Q1 2024 BRC Inc Earnings Call

Operator: Greetings and welcome to the Black Rifle Coffee Company first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Tanner Doss, Vice President of Investor Relations. Thank you, Tanner. You may begin.

Greetings and welcome to the Black rightful coffee company first quarter 'twenty 'twenty four earnings call. At this time, all participants are in a listen only mode.

Great 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.

As a reminder, this conference is being recorded.

Speaker Change: It's now my pleasure to introduce your host Enerdel Vice President of Investor Relations. Thank you Tanner you may begin.

Tanner Doss: Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our first quarter 2024 financial results, which were released yesterday and can be found on our website at ir.blackriflecoffee.com. Before we start, I'd 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.

Speaker Change: Good morning, everyone. Thank you for joining Blackrock will coffee company's conference call to discuss our first quarter 2024 financial results, which were released yesterday and can be found on our website at IR <unk> black rightful coffee dot com before we start I'd like to remind you the company's safe Harbor language, which I'm sure you're all familiar with on.

Speaker Change: 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 whenever.

Tanner Doss: For a 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. Whenever we refer to EBITDA in our comments, we are referring to adjusted EBITDA, unless otherwise noted. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC. They're also available on our investor website.

Speaker Change: We refer to EBITDA in our comments, we are referring to adjusted EBITDA unless otherwise noted reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and are also available on our Investor website. Now if you could please turn to slide four in the presentation. We provided on our Investor Relations website I would now like to turn the call over to Chris months Lawsky.

Tanner Doss: Now, if you could please turn to slide four in the presentation we provided on our investor relations website. I would now like to turn the call over to Chris Monzelewski, CEO of Black Rifle Coffee Company. Chris? Thanks, Tim.

Chris Mondelez: CEO of Blackrock coffee company months. Thanks.

Chris Mondzelewski: Thanks, Tanner, and good morning, everyone. Joining me today is Evan Hafer, our founder and executive chairman, and Steve Kadenacy, our chief financial officer. We've provided a presentation that we will refer to throughout the call, which you can find on our investor website. Please turn to slide four.

Chris Mondelez: Thanks, Peter and good morning, everyone. Joining me today is Evan Hey for our founder and executive Chairman and Steve to Dennis <unk>, Our Chief Financial Officer.

Chris Mondelez: Provided a presentation that we will refer to throughout the call, which you can find on our Investor website. Please turn to slide four in our last meeting we discussed the importance of holistic management of our business. We have already demonstrated we have a phenomenal consumer brand and mission driving fantastic growth and industry, leading loyalty over the past nine months.

Chris Mondzelewski: In our last meeting, we discussed the importance of holistic management of our business. We have already demonstrated we have a phenomenal consumer brand and mission, driving fantastic growth and industry-leading loyalty. Over the past nine months, the management team and I have challenged our organization to build a profitable business as well. While continuing our industry-leading growth, we have stretched our team and resources to deliver core margin and expense control. I am proud to say we are succeeding. I could not be prouder of our organization.

Chris Mondelez: Management team and I have challenged our organization to build a profitable business as well.

Chris Mondelez: Continuing our industry, leading growth, we have stretched our team and resources to deliver core margin and expense control I am proud to say we are succeeding.

Chris Mondelez: I could not be prouder of our organization.

Chris Mondzelewski: In Q1, we delivered record margin, profitability, and cash flow, all while continuing to achieve industry-leading growth. After 23 years in the CPG business, it is not lost on me the difficulty of what the team is doing, but their dedication goes beyond any other colleagues I've had the chance to lead. Our dedication to the Black Rifle mission drives us every day, and we are certain that the focus on serving our community will continue to drive success.

Chris Mondelez: In Q1, we delivered record margin profitability and cash flow, all while continuing to achieve industry leading growth.

Chris Mondelez: After 23 years in the CPG business. It is not lost on me the difficulty of what the team is doing but their dedication goes beyond any other colleagues I've had the chance to lead.

Chris Mondelez: Our dedication to the black rightful mission drives us every day and we are certain that the focus on our serving our community will continue to drive success.

Chris Mondzelewski: On top of our core business achievements, we are also excited to announce our partnership with Keurig Dr. Pepper. Partnering with an iconic company like KDP is a testament to our team's efforts and the growing impact of our brand throughout the beverage industry. As was announced a few weeks ago, we've entered into a long-term agreement for manufacturing and licensing of our single-serve pods with KDP.

Chris Mondelez: On top of our core business achievements. We are also excited to announce our partnership with current Dr. Pepper.

Chris Mondelez: And with an iconic company like Katie P is a testament to our team's efforts and the growing impact of our brand throughout the beverage industry.

Chris Mondelez: As was announced a few weeks back we've entered into a long term agreement for manufacturing and licensing of our single serve pods with Katie P. We're well on our way to becoming a best in class CPG brand and this partnership will not only accelerate our growth across our current portfolio, but also gives us the ability to innovate within the CPG sector through access to <unk>.

Chris Mondzelewski: We are well on our way to becoming a best-in-class CPG brand, and this partnership will not only accelerate our growth across our current portfolio but also give us the ability to innovate within the CPG sector through access to new channels we are currently not serving. In turn, the success and profitability of our business allows us to continue to drive the mission of supporting veterans, active duty military, first responders, and their families. I will now discuss the trends across our business units in greater detail. Steve will then review our financial performance before turning the call over to the question and answer session.

Chris Mondelez: New channels, we are currently not serving.

