BARK, Inc. Form 10-Q Summary
Business context and reporting period
BARK is an omnichannel dog-products company operating through Direct to Consumer (DTC) subscriptions and online sales, and Commerce sales to retailers and marketplaces. This filing covers the quarter and nine months ended December 31, 2022, the third quarter and first nine months of fiscal 2023. Dollar amounts below are in millions unless stated otherwise.
Financial results
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $134.3 | $140.8 | $409.3 | $378.6 |
| Gross profit / margin | $80.2 / 59.7% | $78.4 / 55.7% | $236.3 / 57.7% | $218.1 / 57.6% |
| Operating loss | $(21.7) | $(27.1) | $(51.0) | $(59.3) |
| Net loss | $(21.3) | $(13.2) | $(47.3) | $(31.6) |
| Adjusted EBITDA loss (non-GAAP) | $(12.8) | $(18.3) | $(28.1) | $(34.7) |
| Free cash flow (non-GAAP) | $0.3 | $(45.1) | $(33.3) | $(164.1) |
Quarterly revenue fell 4.6% year over year: DTC grew 1.7% to $120.1 million, while Commerce declined 37.2% to $14.3 million, mainly because seasonal retail orders shifted into the prior quarter. DTC gross profit increased 5.6%; Commerce gross profit decreased 26.6%. The consolidated gross margin improved, reflecting a larger DTC revenue mix and lower supplier costs. For the nine-month period, revenue increased 8.1%, led by DTC growth of 7.8% and Commerce growth of 10.4%.
Operating losses narrowed in both reported periods, but net losses increased year over year. This divergence largely reflects lower warrant fair-value gains: other income was $1.7 million in the quarter versus $15.1 million a year earlier, and $7.7 million for nine months versus $31.9 million. These non-operating fair-value changes make net-loss comparisons less indicative of operating trends. Quarterly basic and diluted loss per share was $0.12, compared with $0.08 a year earlier.
Cash, debt and liquidity
At December 31, 2022, cash and cash equivalents were $164.2 million, down from $199.4 million at March 31, 2022; cash, cash equivalents and restricted cash totaled $166.5 million. Nine-month operating cash use was $14.5 million, capital expenditures were $18.9 million, and financing cash use was $1.9 million. The company reported a $35.2 million net decrease in cash and restricted cash during the nine months.
Long-term debt carrying value was $81.0 million, comprising the 5.50% payment-in-kind convertible notes due December 2025; outstanding principal was $83.5 million at December 31. The $35.0 million Western Alliance revolving facility had no borrowings outstanding and was available through May 31, 2023, subject to borrowing-base and covenant terms. BARK said it expected available cash, operating cash flows and borrowing proceeds to fund operations for at least 12 months and reported compliance with its financial covenants.
Outlook, commentary, risks and unusual items
- Management cited inflation, interest rates, supply-chain and freight costs, consumer discretionary spending, and the continuing uncertainty around COVID-19 as potential pressures. It said inflation had not materially affected results to date, but higher costs might not be fully offset by price increases.
- On February 9, 2023, BARK announced a cost-reduction initiative affecting approximately 12% of employees, or 126 people, and reducing use of certain external vendors and contractors. It expected approximately $2.0 million of cash severance expense in fiscal Q4 2023, with payments by the end of fiscal Q1 2024. Management said the measures were intended to improve efficiency and advance sustainable profitability; the filing does not provide numerical revenue or earnings guidance.
- Disclosure controls and internal control over financial reporting were reported ineffective due to material weaknesses involving account reconciliations, inventory controls, complex transactions, system access/change management and segregation of duties. Remediation was ongoing and had not been completed.
- A California proposed class action alleges inadequate disclosure of automatic renewal terms for BarkBox subscriptions. BARK filed motions to dismiss and compel arbitration; it said the case was at an early stage and that potential losses could not be estimated.
- A Delaware Section 205 petition filed February 7, 2023 seeks validation of the 2021 charter amendment increasing authorized common shares. A court decision had created uncertainty about the amendment’s validity; a hearing was scheduled for February 20, 2023.
- Other notable items include $1.7 million of nine-month asset impairment related to vacating the former headquarters and a new headquarters lease with a 16.5-year term and $39.8 million of total lease payments. The company also disclosed customer and supplier concentration, including two customers representing 59% of gross receivables at December 31.
Most important facts for investors to verify
- Whether subscription and customer trends stabilize: quarterly active subscriptions were 2.213 million versus 2.254 million a year earlier; new subscriptions fell to 264,000 from 371,000, and quarterly shipments declined 4.5%.
- Whether improved gross margins and cost reductions translate into sustained progress toward profitability and positive cash generation.
- Cash runway, covenant compliance and the status or terms of the revolving facility after its May 31, 2023 maturity date.
- Progress in remediating material weaknesses and any effects on reporting reliability.
- Outcomes of the subscription-renewal litigation and Delaware charter-validation proceeding, including any financial or share-authorization consequences.
- Potential dilution from equity awards, warrants and convertible notes; the filing reports 177.6 million common shares outstanding at December 31, 2022.