Aterian, Inc. Q1 FY2025 earnings call

Key Points from Arturo:

• Q1 2025 results reflect SKU rationalization, softer consumer demand, and reduced Amazon traffic.
• Tariffs have accelerated the execution of strategic initiatives to diversify manufacturing, advance consumables (majority US-manufactured), strategically raise prices, and reduce fixed costs.
• Accelerating resourcing and diversifying manufacturing, with a goal to manufacture over 30% of goods in China by end of 2025.
• Pausing share repurchase program.

Key Points from Josh:

• Initiated fixed cost reduction program targeting $5M to $6M in annualized savings, with $4M from US headcount reductions.
• Balance sheet as of March 31, 2025, had cash of approximately $14.3 million.
• Withdrawing 2025 guidance due to tariff volatility, scaling back unit volume in Q2/Q3, implementing price increases, and expecting margin impact in Q4.

For the first quarter of 2025, net revenue was $15.4 million compared to $20.2 million in Q1 2024, a 24% decline. Adjusted EBITDA loss slightly improved to $2.5 million from $2.6 million. Overall gross margin decreased to 61.4% from 65.1% in the year-ago quarter. The Q1 2025 contribution margin was 13.4%, down from 14.1% in Q1 2024. Variable sales and distribution expenses as a percentage of net revenue decreased to 48% from 51% in the prior year. Operating loss narrowed to $3.7 million from $5.3 million in Q1 2024, and net loss improved to $3.9 million from $5.2 million in the year-ago quarter.

Guidance Details:

• Withdrew 2025 guidance due to tariff volatility and uncertainty.
• Intentionally scaling back unit volume in Q2 and Q3, implementing targeted price increases.
• Expect margin impact in Q4 but tempered by recent China tariff reductions.
• Confident in navigating current environment without raising additional equity capital in 2025.

Risks:

• Tariff volatility and uncertainty, which have introduced supply chain constraints and ongoing uncertainty.
• Consumer spend remains cautious, impacting demand.
• Impact on pricing strategy and margin preservation due to tariff changes.

Q: With China tariffs at 30%, can you talk a little bit more about your inventory plans in the near term and then in the medium term?

A: Arturo Rodriguez mentioned they parked manufacturing in China as tariffs evolved, raised prices to slow velocity, have diversified supply chain on containers, and feel well-positioned but monitor containers.

Q: Kind of off what you were talking about with the pricing strategy, could you talk a little bit more about that? And how have you seen consumers react?

A: Arturo Rodriguez said Amazon is price sensitive, seen mixed results with velocity down on some price increases, products still in top rankings but mixed on consumer reaction.

Q: Given how everything will play out with tariffs is uncertain. Is there any way to speed up your diversification strategy in terms of manufacturing?

A: Arturo Rodriguez stated they're going as fast as possible, doubling down on consumables, and have good line of sight to diversify manufacturing.

Q: Will the company be paying any dividends in the future?

A: Josh Feldman said they're conserving cash due to restructuring needs and macro uncertainty, focused on long-term growth and reinvesting profits.

Q: Would management consider revising its policy of granting employee stock options given the impact of those options on the company's P&L statement?

A: Arturo Rodriguez said they award stock options to incentivize performance, align interests, use as a tool to attract and retain talent, and will revisit policy as needed but it's a good tool currently.