Aterian, Inc. (ATER) Q1 2021 Earnings Report, Transcript and Summary

Welcome to Aterian, Inc. Q1 Earnings Report Conference Call. My name is James and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session. [Operator Instructions] And I now like to turn the call over to Ilya Grozovsky, Director of Investor Relations and Corporate Development. Ilya, please go ahead.

Thank you. Thank you for joining us on today's call to discuss Aterian’s first quarter 2021 earnings results. On today's call are Yaniv Sarig, Co-Founder and CEO and Arturo Rodriguez, our Chief Financial Officer. A copy of today's press release is available on the Investor Relations sections of Aterian’s website @aterian.io. I would like to remind you that certain statements we make in this presentation are forward-looking statements and these forward-looking statements reflect Aterian’s judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Aterian’s business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included on our first 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. I'm really excited for this first conference call as Aterian, following our rebranding announcement last week. Changing our company name to Aterian was an important decision we thoughtfully considered over a significant period of time. First of all, it was about telling our story more concisely. As a company at the intersection of e-commerce, technology and consumer products, we often found that those new to our story had a difficult time grasping the full breadth of our vision. Thanks to the strong work of our team, our new website does a great job of explaining our business and the differentiation our team is driving in the consumer products industry. As many of you are aware, this week an anonymous short seller made various unfounded claims against our business practices and integrity in an effort to reap profits from a decline in our stock. We welcome questions from all our shareholders and I've always been proud to showcase what our incredible team has built through the years on technology, marketing and supply chain side. Yesterday, we issued a release where we address the factual inaccuracies and mischaracterizations. If you wish to spend time with us to learn more about our efforts to build a scalable consumer product platform for e-commerce, please reach out to Ilya Grozovsky our Director of IR whose email can be found at the bottom of our earnings post. We welcome investors to see live demonstration of our new platform, to answer questions about our business, to go to -- our go-to-market strategy, all subject to regulatory, of course. We hope that the content we share help those who are interested in our company understand what our tech platform actually does, the nuances of online marketing and the efforts we have made to be competitive, while remaining compliant with rules and regulations. Q1 was an incredible learning opportunity for our company. While we faced the most difficult supply chain challenges in the history of our firm, despite all our efforts, we were not able to maximize the full potential of our portfolio revenue Regardless, I know that we learn a lot and improved a very fast. In my seven years in this company, I've learned that every time our team is tested, we come out stronger and more capable. To our sourcing supply chain operations team, I've watched who fight through the incredible complexity of daily supply chain disruption, both domestically and internationally, while continuing to work on the supply chain optimization of our recent acquisitions. On behalf of all shareholders, I thank you for your efforts and dedication as well as the ability to create to creatively solve difficult problems on the fly. To give more context to the audience today, regarding the scale of the crisis, according to Drewry American, Research and Consulting Service, the historical shortage of containers in Q4 and Q1 2021 has led to a three to four times increase in cost of shipping, while the reliability of marine schedules has plummeted to 55% by September 2020, while it was reported by the intelligence. Combined by the increased demand for e-commerce items and continuous growth of certain products, we struggled to keep inventory on hand and we missed approximately $6 million in sales for the quarter. Over the past three quarters, we believe that we missed the cumulative approximately $20 million in revenue, as a result of inventory shortages. We continue to monitor the challenging international shipping environment and have chosen to remain conservative, with our adjusted EBITDA guidance