Aterian Inc (ATER) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Aterian Q1 2022 Earnings Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Ilya Grozovsky, Director of Investor Relations and Corporate Development.

Thank you for joining us today to discuss Aterian's first quarter 2022 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 section of Aterian's website at aterian.io.

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 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 on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter earnings release as well as our filings on 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.

Thank you, Ilya, and thank you, everyone, for joining us today. On the call today, I'll go over the following topics. I'll start with a quick introduction to Aterian for those who are new to our story. I'll then review key takeaways from the first quarter of this year. I'll then discuss the continued challenges we're dealing with, given the economy and macro level pressure from supply chain disruptions and inflation. I will then summarize the long-term prospects for Aterian.

So for those who are newer to the story, here is what you need to know about our company. Aterian is part of a new breed of technology-enabled consumer product companies. We focus on building, acquiring and partnering with e-commerce brands online. Aterian own and operates 14 consumer brands, selling products across various categories on channels such as Amazon, Walmart, Shopify and eBay.

To allow us to scale, we've invested in building our own proprietary software platform called AIMEE. called AIMEE enables our team to manage our business more efficiently by injecting technology into processes that would otherwise have to be executed manually and would require hiring an unscalable and unsustainable workforce. Through its ability to analyze vast amounts of data and automate daily recurring tasks, AIMEE allows our team to find new product opportunities we can launch under our brands, manage those products at scale effectively across various channels, automate certain marketing and fulfillment tasks and much more. Our goal in the long-term is to become one of the most efficient consumer companies in the world, expanding our footprint globally while continuing to invest in technology and agile supply chain to drive scale and profitability.

Moving on to our key takeaways from the first quarter. I'll start with a quick summary of the main points and then discuss them in more details. Notwithstanding inflationary and supply chain pressures, we believe that once the macro level environment improves, Aterian is more than ever well positioned to become a leader in the space. We have an incredible team, which keeps getting better, and our resolve to build a leading consumer platform in e-commerce is stronger than ever.

Global recession fears are mounting, but we think that there is a silver lining. As global demand [products go] down, we expect to see improvement in supply chain and logistics costs. We believe that we have the balance sheet necessary and many additional levers we can pull to get through this difficult environment. We're preparing to resume growth and profitability when the macro level challenges subside. We're focusing on strengthening our team and infrastructure. We hired Anton von Rueden as our new Global COO, and I'm working closely with him on preparing the organization for rapid and systemic scale. We're looking at acquisition targets constantly with our important focus on brands that are less affected by the supply chain crisis. We've been diligent, cautious and patient given this environment.

With this important points in mind, I'd like to now discuss each of them in further details. It was a surprise that the macro level environment continues to put near-term pressure on our business. At the same time, our leadership continues to be excited about Aterian's long-term prospects and focused on laying the groundwork necessary to (inaudible) growth. The last couple of weeks have made it clear to everyone that the economy is witnessing a whiplash effect driven by the monetary policies adopted by governments around the world to counter the COVID-19 pandemic. Many people ask us why supply chains have been so dramatically disrupted in the last 1.5 years. There's no simple answer, but (inaudible) to us an insight that the massive injection of cash by governments around the world to stimulate the global economy during the pandemic is a big part of the corporate.

With most traveling and services being unavailable during the initial lock downs of 2020, government monetary support was dramatically skewed towards retail and online consumption. With consumer appetite for product skyrocketing, logistics companies could not react fast enough to invest in more ships and airplanes to transport goods. Given this asymmetric demand for shipping services against limited capacity, prices of shipping skyrocketed further escalating inflation. On Amazon itself, we're seeing an increase in price of goods across most categories.

As many on this call have probably anticipated after reviewing the financial results of large online retailers, we're now seeing the effects of the pendulum swing in the opposite direction. Consumers are seeing prices going up everywhere. And as a result, demand for product is weaker compared to the shopping spree we saw in the last 2 years. For Aterian long (inaudible) investors, the latest signs of reduced consumer demand should actually be quite encouraging. How can I say that when we are looking down the barrel of a potential painful recession? Well, simply because our business -- for our business really getting back to growth and profitability is predicated on returning to normalized shipping costs. And unfortunately, the only way to get there is to reduce global consumer demand for products.

