Good day and thank you for standing by. Welcome to the Aterian, Inc. Fourth Quarter and Full Year 2021 Earnings Report Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your host today, Ilya Grozovsky. Your line is open – please go ahead.

Thank you for joining us today to discuss Aterian’s fourth quarter and full year 2021 earnings results. On today’s call are: Yaniv Sarig, Co-Founder and CEO; and Arturo Rodriguez, our Chief Financial Officer. A copy of today’s press release is available on the Investor Relations 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. 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 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 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. I want to start by taking a moment to express Aterian’s condemnation toward the unjustified violence and bloodshed in Ukraine. Our international team includes four employees based in Ukraine currently. Sonata Lee, DeRoss, Vislon, and MacKeen; our hearts are with you and your families during these difficult times, and Aterian will continue to offer any support we can provide to help. The company and many employees, including myself, have made modest donations to humanitarian efforts on the ground. On the call today, I’d like to go over the following topics. I’ll start with a quick introduction to Aterian for those who are newer to the story. I will then review key takeaways from Q4. I’ll discuss some of the temporary challenges we’re facing due to macro-level events, and I’ll summarize the long-term prospects for Aterian. For those who are new to the story, here’s 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 owns and operates 14 consumer brands, selling products across various categories on channels such as Amazon, Walmart, Shopify, eBay, and more. To allow us to scale, we’ve invested in building our own proprietary software platform called AIMEE. 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 onto our brands, manage those products effectively across various channels, automate marketing and fulfillment tasks, and much more. Our long-term goal is to become one of the most efficient consumer product companies in the world, expanding our footprint globally, while continuing to invest in technology and an agile supply chain to drive scale and profitability. Moving now to our key takeaways from Q4. In the fourth quarter of 2021, our net revenue grew 52.5% to $63.3 million, but our contribution margin declined to 7.9%, mainly due to global supply chain disruption and related inflation. As a reminder, our target contribution margin in a normal environment is 16% on average across product categories. Our efforts to reorganize our international shipping strategy and negotiate preferred rates with partners such as Amazon and XPO have shown success. After addressing a few operational issues thoroughly, our interactions with our partners have improved significantly. We were able to secure several thousand dollars per container versus average spot rates for that period, and this continued into Q1. However, we’re still on average paying prices that are approximately 300% higher than our cost of shipping in 2019 for the same period. Regardless, our focus is on the long-term here. We’re long-term believers in this company’s vision. So while our contribution margins remain compressed, we’re laser-focused on retaining market share with the expectation that eventually shipping costs will decrease. This effort continues to succeed across our portfolio, and I’m happy to report that on average our most critical SKUs continue to maintain a strong market share position in their categories. Our thesis until a few weeks ago was that international shipping rates would start declining after the Chinese New Year and return over time to a more sustainable cost. The war in Ukraine has put that thesis in question, and several transportation analysts are predicting that shipping prices might increase in the short term. While we believe that our logistics partners will still provide us with preferred rates, spot rates potentially exceeding $20,000 and other inflationary pressures are not favorable to our business. Given this challenging environment, and to exercise caution, we’re not providing guidance at this time. We’re working hard to generate growth organically this year, potentially through M&A and various other strategic initiatives. Despite the relative uncertainty we’re facing, I want to highlight a few decisions that we made correctly in Q4, which could positively impact 2022. Our team anticipated that around the Western holidays, there would be a window to bring in goods at a slightly lower cost. Given that in 2021, we faced several out-of-stock products due to unreliable shipping schedules, we opted this time to bring in as much critical inventory for the next two quarters early. If our competitors did not pursue the same strategy, the outcome could be very favorable to us from both a short-term revenue and long-term market share perspective. This decision will be more impactful in our favor if shipping costs increase in the short- to medium-term but come down towards the latter part of the year. While we’re grappling with continuous challenges driven by the macro-level environment, it’s important to say clearly to those who follow us that we are more optimistic than ever and continue to pursue our long-term vision. While weathering the storm is taking longer than expected, we believe that the world will see companies like us thrive in the future. As I mentioned previously, we’re not the only ones believing in this outcome; we’re witnessing continued investment in private equity through Amazon and Shopify aggregators looking to compete in the same space. Over $12 billion was invested in 2021 in early-stage companies pursuing a similar mission of building the consumer product platform of the future. All of these companies are private, and we’re hearing through the industry that most of them are navigating similar challenges. We believe that we continue to be ahead of the pack in terms of our ability to execute on the model; managing e-commerce brands and marketplaces is tedious and requires constant optimization and attention to detail. While Aterian has yet to achieve all our goals in this domain, we intend to remain at the forefront of what technology can do to give us an advantage and stay ahead of ever-changing marketplace dynamics. Technology has been a key advantage for us over time, allowing us to scale our organization while keeping sustainable fixed costs due to our investment in systems and automation. During the pandemic, our fulfillment capabilities powered by AIMEE allowed us to overcome critical shipping limitations imposed by Amazon and other partners. We recently raised $27.5 million in equity financing, and we intend to use this capital to drive growth, further invest in infrastructure on the tech and supply chain fronts, and re-launch our M&A strategy. However, we will be patient in the short term as we evaluate different opportunities within the context of the macro environment. Our category-agnostic model allows us to look at a wide variety of product categories that are potentially less affected by supply chain pressures. We’re also going to invest in our team and bring in more talented senior leadership into the organization. We’re currently recruiting across various roles, including a new President role, who will step in to take over for our Chief Revenue Officer, Tomer Pascal. I want to thank Tomer for his leadership over the last four and a half years. We’re grateful for his contribution to Aterian’s success, and we will proudly follow his progress with the new venture that he is starting. As 2022 unfolds, we believe that we will be ready for any challenges, just like we’ve been in the past. Our company has shown resilience and fortitude, and we will continue to do so. The immediate world events might bring pause to those considering investing in us, but for long-term thinkers who believe in the future of e-commerce, it should play close attention to how we execute on our strategy in the coming year. I believe that if we can protect market share and even grow it while navigating the supply chain and inflationary pressures ahead, we can once again become one of the fastest-growing profitable consumer product companies in the world. With that, I’ll pass it on to Artie to discuss the quarter and year-end financial results.

