Aterian(US:ATER)2022-11-09 04:20Financial Data and Key Metrics Changes - For Q3 2022, net revenue decreased by 2.6% or $1.8 million to $66.3 million from $68.1 million in the prior year, primarily due to softer consumer demand [19][20] - Overall gross margin for Q3 2022 decreased to 45.5% from 50.2% in the year-ago quarter, attributed to inventory sell-off and increased supply chain costs [22] - The contribution margin for Q3 2022 was 1.1%, down from 12.1% in the previous year, driven by liquidation net revenue sold at a negative contribution margin [23] - The company reported an operating loss of $108.9 million for Q3 2022, compared to a loss of $7.5 million in Q3 2021, largely due to a non-cash goodwill impairment loss [25] - Net loss for Q3 2022 was $116.9 million, slightly higher than the net loss of $110.6 million in Q3 2021 [26] - Adjusted EBITDA for Q3 2022 was a loss of $9.1 million, compared to a gain of $0.7 million in Q3 2021 [26] Business Line Data and Key Metrics Changes - Organic revenue for Q3 2022 was $63.8 million, which includes revenue from built and acquired brands, while acquisition revenue decreased to zero as all acquisitions shifted to organic revenue [19][20] - Launch phase revenues, including new product variations, were $1.6 million in Q3 2022, down from $5.3 million in the year-ago quarter [21] Market Data and Key Metrics Changes - The international supply chain is showing signs of improvement, with shipping rates returning to pre-pandemic levels, which is expected to positively impact future profitability [9][30] - The company anticipates that demand will remain relatively flat, with consumer sentiment stabilizing [16][29] Company Strategy and Development Direction - The company aims to become one of the most efficient consumer companies globally, focusing on technology and agile supply chains to drive scale and profitability [8] - Aterian is targeting profitability at adjusted EBITDA levels starting in Q3 2023, with a focus on reducing fixed costs and restructuring teams [10][15] - The company is actively looking for M&A opportunities to consolidate brand assets that are synergistic to its portfolio [18][66] Management's Comments on Operating Environment and Future Outlook - Management acknowledges challenges from macroeconomic pressures, including inflation and geopolitical tensions, but remains optimistic about 2023 as a pivotal year for growth [15][16] - The company is closely monitoring consumer spending trends and believes that while the economic environment is challenging, it can still achieve profitability through strategic actions [15][51] Other Important Information - The company started Q4 2022 with $46 million in cash, providing a buffer against potential disruptions [17][27] - Inventory levels were reduced to $60.5 million at the end of Q3 2022, down from $76.1 million at the end of Q2 2022, as part of efforts to normalize inventory levels [28] Q&A Session Summary Question: Plans for SKU launches in 2023 - Management indicated that while they do not have concrete goals for SKU launches due to supply chain fluidity, they aim to increase product launches as conditions stabilize [31][33] Question: Impact of high shipping costs on M&A strategy - Management noted that they are being cautious and patient in evaluating M&A opportunities, looking for accretive contribution margin generating businesses at lower costs [35][36] Question: Expectations for gross margins and profitability - Management expects that as shipping costs normalize, they can return to mid-50% gross margins, which would support their path to profitability [37][38] Question: Rationale behind product liquidation - Management explained that liquidating high-cost inventory now allows them to capture market share and prepare for future inventory at lower costs [40][45] Question: Tailwind to earnings from reduced shipping costs - Management acknowledged that lower shipping costs could significantly improve contribution margins and sales, but consumer demand remains a key uncertainty [50][51] Question: Clarification on Q4 revenue guidance - Management provided a revenue range of $45 million to $55 million for Q4, citing consumer spending volatility and historical trends [53][54] Question: Context for achieving profitability in Q3 2023 - Management indicated that they expect to cycle through high-cost inventory by Q2 2023, which would position them for improved profitability in Q3 2023 [58][59] Question: Broader pricing environment and competitive pressure - Management noted that they are observing varied pricing strategies among competitors, with some aggressively discounting to clear inventory, which could present both risks and opportunities [60][62]