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ATER Aterian

Filed: 6 May 21, 4:08pm

Exhibit 99.1

 

LOGO

Aterian Reports First Quarter 2021 Results

Quarterly Net Revenue Grew 88% Year-Over-Year to $48.1 Million

Announces Acquisition of Squatty Potty, a Leading Health & Wellness Brand

Announces Closing of Previously Disclosed Photo Paper Direct Acquisition

Company Raises 2021 Net Revenue Outlook Range to $360 Million—$390 Million

NEW YORK, May 6, 2021 – Aterian, Inc. (Nasdaq: ATER) (“Aterian” or the “Company”) today announced results for the first quarter ended March 31, 2021. Aterian was formerly named Mohawk Group Holdings, Inc. and was renamed Aterian, Inc. on April 30, 2021.

First Quarter 2021 Highlights

 

  

Net revenue grew 88% year over year to $48.1 million, compared to $25.6 million in the first quarter of 2020.

 

  

Gross margin improved to 54.1% compared to 40.2% in the first quarter of 2020.

 

  

Operating loss increased to $(27.8) million, which includes $15.6 million of charges from the change in fair-value of earn out liabilities, compared to an operating loss of $(13.9) million in the first quarter of 2020.

 

  

Contribution margin improved to 12.7% from negative (2.9)% in the first quarter of 2020.

 

  

Operating expenses for the first quarter of 2021 were $53.8 million an increase from $24.2 million in the first quarter of 2020.

 

  

Excluding non-cash stock-based compensation and amortization of intangibles of $8.0 million in the first quarter of 2021 and $7.4 million in the first quarter of 2020 and $15.6 million from the change in fair-value of potential future performance based earnouts from acquisitions in 2021, fixed operating expenses for the first quarter decreased as a percentage of net revenue to 17.5% compared to 22.3% in the first quarter of 2020.

 

  

Net loss of $(82.6) million, which includes $50.3 million of net charges from the changes in fair-value of and cancellation of warrants and includes $15.6 million of charges from the change in fair-value of earn out liabilities, increased from a net loss of $(15.0) million in the first quarter of 2020.

 

  

Adjusted EBITDA loss improved to $(1.3) million compared to $(6.4) million in the first quarter of 2020.

 

  

21 new products launched in the first quarter compared to 16 in the first quarter of 2020.

 

  

Total cash balance at March 31, 2021 increased by $8.3 million from December 31, 2020 to $35.0 million.

M&A Update

 

  

Announces acquisition of Squatty Potty, LLC (“Squatty Potty”), a leading online seller of health and wellness products in an asset purchase transaction.

 

  

Closes previously announced acquisition of Photo Paper Direct Ltd., (“Photo Paper Direct’’), a leading online seller of printing supplies.

 

  

The historical audit of the 9830 Macarthur LLC acquisition (“Smash”) has been completed and we now expect to file our delayed Form 8K/A no later than May 14, 2021.

 

  

Currently evaluating a pipeline of potential M&A targets that in total have trailing twelve month’s net revenue of $613 million and trailing twelve month’s EBITDA of $91 million.

 

  

We are currently in discussions with various top tier investment banks to evaluate financing structures in an effort to capitalize our accelerated M&A strategy and to improve our cost of capital.


Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “Despite the challenges e-commerce faced with strains on the global supply chain throughout the first quarter, Aterian remains well-positioned to capitalize on the continued global acceleration of e-commerce adoption and expanding market opportunities in the long-term. Due to extreme shortages of containers and backlogs of ships at the Long Beach Port, we suffered from stockouts on some of our top SKUs aggregating to an estimate of approximately $6 million of missed revenue. However, our sourcing, supply chain and operations team continues to work diligently to resolve these issues and we are continuing to monitor this global crisis closely.”

“As a market leading technology-enabled consumer products platform that builds, acquires and partners with best-in-class e-commerce brands, we are happy to announce today that we have closed our previously announced acquisition of Photo Paper Direct. We are excited to formally welcome our first European-based brand to Aterian’s portfolio and pleased about our entrance in the printing supplies category.” Sarig continued, “I am also thrilled to announce the acquisition of Squatty Potty, a category creator with a strong brand and broad customer base. We believe that the business’s significant online presence and brand equity can be further enhanced through investments in international expansion and the launch of additional products. As we bring this brand into the Aterian family, we continue to demonstrate our ability to operate across diverse product categories through leveraging our proprietary technology and agile supply chain. We look forward to building on the strength of this brand.”

