Welcome to Atarian Inc. Q1 Earnings Report Conference Call. My name is James, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
And I'd like to turn the call over to Ilya Grozovsky, Director of Investor Relations and Corporate Development. Ilya, please go ahead.
Thank you. Thank you for joining us on today's call to discuss Atterion's Q1 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 sections of Itterion's website at itterion. Io.
I would like to remind you that certain statements we make in this presentation are forward looking statements, And these forward looking statements reflect Atarian's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Atarian's business. Accordingly, you should not place undue reliance on these forward looking statements. For a more A thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast, We refer you to the disclaimer regarding forward looking statements that is included on our Q1 earnings release as well as our filings with the SEC. We do not undertake any obligation to update or alter Any forward looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain non GAAP metrics on this call.
Explanation of these metrics Can be found in the earnings release filed earlier today. With that, I will turn the call over to Yaniv.
Thanks, Ilya, and good afternoon, everyone. I'm really excited for this first conference call with Atiran, following our rebranding announcement last week. Changing our company's name to Atiran was an important decision we thoughtfully considered over a significant period of time. First of all, it was about telling our story more concisely. As a company at the intersection of e commerce, technology and consumer products, we often found that those new to our story had a difficult time grasping the full breadth of our vision.
Thanks to the strong work of our team. Our new website does a great job at explaining our business and the differentiation our team is driving the consumer product industry. As many of you are aware, this week an anonymous short seller made various unfounded claims against our business practices and integrity And an offer to reap profits from a decline in our stock. We welcome questions from all our shareholders and have always been proud to showcase What our incredible team has built through the years in the technology, marketing and supply chain side. Yesterday, we issued a release where we addressed the factual inaccuracies and mischaracterizations.
If you wish to spend time with us to learn more about our efforts to build a scalable consumer product platform for e commerce, please reach out to Jose Grozovsky, our Director of IR, We welcome investors to see live demonstration of our ME platform to answer questions about our business, To go to our go to market strategy, all subject to the IFP, of course. We hope that the content we share helps those who are interested Our company understand what our tech platform actually does, the nuances of online marketing and the efforts we have made to be competitive while remaining compliant with rules and regulations. Q1 was an incredible learning opportunity for our company. While we faced the most difficult supply chain challenges in the history of our firm, Despite all our efforts, we're not able to maximize the full potential of our portfolio revenue. Regardless, I know that we learned a lot and improved on many fronts.
In my 7 years leading this company, I've learned that every time our team is tested, we come out stronger and more capable. Through our sourcing, supply chain operations team, I've watched you fight through the incredible complexity of daily supply chain disruption, both domestically and internationally, while continuing to work on the supply chain optimization of our recent acquisitions. On behalf of all shareholders, I thank you for your efforts and dedication as well as your ability to create to creatively solve difficult problems on the fly. To give more context to the audience today regarding the scale of the crisis, According to Drury, a maritime research and consulting service, the historical shortage of containers in Q4 And Q1 2021 has led to a 3 to 4 times increase in cost of shipping, while the reliability of Marin's schedules has plummeted to 55% by September 2020, as reported by CIntelligence. Combined by the Preased demand for e commerce items and continued growth of certain top products, we struggled to keep inventory on hand and missed approximately $6,000,000 in sales for the quarter.
Over the past three quarters, we believe that we missed a cumulative approximately $20,000,000 in revenue as a result of inventory shortages. We continue to monitor the challenging and have chosen to remain conservative with our adjusted EBITDA guidance in case shipping rates, container congestion, pricing of last mile shipping and other supply chain factors Continue to increase and affect our bottom line. We expect to have more clarity on the normalization of the supply chain irregularities in the coming months. As most of you have already read in our earnings press release today, we're proud to announce that we're officially adding 2 new brands to our portfolio. As further we mentioned, we closed the acquisition of Photo Paper Direct, a leading online brand in the office and printing business based in the United Kingdom.
