Aterian, Inc. (ATER) Q2 2020 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen and welcome to the Mohawk Group Holdings Inc. Q2 Earnings Report. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host Mr. Ilya Grozovsky, Director of Investor Relations. Please go ahead.

Thank you. Thank you for joining us today to discuss Mohawk’s second quarter 2020 earnings results. On today's call are Yaniv Sarig, Co-Founder and CEO; and Fabrice Hamaide, Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Mohawk’s website at mohawkgp.com. I would like to remind you that certain statements we will make in this presentation are forward looking statements. And these forward-looking statements reflect Mohawk’s judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Mohawk’s business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of these risks and uncertainties associated with the forward-looking statements to be made on this conference call and webcast, we refer you to the disclaimer regarding forward looking statements that is included on our second quarter earnings release, as well as our filings with the SEC. Please note, that the SEC’s EDGAR site is currently experiencing technical issues and not accepting filings and our filings may not show up until later. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. In addition, the company may refer to certain non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I'll turn the call over to Yaniv.

Thanks Ilya, and good afternoon everyone. Thank you for joining us today for this call. I would like to first and foremost thank our entire team at Mohawk for all their hard work during these last several months. I'm once again very proud of our resilient culture, our ability to adapt, to continuously improve and produce strong results despite the challenges. Of all of Mohawk’s strengths and capabilities, I put on our teams’ grip. And I never say that culture above all other factors that will drive the company's long-term success. To that extent, our people’s safety remains our number one priority. As the world continues to face the challenges brought by the COVID-19 pandemic, I would also like to take this opportunity to thank our vendors, suppliers, and other business partners who have been incredibly supportive and helping ensure we have business continuity. So those on the call, our shareholders and other friends of the company, we hope that you and your family and loved ones are safe and healthy. This quarter represents a very special milestone for me personally. Many years ago, we decided to take a blitz scaling approach to grow our business. We believed in our business model and the fact that we would benefit from reinvesting every dollar we make back into launching more products, and continue to develop our e-commerce platform, aiming to drive increased efficiency as we scale. We knew that eventually we would reach a point with a growth of positive contribution margin from our products, which surpassed our operating fixed costs that allow us to continue to grow while generating positive adjusted EBITDA. I'm really excited to report, that I believe that the second quarter of 2020 represents this important turning point for Mohawk. In addition to reporting 97% year-over-year revenue growth and a record $69.8 million in net sales, we're also reporting our first profitable quarter in terms of adjusted EBITDA. Thanks to our platform business model, we have more than doubled our revenue since 2018 and improved our economics allowing us to generate $8 million of operating cash flow in this quarter, while our headcount has remained essentially flat. I believe that our investment in our platform business model coupled with increased growth in e-commerce adoption will continue to put us on a pathway to healthy growth and especially align, and should move the company to a whole new level. With our main channel Amazon continues to see massive demand for its services, our sales have accelerated as we announced strong year-over-year increase in sales in Q2. Mohawk continues to avoid a lot of customer shipment delays that others sellers on marketplaces are facing during the second quarter. This is as a result of our software platform and [indiscernible] fulfillment integration with our three-p warehousing partners. When looking at the retail industry at large, we believe that the current pandemic has created a tipping point towards the digital first economy. We're watching closely earning some other e-commerce and digital payment firms. The data we're seeing seems to be showing that across the board, more users are making the shift to online platforms for various needs. We're excited to be building a consumer product company, that has since inception anticipated this transformation. And to see that it is now accelerating. We continue to believe that a new breed of consumer brands will emerge from this shift to online, and we're thrilled to be building a business that we believe could be a leader in the space in the years to come. With that, I will pass it on to Fabrice to discuss our financial results.

