All right. Good afternoon, everyone. We're going to get started. I'm Maria Ripps, Internet analyst at Canaccord Genuity, and it's my pleasure to introduce Matt Meeker, founder and CEO of BARK. Matt, thank you so much for being here with us today.
Thank you.
Awesome. Let's start with the pre-announcement, yesterday.
Mm-hmm.
So you released your preliminary Q3 revenue, which is ahead of your, excuse me, which is ahead of your guidance. You also reiterated your Q3 EBITDA profitability.
Mm-hmm.
So just maybe talk about what drove this better than expected sort of results in Q3.
What drove it was mainly a continuation of the momentum we've had through the year and customer acquisition on our direct-to-consumer side. All year, the retention's been great. The revenue per customer has been really solid, and we've been building up our capability in customer acquisition, and especially in some of those lower-cost channels, like not as much media spend, so-
Mm-hmm
O rganic, building up awareness, building up our email capability, and those things just really working very well in the holiday quarter.
Mm-hmm.
Hopefully continuing on building momentum off of that.
Awesome. We're going to touch on that, on some of those points, but-
Okay
H ow would you characterize sort of the broader macro environment at this stage?
The broader macro environment is for people who are smarter than me to analyze, but looking at our customers.
Yeah, I guess, I guess as it relates to your business.
As it relates to us-
Mm-hmm
Again, I don't know that we're, we're facing any conditions that are significantly changed. Maybe the mood of the consumer-
Mm-hmm
S tarting to change a bit.
Mm-hmm.
But we've talked about it throughout all of last year, that we've had more opportunity in organizing ourselves in a better way. Me getting more involved in the marketing and really pushing that effort, bringing in some different talent on the conceptual side. So regardless of the macro environment, there's always that opportunity to grow and grow and grow, and and deliver better results than we had been.
Mm-hmm.
There's still a lot of that upside.
Got it. So you also talked about achieving one of your sort of best quarters in terms of customer acquisition, metrics.
Mm-hmm.
Can you maybe just talk about what drove this strength, and how sustainable is it going forward?
Well, we'll see, right? It's all on how well we execute. But again, I'm really encouraged with the way we've organized our teams, their performance, their autonomy, and their ability to execute, and they demonstrated that in this quarter.
Mm-hmm.
And it, it wasn't just in this quarter. It's really been every month and every quarter throughout the year has been sequentially better and stronger performance. So I feel like we're... You know, we were crawling at the beginning of the year, now maybe we're walking, and we're getting ready for a sprint here.
Mm-hmm, mm-hmm.
And so, I anticipate that it'll be sustainable throughout next year and long beyond.
Mm-hmm. Right. Well, it's definitely good to see. So one thing that sort of came up in our conversations with some investors is that you really didn't reiterate your full year guidance yesterday.
Mm-hmm.
Is there anything to read into that, and was there any pull forward in Q3 from Q4?
Nothing to read into it. No, no pull forward. Yeah, we expect that we'll be at the high end of that full year guidance that we gave.
Mm-hmm.
That's partially due to the momentum I'm talking about in our customer acquisition and the trends we're seeing there, and partially because you're bringing a larger subscriber base into the quarter than we anticipated.
Mm-hmm.
So, the retention metrics seem to be holding up quite well, and, the other opportunity or strength for us, again, throughout this past year, throughout the past couple of years, reiterating or restating, we've been guiding this year to 200-300 basis point improvement on the gross margin line. It will be at least 300 basis point improvement year-over-year. So over two years, that's at least 500 basis point improvement in two years.
Mm-hmm.
Take that through the shipping line, you're talking about at least 700 basis point improvement. So now all of a sudden, you're talking about 700 basis points or more that could fall to the bottom line, but it can also be used to reinvest into marketing and power that growth more and more, and we're-
Mm-hmm
W e're balancing that.
Mm-hmm.
You saw last quarter, the profitability. You see this quarter, the growth-
Yeah
B uilding the subscriber base, carrying that forward. And, as we're getting into next quarter, we have anticipated or guided to a profitable next quarter and probably there beyond.
Awesome. Yeah, you obviously done a lot of progress on gross margins, and I want to touch on that a little bit later.
Okay.
In, in-
Sorry, I jumped ahead.
Okay. So maybe more broadly, last year, last calendar year, was an important year for you as you sort of restructured your product. You also restructured your business to focus on profitability, as you pointed out. So with that in mind, what are some of the top strategic priorities for you and the team over the next couple of years?
Well, the first is to finish the job. So, we're thrilled, last quarter, with one quarter of profitability. Now we need to take one quarter and churn it into one year, and that's what we expect for all of next year, is that we deliver our first full year of profitability.
