Aterian, Inc. Q4 FY2023 earnings call

• Aterian refocused as a consumer products company by eliminating noncore initiatives, shifting from internal software to third-party models, and reducing noncore SKUs. • Strengthened balance sheet through credit facility amendment and cost restructuring. • In Q4, operating results showed progress in stabilizing the business despite pricing pressure and discretionary spending challenges. • Plans for 2024 include product development, omnichannel expansion (e.g., launching on TikTok, Mercado Libre, Amazon Canada), and inorganic growth via M&A, such as the investment in 4th & Heart. • Inventory levels normalized, with beverage coolers purchased in advance to mitigate tariff risks.

In the fourth quarter of 2023, Aterian's net revenue declined 40.3% to $32.8 million from $54.9 million in the year-ago quarter. Breaking down by phase, the fourth quarter had $25.2 million in sustained revenue, $0.4 million in launch, and $7.2 million in liquidated inventory normalization. The year-ago quarter had $40.8 million in sustained revenue, $1.0 million in launch, and $13.1 million in liquidated inventory normalization. Overall gross margin increased to 51.0% from 37.1% in the year-ago quarter due to product mix and lower liquidation of higher-cost inventory. The contribution margin for Q4 2023 was negative 0.8%, improving from the prior year's negative 11.5% but decreasing from Q3 2023's 3%.

• For Q1 2024, net revenue is expected to be between $18 million and $21 million. • Adjusted EBITDA loss for Q1 2024 is forecasted to be in the range of $2.5 million to $3.5 million. • Aim to achieve adjusted EBITDA profitability in the second half of 2024.

• Macro-economic factors such as inflation and consumer discretionary spending volatility can impact revenue. • Tariff risks related to products from China, though efforts are being made to diversify the supplier base. • Uncertainty in the effectiveness of market expansion initiatives, such as on TikTok and other new marketplaces.

Q: Brian Kinstlinger asked about the significant step down in revenue in Q1 and sustain, and if there was revenue from discontinued SKUs in Q4.

A: Arturo Rodriguez stated that some liquidation numbers contributed to the drop, and very little revenue remained from discontinued SKUs in sustaining.

Q: Mike Zabran inquired about balancing new product introductions with price-sensitive consumers and factors in the profitability guide.

A: Joe Risico mentioned focusing on better/best products and variations to address price sensitivity, and the profitability guide is based on ongoing initiatives like SKU rationalization and cost cutting.

Q: Marvin Fong asked about the acquisition landscape and supplier diversification.

A: Joe Risico noted that aggregator space is under duress with lenders consolidating portfolios, and Arturo Rodriguez discussed supplier base improvements with some production moved outside China but challenges remaining.