Q4 2022 BRC Inc Earnings Call

Greetings.

Welcome to the Black rifle Coffee company fourth quarter and full year 2022 earnings call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

Now I'll turn the conference over to Jos Parados, you may begin.

Good afternoon, everyone. Thank you for joining black rifle Coffee company's conference call to discuss our fourth quarter 2022 financial results, which we released today and can be found on our website at IR Blackrock for coffee Dot Com with me on the call today is <unk> founder and CEO , Tom Davin Co CEO , Greg Iverson, our Chief Financial Officer, Toby Johnson, our Chief operating officer and he's Neil.

<unk>, our chief retail officer before we get started I would like to remind you the company's safe Harbor language, which I'm sure you're all familiar with on todays call management may make forward looking statements, including guidance and underlying assumptions forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially for further discussion of risks related to.

Our business. Please see our previous filings with the SEC. This call will also contain non-GAAP financial measures such as adjusted EBITDA Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and they're also available on our Investor website now I'd like to turn the call over to Evan Hafer, founder and CEO of Blackberry for coffee company Kevin.

Thanks, Tanner and good afternoon, everyone. It's hard to imagine it's been a full year since our first earnings call as a public company, but I'm excited to share some highlights from 2022 and lay out our goals for 2023, just under a decade ago. I started this business in my garage with a one pound coffee roaster roasting one bag at a time with my wife at that time they were just a.

Mall D to C brand focusing on a small portion of the coffee drinking public fast forward to today Black rifle has established itself not only as a mainstream brand, but also as an omnichannel CPG business less than six months into our launch at Walmart, we have risen to the number four brand in bagged coffee and within that the.

The number one selling branded 12 ounce bagged coffee the largest dollar volume package size within Walmart bagged coffee segment. We've also solidified ourselves as the fastest growing brand in ready to drink coffee outpacing the category growth by over four times at year end, we are the number three.

<unk> RTD coffee within the convenience channel outpacing Duncan we've partnered with some of the most recognizable brands in the world watching a cobranded coffee with Amazon Prime video and becoming the official coffee of the Dallas Cowboys. In addition, we've continued to maintain the biggest branded subscription coffee business in the United States and grown the largest social.

Media following across all coffee companies and other lifestyle brands. We've done all of this with our aided brand awareness in the mid twenties I'm more excited than I've ever been about the future of this brand as we're just getting started on this journey to a billion dollar business looking into 'twenty 'twenty. Three we have three main goals that we are focused on.

Which are one driving topline revenue growth to increasing brand awareness and three achieving profitability our decision to distribute bagged coffee and rounds within food drug and mass or F. T. M was driven with all three goals in mind. The at home coffee segment is an $11 billion market with Walmart.

Coffee sales representing about a third of that volume entering into the F. D. M channel allowed us to participate in this segment, where most coffee has purchased for at home consumption not only is F. T M coffee, our most profitable channel, but it's also the most cost efficient way to increase brand awareness and reach new customers. We previously mentioned that 60.

6% of our shoppers exclusively purchase coffee from brick and mortar locations. These shoppers were previously unreachable to our brand, but we are increasing our availability to be accessible wherever coffee customer shop in late Q3 of 'twenty 'twenty. Two we entered over 4400, Walmart stores with a product assortment of 24 Skus <unk>.

Putting both bag coffee and rounds, Blackrock, who has quickly risen to the number four branded bagged coffee eclipsing the sales of a number of established brands. The Incrementals city that our brand is driving on shelf is extremely compelling per numerator data almost 35% of households that purchase black raffle coffee, where new coffee buyers to Walmart be shot.

<unk> had shopped at Walmart previously, but had not purchased anything from the coffee category and the prior 26 weeks prior to launch. Additionally, the data indicates 62% of their households purchased black Grateful. We're switching from another brand with over 30 million shoppers visiting Walmart stores. Each day, we're confident that our pre.

NIM products and mission driven brand will continue to create a new and loyal customer while increasing our brand awareness, we are less than six months into our launch into the F. T M strategy and we've been focused on executing and delivering on the commitments of our initial rollout we're still at the beginning of this journey, but the initial results indicate that we are winning and taking market share from.

Their established brands in the largest coffee retailer in F. T. M. This confirms that our strategic expansion was the right decision for the company as we continue to transition from primarily D to C to an omnichannel CPG business. Our marketing strategy is mirroring that transition with this we are able to focus our marketing spend on high level brand awareness as well as.

Wholesale specific marketing campaigns, we're spending less total dollars in DTC and because of this we've elevated our expectations for returns on this spend this higher return on AD spend ROE as is driving lower customer acquisition costs and increasing profitability. This overall shift into marketing spend will enable leverage on them.

Marketing line for 'twenty, 'twenty, three and beyond being efficient in our marketing spend is one of the drivers for achieving profitability. In 2023, we are also reducing corporate SG&A costs and driving gross margin as we strive to achieve our adjusted EBITDA goals for the year growing our brand and driving profitability allows us to support our mission.

And by continuing to give back to those who have served our mission was the foundation of this company when I started at almost a decade ago in 2022 we've donated over $2 million in cash and coffee into veterans and active duty and first responder causes close to half of all of our employee base, our veterans and veterans' spouses and we continue to.

Hire more as the business grows we want to be a shining example for how military veterans can build a successful company. Our mission comes with challenges, but so does every mission for which we've deployed our challenges are different now, but we meet them with the same determination and expectations for results as I did when I was a green beret I founded this company to make a difference.

