Q4 2022 Bark Inc Earnings Call
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Good afternoon. Thank you for attending today's bark fiscal fourth quarter and full year 2022 earnings call. My name is Anna and I will be your moderator for today's call all lines will be muted during the.
Reason patient portion of the call with an opportunity for questions and answers at the end of June .
I'd like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Mike Macek, Vice President Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to <unk> fiscal fourth quarter and full year 2022 earnings call. Joining me today are Matt meager co founder and CEO and Howard Yeaton interim CFO .
Its entirety on our website and a replay of the webcast was made available shortly after the call. Additionally, our press release covering the company's financial results will be issued this afternoon and can be found on our investor Relations website.
Before we begin I would like to remind you. The following information regarding forward looking statements.
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 future results and outcomes.
Also during today's call, we will discuss certain non-GAAP financial measures reconciliations of our non-GAAP financial measures is also contained in this afternoon's press release with that let me now.
Now turn the call over to Matt.
Thanks, Mike and good afternoon, everyone.
This past year was significant for park.
Customer base grew rapidly became greater cross selling more products to our customers and we launched new and innovative products that expanded our addressable market by at least 10 times to over $40 billion.
We also took the company public and bulk up our balance sheet ending this year with $200 million in cash.
And that's on solid footing for many years ahead.
Over the past two years through the pandemic, we nearly doubled our customer base and the number of orders, we ship and we increase the value of our customer by nearly $5 per unit shipped.
While this breadth is exciting it also challenged us to scale an unprecedented way.
We made significant hires across our leadership team.
Better than our infrastructure, we upgraded our supply chain.
And we enter this next fiscal year on a solid foundation with a path to profitability.
We are now in position to become the preeminent dollar company of the 21st century. So our best years are yet to come.
This year, we are focused on three priorities.
Our first priority is to sell more food debarred customers.
Paul Dog parentage.
Our second priority is to become bark.
Breaking down the silos between our five individual website and serving our customer holistically.
And our third priority is to make significant strides towards profitability.
We believe that making meaningful progress across these three priorities will drive sustainable long term value creation for Bart.
Customers and.
Before I discuss our strategy and roadmap for the year ahead in more detail.
In fiscal year 2022.
Howard will then discuss.
During fiscal year 2022, total revenue increased 34% to $507 million.
While our adjusted EBITDA loss came in at $57 8 million.
Our gross margins came in at 55, 6%, which is four points lower than fiscal year 2021.
Bringing RMR.
Margins back to our fiscal 2021 miles of 59, 7% as one of the most straightforward opportunities for us to improve as we aim for being a more profitable company.
On today's call, we will talk about the purposeful actions, we took which led to these results and lay out the actions our team is taking to show improvement.
Compared to fiscal 2021.
Subscription shipments increased 28% to $14 $9 million, while the average order.
Value per shipment decreased year over year by $1.32.
5% without a base price increase.
That gain was powered by the enhancements, we made to our machine learning and cross selling capability box drove over $30 million of revenue of 66% increase over the prior year.
Over the past five years our crops.
With the efficiency with which we acquired.
Last year was $53 43.
This is in line with the pre COVID-19 periods of fiscal 'twenty.
Compared to those years, we spent only seven smarter to acquire a customer.
Does that mean nearly $6 more per year.
Unit.
Simply we are acquiring much more valuable to customers.
Our valuable customers in an environment of rising Cps illustrates the differentiated nature of the dark platform.
Specifically, we have millions of highly engaged customers, who love and promote our products over 9 million social media followers, who provide significant reach at a low cost.
And a brand that consistently delivers 95% plus customer satisfaction scores.
Fuel's awareness through word of mouth moving on we also scaled.
Congress business in a meaningful way we.
We signed 23, new retail partners last year, including Walmart Old Navy and army.
Sellers.
<unk> products are now available in over 40000 retail doors across the country.
In addition to expanding the number of retail partners and customers. We serve we also increased the number of skus in the types of products we sell.
Hello, and Petsmart last year.
These partnerships significantly broaden our customer reach and awareness.
