Aterian, Inc. (NASDAQ:ATER), a technology-enabled consumer products company, has been on a mission to focus, simplify, and stabilize its core business in recent quarters. The company's efforts appear to be paying off, as it reported improved financial metrics in the first quarter of 2024 and provided an optimistic outlook for the remainder of the year.

Financials

In 2023, Aterian experienced significant losses, with an annual net income of -$74,564,000 and annual revenue of $142,566,000. The company's annual operating cash flow and free cash flow were -$13,388,000 and -$13,632,000, respectively. However, the first quarter of 2024 saw a marked improvement in the company's performance.

For the first quarter of 2024, Aterian reported a net revenue of $20.2 million, a 42% decrease from the $34.9 million reported in the same period of the prior year. This decline was primarily due to the company's strategic SKU rationalization efforts, which involved reducing the number of products it offers to focus on its core, more profitable items. Excluding the impact of these SKU rationalization efforts, the company's sustained revenue would have only decreased by approximately 25% year-over-year.

Despite the revenue decline, Aterian's gross margin improved significantly, increasing to 65.1% in the first quarter of 2024 from 54.8% in the same period of the prior year. This improvement was driven by the positive impact of the SKU rationalization efforts, favorable product mix, and lower liquidation of high-cost inventory compared to the prior period.

The company's contribution margin, a key metric that excludes fixed costs, also improved substantially, reaching 14.1% in the first quarter of 2024 compared to 5.9% in the same period of the prior year. This increase was primarily attributable to the SKU rationalization efforts and lower liquidation of higher-cost inventory, partially offset by ongoing competitive pricing pressures.

Aterian's operating loss for the first quarter of 2024 was $5.3 million, a significant improvement from the $25.0 million loss reported in the same period of the prior year. This improvement was driven by the increase in contribution margin, a reduction in fixed costs (including non-cash stock compensation), and the absence of intangible write-offs that were present in the prior-year period.

The company's net loss for the first quarter of 2024 was $5.2 million, an 80% improvement from the $25.8 million net loss reported in the same period of the prior year. Aterian's adjusted EBITDA loss for the quarter was $2.6 million, a 38.4% improvement from the $4.3 million adjusted EBITDA loss in the first quarter of 2023.

Liquidity

Aterian's balance sheet showed mixed results, with cash of $17.5 million as of March 31, 2024, down from $20.0 million at the end of 2023. The company's inventory level decreased to $18.5 million as of March 31, 2024, from $20.4 million at the end of 2023 and $40.4 million in the year-ago quarter. Additionally, Aterian's credit facility balance decreased to $9.4 million as of March 31, 2024, down from $11.1 million at the end of 2023 and $19.1 million in the prior-year period.

Outlook

Looking ahead, Aterian provided guidance for the second quarter of 2024, expecting net revenue to be between $20 million and $23 million, representing a 39% decrease from the $35.3 million reported in the same period of the prior year. However, the company noted that when adjusting for the impact of its SKU rationalization efforts, the revenue decline would only be approximately 15% year-over-year.

For the second quarter of 2024, Aterian expects an adjusted EBITDA loss in the range of $1 million to $2 million, representing an 81% improvement from the $5.3 million adjusted EBITDA loss reported in the same period of the prior year. The company remains confident in its ability to achieve adjusted EBITDA profitability in the second half of 2024, stating that it has sufficient cash above its covenant to do so without the need for additional equity financing.

Conclusion

Aterian's focus on streamlining its operations, rationalizing its product portfolio, and improving its financial metrics appears to be yielding positive results. The company's improved gross margin, contribution margin, and reduced losses suggest that its efforts to "focus, simplify, and stabilize" are starting to bear fruit.

Looking ahead, Aterian's management team remains optimistic about the company's prospects, citing its strong balance sheet, dedicated workforce, and the continued execution of its strategic initiatives. While the macroeconomic environment remains uncertain, Aterian's ability to navigate these challenges and position itself for profitability in the second half of 2024 will be closely watched by investors and industry observers alike.