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Aterian Reports First Quarter 2021 Results

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Quarterly Net Revenue Grew 88% Year-Over-Year to $48.1 Million

Announces Acquisition of Squatty Potty, a Leading Health & Wellness Brand

Announces Closing of Previously Disclosed Photo Paper Direct Acquisition

Company Raises 2021 Net Revenue Outlook Range to $360 Million - $390 Million

NEW YORK, May 06, 2021 (GLOBE NEWSWIRE) -- Aterian, Inc. (Nasdaq: ATER) (“Aterian” or the “Company”) today announced results for the first quarter ended March 31, 2021. Aterian was formerly named Mohawk Group Holdings, Inc. and was renamed Aterian, Inc. on April 30, 2021.

First Quarter 2021 Highlights

  • Net revenue grew 88% year over year to $48.1 million, compared to $25.6 million in the first quarter of 2020.
  • Gross margin improved to 54.1% compared to 40.2% in the first quarter of 2020.
  • Operating loss increased to $(27.8) million, which includes $15.6 million of charges from the change in fair-value of earn out liabilities, compared to an operating loss of $(13.9) million in the first quarter of 2020.
  • Contribution margin improved to 12.7% from negative (2.9)% in the first quarter of 2020.
  • Operating expenses for the first quarter of 2021 were $53.8 million an increase from $24.2 million in the first quarter of 2020.
  • Excluding non-cash stock-based compensation and amortization of intangibles of $8.0 million in the first quarter of 2021 and $7.4 million in the first quarter of 2020 and $15.6 million from the change in fair-value of potential future performance based earnouts from acquisitions in 2021, fixed operating expenses for the first quarter decreased as a percentage of net revenue to 17.5% compared to 22.3% in the first quarter of 2020.
  • Net loss of $(82.6) million, which includes $50.3 million of net charges from the changes in fair-value of and cancellation of warrants and includes $15.6 million of charges from the change in fair-value of earn out liabilities, increased from a net loss of $(15.0) million in the first quarter of 2020.
  • Adjusted EBITDA loss improved to $(1.3) million compared to $(6.4) million in the first quarter of 2020.
  • 21 new products launched in the first quarter compared to 16 in the first quarter of 2020.
  • Total cash balance at March 31, 2021 increased by $8.3 million from December 31, 2020 to $35.0 million.

M&A Update

  • Announces acquisition of Squatty Potty, LLC (“Squatty Potty”), a leading online seller of health and wellness products in an asset purchase transaction.
  • Closes previously announced acquisition of Photo Paper Direct Ltd., (“Photo Paper Direct''), a leading online seller of printing supplies.
  • The historical audit of the 9830 Macarthur LLC acquisition (“Smash”) has been completed and we now expect to file our delayed Form 8K/A no later than May 14, 2021.
  • Currently evaluating a pipeline of potential M&A targets that in total have trailing twelve month’s net revenue of $613 million and trailing twelve month’s EBITDA of $91 million.
  • We are currently in discussions with various top tier investment banks to evaluate financing structures in an effort to capitalize our accelerated M&A strategy and to improve our cost of capital.

Yaniv Sarig, Co-Founder and Chief Executive Officer, commented, “Despite the challenges e-commerce faced with strains on the global supply chain throughout the first quarter, Aterian remains well-positioned to capitalize on the continued global acceleration of e-commerce adoption and expanding market opportunities in the long-term. Due to extreme shortages of containers and backlogs of ships at the Long Beach Port, we suffered from stockouts on some of our top SKUs aggregating to an estimate of approximately $6 million of missed revenue. However, our sourcing, supply chain and operations team continues to work diligently to resolve these issues and we are continuing to monitor this global crisis closely.”

“As a market leading technology-enabled consumer products platform that builds, acquires and partners with best-in-class e-commerce brands, we are happy to announce today that we have closed our previously announced acquisition of Photo Paper Direct. We are excited to formally welcome our first European-based brand to Aterian’s portfolio and pleased about our entrance in the printing supplies category.” Sarig continued, “I am also thrilled to announce the acquisition of Squatty Potty, a category creator with a strong brand and broad customer base. We believe that the business’s significant online presence and brand equity can be further enhanced through investments in international expansion and the launch of additional products. As we bring this brand into the Aterian family, we continue to demonstrate our ability to operate across diverse product categories through leveraging our proprietary technology and agile supply chain. We look forward to building on the strength of this brand.”

Acquisition of Squatty Potty Assets
Aterian has acquired the business of e-commerce and retail company Squatty Potty, LLC (“Squatty Potty”), a leading online seller of health and wellness products in an asset purchase transaction. Founded in 2011, Squatty Potty is a consumer products company whose product lines consist of toilet stools, sprays and other bathroom accessories. Its flagship product, the Squatty Potty stool, is designed to help users assume the squatting position while using the bathroom, delivering fast, complete elimination with comfort and ease. Over the past year, Squatty Potty has diversified and scaled its product offerings while broadening its reach globally. Currently, Squatty Potty products are sold in thousands of retail locations including Bed, Bath & Beyond, Walmart and Target.

