8-K
false000175771500017577152022-11-082022-11-08

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 8, 2022

 

Aterian, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

 

 

Delaware

 

001-38937

 

83-1739858

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

Aterian, Inc.
37 East 18th Street, 7th Floor

New York, NY 10003

(Address of Principal Executive Offices)(Zip Code)

(347) 676-1681
(Registrant’s telephone number, including area code)

N/A

(Former Name, or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

ATER

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 


 

Item 2.02. Results of Operations and Financial Condition.

On November 8, 2022, Aterian, Inc. (the “Company”) issued a press release announcing its financial results for the three months ended September 30, 2022. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in this Item 2.02, including the press release attached hereto as Exhibit 99.1, is intended to be furnished under Item 2.02 and Item 9.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

Number

Description

99.1

Press Release issued by Aterian, Inc., dated November 8, 2022

104

Cover Page Interactive Data File (embedded within the Inline XBRL)

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

ATERIAN, INC.

 

 

 

 

 

 

 

 

 

Date: November 8, 2022

By:

/s/ Yaniv Sarig

 

 

 

Name: Yaniv Sarig

 

 

 

Title: President and Chief Executive Officer

 

 

 


EX-99.1

Exhibit 99.1

https://cdn.kscope.io/d5335b0ba3051c494fa3e35829fff13e-img100432197_0.jpg 

 

Aterian Reports Third Quarter 2022 Results

 

Reports Third Quarter 2022 Net Revenue of $66.3 Million

 

Targeting Adjusted EBITDA Profitability in the Second Half of 2023 Driven Primarily by Improving International Shipping Rates and Cost Reductions

 

 

NEW YORK, November 8, 2022 – Aterian, Inc. (Nasdaq: ATER) (“Aterian” or the “Company”) today announced results for the third quarter ended September 30, 2022.

 

Third Quarter 2022 Highlights

Third quarter 2022 net revenue declined 2.6% to $66.3 million, compared to $68.1 million in the third quarter of 2021.
Third quarter 2022 gross margin declined to 45.5%, compared to 50.2% in the third quarter of 2021, primarily due to the liquidation of high priced excess inventory.
Third quarter 2022 contribution margin declined to 1.1% from 12.1% in the third quarter of 2021, primarily due to the liquidation of high priced excess inventory.
Third quarter 2022 operating loss of $(108.9) million increased, compared to a loss of $(7.5) million in the third quarter of 2021. Third quarter 2022 operating loss includes a gain of $0.8 million from the change in fair value of earn-out liabilities, a non-cash loss of $(90.9) million from the impairment on goodwill, a non-cash loss of $(3.1) million on the impairment on intangibles and $(2.9) million of non-cash stock compensation while third quarter 2021 operating loss included a gain of $4.2 million from the change in fair value of earn-out liabilities and $(9.6) million of non-cash stock compensation.
Third quarter 2022 net loss of $(116.9) million increased from $(110.6) million in the third quarter of 2021. Third quarter 2022 net loss includes a gain of $5.5 million in net charges from the changes in fair value of warrants, a loss of $(12.8) million from the derivative related to offering of common stock, $(2.9) million of non-cash stock compensation, a gain of $0.8 million from the change in fair value of earn-out liabilities, a non-cash loss of $(90.9) million from the impairment on goodwill, and a non-cash loss of $(3.1) million on the impairment on intangibles, while third quarter 2021 included a loss of $(107.0) million from extinguishment of debt, a gain of $8.1 million from the change in fair value of warrants, and a gain of $1.4 million associated with a derivative liability from our term loan, a gain of $4.2 million from the change in fair value of earn-out liabilities and $(9.6) million of non-cash stock compensation.
Third quarter 2022 adjusted EBITDA of $(9.1) million declined as compared to $0.7 million in the third quarter of 2021.
Launched one new product in the third quarter of 2022 compared with zero new products launched in the third quarter of 2021.
Total cash balance at September 30, 2022 was $26.0 million.

