Q2 2022 Aterian Inc Earnings Call
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Good afternoon and welcome to the Ethereum Inc. second quarter 2022 earnings report conference call. participants will be in the Sonali mode.
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After today's presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded. I would like to turn the conference over to Ilya Grisovski, Vice President of Investor Relations and Corporate Development. You may now go ahead. You may now go ahead and turn the conference over to Ilya Grisovski, Vice President of Investor Relations and Corporate Development.
Thank you for joining us today to discuss the Terrians second quarter 2022 earnings results.
On today's call are Yaniv Sarik, co-founder and CEO , and Arturo Rodriguez, our Chief Financial Officer.
A copy of today's press release is available on the investor relations section of Eterian's website at Eterian.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 a Terrians judgment and analysis as of today and actual results may differ materially from current expectations based on a number of factors affecting a Terrians business.
Accordingly, you should not place undue reliance on these forward-looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter earnings release as well as our filings with the SEC. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter earnings release as well as our filings
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 you.
Thank you, Ilya, and thank you everyone for joining us today.
On the call today, I'll go over the following topic.
I will start with a quick introduction of Eteria and to those who are newer to our story.
I will then review the key takeaways from the second quarter of this year.
I will then discuss our challenges and how we're dealing with them, including the economy and macro-level pressure from supply chain disruptions and inflation.
I'll then summarize how we see the long-term prospects for ethereum.
For those who are new to the story, here's what you need to know about our company.
Ethereum is part of a new breed of technology-enabled consumer product companies. We focus on building, acquiring, and partnering with e-commerce brands online.
Tyrian owns and operates 14 consumer product brands selling products across various categories on channels such as Amazon, Walmart, Shopify, and eBay.
To allow us to scale, we've invested in building our own proprietary software platform called Amy.
AMI enables our team to manage our business more efficiently by injecting technology into processes that would otherwise have to be executed manually and would require hiring an unscalable and unsustainable workforce.
Through its ability to analyze vast amounts of data and automate daily recurring tasks,
Aimee allows our team to find new product opportunities we can launch under our brands, manage each product 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 product companies in the world, expanding our footprint globally while continuing to invest in technology and agile supply chains to drive scale and profitability.
Moving now to our key takeaways from the second quarter. I'll start with a quick summary of the main points and then discuss them in more detail.
The economy and retail in particular continue to be disrupted by the aftermath of the pandemic and the supply chain issues that ensued, including inflation and weak consumer demand.
As I mentioned in the previous earnings call, although these disruptions are hurting our business in the short term, we are already seeing encouraging signs of supply chain normalization.
We continue to be focused on protecting market share for our products.
as we are taking steps towards preparing to resume growth in 2023.
Our efforts are focused on three fronts.
normalizing our inventory levels and accelerating the sale of goods that were previously shipped to our warehouse at the then imposed high shipping cost.
It's important that we do so to improve our margins next year as we reorder those goods at a lower cost basis due to declining shipping costs.
implementing improvements to our AIMI platform and internal processes based on learnings from our past M&A transactions so that we can restart and execute our acquisition strategy faster and more efficiently.
Furthering a strategic collaboration with publishers and media partners to gain a long-term advantage on marketplaces as content commerce continues to scale rapidly and play a critical role in online retail ecosystems.
With those important points in mind, I would like to now discuss each of them in further detail.
Given that several retailers have already published their Q2 results, a clearer picture of the challenging effects of the pandemic and due supply chain disruptions are now available.
Large retail platforms such as Walmart, Amazon, and Target are dealing with expensive and excessive amount of inventory as well as weaker overall consumer demand.
Consumers are seeing their buying power diminished by inflation everywhere from the price of gas to everyday essentials.
The combination is of course difficult for any business regardless of scale.
Ethereum is affected by the same forces and is taking several steps to not only navigate those challenges, but in the long term, hopefully benefit from them.
We continue to believe that cooling demand for products will eventually bring normalization, shipping costs, and reliability of international carriers.
As some of the listeners on the call might already know, encouraging data is already pointing in that direction.
As of July 28th, the jewelry spot rate tracking, the cost of shipping from Shanghai to LA, is at $7,199 per 40-foot container.
This price represents a 31% year-on-year reduction in costs.
A very encouraging sign indeed and we hope that this train will continue into 2023.
We're still far quiet from the pre-pandemic shipping costs, which in 2019 were approximately $4,000 per 40-foot container for the same route.
But our team is excited to see signs pointing in the right direction.
