false000175771500017577152023-03-092023-03-09

 

 

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): March 9, 2023

 

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. ☐

 

 

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Item 2.02. Results of Operations and Financial Condition.

On March 9, 2023, Aterian, Inc. (the “Company”) issued a press release announcing its financial results for the year-ended December 31, 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 March 9, 2023
104	Cover Page Interactive Data File (embedded within the Inline XBRL)

 

 

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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: March 9, 2023	By:	/s/ Yaniv Sarig
		Name: Yaniv Sarig
		Title: President and Chief Executive Officer

 

 

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Exhibit 99.1

 

 

Aterian Reports Fourth Quarter & Full Year 2022 Results

 

Achieved Substantial Progress Selling Through High Cost Inventory to Drive Margin Expansion Starting In the First Quarter of 2023

 

Reaffirms Second Half 2023 Adjusted EBITDA Profitability Target

 

 

 

NEW YORK, March 9, 2023 – Aterian, Inc. (Nasdaq: ATER) (“Aterian” or the “Company”) today announced results for the fourth quarter and full year ended December 31, 2022.

 

Fourth Quarter Highlights

 

Full Year 2022 Highlights

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Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “While consumer demand was softer year on year, we successfully executed on our strategy to cycle through expensive inventory. Due to the exorbitant shipping costs in bringing in this inventory, we applied discounts to excess inventory across the board, including some of our best products, to make room for inventory at a lower cost basis. This is not due to weakness in our portfolio but rather with international shipping rates normalizing we can restock our inventory at a lower cost basis. Combining this with our portfolio’s strong market share position, we remain on track to achieve adjusted EBITDA profitability in the second half of 2023.”

 

First Quarter 2023 & Second Half of 2023 Outlook

For the first quarter of 2023, taking into account the current global environment and inflation, we believe that net revenue will be between $32 million and $36 million. For the first quarter of 2023, the Company expects Adjusted EBITDA to remain in the range of $(4.8) million and $(5.8) million.

 

The Company also is reconfirming its prior guidance of expecting to be Adjusted EBITDA profitable in the second half of 2023.

 

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” section below. The most directly comparable GAAP financial measure for EBITDA and Adjusted EBITDA is net loss and we expect to

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report a net loss for the three months ending March 31, 2023 and the second half of 2023, due primarily to interest expense and stock-based compensation expense.

 

Webcast and Conference Call Information

Aterian will host a live conference call to discuss financial results today, March 9, 2023, 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 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 our strong market share position, goal to achieve adjusted EBITDA profitability in the second half of 2023 and international shipping rates normalizing;. 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

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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

 

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ATERIAN, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

		December 31, 2021				December 31, 2022
ASSETS
CURRENT ASSETS:
Cash		$	30,317			$	43,574
Accounts receivable—net			10,478				4,515
Inventory			63,045				43,666
Prepaid and other current assets			21,034				8,261
Total current assets			124,874				100,016
PROPERTY AND EQUIPMENT—net			1,254				853
GOODWILL—net			119,941				—
OTHER INTANGIBLES—net			64,955				54,757
OTHER NON-CURRENT ASSETS			2,546				813
TOTAL ASSETS		$	313,570			$	156,439
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Credit facility		$	32,845			$	21,053
Accounts payable			21,716				16,035
Seller notes			7,577				1,693
Contingent earn-out liability			3,983				—
Accrued and other current liabilities			17,621				14,254
Total current liabilities			83,742				53,035
OTHER LIABILITIES			360				1,452
CONTINGENT EARN-OUT LIABILITY			5,240				—
Total liabilities			89,342				54,487
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 80,752,290 shares outstanding at December 31, 2022			5				8
Additional paid-in capital			653,650				728,339
Accumulated deficit			(428,959	)			(625,251	)
Accumulated other comprehensive income			(468	)			(1,144	)
Total stockholders’ equity			224,228				101,952
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	313,570			$	156,439

 

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ATERIAN, INC.

