Q4 2021 Aterian Inc Earnings Call
Good day and thank you for standing by welcome to the <unk>, Inc. Fourth quarter and full year 2021 earnings report conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need a press star one on your telephone please be advised tuesday's call.
May be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today elite gross Zawadzki. Your line is open. Please go ahead.
Yeah.
Thank you.
For joining us today to discuss a change its fourth quarter and full year 2021 earnings results on today's call are you need surgery, co founder and CEO and Arturo Rodriguez, our Chief Financial Officer.
A copy of today's press release is available on the Investor Relations section of <unk> website at <unk> Dot IL.
I would like to remind you that certain statements. We will make in 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 a number 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.
For you to the disclaimer regarding forward looking statements that is included in our fourth quarter earnings release as well as our filings with the U S. T. C. We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future events or otherwise in addition.
The company May refer to non-GAAP metrics on this call.
Explanation of these metrics can be found in the earnings release filed earlier today with that I will turn the call over to Jenny.
Okay.
Thank you Julia and thank you everyone for joining us today.
I want to start by taking a minute to express opinions condemnation towards the unjustified violence and budgeting your claim.
National team includes four employees based in Ukraine currently.
So Natalie the Ross was flying Maxine.
Our hearts are with you and your families. During these difficult times and it here and we will continue to offer any support we can provide to help.
The company and many employees, including myself have made modest donations to humanitarian efforts on the ground.
On the call today I'd like to go over the following topics I'll start with a quick intro to a tier yearn for those who are newer to the story.
Will then review key takeaways from Q4.
Go over some of the temporary challenges, we're facing due to macro level events and I'll summarize the long term prospects for Karen.
So those who are newer to the story here is what you need to know about our company.
It's Erik as part of a new breed of technology enabled consumer product companies, we focus on building acquiring and partnering with ecommerce brands online.
Adhering to own and operate 14 consumer brands selling products across various categories on channels, such as Amazon Walmart Shopify E Bay and more.
To allow us to scale, we've invested in building our own proprietary software platform called Amy Amy.
<unk> enables our team to manage our business more efficiently by injecting technology into processes that would otherwise have to be executed manually and would require hiring on scalable and sustainable workforce.
So its ability to analyze vast amounts of data and automate daily recurring tasks. Amy allows our team to find new product opportunities. We can launch under our brand managers products to scale effectively across various channels and automate certain marketing and fulfillment desks and much more.
Our goal in the long term is to become one of the most efficient consumer product companies in the world expanding our footprint globally, while continuing to invest in technology, and agile supply chain to drive scale and profitability.
Moving now to our key takeaways from Q4.
In the fourth quarter of 2021, our net revenue grew 52, 5% to $63 $3 million.
Contribution margin declined to seven 9%, mainly due to the global supply chain disruption and related inflation.
As a reminder, our target contribution margin in normal environment at 16% on average across product categories.
Our efforts to reorganize our international shipping strategy and negotiate preferred rates with partners, such as Amazon and X P. O have shown success after getting through a few operational issues that surfaced thoroughly our entire team did a great job of adapting to new paradigm is imposed by us by the supply chain pressures.
We were able to save several thousands of dollars per container versus average spot rates for that period and this has continued into Q1.
However, we're still on average paying prices that are approximately 370% higher than our cost of shipping in 2019 for the same period.
Regardless, all focusing on the long term here.
We're long term believers in this company's vision, so while our contribution margins remain compressed we're laser focused on retaining market share with the expectation that eventually shipping costs will eat.
This effort has continued to succeed across our portfolio and I'm happy to report that on average our most critical skus continued to maintain a strong market share position in their categories.
Our thesis until a few weeks ago was that international shipping rates would start declining after Chinese new year and return over time to a more sustainable cost.
The war in Ukraine is putting that thesis in question and several transportation on our analysts.
Addicting that price of shipping might go up in the short term.
While we believe that our logistics partner will still give us preferred rates spot rates potentially going above $20000.
And other inflationary pressure is not favorable to our business.
Given this challenging environment and to be cautious, we're not providing guidance at this time.
We're working hard to generate growth organically this year potentially through M&A and virus out of the initial strategic initiatives.
Despite the relative uncertainty, we're facing I wanted to put out a few decisions that we made correctly in Q4, which could positively impact 2022.
Our team had anticipated that around the western holidays period, there will be a window to bringing goods at a slightly lower cost.
Given that in 2020 , one we suffered from several out of stock products studio unreliable container shipping schedules. We offered this time to bring in as much of a critical inventory for the next two quarters early.
Can you talk a bit or did not pursue the same strategy the outcome could be very favorable to us from both a short term revenue and long term market share perspective.
