Good morning, everyone. Thank you all for joining us today. I'm Maria Ripps, Internet Analyst here at Canaccord Genuity, and it's my pleasure to introduce Zahir Ibrahim, BARK's CFO. Zahir, thank you so much for joining us.
Yeah, good morning. Thank you for having me.
Awesome. Let's start with sort of a high-level overview of the company. How has the company evolved over the past couple of years, and how is BARK different from other pet-focused sort of companies in the space?
Sure. You know, there's been a number of changes over the last few years. I think the biggest one is the financial health and profile of the business. If youu think back three years ago, fiscal 2022, we had an adjusted EBITDA loss of $58 million. Fast forward three years, we've done a really nice job of turning that around. The results that we filed in March for fiscal 2025 were a positive $5 million adjusted EBITDA. That, coupled with just far more stable cash flows as well, has been probably a major highlight. In terms of the overall business, a bit of context. Direct-to-consumer (DTC) is 85% of our revenues. Lifetime to date, we've shipped to over 700 pet parents and pet households. On a monthly basis, we ship around a million boxes to customers.
As you asked what's unique about our business, we have a ton of first-party data and insights as a result of those interactions. That allows us to refine our products based on the feedback that we get. As I'll move to talking about consumables in a moment, it'll allow us to test and improve all of our new innovation with our customers and get real-time feedback from those guys. In addition to DTC, we've got a presence in commerce channels. We sell to all the major retailers in the U.S., as well as Amazon and Chewy. That represents about 15% of our business as at the end of fiscal 2025. We grew that channel 27% last year, and we expect a similar level of growth this coming year as well. About a year ago, we launched an airline for dogs called BARK Air.
First quarter this year, we generated over $2 million in revenues with that. We expect to double the revenues from that channel this year as well. As you think about other changes that we've seen or that are upcoming, for the first 13 years of our business, the DTC business was on homegrown systems. It had a multitude of platforms. If a customer wanted to come on, they had to go to multiple sites to access our products. They couldn't do one order, one checkout. We moved to Shopify starting in October. So far, that transition's gone well, and now customers are able to access our full portfolio. That's going to help cross-sell and drive AOV in the future. I suppose the last thing that we'll touch upon more in a moment is we're launching with a consumables line called BARK in the Belly.
That's going to launch at the end of August, so in two weeks' time. You need to get yourself onto our website, and you can access our products. We'll be launching that more broadly thereafter.
I mean, that's a great overview, and we're going to touch on some of the points that you highlighted. Maybe, can you sort of expand on your strategic initiative to diversify your revenue base? You sort of just talked about it. What does that mean for your sort of investment priorities going forward?
I suppose the biggest piece for us is the vast majority of our DTC revenue is through subscription boxes. That's a real solid business. It's a predictable revenue stream for us. What we've seen with the tariff headwinds that have come into place and just the macro uncertainty, one of our priorities is to continue to deliver positive adjusted EBITDA going forward and to also diversify our revenue base into other areas. We'll be dialing back our marketing support on the subscription side of the house and investing some of that in our consumables launch, as well as just putting more dollars behind commerce growth. We see those as major avenues of growth while we bring the DTC business to stability over the next 12 months.
That makes sense. Let's dive into some of the specifics of your direct-to-consumer business. As you just alluded to, that business has been under pressure with consumer spending and more recently with tariffs. I guess, talk about how tariffs are impacting your business and what are some of the initiatives that you are taking to mitigate some of those impacts.
Yeah, sure. As context, roughly 70% of our product mix is toys. At the start of this fiscal year, virtually all of those were sourced from China. Go back to February, the tariffs went up 10%. Through April, they went as high as 145% and then came down to 30% as they are right now. We always had the viewpoint of diversifying manufacturing. What the tariffs did was accelerate that process. As we speak now, we're sourcing products from outside of China. We'll start shipping some of that product to customers during the second half of the year. By the end of the fiscal year, we'll have the capability to manufacture all of our toys outside of China. They'll be in Asia Pac. They'll be in South America.
