Q3 2022 BRC Inc Earnings Call

November 10, 2022

Operator: Greetings and welcome to the Black Rifle Coffee Company's third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Operator: Greetings, and welcome to the Black Rifle Coffee Company Q3 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.

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'd now like to turn the call over to Tanner Doss, Vice President of Investor Relations. Thank you, you may begin.

Tanner Doss: Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our Q3 2022 financial results, which were 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 CEO, Tom Davin, Co-CEO, Greg Iverson, our Chief Financial Officer, Toby Johnson, our Chief Operating Officer, and Heath Nielsen, our Chief Retail Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you are all familiar with. On today's call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our previous filings with the SEC.

Tanner Doss: Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our third quarter 2022 financial results, which were released this morning and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Hafer, Founder and CEO, Tom Davin, Co-CEO, Greg Iverson, our Chief Financial Officer, Toby Johnson, our Chief Operating Officer, and Heath Nielsen, our Chief Retail Officer.

Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with. On today's call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, please see our previous filings with the SEC. This call will also contain non-GAAP financial measures such as adjusted EBITDA. Reconciliations of these non-GAAP measures to the most comparable GAAP measure 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-CEO of Black Rifle Coffee Company. Tom?

Tanner Doss: Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you are all familiar with. On today's call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our previous filings with the SEC.

On today's call management may make forward looking statements, including guidance and underlying assumptions.

Looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

For further discussion of risks related to our business. Please see our previous filings with the SEC. This call will also contain non-GAAP financial measures such as adjusted EBITDA Reconciliations of these non-GAAP measures to the most comparable GAAP measure are included in the earnings release furnished to the SEC and they're also available on our Investor website.

Tanner Doss: This call will also contain non-GAAP financial measures such as adjusted EBITDA. Reconciliations of these non-GAAP measures to the most comparable GAAP measure are included in the earnings release furnished to the SEC. They are also available on our investor website. Now I'd like to turn the call over to Tom Davin, Co-CEO of Black Rifle Coffee Company. Tom?

Thomas Davin: Thanks, Tanner and good morning, everyone. Thanks for joining our third quarter 2022 earnings call. Today, I will update you on our key strategic initiatives that will continue to power our growth into 2023 and beyond.

Tom Davin: Thanks, Tanner, and good morning, everyone. Thanks for joining our Q3 2022 earnings call. Today, I will update you on our key strategic initiatives that will continue to power our growth into 2023 and beyond. Evan Hafer will further address our entry into the food, drug, and mass channel, as well as discuss marketing strategy moving into the new year. Greg Iverson will walk through our Q3 results and balance sheet. As outlined during our last call, we have three key takeaways that summarize the Black Rifle Coffee Company business model. Number one, we are rapidly evolving from a pure-play direct-to-consumer company to an omni-channel business model built on a digitally native foundation. Our entry into the food, drug, and mass channel is a key piece of the puzzle in order to meet customers wherever they shop.

Today I will update you on our key strategic initiatives that will continue to power our growth into 'twenty, two 'twenty three and beyond even.

Evan Hafer will further address our entry into the food, drug, and mass channel as well as discuss marketing strategies moving into the new year. And Greg Iverson will walk through our Q3 results and balance sheet. As outlined during our last call, we have three key takeaways that summarize the Black Rifle Coffee Company business model.

Tom Davin: Greg Iverson will walk through our Q3 results and balance sheet. As outlined during our last call, we have three key takeaways that summarize the Black Rifle Coffee Company business model. Number one, we are rapidly evolving from a pure-play direct-to-consumer company to an omni-channel business model built on a digitally native foundation. Our entry into the food, drug, and mass channel is a key piece of the puzzle in order to meet customers wherever they shop.

Number one, we are rapidly evolving from a pure play, direct-to-consumer company to an omni-channel business model built on a digitally native foundation. Our entry into the food, drug, and mass channel is a key piece of the puzzle in order to meet customers wherever they shop.

Tom Davin: 2, we are continuing to respond to significant ready-to-drink coffee product demand by adding capacity and execution capability. Number 3, Black Rifle Coffee continues to have a unique connection to our loyal and growing community. Let me offer a bit more color on each of these key takeaways. Number 1, we are rapidly evolving from a pure-play D2C company to an omni-channel business model built on a digitally native foundation. 3 years ago, we generated more than 90% of our revenue from our D2C business. As you can see from today's results, those numbers are changing rapidly as we take advantage of the ever-evolving landscape where consumers want to access their favorite brands wherever they are shopping. Over 66% of coffee drinkers only purchase their coffee for at-home consumption at retail, typically in the food, drug, and mass channel.

Two, we are continuing to respond to significant ready-to-drink coffee product demand by adding capacity and execution capability. Number three, Black Rifle coffee continues to have a unique connection to our loyal and growing community. Let me offer a bit more color on each of these key takeaways.

Number one, we are rapidly evolving from a pure play B to C company to an omnichannel business model built on a digitally native foundation. Three years ago, we generated more than 90% of our revenue from our B to C business. As you can see from today's results, those numbers are changing rapidly as we take advantage of the ever-evolving landscape, where consumers want to access their favorite brands wherever they're shopping. Over 66% of coffee drinkers only purchase their coffee for at-home consumption retail, typically in the food, drug, and mass channel. So in order to satisfy our customer, we needed to enter this channel. Further, with Black Rifle coffee aided brand awareness at 20% or lower across the United States, entering the FDM channel, where the majority of coffee is purchased for at-home consumption acts as a billboard for our brand such that we expect to further increase our brand awareness.

Three years ago, we generated more than 90% of our revenue from our D to C business as you can see from today's results. Those numbers are changing rapidly as we take advantage of the ever evolving landscape, where consumers want to access their favorite brands wherever they're shopping over 66% of coffee.

Tom Davin: As you can see from today's results, those numbers are changing rapidly as we take advantage of the ever-evolving landscape where consumers want to access their favorite brands wherever they are shopping. Over 66% of coffee drinkers only purchase their coffee for at-home consumption at retail, typically in the food, drug, and mass channel.

Drinkers only purchase their coffee for at home consumption retail typically in the food drug and mass channel.

Tom Davin: In order to satisfy our customer, we needed to enter this channel. Further, with Black Rifle Coffee's brand awareness at 20% or lower across the United States, entering the FDM channel where the majority of coffee is purchased for at-home consumption acts as a billboard for our brand such that we expect to further increase our brand awareness. If you listened to our last earnings call in August, you'll remember that we discussed our plans to launch into the FDM channel and promised to update you with more details during this Q3 conference call. We're excited to announce that we launched ground, whole bean, and K-Cup pods in Walmart in the early September timeframe. We're now in 100% distribution across the Walmart footprint, which includes close to 4,400 stores as well as walmart.com.

So in order to satisfy our customer we needed to enter this channel further with black rifle coffee aided brand awareness at 20% or lower across the United States entering the F. D M channel, where the majority of coffee as purchase for at home consumption acts as a Billboard for our brand such that we.

If you listened to our last earnings call in August, you will remember that we discussed our plans to launch into the FDM channel and promised to update you with more details during this Q3 conference call. We're excited to announce that we launched ground whole bean and K Cup or rounds in Walmart in the early September timeframe. We're now in 100% distribution across the Walmart footprint, which includes close to 4,400 stores as well as Walmart.com. For those who followed the BRCC story for multiple years, you'll recall that we previously stated we would only enter the FDM category with a retailer who could provide us with a high-quality presentation on shelf where we would not be just a bag or two on the wall of coffee. We're incredibly excited to have started this collaboration. Why? Because Americans shop at Walmart with 90% of Americans living within 10 miles of a Walmart store, and today, America's coffee is available at Walmart. We were very selective about the opportunities where we mobilize the entire company behind it, and this was one where we knew we would have a fantastic opportunity for both our customers and the Black Rifle Coffee brand.

Tom Davin: If you listened to our last earnings call in August, you'll remember that we discussed our plans to launch into the FDM channel and promised to update you with more details during this Q3 conference call. We're excited to announce that we launched ground, whole bean, and K-Cup pods in Walmart in the early September timeframe. We're now in 100% distribution across the Walmart footprint, which includes close to 4,400 stores as well as walmart.com.

Or rounds in Walmart and the early September timeframe, we're now in 100% distribution across the Walmart footprint, which includes close to 4400 stores as well as Walmart Dot com for those who followed the b or C. C story for multiple years, you'll recall that we previously stated.

Tom Davin: For those who've followed the BRCC story for multiple years, you'll recall that we previously stated we would only enter the FDM category with a retailer who could provide us with a high-quality presentation on shelf, where we'd not be just a bag or 2 on the wall of coffee. We're incredibly excited to have started this collaboration. Why? Because America shops at Walmart, with 90% of Americans living within 10 miles of a Walmart store. Today, America's coffee is available at Walmart. We are very selective about the opportunities where we mobilize the entire company behind it, and this was one where we knew we would have a fantastic opportunity for both our customers and the Black Rifle Coffee brand.

We would only enter the F T M category with a retailer who could provide us with a high quality presentation on shelf, where we would not be just a bag or two on the wall of coffee. We're incredibly excited to have started this collaboration why because America's shops at Walmart.

with 90% of Americans living within 10 miles of a Walmart store, and today, America's coffee is available at Walmart. We were very selective about the opportunities where we mobilize the entire company behind it, and this was one where we knew we would have a fantastic opportunity for both our customers and the Black Rifle Coffee brand.

Evan Hafer and our senior leaders are tremendously proud of our cross-functional business teams, who rose to the challenge of meeting demanding timelines and execution requirements for our entry into this FDM channel. We are very pleased with the early results of our launch with Walmart, and we'll share more details as this collaboration progresses. In order to get products in store and meet the expected volume of demand from the FDM customer base, we contracted with several new outsource coffee roasters, who can both meet our quality standards and grow with us over time. This new roasting capability for ground, whole bean, and K Cup coffee provides Black Rifle Coffee Company with the ability to meet the demand as we accelerate growth.

Tom Davin: Evan Hafer and our senior leaders are tremendously proud of our cross-functional business teams who rose to the challenge of meeting demanding timelines and execution requirements for our entry into this FDM channel. We are very pleased with the early results of our launch with Walmart, and we'll share more details as this collaboration progresses. In order to get products in store and meet the expected volume of demand from the FDM customer base, we contracted with several new outsourced coffee roasters who can both meet our quality standards and grow with us over time. This new roasting capability for ground, whole bean, and K-Cup coffee provides Black Rifle Coffee Company with the ability to meet the demand as we accelerate growth. Number two, we're continuing to respond to significant ready-to-drink product demand by adding additional capacity and execution capability.

We are very pleased with the early results of our launch with Walmart, who will share more details as this collaboration progresses in order to get products in store and meet the expected volume of demand from the F. D M customer base, we contracted with several new outsource coffee roasters, who can both meet our core.

Tom Davin: In order to get products in store and meet the expected volume of demand from the FDM customer base, we contracted with several new outsourced coffee roasters who can both meet our quality standards and grow with us over time. This new roasting capability for ground, whole bean, and K-Cup coffee provides Black Rifle Coffee Company with the ability to meet the demand as we accelerate growth. Number two, we're continuing to respond to significant ready-to-drink product demand by adding additional capacity and execution capability.