While this downturn in demand might spell doom for other companies in our industry, it will not for Aterian. Things they did were more difficult before they get better, but we're already preparing for what happens when markets stabilize and run a new baseline from which we can grow our business. We have the balance sheet to get to a long downturn and many levers to pull in case of additional challenges. More importantly, our team has never been stronger and our resolve to prove ourselves has never been more steadfast.

For long-term as investors who believe in us, the critical question is, when will that new baseline form? And what will be the expected growth from that point on? On a global level, the e-commerce burn experienced in 2020 represented a 26.5% year-over-year revenue growth compared to 2019. In 2021, year-over-year e-commerce revenue continued to grow, but at a much smaller rate of 16.3% compared to the previous year. And this year, e-commerce is expected to end at around 12.2% on global growth compared to 2021. The expected year-over-year revenue growth rate starting in 2023 will be between 9% to 10%. But more importantly, e-commerce is predicted to represent 23.6% of all retail sales globally by [2025] versus 17.9% in 2020.

So while the immediate year-over-year comparisons are challenging in the long-term, e-commerce is predicted to continue its rapid growth and at Aterian, we're preparing to take advantage of that growth. As part of these preparations, we're strengthening our team with talent across the board. We're excited to welcome Anton von Rueden to Aterian, as its global new Global COO. Anton brings over 23 years of experience in e-commerce operations. Anton was also previously the COO and President of Boosted Commerce, an e-commerce aggregator of brands, which raised over $380 million in capital to acquire smaller online brands.

As we prepare to expand and grow the number of brands we manage, agile processes and automation through technology are going to be critical to scale our model. We're looking forward to turning our parent company into a well-oiled machine giving our portfolio brands all the necessary building blocks of e-commerce as a service. With regards to our acquisition strategy, we remain very excited by about the opportunity to do accretive acquisition, driving strategic value for Aterian. During the first quarter, our team has continued to evaluate many opportunities. We're remaining disciplined in valuation, given the inflated performance of targets to the COVID-19 e-commerce acceleration.

Given that most of the targets we expect to be valued based on their performance over the trailing 12 months, we believe that valuations will come down over the course of the year. We expect to be able to capitalize on the impact of the current market conditions to acquire a number of these targets at a later stage for more reasonable valuation. There's been a lot of press recently about the challenges faced by e-commerce aggregators, just last year raised astronomical amounts of money to persist similar acquisition strategy to ours. The press has reported on many of these companies are now struggling with similar challenges than the ones we encountered since last year.

One of the main challenges affecting our peers is lack of infrastructure and technology to support the complex effort of managing our portfolio brands online. Without systems to monitor and aggregate product performance in real time and automate manual functions, most of these companies need to hire a non-scalable workforce of analysts and marketers. The difference between these companies and Aterian is in our years of investing in building our AIMEE platform, which allows us to operate the brands we build or acquire with more efficiency and less overhead. This is key for success for those pursuing a platform strategy.

We believe that our revenue (inaudible) headcount remains best-in-class and will continue to improve over time. We've also been in this business for much longer than most of these companies, and we've surmounted challenges affecting our industry for many years, proving that our culture (inaudible) whatever is coming next.

With that, let me turn the call to Arty for a more in-depth discussion of the quarter's financials.

Thanks, Yaniv, and good evening, everyone. Here are the financial performance details of our first quarter. For the first quarter of 2022, net revenue decreased 13.3% or $6.4 million to $41.7 million from $48.1 million in the year ago quarter, primarily from a decrease in net revenues from our sustained business of 4 and $1.8 million due to our previously announced plan to pause new product launches.

The first quarter net revenue of $41.7 million is comprised primarily of $29.8 million of organic business, which I know includes revenue from our built brands and acquired brands starting one year after our purchase, $9.6 million of net revenue from our acquisitions and $2.3 million of wholesale. The year ago quarter, net revenue of $48.1 million was comprised primarily of $17.4 million from our organic business, $28.7 million of net revenue from our acquisitions and $1.8 million of wholesale.

