Aterian, Inc. (ATER) Q3 2020 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen and welcome to the Mohawk Group Holdings Inc. third quarter earnings conference call. At this time, all participants are in a 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, Director of Investor Relations, Mr. Ilya Grozovsky. The floor is yours.

Thank you for joining us today to discuss Mohawk's third quarter 2020 earnings results. On the 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 third quarter earnings release as well as our filings with the SEC We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. In addition, the company may refer to certain non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I will turn the call over to Yaniv.

Thanks Ilya and good afternoon everyone. It's exciting to see Mohawk continuing to growth rapidly as we focus on our vision to build a consumer product platform of the future. This quarter's results reflect the progress and efforts delivered by our team and is highlighted by our net revenue of $58.8 million and adjusted EBITDA of $5.1 million. I owe a thank you to everyone at Mohawk for continuing to operate at the highest level despite the challenges the world is facing and work in their personal lives dues to the COVID-19 pandemic. I am very proud to be working alongside a team that is determined and focused as ours. For those of you who are joining us for the first time, I thought it will make sense to take a minute to talk about our company's mission and purpose. We started the Mohawk Group six years ago because we believed that the online retail model pioneered by tech companies like Amazon and Alibaba would permanently and significantly disrupt the traditional consumer product model. We set out on a mission to build the world's most efficient consumer product platform for CPG brands. We believe that just like technology have reinvented retail, it will also play a major role for CPG companies who will seek to predict market trends, drive efficiency to its supply chain and automate the marketing efforts. In the last six years, we have invested in building a proprietary software platform called AIMEE, which analyzes a terabyte of shopping trends data every day for our team to efficiently automate the various tasks such as product selection, forecasting, pricing and media buying decisions in real-time. We have launched through our platform seven different brands and over 250 consumer products across various categories. We sell those products and brands predominantly through online retail marketplaces in the U.S. such as Amazon and Walmart. We believe that agile and data driven online brands will eventually replace the traditional brands that we grew accustomed to seeing on the shelves of every brick brick-and-mortar retailer. The third quarter of 2020 was an important stepping stone on the path towards this vision. On our last earnings call, I mentioned that Mohawk has achieved profitability at the adjusted EBITDA level a quarter earlier than expected. While the acceleration of e-commerce adoption due to COVID-19 played a role in this earlier than anticipated success, our Q3 result illustrates to us that we have matured as a company, that our underlying unit economic metrics are strong. This last quarter also included a very important step to our strategy going forward with the acquisition of Truweo, a wellness brand. Following the completion of the transaction, we were able to efficiently integrate Truweo's business in hours, in less than 48 hours. In addition, we are already in production for several products designed to further develop the Truweo brand in the wellness and ergonomics category. We expect this product to launch in Q1 2021. The strategy of acquiring and consolidating -party Amazon brand is continuing to attract significant private investment. In the last six months, three private equity VC-backed companies have reportedly raised over $4 million collectively to execute on M&A strategies similar to ours. We believe that Mohawk is better positioned to consolidate and operate small and digital native brands than any competing company today, thanks to its scalable platform and we intend to aggressively pursue this past. Based on our last round of financing in August, we also believe that investors not only understand this part of our strategy but also see significant value in it just as we do. Looking at Mohawk's position on the macro level, we continue to be very excited with the rapid adoption of e-commerce and the evolution of the trends we identified six years ago In an interesting report that was published by McKinsey on July 30 earlier this year, digital ubiquity, value price sensitivity, the explosion of small brands and the meteoric rise of marketplaces were mentioned as some of the most disruptive trends for traditional CPG. Those trends are at the core of Mohawk's strategy and we believe they will continue to benefit us while forcing traditional brands to reinvent themselves or be left behind. The report also mentioned the importance of managing data, proprietary insight, in particular it mentions that CPG manufacturers and brands must become experts in retail marketplaces data trend in order to keep up their seat at the table. They must demonstrate expertise in big data analytics, insight generation, ROI tracking of investment and other functions. We couldn't agree more and believe that the gap between tech-enabled consumer product companies and those who fail to build such capabilities will become more accentuated as the move e-commerce accelerates. To give some great example, a McKinsey analyst points out the complexity and time consuming effort brand owners face when managing online marketplace products. The analyst mentioned that brand owners are required to manage over 700 different attributes for each SKU in their portfolio. The article states that it takes a team of three to five people per channel approximately four weeks to aggregate and analyze the data for each SKU. At Mohawk, again, we anticipated those issues many years ago and realized that our ambition to manage effectively thousands of products across dozens of channels cannot scale without adopting the latest automation and machine learning technologies. Today, our incredible team is supported by algorithms that creates forecast daily for all our products, aggregate data from all our SKUs across channels in real-time and adjust our marketing strategies [indiscernible]. We still have much more to accomplish but I am very proud of the strong foundation we have created and the result of Q3 2020 which reflects our progress. With that, I will turn it over to Fabrice for more details on the third quarter.