Number two, we are continuing to respond to significant ready-to-drink product demand by adding additional capacity and execution capability. BRCC's ready-to-drink product continues to be the fastest growing single-serve RTD coffee across all channels of trade, outpacing the RTD coffee category growth by 4.5 times.

Additional capacity and execution capability, b or C seas ready to drink product continues to be the fastest growing single serve RTD coffee across all channels of trade outpacing the RTD coffee category growth by 4.5 times.

Tom Davin: BRCC's ready-to-drink product continues to be the fastest-growing single-serve RTD coffee across all channels of trade, outpacing the RTD coffee category growth by 4.5 times. At the end of Q3, our ready-to-drink product is now sold in approximately 70,000 doors, up 99% from Q3 of last year. More importantly, our percentage ACV or all commodity volume as measured by Nielsen, which measures distribution across both convenience, gas, and FDM channels, has increased to 42.3% from 13.6% at the beginning of 2022. Equally as important, our sell-through continues to perform at category-leading levels as measured by units per door per week. BRCC's RTD beverage sell-through is up 8% since the beginning of the year, outpacing the category by double digits.

At the end of Q3, our ready-to-drink product is now sold in approximately 70,000 doors, up 99% from Q3 of last year. More importantly, our percentage ACV or all commodity volume as measured by Nielsen, which measures distribution across both convenience, gas, and FDM channels has increased to 42.3%, from 13.6% at the beginning of 2022. Equally as important, our sell through continues to perform at category-leading levels as measured by units per door per week, BRCC's RTD beverage sell-through is up 8% since the beginning of the year, outpacing the category by double digits.

99% from Q3 of last year more importantly, our percentage a C V or all commodity volume as measured by Nielsen, which measures distribution across both convenience gas and F. T. M channels has increased to 42.3%.

From 13.6% at the beginning of 2022 equally as important our sell through continues to perform at category leading levels as measured by units per door per week, B or C. CS RTD beverage sell through is up 8% since the beginning of the year.

Tom Davin: Equally as important, our sell-through continues to perform at category-leading levels as measured by units per door per week. BRCC's RTD beverage sell-through is up 8% since the beginning of the year, outpacing the category by double digits.

With this rapid growth, you will recall from our Q2 call that we were in the process of qualifying additional co-manufacturers to meet our growing demand. I'm pleased to announce that both of our two new co-manufacturers are now through the startup phase and this more than triples our previous available annual capacity. We're very encouraged by the success to date with our ready-to-drink products consisting of four SKUs. Looking to the future, we presented new products from our innovation pipeline last month at the Convenience Store Trade Show Max in Las Vegas.

Tom Davin: With this rapid growth, you'll recall from our Q2 call that we were in the process of qualifying additional co-manufacturers to meet our growing demand. I'm pleased to announce that both of our two new co-manufacturers are now through the startup phase, and this more than triples our previous available annual capacity. We're very encouraged by the success to date with our ready-to-drink products consisting of four SKUs. Looking to the future, we presented new products from our innovation pipeline last month at the convenience store trade show, NACS, in Las Vegas. There's no doubt that innovation within the RTD coffee category will continue to drive growth. We presented three new core SKUs as well as two limited time seasonal offerings. Resets for 2023 are currently being planned, and we foresee expanding our shelf space as we move from four to seven permanent SKUs and introduce additional LTOs.

than triples our previous available annual capacity. We're very encouraged by the success to date with our ready-to-drink products consisting of four SKEs. Looking to the future, we presented new products from our innovation pipeline last month at the Convenience Store Trade Show Max in Las Vegas.

Tom Davin: We're very encouraged by the success to date with our ready-to-drink products consisting of four SKUs. Looking to the future, we presented new products from our innovation pipeline last month at the convenience store trade show, NACS, in Las Vegas. There's no doubt that innovation within the RTD coffee category will continue to drive growth. We presented three new core SKUs as well as two limited time seasonal offerings. Resets for 2023 are currently being planned, and we foresee expanding our shelf space as we move from four to seven permanent SKUs and introduce additional LTOs.

There is no doubt that innovation within the RTD coffee category will continue to drive growth. We presented three new core SKUs as well as two limited-time seasonal offerings. Resets for 2023 are currently being planned and we foresee expanding our shelf space as we move from four to seven permanent SKUs and introduce additional LTOs. Enthusiasm from our current customers, suppliers, and others has us very excited about 2023 and 2024.

Spanning our shelf space as we move from four to seven permanent S. Skus.

Number three, Black Rifle Coffee has a unique connection to our loyal and growing community. We're the only mission-driven lifestyle brand in the coffee industry. The mission is a major driver of our success and continues to bring new customers into the Black Rifle Coffee ecosystem. As we enter new markets or expand our presence in an existing market, we continue to see the community grow. This was evident in our first Phoenix, Arizona outpost Grand opening in mid-October. We've long known Phoenix was a top market for Black Rifle Coffee based on our direct-to-consumer business. But we got to witness this fact in our first store within the Phoenix market. We had over 250 customers lined up at 05:30 in the morning on the day of our grand opening. And there was a line out the door for much of the rest of the day. This enthusiasm continued for the remainder of the weekend, and this launch was one of our most successful store opening weekends yet. This couldn't have happened without the leadership of our retail team and our loyal community within the Phoenix market. We will be back in the area in a few weeks to open our second outpost and we're looking forward to seeing the excitement for the Black Rifle Coffee company continue as we build out or footprint in the Phoenix market.

Tom Davin: Enthusiasm from our current customers, suppliers, and others has us very excited about 2023 and 2024. 3, Black Rifle Coffee has a unique connection to our loyal and growing community. We're the only mission-driven lifestyle brand in the coffee industry. The mission is a major driver of our success and continues to bring new customers into the Black Rifle Coffee ecosystem. As we enter new markets or expand our presence in an existing market, we continue to see the community grow. This was evident at our first Phoenix, Arizona Outpost grand opening in mid-October. We've long known Phoenix was a top market for Black Rifle Coffee based on our direct-to-consumer business. We got to witness this fact at our first store within the Phoenix market.

<unk> style brand in the coffee industry. The mission is a major driver of our success and continues to bring new customers into the black rival coffee ecosystem as we enter new markets or expand our presence in an existing market. We continued to see the community grow this was evident in our first Phoenix.

Tom Davin: As we enter new markets or expand our presence in an existing market, we continue to see the community grow. This was evident at our first Phoenix, Arizona Outpost grand opening in mid-October. We've long known Phoenix was a top market for Black Rifle Coffee based on our direct-to-consumer business. We got to witness this fact at our first store within the Phoenix market.

outpost Grand opening in mid-October. We've long known Phoenix was a top market for Black Rifle Coffee based on our direct-to-consumer business. But we got to witness this fact in our first store within the Phoenix market. We had over 250 customers lined up at 05:30 in the morning on the day of our grand opening.

Tom Davin: We had over 250 customers lined up at 5:30AM on the day of our grand opening, and there was a line out the door for much of the rest of the day. This enthusiasm continued for the remainder of the weekend, and this launch was one of our most successful store opening weekends yet. This couldn't have happened without the leadership of our retail team and our loyal community within the Phoenix market. We'll be back in the area in a few weeks to open our second Outpost, and we're looking forward to seeing the excitement for the Black Rifle Coffee Company continue as we build out our footprint in the Phoenix market. Q4 update and guidance. Overall, we are pleased with our performance for the quarter.

<unk> in the morning on the day of our Grand opening.

And there was a line out the door for much of the rest of the day. This enthusiasm continued for the remainder of the weekend, and this launch was one of our most successful store opening weekends yet. This couldn't have happened without the leadership of our retail team and our loyal community within the Phoenix market. We will be back in the area in a few weeks to open our second outpost and we're looking forward to seeing the excitement for the Black Rifle Coffee company continue as we build out or footprint in the Phoenix market.

Q4 update and guidance-overall, we are pleased with our performance for the quarter. Our wholesale business delivered better than expectations, and our B to C business held its own in a challenging market environment.

Tom Davin: Our wholesale business delivered better than expectations, and our D2C business held its own in a challenging market environment. Before I turn the call over to Evan, I wanna provide some transparency into startup delays we had with our new co-manufacturers for our ready-to-drink product that will have a one-time impact on our Q4 revenue. During our Q2 earnings call, we discussed the startup of two new co-manufacturers. At that time, we had completed trial runs, and we were excited to move into full production. We had two challenges in transitioning from trial runs into full production that had a small impact in Q3 and will also have an impact in Q4. One of our new co-manufacturers had a production issue with one ready-to-drink SKU.

Before I turn the call over to Evan, I want to provide some transparency into startup delays we had with our new co-manufacturers for our ready-to-drink product that will have a one-time impact on our fourth quarter revenue. During our Q2 earnings call, we discussed the startup of two new co-manufacturers. At that time, we'd completed trial runs, and we were excited to move into full production. We had two challenges in transitioning from trial runs into full production that had a small impact in Q3, and will also have an impact in Q4. One of our new co-manufacturers had a production issue with one ready-to-drink SKU. The issue was not food safety related but rather a situation where the product did not meet our demanding standards such that we deemed the product not saleable. After an in-depth review with our co-manufacturing partner, the problem was identified as equipment-related and after an equipment change, the issues has been fully resolved.

At that time, we'd completed trial runs, and we were excited to move into full production. We had two challenges in transitioning from trial runs into full production that had a small impact in Q3, and will also have an impact in Q4. One of our new co-manufacturers had a production issue

with one ready-to-drink SKU. The issue was not food safety related but rather a situation where the product did not meet our demanding standards such that we deemed the product not saleable. After an in-depth review with our co-manufacturing partner, the problem was identified as equipment-related and after an equipment change, the issues has been fully

Tom Davin: The issue was not food safety related, but rather a situation where the product did not meet our demanding standards such that we deemed the product not saleable. After an in-depth review with our co-manufacturing partner, the problem was identified as equipment related, and after an equipment change, the issue has been fully resolved. The second challenge we had was in procuring raw materials to meet startup timelines in order to produce our ready-to-drink beverages at our co-manufacturers. The delay in raw material deliveries caused our two new co-manufacturing partners to delay manufacturing and release of product from August until November. This raw material issue has also been resolved, and we're currently in full production across all contract manufacturers. Since we launched our ready-to-drink products in 2020, we've been fortunate that demand has far exceeded supply.

The second challenge we had was in procuring raw materials to meet startup timelines in order to produce our ready-to-drink beverages at our co-manufacturers. The delay in raw material deliveries caused our two new co-manufacturing partners to delay manufacturing and release of product from August until November. This raw material issue has also been resolved, and we're currently in full production across all contract manufacturers.

