Greetings. Welcome to the Black Rifle Coffee Company 2Q 2023 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tanner Doss. You may begin.

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company’s conference call to discuss our second quarter 2023 financial results, which we released today and can be found on our website at ir.blackriflcoffee.com. With me on the call today is Evan Hafer, Founder and CEO; Tom Davin, Co-CEO; Greg Iverson, our Chief Financial Officer. We’ll also have Chris Mondzelewski, our new President as wells as Mark Weinsten, our Interim CFO on the Q&A portion of today’s call. Before we get started, I would like to remind you the company’s safe harbor language, which I’m sure you’re all familiar with. On today’s call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our previous filings with the SEC. This call will also contain non-GAAP financial measures such as adjusted EBITDA. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC, and they are also available on our investor website. Now I’d like to turn the call over to Evan Hafer, Founder and CEO of Black Rifle Coffee Company. Evan?

Thanks, Tanner, and good afternoon everyone. From day one of starting Black Rifle Coffee Company in my garage, my core focus has been to create an authentic connection between our brand and our community, demonstrating to military veterans and first responders that we can build something that will last generations. We don’t stray from our beliefs and it can be felt by our customers who are looking for authenticity in a world where most brands don’t stand for anything or change their beliefs based on whoever is yelling the loudest. As we’ve transitioned from a pure direct consumer business into an omnichannel CPG business, Black Rifle has proven to be a real American business success story. We’re still early in our company’s lifecycle, but we have proven that our brand resonates with American public and we’re excited to have all of our products show up in stores where our customers are shopping every day. Last year, we made the strategic decision to launch our products into food, drug and mass, and to date that decision has paid off. We’ve gone from a niche premium, direct-to-consumer coffee brand to the number one selling 12 ounce bag coffee sold in over 4,400 Walmart stores across America. This has all been done on the strength of our brand and word of mouth reviews. This excitement for the brand and being on shelf where over 30 million people a day shop has also increased our aided brand awareness from 20% to over 28% in the last year. While we’re pleased with the 8% point increase, we have 72% left to go. Over the last four weeks with little to no marketing spend Black Rifle Coffee represented 4.4% of total coffee sales in the largest coffee aisle within grocery and FDM. That 4.4% is only…

Thanks, Evan, and good afternoon everyone. I’ll start with the topic of company profitability, then address performance by channel and conclude with 2023 guidance. Before addressing these topics, I’d like to preface my comments with some observations to set the context. First, the Black Rifle Coffee brand is gaining broad acceptance, and as a result, we are growing rapidly, far outpacing the coffee category and a long list of competitors. As military veterans leading a public company, we strive to set aggressive, but achievable goals supported by initiatives to mitigate risk. This is our seventh earnings call as a public company, obviously our omnichannel growth strategy has evolved over time as we’ve responded to consumer behavior and results in the marketplace. The success we’ve seen in the Wholesale segment, particularly food, drug and mass, has enabled us to sharpen our focus and more clearly chart a path to profitability. One investor said recently, I’d like to see Black Rifle Coffee be more boring, at least as a business model. We’ve taken that sentiment to heart, meaning we’ll continue to streamline our processes, use technology to drive productivity and hold ourselves accountable to do what we said we would do profitability, as I outlined on our Q1 call, we’re committed to becoming profitable in 2023 at the adjusted EBITDA line. I’m pleased to report that we achieved adjusted EBITDA profitability in Q2 and our trending hit our profitability targets for the year. The key levers are the continued makeshift into the food, drug and mass channel cost savings and productivity across the business. Our entire organization is aligned behind the imperatives of focus and profitable growth. I’ll now highlight each of our business channels. Wholesale, the strategic decision to focus on this channel has started to prove out over the past…