Consolidated Statements of Operations

(in thousands, except share and per share data)

 

		Three Months Ended December 31,								Year-Ended December 31,
		2021				2022				2021				2022
NET REVENUE		$	63,321			$	54,902			$	247,767			$	221,170
COST OF GOODS SOLD			34,440				34,534				125,904				115,652
GROSS PROFIT			28,881				20,368				121,863				105,518
OPERATING EXPENSES:
Sales and distribution			30,653				32,507				127,369				121,139
Research and development			2,617				1,430				9,837				6,012
General and administrative			13,292				8,758				45,099				38,239
Impairment loss on goodwill			—				468				—				120,409
Impairment loss on intangibles			—				—				—				3,118
Settlement of a contingent earn-out liability			4,164				—				4,164				—
Change in fair value of contingent earn-out liabilities			(18,580	)			—				(30,529	)			(5,240	)
TOTAL OPERATING EXPENSES:			32,146				43,163				155,940				283,677
OPERATING LOSS			(3,265	)			(22,795	)			(34,077	)			(178,159	)
INTEREST EXPENSE—net			778				560				12,655				2,603
GAIN ON EXTINGUISHMENT OF SELLER NOTE			—				—				—				(2,012	)
LOSS ON INITIAL ISSUANCE OF EQUITY			—				—				—				18,669
CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY			—				—				3,254				—
LOSS ON EXTINGUISHMENT OF DEBT			2,096				—				138,859				—
CHANGE IN FAIR VALUE OF WARRANT LIABILITY			—				(2,835	)			26,455				(470	)
LOSS ON INITIAL ISSUANCE OF WARRANTS			—				—				20,147				—
OTHER EXPENSE (INCOME)—net			2				(83)				45				(281	)
LOSS BEFORE INCOME TAXES			(6,141	)			(20,437	)			(235,492	)			(196,668	)
PROVISION (BENEFIT) FOR INCOME TAXES			468				(133)				532				(376)
NET LOSS		$	(6,609	)		$	(20,304	)		$	(236,024	)		$	(196,292	)
Net loss per share, basic and diluted		$	(0.13	)		$	(0.27	)		$	(6.67	)		$	(2.95	)
Weighted-average number of shares outstanding, basic and diluted			50,159,967				75,824,531				35,379,005				66,529,565

 

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ATERIAN, INC.                                                     Consolidated Statements of Cash Flows                                         (in thousands)
		Year-Ended December 31,
		2021				2022
OPERATING ACTIVITIES:
Net loss		$	(236,024	)		$	(196,292	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			7,326				7,521
Provision for sales returns			43				56
Amortization of deferred financing cost and debt discounts			7,742				429
Stock-based compensation			28,987				14,594
Gain from increase of contingent earn-out liability fair value			(30,529	)			(5,240	)
Loss in connection with settlement of earn-out			4,164			—
Loss (Gain) in connection with the change in warrant fair value			26,455				(470	)
Gain in connection with settlement of note payable		—					(2,012	)
Loss on initial issuance of warrants			20,147			—
Issuance of common stock			—				43
Loss on initial issuance of equity		—					18,669
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			—
Provision for barter credits			1,000				1,643
Loss from derivative liability discount related to term loan			3,254			—
Impairment loss on goodwill		—					120,409
Impairment loss on intangibles		—					3,118
Allowance for doubtful accounts and other			4,200				367
Changes in assets and liabilities:
Accounts receivable			(4,554	)			5,596
Inventory			(19,303	)			19,438
Prepaid and other current assets			(7,856	)			5,564
Accounts payable, accrued and other liabilities			14,120				(10,910	)
Cash provided (used) by operating activities			(41,969	)			(17,477	)
INVESTING ACTIVITIES:
Purchase of fixed assets			(32	)			(82	)
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	)		—
Purchase of Step and Go assets		—					(595	)
Cash used in investing activities			(44,905	)			(677	)
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			36,735			—
Proceeds from equity offering, net of issuance costs		—					46,834
Proceeds from exercise of stock options			9,033			—
Repayments on note payable to Smash			(10,495	)			(3,423	)
Payment of earnout to Squatty Potty			(7,971	)			(3,983	)
Borrowings from MidCap credit facilities			48,750				136,687
Repayments from MidCap credit facilities			(28,274	)			(148,907	)
Debt issuance costs from MidCap credit facility			(849	)		—
Repayments for High Trail April 2021 Note			(10,139)			—
Repayments for High Trail December 2021 Note			(27,500)			—
Repayments for High Trail December 2020 Note and February 2021 Note			(59,500	)		—
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			2,424				2,099
Insurance obligation payments			(3,048	)			(2,311	)
Cash provided by financing activities			95,569				26,996
EFFECT OF EXCHANGE RATE ON CASH			(477	)			(528	)
NET CHANGE IN CASH AND RESTRICTED CASH FOR THE YEAR			8,218				8,314
CASH AND RESTRICTED CASH AT BEGINNING OF YEAR			30,097				38,315
CASH AND RESTRICTED CASH AT END OF YEAR			38,315				46,629
RECONCILIATION OF CASH AND RESTRICTED CASH
CASH			30,317				43,574
RESTRICTED CASH—Prepaid and other current assets			7,849				2,926
RESTRICTED CASH—Other non-current assets			149				129
TOTAL CASH AND RESTRICTED CASH		$	38,315			$	46,629
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		$	5,611			$	1,875
Cash paid for taxes		$	41			$	100
Non-cash consideration paid to contractors		$	-			$	1,137
Modification of warrants between equity and liability		$	75,828			$	—
Non-cash consideration paid to contractors		$	7,289			$	—
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		$	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			$	—
Issuance of common stock related to exercise of warrants		$	—			$	767

