Ladies and gentlemen, thank you for standing by. And welcome to the BARK First Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Also, please be advised, that today’s conference is being recorded.

[Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Mike Mougias, Vice President of Investor Relations. Thank you, please go ahead..

Good afternoon, everyone and welcome to BARK’s first quarter fiscal 2022 earnings call. Joining me today are Manish Joneja, CEO, and John Toth, 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 or non-GAAP financial measures are also contained in this afternoon's press release. Lastly, I would like to remind everyone that our fiscal year ended March 31.

We are currently in fiscal 2022, which will consist of the last three calendar quarters of 2021 and the first calendar quarter of 2022. With that, let me now turn the call over to Manish. .

one, expansion to new product categories; two, scaling and optimizing existing products; three, enhancing cross selling any add on opportunities; four, increasing our presence in retailers and other marketplaces. I will touch on each of these but first, I'd like to spend some additional time on our expansion into new categories.

We are more than just a dog product company. We are the only company offering dogs and the parents a suite of products spanning the 4 pet categories, fun, food, health and home.

We are replicating the success we have had in the fun category by applying our learnings and data into our newer categories, extend the lifetime value of our customers and drive increases in average order value.

While we are still an early days, we have progressed in these categories, and we are confident that the halo effect from our BarkBox success will enable us to replicate our success across new initiatives such as Bark Bright and Eats. BARK Eats is a highly personalized meal plan created for your specific dog and delivered in portion daily needs.

Our wellness advisors work with dog parents to understand their dog and create a meal plan consisting of high quality kibbles, toppers and other supplements. Our nutritionists maintain ongoing relationships with our customers, navigating their dog's wellness over time and amending different meal plans and supplements as their dog matures.

Currently, personalization in the kibble market is limited and generally consists of a label on the bag indicating puppy, a dog or senior.

This presents BARK with the significant opportunity to capture market share of the $40 billion plus kibble business in the United States alone, by creating a highly personalized and premium product at a more mass market price point.

We are confident in our ability to scale this business as we leverage our data and customers from our existing play category. Given the magnitude of the opportunity, investing in our each product and infrastructure is a key priority, which will enable us to reach more markets in line with the plan for full national rollout by end of fiscal year.

We have also made a number of recent enhancements in our Eats products as well. First, we redesigned the packaging to be more consistent with a brand identity. We also launched an act [ph] dog’s feature for existing BarkBox and Super Chewer customers, which will allow us to process into our 1.9 million active subscriptions.

This will enable our current subscribers to add each from their existing dashboard in a couple of easy clicks. The same is true for our proprietary Bright dental product as well as home products like Bed. While it’s still early days, we are extremely pleased with the early reception of Eats. We cannot provide specific numbers of this time.

However, July was by far our strongest month to date, and it is looking like August will be even stronger. The encouraging early data from Eats is notwithstanding the fact that we have spent minimal marketing dollars. Most of our customer acquisition has been through word of mouth.

One of our founders Carly Strife is leading Eats for us and is dedicated to its long-term success. All in all, we are excited about these new categories and look forward to updating you on our progress over the coming months. Moving on. Our second priority is to continue scaling and optimizing our toy and treat subscription business.

Our passionate Happy Team engages over 250,000 customers per month. We learn about you and your dog, which helps deepen our connection with the customer and provides us with valuable insights and data. Our creative team then leverages this data to inform product design and development decisions as part of the flywheel.

Our third priority is to enhance cross selling opportunities to utilize our data-centric model to recommend add-ons. Historically, this has focused on just toys and treats. However, we are scaling this opportunity by including the Eats and Bright and Home products as additional add on features.

This is a meaningful opportunity for us as we look to grow average order value and extend the lifetime value of a customer. As I mentioned, we increased our add-to-box revenue by 174% last quarter.

We anticipate additional growth as we execute on these priorities and continue to improve our machine learning capabilities, enabling us across all our products more effectively. And fourth, we are focused on increasing brand partnerships and retail distribution.