The decision will be even more impactful in our favor if shipping costs increase in the short and medium term, but come down towards the later part of the year.
While we are grappling with a continuous challenge and is driven by the macro level environment. It's important to say clearly that those who follow us.
We are more optimistic than ever and continuing to pursue our long term vision.
While waiting for the storm to pass is taking longer than expected. We're convinced that the world will see companies like that was driving the future.
As I mentioned previously we're not the only ones, believing this outcome, we're witnessing continuous investment in our private equity to Amazon and Chubb, if aggregators looking to compete in the same space.
Over $12 billion will be invested in 2021 and early stage companies pursuing pursuing a similar mission of building the consumer product platform of the future. All of these companies are private that we're hearing through the industry and most of them are navigating similar challenges. We believe that we continue to be ahead of the pack in terms of our ability to execute on the model.
Managing e-commerce brands on marketplaces, tedious and requires constant optimization on attention to detail, while the kirin has yet to achieve all our goals in this domain, we intend to remain at the forefront of what technology can do to give us an advantage and remain on double the ever changing marketplace dynamics.
Technology has been a key advantage for us over time as we manage the scale organization, while keeping sustainable fixed cost due to our investment in it systems and automation.
During the pandemic, our fulfillment capability powered by Amy that allowed us to overcome critical shipping limitations imposed by Amazon and other partners.
Yeah.
We also recently raised $27 $5 million in an equity financing and we intend to use this capital to drive growth further invest in infrastructure on the tech and supply chain, France and relaunched our M&A strategy.
However, we intend to be patient in the short term as we evaluate different opportunities in the context of the macro environment.
Our category agnostic model is going to allow us to look at a wide variety of product categories that are potentially less affected by supply chain pressures.
We're also going to invest in our team and bringing more talented senior leadership into the organization.
Currently recruiting across various roles, including a new president role, who will step in to take over for our Chief revenue Officer Thomas Bus Scott.
Want to thank Don for his leadership in the last four years four and half years, we're grateful for his contribution to <unk> success, and we will proudly follow as progress with our new venture that he founded.
I just wanted to 'twenty two unfolds, we believe that we will be ready for any challenge just like we've been in the past our company has shown resilience in foreign trade and we'll continue to do so.
The media world events might bring path to those considering investing in us but in the long for a long term thinkers, who believe in the future ecommerce we play close attention to how we execute on our strategy in the coming year.
I believe that if we can protect market share and even grow it while we navigate through the supply chain and inflationary pressures ahead, we can once again become one of the fastest growing profitable consumer product companies in the world.
With that I'll pass it onto already to discuss the quarter and year end financial results.
Yeah.
Thanks, Denise and good day everyone.
Here are the financial performance details of our fourth quarter for.
For the fourth quarter of 2021 net revenue increased 52, 6% to $63 3 million from $41 5 million in the year ago quarter, primarily from an increase in net revenue from our acquisitions and organic business.
The fourth quarter net revenue of $63 3 million is comprised primarily of $31 3 million of our organic business, which I know it includes revenue from our <unk> brand and acquire Brian France, starting one year after purchase.
$27 6 million of our net revenue from our acquisitions and $4 3 million of wholesale.
The year ago quarter net revenue of $41 5 million was comprised primarily of 22 million of our organic business.
$14 9 million of net revenue from our acquisitions and $4 4 million of wholesale.
As a reminder, the acquisition of Smash closed on December one 2020, and as a result moved into our organic categories. Starting December one 2021.
The year over year growth in our organic business with $9 3 million is related to an increase in our sustained based products of approximately $5 9 million to $25 8 million from $19 9 million due to inclusion of smash products into organic for the month of December offset by increased pricing of our products affected by global supply chain disruption, which has.
Led to the reduced sales velocity and an impact of stopping the stimulus support from government and the initial impact from inflation affecting consumers.
Organic business also saw a slight year over year increase in launch phase revenue of <unk> 9 million to $2 6 million as planned due to supply chain volatility we have one zero products this quarter compared to five in last year's quarter. Overall in 2021, we launched 40 products compared to 32 in 2020.
Even though the rate of our products launched in 2021 group. We did not have the same success as previous years as market conditions resulted in us needing to raise pricing due to supply chain disruptions, which led to a decrease in demand and performance of certain recently launched products. This.
This has also led to products being longer than the launch phase than originally planned.
As mentioned previously we.
We have and will continue to hold off watching new product until we believe the time is right and supply chain situations more predictable.
Our M&A revenue of $27 6 million increase from $14 9 million the prior year due to our acquisitions healing solutions Squatty Party and photo paper direct or have any revenues in line with expectations for smashed for people direct and swati outside of seasonality and timing of the closing of the acquisition.