Acquisition of Squatty Potty Assets

Aterian has acquired the business of e-commerce and retail company Squatty Potty, LLC (“Squatty Potty”), a leading online seller of health and wellness products in an asset purchase transaction. Founded in 2011, Squatty Potty is a consumer products company whose product lines consist of toilet stools, sprays and other bathroom accessories. Its flagship product, the Squatty Potty stool, is designed to help users assume the squatting position while using the bathroom, delivering fast, complete elimination with comfort and ease. Over the past year, Squatty Potty has diversified and scaled its product offerings while broadening its reach globally. Currently, Squatty Potty products are sold in thousands of retail locations including Bed, Bath & Beyond, Walmart and Target.

Squatty Potty’s unaudited trailing twelve month revenue and operating income, as of March 31, 2021, were approximately $16.8 million and $4.7 million, respectively. As consideration for Squatty Potty’s assets, Aterian paid approximately $19.0 million in cash. The cash payment reflects an approximate 4.0x multiple on the trailing twelve month operating income of Squatty Potty as of March 31, 2021. Aterian also paid approximately $1.1 million as consideration related to acquired inventory. In addition, and subject to the achievement of contribution margin metrics for the year ended December 31, 2021, Aterian agreed to pay Squatty Potty a maximum earnout of approximately $4.0 million, payable in stock or cash at the seller’s discretion. Aterian also agreed to pay Squatty Potty $8.0 million for transition services, payable in stock or cash at the seller’s discretion.

Closing of Photo Paper Direct Acquisition

Aterian today announced it has closed the acquisition of all outstanding stock of e-commerce company Photo Paper Direct Ltd. (“Photo Paper Direct’’), a leading online seller of printing supplies. Photo Paper Direct’s unaudited trailing twelve month revenue and operating income, as of December 31, 2020, were approximately $14.6 million and $3.9 million, respectively. As consideration for Photo Paper Direct’s stock, Aterian paid approximately $8.28 million in cash and issued approximately 704,500 shares of Aterian’s common stock. The cash and common stock payments reflect an approximate 4.7x multiple on the trailing twelve month operating income of Photo Paper Direct as of December 31, 2020. Aterian also agreed to pay


approximately $5.4 million in cash as consideration related to Photo Paper Direct’s inventory and other working capital assets, including cash on hand of approximately $3.0 million. In addition, and subject to the achievement of certain Adjusted EBITDA metrics by December 31, 2021, Aterian agreed to issue to Photo Paper Direct a maximum earnout of $6.0 million in cash and $2.0 million in Aterian common stock. In connection with the transaction, the former shareholders of Photo Paper Direct signed a five year voting and standstill agreement. This is Aterian’s first European acquisition.

2021 Outlook

As a result of the Squatty Potty acquisition, the Company expects net revenue for full year 2021 to be in the range of $360 million to $390 million up from $350 million to $380 million. For full year 2021, the Company expects Adjusted EBITDA to remain in the range of $30.0 million to $34.0 million.

The most directly comparable GAAP financial measure for Adjusted EBITDA is net loss and we expect to report a net loss for the twelve months ending December 31, 2021, due primarily to quarterly interest expense, net, fair value changes on contingent earnout liabilities from our acquisitions, fair value changes from warrant liabilities from our financings and stock-based compensation expense.

Non-GAAP Financial Measures

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the “Non-GAAP Financial Measures and Reconciliations” section below.

Net income is the most directly comparable GAAP financial measure for Adjusted EBITDA. The Company has not reconciled its expectations as to forward-looking Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, because certain items are out of the Company’s control or cannot be reasonably predicted, including that the historical revenue and operating income of Photo Paper Direct and Squatty Potty may not be representative of future revenue and operating income, fair value changes on contingent earnout liabilities from our acquisitions, fair value changes from warrant liabilities from our financings and any other potential acquisitions to be completed that are subject to the completion of the Company’s standard procedures for the preparation and completion of its financial statements and completion of an audit by the Company’s independent registered public accounting firm. Accordingly, a reconciliation of forward-looking Adjusted EBITDA to net income is not available without unreasonable effort.