Chris Mondelez: In turn the success and profitability of our business allows us to continue to drive the mission of supporting veterans.

Chris Mondelez: Duty military first responders and their families I will now discuss the trends across our business units in greater detail. Steve will then review our financial performance before turning the call over for the question and answer session.

Chris Mondzelewski: For the first quarter, we performed strongly against our key metrics. Net revenue was up 18% compared to the prior year, driven by rapid growth within our wholesale business, which was up 51%. We continue to set profitability records with adjusted EBITDA improving to $14.1 million and 14% of revenue, a remarkable inflection over last year. This material increase in profitability is the result of our significant wholesale growth and the operating leverage that results from it, as well as our continued focus on lowering operational expenses. Steve will discuss in more detail in a moment. Turning to our channel highlights, please flip to slide six.

Chris Mondelez: For the first quarter, we have performed strongly against our key metrics.

Chris Mondelez: Net revenue was up 18% compared to the prior year driven by rapid growth within our wholesale business, which was up 51%.

Chris Mondelez: We continue to set profitability records with adjusted EBITDA, improving to $14 1 million.

Chris Mondelez: And 14% of revenue.

Chris Mondelez: Remarkable inflection over last year.

Chris Mondelez: This material increase in profitability as a result of our significant wholesale growth and the operating leverage that results from it as well as our continued focus on lowering operational expenses.

Chris Mondelez: Steve will discuss in more detail in a moment turning to our channel highlights. Please flip to slide six as mentioned earlier, we grew 51% in F. D. A market based on this success, we will continue to leverage the rollout of coffee and K cups to the broader market. We added three additional partners in Q1, bringing the total to 26.

Chris Mondzelewski: As mentioned earlier, we grew 51% in the FDM market. Based on this success, we will continue to leverage the rollout of coffee and K-Cups to the broader market. We added three additional partners in Q1, bringing the total to 26, and expect to increase significantly through the end of the year. Our ACV is currently up to 38%.

Steve: And expect to increase significantly through the end of the year or a C. V is currently up to 38% and as we have said before we believe we will be fully deployed in F. T. M by the end of 2025.

Chris Mondzelewski: And as we have said before, we believe we will be fully deployed in FDM by the end of 2025. Additionally, as others have commented during the earnings season, we believe our FDM business is being positively impacted by consumers migrating from drinking coffee out of home to in-home, especially in the premium coffee space. This is a trend we started seeing last year and believe is continuing, which has helped us become one of the fastest growing premium coffee companies in America. Please turn to slide seven.

Steve: As others have commented during the earnings season, we believe our F. T M business is being positively impacted by consumers migrating from drinking coffee out of home to in home, especially in the premium coffee space. This is a trend we started seeing last year and believe is continuing which has helped us become one of the fastest growing premium coffee companies in America.

Steve: Turn to slide seven.

Chris Mondzelewski: In addition to expanding within the vast FDM channel, the partnership with KDP also allows us to enter exclusive channels such as food service. Furthermore, we will shortly be available on Keurig.com, which will continue to expand our brand awareness as we are exposed to a broader customer base.

Steve: In addition to expanding within the vast F. D. M channel the partnership with TTP also allows us to enter exclusive channels such as foodservice.

Steve: Further we will shortly be available on current dot com, which will continue to expand our brand awareness as we are exposed to a broader customer base turning to our RTD business on slide eight we continue to outpace the RTD industry by three times the category growth and we expect the spring reset season to continue that trend.

Chris Mondzelewski: Turning to our RTD business on slide eight, we continue to outpace the RTD industry by three times category growth, and we expect the spring reset season to continue that trend. Over the last year, we have been very focused on improving the product margin of our RTD business. I am thrilled with the progress our team has made, and we are beginning to reap the benefits of all the hard work they've done. First, we've made strides in optimizing our RTD supply chain. Most notably, we reduced our manufacturers from four to one, focusing our business on the highest quality and lowest cost provider.

Steve: Over the last year, we have been very focused on improving the product margin of our RTD business.

Steve: I am thrilled with the progress our team has made and we are beginning to reap the benefits of all the hard work they've done.

Steve: First we've made strides in optimizing our RTD supply chain, most notably we reduced our manufacturers from four to one focusing our business on the highest quality and lowest cost provider.

Chris Mondzelewski: Second, as we've mentioned in the past, we've addressed our excess finished goods inventory through barter transactions. We will continue to minimize excess inventory risk through sharp business planning and a focus on our core high-velocity SKUs. Third, our logistics team has done an incredible job centralizing our warehouse network down to two main hubs versus seven last year. Finally, and most importantly, we continue to improve our distribution network to ensure that we are working with the best distributors in a given region that can meet increasing consumer demand. These changes, among many others, equate to impressive improvements in our RTD product margins, improving 540 basis points quarter over quarter, with additional improvements phasing in through the rest of the year.

Steve: Second as we've mentioned in the past we've addressed our excess finished goods inventory through barter transactions.

Steve: We will continue to minimize excess inventory risk through sharp business planning and a focus on our core high velocity Skus third our logistics team has done an incredible job centralizing our warehouse network down to two main hubs versus seven last year finally, and most importantly, we continued to improve our distribution network to ensure.

Steve: Or that we are working with the best distributors in a given region that can meet increasing consumer demand. These changes among many others equate to impressive improvements to our RTD product margins, improving 540 basis points quarter over quarter with additional improvements phasing in through the rest of the year.

