BRC Inc.

Greetings and welcome to the Black Rifle Coffee Company second quarter 2022 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 second quarter 2022 financial results, which we released this morning and can be found on our website at ir.gov. 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, Greg Iverson, Chief Financial Officer, and Heath Nielsen, Chief Retail Officer. Before we get started, I'd like to remind you of the company's Safe Harbor language, which I'm sure you are 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 further discussion of risks related to our business, please see our previous filings with the SEC. This call will 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're also available on our investor website. Now I'd like to turn the call over to Tom Davin, Co-Chief Executive Officer of Black Rifle Coffee Company.

Thanks Tanner and good morning everyone. Thanks for joining us on our second quarter 2022 earnings call. Today I will talk about the key strategic initiatives that will power our growth into 2023 and beyond. Evan Hafer will talk about brand evolution and marketing strategy. Greg Iverson will walk through the Q2 results. Here are the three key takeaways that are the foundation of this call. Number one, Black Rifle Coffee Company has a unique connection to our community. Number two, we are rapidly evolving our omni-channel business model in order to maximize profitable growth and return on investment. Number three, we're responding to significant rate of drink demand by adding capacity and execution capability. I'll provide more color on each of these headlines. Number one, Black Rifle Coffee Company has a unique connection to our community. We're the only mission-driven lifestyle brand in the coffee industry, and our mission is core to everything we do. The mission is a major driver behind our success to date because it resonates with our customers, our retail partners, vendors, and even our landlords as people align with and support the mission of helping active duty military, veterans, first responders, and their families. Because of the trust we built within our community, we're confident that we will continue to take market share as we increase brand awareness throughout the United States. Recall that we have a massive market opportunity. The U.S. coffee market is over $45 billion in size and we estimate the Black Rifle Coffee serviceable addressable market to be approximately $28 billion, which includes over 100 million consumers who are aligned with our brand values. We bring the Black Rifle Coffee Company brand to life through our own media capability, which is a significant competitive advantage. Evan will talk more about this capability, but in short, we are directing our marketing investment from paid media into areas where we have the most control and achieve the highest returns. Number two, we are rapidly evolving our omnichannel business model in order to maximize profitable growth and return on investment. The key advantage of our omnichannel business model is the capability to meet customers where they are. As you know, the elements of our model today include direct consumer, both subscription and non-subscription, outposts, and wholesale consisting of ready-to-drink and partnerships with leading retailers such as Bass Pro Shops. We've continued to see excellent sell-through of our ready-to-drink products in the food, drug, and mass channel. and that success has led several FDM accounts to reach out asking to sell our bagged coffee in rounds. Today, I'm excited to announce that due to demand from customers and retailers, we've made the strategic decision to enter the Food, Drug, and Mass, or FDM, channel in quarter four of this year with both bagged coffee and rounds. To help put the size of this opportunity in perspective, The at-home coffee market is roughly 40% of the overall coffee market or approximately $18 billion of the total addressable market and about $11 billion within our Black Rifle Coffee serviceable addressable market. To date, we've served this at-home segment primarily through our direct-to-consumer channel. Here's some additional information that will help explain why we are so excited. Roughly 4% of coffee purchases for at-home consumption are bought solely online. Approximately 30% of households are using the omnichannel approach of buying both in-store as well as online. The remaining 66% of individuals are only buying coffee in retail stores. By moving into the FDM channel, we will unlock a huge incremental opportunity to get Black Rifle Coffee into the hands of consumers, both new and existing. Related, we have a massive brand awareness opportunity with aided brand awareness currently below 20% around the United States. Entry into this FDM market done correctly with the right partners will boost brand awareness, contribute significant incremental revenue, and be margin creative as we will ship full truckloads of coffee to stores as opposed to one to four bags shipped to individual homes. In terms of timing, we'll be launching bags and rounds in the FDM channel in Q4 of this year, and we look forward to sharing launch details via our social media channels once the product is in market. Number three, we're responding to significant RTD demand by adding capacity and execution capability. Our leadership team and board of directors are committed to building a large enterprise that is both mission-driven and profitable. Evan Hafer calls this profit with a purpose. We're making progress in multiple strategic areas. The wholesale channel, including FDM and RTD, will command the highest priority for our leadership focus and investment, given its scalability and capital efficiencies. Focusing on RTD, our RTD products can now be found in approximately 67,000 doors, more than doubling from a year ago. As of Q2, we've overtaken Dunkin' as the number three RTD coffee in the convenience channel on a dollar per ACV basis, as measured by Nielsen. Further, we continue to be the fastest growing single-serve RTD coffee across all channels of trade. Today, our RTD products have approximately 30% penetration of convenience store and FDM accounts across the U.S. as measured by percent ACV, meaning the remaining 70% are a huge opportunity. Since our Ready to Drink product launch, demand has always outpaced our contract manufacturing capability. With the addition of our two new co-manufacturing partners now ramping up production, we will be able to capture more of the unmet demand and continue penetrating the remaining 70% of convenience store and FDM accounts. Because of this, we expect RTD revenue will be an area of meaningful outperformance in the second half of 2022 and significant growth in 2023, increasing our revenue outlook and forecast. Pulling together all the components of our omni-channel model, we are updating and increasing our previously disclosed revenue outlook. For 2022, we are increasing our revenue outlook to be at least $320 million as the ramp up in wholesale revenue from the new FDM channel will contribute to Q4 and continued ready-to-drink growth will further enhance the wholesale channel's growth in excess of our initial expectations. The $320 million in 2022 revenue represents 37% growth in revenue versus 2021 revenue of $233 million. Due to inflationary headwinds, elevated supply chain costs and the ramp up in hiring, especially for our wholesale channel. We now expect adjusted EBITDA to be a loss in 2022. Looking ahead to 2023, based on demand and new sources of supply, we see the FDM and RTD channels continuing to accelerate such that we are now giving an update to increase our revenue forecast previously disclosed at investor day to at least 500 million in 2023 revenue. representing growth of more than 50% relative to our 2022 revenue outlook. This revenue outlook is only inclusive of contracted RTD capacity to date and could be even higher if we are successful in onboarding additional co-manufacturers. Importantly, this revenue growth will enable substantial operating leverage in our P&L as the growth rate in SG&A will moderate versus our increased revenue growth rate. Combined with gross margin accretion from the FDM channel, we continue to expect our 2023 adjusted EBITDA margins to be in the low to mid single digits consistent with the margin originally forecasted at investor day. Lastly, let me address our direct-to-consumer and outpost channels in the context of our omnichannel model. For direct-to-consumer, the subscription business will always be the foundation of Black Rifle Coffee Company. We continue to invest in improving the selection and variety of subscription offerings, as well as the delivery and out-of-the-box experience. We expect revenue to decline in this channel, high single digit to low double digit versus 2021, as this year we continue to be disciplined with our marketing investments. Outposts. Given our sharpened focus on driving growth in the wholesale channel in the near term, we are now planning to open 10 company-owned stores in 2022 and 15 in 2023. The Outpost Strategy is an important growth platform and we anticipate it will deliver significant revenue growth in 2024 and beyond. We continue to make significant investments in the key drivers of cold beverage platform, mobile order and pay, loyalty, in-store experience, and, of course, leadership talent. Net-net, we've made a conscious decision to align company resources on the wholesale channel given the demand we are experiencing. The overperformance in the wholesale channel will more than offset the more conservative guidance for both direct consumer and outposts. With that, I will turn the call over to founder and CEO, Evan Hafer. Evan?