BRC Inc.

Greetings and welcome to the Black Rifle Coffee Company fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Tanner Doss, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our 2021 financial results, which were released this morning and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Hafer, founder and chief executive officer, Tom Davin, co-chief executive officer, Toby Johnson, chief operating officer, and Greg Iverson, chief financial officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you are 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 and adjusted EBITDA margins. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included on the earnings released, furnished to the SEC, and also available on our investor website. Now I'd like to turn the call over to Evan Hafer, founder and chief executive officer of Black Rifle Coffee Company.

Thanks, Tanner, and good morning, everyone. Let me start by thanking you for joining our first earnings call as a publicly traded company. You may have heard me say before, but I think it's worth repeating. I first started Black Rifle Coffee Company as a way of connecting people, honoring the generations of brave men and women that have served and continue to serve this country. I believed it would also be a way to give back to our veterans, both as an employment opportunity and through philanthropy, and with the utmost appreciation to their service. With help from fellow veterans Matt Best and Jared Taylor, We generated over 1.3 million in direct to consumer sales during our first year of business from my garage. And I was still able to contribute and give back to the veteran community through a nonprofit. That commitment to veterans has been central to our mission, including the hundreds of thousands of pounds of coffee we've donated to the military and first responder units across the United States and the globe. In 2021, We also donated more than $3 million of value in coffee to the front lines and over $1.2 million to the veteran and first responder charities. We've also set a bold hiring goal to hire 10,000 veterans to join us in expanding our mission. Our vision for Black Rifle Coffee Company as a public benefit corporation is to become one of the few public companies dedicated to supporting the veteran community by inspiring them to both become entrepreneurs and hiring them to join our team and serving them through our charitable work. I'm thrilled that we are all here today and look forward to building a great company and delivering strong results. Let's get right to it and talk about our strong fourth quarter and our fiscal year. 2021 results. On February 10th, we successfully closed a merger with Silverbox Engaged Merger marking a significant milestone for the company as we begin to trade on the New York Stock Exchange. This offering enabled us to pay off debt, preferred stock, and add $150 million to our balance sheet, eliminating what had previously been a capital constraint. Everyone who worked to make this contribution a success has my deepest gratitude. With our outstanding management team, and our strong board of directors, we are confident that we are ready to capitalize on the significant opportunities we see on the horizon. Our key strategic investment areas include increasing capacity for roasting premium coffee, fully funding our continued growth of the company and owned outposts, adding key senior leaders to enhance the capability to execute in existing and planned channels, supporting the veteran, active duty military, and first responder communities. As you will hear later from the co-CEO, Tom Davin, and the CFO, Greg Iverson, we have built a mission-driven consumer brand with an incredibly loyal customer base, which has resulted in strong financial performance this past quarter and year. We grew our revenues by over 42% to $233 million, delivered coffee to our 2 millionth direct-to-consumer customer, and significantly added to our outposts and wholesale doors. We believe we are just getting started to see the significant opportunities for continued growth. While demand for our products has never been stronger, our aided brand awareness is still below 20% nationally and only 17% among the core military and veteran-affiliated audience. To drive awareness and build our community, we will continue to shift our marketing efforts from paid media to owned media. Through our investments in influencers, brand ambassadors, podcasts, sports, and the Spartan Race series, One example of our new brand ambassador partnerships is with Travis Pastrana, who is one of the best known action sports athletes in the world. He's a six times X Games gold medalist and the founder of Nitro Circus. We are in the process of creating what we refer to as tentpole content with Travis that will appeal to our core community as well as a much broader global audience. For example, Travis's 2021 Gymkhana video exceeded 47 million views on YouTube. BRCC will be front and center in the next Gymkhana to be released later this year. Another example of owned media is our Coffee or Die blog, where we have full-time writers covering veteran-related topics in the U.S. and abroad. In fact, we have three writers on the ground in the Ukraine right now providing real-time news for Coffee or Die, the only coffee company in the world providing real-time news from the ground with veteran war correspondence. We expect these marketing initiatives to improve our brand awareness and help Black Rifle Coffee meet our 2022 financial goals. I'm excited for the next chapter in the Black Rifle Coffee Company story and all the significant opportunities we have ahead. With that, I'll turn it over to Tom.