Thanks, Yaniv, and good day everyone. Here are the financial performance details of our fourth quarter. For the fourth quarter of 2021, net revenue increased 52.6% to $63.3 million from $41.5 million in the year-ago quarter, primarily from an increase in net revenue from our acquisitions and organic business. The fourth quarter net revenue of $63.3 million is comprised primarily of $31.3 million from our organic business, which includes revenue from our built brands and acquired brands starting one year after purchase; $27.6 million of our net revenue from our acquisitions; and $4.3 million from wholesale. The year-ago quarter net revenue of $41.5 million was comprised primarily of $22 million from our organic business, $14.9 million from our acquisitions, and $4.4 million from wholesale. As a reminder, the acquisition of Smash closed on December 1, 2020, and as a result, moved into our organic category starting December 1, 2021. The year-over-year growth in our organic business of $9.3 million is related to an increase in our sustained phase products of approximately $5.9 million to $25.8 million from $19.9 million due to the inclusion of Smash products into organic for the month of December, offset by increased pricing of our products affected by global supply chain disruptions, which has led to a reduced sales velocity, and the impact of stopping the stimulus support from the government and initial impacts from inflation affecting consumers. Our organic business also saw a slight year-over-year increase in launch phase revenue of $0.9 million to $2.6 million. As planned, due to supply chain volatility, we have launched zero products this quarter compared to five in last year’s quarter. Overall, in 2021, we launched 40 products compared to 32 in 2020. Even though the rate of our product launches in 2021 grew, we did not have the same success as in previous years due to market conditions, resulting in needing to raise prices due to supply chain disruptions, which led to a decrease in demand and performance of certain recently launched products. This has also led to products staying in the launch phase longer than originally planned. As mentioned previously, we have and will continue to hold off launching new products until we believe the time is right and the supply chain situation is more predictable. Our M&A revenue of $27.6 million increased from $14.9 million in the prior year due to our acquisitions of Healing Solutions, Squatty Potty, and Photo Paper Direct. Our M&A revenue is in line with expectations for Smash, Photo Paper Direct, and Squatty Potty outside of seasonality and timing of the closing of the acquisitions. As we have previously discussed, Healing Solutions continues to perform below expectations largely due to supply chain difficulties from our shift from service manufacturing capabilities to new third-party vendors as previously planned. That said, we are still pleased with the Healing Solutions acquisition and the long-term strength of its brands and products. Finally, on net revenue, we suffered from inventory shorts in the quarter, which we estimate to have impacted approximately $2.1 million in the current period, compared to inventory shorts of approximately $6 million in the prior year period. Overall, gross margin for the fourth quarter increased to 45.6% from 45.2% in the year-ago quarter and decreased from 50.2% in Q3 2021. Our gross margin improvement versus last year is predominantly from favorable product mix and the inclusion of our acquired brands. We believe the increased cost of shipping containers impacted our gross margin by approximately 2% in the fourth quarter of 2021. We expect to see a slightly larger impact in Q1 2022 as previously purchased inventory with higher rates continues to clear out. Our overall Q4 2021 contribution margin, as defined in our earnings release, was 7.9%, which decreased compared to prior year’s contribution margin of 11.2%. Q4 2021 saw our sustained products' contribution margin increase to 16.1% versus 15.2% in Q4 2020. With contribution margin, our sales and distribution expenses were negatively impacted by global supply chain disruptions, which drove higher costs in last mile fulfillment, given inflationary pressures and carrier tightness in the quarter. Our Q4 variable sales and distribution expenses as a percentage of net revenue increased to 40.1% compared to 35.5% in the year-ago quarter. We expect to see these impacts continue in the current quarter. While we’re doing our best to mitigate higher cost dynamics, we believe we’ll continue to see contribution margin pressure for 2022 due largely to supply chain disruptions and increased last mile costs. Adjusted EBITDA, as defined in our earnings release for the fourth quarter of 2021, was a loss of $3 million compared to a positive $500,000 