Aterian(ATER) - 2024 Q2 - Quarterly Results

Executive Summary Second Quarter 2024 Highlights Net revenue declined 20.6% to $28.0 million, but gross margin improved to 60.4%, and Adjusted EBITDA became profitable at $0.2 million Second Quarter 2024 Financial Highlights (YoY Change): | Metric | Q2 2024 | Q2 2023 | Change (%) | | :----------------------- | :------ | :------ | :--------- | | Net Revenue | $28.0M | $35.3M | -20.6% | | Gross Margin | 60.4% | 42.2% | +18.2 pp | | Contribution Margin | 17.4% | (3.6)% | +21.0 pp | | Operating Loss | ($3.2M) | ($36.4M) | +91.2% | | Net Loss | ($3.6M) | ($34.8M) | +89.6% | | Adjusted EBITDA | $0.2M | ($8.0M) | +102.0% | | Total Cash (June 30, 2024) | $20.3M | N/A | N/A | - The primary drivers for improved gross margin and contribution margin were SKU rationalization efforts and less liquidation of high-cost inventory[2] Third Quarter 2024 Outlook Management projects Q3 2024 net revenue between $25.0 million and $27.0 million, with Adjusted EBITDA from $0.0 million to $0.6 million, anticipating H2 2024 Adjusted EBITDA profitability Third Quarter 2024 Outlook: | Metric | Guidance Range | | :---------------- | :------------- | | Net Revenue | $25.0M - $27.0M | | Adjusted EBITDA | $0.0M - $0.6M | - Management anticipates Adjusted EBITDA profitability for the second half of 2024[3] Company Overview About Aterian, Inc. Aterian is a technology-enabled consumer products company building and acquiring e-commerce brands across various categories, primarily selling on Amazon and Walmart - Aterian, Inc. is a technology-enabled consumer products company that builds and acquires leading e-commerce brands[6] - The Company primarily sells on Amazon and Walmart in the U.S. and through its direct-to-consumer websites[6] - Primary brands include Squatty Potty, hOmeLabs, Mueller Living, Pursteam, Healing Solutions, and Photo Paper Direct[6] Webcast and Conference Call Information Aterian hosted a live conference call on August 8, 2024, at 5:00 p.m. ET to discuss financial results, with an archived replay available online - Aterian hosted a live conference call on August 8, 2024, at 5:00 p.m. Eastern Time to discuss financial results[5] - The call was accessible by telephone and through a live webcast, with an archived replay available online at https://ir.aterian.io[5](index=5&type=chunk) Forward-Looking Statements and Disclaimers Forward-Looking Statements This section contains forward-looking statements on Q3 revenue, Adjusted EBITDA, and H2 profitability, subject to various risks, with no obligation to update - All statements addressing future activities, events, or developments are forward-looking statements, including Q3 net revenue and Adjusted EBITDA projections, and H2 2024 Adjusted EBITDA profitability guidance[7] - These statements are subject to various risks and uncertainties, including the ability to continue as a going concern, meet financial covenants, maintain market share, manage supply chain, and access capital[7] - The company cautions against undue reliance on these forward-looking statements and does not undertake any obligation to update, amend, or clarify them, except as required by applicable securities laws[8] Investor Contact Investor inquiries should be directed to Ilya Grozovsky, VP, Investor Relations & Corporate Development at Aterian, Inc - Investor Contact: Ilya Grozovsky, Vice President, Investor Relations & Corporate Development, Aterian, Inc. (ilya@aterian.io, 917-905-1699)[8] Financial Statements Consolidated Balance Sheets Total assets decreased to $59.85 million, while total liabilities increased to $28.97 million, leading to a decrease in total stockholders' equity to $30.89 million Consolidated Balance Sheets (in thousands): | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | Cash | $20,328 | $20,023 | | Inventory | $18,378 | $20,390 | | Total Current Assets | $48,189 | $49,636 | | Total Assets | $59,852 | $61,869 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Credit Facility | $9,590 | $11,098 | | Accounts Payable | $8,811 | $4,190 | | Total Current Liabilities | $28,688 | $25,447 | | Total Liabilities | $28,965 | $25,838 | | Total Stockholders' Equity | $30,887 | $36,031 | Consolidated Statements of Operations Q2 2024 net revenue declined 20.6% to $28.0 million, but gross profit increased, and operating loss improved 91.2% to ($3.2) million, with net loss improving to ($3.6) million Consolidated Statements of Operations (in thousands) - Three Months Ended June 30: | Metric | 2024 | 2023 | | :----------------------------------- | :----- | :----- | | Net Revenue | $27,984 | $35,264 | | Cost of Goods Sold | $11,093 | $20,368 | | Gross Profit | $16,891 | $14,896 | | Total Operating Expenses | $20,096 | $51,332 | | Operating Loss | ($3,205) | ($36,436) | | Net Loss | ($3,629) | ($34,787) | | Net Loss Per Share (Basic & Diluted) | ($0.52) | ($5.37) | Consolidated Statements of Operations (in thousands) - Six Months Ended June 30: | Metric | 2024 | 2023 | | :----------------------------------- | :----- | :----- | | Net Revenue | $48,199 | $70,143 | | Cost of Goods Sold | $18,139 | $36,151 | | Gross Profit | $30,060 | $33,992 | | Total Operating Expenses | $38,542 | $95,424 | | Operating Loss | ($8,482) | ($61,432) | | Net Loss | ($8,791) | ($60,587) | | Net Loss Per Share (Basic & Diluted) | ($1.28) | ($9.41) | Consolidated Statements of Cash Flows H1 2024 net cash from operating activities was $2.90 million, a significant improvement, with ending cash and restricted cash at $22.48 million Consolidated Statements of Cash Flows (in thousands) - Six Months Ended June 30: | Activity | 2024 | 2023 | | :------------------------------------------ | :----- | :------ | | Net Cash (Used in) Provided by Operating Activities | $2,896 | ($8,857) | | Cash Used in Investing Activities | ($242) | ($191) | | Cash Used in Financing Activities | ($2,336) | ($6,547) | | Net Change in Cash and Restricted Cash | $289 | ($15,340) | | Cash and Restricted Cash at End of Year | $22,484 | $31,289 | Non-GAAP Financial Measures Introduction and Definitions Non-GAAP measures like Contribution Margin, EBITDA, and Adjusted EBITDA are presented to clarify core operating results and facilitate comparisons, with specific definitions provided - Non-GAAP measures are presented to assist investors in understanding core net operating results and making comparisons[15] - Contribution margin represents gross profit less e-commerce platform commissions, online advertising, selling, and logistics expenses[16] - Adjusted EBITDA represents EBITDA plus stock-based compensation expense, changes in fair-market value of warrant liability, impairment on intangibles, restructuring expenses, and other expenses, net[16] Limitations of Non-GAAP Measures Non-GAAP measures like EBITDA, Adjusted EBITDA, and Contribution Margin have limitations, not reflecting capital expenditures, interest, depreciation, working capital, or stock-based compensation - EBITDA and Adjusted EBITDA do not reflect capital expenditures, interest expense, depreciation and amortization, changes in cash requirements for working capital, or changes in warrant liabilities[21] - Adjusted EBITDA excludes non-cash stock-based compensation expense, a key element of the long-term incentive compensation package[21] - Contribution margin does not reflect general and administrative expense, research and development expenses, fixed sales and distribution expenses, or changes in warrant liabilities[22] Contribution Margin Reconciliation Q2 2024 Contribution Margin significantly improved to $4.87 million (17.4% of net revenue) from a negative ($1.27) million in Q2 2023 Contribution Margin Reconciliation (in thousands) - Three Months Ended June 30: | Metric | 2024 | 2023 | | :---------------------------------------------------------------- | :----- | :------- | | Gross Profit | $16,891 | $14,896 | | Less: E-commerce platform commissions, online advertising, selling and logistics expenses | ($12,024) | ($16,164) | | Contribution