Good morning, good afternoon, and good evening. My name is Robert McArthur, I'll be your conference operator today. At this time, I'd like to welcome everyone to BARK's Fiscal First Quarter 2024 Conference Call. All lines will be mute to prevent any background noise. After the speakers' remarks there will be a questions-and-answers session. [Operator Instructions]. And now we'll turn the call over to Mike Mougias, Vice President, Investor Relations.

Good afternoon, everyone, and welcome to BARK's first quarter fiscal year 2024 earnings call. Joining me today are Matt Meeker, Co-Founder and CEO; and Zahir Ibrahim, 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 in our Investor Relations website. Before I pass it over to Matt, 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 contained in this afternoon's press release. And with that, let me now pass it over to Matt.

Thanks, Mike, and good afternoon, everyone. Our last call we discuss the substantial progress we've made an improving our unit economics strengthening the long-term financial health of our business. These efforts coupled with our continued expansion in the large camp categories by consumables and the progress we've made unify in our platform, made us a stronger and more dynamic company as we entered fiscal '24. I'm pleased to report that the year is off to a solid start. At a headline level, we delivered $121 million of total revenue and recorded a 280-basis point improvement in our gross margin, reaching 61% in the quarter. Our first quarter exceeding 60% as a public company. Our adjusted EBITDA loss was $7 million, a 43% improvement compared to last year and ahead of our guidance. All-in-all, the work we have done over the past 18 months is beginning to materialize in a notable way. We continue to expect to be in the neighborhood of breakeven adjusted EBITDA while also generating positive free cash flow for the full year. As a result, we're able to drive growth in a much more meaningful way. Going a level deeper on revenue, we generated $81 million from toys and $40 million from consumables. If we exclude revenue from our subscription boxes, our consumables category grew 39% year-over-year to over $5 million. And remember, this is prior to us generating any consumables revenue in the wholesale channel, which is where we expect meaningful gains in the future. Our confidence there comes from our partnering with virtually every major retailer in the U.S. expanding over 40,000 retail doors today. Simply put, we have the relationships and track record to introduce new products across the $40 billion plus consumables category. Furthermore, while we can't discuss specifics today, we are confident…

Thanks, Matt, and good afternoon everyone. Having spent seven months in the CFO seat, I've gained a much deeper understanding of our business, and I've become increasingly optimistic about our long-term prospects with significant opportunities for market expansion in new and exciting categories like consumables. Importantly, these prospects can now be pursued with a profitability focus framework in place. To that end, our overarching focus over the past year has been improving our unit economics and establishing a solid foundation for long-term profitability. Clearly, we're seeing this come through in our recent results, which now enables us to begin redirecting our focus toward driving long-term top line growth, particularly in consumables where we have a massive runway both in D2C and retail. With that said, let's jump into our financial results for the quarter, which are playing out largely as we anticipated coming into the year. Beginning at the top of the P&L, we delivered total revenue of $120.6 million broadly in line with the low end of our guidance range. Total revenue was down 8% compared to last year, which was primarily driven by an 8% decline in total orders, partially offset by an $0.82 or approximately 3% increase in our average order value. It is worth noting while social orders were down, our customer base today is of a much higher quality compared to this point last year. Nonetheless, as we mentioned on our Q4 call, we expected revenue to be down year-over-year in the first half and then begin to gain momentum in the second half. So these dynamics were largely anticipated coming into fiscal '24. From a segment basis, we delivered 111.9 million of DTC revenue and 8.7 million of commerce revenue. Within our DTC segment approximately 64% of the revenue was derived from toys and…

Thank you for that. Ladies and gentlemen, we're going to transition into our Q&A session of today's call. And your first question comes from the line of Maria Ripps from Canaccord.

First, could you maybe just talk about your assumptions behind your Q2 guidance, sort of what kind of consumer engagement you're seeing on the platform, if you exclude the pull forward from last year and the comp. And can you maybe just expand on some of the growth drivers that you're assuming for the second half of this year?

Sure. So, you mentioned in the question there's the retail comp to last year where we had the big pull forward. So that takes care of the retail side. On the drivers for the second quarter, it is this continued rotation away from the core or the legacy platforms that we have onto the unified platform. And as I mentioned, uh, now all of our products are there@shop.bark.co. The conversion rates and performance there are very strong and improving month by month. So we're very encouraged by it. And it is more consumables heavy almost exclusively consumables up until recently. So there's a different dynamic to it and it's just rotating into that and building the customer base on that site as we maintain the core platforms. So we're going to continue that rotation through for the rest of the year and then rotate out of those core sites probably sometime next year.

And then I just wanted to ask you about your food business. Can you maybe just talk about sort of the second slate of breeds that you introduced sort of last year. and at this point, what are you actively investing in as it pertains to that segment of your business? Is it sort of investing, sort of expanding your existing breeds or working towards rolling out more breeds or just maybe talk about that a little bit?