Thanks, Yaniv and good afternoon, everyone. Here are the operational performance details of our second quarter. For the second quarter of 2020, net revenue increased 96.9% to $59.8 million from $30.4 million in the year ago period. The gain was primarily attributable to increased direct sales volume of new products launched since the second half of 2019, which contributed $23.1 million in net revenues and historical products, as well as the wholesale revenue of PPE products which contributed $5.7 million. We experienced a sales interruption on our hOmeLabs dehumidifiers for three weeks in June, while we resolve an inquiry from the EPA, and estimate a $4 million missed opportunity in sales during the quarter as a result. Since early July, we have resolved the inquiry and resumed selling our hOmeLabs dehumidifiers. Gross margin for the second quarter increased 135% from a year ago to 46.2% and was up 600 basis points on a sequential basis. The sequential improvement in gross margin was due to improved product unit economics, stemming from both lower cogs and higher sales prices, as more products reached a sustained phase partially offset by the wholesale PPE sales, which carry a slightly lower gross margin. In terms of our product segments, launch sustain phase, liquidation and other, overall, our sustained revenue grew to $44 million and grew 175% as compared to first quarter 2020. In Q2 2020, we launched eight products on top of the 16 that we launched in Q1 2020, bringing the total for the first half of 2020 to 24. Our launch revenue for Q2 2020 was $5.7 million. As such revenue remained essentially flat as we continue to work on our market segmentation and building a repeatable funnel and conversion process. Finally, for Q2 2020, liquidation and other revenue was approximately $3.9 million and $5.9 million respectively versus our first quarter 2020 liquidation and other revenue of $2.2 million and $0.2 million respectively. The increase in other revenue is a result of wholesale PPE revenues of $5.7 million to states and other government entities. Our overall Q2 2020 contribution margin was 16.8%, a significant improvement versus the prior year’s 5.7% and compared to our Q1 2020 contribution margin of negative 2.9%, a year-over-year improvement as well as a sequential improvement were driven by improved productivity unit economics, coming from higher average selling prices, lower cogs and lower fulfillment costs, increased sustained revenue mix, and higher sale prices of the launch revenue as they reach the end of the launch phase. Our sustained business drove the majority of our positive CM at 19.8%. Fixed costs for Q2 2020 were $6.6 million compared to $5.4 million in the prior year quarter, representing an increase due to one-time cost of severance, recruiting and bonus accrual. As a percentage of net revenue, fixed costs decreased to 11.1% from 17.8% in the year ago quarter, and compared with $5.7 million, or 22.1% of net revenues in first quarter 2020. Improvement in fixed cost margin highlights our ability to launch new products and grow revenue, while keeping fixed costs essentially flat. Thanks to the high degree of automation of our business model. This is the first quarter of adjusted EBITDA profitability, of course sooner than what we had previously anticipated. Adjusted EBITDA for the second quarter of 2020 improved to $3.4 million from the loss of $3.7 million in the second quarter of 2019. And also saw sequential improvement from a loss of $6.4 million in the first quarter of 2020. We'd highlight that our GDP profitability is a result of the growth in our business from both our existing products and new product launches, combined with continued improvements in our unit economics, and our fixed operating expense leverage, thanks to the high degree of automation of the business model. Turning to the balance sheet. As of June 30, 2020 we had cash of $17.2 million, compared with $14.1 million at the end of March 31 2020. This sequential increase in cash while at the same time reducing our debt is the result of improved margins and seasonality impact on sales and inventory turns. Cash generated from the operating activities for the second quarter was $8.2 million compared to cash used in operating activities of $17.1 million in the first quarter of 2020. Second quarter 2020 operating activities were impacted by decreased cash operating loss, and a net increase in cash from working capital, as we turn our inventory on hand. Overall, cash generated was 3.1 million, compared to cash burn of $16.3 million in the first quarter of 2020 due to increased sales at higher margins, controlled fixed costs and working capital. As of June 30, 2020 our total debt which consists of borrowings under our revolving credit facility in our $15 million term loan decreased to $31.9 million compared to $35.1 million as of March 2020 and compared to $37.9 million dollars at the end of December 31 2019. This decrease is a direct reflection of our planned seasonality driven increase inventory from Q1 to prepare for the seasonal increase in sales of Q2 and Q3. In terms of outlook for new products in the third quarter 2020, we expect to launch approximately 10 new products. We could experience some limited inventory stock outs in the quarter, as we work to absorb the faster growth rates of Q2 and forecast of Q3. To complete the key takeaways of the quarter are faster growth, more profitability, generating cash. For 2020, we reiterate our June 4th updated guidance and continue to expect net revenue to be in the range of $170 million to $180 million driven primarily by continued growth of our existing product portfolio our PPE efforts and the positive contribution from new products launched in 2020 and late in 2019. The company expects positive adjusted EBITDA in the third and fourth quarter of 2020 and in addition, expects positive adjusted EBITDA on a full year basis in 2020, a year earlier than anticipated. With that, I’ll turn it back to the operator to open the call for your questions.

Thank you. [Operator Instructions] We have your first question from Thomas Forte from D.A. Davidson. Your line is open.