As a reminder, the acquisition of Healing Solutions closed on February 2, 2021, and a result moved into the organic category starting February 2, 2022. And the acquisition of Smash closed on December 1, 2020, and as a result moved into our organic category starting December 1, 2021. Our sustained revenue landed at $37.9 million for Q1 2022 versus $41.9 million in Q1 2021. The $4 million decrease in revenue is primarily due to our acquisition revenue decrease $19.1 million to $9.6 million for Q1 2022 from $28.7 million in Q1 2021, due primarily to our acquisitions of Smash and Healing Solutions being owned for a year-over-year now and shifting to our organic categorization.

Our remaining acquisition revenue continues to be in line with expectations for PPD and Squatty outside of seasonality and timing of the closing of those acquisitions. Our acquisition revenue decrease was offset by our organic revenue increasing by $15.1 million from the move of our acquisition revenue into organic, offset by reduction in the overall organic revenue from, increased pricing on our products affected by global supply chain disruptions which has led to reduced sales velocity, and impact from termination of government stemming support and the initial unfavorable impact from inflation affecting consumers.

As mentioned, our business has also saw a year-over-year decrease in launch phase revenue of $2.6 million to $0.8 million. As planned, we did not launch any new products this quarter compared to '21 and last year's first quarter. As we have mentioned previously, we will continue to pause on launching new products until we believe the time is right and the supply chain macroeconomic environment is more predictable.

Finally, on net revenue, we suffered from inventory shorts in the quarter, which we estimate to be an impact of approximately $2 million in the current period as compared to inventory shorts of approximately $6 million in the period year -- period ago. Overall gross margin for the first quarter increased to 56.6% from 54.1% in the year ago quarter. Our gross margin improvement versus last year is predominantly from a favorable product mix from inclusion of our acquired brands, though offset by increased cost. We believe the increased cost of shipping containers impacted our gross margin by approximately 2% in the first quarter of 2022.

Our overall Q1 2022 contribution margin, as defined in our earnings release was 9.2%, which decreased compared to prior year CM of 12.7%. Q1 2022 saw our sustained product contribution margin decrease to 12.5% compared to 14% in Q1 2021. Within contribution margin, or CM, our sales and distribution expenses were negatively impacted by global supply chain disruptions and higher cost than last mile fulfillment given inflationary pressures and carrier tightness in the quarter. Our Q1 variable sales and distribution expenses as a percentage of net revenue increased to 47.5% as compared to 45.2% in the year ago quarter. We expect to see these impacts continue in the current quarter.

While we continue to look for ways to mitigate higher cost dynamics in our supply chain and last mile cost, we believe we'll continue to see CM pressures for 2022 due to inflationary cost increases. Our $36.3 million operating loss for first quarter of 2022 includes a charge of $29 million of goodwill impairment, $2.3 million of non-cash stock compensation expense and $2.8 million gain on change in fair value of earn-out liability. This compares to a first quarter 2021 operating loss of $27.8 million, which includes $15.6 million charge from the change in fair value of earn-out liabilities and $6.9 million of non-cash compensation expense. The $29 million goodwill impairment resulted from our reduced market capitalization at March 31, 2022. Interest expense is down in Q1 2022 to $0.8 million from $4.4 million in Q1 2021 as part of our debt refinancing, ultimately reducing our overall debt outstanding today versus 2021.

Net loss in the first quarter of 2022 was $42.8 million and includes a charge of $29 million of goodwill impairment, $2.3 million of non-cash stock compensation expense, impacts related to equity issuance and warrants of $7.6 million and a $2 million gain of settlement from a seller note. And a $2.8 million gain on change in fair value of the earn-out liability compared to the year ago quarter's net loss of $82.6 million, which includes $50.3 million of net charges from the change in fair value and cancellation of warrants, $15.6 million of charges from the change in the fair value of earn-out liabilities and $6.9 million of non-cash compensation expense. Finally, adjusted EBITDA as defined in our earnings release for the first quarter of 2022 was a loss of $4.5 million compared to a loss of $1.2 million in the first quarter of 2021.