Expanding more with the existing, but also viewing the customer more holistically. And again, everything's centered around that bark.co platform where we're trying to have every customer engage with a wider set of products. So one of the reasons for going to the unified platform is that in our core platforms, there's really the opportunity to only engage with a single product at a time. You can't have 1.2 items per order. You can only have one item per order. So we're trying to have the customer engage with more products and doing so quite successfully. Thereby raising the average order value, food being one of those and have recurring relationships as often as we can or whenever it makes sense. So thereby stretching out the lifetime value of that customer or the life of that customer. Just to give you an example, we love a customer who comes in, subscribes to a BarkBox, also puts food in their cart, subscribe and save on that, and throws toppers in just as a one-off purchase. That customer might normally last with a BarkBox for 15 months and churn, but now because they've got food in the basket, they're going to extend out several more months or years beyond. And we have the ability to add things to their shipments as they're coming, like the toppers we know their daughter already enjoyed or treats or new products. That's the perfect customer and that's the profile we're developing. So the food is obviously an important component of it, but it's only one component of the whole mix.

Your next caller comes from the line of Ryan Meyers from Lake Street Capital Markets.

First one for me, just wondering if you can highlight what you guys are doing to currently market the consumables business? Then on top of that, the new shop.bark.co platform and kind of how you've seen customers respond to that?

Well, the marketing of consumables and the marketing of the shop.bark.co platform are very tightly coupled today because that is the main place where we are selling all of our consumables, until they start to hit retail channels. Hopefully later this fiscal year or definitely next year. So those two are coupled tightly together. Up until very recently, up until I'd say like through the end of June, we were doing very little outbound marketing or media spend against that platform and promoting those individual consumable products mainly pulling from our installed user base on the core or legacy side of our business. We were doing that in order to constantly learn and test and optimize and improve our conversion rates and get the behavior of that customer where we wanted it to be. We accomplished that we saw enough of a trend that we felt it was permanent and therefore the media spend starting in July has really ramped up. It's, as you might expect with us in the early days here, it's a lot of digital, it's a lot of direct response, social media search, that type of thing. But we're going to add much more to that mix, as we go forward. But that's the start of it right now and super encouraged by what we've seen in terms of the results.

And then can you talk a little bit about how you are prioritizing the use of cash? You talked about paying back debt, maybe going into some buybacks and then M&A, just some more color there would be helpful?

Hi, Ryan. So the great news is that at the very least we're earning about 5% interest today on the existing cash balance. But that said, there are likely higher returns we can generate by putting some of that to use elsewhere. So our first preference is taking out our debt. So we have convertible notes that mature in 2025. To the extent we're able to take those out at some meaningful discount, that would make a lot of sense. But it would have to be a meaningful discount given the strong interest rate we're earning on our cash at present. We continue to think also that our stock is undervalued and so if we're unable to reach a favorable agreement on the debt. Our next best opportunities to use some of our cash for a buyback program. Obviously, that's within the constraints of our debt agreement. And then, those options aren't mutually exclusive given our strong balance sheet. We could choose to take out some or all of the convertible and buyback shares and still have plenty of cash on hand to run the business.

Your next question comes from the line of Ygal Arounian from Citigroup.

I guess looking at the consumables business, it's a really interesting growth opportunity. I guess could you kind of a multi partner. Could you tell us like where you are with the investment side? Like do you think you have to do more on the food business and the treat side to get into retail? What's the sales cycles to get in there? I think you maybe by the end of the year, but I guess what's the process to get into retail, that retail source of those? And then longer term, how do you see this impacting the mix of the business and the unit economics? As I believe, the retail segment has lower gross margins than DTC?

The consumables area in terms of a lot of the prep work that you're talking about, is something we've been investing in for certainly the past year and a half since I've returned the business. And you start with the base product development of the actual consumable itself, the treat, the topper, the food in the bag or the dental product. And we've got a really strong product development team, who have great backgrounds and just a lot of experience in this area. They've both moved our offerings forward in a material way, but also simplified it. And now we've restructured all of our, our agreements with a few key suppliers on that side. Bringing our costs down on a unit basis in a pretty material way as well. So that's to say we've done the hard work of getting the products developed really well, got the right partners lined up the right cost structure lined up. And on the retail side, a big push for us was, well, a push was a pull, our retail partners where we were being very successful with our toy business. They were pulling us and saying, can you please bring fun to our tree aisle? Can you please bring the fun to consumables? So that was encouraging for us, and I would say fueled our enthusiasm and development around that. And we did that with the idea of going to those same partners this past spring, pitching them on what we'd come up with to bring fun to their aisles and started those pitches. Like I said, in the spring, March, April, our feeling is that the response we've had is very encouraging. We're pretty happy with the response in the back and forth. So, like we said in the script, there's nothing official to report today, but I'd say we feel, we feel very, very strong about where we stand on that. So at this point, it's hopefully some positive news, a sign off, some purchase orders, and then, if all goes according to plan, you would hit shelves in the spring of next year. Did I cover everything that you asked there? I'm sorry if I forgot something.