That will give us a lot more flexibility because you just don't know which way the tariffs are going to go going forward. You can just basically align your cost structure to whatever's the most advantageous structure. Aside from tariffs, I'd say the other big headwind we saw coming into this year was USPS increased their last-mile delivery charges. We saw significant increases pass through to us from our incumbent partner, which was UPS, in terms of our direct-to-consumer shipment packages. I'm really pleased to announce that we've just signed an agreement with Amazon with their Ship With Amazon, or SWA, service. Our packages will now ship with Amazon's parcels to the customer's door. Importantly, we're the first national commercial partner that Amazon's partnering with. That's fantastic to see. We feel really good about the strategic partnership we have with Amazon. It's focused on service.
We'll be able to ship our parcels faster. Customers will have more visibility in the supply chain where their packages are. Our costs will come down. You'll see elevated costs in the first half of the year because of the rate hikes. You'll start seeing that correcting and improving on even the F 2025 levels as we exit the year. Super excited about those two mitigation actions that we're taking.
That's great. Is there any way you can maybe help investors think about the impact of this sort of your new shipping partner as we look at the second half of the year?
Yeah.
Into six.
If you look at our shipping and fulfillment costs, you'll see them higher in the first half of the year. You saw Q1 levels. They'll probably continue into Q2. As you get into Q3 and Q4, you'll see triple basis points improvements in our shipping and fulfillment costs in Q3 and Q4 as a result of this.
Nice.
That's major for us.
Perfect. On your earnings call last week, you highlighted encouraging trends in subscriber acquisition and retention despite lower marketing spend. Can you maybe just talk about what's driving that, how sustainable is that, and just sort of how should investors think about that dynamic going forward?
Yeah, back to what I was saying earlier on, we're dialing back our marketing support on the DTC business primarily because we want to make sure that the business remains EBITDA positive. Secondly, we're reallocating those dollars to commerce and air, but primarily commerce. In relation to this year, media is going to be lower on DTC. The other piece is we're going to reduce the number of promos that we're going to run. What we find is promotions tend to attract discount-led customers who churn a lot faster. They'll come in, they'll take advantage of the promotion, and then they'll churn out the following couple of months. Our focus is coming into the year, lower spend on DTC. That'll impact the level of new subs we bring on, and therefore we'll have an impact on our DTC revenues during the course of this year.
We expect that to stabilize as we exit the year and go into next year. With those marketing dollars, it's then shift them into the consumables launch. I mean, this is the first time we're going to have a consumables brand with consistent branding, a strong suite of products, retail-ready packaging, and shelf-friendly. We want to make sure that we divert the appropriate investment behind that growth. In addition, on commerce, we've got growth opportunities both in brick-and-mortar in toys. We've also got that in consumables as well, obviously, and then internationally. I want to make sure where we've got white space, we move dollars there to support that growth.
Got it. Is it fair to say that the quality of your subscriber base is getting sort of stronger? The LTV of your current subscribers is sort of increasing?
Yeah, that's a good point. What we saw in Q1, even though we were expecting reduced subscribers compared to historic levels, subscribers came in higher than our expectations. Part of that is driven by just a number of things, right? Our ad creative has just improved significantly. We're using AI to drive some of our ad turnaround and creative, and that's just given us more iterations to try new stuff quicker on Shopify. We've improved our funnel, and our landing pages, if you go on our site, are significantly better than it was before. That whole consumer experience is a lot stronger. You're seeing that play out in terms of, for example, customers are now subscribing to our more premium product, the Super Chewer. In Q1 last year, a third of new subscribers came into the Super Chewer product line. This year it was two-thirds.
That's going to drive AOV performance going forward. From a retention perspective, having fewer promo-led new subscribers is going to help you improve your retention. We've also just driven a ton of refinements in conjunction with Shopify. Certain functionality we had in the legacy world, you're now bringing that into Shopify. It's taken a few months to put that in place. Both of those are driving retention improvements as well.
With the Shopify transition now complete, what does that mean for the cross-sell opportunity? Also, talk about any marketing efficiency as a result of that.
Yeah, we expect cross-sell and marketing efficiencies to improve, you know, in short. You went from, if any of you were customers of BARK.com, there were four or five different platforms. If you wanted to buy a basic BarkBox product, a Superchur product, a food product, dental product, you went to different websites, different logins, different carts to check out. We really were not enhancing our cross-sell opportunity. Under Shopify, like I said, it's a unified platform. It's modern. It's agile. All your products are accessible when you go with the one sign-in, one cart, and you can exit. That will enhance our ability to cross-sell. Shopify also gives you access to things like Apple Pay, ShopPay, things that we did not have access to before. They reduce payment friction, and that should drive improved conversion as well. Those things are just going to be tailwinds.
