Hello, and welcome to BARK’s Third Quarter Fiscal 2022 Earnings Conference Call. My name is Alex, and I will be coordinating the call today. [Operator Instructions] I would now hand over to your host, Mike Mougias, Vice President of Investor Relations. Over to you, Mike.

Good afternoon, everyone. And welcome to BARK’s third quarter fiscal 2022 earnings call. Joining me today are Matt Meeker, Co-Founder and CEO; and Howard Yeaton. Interim CFO. Today’s conference call is being webcast and 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 we begin, 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 are also contained in this afternoon’s press release. With that, let me now turn the call over to Matt.

Thanks, Mike, and good afternoon, everyone. I'm excited to join you today, as we discussed our strong third quarter results, the significant opportunity ahead, and why we believe BARK is in a great position to capitalize on this opportunity. I founded BARK 10 years ago, with a simple mission, to make all dogs happy. As many of you know, I've served the CEO of the company through our first nine years. We started with BarkBox which is an experience that creates great moments for dogs and their people to enjoy together. Once a month, customized for every dog we serve. This change the way millions of dog families consumed toys and treats. Those great moments we created for our customers allowed us to build a category defining brands serving millions of dogs, with a predictable recurring revenue business, and impressive 60% gross margins, due to us exclusively selling our own products. Our best in class products, customer relationships, and recurring revenue model helped us grow to 378 million in annual revenue, while raising only $57 million outside capital before going public. We were also very capital efficient, achieving adjusted EBITDA positive results for three out of four quarters in fiscal 2021. Now, we are creating the same experience on a daily basis with food. Our strong foundation is one of many reasons why I'm excited to return to the CEO role at this important time for the company. In our first fundraising presentation back in 2012, we laid out our big vision, the last bullet point on that slide said at scale with a trusted brand, but endless opportunities to engage people. That's where we are today. Big scale, with the best brand for dogs, opening huge untapped opportunities in areas like food and health. Put simply, I believe BARK…

Thanks, Matt, and good afternoon, everyone. I am pleased to report our strong fiscal third quarter results, which were underscored by healthy growth and new subscriptions, subscription shipments and average order value. Beginning at the top of the P&L, total revenue came in at $140.8 million, a 34% increase compared to the same period last year. Direct to consumer revenue increased 31% to $118.1 million in the quarter. The growth in our DTC business was driven by several factors, including a 22% increase in subscription shipments, and a $2.12 increase in average order value compared to the same period last year. These results reflect our growing customer base as well as some of the enhancements we continue to make to our machine learning engine, which helped drive record add-to-box revenue in the quarter. Turning to the commerce side of the business, revenue was $22.7 million, a 52% increase compared to last year. As Matt mentioned earlier, we continue to add new partners to the Bark ecosystem, including REI last quarter, and most recently, Walmart. In addition to increasing the total number of retail partners, we also continue to increase the number of SKUs sold through these partners. For example, we expect to have additional apparel-related SKUs available through one of our key retail partners in the coming months. Total gross profit in the quarter was $78.4 million, up 32% compared to last year. This resulted in a gross margin of 55.7% versus 56.6% in the same period last year. The slight decrease in gross margin was largely the result of increased container costs associated with macro supply chain congestion. Both DTC and commerce gross profit were up 32% to $70.2 million, and $8.2 million respectively. Gross margins came in at $59.4 million and 36% respectively. Remember, we accept a lower…

Thank you. We will now proceed with the Q&A. [Operator Instructions] Our first question for today comes from Maria Ripps of Canaccord. Maria, your line is now open.

Great. Thanks so much for taking my questions. I just wanted to ask about sort of your supply chain headwinds impacting your guidance for the year. And can you talk about whether this macro factors are disproportionately impacting your fiscal Q4 versus Q3? And then I know you're not providing guidance for next fiscal year yet, but how should we think about sort of this macro factors possibly impacting your revenue growth next year, and then I have a quick follow up.

Okay, thank you, Maria. The – as it pertains to how does Q3 and Q4 move along, let's say you should expect that it'll be fairly steady. We've done a lot of work throughout this entire fiscal year in stabilizing that part of it, accepting that the headwinds are what they are and then putting really great leaders and great teams in place who have worked on the stabilization of that and the predictability of that part of the business. So that's why I think when you see, we updated our guidance last quarter, that we're sticking to it here and we're maintaining that pace. And that will continue through. We have – we feel like we've got a lot of good visibility and predictability around it for the upcoming year as well.

Got it. And then just wanted to follow up on your sort of Eat offering and the ability to cross-sell that product to your existing play subscribers. So now that you have Eat sort of launched in a few – for few months, depending on the market. And Matt, I think you touched on this a little bit with your happy team sort of what your happy team is doing. Can we maybe talk about your ability to cross-sell this offer to your existing subscriber base?

