ATER - Earnings call 3 2023

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Ilya Grozovsky

Thank you for joining us today to discuss Aterian's Third Quarter 2023 Earnings Results. On today's call are Joe Risico and Arturo Rodriguez, our co-CEOs. A copy of today's press release is available on the Investor Relations section of Aterian's website at iterian.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 the 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. from substantial of uncertainties, could our results differ involve may of cause statements implied to outside or be control materially forward-looking risks statements. some and which actual by These such expressed those and that among These in our are filings risks others, discussed the with and SEC. uncertainties, it XXXX, these Form for report filed XX-K on discussion you available and quarterly these on of is XX, report our encourage when Investor We our filings risks, the to XX-Q Form at on review website a portion including annual on March our of iterian.io.

certain not reliance to as and available place we You any with or and forward-looking should and these today, release, our at non-GAAP definition past comparability made required portion are of companies. obligation the comparable most Please consistency no for undue except performance update to statements. are These information Investor of statements undertake of revise Reconciliation these comparisons as only them on ability measures these GAAP facilitate new our will of core included financial indications measures provide which and generate contain results. believe website law. similarly EBITDA measures our and may on adjusted of our which definitions presented our our operating call note of that supplemental are EBITDA useful differ measures including other by earnings aterian.io. these evaluating from to is by metrics the in adjusted in This measures, titled margin, period-to-period that earnings, assist we non-GAAP also

GAAP I margin without most to Joe. the that, company's a turn a reconciliation provide the non-GAAP call over within cannot because reasonably financial financial and/or not net comparable will items are unreasonable of impact efforts measure be margin, income basis to that this on measure unable EBITDA control adjusted With forward-looking directly predicted. are to GAAP the We of

Joe Risico

Today, towards we other you, stabilize and progress expansion efforts I'm us thank focus, previously program, all QX goal our and third to in to provide everyone, then XXXX. depth adjusted quarter Arty an going to stated continue the making for achieving our of the and our today. on for working efforts position for results. The are joining cover profitability business cover update previously in rationalization EBITDA our we'll summer as for our omnichannel QX. on Ilya, you, our simplify we Thank SKU financial growth, of announced Aterian and our outlook will results more

significant in earn quarter continue our competitive pricing reflect pressures of revenues. Our is remain and order which third other to we results to Amazon, on most where

business, to in core in, the While brands consumer said efforts on factors have pressures part dehumidifiers share. expect business. see such certain SKUs Aterian's these product to through market These optimize of to discretionary as we remain and we the Having continue will categories, motion the in regain in share we reduced categories our also of number our our of had a of fourth market we results, spending that, quarter. lost continue have the other together taken we impact rest set and that to have key material our for operate a and go-forward

profitability, only how ourselves growth. long-term position adjusted reminder, outlined operate we and to EBITDA a strategy As simplify for near-term but order position stabilize last to Aterian quarter, also we not focus, in our to for

across the to that that in our I'm step we our of made by report pleased first portfolio. business SKUs focus have number to The significant was process reducing progress.

and approximately number XX% reviewed business X,XXX count. our expected completed decision our a each drivers. with based the to SKUs and profitability consist have and approximately our being We SKUs expect of historical overall we on go-forward We review, in substantially reduction main of our of SKU criteria

We business, chain share are our standardizing essential consumer. we of lion's coming reductions focused remaining our our are with from while oils SKUs still the our simplify across formulations discontinuing where supply to on all brands sense, the of sizes and

