Aterian Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 11, 2024

There are 7 speakers on the call.

Operator

Thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athyrian Inc. Q3 Earnings Report. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Session. Thank you. I would now like to turn the call over to Ilya Grovovsky, Vice President, Investor Relations, Corporate Development. Please go ahead.

Speaker 1

Thank you.

Speaker 2

Thank you for joining us today to discuss the Terady's 3rd quarter 2024 earnings results. On today's call are Arturo Rodriguez, our CEO Josh Feldman, our CFO. A copy of today's press release is available on the Investor Relations section of Atarian's website at atarian. Io. Before we get started, I want to remind everyone that remarks on this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are based on current management expectations.

Speaker 2

These may include a 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 could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, amongst others 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 ks filed on March 19, 2024, and our quarterly report on Form 10 Q when it is available on the Investor portion of our website at atarian. Io. You should not place undue reliance on these forward looking statements.

Speaker 2

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, adjusted EBITDA margin, 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. A reconciliation of these non GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the Investor portion of our website at attirion. Io. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.

Speaker 2

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

Speaker 3

Thank you, Ilya, and thank you everyone for joining us today. As today is Veterans Day, we would like to take a moment to honor and express our deepest gratitude to all the veterans and active service members who have dedicated themselves to protecting our freedom. Now over to the Tyrian business. Our mission to focus, simplify and stabilize the Tyrian in 2024 continues to show results. We are happy to report another successful quarter as Atirion continues to progress on its journey to being a profitable consumer goods company.

Speaker 3

Today, I'm going to 1, provide a brief introduction to Atirion for new listeners 2, discuss Q3 and the actions that led us to our successful results 3, an overview of our Q4 expectations and 4, a brief discussion on growth for Atirion beyond 2024. Josh, our CFO will then cover in-depth our financial results for the Q3 and will provide our financial outlook for Q4. For those of you joining us for the first time, Atirion owns and operates its own brands, marketing and selling consumer products across multiple categories, primarily on e commerce marketplaces. We sell our products primarily in the U. S.

Speaker 3

And today we derive most of our revenues from amazon.com. Since 2014, we have either organically launched or purchased brands and today our focus is on operating 6 amazing brands. They are 1, Home Labs, which currently focuses on dehumidification and refrigeration, a best selling leader of dehumidifiers on Amazon. 2, PureSteam, another best selling brand on Amazon, which leverages the natural power steam to clean your home with its steam mops or reduce wrinkles in your clothes with its steam irons. Healing Solutions, our collection of essential oil brands provides consumers a great essential oil experience.

Speaker 3

Photo Paper Direct, our DIY or do it yourself iron on transfer and photo paper provides joy and fulfillment to all consumers who love making their own T shirts, arts and crafts and printing their own photos from home Mueller Living, which focuses on innovative quality products for your kitchen and has top selling products on Amazon. And finally, Squatty Potty, the original toilet stool and the leader in the category. Squatty continues to help people daily around the world poop easier and better. With these 6 foundational brands, Aterine is well positioned to grow over time and consistently deliver high quality affordable products to consumers. Now to our Q3 performance.

Speaker 3

We delivered on our Q3 2024 net revenue and adjusted EBITDA goals, landing with the middle of the range of our net revenue guidance and delivering on the higher end of our adjusted EBITDA guidance. This performance was driven by a combination of dehumidifiers from Home Labs and PureSteam steam products during the period and the impact of cost cutting exercises implemented previously in Q1 of 2024. Once again, we delivered an adjusted EBITDA profitable quarter, which is our 2nd in a row. When compared to the same period last year, our adjusted EBITDA performance for Q3 is an improvement of over 100% even on lower revenue. This continues to further cement the path we put Atirion on just a little less than a year ago was the right strategy.

Speaker 3

Our 2024 plan of focus, simplifying, stabilizing Atirion continues to deliver positive results and moves the tiering closer to a consistent adjusted EBITDA profitable company. Now turning specifically to our net revenue performance. Our dehumidifier sales for the 3rd quarter landed slightly short of expectations as we were hampered by stock outs that were previously mentioned during our Q2 earnings call and of course weather, which always plays in seasonal product performance. However, we are still very pleased with our overall performance during the summer season, which is Q2 and Q3 on dehumidifiers. During the Q3, we released our new 8 pint compressor based dehumidifier, which competed very well against cheaper non compressor based models on Amazon.