For the park.
Brand.
Millions of customers walk through these stores every day and with Bart Hakan on the end cap are prominently.
New customers in fiscal year 2022, this business delivered $59 million of revenue.
For you versus the previous year.
So the items that impacted our gross margin.
Adjusted EBITDA last fiscal year.
As I step back into the CEO role in January spent much of my time, analyzing where we could improve revenue.
Yes.
And make the business more efficient overall.
I've been looking at is our inventory.
Sorry.
There was some inventory that was no longer aligned with our strategic made the decision to write that off we.
We don't expect this to happen again in the foreseeable future.
Okay.
Okay, another inventory related charges.
Last year, and we've implemented to date.
Chanel controls in our planning function.
Better manage inventory coming forward that we believe will reduce future levels of shrink.
Full year 2022.
Related to these inventory related.
Adjustments, which adversely impacted our gross margin for the year.
Highly focused on ensuring that our inventory remains current tightly managed and aligned with our current strategy.
Additionally, we incurred $2 4 million of G&A expenses related to our 120000 dog beds as part of our ongoing efforts to improve the lives of dogs around the world, including in Ukraine.
Collectively the charges related to inventory and donations.
Sure we built on our solid foundation.
Revamped our.
Supply chain operation to accommodate future growth rounded out a fantastic team.
Proficiently acquired over 1 million new high value.
Our new subscribers and ended the year with roughly $200 million in cash on hand, all of which sets us up for a strong future.
Let me now discuss our strategy and roadmap for the year ahead.
Since our founding over 10 years ago Barclays redefine an industry.
We serve dog from their people directly with products made specifically for their unique needs and then in the process, we acquired a substantial share of the $3 billion toy market.
Along the way, we created a category defining brand with millions of unparalleled.
H greed weight.
Birthday, Playstyles allergies, and more for roughly 10% of the U S. Dod population.
This is <unk>.
It's a major competitive advantage for Bart and it affords us an amazing opportunity to take the same approach to win market share in our newer categories.
We capture this opportunity by continuing to treat each dock as an individual hospital as our data and technology and.
Enable us to get to know every dog that preferences, and then reflect that in the assortment of our offering.
We send to them.
But just because it's possible it doesn't make it easy.
Mark has proven this capability.
Gone serving over six.
Current and former customers, we know them, we know they're done and we can sell to them efficiently.
Theyre also teaching them how to sell our new products.
Selling food is different from toys or dental products until we extended to consistently cross sell food to our existing customers. It isn't prudent for us to invest marketing dollars targeting a new customer.
Spending media dollars to grow food will happen.
But it will only happen after we've learned the most effective and engaging ways to cross sell our customers within our existing base and that is what we are doing today.
When it comes to acquiring new customers. This year, we are making a choice to target higher value customers, who purchase across multiple product lines.
We are giving them an incentive to do so.
For example, we recently started charging new bark boxes Super tour customers $3 99 per shipping however.
However, if you add our beef food topper.
Our extra choice or treats at checkout, each of which sells for $9 per month Youre shipping.
Cross selling opportunities in early May.
And to date, we are thrilled with the results, it's not only accept inquiries, but the incremental revenue and margin. We're seeing from these sales are changing the unit economics of our parks.
Our customer and powerful way as we hoped would happen.
It is still early.
An important shift that extend the lifetime.
I'm, a hobart customer and improves the margin contribution of each new customer.
In summary, we believe this strategy will drive.
Drive sustainable growth for the business long term.
We will convert more bark box customers to Bart customers, who are more likely to subscribe to multiple products.
We expect the evolution.
Some of our customer base to slow our revenue growth rate in the near term.
However.
Higher lifetime value.
How are you.
Serve as a test.
So end of the business for years to come.
Let's now dive into the progress we've made across.
Let's start with food.
We are approaching the same playbook that made bark box so successful.
By viewing each.
Stag as an individual and creating customized magical experiences for Victor.
Dark box this allowed us to build lasting relationships with millions of dog parents.
Okay.
