Participants

Arturo Rodriguez; CEO; Aterian Inc

Josh Feldman; CFO; Aterian Inc

Alex Fuhrman; Analyst; Craig-Hallum Capital Group

Marvin Fong; Analyst; BTIG LLC

Brian Kinstlinger; Analyst; Alliance Global Partners

Presentation

Operator

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aterian update (Operator Instructions) Thank you.
I will now turn the conference over to Ilya Grozovsky, Vice President, Investor Relations and Corporate Development. You may begin your conference.

Thank you for joining us today on today's call, Arturo Rodriguez, our CEO, and Josh Feldman, our CFO. A copy of today's press release is available on the Investor Relations section of Aterian's website at aterian.io
Before we get started, I want to remind everyone that the remarks on this call today 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, predictions, expectations, targets or estimates, including statements 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 state. 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 eighth 19th, 2024, and our most recent quarterly report on Form 10-Q. Obviously, these are available on the Investor Relations portion of our website at aterian.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 period-to-period comparisons of our core operating results.
Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of those indications are included in our earnings release, which is available on the investor portion of our website on aterian.io. Please note that our definitions 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 for the most directly comparable GAAP financial measure on a forward-looking basis without unreasonable efforts because items that impact the GAAP financial measure are not within the company's control and or cannot be reasonably predicted.
With that, I will turn the call over to Arturo.

Arturo Rodriguez

Good evening, everyone. Thank you for joining us today. I'm pleased to welcome you to this conference call to discuss the recently announced leadership changes and updated financial outlook for Materion. I will briefly discuss these changes and then pass to Josh our new CFO, who will discuss our updated guidance. At the end, we will open up the call to take a few questions.
As you may have seen in our press release, we have made some important leadership changes. I'm honored to take on the role of Chief Executive Officer after serving as materials, Co-CEO and CFO, Joseph Risico has resigned from the company and after a well deserved break. He will pursue new opportunities over the years.
Joe and I have enjoyed a remarkable partnership, the amount of hours of work we put into its hearing has been nothing short of tremendous. And the strategic decisions we have made together as co-CEOs has significantly strengthened materials trajectory. Joe will consult with us for a few more in the next few months during a transition period, which I'm truly grateful.
I would like to take a moment to express our deep gratitude for Joe First, partnership, passion, innovative ideas and relentless work.
Now what changes as of today, I don't believe anything. The mission we laid out last year to focus, simplify and stabilize the company remains unchanged. We still believe the company's path to profitability and growth revolves around one focused and stable profitable portfolio in a simplified business model.
Two, an omnichannel strategy, three, reigniting growth through organic product launches and four, focused accretive M&A. These initiatives have been the cornerstone of our strategy since being appointed co-CEOs and will continue to guide to in institutions. Along with our solid balance sheet. We believe we have the liquidity necessary to execute on the organic missions.
In fact, we are starting to see the positive results of our efforts from our revised second quarter guidance reflects this progress demonstrating our commitment to achieving adjusted EBITDA profitability and showcasing the hard work of our incredibly talented people worldwide. While we still have a lot of work to do, we believe we're on the right track.
And finally, I'm thrilled to introduce Josh Feldman, our new Chief Financial Officer. He has been an invaluable part of our team as Senior Vice President of Finance, Josh joined me as my right hand in finance back in 2022 and has been instrumental in partnering with the team to strengthen our balance sheet and drive our mission of focus, simplify and stabilize is undoubtedly the right individual to take on this critical leadership role at Perion given our current trajectory.
Congratulations, Josh, on this well-deserved promotion. And with that over to you.

