Press Release Details

 Quarterly Net Revenue Grew 52.6% Year-Over-Year to $63.3 Million

Full Year Net Revenue Grew 33.4% Year-Over-Year to $247.8 Million

NEW YORK, March 08, 2022 (GLOBE NEWSWIRE) -- Aterian, Inc. (Nasdaq: ATER) (“Aterian” or the “Company”) today announced results for the fourth quarter and full year ended December 31, 2021. 

Fourth Quarter Highlights

• Fourth quarter 2021 net revenue grew 52.6% to $63.3 million, compared to $41.5 million in the fourth quarter of 2020.
• Fourth quarter 2021 gross margin improved to 45.6%, compared to 45.2% in the fourth quarter of 2020.
• Fourth quarter 2021 contribution margin declined to 7.9% from 11.2% in the fourth quarter of 2020, reflecting impacts from global supply chain disruptions and related inflation.
• Fourth quarter 2021 operating loss improved to $(2.0) million compared to a loss of $(19.1) million in the fourth quarter of 2020. Fourth quarter 2021 operating loss includes a net gain of $14.4 million from the net change in fair value and settlement of earn-out liabilities and $7.7 million of non-cash stock compensation.
• Fourth quarter 2021 net loss of $(5.3) million improved from $(44.3) million in 2020. Fourth quarter 2021 net loss includes a net gain of $14.4 million from the net change in fair value and settlement of earn-out liabilities, $7.7 million of non-cash stock compensation and loss on extinguishment of debt of $2.1 million.
• Fourth quarter 2021 adjusted EBITDA declined to $(3.0) million from $0.5 million in 2020.
• As planned, due to supply chain concerns, 0 new products were launched in the fourth quarter 2021 compared with 5 in the fourth quarter of 2020.
• Total cash balance at December 31, 2021 was $30.3 million.

Full Year 2021 Highlights

• Full year 2021 net revenue grew 33.4% year over year to $247.8 million, compared to $185.7 million in the full year of 2020.
• Full year gross margin improved to 49.2% compared to 45.6% in 2020.
• Full year 2021 contribution margin declined to 10.1% from 13.5% in 2020, reflecting impacts from global supply chain disruptions and related inflation.
• Full year 2021 operating loss of $(32.8) million declined from $(34.8) million in 2020. Full year operating loss includes a net gain of $26.4 million net change in fair value and settlement of earn-out liabilities and $29.0 million of non-cash stock compensation.
• Full year 2021 net loss of $(234.7) million increased from $(63.1) million in 2020. Full year net loss includes change in fair value of derivative liability of $3.3 million, loss on extinguishment of debt of $138.9 million, change in fair value of warrant liability of $26.5 million, loss on initial issuance of warrant of $20.1 million, a net gain of $26.4 million net change in fair value and settlement of earn-out liabilities, and $29.0 million of non-cash stock compensation.
• Full year 2021 adjusted EBITDA declined to $(7.2) million from $2.5 million in 2020.
• For the full year 2021, 40 new products were launched compared to 37 in the full year 2020.
  
  

Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “I am proud of our whole team’s efforts through a challenging 2021. Despite the continuous unpredictable macroenvironment, we believe that our improved balance sheet will allow us to weather the ongoing storm. As supply chain constraints ease in the future, we will be well positioned to drive growth organically and through our accretive M&A strategy.”

Non-GAAP Financial Measures
For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the “Non-GAAP Financial Measures and Reconciliations” section below.

Webcast and Conference Call Information
Aterian will host a live conference call to discuss financial results today, March 8, 2022, at 5:00 p.m. Eastern Time. To access the call, participants from within the U.S. should dial (877) 295-1077 and participants from outside the U.S. should dial (470) 495-9485 and provide the conference ID: 8791175. Participants may also access the call through a live webcast at https://ir.aterian.io/investor-relations. Please visit the website at least 15 minutes prior to the start of the call to register and download any necessary software. The archived online replay will be available for a limited time after the call in the Investor Relations section of the Aterian website.

About Aterian, Inc.
Aterian, Inc. (Nasdaq: ATER), is a leading technology-enabled consumer products platform that builds, acquires, and partners with best-in-class e-commerce brands by harnessing proprietary software and an agile supply chain to create top selling consumer products. The Company’s cloud-based platform, Artificial Intelligence Marketplace Ecommerce Engine (AIMEE™), leverages machine learning, natural language processing and data analytics to streamline the management of products at scale across the world’s largest online marketplaces, including Amazon, Shopify and Walmart. Aterian has thousands of SKUs across 14 owned and operated brands and sells products in multiple categories, including home and kitchen appliances, health and wellness, beauty and consumer electronics.

