Q4 2024 BRC Inc Earnings Call
Greetings and welcome to the Black Rifle Coffee company fourth quarter and fiscal year 2024 earnings call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host Mr. Matthew Mcginley, Vice President of Investor Relations for Black Rifle Coffee company. Thank you you may begin.
Speaker Change: Good morning, everyone and thank you for joining black rightful coffee company's fourth quarter and fiscal year 'twenty 'twenty four financial results conference call.
Speaker Change: We released our results yesterday and they can be found on our website at IR dot black rightful coffee dot com before we begin I would like to remind you of the company's safe Harbor statement.
Speaker Change: During today's call management may make forward looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially for a further discussion of these risks. Please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA.
Speaker Change: And free cash flow whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website.
Speaker Change: Now please refer to the presentation on our Investor Relations website, and turn to slide four I would like to now turn the call over to Chris months' Olesky CEO of Black rightful coffee monster.
Chris Olesky: Thanks, Matt Good morning, everyone. Joining me today are Steve could Tennessee, our Chief Financial Officer, and Matt Mcginley, our head of Investor Relations.
Chris Olesky: In 2024, black rightful focused on strengthening our core business to position the company for long term success.
Chris Olesky: Strategic investments and operations infrastructure and brand drove meaningful financial improvements, while enhancing our operating structure and efficiency.
Chris Olesky: These efforts have laid the foundation for scalable growth that will expand our market reach and drive long term profitability for the business.
Chris Olesky: I am pleased with this distribution growth financial improvements and adjacent category expansion, we achieved in fiscal year 2024.
Chris Olesky: Adjusted EBITDA tripled gross margin improved by nine five points and we saw outstanding distribution growth in packaged coffee at grocery with HCV, increasing by 28 points to 45% over the year.
Chris Olesky: These improvements demonstrate the strength of our business model and the results we can achieve with disciplined execution.
Chris Olesky: Looking ahead to 2025, we will remain focused on driving brand awareness expanding distribution and deploying capital efficiently to maximize returns.
Chris Olesky: We remain committed to product innovation and existing categories.
Chris Olesky: While expanding into new segments, including our recent launch of Black rifle energy.
The energy launch is off to a strong start and we'll continue to ramp throughout 2025 and 2026.
Chris Olesky: Packaged coffee, we continue to gain share and expect further retail expansion, including new distribution and increased shelf presence at existing food drug and mass retailers as we add skus.
Chris Olesky: While our direct to consumer segment is not a primary growth driver. It remains an important part of our long term strategy.
Chris Olesky: That connects us to our most loyal consumer.
Chris Olesky: Our focus in 2025 will be on stabilization and optimization of this channel.
Chris Olesky: Moving to slide seven.
Chris Olesky: According to Nielsen consumption data in the U S food drug and mass channels. The coffee category declined modestly in 2024 due to a drop in unit volume turning positive only in the fourth quarter as mainstream and value brands implemented price increases.
Chris Olesky: As reported by Nielsen Black Rifle sales grew by 13% in a category that was up 1% in the fourth quarter.
Chris Olesky: For the year Black rifle grew 22%, despite the category declining by half a percent.
Chris Olesky: Across all channels, our distribution as measured by a C V reached 49% in the fourth quarter.
Chris Olesky: And in grocery our HCV increased by 28 points to 45%.
Chris Olesky: We anticipate continued distribution growth in 2025.
Chris Olesky: Both through new retail partnerships and expanded shelf presence with existing retailers move now to slide eight.
Chris Olesky: Our direct to consumer segment, which ships coffee apparel and accessories to black rifle fans was the original business line. When the company was founded a decade ago and remains a core part of our operations.
It serves as an excellent platform to build brand awareness test new products and provide access to the brand for those who appreciate the convenience of direct delivery.
Chris Olesky: Those who don't have access to the brand at retail and those who enjoy exclusive limited edition roasts available only on our website.
Chris Olesky: As is the case with most DTC business in recent years ours has been impacted by shifts in consumer spending.
Chris Olesky: With behavior, moving away from DTC channels and back toward brick and mortar retail locations.
Chris Olesky: Overall this has been beneficial the growth of our wholesale business has made the brand more accessible, allowing our DTC customers define the brand and about half of retail locations within the grocery and convenience store channels as measured by a C V.
Chris Olesky: We will continue to allocate resources to prioritize growth in the wholesale channel, but our goal is to revitalize our DTC segment in 2025.
Chris Olesky: And stabilized transactions.
