Good afternoon. And welcome to the Aterian Incorporated Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ilya Grozovsky, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you for joining us today to discuss Aterian’s third 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 these 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 third 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.

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 will then review key takeaways from the third quarter of this year. Then I'll discuss our challenges and how we're dealing with them, including the economy, macro level pressure from supply chain disruptions and inflation, and finally, I'll summarize how we see the long-term prospects for Aterian. 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 owns and operates its many consumer brands, selling products across various categories and channels such as Amazon, Walmart, Shopify, and eBay, both domestically and internationally. 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 under our brands, manage these products to 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, we’re continuing to invest in technology and agile supply chains to drive scale and profitability. Moving on to our key takeaways from our third quarter, I'll start with a quick summary of the main points and then discuss them in more detail. International supply chain is finally showing signs of a return to the old normal. Dramatic hikes in global shipping rates that have negatively affected us for over a year have continued to subside. We're now shipping containers at rates close to the pre-pandemic levels. We believe that our defensive strategy of protecting market share through the last year has worked out and it's now time to get back on the offensive. We're now fully focused on making 2023 a pivotal year for Aterian. Through the fourth quarter of this year, we’ll continue to attempt to maintain our lower prices to liquidate expensive excess inventory while using this effort to also attempt to gain as much market share as possible for our products. These efforts will hurt our adjusted EBITDA for the remainder of 2022, but we believe they will put us in a strong position to reignite growth in 2023. We're also taking measures to reduce our fixed costs by restructuring teams and removing certain roles to set us on our path to profitability. It'll take time to see the full effect of these actions, but we believe that starting in 2023 we’ll begin to show improvements to our profitability metrics with the target of turning profitable at the adjusted EBITDA levels starting in Q3 next year. I would like to now elaborate on each of these points and explain why we're optimistic that with the above mentioned actions management is taking the right steps towards putting Aterian on track. I'll start by focusing on international supply chain updates. As many listeners who have been following our company in the last couple of years know, keeping rates for international containers have been the main culprit in putting pressure on our business model. As a reminder, the supply chain crisis followed the COVID-19 pandemic led to a fivefold increase in the cost of shipping containers from China to the U.S. This increase required us to raise our own prices for our products by an average of 20%. While the price increase was important, our blended contribution margin year-to-date was reduced to approximately 6% versus our target of 15%. Additionally, the necessary price increases combined with reduced consumer spending and overall inflation hurt our top-line sales. Even though it is difficult and unpredictable conditions limited our ability to drive sustainable growth, we opted to focus on protecting market share for our product until shipping prices come back to normal. The good news is that our strategy seems to have worked. We've been able to secure shipping containers at pre-pandemic rates. We've also been able to protect our portfolio from losing relative market share, which leads to the second point I mentioned earlier. It's now time to get back on the offensive, and we're aggressively pushing initiatives designed to prepare us for a strong 2023 with our eyes set on profitability in the second half of the year. The most important initiative was started in the third quarter of this year with a mandate we gave our teams to pursue lower price strategies in an effort to cycle through our current low-margin excess inventory position. We've made this decision so that we can replenish new inventory at a higher margin given the latest normalization of shipping rates. While not every product in our portfolio may have the same opportunity, we are doing our best to capitalize on these aggressive pricing strategies to secure better long-term market share. Sales volumes and overall demand increase typically drive more visibility for trending products in brick-and-mortar stores. Similarly, for us, Amazon and other e-commerce platforms we operate on typically reward sales increases with better visibility and ranking for our products. It is therefore a goal to increase sales velocity at the expense of our margins now in order to gain as much market share as possible, and then hopefully see the inventory coming in at a lower cost basis, allowing for margin increase. If our plan works as we hope, we believe that we'll be able to enter Q2 of 2023 with our products driving more sales, but also benefiting from the improved shipping costs to show stronger margin. As I mentioned earlier, our management team is focused on achieving profitability by the second half of 2023. We believe that in the current market conditions, attracting new investors and creating shareholder value starts with fixing the core metrics of our business and gaining trust. We've had to make some painful decisions in the last 12 months to protect the company as the macro-level environment shifted rapidly from a focus on growth to a focus on profitability. Our profitability and overall goals for 2023 are not without risks, and in particular, the geopolitical tensions still at play in Europe and the Asia-Pacific regions cannot be ignored. We're operating based on data that we are seeing at present. The recessionary environment seems to have resolved the supply chain concerns. However, we're closely monitoring the looming energy crisis as potential future increases in gas prices could negatively impact last-mile shipping rates. Furthermore, the COVID-zero policy in China is a concern as it can lead to factory shutdowns and other disruptions in our supply chain. Finally, a further decline in consumer spending related to inflation and the Fed's tightening monetary policy could potentially hamper expectations for overall sales forecasts next year. At this time, we're of the opinion that demand will remain relatively flat and that the negativity in consumer sentiment has mostly settled. Nevertheless, we remain optimistic that despite these risks, 2023 is an important year for us to push forward by launching new products as well as resuming our M&A strategy. Additionally, our efforts to strengthen our balance sheet have positioned us to start Q4 with $46 million in cash, which gives us confidence to weather potential disruptions. Regarding growth in general, we continue to invest cautiously in driving long-term organic growth by slowly ramping up new products and investing in our operational capabilities in the European Union to allow us to continue to expand our business internationally. While we are being conservative with our expectations for organic growth, we're also dedicating resources to seeking opportunities to accelerate growth through M&A. The e-commerce industry as a whole has experienced extreme disruption similar to those affecting us, including our competitors in the Amazon aggregator space. As a result, we're actively looking into opportunities to consolidate brand assets that we believe will be synergistic to Aterian, given the investments we made to build a scalable infrastructure. Our efforts so far have been productive, and we're hopeful that our opportunities could pay off and allow us to acquire additional positive contribution margin generating businesses to accelerate our path to profitability. I want to thank our team and shareholders who continue to believe in us. We will work tirelessly to make 2023 the year that sets us back on track to continue to build the leading CPG platform in e-commerce. With that, I'll pass it to Artie to discuss the quarter's financials.