Forward Looking Statements
All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements regarding global supply chain disruptions and any easing of constraints thereon; our expectations around organic growth and our M&A strategy; and the global macroenvironment. These forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties and other factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to the global shipping disruptions, our ability to continue as a going concern, our ability to meet financial covenants with our lenders, our ability to create operating leverage and efficiency when integrating companies that we acquire, including through the use of our team’s expertise, the economies of scale of our supply chain and automation driven by our platform; those related to our ability to grow internationally and through the launch of products under our brands and the acquisition of additional brands; those related to the impact of COVID-19, including its impact on consumer demand, our cash flows, financial condition, forecasting and revenue growth rate; our supply chain including sourcing, manufacturing, warehousing and fulfillment; our ability to manage expenses, working capital and capital expenditures efficiently; our business model and our technology platform; our ability to disrupt the consumer products industry; our ability to grow market share in existing and new product categories; our ability to generate profitability and stockholder value; international tariffs and trade measures; inventory management, product liability claims, recalls or other safety and regulatory concerns; reliance on third party online marketplaces; seasonal and quarterly variations in our revenue; acquisitions of other companies and technologies and our ability to integrate such companies and technologies with our business; our ability to continue to access debt and equity capital (including on terms advantageous to the Company) and the extent of our leverage; and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), all of which you may obtain for free on the SEC’s website at www.sec.gov.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Investor Contact:

Ilya Grozovsky
Director of Investor Relations & Corp. Development
Aterian, Inc.
ilya@aterian.io
917-905-1699 

ATERIAN, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)

		December 31, 2020				December 31, 2021
ASSETS
CURRENT ASSETS:
Cash		$	26,718			$	30,317
Accounts receivable—net			5,747				10,478
Inventory			31,582				63,045
Prepaid and other current assets			11,111				21,034
Total current assets			75,158				124,874
PROPERTY AND EQUIPMENT—net			169				1,254
GOODWILL—net			47,318				118,460
OTHER INTANGIBLES—net			31,460				64,955
OTHER NON-CURRENT ASSETS			3,349				2,546
TOTAL ASSETS		$	157,454			$	312,089
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Credit facility		$	12,190			$	32,845
Accounts payable			14,856				21,716
Term loan			21,600				—
Seller notes			16,231				7,577
Contingent earn-out liability			1,515				3,983
Accrued and other current liabilities			8,340				14,840
Total current liabilities			74,732				80,961
OTHER LIABILITIES			1,841				360
CONTINGENT EARN-OUT LIABILITY			21,016				5,240
TERM LOANS			36,483				—
Total liabilities			134,072				86,561
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, par value $0.0001 per share—500,000,000 shares authorized and 27,074,791 shares outstanding at December 31, 2020; 500,000,000 shares authorized and 55,090,237 shares outstanding at December 31, 2021			3				5
Additional paid-in capital			216,305				653,650
Accumulated deficit			(192,935	)			(427,659	)
Accumulated other comprehensive income			9				(468	)
Total stockholders’ equity			23,382				225,528
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	157,454			$	312,089

See notes to consolidated financial statements.

ATERIAN, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)

		Three months ended December 31,								Year-Ended December 31,
		2020				2021				2020				2021
NET REVENUE		$	41,492			$	63,322			$	185,704			$	247,767
COST OF GOODS SOLD			22,740				34,440				100,958				125,904
GROSS PROFIT			18,752				28,882				84,746				121,863
OPERATING EXPENSES:
Sales and distribution			16,533				30,653				68,005				127,369
Research and development			1,551				2,622				8,130				9,837
General and administrative			7,078				11,990				30,631				43,799
Settlement of a contingent earnout liability			—				4,164				—				4,164
Change in fair value of contingent earn-out liabilities			12,731				(18,580	)			12,731				(30,529	)
TOTAL OPERATING EXPENSES:			37,893				30,849				119,497				154,640
OPERATING LOSS			(19,141	)			(1,967	)			(34,751	)			(32,777	)
INTEREST EXPENSE—net			1,841				774				4,979				12,655
CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY							—				—				3,254
LOSS ON EXTINGUISHMENT OF DEBT			2,037				2,096				2,037				138,859
CHANGE IN FAIR VALUE OF WARRANT LIABILITY			21,338				—				21,338				26,455
LOSS ON INITIAL ISSUANCE OF WARRANTS			—				—				—				20,147
OTHER EXPENSE (INCOME)—net			(23	)			2				(27	)			45
LOSS BEFORE INCOME TAXES			(44,334	)			(4,839	)			(63,078	)			(234,192	)
PROVISION FOR INCOME TAXES			2				470				48				532
NET LOSS		$	(44,336	)		$	(5,309	)		$	(63,126	)		$	(234,724	)
Net loss per share, basic and diluted		$	(2.12	)		$	(0.11	)		$	(3.68	)		$	(6.63	)
Weighted-average number of shares outstanding, basic and diluted			20,888,137				50,159,967				17,167,999				35,379,005

