Q2 2024 BARK Inc Earnings Call
Ladies and gentlemen, good afternoon, my name is Abby and I'll be your conference operator today.
Speaker 1: Ladies and gentlemen, good afternoon. My name is Addie and I'll be your conference operator today. At this time, I would like to welcome everyone to BART's second quarter of the fiscal 2024 earnings conference call.
At this time I would like to welcome everyone to bark second quarter fiscal 'twenty 'twenty four earnings conference call.
Today's call is being recorded in all lines have been placed on mute to prevent any background noise.
Speaker 1: Today's call is being recorded and all lines have been placed on mute to prevent any background noise.
Speaker 1: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number 1 on your telephone keypad.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press. The star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time.
Speaker 1: If you would like to withdraw your question, press star 1 a second time.
Speaker 1: Thank you, and I will now turn the conference over to Mike Mujis, Vice President of Investor Relations. You may begin.
Thank you and I will now turn the conference over to Mike Mujik, Vice President of Investor Relations you may begin.
Speaker 2: Good afternoon, everyone, and welcome to BARC's second quarter fiscal year 2024 earnings call. Joining me today are Matt Meeker, co-founder and CEO , and Zahir Ibrahim, Chief Financial Officer. 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.
Good afternoon, everyone and welcome to bark second quarter of fiscal year 'twenty 'twenty four earnings call. Joining me today are mapmaker co founder and CEO and Zaheer Ebrahim Chief Financial Officer 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.
Speaker 2: 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.
Before I pass over to Matt I would like to remind you that 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.
Speaker 2: 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 our non-GAAP financial measures is contained in this afternoon's press release. And with that, let me now pass it over to Matt.
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.
Speaker 2: Thanks Mike and good afternoon everyone. Our second quarter results highlight the significant progress we continue to make in improving our long-term profitability outlook.
Thanks, Mike and good afternoon, everyone. Our second quarter results highlight the significant progress we continue to make in improving our long term profitability outlook.
Speaker 2: Last quarter, we delivered positive adjusted EBITDA of $1 million. So passing our guidance range and marking our first positive EBITDA quarter as a public company.
Last quarter, we delivered positive adjusted EBITDA of $1 million, surpassing our guidance range and marking our first positive EBITDA quarter as a public company.
We also achieved another period of positive free cash flow, which came in at just under $1 million.
Speaker 2: We also achieved another period of positive free cash flow, which came in at just under $1 million.
Speaker 2: On a trailing 12 month basis, we've delivered positive free cash flow of approximately $4 million. When I return to the next slide, I'll show you how to deliver a free cash flow of approximately $4 million.
On a trailing 12 month basis, we've delivered positive free cash flow of approximately $4 million.
When I returned to bark, we faced a lot of skepticism, we heard that we would never reach profitability.
Speaker 2: We heard that we would never reach profitability, that we were going to run out of cash within a year, or if we did generate cash, we couldn't do so consistently.
We're going to run out of cash within a year or if we did generate cash we couldnt do so consistently.
Speaker 2: sitting here today with our first adjusted EBITDA positive quarter behind us and positive free cash flow generation on a trailing 12 month basis, I'm thrilled with the progress we've made.
Sitting here today.
Our first adjusted EBITDA positive quarter behind us and positive free cash flow generation on a trailing 12 month basis I'm thrilled with the progress we've made.
Speaker 2: One EBITDA positive quarter is the first step to one EBITDA positive year, and that's what's next for us.
One EBITDA positive quarter as the first step to one EBITDA positive year and that's what's next for us.
Speaker 2: In fact, our confidence and our profitability outlook has grown to such an extent that earlier this week we paid down $45 million of the face amount of our convertible notes early.
In fact, our confidence and our profitability outlook has grown to such an extent that earlier. This week, we paid down $45 million of the face amount of our convertible notes early.
Speaker 2: This decision improved our net cash position by nearly $3 million and saved over $5 million of interest over the remaining term of the note.
This decision improved our net cash position by nearly $3 million.
And saved over $5 million of interest over the remaining term of it now.
Overall, we believe our capital structure is stronger as a result.
Speaker 2: Overall, we believe our capital structure is stronger as a result.
Speaker 2: At a recent conference, I shared a quote from an analyst that summarizes the approach I've taken to grow BARC since returning to the CEO role 22 months ago.
At a recent conference I shared a quote from an analyst that summarizes the approach I've taken to grow park since returning to the CEO role 22 months ago.
Speaker 2: Growth without profit is a waste of time. Profit without growth is a matter of time.
Growth without profit is a waste of time profit without growth is it a matter of attack.
Profit has been our focus and as our recent results indicate we've come a long way.
Speaker 2: Profit has been our focus and as our recent results indicate, we've come a long way.
Speaker 2: This has meant shedding on profitable revenue streams in lieu of building a profitable business. However, it's from that foundation that we can now really focus on returning to profitable top line growth.
This has been shedding unprofitable revenue streams in lieu of building a profitable business. However is from that foundation that we can now really focus on returning to profitable top line growth.
With that said there is no denying that the growth environment today is challenging.
Speaker 2: With that said, there is no denying that the growth environment today is challenged.
Speaker 2: Not just for bark, but also for our pet and direct consumer peer.
Not just for bark, but also for our pet and direct to consumer peers.
Speaker 2: In patent particular, households with dogs declined by 3 million last year, and we anticipate another decline this year. We are essentially returning to pre-pandemic levels.
In pet in particular households, with dogs declined by $3 million last year, and we anticipate another decline this year.
We are essentially returning to pre pandemic levels.
And the discretionary spend is extra challenging especially in twice.
Speaker 2: and the discretionary spend extra challenging, especially in toy.
Nielsen data through October shows the dog toy industry is down 10% this fiscal year.
Speaker 2: Nielsen data through October shows the dog toy industry is down 10% this fiscal year.
The reality is it's challenging and will continue to be in the near term but.
Speaker 2: The reality is it's challenging and will continue to be in the near term. But regardless of those macro challenges, we need to continue to execute against our strategic initiatives to grow our profit in addition to delivering more efficiency opportunities.
But regardless of the macro challenges, we need to continue to execute against our strategic initiatives to grow our profit in addition to delivering more efficiency opportunities.
And there are more.
Speaker 2: And there are more. I'll touch on this more in a moment, but first let's talk about our results last quarter.
I'll touch on this more in a moment, but first let's talk about our results last quarter.
Speaker 2: Starting at the top of the PNL, we delivered total revenue of $123 million meeting our guidance for the quarter.
Starting at the top of the P&L, we delivered total revenue of $123 million meeting our guidance for the quarter.
On the DTC side, our core twice subscription business continued to feel the macro headwinds, particularly from a customer acquisition standpoint.
Speaker 2: On the DTC side, our core toy subscription business continue to feel the macro headwinds, particularly from a customer acquisition standpoint. However, despite that, we've seen some encouraging progress recently as new customer acquisition has been up progressively since May.
However, despite that we've seen some encouraging progress recently as new customer acquisition has been out progressively since may.
It's not where we want it to be yet, but we're improving rapidly in a tough environment.
