BARK, Inc. Class A

Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the BARC third quarter fiscal year 2026 earnings conference call.

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 findings 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. Before we dive into the quarter, I want to briefly acknowledge the recent headlines regarding potential strategic proposals you may have seen. Given the nature of those proposals, we are unable to comment on them during today's call. Today's discussion will center on our third quarter results and how we're continuing to drive our business results. With that said, let's jump in. Our priorities throughout fiscal of 26 have remained consistent, strengthening the business by improving profitability and operating with discipline in a volatile macro environment. Entering the second half of the year debt-free with a leaner cost structure and greater financial flexibility has helped us navigate tariffs and broader market uncertainty while continuing to invest thoughtfully in the areas that matter most. Turning to the quarter, Adjusted EBITDA was negative 1.6 million within our guidance range and consistent with last year. We also generated 1.6 million of positive free cash flow, driven in part by inventory normalizing following a buildup in the first half as tariff rates came down. We plan to continue to optimize inventory levels to further support cash conversion in the near to midterm. Total revenue of $98.4 million came in below our guidance range, driven in part by a deliberate pullback in marketing spend. Marketing expense was approximately $11 million lower than the third quarter last year, reflecting our continued emphasis on bottom line durability and disciplined capital deployment. Nonetheless, we delivered a healthy 62.5% consolidated gross margin, with both our direct-to-consumer and commerce segments showing year-over-year and sequential improvements. We've been deliberate about where we invest and where we don't, focusing investments on areas with clear returns rather than chasing short-term growth. One of the areas we've consistently emphasized this year is diversification and we continue to see progress there. During the quarter, Air and commerce represented approximately 23% of total revenue, up from 18% last year. Our commerce segment generated $18.8 million revenue with a gross margin of 46.4%. BarCare also delivered $3.4 million of revenue, up 71% year-over-year. Together, these businesses are scaling, becoming a more meaningful part of our overall revenue mix and helping make the business more resilient as we navigate a changing cost and demand environment. In our direct-to-consumer business, we remain disciplined in our marketing investment, pulling back on promotions and reducing customer acquisition costs as evidenced by the 40% year-over-year reduction in marketing expense. Last quarter, total tax was down 7% versus prior year and marked our most efficient quarter in nearly three years. As part of this approach, we are prioritizing the quality of customers we acquire over sheer volume. This has resulted in our subscriber base shrinking over time and therefore pressuring D to C revenue, an outcome we are comfortable with as we focus on profitability and cash conversion. We expect this trend to continue in the coming quarters. Importantly, the customers we are acquiring today are of higher quality, with stronger engagement and spending behavior, which we believe will support better retention and higher average order value over time. For example, our average order value reached $31.41 last quarter, our strongest quarter in nearly two years. as more customers opted for double deluxe, extra toys, and add-to-box options. One additional area of execution worth calling out is shipping. In the second quarter, we transitioned our last-mile delivery to Amazon, meaning Bark products now arrive on Amazon's blue trucks. This should reduce shipping costs and get packages to customers quicker. Overall, I'm pleased with how the team has continued to execute in a dynamic operating environment. Despite ongoing tariff uncertainty, changes across our shipping partners, and broader macro volatility, we've remained focused on protecting profitability and running the business with discipline. We are debt-free following the repayment of our $45 million convertible note in November, and we're beginning to see improvements in free cash flow conversion as we reduce inventory and continue to make the organization leaner and more efficient. Taken together, our recent results reflect our running the business with intention, balancing profitability, operational discipline, and diversification, while continuing to improve the underlying quality of our revenue. The actions we've taken throughout the year position us to exit fiscal 2026 on a strong foot and better equipped to navigate uncertainty while continuing to invest thoughtfully in the long-term growth of the brand. And with that, I will turn the call over to Zaheer.