Go ahead, TD. Thanks, Evan, and good morning, everyone. I'll begin by highlighting our fourth quarter financial performance and providing an overview of our key growth initiatives. Our results for the fourth quarter reflect sustained top-line growth throughout the year. The continued momentum demonstrates that we are uniquely positioned to win in this competitive category as we leverage the Black Rifle Coffee Company brand to serve our passionate customer base and attack the massive coffee market opportunity. I will discuss these competitive strengths in more detail. First, we are a mission-driven lifestyle brand with a loyal customer base. Our mission is core to everything we do and a major driver of our success, engaging and attracting customers, employees, and business partners. Our content creation capability enables us to build a large and growing community who love interacting with our brand on a daily basis. The support for our mission and our premium quality coffee drive exceptional customer retention and affinity for the brand, as evidenced by our category-leading net promoter score of 78. Second, we have a massive market opportunity. The U.S. coffee market is over $45 billion, and we estimate our serviceable addressable market to be $28 billion. This includes 100 million U.S. customers who are aligned with our brand values. Note that our $233 million in revenue last year equates to less than a 1% share of our serviceable addressable market. So we are positioned for many years of sustained growth. Third, we have a powerful and proven omnichannel strategy to drive our growth. We're a digitally native coffee and merchandise business that enables us to participate in multiple complimentary channels, creating branded experiences that deliver community, premium quality, convenience, and value. We achieve all of this across three primary channels, direct consumer, outposts, and wholesale channels comprising our unique omni-channel flywheel. Looking forward to our first quarter and beyond. We remain focused on executing our growth initiatives to drive sustainable long-term growth. Prior to our offering, we were constrained in terms of capital, capacity, and leadership talent. As Evan mentioned, the public listing completed on February 10th addresses our capital constraint by adding $150 million to our balance sheet. On the capacity front, constraints have included ready to drink coffee capacity and coffee roasting capacity. Ready to drink capacity commitments coming into 2022 gave us confidence we could achieve the level of sales we committed to but did not allow us to fully meet accelerating demand for our ready to drink products. We are now in advanced discussions with several co-manufacturers that will enable us to more fully address product demand that is currently unmet. We expect to provide further updates on future earnings calls. Regarding coffee roasting capacity, similarly we came into the year with enough owned coffee roasting capacity to achieve committed revenue targets but lacked the ability to ramp up quickly if demand were to materialize with large food, drug, or mass accounts. Through a combination of capital investments in new owned roasting capacity and selected outsourced roasting capacity, we will now be able to respond to new opportunities as they arise. On the leadership front, we've added key senior leaders, including 10-year Starbucks veteran Heath Nielsen. who's our new chief retail officer, accountable for all outpost development and operations. Addressing these constraints in the areas of capital, capacity, and leadership talent gives us confidence that we will execute our key strategic initiatives. We are in the early stages of a multi-decade growth strategy led by a rapidly expanding community and leveraging our powerful omni-channel platform. Let's review our key drivers of growth, which consist of the following. One, we'll continue growing our direct-to-consumer business. The D2C business has been our core driver of growth to date in the approximately $4 billion U.S. online coffee market. We will achieve predictable growth far into the future given our more than 287,000 active and growing coffee club subscribers and low monthly churn of approximately 3 to 4%. As Evan mentioned, our aided brand awareness is still below 20% nationally. This further illustrates that we have meaningful brand building opportunity where our omni-channel growth model will enhance awareness and drive penetration. Number two, we are expanding our experiential retail strategy to capitalize on the significant opportunity we see ahead due to our superior unit economics and white space for growth. Our outposts are redefining the brand experience by inviting our community members to engage with us on a personal and daily basis. Our outposts offer high margin beverages for immediate consumption with bagged coffee and merchandise sales that drive average unit volumes or AUVs that are among the highest in the coffee and QSR segments. In 2021, last year, we made the decision to further enhance the brand experience by shifting our shop development strategy from primarily conversions to ground up prototype shop builds whenever possible. This strategic shift has delayed our pipeline of new shop openings by several months, though we are excited about the new prototype because it creates a more immersive consumer experience. Beginning in Q2, more than 80% of all new locations will be our redesigned prototype. We are highly confident with our guidance of 15 to 20 new company stores or shops in 2022 compared with seven company-owned outposts in 2021. The majority of our new outpost openings will be in our fourth quarter with one shop opening during each of Q1 and Q2. More than half of the shops will open in the state of Texas, with our Q1 opening being the first outpost in Houston. Number three, we are rapidly scaling our ready-to-drink business. This is growing to be a top four brand in convenience stores in just 24 months in this over $4 billion U.S. RTD coffee segment. At the end of 2021, our Ready to Drink portfolio, which was comprised of four SKUs, was available in more than 42,000 doors or locations across the U.S. We finished 2021 with less than 25% penetration in convenience stores. But at the same time, we've achieved more than 90% distribution coverage of the U.S., priming the business for further growth. We plan to build on the momentum in our rated drink business by expanding our points of distribution and adding additional SKUs. We see potential well beyond our 2022 year end goal of 75,000 doors, given the much larger universe of 375,000 total doors across convenience stores, food, drug, and mass locations. We will continue to expand our retail footprint with more than 30 newly secured partnerships that we are activating early this year. We plan to build on our portfolio products from our four SKUs by adding one or two new SKUs during this year with incremental opportunities longer term. We are also increasing our wholesale partnership distribution in the outdoor, do-it-yourself, and lifestyle retail chains. We are rapidly expanding our retail reach through our unique coffee products and merchandise, These outlets and partnerships emphasize, complement, and highlight our mission while providing us with strong lifestyle branding opportunities. Finally, I'd like to address our pricing outlook. Entering 2022, we are keenly aware of inflationary pressures in our cost of goods sold line, such as the price of green coffee and parcel shipping costs. We anticipate additional cost pressures throughout the year given the current macroeconomic environment. We have already taken pricing in several key areas, including core coffee products, direct-to-consumer shipping costs, drink pricing at our outposts. We've also announced ready-to-drink coffee pricing increases, and we are evaluating additional pricing actions across our portfolio, which we believe are appropriate given our premium positioning. We will seek to always find the right balance between serving our customers while offsetting cost increases. In conclusion, we're in the early years of a multi-decade growth strategy powered by our omni-channel flywheel model. I will now turn the call over to Greg Iverson to discuss our fourth quarter financial performance in more detail. He will also provide you with an outlook for the balance of 2022.

