mwk-8k_20200305.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 5, 2020

 

Mohawk Group Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter) 

 

 

 

 

 

 

Delaware

 

001-38937

 

83-1739858

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

Mohawk Group Holdings, Inc.
37 East 18th Street, 7th Floor

New York, NY 10003

(Address of Principal Executive Offices)(Zip Code)

(347) 676-1681
(Registrant’s telephone number, including area code)

N/A

(Former Name, or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

MWK

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 

 

 


 

Item 2.02. Results of Operations and Financial Condition.

 

On March 5, 2020, Mohawk Group Holdings, Inc. (the “Company”) issued a press release announcing its financial results for the year-ended December 31, 2019. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

 

The information in this Item 2.02, including the press release attached hereto as Exhibit 99.1, is intended to be furnished under Item 2.02 and Item 9.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

 

99.1

Press Release issued by Mohawk Group Holdings, Inc., dated March 5, 2020

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

MOHAWK GROUP HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

Date:  March 5, 2020

By:

/s/ Yaniv Sarig

 

 

 

Yaniv Sarig

 

 

 

President and Chief Executive Officer

 

 

 

 

mwk-ex991_14.htm

Exhibit 99.1

 


 

 

 

Mohawk Group Reports Fourth Quarter and Full Year 2019 Results

Full Year Net Revenue Grew 56.2% to $114.5 Million

 

 

NEW YORK, March 5, 2020 – Mohawk Group Holdings, Inc. (NASDAQ: MWK) (“Mohawk”) today announced results for the fourth quarter and full year ended December 31, 2019. 

 

Fourth Quarter and Full Year Highlights

 

18 new products launched in the fourth quarter, bringing 2019 full year to 32 new products launched, which have achieved, or are expected to achieve, more than $0.5 million in net revenue per year, compared to 11 in the full year 2018.

 

Full year net revenue grew 56.2% year over year to $114.5 million, and fourth quarter net revenue grew 30.1% to $25.6 million, compared to $19.7 million in the fourth quarter of 2018.

 

Full year gross margin improved to 39.4% versus 35.4% in 2018.

 

2019 operating loss of $(38.9) million increased from $(29.4) million in 2018.

 

2019 contribution margin grew to 2.2% from (10.6)% in 2018, reflecting both higher sustain revenues and margin expansion.

 

Excluding non-cash stock-based compensation of $19.2 million, fixed operating expenses for the full year remained essentially flat.

 

2019 net loss of $(43.4) million increased from $(31.8) million in 2018.

 

2019 Adjusted EBITDA improved to $(19.5) million from $(28.6) million in 2018.

 

Total cash balance at December 31, 2019 was $30.4 million.


Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “We are pleased with our fourth quarter results and our strong finish to the year. 2019 marked a year of progress on our strategic priorities that included 32 new products launched, product category expansion and the growth of our AIMEE software platform. These activities fueled top-line growth of over 56% with improved Adjusted EBITDA for the year while we also continued to invest for the future.”

 

“Looking ahead, we believe that our differentiated A.I. driven business model provides Mohawk with a tremendous amount of opportunity to grow market share in existing and new categories and to generate meaningful profitability and increased shareholder value over the long-term.”

Outlook

For 2020, the Company currently expects net revenue to be in the range of $160.0 million to $170.0 million driven primarily by continued growth of its existing product portfolio and the positive contribution from new products launched in 2020. This outlook incorporates potential inventory constraints for existing products and potential delays in new product launches primarily in the second half of the year due to the impact from the COVID-19.  The Company expects positive Adjusted EBITDA for the three months ended September 30, 2020.

 


Non-GAAP Financial Measures

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the “Non-GAAP Financial Measures and Reconciliations” section below.


Webcast and Conference Call Information

 

Mohawk will host a live conference call to discuss financial results today, March 5, 2020, at 5:00 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 295-1077 (domestic) or (470) 495-9485 (international) at 5:00 p.m. ET and provide the Conference ID: 7480377. The conference call will also be available to interested parties through a live webcast at https://ir.mohawkgp.com/investor-relations. Please visit the website at least 15 minutes prior to the start of the call to register and download any necessary software.


About Mohawk Group Holdings, Inc.

