Q2 2024 Aterian Inc Earnings Call
MrGroza and Michael Zabran perform on a new album.
Operator: Ladies and gentlemen, thank you for standing by. Today's conference will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience.
Speaker Change: Ladies and gentlemen, thank you for standing by. Today's conference will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience.
Speaker Change: like if you do not like the video go ahead and click away
Speaker Change: Copyright © 2020, New Thinking Allowed Foundation
Cath: [Music] Thank you for standing by. My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian, Inc. second quarter earnings report. All lines have been placed on mute to prevent any background noise.
Kevin: Thank you for setting by, my name is Kevin, I will be your conference operator today. At this time, I would like to welcome everyone to the Ethereum Inc. second quarter earnings report.
Cath: 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 one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development. Thank you.
Speaker Change: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session.
Ilya Grzowski: if you would like to ask a question during this time, simply press star, follow the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Ilya Grzowski, Vice President Investor Relation and Corporate Development. Thank you. Please go ahead.
Ilya Grozovsky: Thank you for joining us today to discuss Aterian's second quarter 2024 earnings results. On today's call are Arturo Rodriguez, our CEO, and Josh Feldman, our CFO.
Ilya Grzowski: Thank you for joining us today to discussitarians 2nd quarter 2024 earnings results.
Speaker Change: On today's call, our Arturo Rodriguez, our CEO and Josh Feldman, our 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 want to remind everyone that the remarks in 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, preconditions, 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.
Speaker Change: A copy of today's press release is available on the Investor Relations section of Ethereum's website at aturion.io.
Ilya Grozovsky: These forward-looking statements also involve substantial risks and uncertainties, some of which may be outside of our 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. We encourage you to review these filings for a discussion of these risks, including our annual report on Form 10K filed on March 19, 2024, and our quarterly report on Form 102 when it is available on the Investors portion of our website at aturion.io.
Ilya Grzowski: Before we get started, I want to remind everyone that the remarks on this call may contain forward-looking statements.
Speaker Change: within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: that are based on current management expectations.
Arturo Rodriguez: Thank you, Ilya, and thank you, everyone, for joining us today. Just one year ago, I spoke to you as your CFO and co-CEO. And now I speak to you as Aterian's CEO. I'm very honored and humbled to have the opportunity to continue to lead Aterian into its future.
Speaker Change: These may include, without limitation, preconditions, expectations,
Arturo Rodriguez: I want to thank our board of directors and the Aterian team for their trust and confidence as we embark on this chapter together. Today, I'm going to discuss, one, our Q2 results and the actions that led us to our successful results, and two, an initial discussion about growth for Aterian beyond 2024. Josh, our new CFO, will then cover in detail our financial results for the second quarter and will provide our outlook for Q3. For those of you joining us for the first time, I'll start with a quick introduction to Aterian.
Speaker Change: 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.
Speaker Change: These forward-looking statements also involve substantial risks and uncertainties, some of which may be outside of our control, and that could cause actual results to differ materially from those expressed or implied by such statements.
Speaker Change: These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks.
Speaker Change: including our annual report on Form 10-K filed on March 19, 2024, and our quarterly report on Form 10-Q when it is available on the investor's portion of our website at aterian.io.
Speaker Change: You should not place under 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.
Speaker Change: This call will also contain certain non-GAAP financial measures.
Speaker Change: including Adjusted EBITDA and Adjusted EBITDA Margin.
Speaker Change: 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 of our core operating results.
Speaker Change: Reconciliation of these non-gap measures to most comparable gap measures and definitions of these indicators are included in our earnings release, which is available on the Investors portion of our website at www.eterian.io.
Speaker Change: Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.
Speaker Change: 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.
Speaker Change: 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 Artie.
Artie: Thank you, Ilya, and thank you everyone for joining us today.
Artie: Just one year ago, I spoke to you as your CFO and Co-CEO, and now I speak to you as Ethereum CEO.
Artie: I'm very honored and humbled to have the opportunity to continue to lead Aterian into its future. I want to thank our board of directors and the Aterian team for their trust and confidence as we embark on this chapter together.
Artie: Today I'm going to discuss one, our Q2 results and the actions that led us to our successful results.
Artie: and two, an initial discussion for growth for Aterian beyond 2024.
Artie: Josh, our new CFL will then cover and depth our financial results for the second quarter and will provide our outlook for Q3.
Arturo Rodriguez: Aterian owns and operates its own brand, marketing and selling consumer products across multiple categories, primarily through e-commerce marketing. We sell our products primarily in the U.S., and today we derive most of our revenues from Amazon.com. Since 2014, we have either organically launched or purchased brands, and today our focus is on operating six amazing brands. They are HomeLabs, which currently focuses on dehumidification and refrigeration, a best-selling leader in dehumidifiers on Amazon. Tour Steam is another best-selling brand on Amazon that leverages the natural power of steam to clean your home with its steam mops or reduce wrinkles in your clothes with its steam iron.
Speaker Change: For those of you joining us for the first time, I'll start with a quick introduction to Ethereum. Turing owns and operates its own brand, marketing and selling consumer products across multiple categories, primarily on e-commerce marketplaces.
Artie: We saw our products primarily in the US and today we derived most of our reviews from Amazon.com.
