Q3 2023 Bark Inc Earnings Call
Good afternoon. Thank you for attending Barksdale corridor.
<unk> 2023 earnings call. My name is Matt that'll be your moderator for today's call all lines will be muted during the presentation portion of the call up an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one on your telephone keypad.
I'd like to pass the conference over to our host Michael Mujeres, Vice President of Investor Relations.
Please go ahead.
Good afternoon, everyone and welcome to box third quarter fiscal 2023 earnings call. Joining me today are Matt meager co founder and CEO , because I hear Ebrahim, Chief Financial Officer, and Howard Eaton, who served as interim Chief Financial officer. During the period, we are reporting on today.
Today's conference call is being webcast in its entirety on our website and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company's financial results was issued this afternoon and can be found on our Investor Relations website.
Before I pass it over to Matt I 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 a non-GAAP financial measures is contained in this afternoon's press release.
And with that let me now pass it over to Matt.
Thanks, Mike and good afternoon, everyone. Our results last quarter illustrate the significant progress we continue to make cross east St.
T J initiatives, we laid out at the beginning of the year.
Namely accelerating our path to profitability.
Meaningful progress in our food and consumables business.
<unk>, forming our customer base by acquiring more premium customers.
Last quarter, we grew our average order value by $2 year over year.
Proved our gross margin by four points to 60%.
We reduced our inventory by $15 million and ended the quarter with $164 million of cash on the balance sheet.
Essentially unchanged from fiscal Q2.
And for the first quarter since going public we generated positive free cash flow.
These are important milestones and a direct result of the actions we took to diversify our product mix improve.
Improve our long term unit economics, and meaningfully reduce our cash burn.
And while the progress we have made across these initiatives is encouraging we expect these trends to continue further in the quarters ahead.
In addition, we announced a cost reduction initiative today to enable more leverage across the business, adding significantly more to our bottom line.
I'll discuss this initiative more in a moment.
First let me highlight some of the key results for the most recent quarter.
Total revenue was $134 $3 million $300000 ahead of our guidance for the quarter.
Our direct to consumer segment contributed $120 million.
Within that segment total revenue from cross selling was $12 million up 15% compared to last year.
And as we know not all revenue is created equal and we saw the strongest growth in our new categories dental and food.
Our dental product dark right delivered $2 $7 million of revenue in the quarter up 70% compared to last year.
I'm also excited to announce that we recently expanded our dental catalog with the launch of bright durable, which as the name suggests is targeted at Tucker chairs.
We also removed the chicken ingredients from this formula which is one of the more common dog allergies, thereby growing the population of dogs, we can sir.
And while bright durable has only been available for a month.
The initial reception has been fantastic.
And our first month, we added nearly 6000 new subscribers for this product.
This is a great example of how we are able to leverage customer data to inform product development and expand our portfolio with products that we are confident will resonate with customers.
Our food product is also doing very well and accelerating across all the key operating metrics, we use to evaluate and manage the business.
Since adding more breeds coffee formulas and other variations last fall the growth is picking up even faster.
With each passing month, we are seeing notable improvements in customer engagement conversion rates and the number of orders we are fulfilling.
Over the next 12 months, we will continue to add more breeds, which will expand our addressable market and helps us engage and even greater subset of our customer base.
And virtually all of our progress to date has been achieved by reaching out to current and former Bart customers are through word of mouth.
Food is a huge market to serve and we're thrilled with how well the St strategy is resonating with our over 2 million Bart customers.
The related and large consumables market, we serve but haven't discussed much this year as treats.
And Bart does more than just serve this market with roughly one third of our revenue coming from treats we are top treat seller in the U S. Today.
And we achieved this without selling a single treat in retail or via our partners, which are channels, we expect to tap into over the next year.
Speaking of retail, let's turn to our Congress segment.
We delivered $14 million of commerce revenue in the quarter roughly 11% of total revenue.
This is a segment I'm very bullish on and see a significant opportunity to grow this business long term.
Today, we are partner with virtually every major retailer in the U S.
Our foot presence spans 40000, plus stores across the country, which enables us to reach new demographics and introduced millions of prospective customers to bark.
That said today, we are primarily selling toys through our retail network.
However, there is an exciting opportunity for us to broaden our offering and grow our ecommerce business in a substantial way by introducing our full product line to retailers, including toys treats toppers dental and food.
Moving on.
Our total gross margin improved by 400 basis points year over year to 59, 7% and our direct to consumer gross margin came in at 61, 8%.