Thanks Yaniv and good afternoon everyone. Here are the operational performance details of our third quarter. In the third quarter of 2020, net revenue increased 45% to $58.8 million from $40.6 million in the year ago period. The strong gain was primarily attributable to increased direct sales volume of new products launched since the second half of 2019, net of vertical expansions where we launched competing products to our own sustain products. This contributed $7.5 million in net revenues. Historical products, of course, keep on growing and wholesale revenue of PPE products which contributed $8.9 million. We did suffer from inventory shorts in the quarter as previously indicated in our Q2 call which we estimate to be an impact of approximately $7 million to $8 million in the quarter. Gross margin for the third quarter increased to 47.8%, up from 43.2% in the year ago quarter and 46.2% in the second quarter of 2020. The solid sequential and year-over-year improvement in gross margin was due to both favorable product mix and higher product pricing while being partially offset by wholesale PPE sales which carry much lower gross margin. Our overall Q3 2020 contribution margin was 19.1% as a result of the previously mentioned factors which improved compared to the prior year 8% and second quarter 2020' 16.8%. This year-over-year sequential improvement was driven significantly by improved product unit economics coming from mix and pricing related to inventory shorts of our sustain products which had a CM of 23.7%. Fixed costs, which we continue to focus on, were down 7.5% at $6.2 million in Q3 2020 compared to $6.7 million in the second quarter of 2020. As a percentage of net revenue, fixed operating costs excluding stock-based comp, decreased to 10.5% from 14.6% in the year ago period. Adjusted EBITDA, which excludes stock-based compensation, for the seasonally strong third quarter of 2020 improved to record $5.1 million for the loss of $2.7 million in the third quarter of 2019 and also saw sequential improvement from $3.4 million in the second quarter of 2020. I would highlight that our adjusted EBITDA profitability is a result of the growth in our business from both our existing and new product launches combined with our fixed operating expense leverage which benefits from the automation in our business model and continued improvements in our unit economics. During the quarter, Mohawk purchased the assets of Truweo, a leading e-commerce brand in the health and personal wellness category for approximately $16.4 million, approximately $13.9 million in cash at closing and approximately $2.5 million in the form of an unsecured promissory note. This transaction reflects an approximately 2.5 multiple on Truweo's trailing 12-month operating income measured as of July 31, 2020. Truweo's trailing 12-month revenue and operating income ending as of July 31, 2020 were approximately $14 million and $6.5 million respectively. Turning to the balance sheet. At September 30, 2020 we had cash of $37.4 million compared with $17.2 million at the end of June 2020. This sequential increase in cash comes primarily from $5.1 million from adjusted EBITDA, $12.9 million from working capital and approximately $10 million of net proceeds from the Truweo, after the acquisitions and approximately $7.5 million in debt repayments and cash interest payments. The cash provided from working capital comes from a mix of seasonality as well as inventory turns above 4x. In terms of outlook for new products in the fourth quarter 2020, we expect to launch approximately seven to 10 new products. To conclude, the key takeaways of the quarter are revenues are growing, profitability continues to improve, both from unit economics and the operating leverage and generating cash. For full year 2020, the company continues to expect net revenue to be in the range of $175 million to $185 million driven primarily by continued growth of its existing product portfolio, new products launched in 2020 and the positive contribution from wholesale personal protective equipments The company continues to expect to generate positive adjusted EBITDA in the fourth quarter of 2020 and for the full year 2020. With that, I will turn it back to the operator to open the call for your questions.

[Operator Instructions]. Your first question will come from the line of Thomas Forte from D.A. Davidson. Your line is now live. Go ahead, please.

Great. Thank you. So Yaniv, I was hoping that as a student of e-commerce and deep understanding marketplaces, with today's news of a potential vaccine that may be effective, I wanted to know what your thoughts are what may be in the short term benefits to e-commerce from COVID and what you see as the long term structural ones that would not go away even with an effective vaccine? Thank you.

