Aterian, Inc. (ATER) Earnings Call Transcript & Summary

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian Update. [Operator Instructions]. I will now turn the conference over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development, you may begin your conference.

Thank you for joining us today. On today's call are Arturo Rodriguez, our CEO; and Josh Feldman, our CFO. 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 on this call today 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. 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 10-K filed on March 19, 2024, and our most recent quarterly report on Form 10-Q. These are available on the Investor Relations portion of our website at aterian.io. 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. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of those indications are included in our earnings release, which is available on the investor portion of our website at aterian.io. Please note that our definitions 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 for the most directly comparable GAAP financial measure on a forward-looking basis without unreasonable efforts because items that impact the GAAP financial measure are not within the company's control and/or cannot be reasonably predicted. With that, I will turn the call over to Arty.

Good evening, everyone. Thank you for joining us today. I'm pleased to welcome you to this conference call to discuss the recently announced leadership changes and updated financial outlook for Aterian. I will briefly discuss these changes and then pass to Josh, our new CFO, who will discuss our updated guidance. At the end, we will open up the call to take a few questions. As you may have seen in our press release, we have made some important leadership changes. I'm honored to take on the role of Chief Executive Officer after serving as Aterian's Co-CEO and CFO. Joe Risico has resigned from the company and after a well-deserved break, he will pursue new opportunities. Over the years, Joe and I have enjoyed a remarkable partnership. The amount of hours and work we've put into Aterian has been nothing short of tremendous, and the strategic decisions we have made together as Co-CEOs has significantly strengthened Aterian's trajectory. Joe will consult with us for a few -- the next few months during a transition period, which I'm truly grateful. I would like to take a moment to express our deep gratitude for Joe, for his partnership, passion, innovative ideas and relentless work ethic. Now what changes? As of today, I don't believe anything. The mission we laid out last year to focus, simplify and stabilize the company remains unchanged. We still believe the company's path to profitability and growth revolves around: one, a focused and stable profitable portfolio and a simplified business model; two, an omnichannel strategy; three, reigniting growth through organic product launches; and four, focused accretive M&A. These initiatives have been the cornerstone of our strategy since being appointed co-CEOs and will continue to guide Aterian's future. Along with our solid balance sheet, we believe we have the liquidity necessary to execute on the organic mission. In fact, we are starting to see the positive results of our efforts. Our revised second quarter guidance reflects this progress, demonstrating our commitment to achieving adjusted EBITDA profitability and showcasing the hard work of our incredibly talented people worldwide. While we still have a lot of work to do, we believe we're on the right track. Finally, I'm thrilled to introduce Josh Feldman, our new Chief Financial Officer, who has been an invaluable part of our team as Senior Vice President of Finance. Josh joined me as my right hand in finance back in 2022 and has been instrumental in partnering with the team to strengthen our balance sheet and drive our mission of focus, simplify and stabilize. He's undoubtedly the right individual to take on this critical leadership role at period given our current trajectory. Congratulations, Josh, on this well-deserved promotion. And with that, over to you.

Thank you, Arty. I'm honored to step into the role of Chief Financial Officer for Aterian. Over the past few years, I've had the privilege of working closely with our exceptional team and I'm enthusiastic about the opportunities ahead. As already mentioned, we have updated our guidance for the second quarter ending June 30, 2024. We now expect net revenue to be in the range of $23 million to $26 million, an improvement from our previous range of $20 million to $23 million. Additionally, we anticipate adjusted EBITDA to be in the range of negative $1 million to breakeven, better than our earlier projections of negative $2 million to negative $1 million. The improvement in our guidance is primarily attributed to the strong performance of our seasonal dehumidifier business. Since May, demand for our dehumidifiers has surpassed our initial projections. This increased demand, along with maintaining a healthy average sales price has contributed to an upward revision in our adjusted EBITDA guidance. Although this season is still in its early stages, we are excited by the initial trends we are seeing. Our cash balance as of June 30, 2024, is expected to be between $17 million and $18 million with borrowing under our credit facility at about $10 million. This is compared to the cash balance as of March 31, 2024, of $17.5 million and credit facility balance of $9.4 million. All of these improvements highlight the progress we are making towards our financial goals and the strength of our strategic initiatives. We continue to believe that the company will be adjusted EBITDA profitable in the second half of 2024. As part of our continued efforts to reduce our general and administrative expenses to achieve our goal of adjusted EBITDA profitability, we are pleased to announce the appointment of UHY as our independent registered public accounting firm. We are confident that this partnership with UHY will be successful and look forward to working with them for many years to come. We would like to extend our gratitude to Deloitte for their dedicated service and contributions over the past 5 years. They have been a great partner, and we thank them for their professionalism and expertise. Finally, I want to thank Arty for his continued leadership and guidance. I look forward to working with him and the rest of our team as we continue to drive our mission forward. With that, I'll turn it back to the operator to open up the call for questions.

[Operator Instructions] Your first question comes from Alex Fuhrman with Craig-Hallum Capital Group.

Congratulations, Josh, on the well-deserved promotion. Arty, you guys have done a really good job here over the last couple of quarters narrowing the EBITDA loss even as revenues have moved lower. This quarter certainly stands out in that you're now guiding to a smaller loss and higher revenues. Is the higher revenues primarily it sounds like due to that demand for dehumidifiers. And can you give us a sense if that what's driving the better-than-expected EBITDA in the quarter and can you just expand on that a little bit more with the dehumidifiers? I mean is that weather driven or just doing a better job with executing on marketing or supply chain?

Thanks for the kind words. I'm going to let Josh handle that one.

Yes. So I think it's hard for us to just specifically attribute to weather, but probably played a factor in it. But I think our efforts on our marketing tactics have really contributed to the higher demand in the dehumidifiers. And again, it's owing to the season, but we're hoping this continues into Q3.

Great. That's really nice to hear. And then can you just talk about what you're seeing in terms of customer acquisition, how that environment has gotten for you as you work to be more [ surgical ] with your marketing?

Maybe grab that. So -- it's a good question. I think in some aspects -- we've been talking about focus, simplify and stabilize for almost a year now. And I think some of the improvement we've been seeing around marketing and some of our tactics, so I don't want to get into some detail because I want to give away some of our secret sauce. A lot of it is because we're a lot more focused. And we cut down our SKUs really down to -- a lot of our core SKUs outside of oils were down the less than 50 SKUs. And I think -- when you do that and you rally the team around like a real focused strategy about executing on those SKUs and those brands, you end up realizing that there's a bunch of low-hanging fruit that you start executing on. So I think it is a combination of some of that strategy that we laid forth about getting down to the best SKUs, getting down to lesser accounts on Amazon and really focusing and rallying the team around that. We have done some marketing tactics, as Josh alluded to. I'd rather not get into details now. We'll probably talk about it a little bit more when we delivered the final Q2 results in August. But I think it is a combination of these things. So I really want to put a lot of credit to all the work the team has been doing overall, not only just the marketing team and the revenue team, but also the supply chain team because a lot of this focus around the whole organization has allowed us just to execute better. Thank you, Josh.

Thank you.