in the fourth quarter of 2020. Our $2 million operating loss for the quarter included $7.7 million of stock-based compensation expense and also includes income net from charges and settlements to contingent earn-out of $14.4 million, which is primarily related to a decrease in share price at December 31, 2021, versus September 30, 2021. Our net loss for the quarter included a $5.3 million net loss from the extinguishment of debt related to payments related to the completion of a $25 million credit facility with our lender. Turning to the balance sheet. At December 31, 2021, we had cash of approximately $30.3 million compared to $37.5 million at the end of September 30, 2021. The decrease in cash is predominantly driven by the previously reported $27.5 million cash payment to our lender, a $4 million M&A related transition service payment from the purchase of Squatty Potty, and our net loss offset by cash proceeds from our new ABL at $34.1 million and changes in our working capital. As we previously disclosed, to navigate through the global supply chain disruptions, we increased our inventory on hand and purchased inventory earlier than initially anticipated. This has put pressure on minimum liquidity as we enter 2022 in preparation for our summer 2022 seasonal products such as ACs and humidifiers. In December, we secured our new $50 million asset-backed credit facility, providing us the working capital flexibility and allowing us to complete the repayment of our term loan. Last week, we raised approximately $27.5 million in gross proceeds through a private sale of approximately 6.4 million restricted shares at the end market price, and an additional 3.1 million in pre-funded warrants at the debt market price. We anticipate these shares will be registered early in the second quarter and are locked up until then. Furthermore, in connection with this offering, we also issued 7.1 million warrants at a strike price of a 10% premium at close, which may be exercised in the future and upon exercise will add up to an additional $20 million in cash to the balance sheet. Given the current market volatility and the recent conflict in Eastern Europe, there is continued concern regarding the unknowns in the markets. As such, we seized the opportunity to secure our balance sheet now to allow us to operate our business appropriately, considering the current global supply chain disruption and rising inflation. This financing also opens up the possibility to continue to pursue our accretive M&A strategy. We are still being 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 and not permanent, they have diminished our visibility in our ability to forecast results, and we will not be providing full-year guidance at this time. However, as we look at the current Q1, accounting for the global environment, rising inflation, and continued difficulty with supply chains, including stock outs for several products in Q1, we believe we will see Q1 2022 net revenue lower than Q1 2021, especially considering the difficult comparisons in demand versus the prior year. That said, our confidence continues to grow as we look ahead to our summer season for 2022. We believe our efforts around supply chain and the investments made to bring in inventory earlier will position us much better for the summer season of 2022. In closing, 2021 was a challenging year. The global macroeconomic conditions made it difficult to operate and predict our business, and the changing consumer habits from the early pandemic to the current world makes comparisons difficult. Despite this, many of our organic and purchased products continue to be some of the best sellers on Amazon. We maintain very strong brands and product portfolios. The current pressures on growth and profitability are closely related to global supply chain and inflationary challenges. We continue to execute what we believe is the wisest course to navigate this difficult environment and will help direct us back towards profitability. To explain our performance for context, assuming 2020 normal contribution margin rates, which we still believe could be achieved in the future, the company believes its Q4 2021 adjusted EBITDA would have been similar to previous years. Further, as we navigate this environment, we have taken the opportunity to right-size and secure our balance sheet with our new credit facility and recent equity raise, providing us strength as we move forward through these challenging macroeconomic conditions. We continue to be very confident and proud of the business we have built, including our products, both organic and acquired, our technology, our logistics network, and most importantly, our dedicated and hardworking people across the globe. Together, we believe Aterian will overcome these challenges and continue to lead our industry.

