BRC Inc.

Greetings and welcome to the Black Rifle Coffee Company third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. The 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 third quarter 2022 financial results, which were released this morning and can be found on our website. Our chief financial officer, Toby Johnson, our chief operating officer, and Heath Nielsen, our chief retail officer. Before we get started, I would 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 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 measure 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 Tom Davin, co-CEO of Black Rifle Coffee Company. Tom?

Thanks, Tanner, and good morning, everyone. Thanks for joining our third quarter 2022 earnings call. Today, I will update you on our key strategic initiatives that will continue to power our growth into 2023 and beyond. Evan Hafer will further address our entry into the food, drug, and mass channel, as well as discuss marketing strategy moving into the new year. And Greg Iverson will walk through our Q3 results and balance sheet. As outlined during our last call, we have three key takeaways that summarize the Black Rifle Coffee Company business model. Number one, we are rapidly evolving from a pure play direct consumer company to an omni-channel business model built on a digitally native foundation. Our entry into the food, drug, and mass channel is a key piece of the puzzle in order to meet customers wherever they shop. Two, we are continuing to respond to significant rate of drink coffee product demand by adding capacity and execution capability. Number three, Black Rifle Coffee continues to have a unique connection to our loyal and growing community. Let me offer a bit more color on each of these key takeaways. Number one, we were rapidly evolving from a pure play D2C company to an omni-channel business model built on a digitally native foundation. Three years ago, we generated more than 90% of our revenue from our D2C business. As you can see from today's results, those numbers are changing rapidly as we take advantage of the ever-evolving landscape where consumers want to access their favorite brands wherever they are shopping. Over 66% of coffee drinkers only purchase their coffee for at-home consumption at retail, typically in the food, drug, and mass channel. So in order to satisfy our customer, we needed to enter this channel. Further, with Black Rifle Coffee aided brand awareness at 20% or lower across the United States, entering the FDM channel where the majority of coffee is purchased for at-home consumption acts as a billboard for our brand such that we expect to further increase our brand awareness. If you listened to our last earnings call in August, you'll remember that we discussed our plans to launch into the FDM channel and promise to update you with more details during this Q3 conference call. We're excited to announce that we launched Ground, Whole Bean and K-Cup or Rounds in Walmart in the early September timeframe. We're now in 100% distribution across the Walmart footprint, which includes close to 4,400 stores, as well as Walmart.com. For those who followed the BRCC story for multiple years, you'll recall that we previously stated we would only enter the FDM category with a retailer who could provide us with a high-quality presentation on shelf, where it would not be just a bag or two on the wall of coffee. We're incredibly excited to have started this collaboration. Why? Because America shops at Walmart with 90% of Americans living within 10 miles of Walmart store. And today, America's Coffee is available at Walmart. We were very selective about the opportunities where we mobilize the entire company behind it. And this was one where we knew we would have a fantastic opportunity for both our customers and the Black Rifle Coffee brand. Evan Hafer and our senior leaders are tremendously proud of our cross-functional business teams who rose to the challenge of meeting demanding timelines. and execution requirements for entry into this FDM channel. We are very pleased with the early results of our launch with Walmart and will share more details as this collaboration progresses. In order to get products in store and meet the expected volume of demand from the FDM customer base, We contracted with several new outsourced coffee roasters who can both meet our quality standards and grow with us over time. This new roasting capability for ground, whole bean, and K-cup coffee provides Black Rifle Coffee Company with the ability to meet the demand as we accelerate growth. Number two, we are continuing to respond to significant ready-to-drink product demand by adding additional capacity and execution capability. BRCC's ready-to-drink product continues to be the fastest-growing single-serve RTD coffee across all channels of trade, outpassing the RTD coffee category growth by 4.5 times. At the end of Q3, our Ready to Drink product is now sold in approximately 70,000 doors, up 99% from Q3 of last year. More importantly, our percentage ACV, or all commodity volume, as measured by Nielsen, which measures distribution across both convenience, gas, and FDM channels, has increased to 42.3%. from 13.6% at the beginning of 2022. Equally as important, our sell-through continues to perform at category-leading levels. As measured by units per