Thank you for standing by and welcome to the Mohawk Group Holdings Inc. Quarter Four Earnings Report Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Ilya Grozovsky, Director of Investor Relations. Please go ahead.

Thank you for joining us today to discuss Mohawk's fourth quarter 2020 earnings results. On today's call are Yaniv Sarig, Co-Founder and CEO; Fabrice Hamaide, our Outgoing Chief Financial Officer; and Arturo Rodriguez, our Incoming Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Mohawk's website at mohawkgp.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements and these forward-looking statements reflect Mohawk's judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Mohawk's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of these risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth 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'd like to start this call by taking a minute to acknowledge our team's perseverance through a very challenging year. 2020 was our first full year of the company and it was marked, of course, by the strategy of the global COVID-19 pandemic. While the pandemic led to a strong year for eCommerce, it was not without significant challenges. Despite the difficulties with the pandemic resurgence and severe supply chain disruption, we grew our net revenue 62% year-over-year. We also achieved adjusted EBITDA profitability earlier than we had expected and for the first time, we were profitable on a full-year basis, despite our investment in long-term growth. We've accelerated our M&A strategy and acquired five leading eCommerce brands. We also refined our strategy and regained our international expansion. Finally, we launched a record 37 new products and expanded our total SKU count to over 300 as of December 31, 2020. We now have over 3,000 SKUs, thanks to our M&A strategy. In my last few communications with the investment community, I've made it clear that one of our strongest assets of the company is the culture of our stability. I discussed that the online CPG industry is continuing to experience an accelerated consolidation effort. We've seen over $3 billion of fresh capital injected into early-stage companies looking to build a CPG platform for the future, consolidating the ecosystem of online brands through M&A. The market is really well-positioned to take the leading role in this fast-paced industry consolidation, given the events that we've made in the team, as well as the technology and our supply chain platform. Looking back at our last few M&A transactions, I am very happy with our ability to integrate the assets of the businesses we acquired. We continue to reap the benefits of the years invested in infrastructure and eCommerce expertise, as we integrate every asset that we acquire faster and more efficiently. Since the start of 2021, we've added eCommerce businesses with a total of $80.2 million and $16.7 million in trailing 12-month revenue and adjusted EBITDA, respectively. Our M&A pipeline, meaning deals that we're currently looking at, is very robust. The universe of Amazon third-party sellers has an aggregate GMV of approximately $300 billion. We're currently looking at businesses and assets with an aggregate annualized net revenue of $522 million and $97 million of adjusted EBITDA. The significant growth we're experiencing also comes from a set of strategic investments that we're making to emerge as a global leader in the CPG industry. With that in mind, I am very excited to share some changes to the organization that will help us drive the vision of Mohawk's platform going forward. I'll start with our CFO, Fabrice Hamaide, who has played an instrumental role over the years in driving the financial strategy of the company. Recently, Fabrice has been an important driving force in our M&A execution and has been the architect of several of our recent transactions, working closely with Joe Risico, our General Counsel. This will be Fabrice's last call as CFO and we're excited to see him execute on his new role as General Counsel and Head of Corporate Development in Europe, reporting directly to me. As we described in our press release earlier today, Fabrice has already secured our first European M&A transaction with Photo Paper Direct, a printing supply brand based in the UK. I am extremely pleased to announce Arturo Rodriguez as our new CFO. In his 3.5 years at Mohawk, Arturo has exhibited excellence in every mission he has undertaken. He has a remarkable work ethic and a strong sense of integrity. I am honored to have Arturo by my side as we tackle the challenges of becoming a dominant global enterprise. Fabrice in his new role will be available to help Arturo with his transition. I'd like to note that Arturo and Fabrice have worked closely together and supported each other for over 10 years across multiple companies. With M&A playing such an important role in our growth story, I am also thrilled to announce that our General Counsel, Joe Risico, is, effective immediately, promoted to Chief Legal Officer and Head of Corporate Development North America. Joe has been at the forefront of our M&A strategy since day one alongside Fabrice and has a strong blend of skills to drive this critical function for us. Before joining our group and working on our M&A strategy, Joe held various business and legal roles at 3M Corporate Ventures, Citigroup, Goldman Sachs, and in operative roles at early-stage companies. He also has an MBA, which he obtained while working at Ernst & Young, and prior to attending Columbia Law School. I am very confident in the future of our M&A strategy with Joe leading the way. Finally, I want to take this opportunity to also welcome Sascha Lewis to our team. Sascha joined us in January this year as our new Chief Marketing Officer. Before joining Mohawk, Sascha was the Co-Founder and CEO of Flavorpill, a publisher and experiential marketing agency, which he sold to Bustle Media in 2018. I think Sascha brings more entrepreneurial firepower to our already strong team. In this role, he will drive the massive evaluation of our corporate and consumer brand marketing strategy. I am looking forward to our storytelling and reaching larger audiences as we communicate our vision to consumers and the investment community worldwide. I think that holds for a better way to start this year and continue to be amazed with the drive and enthusiasm of our team as we work hard to make 2021 a landmark year for our company. With that, I will turn it over to Fabrice for more details on the fourth quarter.