Veterans lives and we're doing that every day I'm proud of our team for the tremendous growth they've driven over the past year and how well they've adapted to growing multiple businesses simultaneously I'm. Just is driven now as I was when I started the business back in 2014, 2023 will be a banner year for black rifle with that I'll turn it over to you Tom Thanks.

Evan and good afternoon, everyone I will begin by highlighting the key initiatives for our commandment of profitability for 2023 including details from each channel of our business. Then I will briefly discuss our Q4 earnings and provide updated guidance for 'twenty to 'twenty three.

<unk> profitability as some of you may have seen at our ICR presentation. In January we highlighted three key drivers of our commitment to profitability for 2023 number one expansion of our wholesale channel.

This channel is our most profitable sales channel with our highest margins and return on capital our entry into the F. D M channel with bagged coffee in round as a significant catalyst for growth. We launched in late September of last year and this mix shift will continue to benefit our financial performance in 'twenty two 'twenty three.

From having a full year of sales ready to drink is continuing to scale rapidly in the convenience store in F. T. M channels, where we are targeting more than 100000 doors by year end up from 61000 at the end of 2022.

Note that we had approximately 70000 doors at the end of Q3.

One retailer with 18000 doors ran a test for a limited time in Q2 and Q3. The test was successful but the doors were not included in the Q4 number because the test was completed in the prior quarter.

We're now shipping product to this retailer at the end of Q1 for ongoing distribution recapturing those 18000 doors innovation will be a key growth driver for this segment. We've introduced innovation for the first time by launching two new core Skus in Q1, salted caramel and vanilla.

Plus three additional seasonal limited time offerings of <unk>.

First of these L T OS as a berry Moca S. SKU entering the market at Memorial day, we believe that taking advantage of the demand for black rifles coffee and RTD within wholesale channel will create the most strategic value for the company and our shareholders number two price increases we've now taken pricing across all.

All channels of our business. We've also taken additional pricing actions in February for our T D and another price increase for our direct to consumer subscribers in Q1 of 2023, our consumers have not exhibited any tendencies to trade down nor have we seen lower coffee consumption in response to the price increase.

Number three cost leverage over the past couple of years. The management team has invested in developing the omnichannel platform and the infrastructure to support it in 'twenty to 'twenty three we will balance the need to obtain EBITDA profitability, while not compromising growth. We began this work in Q1, resulting in reductions too.

SG&A, including an 8% reduction in corporate head count, we're being selective with our spending as it has become clear the wholesale business is going to be our key driver of growth for the next several years, allowing us to focus our efforts and realize operating leverage historically, we have invested ahead of revenues, we stood up new lines of business.

As we move out of the launch phase of tailwind for the wholesale channel that as the business scales. Our investment as a percentage of revenue will continue to decrease outside of SG&A reduction will also benefit from easing inflationary pressures, which we anticipate will support our efforts to create operating leverage as <unk>.

Part of our commitment to growth and profitability. We've recently added two executives who have dramatically enhanced our leadership capabilities, Chris Clark joined as our New Chief Technology Officer from Levi Strauss, where he served as Chief Information Officer, Chris is a west point graduate and served as a U S Army Aviation officer prior to transitioning.

Into corporate America, we also brought aboard Marty Manning, our chief Human Resources Officer, who came to us for more than a decade at general electric and most recently was the C. H R. O a ascend learning Marty also served in the U S. Navy as a surface warfare officer, an intelligence officer. These are just two examples.

<unk> of the caliber of people who are joining our Cogs to build this business for the future channel highlights now I will expand on the key channels and profitability levers we've taken within each as Evan mentioned earlier, we are fortunate enough to be able to launch bagged coffee and rounds of K Cups, and Walmart in September of last year of launch.

Included in initial assortment of 24, Skus are roughly 12 linear feet of our ground coffee and K cups, or what we call round and a 4400 Walmart stores felt that certain Walmart stores with a smaller coffee section do not have all 24 Skus. This launch was an exciting opportunity for.

Black rifle is the F. T M coffee space represents an 11 billion dollar and growing at home coffee market, which Walmart represents close to a third of that volume as a P 13 Nielsen data less than four months into our initial launch we represented 3.5% of Wal Mart's total coffee business and the <unk>.

There continues to accelerate growing to 3.8% through the end of February from a dollar standpoint, the 12 ounce bag sizes, the highest dollar volume pack and the coffee aisle Black rifle coffee is the number one brand of agonists pack size with 22% of the sales over the last four weeks per Nielsen data.

Needless to say we are excited about the consumer response and the initial launch results. We are committed to deepening our current relationship and maximizing the opportunity at hand within F. T M. In 2020, three we will be bringing relevant shopper innovation and initiating marketing campaigns to drive further awareness and trial.

We look forward to sustained growth within the F. T M channel as we shift marketing and promotional resources to support expansion as you can imagine with the public Nielsen and IRI data, we've had lots of inquiries from other F. D M retailers and we all looked at at least one additional F. D. M account during the summer reset periods.

The F D M coffee aisle, we will scale our F. T M business as rapidly as possible without sacrificing quality or customer service that said there are several keys to expanding across this channel. Most importantly, our entry into Walmart has shown the relevance of our brand nationally.

And with a broad base of consumers, which will guide our launches with other retailers, we have the capacity to support coffee expansion across the F. D. M category. We also have the opportunity to tailor our pack sizes to be relevant or grocery shoppers, particularly in the case of rounds of K Cups will continue a deliberate.