Photo Paper Direct has established itself as a category leader in various inkjet media product categories and created a strong moat on Amazon. This strong addition to our portfolio further diversifies our product categories as well as our footprint on various marketplaces in Europe. We intend to leverage the company's Vocol team expertise in the European market to accelerate our international expansion. Additionally, we're super excited to announce that Squatty Potty is joining the Terence family, adding a nationally loved brand to our portfolio. Squatty Potty has brought to market health and personal care products with a touch of humor and an abundance of caring for others, while creating an entire category in the space.
According to our estimates, an average of 1,000,000 searches of Squatty Potty products occur on amazon.com every month. With the product appearing early on Shark Tank and video ads watched over £30,000,000 on YouTube, we believe Squatty Potty is poised to continue to dominate the market it's created. We see significant opportunity expanding the brand's success in the United States into international channels as well as developing additional products to delight the brand's followers. On a broader note, we continue to pursue our M and A strategy and review new opportunities on a weekly basis. We intend to continue to invest in our team infrastructure and deal flow capabilities to drive growth through the acquisitions.
When it comes to launching new products, This quarter marks a record for our company with 21 new products introduced. While initially, we projected launching a higher amount of product, We recalibrated in favor of quality and timing and are very happy with our achievements on that front given the complex challenges of supply chain that affected our manufacturing partners as well. Certain products that suffer a delay have been put on hold as their launch could have missed seasonality related windows. Additionally, COVID travel restrictions have prevented our team from being able to completely and fully run control quality control procedures, which resulted in some cancellation and delay. Overall, our team have worked tirelessly to overcome these challenges and I think we made the best possible judgment calls when our given our expectations versus the reality that's been imposed on us.
We're looking forward to the challenges and exciting opportunities ahead in Q2 and beyond. Lastly, I thought it was important on this call to address questions around some of the management team selling of stock during the last open trading window. As we mentioned in previous earnings call, most of management stocks holding, including mine, are in form of restricted stocks. And as you may know, Taxes for these shares are due at the time of vesting and no individual on the team is able to cover those taxes without selling. Also, we would like to preserve the company's cash for growth versus Most of the shares were sold done most of the shares that were sold were done to cover taxes with some individuals choosing to sell additional shares after many years of hard work.
It's important to mention too that we've required the management team to several times to delay the vesting of their shares And even on one occasion to forfeit their shares in order to protect the potential downward pressure on the company's share price that could have resulted from tax related selling. Our management team includes some of the hardest working and most dedicated people I've ever had the privilege of partnering with, and they remain extremely invested in the company's long term success. On a personal note, as part of my long term wealth planning and as reported in 2019, I decided to gift a significant portion of my holding in the company To an irrevocable trust on behalf on the benefit of my children. This company is my life's work, and I continue to do everything in my power With that, I'll pass it on to Aury for our finance update.
Thanks, Yaniv, and good afternoon, everyone. Here are the operational performance details of our Q1. For the Q1 of 2021, net revenue increased 88 percent to $48,100,000 from $25,600,000 in the year ago quarter. This strong gain was primarily from growth in our sustained products of $25,100,000 to $42,000,000 from $16,900,000 including our recently acquired products and wholesale revenue of $1,900,000 including $600,000 of PPE versus 0 in the prior year period. The quarter also saw a decrease in launch product revenue of $2,600,000 versus prior year period $6,200,000 as the majority of the 21 products launched in the period Happened in the late period of March.
We suffered from inventory shorts in the quarter, which we estimated to be an impact of approximately 6,000,000 Meaning, we estimated that we could sell have sold an additional $6,000,000 with normal inventory levels. Gross margin for the Q1 increased 54.1 percent from 40.2 percent the year ago quarter and increased from 45.6% in Q4 2020. This year over year and sequential improvements in gross margin was due to both favorable product mix, including new products acquired pursuant to M and A And pricing from vendors, offset by wholesale revenue, which carries a much lower gross margin. Our overall Q1 2021 contribution margin was 12.7 As a result of previously mentioned factors, which improved compared to prior year's Centimeters loss of 2.9%. Within Centimeters, our sales and distribution costs were negatively impacted by the supply chain crisis, which drove higher cost in the last mile fulfillment, given the carriers tightness in the quarter.