Thanks, Tom, and good morning, everyone. Today I will discuss our 2021 fourth quarter and full year results, briefly touch on our balance sheet following our SPAC merger, and then update you on our fiscal year 2022 outlook. Turning first to our financial results, we are pleased to have delivered solid results in the fourth quarter and full year 2021 as we continue to make progress across all three of our sales channels. For the fourth quarter, total revenue increased 20% to $71.8 million, compared to $59.9 million in Q4 of last year. For the full year, our total revenue grew by 42% to $233.1 million. The meaningful increase in revenue was driven by growth across all three of our sales channels, most notably our wholesale and outpost channels, which continued their impressive growth in 2021 by 139% and 325% respectively. Now I will give some additional details on our three sales channels. First, our direct to consumer revenue increased 3% in the fourth quarter to 49.6 million compared to 48.3 million last year. The slight increase was the result of comping against a prior year period with unprecedented consumer demand when most consumers were stuck at home during the COVID pandemic. To give some context, Q4 2020 direct-to-consumer revenues were up 78% compared to Q4 2019. For the full year 2021, our direct-to-consumer channel increased by 27.6 million or 20% to 165.3 million due principally to an increase in the number of our coffee club subscribers. Our subscriber base grew 14% in 2021 to 287,000 subscribers compared to $252,000 at the end of 2020. Our wholesale revenue increased 74% to $17.2 million in Q4 compared to $9.9 million last year. For the full year 2021, we saw wholesale revenue increase $32.4 million or 139%, bringing our total wholesale revenue to $55.8 million. The increase was primarily driven by growth in our RTD product, which ended the year in over 42,000 doors with all four SKUs ranked in the top 25 in both C-Store and Food, Drug, and Mass. Demand for our RTD products is now well above what we will be able to supply with our existing co-manufacturer. Our supply chain team has been working to secure production capacity from several co-manufacturers, and we are close to finalizing terms which we believe will be the foundation for lasting partnerships and scalable increased supply. Before moving to outposts, I want to be clear that the committed production from our existing supplier meets the RTD volume assumptions in our 2022 outlook that I will discuss shortly. Any additional production we secure as a result of adding new co-manufacturers will be upside to our 2022 outlook. Next I'll discuss Outposts where revenue increased 181% to 5.1 million in Q4 compared to 1.8 million last year. Outposts revenue growth throughout 2021 increased 9.2 million or 325% to 12 million compared to 2.8 million for 2020. Throughout 2021, we opened a total of seven new company-owned stores in Texas, Tennessee, and Utah, bringing our total number of Outposts to 16, with eight company-owned stores and eight franchise stores. Overall, demand for our products across all three channels remained robust throughout 2021, and we have continued to see our omnichannel approach pay off with the tremendous growth in our wholesale and outpost channels. Throughout 2021, we invested heavily in personnel and corporate infrastructure to ensure that we are well-positioned to capitalize on the demand within all three of our channels and the significant opportunities ahead. Turning to our profitability, our Q4 gross margin was 34.3%, decreasing 570 basis points from 40% in Q4 of last year. For the full year 2021, our gross margins came in at 38.5%, a decrease of 380 basis points from 42.3 in 2020. The decrease was driven by inflationary pressures as well as products mix shift as RTD has higher product costs and lower gross margins as compared to bad coffee in our D2C channel. In addition, shipping costs negatively impacted our Q4 gross margins due to carrier rate increases, including seasonal surcharges. Additionally, we incurred expedited shipping charges across all sales channels to ensure our products reach customers during the peak holiday season. We have taken action across multiple fronts to combat the cost inflation we are seeing. In Q4, we began working with an internationally recognized operational consulting firm, and with their help, we've identified material cost savings opportunities in freight, sourcing, and packaging. In addition, as Tom mentioned, we are executing plans to take price in line with our competitors across our product portfolio. We implemented some of these price actions in Q1 of 2022 and are phasing in the remaining actions over the coming weeks. You will see the impact of these actions flow through our P&L throughout 2022, and as a result, we expect our margins will improve sequentially throughout the year. As a percentage of sales, our operating expenses during Q4 increased by approximately 230 basis points to 40% as compared to last year. For the full year, we saw