See notes to consolidated financial statements.

ATERIAN, INC.
Consolidated Statements of Cash Flows
(in thousands)

		Year-Ended December 31,
		2020				2021
OPERATING ACTIVITIES:
Net loss		$	(63,126	)		$	(234,724	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			552				7,326
Provision for sales returns			92				43
Amortization of deferred financing cost and debt discounts			2,245				7,742
Stock-based compensation			22,716				28,987
Loss (Gain) from increase of contingent earn-out liability fair value			12,731				(30,529	)
Loss in connection with settlement of earnout			—				4,164
Loss in connection with the change in warrant fair value			21,338				26,455
Loss on initial issuance of warrants			—				20,147
Loss from extinguishment of High Trail December 2020 and February 2021 Term Loan			—				28,240
Loss from extinguishment of High Trail April 2021 Term Loan			—				106,991
Loss from extinguishment of High Trail Term Loan			—				2,096
Loss from extinguishment of Credit Facility			—				1,532
Loss from extinguishment of Horizon term loan			1,065				—
Provision for barter credits			—				1,000
Loss from derivative liability discount related to term loan			—				3,254
Allowance for doubtful accounts and other			—				4,200
Changes in assets and liabilities:
Accounts receivable			(4,703	)			(4,554	)
Inventory			18,659				(19,303	)
Prepaid and other current assets			1,513				(7,856	)
Accounts payable, accrued and other liabilities			(6,991	)			12,820
Cash provided (used) by operating activities			6,091				(41,969	)
INVESTING ACTIVITIES:
Purchase of fixed assets			(89	)			(32	)
Purchase of Truweo assets			(13,965	)			—
Purchase of Smash assets			(25,000	)			—
Purchase of Healing Solutions assets			—				(15,250	)
Purchase of Photo Paper Direct, net of cash acquired			—				(10,583	)
Purchase of Squatty Potty assets			—				(19,040	)
Cash used in investing activities			(39,054	)			(44,905	)
FINANCING ACTIVITIES:
Proceeds from warrant exercise			—				9,085
Proceeds from cancellation of warrant			—				16,957
Proceeds from issuance of common stock from follow-on public offering, net of issuance costs			23,416				36,735
Proceeds from exercise of stock options			—				9,033
Repayments on note payable to Aussie Health Co.			(207	)			—
Repayments on note payable to Smash			—				(10,495	)
Payment of earnout to Squatty Potty			—				(7,971	)
Proceeds from exercise of stock options			44				—
Tax paid in connection with RSAs			(150	)			—
Borrowings from MidCap credit facilities			123,633				48,750
Repayments from MidCap credit facilities			(133,782	)			(28,274	)
Debt issuance costs from MidCap credit facility			—				(849	)
Repayments for Horizon term loan			(15,990	)			—
Borrowings from High Trail term loan			38,000				—
Debt issuance costs High Trail term loan			(2,207	)			—
Repayments for High Trail December 2020 Note and February 2021 Note			—				(59,500	)
Repayments for High Trail April 2021 Note			—				(10,139	)
Repayments for High Trail December 2021 Note			—				(27,500	)
Borrowings from High Trail February 2021 Note			—				14,025
Borrowings from High Trail April 2021 Note			—				110,000
Debt issuance costs from High Trail February 2021 Note			—				(1,462	)
Debt issuance costs from High Trail April 2021 Note			—				(2,202	)
Insurance financing proceeds			2,660				2,424
Insurance obligation payments			(3,066	)			(3,048	)
Capital lease obligation payments			(32	)			—
Cash provided by financing activities			32,319				95,569
EFFECT OF EXCHANGE RATE ON CASH			(48	)			(477	)
NET CHANGE IN CASH AND RESTRICTED CASH FOR THE YEAR			(692	)			8,198
CASH AND RESTRICTED CASH AT BEGINNING OF YEAR			30,789				30,097
CASH AND RESTRICTED CASH AT END OF YEAR		$	30,097			$	38,315
RECONCILIATION OF CASH AND RESTRICTED CASH
CASH		$	26,718			$	30,317
RESTRICTED CASH—Prepaid and other current assets			3,250				7,849
RESTRICTED CASH—Other non-current assets			129				149
TOTAL CASH AND RESTRICTED CASH		$	30,097			$	38,315
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		$	2,787				5,611
Cash paid for taxes		$	46				41
Non-cash barter exchange of inventory for advertising/logistics credits		$	3,352				—
Modification of warrants between equity and liability		$	—				75,826
Non-cash consideration paid to contractors		$	1,672				7,289
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt issuance costs not paid		$	142			$	—
Original issue discount		$	5,000			$	2,475
Discount of debt relating to warrants issuance		$	10,483			$	—
Notes payable related to acquisitions		$	18,073			$	—
Issuance of common stock in connection with acquisition		$	29,075			$	—
Fair value of contingent consideration		$	9,800			$	20,971
Discount of debt relating to warrants issuance		$	—			$	51,284
Notes Payable of acquisition		$	—			$	16,550
Issuance of common stock in connection with Healing Solutions and Photo Paper Direct acquisitions		$	—			$	50,529
Issuance of common stock - debt repayment		$	—			$	125,562
Issuance of common stock - Healing Solutions earnout settlement		$	—			$	7,914