Thank you, Yaniv, and good evening everyone. Here are the financial performance details of our third quarter. For the third quarter of 2022, net revenue decreased 2.6% or $1.8 million to $66.3 million from $68.1 million in the year-ago quarter, primarily due to softer consumer demand in marketplaces offset by increased net revenue due to our decision to sell off the inventory through reduced pricing to decrease our inventory levels on hand. The third quarter net revenue of $66.3 million is composed primarily of $63.8 million of organic business, which we note includes revenue from our built brands and acquired brands starting one year after purchase, and $2.5 million of wholesale and others. The year-ago quarter net revenue of $68.1 million was comprised of approximately $35.4 million from our organic business, $30.7 million of net revenue from our mergers and acquisitions, and $2 million of wholesale and others. Our organic revenue increased by $28.4 million from the classification of our past acquisition revenue into organic revenue, offset by a reduction in overall organic revenue due to reduced overall consumer spend in the period, further offset by increased net revenue from our decision to sell off inventory through reduced pricing to decrease our inventory levels on hand. Our acquisition revenue decreased to zero in the third quarter of 2022 from $30.7 million in the third quarter of 2021, due to all our acquisitions being owned for over a year and shifting into the organic revenue categorization. Our sustained net revenue was $54.2 million for the third quarter of 2022 compared to $59.8 million in the third quarter of 2021. The decrease is related to softer consumer demand in marketplaces, offset by increased net revenue from our decision to sell off inventory to reduce pricing to decrease our inventory levels on hand. Our launch phase revenues, which include a few new variations on existing products and product re-launches, was $1.6 million in the third quarter, down from $5.3 million in the year-ago quarter. We launched one brand new product in the third quarter compared to zero in last year's third quarter. Importantly, after several quarters of no new product launches, we are planning on resuming new product launches and are evaluating additional launches in the coming quarters primarily for 2023. Overall gross margin for the third quarter decreased to 45.5% from 50.2% in the year-ago quarter. This gross margin decline is due to margin impacts from inventory sell-off and from increased costs from supply chain disruption, specifically increased costs of shipping containers. We believe the increased cost of shipping containers relative to the third quarter of 2021 impacted our gross margin negatively by approximately 2.5% in the third quarter of 2022. Our overall third quarter contribution margin has defined in our earnings release was 1.1%, which decreased compared to the prior year's contribution margin of 12.1%. This decrease is primarily driven by liquidation net revenue of $10 million, which was sold at a negative contribution margin, as part of our efforts to reduce our inventory on hand. The third quarter of 2022 saw our sustained products contribution margin decrease to 10% compared to 14% in the third quarter of 2021 due to product mix and our decision to sell off products to decrease our inventory levels via reduced pricing. Looking deeper into our contribution margin for Q3 2022, we saw our sales and distribution expenses continue to be negatively impacted by our cost supply chain and last-mile fulfillment costs due to inflationary pressures. Our third quarter 2022 variable sales and distribution expenses as a percentage of net revenue increased to 44.4% compared to 39.4% 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 costs, we believe we'll continue to see contribution margin pressure for the remainder of 2022. We reported an operating loss of $108.9 million for the third quarter of 2022 compared to a loss of $7.5 million in the third quarter of 2021. The increased loss in the quarter