Aterian, Inc.

Ladies and gentlemen, thank you for standing by. Today's conference will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Thank you for standing by. My name is Kath and I will be your conference operator today. At this time, I would like to welcome everyone to the Ethereum Inc. Second Quarter Earnings Report. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Ilya Grzobski, Vice President Investor Relations and Corporate Development. Thank you. Please go ahead.

Thank you for joining us today to discuss Ethereum'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 Ethereum's website at Ethereum.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 Ethereum.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 -to-period comparisons of our core operating results. Reconciliation of these non-GAAP measures to 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 Ethereum.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 Art. 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 the Ethereum CEO. I am very honored and humbled to have the opportunity to continue to lead Ethereum into its future. I want to thank our board of directors and the Ethereum team for their trust and confidence as we embark on this chapter together. Today, I am 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 Ethereum 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 will start with a quick introduction to Ethereum. Ethereum 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 U.S. 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 dehumidification and refrigeration, a bestselling leader in dehumidifiers on Amazon. Pure Steam, another bestselling brand on Amazon, which leverages the natural power of steam to clean your home with its steam ops or reduce wrinkles in your clothes with steam irons. Healing Solution, our collection of essential oil brands continues to have momentum with some of its recent rebrandings and continues to provide consumers a great essential oil experience. Photo Paper Direct, our DIY or -it-yourself iron-on transfer paper, provides joy and fulfillment to all consumers who love making their own t-shirts, arts and crafts. Mule Living, which focuses on innovative quality products for your kitchen, has multiple top-selling products on Amazon. And finally, Squatty Potty, the original toilet stool and the leader in the category. Squatty continues to help people daily around the world poop easier and better. With these six foundational brands, Eterian is well positioned to grow over time and consistently deliver high-quality, affordable products to consumers. Now to our Q2 performance. We delivered on our Q2 2024 net revenue and adjusted EBITDA goals, meeting our June 2024 guidance. This performance was driven by a combination of our success in dehumidifiers during the period and the impact of cost-cutting measures that we implemented previously in Q1 of 2024. We delivered adjusted EBITDA profitability for the first time in ten quarters since Q3 of 2021. When compared to the same period last year, our adjusted EBITDA performance for Q2 is an improvement of over 100% on even lower revenue. First and foremost, I want to congratulate our hardworking people worldwide for their continued dedication and belief in what we are doing to make Eterian a profitable consumer products company. This is another indicator that we continue to execute on our mission to focus, simplify, and stabilize Eterian. Specifically to our net revenue performance, the weather always plays in seasonal product performance. However, our improved sales performance started in early May. Even though we believe we benefited from June's hot and humid weather, we do believe that our primary driver of our success was driven by our focus and simplification mission and our outside-in approach. With the simplification across our business, such as selling within a reduced seller account footprint, this is allowing us to simplify how we go to market and naturally narrows our daily focus. With our shift to third-party -in-class software, not only are we seeing improvements on direct marketplace performance, but we're also more nimble, allowing us to keep up with ever-changing rules and tactics on Amazon. For example, we are seeing better than expected results in driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing rankings. Now as we look at Q3 and Q4 2024, we are still confident that we are tracking towards our second half of just the EBITDA profitability goals. For Q3 and Q4 2024, we expect our gross margin to remain strong due to pricing and product mix. We do expect our overall contribution margin percentage to remain primarily in line with -to-date results, and in combination with our continued expected realization of our fixed cost savings, we believe we are well positioned to achieve a just the EBITDA profitability for the second half of 2024. However, delivering results is never easy. It requires a lot of work and effort, which I'm very confident our team will continue to deliver on. We continue to see consumer spaces volatile and that consumers continue to be very wise with their spending, especially with the current inflationary environment. We expect container costs to be high when compared to last year for the rest of 2024, and we are always watching Amazon for their requirements. The recent tele-fulfilled Prime program changes continue to be burdensome, considering the providers and volatile summer weather impacting on-time delivery. We have also sold out on a few of our dehumidifier skews at the beginning of July, but expect to be fully in stock again by mid-August. Even with those challenges, we still feel confident that we are tracking on our goal of second half adjusted EBITDA profitability. Looking beyond 2024, as we anticipate delivering second half adjusted EBITDA profitability, part of the mission will move from stabilization to growth. Growth will become one of our primary goals in 2025, which will allow us to drive, over time, a more robust adjusted EBITDA profitability. As we previously said, we still believe growth will be coming from two key pillars. One is omni-channel expansion, including continued improvements of our existing listings to bring them in -in-class levels. We've already launched on Mercado Libre, Swati Potty and Walmart Retail Store continue to do well, and we continue to plan on our expansion into other channels. Target Plus is our next in our roadmap, and we hope to have that channel live before Black Friday this year. Organic product launches will also play. We feel really bullish that we can, very opportunistically, continue to launch new variations to grow our business, but also launch new products in both existing and new categories. We still believe M&A can have an impact on Ethereum's growth. As we stated previously, we will continue to look at M&A opportunistically. However, we believe it will not be the primary driver of our growth strategy. Today, we believe organic will be the primary driver of Ethereum's future growth. We expect to

