BARK, Inc. Class A

Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the BARC fiscal fourth quarter and full year 2026 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 Vending number one on your telephone keypad. I would now like to turn the call over to Mike Mujas, Vice President of Investor Relations. Mike, please go ahead.

Good afternoon, everyone, and welcome to BARC's fiscal fourth quarter and full year 2026 earnings call. Joining me today are Matt Meeker, Co-Founder and Chief Executive Officer, and Brian Dossie, Interim 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 filing 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. We set out to do two things in fiscal 2026. sustain adjusted EBITDA profitability despite tariff and macro volatility, and accelerate the diversification of our revenue to build a more resilient business while laying out a strategy for the way forward. We believe we have delivered on each. Adjusted EBITDA was positive $0.2 million for the year, marking our second consecutive year of positive adjusted EBITDA and meeting our goal of ending the year on the positive side. This builds on the progress we made in fiscal 2025 when we achieved our first full year of positive adjusted EBITDA, an improvement from a $58 million loss just three years earlier. Additionally, commerce and error represented 21% of total revenue, up from 15% last year, reducing our reliance on any single channel and improving the durability of the model. With sufficient cash, a debt-free balance sheet, and a leaner cost structure, we are well positioned to build on this foundation in fiscal 2027 and beyond as we pursue renewed growth. Before I discuss the year ahead, let me walk through some of our key highlights from the past year. I will stick to our full year figures, and Brian will go into more detail on the quarter and full year. Starting at the top, total revenue was $395 million. This reflects a deliberate decision to pull back on marketing and promotions to prioritize bottom line durability in the face of historic tariffs and a volatile macro environment. We reduced our total marketing investment by over $24 million year over year, choosing to protect our margins rather than chase inefficient growth. While this approach means we are entering fiscal 2027 with a smaller D2C subscriber base, we believe the underlying quality of that base is stronger as evidenced by our steadily improving retention rates and growing average order values. Our commerce segment delivered $70 million in revenue, a $1.5 million increase over last year. Notably, while this segment remains a growth engine, The first half of the year was marked by caution among our retail partners as tariff uncertainty weighed on the market. With greater clarity following the Supreme Court's recent ruling, we believe the environment is becoming more manageable. With these headwinds behind us, we expect strong momentum for commerce in fiscal 2027 with accelerating expansion across wholesale and marketplaces. Bark Air revenue more than doubled this year to over $12 million. With utilization rates averaging 90% and consistent five-star reviews, the business has demonstrated a clear demand and a differentiated customer experience. However, in line with our focus on profitability and cash conversion, our priority for Bark Air in fiscal 2027 is the bottom line. We are focused on improving unit economics over top-line expansion, And as a result, we do not expect significant revenue growth in BARC error over the next year. Moving on, we delivered a very healthy consolidated gross margin of 61% for the year, consistent with the prior year-over-year, despite commerce and error representing a larger share of total revenue. On that note, our D2C gross margin was 68%, up over 200 basis points year-over-year. We also reduce year-over-year costs by $55 million across GNA, shipping and fulfillment, and marketing. While we expect these efficiencies to benefit the company in the year ahead, we will remain flexible, adjusting our marketing spend up or down based on the returns we see. On that note, let's turn to our focus for fiscal 2027 and our strategy more broadly. I want to start by spending a few minutes talking about the opportunity for the business and why I'm confident in the way forward. Over the past several months, I've spent considerable time listening to our customers, talking with our team, and analyzing the data behind our business. I've dealt with some hard truths. Company moving at the pace we've been moving doesn't always give itself permission to sit with. At our core, ARK is a business with generally exceptional foundations despite the headline results. More than one and a half million households have invited us into their homes. We've built an exceptional supply chain over the past decade. We have direct customer relationships that few consumer companies of our scale can claim. These are real durable advantages. But to this point, we haven't fully leveraged them. In many ways, we fought the wrong battles. We've been optimizing a model that the world has started to move past. The revenue trajectory you saw in today's results reflects that. What I want to spend the next few minutes on is what we intend to do about it and why I believe the position we're in is more advantageous than the recent numbers suggest. Let me start with what hasn't changed because I think it gets lost in the noise around our results. There are 71 million households in the United States with dogs, which is more than half of all households domestically. U.S. spending on pets has grown from $12 billion in 2000 to over $158 billion today. This is not a market in decline. That is not a category under pressure. If anything, the cultural and demographic tailwinds behind pet ownership have strengthened. Dogs occupy a different place in the American household than they did 20 years ago, and that shift