Q3 2022 Bark Inc Earnings Call
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Hello, and welcome to box third quarter fiscal 2022 earnings call. My name is Alex and I will be coordinating the call today. If you would like to ask a question at the end of the presentation. You May Press Star one on your telephone keypad. If you would like to withdraw your question you May Press star.
I will now hand over to your host Mike <unk>, Vice President of Investor Relations over to you Mike Good afternoon, everyone and welcome to <unk> third quarter fiscal 'twenty earnings call. Joining me today are Matt meager co founder and CEO and Howard Yeaton interim CFO Today's conference call is being webcast in its entirety.
Website and a replay of the webcast will be made available shortly after the call. Additionally, our press release covering the company's financial results was issued this afternoon and can be found on our Investor Relations website before.
Before we begin I'd like to remind you the following information regarding forward looking statements.
With me 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.
For each of 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 a non-GAAP financial measures is also contained in this afternoon's press release with that let me now turn the call over to Matt.
Thanks, Mike and good afternoon, everyone I'm excited to join you today as we discuss our strong third quarter results. The significant opportunity ahead and why we believe Barack has done a great position to capitalize on this opportunity.
I founded 10 years ago with a simple question to make all dogs.
As many of you know I served as CEO of the company through our first nine years, we started with Bard box, which is an experience that creates great moments for dogs and their people to enjoy together once a month customized <unk> restart.
This change the way millions of families consume twice and treats.
Great moments, we created for our customers allowed us to build a category defining brands, serving millions of dogs with a predictable recurring revenue business.
Process, 50% gross margins due to us exclusively selling our own products.
Our best in class products deep customer relationships.
Recurring revenue model will help us grow to $378 million in annual revenue.
Ladies and only $57 million outside capital before going public.
We're also very capital efficient achieving adjusted EBITDA positive results for three out of four quarters.
Fiscal 2021.
Now we are creating the same experience.
On a daily basis.
Our strong foundation is one of many reasons why I'm excited to return to the CEO role at this important time for the company.
Our first fundraising presentation back in 2012, we laid out our big vision.
The last bullet point on that slide set at.
With a trusted brand.
The opportunities to engage people.
Where we are today big scale with the best brand for dogs.
Getting huge untapped opportunities in areas like food and help put simply I believe park is that an inflection point and we must now execute our roadmap and seize the opportunity.
Our overarching strategy and key priorities have not changed however, I intend to accelerate the pace at which we deliver that.
Our three strategic priorities each of which I will discuss in more detail on today's call.
Are as follows.
First is <unk>.
The second is becoming embark by combining our activities into a single on that operate in the third is profitability.
Before I go into more detail on these priorities and proud to provide some highlights from our strong fiscal third quarter.
I'll cover our strategy and roadmap for the next year before turning the call over to Howard who will discuss our financial results in more detail.
Last quarter, we delivered $141 million of revenue.
A 34% increase compared to the same period last year.
For the first nine months of fiscal 2022.
Our top line is up over 42% compared to the same period last year.
We added an impressive 371000, new subscriptions, bringing our total active users to $2 3 million.
Which is a 30% increase year over year.
These results underscore the strength of our brand and our ongoing channel and category expansion.
Related to that we ramped up our marketing spend last quarter, taking advantage of the holiday tailwind we consistently in July .
In addition to the seasonal trends, we continue to enjoy very healthy returns on our marketing investment as illustrated by the ongoing strength and consistency of our LTV to cap ratio over the past six quarters.
As you May recall, we target an LTV to CAC range of 4% to five times, meaning for every $1. We spend in marketing we target of four to five dollar gross profit return.
We came in at a very healthy four five times last quarter, which is a seasonally expensive time of the year to advertise.
The first nine months of fiscal 2022, our LTV to CAC was four seven times.
We will continue to use this ratio to determine the rate at which we deploy marketing dollars and.
And we expect to end fiscal 2022 within our target range.
In addition to robust user growth.
We've been increasingly successful at getting customers to buy more from us and it shows in the numbers.
Our average order value was $31 10.