We have made significant progress this year getting our margin back to fiscal 2021 levels.
And as I've discussed for the past year. This was essential to the foundation on which we can grow now more profitably.
We also have great visibility on our margin drivers and we expect ongoing gains for several more quarters due to the following developments.
First we renegotiated more favorable contracts with our manufacturing partners.
Rather than splitting in our business across a dozen different vendors, we streamline the number of partners, we work with which enabled us to negotiate more favorable terms.
We also successfully renegotiated better terms with our freight partners as the spot rate for containers has declined significantly from their pandemic highs.
Looking below the gross profit line.
We recently signed a long term agreement with one of our strategic shifting partners, which will reduce transportation costs and limit surcharges.
Collectively these efforts have improved our unit economics lift in our margins in a meaningful way and we look forward to enjoying the benefits of these new arrangements in the quarters and years ahead.
If you recall in discussing our path to profitability one year ago, I mentioned from fiscal 2020 one to fiscal 2022.
We lost four points of gross margin.
Another six points on shipping and fulfillment.
And added six points of revenue on the G&A line.
As I just mentioned we've made great gains this year in those first two areas and we'll gain more in future periods.
The final area for improvement is on the G&A line.
And today, we announced an initiative that will save us around $12 million annually starting this quarter.
While also streamlining our work and helping us get more done faster.
This is a great progress in a short period of time and I'm very proud of our team for making it happen this year.
Finally that all roll to an adjusted EBIT loss for the quarter of $12 $8 million.
Slightly ahead of our guidance and a 30% improvement compared to the third quarter of fiscal 2022.
For the quarter ahead, we are guiding to a 3 million dollar adjusted EBITDA loss.
And given all of the actions we've taken over the past year I'm more confident than ever that we are on the doorstep of sustainable and growing profitability.
Furthermore, we are also beginning to convert our inventory to free cash flow.
As I mentioned on our last earnings call. We typically order products eight to 10 months in advance so our ability to reduce our inventory levels in the short term was limited.
That said, we have reached a point, where we can expect to see more consistent inventory conversion.
We demonstrated this in our fiscal third quarter and we estimate that we can make similar progress in inventory reduction in the year ahead.
Now, let me touch on the cost reduction initiative that we announced this afternoon.
The pandemic served as a significant and in many respects lasting tailwind to the pet space and we benefited tremendously as our top line grew at a dramatic pace.
In an effort to meet growing demand, we quickly scaled our infrastructure head count and other resources.
In hindsight.
Mailed our cost structure too quickly, which led to operational inefficiencies and unfortunately redundancies.
This reality became even more evident as the broader macro backdrop became increasingly volatile.
This we conducted a comprehensive review of the business with the goal of streamlining our cost structure.
Proving our operations and further accelerating our path to profitability.
As a result, we made the decision to reduce our head count by 12% and eliminate certain contracts with third party vendors and consultants.
Decisions like this are never easy because they impact people our colleagues and friends.
Worked hard to support Barack and its customers.
To all the employees that were affected I'm truly grateful for your contributions and dedication.
In reality. However, we believe that this is the right direction for the business and it better aligns our cost structure with the current economic environment.
And it allows us to better focus on our highest priorities.
Let me now turn to guidance for the remainder of the year.
While we saw strong revenue acceleration in our food and dental product lines last quarter, we did see some softness in our toy product line.
New additions came in later.
For our fiscal fourth quarter, we expect revenue to be approximately $121 million and full year revenue to come in at roughly $530 million.
Our full year guidance implies year over year growth I think approximately 5% as compared to our previous guidance of roughly 10%.
In our view this is a reflection of the broader macro backdrop as many consumers remain cautious and are currently favor even less discretionary spend.
We believe that this is in part why our food and dental categories are accelerating.
Which is healthy for our business in the long run however, it does taper off our near term revenue expectations, given the relatively small base of our food and Denver categories today.
Notwithstanding the lower revenue guidance, we are maintaining our full year adjusted EBITDA guidance of negative $31 million, which is where our focus has been and continues to be for the.
Our fiscal fourth quarter. We currently expect an adjusted EBITDA loss of roughly $3 million and 87% improvement compared to the fourth quarter of fiscal 2022.
Overall, the improvements we have realized across cost of goods sold and G&A are significant and our ability to maintain our EBITDA guidance is a reflection of the significant progress we've made.
And improving our long term profitability profile.
This progress also highlights our long term LTV to CAC opportunity.
Growing a O V on.
On top of a healthier margin profile benefits to our LTV to CAC ratio.
