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 Aterian, Inc Q3 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. Thank you. I would now like to turn the call over to Ilya Grozovsky, Vice President Investor Relations Corporate Development. Please go ahead.

Thank you. Thank you for joining us today to discuss Aterian's Third 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 Aterian's website, aterian.io. Before we get started, I want to remind everyone the remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on current management expectations. These may include limitations, 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, 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 19th, 2024 and our Quarterly Report on Form 10-Q when it 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 reasonable efforts because items that impact this GAAP financial measure are not within the company's control and 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. 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 let's dive into the Aterian business. Our mission to focus, simplify, and stabilize Aterian in 2024 continues to show results. We are happy to report another successful quarter as Aterian progresses on its journey to being a profitable consumer goods company. Today, I'm going to provide a brief introduction to Aterian for new listeners; discuss Q3 and the actions that led us to our successful results; give an overview of our Q4 expectations; and discuss growth for Aterian beyond 2024. Josh, our CFO, will then cover in depth our financial results for the third quarter and provide our financial outlook for Q4. For those of you joining us for the first time, Aterian owns and operates its own brand, marketing, and selling consumer products across multiple categories, primarily on e-commerce marketplaces. We sell our products primarily in the US, and most of our revenues come 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: hOmeLabs, which specializes in dehumidification and refrigeration; Pursteam, which leverages the power of steam for cleaning; Healing Solutions, our collection of essential oil brands; Photo Paper Direct, which provides DIY products; Mueller Living, known for quality kitchen products; and Squatty Potty, the original toilet stool. With these six foundational brands, Aterian is well-positioned to grow over time and deliver high-quality, affordable products to consumers. Now, regarding our Q3 performance, we delivered on our Q3 2024 net revenue and adjusted EBITDA goals, landing in the middle of our net revenue guidance and at the higher end of our adjusted EBITDA guidance. This performance was driven by a combination of humidifiers from hOmeLabs and Pursteam steam products during the period, as well as cost-cutting exercises implemented previously in Q1 of 2024. We once again delivered an adjusted EBITDA profitable quarter, our second in a row. Comparatively 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 solidify the path we put Aterian on just under a year ago with the right strategy. Our 2024 plan of focusing, simplifying, and stabilizing Aterian continues to deliver positive results and brings Aterian closer to being a consistently adjusted EBITDA profitable company. Now turning specifically to our net revenue performance, our dehumidifier sales in the third quarter were slightly short of expectations due to stockouts previously mentioned during our Q2 earnings call and seasonal weather impacts. However, we are still pleased with our overall summer performance in Q2 and Q3 regarding dehumidifiers. During the third quarter, we released our new eight-point compressor-based dehumidifier, which competed very well against cheaper non-compressor-based models on Amazon. This part of our variation strategy aimed to offer competitive price points within each product family to provide consumers with options at various budgets while maintaining quality. We also saw strong performance during Q3 from our Pursteam brand, particularly in Steam Mops and Steam Irons. Our marketing and sales teams have adopted a more outside-in approach, leading to greater marketing efficiencies as we focus our efforts on core SKUs. Furthermore, we've experienced better-than-expected results in driving outside traffic to Amazon through various marketing initiatives, benefiting our product listing rankings and conversion metrics. We're proud of our decision to adopt a third-party best-in-class software platform that enhances our agility in adjusting to changing marketplace conditions and unforeseen challenges like weather and service disruptions. Our supply chain team's strategic decisions over the past year have leveraged a multi-supplier approach to mitigate single-source failures. For instance, with shipping containers, our approach has allowed timely procurement while securing better pricing than existing spot rates. However, we believe Q3 performance incurred additional COGS of $0.2 million from higher shipping container costs. As we look at Q4 2024, we recognize our highest net revenue periods are still Q2 and Q3. However, our estimated Q4 net revenue suggests we are nearing adjusted EBITDA profitability or essentially breakeven. For Q4 2024, we expect our gross margin percentage to remain aligned with year-to-date results and, combined with our fixed cost savings, we believe we are well-positioned to achieve our goal of adjusted EBITDA profitability for the second half of 2024. Though delivering results is never simple and demands significant effort, I am confident that our team will continue to meet expectations. In the current environment, consumers are keenly aware of value; they continue to shop carefully given inflation pressures. We anticipate robust buying during the holiday season, but pricing will be crucial as we expect deal shopping to dominate. While Q4 will be competitive, our product variations will provide multiple price points for consumers. We expect higher container costs to affect Q4 compared to last year, and these elevated costs may extend into the first half of 2025, impacting our Q4 contribution margin by approximately $0.2 million. Despite these headwinds, we remain optimistic about achieving our second half adjusted EBITDA profitability goals. Looking ahead to 2025, we envision Aterian transitioning from stabilization to growth, focusing on driving robust adjusted EBITDA profitability over time. Growth will center on two key pillars: omnichannel expansion and organic product launches. We see great potential for our brands on other channels beyond Amazon, and we’re optimistic about our results from Mercado Libre, which is a long-term play in Latin America. We plan to be live with a set selection of products across hOmeLabs, Pursteam, and Mueller Living before Black Friday. Our ongoing approach to product launches is cautious but strategic. We’ll be launching a new Pursteam steam mop scrubber, our most advanced steam mop yet, in Q4 2024, further diversifying our product offerings. Thus, we continue to refine our 2025 roadmap and will provide broader updates upon our communication of Q4 2024 results next March. M&A remains on the table for us, with potential opportunities arising, but we’re committed to a strategic and accretive approach that will bolster our brand positioning and product portfolio. Today, we're focusing on organic growth through our expansion and product launches. As of now, we expect 2025 to be marked by revenue growth and enhanced operating leverage compared to 2024. Our growth strategies and journey toward becoming a profitable consumer goods company will be detailed further in our Q4 results next March. In closing, a year ago, we initiated a mission to focus, simplify, and stabilize Aterian to drive it toward adjusted EBITDA profitability and provide long-term shareholder value. We feel we have made significant progress across several key initiatives. Today we announce our second consecutive quarter of adjusted EBITDA profitability, and our 2024 plan continues to yield positive results moving Aterian closer to sustained profitability. I am proud of our dedicated team and the support from our shareholders. We still have significant work ahead, and our expectations for Aterian's future are very high. Thank you for your time and support this evening.