is driven by our non-cash $90.9 million loss of impairment goodwill, primarily due to our decreased market cap at the end of Q3. The third quarter 2022 operational loss includes a gain of $0.8 million from the change in fair value of earn-out liabilities, a non-cash loss of $3.1 million from the impairment of intangibles, and $2.9 million in non-cash stock compensation expense, while the third quarter of 2021 operating loss included $4.2 million of a benefit from the change in fair value of earn-out liabilities and $9.6 million in non-cash stock compensation. The net loss in the third quarter of 2022 was $116.9 million, which was an increase from the net loss of $110.6 million in the third quarter of 2021. The third quarter 2022 net loss includes an impact of operating loss from non-cash $9.9 million impairment of goodwill, a $5.5 million in net charges from the changes in fair value of warrants, and a $12.8 million loss from the derivative related to the offering of common stock, while the third quarter of 2021 included a $107 million loss from extinguishment of debt, an $8.1 million gain from the change of fair value of warrants, and a $1.4 million loss associated with a derivative liability in our term loan at the time. Adjusted EBITDA as defined and reconciled in our earnings release for the third quarter of 2022 was a loss of $9.1 million compared to a gain of $0.7 million in the third quarter of 2021. Turning to the balance sheet at September 30, 2022, we had cash of $26 million compared to $34.8 million at the end of June 30, 2022. The decrease in our cash is due to our net loss and repayments of our credit facility. Our credit facility net was down to $23.9 million at September 30th versus $33.9 million at June 30, 2022. Further, the September 30, 2022 cash balance does not include the additional capital raise completed on October 4th, which added $20 million to our balance sheet. Taking that capital into account, our cash position at the start of Q4 2022 was approximately $46 million. Our inventory was $60.5 million at September 30, 2022, which is lower than the $76.1 million at June 30, 2022 due to our Q3 sales along with the efforts to reduce inventory levels. As previously mentioned, we made the strategic decision in Q4 of 2021 to increase inventory levels to mitigate supply chain constraints. However, with the softening consumer demands, we continue to be long on inventory; thus, we anticipate continuing to move excess inventory during Q4 by reducing margins to help normalize inventory levels. As our supply chain continues to improve, we believe we can reduce our more expensive inventory levels and improve costs when we reorder products for 2023. Looking at our Q4 2022 and taking into account the current global environment and rising inflation, we believe that fourth quarter 2022 net revenue will be between $45 million and $55 million. As we look at 2023, we are optimistic about our improving supply chain, as the hike in global shipping rates that negatively affected us in the past continues to subside. We have also taken measures to reduce our fixed costs by restructuring teams and removing certain roles. At this time, we believe that demand will remain relatively flat, and that the negativity in consumer sentiment has mostly settled. With these key factors in mind, we are targeting to achieve profitability starting in the third quarter of 2023. We will not provide any additional guidance for 2023 at this time. In closing, the third quarter of 2022 saw continued challenging microeconomic conditions and unpredictable consumer spending habits, and we expect these challenges to continue through 2022. We are starting to see supply chain improvements, and container costs are currently returning to pre-pandemic levels. As such, we continue to be very confident, optimistic, and proud of the business we have built, our products, our technology, our logistics network, and most importantly, our dedicated and hardworking people. With that, I'll turn it back to the operator to open the call to questions.