Since we launched our ready-to-drink products in 2020, we've been fortunate that demand has far exceeded supply. The downside of such robust demand is that we've not been able to build up an adequate level of safety stock. So when manufacturing delays occur, like we had in the quarter, it directly impacts sales since we did not have inventory on hand to cover production delays. The new capacity we've contracted will also enable Black Rifle Coffee to operate with safety stock levels that helped mitigate any further supply chain challenges. Due to these two ready-to-drink production issues, we are bringing down our Q4 revenue target to a range of $90 million to $95 million. Approximately one third of this adjustment is due to the equipment-related production issue and two -thirds of the adjustment is due to production delays, resulting from raw material issues. I'm pleased to share that we are through both issues. Today, we are fully manufacturing, shipping ready-to-drink product on schedule, further the startup of these two co-manufacturers will enable enough capacity to meet our 2023 forecast, including a buildup of safety stock. Note that we will not need to start up any additional co-manufacturers to meet our 2023 forecast. With that, I'll now turn the call over to our CEO and Founder Evan Hafer. Evan?

Tom Davin: The downside of such robust demand is that we've not been able to build up an adequate level of safety stock. When manufacturing delays occur, like we had in the quarter, it directly impacts sales since we did not have inventory on hand to cover production delays. The new capacity we have contracted will also enable Black Rifle Coffee to operate with safety stock levels that help mitigate any further supply chain challenges. Due to these two ready-to-drink production issues, we're bringing down our Q4 revenue target to a range of $90 million to $95 million. Approximately one-third of this adjustment is due to the equipment-related production issue, and two-thirds of the adjustment is due to production delays resulting from raw material issues. I'm pleased to share that we are through both issues. Today, we are fully manufacturing, shipping ready-to-drink product on schedule.

Side of such robust demand is that we've not been able to build up an adequate level of safety stock. So when manufacturing delays occur like we had in the quarter. It directly impacts sales since we did not have inventory on hand to cover production delays the new capacity we've contracted will.

also enable Black Rifle Coffee to operate with safety stock levels that helped mitigate any further supply chain challenges. Due to these two ready-to-drink production issues, we are bringing down our Q4 revenue target to a range of $90 million to $95 million. Approximately one third

of this adjustment is due to the equipment-related production issue and two -thirds of the adjustment is due to production delays, resulting from raw material issues. I'm pleased to share that we are through both issues. Today, we are fully manufacturing, shipping ready-to-drink product on schedule, further the startup of these two co-manufacturers will enable enough capacity

And two thirds of the adjustment is due to production delays, resulting from raw material issues I'm pleased to share that we are through both issues. Today, we are fully manufacturing shipping ready to drink product on schedule further the startup of these two co manufacturers will enable enough capacity.

Tom Davin: Further, the startup of these two co-manufacturers will enable enough capacity to meet our 2023 forecast.

to meet our 2023 forecast, including a buildup of safety stock. Note that we will not need to start up any additional co-manufacturers to meet our 2023 forecast. With that, I'll now turn the call over to our CEO and Founder Evan Hafer. Evan?

Tom Davin: Including a build-up of safety stock. Note that we will not need to start up any additional co-manufacturers to meet our 2023 forecast. With that, I'll now turn the call over to our CEO and founder, Evan Hafer. Evan?

Evan Hafer: Thanks, Tom, and good morning, everyone. Thanks again for joining us on our Q3 2022 earnings call. As Tom mentioned, I wanted to give a bit of background on our decision to enter the FDM space and why we chose to collaborate with Walmart, as well as give you a quick update on the marketing and branding side of the house. First and foremost, we're very grateful for our collaboration we have with Walmart. This couldn't have been done without a tremendous amount of work from our team here at Black Rifle Coffee. I think almost every department at Black Rifle Coffee had a hand in getting this across the finish line, from our internal art department mocking up bags in less than a week to our supply chain team working across the globe to find the product.

Evan Hafer: Thanks, Tom and good morning, everyone. Thanks, again for joining us on our third quarter 2022 earnings call. As Tom mentioned, I wanted to give a bit of background and our decision to enter the FDM space and why we chose to collaborate with Walmart, as well as give you a quick update on the marketing and branding side of the house.

First and foremost we're very grateful for our collaboration we have with Walmart. This couldn't have been done without a tremendous amount of work from our team here at Black Rifle Coffee. I think almost every department at Black Rifle Coffee had a hand getting this across the finish line. From our internal art department mocking up bags in less than a week to our supply chain team working across the globe to find the product. Most of us at Black Rifle Coffee are used to dealing with tight timelines, pressure-filled situations while we are in the military. So when we gave this timeline, everyone put their heads down and got to work. I can't thank our team enough, and I know that when we see this product on the shelves at Walmart they have just as much pride as I do in getting this across the finish line.

From our internal art department mocking up bags in less than a week to our supply chain team working across the globe to find the product. Most of us at Black Rifle Coffee are used to dealing with tight timelines, pressure-filled situations while we are in the military. So when we gave this timeline, everyone put their heads down and got to work.

Evan Hafer: Most of us at Black Rifle Coffee are used to dealing with tight timelines and pressure-filled situations while we are in the military. When we gave this timeline, everyone put their heads down and got to work. I can't thank our team enough, and I know that when we see this product on the shelves of Walmart, they have just as much pride as I do in getting this across the finish line. To help with the size of this FDM opportunity in perspective, the at-home coffee market is roughly 40% of the overall coffee market or $18 billion-plus of the total addressable market and $11 billion-plus within our Black Rifle Coffee serviceable addressable market. To date, we have served the at-home segment primarily through the D2C channel. Here is some additional information that will help explain why we're so excited.

I can't thank our team enough, and I know that when we see this product on the shelves at Walmart they have just as much pride as I do in getting this across the finish line.

To help put the size of this FDM opportunity in perspective, the at-home coffee market is roughly 40% of the overall coffee market or 18 billion plus of the total addressable market and 11 billion plus within our Black Rifle Coffee serviceable addressable market. To date, we have served the at-home segment, primarily through the B to C channel. Here are some additional information that will help explain why we're so excited. 4% percent of coffee purchases for at-home consumption are bought solely online. 30% of households are using the omnichannel approach of buying in-store as well as online. The remaining 66% of individuals are only buying their coffee in-store. By moving into the FDM channel, we'll unlock a huge incremental opportunity to get Black Rifle Coffee into the hands of our customers, both new and existing. Related, we have a massive brand awareness opportunity with aided brand awareness currently below 20% around the US. Entry into 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 one to four bags to individual homes.

Panel here some additional information that will help explain why we're so excited for percent of coffee purchases for at home consumption are bought solely online 30% of households are using the omnichannel approach of buying in store as well as online the remaining 66% of individuals' are only buying.

Evan Hafer: 4% of coffee purchases for at-home consumption are bought solely online. 30% of households are using the omni-channel approach of buying in store as well as online. The remaining 66% of individuals are only buying their coffee in store. By moving into the FDM channel, we will unlock a huge incremental opportunity to get Black Rifle Coffee into the hands of our customers, both new and existing. Related, we have a massive brand awareness opportunity with aided branded awareness currently below 20% around the US. Entry into 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 one to four bags to individual homes. As Tom mentioned, over 90% of the households live within 10 miles of a Walmart store.

Their coffee in store by moving into the F. T M channel.

we'll unlock a huge incremental opportunity to get Black Rifle Coffee into the hands of our customers, both new and existing. Related, we have a massive brand awareness opportunity with aided brand awareness currently below 20% around the US. Entry into 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 one to four bags to individual homes.

Evan Hafer: As we surveyed our subscriber base on their current shopping habits, we learned that our customers are purchasing additional coffee on their weekly grocery runs on top of their Black Rifle Coffee subscription. The main reason is it was available where they were shopping. Our entire omni-channel strategy is predicated on the ability of our customers to purchase our products wherever they shop. When we saw the data, we knew in order to better serve our customers, we needed to have our products on the shelves within the FDM channel. As you can see, this is a huge opportunity for BRCC, and we couldn't be happier to collaborate with Walmart on our initial launch into FDM. As Walmart says, "America shops at Walmart," and now they can buy America's coffee in Walmart.

As Tom mentioned, over 90% of the households live within 10 miles of a Walmart store. As we surveyed our subscriber base and their current shopping habits, we learned that our customers are purchasing additional coffee, and their weekly grocery runs on top of their Black Rifle Coffee subscription. The main reason because it was available where they were shopping. Our entire omnichannel strategy is predicated on the ability of our customers to purchase our products wherever they shop. When we saw the data, we knew in order to better serve our customers, we needed to have our products on the shelves within the FDM channel. As you can see, this as a huge opportunity for BRCC and we couldn't be happier to collaborate with Walmart on our initial launch into FDM. As Walmart says, America shops at Walmart, and now they can buy America's coffee in Walmart.

serve our customers, we needed to have our products on the shelves within the FDM channel. As you can see, this as a huge opportunity for BRCC and we couldn't be happier to collaborate with Walmart on our initial launch into FDM. As Walmart says, America shops at Walmart, and now they can buy America's coffee in Walmart.

Evan Hafer: We're also using our FDM channel to stay true to our mission in helping veterans, first responders, active duty military, and their families by donating a portion of our coffee sales to veteran and first responder charities. I'm excited to announce today that we've already raised over $150,000, and we'll be donating it to various charities that align with our mission. Finally, we wanted to briefly touch on the marketing portion of our business. As I have mentioned previously, our marketing spend has continued to shift from paid media to owned media in our strategy. As you can see from our financials this quarter, our marketing spend was light on a revenue percentage basis. While our continued focus on the wholesale channel has helped, we do foresee our marketing spend to increase as we move into one of our busiest quarters of the year.

We're also using our FDM channel to stay true to our mission of helping veterans, first responders, active duty military, and their families by donating a portion of our coffee sales to veteran and first responder charities. I'm excited to announce today that we've already raised over $150,000 and we'll be donating it to various charities that align with our mission.

I'm excited to announce today that we've already raised over $150000 and will be donating it to various charities that align with our mission.

Finally, we wanted to briefly touch on the marketing portion of our business. As I've mentioned previously, our marketing spend has continued to shift from paid media to owned media in our strategy. As you can see from our financials this quarter, our marketing spend was light on a revenue percentage basis. While our continued focus on the wholesale channel has helped, we do foresee our marketing spend to increase as we move into one of our busiest quarters of the year. We just launched our Travis [inaudible] vinyl send video and our gymkhana video will be launching earlier in December. We'll also be seeing increased marketing spend for the holiday portions of our Black Rifle Coffee sales. Whether you're seeing us on the shelf at Walmart, or on the Jumbo Tron of the AT&T stadium, or at your local convenience stores, our brand awareness is continuing to grow. We're still confident in our transition of our marketing dollars and plan on seeing leverage in the marketing line as we continue our impressive growth trajectory into 2023. With that, I'll pass it over to Greg to dive into the quarter and provide guidance. Greg?

To increase as we move into one of our busiest quarters of the year. We just launched our Travis be strana vinyl send video and our gymkhana video will be launching earlier in December will also be seen increased marketing spend for the holiday portions of our black rifle coffee sales, whether youre seeing is on the shelf at Wal Mart or on the Jumbo Tron of the AT&T stadium or at your local convenience.

