Aterian, Inc.

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 Ethereum Inc. Q3 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 questions, press star 1 again. Thank you. I would now like to turn the call over to Ilya Grubovsky, Vice President, Investor Relations, Corporate Development. Please go ahead.

Thank you. Thank you for joining us today to discuss Ethereum's third quarter 2024 earnings results. On today's call are Arturo Rodriguez, our CEO, Josh Feldman, our CFO. Copy of today's press release is available on the Investor Relations section of Atarian's website, atarian.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, are based on current management expectations. These may include a limitation 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, amongst others, 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 portion of our website at eterion.io. We should not place due 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, adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings. provide consistency and comparability with our past performance, and facilitate period-to-period comparisons of our core operating results. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release, which is available on the investor portion of our website at ethereum.io. Please note that our definition of these measures may differ The similarly titled metrics presented by other companies 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 or not be reasonably predicted. With that, I'm going to call over to Artie.

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 over to the Ethereum business. Our mission to focus, simplify, and stabilize Ethereum in 2024 continues to show results. We are happy to report another successful quarter as Ethereum continues to progress on its journey to being a profitable consumer goods company. Today, I'm going to, one, provide a brief introduction to Ethereum for new listeners, two, discuss Q3 and the actions that led us to our successful results, three, an overview of our Q4 expectations, and four, a brief discussion on growth for Ethereum beyond 2024. Josh, our CFO, will then cover in depth our financial results for the third quarter and will provide our financial outlook for Q4. For those of you joining us for the first time, 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, one, Homelabs. which currently focuses on dehumidification and refrigeration, a best-selling leader of dehumidifiers on Amazon. Two, PureSteam, another best-selling brand on Amazon, which leverages the natural power of steam to clean your home with its steam mops or reduce wrinkles in your clothes with its steam irons. Healing Solutions, our collection of essential oil brands provides consumers a great essential oil experience. Photo Paper Direct, our DIY or do-it-yourself iron-on transfer and photo paper. provides joy and fulfillment to all consumers who love making their own T-shirts, arts and crafts, and printing their own photos from home. Mueller Living, which focuses on innovative quality products for your kitchen and has 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 that Kieran is well-positioned to grow over time and consistently deliver high-quality, affordable products to consumers. Now to our Q3 performance. We delivered on our Q3 2024 net revenue and adjusted EBITDA goals, landing with the middle of the range of our net revenue guidance and delivering on the higher end of our adjusted EBITDA guidance. This performance was driven by a combination of humidifiers from HomeLabs, and pure steam steam products during the period, and the impact of cost-cutting exercises implemented previously in Q1 of 2024. Once again, we delivered an adjusted EBITDA profitable quarter, which is our second in a row. When compared 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 further cement the path we put Ethereum on just a little less than a year ago with the right strategy. Our 2024 plan to focus, simplify, and stabilize Ethereum continues to deliver positive results and moves Ethereum closer to a consistent, adjusted EBITDA profitable company. Now, turning specifically to our net revenue performance, our dehumidifier sales in the third quarter landed slightly short of expectations as we were hampered by stockouts that were previously mentioned during our Q2 earnings call and, of course, weather, which always plays in seasonal product performance. However, we are still very pleased with our overall performance during the summer season, which is Q2 and Q3, on dehumidifiers. During the third quarter, we released our new 8-pint compressor-based dehumidifier, which competed very well against cheaper non-compressor-based models on Amazon. This was part of our variation strategy to offer competitive price points within each of our product families to give consumers of all different budgets options to buy our products while maintaining quality and performance. We also saw strong performance during Q3 of our pure steam brand, in particular from steam ops and steam irons. We continue to see more successes as the revenue and marketing teams use an outside-in approach in their marketing and sales strategy. We continue to see a great amount of marketing efficiencies as we focus our efforts into our reduced seller account footprint and continue listing improvements as we further focus on our core SKUs. Further, we are seeing better than expected results on driving outside traffic to Amazon via various marketing initiatives, which benefits our product listing rankings and other conversion metrics. We continue to be very pleased with our decision to shift to our third-party best-in-class software platform, as we continue to believe that our newfound nimbleness is paying off, especially when dealing with changing marketplace rules and unpredictable weather and last-mile service outages. Our team continues to master our new platform and continue to improve our supply chain performance each quarter. Furthermore, I'm also very proud of the decision the supply chain team has made over the past year. We have been able to leverage a multi-supplier approach across many facets of our supply chain to reduce single sources of failure. For example, with shipping containers, our multi-supplier approach, including Amazon Global Logistics, is allowing us to secure timely containers, but also allows us to find better