This coupled with a leaner G&A structure provides us with a lot of flexibility to increase our investment in marketing. If we are seeing stronger returns, particularly if we continue to cross sell our customers into food as successfully as we have recently.
To summarize.
It has been a successful year back in C. F C and we are executing the plan that we laid out a year ago.
Consistently improved our customer quality as reflected in our increased average order value.
We've improved our margin profile in a material way, we're beginning to convert our inventory to cash and we were free cash flow positive for the first quarter since going public.
Looking ahead, we expect to continue to deliver healthy year over year improvement in adjusted EBITDA and free cash flow as a result of the important actions. We took over the course of fiscal 2023, which are beginning to translate to our financials in a more meaningful way.
If the market was betting on us running out of cash because we were back and hopefully our steady progress and performance this quarter should prove that thesis is wrong.
Continue to believe that our best days are ahead of us and with $164 million of cash on the balance sheet.
A lot of exciting opportunities ahead.
And before I turn it over to here to walk through our financials in more detail I'd.
I'd like to thank Howard for his thoughtful leadership and contributions over the past year. He has been a valuable partner in helping me execute many of the improvements we've made to the business during his time here.
I'd also like to welcome to adhere to his first earnings call at Park.
Did you hear brings nearly three decades of senior financial leadership experience at public and private companies and a proven track record scaling high growth direct to consumer brands and we're thrilled to have him on board with that let me now turn it over to Jay here.
Thanks, Matt and good afternoon, everyone. It's a pleasure to participate in my first earnings call. It bulk.
Before I dive into our strong Q3 results.
So there would be helpful to share a water truck to meet the bulk some of my early observations on my initial areas of focus for us.
First off I loved the pet space doesn't have a dog fan and the parents of a 10 year old Golden named Gasca.
Fully appreciate how much joy a dog can bring into our lives. So from the outset, our mission to make dog lives how P. A totally resonated with me. So I can I believe the bulk offers a really unique value proposition as a brand for dogs. We are one of the only companies in the space with proprietary Brian .
That caught expanding toys treats food and dental and finally mountain the team have built an impressive business with millions of loyal customers.
Business with a valuable and growing dataset and with early success expanding into new high time, count degrees, which are all resonating well with customers.
We have great critical mass and a major runway for growth ahead of us.
I saw a lot of parallels between Balkan were kind was when I joined them back in 2015. During my six plus she is that I hope to design and execute our long term strategy building capabilities enabled our revenue to scale two eggs, while we optimized our cost structure.
In the near term my top priority is helping my team build an infrastructure that enables balk to scale profitably.
A lot of important work has already been done. However, we still have work to do and I look forward to partnering with Matt and the team to help improve our operations even further.
With that let me take you through our financial results in more detail and while I was not here for the quarter. We are reporting on today. The drivers are fairly straightforward and I believe our results largely speak for themselves.
Total revenue was $134 3 million roughly 300000 ahead of our guidance for the quarter compared to the same period last year total revenue was down slightly which is a function of the pull forward of commerce revenue that we experienced in fiscal Q2 of <unk>.
Several retail partners ordered the holiday products are ahead of schedule.
If you recall this is thought to be swapped out commerce revenue between fiscal Q2, and Q3 this year, making the year over year comps in this segment this quarter less meaningful.
For our D to C segment revenue was $120 1 million in the quarter up roughly 2% year over year.
The driving force behind the increase was $3 6 million subscriptions shipments at an average order value of $33.10.
$2 more than the year ago period, and nearly $1 more versus the previous quarter.
Bright product line has been performing exceptionally well delivering $2 7 million of revenue in the quarter roughly 8 million through the first nine months of fiscal 2023 up over 100% on the corresponding period for 2022.
Furthermore, on your food business, which launched in August is growing at a strong pace masked relapses investing in marketing.
We also achieved healthy margin expansion in D C.
Third quarter in a row.
See gross margin was 61, 8% up 230 basis points compared to Q3 last year and up 160 basis points versus Q1. This year. These improvements were driven by strong growth in our average order value and improved ongoing pricing with our manufacturing partners.
Moving on to our Commerce business revenue came in at $14 2 million down from $22 7 million in the same period last year.
As mentioned earlier this was largely timing related.
The <unk> gross margin was 42% up from 36% in the year ago period, as a result of our holiday promotions hitting fiscal Q2 this year.
Turning to operating expenses.
Total G&A expense was $18 2 million up roughly $2 million compared to the same period last year. The increase was primarily driven by $2 2 million of impairment cost related to our previous New York that office.