Mm-hmm.
That's job one, and from there, then you have the opportunity to grow more, and those growth levers are, again, the consolidation into Bark.co, the unified platform, which gives us much more cross-selling ability, which is a strength for us. And now you've got a wider set of products to do it. A second being our expansion into consumables.
Mm-hmm.
We're really happy that our first treat line is going to appear in thousands of retail doors this spring.
Mm-hmm.
Partnerships with the Girl Scouts, we've had a great kickoff there, and if you can get in... We, we expect to get into the cookie program. It's a question of when, but that's, for the Girl Scouts, it's $800 million of revenue.
Yeah.
So having millions of little Girl Scouts delivering our products to the doors of customers is huge for us.
Yeah.
And so much more, but those are some of the highlights.
Mm-hmm. Perfect. Perfect. So, I think on the last earnings call, you noted sort of the pet household formation has been stabilizing or maybe kind of returning to pre-COVID level.
Mm-hmm.
But it still seems that there is a lot of room for you to grow. Can you maybe talk about sort of where you are in terms of number of households that you're serving today? And then, as you look at the newer categories, like dental, food, sort of how is that expanding your addressable market?
Sure. Well, we've served roughly 7 million households over our 12 years that we've been around. And you're talking about a market with, let's call it, like mid-60 million households-
Mm
W ith dogs. So there are 60-ish million households that we haven't reached yet. Some of that is the nature of our product, where a toy is just not the way to make every dog happy. It's one way. It's made 7 million+ dogs happy, and we're, we're thrilled for that, but to get into that household, we need to expand both the channels that we offer it and the products that we offer. So offering consumables, treats, and dental, and food, that opens up your, your addressable market significantly-
Mm-hmm
10, 11, 12 times. That'll get us into many more households. Again, I don't know how—I should know this, but I don't know how many millions of us buy Girl Scout cookies, but the fact that millions of these little girls are gonna knock on the door and introduce our product into some of those households, that opens up millions of doors for us.
Right.
and more, more retailers with more channels-
Mm-hmm
M ore partners, and then more services as well.
Mm-hmm. Great. So let's talk about your DTC business, and maybe let's start with your core toys business. So it seems like it's been under pressure the last couple of quarters, and I guess the question here is: do you feel like there are certain things you can do maybe a little bit, sort of you can improve operationally to return that business to growth? Or is it, at this point, just a function of sort of sluggish macro environment?
There's an aspect of the macro environment that has made it challenging.
Mm.
Discretionary and pet, you've seen a lot of those dollars move into food.
Right.
Big food inflation. Customer's got $100, all of it goes to food.
Mm.
Maybe there's some softening in that, but that's, that's just the world you live in. And so, and toy was never a big category, and we captured a huge amount of market share really quickly.
Mm-hmm.
So then the question is: How do you grow? We've talked about it. We can organize ourselves better and be more creative in our marketing and more thoughtful in our marketing, which we've done, and we've demonstrated this quarter. The other way is to not think of it as just be so tunnel-visioned on what a toy means to someone. So I'll give you an example for expansion for us. This quarter, we think of, you know, we think of serving the family and the family unit, and the dog is part of that family.
One thing we learned from our customers is that oftentimes the box arrives, and their human children dive in there and pull out the dog's toy, and they play with it, and then they find something to do with the dog, and now we have a question of whose toy it is. So we-
Mm.
For the first time, we introduced companion toys. So our manufacturer, our partners create kids' toys, so we created kids' toys. So you got a Rudolph toy for the kid and one for the dog.
Mm.
They're playing together. That's a new toy expansion. So we can also reshape the way we think of a category and the way we think of our business. It doesn't have to just be: What's the next dog toy we can create?
Mm-hmm. Great. So let's talk about consumables. So food is obviously kind of a stickier product, and it's higher-frequency,
Mm
S ort of item. But it seems like it's been a little bit softer over the past, I don't know, quarter or two. How should we think about sort of building blocks for growing that business over time?
For food specifically? It's just a more considered purchase, and it-
Mm
T akes, it takes longer. So for us, it's continuously built. It's just not this explosive, disruptive approach that we took in toys, where-
Mm-hmm
T oys are more impulsive, and they're less meaningful to someone because the consumer really thinks a lot about the diet that their dog is on, and it's hard to switch. That's why the dynamics of the category are so good, because-
Mm
You get that customer, they're locked in for 10 or 12 years.
Right.
So we've had to build in our other categories. We've had to build into the bowl with treats, with toppers, with dental, and we're surrounding it. We're building trust with our, with our toy products and all those other products and the relationships, and there's- there are those openings. So it's just reminding the customer over and over again that we have food, it's really high quality. Your dog already loves the taste of that topper. And when they're at one of those decision points of moving from puppy to adult, adult to senior, whatever the decision point is, we're in the consideration set. We're right there.
