels.

The optimal fixed cost and with the best decisions on a per product basis around contribution margin.

Or growth or both right. So I mean to give you. An example of item and if we at a certain point in time.

The data shows us more opportunities in and appliances for example.

And we think when you do launch more product and that category.

And we invest more and the growth there or the expense for example of some products that we have and the beauty category.

And that doesn't mean that those products and are good and we're going to stop selling them or.

Because of it because again as long as the amount of it profitably and efficiently that's really the beauty of the model. So.

So as you have the sudden and limited resources to invest and growth whether through at building more products or doubling down on the market. So the cash.

That decision is done across the entire portfolio not for Brian, but really based on what the data tells us what I can tell you also debt for example.

88% of the revenue generated by all of the product launch by us or acquired.

Drew on the loss and LTM basis, right. So again, we take a portfolio of U and 88% of all of the revenue generated by all of the product has been and.

The growth pattern right.

So does that does that makes sense and again, that's the approach that we take is not a traditional debt as of certain brand that is for one particular category. We look at this entire portfolio and what the data tells us that there's more of what you already basketball of double amount of growth. That's why it's difficult to necessarily start breaking it down and try and figure out what are the means right.

This product is not growing as much of the Ottawa.

Yes, Thank you that makes perfect sense and.

And then moving on a question and please so you talked a and the release, how they're now evaluating and.

And expanded the M&A pipeline compared to last quarter.

Just wondering if you could kind of dull and dive into the dynamics. So this is kind of building.

Building on top of the pipeline that you had last quarter or has there been actual like some of the prospects from last quarter of actually dropped off and and.

If you could just help us understand that and then.

What's the quality of party.

And you know.

One of the companies that was in the pipeline from last quarter.

And I'm only asking that the kind of figure and if you are actually executing against the pipelines that you're mentioning of the use of updates. Thank you.

Yeah, that's a great question.

The pipeline is obviously the revolving right.

From deals.

And are going to be.

Moving to the LOI some of them will close some of them will be the.

And this.

Either maybe even after we went to the LOI and why would the due diligence the set of reasons right.

And so the type of on revolver and then yes.

While the body was wasn't that number right and so.

And again some deals we might lose all sorts of someone else right and they'll leave the pipeline for the seller on the other side might say debt.

And I had to go and do a deal with the lapse rate.

And that number is really out there to give a sense of how much revenue. We're looking at at any point in time, how much opportunity. There is a lot I mean, it's the it's a drop and the water and the size of the Tam of of acquisitions. That's out there, but we think it's important and forget just convey the amount of revenue that we're looking.

And our competitive around in terms of just putting onto other line closing.

Terrific and if I could just get one more and.

So it's very quickly.

All of the supply and supply chain issues out there or are you are you still expecting the number of product launches that you mentioned last quarter around 70 or should we think about that as the number of them being affected by all of the supply chain issues. Thanks.

Yeah. So.

We are we definitely are still seeing pressure.

You know what for.

While we are planning like 17% to 20 products at this point and.

The second quarter of 'twenty one.

It's a challenging.

The situation for us because at the end of the day the all the way of product of sustainable long term and it just passed the half that sweet spot of quality and price and there's just no other way to make up of successful and we can't cut corners, and definitely we want to be cautious not to try to rush too many products that I spent with some of the limitations.

The COVID-19 is creating not just on us, but also on our suppliers of suppliers of having a hard time.

Making sure that they have all of the raw materials.

The delays that for where it's hard to get trucks.

And various parts of the world, where the money talks of the product and so you know again.

Again, we were doing our best and and working as hard as we can to launch of many products, but without sacrificing quality value for customers.

And.

And obviously.

And with the constraints on the supply chain and I'll call out across both sides.

Yeah, Okay that makes perfect sense. Thank you so much appreciate it.

Thank you.

Next question from Brian Canceling your of Alliance Global partners.

Great. Thanks, so much for taking my questions.

I'm curious how management and inventory strategy has changed at all while much of it.

And your control right now obviously after learning more over the last six months, what can you control of the limit the envoy inventories for Jason I guess I Wonder if you have read about owning versus renting containers is that something that companies like yourself are evaluating the differences.

Thanks for the question.

Yeah, obviously inventory management and the crucial piece here.

And one of the things of that love about the model of the business is that because we control a.

Things like pricing.

And and the inventory levels that we.

And can allow for example, the retail lots of them through which we sell to show customers and it gives a lot of flexibility in terms of trying to basically.

And as much as possible.

The controlled the the velocity of sales and on a regular basis right and so oftentimes we might.

The lower the marketing levels, right or slightly increase the price to two of.

Adjusted and try to do our best to obviously.

Sure that we have a sustainable supply and demand and now again with the level of disruption that we're seeing here.

That becomes a little more challenging.

Really the we've not seen the type of constraints in terms of how long it takes for containers to arrive for the boards in terms of how difficult. It is to find the banners and so our team is doing really amazing work and and and working through all sorts of solutions.

Including sometimes and this goes back to a question on the without before right.

And because we're so achieved and the performance of the product and the implication of that outperformance has over the long term market share of.

