Q1 2024 Aterian Inc Earnings Call
[music].
Operator: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will again be placed on music hall. Thank you for your patience.
Ladies and gentlemen, thank you for standing by today's conference call will begin momentarily until that time your lines will again depletion musical. Thank you for your patience.
Operator: [music].
Alex: Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian Incorporated Q1 earnings report. All lines have been placed on mute to prevent any background noise.
Alex: Thank you for standing by my name is Alex and I will be your conference operator today.
Alex: This time I would like to welcome everyone to you. That's your incorporated Q1 earnings report all lines have been placed on mute to prevent any background noise operators speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you will.
Alex: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development. Please go ahead.
Ilya Grozovsky: To withdraw your question Press Star one again I would now like to turn the call over to Ilya Gozofsky, Vice President Investor Relations and corporate development. Please go ahead.
Ilya Grozovsky: Thank you for joining us today to discuss Aterian's first quarter 2024 earnings results. On today's call are Joe Risico, our co-CEO, and Arturo Rodriguez, our co-CEO and CFO.
Ilya Grozovsky: Thank you for joining us today to discuss <unk> first quarter 2024 earnings results on today's call are Joe Russell, Arco's, CEO, and our tumor Rodriguez, our co CEO and CFO.
Ilya Grozovsky: A copy of today's press release is available on the Investor Relations section of Aterian's website at aterian.io. Before we get started, I wanted to remind everyone that the remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include, without limitation, predictions, expectations, targets, or estimates, including regarding our anticipated financial performance, business plans and objectives, future events and developments, and actual results could differ materially from those mentioned.
Ilya Grozovsky: A copy of today's press release is available on the Investor Relations section of <unk> website at a charity in Dot IL.
Ilya Grozovsky: These forward-looking statements may also involve substantial risk and uncertainty, some of which may be outside of our control and could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for discussions of these risks, including our annual report on Form 10-K filed on March 19th, 2024, and our quarterly report on Form 10-Q when it is available on the investor portion of our website at aterian.io. You should not place undue reliance on these forward-looking statements.
Ilya Grozovsky: Before we get started I wanted to remind everyone that the remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Ilya Grozovsky: That are based on current management expectations. These may include without limitation.
Ilya Grozovsky: Predictions expectations targets or estimates, including regarding our anticipated financial performance business plans and objectives future events and developments and actual results.
Ilya Grozovsky: Differ materially from those mentioned east.
Ilya Grozovsky: These forward looking statements may also involve substantial risks and uncertainties some of which may be outside of the control and that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties. Among others are discussed in our filings with the SEC.
Ilya Grozovsky: We encourage you to review these filings for a discussion of these risks, including our annual report on Form 10-K filed on March 19th 2024, and our quarterly report on Form 10-Q, when it is available on the investor portion of our website at <unk> Dot IL <unk>.
Ilya Grozovsky: You should not place undue reliance on these forward looking statements. These statements are made only as of today and we undertake no obligation to update or revise them for any new information, except as required by law.
Ilya Grozovsky: These statements are made only as of today, and we undertake no obligation to update or revise them with any new information except as required by law. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period-to-period comparisons for our core operating results.
Ilya Grozovsky: Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the investor portion of our website at aterian.io. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We are unable to provide a reconciliation of non-GAAP-adjusted EBITDA margin to net income margin, the most directly comparable GAAP financial measure, on a forward-looking basis without unreasonable effort because items that impact GAAP financial measures are not within the company's control and or cannot be reasonably predicted. With that, I will turn the call over to Joe.
Ilya Grozovsky: This call will also contain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings provide consistency uncompetitive comparability with our past performance and <unk>.
Joe: Facilitate period to period comparisons for our core operating results.
Joe: Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the investor portion of our website at <unk> Dot IL. Please note that our definition of these measures may differ from similarly, titled metrics presented by other.
Ilya Grozovsky: Companies.
Joe: We are unable to provide a reconciliation of non-GAAP adjusted EBITDA margin to net income margin. The most directly comparable GAAP financial measure on a forward looking basis without unreasonable efforts because items that impact GAAP financial measures are not within the company's control.
Ilya Grozovsky: And or cannot be reasonably predicted with that I will turn the call over to Joe.
Ilya Grozovsky: Okay.
Joe Risico: Thank you, Ilya, and thank you everyone for joining us today. Today, I'm going to discuss our Q1 results, and then I'm going to discuss the actions that we're taking to foster organic and inorganic growth for Aterian in 2024 and beyond as we continue our efforts to focus, simplify, and stabilize Aterian's core business, and as we continue on our mission of achieving adjusted EBITDA profitability in the second half Artie will then cover in more depth our financial results for the first quarter and will provide our outlook for Q2. For those of you joining us for the first time, I'll start with a quick primer on Aterian.
Ilya Grozovsky: Yes.
Joe: You everyone for joining us today.
Joe Risico: Hey, I'm going to discuss.
Joe Risico: Our Q1 results and then I'm going to discuss the actions, we're taking to foster organic and inorganic growth fourth here in 2024 and beyond as we continue our efforts.
Joe Risico: Focus simplify and stabilize <unk> core business and as we continue on our mission of achieving adjusted EBITDA profitability in the second half of 2024.
Joe Risico: Already will then cover in more depth, our financial results for the first quarter and will provide our outlook for Q2.
Joe Risico: Aterian owns and operates its own consumer products brand. We market and sell consumer products in the following categories: Home and Kitchen Appliances and Accessories through our Homelabs Mueller and Purcine brands; Health and Wellness products, primarily through our Squatty Potty brand; Iron On Transfer Paper products through our PPD or Photo Paper Direct brand; and Essential Oils products through an umbrella of brands, including Healing Solutions.
Joe Risico: For those of you for those of you joining us for the first time I'll start with a quick primer on the period.
Joe Risico: The Purion owns and operates its own consumer product spreads, we market and sell consumer products in the following categories.
Joe Risico: Home and kitchen appliance that accessories through our home labs, Mueller and pure <unk> brand health and wellness products, primarily through our squad Party brand.
Joe Risico: Ironwood transfer paper products through our PPD or photo paper direct brand and essential oils products through an umbrella of brands, including healing solutions.
Joe Risico: Today, we sell our products primarily in the U.S., and we earn most of our revenues from the Amazon.com marketplace. With respect to Q1 performance, overall, we are pleased, as we are seeing results from our efforts to focus, simplify, and stabilize Aterian's core business. As a quick recap, we've rationalized our SKU portfolio, we've reduced our number of seller accounts, we've simplified our logistics and technology infrastructure, we've jettisoned non-core initiatives, and we've better organized our revenue and operational workflows.