Thank you. Our first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. Please go ahead.

Hi, good afternoon.

Good afternoon.

So a couple of questions. First off, I appreciate all the comments around the supply chain. So I guess that one question is what has to happen? Where do the supply chain disruptions have to get to, maybe where shipping costs, shipping rates have to get to, in order for Aterian to resume a more offensive stance with regard to product acquisition, product introductions, or even acquisitions? That’s my first question.

Yeah. Thanks, Brian. You know it’s a great question. And I think that obviously the simplest answer is whether we’re back in 2019, which, if you look at the prices of shipping rates for containers back then, it was a more normalized cost that you could trace back linearly to the previous year, whereas the exponential increase in cost that we saw as the supply chain crisis unfolded, especially in 2021, is very challenging. The second part to that is the real question. When is that happening? And how long will it take? And maybe the floor is a little higher. But when all that is said and done, I think that it will set us a new floor that is the same for everyone, including our competitors and the entire economy in a way. And at that point in time, I think it should help us. I believe that the numbers will be closer to 2019. Again, the really big question is when does that happen?

Okay, got it. That’s you know, I guess that is as well as that is. And then just to make sure I understand the mechanics. So have you not really lifted your selling prices? Because you just quoted a hit on gross margins here. So I guess to what extent have you lifted prices to offset some of these shipping costs? And I guess that second part of that would be, was that a lever you could pull? I mean, could you start to more strategically lift prices?

So yeah, I don’t have a across the Board number. I’d say on our top 50 SKUs, which I recently looked at, I’d say that approximately we lifted the prices by around 20%, I’d say on average, which remember, with that increase in price, we’re still not where we need to be at a contribution level. But, you know with what we’re seeing, if we go well beyond that, we might start losing market share. That’s what we talk about when we say protecting market share, it’s finding a balance between a price that gives us enough margin to be profitable at the product level or the unit economic level, but also doesn’t cause us to lose market share and impact long-term potential. The other aspect is consumers are seeing those price increases everywhere from coffee to gas stations. So that creates another challenge when it comes to generating growth year-on-year. But again, I don’t have an exact number across the Board, but I’d say that around a 20% increase is still not getting us to the contribution margin that we need to be in a normalized environment. So that gives you a sense.

That’s helpful. I appreciate it, Yaniv. Thank you.

Thank you, Brian.

Thank you. And our next question comes from line of Matt Koranda with ROTH Capital. Your line is open. Please go ahead.

Hey, guys. Thank you. Just maybe to start out, I understand and appreciate you know the difficult environment to give an outlook. But wanted to maybe see if you could break out for the full year in '21, Artie, what was organic versus acquired versus wholesale revenue for the full year in '21? And then just maybe if you guys could speak to, should we expect organic growth, I guess, to continue into '22, just qualitatively would be helpful to get puts and takes around that so we can start to kind of build a realistic model for '22.

Let me speak for a second to '22 and I’ll pass it on to Artie to answer your first question. But yeah, the answer is yes, we want to drive growth in 2022, both organically and potentially through M&A. The world is chaotic right now so we’re being a little patient, but we are committed to being a growth company, and we are also a growth company that doesn’t want to grow with negative unit economics. We are working very hard across all dimensions of our business to achieve that. The macro environment will likely influence what that growth looks like. But just to be very clear, it is our goal to do that. In terms of part of it is also launching new products, which, as we talked about earlier, is on pause right now because it’s very important for us to have predictability when it comes to a product we launch from the moment we plan that to when it arrives. If we plan a product launch at a certain price point with a certain P&L, by the time it arrives, that P&L has changed by 20%, 30%. Those are the factors we are considering. But we have a lot of initiatives internally to drive growth and we intend to drive growth this year. Sorry, Artie, I’ll pass it on to you to answer the question.

