Thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian, Inc. Second Quarter Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Devin Sullivan of the Equity Group. Please go ahead.

Thank you, John, and thank you all for joining us today to discuss Aterian's second quarter 2025 financial results. On today's call are Arturo Rodriguez, the company's Chief Executive Officer; and Josh Feldman, the company's Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Aterian's website at www.aterian.io. Before we get started, I'd like 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 and 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 that 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. 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. A reconciliation of these non-GAAP measures to the most comparable GAAP measures and the definition of these indicators are included in our press release, which is available on the Investors portion of our website. 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 cannot be reasonably predicted. With that said, I'd now like to turn the call over to Arturo Rodriguez. Arty, please go ahead.

Thank you, Devin, and thank you, everyone, for joining us today. On today's call, I'll be covering: one, a brief overview of our Q2 results; two, a discussion of the tariff impact on our business and an update on the proactive moves we continue to make to navigate this environment; three, an update on our improved 2025 outlook in light of these developments. Following my remarks, our CFO, Josh will walk through our second quarter financial results in greater detail. Generally speaking, tariffs and trade policy beginning earlier this year significantly impacted our business, our industry and consumer decision-making. The ambiguity uncertainty of the rates and their implementation dictated our decision-making process with respect to pricing, sourcing and spending and accelerated our plans to reshape the business for the long term. While the tariff environment created significant headwinds in Q2, we believe that the worst is behind us. We believe the actions we have taken mitigated the impact that tariffs produce and most importantly, put us back on the path of stabilizing our business. As a result, we expect to generate improved performance results in the second half of 2025 compared to the first half of 2025. Let us take a look at what transpired in Q2. Net revenue was $19.5 million compared to $28 million in Q2 2024. This decline was driven by 3 main factors: first, strategic price increases to offset anticipated tariff costs and reduced run rates and navigation inventory impacts on the tariffs. Second, a delayed start to the summer season in the Northeast, which primarily impacted sales of our dehumidifiers versus prior year. And third, general softness in the consumer spending, which we attribute to at least partially to the uncertainty surrounding tariffs and trade policy. Adjusted EBITDA was a loss of $2.2 million compared…

Thanks, Arty. Good evening, everyone. As Arty mentioned, Q2 was a difficult quarter as we adjusted pricing to offset rising costs driven by tariffs and supply chain volatility. While necessary to preserve margins. These changes triggered a decline in sales velocity on Amazon, which penalizes price instability. Promotional efforts to offset volume declines led to higher advertising spend with lower returns and slower sales extended inventory time lines requiring additional reserves. However, as we look forward, we've taken decisive steps to strengthen performance in the second half. Our fixed cost reduction plan is tracking well with $5.5 million in savings already identified and AI is driving early wins in customer service efficiency. We've begun resourcing outside China to reduce tariff exposure with more diversification to come. While price increases impacted Q2, we expect market normalization in 2026 to restore competitiveness. Our new U.S. source product launches offer higher margins and less volatility, helping position us for more stable, efficient growth ahead. Turning to the results for Q2. Net revenue for the second quarter of 2025 declined 30.5% to $19.5 million from $28 million in the year ago quarter, primarily reflecting the reduction in consumer demand as we increased pricing to mitigate the impact of tariffs on our cost of goods sold. Our launch revenue was $0.3 million during Q2 2025 compared to $0.5 million in Q2 2024. While we have postponed our Asian source product launches for 2025, we are shifting our focus to consumables sourced in the U.S. Overall, gross margin for the second quarter decreased to 54.3% from 60.4% in the year ago quarter. The year-over-year decline was primarily related to product mix and an obsolescence charge taken on long inventory as a result of buildup to avoid higher tariffs. I want to stress that these goods are…

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

This is [indiscernible] for Brian. Thanks for the update on the upcoming new product launches. Other than the flushable wipes, could you talk a little bit more about expansion to other consumable products or any other categories?

Yes. I -- and thanks for the question. I hope you're doing well. I think I said it in my prepared remarks, the consumables allows us to get into a broad segment of opportunities and options. I think where we see a lot of opportunity is on the health and beauty space. We already have our essential oil brands under the Healing Solutions umbrella, that lends us to have an opportunity to go into that market. Especially if you look at Amazon, where we think a lot of our strengths are, they've been taking a trends amount of market share in the beauty space, especially away from Sephora and Ultra -- Ulta, sorry. So I don't want to get into specific product launches because I think that could be a little bit of -- we lose a little bit of a competitive advantage of what we're trying to do here. But certainly, I do think it's around the health and beauty space. That's where I do see a further announcement in October 2025 and launches in that space, which, again, those products, we expect to be all U.S. sourced and do carry a higher contribution margin than our hard goods.