The first question is from Brian Nagel with Oppenheimer. Please go ahead.

Hi, good afternoon.

Good afternoon, Brian.

We continue to be very confident, optimistic, and proud of the business we have built, our products, our technology, our logistics network, and most importantly, our dedicated and hardworking people. With that, I'll turn it back to the operator to open the call to questions.

Pardon me. Mr. Nagel, this is the conference operator. Your audio is breaking up to the point of being unable to understand it. If you could possibly disconnect and dial back into the call, we'll get you right back into the queue again.

Okay.

Our next question will be from Brian Kinstlinger with Alliance Global Partners. Please go ahead.

Great, thanks. Am I clear?

Yes, sir. Please go ahead.

Great, thanks. First, you mentioned the launch of your first new SKU and can you share your plans with us regarding SKU launches in 2023? Assuming current conditions hold, including global shipping rates, is there a monthly or quarterly target? I know a long time back you had given targets. Is there anything you can share with us regarding that next year?

Hey, thank you, Brian. This is Yaniv here. Thanks for the question. So, yes, as you mentioned, it’s great for us to go back to launching products and I know you said one product in the third quarter. I also want to mention we are also working on what we call variations of products, meaning all sorts of additional products that supplement existing products as part of our efforts. In general, though, we don't have a concrete goal yet given the fluidity of everything that's happening on the supply chain. But the goal is to start increasing the amount of products that we launch as we get more comfortable that what we're seeing on the supply chain is here to stay. That's really kind of how we think about it at this point. Artie, if you want to add anything.

Yes. No. I think to me that's a good answer. I think the other side, Brian; I think keep in mind in the past we were definitely doing a lot more volume of products. I think one of the things we're also thinking about is about lesser bigger products too. As we think about 2023 but to Yaniv's point, it’s still very volatile; so I don't think we have anything concrete from targets, but those are the things we're definitely working on.

Okay. And then as you're evaluating M&A opportunities, which you've announced one, you've got increased capital, I figure those targets also have the same inventory of high attach shipping rates, high price COGS overall. So how does that impact the strategy and as you acquire companies, how does that impact the acquisitions?

When we look at various targets right now, obviously as you mentioned, we're seeing some of the same impediments that that hurt us and others in the industry. For us, I think patience is extremely important here. We're seeing a lot of these targets, as I said struggling and kind of trying to find the best way forward. And so for us, as I mentioned, we don't want to overpay, so we want to make sure that what we're looking at in terms of value in these companies. The impact is already in there and that we can really kind of wrap our heads around what's the actual path forward for this asset. In general though, it's a positive thing, right? We are now in a position where we believe that there could be a lot of opportunities for us to acquire accretive contribution margin generating businesses at much lower cost than it would have been probably a year ago when we still saw the COVID effect inflating some of the numbers of these targets. So again, the bottom line is we're being cautious and waiting and patient to see exactly where some of these targets are going to land before we pull the trigger, but we think the opportunities are there and we're working on that.

My last question and I'll get back into the queue. You commented that you are seeing shipping rates about back to levels of pre-COVID. As we look at your gross margin and obviously mix does matter but as we look at your gross margin with that said, and the cuts you're making, should we assume when you get back to profitability you'll have similar gross margins where we saw low-to-mid 50% range when that occurs in the second half of the year? Is that the assumption that gets you there?

Artie, you want to take that one?

Yes. Brian, I think you're thinking about it the right way. I think product mix is very important in that, and as we're clearing out inventory that also has an effect depending on how successful we are there. But yes, I think if you think about the ideal model, it's definitely in the kind of mid-50s right? As you're pointing out, and then obviously other factors that contribute into contribution margin would also factor in that, and that’s certainly the numbers you're putting out there, that range is definitely something that we should theoretically be achieving.

Great. Thank you so much. I'll get back into the queue.

The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Hi, hope you can hear me better now. We're having some phone issues here.

That's much better.