We have had the privilege of partnering with some truly iconic brands including the NBA, Warner Brothers, Universal Studios, Dunkin Donuts and more. These partnerships, raise awareness of BARK brand and drive incremental sales. Recently, we signed a unique collaboration with Netflix, which will roll out next year.

These types of opportunities remain a key priority and we will continue to secure new and exciting licensing deals. We are also looking to expand our presence in retail. These channels raise the visibility of products and creates additional channels for us to convert onetime sales to monthly subscriptions.

In summary, FY’22 is off to a great start and the market opportunity for BARK is immense. Our mission is to make all dogs happy, and we obsess over supporting the unique relationship and bond between each dog and the parent be at home, while many of us work from home or back in office.

Our strong brand enables us to effectively scale this business beyond that of a traditional market base or retailer. I’m proud of our team's customer obsession and dogged determination towards disciplined execution to deliver results. We will continue to execute and we look forward to updating you on our progress as we scale the BARK ecosystem.

With that I will turn the call over to John..

Thanks, Manish. And thank you everyone for joining us today. There have been a lot of new beginnings at BARK, but today is a really significant one. This past Friday, we filed with the SEC our S-8, which registers employee options. The S-8 is the last filing associated with our transaction.

And with the filing of our 10-Q tomorrow, we truly begin our life as a public company. As Manish mentioned, we hit the ground running in the first quarter of fiscal 2022, the quarter ended June 30, 2021. As for many companies this quarter’s year-over-year comparisons are dominated by the outbreak of COVID in the U.S. during this quarter last year.

With that said, our growth this quarter is all the more significant given the relatively difficult year-over-year comparisons we faced given the surge in subscriptions this time last year. Nonetheless, we continued to see strong results as we profitably acquired new customers, while simultaneously retaining our existing customer base.

We were also able to maintain healthy unit economics in spite of media rates rising to pre-COVID levels. The quick summary is our revenue margins CAC and other key performance metrics that best illustrate the health of the business are all on track or better than we expected.

We are affirming our full year guidance, notwithstanding the freight and shipping headwinds that we and others are experiencing. Starting at the top of the P&L, total revenue for the quarter was $117.6 million, a 57% increase year-over-year.

Our direct-to-consumer segment which represented 90% of our revenue last quarter, was $105 million, up roughly 57% compared to last year. This growth was primarily driven by a 52% increase in subscription shipments. Additionally, average order value AOV was up $0.87 to $29.21 year-over-year.

These results largely reflect the continued performance of our play subscription business. However, as Eats Bright and Home become more meaningful contributors to our revenue, we expect our average order value to increase over time. Remember, the AOV of an Eat subscription is over two times that of a play subscription.

This fact coupled with a growing add-to-box strategy for products like Bright and Home gives us confidence in our ability to grow both AOV and retention per customer over time. Turning to the Commerce segment. Total revenue was $12.2 million, a 59% increase compared to the same period last fiscal year.

Our strong top-line results were accompanied by continued cost discipline. Total gross profit was $69.8 million, which resulted in a healthy gross margin of 59.3%. This is in line with previous quarters, despite the increases in freight costs that were mentioned earlier.

On that note, we are not anticipating the short term solution to the heightened freight and shipping costs. And so we are responding to these challenges strategically. First, by accelerating investment in self-managed fulfillment assets and further diversification.

Second, we're actively managing our network of shippers, being more selective about who focuses were to take advantage of our economies of scale. And third, by more effectively managing the timing of certain shipments to optimize costs. We will continue to monitor this situation and expect freight rates to be a headwind throughout this fiscal year.

Nonetheless, we are very pleased with our margin profile last quarter, and the team has done a terrific job responding to the situation and putting us in the enviable position of having grown our gross profit and allowing us to affirm our guidance despite these headwinds. Moving on, we acquired 280,000 new subscriptions during the quarter.

Our customer acquisition cost came in at $48.36 down 6% from the previous quarter, however, up from the COVID driven low of $30.83, which we achieved in the same period last year. Total advertising and marketing expense associated with these new subscriptions was $13.5 million.