S T M rollout strategy for the next several years to ensure our brand presentation is maximized and that we deliver a high level of service tall F. D. M accounts, our T D growth levers now turning to the other portion of the wholesale channel our T D or ready to drink coffee the addressable market for the ready to drink coffee business is <unk>.

$4 billion growing at approximately 11% per annum versus 3% for the roasted coffee segment, driven primarily by younger consumers. This explosive growth on adoption of cold coffee consumption. It has been a major reason why we continue prioritizing growth and market share in this category throughout 2022 we add.

A 20000 doors and increased our HCV percentage to 38, 3% from 13.5% at the end of 2021 more importantly per Nielsen our RTD dollar sales compared to a year ago were up almost 44% over the last 13 weeks through December 31.

More than four times as a category growth of nine 8%. This has been achieved by unit growth of 34% versus the category, which shows our demand for the brand and our loyal customer base as we entered 2023 and we're seeing momentum build for the RTD business compared to the December results over.

The last 13 weeks as of February 25, our dollar growth has increased 1300 basis points from 44% to 57% driven by a 500 basis point increase in unit growth from 34% to 39% and a price increase of approximately 800.

Basis points that occurred in early February drivers for this momentum include innovation launches increased distribution and incremental facings, we announced our first RTD innovation with the launch of two additional core Skus and three seasonal limited time offerings. We've also continued to expand.

And our distributor network and recently unlocked access to over 12% of the U S population, taking our coverage to 96%. The half. One recent period has also allowed us to expand on top of our current base of 150000, phasings, adding an incremental one.

<unk> thousand facings, we are seeing these incremental facings being reflected in current plan O grams in both legacy retailers and new doors towards the end of Q1, we began shipping product in support of roughly 40% of these new facings wood the remainder shipping in Q2 and Q3 of last year, we outlined our startup Chi.

<unk> would do RTD production and ingredient supply, which delayed our ability to fully leverage our RTD capacity unlocks in 'twenty 'twenty. Two these speed bumps are now behind us with all three of our co man partners executing the 20th twenty-three plan to capitalize on all of our growth initiatives for this year and beyond.

Lastly, I want to highlight our inventory levels going into half one as many of you know the convenience store reset cycles happen twice a year for seasonal load ins with a majority of resets occurring in the spring. The most impactful way to grow distribution has to work within our customers' timelines and processes after out.

Any additional capacity in 2020 two 2023 is the first year, we've been able to produce enough cases to be fully prepared for the half one resets or new capacity has allowed us to build adequate inventory to meet commitments to our customers and distributors throughout the year supporting accelerating growth levels, we've seen.

Within our brand in this category as Greg will tell you later, you should expect our inventory levels to normalize as this product hits the shelves in Q2 direct to consumer now turning to our direct to consumer or DTC channel our relationship with our consumers significantly stronger than other traditional brands with over.

2 million lifetime online customers, who become advocates and influencers to others driving people to the brand we have the largest branded coffee subscription business in the U S. The over 270000 subscribers at year end like many D to C brands, we've seen the cost to acquire customers.

<unk> continue to climb in response, we've modified our approach to investing in new subscribers such that we achieve a payback now in one month versus four to six months previously to date, our churn rate is staying within our historical average of 3% to 4% per month. Despite the two recent price increases.

We continue to refine our marketing strategies are focused only on spending on initiatives that will meet or beat our demanding internal return thresholds outpost strategy Lastly, I want to expand on our outposts channel in Q4, we opened four company owned stores in core markets in Texas and Arizona.

Ending the year with 15 company owned outposts and 11 franchise out Bose, we are a relatively small company with huge demand for our products across multiple sales channels and because of this we've had a prioritize internal bandwidth as well as capital we've decided to phase our growth decisively prioritizing F T M and.

Ready to drink sales in the near term, which will also maximize short and long term profitability. This shift in focus frees up cash from reduced capex and SG&A given that the growth in F. T. M. An RTD is asset light, we continue to see tremendous long term opportunity for the <unk> segment, but we need.

To continue refining our prototype model to ensure that our outposts can reach are demanding return thresholds before ramp up expansion work on the prototype is ongoing we plan to build prototype units in 'twenty 'twenty four for 2023 we now plan to open three company owned outposts all of which will be in core tech.

There's markets, where we're operating other outposts today Q4 update and guidance for 2023, finally, I want to update you on our 2023 or four year guidance last August we provided our preliminary 2023 outlook of 500 million or more in revenue given a number of market variable.

We don't fully control we've concluded that we were overly ambitious with our initial 2023 revenue target due to the timing of various lowden cycles and customer on boardings within the wholesale channel for coffee and our T V and our more disciplined approach to outpost, we're pushing some of our forecasted revenue.

From 'twenty to 'twenty three to 2020 four we are still committed to achieving adjusted EBITDA profitability in 'twenty, 20th Rudy and are reaffirming that commitment today too.

To achieve this outcome, we are taking a more conservative approach to 20th twenty-three revenue and adjusting our SG&A costs accordingly.

We are resetting our 2023 revenue target to a range of 400 million to $440 million or approximately 33% to 46% growth over 'twenty 'twenty tunes revenue $301 million.

Our gross margins will be in the range of 36% to 37 and a half per side, even with the lower revenue range. We're committed to 5 million to $20 million of adjusted EBITDA those of you who remember.