Thanks, Tom, and good afternoon everyone. Today I will discuss our 2023 second quarter financial results. But before I review the financials, I’d like to thank Evan, Tom and the entire BRCC family for their support and friendship over the past three and a half years. While I will miss working closely with everyone, I know that the company is in extremely capable hands and I’ll remain a committed Black Rifle Coffee customer for life. In the context of doing what we say we’re going to do, we previously guided towards $91 million of revenue and adjusted EBITDA that approaches break even in the second quarter, and I’m pleased to report we exceeded both forecasts. For the second quarter, total revenue increased 39% to $91.9 million compared to $66.4 million in Q2 of last year. Now, I will give some additional details on our three sales channels. I’ll begin with wholesale where revenue increased 109% to $50 million in Q2 compared to $24 million during Q2 of last year. The increase was primarily driven by our entry into food, drug and mass as we began selling our bag coffee and rounds in over 4,400 Walmart stores beginning in September of last year. We also saw a material increase in our Ready-To-Drink product sales as our product is being sold in over 82,000 doors up from 67,000 doors a year ago. Next, our Direct-To-Consumer revenue decreased by 6% to $34.6 million in Q2 of 2022 compared to $37 million in Q2 of last year. This expected decline was mainly the direct result of decreased digital advertising spend as we continue to prioritize our high growth and high returning wholesale channel. Next, revenue from Outpost increased 35% to $7.4 million in Q2 compared to $5.4 million last year. The main driver was…

[Operator Instructions] Our first question comes from the line of Joe Altobello with Raymond James. Please proceed with your question.

Thanks. Hey, good afternoon guys. A couple of questions for you. I guess first, just to start with the RTD category just so I’m clear, I think you said the category was down 8% in the second quarter, is that correct?

That’s correct, Joe. Tom Davin here.

Hey, Tom, and what did that look like in the first quarter? I just want to see what the sequential slowdown was.

It was down, we pulled that Tanner yesterday. It was down four, it was down 2% in Q4 of last year, 2022.

Okay, so it’s been progressively slowing. Given your view of the category, what’s been driving that?

We don’t have a good answer for that. I mean, you had a nice pop during the COVID period. I can’t say that traffic into convenience and gas has gone down. It does seem like people may be shifting into energy drink. Mondz?

I think the one factor would be higher prices. We’ve seen higher prices continue to move into the market and as that becomes more of a differential than we’ve seen the categories sort of commensurately move down with that.

Okay. And then maybe a little bit more color on the new FDM partnerships. You guys announced, you said you have a new national partner and two new regional grocery partners. Can you give us some insight into who they are and when you expect to start shipping?

Yes, I’m going to pitch that one to Chris Mondzelewski, who we call Mondz. So Mondz over to you.

Great. Yes, thanks, Tom. Yes, we’re excited. We do have a new, it’s a large west coast retailer. We’re currently shipping all divisions of that retailer. We expect to be in all stores by the end of the year. And then we, as you mentioned, we do have a number of smaller retailers that we’re working with, towards the end of the year as well. And we’re in conversations with, honestly at this point, most large retailers in the United States.

Okay. Thank you.

Our next question comes from the line of Keegan Cox with D.A. Davidson. Please proceed with your question.

Hi. I was just wondering, like we’ve seen coffee inflation today was down heading towards like a deflationary environment. I was wondering what the impact of lower coffee prices would be on your gross margins?

Sure. Keegan, this is Greg Iverson. I can take that and just stepping back, as we’ve said on past calls, our practice is to place forward purchase contracts for coffee, usually about 12 months out. So what you said is exactly right. The cost of coffee is a commodity has gone down pretty significantly over the last several months or quarters. The coffee that’s flowing through our P&L right now is all coffee that we had. We had purchased, not physically, but at least had placed contracts on at rates last year that were higher. So we’re not seeing the benefit of the lower cost of coffee going through our P&L this year, but we certainly will as we go into 2024.

Awesome. And then just a follow up is right, if we are heading to a deflationary coffee environment what do you think the benefit or impact will be on like units sold?

Can you say the last part of your question there?

