Q3 2022 Aterian Inc Earnings Call
[music].
Good afternoon, and welcome to the <unk> incorporated third quarter 2022 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Yoga Gassowski, Vice President of Investor Relations and corporate development. Please go ahead.
Thank you for joining us today to discuss <unk> third quarter 2022 earnings results on today's call are <unk> co founder and CEO and Arturo Rodriguez, our Chief Financial Officer.
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 <unk> judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting materials.
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 in this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our third quarter earnings release as well as our filings with the SEC we.
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 Andy.
Thank you Julia and thank you everyone for joining us today.
On the call today I will go over the following topics.
A quick introduction of it.
Newer to our story.
We will then review key takeaways from the third quarter of this year.
I'll then discuss our javelin.
How are we dealing with that including the economy macro level pressure from supply chain disruptions and inflation.
I'll, then summarize how we see the long term prospects.
But those are in here with the story here is what you need to know about our company.
But there isn't as part of a new breed of technology enabled consumer product companies.
Focus on.
Building acquiring through partnering with E Commerce brands online.
<unk> owns and operates its many consumer brands selling products across various categories and channels, such as Amazon Walmart dropped by an ebay both domestically and internationally.
So allow us to scale, we invest.
And then building our own proprietary software platform called <unk>.
Amy enables our team to manage our business more efficiently by injecting technology into the processes that would otherwise have been.
And would require hiring on its scalable and a sustainable workforce.
Through its ability to analyze the vast amounts of data and automated daily recurring Pat.
Yeah allows our team to find new product opportunities, we can launch under our brand manage these products 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 our footprint globally, while continuing.
Hi, Josef I tend to drive scale and profitability.
Moving now to our key takeaways from our third quarter.
I'll start with a quick summary of the main points and then discuss that in more detail.
International supply chain is finally, showing signs of a return to the old normal.
Dramatic hikes in global shipping rate negatively affected us for over a year has continued to subside.
We're now shipping containers at rates close to the pre pandemic level.
We believe the defensive strategy of protecting market share through the last year has worked out.
Time to get it back on the offensive.
We're not fully focused on making 2023, a pivotal year for each area.
For the fourth quarter of this year, we will continue to attempt to maintain our lower prices to liquidate expensive excess inventory well using this effort also attempt to gain as much market share as possible.
Okay.
These efforts will hurt our adjusted EBITDA for the remainder of 2022, but we believe they will put us in a strong position to re ignite 2020.
We are also taking measures to reduce our fixed costs by restructuring team and removing certain roles to set us on a path to profitability.
It will take time to see the full effect of these actions we believe that.
Starting to to only 33, we will begin to show improvements to our profitability metrics. We are talking about turning profitable at the adjusted EBITA level, starting in Q3 next year.
Yeah.
I would like to now elaborate on each one of these points and explain why we are optimistic that with you Bob mentioned actions management has taken the right steps towards putting it together right.
I'll start by focusing on international supply chain.
As many listeners who have been following our company in the last couple of years, Yes no.
Operating rates for international containers have been the main culprit and putting pressure on our business model.
As a reminder, the supply chain crisis borrowed overnight.
Brian dynamic led to a five X increase in cost of shipping containers from China to the U S.
This increase required us in turn to increase our own prices for our products by an average of 20%.
While the price increase was important a blended the contribution margin year to date was reduced to approximately 6%.
Versus our target of 15%.
Additionally, the necessary price increases combined with just consumer spending and overall inflation I've heard our topline sales.
Even though these difficult and unpredictable conditions limited our ability to drive sustainable growth gross.
We also have to focus on protecting more.
Good show for a product until shipping prices come back to normal.
The good news is that our bet into our work.
This past week, we've been able to secure shipping potatoes that pre pandemic rates.
We've also overall being able to protect our portfolio from losing relative market share.
We just had a second point I mentioned.
Earlier.
That time to get back on the offensive and we are aggressively pushing initiatives designed to prepare us for a strong 2023.
