Q2 2022 BRC Inc Earnings Call

August 11, 2022

Operator: Greetings, and welcome to the Black Rifle Coffee Company Q2 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.

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. 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.

Tanner Doss: Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our Q2 2022 financial results, which we 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, Greg Iversen, 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.

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.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, Greg Iverson, Chief Financial Officer, and Heath Nielsen, Chief Retail Officer. Before we get.

Tanner Doss: 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 are 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.

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.

Tom Davin: Thanks, Tanner, and good morning, everyone. Thanks for joining us on our Q2 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 Iversen 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 ready to 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.

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 rated drink demand by adding capacity and execution capability. I'll provide more color on each of these headlines.

Tom Davin: We are 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've 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. US 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.

Number one, Black Rifle Coffee Company has a unique connection to our community. We are 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 US 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.

Tom Davin: 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 omni-channel business model in order to maximize profitable growth and return on investment. The key advantage of our omni-channel business model is the capability to meet customers where they are. As you know, the elements of our model today include direct-to-consumer, both subscription and non-subscription, outposts, and wholesale, consisting of ready-to-drink and partnerships with leading retailers such as Bass Pro Shops.

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 omni-channel business model in order to maximize profitable growth and return on investment.

The key advantage of our omni-channel 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.

Tom Davin: 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 Q4 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.

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 and 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. Thank you all so much for joining in this event.

To date, we've served this at-home segment primarily through our direct consumer channel. Here's some additional information that will help explain why we are so excited.

Tom Davin: Roughly 4% of coffee purchases for at-home consumption are bought solely online. Approximately 30% of households are using the omni-channel 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 accretive as we will ship full truckloads of coffee to stores as opposed to 1 to 4 bags shipped to individual homes.

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.

Tom Davin: 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 3, 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 efficiency. Focusing on RTD, our RTD products can now be found in approximately 67,000 doors, more than doubling from a year ago.

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 efficiency. Focusing on RTD, our RTD products can now be found in approximately 67,000 doors, more than doubling from a year ago.

Tom Davin: As of Q2, we've overtaken Dunkin' as the number 3 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 US 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 2 new co-manufacturing partners now ramping up production, we'll be able to capture more of the unmet demand and continue penetrating the remaining 70% of convenience store and FDM accounts.

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.

Tom Davin: Because of this, we expect RTD revenue will be an area of meaningful outperformance in the H2 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.

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. So $320 million in 2022 revenue represents 37% growth in revenue versus 2021 revenue.

Tom Davin: 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.

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. And 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.

Tom Davin: 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 omni-channel 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.

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 consumer and outpost channels in the context of our omni-channel model.

For direct 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.

Tom Davin: 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 to consumer and outposts. With that, I will turn the call over to Founder and CEO, Evan Hafer. Evan?

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. NetNet, 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.

Evan Hafer: Thanks, Tom, and good morning, everyone. Thank you for joining us on our Q2 2022 earnings call. For those of you that aren't familiar with our story, I wanna start with a quick background on why we are Black Rifle Coffee Company. BRCC's story starts in 2013 when I was working on a range training former special operations veterans to come over and join the CIA. I had a little 1-pound roaster that was on the back tailgate of a government truck, and I was roasting coffee for the soldiers that were going through the course. I had my service rifle sitting right next to my coffee roaster. At that time, I thought, "Well, I'll just put these two things together and merge the names Black Rifle and Coffee.

With that, I'll turn the call over to founder and CEO Evan Hafer. Evan? Thanks, Tom, and good morning, everyone. Thank you for joining us on our second quarter of 2022 earnings call.

For those of you that aren't familiar with our story, I want to start with a quick background on why we are Black Rifle Coffee Company. BRCC's story starts in 2013 when I was working on a range training former Special Operations veterans to come over and join the CIA. I had a little one pound roaster that was on the back tailgate of a government truck and I was roasting coffee for the soldiers that were going through the course. I had my service rifle sitting right next to my coffee roaster.

Evan Hafer: It'll be a tribute to the generations of men and women that have served our great country and continue to serve our country. That's exactly what I did, and I founded Black Rifle Coffee in 2014. We've come a long way since 2014, and BRCC's business model has continued to evolve since we first launched our coffee subscription. We entered the pandemic as a pure D2C business, and exited as an omni-channel business, launching our wholesale channel as well as the Outpost business. Over the past couple quarters, these strategic initiatives have really paid off as we've had the ability to meet our customers wherever they shop, be it online with our D2C subscriptions or purchasing our ready-to-drink products in C stores and grocery stores, or visiting us at one of our 21 Outposts.

At that time I thought, well, I'll just put these two things together and merge the names black rifle and coffee. It will be a tribute to the generations of men and women that have served our great country and continue to serve our country.

So that's exactly what I did and I founded Black Rifle Coffee in 2014. We've come a long way since 2014. And BRCC's business model has continued to evolve since we first launched our coffee subscription. We entered the pandemic as a pure D2C business and exited as an omni-channel business.

launching our wholesale channel as well as the Outpost business. Over the past couple quarters these strategic initiatives have really paid off as we've had the ability to meet our customers wherever they shop be it online with our D2C subscriptions or purchasing our ready to drink products in C stores and grocery stores or visiting us at one of our 21 Outposts. We've continued to see the evolution of our customer and where they are purchasing our product. Since we've launched our RTD product within the FDM channel we've

Evan Hafer: We've continued to see the evolution of our customer and where they are purchasing our product. Since we've launched our RTD product within the FDM channel, we've seen tremendous demand from our customers to have our products wherever they're shopping. As Tom mentioned earlier, over 66% of at-home drinkers are buying their coffee within the FDM channel. This not only allows us to serve our current customer base, but it also opens up an entirely new customer base who might not have tried our product in the past. Now, before Greg gets into our Q2 results, I also wanna touch on how the tremendous growth and the mission of our business has led us to work with some of the most recognizable brands in the world. We're incredibly excited about our first partnership with Amazon on a launch of The Terminal List series on Amazon Prime.

seen tremendous demand from our customers to have our products wherever they're shopping. As Tom mentioned earlier, over 66% of at-home drinkers are buying their coffee within the FDM channel. This not only allows us to serve our current customer base, but it also opens up an entirely new customer base who might not have tried our product in the past. Now before Greg gets into our second quarter results, I also want to touch on how the tremendous growth...

and the mission of our business has led us to work with some of the most recognizable brands in the world. We're incredibly excited about our first partnership with Amazon on a launch of the Terminal List series on Amazon Prime. Our good friend Jack Carr, the Terminal List author and executive producer for the show, wanted an exclusive Black Rifle coffee aptly named Terminal List as part of the launch of the new series. In this collaboration, all profits from BRCC coffee sales will be donated and uploaded from the decisively*=-

Evan Hafer: Our good friend Jack Carr, the Terminal List author and executive producer for the show, wanted an exclusive Black Rifle Coffee, aptly named Terminal List, as part of the launch of the new series. In this collaboration, all profits from BRCC coffee sales will be donated to the Special Operations Warrior Foundation and the Hunter Seven Foundation to support veterans. This partnership goes hand in hand with BRCC's mission to give back to our veterans. For the trained eye, you can also see our hat worn proudly by the show's main character, played by Chris Pratt, and our T-shirts and stickers throughout the show. This quarter, we've also become the official coffee of the Dallas Cowboys, and now America's team will be serving America's coffee throughout the stadium.

to the Special Operations Warrior Foundation and the Hunter Seven Foundation to support veterans. This partnership goes hand in hand with BRCC's mission to give back to our veterans. For the trained eye, you can also see our hat worn proudly by the show's main character played by Chris Pratt and our t-shirts and stickers throughout the show. This quarter we've also become the official coffee of the Dallas Cowboys and now America's team will be serving America's coffee throughout the stadium.

Evan Hafer: We will have 2 standalone kiosks, frozen drinks and 2 bars, coffee in over 300 suites, and our products in 12 concession stands. We started this partnership through the Dallas Cowboys' commitment to giving back to active duty military, veteran, and first responder communities. Our mutual dedication to those serving or have served our country makes us so proud to stand by this partnership. Similar to our exclusive coffee we made for Amazon, we also worked alongside the Dallas Cowboys by launching the Medal of Honor blend of coffee, where all profits will go back to the National Medal of Honor Museum in Arlington, Texas. Outside of our latest company partnerships, we've also continued shifting our marketing spend from paid media to more of an owned media strategy.

We will have two standalone kiosks, frozen drinks in two bars, coffee in over 300 suites and our products in 12 concession stands. We started this partnership through the Dallas Cowboys commitment to giving back to active duty military veteran and first responder communities. Our mutual dedication to those serving or have served our country makes this partnership so proud to stand by. Similar to our exclusive coffee we made for Amazon, we also worked alongside the Dallas Cowboys by launching the Medal of Honor blend of coffee.

where all profits will go back to the Medal of Honor Museum in Arlington, Texas. Outside of our latest company partnerships, we've also continued shifting our marketing spend from paid media to more of an owned media strategy. With our customer acquisition costs continuing to climb post the iOS change.

Evan Hafer: With our customer acquisition costs continuing to climb post the iOS change, we've continued shifting our marketing efforts through investments in influencers, brand ambassadors, podcasts, and sports. Most recently, we finished filming BJ Baldwin's Recoil and Travis Pastrana's Gymkhana series. They'll both be coming out in Q4. As a reminder, these video series have a huge global following, with Recoil having over 500 million YouTube views and Gymkhana franchise having over 1 billion YouTube views. This content appeals to our core community as well as a broader global audience, which will help continue to grow our brand recognition. Finally, we also announced the appointment of Roland Smith as our Executive Chairman. With this transition, I will continue to remain a CEO and board member.

