Good evening. Thank you for attending today's BARK's Second Quarter Fiscal Year 2023 Earnings Call. My name is Megan, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Mike Mougias, the Vice President of Investor Relations. Mike, please go ahead.

Good afternoon, everyone, and welcome to BARK's second quarter fiscal year 2023 earnings call. Joining me today are Matt Meeker, Co-Founder and CEO; and Howard Yeaton, Interim CFO. Today's conference call is being webcast in its entirety on our website and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company's financial results was issued this afternoon and can be found on our Investor Relations website. Before I pass it over to Matt, I would like to remind you of the following information regarding forward-looking statements. The statements made on today's call are based on management's current expectations and are subject to risks and uncertainties that could cause actual future results and outcomes to differ. Please refer to our SEC filings for more information on some of the factors that could affect our future results and outcomes. Also during today's call, we will discuss certain non-GAAP financial measures. Reconciliations to our non-GAAP financial measures is contained in this afternoon's press release. And with that, let me now pass it over to Matt.

Thanks, Mike, and good afternoon, everyone. Our results last quarter highlight the significant progress we continue to make driving towards profitability and becoming cash flow positive. We delivered our strongest revenue quarter ever and our best adjusted EBITDA margin as a public company. Total revenue in the fiscal second quarter was $143.8 million, a 20% improvement compared to the same period last year. Our healthy top line performance, coupled with continued cost efficiencies resulted in an adjusted EBITDA loss of $2 million, a $6.8 million improvement compared to the same period last year, an $11 million improvement from the previous quarter and $6 million ahead of our guidance for the quarter. We are thrilled with these results. And while we still have work to do, we are raising our full year adjusted EBITDA guidance for the second quarter in a row to negative $31 million. Before we discuss our guidance and strategic initiatives in more detail, let me provide some additional color on the drivers of our strong second quarter results. We added 218,000 new subscriptions last quarter ending the period with 2.2 million active subscriptions, and we continue to acquire those new customers efficiently. Our customer acquisition cost came in at $53.19, largely in line with our multiyear historical average, if the customers we are currently acquiring are spending more and shopping across multiple categories. Our average order value was $32.18, a $2.45 increase year-over-year and a $1.11 increase compared to our fiscal Q1. This is exactly what we meant when we said we are aiming to transform our customer base and our strategy is working better than expected. Overall, total revenue was $143.8 million, up 20% compared to last year, and roughly $9 million ahead of our guidance for the quarter. Another key driver to our strong performance…

Thanks, Matt, and good afternoon, everyone. Our business has remained incredibly resilient through the first half of fiscal 2023 and we've made tangible progress across each of the key initiatives we laid out at the beginning of the fiscal year. Compared to last year, our average order value grew by $2.45, our operating margin improved by 7 points and we reduced our cash burn significantly. These are all important milestones and big steps toward reaching profitability and becoming cash flow positive. Let me take you through our fiscal second quarter results in more detail. Total revenue increased 20% year-over-year to $143.8 million. As Matt mentioned, we saw a pull forward of certain commerce revenue as several of our retail partners ordered their holiday product earlier than in prior years. This was in large part why we came in nearly $9 million ahead of our revenue guidance for the quarter. Overall, we were encouraged by our retail partners continued support, and this segment remains an important driver of the business. Turning to our direct-to-consumer business. Total revenue increased 10% year-over-year to $117.5 million. Growth in this category was driven by a 1.7% increase in subscription shipments and an 8% increase in average order value per shipment. Turning to margins. Total gross margin was roughly 2 points lower year-over-year. This was largely attributable to our commerce business, representing 18% of total revenue in the most recent quarter as compared to 11% last year. Furthermore, our commerce gross margin came in at 33.2% as compared to 41.7% last year. The year-over-year decrease in commerce gross margin is primarily attributable to seasonal promotions associated with the holidays. If you recall, in fiscal Q3 last year, our commerce gross margin was roughly 36%. Given this year's pull forward, we saw more of the seasonal impact…

Hey, thanks for taking my question. I wanted to ask about your foods and you've expanded the breed specific offerings and added puppy formulations. But maybe you can talk about how much of your customer base are you touching with those four - first 10 formulas? And then just on the point you made about additional outreach. Can you provide any color on where food customers are coming from?

Sure, Corey. Thanks for the question. First, on the first 10 breeds that we've launched with, that is reaching or serving specifically about 30% of the customer base so far. And obviously, as we add more breeds, we'll reach more customers. On the second question, it's still very much an internal to BARK marketing effort. Where we're marketing to our own customers first and not out there buying media against bringing new people into the BARK universe. So leveraging the customers that we're acquiring for - about $53 [ph] in this past quarter through the play side of the business and then presenting food to them, which comparable to other direct-to-consumer food rent is quite a low cost of acquisition.

Got it. Sorry, if I can clarify, where were those customers buying their food previously? And if you have the color, what sort of types of food where they're buying?