in case shipping rates, continue congestion, pricing of last mile shipping and other supply chain factors, continue to increase and affect our bottom-line. We expect to have more clarity on the normalization of the supply chain irregularities in the coming months. As most of you already read in our earnings press release today we're proud to announce that we're officially adding two new brands to our portfolio. As we mentioned, we closed the acquisition of Photo Paper Direct our leading online brand in the office and printing business, basically, in the United Kingdom. Photo Paper Direct is establish itself as a category leader in various inkjet media product categories and created a strong mode on Amazon. This strong addition to our portfolio further diversifies our product categories, as well as the footprint on various marketplaces in Europe. We intend to leverage the company's Local Team Expertise in the European market to accelerate our international expansion. Additionally, we're super excited to announce the Squatty Potty is joining to our family, adding a nationally loved brand to our portfolio. Squatty Potty has brought to market health and personal care products a Health and Humor and abundance of caring for others, while creating an entire category in the space. According to our estimates, an average of a million searches of Squatty Potty products occur on amazon.com every month, with a quite appearing early on Shark Tank and video ads like over $30 million pounds on YouTube. We believe Squatty Potty is poised to continue to dominate the market it's created. We see significant opportunity expanding the brand success in the United States into international channels, as well as developing additional products to delight the brand's followers. On abroad we continue to pursue M&A strategy and review new opportunities on a weekly basis. We intend to continue to invest in our team infrastructure and deal flow capabilities to drive growth through the acquisitions. When it comes to launching new products, this quarter launched a record for a company with 21 new products introduced. While initially we projected launching higher amount of product, we recalibrated in favorable quality and zoning and are very happy with our achievements on that front, given the complex challenges supply chain that affected our manufacturing partners as well. Certain products that suffered delays have been put on hold, as their launch could have missed seasonality related windows. Additionally, COVID travel restrictions have prevented it from being able to completely and fully run control quality control procedures, which resulted in some cancellation and delay. Overall, our teams have worked tirelessly to overcome these challenges. And I think we made the best possible judgment calls when are expected, given our expectations. This is the reality that's been imposed on us. We're looking forward to the challenges and exciting opportunity to have in future and beyond. I thought it was important on this call to address questions around some of the management team selling of stock during the last open trading window. As announced in previous earnings call, most of management stock holding including mine are in the form of restricted stocks, and as you may know, taxes for the shares are due at the time of divesting, no individual on the team is able to cover those taxes without selling. Also, we would like to preserve the company's cash for growth versus covering management to get the impact liability. Most of the shares were sold done -- most of the shares that were sold without the cover adapted with some individuals chosen to sell additional shares after many years of hard work. It's important to mention too, that we've required the management team several times to delay divesting of their shares, and even on one occasion to forfeit their shares in order to protect the potential downward pressure on the company's share price that could have resulted from tax related selling. Our management team includes some of the hardest working dedicated people I've ever had the privilege of partnering with, and they remain extremely invested in the company's long-term success. On a personal note, as part of my long-term wealth planning, as reported in 2018, I decided to give a significant portion of my holding of a company to an irrevocable trust on behalf of the benefit of my children. This company is my life's work and I think this is everything in my power to lead in a way that drives maximum long-term shareholder value. With that, I'll pass it on to Artie for our finance update.