Speaker 3

This was part of our variation strategy to offer competitive price points within each of our product families to give consumers of all different budgets options to buy our products while maintaining quality and performance. We also saw strong performance during Q3 of our Pure Steam brand, in particular from steam ops and steam irons. We continue to see more successes as the revenue and marketing teams use an outside in approach in their marketing and sales strategy. We continue to see a great amount of marketing efficiencies as we focus our efforts into our reduced seller account footprint and continued listing improvements as we further focus on our core SKUs. Further, we are seeing better than expected results on driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing rankings and other conversion metrics.

Speaker 3

We continue to be very pleased with our decision to shift to our 3rd party best in class software platform as we continue to believe that our newfound nimbleness is paying off, especially when dealing with changing marketplace rules and unpredictable weather and last mile service outages. Our team continues to master our new platform and continue to improve our supply chain performance each quarter. Furthermore, I'm also very proud of the decision the supply chain team has made over the past year. We have been able to leverage a multi supplier approach across many facets of our supply chain to reduce single sources of failure. For example, with shipping containers, our multi supplier approach, including Amazon Global Logistics, is allowing us to secure timely containers, but also allows us to find better pricing than existing spot rates.

Speaker 3

We believe Q3 performance incurred approximately an additional impact of COGS of $200,000 from higher shipping container costs. Now as we look at Q4 2024, our largest net revenue periods are still focused in Q2 and Q3 quarters. However, our estimated Q4 net revenue allows us to be very close to adjusted EBITDA profitability or essentially breakeven. For Q4 2024, we expect our gross margin percentage to remain primarily in line with year to date results and in combination with continued expected realization of our fixed cost savings, we believe we are very well positioned to achieve our original goal of adjusted EBITDA profitability for the overall second half of twenty twenty four. However, delivering results is never easy and it requires a lot of work and effort, which I'm very confident our team will continue to deliver on.

Speaker 3

We continue to see the consumer space as a value driven area and that consumers continue to be very wise with their spending, especially with the current inflationary environment. As we enter the holiday period, we do expect buying to be robust, but we also expect consumers will be deal shopping and pricing will be important. Although Q4 will be very competitive, we believe we are very well positioned considering our product variations, which offer consumers multiple price points. We expect higher priced container costs to impact Q4 as compared to last year, and we continue to see higher container pricing continue into the first half of twenty twenty five. The higher pricing is dragging a bit on a Q4 contribution margin projections by approximately $200,000 Even with these challenges, we are confident that we are tracking to our goal of overall second half adjusted EBITDA profitability.

Speaker 3

Looking at 2025, we believe Iterium will move from stabilization to growth. Growth will be one of our primary goals in 2025, which will allow us to drive over time a more robust adjusted EBITDA profitability. As we previously said, we still believe growth will be coming in 2 key pillars. 1, omni channel expansion, including improvements of our existing listings to bring them to best in class levels and 2, organic product launches, which will also be equally important. In omnichannel expansion, we have some of the best selling products and brands on Amazon.

Speaker 3

We see no reason why our brands and products would not sell well on these other channels. With our 3rd party best in class software model, we now have the ability without significant investment or customization to expand into new channels. So far, we are pleased with the MercadoLibre results, though small, this is a longer term play and partnering with MercadoLibre will open up other opportunities across LatAm over time. The particular MercadoLibre program we are in where people in Mexico can directly purchase import U. S.

Speaker 3

Products like ours is new for us and somewhat new for MercadoLibre and we continue to learn and believe in it. Target Plus is a great channel and we believe this is a channel where consumers will love our brands and products. We continue to track well and expect to be live with a core set of products across Home Labs, Pure Steam and Mueller Living prior to Black Friday. Moving to organic product launches, we have a great DNA in organically launching products. So we've not been flexing those muscles like we did in 2019, we're continuing to focus on strengthening those muscles.