We've continued shifting our marketing efforts through investments and influencers brand ambassadors podcasts and sports. Most recently we finished filming BJ Baldwin's recoil and Travis Pastrana's Jim Kana series.

They'll both be coming out in Q4.

As a reminder, these video series have a huge global following, with Recoil having over 500 million YouTube views and Jim Kahn a franchise having over a billion YouTube views.

This content appeals to our core community as well as a broader global audience which will help continue to grow our brand recognition. Finally, we also announced the appointment of Roland Smith as our executive chairman. With this transition, I will continue to remain a CEO and board member. Roland's experience with BRCC as a board member and his extensive background in consumer packaged goods, restaurant and retail sectors make him the perfect fit for this role. Roland's background as a US Army aviation officer.

Evan Hafer: Roland's experience with BRCC as a board member and his extensive background in consumer packaged goods, restaurant, and retail sectors make him the perfect fit for this role. Roland's background as a US Army aviation officer provides him with an innate understanding of our community and vision. We are very fortunate to have Roland on the board, and his additional expertise within our management team is extremely helpful given the momentum and the opportunities we are seeing in this business. In conclusion, the expansion into FDM rounds out our omni-channel flywheel model. As we broaden our distribution to meet our customers where they are, we are still maniacally focused on providing the best experience to our customer in whatever channel they're purchasing our product.

provides him with an innate understanding of our community and vision. We are very fortunate to have Roland on the board and his additional expertise within our management team is extremely helpful given the momentum and the opportunities we are seeing in this business.

In conclusion, the expansion into FDM rounds out our omni-channel flywheel model. As we broaden our distribution to meet our customers where they are, we are still maniacally focused on providing the best experience to our customer in whatever channel they're purchasing our product. Our unique connection to our customer base allows us to shape and modify our advertising in order to effectively and efficiently meet the demands of our customer.

Evan Hafer: Our unique connection to our customer base allows us to shape and modify our advertising in order to effectively and efficiently meet the demands of our customer. Every decision we make is influenced by our mission of helping veterans, first responders, and their families. Now I'll pass it over to Greg Iversen to walk through the financial details of the quarter. Greg?

Every decision we make is influenced by our mission of helping veterans first responders and their families. Now I'll pass it over to Greg Iverson to walk through the financial details of the quarter.

Greg Iversen: Thanks, Evan, and good morning, everyone. Today, I will expand on the update that Tom provided on our Q2 results, provide some additional perspective as you update your models in the H2 of the year, and walk quickly through our balance sheet and share count before we open the call to answer your questions. Turning first to our financial results, during our Q2, we continued our impressive growth trajectory and made significant progress on key strategic initiatives that will enable us to deliver on our near-term and long-range plans. For the Q2, total revenues increased 27% to $66.4 million, compared to $52.4 million in Q2 of last year. The meaningful increase in revenue was driven by our wholesale and outpost sales channels, which continued their remarkable growth, increasing by 145% and 98% respectively, versus last year.

Greg Iverson: Thanks, Evan, and good morning, everyone. Today, I will expand on the update that Tom provided on our Q2 results, provide some additional perspective as you update your models in the H2 of the year, and walk quickly through our balance sheet and share count before we open the call to answer your questions. Turning first to our financial results, during our Q2, we continued our impressive growth trajectory and made significant progress on key strategic initiatives that will enable us to deliver on our near-term and long-range plans. For the Q2, total revenues increased 27% to $66.4 million, compared to $52.4 million in Q2 of last year. The meaningful increase in revenue was driven by our wholesale and outpost sales channels, which continued their remarkable growth, increasing by 145% and 98% respectively, versus last year.

Greg? Thanks Evan and good morning everyone. Today I will expand on the update that Tom provided on our second quarter results, provide some additional perspective as you update your models in the back half of the year, and walk quickly through our balance sheet and share count before we open the call to answer your questions. Turning first to our financial results, during our second quarter we continued our impressive growth trajectory and made significant progress on key strategic initiatives.

that will enable us to deliver on our near-term and long-range plans. For the second quarter, total revenues increased 27 percent to $66.4 million compared to $52.4 million in Q2 of last year.

The meaningful increase in revenue was driven by our wholesale and outpost sales channels, which continued their remarkable growth increasing by 145% and 98% respectively versus last year.

Greg Iversen: Now I will give some additional details on our three sales channels. First, our direct-to-consumer revenue was $37 million, compared to $39.8 million in Q2 of last year. This decrease was primarily due to lower e-commerce sales in a post-COVID environment where more consumers who transitioned to buying coffee online during the pandemic are returning to brick and mortar. We ended the quarter with 288,000 subscribers, representing growth of 4% over Q2 of last year, but a decline of 2.7% sequentially from the end of Q1 2022. The small decline in subscribers from Q1 was not due to increased subscriber churn, but rather was a result of our decision to redirect marketing investments to other faster-growing areas of the business as we continue to experience elevated D2C and subscriber acquisition costs.

Greg Iverson: Now I will give some additional details on our three sales channels. First, our direct-to-consumer revenue was $37 million, compared to $39.8 million in Q2 of last year. This decrease was primarily due to lower e-commerce sales in a post-COVID environment where more consumers who transitioned to buying coffee online during the pandemic are returning to brick and mortar. We ended the quarter with 288,000 subscribers, representing growth of 4% over Q2 of last year, but a decline of 2.7% sequentially from the end of Q1 2022. The small decline in subscribers from Q1 was not due to increased subscriber churn, but rather was a result of our decision to redirect marketing investments to other faster-growing areas of the business as we continue to experience elevated D2C and subscriber acquisition costs.

Now I will give some additional details on our three sales channels. First, our direct consumer revenue was $37 million compared to $39.8 million in Q2 of last year.

This decrease was primarily due to lower e-commerce sales in a post-COVID environment where more consumers who transitioned to buying coffee online during the pandemic are returning to brick and mortar.

We ended the quarter with 288,000 subscribers, representing growth of 4% over Q2 of last year, but at a climb of 2.7% sequentially from the end of Q1 2022.

The small decline in subscribers from Q1 was not due to increased subscriber churn, but rather was a result of our decision to redirect marketing investments to other, faster growing areas of the business as we continue to experience elevated D-to-C and subscriber acquisition costs.

Greg Iversen: Note that last month, during July, we also revamped our pricing matrix for our bag coffee subscription business, increasing the price per subscription bag of coffee by $1, which will partially offset the inflationary impacts of increased costs of green coffee and shipping. This change was made after significant analysis and supported by a comprehensive subscriber communication program. Thus far, we have not seen any elasticity in the subscriber base and continue to see our churn rate remaining steady at 3% to 4%, which is a testament to the quality of our coffee and loyalty of our coffee club members. While our D2C channel has been the core of Black Rifle and remains important to us, we are focused on ensuring our customers can access our products when and where they choose.

Greg Iverson: Note that last month, during July, we also revamped our pricing matrix for our bag coffee subscription business, increasing the price per subscription bag of coffee by $1, which will partially offset the inflationary impacts of increased costs of green coffee and shipping. This change was made after significant analysis and supported by a comprehensive subscriber communication program. Thus far, we have not seen any elasticity in the subscriber base and continue to see our churn rate remaining steady at 3% to 4%, which is a testament to the quality of our coffee and loyalty of our coffee club members. While our D2C channel has been the core of Black Rifle and remains important to us, we are focused on ensuring our customers can access our products when and where they choose.

Note that last month, during July , we also revamped our pricing matrix for our bagged coffee subscription business, increasing the price per subscription bag of coffee by $1, which will partially offset the inflationary impacts of increased costs of green coffee and shipping.

This change was made after significant analysis and supported by a comprehensive subscriber communication program.

Thus far, we have not seen any elasticity in the subscriber base and continue to see our churn rate remaining steady at 3-4%, which is a testament to the quality of our coffee and loyalty of our coffee club members. While our D2C channel has been the core of Black Rifle and remains important to us, we are focused on ensuring our customers can access our products when and where they choose.

Greg Iversen: The shift we and other D2C companies are experiencing with consumers returning to brick-and-mortar for their purchases is another data point that validates we made the right decisions in 2020 to broaden from a D2C business to an omni-channel model. Before I turn to our wholesale channel, I want to be clear that we approach capital allocation to our sales channels from a disciplined perspective, and to that end, we will continue to invest where we see the greatest opportunities. Today, that is in our wholesale channel. While we could be investing more heavily in new customer acquisition in our D2C channel, those investments would currently yield a lower return than the investments we're making in our wholesale channel. Importantly, we are confident we can achieve the financial outlook that Tom discussed earlier today in an environment with declining D2C revenues.

Greg Iverson: The shift we and other D2C companies are experiencing with consumers returning to brick-and-mortar for their purchases is another data point that validates we made the right decisions in 2020 to broaden from a D2C business to an omni-channel model. Before I turn to our wholesale channel, I want to be clear that we approach capital allocation to our sales channels from a disciplined perspective, and to that end, we will continue to invest where we see the greatest opportunities. Today, that is in our wholesale channel. While we could be investing more heavily in new customer acquisition in our D2C channel, those investments would currently yield a lower return than the investments we're making in our wholesale channel. Importantly, we are confident we can achieve the financial outlook that Tom discussed earlier today in an environment with declining D2C revenues.

