Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the BARK Second Quarter Fiscal 2025 Earnings Conference Call. 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] I would now like to turn the call over to Mike Mougias, VP of Investor Relations. You may begin.

Good afternoon, everyone, and welcome to BARK's second quarter fiscal year 2025 earnings call. Joining me today are Matt Meeker, Co-Founder and Chief Executive Officer; 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 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 filings 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. On our last earnings call, I shared my enthusiasm for the strategic talent additions we made earlier in the year, strengthening our talent, coupled with improving the foundational components of our P&L, and it was time for us to focus our energy on driving top line growth. I'm pleased to report that the team is tackling this objective aggressively, laying a foundation for sustainable long-term growth. Let's start by reviewing some highlights from our fiscal second quarter. Last quarter, we delivered $126.1 million of revenue, surpassing the high end of our guidance range and marking a 2.5% increase compared to the same period last year. While our long-term growth ambitions are far greater, it's worth noting that this is our first quarter of year-over-year revenue growth in eight quarters. This is a return to growth, an important first step, and we remain enthusiastic about what's ahead, especially given that many of the growth initiatives the team has been focused on are just beginning to be reflected in our results. One area that we've highlighted as an important revenue driver is our commerce segment. To that end, I'm pleased to report that this segment grew 26% year-over-year, driven by adding new partners like Chewy, Fressnapf and expanding with existing partners like Costco, T.J. Maxx and Amazon. I'm also happy to report that through the first half of our fiscal year BARK was one of the top-selling new treat brands in both Target and PetSmart. This is very encouraging, as our brand and products clearly resonate with these leading retail customers and bode well for future retail expansion. In addition to recent top line growth, we delivered a 60% consolidated gross margin in the quarter. It's important to note that the proportion of our commerce revenue…

Thanks, Matt, and afternoon, everyone. Our recent results reflect the tangible progress we have made in improving our profitability profile, with consistent gains in gross margin, adjusted EBITDA and free cash flow. Under our new leadership team, we're also gaining clearer visibility into the top line acceleration in fiscal '26 and beyond, particularly in our commerce channels. Overall, we believe this puts the business in a strong position for profitable long-term growth. Let me dive into our fiscal second quarter results in more detail. Total revenue in the quarter was $126.1 million, a 2.5% increase versus last year. Looking at our revenue in more detail, our DTC segment contributed $102.6 million, which includes $1.5 million of revenue from BARK Air. The DTC segment was down 1.6% year-over-year, as total BARK subscriptions remain below last year's levels. With that said, we have made solid progress over the past 12 months, including four consecutive quarters of year-over-year growth in new subscriptions. As we transition all paid traffic to bark.co, we're adapting and fine-tuning our DTC strategy to optimize for this new platform. While we anticipate a period of more measured DTC performance as we complete this shift, we remain encouraged by our growth trajectory within the commerce segment, which has allowed us to accelerate this transition. On that note, we delivered $23.5 million of commerce revenue last quarter, a 25.6% increase compared to the prior year. For the full year, we now expect the commerce segment to grow at least 30% compared to Fiscal '24. The team has done an outstanding job securing new retail partnerships and deepening our relationships with existing ones. We expect this growth profile to continue, with the commerce segment projected to account for one-third of our total revenue over the next three to four years. Moving on,…

Thank you. We'll take our first question from Maria Ripps with Canaccord. Your line is open.

Great. Thanks so much for taking my questions and congrats on the strong quarter here. So you talk about new subscriber growth being positive for the fourth consecutive quarter, which is great to see. Can you maybe talk about your thoughts on translating that into total order growth, where it seems like trends have been improving nicely, but sort of the number is still down slightly year-over-year. And then maybe more broadly, when do you anticipate sort of your brand awareness initiatives to start contributing to stronger order growth?

