Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the BARK’s First Quarter Fiscal 2023 Earnings Conference Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I’d like to turn the conference over to Mike Mougias, Vice President of Investor Relations.

Good afternoon, everyone, and welcome to BARK’s first quarter fiscal year 2023 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 is 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. On our last call, we laid out our strategy for fiscal 2023. Our overarching goal was and continues to be to drive towards profitability by transforming our customer base to focus on higher value customers. That is customers who spend more with us and make purchases across multiple product categories. One measurement for success here is simple. Our new customers contributing more revenue and margin. That’s a key driver to accelerating our path to profitability and long-term to faster revenue growth. And while we are still at early in the fiscal year, I’m pleased to report that we have made significant progress executing this strategy in our first quarter. And I’m excited to share those results with you today. I’d like to begin with the high level summary results from our most recent quarter followed by highlights and more detail about each component. Total revenue came in at $131.2 million, $1.2 million above our guidance. Total gross profit for the quarter was $75.8 million resulting in a total gross margin of 58%. The gross margin of our direct-to-consumer business came in at a healthy 60% largely in line with the same quarter last year. And finally, our adjusted EBITDA loss for the quarter came in at $13 million, which is $5 million better than our guidance. I’ll talk about the factors that contributed to this better than expected outcome in a moment. Overall, we are happy with our first quarter results. And while we remain cautiously optimistic for the remainder of the year, given the macro backdrop, we are raising our annual guidance to reflect our first quarter performance. Now let’s talk about the drivers of the quarter. Beginning with revenue and our direct-to-consumer business, the majority of our recent revenue growth was driven…

Thanks, Matt, and good afternoon, everyone. We had a productive first quarter. Revenue and adjusted EBITDA came in ahead of our guidance driven by strong average order value and healthy margins. There is still blocking and tackling to get us to profitability, including working through our inventory, improving margins and gaining operating leverage on our G&A line. With that said, we have made solid progress and we believe that we are in a strong position to execute the priorities that we’ve laid out for the year. Let me take you through our fiscal first quarter results in more detail. First quarter revenue was $131.2 million, up roughly 12% year-over-year. Looking at our top line in more detail, direct-to-consumer revenue came in at $118.4 million, up 12% compared to the same period last year. Growth in this segment was largely driven by a 6% increase in subscription shipments and a $1.86 increase in our average order value. As Matt discussed, we were very pleased with our ability to acquire higher value customers last quarter, and we expect AOV to continue to be a key driver of the business in the quarters ahead. Commerce revenue was $12.8 million, up 4% year-over-year. As we’ve discussed on previous calls, our commerce business is lumpy in nature and revenue contribution in any one quarter can vary based upon the timing of shipments with our retail partners. Nonetheless, we continue to expect our commerce business to represent a similar percent of revenue in fiscal 2023 as compared to fiscal 2022. Moving on total gross profit was $75.8 million, resulting in a gross margin of 58%. Gross profit for our direct-to-consumer segment was $71.2 million, resulting in a gross margin of 60%. While gross profit in our commerce business came in at $4.6 million, resulting in a…

Thank you. And now we will move to our Q&A and we will go first to Maria Ripps at Canaccord.

Good afternoon. Thanks so much for taking my questions and congrats on strong results here. Can you maybe share a little bit more call on your progress with one of your strategic initiatives become in BARK? So you talked about very healthy AOV trends, especially for new subscribers. I guess, how far alone are you integrating your five businesses into one platform and has this been introduced to all of your existing sort of customers at this point? And do you have any insights in terms of how your existing customers – sorry, subscribers are engaging with this sort of more unified offering?

Hi, Maria. Sure. Our progress – the biggest thing that you’ll see and is starting to reflect itself in the results this quarter is where we’ve added the cross selling of both Bark Bright and our food toppers where we’re cross-selling those to our toy and treat customers during their onboarding. That launched in the middle of the quarter in May. And so we have two months of adding those recurring relationships to those customers that’s built into these results. So that definitely helped push up that average order value. We saw really good adoption there. Under the hood here, behind the curtain, there’s a lot of work on the foundation and the platform to bring all the sites together. I think the other material thing you saw that didn’t happen within this quarter itself, but is now visible in the world is the launch of the food site. And so with that, you see – I’d say a more modern future look for Bark, and that’s another building block towards getting to that integrated Bark site. But we’re going to continue working it at this probably through the rest of the fiscal year. There’s quite a bit of work to do, but we’re already benefiting from just exposing those products more to some of our newer customers and being more aggressive about the cross-selling via our ATB program.

