BRC Inc.

As I mentioned, this was below our expectations. Sales growth was lower than we expected for two reasons. First, we cut investment in our direct to consumer or DTC business. Post the pandemic, consumer behaviors have shifted. As we look across the entire industry, fewer consumers are choosing to buy products directly from DTC sites. As this occurs, we find that our dollars spent in driving DTC awareness are less effective. And so we have chosen to allocate these dollars where we get a higher ROI. I'm proud of our team's discipline in creating clear principles around when to pull back on this spending. And as our growth shifts to other channels and other products, we will see the benefit of this. The good news is that consumers are continuing to seek out our products. Their shopping behavior is shifting back to either traditional or online retail. This takes me to my second point. While we continue to expect consumers to be able to find our products in almost every major grocery retailer in the US by the end of 2025, the rollout will be a bit slower. While commitments and discussions are going as planned, some retailer shelf resets that we expected to happen in 2024 are shifting to 2025. Given our strong performance on shelf, we continue to have very effective conversations with every major retailer in the country. Once customers try our products, we find that repeat purchase is strong. You can see this in the performance of our largest and first retail partner, where we grew plus 19% in the quarter. We are also seeing strong on-shelf performance from our new retail partners who began their rollouts of Black Rifle through the first two quarters of this year. At this point, we have committed launch windows for the largest five grocery chains between now and Q2 2025. Rounding out the quarter's highlights, our earnings and free cash flow measures were a tremendous success story for the second quarter, as we saw a 42% gross margin and nearly 700 basis point improvement over Q2 2023. Adjusted EBITDA improved from breakeven in the prior year to 8.5 million this quarter, and we posted our third consecutive quarter of positive free cash flow. up 31 million from the second quarter of 2023. Now please turn to slide six as I talk about our channel highlights. Based on Nielsen consumption data, we grew 28% in the second quarter and 35% year to date compared to a category decline of 2.5% and 1.7% respectively. Based on this strong consumption, we expect wholesale replenishment to strengthen in the following quarters. In fact, we are now the number seven brand in 12 ounce bagged coffee across the grocery channel and still have significant runway with an ACV of only 40%. Moving to slide seven. Similar to center store coffee, we continue to drive distribution gains in ready to drink or RTD. At the end of Q2, our distribution stands at 46.8% ACV, a 500 basis point increase versus a year ago. Through the first half of 2024, the RTD coffee category has slowed with a decline of 6.7% versus a year ago. But similar to the rest of the business, Black Rifle has exceeded the market by over 500 basis points. Slide eight. Beyond the gains we will continue to drive in RTD coffee, we're excited about the future of our RTD innovation with the introduction of Black Rifle Energy. Black Rifle Energy answers our consumers' desire for clean, low sugar energy delivered in a refreshing flavor profile. From our research, 58% of our customers have already purchased energy products and about 90% of our consumers are interested in energy derived from natural sources. And while we love coffee at Black Rifle, we find that many of the fans of our brand are looking for a more refreshing profile for their energy consumption. When designing Black Rifle Energy, we focused on three key areas. First, quality of ingredients and taste. As we have talked about in the past, we buy the very best coffee beans for our coffees. So similarly, we are sourcing the very best ingredients for our energy drinks. Our four flavors, Freedom Punch, Project Mango, Ranger Berry, and Wild Frost, scored exceptionally well with consumers. Second, we focused on energy delivery. As mentioned earlier, we spent a lot of time developing a clean energy delivery system from our green coffee extract and other natural caffeine sources. Finally, we developed design that brings forward our brand with an emphasis on our aggressive mission driven ethos. We believe it works well in tying existing elements of Black Rifle to a unique graphics architecture that will drive visibility from the shelf. Moving to slide nine. As mentioned, DTC top line was challenged by shifting consumer behavior and with that, a pullback on investment. As we have said many times, the consumer determines their buying preference, and we need to make sure we align our marketing and sales strategies to their needs. Across the industry, consumers find themselves relying less on the DTC channel. And on top of this, not all of our DTC business is seeing the same declines. Our subscription business, serving those consumers most loyal to the brand is stabilizing. Given the value of this segment of consumers, we will continue our investment in growing subscriptions and increasing our presence as the largest coffee subscription business in the US. Finally, I will reiterate what we've said previously about our outpost business. While the potential is unlimited in what our outposts can do to build our brand and revenue streams, now is not the right time for investment. We will continue to invest our capital in building our brand and wholesale distribution. We expect to share the full strategy for our outpost or coffee shop channel sometime in the next year. Now turning to our financial results, Steve.