our operating expenses increase 43.4% of sales, up 460 basis points from 2020. I will walk through the drivers of these increases beginning with marketing and advertising. For the fourth quarter of 2021, marketing expenses increased 5.8% to 11.1 million from 10.5 million in the fourth quarter of 2020. As a percentage of sales, marketing decreased by approximately 210 basis points to 15.4% compared to the same quarter last year. For the full year 2021, our marketing expenses increased 42.5% to $36.4 million compared to $25.5 million in 2020. The increase was driven by outreach to strengthen our brand awareness and increased costs with our in-house production of content. Additionally, similar to others, we've seen increased costs and lower effectiveness related to our digital ad spend. Salaries, wages and benefits expenses for the fourth quarter of 2021 increased 9.9% to $9 million from $8.2 million in the fourth quarter of 2020. As a percentage of revenue, it decreased by approximately 120 basis points to 12.5% compared to 13.7% last year. For the year, salaries, wages and benefits increased 60% to $38.7 million compared to our $24.2 million for 2020. The increase was driven by employee headcount to support our significant sales growth. We've invested heavily in building out our management teams, particularly within our outpost and wholesale sales channels. Additionally, a large portion of our outpost cost structure is included in the salaries, wages, and benefits line, as we typically bring on 35 to 40 new employees for each outpost opening. G&A expenses increased 120.5% to $8.7 million compared to $3.9 million in the fourth quarter of 2020. As a percentage of revenue, G&A increased by approximately 550 basis points to 12.1% of revenue compared to 6.6% last year. For the full year, G&A increased 88% to $26.2 million compared to $13.9 million for the same period in 2020. This increase was driven by investments in corporate infrastructure, including technology, to support the growth of our business across multiple channels, as well as direct G&A for our new outposts, including occupancy and related expenses. In addition to the gap measures I have just mentioned, adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the quarter, adjusted EBITDA was a loss of $278,000 compared to adjusted EBITDA of $2.5 million in 2020. For the year, we reported $768,000 of adjusted EBITDA compared to $11.9 million a year earlier. This decrease was primarily due to increased spending to scale and rapidly grow our multiple sales channels. Now we'll briefly touch on our pro forma balance sheet following our SPAC merger on February 9th. As a reminder, we raised $376 million of gross proceeds, providing us $150 million of cash to our balance sheet. These funds will be paramount in helping Black Rifle continue our growth within all three sales channels, but specifically to fund the growth of our company-owned outposts and increase our coffee roasting capacity. Now, I will share more details on our outlook for 2022. For the full year, we expect to generate revenues of $315 million, which is slightly more than we expected when we shared our forecast in Q4 of last year. We also plan on opening between 15 and 20 company-owned outposts in 2022. Through the implementation of pricing actions as well as productivity initiatives to combat inflationary pressures, we are expecting adjusted EBITDA to be slightly positive in 2022. While building a highly profitable business is very important to us, given the material demand we are seeing for our brand and its products, we feel it's critical to invest to build the infrastructure and capabilities needed to meet demand. As such, we are choosing to make investments that will constrain our profitability in the short term. We believe our business model is sound and will result in strong levels of EBITDA and cash flow once our foundation for growth has been built. While we are not providing quarterly guidance, we thought it would be helpful to provide some color on cadence throughout 2022. Specifically, we expect revenue growth to accelerate sequentially every quarter during the year. The three primary drivers of the revenue growth acceleration are first, the rapid growth and sales of our RTD product in our wholesale channel. Second, an outpost opening schedule that is heavily weighted to the back half of the year and especially the fourth quarter. And third, the phase-in of our pricing initiatives. On profitability, Q1 gross margin will be comparable to that of Q4 2021. Just like revenue growth, we expect gross margin to improve sequentially each quarter during 2022 as our pricing and productivity actions increasingly deliver benefits. Similarly, while Q1 2022 adjusted EBITDA will be negative, we anticipate sequential improvements throughout the year. With that, I will turn the call over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your questions. Our first question has come from the line of Joe Altobello with Raymond James. Please proceed with your questions.