Thanks, Arty. 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 second consecutive quarter. Now, let's take a closer look at our overall third quarter performance. Net revenue for the third quarter of 2024 declined 34% to $26.2 million from $39.7 million in the year-ago quarter. Adjusting for SKU rationalization impacts, net revenue would have only declined approximately 15%. This decline was primarily driven by dehumidifier stockouts, seasonal weather patterns, and softness in kitchen appliance products. Looking at the summer season as a whole, however, dehumidifier sales adjusted for SKU rationalization still increased by approximately 10% compared to the same period last year. Our launch revenue was $0.6 million during Q3 2024 compared to $0.4 million in Q3 2023. As planned, we launched one new product category and four product variations in the third quarter. We anticipate continuing to launch predominantly variations in the fourth quarter. Overall, gross margin for Q3 increased to 60.3% from 49.4% in the year-ago quarter, which was flat with Q2 2024 results. The year-over-year improvement was driven by SKU rationalization, 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%, surpassing last year's 3%, although it decreased slightly compared to 17.4% in Q2 2024. This increase was driven by positive impacts from SKU rationalization and lesser liquidation of high-cost inventory. Analyzing our contribution margin for Q3 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43.3% compared to 46.3% in the year-ago quarter. This decrease is primarily due to product mix and reduced last mile costs relative to revenue. Our operating loss of $1.7 million in Q3 2024 improved from a loss of $6.5 million in the year-ago quarter, an improvement of approximately 73.4%, driven by improved contribution margin and reduced fixed costs due to our cost-cutting initiatives. Our net loss for the third quarter of 2024 of $1.8 million improved from a loss of $6.3 million last year, representing a 71.7% improvement. Our adjusted EBITDA gain of $0.5 million, as defined, improved by 111% from an adjusted EBITDA loss of $4.4 million in Q3 2023, also driven by the improvement in contribution margin and reduction in fixed costs. As for our balance sheet, at September 30th, 2024, we had approximately $16.1 million in cash compared to $20.3 million at June 30th, 2024. The decrease is primarily attributed to $2.9 million in payments on our credit facility, which decreased from $9.6 million at the end of Q2 2024 to $6.7 million by the close of Q3 2024. The credit facility balance is also down from $14.2 million in the prior year period. The cash reduction from Q2 2024 is mainly due to negative impacts of working capital. Our inventory level as of September 30th was $16.6 million, down from $18.4 million at the end of Q2 2024, and down from $31.5 million a year ago. Looking ahead to Q4 2024, considering our strategic SKU rationalization, we estimate net revenue will be between $22.5 million and $25.5 million. Based on the midpoint, this represents a 27% decrease versus last year's Q4 revenue of $32.8 million, primarily driven by SKU reductions under our strategic rationalization efforts. Adjusting for SKU rationalization in the prior year, revenue is expected to decline by only 4%. Our ongoing focus is on achieving consistent adjusted EBITDA profitability; for Q4 2024, we anticipate adjusted EBITDA to be approximately breakeven, a 100% improvement from the $5.6 million adjusted EBITDA loss in Q4 2023. Based on our current forecast, we believe we have sufficient cash to meet our covenants and aim for consistent adjusted EBITDA profitability without needing additional equity financing. If we pursue financing, it will be primarily for strategic, accretive M&A. In closing, I am proud of our team's efforts, resulting in our second consecutive quarter of adjusted EBITDA profitability. With our products, robust balance sheet, and principles of focus, simplification, and stabilization, we believe we have turned a corner as a company. We look forward to our continued journey towards revenue growth, enhanced adjusted EBITDA profitability, and maximizing long-term shareholder value. With that, I’ll turn it back to the operator to open the call for questions.