Yeah, thanks. Matt, you're looking for the 2021 numbers? The organic revenue was roughly $120 million.

Correct, yeah.

Yep, and M&A was roughly about that. I think when you look at last year, keep in mind that we had a bunch of wholesale and some M&A there. So I think the organic number was probably closer to $145 million. So that’s helpful?

Okay, yeah very helpful. Appreciate it from both you guys. And then just in terms of the pricing commentary that you made, Yaniv. I’m curious if we could dig in just a little bit more there, you said if I heard correctly, just maybe on average 20% across the top 50 SKUs. And I’m just curious why you see 20% as the ceiling? What is the behavior that you see when you take price across those SKUs? Is it specifically that you start to lose market share as you kind of price above that level? Or is it just that volume declines, because demand kind of wanes there? I mean just maybe if you could unpack that a little bit more, so we can understand what happens as you take price on this top SKUs?

Sure, yeah. Good question, Matt. And that 20% is an average because we’re category-agnostic and we sell things from a small bottle of essential oils to a commercial ice maker; the profile of our product is all over the place. But that averages close to what I observed. The answer is that first of all, the two are related. You know as you know, in e-commerce marketplaces, market share is a function of sales, the more you sell, the more visibility you gain, and the more potential you have to capture market share. The moment your sales decline, the advertising engine promoting your product will look at your last sales performance and pay more attention to other products. There’s a circular dependency between capturing market share and sales that might not be as obvious now. Yes, the answer is that as we increase the price, we are pressuring the sales volume, but simultaneously opening the door for other products to come in and take market share from us. Now, you might ask how competitors can lower their price and take market share if you open the door to it? The answer is that many competitors don’t necessarily do that out of strength; they might do it out of desperation. Everyone in the industry is suffering from the same problem, leading some to liquidate inventory at lower prices even if it’s not sustainable. That creates more visibility for their products and may make them more appealing to customers, despite their quality. It's chaotic, and it’s not the normal type of competition you expect in a marketplace where everyone is aiming for sustainable revenue and profits. It’s really about having the analytics we have, I think real-time visibility in performance is critical to making those decisions, whether manually or automatically, we have to have the type of real-time analytics built to even manage that. I think that’s one of our strengths.

Okay, that’s helpful, Yaniv. Thank you. And then just the last one for me, if I could sneak one in on the margin front. You guys mentioned a near-term increase in shipping costs potentially. When would you expect that to filter through to the P&L? And then just how much margin pressure should we be factoring into the first quarter, second quarter of this year? It almost sounds like things remain somewhat flattish relative to the fourth quarter, but just any directional commentary you can provide on that would be much appreciated. Thanks.

You know, Matt, I’d say we have become followers of some of your colleagues covering shipping, and I’ve been avidly reading content online from various publishers and analysts. The comment we made is related to what happened in Ukraine, and obviously gas costs going up is not going to help. But there are kind of two opinions out there. One is that with the cost of shipping going up and all these other disruptions to supply chain, we might see the cost of shipping rise, but there are also some analysts who think that there’s the potential for improvement. So we’re being cautious here and not necessarily saying that we know for certain it will get worse before it gets better. I would bet that it’s likely to worsen. How much is a great question, and honestly, I don’t think anyone, including shipping companies, can comprehend the ripple effect of what’s happening in Europe and its impact across businesses, commodities prices, and oil prices. So, we’re hopeful it won’t get much worse than it’s been in the past, and I think it might just take longer for it to come down. But again, very hard to tell. I’m sorry I don’t have a clearer answer, but I don’t think anyone really does.

That seems fair. I’ll leave it there, guys. Thank you.

Thank you.

Thank you. And our next question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open. Please go ahead.

Great, thanks so much. I’m curious; you mentioned some benefits by several thousand dollars per container through your new partnerships with Amazon and others. When is the first quarter you expect that P&L to get the full benefit? And how much of your containers are run through that program? Do you expect maybe first half of the year of your total?