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Fair value of warrants issued in connection with equity offering		$	—			$	18,982
Issuance of common stock		$	—			$	43
Exercise of prefunded warrants		$	—			$	15,039

 

Non-GAAP Financial Measures

We believe that our financial statements and the other financial data included in this Annual Report have been prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the U.S. (“GAAP”). However, for the reasons discussed below, we have presented certain non-GAAP measures herein.

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), reserve on barter credits 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, settlement of earn-outs, amortization of inventory step-up from acquisitions (included in cost of goods sold), reserve for barter credits, profit and loss impacts from the issuance of common stock and/or warrants, changes in fair-market value of warrant liability, professional fees and transition costs related to acquisitions, litigation settlements, impairment on goodwill and intangibles,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”), and the reserve for barter credits to gross profit 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 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.

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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:

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:

 

Contribution Margin

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,
		2021				2022				2021				2022
		(in thousands, except percentages)								(in thousands, except percentages)
Gross Profit		$	28,881			$	20,368			$	121,863			$	105,518
Add:
Amortization of inventory step-up from acquisitions (included in cost of goods sold)			542				—				5,458				—
Reserve on barter credits			1,000				1,643				1,000				1,643
Less:
E-commerce platform commissions, online advertising, selling and logistics expenses			(25,413	)			(28,331	)			(103,283	)			(103,258	)
Contribution margin		$	5,010			$	(6,320)			$	25,038			$	3,903
Gross Profit as a percentage of net revenue			45.6	%			37.1	%			49.2	%			47.7	%
Contribution margin as a percentage of net revenue			7.9	%			(11.5)	%			10.1	%			1.8	%

 

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Adjusted EBITDA

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,
		2021				2022				2021				2022
		(in thousands, except percentages)								(in thousands, except percentages)
Net loss		$	(6,609	)		$	(20,304	)		$	(236,024	)		$	(196,292	)
Add:
Provision for income taxes		468				(133)				532				(376		)
Interest expense, net			778				560				12,655				2,603
Depreciation and amortization			2,569				1,758				7,326				7,521
EBITDA			(2,794	)			(18,119	)			(215,511	)			(186,544	)
Other expense (income), net			2				(83	)			45				(281	)
Change in fair value of contingent earn-out liabilities			(18,580	)			—				(30,529	)			(5,240	)
Settlement of a contingent earn-out liability			4,164				—				4,164				—
Impairment loss on goodwill			—				468				—				120,409
Impairment loss on intangibles			—				—				—				3,118
Gain on extinguishment of seller note			—				—				—				(2,012	)
Amortization of inventory step-up from acquisitions (included in cost of goods sold)			542				—				5,458				—
Change in fair market value of warrant liability			—				(2,835)				26,455				(470	)
Derivative liability discount related to term loan			—				—				3,254				—
Loss on original issuance of equity			—				—				—				18,669
Loss on extinguishment of debt			2,096				—				138,859				—
Loss on initial issuance of warrants			—				—				20,147				—
Professional fees related to acquisitions			—				—				1,450				—
Transition costs from acquisitions			762				—				2,076				—
Professional and legal fees related to Photo Paper Direct acquisition			890				—				1,586				—
Litigation reserve			1,300				—				1,300				2,600
Reserve on dispute with PPE supplier			—				—				4,100				—
Reserve on barter credits			1,000				1,643				1,000				1,643
Stock-based compensation expense			7,657				2,740				28,987				14,594
Adjusted EBITDA		$	(2,961	)		$	(16,186	)		$	(7,159)			$	(33,514	)
Net loss as a percentage of net revenue			(10.4	)%			(37.0)	%			(95.3	)%			(88.8)	%
Adjusted EBITDA as a percentage of net revenue			(4.7)	%			(29.5)	%			(2.9)	%			(15.2)	%

