Aterian, Inc. (ATER) Q4 2023 Earnings Report, Transcript and Summary

Good afternoon. I would like to welcome you to the Aterian, Inc. Q4 Earnings Report. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development. You may begin your conference.

Thank you. Thank you for joining us today to discuss Aterian's fourth quarter 2023 earnings results. On today's call are Joe Risico and Arturo Rodriguez, our co-CEOs. A copy of today's press release is available on the Investor Relations section of Aterian's website at aterian.io. Before we get started, I want to remind everyone that the remarks on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include, without 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 that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks, including our annual report Form 10-K filed on March 16, 2023, and our quarterly report on Form 10-Q filed on November 8, 2023, and our upcoming annual report on Form 10-K when it is available on the investor portion of our website at aterian.io. You should not place undue reliance on these forward-looking statements. 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 and adjusted EBITDA margin, which 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. 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 aterian.io. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We are 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 unreasonable efforts because items that impact this GAAP financial measure are not within the company's control and/or cannot be reasonably predicted. With that, I will turn the call over to Joe.

Thank you, Ilya, and thank you, everyone, for joining us today. Today, I'm going to touch on our 2023 year, including our fourth quarter financial results. And I will also discuss the actions we are taking to foster growth for Aterian in 2024 and beyond as we remain focused both on achieving adjusted EBITDA profitability in the second-half of 2024 and on positioning Aterian for substantial growth beyond 2024. Arty will then cover in more depth our financial results for the fourth quarter and we'll provide our outlook for Q1. For those of you joining for the first time today, a quick primer on Aterian. Aterian owns and operates its own brand, marketing and selling consumer products in the following categories: home and kitchen appliances and accessories to our hOmeLabs, Mueller, Pure Steam brands, health and wellness, primarily through our Squatty Potty brand iron on transfer paper through our PPD or Photo Paper Direct brand and essential oils through an umbrella of brands, including healing solutions. We sell our products primarily in the U.S., and we derive most of our revenues from the amazon.com marketplace. 2023 was a year of change for Aterian, with Arty and I taking the co-CEO role last July. Arty and I have a strong partnership, and it's been a pleasure to be sharing the role with him. We set out on a mission to focus, simplify and stabilize Aterian. And together with our team, we have accomplished quite a bit to reposition the company for success and growth, and we are excited about the value we believe we can deliver for shareholders. Some of the things we have accomplished thus far include refocusing Aterian as a consumer products company by eliminating noncore initiatives that don't serve our products business. Shifting away from internal only developed software to a more agile and efficient third-party model, eliminating a significant number of noncore SKUs. Further strengthening of our balance sheet through the amendment of our credit facility with our lender, restructuring our people and vendor costs to better align with our newly focused core business, reducing the number of seller accounts from 31 accounts to approximately 8, further streamlining our fulfillment operations and further optimization of the marketing and performance aspects of our core SKUs. We are pleased with the results of these actions thus far, and we look forward to growing Aterian from this baseline. With respect to the fourth quarter, we are pleased with the trend in our operating results, and in particular, the progress that we have made thus far to stabilize our business. Out withstanding pricing pressure across a number of highly competitive categories and a challenging discretionary spending environment. Our fourth quarter results also reflect the completion of our previously announced SKU liquidation program, which we believe has well positioned us for success in 2024 and beyond. We also continued efforts to optimize the marketing and performance of core SKUs. And while this work is never ending, we made progress on that front across each of our categories, and we are seeing early results from these efforts in Q1 of this year. In 2024, we will continue our strategy to focus and simplify and to a lesser extent, given the work we've done this far stabilize how we operate, in order to not only position Aterian for adjusted EBITDA profitability, but also drive top profitable top line growth. We will be focused on product development, omnichannel expansion and inorganic growth in new and existing categories. With respect to new products in 2024, we will largely be focused on our existing portfolio, refreshing a number of existing products and also launching new products that are variations in our existing portfolio that we believe will provide value to a meaningful segment of consumers. For example, as previously announced, we expanded our essential oils portfolio to address consumer needs for healthier chemical-free products, and we have seen promising early results this front. We intend to continue to expand this offering throughout the rest of our oils brands. In addition, we are working hard on our Squatty Potty brand with a view towards further expansion for its flagship toilet stool product. and also expanding the product categories under the brand. We will continue to focus on our omnichannel strategy, primarily through expansion to new marketplaces that we believe can drive profitable revenues for our existing product portfolio. For example, as previously disclosed, to be launched on TikTok with most of our SKUs, results to date have not been material. We intend to continue to invest in that platform and to evolve alongside that platform. Also in the near-term, we will be launching a number of our products for sale on Mercado Libre in their Mexico-based marketplace, one of the leading marketplaces in Latin America. We will also be expanding to Amazon Canada in the near-term. And further, we are actively exploring a number of other marketplaces as we endeavor to position our products everywhere consumers are shopping. Regarding our inorganic strategy, M&A remains an area of focus. We recently completed a small investment in 4th & Heart, leading gee-butter brand in the United States. We believe investment in new high-growth brands have the opportunity to help drive significant value for Aterian, as well as open up new categories. We intend to continue to explore investing in earlier stage brands. We believe Aterian can be a valuable partner. Before I pass it along to Arty, a few words on the Aterian’s NASDAQ compliance with the $1 minimum bid rule. We expect free gain compliance prior to April -- to the April 22 deadline set out by the NASDAQ through a reverse split. And while today, we are not providing specifics on the reverse split ratio or timing, what I can say is that we are excited to regain compliance, given that we believe we have addressed the most significant underlying operating and other issues that have been affecting our stocks under performance over these last years. And with that, I'll pass it on to Arty. Thank you.