Chris Mondzelewski: Moving to slide nine, which walks through our DTC channel. We have made many enhancements to our website at the start of the year, and there are early indicators that the improvements are paying off, particularly in our subscription business. As part of the migration, we cleaned up our subscriber list, which resulted in consolidating some accounts.

Steve: Moving to slide nine which walks through our DTC channel. We have made many enhancements to our website at the start of the year and there are early indicators that the improvements are paying off particularly in our subscription business as part of the migration, we cleaned up our subscriber list.

Steve: Which resulted in consolidating some accounts so from a high level there appears to be a drop off in subscribers.

Chris Mondzelewski: So from a high level, there appears to be a drop off in subscribers. With the new site features that optimize the subscription experience, we're seeing that new subscribers' average order value increased 17% relative to our past experience. These results are encouraging, and we believe we will see the DTC business stabilized this year as a result. Turn to slide 10.

Steve: With the new site features that optimize the subscription experience, we're seeing that new subscribers average order value increased 17% relative to our past experience. These results are encouraging and we believe we will see the D. T C business stabilize this year as a result.

Chris Mondzelewski: As highlighted last quarter, we remain on a tactical pause within our outpost business. We are taking advantage of this capital investment pause on outposts to sharpen our strategic plans. As part of the improvements in unit economics, we're scouring and optimizing all contracts and opportunities for operational efficiency, especially in the stores that are not meeting our high internal return thresholds.

Steve: Turn to slide 10 as.

Steve: As highlighted last quarter, we remain on a tactical pause within our outpost business. We are taking advantage of this capital investment pause on outposts just sharpen our strategic plans as part of the improvements in unit economics, we're scouring and optimizing all contracts and opportunities for operational efficiency.

Steve: Especially in the stores that are not meeting our high internal return thresholds.

Chris Mondzelewski: Ultimately, this exercise will position us to rapidly scale beyond 2025. As promised, we expect to give investors a longer-term view of our outpost strategy by the end of the year. Moving on to slide 11.

Steve: Estimates this exercise will position us to rapidly scale beyond 2025.

Steve: As promised we expect to give investors a longer term view of our outflows strategy by the end of the year.

Steve: Moving on to slide 11.

Chris Mondzelewski: As always, all of our efforts culminate in our mission. More than ever, Americans demand that the brands they buy stand for something. And at Black Rifle, we stand for those who serve and have served. On our last call, I mentioned that Evan was in Florida training for a founder-led initiative to commemorate the 80th anniversary of D-Day, and we're getting closer to that June 6th date. To commemorate the bravery of the hundreds of thousands of soldiers, sailors, airmen, and Marines, we are developing custom long form content to highlight the harrowing experiences of each service, told through the stories of survivors of the battle.

Steve: As always all of our efforts culminate in our mission more than ever Americans demand that our brands they buy stand for something and a black rifle, we stand for those who serve and have served on our last call I mentioned that Evan was in Florida training for our founder led initiative to commemorate the 80th anniversary of D day and where.

Steve: Or getting closer to that June six the date.

Steve: To commemorate the bravery of the hundreds of thousands of soldiers sailors airmen and Marines, we are developing a custom long form content to highlight the harrowing experience of each service told through the stories of survivors of the battle.

Chris Mondzelewski: On top of this, our founders and friends from various military communities will commemorate this event with an era-appropriate honorary jump over the hallowed battlefields. This event will allow BRCC to embody our core values of remembrance and respect. We will commemorate this historic event, not only by honoring the sacrifices made by the brave individuals who served, but also by reaffirming our commitment to preserving and sharing stories of courage and perseverance. We hope to connect with our audience on a deeper level and foster a sense of shared purpose and solidarity within our community. Now, turning to our financial results, Steve. Thank you, Mom.

Steve: On top of this our founders and friends from various military communities will commemorate this event with an era of appropriate honorary jumped over the hallowed battlefields.

Steve: This event will allow be RCC to embody our core values of remembrance and respect.

Chris Mondzelewski: We will commemorate this historic event not only by honoring the sacrifices made by the brave individuals who served but also by reaffirming our commitment to preserving and sharing stories of courage and perseverance.

Chris Mondzelewski: We hope to connect with our audience on a deeper level and foster a sense of shared purpose and solidarity within our community.

Steve: Now turning to our financial results Steve Thank.

Stephen M. Kadenacy: Thank you, Mons. Please turn to slide 13. In Q1, our focus on operational excellence continued to pay off as we saw profitability really gain momentum. Our team's dedication to the strategic initiatives that we kicked off last year has propelled us forward, particularly in the productivity initiatives benefiting freight and logistics. Supply chain efficiencies added 330 basis points to our gross margin quarter over quarter. We also benefited from pricing and mixed shifts towards high-end margin FDM business, adding 250 basis points from last quarter.

Steve: Thank you months, please turn to slide 13.

Stephen M. Kadenacy: In Q1, our focus on operational excellence continues to pay off as we saw profitability really gained momentum.

Stephen M. Kadenacy: Our team's dedication to the strategic initiatives that we kicked off last year has propelled us forward.

Stephen M. Kadenacy: Particularly in the productivity initiatives benefiting freight and logistics.

Stephen M. Kadenacy: Supply chain efficiencies added 330 basis points to our gross margin quarter over quarter.

Stephen M. Kadenacy: We also benefited from pricing and mix shifts towards high end margin F. D M business, adding 250 basis points from last quarter.