The shift we and other D2C companies are experiencing with consumers returning to brick and mortar for their purchases is another data point that validates we made the right decisions in 2020 to broaden from a D2C business to an omnichannel model.

Before I turn to our wholesale channel, I want to be clear that we approach capital allocation to our sales channels from a disciplined perspective and to that end we will continue to invest where we see the greatest opportunities. Today that is in our wholesale channel. While we could be investing more heavily in new customer acquisition in our D to C channel, those investments would currently yield a lower return than the investments we're making in our wholesale channel.

Importantly, we are confident we can achieve the financial outlook that Tom discussed earlier today in an environment with declining D to C revenues.

Greg Iversen: Additionally, we are laser-focused on both becoming operating cash flow positive in the near term and making the prudent investments that support sustainable growth for our business. Turning to our wholesale channel, revenue increased 145% to $24 million in Q2 compared to $9.8 million during the prior year period. The increase was primarily driven by growth in our RTD product and expanding wholesale partnerships. Our RTD product can now be found in almost 67,000 doors, more than doubling from a year ago. Moving to our outpost channel, revenue increased 98% to $5.4 million in Q2 compared to $2.7 million in Q2 of last year. This was primarily due to an increase in the number of company-owned outposts, which increased to 10 outposts as of the end of Q2 compared to 3 outposts a year ago.

Greg Iverson: Additionally, we are laser-focused on both becoming operating cash flow positive in the near term and making the prudent investments that support sustainable growth for our business. Turning to our wholesale channel, revenue increased 145% to $24 million in Q2 compared to $9.8 million during the prior year period. The increase was primarily driven by growth in our RTD product and expanding wholesale partnerships. Our RTD product can now be found in almost 67,000 doors, more than doubling from a year ago. Moving to our outpost channel, revenue increased 98% to $5.4 million in Q2 compared to $2.7 million in Q2 of last year. This was primarily due to an increase in the number of company-owned outposts, which increased to 10 outposts as of the end of Q2 compared to 3 outposts a year ago.

Additionally, we are laser focused on both becoming operating cash flow positive in the near term and making the prudent investments that support sustainable growth for our business.

Turning to our wholesale channel, revenue increased 145 percent to 24 million in Q2 compared to 9.8 million during the prior year period.

The increase was primarily driven by growth in our RTD product and expanding wholesale partnerships.

Our RTD product can now be found in almost 67,000 doors, more than doubling from a year ago.

Moving to our Outpost channel, revenue increased 98% to $5.4 million in Q2, compared to $2.7 million in Q2 of last year.

This was primarily due to an increase in the number of company-owned outposts, which increased to 10 outposts as of the end of Q2, compared to 3 outposts a year ago. Overall, we continue to be impressed by the growth in our wholesale channel, specifically our RTD product in both convenience and food, drug, and mass. Turning to our profitability, our Q2 gross margin was 34%, decreasing 671 basis points from 40.7% in Q2 of last year. The decrease was driven by higher product costs,

Greg Iversen: Overall, we continue to be impressed by the growth in our wholesale channel, specifically our RTD product in both convenience and food, drug, and mass. Turning to our profitability, our Q2 gross margin was 34%, decreasing 671 basis points from 40.7% in Q2 of last year. The decrease was driven by higher product costs, including increases in green coffee and RTD ingredients, as well as a continued shift in our product mix as our RTD has a higher product cost and lower gross margin as compared to rounds and ground and whole bean coffee. Our wholesale business now accounts for 36% of total revenues versus 19% in Q2 of last year. In addition, we've continued to see inflationary pressures from our third-party suppliers on everything from T-shirts to corrugate for our small parcel shipping.

Greg Iverson: Overall, we continue to be impressed by the growth in our wholesale channel, specifically our RTD product in both convenience and food, drug, and mass. Turning to our profitability, our Q2 gross margin was 34%, decreasing 671 basis points from 40.7% in Q2 of last year. The decrease was driven by higher product costs, including increases in green coffee and RTD ingredients, as well as a continued shift in our product mix as our RTD has a higher product cost and lower gross margin as compared to rounds and ground and whole bean coffee. Our wholesale business now accounts for 36% of total revenues versus 19% in Q2 of last year. In addition, we've continued to see inflationary pressures from our third-party suppliers on everything from T-shirts to corrugate for our small parcel shipping.

including increases in green coffee and RTD ingredients, as well as a continued shift in our product mix as our RTD has a higher product cost and lower gross margin as compared to rounds and ground and whole bean coffee.

Our wholesale business now accounts for 36% of total revenues versus 19% in Q2 of last year. In addition, we've continued to see inflationary pressures from our third-party suppliers on everything from t-shirts to corrugate for our small parcel shipping. We have also made several productivity and pricing improvements throughout the quarter. On the productivity side, we consolidated and moved our small parcel shipping to a new carrier. This move saved us over 10% per parcel.

Greg Iversen: We have also made several productivity and pricing improvements throughout the quarter. On the productivity side, we consolidated and moved our small parcel shipping to a new carrier. This move saved us over 10% per parcel. On the pricing front, as we mentioned on our Q1 call, we notified our RTD wholesale customers of a price increase that went into effect in late June, and we also increased our non-subscription pricing and our D2C shipping rates. As I mentioned a moment ago, we recently rolled out a new pricing matrix in July for our subscribers, and we are beginning to see the benefit of that increase. Our consumers remain engaged with the brand, and we've seen our churn rate remain within its historical range since we implemented the pricing change.

Greg Iverson: We have also made several productivity and pricing improvements throughout the quarter. On the productivity side, we consolidated and moved our small parcel shipping to a new carrier. This move saved us over 10% per parcel. On the pricing front, as we mentioned on our Q1 call, we notified our RTD wholesale customers of a price increase that went into effect in late June, and we also increased our non-subscription pricing and our D2C shipping rates. As I mentioned a moment ago, we recently rolled out a new pricing matrix in July for our subscribers, and we are beginning to see the benefit of that increase. Our consumers remain engaged with the brand, and we've seen our churn rate remain within its historical range since we implemented the pricing change.

On the pricing front, as we mentioned on our Q1 call, we notified our RTD wholesale customers of a price increase that went into effect in late June , and we also increased our non-subscription pricing and our D2C shipping rates.

As I mentioned a moment ago, we recently rolled out a new pricing matrix in July for our subscribers, and we are beginning to see the benefit of that increase.

Our consumers remain engaged with the brand and we've seen our churn rate remain within its historical range since we implemented the pricing change.

Greg Iversen: As I mentioned, we are investing to support our growth, and as such, our operating expenses during Q2 increased by approximately 51% to $39.4 million as compared to $26.1 million last year. I will quickly walk through the drivers of these increases, beginning with marketing and advertising. For Q2 2022, marketing expenses slightly increased 1% to $9 million from $8.9 million in the prior year period. As a percentage of sales, marketing decreased by 349 basis points to 13.6% compared to the same quarter last year. The decrease in expense as a percentage of revenue was driven by more targeted ad spend in our D2C channel and growth in our wholesale and outpost channels, which require a lower marketing spend than D2C.

Greg Iverson: As I mentioned, we are investing to support our growth, and as such, our operating expenses during Q2 increased by approximately 51% to $39.4 million as compared to $26.1 million last year. I will quickly walk through the drivers of these increases, beginning with marketing and advertising. For Q2 2022, marketing expenses slightly increased 1% to $9 million from $8.9 million in the prior year period. As a percentage of sales, marketing decreased by 349 basis points to 13.6% compared to the same quarter last year. The decrease in expense as a percentage of revenue was driven by more targeted ad spend in our D2C channel and growth in our wholesale and outpost channels, which require a lower marketing spend than D2C.

As I mentioned, we are investing to support our growth and as such our operating expenses during Q2 increased by approximately 51% to $39.4 million as compared to $26.1 million last year.

I will quickly walk through the drivers of these increases, beginning with marketing and advertising. For the second quarter of 2022, marketing expenses slightly increased 1% to 9 million from $8.9 million in the prior year period.

As a percentage of sales, marketing decreased by 349 basis points to 13.6% compared to the same quarter last year.

The decrease in expense as a percentage of revenue was driven by more targeted ad spend in our D2C channel and growth in our wholesale and outpost channels which require a lower marketing spend than D2C. Next, salaries, wages, and benefits increased 36% to $15.5 million from $11.4 million in the second quarter of 2021.

Greg Iversen: Next, salaries, wages, and benefits increased 36% to $15.5 million from $11.4 million in Q2 2021. As a percentage of revenue, they increased by 156 basis points to 23.4% compared to 21.8% last year. The increase was primarily driven by increased employee headcount to support our significant sales growth, especially investments in key positions to support the growth of our wholesale and outpost channels. Within wholesale, we've added materially to our internal sales team as well as additional leadership for our coffee entry into the food, drug, and mass space. Furthermore, as I mentioned last quarter, 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.

Greg Iverson: Next, salaries, wages, and benefits increased 36% to $15.5 million from $11.4 million in Q2 2021. As a percentage of revenue, they increased by 156 basis points to 23.4% compared to 21.8% last year. The increase was primarily driven by increased employee headcount to support our significant sales growth, especially investments in key positions to support the growth of our wholesale and outpost channels. Within wholesale, we've added materially to our internal sales team as well as additional leadership for our coffee entry into the food, drug, and mass space. Furthermore, as I mentioned last quarter, 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.