See notes to consolidated financial statements.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release and accompanying tables include certain non-GAAP financial measures. The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes that these items are not indicative of our on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP.

Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by us may be different from the non-GAAP financial measures used by other companies.

We have presented the following non-GAAP measures to assist investors in understanding our core net operating results on an on-going basis: (i) Contribution Margin; (ii) Contribution margin as a percentage of net revenue; (iii) EBITDA (iv) Adjusted EBITDA; and (v) Adjusted EBITDA as a percentage of net revenue. These non-GAAP financial measures may also assist investors in making comparisons of our core operating results with those of other companies.

As used herein, Contribution margin represents gross profit less amortization of inventory step-up from acquisitions (included in cost of goods sold) and e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net and provision for income taxes. As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of earn-outs, amortization of inventory step-up from acquisitions (included in cost of goods sold), changes in fair-market value of warrant liability, professional fees related to acquisitions, loss from extinguishment of debt and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.

We present Contribution margin and Contribution margin as a percentage of net revenue, as we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to gross profit, provides useful supplemental information for investors. Specifically, Contribution margin and Contribution margin as a percentage of net revenue are two of our key metrics in running our business. All product decisions made by us, from the approval of launching a new product and to the liquidation of a product at the end of its life cycle, are measured primarily from Contribution margin and/or Contribution margin as a percentage of net revenue. Further, we believe these measures provide improved transparency to our stockholders to determine the performance of our products prior to fixed costs as opposed to referencing gross profit alone.

In the reconciliation to calculate contribution margin, we add e-commerce platform commissions, online advertising, selling and logistics expenses (“sales and distribution variable expense”), to gross margin to inform users of our financial statements of what our product profitability is at each period prior to fixed costs (such as sales and distribution expenses such as salaries as well as research and development expenses and general administrative expenses). By excluding these fixed costs, we believe this allows users of our financial statements to understand our products performance and allows them to measure our products performance overtime. 

We present EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provide useful supplemental information for investors. We use these measures with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items.

Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.

We recognize that EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:

• our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;
• the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
• depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets;
• changes in cash requirements for our working capital needs; or
• changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).
  

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is and is expected to remain a key element of our overall long-term incentive compensation package.

We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. For example, Contribution margin does not reflect:

• general and administrative expense necessary to operate our business;
• research and development expenses necessary for the development, operation and support of our software platform;
• the fixed costs portion of our sales and distribution expenses including stock-based compensation expense; or
• changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).

Adjusted EBITDA

EBITDA represents net loss plus depreciation and amortization, interest expense, net and provision for income taxes. Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of earn-outs, amortization of inventory step-up from acquisitions (included in cost of goods sold), change in fair-market value of warrant liability, professional fees related to acquisitions, loss from extinguishment of debt and other expenses, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. 