Hey, Brian, good to hear from you. The benefits of the shipping rates usually manifest a quarter later, and this doesn’t even consider some shipping delays. It's not just about the cost; it also factors in how long it takes to clear from the ports. But in a way, we’re already seeing benefits from it. But it’s not that we’ve returned to the state we were in 2019; rather, we would likely be in a worse position without securing those rates. So, while I wouldn't say we are entirely back to normal, we have weathered the current situation well due to those improvements.

Yeah. And then can you talk about how you’re thinking about expenses? Are you considering cutting costs to preserve capital and weather the storm? Does the recent capital raise lead you to hold the line on expenses in the near term? Are you making investments? Just give me some sense of your fixed overhead.

Yeah. You hit us with two. So listen, with the $27.5 million equity raise and our credit facility, we think we’re well capitalized, and we secured the balance sheet, which enables us to weather the storm. That said, we’re constantly looking at supply chain and our warehouse last mile partners to optimize and ensure that we’re driving the best margins possible given the circumstances. From a fixed cost perspective, we’re always looking; we anticipate long-term growth, as we've always discussed. We think we're going to be able to weather this storm, and we’re not necessarily looking to cut costs. We will always try to optimize via automation and other investments and systems.

Okay, thank you.

Thank you. And our next question comes from the line of Thomas Forte with D.A. Davidson. Your line is open. Please go ahead.

Great. So three sets of questions, two company-specific and one industry. I’ll go one at a time. On the first one, Yaniv, if you’re pitching this business today, March 8, 2022, I want to know what realistic expectations for long-term success are. If the e-commerce industry grows at a 15% CAGR on a very long-term basis, how do you expect to fare versus that 15%? And how should we think about your long-term contribution margin?

Thanks, Tom, and good to hear from you. We’ve had a challenging six to eight months with everything occurring globally. But as I mentioned in my remarks before, I couldn’t be more excited about the future. I believe that everything we’re doing aligns with the future of consumer product companies online. Many groups are recognizing that potential and focusing on weathering the storm. As the dust settles and the storm passes, those holding strong balance sheets and operational capabilities will have enormous opportunities to scale. Yes, e-commerce is growing. We’ve seen it reflected in quarterly reports. We definitely have ambitions to be a global company, and we’re just scratching the surface. We have built a strong foundation in terms of our team, culture, systems, and expertise. Many companies that fail do so after facing just one crisis; our ability to navigate a multitude of challenges recently gives me confidence in our resilience. We want to go back to hyper growth. You know my ambitions are significant, and I want to push forward to scale this company. However, some patience is required to protect our existing assets amid the uncertainty.

Great. And then the second question was, I think you talked about resuming M&A. So today, March 2022, what gives you confidence in your ability to earn an appropriate return on capital from resuming M&A, given your current cost of capital?

Yes, we are resuming M&A; the opportunities are incredible. As I mentioned in my comments, we’re not the only ones recognizing these potentials; there are significant capital investments entering this arena. We remain the only public entity actively pursuing this to my knowledge. Before the conflict in Ukraine, I felt confident about reigniting M&A since we’re category-agnostic and can look at targets in categories less impacted by international supply chain involvements. With the developments in Ukraine, we’re going to be cautious and wait, as these events could influence market categories. But the opportunity remains prevalent; we just need to be focused on when the timing is right.

All right. Thank you for that. Last one, particularly because you mentioned the pendulum. So the idea was that at the beginning of the pandemic, the pendulum swung heavily toward e-commerce, with everyone in a shelter-in-place environment. Then, as things started to ease, the pendulum swung back to physical stores. Can you provide your current thoughts on where the pendulum lies today? There have been other e-commerce players who’ve reported their December quarter and made comments suggesting that it’s still tilting toward physical stores, Wayfair being a good example.

Yeah, thanks, Tom. I saw the Wayfair results and their comments. I believe the pendulum hasn’t stabilized yet; it’s still finding the middle ground. I think that growth in e-commerce will continue to follow a linear path similar to pre-pandemic trends. We’ve observed a sinus wave or a sequence of highs and lows as e-commerce surged and then declined as consumers returned to physical stores. However, I believe that e-commerce will return to normalized growth patterns; there is vast business potential we haven’t yet tapped. In other countries, you might see e-commerce growth accelerate faster, like in China, where e-commerce adoption is partly due to limited access to physical stores. I believe over time e-commerce will continue to become a significant part of retail, which will be exciting for us to witness.