E Commerce platform commissions, online advertising and logistic expenses, including within sales and distribution expenses, I. E, our variable sales and distribution expenses, As a percentage of their revenue increased to 45.2 percent for the 3 months ended March 31, 2021, as compared to 43.1% for the 3 months ended March 30 We continue to see some of these increased costs impacting our Q2. Q1 2021, which is historically our softest quarter, Our Sustained Products contribution margin grew to 18.2 percent when excluding the $1,800,000 non cash inventory step up related to M and A Versus 6.4% in Q1 2020. We continue to see year over year improvement in our product unit economics from mix and pricing. Adjusted EBITDA, which excludes stock based compensation, change in fair market value of earnout liabilities, net Charges from changes in fair value of warrants and the loss of the issuance of the warrants, amortization of inventory step up from acquisitions and other M and A related costs For the Q1 of 2021 improved to a loss of $1,300,000 from a loss of $6,400,000 in the Q1 of 2020.
I I would like to highlight, if not for the inventory sources described earlier, we believe that adjusted EBITDA would have been approximately breakeven. Excluding M and A related costs from professional fees and transition into Healing Solutions, our fixed costs increased approximately $1,500,000 as compared to the prior year period. Our headcount rose, as previously mentioned, to 220 people as of March 31, 2020, as we added headcount primarily in We expect to see our revenue per full time employee equivalent to be near $1,400,000 for 2021 versus 2020s of approximately $1,200,000 This is a continued example of our operating leverage in our technology led business model. Our net loss, which has been impacted from charges of changes in fair value on warrants and losses on the issuance of warrants on a net basis of $50,300,000 As part of our refinancing completed in April, we have amended the warrants to be treated as equity as opposed to debt and expect to void these impacts in the future. Turning to the balance sheet.
At March 31, 2021, we had cash of $35,000,000 compared to $26,700,000 at the end of December 31, 2020. The increase in cash was strongly driven by financing cash proceeds from the exercise of warrants of $25,000,000 The HytTrails Note II for $14,000,000 Offset by cash portion of the purchase of Healing Solutions of $15,300,000 repayments on seller notes from SMASH of $4,700,000 Working capital uses of $13,600,000 as we build up for inventory in the summer season and our cash net loss. The company does have approximately $9,700,000 in escrow accounts as of March 31, 2020, related to deposits to certain inventory purchases, which have been treated as restricted cash. As previously announced, company closed its $110,000,000 debt refinancing on April 8. Company views its debt financing as a stepped approach.
As we continue to execute our M and A strategy and other strategic initiatives, we do expect opportunities to improve our debt profile over time. The historical SMASH audit, which is for the period of 2018 2019, has been completed, and we expect to file our delayed 8 ks, Including performance no later than May 14. As previously mentioned, the delay was related to the earlier periods, including the opening balance sheet period of December 31, 2017. The audit results, including the reviewed 9 months period of ninethirtytwenty twenty, which will be included in the 8 ksA pro formas, are in line with previously disclosed financial results for the Smash acquisition. For guidance, the full year guidance for 2021 on revenue, the company now expects net revenue to be in the range of $360,000,000 to 390,000,000 Up from $350,000,000 to $380,000,000 reflecting the addition of Swatty Potty.
For the full year 2021 adjusted EBITDA guidance, the company expects Adjusted EBITDA to remain in the range of $30,000,000 to $34,000,000 Adjusted EBITDA increase of Squatty Potty of approximately $2,500,000 based on the timing of closing of that acquisition Is offset by some cautious planning as in costs related to the current global crisis in the supply chain. Though we do expect to raise prices to offset the impacts of this global crisis, Timing and speed of raising prices is always managed, not to impact the long term listing position of our products on marketplaces. With that, I'll turn back The call to the operator to open the call for questions.
Very good. We can now begin our question and answer session. Our first question comes from Thomas Forte, D. A. Davidson.
