Q1 2022 Aterian Inc Earnings Call

May 9, 2022

Thank you for standing by you or Terry incorporated earnings Conference call will begin momentarily again. Thank you for your patience and please continue to standby.

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Thank you for standing by her Terrien earnings conference call will begin momentarily again. Thank you for your patience and please continue to standby.

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Good day, and thank you for standing by.

Looking to the <unk> Q1, 2022 earnings results Conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

So ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

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I would now like to hand, the conference over to your speaker today, <unk> <unk> director of Investor Relations and corporate development.

Yeah.

Thank you for joining us today to discuss <unk> first quarter 2022 earnings results.

On today's call are <unk>, <unk> co founder and CEO and are keen 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 <unk> 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 these risks and uncertainties associated with the forward looking statements to be made on this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our first quarter earnings release as well as our filings on the SEC.

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 certain 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 Tony.

Thank you Julia and thank you everyone for joining us today.

On the call today, although the following topics.

Start with a quick introduction to <unk> for those who are newer to our story.

I will then review the key takeaways from the first quarter of this year.

I'll then discuss the continued challenges we're dealing with given the economy and macro level pressure from supply chain disruptions and inflation.

I will then summarize the long term prospects criteria.

So for those who are newer to the story, here's what you need to know about our company.

And as part of a new breed of technology enabled consumer product companies.

We focus on building acquiring and partnering with E Commerce brands online.

But given the oil and operates 14 consumer brands selling product across various categories on channels, such as Amazon Walmart Shopify on ebay.

So allow us to scale.

We've invested in building our own proprietary software platform called <unk>.

Amy 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 in on scalable and sustainable workforce.

So its ability to analyze vast amounts of data and automate daily recurring tasks. Amy allows our teams to find new product opportunities that we can launch under our brands managing suppliers to scale effectively across various channels.

Automate certain marketing and fulfillment.

And much more.

Our goal in the long term is to become one of the most efficient consumer companies in the world.

Pending.

Bring globally, while continuing to invest in technology technology, and agile supply chain to drive scale and profitability.

Moving now towards your takeaways from our first quarter.

I'll start with a quick summary of the main points and then discuss them in more detail.

Notwithstanding inflationary and supply chain pressures, we believe.

The once the macro level environment improved activity and is more than ever we're well positioned to become a leader in the space.

We have an incredible team, which keeps getting better and our result to build a leading consumer platform and e-commerce is stronger than ever.

Global recession fears are mounting, but we think that there is a silver lining.

The global demand.

What products go down we expect to see improvement in supply chain and logistics costs.

We believe that we have the balance sheet necessary in many additional levers we can pull to get through this difficult environment.

We're preparing to resume growth and profitability when the macro level challenges subside.

We're focusing on strengthening.

Steve and infrastructure.

And some of them <unk> annual global CLO and I'm working closely with them on preparing the organization for rapid and systemic scale.

We're looking at acquisition targets constantly with our important focus on brands that are less affected by the supply chain crisis.

Been diligent cautious and patient given.

Environment.

We did important points in mind.

Like to now discuss each of them in further detail.

It's no surprise that the micro level environment continues to put near term pressure on our business.

The same time, our leadership continues to be excited about <unk> long term prospects and focused on laying the groundwork necessary.

You can add growth.

The last couple of weeks have made it clear to everyone that the economy is witnessing a whiplash effect driven by the monetary policies adopted by governments around the world the count of the COVID-19 pandemic.

Many people ask us why supply chains have been so dramatically disrupted in the last year and a half.

There is no simple answer.

Obviously wasn't inside the massive injection of cash by governments around the world does stimulate the global economy. During the pandemic is a big part of the culprit.

With most traveling services being unavailable during the initial lockdowns of 2020 government monetary support was dramatically skewed towards retail online consumption.

With consumer appetite for product skyrocketing logistics companies could not react fast enough to invest in more ships and airplanes to transport goods.

Given this asymmetric demand for shipping services against limited capacity prices of shipping skyrocket skyrocketed further escalating inflation on.

And Amazon itself, we're seeing an increase in price of goods across most categories.

Okay.

As many on this call and probably anticipated after reviewing the financial results of large online retailers. We're now seeing the effects of the pendulum swing in the opposite direction.

Consumers are seeing prices going up everywhere and as a result, the management product is weaker compared to the shopping spree. We saw in the last two years.

Before I turn is long.

And that investors the latest signs of reduced consumer demand should actually be quite encouraging.

How can I say that when we are looking down the barrel of a potential painful recession will simply because our business for our business really getting back to growth and profitability is predicated on returning to normalized shipping costs.

Unfortunately.

The only way to get there, it's a reduced global consumer demand for products.

While this downturn in demand might spell doom for other companies in our industry It will not for Rytary.

Things like a more difficult before they get better.

Well, we're already preparing for what happens when markets stabilize around a new baseline from which we can grow our business.

We have the balance sheet to get to a long downturn and many levers to pull in case of additional challenges more importantly, our team has never been stronger and our resolve to prove ourselves has never been more steadfast.

For long term investors, who believe in US. The critical question is when will the new baseline form.

And what will be the.

The growth from that point on.

On a global level the ecommerce boring experienced in 2020 represented 26, 5% year over year revenue growth compared to 2019 and.

In 2021 year over year ecommerce revenue continued to grow but it's much smaller rate of 16, 3% compared to the previous year and this year E Commerce.

We expect that the went out around 12, 2%.

On global growth compared to 2021.

The expected year over year revenue growth rates.

<unk>, starting in 2023 will be between 9% to 10%.

More importantly E. Commerce is predicted to represent 23, 6% of all retail sales globally by 2020.

Hi versus 17, 9% in 2020.

So while the immediate year over year comparisons are challenging in the long term E. Commerce is predicted to continue its rapid growth and Terry and we're preparing to take advantage of that growth.

As part of these preparations we're strengthening our team with talent across the board. We're excited to welcome Anthony <unk> as its global New Global CLO and then brings over 22 years of experience in E. Commerce operations and then was also previously the CEO and president and a boosted commerce and e-commerce aggregator of brands, which raised over $380 million in capital to acquire <unk>.

Walter online brands.

As we prepare to expand and grow.

The number of brands, we manage agile processes and automation through technology are going to be critical to scale our model.

We're looking forward to turning our parent company into a well oiled machine given our portfolio of brands all the necessary building blocks of E Commerce as a service.

With regards to our acquisition strategy, we remain very excited.

But with the opportunity to do accretive acquisition driving strategic value for us.

During the first quarter, our team is continuing to evaluate many opportunities.

We're remaining disciplined and valuation and valuation given the inflated performance of targets due to COVID-19 E Commerce acceleration.

Given that most of these toric target.

We expect to be valued based on their performance over the trailing 12 months, we believe that valuations will come down over the course of the year.

We expect to be able to capitalize on the impact of the current market conditions to acquire a number of these targets at a later stage for more reasonable valuation.

There's been a lot of press recently about the challenges faced by E Commerce Aggregators.

Just last year raise astronomical amounts of money to persist similar acquisition strategy two hours.

The press is reporting on many of these companies that are struggling with similar challenges on the ones we encountered since last year.

One of the main challenges affecting our peers is like all the infrastructure and technology to support the complex effort in managing our portfolio.

Brands online.

Without systems to monitor and aggregates product performance in real time, and automate manual functions. Most of these companies need to hire non scalable workforce of analysts and marketers.

The difference between these companies and materials in our years of investing in building, our Amy platform, which allows us to operate the brands, we build or acquire.

With more efficiency and less overhead.

As key for success for those we're seeing a platform strategy.

We believe that our revenue per employee head count remains best in class and will continue to improve over time.

We've also been in this business were much longer than most of these companies and we've surmounted challenges affecting our industry for many years proving that our culture.

Okay. So whatever is coming next.

With that let me turn the call to already for more in depth discussion of the quarters financial.