door per week, BRCC's RTD beverage sell-through is up 8% since the beginning of the year, outpacing the category by double digits. With this rapid growth, you'll recall from our Q2 call that we were in the process of qualifying additional co-manufacturers to meet our growing demand. I'm pleased to announce that both of our two new co-manufacturers are now through the startup phase and this more than triples our previous available annual capacity. We're very encouraged by the success to date with our rated drink products consisting of four SKUs. Looking to the future, we presented new products from our innovation pipeline last month at the convenience store trade show NACS in Las Vegas. There is no doubt that innovation within the RTD coffee category will continue to drive growth. We presented three new core SKUs as well as two limited time seasonal offerings. Resets for 2023 are currently being planned and we foresee expanding our shelf space as we move from four to seven permanent SKUs and introduce additional LTOs. Enthusiasm from our current customers, suppliers, and others has us very excited about 2023 and 2024. Number three, Black Rifle Coffee has a unique connection to our loyal and growing community. We're the only mission-driven lifestyle brand in the coffee industry. The mission is a major driver of our success and continues to bring new customers into the Black Rifle Coffee ecosystem. As we enter new markets or expand our presence in an existing market, we continue to see the community grow. This was evident at our first Phoenix, Arizona outpost grand opening in mid-October. We've long known Phoenix was a top market for Black Rifle Coffee based on our direct consumer business. But we got to witness this fact in our first store within the Phoenix market. We had over 250 customers lined up at 0530 in the morning on the day of our grand opening. And there was a line out the door for much of the rest of the day. This enthusiasm continued for the remainder of the weekend, and this launch was one of our most successful store opening weekends yet. This couldn't have happened without the leadership of our retail team and our loyal community within the Phoenix market. We'll be back in the area in a few weeks to open our second outpost, and we're looking forward to seeing the excitement for the Black Rifle Coffee Company continue as we build out our footprint in the Phoenix market. Q4 update and guidance. Overall, we are pleased with our performance for the quarter. Our wholesale business delivered better than expectations and our D2C business held its own in a challenging market environment. Before I turn the call over to Evan, I want to provide some transparency into startup delays we had with our new co-manufacturers for a ready-to-drink product that will have a one-time impact on our fourth quarter revenue. During our Q2 earnings call, we discussed the startup of two new co-manufacturers. At that time, we had completed trial runs and we were excited to move into full production. We had two challenges in transitioning from trial runs into full production. that had a small impact in Q3 and will also have an impact in Q4. One of our new co-manufacturers had a production issue with one ready-to-drink SKU. The issue was not food safety related, but rather a situation where the product did not meet our demanding standards such that we deemed the product not saleable. After an in-depth review with our co-manufacturing partner, the problem was identified as equipment related and after an equipment change, the issue has been fully resolved. The second challenge we had was in procuring raw materials to meet startup timelines in order to produce our rated drink beverages at our co-manufacturers. The delay in raw material deliveries caused our two new co-manufacturing partners to delay manufacturing and release of product from August until November. This raw material issue has also been resolved we're currently in full production across all contract manufacturers. Since we launched our rated drink products in 2020, we've been fortunate that demand has far exceeded supply. The downside of such robust demand is that we've not been able to build up an adequate level of safety stock. So when manufacturing delays occur, like we had in the quarter, it directly impacts sales since we did not have inventory in hand to cover production delays. The new capacity we have contracted will also enable Black Rib Coffee to operate with safety stock levels that help mitigate any further supply chain challenges. Due to these two ready-to-drink production issues, we're bringing down our Q4 revenue target to a range of $90 million to $95 million. Approximately one-third of this adjustment is due to the equipment-related production issue, and two-thirds of the adjustment is due to production delays resulting from raw material issues. I am pleased to share that we are through both issues. Today we are fully manufacturing shipping ready-to-drink product on schedule. Further, the startup of these two co-manufacturers will enable enough capacity to meet our 2023 forecast, including a buildup of safety stock. Note that we will not need to start up any additional co-manufacturers to meet our 2023 forecast. With that, I'll now turn the call over to our CEO and founder, Evan Hafer. Evan. Thanks, Tom, and good morning, everyone.