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP:

		Three months ended December 31,								Year-Ended December 31,
		2020				2021				2020				2021
		(in thousands, except percentages)								(in thousands, except percentages)
Net loss		$	(44,336	)		$	(5,309	)		$	(63,126	)		$	(234,724	)
Add:
Provision for income taxes		2				470				48				532
Interest expense, net			1,841				774				4,979				12,655
Depreciation and amortization			373				2,569				552				7,326
EBITDA			(42,120	)			(1,496	)			(57,547	)			(214,211	)
Other expense (income), net			(23	)			2				(27	)			45
Change in fair value of contingent earn-out liabilities			12,731				(18,580	)			12,731				(30,529	)
Settlement of a contingent earnout liability			—				4,164				—				4,164
Amortization of inventory step-up from acquisitions (included in cost of goods sold)			583				542				583				5,458
Change in fair market value of warrant liability			21,338				—				21,338				26,455
Derivative liability discount related to term loan			—				—				—				3,254
Loss on extinguishment of debt			2,037				2,096				2,037				138,859
Loss on initial issuance of warrants			—				—				—				20,147
Professional fees related to acquisitions			663				—				663				1,450
Transition costs from acquisitions			—				762				—				2,076
Professional and legal fees related to Photo Paper Direct acquisition			—				890				—				1,586
Reserve on dispute with PPE supplier			—				—				—				4,100
Reserve on barter credits			—				1,000				—				1,000
Stock-based compensation expense			5,244				7,657				22,716				28,987
Adjusted EBITDA		$	453			$	(2,963	)		$	2,494			$	(7,159	)
Net loss as a percentage of net revenue			(106.9	)%			(8.4	)%			(34.0	)%			(94.7	)%
Adjusted EBITDA as a percentage of net revenue			1.1	%			(4.7	)%			1.3	%			(2.9	)%

Contribution Margin

Contribution margin represents gross profit less amortization of inventory step-up from acquisitions (included in cost of goods sold) and e-commerce platform commissions, online advertising, selling and logistics expenses (included in sales and distribution expenses). Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. The following table provides a reconciliation of Contribution margin to gross profit and Contribution margin as a percentage of net revenue to gross profit as a percentage of net revenue, which are the most directly comparable financial measures presented in accordance with GAAP.

		Three months ended December 31,								Year-Ended December 31,
		2020				2021				2020				2021
		(in thousands, except percentages)								(in thousands, except percentages)
Gross Profit		$	18,752			$	28,882			$	84,746			$	121,863
Add:
Amortization of inventory step-up from acquisitions (included in cost of goods sold)			583				542				583				5,458
Reserve on barter credits			—				1,000				—				1,000
Less:
E-commerce platform commissions, online advertising, selling and logistics expenses			(14,703	)			(25,413	)			(60,206	)			(103,283	)
Contribution margin		$	4,632			$	5,011			$	25,123			$	25,038
Gross Profit as a percentage of net revenue			45.2	%			45.6	%			45.6	%			49.2	%
Contribution margin as a percentage of net revenue			11.2	%			7.9	%			13.5	%			10.1	%

Each of our products typically goes through the Launch phase and depending on its level of success is moved to one of the other phases as further described below:

i.        Launch phase: During this phase, we leverage our technology to target opportunities identified using AIMEE (Artificial Intelligence Marketplace e-Commerce Engine) and other sources. During this period of time, due to the combination of discounts and investment in marketing, our net margin for a product could be as low as approximately negative 35%. Net margin is calculated by taking net revenue less the cost of goods sold, less fulfillment, online advertising and selling expenses. These costs primarily reflect the estimated variable costs related to the sale of a product.

ii.        Sustain phase: Our goal is for every product we launch to enter the sustain phase and become profitable, with a target of positive 15% net margin for most products, within approximately three months of launch on average. Over time, our products benefit from economies of scale stemming from purchasing power both with manufacturers and with fulfillment providers.

iii.        Milk phase or Liquidate phase: If a product does not enter the sustain phase or if the customer satisfaction of the product (i.e., ratings) is not satisfactory, then it will go to the liquidate phase and we will sell through the remaining inventory. In order to enter the milk phase, a product must be well received and become a strong leader in its category in both customer satisfaction and volume sold as compared to its competition. Products in the milk phase that have achieved profitability should benefit from pricing power and we expect their profitability to increase accordingly. To date, none of our products have achieved the milk phase and we can provide no assurance that any of our products will do so in the future.