Turning to the balance sheet. At March 31, 2022, we had cash of $44.5 million compared to $30.3 million at the end of December 31, 2021. The increase in cash was predominantly driven by the recent financing that raised $27.5 million, partially offset by increased inventory levels in anticipation of increased volumes of the summer season. Our increased inventory levels were strategically planned to address the continued supply chain concerns, particularly the time it takes to get goods onshore to address inventory shorts and to ensure the appropriate inventory levels for our summer season products.

We continue to be impacted by global supply chain disruptions, especially considering the inflationary pressures globally and the uncertainty stemming from the invasion of Ukraine. While we believe these issues are temporary, they limit our ability to forecast, and as a result, we will not be providing full year guidance. However, as we look at our current Q2 and taking into account the current global environment, rising inflation and continued difficulty with supply chain, we believe Q2 2022 net revenues will be below last year's figure of $68 million. The first quarter of 2022 continued as 2021 left-off, macroeconomic conditions have remained challenged, and consumer spending habits remain unpredictable. But we are exiting this quarter with a strong balance sheet, very strong brand and product portfolios. This positions us well to resume growth and drive the business to profitability as the world reverts to a more normal environment in the future.

We continue to be very confident and proud of the business we have built, our products, both organic and acquired, our technology, our logistic network and most importantly, our dedicated and hard-working people across the globe. Together, we believe Aterian will overcome these challenges and continue to be a leader in our industry.

With that, I'll turn it back to the operator to open the call up to questions.

(Operator Instructions) Our first question comes from Brian Nagel with Oppenheimer.

So the question -- the first question I have is -- I appreciate all the color in the prepared comments. With regard to supply chain, clearly, still a lot of moving parts out there. But I guess the question I have is, are you starting to see some relief in any part of the supply chain versus what -- over the last, say, several quarters or so?

Brian, thanks for the question. I have to say that we had some glimmers of hope looking at the macro level environment and some indicators of improvements. Unfortunately, right now, we're back into -- looking at this with a big question mark as the COVID-zero policy in China is putting renewed pressure on the supply chains and just logistics there with ports not operating at full capacity. And obviously, everyone, I think, on this call is aware of the lockdowns that are happening in China.

So we were hoping that after [Chinese New Year,] things will improve. I think a combination of the events in Ukraine as well as the resurgence of COVID in China make us a little more pessimistic in the short-term. Long-term, obviously, we believe that things will come back to normal. But unfortunately, it's not as quickly as we wanted to see it. We're still kind of waiting to see the impact of the latest lockdowns in China on global supply chains.

That's helpful one, Yaniv. And then my second question, I think it's probably more for Arty. But we've talked about the cash on the balance sheet in the recent financing. But how should we think about, particularly the business sort of say, there's kind of this kind of holding mode, if you will, I mean the capital needs of the company through, I guess through the balance of '22 or maybe beyond here?

Arty, you want to take that?

Yes. Thanks, Yaniv. Yes. Listen, I think we said that previously, and we still kind of hold to that, is that, you're always going to see ups and downs in our business in a sense of (inaudible) so especially as we enter the summer seasons. That said, we felt that the fund raise we did in March really strengthens our balance sheet. Our credit facility gives us a lot more working capital flexibility than we had in 2021. And assuming we continue to hit our forecast and all that, we think we are well capitalized. As I said, if we decide to do M&A and other strategic moves like that, we probably would need to do equity raises. But outside of that, from a business and norm, I think we feel like the balance sheet is strong as of today.

Our next question comes from Tom Forte with D.A. Davidson.

One question and one follow-up. So for the first question, you talked about it a little in your prepared remarks, but Yaniv is a long time student of e-commerce. Can you talk about how inflation is affecting e-commerce and how it's affecting Aterian?

Sure. Inflation, obviously, prevalent across the entire supply chain, it doesn't just affect us, it affects also our partners, whether it's on the logistics side or on the manufacturing side. And unfortunately, obviously, it trickles all the way back to the customer, right, as costs across the board of energy going up and materials going up, you have basically an impact that every point in the supply chain and what it affects us at the end of the day is our cost of making the product, of shipping them all the way to our warehouses where they are ready to be shipped to the customers. At the end of the day, the landed cost of those products (inaudible) now much higher than it used to be.