 

 

 

 


“Shipping costs have cast a cloud over ecommerce for an extended period, but last week we loaded containers from China at approximately a 90 percent discount to the costs we incurred in the second half of 2021,” commented Yaniv Sarig, CEO of Aterian. "With these costs continuing to normalize, we can begin transitioning from defense to offense. We plan to close the year by continuing what we did in this past quarter: aggressively liquidating higher cost inventory, extending market share of our leading products, and charting a path to sustainable contribution margins and positive Adjusted EBITDA. The austere operating conditions arising out of the pandemic have increased the universe of potential M&A targets, and we continue to evaluate attractively valued opportunities.”

 

Fourth Quarter 2022 Outlook

For the fourth quarter of 2022, taking into account the current global environment and rising inflation, we believe that net revenue will be between $45 million and $55 million.

 

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. The most directly comparable financial measure presented in accordance with GAAP to EBITDA and Adjusted EBITDA is net loss. We are unable to reconcile the forward-looking statements of EBITDA and Adjusted EBITDA in this press release to their nearest GAAP measures because the nearest GAAP financial measures are not accessible on a forward-looking basis and reconciling information is not available without unreasonable effort.

 

Webcast and Conference Call Information

Aterian will host a conference call to discuss financial results today, November 8, 2022, at 5:00 p.m. Eastern Time, which will be accessible by telephone and the internet. To access the call, participants from within the U.S. should dial (833) 636-1351 and participants from outside the U.S. should dial (412) 902-4267 and ask to be joined into the Aterian, Inc. call. Participants may also access the call through a live webcast at https://ir.aterian.io. The archived online replay will be available for a limited time after the call in the Investors Relations section of the Aterian website.

 

About Aterian, Inc.

Aterian, Inc. (Nasdaq: ATER) is a leading technology-enabled consumer product 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 with a focus on Amazon, Shopify and Walmart. Aterian has thousands of SKUs across its many 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 about our expected net revenue for the fourth quarter of 2022; regarding our target of achieving adjusted EBITDA profitability in the second half of 2023; our ability to extend market share and reduce costs; expected changes in the cost of shipping containers and shipping rates; our expectations regarding the transition of our business strategy from offense to defense; our expectations regarding contribution margin and adjusted EBITDA; our ability to manage our inventory, including through liquidation of inventory; and our expectations around our M&A opportunities. 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 or have acquired, 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, the war in the Ukraine, the rising tensions between China and Taiwan and other macroeconomic factors, including their 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; the impact of intangible assets such as goodwill, and other impairments; disruptions to the Company's information technology systems, including but not limited to potential or actual security breaches of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; our ability to disrupt the consumer products industry; our ability to maintain and 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 and expenses; acquisitions of other companies and technologies and our ability to successfully 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

Vice President of Investor Relations & Corp. Development

Aterian, Inc.

ilya@aterian.io

917-905-1699

 

 


ATERIAN, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

 

 

December 31, 2021

 

 

September 30, 2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$

30,317

 

 

$

25,997

 

Accounts receivable—net

 

 

10,478

 

 

 

4,933

 

Inventory

 

 

63,045

 

 

 

60,457

 

Prepaid and other current assets

 

 

21,034

 

 

 

10,459

 

Total current assets

 

 

124,874

 

 

 

101,846

 

PROPERTY AND EQUIPMENT—net

 

 

1,254

 

 

 

856

 

GOODWILL—net

 

 

119,941

 

 

 

 

OTHER INTANGIBLES—net

 

 

64,955

 

 

 

56,265

 

OTHER NON-CURRENT ASSETS

 

 

2,546

 

 

 

2,564

 

TOTAL ASSETS

 

$

313,570

 

 

$

161,531

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Credit facility

 

$

32,845

 

 

$

23,919

 

Accounts payable

 

 

21,716

 

 

 

13,491

 

Seller notes

 

 

7,577

 

 

 

2,326

 

Contingent earn-out liability

 

 

3,983

 

 

 

 

Warrant liability

 

 

 

 

 

6,308

 

Accrued and other current liabilities

 

 

17,621

 

 

 

14,533

 

Total current liabilities

 

 

83,742

 

 

 

60,577

 

OTHER LIABILITIES

 

 

360

 

 

 

1,673

 

CONTINGENT EARN-OUT LIABILITY

 

 

5,240

 

 

 

 