discuss more of our growth strategies when we deliver our Q4 results. In closing, before I hand it off to Josh, just about a year ago,

we set on a mission to focus, stabilize and simplify Ethereum in order to drive it to adjust the EBITDA profitability and to deliver long-term shareholder value. Back in late 2023, we announced key initiatives to drive towards profitability, and we believe we have delivered on all of them. First was a rationalized SKU portfolio, which allowed us to focus on our best and most profitable brands and SKUs. A implication on our Amazon account structure, allowing us to increase our focus and simplify how we go to market. A shift towards -in-class third-party tools, allowing us to be more nimble in upgrading many of our marketing strategies. An outside-in thinking approach, which challenged our previous ideology and allowed us to execute on new initiatives in line with today's marketplace tactics and fixed-cost rationalization. An always tough decision to align our fixed costs to our expected revenue, but we delivered those. And today, we announced through these initiatives our first adjusted EBITDA profitable quarter, earlier than we had promised. We believe this is just another indicator of our continued focus on delivering our stated goals. I want to again recognize and congratulate our team on their continued dedication, excitement and hard work, and our shareholders for their patience

and continued support. But we are not done. We have high expectations and exciting beliefs on what Ethereum can do and become,

ultimately driving profitable growth and maximizing shareholder value. Thank you for your time and unwavering support. Now I'll pass it along to Josh. Thanks, Artie. Good evening, everyone. We continue to make progress on our path of focusing, simplifying and stabilizing Ethereum. 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 $-1 million to break even. Our gross margin improved year over year by over 18 basis points to .4% and our overall CM exceeded 17% primarily as a result of our skew rationalization. Although the skew rationalization impacted our top line revenue, it significantly improved our core business metrics. Our second quarter net loss improved by .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 Artie's sentiment and acknowledge the whole Ethereum team on this impressive effort and achieving this milestone. Now moving on to the detailed results for the quarter. Net revenue for the second quarter of 2024 declined .6% to $28 million from $35.3 million in the year-ago quarter. Including the impact of the skew 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 .2% or $4.7 million from $31 million primarily as a result of our skew 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 launching predominantly variations in the second half of the year. As we strive to stay focused, we continue to be thoughtful on the timing of our product launches. Overall gross margin for the second quarter increased to .4% from .2% in the year-ago quarter, but decreased from .1% in Q1 2024. The -over-year improvement was driven by the positive impact of our skew rationalization efforts, product mix, and less liquidation of high-cost inventory compared to the prior period. Our overall Q2 2024 contribution margin, as defined in our earnings release, was 17.4%, which improved compared to the prior year's negative 3.6%, an increase compared to Q1 2024 CM of 14.1%. The -over-year increase in contribution margin was driven by the positive impact of our skew rationalization efforts and less liquidation of higher cost inventory compared to the prior period. Q2 2024 saw our sustained products contribution margin improve -over-year to .8% versus .1% in Q2 2023. The increase in contribution margin was driven by our focus on more profitable skews as part of our skew rationalization efforts. Looking deeper into our contribution margins for Q2 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43% as compared to .8% in the year-ago quarter. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix, with a higher proportion of dehumidifier sales during the three-month ended June 30, 2024, compared to the year-ago quarter. These products incurred lower last-mile costs as a percentage of revenue. Our operating loss of negative 3.2 million in the second quarter of 2024 improved from loss of negative 36.4 million in the year-ago quarter, an improvement of approximately 91.2%, primarily driven by the improvement in CM, the reduction of fixed costs due to our cost-cutting initiative, and no impact of intangible write-offs in the current period. Our second quarter 2024 operating loss includes 2.9 million of non-cash stock compensation expense, while our second quarter 2023 operating loss included 3.2 million of non-cash stock compensation, a non-cash loss on impairment of intangibles of 22.8 million, and restructuring costs of 1.2 million. Our net loss for the second quarter 2024 of 3.6 million improved from a loss of 34.8 million in the year-ago quarter, an improvement of approximately 89.6%, primarily driven by the improvement in CM and the reduction of fixed costs and the impact of intangible write-offs in the prior year. Our adjusted EBITDA gain of 0.2 million, as defined in our earnings release, improved by 102% from an adjusted EBITDA loss of 8 million in the second quarter of 2023, primarily driven by the improvement in CM and the reduction of fixed costs. Moving on to the balance sheet. At June 30, 2024, we had cash of approximately 20.3 million compared with 17.5 million at March 31, 2024. The increase in cash is predominantly driven by positive impacts of working capital, partially offset by our net loss in the period, and repayments on our credit facility. At June 30, our inventory level was at 18.4 million, down from 18.5 million at the end of the first quarter of 2024, and down from 36.7 million in the year-ago quarter end. Our credit facility balance at the end of the second quarter 2024 was 9.6 million, up from 9.4 million at the end of the first quarter of 2024, and down from 11.1 million in the prior year period. As we look at Q3 2024, considering our strategic skew rationalization and the continued challenging consumer