While the decline of shipping costs is encouraging, it's important to remember that in retail, the effects of such changes can take a while to materialize.
Companies need to first sell the current inventories they carry before they can replenish inventory at a lower cost and recover their margins going forward.
For us at Ateria, the time to act is now.
We believe that near the midterm future we'll offer an opportunity to return to our growth trajectory and we're taking steps aimed at entering next year in good shape to do so.
To that extent, we started working again on launching new products, and we're doing so carefully by investing mainly in select new opportunities that can leverage the success of existing products in our portfolio.
In the next couple of weeks, we expect to announce an exciting launch of a co-branded air purifier in partnership with the publisher of Ryan.
As we get comfortable that the supply chain challenges continue to ease, we will hopefully be able to announce additional progress we're making with accelerating product launches.
Given that shipping costs are declining and we have the opportunity to restock our portfolio at a lower cost basis, we started accelerating our sales in July and will continue to do so until the end of the year.
We took advantage of Prime Day to normalize inventory levels and had our biggest revenue for the event at a $5 million mark in sales over two days.
While many of our portfolio products were sold at a strong margin, we also took some aggressive steps on several product lines to normalize inventory levels.
The short-term trend of top-line driven strategy will further affect our margin this year, and hopefully will allow us to get back to double-digit contribution margin in 2023.
Efforts to prepare for reigniting growth include an extensive revamp of our internal processes and further investments in our systems and technology.
The investments we are making are the results of our learnings from acquiring 9 brands via M&A transaction the last two years.
We continue to believe that growth opportunities through M&A is an exciting part of our long-term strategy.
Our goal is to improve our ability to integrate future M&A acquisitions faster and more efficiently than we've done in the past.
As we look into a future where Ethereum hopes to continue to grow its revenue through acquisition, we believe that integration and effective management of the assets we acquire are the top lobster of Capital flexible auctionists.
at a relatively lower fixed cost are key to driving long-term success.
We're adding several features to our A&E platform across forecasting, prioritization of operational requests from our brand, and other functions that we expect will allow us to integrate and manage brands, including those we acquire rapidly and efficiently with lower fixed costs.
To give a concrete example of how these investments will make a difference, consider a future in which we continue to scale our brand portfolio and need to constantly make budget allocation decisions for our brand.
Using the new workflows and systems we are building into and around AAMI, we expect to be able to automatically prioritize the allocation of capital and fixed costs associated with each brand initiative based on the expected future ROI for Aterian.
The goal is to make sure we have an objective and optimal understanding of what each brand initiative implies for our budget, cash allocation, as well as expected financial outcomes of the aggregate initiatives performed by all the brands in our portfolio.
Lastly, we continue to make great progress on our strategic investment in partnerships with publishers as the media industry continues to foray into content commerce.
For those who are less familiar with the latest development in e-commerce industry, I would like to reiterate the strategic importance long term for companies like us.
As everyone on this call knows, our business focuses on promoting our brands through various marketplace such as Amazon, eBay and Walmart.
In the United States, while most consumers have a favorite retail channel they choose to search for products on, 36% of consumers start their research on Google to learn more about products from expert recommendation and editorial content.
Publishers have taken notice and many of them focus on writing articles about products to review and recommend to consumers items that will fulfill their needs.
When publishers recommend a product and send their readers to Amazon, for example, they receive a commission if the consumer ends up buying the recommended product.
For Ethereum, it's important to play a role in this growing ecosystem and build relationships with publishers in hopes that they decide to write and promote more of our product when their editorial team believes they're a good fit for their audience.
To that end, Ethereum has launched DealMojo, a platform that allows publishers to discover new products they can choose to recommend to their audiences while benefiting from additional revenue share and special discounts which we are looking to streamline to the site.
We're pleased so far with the reaction we received from the on-module and continue to on-board publishers and adapt the product to meet the requirements from an integration perspective.
As of the beginning of the year, DealMojo has allowed publishers to promote our products and driven over $7 million in product sales through the beginning of the year.
While at this stage the ELM module is still primarily used by Ethereum, we continue to test the prospect of opening up to other sellers.
With these updates on Q2 and our strategy for the rest of the year, I want to thank everyone on the call for those who follow our progress. We're excited for Eterans' potential return to growth in 2023 as supply chain issues are expected to continue to ease, and we continue to believe that we're on track to build one of the most exciting long-term growth stories in e-commerce and consumer products.
I will now pass it on to Ari to discuss our financial results for the quarter.
Thanks, Janice, and good evening, everyone. Here are the financial performance details of our second quarter.