Hi, Maria. Thank you. Thanks for the questions. So on the first one, we're getting to that inflection point. And as we said, we've had that progress of four consecutive quarters now with year-over-year improvement in the number of new subscribers added. We're doing it all with a headwind, where the toy industry continues to be down year-over-year. So that makes it more difficult. But we still have those growth opportunities, and we're still picking up pace, which is what I talked about in the past, that we have room to perform better, to operate better than we have, and we still have that room. So we're, I'll say, hopeful or we're looking to -- DTC may return to growth in the second half, but a lot of that's going to depend on this important peak holiday season over the next six weeks. And just given the uncertainty that's inherent in transitioning to a new platform from our legacy platform over to Shopify, we've moved all the ad spending now just in the past couple of weeks. So we're just being more cautious because of that move, and we expect a bit more of a measured performance in DTC. But that's one aspect of it. Another is we're moving away from the heavy promotional-type ads that give us what I call those hollow-calorie customers. They might be good for a little bit of revenue in the short term, but ultimately, we pay for them in the long term, and we don't get that ongoing momentum and growth that compounds over time and the profitability. So that leads into your second question of the brand approach, which we're starting right now. You'll see a lot more as we get into Calendar Year 2025. But we know that seeding brand awareness doesn't have the immediate payoff that performance marketing does. So we'll plant those seeds, we'll continue to build that effort, and we'll get back to having really, really great brand awareness that's contributing. It's a playbook we're familiar with, we ran it for our first eight years pretty well, and we've just got to return to that balance. That's a long way of bringing those two answers together. I hope that answered it well for you.

That's very helpful. Thanks so much. And then secondly, sort of given the outcome of the election, could you maybe refresh us on your level of exposure to potential tariffs? And to the extent you can comment, what percentage of your input cost comes from outside of the U.S. and from China, more specifically? And what are some ways that you may be able to maybe mitigate any potential impacts?

We're certainly watching that, and it's something we've, I don't want to say just been thinking about in the last month or two or the last week or two, but for well over a year and maybe longer than that. This is a bit of Groundhog Day for us. When there was a potential for President Trump to be elected in 2016, we had the same kind of fire drill around what do we do if he's elected and if he puts the tariffs in place. And we did a lot of planning, a lot of work, put our mitigation plans in place. And then, as we know, tariffs were introduced in 2018 on many imports from China, but we were not impacted materially with our products. In addition to that, the potential tariffs that could come would only impact -- sorry, we've been in that process for a year once again here, and there are good plans in place for us to soften the blow if it comes. The other part of that is the tariffs would only impact our toy business. Consumables, which is a sizable part of the business, are all domestically sourced. So that wouldn't be touched at all. And the diversification of the toy buying would be -- is, again, already underway. So the last thing I'd say is, as you know from the results over the past couple of years, we've seen really healthy growth in the gross margin, the contribution margin, and it's given us some flexibility in the P&L. If we were going to give up some of that, I’d rather give it up to the customer in pursuit of growth than I would to tariffs. But we’re all in this together as an industry. So if our toys are being subject to tariffs, so will our competitors’, and you’ll see those reflected in the prices. And I think we’re in a much better position given our gross margin profile to weather that.

Got it. That’s very helpful. Thank you, Matt.

Your next question comes from the line of Ryan Meyers, with Lake Street Capital Markets. Your line is open.

Hi, guys. Thanks for taking my question. So thinking about the strong commerce growth during the quarter, is there any way you can quantify how much of that was new customers versus how much of that was just expansion within the existing customers that you have?

Hey, Ryan. How are you doing? This is Zahir. I think it's fair to say that the growth was pretty balanced between existing and new customers. We've been focusing a lot on where the customer shops. So in the new channels, we're looking at things like Chewy and TikTok Shop. That's where we've seen good expansion. But we've also focused on expanding in other customers, like Amazon and T.J. Maxx as well, and they've driven and delivered strong growth as well. So both of those have been important contributors. We've been working with partnerships, as you know, in particular, with Girl Scouts. And we ran a pilot program with them last year. This year, our demand on the pilot program is almost 2x what we did last year. So that's been another important contributor. And I suppose the last piece that's also adding to the growth is the focus on international. So Matt mentioned Fressnapf in his remarks earlier on. And so a number of international customers are contributing. So I'd say, it's all around a balance of existing customers as well as new customers.