Mm-hmm. Mm-hmm.
But it takes longer, but good compounding effects to it, good, good retention once you're there.
Mm-hmm. Mm-hmm.
That's why you do it. It's just playing a longer game.
I was just gonna ask you, can you talk about sort of retention rate on the food side?
Uh-
It should be pretty high.
Yeah, I can tell you that the pattern is probably what you'd expect. You get a customer to trial, and we're looking constantly for new ways of getting trial, and some of those are more if someone just will take a flyer on it. But normally it's first month... Well, first month, everybody tries it. The first-month fall-off is the steepest.
Mm-hmm.
And then from there on, it's essentially a flat line of, like, you've lost everyone who it didn't work for them or their dog in that first month, but after that, they're stuck.
Is there anything you can share in terms of why people would sort of drop off after the first month? Is s-
Some of it might... Certainly, a factor there is the customer acquisition tactics. So, for example, we did something last week that worked exceptionally well for acquiring a large number of new customers to food, which was me offering it to a lot of our longtime toy subscribers-
Mm-hmm
A nd saying: "Just want to thank you for being a great subscriber, and with that, offer you a free bag of food. No strings attached, just the food for you. And if you don't want it, take it and please give it to a shelter, to a dog in need, because we don't think there should be any hungry dogs, especially around the holidays-
Mm-hmm
B ut year-round. It performed extremely well in terms of new customers trying our food. But if it's free and they're just taking a chance, they're less likely to retain for the long term, but you balance that.
Mm-hmm.
You get, you get, you know, 20 times more customers than you get from a normal campaign-
Mm-hmm
B ut you'll lose a few more in the—
Mm-hmm
Turn there.
Yeah, that makes sense. And is there anything around LTV that you can share in terms of this, or your food business versus your toys business?
I can tell you that, and you know, we've been on the Bark.co platform with this food for about 16 months now.
Mm.
So we don't have quite the full arc of it. But I can tell you, after a year, that LTV is very similar to a first year of one of our BarkBox customers. But again, the curves are very different. The BarkBox customer is really starting to fall off at that point. Average lifespan is 15-16 months. That food customer is persisting, so it's just a question of how far out that goes.
Mm-hmm. So I wanted to ask you about your unified platform.
Mm.
It seems like you, as you pointed out, as you just said, you launched it in, like, last year, middle last year, late last year?
August. Yep.
August of last year. Can you talk about sort of any early observations or learnings from the platform, and just how did that sort of impact, like, how did that impact your business overall?
Well, the most impactful thing is really... We've got with BarkBox, we've got a really solid, profitable, growing, nice business on a standalone basis. It's great, so it's very hard to comp to there. And, but let's say we can comp to it exactly, just on a new platform, a new back end to it.
Mm-hmm.
The opportunity here is when BarkBox itself stands alone, there's nowhere for the customer to go. A new prospect comes in, they look to buy, it's either yes or no. Either, "That's the product for me," or, "It's not." On our new platform, we bring someone into a BarkBox landing page, they can make that same decision-
Mm-hmm
B ut, a not insignificant number of people who are acquired with a BarkBox ad say, "Nope, not for me," and go off and buy another product. So they come in to Bark still, and they might continue on with food or with dental or with toppers.
Mm-hmm.
So just having that flexibility of and that robust offering is huge when it comes to lifetime value, customer acquisition costs, conversion rates. That's what we're seeing, is that it's working surprisingly well.
Can you maybe talk a little bit more about your cross-selling efforts? We'll talk about your retail business in a minute, but how do you think about sort of cross-selling in the retail environment as well?
Oh, in the retail environment? Well, cross-selling is a real strength for us that essentially 4 or 5 years ago didn't exist, and through the first 3 quarters of this year is around $30 million of revenue-
Mm-hmm.
So annualized $40 million. It's really substantial with machine learning, it makes our product recommendations better, it makes our email marketing better. And then again, you put the full suite of products around it instead of just buy another toy, and it sends it to another level. In retail, I think we have that offering or that capability now that we'll introduce treats, and then hopefully more and more consumables. That gives us the ability to move customers throughout the pet department in a way that no one else can. We can say, you know, "You're picking up the toy, head over there and get a free bag of treats when you buy this toy," or vice versa.
Mm-hmm.
There's those bundling opportunities or cross-promotional opportunities of awareness where you've already built the relationship with the customer, they trust the brand. Just letting them know it exists-
Mm-hmm.