Squatty Potty’s unaudited trailing twelve month revenue and operating income, as of March 31, 2021, were approximately $16.8 million and $4.7 million, respectively. As consideration for Squatty Potty’s assets, Aterian paid approximately $19.0 million in cash. The cash payment reflects an approximate 4.0x multiple on the trailing twelve month operating income of Squatty Potty as of March 31, 2021. Aterian also paid approximately $1.1 million as consideration related to acquired inventory. In addition, and subject to the achievement of contribution margin metrics for the year ended December 31, 2021, Aterian agreed to pay Squatty Potty a maximum earnout of approximately $4.0 million, payable in stock or cash at the seller’s discretion. Aterian also agreed to pay Squatty Potty $8.0 million for transition services, payable in stock or cash at the seller’s discretion.

Closing of Photo Paper Direct Acquisition
Aterian today announced it has closed the acquisition of all outstanding stock of e-commerce company Photo Paper Direct Ltd. (“Photo Paper Direct''), a leading online seller of printing supplies. Photo Paper Direct’s unaudited trailing twelve month revenue and operating income, as of December 31, 2020, were approximately $14.6 million and $3.9 million, respectively. As consideration for Photo Paper Direct’s stock, Aterian paid approximately $8.28 million in cash and issued approximately 704,500 shares of Aterian’s common stock. The cash and common stock payments reflect an approximate 4.7x multiple on the trailing twelve month operating income of Photo Paper Direct as of December 31, 2020. Aterian also agreed to pay approximately $5.4 million in cash as consideration related to Photo Paper Direct’s inventory and other working capital assets, including cash on hand of approximately $3.0 million. In addition, and subject to the achievement of certain Adjusted EBITDA metrics by December 31, 2021, Aterian agreed to issue to Photo Paper Direct a maximum earnout of $6.0 million in cash and $2.0 million in Aterian common stock. In connection with the transaction, the former shareholders of Photo Paper Direct signed a five year voting and standstill agreement. This is Aterian’s first European acquisition.

2021 Outlook
As a result of the Squatty Potty acquisition, the Company expects net revenue for full year 2021 to be in the range of $360 million to $390 million up from $350 million to $380 million. For full year 2021, the Company expects Adjusted EBITDA to remain in the range of $30.0 million to $34.0 million.

The most directly comparable GAAP financial measure for Adjusted EBITDA is net loss and we expect to report a net loss for the twelve months ending December 31, 2021, due primarily to quarterly interest expense, net, fair value changes on contingent earnout liabilities from our acquisitions, fair value changes from warrant liabilities from our financings and stock-based compensation expense.

Non-GAAP Financial Measures
For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please see the “Non-GAAP Financial Measures and Reconciliations” section below.

Net income is the most directly comparable GAAP financial measure for Adjusted EBITDA. The Company has not reconciled its expectations as to forward-looking Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, because certain items are out of the Company’s control or cannot be reasonably predicted, including that the historical revenue and operating income of Photo Paper Direct and Squatty Potty may not be representative of future revenue and operating income, fair value changes on contingent earnout liabilities from our acquisitions, fair value changes from warrant liabilities from our financings and any other potential acquisitions to be completed that are subject to the completion of the Company’s standard procedures for the preparation and completion of its financial statements and completion of an audit by the Company’s independent registered public accounting firm. Accordingly, a reconciliation of forward-looking Adjusted EBITDA to net income is not available without unreasonable effort.

Webcast and Conference Call Information
Aterian will host a live conference call to discuss financial results today, May 6, 2021, at 5:00 p.m. Eastern Time. To access the call, participants from within the U.S. should dial (888) 895-5479 and participants from outside the U.S. should dial (847) 619-6250 and provide the conference ID: 50154244. Participants may also access the call through a live webcast at https://ir.aterian.io/investor-relations. Please visit the website at least 15 minutes prior to the start of the call to register and download any necessary software. The archived online replay will be available for a limited time after the call in the Investor Relations section of the Aterian website.

About Aterian, Inc.
Aterian, Inc. (Nasdaq: ATER), is a leading technology-enabled consumer products platform that builds, acquires, and partners with best-in-class e-commerce brands by harnessing proprietary software and an agile supply chain to create top selling consumer products. The Company’s cloud-based platform, Artificial Intelligence Marketplace Ecommerce Engine (AIMEE™), leverages machine learning, natural language processing and data analytics to streamline the management of products at scale across the world’s largest online marketplaces, including Amazon, Shopify and Walmart. Aterian has thousands of SKUs across 14 owned and operated brands and sells products in multiple categories, including home and kitchen appliances, health and wellness, beauty and consumer electronics.