Aterian brands: our to Squatty brands assess Mueller stool go-forward appliance and ensure stable kitchen Photo PurSteam, focused following Potty, business, forward, and larger for focus reposition oils business growth. their to and and business. our on our of appliance coming business, our on performance ore will we apparel Paper In be our our will the toilet steam-related hOmeLabs, comprise essential Going the SKUs business, the brands, accessories and appliance positioning our market-leading that transfer and business, various driving Living, the months, them to performance Direct, profitability competitive home iron continue

per technology, continue a for more operate like is of support use other do project how ongoing drive initiatives business. his that initiative of and operations sell reduce address Post X on market process, to best the to we which accounts rationalization however, As from will us and stabilize that make as to liquidations accounts, synergies to this planning number we to and today we we of further greatly will business XX in perspective. revenue, Arty ensure remarks. agile we our a highlight One accounts rationalization, Amazon us and expect QX, go-forward reduce result SKU is focus, complexity optimized have essentially will the one believe brand.Executing and the I'd we SKU from in a to our number account our simplify products to

also strengthen cost will taken to business. efficiencies and we have actions relationship our in this relationship further with our deepening Amazon, savings and We believe create that

the quarter, Collectively, enter have fourth and we well perspective, will initiatives business. assess believe an we these From other as also across continue omnichannel position will progress. to Aterian opportunities cost-saving we XXXX. made the in we Lastly,

in launched our recently of We Squatty foldable stools X have Potty Walmart.

campaign it's to will advertising performance national support these of be optimistic the launching and quarter we early, are fourth the Squatty. still While a SKUs, in about we

our we TikTok In have Squatty recently Potty. addition, also launched for shop

available many during SKUs shop other have also for Aterian's We TikTok on fourth sale to the quarter. expect of

portfolio incremental potential While shop. a Aterian's new TikTok growth about into across are user-generated relatively on endeavor e-commerce commerce, we on The they model drive itself search, TikTok shop meet platform, discovery is as this in everywhere product to to relying we e-commerce evolve. Amazon, primarily we consumers to optimistic content continues be heavily relies and consumer consumer and believe social as shift versus which means will important its behavior

for other that our explore with to believe provide coming quarters. to continue channels also these the product to in and updates can existing we profitable efforts portfolio, drive We revenues further hope we respect

in strategically expand our that quarter and oils to new Lastly, needs the fourth launch portfolio we to to continue plan chemical-free products, highlight address healthier essential consumer I'd to products. like we for

with still Regarding that, able adjusted an through remain narrower we remain our achieve laser-focused on Thank on are SKUs business, will we seeds by have summer we are benefits growth, those brands respect and core we these excited and M&A, beyond. Aterian we we and profitability the with combined about focus, XXXX the are in patient of pursuing working for significant that simplify and to for remain Arty. I'll and pass progress remains we significant but to focus, it disciplined opportunities. and EBITDA in and a and we the be yield efforts, transition of forward-looking, Overall, you. Today, on area efforts to and it our we of this our these focus business, stabilize planting made omnichannel strategy, XXXX. will optimistic With that hearing's believe to

Arturo Rodriguez

discretionary continue consumer be spending and Thanks, our pressures. Joe. impacted by pricing saw Good reduced revenue evening, everyone. to In QX, we competitive

and credit are the XXXX. is facility. continue XX%. We of strengthen also cost is our be However, by QX of have our inventory net our progress the I path achieving us evident stabilizing at cash we pleased profitability balance our motivated sheet, and team on Aterian take of summer goals that balance with our our front loss very of normalizing in this a and continue profitability. our to us. EBITDA reduced we hard simplifying in on reducing lot of decisions work to the loss adjusted focusing, fixed and still towards putting We're to by and Further, XX%, rest burn, we the on. to QX our the optimistic Aterian, year-over-year very of the our Joe improved adjust in over and on reducing EBITDA as year adjusted This of

consumer Now moving $XX.X quarter to on for to competitive discretionary the from portfolio. million the reduced of year third details in declined revenue primarily revenue and pricing across our spending to XXXX. due XX.X% million ago quarter, $XX.X pressures Net

million $XX.X by million in Our release, in in follows: in revenue launch million phase as as liquidate by The of million down year quarter million and $X.X million $XX.X sustain, and $X.X broke revenues third launch and phase, net normalization. our $X.X $XX.X as in inventory press $XX.X broke defined quarter ago million sustained, million in normalization. $XX.X net and liquidate follows: inventory is down