Thanks, Yaniv, and good afternoon, everyone. Here are the operational performance details of our fourth quarter. For the fourth quarter of 2020, net revenue increased 61.9% to $41.5 million from $25.6 million in the year-ago quarter. The strong gain was primarily attributable to direct sales volume of new products launched in the second half of 2019, net of vertical expansions just as we launched competing products to our own sustained products. This increase net revenue by $4.8 million. Wholesale revenue of PPE products contributed $0.7 million and revenue from historical products plus recently acquired products. We suffered from inventory shortages in the quarter, which we estimate to be an impact of approximately $6 million against our normal sales levels. Gross margin for the fourth quarter increased to 45.2% from 35.4% in the year-ago quarter and decreased from 47.8% in Q3 2020. The year-over-year improvement in gross margin was due to both favorable product mix, including new products acquired pursuant to M&A, pricing from vendors, and higher product pricing, while being partially offset by wholesale PPE sales which carry much lower gross margin. The quarter-over-quarter decrease in gross margin was driven by mix in our sustained portfolio as well as a higher percentage of liquidated sales as we cleaned up some of our inventory balance. Additionally, sales and distribution were negatively impacted by shipping costs, which drove higher costs in last-mile fulfillment given the carrier tightness in the quarter. Our overall Q4 2020 contribution margin was 11.2%, a result of the previously mentioned factors, which improved compared to the prior year, which was negative 6.6%. This year-over-year improvement was driven by significantly improved unit economics coming from a better product mix and pricing related to inventory shortages of our sustained products which had a CM of 15.2%. Adjusted EBITDA, which excludes stock-based compensation and changes in fair market value of warrant and earn-out liabilities for the fourth quarter of 2020, improved to $0.5 million from the loss of $7.6 million in the fourth quarter of 2019 and we highlighted that our adjusted EBITDA profitability was a result of growth in our business from both our existing products and new product launches, combined with our fixed operating expense leverage, which benefits from the automation in our business model and continued improvements in our unit economics. Turning to the balance sheet at December 31, 2020, we had cash of $26.7 million compared with $37.4 million at the end of September 30, 2020. This sequential decrease in cash stems primarily from a $2.5 million decrease in cash used in operations approximately $25 million from the Smash acquisition, offset by $19.9 million in net debt issuance and other financing activities. The cash used in operations compared to the previous quarter is driven by working capital as a result of planned seasonal inventory build-up. In terms of new products in the fourth quarter 2020, we launched five new products and some products slipped into the first quarter of 2021. We expect to launch 18 to 20 new products in the current quarter. To conclude, the key takeaways of the quarter are that our revenue is growing fast, profitability continues to improve, and the platform model continues to show its strength. I'm going to turn it over to Artie to discuss the going forward items.

Thank you, Fabrice. Mohawk today announced that it has signed a binding term sheet to acquire Photo Paper Direct, specialized in the printing supply category. Based in the UK, it marks our first of many international acquisitions to come in the future. The unaudited trailing 12-month revenue and adjusted EBITDA as of December 31, 2020, are $15 million and $4 million, respectively. The transaction is expected to close by mid-April. We also announced today our intent to refinance all of our current debt outstanding, which includes the December 2020 16-year secured note and existing February 2021 15-year secured note totaling $53.9 million as of today and our $30 million revolving credit facility with a $110 million senior secured note to an additional lender. The senior secured note has an 8% annual interest rate payable in cash on a quarterly basis with a three-year maturity. In connection with the senior secured note, the company will issue to the institutional lender warrants to be determined at the closing of the refinancing, and we expect this refinancing to close in the first half of April. For the full-year 2020 revenue guidance, the company now expects net revenue to be in the range of $350 million to $380 million, up from $340 million to $370 million, reflecting the addition of Photo Paper Direct. For the full-year 2021 adjusted EBITDA guidance, the company now expects adjusted EBITDA to be in the range of $30 million to $34 million, up from $28 million to $32 million. Finally, I want to mention with the vesting schedule of employee stocks, we anticipate that certain members of the executive management team will need to sell some of their Mohawk stock primarily to address tax liabilities associated with the vested shares. This will be done primarily as part of a 10b5-1 plan and we will be fully disclosing SEC filings of the sales made. With that, I'll turn it back to the operator to open the call for questions.