Your first question comes from the line of Brian Kinstlinger of Alliance Global Partners. Your line is open, please go ahead.

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 two weeks away. So how confident are you? What are the obstacles still to get live there? And how many SKUs do you expect to be listed during the holiday period?

Hey, Brian, Arty here. I'll grab that one. 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 tools that are a little different from the Amazon tools, but I don't expect that to be a significant friction point. As for the number of SKUs, there's still a bit of a moving target there. But my guess is at least six SKUs will be the goal. At this point, I don't see anything truly preventing us from achieving that.

Great. And then how do you see the timeline over the next 12 to 18 months for additional SKUs on Target and Walmart? What factors give you caution about listing more products and not overwhelming consumers with your top sellers? Is there a cost to it? What’s the reason for being conservative with the number of SKUs?

Brian, it's Josh. It's a good question. Listen, I believe that focus is very important in everything we do. In time, I see us expanding our portfolio and product listings on these channels, but starting small is crucial to enable the team to learn how to market on Target Plus. The consumer base there is slightly different. We want to proceed cautiously to ensure success with marquee SKUs and not overwhelm the platform. But as we gain traction on these channels, we will expand our portfolio more broadly while maintaining focus on our best-performing products.

Great. And you mentioned that most of your launches are variations like earlier in the year. Why not be more aggressive with new products? Next year, a handful of new products feels limited. Are you cautious due to the consumer climate, or is your balance sheet not positioned for more aggressive launches?

Thank you for the remark on the balance sheet, Brian. I think Josh and the team have done a great job strengthening it. Our strategy centers on fewer quality products in the right categories, which fosters long-term success over rapid launches across many products. We're cautious to avoid missteps from overordering and miscalculations. While some might view us as overly conservative, I believe this careful approach will build a more stable foundation. As we gain momentum and profitability, we may become more aggressive, yet today we want to ensure our launches are thoughtful.

Great. I've got a few more questions, but I'll get back in the queue to let others ask.

All right. Thanks Brian.

Hi guys. Thanks for taking my question and congratulations on another quarter of being EBITDA positive here. Now that you have focused your product portfolio on 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 as you shift towards growth next year?

Alex, how are you doing? It's Arty. Josh, I'll take this one. I’m confident in all our brands; the rationalization and work over the last year to narrow from 14 to 6 was intentional because we believed in their growth potential. hOmeLabs continues to excel, with opportunities in dehumidification and air purification. Similarly, Pursteam is set to strengthen with our upcoming steam mop scrubber. Each brand offers unique growth opportunities, and I wouldn't rank them, as they all have significant potential.

That's really good to hear. Thanks Arty. You mentioned launching new products to achieve more meaningful growth next year. Are there specific categories you’re focusing on within product development, or any existing brands you see as candidates for new products?