Thanks Tom. Well, just like everyone else, I think we were really happy to hear this great news about the advances that Pfizer has been making on the vaccine and I think other companies behind it. I am not an expert at all and I have not had the chance to study today what is the expected timeline actually productizing and getting to market the vaccine. I hope it obviously as quickly as possible so that everyone can benefit from it. I think that when it comes to what that means for e-commerce, we have spent a lot of time looking at data ourselves and what I think other experts in the field say and although everyone believes that of course the acceleration that happens through COVID-19 is fundamentally driven by the lack of access to traditional retail, right. There's a very strong belief overall that as Fabrice mentioned I think earlier once the toothpaste is out of the tube, it's not easy to put it back in, right. So we believe that, in general, we will see a strong adoption of e-commerce continuing to be around for at least as long as it takes to deploy the vaccine in a meaningful way but also way beyond that, right I think that what happened here with COVID has been incredible for e-commerce in general and has brought a lot of people who were probably on the sidelines in terms of their shopping behavior to adopt e-commerce. What the exact number is, it's hard to tell, right. But we definitely believe that that acceleration is here to stay. I think it's everyone guess as to what percentage of e-commerce is going to be now that the retailers are going to be now online, right. We will have to wait and see. But we believe very strongly that acceleration is not going backwards in a significant way.

Great. And then as a quick follow-up. Now that you made key acquisitions of Truweo, how do you think about your ability for future acquisitions? Has it changed your decision tree as far as building or buying new products?

Yes. So I think, first of all, as we mentioned, we were very pleased overall with the acquisition of Truweo, specifically with our ability to integrate the business very rapidly and without taking additional fixed costs. At a kind of macro level view, I think that anyone who understands this business well, anyone who understands the intricacies of actually acquiring these type companies will, in my opinion, tell you that it's a very unique situation that I am not aware of any other business or industry where there is so much revenue to consolidate that can happen in a way that is overall not too complex compared to other M&A transactions that might be out there, right. And I think, for us specifically with all the efforts and infrastructure we have built in the last five, six years, we believe that we are extremely well-positioned operationally to go and execute on these deals, right. And then when you look at the multiple that came, there is no doubt that this is a very important part of our strategy. At the same time, everything starts and ends with data, right, where we look at the markets obsessively, right and constantly look at opportunities and priorities of make versus buy depending on many different factors or trends. And so it's not like there is particularly a strategy that's taking the upper hand. I think these two will continue to go hand in hand going forward and they depend extremely on the changes in the market, on the chances in the data, on how do we think is there is a priority of deploying the capital in a most effective way. But the exciting thing is that there are a lot of opportunities out there. Again, there's over 2.5 million active sellers on Amazon and Amazon is adding north of 3,000 a day. And so we expect that pipeline of deals to continue to be strong and allow us to kind of pick and choose what is the next best way to deploy capital across these two strategies with again a very unique situation around our ability to integrate and efficiently manage going forward these acquisitions as asset deals where we don't take on any additional fixed costs, any additional personnel, very, very unique I think situation in any business industry that we are aware of now. So we are excited about both.

Great. Thanks for taking my questions.

Thank you. Your next question will come from the line of Maria Ripps from Canaccord. Your line is now live. Go ahead, please.

Great. Thanks for the questions. You had a very strong profitability through this quarter. I just wanted to ask you what drove that cost leverage and this year-over-year decline in fixed expenses? And I guess how sustainable is that going forward?

Fabrice, you want to take that one?

Sure, yes. We had indicated that we were rationalizing our operating COO organization where we had a bi-step form of organization with the CEO based in the U.S. and a number of folks based in U.S. as well as a strong general manager on the China side. We ended up actually deciding back in early Q2, late Q1, early Q2 to actually consolidate that organization in Asia. Makes it much more efficient. So that was one of the key drivers of that operating fixed costs reduction as well as G&A reductions in particular when it comes to do D&O insurance. For example, one year after IPOs you can actually start actually now realizing some savings on that front and those are permanent and will stay going forward.

Thank you. That's very helpful. And can you maybe update us on how the timing of your product funnel working as your platform becomes more mature and more effective? How big is the funnel of potential product ideas that you are generating? What percentage of those are making it to launch or sustain? And what does the timeline look like now? Are you getting faster in there?