Stephen M. Kadenacy: With these gross margin improvements, we achieved our long-range gross margin goal of 40% plus this quarter, a few quarters before I expected we would. Below the line, we saw SG&A improvements from last year's cost initiatives of reducing reliance on external consultants and aligning our headcount to reflect the shift in the business towards the FDM channel. With that, SG&A dropped to 38.9% of revenue this quarter, compared to 53.6% just a year ago. Turning to slide 14.

Stephen M. Kadenacy: With these gross margin improvements, we achieved our long range gross margin goal of 40% plus this quarter a few quarters before I expected we would.

Stephen M. Kadenacy: Below the line, we saw SG&A improvements from last year's cost initiatives of reducing reliance on external consultants and aligning our head count to reflect the shift in the business towards the F. T M channel.

Stephen M. Kadenacy: With that SG&A dropped to 38.9% of revenue this quarter compared to 53.6% just a year ago.

Stephen M. Kadenacy: Turning to slide 14.

Stephen M. Kadenacy: Top-line growth of 18% was driven by substantial growth in our wholesale business, primarily from FDM. It's worth noting that we made a change to the terms and conditions of our loyalty program in Q1 to align with best practices and provide more predictability in our financials. This change resulted in $3.4 million of additional revenue in the quarter, as we reduced our reserve. This event increased our DTC revenue in the quarter, but it also fell straight through to the gross margin, boosting our gross margin by 2%.

Stephen M. Kadenacy: <unk> growth of 18% was driven by substantial growth in our wholesale business primarily from F. T M.

Stephen M. Kadenacy: Worth, noting that we made a change to the terms and conditions of our loyalty program in Q1 to align with best practices and provide more predictability in our financials.

Stephen M. Kadenacy: This change resulted in $3 4 million of additional revenue in the quarter as we reduced our reserve. This event increased our DTC revenue in the quarter, but also fell straight through to the gross margin boosting our gross margin by 2%.

Stephen M. Kadenacy: That said, even without the boost from the Loyalty Program, our gross margin still exceeded our 40% goal. Shifting to overall profitability, we've reached a significant milestone. Net income was positive for the first time at $1.9 million, and adjusted EBITDA increased to $14.1 million, up from a loss of $5.2 million a year ago. Turning to slide 16.

Stephen M. Kadenacy: That said, even without the boost from the loyalty program.

Stephen M. Kadenacy: Our gross margins still exceeded our 40% goal.

Stephen M. Kadenacy: Shifting to overall profitability, we've reached a significant milestone.

Stephen M. Kadenacy: Net income was positive for the first time at 1.9 million and adjusted EBITDA increased to $14 1 million up from a loss of $5 2 million a year ago.

Stephen M. Kadenacy: Turning to slide 16.

Stephen M. Kadenacy: With our performance in Q1, we are increasing our guidance forecast. While we are maintaining our revenue targets of $430 to $460 million, we expect to be at the top end of our gross margin range of 37 to 40 percent. Additionally, we're increasing our full-year EBITDA range to $32 to $42 million, up from $27 to $40 million. With respect to cash, we still expect 80% free cash flow conversion. Although we are not providing quarterly guidance, it's worth noting that while we are super proud of the quarter's profitability and expect strong levels of profitability for the remainder of the year, there are some benefits in Q1 that may not repeat in Q2 that you should consider as you build your model. We do not expect another loyalty reserve release.

Stephen M. Kadenacy: With our performance in Q1, we are increasing our guidance forecast, while we are maintaining our revenue targets of $430 million to $460 million, we expect to be at the top end of our gross margin range of 37% to 40%. Additionally.

Stephen M. Kadenacy: Additionally, we are increasing our full year EBITDA range to $32 million to $42 million up from $27 million to $40 million with.

Stephen M. Kadenacy: With respect to cash, we still expect 80% free cash flow conversion.

Stephen M. Kadenacy: Although we are not providing quarterly guidance, it's worth noting that while we are super proud of the quarter's profitability and expect strong levels of profitability of the remainder of the year. There are some benefits in Q1 that may not repeat in Q2 that you should consider as you build your models, we do not expect another loyalty reserve release our compensation.

Stephen M. Kadenacy: <unk> kick in in Q2, and lastly, given our focus on profitable revenue growth, we expect advertising and marketing expense to ramp up a bit in the next three quarters.

Stephen M. Kadenacy: Consequently, we expect lower EBITDA in Q2 as compared to Q1, but then we expect to see EBITA ramping in Q3 and Q4.

Stephen M. Kadenacy: Our compensation increases kick in in Q2. And lastly, given our focus on profitable revenue growth, we expect advertising and marketing expenses to ramp up a bit in the next three quarters. Consequently, we expect lower EBITDA in Q2 as compared to Q1, but then we expect to see EBITDA ramping up in Q3 and Q4. In summary, this was an exceptionally strong quarter for the company. Three quarters ago, we indicated that our business was at an inflection point, and our consistently improving results are proving that to be true as we continue to see sequential revenue and profitability growth.

Stephen M. Kadenacy: In summary, this was an exceptionally strong quarter for the company three quarters ago, We indicated that our business was at an inflection point and are consistently improving results are proving that to be true as we continue to see sequential revenue and profitability growth.

Stephen M. Kadenacy: This performance, in turn, converts to cash flow, which opens new opportunities for reinvesting in the business and fulfilling our mission of serving our shareholders and the veteran and first responder communities. With that, I'll pass the call to the operator for the Q&A session. Thank you.