Great. And then, you spoke about reducing Chinese-based manufacturing by -- to 30% by the end of 2025. Are there any material updates to this time line that we should know about, given the changing landscape?

I don't think we said 30%. I think what we ultimately said is that when we set out in May, we wanted to cut our 70% overall Chinese manufactured goods roughly by 40% or so, which would get us to slightly under 50%. I think now that tariffs has settled, tariffs at 30% makes that initiative a little bit tougher, right? I do think that we are looking, and we will continue to diversify as best as possible because that just gives us optionality and helps us avoid volatility on the tariffs. What we did this year and just in a very short period of time, we were able to ship some of our dehumidifier manufacturing out of China into Indonesia. And so last year, our 100% of our dehumidifiers were sourced from China. This year, about 65% are being sourced from China. So conceptually, we've been able to reduce that about that kind of risk by 35%, which has been pretty good, and the product quality, we think, is on par with the China goods. So I think as we continue to navigate through this, we're going to continue to think about sourcing and diversification away from China as best as possible that still allows us to have the best margins. But just to add a little bit to that -- and sorry for the long- winded answer, I just wanted to give a little background, there's still opportunities to avoid tariffs even though you manufacture out of China. For example, we are expanding in the U.K. We said that previously. Some of the products, when they go from China to the U.K., that won't carry tariffs. So to us diversification, it's not straight about Asian goods into the U.S., but it's also kind of looking at it on a broader perspective, looking at all the outsourcing opportunities, but also at the same time, leveraging our current manufacturing capabilities or partners and maybe some of those goods go to the U.K. or Europe, while some of them may be Indonesian goods go to the U.S., that's helpful. So it's definitely the 30% level. It gives us a little bit more hurdles to get through to really diversify. The opportunity still exists, but it's not going to be as straightforward when the tariffs were at 145%.

Great. Two more. How would you describe the performance in the Latin American markets given the expanded presence in there with Mercado Libre?

Yes. Good question. Listen, MELI in some aspects, even Temu, which not to add to your question, but those marketplaces, which we just kind of launched in this past quarter, those are long-term plays. Like we still think the right way for us to put our products in front of our consumers to be everywhere our consumers are. And that also means leveraging MELI to expand into South America and other parts. That also means leveraging key move for other type of consumers. But the way we look at this, this is a long-term play. Like they're small to our numbers today, but I think over the next 2 to 3 years, we do see those becoming bigger parts of our business, especially as those platforms evolve, like keep in mind that the expansion to MELI that we did into Mexico and South America, that's like a new initiative for MELI. That's a way to get U.S. consumer brands in front of their South American customers. And that's not something that's been around for a long time in the way they're doing it. So I do continue to see growth in that, but it's not going to be overnight. That's going to take time and effort and energy. As MELI grows, we will grow with them and similar for Temu.

Got it. And then with the current environment and the ongoing cost optimization, how have you been evaluating any potential M&A opportunities?

Listen, I think in some aspects, we always look at M&A, right? We always got a tremendous amount of inbound coming in. Right now, we got to focus on stabilizing our business. That's priority #1. I think all the moves that we've done, the 6 major strategic objectives, which I've highlighted and then Josh reconfirmed, those are where we're focused on. And once we get to a stabilized business model, I think over time, M&A always should be something to consider. But right now, I think as we look at H2, our primary focus is getting the company back to stability, which we think we're on track for and delivering roughly something that's close to breakeven for the second half.

And it seems that we have no further questions for today. I would like to turn the call back over to Devin Sullivan.

Thank you, John. As part of Aterian's shareholder Perks program, which investors can sign up for @aterian.io/perks. Participants in this program have the ability to ask management questions during our earnings calls. And I want to thank all of our Perks participants for their loyalty and their participation in their program as well as their questions. The management team has picked a few of the more popular questions from the Perks program as well as some -- from some other sources. And so I'll read those now. First question, our gross margins are excellent, but what is the plan to overcome the significant selling and distribution costs, which seem to keep us from profitability no matter how much revenue we see from sales?