Thanks, Joe. It's great to partner with you, too. Good evening, everyone. We continue to make progress on our path of focusing, simplifying and stabilizing Aterian. We continue to see certain results from these missions, especially on our balance sheet as it continues to get stronger. With inventory almost at normalized levels, a great accomplishment considering the levels we were just a year ago. Although our Q4 results are better than anticipated, we still have a long way to go on our path towards adjusted EBITDA profitability. With some more recent moves, such as aligning our fixed cost to our go-forward size and scale of our focused company and our extension and increased flexibility of our credit facility has further strengthened our balance sheet. We continue to grow more confident that we are on the right path to deliver 2024 second-half adjusted EBITDA profitability, and we have a balance sheet strength to deliver these results. Now moving to the Q4 results overall. As expected, we saw our revenue decline primarily due to our strategy of discontinuing sales of noncore SKUs, coupled with challenging consumer discretionary spending and competitive pricing pressures across our portfolio. Coupled with our previously action fixed cost savings, we believe we are starting to see our adjusted EBITDA losses narrowing. Now moving on to the details of the fourth quarter 2023 net revenue. Net revenue declined 40.3% to $32.8 million from $54.9 million in the year ago quarter. $32.8 million fourth quarter net revenue by phase as defined in our press release, broke down as follows: $25.2 million sustain, $0.4 million in launch and $7.2 million in liquidated inventory normalization. The year ago quarter net revenue of $54.9 million by phase broke down as follows: $40.8 million sustained, $1.0 million in launch and $13.1 million in liquidating inventory normalization. Our sustained net revenue decrease of $15.6 million is primarily as a result of our SKU rationalization efforts, which has discontinued poorly performing SKUs, coupled with reduced consumer discretionary spending and competitive pricing pressures. Our liquidation net revenue decreased by $5.9 million as the efforts of liquidating high-cost inventory has essentially reached its conclusion. A variations were launched late in the fourth quarter, and we are continuing to be thoughtful on the timing of our new product launches through 2024. Overall gross margin for the fourth quarter increased to 51.0% from 37.1% in the year ago quarter, an increase from 49.4% in Q3 2023. The improvement was driven by product mix and lower liquidation of higher cost inventory compared to the prior period. Our overall Q4 2023 contribution margin, as defined in our earnings release was negative 0.8%, which improved compared to a prior year's negative of 11.5% and decrease compared to a third quarter 2023 CM of 3%. The year-over-year increase in contribution margin was driven by product mix and the level of liquidation revenue of higher cost inventory, compared to the prior period offset by competitive pricing pressures on our core business. Q4 2023 saw our sustained product contribution margin declined slightly year-over-year to 6.9% versus 8.3% in Q4 of 2022. The decrease in contribution margin was driven by competitive pricing pressures and product mix and the completion of moving certain higher cost inventory. Looking deeper into our contribution margin for Q4 2023, our variable sales and distribution expenses as a percentage of net revenue increased to 52.8% as compared to 51.6% in the year ago quarter. The increase in sales and distribution expenses is predominantly due to product mix and an increase in fulfillment costs. Our operating losses of $8.2 million in the fourth quarter improved from a loss of $22.8 million compared to the year ago quarter, an improvement of approximately 63.8%, primarily driven by the improvement in CM and the reduction of fixed costs. Our fourth quarter 2023 operating loss includes $1.6 million of noncash stock compensation expense, a reserve for barter credits of $0.3 million and a noncash loss on impairment of intangible of $0.3 million. While our fourth quarter 2022 operating loss includes $2.7 million of noncash stock compensation expense, a reserve for barter credits of $1.6 million and a noncash loss on impairment of goodwill of $0.5 million. Our net loss for the quarter of $7.7 million improved from a loss of $20.3 million in the year ago quarter, an improvement of approximately 62%, primarily driven by the improvement in CM and the reduction of fixed costs. Our fourth quarter 2023 net loss includes $1.6 million in noncash stock compensation expenses, non-cash loss and impairment of intangible of $0.3 