Bark Inc

Previous wording

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto for the year ended March 31, 2024 contained in the Annual Report on Form 10-K filed with the SEC on June 3, 2024. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, “the Company” and “BARK” are intended to mean the business and operations of BARK, Inc. and its subsidiaries. The unaudited condensed consolidated financial statements for the three months ended June 30, 2024 and 2023, respectively, present the financial position and results of operations of BARK, Inc. and its wholly-owned subsidiaries.

Current wording

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto for the year ended March 31, 2024 contained in the Annual Report on Form 10-K filed with the SEC on June 3, 2024. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, “the Company” and “BARK” are intended to mean the business and operations of BARK, Inc. and its subsidiaries. The unaudited condensed consolidated financial statements for the three and six months ended September 30, 2024 and 2023, respectively, present the financial position and results of operations of BARK, Inc. and its wholly-owned subsidiaries.

Previous wording

In the past, we have experienced increases in inbound freight costs due to the challenges in the import market, as transpacific ships and trade lanes were overburdened with volume and experienced a significant shortage of equipment and capacity due to macroeconomic challenges affecting the global supply chain, such as the COVID-19 pandemic, inflation and wars, armed conflicts or rising geopolitical tensions. Increases in freight costs and supply chain disruptions that would impact our business could be created or driven by market factors or international events, such as a global pandemic or other disruptions or disasters, inflation, war in the Middle East and the Ukraine and rising tensions between the U.S. and China.

Current wording

In the past, we have experienced increases in inbound freight costs due to the challenges in the import market, as transpacific ships and trade lanes were overburdened with volume and experienced a significant shortage of equipment and capacity due to macroeconomic challenges affecting the global supply chain, such as the COVID-19 pandemic, inflation and wars, armed conflicts or rising geopolitical tensions. Increases in freight costs and supply chain disruptions that would impact our business could be created or driven by market factors or international events, such as a global pandemic or other disruptions or disasters, severe weather events, inflation, war in the Middle East and the Ukraine and rising tensions between the U.S. and China.

Previous wording

Toys & Accessories (“toys”)—The majority of our revenue in the toys category is derived from BarkBox and Super Chewer, which are subscription products that feature monthly themed boxes of premium-quality BARK toys and treats that are delivered directly to a dog’s home. Customers have the option to subscribe to these products on monthly, six month, or annual basis. Subscription revenue is recognized at a point in time as control is transferred to the subscriber upon delivery of each monthly box. During the life of their subscription, we offer customers incremental products via Add to Box (“ATB”), which enables us to cross-sell customers into our full portfolio of products, including kibble, treats, toppers, dental and more. ATB revenue is recognized at a point in time as control is transferred to the customer upon delivery of goods to the subscriber.

Current wording

Toys & Accessories (“toys”)—The majority of our revenue in the toys category is derived from BarkBox and Super Chewer, which are subscription products that feature monthly themed boxes of premium-quality BARK toys and treats that are delivered directly to a dog’s home. Customers have the option to subscribe to these products on a monthly, six month, or annual basis. Subscription revenue is recognized at a point in time as control is transferred to the subscriber upon delivery of each monthly box. During the life of their subscription, we offer customers incremental products via Add to Box (“ATB”), which enables us to cross-sell customers into our full portfolio of products, including kibble, treats, toppers, dental and more. ATB revenue is recognized at a point in time as control is transferred to the customer upon delivery of goods to the subscriber.

Previous wording

Direct to Consumer revenue decreasedby $4.8 million, or 4.3%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This decrease was primarily driven by a 3.3%, or 0.1 million decrease in Total Orders, in addition toa$0.49, or 1.6% decrease in AOV.

Current wording

Direct to Consumer revenue decreasedby $1.7 million, or 1.6%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease was primarily driven by a 2.7%, or 0.1 million decrease in Total Orders, and a $0.12 or 0.4% decrease in AOV, partially offset by revenue from BARK Air of $1.5 million.