This coupled with our high gross margin of 59% resulted in a very healthy LTV to CAC of 5 times. As Manish mentioned, we build lifelong relationships with dogs and their parents, which drives our high retention, high lifetime value. And with our new products coming online, we are just getting started.

Our average monthly subscription shipping churn for the quarter was 7.4% versus 6.2% for the same quarter year ago. This delta is due primarily to the surge of new subscriptions that occurred during the same quarter last year.

Because there was significant growth in subscribers at this time last year, there was a significant overweighting this quarter of customers hitting their 1-year anniversary, which is typically when we see the majority of turn in a cohort. The behavior of this COVID surge cohort is not significantly different from the behavior of any other cohort.

It just resulted in a disproportionate number of subscribers coming to their anniversary at the same time, and so putting pressure on the shipment churn number for the overall subscriber base. For prior commentary, we believe 6% average monthly subscription churn is a reasonable baseline for BARK with its current business mix.

We expect this number to vary from this baseline individual quarters, but decrease over the longer term as one product mix begins to include Eats and Bright, which are more necessity products. And two, as subscribers increasingly purchase more than one product from us.

As a follow-on note, we've been told that we may be somewhat punitive in our definition of churn. We use this metric as defined primarily because the inverse of shipment churn is a reasonably accurate approximation of average monthly lifetime, 1 divided by 0.06 equals roughly 16.5 months, which is terrific for a subscription company.

We do also look at churn on an active subscription basis, which is more aligned with how our peers in the dog space report churn. If we define churn as subscriptions, which received a shipment during the 364-day period preceding this quarter, our retention would be approximately 97.5%, or a churn of 2.5%.

And if we look at it on a customer basis, as opposed to a subscription basis, it would be even lower. Moving on total G&A for the quarter was $69.5 million, versus $32 million in the same period a year ago.

$17 million of roughly half of this increase was in our shipping and fulfillment costs due to a combination of higher volume from increased sales, as well as higher rate. Another roughly $10 million is associated with investments in people to build our new businesses and technology to support our cross selling initiatives.

And the balance is attributed to a variety of items, including over $5 million in transaction related fees and several non-cash accounting charges. The details of all of this is included in our 10-Q. Moving down to P&L.

Interest expense, which is associated with our outstanding convertible notes, was $1.6 million in the quarter, largely offset by other income of $1.4 million.

Net loss for the quarter was $24.8 million on a GAAP basis, and $10 million, if you exclude onetime costs associated with the closing of the transaction, non-cash charges and warrant value and non-cash loss on extinguishment of debt. Finally, adjusted EBITDA was negative $7.6 million, which is in line with our expectations.

For our guidance provided back in December of last year, this is an investment year for us, investment in people investment in new products, investment in technology, and investment in fulfillment.

It is worth noting that last year with disciplined marketing spend and less expense in growing new businesses marked with net income positive, which demonstrates the strength of our business model. One additional point I would like to make is that our play subscription vertical was adjusted EBITDA positive last year.

In my view, this demonstrates our ability to scale new businesses quickly and profitably. This is encouraging as we scale and invest in our newer initiatives, which we believe will exceed the size of the play segment over time.

Turning quickly to the balance sheet, we ended the quarter with $321 million in cash, which affords us the ability to strategically invest in high ROI opportunities. We intend to maintain a very disciplined ROI approach to our capital allocation and continue to seek opportunities to optimize our efforts on this front.

Finally, to guidance for the second quarter of 2022. We expect total revenue of approximately $122 million. For the full year, we’re reiterating our previously provided revenue and EBITDA guidance.

In summary, we are well on our way to executing the plan we laid out in December of 2020, growing our subscription, maintaining solid margins and unit economics and have a healthy balance sheet that enables us to intelligently invest in exciting growth initiatives.