Speaker 2: not where we wanted to be yet, but we're improving rapidly in a tough environment.
Wow, that's a challenge our customer retention rates last quarter, we're at the highest level since going public.
Speaker 2: While that's a challenge, our customer retention rates last quarter were at the highest level since going public.
Speaker 2: and our average order value remains strong at over $31. So, when we bring new customers onto our platform, they are staying longer and spending a lot with us.
And our average order value remains strong at over $31. So when we bring new customers onto our platform they are staying longer and spending a lot with us.
Speaker 2: When we laid out our strategic priorities at the beginning of the year, we talked about one moving towards a consolidated DTC experience, two turning more of our focus to consumables, and three.
When we laid out our strategic priorities at the beginning of the year, we talked about one moving towards a consolidated D. T C experience to <unk>.
Any more of our focus to consumables and three.
Speaker 2: and selling those consumable products in retail. Let's touch on the recent progress we've made across each of those initiatives.
Selling those consumable products and retail.
Let's touch on our recent progress we've made across each of those initiatives.
Speaker 2: On the consolidated DTC experience, I'm happy to report that our new site URL is now just bark.co. And the site is making good progress.
On the consolidated DTC experience I'm happy to report that our new site. Your allies now just bark dotcom and the site is making good progress.
Speaker 2: Having all our products under one domain has improved our ability to convert customers and cross-sell them across our product portfolio. And we're now able to direct them to a much simpler and more effective domain.
Having all of our products under one domain has improved our ability to convert customers and cross sell them.
Cross our product portfolio.
And we're now able to direct them to a much simpler and more effective domain.
Speaker 2: specifically where we faced headwinds on our toy and toy and treat subscription product line.
Specifically, where we faced headwinds on our toy and toy and treat subscription product lines.
If we look at consumables revenue outside of what's included in our box subscription products, we generated just over $5 million of revenue last quarter up 20% versus last year.
This is largely for embark darko picking up steam.
On expanding more into retail last quarter, we delivered $19 million of commerce revenue.
Speaker 2: On expanding more into retail, last quarter we delivered $19 million of commerce revenue.
Speaker 2: We were also able to bring new retail partners and countries into the mix.
We were also able to bring new retail partners and countries into the mix.
Speaker 2: Barc toys are now in all 450 pet at home stores in the UK. We've also begun to expand beyond just-
Mark toys are now in all 450 pet at home stores in the U K.
We've also begun to expand beyond just toys and retail.
Speaker 2: We recently partnered with the Girl Scouts, where we are selling co-branded products through their online platform.
We recently partnered with the girl Scouts or we're selling co branded products through their online platform.
Speaker 2: This pilot program went exceptionally well, and we ended up meaningfully increasing our commitment as products sold out much faster than expected.
This pilot program went exceptionally well and we ended up meaningfully increasing our commitment as products sold out much faster than expected.
Speaker 2: Longer term, we have an opportunity to significantly expand this partnership and become the first brand partner to participate in the Girl Scouts Larger's Sales Channel.
Longer term, we have an opportunity to significantly expand this partnership and become the first brand partner to participate in the girl Scouts larger sales channels.
This represents not only a massive revenue opportunity, but also a new product category for those channels.
Speaker 2: This represents not only a massive revenue opportunity, but also a new product category for those channels.
Speaker 2: Furthermore, we recently began selling our treat advent calendar through certain Costco stores in the US and the initial feedback has been very strong.
Furthermore, we recently began selling our treat advent calendar through certain Costco stores in the U S and the initial feedback has been very strong in fact, we've already been approached by other retail partners interested in selling or had been calendar next holiday season.
Speaker 2: In fact, we've already been approached by other retail partners interested in selling our advent calendar next holiday.
Speaker 2: And finally, as we announced last month, I'm thrilled to share that we received our first commitment from a leading retailer in the U.S. to begin selling our treats across over 1,000 doors in spring of 2024.
And finally, as we announced last month and thrilled to share that we received our first commitment from a leading retailer in the U S to begin selling our treats across over 1000 doors in the spring of 'twenty 'twenty four.
Speaker 2: As we've discussed throughout the year, introducing consumables in our retail channel is a huge opportunity, and we've made tangible progress over the past several months.
As we've discussed throughout the year introducing consumables in our retail channel is a huge opportunity and we've made tangible progress over the past several months.
And while this recent progress will not have a significant impact on our top line. This year, we plan to build on this momentum and continue to anticipate the commerce segment to represent around 30% of our total revenue over the next four to five years.
Speaker 2: And while this recent progress will not have a significant impact on our top line this year, we plan to build on this momentum and continue to anticipate the commerce segment to represent around 30% of our total revenue over the next four to five years.
Moving down the P&L when I returned to see one of the biggest opportunities for reaching profitability was bringing discipline to our unit economics and the gross margin line.
Speaker 2: Moving down the P&L, when I returned to CEO , one of the biggest opportunities for reaching profitability was bringing discipline to our unit economics and the gross margin month.
Speaker 2: Last quarter, we delivered healthy improvements in gross margin yet again.
Last quarter, we delivered healthy improvements in gross margin yet again.
Speaker 2: Our consolidated gross margin came in at 61.5% nearly a 100 basis points higher on a sequential basis.
Our consolidated gross margin came in at 61.5% nearly a 100 basis points higher on a sequential basis.
560 basis points higher than Q2 last year.
Speaker 2: 560 basis points higher than Q2 last year.
Speaker 2: On the DTC side of the business, our gross margin came in at approximately 65% loss quarter. A 400 basis point improvement year over year, and up 270 basis points versus the first quarter.
On the DTC side of the business. Our gross margin came in at approximately 65% last quarter, a 400 basis point improvement year over year, and up 270 basis points versus the first quarter.
Overall, we've been very pleased with our ability to materially improve our margin profile in a relatively short period of time.
Speaker 2: Overall, we've been very pleased with our ability to materially improve our margin profile in a relatively short period of time.
Speaker 2: Moreover, we expect this trend to continue through FY24 and beyond.
Moreover, we expect this trend to continue through FY 'twenty four and beyond.
Speaker 2: And finally, we delivered $1 million of adjusted EBITDA and fiscal Q2, our first positive quarter since going public over two years ago.
And finally, we delivered $1 million of adjusted EBITDA in fiscal Q2, our first positive quarter since going public over two years ago.
Speaker 2: And though we don't expect positive EBITDA in the current quarter, as we invest more heavily in growth during the peak holiday period, we do believe that fiscal Q4 will also be positive on an adjusted EBITDA basis. Overall,
And though we don't expect positive EBITDA in the current quarter as we invest more heavily in growth during the peak holiday period. We do believe that fiscal Q4 will also be positive on an adjusted EBITDA basis.
Overall, our top priorities remain these.
Speaker 2: These priorities are to fulfill our mission to make all dogs happy, execute our strategic initiatives, and continue to deliver on the path to sustainable profitability.
These priorities are to fulfill our mission to make all docs happy.
Execute our strategic initiatives and continue to deliver on the path to sustainable profitability.