Your first question comes from the line of Brian from Oppenheimer. Please ask your question.

Good afternoon. Nice quarter, nice year. Congratulations to all the new appointments in the organization. So I have a few questions I thought I'd run through here, first off with regard to the potential acquisition targets you called out in the press release that $522 million, within that are there any LOI signed at this point?

The answer is yes, although they are not binding and obviously this pipeline is all subject to the diligence and all the efforts that we have to put to get to those finish lines, but there are some nonbinding LOIs already in place as part of the due diligence process.

Got it, and the second question I have is with regard to the guidance, and it looks like it's particularly on the top line. The updated guidance of $350 to $380 today implies substantial growth for the year. Can you help us just understand maybe where the key assumptions behind that? Also, I want to make sure I am clear that within that $350 to $380, you're not assuming further acquisitions, correct?

I'll let Artie answer that one.

The guidance that includes there obviously we closed Smash at the end of December and we closed CME Solution at the end of February. So those items are included in December. The only update that we have from acquisition is Photo Paper Direct, which we said on an annual basis we do about $15 million in net revenue and $4 million in adjusted EBITDA.

So Artie, the first part of my question was just what have been the drivers of growth for this year and what are some of the key assumptions there?

Brian, I think really if I can jump in here, the main drivers are again the launch of new products that we are looking to continue to put out there with our core business model as well as the sustained growth of the products that we either launched through our own brands or acquired. Those are currently the driving forces behind that guidance and there are no additional M&A that is in the pipeline or anything like that, if that makes sense.

I want to ask one more question and then I'll turn it over, but with regard to the contribution margin, Fabrice you talked about this in your prepared comments that I think I heard you say there is some pressure there from it sounds like transportation costs, but looking at the contribution margin particularly in the stain category in the fourth quarter, you're still up nicely year-on-year but the rate of increase in Q4 diminished somewhat net of Q3 and Q2. How should we think about that dynamic as we move into '21?

Yes, in Q4 you always have an increase in the shipping rates, which happens every year due to the seasonal increase because of the Christmas shipping season, which applies to all of the local carriers and productions. As well as Amazon's fulfillment services. So this is always the case, and if you're going to have a sequential drop in Q4 versus Q2 and Q3, it's also linked to the product mix changes. You'll have that all the time. The shipping costs weigh on our margins too and the dynamics will remain the same for a while.

Yes, thanks Fabrice. There will be a little bit of pressure in Q1 and Q2. I think it's the pressure that everyone is feeling right; it's a global phenomenon and it's not just a Mohawk thing, but that has been factored into our guidance. As we get into the summer months, we'll see that pressure ease and profitability improve.

Your next question comes from the line from Matt Koranda from ROTH Capital Partners. Your line is now open.

Just on the pipeline that you guys delineated, I know you partially answered the question earlier, but wanted to be sure what percentage of the pipeline is under LOI versus what is still in the early stages?

At this point, we just wanted to give a sense of how much we are looking at, but as I mentioned, we'll keep that information close to the vest for now. We're just working on a lot of deals in parallel, but we don’t go into too many details on how many of them are already under LOI.

Okay, I guess the gist of the question though was to understand what's the threshold under which you've put into that pipeline? What's the layer of diligence that happens before a deal goes into that pipeline?

That's a great question. The way the diligence process works is we have several layers. The first layer is to see if it can even make it into the pipeline. This is where we quickly assess core metrics, typically, from a strategic perspective. We look for assets that have sufficient substance and relevance to consumers. Hence, the assets that go into the pipeline meet a certain threshold, and that’s really what that means. So what we described in the pipeline is a lead that we have on the sales, and another aspect is good enough for us to have a deeper look.

