Q1 2023 Bark Inc Earnings Call
<unk>, which is $5 million better than our guidance.
I'll talk about the factors that contributed to this better than expected outcome in a moment overall, we are happy with our first quarter results and while we remain cautiously optimistic for the remainder of the year given the macro backdrop, we are raising our annual guidance to reflect our first quarter performance now lets talk about the drivers of the quarter.
Beginning with revenue in our direct to consumer business. The majority of our recent revenue growth was driven by a significant increase in average order value.
This is how we planned it and the results exceeded our expectations are.
Our average order value for the quarter came in at $31 seven and.
An increase of nearly $2 compared to the same quarter last year and nearly one dollar compared to the fourth quarter of fiscal 2022.
This is a significant milestone as it underscores the early success of the strategy I mentioned earlier.
We are transforming our customer base by converting Bart box customers to <unk> customers.
That is customers sign up for multiple products.
Across our newer product categories.
And while we're still early in the fiscal year the strategy is working.
One strong indication of that success is that we added 259000, new subscriptions in the quarter and the average revenue of this specific cohort in their first month increased by over 10% when compared to the same cohort in the first quarter of fiscal 2022.
That is an encouraging data point and it captures the essence of what we're looking to achieve this year.
And as we progress through fiscal 2023, and continue to acquire higher value customers. The weighting of our newer customers will become increasingly impactful to the overall unit economics of the business.
Another driver of our recent direct to consumer revenue growth was cross selling which drove $10 million of revenue of 42% increase compared to the same quarter last year.
Our results and capabilities in this area continue to expand as we work on our machine learning engine gather more first party data on millions of dogs and built deeper relationships with our customers.
This is a powerful lever to accelerate growth in our newer product categories without spending heavily on new customer acquisition in these categories.
And to that point. So it makes our recent average order value growth and cross selling revenue even better is that we acquired these higher value customers at a highly efficient cost of acquisition coming in at $50 80 for the quarter.
This CAC is in line with our historical results if the customers, we acquired last quarter spending much more and contributing more margin compared to a year ago.
Again, this is a significant improvement and something that we expect to continue to benefit from throughout fiscal 'twenty three and beyond.
Turning to our Commerce business total revenue was nearly $13 million for the quarter, representing just 10% of total revenue.
Remember our commerce business is lumpy in nature.
We continue to expect commerce revenue to represent between 10 and 15% of total revenue for the year.
In the quarter, we shipped to two new partners Walgreens and tractor supply company.
Today, we have commitments in over 40000 retail doors across the U S.
These partnerships extend our customer reach and raise awareness for the park brand in a significant way, while enabling the customer to buy in the way that suits them the best.
Continuing through the income statement.
Total gross profit for the quarter was $75 8 million, resulting in a gross margin at 58%.
The gross margin of our direct to consumer business came in at a healthy 60%.
Again, largely in line with the same quarter last year and stronger than the previous two quarters.
If you recall, our gross margin in fiscal 2022 was four points lower than fiscal 2021.
Bringing our gross margins back to the fiscal year 'twenty. One level is one key building block to profitability.
And we are very pleased with our results in the first quarter of this fiscal year 2023.
And as I mentioned earlier, our adjusted EBITDA loss for the quarter came in at $13 million, which is $5 million better than our guidance.
There were several factors that contributed to this better than expected outcome.
Some of which we've already discussed including growing average order value driven by more customers purchasing multiple products across our newer categories and healthy gross margins that are returning to fiscal year 2021 levels.
As we discussed on our call in May we made several process improvements for managing inventory, which we believe will result in lower charges for shrink in fiscal year 2023.
Now, let's talk about our product expansion into food and dental.
I'm happy to announce that last week, we introduced a new product formats for barks food.
Redesigned the packaging and launched a new website all based on the customer feedback that we've collected over the past 18 months.
You can see the new website at food Dot bark Darko.
With this launch we introduced breed based marketing initially.
Initially targeted a pitfall lad and to our customers.
<unk> conversion and feedback we have received since introducing this strategy has been very encouraging we plan to learn more about the breed based approach by serving these III <unk>.
Expanding our food assortment and then expanding to serve more breeds as the year goes on.
We're approaching food at the same playbook that made Bart box Super tier so successful.
By serving each customer as an individual.
For example, we.
A lot of valuable first party data on lapse.
No they tend to eat too quickly and that they face hip and joint problems with this in mind customers can add slow theater ball and they can add joint support supplements with their purchase.
We're also leveraging our happy team, which I believe is the best customer support team in the pet industry in unique ways to help sell and improve the customer experience that new food customers have of us.
Food customers are now being served by a happy team member with the same period of <unk>.
So for example, when a customer signs up for food for labs.
Lab parent from our happy team will be assigned to support that customer this.
This creates an immediate connection with the customer improves customer satisfaction scores.