Speaker 3

Though a variation, the 8 Pines humidifier is a new product which was researched and sourced in a very quick period of time, right about 7 months. Not all launches will happen this way, but we continue to build towards re launching and launching new products in 2025. One other product that will launch in Q4 2024 is our new Pure Steam steam mop scrubber, our most advanced steam mop yet. This is a product that we have been working on for better part of 2024 and expected to be on Amazon Marketplace in time for holiday shopping. This is a new product which will round out our steam mop pricing strategy giving consumers a higher end model along with both budget and mid range models which are currently on Amazon.

Speaker 3

We are working on our 2025 product roadmap and we expect to launch a handful of great new products in 2025. We plan to provide a broader update when we communicate Q4 2020 results in March. Finally, we still believe M and A can have an impact on growth criterion. We continue to see many opportunities in the market. However, we believe M and A needs to be strategic and accretive and not just a pile on play as the model has proven unsuccessful for many others.

Speaker 3

We believe if we do M and A, it will be for long term strategic reasons such as improving our brand position in a category or improving our product portfolio by expanding into closely related categories. Regardless, today we believe omnichannel expansion and organic will be the primary driver of Ityrian's future growth. And ultimately, as of today, we expect 2025 to be a year of revenue growth and also a year of further improvements on our operating leverage when compared to 2024. We expect to discuss more of our growth strategies and expand more on our journey to being a profitable consumer goods company when we deliver our Q4 results in March. In closing, just about a year ago, we set on a mission to focus, simplify and stabilize Ityrian in order to drive it to adjusted EBITDA profitability and to deliver long term shareholder value.

Speaker 3

Back in late 2023, we announced key initiatives to drive towards profitability and we believe we have delivered on all of them, a rationalized SKU portfolio, simplification on our Amazon account structure making us more efficient, shifting towards the best in class third party tools allow us to be more nimble and upgrading many of our marketing strategies, Outside in thinking, which challenged our previous ideology and allowed us to execute on new initiatives in line with today's marketplace tactics. And of course, the difficult decision of fixed cost rationalization. And today, we announced our 2nd consecutive quarter of adjusted EBITDA profitability. Our 2024 plan of focused, simplified and stabilized Atarian continues to deliver positive results, and we believe that it's moving Atarian closer to being a growing and overall adjusted EBITDA profitable company. I want to again recognize and congratulate our team on their continued dedication, excitement and hard work and our shareholders for their patience and continued support.

Speaker 3

But we still have a lot of hard and exciting work to do. We have very high expectations and beliefs on what Atirion can do and become, ultimately driving profitable growth and maximizing shareholder value. Thank you for your time this evening and unwavering support. Now, I will pass it to Josh for his prepared remarks. Thanks, Aarti.

Speaker 3

Good evening, everyone. We are pleased to report that our ongoing efforts to focus, simplify and stabilize our business have produced positive results. These initiatives have led us to improve key metrics and we're proud to report adjusted EBITDA profitability for the 2nd consecutive quarter. Now let's take a closer look at our overall Q3 performance. Net revenue for the Q3 of 2024 declined 34 percent to $26,200,000 from $39,700,000 in the year ago quarter.

Speaker 3

Adjusting for the impact of SKU rationalization, net revenue would have only declined approximately 15%. This decline was primarily driven by dehumidifier stock outs and seasonal weather patterns as well as softness in our kitchen appliance products. Looking at the summer season as a whole, however, dehumidifier sales adjusted for the SKU rationalization still increased by approximately 10% compared to the same period last year. Our launch revenue was $600,000 during Q3 2024 compared to $400,000 in Q3 2023. As planned, we had 1 new product category and 4 product variations launched in the 3rd quarter.

Speaker 3

We expect to continue launching predominantly variations in the 4th quarter. Overall, gross margin for the 3rd quarter increased to 60.3% from 49.4% in the year ago quarter and was essentially flat with Q2 2024. The year over year improvement was driven by the positive impact of our SKU rationalization efforts, product mix and less liquidation of high cost inventory compared to the prior period. Our overall Q3 2024 contribution margin as defined in our earnings release was 17%, which improved compared to the prior year's 3%, and decreased slightly compared to 17.4 percent in Q2 2024. The year over year increase in contribution margin was driven by the positive impact of our SKU rationalization efforts and less liquidation of higher cost inventory compared to the prior period.