Webcast and Conference Call Information

Aterian will host a live conference call to discuss financial results today, May 6, 2021, at 5:00 p.m. Eastern Time. To access the call, participants from within the U.S. should dial (888) 895-5479 and participants from outside the U.S. should dial (847) 619-6250 and provide the conference ID: 50154244. Participants may also access the call through a live webcast at https://ir.aterian.io/investor-relations. Please visit the website at least 15 minutes prior to the start of the call to register and download any necessary software. The archived online replay will be available for a limited time after the call in the Investor Relations section of the Aterian website.

About Aterian, Inc.

Aterian, Inc. (Nasdaq: ATER), is a leading technology-enabled consumer products platform that builds, acquires, and partners with best-in-class e-commerce brands by harnessing proprietary software and an agile supply chain to create top selling consumer products. The Company’s cloud-based platform, Artificial Intelligence Marketplace Ecommerce Engine (AIMEE), leverages machine learning, natural language processing and data analytics to streamline the management of products at scale across the world’s largest online marketplaces, including Amazon, Shopify and Walmart. Aterian has thousands of SKUs across 14 owned and operated brands and sells products in multiple categories, including home and kitchen appliances, health and wellness, beauty and consumer electronics.


Forward Looking Statements

All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements regarding our M&A strategy including our effort to capitalize our accelerated M&A strategy and to improve our cost of capital, our goal of creating a supply chain and technology platform designed to operate e-commerce brands across a wide spectrum of categories, any potential acquisition of additional businesses in the future, our ability to create significant operating leverage and efficiency when integrating companies that we acquire, including through the use of our team’s expertise, the economies of scale of our supply chain and automation driven by our platform, our ability to operate across diverse product categories though leveraging our proprietary technology and supply chain, our expectations regarding future growth internationally and through the development and launch of products under our brands and the acquisition of additional brands, our expectations regarding the continued global acceleration of e-commerce adoption in the long-term and our ability to capitalize on such e-commerce adoption, our expectations regarding global supply chain issues, the estimated amount of missed revenue due to stockouts and our supply chain team’s ability to resolve issues related to container shortages, backlogs of ships and stockouts, our 2021 net revenue outlook, including any expected impact that the acquisitions of Photo Paper Direct and Squatty Potty may have thereon, our expectations regarding our ability to enhance Squatty Potty’s online presence and brand equity through investments in international expansion and the launch of additional Squatty Potty products, and the statements about our expected net income and Adjusted EBITDA for the full year 2021. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to the acquisitions of Photo Paper Direct and Squatty Potty; those related to our ability to create operating leverage and efficiency when integrating companies that we acquire, including through the use of our team’s expertise, the economies of scale of our supply chain and automation driven by our platform; those related to our ability to grow internationally and through the launch of products under our brands and the acquisition of additional brands; those related to the impact of COVID-19, including its impact on consumer demand, our cash flows, financial condition and revenue growth rate; the completion of our customary audit procedures and the audit of any acquired business; our supply chain including sourcing, manufacturing, warehousing and fulfillment; our ability to manage expenses, working capital (including for PPE products) and capital expenditures efficiently; our business model and our technology platform; our ability to disrupt the consumer products industry; our ability to grow market share in existing and new product categories, including PPE; our ability to generate profitability and stockholder value; international tariffs and trade measures; inventory management, product liability claims, recalls or other safety and regulatory concerns; reliance on third party online marketplaces; seasonal and quarterly variations in our revenue; acquisitions of other companies and technologies, our ability to continue to access debt and equity capital (including on terms advantageous to the Company) and the extent of our leverage and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), all of which you may obtain for free on the SEC’s website at www.sec.gov.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.