An increase of $1 37, compared to fiscal Q2, and a $2 12 point increase compared to the same quarter last year, the 7% improvement without a price increase instead, our growing average order value illustrates the power of our strong customer relationships.
Proprietary dataset and our enhanced machine learning engine, which drives cross selling and upselling opportunities in.
In my view, we are still very early in tapping into our capability to better understand our customer interests and act upon those insights.
Overall, we see attractive opportunities to further increase.
Our average order value as we unify the park experience and more effectively cross sell products, particularly food and dental to both new and existing customers.
While we still have a ton of untapped opportunities.
Area.
<unk> significantly increased our cross selling upsell revenue in the quarter.
This past quarter, we delivered $10 $3 million, a cross sell and upsell revenue.
55% increase to last year.
Please note. We previously referred to this revenue is that the box. However, as we broadened our cross selling opportunity. This line will begin to include a more robust collection of cross sell and up sell items.
Through the first nine months of fiscal 2022.
This cross sell and upsell revenue was $23 2 million, an increase of 84% year over year from the back of stronger conversion and engagement by our customers.
Moving on we are seeing ongoing success in adding new retail partners.
We are thrilled to announce the exciting new partnership with Walmart.
Bard products can now be found at Walmart Dot com and a nearly 2800 Walmart stores across the country.
In addition to Walmart, we also recently announced a partnership with Rei.
Bard products are currently available in all physical Rei store locations as well as Rei Dot com.
These recent additions expand upon the strong existing relationships, we have with best in class retail partners, including target Costco.
Petsmart and Amazon among others.
Toys, the dental chews Bard products can now be purchased in over 33000 brick and mortar doors across the U S.
These partnerships with top tier retailers provide meaningful opportunities for us to introduce bard products to new customers and gain brand awareness with hundreds of millions of consumers who visit the stores.
Overall this is an area that we remain focused on and expect to have.
As noted news to share throughout the year.
We've made great strides in the business and delivered strong financial results in our first three quarters as a public company.
Platform is unique.
$2 3 million active subscribers for highly days, a vertically integrated model that consistently delivers gross margins in the high <unk> and low <unk>.
Our recurring revenue e-commerce business to SaaS dynamics.
We're also benefiting from increased dog parents ship 6 million new households in the U S. Welcome to dog into their home last year.
Bringing the U S total to $70 million.
That is a big opportunity for us and I believe we are well positioned to capitalize on these exciting areas ahead.
We also have $229 million in cash in our balance sheet with.
Which provides the company with additional flexibility.
Turning back to how we plan to execute on these opportunities faster and smarter.
Like to go into more detail on the key strategic priorities I mentioned earlier, which are food, but coming back to profitability.
Well these priorities each include unique milestones and objectives, they are complementary and compounding in nature.
Meaningful progress in one area will have material spillover benefits across the others, allowing us to move.
<unk> quickly and efficiently.
Food is the largest growth opportunity for park.
We're growing our market share and scaling our operation for faster growth.
Dog food market in the U S with a $35 billion plus industry and I believe we are well positioned to capture a significant portion of it.
Ideally each dog as an individual and focusing on creating a magical experience for those customers start box has been able to build relationships with millions of dogs every month.
Customized meals arent currently accessible on retail shelves.
Not enough shelf space for each dog and no one is approaching.
With this personalized here that their daily experience.
Leveraging our direct to consumer model.
We can serve each individual doc so there are special ways.
Coupled with our unparalleled level of data gathered over the past 10 years. This is powerful.
We know the three pages and more for over $6 million across the U S.
This allows us to serve.
Dogs by H hybrid by their flavor preferences, and so much more and we are serving them in that way.
Last year, we started serving food to our customers unlimited basis, we spent the year learning and Iterating.
We leveraged early customer feedback optimize our user interface and journey, the branding and packaging, our fulfillment capability and our unit economics.
Considering these learnings we will begin to rollout an updated customer experience that leverages our filings over the past 12 months as well as our unique capabilities as a relationship driven brand.
Overall food is a huge opportunity for park and I am confident that this category will become a meaningful driver to our business.