Giving them a small incentive to get into something that's more consumable and repeatable is pretty powerful.
Mm-hmm. So that this is a good segue into your commerce business, which has been of a greater focus lately, it seems like.
Mm-hmm.
So as you pointed out earlier, you recently announced this partnership for 1,000 new locations. To the extent you can comment, are there any other relationships that you are actively working on or sort of would like to have? And then having this partnership, so does it make it easier for you to go and have these kinds of sort of conversations with other retailers?
Oh, yeah. And, you know, the first one we announced was around 1,000 doors. I think earlier I said a couple thousand doors. So we've got some confidence there that in the spring here, we'll be in a few thousand doors, and probably some a good news announcement coming in a week or two here. I forgot the rest of the question now. I'm sorry.
Just, are there any other partnerships that you-
Oh, yeah, yeah.
sort of working on?
Yeah. Well, always, we wanted to start with treats with our, our... I'd say, our most successful and best partners from the toy side. So we learn together, and they have more patience with us because it is our first step into that product. But then there's the other dozens that we work with, who, once they see the product, they'll be anxious to put on their shelves next year. A perfect example is, we had our new advent calendar this year, went into Costco in October and blew the doors off. So we received several calls from other retail partners saying, "Can we have that next year?
Mm-hmm.
Kind of the same dynamic we expect with our first line of treats.
Mm-hmm. I'm going to ask another question, and then, let's see if there are any questions from the audience. So on the commerce side, are there any sort of notable investments that are still needed, either on the marketing side, supply chain, or any other sort of operational sort of angle, to be successful in that business?
Not on the supply chain side at all, really. Our co-manufacturers are in great shape. We have new relationships there or newly designed relationships. So we'll continue to see that gross margin expansion throughout this next quarter, all the way through next year. So that's not done yet. But really, really great partnerships there. Our fulfillment operation is very solid. I think the big difference you'll see is more on the marketing side, and getting more and more into building brand awareness, and less 100% reliant on the direct response muscle.
Mm-hmm.
So we were going to do the first associated with college football last night, we were going to do the first dog image likeness deal, but we were counting on the Georgia Bulldogs to get into the playoff and go a little bit further, and that didn't work out, so we'll have to kick that to next year. But those types of things, where now you've got a pretty noteworthy dog, at least in Georgia, out there-
Mm-hmm
S preading the word about our products, and, that's more brand awareness than-
Right
Our direct response model.
Mm-hmm.
A lot more things like that coming in the year ahead.
Mm-hmm. Great. Well, let's see if there are any questions from the audience. All right, maybe I'll ask another one. Is there anything on the marketing side, on the advertising and marketing side? I mean, you just kind of highlighted some of that, but is there anything sort of that that's higher ROI channels that maybe you're pursuing a little bit more, sort of especially over the past couple of quarters as sales were a little bit under pressure?
Well, I mentioned a few. So, again, I think, especially as we get to a unified platform, Bark.co, and you're under the Bark umbrella, then having those awareness type activities, there's one destination, and then that exposes customers to all those products, regardless of the awareness you're doing. So much more on the awareness instead of just the straight direct response side. I mentioned earlier that our email acquisition, it's, we have to acquire all those email addresses, but we have millions, and we've been very thoughtful about how to put that to work. It's not, you know, it's not the sexiest answer in the world, but the results really are-
Mm-hmm
A nd that effectively lowers your cost of acquisition and allows us to grow at the rate you saw in the last quarter.
Mm-hmm.
But continuing to really drill in on each of those channel opportunities, think about how do we use our team? We've super powered a lot of our creative efforts and our testing and our variations with AI. So make one type of creative unit for Facebook, and that can be modified in thousands of ways instantly.
Mm-hmm
W ith AI tools.
Mm-hmm.
That allows us to go faster, learn faster-
Mm-hmm
A nd deliver superior results.
Mm-hmm.
So more, more of those types of things.
Right. I think we have just a minute or so left. Is there anything about your story that you feel like is still misunderstood or sort of underappreciated by investors at this point?
Underappreciated, yes. You know, you mentioned at the top, we just really outperformed our revenue for this past quarter, guiding into the high end of our annual revenue range, delivered our first profitable quarter, free cash flow for the last year plus, and that's after burning $194 million of cash. Now you're generating cash, expanded the gross margin by at least, if not more, 500 basis points in two years, 300 basis points in the last year. And looking forward into next year, saying it's gonna be a full year profitability, there's growth. For that, with $120+ million of cash, for that company to trade at a value of $130 million, to me, is a screaming opportunity.
If investors don't take it, maybe we will.
Awesome. Well, thank you so much, Matt, and congrats on the strong quarter.
Thank you.