BARK, Inc. Class A

Hello, and thank you for standing by. At this time, I would like to welcome everyone to the BARC fiscal fourth quarter and full year 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 that time, simply press star 1 on your telephone keypad. Thank you. I will now turn the call over to Mike Mugis, VP of IR and BPA. Mike, please go ahead.

Good afternoon, everyone, and welcome to BARC's fiscal fourth quarter and full 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 will be webcast in its entirety on our website, and a replay 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 in 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.

There are three big takeaways I want to share with you today. First, we delivered our first ever adjusted EBITDA positive year. Second, we intend to remain adjusted EBITDA positive this year and beyond. And third, we plan to accelerate the diversification of our revenue faster than previously planned. My remarks today will expand on each of these three takeaways. First, after 14 years of working at it, we are adjusted EBITDA positive for the first year ever. This is huge. In Q4, we delivered $5.2 million in positive adjusted EBITDA, our best quarterly result ever. And for the full year, we achieved $5.4 million, our first full year in the black. Just three years ago, we lost $58 million and burned nearly $200 million in cash. At the time, many questioned our long-term viability. Now, three years later, we're not only standing, we're in positive adjusted EBITDA territory. So here we'll discuss our fourth quarter and full year results in more detail. However, at a high level, revenue for the quarter was $115.4 million, lighter than expected, as we pulled back on growth in response to tariff-related uncertainty and potential downstream costs. Tariffs, along with softening consumer sentiment, gave us a strong push to accelerate diversification efforts. One area where we've made real progress is our commerce business. This segment grew 27% year over year to $68.3 million. We expanded our relationships with retail partners like Chewy, Amazon, PJ Maxx, Target, Costco, the Girl Scouts, and others. Gross margins in commerce expanded by 227 basis points over FY24 and 960 basis points over FY23. All of this makes BARC stronger and more resilient. Speaking of gross margins, we delivered 63.6% in Q4, our highest level ever. For the full year, we achieved 62.4%, a 73 basis point improvement over FY24, and a 480 basis point improvement over FY23. In a world shaped by tariffs and economic uncertainty, Margin strength is a critical buffer and a competitive advantage. All of this and more contributed to our first ever adjusted EBITDA positive year. My second big takeaway is that we intend to stay adjusted EBITDA positive this year and for the foreseeable future. Tariffs and policy shifts under the current administration create a lot of uncertainty, but we have a plan and are committed to achieving this. Here are three ways we're making that happen. First, we're making some updates to the customer experience that save us money and we believe enhance that experience. One example is delivering the monthly BarkBox in a bag with a connected digital themed AI driven experience that's personalized for your dog. Another example is going into the archives and using popular themed products of the past and upcoming shipments as a way of using inventory that doesn't carry tariff costs and using products we know are loved by dogs and their parents. Second, we are fortunate to have a great supply chain team, and they've responded to each tariff escalation with smart mitigation plans. Some toy products in the near term, mainly the first half of the year, will carry the burden of tariffs of up to 80%, but that will decrease significantly in the back half of the year as we strive to deliver productivity improvements and diversify our sourcing footprint. By mid-year, we expect to return to a margin profile similar to how we closed last year. And third, we're shifting our investment dollars more rapidly and aggressively in new product lines, distribution channels, and services than previously planned. And that brings me to my third big takeaway. We will be accelerating our efforts to diversify our product lines, our channels, and our revenue growth away from largely BarkBox subscriptions. Those subscriptions still accounted for around 85% of all revenue last year. While that number is coming down from previous years, it's not moving fast enough. And now more than ever, we need for this to happen much faster. we've concentrated our marketing dollars almost exclusively on D2C subscription boxes, leaving little to nothing for new opportunities. So going forward, we'll pull back on such heavy investment in the subscription box business to invest elsewhere, such as our new consumables line coming in August, new services coming from the BarkAir team, further acceleration into the wholesale channel and Amazon and Chewy, and even AI-driven apps for dogs and their people. Last year, we showed what we can do with a bit of focus and investment when we started BarkAir. We launched BarkAir one year ago, and it delivered nearly $6 million in revenue in the first year. We flew roughly 1,000 passengers on over 100 flights. We're clearly meeting real demand from dog parents around the world. Many said this couldn't be done, but we're growing fast, opening new routes regularly, and solving a real problem for dogs and their people. Much has changed in the first half of this year, but so much has remained the same for us. The start of this year with tariffs and economic uncertainty have made consumers nervous, and they've pulled back. And tariffs add to the cost of most goods. But that doesn't change the opportunity we still have to build the global brand for dogs. And now we've proven we can do that with a positive bottom line. We know how to do it, and we have a plan to remain EBITDA positive in the years ahead. So in conclusion, the three big takeaways from this call are we delivered our first year of positive adjusted EBITDA. We intend to be EBITDA positive again this year and going forward. and we intend to accelerate the diversification of our revenue faster than previously planned. Thank you, and now over to Zaheer.