pricing than existing spot rates. We believe Q3 performance incurred approximately an additional impact of COGS of $0.2 million from higher shipping container costs. Now, as we look at Q4 2024, our largest net revenue periods are still focused in Q2 and Q3 quarters. However, our estimated Q4 net revenue allows us to be very close to just the event of profitability or essentially break even. For Q4 2024, we expect our gross margin percentage to remain primarily in line with year-to-date results, and in combination with the continued expected realization of our fixed cost savings, we believe we are very well positioned to achieve our original goal of adjusting EBITDA profitability for the overall second half of 2024. However, delivering results is never easy and it requires a lot of work and effort, which I'm very confident our team will continue to deliver on. We continue to see the consumer space as a value-driven area and that consumers continue to be very wise with their spending, especially with the current inflationary environment. As we enter the holiday period, we do expect buying to be robust, but we also expect consumers will be deal-shopping and pricing will be important. Although Q4 will be very competitive, we believe we are very well positioned considering our product variations, which offer consumers multiple price points. We expect higher price container costs to impact Q4 as compared to last year, and we continue to see higher container pricing continue into the first half of 2025. The higher pricing is dragging a bit on our Q4 contribution margin projections by approximately 0.2 million. Even with these challenges, We are confident that we are tracking to our goal of overall second half adjusted EBITDA profitability. Looking at 2025, we believe Ethereum will move from stabilization to growth. Growth will be 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 in two key pillars. One, omnichannel expansion, including improvements of our existing listings to bring them to best-in-class levels. and two, organic product launches, which will also be equally important. In omni-channel expansion, we have some of the best-selling products and brands on Amazon. We see no reason why our brands and products would not sell well on these other channels. With our third-party best-in-class software model, we now have the ability without significant investment or customization to expand into new channels. So far, we are pleased with the MercadoLibre results, though small, This is a longer-term play, and partnering with MercadoLibre will open up other opportunities across LATAM over time. The particular MercadoLibre program we are in, where people in Mexico can directly purchase import U.S. products like ours, is new for us and somewhat new for MercadoLibre, and we continue to learn and believe in it. Target Plus is a great channel, and we believe this is a channel where consumers will love our brands and products. We continue to track well and expect to be live with a core set of products across HomeLabs, PureSteam, and Mueller Living, prior to Black Friday. Moving to organic product launches, we have a great DNA in organically launching products. Though we've not been flexing those muscles like we did in 2019, we're continuing to focus on strengthening those muscles. Though a variation, the 8-Pint Humanifier is a new product which was researched and sourced in a very quick period of time, right about seven months. Not all launches will happen this way, but we continue to build towards relaunching and launching new products in 2025. One other product that we'll launch in Q4 2024 is our new PureSteam Steam Mop Scrubber, our most advanced steam mop yet. This is a product that we have been working on for a better part of 2024 and expected to be on Amazon Marketplace in time for holiday shopping. This is a new product which will round out our steam mop pricing strategy, giving consumers a higher-end model along with both budget and mid-range models, which are currently on Amazon. We are working on our 2025 product roadmap and we expect to launch a handful of great new products in 2025. We plan to provide a broader update when we communicate Q4 2020 results in March. Finally, we still believe M&A can have an impact on growth for Ethereum. We continue to see many opportunities in the market. However, we believe M&A needs to be strategic and accretive and not just a pile on play as the model has proven unsuccessful for many others. We believe if we do M&A, It will be for long-term strategic reasons, such as improving our brand position in a category or improving our product portfolio by expanding into closely related categories. Regardless, today we believe omnichannel expansion and organic will be the primary driver of Ethereum's future growth. And ultimately, as of today, we expect 2025 to be a year of revenue growth and also a year of further improvements on our operating leverage when compared to 2024. We expect to discuss more of our growth strategies and expand more on our journey to being a profitable consumer goods company when we deliver our Q4 results in March. In closing, just about a year ago, we set on a mission to focus, amplify, and stabilize 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. A rationalized SKU portfolio, Simplification on our Amazon account structure, making us more efficient. Shifting towards the best-in-class third-party tools, allowing us to be more nimble and upgrading many of our marketing strategies. Outside-in thinking, which challenged our previous ideology and allowed us to execute on new initiatives in line with today's marketplace tactics. And, of course, the difficult decision of fixed-cost rationalization. And today, we announced our second consecutive quarter of adjusted EBITDA profitability. Our 2024 plan of focused, simplified, and stabilized Ethereum, continues to deliver positive results, and we believe that it's moving Ateering closer to being a growing and overall adjusted EBITDA profitable company. 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 still have a lot of hard and exciting work to do. We have very high expectations and beliefs on what Ateering can do and become, ultimately driving profitable growth and maximizing shareholder value. Thank you for your time this evening and unwavering support. Now, I will pass it to Josh for his prepared remarks. Thanks, Artie.