Profitability in the second half of the year.
The most important initiative has already started in the third quarter of this year.
With a mandate, we gave our team to pursue lower priced strategy in an effort to cycle through our current low margin excess inventory position.
We've made this decision so that we can replenish new inventory at a higher margin given the latest normalization of shipping rates.
While a lot of good product in our portfolio may have the same opportunity to do so we're doing our best to capitalize on these aggressive pricing.
How does he is to secure a better long term market share.
As with traditional retail sales volumes and overall demand increase typically drives more visibility, we're trending products in brick and mortar store.
Similarly for us Amazon and other E Commerce platform, we operate on typically reward sales increase.
I know visibility and ranking for a product. It is therefore, a goal to increase sales velocity at the expense of our margin is now in order to gain as much market share as possible and then hopefully see the inventory coming in at a lower cost basis, allowing for margin increase.
If our plan works as we hope.
We believe it will be able to enter Q2 of 2023 with our products driving more sales, but also benefiting from the improved shipping costs to show stronger margin.
As I mentioned earlier, our managed team our management team is focused on achieving profitability by the second half of 'twenty.
We believe that in the current market condition.
Targeting new investors, new investors and creating shareholder value starts with fixing the core metrics of I've been at the beginning trust.
We've had to make some painful decisions in the last 12 months to protect the company as the macro level environment shifted rapidly from focus on growth to focus on profitability.
Our profitability and overall.
For 2023 are not without risk and in particular, the geopolitical tension still at play in Europe , and Asia Pacific region cannot be ignored.
We're operating based on data that we are seeing at present, the recessionary environment seems to have resolved the supply chain concerns.
However, we'll claw.
We are monitoring the looming energy crisis as potential future increase in gas prices could have a negative impact on our last mile shipping rates.
Furthermore, the Covid neural policy in China is a concern as it can lead to factory shutdowns and other disruptions to our supply chain.
Finally.
Further decline in consumer spending giving them.
Thanks, Jim.
Every policy and are focused on increasing unemployment could potentially hampered expectations for overall sales.
Got it thank you.
At this time, we're of the opinion that demand will remain relatively flat and that the negativity and consumer sentiment has mostly setup.
Nevertheless, we remain optimistic that despite these red 2023 is an important year for us to push forward by launching new products as well as resuming our M&A strategy.
Additionally, our efforts to strengthen our balance sheet position us to start Q4 with $46 million in cash, which gives us confidence the weather photo possible disruptions.
With regard.
The growth in general we continue to invest invest cautiously and driving long term organic growth by slowly ramping up new products and investing in our operational capabilities in the European Union to allow us to continue to expand our business internationally.
Yeah.
While we are being conservative with our expectations.
Organic growth, we're also dedicating resources to seeking opportunities to accelerate growth through M&A.
The e-commerce industry as a whole has experienced extreme disruption similar to those affecting us.
Including our competitors in the Amazon aggregator space.
As a result, we are actively looking into opportunity.
So the brand assets that we believe will be synergistic to actelion given the investments we've made to build a scalable infrastructure.
Our efforts so far have been productive and we are hopeful that our opportunism could play offs and allow us to acquire additional positive contribution margin generating businesses to accelerate our path to profitability.
I want to thank our team and shareholders, who continue to believe in US working tirelessly to make 2023, the year that sets us back on track to continue to build the leading CPG platform.
With that I'll pass it to already to discuss the quarter's financials.
Yeah.
Thank you Annie and good evening, everyone here are the financial performance details of our third quarter.
For the third quarter of 2022, net revenue decreased two 6% or $1 8 million to $66 3 million from $68 1 million in the year ago quarter.
Primarily due to softer consumer demand on marketplaces offset by increased net revenue due to our decision to sell off inventory to reduce pricing to decrease our inventory levels on hand.
Third quarter net revenue of $66 3 million is comprised primarily of.
$63 8 million of organic business, which we note includes revenue from our build brands and acquired brand starting one year after purchase.