Evan Hafer: We just launched our Travis Pastrana final send video, and our Jim Cannon video will be launching earlier in December. We'll also be seeing an increased marketing spend for the holiday portions of our Black Rifle Coffee sales. Whether you're seeing us on the shelf at Walmart or on the jumbotron of the AT&T Stadium or at your local convenience stores, our brand awareness is continuing to grow. We are so confident in our transition of our marketing dollars and plan on seeing leverage on the marketing line as we continue our impressive growth trajectory into 2023. With that, I'll pass it over to Greg to dive into the quarter and provide guidance. Greg?

Stores, our brand awareness is continuing to grow we're still confident in our transition of our marketing dollars and plan on seeing leverage in the marketing line as we continue our impressive growth trajectory into 'twenty 'twenty three with that I'll pass it over to Greg to dive into the quarter and provide guidance, Greg Thanks, Kevin and good morning, everyone.

Greg Iverson: Thanks, Evan, and good morning, everyone. Today, I will expand on the update that Tom provided on our Q3 results and provide a brief update on our balance sheet and liquidity before we open the call to your questions. In the discussion of our Q3 financial results, I will be providing both GAAP and non-GAAP results, which exclude the impact of the RTD production issue that Tom mentioned earlier in the call. We're providing the non-GAAP results because we believe they are a better indication of our overall business performance. Beginning with revenue, for the Q3, total revenue increased 26% to $75.5 million compared to $60.1 million in Q3 of last year. Excluding the $600,000 adjustment to revenue for the RTD production issue, total revenue increased 27% from a year ago to $76.1 million.

Greg Iverson: Thanks, Evan and good morning, everyone. Today, I will expand on the update that Tom provided on our third quarter results and provide a brief update on our balance sheet and liquidity before we open the call to your questions.

In the discussion of our third quarter financial results, I will be providing both GAAP and non-GAAP results, which exclude the impact of the RTD production issue that Tom mentioned earlier in the call. We're providing the non-GAAP results because we believe they are a better indication of our overall business performance. Beginning with revenue, for the third quarter, total revenue increased 26% to $75.5 million, compared to $60.1 million in Q3 of last year. Excluding the 600,000 dollar adjustment to revenue for the RTD production issue, total revenue increased 27% from a year ago to $76.1 million. The meaningful increase in revenue was driven primarily by our entry into the FDM channel and expansion of our RTD product in our wholesale channel and our RTD product in our wholesale channel.

Revenue increased 26% to $75 5 million compared to $60 1 million in Q3 of last year excluding.

Excluding the 600000 dollar adjustment to revenue for the RTD production issue total revenue increased 27% from a year ago to $76 1 million.

Greg Iverson: The meaningful increase in revenue was driven primarily by our entry into the FDM channel and expansion of our RTD product in our wholesale channel. Now I will give some additional details on our three sales channels. First, our direct-to-consumer revenue grew 2% to $38.1 million compared to $37.5 million in Q3 of last year. This increase was primarily due to an increase in pricing on bagged coffee, partially offset by continued lower sales volumes from non-subscription customers. We entered the quarter with 278,000 subscribers, representing growth of 1.7% over Q3 of last year, but a decline of 3.4% sequentially from the end of Q2.

Now, I will give some additional details on our three sales channels. First, our direct-to-consumer revenue grew 2% to $38.1 million compared to $37.5 million in Q3 of last year. This increase was primarily due to an increase in pricing on bag coffee, partially offset by continued lower sales volumes from non-subscription customers.

In Q3 of last year.

This increase was primarily due to an increase in pricing on bag coffee, partially offset by continued lower sales volumes from non subscription customers.

We entered the quarter with 278,000 subscribers, representing growth of 1.7% over Q3 of last year, but a decline of 3.4% sequentially from the end of Q2.

Greg Iverson: The small decline in subscribers from Q2 was a result of our decision to redirect investments to other faster-growing areas of the business as we continue to experience elevated D2C customer acquisition costs. Turning to our wholesale channel, revenue increased 66% to $32.2 million in Q3, compared to $19.5 million during the prior year period. Excluding the effects of the RTD production issue, wholesale revenue grew 69% to $32.8 million. The increase was primarily driven by our entry into the FDM wholesale channel with an initial load-in order during September. In addition, RTD doors increased to nearly 70,000, almost doubling from a year ago. Internally, we measure the growth of our RTD business on a % ACV, which can generally be thought of as the percentage of stores selling our products.

The small decline in subscribers from Q2 was a result of our decision to redirect investments to other faster-growing areas of the business as we continue to experience elevated B to C customer acquisition costs. Turning to our wholesale channel, revenue increased 66% to $32.2 million in Q3, compared to $19.5 million during the prior year period. The effects of the RTD production issue, wholesale revenue grew 69% to 32.8 million. The increase was primarily driven by our entry into the FDM wholesale channel with an initial load in order during September. In addition, RTD doors increase to nearly 70,000, almost doubling from a year ago.

Compared to $19 5 million during the prior year period, excluding the.

The effects of the RTD production issue, wholesale revenue grew 69% to 32.8 million. The increase was primarily driven by our entry into the FDM wholesale channel with an initial load in order during September.

The increase was primarily driven by our entry into the F. D M wholesale channel within initial load in order during September and.

In addition, RTD doors increase to nearly 70,000, almost doubling from a year ago.

Internally, we measure the growth of our RTD business on a percent ACV, which can generally be thought of as the percentage of stores selling our products. Currently our percent ACV is sitting at 42.3%, up from 13.4% at the start of 2022.

Greg Iverson: Currently, our percent ACV is sitting at 42.3%, up from 13.4% at the start of 2022. While I'd note our distribution from a percent ACV perspective has increased dramatically with further room to expand, we are still broadly undersupplied at our existing retail partner locations. We believe there is significant opportunity to both expand distribution points and increase the velocities, SKU breadth, and facings at existing partner locations. Moving to our Outpost channel, revenue increased 65% to $5.2 million in Q3, compared to $3.1 million in Q3 of last year. This was primarily due to an increase in the number of company-owned Outposts, which grew to 11 Outposts as of the end of Q3, with the opening of our first store in the Phoenix, Arizona metro area.

Currently our percent a C V is sitting at 42.3% up from 13.4% at the start of 2022.

While I'd note our distribution from a percent ACV perspective has increased dramatically with further room to expand, we are still broadly under-supplied at our existing retail partner locations. We believe there is significant opportunity to both expand distribution points and increase the velocities, SKU breadth, and facings at existing partner locations.

and increase the velocities, SKU breadth, and facings at existing partner locations.

Moving to our outpost channel, revenue increased 65% to $5.2 million in Q3 compared to $3 1 million in Q3 of last year. This was primarily due to an increase in the number of company-owned outposts, which grew to 11 outposts as at the end of Q3 with the opening of our first store in the Phoenix, Arizona Metro area. Turning now to profitability, our Q3 margin was 31.7%, decreasing 830 basis points from 40% in Q3 of last year.

This was primarily due to an increase in the number of company owned outposts, which grew to 11 outposts as at the end of Q3 with the opening of our first store in the Phoenix, Arizona Metro area, turning now to profitability. Our Q3 margin was 31.7% decreasing 830 basis points from 40% in Q3 of last year.

Greg Iverson: Turning now to profitability, our Q3 margin was 31.7%, decreasing 830 basis points from 40% in Q3 of last year. Excluding the $3.4 million impact from the RTD production issue, our Q3 gross margin was 36%, an approximate 400 basis points decrease from the prior year period. This 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 roasts and ground and whole bean coffee. Importantly, our Q3 gross margin, excluding the charge from the RTD production issue, increased approximately 190 basis points on a sequential basis from Q2 as a result of our productivity and pricing initiatives and the load-in order for FDM.

Excluding the $3.4 million impact from the RTD production issue, our Q3 gross margin was 36%, an approximate 400 basis point decrease from the prior year period. This 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.

This 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 costs and lower gross margin as compared to rounds and ground and whole bean coffee.

Importantly, our Q3 gross margin, excluding the charge from the RTD production issue, increased approximately 190 basis points on a sequential basis from Q2, as a result of our productivity and pricing initiatives and the load in order for FDM.

Greg Iverson: As we mentioned on our last call, our entry into FDM is immediately margin accretive based on the significant efficiencies from shipping bagged coffee and rounds by the truckload rather than individual parcel in our D2C channel. Turning to our operating expenses, we continue to make critical investments to support our growth. As such, our operating expenses during Q3 increased by approximately 45% to $39.6 million as compared to $27.2 million last year. I will quickly walk through the drivers of these expenses, beginning with marketing and advertising. For Q3 2022, marketing expenses decreased by 24% to $7.4 million from $9.8 million in the prior year period. As a percentage of sales, marketing decreased to 9.8% or by 650 basis points compared to the same quarter last year.

As we mentioned on our last call, our entry into FDM is immediately margin accretive based on the significant efficiencies from shipping bag coffee and rounds by the truckload rather than individual parcel in our B to C channel. Turning to our operating expenses, we continue to make critical investments to support our growth. As such, our operating expenses during Q3 increased by approximately 45% to $39.6 million as compared to $27.2 million last year.

As such, our operating expenses during Q3 increased by approximately 45% to $39.6 million as compared to $27.2 million last year.

I will quickly walk through the drivers of these expenses, beginning with marketing and advertising. For the third quarter of 2022, marketing expenses decreased by 24% to 7.4 million from $9.8 million in the prior year period. As a percentage of sales, marketing decreased to 9.8% or by 650 basis points compared to the same quarter last year. The decrease in expense, as a percentage of revenue, was driven by reductions in lower-yielding advertising spend as well as growth in our wholesale and outpost channels, which require lower marketing spend than B to C.

For the third quarter of 2022 marketing expenses decreased by 24% to 7.4 million from $9 8 million in the prior year period.

As a percentage of sales and marketing decreased to 9.8% or by 650 basis points compared to the same quarter last year.

Greg Iverson: The decrease in expense as a percentage of revenue was driven by reductions in lower-yielding advertising spend, as well as growth in our wholesale and Outpost channels, which require lower marketing spend than D2C. As Evan mentioned in his remarks, we will see an uptick in our Q4 marketing spend as compared to Q3, as we have two large activations planned for the quarter, as well as our increased marketing spend during the holiday shopping season. Next, salaries, wages, and benefits increased 50% to $15.8 million from $10.5 million in Q3 of 2021. As a percentage of revenue, they increased by 350 basis points to 21%, compared to 17.5% in Q3 of last year.

The decrease in expense as a percentage of revenue was driven by reductions in lower yielding advertising spend as well as growth in our wholesale and outpost channels, which require lower marketing spend than D to C.

As Evan mentioned in his remarks, we will see an uptick in our Q4 marketing spend as compared to Q3 as we have two large activations planned for the quarter as well as our increased marketing spend during the holiday shopping season. Next, salaries, wages, and benefits increased 50% to 15.8 million from 10.5 million in the third quarter of 2021. As a percentage of revenue, they increased by 350 basis points to 21% compared to 17.5% in Q3 of last year. The increase was primarily driven by increased employee head count to support our significant sales growth, especially investments in key positions to support the growth of our wholesale and our post channels.