Got it. That that’s very helpful, Matt. And then maybe secondly, you mentioned introducing more customers to your food offering. Can you share roughly what portion of your customer base has engaged with your Eats product sort of at this point? And maybe it refreshes on how broad geographically Eats has been launched so far?

So as of now, food is available nationwide, but today it’s available to the three breeds of dogs that we’ve launched with, which are Labs, Pit Bulls and Chihuahuas. We started with those dogs, because they’re all fairly different from each other. And so we wanted a good basis for testing and understanding if there are different behaviors or customer interactions due to the breed of the dog. But so far we’ve rolled out to that population in a somewhat limited way, still testing our emails. There will be more broad-based announcements, some PR and then more internal marketing to our existing customer bases. As we learn more and time goes on and we optimize the sales flow, but one week into it, we’re pretty encouraged by what we’re seeing the conversion rates, when people are coming specifically to one of those breed based pages. So I’m – I’ve got a Chihuahua and I’m interacting with the Chihuahua section of the site. The conversion rates that we’re seeing are pretty encouraging. And so that’s giving us the confidence to ramp up the exposure and awareness.

Got it. That’s very helpful. Thanks so much for the color.

Thanks, Maria.

We’ll move next to Corey Grady at Jefferies.

Hi, thanks for taking my questions. So I wanted to follow-up on food. So you launched for the three breeds at this point. But maybe can you just say more about the customer response and update you’re seeing and then how should we think about you guys rolling out formulations for new breeds through the year and then just growth as you roll out the new offerings. Thanks.

Sure. Like I said, it’s pretty early, it’s a weekend, but the main metric that I’m interested in is that conversion rate, that the number of people that visit those individual breed pages, how well are they converting to a sale? Is the proposition resonating with them? And like I said to Maria, so far so good, it’s really encouraging. It’s a big step up from where we were prior to August 1. And so now that becomes a challenge of getting awareness and getting traffic flowing through those pages. And we have plans in place to do that. We’re going to see if that scales up and the conversion rates hold really nicely there. But all along we’ve been creating more formulas of food in order to serve more breeds. We intend to take steps to go anywhere from 3 to 10 breeds over the next few months. And if we get very, very ambitious, you could see us get to as many as 12 to 15 breeds by the end of the fiscal year. So we’re taking it step by step, just making sure that we’re putting the best customer – sorry, the best product in front of the customer and being very efficient about our marketing activities and our dollars that we’re placing there.

That’s really helpful. Thank you. I just wanted to ask about the performance of the business overall. So I mean the results were really strong and you guys are in a relatively discretionary category at least before in core toys business. But can you talk about how the quarter played out relative to your expectations across both the DTC and commerce segments? And then if you can characterize any change in customer behavior during the quarter that would be great. And any feedback from retailers about how they’re thinking about the category?

Sure. It played out in a lot of ways better than expected. Like we said, what we’re really focused on is the creating stronger relationships with higher value customers. And the reflection of that being are they entering into multiple recurring relationships with us and we’ve seen more of that than we expected. And then that gets reflected in the average order value. So watching that move its way up and at such a good pace year-over-year or even quarter-over-quarter that’s really encouraging. We saw that on a cohort basis and on a overall basis. So that was really encouraging. We also were paying very, very close attention to our overall conversion rates and our retention rates. And because as we said in our May call, we talked about being conservative, cautious or optimistic, but very cautiously optimistic here. As the company has never lived through a recessionary period, if that’s what we’re in, whatever we want to call it. But what seems clear is that the customer is facing inflationary pressure and mostly at – it’s at the gas pump. And so we expect that there are some customers out there when they put $30 more gas into their car. It’s not $30 that’s coming over to BARK. So we’ve been very, very tuned into that with our – as our happy team is engaging with customers as we watch our data. And we’ve definitely seen pressure on the customer, but have also seen that vein as those gas prices have come down over the past six, seven weeks. So we remain cautiously optimistic. We did adjust the guidance in a positive way, but still cautiously optimistic about it. And we’re paying very close attention to it and certainly managing the retention and conversion sides of the business carefully.

That’s really helpful. Thank you.

Thank you, Corey. That just conclude today’s question-and-answer session at this time, and that also concludes the conference. We would like to thank you for your participation and you may now disconnect.