BARK, Inc. Class A

to BARC's second quarter fiscal 2024 earnings conference call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I will now turn the conference over to Mike Mugis, Vice President of Investor Relations. You may begin.

Good afternoon, everyone, and welcome to BARC's second quarter fiscal year 2024 earnings call. Joining me today are Matt Meeker, co-founder and CEO, and Zaheer Ibrahim, Chief Financial Officer. Today's conference call is being webcast in its entirety on our website, and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company's financial results was issued this afternoon and can be found on our investor relations website. Before I pass over to Matt, I would like to remind you of the following information regarding forward-looking statements. The statements made on today's call are based on management's current expectations and are subject to risks and uncertainties that could cause actual future results and outcomes to differ. Please refer to our SEC filings for more information on some of the factors that could affect our future results and outcomes. Also during today's call, we will discuss certain non-GAAP financial measures. Reconciliation to our non-GAAP financial measures is contained in this afternoon's press release. And with that, let me now pass it over to Matt.

Thanks, Mike, and good afternoon, everyone. Our second quarter results highlight the significant progress we continue to make in improving our long-term profitability outlook. Last quarter, we delivered positive adjusted EBITDA of $1 million, surpassing our guidance range and marking our first positive EBITDA quarter as a public company. We also achieved another period of positive free cash flow, which came in at just under $1 million. On a trailing 12 month basis, we've delivered positive free cash flow of approximately $4 million. When I returned to BARC, we faced a lot of skepticism. We heard that we would never reach profitability, that we were going to run out of cash within a year, or if we did generate cash, we couldn't do so consistently. Sitting here today, With our first adjusted EBITDA positive quarter behind us and positive free cash flow generation on a trailing 12-month basis, I'm thrilled with the progress we've made. One EBITDA positive quarter is the first step to one EBITDA positive year, and that's what's next for us. In fact, our confidence in our profitability outlook has grown to such an extent that earlier this week we paid down $45 million of a face amount of our convertible notes early. This decision improved our net cash position by nearly $3 million and saved over $5 million of interest over the remaining term of the note. Overall, we believe our capital structure is stronger as a result. At a recent conference, I shared a quote from an analyst that summarizes the approach I've taken to Grow Bark since returning to the CEO role 22 months ago. Growth without profit is a waste of time. Profit without growth is a matter of time. Profit has been our focus, and as our recent results indicate, we've come a long way. This has meant shedding on profitable revenue streams in lieu of building a profitable business. However, it's from that foundation that we can now really focus on returning to profitable top line growth. With that said, there is no denying that the growth environment today is challenging, not just for BARC, but also for our pet and direct-to-consumer peers. In pet in particular, households with dogs declined by 3 million last year, and we anticipate another decline this year. We are essentially returning to pre-pandemic levels. And the discretionary spend is extra challenging, especially in toys. Nielsen data through October shows the dog toy industry is down 10% this fiscal year. The reality is it's challenging and will continue to be in the near term. But regardless of those macro challenges, we need to continue to execute against our strategic initiatives to grow our profit in addition to delivering more efficiency opportunities, and there are more. I'll touch on this more in a moment, but first let's talk about our results last quarter. Starting at the top of the P&L, we delivered total revenue of $123 million, meeting our guidance for the quarter. On the DTC side, our core toy subscription business continue to feel the macro headwinds, particularly from a customer acquisition standpoint. However, despite that, we've seen some encouraging progress recently as new customer acquisition has been up progressively since May. It's not where we want it to be yet, but we're improving rapidly in a tough environment. While that's a challenge, our customer retention rates last quarter were at the highest level since going public. and our average order value remains strong at over $31. So when we bring new customers onto our platform, they are staying longer and spending a lot with us. When we laid out our strategic priorities at the beginning of the year, we talked about, one, moving towards a consolidated DTC experience, two, turning more of our focus to consumables, and three, selling those consumable products in retail. Let's touch on the recent progress we've made across each of those initiatives. On the consolidated DTC experience, I'm happy to report that our new site URL is now just bark.co, and the site is making good progress. Having all our products under one domain has improved our ability to convert customers and cross-sell them across our product portfolio, and we're now able to direct them to a much simpler and more effective domain. Specifically, where we faced headwinds on our toy and toy and treat subscription product lines. If we look at consumables revenue outside of what's included in our box subscription products, we generated just over $5 million of revenue last quarter, up 20% versus last year. This is largely from Bark.co picking up steam. On expanding more into retail, last quarter we delivered $19 million of commerce revenue. We were also able to bring new retail partners and countries into the mix. Bark Toys are now in all 450 pet at home stores in the UK. We've also begun to expand beyond just toys and retail. We recently partnered with the Girl Scouts where we are selling co-branded products through their online platform. This pilot program went exceptionally well and we ended up meaningfully increasing our commitment as products sold out much faster than expected. Longer term, we have an opportunity to significantly expand this partnership and become the first brand partner to participate in the Girl Scouts larger sales channels. This represents not only a massive revenue opportunity, but also a new product category for those channels. Furthermore, we recently began selling our treat advent calendar through certain Costco stores in the US and the initial feedback has been very strong. In fact, we've already been approached by other retail partners interested in selling our advent calendar next holiday season. And finally, as we announced last month, I'm thrilled to share that we received our first commitment from a leading retailer in the US to begin selling our treats across over a thousand doors in the spring of 2024. As we've discussed throughout the year, introducing consumables in our retail channel is a huge opportunity and we've made tangible progress over the past several months. And while this recent progress will not have a significant impact on our top line this year, we plan to build on this momentum and continue to anticipate the commerce segment to represent around 30% of our total revenue over the next four to five years. Moving down the P&L, when I returned to CEO, one of the biggest opportunities for reaching profitability was bringing discipline to our unit economics and the gross margin line. Last quarter, we delivered healthy improvements in gross margin yet again. Our consolidated gross margin came in at 61.5%, nearly 100 basis points higher on a sequential basis, and 560 basis points higher than Q2 last year. On the DTC side of the business, our gross margin came in at approximately 65% last quarter. a 400 basis point improvement year over year, and up 270 basis points versus the first quarter. Overall, we've been very pleased with our ability to materially improve our margin profile in a relatively short period of time. Moreover, we expect this trend to continue through FY24 and beyond. And finally, we delivered $1 million of adjusted EBITDA in fiscal Q2, our first positive quarter since going public over two years ago. And though we don't expect positive EBITDA in the current quarter as we invest more heavily in growth during the peak holiday period, we do believe that fiscal Q4 will also be positive on an adjusted EBITDA basis. Overall, our top priorities remain. These priorities are to fulfill our mission to make all dogs happy, execute our strategic initiatives, and continue to deliver on the path to sustainable profitability. To that end, we expect ongoing improvements in our gross margin line well into fiscal 2025. We also believe there are additional areas where we can reduce expenses in shipping and fulfillment, as well as GNA. In short, we expect to continue to deliver healthy year-over-year improvements in profitability going forward. And success here will better enable us to fulfill our mission to make all dogs happy. Overall, we have many exciting things happening and coming to market soon. While we continue to expect toys to face challenges in this environment, we anticipate our newer consumables products to grow at a healthy clip in both DTC and retail, which is in line with our strategy. This growth coupled with our continued efforts to reduce costs, improve margins, and deliver operating leverage on our cost structure is expected to have meaningful benefits to our bottom line and free cash flow generation with each passing quarter. And ending last quarter with over $160 million of cash on hand and a business that just turned in its first EBITDA positive quarter and its free cash flow positive over the trailing 12 months, we believe we're in a strong position for the long term. And with that, I will turn it over to Zaheer.