BARK, Inc. — Form 10-Q Summary
Business context and reporting period
BARK sells dog products through Direct to Consumer (subscriptions and its website) and Commerce (retailers and online marketplaces). This filing covers the quarter and six months ended September 30, 2022, BARK’s fiscal second quarter and first half of fiscal 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial and operating performance
| Metric | Three months ended Sept. 30, 2022 | Prior-year quarter | Six months ended Sept. 30, 2022 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $143.8 | $120.2 | $275.0 | $237.8 |
| Gross profit / margin | $80.3 / 55.9% | $69.9 / 58.2% | $156.2 / 56.8% | $139.7 / 58.7% |
| Operating expenses | $89.5 | $85.3 | $185.4 | $172.0 |
| Operating loss | $(9.1) | $(15.4) | $(29.3) | $(32.3) |
| Net income (loss) | $(10.6) | $6.5 | $(26.0) | $(18.3) |
| Adjusted EBITDA (non-GAAP) | $(2.0) | $(8.8) | $(15.0) | $(16.4) |
- Quarterly Direct to Consumer revenue rose 10.0% to $117.5 million; Commerce revenue rose 96.8% to $26.3 million. Commerce growth included new and existing retail partner volume and earlier shipment of seasonal orders.
- Quarterly diluted loss per share was $0.06, compared with earnings per share of $0.04 in the prior-year quarter. The comparison was affected by a $23.4 million prior-year gain from warrant fair-value changes; the current quarter recorded a $1.0 million warrant-related expense.
- For the quarter, Direct to Consumer gross margin was 60.9%, up 0.7 percentage points year over year; Commerce gross margin was 33.2%, down from 41.7%, primarily due to promotions on seasonal orders shipped earlier than in the prior year. The larger Commerce revenue mix contributed to the consolidated margin decline.
- Quarterly general and administrative expense increased 8.7% to $74.2 million, mainly on compensation, fulfillment and shipping, and depreciation and amortization; advertising and marketing expense declined 10.2% to $15.3 million.
- Operating cash use was $19.6 million in the first half, versus $108.0 million a year earlier. Investing cash use, primarily capital expenditures, was $14.1 million. Cash, cash equivalents and restricted cash decreased $33.1 million to $168.6 million; balance-sheet cash and cash equivalents were $166.3 million.
- At September 30, cash and cash equivalents were $166.3 million, inventory $160.6 million, and current assets $356.6 million versus current liabilities of $111.3 million. Long-term debt had a $76.5 million carrying value; the convertible notes’ principal was $79.2 million. The $35 million revolving credit facility was undrawn.
- Key operating indicators: active subscriptions were 2.241 million versus 2.089 million; quarterly subscription shipments were 3.653 million versus 3.593 million. New subscriptions were 218,000 versus 271,000. Quarterly CAC was $53.19 versus $51.71, LTV:CAC was 5.5x versus 4.9x, and average order value was $32.18 versus $29.73.
Material changes versus the prior comparable period
Revenue grew 19.7% in the quarter, led by faster Commerce growth and higher Direct to Consumer order value and shipments. Gross margin declined 2.3 percentage points, reflecting the increased Commerce mix and lower Commerce margin. Operating loss narrowed, but the quarter moved from net income to net loss as the prior-year result included a substantial non-cash gain from warrant remeasurement. First-half operating cash use improved significantly, partly reflecting working-capital timing and the prior-year inventory build.
Outlook, risks, contingencies, and unusual items
- Management said available cash, expected operating cash flows and potential borrowings should fund operations for at least the next 12 months. The filing gives no specific revenue, earnings or margin guidance. Future capital needs depend on growth and investment plans; additional financing may be needed.
- The $79.2 million principal amount of 5.50% payment-in-kind convertible notes matures December 1, 2025, unless converted, redeemed or repurchased. If not converted by maturity, principal and accrued interest must be repaid. The company also disclosed a $35 million secured revolving facility extended to May 31, 2023, subject to covenants; BARK reported covenant compliance at quarter-end.
- Management cited inflation, supply-chain and freight disruption, higher shipping costs, interest rates and consumer-spending uncertainty as risks. It said the Russia-Ukraine conflict had not materially affected the business to date, but could affect costs or supply availability.
- On September 1, 2022, a proposed California class action alleged inadequate disclosure of automatic subscription renewals under state consumer-protection laws. BARK filed motions to dismiss and compel arbitration on November 4; the case was at an early stage and potential losses could not be estimated.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to material weaknesses involving account reconciliations, inventory controls, complex transactions, system access/change management and segregation of duties. Remediation was ongoing and not complete; management nevertheless stated the financial statements were fairly presented in all material respects.
- The company recorded a $24.6 million operating lease liability when it took initial possession of its new headquarters in April 2022. Its 16.5-year lease calls for total payments of $39.8 million, with payments beginning October 2023.
Important facts for investors to verify
- Whether revenue growth, subscription retention and acquisition efficiency continue, particularly given fewer new subscriptions and higher CAC.
- Whether Commerce growth can be sustained without further pressure on gross margin, and how much reported growth reflects seasonal order timing.
- Cash burn, inventory levels and working-capital trends, alongside management’s 12-month liquidity assessment and facility renewal or refinancing needs.
- Convertible-note repayment or conversion exposure, dilution from outstanding options, RSUs, warrants and notes, and compliance with credit-facility covenants.
- Progress in remediating the disclosed internal-control weaknesses and developments in the California subscription-renewal litigation.
- The composition and recurring nature of adjustments in non-GAAP Adjusted EBITDA; it is supplemental and not a substitute for GAAP results or cash flow.