net million the sustained line. of spending revenue particular, pressures reduced but Our consumer decrease across discretionary conditioning portfolio, product from competitive deminifier is our and air $XX.X in

we phases million inventory were reduced revenue hope year final levels, the to but launched the to of higher-priced $X.X net but as normalized by variations liquidation quarter. in third are enter, off Our decreased continue X strategic we as initiative. we this inventory volumes sell last late in

quarter XX.X% by liquidation for We product on our of margin gross driven was the are pricing increased timing sales. year better product quarter and ago XX.X% improvement to from new of and QX mix increased in in from XXXX. to thoughtful the be XX.X% Overall continuing launches. third the The on

XXXX competitive pressures declined The pricing was margin, pricing in our XXXX. contribution year's liquidation, in second our X% QX saw competitive overall and of negative improved increase mix year-over-year product an product inventory. normalize pressures certain prior in increased the margin of driven Our on to was to slightly quarter's which XXXX release, driven contribution margin season mix, earnings increase to by core business. The and X.X%. compared as sustained versus CM contribution margin inventory XX% XXXX by QX offset product QX initiatives by decrease end pricing contribution compared defined X.X%, X%, was in to on our

in margin into our an online quarter. deeper sales a year and to in QX for increase increased net compared of to XX.X% and costs. predominantly as the increase product and advertising in sales expense revenue ago contribution of to This variable XX.X% is XXXX, distribution distribution due expenses percentage our mix Looking as

improvement million by compared to Our higher-priced operating sheet the year the offset inventory. $XXX.X quarter and driven off our approximately of million improved costs, an normalization initiatives strategic fixed and XX%, to continued by improvement third balance in of reduction ago quarter the and $X.X sell our of the of from loss

million operating million. quarter $X.X loss third of costs restructuring stock of XXXX and includes $X.X expense noncash Our compensation

a liabilities, noncash stock quarter the third of goodwill, from compensation. change a our owned operating fair included impairment of loss $XX.X of million XXXX million While loss from impairment noncash $X.X loss million the intangibles million a $X.X of in of earnout noncash the $X.X of on value and gain

Our of million our sheet net XX%, of initiative costs, of in quarter, for sell of the from the $X.X and driven improved our normalization by improvement to a the $XXX.X off offset an the higher-priced continued loss million quarter improvement approximately reduction by fixed strategic of year-ago balance and loss inventory.

of includes $X.X related operating net of impact $XX.X stock Our warrant of derivative the value million, a losses million in described the losses loss in gain fair described change impacts net in of of of while loss loss liability in earlier, our offering includes charges $X.X our common made net the XXXX. third third our from the and change warrants operating plus million quarter earlier, to XXXX fair quarter value from plus of a XXXX a

XX% $X.X $X.X in from as loss Our defined third improved of the a XXXX. of quarter million million by earnings of our loss adjusted EBITDA in release,

Now decrease approximately from The going XX, is million approximately September and to cash as in by June the compared balance had $X.X XX, with at loss the end we expected, down the the cash, from and in sheet. $X.X the million At working predominantly $XX facility, inflows year from driven of At $XX.X period of net our quarter of XXXX. repayments was XXXX September million $XX.X end $XX.X XX, ago level million by capital. our offset on of the of million net $XX.X credit at second inventory of million quarter. the in down at million, a

demand progress continue in anticipated. high-cost the make given longer considered to originally us the We taken strong weakness normalizing but inventory, than noncore has in

around will the believe, fourth do XXXX. we expect by XXXX. our for forecast, based normal QX Further, purchase of our primarily avoid inventory season of the completed early balance we current which in the than substantially be lead inventory of products, cooler advance However, XXXX to elected expected end to tariff on in through to XXXX, beverage quarter impact to we've higher

third of million, at quarter facility XXXX $XX.X quarter of XXXX. at down million of credit end the from was of second the end the $XX.X the Our

do at low expect to purchases to cash As the ensure we advance in decrease and the mid-$XX to we the will avoidance in receiving of impact as balance for our early of inventory in range quarter goods paying million close XXXX, the fourth tariff we end XXXX. expected order are

