BARK, Inc. (The Original BARK Company) — Form 10-Q
Reporting period: Quarter and six months ended September 30, 2021 (fiscal Q2 and first half of fiscal 2022). Unless noted, figures are unaudited and in U.S. dollars. BARK completed its business combination on June 1, 2021; results are presented using Legacy BARK as the accounting predecessor.
Financial performance
| Metric | Three months ended Sep. 30, 2021 | Six months ended Sep. 30, 2021 |
|---|---|---|
| Revenue | $120.2 million, up 39.1% | $237.8 million, up 47.5% |
| Gross profit / margin | $69.9 million / 58.2% | $139.7 million / 58.7% |
| Operating income (loss) | $(15.4) million | $(32.3) million |
| Net income (loss) | $6.5 million | $(18.3) million |
| Adjusted EBITDA (non-GAAP) | $(8.8) million | $(16.4) million |
| Operating cash flow | Not presented separately for the quarter | $(108.0) million |
| Capital expenditures | Not presented separately for the quarter | $11.0 million |
Quarterly GAAP net income included $23.4 million of noncash income from changes in warrant fair value; BARK still reported an operating loss and an adjusted EBITDA loss. First-half net loss includes a $2.6 million debt-extinguishment loss. No income tax provision was recorded.
Direct-to-consumer revenue was $106.8 million for the quarter, up 41.7%; Commerce revenue was $13.3 million, up 20.8%. Direct-to-consumer accounted for 88.9% of quarterly revenue. First-half revenue growth reflected higher subscription shipments and average order value, plus growth in retail partners and sales through existing partners.
Liquidity, debt, and balance sheet
- At September 30, cash and cash equivalents were $272.6 million; restricted cash was an additional $2.3 million. Current assets were $420.3 million and current liabilities were $114.1 million.
- Inventory rose to $130.3 million from $77.5 million at March 31. First-half operating cash use was driven substantially by a $52.9 million inventory increase and other working-capital movements.
- Long-term debt had a net carrying value of $71.7 million, against $75.0 million principal outstanding on the 5.5% convertible notes due December 2025. The notes were convertible at $10 per share and represented about 7.8 million shares at period-end.
- The $34.3 million Western Alliance borrowing and the PPP loan were repaid. The $35 million revolving facility remained undrawn and available through May 31, 2022, subject to its terms and covenants. BARK reported covenant compliance.
- First-half financing cash flow was $354.2 million, including $227.1 million of net merger proceeds and $200.0 million from the PIPE, offset in part by debt repayments and transaction and underwriting costs.
Changes versus prior comparable period
- Quarterly revenue increased 39.1% from $86.4 million; first-half revenue increased 47.5% from $161.2 million.
- Quarterly gross margin declined to 58.2% from 59.7%; first-half gross margin declined to 58.7% from 61.1%, primarily due to higher inbound freight costs.
- Quarterly operating expenses rose 63.3% to $85.3 million, faster than revenue. General and administrative expense increased 73.7%, including higher fulfillment and shipping, compensation and public-company costs.
- First-half operating cash flow shifted from $8.5 million provided in 2020 to $108.0 million used in 2021. The prior-year six-month period reported net income of $0.6 million, compared with a $18.3 million net loss in 2021.
- Operating indicators showed more scale but weaker acquisition and retention economics: quarterly active subscriptions increased to 2.089 million from 1.499 million and subscription shipments rose to 3.593 million from 2.675 million; monthly churn increased to 7.1% from 5.3%, CAC rose to $51.71 from $43.98, and LTV:CAC fell to 4.9x from 7.4x.
Outlook, risks, and unusual items
- No specific revenue, earnings, or margin guidance was provided. Management expected cash, operating cash flows, and borrowing availability to fund operations for at least 12 months, while noting that future capital needs depend on growth and investment plans and additional financing may be needed.
- Management cited elevated inbound freight costs, supply-chain disruption and demurrage fees. COVID-19 and variants, shipping capacity, supplier concentration, inventory management, and consumer demand remain risks.
- BARK depends heavily on subscriptions and paid customer acquisition. Higher churn and CAC, lower LTV:CAC, competition, and a possible normalization of pandemic-related demand could pressure growth and profitability.
- Warrant liabilities are remeasured at fair value through earnings; these noncash changes can materially move reported net income. The quarter’s GAAP profit should therefore be assessed alongside operating results and non-GAAP reconciliations.
- Disclosure controls were reported ineffective because of material weaknesses, including a newly identified weakness in review of complex transactions and a prior-period equity and EPS presentation error. Management said remediation was ongoing and the interim statements were fairly stated in all material respects.
- Subsequent to quarter-end, BARK signed a 198-month office lease commencing April 1, 2022, with approximately $51.7 million in future minimum payments, and executed a roughly $1.9 million letter of credit.
- Litigation was described as arising in the ordinary course; the company did not believe pending matters would have a material effect, while noting outcomes cannot be assured.
Important facts for investors to verify
- Whether subscription growth can be sustained and churn, CAC, and LTV:CAC improve.
- Whether freight, demurrage, and fulfillment costs continue to pressure gross margin and cash generation.
- How the $130.3 million inventory balance converts into sales and cash, and whether operating cash burn moderates.
- The scale and timing of potential dilution from convertible notes, warrants, options, equity plans, and future share issuances; 171.1 million common shares were outstanding at September 30 and 171.9 million at November 5, 2021.
- Progress in remediating internal-control weaknesses and the reliability of future reporting.
- The effects of the long-term office lease, debt obligations, and available credit facility on future liquidity.