Speaker 3

Looking deeper into our contribution margin for Q3 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43.3% as compared to 46.3% in the year ago quarter. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix and a reduction in last mile costs as a percentage of revenue. Our operating loss of $1,700,000 in the Q3 of 2024 improved from a loss of $6,500,000 in the year ago quarter, an improvement of approximately 73.4 percent, primarily driven by the improvement in Centimeters and the reduction of fixed costs due to our cost cutting initiatives. Our Q3 2024 operating loss includes $1,800,000 of non cash stock compensation expense, while our Q3 2023 operating loss included $1,200,000 of non cash stock compensation expense and restructuring costs of 400,000 dollars Our net loss for the Q3 of 2024 of $1,800,000 improved from a loss of $6,300,000 in the year ago quarter, an improvement of approximately 71.7 percent, primarily driven by the improvement in Centimeters and reduction in fixed costs. Our adjusted EBITDA gain of $500,000 as defined in our earnings release, improved by 111% from an adjusted EBITDA loss of $4,400,000 in the Q3 of 2023, primarily driven by the improvement in Centimeters and the reduction of fixed costs.

Speaker 3

Moving on to the balance sheet. At September 30, 2024, we had cash of approximately $16,100,000 compared with $20,300,000 at June 30, 2024. The decrease in cash is predominantly driven by payments on our credit facility of $2,900,000 as the balance on our credit facility went from $9,600,000 as of the end of Q2 of 2024 to $6,700,000 at the end of the Q3 of 2024. The credit facility balance is also down from $14,200,000 in the prior year period. The remaining reduction in cash from Q2 2024 is negative impacts of working capital.

Speaker 3

At September 30, our inventory level was $16,600,000 down from $18,400,000 at the end of the Q2 of 2024 and down from $31,500,000 in the year ago quarter end. As we look at Q4 2024, considering our strategic SKU rationalization, we believe that net revenue will be between $22,500,000 $25,500,000 Using the middle of the range, this would be an approximately 27% decrease from last year's Q4 revenue of $32,800,000 primarily driven by a reduction in revenues from our strategic SKU rationalization. Adjusting for the SKU rationalization in the prior year, revenue is expected to decline by only 4% compared to last year. As we have previously discussed, our decrease in net revenue versus the prior year is expected as we continue to focus on our go forward business on our best brands and products. Our primary focus today continues to be consistent adjusted EBITDA profitability.

Speaker 3

For Q4 2024, we expect adjusted EBITDA to be approximately breakeven. Achieving breakeven and adjusted EBITDA will represent 100% improvement from the $5,600,000 adjusted EBITDA loss in Q4 2023. We also continue to believe based on our current forecast that we have sufficient cash above our covenants to achieve our goal of consistent adjusted EBITDA profitability without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for accretive material M and A. In closing, I'm very proud of our team's efforts resulting in our 2nd consecutive quarter of adjusted EBITDA profitability.

Speaker 3

We are confident with our products, strong balance sheet and our principles of focus, simplification and stabilization, we have turned the corner as a company. I look forward with optimism as we continue our journey towards revenue growth, gain adjusted EBITDA profitability and ultimate aim to maximize long term shareholder value. With that, I'll turn it back to the operator to open up the call for questions.

Operator

Your first question comes from the line of Brian Kingslinger of Alliance Global Partners. Your line is open. Please go ahead.

Speaker 4

Great. Thanks so much. It's great to see the business stabilizing. So I think in your prepared comments, you said you expect to be active and live on target ahead of Black Friday, which is only 2 weeks away. So how confident are you?

Speaker 4

What are the obstacles still to get live there?

Speaker 5

And how many SKUs do you expect to be listed during the holiday

Speaker 4

period? Be listed during the holiday period?

Speaker 3

Hey, Brian, it's Artie here. I'll grab that one.

Speaker 4

Artie.