I think the unified branding on the consumable side, the look, feel, the focus that we're going to have, and there's going to be a greater focus to push that to existing customers as well as new subscribers. That's going to drive the upsell and AOV.
Let's switch gears here and talk about your commerce business, which has been sort of a key strategic focus for the company. Maybe talk about your current retail partner network and sort of what are your plans for expanding that business even further. I should say you delivered pretty nice growth there in last quarter.
Yeah.
Yeah, it grew like 50% year- over- year.
Q1 we grew 50% year- over- year. We've been working in the commerce space for the last five or so years. It's predominantly focused on toys. 95% plus of the revenue is based on toys. We work with all the major retailers: Walmart, Target, Costco, PetSmart, Petco. We're in over $50,000 doors. We've recently shifted and dialed up our focus also on e-tailers as well. Amazon and Chewy, we're available there as well. The ability to continue to grow toys distribution is still large. Just to give you a sense, Walmart has 20% share of toys, pet toys in Nielsen data. We have 3% share at Walmart. We should be significantly more than that. We should be double-digit shares. There's a lot of runway for growth just across the board with retailers just on toys.
With the consumables categories that we're going into, the addressable market in those between premium dry kibble, treats, toppers, dental, and supplements, that's north of $20 billion. Toys is about $3bilion- $4 billion. You're just accessing a much bigger TAM. I think just with the focus that we have, the innovation pipeline that we have coming along with that, the growth opportunities in commerce are going to be huge for consumables as well.
You mentioned Amazon and Chewy. Are there any other sort of e-commerce platforms that you think might be a good fit for your product?
Yeah, like I was saying, up until recently, we had not focused on e-tailers much at all. For example, we traded with Chewy for the first time in June last year. We launched with 30 SKUs. As of now, we have over 200 SKUs with them. The feedback we get from Chewy is that we have delivered revenues beyond their expectations, and they see a huge runway for growth for us. That's really positive. Amazon, we dabbled with Amazon is the best way to put it. We tried different products but not a real well-thought-out price assortment strategy with the right level of marketing support to drive the reviews that you need. Last year, we did that switch, major focus. Our revenues grew on Amazon by 80% last year, and we're seeing strong growth going into this year. We also launched into Amazon Europe as well last year.
A really good early start there. Other online partners that we have, they're the websites of our brick-and-mortar customers, walmart.com, for example. They're great growth opportunities. We're obviously looking at TikTok Shop as well. Just an area that we have totally under-indexed and focused on before, massive runway for us to grow there.
Got it. That makes sense. In consumables, it feels like everyone is excited about your launch, BARK in the Belly. Can you maybe talk about those products and where you anticipate launching them initially?
Yeah, if you went online today and went to bark.co, you'll be able to see our consumables. The thing you'll notice is you'd think they'd launch from about six or seven different companies. Each product line has different branding. There's no commonality in messaging, look, or feel on these products. We've spent the last year plus working on the BARK in the Belly brand, and that's going to launch in August. Effectively, what you're going to see is you'll know our treats and our kibble are from the same company as you will with the dental products and so on. That consistent branding is just going to give a halo if you're marketing behind one of the product lines. That's going to be a halo across the board, and you get far better marketing efficiencies.
In terms of the launch schedule, August on our site, DTC, by the end of this calendar year, we'll be with Amazon and Chewy. As brick-and-mortar retailers do their shelf resells, we expect to get, during calendar 2026, distribution throughout the course of the year. In terms of the product lines, as I said, kibble, treats, toppers, dental, and supplements, big TAM markets for us to play in.
Exciting.
Yeah, very.
Let's talk about financials next. If we assume the current tariff backdrop sort of continues here in the near term, although you outlined some of the sort of steps that you're taking to diversify your business, more broadly, how should we think about your business sort of stabilizing and returning to growth on a consolidated basis?