Previous wording

Commerce revenue increased by$0.4 million, or 5.2% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase was primarily driven by sales volume from existing and new customers.

Current wording

Commerce revenue increased by$4.8 million, or 25.6% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily driven by sales volume from existing and new customers.

Previous wording

Direct to Consumer gross profit decreased by$0.6 million while Commerce gross profit increased by $0.8 millionfor the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease in Direct to Consumer gross profit is primarily attributable to a decrease in revenue. The increase in Commerce gross profit is primarily attributable an increase in revenue and inbound freight and product cost improvements.

Current wording

Direct to Consumer gross profit decreased by$2.2 million while Commerce gross profit increased by $2.6 millionfor the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease in Direct to Consumer gross profit is primarily attributable to a decrease in revenue. The increase in Commerce gross profit is primarily attributable an increase in revenue and inbound freight and product cost improvements.

Previous wording

Total general and administrative expense decreased by $6.0 million, or 8.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This decrease during the period was primarily due to a decrease in shipping and fulfillment expense of $1.8 million due to lower volumes and lower rates from vendor consolidation, decreased compensation expense of $2.1 million due to a decrease in headcount in line with our cost reduction initiatives, and a release of an accrual for sales and use tax of $1.3 million due to a statute of limitations expiration. The remaining decrease in general and administrative costs is due to a reduction in rent, office expenses, other expenses.

Current wording

Total general and administrative expense decreased by $5.8 million, or 8.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This decrease during the period was primarily due to a decrease in compensation expense of $2.5 million due to a decrease in headcount in line with our cost reduction initiatives, and decreased impairment expense of $1.6 million. The remaining decrease in general and administrative costs is due to a reduction in rent, office expenses, and other expenses.

Previous wording

Advertising and marketing expense increased by $2.8 million, or 16.0%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase is primarily attributable to marketing spend.

Current wording

Advertising and marketing expense increased by $0.9 million, or 4.8%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase is primarily attributable to marketing spend.

Previous wording

Other (expense) income, net decreased by $1.8 millionfor the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase in other expense was primarily due to fair value changes of our warrant liabilities of $1.7 million.

Current wording

Other (expense) income, net decreased by $0.4 millionfor the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in other expense was primarily due to fair value changes of our warrant liabilities of $0.7 million, offset by sublease income.

Previous wording

Gross profit as a percentage of revenue increased 2.5% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Direct to Consumer gross margin was 64.5%, 230 basis points higher than the same period last year and Commerce gross margin was 46.5%, 680 basis points higher than the same period last year. The increase in gross margin is primarily attributable to inbound freight and product cost improvements.

Current wording

Gross profit as a percentage of revenue increased 60 basis points for the six months ended September 30, 2024 compared to the six months ended September 30, 2023. Direct to Consumer gross margin was 64.2%, 70 basis points higher and Commerce gross margin was 45.5%, 390 basis points higher than the same period last year, respectively. When excluding the impact of BARK Air, Direct to Consumer gross margin increased 140 basis points compared to the same period last year. The increase in gross margin is primarily attributable to lower inbound freight and product cost improvements.

Previous wording

Interest income decreased by $0.7 million, or 30.8%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease in interest income is due to an overall decrease in cash in interest-bearing deposit accounts in line with the deployment of cash for the partial debt repayment of $44.4 million during the fiscal third quarter ended December 31, 2023 and share buybacks of $10.5 million as part of the share repurchase program which began during the fiscal second quarter ended September 30, 2023.

Current wording

Interest income decreased by $1.3 million for the six months ended September 30, 2024 compared to the six months September 30, 2023. The decrease in interest income is due to an overall decrease in cash in interest-bearing deposit accounts in line with the deployment of cash for the partial debt repayment of $44.4 million during the fiscal third quarter ended December 31, 2023 and share repurchases of $11.4 million as part of the share repurchase program which began during the fiscal second quarter ended September 30, 2023.