million and a reserve barter credit of $0.3 million, while our fourth quarter 2022 net loss includes $2.7 million of noncash stock compensation expenses, a reserve for barter credit of $1.6 million, non-cash loss and impairment of goodwill of $0.5 million and a gain on fair value of warrant liability of $2.8 million. Our adjusted EBITDA loss of $5.6 million as defined in our earnings release, improved by 65.4% from a loss of $16.2 million in the fourth quarter of 2022, primarily driven by the improvement in CM and the reduction of fixed costs. Moving on to the balance sheet. At December 31, 2023, we had cash of approximately $20 million compared with $28 million at the end of September 30, 2023. The decrease in cash as expected is primarily driven by our net loss in the period and our decision to build up inventory in advance of the 2024 season to avoid tariff impacts, specifically for our beverage cooler. This higher inventory balance should remain through Q3 of 2024. At December 31, our inventory level was at $20.4 million, down from $31.5 million at the end of the third quarter of 2023 and down from $43.7 million in the year ago quarter. We are happy to report that we believe that our current inventory of $20 million is almost at the appropriate levels and the high cost inventory normalization that we have been working on for many quarters is now behind us. As we mentioned, our inventory includes an additional $3 million of beverage coolers purchased in advance to mitigate tariff risks. Our credit facility balance at the end of the fourth quarter of 2023 was $11.1 million, down from $14.2 million at the end of the third quarter of 2023 and down almost 50% from $21.1 million in the comparable prior year period. We recently rightsized and extended our credit facility by two years to December 2026. Aterian now has access to 17 million in current commitments, which can be increased to 30 million, allowing sufficient flexibility for growth when needed. Also, the credit facility extension reduces the minimum liquidity financial covenant from a peak of $50 million down to $6.8 million of cash on hand and/or availability, providing further flexibility as the company focuses on adjusted EBITDA profitability and eventual growth. We believe today, based on our current forecast, our extended credit facility, coupled with our existing cash has further strengthened our balance sheet as we continue on our path towards adjusted EBITDA profitability in the second half of 2024. As we look at Q1 2024, considering the continued challenges in the consumer environment, we believe that net revenue will be between $18 million and $21 million. Using the middle of the range, this would be an approximately 45% decrease from last year's Q1, primarily driven from a reduction in SKUs from our strategic SKU rationalization and certain competitive pressures, and a 40% decrease from our sequential quarter of Q4 2023, primarily from our seasonality and our strategic SKU rationalization. As a reminder, our first quarter is our lowest quarter and we expect that Q1 will drive slightly lower seasonal split than previous years. As we have previously discussed, our decrease in net revenue 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 getting to adjusted EBITDA profitability in the second half of 2024. For Q1 2024, we expect adjusted EBITDA loss to be in the range of $2.5 million to $3.5 million. The middle of this range represents an improvement of approximately 30% compared to Q1 2023 and a 48% improvement from a sequential quarter of Q4 2023. Again, we continue to be laser-focused on our target of turning adjusted EBITDA profitability in the second half of 2024. And with our Q1 guide, you can see we're starting to realize some of the results of all our hard work and initiatives. We also believe, based on our forecast, we have sufficient cash above our covenants to achieve our goal without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for growth through M&A. We do expect a few housekeeping items in the coming weeks. We do expect to refile our S3 shelf to allow us to opportunistically raise capital as part of our M&A strategy over the coming year or two, if we decide to do so and if we decide to acquire any brand. We believe this is good corporate governance. Finally, as we do annually, we expect to file our SA shortly after the 10-K. In closing, we believe our products, our strong balance sheet, and with our cornerstone to focus, simplify and stabilized, we are turning the quarter and look forward with confidence as we continue on our path towards adjusted EBITDA profitability and ultimately to maximize shareholder value. With that, I'll turn it back to the operator to open the call to questions.