Investor Contact:

Ilya Grozovsky

Director of Investor Relations & Corp. Development

Aterian, Inc.

ilya@aterian.io

917-905-1699

Media Contact:

Andrew Blecher

Communications

andrew@aterian.io


ATERIAN, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

   December 31, 2020  March 31, 2021 

ASSETS

   

CURRENT ASSETS:

   

Cash

  $26,718  $34,995 

Accounts receivable—net

   5,747   7,192 

Inventory

   31,582   55,026 

Prepaid and other current assets

   11,111   24,577 
  

 

 

  

 

 

 

Total current assets

   75,158   121,790 

PROPERTY AND EQUIPMENT—net

   169   166 

GOODWILL AND OTHER INTANGIBLES—net

   78,778   140,473 

OTHER NON-CURRENT ASSETS

   3,349   3,552 
  

 

 

  

 

 

 

TOTAL ASSETS

  $157,454  $265,981 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

CURRENT LIABILITIES:

   

Credit facility

  $12,190  $14,319 

Accounts payable

   14,856   26,475 

Term loan

   21,600   21,600 

Seller notes

   16,231   10,677 

Contingent earn-out liability

   1,515   18,783 

Accrued and other current liabilities

   8,340   14,181 
  

 

 

  

 

 

 

Total current liabilities

   74,732   106,035 

OTHER LIABILITIES

   1,841   1,841 

CONTINGENT EARN-OUT LIABILITY

   21,016   35,951 

TERM LOANS

   36,483   83,689 
  

 

 

  

 

 

 

Total liabilities

   134,072   227,516 

COMMITMENTS AND CONTINGENCIES (Note 9)

   

STOCKHOLDERS’ EQUITY:

   

Common stock, par value $0.0001 per share—500,000,000 shares authorized and 27,074,791 shares outstanding at December 31, 2020; 500,000,000 shares authorized and 30,590,796 shares outstanding at March 31, 2021

   3   3 

Additional paid-in capital

   216,305   313,911 

Accumulated deficit

   (192,935  (275,488

Accumulated other comprehensive income

   9   39 

Total stockholders’ equity

   23,382   38,465 
  

 

 

  

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $157,454  $265,981 
  

 

 

  

 

 

 


ATERIAN, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended March 31, 
   2020  2021 

NET REVENUE

  $25,628  $48,136 

COST OF GOODS SOLD

   15,330   22,073 
  

 

 

  

 

 

 

GROSS PROFIT

   10,298   26,063 
  

 

 

  

 

 

 

OPERATING EXPENSES:

   

Sales and distribution

   13,910   25,069 

Research and development

   2,281   2,124 

General and administrative

   8,003   10,976 

Change in fair value of contingent earn-out liabilities

   —     15,645 
  

 

 

  

 

 

 

TOTAL OPERATING EXPENSES:

   24,194   53,814 
  

 

 

  

 

 

 

OPERATING LOSS

   (13,896  (27,751

INTEREST EXPENSE—net

   1,109   4,420 

CHANGE IN FAIR VALUE OF WARRANT LIABILITY

   —     110,396 

GAIN ON EXTINGUISHMENT OF WARRANTS

   —     (60,047

OTHER EXPENSE

   25   33 
  

 

 

  

 

 

 

LOSS BEFORE INCOME TAXES

   (15,030  (82,553

PROVISION FOR INCOME TAXES

   —     —   
  

 

 

  

 

 

 

NET LOSS

  $(15,030 $(82,553
  

 

 

  

 

 

 

Net loss per share, basic and diluted

  $(0.99 $(3.15
  

 

 

  

 

 

 

Weighted-average number of shares outstanding, basic and diluted

   15,193,647   26,225,383 
  

 

 

  

 

 

 


ATERIAN, INC..

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   Three Months Ended March 31, 
   2020  2021 

OPERATING ACTIVITIES:

   

Net loss

  $(15,030 $(82,553

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

   

Depreciation and amortization

   41   1,204 

Provision for sales returns

   84   (100

Amortization of deferred financing costs and debt discounts

   304   3,963 

Stock-based compensation

   7,439   6,899 

Loss from increase of contingent liabilities fair value

   —     15,645 

Loss in connection with warrant fair value

   —     110,396 

Gain from cancellation of warrant

   —     (60,047

Other

   33   —   

Changes in assets and liabilities:

   

Accounts receivable

   (3,140  (1,445

Inventory

   (8,044  (15,355

Prepaid and other current assets

   540   (4,675

Accounts payable, accrued and other liabilities

   682   17,573 
  

 

 

  

 

 

 

Cash used in operating activities

   (17,091  (8,495

INVESTING ACTIVITIES:

