Afternoon, and welcome to the Aterion Incorporated Third Quarter 2022 Earnings Conference Call. All participants will be in 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 Atarian's Q3 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
This press release is available
on the Investor Relations section of Itterion's website at itterion. 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 Deterion's judgment and analysis Only as of today and actual results may differ materially from current expectations based on a number of factors affecting Athyrian's business. Accordingly, you should not place undue reliance on these forward looking statements. For a more thorough discussion We refer you to the disclaimer regarding forward looking statements that is included in our Q3 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 of Atiran for those who are newer to our story. I will then review key takeaways from the Q3 of this year. I'll then discuss our challenges and how we're dealing with that, including the economy, macro level pressure from supply chain disruptions and inflation.
I'll then summarize how we see the long term prospects for Athyrium. For those who are new to the story, here's what you need to know about our company. Athyrian is part of a new breed of technology enabled consumer product companies. We focus on building, acquiring and partnering with e commerce brands online. Athyrian owns and operates its many consumer brands selling products across various categories on channels such as Amazon, Walmart, Shopify and Ebay, both domestically and internationally.
To allow us to scale, we invested would otherwise have to be executed manually and would require hiring a scalable and unsustainable workforce. Through its ability to analyze Manage these products at scale effectively across various channels, automate certain marketing and fulfillment tasks and much more. Our goal in the long term is to become one of the most efficient consumer companies in the world, expanding our footprint globally while continuing Moving now to our key takeaways from our Q3. 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 all normal.
Dramatic hikes in global shipping rates that negatively affected us for over a year has continued to subside. We're now shipping containers at rates close to the pre pandemic levels. We believe that our defensive strategy of Market share through the last year has worked out and it's now time to get back on the offensive. We're not fully focused on making 2023 a pivotal year for Ityrian. Through the Q4 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've also taken measures to reduce our fixed costs by restructuring teams and removing certain roles to set us on our path to profitability. It will take time to see the full effect of these actions, but we believe that starting to 2023, we will begin to show improvements to our profitability metrics We are talking of turning profitable at the adjusted EBITDA level starting in Q3 next year. I would like to now elaborate on each of these points and why we're optimistic that with the above mentioned actions management is taking the right steps towards putting Atiran 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, Shipping rates for international containers have been the main culprit in putting pressure on our business model. As a reminder, the supply chain crisis that followed the COVID-nineteen pandemic led to a 5x increase in cost of shipping containers from China to the U. S. This increase required us in turn to increase 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 reduced consumer spending and overall inflation have hurt our top line sales. Even though these 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 bets seem to have worked. This past week, we've been able to secure shipping containers at pre pandemic rates. We've also overall been able to protect our portfolio from losing relative market share.
Which leads to the second point I mentioned earlier. It's not time to get back on the offensive and we're aggressively pushing initiatives designed to prepare us a strong 2023 with our eyes set on profitability in the second half of the year. The most important initiative has already started in the Q3 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 the 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 to do so, we're doing our best to capitalize on these aggressive pricing strategies to secure better long term market share.
As with traditional retail, sales volumes and overall demand Increase typically drives more visibility for trending products in brick and mortar store. Similarly for us, Amazon and other e commerce platform we operate on 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 margins. As I mentioned earlier, Our management team is focused on achieving profitability by the second half of twenty twenty three. We believe that in the current market conditions, Attacking new investors and creating shareholder value starts with fixing the core metrics of our business and beginning 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 focus on growth to focus on profitability. Our profitability and overall growth for 2023 are not without risks. And in particular, the geopolitical tensions still at play in Europe The Asia Pacific region cannot be ignored. We're operating based on data that we are seeing at present. Monitoring the looming energy crisis as potential future increase in gas prices could have a negative impact on our last mile shipping rates.
Furthermore, the COVID 0 policy in China is a concern as it can lead to factory shutdowns and other disruptions to our supply chain. Finally, a further decline in consumer spending given inflation and the Fed's current monetary policy And our focus on increasing unemployment could potentially hamper our expectations for overall sales forecast 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 and A strategy. Additionally, our efforts to strengthen our balance sheet have positioned us to start Q4 with $46,000,000 in cash, which gives us confidence to weather further possible disruptions.
With regards to 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 organic growth, we're also dedicating resources to seeking opportunities to accelerate growth through M and A. The e commerce industry as a whole has experienced extreme 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 Athyrian given the investments we made to build a scalable infrastructure. Our efforts so far have been productive and we're hopeful that our opportunism could play off and allow us to acquire additional I want to thank our team and shareholders who continue to believe in us.