Thank you, Steve and good evening, everyone here are the financial performance details of our first quarter for the <unk>.

First quarter of 2022, net revenue decreased 13, 3% or $6 4 million to $41 7 million from $48 1 million in the year ago quarter, primarily from a decrease in net revenues from our sustained business, a $4 million and $1 8 million due to our previously announced plan to pause new product launches.

The first quarter net revenue of $41 7 million is comprised primarily of $29 8 million of organic business, which includes revenue from our <unk> brands and acquire brands starting one year after our purchase.

$9 6 million in net revenue from our acquisitions and $2 $3 million of wholesale.

The year ago quarter net revenue of $48 1 million was comprised primarily of <unk>.

$17 4 million from our organic business.

$8 7 million of net revenue from our acquisition and $1 8 million of wholesale.

As a reminder, the acquisition of healing solutions closed on February <unk> 2021, and as a result moved into the organic category starting February 2022.

And the acquisition of Smash closed on December one 2020, and as a result moved into our organic categories. Starting December one 2021.

Our sustained revenue landed at $37 9 million for Q1 2022.

Versus $41 9 million in Q1 2021 four.

A $4 million decrease in revenues primarily due to.

Our acquisition revenue decreased $19 1 million to $9 6 million for Q1 2022 from $28 7 million in Q1 2021 do.

Due primarily to our acquisitions of smash and healing solutions being owned for a year.

Over a year now and shifting to our organic categorization. Our remaining acquisition revenue continues to be in line with expectations for PPD and squatty outside of seasonality and timing of the closing of those acquisitions.

Our acquisition revenue decrease was offset by our organic revenue increasing by $15 1 million from the move of our acquisition revenue into organic offset by reduction in the overall organic revenue from <unk>.

Increased pricing on our products affected by global supply chain disruptions, which has led to reduced sales velocity and impacts from termination government stimulus support and the initial unfavorable impacts from inflation affecting consumers.

As mentioned in our business is also saw year over year decrease in launch phase revenue of $2 6 million $2 8 million as planned and we did not launch any new products this quarter compared to 21 in last year's first quarter.

As we've mentioned previously we will continue to pause on launching new products until we believe the time is right and the supply chain macroeconomic environment is more predictable.

Finally on net revenue, we suffer from inventory shorts in the quarter, which we estimate to be an impact of approximately 2 million in the current period as compared to inventory Schwartz of approximately $6 million in the period year period ago.

Overall gross margin for the first quarter increased to 56, 6% from 54, 1% in the year ago quarter, our gross margin improvement versus last year, primarily from a favorable product mix from inclusion of our acquired brands.

Offset by increased costs, we believe the increased cost of shipping containers impacted our gross margin by approximately 2% in the first quarter of 2022.

Our overall Q1 2022 contribution margin as defined in our earnings release was nine 2%, which decreased compared to prior year of 12, 7%.

Q1, 2022, Saar sustained product contribution margin decreased to 12, 5% compared to 14% in Q1 2021.

<unk> contribution margin or cm, our sales and distribution expenses were negatively impacted by global supply chain disruptions and higher costs in last mile fulfillment, given inflationary pressures and carrier tightened in the quarter.

Our Q1 variable sales and distribution expenses as a percentage of net revenue increased to 47, 5% as compared to 45, 2% in the year ago quarter.

We expect to see these impacts continue in the current quarter.

We continue to look for ways to mitigate higher cost dynamics in our supply chain and last mile costs. We believe will continue to CCM pressures for 2022 due to inflationary cost increases.

Our $36 3 million operating loss for first quarter of 2022 includes a charge of $29 million of goodwill impairment $2 3 million of noncash stock compensation expense and $2 8 million gain on change in fair value of earn out liability.

This compares to our first quarter 2021 operating loss of $27 8 million, which includes $15 6 million charge from the change in fair value of earn out liabilities and $6 9 million of noncash compensation expense.

The $29 million goodwill impairment resulted from a reduced market capitalization at March 31 2022.

Interest expenses down in Q1, 2020 to $2 8 million from $4 $4 million in Q1, 2021, as part of our debt refinancing ultimately, reducing our overall debt outstanding today versus 2021.

Net loss in the first quarter of 2022 was $42 8 million and includes a charge of $29 million of goodwill impairment $2 3 million of noncash stock compensation expense impacts related to equity issuance and warrants a $7 6 million and $2 million gain a settlement from our supplemental.

And a $2 $8 million.

Gain on change in fair value of the earn out liability compared to the year ago quarters net loss of $82 6 million, which includes $50 3 million of net charges from the change in fair value on cancellation of warrants 15.

<unk> $15 6 million of charges from the change in the fair value of earn out liabilities and $6 9 million of noncash compensation expense.

Finally, adjusted EBITDA as defined in our earnings release for the first quarter of 2022 was a loss of $4 5 million compared to a loss of $1 2 million in the first quarter of 2021.

Turning to the balance sheet at March 31st 2022, we had cash of $44 5 million compared to $30 3 million at the end of December 31, 2021. The increase in cash is primarily driven by the recent financing that raised $27 5 million, partially offset by increased inventory letters.

In anticipation of increased volumes of the summer season.

Our increased inventory levels were strategically plan to address the continued supply chain concerns, particularly the time it takes to get goods onshore to address inventory shorts and to ensure the appropriate inventory levels for our summer season products.

We continue to be impacted by global supply chain disruptions, especially considering the deflationary pressures globally and the uncertainty stemming from the invasion of Ukraine.

We believe these issues are temporary they limit our ability to forecast and as a result, we will not be providing full year guidance.

However, as we look at our current Q2 and taking into account the current global environment pricing inflation and continued difficulty with supply chain. We believe Q2 2022 net revenues will be below last year's figure of $68 million.

The first quarter of 2022 continued as 2021 left off macroeconomic conditions have remained challenging and consumer spending habits remain unpredictable.

But we are exiting this quarter with a strong balance sheet very strong brands and product portfolio. This positions us well to resume growth and drive the business to profitability as the world reverts to a more normal environment in the future.

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 it 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.

As a reminder to ask a question you will need to press star one on your telephone.

Withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from Brian Nagel with Oppenheimer. Your line is now open.

Hey, guys good afternoon.

Yes.

Good afternoon.

The question. The first question I have.

I appreciate all the color in the prepared comments.

With regard to supply chain.

Still a lot of moving parts out there, but I guess the question I have is.

Are you starting to see some relief.

Parts of the supply chain.

Versus what well over the last several quarters or so.

Hi, Brian Thanks for the question.

I have to say that we had some glimmers of hope.

Looking at the macro level environment, and some indicators of improvements.

Unfortunately, right now we are back into.

Looking at this with a big question Mark as the.

Colby zero policy in China.

It's putting renewed pressure on the supply chain and just logistics data with ports.

Not operating at full capacity and obviously everyone on this call is aware of.

The lockdowns that are happening in China. So.

We were hoping that after Chen.

In the year things will improve I think a combination of the events in Ukraine as well as the resurgence of Covid in China.

Make us a little more pessimistic in the short term long term, obviously, we believe that things will come back to normal, but unfortunately, it's not as quickly as we wanted to see it.

We're still kind of waiting to see the impact of the latest lockdowns in China on global supply chains.

Alright.

That's helpful. And then my second question I think it's probably more for already but.

Talked about the cash on the balance sheet and the recent financing, but how should we think about particularly with the business.

Let's say this kind of this.

Holding mode, if you will.

The capital needs of the company through.

For the balance of 'twenty jewelry, maybe beyond here.

Yes, no. Thanks, Brian do you want to take that.

Yes. Thanks.

Hey, Brian Thanks for the question. So, yes, I mean listen I think we said that previously and we still kind of a bulk of that is that you.

We're always going to see ups and downs in our business in a sensible thing about the U S.

We have turned the.

Especially as we enter this time, especially as we enter the.

The summer season that said, we felt that the fund raise we did in March really strengthens our balance sheet.