Thank you, Yaniv.

Thank you.

Thank you. And our next question comes from line of Marvin Fong with BTIG. Your line is open. Please go ahead.

Great. Thanks, everyone, for taking my questions. Two questions, if I may. The first, I appreciate that a lot of discussions on shipping, and obviously you guys are doing a lot on that front. Are there any other commodity exposures that we should be thinking about? I know you have a pretty broad product range; perhaps steel or any other materials. I understand you’ve secured a lot of your spring and summer inventory. But just in the long run, what sort of material and commodity exposure do you have that we should consider?

Hey, Marvin, good to hear from you. Our manufacturers are reaching out and alerting us that commodity prices are increasing. I think copper is one of those that we have to keep in mind; plenty of our products with electronic components are affected. Across the board, even plastic has been under pressure. This increased pressure trickles down from our manufacturers. Our goal is to track those comments closely to understand the reasons for their price increases. We hope that when conditions improve, we can negotiate lower prices.

Got you. Perfect. And then just to revisit the M&A, I totally appreciate you said you’d be patient. Expand a little more on that. I mean, what are you seeing now? Obviously, we’re seeing some of the air coming out of valuations in the public markets. Are you seeing something similar in the aggregator space? Or is there just so much capital flowing around that multiples are still up from where they were a couple of years ago, perhaps? As a second part of that, I mean, do you think we could over time see acquisition multiples revert to 3 times to 4 times EBITDA versus maybe a couple of turns higher, like we saw towards the end of last year?

Yeah, thank you, Marvin. From what we know about our competitors in the private space, they’re all facing similar challenges, so none are immune. But with our experience and better infrastructure, we’ll navigate it better. I believe many of our competitors will perform well, which is good for the industry as it creates valid comps. Unfortunately, some may not be able to withstand current pressures leading to divestitures, which is part of our strategic patience. There’s potential for strong opportunities. While I would say the multiples for acquisitions are still holding firm, I forecast that in the next few months we may begin to see downward pressure on those multiples because some players will struggle to progress and might even divest. I think acquiring businesses will stabilize around 5 to 6 times multiple, with particularly strong assets perhaps reaching 6 to 7 times. This is why it's essential to be cautious now; we need to understand where the industry is going and identify key players that will thrive versus those that may falter.

That’s great. Thanks so much, Yaniv.

Thank you, Marvin.

Thank you. And I’m showing no further questions. I’d like to turn the conference back over to Mr. Grozovsky for any further remarks.

Thanks, Michelle. As part of our Shareholder Perks program, a reminder that investors can sign up for at aterian.io/perk. Participants have the option to ask management questions on our earnings call. I wanted to thank all the Shareholder Perks participants for their loyalty and their involvement. I’ve picked a few relevant questions that they asked. Can you provide an update on the effort to stop the naked shorting of Aterian?

All right, Yaniv here. We’re working really hard to ensure that all trading and our shares comply with the rules and laws out there. The process takes a long time; we’re definitely active in that regard, but it’s going to take time to see that through. We’ll report on further results when we have them.

Okay, thank you. Another question we received is, please update the progress on platforms other than Amazon?

Yes, one of the biggest pushes last year was international growth. The supply chain crisis has slowed that down, but we’re still making progress. A significant effort is directed towards Walmart. We’ve made a lot of progress, but we have a lot to do. Walmart is investing heavily in their e-commerce which is still somewhat behind Amazon, but they’ve been progressing aggressively, allowing us to leverage their tools and analytics to integrate into AIMEE. So, cautiously optimistic about that becoming more valuable. Another focus for us is investing in organic growth through D2C. Our brands have Shopify stores, and we’re gradually increasing investment to scale that. Those are our two major focuses right now. Given the supply chain issues, our international efforts will take longer; shipping to Europe is even more challenging.

Great, thank you, Yaniv, and thank you for participating in today’s call. In terms of the upcoming calendar, Aterian management will participate in the 5th Annual D.A. Davidson Consumer Growth Conference on March 10th. The fireside chat will be at 1:15 PM and will be webcast. The 34th Annual ROTH Conference is on March 13th through 15th. We look forward to speaking with you on future calls. This ends our call. You may now disconnect.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.