ATER: Aterian Takes Further Steps to Improve Profitability and Reach Adjusted EBITDA Positive in the Second Half
NASDAQ:ATER
Q4 2023 Full Year 2023 Earnings Will Be Reported On Tuesday
After the close on Tuesday, Aterian (NASDAQ:ATER) will report its fourth quarter of 2023 and full year 2023 and have a conference call at 5 PM EST. Analysts are expecting $29.3 million in revenues and a loss of $0.13 per share compared to $54.9 million in revenues in Q4 2023 and a loss per share of $0.27. For the full year of 2023, analysts believe that the company generated approximately $140 million in revenues and lost $0.97 per share. They currently forecast an average of $110 million in revenue for 2024 as the company rationalizes its SKUs by eliminating money-losing and low-margin items. This effort should raise margins and decrease losses despite lower revenues. While revenues are expected to be down, losses are decreasing because of the company’s focus on profitability.
However, in February Aterian upped its guidance for net revenue and adjusted EBITDA for the fourth quarter that ended December 31, 2023. It said net revenue would be between $31.2 million and $32.0 million from its previous expectation of between $28 million and $32 million. Adjusted EBITDA loss is now expected to be in the range of $5.5 million to $6.3 million versus the previous $6.5 million and $7.5 million. At that time, it also said its December 31, 2023 cash balance was approximately $20.0 million, and borrowing under its credit facility was approximately $11.0 million.
With a current market value of $43 million and an enterprise value of $31 million, Aterian is priced well below its e-commerce peers at 0.3 times EV to projected 2024 sales. There is currently only one analyst price target out and it is $1.00 based on 0.7 times EV to that analyst’s 2024 estimated sales.
Aterian Continues to Cut Costs to Return to Profits
Since January there have been several actions the company has taken in furtherance of its strategy to regain profitability. On February 14th, Aterian announced it expected to reduce its workforce by 21 employees and 27 contractors, primarily in the Philippines and Poland. This combined with other actions should provide annualized savings of approximately $4.0 million. It expects to primarily complete this plan by the end of the first quarter of 2024 and to take a restructuring charge of $0.9 million primarily related to severance.
In addition, Aterian has shifted to using an integrated third-party, best-of-breed technology platform, rather than just using its internally developed proprietary platform called AIMEE. This shift is expected to account for approximately $0.7 million of the $4 million in expected annual savings and is also expected to increase its operational speed and agility.
Then on Feb. 26th Aterian announced that it extended its asset-backed credit facility with MidCap Financial to December 2026 giving it access to $17 million in commitments which can be increased to $30 million subject to certain conditions. The extension also reduces the minimum liquidity financial covenant from $15.0 million to $6.8 million of cash on hand or available. With its new liquidity covenant level, and its existing cash, the company is better positioned to reach adjusted EBITDA profitability in the second half of 2024.
On Thursday, the company announced its first outside investment since October 2022 and its first minority investment. This signals that the company is returning to its strategy of adding new evergreen products when it sees an opportunity. It is participating in the most recent financing round in 4th & Heart, the largest purveyor of ghee (a type of clarified butter) in the US. The investment in this California-based company was $200,000 in cash plus 145,000 shares of Aterian stock. Ghee is a growth market in the US as paleo, keto, and carnivore diets become more popular and consumers continue to move away from seed oils. 4th & Heart’s products are made from grass-fed cows and contain no GMOs. Ghee’s high smoke point makes it a substitute for oils in frying and it has a higher smoke point than olive oil. The market for ghee and clarified butter in the US was $45 million in 2022 according to Nielsen and premium butter was a $480 million market. In addition to being an Amazon best-seller, 4th & Heart’s products can be found in 12,000 stores including Whole Foods, Kroger, Albertsons, Publix, Wegmans, and Walmart.
Look For Updates on the Earnings Call
During the call on Tuesday, investors will get an update on how far along Aterian is on its strategy to maximize profits and improve margins. The company should have completed or almost completed its SKU rationalization and workforce reduction and should have an even better handle on what effect that has going forward. It will also discuss its recent investment and update investors on its plans. Investors should be more assured with increasing evidence that the company could soon be on the path to profits.
Aterian, founded in New York City, is primarily an Amazon seller that has a diverse product line consisting of consumer brands for the home. The company is working to broaden its distribution to reduce its dependency on Amazon and reach more consumers. No product contributes more than 10% of sales annually. The products it sells are perennial types that sell year after year with few updates needed. Its better-known brands are Squatty Potty, Mueller Living (kitchen appliances and accessories), and its hOmelabs (dehumidifiers, air conditioners, and other home appliances). It also sells liquid scents under its Healing Solutions brand, PurSteam steam appliances, and Photo Paper Direct branded photo paper and iron-on transfer paper for fabrics. It sources most of its products from China which arrive in the US on the West Coast. It was greatly affected by shipping rates during the pandemic. Supply chain disruptions and new China tariffs also added to profit woes. Going forward management hopes to source new products in other geographies to minimize dependence on China. Moving into 2024, these disruptions are now in the rearview mirror and the company is working to regain profitability.
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