Speaker Change: Since 2014, we have either organically launched or purchased brands, and today our focus is on operating six amazing brands. They are HomeLabs, which currently focuses on dehumidification refrigeration, a best-selling leader in dehumidifiers on Amazon.
Speaker Change: Tour Steam, another best-selling brand on Amazon, which leverages the natural power of steam to clean your home with its steam mops or reduce wrinkles in your clothes with steam irons.
Arturo Rodriguez: Healing Solutions, our collection of essential oil brands, continues to have momentum with some of its recent rebrandings and continues to provide consumers with a great essential oil experience. Photo Paper Direct, our DIY or do-it-yourself iron-on transfer paper, provides joy and fulfillment to all consumers who love making their own t-shirts, arts, and crafts.
Artie: Human solution, our collection of essential oil brands continues to have momentum with some of the recent rebrandings and continues to provide consumers a great essential oil experience.
Artie: Photo paper direct, or DIY, or do it yourself iron on transfer paper, provides joy and fulfillment to all consumers who love making their own t-shirts arts and crafts.
Arturo Rodriguez: Mulo Living, which focuses on innovative quality products for your kitchen, has multiple top-selling products on Amazon. And finally, Squatty Potty, the original toilet stool and the leader in the category. Body continues to help people daily around the world who piece their lives together better. With these six foundational brands, Aterian is well-positioned to grow over time and consistently deliver high-quality affordable products to consumers. Now to our Q2 performance. We delivered on our Q2 2024 net revenue and adjusted EBITDA goals, meeting our June 2024 guidance. This performance was driven by a combination of our success in dehumidifiers during the period and the impact of cost-cutting measures we implemented previously in Q1 of 2024.
Speaker Change: Mutual Living, which focuses on innovative quality products for your kitchen, has multiple top selling products on Amazon.
Artie: and finally Squaddy Patti, the original toilet stool and the leader in the category.
Squatty: Squatty continues to help people daily around the world poop easier and better.
Speaker Change: With these six foundational brands, Aterian is well positioned to grow over time and consistently deliver high quality affordable products to consumers.
Speaker Change: Now to our Q2 performance.
Speaker Change: We delivered on our Q2 2024 net revenue and adjusted EBITDA goals, meeting our June 2024 guidance. This performance was driven by a combination of our success in dehumidifiers during the period and the impact of cost-cutting measures we implemented previously in Q1 of 2024.
Arturo Rodriguez: We've delivered a justly even profitability for the first time in 10 quarters since Q3 of 2021. When compared to the same period last year, our adjusted EBITDA performance for Q2 is an improvement of over 100% on even lower rev... First and foremost, I want to congratulate our hardworking people worldwide for their continued dedication and belief in what we are doing to make Aterian a profitable consumer products company. This is another indicator that we continue to execute on our mission to focus, simplify, and stabilize Aterians, specifically to a net review performance. However, weather always plays a role in seasonal product performance.
Speaker Change: We delivered a just to either profitability for the first time in 10 quarters since Q3 of 2021. When compared to the same period last year, our just to either performance for Q2 is an improvement of over 100% on even lower revenue.
Speaker Change: First and foremost, I want to congratulate our hardworking people worldwide for their continued dedication and belief in what we are doing to make Aterian a profitable consumer products company.
Speaker Change: This is another indicator that we continue to execute on our mission to focus, simplify and stabilize the period.
Speaker Change: Specifically to our net revenue performance, the weather always plays in seasonal product performance. However, our improved sales performance started in early May.
Arturo Rodriguez: However, our improved sales performance started in early May, and even though we believe we benefited from June's hot and humid weather, we do believe that our primary driver of our success was driven by our focus and simplification missions and our outside-in approach. With the simplification across our business, such as selling within a reduced seller account footprint, this is allowing us to simplify how we go to market and naturally narrows our daily focus.
Speaker Change: and even though we believe we benefited from June's hot and humid weather, we do believe that our primary drive our success was driven by our focus and simple location missions and our outside in approach.
Speaker Change: With the simplification across our business, such as selling within a reduced seller account footprint, this is allowing us to simplify how we go to market and naturally now is our daily focus.
Arturo Rodriguez: With our shift to third-party best-in-class software, not only are we seeing improvements in direct marketplace performance, but we're also more nimble, allowing us to keep up with ever-changing rules and tactics on Amazon. For example, we are seeing better than expected results in driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing ranking. Now, as we look at Q3 and Q4 2024, we are still confident that we are tracking towards our second half of just the EBITDA profitability goal.
Speaker Change: With our shift to third-party best-in-class software, not only are we seeing improvements on direct marketplace performance, but we're also more nimble, allowing us to keep up with ever-changing rules and tactics on Amazon.
Speaker Change: For example, we are seeing better than expected results in driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing rankings.
Speaker Change: Now, as we look at Q3 and Q4 2024, we are still confident that we are tracking towards our second half adjusted EBITDA profitability goals.
Arturo Rodriguez: For Q3 and Q4 2024, we expect our gross margin to remain strong due to pricing and product. We do expect our overall contribution margin percentage to remain primarily in line with year-to-date results, and in combination with our continued expected realization of our fixed cost savings, we believe we're well-positioned to achieve a justly even profitability for the second half of 2024. However, delivering results is never easy.
Speaker Change: For Q3 and Q4 2024, we expect our gross margin to remain strong due to pricing and product mix.