Joe Risico: Today, we sell our products primarily in the U S.
Joe Risico: And we earn most of our revenues from the Amazon Dot com marketplace.
Joe Risico: With respect to Q1 performance overall, we are pleased as we are seeing results from our efforts to focus simplify and stabilize <unk> core business.
Joe Risico: Quick recap, we've rationalized our SKU portfolio.
Joe Risico: We've reduced our number of seller accounts, we simplified our simplified logistics and technology infrastructure.
Joe Risico: Jettison non core initiatives and we're better organized our revenue and operational workflows.
Joe Risico: And, of course, we continue to assess and refine each of the above with a view toward optimizing for profitable growth and Scale. While the macroeconomic environment remains uncertain, and we continue to experience pricing pressure in the highly competitive discretionary product categories in which we operate, In Q1, we improved gross margin to 65%, and we improved contribution margin to 16% versus Q1 of last year. I'd like to know that we expect our gross margin percentage to fluctuate quarter to quarter for the rest of 2024.
Joe Risico: And of course, we continue to assess and to refine each of the above with a view towards optimizing for profitable growth.
Speaker Change: Thanks Gail.
Joe Risico: While the macro economic environment.
Joe Risico: Uncertainty and we continue to experience pricing pressure and the highly competitive discretionary product categories in which we operate.
Joe Risico: In Q1, we improved gross margins of 65%.
Joe Risico: And we improved contribution margin to 16% versus Q1 of last year.
Joe Risico: I'd like to note.
Joe Risico: That we expect our gross margin percentage to fluctuate quarter to quarter for the rest of 2024 due.
Joe Risico: Due to pricing and product mix, but to remain strong. And we do expect our contribution margin percentage to remain primarily in line with Q1 results, both of which we believe position us well to achieve adjusted EBITDA profitability for the second half of 2024. In addition, we also have a good handle on our fixed cost structure.
Joe Risico: Due to pricing and product mix, but to remain strong.
Joe Risico: We do expect our contribution margin percentage to remain primarily in line with Q1 results.
Joe Risico: Both of which we believe position us well to achieve adjusted EBITDA profitability for the second half of 2024.
Joe Risico: In addition, we also have a good handle on our fixed cost structure and we believe that this cost structure.
Joe Risico: We believe that this cost structure, together with our healthy balance sheet, will allow us to pursue both organic and inorganic growth strategies. Overall, we remain on track to achieve our previously stated goal of adjusted EBITDA profitability, and we believe we can continue to position Aterian for scale and growth, with respect to our organic growth strategy. While we had no product launches in Q1.
Joe Risico: Together with our healthy balance sheet will allow us to pursue both organic and inorganic growth strategies.
Joe Risico: Overall, we remain on track to achieve our previously stated goal of adjusted EBITDA profitability.
Joe Risico: And we believe we can continue to position a theory and for scale and growth.
Joe Risico: With respect to our organic growth strategy, while we had no product launches in Q1, we continue to work hard across our portfolio with respect to each of our brands and we expect to launch a number of products in Q2 relating to our homeland essential oil and you are living brands.
Joe Risico: We continue to work hard across our portfolio with respect to each of our brands, and we expect to launch a number of products in Q2 relating to our Homelabs, Essential Oils, and Mueller Living brands. We've been working hard to revitalize our new product development strategies, and we are seeing progress. We are seeing opportunities to strengthen, stabilize, and grow our business. From an omni-channel perspective, we continue to focus on expanding channels and geography, primarily with a focus on marketing.
Joe Risico: We've been working hard to revitalize our new product development strategies, and we are seeing progress and we're seeing opportunities to strengthen and stabilize and grow our business.
Joe Risico: From an Omnichannel perspective, we continue to focus on expanding channels and geographies.
Joe Risico: Primarily with a focus on marketplaces.
Joe Risico: As previously disclosed, we expanded to Mercado Libre as part of our partnership with them. And while the preliminary results are not material to our financial results, we are optimistic that this partnership and channel will help us drive growth through our existing products and potentially through new product launches. We have also begun sales on Amazon's Canada Marketplace for certain of our products, and we will continue to expand our portfolio on that marketplace. And we have expanded our portfolio of products for sale on Wayfair's platform.
Joe Risico: Previously disclosed we expanded to Mercado libre as part of our partnership with them and while the preliminary results are not material to our financial results.
Joe Risico: We are optimistic that this partnership and channel will help us drive growth through our existing products and potentially through new product launches.
Joe Risico: We have also begun sales on Amazon Amazon, Canada marketplace for certain of our products and we will continue to expand our portfolio in that marketplace and we have expanded our portfolio of products for sale on wafers marketplace.
Joe Risico: We are also actively working to expand to other marketplaces, including Amazon Mexico, Walmart Mexico, and Target Plus, and we will provide updates with respect to each of these initiatives in the coming quarter. And lastly, we are continuing to assess expansion to other domestic and international marketplaces with respect to our inorganic growth strategy. In Q1, we saw an increase in higher quality M&A opportunities, and while we remain disciplined and focused, we do believe there will be opportunities for Aterian to pursue a creative and synergistic transaction as we progress in 2024.
Joe Risico: We are also actively working to expand to other marketplaces, including Amazon, Mexico, Walmart, Mexico, and target plus and we will provide updates with respect to each of these initiatives in the coming quarters.
Joe Risico: And lastly, we are continuing to assess.
Joe Risico: Expansion to other domestic and international marketplaces.
Joe Risico: With respect to our inorganic growth strategy in Q1, we saw an increase in higher quality M&A opportunities.
Joe Risico: And while we remain disciplined and focused we do believe there'll be opportunities for <unk> to pursue accretive and synergistic transaction as we progress in 2024.
Joe Risico: Overall, growth from M&A remains an important part of our overall strategy, and we are excited and optimistic that we will be able to realize meaningful growth from this strategy. Lastly... And importantly, I want to recognize our team. We are a lean but formidable group of people. We've gotten smaller given the restructuring from earlier this year, but we do believe this team is highly capable of driving growth, and Artie and I are very proud of the work that's been done and that is being done. And now, with that, I will pass it along to Artie. Thank you very much.
Joe Risico: Overall growth from M&A remains an important part of our overall strategy and we are excited.
Artie: And optimistic that we will be able to realize meaningful growth from this strategy.
Joe Risico: Lastly.
Artie: And importantly, I want to recognize our team.
Artie: We are a lean but formidable group of people.
Artie: <unk> gotten smaller given the restructuring from earlier this year, but we do believe this team is highly capable of driving growth and that already and I are very proud of the work that's been done and that is being done.
Artie: And now with that I will pass it along to Arden. Thank you very much.
