BARK, Inc. Class A

Thank you for standing by. My name is Bailey and I will be your conference operator today. At this time, I would like to welcome everyone to the BARC second quarter fiscal 2025 earnings conference call. 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 this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and one. I would now like to turn the call over to Mike Lugis, VP of Investor Relations. You may begin.

Good afternoon, everyone, and welcome to BARC's second quarter fiscal year 2025 earnings call. Joining me today are Matt Meeker, co-founder and chief executive officer, and Zahir 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 it over to Matt, I want 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. We will also discuss certain non-GAAP financial measures on today's call. Reconciliation of 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. On our last earnings call, I shared my enthusiasm for the strategic talent additions we made earlier in the year. Strengthening our talent coupled with improving the foundational components of our P&L, and it was time for us to focus our energy on driving top-line growth. I'm pleased to report that the team is tackling this objective aggressively, laying a foundation for sustainable long-term growth. Let's start by reviewing some highlights from our fiscal second quarter. Last quarter, we delivered $126.1 million of revenue, surpassing the high end of our guidance range and marking a 2.5% increase compared to the same period last year. While our long-term growth ambitions are far greater, it's worth noting that this is our first quarter of year-over-year revenue growth in eight quarters. This is a return to growth, an important first step, and we remain enthusiastic about what's ahead, especially given that many of the growth initiatives the team has been focused on are just beginning to be reflected in our results. One area that we've highlighted as an important revenue driver is our commerce segment. To that end, I'm pleased to report that this segment grew 26% year-over-year, driven by adding new partners like Chewy, Dressnap, and expanding with existing partners like Costco, TJ Maxx, and Amazon. I'm also happy to report that for the first half of our fiscal year, Bark was one of the top-selling new treat brands in both Target and PetSmart. This is very encouraging as our brand and products clearly resonate with these leading retail customers and bode well for future retail expansion. In addition to recent top-line growth, we delivered a 60% consolidated gross margin in the quarter. It's important to note that the proportion of our commerce revenue in the quarter, which was a big positive, impacted our consolidated gross margin. But that's not the full picture. It's key to remember that while the gross margin in our commerce segment is lower than our D2C segment, the contribution margin is on par, if not slightly higher, than D2C. Today, it's more profitable with a lot more growth potential, which is why we're pushing for commerce to be more than one-third of our revenue and are excited by our progress towards that goal. The strong 60% gross margin and our continued cost improvements in G&A and shipping and fulfillment resulted in an adjusted EBITDA of positive $3.5 million in the quarter, our strongest EBITDA quarter in the company's history. This was ahead of the high end of our guidance range and reflects a $2.5 million improvement compared to last year. Halfway through our fiscal year, this puts us at positive adjusted EBITDA of $1.7 million and on track for our first full year of profitability. Additionally, we achieved another quarter of positive free cash flow, generating $1 million in the period. As I mentioned earlier, our profitability improvements have been significant. And now we're seeing the top line growth drivers kick in. As expected, when we started the year and consistent with our guidance, we expect to deliver full year profitability for fiscal year 2025 as we start returning to growth, especially in our commerce and air business lines. So let me discuss some of those opportunities. In our D2C segment, we delivered our fourth consecutive quarter of year-over-year new subscriber growth. Our new CMO, Michael Parnas, is actively implementing a full funnel strategy designed to showcase not only our exceptional products, but also to elevate brand awareness and reinforce our mission. By fostering stronger connections with our audience, we can reach more dog households, increase basket size, and improve customer retention. The team is developing several new brand-focused campaigns that we're excited to unveil in the coming months. This requires moving some dollars from the bottom of funnel spending that yields new customers immediately into planting seeds of awareness that will unfold over a longer time horizon. We've started that transition now and will continue throughout this year, meaning we will give up some short-term gains in B2C for the long-term acceleration we've been lacking. Those short-term gains are also hollow calories. We can add new customers, but the further we reach into Facebook for them, the more we pay and the lower quality