Speaker 2: To that end, we expect ongoing improvements in our Gross Margin line well in DeFiscal 2025. We also believe there are additional areas where we can reduce expenses and ship in fulfillment, as well as GNA. In short, we expect to continue to deliver healthy year-over-year improvements with profitability going forward.
To that end, we expect ongoing improvements in our gross margin line well into fiscal 2025.
I believe there are additional areas, where we can reduce expenses in shipping and fulfillment as well as G&A.
In short, we expect to continue to deliver healthy year over year improvements in profitability going forward.
Speaker 2: And success here will better enable us to fulfill our mission to make all dogs happy.
And success here will better enable us to fulfill our mission to make all docs happy.
Overall, we have many exciting things happening in coming to market soon.
Speaker 2: Overall, we have many exciting things happening and coming to market soon.
Speaker 2: While we continue to expect toys to face challenges in this environment, we anticipate our newer consumables products to grow out a healthy clip in both DTC and retail, which is in line with our strategy.
While we continue to expect twice to face challenges in this environment, we anticipate our newer consumables products to grow at a healthy clip in both DTC and retail.
Which is in line with our strategy.
Speaker 2: This growth coupled with our continued efforts to reduce costs, improve margins, and deliver operating leverage on our cost structure is expected to have meaningful benefits to our bottom line and free cash flow generation with each passing quarter.
This growth coupled with our continued efforts to reduce costs improve margins and deliver operating leverage on our cost structure is expected to have meaningful benefits to our bottom line and free cash flow generation with each passing quarter.
Speaker 2: An ending last quarter with over $160 million cash on hand and a business that just turned in its first EBITDA positive quarter and its free cash flow positive over the trailing 12 months.
And ending last quarter with over $160 million of cash on hand, and a business that just turned in its first EBITDA positive quarter and is free cash flow positive or the trailing 12 months.
Speaker 2: We believe we're in a strong position for the long term. And with that, I will turn it over to Z here.
We believe we're in a strong position for the long term and with that I will turn it over to here.
Speaker 3: Thanks Matt, and good afternoon everyone. I'll begin today's call with an overview of our second quarter results along with some recent balance sheet developments followed by our outlook for the remainder of fiscal 2024. Beginning at the top of the PNL, we generated total revenue of $123 million, which came in at the low end of our guidance rate.
Thanks, Matt and good afternoon, everyone I will begin today's call with an overview of our second quarter results along with some recent balance sheet developments, followed by our outlook for the remainder of fiscal 2024, beginning at the top of the P&L, we generated total revenue of $123 million, which.
And at the low end of our guidance range looking about revenue in more detail, we generated $104 million of revenue in our D to C segment, which was down 11% versus last year the year over year decline in D. C. Revenue was primarily driven by a 9% decline in total orders and a two 6% or 80.
Speaker 3: Looking at that revenue in more detail, we generated $104 million of revenue in our D2C segment, which was down 11% versus last year. The year over year declined in D2C revenue as primarily driven by 9% decline in total orders and a 2.6% or 84% decline in average order value.
Four cent decline in average order value overall, the macro environment has had the biggest impact on our subscription box products. Although we continue to expect year over year revenue declines in FY 'twenty for in the Bulks products. We are seeing signs of improvement from a customer acquisition and retention standpoint, as Matt said earlier from a car.
Speaker 3: Overall, the macro environment has had the biggest impact on our subscription box products, and though we continue to expect year-over-year revenue declines in FY24 in the box products, we are seeing signs of improvement from a customer acquisition and retention standpoint as Matt shared earlier. From a category mixed standpoint, we generated 67 million of toys in the quarter, down 12 percent, while consumables revenue of $37 million was down 9 percent.
Degree mix standpoint, we generated $67 million of toys in the quarter down 12%, while consumables revenue of $37 million was down 9%. It is worth noting the majority of our consumables revenue today is derived from a subscription box products. So the recent declines there are.
Speaker 3: It is worth noting the majority of our consumables revenue today is derived from our subscription box products, so the recent declines there are impacting our overall consumables mix.
The impact in our overall consumables mix. If we just look a consumables revenue derived outside of subscription box revenue, we generated $5 million of consumables revenue last quarter, which was up 20% compared to last year and although this revenue is relatively small today, we continue to see good growth across these categories.
Speaker 3: If we just look at consumables revenue derived outside of subscription box revenue, we generated five million of consumables revenue last quarter, which was up 20% compared to last year. And although this revenue is relatively small today, we continue to see good growth across these categories and expect that trend to continue going forward.
And I expect that trend to continue going forward.
Turning to our Commerce segment, we generated roughly $19 million of revenue last quarter, which was down 29% compared to last year remember our commerce revenue in the period last year was inflated as we saw a sizeable pull forward of holiday related orders from several retail partners. This year we.
Speaker 3: Turning to our commerce segment, we generated roughly $19 million of revenue last quarter, which was down 29% compared to last year. Remember, our commerce revenue in the period last year was inflated as we saw a sizable pull forward of holiday-related orders from several retail partners.
Speaker 3: This year, we expected our commerce mix to be more evenly distributed between fiscal Q2 and Q3, and so the year-over-year commerce comparisons are less meaningful across this segment.
<unk> commerce mix to be more evenly distributed between fiscal Q2, and Q3 and so the year over year commerce comparisons are less meaningful across this segment. It is also worth noting that our retail partners are also experiencing headwinds in discretionary categories like toys and.
Speaker 3: It is also worth noting that our retail partners are also experiencing headwinds in discretionary categories like toys and therefore we do expect lighter commerce revenue this year as a result. With that said, we have made a lot of important progress introducing new products like treats into retail and expect this segment to grow in fiscal 25 as a result.
Therefore, we do expect lighter commerce revenue this year as a result with that said we have made a lot of important progress introducing new products like treats into retail and expect this segment to grow in fiscal 'twenty five as a result.
Moving down the P&L, our consolidated gross margin improved 560 basis points to 61, 5% our strongest gross margin quarter as a public company. The only other time, we delivered gross margins over 60% since going public was Q1 of this fiscal year, So and momentum is building and we anticipate further.
Speaker 3: Moving down the P&L, our consolidated gross margin improved 560 basis points to 61.5%. Our strongest gross margin quarter as a public company.
Speaker 3: The only other time we delivered gross margins over 60% since going public was Q1 of this fiscal year. So momentum is building, and we anticipate further improvements in our gross margins going forward as the new inventory we are bringing in today has stronger unit economics on a like-for-like basis.
Improvements in our gross margins going forward as the new inventory, we are bringing in today are stronger unit economics on a like for like basis total DTC gross margin improved 400 basis points to 64, 9%, while comose gross margins improved 930 basis points to 42, 5%.
Speaker 3: Total D2C gross margin improved 400 basis points to 64.9%, while commerce gross margins improved 930 basis points to 42.5%. Again, our commerce segment last year was impacted by the pull forward I mentioned earlier. So the year-over-year comps are not apples to apples.
Again, our commerce segment last year was impacted by the pull forward I mentioned earlier, so the year over year comps are not apples to apples.
