BARK, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2022 (BARK’s fiscal first quarter of fiscal 2023). BARK sells dog products through Direct to Consumer (DTC) subscriptions and its website, and through retail and online marketplaces (Commerce). Comparative results are for the three months ended June 30, 2021. Amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 ended June 30, 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $131.2 million | $117.6 million | Up 11.5% |
| Gross profit / margin | $75.8 million / 57.8% | $69.8 million / 59.3% | Profit up 8.6%; margin down 1.5 percentage points |
| Operating expenses | $96.0 million | $86.6 million | Up 10.7% |
| Operating loss | $(20.1) million | $(16.9) million | Loss widened |
| Net loss | $(15.4) million | $(24.8) million | Loss narrowed; included $6.0 million of warrant fair-value income |
| Net loss per share, basic and diluted | $(0.09) | $(0.23) | Improved |
| Adjusted EBITDA (non-GAAP) | $(13.0) million | $(7.6) million | Loss widened |
Revenue mix: DTC revenue was $118.4 million, up 12.4%, and represented 90.3% of revenue. Commerce revenue was $12.8 million, up 4.3%. Management attributed DTC growth mainly to 5.6% more subscription shipments and a 6.4% increase in average order value. Commerce gross profit declined 12.8%, which management attributed to higher slotting fees and customer chargebacks associated with supply-chain delays.
Cash flow and liquidity: Operating cash use was $17.4 million, compared with $61.9 million in the prior-year quarter; capital expenditures were $4.7 million versus $8.3 million. Cash, cash equivalents and restricted cash decreased $22.2 million during the quarter. At June 30, cash and cash equivalents were $177.2 million, plus $2.3 million of restricted cash. Current assets were $356.9 million and current liabilities $100.3 million. Management said available cash, operating cash flows and borrowing capacity should fund operations for at least 12 months.
Debt: Long-term debt had a $76.3 million carrying value, representing $79.2 million of principal on 5.50% payment-in-kind convertible notes due December 2025. No amounts were drawn on the $35.0 million Western Alliance revolving credit facility at quarter-end; the company reported covenant compliance. The facility maturity was extended to May 31, 2023 in an August 3, 2022 amendment.
Material changes and operating metrics
- Gross margin fell primarily because of higher inbound freight costs. BARK reported continued freight-cost pressure and expected supply-chain disruption to continue, although it could not predict the duration or magnitude.
- General and administrative expense increased 14.6% to $79.6 million, including higher fulfillment and shipping costs, compensation, donations, depreciation and software expenses; lower prior-year merger-related professional fees partly offset the increase. Marketing expense declined 4.7% to $16.4 million.
- Active subscriptions increased to 2.276 million from 1.952 million; subscription shipments rose to 3.811 million from 3.608 million. New subscriptions declined to 259,000 from 280,000. CAC increased to $50.80 from $48.36, while LTV:CAC decreased to 4.5x from 5.0x. AOV rose to $31.07 from $29.21.
- Inventory was $158.0 million at June 30, 2022, up from $153.1 million at March 31, 2022. Accounts receivable was concentrated: three customers represented 51% of gross receivables at quarter-end; no customer contributed 10% or more of quarterly revenue.
- The company recorded a $24.6 million operating lease liability when it took initial possession of its new headquarters in April 2022. The lease has a 16.5-year term, with payments beginning October 2023.
Outlook, risks and unusual items
- No quantified revenue, earnings or margin guidance was provided in the supplied filing text. Management expects cash resources to cover at least the next 12 months, but notes future capital needs depend on growth and investment plans and additional financing may be required.
- The quarter’s net-loss improvement does not reflect better operating performance: operating loss widened, and the comparison benefited from a $6.0 million non-cash warrant fair-value gain in 2022 versus a $3.9 million loss in 2021, as well as a prior-year $2.6 million debt-extinguishment loss.
- Key stated risks include freight and supply-chain costs and delays, reliance on a limited number of suppliers and logistics partners, consumer discretionary spending and inflation, customer acquisition and retention, competition, and the company’s history of losses.
- Disclosure controls and internal control over financial reporting were deemed ineffective at June 30, 2022 because of material weaknesses involving account-reconciliation review, inventory controls, accounting for complex transactions, system access/change management and segregation of duties. Remediation was ongoing and not complete; management nevertheless concluded the financial statements fairly present the company’s results in all material respects.
- BARK reported recurring losses since inception, but no income-tax provision or benefit for the quarter because it maintained a full valuation allowance against net deferred tax assets. It said ordinary-course litigation was not expected to have a material effect, while noting outcomes cannot be assured.
Important facts for investors to verify
- Whether subscription growth, retention and unit economics can improve, given fewer new subscriptions and a lower LTV:CAC ratio.
- Whether freight, fulfillment and retail-related costs stabilize enough to recover gross margin and improve operating performance.
- How quickly the company remediates its material weaknesses, and whether controls are tested and shown to operate effectively.
- Liquidity and cash-burn trends, inventory levels, and compliance with credit-facility covenants; also confirm the impact of the May 2023 facility maturity and its borrowing terms.
- Potential dilution from the convertible notes, options, RSUs and warrants. The filing lists substantial potential shares excluded from diluted loss per share as anti-dilutive.
- That the reported adjusted EBITDA and adjusted net loss are non-GAAP measures; review their reconciliations and limitations alongside GAAP results.