they are. This transition will, in time, take us to a world where we expect to grow faster and more profitably at the same time. Related to this, we've been moving more of our existing customers to our Shopify-based platform at Bark.co. We're so encouraged by the progress that we decided to move our D2C ad spending to this new platform in October. Any shift to a new website comes with some bumps in the road, But on the whole, we did this because we saw the opportunity for higher new customer conversion at a lower cost of acquisition in the long term. We can also push those performance marketing savings into our top of funnel brand awareness activities, which should lead to a healthier marketing mix over time. This has been a long time coming and something we decided to do earlier than expected, given the significant progress we're making in other areas like commerce. Nonetheless, Our most immediate opportunity for rapid growth is within our commerce segment. Six quarters ago, we discussed an ambition for our commerce segment to grow from 12% of revenue to over one-third. We're on course for that with 18.6% of revenue coming from commerce this quarter and more growth coming. And as I said before, this segment is more profitable than D2C today. The faster growth here translates to faster growth on both the top and bottom lines. progress is faster than the results due to the long lead times in this channel but we're highly encouraged by where we see it going as i mentioned the segment grew 26 year over year and there's still significant runway ahead first we plan to expand our consumables presence across more retail shelves including treats toppers dental and kibble under michael black's leadership The team has made significant strides, and we have ample opportunities both domestically and internationally. Beyond our brick-and-mortar footprint, we expect sizable growth through Chewy and Amazon. We launched with Chewy in June, and I'm pleased to report that our full suite of products, from toys to kibble, is now available on their platform. They've been an outstanding partner, and we're thrilled with the progress. Additionally, while Amazon was a relatively small revenue contributor last year, we anticipate it will become a much more meaningful driver of our top line over the coming years. These e-commerce channels serve to not only drive long-term revenue growth, but also help raise awareness of our brand and growing product portfolio. Additionally, we entered the second year of our Girl Scouts partnership in September, offering their customers three SKUs up from just one last year. This year's program, which concludes this month, has gone exceptionally well, far outpacing last year's program through their digital channels. We are excited to deepen our partnership in the future and hope to have more to share on that soon. Lastly, I'm excited to announce that we recently released Pet Crocs, created in collaboration with the Crocs team. As of October, BART customers could add Crocs-style shoes for their dog to their monthly box. We love these types of partnerships as they showcase the fun and oftentimes quirky bond between dogs and their humans. Partnerships with Crocs, Dunkin, and Subaru are great examples of how we can broaden our audience and elevate awareness of the Bark brand. Overall, there's a ton of opportunity for us in this segment, and we remain confident that commerce will comprise at least a third of our total revenue within the next three to four years. The last area I would like to touch on is Bark Air. To date, we've flown 50 flights, which includes 425 dogs and 449 humans. We've also booked over $4.5 million in ticket sales since launch. Last quarter, Bark Air delivered $1.5 million in revenue and positive gross profit in the second quarter, as utilization has been in the mid-90% for the past several months. As this initiative scales, we see opportunities to lower our costs, as well as the cost of the consumer, making air travel accessible to a much wider audience of dog parents. Not only is this initiative driving incredible awareness of Bark, but we see a real business opportunity long term. Overall, there are a lot of exciting things happening at Bark. We delivered our strongest adjusted EBITDA quarter in company history, which represents our ninth consecutive quarter of year-over-year adjusted EBITDA improvement. We are on track to deliver our first adjusted EBITDA positive year in history, which is huge progress from losing $57 million only three years ago. We are seeing green shoots on our top line, with our commerce segment expected to grow 30-plus percent this fiscal year and grow even faster next year. We ended the quarter with a healthy cash balance of $115 million, which affords us plenty of flexibility to invest in future growth. This cash balance also reflects the company buying back over 8 million shares over the past 12 months. And the new leaders we added to the team are off to a very strong start in their first six months. Just wait until they've had a full year together. So overall, this is really coming together, and I'm excited about what's in store for BARC. With that, I will turn the call over to Zaheer.