Mohawk Group Holdings, Inc. and subsidiaries (“Mohawk”) is a rapidly growing technology-enabled consumer products company that uses machine learning, natural language processing, and data analytics to design, develop, market and sell products. Mohawk predominately operates through online retail channels such as Amazon and Walmart. Mohawk has incubated and grouped four owned and operated brands: hOmeLabs, Vremi, Xtava and RIF6. Mohawk sells products in multiple categories, including home and kitchen appliances, kitchenware, environmental appliances (i.e., dehumidifiers and air conditioners), beauty related products and, to a lesser extent, consumer electronics. Mohawk was founded on the premise that if a company selling consumer packaged goods was founded today, it would apply artificial intelligence and machine learning, the synthesis of massive quantities of data and the use of social proof to validate high caliber product offerings as opposed to over-reliance on brand value and other traditional marketing tactics.

Forward Looking Statements

All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expected 2020 net revenue and Adjusted EBITDA, our business model and our technology platform, including our ability to disrupt the consumer products industry, our ability to grow market share in existing and new product categories; and our ability to generate profitability and shareholder value. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to the impact of COVID-19, our cash flows and revenue growth rate; our supply chain, sourcing, manufacturing, warehousing and fulfillment; international tariffs and trade measures; inventory management, product liability claims, recalls or other safety concerns, reliance on third party online marketplaces, seasonal and quarterly variations in our revenue; acquisitions of other companies and technologies and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), all of which you may obtain for free on the SEC’s website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.



Investor Contacts:

Ilya Grozovsky, Mohawk Group

ilya@mohawkgp.com

917-905-1699


Brendon Frey, ICR

brendon.frey@icrinc.com

203-682-8200


Media Contact:

Jessica Liddell, ICR

203-682-8200

MohawkPR@icrinc.com

 

 

 

 



 

 

MOHAWK GROUP HOLDINGS, INC.

 

 

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

Three Months Ended December 31,

 

 

Year-Ended December 31,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

NET REVENUE

 

$

19,703

 

 

$

25,634

 

 

$

73,279

 

 

$

114,451

 

COST OF GOODS SOLD

 

 

11,377

 

 

 

16,552

 

 

 

47,296

 

 

 

69,411

 

GROSS PROFIT

 

 

8,326

 

 

 

9,082

 

 

 

25,983

 

 

 

45,040

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

845

 

 

 

2,476

 

 

 

3,655

 

 

 

8,133

 

Sales and distribution

 

 

11,951

 

 

 

13,616

 

 

 

40,467

 

 

 

52,025

 

General and administrative

 

 

3,187

 

 

 

8,003

 

 

 

11,290

 

 

 

23,782

 

TOTAL OPERATING EXPENSES:

 

 

15,983

 

 

 

24,095

 

 

 

55,412

 

 

 

83,940

 

OPERATING LOSS

 

 

(7,657

)

 

 

(15,013

)

 

 

(29,429

)

 

 

(38,900

)

INTEREST EXPENSE—net

 

 

850

 

 

 

1,018

 

 

 

2,353

 

 

 

4,386

 

OTHER EXPENSE (INCOME)—net

 

 

31

 

 

 

(12

)

 

 

(14

)

 

 

41

 

LOSS BEFORE INCOME TAXES

 

 

(8,538

)

 

 

(16,019

)

 

 

(31,768

)

 

 

(43,327

)

PROVISION FOR INCOME TAXES

 

 

52

 

 

 

6

 

 

 

55

 

 

 

29

 

NET LOSS

 

$

(8,590

)

 

$

(16,025

)

 

$

(31,823

)

 

$

(43,356

)

Net loss per share, basic and diluted

 

$

(0.85

)

 

$

(1.06

)

 

$

(3.13

)

 

$

(3.21

)

Weighted-average number of shares outstanding, basic and diluted

 

 

10,160,879

 

 

 

15,134,677

 

 

 

10,160,879

 

 

 

13,516,844

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

31-Mar-19

 

 

30-Jun-19

 

 

30-Sep-19

 

 

31-Dec-19

 

NET REVENUE

 

$

17,846

 

 

$

30,368

 

 

$

40,603

 

 

$

25,634

 

COST OF GOODS SOLD

 

 

11,175

 

 

 

18,608

 

 

 

23,076

 

 

 

16,552

 

GROSS PROFIT

 

 

6,671

 

 

 

11,760

 

 

 

17,527

 

 

 

9,082

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,163

 