For the second quarter of 2022, net revenue decreased 14.5%, or $9.9 million, to $58.3 million from $68.2 million in the year-ago quarter, primarily from the decrease in net revenue from our sustained business and launch revenue due to our previously announced plan to pause new product launches.
The second quarter net revenue of 58.3 million is comprised primarily of 56.1 million from our organic business, which we note includes revenue from our built brands and acquired brands starting one year after purchase, 1.9 million of net revenue from our acquisitions, and 0.3 million of wholesale. The year quarter net revenue of 68.2 million was comprised primarily of 29.1 million from our organic business.
$33.2 million of net revenue from our acquisitions, and $5.7 million of wholesale.
As a reminder, the acquisitions of Photopaper Direct and Squatty Potty closed on May 6, 2021 and as a result moved into our organic category starting May 6, 2022.
Our organic revenue increased by $26.9 million from the move of our acquisition revenue into organic revenue, offset by a reduction in overall organic revenue from reduced sales velocity, resulting from increased pricing, through the supply chain disruptions, and reduced overall consumer spend in the period.
Our acquisition revenue decreased $31.3 million to $1.9 million from Q2 2022 from $33.2 million in Q2 2021, primarily due to Healing Solutions, Photopilot Direct, and Squatty Potty being owned for over a year and shifting to organic categorization.
Our sustained revenue landed at $54.1 million for Q2 2022 versus $61.8 million in Q2 2021.
The $7.7 million decrease in this revenue is primarily due to increased pricing due to supply chain disruption and reduced overall consumer spend in the period from a change in consumer buying habits and unfavorable impacts from inflation affecting consumer spending.
Our business also saw a year-over-year decrease in launch phase revenue of $3.1 million to $1.3 million. As planned, we did not launch any new products in this quarter compared to 2019 and last year's second quarter.
Overall gross margin for the second quarter increased to 53.8% from 48% in the year ago quarter. Our gross margin improvement versus last year's is predominantly from a favorable product mix from the inclusions of required brands, offset by increased costs from the supply chain disruptions, specifically increased costs of shipping containers.
We believe the increased cost of shipping containers relative to the second quarter of 2021 impact our gross margin negatively by approximately 2.5% in the second quarter of 2022.
Our overall Q2 2022 contribution margin as defined in our earnings release was 9.7, which increased compared to prior year CM of 8.3%.
Q2 2022 saw our Sustained Products Contribution Margin increase 13.3% compared to 12.6% in Q2 2021.
Within CM, our sales and distribution expenses continue to be negatively impacted by supply chain disruptions and higher costs and the last mile of fulfillment, giving inflationary pressures and carrier tightness in the quarter.
Our Q2 variable sales and distribution expenses as a percentage of net revenue increased 44.1% compared to 43% in the year ago quarter.
We expect to see these impacts to continue in the current quarter, while we continue to look for ways to mitigate higher cost dynamics in our supply chain and last mile costs, we believe we will continuously see impressions for the remainder of 2022.
We reported a 10.1 million operating loss for the second quarter of 2022 as compared to a gain of $4.5 million in the second quarter of 2021.
The second quarter of 2022 operating loss includes a gain of $1.7 million from the change in fair value of earn-out liabilities and $6 million of non-cash stock compensation, while the second quarter of 2021 operating income includes $23.3 million of a benefit from the change in fair value of earn-out liabilities and non-cash stock compensation of $4.9 million. The second quarter of 2021 operating income includes a gain of $4.9 million from the change in fair value of earn-out liabilities and $6.9 million from the change in fair value of earn-out liabilities and $6.9 million from the change in fair value of earn-out liabilities
Interest expense was down in Q2 2022 to $2.3 million from $4.7 million in Q2 2021 as part of our debt refinancing, which ultimately reduced our overall debt outstanding versus
today, excuse me, overall debt outstanding today versus 2021.
Net loss in second quarter of 2022 was 16.5 million, which was an improvement from a loss of 36.3 million in the second quarter of 2021.
Second quarter 2022 net loss includes $6 million in net charges from changes in fair value warrants, $6 million of non-cash stock compensation, and a gain of $1.7 million from the net change in fair value earn-out liabilities, while second quarter 2021 included a $23.3 million benefit from change in fair value burn-outs.
a $29.8 million loss in the extinguishment of debt, a $4.4 million loss of change in fair value of warrants, $4.9 million of noncash stock compensation, and a $1.9 million charge associated with the derivative liability from our term loan in 2021.
