BRC Inc.

Greetings. Welcome to the Black Rifle Coffee Company fourth quarter and full year 2022 earnings call. At this time, all participants are on 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. 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 fourth quarter 2022 financial results which we released today and can be found on our website at ir.blackriflecoffee.com with me on the call today is evan hafer founder and ceo tom tavern co-ceo greg iverson 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 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 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. It's hard to imagine it's been a full year since our first earnings call as a public company, but I'm excited to share some highlights from 2022 and lay out our goals for 2023. Just under a decade ago, I started this business in my garage with a one-pound coffee roaster, roasting one bag at a time with my wife. At that time, we were just a small D2C brand focusing on a small portion of the coffee-drinking public. Fast forward to today, Black Rifle has established itself not only as a mainstream brand, but also as an omnichannel CPG business. Less than six months into our launch at Walmart, we have risen to the number four brand in bagged coffee, and within that, the number one selling branded 12-ounce bagged coffee, the largest dollar volume package size within Walmart's bagged coffee segment. We've also solidified ourselves as the fastest growing brand in ready-to-drink coffee, outpacing the category growth by over four times at year end. We are the number three RTD coffee within the convenience channel, outpacing Dunkin'. We've partnered with some of the most recognizable brands in the world, launching a co-branded coffee with Amazon Prime Video, and becoming the official coffee of the Dallas Cowboys. In addition, we've continued to maintain the biggest branded subscription coffee business in the United States and grown the largest social media following across all coffee companies and other lifestyle brands. We've done all of this with our aided brand awareness in the mid 20s. I'm more excited than I've ever been about the future of this brand as we're just getting started on this journey to a billion dollar business. Looking into 2023, we have three main goals that we are focused on. which are one, driving top-line revenue growth, two, increasing brand awareness, and three, achieving profitability. Our decision to distribute bagged coffee and rounds within Food, Drug, and Mass, or FDM, was driven with all three goals in mind. The at-home coffee segment is an $11 billion market, with Walmart's coffee sales representing about a third of that volume. Entering into the FDM channel allowed us to participate in the segment where most coffee is purchased for at-home consumption. Not only is FDM Coffee our most profitable channel, but it's also the most cost-efficient way to increase brand awareness and reach new customers. We previously mentioned that 66% of our shoppers exclusively purchase coffee from brick and mortar locations. These shoppers were previously unreachable to our brand, but we are increasing our availability to be accessible wherever coffee customers shop. In late Q3 of 2022, we entered over 4,400 Walmart stores with a product assortment of 24 SKUs, including both bagged coffee and rounds. Black Rifle has quickly risen to the number four brand in bagged coffee, eclipsing the sales of a number of established brands. The incrementality that our brand is driving on shelf is extremely compelling. Per numerator data, almost 35% of households that purchase Black Rifle coffee were new coffee buyers to Walmart. These shoppers had shopped at Walmart previously, but had not purchased anything from the coffee category in the prior 26 weeks prior to launch. Additionally, the data indicates 62% of their households purchased Black Rifle were switching from another brand. With over 30 million shoppers visiting Walmart stores each day, we're confident that our premium products and mission-driven brand will continue to create a new and loyal customer while increasing our brand awareness. We are less than six months into our launch into the FDM strategy, and we've been focused on executing and delivering on the commitments of our initial rollout. We're still at the beginning of this journey, but the initial results indicate that we are winning and taking market share from other established brands and the largest coffee retailer in FDM. This confirms that our strategic expansion was the right decision for the company. As we continue to transition from primarily D2C to an omnichannel CPG business, our marketing strategy is mirroring that transition. With this, we are able to focus our marketing spend on high-level brand awareness, as well as wholesale-specific marketing campaigns. We're spending less total dollars in D2C, and because of this, we've elevated our expectations for returns on this spend. This higher return on ad spend, ROAS, is driving lower customer acquisition costs and increasing profitability. This overall shift into marketing spend will enable leverage on the marketing line for 2023 and beyond. Being efficient in our marketing spend is one of the drivers for achieving profitability in 2023. We are also reducing corporate SG&A costs and driving gross margin as we strive to achieve our adjusted EBITDA goals for the year. Growing our brand and driving profitability allows us to support our mission by continuing to give back to those who have served. Our mission was the foundation of this company when I started it almost a decade ago. In 2022, we've donated over $2 million in cash in coffee and to veteran and active duty and first responder causes. Close to half of all of our employee base are veterans and veteran spouses, and we continue to hire more as the business grows. We want to be a shining example for how military veterans can build a successful company. Our mission comes with challenges, but so does every mission for which we've deployed. Our challenges are different now, but we meet them with the same determination and expectations for results as I did when I was a Green Beret. I founded this company to make a difference in veterans' lives, and we're doing that every day. I'm proud of our team for the tremendous growth they've driven over the past year. and how well they've adapted to growing multiple businesses simultaneously. I'm just as driven now as I was when I started the business back in 2014. 2023 will be a banner year for Black Rifle.