Chris Olesky: We've enhanced our leadership team and our improving the user interface of our website and app.
Chris Olesky: While simultaneously enhancing our product offerings and assortment.
Chris Olesky: Coffee club members account for two thirds of the revenue in this segment.
Chris Olesky: We've made improvements to the subscriber experience by enhancing access to an awareness of features in the subscriber brand portal.
Chris Olesky: Such as perks in discounts with partner brands.
Chris Olesky: Additionally, we've improved areas like the subscribers store, where customers can find exclusive products and promotions.
Chris Olesky: For non subscribers, we are focusing on driving higher quality traffic by adopting a more strategic approach to promotion to optimize repeat purchases.
Chris Olesky: Similar to our approach in retail distribution, we want consumers to have the flexibility to purchase black rifle products through the channel they prefer.
Chris Olesky: Walmart Dot com Amazon and other online retailers provide excellent access to the brand and we plan to enhance our efforts this year by improving search support.
Chris Olesky: And enhancing the effectiveness of paid advertising to drive awareness and conversion in this channel.
Chris Olesky: Slide nine according to Nielsen the ready to drink coffee category declined by 8% in 2024.
Chris Olesky: But our RTD sales increased by half a percent.
Chris Olesky: In the fourth quarter category trends improved to a 4% decline and we maintained a similar spread and outperformance delivering 5% growth.
Chris Olesky: For the year, we increased ACB by four points to 47% and grew our market share by 50 basis points to four 6%, making us the number three brand in the RTD coffee category behind only Starbucks and monster.
Chris Olesky: We built this portion of our business from the ground up establishing manufacturing partnerships and working with over 210 distributors to bring our products to retail.
Chris Olesky: While I'm proud that we've achieved the number three position what's even more remarkable is that we are only distributed and about half of the available markets for RTD coffee.
Chris Olesky: This category presents a significant growth opportunity as we expand distribution and narrow the gap with the market leaders.
Chris Olesky: RTD coffee is now a meaningful part of our business and while the route to market differs the lessons. We've learned in this category are being directly applied to our energy launch.
Chris Olesky: Moving to our new energy offerings on slide 10.
Chris Olesky: We took black rifle energy from concept to commercialization in about six months.
Chris Olesky: We shipped our first orders of Black rifle energy in December 'twenty, 'twenty, four and the product became available at retail with limited distribution starting in January 2025.
Chris Olesky: Given that the product has only been in stores for a limited time, we don't yet have conclusive data on market performance.
Chris Olesky: That said in the first month, we reached 17% ACB and Black rifle energy is available and nearly 7000 retailers.
Chris Olesky: With the support of our partner occurring Doctor Pepper, we expect our energy product line to be a significant contributor to growth in 2025 to.
Chris Olesky: To support this we are prioritizing 12 key large markets and allocating resources to drive early adoption.
Chris Olesky: Energy specific marketing spend will ramp up throughout the year in parallel with distribution expansion.
Chris Olesky: In 2025, we anticipate distribution gains and convenience F D M and other channels.
Chris Olesky: The energy drink category generated over 20 billion in sales in 2020 for significantly larger than the packaged coffee category at 12 billion and ready to drink coffee at 4 billion.
Chris Olesky: Our research shows 58% of our coffee consumers also drink energy beverages.
Chris Olesky: With 90%, preferring natural ingredients.
Chris Olesky: We designed black rifle energy with a clean energy system, featuring green coffee extract and natural caffeine sources and for delicious flavors validated through consumer testing.
Chris Olesky: Additionally, the can design is distinctively black rifle and crafted for strong visibility on shelves and in coolers. The partnership we announced last year with Kirk Doctor Pepper for the manufacture and distribution of black rightful energy will enable us to ramp up at a fast and disciplined pace, particularly in C store.
Chris Olesky: Katy P has been an excellent partner, providing not only access to its DSD network, which reaches 180000 retail doors.
Chris Olesky: But also for their shared commitment to supporting veterans.
Chris Olesky: We'll have more to share on energy in future quarters, but we are pleased with the product and its initial launch trajectory.
Chris Olesky: Before I turn the call over to Steve for a review of the financials I want to take a moment to talk about something bigger than our business our mission.
Chris Olesky: Black rifle coffee creates shareholder value as a premium beverage company.
But at our core we have always been committed to supporting our active duty service members veterans first responders and all those who serve our nation.
Chris Olesky: That commitment recently took our community outreach team to New York City and Los Angeles.