Our food business is following a similar path which is encouraging.
This year, our focus is on tightening the product market fit amongst our current in Florida.
And the unit economics.
To that end, we are now close to rolling out our revamped food experience informed by the feedback from customers over the past year.
We'll have new packaging and a new format, a new website design a greatly simplified sales process, an exciting new way to customize the product for individual dogs and a timely pricing offer for customers look for all of that very soon.
To prepare for this upcoming release over the past few months, we've been targeting different subsets of our customer base with different campaigns and products one.
One example of one.
Breached specific marketing campaigns.
We created Neal plant is targeted at customers with pitfalls labs in two hours.
Based on the dietary needs of the specific breeds and early results are very encouraging.
The conversion rate for the pitfall of campaign was over five times higher than campaigns, where we didn't target by breed.
Once again, we're learning that people are more likely to engage with the content. If the message speaks to them personally. We also began selling our food koppers as a standalone product, which provides our customers with a low cost entry point into our food category.
<unk> can be purchased as a standalone product through AD. The box added to a food subscription and now as an add on to a bark box are super tier subscription.
These are just a few examples of how we are learning and Iterating our customer acquisition.
For our customers into our food category and we're excited with our progress.
Food appears to be following a similar trajectory to our dental product dark rate, which launched about 12 months before food.
Over the past year, we've learned a lot about how to spell a dental product, but consistent results.
These efforts resulted in a significant improvement in conversion.
<unk> orders grew 121% year over year to 236000 orders not including sales in retail stores.
Along with the order growth gross margins grew by over 11 point year over year.
And are now trending over 50%.
We believe that Brian is positioned to scale in a meaningful way.
As I mentioned before Brian .
Following a similar trajectory.
Currently our net promoter scores and food are in the seventies and average order value is roughly 60% greater than we've seen.
I also expect retention to be much greater.
By customers due to the necessity of the product.
Food is entering its second year and I'm confident that it will be kind of a significant long term driver of the <unk> business.
Okay.
Historically.
Susan customer experiences.
Our Fox Super Tour, Dark bright Barclays embark shop has distinct websites dashboard.
Britain logins.
Becoming bark has focused on unifying our brand and customer experience.
This will ensure that all of our current and prospective customers are made aware of our full suite of products.
We also expect it to materially improve our cross selling capabilities and ultimately enhance the overall.
Okay.
We also anticipate.
Value at an even faster pace.
To put this initiative perspective.
Archrock stock comp gets over 2 million unique new visitors per month previously.
Previously, we told none of it.
So these visitors about our offerings and food are Hello, Cindy.
Similarly out of that 250 plus million E mail impressions that we signed last quarter.
And obviously adapt and improve our user experience.
Iteration of a more unified shopping experience last month.
Visitors going through that.
Cross sold to food and dental products during the sign up process.
Not only are they made aware of a full suite of products.
But in addition, just one of these products.
For free shipping this is working well.
It's early overseeing 35% of new customers upgrade to a premium offering over the page Firefox and of those.
40% are upgrading the products outside of the toy category.
<unk> purchased on a recurring basis.
So these results will compound.
And additional benefit is.
Is that customers, who choose a premium offering and are converting at about 24% higher rate than those who only choose the base offerings.
This is a simple and meaningful step towards becoming bark.
This year, we expect to build and more opportunities to cross sell products into these new categories at higher rates.
Last initiative I'd like to discuss is profitability.
As I discussed earlier, we incurred certain charges related to inventory and donations.
Excluding these items, our adjusted EBITDA loss would have come in at roughly $43 million.
Looking ahead, we have made notable improvements to our inventory management across our people and processes and we believe that the business since a much healthier position and will.
Enable us to get to profitability much more quickly.
From here.
Path to profitability can be found by comparing our results in fiscal year 'twenty two to fiscal year 'twenty one.
Turning to the gross margin line, our gross margins decreased by $4 one point.
In addition, <unk>.
G&A expense increased by 11, eight points roughly half of which were related to shipping and fulfillment expenses.
In total <unk>.