This is actually very similar to the 20th twenty-three outlook. We provided when we went public a little over a year ago.

To bridge the gap from our initial 500 million dollar revenue target I want to provide more context for what has changed that led us to revise our outlook ready to drink. We've made a 40 million dollar adjustment driven by timing to our RTD forecast due to the fallen through from startup delays in 'twenty two.

<unk>, two and a slower ramp up of sales for the spring reset period.

Additionally, we transitioned.

From a third party sales firm in Q4 and built an entirely new internal sales team. This allows us to better control, our business and relationships with distributors as well as end customers, while leading this transition our team has taken a more conservative approach to forecasting relative to the third.

Pardon all of our sales plans are now built from the bottoms up view of our distributors and end customers. So a much more confidence given the enhanced visibility. This is provided F. D M.

We've adjusted the F T M bagged coffee and rounds revenue by 30 million based on the timing of adding additional F. D. M accounts, thus pushing some of the revenue into 2020 four as I mentioned earlier, we've had strong interest from multiple large at VM players are currently working on different sizing of products.

Building out our supply chain and refining our pricing architecture for these potential customers or is interest from certain retailers to include Blackrock for coffee and their 2023 summer reset, but we will be able to do a much more comprehensive across the F. D M channel in 'twenty 'twenty four based on the <unk>.

<unk> results at Walmart, showing black rifles brand strength across all regions of the country and our relevance to a broad set of shoppers will be able to design. These launches as national Rollouts with the optimal shelf assortment for our brand outposts, we're making a $10 million reduction.

Outposts revenue given the slower pace of openings and 22 and 23 as we prioritize our investments to support the wholesale channel. While we know our retail business has significant growth potential the core of any strategy is prioritizing resource allocation, where the rois see highest in the hall.

Sell business, we're shifting our resources to capitalize on that demand and achieve adjusted EBITDA profitability in 'twenty twenty-three. We're excited for the opportunities ahead for the Blackrock for coffee company and believe we are well positioned for sustained profitable growth for years to come with that I will turn it over to Greg to walk through the <unk>.

Naturals and give some additional details on our full year guidance as well as some detail regarding Q1, thanks, Tom and good afternoon, everyone. Today, I will discuss our 2022 fourth quarter and full year financial results touch on our balance sheet and liquidity position and then share. Some further details on our fiscal year.

2023 outlook, turning first to our financial results for the fourth quarter total revenue increased 30% to $93 6 million compared to 71.8 million in Q4 of last year for the full year. Our total revenue grew by 29% to 301.3 million the.

The meaningful increase in revenue was driven by growth within our wholesale an outpost channels, which continued their impressive growth from 2021 by 140% and 33% respectively. Now I will give some additional details on our three sales channels first our direct to consumer revenue decreased 8% in the fourth.

Quarter to $45 6 million compared to $49 6 million last year.

For the full year 2022 our direct to consumer revenue decreased by $6 3 million or three 8% to $159 million due to a decrease in our new customer acquisition for non subscription customers. This decline was mainly attributable to decreased digital advertising spend as we continue.

Prioritize our high growth and high returning wholesale channel turning to wholesale our wholesale revenue increased 141% to 41.2 million in Q4 compared to $17 2 million last year for the full year 2022 our wholesale revenue increased 63.6.

Or 114%, bringing our total wholesale revenue to 119.4 million. The increase was primarily driven by growth in our RTD product, which ended the year at over 61000 doors our percent a C V or all commodity volume as measured by Nielsen, which measure.

<unk> distribution across both convenience gas and F. T M increased to 38.3% versus 13.5% a year ago. Additionally, our entry into food drug and mass also drove very significant growth during the last four months of the year as we successfully launched in over 44.

Third Walmart stores next revenue, an outpost increased 34.3% to $6 8 million in Q4 compared to $5 1 million last year outpaced revenue growth throughout 2022 increased 10.9 million or 91% to $22 9 million compare.

To $12 million for 2021 throughout 2022 we opened a total of seven new company operated stores in Texas and Arizona.

Bringing our total number of outpost to twenty-six with 15 company owned stores and 11 franchise stores turning to our profitability. Our Q4 gross margin was 31.5% decreasing 290 basis points from 34.3 and Q4 of last year.

For the full year 2022 our gross margin was 32.9% a decrease of 556 basis points from 38.5% in 'twenty 'twenty. One the decrease was driven by inflationary pressures as well as costs related to our T. D production startup, which reduced our Q4 gross margin by one.

190 basis points in full year 2022 gross margin by 170 basis points, we have taken action across multiple fronts to combat the cost of inflation, we have been experiencing.

In addition, as Tom mentioned, we took price in line with our competitors across our product portfolio and in each sales channel. We implemented the majority of these pricing actions in the second half of 2022 and into Q1 of 2023 so the full impact of these actions will flow through our P&L throughout the remainder of 'twenty two.

Three as a result, we expect our margins will improve sequentially beginning in Q1 as a percentage of sales our operating expenses during Q1 increased by 200 basis points to 52.3% as compared to last year.

For the full year, our operating expenses increased to 55, 4% of sales up 200 basis points from 2021.

I will walk through the drivers of these increases beginning with marketing and advertising for the fourth quarter of 2022 marketing expense increased 22.5% to $13 6 million from $11 1 million in the fourth quarter of 2021 as a percentage of sales and marketing decreased by approximately 90 basis.