Maybe I will start, Fabrice and then probably you want to add some things, right. So thanks a lot for the question, Maria. In general, obviously what's interesting is, the market keeps changing all the time and we adapt our technology and that obviously opens up new opportunities. And the most important thing for us is culturally and technologically always to be with a finger on the pulse of what is happening in the market and how can we best transform data that we are seeing into opportunities that we can capitalize on very quickly, right. In general, our pipeline is always way ahead of our ability to operationally launch products. I mean, there's always a lot more opportunities than we can actually pro forma bring the product to market. Typically and I think we mentioned that overall our goal next year is to reach 10 new products a month which we think is exciting and ambitious and very much looking forward to it. We feel that from a pipeline perspective the challenges is not going to be in the data or the identification of the product. It's going to be more in the agile scaling of the stores thing, doing the quality control, maintaining that high quality product ratio and high rate of success going forward is what's key. And again as Fabrice mentioned, we are really proud of our new COO out of Shenzhen, Pramod, who is building up that team in preparation for this task and overall feeling very excited about our ability to go after that scale that we are looking for operationally. So in short, I think the challenge on the data is obviously there but the bottlenecks is probably always going to be even as we scale further above 10 products a month and as we scale internationally, right. But the challenge is always going to be more operational than on data. The data is always going to be about prioritization of opportunities versus what the market shows us. Fabrice, I don't know if you want to add anything?

I was just going to add one piece of data since Maria was asking about our success ratio. We are still at 80%-plus trailing 12-months on the success ratio of launch to sustain, right. And there is no reason for that to change. I mean it can fluctuate of course every quarter but year-to-date including Q3 we are still at above 80% success ratio.

Got it. Thank you so much for the color.

Yes.

Thank you. Presenters, your next question will come from the line of Brian Kinstlinger from Alliance Global Partners. Your line is now live. Go ahead, please.

Great. Thanks so much. First, one numbers question and maybe I missed it. It's only a short time but what was Truweo's contribution to revenue?

So like as you know, we don't provide Truweo as one product and we don't provide numbers on a per part basis, right. But remembers that we concluded the acquisition late August. So the contribution to revenue in Q3 was minimal obviously, right, especially in this strong quarter where this is now where your core environmental appliances is so key.

Okay. And then recently, in recent calls, you talked about the difficulty in this environment for AIMEE to forecast demand of new products anymore specifically than predict the uncertainty of purchasing patterns. So has that changed at all? And does that give you more confidence in your ability to introduce SKUs?

Brian, I think it's more -- just thanks for the question. I think what is challenging is not necessarily identifying new trends or identifying new opportunities but quantifying the size of the market can be very challenging. A and therefore what we have done as we mentioned, right, we slowed down a little bit of products for this year and are planned really to ramp our capabilities next year in quite a dramatic way. We believe that what the data is today gives us really good visibility. And with also some changes that we made on the operations, inventory levels, we feel very strongly that we are armed with the right data and the right visibility into what the market is going to look like next year to make the right calls on product. And that's why we are accelerating the number of launches. Again, we are always taking a very agile approach, right. We are always taking an approach where because of the nature of our business and because we can adapt pricing in real-time and marketing in real-time. We can throttle sales if we need to. That is an incredible advantage when it comes to managing sort of unknown volumes next year because as we deploy inventory on a monthly basis, right. If there are some changes that we can than anticipate, we can always again adjust our marketing and pricing in real-time to be as close as possible to the forecast which is something that, again, a traditional consumer product company that doesn't have the level of automation and the level of real-time reactivity that we have is going to be have a lot more challenges than us in doing so, right. So overall, to kind of like summarize your question, we feel that with where the data is today and where we are looking at already products but next year, we feel quite confident that we are well armed to make the right decisions.

And as a follow-up to that, Yaniv, I think you mentioned to one of the other questions, you would hope you get to 10 per month next year. Is that achievable on the first half of the year? Or is that more likely in the second half of the year that you get to that goal?

So again, putting aside any kind of like unknowns, we are still in a COVID world, right. A vaccine was announced today. But I don't know about it. Putting those unknowns outside, right, any kind of like last moment event that we can't foresee which we don't see why we would have one but you never know. If you put those aside, we believe it's very feasible, yes.