10.5 million in the third quarter of 2021.

As a percentage of revenue, they increased by 350 basis points to 21% compared to 17.5% in Q3 of last year.

Greg Iverson: 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 made significant additions to our internal sales teams, as well as additional leadership hires for our coffee entry into the FDM channel. 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 $9.4 million or 137% to $16.3 million compared to $6.9 million in Q3 2021.

The increase was primarily driven by increased employee head count to support our significant sales growth, especially investments in key positions to support the growth of our wholesale and our post channels.

Within wholesale, we've made significant additions to our internal sales teams as well as additional leadership hires for our coffee entry into the FDM channel. 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'll continue to see growth in salaries, wages, and benefits. Finally, G&A expenses increased 9.4 million or 137% to $16.3 million compared to $6.9 million in the third quarter of 2021.

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 out post opening.

As we build our outpost business, you'll continue to see growth in salaries, wages, and benefits. Finally, G&A expenses increased 9.4 million or 137% to $16.3 million compared to $6.9 million in the third quarter of 2021.

Greg Iverson: As a percentage of revenue, G&A increased to 21.6% of revenue compared to 11.5% 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. We also had 11 company-owned Outposts in 2022 versus 4 in 2021. The incremental lease and other occupancy costs for these Outposts also contributed to the increase. While these investments in G&A over the past several quarters have been significant, we will begin to see meaningful leverage on our G&A as we quickly scale revenues for our wholesale and Outpost channels, while the pace of G&A growth moderates. In addition to the GAAP measures I've discussed, adjusted EBITDA is an important profitability measure that we use internally to manage our business.

As a percentage of revenue, G&A increased to 21.6% of revenue compared to 11.5% 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. We also had 11 company-owned outposts in 2022 versus four in 2021, and the incremental lease and other occupancy costs for these outposts also contributed to the increase.

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.

We also had 11 company-owned outposts in 2022 versus four in 2021, and the incremental lease and other occupancy costs for these outposts also contributed to the increase.

While these investments in G&A over the past several quarters have been significant, we will begin to see meaningful leverage on our G&A as we quickly scale revenues for wholesale and outpost channels, while the pace of G&A growth moderates.

In addition to the GAAP measures I've discussed, adjusted EBITDA is an important profitability measure that we use internally to manage our business. For the third quarter of 2022, adjusted EBITDA was a loss of $5.3 million versus positive adjusted EBITDA of 146,000, 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 product mix shift that were not fully offset by our productivity and pricing initiatives.

Greg Iverson: For Q3 2022, adjusted EBITDA was -$5.3 million versus +$146,000 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 product mix shifts that were not fully offset by our productivity and pricing initiatives. While our adjusted EBITDA was negative for the quarter, we generated positive adjusted EBITDA during the month of September, which was the month we delivered the initial load-in for FDM. We wouldn't normally talk about an individual month within a quarter, but we believe it's an important data point and a significant benefit of our move into FDM.

For the third quarter of 2022 adjusted EBITDA was a loss of $5 3 million versus positive adjusted EBITDA of 146000, 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 product mix shift there were not fully offset by our productivity and pricing initiatives.

While our adjusted EBITDA was negative for the quarter, we generated positive adjusted EBITDA during the month of September, which was the month we delivered the initial load in for FDM. We wouldn't normally talk about an individual month within a quarter, but we believe it's an important data point and a significant benefit of our move into FDM.

We wouldn't normally talk about an individual month within a quarter, but we believe it's an important data point and a significant benefit of our move into FDM.

Greg Iverson: Now, we are not forecasting to be adjusted EBITDA positive in Q4, but we're making great progress on our path to profitability. Looking forward to 2023, we remain optimistic with the 2023 revenue forecast of $500 million and adjusted EBITDA margin of low to mid-single digits that we mentioned on our last earnings call. We look forward to sharing our 2023 outlook in more detail with you when we report our Q4 results. Now we'll briefly walk through our balance sheet for Q3 of 2022. Our balance sheet remains strong with $71.2 million of cash and cash equivalents as of quarter end, compared to $18.3 million as of December 31, 2021. At September 30, we had $31.5 million of long-term debt, compared with $22.7 million as of December 31, 2021.

Now we are not forecasting to be adjusted EBITDA positive in the fourth quarter, but we're making great progress on our path to profitability. Looking forward to 2023, we remain optimistic with the 2023 revenue forecast of 500 million and adjusted EBITDA margin of low to mid-single digits that we mentioned on our last earnings call. We look forward to sharing our 2023 outlook in more detail with you when we report our fourth quarter results.

Looking forward to 2023, we remain optimistic with the 2023 revenue forecast of 500 million and adjusted EBITDA margin of low to mid-single digits that we mentioned on our last earnings call.

Now I will briefly walk through our balance sheet for the third quarter of 2022. Our balance sheet remains strong with 71.2 million of cash and cash equivalents as of quarter end compared to $18.3 million as of December 31, 2021.

At September 30th, we had $31.5 million of long-term debt compared with $22.7 million as of December 31st, 2021. I'm also pleased to share that we recently entered into a new senior credit facility with our longtime banking partner Regions Bank.

Greg Iverson: I'm also pleased to share that we recently entered into a new senior credit facility with our longtime banking partner, Regions Bank. As we've mentioned, our primary use of capital near term is our investment in inventory and receivables that are needed to support the growth of our wholesale channel at an incredibly rapid pace. This new credit facility includes a $65 million revolving loan facility that gives us the flexibility we need to ensure we maintain plenty of liquidity while we rapidly expand our business to address the strong customer demand for our brand. I will now turn the call back over to Tom.

As we've mentioned, our primary use of capital near term is our investment in inventory and receivables that are needed to support the growth of our wholesale channel at an incredibly rapid pace.

This new credit facility includes a $65 million revolving loan facility that gives us the flexibility we need to ensure we maintain plenty of liquidity, while we rapidly expand our business to address the strong customer demand for our brand. I will now turn the call back over to Tom.

Tom Davin: I trust you can sense our excitement for the future. To recap the three key takeaways for this call. Number one, we are rapidly evolving from a pure-play D2C company to an omni-channel business model built on a digitally native foundation. Our entry into the FDM segment is a key piece of the puzzle in order to meet our customers wherever they shop. Number two, we are continuing to respond to significant ready-to-drink product demand by adding capacity and execution capability. Number three, Black Rifle Coffee has a unique connection to our loyal and growing community. With that, I'll turn the call over to the operator for questions. Thank you.

Thomas Davin: I trust you can sense our excitement for the future. To recap the three key takeaways for this call, number one, we are rapidly evolving from a pure play B to C company to an omnichannel business model built on a digitally native foundation. Our entry into the FDM segment is a key piece of the puzzle in order to meet our customers wherever they shop. Number two, we are continuing to respond to significant ready-to-drink product demand by adding capacity and execution capability. Number three, Black Rifle Coffee is a unique connection to our loyal and growing community. With that, I'll turn the call over to the operator for questions. Thank you.

In order to meet our customers wherever they shop number two we are continuing to respond as significant ready to drink product demand by adding capacity and execution capability number three black rifle coffee is a unique connection to our loyal and growing community with that I'll turn the call over to the op.

Operators for questions. Thank you.

Operator: Thank you. We'll 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 key. One moment please while we poll for your questions.

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 George Kelly with Roth Capital Partners. Please proceed with your questions.

Like to ask a question. Please press star one on your telephone keypad a.

A confirmation tone will indicate your line is in the question queue.

He May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment 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 George Kelly with Roth Capital Partners. Please proceed with your question.

George Kelly: Hey, everyone, thanks for taking my questions. So first one for you just has to do with this year's guidance. The cut there, the $20 million, I'm wondering, you may have sort of detailed or quantified exactly where that's coming. I think most of its RTD, but could you just specify exactly what that is?

George Kelly: Hey, everyone. Thanks for taking my questions. First one for you just has to do with this year's guidance, the cut there, the $20 million. Wondering, you may have sort of detailed or quantified exactly where that's coming from. I think most of it's RTD, but could you just specify exactly what that is?

So first one for you just has to do with this year's guidance cut there the $20 million.

Wondering if demand sort of.

Detailed or quantified exactly where that's coming I think most of its RTD, but could you just specify exactly.

What that is.

Greg Iverson: Sure, George. It's Greg Iverson. Happy to do that. It was included in our remarks, but just reiterating, it relates entirely to the RTD product line, and there are really two factors. One as we mentioned of a production issue where we had some product that we ultimately decided we were not going to sell and then we also had a delay from a supply chain perspective, and products getting to our new co-mans that delayed those start ups. We said that out of all of the reduction in our outlook for Q4 about a third of it was related to the product manufacturing issue and then about two-thirds related to getting the ingredients to come in.

Greg Iverson: Sure, George, it's Greg Iverson. Happy to do that. It was included in our remarks, but just reiterating, it relates entirely to the RTD product line, and there's really two factors. One, as we mentioned, a production issue where we had some products that we ultimately decided we're not going to sell. Then we also had a delay from a supply chain perspective in products getting to our new co-mans that delayed those startups. We said that of the reduction in our outlook for Q4, about a third of it was related to the product manufacturing issue and then about two-thirds related to getting the ingredients to the co-mans.

<unk> and from a supply chain perspective, and products getting to our new co Mans that delay those start ups, we said that all of the reduction in our outlook for Q4 about a third of it was related to the product manufacturing issue and then about two thirds related to gain ingredients that comments.

George Kelly: Okay, excellent. And then the second question, another one on RDG, I believe you said in your prepared remarks that with these two additional partners you now have three times the capacity that you had before. I believe that's a step up from where you were prior, so were you able to secure additional capacity within those two or are there plans for additional partners kind of down the road that gets you to that three X?

George Kelly: Okay, excellent. Second question, another one on RTD, but I believe you said in your prepared remarks that with these 2 additional partners, you now have 3 times the capacity that you had before. I believe that's a step up from where you were prior. Were you able to secure additional capacity within those 2, or are there planned additional partners kinda down the road that gets you to that 3x?

Another one on <unk> I believe you said in your prepared remarks.

Now has.

Three times with these two additional partners you now have three times the capacity that you had before.

So are you able to secure I believe that the step up from where you were prior.

So were you able to secure additional capacity within those two or are there plans.

Additional partners kind of down the road that gets you to that three X.

Toby Johnson: Hey, George, it's Toby. Good morning. The additional capacity that we talked about is with our original co-man partner plus the additional two that we've signed on. We've completed the startup phase with those two incremental co-mans, and the tripling of the capacity is just taking that run rate of that additional capacity and annualizing it into 2023. We feel good about the fact that we are through that startup phase, and we have enough capacity without having to do any additional startups in 2023.

Toby Johnson: Hey, George, it's Toby, good morning. So the additional capacity that we talked about is with our original co-man partner plus the additional two that we've signed on. So we've completed the start-up phase with those two incremental co-mans, and the tripling of the capacity is just taking that run rate of that additional capacity and annualizing it into 2023. So we feel good about the fact that we are through that start-up phase and we have enough capacity without having to do any additional startups in 2023.