Arturo Rodriguez: Thanks, Joe. Good evening, everyone.
Artie: Thanks, Joe and good evening everyone.
Arturo Rodriguez: We continue to make progress on our path of focusing, simplifying, and stabilizing Aterians. We're starting to see results from these missions as our key metrics are improving, and our losses are shrinking. Our Q1 results were at the high end of our expectations. Gross margin improved by over 10 basis points to 65%, and our overall CM is approaching 15% as we rationalize our SKU portfolio, focusing on our core SKUs, and have essentially stopped selling non-profitably. As planned, our sales have declined, but the core business metrics continue to improve.
Artie: We continue to make progress on our path of focusing simplifying and stabilizing material. We're starting to see results from these missions as our key metrics are improving and our losses are shrinking.
Arturo Rodriguez: Our Q1 results were at the high end of our expectations.
Arturo Rodriguez: Our gross margin improved by over 10 basis points to 65% and our overall cm is approaching 15% as we rationalized our SKU portfolio focusing on our core skus.
Arturo Rodriguez: And essentially stopped selling nonprofit skus.
Arturo Rodriguez: As planned our sales have declined but the core business metrics continued to improve.
Arturo Rodriguez: Our first quarter net loss improved by 80% year over year, and our adjusted EBITDA loss improved by 38.4%, as we continue to make tough decisions. As previously announced in February, we have rationalized our fixed costs to our go-forward size and scale for our focused company. Finally, we continue to strengthen our balance sheet with our mid-capital credit facility amendments.
Arturo Rodriguez: Our first quarter net loss improved by 80% year over year and our adjusted EBITDA loss improved by 38, 4% as we continue to make tough decisions.
Arturo Rodriguez: As previously announced in February we have rationalized, our fixed cost to our go forward size and scale for our focused company.
Arturo Rodriguez: Finally, we continue to strengthen our balance sheet with our midcap credit facility Amendment.
Arturo Rodriguez: I still have more work to do on our path towards adjusted EBITDA profitability. However, with Q1's performance, we are confident our plan is working and that we are on the right path to deliver 2024 second half adjusted EBITDA profitability and have the balance sheet strength to deliver these results. Now, moving to the Q1 details... Net revenue for the first quarter of 2024 declined 42% to $20.2 million from $34.9 million in the year-ago quarter.
Arturo Rodriguez: We still have more work to do on our path towards adjusted EBITDA profitability. However, with Q1's performance. We are confident our plan is working and then we're on the right path to deliver 2020 for second half adjusted EBITDA profitability and have the balance sheet strength to deliver these results.
Arturo Rodriguez: Now moving to Q1 detailed results.
Arturo Rodriguez: Net revenue for the first quarter of 2024 declined 42% to $20 2 million from $34 9 million in the year ago quarter.
Arturo Rodriguez: Our sustained revenue of 18.2 million decreased, as expected, by 36% or 10.4 million from 28.6 million primarily as a result of our skew rationalization efforts and continued pricing pressures and other competitive impact. However, including the impact of skew rationalization efforts into the comparable prior year, the sustained revenue would have only decreased approximately 25%. Further, our sustained revenue represented 90% of our total revenue versus 82% in the prior comparable year period. And as such, you can see our business continuing to focus on our best skews. As planned, we had no new launches in the first quarter.
Arturo Rodriguez: Our sustained revenue of $18 $2 million decreased as expected by 36% or $10 4 million from $28 6 million, primarily as a result of our SKU rationalization effort and continued pricing pressures and other competitive impacts.
Arturo Rodriguez: Including the impact of SKU rationalization efforts into the comparable prior year. The sustained revenue would have only decreased approximately 25%.
Arturo Rodriguez: Further our sustained revenue represented 90% of our total revenue versus 82% in the prior comparable year period, and as such you can see our business continuing to focus towards our best Skus.
Arturo Rodriguez: As planned we had no new launches in the first quarter, we do expect more launches primarily valuations coming in coming in the coming quarter as we continue to be thoughtful on the timing of our product launches.
Arturo Rodriguez: We do expect more launches, primarily valuations, in the coming quarter as we continue to be thoughtful on the timing of our product launches. Overall gross margin for the first quarter increased 65.1% from 54.8% in the year-ago quarter and increased from 51% in Q4. The improvement was driven by the positive impact of our skew rationalization efforts, product mix, and lower liquidation of high-cost inventory compared to the prior period. Our overall Q1-20204 contribution margin, as defined in our earnings release, was 14.1%, which improved compared to the prior year's 5.9% and increased compared to Q4's 2023CM of negative 0.8.
Arturo Rodriguez: Overall gross margin for the first quarter increased to 65, 1% from 54, 8% in the year ago quarter, an increase from 51% in Q4 2023.
Arturo Rodriguez: Permian was driven by the positive impact of our SKU rationalization efforts product mix and lower liquidation of high cost inventory compared to the prior period.
Arturo Rodriguez: Our overall Q1 2020 for contribution margin as defined in our earnings release was 14, 1%, which improved compared to prior year's five 9% an increase compared to Q4 2023 <unk> of negative eight.
Arturo Rodriguez: The year over year increasing contribution margin was driven by the positive impact of our skeu rationalization efforts and lower liquidation of higher cost inventory compared to the prior period, offset by competitive pricing pressure. Our Q1 2024 saw our sustained products contribution margin improve year-over-year to 16% versus 12.6% in Q1 2023. The increase in contribution margin was driven by our focus on more profitable SKUs as part of our SKU rationalization efforts. Offset by competing pricing pressures and other impacts, including the impact of the skew rationalization efforts into the comparable prior year, the sustained CM would still have been an improvement of approximately one percent.
Arturo Rodriguez: The year over year increase in contribution margin was driven by the positive impact of our SKU rationalization efforts and lower liquidation of higher cost inventory compared to the prior period offset by competitive pricing pressures.
Arturo Rodriguez: Our Q1 2024 star sustained products contribution margin improved year over year to 16% versus 12, 6% in Q1 2023. The increase in contribution margin was driven by our focus on.
Arturo Rodriguez: More profitable skus as part of our SKU rationalization efforts offset by continuing pricing pressures and other impacts.
Arturo Rodriguez: Including the impact of the SKU rationalization efforts into the comparable prior year. The sustained steam would still have been an improvement of approximately 1%. So that improvement will be more pronounced as we progress through 2024 as compared to the prior year.
Arturo Rodriguez: So that improvement will be more pronounced as we progress through 2024 as compared to the prior year. Looking deeper into contribution margin for Q1 2024, our variable sales and distribution expenses as a percentage of net revenue increased 51.1% as compared to 48.8% in the year-ago quarter. This increase in sales and distribution expenses is predominantly due to product mix and an increase in marketing.