Got it. And then thinking about the gross margin, it sounds like that obviously is going to come down as the commerce business makes a larger contribution. I mean, given what you guys reported here in Q2, is there any way to sort of talk us through the rest of this year, maybe a right number to be at for the full year as that business makes a larger contribution?

Yeah. Sure. So I think the key, and I think both Matt and I called it out earlier on, gross margin, obviously, in DTC is about 20 basis points higher on average versus commerce. But when you look at the cost to serve across both of those channels, commerce is a lot lower cost to serve. So when you go down to the contribution level, typically, they’re fairly similar. I would say in recent times, commerce has actually been on a par, if not more profitable, at the contribution margin level for us. So in the nearer term, as we look to expand in commerce, that’s going to be accretive to the bottom line. And so it will be a positive tailwind for us.

Got it. Thanks for taking my questions.

Thanks, Ryan.

Your next question comes from the line of Ygal Arounian, with Citibank. Your line is open.

Hey, good evening, guys. [indiscernible] on for Ygal. I guess maybe on the bark.co transition, moving over existing customers and moving all the ad spend there, I guess, I know this is a little sooner than expected. So just curious maybe your thoughts on doing it heading into the holiday season since that's a busier one for you. And how should we think about how long that transition takes with the existing customers? And then, Matt, I know you mentioned that it may be impacts -- it's maybe having some impact on the DTC business. So just how should we think about the timing there? And would that maybe trade off -- how should we think about DTC growth through the rest of this year and into next?

Yeah. It's a great question. And obviously, we're very focused on it right now. You mentioned the timing being -- certainly of moving the ad spend probably four to six months earlier than we expected and right before the holiday season. So why are we doing that? Obviously, we were encouraged by what we were seeing in terms of the conversion rate. Certainly, liked the presentation of the site a lot more, and the flexibility of the platform allows us to move a lot quicker and test more rapidly. So we were liking what we were seeing in comparison. And obviously, it's a different story when you have 5% or 10% of your traffic levels on one platform versus the other. So just seeing a higher conversion rate isn't the full story. You expect when you move a lot of traffic over, that's going to fall. But we had a sizable enough lead on it that we thought it'd be better to both roll the dice on that, if you will, and do it before the holiday seasons and hopefully gather some upside there. At the same time, the real benefit is then we're able to take the strongest performers on our team and point them towards the highest-impact tests and activities that drive the holiday season, instead of having those efforts split. So again, we just moved that ad spending or started to move it a couple of weeks ago. There's a lot that goes into it, both on our side and on the ad partner side. We've got to retrain -- the various algorithms at Facebook, at Google, they need to relearn that, learn our business again. And that's not a months-long process, but it's not a couple of hours either. So we're making our way through that. Again, early, early days. So we're -- I've got to be cautious about it, but we're cautiously optimistic. Sorry, and I think there was a second part of your question that I'm forgetting. I'm sorry about that, Max.

That's fine. Just maybe on, like, timing, like how long we should expect this to take as we move through the year?

With the move of ad spending, we've moved it. And so then it's a question of how long does it take to get through those, I'd say, like that retraining side of things, and we'll be through that this quarter. So that's not something that's going to drag out for a few more quarters. We'll be through it this quarter. And then hopefully, we get around to – we continue to work on bringing our cost of acquisition down, bringing our conversion performance up, just normal course of business from, call it, January 1, forward. On the movement of the entire subscriber base, we’ve been moving over small cohorts pretty much every month for a few months now and learning about their retention and their upsell habits and how do we get those to parity with what we see on the legacy side, making really good progress there. That’s one where we’re pretty close as well, but we will wait until after the holiday season to move everyone over. And we still fully expect that we’ll have everyone migrated by the end of the fiscal year; so by the end of March.

Okay. Great. That’s really helpful. Thanks, guys.

And there are no further questions at this time. This does conclude today's conference call. You may now disconnect.