$2 5 million of wholesale and other.
The year ago quarter net revenue of $68 1 million was comprised of approximately $35 4 million from organic business.
$30 7 million in net revenue from our mergers and acquisitions.
And $2 million wholesale another.
Organic revenue increased by $24 million from the classification of our past acquisition revenue into organic revenue offset by a reduction in overall organic revenue due to reduced overall consumer spend in the period further offset by an increased net revenue from our decision to sell off inventory through reduced pricing to decrease our inventory levels on hand.
Our acquisition revenue decreased to zero from third quarter of 2022 from $30 7 million of third quarter of 2021 due to all of our acquisitions being owned for over a year and shifting into the organic revenue categorization.
Our sustained that revenue was $54 2 million for the third quarter of 2022 compared to $59 8 million in the third quarter of 2021. The decrease is related to softer consumer demand on marketplaces offset by increased net revenue from our decision to sell off inventory to reduce pricing to decrease our inventory levels on hand.
Our launch phase revenues, which include a few new variations on existing product and product Relaunches was $1 6 million in the third quarter down from $5 3 million in the year ago quarter.
We launched one brand new product in the third quarter of.
Compared to zero in last year's third quarter importantly, after several quarters of new product launches. We are planning on resuming new product launches are in valuing additional launches in the coming quarters, primarily for 2023.
Overall gross margin for the third quarter decreased to 45, 5% from 52% in the year ago quarter, our gross margin decline versus last years from the margin impacts from inventory sell off and from increased costs from supply chain disruption specifically increased cost of shipping containers we.
We believe the increased cost of shipping containers relative to the third quarter of 2021 impacted our gross margin negatively by approximately two 5% in the third quarter of 2022.
Our overall third quarter contribution margin as defined in our earnings release was one 1% which decreased compared to the prior year's contribution margin of 12, 1%. This decrease was primarily driven from liquidation net revenue of $10 million, which was sold at a negative contribution margin.
As part of our efforts to reduce our inventory on hand.
The third quarter of 2022, Saar sustained products contribution margin decreased to 10% compared to 14% in the third quarter of 2021 from product mix and our decision to sell our products to decrease our inventory levels you reduce pricing looking.
Looking deeper into our contribution margin for Q3 2022, we saw our sales and distribution expenses continued to be negatively impacted by higher cost supply chain and last mile fulfillment costs due to inflationary pressures.
Our third quarter 2022 variable sales and distribution expenses as a percentage of net revenue increased to 44, 4% as compared to 39, 4% a 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 last mile costs. We believe we will continue to see contribution margin pressure for the remainder of 2022.
We reported a $108 9 million operating loss at third quarter of 2022 as compared to a loss of $7 $5 million in third quarter of 2021.
The increased loss in the quarter is driven by a noncash $90 9 million loss and impairment goodwill primarily due to our decreased market cap at the end of Q3. The third quarter 2022 operational loss includes a gain of <unk> 8 million from the change in fair value of earn out liabilities and on.
Non cash loss of $3 1 million from the impairment of intangible.
And $2 9 million noncash stock compensation expense, while the third quarter of 2021 operating loss included $4 $2 million of a benefit from the change in fair value of earn out liabilities and $9 6 million of noncash stock compensation.
Net loss in the third quarter of 2022 was $116 9 million, which was a decline from the net loss of $110 6 million in third quarter of 2021.
Third quarter 2022, net loss includes the impact of operating loss included a noncash $9 9 million of impairment of goodwill a gain of $5 5 million in net charges from the changes in fair value of warrants and a $12 8 million loss from the derivative related to the offering of common stock while third quarter 2021 included 107 million loss from extinguished.
The debt and $8 1 million gain from the change in fair value of warrants and a 1.44 million loss associated with the derivative liability and our term loan at the time.
Adjusted EBITDA as defined and reconciled in our earnings release for the third quarter of 2022 was a loss of $9 1 million compared to a gain of $27 million in third quarter of 2021.