Great. And last question I have, you complete more acquisitions. Does deploying capital to acquire a company at all impact the number of products you can release through the direct model to the manufacturers?

Sorry. Can you repeat the question? I didn't hear it.

Yes. I am just wondering if you do two or three acquisitions, per se, in a given year which requires capital, does that impact the number of new SKUs you can introduce without acquisition?

Fabrice, do you want to take that?

Sure. So in principle, no. I mean remember that we are profitable and cash flow positive today already and launching eight products in the quarter. And as we add increase on profitability, that actually allows us to actually self fund all of that growth of new products that we would launch organically. And all acquisitions would, at the multiples that we can buy, the new cash flow that it actually brings up actually can pay for a very significant portion of the financing that we would actually contract in order to do those acquisitions. So at this stage, as Yaniv said in answering Tom's question, it's not like we are -- it's not a trade-off from the capital spending perspective of launching more products versus doing more acquisitions because the limiting factor is less capital than it is operationally QA, QC, sourcing, those elements that are actually more of the limiting factor and does take our step functions and take a little bit more time to actually implement anyway, right. So in principle, the answer is no.

Okay. Thanks so much.

Yes.

Thank you. Presenters, your next question will come from the line of Matt Koranda from ROTH Capital Partners. Your line is now live. Go ahead, please.

Hi guys. It's Scott stepping on for Matt. I just want to talk about the implied revenue guide for 4Q. And it sits between $31 million and $41 million. Can you kind of help us understand what would swing you to $41 million versus about $31 million? And I mean we have six, seven weeks left in the quarter. Why not just give us a bit of a tighter range there?

I am sorry. It was very difficult to hear you, Matt. So I am I am not exactly sure of the nature of the question. Maybe Ilya or Yaniv, if you heard it correctly, did you?

No. I had a hard time too, Matt. Can you try asking again please?

It's okay. I got it. Can you hear?

We can hear you now. Yes, it's better, Matt. Yes.

Sorry about that. It's Scott stepping on for Matt. I just want to talk about the 4Q guide, the implied guide. I think it sits between $31 million and $41 million. I just wanted to understand what swings us down to $31 million versus the $41 million with, I mean, we have six, seven weeks left in the quarter? I just to get a little more color on that.

Yes. Sure. So I mean it's obviously, in this particular case, there's substantial macroeconomic uncertainties, right, in the near term. And we are being conservative as a result. Many economist are predicting growth concern as there are high levels of unemployment, elevated savings, right. The resurgence of COVID cases which, thanks to the news from Pfizer there this morning, hopefully will be the last elevation or wave that we see, right. But whatever wave we have over now and for the foreseeable future, between now and the end of the quarter, the vaccine will not change anything to that. And so all of those elements are actually playing into creating a significant level of uncertainty into overall spending patterns from consumers. So that's one. And the second, of course, is Q4 is, by definition, heavily back-end loaded, right. It's not with the October numbers that you know how your Q4 is actually going to do because most of your Q4 is going to start mid-November through December 21, 22, 23, depending on shipping constraints, right. So that's the reason why we are not changing the guidance at this stage and we will see how all of those factors pan out.

Super helpful. Thank you Fabrice. And just I guess on that note, move with the inventory positioning. You guys have gone through a healthy figure this quarter. How are you feeling going into 2021?

On inventory levels or on inventory shorts?

Yes. On inventory shorts, sorry.

Well I mean, the manufacturing is still tight on the inventory side, on the manufacturing side and it's going to stay there until Chinese New Year. And so we probably will suffer from still a little bit of inventory shorts in Q4. Obviously, you can't quantify it until the demand has actually showed versus the level of inventory that we have. But for sure, it's going to still be a little bit a part of our of our numbers in Q4, right.

Okay. Helpful. Thank you Fabrice. And I got lastly, on the other and PPE, I mean I saw it was at $8.9 million. What is the, not sustainability, but going forward once we move past COVID, how do you guys view that, like revenue stream? Does it go away? Do we keep leaning up to it? Just more color on that.

It's a great question. We are not counting on that, right, like we are basically happy to be able to help and do the right thing and obviously at the same time generate business for us, right. But it's not something we are necessarily counting on. We have built, I think overall I would say that it looks like we have built a good reputation and we re getting interest in additional opportunities so far, right or they are, right. But again, it's hard to quantify. It's not something that is as predictable of course as our core business, right. So we are basically can continue to benefit from it as it arrived. But we are not counting on it specifically, if that makes sense.