Total liabilities

 

 

89,342

 

 

 

62,250

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Common stock, par value $0.0001 per share—500,000,000 shares authorized and
   55,090,237 shares outstanding at December 31, 2021; 500,000,000 shares
   authorized and 69,540,749 shares outstanding at September 30, 2022

 

 

5

 

 

 

7

 

Additional paid-in capital

 

 

653,650

 

 

 

705,775

 

Accumulated deficit

 

 

(428,959

)

 

 

(604,946

)

Accumulated other comprehensive loss

 

 

(468

)

 

 

(1,555

)

Total stockholders’ equity

 

 

224,228

 

 

 

99,281

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

313,570

 

 

$

161,531

 

 

See notes to condensed consolidated financial statements.

 


ATERIAN, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

NET REVENUE

 

$

68,121

 

 

$

66,326

 

 

$

184,446

 

 

$

166,268

 

COST OF GOODS SOLD

 

 

33,946

 

 

 

36,135

 

 

 

91,464

 

 

 

81,118

 

GROSS PROFIT

 

 

34,175

 

 

 

30,191

 

 

 

92,982

 

 

 

85,150

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and distribution

 

 

32,337

 

 

 

33,792

 

 

 

96,716

 

 

 

88,632

 

Research and development

 

 

2,767

 

 

 

1,706

 

 

 

7,220

 

 

 

4,582

 

General and administrative

 

 

10,843

 

 

 

10,369

 

 

 

31,807

 

 

 

29,481

 

Impairment loss on goodwill

 

 

 

 

 

90,921

 

 

 

 

 

 

119,941

 

Impairment loss on intangibles

 

 

 

 

 

3,118

 

 

 

 

 

 

3,118

 

Change in fair value of contingent earn-out liabilities

 

 

(4,245

)

 

 

(774

)

 

 

(11,949

)

 

 

(5,240

)

TOTAL OPERATING EXPENSES:

 

 

41,702

 

 

 

139,132

 

 

 

123,794

 

 

 

240,514

 

OPERATING LOSS

 

 

(7,527

)

 

 

(108,941

)

 

 

(30,812

)

 

 

(155,364

)

INTEREST EXPENSE—net

 

 

2,786

 

 

 

904

 

 

 

11,877

 

 

 

2,043

 

GAIN ON EXTINGUISHMENT OF SELLER NOTE

 

 

 

 

 

 

 

 

 

 

 

(2,012

)

LOSS ON INITIAL ISSUANCE OF EQUITY

 

 

 

 

 

12,834

 

 

 

 

 

 

18,669

 

CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY

 

 

1,360

 

 

 

 

 

 

3,254

 

 

 

 

LOSS ON EXTINGUISHMENT OF DEBT

 

 

106,991

 

 

 

 

 

 

136,763

 

 

 

 

CHANGE IN FAIR VALUE OF WARRANT LIABILITY

 

 

(8,134

)

 

 

(5,528

)

 

 

26,455

 

 

 

2,365

 

LOSS ON INITIAL ISSUANCE OF WARRANT

 

 

 

 

 

 

 

 

20,147

 

 

 

 

OTHER EXPENSE (INCOME)

 

 

5

 

 

 

(174

)

 

 

43

 

 

 

(199

)

LOSS BEFORE INCOME TAXES

 

 

(110,535

)

 

 

(116,977

)

 

 

(229,351

)

 

 

(176,230

)

PROVISION FOR (BENEFIT FROM) INCOME TAXES

 

 

21

 

 

 

(75

)

 

 

64

 

 

 

(243

)

NET LOSS

 

$

(110,556

)

 

$

(116,902

)

 

$

(229,415

)

 

$

(175,987

)

Net loss per share, basic and diluted

 

$

(3.13

)

 

$

(1.81

)

 

$

(7.55

)

 

$

(2.78

)

Weighted-average number of shares outstanding, basic and diluted

 

 

35,359,999

 

 

 

64,648,650

 

 

 

30,383,375

 

 

 

63,397,196

 

 

See notes to condensed consolidated financial statements.