And then longer term, how should we think about like, the mix between the retail and DTC businesses with this best.

Yes. So right now the mix has consistently been about 12% of our revenue from the wholesale channel versus direct-to-consumer. When we set out our five-year plan or vision at as we entered this fiscal year, we signal that what we would like to do is, take that up to as much as tripling that. So, call it mid-thirties, even low forties percent of our business on the wholesale channel. And that would be powered by consumables, bringing the, that's a major, major market opportunity, over $40 billion of consumer spending there. And a lot of that, obviously through the wholesale or retail channel versus our toy business only being 3 billion. So we've demonstrated the success in the toy business through that channel. We've got the consumable products lined up. We feel like the margins are in a great place for success. We started the conversations and, so if we've done our job well, you'd see a big evolution, away from or towards consumables going from about 30% of our total revenue last year to more than half or over the next five years. And the wholesale channel going from 12% to say mid-thirties percentage over the next three to five years as well.

And then just one quick on the macro, what are you guys seeing with the consumer discretionary spending, maybe just holding up a little bit than expected, but still kind of under pressure? And then if there's any difference between like the DTC and the retail segments?

Yes. I think you described it well there where, we're starting to see our retail partners taking more inventory. So that's a positive sign for us. And we sort of expected that we had that pull forward a year ago in the second quarter for us. And then quite the slowdown and the headwinds, and now we're starting to see that loosen up a bit as our partners clear their inventory. On the direct side, the retention on our new customers and our cohorts look fantastic, as good as they ever have looked, if not the best they've ever looked. So very, very strong on retention. Certainly headwinds in acquiring new customers there, on the direct side, relative to the toy or subscription box business. But that's really the only headwind and even that we're starting to see, loosen up a little bit. So, I think the way you described it at the top was pretty spot on.

And our final call today comes from the line of Max Rakhlenko from TD Cowen.

So I know it's early, but you've spoken a bit about a framework for fiscal '25 revenue growth, so I was hoping if you could speak maybe directionally to how growth could look by channel, next year. And then just the key puts and takes that could get you to the low versus the high-end guidance?

Hey Rob, how's it going? So, in terms of the general direction as Max said, in terms of our revenue profile this year, D2C is about 88%, commerce is 12% of our business. And then looking at the product breakdown, you have 70% toys and other, and around 30% consumables. As we start to see consumables in retail exiting this year and then going network wide with a couple of customers during 2025, and then branching out to other customers during the course of the year. As well as introducing new product lines like dental products and start to introduce cable as well into retail. We expect retail to have a meaningful step-up next year and probably grow the majority of that high-single-digit, double-digit growth that we're expecting on our top-line. As we continue to invest in our unified platform, we expect consumables to drive growth there as well. So, majority of our growth on that high-single-digit, double-digit overall top-line coming from retail, but with strong performance also on the DTC side.

And then as we think about EBITDA margin expansion over the longer term. What are the top opportunities within G&A to run more efficiently and improve the cost structure? And then where do you think G&A as a percent of sales needs to go in order for you to reach your longer-term profitability targets?

Maybe start this one, maybe Zahir chime in as well. But on the G&A side, there's really, there's opportunity to still be more efficient overall. We've got, as we talked about, we've moved now to this unified platform at shop.bark.co. It's powered by Shopify. So the development effort, if you will around that is far less than running one rail site let alone four of them simultaneously. So that means, you just don't need the development firepower in order to advance that platform at the same rate. Now that gives us the opportunity to use the strong development resources we have to advance it at faster rates and get more utility out of it or advance our revenue from that platform. Or it has the opportunity to redeploy those people into new revenue opportunities and build new products. But overall you're operating more efficiently. So that percent of spend on G&A just from the team perspective, should continue to come down. Especially as I mentioned this quarter is our, what we expect to be our low point in terms of revenue from here on. So, just from that we should grow into that percent of spend on G&A to come down.

So a couple of things. One within our G&A obviously we have shipping and fulfillment in there as well. We've made great progress on that over the last 12 to 15 months. We continue to see improvements over the course of this year and going into next year. Just to give you a sense of that, we're reducing our warehouse footprint. We're consolidating the number of third-party service providers as well. And both of those are just driving efficiencies in carrier rates better network planning for us and just reduced overall costs on shipping and fulfillment. So we expect that to continue going into 2025. And then just to Matt's point on other G&A, obviously we've taken the two measures that we have recently, so we feel good about where we're at overall from the other G&A perspective. We'll look at opportunities in some areas of spend, like consultancy spend, professional services and so forth. But a lot of the upside, I think, on other G&A now comes from scaling the top line. We've got a strong base there that we can now scale.

Ladies and gentlemen that concludes today's conference call. You may now disconnect.