Previous wording

We report our financial results in accordance with U.S. GAAP. However, management believes that Adjusted Net Loss, Adjusted Net Loss Margin, Adjusted Net Loss Per Common Share, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, all non-GAAP financial measures (together the “Non-GAAP Measures”), provide investors with additional useful information in evaluating our performance.

Current wording

We report our financial results in accordance with U.S. GAAP. However, management believes that Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin, Adjusted Net Income (Loss) Per Common Share, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, all non-GAAP financial measures (together the “Non-GAAP Measures”), provide investors with additional useful information in evaluating our performance.

Previous wording

We calculate Adjusted Net Loss as net loss, adjusted to exclude: (1) stock-based compensation expense, (2) change in fair value of warrants and derivatives, (3) sales and use tax income, (4) restructuring charges related to reduction in force payments, (5) litigation expenses, (6) warehouse restructuring costs, (7) non-cash impairment of previously capitalized software, (8) technology modernization costs, and (9) other items (as defined below).

Current wording

We calculate Adjusted Net Income (Loss) as net loss, adjusted to exclude: (1) stock-based compensation expense, (2) change in fair value of warrants and derivatives, (3) sales and use tax income, (4) restructuring charges related to reduction in force payments, (5) litigation expenses, (6) warehouse restructuring costs, (7) non-cash impairment of previously capitalized software and cloud computing implementation costs, (8) technology modernization costs, and (9) other items (as defined below).

Previous wording

We calculate Adjusted Net Loss Margin by dividing Adjusted Net Loss for the period by Revenue for the period.

Current wording

We calculate Adjusted Net Income (Loss) Margin by dividing Adjusted Net Income (Loss) for the period by Revenue for the period.

Previous wording

We calculate Adjusted Net Loss Per Common Share by dividing Adjusted Net Loss for the period by weighted average common shares used to compute net loss per share attributable to common stockholders for the period.

Current wording

We calculate Adjusted Net Income (Loss) Per Common Share by dividing Adjusted Net Income (Loss) for the period by weighted average common shares used to compute net income (loss) per share attributable to common stockholders for the period.

Previous wording

We calculate Adjusted EBITDA as net loss, adjusted to exclude: (1) interest income, (2) interest expense, (3) depreciation and amortization, (4) stock-based compensation expense, (5) change in fair value of warrants and derivatives, (6) capitalized cloud computing amortization, (7) sales and use tax income, (8) restructuring charges related to reduction in force payments, (9) litigation expenses, (10) warehouse restructuring costs, (11) non-cash impairment of previously capitalized software, (12) technology modernization costs, and (13) other items (as defined below).

Current wording

We calculate Adjusted EBITDA as net loss, adjusted to exclude: (1) interest income, (2) interest expense, (3) depreciation and amortization, (4) stock-based compensation expense, (5) change in fair value of warrants and derivatives, (6) capitalized cloud computing amortization, (7) sales and use tax income, (8) restructuring charges related to reduction in force payments, (9) litigation expenses, (10) warehouse restructuring costs, (11) non-cash impairment of previously capitalized software and cloud computing implementation costs, (12) technology modernization costs, and (13) other items (as defined below).

Previous wording

The following table presents a reconciliation of Adjusted Net Loss to Net loss, the most directly comparable financial measure stated in accordance with U.S. GAAP, and the calculation of net loss margin, Adjusted Net Loss Margin and Adjusted Net Loss Per Common Share for the periods presented:

Current wording

The following table presents a reconciliation of Adjusted Net Income (Loss) to Net loss, the most directly comparable financial measure stated in accordance with U.S. GAAP, and the calculation of net loss margin, Adjusted Net Income (Loss) Margin and Adjusted Net Income (Loss) Per Common Share for the periods presented:

Previous wording

(4) For the three months ended June 30, 2024, other items is primarily comprised of the expense related to non-recurring retention payments to management of $0.2 million, executive transition costs including recruiting costs of $0.4 million, costs associated with the share repurchase program of $0.2 million, and duplicate headquarters rent of less than $0.1 million. For the three months ended June 30, 2023, other items is comprised of executive transition costs including recruiting costs of $0.1 million, and duplicate headquarters rent of less than $0.1 million.