The following tables break out our fourth quarter and full year 2020 and 2021 results of operations by our product phases including our PaaS business line (in thousands):

		Three Months Ended December 31, 2020
		Sustain				Launch				PaaS				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	34,749			$	1,754			$	292			$	4,697			$	—			$	—			$	41,492
COST OF GOODS SOLD (1)			17,034				1,113				—				4,593				—				—				22,740
GROSS PROFIT		$	17,715			$	641			$	292			$	104			$	—			$	—			$	18,752
OPERATING EXPENSES:
Sales and distribution expenses (2)			12,436				971				196				1,096				1,062				772				16,533
Research and development			—				—				—				—				817				734				1,551
General and administrative (3)			—				—				—				—				3,340				3,738				7,078
Change in earn-out liability			—				—				—				—				12,731				—				12,731

(1)   Sustain cost of goods sold includes $0.6 million of amortization of inventory step-up from acquisitions 
(2)   Sales and distributions expenses fixed cost includes$0.1 million of depreciation and amortization
(3)   General and administrative fixed costs includes $0.3 million of depreciation and amortization

		Three Months Ended December 31, 2021
		Sustain				Launch				PaaS				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	52,669			$	2,570			$	66			$	8,017			$	—			$	—			$	63,322
COST OF GOODS SOLD (1)			24,090				2,813				—				7,537				—				—				34,440
GROSS PROFIT		$	28,579			$	(243	)		$	66			$	480			$	—			$	—			$	28,882
OPERATING EXPENSES:
Sales and distribution expenses (2)			20,117				1,623				—				3,687				3,385				1,841				30,653
Research and development			—				—				—				—				1,163				1,459				2,622
General and administrative (3)			—				—				—				—				7,633				4,357				11,990
Settlement of a contingent earn-out liability			—				—				—				—				4,164				—				4,164
Change in earn-out liability			—				—				—				—				(18,580	)			—				(18,580	)

(1)   Sustain cost of goods sold includes $0.5 million of amortization of inventory step-up from acquisitions and reserve on barter credits of $1.0 million is in Liquidation/Other.
(2)   Sales and distributions expenses fixed cost includes $0.3 million of depreciation amortization
(3)   General and administrative fixed costs includes $2.2 million of depreciation and amortization

		Year Ended December 31, 2020
		Sustain				Launch				PaaS				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	137,299			$	18,592			$	1,338			$	28,475			$	—			$	—			$	185,704
COST OF GOODS SOLD (1)			69,692				10,505				—				20,761				—				—				100,958
GROSS PROFIT		$	67,607			$	8,087			$	1,338			$	7,714			$	—			$	—			$	84,746
OPERATING EXPENSES:
Sales and distribution expenses (2)			42,614				8,473				461				8,658				5,266				2,533				68,005
Research and development			—				—				—				—				4,165				3,965				8,130
General and administrative (3)			—				—				—				—				14,413				16,218				30,631
Change in earn-out liability			—				—				—				—				12,731				—				12,731

(1)   Sustain cost of goods sold includes $0.6 million of amortization of inventory step-up from acquisitions 
(2)   Sales and distributions expenses fixed cost includes $0.1 million of depreciation and amortization
(3)   General and administrative fixed costs includes $0.5 million of depreciation and amortization

		Year Ended December 31, 2021
		Sustain				Launch				PaaS				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	216,135			$	14,862			$	406			$	16,364			$	—			$	—			$	247,767
COST OF GOODS SOLD (1)			98,263				11,004				—				16,637				—				—				125,904
GROSS PROFIT		$	117,872			$	3,858			$	406			$	(273	)		$	—			$	—			$	121,863
OPERATING EXPENSES:
Sales and distribution expenses (2)			87,163				8,038				37				8,046				17,276				6,809				127,369
Research and development			—				—				—				—				4,498				5,339				9,837
General and administrative (3)			—				—				—				—				26,960				16,839				43,799
Settlement of a contingent earn-out liability			—				—				—				—				4,164				—				4,164
Change in earn-out liability			—				—				—				—				(30,529	)			—				(30,529	)

(1)   Sustain cost of goods sold includes $5.5 million of amortization of inventory step-up from acquisitions and reserve on barter credits of $1.0 million is in Liquidation/Other.
(2)   Sales and distributions expenses fixed costs include $0.8 million of depreciation amortization
(3)   General and administrative fixed costs include $6.5 million of depreciation and amortization