Great, thank you. Congratulations on a very successful quarter. I have two Amazon related questions for Mohawk. So, Yaniv I feel like you're uniquely qualified to answer this one. When you think about yesterday's testimony by the four CEOs in big tech Amazon, Apple, Facebook and Google, in particular, the focus for Amazon is if the company is using its data to advance its first party sales at the detriment of third-party sales? And then second, can you remind us looks like they're going to delay Amazon Prime Day this year. So instead of June or July and maybe October, can you remind investors on the significance of Prime Day for Mohawk? Thank you.

Sure. Thank you, Tom. So when it comes first to Amazon, being a competitor, as we mentioned a few times in the past around this as well, right. We have, Mohawk itself has not yet personally been impacted by any of these activities that Amazon has taken. From our perspective, as long as we do our job well on the market research side, which is really one of our strongest capabilities, the ability to really kind of analyze the data on the marketplace and identify where the opportunities are, it's for us, we've not seen too much difference where the competitors were going after Amazon or any other company. It's true that Amazon uses advertising with some type preferential to themselves, but in general, we've not been that affected after this and we enter certain markets. When it comes to Prime Day, one of the things that obviously that's indicative of the fact that Amazon’s FBA and their warehouses are just completely overwhelmed with the demand that they see right now, which points to the type of volumes that they're seeing. And that's the main reason they're delaying Prime Day. For us, Prime Day is obviously an interesting event, but not one that is dramatically changing anything for us. We don't typically take any kind of like different strategy during Prime Day. We adjust somewhat to the demand of the market, but it is not a consequential event for us if it's moved further down the line. So yeah, we're happy that it still happens, but it's not something that we are necessarily depending on.

Great. I'll get back in the queue for more questions. Thank you.

We have your next question from Matt Koranda from ROTH. Your line is open.

Hey, guys, thanks. Within the quarter, could you help us understand how much of the growth was price driven versus volume in Q2?

Sure. Yeah, it’s actually 50-50, actually 45% on the price side and 55% of the volume side.

Okay, that's very helpful. And then when we look at the 2020 revenue guide, unchanged obviously from the last time you guys provided the full year guide. And I think it implies something like around $90 million in revenue for the back half of the year, which seems like maybe a little bit of distortion in growth is implied. But I'm wondering, help us with the assumptions there that you guys are making, is there some conservatism baked in from sort of the inventory situation, you mentioned there may be the possibility of stock outs. What are we thinking sort of build that up from the bottom up for us to be good?

Sure, sure. The reason why we don't change the guidance is two-fold. And the first one, remember, we updated our guidance upwards twice already during the quarter, right. So we can't do that every month. We wish we could, but we can't do that every month. And the second, there's two other reasons. I mean, the first one is, yes, we are expecting some stock outs as we're absorbing the extra growth rates of Q2 and Q3. And some of our manufacturers are actually experiencing them that across the board from most ecommerce players. And therefore, some inventory times have extended a little bit on some of our products. And the second reason is because on the PPE side, it's highly that revenue is highly volatile, obviously, it's very difficult to accurately predict that revenue. So it's difficult to actually make a significant change based on the PPE impact.

Okay, that's helpful. Thanks Fabrice. And then on the EBITDA guidance, the language slightly changed in terms of full year even a profitability which is great. Is that more just the strength that you guys had within the quarter here? Or is that sort of a change in your internal expectations for the back half of the year in terms of EBITDA contribution in Q3 and Q4? Well, I mean, as you saw, our contribution margin is really strong. We expect it to remain stronger than originally anticipated, maybe not as strong as what we experienced in Q2, which was obviously impacted a little by the COVID situation and how that unfolds in Q3, Q4 is obviously unknown for everyone. But the strength of our listings actually and the cost savings now that we're benefiting from the full effect of our fulfillment platform in particular, as well as increased volumes on the cogs side, which we’re starting to actually get better cogs. And at the same time, give us a reasonable level of comfort on the contribution margin strength in the second half as well, right. So it's a mix of both Q2 strength and level of EBITDA -- adjusted EBITDA that we posted as well as confidence in the contribution margin and therefore EBITDA since we have full control over our fixed costs, thanks to the operating leverage that we have of the second half as well.

Got it. Does this change the contribution margin sort of equation that you've given us before? Because I mean, I was under the impression given you guys your historical contribution margins and the sustain category were kind of in the high single digits, maybe approaching the low double digits. You put up a nearly 20% contribution margin this quarter and sustained. And you just referenced that. But like, we probably shouldn't drag that out, I would assume but help us understand sort of what's a reasonable level for the sustain contribution margins on a go forward basis, maybe in Q3, Q4 of this year?