Thanks guys.

Thank you. Presenters, your next question will come from the line of Allen Klee from National Securities. Your line is now live. Go ahead, please.

Hello. Your launch segment was up 81% year-over-year. Can you talk about, I mean, was that due to PPE? Or was there something else going on there?

Sorry, you mean our success rate on launches? Is that what you meant?

No. Just the dollar amount of revenue from the launch segment.

Which is at $5 million-plus in the quarter.

Yes.

And so what is the question on that? I mean it's reasonably low in many ways, right, I would say. But the reason it's low is because, remember we slowed down product launchers since Q1. So you actually therefore have less launch revenue in the Q3 period, right. In Q1 and Q2, we launched a lower number of products and Q3 as well. And that's the reason why you have lower launch revenue in the Q3 period, right. You can expect the same in some ways in Q4. And then as Yaniv mentioned, next year when we start accelerating again on the number of new products, the launch portion of your revenue goal will go up again.

Okay. My other two questions are, one is, are you going to have to pay holiday surcharges to your third-party logistics network in the fourth quarter? And second, what's been your experience with competition from Amazon private label?

Well, I will take the first question, Yaniv, maybe and you can take the second one?

Perfect.

Do you want to do that?

Yes. It sounds good, yes.

Okay. Well, our third-party logistics partners, first, I mean there's a volume question because everybody is anticipating or has been lots of talk of massive volumes of e-commerce and should go home in Q4. And first, the key for us is that, of course, our third-party logistics providers are set up well to handle an y significant increase in shipping in December, at least on our FBM products or the fulfilled by merchant where we use our fulfillment network. But it's likely going to come at a slightly higher cost. The surcharges that you are actually mentioning, right On the FBA side of things, we are obviously subject to Amazon's ability to cope with the volume. The prices there will not change because they actually would have been announced that earlier on and the pricing that we have, of course, is higher but were already factored in, in particular on warehousing cost. There's a seasonal surcharge always on FBA every year and it's going to stay the same this quarter.

Great.

Yes. And then, Allen, when it comes to Amazon competition, right, again I think it's something that we are tracking very closely, right. But in general I think throughout the year that marks being around, right. If we do our job well and a product to sustain, really, I would say our biggest enemy is not Amazon or for that matter any brand. It's us, right. I think that what has been proven to me as we are looking at our product time our time is. if we have done our job well and if we take a certain amount of market share and if we managed correctly the inventory levels so we don't run out, so we don't have to get into a position where we open up the door for someone else to catch up to us, right, typically it doesn't really matter if it's Amazon or any other brands, for that matter, right, as long as we execute well on our strategy the way the marketplaces and the way consumers shop and the way the marketplace is operating when consumers shop work right. It's really a meritocracy and everything we do is all about identifying where the opportunity. Time it very well, right. Come into the market with a good product that differentiates that takes market share. And then we aim to maintain our market share for as long as possible. And again, I would say that the places where we have lost market share here or there, right, it's always been more because of us than because of anyone coming in and disrupting us in a way that we can't fix that, right. So specifically we are going back to what you said on Amazon, right. Again, we follow everything that Amazon does very closely but we are not alarmed by them entering categories we are in as long as we execute well on what we set to do. And so far that's been case.

Okay. Thank you.

[Operator Instructions]. Presenters, your next question will come from the line of Randy Slifka from Slifka Asset Management. You line is now live. Go ahead, please.

Yes. Good evening and congratulations on a good quarter. I was wondering if you could talk a little bit about, in your prepared remarks you talked about being happy with your unit economics. I was wondering if you could sort of drill into that a little bit and also address some vision regarding the categories that new products might be coming into?

Fabrice, do you want to take the first part and I will do the second one?