Margin | $4,867 | ($1,268) | | Gross Profit as a percentage of net revenue | 60.4% | 42.2% | | Contribution margin as a percentage of net revenue | 17.4% | (3.6)% | Contribution Margin Reconciliation (in thousands) - Six Months Ended June 30: | Metric | 2024 | 2023 | | :---------------------------------------------------------------- | :----- | :------- | | Gross Profit | $30,060 | $33,992 | | Less: E-commerce platform commissions, online advertising, selling and logistics expenses | ($22,345) | ($33,193) | | Contribution Margin | $7,715 | $799 | | Gross Profit as a percentage of net revenue | 62.4% | 48.5% | | Contribution margin as a percentage of net revenue | 16.0% | 1.1% | Adjusted EBITDA Reconciliation Q2 2024 Adjusted EBITDA reached profitability of $0.16 million (0.6% of net revenue), a significant improvement from a ($8.01) million loss in Q2 2023 Adjusted EBITDA Reconciliation (in thousands) - Three Months Ended June 30: | Metric | 2024 | 2023 | | :----------------------------------- | :----- | :------- | | Net Loss | ($3,629) | ($34,787) | | Add: Provision for income taxes | $205 | $26 | | Add: Interest expense, net | $228 | $346 | | Add: Depreciation and amortization | $430 | $1,202 | | EBITDA | ($2,766) | ($33,213) | | Add: Impairment loss on intangibles | — | $22,785 | | Add: Stock-based compensation expense | $2,921 | $3,223 | | Adjusted EBITDA | $163 | ($8,010) | | Adjusted EBITDA as a percentage of net revenue | 0.6% | (22.7)% | Adjusted EBITDA Reconciliation (in thousands) - Six Months Ended June 30: | Metric | 2024 | 2023 | | :----------------------------------- | :----- | :------- | | Net Loss | ($8,791) | ($60,587) | | Add: Provision for income taxes | $276 | $52 | | Add: Interest expense, net | $552 | $717 | | Add: Depreciation and amortization | $858 | $2,964 | | EBITDA | ($7,105) | ($56,854) | | Add: Impairment loss on intangibles | — | $39,445 | | Add: Stock-based compensation expense | $4,588 | $5,539 | | Adjusted EBITDA | ($2,461) | ($12,268) | | Adjusted EBITDA as a percentage of net revenue | (5.1)% | (17.5)% | Product Strategy and Performance Product Phase Definitions Products are categorized into Launch (low/negative margins), Sustain (target 15% net margin), and Liquidate (selling remaining inventory, often with discounts) - Launch phase leverages AIMEE technology for new product variations and relaunches, often resulting in negative net margins due to discounts and marketing investment[26] - Sustain phase aims for products to become profitable with a target of positive 15% net margin within approximately three months of launch, through price and marketing adjustments[27] - Liquidate phase is for products that do not enter the sustain phase or have unsatisfactory customer satisfaction, involving selling remaining inventory, potentially with steep discounts[27] Product Phase Results In Q2 2024, the Sustain phase generated $26.29 million in net revenue and $16.20 million in gross profit, reflecting SKU rationalization efforts Net Revenue and Gross Profit by Product Phase (in thousands) - Three Months Ended June 30: | Phase | Q2 2024 Net Revenue | Q2 2024 Gross Profit | Q2 2023 Net Revenue | Q2 2023 Gross Profit | | :------------------- | :------------------ | :------------------- | :------------------ | :------------------- | | Sustain | $26,292 | $16,200 | $30,985 | $14,480 | | Launch | $485 | $258 | $42 | $22 | | Liquidation/Other | $1,207 | $433 | $4,237 | $394 | | Total | $27,984 | $16,891 | $35,264 | $14,896 | Net Revenue and Gross Profit by Product Phase (in thousands) - Six Months Ended June 30: | Phase | H1 2024 Net Revenue | H1 2024 Gross Profit | H1 2023 Net Revenue | H1 2023 Gross Profit | | :------------------- | :------------------ | :------------------- | :------------------ | :------------------- | | Sustain | $44,494 | $27,954 | $59,616 | $31,433 | | Launch | $892 | $539 | $200 | $89 | | Liquidation/Other | $2,813 | $1,567 | $10,327 | $2,470 | | Total | $48,199 | $30,060 | $70,143 | $33,992 |