Second area I would like to discuss is becoming bark.
In our current structure Bart operates five siloed businesses and customer experiences.
Secret sure Dark box, Archie and Bard shop.
Each of these businesses have distinct websites dashboards and logins.
Unifying our brand and customer experience is an initiative that will materially improve our cross selling opportunities.
And ultimately improve the overall experience that customers have with bark, while increasing average order value at an even faster pace.
So going forward, we will make our current and prospective customers immediately aware of our full suite of products.
Incentivize them to buy more than one of our products with offers like free shipping exclusive products and other benefits to encourage them.
In essence, becoming Barclays, but all of our product categories lift together on one website and we expose all visitors to the full spectrum of Bard products.
So to put that opportunity in perspective.
In December dark box.
Over 3 million people visit site, and we told them none of them about our products in the food and health categories.
Is simply just making them aware is a huge opportunity and that's the tip of the iceberg.
On that note we are refining the subscription funnel for perspective play customers in the coming weeks by adding an additional.
<unk> staff and the sign up process that introduces these new customers to our food and health products.
We also recently began leveraging our happy team to introduce food and other products to new and existing customers.
The team proactively engages over 250000 customers a month. So this represents a significant opportunity for us to cross sell existing customers.
At the end of the day cross selling just a fraction of our millions of <unk> dot com viewers and customers will drive meaningful growth for our business and the long term.
As these are high value customers for Bart.
This is something I am pushing ahead rapidly now and we will continue to rollout additional updates to the customer experience over the next couple of months.
In addition to improving cross sell opportunity this could create additional and very attractive efficiencies every time, they proofing shipments from multiline customers.
Currently.
And food customer will receive separate shipments on separate dates during the month.
Sending all of our products in a single shipment create cost efficiencies in addition to improving the customer experience.
The rollout of this initiative will also have positive implications for some of the key metrics we disclose.
For example, churn retention and average order value of our currently disclosed on a product basis, given the large share of the business within the play category.
In the coming months as our new categories scale.
And to start focusing on customer level data, which we believe is a more insightful tool to analyze metrics like customer retention and value.
Our current view, which looks a subscription level data to define data point and something we will look at it internally.
It comes arc and serve the individual customer is important that we measure and analyze the business on a customer level.
Finally, we are heading towards profitability.
As I mentioned earlier <unk> has always taken a very disciplined approach to capital allocation and I'm committed to remaining efficient with our capital going forward.
We adhere to this philosophy during our first nine years, having only raised $57 million of outside capital I'm confident we will be in a position to achieve positive adjusted EBITDA much faster than previously planned.
This will happen through a combination of improving our unit economics across each product category.
Prioritizing serving customers, who bring a higher ASP.
And margin through category expansion.
Streamlining our team efforts and spending behind a unified dark approach.
Aiming to be profitable, along with accelerating growth and new product categories require some short term trade offs. We know absolutely we can sell at play customer and additional toy at incredibly high conversion rates. We've had 10 years to learn how to do it.
But today, we will focus on acquiring higher quality customers, those who try food and dental along with twice.
And we accept that that may leave some play only customers behind.
We must walk our talk on our priorities. So we will leave some of those lower value customers behind in favor of those who tried food and dental products.
This will slow our overall topline growth, while we accelerate our diversification into these new categories.
Related to that we will slow our growth in marketing investment in the play category. This year.
Again, we know that we can add more customers, but we will ship those marketing dollars to larger opportunities for the future prudent dental and to those higher value customers.
By the end of this coming fiscal year I'm confident we will have a more diversified revenue across categories stronger unit economics kind of more streamlined and effective team.
We've achieved profitability before and I'm confident Mark will make significant progress on this front next fiscal year.
In conclusion, I cannot be more energized and excited to jump back into the CEO seat.
We have so much opportunity our robust holiday season with strong results underscore the power of our platform and our strong relationships with our customers.
The $2 3 million active customers on hand $229 million in cash on the balance sheet.
Robust data on over 6 million dogs in the U S.