As a percentage of revenue, they increased by 156 basis points to 23.4% compared to 21.8% last year. The increase was primarily driven by increased employee headcount to support our significant sales growth, especially investments in key positions to support the growth of our wholesale and outpost channels. Within wholesale, we've added materially to our internal sales team, as well as additional leadership for our coffee entry into the food, drug, and mass space.

Furthermore, as I mentioned last quarter, 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. As we build our Outpost business, you will continue to see growth in Salaries, Wages, and Benefits. Finally, G&A expenses increased 9.1 million, or 158%, to 14.8 million compared to 5.8 million in the second quarter of 2021.

Greg Iversen: As we build our outpost business, you will continue to see growth in salaries, wages, and benefits. Finally, G&A expenses increased $9.1 million or 158% to $14.8 million compared to $5.8 million in Q2 2021. As a percentage of revenue, G&A increased to 22.3% of revenue compared to 11% last year. This increase was primarily driven by increased consulting and other professional services needed to support the rapid growth of our business across multiple sales channels and the transition to operating as a public company. Approximately $2 million of the year-over-year increase were fees paid to an internationally recognized consulting firm to support the planning and execution of our growth and productivity initiatives. We do not expect these additional costs to continue in 2023.

Greg Iverson: As we build our outpost business, you will continue to see growth in salaries, wages, and benefits. Finally, G&A expenses increased $9.1 million or 158% to $14.8 million compared to $5.8 million in Q2 2021. As a percentage of revenue, G&A increased to 22.3% of revenue compared to 11% last year. This increase was primarily driven by increased consulting and other professional services needed to support the rapid growth of our business across multiple sales channels and the transition to operating as a public company. Approximately $2 million of the year-over-year increase were fees paid to an internationally recognized consulting firm to support the planning and execution of our growth and productivity initiatives. We do not expect these additional costs to continue in 2023.

As a percentage of revenue, G&A increased to 22.3% of revenue compared to 11% last year.

This increase was primarily driven by increased consulting and other professional services needed to support the rapid growth of our business across multiple sales channels and the transition to operating as a public company.

Approximately 2 million of the year-over-year increase were fees paid to an internationally recognized consulting firm to support the planning and execution of our growth and productivity initiatives.

Greg Iversen: We also had 10 company-owned outposts in 2022 versus 3 in 2021, and the incremental lease and other occupancy costs for these outposts also contributed to the increase. As I mentioned earlier, we are investing in a strong foundation to support the incredible demand we are seeing for our brand and products, and we expect to start seeing operating leverage in 2023. In addition to the GAAP measures I discussed, adjusted EBITDA is an important profitability measure that we use internally to manage our business. For Q2 of 2022, adjusted EBITDA was a loss of $10.4 million versus a loss of $1.4 million a year ago.

Greg Iverson: We also had 10 company-owned outposts in 2022 versus 3 in 2021, and the incremental lease and other occupancy costs for these outposts also contributed to the increase. As I mentioned earlier, we are investing in a strong foundation to support the incredible demand we are seeing for our brand and products, and we expect to start seeing operating leverage in 2023. In addition to the GAAP measures I discussed, adjusted EBITDA is an important profitability measure that we use internally to manage our business. For Q2 of 2022, adjusted EBITDA was a loss of $10.4 million versus a loss of $1.4 million a year ago.

We do not expect these additional costs to continue in 2023. We also had 10 company-owned outposts in 2022 versus 3 in 2021, and the incremental lease and other occupancy costs for these outposts also contributed to the increase. As I mentioned earlier, we are investing in a strong foundation to support the incredible demand we are seeing for our brand and products, and we expect to start seeing operating leverage in 2023. In addition to the GAAP measures I discussed,

Adjusted EBITDA is an important profitability measure that we use internally to manage our business.

For the second quarter of 2022, adjusted EVA-DAH was a loss of $10.4 million versus a loss of $1.4 million a year ago. This increased loss was primarily due to the increased operating expenses incurred in advance of the revenue we expect from those investments, as well as lower margins from inflationary pressures and products mix shift that were not fully offset by our productivity and pricing initiatives. Next.

Greg Iversen: This increased loss was primarily due to the increased operating expenses incurred in advance of the revenue we expect from those investments, as well as lower margins from inflationary pressures and products mix shift that were not fully offset by our productivity and pricing initiatives. Next, I'd like to share a few additional points building on the update to the outlook Tom included in his remarks. While we expect an acceleration in year-over-year revenue growth in the H2, this will be most pronounced in Q4. New supply of RTD is expected to have a more significant impact in Q4, along with the introduction of bagged coffee and rounds in the food, drug, and mass channel. Thus, we expect roughly 60% or more of sales during the H2 of 2022 to occur in Q4.

Greg Iverson: This increased loss was primarily due to the increased operating expenses incurred in advance of the revenue we expect from those investments, as well as lower margins from inflationary pressures and products mix shift that were not fully offset by our productivity and pricing initiatives. Next, I'd like to share a few additional points building on the update to the outlook Tom included in his remarks. While we expect an acceleration in year-over-year revenue growth in the H2, this will be most pronounced in Q4. New supply of RTD is expected to have a more significant impact in Q4, along with the introduction of bagged coffee and rounds in the food, drug, and mass channel. Thus, we expect roughly 60% or more of sales during the H2 of 2022 to occur in Q4.

I'd like to share a few additional points building on the update to the outlook Tom included in his remarks.

While we expect an acceleration in year-over-year revenue growth in the back half of the year, this will be most pronounced in Q4.

New supply of RTD is expected to have a more significant impact in Q4, along with the introduction of bad coffee and rounds in the food, drug, and mass channel. Thus, we expect roughly 60% or more of sales during the second half of 2022 to occur in Q4. Furthermore, given the full flow-through of pricing, margin accretion from expansion in food, drug, and mass, and more favorable revenue growth,

Greg Iversen: Furthermore, given the full flow-through of pricing, margin accretion from expansion in food, drug, and mass, and more favorable revenue growth as compared to operating expenses, EBITDA margins will begin to show improvement in Q4. Now I'll briefly walk through our balance sheet for Q2 2022. Our balance sheet remains strong with $93.1 million of cash and cash equivalents compared to $18.3 million as of 31 December 2021. We have $17.2 million of long-term debt compared with $22.7 million as of 31 December 2021. Finally, we had 211.6 million shares outstanding as of quarter end, with all of the warrants, earn-outs, and other items related to our SPAC merger affecting our share count having been fully converted to common stock by the end of our second quarter.

Greg Iverson: Furthermore, given the full flow-through of pricing, margin accretion from expansion in food, drug, and mass, and more favorable revenue growth as compared to operating expenses, EBITDA margins will begin to show improvement in Q4. Now I'll briefly walk through our balance sheet for Q2 2022. Our balance sheet remains strong with $93.1 million of cash and cash equivalents compared to $18.3 million as of 31 December 2021. We have $17.2 million of long-term debt compared with $22.7 million as of 31 December 2021. Finally, we had 211.6 million shares outstanding as of quarter end, with all of the warrants, earn-outs, and other items related to our SPAC merger affecting our share count having been fully converted to common stock by the end of our second quarter.

As compared to operating expenses, EBITDA margins will begin to show improvement in Q4. Now, I'll briefly walk through our balance sheet for the second quarter of 2022. Our balance sheet remains strong with $93.1 million of cash and cash equivalents compared to $18.3 million as of December 31, 2021. We have $17.2 million of long-term debt compared with $22.7 million as of December 31, 2021. Finally!

We had 211.6 million shares outstanding as of quarter end with all of the warrants, earnouts, and other items related to our SPAC merger affecting our share count, having been fully converted to common stock by the end of our second quarter. I will now turn the call back over to Tom. Tom? Thanks, Greg. I trust you can sense our excitement for the future. To recap, the three key takeaways for this call are number one, Black Rough of Coffee has a unique connection to our community.

Greg Iversen: I will now turn the call back over to Tom. Tom?

Greg Iverson: I will now turn the call back over to Tom. Tom?

Tom Davin: Thanks, Greg. I trust you can sense our excitement for the future. To recap, the 3 key takeaways for this call are, 1, Black Rifle Coffee has a unique connection to our community. 2, we are rapidly evolving our omni-channel business model in order to maximize profitable growth and return on investment. 3, we're responding to significant RTD drink demand by adding capacity and execution capability. With that, I'll turn the call back over to the operator for your questions. Thank you.

Number two, we are rapidly evolving our omni channel business model in order to maximize profitable growth and return on investment. Number three, we are responding to significant rated drink demand by adding capacity and execution capability.

With that, I'll turn the call back over to the operator for your questions. Thank you.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. One moment, please, while we poll for your questions. Our first question has come from the line of Sharon Zackfia with William Blair. Please proceed with your 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 as in the question queue.

You may press star two 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 tease. One moment please while we poll for your questions.

Our first questions come from the line of Sharon Zaxia with William Blair. Please proceed with your questions.

Sharon Zackfia: Hi, good morning. A lot of news today. Congratulations on the announcement for food, drug, and mass. I guess, can you help us think about for this year, obviously, you're bridging the gap from outposts and subscribers with our DTC, with the FDM and the DTC growth. Can you kind of unpack how much of that gap was FDM versus the increase in the RTD capacity? And then in terms of door ramp, I might have missed this, but do you have something you could share with us on doors for FDM this year versus what you would expect for next year?