<unk> nine points of difference from fiscal year 'twenty, one to fiscal year 'twenty two.
Just maintaining those same margins, we would have been EBITDA positive fiscal.
Fiscal year 2002.
In other words.
We know what it looks like and just need to get back there quickly.
Here's how we'll do that.
On the revenue side.
We are increasing our average order values by cross selling more products to more customers, adding shipping charges to new customers.
And incentivising premium purchases by offering free shipping when a customer upgrades overall, we aim for these initiatives to increase our customary <unk> by 10% year over year.
We're also aiming to lower our supply chain costs.
As I mentioned.
The cost of goods sold through to the fulfillment costs.
We lost nearly 10 points of margin in fiscal year 'twenty two versus fiscal 'twenty one we.
We won't recover all of that this year.
And again more than half of it.
As we think about our guidance for the year, we are fortunate to serve dogs in the pet industry, which has been resilient and expanded every year through every recession going back for over 30 years.
However.
We still see potential risks in the macroeconomic environment.
<unk> inflation recessionary risk Covid risks in Shanghai, the potential for more war in Ukraine, and so on.
And we are taking these risks into consideration with our planning for the year.
It is impossible to predict how all of these issues will impact us in the world and Thats, we want to ensure we factor that uncertainty into our revenue and EBITDA guidance. This year.
As a result on the top line, we are forecasting full year revenue of $556 million for.
For the first quarter of fiscal year 2023, we expect total revenue of $130 million.
On the EBITDA front, we expect an adjusted EBITDA loss of $36 million, which represents a 38% improvement compared to last year's loss of $57 8 million.
For the first quarter of fiscal year 2023, we expect an adjusted EBITDA loss of $18 million or roughly half of our full year loss in the first quarter.
From there we expect many of the operating and performance improvements we've made to the business will begin to materialize.
While we are living in unpredictable times and are highly confident in our ability to execute and deliver sustainable growth long term.
We will remain laser focused on capital efficiency and with $200 million of cash on the balance sheet. We believe that we have more than enough cash to get us to profitability.
And before I turn it over to Howard I'd like to welcome our new Chief Marketing Officer, Cindy guests to bark Cindy spent the previous four years at Ww, formerly known as weight Watchers, where she served as CMO.
Prior to the Ww, she held senior marketing and strategy.
Peter and American Express.
Cindy brings valuable digital consumer and subscription business experienced.
Play a key role in taking <unk> to the next level.
I would also like to welcome our newest independent director.
David <unk>, who was appointed to the bark Board last week.
David is a seasoned executive in the consumer and technology space.
In senior leadership roles at <unk> and <unk>, the parent company of category Pet foods.
And Brad Cannon.
David knowledge and expertise will be a great asset as we build our business.
Overall, it has been an incredible year for Bart.
We saw significant growth in areas that are fundamental to long term success of the business.
We greatly improved our cross selling capabilities.
<unk> more than doubled its order volume in the last 12 months.
While food is following the same promising trajectory.
And we've created a clear path to profitability.
We've been there before and I'm confident we can get there soon.
We have a tremendous runway ahead, and we have hit the ground running in fiscal 2023.
I look forward to sharing our progress with you throughout the year with that I will turn the call over to Howard.
Thanks, Matt.
And good afternoon, everyone.
Fiscal 2022 was a productive year for Barbie.
We significantly expanded our customer base, we increased the average spend per customer and we made exciting progress in our newer categories.
And while we did incur some incremental expenses, we believe that the business is in a much better place.
As a result, we are entering fiscal 2023 with scale exciting cross selling opportunities are sensible path to profitability and a very healthy balance sheet.
Let me take you through our fiscal fourth quarter and full year 2022 results in more detail.
Fourth quarter revenue was.
$128 9 billion up 15% year over year.
For the full year revenue came in.
$507 4 million up 34% compared to last year and above our guidance of 500.
$5 million.
Looking at our revenue in more detail <unk> increased 16% to $117 8 million in the fourth quarter.
For the full year DTC revenue was $448 1 million up 34% versus last year.