Our credit facility gives us a lot more working capital flexibility that we had in 2021 and assuming we continue to.

In our forecast and all that we think we are well capitalized that said, if we decided to do M&A and other strategic moves like that we probably would need to do equity raises but outside of that from a business and norm I think we feel like the balance sheet is strong as of today.

Got it I appreciate it thank you.

Thank you. Our next question comes from Tom Forte with D. A Davidson your line is now.

Great. Thanks for taking my question, one question and one follow up.

The first question you talked about it a little in your prepared remarks.

<unk> is a long time.

Commerce can you talk about inflation affecting e-commerce, and how it's affecting material.

Sure.

Inflation.

Obviously prevalent across the entire supply chain is it doesn't just affect us. It affects also our partners whether it's on the.

Logistics side or on the manufacturing side and Unfortunately, obviously trickles all the way back to the customer right.

Cost across the board of <unk>.

Energy going up.

And materials going up.

You have basically an impact that every point of the supply chain and when it affects us at the end of the day is our cost of making the product of shipping them all the way through our warehouses, where they are ready to be shipped to the customers.

At the end of the day the landed cost of those products.

Now much higher than it used to be and of course.

As we discussed in previous calls we are consistently.

Focused on one thing, which is we can't absorb the entire increase in cost of course, so we have to raise our prices, but we're also very much determined to retain.

Much market share as possible for our portfolio so the exercise for us.

Really in real time.

<unk> of all the variables affecting the P&L of every one of our product to really try to find that sweet spot between holding market share.

Creating enough contribution margin for the product.

It will make the <unk>.

<unk> as much as we can.

But also obviously with an increase in price on these products to absorb the costs, we're seeing less sales right and with a smaller margin.

And the contribution margin that we expect from our portfolio of products is obviously lower.

Again, we believe that.

All of that is transient.

Obviously quite a while now with all the events that are happening in the world.

We continue to maintain the strategy of regaining market share.

We have to up our prices it obviously hurts our numbers and our margins, but we're so far I think overall.

<unk> been successful in.

Navi.

And through this environment.

At the end of the day.

US and for every business out there.

Same pattern happens.

Across the board for consumers. So that means that consumers are going to see at some point in time.

They are discretionary earnings not being able to.

To drive as much consumption as we saw in the last couple of years.

The effect I think everyone on this call is seeing.

Across the market wide with a bunch of other ecommerce companies. As you mentioned are affected by that at the end of the day as I said in my prepared remarks, right. We believe that.

This is all forming a new baseline and from their growth.

E Commerce and growth for sure.

Should resume.

Hopefully I answered the question Tom.

Yes, thanks, so for my follow up.

I wanted you to talk about the near term market environment for ecommerce and FERC curious if you could.

Rank order what you think is putting the most pressure on ecommerce sales and your sales is it consumers returning to physical stores and increase in discretionary income going to travel.

Economic concerns in Russia, Ukraine.

Hearing a lot of different reasons from a lot of different ecommerce players and why the June quarter in particular.

Challenging I would appreciate your thoughts.

Can I choose all of the above.

But again I think I think I think that's great.

Yes.

Yes, I think I think all of the above certainly for everyone who is in E. Commerce I think for <unk> specifically.

We have a diversified portfolio of products and.

For those who follow us closely.

Always.

We've always maintained that the strategy that we're going after is to leverage the common denominator of all of these brands around the kind of like bread and butter.

There'll be commerce that we have.

System.

The parent company and deleverage out across these companies. These portfolio of companies that we have and so that's interesting because it allows us to see how the impact of this environment is different across categories right.

And as Tom you know well ride our portfolio.

Certainly.

Our strategic inclination towards oversized products, where we have through our technology and supply chain infrastructure and an advantage in shipping last mile but that advantage. Unfortunately has become a little bit of a detriment right in the supply chain crisis, because specifically for us.

The oversized goods are hurt more than smaller goods right, obviously with shipping container cost.

Increasing so dramatically.

The larger items relatively speaking are more affected right and so that has in terms of asking your question right like in terms of your question of what affects us the most definitely the cost of shipping containers, specifically about it Jerry and has a more significant effect than the others.

I would say that.

The other thing that's good about us here in general is that we go off to product categories that are pretty.

Mainstream.

I'd say almost.

Must have commodities right. So in terms of the impact of consumers'.

Discretionary earnings and the ability to deploy that into goods right were less affected by the fact that our products our.

Our portfolio of products as more.

Some of it something of a splurge ride we are more focused on.

Our long term evergreen commoditized products and from our perspective, I think that were less affected than some other companies right.

Again for US the main thing is going to be the shipping containers.

That's the most that's what has the most impact.

<unk> effect on materials specifically.

Okay.

And again the other the other factor that you mentioned are true, but I think there are less of an issue for us more of an issue for the rest of the E Commerce landscape.

Thanks for taking my questions I appreciate it.

Thank you. Thank you.

Our next question comes from Brian Chin.

With Alliance Global Partners. Your line is now open.

Great. Thanks, so much for taking my questions.

First I am curious to what degree working with the third party logistics companies like Amazon.

The P&L was there a material benefit in the first quarter was most of the inventory from shipping containers. What are these agreements and then the same question for the current quarter, thus far and we are beginning to see a shift.

Inventory that was using these.

Better priced containers I think starting to.

The increase as a percentage.

The mix to improve your unit economics at all.

Okay.

Alrighty why don't I start answering this and see if you want to add anything.

Thanks for the question.

As we mentioned.

We're relying on several relationships, including Amazon Global logistics, which is a big part of this right. We're really happy with their help I would say that.

As much as it is on a year over year comparison tougher to see because if you look at last year right. The cost of shipping of containers that we were.

That's kind of pin the cost of our goods.

It was not as bad right because it was.

The supply chain question is really became much worse around June July right, whereas.

In the first quarter of last year, we were benefiting from shipping cost of a couple of quarters before which will better right. So the year over year comp might not show it but the help of Amazon Global logistics and other.

Other partners has been tremendous because relatively speaking without we can't disclose exactly what we're paying for shipping.

But if we didn't have these relationships in place do you think it will be much more difficult. So.

Had a very significant impact on our ability to bring goods at a more reasonable price still obviously higher than the prices we were seeing.

A more normalized environment.

But lower.

That what Youll see is the spot rate and the peak spot rate.

They look for more reliability.

Under under the banner of a ship that is.

Kind of.

Under the banner of Amazon shipping a container is still more reliable, though I have to say not not perfectly either right.

So again I.

I think thats impacted there.

It's hard to see because the relative comparison to what would have been without it is tough to even imagine right. So we're very happy with that or you don't know if you want to add anything to that yeah, thanks, and even in great answer yet.

Theres definitely listen.

The partnerships, we havent can't disclose pricing, but we're definitely getting better rates and the spot rates.

And the reality at times, you know much better than the spot rate. So it's definitely it could have been a lot worse. If we didn't have these deals or these partners. So and I think the other key thing that perhaps we don't talk a lot about and you need mailed. It is the reliability I think you could see some of the short numbers are much different this year versus last year quarter.

These guys have been able to really pinpoint.

Give us timelines and meet them right. So we can make sure that the product shows up now that said, we've mentioned with buying inventory.

At a larger clip to make sure we do have more on hand to avoid some of those issues and to buy in ahead of time to make sure. If there are any disruptions like you mentioned is China and shutting down here and there in certain parts.

It's less impactful now the thing that makes it a little bit tough to your question the mix right and since that we've been buying our summer seasons way ahead. So we've been taking advantage of some better pricing and youll start seeing that hopefully in Q2 and Q3.

So I think in some aspects the comparable will still be a bit tough, especially in Q2, but certainly at the beginning part of Q2, but certainly as we continue sort of.

Wash through the inventory over the coming quarters, you'll hopefully start seeing a little bit of improvements in Q3 into Q4. It that's helpful and the second part of your answer a question sorry.