Chris Olesky: In New York City, we visited fire houses, where firefighters are constantly called into action and police stations in Brooklyn, where officers face daily challenges few truly understand.
Chris Olesky: In Los Angeles as wildfires tour through communities, we delivered seven pallets of coffee and energy drinks to the firefighters and sheriffs departments working around the clock.
Chris Olesky: Some of these men and women had been on the front lines for two weeks exhausted covered in ash, but still showing up because that's what they do.
Chris Olesky: Our goal is simple to say thank you.
Chris Olesky: To remind them that their sacrifices seen valued and deeply appreciated.
Chris Olesky: We also remain steadfast in our commitment to supporting our service members.
Chris Olesky: In recent months, we've sent black rifle products to deployed in deploying Army infantry units.
Speaker Change: Naval Special warfare teams.
Speaker Change: And special operations forces to name just a few.
Speaker Change: This is what black rifle coffee is all about it's not just about selling beverages. It's about building a community it's about showing up for the people who have shaped us the veterans and first responders, who make up half of our team and the customers who stand with us.
Speaker Change: Because when you truly serve those who serve you don't just gained customers you create lifelong supporters.
Speaker Change: And that's what we're here to do with that I would like to turn the call over to Steve. Thank you months I'll start with slide 12, while revenue declined by 1% in 2024 compared to 2023, we saw solid growth in bagged coffee pods, RTD coffee and energy.
Speaker Change: The offsets were outposts DTC and a normalizing trend in liquidation related revenue from the prior year.
Speaker Change: We continue to believe our wholesale segment, which primarily sells packaged coffee and ready to drink beverages to grocers mass merchants and convenience stores will be the primary driver for black rifle.
Speaker Change: As such we remain focused on gaining new retail distribution, expanding our shelf presence with existing retail customers and supporting velocity growth through marketing and promotions.
Speaker Change: Our segment level performance for 2024 reflected our strategic shift towards the wholesale segment.
Speaker Change: Wholesale revenue increased from 57% of total sales in 2023% to 63% in 2024.
Speaker Change: Wholesale segment revenue grew 9% in 2024 or 13% excluding barter transactions.
Speaker Change: Sales to F. D M retailers, we're three five times higher in 2024 than they were in the prior year and sales to our largest customer grew by 8% year over year.
Speaker Change: Our direct to consumer segment saw a revenue declined by 14% in 'twenty 'twenty four.
Speaker Change: This was driven by the growing availability of black rifle products in retail shifting consumer preferences away from direct to consumer channels, and our deliberate reallocation of resources towards wholesale and away from DTC.
Speaker Change: Moving down the P&L by building operational efficiencies and deploying resources towards the highest return initiatives, we meaningfully improved our margin rate profitability and free cash flow generation in 2024.
Speaker Change: Gross margin improved by 950 basis points to 41, 2%.
Speaker Change: The majority of this increase was driven by supply chain productivity and the cycling of ready to drink transformation costs.
Speaker Change: Investment in trade spend and pricing was 150 basis point headwind to the gross margin, while coffee inflation had a 50 basis point impact on gross margin for the year.
Speaker Change: Adjusted EBITDA more than tripled in 2024 compared to the prior year with more than two thirds of that improvement driven by gross profit head.
Speaker Change: Head count and G&A reductions, including lower professional fees drove the remaining improvement in adjusted EBITDA and more than offset planned increases in marketing.
Speaker Change: Adjusted EBITA margin improved by 680 basis points rising from three 2% of sales in 2023% to 10% in 2024.
Speaker Change: Free cash flow generation improved by over $55 million compared to 2023, and we generated positive cash flow from operations and free cash flow in 2024.
Speaker Change: This improvement was driven by gross profit growth and a reduction in operating expenses.
Speaker Change: Moving to our quarterly performance on slide 13.
Speaker Change: Fourth quarter revenue declined by 12% year over year, primarily due to the significant depletion of RGD inventory via barter shifting consumer preferences away from DTC consumer channels and continued softness in the coffee and ready to drink categories.
Speaker Change: Excluding these liquidation transactions fourth quarter revenue declined by 1% year over year.
Speaker Change: As a reminder, we use barter transactions in 'twenty three 'twenty four to reduce inventory. The media credits received will support our brand's growth, particularly in the energy category.
Speaker Change: Wholesale revenue declined by 9% in the fourth quarter, but excluding barter transaction increased by 12% year over year.
Speaker Change: Sales to F D M retailers more than doubled in the fourth quarter compared to prior year.