As we have previously discussed healing solutions continues to perform below expectations largely due to supply chain difficulties from our ship from sellers manufacturing capabilities and use third party vendors as previously planned.
That said, we are still pleased with healing solutions acquisition and the long term strength of its brands and products.
Finally on net revenue, we suffered for inventory shorts in the quarter, which we estimated to be an impact of approximately $2 1 million in the current period as compared to inventory shorts of approximately $6 million in prior year ago period.
Overall gross margin for the fourth quarter increased to 45, 6% from 45, 2% in the year ago quarter and decreased from 52% in Q3 2021.
Our gross margin improvement versus last year is predominantly from favorable product mix and the inclusion of acquired brands.
We believe the increased cost of shipping containers impacted gross margin by approximately 2% in the fourth quarter of 2021, we expect to see a slightly larger impact in Q1 2022 as previously purchased inventory at the higher rates continues to clear out.
Our overall Q4 2021 contribution margin as defined in our earnings release was seven 9%, which decreased compared to prior year CMO 11, 2%.
Q4, 2021, so our sustained product contribution margin increased to 16, 1% versus 15, 2% in Q4 2020.
Within <unk>, our sales and distribution expenses were negatively impacted by global supply chain disruptions, which drove higher cost in last mile fulfillment, given inflationary pressures and carrier tightness in the quarter.
Our Q4 variable sales and distribution expenses as a percentage of net revenue increased to 41% as compared to 35, 5% in the year ago quarter.
We expect to see these impacts continue in the current quarter.
While we're doing our best to mitigate higher cost dynamics. We believe we'll continue to see some pressure for 2022 due largely to supply chain disruptions increase last mile cost.
Adjusted EBITDA as defined in our earnings release for the fourth quarter of 2021 was a loss of $3 million compared to a positive 500000 in the first quarter of 2020.
Our $2 million operating loss for the quarter include $7 7 million of stock based compensation expense and also includes income net net from charges and settlements of contingent earn out of $14 4 million, which is primarily related to the decrease of share price at December 31st 2021 versus September 32021.
A $5 5 million excuse me, our $5 3 million net loss for the quarter includes $2 1 million net loss and extinguishment of debt net from payments related to the completion of our $25 million credit facility with our lender.
Turning to the balance sheet at December 31, 2021, we had cash of approximately $30 3 million compared to $37 5 million at the end of September 32021. The decrease in cash was predominantly driven from previously reported $27 5 million cash payment to our lender a $4 million M&A related transition service payment from the purchased Swati Party.
And our net loss offset by cash proceeds of our new ABL at $34 1 million and changes in our working capital.
As we previously disclosed in order to navigate through the global supply chain disruptions, we increased our inventory on hand and purchased inventory earlier than initially anticipated. This put pressure on our minimum liquidity as we enter 2022 and as we prepare for our summer 2022 seasonal products such as he sees and humidifiers.
In December we secured a new $50 million asset backed credit facility, providing us working capital flexibility along with the complete complete the repayment of our term loan.
Last week, we raised approximately 27 million and a half in gross proceeds through a private sale of approximately $6 4 million restricted shares at the end market price and an additional $3 1 million and pre funded warrants at the debt market price. We anticipate these shares will be registered early during the second quarter and are locked up until then.
Further in connection with this offering we also issued $7 1 million warrants at the strike price of 10% premium at close which which may be exercised in the future and upon exercise will add up to an additional $20 million in cash on the balance sheet.
Given the current market volatility and with the recent conflict and this year. There is a concern of the unknown in the markets as such we seize the opportunities that your balance sheet now to allow us to operate our business appropriately considering the current global supply chain disruption in recent record inflation. Further this financing allows us to open up the possibility to continue to pursue our accretive M&A.
<unk>.
We continue to be impacted by global supply chain disruptions, especially considering the inflationary pressures globally and the uncertainty stemming from the invasion of Ukraine.
While we believe these issues are temporary not permanent it caused us to have diminished visibility and our ability to forecast our results and we will not be providing full year guidance. At this time. However, as we look at the current Q1 and taking into account the current global environment rising inflation and continued difficulty with supply chain, including stock outs for certain of our products in Q1, we believe we will see.
One 2022 net revenue lower than Q1, 2021, especially considering the difficult comparisons demands versus prior year.
That said our confidence does continue to grow as we look at our summer season for 2022, we believe our efforts around supply chain and the investments we made to bringing in inventory early will put us in a much better position in 2021 summer season.