Vertically integrated recurring revenue model, where we enjoy it.
Low 60% gross margins.
A fantastic team.
<unk> is the platform for dogs with that trusted brand and scale that we've talked about payback in 2012.
We're now ready to take this to the next level.
Executing this plan is our focus now I'm confident this plan will deliver meaningful long term shareholder value for all of us.
And with that I will turn the call over to Howard.
Thanks, Matt and good afternoon, everyone.
I am pleased to report our strong fiscal third quarter results, which were underscored by healthy growth in new subscriptions.
Subscription shipments and average order value.
Beginning at the top of the P&L total revenue came in at $140 8 million, a 34% increase compared to the same period last year.
Direct to consumer revenue increased 31% to $118 1 million in the quarter.
The growth in our DTC business was driven by several factors, including a 22% increase in subscription shipments.
And at $2 12 set increase in average order value compared to the same period last year.
These results reflect our growing customer base as well as some of the enhancements we continue to make to our machine learning engine, which helped drive record <unk> revenue in the quarter.
Turning to the commerce side of the business revenue was $22 7 billion, a 52% increase compared to last year.
As Matt mentioned earlier, we continue to add new partners to the Bart ecosystem.
Including Rei last quarter and most recently Walmart.
In addition to the increase in the total number of retail partners. We also continue to increase the number of.
<unk> is sold through these partners for example, we expect to have additional apparel related skus available through one of our key retail partners in the coming months.
Total gross profit in the quarter was $78 4 million up 32% compared to last year.
This resulted in a gross margin of 55, 7% versus 56, 6% in the same period last year.
The slight decrease in gross margin was largely the result of increased container costs associated with the macro supply chain congestion.
Both DTC and commerce gross profit were up 32% to $70 2 million and $8 2 million respectively.
Gross margins came in at 59, four and 36% respectively.
Remember.
We.
Except a lower gross margin and commerce as this revenue has significantly less associated marketing expense.
All in all our strong revenue growth.
And robust margins help illustrate the value proposition of our vertically integrated and digitally native brands.
Moving to operating expenses total G&A came in at $78 6 million, an increase of roughly $26 million compared to last year.
The year over year increase was driven primarily by a $16 4 million increase in shipping and fulfillment costs.
Which were largely the result of a 22% increase in subscription shipments.
We also experienced increased third party shipping rates as a result of the broader macro supply chain headwinds.
The remainder of the increase was due to investments in head count and technology as we ramp up in areas like food and health as well as additional expenses associated with being a public company.
Moving on we added 371000, new subscriptions last quarter, bringing our total active subscriptions to roughly $2 3 million.
A 30% increase year over year.
In total advertising and marketing investments came in at $26 8 million in line with last year.
This resulted in a customer acquisition cost of $64 42 in the quarter compared to $60 50.
Last year.
The third quarter is traditionally our highest cat quarter, given increased media costs associated with the holiday season.
Nonetheless, we were pleased with our CAC relative to our strong customer acquisition.
Interest expense, which is associated with our outstanding convertible note was $1 3 billion.
Other income came in at $15 1 million, which is primarily due to a $14 $5 million change in the fair value of our outstanding warrants during the period.
Our resulting GAAP net loss for the quarter was $13 2 million compared to a net loss of $25 million in the same period last year.
Our adjusted net loss, which excludes stock based compensation the impact of outstanding warrants and other onetime items was $27 million, which compares to $19 7 million in the same period last year.
And lastly, adjusted EBITDA was negative $18 3 million as compared to negative $14 1 million in Q3 last year.
We ended the quarter with a total cash position of $229 million.
Which provides us with significant flexibility as we expand into exciting categories like food.
Turning to guidance for the remainder of this year.
Total fiscal 2022 revenue to come in around $505 million, which reflects us more formally baking in the 2% revenue risk, which was largely related to the ongoing macro supply chain environment that we articulated on our previous earnings call.
This reflects our expectation of roughly $126 million in revenue in the current quarter.
Overall, we are very pleased with how our top line has grown this year and this guidance implies a healthy 34%.