Yes. What would be the impact on units like bags, coffees sold or ground sold?

Is your question around demand or potentially pricing at the retail level?

Yes, pricing and demand at the retail level.

Yes. From a demand perspective, I think if you go back and, look over time, the cost of coffee hasn’t had a big impact on demand at the consumer level in terms of any deflationary pressure or risk. That’s something that we watch closely as I’m sure everybody within the coffee space does, but we’re not seeing any indications yet that the prices are going down or pressure from the retailers to start lowering price.

Thank you.

Thank you.

Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Hey, good afternoon everybody.

Hey, Jon.

Hey. I wanted to start with, with Walmart your and ask based on the performance today and congrats on hitting 4.4% are you seeing similar strength, similar results across, geographies? Or is there anything to be learned from maybe performance urban versus rural or different parts of the country, and then also on Walmart, as you get ready to launch or have launched some of these new SKUs? It sounds like you’ve already launched. How quickly do those, get to the shelf and what are your expectations in terms of kind of incrementality of those SKUs? Do those tend to be highly incremental because they’re different form factors, different flavors to some thoughts and incrementality there? Thanks.

Mondz?

Yes. Great. Yes, Jon, so on the first question, interestingly, we’ve had pretty steady performance across the entire market. So when we look at all Walmart divisions, we’ve seen the products performing well. There is a bit of an index towards the Midwest and South, when you look at it from an index standpoint, but obviously in larger geographies, like the West Coast, the Northeast, we still, we see larger volumes as you would expect. So the performance has been strong nationally. We’ve been real happy, thus far with the cut in of our new items, items. They’re on shelf, you should see them in a lot of the Walmart’s you would go to now. Possibly not all stores, six weeks to eight weeks is when we’d expect to see, full distribution of those new items on shelf. And, incrementality will really depend on, the item itself. So for any of the items that are going into segments, where we have existing distribution, so k-cups as an example, we will obviously see some level of cannibalization and we’ve built that in to our own in internal forecasts. That being said, given while, we’re very happy with our market share, it still is a lower market share overall versus the category, we expect as a result of that to see a high level of incrementality, on items where we don’t actually, have within the segment, for instance, our Cold Brew item we actually expect that we’ll see almost 100% incrementality.

That makes sense on, and then with regard to the expansion at FDM in the large West Coast retailer and some of the regional’s by the year end, can you talk about how you kind of, the criteria you’ve used to kind of select this next phase of retailers and then for the second half of 2023 and then, are we talking about maybe a much more sounds like you’re talking to most large retailers, as you said, a broader rollout across, a number of new chains in 2024. Just trying to get a sense for, again what kind of criteria, how you’re thinking about phasing it and why you’ve selected the retailers you have post Walmart and then yes, we’ll start there.

Yes, it’s a great question. I think, we’re very proud of the brand that’s been built and you know, as, it’s a very premium brand. So we will seek partnerships with retailers that really see eye to eye with us on that, we’ve been delighted with the partnership with Walmart. Obviously the success we’ve had there. So, I think every retailer obviously is different. They operate under different models and we understand that, but it’s important to us that we know that, whatever deal we strike with that particular retail chain we’re going to get that execution that we would expect as, a premium brand in the market. So again working that within their own individual criteria is obviously important on their side, but then we have, criteria on our side to ensure that we’re getting execution that we would expect as a, premium brand in the market. So yes, again that’s the criteria that we’re primarily focused on.

That’s helpful. And last one for me, just as you get broad, higher ACV in food, drug and mass more average items at the shelf, is that what is going to drive greater awareness for the brand? Are there other things that you’re going to be doing to try and increase that 28% awareness, which frankly seems, like a great opportunity? 28% seems low relative to some of the other obviously big brands in the market. And are there also, does this, is there a shift in kind of the marketing mix as you go forward maybe in store activity as again, you build ACV in food, drug and mass? Thank you.