So the additional capacity that we talked about is with our original common partner plus the additional Q that we've signed on so we've completed the start up phase with those two incremental commands.

And the tripling of the capacity is just taking that run rate of that additional capacity and annualizing. It into 2023. So we're we feel good about the fact that we are through that start up phase and we have enough capacity without having to do any additional startups in 2023.

George Kelly: Okay. And then the last question for me, it's about the Walmart launch. I know its early, but can you talk about what you've seen in your DTC business since you launched and has there been any kind of noticeable change either uptick or downtick cannibalization that you've noticed?

George Kelly: Okay. Last question for me is about the Walmart launch. I know it's early, but can you talk about what you've seen in your DTC business since you launched? Has there been any kind of noticeable change, either uptake or, you know, cannibalization that you've noticed?

Sure.

But can you talk about what you've seen in your DTC business.

Since you launched and has there been any kind of noticeable change either uptick or downtick cannibalization.

That you've noticed.

Tom Davin: Hey, George, Tom Davin here. Thanks for the question, and good morning. We have not. Obviously, shopping at a Walmart is a different occasion than somebody buying online, and we've been very pleased that not only are we doing well at Walmart, but our churn has stayed very constant in the direct-to-consumer business.

Thomas Davin: Hey, George, Tom Davin here. Thanks for the question, and good morning. We have not. So obviously shopping at Walmart is a different occasion than somebody buying online and we've been very pleased that not only are we doing well at Walmart, but our churn has stayed very constant in the direct-to-consumer business.

So obviously shopping at Walmart is a different occasion that somebody buying online and we've been very pleased that nominally or we're doing well at Walmart, but our churn has stayed very constant and the direct to consumer business.

George Kelly: Okay, excellent. Thank you.

Tom Davin: You bet. Thanks, George.

Thomas Davin: You bet. Thanks George.

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

Operator: Thank you. Our next question has come from the line of Michael Baker with D.A. Davidson. Please proceed with your questions.

Michael Baker: Okay, thanks. Also a question on the Walmart initiative, which I think is the big news of the day. Yeah, it's [inaudible] we get that, but any initial POS data, sell-through, et cetera?

Michael Baker: Okay, thanks. Also, question on the Walmart initiative, which I think is the big news of the day. It's early, we get that, but any initial POS data, sell through, et cetera?

The Big news of the day.

Yeah, it's really we get that but any initial P. O S data sell through et cetera.

Toby Johnson: So our initial velocities are at or slightly above what we had projected. We are relatively new in the distribution, but we're really excited about the performance out of the gate. One, from a consumer standpoint, the feedback from our consumers has been strong. There are about 30 million people a day that go into a Walmart, and they seem to be really happy as they go down the coffee aisle and find Black Rifle on the shelf. We've also looked at it from a competitive standpoint at our initial entry into Walmart, we're about 2.4 share of the overall coffee category in Walmart based on the data, and we're looking versus the competition, I think we mentioned in our prepared remarks for the last four weeks, we passed some established coffee brands in our size, including Peet's and Death Wish and continue to grow as we add in new SKUs et cetera, with our full rollout plan. So we're anticipating that growth to continue to still and we are really excited about the collaboration with Walmart.

Toby Johnson: Our initial velocities are at or slightly above what we had projected. We are relatively new in the distribution, but we're really excited about the performance out of the gates. One, from a consumer standpoint, the feedback from our consumers has been strong. There's about 30 million people a day that go into a Walmart, and they seem to be really happy as they go down the coffee aisle and find Black Rifle on the shelf. We've also looked at it from a competitive standpoint at our initial entry into Walmart. We're about a 2.4 share of the overall coffee category in Walmart, based on the data. We're looking versus the competition.

We are relatively new and the distribution, but where we're really excited about the performance out of the gate.

One from a consumer standpoint, the feedback from our consumers has been strong there's about 30 million people a day that go into a Walmart and they seem to be really happy as they go down the coffee aisle find black rifle on the shelf and we've also looked at it from a competitive standpoint at our initial entry into Walmart Whereabout.

To your point for a share of the overall coffee category and Walmart.

And based on the data and we're looking versus the competition I think we mentioned in our prepared remarks for the last four weeks, we pass them established coffee brands and our size, including Peet's and death, Wes and continue to grow as we add.

Toby Johnson: I think we mentioned in our prepared remarks, for the last four weeks, we've passed some established coffee brands in our size, including Peet's and Death Wish, and continue to grow as we, you know, add in new SKUs, et cetera, with our full rollout plan. We're anticipating that growth to continue, to build, and we are really excited about the collaboration with Walmart.

In it new Skus et cetera, with our full rollout plan, so where we're anticipating that growth to continue to build and we are really excited about the collaboration with Walmart.

Michael Baker: All right. That's helpful. That's sort of it's a good segue into my next question. That $500 million plan next year, what are you embedding in there in terms of the rollout to Walmart? I mean, is that sort of like maxing out a Walmart full capacity, or is that still, you know, early in the rollout? In other words, what could that $500 eventually be, as you know, grow with Walmart?

Michael Baker: Alright, that's helpful and that's sort of a good segue into my next question. That $500 million plan next year, what are you embedding in there in terms of the rollout to Walmart? I mean, is that sort of like maxing out at Walmart full capacity or is that still early in the rollout? What could that 500 eventually be as you grow with Walmart?

What is that sort of what are you embedding in there in terms of the rollout to Walmart I mean is that sort of like maxing out at Walmart full capacity or is that still early in the rollout like what what Oh, there was what could that 500 eventually be as you grow with Walmart.

Greg Iverson: Yeah, Michael, it's Greg Iverson. If you remember on our earnings call last quarter, we said that across the entirety of the wholesale channel, expect that to comprise more than 60% of our revenues. That still is absolutely true. In terms of the two big growth opportunities, Walmart and the FDM channel broadly is definitely one of the big opportunities, and RTD is a big opportunity as well. We gave some information in terms of what this initial rollout looks like. Toby just gave the update in terms of where we're at today in terms of share. We certainly see the opportunity, as well as our partner sees the opportunity for us to continue to gain share.

Greg Iverson: Yeah, Michael, it's Greg Iverson. So if you remember, on our earnings call last quarter, we said that across the entirety of the wholesale channel, expect that to comprise more than 60% of our revenues, and so that still is absolutely true. In terms of the two big growth opportunities, Walmart and the FDM channel broadly is definitely one of the big opportunities and RTD is a big opportunity as well. And so, we gave some information in terms of what this initial rollout looks like. Toby just gave the update in terms of where we're at today in terms of share. We certainly see the opportunity as well as our partner [inaudible] for us to continue to gain share. So it will continue to ramp up in each of the quarters. I don't know that we'd ever stay at a point where we've fully penetrated within Walmart. We see a lot of opportunity to continue to grow our brand presence within their footprint.

The entirety of the wholesale channel and expect that to comprise more than 60% of our revenues and so that that still is absolutely true and in terms of the two big growth opportunities Walmart and the F. T. M. Channel broadly is is definitely one of the big opportunities and an RTD is a big opportunity as well and so we gave we have some information in terms of.

What this initial rollout looks like Toby just gave the update in terms of where we're at today in terms of share we certainly see the opportunity as well as our partner he's got pushing for us to continue to gain share.

Greg Iverson: It will continue to ramp up in each of the quarters. I don't know that we'd ever stay at a point where we've fully penetrated within Walmart. We see a lot of opportunity to continue to grow our brand presence within their footprint.

So it will continue to ramp up in each of the quarters I don't know that we'd ever say at a point, where we've fully penetrated with within Walmart. We we see a lot of opportunity to continue to to grow our brand presence with within their footprint.

Michael Baker: Well, I guess not to, you know, belabor, maybe ask you. Let me ask one other way. The share right now is 2.4%. What share is embedded in that $500 million? Is that something you've quantified or are willing to share?

Michael Baker: Maybe let me ask this one other way. The share right now is 2.4%, what share is embedded in that $500 million? Is that something you've quantified or willing to share?

Maybe let me ask one other way what so the share right now is two 4% what share is embedded in that $500 million is that something you've quantified or willing to share.

Greg Iverson: It's something we've quantified. It's something we think about and worked through. It's something we certainly discussed with them, but no, it's not something we're guiding to.

Greg Iverson: It's something we've quantified. It's something we think about and work through. It's something we've certainly discussed with them. No, it's not something we're guiding to.

Michael Baker: Okay, understood. I appreciate that. Alright, I'll turn it over to someone else to ask some questions.

Michael Baker: Okay. Understood. I appreciate that. All right, I'll turn it over to someone else who has some questions.

Understood I appreciate that all right I'll turn it over to someone else ask some questions.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Bill Chappell with [inaudible] Securities. Please proceed with your question.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question has come from the line of Bill Chappell with Truist Securities. Please proceed with your question.

Our next questions come from the line of Bill Chappell with true Securities. Please proceed with your question.

Steven Lango: Hey, good morning, guys. This is Steven Lango on for Bill Chappell. Thank you for taking our question. Can you maybe talk about what you're seeing in direct-to-consumer sales? It seems like the channel kind of continue to gain a fairly substantial amount of subscribers, but the revenues are kind of only slightly up, but can you provide some further color on if there is some shift in spending or maybe something else that we're not seeing?

Stephen Kadenacy: Hey, good morning, guys. This is Stephen Kadenacy for Bill Chappell. Thank you for taking our question. Can you maybe talk about what you're seeing in direct-to-consumer sales? It seems like the channel kind of continued to gain a fairly substantial amount of subscribers, but the revenues are kind of only slightly up. Like, can you provide some further color on if there's some shift in spending or maybe something else that we're not seeing?

Can you maybe talk about what youre seeing in direct to consumer sales. It seems like the channel kind of continuing to gain a fairly substantial amount of subscribers, but the revenues are kind of only slightly up but can you provide some further color on if there is some <unk>.

<unk> spending or maybe something else that we're not seeing.

Thomas Davin: Yeah, I would say, and again, this is Tom Davin, so thanks for the question. In the direct-to-consumer subscriber side of the business, we're seeing that as very steady, there's a slight decline versus sequential Q2 numbers on the subscriber side, and a little softness in the non-sub business on D to C, but overall very steady versus the prior quarter and prior year.

Tom Davin: Yeah, I would say, and again, this is Tom Davin, so thanks for the question. In the direct-to-consumer subscriber side of the business, we're seeing that as very steady. There's a slight decline versus sequential Q2 numbers on the subscriber side and a little softness in the non-sub business on D2C, but overall very steady versus prior quarter and prior year.

We're seeing that as a very steady there's a slight decline versus sequential Q2 numbers on the subscriber side and a little softness in the non sub business on D C, but overall very steady versus the prior quarter and prior year.

Evan Hafer: Yes, I think that mainly--this is Evan by the way--I think what that mainly constitutes is we've had to shift the way that we're spending marketing dollars to a more omnichannel spend perspective. So we're not allocating 90% of our marketing budget to a D to C marketing plan. So as we start to look at how we market our product as we expand into different channels, we've got to diversify our marketing spend which obviously will be emphasized in some of the channels. That's just kind of the law of math I guess.