Speaker Change: This performance in turn converts to cash flow, which opens new opportunities for reinvesting in the business and fulfilling our mission of serving our shareholders and the veteran and first responder communities with that I'll pass the call to the operator for the Q&A session.

Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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.

Speaker Change: Thank you, we'll now be conducting a question and answer session. If you'd 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.

Operator: Press Star two if you'd like to remove your question from the queue.

Operator: Our kitchen using speaker equipment, it may be necessary to pick up your handset before pressing the star one.

Operator: One moment, please, while we poll for questions. Thank you. Our first question is from Michael Baker with D.A. Davidson. Please proceed with your question.

Operator: One moment, please while we poll for questions.

Operator: Thank you. Our first question is from Michael Baker with D. A Davidson. Please proceed with your question.

Michael Allen Baker: Okay, great great great quarter, guys I wanted to dig into the F. D M business wholesale business a little bit more.

Michael Allen Baker: Okay, great quarter, guys. I wanted to dig into the FDM business and the wholesale business a little bit more. Where is the growth? What are the biggest drivers of growth? Is it adding new retail partners? Is it increasing doors within those partners? Is it increasing shelf space within those doors? Or is it all of the above? And then maybe, as part of that, could you remind us how much Walmart was as a percent of your FDM business in 2023? And what the expectation is for that going forward as you diversify away from that competition?

Michael Allen Baker: Where is the growth what are the biggest drivers to growth is it adding new retail partners is it increasing doors within those partners is it increasing shelf space within those doors is it all of the above and then maybe as part of that could you remind us how much Walmart was as a percent of your <unk> business and <unk>.

Michael Allen Baker: 'twenty three and what the expectation is that going forward as you diversify away from from from that customer. Thanks.

Chris Mondzelewski: Yeah, thanks, Michael. Let me address it first. I can let others kind of build on it. I think, you know, taking the first piece of your question, where did the different pieces of FDM growth come from? All three of the areas that you outlined all drove reasonably significant growth, I think. We talked last time a lot about, you know, store expansion and new customer expansion. That played a key role.

Speaker Change: Yeah, Thanks, Michael let.

Chris Mondzelewski: Let me address it I can let others kind of build I think you know taking the first piece of your question where did the different pieces of F. T M growth come from all.

Chris Mondzelewski: All three of the areas that you outlined all drove reasonably significant growth I think.

Chris Mondzelewski: We talked last time, a lot about in our store expansion and new customer expansion.

Chris Mondzelewski: That played a key role we did add three new banners during the quarter theres quite a bit more coming in the back half of the year to be clear.

Chris Mondzelewski: We did add three new banners during the quarter, and there's quite a bit more coming in the back half of the year, to be clear. But we did get incremental distribution through those banners coming on, and we sit at a 38 ACV now. On top of that, within existing, we talked last time about Albertsons being in all banners, but we continue to expand stores within their footprint, as an example. Obviously, that's a very large customer with many banners across the country. So as we continue to have success, we will continue to add distribution within that. All buy-in, a smaller, obviously, increase than when you're talking about actually bringing a new banner all together.

Chris Mondzelewski: But we did get incremental distribution through those banners coming on and we set.

Chris Mondzelewski: At a <unk> 38, a C V now.

Chris Mondzelewski: On top of that you know, but then existing so we talked last time about albertsons, if you're being in all banners, but we continue to expand stores within their footprint. As an example, I'm obviously, that's a very large customer with many banners across the country. So as we continue to have success, we do continue to add distribution within that I'll buy it.

Chris Mondzelewski: Smaller obviously increase them when you're talking about actually bringing a new banner altogether and then the final piece, which I'm probably the most excited about is if you look at Walmart.

Chris Mondzelewski: And then the final piece, which I'm probably the most excited about, is if you look at Walmart, as you called out, we've been in full distribution of Walmart for, as you know, now well over a year. So we've lapped kind of that initial distribution, and yet we continue to see very strong growth. We're very happy about that, so we continue to take our share. And with that, as you mentioned, are we expanding shelf space?

Chris Mondzelewski: Walmart as you called out you know we've been in full distribution at Walmart as you know now well over a year.

Chris Mondzelewski: So we've lapped kind of that initial distribution and yet we continue to see very strong growth. We're very happy about that so we continue to take share.

Chris Mondzelewski: And with that I think you mentioned you know.

Chris Mondzelewski: Expanding shelf space.

Chris Mondzelewski: Only within the reset windows, but you may recall us talking about, you know, last September, we did add, you know, significant items to the shelves. So we felt good about that. And of course, we're reaping the advantages of that right now. And then your final piece around the percentages of the business, I mean, a huge percentage of the business overall from an FDM standpoint last year because we were just beginning expansion, so 90 plus.

Chris Mondzelewski: Only within the reset windows, but you may recall us talking about last September we did add significant items on shelf. So we felt we felt good about that and of course, we're reaping the advantages of that right now and then your final piece.

Chris Mondzelewski: The percentages of the business I mean.

Chris Mondzelewski: Huge percentage of the business overall from an <unk> standpoint last year, because we were just beginning expansion so 90 plus.

Chris Mondzelewski: And then as we get towards the end of this year, you know, we did mention last time that, you know, our rough guidance on that is that we would expect it to be, you know, closer to 50 or 60%. And as we go into 25, we've said we want to be in full FDM distribution. That number will probably end up closer to 40%, which is closer to their representation of what role they play in the overall coffee category.