Adjusted EBIT as defined in our earnings release for the second quarter of 2022 was a loss of 3.7, unchanged compared to a loss of 3.7 million in the second quarter of 2021.
Turning to the balance sheet, at June 30, 2022, we had cash of $34.8 million compared to $44.5 million at the end of March 31, 2022. This decreases due to a $4 million final payment from the Squatty Potty Earnout, working capital usage of $5.2 million and our net loss.
The inventory landed at $76.1 million on June 30, 2022, which is slightly higher than the $75.4 million at March 31, 2022.
due to softness in net revenues. Although we did see record Prime Day sales in July , we believe we continue to be long on inventory. As such, we anticipate to move inventory over the next two quarters at reduced margins to help normalize inventory levels.
We continue to be impacted by global supply chain disruptions and inflationary pressures globally.
While we believe these issues are temporary, they limit our ability to forecast and as a result, we will not continue to be providing full year guidance at this time.
However, as we look at our current Q3 and taking into account current global environment, rising inflation and continued difficulty with supply chain, we believe Q3 2022 net revenues will be between $52 million and $60 million.
The second quarter of 2022 saw continued challenging macroeconomic conditions and unpredictable consumer spending hammock, and we expect these challenges to continue for the rest of 2022.
However, we are starting to see some relief on supply chain, especially around container costs as we plan 2023.
As such, we continue to be very confident and proud of our business. We have built...
our products, our technology, our logistic network, and most importantly, our dedicated hardworking people.
Our hearing continues to persevere and we will overcome these challenges as
and continue to be a leader in our industry. With that, I'll turn it back to the operator to open the call up to questions.
We will now begin the question and answer session.
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At this time, we'll pause for a minute to assemble our roster.
Our first question will come from Thomas Ford with DA Davidson. You may now go ahead. You may now go ahead and ask your question.
Great. So one question, one follow up. So on the inventory that you intend to liquidate, the inventory you liquidated successfully at Prime Day and over the next two quarters, is there a commonality, meaning that it's, you know, you've considered it more discretionary or it's within a certain category like the home category? And then actually last question also, how much of it would be attributable to brands you've owned more than a year and brands you've owned less than a year? Hey Tom, thank you for the question.
So the pattern is just across the board, right? In general, I think that demand is lower than anyone anticipated. I think not just the Terrian, but across the board. I think the retail industry is coping with a rapid change in consumer demand, which obviously we all understand is ruined by inflation.
For us, what's important is to remain very competitive with our pricing. If we don't drive a little more normalization, we've been to a level.
across all the categories, right, we will end up potentially being a situation where as shipping costs come down, our competitors are able to bring back more inventory at a lower cost and potentially under price us, right? And so the two parts of this, one is normalizing the inventory so that we have, again, the ability to restock at a lower cost and protecting our market share by being competitive on the pricing with that.
Does that make sense?
Yes, and then you need for the second follow-up question, I wanted to – I understand historically that sometimes because you have a large portion of bulkier items that the container cost and shipping of inflationary situation could be different from you than it is for the industry in general. So right now… Right, mate.
Are the trends the same for both your products as far as container costs and things of that nature?
Demand is down across the board, which means that even smaller items are affected to some extent. But you're pointing to a very important point and you're right about that. Obviously the bigger items will be more influenced. But in a way, one thing that's important to understand is I think across the board we're seeing, and we have the luxury of being across many categories. So we see the data pre-
clearly, right, demand is down across most of the categories in a way that is affecting all products. But you're absolutely right that the larger items, which are a big part of our portfolio, they'll suffer more if we don't normalize inventory levels and bring back goods at a lower cost because the dollar difference that we would have to increase prices on the other side are going to be significant and give our...
competitor is an advantage if we don't do something about it, right? So that's a good point you're making around the larger items. But just to be clear, across the board, larger and smaller items, demand is lower than we expected.
Great. I'm going to get back in the queue for more questions. Thank you.
Thank you, Tom.
Our next question will come from Brian Kinslinger with Alliance Global Partners. You may now go ahead.
Hi guys, thanks for taking my questions tonight. In terms of new product launches, I'm going to go ahead and close the session.