Yes, this is Evan. I think that, Chris coming in I guess three months ago now and kind of redefining what we’re doing specifically in the marketing department, allowing us to get, what I would say is more efficient with our marketing dollars. We’ve been able to ultimately build out a more strategic game plan related to how we’re going to activate with FDM, and then also what does the future of marketing look like for Black Rifle? How do we build out more of our strategic partnerships that allow us to grow awareness at the same time? What I would say it’s a more efficient dollar. So as we start to expand outside of D2C, there’s a lot of opportunity there, to spend more efficiently with our marketing budget, which is obviously reflective in some of the financials. Go ahead sorry.

No, go ahead.

Yes, I was going to build just a bit to say, I wanted to address the first part of your question as well. You mentioned, the ACV expansion, absolutely. I think that, certainly in any category of CPG your on shelf awareness is a huge part of your advertising. That’s something that we focus a lot on, the distinctiveness of our brand, the distinctiveness of our package, the ability to drive secondary display. These things will all drive awareness in the market. But to Evan’s point, we’re also very excited about our ability to do that through advertising of the brand. And again, this is a brand that’s been – that has been built very much through owned media and we’re continuing to find other ways to do that through paid and earned. And you’re going to see a lot more of that going forward with the business.

And just one quick one. Are there – from a capacity standpoint any constraints in terms of continuing the ACV expansion and adding new partners?

No, not an issue. There’s plenty of capacity out there. Plus, as we’ve talked before, we’re building more capacity to roast in Manchester, Tennessee, so that’s not an issue.

Thanks so much.

You bet. Thank you, Jon.

Our next question comes from the line of George Kelly with ROTH Capital Partners. Please proceed with your question.

Hey everyone thanks for taking my questions. So first another question on Walmart. I was curious if you could talk about the percent of the aisle that Cold Brew and Canister represents?

George, I’m going to kick that one over to Mondz. So you’re getting at the fact that we’ve talked about 50% of coffee at Walmart we’ve not participated in yet.

Right. Yes, just curious what those two new products, the innovation SKUs what they represent of Walmart aisle.

And you said Cold Brew and which other one? I’m sorry, I missed.

Canister

Oh, Canister. So very different. I think, Cold Brew is actually a very small percentage of the overall aisle. It’s really a newer category for them. So versus Canister which actually is a huge portion of what they’re selling already. So in the case of Canister, that’s a quarter overall of what their business is from a category standpoint. So obviously, we’re excited about having potential incremental sales within that. And then in the case of Cold Brew it’s really just a very small segment at this point. It’s growing. It’s less than 2%. But again, we’re excited about the potential of that. When you look at the consumer trends that is where consumption is beginning to shift to. So again, we expect to see probably in the case of Canister, there’ll be a bit more moderate growth of that segment while it’s large, it has scale now in the case of Cold Brew it has obviously a much smaller overall play currently, but we expect to see much more explosive growth of that segment.

Okay, great. That’s helpful. And then second question for you, or I guess a few questions on your RTD business. I was curious if you could spend a bit of time, you mentioned just briefly in the prepared remarks about your focus on margin in that business. And so just curious is, is it still a pretty challenging kind of near and medium term outlook? Is there much you can do internally to improve margin there? And then the second part of the question is, it might, you kind of deprioritize growth in that business. You’ve got this wonderful retail business that’s emerging and I think carries a much higher margin profile. So is RTD still as much a priority as it was a year, two years ago?

Yes, George, it is Tom. Thanks for the question. Yes, so if you think about our history with RTD, we’ve had a number of startup issues as we’ve brought a new co-mans [ph] as we’ve hired up new SKUs, both CORE and LTO. So that’s been a drag on profitability this year, particularly as we look to next year that will not be an issue. So, we feel good about the future RTD margin profile. We really have good relationships with our external co-packers and we understand where we need to be. We know what their needs are, so that margin is stabilized. And really to your second point, we are prioritizing making money in RTD over just purely growing. So we’re not going to be adding a lot more SKUs. We’ve got plenty of SKUs right now. It’s really about focus plan the accounts execute at the street level and drive incremental profitability.