Speaker Change: We do expect our overall contribution margin percentage to remain primarily in line with year-to-date results, and in combination with our continued expected realization of our fixed cost savings, we believe we are well positioned to achieve a justly even profitability for the second half of 2024.
Arturo Rodriguez: It requires a lot of work and effort, which I'm very confident our team will continue to deliver on. We continue to see the consumer space as volatile and that consumers continue to be very wise with their spending, especially in the current inflationary environment. We expect container costs to be high when compared to last year for the rest of 2024. And we are always watching Amazon and their requirements. The recent seller-fulfilled prime program changes continue to be burdensome, considering the reliance on last-mile providers and volatile summer weather impacting on-time delivery.
Speaker Change: However, delivering results is never easy. It requires a lot of work and effort, which I'm very confident our team will continue to deliver on.
Speaker Change: We continue to see consumer spaces volatile and that consumers continue to be very wise with expanding, especially with the current inflationary environment.
Speaker Change: We expect container costs to be high when compared to last year for the rest of 2024, and we are always watching Amazon and their requirements. The recent seller-fulfilled Prime program changes continue to be burdensome, considering the reliance on last-mile providers and volatile summer weather impacting on-time delivery.
Arturo Rodriguez: We also sold out of a few of our de-modifier SKUs at the beginning of July but expect to be fully in stock again by mid-August. Even with those challenges, we still feel confident that we are tracking on our goal of second half adjusted EBITDA profitability. Looking beyond 2024, as we anticipate delivering second half adjusted EBITDA profitability, part of the mission will move from stabilization to growth. Growth will become one of our primary goals in 2025, which will allow us to drive, over time, a more robust, adjusted level of profitability. As we previously said, we still believe growth will be coming from two key pillars. One, and Omnichannel Expansion, including continued improvements to our existing listings to bring them to a best-in-class level. We've already launched on MercadoLibre.
Speaker Change: We have also sold out on a few of our D-Materpires to use at the beginning of July, but expect to be fully in stock again by mid-August. Even with those challenges, we still feel confident that we are tracking on our goal of second half adjusting even our profitability.
Speaker Change: Looking beyond 2024, as we anticipate delivering second-half adjusted EBITDA profitability, part of the mission will move from stabilization to growth.
Speaker Change: Growth will become one of our primary goals in 2025.
Speaker Change: which will allow to drive over time a more robust, adjusted, even a profitability.
Speaker Change: As we previously said, we still believe growth will be coming from two key pillars. One.
Speaker Change: is Omnichannel Expansion, including continued improvements of our existing listings to bring them in best-in-class levels.
Arturo Rodriguez: Squatty Potty and Walmart Retail Store continue to do well, and we continue to plan for our expansion into other channels. Target Plus is the next on our roadmap, and we hope to have that channel live before Black Friday this year. Organic product launches will also play a part. We feel really bullish that we can, very opportunistically, continue to launch new variations to grow our business but also launch new products in both existing and new categories.
Speaker Change: We've already launched on MercadoLibre, Squatty Potty and Walmart Retail Store continues to do well, and we continue to plan on our expansion into other channels. Target Plus is our next in our roadmap, and we hope to have that channel live before Black Friday this year.
Speaker Change: Organic product launches will also play. We feel really bullish that we can, very opportunistically, continue to launch new variations to grow our business, but also launch new products in both existing and new categories.
Arturo Rodriguez: We still believe M&A can have an impact on Aterians' growth. As we stated previously, we'll continue to look at M&A opportunistically, however... We believe it will not be the primary driver of growth. Today, we believe organic growth will be the primary driver of Aterian's future growth. We expect to discuss more of our growth strategies when we deliver our Q4 results. In closing, before I hand it off to
Speaker Change: We still believe M&A can have an impact on Aterians' growth.
Speaker Change: As we stated previously, we'll continue to look at M&A opportunistically, however, we believe it will not be the primary driver or its strategy.
Speaker Change: Today, we believe organic will be the primary driver of Turing's future growth.
Speaker Change: We expect to discuss more of our growth strategies when we deliver our Q4 results.
Arturo Rodriguez: Just about a year ago, we set out on a mission to focus, stabilize, and simplify Aterian in order to drive it to achieve EBITDA profitability and to deliver long-term shareholder value. Back in late 2023, we announced key initiatives to drive towards profitability, and we believe we have delivered on all of them. First, we had a rationalized SKU portfolio, which allowed us to focus on our best and most profitable brands and SKUs.
Speaker Change: In closing, before I hand it off to Josh, just about a year ago, we set on a mission to focus, stabilize, and simplify Aterian in order to drive it to adjust the EBITDA profitability.
Arturo Rodriguez: We also focused on our Amazon account structure, allowing us to increase our focus and simplify how we go to market, shift towards best-in-class third-party tools, allowing us to be more nimble in upgrading many of our marketing strategies, and an outside-in thinking approach, which challenged our previous ideology and allowed us to execute our new initiatives in line with today's marketplace tactics. And Fixed Cost Rationalization, an always tough decision to align our fixed costs And today, we announce, through these initiatives, our first Adjusted EBITDA profitable Quarter, earlier than we had promised.
Josh Feldman: and to deliver long-term shareholder value.
Josh Feldman: Back in late 2023, we announced key initiatives to drive towards profitability, and we believe we have delivered on all of them.
