BARK, Inc. — Form 10-Q Summary
Business and period: BARK is an omnichannel dog-products company selling toys and accessories and consumables through direct-to-consumer (DTC) subscriptions and online channels, as well as retail partners. This report covers the quarter and six months ended September 30, 2023, BARK’s fiscal 2024 second quarter. Amounts below are in U.S. dollars; financial-statement amounts are shown in millions unless noted.
Financial performance
| Metric | Three months ended Sept. 30, 2023 | Prior-year quarter | Six months ended Sept. 30, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $123.0 | $143.8 | $243.6 | $275.0 |
| Gross profit / margin | $75.6 / 61.5% | $80.3 / 55.9% | $148.7 / 61.0% | $156.2 / 56.8% |
| Operating loss | $(11.1) | $(9.1) | $(25.1) | $(29.3) |
| Net loss | $(10.3) | $(10.6) | $(22.0) | $(26.0) |
| Net loss per share, basic and diluted | $(0.06) | $(0.06) | $(0.12) | $(0.15) |
| Adjusted EBITDA (non-GAAP) | $1.0 | $(2.0) | $(6.4) | $(15.0) |
| Free cash flow (non-GAAP) | $0.9 | $(11.5) | $(12.8) | $(33.7) |
- Revenue and segments: Quarterly revenue fell 14.4%. DTC revenue declined 11.3% to $104.3 million; Commerce fell 28.7% to $18.7 million. For the six months, revenue declined 11.4%, with DTC down 8.4% and Commerce down 29.7%.
- Profitability and margins: Quarterly gross margin increased 5.6 percentage points to 61.5%, as DTC margin reached 64.9% and Commerce margin 42.5%. Lower product and freight costs and lower promotional costs contributed. Operating loss widened in the quarter despite a slightly narrower net loss, which included $2.0 million of interest income. Six-month net loss and operating loss both improved year over year.
- Operating metrics: Quarterly DTC orders decreased 8.9% to 3.361 million and average order value declined 2.6% to $31.03. Six-month orders fell 8.4% to 6.921 million; average order value was $31.24, essentially unchanged.
- Expenses and unusual items: Quarterly general and administrative expense declined 7.0%, while advertising and marketing expense rose 16.2%. The six-month results include $3.0 million of non-cash impairment charges for capitalized software costs and prepaid software licenses, and $1.5 million of reduction-in-force costs. Adjusted EBITDA and adjusted net loss are non-GAAP measures; the company’s reconciliations include adjustments for stock compensation, impairment, restructuring and other items.
Cash, liquidity and debt
- At September 30, 2023, cash and cash equivalents were $160.5 million, down from $177.9 million at March 31; cash, cash equivalents and restricted cash totaled $165.6 million. Current assets were $286.6 million and current liabilities $86.0 million.
- For the six months, operating cash outflow was $7.9 million versus $19.6 million a year earlier; capital expenditures were $4.9 million versus $14.1 million. Cash and restricted cash decreased by $17.5 million over the period.
- Long-term debt had a carrying value of $81.6 million at September 30, representing $83.5 million principal on the 5.50% convertible notes due December 2025, less unamortized fees and discount. The notes’ interest is paid in kind and compounds annually.
- The Western Alliance revolving credit facility had no borrowings and expired October 31, 2023. BARK said it was evaluating alternatives or a further renewal. The facility had a security interest in substantially all company assets, including intellectual property.
- Subsequent event: On November 2, 2023, BARK repurchased $45.0 million principal of the 2025 notes for $44.4 million in cash, plus accrued interest. The agreement provides for potential additional cash true-up payments in specified change-of-control circumstances. The filing does not state the remaining principal after the transaction as a reported balance.
Outlook, risks and contingencies
- Management expects cash and cash equivalents, together with operating cash flows and borrowing proceeds, to fund operations for at least the next 12 months, and expects to comply with applicable borrowing covenants during that period. No specific revenue or earnings guidance is provided.
- Management cites lower DTC order volume and AOV, retail-partner inventory reductions, seasonal-order timing and macroeconomic pressure on demand as contributors to weaker sales. It identifies consumables as a potential longer-term growth area and says much of future growth may come from those categories.
- Key risks include dependence on discretionary consumer spending; customer acquisition and retention; competition and marketing costs; reliance on concentrated suppliers and third-party logistics; supply-chain disruption and freight costs; execution of new products and channels; cybersecurity and technology risks; and the possibility of continued losses or need for additional financing.
- Two legal matters are disclosed: a California putative consumer class action over subscription-renewal disclosures, for which a dismissal/arbitration motion was denied and an appeal is pending; and a Delaware shareholder action challenging the company’s corporate-opportunity renunciation. BARK says it cannot currently estimate possible losses for either matter.
- Disclosure controls and procedures were assessed as effective, and the company reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Track whether DTC order trends, AOV and Commerce sales stabilize, and whether gross-margin gains persist as revenue declines.
- Verify cash use, capital spending and management’s stated ability to fund operations for at least 12 months, especially after the $44.4 million note repurchase.
- Confirm the remaining convertible-note principal, future payment-in-kind interest and any implications of the change-of-control true-up provisions.
- Monitor whether the expired credit facility is renewed or replaced and whether any new financing changes collateral, covenants or liquidity.
- Follow developments and potential financial exposure in the two disclosed legal cases, which the company says are not currently estimable.
- Assess the recurring nature of impairment, restructuring and other adjustments when comparing GAAP results with non-GAAP performance measures.