Yes, there are so many opportunities to cross-sell it to the existing subscriber base but also to new prospects, who are coming in. And we've been – we've experienced – excuse me, we've been experimenting with a lot of ways with the – to sell to the existing subscriber base. So as you know add-to-box system is performing extremely well. The numbers that we just posted in this past quarter are very, very strong. And what we've proven there over and over and it's accelerating is that when we have a toy customer, we can sell them a lot more toys and so when you – when we put that into our machine learning, the machine is going to promote more heavily toys. It's going to say you're doing quite well with that keep doing it. We need to override that machine and we have been and we need to learn and teach the machine that the food is more valuable to us. And so we're in that process of learning how to do that with existing subscribers and getting better and better at it as we go forward. But the real opportunity to me is in presenting Eat to a prospect. When a prospect comes in and is going through the barkbox.com onboarding funnel and then they end up buying, oftentimes our happy team will engage with them and immediately after – after they convert. And those interactions consistently have a 100% customer satisfaction score 100%. It makes sense, that's when the customer is the most excited about who we are and what we're doing. And then they run into a fabulous happy team member who is – who's there to make them even more excited and help them out. At those points of interaction when you're first going through the onboarding and when you're meeting that happy team member, we don't introduce food to you at all today. There are 3 million of those visitors going through that funnel, 3 million came through that funnel in the month of December. We told none of them about food. So just making them aware that it exists while they're most excited about BARK at that moment, this is a huge opportunity, in addition to the existing subscribers

Great. Thank you so much for the color.

Thanks, Maria

Thank you, Maria. Our next question is from Steph Wissink of Jeffries. Steph, your line is now open.

Thank you. Good afternoon, everyone. I want to ask Maria's question in a slightly different way and Matt I just want to make sure we're hearing you correctly that you're going to pull back on marketing to acquire customers that are Play only, an emphasize customers that are more diversified BARK customers across your segments. But your Play acquisition strategy has been so powerful to allow you to cross-sell. So help us just think through the philosophy to pivot when you've had such strong add- to-box features in your model at the same time, as you start seeking out higher value customers.

Yes, you're right and so let me be really specific about what I mean there. Just as I was answering Maria's question saying there are millions of visitors coming through a Play funnel, and we're taking them all the way through and converting them at very healthy rates. And we don't interrupt that journey at all by introducing food or dental or anything else. We say, you want to be a Play customer and get through quick. What we are actively planning to do, is while they're going through that funnel, to stop them, and say, would you like some food, would you like some a dental product, would you like something of these newer categories where in Food and Health, we have a $50 billion addressable market opportunity. In toys, we have a $3 billion opportunity and we've gobbled up a good amount of that. So we are going to actively stand in their way and say, would you like food or dental and give them incentives to buy food and dental. What we are -- I'd take very conservatively predicting will happen here is that, in the short term as just a new step in our funnel that we will experience a drop in conversion rate. As people who came just for the toys and didn't want that interruption will go away. So what we're saying is, we will actively be happy -- we won't be happy but we will accept that they will go away and that we will instead pick up people who are a toy customer and a food customer or a toy customer and a dental customer. We're going to prioritize that, give them incentives to be that and thereby raise that average order value, knowing that's going to lead to an overall aggregate number of new subscribers that are a little bit less in the short term, but that they are all higher value and that they're those multibillion dollar categories.

Okay, that's helpful. And can we just talk a little bit about what you've done thus far. Have you implemented this interruption in the process or have you tested it? Is some of your commentary just based on hypotheticals or are you starting to really run tests and see that small rate of balance in that offset being higher AOV maybe even stronger LTVcustomer?

No, we haven't. We have not. I'll say we have not put that added step in the funnel. Where we have lightly tested this is with our happy team post purchase. Starting to mention this to select customers where it makes sense. We will shortly have that in the funnel and so have that interruptive for our added step in the funnel shortly. So what we're what we're predicting is somewhat informed by other tests that we've run that are not the same but somewhat related. And like I said, I think we're probably being overly conservative expecting that the first time out that we do this. It won't be our best time. We'll put it there. And then, we'll learn. And we'll adapt and get better at it, as we do with everything.

That's great. My last question is actually question we get a lot from investors. Your differentiation and your value proposition and food, I know your strategy has changed somewhat in terms of the commercial model and the delivery model. So can you talk a little bit about, where you think, your value add is? You also mentioned I think some customer data analytics that might give you the ability to personalise in a unique way. Let's talk a little bit about that.

Yeah.

Thank you.

Thank you. Absolutely, that's the -- that's a differentiator for us. And that we have the ability to know your dog. And then serve that dog as an individual. That's core to who we are. So, with BarkBox and Super Chewer, we do that with hundreds of 1,000s of unique assortments every month across our entire subscriber base. So we've proven on the operation side, we can do it. We've proven that we can collect relevant data about a customer and then reflect it right away and make their experience better-and-better. And we're personalised to that dog. It's bringing the same playbook to the food side of the side of our house. The trick for us is, how do we engage that customer, especially if they're a play customer? How do we get them into that conversation in the first place? And with our existing subscriber base, we have such rich information across those six million plus people who we've served, that we have a lot of different entry points. And what I mean, an example of an entry point could be a breed. If you put information in front of me that is Great Dane related, I will pay attention to it, because I'm obsessed with Great Dane's because that's my dog. If you put a puppy related message in front of someone whose dog is four months old, they're probably more responsive to it. So we're looking for those entry points, that's going to engage a customer at the right moment and get them started on that conversation.

Thank you. We have no further questions. That concludes today's conference call. Thank you for joining. You may now disconnect.