Arturo Rodriguez: Looking deeper at the contribution margin for Q1, 2024, our variable sales and distribution expenses as a percentage of net revenue increased 51, 1% as compared to 48, 8% in the year ago quarter. This increase in sales and distribution expenses is predominantly due to product mix and an increase in marketing expense.
Arturo Rodriguez: Our operating loss of $5.3 million in the first quarter improved from a loss of $25 million compared to the year-ago quarter, an improvement of approximately 78.9 percent, primarily driven by the improvement in CM, the reduction of fixed costs, including non-cash stock compensation, and no impact of intangible write-offs in the current period, offset by our current period restructuring. Our first quarter 2024 operating loss includes $1.7 million in non-cash stock compensation expense and restructuring costs of $0.6 million.
Arturo Rodriguez: Our operating loss of $5 3 million in the first quarter improved from a loss of $25 million compared to the year ago quarter, and an improvement of approximately 78, 9%.
Arturo Rodriguez: Primarily driven by the improvement in the reduction of fixed costs, including noncash stock compensation and no impact of intangible write offs in the current period offset by our current period restructuring costs.
Arturo Rodriguez: Our first quarter 2020 for operating loss includes $1 7 million of noncash stock compensation expense and restructuring cost of <unk> 6 million.
Arturo Rodriguez: While our first quarter 2023 operating loss includes.
Arturo Rodriguez: While our first quarter 2023 operating loss includes $2.3 million of non-cash stock compensation expense and a non-cash loss of intangibles of $16.7. Our net loss of the quarter of $5.2 million improved from a loss of $25.8 million in the year-ago quarter, an improvement of approximately 80%, primarily driven by the improvement in CM and the reduction of fixed costs and the impact of the intangible write-offs in Our adjusted EBITDA loss of $2.6 million, as defined in our earnings release, improved by 38.4% from an adjusted EBITDA loss of $4.3 million in the first quarter of 2020, primarily driven by the improvement in CM and the reduction of fixed costs.
Arturo Rodriguez: $2 3 million of noncash stock compensation expense and a noncash loss of intangibles of 67.
Arturo Rodriguez: Our net loss for the quarter of $5 2 million improved from a loss of $25 8 million in the year ago quarter, an improvement of approximately 80% primarily driven by the improvement in <unk> and the reduction in fixed costs and the impacts of the intangible write off in the prior year.
Arturo Rodriguez: Our adjusted EBITDA loss of $2 6 million as defined in our earnings release improved by 38, 4% from an adjusted EBIT loss of $4 3 million in the first quarter of 2023, primarily driven by an improvement in <unk> on the reduction of fixed costs.
Arturo Rodriguez: Moving on to the balance sheet, at March 31st, 2024, we had cash of approximately $17.5 million compared with $20 million at the end of December 31st, 2023. The decrease in cash as planned is predominantly driven by our net loss in the period and repayments on our credit facility offset by positive cash impacts from working capital. On March 31st, our inventory level was $18.5 million, down from $20.4 million at the end of the fourth quarter of 2023 and down from $40.4 million in the year-ago quarter.
Arturo Rodriguez: Moving onto the balance sheet at March 31, 2024, we had cash of approximately $17 5 million compared with $20 million at the end of December 31, 2023. The decrease in cash is planned is predominantly driven by our net loss in the period and repayments on our credit facility offset by positive cash impact from working capital.
Arturo Rodriguez: At March 31, our inventory level was $18 5 million down from $24 million at the end of the fourth quarter of 2023 and down from $44 million in a year ago quarter.
Arturo Rodriguez: Our credit facility balance at the end of the first quarter of 2024 was $9.4 million, down from $11.1 million at the end of the fourth quarter of 2023 and down approximately 50 percent from $19.1 million in the prior year period.
Arturo Rodriguez: Our credit facility balance at the end of the first quarter of 2024 was $9 4 million down from $11 1 million at the end of the fourth quarter of 2023 and down approximately 50% from $19 1 million in the prior year period.
Arturo Rodriguez: As we look at Q2 2024, considering our Strategic SKU Rationalization Plan and continued challenging student environment, we believe that net revenue will be between $20 million and $23 million. Using the middle of the range, this would be an approximate 39% decrease from last year's Q2 revenue of $35.3 million, primarily driven by our reduction in SKUs from our strategic SKU rationalization efforts. Including the impact of SKU rationalization efforts into the comparable prior year, revenue is expected to decrease only by 16 percent.
Arturo Rodriguez: As we look at Q2 2020 for considering our strategic SKU rationalization plan and continued challenging consumer environment. We believe the net revenue will be between 20 million and $23 million.
Arturo Rodriguez: Usually in the middle of the range. This would be an approximately 39% decrease from last year Q2 revenue of $35 3 million, primarily driven by a reduction in skus from our strategic SKU rationalization.
Arturo Rodriguez: Including the impact of SKU rationalization efforts and to the comparable prior year revenues are expected.
Arturo Rodriguez: Two decreased only by 16%.
Arturo Rodriguez: Based on our current forecast, we expect to see this decrease improve in the coming quarters as we continue to see our revenue concentration increase towards a go forward skus.
Arturo Rodriguez: And based on our current forecasts, we expect to see this decrease improve in the coming quarters as we continue to see our revenue concentration increase towards our go-forward SKUs. As we have previously discussed, our decrease in net revenue versus the prior year is expected as we continue to focus our go-forward business on our best brands and products. A primary focus today continues to be getting to adjust to even profitability in the second half of 2024.
Arturo Rodriguez: As we have previously discussed our decrease in net revenue versus prior year is expected as we continue to focus our go forward business, our best brands and products.
Arturo Rodriguez: Primary focus today continues to getting to adjusted EBIT profitability in the second half of 2024.
Arturo Rodriguez: For Q2 2024, we expected just a little bit of a loss to be in the range of 1 to 2 million. The middle of this range represents an improvement of approximately 81% compared to Q2 2023 and a 42% improvement from our sequential quarter of Q1 2024. We continue to be laser focused on our target of turning it just a little bit profitable in the second half of 2020. And with our Q2 guide, you can see we are continuing to see the result of our hard work and initiatives.
Arturo Rodriguez: For Q2, 2024, we expect adjusted EBITDA loss to be in the range of $1 million to $2 million.
Arturo Rodriguez: Middle of this range represents an improvement of approximately 81% compared to Q2, 2023, and a 42% improvement from our sequential quarter of Q1 2024.
Arturo Rodriguez: We continue to be laser focused on our target of turning adjusted EBITDA profitable in the second half of 2024 and with our Q2 guide you can see we are continuing to realize the results of our hard work It initiative.