Josh Feldman: First was a Rational Ice Cube portfolio, which allowed us to focus on our best and most profitable brands and skews.
Josh Feldman: The location on our Amazon account structure allowing us to increase our focus and simplify how we go to market.
Josh Feldman: The shift towards best-in-class third-party tools allowing us to be more nimble in upgrading many of our marketing strategies.
Josh Feldman: and the outside in thinking approach, which challenged our previous ideology and allowed us to execute our new initiatives in line with stage marketplace tactics.
Josh Feldman: and Fixed Cost Rationalization, an always tough decision to align our fixed costs to our expected revenue, but we delivered those.
Josh Feldman: And today, we announced through these initiatives our first adjustment even a profitable quarter. Earlier than we had promised.
Arturo Rodriguez: We believe this is just another indicator of our continued focus on delivering our stated goals. I want to again recognize and congratulate our team on their continued dedication, excitement, and hard work, and our shareholders for their patience and continued support. But we are not done. We have high expectations and exciting beliefs about what Aterian can do and become, ultimately driving profitable growth and maximizing shareholder value. Thank you for your time and unwavering support. Now, I'll pass it along to Josh.
Josh Feldman: We believe this is just another indicator of our continued focus on delivering our stated goals.
Josh Feldman: I want to again recognize and congratulate our team on their continued dedication, excitement, and hard work.
Josh Feldman: and our shareholders for their patient and continued support.
Josh Feldman: But we are not done.
Josh Feldman: We have high expectations and exciting beliefs on what Aterian can do and become.
Josh Feldman: ultimately driving profitable growth and maximizing shareholder value.
Josh Feldman: Thank you for your time and unwavering support. Now I'll pass it along to Josh.
Josh Feldman: Thanks, Artie. Good evening, everyone. We continue to make progress on our path of focusing, simplifying, and stabilizing Aterian. We are starting to see results from these efforts as our key metrics are improving, and we've reported adjusted EBITDA profitability for the second quarter. Our Q2 results were well above our original revenue and profitability guidance and even exceeded our updated sales guidance range of $23 million to $26 million and adjusted EBITDA loss of negative $1 million to break even.
Josh Feldman: Thanks, Arty. Good evening, everyone. We continue to make progress on our path of focusing, simplifying and stabilizing material. We are starting to see results from these efforts as our key metrics are improving and we've recorded adjusted EBITDA profitability for the second quarter.
Josh Feldman: Our Q2 results were well above our original revenue and profitability guidance and even exceeded our updated sales guidance range of $23 million to $26 million and adjusted EBITDA loss of negative $1 million to break even.
Josh Feldman: Our gross margin improved year over year by over 18 basis points to 60.4%, and our overall CM exceeded 17%, primarily as a result of our SKU rationalization. Although the skew rationalization impacted our top-line revenue, it significantly improved our core business metrics. Our second quarter net loss improved by 89.6% year over year, and after 10 consecutive quarters of adjusted EBITDA losses, we posted an adjusted EBITDA gain. While we still have work to do, I would like to echo Artie's sentiment and acknowledge the whole Aterian team for this impressive effort in achieving this milestone.
Josh Feldman: Our gross margin improved year over year by over 18 basis points to 60.4% and our overall CM exceeded 17% primarily as a result of our SKU rationalization.
Josh Feldman: Although the skew rationalization impacted our top-line revenue, it significantly improved our core business metrics.
Josh Feldman: Our second quarter net loss improved by 89.6% year over year, and after 10 consecutive quarters of adjusted EBITDA losses, we posted an adjusted EBITDA game.
Josh Feldman: While we still have work to do, I would like to echo Artis Endiment and acknowledge the whole period in team on this impressive effort and achieving this milestone.
Josh Feldman: Now, moving on to the detailed results for the quarter. Net revenue for the second quarter of 2024 declined 20.6% to $28 million from $35.3 million in the year-ago quarter. Including the impact of the skew rationalization efforts into the comparable prior year, net revenue would have been essentially flat. Our sustained net revenue of $26.3 million decreased, as expected, by 15.2% or $4.7 million from $31 million, primarily as a result of our SKU rationalization efforts.
Josh Feldman: Now, moving on to the detailed results for the quarter.
Josh Feldman: Net revenue for the second quarter of 2024 declined 20.6% to 28 million from 35.3 million in the year ago quarter.
Josh Feldman: including the impact of the skew rationalization efforts into the comparable prior year, net revenue would have been essentially flat.
Josh Feldman: are sustained at revenue of 26.3 million decreased as expected by 15.2% or 4.7 million from 31 million primarily as a result of our skew rationalization efforts.
Josh Feldman: Our launch revenue was $0.5 million during Q2 2024 compared to $42,000 in Q2 2023. As planned, we had no new product category launches in the second quarter, but we did launch variations of existing products in our Healing Solutions and Squatty Potty brands. We expect to continue with launching predominantly variations in the second half of the year.
Josh Feldman: Our launch revenue was $0.5 million during Q2 2024 compared to $42,000 in Q2 2023.
Josh Feldman: As planned, we had no new product category launches in the second quarter. However, we did launch variations of existing products in our healing solutions and squaddy party brands.
Josh Feldman: We expect to continue with launching Predominantly Variations in the second half of the year.