Great. Thanks for taking my question. So I have one question and one follow-up. So Yaniv, at a high level, I wanted to know how you leverage your technology to identify opportunities to build and buy products to sell in marketplaces, To advertise those products in marketplaces and then manage logistics for those products.
Sure. Thanks, Tom. So yes, so let's touch on all these points. We use technology along the three ways you mentioned. And 1st and foremost, by capturing large amounts of data from different sources, including public sources and APIs and basically Build through models, visibility into different categories of products, what is moving those categories, what are the trends and locations in those and where do we see opportunities to potentially make better products.
Once those are defined, we use the software to also build A P and L and a forward looking forecast for that product based on data that we have accumulated To help us quickly understand the opportunity, qualify it. If we qualify the opportunity, that's when we will engage our sourcing team To leverage the data and the opportunity information that we collected to find the right suppliers to help us get the right product to market, So suppliers typically, it's more than 1. We try to get products from many suppliers. We compare, the cost and other parameters through the software and compare different scenarios to tell us really what is the best product to launch. Once we move forward with launching the product, obviously, it takes 6 to 8 months from the moment we identify the idea until the product is ready to sell.
Once it arrives Into the target market, we launched the product basically using marketing Across the board to basically outperform the incumbents where we saw certain weakness in the market. And at that point in time, everything flows to the software in terms of like managing the P and Ls of the product, The statistics every day of how well they're doing, we automate the marketing on Amazon for those products. And then, in certain cases, especially for oversized items, our software also manages the last mile fulfillment, Meaning that instead of relying on Amazon's fulfillment centers or Walmart fulfillment centers for that chance, if the item It's large. We would typically use our own sorry, our 3PL partners centers that are connected to our software To manage the last mile shipping. Does that answer your question?
Yes, it does. Thank you. So then for my follow-up question, you sort of touched I'll listen to your opening remarks, but can you walk through the impact in adjusted EBITDA in the quarter from the inventory shortfalls?
Augie, you want to answer that? Yes. Thanks.
Yes. Thanks, Yaniv. Hey, Tom. So yes, we estimated our short to be $6,000,000 and obviously, our sustained contribution margin was roughly 18%. So when you multiply those numbers, that's how you get that bigger.
Excellent. Thanks, Yaniv. Thanks, Arty.
Thanks, Tom.
Our next question is from Brian Nagel of Oppenheimer.
Hey, good afternoon guys. Hey, Glenn.
A couple
of questions. So first, my first question is on the supply chain. I know we've talked about this a lot, including last quarter, but, and you mentioned it here again, but could you size I think that prior question talked about the Top line impact, but maybe just to understand better the impact to EBITDA. And then philosophically, is it still Are you still basically eating these higher shipping costs? Or has there been some change there?
And how and what are you seeing in terms of just the Within the supply chain, how much longer do you think these pressures could persist for you?
Hardie, you want to take the financial part and I'll answer on the Business side?
Yes. So hey, Brian. So yes, listen, as you saw, our sales and distribution number It was a little higher than prior year period, right, about 2 points. So we did eat some, right? But I think as we continue to go through this crisis, this global crisis, Everyone does, right?
We're expecting to raise prices as I mentioned, right? And I do think we can offset a good portion of it with pricing increases. The question is just the timing of that, and we have to be delicate, not to impact the long term value of our listings, right? Considering how the marketplaces work, it's It sounds like
you just jammed through.
You got to sort of do it very thoughtfully and delicately. But that is kind of the plan to sort of really offset the majority of this stuff as we approach Q2 into Q3.
Yes, if I can add to that, Brian, just to touch more on what Art said, right? As you know, the marketplaces are very competitive, right? And the dilemma is always As you kind of see increasing prices of chipping, if you start Increasing your price to obviously absorb that and produce better contribution margin, it's going to potentially come at the expense of a more aggressive competitor who is going to try to keep Price low, take more market share from you and potentially in the long term affect your the performance of your product, right? On a case per case basis, the decision has to be made given many factors. And we try to find that sweet between optimizing for contribution margin and also long term conserving the market share that we have.