Points to 14, 5% compared to the same quarter last year for full year 2022 our marketing expense increased 5% to $38 2 million compared to $36 4 million in 'twenty 'twenty. One importantly for the full year 2022 marketing expense as a percentage of revenue.

New decreased from 15.6% to 12.7% a decline of 290 basis points as we're beginning to see the leverage on our branding investments as our business scales and we focus our investments in our wholesale channel moving on salaries wages and benefits expense for the fourth quarter of 2022.

Two increased 87.8% to $16 9 million from $8 9 million in the fourth quarter of 2021.

As a percentage of revenue it increased by approximately 550 basis points to 18% compared to 12.5% last year for the year salaries wages and benefits increased 66% to 64.3 million compared to $38 7 million for 2020 one.

The increase was driven by employee head count to support our significant sales growth across multiple sales channels. We've invested heavily in building out our management teams, particularly within our wholesale sales channel.

Also as a reminder, a large portion of our outpost cost structure is included in the salaries wages and benefits line as it includes the compensation costs for our employees working at our outpace G&A expenses increased 112.6% to $18 5 million compared to $8.7 million in.

The fourth quarter of 2021 as a percentage of revenue G&A increased by approximately 760 basis points to 19.7% of revenue compared to 12, 1% last year for the full year G&A increased 146, 5% to 64.5 million compared to 26.2.

2 million for the same period in 2020. One this increase was driven by our investments in corporate infrastructure, including technology to support the growth of our business across multiple channels as well as growth in our corporate outposts as evident Tom mentioned, we invested capital in all areas of the business to scale each of our channels after week.

Coming a public company now that we're into 2020 three we're beginning to see the operating leverage in those investments. Additionally, given the prioritization around our wholesale business, we have taken the opportunity to rightsize some of the areas of our business to that end, we've made material progress on right sizing our corporate.

SG&A in Q1, we look forward to sharing more details on those initiatives on our first quarter earnings call. In addition to the GAAP measures I have just mentioned adjusted EBITDA is an important profitability measure that we use to manage our business internally.

For the quarter adjusted EBITDA was a loss of 11.4 million compared to a loss of 863000 in 2020 one.

For the year, we reported an adjusted EBITDA loss of $34 million compared to a loss of 145000 a year ago.

This decrease was primarily due to increased spending to scale and rapidly grow our multiple sales channels now I'll briefly touch on our balance sheet and liquidity. We ended 2022 with $38 9 million of cash on the balance sheet compared to 18.3 million as of December 31, 'twenty 'twenty. One we also had 49.2 million.

There's a debt compared to $34 7 million as of December 31st 2021 on our balance sheet. You will also see a material inventory build which is mostly an RTD you will remember that last year. We were selling every case that we made and it forced us to focus on our core customer base and not be able to onboard new distributor.

Our customers Accordingly for the first time, we have been building inventory to support the accelerated growth. We are anticipating in our T. D. Throughout 2023 due to this inventory build we used $37.5 million of cash in Q4 to prepare for the RTD expansion. So while we drew down some of our liquidity for that we.

To turn much of that working capital into cash beginning in our second quarter today, we have $55 million of liquidity, which we define as cash plus available borrowings on our senior credit facility, which is prior to our $15 million minimum liquidity condition required under the facility. We believe our current liquidity combined with positive.

EBITDA in 'twenty twenty-three prudent working capital management and focused Capex investment provide us sufficient liquidity to continue growing the business before we take your questions I'd like to expand on the 2023 guidance that Tom shared earlier in our call.

While we do not plan on providing quarterly guidance for the remainder of the year given how far we are into Q1, and our newly announced 2023 plan. We thought it would be helpful to provide some color on Q1, and our quarterly cadence throughout 2023 for Q1, we expect revenue of $80 million to $82 million the small range as <unk>.

Primarily due to order fulfillment timing for our T D E and F. D M orders expected to be fulfilled during the last week of the quarter as some of those deliveries may move into April .

Turning to gross margin, we expect an improvement in our Q1 gross margin of 100 basis points versus Q4 of 2022 Lastly for Q1 adjusted EBITDA, we expect to see a sequential improvement of a couple million dollars from Q4 of 2022 on a lower revenue base, but higher <unk>.

Gross margin and lower SG&A for the remainder of the year, we expect to see revenue growth rates and our gross margin accelerate and lastly, we expect our adjusted EBITDA will approach breakeven in Q2 and be positive in Q3, an increase into Q4 with that I will turn the call over to the operator for questions.

Thank you and at this time, we'll be conducting a question and answer session.

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And our first question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.

Okay, great. Thanks.

She is a lot there but.

You know I think that.

The big issue. The biggest question for me is on the change in the revenue outlook.

You, obviously went to pains to explain quite a bit of it but two follow up questions. There one so I guess my understanding that the.

The original plan of $500 million or the previous plan I should say a 500 million that included a new F. D M customer Besides Walmart and now you're pushing that out to 'twenty to 'twenty four but originally you did thank you would have a new customer in 2023, and then on the RTD side.

You said a slower ramp for spring sales that that surprised me is that does that lack of demand type thing or why slow demand.

In the spring and does that relate to the issues in the fourth quarter.

Hey, Mike Tom Davin here I'll I'll take number one yes, originally again going back to last July August when we conceptualize the $500 million or more we anticipated bringing on additional F. D. M customers sooner now were staying very focused on the one customer we have and it's been a great partnership.