And of course, as we discussed in previous calls, right, we are consistently focused on one thing, which is, we can't absorb the entire increase in costs, of course, so we have to raise our prices. But we're also very much determined to retain much market share as possible for our portfolio. So the exercise for us is literally in real time, adjustment of all the variables affecting the P&L of every one of our product to really try to find that sweet spot between holding market share, creating enough contribution margin for the product to make it profitable as much as we can. But also obviously, with an increase in price on these products to absorb the cost, we're seeing less sales, right. And with a smaller margin, and the contribution margin that we expect from our portfolio price is obviously lower.

Again, we believe that -- all of that is transient and [it's been] obviously quite a while now with all the events that are happening in the world. But we continue to maintain the strategy of retaining market share. We have to up our prices, it obviously hurts our numbers and our margins, but we're so far, I think, overall, we've been successful in [navigating] into this environment. At the end of the day, for us and for every business out there, the same pattern happens across the board for consumers. So that means the consumers are going to see at some point in time, their discretionary earnings not being able to drive as much consumption as we saw in the last couple of years.

And the effect, I think everyone on this call is seeing across the market, right, with a bunch of other e-commerce companies, as you mentioned, affected by that. At the end of the day, as I said in my prepared remarks, right, we believe that this is all forming a new baseline. And from there, growth -- e-commerce and growth for Aterian should resume. So hopefully, I answered the question, Tom.

Yes. So for my follow-up, I wanted you to talk about the near-term market environment for e-commerce for Aterian? If you could rank order, what you think is putting the most pressure on e-commerce sales and your sales? Is it consumers returning to physical stores and increase in discretionary income going to travel, just economic concerns on Russia, Ukraine, like -- we're hearing a lot of different reasons from a lot of different e-commerce players on why the June quarter, in particular, is so challenging? I'd appreciate your thoughts.

Can I choose all of the above? But again, I think...

(inaudible).

Yes. I think all of the above, certainly for everyone who is in e-commerce. I think for Aterian specifically, we have a diversified portfolio of products. And for those who follow us closely, we've always maintained the strategy that we're going after is to leverage the common denominator of all these brands around the kind of like bread and butter [capability] commerce that we have systematized as a parent company and to leverage that across these companies -- these portfolio of companies that we have.

And so that's interesting because, it allows us to see how the impact of this environment is different across categories, right? And as Tom, you know well, right, our portfolio has certainly a strategic inclination towards oversized products, where we have through our technology and supply chain infrastructure, a certain advantage in shipping last mile, but that advantage, unfortunately, has become a little bit of a detriment right in the supply chain crisis, because specifically for us, the oversized goods are hurt more than smaller goods, right.

Obviously, with shipping container costs increasing so dramatically, the larger items, relatively speaking are more affected, right. And so that has -- in terms of asking your question, right, like in terms of your question of what affects us the most, definitely, the cost of shipping containers specifically for Aterian, has a more significant effect than the others. I'd say that the other thing that's good about Aterian in general is that we go after product categories that are pretty mainstream, I'd say almost must have commodities, right. So in terms of the impact of consumers' discretionary earnings and their ability to deploy it out into goods, right, we're less affected by the fact that our products are -- portfolio of products is more something of a splurge, right.

We are more focused on a long-term evergreen commoditized product. And from that perspective, I think that we're less affected than some other companies, right. So again, for us, the main thing is going to be the shipping of containers, that's the most -- that's what has the most impactful effect on Aterian specifically. And again, the other factor that you mentioned are true, but I think they are less of an issue for us, it's more of an issue for the rest of the e-commerce landscape.

Our next question comes from [Brian Kinstlinger] with Alliance Global Partners.

First, I'm curious to what degree working with the third-party logistics companies like Amazon has benefited the P&L? Was there a material benefit in the first quarter? Or was most of the inventory from shipping containers before these agreements? And then the same question for the current quarter thus far, are we beginning to see a shift of inventory that was using these better price containers? Are they starting to increase as a percentage of the mix to improve your unit economics at all?