considering and This from As the middle in we of $XX range. XXXX, net the of last approximately inflation year spend, revenues decrease QX $XX a represents we impact quarter the the will same and between XX% be at look of consumer million believe using reduction million. that

compared this XX% range in to $X.X the year's we an For range to of fourth million. of of The quarter. $X.X last improvement QX XXXX, expect to approximately middle represents million loss EBITDA adjusted be

the XXXX, in Cyber an fourth initiatives for this to includes program. Monday pricing negative incremental sales impact quarter and to anticipated Black As higher-priced inventory estimated compared from million quarter third Friday $X relation

We optimistic and be continue target EBITDA adjusted on the to summer XXXX. profitability of our continue in to goal

covenant sufficient also forecast, cash this above our raising on equity. we believe, We goal to our without based additional achieve current have

we if shared growth it Aterian additional our priority number focusing, profitability stated, or financing, previously M&A. closing, for towards will In stabilizing one. be of predominantly and we simplifying equity pursue As to continues vision be through

believe progress motivate balance to the turn call will With questions. it allow us driving and our balance, but profitability. effort, operator our the continue We our on levels We sheet, facility to to access time be our continued take workforce which on and solid to to make that, up business back core credit to goal, MidCap inventory adjusted and led with cash will across open laser-focused this to it excite the our EBITDA I'll globe. dedicated by continues and normalizing us tremendous towards

Operator

of The ROTH floor comes question from is now with line for Your first questions. the MKM. your open [Operator Instructions] Koranda Matt

Michael Zabran

Hey Mike on guys. XXXX target. on Matt. adjusted for Zabran the profitability It's just Maybe EBITDA starting

to growth understand versus overall us balance new more maybe new inventory help on optimized demand driving the what Just demand? normalization a degree target relies versus product

Joe Risico

one? to want that you Arty, take

Arturo Rodriguez

Yes. Joe. I'll grab that,

going [ less believe we by to lot we a the our the when profitability. that across to back think We think XX% I of especially ] eventually of listen, as So to really move ] is getting and of XX% is that [ eventually, lock away CM, board of products. focusing lead our CM like portfolio, this to from plus. going we goal And target profitable unlock recovery efficiencies EBITDA our adjusted

Joe pricing things on, we into a get be a on now believe which hyper I us XXXX the mentioned, portfolio, core improve the lot of to the of lot normal that on FOB going think, are of pricing. summer we be will containers Some inventory Further, that that Plus, the will to focused we as XXXX. to will initiatives, oil to XXXX, do these that we're help get we're got still as -- by we across of direction very early that SKUs, we back on and the the mentioned, we working drive time our work particularly lot back a a heading initiative resulting we in especially kind we're August CM about, working should that off but good got the do, the in in right CM. a of to goal of we at think optimistic of believe that lot lot later that supply sight. we effective efficiencies set we'll across in for but we're a that and that. feel more product We certainly, initiatives will by And the what talk chain. we line got other also, date be of a We a listings bunch improved improve development focused

Joe Risico

Arty, about when add, we Aterian if And I business just I to core already think year. okay Matt, with everything it's looking the agree next said. at we're profitability obviously,

Michael Zabran

what Got incurring quarters we provide bit to process And to to consists this from And does benefits the initiative. maybe Amazon see where cost Are color little of long in on just moving initiative us you result? onetime look it it. XX this That a accounts, start to of will How then the a coming should we sense. more as any on of? makes can take? maybe the

Joe Risico

Arty? You one, can take that Arty.

Arturo Rodriguez

Yes.