Is there a target number of SKUs per month you're looking to launch? Will there still be fully AIMI driven and will there be any incremental input such as ticket size or margin that give you that cushion to make new SKUs profitable should shipping containers not continue in the favorable direction they're headed? And related to that, what are the shipping assumptions AIMI makes right now as it makes these decisions? Will there be any additional AIMI driven and will there be any incremental input such as ticket size or margin that give you that cushion to make new SKUs profitable? And related to that, what are the shipping assumptions AIMI makes right now as it makes these decisions? Will there be any incremental input such as ticket size or margin that give you that cushion
Thanks, Brian . That's a good question. So as I mentioned during my remarks and also within the press release, we're cautiously starting to work on product development again. And as opposed to previous years before the pandemic where we had set certain goals in terms of how many products we want to launch every month, and as you remember, we had some very aggressive goals before the pandemic. In this case, we're being...
a lot more, I'd say, laser focused on opportunities that are incremental to what is already successful in our portfolio. And the thinking there is when you launch a completely new product that is really sort of enter a category where there is no other anchor or no other thing to rely on, right, the risks are higher and the investment upfront is higher. What we're doing here is very specifically pinpointing opportunities where we can augment existing good products with them.
There is no kind of like monthly product launch goal at this point, but there's some interesting work going on and a non-negligible amount of products that we're working on right now. So how many of them will make it to the finish line? It's too early to tell because we just started kind of reopening this part of our business, right? We're trying to go back into it cautiously because we believe that we're seeing signs out there at this point to a more normalized supply chain, which allows
with some of our partners including Amazon which we are not allowed to disclose how much we are paying. But we are being cautious and kind of modeling our products with a higher, so giving us a buffer in case.
something happens and shipping costs do go back in the wrong direction, we are cautiously adding that buffer in there when we think about the model for these products. Does that make sense? Does that answer your question? Michael, that's great. It's a good extra detail there. Thank you. It's been a super hot summer at least here on the East Coast, but I assume everywhere. So I would expect your position to benefit as usual. But looking at your revenue range for 3Q tells a different story. Is this category?
also being heavily discounted or did you have shortages here or was it just not enough to offset other other discounts that you are seeing?
Great question. We are also looking at the demand for these goods where we are very strong in these quarters, seeing weakness there as well. I think most of it is driven by inflation in general and obviously prices of products both offered by us and our competitors are more expensive than they used to be. I think a combination of general inflation plus higher prices is causing a little bit more weakness than we would expect despite
wait for, as we've seen across the board, Prime Day was quite substantial for us, but also a lot of others. It looks like consumers are being more price sensitive and you can see in these big days, right, that there is potentially more demand kind of concentrating in those times, right? So those are things I would point out to, but in general, yes, at the end of the day, there is weakness in demand across the board and it's affecting those categories as well, despite the heat waves that we're seeing.
Great. One last question and I'll get back in the queue. The higher shipping container prices has not just turned your new SKUs or new launches upside down, but also M&A obviously as it's more difficult to be profitable there.
Are you close to, and I know you made a comment about it, but are you close to getting more serious on M&A? We think that's more 2023.
and then maybe talk about our valuations similar to the past.
interesting, cheap acquisitions you've made, but are they actually cheaper given the market conditions or something similar? Thank you.
Yeah, so it's a great question, and as I mentioned in our remarks, as you described, we definitely think of M&A as playing a big part in our growth in the future, and a lot of the efforts we're taking on now are preparing for reigniting this and being operationally even better at it than we used to be in the past, learning from all we've learned from the nine acquisitions we've done. In general, we're keeping a finger on the pause all the time and definitely listening to the market.
We'll be able to reignite this M&A engine in hopefully the future, right? But when exactly, it's something that again, we haven't put a date to it, but we're doing a lot of work in the background to, as I said, prepare operationally from it. And also, just high level explore many different potential strategies from an A&A perspective, right? For example, would we want to maybe focus more on certain categories? Do we want to diversify more from supply chains in Asia, right? Those are the questions we're asking ourselves.
Good evening. So just wanted to dig into the third quarter revenue guidance for a moment here if I could. Sounds like down 18% at the midpoint. Just wanted to get a sense for how much of the pressure, the year-by-year pressure are you seeing from sort of depth of discounting versus volume declines? If you could maybe disentangle those and then what categories?
Do you expect to hold up a little bit better than that 18% down versus be a little bit worse maybe?
Ari, do you want to take that?
I will maybe start with the second one. I think we have been seeing the...