Speaker 3: Regardless, we expect year-over-year margin improvements in both segments in fiscal 2024 compared to fiscal 2023.
Regardless, we expect year over year margin improvements in both segments in fiscal 2024 compared to fiscal 2023.
Moving on total G&A expense was $68 9 million down $5 2 million versus last year within G&A shipping and fulfillment was $34 5 million down $4 1 million due to low volumes, while other G&A was down $1 1 million to $34 5 million.
Speaker 3: Total GNA expense was 68.9 million down 5.2 million versus last year. Within GNA shipping and fulfillment was 34.5 million down 4.1 million due to low volumes. While other GNA was down 1.1 million to 34.5 million. Note GNA this quarter included certain non-recurring charges primarily related to a non-cash impairment charge of $3 million related to a previously capitalized massive heat per component of EC realized 553.6 million per normal cost was 4.6 million dollars.
G&A this quarter included certain nonrecurring charges, primarily related to a noncash impairment charge of $3 million related to a previously capitalized software costs and $1 4 million of costs stemming from the July reduction enforce adjusting for these add backs other G&A was nearly $6 million lower.
Speaker 3: and 1.4 million of costs stemming from the July reduction in force.
Speaker 3: Adjusting for these add-backs, other GNA was nearly 6 million lower than last year, reflecting the considerable improvements we have made in our organization and cost structure.
Than last year, reflecting the considerable improvements we have made in our organization and cost structure.
Speaker 3: While the year-over-year declines in GNA are encouraging, we believe there are additional opportunities to deliver further improvements in both of these line items in the future.
While the year over year declines in G&A are encouraging we believe there are additional opportunities to deliver further improvements in both of these line items in the future.
Total sales and marketing expense was $17 8 million in the quarter up $2 5 million compared to last year as we discussed coming into the year. The progress we have made in improving the financial health of the business affords us the opportunity to invest more in areas like marketing, including driving more traffic to our board.
Speaker 3: Total sales and marketing expense was 17.8 million in the quarter, up 2.5 million compared to last year. As we discussed coming into the year, the progress we have made in improving the financial health of the business affordes the opportunity to invest more in areas like marketing, including driving more traffic to our bar.co site. Regardless, we will remain disciplined with respect to our marketing investment and we'll care about this investment if we're not seeing adequate returns.
Co site, regardless, we will remain disciplined with respect to our marketing investment and we will pay about this investment, but we're not seeing adequate returns.
Speaker 3: And finally, we delivered $1 million of adjusted EBITDA ahead of the top end of our guidance range and our first positive EBITDA quarter as a public company. This is an important milestone, and we expect positive adjusted EBITDA quarters to become a more regular occurrence moving forward, given all the progress we've discussed on today's call.
And finally, we delivered $1 million of adjusted EBIT.
Ahead of the top end of our guidance range and our first positive EBITDA quarter as a public company. This is an important milestone and we expect positive adjusted EBITDA quarters to become a more regular occurrence moving forward given all the progress we've discussed on todays call.
Speaker 3: And before I turn to our outlook for the remainder of the year, let me touch upon some balance sheet and cash flow items. Last quarter, we reduced our inventory balance by $3 million from our fiscal Q1 and in the period with a total balance of $109 million.
And before I turn to our outlook for the remainder of the year, Let me touch upon some balance sheet and cash flow items last quarter, we reduced our inventory balance by $3 million from our fiscal Q1, ending the period with a total balance of $109 million. All in all we've made a lot of progress on this front over the last 12 months.
Speaker 3: All in all, we've made a lot of progress on this front over the last 12 months.
Speaker 3: reducing inventory by over $50 million during that time. And we believe there are opportunities to further reduce this balance in fiscal 2024 and into fiscal 2025.
Reducing inventory by over $50 million during that time, and we believe there are opportunities to further reduce this balance in fiscal 2024 and into fiscal 2025.
Speaker 3: From a free cash flow standpoint, we generated $1 million of positive free cash flow in the quarter. Looking back over the past 12 months, we have achieved positive free cash flow in three out of the past four quarters and expect more to come.
From a free cash flow standpoint, we generated $1 million of positive free cash flow in the quarter looking back over the past 12 months, we have achieved positive free cash flow in three answer the past four quarters and expect more to come.
Speaker 3: Sitting here today, we believe that we have more than enough capital on hand to run the business.
Sitting here today, we believe that we have more than enough capital on hand to run the business and therefore, we have been exploring potential uses of cash that we believe will provide an attractive return and create shareholder value in the long run on that note, we repurchased two 8 million shares last quarter at an average cost of <unk>.
Speaker 3: And therefore we have been exploring potential uses of cash that we believe will provide an attractive return and create shareholder value in the long run.
Speaker 3: On that note, we repurchased 2.8 million shares last quarter at an average cost of $1.49 per share. The resulting spend in the quarter was $4.1 million. And while the average cost is above where the shares are trading to date, we continue to see a lot of value in our shares at these levels, particularly given the significant progress that we have made from a profitability standpoint.
$1 49 per share the resulting spend in the quarter was $4 $1 million and while the average.
Average cost is above where the shares are trading to date, we continue to see a lot of value in our shares at these levels, particularly given the significant progress we have made from a profitability standpoint.
Speaker 3: Moreover, we repurchased $45 million, or approximately 53%, of the outstanding principal amount of our convertible notes at a 6% discount to par value this week.
Moreover, we repurchased $45 million or approximately 53% of the outstanding principal amount of our convertible notes at a 6% discount to par value. This week as a result, we increased our net cash, which we define as cash less our outstanding convertible debt by approximately three.
Speaker 3: As a result, we increased our net cash, which we define as cash less outstanding convertible debt by approximately $3 million. And we will also save $5 million in interest over the remaining life of the notes.
And we will also save $5 million in interest over the remaining life of the nodes.
Speaker 3: Following this transaction, we have roughly 131 million of cash on the balance sheet and 38.5 million of outstanding debt related to the remaining convertible balance. Note we will accrue roughly 2 million of annual interest on December 1st. And so come Q3, the note balance you will see will be around $40.6 million.
Following this transaction, we have roughly $131 million of cash on the balance sheet and $38 5 million of outstanding debt related to the remaining convertible bonds note, we will accrue roughly $2 million of annual interest on December 1st and so come Q3. The note balance you will see will be around $40 6 million.
Speaker 3: Overall, we believe our capital structure is stronger as a result, and this transaction is a testament of our confidence in our future free cash flow generation. It is worth mentioning. Our share buyback capacity is limited as a percentage of the outstanding principle and amount of our convertible notes each calendar year.
Overall, we believe our capital structure is stronger as a result, and this transaction is a testament of our confidence in our future free cash flow generation. It is worth mentioning our share buyback capacity is limited as a percentage of the outstanding principal amounts of our convertible notes each calendar year.
Speaker 3: Okay, let's now turn to guidance for the fiscal third quarter and full year.
Okay, Let's now turn to guidance for the fiscal third quarter and full year, starting with the full year. We anticipate the current macro headwinds to continue to implant time or discretionary toy products across both D to C. M Commerce channels as a result of this we are taking a more cautious approach to our top line guidance.