[Operator Instructions] Your first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Your line is open.

Great. Thank you. I just wanted to start at a high level about the demand trends. The year-over-year decline in the sustained revenue has been consistent for the last three or four quarters. But the pressure appears to be getting worse at least based on the first quarter guidance. I'm sure there's inflationary environment that's not making it any easier on consumers, yourself, supplier pricing. I know you talked about seasonality. But help us understand what you're seeing in terms of this significant step down in revenue in the first quarter and sustain, please?

Arty, maybe you touch on this a bit, and I'll come in on the back end. Just around...

Yes. Thank you, Brian, I hope you're doing well. So yes, I mean, listen, we've been working very hard, right? We've said previously we've cut well north of 1,700 SKUs. So some of the decrease you're seeing is the fact that we're really trying to focus this business down to our most profitable and best -- most profitable products and brands. So we do expect this revenue decrease. There is definitely still environmental pressures out there, right, consumers spend seems to still be volatile. But overall, we're very happy to sort of kind of where we're tracking to. Again, being our goal being the most important is getting to adjusted EBITDA profitability. The fact that the Q1 guide is in the middle of roughly $20 million or $19.5 million isn't surprising to us, especially considering the amount of SKUs we've cut out. I think the seasonality impacts and other things that we're doing to stabilize the business may have a little bit of the effect in that number where you mentioned it may be lower, but I don't think overall, we think that's a trend that we'll continue to see in the sense of an overall shrink quarter-to-quarter that you've seen in the previous years, especially as we rationalize our SKUs.

Yes, that's great, Arty. I would just add that, to some extent, we've lost some share, and I believe we talked about this the last time, Brian. I -- and so in some -- for some of the SKUs that are going forward, which we're again, we're excited about, we've done some work to regain share there. We have sustained some loss there. So I think a little -- some of it is that. And then I would just say overall, demand in general, I think, is on it looks pretty resilient. And I think that the challenge for us is to compete, right, and to win sales for our products. So we still -- we're feeling pretty good about it, about the work we're doing to make sure we can do that.