Speaker Change: Our DTC and alpo segments experienced a decline in transactions during the quarter, but average order value grew in the fourth for the fourth consecutive quarter and outflows.
Speaker Change: Slide 14.
Speaker Change: Gross margin improved by nearly 12 percentage points year over year to 38% of sales in the fourth quarter.
Speaker Change: The reduction in ready to drink transformation costs drove an 11 percentage point improvement in gross margin. Excluding these costs gross margin improved by 30 basis points with productivity gains offset by trade investments pricing and higher input costs related to coffee.
Speaker Change: Slide 15 compared to the prior year's fourth quarter adjusted EBITDA declined by $2 2 million to $9 9 million with EBITDA margin down 80 basis points to nine 4% of sales. The decline was primarily due to the change in revenue trade spending and green coffee inflation that was not fully offset by a <unk>.
Speaker Change: Productivity improvements overall, we are very pleased with the progress made in improving profitability in 2024, and we will continue to remain focused on directing resources towards the highest return initiatives driving productivity and enhancing operating efficiencies in 2025.
Speaker Change: Turning to the outlook on page 17 at.
Speaker Change: At the Investor event, we hosted in January we provided three year financial targets, including expectations for a 10% to 15% revenue CAGR adjusted EBITA growth at a 15% to 25% CAGR and a 40% or better gross margin in 2027.
Speaker Change: We remain confident in achieving our three year financial guidance as outlined in January we expect 2025 revenue and adjusted EBITDA growth rates, along with gross margin to be below our long term targets. This is due to the timing of the energy launch distribution, which extends into late 2025 and 2026.
Speaker Change: As well as the trade and marketing investments supporting the launch date.
Speaker Change: Page 18, and 2025, we expect revenue range to be between $395 million and $425 million, implying 9% at the top end of our energy as our energy launch gains steam and our distribution growth in F. D. M continues.
While we are excited about the opportunities ahead in 2025, we had $34 million in barter transactions and loyalty reserve benefits in the prior year the impact of the cycling of this change will be most significant in the first quarter of 2025 were $11 8 million in revenue will not reoccur.
Speaker Change: Given the first quarter headwind and the expected build throughout the year in both packaged coffee and energy, we anticipate the first quarter to be the lowest for revenue generation followed by a sequential increase in revenue dollars throughout the year.
Speaker Change: For 2025, we expect gross margin to be in the 37% to 39% range compared to 41 point too in 2024. The primary headwinds include a two and a half percentage point reduction from Green coffee inflation, a one and a half point headwind from recycling the release of loyalty reserves.
Speaker Change: And a one point impact from trade investments for the energy launch in a more normalized promotional cadence partially offsetting these pressures we anticipate a one point benefit from ongoing productivity initiatives and a more favorable product mix.
Speaker Change: We use Ford purchase contracts to mitigate potential volatility in green coffee prices and improve our ability to forecast our P&L approximately one year in advance currently we have locked in over 95% of our pricing and all of our volume commitments for 2025, while our green coffee input costs will be 35% higher this.
Speaker Change: Here, we have effectively managed this inflation keeping its impact well below the surge in our Rebecca spot prices, which have more than doubled in the past year.
Speaker Change: With these purchase contracts in place, we do not expect significant incremental margin pressure related to green coffee prices. In 2025. However, we will continue to assess the market dynamics input cost changes to ensure a disciplined and strategic approach to our pricing architecture.
Speaker Change: We expect to generate $20 million to $30 million and adjusted EBITDA in 2025 compared to $39 3 million in 2024 on a rate and dollar basis. This will mostly be driven by the changes in gross profit we just discussed.
Speaker Change: These factors include the $9 million to $10 million headwind from higher Green coffee prices, a $6 million impact from loyalty program adjustments and $4 million in trade and investments in promotion.
Speaker Change: Our plan expects marketing and compensation expense to be modestly higher in 2025 compared to 2024, but with efficiency offsets elsewhere, we expect operating expense as a percent of sales to slightly increase.
Speaker Change: As months' noted earlier, we are pleased with the early progress of Black rifle energy our guidance fully supports the rollout in our 12 priority markets as previously communicated we anticipate a two year distribution ramp for our energy product and plan to align spending with distribution ongoing support needs and opportunities to ask.
Speaker Change: Salary growth concept.
Speaker Change: Consequently, trade and marketing dollars, maybe pulled forward into 2025 or deferred to later periods, depending on emerging opportunities, we will be transparent on any businesses decisions that we make and their potential impact on profitability.