Thank you Yaniv, and good afternoon everyone. Here are the operational performance details of our first quarter. For the first quarter of 2021, net revenue increased 88% to $48.1 million from $25.6 million in the year ago quarter. The strong gain was primarily from growth in our sustained products of $25.1 million to $42 million from $16.9 million, including our recently acquired products, and wholesale revenue of $1.9 million, including $0.6 million of CME versus zero in the prior year period. The quarter also saw a decrease in launch product revenue of 2.6 million versus prior year period 6.2 million, as the majority of the 21 products launched in the period happened in the late period of March. We suffered from inventory shorts in the quarter, which we estimate to be the impact of approximately $6 million, meaning we estimated that we could sell – have sold household an additional $6 million with normal inventory levels. Gross margin for the first quarter increased to 54.1% from 40.2%, a year ago quarter, an increase from 45.6% in Q4 2020. This year-over-year and sequential improvements in gross margin was due to both favorable product mix, including new products acquired pursuant to M&A, and pricing from vendors offset by wholesale revenue, which carries a much lower gross margin. Our overall Q1 2021 contribution margin was 12.7% as a result of previously mentioned factors, which improved compared to prior-year’s CM loss of 2.9%. Within CM, our sales and distribution costs were negatively impacted by the supply chain crisis, which drove higher costs and last mile fulfillment giving the carrier's tightness in the quarter, e-commerce platform commissions, online advertising, logistic expenses included within sales and distribution expenses, i.e. our variable sales and distribution expenses, as a percentage in overview increased to 45.2% for the three months ended March 31 2021 as compared to 43.1% for the three months ended March 31 2020. We continue to see some of this increased cost impacting our Q2. Q1 2021, which is historically our toughest quarter saw our sustain products contribution margin grow to 18.2% when excluding the $1.8 million in non-cash inventory step-up related to M&A versus 6.4% in Q1 2020. We continue to see year-over-year improvement in our product unit economics from mixing pricing. Adjusted EBITDA, which excludes stock-based compensation, change in fair market value of warrant earn-out liabilities, net charges from changes in fair value of warrants and the loss of the issuance of the warrants, amortization inventory step up from acquisitions and other M&A related costs, for the first quarter 2021 improved to a loss of $1.3 million from a loss of $6.4 million in the first quarter of 2020. We'd like to highlight, if not for the inventory shortages described earlier, we believe that adjusted EBITDA would have been approximately breakeven. Excluding M&A related costs from professional fees and Transition of the Healing Solutions, our fixed costs increase approximately $1.5 million as compared to the prior year period. Our headcount rose, as previously mentioned, to 220 people as of March 31, 2020. As we added headcount primarily in customer service and other customer related roles predominantly in the Philippines. We expect to see our revenue per full time employee equivalent to be near $1.4 million for 2021 versus 2020s of approximately $1.2 million. This is a continued example of our operating leverage and our technology led business model. Our net loss, which has been impacted from charges of changes in fair value on warrants and losses on the issuance of warrants on a net basis of $50.3 million, as part of the refinancing completed in April, we have amended the warrants to be treated as equity as opposed to debt and expect to avoid these impacts in the future. Turning to the balance sheet at March 31, 2021, we had cash of $35 million compared to $26.7 million at the end of December 31, 2020. The increase in cash is strongly driven by financing cash proceeds from the exercise of warrants at $25 million, the High Trail note 2 for $14 million, offset by cash portion of the purchase of Healing Solutions of $15.3 million, repayments on Seller notes from Smash of $4.7 million, working capital uses of $13.6, as we build up for inventory in the summer season and our cash net loss. The company does have approximately $9.7 million in escrow accounts as of March 31, 2020, related to deposits of certain inventory purchases, which have been treated as restricted cash. As previously announced, the company closed its $110 million debt refinancing on April 8. Company views it’s that financing as the stepped approach. As we continue to execute our M&A strategy and other strategic initiatives, we do expect opportunities to prove our debt profile over time. The historical Smash audit which is for the period of 2018 and 2019 has been completed and we expect the file are delayed 8K/A including performers no later than May 14. As previously mentioned, the delay was related to the earlier periods including the opening balance sheet period of December 31 2017. The audit results including the reviewed nine months period of 9-30-2020, which will be included in 8K/A performers are in line with previously disclosed financial results for the Smash acquisition. Our guidance, the full-year guidance for 2021 on revenue, the company now expects net revenue to be in the range of $360 million to $390 million, up from $350 million to $380 million reflecting the additional Squatty Potty. For the full-year 2021, adjusted EBITDA guidance, the company expects adjusted EBITDA to remain in the range of $30 million to $34 million. Adjusted EBITDA increase the Squatty Potty of approximately $2.5 million based on the timing of closing of that acquisition, is offset by some cautious planning as in costs related to the current global crisis and the supply chain. So, we do expect to raise prices to offset the impacts of this global crisis, the timing and speed of raising prices is always managed, not the impact of long-term listing position of our products on marketplaces. With that, I'll turn back the call to the operator to open the call for questions.