We don’t give specific guidance, obviously on the same level, but what is actually being very clear is that first, more of our listings and products have significant dominance and price elasticity, faster than we had anticipated, which is great news. And it's reflected by the number of the ever-increasing number of reviews that we have. We are now north of 1600 reviews on average per product. And that's a significant increase on an ongoing basis. And the second reason is, we're actually delivering the economies of scale in particular the unit economics level and in particular, on the fulfillment side, faster than expected as well. So, most likely, overall our sustained CM will be significantly north of 10%, which we have anticipated to stay there for quite a while. Though, we always indicated that little by little CM would increase. It's just happening faster than anticipated. And therefore, as our operating leverage remains long term obviously, our overall EBITDA structure as a company on a long-term basis, once our growth slows down, which is years out, will be closer to instead of being closer to a 10% EBITDA business, will be probably closer to 13% to 15% EBITDA business.

Great to hear that example. And then, just one other one on the contribution margins I noticed launch, which typically should be negative, I think you guys usually typically said should be coming in the minus 10 plus percent range. Look like there was breakeven. Was there anything unique about this quarter to call out in terms of launch? Or is it just the limited launches that you guys had within the quarter?

Yeah. It's a mix of two things. I mean, it's you remember that the launch period is more or less three months, sometimes more, sometimes less. But that means that in new launch, we launched a lot of products in Q1 that means and then they actually migrate to sustain. So it's not a negative CM from day one to day 90, and then all of a sudden, a positive CM, right. It's actually hyper even stronger spend at the very beginning and then slowly, the product actually migrates to a sustained CM over the course of the three months, right. So what actually happens here is that most of the products that were launched in Q1 have were at the tail end of the -- in May and June. We're at the tail end of the launch process, and therefore, already getting into the positive CM category -- territory. And at the same time, we launched a smaller number of products in Q2. Therefore, the mix inside launch is actually positive.

Okay, that's super clear. Thank you. And then just one last one I’ll sneak in and I'll join back in the queue, you guys start for so many questions. But on the hOmeLabs front, you mentioned you had a stoppage during the quarter. Is there -- how is that stoppage addressed? Help us just understand that and then any risk that EPA does another one of these stoppages on any other environmental plants that you sell, are you pretty sure you've addressed it?

Well, we've addressed it and we got an official notice of clearance from the EPA to be able to actually resume sales. So it's completely to us and behind us. And we’re very careful about being fully compliant with all rules and regulations of the EPA, FTC and so on. And in this particular case, it was a marketing claim on our dehumidifiers, where we were mentioning that dehumidifiers help reduce mold, which is true. But is a marketing claim that they didn't feel comfortable with and felt like it was a pesticidal type of claim, which in this environment, they are extremely, extremely sensitive to any claims that may mislead consumers as to what the product does. Because as you know, there's a lot of scams out there saying that my product actually removes any kind of virus related to the COVID side and so on. And therefore, they cast an extremely wide net to protect the consumers, rightfully so. And in the infrastructure remove that marketing claim, which we did.

Got it. Very helpful, thank you. Thank you, guys, great quarter.

Thank you.

We have your next question from Brian Kinstlinger from Alliance Global. Your line is open.

Hi, great, thank you. Can you talk about Holonix? How many of the eight products were PPE skews and how quickly can you build inventory there?

Nothing that's a risk. So on the Holonix side of things, part of the PPE effort is obviously to utilize our supply chain right to be able to help and obviously generate valuable business for us, right. At the same time, it's also creating the relationships with manufacturers that provide these type of items. And that has been successful. We launched one product on Amazon. It was set of masks that basically went out of inventory at an incredible pace. The demand is continuing to be absolutely through the roof. And obviously, we're going to continue to go after that, right. When it comes to the hand sanitizer item, we've taken longer to bring it online, actually just was brought online recently a couple of days ago on Amazon, and we’re looking to start launching and promoting the item. We've just been very, very careful in terms of regulation and in terms of just making sure that we're checking all the boxes and taking a little bit of a longer time to bring the products to market but so far, we're seeing again, incredible demand still being around. And so we're excited about the brand continuing to its launch.

Okay. And did I hear correctly, the government was one of the bigger customers for that product?

No, not for that one. As I said, Holonix is going to launch many different products in the category. And as part of the PPE efforts, we've obviously we're able to work through a supply chain with manufacturers in this category across many different products that we expect again given some data that we're still crunching here on the direct -- on the consumer side. We expect to bring a lot of these products to market under Holonix.