Arturo Rodriguez: We also believe, based on our current forecast, that we have sufficient cash above our covenants to achieve our goal of adjusting EBITDA profitability in the second half of 2024 without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for growth through M&A. In closing, we believe with our products, our strong balance sheet, our dedicated, hardworking teams across the world, and with our cornerstone to focus, simplify, and stabilize, we are turning the quarter and looking forward with confidence as we continue on our path towards adjusting even to profitability and ultimately to maximize shareholder value. With that, I'll turn it back to the operator to open the call up to questions.
Arturo Rodriguez: We also believe based on our current forecast that we have sufficient cash above our covenants to achieve our goal of adjusted EBIT profitability in the second half of 2024 without raising additional equity.
Arturo Rodriguez: Previously stated if we pursue additional financing it will be predominantly for growth through M&A.
Arturo Rodriguez: In closing.
Arturo Rodriguez: We believe with our products, our strong balance sheet, our dedicated hard working teams across the world and with our cornerstones of focus simplify and stabilize we're turning the quarter and look forward with confidence as we continue on our path towards adjusted EBITDA profitability and ultimately to maximize shareholder value.
Arturo Rodriguez: With that I'll turn it back to the operator to open the call up to questions.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question in a listening via loud speakers.
Brian David Kinstlinger: Please speak up your handset and ensure that your phone is not on mute when asking a question again rising star wanted to join the queue and your first question comes from the line of Bryan Keane Slinger with Alliance Global Partners. Please go ahead.
Brian David Kinstlinger: Thank you. The first quarter gross margin was the highest as a public company for Ethereum by a wide margin. Can you go into detail about the factors and talk about what a sustainable gross margin range looks like as I assume we'll have limited contribution from liquidation going forward?
Brian David Kinstlinger: Great. Thank you the first quarter and gross margin was the highest as a public company criterion by a wide margin can.
Brian David Kinstlinger: Can you go into detail into the factors and talk about what a sustainable gross margin range. It looks like as I assume we'll have a limited contribution from liquidation going forward.
Joe Risico: Thank you, Brian. Thanks for being on. You can take this one.
Brian David Kinstlinger: Yeah.
Speaker Change: Thank you, Brian and thanks for being on already.
Brian: Do you take this one.
Arturo Rodriguez: Thanks, Joe. Hey, Brian.
Joe Risico: Yeah, great. Thanks, Thanks, Joe Hey, Brian.
Arturo Rodriguez: So yeah, Q1 has been the highest that we've seen, and a lot of that's because of product mix. You know, there's a lot of essential oils and other mix there. We've also been very focused as a team in trying to drive, you know, better pricing and better pricing models. However, you know, I do think the biggest impact of that is mix, as I said earlier. I think as you look at the rest of the year, Joe alluded a little bit to it in his comments about, yeah, we do expect gross margins to be strong.
Speaker Change: So yeah.
Arturo Rodriguez: Q1 has been the highest we've seen.
Arturo Rodriguez: Lot of it is because of product mix.
Arturo Rodriguez: There's a lot of essential oils and other other mix. There. We've also been very focused as a team and trying to drive.
Arturo Rodriguez: Better pricing and better pricing models. However, I do think the biggest impact of that is mix as I said earlier I think as you look at the rest of the year I think as Joe alluded a little bit to it in his comments about yes. We do expect gross margins will be strong I don't think it will be 65, because obviously when you sell the humidifiers and other seasonal products, especially in Q2.
Arturo Rodriguez: I don't think it'll be 65 because obviously when you sell dehumidifiers and other seasonal products, especially in Q2 and Q3, that number will probably drop a bit. But I do think, because of all the work we've been doing, I do think that the margin target is somewhere in the really high 50s to low 60s overall.
Arturo Rodriguez: In Q3 that number will probably drop a bit but I do think because of all the work we've been doing I do think that that margin target is somewhere in the really high <unk> to low sixties overall.
Joe Risico: Yeah, and maybe I just would add, Brian, you know... Just to some extent, it's some of the dynamics of being on a marketplace. So, you know, the team works hard to manage pricing up and down as we think it's appropriate, depending on just the everyday dynamics that happen in the marketplace. So at some points, you can raise the price and take advantage of it, and at other points, you've got to lower the price a little bit, right, to stay competitive, right? So, you know, it'll always kind of fluctuate a little bit on price. Just again, it's a marketplace dynamic that just organically is the case for, for us, and for most brands that operate on Marketplace.
Arturo Rodriguez: Yeah.
Speaker Change: Maybe I just would add Brian.
Joe Risico: To some extent.
Joe Risico: It's some of the dynamic of being on the marketplace.
Joe Risico: So the team worked hard.
Joe Risico: To manage pricing up and down as we think its appropriate depending on just the everyday dynamics that happened in the marketplace.
Joe Risico: Right and so at some point you can you can raise price and take advantage of it and the other points.
Joe Risico: <unk> got a lower price a little bit right two to.
Joe Risico: To stay competitive right. So.
Joe Risico: It will always kind of fluctuate a little bit on price just again, it's a marketplace dynamic.
Joe Risico: But just organically as the case for.
Joe Risico: For us and from those brands that operate on marketplace.
Arturo Rodriguez: And then you mentioned your decreasing inventory. Can you highlight your inventory plans over the next six months? Do you need to invest ahead of summer? Do you need to invest, given your products sit around the holidays? Or are you kind of now inventory neutral? I know you've talked about long and short and things like that.
Speaker Change: Great and then you mentioned your decline decreasing inventory can you highlight your inventory plans over the next six months do you need to invest ahead of summer do you need to invest given your product set around the holidays or are you kind of now inventory neutral I know you've talked about long in.
Speaker Change: Sure and things like that.
Arturo Rodriguez: Yes.
Arturo Rodriguez: Joe you want to grab that.
Speaker Change: No it's fine.
Joe Risico: Yeah, Joe. You want to grab that? No, it's fine. It's fine. So, yeah, look, I think, you know, I think we're, you know, I think an article can jump in here with Normalize Our Inventory Levels. And, you know, obviously, we're going, you know, we... We try very hard to manage to make sure we're not too long, not too short, and as we go into sort of, let's say, the summer season in Q2, we feel like we've got a good handle on what we need to sort of execute on plans.
Speaker Change: Yes, I think just.
Joe Risico: You know I think we're I think.
Speaker Change: You can jump in here.
Joe Risico: With normalized inventory levels.
Joe Risico: Obviously, we are going.
Joe Risico: We tried very hard to manage to make sure we're not too long to short and as we go into sort of let's say the summer season in Q2.
Joe Risico: So we feel like we've got a good they've got a good handle on what we need to sort of execute against plans.