 

 

1,860

 

 

 

2,634

 

 

 

2,476

 

Sales and distribution

 

 

9,274

 

 

 

11,828

 

 

 

17,307

 

 

 

13,616

 

General and administrative

 

 

3,366

 

 

 

4,414

 

 

 

7,999

 

 

 

8,003

 

TOTAL OPERATING EXPENSES:

 

 

13,803

 

 

 

18,102

 

 

 

27,940

 

 

 

24,095

 

OPERATING LOSS

 

 

(7,132

)

 

 

(6,342

)

 

 

(10,413

)

 

 

(15,013

)

INTEREST EXPENSE—net

 

 

1,212

 

 

 

1,281

 

 

 

875

 

 

 

1,018

 

OTHER EXPENSE (INCOME)—net

 

 

45

 

 

 

(13

)

 

 

21

 

 

 

(12

)

LOSS BEFORE INCOME TAXES

 

 

(8,389

)

 

 

(7,610

)

 

 

(11,309

)

 

 

(16,019

)

PROVISION FOR INCOME TAXES

 

 

 

 

 

15

 

 

 

8

 

 

 

6

 

NET LOSS

 

$

(8,389

)

 

$

(7,625

)

 

$

(11,317

)

 

$

(16,025

)

Net loss per share, basic and diluted

 

$

(0.73

)

 

$

(0.62

)

 

$

(0.75

)

 

$

(1.06

)

Weighted-average number of shares outstanding, basic and diluted

 

 

11,534,190

 

 

 

12,206,747

 

 

 

15,134,422

 

 

 

15,134,677

 


 

 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Unaudited) (in thousands, except share and per share data)

 

 

 

December 31,

2018

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash

 

$

20,029

 

 

$

30,353

 

Accounts receivable—net

 

 

1,403

 

 

 

1,059

 

Inventory

 

 

30,552

 

 

 

36,212

 

Prepaid and other current assets

 

 

5,418

 

 

 

5,395

 

Total current assets

 

 

57,402

 

 

 

73,019

 

PROPERTY AND EQUIPMENT—net

 

 

268

 

 

 

175

 

GOODWILL AND OTHER INTANGIBLES—net

 

 

 

 

 

1,055

 

OTHER NON-CURRENT ASSETS

 

 

337

 

 

 

175

 

TOTAL ASSETS

 

$

58,007

 

 

$

74,424

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Credit facility

 

$

14,451

 

 

$

21,657

 

Accounts payable

 

 

15,404

 

 

 

21,064

 

Term loan

 

 

 

 

 

3,000

 

Accrued and other current liabilities

 

 

9,708

 

 

 

7,505

 

Total current liabilities

 

 

39,563

 

 

 

53,226

 

OTHER LIABILITIES

 

 

26

 

 

 

4

 

TERM LOANS

 

 

13,049

 

 

 

10,467

 

Total liabilities

 

 

52,638

 

 

 

63,697

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Common stock, par value $0.0001 per share—500,000,000 shares authorized and 11,534,190 shares outstanding at December 31, 2018; 500,000,000 shares authorized and 17,736,649 shares outstanding at December 31, 2019

 

 

1

 

 

 

2

 

Additional paid-in capital

 

 

76,348

 

 

 

125,044

 

Accumulated deficit

 

 

(71,020

)

 

 

(114,376

)

Accumulated other comprehensive income

 

 

40

 

 

 

57

 

Total stockholders’ equity

 

 

5,369

 

 

 

10,727

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

58,007

 

 

$

74,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

Year-Ended December 31,

 

 

 

2018

 

 

2019

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(31,823

)

 

$

(43,356

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

253

 

 

 

183

 

Provision for sales returns

 

 

78

 

 

 

134

 

Amortization of deferred financing cost and debt discounts

 

 

667

 

 

 

1,218

 

Stock-based compensation

 

 

619

 

 

 

19,248

 

Allowance for doubtful accounts

 

 

 

 

 

35

 

Other

 

 

90

 

 

 

59

 

Loss on early extinguishment on Midcap term loan

 

 

97

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(70

)

 

 

309

 

Inventory

 

 

(9,974

)

 

 

(5,360

)

Prepaid and other current assets

 

 

(1,153

)

 

 

(1,004

)

Accounts payable, accrued and other liabilities

 

 

10,871

 

 