And related to the second part of your question I'll have Kobe take that one and let me build on the first question, we will be on the shelf with at least one <unk> customer in 2023 and <unk>.

As you can imagine based on our results our phone has been ringing and Theres a lot of interest from customers.

And the Great news about that is with the results we've had at Walmart.

We've proven that our national rollout is the best way to do that.

We are working through the right partners for where we will be the right assortment for what will be on shelf are informed by the data that we have.

And the residents are brand has had nationally.

So we do have plans to be an Afghan we just had pushed out the more comprehensive launch.

Into 2024 based on reset windows and timing, which is mostly in the back half of 2023.

An RTD.

As we entered 2023, we have we still have incredible momentum from on this brand and you may have heard it in the prepared remarks, but just to call out the near from data our dollar growth as we were leaving.

Here at 12 31 for the last 13 weeks was up 44% that has actually accelerated through 225.

It was up 57% at that point. So we're seeing continued acceleration on the brand. We've also had incredible response from retailers as they've redrawn their plan O grams for resets in half one this year and the Great News is we are prepared to take advantage of that opportunity, adding 100000 facings to our base of one one.

50000.

If you compare this year with last year, we did not have inventory to fully take advantage of this reset window with our CMT customers. So some of the learning has been as we've looked at how that rollout actually occurs and the pacing of that rollout. It is a little bit more moderated in Q1 with them.

The acceleration into Q2, so that really explains the difference it's not a change in demand it's not a change in momentum it's really just.

Meeting the timing of the category and our retailers and what they are executing.

Okay. So.

So you took down your revenue by by 660 to 100 million, but you're not seeing any signs of slowing demand at least not in the you know maybe maybe in the direct to customer business, but on the other and the bigger business or in the fast growing businesses youre not seeing any slowdown in demand, it's just about timing.

Of getting all the all the products launched correctly and servicing your customers correctly is that a fair characters that characterization.

Yes, absolutely.

And I can I can add to that which is we're really focused on delivering an exceptional service to the customer not only from the Walmart perspective, our grocery customer, but really servicing them at the top priority. So we really have to focus on making it not only excellent back in the <unk>.

Category of excellent so when I look at how this business continues to grow we have to build a business that's going to be around for 100 years, we don't want to make mistake that we're going to scale into so we've really got a focus on how important this is and really focus on the customer delivery.

Okay, I think I got it if I could ask one more quick one just again the reason why the number of RTD doors went down by 9000 versus the third quarter 10-Q.

Find out again, and why that's not shouldn't be a concern or doesn't show a loss of customer.

Yeah. So we were working with our retailer with 18000 doors, there's a certain number of them I'll, let you extrapolate which ones that could be that.

That retailer we executed are tasked with fan in Q2 and Q3 of last year. So you'll see those that 18000 doors reflected in the number.

Timing of that task was planned for that window and then those doors came out of our Q4 numbers. We are currently shipping to that retailer for ongoing distribution. This month. So those doors will be reflected in recaptured.

Our target that we had set for the year was 100000 doors, we feel very confident in our ability to hit that target and exceed it in 2023.

So if we were to see the <unk> 10-Q, it'll it'll have those doors back in another words, plus others plus more.

Yeah. Michael. This is this is Greg I think depending on the timing of the load in at the actual stores, but certainly by by Q2, you should expect to see them fully in there and just adding to what Tobi said. This is something that we we expected and we had planned on probably just something we should have telegraphed a little bit more since it. It does look like a big number.

Big decline, which is which is misleading.

Fair enough, Okay I'll pass it on thank you.

Thanks, Mike.

Our next question comes from the line of Bill Chappell, which was securities. Please proceed with your question.

Yes, thanks, good afternoon.

Hey, Bill Hey.

Just kind of want to ask I guess similar type question on the top line guidance.

I was too.

Annualized fourth quarter revenue of $93 million.

And yeah that is basically the midpoint of your guidance assumes 12% topline growth and if you've got 8% price increase that basically assumes 5% volume growth.

I know that's oversimplifying it but maybe help me understand how that's not the way to look at it.

It seems like that's how and does are we implying that the first quarter our GAAP.

Revenue will be down sequentially pretty meaningful and then build back up.

Yes, Bill. This is this is Greg I can take those and Mr. Tom and Toby can add in as well, but on the first one if we just talk about price specifically, so you won't see the full 8% roll through in pricing and that's that's because as you as we know.

We just went into Walmart in September so we haven't taken a price increase in that line item. So the actual price increase on a year over year basis. When you. We look at it across all the channels is closer to four 4% to 5% for the fourth quarter.

Should be a little bit more than that as we go into Q1, because we did take some additional price increases that we discussed a little bit a little bit earlier on the call.

And then confirming what you said earlier, which is that we will see a sequential step down in revenue from Q4 to Q1. If you go back in time and look at the company's historical financials, you've seen that's always the case, we always have.

Elevated non subscription sales within our direct to consumer channel during that peak holiday period, and so our revenue will step down in Q1 versus versus Q4 based on that seasonality.

Okay.

Got it so but.

Alright, well leave it at that and then the second just on on Walmart certainly impressive of kind of the early start but find understand where kind of the 3.8% market share. You know was versus your expectation do you think you can get five or six I mean honestly three 8%.

Number four implies that number one and number two had a large large large share of the market. So just trying to understand where you think this can go over this year.

Dolby Yeah.

We're incredibly grateful for the collaboration that we've had with Walmart.