In closing 2021 was a challenging year the global macroeconomic conditions made it difficult to operate and predict our business and changing consumer habits from early pandemic. The current world makes comparisons difficult. Despite this many of our organic and purchase products continue to be some of the best seller on Amazon. We continue have a very strong brand and product portfolios, we will leave.
The current pressure on the growth and profitability as acutely relate to global supply chain and inflationary pressures, we continue to take action and what we believe is the wisest course for us to navigate through this difficult environment and will help direct us back towards profitability.
To explain our performance for the context, assuming 2020 normal contribution margin rates, which we still believe can be achieved in the future and with our typical and previously disclosed adjustments. The company believes its Q4 2021, adjusted EBIT would have been similar to prior years.
Further as we continue to navigate through this environment, we have taken the opportunity to rightsize and secure balance sheet with our new credit facility and recent equity raise providing us the strength as we continue to navigate through this difficult macroeconomic condition.
We continue to be very confident and proud of the business. We have built our products, both organic and acquired our technology, our logistic network and most importantly, our dedicated and hard working people across the globe.
Together, we believe a turn will overcome these challenges and continue to be a leader in our industry.
That I will turn it back to the operator to open the call up to questions.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.
Hi, good afternoon.
Good afternoon, so a couple of tough to do a couple of questions.
First off.
I appreciate all the comments around the supply chain. So I guess one question is what has to happen.
The supply chain disruptions you have to get you maybe were shipping cost shipping rates out to get to in order for Chilean to resume a more.
Offensive stance with regard to your product acquisition product introductions.
Do you have an acquisition that's my first question.
Yeah. Thanks, Brian .
It's a great question.
I think that obviously the most simplest answer is where they were back in 2019, which if you look at the prices of shipping rates from a full containers back then it was a more normalized kind of like.
You know cost.
You could trace back linearly to.
So the previous year, whereas.
The exponential increase in cost that we saw.
As the supply chain crisis kind of unfolded, especially in 2021 right is very challenging right. So.
The second part to that right I mean, that's the simplest answer if it goes back to that obviously amazing right. The question is when is that happening and how long will it take and maybe the maybe the floor is a little higher right but.
When all that is said and done I think that that will set us a new floor that is the same for everyone for all our competitors and four.
The entire economy in a way in.
At that point in time, I think it should it should help US right I believe that the numbers will be closer to the 2019 again the really big question is when does that happen right.
Okay got it.
I guess isn't at fault because that is so and then just maybe all of them to make sure I understand the mechanics.
Have you not.
Really not lifted.
Our selling prices.
He was quoted a hit on.
On gross margins here, so I guess to what extent have you left your prices to offset some of these some of the shipping cost and I guess, the second part of that would be what was that.
Is that a lever you could pull I mean could you start to more strategically the prices.
Yes.
I don't have a.
I don't want to across the board a number I'll I'll tell you that.
Top 50, Skus, which.
I looked at recently I would say that approximately we lifted the prices by around 20% I would say.
Which remember would that increase in price, we're still not where we need to be at a contribution from a contribution margin level Budd.
With what we're seeing if we go well beyond that.
We might start losing market share right. That's why we talk about when we say protecting market share. It's finding that balancing act between a price that gives us enough margin.
Can be profitable at the product level or the economic level, but also it doesn't cause us to be.
In a situation, where we have to at least start losing market share and have any impact on the long term right.
The other aspect of it as consumers I think are seeing those price increases everywhere from their coffee to the gas station everywhere. So that creates another obviously challenge when it comes to generating a growth year on year right.
But but again.
I don't have an exact number across the board but.
I'd say that.
And 20% increase is still not getting us the contribution margin that we need to be in a normalized environment. So that that gives you a sense I believe Brian .
That's helpful. I appreciate it thank you.
Thank you Brian .
Thank you and our next question comes from the line of Matt Khanda with Roth Capital. Your line is open. Please go ahead.
Yeah, Hey, guys. Thank you.
Just maybe to start out I understand and appreciate it and difficult environment to give an outlook.
Wanted to maybe see if you could break out for the full year and 'twenty one already what was organic versus acquired versus wholesale revenue for the full year in 'twenty. One and then just maybe if you guys could speak to should.
Should we expect organic growth I guess to continue into 'twenty two.
Qualitatively it would be helpful to get puts and takes around that so we can start to build a.
Realistic model for 'twenty two.
Let me, let me speak for a second on the 20th Thank you and I'll pass it onto Rte to answer your first question, but yes. The answer is.
Yes, we want to drive growth in 2022.
Both organically.
And potentially right obviously the world is a little chaotic right now so we're we're being a little patient, but potentially also through M&A right. So we're not.
We are a growth company. We're also a growth company doesn't want to grow with unit economics that are negative right. So we are working very hard across all dimensions of our business to achieve that.