Arty, why don't I start answering this and see if you want to add anything. Thanks for the question. As we mentioned, we're relying on several relationships, including Amazon Global Logistics, which is a big part of this, right. We're really happy with their help. I'd say that as much as it's on a year-over-year comparison tougher to see, because if you look at last year, right, the cost of shipping of containers that we were -- that kind of pinned the cost of our goods was not as bad, right, because it was -- the supply chain crisis really became much worse around June, July, right, whereas in the first quarter of last year, we were benefiting from shipping costs of a couple of quarters before, which were better, right.

So the year-over-year comp might not show it. But the help of Amazon Global Logistics and other partners has been tremendous. Because relatively speaking, without -- we can't disclose exactly what we're paying for shipping containers, but if we didn't have these relationships in place, things would have been much more difficult. So had a very significant impact on our ability to bring goods at a more reasonable price still, obviously, higher than the prices we were seeing in a more normalized environment, but lower than what you see as the spot rate and the peak spot rate, right, there was some more reliability under the banner of a ship that is kind of under the banner of Amazon shipping containers is still more reliable, though I have to say not perfectly either, right.

So again, I think that the impact is there, and it's hard to see, because the relative comparison to what would have been without it is tough to imagine, right. So we're very happy with that. Arty, I don't know if you want to add anything to that.

Yes. Thanks, Yaniv, and great answer. Yes. There's definitely -- listen, the partnerships we have, we can't disclose pricing, but we're definitely getting better rates than the spot rates, right. And the reality is, at times much better than the spot rate. So it's definitely -- it could have been a lot worse if we didn't have some deals or these partners. So I think the other key thing that perhaps we don't talk a lot about, and [Yaniv nailed] it, is the reliability. I think you could see some of the short numbers are much different this year versus last year quarter. These guys have been able to really pinpoint -- give us time lines and meet them, right. So we can make sure if the product shows up.

Now that said, we've mentioned we're buying inventory at a larger clip to make sure we do have more on hand to avoid some of those issues and to buy in ahead of time to make sure if there are any disruptions like Yaniv mentioned, as China has been shutting down here and there in certain parts, that it's less impactful. Now the thing that makes it a little bit tough to your question is, the mix, right, in a sense that we've been buying our summer seasons way ahead. So we've been taking advantage of some better pricing and you'll start seeing that hopefully in Q2 and Q3. So I think in some aspects, the comparable will still be a bit tough, especially in Q2, but certainly on the beginning part of Q2. But certainly, as we continue to sort of wash through the inventory over the coming quarters, you'll hopefully start seeing a little bit of improvement in Q3 into Q4. That's helpful in the second part of your answer -- question, sorry.

Yes. I have one follow-up. We've talked about inflation, obviously. In the past, you've talked about the slow nature in which you can raise prices despite the cost of supply is going so quickly, careful not to lose your market share of competitors are not raising prices as fast. So can you just kind of give us a general update on how this is going in the markets you're in? And maybe, I don't know if you can characterize in general average increase in prices for your SKUs?

Yes. Thanks for the question. So as I mentioned, again, e-commerce is interesting. And in a way, it's a bit of a metaphor to traditional retail, where at the end of the day, your visibility to customers, the traditional readout on a physical shelf for online retail on a digital shelf is really the result of your performance, right. The more your product sells, the more it will show up in ads, the more it'll show up in searches, the more it will sell. It's almost like this kind of stuff of [selling] process, right.

And the challenge is that we've always been very data and detail oriented in terms of launching our products with this idea that we have to generate great performance to be able to continue to see consistent sales. With the cost of everything going up, the dilemma, as I mentioned earlier is always -- well, we have to up the price, because our margins are getting squeezed. But if we have them too much, our performance is going to come down, right. And then we might lose market share, and it's really hard to regain that, especially if other competitors take advantage of that and take [market] share.

The really interesting part in all this, is that, people ask me like, well, how can other people take market share because they're having the same problems as you do, right. And the answer is, yes. But remember also there are lot of companies who are dealing with the situation are potentially even throwing the towel. And by throwing the towel, they mean that liquidating their products at really reduced cost or reducing prices in ways that are not sustainable for them, because they're, again, dealing with the same challenges. Now for us, it's always about, well, what can -- what do we do about this, right.