Speaker 3: Starting with the full year, we anticipate the current macro headwinds to continue to impact our more discretionary toy products across both B2C and commerce channels. As a result of this, we are taking a more cautious approach to our top-line guidance and lowering the overall range.
And lower lowering the overall range. We currently expect total revenue to be down between 8% and 11% year over year versus our previous guidance range of flat to down 5% again. This revision largely reflects the headwinds or the overall toy categories experiencing and our view that the environment will remain.
Speaker 3: We currently expect total revenue to be down between 8% and 11% year over year versus our previous guidance range of flat to down 5%. Again, this revision largely reflects ahead wins at the overall toy categories experiencing and our view that the environment will remain challenging for the foreseeable future.
<unk> for the foreseeable future.
From an adjusted EBIT loss standpoint, we now expect our full year loss of between $6 million and $12 million versus our previous guidance of positive $2 million to minus $8 million, while our EBITDA range has come down slightly the midpoint of $9 million would reflect a significant improvement from the $31 million loss we recorded.
Speaker 3: On a justly but last standpoint, we now expect our four-year loss of between $6 million and $12 million versus our previous guidance of positive $2 million to minus $8 million.
Speaker 3: While our EBITDA range has come down slightly, the midpoint of 9 million would reflect a significant improvement from the $31 million loss we recorded last year, and the $58 million loss we recorded in fiscal 2022. Moreover, we expect year-over-year improvements in adjusted EBITDA moving forward.
Last year in the $58 million loss, we recorded in fiscal 2022. Moreover, we expect year over year improvements in adjusted EBITDA moving forward.
Speaker 3: Turning to our guidance for fiscal Q3, we currently expect total revenue between 123 million and 119 million dollars. From an adjusted EBITDA standpoint, we expect between negative 5 million and negative 8 million dollars. Similar to prior years, we invest more heavily in growth during the holiday quarter and expect that trend to continue this quarter.
Turning to our guidance for fiscal Q3, we currently expect total revenue between $123 million and $119 million from an adjusted EBIT dollar standpoint, we expect between negative $5 million and negative $8 million similar to prior years, we invest more heavily in growth during the holiday quarter and expect that trend to continue this.
Water.
Speaker 3: This adjusted EBITDA guidance will imply a positive fiscal Q4, which would mark our second quarter of positive adjusted EBITDA since going public. We expect to improve on this in FY25. In conclusion,
This adjusted EBITDA guidance will imply a positive fiscal Q4, which would mark our second quarter of positive adjusted EBITDA since going public we expect to improve our mission FY 'twenty five.
In conclusion.
Speaker 3: We continue to see step change improvements in our unit economics, a trend we anticipate to continue through fiscal 2024 and beyond. And while we continue to face headwinds on the top line, we expect to gain momentum as we enter fiscal 2025 on the back of our consumables business. At the end of the day, we have plenty of cash.
We continue to see step change improvements in our unit economics, a trend we anticipate to continue through fiscal 2024 and beyond and while we continue to face headwinds on the top line, we expect to gain momentum as we enter fiscal 2025 on the back of our consumables business at the end of the day, we have plenty of cash.
Speaker 3: and the business that is turning the corner on consistently generating positive free cash flow. There is no denying that the environment has been challenging. However, we are very confident in our ability to continue to deliver healthy year-over-year improvements in profitability. Overall, we believe we are in a solid position to capitalize on promising trends in our new consumables categories, and also expect the toy side of the business to improve as macrohead wins sub-side over time.
And the business is turning the corner on consistently generating positive free cash flow. There is no denying that the environment has been challenging. However, we are very confident in our ability to continue to deliver healthy year over year improvements in profitability. Overall, we believe we are in a solid position to capitalize on promising trends in our.
Consumables categories and also expect the toy side of the business to improve as macro headwinds subside over time.
Speaker 3: With that, I'll turn the call over to the operator for Q&A.
With that I'll turn the call over to the operator for Q&A.
Okay.
Speaker 1: Thank you. And at this time, I would like to remind everyone in order to ask a question for star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Thank you.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
And we will take our first question from Maria Rich with Canaccord Genuity. Your line is open.
Speaker 1: And we will take our first question from Maria Rips with Canacorn Genuity. Your line is open. Good afternoon.
Good afternoon, and thanks for taking my questions.
Speaker 4: First, sort of understanding the macro pressure you're facing for your core discretionary towards business.
So sort of understanding the macro pressure you're facing.
For your core questionary towards business, but sort of given the strength of the platform and direct relationships with consumers do you have that can you maybe just talk about some of the strategies that you, perhaps pursuing maybe more discounting pricing, maybe lower price products or something else to try to keep that up.
Speaker 4: given the strength of the platform and direct relationships with consumers you have there, can you maybe just talk about some of the strategies that you perhaps pursue maybe more discounting pricing, maybe lower price products or something else to try to keep the wallet share there?
The wallet share there and then secondly could you maybe expand a little bit more on the consumables segment are you seeing any macro pressures impacting that segment as well and at what point would you expect that it becomes a little bit more meaningful contributor can you offset some of the headwinds in the toy business.
Speaker 4: And then secondly, could you maybe expand a little bit more on the consumable segment? Are you seeing any macro pressures impact in that segment as well? And at what point would you expect that to become sort of a little bit more meaningful contributor to offset some of the headwinds in the toys business?
Speaker 2: Hi Maria, thank you. Thanks for those questions.
Hi, Maria Thank you thanks for those questions.
Speaker 2: So on your first question there, the macro pressure that we're experiencing in the toy industry, the first it...
So on the on your first question there.
The macro pressure that we're experiencing in the toy industry, but first its.
Speaker 2: The degree that we're experiencing is largely in line with the broader industry overall. It's extending across both our direct consumer and our retailer commerce segment.
The degree that we're experiencing is largely in line with the broader industry overall, it's extending across both our direct to consumer and our our retail or commerce segments.
Speaker 2: pretty equally. And most of that pressure, or maybe all of that pressure for us is felt in new customer acquisition when it comes...
Pretty equally.
And most of that pressure or maybe all of that pressure for us is felt in new customer acquisition.
When it comes to keeping.
Speaker 2: Keeping the wallet share expanding the wallet share or expanding the lifetime value of that customer as I mentioned our retention has progressively improved throughout this year and last year and this was likely
Keeping the wallet share expanding the wallet share expanding the lifetime value of that customer.
As I mentioned.
Our retention has progressively improved throughout this year and last year.
And this was a likely.
I'll say one of our strongest if not the strongest quarter, we've seen in terms of retention on the on those court twice subscription businesses.
Speaker 2: I'll say one of our strongest, if not the strongest quarter we've seen in terms of retention on those core toy subscription businesses.
Speaker 2: and our average order value being over $31. Those are the positive signals, which to us is indicating that when we acquire a customer, we've learned over the full 12 years how to make them very valuable, very sticky, and we're getting better and better value from them at a higher margin now. So we haven't
And our average order value being over $31.