And again, the macro level will probably influence what that growth looks like but just to be very clear.
It is our it is or at least go right to do that.
In terms of part of it is also launching new products, which as we talked about earlier.
It is also on pause right now because.
It's very important for us to have predictability and when it comes to our product we launch from the moment, we plan that to des Moines and arrived if we plan some product launch at a certain price point with a certain P&L if by the time it arises that P&L is changed by 2030%. The launch will not be successful. So those are the factors, but we have a law.
Sort of initiatives internally to drive growth and we are intending to drive growth this year.
Pass it onto Hugh maybe to answer that.
Yeah, and now you are looking for organic for the year that was the number you are looking for it's roughly 100 around $1 million.
Yes, and M&A was roughly about that I think when you look at last year keep in mind that we had a bunch of wholesale and some of them any there. So I think the organic number was probably closer to like 145. So that's.
That's helpful.
Okay very helpful. I appreciate it from both of you guys and then just in terms of the pricing commentary that you made you need I'm curious if we could dig in just a little bit more there.
Ed.
If I heard correctly, maybe on average.
<unk>, 20% across the top 50, Skus and I'm just curious.
Why why do you say, 20% is the ceiling what is the behavior that you kind of see when you take price across those skus is that specifically that you start to lose market share as you kind of price above that level or is it just that volume declines because demand kind of weigh in there I mean, just maybe if you could unpack that a little bit more so we can understand kind of what has.
Does he take price on those top skus.
Sure, Yes, great question, Matt and you know that 20% is an average right because our.
Because we're so category agnostic and we sell things from you know.
A small bottle of essential oils to a commercialized nature of the profile of our product all over the place, but that average is I think quite close.
Answer is that first of all the two are related.
As you know ride in marketplaces.
And then your Congress in general out market share is a function of sales the more you sell the more.
You will get more visibility the more you have the potential to take more market share than one when yourselves go down.
Advertising engine that would promote your product will take a.
Look at your less and look more than other products right. So there's kind of a little bit of a.
Circular dependency almost between capturing market share and sales.
That does not always obvious now yes, the answer is that as we.
As we are the price right. Obviously, we're pressuring the amount of sales, but also opening the door for other products to come in and take market share from US now you might ask me Doug how is it kind of come out of some of your competitors can can lower their price and maybe take market share. If you open the door to it.
The answer is that you know.
A lot of our competitors are.
Not necessarily do that out of strength, they do sometimes even out of.
Of hopelessness almost right if you are.
Everyone in the industry is suffering from the same problem until you have a lot of product that sometimes will come in and just throw the towel lowered their price and liquidated a significant amount of inventory, which might never come back right, but during that time those products might take more visibility they might show up higher on search they might appear more appealing to customers because of their liquidation.
Thanks, though.
It's a chaotic environment, a little bit right, it's not kind of a normal type of competition you expect to see an e-commerce marketplace, where everyone's trying to get sustainable.
Revenue and profits, it's a little bit more of like some smaller competitors that might try to take advantage of the situation, maybe take a risk and try to capture market share because they are seeing that you are trying to protect your margin versus other competitors, who are actually distressed and I was just trying to liquidate their inventory, but by doing so they are taking revenue from you.
Because they have a very appealing price the customers. Despite the fact that the product may not be as good right. So that's the kind of challenges that are part of this.
And really it's really about having the analytics that we have I think the real time visibility into the performance of the business is critical to be able to make those decisions whether it automatically semi automated a totally manually right you have to have the type of real time analytics that we build to be able to even manage that and I think that's the kind of one of the strength of our business.
Yes.
Okay. That's helpful. Thank you and then just last one for me if I could sneak one in on the margin front you guys mentioned near term.
Kris and shipping cost potentially.
When would you expect that to filter through to the P&L and then just how much margin pressure should we be kind of factoring into the first quarter second quarter of this year it almost sounds like maybe.
Relative to the fourth quarter things remain.
Somewhat flattish.
But just any directional commentary you can provide on that to help us that would be much appreciate it. Thanks.
Yeah.
We are we've began followers of some of your colleagues on the call will cover shipping combination.
And I've been avidly reading content online.
Across publishers and analysts on shipping in there.
The comment we made is obviously related to what happened in Ukraine, and obviously gas going up is not going to help but what's interesting is that there are.
There's really kind of like two opinions out there and and one is the obvious one that with the cost of shipping going up and all these other disruption to supply chain, we might see.
The cost of shipping going up, but theres actually some analysts to think that.
Potentially even an improvement right. So we really we really are.
Being cautious here and not necessarily.
Saying that we know 100% that it is going to get worse before they get better I would bet that it's likely how much is a great question and I think that.