Josh Feldman: As we strive to stay focused, we continue to be thoughtful on the timing of our product launch. Overall gross margin for the second quarter increased to 60.4 percent from 42.2 percent in the year-ago quarter, but decreased from 65.1 percent in Q1 2024. The year-over-year improvement was driven by the positive impacts of our SKU rationalization efforts, product mix, and less liquidation of high-cost inventory compared to the prior period. Our overall Q2 2024 contribution margin, as defined in our earnings release, was 17.4%, which improved compared to the prior year's negative 3.6% and increased compared to Q1 2024 CM of 14.1%.
Josh Feldman: As we strive to stay focused, we continue to be thoughtful on the timing of our product launches.
Josh Feldman: Overall, gross margins for the second quarter increased to 60.4% from 42.2% in the year ago quarter that decreased from 65.1% in Q1224.
Josh Feldman: The year-over-year improvement was driven by the positive impact of our SKU rationalization efforts, product mix, and less liquidation of high-cost inventory compared to the prior period.
Josh Feldman: Our overall Q2 2024 contribution margin
Josh Feldman: has defied in our earnings release with 17.4% which improves compared to the prior years negative 3.6% and increase compared to Q1224 CM of 14.1%.
Josh Feldman: The year-over-year increase in contribution margin was driven by the positive impact of our skew rationalization efforts and less liquidation of higher cost inventory compared to the prior period. Q2 2024 saw our sustained products contribution margin improve year-over-year to 19.8% versus 2.1% in Q2 2023. The increase in contribution margin was driven by our focus on more profitable SKUs as part of our SKU rationalization effort. Looking deeper into our contribution margin for Q2 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43% as compared to 45.8% in the year-ago quarter.
Josh Feldman: The year-over-year increase in contribution margin was driven by the positive impact of our skew rationalization efforts and less liquidation of higher cost inventory compared to the prior period.
Josh Feldman: Q2 2024 saw our sustained products contribution margin improve year-over-year to 19.8% versus 2.1% in Q2 2023. The increase in contribution margin was driven by our focus on more profitable SKUs as part of our SKU rationalization efforts.
Josh Feldman: Looking deeper into our contribution margins for Q2 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43% as compared to 45.8% in the year-ago quarter.
Josh Feldman: This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix.
Josh Feldman: This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product, with a higher proportion of dehumidifier sales during the three-month-ended June 30, 2024, compared to the year-ago quarter. These products incurred lower last-mile costs as a percentage of revenue.
Josh Feldman: with a higher proportion of dehumidifier sales during the three-month end of June 30, 2024 compared to the year-ago quarter. These products incurred lower last-mile costs as a percentage of revenue.
Josh Feldman: Our operating loss of negative $3.2 million in the second quarter of 2024 improved from a loss of negative $36.4 million in the year-ago quarter, an improvement of approximately 91.2%, primarily driven by the improvement in CM, the reduction of fixed costs due to our cost-cutting initiatives, and no impact of intangible write-offs in the current period. Our second quarter 2024 operating loss includes $2.9 million of non-cash stock compensation expense, while our second quarter 2023 operating loss included $3.2 million of non-cash stock compensation, a non-cash loss on impairment of intangibles of $22.8 million, and restructuring costs of $1.2 million.
Josh Feldman: are operating loss of negative 3.2 million in the second quarter of 2024, improved from a loss of negative 36.4 million in the year ago quarter.
Josh Feldman: and improvement of approximately 91.2%, primarily driven by the improvement in CM, the reduction of fixed costs due to our cost-cutting initiatives, and no impact of intangible write-offs in the current period.
Josh Feldman: Our second quarter 2024 operating loss.
Josh Feldman: includes $2.9 million of non-cash stock compensation expense.
Josh Feldman: While our second quarter 2023 operating loss included $3.2 million of non-cash stock compensation, a non-cash loss on impairment of intangibles of $22.8 million, and restructuring costs of $1.2 million.
Josh Feldman: Our net loss for the second quarter of 2024, of 3.6 million, improved from a loss of 34.8 million in the year of go quarter.
Josh Feldman: Our net loss for the second quarter of 2024 of $3.6 million improved from a loss of $34.8 million in the year-ago quarter, an improvement of approximately 89.6 percent, primarily driven by the improvement in CM and the reduction of fixed costs and the impact of intangible write-offs in the prior year. Our adjusted EBITDA gain of $0.2 million, as defined in our earnings release, improved by 102% from an adjusted EBITDA loss of $8 million in the second quarter of 2023, primarily driven by the improvement in CM and the reduction of fixed costs. Moving on, to the balance.
Josh Feldman: Improvement of approximately 89.6%.
Josh Feldman: Primarily driven by the improvement in CM and the reduction of fixed costs and the impact of intangible write-offs in the prior year
Josh Feldman: Our adjusted EBITDA gain of $0.2 million, as defined in our earnings release, improved by 102% from an adjusted EBITDA loss of $8 million in the second quarter of 2023, primarily driven by the improvement in CM and the reduction of fixed costs.
Josh Feldman: At June 30th, 2024, we had cash of approximately $20.3 million compared with $17.5 million at March 31st, 2024. The increase in cash is predominantly driven by the positive impacts of working capital, partially offset by our net loss in the period and repayments on our credit facility. At June 30th, our inventory level was at $18.4 million, down from $18.5 million at the end of the first quarter of 2024 and down from $36.7 million at the year-ago quarter end.
