Aterian, Inc.

Good afternoon and welcome to the Ethereum Inc. Second Quarter 2022 Earnings Report Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the Star key, followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you can press Star then 1 on your telephone keypad. To withdraw your question, please press Star then 2. Please note this event is being recorded. I'd like to turn the conference over to Ilya Grasovsky, Vice President of Investor Relations and Corporate Development. You may now go ahead.

Thank you for joining us today to discuss Atarian's second quarter 2022 earnings results. On today's call are Yaniv Sarig, 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 make in this presentation are forward-looking statements, and these forward-looking statements reflect Atterian's judgment and analysis as of today, and actual results may differ materially from current expectations based on a number of factors affecting Atterian'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 call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second 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 certain 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. On the call today, I'll go over the following topics. I will start with a quick introduction of Ethereum to those who are newer to our story. I will then review the key takeaways from the second quarter of this year. I will then discuss our challenges and how we're dealing with them, including the economy and macro-level pressure from supply chain disruptions and inflation. I'll then summarize how we see 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 owns and operates 14 consumer product brands selling products across various categories on channels such as Amazon, Walmart, Shopify, and eBay. To allow us to scale, we've invested in building our own proprietary software platform called Amy. Amy 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 brands, manage these products at scale effectively across various channels, 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 chains to drive scale and profitability. Moving now to our key takeaways from the second quarter. I'll start with a quick summary of the main points and then discuss them in more details. The economy and retail in particular continue to be disrupted by the aftermath of the pandemic and the supply chain issues that ensued, including inflation and weak consumer demand. As I mentioned in the previous earnings call, although these disruptions are hurting our business in the short term, we are already seeing encouraging signs of supply chain normalization. We continue to be focused on protecting market share for our products as we are taking steps toward preparing to resume growth in 2023. Our efforts are focused on three fronts, normalizing our inventory levels and accelerating the sale of goods that were previously shipped to our warehouse at the then-imposed high shipping costs. It's important that we do so to improve our margins next year as we reorder those goods at a lower cost basis due to declining shipping costs. Implementing improvements to our AMI platform and internal processes based on learnings from our past M&A transactions so that we can restart and execute our accretive acquisition strategy faster and more efficiently. Furthering our strategic collaboration with publishers and media partners to gain a long-term advantage on marketplaces as content commerce continues to scale rapidly and play a critical role in online retail ecosystems. With those important points in mind, I'd like to now discuss each of them in further detail. Given that several retailers have already published their Q2 results, a clearer picture of the challenging effect of the pandemic-induced supply chain disruptions are now available. Large retail platforms such as Walmart, Amazon, and Target are dealing with expensive and excessive amount of inventory, as well as weaker overall consumer demand. Consumers are seeing their buying power diminish by inflation everywhere, from the price of gas to everyday essentials. The combination is, of course, difficult for any business, regardless of scale. Ethereum is affected by the same forces and is taking several steps to not only navigate those challenges, but in the long term, hopefully benefit from them. We continue to believe that cooling demand for products will eventually bring normalization in shipping costs and reliability of international carriers. As some of the listeners on the call might already know, encouraging data is already pointing in that direction. As of July 28th, the jury's spot rate tracking the cost of shipping from Shanghai to L.A., is at $7,199 per 40-foot container. This price represents a 31% year-on-year reduction in cost, a very encouraging sign indeed, and we hope DoubleTrain will continue into 2023. We're still a far cry from the pre-pandemic shipping costs, which in 2019 were approximately $4,000 per 40-foot container for the same route. But our team is excited to see signs pointing in the right direction. While the decline of shipping costs is encouraging, it's important to remember that in retail, the effects of such changes can take a while to materialize. Companies need to first sell the current inventories they carry before they can replenish inventory at a lower cost and recover their margins going forward. For us at Atterian, the time to act is now. We believe that near to mid-term future will offer an opportunity to return to our growth trajectory, and we're taking steps