Okay, cool. So the question, I was asking this with regard to the liquidation of the product this quarter. I guess it is the thought process behind, I mean, you seem to have liquidated it; obviously it took the hit to contribution margin. Was there any consideration of just allowing that product, albeit higher cost or higher cost associated, to kind of work through the system naturally? And then do you run the – I mean, I don't, the actual I guess the question I'm asking is the volume of product that was liquidated. Is there the risk that you pulled forward some demand that could impact sales of products in the coming quarters that have a lower – potentially lower cost associated with them?

Hey, Brian, good question. Let me take those. So first of all, the logic behind it is, as you're obviously covering us for a while. You know that we had to bring in a lot of inventory at a cost basis that was very high given the shipping container rates. But obviously, like any other company in this industry, we couldn't stop selling, right? So we had to eat those costs and increase our pricing to the consumer, which drove less top-line sales and also less contribution margin. Now that we're seeing container shipping come down, we're still sitting on a lot of inventory that we brought in at this cost basis that's too high. And so the risk of not cycling through that inventory and letting it just follow its due course is that if our competitors in the particular product lines that we are in are able to do that before us, in 2023 their cost basis will be lower and they'll be able to undercut us on price. So in a way for us, we believe that again the supply chain is normalizing and that it's very important for us to cycle through that inventory so that we can bring back inventory at a cost basis that is competitive. Does that make sense on your first question?

Yes. That makes perfect sense. Yes, I get it. And then if I could follow up.

And then in terms of...

Yes. Go ahead.

Yes. In terms of pulling forward demand, sorry, just, yes, I think that's what you asked, right? I don't think that – we don't think of it like that. I think instead we're looking at it as an opportunity to capture more market share from our competitors, right? As I said while we are looking at this excess inventory we are looking at this as life gives you lemons, so make lemonade with them, right? There's one advantage of having that excess inventory that if we're willing to take this back, that we can come back and bring in more inventory at a cheaper cost basis. Selling it now at a lower price, although it hurts our margin, allows us to take market share from our competitors, right? Our goal is to basically align the product kind of like inventory levels with the optimal run rate that we can achieve and the highest possible margin when we bring them back in. So meaning that as we're normalizing and liquidating this inventory by being very aggressive on pricing, we're capturing market share. And then hopefully we time it well with the arrival of more inventory at a lower cost basis to retain that market share while now also having the expanded margin, right? Does that make sense how I explained it?

Yes, it makes perfect sense. That makes perfect sense. I get it. If I could just follow-up a question, I guess may be more clarification; this may be a follow-up to the prior questions. I apologize I was cut up the call for a bit. So we've been talking now about, even with your response to the prior question, I mean, one of the biggest issues that Aterian has been dealing with is this massive increase in shipping costs. Okay, so now you're saying the shipping costs have retreated significantly back to, I mean, essentially it seems very close to pre-pandemic levels. So as we think about recognizing there are a lot of moving parts here, but as we think about the kind of the earnings power, if you will, of Aterian through 2023, how much of the shipping costs having now moderated? In and of itself, how much of the tailwind to earnings could that be?

Brian, it was a little choppy, but I think you are saying, how much can you repeat just the last part? How would, just the last question; can you repeat the question?

Yes, just how should we think about the earnings tailwind that could come as a result of the shipping costs having moderated so significantly?

Yes, I mean, okay, yes, now I heard you. Yes. Listen, I mean, as you know, right, this has been the epicenter of our challenges in the last year plus. For us, it's been a very tough time to run our business with reduced margins and products that need to be priced at a place where they become more difficult for consumers to buy. Right? And so there's a lot of advantages of obviously seeing those costs coming down. First, again, we can lower our prices and go back to our targets of 15%, 16% contribution margin, meaning that we should also gain more sales. Right? More revenue on the top line. So this is just tremendous for us. The only thing I'll say though is that we are also generally, the economy is not in its best place. So for us, I think one of the most challenging questions is where is consumer demand going to be. We know that we should be able to get to more competitive pricing for consumers, and we should see a significant increase in our contribution margin, which are all great tailwinds for us. The underlying question that we've been, I think, overall conservative round how we think about it is where our consumers are going to be given that everything points out to a challenging time for the economy going forward. Right? So I think, again, on one hand, great news and again, potentially a strong tailwind for us, with improved margin while we can have more competitive prices. And again, just to be clear, right, this is after we cycle through our inventory, right? So we still have work to do there, but that's great news. The big question is where are consumers going to be, where is overall demand going to be? And I think we've taken an overall conservative view of that. So we still feel good about the picture for Aterian.

