Matt Meeker: Yes. Thanks for that question. And you are right, like the retention is quite strong. And like I just was saying to Maria, the strongest we have seen in some time. And so it is that new customer acquisition that is the greatest challenge we face. We have made very consistent improvements since May. One of the things that holds us back, I would say, from making faster improvement today is the current platform that we are on, our Ruby on Rails platform at barkbox.com carries 12 years of tech debt. It’s incredibly expensive. It’s difficult to optimize. So, that makes it difficult for us to drive conversion improvements and keep it, I would say, current and modern. But that’s exactly why we are really excited about a move to a more modern platform at bark.co, where we have tremendous flexibility to do that.
But for the foreseeable future, consumables is going to be the main driver of our revenue. And like we talked about, we have our first major deal with a retailer there. We expect more in the future and we expect to continue making great progress with bark.co. One thing that we didn’t call out in the call that is out there for you to see is on that progress as we go for consolidation and we go for a more modern platform where you can make those updates and optimizations hourly, if you like, with a very light effort or lift is, we were selling our dental product at barkbright.com. We got to a place where within the bark.co context, we are able to do that more effectively and have a greater lifetime value associated with those customers at a lower cost of acquisition, almost the day that we reached that point.
We have now stopped taking new orders at barkbright.com, and we have moved those customers over onto our new platform. So, once we have achieved that with BarkBox and Super Chewer, we will take the same actions and we are feeling pretty good about where we are in terms of the progress.
Ygal Arounian: Okay. Thanks. For a follow-up, I guess I will ask about the converts being down, the converts and maybe just want to understand very clearly the ambitions here to clean up the capital structure. Given the macro environment is getting more challenging, there is probably less visibility. And you are still kind of targeting free cash flow or EBITDA profitability again back in fourth quarter. But there is less visibility. You spent a fair amount of your cash balance here to do this. So, maybe just why was now the right time to do it? And then how you think about the remaining balance? Is that something you can now just kind of hang on to a little bit longer, closer to maturity and see what happens? But just want to get your thoughts given the challenging macro. Thank you.
Zahir Ibrahim: Sure. So, we talked about it before. We have got excess capital on the balance sheet. We felt really strong and good about our cash position. And as we have posted our third quarter out of the last four in terms of free cash flow, and we have signaled the quarter after next will be the second quarter of the year, that will be positive EBITDA. We are seeing line of sight to more courses of positive free cash flow and profitability in the business. And that level of confidence, the cash balance that we have gives us the flexibility to look at things like this now. The note was going to mature in a couple of years’ time anyway. And we were able to get a fair discount, the 6% discount that we were able to achieve on it allowed us to save close on $3 million on the amount that we paid down.
And on the other side of that, we are going to be saving go-forward interest in excess of $5 million as well. And we still sat here with well over $100 million of cash on the balance sheet. So, given the financial health of the business, the unit economics that we are now performing at and our cash flow performance, we felt very confident about taking the pay-down that we did.
Ygal Arounian: Great. Thank you.
Operator: And we will take our final question from Max Rakhlenko with TD Cowen. Your line is open.
Max Rakhlenko: Great. Thanks a lot for taking my question. So first, can you speak to learnings from conversations with the national retail partner and the confidence that it gives you to grow additional relationships down the road?
Matt Meeker: Hey Max, how are you? So, the conversations, especially as we moved into treats – as you know, we have got relationships with pretty much every major retail partner in the U.S., both in and out of pet. So, you know all the names across 40,000 doors. And we have good partnerships there with them on the toys side. So, especially in treats, the interest there has been more of a pull than a push over the past 12 months to 18 months. I am sharing a quote with you that we use is somewhat of a design spec was we would love for BARK to bring fun to the treat aisle. So, we took that seriously. We took our approach to toys and developed this first line of treats that we are pretty proud of and sold that in the spring or earlier this year.
And we were thrilled with the results. We were thrilled with the reaction. It seemed we hit the spec right on. And we believe that product is going to stand out in a big way. And so, it’s been – I would say it’s collaborative because we treat these retailers as our partners, and we are always listening to their feedback and sharing new learnings of our direct-to-consumer relationships with them and how we might want to enter new categories. So, I would say it’s just a very good partnership. I hope I am answering the question in the spirit you were asking it there.
Max Rakhlenko: Yes, absolutely. That’s helpful. And then as you continue to improve your gross margin, does that change what you think the long-term profile can be as your channel mix thus continues to evolve?
Zahir Ibrahim: Yes. So, I mean we have done a nice job of improving gross margins during the course of this year. We expect that to continue through the balance of the year going into fiscal ‘25. Right now, we are seeing a lot of the benefit of the contracts that we renegotiated on the toys side of the business, and that’s starting to flow through our P&L. As we go into Q4 and into fiscal ‘25, we will see the benefits of the new consumables contracts kicking in as well. So, that will improve on a current channel mix basis, shall we say. And then as you look at our respective channel margin profiles, D2C has margins in the 60s. Commerce has margins around 40, low 40s. And so, as we have said before, we will be looking to grow consumables, particularly within the commerce channel.