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 the impact of skew rationalization, net revenue would have only declined approximately 15%. This decline was primarily driven by dehumidifier stockouts and seasonal weather patterns, as well as softness in our kitchen appliance products. Looking at the summer season as a whole, however, dehumidifier sales adjusted for the 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 had one new product category and four product variations launched in the third quarter. We expect to continue launching predominantly variations in the fourth quarter. Overall, gross margin for the third quarter increased to 60.3% from 49.4% in the year-ago quarter and was essentially flat with Q2 2024. The year-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 Q3 2024 contribution margin as defined in our earnings release, was 17%, which improved compared to the prior year's 3%, so decreased slightly compared to 17.4% in Q2 2024. The year-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. Looking deeper into our contribution margin for Q3 2024, our variable sales and distribution expenses as a percentage of net revenue decreased to 43.3% as compared to 46.3% in the year-ago quarter. This decrease in sales and distribution expenses as a percentage of revenue is primarily due to product mix and a reduction in last mile costs as a percentage of revenue. Our operating loss of $1.7 million in the third quarter of 2024 improved from a loss of $6.5 million in the year-ago quarter, an improvement of approximately 73.4%, primarily driven by the improvement in CM and the reduction of fixed costs due to our cost-cutting initiatives. Our third quarter 2024 operating loss includes $1.8 million of non-cash stock compensation expense, while our third quarter 2023 operating loss included $1.2 million of non-cash stock compensation expense and restructuring costs of $0.4 million. Our net loss for the third quarter of 2024 of $1.8 million improved from a loss of $6.3 million in the year-ago quarter, an improvement of approximately 71.7%, primarily driven by the improvement in CM and reduction in fixed costs. Our adjusted EBITDA gain of $0.5 million as defined in our earnings release, improved by 111% from an adjusted EBITDA loss of 4.4 million in the third quarter of 2023, primarily driven by the improvement in CM and the reduction of fixed costs. Moving on to the balance sheet. At September 30th, 2024, we had cash of approximately 16.1 million compared with 20.3 million at June 30th, 2024. The decrease in cash is predominantly driven by payments on our credit facility of $2.9 million as the balance on our credit facility went from $9.6 million as of the end of the second quarter of 2024 to $6.7 million at the end of the third quarter of 2024. The credit facility balance is also down from $14.2 million in the prior year period. The remaining reduction in cash from Q2 2024 is negative impacts of working capital. At September 30th, our inventory level was $16.6 million, down from $18.4 million at the end of the second quarter of 2024, and down from $31.5 million in the year-ago quarter end. As we look at Q4 2024, considering our strategic skew rationalization, we believe that net revenue will be between $22.5 million and $25.5 million. Using the middle of the range, this would be an approximately 27% decrease from last year's Q4 revenue of $32.8 million, primarily driven by a reduction in revenues from our strategic SKU rationalization. Adjusting for the SKU rationalization in the prior year, revenue is expected to decline by only 4% compared to last year. As we have previously discussed, our decrease in net revenue versus the prior years expected as we continue to focus on our go-forward business, on our best brands and products. Our primary focus today continues to be consistent adjusted EBITDA profitability. For Q4 2024, we expect adjusted EBITDA to be approximately break-even. Achieving break-even in adjusted EBITDA will represent 100% improvement from the $5.6 million adjusted EBITDA loss in Q4 2023. We also continue to 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 accretive material M&A. In closing, I'm very proud of our team's efforts resulting in our second consecutive quarter of adjusted EBITDA profitability. We are confident with our products, strong balance sheet, and our principles of focus, simplification, and stabilization, we have turned the corner as a company. I look forward with optimism as we continue our journey towards revenue growth, staying 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.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one in your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brian Kingslinger 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. I'm already 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 marketing tools that are a little bit different than the Amazon tools, but I don't expect that to be real friction-based. As the number skews, there's still a little bit of a moving target there, but my gut tells me at least six skews hopefully will be the goal. But certainly I don't see any real friction for us at this point. Things happen, but at this point I don't see anything really preventing us from hitting that.