Speaker 3

Obstacles, I don't think there's much. I mean, really, we're very clear. We're actually live testing some things as of today. So I do think there's very little obstacles for us in front of us. There are some marketing campaigns and marketing tools that are a little bit different than the Amazon tools, but I don't expect that to be real friction based.

Speaker 3

As the number skews, there's still a little bit of a moving target there, but my gut tells me at least 6 skews hopefully will be the goal. But certainly, I don't see any real friction for us at this point, right? Things happen, but at this point, I don't see anything really from preventing us from hitting that.

Speaker 1

Great. And then how do you

Speaker 4

see the timeline over the next 12 to 18 months of additional SKUs on, say, Target and Walmart? And what's the limiting factor that gives you caution to not list a lot more product, if not the majority of your top sellers? Is there a cost to it? What's the cautionary reason to only have a handful of SKUs?

Speaker 3

I'll grab that, Josh. So it's a good question, Brian. Listen, I believe that focus is a very important thing in everything we do. And though over time, I do see us expanding our portfolio and our product listings on each of these channels. I do want to start smaller rather than larger just to make sure the team learns how to market on Target Plus.

Speaker 3

I'm just going to use Target Plus as an example, because it is a bit different. The consumers are a bit different. There's a lot more consumers on Target Plus that are focused on the Target Plus credit card and that benefit as opposed to Prime. And so I do think we have a little bit of learning to do. So we want to start cautiously.

Speaker 3

But yes, certainly as we gain momentum and gain experience on selling on these other channels, we will go with a broader portfolio. But at the same time, we know that a marquee SKU concept, taking our best PureSteam products, our best home labs products, maybe a handful of our best oils is probably the right approach to gain traction and success. I don't think we necessarily need to put every single one of our SKUs, but certainly if the marquee SKUs are succeeding, we can definitely expand to that number of SKUs easily over time.

Speaker 1

Great. And then you mentioned most of

Speaker 4

your launches were variations like the first half

Speaker 3

of the year.

Speaker 4

I think there was one that wasn't. Why are you not getting a little bit more aggressive on new products? And you mentioned next year a handful of new products, which doesn't sound like a lot. So are you waiting for the stronger consumer because your balance sheet seems to be positioned for investment?

Speaker 3

Thank you for the comment on the balance sheet, Brian. I think Josh and team have done a great job strengthening the balance sheet. It has, it has. I think the team deserves the credit there. Listen, I'm going to say this in a way where not to go back too far in history, but I think, again, less focused, good quality products in the right category that's properly researched is a lot stronger from a long term building success or building long term building a foundation for success as opposed to like, hey, let's launch as many widgets as possible, stick as many on the walls and see what sticks.

Speaker 3

I don't think that's the right approach. I think we are being very cautious because we are being very, very thoughtful in where we're going to launch, what categories we're after. And I'd rather start slower and smaller to make sure we're not making a tremendous amount of missteps over ordering, missing the mark in some aspects. So I do believe that approach is a lot more sound for Tyrian. Somewhat conservative, I would debate that because I think in some aspects, some of the history that you're familiar with would probably be I think a lot of people would say we're a little bit too ambitious at the time.

Speaker 3

So I think in some aspects, we are looking at a little bit of a slower start here. But that's not to say as we gain more momentum and gain more profitability with the incremental revenue that we'll add, we wouldn't get more aggressive. I just think we want to be very thoughtful because we ratify a really good aimed bullet as opposed to throwing a bunch of spaghetti in

Speaker 1

the wall and see what sticks. Great.

Speaker 4

I got a few more, but I'll jump back in

Speaker 1

the queue and let some others ask some questions.

Speaker 3

Sure. Thanks, Brian.

Operator

Your next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Your line is now open. Please go ahead.

Speaker 5

Hey guys, thanks for taking my question and congratulations on another quarter of being EBITDA positive here. Now that you have the product portfolio down to a half dozen core brands, can you talk about your outlook for next year? Which of these brands do you think really have the most potential to drive growth for you as you start pivoting to growth next year?

Speaker 3

Hey, Alex, how are you doing? It's Artie. Josh, I'll grab that one. Listen, I'm very happy with all our brands. I think the rationalization and the work we did over the last year, we went from like 14 or 15 brands down 6.