Thanks. Hey, guys. Good morning. Congratulations. First question, not surprisingly, on gross margin and Q4. Could you parse out for us how much of the weakness was from product and channel mix and how much was from cost inflation?

Yeah, you bet, Joe. It's Greg Iverson. Good morning. Glad to be on our first public company earnings call with you today, but Yeah, just breaking down at a high level the significant factors that drove the decrease in our Q4 margin year over year. The first one is inflation, which was the largest in the aggregate. It was about 400 basis points, and that's comprised of both shipping, increased costs from our RTD, as well as a small increase in our green coffee prices. The second factor is mix, and it netted to about 130 basis points. So keep in mind that our outpost channel has our highest gross margins, and so as we did increase our outpost sales year over year, we saw some favorable impact on margin, but that was more than offset by a larger increase in our wholesale channel, in particular the ready-to-drink product, which has the lowest gross margin of our products and channels. And then the third piece is the net of pricing and promo. We did take a little bit of price in the fourth quarter of 2021 that had a favorable impact in our non-subscription direct-to-consumer business, but that favorable pricing was more than offset by increased promotions in the fourth quarter of 2021 versus 2020. The net of all that price and promo was about 40 basis points.

That's very helpful. Maybe just to follow up on that, can you remind us how much of your cost of goods is green coffee and how much you have hedged at this point for 2022?

Sure. Yeah, in terms of the price, the portion of cost of sales, that's a number we haven't given out. What we've said is that it's in the single digits in terms of percentage of revenue. In terms of coffee hedging, just as a reminder, our policy or our practice is to hedge about 12 months out. So as of today, we're fully hedged through Q1 of 2023. When we last provided Outlook in Q4, at that time we were already fully hedged through the end of 2022. So while we'll see a step up in our coffee prices certainly going into Q1 and then sequential steps up on a go-forward basis, those are at prices that have been hedged now for some time and are still quite a bit lower than the current spot rate from a coffee futures perspective.

Great. Thanks, guys. Good luck. Thanks, Joe. Thank you.

Thank you. Our next questions come from the line of Wendy Nicholson with Citi. Please proceed with your questions.

Hi, good morning. I had a couple of questions on the outpost. First question is, did you see any impact in the fourth quarter? I know you had a lot of openings then, but in terms of Omicron and any weakness in terms of store productivity, and just thinking about that as we sort of build up our model for 2022 as you layer in those stores. I know you said they were going to be mostly weighted to the very end of the year, but still trying to get an idea of sequential revenue growth, if you will, for the Outpost channel.

Hey, Wendy. Tom Davin. Thanks for hopping on this morning and asking the question here on our first earnings call. We did not see any impact from Omicron. We have very strong store openings and good momentum coming into the year.

Great. Okay, fantastic. And just on the labor side, I know you said that whatever, wages have gone up, and so your labor expenses increased a lot, which makes sense. Are you having any issues with labor availability and staffing the stores as you open them?

We are generally not. Given our commitment to hiring veterans, we find anybody who wants to work in a coffee shop, and particularly veterans who work at competitive shops, They're among the first in line when we have now hiring, under construction, coming soon black rifle coffee shops. I will say we have to pay a market rate. So it is competitive out there in terms of wage rate, but we're having no issue finding great quality people. Again, part of our value proposition is that we do promote from within so people know they're signing on to a growth company and they have opportunities to start as a shift leader or move up to an assistant manager. and the like. The other thing I'll mention is you remember with our model being about 45% merchandise and bagged coffee sales were highly productive because once that product's out there in the retail space on the shelf, there's almost no incremental labor to ring that product up.

Got it. Got it. Yes. And indulge me, if you can, for just one more. On the same Outpost subject, In terms of the change in your prototype, the building up of the stores, that sounds great, and I'm sure they're going to be fantastic looking. But does that change the unit economics at all? I know you've always said the unit economics you have for the stores are really, really strong. So does that strategy change that at all? And can you give us a CapEx number maybe for 2022? If you did, I missed it. I'm sorry.

Absolutely. So in terms of the new prototype, The CapEx number is the number we've talked about in the Analyst Day presentation of about $1.4 million per store on a build-out, and that includes everything from the dirt up. So we're not including the ground lease or the cost to buy the dirt in that. So when we put that number together, it was anticipating the new prototype model. Obviously, there is cost inflation out there and labor to build new units and construction costs. but we had anticipated that when we put that number together. We do see significant benefits in terms of the consumer experience, and it's going to make it a much better place to work for our baristas and our staff, so we're super excited to pull those out of the ground. But overall, no change in the unit economics. We do hope to have more upside on the top line in terms of productivity. In terms of CapEx, Greg, I think the numbers we put out during Analyst Day are still generally good.

Yeah. And, Wendy, you're right. We did not guide to a CapEx number for this year. But in our Analyst Day presentation, we referenced $13 million in CapEx that wasn't related to the outpost build. That's principally for us to expand the capacity and put some automation in place in our Tennessee roasting facility. Our plans are still really unchanged there. We're moving forward and really excited about that initiative. With regard to the remainder of the CapEx, most of it is related to the outposts. As Tom mentioned, we're tracking at $1.4 million per outpost build. As you probably saw, we did increase our expectations around new outpost openings to a range of 15 to 20. So with that, we do expect increased CapEx in 2022, but it's just related to incremental outpost openings.

