Aterian, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Aterian is a technology-enabled consumer products company selling primarily through online marketplaces, especially Amazon. This unaudited quarterly report covers the three and six months ended June 30, 2023, compared with the same 2022 periods. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $35.3 | $58.3 | $70.1 | $99.9 |
| Gross profit / margin | $14.9 / 42.2% | $31.4 / 53.8% | $34.0 / 48.5% | $55.0 / 55.0% |
| Operating loss | $(36.4) | $(10.1) | $(61.4) | $(46.4) |
| Net loss | $(34.8) | $(16.3) | $(60.6) | $(59.1) |
| Net loss per share, basic and diluted | $(0.45) | $(0.26) | $(0.78) | $(0.94) |
- Q2 revenue declined 39.5% year over year; six-month revenue declined 29.8%. Direct-channel sales accounted for nearly all revenue and drove the decline.
- Management attributed weaker sales to softer consumer demand, competitive pricing, and key products losing marketplace prominence. Every reported product category had lower sales year over year in the first half.
- Q2 gross margin fell 11.6 percentage points. Management cited product mix, price competition, and discounted liquidation of higher-cost excess inventory.
- Q2 sales and distribution costs were $20.6 million, or 58.3% of revenue, versus $31.9 million, or 54.7%, a year earlier. Q2 contribution margin, a company-defined non-GAAP measure, was negative $1.3 million (negative 3.6% of revenue), versus positive $5.6 million (9.7%).
- Q2 adjusted EBITDA, a company-defined non-GAAP measure, was negative $8.0 million, versus negative $3.7 million. For the first half it was negative $12.3 million, versus negative $8.3 million.
- Q2 included a $22.8 million intangible-asset impairment; first-half impairment charges totaled $39.4 million. These non-cash charges related to trademarks and revised forecasts for the essential oils, Paper, and kitchen appliance businesses.
- At June 30, cash and cash equivalents were $28.9 million; restricted cash was an additional $2.4 million. Inventory was $36.7 million, down from $43.7 million at year-end 2022. Total assets were $89.5 million and stockholders’ equity was $47.2 million.
- First-half operating cash use was $8.9 million, investing cash use $0.2 million, and financing cash use $6.5 million. Cash and restricted cash decreased $15.3 million to $31.3 million.
- The MidCap facility’s reported carrying amount was $15.7 million at June 30, down from $21.1 million at year-end 2022; stated facility availability was $2.2 million. Current seller notes were $1.2 million. MidCap borrowings bear interest at Term SOFR plus 5.6% and are secured.
Material changes, outlook, and risks
- Going concern: Management said recurring losses, operating cash use, falling revenue, and uncertain access to further capital raise substantial doubt about the company’s ability to continue as a going concern. It had no firm commitments for additional capital and warned it may be unable to meet obligations over the next 12 months beyond the financial statement issuance date without operating inflows or new capital.
- Liquidity covenant: The company reported compliance with MidCap covenants at June 30 and expected compliance through at least June 30, 2024, but gave no assurance it could maintain compliance. The minimum liquidity covenant is generally $15.0 million, with a $12.5 million threshold from February through May. A breach without waiver or forbearance could permit acceleration or enforcement against collateral.
- Operating actions: The company announced a workforce reduction affecting approximately 50 employees and 15 contractors, primarily in the Philippines. It recorded $1.2 million in restructuring charges and had about $0.5 million of related liabilities at quarter-end. Management also plans to rationalize unprofitable or non-core products and monitor spending; further cost reductions or strategic alternatives could be required if plans fail.
- Leadership: CEO Yaniv Sarig resigned effective July 26, 2023; the filing says Arturo Rodriguez and Joseph Risico became co-CEOs. Sarig was entitled to a $0.4 million lump-sum separation payment, and his unvested equity awards were forfeited.
- Listing: Nasdaq notified the company on April 24, 2023 that it did not meet the $1.00 minimum bid-price requirement. The stated initial cure-period deadline was October 23, 2023; continued noncompliance could lead to delisting.
- Other risks and contingencies: A substantial majority of revenue depends on Amazon’s U.S. marketplace, which can change fees, restrict listings, or suspend seller accounts. A supplier settlement dispute remains in legal proceedings; the company fully reserved $4.1 million in 2022. An earn-out dispute could involve approximately £6.9 million (about $8.8 million); the parties were selecting an independent accountant to resolve it. A proposed $0.5 million cash and $0.3 million coupon settlement in the Mueller matter had preliminary court approval, with final approval scheduled for February 2024.
- Guidance: The filing provides no quantified revenue, earnings, or cash-flow guidance. Management described continued pressure from consumer demand, inflation, competition, and supply-chain conditions, and cautioned that interim results may not indicate full-year results.
Important facts for investors to verify
- Whether operating performance and cash generation improve enough to address the expressly disclosed going-concern uncertainty, and whether new financing is secured.
- MidCap covenant headroom, borrowing availability, facility balances, and any subsequent waivers, amendments, or repayment requirements.
- Revenue trends, product-level profitability, contribution margin, inventory liquidation effects, and further impairment risk.
- Nasdaq bid-price compliance and any subsequent listing notices or corporate actions.
- Status and potential financial impact of the supplier, earn-out, and Mueller matters.
- Share-count disclosures: the balance sheet reports 88.0 million shares outstanding at June 30, while the cover page reports 85.3 million as of August 4, 2023; reconcile the difference and review subsequent share activity.