Speaker 3

So I think we stuck with these 6 very purposely because we thought all of them had great potential to grow. In particular, HomeLab continues to perform well and had a great season, as we mentioned in our prepared remarks. And there's a tremendous amount of opportunity still in the environmental space between deminification, perhaps air conditioning, perhaps air purification. I still think there's a ton of opportunities for Home Labs to continue to grow into. Similar Pure Steam, as I mentioned, we're rounding out our steam op scrubber, our most advanced steam op yet.

Speaker 3

And I think there's still more opportunities on the steam irons that you'll see in the coming months. So I think that's just two examples. I can go here and we could spend all the whole time by next hour talking about all the products and ideas here. But I do think every single one of our brands has the potential to grow. And I don't want to weigh into which is better or worse.

Speaker 3

I think they all have their unique opportunities and their unique impact to the consumer. And so I'm very happy with where they are and they got a lot of work to do and we got a lot of things to show the world. But certainly, I wouldn't rank them in the sense of which has the best opportunity right now. I think they all have equally have an opportunity to grow.

Speaker 5

Okay. That's really good to hear. Thanks, Arty. And then you mentioned likely launching new products as a way that you really get to more meaningful growth next year. Are there any particular categories that you're focused on as you think about new product development or any of your existing brands that you see as brands that you might want to launch new products under that umbrella?

Speaker 3

I think the answer is yes. Listen, I think there's still a tremendous amount of opportunity to launch products on our existing brands, as you say, across Amazon and other channels, especially as we grow the omni. I think there's great opportunities for certain brands to be stronger in certain channels versus Amazon. We're really, really working on this roadmap, Alex, and I hate to say like we'll probably we'll give a lot more details about what products and what category is going after in 2025. But we need a little bit more time because again, I really want to make sure that what we put out there is stuff that we feel confident in being delivered in 2025.

Speaker 3

But I do see that there'll be some new categories and potentially some old categories that we used to play in that perhaps we can revise. And so I think it's going to be a combination of us going into new categories that people have not seen us be in before, but also relaunches. So I do think they're both going to both of those kind of sub topics I think will be evident in the 2025 roadmap when we do discuss it more in Q4.

Speaker 5

Okay. That's really helpful. Thanks, Arty.

Operator

Your next question comes from the line of Marvin Fong of BTIG. Please go ahead. Great.

Speaker 6

Good evening. Thanks for taking my questions, everyone. And let me also add, my congrats on all the heavy lifting and execution to get you guys at this point. Yes, just maybe I know several questions on 2025. Maybe you could just kind of think more near term about the guidance for the Q4.

Speaker 6

We're already almost halfway through November and I know still a lot of holiday shopping to be done here. But we do have a shorter holiday period and some Black Friday sales already happening or have been happening for a while. So just would love your take on sort of what you've seen so far in terms of how the consumer has kind of been developing and just what else we should be looking for the rest of the season in terms of sort of like how much of the shopping season you guys still need to realize here?

Speaker 3

Hey, Marvin, thanks. Thanks for the kind words. Yes, it is a little compact. I mean, Thanksgiving is at the end of November, so right, the 28th or right? And so usually, sometimes you get Thanksgiving, gives you like an extra week before the holiday.

Speaker 3

So it is a little compact. I mean, listen, Amazon did in earlier Prime Day, so that was pretty successful. We'll talk about that when we announced Q4. But certainly, we saw so far sales activity being robust in October, which is kind of a little bit different than the past. I think to your point, there's been a lot more sales.

Speaker 3

I think price sensitivity always been helpful for consumers. If they see good deals going on, they'll start purchasing early. But usually this is not uncommon, right? The slowdown before Turkey 5 or Turkey 10, however people quantify it. We're still very confident that the guidance that Josh put out there what we're tracking towards.

Speaker 3

We don't see any bumps in the road at this point. So we feel pretty happy though. But we are excited for Black Friday and Cyber Monday. We got a lot of great deals and great opportunities for consumers to experience our product at a good price without necessarily tremendously impacting or sacrificing margins, right? So I'm kind of excited to see how the team performs this year as a much more focused organization on our core SKUs.