Speaker Change: For modeling purposes, we expect gross margins remained relatively consistent on a quarterly basis.
Speaker Change: And in that 37% to 39% range guided for the full year.
Speaker Change: Adjusted EBITDA, however will be likely limited in the first half of the year EBIT dollars and our rate will increase over the year along with the step up in revenue. We continued to see strong underlying retail demand trends and expect that to continue as we move through the year.
Speaker Change: As such we expect revenue growth more weighted to the back half of the year before we begin the Q&A session I want to conclude the call by saying that in the 18 months I've had the privilege of serving as CFO of Black rifle. Our team has made significant strides in reducing costs, improving operational efficiency and strengthening cash flow generation.
Speaker Change: Black rifle holds a special place for me not only as a leader, but also as an early investor and financial sponsor and taken the company public.
Speaker Change: When the board asked me to join as CFO. My goal is to strengthen black rifles, finance and accounting team and enhance its operational excellence and financial Foundation.
Speaker Change: We have made meaningful progress in all areas as you can see from our 2024 financial results I am proud of the team's accomplishments with this realignment largely complete the board has initiated a search for the next CFO to help guide the company through its next stage of growth, we expect to announce my successor soon at which point I will transition.
Speaker Change: So our role on the board of directors.
Speaker Change: I want to thank the black rightful team, our investors Board partners suppliers and customers for their trust and support the company has a bright future and I look forward to supporting it as a member of the board in the years ahead, operator, we're now ready for Q&A.
Speaker Change: Thank you at this time well be conducting a question here.
Speaker Change: 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 Kim.
Speaker Change: You May press star two if you'd like to remove your question from Mccann for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: To allow for as many questions as possible. We ask that you keep to one question and one follow up.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Glenn West with William Blair. Please proceed with your question.
Glen West: Hey, guys Glen last stepping in for John Anderson here. Thanks for taking my question.
Speaker Change: I think mine's mentioned energy inside about 17% in HCV.
Glen West: After the end of the first quarter.
Glen West: Maybe you could buy that sounds kind of where you expect distribution of the kind of exiting the year and I know monster on their recent call kind of talked about like a resurgence in the energy category.
Glen West: If you start to see kind of the category is starting to pick up more rapidly as there is a kind of optionality to get more distribution out earlier than you have Glenn thanks.
Glen West: Yeah.
Speaker Change: Hey, Glenn Thank you for the question.
Speaker Change: Yeah look we're very excited as we talked about in our last call prior to ever launching energy and I'll just reinforce that we feel great about our overall product offering we believe we've got an ingredient line flavor profile, that's going to be successful anyway that you can cut it and then yes, we did talk about a recovery of the category.
Speaker Change: There had been conversation about the category declining at one point the category is actually as a total growing 5% now and no sugar segment, which is what we compete in is growing significantly faster than that so we feel great about the category dynamics as far as our Unwatched. Our distribution is growing rapidly a week by week. So yes.
Speaker Change: We're well up over 17% ACB I'll remind everyone that at our conference we talked about a goal for the year between 20 and 30% ACB, we're not in a position.
Speaker Change: To change our guidance on that but clearly we feel great about the progress.
Speaker Change: Only and only in the beginning of March to be you know already.
Taken such a significant portion of that goal.
Speaker Change: On top of that you know unlimited and limited measurement, we're actually seeing the product turn you know reasonably well in the retailers that we have begun.
Speaker Change: Distribution and so expect that in Q2 will provide some more details on overall performance says we'll be into the season by then and we'll have more data, but we're real excited about the start.
Speaker Change: Thanks, and maybe if I can squeeze one more in kind of an energy.
Speaker Change: In terms of marketing spend I know you kind of mentioned you're going to try and.
Speaker Change: Match with what.
Speaker Change: Distribution as it's ramped up kind of.
Speaker Change: More specifically one one thing you've got to kind of fully ramp up the AD spend and kind of push push that energy product.
Speaker Change: I know you guys have been running past two quarters about 10% of sales marketing spend but one when are we going to kind of see that ramp up.
Speaker Change: Yes, great question.
Speaker Change: So with the marketing spend as we talked about at ICR, we're gonna be putting a significant portion of our budget towards energy.
Speaker Change: And as a lifestyle brand and the great thing is as we build black rifle all boats rise behind that so we feel good that that will impact our entire business as far as timing and focus.
Speaker Change: We've got a great plan in place so.