We are very pleased with the initial six months that we've had with them. We do believe that there is momentum and opportunity to continue to grow if you look at their coffee business. We're playing currently with the launch that we've had in about half of the products about 50% of the product lines and in coffee.

So that three 8%.

It's a large business there are about a third of overall at $11 billion business.

And those are big numbers. When you when you are talking about a retailer that's that that large and so we're very pleased I think one of the things. We're most proud of that were mentioned in the earlier remarks is the increments howdy that we're bringing to the category. So according to the numerator data about 35% of households.

New to the coffee aisle not all were in need of Walmart, but they had not purchased coffee at Walmart in the 26 weeks, leading up to our launch.

We are really excited about that and when you couple it with how how our products are resonating the 12 ounce bag size being the number one branded player with 22% of the share so that we're resonating with customers and with shoppers.

That makes us feel really good about this initial launch we are certainly staying humble and hungry.

Looking for areas to improve and continue to build on the relationship but our initial results. We are extremely proud of them.

Okay just to clarify like do you think you can get mid single digit share. This year double digit 22%, you know where where do you where we're shooting should be moving higher sequentially.

We would certainly want to build on our share I don't know that we're publishing or with a business. That's growing this fast it's difficult to give.

He is a level of precision I think you would you would hope for an.

The exact share target, but.

But we do see opportunities to continue to build for example, just increasing consumption by driving awareness as we layer in marketing campaigns.

Ensure that people are aware that we sell our products at Walmart that should drive consumption.

We have other things that we're working on as well that we think will add to the business.

Certainly we are not resting on our laurels, but were not I don't think we accomplished an exact share target I would say, it's north of $3 eight.

Yes, it's really a combination of marketing activities and innovation, so a lot to come on that.

Thanks.

Our next question comes from the line of Joe <unk> with Raymond James. Please proceed with your question.

Thanks, Hey, guys. Good afternoon just.

I just wanted to go back to the to the guide.

For 'twenty three on the top line.

T D. I think he mentioned, it's really not demand related but more timing related with respect to the spring resets I'm just unclear why that is because the resets happened every time, we're at the same time every year.

So why would that be a surprise I guess.

Yeah.

I think it's very similar to what I, what I shared earlier Joe.

For Blackberry for this is our first time really executing through this demand reset window.

Last year, we entered the year with very very lean inventory.

So our ability to plan for Nike year over year reset standpoint with limited.

And what we what we were what we're learning is just the sequencing of as the resets happen how does that build flow through our complex go to market, which includes you know close to 200 distributors, which then flow product to the shelf and like I said, we've had visibility to the plan O grams to the.

<unk> none of those have changed I think what we've learned.

How better inform our planning going forward is this the sequencing of product through the value chain to actually execute on.

What people have committed to which hasn't changed as we've delivered our plants. It really is just more timing.

Okay. So it's a little bit of a learning curve there isn't right degree as well gotcha.

And then secondly in terms of the pricing impact you mentioned a couple of incremental price increases you've already taken here in Q1, if we look at your revenue outlook.

Pricing is built into that.

And do you anticipate additional price increases later this year and you got it.

Yeah, Joe its Greg I can address that so two price there's two things we've already done in 2023 from a pricing perspective. The first is we had further increases in ready to drink of about 8% we rolled out.

In February we also made some adjustments within our D to C subscription for bagged coffee and reduce the discounts on multi bag subscriptions. So those two actions like I said have already been taken our guidance of 400 to 440 doesn't contemplate any further pricing actions so anything that we take.

Incrementally would would be upside to that plan.

Okay, and just one last one if I could just to clarify the gross margin guide for Q1, I think you said up 100 basis points sequentially I assume that's up 100 basis points off of the reported not the adjusted Q4 gross margin.

Yes, that's right off of reported.

Great. Thank you.

Thanks, Joe.

Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Okay.

Hey, thanks, Thanks, a lot.

I guess, just just to round out the.

I guess, Tom you framed it.

That's driven by things not fully in your control, but then as you've spoken through it.

Subsequently it feels as though it's either.

The byproduct of the learning curve you just mentioned.

To Joes question or the byproduct of specific choices on your part.

So I guess could you just clarify and explain a little bit further I mean, how much how much of this is really <unk>.

Bye.

Externalities that.

You Werent able to realistically forecast versus just you, perhaps overreaching six months ago.

Or versus you know electing to go deliberately slower to make sure youre doing everything.

Sure.

Doing so the highest highest standard possible for your for your current customers I'm, just I'm unclear as to what the real drivers are whether it's overly.

Overly ambitious or you are pulling back.

Yes.

<unk> delivered deliver quality service or.

Or externalities as you as you originally framed it.

Right. So great question and again, breaking it down by component ready to drink I think Toby did a great job addressing the kind of lag that we didn't fully appreciate of sending product through the value chain that consists of all of these distributors across multiple markets ultimately to the end customer and <unk>.

<unk> have committed to those incremental 100000 facing so that's a significant increase from where we are and again going back to last July and August when we conceptualize that original revenue number we didn't know about the timing of when that product would actually push through to be on the shelf.

Just one add Tom mentioned this in his remarks, we also brought our sales team in house.

At the end of the year really in Q4 is when we set up our internal sales team and.

So we were relying on a third party we have since done a bottoms up build by retailer by SKU with assumptions for unit per store per week velocity on everything that's on the shelf with a much higher level of granularity and that's also informed the update to our plants.