Forward Looking Statements

All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements regarding our M&A strategy including our effort to capitalize our accelerated M&A strategy and to improve our cost of capital, our goal of creating a supply chain and technology platform designed to operate e-commerce brands across a wide spectrum of categories, any potential acquisition of additional businesses in the future, our ability to create significant operating leverage and efficiency when integrating companies that we acquire, including through the use of our team’s expertise, the economies of scale of our supply chain and automation driven by our platform, our ability to operate across diverse product categories though leveraging our proprietary technology and supply chain, our expectations regarding future growth internationally and through the development and launch of products under our brands and the acquisition of additional brands, our expectations regarding the continued global acceleration of e-commerce adoption in the long-term and our ability to capitalize on such e-commerce adoption, our expectations regarding global supply chain issues, the estimated amount of missed revenue due to stockouts and our supply chain team’s ability to resolve issues related to container shortages, backlogs of ships and stockouts, our 2021 net revenue outlook, including any expected impact that the acquisitions of Photo Paper Direct and Squatty Potty may have thereon, our expectations regarding our ability to enhance Squatty Potty’s online presence and brand equity through investments in international expansion and the launch of additional Squatty Potty products, and the statements about our expected net income and Adjusted EBITDA for the full year 2021. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to the acquisitions of Photo Paper Direct and Squatty Potty; those related to our ability to create operating leverage and efficiency when integrating companies that we acquire, including through the use of our team’s expertise, the economies of scale of our supply chain and automation driven by our platform; those related to our ability to grow internationally and through the launch of products under our brands and the acquisition of additional brands; those related to the impact of COVID-19, including its impact on consumer demand, our cash flows, financial condition and revenue growth rate; the completion of our customary audit procedures and the audit of any acquired business; our supply chain including sourcing, manufacturing, warehousing and fulfillment; our ability to manage expenses, working capital (including for PPE products) and capital expenditures efficiently; our business model and our technology platform; our ability to disrupt the consumer products industry; our ability to grow market share in existing and new product categories, including PPE; our ability to generate profitability and stockholder value; international tariffs and trade measures; inventory management, product liability claims, recalls or other safety and regulatory concerns; reliance on third party online marketplaces; seasonal and quarterly variations in our revenue; acquisitions of other companies and technologies, our ability to continue to access debt and equity capital (including on terms advantageous to the Company) and the extent of our leverage and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), all of which you may obtain for free on the SEC’s website at www.sec.gov.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Investor Contact:

Ilya Grozovsky
Director of Investor Relations & Corp. Development
Aterian, Inc.
ilya@aterian.io
917-905-1699

Media Contact:

Andrew Blecher
Communications
andrew@aterian.io


ATERIAN, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)

  December 31, 2020  March 31, 2021 
ASSETS        
CURRENT ASSETS:        
Cash $26,718  $34,995 
Accounts receivable—net  5,747   7,192 
Inventory  31,582   55,026 
Prepaid and other current assets  11,111   24,577 
Total current assets  75,158   121,790 
PROPERTY AND EQUIPMENT—net  169   166 
GOODWILL AND OTHER INTANGIBLES—net  78,778   140,473 
OTHER NON-CURRENT ASSETS  3,349   3,552 
TOTAL ASSETS $157,454  $265,981 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
CURRENT LIABILITIES:        
Credit facility $12,190  $14,319 
Accounts payable  14,856   26,475 
Term loan  21,600   21,600 
Seller notes  16,231   10,677 
Contingent earn-out liability  1,515   18,783 
Accrued and other current liabilities  8,340   14,181 
Total current liabilities  74,732   106,035 
OTHER LIABILITIES  1,841   1,841 
CONTINGENT EARN-OUT LIABILITY  21,016   35,951 
TERM LOANS  36,483   83,689 
Total liabilities  134,072   227,516 
COMMITMENTS AND CONTINGENCIES (Note 9)        
STOCKHOLDERS’ EQUITY:        
Common stock, par value $0.0001 per share—500,000,000 shares authorized and
27,074,791 shares outstanding at December 31, 2020; 500,000,000 shares
authorized and 30,590,796 shares outstanding at March 31, 2021
  3   3 
Additional paid-in capital  216,305   313,911 
Accumulated deficit  (192,935)  (275,488)
Accumulated other comprehensive income  9   39 
Total stockholders’ equity  23,382   38,465 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $157,454  $265,981 


ATERIAN, INC.

Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)

  Three Months Ended March 31, 
  2020  2021 
NET REVENUE $25,628  $48,136 
COST OF GOODS SOLD  15,330   22,073 
GROSS PROFIT  10,298   26,063 
OPERATING EXPENSES:        
Sales and distribution  13,910   25,069 
Research and development  2,281   2,124 
General and administrative  8,003   10,976 
Change in fair value of contingent earn-out liabilities     15,645 
TOTAL OPERATING EXPENSES:  24,194   53,814 
OPERATING LOSS  (13,896)  (27,751)
INTEREST EXPENSE—net  1,109   4,420 
CHANGE IN FAIR VALUE OF WARRANT LIABILITY     30,202 
LOSS ON INITIAL ISSUANCE OF WARRANT     20,147 
OTHER EXPENSE  25   33 
LOSS BEFORE INCOME TAXES  (15,030)  (82,553)
PROVISION FOR INCOME TAXES   
Aterian, Inc.

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