 


ATERIAN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2022

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(229,415

)

 

$

(175,987

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,757

 

 

 

5,763

 

Provision for sales returns

 

 

398

 

 

 

134

 

Amortization of deferred financing costs and debt discounts

 

 

7,730

 

 

 

321

 

Issuance of common stock

 

 

 

 

 

43

 

Stock-based compensation

 

 

21,330

 

 

 

11,854

 

Gain from increase of contingent earn-out liability fair value

 

 

(11,949

)

 

 

(5,240

)

Loss in connection with the change in warrant fair value

 

 

26,455

 

 

 

2,365

 

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 embedded derivative related to term loan

 

 

3,254

 

 

 

 

Loss from extinguishment of Credit Facility

 

 

1,532

 

 

 

 

Loss on initial issuance of warrant

 

 

20,147

 

 

 

 

Gain in connection with settlement of note payable

 

 

 

 

 

(2,012

)

Loss on initial issuance of equity

 

 

 

 

 

18,669

 

Impairment loss on goodwill

 

 

 

 

 

119,941

 

Impairment loss on intangibles

 

 

 

 

 

3,118

 

Allowance for doubtful accounts and other

 

 

4,597

 

 

 

219

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(3,765

)

 

 

5,326

 

Inventory

 

 

(27,531

)

 

 

2,588

 

Prepaid and other current assets

 

 

(7,219

)

 

 

3,351

 

Accounts payable, accrued and other liabilities

 

 

13,999

 

 

 

(9,994

)

Cash used in operating activities

 

 

(40,449

)

 

 

(19,541

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchase of fixed assets

 

 

(14

)

 

 

(29

)

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

 

 

(44,887

)

 

 

(29

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from warrant exercise

 

 

9,051

 

 

 

 

Proceeds from cancellation of warrant

 

 

16,957

 

 

 

 

Proceeds from equity offering, net of issuance costs

 

 

36,735

 

 

 

 

Proceeds from equity offering

 

 

8,749

 

 

 

27,007

 

Repayments on note payable to Smash

 

 

(9,254

)

 

 

(2,868

)

Borrowings from MidCap credit facility

 

 

14,630

 

 

 

107,678

 

Repayments for MidCap credit facility

 

 

(28,274

)

 

 

(116,924

)

Deferred financing costs from MidCap credit facility

 

 

(151

)

 

 

 

Repayments for High Trail December 2020 Note and February 2021 Note

 

 

(59,500

)

 

 

 

Borrowings from High Trail February 2021 Note and warrants

 

 

14,025

 

 

 

 

Repayments for High Trail April 2021 Note

 

 

(10,139

)

 

 

 

Borrowings from High Trail April 2021 Note and warrants

 

 

110,000

 

 

 

 

Debt issuance costs from High Trail February 2021 Note

 

 

(1,462

)

 

 

 

Debt issuance costs from High Trail April 2021 Note

 

 

(2,202

)

 

 

 

Payment for squatty earn-out

 

 

(3,988

)

 

 

(3,983

)

Insurance obligation payments

 

 

(2,329

)

 

 

(1,778

)

Insurance financing proceeds

 

 

2,424

 

 

 

2,099

 

Cash provided by financing activities

 

 

95,272

 

 

 

11,231

 

EFFECT OF EXCHANGE RATE ON CASH

 

 

(434

)

 

 

(936

)

NET CHANGE IN CASH AND RESTRICTED CASH FOR PERIOD

 

 

9,502

 

 

 

(9,275

)

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

30,097

 

 

 

38,315

 

CASH AND RESTRICTED CASH AT END OF PERIOD

 

$

39,599

 

 

$

29,040

 

RECONCILIATION OF CASH AND RESTRICTED CASH

 

 

 

 

 

 

CASH

 

$

37,470

 

 

$

25,997

 

RESTRICTED CASH—Prepaid and other assets

 

 

2,000

 

 

 

2,914

 

RESTRICTED CASH—Other non-current assets

 

 

129

 

 

 

129

 

TOTAL CASH AND RESTRICTED CASH

 

$

39,599

 

 

$

29,040

 

 

 


ATERIAN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

4,989

 

 

$

1,409

 

Cash paid for taxes

 

$

41

 

 

$

58

 

Non-cash consideration paid to contractors

 