 

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. This phase also includes revenue from new product variations and relaunches. 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. Net margin primarily reflects a combination of manual and automated adjustments in price and marketing spend.

iii. 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. Products can also be liquidated as part of inventory normalization especially when steep discounts are required.

 

The following tables break out our fourth quarter and full year 2021 and 2022 results of operations by our product phases (in thousands):

		Three Months Ended December 31, 2021

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		Sustain				Launch				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	52,669			$	2,570			$	8,082			$	—			$	—			$	63,321
COST OF GOODS SOLD			24,090				2,813				7,537				—				—				34,440
GROSS PROFIT		$	28,579			$	(243)			$	545			$	—			$	—			$	28,881
OPERATING EXPENSES:
Sales and distribution expenses			20,117				1,623				3,673				3,399				1,841				30,653
Research and development			—				—				—				1,158				1,459				2,617
General and administrative			—				—				—				8,935				4,357				13,292
Settlement of a contingent earn-out liability			—				—				—				4,164				—				4,164
Change in earn-out liability			—				—				—				(18,580	)			—				(18,580	)

 

		Three Months Ended December 31, 2022
		Sustain				Launch				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	40,831			$	963			$	13,108			$	—			$	—			$	54,902
COST OF GOODS SOLD			17,550				236				16,748				—				—				34,534
GROSS PROFIT		$	23,281			$	727			$	(3,640)			$	—			$	—			$	20,368
OPERATING EXPENSES:
Sales and distribution expenses			19,902				316				8,113				3,390				786				32,507
Research and development			—				—				—				976				454				1,430
General and administrative			—				—				—				7,258				1,500				8,758
Impairment loss on goodwill			—				—				—				—				—				468

 

		Year-Ended December 31, 2021
		Sustain				Launch			Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	216,135			$	14,862		$	16,770			$	—			$	—			$	247,767
COST OF GOODS SOLD			98,263				11,004			16,637				—				—				125,904
GROSS PROFIT		$	117,872			$	3,858		$	133			$	—			$	—			$	121,863
OPERATING EXPENSES:
Sales and distribution expenses			87,163				8,038			8,083				17,276				6,809				127,369
Research and development			—				—			—				4,498				5,339				9,837
General and administrative			—				—			—				28,260				16,839				45,099
Settlement of contingent earn-out liability			—				—			—				4,164				—				4,164
Change in earn-out liability			—				—			—				(30,529	)			—				(30,529	)

 

		Year-Ended December 31, 2022
		Sustain				Launch				Liquidation/ Other				Fixed Costs				Stock based compensation expense				Total
NET REVENUE		$	187,039			$	4,766			$	29,365			$	—			$	—			$	221,170
COST OF GOODS SOLD			82,909				2,332				30,411				—				—				115,652
GROSS PROFIT		$	104,130			$	2,434			$	(1,046	)		$	—			$	—			$	105,518
OPERATING EXPENSES:
Sales and distribution expenses			83,198				2,287				17,773				12,867				5,014				121,139
Research and development			—				—				—				4,141				1,871				6,012
General and administrative			—				—				—				30,530				7,709				38,239
Impairment loss on goodwill			—				—				—				—				—				120,409
Impairment loss on intangibles			—				—				—				—				—				3,118
Change in earn-out liability			—				—				—				—				—				(5,240	)

 

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