in entering next year in good shape to do so. To that extent, we started working again on launching new products, and we're doing so carefully by investing mainly in select new opportunities that can leverage the success of existing products in our portfolio. In the next couple of weeks, we expect to announce an exciting launch of a co-branded air purifier in partnership with a publisher brand. As we get comfortable that the supply chain challenges continue to ease, we will hopefully be able to announce additional progress we're making with accelerating product launches. Given that shipping costs are declining and we have the opportunity to restock our portfolio at a lower cost basis, we started accelerating our sales in July and will continue to do so until the end of the year. We took advantage of Prime Day to normalize inventory levels and had our biggest revenue for the event at a $5 million mark in sales over two days. While many of our portfolio products were sold at a strong margin, we also took some aggressive steps on several product lines to normalize inventory levels. The short-term trend of top-line-driven strategy will further affect our margins this year, but hopefully will allow us to get back to double-digit contribution margin in 2023. Our efforts to prepare for reigniting growth include an extensive revamp of our internal processes and further investments in our systems and technology. The investments we're making are the result of our learnings from acquiring nine brands via M&A transaction in the last two years. We continue to believe that growth opportunity through M&A is an exciting part of our long-term strategy. Our goal is to improve our ability to integrate future M&A acquisitions faster and more efficiently than we've done in the past. As we look into a future where Ethereum hopes to continue to grow its revenue through acquisitions, we believe that integration and effective management of the assets we acquire at a relatively lower fixed cost are key to driving long-term success. We're adding several features to our AMI platform across forecasting, prioritization of operational requests from our brands and other functions that we expect will allow us to integrate and manage brands, including those we acquire rapidly and efficiently with lower fixed costs. To give a concrete example of how these investments will make a difference, consider a future in which we continue to scale our brand portfolio and need to constantly make budget allocation decisions for our brands. Using the new workflows and systems we're building in and around AMIE, we expect to be able to automatically prioritize the allocation of capital and fixed costs associated with each brand initiative based on the expected future ROI for Ethereum. The goal is to make sure we have an objective and optimal understanding of what each brand initiative implies for our budget, cash allocation, as well as expected financial outcomes of the aggregate initiatives performed by all the brands in our portfolio. Lastly, we continue to make great progress in our strategic investment and partnerships with publishers as the media industry continues to foray into content commerce. For those who are less familiar with the latest development in the e-commerce industry, I would like to reiterate the strategic importance long-term for companies like us. As everyone on this call knows, our business focuses on promoting our brand through various marketplaces such as Amazon, eBay, and Walmart. In the United States, while most consumers have a favorite retail channel they choose to search for products on, 36% of consumers start their research on Google to learn more about products from expert recommendation and editorial content. Publishers have taken notice, and many of them focus on writing articles about products to review and recommend to consumers items that will fulfill their needs. When publishers recommend a product and send their readers to Amazon, for example, they receive a commission if the consumer ends up buying the recommended product. For Ethereum, it's important to play a role in this growing ecosystem and build relationships with publishers in hopes that they decide to write and promote more of our product when their editorial team believes they're a good fit for their audience. To that end, Ethereum has launched DealMojo, a platform that allows publishers to discover new products they can choose to recommend to their audiences while benefiting from additional revenue share and special discounts, which we are looking to streamline to the site. We're pleased so far with the reaction we received for DealMojo and continue to onboard publishers and adapt the product to meet the requirements from an integration perspective. As of the beginning of the year, DealMojo has allowed publishers to promote our products and driven over $7 million in product sales through the beginning of the year. While at this stage deal merger is still primarily used by Ethereum, we continue to test the prospects of opening it up to other sellers. With these updates on Q2 and our strategy for the rest of the year, I want to thank everyone on the call for those who follow our progress. We're excited for Ethereum's potential return to growth in 2023 as supply chain issues are expected to continue to ease, and we continue to believe that we're on track to build one of the most exciting long-term growth stories in e-commerce and consumer products. I will now pass it on to Arti to discuss our financial results for the quarter.