Okay.

especially a run, lot a lot So listen, accounts, in across they the multiple earlier much considering past, of to it, point, how to business Amazon Joe's run historically, is power a the Amazon has has the of If way were platform lot and it lot one that marketplace acceptable down, accounts. creates said, multiple right? account That impact. it's more you business, in as of particular Amazon a have shut to a your matured, the

what lead about brand. profitability is thinking efficiencies where one per think to happen account will that I we we're down and from getting improved think will

So very for were natures that products might It brand. we of we all account one of have a repetitive does not that closer only hyper-focused that had the accounts. be lot take brand team can away the XX and on that to when

that parcel exactly, you think improved I a to organization of It's CM. towards that of more of marketing and path across to X would any to to lead not it's profitability overall. hard that programs particular result to -- directly plan get better and just It's other the just it to by efficiency's CM the of efficiency unlock the improved going do and immediately just improved but quantify and initiatives a kind should account. accounts on hyperfocus part this of So lot more it's going a is going to

Joe Risico

at perspective, inventory, platform, even planning platforms data, it's when would a selling though just think almost a you way it's I operating different basic just selling add you it even from it, you're you're that the send seller you're example of different when don't Amazon. look accounts, one just on now like you out Yes, to it's about the way have on -- to

you're the X it accounts, it's not right? quantifiable. almost -- out, It shipping pointed account, that into there's down just us, So Now narrowing come that's different even efficiencies as powerful much so something X account, like Arty channels, it's for though, accounts, XX X right? a move from immediately

that helps. hopefully, So

Michael Zabran

Yes.

Okay.

quantifiable So right providing think line to sight of Is operational it's way the versus that of about it? more impact.

Joe Risico

the Correct. I Correct. say true. that's most for would part,

Michael Zabran

it. Got Okay.

demand just that Maybe overall me. for deeper persistent products product environment others we're certain one we're seeing that's than Last requiring any trends discounting or elaborate are strength? seeing. or just there speak new categories -- to Maybe showing the Okay. consumer? Are certain that from that on

Joe Risico

Yes. Arty, and I'll one, in. take could you this jump

overall, through demand would way there. that categories right, platforms, overall, we it's said in. search down that way We is we categories think in, that, what Having right? say, the we're environment the right? across the about is in we're I So and the see it it, the seeing, use we operate They're buying on that still

but -- very had Potty? pressure. bit out, had appliance a So pressure our the a as had I still space, again, the the we little conditioners demand is pointed home down, a probably appliances kitchen we Air brand. the I humidifiers have of would that area It's strong pressure. it's pressure, lot Squatty of there. is least say in Certain struggled had

business. sort has I And analysis for from that's our started But share that improve. think our demand oil there's perspective we've of gained across the us right, category a demand business, in to there.

Michael Zabran

me. it for sense. Makes it. Got That's

Joe Risico

Welcome.

Operator

Our comes Global Alliance line the next of Brian Kinstlinger from question with Partners.

Brian Kinstlinger

there a your mean about not several Or that well just a are change is I mentioned. as shrinking it wondering, in remarks. reviews I'm as anything in just there maybe impacted categories is product You losing Amy proving prepared as response environment? you your share [ ] demand to some be effective is now in it? talked

driving So it I'm is understand competition? what to just that? trying increased think you Is

Joe Risico

Yes, yes, no worries.

earnings looking right? there's some time. right? tag. we about So and seller on quite best get dehumidifiers the back, can not extremely And we I that an that that -- lost now think call, the marketplaces immediate were lose we Brian, simply it tag, we it's for on an immediate I -- competition impact just And And the best-selling dehumidifier has you -- seller It's has like thing. when think an this intense. when at on It's last then the best Amy talked that is but like impact. demand, really

a toilet back a came are product for your best-selling a on So of Like people coming category, stool, for results even the think in stool that searched bull's a were I category. eye and thousands of I have back you there if you think even category, today, kind have toilet product I for that and you. in

to And better new the variety of improvements part making to just very of replace think think there that good, aggressive think There on have social is that where our I So or making sort to every And best perspective, products, areas wide to to pricing better, of It's more a day, we continue sort some people of it's You and competition I type refreshments, address et cetera. extremely good then we're out in launch where entrants, are very strategy needs. today that. some are are there it's the can proof a strategy proof. intense, we -- sure decisions, have social ones ones from competitive products variation and consumer of need better get products a and working right? do I a launch environment. we that's

for So it's challenging, us. I but manageable think

Brian Kinstlinger

of that dehumidifier competition, And categories? several of because demand. is because lack best-selling volume meet is also inventory representative to you lost and it maybe increased tag the So but