I'm very proud to be working with this team and reporting on the great work we are doing. The team is excited to be a public company and eager to deliver long-term shareholder value. Our thesis remains very much intact and robust. We are on a huge and cycle agnostic rising tide called the dog market.

And we are the only brand for the market with over 9 million social followers and nearly 2 million active subscribers. We have the opportunity to leverage those deep customer relationships into new and sticky products that introduce us to enormous market segments like food.

And we have a strong business model, high margin, strong unit economics that will scale our profitability over time, and a visible forecastable horizon. With that, I'll turn the call over for question and answer..

[Operator Instructions] Your first question comes from the line of Steph Wissink from Jeffries. Your line is open. .

Thank you. Good afternoon, everyone. And John, thank you for going through that detail on churn. And I think it's really important to just be compartmentalize the way you're reporting it versus some of your peers. Thank you for that. So my first question actually relates to CAC.

I'm just curious if you can talk a little bit about the benefits you're seeing in some of your initiatives to acquire customers. And how we should be thinking about CAC going forward through the balance of this fiscal year..

Thanks Steph. Good to hear from you. We're very fortunate that our CAC, this quarter over the prior quarter was actually down 6%. So we have a really good team that's very nimble at managing across channels. We continue to pursue our operating goal of breaking even in 4 months. And for the past 4 quarters, we've been breaking even in 3 and even 2.

So we're sort of on track for CAC don't expect it to move up terribly much in our fiscal Q3 calendar Q4, which is the gift giving season. You always see it go up a little bit, but average for the year, we feel like we're in a good place right now..

Okay, great. That's very helpful. And then the second thing I wanted to just unpack was the Eats -- the Eats business. Can you talk a little bit about some of the early learnings and apologize my dog Betty wanted to make her self-known on your conference call. So I want to just talk about a little bit about Eats, if you could..

Hey, Steph. It’s Manish. It’s still premature for us to share any breakdown for Eats right now. What we can share is not July was very strong month, turning out to be even stronger. And all this is basically with all almost your CAC. You're doing it through word of mouth, we're scaling faster.

Our plan is to launch nationwide by the end of the fiscal year. So we are able to do that right now. We can ship nationwide, we are not actively marketing nationwide. And that's part of our plan for rest of fiscal year..

Okay, great. Last really quick one John, is one for you as well just on the G&A.

If you can help us think through any changes to your assumptions for the balance of the year? You kind of use the first quarter run-rate as a good and reasonable run-rate?.

We will be following up with some more detail in the Q on adjustments related to the transaction. So speaking operationally, because we have some lingering transaction costs --running through the P&L. But from an operational perspective, we're affirming our guidance for EBITDA, adjusted EBITDA of the balance of the year.

This is an investment year for us. We're growing the teams for Bright and Eats, we're growing the technology for machine learning. So this quarter is in line with where we want it to be. And this quarter’s in line with where we want it to be. And we think we're going to end up where guidance had suggested..

Okay, John. Just for clarification, the shipping costs that you're calling out is inflationary.

That would be in your SG&A, is that correct?.

That's right. Shipping and fulfillment is in SG&A. But I wouldn't characterize it as inflation. The real reason it's up is volume. We just ship more packages. So we are seeing rate increases as everybody in the U.S. is on shipping and fulfillment, but the driver for the increase in SG&A was we grew shipments over 50% over this quarter last year.

So that just moves the number opposite ship more packages. It's revenue related.

Does that make sense?.

Okay, very clear. Thank you very much..

Your next question comes from the line of Maria Ripps from Canaccord. Your line is open..

Great, and congrats on your first quarter as a public company and great results. I just wanted to follow up on Eats.

Can you maybe share with us where you are in the logistics investment cycle there? And can you talk about sort of what kind of cross sell uptake you've seen today in markets where Eats is available? And sort of when do you think would be sort of a good point to start supporting the food rollout with marketing?.

Hey, Maria. This is Manish. So for Eats, as mentioned, still early days. But given our success in the play category and the data and relationships we can never assume that. We are optimistic about Eats being successful has a much larger time competitive play. From a nationwide perspective, we do ship from the East Coast right now.