Great. And then how do you see the timeline over the next 12 to 18 months of additional SKUs on, say, Target and Walmart? And what's the limiting factor that gives you caution to not list a lot more product, if not the majority? of your top sellers? Is there a cost to it? What's the cautionary reason to only have a handful of SKUs?

I'll grab that, Josh. So it's a good question, Brian. Listen, I believe that focus is a very important thing in everything we do. And though over time I do see us expanding our portfolio and our product listings on each of these channels, I do want to start smaller rather than larger just to make sure the team learns how to market on Target Plus. I'm just going to use Target Plus as an example because it is a bit different. The consumers are a bit different. You know, there's a lot more consumers on Target Plus that are focused on the Target Plus credit card and that benefit as opposed to Prime. And so I do think we have a little bit of learning to do, so we want to start cautiously. But, yeah, certainly as we gain momentum and we gain experience, on selling on these other channels, we will go with a broader portfolio. But at the same time, we know that a marquee SKU concept, you know, taking our best pure steam products, our best home labs products, you know, maybe a handful of our best oils is probably the right approach to gain traction and success. I don't think we necessarily need to put every single one of our SKUs, but certainly if the marquee SKUs are succeeding, we can definitely expand to that number of SKUs easily over time. Great.

And then you mentioned most of your launches were variations, like the first half of the year. I think there was one that wasn't. Why are you not getting a little bit more aggressive on new products? And you mentioned next year a handful of new products, which doesn't sound like a lot. So are you waiting for the stronger consumer? Because your balance sheet seems to be positioned for investment.

Thank you for the comment on the balance sheet, Brian. I think Josh and team have done a great job strengthening the balance sheet. It's gone a long way. It has. It has. I think the team deserves the credit there. Listen, I'm going to say this in a way where not to go back too far in history, but I think, again, less focused, good quality products in the right category that's properly researched is a lot stronger from a long-term perspective. building success or building long-term, building a foundation for success, as opposed to like, hey, you know, let's launch as many widgets as possible, stick as many on the walls and see what sticks. I don't think that's the right approach. I think we are being very cautious because we are being very, very thoughtful in where we're going to launch, what categories we're after. And I'd rather start slower and smaller to make sure we're not making a tremendous amount of missteps, overordering, you know, missing the mark in some aspects. So I do believe that approach is a lot more sound for a Tyrian. Somewhat conservative, I would debate that because I think in some aspects, you know, some of the history that you're familiar with could probably be, I think a lot of people would say we're a little bit too ambitious at the time. So I think in some aspects, we are looking at a little bit of a slower start here. But that's not to say as we gain more momentum and gain more profitability with the incremental revenue that we'll add, we wouldn't get more aggressive. I just think we want to be very thoughtful because we'd rather fire a really good aimed bullet as opposed to, you know, throwing a bunch of spaghetti in the wall and see what sticks.