I have one follow up.

We've talked about inflation, obviously in the past you've talked about the slow nature in which you can raise prices. Despite the cost of supply is growing so quickly.

Careful not to lose your market share as competitors are not raising prices as fast. So can you just kind of give us a general update on how this is going in the market in the markets you're in and maybe if you can characterize in general average increase in prices for your Skus.

Yes, thanks for the question.

So as I mentioned again.

Congress is interesting and in a way, it's a bit of a metaphor to traditional.

No.

At the end of the day your visibility to customers' different traditional read out on a physical shelf.

Online retail on a digital shelf is really the result of your performance right. The module product sales the more it will show up in adds though model showed up in searches the more it will sell its almost like this.

Kind of stuff fulfilling prophecy right in and the challenges that we've always been.

Very data in detail oriented in terms of launching a product with this idea that we have to generate great performance to be able to.

To see consistent sales.

With the cost.

So if everything going up.

The dilemma as I mentioned earlier is always what we have to up the price because our margins are getting squeezed, but if we have been too much or performance is going to come down and then we might lose market share and it's really hard to regain that especially if other competitors take advantage of that and.

Sure the really interesting part in all this is that.

People ask me well, how can other people taking market share because they're having the same problems as you do right and the answer is yes, but remember also that a lot of companies.

Who are dealing with this situation.

Potentially even throwing the towel and by throwing the towel.

Liquidity in those products really reduce cost or reducing prices in ways that are not sustainable for them because they are again dealing with the same challenges now for us it's always about well.

What can what do we do about this right.

Someone is sitting on a lot of inventory and they are starting to push it through.

To try to get rid of it in a way right. You asked yourself like is this a competitor trying to take market share or is it someone taking sales from me temporarily because theyre getting out of the they are getting out of the market right and those are the kind of challenges we're looking at literally.

On a SKU by SKU basis, and you can imagine how difficult that would be without the right systems without the right analytics and again without the investments we've made in technology, so that our team monitoring and managing these products could either automatically or semi automatically or manually make the right decisions for the business they need that data in real time, and this is where again.

Our investments in Amy and then the ability that we have.

To give our team real time visibility into the product performance is critical to make those decisions. So again, so far all things considered I think we've done as well as we could with the environment. We've been able to overall, we gained market share we have lost market shares a little bit here and there were gain in other places, but overall I'm happy with.

How we've managed without those.

Those challenges so far and I believe we'll continue to do so.

Does that does that resonate with you.

Sure.

Okay.

Thank you.

Thank you again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our next question comes from Matt Koranda with Roth Capital. Your line is now open.

Hey, guys, Mike <unk> on for Matt.

Just a couple of questions on M&A strategy going forward.

Can just give some more color on what we're seeing in terms of multiples and.

Talk about how we're thinking about funding this growth whether through debt or equity and lastly, just kind of help us understand what types of companies. We're looking at are we looking for distressed aggregators that just needed some operational improvement or are we just looking for overall well run businesses.

Hey, that's a great question, let me answer it in.

Obviously, if you want to add anything.

So overall as I said also in the prepared remarks.

Long term, we're super excited about the M&A strategy, we think that.

They're going to be multiple.

In this industry.

Building, the consumer platform of the future and managing a portfolio of brands at scale across many channels.

The marketplace landscape is absolutely massive.

There's room for multiple winter.

And it's not just about Amazon right globally speaking there are marketplaces.

Pretty much every continent.

Starting to dominate the online retail space and we want to be very good at managing brands on those marketplaces.

I've also mentioned in the remarks the aggregator landscape.

Again companies that have raised a significant amount of money to go and roll up some of the smaller e-commerce brands out there.

Trying to see some pressure right, they're starting to realize that this is a very challenging thing to do.

And without the right infrastructure attack.

Very hard to really manage those businesses, especially in challenging situations like the macro level environment that we're in today and so we believe that.

Yes.

Aggregator space, we're going to see consolidation, we're going to see good companies come out of it including interior and potentially as maybe.

But generally there for us so it remains to be seen.

But in the interim right.

We can see.

To look at targets, all the time and as I mentioned.

The prepared remarks with a couple of things that we look at it and we're very careful about is we know obviously.

More aware of the e-commerce.

Call it.

Calibration that has happened.

Last two years and when we look at targets and they are measured.

On the trailing.

Trailing 12 month results, we have to be very careful to think about.

We're not overpaying does it make more sense to maybe wait a little bit that the environment stabilized see what the based on all of our businesses.

And take it from there right as opposed to.

Execute at a high.

Right.

Be very careful right now right now we're also looking.

We're looking at a lot of things, but I think we have a good.

Yes.

We are prioritizing.

Assets in businesses that are less affected by the supply chain crisis, specifically, I'd say businesses and categories where.

The.

Factoring in maybe not in Asia, but.

South America, Canada, or Europe , which there are assets like that and even in the United States of course.

And this priority towards that but again, we're being very careful and measure and then realizing again that we're not in.

Normalized environment.

We look at this very carefully as I said right, but again Super excited long term I think there's incredible opportunity here and I think again that we are well positioned to execute on this we just got to be careful during those times and wait for things to stabilize already I don't know if you want to add anything probably maybe about the need for more capital.

Good.

Okay. Thanks.

Yeah, Thanks, Sidney and yes, I think we said earlier I think the equity raise and our midcap credit facility. It puts us in a good position strengthens the balance sheet because this flexibility.

Navigate some of these disruptions and certainly provides flexibility in working capital. We said previously we will reiterate if we're going to do M&A, especially material ones that you'd probably look at doing some type of.

Financing is that equity or debt or some combination of both including <unk>.

Sure. So the seller, which obviously is with the current borrowings were doing is becoming more interest in certain sellers.

Those combinations, where you would see some.

News on financing if we were doing M&A.

Got it very helpful. Thanks, guys.

One more for me.

Did you guys just elaborate a little bit on the inventory composition in the quarter and help us get a sense of how much of that inventory is finished goods on the water versus how much is sitting currently in distribution centers.

Okay.

Yes already by Congress.

Yes, yes, absolutely.

Good question, so roughly I would say about $20 million is considered in transit and the other difference which is I think it will be 56, I guess roughly.

35 is sitting on hand.

That's helpful. Thanks, guys.

Thank you.

This concludes our question and answer session I would now like to turn the conference back over to Elliot Krasowski.

Thanks.

As part of our shareholder Perks program, which as a reminder, investors can sign up for at <unk> Dot.

Slash perks participants have the ability to ask management questions on our earnings call.

I want to thank all of the shareholder parks participants for their loyalty their participation in the program and their questions.

I picked a few of the most popular questions that they have asked.

Please update what is happening with deal Mojo and recurrent partnerships any can you handle that one.

Sure.

Yeah, Thanks, Elia and again, thanks to all of our shareholders and the shareholder base program for for participating in this so.

So on the deal merger regarding aside.

We talked about in the past and we continue to make strategic investment in <unk>.

The thing is related to publisher driven business as a reminder.

30% of customers in the United States.

Search for products outside of marketplaces, when Theyre looking for a solution to a problem on a recommendation right and often times.

This traffic the searches are captured by publishers online magazines that are going to write articles a promoter and product maybe.

Coupon website or things like that and we basically.

Bill deal Mojo.

As a destination for publishers and online sellers in the ecommerce space to partner around these promotions and obviously for us here and it's a strategic thing.

To have right and so.

We continue to see good progress there will continue to on board publishers.

Still early but it's looking promising and we're going to continue to turn this into a destination for us.

And more to come on the recurring side.

Look to have some news on this.

Pretty soon here, we're making.

I guess on that relationship.

Thanks next question all of that was popular was.

What is going on with <unk> International sales efforts.

Sure.

So we made some progress on international sales, but its obviously not moving as fast as we want it.

Mainly because again of disruptions that happened into supply chain and as I mentioned on previous calls.

Europe has experienced even more disruption in the U S.