Several factors contributed to our healthy growth in this segment.
First subscription shipments increased 28% to $14 9 million last year, largely driven by a 24% increase in total.
Active subscriptions.
And second we have become more effective at cross selling and Upselling, our customer base, which helped drive a $1, 32% increase in our average order value per ship.
We also saw healthy here.
Last quarter. This segment contributed $11 1 million of revenue up 1%.
For the full year Commerce revenue was $59 three.
Okay compared to fiscal 2021.
As a reminder, this is a lumpier business for us and year over year comparisons, particularly for a given quarter can be impacted by the timing of orders from our partners.
Nonetheless, we signed 23.
Which resulted in <unk> products now being available in over 40000 doors nationwide.
Our topline performance last year as we.
Saw healthy growth in areas.
Fundamental to our long term success.
Hello, Paul fourth quarter gross profit was $64 million, our resulting gross margin came in at 50%.
The lower margin was large.
<unk> that Matt discussed really.
Can you just shrink slow moving inventory and inventory that was no longer aligned with our strategic plan going forward.
Forward.
Today, we believe we are in a much better position to manage our inventory.
Sure <unk>.
Closing the impact of this charge our gross margin would have been 59.
Percent in the quarter.
For the full year total gross profit was 282% to $25 9 billion.
Fiscal 2021.
Our resulting gross margin last year was just under 56% down roughly four points year over year.
Looking ahead, we believe the improvements we have made to our inventory.
Our focus on higher value customers.
We will improve our gross margins in the current fiscal year.
Looking at gross profit was 61.
$1 million or 52%.
Kind of revenue.
Commerce gross profit was $3 million or 28.
$261 million.
Or 58% of revenue while Comverse gross profit came in at <unk>.
$22 million or 37% of revenue.
Yes.
Moving to operating expenses total G&A was $85 5 million in the fourth quarter, an increase of roughly 30 billion compared to the same period in fiscal 2021.
For the full year, G&A was $301 $92 4 million compared to fiscal 2021.
Looking at the full year.
First we shipped 28% more subscriptions in fiscal 2022 versus fiscal 2021.
It's higher shipping and fulfillment charges.
And other macro factors impacting the supply chain.
For the full year.
G&A expense increased by 11 eight points roughly fulfillment expenses and third we made investments in head count and technology over the year.
As we ramped up our food and health businesses.
We also incurred additional expenses associated with it.
On the G&A line in fiscal <unk>.
43, as we do not expect it.
And the team has done an excellent job.
Appreciating favorable contracts with our freight and shipping partners.
Our comps.
Subscriptions last quarter.
So roughly $2 3 million.
So every year for.
For the fourth quarter.
For advertising and marketing expense.
Roughly $3 million below the same period in fiscal 2021.
Our resulting in customer acquisition costs last quarter came in.
<unk>.
$7, which was $7 11 below the same period in fiscal <unk>.
So 2021.
These figures are encouraging as the customers, we acquired cost us less but spent more.
For the full year advertising and marketing expense was $74 4 million up roughly $7 million compared to fiscal 2021.
Other income net was relatively insignificant in the fourth quarter. However, it came in at $31 3 billion for the full year.
$7 million in the fourth quarter.
Compared to a net loss of $7 one in the same period last year, our adjusted net loss, which excludes stock based compensation the impact of our outstanding warrants and other onetime items was $25 9 million in the fourth quarter.
<unk> to $3 1 million in fiscal 2021.
For the full year.
Our net loss and adjusted net loss came in at $68 3 million and.
$67 $7 million, respectively, which combined.
Compares to fiscal 2021, net loss and adjusted net loss of $31 4 million and $21 2 million respectively.
And lastly, adjusted EBITDA was negative $23 1 million in the fourth quarter as compared to a positive 182000 in.
In Q4 of fiscal 2021.
For the full year adjusted EBITDA was negative $57 8 million as compared to negative $7 9 million in fiscal 2021.
Excluding the inventory and donation items discussed previously fourth quarter and full year EBITDA would have come in at negative $8 7 million and $43 million respectively.