We're working 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 Ari to discuss the quarter's financials.
Thank you, Yaniv, and good evening, everyone. Here are the financial performance details of our Q3. For the Q3 of 2022, net revenue decreased 2.6 percent or 1,800,000 to $66,300,000 from $68,100,000 in the year ago quarter, primarily due to softer consumer demand on marketplaces offset by increased net revenue due to our decision to sell off inventory through reduced pricing to decrease our inventory levels on hand. 3rd quarter net revenue of $66,300,000 is comprised primarily of $63,800,000 of organic business, which we note includes revenue from our built brands and acquired brands starting 1 year after purchase and $2,500,000 of wholesale and other. The year ago quarter net revenue of $68,100,000 was comprised of approximately $35,400,000 from our organic business, $30,700,000 in net revenue from our mergers and acquisitions and $2,000,000 of wholesale and other.
Our organic revenue increased by 20 $400,000 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 an 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 0 from Q3 of 2022 from $30,700,000 at Q3 2021 due to all our acquisitions in the Q3 of 2021. The decrease is related to softer consumer demand on marketplaces offset by increased net revenue from our decision to sell off inventory to reduce pricing to Our launch phase revenues, which include a few new variations on existing products and product relaunches, was $1,600,000 in the 3rd quarter, down from $5,300,000 in the year ago quarter. We launched 1 brand new product in the 3rd quarter Compared to 0 in last year's Q3, importantly, after several quarters of 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 3rd quarter decreased to 45.5% from 50 0.2% in the year ago quarter.
Our gross margin decline versus last year is from the margin impacts from inventory sell off and from increased costs from supply chain disruptions, specifically increased cost of shipping containers. We believe the increased cost of shipping containers relative to Q3 of 2021 impacted our gross margin negatively by approximately 2.5% in the Q3 of 2022. Our overall 3rd quarter Contribution margin as 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 from liquidation net revenue of $10,000,000 which was sold at a negative contribution margin as part of our efforts to reduce our inventory on hand. The Q3 of 2022 saw our sustained products contribution margin decrease to 10% compared to 14% in the Q3 of 2021 from 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 higher cost supply chain and last mile fulfillment costs due to inflationary pressures. Our Q3 2022 variable sales and distribution expenses as a percentage of net revenue increased to 44.4% as 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 We believe we will continue to see contribution margin pressure for the remainder of 2022. We reported 108,900,000 loss for the Q3 of 2022 as compared to a loss of $7,500,000 in Q3 of 2021.
The increased loss in the quarter is driven by our non cash $90,900,000 loss of impairment goodwill, primarily due to our decreased market cap at the end of Q3. The Q3 2022 operational loss includes a gain of $800,000 from the change in fair value of earn out liabilities, a non cash loss of $3,100,000 from the impairment of intangibles and $2,900,000 non cash stock compensation expense, while the Q3 of 2021 operating loss included $4,200,000 of a benefit from the change in fair value of earn out liabilities and $9,600,000 of non cash stock compensation. Net loss in the Q3 of 2022 was $116,900,000 which was a from the net loss of $110,600,000 in Q3 of 2021. 3rd quarter 2022 net loss includes an impact of operating loss Included in the non cash $9,900,000 of impairment of goodwill, a gain of $5,500,000 in net charges from the changes in fair value of warrants and a $12,800,000 loss from the derivative related to the offering of common stock, while Q3 2021 included a $107,000,000 loss from extinguishment of debt, An $8,100,000 gain from the change of fair value of warrant and a $1,400,000 loss associated with the derivative liability in our term loan at the time.
Adjusted EBITDA as defined and reconciled in our earnings release for the Q3 of 2022 was a loss of $9,100,000 compared to a gain of $700,000 in Q3 of 2021. Turning to the balance sheet, at September 30, 2022, we had cash of 26,000,000 compared to $34,800,000 at the end of June 30, 2022. The decrease in our cash is due to our net loss and repayments of our credit Our credit facility net was down to $23,900,000 at September 30 versus $33,900,000 at June 30, 2022. Further, the September 30, 2022 cash balance does not include the additional capital raise completed on October 4, which added $20,000,000 to our balance sheet. When taking that capital into account, our cash position at the start of Q4 2022 was approximately $46,000,000 Our inventory was $60,500,000 at September 30, 2022, which is lower than the $76,100,000 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. As such, we anticipate continuing to move excess inventory during Q4 I reduced margins to help normalize inventory levels. As our supply chain continues to improve, we believe we can reduce our more expensive inventory level on hand and replenish inventory and improve costs when we Reorder products for 2023. Looking at our Q4 of 2022 and taking into account the current global Environment and rising inflation, we believe that Q4 2022 net revenue will be between $45,000,000 $55,000,000 As we look at 2023, We are optimistic of 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. And at this time, we believe that demand will remain relatively flat that the negativity in consumer sentiment has mostly settled. With these key factors in mind, we are targeting to achieve profitability starting in Q3 of 2023. We will not provide any additional guidance for 2023 at this time. In closing, the Q3 of 2022 saw continued challenging macroeconomic conditions In 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 level. As such, we continue to be very confident, optimistic and proud about 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.