Hi, good morning. So a lot of news today, congratulations on the announcement for food, drug and mass. I guess can you help us think about for this year, obviously you're bridging the gap from Alpos and subscribers with our DTC, with the FDM and the DTC growth. Can you kind of unpack

how much of that gap was FDM versus the increase in the RTD capacity. And then in terms of door ramp, I might have missed this, but do you have something you can share with us on doors for FDM this year versus what you would expect for next year?

Greg Iversen: Hey, Sharon, this is Greg. Appreciate the questions. Just to make sure I'm tracking on the first one, are you referring to mix among our channels for 2022?

Greg Iverson: Hey, Sharon, this is Greg. Appreciate the questions. Just to make sure I'm tracking on the first one, are you referring to mix among our channels for 2022?

Hey, Sharon, this is Greg. Appreciate the questions and just to make sure I'm tracking on the first one. Are you referring to mix between among our channels for 2022? Yes, I am.

Sharon Zackfia: Yeah. If I understand correctly, the expectations were lowered some for Outpost because you're opening fewer than expected. You lowered the DTC outlook, but you raised the full year aggregate outlook for revenue. I'm just trying to figure out how much of that bridge is FDM launch versus increased RTD.

Yeah, so if I understand correctly, the expectations were lowered some for Outposts because you're opening fewer than expected. You lower the DTC outlook but you raise the full year aggregate outlook for revenue. So I'm just trying to figure out how much of that bridge is FDM launch versus increased RTD.

Greg Iversen: Got it. Yeah. You got the pieces right. We've said that we can grow, and we can achieve that guidance even in an environment with our DTC revenues declining, which did occur in Q2. We've also given updated guidance, as you know, in terms of our Outpost openings. The growth is, of course, all within the wholesale channel, and it's a combination of entry into food, drug, and mass, as well as the additional revenues we'll generate from the additional capacity of ready-to-drink. What we're not doing is disaggregating or separating how much of that increased wholesale revenue comes from RTD versus food, drug, and mass. Then second part of your question, Toby.

Greg Iverson: Got it. Yeah. You got the pieces right. We've said that we can grow, and we can achieve that guidance even in an environment with our DTC revenues declining, which did occur in Q2. We've also given updated guidance, as you know, in terms of our Outpost openings. The growth is, of course, all within the wholesale channel, and it's a combination of entry into food, drug, and mass, as well as the additional revenues we'll generate from the additional capacity of ready-to-drink. What we're not doing is disaggregating or separating how much of that increased wholesale revenue comes from RTD versus food, drug, and mass. Then second part of your question, Toby.

Got it. Yeah, and so you got the pieces right and so we've said that we can grow and we can achieve that guidance even in an environment with with our D to C revenues declining which did occur in the second quarter. We've also given updated guidance as you know in terms of our outpost openings so the growth is of course all within the wholesale channel and it's a combination of entry into food, drug, and mass

as well as the additional revenues will generate from the additional capacity of a right to drink. What we're not doing is disaggregating or separating how much of that increased wholesale revenue comes from RTD versus food, drug, and mask.

Toby Johnson: Yeah. Sharon, to address the door count part of your question, this is Toby. Good morning. We did in July in P7, we exceeded 67,000 doors, just over, which clearly has us on track to blow away our target for the year of 75,000 doors. We feel very confident that we will exceed that. I think we're also really happy with our progress in ACV. If you look at where we entered the year, we started at about 12% ACV and FDM, and we were about 29% ACV and C&G. Those numbers have increased to 32% and 37% respectively for an average of about 33%.

And then the second part of your question, Toby. Yeah, and then Sharon, to address the door count part of your question, this is Toby. Good morning. So we did in July in P7, we exceeded 67,000 doors just over, which clearly has us on track to blow away our target for the year of 75,000 doors. So we feel very confident that we will exceed that. I think we're also really happy with our progress in ACV.

you look at where we entered the year we started at about 12% ACV and FDM and we were about 29% ACV and CNG. Those numbers have increased to 32 and 37 percent respectively for an average of about 33 percent so it's a lot of progress in growing that distribution but it's also a huge runway that we have ahead that was mentioned by Tom earlier in his remarks.

Toby Johnson: It's a lot of progress in growing that distribution, but it's also a huge runway that we have ahead that was mentioned by Tom earlier in his remarks. Does that answer your question?

Sharon Zackfia: Okay. To clarify the bagged coffee and K-Cup going into FDM, are those partners that you're already working with on ready-to-drink?

Is that any of your questions? Okay, and then just to, yeah, and to clarify the bagged coffee and K-cups going into FDM, are those partners that you're already working with on Ready to Drink?

Toby Johnson: Yeah. The performance of our ready-to-drink business in FDM has been really strong, and I think the resonance of our brand within those channels and with those partners is part of the reason that our retail partners are excited to have us enter with coffee and Rounds SKUs later on in the year.

Yeah, so the performance of our ready-to-drink business in FDM has been really strong, and I think the resonance of our brand within those channels and with those partners is part of the reason that our retail partners are excited to have us enter with coffee and rounds skews later on in the year.

Sharon Zackfia: Okay. Then just final question on the slowdown in Outpost growth, is there anything you're seeing at the Outpost that gives you pause, or is this really just a matter of, you know, you can only do so much at once, and there's a lot of focus right now on the wholesale channel, ready-to-drink, you know, getting bagged coffee and K-Cup into food, drug, and mass? I'm just trying to unpack that.

Okay and then just final question on the slowdown in outpost growth. Is there anything you're seeing at the outpost that gives you pause or is this really just a matter of you know you can only do so much at once and there's a lot of focus right now on the wholesale channel ready to drink you know getting bad coffee and K cups and into food drug and math I'm just trying to unpack that.

Tom Davin: Hey, Sharon, it's Tom. Good morning, and thank you for the question. Yeah, overall, we're seeing consistent trends in our Outpost business. Check was actually up versus trend and versus prior year, again, on a small base of stores. That's driven by the high merchandise mix, including bagged coffee and rounds. Overall, we've got Heath Nielsen now working on a number of key initiatives. Heath, you wanna talk about the initiatives you're driving to-

Hey Sharon, it's Tom. Good morning and thank you for the question. Yeah, overall we're seeing consistent trends in our outpost business. Check was actually up versus trend and versus prior year again on a small base of stores.

That's driven by the high merchandise mix, including bagged coffee and rounds. Overall, we've got Heath Nielsen now working on a number of key initiatives. Heath, you want to talk about the initiatives you're driving to increase the overall sales? Yeah, thanks for the question. We remain incredibly confident on our retail outpost strategy. The must-haves right now think that we're focused on mobile ordering and pay with a combination of loyalty, as mentioned before, a cold beverage platform, extension of our food line.

Evan Hafer: Yeah. Thanks, Tom.

Tom Davin: increase the overall sales?

Heath Nielsen: Thanks for the question. We remain incredibly confident in our retail outpost strategy. The must-haves right now, I think that we're focused on mobile order and pay with a combination of loyalty, as mentioned before, our cold beverage platform, extension of our food line, and, you know, very happy that we're launching, and we'll have our prototype finished this year. This allows us to deliver, you know, exceptional work on those key areas.

and very happy that we're launching and we'll have our prototype finished this year. So this allows us to deliver exceptional work on those key areas.

Sharon Zackfia: Okay, great. Thank you.

Evan Hafer: Thanks, Sharon.

Operator: Thank you. Our next question is coming from the line of Mike Baker with D.A. Davidson. Please proceed with your questions.

Okay, great. Thank you.

Thanks, Sharon.

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

Michael Baker: Hey. Thanks, guys. You gave a sales number for next year, so you must have some plan in there, some number as it relates to this wholesale business, and particularly the bagged coffee and food, drug and mass. I'm wondering if you can share of that $500 million, how much is planned from that business. Then bigger picture for that business. You know, I think this is something that maybe you had contemplated in the past, but it wasn't really in the numbers. It was more of a theoretical thing. But now that you're doing it, you know, can you help dimensionalize what this does to the overall potential of the company?

Hi, thanks guys, a couple. So you gave a sales number for next year, so you must have some plan in there, some number as it relates to this wholesale business and particularly the bagged coffee and food, drug, and mass. I'm wondering if you can share of that $500 million, how much is planned from that business.

And then bigger picture for that business. You know, I think this is something that maybe you would contemplate it in the past, but it wasn't really in the numbers. It was more of a theoretical thing. But now that you are doing it, can you help dimensionalize what this does to the overall potential of the company? How much bigger can this make Black Rifle versus what you had previously thought?

Michael Baker: How much bigger can this make Black Rifle, you know, versus what you had previously thought?

Greg Iversen: Sure, Michael. This is Greg. I'll answer the first part of that question, then I'll pass it over to Tom to talk about the size of the market. I guess this ties back to Sharon's question, too, in terms of we've got so much growth expectation in both 2022 and 2023 in the wholesale channel, and it's across both this additional capacity for ready-to-drink as well as the entry into FDM. Around the question in terms of this $500 million plus revenue outlook for 2023, it's my expectation that, call it, you know, 60, perhaps 60+% of that will come from this wholesale channel. Again, that includes both the RTD as well as FDM and our other customers that exist within the wholesale channel today.

Greg Iverson: Sure, Michael. This is Greg. I'll answer the first part of that question, then I'll pass it over to Tom to talk about the size of the market. I guess this ties back to Sharon's question, too, in terms of we've got so much growth expectation in both 2022 and 2023 in the wholesale channel, and it's across both this additional capacity for ready-to-drink as well as the entry into FDM. Around the question in terms of this $500 million plus revenue outlook for 2023, it's my expectation that, call it, you know, 60, perhaps 60+% of that will come from this wholesale channel. Again, that includes both the RTD as well as FDM and our other customers that exist within the wholesale channel today.