Josh Feldman: Moving on to the balance sheet.
Josh Feldman: At June 30, 2024, we had cash of approximately $20.3 million compared with $17.5 million at March 31, 2024.
Josh Feldman: The increase in cash is predominantly driven by positive impacts of working capital, partially offset by our net loss in the period, and repayments on our credit facility.
Josh Feldman: At June 30th, our inventory level was at 18.4 million, down from 18.5 million at the end of the first quarter of 2024, and down from 36.7 million in a year ago quarter end.
Josh Feldman: Our credit facility balance at the end of the second quarter of 2024 was $9.6 million, up from $9.4 million at the end of the first quarter of 2024 and down from $11.1 million in the prior year period.
Josh Feldman: Our credit facility balance at the end of the second quarter, 2024, was $9.6 million, up from $9.4 million at the end of the first quarter of 2024, and down from $11.1 million in the prior year period.
Josh Feldman: As we look at Q3 2024, considering our strategic skew rationalization and the continued challenging consumer environment, we believe that net revenue will be between $25 million and $27 million. Using the middle of the range, this would be an approximately 35% decrease from last year's Q3 revenue of $39.7 million, primarily driven by our... Reduction in SKUs from our strategic SKU rationalization. Including the impact of the SKU rationalization efforts into the comparable prior year, revenue is expected to decrease only by 12%.
Josh Feldman: As we look at Q3-2024, considering our strategic, irrationalization and the continued challenging consumer environment, we believe that net revenue.
Josh Feldman: [inaudible]
Josh Feldman: will be between $25 million and $27 million. Using the middle of the range, this would be an approximately 35 percent decrease from last year's Q3 revenue of $39.7 million, primarily driven by our
Josh Feldman: Reduction in SKUs from our strategic SKU rationalization, including the impact of the SKU rationalization efforts into the comparable prior year, the revenue is expected to decrease only by 12%.
Josh Feldman: 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. Our primary focus today continues to be consistent, adjusted EBITDA profitability. For Q3 2024, we expect adjusted EBITDA losses to be in the range of break-even to $0.6 million. The middle of this range represents a significant improvement compared to Q3 2023 losses of $4.4 million.
Josh Feldman: As we have previously discussed, our decrease in net revenue versus prior year is expected as we continue to focus our go-forward business on our best brands and products.
Josh Feldman: Our primary focus today continues to be consistent, adjusted EBITDA profitability.
Josh Feldman: For Q3 2024, we expect adjusted EBITDA loss to be in the range of break-even to 0.6 million. The middle of this range represents a significant improvement compared to Q3 2023 loss of 4.4 million.
Josh Feldman: We also believe, based on our current forecast, that we have sufficient cash above our covenant to achieve our goal of consistent adjusted EBITDA profitability without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for accretive M&A. In closing, we are confident that with our products, strong balance sheet, dedicated and hardworking teams, and our principles of focus, simplification, and stabilization, we are turning the corner. We look forward with optimism as we continue our journey towards consistent, adjusted EBITDA profitability and our ultimate aim to maximize long-term shareholder value.
Josh Feldman: We also believe based on our current forecast that we have sufficient cash above our covenant to achieve our goal of consistent adjusted EBITDA profitability without raising additional equity.
Josh Feldman: As previously stated, if we pursue additional financing, it will be predominantly for accretive M&A.
Josh Feldman: In closing, we are confident that with our products, strong balance sheets.
Josh Feldman: dedicated and hardworking teams and our principles of focus, simplification and stabilization we are turning the corner.
Josh Feldman: We look forward with optimism as we continue our journey towards consistent, adjusted EBITDA profitability and ultimate aim to maximize long-term shareholder value. With that, I'll turn it back to the operator to open up the call for questions.
Josh Feldman: With that, I'll turn it back to the operator to open up the call for questions. 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.
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 and are listening via 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 AGP. Thank you. Please go ahead. Can you quantify how many?
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 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Operator: If you are called upon to ask your question and are listening via loud speaker in your device, please pick up your hands and ensure that your phone is not in use when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Brian Kirstlinger with AJP. Thank you, please go ahead.
Operator: [inaudible]
Brian Kinstlinger: Can you quantify how many new SKUs you introduced during the first half of the year? And then what are your plans for the next six to 12 months?
Josh Feldman: Hey, Brian. It's Josh.
Josh Feldman: Hey, Brian . It's Josh.
Josh Feldman: For the first half of the year, we really didn't introduce any new product categories. It was only variations of existing categories. So it was probably about... 20 in total, including mostly our Healing Solutions business and our Squatty Potty brand. Great, thank you.
Josh Feldman: For the first half of the year, we really didn't introduce any new product categories. There's only variations of existing categories, so it was probably about 20 in total, including mostly arguing solutions, business, and our 20-party brands.
Speaker Change: Great, thank you. And then how should we think about seasonality for the second half of the year?
Josh Feldman: And then how should we think about seasonality for the second half of the year? As far as, as already said in his prepared remarks, we expect gross margin and contribution margin to be consistent going forward. From a sales perspective, I think historically, Q3 has been, you know, a higher sales quarter than Q4, and we think that that'll be reflective in the second half of this year.