Great. Fantastic. Thank you so much, and congratulations. I know it's a really exciting time for you all.

Thank you, Wendy.

Thank you. Our next question has come from the line of Mike Baker with DA Davidson. Please proceed with your questions.

Hey, thanks, guys. I wanted to talk about the coffee pricing a little bit as well, and so our work shows that not only did you take prices up, but competitors did as well, at least on the bagged coffee. Can you talk about If you're seeing any pushback from consumers, either in the bad coffee or what you're doing in the outposts, to me, coffee seems pretty inelastic. But if you could just talk about if you're seeing any change in unit demand as prices go up.

Hey, Mike, it's Tom again. So the headline is, no, we're not seeing pushback or any elasticity of demand. And just to recap in a little more detail what we've done on pricing, So we took up the MSRP or stated price on bag coffee and what we call rounds or K-cups by approximately $1 per bag or box of rounds. That's about 7%. And that was effective across all of our channels, including non-subscription, direct consumer. We have not yet taken up pricing on our subscription or coffee club, coffee and rounds. We have also taken the pricing up Similarly, $1 per unit with our B2B accounts, though as you might imagine with some of the bigger accounts, there's a lag between when that price becomes effective. Also, we took a $2 increase on our direct consumer shipping cost from $5.95 to $7.95 for orders below the free shipping threshold. In coffee shops, we did take drink pricing up just this week, approximately 9%, which generally matches competitors, including Starbucks, in the local neighborhoods where we operate. And then for ready-to-drink, Toby Johnson, who's here with us, our COO, she's leading a price increase that's roughly going to be about 10% to our convenience and other accounts out there. That'll take effect in Q2, and we'll really see the benefit of that in Q3 and Q4. We do have additional pricing actions underway, but as always, we're trying to balance out taking care of the customer, delivering that premium coffee to great value while offsetting the cost inflation.

Okay, yeah, that's helpful. And then just can you talk about as your prices go up, what's your view on input prices, coffee input prices? Some of the data we look at shows that some of the futures are actually starting to come down a little bit. So I know you have some hedges in place, but It seems like your prices are going up while some of the commodity costs are going down. Can that end up being a gross margin boon at some point?

Yeah, Mike, this is Greg. I can address that. And I mentioned just a few minutes ago that we're hedged now through the end of Q1 of 2023. So in terms of our 22 coffee prices, those were locked in at higher rates than what we saw in 2021. but still quite a bit lower than the current futures. Like you mentioned, the costs of coffee futures have gone down quite a bit since we've seen the war in Ukraine and increases in oil. There's definitely a lot of volatility within the coffee trading world right now. Just based on our always-be-buying strategy, I think we're able to basically use that volatility to our advantage and continue to lock in some of our position for 2023. as the price of coffee continues to decline.

Sounds like you guys are playing it well. Appreciate the color. Thanks.

Thanks, Mike. Thanks, Mike.

Thank you. Our next questions come from the line of Sarang Vora with Telsey Advisory Group. Please proceed with your questions.

Thank you. Congratulations on a great quarter. Seems like you guys are brewing a strong growth story. You know, my question is on the cost savings, which has an impact on the margins. I feel like you guys mentioned you hired an international firm to evaluate your operations and you see significant savings in like freight, sourcing, and packaging. Can you share some colors on some of these areas like, you know, where in freight you could see some benefits or are you changing your sourcing because the coffee has gone up a bit from one region to another region? or packaging, can you share any colors on some of those structural cost saving initiatives? Thank you.

Absolutely. Thank you for the question. This is Toby Johnson, Chief Operating Officer. So as we brought in the partners that Greg mentioned earlier, we've really looked end to end across our business for the biggest opportunities to increase efficiency and really progress our gross margin story sequentially throughout the year. So all the things that you mentioned are in scope, everything from our sourcing and our key areas that affect our business to our 3PL to our fulfillment and just generally looking at any pockets of cost and efficiency that we can streamline. Our number one focus remains growth and being very focused on growth and accelerating the business. But at the same time, we know it's important to drive that efficiency across the business. Does that answer your question?

Yes. Yes, got it. Thank you.

Thank you. Our next question has come from the line of George Kelly with Roth Capital Partners. Please proceed with your questions.

Hi, everybody. Thanks for taking my questions and congrats on all the momentum. So first question for me is in the RTD business. Just curious, you said that a lot of the demand is being unmet. So can you quantify that? the level of that imbalance.