Thank you, Madhans. Please turn to slide 11. Our continued efforts towards productivity improvements have resulted in our second consecutive quarter of gross margins in excess of our 40% target. Supply chain efficiencies, driven primarily by improvements in our distribution and logistics costs, added 420 basis points to our Q2 gross margin as compared to Q2 2023. The efforts to simplify our supply chain in both the number of partners used for manufacturing and distribution, as well as our internal cost management, are continuing to enable dramatically improved gross margins. In addition, our hedging efforts have mitigated the short-term increase in the market price of green coffee, reducing the spikes in our input costs for that important commodity. We also realized a favorable impact as our business shifts towards the high margin FDM business, which benefits from more efficient logistics model, adding another 140 basis points. Finally, we did realize a $1.8 million one-time impact in the quarter as we continue to align our loyalty reserve to the most recent trends. Slide 12. Adjusted EBITDA for the quarter was $8.5 million, up from break-even in the prior year. This is our third consecutive quarter of adjusted EBITDA exceeding 9% of revenue, which brings our year-to-date adjusted EBITDA to $22.6 million, a $27.7 million improvement over the last year to date. Our disciplined approach to managing administrative resources and external expenses has proven to be effective. This approach will become more impactful as revenue grows, providing additional economies of scale. Turning to slide 13, our Q2 revenue was challenged by the consumer-driven movement away from DTC and the timing of new wholesale partner load-ins. We believe this is a timing difference with respect to the revenue expansion in FDM. As new partners continue to come online, albeit at a slower pace than we presumed in the beginning of the year. In fact, our initial estimates are that FY 2025, our business as a whole will show an inflection in revenue buoyed by accelerating FDM growth as ACV expansion and SKU enhancement on shelves gain speed, as well as sales of our new energy drinks as we ramp ACV there. As Mons pointed out in his comments, we just posted our third consecutive quarter of positive free cash flow. We are proud of the dramatic inflection there as we delivered a $31 million improvement over the year-ago period. Additionally, we have seen a marked improvement in our working capital, including a sequential $6 million decrease in inventory and a $75 million year-on-year total working capital reduction. Please turn to slide 15. Before I provide color on our revised guidance for 2024, I wanted to share why our confidence in the top line trajectory is still so strong despite some of the delays and customer load-ins that are impacting our near-term numbers. We are winning in the markets that we currently serve, bagged in K-Cup coffee and retail and RTD coffee. We are outpacing the market in both categories as we take share and the result will be increased revenue over the next few years. The markets we serve have significant TAMs, and we are just beginning to penetrate. To dimension the opportunity, we entered the FDM coffee category in only one retailer a little more than 18 months ago. We are now rolling out to almost all retailers in the channel. FDM coffee is an $11 billion market, and as we broaden our exposure, we expect to achieve 6% share. In RTD, which has a TAM of 4 billion, And given our improving distribution and product innovation on the horizon, we think we can at least double our share over the next few years. And last but certainly not least, the RTD energy category is roughly a $20 billion market, and we believe we will achieve similar share in this market. This gives us confidence in our long-term outlook. For the reasons we've discussed, we are adjusting our 2024 revenue guidance down to 385 million to 415 million. However, we are moving our gross margin up to 39% to 42% and reiterating our adjusted EBITDA of 32 to 42 million. Finally, we reiterate our Q1 guidance of 80% free cash flow conversion. In summary, we are developing a trend of profitable quarterly results and expect to continue this trend in the quarters to come, which will ultimately enable us to provide maximum service to the veteran and first responder communities and long-term value to our shareholders. With that, I'll pass the call to the operator for the Q&A.

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