Turning to the balance sheet at September 32022, we had cash of $26 million compared to $34 8 million at the end of June 32022. The decrease in our cash is due to a net loss and repayments of our credit facility. Our <unk> facility net was down to $23 9 million at September 30 versus $33 9 million at June 32022.
Further the September 32022 cash balance does not include the additional capital raise completed in October 4th which added $20 million to our balance sheet, when taking that capital into account our cash position at the start of Q4 2022 was approximately $46 million.
Our inventory was $60 5 million at September 32022, which is lower than the $76 1 million at June 32022, due to our Q3 sales along with the efforts to reduce inventory levels.
As previously mentioned, we made the strategic decision in Q4 of 2021 to increase inventory levels to mitigate supply chain constraints.
However, with the softening consumer demands we continue to be long on inventory as such we anticipate continuing to move excess inventory during Q4, our reduced margins to help normalized inventory levels and our supply chain continues to improve we believe we can reduce our more expensive inventory level in hand, and replenish inventory and improved cost when we reorder products for 2023.
Looking at Q4 of 2022 and taking into account the current global environment and rising inflation, we believe that fourth quarter 2022, net revenue will be between $45 million and $55 million.
As we look at 2023, we are optimistic of our improving supply chain as the heightened global shipping rates negatively affected us in the past continues to subside we.
We have also taken measures to reduce our fixed cost by restructuring teams and removing certain roles.
At this time, we believe that demand will remain relatively flat and that the negativity and consumer sentiment has mostly settled with these key factors in mind, we are targeting to achieve profitability starting in third quarter of 2023.
We will not provide any additional guidance for 2023 at this time.
In closing the third quarter of 2022 saw continued challenging macroeconomic condition and unpredictable consumer spending habits and we expect these challenges to continue through 2022, we are starting to see supply chain improvements and container costs are currently returning to pre pandemic levels.
As such we continue to be very confident and optimistic and proud about the business. We have built our products our technology, our logistic network and most importantly, our dedicated and hardworking people with that I will turn it back to the operator to open the call to questions.
We will now begin the question and answer session too.
To ask a question you May press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question is from Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon.
Good afternoon, Brian .
Got a couple of questions.
With regard to.
Yes.
During the quarter.
The impact on financials.
Yes of course.
Okay.
Pardon me Mr. Mr. Nagle. This is the conference operator, your audio is breaking up to the point of being unable to understand it if you could possibly disconnect and dial back into the call. We'll get you right back into the queue again.
Okay.
Our next question will be from Brian singer with Alliance Global Partners. Please go ahead.
Great. Thanks, So Michael here.
Yeah.
Yes, Sir please go ahead.
Alright. Thanks.
First you mentioned the launch of your first new SKU in some time.
Share your plans with us regarding SKU launches in 2023, assuming current conditions hold including global shipping rates, either monthly or quarterly target I know longtime back you had given targets is there anything you can share with us regarding that next year.
Hey, Thank you Brad.
No.
Thanks for the question so yeah as you mentioned.
This was a great for us to go back and launching products in.
Said, one product in the third quarter also want to mention.
We also working on what we call variations of product meaning.
All sorts of additional.
Products that supplement existing products.
As part of our efforts in general, although we don't have a concrete goal yet given the fluidity of everything thats happening on supply chain, but the goal is to start increasing.
The amount of product that we launch as we get more comfortable that what we're seeing on the supply chain is here to stay.
That's really kind of how we think about at this point already if you want to add anything.
Yes, no I think that's a good answer I think the other side, Brian I think keep in mind in the past we were definitely doing a lot more volume of product I think one of the things. We're also thinking about is about.
Lesser bigger products too as we think about 2020 <unk> point. It is still very volatile. So I don't think we have anything concrete from targets, but those are the things we're definitely working on.
Okay, and then as Youre evaluating M&A opportunities, which you've announced one.