We will now begin the question and answer session. The first question is from Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon.
Good afternoon, Brian.
I've got a couple of questions. With regard to
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 in some time. 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, This is Denis here. Thanks for the question. So yes, as you mentioned, this was it's great for us to go back and launch Products and as I just said, one product in the 3rd quarter. I also want to mention, we are also working on what we call variation The products are 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 supply chain, 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. Audi, if you want to add anything?
Yes. No, I think, Ginni, 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 Eeny's point, it's still very volatile. So I don't have anything concrete from targets, but those are the things we're definitely working on.
Okay. And then as you're evaluating M and A Opportunities which you've announced, 1, you've got increased capital. I think are those targets also have the same inventory of High tax shipping rates, high priced 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, right, we're seeing some of the same impediments That hurt us and others in the industry, right? And 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, right, 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, right?
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 that it would be it would have been Probably a year ago, right, when we still saw the COVID effect inflating some of the numbers of these targets, right. So again, the bottom line is we're being cautious And waiting and impatient to see exactly where some of these targets are going to land before The trigger, but we think the opportunities are there and we're working on that.
Great. My last question and then I'll get back in the queue. You commented that you're 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, that occurs in the second half of the year, is that the assumption that gets you there?
Marty, 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 kind of also has an effect 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 to and then obviously other factors that contribute into Centimeters, which would be our variables sales and Cost would also factor in that, but 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 in 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, just with regard to the liquidation of the product here in the quarter, I guess, there's a thought process It seems that you liquidated it. Obviously, you took the hit to contribution margin. Was there any consideration of just allowing that product, albeit higher cost associated to kind of work through the system Naturally. And then do you run the 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 questions. Let me take those. So first of all, the logic behind it is, As you know, you've been 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 Those costs and increase our pricing, which to the consumer, right, which drove Less top line sales and also less contribution margin. And now that we're seeing the container shipping come down, we're still Sitting on a lot of inventory that we brought in, 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 There is 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 command Pricing that could be damaging to us in terms of market share, right, they could undercut us on price. So in a way, For us, we believe that again that 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 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, as we are looking at this excess inventory, we are looking at this as Life gives you lemons, so make lemonade with them, right? There was one advantage of having that excess inventory that if we're willing To take this bet 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? And our goal is to basically Align the product kind of like inventory level with the optimal run rate that we can achieve and the highest It's possible margin when we bring them back in. So meaning that as we're kind of normalizing and liquidating excess 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. No, it makes perfect sense. I get it. If I could just follow-up a question, I guess maybe more of an art side and then maybe a fine, that's also maybe a follow-up to the prior questions. I apologize, I was caught up the call for a bit.
Okay. So we've been talking now about even with your response to prior question, one of the biggest issues that Trion has been dealing with is this massive Okay. So now you're saying the shipping costs have retreated significantly back to, I mean, essentially, it seems very close to pre pandemic So as we think about recognizing there's a lot of moving parts here, but as we think about the kind of the earnings power, if you will, of an interior through 2023, How much of the with the shipping costs having now moderated in and of itself and how much of that tailwind or two earnings could that be?
Brian, it was a little choppy, but I think you're saying how much can you repeat just the last part? Just the last
Yes. Just how should we think about the earnings tailwind that could come as a result of the shipping costs having moderate
Yes, I mean, okay, yes, now I heard you. Yes, I mean, as you know, right, this has been The epicenter of our challenges, right, in the last year plus. And for us, it's been a very tough time To run our business with reduced margins and products that need to be Priced in 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 target 15%, 16% contribution margin, meaning that we will should also gain more sales, right, More revenues 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 the best place. So for us, I think one of the most challenging questions Is where is consumer demand is going to be? We know that we should be able to get to more competitive pricing for consumers and we should see Significantly significant increase in our contribution margin, which are all great tailwinds for us. The underlying questions that we're still and we've been I think a little conservative around how we think about it Is where our consumer is 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 strong tailwinds for us, right, 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 Carrier.