Hi, George. It's Toby again. I'm happy to talk about that. So it's really a good story. We have enough capacity to meet all the commitments that are in our plan, but what we've seen is such support for the products that we have from consumers and from retailers that the unmet demand is really additional opportunity for us to go after. So we entered the year actually more than doubling our capacity for RTD. We're looking at additional expansion and we're in advanced stages of negotiations with additional partners that will help us continue to expand our capacity for ready to drink coffee. So it's really taking advantage of the momentum on the brand and continuing to accelerate. So it's actually a really good story for the product and for the brand.

Gotcha. Thank you. And then second question, just on advertising. So in your prepared remarks, it sounds your strategy and kind of how you think about advertising is shifting a bit. So just curious if you could talk more about that and what, you know, you've got so much more scale now than you've had in the past and your balance sheet looks so much different. So, you know, what does that allow you to now consider?

Well, this is Evan Hafer. Thank you very much for the question. So I think the big pivot point is that we're shifting to an owned media strategy. We've been really moving towards that over the course of the last eight years. What we've seen is inconsistency or what I would say is platform volatility that disrupts basically our CPM and our CPA average, specifically along the lines of the D2C customer base, whether we're moving it back towards BlackRifleCoffee.com or we want to push something through a CPM basis through one of the platforms. What we want to do is invest more specifically within our influencer strategy, which is why you'll see Travis Pistrana just came on, which he's the largest action sports figure internationally. He's been with Red Bull for 20 years. He's a very recognizable name as far as both energy and then beverage space, and then action sports, which it's a big investment, but Travis has been a really good friend of ours for a long time. But the owned media strategy allows us to push traffic back to places like coffeeordie.com, where we have 2 million plus unique visitors per month, grow our channels, and then interact with our direct subscriptions related to our customer base so we can grow our and sustain our followers, interact with our customers, and then retarget them specifically with other products that we might be wanting to propel or push a little bit more visibility into. So each and every one of these is directly connected to the omni-channel flywheel that we continue to reference. That investment will continue to pay off, and it will yield us a greater result as we continue to grow Topline over the course of the next 12 to 36 months.

Okay, great. And then just one last question for me. The guidance you provided of $315 million, it's about $80 million increase from what you did in 2021. Can you help break down that increase by segment, by DTC outpost and wholesale? And I'm just curious, is 2022, is that growth really largely about the RTD business?

Yeah, George, it's Greg Iverson. And And as you noted, we didn't provide guidance by revenue channel. But as we think about it, as we think about growth rates going into in the year we're in right now, yes, RTD is absolutely going to be the growth leader during the current year. Our wholesale channel is going to have the highest growth rate, followed by Outpost. And we mentioned that we've got a really back-end loaded store opening schedule for 2022. So We're going to have significant growth within the outpost channel, but that growth rate from a revenue perspective really begins to accelerate into 2023. And so the lowest of the growth rates is, as you'd expect, within our direct consumer channel, which is a reminder of how the business was started and founded and where we've been operating for since inception.

Okay, understood. Thank you so much.

Thank you. Our next questions come from the line of Bill Chappell with Truist Securities. Please proceed with your questions.

Thanks. Good morning and welcome to the public world. Thank you, Bill. A couple questions just on the top line, just kind of for housekeeping. In the raise to $325 million or at least that this year, is that versus your original kind of expectations a couple months ago, is that largely all price or is it kind of the business momentum that's allowing you to raise it.

Bill, just to clarify, our prior revenue outlook that was in our investor presentation from last year was 311. Our raise right now is at 315 million. So it's a relatively modest raise as we go into the year. As Toby mentioned, we've got upside, we think, from a ready-to-drink perspective, but nothing that we've built yet into our baseline revenue outlook.

But if you didn't have, say, a 5% increase in the prior guidance and you do have it now, I'm just trying to understand, is it all just, hey, now we're reflecting the pricing? Obviously, there's still more upside there, but just want to make sure I'm not missing anything. Okay.

No, I don't think you are. I mean, I guess let's just go back to our 2021 results. We ended 2021 higher than our prior outlook. We were about 4% ahead from a revenue perspective. So our launch point into 2022 was slightly better than our prior outlook. And we've just reflected that in our updated guidance for 2022. Okay.

And then if you permit me kind of a more of a fundamental question, but Why being EBITDA positive, why is that important this year? You're a growth company. You've got a proven model. You've got so much opportunity to expand. Why not push that out even further and step up advertising, marketing, outpost growth, what have you, and get bigger faster? Just help me understand that because I'm not sure investors are as focused on when you turn to profitable. It seems to be more of a focus on the the opportunity on the top line. So just help me understand that from a fundamental or philosophy standpoint. Thanks.

Hey, Bill, it's Tom Davin here. Great question. And again, thanks for being on. So we are focused primarily on growth, but we made a commitment to public investors to that break even goal for last year and for current 2022. And we collectively have debated this, you know, could we go a lot faster? but we think we have the resources to drive the business and manage the middle of the P&L and hit that adjusted EBITDA break even for the year. It'll be an ongoing debate, but we think we've struck the right balance. Okay.