Honestly I don't think that anyone out there, including the shipping companies can comprehend the ripple effect of what's happening in Europe . The effect that it has on so many businesses and commodities price and oil price. So.
Is it going to get much worse than it's been in the past.
I hope not.
I just take longer for it to come down I think that's kind of like the <unk>.
All the more likely scenario, but the world we live in I think.
Everything is possible at this point, so a very very high Patel, sorry, if I don't have any more clear answer there, but I don't think that anyone really does so.
Sure seems fair I'll leave it there guys. Thank you.
Thank you.
Our next question comes from the line of Bryan Kimzey linger with.
All lines Global partners. Your line is open. Please go ahead.
Great. Thanks, so much.
I'm curious you mentioned some benefits by several thousand dollars per container through your new partnerships with Amazon and others what.
When is the first quarter you expect the P&L to get the full benefit and how much of your containers are run through that program do you expect maybe first half of the year.
Total.
Hey, Hey, Brian good to hear from you.
So the benefits of those shipping rates I'll always.
Call it like a quarter.
Later right in average and that doesn't even include some of the delays in shipping and it's not just about the cost. It's also how long it takes to clear the port of origin. The port of arrival and many other articles in between including lengthy lines at both sides, but.
No.
In a way we're already seeing the benefit of it right.
But it's not like we're.
Back in 2019 were.
We're really in great shape, if we were.
I would say that it is.
It could have been absolutely horrible without it right I can't even imagine where our business would be if we were able to navigate.
And navigate those those those.
That situation and secure preferred rates.
But again, it's still not anywhere where we can necessarily.
High five each other and say we got back to where we were before right I think there's more patients that need to happen before we get there, but relatively speaking to what would have happened. If we didn't secure this I think we're overall in good shape if that makes sense.
Yeah.
And then can you talk about how you guys are thinking about expenses or are you thinking about cutting costs to preserve capital and weather the storm.
Leasing capital raised lead you to hold the line on expenses and near term Youre, making investments just maybe some sense on some of the fixed overhead.
I'll, let you take that one.
Yeah.
I think you hit us with two so with the <unk> with the 2007, a half million equity raise in our credit facility.
We think we're well capitalized we secured a balance sheet, that's going to allow us to weather the storm.
Said, we're constantly looking at supply chain, we're constantly looking at our warehouse partners or last mile partners.
Sort of optimize and make sure we're driving as much a much.
Best margins as possible considering the circumstances from a fixed cost perspective, we're always looking right now at the same time.
We still have a lot of anticipated growth long term like we've always talked about we think we're gonna be.
Once we weather. This so we're not necessarily looking to cut costs. We're just always going to be optimizing as we can from automation and other investments in system.
Okay. Thank you.
Thank you and our next question comes from the line of Thomas Forte with D. A Davidson. Your line is open. Please go ahead.
Great sorry, three sets of questions to company specific in one industry. So I'll go one side at the time. So on the first one so you need if you were pitching this business today.
<unk> 2022, I want to know what realistic expectations for long term success. So if the ecommerce industry grows at a 15% CAGR on a very long term basis, how do you expect the fair versus the 15% and then how should we think about your long term contribution margin.
Thanks, Tom and good to hear from you.
Obviously, you know with the.
Challenging.
Six to eight months of day with everything that's happening in the world, but as I mentioned also in my remarks before right.
Couldn't be more excited about the future I think that.
Everything we're doing.
This is the future of consumer product companies online.
I think that.
Like us there's now a lot of other groups, who are seeing the potential and all of them, including US are just kind of focusing on weathering the storm and really as I mentioned also earlier right as the dust settles and I was just going back to the by those who are sitting with a strong balance sheet and strong operational capabilities.
We will have enormous opportunity to scale right, yes e-commerce is growing.
In the U S. A the CAGR you mentioned, but we definitely have overtime the ambition to be a global company.
And I don't think we're even closer scratching the surface of our ambitions I think that we've built a very strong foundation.
From a team perspective from a cultural perspective from a systems and expertise.
We've built and the resiliency to right I think a lot of companies.
The end of the day don't make it through because the moment. They have one crisis things kind of fall apart I have to say that for us. We've navigated. So many challenges recently that it's part of what gives me enormous confidence in our ability to.
Really really crushed it when things are aligned better right. So.
We wanted to go back to a hyper growth Tom you know me well enough to know that my ambitions are huge and that I am.
Can't wait to go back and now but metal pedal to the metal here the scale of this company, but at the same time I think there is an element of patients that that needs to happen here. There is an element of.
