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.