Aterian, Inc. (NASDAQ: ATER) Q4 2021 Earnings Highlights
CEO Yaniv Sarig:
“….Aterian is part of a new breed of technology-enabled consumer product companies. We focus on building, acquiring and partnering with e-commerce brands online. Aterian own and operates 14 consumer brands, selling products across various categories on channels such as Amazon, Walmart, Shopify, eBay and more.
To allow us to scale, we’ve invested in building our own proprietary software platform called AIMEE. AIMEE enables our team to manage our business more efficiently by injecting technology into processes that would otherwise have to be executed manually, and would require hiring an unscalable and sustainable workforce.
Through its ability to analyze vast amounts of data and automate daily recurring tasks, AIMEE allows our team to find new product opportunities we can launch onto our brands, manage those products at scale effectively across various channels, and automate and marketing and fulfillment tasks, and much more. Our goal in the long-term, is to become one of the most efficient consumer product companies in the world, expanding our footprint globally, while continuing to invest in technology and agile supply chain to drive scale and profitability.
Moving now to our key takeaways from Q4. In the fourth quarter of 2021, our net revenue grew 52.5% to $63.3 million, but our contribution margin declined to 7.9%, mainly due to global supply chain disruption and related inflation. As a reminder, our target contribution margin in normal environment is 16% on average across product categories.
Our efforts to reorganize our international shipping strategy and negotiate prefer rates with partners such as Amazon and XPO have shown success. After getting through a few operational issues at surface thoroughly are interacting to the great job at adapting to new paradigms imposed by us by the supply chain pressures.
We were able to face several thousands of dollars per container versus average spot rates for that period, and this continued into Q1. However, we’re still on average paying prices that are approximately – 300% higher than our cost of shipping in 2019 for the same period. Regardless our focus is in the long-term here.
We’re a long-term believers in this company’s vision. So while our contribution margins remain compressed, we’re laser-focused on retaining market share with the expectation that eventually shipping costs will lead. This efforts continue to succeed across our portfolio and I’m happy to report that on average our most critical SKUs continue to maintain a strong market share position in the categories.
Our thesis until a few weeks ago was that international and shipping rates will start declining after Chinese New Year and return over time to a more sustainable cost. The war in Ukraine is putting that thesis in question and several transportation – analysts are predicting that price of shipping might go up in the short-term. While we believe that our logistics partner will still give us preferred rates, spot rates potentially going above $20,000 and other inflationary pressure is not – are not favorable to our business.
Given this challenging environment, and to be cautious, we’re not providing guidance at this time. We’re working hard to generate growth organically this year, potentially through M&A and various other initiative – strategic initiatives. Despite the relative uncertainty we’re facing, I want to point out a few decisions that we made correctly in Q4, which could positively impact 2022.
Our team had anticipated that around the Western holidays’ period, there will be a window to bring in goods at a slightly lower cost. Given that in 2021, we suffered from several out of stock products due to unreliable containers shipping schedules, we opted this time to bring in as much of a critical inventory for the next two quarters early.
If our competitors did not pursue the same strategy, the outcome could be very favorable to us from both our short-term revenue and long-term market share perspective. The decision will be more impactful in our favor if shipping costs increase in the short-term and medium-term, but come down towards the – later part of the year.
While we’re grappling with continuous challenges driven by the macro level environment, it’s important to say clearly to those who follow us that we are more optimistic than ever and continuing to pursue our long-term vision. While waiting for the storm to pass is taking longer than expected, we’re convinced that the world will see companies like us thrive in the future.
As I mentioned previously, we’re not the only ones believing this outcome, we’re witnessing continue to invest in the private equity through Amazon and Shopify aggregators, looking to compete in the same space. Over $12 billion were invested in 2021 in early stage companies pursuing a similar mission of building the consumer product platform of the future. All of these companies are private, that we’re hearing through the industry that most of them are navigating similar challenges.
We believe that we continue to be ahead of the pack in terms of our ability to execute on the model, managing e-commerce brands and marketplace is tedious and requires constant optimization or attention to detail. While Aterian has yet to achieve all our goals in this domain, we intend to remain at the forefront of what technology can do to give us an advantage and remain on top of ever-changing marketplace dynamics.
Technology has been a key advantage for us over time as we managed to scale organization, while keeping sustainable fixed costs due to our investment in the systems and automation. During the pandemic, our fulfillment capability powered by AIMEE that allowed us to overcome critical shipping limitations imposed by Amazon and other partners.
We also recently raised $27.5 million in equity financing, and we intend to use this capital to drive growth, further invest in infrastructure on the tech and supply chain fronts and re-launch our M&A strategy. However, we tend to be patient in the short-term as we evaluate different opportunities in the context of the macro environment. Our category-agnostic model is going to allow us to look at a wide variety of product categories that are potentially less affected by supply chain pressures…”