environment, we believe that net revenue will be between 25 million and 27

million. Using the middle of the range, this would be an approximately 35% decrease from last year's Q3 revenue of 39.7 million, primarily driven by our reduction in skews from our strategic skew rationalization. Including the impact of the skew rationalization efforts into the comparable prior year, the revenue is expected to decrease only by 12%. As we have previously discussed, our decrease in net revenue versus prior year is expected as we continue to focus our go-for business on our best brands and products. Our primary focus today continues to be consistent adjusted EBITDA profitability. For Q3 2024, we expect adjusted EBITDA loss to be in the range of break even to 0.6 million. The middle of this range represents a significant improvement compared to Q3 2023 loss of 4.4 million. We also believe, based on our current forecast, that we have sufficient cash above our covenants to achieve our goal of consistent adjusted EBITDA profitability without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for a creative M&A. In closing, we are confident that with our products, strong balance sheets, dedicated and hardworking teams, and our principles of focus, simplification, and stabilization, we are turning the corner. We look forward with optimism as we continue our journey towards consistent adjusted EBITDA profitability and ultimate aim to maximize long-term shareholder value. With that, I'll turn it back to the operator to open up the call for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Brian Kinstlinger with AJP. Thank you. Please go ahead.

Can you

quantify how many new SKUs you 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? As far as... So as already said in the prepare 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.

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 Fermer with Craig Hellen-Cabinot 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. Arti, 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 the 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 roadmaps we're considering really have a lot of potential, especially if we think about how we're rounding out a 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 that also includes some thoughts about potentially even revitalizing some previously rationalized SKUs. So I think they all can. Now, they're all different, right, in fairness, right? Launching new paper products is probably a lot more around variations, where I would say there's a lot more opportunities and new categories when you think about both Pure Steam, Home Labs, and even Euler 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 GMs that we have in place and the brand management teams that we have placed under them, and I think there's going to be a lot of opportunities across all brands. I think we've got a strong enough base of people to really be looking at each of them and growing them each. We'll be very cautious in 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 that 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, takes a little bit more time, but 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. I think in this current environment, it's a very strong trait to be.

Okay, thanks, Artie. That's really helpful, and congratulations again on a strong quarter. Thank you, Alex. Thank

you, and there are no questions. I will now turn the conference back over to Ilya Groszevsky, 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 eterian.io forward slash 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. First question is, does Eterian have the capability to reenter product lines that were exited or rationalized if the dynamic in the category change?

Thanks, Ilya. I always love these questions. Yeah, we're very excited about the growth plans for Eterian. We hope to provide more color, as we said, in the prepared remarks. We're going to provide more colors towards the end of the year. But yes, ultimately, as part of those plans, we are looking at rationalized use 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 Eterian of today and in the Eterian of the future?

Another great question.

I believe our teams are doing a great job exploring all the new wonderful tools out there. And honestly, we find more tools every month that we keep looking. We're using various tools today. I think Josh and I laugh a lot. We use ChatCPT a lot. Almost every day we're in there asking questions and learning from it. And so I think we're currently using a lot of that to support and be efficient in our -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, where the team is looking at a lot of these tools that are out there, it'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, I think if I think about next year, 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 strategies.

Great. Thanks, Arti 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. Thank you, ladies and gentlemen. That concludes today's call. Thank you all for joining. You may now disconnect.

