Thank you for standing by. My name is Kathy and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian, Inc. Second Quarter 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. Thank you. Please go ahead.

Thank you for joining us today to discuss Aterian's second quarter 2024 earnings results. On today's call are Arturo Rodriguez, our CEO; and Josh Feldman, our CFO. 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 this 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, preconditions, 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 on Form 10-K filed on March 19, 2024 and our quarterly report on Form 10-Q when it is available on the Investors 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 Investors 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 GAAP financial measures are not within the company's control and/or cannot be reasonably predicted. With that I will turn the call over to Arty.

Thank you, Ilya, and thank you everyone for joining us today. Just one year ago, I spoke to you as your CFO and co-CEO and now I speak to you as Aterian's CEO. I'm very honored and humbled to have the opportunity to continue to lead Aterian into its future. I want to thank our Board of Directors and the Aterian team for their trust and confidence as we embark on this chapter together. Today, I'm going to discuss one, our Q2 results and the actions that led us to our successful results; and two, an initial discussion for growth for Aterian beyond 2024. Josh, our new CFO will then cover in depth our financial results for the second quarter and will provide our outlook for Q3. For those of you joining us for the first time, I'll start with a quick introduction to Aterian. Aterian 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 US 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 six amazing brands. They are Home Labs which currently focuses on humidification and refrigeration a best-selling leader in humidifiers on Amazon. Pursteam another best-selling brand on Amazon which leverages the natural power of steam to clean your home with its steam mops or reduce wrinkles in your clothes with steam irons. Healing Solutions, our collection of the central oil brands continues to have momentum with some of the recent re-brandings and continues to provide consumers a great essential oil experience. Photo Paper Direct or DIY or do-it-yourself iron-on transfer paper provides joy and fulfillment to all consumers who love making their…

Thanks Arty. Good evening, everyone. We continued to make progress on our path of focusing, simplifying and stabilizing Aterian. We are starting to see results from these efforts as our key metrics are improving and we've reported adjusted EBITDA profitability for the second quarter. Our Q2 results were well above our original revenue and profitability guidance and even exceeded our updated sales guidance range of $23 million to $26 million and adjusted EBITDA loss of negative $1 million to breakeven. Our gross margin improved year-over-year by over 18 basis points to 60.4% and our overall CM exceeded 17% primarily as a result of our SKU rationalization. Although the SKU rationalization impacted our top line revenue, it significantly improved our core business metrics. Our second quarter net loss improved by 89.6% year-over-year and after 10 consecutive quarters of adjusted EBITDA losses, we posted an adjusted EBITDA gain. While we still have work to do, I would like to echo Arty's sentiment and acknowledge the whole Aterian team on this impressive effort in achieving this milestone. Now moving on to the detailed results for the quarter. Net revenue for the second quarter of 2024 declined 20.6% to $28 million from $35.3 million in the year-ago quarter. Including the impact of the SKU rationalization efforts into the comparable prior year, net revenue would have been essentially flat. Our sustained net revenue of $26.3 million decreased as expected by 15.2% or $4.7 million from $31 million primarily as a result of our SKU rationalization efforts. Our launch revenue was $0.5 million during Q2 2024, compared to $42,000 in Q2 2023. As planned, we had no new product category launches in the second quarter. However, we did launch variations of existing products in our Healing Solutions and Squatty Potty brands. We expect to continue with…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Brian Kinstlinger with AGP. Thank you. Please go ahead.

Can you quantify how many new SKUs were introduced during the first half of the year? And then what are your plans for the next 6 to 12 months?

Hey, Brian, it's Josh. So for the first half of the year we really didn't introduce any new product categories. There's only variations of existing categories. So it was probably about 20 in total including mostly our Healing Solutions business and our Squatty Potty brand.

Great. Thank you. And then how should we think about seasonality for the second half of the year?

So as already said in the prepared remarks, we expect gross margin and contribution margin to be consistent going forward. From a sales perspective, I think historically Q3 has been a higher sales quarter than Q4 and we think that will be reflective for the second half of this year.

Great. Thank you.

Thank you. And your next question comes from the line of Alex Furman with Craig Hallum Capital Group. Thank you. Please ask your question.