Yes, got it. So just to follow-up on that. So Arty, did you could you just is there a way you could say the actual impact On adjusted EBITDA from the supply chain issues?
Hey, Brian, I can't disclose at I think we measure the guidance and the EBITDA overall, right? And I think we pointed to,
And I think you'll see it
in the queue. We did mention in the script, there's about a 2 point impact, right, in
the sense of what you saw on
the sales and distribution side, which I think is predominantly where we saw the impact for Q1, Last mile, but to quantify what we think the future is, I can't do that right now.
Got it. I think the think the question was on the Q1, right? Sorry, Brian. Q1, that's not what I was asking on Q1. Yes.
Oh, on Q1. I thought you meant on guidance. Got it. Q1? Yes, I would say 2 points.
Okay, 2 points.
Okay, so that's it. And then we'll
do the math. Then I guess my final question, probably more for Yaniv, but just any update on the TruIO product within your portfolio?
Yes, sure. So the Dura product was basically attacked In one of the most aggressive ways by another Black Hat seller, which has caused a decline in sales. And There actually is still evidence of that on Amazon that some of these black hat sellers are still appearing on the page. We're working with Amazon on that problem. Obviously, there was a decline in its sales.
One thing I'd caution is to try to estimate Those numbers using some external tools that are very inaccurate from what we've seen. But again, this is an ongoing issue. We're working with Amazon on this. It's not clear exactly where we get resolved, but it's one of the most egregious blackout attacks that we've seen. And We think it's very, very limited to this category and the nature of these products and cannot necessarily affect Other of our products, and again, we're working on resolving that.
Got it. Thank you.
Our next question is from Marvin Fong of BTIG.
Thank you. And maybe it'd be helpful for investors also here how some of the other deals that you've executed have performed, maybe SMASH Being the next oldest, you can provide some insight into how that's progressed against your expectations. And then I have a couple of follow
ups. Yes. So in general, we don't want to break the acquisition on a regular basis. I can tell you that Smash For the 1st full month of the year, it grew a little over 20% versus same time last year. But here, let me explain Our approach, right, and help understand how we think about this, right?
So look, We manage all our products whether they acquire or launch as one large portfolio who uses the same pool of resources, right? So we think of it as What does the data tell us? We have all these different assets. We have a certain amount of resources that we can invest in growth. And our goal is obviously to drive growth across the entire portfolio At the best possible positive Centimeters with the lowest possible fixed costs.
I mean, remember, like the investments we're making in tech is really to be able to manage Thousands and thousands of products over time across many different channels at the optimal fixed cost. It would be the best decisions on a per product basis Around contribution margin or growth or both, right? So I mean to give you an example, right? I mean if we are at a certain point in time, The data shows us more opportunities in appliances, for example, and we think We need to launch more products in that category and we invest more in the growth there. The expense for example of some products that we have in the beauty category, That doesn't mean that those products are not good or we're going to stop selling them or that because again as long as they're managed profitably and efficiently, That's really the beauty of the model, right?
So as you have certain limited resources to invest in growth, whether through building more products or doubling down on the market in a certain category, That decision is done across the entire portfolio, not per brand, but really based on what the data tells us, right? I can tell you also that, for example, 88% of the revenue generated by all the products launched by us or acquired grew on the last on an LCM basis, Right. So again, we take a portfolio view and 88% of all the revenue generated by all the products has been in a growth pattern, right? So does that make sense? Again, the approach that we take is not as traditional as a certain brand that is in one particular category.
We look at this entire portfolio and where the data tells us that there's more opportunity, that's where we'll double down growth. That's why it's difficult to necessarily Start breaking it down and trying to figure out what does it mean, right, if this product is not growing as much as the other one.
Yes. Thank you. That makes perfect sense. And then moving on, question please. So you talked in the release how You're now evaluating an expanded M and A pipeline compared to last quarter.