Speaker 3

So I am looking forward to it. But so far, everything is working and working to our expectations.

Speaker 6

Got it. Great. And then you called out container shipping rates a couple for this quarter and I think for the just reported quarter and this upcoming quarter. Considering I think rates have kind of come down post election, I think there's a view that trade will kind of decelerate under the new administration. So should we just sort of think about the container rate pressure is kind of isolated to those quarters, just kind of a lagging impact, especially considering sort of the comparisons against last year and maybe in the back half of twenty twenty five, it actually could become a tailwind or at least wouldn't be a headwind?

Speaker 3

Yes. No, it's a good question, Marvin. Yes, I think in our prepared remarks, we think consumer we think sorry, we think container costs will continue to be and again, when we say higher, keep in mind for 2023, right, and for the first half of twenty twenty four, container costs were actually kind of back to normal. And so this is kind of rise in container costs that happened, I would say, kind of in the I would say probably in the April ish May timeframe of 2024 was probably mostly due to some geopolitical issues and some other weather related issues in China and then I think a lot of uncertainty with some of the dock strikes that were to happen obviously in the Southern U. S.

Speaker 3

So right now, we think that containers will probably even though they come down a little bit, they'll probably still stay off that they'll stay at they'll still be higher than those periods when you do the comparison. And we hope they come eventually down. Yes, that'd be great because you're right. Then we would benefit in the second half of twenty twenty five if they came down as you think of the comparison. But certainly, sometimes it's hard to predict.

Speaker 3

There's been a lot of changes and a lot of changes are expected to happen, especially with the new administration. So we'll see how that impacts it. I think the main thing is that our multi supplier approach has benefited us and we'll continue to leverage that and be as nimble as possible when it comes to containers. But we expect them still to be off that kind of call it 1500 to 2000 container normalized price that it's still going to run much higher than that I think through the beginning of 2025.

Speaker 6

Got it. And then last question, I think you mentioned maybe some cost savings are still in the pipeline. Could you give us an idea of what's a good sort of fixed cost structure once you guys have fully realized your cost efficiencies? I would love to get some more color on that. Thanks.

Speaker 3

Hey, Martin, this is Josh. So we did our restructuring in the Q1 of this year. So obviously, we'll get next year in 2025 the full annual impact of that restructuring. We've also, as we previously announced, we switched auditors and we have a lower cost auditor now. And also, our insurance renewals have come up in the summertime and we got a reduction in premiums on our renewals.

Speaker 3

So if you put that all together, we do expect our run rate of fixed costs to decrease next year.

Speaker 6

Okay, awesome. Thanks, Josh. That sounds great. Appreciate it.

Operator

Your next question comes from the line of Brian Kingslinger of Alliance Global Partners. Please go ahead.

Speaker 4

Great. Josh, I'm going to ask a follow-up to that question on overhead. You look at the Q3, your G and A was significantly down to the June quarter and even much lower than

Speaker 1

the March quarter. Is this

Speaker 4

the full effect of cost cutting or is there anything else contemplated in there that may be non recurring?

Speaker 3

We did have some insurance refunds that came in, in the 3rd quarter. I think our G and A is not exactly equal quarter to quarter. In the Q1, we have higher audit and accounting fees. So I would say our run rate is probably a little bit higher than our actual Q3 results.

Speaker 4

Great. That's helpful. And then my other question, you've got $16,000,000 of cash. You're basically breakeven to generate modest cash flow looking at the Q. How is management and the Board thinking about using their excess capital to improve your returns?

Speaker 4

You mentioned M and A. Is this a really high priority? And if you are thinking M and A, is it technology? Is it brands and products you're looking to buy? Is it relationships with some of these platforms?

Speaker 4

Just maybe help us understand what your priorities are.

Speaker 3

Brad, I don't mean you can add to that, Josh. I think as it comes to M and A, Brian, M and A for us is something that would help our product portfolio, right, either our brand portfolio, strengthen our brand portfolio. But again, it's going to be very strategic. We don't believe running 14 or 20 or 30 brands or 100 brands like some of these aggregators tried to do is a good model. You don't create enough leverage or efficiencies on your marketing or your operating costs.