A lot of it has not hit the market yet as you would expect with energy its more of a summer season selling period. So expect the marketing to start to come on in March, but really start to have the up as we get closer to those key 90 to 120 days of summer months, that's when we're going to get the best return on a lot of that marketing.
Speaker Change: Likewise, we're working very closely with our partners I'm correct, Dr. Pepper to ensure that we really focused our spending in the most important markets for us and a launch here. So looking at some of the category indexes and some of the brand indexes. We will ensure that we have heavy up spend against what we are what we believe are going to be the.
Most important markets for us to demonstrate success and so again you know come Q2, once we have some of that marketing out in the market I'd be very happy to share some of the specifics of that.
Speaker Change: Thank you guys for your time I'll pass it on.
Speaker Change: Excellent.
Speaker Change: Thank you. Our next question comes from the line of George Kelly with Roth Capital Partners. Please proceed with your question.
George Kelly: Everyone. Thanks for taking my questions.
George Kelly: First.
George Kelly: With respect to your DTC business I was hoping you could be a little more specific just on.
George Kelly: Do you have plans to stabilize that business and I know you don't guide by segment.
George Kelly: Right.
George Kelly: Can you help at all.
George Kelly: Just with respect to sort of what's baked into your your 2025 guidance for when you anticipate the revenue line they're stabilizing.
George Kelly: So let me kick off a little bit on what we're actually doing your question around.
George Kelly: What we're actually doing to stabilize it and then I'll kick it over to Steve a bit to talk to the guidance.
George Kelly: So with the DTC business, one of things I Wanna reinforces, we're staying very focused with the resourcing.
George Kelly: We are fortunate to have some real subject matter experts in that business now and it's not about putting additional spend as I just talked about we're really going to be skewing our spend.
George Kelly: Towards our continued wholesale expansion as well as our energy launch, but with the limited spending we have we want to deploy those resources in a very direct manner, where we can focus on our subscribers. We're pleased that in recent months, we've actually seen a stabilization what I mean by that is that we are.
George Kelly: We're losing in gaining subscribers now at the same rate. So that was first step for us as far as stabilization of subscriber counts and over the next year, what we're going to continue to focus on is actually to grow subscribers and the business.
George Kelly: Versus.
George Kelly: Going out and looking to bring in one time buyers, we will not be spending.
George Kelly: As we have not been in the last 12 months, we will not be spending additional marketing dollars to go out and attempt to convert.
George Kelly: New one time buyers in the business will be focusing very much on subscription based programs and how we bring those most loyal consumers inside of our walls again, when you have a subscriber of the LTV of that subscriber can be anywhere from 200 to $600.
George Kelly: It's a great payback for our business and the way that we're able to not only <unk>.
George Kelly: Financially, but in the way, we're able to communicate with those.
George Kelly: Subscribers, so that will be the focus for us as far as the non subscription component of the business, we're going to continue to stick to our mantra, which is we want consumers to buy where they're most comfortable buying if they want to come to our site and buy that's great. We will have that available if they want to go to another digital site like an Amazon or Walmart Dot com, we have great business.
George Kelly: Is there or of course, as we've talked about we're growing our brick and mortar business every year.
George Kelly: Steve The only thing I would add is there's a lot of really good things happening within our DTC business as months' mentioned, we're seeing a stabilization in the subscribers, which really drives the base of that but we've also reinvigorated the merchandise and gear drops that we have and we're seeing.
George Kelly: We track DTC on a daily basis, and we're seeing positive numbers relative to our expectations and a decrease in the decline already in the first in the first quarter. Here. We also are doing quite well on Amazon, which is in this segment as well and we're seeing very good increases on Amazon.
George Kelly: So within our our guidance, we're not overly dependent on D. G C growing.
George Kelly: However, if it does stabilize and outperform it could be upside to our guidance.
George Kelly: Okay. That's helpful context, thank you.
Speaker Change: And then just two quick follow ups for me first on your largest customer.
George Kelly: Excuse my voice I'm, losing my voice here I'll try to get through this.
George Kelly: Your largest customer I think is flattening out I was curious if I'm reading it to your 10-K correctly.
George Kelly: What's kind of the recent trend there and then secondly.
More of an accounting question.
George Kelly: The barter transactions to marketing sort of benefit then you'll that youll.
Speaker Change: You'll receive how is how do you expect that to flow through your P&L in 2025.
George Kelly: And then I'll hop back in the queue. Thank you.
Speaker Change: Let me start out addressing our largest customer I'll kick it over to Steve to talk a bit to the barter transactions. So we're thrilled with our continued progress with our largest and first customer.