Got it. I appreciate that. Thank you.

The next question is from Matt Koranda with Roth Capital. Please go ahead.

Hey guys, good evening. Can you just help us understand the $45 million to $55 million range that you put out for the fourth quarter for revenue? I guess just what I'm trying to understand is why the drop-off sequentially versus the third quarter, despite it seems like you're signaling there's more liquidation of inventory to come, so I would expect sort of you to stay on the gas on revenue, but just any clarification or puts and takes on sort of what's going on with the range for the fourth quarter?

Artie you want to take that one?

Yes. Yes, thank you Yaniv. Hey, Matt. Listen, Matt, I think, as Yaniv said, we’re trying to be aggressive and move this inventory at the same time, there is a lot of volatility in what we're seeing from consumer spend, right, and what the consumer sentiment is, especially going into Q4. I think in some aspects we saw a relatively decent Prime Day, but certainly not as strong as the Prime Day in June, and I think that's what Amazon also pointed towards when they talked about it. At the same time you are right that discounting pricing is going to perhaps push volumes up, but it's really hard to say. I think when we looked at it and we look at our range, I think it's still very common and core to our business that we still see the same splits, right? I think Q2 and Q3 have historically been our strongest products. We drive a lot of dehumidifiers and AC, which are some of the best-selling products on Amazon. Q4 has always been lower price points conceptually. We do good numbers and good units, and we have a lot of best sellers that hit Q4, like our steam mops and other things like that. But certainly it's never been at the levels of our Q2, Q3. I think when you look at it from our split perspective, if I'm thinking about the middle of that range that would put you roughly at doing 23%, 24%, which isn’t far off to what we've historically done. So I don't think it's really far off there. You're right, if we're a lot more successful in that, we could be pushing higher range or beyond that, but right now, I think, considering the macroeconomic conditions, I think we're being prudent there and I think that's a comfortable range in line with historical percentages.

Okay, fair enough. And then just wanted to get a sense for how we expect margins to trend. Any help on just sort of how much of the fourth quarter mix you expect to be liquidation revenue versus sort of sustained? And then should we expect sort of a similar contribution margin on a go-forward basis coming from that liquidation until you get through the inventory the higher cost inventory that you want to clear?

Artie I'll let you answer that one too.

Yes. Thanks, Yaniv. Matt, another good question. We've got a lot of opportunities and a lot of interest in both how we liquidate and how we liquidate products on Amazon. I would hope that we do better than what just saw in this quarter, but we're still too early in the process; a lot is going to depend on how Black Friday and Cyber Monday goes. I think conservatively I would look at the splits that you see in our press release between sustained and liquidate in the back of the tables. I would look at those and say, I would assume consistency.

Okay. Alright. Got it. Yes, consistency makes sense. And then help us understand the context for the profitability on EBITDA in the third quarter of next year. Are you just effectively saying that you still have inventory, higher cost inventory to work through, that will take until all the way through the first half of 2023? Do we see some light at the end of the tunnel on sort of outbound shipping that might be percolating that we're counting on in the third quarter? Like what are the kind of the positives that you see coming in the third quarter that kind of gets you the visibility into positive EBITDA in the third quarter of 2023?

Artie I'll let you answer that one too.

Yes. Listen; we said earlier, Q3 tends to be our strongest quarter. May and June for our summer products are always a little questionable depending on weather and other factors. To your point just to give you a little bit of understanding, I'm ordering my summer’s products today and tomorrow, right? In the next month, I already put my purchase orders in, right? So those products at the lower shipping container rates don't show up until May and June, right? I think in some standpoints, that's why I'm pointing towards there. We're hoping that any of the long inventory related to my summer products will be gone by then, as Yaniv mentioned in his remarks that we're going to start seeing the improvement in Q2 of 2023. But certainly we hope if everything goes as per our approach that we would see the full impact of the improvement in Q3 2023; hence why we're pointing to that particular period.