Okay. And then can you talk about your thoughts on seasonality, you've been clear that the third quarter is your strongest given your portfolio products. But the guidance you have maybe that's not the case with the second quarter being so strong. So did some sales get pulled into the second quarter from the third quarter or what we see strength in the third quarter and then a softer quarter giving your portfolio in the fourth?

Fabrice, do you want to take that?

Sure. There is not as so much of pull in, actually remember, I mean we're in a unique situation. Q2 was unique in the sense that it was actually benefited or between quotes benefiting from the ability to fulfill all of the extra demand coming from the fact that all the consumers were actually stuck at home, and massively switched to online. Stores have reopened right, in part or in all completely. And at the same time, the economy is in shambles, employment is in shambles and consumers well actually have started, actually probably saw the latest consumer spending data, have started to actually reduce significant amount of spending. So we're all benefiting from the switch to online. But at the same time, we will be in Q3 and Q4 and maybe even longer impacted by the consumer reduced spending. So Q3 will remain a very strong quarter and our strongest quarter. But the gap between Q3 and Q2 this year is probably going to be mitigated by the impact of stores reopening, consumer spending reduction, and on the other side acceleration of online adoption.

Great. And can you give us a breakdown we haven't done in a long time of how many total skews you have right now and how they break out in your three or four different businesses?

I don't have that number in front of me, so I'll have to come back to that right.

Okay, perhaps you’ve got it.

I won’t tell, we launched so many products I have a hard time actually keep on counting them, right.

Okay. That's fine. And then long term too, I think, you address the lower consumer spending. And you've talked about pricing being so strong and a piece to your second quarter growth. Is that going to create a headwind to 2021? Or do you think that you'll be able to sustain this kind of pricing?

So, remember that. So pricing was strong, but it's a mix of two things. I mean, it's a mix of course, the additional exceptional demand, let's call it that that way, a part of it being exceptional and part of it being massive switch to online. So that increased the demand. A portion of the demand will slow down, as we said, but the strength of our listing is the other reason why we have price elasticity as well. And that will remain. Actually it strengthens, the more we sell, it’s a self-fulfilling prophecy. The more we sell, the more reviews, the more endorsement and the more conversion we have and therefore, the stronger the listing and the stronger the product, right. So that part will remain. And then, we can modulate as you know, our pricing on a quasi-real-time basis on all our products which we do, to adjust to particular market conditions. And that's which is the reason why it's also very important on the other side to actually keep on working on the cost reductions inside the unit economics, to make sure that whatever you do, it does not impact your overall profitability on each of the product. Going to 2021, it's everybody's guess is just as good as ours, right. How long will the consumer spending in the recession will last, it's partly mitigated forced by the stimulus package that the government is actually rolling out. We'll keep on building out whatnot. And therefore employment, and with that consumer spending and consumer confidence, I don't have visibility into that, into 2021. I just know where we are today, just like everybody else. And, I read just like everybody else, all the micro studies and evolutions and what was that goes. I don't think on the other hand, that it's going to have a significant impact on our 2021 overall, because as you noticed, a massive number of -- a massive amount of our growth is driven by new products. And that we will actually start accelerating again, most likely in Q4 and for sure Q1, the number of new products that we’ll launch. And that is what actually keeps on fueling the growth as well.

Great. Thank you.

We have your next question from Allen Klee from National Securities. Your line is open.

Good afternoon. Can you give us a sense for your new launches? How you feel about how successful they've been relative to recent times?

Yeah, I can take that. So, actually, overall, the numbers that we shared in the past remain and they're really on target with what we want to achieve, right. I mean, we're aiming for an 80% success rate, typically, in terms of moving from launch to sustain. We typically, again, enter that number, not just because not because we might be able to do better but because doing better means that we're probably not exploring, not going into other categories, taking further risks. And when you kind of like compile the entire model of the company at that success ratio, we can really kind of like be more aggressive on the growth and the launch of the amount of products that we can bring to market. So it remains the same. We were, again, hovering around that 80% success rate at this point.

And to the extent, your next quarter, you have some challenges on inventory with some of your products. How long do you think it takes to address that?

Well, the difficulty with a stock out there are delays. That might potentially push a little bit of revenue further down the line. And again, the way we look at it, it's baked in kind of like our guidance already. So, yeah, from that perspective, and so well, we think of it at a macro level as a good sign, right. There's increased demand again, for manufacturing coming from a lot of the suppliers that we work with and we overall I think are managing this pretty well. We definitely expect to have a couple of, as I said stock outs, but nothing material enough that we put it out of the course that we expect.