Josh Feldman

Thank you, Arturo. I'm honored to step into the role of Chief Financial Officer for a Aterian. Over the past few years, I've had the privilege of working closely with our exceptional team, and I'm enthusiastic about the opportunities ahead. As already mentioned, we have updated our guidance for the second quarter ending June 30, 2024.
We now expect net revenue to be in the range of $23 million to $26 million, an improvement from our previous range of $20 million to $23 million. Additionally, we anticipate adjusted EBITDA to be in the range of negative $1 million to breakeven better than our earlier projections of negative $2 million to negative $1 million.
The improvement in our guidance is primarily attributed to the strong performance of our seasonal dehumidifiers business. -- may demand for our dehumidifiers has surpassed our initial projections. This increased demand along with maintaining a healthy average sales price as contributed to an upward revision in our adjusted EBITDA guidance.
Although this season is still in its early stages, we are excited by the initial trends we are seeing our cash balance as of June 30, 2024, is expected to be between $17 million and $18 million, with borrowing under our credit facility at about $10 million. This is compared to the cash balance as of March 31, 2024 of $17.5 million and credit facility balance of $9.4 million.
All of these improvements highlight the progress we are making towards our financial goals and the strength of our strategic initiatives. We continue to believe that the company will be adjusted EBITDA profitable in the second half of 2024. As part of our continued efforts to reduce our general and administrative expenses to achieve our goal of adjusted EBITDA profitability, we are pleased to announce the appointment of UHY as our independent registered public accounting firm.
We are confident that this partnership with UHY will be successful and look forward to working with them for many years to come, we would like to extend our gratitude to the Lloyd for their dedicated service and contributions over the past five years. They have been a great partner and we thank them for their professionalism and expertise.
Finally, I want to thank Arturo for his continued leadership and guidance. I look forward to working with him and the rest of our team as we continue to drive our mission forward.
With that, I'll turn it back to the operator to open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Alex Fuhrman with Craig-Hallum Capital Group.

Alex Fuhrman

Hey, guys. Thanks very much for taking my question. Congratulations, Josh. On the well-deserved promotion, Aterian, you guys have done a really good job here over the last couple of quarters now are weighing on the EBITDA loss even as revenues have moved lower this quarter certainly stands out in that you're now guiding to a smaller loss and higher revenues on the higher revenues, primarily it sounds like due to that demand for dehumidifiers.
And can you can you give us a sense of is that what's driving the better than expected EBITDA on the in the quarter? And can you just expand on that a little bit more with the dehumidifiers, I mean, was that weather driven or just, you know, doing a better job with executing on marketing or supply chain?

Arturo Rodriguez

Yes, I think thanks for the kind words. I'm going to let Josh handle that one?

Josh Feldman

So I think it's hard for us to just specifically attribute to weather, but it probably played a factor in it. But I think our efforts on our marketing tactics have really contributed to the higher demand in humidifiers. And again, it's early in the season, but we're hoping that this continues into Q3.

Alex Fuhrman

Great, that that's really nice to hear. And then can you just talk about what you're seeing in terms of customer acquisition and how that environment has gotten for you as you work to be more surgical with your marketing, maybe that?

Arturo Rodriguez

So to answer. Good question. I think in some aspects, we've been we've been talking about focus, simplify and stabilize from almost a year now. And and I think some of the some of the improvement we've been seeing around our marketing and some of our tactics.
So I don't want to get into some details on your way some of us, you could talk a lot of it is because we're a lot more focus and we cut down our SKUs. We're really down to a lot of, of course, use outside of oils, we're down to less than 50 sku's.
And I think you know, when you do that and you rally the team around like a real focused strategy about executing on those skews and those brands you end up realizing that there's a bunch of low-hanging fruit that you start executing on. So I think it is a combination of some of that strategy we've laid forth about getting down to the for the best use, getting down to lesser accounts on Amazon and really focusing and rallying the team around that.
We have done some marketing tactics, as Josh alluded to, I rather not get into details now I talked about a little bit more it when we deliver the final Q2 results in August but I think it is a combination of these things. So I really want to put a lot of a lot of credit to all the work.
The team has been doing overall, not only just the marketing team and the revenue team, but also also the supply chain team because a lot of this focus around the whole organization has allowed us just to execute better.

Alex Fuhrman

Okay. Thank you, both. That's really helpful.

Arturo Rodriguez

Thank you.

Operator

Marvin Fong, BTIG.

Marvin Fong

Greg, thanks for taking my questions and congratulations to you both and And Joe, good luck to you if you're out there listening home saw.
Yes. Just wanted to expand on the on the prior question, just about obviously calling out the dehumidifiers. Maybe I take this opportunity to discuss anything else. And in fact, you saw in the quarter product lines, what was what did anything else any other product lines or SKUs kind of performed well or underperform?
And then my second question, just about freight rates, I guess you know, they've come up pretty significantly. You talked about staying focused on EBITDA positive for the second half of the year. Is there anything about freight rates that we should kind of be concerned about or have you kind of brought in the bulk of your inventory already?