And to that broader on different just picture think so of going lots I'm a SKUs? trying result. is in of what's that's the

Joe Risico

of couple is I dehumidifier in issue tag. other have the for a other we sorry, of best I'm -- only not seller in And I it rest would category where basically. It's it's That's compete the the we categories. that the missed say -- question, the that sorry.

Arturo Rodriguez

Yes.

lack because that. I of anything don't like to going that, Yes. Thank add it's was I of inventory you. yes, think yes, to Sorry, or Joe.

used been be disclose comes to I inventory I past, normalizing. know when to [indiscernible] obviously, but think with it we inventory. the would shorts, always in the inventory we've conservative

an it's So inventory.

the I Joe's is, think thing inventory-related competitive it's is ton a lost that seeing more point you're pressures particularly in right why general. it's we to what and

Brian Kinstlinger

profitable have, because -- to you will. part, you'll question last the lost I thinking go pretend can with I think, do And we you inventory you I less discount, we SKUs revenue was you forward do are of most XXXX, had nor hope discontinue. offset think behind look revenue high Great. on for less as to is that price that you I believe you But be giving existing you're SKUs? know the you SKUs challenge not Or to to that that is the can your guidance the you with, with plan from that

Joe Risico

don't one? take Arty, that you why

Arturo Rodriguez

to go CM that we revenue, we we obviously, yes, increased because get should that little talked to that get profitability. the even we yes, lower we of in expect report Joe can highlighting do details with has of be revenue, be will very still on the kind lot the the a and efforts I bit Joe that a anticipate being think profit. we and anticipate highlighted to though to focused Brian, CM theoretically, QX through initiatives we'll But we're Yes. about. were it more do But by improvement still us lower still when probably some of working that able

Brian Kinstlinger

Okay.

Operator

time. a back this star #X Grozovsky, further you. the at your Mr. are ask to to over I'll question no There turn like keypad. would questions then you the telephone press call if Again, on

Ilya Grozovsky

you. Thank

perks shareholder can I ability perks part few they management for questions and have all in program shareholder As participation picked sign aterian.io/perks. submitted. loyalty our questions. and which the popular of their as earnings a to wanted thank I of ask a on most their up have that questions our reminder, at program, the the calls. the for their investors participants to Participants of

would First question any consider Aterian subscription-based is, products. adding

Joe Risico

Ilya. you, Thank

retail Just we've we're that's some crowd. sirens the got comment a on follow but groups. before by. I We're the retail I say We grateful different for answer want do for great We we going that, Apologies, grateful to just follow. the crowd. do it, question. can't

appreciate the And so we support.

about business today do essential Regarding subscription-based the have our products, we that we probably that category But of of That's think oils that subscription could the products. And based. for kind as that. we acquiring subscription-based really something a that's that and then do a or that think model products model. has how potential like we have about legs businesses only either has obviously, for do launching think

Ilya Grozovsky

Thanks is, to any next question platforms? plan Joe. The expand additional to does Aterian

Joe Risico

The We that. excited TikTok shop. about talked up little We're it. bit opening answer yes. there very is, a about We're

We are looking at where other sense perform. platforms product portfolio it to makes for Aterian's

that's we'll updates have more Thank now. that But on in hopefully, So the for future. you. all

Ilya Grozovsky

of portion call. Great. the Q&A This concludes the

look forward speaking on Conference XXth in New In terms We on in to the management of Select Alpha you This our with Aterian upcoming calendar, will participating York. ends future be the call. Annual calls. Craig-Hallum XXth November

now you. disconnect. may Thank You

Aterian (ATER) 8 Nov 232023 Q3 Earnings call transcript