Arturo Rodriguez: I think always coming to the summer season, you'll see inventory go up a little bit, but now that we're so focused on our core SKUs and our core products, it's going to be a much more natural, you know, working capital flow of up and down, like, yeah, the unified for expensive units, right, you know, bulk up a little bit to have them in the beginning of the season to May. So you'll see our inventory maybe be a little bit higher than we are right now in June.
Joe Risico: Yes.
Speaker Change: And the odds are that Joe sorry, yes.
Brian: So Brian yes.
Arturo Rodriguez: I think always in coming into the summer season, you'll see inventory go up a little bit, but now that we're still focused on our core skus in our core products, it's going to be much more natural.
Arturo Rodriguez: Working capital flow of up and down.
Arturo Rodriguez: Even pfizer expensive units and you broke up a little bit to haven't been seeding season to my answer you'll see our inventory, maybe a little bit higher than we are right now in June.
Arturo Rodriguez: But that's kind of within the season, so that should normalize. So I do think we've done a great job here. I think what we're seeing now is a more normal trending of inventory. There's always a little bit of noise, right? Naturally, right? There's still a little bit of liquidation that we're doing, very, very tiny. It was like less than 10 percent, as you saw in the numbers. But I do think we're in a much stronger and normalized space where they have
Speaker Change: But that Scott.
Arturo Rodriguez: Within the season, so that should normalize so I do think we've done a great job here I think what we're seeing is now more normal trending of inventory theres always a little bit of noise right naturally right, there's still a little bit of liquidation that we're doing very very tiny it was like less than 10% as you saw in the numbers.
Arturo Rodriguez: But I do think we're in a much more stronger and normalized space with inventory.
Joe Risico: And then lastly, as we think about the second half of the year and the projection to be profitable. Is that based on higher revenue? Is it based on... costs coming down, and if it's on the higher revenue, is that new SKUs, because I would think SKUs take a while. Is it the new platforms making a greater contribution? I'm just trying to understand the assumptions that get you to profitability in the second half of the year.
Arturo Rodriguez: And then lastly, as we think about the.
Joe Risico: The second half of the year and the projection to be profitable.
Joe Risico: Is that based on higher revenue is it based on cost coming down and if it's on the higher revenue is that.
Joe Risico: New Skus because I would.
Joe Risico: I would think SKU take a while is it.
Joe Risico: New platforms, making a greater contribution I'm just trying to understand the assumptions that get you to profitability in the second half of the year.
Joe Risico: Yeah, maybe I'll start and then Artie, you just jump in. It's largely driven by the Koran, the core business. You know, we're not, you know, like we... We're, you know, like, we don't, we don't, we're not looking, you know, as we think about profitability and delivering on it. We're not heavily, you know, a lot of the work we're doing on new products and new channels. Apologies for any background noise. We are largely positioning the company for growth, to a lesser extent this year, and more for post-2020 foreclosures. So a lot of what we're looking at doing for the second half. It's just core business, but Artie, maybe you want to add to that.
Speaker Change: Yes, maybe I'll start and then I'll just jump in on.
Artie: It's largely driven by the core.
Artie: Our core business.
Artie: No we're not.
Joe Risico: Like.
Artie: We don't we don't we're not looking.
Artie: As we think about profitability and delivering on it.
Artie: Not heavily a lot of the work we're doing on new products at <unk>.
Artie: Apologies for any background noise.
Joe Risico: Okay.
Artie: Largely are largely positioning the company for growth.
Artie: To a lesser extent this year.
Artie: One more for post 2020 store growth.
Artie: A lot of I mean for what we're looking.
Artie: Looking at dealing for the second half.
Artie: Core is core business, but are you want maybe you want to add to that.
Arturo Rodriguez: Yeah, and thanks for that Joe. And Brian, keep in mind, I still think even though we focused on our core business, I think the seasonality splits are still very similar to prior periods. You know, you're going to see, you know, with our demodifiers, assuming the season hits the way we anticipate, you'll see some upticks. You see the guidance, right?
Joe Risico: Yes.
Artie: And thanks for that Joe and Brian and keep in mind that I still think even we focused on our core business I think the seasonality slippage still very similar to prior periods.
Arturo Rodriguez: Youre going to see.
Arturo Rodriguez: With our humidifiers, assuming the season hits the way, we anticipate Youll see some upticks you see the guidance right the guidance take the middle range or slightly higher than what we delivered in Q1 for Q2, and then naturally Q3 still our strongest quarter overall, we still expect that from.
Arturo Rodriguez: The guidance to take the middle range; it's slightly higher than what we delivered in Q1 or for Q2. And then, naturally, Q3 is still our strongest quarter overall. We still expect that, from a revenue perspective. I think Q4 is probably now, you know, probably looking closer to our maybe second strongest quarter. So I do think some of what we're seeing is a little bit of an uptick in revenue. Plus, as you're seeing the performance on the CM, especially on the sustained side, we're starting to get to the healthy CM that we've been on a mission to get to for a long time, and we're finally starting to see that.
Arturo Rodriguez: From revenue perspective, I think Q4 is probably now probably looking closer to our second strongest quarter. So I do think some of the what we're seeing.
Arturo Rodriguez: Is a little bit of the uptick in revenue plus as Youre seeing the performance on the CN, especially on sustained side, we're starting to get to the healthy TM that we've been.
Arturo Rodriguez: We've been on a mission to get to for a long time when following certain see that I think those combinations are one piece of it.
Arturo Rodriguez: I think those combinations are one piece of it. This is all core business, as Joe alluded to. I think the other piece is that we did. We achieved a lot of fixed cost savings, you know, right in the middle of the quarter. We're starting to see some of that really, you know, a lot of that come in in Q2, and then that's from a people perspective. But at the same time, as I look at Q3 and Q4, there's still a little bit of fixed cost work to be done there.
Arturo Rodriguez: This is all core business as Joe alluded to I think the other pieces, we did we actually a lot of fixed cost savings.
Arturo Rodriguez: Right right in the middle of the quarter.
Arturo Rodriguez: We started seeing some of that really.
Arturo Rodriguez: A lot of that come in in Q2, and then and then that's from a people perspective, but at the same time.
Arturo Rodriguez: I look at Q3, and Q4, there's still a little bit of fixed cost work can be done there thats predominately vendors and renewals of insurance and other other kind of annual costs that that.
Arturo Rodriguez: That's predominantly vendors and renewals of insurance and other kinds of annual costs that will probably expect some savings there, too, as we enter Q3 and Q4. So I think the combination of all three is why we feel pretty confident that we can get to that adjusted EBITDA profitability that we've been stating.