Increased capital I think are those targets also have the same inventory.
Our tax shipping rates high priced cards overall, how does that impact the strategy and as you acquire companies.
How does that impact the acquisitions.
Alright.
Okay.
When we look at.
Various targets right now obviously as you mentioned, we're seeing some of the same.
<unk> heard us and others in the industry right and for US I think.
<unk> patients is extremely important here.
We're seeing.
A lot of these targets as I said struggling and kind of trying to find.
The best way forward for Us as I mentioned right, we don't want to overpay. So we want to make sure that what we're looking at in terms of valuing. These companies the impact is already in there.
And we.
We can.
Let me kind of wrap our heads around what's your actual path forward for this for this asset right in general, though it's a positive thing right. We are now in a position where we believe that yes.
Could be a lot of opportunities for us to acquire.
Accretive.
Contribution margin generating businesses at much slower.
Cost that it would be it would have been.
Probably a year ago right when when we still saw the Covid effect are inflating that number that these targets right. So again.
Bottom line is we're being cautious.
And.
Waiting impatient to see exactly where some of these targets are going to land before we pull the trigger but we think the opportunities are there and we're working on that.
Great My last question and I'll get back in the queue.
You commented that you're seeing.
Seeing shipping rates.
Back to levels of <unk>.
Pre COVID-19.
As we look at your gross margin, obviously mix does matter.
But as we look at your gross margin with that said and the cuts you're making should we assume when you get back to profitability, you'll have similar gross margins, where we saw.
Low to mid 50% range when that occurs in the second half of the year is that the assumption that gets you that.
Or do you want take that one.
Yeah, Brian I think I think you are thinking about it the right way I think product mix. It is very important in that and as we're clearing out inventory that also kind of also has an effect depending on how successful we are there, but yes I think if you think about the ideal model, it's definitely in the kind.
Kind of mid fifties right as you're pointing out to you and then obviously other factors that contribute into.
Cm, which would be our variable sales and distribution costs will also factor in that but thats certainly the numbers youre putting out there that range is definitely something.
Something that we should theoretically.
Achieving.
Alright. Thank you so much I'll get back in the queue.
The next question is from Brian Nagel with Oppenheimer. Please go ahead.
I Hope you can hear me better now comparison phone issues here.
Oh much better okay cool so.
The question was a question was asked just with regard to.
The liquidation of the products here in the quarter I guess, just the thought process behind you seem to be liquidated. It obviously you took the hit too.
Contribution margin.
Yeah.
Was there any consideration of just allowing that product, albeit a higher cost.
Costs associated kind of worked through the system.
Naturally and then do you run the.
Actually I guess the question I'm asking is the volume of product that was liquidated is there the risk that you pulled forward some demand that could impact sales of products coming quarters that have a lower potentially lower cost associated with them.
Yes.
Hey, Brian Good questions, Let me, let me, let me pick those up.
So first of all the logic behind it.
As you know.
Obviously covering us for a while you know that we had to bring in a lot of inventory at <unk>.
Cost basis that was.
Very high given the shipping container rates, but.
Obviously like any other company in this industry and we couldn't stop selling right. So we had to.
Those costs and increase our pricing, which.
To the consumer right, which drove less topline sales and also less contribution margin.
And now that we're seeing the container shipping come down we're still sitting on a lot of inventory that we brought in.
This cost basis, that's too high and so the risk of not cycling through that inventory and letting it just.
Following two quarters is that.
If our competitor.
There isn't a particular product lines that we are in.
We're able to do that before us in 2023 their cost basis will be lower and there'll be able to command pricing that could.
Be damaging to us in terms of market share right. They could undercut us on price so in a way.
Yeah.
For us.
Yes.
We believe that again the supply chain is normalizing and it's very important for us to go to cycle through that inventory. So that we can bring back inventory at a cost basis that is competitive.
Does that makes sense on your first question, yes, no that makes perfect sense, yes, I get it.
And then if I could a follow up and then go.