Turning to the balance sheet.
Ended the quarter with total inventory of $153 1 million.
We brought in $2 4 million of additional inventory last quarter to Derisk, our exposure to the COVID-19 situation in China.
We are confident that our plans will enable.
Cable us to progressively cycle through our inventory over the coming quarters, which we expect will result in a reduction of our inventory levels. We ended the year with roughly $200 million of cash on the balance sheet, which we believe is more than enough cash to get us to profitability meaningfully towards profitability, we have hit the ground running in fiscal.
2023, and we look forward to sharing our progress with you throughout the year.
With that I will turn the call over to the operator for Q&A.
Thank you.
<unk> and answer session will now begin as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
First question is from the line of Marina reps with Canaccord. Please proceed.
Good afternoon, and thanks for taking my questions first I just wanted to ask about your revenue outlook.
Your guidance kind of implies about 10% growth for the year I guess, what is embedded in your outlook from that standpoint of macro headwinds from product repositioning.
Or maybe asked another way, where do you see sort of a more normalized growth rate.
For the business over time.
Sure that's a great question Maria.
And as as we said there.
It is somewhat of a conservative outlook given just all those macro.
<unk> that youre talking about.
The conflict in Ukraine, and supply chain issues with Shanghai, So far this year.
The recessionary or possible recessionary pressure and inflationary pressures on consumers feeling so.
Just without.
Without visibility as to how those things will play out we took a more conservative view to that.
So thats one part of the second part is the.
Focus is really about the path to profitability.
And getting getting ourselves organized around that so if you think about the long term.
We need to build from a very solid strong sustainable and profit.
Out of all foundation, which means.
As I said in the call back in February Theres going to be a period here, we have to slow down in order to speed up and so.
Of of locked.
And the higher value subscribers.
Who are then.
Giving us greater margin at the same cost of acquisition.
Continuing to invest in our new categories.
And once you have that rotation and it takes a bit in <unk>.
Once that rotation happens.
And we'll have a much more sustainable profitable model underneath us.
Okay.
Those factors led to our.
The second part of your question there the anticipation that we see that accelerating off of that strong foundation in the years to come.
Got it that's very helpful and maybe on mute.
Chris.
Sort of broadly speaking how is your new offering and there is different from what it was it reached about geographic geographic scope.
Presence for EEP and.
Is there anything you can share about it.
Yes.
At this point.
So I mentioned some of it within the within the remarks there.
There is real.
So a good progress in terms of getting feedback from the existing customers and what their experience is like what they like what they don't like.
I'll now.
Net promoter scores in the mid <unk>.
Really good feedback about how we can improve it.
Or we're fortunate that some of those improvements.
Since aligned with a better margin profile, so again really tightening up the unit economics.
Tighter unit economics.
Just like we did with bright last year.
At 11 <unk>.
11 point jump in year over year growth.
And so thats, what youre going to see in terms of our revamped format.
Very soon here.
In terms of the cross selling.
The cross selling has been.
Almost entirely.
We've broadened out beyond offering food to our and our AD the box program to what I mentioned.
Now operating koppers for food as part of the.
The onboarding funnel, when youre buying a bark, Oxford Super tier subscription and Youre coming in we offer you toppers. In addition to Brian Dental in addition to.
An extra toy but.
But people are really selecting it and we found that the top 10.
Tend to be a gateway product to lead you to a more fulsome food relationship.
So it's been really really great where we see.
On the call 35% of customers, who are upgrading to our premium product our subscribers, who are coming into bark box or super two or 35% are upgrading to a premium relationship with us.
40% of those are choosing products outside of play so in dental or food.
So again, broadening our cross selling opportunities or channels.
Learning a lot about food, having new format coming very soon pretty enthusiastic about our progress there.
Okay.
Great that's very helpful. Thanks, Matt.
Thank you Mr. Ed.
The next question is from the line of Steph Wissink with Jefferies. Please proceed.
Hi, Thank you for taking our question two really quick ones just to understand.