Arturo Rodriguez: Probably expect some savings there too as we enter Q3 and Q4. So I think the combination of all three as why we feel pretty confident that we can get to that adjusted EBIT profitability that we've been stating.
Brian David Kinstlinger: Great. Thank you so much.
Speaker Change: Great. Thank you so much.
Marvin Milton Fong: Your next question comes from the line of Marvin Fong with VTIG. Please go ahead.
Brian David Kinstlinger: The next question comes from the line of Marvin Fong with <unk>. Please go ahead.
Marvin Milton Fong: Thanks. Good evening, everyone. So, thanks for taking my questions and congratulations on getting this far. It's been a long road.
Marvin Milton Fong: Thanks, Good evening everyone.
Marvin Milton Fong: Thanks for taking my questions and congratulations on getting this far as though it's been a long road. So.
Marvin Milton Fong: I wouldn't I wouldn't like to.
Marvin Milton Fong: Double click on something you said already I think you've said.
Marvin Milton Fong: So, I would like to double-click on something you said already. I think you said, you know, adjusting for the skew rationalization, sales are down 16 percent. So, I'd just like to understand a bit better what is driving that. Is it pricing? You're saying pricing pressure along those lines. But is it also volume? And also, you know, what kind of, you know, your product mix kind of varies from quarter to quarter, but, you know, any thoughts on how we should kind of think about that growth trajectory into the second half of the year? And then I have one other question.
Marvin Milton Fong: Adjusting for the SKU rationalization.
Marvin Milton Fong: Sales are down 16%, so just like to understand a bit better.
Marvin Milton Fong: What's driving that is it is it pricing you're seeing pricing pressure along the lines of that.
Marvin Milton Fong: Also volume and also.
Marvin Milton Fong: What kind of.
Marvin Milton Fong: Product mix kind of varies from quarter to quarter, but any thoughts on how we should kind of think about that growth trajectory into the second half of the year.
Speaker Change: One other question.
Marvin Milton Fong: Yeah.
Arturo Rodriguez: Yeah, I guess, Joe, I'll grab that.
Speaker Change: Yes, I guess, Joe I'll grab that.
Joe Risico: Yeah, go for it; go ahead.
Joe Risico: Yes Gil go forward.
Arturo Rodriguez: Thank you, Joe. Okay, so Marvin, yeah, listen, I think if you look historically at 2023, the company went through a lot of impacts, gyrations, changes of teams, and restructuring. So I do think, you know, when you look at, and I hinted towards it, right, when you look at 2024 and you adjust for 2023 in future quarters, you're going to see that that gap is going to shrink.
Joe Risico: Good.
Joe Risico: Thank you Joe Okay. So Marvin.
Arturo Rodriguez: Yeah listen I think I think if you look historically at 2023.
Arturo Rodriguez: The company went through a lot of.
Arturo Rodriguez: A lot of impacts gyrations in change of teams and restructuring so I do think.
Arturo Rodriguez: Okay.
Arturo Rodriguez: When you look at it and I hinted towards it right. When you look at the 2024 and you adjust 2023 in the future quarters Youre going to see that that that gap is going to shrink so, especially as Joe and I took over in August and we started some of these initiatives I think.
Arturo Rodriguez: So, especially as Joe and I took over in August and we started some of these initiatives, I think when you look at it that way, that is a big gap in Q1. I think Q1 was kind of the last quarter we had some really good progress on certain SKUs, and it kind of really started affecting us later into Q2 and into the rest of the year. But I do think, to your point, I think that gap is going to close down. I think I already hinted at it in the Q2 guide.
Arturo Rodriguez: I think when you look at it that way that that is a big gap in Q1, I think Q1 was kind of the last quarter. We had some some real good progress on certain Skus and then kind of really started impacted.
Arturo Rodriguez: Later, and later into Q2, and the rest of the year, but.
Arturo Rodriguez: If you adjust that way, the difference is almost 10 points. I think, off the top of my head, it was from like a 16% drop versus the 24% drop. So, it's almost like a 10% improvement already, just one quarter distance.
Arturo Rodriguez: But I do think to your point I think that gap is going to close down I think I already hinted towards that in the Q2 guide if you're just that way.
Arturo Rodriguez: The difference is almost 10 points I think top of my head there was from a 16% drop.
Arturo Rodriguez: Versus the 24% drop so it's almost like a 10% improvement already.
Arturo Rodriguez: One quarter distance. So I do think a lot of the efforts that we're doing is really about focusing on our core business and so you're going to see that noise.
Arturo Rodriguez: So, I do think a lot of the efforts that we're doing are really about focusing on core businesses, so you're going to see that noise. I think if you go back to the seasonality and the products that we're talking about, you know, we didn't move away from dehumidifiers, right? That's still a strong business. We did stop doing ECs because, you know, they just weren't making money. It's really ultra competitive, and they're expensive.
Arturo Rodriguez: If you go back to the seasonality and the products that we're talking about we didn't move away from do you Helmut fires right, that's still a strong business.
Arturo Rodriguez: We did stop doing Acs because they just weren't making money, it's really ultra competitive and their extensive so I do think the seasonal split historically will still still apply going forward for 2024. So it's just that we're at a much much more concentrated number of skus. So the revenue is lower.
Arturo Rodriguez: So I do think that seasonal splits historically will still apply going forward for 2024. So it's just that we're at a much, you know, much more concentrated number of SKUs, so the revenue is lower. But as you can see, we're anticipating it to be more profitable from the contribution margin, as you saw with the Q1 result.
Arturo Rodriguez: But as you can see we're anticipating it to be more profitable from a contribution margin as you saw with Q1.
Joe Risico: Yeah, yeah, definitely.
Arturo Rodriguez: Yes, yes.
Arturo Rodriguez: No.
Joe Risico: I just did look to some extent, and it's obviously category by category. I think we see, like, and it's hard to handicap, but, to some extent, consumer demand, while resilient, appears to be down, right? And so some of it, you know, could pertain to demand being down, right? So, I just wanted to add that to all these comments, so sorry, but back to you, Marvin.
Speaker Change: Yes go ahead.
Joe Risico: Just it looked.
Joe Risico: To some extent and it's obviously category by category I.
Joe Risico: I think we see like and it's hard to handicap, but.
Joe Risico: To some extent consumer demand.
Joe Risico: While resilient.
Joe Risico: Appears to be down right and so some of it.
Joe Risico: Okay.
Joe Risico: Could pertain pertained to demand being down.
Marvin: I was just.
Marvin: Just wanted to add that to our east coast, So sorry, but back to your model.