Yeah in terms of pulling forward demand sorry, just a yeah I think that's what you asked right.
Don't think that.
We don't think of it like that I think instead, what we're looking at it as an opportunity to capture more market share from our competitors right.
We.
Right.
Yeah.
We are looking at this excess inventory we are looking at that says.
Life gives you lemons, so make lemonade with them right. There was a one advantage of having that excess inventory that if we're willing to take this bad the weekend.
Come back and bring in more inventory at a cheaper cost basis.
Selling it now at a lower price, although it hurts our margin.
How's us to take market share from our competitors right and our goal is to basically align the product kind of like inventory level with the optimal run rate that we can achieve and the high.
It is possible margin when we bring them back in Dominion got as we're kind of normalizing and liquidate this inventory by being very aggressive on pricing, we're capturing market share and then hopefully.
Well with the arrival of more inventory at a lower cost basis to retain that market share. While now also have India.
Expanded margin.
Does that make sense, how I explained it.
Perfect got it.
Makes perfect sense I get it.
If I could.
Just a follow up question I guess, maybe more of a maybe a fine and that's also maybe a follow up to the prior question. So I apologize I always call for a bit.
Could we be talking now about.
Even with your response to prior question one of the biggest issues that we're dealing with this these this massive increase in shipping costs. Okay. So now you're saying the shipping cost.
Treated significantly back to essentially.
Very close to pre pandemic levels, so as we think about.
Recognizing there's a lot of moving parts here, but as you think about the kind of the earnings power. If you will of deteriorated through 2023, how much with the shipping costs, having now moderated.
There are itself and how much of a tailwind to earnings could that be.
Mhm.
Hey, Brian It was a little choppy, but I think.
You're saying how much can you repeat just the last part I would just the last question, but I see another question, yes, just how should we think about.
The earnings tailwind that could come as a result of the shipping costs have been moderated significantly.
Yeah, Okay, Yeah, I know I heard you yet.
Listen I mean.
As you know right. This is Ben.
The epicentre of our challenges right in the last year plus.
And.
For us it's been a very tough time.
To run our business with.
Reduced margins.
And products that need to be.
Price.
At a place where they become more difficult for consumers to buy right and so there's a lot of advantages is obviously seeing those costs coming down first.
You know again, we can lower our prices and go back to our target, 15%, 16% contribution margin, meaning that we will should also gain more sales right.
More revenue on the top floor.
So this is just tremendous for us the only thing I will say, though is that we are also generally where the economy is not in the best place for US I think one of the most challenging questions.
And what is consumer demand, we know that we should be able to get to more competitive pricing for consumers and we should see.
<unk> significant increase in our contribution margin which are all.
Great tailwind for us.
The underlying question that we're still and we have been.
I think overall conservative around how we think about it is when a consumer is going to be given that everything points out to.
A challenging time for the economy going forward right. So I think again on one hand, great news.
And again potentially a strong tailwind for us right.
With improved margin.
Well, we can have more competitive prices and again just to be clear right. This is after we cycle through our inventory right. So we still have work to do there, but that's that's great news. The big question is where a consumer is going to be whereas overall demand is going to be and I think we've taken an overall conservative view of that so.
We still feel good about about the picture for the carrier.
Got it I appreciate it thank you.
Again. Thank you have a question. Please press Star then one the next question is from Matt Koranda with Roth Capital. Please go ahead.
Hey, guys good evening.
Can you just help us understand the $45 million to $55 million range that you put out for the fourth quarter for revenue I guess, just what I'm trying to understand is why why the drop off sequentially versus the third quarter. Despite it seems like you're signaling there's more liquidation of inventory to come so I would expect sort of stay on the gas on revenue.
But just any clarification or puts and takes on sort of what's going on with the range for the fourth quarter.
Already you want to go on.
Yes, yes, thank you Ian Hey, Matt.
Matt I think as you need said Theres still were trying to do.
Be aggressive and move this inventory at same time, there is a lot of.