Very good. We can now begin our question-and-answer session. [Operator Instructions] Our first question comes from Thomas Forte, D.A. Davidson.

Great, thanks for taking my question. So I have one question and one follow up. So you need at a high level. I wanted to know how you leverage your technology to identify opportunities to build and buy products, selling marketplaces to advertise those products and marketplaces, and then manage logistics for those products.

Sure, thanks, Tom. Yeah, so let's touch on all these points. We use technology along the three ways you mentioned, first and foremost by capturing large amounts of data from different sources, including public sources and API's and basically build through models visibility into different categories of products. What is moving those categories? What are the trends and dislocations in those? And where do we see opportunities to potentially make better product? Once those are defined, we use the software to also build, our P&L and a forward looking forecast for that product based on data that we have accumulated to help us quickly understand the opportunity, qualify -- if we qualify the opportunity, that's when we will engage our sourcing team to leverage the data and the opportunities information that we collected to find the right suppliers to help us get the right product to market. Those suppliers, typically, it's more than one, we try to get products for many suppliers. We compare the cost and other parameters through the software and can compare different scenarios to tell us really what is the best product to launch. And once we move forward with launching a product, obviously it takes typically takes six to eight months from the moment we identify the idea and so the product is ready to sell, once it arrives into the target market. We launched the product, basically using marketing across the board to basically outperform the incumbents where we saw certain weakness in the market. And at that point in time, everything flows through the software in terms of like managing, the P&L or the product, the statistics every day of how well they're doing. we automate marketing on Amazon for those products. And then, you know, we are – in certain cases, especially for oversized items, our software also manages the last mile fulfilment, meaning that instead of relying on Amazon's fulfilment centres, we're on or Walmart fulfilment, if the item is large, we would typically use our own -- partners centres that are connected to our software to manage the last mile shipping. So that answer your question?

Yes, it does. Thank you. So then for my follow up question, you sort of touched on this in your opening remarks. But can you walk through the impact and adjusted revenue in the quarter from the inventory shortfall?

Art, you want to answer that?

Yes, thanks Yaniv. Hey, Tom. So yeah, we estimated our shorts to be 66 million. And obviously our sustained contribution margin was roughly 80%. So, when you multiply those numbers, that's how you get that figure.

Excellent. Thanks Yaniv, thanks Art.

Thanks.

Our next question is from Brian Nagel, Oppenheimer

Hey, good afternoon guys. I have a question. Hey, a couple question. The first -- my first question is on the supply chain and I know we've talked about this a lot in the last quarter, but – and you mentioned it here again, can you sighs, I think the prior question talked about the topline impact, but maybe starting to have better the impact EBITDA and then philosophical is this still -- is -- are you still basically eating these higher shipping costs, or is there's been some change here? And how -- and what are you seeing in terms of just the -- within the supply chain? How long --how much longer do you think these pressures could persist for you?

Arturo, do you want to take the financial part, I'll answer on the business side.

Yeah. So hey, Brian. So yeah, listen, as you saw, our sales and distribution number was a little higher than the prior year period. Right, about two points. So we did eCom right, but I think as we continue to go through this crisis -- this global crisis, everyone does right, we're expecting to raise prices as I mentioned, right. And I do think we can offset a good portion of it with pricing increases. The question is just the timing of that and we have to be delicate that is not the impact of long term value of our listings right, considering how the marketplaces working. And sometimes you just jam through, you got to sort of do a very thoughtfully and delicately. But that is kind of the plan to sort of really offset the majority of this stuff as we approach Q2 into Q3.

Yeah. If I can add to that, Brian, just to touch more on what Arturo said, right. As you know, the marketplace is a very competitive, right. And the dilemma is always, as you kind of see increasing prices of chipping. If you start increasing your price, so obviously absorb that and produce better contribution margin. It's going to potentially come at the expense of a more aggressive competitor who was going to try to keep its price low, take more market share from you. And potentially in the long-term affect your performance of your product, right. So, on a case-by-case basis, the decision has to be made given many factors. And we try to find that sweet spot between optimizing for contribution margin and also long-term conserving the market share that we have.

Yes. Got it. So, just to follow up on that. So Artie, did you -- could you, is there a way you could see the actual impact on adjusted EBITDA from the supply chain issues?