Yes.

Anytime one of those main things we're doing is we're making a lot of infrastructure preparations for more robust rollout right. So we're set.

Setting up our three pls.

Just takes and all these other important things that are going to be critical as we kind of push back on growth and pending on normalization of supply chain. We believe that there is a very large opportunity, especially in Europe , where we're focusing now.

We're also at the end of the day going to see a lot of potential to expand internationally versus.

Those acquisitions.

We've been starting to look at but again timing is not necessarily right now given given all the disruption.

I think what we'll see as things start to stabilize as us pushing more products specifically to Europe .

Over on infrastructure that I guess in the next few months.

To invest in it.

Then we will see growth coming both from bringing products into those markets as well as we discussed potentially acquisition that we wanted to do there, but all of this is again pending the normalization of the environment, which is <unk>.

Not if but of when right and we're just kind of timing that as well as we can.

Okay and final question from Perks program is can you update us on what you are doing about the alleged naked shorting of your stock.

Yes, we received questions about that so as we talked about in the past we engaged a third party firm that is specializing in these matters.

I can share that.

We sent several letters to well known wall Street institutions, pointing out what our third party investigative firm believes a substantial share in balances.

It's a long process and we are grateful for the support of our retail and institutional shareholders around this.

In the long run.

We're focused on execution and believe that.

The prospect of our business puts us supply chain pressures.

That we're experiencing today, we believe that will integrate and that will basically set the tone for the trading of our stock, but again, we're very grateful for all the support that we're getting for our retail investors institutional investors.

Thank you. This concludes the Q&A portion of the call in terms of the upcoming calendar.

<unk> management will be participating in the Oppenheimer.

<unk> annual emerging growth conference on May 10th.

Craig Hallum, 19th annual institutional Investor Conference on June one.

And the Oppenheimer 20, <unk> annual consumer and E Commerce Conference on June 14th and 15th we look forward to speaking with you on future calls. This ends our call and you may now disconnect. Thank you.

Yeah.

This concludes today's conference call.

You for participating you may now disconnect.

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Thanks.

Good day, and thank you for standing by.

Welcome to the <unk> in Q1 2022 earnings results Conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

So ask a question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded.

You require assistance during the conference Please press Star zero.

I would now like to hand, the conference over to your speaker today <unk>.

Gross Hausky director of Investor Relations and corporate development.

Thank you for joining us today to discuss <unk> first quarter 2022 earnings results on.

On today's call are <unk>, <unk>, 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.

Business.

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

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 certain 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 Tony.

Thank you Julia and thank you everyone for joining us today.

On the call today, although the following topics.

I'll start with a quick introduction to <unk> for those who are newer to our story.

I will then review the key takeaways from the first quarter of this year.

I'll then discuss the continued challenges we're dealing with given the economy and macro level pressure from supply chain disruptions and inflation.

I will then summarize the long term prospects criteria.

So for those who are newer to the story, here's what you need to know about our company.

Sure.

It's here and it's part of a new breed of technology enabled consumer product companies.

We focus on building acquiring and partnering with E Commerce brands online.

<unk> operates 14 consumer brands selling product across various categories on channels, such as Amazon Walmart Shopify on ebay.

So allow us to scale.

We've invested in building our own proprietary software platform called <unk>.

Amy 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 and 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 that we can launch under our brands managing suppliers to scale effectively across various channels.

Automate certain marketing and fulfillment and much more.

Our goal in the long term is to become one of the most efficient consumer companies in the world expanding.

Bring globally, while continuing to invest in technology technology, and agile supply chain to drive scale and profitability.

Moving now towards your takeaways from our first quarter.

I'll start with a quick summary of the main points and then discuss them in more details.

Notwithstanding inflationary and supply chain pressures, we believe.

The once the macro level environment improves materially more than ever and well positioned to become a leader in the space.

We have an incredible team, which keeps getting better and our result to build a leading consumer platform and e-commerce is stronger than ever.

Global recession fears are mounting, but we think that there is a silver lining.

The global demand.

What products go down we expect to see improvement in supply chain and logistics costs.

We believe that we have the balance sheet necessary and many additional levers we can pull to get through this difficult environment.

We're preparing to resume growth and profitability when the macro level challenges subside.

We're focusing on strengthening.

Steve and infrastructure.

And then Youll global CLO and I'm working closely with them on preparing the organization for rapid and systemic scale.

We're looking at acquisition targets contemplate with an important focus on brands that are less affected by the supply chain crisis.

Been diligent cautious and patient given.

Environment.

We did important points in mind.

Like to now discuss each of them in further detail.

It's not surprised at the micro level environment continues to put near term pressure on our business.

At the same time, our leadership continues to be excited about <unk> long term prospects and focused on laying the groundwork necessary.

You can add growth.

The last couple of weeks have made it clear to everyone that the economy is witnessing a whiplash effect driven by the monetary policies adopted by governments around the world to kind of the COVID-19 pandemic.

Many people ask us why supply chains have been so dramatically disrupted in the last year and a half.

There is no simple answer.

It's obvious to us and inside the massive injection of cash by governments around the world to stimulate the global economy. During the pandemic is a big part of the culprit.

With most traveling services being unavailable during the initial logged on as a 2020 government monetary support was dramatically skewed towards retail online consumption.

With consumer appetite for product skyrocketing logistics companies could not react fast enough to invest in more ships and airplanes to transport goods.

Given this asymmetric demand for shipping services against limited capacity prices of shipping skyrocket skyrocketed further escalating inflation.

Amazon itself, we're seeing an increase in price of goods across most categories.

Yes.

As many on this call and probably anticipated after reviewing the financial results of large online retailers. We're now seeing the effects of the pendulum swing in the opposite direction.

Consumers are seeing prices going up everywhere and as a result, the management product is weaker compared to the shopping spree. We saw in the last two years.

Before I turn as long.

And that investors the latest signs of reduced consumer demand should actually be quite encouraging.

How can I say that when we are looking down the barrel of a potential painful recession will simply because our business for our business really getting back to growth and profitability.

On returning to normalized shipping cost.

The only way to get there, it's a reduced global consumer demand for products.

While this downturn in demand might spell doom for other companies in our industry It will not for Rytary.

Things like a more difficult before they get better.

Well, we're already preparing for what happens when markets stabilize around a new baseline from which we can grow our business.

We have the balance sheet to get through a long downturn and many levers to pull in case of additional challenges.

More importantly, our team has never been stronger and our resolve to prove ourselves has never been more steadfast.

For long term investors, who believe in US. The critical question is when will the new based on form.

And what will be the.

The growth from that point on.

On a global level the ecommerce boring experienced in 2020 represented 26, 5% year over year revenue growth compared to 2019 in.

In 2021 year over year ecommerce revenue continued to grow but it's much smaller rate of 16, 3% compared to the previous year and this year E Commerce.

Expect that Duane out around 12, 2%.

On global growth compared to 2021.

The expected year over year revenue growth rates.

Starting in 2023 will be between 9% to 10%, but more importantly E. Commerce is predicted to represent 23, 6% of all retail sales globally by 2020.

Hi versus 17, 9% in 2020.

As part of these preparations we're strengthening our team with talent across the board. We're excited to welcome Anthony <unk> as its global New Global CLO and been brings over 20 years of experience in E. Commerce operations and then was also previously the CEO and president of boosted commerce and e-commerce aggregator of brands, which raised over $380 million in capital to acquire <unk>.

Online brands.

As we prepare to expand and grow.

The number of brands, we manage agile processes and automation through technology are going to be critical to scale our model.

We're looking forward to turning our parent company into a well oiled machine given our portfolio of brands all the necessary building blocks of E Commerce as a service.

With regards to our acquisition strategy, we remain very excited.

But with the opportunity to do accretive acquisition driving strategic value for it.

During the first quarter, our team is continuing to evaluate many opportunities.

We're remaining disciplined and valuate evaluation, given the inflated performance targets due to COVID-19 E Commerce acceleration.