And is expected to improve customer retention long term.
This is serving each customer as an individual in a way no other company can do.
We've also modified the product's format and delivery options. For example, we're moving to $4 15 pound bags and no longer selling daily portion meals.
This new format improves margins and is preferred by our customers.
The new format can be purchased on a discounted subscription basis or individually at full price.
Customers can also purchase add on products, such as slow theater bowls for labs, with <unk> fast tougher docs, who like extra flavor and supplements tailored to each breeds unique needs. These.
These add on products improved the margin of each shipment and serve the individual dog even better.
We have also introduced inflation through pricing to our food customers.
If you subscribe to bark feed we will guarantee the price of your dog's food for life.
Customers are feeling the pain of inflation and it's gotten worse in pet food over the past year, we aim to give customers assurance and peace of mind that when they commit to park, we commit right back to them with locked in pricing that recognizes their loyalty.
We believe this incentive will not only raise awareness, but also create food customers for life.
This makes sense for us as a direct to consumer business with strong margins, a large customer base and robust cross selling opportunities that allow us to offer more value to our customers as compared to traditional retail based food companies we.
I also believe will benefit with stronger retention and lower customer acquisition costs due to this offer and we believe it's a relief to customers who are struggling with inflation today.
Collectively these changes are improving conversion accelerating revenue growth and.
And improving customer satisfaction scores, which we believe will improve retention accelerate ARLP and most importantly create by our customers for life.
As we briefly discussed on our last call our food business is following a similar trajectory to our park right.
Which launched roughly one year before our food business.
In fiscal year 2022 orders for bright increased 121% to 236000, representing $6 million of revenue.
Last quarter direct to consumer revenue from bright increased 169% to $2 $4 million with a 55, 4% gross margin for the quarter.
We are thrilled with these results the dental category represents a $10 billion market opportunity and even with this fast rate of growth, we have a huge opportunity for year for growth for years to come.
Finally lets discuss profitability and stepping back into the CEO role, we have been making material improvements across our business.
We're focused on raising the average order value of every customer tightening up our margins and overall unit economics, managing to a consistent cost of customer acquisition and streamlining our team activities to limit spending.
As I've said previously if we return to the margin profile, we had in fiscal year 2021, we will make big leaps towards profitability.
It takes time, but the entire business is becoming more efficient and we are on a good path to profitability.
And while we're just one quarter into the fiscal year, we are very pleased with our progress.
We are adding customers efficiently.
<unk> is growing and margins are improving.
This all led to an adjusted EBITDA loss of $13 million, which is $5 million ahead of our guidance for the quarter.
As I said, we're cautiously optimistic about the remainder of the year factoring in macro uncertainty into our guidance.
With that said, we are raising our guidance and now expect an adjusted EBITDA loss for the full year of $33 million as compared to our previous guidance of $36 million.
For the fiscal second quarter, we expect total revenue of $135 million and adjusted EBITDA loss of $8 million, a meaningful improvement compared to our fiscal first quarter.
The last item I'd like to highlight is inventory.
Total inventory increased 3% to $158 million compared to the fiscal fourth.
Quarter of 2022.
We continue to hedge against potential supply chain disruptions. However, we do not believe that inventory will be a material drag on working capital. This year and we expect our inventory to come down from current levels as we leverage the products we have on hand over the next several quarters.
It takes time for us to turn this as we are typically ordering product six months in advance.
So it will take a couple of quarters to see our progress reflected on our balance sheet.
One great thing about our subscription model is that the customer is unaware of the products. They will receive in their box each month.
Traditional retail or e-commerce business, the customer selects the exact products. They wanted one send it to them.
And our model, it's a surprise each month and we can leverage the inventory we have on hand at our discretion.
Overall, we were very pleased with our execution last quarter and believe that the business will be much more efficient this year and will continue to improve beyond fiscal 2023, we.
We ended the quarter with $177 million of cash on hand, which we believe is more than enough to get us to profitability.
To quickly summarize we hit the ground running in fiscal 2023.
Solid progress across all of our key priorities.
We are acquiring higher value subscribers growing <unk> at a healthy rate and more successfully introducing new customers to our offerings and food and dental.
At the same time, we've made improvements throughout our margin and cost structure, which have already begun to accelerate our path toward profitability.
We outperformed our guidance on the top and bottom lines.
And as a result, we're cautiously optimistic for the next quarter and the remainder of the year.
Therefore look for us to deliver $135 million in revenue in the second quarter.
With an $8 million adjusted EBITDA loss in our full year adjusted EBITDA loss of $33 million now we look forward to updating you on our progress throughout the year.
With that I will turn the call over to Howard.
Thanks, Matt and good afternoon, everyone.
We had a productive first quarter revenue and adjusted EBITDA came in ahead of our guidance driven by strong average order value and healthy margins.