 

3,263

 

Cash used in operating activities

 

 

(30,345

)

 

 

(25,271

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(61

)

 

 

(114

)

Cash consideration for acquisition of Aussie Health

 

 

 

 

 

(1,105

)

Proceeds on sale of fixed assets

 

 

35

 

 

 

6

 

Cash used in investing activities

 

 

(26

)

 

 

(1,213

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from Initial Public Offering

 

 

 

 

 

36,000

 

Issuance costs from Initial Public Offering

 

 

 

 

 

(5,446

)

Borrowings from Mid Cap credit facility

 

 

62,665

 

 

 

98,663

 

Repayments from Mid Cap credit facility

 

 

(50,784

)

 

 

(92,165

)

Debt issuance costs from Mid Cap credit facility

 

 

(926

)

 

 

(581

)

Debt issuance costs from Horizon term loan

 

 

(215

)

 

 

(900

)

Insurance financing proceeds

 

 

 

 

 

3,833

 

Insurance obligation payments

 

 

 

 

 

(2,783

)

Capital lease obligation payments

 

 

(54

)

 

 

(55

)

Capital lease financing proceeds

 

 

20

 

 

 

 

Proceeds from issuance of Series C stock

 

 

23,969

 

 

 

 

Proceeds from issuance of Series C-1 stock

 

 

7,660

 

 

 

 

Issuance costs of Series C stock

 

 

(2,997

)

 

 

 

Issuance costs of Series C-1 stock

 

 

(1,243

)

 

 

 

Proceeds from exercise of stock options

 

 

18

 

 

 

 

Repayments from Mid Cap term loan

 

 

(6,776

)

 

 

 

Prepayment penalty incurred with the Midcap term loan extinguishment

 

 

(97

)

 

 

 

Borrowings from Horizon term loan

 

 

15,000

 

 

 

 

Deferred offering costs

 

 

(947

)

 

 

 

Cash provided by financing activities

 

 

45,293

 

 

 

36,566

 

EFFECT OF EXCHANGE RATE ON CASH

 

 

(11

)

 

 

(1

)

NET CHANGE IN CASH AND RESTRICTED CASH FOR THE YEAR

 

 

14,911

 

 

 

10,081

 

CASH AND RESTRICTED CASH AT BEGINNING OF YEAR

 

 

5,797

 

 

 

20,708

 

CASH AND RESTRICTED CASH AT END OF YEAR

 

$

20,708

 

 

$

30,789

 

RECONCILIATION OF CASH AND RESTRICTED CASH

 

 

 

 

 

 

 

 

CASH

 

$

20,029

 

 

 

30,353

 

RESTRICTED CASH—Prepaid and other current assets

 

 

550

 

 

 

307

 

RESTRICTED CASH—Other non-current assets

 

 

129

 

 

 

129

 

TOTAL CASH AND RESTRICTED CASH

 

$

20,708

 

 

$

30,789

 

MOHAWK GROUP HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited) (in thousands)

 

 

 

 

 

 

 



 

 

Non-GAAP Financial Measures and Reconciliations

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes that these items are not indicative of the Company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP.

Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies.

The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) Contribution margin; (ii) Contribution margin as a percentage of net revenue; (iii) Adjusted EBITDA; and (iv) Adjusted EBITDA as a percentage of net revenue and (v) cash burn. These non-GAAP financial measures may also assist investors in making comparisons of the Company’s core operating results with those of other companies.

As used herein, Contribution margin represents operating loss plus general and administrative expenses, research and development expenses and fixed sales and distribution expenses including stock-based compensation. As used herein, Contribution margin as a percentage of net revenue represents Contribution margin divided by net revenue. As used herein, EBITDA represents net loss plus depreciation and amortization, interest expense, net and income tax expense. As used herein, Adjusted EBITDA represents EBITDA plus stock-based compensation expense and other expense, net.  As used herein, Adjusted EBITDA as a percentage of net revenue represents Adjusted EBITDA divided by net revenue. Contribution margin, EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to loss from operations or net loss, as determined under GAAP.

We present Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue because we believe each of these measures provides an additional metric to evaluate our operations and, when considered with both our GAAP results and the reconciliation to net loss, provides useful supplemental information for investors. We use Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, together with financial measures prepared in accordance with GAAP, such as sales and gross margins, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors.