Yes, absolutely. There's tremendous opportunity for product launches across our existing brands. We are refining our roadmap, and while I can't disclose specifics yet, we will pursue both new categories and relaunches of previously discontinued products if they align with our brand vision. I anticipate both avenues will be evident in our 2025 roadmap when we present it in Q4.

Hi, great. Good evening, and thanks for taking my questions everyone. Let me also add my congratulations on all the heavy lifting and execution to you guys at this point. Quick suggestion on 2025; could you give your perspective on guidance for Q4? We are already halfway through November, and with a shorter holiday shopping window, I’d love your thoughts on consumer behavior for the rest of the season.

Hi, Marvin, thanks for the praise. It indeed feels compact. Thanksgiving is at the end of November, and that shifts the holiday schedule, making it feel shorter. Notably, Amazon had an earlier Prime Day, yielding robust sales activity in October, which is a shift from past patterns. We see positive sales activity and remain confident in the guidance Josh provided. As the team has prepared for Black Friday and Cyber Monday, we're optimistic about our prospects as a streamlined organization focusing on core SKUs.

Understood. You highlighted container shipping rates several times during the call. Given they dropped post-election, should we expect container rate pressures to affect only these quarters, potentially benefiting us in the latter half of 2025?

It's a valid question, Marvin. As mentioned, we see container costs remaining elevated but hope to stabilize soon. The rise in costs was largely due to geopolitical and weather-related issues that sprang up in early 2024, creating instability. We hope to leverage our multi-supplier approach effectively to minimize disruptions. It’s challenging to predict rates due to the evolving political landscape, yet we will continue to adapt accordingly. We’re also hopeful for a sustained drop in costs as 2025 unfolds.

Last question—what are your expectations for fixed cost savings as you achieve your efficiency goals?

Hi, Marvin, it's Josh. We executed our restructuring in Q1 this year, so next year we'll see the complete annual impact of that. We also switched auditors to reduce those costs and secured lower premiums for insurance renewals, which contributes to a reduction in fixed costs for next year.

Josh, I'll follow up on overhead. Q3 showed significant reductions in G&A costs compared to the June quarter. Is this reflective of full cost-cutting effects?

We did receive some insurance refunds in Q3, and our G&A costs won't remain static quarter-to-quarter. In the first quarter, we had higher audit costs, meaning our run rate is likely higher than Q3 results suggest.

With $16 million in cash and a break-even cash flow outlook, how is management thinking about deploying excess capital for improved returns? Is M&A a significant priority? If so, are you targeting technology, brands, or platform relationships?

Brian, M&A can help enhance our product portfolio, either by strengthening our brand portfolio strategically or improving our product offering over time. We won't pursue M&A without careful consideration; overly expanding our brand count hasn't worked well for many. We are concentrating our cash on working capital to build inventory and marketing initiatives for our new products. Our objective is to leverage cash for growth and, if suitable M&A aligns strategically, we will pursue it.

What do valuations look like currently? What EBITDA multiple are you hoping to achieve?

Valuations are varied. Many sellers retain unrealistic expectations. We’ve seen interesting opportunities in the 3 to 4 multiple range, while some go below 3 occasionally. Finding the right match around 3 to 4 times EBITDA is what we consider favorable.

Thank you for your responses.

Absolutely.

Thank you. As part of our Shareholder Perks program, as a reminder, investors can sign up for aterian.io/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 participation in the program. We appreciate the questions they've submitted, including this first one: have shareholder perks discount emails been discontinued?

I'll grab that one, Josh. I think you broke up; I just want to clarify if you meant to ask if they were discontinued? Absolutely not! We value giving our shareholders product discounts. We changed the Perks program from weekly to monthly now, enabling convenience for members. They can purchase within a month instead of having to act within a week, providing them better flexibility.

The next question is, are you interested in re-entering product categories that you have discontinued as part of your SKU rationalization?

I think we touched on this earlier. Yes, we're actively working on finalizing our 2025 roadmap and exploring opportunities to re-enter effective categories. When feasible and if they align with brand goals, we're open to considering previously discontinued SKUs, especially if there is potential to leverage existing ratings and reviews.

This concludes the Q&A portion of the call. In terms of the upcoming calendar, Aterian 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.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.