There are still blocking and tackling to get us to profitability, including working through our inventory improving margins and gaining operating leverage on our G&A line, but that said we have made solid progress and we believe that we are in a strong position to execute the priorities that we've laid out for the year.
Let me take you through our fiscal first quarter results in more detail.
First quarter revenue was $131 $2 million up roughly 12% year over year.
Looking at our top line in more detail direct to consumer revenue came in at $118 $4 million up 12% compared to the same period last year.
Growth in this segment was largely driven by a 6% increase in subscription shipments and a $1, 86% increase in our average order value.
As Matt discussed we were very pleased with our ability to acquire higher value customers last quarter, and we expect AOE.
To continue to be a key driver of the business in the quarters ahead.
Commerce revenue was $12 $8 million up 4% year over year.
As we've discussed on previous calls our commerce business is lumpy in nature and revenue contribution in any one quarter can vary based upon the timing of shipments with our retail partners.
Nonetheless, we continue to expect our commerce business to represent a similar percent of revenue in fiscal 2023 as compared to fiscal 2022.
Moving on total gross profit was $75 $8 million, resulting in a gross margin of 58%.
Gross profit for our direct to consumer segment was $71 $2 million, resulting in a gross margin of 60% while gross profit in our commerce business came in at $4 $6 million, resulting in a gross margin of 36%.
Over the past several months, we have been laser focused on improving our margin profile.
We've optimized our inventory controls to reduce shrink and we've also renegotiated contracts with several of our manufacturing and shipping partners.
While there is still work to do are growing.
Average order value, coupled with our improving margin profile sets us on a solid path towards profitability.
Turning to operating expenses.
Total G&A was $79 $6 million in the first quarter, an increase of roughly $10 million compared to the same period last year and roughly $5 million less in our fiscal fourth quarter of 2022.
The year over year increase was primarily driven by a 6% increase in subscription shipments in the most recent quarter and increased head count.
Looking ahead, we do not have any plans to materially increased headcount from current levels.
We expect the majority of G&A growth this year to be driven by subscription shipment volume and thus we expect our operating margins to improve in fiscal 2023 as compared to fiscal 2022.
Moving on we added 259000, new subscriptions last quarter, bringing our total active subscriptions to over $2 2 million.
Total advertising and marketing expense in the first quarter was $16 $4 million.
Which is $815000 below the same period in fiscal 2022.
Our resulting customer acquisition cost last quarter came in at $50 80.
Largely in line with where we have been historically, yet the customers. We acquired last quarter are spending more and purchasing multiple products across our newer categories.
Other income net was $6 million in the first quarter, which was largely driven by the change in the fair value of our outstanding warrants. This is a noncash item.
Net loss was $15 4 million in the first quarter compared to a net loss of $24 $8 million in the same period last year.
On an adjusted basis, which excludes stock based compensation the impact of our outstanding warrants and other onetime items net loss was $16 4 million in the first quarter compared to an adjusted net loss of $10 million in fiscal 2022.
And lastly, our adjusted EBITDA loss was $13 million in the first quarter as compared to a loss of $7 6 million in the same period last year.
Turning to the balance sheet, we ended the quarter with total inventory of $158 million and we expect to see a reduction in our inventory levels. This fiscal year.
And lastly, we ended the year with roughly $177 million of cash on the balance sheet.
In summary fiscal 2023 is shaping up to be a transformative year for us.
We are acquiring higher value customers.
Growing average order value at a healthy pace and introducing more customers to our offerings and food in dental.
We also expect our margin profile to improve throughout the year as we gain operating leverage on our cost structure.
Moreover.
Our cash position is healthy and is expected to improve this year as inventory levels come down.
It was a strong start to the fiscal year and we look forward to speaking with you again soon.
With that I will turn the call over to the operator for Q&A.
Thank you and now we will move to our Q&A session and we will go first to Maria ramps at Canaccord.
Okay.
Hi, good afternoon. Thanks, so much for taking my questions and congrats on strong results here.
Can you maybe share a little bit more color on your progress with one of your strategic initiatives become inbox. So you talked about very healthy trends, especially for new subscribers.
How far along are you integrating your five businesses into one platform and that has been introduced to all of your existing sort of customers at this point.
Do you have any insights in terms of how your existing customers.
Sorry subscribers engaging with this sort of more unified Frank.
Okay.
Yeah.
Hi, Maria sure.
Our progress the biggest thing that you'll see and it is starting to reflect itself in the results. This quarter is where we've added the cross selling.
Okay, great and.
Our food toppers, where we're cross selling those to our toy and treat customers during their onboarding that launched in the middle of the quarter in May and so we have two months.
Adding those recurring relationships with those customers.
That's built into these results so that definitely helped push up that average order value.
We saw really good adoption there.