Volatility in what we're seeing from a consumer.
Right and what the consumer sentiment is especially going into Q4 I think in some aspects.
We saw a relatively decent.
<unk> day, but certainly not as strong as the Prime day in June and I think Thats, what Amazon also pointed towards when they've talked about it at the same time you're right.
Discounting pricing is going to push perhaps push volumes up but it's really hard to say I think when we looked at it and we look at a range I think it's still very calm and very part of our very core to our business that we still see the same splits right. I think Q2 and Q3 are historically has always been our strongest products we drive a lot.
Z modifiers and AC or some of the best selling products on Amazon Q4 has always been.
Lower price points conceptually do good numbers and good units and we have a lot of bestsellers that hit Q4, like our Cmos and other things like that but certainly it's never been at the levels of Q2 Q3. So I think when you look at it from a split perspective.
Thinking about the middle of that range that would put you roughly at like 22, 23%, which is 24% which isn't far off to what we've historically done. So I don't think its really far off there youre right. If we're a lot more successful in that we could be pushing higher range or beyond that but right now I think.
Hearing the macroeconomic conditions I think we're being prudent there and I think thats a comfortable range in line with historical percentages.
Okay Fair enough and then just.
Just wanted to get a sense for how we expect margins to trend.
Any help on just sort of how much of the fourth quarter mix do you expect to be liquidation revenue versus sort of a sustained and then should we expect sort of similar contribution margin on a go forward basis coming from that liquidation until you get through.
Inventory.
The higher cost inventory that you want to clear.
Let me answer that one too.
Yes, Thanks, Matt.
Matt another good question.
We got a lot of opportunities and a lot of interest in <unk>.
Both.
How we liquidate in how we liquidate products on Amazon.
I would hope that we do better than what you saw this quarter, but we're still too early in the process allows us and depending on how black Friday and cyber Monday goals I think considerably I would look at the splits that you see in our press release between sustained and liquidate in the back of the table that was I would look at those and say.
Assumed.
<unk>.
Okay, Alright got it consistency makes sense.
Help us understand the context for the profitable on EBITDA.
The third quarter of next year or are you just effectively saying that you still have inventory higher cost inventory to work through that it will take until all the way through the first half of 'twenty three do we see some light at the end of the tunnel on sort of outbound shipping that might be percolating that we're counting on in the third quarter like what are the what are the kind of the positives that you see it come in.
In the third quarter that kind of.
It gives you the visibility into positive EBITDA in the third quarter our country.
Alright, I'll, let you answer that too.
Yes, I think Matt listen as we said earlier Q3 tends to be our strongest quarter.
May June for our summer price always little question, depending on weather and other things.
And to your point.
Just to give you a little bit of understanding I'm wondering by summer's products today, and tomorrow and the next month.
So those products at the lower shipping container rates don't show up until May and June right. So I think in some standpoint, that's why I think we're pointing towards that we're hoping that any of the long inventory related to my summer products will be gone by then as you need mentioned in his comments.
His remarks that we're going to start seeing the improvement in Q2 of 2023, but certainly we hope if everything goes our approach that we would see the full impact of the improvement in Q3, Q3, 2023, hence why we're pointing to that particular period.
Okay got it and then maybe last one either in AVR Rd can take this one.
Just what are you seeing in the broader pricing environment I guess are you seeing competitive pressure from.
Some of those more stressed competitors that are trying to clear inventory.
Are you seeing folks stand Pat and you're benefiting.
In this environment by being able to kind of be more aggressive on price and take share just wanted to kind of get a better sense for like the overall context of what's going on with pricing that you observed across your categories.
Hey, Matt.
Great question, let me take that one and.
I guess the answer here is.
As you might expect.
We're seeing kind of interesting patterns of companies looking to also discounted addressed.
Inventory prices down and then cut off trying to normalize their position as well.
What's interesting is they really thought I'd kind of like different.
Shared between those.