Sure, Michael, this is Greg. I'll answer the first part of that question, then I'll pass it over to Tom to talk about the size of the market. But in terms of, and I guess this ties back to Sharon's question too, in terms of we've got so much growth expectation in both 2022 and 2023 in the wholesale channel, and it's across both this additional capacity for Ready to Drink as well as the entry into FDM. So around the question in terms of this 500 million plus...

revenue outlook for 2023. It's my expectation that, call it, you know, 60, perhaps 60 plus percent of that will come from this wholesale channel. And again, that includes both the RTD as well as FDM and our other customers that exist within the wholesale channel today. And then Tom, pass it to you on market size. Michael, so I think you know the overall coffee market about 40% of the market in total.

Evan Hafer: Tom, I'll pass it to you on market size.

Tom Davin: Yeah. Michael, I think you know the overall coffee market, about 40% of the market in total is at home consumption. We've only served that market through our direct consumer channel, plus some sales through people like Bass Pro Shops. We're tapping into not only a massive market, we think it's $11 billion serviceable addressable for us. We get our existing customers, and then as we mentioned earlier, 66% of people don't buy coffee online, so we're able to tap into them. It doesn't take much of a market share to have significant incremental revenue growth. It'll also drive massive increases in brand awareness. We are very excited about the FDM channel.

is at home consumption. We've only served that market through our direct consumer channel plus some sales through people like Bass Pro. So we're tapping into not only a massive market we think it's 11 billion serviceable addressable for us.

So we get our existing customers and then as we mentioned earlier, 66% of people don't buy coffee online. So we tap into them. So it doesn't take much of a market share to have significant incremental revenue growth. And it will also drive massive increases in brand awareness. So we are very excited about the FDM channel.

Michael Baker: Fair enough. You know, I guess it makes the potential much bigger. One more follow-up, if I could, and I don't know if this is, you know, if you can answer it as it relates to the Outpost or the direct-to-consumer or whatever, you know, channel. Just in general, the idea of inflation, both within the coffee business, but more, you know, outside of coffee and people needing to spend more on, you know, other areas of food and gas, et cetera. Are you seeing any unit degradation? You know, is coffee a necessity? This is a high-end coffee. Is that a necessity that people are gonna spend on even when their pockets are being squeezed elsewhere?

Fair enough so so, you know, I guess it makes it the potential much bigger one more fault if I could in I don't know if this is you know, if you can answer it as relates to the outpost of the direct to customer or whatever You know channel, but just in general the idea of inflation both within the coffee business But but more, you know outside of coffee and people need to spend more and you know other areas of food and gas, etc Are you seeing any unit degradation? You know is coffee a necessity. This is a high-end coffee is that a necessity that people are to spend

Michael Baker: Are you seeing any kind of trade down or people sort of maybe, you know, foregoing the more expensive coffee for cheaper versions or not doing coffee at all?

Evan Hafer: Well, this is Evan. Thanks a lot for the question. I think what we've seen validates the studies and research that have already been published, I think, by a combination of efforts. One, to include the Specialty Coffee Association's research that they've done in the past, which is people don't necessarily trade down from a premium coffee, especially when it's lifestyle-based. What they start doing is they start going to more of a D2C or they start buying more for home. They cut out their stop on their way to work or one of their stops, and then they start going and looking for that same coffee in a grocery store. They don't start or decrease their consumption of coffee. They actually increase their consumption of coffee.

People don't necessarily trade down from a premium coffee, especially when it's lifestyle based. What they start doing is they start going to more of a D to C or they start buying more for home. So they cut out their stop on their way to work or one of their stops and then they start going and looking for that same coffee in a grocery store. But they don't start or decrease their consumption of coffee. They actually increase their consumption of coffee when we look at

Evan Hafer: When we look at, you know, we'll talk in economic slowdown terms, I think it's been proven that they increase coffee consumption, but they're looking for their option or their favorite coffee in, you know, FDM. That's one of those things, I think it's the conscious effort of the company to concentrate on what the data has shown and really kinda double down on where the customer is shopping.

you know, we'll talk in economic slowdown terms, it's been, I think it's been proven that they increase coffee consumption, but they're looking for their option or their favorite coffee in, you know, FDM. So that's, I think it's one of those things to conscious effort of the company to concentrate on what the data has shown and really kind of double down on where the customer is shopping.

Michael Baker: Okay, that makes sense. I'll turn it over to someone else. Thanks for the color.

Tom Davin: Thank you.

Okay, if that makes sense. I'll turn it over to someone else. Thanks for the color.

Operator: Thank you. Our next question has come from the line of Joseph Altobello with Raymond James. Please proceed with your questions.

Thank you. Thank you. Our next question has come from the line of Joe Altobello with Raymond James. Please proceed with your questions.

Martin Matela: Hi, this is Martin Matela for Joseph Altobello. I had a question about the subscribers for DTC. You know, it went down quarter-over-quarter, and I understand a lot of this is gonna be post-COVID spending habits, but when do you expect the subscription growth to resume?

[Analyst] (Raymond James): Hi, this is Martin Matela for Joseph Altobello. I had a question about the subscribers for DTC. You know, it went down quarter-over-quarter, and I understand a lot of this is gonna be post-COVID spending habits, but when do you expect the subscription growth to resume?

Hi, this is Martin Mattiello for Joe Altobello. I have a question about the subscribers for ETC. You know, it went down quarter over quarter and I understand a lot of this is going to be post-COVID spending habits, but when do you expect the subscription growth to resume?

Evan Hafer: Well, this is Evan again. I think what we have to see is, and really, when we look at it from a company's perspective, you can only be good at so many things at once. When we're talking about investments in marketing and then opening up additional channels, you know, we've gotta make sure that we're capitalizing on the channel growth and we're capitalizing on our high growth potential products. What we don't wanna do is overspend or over-index in D2C subscription, where we're seeing such large opportunity within our RTD and then as we start to expand into FDM.

Well, this is Evan again. I think what we have to see is we have to see a, and really that when we look at it from a company's perspective, you can only be good at so many things at once. And when we're talking about investments in marketing and then opening up additional channels, you know, we've got to make sure that we're capitalizing on the channel growth and we're capitalizing on our high-growth potential products.

So what we don't want to do is overspend or over index in D2C subscription. We're seeing such large opportunity within our RTD and then as we start to expand into FDM. So I look at this as the opportunity starts to increase, gross revenue increases, we'll start to equal out marketing opportunities based on channel and then that growth opportunity will directly correlate to how we're spending against each one of these channels in a very conservative and conscious effort to capitalize on the most...

Evan Hafer: I look at this as the opportunity starts to increase, gross revenue increases, we'll start to equal out marketing opportunities based on channel, and then that growth opportunity will directly correlate to how we're spending against each one of these channels in a very conservative and conscious effort to capitalize on the most profitable and also, I think, the most opportunistic channel that defines the brand.

Martin Matela: Got it. Thank you. I just have a quick question about the Outpost. I know you kinda cut it by 5 for this year, and it sounds like basically you have already a lot on your plate. If I heard it correctly, I think you have 15 plans for 2023. Just trying to get an idea, the Outpost differential of 5 for this year, is that something that's being pushed back, or is it just kind of reprioritizing efforts and capital allocation?

[Analyst] (Raymond James): Got it. Thank you. I just have a quick question about the Outpost. I know you kinda cut it by 5 for this year, and it sounds like basically you have already a lot on your plate. If I heard it correctly, I think you have 15 plans for 2023. Just trying to get an idea, the Outpost differential of 5 for this year, is that something that's being pushed back, or is it just kind of reprioritizing efforts and capital allocation?

Evan Hafer: I think, you know, I'll answer the first part, and then I'll let the guys chime in on this. I think from our perspective, we really wanna build exceptional experiences, and we've gotta be concentrated on providing an exceptional experience to the customer, but we also have to be very conscious of capital. What we've really tried to allocate is resources based on how can we directly relate the customer experience, find exceptional places to build coffee shops that enhance the brand, that allow the customer to interact with the brand, and then continue to concentrate on our high growth opportunities across RTD and FDM. That's kind of where my position is, and I'll let Heath and Greg round out the rest of that.

efforts and capital allocation.

I'll answer the first part and then I'll let the guys chime in on this. I think from our perspective, we really want to build exceptional experiences. And we've got to be concentrated on providing an exceptional experience to the customer, but we also have to be very conscious of capital. So what we've really tried to allocate is resources based on how can we directly relate the customer experience, exceptional places to build coffee shops that enhance the brand, that allow the customer to interact.

Tom Davin: Yeah, it's spot on, Evan. I think the market planning efforts that we spoke to last quarter, highly focusing in Arizona, Texas, Florida, and Tennessee, is gonna give us that density, though, that's gonna allow us to, you know. It's better for food distribution, it's better for beverage, it's better for marketing, it's better for labor spend. Our focus in really owning those particular markets is gonna be a benefit, and that helps us in that store count number.

is going to give us that density though that's going to allow us to, you know, it's better for food distribution, it's better for beverage, it's better for marketing, it's better for labor spend. So our focus in really owning those particular markets is going to be a benefit and that helps us in that store account number.

Martin Matela: Got it. Thank you very much.

[Analyst] (Raymond James): Got it. Thank you very much.