I don't think there's any one particular category that hasn't been affected by this consumer pressure or consumer reduced spend. Again, Q2 and Q3 is driven by our ACs and humidifiers, though the numbers have been down and from what we anticipated, we still felt like we did great from a market share perspective. We said that we've been able to maintain market share on our core products and if not, we gained some in some areas. When we look at the numbers, the decrease in demand, the demand is increasing.
the tactics that we use depending on looking at the dynamics across competition and other things. That's something that definitely some functions of AME helps determine. That said, what was interesting when we did Prime Day this year is we did see that there's a tremendous amount of sales on Prime Day, record days for us, which hints to the fact that consumers will be price sensitive or price takers in a sense in looking for the deal. As we think about some of the long inventory strategies that we're working on for Q3 and Q4, we're going to see a lot of growth in the market.
for that that will be something we consider but certainly I think it's still a very volatile situation that we're trying to work through but certainly.
I think that hopefully answers your question.
Yeah, that's helpful already. Thank you. And then just I was curious if you could maybe touch on the gross margin implications of the inventory clearing activity you're going to be doing. I'd assume sequentially lower and maybe even lower on a year-over-year basis is sort of what we should be penciling in. But just any any commentary on sort of how we should be thinking about the gross margin rate for the rest of the year.
Yeah, listen, Matt, another good question. I think we hinted, I think we're still very early on on all the plans that we're working on with the long inventory. I think, you know, we hint, I said it, we're going to see a little bit of pressure continuing. I think some of that's going to really boil down to how we take advantage of both, you know, this anticipated second Prime Day and also the holiday seasons. I think, you know, I'm not speaking for even a theme, but we got some interesting things that we're working on that obviously.
could move inventory but not necessarily impact margins materially. That said, I don't think we're pointing to exactly a margin impact. I would assume you would see some pressure depending on how we move those long inventories, but it's not something we're pointing to public because we still got to work through it. I don't know if you want to add anything there you need.
No, I think it's well said, Ari.
Thank you.
Okay, maybe just last one for me guys
It sounds like we should be flushing some inventory, and usually seasonally you guys do clear some inventory into the fourth quarter. So I'd assume lower inventory balance at the end of the year relative to the second quarter. But any other additional color or just some clarity that you could provide on where you expect to end the year in terms of inventory balance would be super helpful.
Thanks Gene. Yeah, yeah, yeah. Thank you.
Another great question, Matt.
Listen, we made a bet, right? We purchased inventory back in September of October 2021 to avoid supply chain issues. And then the world continued to unravel, right, between the unfortunate conflict in Eastern Europe and obviously this record inflation that we've seen in the country record since 40 years ago, right? So I think...
All those things were not anticipated when we ordered inventory in September or October of last year. So that said, I'm long on inventory. We're at roughly 75 or 76 million at the end of June . I would love to see that go down for sure. I don't think we're pointing to an exact number. I think just to think out loud, if that was 10 or 15 million lower, that would be great. I think that would be awesome. I think the good news about a lot of our products...
like ACs and humidifiers, those are things that we'll sell next year anyway, right? So a lot of it's really depending on where we see an opportunity to move inventory where we think we're long, but at the same time if it's not a great opportunity and something that affects the long-term tail of that product, we won't pull the trigger and just sell it next year. So hard to point out, but certainly something that we're not measuring to a number, we're just trying to always do what's best for each individual product.
Very helpful. I'll leave it there, guys. Thank you.
Our next question will come from Brian Nagle with Oppenheimer. You may now go ahead. You may now go ahead and ask your question.
No, thank you good afternoon. Thanks for taking my questions
So my first question, and I think this might be a bit of a follow-up, or potentially even repetitive, so I apologize, but just with respect to the demand environment, I mean, like you said in the prepared comments, I mean, it's no secret right now there are demand issues out there across consumer and across retail, and clearly, Atirid has seen this, but I get the question, obviously, as you look at the business, what gives you the confidence as you're looking at your weaker sales that it's more macro-related as opposed to something either specific with... Sure.
your products or competitive, there's some type of building competitive pressure. Hey Brian , thanks for the question and you know we are very much, you know as opposed to a traditional retailer with the amount of data that is flowing to our systems have a pretty good handle of where we are you know in terms of our market position right and and
As Arne mentioned earlier, through our analysis, we're seeing that for the large majority of our top products, we're actually doing well. In some cases, we even are gaining market share. In some cases, obviously, not as well. But in general, I'm pretty happy with that, despite, again, the numbers being down year over year. This is a very important thing to outline. Relatively to the demand in the categories.
we're not seeing the decrease being linear with the decrease in the sales, right? Which points out overall to across categories, just weaker demand. And on top of that, you have other metrics like search volumes and all sorts of other metrics that we look at. And so we feel quite confident with all this data that I think brands that operate in a more brick and mortar retail might not have.