Brian, I can't disclose that at this point. I think, we measure the guidance and but overall, right, and I think we pointed to -- and I think you'll see them in the queue. We did mention in the script, there's about a two point impact, right, in the sense of what you saw on the sales and distribution side, which I think is probably where we saw the impact for Q1 its last mile. But to quantify what we think the future is, I can't see that right now.

Got it.

I think the question was on the Q1, right, Brian?

Q1, that…

On Q1? I thought you meant on guidance.

Got it. Q1?

Yeah, I would say two points.

Okay. We'll do the math. And then I guess my final question. Probably more for Yaniv, just any update on the Touro product within your portfolio?

Yeah, sure. So, Touro product was basically attacked in one of the most aggressive ways by under black hat seller, which has causes a decline in sales. And there actually is still evidence of that on Amazon some of these black hat sellers are still appearing on the page. We're working with Amazon, all that problem. Obviously, there was a big client and sales. One thing, I'd caution is to try to estimate those numbers using some external tools that are very inaccurate from what we've seen. But again, this is an ongoing issue. We're working with Amazon on this, not clear exactly when it will get resolved, but it's one of the most egregious black hat attacks that we've seen and we think it's very, very limited to its category and the nature of these products and cannot necessarily affect other overall products. Again, we're working on resolving them.

Got it. Thank you.

Our next question from Marvin Fong of BTIG

Thank you. Good afternoon. Thanks for taking my questions. Couple for me. Actually just building on the – on the last question, maybe it'd be helpful for investors also here, how some of the other deals that you – you've executed have performed maybe Smash being the next oldest you can provide some insight into how that progressed against your – against your expectations and then I have a couple of follow ups.

Yeah, so in general, we don't want to break the acquisition on a regular basis. I can tell you that Smash you know, for the first four month of the year grew a little over 20% versus same time last year, but here let me explain our approach, right and help understand how we think about this, right? So we manage all of our assets, whether they acquired a lot of one large portfolio, who uses the same pool of resources, right? So we think of it as what does the data tell us, we have all these different assets, we have a certain amount of resources that we can invest in growth. And our goal is always to drive growth across the entire portfolio, at the best possible positive and with the lowest possible fixed costs. I mean, remember, like – the investments we’re making in tech is really to be able to manage thousands and thousands of products over time across many different channels, at the optimal fixed cost, and with the best decisions on a per product basis around contribution margin, or growth or both, right? So I'm going to give you an example, right. I mean, if we are at a certain point in time, the data shows us more opportunities in appliances, for example. And, you know, we think we do launch more products in that category. And we invest more in the growth there, the expense, for example of some products that we have in the beauty category, that doesn't mean that those products are not good, and we're going to stop selling them or, that because again, as long as they're managed properly and efficiently, that's really the beauty of them are, right. So as you have certain limited resources to invest in growth, whether we're building more products, or doubling down on the market, certain categories, that decision is done across the entire portfolio, not per brand, but really based on what the data tells us, right? I can tell you also that, for example, you know, 88% of the revenue generated by all the products launched by us or acquired grew on the last LTM basis, right. So again, we take a portfolio view an 88% of all the revenue generated by all of our products has been on a growth pattern, right? So does that make sense? You know, again, the approach that we dig is not as traditional, as a certain brand that is in one particular category, we look at this entire portfolio and what the data tells us that is maturity, that will – that will not work. That's why it's difficult, and necessarily start breaking it down and trying to figure out what does it mean, right, this product is not growing as much as the other one.

Yes, Thank you. That makes perfect sense. And then moving on, question, please, so you talked in the release, how you're now evaluating an expanded M&A pipeline compared to last quarter. Just wondering if you could kind of dive into the dynamics, so is this kind of building on top of the pipeline that you had last quarter, or is there been actual, like some of the prospects from last quarter have actually dropped off and if you could just help us understand that? And then what's [indiscernible] is, one of the companies that was in the pipeline from last quarter, I'm only asking that to kind of figure – if you're actually executing in the -- pipelines that you are mentioning in these updates? Thank you.