Got it. I appreciate it. 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 $45,000,000 to 55,000,000 Range that you put out for the Q4 for revenue. I guess just what I'm trying to understand is why the drop off sequentially versus the 3rd quarter Despite it just 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, Just any clarification or puts and takes on sort of what's going on with the range for the Q4?
Arty, do you want to take that one?
Yes. Yes. Thank you, Yaniv and Matt. Listen, Matt, I think as Yaniv said, there's still we're trying to do Be aggressive and move this inventory. At the same time, there is a lot of volatility in what we're seeing from a consumer Ben, right?
And what the consumer sentiment is, especially going to 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've talked about it. At the same time, you're right, discounting pricing is going to push 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 very part of our very core to our business that We still see the same splits, right?
I think Q2 and Q3 have historically have always been our strongest products. We drive a lot of dehumidifiers and AC that are some of the best selling products on Amazon. Q4 has always been lower price points, consistently 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. So I think when you look at it from a splits perspective, if I'm Thinking about the middle of that range, that would put you roughly at like 20%, 23%, which is 24%, which isn't far off to what we've historically done.
So I don't think 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 4th quarter mix you expect to be liquidation revenue versus sort of And then, should we expect sort of the similar contribution margin on a go forward basis coming from that liquidation and How you get through the inventory, the higher cost inventory that you want to clear?
Marty, I'll let you answer that one too.
Yes. Thanks, Yaniv. Matt, another good question. We got a lot of opportunities and a lot of interest in both how we liquidate and how we liquidate products from Amazon. I would hope that we do better than what you just saw this quarter, but we're still too early in the process.
A lot of it's going to depend on how Black Friday and Cyber Monday goes. I think conservatively, I would look at the split that you see in our press release between sustain and liquidate in the back of the tables. I would look at those and say, I would assume consistent.
Okay. All right. Got it. Yeah, consistency makes sense. And then help us understand the context for The profitable on EBITDA in the Q3 of next year, are you just effectively saying that you still have inventory, cost inventory to work through that will take until all the way through the first half of twenty twenty three.
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 3rd quarter, like what are the kind of the positives that you see coming in the 3rd quarter that kind of It gives you the visibility into positive EBITDA in the Q3 of 'twenty three.
I'll let you answer that too.
Yes. I mean, Matt, listen, as we said earlier, Q3 tends to be our strongest quarter. May, June for our summer products are always a little questionable depending on weather and other things. And 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've already put my POs in, right. So those products at the lower shipping container rates Don't show up until May June, right?
So I think in some standpoints, that's why I think it's we're pointing towards that. 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 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 in April or Aarti 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 stand pat and you're 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 observe across your categories.
Hey, Matt, it's a great question. Let me take that one. And I guess the answer here is, As you might expect, right, 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 kind of like differentiate between those who are trying to do this and will come back To be competitors and those who are throwing 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 if we should be worried about certain price cutting or should we actually see that as a positive.
There's 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 the towel and we can see their price reduction The temporary threat or some that maybe are trying to be more opportunistic and think like us long term about how they can maybe take advantage of this And replenish, right? But in the meantime, try to be more aggressive on taking market share. So it's not a there's not a clear cut answer across the board, It's a very good question and 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 atarian. Ioperks. Participants have the ability to ask management questions on our earnings call. I wanted to thank all of the shareholder Thank you. 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
Yes, Elia, 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 Q3 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 on 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 of 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 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 feed our current 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?
Yes. So I think as we mentioned earlier, probably the most important thing is we're working really hard towards profitability. As we mentioned also, we started kind of like Although slowly, right, we started 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 and it's been on our It's been on our to do list for a while to put more efforts into Europe. But again, the shipping pricing increase had kind of like Prevent that that's 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 Our footprint in Europe, so I think that's going to be exciting, although it will take time.
And then finally, we're looking to add opportunities for opportunities to add incremental brands to our platform via acquisitions. And I think again together all these efforts Yes, 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 and A portion of the call. In terms of the upcoming calendar, Atarian 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 17th in New York City and the ROTH 11th Annual Deer Valley Conference December 14th through 17th. We look forward to speaking with you on future calls.
This ends our call and you may disconnect.