Josh Feldman: As far as, so as already said in his prepared remarks, we expect gross margin and contribution margin to be consistent going forward. From a sales perspective, I think historically, Q3 has been a higher sales quarter than Q4, and we think that that'll be reflective for the second half of this year.
Josh Feldman: [inaudible]
Speaker Change: Great, thank you.
Operator: Thank you. And your next question comes from the line of Alex Ferman with Craig Helen Capital Group. Thank you. Please ask your question.
Speaker Change: Thank you. And your next question comes from the line of Alex Furman with Craig Hellen Capital Group. Thank you. Please ask your question.
Alex Ferman: Hey guys, thanks very much for taking my question and congratulations on achieving EBITDA profitability sooner than expected. Arti, you mentioned that at some point, it sounds like over the next couple of quarters you'd like to be pivoting from stabilizing the business to trying to get back to growth. I'm curious, of the six brands that are really now the cornerstone of your portfolio, which of those brands would you say really has the most potential for growth over the next couple of years, and to what extent will M&A be a part of the growth strategy?
Alex Ferman: Hey guys, thanks very much for taking my question and congratulations on achieving EBITDA profitability sooner than expected. Artie, you mentioned, you know, that at some point it sounds like over the next
Alex Ferman: A couple of quarters, you'd like to be pivoting from stabilizing the business to trying to get back to growth. I'm curious, you know, of the six brands that are really now the cornerstone of your portfolio, which of those brands would you say really have the most potential for growth over the next couple of years? And to what extent will M&A be a part of the growth strategy?
Arturo Rodriguez: Hey, Alex. Thank you. Good question. You know, not the sound, like a father with his kids.
Alex Ferman: Hey Alex, thank you. Good question. You know, not the sound...
Arturo Rodriguez: I think all the brands can really perform well. I think the roadmaps we're considering can. You know, really have a lot of potential, especially if we think about how we're rounding out our variation strategy on some of our existing listings. At the same time, I think, you know, we feel very bullish that there are a lot of opportunities across multiple categories, new categories, let's say, across multiple brands. And even that also includes some thoughts about potentially even revitalizing some previously rationalized skews. And so I think they can all do. Now, they're all different, right, in fairness, right?
Speaker Change: like a father with his kids. I think all the brands can really perform well. I think the roadmasks are considering, um...
Arturo Rodriguez: You know, really have a lot of potential, especially if we think about how we're running on a variation strategy, on some of our existing listings at the same time, I think, you know, we feel very bullish that there's a lot of opportunities across multiple categories, new categories, let's say, across multiple brands.
Arturo Rodriguez: And even that, that also includes some thoughts about potentially even revitalizing some previously rationalized skews.
Arturo Rodriguez: Like, you know, launching new paper products is probably a lot more around variations, where I would say there are a lot more opportunities and new categories when you think about both PureSteam, HomeLabs, and even Mueller Living, and even Squatty Potty to some extent. So I do think that all the brands can definitely all grow. We're very confident with the GMs that we have in place and the brand management teams that we have placed under them.
Arturo Rodriguez: And so I think they all can. Now, they're all different, right, in fairness, right? Like, you know, launching new paper products is probably a lot more around variations, where I would say there's a lot more opportunities and new categories when you think about both PureSteam, HomeLabs, and even Mueller Living. And even Squatty Potty does
Arturo Rodriguez: to some extent. So I do think that it's really all the brands can definitely all grow.
Arturo Rodriguez: We're very confident with them.
Arturo Rodriguez: And I think there's going to be a lot of opportunities across all brands. I think we've got a strong enough base of people to really be looking at each of them and growing them each, though we'll be very cautious in how we launch products and very patient. I want to make sure that people understand the six brands we chose to stay with after rationalization do really have the potential to grow. As to M&A, which was your second part of the question, I think in my prepared remarks I covered that.
Arturo Rodriguez: with the GMs that we have in place and the brand management teams that we have placed under them and I think there's going to be a lot of opportunities across all brands. I think
Arturo Rodriguez: We've got a strong enough base of people to really be...
Arturo Rodriguez: looking at each of them and growing them each. We'll be very cautious in how we launch products and very patient. I want to make sure that people understand the six brands we chose to stay with after Rationalization do really have the potential to grow.
Arturo Rodriguez: As to M&A, which was your second part of the question, I think in my prepared remarks I covered that. Listen, we think M&A can play. We're going to be very opportunistic about it.
Arturo Rodriguez: Listen, we think M&A can play. We're going to be very opportunistic about it. But at the same time, I really want to emphasize that I don't think it's our primary driver for growth. I think there are a lot more opportunities, especially for organic growth, which requires less investment, takes a little bit more time, but requires less investment. And I think we're very bullish about that. At the same time, you know, us looking at M&A, I think, again, I'll mention opportunistic, but I'll just say we're being very thoughtful, strategic, and patient. And I think in this current environment, it's a very strong trait to have.
Arturo Rodriguez: But at the same time I really want to emphasize that I don't think it's our primary driver for growth.
Arturo Rodriguez: I think there's a lot more opportunities, especially in organic growth, which requires less investment, takes a little bit more time. But it requires less investment, and I think we're very bullish about that. At the same time, you know, us looking at M&A, I think.
Arturo Rodriguez: Again, I'll mention opportunistic, but I'll just say we're being very thoughtful, strategic, and patient. And I think in this current environment, it's a very strong trait to be.