Those are those are the positive signals, which to us is indicating that when we acquire a customer we've what we've learned over the full 12 years, how to make them very valuable very sticky and where we're getting better and better value from them at a higher margin now so.
We haven't.
Speaker 2: seeing the need to deploy discounting or other tactics. You should
Seen the need to to deploy discounting or other.
Other tactics.
To improve that other than running running that playbook, that's been successful for Australia for the past decade.
Speaker 2: to improve that, other than running the playbook that's successful for us for the past decade, and rather using those discounts and those enticements for bringing new customers onto the platform.
And rather using does those discounts and those enticement for bringing new customers onto the platform.
On the consumable side.
Speaker 2: What we expect is sort of in line with the strategy we put out at the beginning of the year and continue to work through, which is expand into all consumable categories for us, that treats kibble, toppers, and dental, and with a real focus on the Retail or Commerce Channel. And the good news we have today is that
What we expect is sort of in line with the strategy, we put out at the beginning of the year and continue we continue to work through which is expand into our consumable categories.
For us that's treats kibble toppers and dental.
And with a real focus on the retail or E Commerce channel.
The good news we have today is that.
Speaker 2: We have that commitment for a national retailer to feature our first meaningful treatment line, seven skews, beginning in...
We have that commitment for for roof national retailer to feature our first meaningful treat line seven skus.
Beginning.
And.
Fiscal Q4 here so.
Speaker 2: fiscal Q4 here. So in the quarter ahead and we're really excited about that progress. We think there's more on the heels of that, but we're not in a position to announce it formally.
And that in the quarter ahead and.
We're really excited about that progress.
We think there's more on the heels of that but where we're not in a position to announce it formally.
So we're kind of right on schedule with that.
Speaker 2: So we're kind of right on schedule with that. Though as you know, those things are longer lead time, we develop the products, we sell it, we make our sales pitch typically in the spring, we hear back around this time, everything's right on track. And our direct consumer channel, when it comes to consumables, specifically bark.co is playing the role that it's always played with our toy business of letting us try different things with how we position our consumable products.
Those things are longer lead time, we develop the products we sell it we make our sales pitch typically in the spring we hear back around this time everything's right on track.
And our direct to consumer channel when it comes to consumables, specifically bark Doc how is playing the role that its always played with our toy business of letting us try different things with how we position our consumable products.
Speaker 2: from packaging, different pricing, and getting those signals from the customer that we can then sell the results to our retail partners. So we're making good progress on bark.co and in those categories in our learning and in our sales to retail partners. For the smart, the journey is now underway.
Packaging different pricing and getting the signals from the customer that we can then sell the result to our retail partners.
So we're making good progress on <unk> and then those how those categories in our learning and then our sales to retail partners.
Okay.
Got it thanks, so much for the column.
Okay.
And we will take our next question from Ryan Meyers with Lake Street Capital markets. Your line is open.
Speaker 5: And we will take our next question from Ryan Myers with Lake Street Capital Market. Your line is open. Hey guys, thanks for taking my questions. First one for me, so it's only like you said, Q4 EBITDA will be profitable. So just kind of walk me through what you expect to see here in Q3. I think I've ever remember back in the last couple calls. We kind of expected a just a bit of profitability in the second half of the year. Is there just kind of some seasonally high marketing spend as we head into the holiday season? Just kind of any sort of color on that would be helpful.
Hey, guys. Thanks for taking my questions.
First one for me so it sounds like you said Q4, EBITDA will be profitable so.
So just kind of walk me through what you expect to see here in Q3, because I think if I remember back in the last couple of calls we kind of expected adjusted EBITDA profitability in the second half of the year.
Is there just kind of some seasonally higher marketing spend as we head into the holiday season, just kind of any sort of color on that would be helpful.
Hey, Ryan how are you doing.
Speaker 3: Hey Ryan, how you doing? So yeah, you've hit the net on the head. So Q3 for us is a seasonally high demand quarter and also from a marketing perspective, we invest to drive.
So yeah, you've hit the nail on the head so Q3 for US is a seasonally high.
Demand quarter and also from a marketing perspective, you know we invest to drive.
Speaker 3: uh new subs as well as just overall performance
New subs as well as just overall performance to the site and so.
Speaker 3: to the site, and so it's one of our highest quarters from a revenue perspective, but it's also the highest quarter from a marketing perspective, and that impacts the profitability. If you look at our guidance range for Q3, you know, EBITDA's at minus 5 to minus 8.
It's one of our highest quarters from a revenue perspective, but it's also a.
The highest quarter from a marketing perspective and that impacts the profitability. If you look at our guidance range for Q3.
EBIT dollars up minus five to minus eight you take is that the midpoint of that will be about $6 million better than Q3 last year. So.
Speaker 3: If you take us at the midpoint of that, we'll be about 6 million better than Q3 last year. So we feel the business is getting great traction from a profitability perspective and moving in the right direction. And because of that, those are 10 U Limikere shares on Amazon.
We feel the business is getting great traction from a profitability perspective, and moving in the right direction and because of that traction as you think about Q4.
Speaker 3: traction as you think about Q4, we'll be able to post a positive EBITDA along the lines of what we posted in Q2, but I'd expect continued improvement in some of the measures like gross margin as we have new contracts coming into play on the consumable side. So we'll have stronger margin performance.
We will be able to post a positive EBITDA.
<unk>.
Along the lines of.
What we posted in Q2, but I would expect continued improvement in some of the measures like gross margin as we have new contracts coming into play on the consumable side.
We'll have stronger margin performance.
Speaker 3: Eekly strong performance through some of the other line items supplied positive ebit. Thank you.
Equally strong performance through some of the other line items.
Positive EBIT in Q4.
Got it and then if we think back to the commentary that you guys gave last quarter about the high single to low double digit revenue growth for FY 'twenty five.
Speaker 5: Got it. And then, you know, if we think back to the commentary that you guys gave last quarter about the high single to low double digit revenue growth for FY 25. Obviously, you guys updated the guidance today, just wondering how we should potentially think about that commentary you guys gave last quarter and how that relates to the FY 25.
Obviously, you guys updated the guidance today, just wondering how we should potentially think about now that commentary you guys gave last quarter end and how that relates to the FY 'twenty five.
Yes, So I think just in line with some of the comments, Matt just shed.
Speaker 3: Yeah, so I think just in line with some of the comments Matt just shared, you know, while it's a challenging environment, you know, we continue to believe that we'll deliver profitability improvements regardless of where we land from an F25 growth perspective.
While it's a challenging environment.
We continue to believe that we will deliver.
Profitability improvements, regardless of where we land.
F 'twenty five drugs.
<unk>.
Speaker 3: When you look at the top line, you step out for a moment and look at the category overall. So the pet category has grown over the past 12 months. A lot of that on the food side is driven not by volume or units driving the growth, but it's price inflation. And what we're seeing is that's taken a greater share of the customer's wallet and it's impacting some of the discretionary categories in that.
When you look at the topline you step back for a moment and look at the category overall so.
The pet category.
It is.
<unk> grown.