Then on the F. T M. I guess, it's fair to say, we didn't know what we didn't know back in last July and August . So now I think we appreciate what it takes as Evan said to delivered a really high level of execution quality to support retail partners in this case Walmart.

And a tremendous partner and while as Tobi mentioned, we will add at least one other F. T M customer and we've got a long list of people who are very interested at this point, we definitely don't want to compromise our service levels to the existing customer and when we do a rollout and we want it to be a full national rollout.

Evidenced by the broad appeal, we have for the brand and just to add one other point. If you look at the timing and processes that MTM customers use for their research. They were doing their line reviews for their summer resets in the fall of 2022 as we were rolling out initially at Walmart and so on.

Timing was a little bit off from being fully integrated into our customers' processes. We now will not have an issue with that going forward.

Being off cycle, we do have interest.

<unk> number of retailers, who would like to have us on shelf in 2023, but the level of.

Cohesive rollout that we will have by actually being on the process of our retailers will be incrementally higher for 2024.

Okay. Okay. Okay. So okay.

Maybe just two follow ups, one directly follow up there and a direct follow up maybe for you Toby just on that.

On that the internal sales.

Any build out.

It sounds like that's in the end that's going to be a positive but it sounds in the near term like it's a negative so how much of the of the $40 million in ready to drink reduction is a byproduct of that about change.

Kind of follow up number one and then I guess, Greg for you you know.

To maintain the positive EBITDA guidance with revenue.

Revenue down 16% at the midpoint. It seems it just it just requires a lot of cost cutting just just to do that and.

Obviously, you mentioned initiatives on corporate SG&A that we're going to hear more about on the next call, but it just does.

I'm not sure that's enough so it feels like you.

To keep the profitability.

With the reduced revenue youre going to have to cut into either selling or marketing and I guess the concern there is that that.

That makes what would otherwise just be timing issues, maybe more than that because you are not be able to.

The best.

Build the demand that you would otherwise be the investments. So just help me help me help me.

Kind of conceptualize what are you going to source this.

EBITDA from without without impairing, the but the go forward growth.

So I'll try to answer the first part.

The way I would look at it is that we have.

Versus a reduction of negative and this is an addition of positive to our ability to meet the demand and the momentum on this business and Theres a couple of things and we have to remember even to the last earnings call.

Our addition of capacity was a major enhancer for this business and the momentum behind it.

That was a little bit delayed last year, so our ability to flow that new capacity out and entered the market.

Due to some of the delays.

Sourcing of raw ingredients et cetera that we started up with a little bit chefs shifted to the right.

Our ability to have our hands on the wheel of our business is is an incremental positive for us to be more granular in the way we plan to have direct relationships with all of our key constituents.

We went through this journey in a in a really positive way we're grateful for the partners. We've had that helped us build the business. So we don't we're not trying to disparage them. It's just it's a natural step in our business as we evolve to build capability to have internal capability and a level of granularity and managing our business. So I think I.

Those will be enhancements for this year as we move forward on RTD versus trying to ascribe a certain amount of blame on four things that the way that we had built the business in the past and we rebuilt the business enabled us to grow at an incredibly rapid pace starting in March of 'twenty 'twenty, the perfect time to launch a business that sells.

And in the C and D channel.

And we're just continuing to build on that and evolve and in a way that many CPG companies do as they gain scale.

And Steve This is Greg ill take your second question related to that our path to positive EBITDA in 2023, so starting first with gross margin you've seen our guidance there where we set our expected range of 36 to 37, 5%. So that is a pretty significant increase from where we ended 2000.

'twenty two we've talked a little bit about some of the pricing initiatives that we've taken both in Q1 as well as those that we took in late 2022 that will continue to benefit and roll into 2023. We also have a really significant productivity portfolio, particularly within our shipping and fulfillment. So there's a lot of cost savings.

That our transportation team is is going to be driving and then the last 0.2 is mix is important because we mentioned in the area of the business that's growing by by far the fastest is our wholesale channel where we have the highest gross margins so moving down through the rest of the P&L.

Next on marketing expense the key call out here is expect marketing expense on a dollar basis to be down year over year. So that obviously suggest significant leverage at that marketing line and that's something that I think we've been telegraphing pretty consistently over time, which is as we pivot more and more into the wholesale channel the wholesale.

Requires a lot less marketing spend than our D to C channel and then it's also part of why our guidance around the D to C. Channel, we think is pretty pretty modest and pretty conservative because we're just not we're just not investing a lot in in that targeted customer acquisition for D to C. And then rounding it out with with SG&A.

Our intent is to keep our I'm, sorry, G&A keep our G&A dollars as close to flat year on year as we can where now our salaries and wages is going to be up year on year, just because as you. All know we ended 2022 with a lot more staff than where we started the year and are rolling in so.

And we'll continue to add a little bit selectively so where we're going to find where we're finding a lot of efficiencies within G&A is is really within our outside professional services or consulting fees and other third party spend where we made really substantial investments in 2022 to help us build out and grow.

These new channels.

Hopefully that's helpful.

As I threw a lot at you and you guys did a great job of putting everything so thank you.

Thanks, Steve.

And we have reached the end of the question and answer session now I'll turn the call over to Tom Davin for closing remarks.

Thank you everyone for joining the Black rifle Coffee company Q4, 2022 earnings conference call and we look forward to follow up discussions with many of you are investors in the meantime have a great evening. Thank you.

And this concludes today's conference and you may disconnect your lines at this time.

You for your participation.

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Okay.