Under the under the Hood here behind the curtain there is a lot of work on the foundation and the platform to bring all the sites together I think the other material thing you saw that didnt happen within the.
Quarter itself, but is now visible in the world is the launch of the foods site and so with that you see I'd say a more modern future look for Bart.
And that's another building block towards getting to that integrated Park site.
But we're going to continue working at best probably through the rest of the fiscal year.
There's quite a bit of work to do but we're already.
Benefiting from just.
Exposing those products more to some of our newer customers and be more aggressive about the cross selling ATV program.
Got it that's very helpful. Matt and then maybe secondly, you mentioned introducing more question. Mr. D. Food offering can you share roughly what portion of your customer base has engaged with you each product set up at this point and maybe refresh us on how broad geographically eats has been launched so far.
Yeah.
So as of now food is available nationwide.
But today, it's it's available to the three breeds of dogs that we've launched with which our labs pit Bulls and chihuahuas.
We started with those dollars six its there.
Fairly different from each other and so we wanted to good.
Basis for testing and understanding if there are different behaviors, our customer interactions due to that due to the period of the dog.
But so far we've rolled out.
That population.
Somewhat limited way still testing our emails there'll be more broad based announcements.
<unk> PR and then and then more internal marketing to our existing customer bases as we learn more and time goes on and we optimize the sales flow.
But one week into it.
Sure.
We're pretty encouraged by what we're seeing.
Conversion rates when people are coming specifically to one of those three based pages.
Got a chihuahua.
<unk> with the Chihuahua section of the site the conversion rates that we're seeing are pretty encouraging and so that's given us.
The confidence to ramp up the exposure and awareness.
Got it that's very helpful. Thanks, so much for the color.
Okay.
Thanks Maria.
We'll move next to Corey Grady at Jefferies.
Hi, Thanks for taking my question. So I wanted to follow up on food. So you launched three brands at this point, but maybe can you just say more about the customer response. Thank you.
And then.
How should we think about you guys rolling out.
Formulations for new bridge through the year, and then just growth as you rollout.
The new offerings.
Sure.
Like I said, it's pretty early its a weekend, but the main metric that I'm interested in is that conversion rate.
The number of people that visit those individual pages, how well are they converting to a sale, it's the proposition resonating with them.
And like I said to Maria.
So far so good.
Really encouraging and it's a big step up from where we were prior to August one.
And.
So now that becomes a chat.
Challenge of getting awareness getting traffic flowing through those pages.
And we have plans in place to do that we're going to see if that scales up and the conversion rates hold really nicely there.
But all along.
We've been creating more formulas of food in order to serve more breed.
We intend to take steps to go anywhere from three to 10 breeds.
Over the next few months.
And if we get very very ambitious you could see us get to.
As many as 12 to 15 breeds by the end of the fiscal year.
So we're taking it step by step just making sure that we're putting the best cost sorry, the best product in front of the customer and be very efficient about our our marketing activities and our dollars are replacing there.
That's really helpful. Thank you.
I just wanted to ask about the performance of the business overall.
The results were.
Really strong.
You guys are in a relatively a discretionary category or at least your four core towards full force, but can you talk about how the quarter played out relative to your expectations.
Both the DTC and commerce segments, and then if you can characterize it.
Any change in customer behavior.
That would be great and any feedback from retailers.
I think the category.
Sure.
It played out.
In a lot of ways.
Better than expected.
Like we said.
What we're really focused on is.
Is creating stronger relationships with higher value customers and the reflection of that being are they are they entering into multiple recurring relationships with us and we've seen more of that than than we expected.
And.
And then that gets reflected in the average order value.
Watching that move its way up.
And at such a.
A good pace year over year EBIT quarter over quarter.
That's really encouraging we saw that on a cohort basis.
Overall basis, so that was really encouraging.
We also were paying very very close attention to.
Our overall conversion rates and our retention rates and.
Because as we said in our in our May call, we talked about being conservative cautious or optimistic, but very cautiously optimistic here.
As the company has never lived through a recessionary period, if thats what were in right.
We want to call it but.
What seems clear is that the customer is facing inflationary pressure and mostly.
At the gas pump and so we expect.
There are some customers out there when they put $30 mark gas into their car, it's not $30 thats coming over to park. So we've been very very tuned into that with our as our happy team is engaging with customers as we watch our data and.
We have definitely seen pressure on the customer but have also seen that Wayne as those gas prices have come down over the past six seven weeks.
So we remain cautiously optimistic we did adjust the guidance in a positive way.
But do so cautiously optimistic about it.
Paying very close attention to it and certainly managing the retention and conversion sides of the business carefully.
That's really helpful. Thank you.
Thank you Chris.
That does conclude today's.
A question and answer session at this time and that also concludes the conference I would like to thank you for your participation and you may now disconnect.
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