Hey, guys. Thanks very much for taking my question, and congratulations on achieving EBITDA profitability sooner than expected. Arty you mentioned that at some point it sounds like over the next couple of quarters you'd like to be pivoting from stabilizing the business to trying to get back to growth. I'm curious of the six brands that are really now the cornerstone of your portfolio, which of those brands would you say really have the most potential for growth over the next couple of years? And to what extent will M&A be a part of your growth strategy?

Hey, Alex, thank you. Good question. Not to sound like a father with his kids, I think all the brands can really perform well. I think, the road maps we're considering, really have a lot of potential, especially if we think about how we're rounding our variation strategy on some of our existing listings. At the same time, I think we feel very bullish that there's a lot of opportunities across multiple categories, new categories let's say, across multiple brands and even as that also includes some thoughts about potentially even revitalizing some previously rationalized SKUs. And so I think they all can. Now they're all different in fairness, right? Like launching new paper products is probably a lot more around variation, where I would say, there's a lot more opportunities in new categories when you think about both Pursteam, hOmeLabs and even Mueller Living and even Squatty Potty to some extent. So I do think that it's really all the brands can definitely all grow. We're very confident with the GM that we have in place and the brand management team that we have placed under them and I think there's going to be a lot of opportunities across all brands. I think, we got a strong enough base of people to really be looking at each of them and growing them each though we'll be very cautious on how we launch products and very patient. I want to make sure that people understand the six brands we chose to stay with after rationalization do really have the potential to grow. As to M&A which was your second part of the question, I think in my prepared remarks I covered that. Listen, we think M&A can play. We're going to be very opportunistic about it. But at the same time, I really want to emphasize that, I don't think it's our primary driver for growth. I think there's a lot more opportunities especially in organic growth which requires less investment. It takes a little bit more time, but it requires less investment and I think we're very bullish about that. At the same time, us looking at M&A, I think again, I'll mention opportunistic, but I'll just say we're being very thoughtful strategic and patient. And I think in this current environment, it's a very strong trait to be.

Okay. Thanks Arty. That's really helpful and congratulations again on the strong quarter.

Thank you, Alex.

Thank you. And there are no questions. I will now turn the conference back over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development for closing remarks.

Thanks. As part of our shareholder Perks program, which as a reminder, investors can sign up for at atarian.il/perks. Participants have the ability to ask management questions on our earnings calls. I wanted to thank all of the shareholder Perks participants for their loyalty and their participation in the program and for their questions. I've picked a few of the most popular questions that have been submitted. Our first question is, does Aterian have the capability to reenter product lines that were exited or rationalized if the dynamic in the category change?

Thanks, Ilya and I always love these questions. Yes, we're very excited about the growth plans for Aterian. We hope to provide more color. As we said in the prepared remarks, we're going to provide more color towards the end of the year. But yes, ultimately, as far as those plans, we are looking at rationalized SKUs, where we think there's opportunities to relaunch especially when they can be meaningful. So we're definitely looking at it.

Great. Next question. What role does AI play in the Aterian of today and in the Aterian of the future?

Another great question. Look, I believe our teams are doing a great job exploring all the new wonderful tools out there and also we find more tools every month that we keep looking. We are using various tools today. I think Josh and I laugh a lot we use ChatGPT a lot. Almost every day, we're in there asking it questions and learning from it. And so I think we're currently using a lot of that to support and be efficient in our day-to-day lives. Our view today is that AI tools are going to be providing scalability for our future growth and not replacing our people. We believe, we are at the base headcount to operate. And as part of that, where we spend a lot of time today with the team is looking at a lot of these tools that are out there that's very focused on content generation side which should be a supplemental to our creative team and some of the product initiatives that we're working on. I think as we look in the future, if I think about next year and maybe beyond, there are a lot of AI tools that are coming out there that really could help us with product research, customer service and customer insights, which I think will be really helpful as we kind of reignite the organic launch strategy.

Great. Thanks Arty and Josh. This concludes the Q&A portion of the call. We look forward to speaking with you all on future calls. This ends our call and you may now disconnect. Thank you.