Bark Inc (BARK) 2025 Q2 法說會逐字稿

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 (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 box 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 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 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 Snap and expanding with existing partners like Costco, TJ, Maxx and Amazon. I'm also happy to report that for the first half of our fiscal year bar 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 in the quarter which was a big positive impacted our consolidated gross margin, but that's not the full picture.

It's key to remember that while the gross margin in our commerce segment is lower than our D to C segment, the contribution margin is on par if not slightly higher than D to C today, it's more profitable with a lot more growth potential, which is why we're pushing for commerce to be more than 1/3 of our revenue and are excited by our progress towards that goal.

The strong 60% gross margin and our continued cost improvements in GNA and shipping and fulfilment resulted in an adjusted EBITDA of positive $3.5 million in the quarter.

Our strongest EBITDA quarter in the company's history. This was ahead of the high end of our guidance range and reflects a $2.5 million improvement compared to last year. Halfway through our fiscal year, this puts us at positive adjusted EBITDA of $1.7 million and on track for our first full year of profitability.

Additionally, we achieved another quarter of positive free cash flow generating $1 million in the period. As I mentioned earlier, our profitability improvements have been significant and now we're seeing the top line growth drivers kick in as expected when we started the year and consistent with our guidance, we expect to deliver full year profitability for fiscal year 2025 as we start returning to growth, especially in our commerce and our business lines.

Let me discuss some of those opportunities in our D to C segment. We delivered our fourth consecutive quarter of year over year new subscriber growth.

Our new CMO Michael Parness is actively implementing a full funnel strategy designed to showcase not only our exceptional products but also to elevate brand awareness and reinforce our mission by fostering stronger connections with our audience.

We can reach more dog households, increase basket size and improve customer retention. The team is developing several new brand focused campaigns that we're excited to unveil in the coming months. This requires moving some dollars from the bottom of funnel spending that yields new customers immediately into planting speeds of awareness that will unfold over a longer time horizon.

We started that transition now and will continue throughout this year, meaning we will give up some short-term gains in B to C for the long-term acceleration. We've been lacking. Those short-term gains are also hollow calories. We can add new customers. But the further we reach into Facebook for them, the more we pay and the lower quality they are, this transition will in time take us to a world where we expect to grow faster and more profitably.

At the same time related to this, we've been moving more of our existing customers to our Shopify based platform at bart.co. We're so encouraged by the progress that we decided to move our D to C ad spending to this new platform in October. Any shift to a new website comes with some bumps in the road. But on the whole, we did this because we saw the opportunity for higher new customer conversion at a lower cost of acquisition in the long term.

We can also push those performance marketing saving into our top of funnel brand awareness activities which should lead to a healthier marketing mix over time. This has been a long time coming and something we decided to do earlier than expected, given the significant progress we're making in other areas like commerce.

Nonetheless, our most immediate opportunity for rapid growth is within our commerce segment. Six quarters ago, we discussed an ambition for our commerce segment to grow from 12% of revenue to over third. We're on course for that with 18.6% of revenue coming from commerce this quarter and more growth coming.

And as I said before, this segment is more profitable than D to C today. The faster growth here translates to faster growth on both the top and bottom lines. The progress is faster than the results due to the long lead times in this channel. But we're highly encouraged by where we see it going. As I mentioned, the segment grew 26% year over year and there's still significant runway ahead.

First we plan to expand our consumables presence across more retail shelves including treats, topper, dental and Kibble.

Under Michael Black's leadership, the team has made significant strides, and we have ample opportunities both domestically and internationally beyond our brick-and-mortar footprint, we expect sizable growth through Chewy and Amazon.

We launched with Chewy in June. I'm pleased to report that our full suite of products from Toys to Kibble is now available on their platform. They've been an outstanding partner, and we're thrilled with the progress

Additionally, while Amazon was a relatively small revenue contributor. Last year, we anticipate it will become a much more meaningful driver of our top line. Over the coming years, these e-commerce channels serve to not only drive long term revenue growth but also help raise awareness of our brand and growing product portfolio.

Additionally, we entered the Second year of our girl scout's partnership in September offering their customers three skews up from just one last year. This year's program which concludes this month has gone exceptionally well far outpacing last year's program through their digital channels. We're excited to deepen our partnership in the future and hope to have more to share on that soon.

Lastly, I'm excited to announce that we recently released Pet Crocs created in collaboration with the Crocs team. As of October Bart, customers could add Croc style shoes for their dog to their monthly box. We love these types of partnerships as they showcase the fun and oftentimes quirky bond between dogs and their humans. Partnerships with Crocs, Duncan and Subaru are great examples of how we can broaden our audience and elevate awareness of the bark brand overall.

