Aterian's Q3 2025 Earnings Call: Contradictions on Tariff Strategy, E-commerce Expansion, and Sourcing Diversification

Date of Call: None provided

Financials Results

• Revenue: $19.0M, down 27.5% YOY from $26.2M and down ~2% sequentially vs Q2 2025
• Gross Margin: 56.1%, down from 60.3% in Q3 2024
• Operating Margin: Operating loss of $2.0M in Q3 2025, increased from a loss of $1.7M in Q3 2024

Guidance:

• Net revenue for the 6 months ended December 31, 2025 is expected to be $36M to $38M.
• Adjusted EBITDA for the same period is expected to be breakeven to a loss of $1M.
• Management expects, based on current liquidity and cost-savings, not to need additional equity capital for the foreseeable future.

Business Commentary:

* Financial Performance and Tariff Impact: - Aterian reported net revenue of $19 million for Q3, marking a 2% sequential decline and 27.5% year-on-year decrease. - The decline was primarily attributed to strategic price increases to offset tariff costs and a general slowdown in consumer spending.

• Operational Efficiency and Cost Savings:
• Aterian's fixed cost reduction initiative targeted $5 million to $6 million in annualized savings, with approximately $5.5 million secured to date.

• The implementation of AI in customer experience operations led to a 30% improvement in service level performance and a 20% reduction in talk time.

• Marketing and Pricing Strategy:

• The company adopted a more disciplined approach to marketing and pricing due to tariff environment changes, resulting in improved contribution margin, which increased over 700 basis points to over 15% in Q3.
• These adjustments were in response to the challenging tariff environment and the need to stabilize business operations.

• New Product Launches and Expansion:
• Aterian launched consumable products like Squatty Potty Wipes and Healing Solution tallow-based skincare, with positive reviews and minimal launch revenue of $0.2 million.
• The long-term strategy includes expanding product offerings through new channels like Walmart and Target, with a focus on U.S.-sourced products to mitigate tariff risks.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management highlighted stabilization and operational improvements: "contribution margin improved from 7.8% in Q2 to over 15% in Q3" and "adjusted EBITDA loss narrowed to just over $400,000." At the same time revenue fell 27.5% YOY to $19M, and management noted continued top-line challenges and need for further work.

Q&A:

• Question from Brian Kinstlinger (Alliance Global Partners): What percentage of Q3 revenue was from Amazon vs other platforms, and early trends on new e-commerce sites (Home Depot, Best Buy, Bed Bath & Beyond, Target, Walmart)?
  Response: Amazon comprised >95% of Q3 revenue; new big-box channels are early-stage with minimal sales now (Home Depot tiny), Best Buy being tested in Q4, and management expects these channels to scale in 2026 as merchandising and marketing ramp.

• Question from Brian Kinstlinger (Alliance Global Partners): Launch revenue was ~$0.25M — how is that tracking and how should we think about bear/bull cases given careful marketing spend?
  Response: Launch revenue is muted because Squatty Potty wipes are sold 1P (wholesale) with restrained marketing amid tariff uncertainty; product reviews are strong and management expects growth in 2026 as marketing resumes and distribution expands.

• Question from Brian Kinstlinger (Alliance Global Partners): How quickly can you adjust sourcing once new sourcing is necessary for a SKU (e.g., beverage refrigerators with high China tariffs)?
  Response: It depends on supplier capabilities; some manufacturers have non-China facilities enabling relatively quick shifts if quality matches, but timelines vary by SKU and require partner flexibility—management is prioritizing optionality for high-cost goods.

• Question from Shareholder Perks Program (Investor): Any plans to jointly spend on advertising with big-box retailers or to sell in club stores like Costco or Sam's Club?
  Response: Big-box and club-store distribution is a strategic priority, but 2025 execution was limited by tariff unpredictability; the company has had selective placements (e.g., Walmart) and intends to pursue joint merchandising and club opportunities over the long term.

• Question from Shareholder Perks Program (Investor): Plans to expand into the Amazon market in the U.K. and EU similar to Mercado Libre?
  Response: They already sell in the U.K./EU (small base) via Photo Paper Direct; management is ramping marquee SKUs in the U.K. for Q4 and plans broader EU expansion in 2026 after compliance/tax work.

• Question from Shareholder Perks Program (Investor): What is the status of the share repurchase program?
  Response: The repurchase program was suspended in May due to tariff uncertainty and capital preservation needs; management will reassess but it remains suspended for now.

• Question from Shareholder Perks Program (Investor): Can you explain sales by the CEO and CFO while being compensated in shares?
  Response: Executive compensation is largely RSUs; executives have only sold shares to cover tax withholding (sell-to-cover), no opportunistic sales in the past two years, and stock ownership guidelines remain in effect.