But we're seeing just the effect of inflation and higher prices across the board being the main culprit right here. And so that's why we again, as we look at these results year on year.
the most important thing for us has been to get through this storm by controlling as much as we can our position in the categories so that while prices of shipping come down as we said earlier, we can restock inventory on a lower cost basis and be back again at a better margin. So again, the data is abundant enough for us to feel confident that we're overall doing a pretty decent job at protecting market share.
these disruptions, these COVID or in some cases now post COVID disruptions. We've all been waiting for that restart. And I mean, today on the conference call, you're talking about looking in the eye now, there are an increased pace of product launches. I think, I don't know if you mentioned AM and A, but that would probably be in your sights too. But I guess the question I have is we have supply chain, given what you're saying, seems to be improving, but
Would you also wait for the demand dynamics to improve before you really start to?
also wait for the demand dynamics to improve before you really start to push the lever on growth again.
Thank you.
Not necessarily. I think that demand is weaker year on year, but there's still obviously a lot of business going on in e-commerce. And in general, we're very optimistic about e-commerce continuing to take bites of retail on a percentage basis every year. We don't think e-commerce is going anywhere, and we just continue to push forward. What we don't want to be doing is launching products or buying companies at.
the wrong time where our chances of success are going to be lower. You know, because basically we bought them right at the peak of this COVID driven wave of e-commerce growth and then, you know, we overpaid for them or because we launched the product at a time where the shipping costs was so outrageous that we just set ourselves from a P&L perspective or the product level to fail against the existing incumbents, right? So.
It's just, you know, at the end of the day, we are not here to generate growth just for the sake of growth. We want to be a fast-growing, profitable company and we strongly believe that our model can allow for that in a normalized environment. And so whether the demand comes back roaring like it used to in 2020 or not, it matters less, right? That there is, the same rules of engagements are there. What I think matters more is can we rely on supply chains to realize that supply chains are the thing that are going to grow. I think that givesaho put the
bring our goods to our warehouses where we want to sell them to customers at a predictable cost, you know, at a cost that is not different the day we submitted our purchase order to the manufacturer versus what it ended up being, our cost with selling the product by the time it arrived to the warehouse because of the volatility of all the other costs in between. That's really the key for us to be making that growth. And again, as Arti said, and I mentioned also earlier.
there is very positive things happening out there that are showing us the light at the end of the tunnel. Hopefully again, the world doesn't have any more black swan type of surprises for us ahead, but I think once we feel that stability is there, we wanna go back and drive growth pretty aggressively. And I think again, the signs point in the right direction. Hopefully that makes sense, Brian .
That's very helpful. I appreciate it. Thank you.
I appreciate it. Thank you. Thank you.
Again, if you have a question, please press star then 1. Our next question will be a follow-up from Thomas Fort with DA Davidson. You may now go ahead. You may now go ahead and press star then 1.
Great, thanks. I had a handful of follow-ups, so you need to feel free to give short answers. But the first follow-up question I had is, can you give your thoughts on competition among companies that are focused on selling on Amazon, including if others are willing to discount their inventory more to move it?
Yeah, definitely worth seeing, you know, in a way the same pattern, right? Like across the board a lot of companies have facing the same situation where demand is not what they need to be and a lot of times you'll be facing a situation where you almost see a bit of a desperation in some other product while lowering the price to a place where you can tell that you just want to get out of it, right? Those are the places where our team has to pay close attention.
to make sure that we don't react the wrong way. And we've gotten pretty good at that. I think we've learned a lot during the last year or so to how to really understand if this competition is here to stay, or if someone trying to just undercut us because they're really desperate to get rid of their inventory. So again, overall, we've got, I think, the right analytics to understand that, and the right experience on our team level so that we can make the right decisions when we see that happening. So, with that, I think that's all I have time for.
Yes, and then I wanted you to, historically you've operated on a pretty light headcount model, but I'm wondering if there's opportunity to add talent with layoffs with other tech players.
I couldn't hear the last part of the question. Can you repeat that, please? Yeah. So historically, you've operated with a pretty light headcount, but I wanted to know if you thought there were opportunities to add talent, given the layoffs that other technology firms use.
