BARK, Inc. (BARK) Earnings Call Transcript & Summary

Matt; James, Chief Supply Chain Officer. James, we thought it would be cool to talk about something new that's happening in the world, in a world of ever-changing dynamics when it comes to supply chains.

Do you want to -- Matt, do you want to frame it a little bit and then maybe James can explain what it is?

I can frame it, James, is the driver and the brains behind it. So I guess the high-level framing is when it comes to our last mile delivery, well, and beyond that, even we have an exciting new partnership with Amazon that will sustain or lower our costs, give us a new revenue expansion opportunity and improve our performance for our direct-to-consumer customers when it comes to their last mile delivery. That's my framing. So James, do you want to talk more about it?

Yes, sure. As you know, Matt, and Henrik, we've had a lot of increased costs recently with UPS, FedEx and other well-established carriers who used the USPS quite a bit for their last mile delivery. The USPS took the decision at the beginning of this year to roll back on some of those agreements. So products like SurePost from UPS. The cost of those products increased significantly and it had a fairly significant impact to us. So what we did, we worked with Amazon. They had a ship with Amazon products that they're offering on a regional basis. We worked with them over a 6- to 9-month period to get them to accept the BARK product into their last mile network. So it's great news for us. We've been able to significantly improve our costs. We improved our transit times from 1 to 3 days for 90% of our customers. So it's a fantastic outcome for us.

And so was this problem something that was just for us? Or was that for everybody doing?

The problem is industry-wide. So there's still a lot of companies out there that have increased costs as a result of USPS pulling away from what they call consolidators like FedEx, UPS and other last mile networks. So as part of our negotiation with Amazon and partnership with Amazon, we've been able to agree with them that under the BARK umbrella, we'll be able to work with select companies or customers that we see have the similar issue. So like costs for last mile have increased 30%, 40% since last year. So it's an industry-wide issue.

And is this something that we're already doing or something that we're planning to do?

It's already up and running, implemented and running very, very well.

So the BARK product is now coming on an Amazon truck?

It's coming on an Amazon truck, yes. And it's coming 7 days a week, which is a great improvement for our customers. Amazon uniquely delivers on a Sunday, which is -- is a big win. Like I said, our on-time delivery has improved. The overall speed of our network has gone from 1 to 3 days depending on metro, non-metro. So it's a significant faster service than what we've experienced before.

And historically, we see a lot of causation between when or how quickly our packages are delivered and how consistently they are to customer retention. So this should be a revenue driver as well as a cost savings.

So is this a little bit way to think about it is in the same way that Amazon kind of made available some of the infrastructure with AWS. They're now making some of their infrastructure and last mile delivery.

Yes. It's exactly. So Amazon has built and continue to build this fantastic network across the United States, sort centers, delivery stations, employing people locally to deliver to households across the U.S. And Amazon is uniquely positioned as a network that delivers the houses, like it wants D2C traffic, its own or others in this case. As opposed to UPS, FedEx, they're pretty much B2B. And if you look at some of their strategies, D2C or delivering to households is not really their core business at all and something that they struggled with over the last 10 years that I've dealt with them directly. The prices fluctuate like every couple of years. You get into agreement, your volume is really important. We ourselves were locked into some long-term agreements with some of these last mile carriers. The market shifts a small bit, their strategy shifts and they start to pull away from D2C. So I'm fairly confident with this partnership with Amazon, like we are putting our volume and our customer promise in with a company that has a network that's nationwide and growing and is dedicated to D2C. So it's a lot stronger for us.

So delivering faster, more days a week for cheaper. What's the catch?

There isn't much -- sometimes we have to realize in BARK that we're shipping over 1.1 million packages per month. We're fairly consistent. Our boxes or poly bags are the same dimensions, pretty much the same weight. It's the same days a week that we ship every month. So like our volume in the network like that is absolutely perfect because they can plan all of their utilization of their trucks, their vans fantastically with our type of volume. So we leverage that, obviously, our strengths when working with Amazon, understanding what they want to try to achieve and what it is that we want to try to achieve both with our own BARK customers and in the future with other customers that we look to serve. It was a perfect fit. It wasn't an easy negotiation, as you can imagine, Henrik, I'd like to negotiate, but it was a good exercise. It was 2 companies that share the same goals coming together. We're quite a significant shipper, not to the same scale as Amazon, but the volumes that we ship are quite impressive. And yes, we got to a deal that I think is really, really good.

And do you think it's too early to talk a little bit about this idea that we'll be helping companies like us getting on this network?

I don't think so. And we're helping companies across their supply chain, not just with last mile, but last mile is significant. But if you think about the problems that supply chains have had over the last couple of years and will continue to have, on tariffs and the inbound and where to source products, how to change factories, how to get it into the country on a reliable transit times. Ocean freight has been a big problem for a number of companies. We have had our own problems with it. Again that guaranteed capacity at a reasonable price, customs clearance, tariffs again, like how to manage those the best way. Fulfillment, East Coast, West Coast, we take it for granted, obviously, with the size of our network that, that's obvious, but it's not an option for a lot of companies. And then ultimately, the last mile, which tends to be the most expensive part of the supply chain journey, getting a good network, a good network partner, and it's not just the execution of delivery, it's the management of Amazon or other partners that you probably need, have been able to coordinate and orchestrate that whole supply chain. It's very costly and it's changing constantly. So what we believe very strongly in that we're developing and continuously developing strong supply chain. So been able to work with companies to help them navigate that is quite significant. We can save costs.

What we've seen over the past 3 to 4 years in our business, too, is that our gross margin and well, our cost of goods and our shipping and fulfillment costs have improved by about or maybe over 900 basis points over that time frame. I don't think coincidental since James joined the company. And so without those, BARK doesn't exist without those improvements over that period of time, we don't exist today. And then you add on the challenge of tariffs, changes with the postal service, all the fun that can be delivered in 1 year to sustain that, push through all of those headwinds and still come out the other side, running towards EBITDA positive for the -- hopefully, for the second year in a row. That's -- for us, it's the difference between we're here or we're not here. And so we're here and now we're EBITDA positive. And James and his team can make that possible for other companies who are facing similar struggles.

That's awesome.

In addition, we've got one more kicker here with the Amazon relationship. Just one more thing.

And if you buy now, there's also...

One more thing. Just because of the strength of the relationship here, we've also -- I don't think it's 100% transitioned, but we've transitioned quite a bit to being an Amazon first-party seller instead of third party, meaning instead of selling through their marketplace, they act more as a retailer, us as a wholesaler, and they take responsibility for selling the products on their platform instead of us taking that responsibility, which is a big change and a significant, I'd say, improvement or deepening of our relationship.