When someone is sitting on a lot of inventory and they're starting to push it through to try to get rid of it in a way, right. You ask yourself like, is this a competitor trying to take market share, or is this someone taking sales for me temporarily, because they're getting out of the market, right. And the only kind of challenges we're looking at literally on a SKU-by-SKU basis, and you can imagine how difficult that would be without the right systems, without the right analytics. And again, without the investments we've made in technology, so that our team monitoring and managing these products could either automatically or some automatically or manually make the right decisions for the business, they need that data in real time. And this is where, again, our investments in AIMEE and in the ability that we have to give our team real time visibility to the product performance is critical to make those decisions.

So again, so far, all things considered, I think we've done as well as we could with the environment, and we've been able to overall retain market share. We've lost market shares a little bit here and there, we gain it in other places. But overall, I'm happy with how we've managed through that -- those challenges so far and I believe we'll continue to do so. Does that resonate with your question?

(Operator Instructions) Our next question comes from Matt Koranda with ROTH Capital.

It's Mike Zabran on for Matt. Just a couple of questions on the M&A strategy going forward. If you could just give some more color on what we're seeing in terms of multiples and talk about how we're thinking about funding this growth, whether the debt or equity? And lastly, just kind of help us understand what types of companies we're looking at? Are we looking for distressed aggregators that just need some operational improvement? Or are we just looking for overall well-run businesses?

Yes. That's a great question. Let me answer it and I'll go to Arty to see if he wants to add anything. So overall, as I said also in the prepared remarks, long-term we're super excited about the M&A strategy. We think that there are going to be multiple (inaudible) in this industry, building the consumer platform of the future, managing a portfolio brand at scale across many channels. And the marketplace landscape is absolutely massive. As I said, there's room for multiple winners. And it's not just about Amazon, right, globally speaking, there are marketplaces in pretty much every continent that are starting to dominate the online retail space, and we want to be very good at managing brands on those marketplaces.

As I also mentioned in the remarks, the aggregator landscape, again, companies that have raised a significant amount of money to go and roll up some of the smaller e-commerce brands out there is starting to see some pressure, right. They're starting to realize that this is a very challenging thing to do. And without the right infrastructure tech, it's very hard to really manage those businesses, especially in challenging situations like the macro level environment that we're in today.

And so we believe that in the [aggregator] space, we're going to see consolidation. We're going to see good companies come out of it, including Aterian, and there potentially is -- maybe opportunity there for us, it remains to be seen. Yes, but in [ARM,] right, we continue to look at targets all the time. And as I mentioned in the prepared remarks, right, there's a couple of things that we look at and we're very careful about is, we now obviously are more aware of the e-commerce, call it, acceleration that has happened in the last 2 years. And when we look at targets and they're measured on the trailing 12 months results, we have to be very careful to think about -- we're not overpaying, does it make more sense to maybe wait a little bit that the environment stabilize, see what the baseline of that business is, and take it from there, right, as opposed to execute at a higher valuation, right.

So [though we were] -- be very careful right now, we're also looking -- we're looking at a lot of things, but I think we have a good -- we're prioritizing assets and businesses that are less affected by the supply chain crisis, specifically, I'd say, businesses in categories where the manufacturing is maybe not in Asia, but in South America or Canada or Europe, which there are assets like that and even in the United States, of course, and there's a priority towards that. But again, we're being very careful and measured and realizing again that we're not in a normalized environment and we look at this very carefully as I said, right.

But again, super excited long-term. I think there's incredible opportunity here. And I think, again, that we're well positioned to execute on this. We've just got to be careful during those times and wait for things to stabilize. Arty, I don't know if you want to add anything, probably, maybe about the need for more capital as we continue to exhibit on the M&A.

Yes. Thanks, Yaniv. And yes, I think we said earlier, I think the equity raise and our mid-cap credit facility, it puts us in a good position and strengthens the balance sheet, because this flexibility to navigate some of these disruptions and certainly provide flexibility in working capital. We (inaudible) reiterate, if we're going to do M&A, especially material ones, we'd probably look at doing some type of financing, if that's equity or debt or some combination of both, including shares to the seller, which obviously, the current volumes we're doing is becoming more interesting in certain sellers. So I think those combinations is where you would see some news on finance, if we were doing M&A.