Yeah, and I'll tackle on that, too. By the way, this is Evan. So I think it's not only our firm commitment to, you know, as we look into the future, it's our commitment to focusing on all aspects of the business And we have to be, as we're eight years from my garage, we've been focused on becoming a high-growth company, but we also really have to focus on the bottom line and becoming profitable and have a pathway to profitability. So when we look at not only the growth story of the company, but we also have to look at how do we become profitable and how do we manage all aspects of the business in great detail. So it's both. I want us to be great at a lot of different things, but we have to be a great company.

No, that's very helpful. And if I could squeeze in one more, just on the outpost openings towards the fourth quarter, how much revenue expectation is from that? I mean, is there any risk if they open from October 15th versus December 15th to the model, or are you largely expecting those to generate revenue in 2023? Thank you.

Yeah, Bill, so... Obviously, it's a game of getting local permits to construct the shops, get them open on time with proper staffing and so forth. We think we've got a very conservative model. And the development team, obviously, working hand in hand with the operations team that will ultimately run the stores. The goal is to get stores open in October and Q4, not December. Because if you open them at the end of the year, obviously, you get all the cost and not any of the benefits. So, We think we've got an aggressive internal plan that more than supports what we put out there in the way of guidance for the external plan.

Yeah, and I'll just add to that too, Bill. It's an important question because we do have a pretty meaningful sequential step-up in our outpost revenue from Q3 to Q4 just based on those store openings. And the other thing that's important to call out too is we definitely see some seasonality within our coffee shops. particularly during the fourth quarter, which is our seasonal peak period, both in terms of beverages and then certainly folks coming into our shops to do some holiday shopping, picking up apparel, bagged coffee, and other products.

Great. Thanks for the color. Thank you, Bill. Thank you, Bill.

Thank you. Our next question has come from the line of Matt Curtis with William Blair. Please proceed with your questions.

Hi. Good morning. Thanks for taking my question. On marketing, you talked about the shift to more owned media going forward. I'm just curious, is this meant to improve brand awareness primarily with your existing core audience or is it really more to help build your brand with groups that may be newer perhaps to Black Rifle?

It's actually both. The philosophy behind this is when you're outsourcing all of your media, both from an external, what we'll say, media production perspective, and then also from a channel perspective, you have less control over how much you're spending, and there's more spend volatility as we look into the future. We're a social media brand, and we're very sophisticated. I would say that we're the most sophisticated coffee company when it comes to marketing and media. As we start to look at what type of investments return a positive ROI, we really looked at Our blog is a great example of this. When we looked at Coffee or Die, we looked at how much traffic that was driving from a pure cost perspective as far as what's it cost us in SG&A to run Coffee or Die, and then what does it yield us from a direct conversion standpoint from an internal investment from not only CPM but also conversion on a DTC standpoint. and then product conversion and other channels. What that did is it gave us a fairly sophisticated and predictable model to look at how do we invest in these things in the future? How do we grow these different aspects of the business? And that's something that we've gotten several years of look back on. It's not something that we're just looking into a crystal ball. We've actually got a very detailed perspective in that model. we think that we're not only suited to scale that aspect of the business, we're probably the only company in this category as far as beverage and coffee is concerned to do it.

Okay, got it. And then a last one. Regarding the redesigned outpost prototype, I'm just curious what you saw in the original design that prompted the change. I mean, Was it an issue with throughput or perhaps the look of the stores or something else?

Yes. So if you recall, our first store opened in August of 2020 in San Antonio, Texas. We call it the Bitter's Road store. It's just a monster. But that was a conversion of a failed barbecue restaurant. So it was a bit suboptimal, both from the consumer perspective and well as from the team member's perspective of supporting the barista, having the right storage for retail items and the like. So from day one, we knew we wanted to have a, if you will, fully fleshed out prototype store for us, for our brand partners, which we call our franchisees. So number one benefit is from the moment anybody would see the store from the street, it really screams Black Rifle branding in a full and authentic way. Then as you flow through either the drive-through where you come inside to shop in the retail space or get a coffee beverage, you get the fully branded experience. And at the same time, we optimize back-of-house ergonomics in terms of measuring footsteps for people to deliver, say, an espresso beverage to the drive-through. or to take care of people at the front counter, or to restock the shelves of the retail items. So we see tremendous benefit, and it's really just part of the natural evolution of a store fleet. And again, as I mentioned in my prepared remarks, we see 80% of the stores going forward this year being of that new prototype.

Okay, got it. Thanks very much, and good luck. Thanks, Matt.

Thank you. That is all the time we have for questions today. I would now like to turn the call back over to Tom Davin for any closing comments.

Well, thank you to everyone for joining our first ever Black Rifle Coffee Company public earnings call. We certainly enjoyed the questions. We look forward to the follow-up. And thank you all for participating this morning.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.