Aterian, Inc.

Good day and thank you for standing by. Welcome to the Atarian Inc. 4th Quarter and Full Year 2021 Earnings Report Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised, today's conference may be recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Ilya Grozovsky. Your line is open. Please go ahead.

Thank you for joining us today to discuss Atarian's fourth quarter and full year 2021 earnings results. On today's call are Yaniv Tsarig, co-founder and CEO, and Arturo Rodriguez, our chief financial officer. A copy of today's press release is available on the investor relations section of Atarian's website at atarian.io. I would like to remind you that certain statements we will make in this presentation are forward-looking statements, and these forward-looking statements reflect Atarian's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Atarian's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter earnings release, as well as our filings with the SEC. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I will turn the call over to Yaniv.

Thank you, Ilya, and thank you everyone for joining us today. I want to start by taking a minute to express Atyrian's condemnation towards the unjustified violence and bloodshed in Ukraine. Our international team includes four employees based in Ukraine currently. To Natalie, Taras, Ruslan, and Maxim, our hearts are with you and your families during these difficult times, and Atyrian will continue to offer any support we can provide to help. The company and many employees, including myself, have made modest donations to humanitarian efforts on the ground. On the call today, I'd like to go over the following topics. I'll start with a quick intro to Ethereum for those who are new to the story. I will then review key takeaways from Q4. I'll go over some of the temporary challenges we're facing due to macro-level events, and I'll summarize the long-term prospects for Ethereum. For those who are newer to the story, here's what you need to know about our company. Ethereum is part of a new breed of technology-enabled consumer product companies. We focus on building, acquiring, and partnering with e-commerce brands online. Ethereum operates 14 consumer brands selling products across various categories on channels such as Amazon, Walmart, Shopify, eBay, and more. To allow us to scale, we've invested in building our own proprietary software platform called AIMEE. AMI enables our team to manage our business more efficiently by injecting technology into processes that would otherwise have to be executed manually and would require hiring an unscalable and unsustainable workforce. Through its ability to analyze vast amounts of data and automate daily recurring tasks, AMI allows our team to find new product opportunities we can launch under our brand, manage those products at scale effectively across various channels, and automate certain marketing and fulfillment tasks, and much more. Our goal in the long term is to become one of the most efficient consumer product companies in the world, expanding our footprint globally while continuing to invest in technology and agile supply chain to drive scale and profitability. Moving now to our key takeaways from Q4. In the fourth quarter of 2021, our net revenue grew 52.5% to $63.3 million, but our contribution margin declined to 7.9%, mainly due to global supply chain disruption and related inflation. As a reminder, our target contribution margin in normal environment is 16% on average across product categories. Our efforts to reorganize our international shipping strategy and negotiate preferred rates with partners such as Amazon and XPO have shown success. After getting through a few operational issues that surfaced early, our entire team did a great job at adapting to new paradigms imposed by us by the supply chain pressures. we were able to save several thousands of dollars per container versus average spot rates for that period, and this continued into Q1. However, we're still on average paying prices that are approximately 700% higher than our cost of shipping in 2019 for the same period. Regardless, our focus is on the long-term here. We're long-term believers in this company's vision, so while our contribution margins remain compressed, we're laser-focused on retaining market share with the expectation that eventually shipping costs will ease. This effort continues to succeed across our portfolio, and I'm happy to report that on average our most critical SKUs continue to maintain a strong market share position in their categories. Our thesis until a few weeks ago was that international shipping rates would start declining after Chinese New Year and return over time to a more sustainable cost. The war in Ukraine is putting that thesis in question, and several transportation analysts are predicting that price of shipping might go up in the short term. While we believe that our logistics partner will still give us preferred rates, spot rates potentially going above $20,000 and other inflationary pressures are not favorable to our business. Given this challenging environment, and to be cautious, we're not providing guidance at this time. We're working hard to generate growth organically this year, potentially through M&A and various other strategic initiatives. Despite the relative uncertainty we're facing, I want to put out a few decisions that we made correctly in Q4 which could positively impact 2022. Our team had anticipated that around the Western holidays period, there would be a window to bring in goods at a slightly lower cost. Given that in 2021 we suffered from several out-of-stock products due to unreliable container shipping schedules, we opted this time to bring in as much of our critical inventory for the next two quarters early. If our competitors did not pursue the same strategy, the outcome could be very favorable to us from both a short-term revenue and long-term market share perspective. The decision will be even more impactful in our favor if shipping costs increase in the short and medium term but come down towards the later part of the year. While we're grappling with continuous challenges driven by the macro-level environment, it's important to say clearly to those who follow us that we are more optimistic than ever in continuing to pursue our long-term vision. While waiting for the storm to pass is taking longer than expected, we're convinced that the world will see companies like ours thrive in the future. As I mentioned previously, we are not the only ones believing in this outcome. We're witnessing continuous investment of private equity into Amazon and Shopify aggregators looking to compete in the same space. Over $12 billion were invested in 2021 in early-stage companies pursuing a similar mission of building the consumer product platform of the future. All of these companies are private, yet we're hearing through the industry that most of them are navigating similar challenges. We believe that we continue to be ahead of the pack in terms of our ability to execute on the model. Managing e-commerce brands and marketplaces is tedious and requires constant optimization and attention to detail. While Ethereum has yet to achieve all our goals in this domain, we intend to remain at the forefront of what technology can do to give us an advantage and remain on top of ever-changing marketplace dynamics. Technology has been a key advantage for us over time as we manage to scale our organization while keeping sustainable fixed costs due to our investment in systems and automation. During the pandemic, our fulfillment capability powered by AIME allowed us to overcome critical shipping limitations imposed by Amazon and other partners. We also recently raised $27.5 million in equity financing, and we intend to use this capital to drive growth, further invest in infrastructure on the tech and supply chain fronts, and relaunch our M&A strategy. However, we intend to be patient in the short term as we evaluate different opportunities in the context of the macro environment. Our category agnostic model is going to allow us to look at a wide variety of product categories that are potentially less affected by supply chain pressures. We're also going to invest in our team and bring in more talent and senior leadership into the organization. We're currently recruiting across various roles, including a new president role, who will step in to take over for our chief revenue officer, Tomo Pascal. I want to thank Tomer for his leadership in the last four and a half years. We're grateful for his contribution to Atterian's success, and we will proudly follow his progress with the new venture that he's founding. As 2022 unfolds, we believe that we will be ready for any challenge, just like we've been in the past. Our company has shown resilience and fortitude and will continue to do so. The immediate world events might bring pause to those considering investing in us, but for long-term thinkers who believe in the future of e-commerce, we should pay close attention to how we execute on our strategy in the coming year. I believe that if we can protect market share and even grow it while we navigate through the supply chain and inflationary pressures ahead, we can once again become one of the fastest-growing profitable consumer product companies in the world. With that, I'll pass it on to Ari to discuss the quarter and year-end financial results.