Just one more for me. Could you guys just elaborate a little bit on the inventory composition in the quarter and just help us get a sense of how much of that inventory is finished goods on the water versus how much is sitting currently in distribution centers?

Yes, Arty, can you take that.

Yaniv, I can take that.

Yes, go ahead.

Yes, absolutely. Yes, that's a good question. So roughly, I would say about $20 million is considered in transit. And the other difference, which I think will be like [$56 million,] I guess, roughly, is -- or [$55 million] is sitting on hand.

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to Ilya Grozovsky.

Thanks. As part of our shareholder perks program, which, as a reminder, investors can sign up for at aterian.io/perks. Participants have the ability to ask management questions on our earnings call. I want to thank all of the shareholder perks participants for their loyalty, their participation in the program and their questions. I've picked a few of the most popular questions that they have asked. Please update what is happening with DealMojo and recurrent partnerships? Yaniv, can you handle that one?

Sure. Yes. Thanks, Ilya. And again, thanks to all our shareholders and the shareholder price program for participating in this. So on the DealMojo recurrent side, we talked about it in the past, we continue to make strategic investment in everything else related to publisher-driven business. As a reminder, the 30% of customers in the United States search for products outside of marketplaces when they are looking for a solution to a problem or a recommendation, right. And oftentimes, this traffic, the searches are captured by publishers, so online magazines that are going to write articles or promote their products, maybe a coupon website or things like that.

And we basically build DealMojo as a destination for publishers and online sellers in the e-commerce space to partner around these promotions. And obviously, for Aterian, it's a strategic thing to have, right. And so, we continue to see good progress there, we continue to onboard publishers. It's still early, but it's looking promising, and we're going to continue to turn this into a destination for us. And more to come on the recurrent side, we hope to have some news on this in pretty soon here with making [I guess] on that relationship.

Next question that was popular was, what is going on with Aterian's international sales efforts?

Sure. So we made some progress on international sales, but it's obviously not moving as fast as we wanted mainly because, again, of disruptions that are happening to supply chain, and as I mentioned on for the U.S. Yes, in the meantime, one of the main things we're doing is, we're making a lot of infrastructure preparations for more robust rollout, right. So we're setting up our 3 [peers] and logistics and all these other important things that are going to be critical as we kind of push back on growth. And depending on the volitional supply chain, we believe that there's a very large opportunity, especially in Europe where we are focusing now.

We're also, at the end of the day, going to see a lot of potential to expand internationally versus those acquisitions, which we've been starting to look at. But again, timing is not necessarily right now, given all the disruptions. And I think that what we will see as things start to stabilize is us pushing more products, specifically to Europe over an infrastructure that, I guess, in the next few months to invest in. And then we'll see growth coming both from bringing products into those markets as well as we discussed potentially acquisition that we want to do there. But all of this is, again, pending the normalization of the environment, which is not, if but a win, right. And we're just kind of timing that as well as we can.

Okay. And your final question from perks program is, can you update us on what you are doing about the alleged naked shorting of your stock?

Yes. We received questions about that. So as we talked about in the past, we engaged a third-party firm that is specializing in these matters. I can share that we sent several letters to well-known Wall Street institutions pointing out what our third-party investigator firm believes a substantial share in balances. It's a long process, and we're grateful for the support of our retail and institutional shareholders around this. In the long run, we are focused on execution and believe that the prospect of our business puts the supply chain pressures that we're experiencing today. We believe that will win the great and that will basically set the tone for the trading of our stock. But again, we're very grateful to all the support that we're getting for our retail investors and our institutional investors.

Thank you. This concludes the Q&A portion of the call. In terms of the upcoming calendar, Aterian management will be participating in the Oppenheimer 7th Annual Emerging Growth Conference on May 10. The Craig-Hallum 19th Annual Institutional Investor Conference on June 1. And the Oppenheimer 22nd Annual Consumer and E-Commerce Conference on June 14 and 15. We look forward to speaking with you on future calls. This ends our call, and you may now disconnect. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.