Over the past 12 months a lot of that on the <unk>.
Food side is driven not by volume or units driving the growth, but as price inflation and what we're seeing is that has taken a greater share of the customer's wallet and it's impacting some of the discretionary categories impact and as a result, it's impacting the toy category. So.
Speaker 3: And as a result, the sympatic motor category served.
Speaker 3: You know, we'll see in terms of where we land from a growth perspective for next year over the next two quarters, you know, recognizing Q3.
We'll see in terms of where we landed from a growth perspective for next year over the next two quarters. You know recognizing Q3 is a high quarter for us, particularly on the DTC side and then.
Speaker 3: is a high-quart for us, particularly on the DTC side. And then we'll know more about timing of some of the plans from the retailers for fiscal 25 in relation to consumables as well. So those two things.
We'll know more about timing of some of the plans from the retailers for fiscal 'twenty five in relation to consumables as well so those two things and just how the categories trending over the next couple of quarters. It will give us a better sense of how the top line is doing but nevertheless, we feel good about where were out from a profitability.
Speaker 3: and just how the cat agrees trending over the notes, couple of quarters, it will give us a better sense of how the top line's doing. But nevertheless, we feel good about where we're out from.
Speaker 3: profitability growth and free cash flow, but it's about different next year.
<unk> growth and free cash flow perspective for next year.
Got it thank you for taking my questions.
We will take our next question from Igor Iranian with Citigroup. Your line is open.
Speaker 1: We will take our next question from EGAL, a Rune in with City Group. Your line is open.
Speaker 6: Hey, good afternoon guys. I want to take into the comments.
Hey, good afternoon guys.
To dig into the comments.
Speaker 6: that you made about improving customer acquisition since May. So, you're seeing better customer acquisition. The retention is as strong as it's been. Yeah, the outlook for the rest of the year is lower given the macro. And so, I just want to maybe tie those two things together. I know.
Made about improving better.
They're improving customer acquisition since may.
So youre seeing better customer acquisition retention is as strong as it's been.
Yes.
The outlook for the rest of the year is lower given the macro and some just wanted to maybe tie those two things together I know some of this is coming from the retail channel Susan maybe thats the whole answer but.
Speaker 6: Some of this is coming from the retail channel, Susan. Maybe that's the whole answer, but maybe just come, we helped tie those two.
Maybe just.
Tie those two.
Yeah, Thanks for that question and.
Speaker 7: Yeah, thanks for that question and um
Speaker 2: And you're right, like the retention room is quite strong and like I just was saying to Maria the strongest we've seen in some time. And so it is that new customer acquisition that is the greatest challenge we've faced. We have...
And you're right like the retention is quite strong and like I, just Santa Maria the strongest we've seen in some time.
And so it is that new customer acquisition that is a.
Is the greatest challenge, we faced we have.
Made very consistent improvements since may.
Speaker 7: made very consistent improvement since May. One of the things that holds us back, I'd say, from making faster improvement today, is the current platform that we're on, or Ruby on Rails platform at barkbox.com.
One of the things that holds us back I'd say for making faster improvement today.
Is the current platform that we're on our Ruby on rails platform at <unk> Dot com.
Speaker 2: carries 12 years of tech debt. It's incredibly expensive. It's difficult to optimize. So that makes it difficult for us to drive conversion improvements and keep it, I'd say, current and modern. But that's exactly why we're really excited about a move to a more modern platform at bark.co, where we have tremendous flexibility to do that.
Terese.
12 years of tack that it's incredibly expensive it's difficult to optimize so that makes it difficult for us to drive.
Conversion improvements and and keep it I'd say current and modern but that's exactly why we're really excited about a move to a more modern platform at park, Dachau, where we have tremendous flexibility to do that.
But.
Speaker 2: for the foreseeable future, consumer consumables is going to be the main driver of our revenue. And like we talked about, we have our first major deal with a retailer there. We expect more in the future. And we expect to continue making great progress with bark.co. One thing that we didn't call out in the call, but it's out there for you to see, is on that progress.
For the for the foreseeable future consumer consumables is going to be the main driver of our revenue.
And like we talked about we have our first major deal with a retailer there we expect more in the future and we expect to continue making great progress with bark Darko I mean, one one thing that we didn't call out in the call that is out there for you to see us.
On that progress.
Speaker 2: as we go for consolidation and we go for a more modern platform where you can make those updates and optimizations hourly if you like with a very light light effort or lift is
As we go for consolidation and we go for a more modern platform, where you can make.
Make those make those updates and optimizations hourly if you like with the very light.
<unk> effort are left is we were selling our dental product at park bright dot com.
Speaker 2: We were selling our dental product at barkright.com.
Speaker 2: We got to a place where within the bark.co context we are able to do that more effectively and have a greater lifetime value associated with those customers.
We got to a place where within the bark Dachau contacts we are able to do that more effectively and have a greater lifetime value with.
Associated with those customers at a lower cost of acquisition.
Speaker 2: at a lower cost of acquisition. Almost the day that we reach that point, we've now stopped taking new orders at barkbright.com and we've moved those customers over onto our new platform. So once we've achieved that with bark box and super-tuer, we'll take the same actions and we're feeling pretty good about where we are and just...
Then the day that we reach that point.
We've now stopped taking new orders at bark bright dot com and we've moved those customers over onto our new platform.
So once we've achieved that with park box and Super sure. We'll take the same the same actions in <unk>.
And we're feeling pretty good about where we are in terms of the progress.
Speaker 6: Okay, thanks. It's for follow up.
Okay. Thanks.
For a follow up.
I guess I'll.
Speaker 6: I guess I'll ask about the converse, paying down the converse.
I'll ask about the converts paying down the converts and.
Speaker 2: Maybe just want to understand the...
Maybe just one.
Stand the very clearly the ambition here to clean.
Speaker 6: very clearly the ambitions here to clean up the capital structure, given the macro environment's getting more challenging, there's probably less visibility. You are still kind of targeting free cash or EBITDA profitability, again, back and forth quarter.
Clean up the capital structure.
Given the macro environment is getting more challenging.
There's probably less visibility.
You are you are still kind of targeting free cash flow.
EBITDA profitability again back in fourth quarter.
Speaker 6: But there is less visibility. You'd spend the fair amount of your cash balance here to do this. So maybe just why I was now the right time to do it. And then how you think about the remaining balance is that something you couldn't now just kind of hang on to.
But there is less visibility you spent a fair amount of your cash balance here to do this so.
Maybe just why was now the right time to do it and then how you think about the remaining balance is that something you can just kind of hang on to.
Speaker 6: a little bit longer closer maturity and see what happens, but just want to get your thoughts given the challenging macro. Thank you. you
A little bit longer closer to maturity and see what happens, but just wanted to get your thoughts given the challenging macro thank you.
Sure so.
Speaker 3: You know, we talked about it before, we've got excess capital on the balance sheet, felt really strong and good about our cash position.
We talked about it before we've got excess capital on the balance sheet.
Really strong and good about our cash position.
As we've posted a third.