Increase versus fiscal 2021.
On an adjusted EBITDA basis, we continue to expect a loss between $38 million and $40 million for fiscal 2022.
As discussed on previous earnings calls fiscal 2022, as an investment year for Bart.
In addition to going public.
We have made notable investments in people.
Technology and other operational assets.
Which we believe will enable <unk> to capitalize on the exciting opportunities ahead.
Nonetheless, we are also making efforts to significantly reduce our burn next year as we increase our focus on profitability.
We will provide more formal guidance on our Q4 call. However, we expect to make material progress.
Fiscal 2022, we added 922000, new active subscriptions.
$2 8 billion more subscription.
<unk> compared to last year.
And we meaningfully grew average order value as a result of strong cross selling and up selling revenue.
We continue to believe our unparalleled customer relationships.
<unk> with our unique position as one of the largest.
Digitally native dog brands affords us a significant runway to meaningfully grow the business.
With that I will turn the call over to the operator for Q&A.
Thank you we will now proceed with the Q&A.
Please ensure you're on mute locally when asking your question.
First question for today comes from Murray at risks of kind of Cold Maria Your line is now open.
Great. Thanks, so much for taking my question I just wanted to talk about sort of your supply chain headwinds impacting your guidance for the year and can you talk about the.
Macro factors disproportionately impacting your fiscal Q4 versus Q3, and then I know youre not providing guidance for next fiscal year, yet, but how should how should we think about sort of this macro factors, possibly impacting your revenue growth next year, and then I have a quick follow up.
Okay.
Thank you Maria.
Okay.
As it pertains to Q3 and Q4.
Move along okay.
You should expect that it will be fairly steady we've done a lot of work throughout this entire fiscal year and stabilizing that part of accepting that.
The headwinds are what they are and then putting really great leaders and great teams in place.
Work on the stabilization of that and the predictability of that part of the business. So.
That's why I think when you see we updated our guidance last.
Last quarter.
That we're sticking to it here and we're maintaining that pace and that will continue through <unk>.
We feel like we've got a lot of good visibility and predictability around it for the upcoming era as well.
Got it and then just wanted to follow up on your sort of eat offering and the ability to cross sell that product to your existing play subscribers.
Now that you have kind of launched into Q2.
For a few months depending on the market.
Matt I think you touched on before.
Would you a happy team.
Looking ahead. The team is doing can you maybe talk about your ability to cross sell the software to your existing subscriber base.
Yes.
There are so many opportunities to cross sell it to the existing subscriber base, but also to new prospects, who are coming in and we've been we've experienced excuse me we've been experimenting with a lot of ways with the to sell to the existing subscriber base. So as you know.
The asset box.
The system is performing extremely well the numbers that we just posted in this past quarter.
Very very strong and what we've proven there over and over and it's accelerating is that when we have a toy customer we can sell them a lot more toys and so when you.
When we put that into our machine learning machine is going to promote more heavily toy kind of phase.
Youre doing quite well with that keep doing it.
We need to override that machine and we have been and we need to learn in Houston ashamed.
Our food is more valuable to us.
And so we're we're in that process.
Of learning how to do that with existing subscribers and getting better and better at it as we go forward.
The real opportunity is.
In presenting.
Two a prospect.
When a prospect comes in.
And it's going through the park Fox Dot com.
Onboarding funnel and then they end up buying oftentimes are happy team on gauge with them immediately after after they convert and those interactions.
Consistently had a 100% customer satisfaction for 100% it makes sense. That's when the customer is the most excited about who we are and what we're doing and then they run into a fabulous happy team member who is who is there to make them, even more excited and help them out.
At those points of interaction when you're first going through the Onboarding and when Youre meeting that happy team member, we don't introduce food to you at all today, there are $3 million of those.
Visitors going through that funnel 3 million came through that funnel in the month of December we pulled none of them about food.
Making them aware that it exists while theyre most excited about park at that moment.
A huge opportunity in addition to the existing subscribers.
Great. Thank you so much for the color.
Thanks, Brian Thank you Maria.