Given that most of these toric target.

We expect to be valued based on their performance over the trailing 12 months, we believe that valuations will come down over the course of the year.

We expect to be able to capitalize on the impact of the current market conditions to acquire a number of these targets at a later stage for more reasonable valuation.

There's been a lot of press recently about the challenges faced by E Commerce Aggregators.

Just last year raise astronomical amounts of money to persist similar acquisition strategy two hours.

The press is reporting on many of these companies on a struggling with similar challenges and the ones we encountered since last year.

One of the main challenges affecting our peers like all the infrastructure and technology to support the complex effort in managing our portfolio.

Brands online.

Without systems to monitor and aggregates product performance in real time, and automate manual functions. Most of these companies need to hire non scalable workforce of analysts and marketers.

The difference between these companies and materials in our years of investing in building, our Amy platform, which allows us to operate the brands, we build or acquire.

With more efficiency and less overhead.

This is key for success for those we're seeing a platform strategy.

We believe that our revenue typically you had kind of remains best in class and will continue to improve over time.

We've also been in this business were much longer than most of these companies and we've surmounted challenges affecting our industry for many years proving that our culture.

Whatever is coming next.

With that let me turn the call to already for more in depth discussion of the quarters financial.

Thank you, Steve and good evening, everyone here are the financial performance details of our first quarter for.

For the first quarter of 2022, net revenue decreased 13, 3% or $6 4 million to $41 7 million from $48 1 million in the year ago quarter, primarily from a decrease in net revenues from our sustained business, a $4 million and $1 8 million due to our previously announced plan to pause new product launches.

The first quarter net revenue of $41 7 million is comprised primarily of $29 8 million of organic business, which includes revenue from our adult brands and acquire brands starting one year after our purchase nine.

$9 6 million in net revenue from our acquisitions and $2 $3 million of wholesale.

The year ago quarter net revenue of $48 1 million was comprised primarily of <unk>.

$17 4 million from our organic business.

$8 7 million of net revenue from our acquisition and $1 8 million of wholesale.

As a reminder, the acquisition of healing solutions closed on February <unk> 2021, and a result moved into the organic category starting February 2022, and the acquisition of Smash closed on December one 2020, and as a result moved into our organic categories starting to December one 2021.

Our sustained revenue landed at $37 9 million for Q1 2022.

Versus $41 9 million in Q1 2021 to.

The 4 million decrease in revenues, primarily due to our acquisition revenue decreased $19 1 million to $9 6 million for Q1 2022 from $28 7 million in Q1 2021.

Due primarily to our acquisitions of smash and healing solutions being owned for a year.

Increased pricing on our products affected by global supply chain disruptions, which has led to reduced sales velocity and impacts from termination of government stimulus support and the initial unfavorable impacts from inflation affecting consumers.

As mentioned our business is also saw year over year decrease in launch phase revenue of $2 6 million $2 8 million as planned we did not launch any new products this quarter compared to 21 in last year's first quarter.

As we have mentioned previously we will continue to pause on launching new products until we believe the time is right and the supply chain macroeconomic environment is more predictable.

Finally on net revenue, we suffer from inventory shorts in the quarter, which we estimate to be an impact of approximately $2 million in the current period as compared to inventory Schwartz of approximately $6 million in the period year period ago.

Overall gross margin for the first quarter increased to 56, 6% from 54, 1% in the year ago quarter our.

Gross margin improvement versus last year predominantly from a favorable product mix from inclusion of our acquired brands, though offset by increased costs. We believe the increased cost of shipping containers impacted our gross margin by approximately 2% in the first quarter of 2022.

Our overall Q1 2022 contribution margin as defined in our earnings release was nine 2%, which decreased compared to prior year of 12, 7%.

Q1, 2022, Saar sustained product contribution margin decreased to 12, 5% compared to 14% in Q1 2021.

Within contribute shun margin or <unk>, our sales and distribution expenses were negatively impacted by global supply chain disruptions and higher cost in last mile fulfillment, given inflationary pressures and carrier tightened in the quarter.

Our Q1 variable sales and distribution expenses as a percentage of net revenue increased to 47, 5% as compared to 45, 2% in the year ago quarter.

We expect to see these impacts continue in the current quarter.

While we continue to look for ways to mitigate higher cost dynamics in our supply chain and last mile costs. We believe will continue to CCM pressures for 2022 due to inflationary cost increases.

The $29 million goodwill impairment resulted from a reduced market capitalization at March 31 2022.

Interest expenses down in Q1, 2020 to $2 8 million from $4 $4 million in Q1, 2021, as part of our debt refinancing ultimately, reducing our overall debt outstanding today versus 2021.

Net loss in the first quarter of 2022 was $42 8 million and includes a charge of $29 million of goodwill impairment $2 3 million of noncash stock compensation expense and tax related to equity issuance and warrants a $7 6 million and $2 million gain a settlement from a seller.

And a $2 $8 million.

Gain on change in fair value of the earn out liability compared to the year ago quarters net loss of $82 6 million, which includes 53 million of net charges from the change in fair value on cancellation of warrants 15.

<unk> $15 6 million of charges from the change in the fair value of earn out liabilities and $6 9 million of noncash compensation expense.

Finally, adjusted EBITDA as defined in our earnings release for the first quarter of 2022 was a loss of $4 5 million compared to a loss of $1 2 million in first quarter of 2021.

In anticipation of increased volumes of the summer season.

We continue to be impacted by supply chain disruptions, especially considering the inflationary pressures globally and the uncertainty stemming from the invasion of Ukraine.

We believe these issues are temporary they limit our ability to forecast and as a result, we will not be providing full year guidance.

However, as we look at our current Q2 and taking into account the current global environment rising inflation and continued difficulty with supply chain. We believe Q2 2022 net revenues will be below last year's figure of $68 million.

The first quarter of 2022 continued at 2021 left off macroeconomic conditions have remained challenged and consumer spending habits remain unpredictable.

But we are exiting this quarter with a strong balance sheet very strong brands and product portfolio. This position us well to resume growth and drive the business to profitability as the worlds first toward more normal environment in the future.

Together, we believe it will overcome these challenges and continue to be a leader in our industry.

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

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from Brian Nagel with Oppenheimer. Your line is now open.

Hey, guys good afternoon.

Yes.

Good afternoon.

The question. The first question I have.

I appreciate all the color in the prepared comments.

With regard to supply chain.

Still a lot of moving parts out there, but I guess the question I have is.

Are you starting to see some relief.

Parts of the supply chain.

Well over the last several quarters or so.

Hi, Brian Thanks for the question.

I have to say that we had some glimmers of hope.

Looking at the macro level environment, and some indicators of improvements.

Unfortunately, right now were back into.

Looking at this with a big question Mark as the.

Colby zero policy in China.

It's putting renewed pressure on the supply chain and just logistics they are with ports.

Not operating at full capacity and obviously, everyone I think on this call is aware of.

The lockdowns that are happening in China. So.

We were hoping that after Chen.

In the year things will improve I think a combination of the events in Ukraine as well as the resurgence of Covid in China.

Make us a little more pessimistic in the short term long term, obviously, we believe that things will come back to normal, but unfortunately, it's not as quickly as we wanted to see it.

We're still kind of waiting to see the impact of the latest lockdowns in China on global supply chains.

Sure.

That's helpful.

And then my second question I think it's probably mark for already but.

We talked about the the cash on the balance sheet and the recent financing, but how should we think about particularly with the business.

This is kind of this.

<unk> kind of holding mode. If you will.

The capital needs of the company through I guess through the balance of 'twenty, two or even maybe beyond here.

Yes, Thanks, Brian do you want to take that.

Yeah. Thanks, Yeah, Hey, Brian Thanks for the question. So, yes, I mean listen I think we've said that previously and we still kind of a bulk of that is that.

Youre always going to see ups and downs in our business in the Central basin properties, especially if we answered that.