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Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you for standing by. My name is Kath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ethereum Inc. Second Quarter Earnings Report. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Ilya Grzobsky, Vice President Investor Relations and Corporate Development. Thank you. Please go ahead.

Thank you for joining us today to discuss Ethereum'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 Ethereum's website at Ethereum.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 Investor's portion of our website at Ethereum.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 -to-period comparisons of our core operating results. Reconciliation of these non-GAAP measures to most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the Investor's portion of our website at Ethereum.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 Art. 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 Ethereum CEO. I'm very honored and humbled to have the opportunity to continue to lead Ethereum into its future. I want to thank our board of directors and the Ethereum 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 Ethereum 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 Ethereum. Ethereum 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 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 dehumidification and refrigeration, a best-selling leader in dehumidifiers on Amazon. Cure Steam, another best-selling brand on Amazon, which leverages the natural power of steam to clean your home with its steam ops or reduce wrinkles in your clothes with steam irons. Healing Solution, our collection of essential oil brands continues to have momentum with some of its recent rebrandings and continues to provide consumers a great essential oil experience. Photo Paper Direct, our DIY or -it-yourself iron-on transfer paper, provides joy and fulfillment to all consumers who love making their own t-shirts, arts and crafts. Mule Living, which focuses on innovative quality products for your kitchen, has multiple top-selling products on Amazon. And finally, Squatty Potty, the original toilet stool and the leader in the category. Squatty continues to help people daily around the world poop easier and better. With these six foundational brands, Eterian is well positioned to grow over time and consistently deliver high-quality, affordable products to consumers. Now to our Q2 performance. We delivered on our Q2 2024 net revenue and adjusted EBITDA goals, meeting our June 2024 guidance. This performance is driven by a combination of our success in dehumidifiers during the and the impact of cost-cutting measures that we implemented previously in Q1 of 2024. We delivered adjusted EBITDA profitability for the first time in ten quarters since Q3 of 2021. When compared to the same period last year, our adjusted EBITDA performance for Q2 is an improvement of over 100% on even lower revenue. First and foremost, I want to congratulate our hardworking people worldwide for their dedication and belief in what we are doing to make Eterian a profitable consumer products company. This is another indicator that we continue to execute on our mission to focus, simplify, and stabilize Eterian. Specifically to our net revenue performance, the weather always plays in seasonal product performance. However, our improved sales performance started in early May. And even though we believe we benefited from June's hot and humid weather, we do believe that our primary driver of our success was driven by our focus and simplification mission and our outside-in approach. With the simplification across our business, such as selling within a reduced seller account footprint, this is allowing us to simplify how we go to market and naturally narrows our daily focus. With our shift to third-party -in-class software, not only are we seeing improvements on direct marketplace performance, but we're also more nimble, allowing us to keep up with ever-changing rules and tactics on Amazon. For example, we are seeing -than-expected results in driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing rankings. Now, as we look at Q3 and Q4 2024, we are still confident that we are tracking towards our second half of just the EBITDA profitability goals. For Q3 and Q4 2024, we expect our gross margin to remain strong due to pricing and product mix. We do expect our overall contribution margin percentage to remain primarily in line with -to-date results, and in combination with our continued expected realization of our fixed cost savings, we believe we are well positioned to achieve a just the EBITDA profitability for the second half of 2024. However, delivering results is never easy. It requires a lot of work and effort, which I'm very confident our team will continue to deliver on. We continue to see consumer space as volatile, and that consumers continue to be very wise with their spending, especially with the current inflationary environment. We expect container costs to be high when compared to last year for the rest of 2024, and we are always watching Amazon for their requirements. The recent TELA-fulfilled Prime program changes continue to be burdensome, considering the reliance on last-mile providers and volatile summer weather impacting on-time delivery. We have also slowed down on a few of our dehumidifier skews at the beginning of July, but I think we expect to be fully in stock again by mid-August. Even with those challenges, we still feel confident that we are tracking on our goal of second half adjusted EBITDA profitability. Looking beyond 2024, as we anticipate delivering second half adjusted EBITDA profitability, part of the mission will move from stabilization to growth. Growth will become one of our primary goals in 2025, which will allow us to drive, over a more robust adjusted EBITDA profitability. As we previously said, we still believe growth will be coming from two key pillars. One is omni-channel expansion, including continued improvements of our existing listings to bring them in -in-class levels. We've already launched on Mercado Libre, Flotty Potty and Walmart Retail Store continue to do well, and we continue to plan on our expansion into other channels. Target Plus is our next in our roadmap, and we hope to have that channel live before Black Friday this year. Organic product launches will also play. We feel really bullish that we can, very opportunistically, continue to launch new variations to grow our business, but also launch new products in both existing and new categories. We still believe M&A can have an impact on Ethereum's growth. As we stated previously, we will continue to look at M&A opportunistically. However, we believe it will not be the primary driver of our growth strategy. Today, we believe organic will be the primary driver of Ethereum's future growth. We expect to