Evan Hafer: Yeah, I think that mainly. This is Evan, by the way. I think what that mainly constitutes is we've had to shift the way that we're spending marketing dollars to a more omni-channel spend perspective. So we're not allocating 90% of our marketing budget to a D2C marketing plan. As we start to look at how we market our product, as we expand into different channels, we've got to diversify our marketing spend, which obviously will de-emphasize some of the channels. It's just kind of law of math, I guess.

Channels, we've got to diversify our marketing spend which obviously will deemphasize some of the channels that just kind of the law that I guess.

Steven Lango: Awesome. And then just a quick clarification. I see inventories are kind of up, almost 50% since the end of June. Is this kind of getting ahead of the holiday selling period or can you kind of talk about more what that build looks like?

Stephen Kadenacy: Awesome. Thank you. Just a quick clarification. I see inventories are kind of up, almost like 50%, since the end of June. Is this kind of getting ahead of the holiday sell-in period, or can you kind of talk about more what that build looks like?

And then just a quick clarification I think inventories are kind of up.

Almost 50% since the end of June .

Kind of getting ahead of the holiday selling period or can you kind of talk about more at that bill looks like.

Greg Iverson: Sure, Steven. It's Greg Iverson, happy to do that. The building inventory really relates to the ready-to-drink product and so as we mentioned on our last call with this emphasis in the wholesale channel, our primary use of capital near term is for us to build out inventories and then ultimately receivables to support the rapid growth across both the ready-to-drink product as well as the food, drug, and mass channel. With the new co-man that we brought and Toby addressed just a moment ago in terms of the capacity, but we've built up a lot of raw material ingredient inventory to support the growth in that channel, so it's something that we've planned on it's a big part of the reason why as you probably also saw that this morning, we announced a new $65 million senior credit facility that allow us to continue to fund that working capital build.

Greg Iverson: Sure, Steve, it's Greg Iverson. Happy to do that. The building inventory really relates to the ready-to-drink product. As we mentioned on our last call with this emphasis in the wholesale channel, our primary use of capital near term is for us to build out inventories and then ultimately receivables to support the rapid growth across both the ready-to-drink product as well as the food, drug, and mass channel. With the new co-mans that we brought on, and Toby addressed just a moment ago in terms of the capacity, but we've built up a lot of raw material ingredient inventory to support the growth in that channel. It's something that we've planned on.

Greg Iverson: Sure, Stephen, it's Greg Iverson. Happy to do that. The building inventory really relates to the ready-to-drink product. As we mentioned on our last call with this emphasis in the wholesale channel, our primary use of capital near term is for us to build out inventories and then ultimately receivables to support the rapid growth across both the ready-to-drink product as well as the food, drug, and mass channel. With the new co-mans that we brought on, and Toby addressed just a moment ago in terms of the capacity, but we've built up a lot of raw material ingredient inventory to support the growth in that channel. It's something that we've planned on.

With growth across both the ready to drink product as well as the food drug and mass channel with the new co man that we brought we brought on and Toby addressed just a moment ago in terms of the capacity, but we've built up a lot of raw material ingredient inventory to support the growth in that channel.

And also it's something that we've we've planned on it's a big part of the reason why as you probably also saw that this morning, we announced a new $65 million senior credit facility that allow us to continue to fund that working capital build.

Greg Iverson: It's a big part of the reason why, as you probably also saw this morning, we announced a new $65 million senior credit facility that'll allow us to continue to fund that working capital build.

Steven Lango: Great. Thank you very much.

Tom Davin: Great. Thank you very much.

Stephen Kadenacy: Great. Thank you very much.

Operator: Thank you. Our next question is coming from the line of Matt Curtis with William Blair. Please proceed with your questions.

Operator: Thank you. Our next question comes from the line of Matt McGinley with William Blair. Please proceed with your questions.

Matt Curtis: Hey, good morning. Thanks for taking the question. Just a question on outposts. I mean, obviously the stores are still open very strongly, but now that it's been a while since you've begun opening outposts, I'm just wondering what you can tell us about what the maturity curve of sales volumes looks like. I mean are you seeing a significant [inaudible] then settles into a more consistent sales volume? Just anything you can tell us would be helpful.

Matt McGinley: Hi, good morning. Thanks for taking the question. I guess a question on Outpost. I mean, obviously, the stores are still opening very strongly. But now that it's been a little while since you've begun opening Outposts, I'm just wondering what you can tell us about what the maturity curve of sales volumes looks like. I mean, you know, are you seeing a significant honeymoon bump that then settles in to a more consistent sales volume? Just anything you could tell us would be helpful.

I guess the question outposts I mean, obviously the stores are still open very strongly.

But now that it's a while since you've begun opening outposts I'm just wondering what you can tell us about what the.

The maturity curve of sales volumes looks like Oh, I mean are you seeing a significant.

Honeymoon dog, but then settles in to a more consistent sales volume just anything that gets all of us would be helpful.

Thomas Davin: Hey, good morning. Heath Nielsen, you want to take that one?

Tom Davin: Hey, good morning.

Tom Davin: Heath Nielsen, you wanna take that one?

Heath Nielsen: Yeah. Good morning. It's Heath Nielsen. I think in any natural retail opening, you will see of that. What we've been very pleased to see is how our average transaction has continued to hold very, very strong. With the addition of certain specific LTOs that we've had, and we just most recently launched our mobile order and pay, that we've been able to, you know, continue to gain traction within the retail Outpost.

Heath Nielsen: Good morning, this is Heath Nielsen. So given any natural retail opening you will see that. What we've been very pleased to see is how our average transaction has continued to hold a very, very strong and with the addition of certain specific out deals that we've had, we just most recently launched mobile order and pay and we've been able to continue to gain traction within the retail outposts.

Has continued to hold a very very strong and with the addition of certain specific out deals that we've had we just most recently launched mobile order and pay and we've been able to do.

And you had a gain traction with that within the retail outflows.

Okay.

Matt Curtis: Okay, great. Thanks. And then, I guess, just getting back to the sales guidance for the fourth quarter, I guess I'm still just surprised by the magnitude of the adjustment. I mean, is there anything you can tell us to help us [inaudible] exactly what is driving the reduction or the magnitude of the reduction?

Matt McGinley: Okay, great. Thanks. I guess, just getting back to the sales guidance for Q4, I guess I'm still just surprised by the magnitude of the adjustment. I mean, is there anything you can tell us to help us better reconcile exactly what is driving the reduction or the magnitude of the reduction, I mean?

And then I guess, just getting back to the sales guidance for fourth quarter.

I guess I'm still just surprised by the magnitudes.

The adjustment.

I mean is there anything you can tolls to help us.

<unk> file.

Exactly what is driving the reduction.

Or the magnitude of the reduction of name.

Greg Iverson: Well, we tried to lay it out in our script and then reiterated it here just a moment ago, but there are two factors. The first was this manufacturing issue, and so we said that was about a third of the total reduction in our outlook, and I think a big part of it is just as we mentioned before, there's incredible demand for our ready-to-drink product and we've historically been very capacity constrained. It's been such a critical initiative for us to get these new co-manufacturers and expand the capacity. We launched those initial test runs and then went through all of the QA process, and then went went into production, and unfortunately, we had this production issue with one of those co-mans where we had to, we made the decision voluntarily to pull the product and so it's just it's just simply the size of those production runs are large and so the effect of pulling one of those has a big impact on the quarter. And then similarly too when Toby just shared the amount we've added to our capacity which is a big, big increase and so as you can appreciate, a delay in those production runs has a big impact on the quarter. The important thing for us is we resolved those. So we are now shipping full production runs from both co-manufacturers and so while it had a meaningful impact on the third quarter and a bigger impact on the fourth quarter, these are things that we've resolved and won't be impacting 2023.

Greg Iverson: Well, I think, you know, I think we try to lay it out in our script, and then reiterated it here just a moment ago. There's two factors. The first was this manufacturing issue. We said that was about a third of the total reduction in our outlook. I think a big part of it is just, as we mentioned before, there's incredible demand for our ready-to-drink product, and we've historically been very capacity constrained. It's been such a critical initiative for us to get these new co-manufacturers and expand the capacity. We launched those initial test runs, and then went through all the QA process and then went into production.

We tried to laid out in our in our script and then reiterated it here here just a moment ago, but there's there's two factors. The first was this this manufacturing issue.

And so we said that was about a third of the total reduction in our outlook and I think a big part of it is just there is as we mentioned before there's incredible demand for our ready to drink product and we've historically been very capacity constrained. It's been such a critical initiative for us to to get these new co manufacturers and an.

The capacity, we launched those initial test runs and then.

Went through all of the QA process and then then went went into production and Unfortunately, we have this this production issue with one of those co Mans, where we had two two are weak issuance, who we had to we made the decision voluntarily to to pull the product and so it's just a simple it's just simply the size of those production runs are large and so.

Greg Iverson: Unfortunately, we had this production issue with one of those co-mans where we had to. Or, I shouldn't say we had to. We made the decision voluntarily to pull the product. It's just simply the size of those production runs are large. You know, the effect of pulling one of those has a big impact on the quarter. Similarly, too, when Toby just shared the amount we've added to our capacity, which is a big increase. As you can appreciate, a delay in those production runs has a big impact on the quarter. The important thing for us is we resolve both.

So you know the effect of pulling one of those has a big impact on the quarter and then similarly to win when Toby just shared the amount we've added to our capacity which is.

Which is a it's a big big increase in so as you can appreciate a delay in those production runs has has a big impact on the quarter. The important thing for us as we resolve both so we are now shipping full production runs from both co manufacturers and so while it had a meaningful impact on the third quarter and in a bigger.

Greg Iverson: We're now shipping full production runs from both co-manufacturers. While it had a meaningful impact on Q3 and a bigger impact on Q4, these are things that we've resolved and won't be impacting 2023.

Impact on the fourth quarter.

These are things that we've we've resolved and won't be impacting 2023.

Matt Curtis: Okay, got it. And then, I guess the last question from me. It sounds like you're still making a lot of progress on the product innovation front. Can you tell us how many SKUs you plan to launch next year if you decided that maybe it makes more sense to talk about that by channel?

Matt McGinley: Okay, got it. Then, I guess one last question from me. It sounds like you're still making a lot of progress on the product innovation front. Can you tell us how many new SKUs you plan to launch next year, if you've decided that yet? Maybe it makes more sense to talk about that by channel.

And then I guess last question for me it sounds like you're still making a lot of progress on the.

Product innovation front.

Can you tell us how many.

Skus you plan to launch next year.

If you decided that yet maybe it makes more sense to talk about that by channel.