Marvin Milton Fong: Oh, yeah, no, thanks for that additional color show. Yeah, my other question, I observed, I guess, that... You mentioned no product launches, and it looks like there's no line for R&D, so just kind of comment on... (inaudible) You know, you're, you know, you're cutting back, how much are you, are you really cutting back on product innovation? and sort of talk about your ability and expectations for product launches going forward.
Marvin: Oh, yes, no. Thanks for the additional color, yes, my other question.
Marvin Milton Fong: Observed I guess, but.
Marvin Milton Fong: You mentioned no product once it looks like there is there is no learning or for R&D. So just kind of comment on.
Marvin Milton Fong: No.
Marvin Milton Fong: Or are you cutting back how much are you are you really cutting back on product innovation.
Speaker Change: And so I'll talk about.
Marvin Milton Fong: Expectations for product launches going forward.
Marvin Milton Fong: Yes.
Arturo Rodriguez: Already, one or two, go ahead, and I'll be all that.
Speaker Change: Already wanted to whether to go ahead and I'll, let bill add on.
Arturo Rodriguez: Thanks, Joe. Good point, Marvin. The bulk of that R&D spend historically was around AAMI, and we've moved from an internally developed model to a third-party model, and it's really more of a standard tech platform than this kind of innovation platform. So I think from that perspective, the bulk of that cost naturally, after we did the restructuring, just moved into G&A. I think from our product innovation and all that; we still heavily invest in that with people, right?
Speaker Change: Thanks, Joe.
Speaker Change: Good point Marvin.
Arturo Rodriguez: The bulk of that R&D spend historically was around <unk> right and.
Arturo Rodriguez: We've moved from a from an internally developed models with third party model and it's really more of a standard tech platform than this kind of.
Arturo Rodriguez: Innovation platform right. So I think from that perspective bulk of that cost naturally after we did the restructuring natural just moved into G&A.
Arturo Rodriguez: G&A.
Arturo Rodriguez: I think from from our from our product innovation and all that we still invest heavily in that with people right.
Arturo Rodriguez: And they're really focused on our sourcing and engineering team, which is predominantly in China. But remember, it's not like we're doing things like Apple does with, you know, the new iPads, as they announced this morning. It's more about, hey, I'm working with my manufacturers on improving, at least for today, the quality of our products and slight feature changes. As we become more successful and our brands strengthen over the years, yeah, that's a different conversation. And I do think there'll be an opportunity for even stronger innovation. But for now, product innovation is driven by our engineering and sourcing team in China. Those costs were probably never in our net income.
Arturo Rodriguez: They're really focused on our sourcing and engineering team, which is probably in China.
Arturo Rodriguez: But remember it's not like we're doing things like Apple does with.
Arturo Rodriguez: New ipads as announced this morning, it's more about hey, I'm working with manufacturers on improving at least for today right on improving the quality of our product and slight feature changes as we become more successful and our brand strengthening over over the years that becomes a different conversation and I do think there'll be opportunity for even stronger innovation, but for now the <unk>.
Arturo Rodriguez: Innovation is driven by our engineering and sourcing team in China those costs.
Arturo Rodriguez: We were never in the R&D.
Marvin Milton Fong: Gotcha. Okay, that makes total sense. Thanks for clarifying that. That's all I have. Thanks.
Speaker Change: Got you Okay that makes total sense. Thanks for clarifying that that's all thanks.
Operator: That concludes our Q&A session. I will now turn the conference back over to Ilya Grozovsky for his closing remarks.
Marvin Milton Fong: That concludes our Q&A session I will now turn the conference back over to Elliott Gozofsky for closing remarks.
Ilya Grozovsky: As part of our shareholder perks program, which, as a reminder, investors can sign up for at aterian.io forward slash perks, participants have the ability to ask management questions on our earnings calls. I wanted to thank all of the shareholder perks participants for their loyalty, their participation in the program, and their questions. I have picked a few of the most popular ones that have been submitted.
Ilya Grozovsky: As part of our shareholder Perks program.
Ilya Grozovsky: Which as a reminder, investors can sign up for at <unk> Dot IL forward Slash perks participants have the ability to ask management questions on our earnings calls I wanted to thank all of the shareholder parks participants for their loyalty their participation in the program and their questions I have picked.
Ilya Grozovsky: A few of the questions of the most popular ones.
Ilya Grozovsky: That have been submitted.
Ilya Grozovsky: The question is, what is Aterian's plan to diversify and segment products by channel and customer? Possible small retail brands for customers like Wayfair, Home Depot, Target, Walmart, etc., who might want to private label products and offer good, better, and best product offerings.
Ilya Grozovsky: Question is.
Ilya Grozovsky: What is it to your <unk> plan to diversify and segment products by channel and customer.
Ilya Grozovsky: Possible small retail brands for customers like way fare home depot target, Walmart Centrum, who might want a private label products.
Ilya Grozovsky: Good better best product offerings.
Joe Risico: Yeah, I'll jump in there and thank you, Ilya, and thanks to all the folks who are at Perks. We're grateful for the support. And for all the folks that follow us and that are on the different channels, we appreciate you.
Ilya Grozovsky: Yes.
Speaker Change: I'll jump in there. Thank you.
Speaker Change: And thanks to all the folks who are incorrect.
Speaker Change: Grateful for the support.
Speaker Change: And for all the folks that follow us.
Speaker Change: Channels and.
Speaker Change: See you.
Speaker Change: I think.
Joe Risico: I think what we would consider. We would consider those opportunities. I would say, though, for RD&I, you know, right now, we think of Aterian as a company that owns and operates its own brand. And so it's not higher on the list of priorities when we think about launching new products and expanding channels. It's not something we think is the right move for Aterian.
Speaker Change: I think look we would consider.
Joe Risico: We would consider those opportunities I would say, though for already.
Joe Risico: Right now we are again using a material at the company that owns and operates its own brands.
Joe Risico: And so it's not a higher number.
Joe Risico: On priority.
Joe Risico: About one.
Joe Risico: Launching new products.
Joe Risico: Spending can expand channels.
Joe Risico: It's not it's.
Joe Risico: It's not something we think is.
Joe Risico: The right move for <unk>.
Ilya Grozovsky: Thank you for joining us today.
Joe Risico: Today.
Speaker Change: Thank you.
Ilya Grozovsky: Great.
Operator: This concludes the Q&A portion of the call. We look forward to speaking with you on future calls. This ends our call, and you may now disconnect.
Speaker Change: This concludes the Q&A portion of the call. We look forward to speaking with you on future calls.
Operator: Our call and you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: Yes.
Operator: Yeah.
Operator: [music].
Operator: Yes.
Operator: [music].
Operator: Yeah.
Operator: [music].
Operator: Okay.
Operator: Okay.
Operator: [music].
Operator: Okay.