We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful to investors in assessing the operating performance of our business without the effect of non-cash items, while Contribution margin and Contribution margin as a percentage of net revenue are useful to investors in assessing the operating performance of our products as they represent our operating results without the effects of fixed costs and non-cash items.  Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, should not be considered in isolation or as alternatives to net loss, loss from operations or any other measure of financial performance calculated and prescribed in accordance with GAAP. Neither EBITDA, Adjusted EBITDA nor Adjusted EBITDA as a percentage of net revenue should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our Contribution margin, Contribution margin as a percentage of net revenue, EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue may not be comparable to similar titled measures in other organizations because other organizations may not calculate Contribution margin, EBITDA, Adjusted EBITDA or Adjusted EBITDA as a percentage of net revenue in the same manner as we do. Our presentation of Contribution margin and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from such terms or by unusual or non-recurring items.

We recognize that both EBITDA, Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue, have limitations as analytical financial measures. For example, neither EBITDA nor Adjusted EBITDA reflects:

 

our capital expenditures or future requirements for capital expenditures or merger and acquisitions;

 

the interest expense or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;


 

depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, or any cash requirements for the replacement of assets; or

 

changes in cash requirements for our working capital needs.

Additionally, Adjusted EBITDA excludes non-cash expense for stock-based compensation, which is and will remain a key element of our overall long-term incentive compensation package.

The following table represents a reconciliation of EBITDA and Adjusted EBITDA to net loss, which is the most directly comparable financial measure presented in accordance with GAAP (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

 

Year-Ended

December 31,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

 

 

 

 

 

 

Net loss

 

$

(8,590

)

 

$

(16,025

)

 

$

(31,823

)

 

$

(43,356

)

Add (deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

52

 

 

 

6

 

 

 

55

 

 

 

29

 

Interest expense, net

 

 

850

 

 

 

1,018

 

 

 

2,353

 

 

 

4,386

 

Depreciation and amortization

 

 

65

 

 

 

47

 

 

 

253

 

 

 

183

 

EBITDA

 

 

(7,623

)

 

 

(14,954

)

 

 

(29,162

)

 

 

(38,758

)

Other expense (income), net

 

 

31

 

 

 

(12

)

 

 

(14

)

 

 

41

 

Stock-based compensation

 

 

138

 

 

 

7,412

 

 

 

619

 

 

 

19,248

 

Adjusted EBITDA

 

$

(7,454

)

 

$

(7,554

)

 

$

(28,557

)

 

$

(19,469

)

Adjusted EBITDA as a percentage of net revenue

 

 

(37.8

)%

 

 

(29.5

)%

 

 

(39.0

)%

 

 

(17.0

)%

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

June 30, 2019

 

 

September 30, 2019

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,389

)

 

$

(7,625

)

 

$

(11,317

)

 

 

 

$

(16,025

)

Add (deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

15

 

 

 

8

 

 

 

 

 

6

 

Interest expense, net

 

 

1,212

 

 

 

1,281

 

 

 

875

 

 

 

 

 

1,018

 

Depreciation and amortization

 

 

55

 

 

 

40

 

 

 

41

 

 

 

 

 

47

 

EBITDA

 

 

(7,122

)

 

 

(6,289

)

 

 

(10,393

)

 

 

 

 

(14,954

)

Other expense (income), net

 

 

45

 

 

 

(13

)

 

 

21

 

 

 

 

 

(12

)

Stock-based compensation

 

 

1,500

 

 

 

2,619

 

 

 

7,716

 

 

 

 

 

7,412

 

Adjusted EBITDA

 

$

(5,577

)

 

$

(3,683

)

 

$

(2,656

)

 

 

 

$

(7,554

)

Adjusted EBITDA as a percentage of net revenue

 

 

(31.3

)%

 

 

(12.1

)%

 

 

(6.5

)%

 

 

 

 

(29.5

)%

 

We also recognize that Contribution margin and Contribution margin as a percentage of net revenue have limitations as analytical financial measures. For example, Contribution margin does not reflect:

 

general and administrative expenses necessary to operate our business;

 

research and development expenses necessary for the development, operation and support of our software platform; or

 

the fixed costs portion of our sales and distribution expenses including stock-based compensation expense


The following table provides a reconciliation of Contribution Margin to operating loss, which is the most directly comparable financial measure presented in accordance with GAAP (in thousands):