is structural, not cyclical. There's also no dominant leader in this space. No single brand owns the dog. That remains true. The category is enormous, resilient through economic cycles, and wide open at the top. We built this company on that belief, and that belief remains valid. What we need is a sharper answer to the question of where specifically we intend to win and how. The subscription box, the model we built, and which took us from zero to over half a billion dollars in annual revenue, was built on a form of personalization that was, at the time, genuinely differentiated. We understood that a large dog and a small dog are not the same customer. That insight was right. It still is. But the world has evolved. What was differentiated has become the floor. Mass personalization, that is, knowing your dog's size, your dog's age, whether they're a heavy chewer, That's table stakes now. Our customers know it. Our retention data reflects it. The opportunity we see and that we are now building toward is a fundamentally deeper level of specificity, not size, not age, not shoe style, the actual dog, the specific nature of a specific dog, what that dog needs, how that dog plays, what that dog's health profile looks like, what community owners of that same dog cares about. We're not going to do that by adding a few more quiz questions. We're going to do this by rethinking the purpose of our relationship with the customer. The insight that's guiding our next chapter is this. BarkBox is not a box. It is a relationship between a brand and a dog mediated by a human who loves that dog. The job is not done when the box arrives. The job is done when the dog is happy. That standard changes everything. What goes in the box, how we measure retention, how we handle service, what we sell, and most importantly, what we build next. We are calling this relationship commerce. It has three dimensions we're building against. Depth, how well do we truly understand each customer? Density, how many meaningful touch points exist between us and the customer? And durability. Does the customer give us permission to offer new products and services over time? Those three things compounded over millions of customer relationships are what a successful business looks like in this category. We also believe AI is a competitive advantage that will allow us to adapt and evolve at a rapid scale. We've been studying this carefully. We are not behind the curve on it. We intend to be the ones who get there first and get there right. We have more to share on the specifics of our strategy in the coming quarters. What I can tell you today is that the direction is clear, the team is aligned, and the work is underway. The market is huge. The relationship is ours to deepen. And for the first time in a while, I feel like we're asking the right questions. As we build for the long term, We are consolidating the brands and products we will build around. As part of this, we will sunset products where we have not seen adequate returns, including our kibble and toppers lines. That decision will allow us to reallocate capital and resources toward higher return categories where we have proven our right to win. This will also simplify the business and help improve overall profitability going forward. On D2C, we are entering the year with a smaller subscriber base following the deliberate pullback in marketing spend last year. We expect D2C revenue to be down year over year in the first half before stabilizing in the second half and returning to growth thereafter. In commerce, we expect our momentum to remain strong in FY27 with the segment representing nearly one quarter of total revenue in FY27 versus 18% in FY26, as we continue to expand with both new and existing retail partners. Additionally, our cookie program with the Girl Scouts is expected to launch late in the fiscal year, providing another incremental revenue growth and brand awareness driver. Despite prioritizing gross margin and profitability over near-term growth on BARC-Air, we expect BARC-Air and Commerce to collectively represent over $100 million of revenue, further advancing our diversification strategy. Turning to guidance, for the first quarter of fiscal 2027, we expect total revenue of $77 to $79 million and adjusted EBITDA of $0 to $1 million. For the full year, we expect total revenue of $325 to $340 million and adjusted EBITDA of $7 to $10 million, a meaningful step up from fiscal 2026 and consistent with our commitment to sustained profitability. I also want to note that our board has authorized a share repurchase program of up to $40 million to be funded by ongoing free cash flow. This reflects the board's conviction in the long-term value of BART and our belief that the stock represents compelling value at current levels. Our debt-free balance sheet and improving free cash flow profile give us the flexibility to simultaneously invest in the business and return capital to shareholders. We ended the year with a debt-free balance sheet, $19 million of cash, an inventory of $76 million, a reduction of approximately $13 million year-over-year. We delivered our second consecutive year of positive adjusted EBITDA and expect to do so again in fiscal 2027, as well as positive free cash flow. Taken together, these improvements, along with a sharper product focus and a more diversified revenue base, position us to drive sustained value for our customers, partners, and shareholders. We still have work ahead, but we are operating from a stronger foundation and a clearer path to growth. We needed to fix the underlying business so we could actually pursue the growth strategy I've outlined. With a lot of this difficult work done, we can now start pursuing a growth plan. I'm more excited about this business than I've been in years. I have confidence we're going to do something truly special. With that, I'll turn the call over to Brian.