Okay, and then just maybe attacking the 2021 guidance from a different angle. The acquisition that you're doing with Photo Paper, I understand it's probably not going to be a fully year contribution in terms of revenue and EBITDA, but I'm curious about the assumptions embedded in the updated guidance.

Yes, let me take a first stab at it, and maybe Artie wants to add more. We’re not benefiting from the full year of the business; that’s one. Second, we're giving a wide range scale because the world is still not entirely stable on supply chain. We're still observing everything happening with COVID and its downward effect on the supply chain. So we’re giving some room for the unknown. Finally, we're looking to reinvest a lot of the contribution margin from the assets that we're acquiring, as we aim to build a global footprint and dynamic. This makes for our future strategy.

Just moving on to the brands that you’ve talked about over the last six to eight months. I’d be curious about some qualitative updates on the performance or maybe quantitative in terms of sales rankings? How have some of the ASMs performed relative to your expectations?

Great question. Look, in general, we don’t want to break down on a product level, but we're very happy with the performance of the acquisitions so far. Those acquisitions have also suffered from supply chain pressure and stockouts, but those are global events that are pretty much out of our control, and we're doing our best to mitigate them. So some of that has happened, but overall, we're very happy with the performance and the speed at which we're able to integrate those assets. That gives me comfort for the future.

Your next question comes from the line of Brian Kinstlinger of Alliance Global Partners. Please ask your question.

Can you talk about outside of anything that fits within your platform? What are the determining factors when comparing targets for acquisition?

Sure, it's a really good question. As I mentioned before, we look at these assets from key performance indicators and strategic perspectives. We look for assets that have a long shelf life, are well-established in consumer relevance, and show consistent positive metrics over time. Those are the baseline factors where we gauge whether these products can be part of our portfolio.

Can you talk about how you think the organization’s performance in the ranking of the products has changed after acquiring assets?

The main advantage comes from maintaining the existing strength of those products, which allows us to grow them without having to add a significant number of resources. While integrating, we've been careful to focus on established leaders and avoid products that require extensive changes.

We’ll continue to launch new products for every acquisition we’ve made, and it’s a core competency for us. We are dedicated to enriching our offerings in collaboration with our acquired brands, taking a data-driven approach to develop additional products reaching far and wide to engage with our consumers. With regard to the Special Shareholder Meeting you highlighted in the press release, we are asking shareholders to approve share issuances in accordance with NASDAQ listing rules. This is concerning aggregation and dilution rules related to acquisitions and financing. More information will be available in the proxy statement that will be filed.

Your next question comes from the line of Thomas Forte from D.A. Davidson. Your line is now open.

First off, congrats to Fabrice and congrats to Artie. I had a high-level question for you, Yaniv. Near term, investors seem bullish on the company, including Mohawk Group, and given the argument that you made, a rising tide is lifting all boats. Can you speak to Mohawk's long-term competitive advantages?

Other aggregators will say they have a unique formula, but make no mistake; we have significant differences and stand out as the best in executing this model. We aim to build the CPG platform that others can only dream of. Our capability allows us to manage mature assets while acquiring new brands and driving them to growth efficiently. Our operating leverage sets us apart and positions us for long-term success.

Your next question comes from the line of Matthew Galinko of Sidoti. Your line is now open.

Can you touch on the first steps taken after completing the last acquisition? How are those operations going and do you feel capacity-wise that you can manage both the integration of that and the ongoing M&A pipeline?

We’re in the process of optimizing supply chains with existing teams and making exciting progress. We expect to see even more value from our acquisitions moving forward. We’re focused on ensuring optimal ratios between fixed costs and contributions, with an eye on steady growth. If you look at our aim in getting larger systematically through M&A combined with organic growth, we foresee international expansion as a significant contributor in future quarters. We are gauging opportunities carefully for long-term accretion. Overall, we want to expand globally with our existing resources while exploring new markets like Europe, India, Japan, and China. Regarding share selling, management is primarily focused on maintaining a solid share structure, and although 10b5-1 plans are in place for tax reasons, we don't anticipate any significant changes in the selling behavior. Other shareholders may act differently, but our internal strategy is focused on stability.

In terms of the upcoming calendar, Mohawk management will be participating in several investor conferences. Thank you for joining us on the call today. We look forward to speaking with you on future calls. This concludes our call.

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