And then two more, and I'll do them both, and I'll move on and step back in the queue. Was -- is there any revenue from the SKU that you're getting rid of in the fourth quarter? Whereas in the first quarter, you'll have no revenues, there was some benefit in that fourth quarter? That's the first question. And the second question is, with the cost cutting announced a few weeks ago, what's the new quarterly revenue run rate that you believe gets you to an adjusted EBITDA profit?

Arty, you want to go for that?

Yes. Brian, could you repeat that first part of that question? I got the second part. I just want to hear first part.

Yes. Sorry, you were mentioning that in the first quarter, the SKUs that you're getting rid of has an impact. I'm curious, was there -- from some of the SKUs you discontinued, was there revenue in the December quarter? Or is there won't be in the current March quarter? That's the first question.

Yes. So for sure, you can -- and it's not necessarily -- it's not something we plan to disclose, but you could sort of see the liquidation numbers that you've seen in our table that we provided in the press release. When you look at the stainless liquidation, like some of that number won't be there. So that's part of the drop down on top of the fact that we have to keep it in reality.

Yes, yes. So there's nothing in sustaining? I mean there's no revenue from these SKUs you're getting rid of -- you're sustaining?

Very little. Very, very little. Now as to the second part, what do we think the run rate revenue is going to be? I think -- listen, I don't think we're ready to talk about that in kind of full disclosure. I think we've guided the Q1 number to be roughly -- again, I'm speaking in the mid of the range to $20 million. I think in some aspects, the way we look at our positive adjusted EBITDA is really about first the focus, which is reducing the SKUs and number two, cutting our fixed cost. I think when you look at where our key brands and products will shake out towards the second half of the year, we do think that those products will be back to like a 15%-plus type CM, which will be healthy. I think when you look at the $4 million of savings that we announced just in February on top of the savings were announced earlier in 2023, I think those combinations is what's going to get us to that kind of profitability on top of some and other initiatives that Joe mentioned as we continue to simplify and stabilize. I think because our primary focus is adjusted EBITDA, we're still working through like kind of that back end of the year. So I think in theory, I don't think we're ready to actually give that number out today. I think we'll be more in line of sight when we get into later in the year in Q2, but we do feel that we have line of sight of getting to that goal, especially with those initiatives that we've kind of achieved so far.

Okay, thank you.

Your next question comes from the line of Matt Koranda with ROTH MKM. Your line is open.

Hey guys, it’s Mike Zabran on for Matt. Maybe just starting with new products. You recently talked about adding beverage cooler products and expanding essential oils. Given the consumer purchasing environment is still relatively deal sensitive, how are we thinking about balancing these new product introductions with maintaining market share and adhering to a price-sensitive consumer in 2024, I guess, just given we're working towards a higher margin profile in the coming quarters?

Yes. It's -- fair question. I'll grab this one, Arty, and maybe you can chime in. For sure, it's a challenge, right? All the things you ticked off are challenge, right? But when we think about the portfolio, we think somewhat in terms of the better best. I think some of our products were the way historically, we've gone to market. A number of those products are sort of geared towards sort of the better/best kind of version of the product. And so some of the things that we're doing are aimed at getting sort of the good product, right, but more value for the price to the consumer through variations. That -- to the extent you're on Amazon, right, those variations usually, right, not always, but usually show up on the same listing. And so now if you think about that listing now, it's addressing a broader market of consumers. And so hopefully, if you did your job well, you're getting more conversion on that listing, you're getting market share, you're getting ranking, right, which means you're going to be more prominent to have a more prominent placement. And so we're not going to go crazy with new product launches, right? But there are a number of areas where we think it's appropriate for us to come to market. And so -- when you stop there? And does that address your question?