 

 

 

 

 

Three Months Ended              December 31,

 

 

Year-Ended December 31,

 

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

 

 

 

 

 

 

 

Operating loss

 

$

(7,657

)

 

$

(15,013

)

 

$

(29,429

)

 

 

(38,900

)

Add

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

3,187

 

 

 

8,003

 

 

 

11,290

 

 

 

23,782

 

Research and development expenses

 

 

845

 

 

 

2,476

 

 

 

3,655

 

 

 

8,133

 

Sales and distribution fixed expenses, including stock-based compensation expense within sales and distribution expense

 

 

2,642

 

 

 

2,852

 

 

 

6,695

 

 

 

9,475

 

Contribution margin

 

$

(983

)

 

$

(1,682

)

 

$

(7,789

)

 

$

2,490

 

Contribution margin as a percentage of net revenue

 

 

(5.0

)%

 

 

(6.6

)%

 

 

(10.6

)%

 

 

2.2

%

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

June 30, 2019

 

 

September 30, 2019

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Operating loss

 

$

(7,132

)

 

$

(6,342

)

 

$

(10,413

)

 

 

(15,013

)

Add

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

3,366

 

 

 

4,414

 

 

 

7,999

 

 

 

8,003

 

Research and development expenses

 

 

1,163

 

 

 

1,860

 

 

 

2,634

 

 

 

2,476

 

Sales and distribution fixed expenses, including stock-based compensation expense within sales and distribution expense

 

 

1,807

 

 

 

1,804

 

 

 

3,010

 

 

 

2,852

 

Contribution margin

 

$

(794

)

 

$

1,736

 

 

$

3,230

 

 

$

(1,682

)

Contribution margin as a percentage of net revenue

 

 

(4.5

)%

 

 

5.7

%

 

 

8.0

%

 

 

(6.6

)%

 

  We believe each of our products goes through three core phases as follows:

 

i.

Launch phase: During this phase, we leverage our technology to target opportunities identified using AIMEE. During this period of time, and due to the combination of discounts and investment in marketing, our net margin for a product could be as low as negative 35%. In general, a     product may stay in the launch phase on average for 3 months.

 

ii.

Sustain phase: Our goal is for every product we launch to enter the sustain phase and become profitable, with a target average of positive 10% net margin (i.e. contribution margin). Over time, our products benefit from economies of scale stemming from purchasing power both with manufacturers and with fulfillment providers.

 

iii.

Liquidate phase: If a product does not enter the sustain phase or if the customer satisfaction of the product (i.e., ratings) are not satisfactory, then it will go to the liquidate phase and we will sell the remaining inventory.

 

The following table breaks out our quarterly results of operations by our product phases including our SaaS business line:

 


 

 

Three Months Ended March 31, 2019 (in thousands)

 

 

 

Sustain

 

 

Launch

 

 

SaaS

 

 

Liquidate /Other

 

 

Fixed Costs

 

 

Stock-based compensation expense

 

 

Total

 

NET REVENUE

 

$

13,296

 

 

$

2,602

 

 

$

630

 

 

$

1,318

 

 

$

 

 

$

 

 

$

17,846

 

COST OF GOODS SOLD

 

 

8,322

 

 

 

1,743

 

 

 

 

 

 

1,110

 

 

 

 

 

 

 

 

 

11,175

 

GROSS PROFIT

 

 

4,974

 

 

 

859

 

 

 

630

 

 

 

208

 

 

 

 

 

 

 

 

 

6,671

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and distribution expense

 

 

5,077

 

 

 

1,343

 

 

 

166

 

 

 

880

 

 

 

1,420

 

 

 

388

 

 

 

9,274

 

Research and development expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,002

 

 

 

161

 

 

 

1,163

 

General and administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,415

 

 

 

951

 

 

 

3,366

 

 

 

 

Three Months Ended June 30, 2019  (in thousands)

 

 

Sustain

 

 

Launch

 

 

SaaS

 

 

Liquidate /Other

 

 

Fixed Costs

 

 

Stock-based compensation expense

 

 

Total

NET REVENUE

 

$

27,464

 

 

$

1,405

 

 

$

425

 

 

$

1,074

 

 

$

 

 

$

 

 

$

30,368

COST OF GOODS SOLD

 

 

16,810

 

 

 

932