Especially as we enter this time, especially as we enter the.

The summer season that said, we felt that the fund raise we did in March really strengthens our balance sheet.

Our credit facility gives us a lot more working capital flexibility than we had in 2021 and assuming we continue to.

Got it I appreciate it thank you.

Thank you. Our next question comes from Tom Forte with D. A Davidson your line is now.

Great. Thanks for taking my question, one question and one follow up.

First question.

<unk> talked about it a little in your prepared remarks, but you need is a long time.

E Commerce can you talk about how inflation affecting e-commerce and how it is.

Affecting criterion.

Sure.

Inflation.

Obviously prevalent across the entire supply chain is it doesn't just affect us it affects us all our partners.

Whether it's on the.

Logistics side or on the manufacturing side and unfortunately, obviously the trick was all the way back to the customer right.

Cost across the board of <unk>.

Energy going up.

And materials going up.

You have basically an impact that every point of the supply chain and when it affects us at the end of the day is our cost of making the product of shipping them all the way to our warehouses, where they are ready to be shipped to the customers.

At the end of the day the landed cost of those products.

Now much higher than it used to be and of course.

As we discussed in previous calls we are consistently.

Focus on one thing, which is we can't absorb the entire increase in cost of course, so we have to raise our prices, but we're also very much determined to return.

How much market share as possible for our portfolio so the exercise for us.

Really in real time.

<unk> of all the variables affecting the P&L of every one of our product to really try to find that sweet spot between holding market share.

Creating enough contribution margin for the product.

To make it profitable as much as we can.

But also obviously with an increase in price on these products to absorb the costs, we're seeing less sales right and with a smaller margin.

And the contribution margin that we expect from our portfolio of products is obviously lower.

We believe that.

All of that is transient.

Obviously quite a while now with all the events that are happening in the world.

We continue to maintain the strategy of regaining market share.

We have to up our prices it obviously hurts our numbers and our margins, but we're so far I think overall.

<unk> been successful in.

Navi.

And through this environment.

At the end of the day.

US and for every business out there.

Same pattern happens.

Across the board for consumers. So that means that consumers are going to see at some point in time.

Question your earnings not being able to.

To drive as much consumption as we saw in the last couple of years.

The effect I think everyone on this call is seeing.

Across the market right with a bunch of other ecommerce companies as you mentioned.

By that at the end of the day as I said in my prepared remarks, right. We believe that this is all forming a new baseline and from their growth.

E Commerce and growth for TVN should resume.

Hopefully I answered the question Tom.

Yes, thanks, so for my follow up.

I wanted to talk about the near term market environment for ecommerce and criterion. If you could rank order what do you think is putting the most pressure on ecommerce sales and your sales is it consumers returning to physical stores and increase in discretionary income going to travel.

Economic concerns in Russia, Ukraine.

We're hearing a lot of different reasons from a lot of different ecommerce players on why the June quarter in particular.

Challenging I would appreciate your thoughts.

Can I choose all of the above.

But again I think I think I think.

Great.

Sure.

Yes, I think I think all of the above certainly for everyone who is in E. Commerce I think for <unk> specifically.

We have a diversified portfolio of products and.

For those who follow us closely we've always.

We've always maintained that the strategy that we're going after is to leverage the common denominator of all of these brands around the kind of bread and butter.

There'll be commerce that we have.

System at.

The parent company and deleverage on across the company. This portfolio of companies that we have.

That's interesting because it allows us to see how the impact of this environment is different across categories right.

And as Tom you know well rides are our portfolio.

Certainly.

Our strategic inclination towards oversized products, where we have through our technology and supply chain infrastructure advantage and shipping last mile.

That advantage Unfortunately has become a little bit of a detriment rides in the supply chain crisis, because specifically for us.

The oversized goods are hurt more than smaller goods right, obviously with shipping container cost.

Increasing so dramatically.

The larger items relatively speaking are more affected right and so that has in terms of asking your question in terms of your question of what affects us. The most definitely the cost of shipping containers, specifically for CRE and has a more significant effect than the others.

I would say that.

Another thing that's good about that here in general is that we go after product categories that are pretty.

Stream.

I'd say almost <unk>.

Must have commodities right. So in terms of the impact of consumers discretion.

Discretionary earnings and their ability to deploy that into goods right were less affected by the fact that our products our portfolio of products as more.

Some of it something of a splurge ride we are more focused on.

Our long term evergreen commoditized products and from that perspective, I think that were less affected than some other companies right.

So again for US the main thing is going to be the shipping containers.

That's the most that's what has the most impactful effect on the Trs specifically.

And again.

A factor that you mentioned are true, but I think they are less of an issue for us more of an issue for the rest of the E Commerce landscape.

Thanks for taking my questions I appreciate it.

Thank you. Thank you.

Our next question comes from Bryan Kipp.

With Alliance Global Partners. Your line is now open.

Great. Thanks, so much for taking my questions.

First I am curious to what degree of working with the third party logistics companies like Amazon has benefited the P&L was there a material benefit in the first quarter was most of the inventory from shipping containers, what he's agreement and then the same question for the current quarter. Thus far are we beginning to see a shift of inventory.

<unk> that we're using these.

Better price containers are they starting to.

The increase as a percentage of.

The mix to improve your unit economics at all.

Okay.

Alright, why don't I start answering this and see if you want to add anything.

Thanks for the question.

As we mentioned.

We're relying on several relationships, including Amazon Global logistics, which is a big part of this right. We're really happy with their help I would say that.

As much as it is on a year over year comparison tougher to see because if you look at last year right. The cost of shipping of containers that we were.

That's kind of pin the cost of our goods.

It was not as bad right because it was.

The supply chain question is really became much worse around June July right, whereas.

In the first quarter of last year, we were benefiting from shipping cost of a couple of quarters before which were better right. So the year over year comp might not show it but the help of Amazon Global logistics and other.

Other partners has been tremendous because relatively speaking without we can't disclose exactly what we're paying for shipping.

But if we didn't have the relationships in place do you think it will be much more difficult. So.

Had a very significant impact on our ability to bring goods at a more reasonable price still obviously higher than the prices we were seeing.

A more normalized environment.

Lower.

That what Youll see is the spot rate and the peak spot rate.

They look for more reliability.

Under under the banner of a ship that is.

Kind of.

Under the banner of Amazon shipping a container is still more reliable, though I have to say not perfectly either right.

So again.

The impact is there.

Theres definitely listen.

The partnerships, we havent can't disclose pricing, but we're definitely getting better rates from the spot rates and.

And the reality at times, you know much better than the spot rate. So it's definitely it could have been a lot worse. If we didn't have these deals or these partners. So and I think the other key thing that perhaps we don't talk a lot about and you need nailed. It is the reliability I think you could see some of the short numbers are much different this year versus last year quarter.

Guys have been able to really pinpoint.

Give us timelines and meet them right. So we can make sure that the product shows up that said, we mentioned with buying inventory.

So I think in some aspects the comparable will still be a bit tough, especially in Q2, but certainly at the beginning part of Q2, but certainly as we continue sort of.

Wash through the inventory over the coming quarters, you'll hopefully start seeing a little bit of improvement in Q3 into Q4. It that's helpful and the second part of your answer a question sorry.

I have one follow up.

We've talked about inflation, obviously in the past you've talked about the slow nature in which you can raise prices. Despite the cost of supply is growing so quickly.

<unk> not to lose your market share as competitors are not raising prices as fast. So can you just kind of give us a general update on how this is going in the market in the markets you're in and maybe if you can characterize in general average increase in prices for your Skus.

Yes, thanks for the question.

So as I mentioned again.

Commerce is interesting and in a way, it's a bit of a metaphor to traditional.

So we're at the end of the day your visibility to customers' different traditional read out on a physical shale for.

Kind of self fulfilling prophecy right in and the challenges that we've always been.

Very data in detail oriented in terms of launching a product with this idea that we have to generate great performance to be able to.