Chris Mondzelewski: And then as we get towards the end of this year. We did mention last time that you know our our rough guidance on that is that we would expect it to be closer to 50 or 60%.

Chris Mondzelewski: If we go into 'twenty five we said we want to be in full FTM distribution that number will probably end up closer to 40%, which is closer to their representation of what what role. They play in the overall coffee category so to be clear one of the great things about our partnership with Walmart is they're really big in coffee, they're really good at selling it and we love. The fact that we started with.

Chris Mondzelewski: So to be clear, one of the great things about a partnership with Walmart is they're really big on coffee. They're really good at selling it. We love the fact that we started with them and they'll, you know, while we will continue to change, you know, change the percentage, they will continue to be our number one customer.

Chris Mondzelewski: Well you know why.

Chris Mondzelewski: We will continue to change changed the percentage where can they will continue to be our number one customer.

Chris Mondzelewski: understood. I appreciate it. I'll pass it on to somebody else.

Speaker Change: Understood I appreciate it I'll pass it off to somebody else.

Speaker Change: Thank you.

Chris Mondzelewski: Yeah.

Operator: Thank you. Our next question is from George Kelly with Roth Capital Partners. Please proceed with your question.

Chris Mondzelewski: Thank you. Our next question is from George Kelly with Roth Capital Partners. Please proceed with your question.

George Arthur Kelly: Hey everybody, thanks for taking my question. Um, maybe we could start with a question about your growth. If we look at growth over the medium term in your FDM and RTD businesses, I'm curious; I'm not looking for specific guidance. But what is sort of a reasonable growth rate to assume in both? I'm not sure. If you could just provide kind of context just about how you're thinking about medium-term growth in both of those?

George Arthur Kelly: Hey, everybody thanks for taking my questions.

George Arthur Kelly: Maybe if we could start with <unk>.

George Arthur Kelly: A question about your growth.

George Arthur Kelly: Look at growth over the medium term and your F T M.

George Arthur Kelly: In RTD businesses.

George Arthur Kelly: I'm curious I'm not looking for specific guidance.

George Arthur Kelly: But what is sort of a reasonable growth rate to assume and bullish if I'm not sure. If you can just provide kind of context, just about how you're thinking about medium medium term growth in both of those.

Chris Mondzelewski: Well, we're not going to guide you specifically, George, but I think you can kind of do some math on your own relative. I mean, the growth this year is all coming from the FDM market or the wholesale market, which includes both. We've talked about our ACV goals relative to FDM, so we expect to be fully deployed by the end of 2025, and I think you can see somewhat of a normal dispersion map of that increase over that year and three quarters time period.

Speaker Change: Well, we're not we're not going to guide specifically, George but I think that you can kind of do some math on your own relative I mean, the growth. This year is all coming from the FTM market or the wholesale market, which includes both we've talked about our ACD goals relative to F. D. M. So we expect to be fully deployed.

Chris Mondzelewski: By the end of 2025, and I think you can see somewhat of a normal dispersion map of that increase over that year and three quarters time period.

Chris Mondzelewski: And then relative to RGD, you know, where we're spending our time refining our distribution network. We did some consolidations this quarter in.

Chris Mondzelewski: And then relative to RTD, you know, we're spending our time refining our distribution network. We did some consolidations this quarter and changed a couple distributors in Colorado and California, so we're getting more efficient with our existing distributor network, but we also have plans to work to expand that, either by growing our own distributor network or partnering. So that is a little bit more binary because of that, but, you know, we do plan to come back towards the end of the year with a longer-range plan that will not only include more details on these two pieces of wholesale, but also our longer-term plans relative to retail as well.

Chris Mondzelewski: <unk> changed a couple of distributors in Colorado, and California, So we're getting more efficient.

Chris Mondzelewski: With our existing distributor network, but we also have plans to work to expand that either by growing our own distributor network or partnering.

Chris Mondzelewski: So that is a little bit more binary because of that.

Chris Mondzelewski: But you know.

Chris Mondzelewski: We do plan to come back towards the end of the year with a longer range plan that will not only include more details on these two pieces of wholesale but also our longer term plans relative to <unk>.

Chris Mondzelewski: Retail.

Chris Mondzelewski: As well.

Chris Mondzelewski: Understandable. You're saying that that's something you plan to release publicly later this year?

Speaker Change: Understood, you're saying that that's something you plan to release publicly later this year.

Chris Mondzelewski: Yes, and that has to do with really refining our tactical pause, using the tactical pause to really refine our strategy in retail because it is something that will fuel our longer-range plans even more so than core FDM because we expect to be fully deployed in core FDM by the end of next year.

Chris Mondzelewski: Yes, and that has to do that.

Chris Mondzelewski: With really refining our tactical pause.

Chris Mondzelewski: Using the tactical pause to really refine our strategy in retail because it is something that will fuel our longer range plans even more so.

Chris Mondzelewski: <unk> core F D M. Because we expect to be fully deployed in core FTE on by the end of next year.

George Arthur Kelly: Okay, and then two quick modeling questions. Curious if you could provide your Walmart share. And then secondly, on the loyalty accounting change that you mentioned, Steve, is there any kind of EBITDA impact on that? Or do you back that out of EBITDA?

Speaker Change: And then two quick modeling questions curious if you could provide your Walmart share.

George Arthur Kelly: And then secondly on the loyalty accounting change that you mentioned, Steve is there any kind of EBITDA impact on that or do you back that out of EBITDA.