As Mike discussed, we announced a cost reduction exercise. This afternoon in an effort to better align our cost structure with the current macro environment and further improve our operational efficiency.
Quantify the magnitude of this exercise we expect to achieve approximately 12 million of annual cost savings starting this quarter with around 10 to 11 million flowing into fiscal year 2020 full this initiative coupled with the improvements we have already realized will significantly improve our profitability profile.
Phil.
These are always difficult decisions to make however, we believe this initiative better aligns our cost base without scale will make our organization more effective and better enabled us to capitalize on the tremendous opportunity ahead.
Moving to advertising and marketing.
Expenses were $21 7 million down approximately 5 million compared to last year.
We will continue to manage our marketing budget in a disciplined fashion to ensure we are continuing to improve the returns on our investments.
Nevertheless, we are very happy with the quality of customers that we have been acquiring throughout fiscal 2023.
With growing average order value and a healthy cost structure, we increasingly have the flexibility to lean into our marketing effort. If we continue to see a lifetime value increase.
Ed sustainable profitability remains our foremost priority.
And lastly, adjusted EBIT was negative $12 8.200 million ahead of our guidance for the quarter.
30% improvement compared to the negative $18 3 million in regenerate that last year.
Overall, our results last quarter underscore our significant progress in improving unit economics and driving towards sustainable profitability.
Turning to the balance sheet, we ended the period with $164 million of cash broadly in line with the prior quarter, notably we reduced our inventory balance by over $15 million in the quarter, which is a step change improvement and lastly, we achieved positive free cash flow in the quarter.
For the first time since going public which is a major milestone.
And looking ahead, we anticipate positive free cash flow tailwind in two areas. The first is balance sheet driven as we continue to focus on reducing our inventory levels and the second is P&L driven as we expect to see an improved margin profile, coupled with a cost reduction exercise, we implemented today all of which should be.
Bruce to our profitability and free cash flow generation.
Overall, we had a very strong quarter, we continue to add higher value customers. Our gross margin continues to rise we are improving our operating expense profile and we're beginning to generate positive free cash flow.
While the near term macro environment remains volatile we have a tremendous runway ahead and I look forward to building on our positive traction with.
With that I will turn the call over to the operator for Q&A.
Okay.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two to.
Again to ask a question press star one.
As a reminder, if youre using a speakerphone please pick up your handset before asking your question.
We will pause here briefly as questions are registered.
The first question is from the line of Maria <unk> with Canaccord. Your line is now open.
Great. Thanks, so much for taking my questions.
So it looks like you reported very healthy Q3, but it sounds like Q4 is trending Microsoft had than expected can you maybe just talk about it kind of at what point did you start seeing deterioration and deterioration in discretionary spend and I guess what are your thoughts around re engaging those consumers as you move towards fiscal 2024.
Yeah, Thanks Maria Oh.
We we did and as you know fiscal Q3 is typically our biggest quarter from a.
Net adds perspective and from an a M. A O V growth standpoint.
And it was difficult to expect in this environment, how the consumer is going to respond.
It's it's cut pretty much across everything in a proportional way the way you would expect so if you look at commerce, there's certainly the headwinds that we're feeling where our retail partners.
And we saw some of that pull forward last quarter and they're they're just built up so.
There's there's a lot to move through there and I'd expect that continues through at least this quarter that we're in here and maybe the next.
And then on the direct to consumer side.
There are a few different stories, but there's the net adds overall came in lighter than we would've hoped most of that happened in our biggest business switches bark box and then as you move to Super cure.
Better performance and then really really strong performance in food in dental, but obviously growing on a smaller base.
What we're seeing there is that really help.
A healthy rotation, we've been after for the better part of a year or longer.
Rotating from toys into food and dental now the nice thing is especially in food.
Where we're picking up all that momentum from the toy customer base.
And that and it's going very very well, which suggests a where we're probably in the past quarter and we probably been a bit too conservative in what we are what.
What we're willing to spend to acquire a customer their value is growing more and more as the quarters go on and you see that in the a O V. And then the margins increasing the retention is hanging in there or even a little bit better.
So I think we just needed some time to adjust to.
This dynamic could food and get some confidence in it and as we pushed through next year, I think you'll see more and more of that acceleration.
Got it that's very helpful. Matt and then it sounds like your business is seeing strong momentum.
How are you thinking about investments in the product over the next couple of quarters, especially given your cost savings can you sit in here and then are there any sort of specific milestones like certain level of scale.