Got it. Thank you very much.

Operator: Thank you. Our next question has come from the line of Steve Powers with Deutsche Bank. Please proceed with your questions.

Thank you. Our next question has come from the line of Steven Powers with Deutsche Bank. Please proceed with your questions.

Steve Powers: Hey, thanks, and good morning. I guess I understand intuitively the allure and the focus on FDM. I think it makes intuitive sense. I guess where I'm struggling a little bit is just a very different narrative than we've heard from you to date, including, you know, intra-quarter as you've laid out growth strategies. You know, it always started with DTC and experiential retail, the outposts, ready-to-drink expansion, et cetera. Wholesale was number four, and it was always very targeted. I guess, again, the opportunity is clear, but I'm just a little bit.

Hey, thanks and good morning. I understand intuitively the allure and the focus on SDM. I think it makes intuitive sense. I guess where I'm struggling a little bit is just a very different narrative than we've heard from you to date, including interquarter as you've laid out growth strategies. That's what I always started with.

DTC and experiential retail, the Outpost, Ready to Drink expansion, et cetera. Wholesale was number four and it was always very targeted. So I guess, um,

Steve Powers: If I can get a little bit more insight as to what drove the switch, how long the switch has been kind of contemplated, and what made you flip the switch now as opposed to later?

Again, the opportunity is clear, but I'm a little bit, if I can get a little bit more insight as to what drove the switch, how long the switch has been kind of contemplated, and what made you flip the switch now as opposed to later.

Evan Hafer: Well, this is Evan again. I think, you know, this is something that we've not only contemplated, but obviously, we've discussed internally, and then we've developed a strategy over the course of, I would say, the last couple years. When we look at it, I think it's prudent of any business to look at their overall channels and say, how are we going to execute against each one of these channels? How are we gonna allocate the capital and resources and then grow the company and exceed customer expectation? Where I think from my perspective, and this is, like, one of my opinions directly related to this is customer purchasing behavior and then capitalizing on customer purchasing behavior is a necessity of the business. We've always had to go there.

Well, this is Evan again. I think...

You know, this is something that we've not only contemplated, but obviously we've discussed internally and then we've developed a strategy over this over the course of, I would say, the last couple years. And when we look at it, I think it's prudent of any business to look at their overall channels and say, how are we going to execute against each one of these channels? How are we going to allocate the capital and resources? And then,

grow the company and exceed customer expectations. Where I think from my perspective, and this is one of my opinions directly related to this, is customer purchasing behavior and then capitalizing on customer purchasing behavior is a necessity of the business. So we've always had to go there. We've known this for years. We just wanted to make sure that it was right and we had the right timing with the right team.

Evan Hafer: We've known this for years. We just wanted to make sure that it was right and we had the right timing with the right team. It's been here. It's just not necessarily something that we've discussed, and it's directly related to customer purchase behavior and then making sure that we're meeting our customer where they're purchasing product.

So, it's been here, it's just not necessarily something that we've discussed, and it's directly related to customer purchase behavior and then making sure that we're meeting our customer with their purchasing product.

Tom Davin: Stephen, it's Tom. I'll just add to Evan's comments. We always wanted to go into the channel, but we did not build it into the model or show it as a priority previously because we didn't wanna be lost on a wall of coffee.

Stephen, it's Tom, I'll just add Evan's comments. So we always wanted to go into the channel but we did not build it in the model or show it as a priority previously because we didn't want to be lost on a wall of coffee. Yeah. So we had always said when we can find the right partners with the right merchandising set up to appropriately showcase the brand in the FDM channel, we'll go and we'll go hard. So those opportunities have now presented themselves given the success of Ready to Drink.

Evan Hafer: Yeah.

Tom Davin: We had always said, when we can find the right partners with the right merchandising set up to appropriately showcase the brand in the FDM channel, we'll go and we'll go hard. Those opportunities have now presented themselves given the success of ready-to-drink in those FDM channels.

Steve Powers: Okay.

Toby Johnson: Yeah. I mean, this is Toby. I'll just add some data. You know, when you look at the momentum of our brand in this channel, so looking at RTD and share growth, if you look at that data, in all classes of trade, whether it's an FDM, C&G, whether it's last 4, last 13, or last 52, we are weeks, yes, we are leading share growth in all of those areas, whether you pick any combination of those in any class of trade. We've got incredible brand momentum with shoppers that are in these channels, and we wanna take advantage of that. As Tom mentioned earlier, we wanna be where shoppers are buying their coffee. It just makes a ton of sense when you look at the momentum of the brand as well.

those FDM channels. Yeah I'll just add some data to you know when you look at the momentum of our brand in this channel so looking at RTD and share growth if you look at that data what in all classes of trade whether it's an FDM CNG whether it's last four last 13 or last 52 we are we are weeks yes we are leading share growth in all of those areas.

Tom Davin: We're responding to pull from retailers and the customers.

Evan Hafer: Right.

Tom Davin: That's the bottom line.

Steve Powers: Yeah. All right. Thank you for that. I don't know if it's too early or possible or this is forthcoming, but I don't know if you have updated. You mentioned where you stood against the retail door targets for this year, ahead, obviously, outposts revised lower. Are there new targets in mind that you have for DTC subscribers and/or wholesale doors? I mean, it feels like the subscriber number is lower and the wholesale door number by year-end, and obviously in 2023 will be a lot higher. I just don't know how to kinda, you know, prior, you know, kinda think about that order of magnitude.

All right, thank you for that. I don't know if it's too early or possible or forthcoming, but I don't know if you have updated. You mentioned where you stood against the retail door targets for this year ahead, obviously, Outposts revised lower. Are there new targets in mind that you have for DTC subscribers and or wholesale doors? I mean, it feels like the subscriber number is lower than the wholesale door number.

by year end and obviously in 23 will be a lot higher. I just don't know how to kind of think about that order of magnitude.

Greg Iversen: Yeah. Steve, it's Greg. I'll take that. Again, the direct answer to your question is we're not giving updated outlook in terms of a subscriber count or on a door basis. Our outlook that we provided in terms of revenue assumes that the trends we saw in Q2 from a subscriber perspective continue on in Q3 and Q4, so that represents modest sequential declines. As you've also seen, we're tracking well ahead of our prior guidance in terms of the RTD door. We certainly expect that we're gonna end 2022 well ahead, but at this time, we're not giving an updated door count number.

Greg Iverson: Yeah. Steve, it's Greg. I'll take that. Again, the direct answer to your question is we're not giving updated outlook in terms of a subscriber count or on a door basis. Our outlook that we provided in terms of revenue assumes that the trends we saw in Q2 from a subscriber perspective continue on in Q3 and Q4, so that represents modest sequential declines. As you've also seen, we're tracking well ahead of our prior guidance in terms of the RTD door. We certainly expect that we're gonna end 2022 well ahead, but at this time, we're not giving an updated door count number.

Yeah, Steve, it's Greg. I'll take that. And I guess the direct answer to your question is we're not giving updated outlook in terms of a subscriber count or on a door basis, but our outlook that we provided in terms of revenue assumes that the trends we saw in Q2 from a subscriber perspective continue on in Q3 and Q4, so that represents modest sequential declines. And then as you've also seen, we're tracking well ahead of our prior guidance in terms of revenue.

of the RTD door. So we certainly expect we're going to end 2022 well ahead, but at this time we're not giving an updated door count number.

Steve Powers: Yeah. Okay. Fair enough. If I could squeeze one more in, just on the outpost, I realize the base is really small, but the revenue declining sequentially on a you know theoretically higher store count base, and I think, Tom, you mentioned that ticket was up. It implies-

Yeah, okay, fair enough. If I could squeeze one more, just on the outposts, I realize the base is really small, but the revenue declining sequentially on a theoretically higher store count base.

Evan Hafer: Right

Steve Powers: ... that traffic was down sequentially pretty meaningfully if I put all that together just, you know, per door anyway. Can you just either dispel that or talk about, you know, kinda what you're seeing and if, you know, whether we should or shouldn't, you know, extrapolate some of that. Thank you.

I think Tom you mentioned that ticket was up. It implies the traffic was down sequentially, pretty meaningfully if I put all that together, just per door anyway. Can you just either dispel that or talk about what you're seeing and whether we should or shouldn't extrapolate some of that. Thank you.

Tom Davin: Yeah. Thanks, Steve. Yeah. So on a sequential basis versus trend, obviously on a very small base, traffic is lower versus Q1. We think a lot of that is driven by seasonality. Heath has talked about the fact that on cold beverage, we run as a percentage of drink below 40%. Obviously, some of the other major players are at the 70%+.

Yeah, thanks Steve. So on a sequential basis versus trend, obviously on a very small base, traffic is lower versus Q1. We think a lot of that is driven by seasonality. Heath has talked about the fact that on cold beverage we run as a percentage of drinks below 40%. Obviously some of the other major players are the 70 plus percentage. So seasonality in warm climates like Texas.

Greg Iversen: Seasonality in warm climates like Texas, definitely a factor. Obviously, as we build more stores and annualize performance, we get a lot better at forecasting seasonality. Yeah. Steve, this is Greg. I'll add just one point to that. We did open one store in Q2, but it was very late in the quarter, so it didn't have enough time to contribute a lot of incremental revenue in that period.

Greg Iverson: Seasonality in warm climates like Texas, definitely a factor. Obviously, as we build more stores and annualize performance, we get a lot better at forecasting seasonality. Yeah. Steve, this is Greg. I'll add just one point to that. We did open one store in Q2, but it was very late in the quarter, so it didn't have enough time to contribute a lot of incremental revenue in that period.

definitely a factor and obviously as we build more stores and annualize performance we get a lot better at forecasting seasonality.