Speaker Change: We have over $110 million business now it continues to be by far our biggest source of revenue.
Speaker Change: We did see some flattening in the last year, but that was expected as we continue to expand the remainder of the market. There was an expectation that we would see possibly even some decline.
Speaker Change: Which in our key segments of ground in pods, we actually did not see we.
Speaker Change: We did lose a canister item, we continue to work with them on what the right overall assortment is going to be for us.
Speaker Change: Overall, but again as we think about how our business stacks up where we're sitting now as the number four brand in bags were sitting as a number six brand overall in pods.
Speaker Change: And we feel great about the next 12 months the conversations we're having about adding other items innovation items that will be coming on as we think about the back part of the year. So.
Speaker Change: Yes, there has been a bit of a slowing that was expected for us with expansion of the total market, but we feel great about the position we're in and that continues to be our number one relationship in the market.
Speaker Change: On the media credits, we're actually quite excited to begin to use those more robustly in 2025.
Speaker Change: The reason is is that a lot of the practical usage of those as highly applicable to our energy launch.
Speaker Change: And the way that flows from an accounting perspective is we have an asset on the balance sheet of the media credits and when we use those it accrete into our marketing expense line. However from a cash perspective, the dollar of marketing expenses actually sometimes 30, sometimes 60, depending on what we use it for.
Speaker Change: Sure. So it's a very efficient P&L usage from a cash perspective, which is obviously super important for a growth business.
George Kelly: George maybe just one follow up on the comment about our largest customer we were up around 8% with them year over year. In 2024, you can see that from the disclosures and push it higher.
Speaker Change: 10, Ks and Qs estimate, we're pleased with that program and we actually did see growth with our largest customer this year.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Daniel.
Speaker Change: You'll see with <unk>. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: What are your plans for price increases and is that really just contemplated for the bagged coffee and is that reflected in the 2.5% Green coffee inflation.
Speaker Change: Yeah.
Speaker Change: So we have we would always have the discussions with our customers about pricing before we would take that in a public forum.
Speaker Change: We had about one 5% market share of the total category was really more of a follower than a leader in terms of pricing.
Speaker Change: As you may have seen our competition recently instituted some price increases and we're watching it closely and based on that we might have the opportunity to take some pricing offset some of the margin pressure works are currently experiencing there.
Speaker Change: Haven't announced any prices to that to the street in terms of our price increase the street yet.
Speaker Change: I would note that coffee as a commodity is up over 100% year over year, it's more than doubled.
Speaker Change: And a very favorable and the pricing that we've been able to contract with that and we're fully locked in for this year and we're seeing a price increase it's only about 35% compared to the spot rate that's over 100%.
Speaker Change: And like I said, we're mindful of what's happening within the market and where we're at.
Speaker Change: Yeah, but we are analyzing opportunities to potentially address that with rice.
Speaker Change: So additional price increases could represent upside to the guidance.
Speaker Change: We have no price increases currently and our estimates for 2025. So if we were to take price, yes, it would be.
Speaker Change: <unk>.
Speaker Change: Great. Thanks, and then for the energy drink launch how much was shipped into Q4 and you know.
Speaker Change: You know for the slotting fees that or is that going to be really captured in Q1, rather than Q4 and as that distribution ramps up should we expect sort of the slotting fees should not be an incremental increase because of what it's going to be incurred earlier on.
Speaker Change: Yeah.
Speaker Change: So for energy drink side, we did have some.
Speaker Change: We did have some shift into Q4 I'm not going to talk.
Speaker Change: Talk specifically to the number I think overall as we've talked about as we had been loading in in Q1 were well ahead of our expectations as far as how we're seeing the distribution grow in the market. So I would say that anything that occurred as far as pre loading of distributors in Q4.
Speaker Change: First is what we have planned and the 2025 guidance. That's all built in and that's all been pacing the way that we had expected it to.
Speaker Change: And.
Speaker Change: As far as the gating on that debt.
Speaker Change: Part of your trade promotion that we would expect I mean, there is more of if it does occur in the front half. We also would have more coffee inflation in the first half of the ESL are year over year change in gross margin would likely be the biggest in the front half of the year when there's two there's two.
Speaker Change: <unk> the largest but we will have training.
Speaker Change: Trading trade investment that will span throughout the course of the year.
Speaker Change: Okay. Thank you that's I was looking for.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of Bill Chappell with true Securities. Please proceed with your question.