$

4,032

 

 

$

1,137

 

Modification of warrants between equity and liability

 

$

75,826

 

 

$

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Original issue discount

 

$

2,475

 

 

$

 

Fair value of contingent consideration

 

$

20,971

 

 

$

 

Discount of debt relating to warrants issuance

 

$

50,695

 

 

$

 

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 related to exercise of warrants

 

$

 

 

$

767

 

Fair value of warrants issued in connection with equity offering

 

$

 

 

$

18,982

 

Issuance of Common Stock

 

$

 

 

$

43

 

Exercise of prefunded warrants

 

$

 

 

$

15,039

 

 

See notes to condensed 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 and transition costs related to acquisitions, loss from extinguishment of debt, impairment of goodwill, loss on initial issuance of equity, litigation reserve 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 over time.

 

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 similarly 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 and transition costs related to acquisitions, loss from extinguishment of debt, impairment of goodwill, loss on initial issuance of equity, litigation reserve 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

 

(in thousands, except percentages)

 

Net loss

 

$

(110,556

)

 

$

(116,902

)

 

$

(229,415

)

 

$

(175,987

)

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Provision for (benefit from) income taxes

 

 

21

 

 

 

(75

)

 

 

64

 

 

 

(243

)

Interest expense, net

 

 

2,786

 

 

 

904

 

 

 

11,877

 

 

 

2,043

 

Depreciation and amortization

 

 

1,872

 

 

 

1,869

 

 

 

4,757

 

 

 

5,763

 

EBITDA

 

 

(105,877

)

 

 

(114,204

)

 

 

(212,717

)

 

 

(168,424

)

Other expense (income), net

 

 

5

 

 

 

(174

)

 

 

43

 

 

 

(199

)

Impairment loss on goodwill

 

 

 

 

 

90,921

 

 

 

 

 

 

119,941

 

Impairment loss on intangibles

 

 

 

 

 

3,118

 

 

 

 

 

 

3,118

 

Change in fair value of contingent earn-out liabilities

 

 

(4,245

)

 

 

(774

)

 

 

(11,949

)

 

 

(5,240

)

Amortization of inventory step-up from acquisitions (included in cost of goods sold)

 

 

875

 

 

 

 

 

 

4,916

 

 

 

 

Gain on extinguishment of seller note

 

 

 

 

 

 

 

 

 

 

 

(2,012

)

Loss on initial issuance of equity

 

 

 

 

 

12,834

 

 

 

 

 

 

18,669

 

Change in fair value of derivative liability

 

 

1,360

 

 

 

 

 

 

3,254

 

 

 

 

Loss on extinguishment of debt

 

 

106,991

 

 

 

 

 

 

136,763

 

 

 

 

Change in fair market value of warrant liability

 

 

(8,134

)

 

 

(5,528

)

 

 

26,455

 

 

 

2,365

 

Loss on initial issuance of warrant

 

 

 

 

 

 

 

 

20,147

 

 

 

 

Professional fees related to acquisitions

 

 

53

 

 

 

 

 

 

1,450

 

 

 

 

Litigation reserve

 

 

 

 

 

1,800

 

 

 

 

 

 

2,600

 

Transition cost from acquisitions

 

 

130

 

 

 

 

 

 

1,314

 

 

 

 

Transition cost from Photo Paper Direct acquisition

 

 

 

 

 

 

 

 

696

 

 

 

 

Reserve on dispute with PPE supplier

 

 

 

 

 

 

 

 

4,100

 

 

 

 

Stock-based compensation expense

 

 

9,570

 

 

 

2,943

 

 

 

21,330

 

 

 

11,854

 

Adjusted EBITDA

 

$

728

 

 

$

(9,064

)

 

$

(4,198

)

 

$

(17,328

)

Net loss as a percentage of net revenue

 

 

(162.3

)%

 

 

(176.3

)%

 

 

(124.4

)%

 

 

(105.8

)%

Adjusted EBITDA as a percentage of net revenue

 

 

1.1

%

 

 

(13.7

)%

 

 

(2.3

)%

 

 

(10.4

)%

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 September 30,

 

 

Nine Months Ended September 30,