Speaker 3

So if we do M and A, it's because we're adding a brand or a product that we think has a long term strategic value to us over time. I think the other side, if you look at our cash balance, listen, next year we're going to we're saying our mission is to grow. And so I think as you think about that, we need some of that cash for working capital as we build up inventory and especially as we think of marketing some of our new products. So I think if you look at how we're going deploy that cash, it's really in those areas, right? You don't need Tunumet for omnichannel expansion to your earlier comments, right?

Speaker 3

There's less friction now that we're kind of in a 3rd party model. But certainly as you're growing, you're going to have to buy that inventory, but we get the impact and the benefit of the ABL. I do think that's where the cash is going to be deployed over the coming months. We don't think it drags that much because of the ABL is where we want to sort of leverage it to grow is really through that product launches. And if we find something, M and A.

Speaker 4

In it. And then what are valuations looking like these days? Is it maybe EBITDA kind of multiple that you hope to achieve?

Speaker 3

I still they're a little all over the place. I still think there's a lot of sellers that have unrealistic expectations. But we've seen some interesting stuff still in the 3 to 4 range. We've seen some a little bit lower than 3 at times. But I still think I think if someone showed up with the right thing at somewhere between a 3 or 4 multiple, I think that's a good deal.

Speaker 4

Great. Thanks so much for answering all my questions. Yes, of

Speaker 1

course.

Operator

I will now turn the call back over to Mr. Grzozowski, Vice President, Investor Relations, Corporate Development for closing remarks.

Speaker 2

Thank you. As part of our shareholder perks program, as a reminder, investors can sign up for ataterion. Ioperks. Participants have the ability to ask management questions on our earnings calls. Wanted to thank all of the shareholder Perks participants for their loyalty, their participation in the program, their questions.

Speaker 1

I will now turn the call over to

Speaker 2

a few of the most popular questions that they have submitted.

Speaker 3

And Eli, I think you broke up there for a second. So it's just want to make sure you're asking the right question. Was it discontinued was the question, sorry?

Speaker 2

The question is, have shareholder Perks discount emails been discontinued?

Speaker 3

Okay. Yes, got it. Absolutely not. No way. We love giving our shareholders an opportunity to share on our products at a discount.

Speaker 3

We're really proud of our products. We have great brands and products and it's awesome that we can give the Perks members an opportunity to buy those at a discount. I think what we did was we changed the Perks programs from a weekly email to a monthly. And I think by giving the Perks members a monthly email, it's a little bit better, it gives them a lot more flexibility to buy the products. I think the previous one is you had to buy within a week.

Speaker 3

Now you're getting a monthly email with multiple discounts and you have the whole month to participate or purchase it, which I think just gives them the members a lot more flexibility. But you know, certainly not, we love the FERC's program and we're very happy to see people participate in it.

Speaker 2

Thank you. Next question is,

Speaker 1

are

Speaker 2

you interested in reentering product categories in product lines that you have discontinued as part of your SKU rationalization?

Speaker 3

So I think we touched on it a little bit with one of the questions. I think it was mine and Alex. But yes, certainly, we are working very hard right now to finalize our 2025 roadmap. And as part of that, we are considering a few discontinued SKUs. If there's an opportunity to reenter a program I mean, sorry, a category that we were previously in, especially if it fits the brand's vision, we're very open to it and considering it.

Speaker 3

It's great about some of these discontinued SKUs. If it's in the right quality and same features, there's an opportunity to reuse the ratings and reviews of that listing previously. So if they're still there, we can take advantage of it if we think we need it. So certainly, it's a great opportunity for us to minimize the risk of launches if we find the right opportunity.

Speaker 2

This concludes the Q and A portion of the call. In terms of the upcoming calendar, Atirion management will be participating in the 15th Annual Craig Hallum Alpha Select Conference in New York City on November 19, 2024. We look forward to speaking with you on future calls. This ends our call and you may now disconnect.

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Earnings Conference Call
Aterian Q3 2024
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