BARK, Inc. (The Original BARK Company) — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021 (the company’s fiscal first quarter of fiscal 2022). Amounts below are in U.S. dollars; financial statement amounts are presented in millions unless otherwise noted.
Business context
BARK is an omnichannel dog-products company spanning Play, Food, Health and Home. Its Direct to Consumer (DTC) business includes subscriptions and website sales; Commerce includes retail and online marketplace sales. On June 1, 2021, Northern Star Acquisition Corp. completed its business combination with Legacy BARK. The transaction was accounted for as a reverse recapitalization, with Legacy BARK the accounting predecessor; the reported comparative results are Legacy BARK’s.
Financial and operating performance
| Metric | Quarter ended June 30, 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $117.6 | $74.8 |
| Gross profit / gross margin | $69.8 / 59.3% | $46.9 / 62.7% |
| Operating income (loss) | $(16.9) | $3.3 |
| Net income (loss) | $(24.8) | $2.0 |
| Adjusted EBITDA (non-GAAP) | $(7.6) | $5.0 |
| Operating cash flow | $(61.9) | $1.5 |
| Investing cash flow | $(8.3) | $(0.2) |
| Financing cash flow | $353.7 | $6.3 |
- Revenue increased 57.2%. DTC revenue rose 57.0% to $105.4 million; Commerce rose 58.6% to $12.2 million. Management attributed DTC growth mainly to subscription shipments increasing 52.4% and average order value increasing 3.1%; Commerce growth reflected new retail partners and higher sales to existing partners.
- Gross margin declined 3.4 percentage points, primarily due to higher inbound freight costs. Operating expenses rose 98.7%; general and administrative expense more than doubled, reflecting higher fulfillment and shipping costs, employee costs, $3.1 million of stock-based compensation, and $5.2 million of merger transaction costs.
- Net loss included $3.9 million of warrant fair-value expense and a $2.6 million loss on extinguishment of debt related to conversion of legacy convertible notes. Adjusted EBITDA and adjusted net loss are non-GAAP measures; adjusted net loss was $10.0 million.
- Key operating metrics: active subscriptions were 1.952 million versus 1.382 million; subscription shipments were 3.608 million versus 2.368 million. Average monthly shipment churn increased to 7.4% from 6.2%; CAC increased to $48.36 from $30.83, while LTV:CAC declined to 5.0x from 9.5x. AOV was $29.21 versus $28.34.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $321.0 million; cash, cash equivalents and restricted cash totaled $323.3 million. Inventory was $102.3 million, up from $77.5 million at March 31.
- Total liabilities were $220.8 million. Long-term debt was $71.6 million net of discounts and fees, representing $75.0 million principal of 5.50% payment-in-kind convertible notes due December 2025. The notes are convertible at $10 per share. The former $34.3 million revolving-facility balance and the PPP loan were repaid; the $35.0 million revolving facility remained available through May 31, 2022, subject to its terms and covenants.
- Cash from the business combination and $200.0 million PIPE helped raise financing cash flow. Operating cash use included a $24.9 million inventory build and changes in payables, accrued expenses and other liabilities. Management stated cash was expected to fund operations for at least 12 months.
- Redeemable preferred stock converted to common stock at closing. The company reported 166.7 million common shares outstanding at June 30; it disclosed substantial additional potential dilution from options, warrants and convertible notes.
Outlook, commentary and risks
- The filing provides no specific revenue, earnings or margin guidance. Management expects continued investment in growth and says future capital needs depend on customer growth and investment plans; it may seek additional equity or debt financing.
- Management expects near-term operating losses to continue. It cautioned that results for the quarter are not necessarily indicative of future periods and that pandemic-related demand may not persist as restrictions ease and consumer behavior changes.
- Key risks include subscriber retention and acquisition costs, reliance on subscriptions, competition, freight and supply-chain disruption, supplier concentration, inventory management, consumer discretionary spending, and execution of newer offerings such as BARK Eats. Two suppliers represented 35% of finished-goods purchases in the quarter; three customers represented 75% of gross receivables at quarter-end, although no customer accounted for 10% or more of quarterly revenue.
- Warrants are recorded as liabilities and remeasured at fair value, which can cause material earnings volatility. The company had $46.2 million of warrant liabilities at June 30.
- Disclosure controls were not effective due to previously identified material weaknesses involving account reconciliations, inventory vendor and inventory-management controls, and warrant accounting. Management said remediation was ongoing; it considered the financial statements fairly stated in all material respects.
- The company reported no litigation it believed would have a material effect, while noting that outcomes of legal proceedings cannot be assured. It also disclosed a prior restatement related to warrant accounting.
Most important facts for investors to verify
- Whether subscription growth, churn, CAC and LTV:CAC trends remain sustainable and support profitable customer acquisition.
- Whether the lower gross margin and high operating and working-capital cash use persist, including the effect of freight costs and inventory investment.
- Cash runway and covenant compliance, the availability and conditions of the revolving facility, and the company’s ability to meet or convert the 2025 notes.
- The scale of potential dilution from warrants, options, equity plans and convertible notes, and the effect of warrant remeasurement on reported earnings.
- Progress in remediating material weaknesses and the reliability of reported operating metrics and financial information.