Our unit economics allow us to be able to serve the country. Although we are still working basically across East and West helps to serve the country. We have made it available, so if you discover Eats, we will serve you but we are not actively marketing into the entire 48 states. That's obviously the first question.

And the second about in terms of investment. In terms of breaking apart Eats, we don't really do that right now. We believe we'll be doing it next year..

Got it. That's very helpful. And maybe just a quick follow up.

Can you talk about sort of your retail partnerships? How important are those in your sort of brand building effort? And have you seen any sort of -- or have you done any studies that would suggest sort of stronger brand recognition in regions where you have sort of broader retail presence?.

So from retail or commerce segment perspective, I think we always rollback our mission of making all those happy, which means that we will serve you even if you're not a direct-to-consumer customer. It's a profitable business. It helps us raise awareness. We and multiple partners, we announced the partnership with Lowes, there's more coming.

In all those partners, we work backwards from that partners’ customer to design the product and serve them. So we don't -- I don't have the data right now to break down in terms of conversion.

I think your question is basically what percent would convert over into direct-to-consumer subscription? So we don't have a breakdown, but we've seen that the brand awareness raised across the partnerships of different cohorts around the country where we do not serve to that scale yet. .

Got it. That's very helpful. Thank you very much..

Our final question comes from the line of Nick Jones from Citi. Your line is open..

Great, thanks for taking the questions. Maybe a follow up on the commerce segment. If you maybe frame what there many opportunities in terms of retailers you can partner with? And then maybe once you do partner, what is the ramp look like to start seeing material sales. And then I have a second question. Thanks. .

Hey, Nick, good to hear from you. It’s John. We see a lot of room to run in retail, but we always see it as a baseline about 15% of our total revenue. We want to make sure that retail is as profitable as the DTC business.

And we're just in the early days of rolling out to all the locations and some of the big names we have like PetSmart, Petco, Target et cetera Lowes. So a lot of room to run. The problem is it has to keep up with a fast growing DPC business. So we expect it to be -- always be at about that 15% of total revenue range.

Is that helpful?.

Yep, that's helpful. And maybe --.

Let me add one more thing to that, Nick. So another advantage of aside from awareness and profitable businesses, retail were viewed as allows us for asset life expansion and serving international consumers that can inform our strategy for national down the road when we are ready.

So that's something that we think about is in terms of retail partnerships, like Costco and other partners, how can we actually expand on the asset like fashion. .

Got it. And then maybe taking a step back, your categories are really unique.

I think some of the other e-commerce players are really lapping tough comps, because people are kind of stepping out of the house, spending less time on the screen, maybe it's going back with delta variant but in a dog category, a lot of people can bring their dogs outside of the home.

So I guess any thoughts on the current COVID landscape and how you guys are looking at the back half is kind of uncertainty builds? Do you see any pullback on people bringing dogs into the home or are things kind of still chugging along as they were before? Thanks. .

So there are a few points on that line. One is that there are 63 million households with dogs right now, we're in less than 2 million. And of those less than 2 million, our primary injection point had been placed.

Now, if you think about injecting into different categories about home, food and health, which has highest TAM and higher AOV, cross sell, up sell opportunities, those are very critical. So we've seen industry being agnostic of these cycles that are hitting us.

Now the results that you're seeing -- that we shared today is that we are actually out of CAC that’s lower than 2019. We are basically LTV CAC of 5. We are acquiring customers that are more valuable throughout the box essentially. So those are the good tailwinds that we've seen.

And because of that last COVID was actually one of our really strong quarter, last quarter as well. So we’re pretty bullish on how this is kind of unraveling and as or not on all these dogs in our lives, you can look at the net addition of dogs in our lives, that's actually much positive.

And it's not just a COVID tailwinds it's been happening for years, COVID get isolated to a large extent. .

Great. Thanks for taking the questions..

This concludes today's conference call. Thank you for your participation. You may now disconnect..