Of the product and the space right.

Sometimes I have to make tough decisions around paying more for containers that we feel like and and.

The.

And the cost of the contribution margin, because we know debt being out of stock for too long could open the door for competitors to take too much market share right. So.

Again.

And kind of like turning every stone and and on a per product basis, managing and dory, given many variables again, including the.

And the effect that the losing inventory for too long would happen and market share.

And the amount of <unk>, but when you just bought the produce for the company to do.

To me that the expectations right. So.

And then can you remind us.

Are there I know a line of the global supply issues are shipping from China are there and remind us other areas when you manufacturer of from or other investments being made and alternative geographic locations.

Yeah.

There's still there's the only drive the depth and definitely the bulk of the bulk of it is doing and China.

But there are other areas in Asia, but I think the the global supply chain crisis effect pretty much every route at least to my knowledge right. The it.

It's not something that we could resolve by going to another country or at least not within and also the context of meeting the requirements of the products right.

And so.

The best thing, we can do is again Matt.

Manage.

The ability for the suppliers as far as we can try to give them as much visibility into our forecast and our challenges.

Work with them very closely having our own team on the ground and China is extremely helpful for the perspective and again on the other and.

All of optimizing for you know.

And for the situation right when it comes to marketing spend and and the price et cetera, right. So.

The team again I think is doing the best they can within the situation and we'll continue to monitor.

And redevelopment and anything we can take advantage of when it comes to improving.

The improving that situation.

Great and last question and I have is and M&A.

Let's assume and I don't know the average, but if the average age of about four times EBITDA, you are paying and trailing EBITDA and.

And the earn out is achieved for what you generally been paying does that keep it at about four times given the upside they've delivered.

Or what does the valuation look like generally after the R&R.

Is it much easier and much.

Better or is it is it are you know how does it change versus what the initial valuation looks like.

Yeah the deal structures vary.

And of depending on obviously, the negotiations and other things and yes, sometimes obviously it can end up being.

The higher multiple rights then than.

And then that if it really the company has done really well, which we're very excited about it but we're happy to pay.

The more if the company is the.

And the assets that we bought have performed really well right. So it really is and it really is something that negotiate on a per deal basis.

And I would again, certainly kind of multiple range of prompt and uncertain and multiple range.

On the earn out depending on various various things right.

Okay, great. Thank you so much.

Okay. Thank you.

The next question from kind of scalar of Roth capital partners.

Hi, guys.

Just a quick question on the Swabi Party. So you guys are reason of the guidance the midpoint by about $10 million and.

And they deliver 70 million over the trailing 12 months just wanted to understand of the got there.

Arnaud you want to take that.

So I think.

I think some of it's timing and seasonality there right. So I think we just closed today, so youre not going at the full year and that's number one and number two there is a little of the seasonality baked into your business. So we're just you know.

Kind of prudent on that number, but that's kind of how you get there.

Okay, and I have the salt here.

So.

Just looking at the for now.

Earlier. This week just wanted to clarify the serial number give away from all of them cause movies.

And I'm sorry can you ask the question I had I couldn't hear it.

Oh, sorry.

So I just wanted to know.

Does the purion ever pay for reviews will give away from them.

Right now we don't we do not pay for reviews.

Yes, we are.

We would do promotions, including Sweepstake giveaways and other things of that and you know look in general we ask our customers for reviews right like sometimes up a hell of lot of times right through the retail the.

You know email systems themselves, but we never.

We don't take any of these promotions of any benefits that we give contingent of leaving of reviews right. So yeah. The challenge is the bill go very separate marketing tactics.

And that people can confuse right, though we obviously ask as consumers for reduced both purchased with the again, sometimes the retail system of itself, but we'd never again and make those promotions of any other type of benefits contingent and leaving them with you.

Okay, Great and one last question.

Just regarding the M&A pipeline can you kind of talk about for the average size of the targets I'm looking at the new acquisition and what the cash balance of the B at the end of the 10-Q and.

And how much lower power do you have.

The other way.

The current cash levels and.

How do you think about using stock.

The brunt of it.

Okay.

Audio and I don't think of that.

Yeah. So I think we said before guy. So I think the pipeline is dynamic there is a lot of different entities and their or opportunities right. There is there is some big there's some small and depending on what's next.

And we've said previously we would need to raise money or raise debt to sort of close of the.

Next big one or something like that right or depending on on on what what's the next one up.

I think you know excluding the M&A I think we got sufficient cash.

And to run the business right, but if it's depending on whats in that pipeline, what we decided to go for next day, and we would be faced potentially.

<unk>, some type of financing or debt raise.

Great. Thanks for taking my question guys.

Hum.

Yeah.

And there are no more questions. So I'll turn the call back to Oh, yeah.

Thank you.

Hum.

The upcoming calendar.

Terry and management will be participating and the 16th annual Needham Technology and media conference May 17th the 20th.

And the 2021 RBC capital markets Global consumer and retail conference June 22nd and 23rd.

And the Jefferies Virtual consumer conference June 22nd to 'twenty Force.

Thank you for joining us on the call today, we look forward to speaking with you on future calls.

And the sensor com.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.