There's a ton of opportunity for us in this segment and we remain confident that commerce will comprise at least a third of our total revenue within the next 3 year to 4 years.

The last area I would like to touch on is bark air to date. We've flown 50 flights which includes 425 dogs and 449 humans. We've also booked over $4.5 million in ticket sales since launch last quarter, bark air delivered $1.5 million in revenue and positive gross profit in the second quarter.

As utilization has been in the mid 90% for the past several months as this initiative scales, we see opportunities to lower our costs as well as the cost of the consumer making, air travel accessible to a much wider audience of dog parents.

Not only is this initiative, driving incredible awareness of bark, but we see a real business opportunity. Long term overall, there are a lot of exciting things happening at Bart.

We delivered our strongest adjusted EBITDA quarter in company history which represents our ninth consecutive quarter of year over year adjusted EBITDA improvement. We are on track to deliver our first adjusted EBIT positive year in history which is huge progress from losing $57 million only three years ago.

We are seeing green shoots on our top line with our commerce segment expected to grow 30%-plus this fiscal year and grow even faster next year. We ended the quarter with a healthy cash balance of $115 million which affords us plenty of flexibility to invest in future growth.

This cash balance also reflects the company buying back over 8 million shares over the past 12 months and the new leaders, we added to the team are off to a very strong start in their first six months.

Just wait until they've had a full year together. So overall, this is really coming together and I'm excited about what's in store for Park with that. I will turn the call over to here.

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 clear 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 B two C segment contributed 102.6 million, which includes $1.5 million of revenue from BARCA.

The B two C segment was down 1.6% year over year as total box 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 bart.co, we're adapting and fine tuning our B to C strategy to optimize for this new platform. While we anticipate a period of more measured B to C 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 by 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 third of our total revenue over the next 3 year to 4 years.

Moving on our consolidated gross margin was a very healthy 60.4% in the quarter despite being impacted by the larger share of commerce revenue on a segment basis. B two C gross margin excluding Barka was 65% in line with last year gross margin in our commerce segment was 45% up 250 basis points versus last year.

Looking ahead there are opportunities for small margin improvement. However, the mix shift from B to C to commerce will impact our consolidated gross margin going forward. The good news is the recent contribution margin in commerce is equal to or better than B to C.

So our expected growth in that segment should have a positive impact on overall profitability.

Turning to operating expenses, shipping and fulfilment expenses were $34.1 million in the quarter or 27% of total revenue. This is a 100-basis point improvement versus Q2 and fiscal '24 largely reflecting the more favourable shipping terms we secured towards the end of last year.

Additionally, we see opportunities for further improvement through network optimization, which the team is laser focused on other G&A, which primarily consists of head count and overhead costs was $29.1 million in the quarter a $5.4 million improvement compared to last year.

This improvement primarily reflects lower head count costs associated with managing our organization structure to meet the evolving needs of the business.

Total marketing expenses were $18.7 million in the quarter $1.9 million increase compared to last year, Michael Parness and his team have been refining how we invest those marketing dollars starting to move away from heavy promotions and lower funnel marketing to a more holistic full funnel approach.

In the long run, we expect this strategy to raise awareness, improve conversion and retention and reduce customer acquisition costs. Importantly, this is a line item that we can flex up or down depending on the returns we are realizing on those marketing dollars.

Lastly adjusted EBITDA for the quarter was $3.5 million, a $2.5 million improvement compared to last year and our strongest adjusted EBITDA quarter. As a public company additionally, free cash flow in the quarter was positive $1 million year-to-date, free cash flow is positive $715,000 reflecting a $12 million improvement versus fiscal '24.

Turning to the balance sheet, we ended the quarter with total cash of $115 million down $3 million versus the previous quarter. Reflecting working capital timing along with repurchasing over 540,000 shares in the second quarter. Following our Q2 repurchases, we have approximately $11 million remaining from our most recent board authorization and plan to continue to opportunistically take advantage of the share price at current levels.

Overall, we see several exciting developments across the organization from promising revenue opportunities in commerce to continued profitability improvements and a healthy balance sheet. With that in mind, let me turn to our guidance for the fiscal third quarter and full year.

Starting with the full year. We reaffirm the initial guidance from our Q4 call to reiterate. We expect total revenue for the year to be between $490 million and $500 million. Representing year over year growth between flat to 2%.

For adjusted EBITDA we expect a range of $1 million to $5 million which at the midpoint represents a 13.6 million improvement compared to last year would mark the first EBITDA positive year in BARCS history, we've had a strong start to the year, and we see significant long term growth potential in the business. It's also worth reiterating that our Shopify transition is underway.

Early indicators are encouraging, and we're excited about the enhanced experience and functionality. This shift will bring over time. However, we anticipate some early stage learning and refinement along the way.