I was just wondering if
you could kind of Hi, Vince, the dynamic. So is this kind of building on top of the pipeline that you had last quarter? Or has there been actual like Some of the prospects from last quarter have actually dropped off and if you could just help us understand that. And then Was Squatty Potty one of the companies that was in the pipeline from last quarter? I'm only asking that kind of figure if you're actually executing against the pipelines that you're mentioning in these updates.
Thank you.
Yes, that's a great question. That pipeline is obviously revolving, right? Some deals are going to be Moving to LOI, some of them will close, some of them will be dismissed Either maybe even after we went to do LOI while we did due diligence for certain reasons, right? And so the pipeline revolves and yes, squatty body Wasn't that number, right? And so again, some deals we might lose also to someone else, right?
And they'll leave the pipeline, so the seller on the other side might say that They decided to go and do a deal with someone else, right? So that number is really out there to give a sense of how much Revenue we're looking at any point in time, how much opportunity there is, right? I mean, it's a drop in the water in the size of the TAM of acquisition that's out there, But we think it's important to just convey the amount of revenue that we're looking at and are competitive around in terms of just putting under LOI and closing.
Terrific. And if I could just get one more in, just very quickly, with all the supply Are you still expecting the number of product launches that you mentioned last quarter around 70 or should we think about That's a number being affected by all the supply chain issues. Thanks.
Yes. So We definitely are still seeing pressure. We're probably planning like 17 to 20 products at this point In the Q2 of 2021, it's a challenging situation for us because at the end of the day, The only way a product is sustainable long term is it just has to have that sweet spot of quality and price. There's just no other way to make them successful And we can't cut corners and definitely we want to be cautious not to try to rush too many products that expand with some of the limitations That COVID is creating not just on us, but also on our suppliers. The suppliers are having a hard time making sure that they have all the raw materials.
There's delays everywhere. It's hard to get trucks in various parts of the world where we manufacture the product. And so again, we're doing our best in working as hard as we can to launch as many products, but without sacrificing Quality, value for customers and obviously with the constraints on the supply chain across all sides.
Yes. Okay. That makes perfect sense.
Thank you so much, Endip. Appreciate it. Thank you.
Next question is from Brian Kinstlinger of Alliance Global Partners.
Great. Thanks so much for taking my questions. I'm curious how management's inventory strategy has changed at all. While much is not in your control right now, obviously, After learning more over the last 6 months, what can you control to limit the inventory shortages? And I guess I wonder, as I've read about owning versus renting containers, is that something that Companies like yourself are evaluating the differences?
Thanks for the question. Yes, obviously inventory management is And one of the things I love about the model of the business is that because we control Things like pricing and the inventory levels that we can allow, for The retail platform through which we sell to show customers, it gives a lot of flexibility in terms of trying to basically as much as possible Control the velocity of sales on a regular basis, right? And so oftentimes, We might lower the marketing levels, right, or slightly increase the price to adjust and try to do our best To obviously make sure that we have a sustainable supply and demand. Now again, with the level of disruption that we're seeing here, That becomes a little more challenging as really that we've not seen this type of constraints in terms of how long it takes for And so our team is doing really, I mean, amazing work and Working through lots of solutions, including sometimes. And this goes back to a question that was asked before, right?
We because we're so attuned to the performance of the product and the implication that our performance has over the long term market share Of the product in the space, right? We sometimes have to make tough decisions around paying more for containers that we feel like and The cost of contribution margin because we know that being out of stock for too long could open the door for competitors to take too much market share, right? So again, we're really kind of like turning every stone and on a per product basis, Managing the inventory given many variables, again, including the effect that losing inventory for too long would have on market share And the amount of Centimeters that we need to start to produce for the company to meet its expectations, right?
And then can you remind us, are there I know a lot of the Global supply issues are shipping from China. Are there, remind us other areas where you manufacture from or Are there investments being made on alternative geographic locations?
Yes. There are there's still Right. Definitely the bulk of it is still in China, but there are other areas in Asia. I mean, I think the global supply chain crisis affects pretty much Every route at least to my knowledge, right? It's not something that we could resolve by going to another country, At least not within also the context of meeting other requirements of the products, right?