Next question is from Steph Wissink of Jefferies. Your line is now open.
Pull back on marketing to acquire customers that are play only and emphasize customers that are more diversified bark.
Customers across your segments.
Play acquisition strategy has been so powerful to allow you to cross sell so help us just think through.
Philosophy to pivot when you've had such strong <unk>.
Box features in your model at the same time as you start seeking out higher value customers.
Yes, Youre right. So let me be really specific.
What I mean there.
Uh huh.
Just as I was.
Answering <unk> question, and saying there are millions of visitors coming through a funnel and we're taking them all the way through and converting them at very healthy rates.
By introducing food or dental or anything else. We say you wanted to be a play customer and get through quick.
What we are actively planning to do.
While they're going through that funnel to stop them and say.
Would you like to food would you like some.
At dental product would you like something.
Newer categories, we're in food and health, we have a $50 billion.
Addressable market opportunity and twice, we have a $3 billion opportunity and we've we've gobbled up a good amount of that so we are going to actively stand in their way and say would you like food or dental.
And give them incentives to buy food in dental.
I would say very conservatively.
Predicting what will happen here is that in the short term as this is a new step in our funnel that we will experience a drop in conversion rate as people who came just further twice and didn't want that interruption will go away. So what we're saying is we will actively.
Be happy we won't be happy.
We will accept that they will go away and that we will.
Instead pick up people who are on <unk>.
Hawaii customer and a food customer or a toy.
Customer and the dental customer, we're going to prioritize that give them incentives to do that and thereby raise that average order value knowing that is going to lead to.
Overall aggregate number of new subscribers, that's a little bit less in the short term, but that they are all higher value and there is no.
Our multibillion dollar categories.
Okay. That's helpful and can we just talk a little bit about what you've done thus far have you implemented this interruption in the process or have you tested it.
Some of your commentary just based on hydro.
Hypotheticals or are you starting to really run tests and see that small rate of balance and then offset being higher <unk>, maybe even stronger LTV customers no. We haven't we have not.
I'll say, we have not put that added steps in the funnel, where we have lightly tested this with our happy team post purchase starting and I mentioned this to select customers, where it makes sense.
We will shortly have that in the funnel.
And so have that that interrupt ever added staff in the funnel shortly so what we are.
What we're predicting.
Is somewhat informed by other tests that we've run that are.
Notwithstanding but somewhat related and like I said, I think we're probably being overly conservative and expecting that the first time out that we do that.
It won't be.
B, our best time will put it there and then we'll learn and we'll adapt and get better at as we do with everything.
That's great. My last question is actually a question, we get a lot from investors.
Your differentiation and your value proposition in food I know your strategy has changed somewhat in terms of the commercial model and the delivery model. So could you talk a little bit about where you think your value add is.
He also mentioned I think some customer data analytics that might give you the ability to personalize and a unique way just talk a little bit about that thank you.
Thank you.
Absolutely.
That's the differentiator for us in that.
We have the ability to know your dog and then serve that dog as an individual.
Quarter, who we are so with part box and Super cure redo that.
Hundreds of thousands of unique Assortments every month across our entire subscriber base. So we've proven on the operation side, we can do it we've proven that we can collect relevant data about our customer and then reflect it right away and make their experience better and better and more personalized to that guy that's bringing the same.
<unk> playbook to the food side of the side of our house.
The trick for US is how do we engage that customer, especially if there a play customer how do we get them into that conversation in the first place.
And with our <unk>.
<unk> subscriber base.
We have.
We have such rich information across those 6 million plus people, who we serve.
A lot of different entry points and what I mean, an example of an entry point could be agreed.
If you if you put information in front of me, but with great Dane related I will pay attention to it because I'm obsessed with great Dane That's high dock, if you put a puppy related message in front of someone who's dog is four months old they are probably more responsive to it. So we're looking for those entry point.
That's going to engage a customer at the right moment and get them started on that conversation.
Thank you we have no further questions that concludes today's conference call. Thank you for joining you may now disconnect.
Okay.
Sure.
Yes.
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Okay.