Current wording

(4) For the three months ended September 30, 2024, other items is comprised of executive transition costs including recruiting costs of less than $0.1 million, costs associated with the share repurchase program of less than $0.1 million, and duplicate headquarters rent of less than $0.1 million. For the three months ended September 30, 2023, other items is comprised of executive transition costs including recruiting costs of $0.4 million and non-recurring retention payments to management of $0.4 million. For the six months ended September 30, 2024, other items is comprised of executive transition costs including recruiting costs of $0.4 million, non-recurring retention payments to management of $0.2 million, costs associated with the share repurchase program of $0.2 million, and duplicate headquarters rent of less than $0.1 million. For the six months ended September 30, 2023, other items is comprised of non-recurring retention payments to management of $0.6 million, executive transition costs including recruiting costs of $0.4 million, and duplicate headquarters rent of less than $0.1 million.

Previous wording

Since inception, we have funded our operations with proceeds from sales of our capital stock and proceeds from borrowings in addition to cash generated by our operations. As of June 30, 2024, we had cash and cash equivalents of approximately $117.8 million. We expect that our cash and cash equivalents, together with cash provided by our operating activities and proceeds from borrowings (as defined below), will be sufficient to fund our operations for at least the next 12 months. We are required to comply with certain financial and non-financial covenants related to our borrowing agreements, which we expect to be in compliance with during the next 12 months. Our future capital requirements will depend on many factors, including our pace of new and existing customer growth and our investments in partnerships and unexplored channels. We may be required to seek additional equity or debt financing.

Current wording

Since inception, we have funded our operations with proceeds from sales of our capital stock and proceeds from borrowings in addition to cash generated by our operations. As of September 30, 2024, we had cash and cash equivalents of approximately $115.2 million. We expect that our cash and cash equivalents, together with cash provided by our operating activities and proceeds from borrowings (as defined below), will be sufficient to fund our operations for at least the next 12 months. We are required to comply with certain financial and non-financial covenants related to our borrowing agreements, which we expect to be in compliance with during the next 12 months. Our future capital requirements will depend on many factors, including our pace of new and existing customer growth and our investments in partnerships and unexplored channels. We may be required to seek additional equity or debt financing.

Previous wording

In October 2017, the Company entered into a loan and security agreement with and issued a warrant to purchase preferred stock (“Initial Western Alliance Warrant”) to Western Alliance Bank (“Western Alliance”), which provide for a revolving line of credit (as amended, the “Credit Facility”) in an aggregate principal amount of up to $35.0 million, subject to borrowing base limitations derived from advance rates derived from the Company’s eligible subscription revenues and eligible accounts receivable. The Credit Facility has been amended several times, most recently in December 2023. After giving effect to this most recent amendment, the maturity date of the Credit Facility is December 13, 2024. Certain of the Company’s obligations to Western Alliance and under the Credit Facility are guaranteed by certain of its subsidiaries and secured by substantially all of their assets.

Current wording

In October 2017, the Company entered into a loan and security agreement with and issued a warrant to purchase preferred stock (“Initial Western Alliance Warrant”) to Western Alliance Bank (“Western Alliance”), which provide for a revolving line of credit (as amended, the “Credit Facility”) in an aggregate principal amount of up to $35.0 million, subject to borrowing base limitations derived from advance rates derived from the Company’s eligible subscription revenues and eligible accounts receivable. The Credit Facility has been amended several times, most recently in December 2023. After giving effect to this most recent amendment, the maturity date of the Credit Facility is December 13, 2024. Certain of the Company’s obligations to Western Alliance and under the Credit Facility are guaranteed by certain of its subsidiaries and secured by substantially all of their assets. The Company is evaluating alternative options or further renewal of the Credit Facility.