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

All right. Thanks, Brian.

Your next question comes from the line of Alex Furman. with Craig Hellam Capital Group. Your line is now open. Please go ahead.

Hey, guys. Thanks for taking my question and congratulations on another quarter of being EBITDA positive here. Now that you have the product portfolio down to 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 for you as you start pivoting to growth next year?

um hey alex how you doing sorry josh i'll grab that one um listen i'm very happy with all our brands i think you know the rationalization and and the work we did over the last year we went from like 14 or 15 brands down six so i think we stuck with these six very purposely because we thought all of them had great potential to grow in particular you know Home Labs continues to perform well. It had a great season, as we mentioned in our prepared remarks. And there's a tremendous amount of opportunity still in the environmental space, you know, between demonification, perhaps air conditioning, perhaps air purification. But I still think there's a ton of opportunities for Home Labs to continue to grow into. And we're a pure steam. You know, as I mentioned, we're rounding out our, you know, steam mop scrubber, our most advanced steam mop yet. And I think there's still more opportunities on the steam irons that you'll see in the coming months. So I think that's just two examples. I can go here and we can spend the whole time the next hour talking about all the products and ideas here. But I do think every single one of our brands has the potential to grow. And I don't want to weigh into which is better or worse. I think they all have their unique opportunities and their unique impact to the consumer. And so I'm very happy with where they are, and they've got a lot of work to do, and we've got a lot of things to show the world. But certainly I wouldn't rank them in the sense of which has the best opportunity right now. I think they all equally have an opportunity to grow.

Okay, that's really good to hear. Thanks, Artie. And then you mentioned likely launching new products as a way that you really get to more meaningful growth. Are there any particular categories that you're focused on as you think about new product development or any of your existing brands that you see as, you know, brands that you might want to launch new products under that umbrella?

I think the answer is yes. I think there's still a tremendous amount of opportunity to launch products on our existing brands, as you say, across Amazon and other channels. especially as we grow the Omni. I think there's great opportunities for certain brands to be stronger in certain channels versus Amazon. We're really, really working on this roadmap, Alex, and I hate to say it, but we'll give a lot more details about what products and what categories we're going after in 2025. But we need a little bit more time because, again, I really want to make sure that what we put out there is stuff that we feel confident in being delivered in 2025. But I do see that there'll be some new categories and potentially some old categories that we used to play in that perhaps we can revise. And so I think it's going to be a combination of us going into new categories that people have not seen us be in before, but also relaunches. So I do think they're both going to, you know, both of those kind of subtopics, I think, will be evident in the 2025 roadmap when we do discuss it more in Q4.

Okay, that's really helpful. Thanks, Artie.

Your next question comes from the line of Marvin Song of BDIG. Please go ahead.

Great. Good evening. Thanks for taking my questions, everyone. And let me also add my congrats on all the heavy lifting and execution to get you guys to this point. Yeah, just maybe I know several questions on 2025. Maybe you could just kind of think more near term about the guidance for the fourth quarter You know, we're already, you know, almost halfway through November and, you know, still a lot of holiday shopping to be done here. But we do have a shorter holiday period and some Black Friday sales already happening or have been happening for a while. So just would love your take on sort of what you've seen so far in terms of how the consumer has kind of been developing and, you know, just what else we should be looking for for the rest of the season in terms of sort of like you know, how much of the shopping season, you know, you guys still need to realize here.