Yes. It sounds like a regular practice. Yes, I was saying that mentioning when look at our unit economics, our contribution margin overall is at almost 19% for the quarter. So that's net out before or any fixed costs but it's including absolutely every cost from warehousing to shipping to marketing spend and so on and of course cost of goods sold and international shipping as well. So it's a testament of a couple of things. And then the first one of course is, we do have a little bit of pricing effect in the quarter. When you have inventory shorts, you actually slow down demand a little bit by increasing price. That's one of the way or slowing down your marketing spend. But that was also the case in Q2. And you still see a sequential increase. And the reason why you see a gradual increase, it's because of the strength of our fulfillment platform where we actually had done significant efforts late last year and early this year increasing our footprint of partner warehouses, getting our products closer to demand. When you do that, your zone averages only goes down therefore your shipping cost, you last-mile fulfillment cost goes down. And we are now on average at zone three. Over 65% of all the orders that we ship are actually shipped in one day. And those not only provides better quality of service to our consumers but they also actually drive the cost of fulfillment down, right. And that's what you see in Q3 because in Q3 because of the seasonality and the product mix, very vast majority of our sales are fulfilled through our fulfillment network and not through FBA. And therefore we get more benefit of the cost savings and footprints that we have implemented. That's the key driver on that. That will stay for next year and so on. And of course we benefit a little less of that in Q4 and Q1 because people buy less humidifiers or products that are fulfilled or categorized as oversized and fulfilled through our own network and not through Amazon, right. So that's the reason why we are mentioning the strong unit economics and the improvements there.

Thank you Randy. And just to add to this, right, I mean just in general when it comes to unit economics and if you think at a macro level about what we are doing, right, it's all about continuous efficiency, right. I mean at the end of the day, the consumer products spaces is competitive and dramatically changed by e-commerce and we just strongly believe that efficiency, the ability to automate your supply chain to keep your fixed costs as effective as possible versus the strong unit economical of your product is where it's all about. That's what it's all about, right. I mean for us, there's going to be some winners on a massive scale here in the consumer products space and they are going to be the companies that can best identify what it is that consumers are looking for, react to it pretty quickly with an agile supply chain that brings the right product to market that is focusing on best quality base price, right. And then as Fabrice mentioned, last-mile shipping and the efficiency that happens there as well as the efficiency of the marketing, the ability to price the product correctly in real-time, these are the factors that we believe are going to really give the market them some winners at a big scale. And that's why we are investing so much in technology to manage all these aspects because we believe that that's the only way to be able to build a big company operating with a smaller team, right. When it comes to the categories we are going after, again what's fascinating is the data. It's fluid and changes and the better we get at absorbing it and learning from it, the more it's interesting to see how the ability to pick specific products without necessarily focusing on one particular category is extremely efficient, right. A lot of companies are really kind of focused on being experts in a particular category, if that makes sense. But in reality, we believe that that's really limiting, right. When you have like an overview of the market data and trends and you discover that in certain categories that you might have not really operated in before there's an opportunity, you wouldn't want to be limited. You would want to able to get in and leverage the conveyor belt that we have built and enter that category precisely based on what the data showed you and going after whatever is the biggest opportunity, right. We are not going to continue to make more air appliances just because we are doing well in that. If there is another interesting category that is showing up on our radar ripe for disruption that we have not been into, right. That's really the whole point here is to be very precise and pick and choose literally at the product level as opposed to a particular category level, if that makes sense.

So thank you. Just a couple of follow-ups. From what I understand, there are now 28 different FBA roll-ups out there, between Thrasio and Perch and Boosted and Dragonfly, Heroes, I mean blah, blah, blah, blah. You guys clearly have a competitive advantage in AIMEE on the one hand. On the other hand, you are planning on licensing, I believe, that technology out. Can you talk a little bit about, if you would be so kind, the competitive advantage you have today and whether you are going to be fully licensing out AIMEE? Or whether there are pieces of it that are proprietary algorithms or other, shall we say, competitive advantages that will allow you to provide that as a service or provide it to third parties but also maintain your competitive advantage?