Certain above market that you have in mind.
Needs to be achieved before you start marketing it externally to people who are not already.
Hi, Chris.
Yeah in terms of the investment in the team and there's there's a very good.
Narrowly focused tight team on it that's doing.
Fantastic job.
So we've got the right group of people around it and and they're expanding it nicely.
So we don't need.
I'll tell you, we don't need big G&A investments in it to make it go faster that's that's happening all on its own.
The question about marketing as is a good one because as I said most of this momentum has been driven off of cross selling into the into the toy customer base and there's a whole lot more we can still do there and we'll do that but to.
To your point, we should be starting to spend some external marketing dollars to acquire direct food customers, but even more so now that we have this internal engine running where we can take a toy customer and more effectively turn them into a food or dental customer, we should be increasing our cost of acquisition on that.
Side as well.
So the marketing spend mm will start to move up to reflect that higher L. T V and this and the strength that we're seeing in the and the cross selling.
Got it that's very helpful. Thank you Matt.
Thanks, Matt.
Thank you for your question.
The next question is from the line of Corey Grady with Jefferies. Your line is now open.
Hey, Thanks for taking my questions I wanted to follow up on a cash generation. So you made a lot of progress on converting inventories this quarter.
And it sounds like there's still more room, there and if you can talk about how much more room. What room is there left to you know how about how much more inventories are there left to work down and what you're targeting is kind of like a normal level.
Hi, Cory How're you doing this is a here and.
In terms of just maybe a bit of context around supply chain. So we have a sizable amount of lead time and supply chain from ordering product two it landing in our house and ultimately.
Flowing through to your customers. So typically it is anywhere between eight to 10 months.
So that's really important context as you think about how.
This reduction or how much you can influence inventory change in the near term. So as we think about what happened in Q3 about 15 million reduction was as a result of us.
Making decisions back in March April from a persistence perspective, why we decided we wanted to take a step change reduction in our inventory and so you're seeing that now flow through in our December financials, and you know it was.
As I said it was a sizable reduction in what it does is it re bases.
Down from the 160 level and out around $1 45, as we enter 2020.
<unk> four and calendar 'twenty 'twenty four that is until we use that as a new baseline as we plan for future reductions.
I'd say in the near term.
The inventory is going to move up or down depending on consumer demand relative to purchases that we placed with supply as you know some months ago.
But looking forward for fiscal 2024, I'd expect our inventory levels to come down.
By a similar sort of a mountain that we saw in Q3.
With a great time part likely in the second half of 2024 due to the supply chain lead times.
Got it.
Yeah, that's really helpful. Thank you and then just on profitability.
So kind of following up on cash generation. So you reported a pretty pretty solid gross margin expansion. This quarter and then you know obviously the 12% workforce reduction you could talk about any updates on timing on getting to adjusted EBITDA profitability and you know what the remaining steps are to get there. Thanks.
Yeah, I think you're seeing it and whereas we're guiding to a loss of $3 million in this current quarter, but as I said in the call.
The building blocks are there and you're pointing it out that the gross margin a leap forward to.
Roughly 60% are the best we've posted as a public company the other day and we still feel.
There's a lot of room for growth in that or are we know there as we see it through a lot of those.
A lot of those contracts that we've put in place with our vendors and as I hear is that we're just working through the inventory that would be I'm old contracts. So we've got some visibility to ongoing improvement. There. In addition to the a O V improvement that makes the gross margin go up improvement on the shipping and fulfillment line and as you.
The cost reduction.
It's a long way of saying.
We're right there and we're guiding to being right there.
When it comes to.
The word we're getting our arms wrapped around our full year plan for fiscal 'twenty four and he has been on board with US now for five weeks. So we're getting our arms around it and I I think we'll have visibility to that very soon.
Thank you.
Thank you for your question.
The next question is from the line of Ryan Meyers with Lake Street Capital markets. Your line is now open.
Hey, guys. Thanks for taking my question person one for me just wondering if you can unpack that.
During the quarter, a little bit more and then kind of maybe what percentage of revenue came from cross selling.
Yeah.
Yeah. This this quarter a $15 million of revenue came from cross selling.
Out of the total 134 million or $120 million of direct to consumer.
So.
Well over.
10% of.
Consolidated and certainly over 10% on the direct to consumer side. So that continues to be a core strength of ours and as I mentioned.
And I've I've talked about it for.
A lot in the past year that we had become very good at.
And our past couple of years was addressed.