Oh, yeah, absolutely. Obviously, as you and I probably spoke a few times, for us, the most important thing is can we run this business with a very aggressive fixed cost, as you said, like a headcount that's light. At the same time, as you mentioned, there is a lot of talent out there that has been laid off, and of course, we are keeping our eyes open and on different channels looking for bringing in that talent. We strongly believe that...
quality over quantity is the name of the game here across all the different departments. And so we will absolutely pull the trigger on hiring people if they are the right talent and when you got them. But we're not going to become a company that just hires tons of people because they can't run the business another way. We're again everything for us about efficiency.
quantity is the name of the game here across all the different departments. And so we will absolutely pull the trigger on hiring people if they are the right talent and when you got them. But we're not going to become a company that just hires tons of people because they can't run the business another way. We're again everything for us about efficiency. So yeah, that's a good question.
Great, couple more. So anecdotally it seems like Amazon is taking longer to deliver products. So I know you've got some pretty good data. Are Prime eligible products not the needle mover they once were?
You know, I think again, it's mainly due just across the board with just disruptions in different aspects of the supply chain. I don't know if I can deduct that there is any potential kind of like, you know, revisiting of what Prime means. I think Amazon, just like everyone else, is dealing with complexities of last mile shipping. And so I think it's a little early for me to comment and say that there's something changing with what Prime means for consumers.
giving them more tools and technology, something that we have seen in the past and it's very encouraging for us. The more data and analytics we can pull out of their APIs, the more we can make better decisions. We are seeing Walmart make surprising progress on that front as well with many more products on the marketplace side including their ads that seem to be accelerating the progress in terms of delivering them to sellers.
So overall, what I'm seeing is that marketplace is just becoming stronger and stronger. And I think again, the thesis that we built this company around that brands are going to have to be very good at selling on marketplace continues to be very strong. So that's something that again, is very encouraging for us as we continue to push forward on our vision. When it comes to Alibaba, we don't use that platform as much. And it's a question that I wouldn't know exactly how to answer compared to Amazon or Walmart.
on marketplaces.
Great, last one. Thanks for taking all my questions. So historically based on your SKU set the fourth quarter percent of sales was usually less than it was maybe for ecommerce market in general. I know you're not giving an outlook but when you look at your current SKU set do you think you're still in a position where your fourth quarter wouldn't necessarily be your high watermark?
That's a great question and cautiously say that obviously we don't give guidance for the full score at this point but you know given that we are you know in as we described right we want to normalize inventory typically Q4 has a lot of opportunities for that so that could help us there I'd say from a self-respective but again I'm saying that cautiously it's a lot of things can happen between our Q4 and the world is so volatile that we again are looking for more.
This concludes our question and answer session. I would like to turn the conference back over to Ilya Grzegorski for any closing remarks.
Thank you.
As part of our shareholder perks program, which as a reminder investors can sign up for at ethereum.io slash perks.
Participants have the ability to ask management questions on our earnings call. I wanted to thank all the shareholder perks participants for their loyalty, their participation in the program and their questions.
I have picked a few of the most popular questions that they have sent in.
The first question is,
Do you believe you are well capitalized enough to seek out acquisition targets in the next couple of quarters? And, even are you. Yeah.
Thanks, Delia. Let me take that. In general, future M&A will require additional fundraising.
We're in the process I described earlier to further define our M&A strategy going forward based on our learning.
and we're looking at various options to secure the most capital efficient structure for those transactions. But in general, we will need to raise more money for acquisition, but we are looking again at many different options to do it in the most efficient way.
Great. Our next question is, have you considered acquiring complementary brands to the brands that you currently own or are you only interested in new verticals?
Yeah, it's a great question and it goes hand in hand with what I described before as we kind of review everything that unfolded with the brands that we acquired. There's definitely some interesting questions that arise including specifically this one which is to really kind of focus a little bit more on certain categories and basically further strengthening the modes that we have in certain categories by acquiring brands that are complementary or in some verticals. So that's something that…
we're looking at. Again, we're leveraging the time that we have here in the next few months to study that strategy further.
Great, and the last question from the PERCS program is.
Shipping costs are down as of late. Do you expect them to move back up or do you believe the worst is behind you for the foreseeable future?
Yeah, good question. So again, as I mentioned also in the previous article, we believe that the current economic downturn will stabilize shipping rates because of obviously lower demand, right? And it seems to be happening as we speak, the cost of shipping containers internationally is declining. So that's a good thing. So we believe in general, right, that the worst is behind us, but again, as I said earlier, we remain a bit concerned about you.
Great, thanks. This concludes the Q and a portion of the call in terms of the upcoming calendar. Aterian management will be participating in the H. C. Wainwright 24th annual global investment conference in New York City, September 12th through September 14th. Uh, we look forward to speaking with you on future calls. This ends our call. You may now disconnect.
Thank you.
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