   

Purchase of fixed assets

   (18  (20

Repayments on note payable to Smash

   —     (4,737

Purchase of Healing Solutions assets

   —     (15,280
  

 

 

  

 

 

 

Cash used in investing activities

   (18  (20,037

FINANCING ACTIVITIES:

   

Proceeds from warrant exercise

   —     8,939 

Proceeds from cancellation of warrant

   —     16,957 

Proceeds from exercise of stock options

   (112  8,749 

Proceeds from initial public offering, net of issuance costs

   17,435   —   

Repayments from Mid Cap credit facility

   (15,414  —   

Borrowings from Mid Cap credit facility

   —     14,531 

Repayments from Mid Cap credit facility

   —     (12,325

Deferred financing costs from Mid Cap credit facility

   —     (151

Repayments for High Trail term loan

   —     (5,400

Borrowings from High Trail term loan note 2

   —     14,025 

Debt issuance costs from High Trails Term Loan

   —     (1,136

Deferred offering costs

   (139  —   

Insurance obligation payments

   (965  (951

Capital lease obligation payments

   (2  —   
  

 

 

  

 

 

 

Cash provided by financing activities

   803   43,238 

EFFECT OF EXCHANGE RATE ON CASH

   3   (99
  

 

 

  

 

 

 

NET CHANGE IN CASH AND RESTRICTED CASH FOR PERIOD

   (16,303  14,607 

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

   30,789   30,097 

CASH AND RESTRICTED CASH AT END OF PERIOD

  $14,486  $44,704 
  

 

 

  

 

 

 

RECONCILIATION OF CASH AND RESTRICTED CASH

   

CASH

  $14,050  $34,995 

RESTRICTED CASH—Prepaid and other assets

   307   9,580 

RESTRICTED CASH—Other non-current assets

   129   129 
  

 

 

  

 

 

 

TOTAL CASH AND RESTRICTED CASH

  $14,486  $44,704 
  

 

 

  

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   

Cash paid for interest

  $759  $252 

Non-cash consideration paid to contractors

  $—    $3,427 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

   

Debt issuance costs not paid

  $—    $246 

Original issue discount

  $—    $2,475 

Fair value of contingent consideration liability

  $—    $11,272 

Discount of debt relating to warrants issuance

  $—    $7,740 

Issuance of common stock in connection with acquisition

  $—    $39,454 

Common stock issued for warrants

  $—    $1,125 

Non-GAAP Financial Measures and Reconciliations

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release and accompanying tables include certain non-GAAP financial measures. The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance


with U.S. GAAP. The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes that these items are not indicative of the Company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP.

Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies.

The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) Contribution margin; (ii) Contribution margin as a percentage of net revenue; (iii) Adjusted EBITDA; and (iv) Adjusted EBITDA as a percentage of net revenue. These non-GAAP financial measures may also assist investors in making comparisons of the Company’s core operating results with those of other companies.

As used herein, Contribution margin represents operating loss plus general and administrative expenses, research and development expenses and fixed sales and distribution expenses including stock-based compensation expense. As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net and income tax expense. As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense and other expense, net. As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.

We present Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provides useful supplemental information for investors. We use Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, together with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors.

We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items, while Contribution margin and Contribution margin as a percentage of net revenue are useful to investors in assessing the operating performance of our products as they represent our operating results without the effects of fixed costs and non-cash items. Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA nor Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.

We recognize that EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:

 

  

our capital expenditures or future requirements for capital expenditures or mergers and acquisitions;

 

  

the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;

 

  

depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets; or

 

  

changes in cash requirements for our working capital needs;


  

changes in fair value of contingent earn-out liabilities, warrant liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold) and transition costs from acquisitions.

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is and will remain a key element of our overall long-term incentive compensation package.