Alex Ferman: Okay, thanks Arti. That's really helpful, and congratulations again on the strong quarter.
Speaker Change: Okay, thanks, Arturo, that's really helpful and congratulations again on the strong quarter.
Alex Ferman: Thank you, Alex.
Ilya Grozovsky: Thank you, and there are no questions. I will now turn the conference back over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development, for closing remarks.
Ilya Grozovsky: Thank you and there are no questions. I will now turn the conference back over to Ilya Grozovsky, Vice President Investor Relations and Corporate Development for closing remarks.
Ilya Grozovsky: Thanks. As part of our Shareholder Perks program, which, as a reminder, investors can sign up for it 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 and their participation in the program and for their questions. I've picked a few of the most popular questions that have been submitted. Our first question is... Does Aterian have the capability to re-enter product lines that were exited or rationalized if the dynamics in the category change?
Ilya Grozovsky: Thanks.
Ilya Grozovsky: as part of our Shareholder Perks program.
Ilya Grozovsky: which has a reminder, investors can sign up for it at terrian.io forward slash perks.
Ilya Grozovsky: Participants have the ability to ask management questions on our earnings calls.
Ilya Grozovsky: I wanted to thank all of the Sherholder Perks participants for their loyalty and their participation in the program and for their questions. I've picked a few of the most popular questions that have been submitted.
Ilya Grozovsky: Thanks, Ilya. I always love these questions.
Ilya Grozovsky: Our first question is...
Ilya Grozovsky: Does Aterian have the capability to re-enter product lines that were exited or rationalized if the dynamic in the category change?
Arturo Rodriguez: Yeah, we're very excited about the growth plans for Aterian. We hope to provide more color, as we said in the prepared marks, we're going to provide more colors towards the end of the year. But yes, ultimately, as part of those plans, we are looking at rationalized skews where we think there are opportunities to relaunch, especially when they can be meaningful. So we're definitely looking into it.
Arturo Rodriguez: Thanks, Ilya. I always love these questions. Yeah, we're very excited about the growth plans for Aterian. We hope to provide more color, as we said in the prepared marks, we're going to provide more colors towards the end of the year. But, yes, ultimately, as part of those plans, we are looking at rationalized skews where we think there's opportunities to relaunch, especially when they can be meaningful. So we're definitely looking at it.
Ilya Grozovsky: Great. Next question. What role does AI play in the Aterian of today and in the Aterian of the future?
Ilya Grozovsky: Great. Next question. What role does AI play in the Aterian of today and in the Aterian of the future?
Arturo Rodriguez: Another great question. I believe our teams are doing a great job exploring all the new wonderful tools out there. And honestly, we find more tools every month that we keep looking for. We're using various tools today. I think I'm, you know, Josh and I laugh a lot.
Arturo Rodriguez: Another great question.
Arturo Rodriguez: Listen, I believe our teams are doing a great job exploring all the new wonderful tools out there, and honestly, we find more tools every month that we keep looking.
Arturo Rodriguez: We use chat CPT a lot, almost every day. We're in there asking questions and learning from it. And so I think we're currently using a lot of that to support and be efficient in our day-to-day lives. Our view today is that AI tools are going to be providing scalability for our future growth and not replacing our people. We believe we are at the base headcount to operate. And as part of that, where we spend a lot of time today, where the team is looking at a lot of these tools that are out there, it's very focused on the content generation side, which should be supplemental to our creative team and some of the product initiatives that we're working on.
Josh Feldman: We're using various tools today. I think I'm, you know, Josh and I laugh a lot. We use ChatCPT a lot, you know, almost every day we're in there asking questions and learning from it. And so I think we're currently using a lot of that to support and be efficient in our day-to-day lives.
Arturo Rodriguez: Our view today is that AI schools are going to be providing scalability for our future growth and not replacing our people, we believe we are at the base head count to operate.
Arturo Rodriguez: And as part of that, where we spent a lot of time today where the team is looking at a lot of these tools that are out there, it's very focused on content generation side, which should be a supplemental to our creative team and some of the product initiatives that we're working on. I think as we look in the future,
Arturo Rodriguez: I think as we look in the future, I think, if I think about next year, maybe beyond, there are a lot of AI tools that are coming out there that really could help us with product research, customer service, and customer insights, which I think will be really helpful as we kind of reignite the organic launch strategy.
Arturo Rodriguez: I think, if I think about next year, maybe beyond, there are a lot of AI tools that are coming out there that really can help us with product research, customer service, and customer insights, which I think will be really helpful as we kind of reignite the organic launch strategies.
Arturo Rodriguez: Great. Thanks, Artie and Josh. This concludes the Q&A portion of the call. We look forward to speaking with you all on future calls. This ends our call, and you may now disconnect. Thank you.
Arturo Rodriguez: Great. Thanks, Artie and Josh. This concludes the Q&A portion of the call. We look forward to speaking with you all on future calls. This ends our call, and you may now disconnect. Thanks.
Operator: Thank you, ladies and gentlemen. That concludes today's call. Thank you all for joining us. You may now disconnect.
Operator: Thank you, ladies and gentlemen. That concludes today's call. Thank you all for joining. You may now disconnect.
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. 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 of our core operating results.
Ilya Grozovsky: Reconciliation of these non-GAAP measures to most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the investor's 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 Artie.