discuss more of our growth strategies when we deliver our Q4 results. In closing, before I hand it off to Josh, just about a year ago,

we set on a mission to focus, stabilize and simplify Ethereum in order to drive it to adjust the EBITDA profitability and to deliver long-term shareholder value. Back in late 2023, we announced key initiatives to drive towards profitability, and we believe we have delivered on all of them. First was a rationalized SKU portfolio, which allowed us to focus on our best and most profitable brands and SKUs. A implication on our Amazon account structure, allowing us to increase our focus and simplify how we go to market. A shift towards -in-class third-party tools, allowing us to be more nimble in upgrading many of our marketing strategies. An outside-in thinking approach, which challenged our previous ideology and allowed us to execute our new initiatives in line with today's marketplace tactics and fixed-cost rationalization. An always tough decision to align our fixed costs to our expected revenue, but we delivered those. And today, we announced through these initiatives our first adjusted EBITDA profitable quarter, earlier than we had promised. We believe this is just another indicator of our continued focus on delivering our stated goals. I want to again recognize and congratulate our team on their continued dedication, excitement and hard work, and our shareholders for their patience and continued support.

But we are not done. We have high expectations

and exciting beliefs on what a tiering can do and become, ultimately driving profitable growth and maximizing shareholder value. Thank you for your time and unwavering support. Now I'll pass it along to Josh. Thanks, Artie. Good evening, everyone. We continue to make progress on our path of focusing, simplifying and stabilizing Ethereum. 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 break even. Our gross margin improved year over year by over 18 basis points to .4% and our overall CM exceeded 17% primarily as a result of our skew rationalization. Although the skew rationalization impacted our top line revenue, it significantly improved our core business metrics. Our second quarter net loss improved by .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 Artie's sentiment and acknowledge the whole Ethereum team on this impressive effort and achieving this milestone. Now moving on to the detailed results for the quarter. Net revenue for the second quarter of 2024 declined .6% to $28 million from $35.3 million in the year-ago quarter. Including the impact of the skew 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 .2% or $4.7 million from $31 million primarily as a result of our skew 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 launching predominantly variations in the second half of the year. As we strive to stay focused, we continue to be thoughtful on the timing of our product launches. Overall gross margin for the second quarter increased to .4% from .2% in the year-ago quarter, but decreased from .1% in Q1 2024. The -over-year improvement was driven by the positive impact of our skew rationalization efforts, product mix, and less liquidation of high-cost inventory compared to the prior period. Our overall Q2 2024 contribution margin as defined in our earnings release was 17.4%, which improved compared to the prior year's negative .6% and increased compared to Q1 2024 CM of 14.1%. The -over-year increase in contribution margin was driven by the positive impact of our skew rationalization efforts and less liquidation of higher cost inventory compared to the prior period. Q2 2024 saw our sustained products contribution margin improve -over-year to .8% versus .1% in Q2 2023. The increase in contribution margin was driven by our focus on more profitable skews as part of our skew rationalization efforts. Looking deeper into our contribution margins for Q2 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43% as compared to .8% in the year-ago quarter. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix, with a higher proportion of dehumidifier sales during the three-month ended June 30, 2024 compared to the year-ago quarter. These products incur lower last mile costs as a percentage of revenue. Our operating loss of negative 3.2 million in the second quarter of 2024 improved from a loss of negative 36.4 million in the year-ago quarter, an improvement of approximately 91.2%, primarily driven by the improvement in CM, the reduction of fixed costs due to our cost-cutting initiatives, and no impact of intangible write-offs in the current period. Our second quarter 2024 operating loss includes 2.9 million of non-cash stock compensation expense, while our second quarter 2023 operating loss included 3.2 million of non-cash stock compensation, a non-cash loss on impairment of intangibles of 22.8 million, and restructuring costs of 1.2 million. Our net loss for the second quarter 2024 of 3.6 million improved from a loss of 34.8 million in the year-ago quarter, an improvement of approximately 89.6%, primarily driven by the improvement in CM and the reduction of fixed costs and the impact of intangible write-offs in the prior year. Our adjusted EBITDA gain of 0.2 million, as defined in our earnings release, improved by 102% from an adjusted EBITDA loss of 8 million in the second quarter of 2023, primarily driven by the improvement in CM and the reduction of fixed costs. Moving on to the balance sheet. At June 30, 2024, we had cash of approximately 20.3 million compared with 17.5 million at March 31, 2024. The increase in cash is predominantly driven by positive impacts of working capital, partially offset by our net loss in the period, and repayments on our credit facility. At June 30, our inventory level was at 18.4 million, down from 18.5 million at the end of the first quarter of 2024, and down from 36.7 million in the year-ago quarter end. Our credit facility balance at the end of the second quarter 2024 was 9.6 million, up from 9.4 million at the end of the first quarter of 2024, and down from 11.1 million in the prior year period. As we look at Q3 2024, considering our strategic skew rationalization and the continued challenging consumer