Yes. No, that's clear. I guess last one for me. on the profitability target in the second half, there's a lot of moving parts to the business right now. It looks like we're doing the right things to prioritize profitability, which is great. I guess what could potentially push this profitability data out? Are we factoring in a lower promo environment or any certain pickup in product categories? Maybe just provide more color on -- if the profitability guide counts on any change in the macro environment? I know we talked about new market expansion earlier in the call. Is that factored in and just speak to why we're confident in where the bar is set?

Arty, do you want to take that one?

Yes. I think it's a good question. Listen, we feel very confident right now, right? What -- we just said it minutes ago on our earnings, on our prepared remarks. We do feel that we're very well situated to continue to make progress and focus on stabilizing some client business, and that should unlock that goal of the second half adjusted EBITDA profitability. I think specifically on our SKU side of the house, listen, Joe said that we're doing a lot of great things. Where there's still pressures out there, but we're trying to mitigate that through a lot of the actions and initiatives that he highlighted in his prepared remarks. The nice thing about SKU rationalization is that we're really putting all our energy and focus around our core SKUs and brands. So there's a lot more tension that we give today to every single one of the remaining brands and products and perhaps in the past, the company was doing when it was when it was dealing with 4,000 SKUs across 14 brands. So I do think that allows us to be a little bit more protective and reaction to any type of macro environment that may happen. And again, listen, the world is very well these days. There's a lot of things that few years ago, we probably have ever talked about. But certainly, I do feel that the way we're currently set up does mitigate some of that risk and gives us some protections. That said, I think, as Joe said, we're very focused on omnichannel expansion, which is important to us because I think the one thing that we feel we are very concentrated is we are still very on-street on Amazon, where almost 85% of our revenue, north of that is there. I think some of the initiatives that the team is doing will hopefully help diversify that over certainly through the second-half of the year into next year in order to mitigate any type of impact you may see from there.

That's clear. I appreciate that. I just want to nail down on, is there any new market expansion that we called out in the call, is that factored into the guide?

No.

Okay. So that would just be icing on top towards successful in those efforts?

Yes. I mean I think Arty and I think that marketplace expansion is important. And we're -- I think to be -- for being fair, maybe we're a little bit behind where we should be on that. But you just have to keep in mind that you don't exactly line up a marketplace and automatically materializes into results, right, particularly when you're thinking about a market, a new phenomenon like TikTok, for example, I know. We see lots of reports of products that do extremely well, seemingly overnight. I think the rest of the world, it's a little more complicated. So it's important we're going to be in the marketplace as I mentioned. There are going to be other ones. And then we think it will be these longer-term pillars of growth for the company, right?

Got it. Very clear. I'll hop back in with you. Thanks, guys.

Thank you.

[Operator Instructions] Next question comes from Marvin Fong with BTIG. Your line is open.

Thanks for taking my questions and congratulations on all the progress. I guess I'll ask maybe one of the more obvious questions, but I think a lot of us all bankruptcy at Thrasio which was probably -- or has been in the works for a while. But you guys did announce the small acquisition. So any change in that -- in the assets that might be for sale? And also, should we view the way that you sort of use both cash and stock for fourth and hard as sort of a good template for how you might structure any deals for the foreseeable future?

Yes. Arty, I'll take this, and you can jump in. So yes, we saw the Thrasio bankruptcy and the asset's been in the works to our knowledge. The way we think about the aggregator space is largely, largely right, they're all under tons and tons of duress. And then it's really not the aggregators at this point, it's largely the lenders, right? They have -- there are a couple of lenders. They have very significant portfolios of aggregators, which they've loaned the money to. And so what you're largely seeing in the space is the lenders pushing together their portfolio companies. So that's sort of the next wave versus, I think, Thrasio, which they're looking to try to reorganize. I think most of the lenders that are trying to consolidate the portfolio, that's the next move. Obviously, all the portfolio companies have significant amounts of debt. But the hope is that by consolidating them together, they will find a way out of this. And so what that means for us is in the term, size medium term, not likely to be opportunities to buy assets from those -- from those aggregators, not that we're looking for that, right, fourth and hard obviously nothing to do with aggregators, right? We're kind of looking way beyond that at this point, Marvin. Having said that, if there was an opportunity, we look at it, but it's not something we really think about at this point.