Hey, Marvin, thanks. Thanks for the kind words. Yeah, it's a little compact. I mean, Thanksgiving's at the end of November, so right to the 28th, right? And so usually sometimes you get Thanksgiving, it gives you like an extra week before the holidays. So it is a little compact. I mean, listen, Amazon did an earlier Prime Day, so that was pretty successful. We'll talk about that when we announce Q4. But certainly we saw so far sales activity being robust in October, which is kind of a little bit different than the past. I think to your point, there's been a lot more sales. I think price sensitivity always been helpful for consumers. If they see good deals going on, they'll start purchasing early. But usually this is not uncommon, right? The slowdown before Turkey 5 or Turkey 10, however people quantify it. We're still very confident that the guidance that Josh put out there is what we're tracking towards. We don't see any bumps in the road at this point. So we feel pretty happy, though. But we are excited for Black Friday and Cyber Monday. We got a lot of great deals and great opportunities for consumers to experience our product at a good price without necessarily you know, tremendously impacting or sacrificing margins, right? So I'm kind of excited to see how the team performs, you know, this year as a much more focused organization on our core SKUs. So I am looking forward to it. But so far, everything is working, you know, and working to our expectations.

Got it. Great. And then... You called out container shipping rates for this quarter, and I think, or the just reported quarter and this upcoming quarter. You know, considering, I think, you know, rates have kind of come down post-election, you know, I think there's a view that, you know, trade will kind of decelerate, you know, under the new administration. So should we just sort of think about the container rate pressure is kind of isolated to those quarters. It's just kind of a lagging impact. especially considering sort of the comparisons against last year and maybe in the back half of 2025, it actually could become a tailwind or at least wouldn't be a headwind?

Yeah, no, it's a good question, Marvin. Yeah, I think in our preferred market, we think consumer – sorry, we think container costs will continue to be – and again, when we say higher, keep in mind for 2023 – And for the first half of 2024, container costs were actually, you know, kind of back to normal. And so this kind of rise in container costs that happened, I would say, kind of in the, I would say probably in the April-ish, May timeframe of 2024 was probably mostly due to, you know, some geopolitical issues and some other weather-related issues in China. And then I think a lot of uncertainty with some of the dock strikes that happened, you know, obviously in the southern U.S. So, right now, we think that containers will probably, even though they come down a little bit, they'll probably still stay off that, you know, they'll stay at, you know, they'll still be higher than those periods when you do the comparison. And we hope they come eventually down. Yeah, that'd be great because you're right. And then we would benefit in the second half of 2025 if they came down as you think of the comparison. But certainly, you know, sometimes it's hard to predict. There's been a lot of changes and a lot of changes are expected to happen, especially with the new administration. So, We'll see how that impacts it. I think the main thing is that our multi-supplier approach has benefited us, and we'll continue to leverage that and be as nimble as possible when it comes to containers. But we expect them still to be off that kind of, you know, call it $1,500 to $2,000 container, you know, normalized price. It's still going to run much higher than that, I think, through the beginning of 2025. Got it.

And then last question, I think you mentioned maybe some cost savings are still in the pipeline. Could you give us an idea of what's a good sort of fixed cost structure once you guys have fully realized your cost efficiencies? I would love to get some more color on that. Thanks.

Hey, Marvin. It's Josh. So we did our restructuring in the first quarter of this year, so obviously we'll get next year in 2025 the full annual impact of that restructuring. We've also, you know, as we previously announced, we switched auditors, and we have a lower cost auditor now. And also, you know, our insurance renewals have come up in the summertime, and we got a reduction in premiums on our renewals. So if you put that all together, we do expect our run rate of fixed costs to decrease next year.

Okay. Awesome. Thanks, Josh. That sounds great. Appreciate it.

Your next question comes from the line of Brian Kingslinger of Alliance Global Partners. Please go ahead.

Great, Josh. I'm going to ask a follow-up to that question on overhead. You look at the third quarter, your GNA was significantly down to the June quarter and even much lower than the March quarter. Is this the full effect of cost cutting, or is there anything else contemplated in there that may be non-recurring?

We did have some insurance refunds that came in in the third quarter. You know, I think our GMA is not exactly equal quarter to quarter. In the first quarter, you know, we have higher alternate accounting fees. So I would say our run rate is probably a little bit higher than our actual Q3 results.

great. That's helpful. And then my other question, you've got $16 million of cash. You're basically breakeven to generating modest cash flow, looking at the queue. How is management aboard thinking about using their excess capital to improve your returns? You mentioned M&A. Is this a really high priority? And if you are thinking M&A, is it technology? Is it brands and products you're looking to buy? Is it relationships with some of these platforms? Just maybe help us understand what your priorities are.