Protecting what we have allowing them to start their best buy and then again I think the excitement around what we do in around E. Commerce should should come back and with that I think will have enormous opportunities to scale.
That's how I think of it.
Great and then second one was I think you talked about resuming M&A. So today March 2022 what gives you confidence in your ability to earn an appropriate return on capital from resuming M&A given your current cost of capital.
Yeah.
You know the resuming M&A is going to happen right.
The opportunity is continues to be incredible and as I mentioned again in my comments, we're not the only one seeing it as a lot of capital that entered this arena.
Smart capital that's going after it and we're the only one on the public side, so far to my knowledge that's pursuing this.
In the immediate I think before the war in Ukraine, I think that one of the things that I would have pointed out to say that I feel confident about reigniting M&A and there's again a lot of opportunities out there was the fact that because we're category agnostic.
We can start looking at targets that are in categories that are not affected by the international supply chain, especially <unk>.
Companies that are in the food and beverage and other consumables that are manufactured in the U S or the Americas right.
With everything that's happening in the Ukraine, we're going to again.
Be patient right and do the right thing because obviously now we're talking about other commodities that are affected like wheat, and and other aspects of the economy that could affect even these categories right. So.
I think patients and tracking closely what's going on the macro and micro level is critical.
But again the opportunity is there and.
We just need to be again, very very clearly focused on making sure that we know what the timing is right.
Alright. Thank you for that last one I think you need you're the one that you talked about the pendulum. So the idea was so this is industry wide question that at the beginning of the pandemic. The pendulum swung heavy toward ecommerce everyone is essentially sheltering in place and then.
And as things started to ease the pendulum swung back to physical stores can you give your current thoughts and where the pendulum lies today there have been other E. Commerce players who've reported their December quarter, and Ive talked you know their comments.
Yes that is still leaning towards physical stores wafer being a good example.
Yeah. Thanks, Tom I definitely saw the way fair result, and the comment that we made there.
Yeah, I think the pendulum has not yet stabilized itself, but its still its thing.
Still kind of trying to find the middle ground and I think the I think the middle ground is growth of E. Commerce will continue linearly like the way it used to before the pandemic I think we've seen this.
Almost sinus wave as you said are a pendulum ride with this incredible uptake in E Commerce and strong downtick as consumers were almost kind of excited to go back to stores, but.
My Best estimation right now is.
Just keep tracing a straight line on the.
Past growth of e-commerce versus retail Youll see a very.
A normalized kind of growth there and as I mentioned earlier right I think that's exciting does this does the massive amount of business out there, we're not even scratching the surface of the opportunity, but beyond that I think in other countries you might see ecommerce going faster just because of.
Well you know I mean, if a couple in China or why do you think ecommerce is growing much faster because of access to store or is that is not as.
Clear is in the U S. Why theres a lot more people, who have really no other choice than to use ecommerce to actually certain things and so around the world I think that is.
Countries like Dodge Youll see that growth happening faster.
But theres no doubt in my mind that Overdone Congress will again continue to become a very big part of retail and it's very exciting for us obviously to see that happening so.
Yeah.
Hopefully that makes sense, thank you and if.
Yes.
Good.
Thank you and our next question comes from the line of Marvin Fong with <unk>. Your line is open. Please go ahead.
Great. Thanks, everyone for taking my questions.
Two questions if I may just the first one.
I appreciate that a lot of discussion on the shipping and obviously you guys are doing a lot on that front or are there any other commodity exposures that we should be thinking about I know you have a pretty broad.
Products that.
Perhaps perhaps steel or anything like that I know that you also said you secured a lot of your spring.
Spring and summer inventory, but just in the long run what sort of material and commodity exposure do you guys have if anything that's.
We should be thinking about and then I have a follow up.
Hey, Margaret good to hear from you.
Yeah I think.
Auto manufacturers, obviously are reaching out and pointing out the commodities.
This is going up I think copper is probably one of the ones that you want to think a lot right a lot of the.
A lot of the products that we sell that have.
So it's really tronox in them right.
Our affected by Dod, but across the board even plastic right has been in certain kind of pressure on that so.
Definitely it does trickle into the pressure that we're seeing.
It comes with the manufacturer of the bubble it up I think one of the things that we're doing is being very careful to.
Track those those comments on manufacturer of them there.
Reasons that day.
Justify sudden increases in cost of goods and our goal is obviously to when hopefully things stabilize we will be I think go back to them and request that those get turned back down right. So.
Yeah, I mean, it's again, it's across the board while you got commodities you got shipping internationally.
You still have the tariffs of course that started in 2019, and then last mile shipping, which also is going up given the price of gas going up so.
In the P&L of a product or what the board is there is that pressure on the cost upwards and again, we're keeping strong track of it and looking to renegotiate those down when the environment allows us to write.