Multiple speakers: [Toby Johnson] Yeah, so I'll jump in on RTD in particular. And we're really excited we brought our innovation [inaudible] Max in early October. To interface with our distributors and customers directly, we had samples of everything that we're planning to launch in 2023. And this is the first time we're bringing new to the category. We are focused on growth and being agile as a company, but we're also disciplined where we need to be. And in the case of RTD, we've been focused on our four core SKUs. But as we unlock our capacity, we can bring new to the category. So in addition to those four SKUs, we are adding three permanent SKUs to the lineup. Those will launch in Q1 and be available for all of the resets that are taking place. One is a 15-ounce SKU of vanilla, we also have an 11 ounce SKU of salted caramel, and a highly incremental SKU, six and a half ounce that we're really excited to complement the portfolio with. We additionally shared a couple of limited-time offers, one for the summer, Barry White and Blue, very patriotic and highlight what we stand for as a company and then a fall Pumpkin Spice LTO. The feedback was incredible. We're taking orders and beginning production on the permanent SKUs right now so that we can add those to our reset windows in the first half. And across the rest of the portfolio, I mean innovation is part of our DNA. We launched a new ECS coffee every month, that will continue. We're looking at channel innovation as we continue our expansion. And we will continue to innovate across the portfolio to drive growth and excitement for our consumers. [Thomas Davin] And the retail outpost innovation has a lot to do with our cold beverage platform. We've talked about our penetration of cold beverages being in the mid 30, so for [inaudible] the retail team, driving that up is a huge priority, plus we have seasonal LTOs. We've got several in the market right now at the retail outposts, so that is also going well.

So I'll jump in on RTD in particular.

Toby Johnson: I'll jump in on RTD, in particular. You know, we're really excited. We brought our innovation to NACS in early October to interface with our distributors, customers directly. We had samples of everything that we're planning to launch in 2023, and this is the first time we're bringing news to the category. We are focused on growth and being agile as a company, but we're also disciplined where we need to be. In the case of RTD, we've been focused on our four core SKUs. As we unlock our capacity, we can bring news to the category. In addition to those four SKUs, we are adding three permanent SKUs to the lineup. Those will launch in Q1 and be available for all the resets that are taking place.

And we're really excited we brought our innovation in the Max in early October .

<unk> Suisse.

Our distributors customers directly are we at samples of everything that we're planning to launch in 2023 and this is the first time, we're bringing news to the category, where we are focused on growth and being agile as a company, but we're also disciplined where we need to be and in the case of RTD. We've been focused on our four core skus.

But as we unlock.

Unlike our capacity, we can bring news to the category. So in addition to those four skus, we are adding three permanent skus to the to the lineup does the launch in Q1 and be available for all of the resets that are taking place. One is a 15 hour SKU of vanilla and we also have an 11 ounce SKU as salted caramel.

Toby Johnson: One is a 15-ounce SKU of vanilla. We also have an 11-ounce SKU of salted caramel and a highly incremental SKU, 6.5-ounce, that we're really excited to complement the portfolio with. We additionally shared a couple of limited time offers, one for the summer, a Berry Red, White and Blue, very patriotic and highlights what we stand for as a company, and then a fall pumpkin spice LTO. The feedback was incredible. We're taking orders and beginning production on the permanent SKUs right now, so that we can add those to our reset windows in the H1.

And a highly incremental skus six and a half ounce.

And that we're really excited to complement the portfolio list. We Additionally shared a couple of limited time offers one for the summer Barry White and Blue.

I'm very patriotic and highlight what we stand for as a company and then a follow up pumpkin Spice LPL and feedback was incredible we were taking orders and beginning production and that's permanent Skus right. Now so that we can add those to our reset windows and in the first half.

And across the rest of the portfolio I mean innovation is part of our DNA, we launched a new ECS coffee every month that will continue.

Evan Hafer: Across the rest of the portfolio, I mean, innovation is part of our DNA. We launch a new ECS coffee every month. That will continue. We're looking at channel innovation as we continue our expansion, and we'll continue to innovate across the portfolio to drive growth and excitement for our consumers.

We're looking at channel innovation as we continue our expansion.

And we will continue to innovate across the portfolio to drive growth and excitement for our consumers.

And the retail and post innovation has a lot to do with our cold beverage platform, we've talked about our penetration of cold beverages as being in the mid 30, so for heat and the retail team driving that happens a huge priority plus weird seasonal L. T OS we've got several in the market right now the retail outposts.

Tom Davin: In the retail Outpost, innovation has a lot to do with a cold beverage platform. We talked about our penetration of cold beverages being in the mid-30s. For Heath and the retail team, driving that up is a huge priority. Plus, we have seasonal LTOs. We've got several on the market right now at the retail Outpost, so that is all going well.

So that is all going well.

Matt Curtis: Okay. It sounds great. Thanks very much and good luck during the holidays.

Matt McGinley: Okay, sounds great. Thanks very much, and good luck during the holidays.

Evan Hafer: Thank you.

Greg Iverson: Thanks, Matt.

Evan Hafer: Thanks, Matt.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question has come from the line of Michael Baker with D.A. Davidson. Please proceed with your questions.

Our next questions come from the line of Michael Baker with D. A Davidson. Please proceed with your questions.

Michael Baker: Thanks. Just a quick follow-up as it relates to the fourth quarter. One, you keep talking about--I guess what was the plan for the fourth quarter? Do we just take the full-year guidance of $321 million and subtract year to date and was that the original plan, and I guess implicit in that is that the $76 million roughly in the third quarter was in line with your plan? And then a follow-up, any color on how to think about the EBITDA in the fourth quarter given the lower sales? Thanks.

Michael Baker: Thanks. Just quick follow-up, as it relates to the Q4. One, you keep talking about, I guess, what was the plan for the Q4? Do we just take the full year guidance of $321 million and subtract, you know, year to date? And was that the original plan? And I guess implicit in that is that the $76 million, roughly, in the Q3 was in line with your plan. And then a follow-up, any color on how to think about the EBITDA in the Q4 given the lower sales. Thanks.

You keep talking about.

I guess what was the plan for the fourth quarter do we just take the full year guidance of $321 million and subtract.

Year to date and was that the original plan and I guess implicit in that is that the $76 million roughly in the third quarter was in line with your plan and then a follow up any color on how to think about the EBITDA.

In the fourth quarter, given the lower sales. Thanks.

Greg Iverson: Yeah, Mike. With regard to Q3 came in pretty much in line with what we were expecting to see. If you remember last quarter in our outlook, we talked about a full year number, but then we referenced expecting about 60% or more of the revenue to fall in the Q4. Based on that math, you can see we came in in Q3 right in line with that expectation. You're absolutely right. It's if you take the Q4 guidance versus the 9-month year-to-date, that's what we're guiding to for the full year.

Greg Iverson: Yeah, Mike, so with regard to Q3, Q3 came in pretty much in line with what we were expecting to see. If you remember last quarter in our outlook, we talked about a full-year number, but then we referenced about 60% or more of the revenue to fall in the fourth quarter, so based on that math you can see we came in in Q3 right in line with that expectation. So you're absolutely right. If you take the fourth quarter guidance versus the nine months year to date, that's what we're guiding to for the full year.

Greg Iverson: Yeah, Michael. With regard to Q3 came in pretty much in line with what we were expecting to see. If you remember last quarter in our outlook, we talked about a full year number, but then we referenced expecting about 60% or more of the revenue to fall in the Q4. Based on that math, you can see we came in in Q3 right in line with that expectation. You're absolutely right. It's if you take the Q4 guidance versus the 9-month year-to-date, that's what we're guiding to for the full year.

With regard to Q3 acute Q3 came in pretty pretty much in line with what we were expecting to see if you remember last quarter in our in our outlook we talked about.

Our full year number, but then we reference expect about 60% or more of the revenue to fall in the fourth quarter. So based on that math you can see we came in in Q3 right right in line with that expectation. So so you're absolutely right. It's it's if you take the fourth quarter guidance versus the nine months year to date, that's that's what we're guiding to for for the.

All year.

Greg Iverson: In answer to the second part of your question from a Q4 profitability perspective, starting first with Q3, we had a relatively strong Q3 quarter from a profitability perspective. You can see we had a step up sequentially in our gross margin. We had a meaningful step up sequentially in our adjusted EBITDA. From a Q4 perspective, there's a couple of things that are important from a seasonal perspective. Number one is we do run more promotions and discounts within our D2C channel during the peak holiday shopping season, and so that historically has a meaningful impact on our gross margin, so bringing Q4 margins down lower than Q3.

And then in answer to the second part of your question from a Q4 profitability perspective, starting first with Q3, we had a relatively strong Q3 quarter from a profitability perspective, you can see we had a step up sequentially in our gross margin. We had a meaningful step up sequentially in our adjusted EBITDA. From a Q4 perspective, there are a couple of things that are important from a seasonal perspective. So number one is we do run more promotions and discounts within our D to C channel during the peak holiday shopping season, and so that that historically has a meaningful impact on our gross margin, so bringing Q4 margins down lower than Q3. From a pricing perspective, we had a nice lift in Q3 related to pricing. We don't have any significant incremental pricing actions that are built into the fourth quarter.

Starting first with Q3, we had a relatively strong Q3 quarter from from a profitability perspective, you can see we had a step up sequentially in our gross margin, we had a meaningful step up sequentially in our adjusted EBITDA from a Q4 perspective, there's a couple of things that are important from a season out from.

Seasonal perspective, so number one is we we do run more promotions and and.

<unk> within our D to C channel during the peak holiday shopping season, and so that that historically has a meaningful impact on our gross margin, so, bringing Q4 margins down lower lower than Q3.

Greg Iverson: From a pricing perspective, we had a nice lift in Q3 related to pricing. We don't have any significant incremental pricing actions that are built into the Q4. The last thing I'll mention is our marketing spend is also more significant in the Q4. Evan mentioned earlier today we have a couple of significant activations in the Q4, but then we'll also be spending a little bit more to drive traffic to the sites related to, like I said, this peak holiday shopping season. Netting all that out, expect adjusted EBITDA not to be at the same level as we had in Q3, so somewhere between where we were in Q2 and Q3.

From a pricing perspective, we had a nice nice lift in Q3 related to pricing. We don't have any significant incremental pricing actions that are built into to the fourth quarter.

And then the last thing I'll mention is our marketing spend is also more significant in the fourth quarter. Evan mentioned earlier today we have a couple of significant activations in the fourth quarter, but then we'll also be spending a little bit more to drive traffic to the sites related to like I said, this peak holiday shopping season. So netting all that out, we expect adjusted EBITDA not to be at the same level as we had in Q3, so somewhere between where we were in Q2 and Q3.

Shopping season, so netting all that out.

We expect adjusted EBITDA not to be at the same level as we had in Q3, so somewhere between where we were in Q2 and Q3.

Michael Baker: Okay. Thank you.

Operator: Thank you. There are no further questions at this time. I would now like to hand the call back over to Tom Davin for any closing comments.

Thomas Davin: Thank you very much, and so we're pleased to report the third quarter and we're charging hard into the fourth quarter. Thank you everyone for joining the call and we will see out in the marketplace.

Tom Davin: Thank you very much. We're pleased to report Q3, and we're charging hard into Q4. Thank you, everyone, for joining the call, and we'll see you out in the marketplace.

Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Q3 2022 BRC Inc Earnings Call

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