Oh, I'm sorry, I misunderstood the question. I don't know where they were necessarily buying their food previously. So I'm not sure I can help you with that one. Sorry about that.

No problem. And then I want to ask just - for my next question, just on the commerce segment and the resiliency of the category. So you saw the timing shifts, the retailers pulled forward orders. Maybe you can talk about holiday order levels relative to your expectations? I mean, have you noticed any change in tone from retailers about the category, just given the pressure on the consumer.

Certainly. Yeah, we have noticed a change in tone. I think we've all heard the same things about retail that the big retail partners out there have - they have a good amount of inventory on hand and they're thinking about how to move those and they're worried about their margins. And so we're in those conversations with them regularly and trying to thread that needle of giving them products that continue to perform really, really well and sell well for them and help them meet their margin goals, and we have to meet our margin goals. So we're trying to be a great partner and have everybody reach the targets. But you definitely feel the tension and pressure more than we have in the past. I will say, I think we've benefited by having those orders pulled forward just given that the pressure is probably increasing on the retail partner. So it's good that we got them out when we did.

That's a great point. Thanks for the color and taking my question.

Thanks, Corey.

Thank you. Our next question comes from the line of Maria Ripps with Canaccord. Your line is now open.

Good afternoon and thanks for taking my questions. First, as we look ahead to 2023 and sort of bearing in mind that a chain profitability is one of your main strategic initiatives. Can you maybe talk about how you're thinking about the cadence of investments throughout the year? And what are some variables that could cause increase or decrease your investments?

Sure. I mean, when we look into the future, the quarter we're in right now is our traditional holiday quarter, especially on the direct-to-consumer side, where the big investment, as we discussed on the call was, it's always in marketing and acquiring a lot of subscribers at very good rate, and this year, higher quality subscribers than we've ever seen before. So that's the big investment right now. As we go into the future, get past January 1, where we're really - where we continue to focus, the priorities are on, first, generating positive cash flow. And we feel we can do that fairly soon. Second is then EBITDA positive. And obviously, being EBITDA positive mix generating cash flow - positive cash flow easier. And then third, generating revenue growth. But definitely in that order, we have to be growing from a foundation of solid unit economics and a profitable, healthy business that's generating cash on a consistent basis. So the priority is there. So what that means is what we're looking at for the future generally is leveraging the areas and the assets that we have on hand and how do we best put those to work next year. So let's take an example that we're talking about here. We talked about $166 million of cash on the balance sheet, $161 million of inventory. And for those not familiar with how our business works, we're sending a box of toys and treats every month that is a bit of a surprise to the customer, which gives us a lot of flexibility in what we send to that customer and how we use the inventory we have. That allows us to serve our recurring customer base and every new customer with inventory that's already in the house and has already been paid for. So that generate cash. On top of that, we have the opportunity to package those products up and take them to retail partners, as I just described and give them greatest assortments that haven't been on their shelves before and work with them on the margin [ph] side, again, to generate positive cash flow. So we're looking at opportunities of leveraging the assets that we have and meeting the times as they are to get to, again, positive cash flow and then investing in being more and more and more efficient all the way through the business, how we work together, how we're organized as a team, our relationships with our vendors, our shipping and fulfillment providers. Every point within there is critical for us to get into that EBITDA positive. And then from that foundation, there are a lot of fun ideas in terms of how do we grow revenue beyond that next year and in the future, but it's got to come as the third priority on that list.

Got it. That's very helpful. And if I could ask one more. Can you maybe just talk about the sequential progression of net subscriptions in the quarter? Sort of any color in terms of what drove this modest decline in net additions? And how should we think about this going forward? Thank you very much.

Thanks, Maria. Yeah, the way we're thinking about it is the same we thought about it when I came back in January, which was in order to have that solid foundation and a profitable, sustainable business ongoing, we needed to change the complexion of our customer, the profile of that customer. And so we talked about through the year, our plan was to probably stay pretty flat on the total number of subscribers we're serving but raise the quality. And so you see that starting to bear out, as the average order value that a customer spent this quarter year-over-year raised by $2.45 versus just last quarter, raising $1.11. So we're getting a bigger lift on that average order value or we're getting it faster than we expected. And we're getting the same performance that we thought we would get in the active subscribers. I would expect that to continue throughout the rest of this year, especially given the macroeconomic environment around us. I'd expect that to remain flat, but that was the plan from the start. We're executing it well. We're executing it actually better than we expected to. So - sorry go...

Back to the first answer, but once we have that solid foundation in place, then we start to think about how do we grow and accelerate that number of total subscribers.

Great. Thank you so much for the answer and good luck for the rest of the quarter.

Thanks, Maria.

Thank you. There no additional questions waiting at this time. So that will conclude the BARK second quarter fiscal year 2023 earnings call. Thank you for your participation. You may now disconnect your lines.