Chris Mondzelewski: On the latter one, it was which accounting change?

George Arthur Kelly: On the latter one than it was.

Chris Mondzelewski: The accounting change sorry.

George Arthur Kelly: You mentioned that loyalty program that OneCube has. Oh, no, it's in EBITDA.

Chris Mondzelewski: You mentioned that loyalty program the <unk> Oh, no. It's it's an EBITA it was recognized into revenue and flowed straight to the bottom line.

George Arthur Kelly: Okay.

Chris Mondzelewski: And on your Walmart question, you know, we grew, um, we grew.

George Arthur Kelly: And then on your Walmart question. We grew we grew 24 continuing to grow 24% and our shares at $4 three right now.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks George.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Matt McGinley with Needham & Company. Please proceed with your question.

Chris Mondzelewski: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Matthew Robert McGinley: Our next question is from Matt Mcginley with Needham <unk> Company. Please proceed with your question.

Matthew Robert McGinley: Thank you. You had a fantastic quarter for gross margin improvement, but you kept the four-year guidance the same at 37 to 40 percent, despite generating 43 percent gross margin in the first quarter. I know you called out that DTC revenue release as a two-point benefit that goes away, but I think you also get some benefit from your barter transactions. But I'm just wondering, like, what else goes away that was a benefit, or is there some change in mix that then pushes your gross margin to the lower end of that, below what you clearly did in the first.

Matthew Robert McGinley: Thank you.

Matthew Robert McGinley: A fantastic quarter for gross margin improvement, but you kept the full year guidance the same at $37, 40%, despite generating 43% gross margin in the first quarter and then you called out that that DTC revenue relief as a as a two point benefit that goes away, but I think you also get some benefit from <unk>.

Matthew Robert McGinley: BARDA transactions that I'm, just wondering like what else goes away that was a benefit or is there. Some change in mix that then pushes your gross margin to the lower end of that debt.

Matthew Robert McGinley: Hello, what you clearly did in the first quarter.

Stephen M. Kadenacy: Thanks, Matt. Well, we got it to the upper end of that 37 to 40 range. Right now, we've seen one quarter above 40. We got there quicker. I would say, most of all, with that and, quite frankly, our adjusted EBITDA guidance of 32 to 42, we're being cautious. We've had a great quarter.

Speaker Change: Thanks, Matt well, we guided to the upper end of that 37% to 40 range.

Stephen M. Kadenacy: Now we've seen one quarter above 40%, we got there quicker.

Stephen M. Kadenacy: I would say most of all with that and quite frankly, our adjusted EBITDA guidance of 32% to 42, we're being cautious you know we've had a great quarter, we've really tightened the business efficiency over the last.

Stephen M. Kadenacy: We've really tightened business efficiency over the last six, seven months relative to a year ago. We're really running quite efficiently on a number of metrics. However, we recognize that we need to invest back in the business. And that's going to take effort, particularly on the bottom line. This is probably, completely directed at your gross margin question.

Stephen M. Kadenacy: Six seven months relative to a year ago, we're really running quite efficiently on a number of our metrics.

Stephen M. Kadenacy: However, we recognize that we need to invest back in the business.

Stephen M. Kadenacy: And that's going to take effort, particularly on the bottom line this probably doesn't.

Stephen M. Kadenacy: Completely directed at your gross margin question, but were being super cautious to make sure that we can constantly do what we say, we're going to do and exceed expectations. I think just to build on Steve's point, a little bit to illustrate how that might play out I mean, I think we had.

Stephen M. Kadenacy: But we're being super cautious to make sure that we can constantly do what we say we're going to do and exceed expectations. I think I'd just build on Steve's point a little bit to illustrate how that might play out. I mean, I think we have some good detail in some of the presentation slides that we released on the margin improvement that we put in place. There are, as we called out, some one-time occurrences. Steve was very clear about that.

Stephen M. Kadenacy: Some good detail on some of the presentation slides that we released on the margin improvement that we put in place.

Stephen M. Kadenacy: There are as we called out some onetime occurrences team was very clear about that.

Stephen M. Kadenacy: There's also a lot of, most of it is driven by clear fundamental changes in the business. And we're really pleased about that. To Steve's point, we need to see that play out.

Stephen M. Kadenacy: Also a lot of it most of it is driven by a clear fundamental changes in the business and we're really pleased about that to Steve's point, we need to see that play out but a lot of the decisions that we've been able to make on the RTD business and consolidating our supply chain.

Stephen M. Kadenacy: But a lot of the decisions that we've been able to make on the RTD business and consolidating our supply chain, our planning, you may recall even three, four quarters ago, we talked about putting significantly better planning resources in place for inventory control. But that's also led to the ability to drive cost out of the supply chain. Those things are obviously real.

Stephen M. Kadenacy: Our planning you may recall, even three or four quarters ago, we talked about putting a significantly better planning resources in place for inventory control, but that's also led to the ability to drive cost out of the supply chain.

Stephen M. Kadenacy: Things are obviously real and as far as how that plays out in the total P&L. What that does is it gives us great opportunities. So now as we take on new customer distribution, which we've talked about obviously quite a bit already.

Stephen M. Kadenacy: And as far as how that plays out in the total P&L, what that does is it gives us great opportunities. So now, as we take on new customer distribution, which we've talked about, obviously, quite a bit already, we have additional investment we can make there. We're still not going to be driving heavy price promotions. That's not who we are. We're a super premium business, but there are many other investments we can make with customers in order to be able to really get the brand off to a great start. And again, for that reason, we just want to make sure that we're building a little bit of conservatism into what that looks like.