Speaker 3: posted our third quarter out of the last four in terms of free cash flow, and we've signaled the quarter after next will be the second quarter of the year. That'll be positive EBITDA.
Third quarter out of the last four in terms of free cash flow and.
<unk> signal.
Quarter. After next will be the second quarter via there'll be positive EBIT.
Speaker 3: We're seeing line of sight to more causes of positive free cash load and profitability in the business.
We're seeing line of sight, two more quarters of positive free cash flow.
On profitability in the business.
Speaker 3: And that level of confidence, the cash balance that we have.
That level of confidence the cash balance that we have.
Speaker 3: You know, it gives us a flexibility to look at things like this. Now, the note was going to be sure in a couple of years time anyway.
It gives us the flexibility to look at things like this now the note was going to mature in a couple of years' time anyway.
And we were able to get a fair discount to <unk>.
Speaker 3: and we were able to get a fair discount, a 6% discount that we were able to achieve on it, allowed us to save.
6% discount that we were able to achieve on it allowed us to save.
Speaker 3: Close on three million dollars on on the amount that we paid down
Close on $3 million on the amount that we paid down.
Speaker 3: And you know, on the other side of that, we're gonna be saving go-forward interest in excess of $5 million as well. And we're still sat here with over 100 million, well over 100 million dollars of cash on the balance sheet. So given the financial help of the business,
And.
On the other side of that we're going to be saving go forward interest in excess of $5 million as well.
And we're still sat here with over 100 million well over $100 million of cash on the balance sheet. So given the financial health of the business. The unit economics that we're now performing at.
Speaker 3: the Unite Economics that we're now performing at and our classmate performance we felt very confident about taking the paydown that we did. The paydown that we did.
And our cash flow performance, we felt.
Very confident about.
Taking the Paydown that we did.
Okay.
Great. Thank you.
Speaker 1: And we will take our final questions from Max Recklenkel with TD Cowan. Your line is open.
And we will take our final question is from Max clinical with TD Cowen Your line is open.
Great. Thanks, a lot for taking my question. So first can you speak to learnings from conversations with the national retail partner and the confidence that it gives you to drill additional relationships down the road.
Speaker 8: Great, thanks a lot for taking my question. So first, can you speak to learnings from conversations with the national retail partner and the confidence that it gives you to grow additional relationships down the road?
Yeah.
Speaker 2: Hey, Max, how are you? So the conversations, especially as we've moved into treats, as you know, we've got relationships with pretty much every major retail partner.
Hey, Max how are you.
So the the conversations, especially as we've moved into treats.
As as you know.
We've got relationships with pretty much every major retail partner.
In the U S.
Speaker 7: in the US, both in and out of pet. So you know all the names across 40,000 doors.
Both in and out of pet so.
You know all the names across 40000 doors.
Speaker 2: and we have good partnerships there with them on the toy side. So especially in treats.
And we have good partnerships there with them on the toy side, so, especially and treats.
The interest there has been more of a pull than a push over the past 12 months to 18 months.
Speaker 2: The interest there has been more of a pull than a push over the past 12 to 18 months. I'm sharing a quote with you that we used as somewhat of a design spec was, we'd love for Bark to bring fun to the treat aisle. So we took that seriously. We took our approach to toys and developed this first line of treats that we're pretty proud of.
Sharing a quote with you that we used as somewhat of a.
Designed stack was we'd love for Bart to bring fun to the to the treat aisle. So we took that seriously we took our approach to toys.
<unk> developed this first line of treats that we're pretty proud of.
And.
Speaker 2: Sold that in in the spring or earlier this year.
Sold that in in the spring earlier this year.
Speaker 2: And we were thrilled with the result. We were thrilled with the reaction. It seemed we hit the spec right on. And.
And we were thrilled with the results we were thrilled with the reaction it seemed we hit the spec right on.
<unk>.
Speaker 7: we believe that product is going to stand out in a big way.
We believe that product is going to stand out in a big way.
<unk>.
Speaker 2: And so it's been, I would say it's collaborative because we treat these retailers as our partners and we are always listening to their feedback and sharing new learnings of our direct consumer relationships with them and how we might want to enter new categories. So I'd say it's just very good partnership. I hope I'm answering the question and I'm just very asking it there.
And so it's been I would say, it's collaborative because we treat these retailers as our partners and us.
We're always listening to their feedback and.
Sharing new learnings of our direct to consumer relationships with them and how we might want to enter new categories. So I'd say, it's just very good partnership I hope Im answering the question and the superior asking out there.
Speaker 8: Yeah, absolutely. That's helpful. And then as you continue to improve your gross margin, does that change what you think the long-term profile can be as your channel mix does continue to evolve?
Yeah, absolutely that's helpful. And then as you continue to improve your gross margin does that change what you think the long term profile can be.
Gary Channel mix does continue to evolve.
Yes, so I mean, we've we've done a nice job of improving gross margins during the course of this year.
We expect that to continue through the balance of the year going into fiscal 'twenty five.
Right now we're seeing.
A lot of the benefit of the contract that we renegotiated on toy side of the business and Thats starting to flow through our P&L as we go into Q4 and into fiscal 'twenty five we'll see the benefits of the new consumables contracts kicking in as well so.
Speaker 3: A lot of the benefit of the contracts that we renegotiated on the toy side of the business.
Speaker 3: And that's starting to flow throughout P&L. As we go into Q4 and into fiscal 25, we'll see the benefits of the new consumables contracts kicking in as well. So that will improve on a current channel mix basis, shall we say. And then as you look at our respective...
That will improve on our current channel mix basis shall we say and then as you look at our respective channel margin profiles D to C has margins in the sixties.
Speaker 3: channel margin profiles, D2C has margins in the 60s, commerce has margins around 40, low 40s, and so as we've said before, we'll be looking to grow consumables particularly within the commerce channel, and so that commerce mix.
E Commerce has margins around 40, low <unk> and so.
As we've said before we'll be looking to grow consumables, particularly.
Within the Commerce channel and so that commerce and mix being lower the gross margin level.
Speaker 3: being lower at the gross margin level will ring down our overall consolidated gross margins. But the key here is not to.
Bring down our overall consolidated gross margins, but the key here is not to.
Speaker 3: just focus on gross margins because the cost to serve on the commerce channel is lower from a shipping and fulfillment and marketing perspective relative to D2C. And actually when you look at the two channels at a contribution margin level, they're both very similar at around 20%. So we're ultimately indifferent in driving growth between the two channels and not the gross margin mix isn't necessarily the driver. Perfect.
Just focus on gross margins because the cost to serve on the commerce channel is lower from a shipping and fulfillment and marketing perspective relative to D to C C.
When you look at the two channels at a contribution margin level theyre, both very similar at around 20%. So.
We're ultimately indifferent and driving growth between the two channels.
The gross margin mix isn't necessarily the driver.
Yeah.
Perfect that's great. Thanks, a lot guys.
Thank you.
Speaker 1: And ladies and gentlemen, this concludes today's conference call. And we thank you for your participation. You may now disconnect.
And ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
Speaker 9: That that, that that.
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We remain.
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Thank you.