Addressing the toy customer and selling them more toys, we became really great at that what's changed in the past quarter or two really since we we updated the format and went to the breed based format of food is we've really unlocked how to take them to a customer and turn them into a food customer and.
That's been the unlock we've been looking for.
So.
But that's the game changer for us and what we've been going for.
In this past quarter.
If I if I go back to the question Cory just asked we've done a couple of things I mean, we've certainly expanded the gross margin overall in that 60% neighborhood.
We've improved our shipping and fulfillment percentage of our revenue that we spend there.
We have a cost reduction exercise them before and before that we turned in a free cash flow positive quarter and then.
And then you take all of that forward so.
One priority was to get profitable another was to have real momentum in food, we've got that too.
So we're pretty happy with where all of that is.
Got it and then kind of the integration of the one bark brand how is that progressing and do you guys have any sort of timeline as to when that might be complete.
Yeah, no not a specific timeline, but if you you will see it it's not a.
We don't feel the best way to bring this out is to work on it under the covers for a long period of time and then just debuted a whole new platform.
And so we're we're bringing this out day by day little by little and learning how to sell in new ways and learning how to introduce new products in new ways.
If you look at the food platform right now food that park Dot cope.
What you have there is for selling the core cable and the food on that breed based approach, but we introduced new products, there as well like food toppers, so still in the food family treats.
And soon you'll see our dental products start to appear there.
And now we're starting to move more and more into having all the products on that platform.
And the platform is really where we're getting the leverage because it is.
It's far more flexible much easier for us to optimize and improve on and we're seeing those day to day gains and our conversion rate and our cross selling ability and so we're taking it one step at a time moving those products over but.
It's growing rapidly and then then we'll have the I'd say the window dressing of there's going to be a date, where we changed the U R. L from food don't Park that code bark Dot co create some new navigation, but you'll.
You'll see in the coming weeks.
Change to start to.
Be made there, especially the new products being introduced.
Got it that's helpful. Thanks for taking my questions.
Thanks.
Thank you for your question.
The final question is from the line of ego Iranian with Citigroup. Your line is now open.
It is now open.
Hey, good afternoon guys.
And if I could.
Something around a few calls, but I just want to kind of come back to the demand environment.
Some of the credit card data, we even following this and surveys that we've seen suggests that you know the pet category remains resilient in this kind of environment.
Honestly, there's a little bit of a step down here.
Are you seeing something different right.
This is more broad based is the subscription component of the business and I know people can turn on and off is that a factor just how.
How should we think about that and I, how do we get back to a readout is it just the macro environment and improving of the other things you can kind of put in place to drive some improvements.
Improvements in the demand environment, and then secondly, very related.
You know your LTV to CAC is there's still you know.
Strong it's improving as your AAV goes up and cross selling them on these products but.
How do you think about marketing spend and in a softer environment do you slow down on marketing are you a little bit more cautious on it.
He stepped into marketing to keep them at higher how do you think about that LTV to CAC and that type of environment.
Yeah. Thanks, so really good questions and.
I'll start with the first one the demand environment, it's again.
Not all revenue is created equal.
And so where we're seeing that.
Softness in acceleration I think is similar to what we're hearing from others.
In terms of what they're seeing so the more discretionary product and for us the most discretionary it would be a subscription bark box.
And those are the ones that are facing the headwinds are those that are holding up and very resilient and even surging, our less discretionary food and health products like our dental product and we're seeing that too we're seeing it just.
Really really take off and for us.
That's really healthy.
The great thing about it is.
The toy and treat businesses offer to us really strong unit economics, they bring in good cash flow and they also bring in a relatively inexpensive way to acquire customers for the food and dental categories.
Toy customer costs, a whole lot less out in the market than a food customer.
So the.
I think what you're seeing in the demand environment.
Is the same as us we're just growing from a smaller base on those other categories are and then to your and dovetail.
Dovetails into your LTV to CAC question in the marketing spend.
It's exactly that that the the.
The strength, we're seeing in those categories and the market opportunity. That's available there, we probably have been too conservative on the cost of acquisition side.
And everything is just starting to come together the cross selling into that the big pick up quarter over quarter in the gross margin the retention holding out the a O V against all that came together this quarter.
And we were probably too conservative about the cost of acquisition. So it's in the pursuit of.
Our positive EBITDA, it's not going to be a case of us reining in the marketing spend it'll probably go the other way, where we push on it harder and try to grow it faster because we feel so confident about taking those toy customers and making them food customers.
Okay.
Great. Thanks, so much.
Thank you for your question.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.