Yes. That's a great question. Yes, that pipeline is obviously revolving, right? Some deals are going to be moving to LOI. Some of them will close. Some of them will be dismissed either maybe even after we went to LOI, while we did to do certain reasons, right. And so the pipeline revolves, and yes, Squatty Potty was in that number, right. So again, some deals we might lose also to someone else, right? And they'll leave the pipeline so the seller on the other side might say that, they decided to go into the deal with someone else, right. So that number is really out there, to give a sense of how much revenue we're looking at. And at any point in time how much opportunity there is, right? I mean, it's a drop in the water in the size of the time of acquisition that's out there. But we think it's important to just convey the amount of revenue that we're looking at and are competitive around in terms of just putting under LOI and close it.

Terrific. And if I could just get one more in, just very quickly. With all the supply chain issues out there, are you still expecting the number of product launches that you mentioned last quarter around 70, or should we think about that as a number being affected by all the supply chain issues? Thanks.

Yes. So we definitely are still seeing pressure. You know, we're probably planning like 17 to 20 products at this point in the second quarter of 2021. You know, it's a challenging situation for us because at the end of the day, the only way a product is sustainable long-term, it just has to have that sweet spot of quality and price. There's just no other way to make a it -- successful. And we can't cut corners. And definitely we want to be cautious not to try to rush too many products expand with some of the limitations that COVID is creating, not just on us, but also on our suppliers. The suppliers are having a hard time, you know, making sure that they have all the raw materials. You know, there's delays everywhere. It's hard to get trucks -- in various parts of the world where we manufacture the products. And so, again, we are doing our best and working as hard as we can to launch as many products, but without sacrificing quality value for customers, and obviously with the constraints on the supply chain and cost both sides.

Yes. Okay, that makes perfect sense. Thank you so much, Yaniv. Appreciate it.

Thank you.

Next question from Brian Kinstlinger of Alliance Global Partners

Great. Thanks so much for taking my questions. I'm curious how management inventory strategy prior has changed at all, while much is not in your control right now, obviously. After learning more over the last six months, what can you control the limited inventory shortages? And I guess, I wonder, is that right about owning versus renting containers? Is that something that companies like yourself are evaluating the differences?

Thanks for the question. Yes, you know, obviously, inventory management is a crucial piece here. And one of the things I love about the model of the business is that because we control things like pricing and the inventory levels that we can allow, for example, the retail pricing through which we sell to show customers, it gives a lot of flexibility in terms of trying to basically, as much as possible control the velocity of sales on a regular basis, right. And so, oftentimes, we might lower the marketing levels, right, or slightly increase the price to adjust, and try to do our best to obviously, make sure that we have a sustainable supply and demand. Now, again, with a level of disruption that we're seeing here, that becomes a little more challenging, as really, we've not seen this type of constraints, in terms of how long it takes for containers to arrive to the floors, in terms of how difficult it is to find containers. And so our team is doing really, I mean, amazing work and working through lot of different solutions, including sometimes and this goes back to a question that was asked before, right, we -- because we're so attuned to the performance of the product, and the implication that our performance has over the long-term market share of the product in the space, right, we sometimes have to make tough decisions around paying more for containers that we feel like at the cost of contribution margin, because we know that being out of stock for too long could open the door for competitors to take too much market share, right? So, again, we're really kind of like turning every stone and on a per product basis, managing the authority given many variables, again, including the effect that losing inventory for too long would have a market share, and the amount of CM that we need to supply to produce for the company to meet its expectations, right.

And then can you remind us are there -- I know a lot of the global supply issues are shipping from China. Are there -- remind us other areas when you manufacturer from or other investments being made on alternative geographic locations?