Arturo Rodriguez

I'll let John handle the first one when it comes to the quarter sales, and I'll handle the freight once I may, Josh, one step in on that first one.

Josh Feldman

So as we as we said, really the overperformance in the quarter does relate to the humidifiers. The rest of our products have been selling as expected. And so and we'll report more when we when we release our Q2 earnings.

Arturo Rodriguez

Yes. And I think Marvin, to the freight? Yes, freight has gone up. Yes, we've been we've been doing that. I think fortunately this time it's been, you know, I think not as bad as it was a few years ago from a log Number two, I think a lot of things we put in place back from the experiences we've had back in 2021 and beyond. We've diversified our freight portfolio in a lot of ways with multiple vendors.
We still have a great partnership with Amazon. So we've been able to not only find both which has been great. I know it's been difficult for some companies, but at the same time, we've been able to sort of hedge a little bit of the rates that some people who only are paying on the spot rate have been fully impacted by some activity. What we feel and what we believe we think rates will come back down starting in early fall, maybe maybe maybe late summer.
And so I do think that, um, we have a little bit concerned, but I'm not too concerned that, frankly, you know, we're the bulk of the freight rates are or will hit us into Q4 is on kind of our smaller SKUs. So you do put a lot more of hand blenders and kettles in a container that you'd use the humps. Fortunately, the bulk of our D. homes have been already in the countries and we miss some of those rates.
So I think in some aspects some of the hedging that we've done in the sense of having multiple vendors, the time of our products are helping us avoid a major impact here than perhaps in the past we haven't well, yes, it's something we watch and certainly something we will consider watching where rates come down a little bit over the last two weeks, but we'll continue to watch that and we'll continue to action. Are there plans as necessary to avoid getting the full brunt of the impact?

Marvin Fong

That's great. Thanks for all the color, and congratulations again.

Operator

Brian Kinstlinger, Alliance Global Partners.

Brian Kinstlinger

Great. Thank you so much. And two questions. First question is can you provide any update on the international expansion you recently discussed, how that's going? And then second, I think you have and discussion renewed interest in M&A given the balance sheet is solidified. So any updates there as well on what you're seeing? Is it expensive market? Is it are you seeing better valuations on how should we think about M&A in the next couple of quarters?

Arturo Rodriguez

Thanks, Brian, for that, I'll read those, Josh, to the first part was and I think long term for tiering international plays. I think there's there's a lot of opportunities as I would say, as we've been as we've been working on internally about focus, there's still a lot of opportunities in the US. I think news Walmart has continued to do some really incredible things in driving traffic to it to the portfolio of access the weighted to purchase between retail stores and walmart.com.
I think you saw recently in the news that Target Plus is starting to step up its game with some of its partnership with Shopify and trying to attract more brands. So I as much as I want to do international and we will do international in the future. I do think there's still a lot of wood to chop here in the US, Brian. So I and I wanted to.
Yes, it's going to play long term for us, for sure. But I think there's still a lot of short term winds in in just North America as you've seen that we've now been passed. We've worked with Nelly and have been doing expansion into Maui. I think recently we're looking to get even a few more products than from the original our launch. And I think we'll be able to announce more of that as we enter Q2. I mean, when we report Q2, sorry, in August.
So I do believe that because there's so much opportunity still in the US. I want the team to focus there and the team is focusing there. But certainly international is still going to play and we'll be opportunistic. I think we knew as we get later in the year. I'll have a better update on some of the things we're trying to do there. But for now, I think the initial focus is still North America for all intents and purposes.
And I think for the second piece on M&A, as I said in my prepared remarks, M&A still part of the strategy, Joe was focused on that. We're going to we were planning to add a few heads around that to sort of drive the strategy a little bit, maybe a little bit faster and to let the team focus on other areas that have been kind of carrying the load choice.
And I don't think that changes and there's a lot of doing big and small. I think multiples have gone up a little bit. Bristol, depending on what you're looking at could be anywhere from two to five. And certainly, I think we don't have anything. We don't have anything I can talk about right now, but certainly I hope that as we continue to progress and perform and improve our numbers that and sometime in the future.
We'll have some good news around that. But certainly still part of the strategy doesn't foresee. I don't have anything concrete to report on right now.

Brian Kinstlinger

Thank you so much.

Operator

We have no further questions in our queue at this time. And with that, does conclude today's conference call. Thank you for your participation, and you may now disconnect.