Matthew Robert McGinley: What will the current Dr. Pepper partnership provide you that your current co-factors can't deliver on? You know that it'll take some time for that to show up, but I guess what channel does that give you access to, and how does that accelerate the top line over time and provide for operating efficiency?

Chris Mondzelewski: Yeah, there's really, I think, you know, three great advantages to doing this. I mean, the first is just, you know, they're the best in the business. There's no other way to cut it.

Chris Mondzelewski: They're the ones that invented this technology. Their ability to produce at the highest quality levels consistently and put the very best product on the shelf is astounding. They blew us away with that, and, you know, we agreed that for a super premium brand like Black Rifle, not that we aren't proud of the other pods we've distributed historically, but this puts us at an even higher level. The second piece is it gives us some great efficiency, you know, I won't go into all the details of that, but as I talked about, the ability to consolidate down our supply chain, keep things simple, you know, being able to have one, you know, scaled manufacturer like that that has such incredible capabilities across the market from a distribution standpoint, et cetera, helps as well.

Chris Mondzelewski: Ability to produce at the highest quality levels consistently and put the very best product on a shelf is astounding they blew us away with that and you know you know, we we agreed that for a super premium brand like Black rifle I'm not that we aren't proud of the other you know, possibly distributed historically, but this puts us at a at an even higher.

Chris Mondzelewski: Level.

Chris Mondzelewski: The second pieces that gives us some great efficiency.

Chris Mondzelewski: With all the details of that but as I talked about you know the ability to consolidate down our supply chain keep things simpler you know being able to have one you know scaled manufacturer like that that has such incredible capabilities across the market from a distribution standpoint et cetera health.

Chris Mondzelewski: Helps as well and then the third.

Chris Mondzelewski: And then the third, which you called out in the beginning, is the ability to actually drive incremental sales. So yeah, there are a lot of opportunities. I don't necessarily, you know, want to pin down any specific one because we're still in the process of building that plan out with Keurig Dr. Pepper, but it gives us access to all of the areas that you would find their products, right? So when you think about hotels, offices, some of the channels or customers maybe that we don't want to have to build our own sales force against, you know, they can help us with clubs, you know, and, you know, then there we also mentioned this. You know, I mentioned this earlier, their website. They have done a fantastic job of building a coffee business on Keurig.com, which gives us access to that as well. Okay, thank you.

Chris Mondzelewski: You know what you call out in the beginning is the ability to actually drive incremental sales. So yeah. There are a lot of opportunities I don't necessarily you know want to pin down any specific one because we're still in the process of building that plan out with our current doctor pepper, but it gives us access to all of the areas that you would find.

Matthew Robert McGinley: Got it. Okay, thank you very much.

Matthew Robert McGinley: Their products right. So when you think about hotels office. Some of the channels are customers may be that we don't want to have to build our own salesforce against you know they can help us with club.

Matthew Robert McGinley: And you know then there there we we also mentioned this you know I mentioned this earlier their website you know they they they have done a fantastic job of.

Matthew Robert McGinley: Building, a coffee business on courage dot com gives us access to that as well.

Speaker Change: Got it okay. Thank you very much.

Operator: Thank you. There are no further questions in the queue. I would like to hand the call back over to Chris Mondzelewski for any closing comments. Yeah, so I'll um...

Chris Mondzelewski: You're welcome.

Chris Mondzelewski: Thank you.

Chris Mondzelewski: There are no further questions in the queue.

Chris Mondzelewski: Yeah, so I'll close the call the way that I traditionally like to do it. I think this quarter is, I guess, maybe the most important quarter of the year for us in a lot of ways. As we end this quarter, we come up against Memorial Day, which is a period that we hold sacred at Black Rifle. I'll just end the call by calling out: you'll notice that that is a holiday that we will not promote. We will not do anything.

Chris Mondzelewski: I would like to hand, the call back over to Chris Mom's Alisky for any closing comments.

Chris Mondzelewski: Yeah, So I'll, yeah, I'll call it close the call the way that I traditionally like to do it I think this this quarter is I guess, maybe the most important quarter of the year for us and a lot of ways as we end this quarter.

Chris Mondzelewski: We believe that it should only be a day of remembrance. So I guess, since I won't have a chance to talk to all of you on Memorial Day, I'll just call out now that everybody please reflect on that weekend. Certainly, for us here, 60% better in the workforce. We all know a lot of people who have lost their lives over the years in combat, in the military. So that's what we will be focusing on that weekend. But other than that, we're going to continue to press our resources towards the improvements that we've been putting into the business, and we're thrilled with the progress we've made.

Chris Mondzelewski: We come up against Memorial Day, which is you know a period that we hold sacred it black rifle I'll just end the call by calling out you know you'll notice that that is a.

Chris Mondzelewski: A holiday that we will not promote we will not do anything we believe that is something that.

Chris Mondzelewski: It should only be a day of remembrance. So I guess since I won't have a chance to talk to all of you on Memorial day I'll just call out now that everybody. Please reflect on that weekend was certainly for US here, 60% better in workforce. We all know a lot of people who have lost their lives.

Chris Mondzelewski: Over the years, you know and combat in the military so that's what we will be focusing on that weekend, but other than that we're going to continue to press our resources towards the improvements that we've been putting in the business and we're thrilled with the progress we've made.

Speaker Change: Thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.