Those who are trying to do this and we'll come back to be competitors and those were throwing the towel and that's not always easy to do.
Literally our teams are looking at our analytics and evaluating you know on a per product and category. If we should be worried about southern price cutting or should we actually see that as a positive. There's no one clear answer across the board as you can imagine depending on the category and the type of products and the type of competitor.
We're up against we could be looking at a competitor that is again.
Just just throwing the towel in and we can see their price reduction.
The temporary threat.
Or something that maybe are trying to be more opportunistic and think like us long term about how they can maybe take advantage of that situation and replenish right.
But in the meantime charter would be more aggressive on taking market share. So it's not a there's not a.
Clear cut answer across the board, but it's a very good question and our teams.
Our tactically are very much on top of that so I think again, our investment in analytics and our ability to look at all this data point in real time allow us to manage pretty well both.
Both situations.
Okay Awesome appreciate it guys.
This.
Our telephone question and answer session I would like to turn the conference back over to Elliott resorts ski for any online questions.
As part of our shareholder Perks program, which as a reminder, investors can sign up for editorial Dot I'll forward Slash books participants have the ability to ask management questions on our earnings call.
I wanted to thank all of the shareholder perks participants for their loyalty their participation in the program and their questions.
We picked a few of the most popular questions that they have sent in.
Here, we go with shipping cost significantly down and almost at pre pandemic levels does the management team finally, see a turnaround and returned to profitability in 2023.
Yes.
Yes, yes.
Thank you.
Said.
The answer is yes, it's management's focus.
And our.
Target, you'll see adjusted EBITDA profitability in the third quarter of 2023.
And as we said also in our press release. This is driven by two forces right. One is obviously as we talked about the lower shipping costs, but also some cost reductions.
Well, we're taking and again it is it really kind of a focus on management.
Right now to prepare us for that.
Great. Okay. The next question was can you talk a little bit about your recent acquisition and future acquisition strategy.
Yes, so the recent acquisition.
Brand that fits really well in our current portfolio I think I've seen some assumptions.
Online or it might be an essential oil Brian it's not the case.
For competitive reasons, we're not going to disclose.
Any photo here on what that particular, Brian was but in terms of future acquisitions.
We're actively looking into opportunities, especially.
When it comes to consolidated managed assets.
But we think are synergistic to our portfolio and especially you know.
We believe that current environment, there might be opportunities.
I said earlier, we're just being cautious and.
Taking our time to really make sure that we are bringing in the right type of assets.
So.
Really cherry picking brands of film products that fit our current portfolio, but this is ongoing.
And we continue to make progress on it.
Okay, Great and then the last question and perhaps the most important question was how do you plan to increase shareholder value.
Yes, so think of that as I mentioned earlier and probably the most important thing is we're working really hard to work towards profitability.
As we mentioned also we started kind of like although slowly right. We started to work again on developing new products that we can launch.
I think we made a lot of efforts.
Behind the scenes to expand our capabilities in Europe and.
It's been it's on it's been on our.
We know how to do list for a while to put more efforts into Europe , but again the shipping.
Pricing increase had kind of like.
Prevented that from happening earlier now that things are starting to get better we want to take advantage of the efforts we've put in place to expand our footprint in Europe . So I think that's going to be exciting although it will take time.
And then finally, we're looking to out opportunities to open for opportunities to add incremental brands.
But it won't be acquisitions.
And I think again to gather all of these efforts.
I don't want to increase revenue and led to adjusted EBITDA profitability and again, hopefully unlock much more shareholder value.
Management is very much focused on all of these things.
Great. Thank you your needs. So this concludes the Q&A portion of the call in terms of the upcoming calendar Terry and management will be participating in the <unk> technology innovation Summit November 15th which will be held virtually the 13th annual Craig Hallum Alpha Select Conference November .
17th in New York City, and the Roth, 11th annual Deer Valley Conference December 14th through 17.
Look forward to speaking with you on future calls this ends our call and you may disconnect. Thank you.
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