Yeah, as I said before, really pleased with delivering the EBITDA positive in fiscal 2025. One of our stated priorities is to stay EBITDA positive moving forward and continue to grow that and become cash flow generative and go from strength to strength. In terms of strategy, it's pretty much near-term, we're going to be sensible with our marketing dollars. We're not going to overinvest on the DTC side. That will have a near-term revenue impact on DTC, like I said, for this fiscal year. It's repurposing those dollars onto commerce and the consumables launch where we see a ton of opportunity for growth. That's the shape we see this year.
As I think about growth from a top-line perspective, I think as you go into fiscal 2027, it's obviously too early to guide or anything, but we believe with the channel dynamics we have with the consumables launch, we should be, it's reasonable to assume that we'd be returning to top-line growth.
Got it. That makes sense. Let's dive a little bit deeper into your thoughts around maintaining your profitability. What are some puts and takes when it comes to maintaining your profitability? I guess, what are some levers that you can scale up or down if top-line remains pressured in the near term?
Yeah, I mean, from a revenue perspective or margin perspective, Q1, we delivered on DTC, we delivered 69% gross margin. That was a record gross margin quarter for us on the DTC side. We expect those margins to remain healthy going forward. Commerce grew strong in the quarter. We expect commerce to continue to deliver 25%- 30% growth this year on the top line. In the second half of this year, we'll get the benefit of a price increase that we executed in commerce as well. That's already been shared with retailers, and that will just progressively be a tailwind from a top line and bottom line in the second half of the year. The manufacturing footprint diversification will increasingly give us flexibility to navigate the tariff headwind. We've got a number of productivity initiatives that are in flight.
For example, we've moved as of July from boxes to bags in terms of our DTC products. The biggest reason for that is to reduce costs and avoid passing on some of the tariff headwinds to our DTC customers. All of those initiatives kick in. Some supplier contract negotiations, those benefits will flow in in the second half of the year. You've got the Amazon contract. Marketing will be reducing our spend year- over year by 20%- 25%. That's part of the hedge. G&A was a strong performance in Q1. That's just part of a continuation of a trend that we've seen over the last two to three years. We still have areas that we can drive further improvement there. There's a number of levers that we can pull if the top line isn't quite where we've expected it to be.
Got it. I want to ask you about some of the strategic initiatives. I feel like a lot of investors have been wondering about this. With shares under pressure, given tariffs and a new strategy, how are you thinking about maybe fielding any M&A inquiries? Is that something that the management team and the board are open to?
Yeah, I mean, the first important point to note is insiders have a significant stake in terms of shareholding in the company. Insiders are aligned to our shareholders in terms of any go-forward strategy around M&A. We think our share price is completely undervalued relative to the long-term fundamentals of the business. We think today's share price is a reflection of the tariff noise. There's an element to some extent of you've shifted your strategy. Now show me that you're going to deliver to it. I think those dynamics are impacting the share price. If the right partner comes along with an attractive offer, management and the board would consider it. Given our revenue profile, our strong position in a number of channels, the consumables launch, we've got access to all that first-party data, a strong brand with a large presence in social media as well.
We think that we're a very attractive asset right now at the current share price.
Yeah, yeah, that makes sense. I want to pause here and see if there are any questions from the audience. We have a minute or so left. Maybe just let's touch on your capital allocation sort of framework here in the near term. You've been buying back shares. Sort of what's the right sort of use of cash here for the company in the near term?
Yeah, we've bought back over the last 18 months 17 million shares at around $26 million use of cash. We've got a convertible note that matures in December. It's around $44 million. We ended Q1 with $85 million cash on hand. The aim is to pay down that debt, renew the line of credit that we have. The convertible does have some limitations in the amount of shares that you can buy back in any calendar year. We're looking at alternatives that will give us a bit more flexibility around capital allocation.
Got it. That makes sense. Just to wrap up, if you look at your business overall, let's say over the next one, two, three years, what are you most excited about?
We're starting off from a foundation of really healthy financials and a solid overall cost structure. With the revenue diversification that we're talking about, both from a channel perspective and product line perspective, coupled with the more flexible supply chain that we're putting in place, continuing to improve the cost structure with the Amazon contract and on G&A and so forth, I think you're looking at a business over the next two to three years that's going to have an increasingly healthier financial profile, deliver stronger profitability, and stronger cash flow generation.
Got it.
I'm super excited about the next two to three years.
Perfect. With that, we are out of time. Zahir, thank you so much for joining us today.
Thank you, Zahir.