<unk> continued to see consistent sales.

With the cost.

So if everything going up.

Dilemma as I mentioned earlier is always well we have to up the price because our margins are getting squeezed, but if we have been too much or performance is going to come down and then we might lose market share and it's really hard to regain that especially if other competitors take advantage of that and.

And taken.

Sure the really interesting part in all this is that.

People ask me well, how can other people taking market share because theyre, having the same problems as you do right and the answer is yes.

Remember also that a lot of companies.

Who are dealing with this situation.

Potentially even throwing the towel and by throwing the towel.

Liquidating their products really reduce cost or reducing prices in ways that are not sustainable for them because they are again dealing with the same challenges now for us it's always about well what can what do we do about this right.

Someone has sitting on a lot of inventory and they are starting to push it through.

<unk>.

Our investments in amey and in the ability that we have.

To give our team the real time visibility into the product performance is critical to make those decisions. So again, so far all things considered I think we've done as well as we could with the environment. We've been able to overall, we gained market share we've lost market shares a little bit here and there in other.

Other places, but overall I'm happy with.

How we've managed without.

Those challenges so far and I believe we'll continue to do so.

Does that does that resonate with you.

Okay.

Thank you.

Thank you again, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our next question comes from Matt Koranda with Roth Capital. Your line is now open.

Hey, guys, Mike <unk> on for Matt.

Just a couple of questions on M&A strategy going forward.

Can just give some more color on what we're seeing in terms of multiples and.

Hey, that's a great question, let me answer it in order.

Obviously, if you want to add anything.

But overall as I said also in the prepared remarks slide long term, we're super excited about the M&A strategy, we think that.

They're going to be multiple.

And this industry Bill.

Building, the consumer platform of the future and managing a portfolio of brands at scale across many channels.

The marketplace landscape is absolutely massive.

There's room for multiple winter.

And it's not just about Amazon right globally speaking there are marketplaces.

Pretty much every continent.

Starting to dominate the online retail space and we want to be very good at managing brands on those marketplaces.

I'd also mentioned in the remarks the aggregator landscape.

Again companies that have raised a significant amount of money to go and roll up some of the smaller E. Commerce brands out there is starting to see some pressure right. They're starting to realize that this is a very challenging thing to do.

And without the right infrastructure attack.

Very hard to really manage those businesses, especially in challenging situations like the macro level environment that we're in today and so we believe that.

Yes.

Aggregator space, we're going to see consolidation, we're going to see good companies come out of it including interior and potentially as maybe.

But generally there for us so it remains to be seen.

But an interim right.

<unk>.

To look at targets, all the time and as I mentioned.

The prepared remarks with a couple of things that we look at it and we're very careful about is we know obviously.

More aware of the e-commerce.

Call it.

Calibration that has happened.

Last two years and when we look at targets and they are measured.

On the trailing.

Trailing 12 month results, we have to be very careful to think about.

We're not overpaying does it make more sense to maybe wait a little bit that the environment stabilized see what the based on how that business is.

And take it from there right as opposed to.

Execute at a high.

Evaluation right.

Sure.

Be very careful right now right now we're also looking.

We're looking at a lot of things, but I think we have a good.

Yes.

We are prioritizing.

Assets in businesses that are less affected by the supply chain crisis, specifically, I'd say businesses and categories where.

The.

Factoring in maybe not in Asia, but in.

South America, Canada, or Europe , which there are assets like that and even in United States of course.

And this priority towards that but again, we're being very careful and measure then realizing again that we're not in.

Normalized environment.

Good.

Okay. Thanks.

Yeah, Thanks, Sidney and yes, I think we said earlier I think the equity raise and our midcap credit facility. It puts us in a good position strengthens the balance sheet because this flexibility.

Navigate some of these disruptions and certainly provides flexibility in working capital. We've said previously we'll reiterate if we're going to do M&A, especially material ones that you'd probably look at doing some type of.

Financing is that equity or debt or some combination of both including <unk>.

Sure. So the seller, which obviously is the current borrowings were doing is becoming more interest from certain sellers.

Those combinations, where you would see some.

No news on financing if we were doing M&A.

Got it very helpful. Thanks, guys.

One more for me.

Okay.

Yes already by Congress.

Yes, yes, absolutely.

Good question, so roughly I would say about $20 million is considered in transit and the other difference which is I think it would be 56, I guess roughly.

35 is sitting on hand.

That's helpful. Thanks, guys.

Thank you.

This concludes our question and answer session I would now like to turn the conference back over to Elliot Krasowski.

Thanks.

As part of our shareholder Perks program, which as a reminder, investors can sign up for at <unk> Dot Io Slash perks participants have the ability to ask management questions on our earnings call.

I want to thank all of the shareholder parks participants for their loyalty their participation in the program and their question.

I think a few of the most popular questions that they have asked.

Please update what is happening with deal Mojo and recurrent partnerships.

Can you handle that one.

Sure.

Yeah, Thanks, Elia and again, thanks to all of our shareholders and the shareholder base program for for participating in this so.

So while on the deal merger regarding aside.

We talked about in the past and we continue to make strategic investment in <unk>.

The thing is related to publisher driven business as a reminder.

30% of customers in the United States.

Search for products outside of marketplaces, when Theyre looking for a solution to a problem on a recommendation right and often times.

This traffic the searches are captured by publishers online magazines that are going to write articles a promoter and product maybe.

Coupon website or things like that and we basically.

Bill deal Mojo as.

As a destination for publishers and online sellers in the ecommerce space to partner around these promotions and obviously for us here and it's a strategic thing.

To have right and so.

We continue to see good progress there will continue to on board publishers.

Still early but it's looking promising and we're going to continue to turn this into a destination for us.

And more to come on the recurring side.

Look to have some news on this.

Pretty soon here, we're making.

I guess on that relationship.

Thanks next question all of that was popular was.

What is going on with <unk> International sales efforts.

Sure.

So we've made some progress on international sales, but its obviously not moving as fast as we want it.

Mainly because again of disruptions that happened into supply chain and as I mentioned on previous calls.

Europe experienced even more disruption than the U S.

Yes.

Anytime one of those main things. We're doing is we're making a lot of infrastructure preparations for more robust rollout right. So we're setting up our <unk>.

Just takes in all of these other important things that are going to be critical as we kind of pushed back on growth.

And depending on normalization of supply chain, we believe that there is a very large opportunity.

Especially in Europe , where we're focusing now.

We're also at the end of the day going to see a lot of potential to expand internationally versus.

Those acquisitions, which we've been starting to look at but again timing is not necessarily right now given all the disruption.

I think what we'll see as things start to stabilize as us pushing more products specifically to Europe .

Over on infrastructure that I guess in the us.

The next few months.

To invest in and then we will see growth coming both from bringing products into those markets as well as we discussed potentially acquisition that we wanted to do there, but all of this is again pending in the normalization of the environment, which is.

Not if but of when right and we're just kind of timing that as well as we can.

Okay and final question from Perks program is can you update us on what you are doing about the alleged naked shorting of your stock.

Yes, we received questions about that so as we talked about in the past we engaged a third party firm that is specializing in these matters.

I can share that.

We sent several letters to well known wall Street institutions, pointing out what our third party investigative firm believes a substantial share of imbalances.

It's a long process and we are grateful for the support of our retail and institutional shareholders around us in the long run.

We'll focus on execution and believe that.

The prospect of our business puts us supply chain pressures.

That we're experiencing today, we believe that we can integrate and that will basically set the tone for the trading of our stock, but again, we're very grateful for all the support that we're getting for our retail investors or institutional investors.

<unk>.

Thank you.

This concludes the Q&A portion of the call in terms of the upcoming calendar <unk>.

Management will be participating in the Oppenheimer.

<unk> annual emerging growth conference on May 10th.

Craig Hallum, 19th annual institutional Investor Conference on June one.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2022 Aterian Inc Earnings Call

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