And my last question is, is there any update on your -- you have mentioned in the past launching on in China, to sell into China? What's the status of that?

Yeah, that has been delayed, of course, because of COVID-19. And, as we can tell from the results, we've had our hands very, very busy with everything that was happening here in the U.S. and continues to do so. We had the ambition to go and launch our first product in China. We're currently reevaluating that and it's been on pause. We've made some progress, we’re not too far from moving forward with that. Looking at the opportunity globally right now, it's a good question. We will look, we need to kind of discuss this internally and see when do we want to expand, push the pedal to the metal on the expansion internationally, and China is definitely at the top of the list. Right now, we have our hands full with a lot of opportunity here in the U.S. And I think we’ll have more clarity in the next quarter around when do we expect that push internationally to be back again on top of our list.

Thank you.

We have your next question from Thomas Forte from D.A. Davidson. Your line is open.

Thanks. Two quick follow-ons, I think that people don't fully appreciate how you use artificial intelligence to manage shipping costs. So can you talk about shipping cost inflation in general, and how you're managing that? And then second, can you give us an update on where you are as far as your supply chain efforts in and out of China which last quarter talked about potentially diversifying, finding other countries outside of China for manufacturing? Thank you.

Tom, I love that first question. It actually has a couple of dimensions to it. At a high level, shipping efficiency is becoming one of the most important topics for both online retailers and CPG companies. What we're seeing more and more is that, there's really kind of like this battle going on between the different retailers to who can obviously get the product to handle the customer faster. And not only does that influence your ability to sell more, but you can see that the algorithms of the retailers give preferential visibility, depending on the brand's ability to actually ship quickly and efficiently and obviously best cost to the end consumer. And so, we're going back again, to all the investments we've done in technology, our fulfillment platform is playing an essential role there. And this is going to be a never ending effort in our end, to apply machine learning, and all sorts of data analysis to constantly improve our forecasting, our ability to correctly put inventory in the right warehouses so that we can really reduce the last mile shipping costs, so we can get as efficient as possible to meet the consumer demand where it's needed the most. And it turns out, it not only adjusts better margin but it turns itself into also, again, better visibility at the retailer level, better overall performance for the brand. So, we see that it’s almost is kind of like this silent advantage that a lot of people just don't really wrap their heads around yet. And again, I think the investments we made on the tech side. Our ability to be able to be in control of how we focus the inventory, where do we put that inventories that related again as close as possible to the end consumer, depending on the trend that we're seeing in the data is going to be a continuous effort that we're going to invest -- continue to invest heavily on the technology side. So the second question was, can you repeat that second question, please?

Yep. So thank you for the answer Yaniv. The second question was, last quarter I think you talked about potentially moving some of your manufacturing efforts outside of China. So wanted to know, where things stood with that in the June quarter?

Yeah. So, we continuously, the way we think about our supply chain is and we obviously have a team in China running the sourcing and the quality control, but we always look at this as an effort that is consistent with trying to understand where is it that we can get the best class, the best quality for the customers that we’re looking to serve. And so, one of the things we're seeing in some of our largest contract manufacturers and partners, have themselves started moving some of their own manufacturing to territories outside of China. And they're constantly updating us to the effort they're doing there and the progress that they're making. For us, the other day, it's part of the mathematical equation that we look at every time we bring a product to market size. If we can make the product in a different geography, our overall cost quality ratio that is as competitive as it can be and we get the timing in the day. We’re not attached to any deal from a perspective. Currently again, and we keep reevaluating this over and over again. There is this time in all the categories that we are currently focusing on no better place currently in the world than China despite the tariffs, despite a lot of attention that is happening, right. But we don't see any possible disadvantage on our end versus any other competitor. Because typically, they all rely on the same manufacturing platforms, so, we keep an eye on it. We’re going to continue to work closely with our manufacturers and follow their efforts to move to other geographies. And then obviously, that's a process that's going to take time but we are on top of it all the time.

Great. Thanks for taking my questions and stay well.

Thank you, Tom.

There's no further question at this time. Mr. Ilya Grozovsky, please continue.

Thank you for joining us on the call today. We look forward to speaking with you on future calls. This ends our call.

Ladies and gentlemen, thank you for participating. You may now disconnect. This concludes today’s conference call.