Nonetheless, we believe this is an important step towards a more efficient and impactful B to C business in the long run for the fiscal third quarter, we anticipate total revenue between $123 million and $126 million.

The midpoint of which would broadly be in line with last year. We also expect another strong performance in Q3 from the commerce segment which will likely represent 15% to 17% of total revenue.

As a reminder, this mix will impact our consolidated gross margin in the quarter. However, it should provide a tailwind to our contribution margin for adjusted EBITDA. We expect to range a break even to minus $3 million. The midpoint of this range would reflect a 4.9 million improvement compared to last year and mark our 10 consecutive quarter of year over year. A just a wee bit our improvement.

In summary, we have made a lot of progress over a relatively short time horizon. We're on track to deliver our first full year of EBITDA profitability and the new team has hit the ground running, laying a strong foundation that should enable us to drive sustainable long term growth. With that. I'll turn the call over to the operator for Q&A.

Maria Ripps with Canaccord.

Great. Thanks so much for taking my questions and congrats on the strong quarter here. So you talked 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, brand awareness initiatives to start contributing to stronger order growth?

Hi Maria. Thank you. Thanks for the questions. So the on the first one, we're, we're getting to that inflection point and as we said, we've had that 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, 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.

We're still picking up pace, which is what I talked about in the past that we have room to, to perform better, to operate better than we have and we still have that room.

So we're, we're, I'll, I'll say hopeful or we're looking to D to C 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 DC, but that's, that's one aspect of it. Another is we're, 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, and the profitability. So that leads into your second question of the, the, the brand approach, which we're starting right now.

We'll, you'll see a lot more as we get into calendar year 2025 but we know that seeing brand awareness doesn't have the immediate payoff, that performance marketing does. So, we'll, we'll plant those seeds we'll continue to build that effort and, and, and we'll get back to having really, really great brand awareness that's contributing. It's, it's a playbook we're familiar with.

We ran it for, for our first eight years pretty well. And we, we've just got to return to that balance, but that's a, that's a long way of bringing those two answers together. I hope that answered it well for you.

Oh, no, no, that's very, that's very helpful. Thanks Matt. 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 US and from China more specifically and what are some ways that you may be able to maybe mitigate any potential impact?

Yeah, we, we're certainly, 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, and maybe longer than that. We, we, 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, we did a lot of planning a lot of work, put our, 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. So sorry, we're, we've been in that process for a year once again here and there, there's, 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 it 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 PNL.

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, we're all in this together as an industry.

So if, if our toys are being subject to tariffs, so will our competitors and you'll see those, those reflected in the prices and I think we're in a much better position given our gross margin profile to, to weather that.

Got it. That, that's very helpful. Thank you, ma'am.

Ryan Meyers with Lake Street Capital Markets.

Hey guys, thanks for taking my questions. You know, 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 here.

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, you know, 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 and other customers like Amazon and TJ Maxx.

Well, and they've, they've driven and delivered a 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 two X 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 you know, the focus on international.

So Matt mentioned Fren in his remarks earlier on and so a number of international customers are contributing. So I'd say it's all around the balance of existing customers as well as new customers.

Got it. And then, you know, thinking about the growth margin, sounds like that obviously is going to come down as the commerce business makes a larger contribution. I mean, given, you know 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 of 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 B to C 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'll be a positive tailwind for us.

Got it. Thanks for taking my questions.

Thanks Ryan.

Ygal Arounian with Citibank.

Hey, good evening guys. You max time for you go.

I guess maybe, on the bark.co transition, looking over existing customers and moving all the ads done there. I guess I know this is a little, soon than expected. So just curious, maybe, you know, your thoughts on doing it heading into the holiday season since that's a big, the zero one for you.

And, you know, how should we think about how long that transition takes with the existing customers? And then I know you mentioned that it, you know, maybe impact, it's maybe having some impact on the D to C business. So just how should we think about the timing there? And with that, maybe trade off, you know, how should we think about D to C? You know, growth through the rest of this year and into next?

Yeah. It's a, it's a great question and obviously we're, we're very focused on it right now. You mentioned the timing being, certainly of moving the ads then probably, 4 to 6 months earlier than we expected and a and right before the holiday season. So, so why are we doing that? Obviously, we were encouraged by what we were seeing in terms of, the conversion rate.

Certainly, like the presentation of the site a lot more and the flexibility of the platform and 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, 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 is isn't the full story you, 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 we thought it'd be better to both roll the dice on that if you will and a and do it before the holiday season 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, the highest impact tests and activities that drive the holiday season instead of having those efforts split.

So again, we, 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 a retrain or the, the various algorithms at Facebook at Google, they need to relearn that, learn our business again and that's not a month long process.

But it's not a couple 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.

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

With, 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, 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, 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, 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.

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