Previous wording

The following table summarizes our cash flows for the three months ended June 30, 2024 and 2023:

Current wording

The following table summarizes our cash flows for the six months ended September 30, 2024 and 2023:

Previous wording

For the three months ended June 30, 2024, net cash provided by operating activities was $1.8 million. The $1.8 million of net cash provided by operating activities consisted of net loss of $10.0 million adjusted for non-cash charges totaling$9.3 million and a net increase of $2.5 million in our net operating assets and liabilities. The non-cash charges primarily consisted of $0.4 million for changes in fair value of warrants,$2.9 million for stock based compensation, impairment of $0.8 million, and depreciation and amortization of $2.9 million, and increase in inventory reserves of $1.2 million. The increase in our net operating assets and liabilities was primarily driven by higher accounts payable and accrued expenses of $2.4 million and a reduction in inventory of $2.5 million, offset by a reduction in other liabilities of $1.6 million.

Current wording

For the six months ended September 30, 2024, net cash provided by operating activities was $4.6 million. The $4.6 million of net cash provided by operating activities consisted of net loss of $15.3 million adjusted for non-cash charges totaling$18.7 million and a net increase of $1.2 million in our net operating assets and liabilities. The non-cash charges primarily consisted of $0.9 million for changes in fair value of warrants,$5.9 million for stock based compensation, impairment of $2.1 million, depreciation and amortization of $5.7 million, and increase in the provision for inventory obsolescence of $1.4 million. The increase in our net operating assets and liabilities was primarily driven by higher accounts payable and accrued expenses of $22.9 million, offset by and an increase in inventory of $5.6 million and an increase in accounts receivable of $9.2 million.

Previous wording

For the three months ended June 30, 2023, net cash used in operating activities was $10.7 million. The $10.7 million of net cash used in operating activities consisted of net loss of $11.7 million adjusted for non-cash charges totaling$6.6 million and a net decrease of $5.7 million in our net operating assets and liabilities. The non-cash charges primarily consisted of $1.3 million for changes in fair value of warrants,$3.2 million for stock based compensation, and $2.9 million for depreciation and amortization. The decrease in our net operating assets and liabilities was primarily driven by a reduction accounts payable and accrued expenses of $14.8 million related to the timing of payments offset by a reduction of inventory of $11.3 million.

Current wording

For the six months ended September 30, 2023, net cash used in operating activities was $7.9 million. The $7.9 million of net cash used in operating activities consisted of net loss of $22.0 million adjusted for non-cash charges totaling $17.9 million and a net increase of $3.8 million in our net operating assets and liabilities. The non-cash charges primarily consisted of $1.4 million for changes in fair value of warrants, $6.9 million for stock based compensation, impairment of $3.0 million and $5.9 million for depreciation and amortization. The decrease in our net operating assets and liabilities was primarily driven by a reduction accounts payable of $6.4 million related to lower inventory purchases and lower general and administrative expense offset by a reduction of inventory of $14.1 million.

Previous wording

For the three months ended June 30, 2024 and 2023, net cash used in investing activities was $2.0 million and $3.0 million, respectively, primarily due to software development costs and capital expenditures.

Current wording

For the six months ended September 30, 2024 and 2023, net cash used in investing activities was $3.9 million and $4.9 million, respectively, primarily due to software development costs and capital expenditures.

Previous wording

For the three months ended June 30, 2024, net cash used in financing activities was $4.3 million, primarily due to payments to repurchase common stock.

Current wording

For the six months ended September 30, 2024, net cash used in financing activities was $6.5 million, primarily due to payments to repurchase common stock.

Previous wording

For the three months ended June 30, 2023, net cash used in financing activities was $0.2 million, primarily due to tax payments related to the issuance of common stock, offset by proceeds from the issuance of common stock under the ESPP plan.

Current wording

For the six months ended September 30, 2023, net cash used in financing activities was $4.7 million, primarily due to payments to repurchase common stock of $4.1 million, offset by proceeds from the issuance of common stock under the ESPP plan.