Contradiction Point 1

Tariff Impact on Business Strategy

It highlights a shift in the company's approach to tariffs, from considering them a short-term challenge in the previous quarter to a more significant long-term strategic factor impacting capital management and expansion plans.

What is the status of the share repurchase program? - Perks Program

20251114-2025 Q3: The suspension of the share repurchase program was due to tariff impacts. While business stability is improving, capital preservation remains key. We will reassess the program in the future, but for now, the suspension remains. - [Joshua Feldman](CFO)

What is the status of the share repurchase program? - Devin Sullivan (Managing Director of the Equity Group)

2025Q3: We are continuing to manage tariff impacts. We will focus on business stabilization and cost management while we build a new model. - [Joshua Feldman](CFO)

Contradiction Point 2

Expansion into New E-commerce Channels

It involves differing perspectives on the progress and timing of expansion into new e-commerce channels, which are strategic for the company's growth.

Can you provide details on your new channel partners? What percentage of Q3 revenue came from Amazon versus other platforms? What early trends are you seeing on new e-commerce sites? - Brian Kinstlinger (Alliance Global Partners)

20251114-2025 Q3: Amazon is still predominantly over 95% of our revenue for the quarter. However, we are expanding to new channels like Home Depot, Best Buy, and Bed Bath & Beyond. The focus is on setting them up to perform better in 2026. - [Joshua Feldman](CFO)

What percentage of Q3 revenue came from Amazon versus other platforms? What early trends are you seeing on new e-commerce sites? - Brian Kinstlinger (Alliance Global Partners, Research Division)

2025Q3: For the new channels like Home Depot, sales were very small as it was mainly a setup for dehumidifiers in Q4. Best Buy is being tested during the holiday season with our PurSteam steam mops. The focus is currently on merchandising for each channel to optimize sales. - [Joshua Feldman](CFO)

Contradiction Point 3

Diversification of Sourcing from China

It highlights differing statements regarding the company's progress in reducing its reliance on Chinese manufacturing, which has significant implications for operational resilience and cost management.

How quickly can you adjust sourcing for a SKU when new sourcing is needed, particularly due to tariff changes in China? - Brian Kinstlinger(Alliance Global Partners)

20251114-2025 Q3: Sourcing adjustments depend on manufacturer capabilities. Some products can be sourced outside China with minimal impact, but others may require assessing whether sourcing in China remains the most cost-effective option. - [Arturo Rodriguez](CEO)

Has the timeline for reducing Chinese-based manufacturing by 30% by 2025 changed due to the evolving landscape? - Unidentified Analyst(Alliance Global Partners)

2025Q2: This year, about 65% of our dehumidifiers are sourced from China, down from 100% last year. There are still opportunities for diversification, but it's not as straightforward as before. - [Arturo Rodriguez](CEO)

Contradiction Point 4

Marketing Spend and Revenue Strategy

It demonstrates differing statements about the company's approach to marketing spend and its impact on revenue strategy, which are critical for revenue forecasts and investor expectations.

How is Launch revenue tracking against your plans, and how should we assess bear and bull cases given your cautious approach to capital deployment for marketing? - Brian Kinstlinger(Alliance Global Partners)

20251114-2025 Q3: Launch revenue is tracking to plans, with a focus on long-term growth. Marketing efforts are scaled back due to tariff impacts, but the product quality is strong, with 4.6 star reviews. - [Arturo Rodriguez](CEO)

Does meeting your adjusted EBITDA guidance include reduced marketing spend? What other actions are needed to achieve the second-half guidance? - Devin Sullivan(perks program participant)

2025Q2: We increased marketing spend in Q2, but we've since adjusted our approach. With revenues stabilized and fixed cost reductions, we expect these actions to reduce losses in the back half of the year. - [Joshua Feldman](CFO)

Contradiction Point 5

Impact of Tariffs on Pricing Strategy

It showcases a disparity in the company's approach to pricing strategy in response to tariffs, which directly affects revenue and consumer behavior.

How is launch revenue tracking versus your plans, and how should we assess the bear and bull cases considering your comments on capital deployment for marketing launches? - Brian Kinstlinger (Alliance Global Partners)

20251114-2025 Q3: The pricing strategy involves increases to offset tariff impacts. The effects are mixed, with both positive and negative responses from consumers. The company maintains strong product rankings despite price increases. - [Arturo Rodriguez](CEO)

Can you elaborate on your pricing strategy and consumer response? - Unidentified Analyst (Alliance Global Partners)

2025Q1: The pricing strategy involves increases to offset tariff impacts. The effects are mixed, with both positive and negative responses from consumers. The company maintains strong product rankings despite price increases. - [Arturo Rodriguez](CEO)