Okay. That's fair. And I guess, yes, you mentioned bringing in the cooler inventory early to avoid tariffs. And I guess just on a broader topic, I mean there's some -- the electing goes a certain way, we may see much higher tariffs from products from China. So can you just kind of remind us your strategy, I think you read in the past, talked about efforts to kind of diversify your supplier base into other countries. Is that still the case? Have you moved some production outside of China? Or where do we stand there? And how -- do you have adjusted general strategy if, in fact, do right?

I'll grab that Joe, thanks. I guess the political belief aside, I think we've seen some very large numbers, I guess, announced by our former President Trump, as part of the campaign rhetoric. Listen, especially with SKU rationalization, as we see that kind of completion, coming to completion. Right now, about 85% of our inventory is produced in China with about 15% bottles are assembled in North America, which is an improvement over the last year, especially through rationalization since kind of, I think, in 2022 or even earlier or kind of closer 95% or something like that. So we have improved on that. That said, a lot of our remaining categories, it's difficult to move away from China, right, electronic, many electronics, we continue to look and see opportunities for that, but it is difficult. And outside of buying inventory that we did with the beverage coolers and that which we have flexibility to do some of that, if there were tariffs to be implemented, it's not just to Aterian, it's really across the board. So it would hit us and our competitors equally. The other side, too, like -- we got -- within the election, it's still -- it seems like very far aware though, it's always in everyone's front page paper these days. I do think we have some time to continue to think through that. And I do think the other side of that is it's kind of against what the Feds and the public desire is right now. Everyone trying to reduce inflation to opt interest rates come down. So I do think if tariffs were enacted, I do think that there are probably not going to be as widespread or as large as currently promised during what we're seeing in the current campaign because I think it's the antithesis of what they're trying to do for inflation as from an administration perspective.

Got it. Okay, that's all fair. Thanks so much, Arty. I can keep.

There are no further questions at this time. I will now turn the call back over to Ilya Grozovsky for closing remarks.

As part of our shareholder Perks program, which as a reminder, investors can sign up for aterian.io/perks. Participants have the ability to ask management questions on our earnings call. I wanted to thank all the shareholder Perks participants for their loyalty and their participation in the program and their questions. I picked a few of the most popular questions that they have submitted. The first question, does Aterian have any plans to buy back company shares?

I'll grab -- I’ll get this one. So just on behalf of Aterian myself, again, as Ilya said, we're grateful for the folks that are in Perks and on the retail folks that follow us and support us. So in the near-term foreseeable future, the answer is no. Cash that we have on hand, we want to -- we think is going to be best deployed by investing into Aterian to pursue the strategies we've talked about on the call today.

Great. Next question is, can the company provide an update on its efforts on TikTok specifically?

Yes. So as I discussed earlier, we've got, I believe, most of our products there, if not all of our products on the platform. And what we were -- the results to date are, again, not material to our results. Having said that, we are spending time investing, leaning into that platform just to do our best to sort of dial in a formula recipe that translates into results. Again, just a reminder, right, TikTok is a discovery platform, right? People are buying, seeing content and then making a decision to buy versus Amazon, where people are coming to the platform with the product in mind and you're searching for it specifically. So there's an adjustment there. There's a learning curve. We're working hard on it. We'll continue to talk about TikTok. And so again, I appreciate the question, and that's where we are today.

Great. Thank you. This concludes the Q&A portion of the call. In terms of the upcoming calendar, Aterian management will be participating in the 36th Annual ROTH Conference on March 17 to 19 in Laguna Niguel, California. We look forward to speaking with you on future calls, and this ends our call. You may now disconnect.