Yeah. There are -- there's still mix drive as far as the bulk of it is still in China, but there are other areas in Asia. But I think the global supply chain crisis affects pretty much every route, at least to my knowledge, right. It's not something that we could resolve by going to another country, but at least not within out of the context of meeting other requirements of the products, right. And so, the best thing we can do is again, manage visibility for the suppliers as far as we can try to give them as much visibility into our forecasts and our challenges. Work with them very closely. Having our own team on the ground in China is extremely helpful in that perspective. And again, on the other end, optimizing for the situation right when it comes to marketing spend and price et cetera, right? So, our team again, I think is doing the best they can within the situation. And we'll continue to monitor every development and anything we can take advantage of when it comes to improving that situation.

Great. Last question I have is on M&A. Let's assume and I don't know the average, but if the average is about four times EBITDA you're paying and trailing EBITDA. And the earn out is achieved for what you generally been paying? Does that keep it at about four times given the upside they've delivered, or what does evaluation looks like generally after the earn-out is it – is it much? Is it much better? Is it is it, how does it change versus what the initial evaluation looks like?

Yeah. The deal structure is very, depending on obviously, negotiations and other things, and yeah, sometimes obviously, it can end up being, a higher multiple, right then that, is really the company's has done really well, which we're very excited about. But we're happy to pay, more, if the company has – and the assets that we bought have performed really well, right. So it really is, it really is something that's negotiate on a per deal basis, would again, a certainly kind of multiple range, a prompt and a certain multiple range, on the earn-out, depending on various things, right.

Okay. Great. Thank you so much.

Thank you.

Next question from Gus Galá of ROTH Capital Partners. Gus Galá: Hi, guys. Just quick question on Squatty Potty, so you guys are raising the guidance the midpoint by about 10 million, and they delivered 70 million over the trailing 12 months? Just wanted to understand the gap there?

Arturo, you want to take that?

Yep. So I think – I think some of its timing seasonality there Gus, right. So I think you know, we just closed today, so you're not going to get the full year, that's number one. And number two, there's a little bit of seasonality baked into our business. So we're just, kind of prudent on that number. But that's kind of how you get there. Gus Galá: Okay. And I have the follow-up here. So just looking at the full report that came out earlier this week. Just wanted to clarify does Aterian never giveaway products or pay for reviews?

I'm sorry, can you ask the question, again. I couldn’t hear it. Gus Galá: Sorry. So I just want to know, does Aterian ever pay for reviews or giveaway products?

Right. No, we don't – we do not pay for reviews. We – we'd do promotions, including sweepstakes, giveaways, and other things like that. And, you know, look, in general, we ask customers for reviews, right, like, sometimes I get a lot of times right through the retails, email systems themselves, right. But we never – we haven't – we don't take –any of these promotions or any benefits that we give contingent on leaving a review, right. So the challenge is that those are very separate marketing tactics that people can confuse, right. So we obviously ask us consumers for reviews post purchase with again, sometimes the retail system themselves, but we've never again make those promotions or any other type of benefits contingent on leaving reviews. Gus Galá: Okay. Great. And one last question. Just regarding the M&A pipeline, can you kind of talk about the average size of the targets? Looking at the new acquisition, what the gap style is going to be at the end of 2Q? And I mean, how much firepower do you have there with the current cash levels? How do you think about using stock parameter?

Ilya, you want to speak to that?

Yeah. So, I think we've said before guys, I think, the pipeline is dynamic. There's a lot of different entities in there or opportunities, right? There's some bigger from small and depending on what's next, we said previously, we would need to raise money or raise that to sort of close the next big one or something like that, right, or depending on what, what's the next one up? I think, excluding M&A, I think we got sufficient cash to run the business right. But if depending on what's in that pipeline, what we decided to go for next year, we would be faced potentially doing some type of financing or debt raising. Gus Galá: Great. Thanks for taking my questions guys.

And there are no more questions so I turned a call back to Ilya.

Thank you. The upcoming calendar, Aterian management will be participating in the 16th annual Needham Technology and Media Conference, May 17th to 20th. The 2021 RBC capital markets Global Consumer and Retail Conference, June 22nd and 23rd, and the Jefferies Virtual Consumer Conference, June 22nd to 24th. Thank you for joining us on the call today. We look forward to speaking with you on future calls. And this ends our call.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.