Okay. Got it. And then maybe last one either Yaniv or Arty you can take this one. Just what are you seeing in the broader pricing environment? I guess, are you seeing competitive pressure from some of those more stressed competitors that are trying to clear inventory? Are you seeing folks stamp pad and you are benefiting in this environment by being able to kind of be more aggressive on price and take share? Just wanted to kind of get a better sense for like the overall context of what's going on with pricing that you observed across your categories?

Hey Matt, it’s a good question. Let me take that one. And I guess the answer here is, as you might expect, we're seeing kind of interesting patterns of companies looking to also discount and adjust inventory prices down and kind of trying to normalize their position as well. What's interesting is to really try to differentiate between those who are trying to do this and will come back to be competitors, and those who are throwing in the towel, and that's not always easy to do. Literally, our teams are looking at our analytics and evaluating on a per product and category basis if we should be worried about certain price cutting, or should we actually see that as a positive. There is no one clear answer across the board, as you can imagine; depending on the category, and the type of products and the type of competitor that we're up against, we could be looking at a competitor that is again just throwing in the towel and we can see their price reduction as a temporary threat or some that maybe are trying to be more opportunistic and think like us long-term about how they can take advantage of this situation and replenish. Right? But in the meantime, try to be more aggressive on taking market share. So there's no clear-cut answer across the board, but it's a very good question. Our teams are tactically very much on top of it. So I think, again, our investment in analytics and our ability to look at all this data point in real-time allow us to manage pretty well both situations.

Okay. Awesome. Appreciate it guys.

This concludes our telephone question-and-answer session. I would like to turn the conference back over to Ilya Grozovsky for any online questions.

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 wanted to thank all of the shareholder perks participants for their loyalty, their participation in the program, and their questions. I have picked a few of the most popular questions that they have sent in. Here we go. With shipping costs significantly down and almost at pre-pandemic levels, does the management team finally see a turnaround and return to profitability in 2023? Yaniv?

Yes, Ilya, thank you. So, as we said, the answer is yes, it's management's focus and our target to see adjusted EBITDA profitability in the third quarter of 2023. And as we said also in the press release, this is driven by two forces, right? One is obviously, as we talked about the lower shipping costs, but also some cost reductions that we're taking. And again, it's really kind of the focus of management right now to prepare us for that.

Great. Okay. The next question was, can you talk a little bit about your recent acquisition and future acquisition strategy?

Yes, so the recent acquisition, the brand that fits really well in our current portfolio, I think, I've seen some assumptions online it might be an essential oil brand. It's not the case. For competitive reasons, we're not going to disclose any further here on what that particular brand was. But in terms of future acquisitions, we're actively looking into opportunities, especially when it comes to consolidating brand assets that we think are synergistic to our portfolio. And especially we believe that in the current environment there might be opportunities. And as I said earlier, we're just being cautious and taking our time to really make sure that we are bringing in the right type of assets. So really cherry-picking brands or selling products that would feed our current portfolio. But this is ongoing and we'll continue to make progress on it.

Okay. Great. And then the last question, and perhaps the most important question was how do you plan to increase shareholder value?

So yes, I think as we mentioned earlier, and probably the most important thing is we're working really hard towards profitability. As we mentioned, also, we started kind of slowly, right? We're starting to work again on developing new products that we can launch. I think we made a lot of efforts behind the scenes to expand our capabilities in Europe. It's been on our to-do list for a while to put more efforts into Europe, but again, the shipping price increase had kind of prevented that from happening earlier. Now that things are starting to get better, we want to take advantage of the efforts we've put in place to expand our footprint in Europe. So I think that’s going to be exciting, although it will take time. And then finally, we're looking for opportunities to add incremental brands to our platform via acquisitions. I think again, to get all these efforts should allow us to increase revenue and lead to adjusted EBITDA profitability. And again, hopefully unlock much more shareholder value. Management is very much focused on all these things.

Great. Thank you, Yaniv. So this concludes the Q&A portion of the call. In terms of the upcoming calendar, Aterian Management will be participating in the BTIG Technology Innovation Summit November 15, which will be held virtually; the 13th Annual Craig-Hallum Alpha Select Conference, November 17 in New York City; and the Roth 11th Annual Roth Deer Valley Conference, December 14 through 17. We look forward to speaking with you on future calls. This ends our call and you may disconnect. Thank you.