environment, we believe that net revenue will be between 25 million and 27

million. Using the middle of the range, this would be an approximately 35% decrease from last year's Q3 revenue of 39.7 million, primarily driven by our reduction in skews from our strategic skew rationalization. Including the impact of the skew rationalization efforts into the comparable prior year, the revenue is expected to decrease only by 12%. As we have previously discussed, our decrease in net revenue versus prior year is expected as we continue to focus our go-forward business on our best brands and products. Our primary focus today continues to be consistent adjusted EBITDA profitability. For Q3 2024, we expect adjusted EBITDA loss to be in the range of break even to 0.6 million. The middle of this range represents a significant improvement compared to Q3 2023 loss of 4.4 million. We also believe based on our current forecast that we have sufficient cash above our covenants to achieve our goal of consistent adjusted EBITDA profitability without raising additional equity. As previously stated, if we pursue additional financing, it will be predominantly for a creative M&A. In closing, we are confident that with our products, strong balance sheets, dedicated and hardworking teams, and our principles of focus, simplification, and stabilization, we are turning the corner. We look forward with optimism as we continue our journey towards consistent adjusted EBITDA profitability and ultimate aim to maximize long-term shareholder value. With that, I'll turn it back to the operator to open up the call for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Brian Kinstlinger with AJP. Thank you. Please go ahead.

Can you

quantify how many new SKUs you 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? As far as... So, as already

said in the prepare remarks, we expect growth margin and contribution margin. So, we expect that 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 Hallam 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. Arti, 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 the growth strategy?

Hey, Alex. Thank you. Good question. You know, not to sound

like a father with his kids, I think all the brands can really perform well. I think the roadmaps we're considering, you know, really have a lot of potential, especially if we think about how we're rounding out a variation strategy on some of our existing listings. At the same time, I think, you know, we feel very bullish that there's a lot of opportunities across multiple categories, new categories, let's say, across multiple brands. And even that, that also includes some thoughts about potentially even, you know, revitalizing some previously rationalized SKUs. And so I think they all can. Now, they're all different, right, in fairness, right? Like, you know, launching new paper products is probably a lot more around variations, where I would say there's a lot more opportunities and new categories when you think about both pure steam, home labs, and even Euler 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 GMs that we have in place and the brand management teams that we have placed under them. And I think there's going to be a lot of opportunities across all brands. I think we've got a strong enough base of people to really be looking at each of them and growing them each. We'll be very cautious in 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 that 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, takes a little bit more time, but requires less investment. 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, Artie. 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 Groszevsky, 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.io forward slash 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. First question is, does atarian have the capability to reenter product lines that were exited or rationalized if the dynamic in the category change?

Thanks, Ilya. I always love these questions. Yeah, we're very excited about the growth plan for atarian. We hope to provide more color, as we said in the prepared remarks, we're going to provide more colors towards the end of the year. But yes, ultimately, as part of those plans, we are looking at rationalized views 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 atarian of today and in the atarian of the future?

Another great question.

I believe our teams are doing a great job exploring all the new wonderful tools out there. And honestly, we find more tools every month that we keep looking. We're using various tools today. I think Josh and I laugh a lot. We use ChatCPT a lot, almost every day we're in there asking questions and learning from it. And so I think we're currently using a lot of that to support and be efficient in our -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, where the team is looking at a lot of these tools that are out there, it'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, I think if I think about next year, 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 strategies.

Great. Thanks, Artie 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.