Sure. So it's a great question. And the way you think about it is, again if you take a step back and you think about what the purpose and the mission of the company is, we going back to what I mentioned earlier, we just believe that as retail moves to online, the complexity of managing consumer products on what the retail channels of the future is going to look like is exponential for brands. And a lot of traditional brands that have been used to brick-and-mortar retail are just not going to be able to keep up with it, right. And that's why we have been building and investing so much in technology is because we think that that's where the advantage is going to come from. And we have been proving it already in the last few years as we continue to scale and become EBITDA profitable despite pretty interesting growth, right, on the other end. And then when it comes to licensing the software, we are predominantly focused on those companies that are going to need to change, right. Those companies that are going to need to move from a B2B business to a B2C business. So those are not the type of companies that are in that list you mentioned out there acquiring B2C brands, right. Those companies are still a large majority of CPG and are facing a lot of challenges operationally, technologically, culturally to adapt, right. And that's also part of the reason why we are not just going all-in on this, right, because it's still unclear what percentage of them are going to actually adapt. And so what we are doing is, we are building a platform and we are leveraging it by building on brand, servicing all the type of brands or focusing on trying to service all the type of brands that want to move into this model through the same platform that we use. And then lastly, buying just like these other companies you mentioned, acquiring and adding to our portfolio accretive acquisitions that are a good fit for us, right. And so when it comes to offering the platform as a service, it's not like it's our competitors who are rolling up other brands are going to go out there and use it. We are selective and offering a platform where we think it's a good fit. So in terms of in terms of competitive advantage versus the other roll-up strategies, I think that definitely Thrasio has paved the way here, right, to this we believe really great opportunity. I think the challenges that a lot of these companies are going to have is to manage so much revenue, to manage all these acquisitions as you add them into your portfolio becomes extremely complex and typically without a platform that we have will result in an increase in fixed costs, right. And so I think that a lot of these players are trying to build a platform. They are, I think, investing in the things that we have many years of advantage ahead of them on top on the entire supply chain, logistics, the ability to launch new products with many existing brands, I believe that operationally, technologically and culturally, we are way ahead of them. There's no doubt a lot of them have benefited from this new trend and have raised a lot of capital. But I think at the end of the day, we have seen a lot of companies raise a lot of capital doesn't actually mean they are successful, right. We are going to continue to do what we do best and I think again that we are well-positioned to capitalize on this trend in a very meaningful way. So we are excited about it.

Sure. So just one last follow-up. You mentioned Thrasio specifically. Obviously, they have made something like 80 acquisitions in the last two years. And the most recent rumor mill is that their valuation is approaching $3 billion. I was wondering, two questions. One, what are you guys going to do to get the story out? Obviously, the company is ramping up and is facing a fair amount of success recently. Can you talk a little bit about that? And secondarily, can you talk a little about pipeline in terms of, are there other acquisitions that you guys think are likely in the next quarter or two? And thank you.

Yes. Sure. And so first of all, when it comes to valuation, right, obviously private and public markets, right. But more than anything, I think that Mohawk obviously, for anyone who knows the full story, had a challenging start in the public market. I think that there was a lot of questions around our ability to be profitable at the EBITDA level and things that we have proven very recently, right, as of just a quarter ago. Pair that with the fact that, yes, we need to invest more into getting our story out there. Those are two things that are on the top of our mind and high priority for us, right, to go out there and continue to talk about what we are doing about the strategy, about the size of the opportunity and also obviously the fact that our results now I think should take away a lot of the doubts, right, hopefully off the table. But those are things that are very recent. So we haven't really capitalized on them yet but it's absolutely top of mind for us and for me personally to go out there in a more meaningful way and convey that story, right. So definitely on that, you are absolutely right. And when it comes to the pipeline, again, there are millions of sellers out there. There's a lot of exciting opportunities out there. We are always keeping an eye on it. And we are evaluating deals very carefully all the time, as we mentioned in previous earnings calls. That's all I can probably stay right now, right. But we are constantly evaluating opportunities and deals. That's is a very significant part of our strategy and we are out there looking at things all the time, if that makes sense. Fabrice, I don't know if you want to add anything to that?

No. I think you addressed the question right. I mean, as you said, I think the ability to be cash flow positive and have raised at the same time enough cash during IPO was the market took a definite wait and see approach, right. And as we delivered now after the last quarter and now this quarter, the cash balance obviously is extremely strong and I think when you take a look the evolution of our stock price over the last few months, I think that the market is essentially turning the corner and saying, okay, those guys actually delivered and the team actually delivered on what they said that they would deliver in terms of profitability, cash positions and so on and so on. And therefore we will get a bit more credit going forward. That's actually your belief.

Thank you. Presenters, I am showing no further questions at this time. I would like to turn the conference back to Mr. Grozovsky for any closing remarks.

Thank you Laura. In terms of the upcoming calendar, Mohawk management will be participating in the ROTH Virtual Technology Conference on November 11 and 12, the ROTH Virtual Consumer Conference on December 9 to 11, the Needham Growth Conference on January 11 to 15 and the ICR Conference on January 11 to 13. Thank you for joining us on the call today. We look forward to speaking with you on future calls. This ends our third quarter results call.

Thank you sir. Thank you so much, presenters. And again thank you everyone for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.