Thanks, Devin. So outside of payroll, our S&D costs are primarily variable with sales. They're driven mainly by logistics, marketing and our platform fees on our marketplaces. So with the exception of the variability and marketing spend that we saw during Q2, the S&D cost rate as a percentage of sales has been consistent -- very consistent for the past few years. So I think our opportunity really comes from consumables, including the previously mentioned Squatty Potty wipes, which carry better gross margins than our other product categories. So as we continue to shift our product mix towards U.S. sourced consumables, we expect greater leverage on gross margin, contribution margin and operating profit.

Okay. Thanks, Josh, our next question. Are you planning on promoting the brands on marketplaces like Instagram Shop and TikTok?

Thanks, Devin. I'll grab that one. Yes, we plan to push further into social in the coming quarters, and it's something we were working on to get better at. The Squatty Potty flushable wipes launch is going to be a perfect product to expand onto our social marketing and social media capabilities. And we have some exciting content related to that launch coming in September and October. And I think as we think of more broader the consumable space, I think that lends perfectly to expand on our social media and social marketing. So I do think it is something we'll continue to see and ultimately also leverage our existing brands as the product see fit.

All right. Our next question. What steps are being taken to ensure that the stock price doesn't lose compliance and require another reverse split?

Thanks, Devin. So our stock price is ultimately not within our direct control. Our focus right now is growing the business, which is the most sustainable way to support long-term shareholder value. So while we had a tough Q2, we do believe we have stabilized the business. We are optimistic about the back half of the year. We're optimistic about 2026 and launching consumables and launching our new geos and channels. So ultimately, we believe this will increase shareholder value in the long term.

Thank you, Josh. Our next question. What is the status of the share repurchase plan?

So back in March, we did announce the share repurchase plan after the increased tariffs were announced in early April. I think in May, we suspended the plan temporarily. Right now, based on the macroeconomic environment and where we are, we think preserving liquidity is important. We did end Q2 with $10.5 million of cash. But again, we think to be prudent, we're going to hold off on the share buyback program for now, but we will evaluate going forward on a quarter-to-quarter basis.

Our next question, can you provide some more color around the reaction to the price increases that were implemented? And then how much of the second half guidance is driven by pricing versus volume?

I'll grab that one, Josh?

Yes.

Revenue for -- revenue especially in marketplaces, right, is predominantly based on your price and volumes, right? And so -- along with the right performance marketing. All our forecasting outside new product launch is based off pricing, run rates and seasonality. The tariffs going from like 20% to 145%, back down to 30%, created a ton of pricing volatility, which is difficult to navigate and to forecast, frankly. And as mentioned, when you're changing pricing that way to really understand where you need to go, the algorithm penalizes you as we said. And especially when your daily run rate slow, which we strategically needed to do to figure out the plan of how to navigate tariffs back through this. And so -- and it was even worse because some of our competitors even raised price at all. So we do think now that we're stable. And so I think the forecast and the guidance that Josh provided that we provided here today is really based on what we think stable pricing is and what our run rates will be. And so I do think that's kind of really tied into how we forecast. I think that's exactly what we do. And as to like what people -- I guess what was the first part, Devin, what people thought? I mean, listen, we still have great products. We have great DSR rankings. People love our products. A lot of our products are highly reviewed and highly rated on Amazon. I just think in this current environment, it's very volatile. So I think there's a lot of changes going on in consumer spending and how people are looking at pricing and value. I think we're very poised to be successful in H2 and into the future because we have great products that still provide a great value to people. But this volatility, it just makes it very difficult for companies to operate. Fortunately, I think with our strong balance sheet and our product portfolio plus some of the stuff we're heading into with consumables, just gives us a really good shot to grow this company and be super successful.

All right. And our last question, 2 parts. To meet your adjusted EBITDA guidance, does this also include some scaling back in marketing spend? And then in addition to the cost savings initiatives that discussed -- you've discussed today, what other actions might need to be taken to hit our guidance for the second half of the year?

Thanks, Devin. So as mentioned in the prepared remarks, we raised prices during Q2, but we did overspend on marketing for the period. The increased marketing spend, combined with the obsolescence charge we took on inventory or long inventory that we pulled in during Q2 to avoid the higher tariffs, this did put pressure on our contribution margin. But since then, we have adjusted our marketing approach to be more focused and efficient. And so with the marketing spend now optimized and revenues stabilized, and you combine that with our fixed cost reductions, we do expect these actions to reduce losses in the back half of the year.

Okay. That concludes the Q&A portion of today's call. Thank you, everyone, for your participation today. We look forward to speaking with you on our third quarter financial results call and keeping you apprised of developments between now and then. So thank you again, everyone, and have a great afternoon.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your lines. Have a good day.