The following table represents a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP (in thousands):

 

   Three Months Ended March 31, 
   2020  2021 
   (in thousands) 

Net loss

  $(15,030 $(82,553

Add:

   

Interest expense, net

   1,109   4,420 

Depreciation and amortization

   41   1,204 
  

 

 

  

 

 

 

EBITDA

   (13,880  (76,929
  

 

 

  

 

 

 

Other expense (income), net

   25   (33

Change in fair value of contingent earn-out liabilities

      15,645 

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

      1,808 

Change in fair market value of warrant liability

      110,396 

Gain on extinguishment of warrants

      (60,047

Professional fees related to acquisitions

      449 

Transition cost from Healing Solution acquisition

      552 

Stock-based compensation expense

   7,439   6,899 
  

 

 

  

 

 

 

Adjusted EBITDA

  $(6,416 $(1,260
  

 

 

  

 

 

 

Adjusted EBITDA as a percentage of net

revenue

   (25.0)%   (2.6)% 

We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. For example, Contribution margin does not reflect:

 

  

general and administrative expenses necessary to operate our business;

 

  

research and development expenses necessary for the development, operation and support of our software platform; or

 

  

the fixed costs portion of our sales and distribution expenses including stock-based compensation expense;

 

  

changes in fair value of contingent earn-out liabilities, and amortization of inventory step-up from acquisitions (included in cost of goods sold).

The following table provides a reconciliation of Contribution Margin to operating loss, which is the most directly comparable financial measure presented in accordance with GAAP (in thousands):


   Three Months Ended March 31, 
   2020  2021 
   (in thousands) 

Operating loss

  $(13,896 $(27,751

Add:

   

General and administrative expenses

   8,003   10,976 

Research and development expenses

   2,281   2,124 

Sales and distribution fixed expenses, including

stock-based compensation expense

   2,857   3,332 

Change in fair value of contingent earn-out liabilities

   —     15,645 

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

   —     1,808 
  

 

 

  

 

 

 

Contribution margin

  $(755 $6,134 
  

 

 

  

 

 

 

Contribution margin as a percentage of net

revenue

   (2.9)%   12.7

We believe each of our products goes through three core phases as follows:

 

 i.

Launch phase: During this phase, we leverage our technology to target opportunities identified using AIMEE. During this period of time, and due to the combination of discounts and investment in marketing, our net margin for a product could be as low as negative 35%. In general, a product may stay in the launch phase on average for 3 months.

 

 ii.

Sustain phase: Our goal is for every product we launch to enter the sustain phase and become profitable, with a target average of positive 10% net margin (i.e. contribution margin). Over time, our products benefit from economies of scale stemming from purchasing power both with manufacturers and with fulfillment providers.

 

 iii.

Liquidate phase: If a product does not enter the sustain phase or if the customer satisfaction of the product (i.e., ratings) are not satisfactory, then it will go to the liquidate phase and we will sell the remaining inventory.

The following table breaks out our quarterly results of operations by our product phases including our PaaS business line :

 

   Three months ended March 31, 2020 (in thousands) (unaudited) 
   Sustain   Launch   PaaS   Liquidate
/Other
   Fixed
Costs
   Stock-based
compensation
expense
   Total 

NET REVENUE

  $16,904   $6,154   $361   $2,209   $—     $—     $25,628 

COST OF GOODS SOLD

   9,693    3,605    —      2,032    —      —      15,330 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

   7,211    2,549    361    177    —      —     $10,298 

OPERATING EXPENSES:

              

Sales and distribution

   6,138    3,153    88    1,674    1,265    1,592    13,910 

Research and development

   —      —      —      —      1,008    1,273    2,281 

General and administrative

   —      —      —      —      3,429    4,574    8,003 


   Three months ended March 31, 2021 (in thousands) (unaudited) 
   Sustain   Launch   PaaS   Liquidate
/Other
   Fixed
Costs
   Stock-based
compensation
expense
   Total 

NET REVENUE

  $41,994   $2,599   $181   $3,410   $ —     $ —      48,184 

COST OF GOODS SOLD

   17,298    1,452    —      3,316    —      —      22,066 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

   24,696    1,147    181    94    —      —      26,118 

OPERATING EXPENSES:

              

Sales and distribution (1)

   18,816    1,397    37    1,481    4,743    955    25,069 

Research and development

   —      —      —      —      1,241    883    2,124 

General and administrative (2)

   —      —      —      —      5,915    5,061    10,976 

 

(1)

included sales and distribution is approximately Transition cost from Healing Solution acquisition of $0.5 million

(2)

included in general and administrative is approximately $1.2 million of depreciation and amortization and $0.5 million related to professional fees from mergers and acquisitions