Okay, thank you.

You bet.

And our next question comes from the line of Matt McGinley with Needham & Company. Please proceed with your question.

Thank you. So with the revenue guidance provision on the Ready-To-Drink package velocities, how did the Ready-To-Drink product performing in new doors versus doors where you already had distribution? Was the slowdown that you saw consistent in old doors versus new doors? And secondarily there, if you don’t get to the a 100,000 Ready-To-Drink doors by year end, would your revenue guide fall below that 30% for the year? Or do you have good enough line of sight on that Ready-To-Drink distribution that even if you’d have 100,000, I don’t know if a 100,000 is a magic number or not, but could you still deliver within that guided range? I guess put it another way, is that a 100,000 really an important deliverable?

Hey it’s Tom, Matt. So I would say, I’ll ask, I’ll answer the second one first. No, it’s not critical. It’s more directional. So we feel pretty good about the doors we’re in. We feel like we’ll continue to add doors and gain more ACV, so that’s not a big lever. To your first point, it really is more units per door per month. And in particular, we’ve not been happy with the performance of our LTO Ready-To-Drink products. So, they’ve come up short on us, but overall, it’s a matter of the category not being as strong as we expected and we know we can execute better. So as mentioned in my prepared remarks, we’ve done a deep dive review on the business. Mondz obviously coming on board has worked closely with the sales and marketing teams. We’ve made changes and everybody understands what they need to do. So, we feel good about being able to hit that number for the year.

And Matt, this is Greg. I’ll just add to this because the whole idea of doors comes up quite a bit in these calls and other conversations. And so one of the things that’s important for us to reiterate is, you really can’t model our business accurately using doors as a proxy for revenue. And in some cases it’s not even going to line up directionally. So to back to your specific question, if you were to look at how we expect doors to grow throughout the rest of the year versus revenue, revenue is definitely not going to be linear.

Got it. And on the restructuring that you instituted in the first quarter, I don’t think you expected to fully realize those savings in the second quarter, but should we expect to see your OpEx dollar’s decline in the third quarter from restructuring, or does that Outpost, the headcount increase that you referenced, prevent those OpEx dollars from falling? I’m just kind of wondering should we expect those dollars to be down from here or is the Outpost kind of grow it?

Yes. Matt, Greg, again, that’s, that’s a good question. So you’re absolutely right in terms of the Outpost headcount. So, as we mentioned, most of the Outpost cost structure sits within the G&A line. So all the salaries and wages for the folks who work at the outposts are in salaries and wages. The rent occupancy and other costs are in G&A. And so there was definitely growth in those areas in the second quarter as we opened new stores, that growth offset some of the efficiencies that we saw in both of those line items. So, I think the important message is we’ve made really good progress in terms of simplifying our business, improving our cost structure, finding efficiencies within our G&A, and that work isn’t complete, that that work will continue, we’ll continue to find some opportunities to streamline the business while serving our customers and our consumers. And that will be offset a little bit by increases in salaries and wages and other costs as we do open one more Outpost this year.

Okay. Thank you very much.

Thank you.

And we have reached the end of the question-and-answer session. And I’ll now turn the call back over to Tom Davin for closing remarks.

Thank you to everyone who joined our Q2 Black Rifle Coffee Company financial results earnings call. Just to recap, net revenue increased 39% in the quarter to $91.9 million. It’s up from 27% growth in Q1, as committed we achieved EBITDA adjusted profitability. We’re feeling excellent about where we’ll end up for the balance of year. And we’ve announced that we’ve launched a second national grocery customer with two additional regional chains and we completed a major refinancing. So thank you for your questions and we look forward to the follow up calls.

This concludes today’s conference and you may disconnect your line at this time. Thank you for your participation.