And The best thing we can do is again manage visibility for the suppliers as far as we can, try to give them as much to our forecast and our challenges, work with them very closely. Having our own team on the ground in China is extremely helpful on that perspective. And again, on the other end, optimizing for the situation, right, when it comes to marketing spend And price, etcetera, right? So, our team again, I think is doing the best they can within the situation and we'll continue to monitor Every development and anything we can take advantage of when it comes to improving that situation.
Great. Last question I have is on M and A. Let's assume and I don't know the average, but if the average is about 4 times EBITDA you're paying on trailing EBITDA And the earn out is achieved for what you generally been paying. Does that keep it at about 4 times given the upside they've delivered? Or what does the valuation look like generally after the earnout?
Is it much better? Is it How does it change versus what the initial valuation looks like?
Yes. The deal structures vary depending on Obviously, negotiations and other things. And yes, sometimes, obviously, it can end up being a higher multiple, right, Then that if really the company has done really well, which we're very excited about, right? We're happy to pay more if the company has And the assets that we bought have performed really well, right? So it really is something that's negotiating on a per deal basis With again, a certain kind of multiple range upfront and a certain multiple range on the earn out depending on various things,
Right. Okay, great. Thank you so much.
Thank you.
Next question from Gus Gala of ROTH Capital Partners.
Hi, guys. Just Quick question on Squatty Potty. So you guys are raising the guidance at the midpoint by about $10,000,000 And they delivered $70,000,000 over the trailing 12 months. Just wanted to understand the gap there.
Artie, you want to take that? Yes.
So I think some of it's timing and seasonality there, Gus, right? So I think we just closed today, so you're not going to get the full year. Number 1. And number 2, there's a little seasonality baked in their business. So we're just kind of prudent on that number, but that's kind of how you get there.
Okay. And I have a follow-up here. So just looking at the short report that came out earlier this week, Just wanted to clarify, does Xyteria never give away product or pay for reviews?
I'm sorry. Can you ask the question again? I couldn't hear it.
Sorry. So I just wanted to know, does the Tyrian ever pay for reviews or give away product?
Right. Now we do not pay for reviews. We do promotions, Sweepstakes, giveaways and other things like that. And look, in general, we ask customers for reviews, right? Like sometimes, like a lot of times, right, through the retail Email systems themselves, right?
But we never we don't make any of these promotions or any benefits that we give contingent on leaving a review, right? Yes. The challenge is that those are very separate marketing tactics that people can confuse, right? So we obviously Ask consumers for reviews post purchase with, again, sometimes the retail system themselves, but we'd never again make those Promotions or any other type of benefits contingent on leaving reviews.
Okay, great. And one last question. Just regarding the M and A pipeline, can you kind of talk about the average size of the targets, looking at the new acquisition, what's the cash balance going to be at the end of 2Q? I mean, how much firepower do
you have
there like with the current cash levels and how do you think about using stock Raminade.
Adi, you want to speak to that?
Yes. So I think we've said before, Gus, I think the pipeline is dynamic. There's a lot of different Entities in there or opportunities, right? There's some big, there's some small. And depending on what's next, we've said previously, we would need to raise money or raise debt Sort of close the next big one or something like that, right, or depending on what's the next one up.
I think excluding the M and A, I think we got sufficient cash to run the business, right? But if depending on what's in that pipeline, what we decide to go for next, We would be faced potentially doing some type of financing or debt raise.
Great. Thanks for taking my questions guys.
And there are no more questions. So I turn the call back to Ilya.
Thank you. The upcoming calendar. Atterion management will be participating in the 16th Annual Needham Technology and Media Conference, May 17th to 20th the 2021 RBC Capital Markets Global Consumer and Retail Conference, June 22 23rd and the Jefferies Virtual Consumer Conference, June 22 to 24. Thank you for joining us on the call today. We look forward to speaking with you on future calls.
And this ends
our call.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.