Brad, I mean, you can answer that, Josh. I think as it comes to M&A, Brian, M&A for us is something that would help our product portfolio, right? Either our brand portfolio, Sprinkler brand portfolio, But again, it's going to be very strategic. We don't believe running 14 or 20 or 30 brands or 100 brands like some of these aggregators tried to do is a good model. You don't create enough leverage or efficiency on your marketing or your operating costs. So if we do M&A, it's because we're adding a brand or a product that we think has a long-term strategic value to us over time. I think the other side, if you look at our cash balance, listen, next year we're saying we're our missions to grow. And so I think as you think about that, we're going to need some of that cash for working capital as we build up inventory. And especially as we think of marketing some of our new products. So I think if you look at how we're going to deploy that cash, it's really in those areas, right? You don't need a ton of it for omni-channel expansion to your earlier comments, right? There's less friction now that we're kind of in a third-party model. But certainly as you're growing, you're going to have to buy that inventory so we get the impact and the benefit of the ABL. I do think that's where the cash is going to be deployed over the coming months. We don't think it drags that much because of the ABL. It is where we want to sort of leverage it to grow is really through that product launches. And if we find something, M&A.

And then what are valuations looking like these days? Is it maybe EBITDA kind of multiple that you hope to achieve?

I still, you know, they're a little over the place. I still think there's a lot of sellers that have unrealistic expectations. But we've seen some interesting stuff still in the three to four range. We've seen some a little bit lower than three at times. But I still think, you know, I think if someone showed up with the right thing at somewhere between a three or four multiple, I think that's a good deal.

Great. Thanks so much for answering all my questions.

Yeah, of course. Again, if you would like to ask a question, press star 1 on your telephone keypad. I will now turn the call back over to Mr. Grzobski, Vice President, Investor Relations, Corporate Development, for closing remarks.

Thank you. As part of our shareholder perks program, as a reminder, investors can sign up for at eterion.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, their participation in the program, and their questions. Here are a few of the most popular questions that they have submitted. Question number one, have Shareholder Perks discount emails been discontinued?

I'll grab that one, Josh. And, Eli, I think you broke up there for a second, so I just want to make sure you're asking the right question. Was it discontinued was the question? Sorry.

The question is, have shareholder perks discount emails been discontinued?

Okay, yeah, got it. Absolutely not. No way. We love giving our shareholders an opportunity to share on our products at a discount. We're really proud of our products. We have great brands and products, and it's awesome that we can give the perks members an opportunity to buy those at a discount. I think what we did was we changed the PERC programs from a weekly email to a monthly. And I think by giving the PERC members a monthly email, it's a little bit better. It gives them a lot more flexibility to buy the product. I think the previous one is you had to buy it within a week. Now you're getting a monthly email with multiple discounts, and you have the whole month to participate or purchase it, which I think just gives the members a lot more flexibility. But, no, certainly not. We love the PERC program, and we're very happy to see people participate in it.

Thank you. Next question is, are you interested in reentering product categories in product lines that you have discontinued as part of your SKU rationalization?

So I think we touched on it a little bit with one of the questions. I think it was mine and Alex. But, yeah, certainly we are working very hard right now to finalize our 2025 roadmap. And as part of that, we are considering a few discontinued SKUs. If there's an opportunity to re-enter a program, I mean, sorry, a category that we were previously in, especially if it fits the brand's vision, we're very open to it and considering it. You know, it's great about some of these discontinued SKUs, you know, if it's in the right quality and, you know, same features, there's an opportunity to reuse the ratings and reviews of that listing previously. So, So they're still there. We can take advantage of it if we think we need it. So certainly it's a great opportunity for us to minimize the risk of launches if we find the right opportunity.

This concludes the Q&A portion of the call. In terms of the upcoming calendar, Ethereum Management will be participating in the 15th Annual Craig Hallam 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.