Gotcha, perfect and then just to revisit the M&A.
Totally appreciate you said you'd be very patient.
Just just to expand a little more on that I mean, what are you seeing now obviously, we're seeing some of the law.
The ore coming out of valuations in the public markets are you seeing something similar in the aggregate our space or is there just so much capital floating around that.
Multiples are still.
Up from where they were a couple of years ago, perhaps.
And just maybe as a second part of that question I mean, do you think we could.
Over time.
Or is there a discipline to kind of.
Revisit and acquire things at three to four times EBITDA versus maybe even a couple of turns higher that we that we saw kind of towards the end of last year.
Yeah. Thank you great question again.
From what we know about our competitors in the private space, they're all dealing with the same challenges and you know.
None of them is immune to it right I think that again.
Our experience and better infrastructure, I think will navigate it better and my hope is that a lot of our competitors do really well I think it would be good for the industry and it will create more comps for us and just solidify.
The model right.
I definitely think that some of them might not be able to get through this.
Just like we were sitting in front of a lot of debt.
That was designed to kind of like.
Live with the cash flows of the business is once the cash flows of the businesses have been contracted because of the temporary pressure on supply chain right that they became a problem and it's true for them as well so I do think that.
Although I would say that the multiples on the acquisitions is still holding on.
I do foresee that in the next few months, we'll see a little bit of a downward pressure on those multiples because of again some of these.
The players that are not in a situation where they can't.
We can move forward and might even have to divest assets right, which is part of the reason to be patient is that theres a possibility that although we believe we are navigating the challenges really.
Again, not as well as we could in a way right some might not be able to do it at all and so there might be some great opportunities there.
I think at the end of the day My again, it's hard to predict exactly the world is obviously complex today, but I think that we'll see my in my opinion, we will see those valuations of the businesses that are getting aggregated the quote unquote right.
I believe they'll stabilize around.
Five to six times.
And with potentially again.
It's especially strong.
Assets that could go even as high as six to seven times right, but.
That's why it doesn't make sense to run out.
Do those deals yet in the next few months are going to be really important to understand where the industry is going where the where the valuations are going to land in and.
Who is going to be standing tall in driving this forward versus who's not right. So that's why I think the patients is important.
That's great. Thanks, so much indeed.
Thank you.
Thank you Tamara.
Thank you and I'm showing no further questions and I'd like to turn the conference back over to Mr. Kruszewski for any further remarks.
Thanks Michelle.
As part of our shareholder Perks program, which has a reminder, investors can sign up for Terry and John IL forward Slash part.
Participants have the option to ask management questions on our earnings call I wanted to thank all the shareholder parks participants for their loyalty and their participation I've picked a few relevant questions that they have asked.
Can you provide an update for the effort to stop the naked shorting the chairman.
Oh, yes.
Thank you yeah. So we're working really hard to make sure that all the trading in our shares and compliance.
Now with all the rules and laws out there the process takes a long time, we're definitely active in investing in that but it's going to take time.
You see that through and when we have better results, we'll report on them.
Yeah.
Okay. Thank you. Another question we had had was.
Please update the process the progress on platforms other than Amazon.
Yeah, So I think.
One of the things that we really wanted to push forward on.
Last year was international.
Again, the supply chain crisis, a slow that down it's still moving forward.
The big effort. We're doing now is on the Walmart I think we've made a lot of progress there still.
Still a lot to do.
Walmart is a platform that.
Investing heavily in their ecommerce, but theres still behind Amazon and the good news is that they seem to be making faster progress recently, which allows us to obviously.
Leverage debit the tools and the analytics that they are providing us and integrate them into Amy.
So we're cautiously optimistic about that becoming more valuable all the other aspect is we want to invest more in growth organically through DTC.
So everything all.
Brands, I've, obviously, shopify stores, and we're starting to slowly uptick the investment on scaling that correctly.
Those I would say all of that to kind of like biggest afterwards right now given that.
Again due to supply chain international is going to take a little longer the shipping to Europe . For example is actually even worse than into the U S. Because carriers prefer the U S lines. So they make it even more expensive and we don't want to show up in Europe with wood products that are overpriced compared to the competition. So.
There again, I think a little bit more patients, but again Walmart is a big focus for us.
Great.
And thank you for participating on today's call in terms of the upcoming calendar Terrien management will be participating in the fifth annual D. A Davidson can you compute consumer growth conference on March 10.
Fireside chat will be at 115 P M and will be webcast and the 34th annual Roth Conference on March 13th through 15.
We look forward to speaking with you on future calls this ends our call you may now disconnect.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
[music].