Steve, this is Greg, I'll add just one point to that, but we did open one store in the second quarter, but it was very late in the quarter, so it didn't have enough time to contribute a lot of incremental revenue in that period.

Steve Powers: Understood. Okay. Thank you so much. Appreciate it.

Operator: Thank you. Our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your questions.

Understood. Okay, thank you so much. Appreciate it.

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

Bill Chappell: Thanks. Good morning.

Evan Hafer: Morning, Bill.

Bill Chappell: Morning. It's certainly fantastic news of expanding to food, drug, and mass and the raised guidance. I understand you have a lot of brand momentum, but I guess just trying to understand, you know, you're going now food, drug, and mass. If you go to most stores, they have 20 to 40 coffee brands already in the store. It's most of those brands are putting a lot in terms of slotting fees, marketing, advertising, brand equity type stuff like that. It's kinda like swimming in the deep end, or spending more time in the deep end, for your business. You know, can you talk about plans as you move into the Q4?

Thanks. Good morning.

Good morning, Bill. Good morning.

Yep.

It's certainly fantastic news of expanding the food, drug, and mass and the raised guidance. And I understand you have a lot of a lot of brand momentum, but I guess just trying to understand that you're going now food, drug, and mass. If you go to most stores, they have 20 to 40 coffee brands already in the store. And it's and most of those brands are putting a lot in terms of slotting fees, marketing, advertising, brand equity type stuff like that. And so it's, it's.

It's kind of like swimming in the deep end or spending more time in the deep end for your business. So can you talk about plans as you move into the fourth quarter? Do you just expect to kind of rest on the existing momentum of the brand? Do you need to step up marketing and advertising meaningfully as we go into next year to just kind of keep the momentum going? What changes on the cost side now that you're kind of pivoting more towards to a drug and mass? Thanks.

Bill Chappell: I mean, do you just expect to kind of rest on the existing momentum of the brand? Do you need to step up, marketing and advertising meaningfully as we go into next year to just kinda keep the momentum going? You know, what changes on the cost side now that you're kind of pivoting more towards food, drug, and mass? Thanks.

Toby Johnson: This is Toby. Thanks for the question. We definitely are investing to make sure that we're successful in our entry into this channel. We're also being very selective with the partners that we wanna work with, so that we can make sure the brand shows up well. You know, it's important that, you know, when consumers are shopping, when they're going down the aisle, they can see our brand, that we show up in a way that's gonna represent what we're looking for. We're not sharing a lot of the specifics until we actually are in market as far as what that will look like.

So this is Toby. Thanks for the question. So we definitely are investing to make sure that we're successful in our entry into this channel. We're also being very selective with the partners that we want to work with so that we can make sure the brand shows up well. It's important that when consumers are shopping, when they're going down the aisle, they can see our brand, that we show up in a way that's going to represent what we're looking for. So we're not sharing a lot of the specifics until we actually are in market as far as what that will look like.

Toby Johnson: We feel very confident about the partnerships and the discussions that we're having about the way that we will show up, that it will represent what we stand for as Black Rifle and that our consumer base will be happy with the way they find us on shelf.

Evan Hafer: This is Evan. I'll layer in with the marketing strategy associated with that, which is, you know, we've been concentrated on a D2C marketing strategy that's been more optimized on what I would say is a cost per acquisition. Now what we're moving into is more awareness-based, so more of a CPM or awareness-based marketing strategy as we move into Q3 and Q4 and beyond. That's not necessarily an increase in marketing spend. What it is, it's a different set of prioritization and execution, but it's still the same playbook. It's just allocated differently to awareness versus D2C acquisition, if that makes sense.

Cost per acquisition. So now what we're moving into is more Awareness based so more of a CPM or awareness based marketing strategy as we move in to three and four and beyond So that's not necessarily an increase in marketing spend what it is is it's a it's a different set of Prioritization and execution, but it's still the same playbook It's just allocated differently to awareness versus D to C acquisition if that makes sense

Toby Johnson: It was mentioned in the comments earlier, but there are a lot of efficiencies as well.

Evan Hafer: Yeah.

Toby Johnson: as you move into this channel. Rather than shipping a bag, 2, 3, 4 bags to a consumer's home, we're shipping full truckloads to retailers in this model, which has efficiencies that enable us to reinvest in the business.

And it was mentioned in the comments earlier, but there are a lot of efficiencies as well as you move into this channel. So rather than shipping a bag, two, three, four bags to a consumer's home, we're shipping full truckloads to retailers in this model, which has efficiencies that enable us to reinvest in the business.

Evan Hafer: This is Greg. I'll just pile on, add one more thing, too. You referenced swimming in the deep end, which certainly we recognize moving into food, drug, and mass. We're working with large, very sophisticated companies. We've also talked a lot about the investments that we've made in G&A and talent. We've brought in a number of people who've come from this environment, who spent decades within the largest and most sophisticated CPG companies in the world and have tremendous experience. That's a big part of why we have so much confidence going into this space at this time.

This is Greg, I'll just pile on and add one more thing too. You referenced swimming in the deep end, which certainly we recognize moving into food, drug, and mass. We're working with large, very sophisticated companies. We've also talked a lot about the investments that we've made in G&A and talent. And so we've brought in a number of people who come from this environment, who spent decades within the largest and most sophisticated CPG companies in the world, and have tremendous experience. So that's a big part of why we have so much confidence going into this.

Bill Chappell: Yeah. I'm not saying you don't know how to swim butterfly. I just saying it's a deeper pool. Just following up with that, and I've asked this before. You know, obviously you're not hitting your EBITDA targets for this year, and I don't think that's all a bad thing, not that my opinion matters, but you know, does it change your look kinda building on marketing, advertising, brand support, going into the wholesale of, you know. Is profitability in the next few quarters as important, or is getting the brand right and getting the positioning right and getting the market share near term more important? You know, how do you balance those things as we go in with this kind of change to food, drug, and mass?

marketing, advertising, brand support going into the wholesale of, is profitability in the next few quarters as important, or is getting the brand right, and getting the positioning right, and getting the market share near term more important? How do you balance those things as we go in with this kind of change through drug and mask?

Evan Hafer: Well, I'll answer the first part, and then I'll shovel pass this off to Greg here in a second. I think there's an important consideration with the brand representation into FDM, which is we have billions of impressions. We're one of the most well-known coffee companies in America. What we have to consider on the shelf is that Black Rifle Coffee is one of the most recognizable names in America. When we look at the competitive advantage is that we've built a extremely loyal and also active fan base with already preexisting awareness. When we look at it, I think it's almost an unfair advantage to the competition on the shelf. It's not as if we're entering in as a new product, new brand on the shelf against a group of competitors. We're a preexisting national and well-known brand.

I'll answer the first part and then I'll shovel past this up to Greg here in a second, which is I think there's an important consideration with the brand representation and to FDM, which is we have billions of impressions. We're one of the most well-known coffee companies in America. So what we have to consider on the shelf is that Black Rifle Coffee is one of the most recognizable names in America. So when we look at the competitive advantage is that we've built an extremely loyal...

and also active fan base with already pre-existing awareness. So when we look at it, I think it's almost an unfair advantage to the competition on the shelf. So it's not as if we're entering in as a new product, new brand on the shelf against a group of competitors. We're a pre-existing national and well-known brand. So as we slide into this, I think this is a natural extension. I think this is something our customers expect and actually demand.

Evan Hafer: As we slide into this, I think this is a natural extension. I think this is something our customers expect and actually demand. I'll hand that over to Greg. Yeah. Yeah, Bill, I mean, something we said in our prepared remarks and something that we'll reinforce is we're focused on sustainable and profitable growth. We've talked about getting to being EBITDA positive in 2023, and we've guided or our outlook is low to mid-single digits. That's something we have clear line of sight to. It's not a focus for us for the back half of 2022, although, as we've also said, we do expect our EBITDA margins or our losses to start showing improvement in the Q4.

So then I'll hand that over to Greg. Yeah, Bill, something we've said in our prepared remarks and something that we'll reinforce is we're focused on sustainable and profitable growth. So we've talked about getting to being EBITDA positive in 2023, and so we've guided or our outlook is low to mid-single digits. That's something we have clear line of sight to. It's not a focus for us for the back half of 2020.

although we've also said we do expect our EBITDA margins or our losses to start showing improvement in the fourth quarter. So longer term, like I said, we're focused on this profitable and sustainable growth, but in the near term, we're prioritizing those investments over getting to profitability sooner.

Evan Hafer: Longer term, like I said, we're focused on this profitable and sustainable growth, but in the near term, we're prioritizing those investments over getting to profitability sooner.

Toby Johnson: Just wanna add, you know, we're building this business as we enter FDM with coffee. It will be gross margin and EBITDA accretive. We're building it to be a positive addition to our portfolio.

And just want to add, you know, we're building this business as we enter FDM with coffee. It will be gross margin and EBITDA accretive. So we're building it to be a positive addition to our portfolio.

Bill Chappell: Great. Thanks for the color.

Evan Hafer: Thanks, Bill.

Operator: Thank you. We have reached the end of our question and answer session. With that, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Thanks for the color.

Thanks, Bill.

Thank you. We have reached the end of our question and answer session. And with that, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Q2 2022 BRC Inc Earnings Call

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