David: Hi, Good morning. This is David <unk> on for Bill Chappell, Thanks for taking our question.
David: So I guess with kind of tariffs being a topic of conversation does yours. Just wondering if you could kind of remind us how much of your cogs exposure to aluminum and you all have any like hedging programs in place and if so what kind of timeframe would you have on those.
David: And we do not have hedging programs relative to aluminum, but our supply chain guys have a pretty good handle on what we're going to need for this year and we're not seeing significant headwind there.
David: Got it thanks.
David: Specifically around the packaging packaging is around that low double digit percentage of our total cost of cans would be a very small percentage of that.
David: Some other other causes and we are.
David: Got it thanks for the thanks for the extra color there.
David: And I guess, one more kind of housekeeping question I was wondering if you could help us unpack. The other expense line items kind of a big jump in that is that something that we need to be keeping an eye on going forward.
David: Oh, yes.
David: The jump there were it was just a noncash impairment of three of our coffee shops.
David: Relative to the Capex that we had on that were under performing.
David: There is still open and operating but we did impair the capital expenditures that had previously been spent.
David: And I wouldn't expect ongoing there we always look at impairments based on how they're performing.
David: And there could be subsequent ones, but I wouldn't I wouldn't plan significant ones in any particular quarter.
David: Got it thanks.
David: Yeah.
David: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Shang floor with Telsey Advisory Group. Please proceed with your question.
Shang: Okay. Thank you for taking my question.
Speaker Change: Pardon me for my voice as well.
Speaker Change: My first question is about the distribution of energy drinks.
Speaker Change: You have focused on dwell priority markets can you shed a little bit more color on the distribution ramp is the mass market is it convenient store and this this priority market or or or is it like you know the convenience store comes after the mass market I'm, just trying to understand how the ramp of this.
Speaker Change: Jim you shouldn't goes.
Speaker Change: You know for for the energy drinks this year and into next like you know is the channels that you are targeting.
Speaker Change: Markets you are targeting I'm curious to know how you.
Speaker Change: Ramp up the energy business.
Speaker Change: Thank you.
Speaker Change: Yes, Thanks, Suraj, let me guess.
Speaker Change: Some general outline on it I think.
Speaker Change: So as we talk about those 12 markets those 12 key markets will be.
Speaker Change: <unk> is the term we're using through the end of March and the beginning of April.
Speaker Change: So while there is limited distribution is starting to grow already.
Speaker Change: And the C store channel.
Speaker Change: Are we going to start to see the increases hit as you get towards the end of May and the beginning of April when many of those C stores, whether they're larger chains or whether they are mom and pop C stores are changing out their shelf sets for the summer season.
Speaker Change: Of that as you call out we do have larger mass customers, including our largest customer which have come online earlier. These tend to come online all at once as they do a general shelf set change, particularly the center store component of their business.
Speaker Change: So as that has happened in this particular case with our largest customer you saw a pretty significant increase right out of the gates at the beginning of the year and that will be the case with any of the mass customers that come on so it will come out in more of a step function.
Speaker Change: And then a general build but.
Speaker Change: But yeah, I mean to give general guidance side, I think youre going to continue to see a bill a steady build as we're seeing now and then again as we hit that March April timeframe, there will be an acceleration of that as we go into the season. Our focus this year as we've talked about will very much be in convenience store within those core markets that we talked about will be worked.
Speaker Change: And in hand with current Dr. Pepper, this is where their capability of their what they call up and down the Street sales force is key to us.
Speaker Change: It is the DSD drivers, who are able to access a lot of the convenience store that we.
Speaker Change: We would not be able to access on our own. So we will focus on that as a strategic advantage and we will we.
Speaker Change: We will do so knowing that convenience store is really the number one form of trial.
Speaker Change: We will of course have marketing events et cetera in order to allow consumers to be able to try a product, but the number one component of trial will come from C store distribution in those focused markets and then a lot of the repeat volume will come.
Speaker Change: And in the mass channel that we're adding either at the same time or as you mentioned you know in some cases will come afterwards, so well.
Speaker Change: Well, we will continue to drive this and the goal over the next two years.
Speaker Change: To drive it as we've talked about the full national distribution, but we want to do it in a really focused manner, where we can hit the geographies first that we know we have our marketing against in order to increase our chances of success.
Speaker Change: That's great and my second question is on product innovation or changes on the merchandising side can you talk about some of the newness that you're trying to bring into 'twenty five.
Speaker Change: I, specifically remember a slide and you know you on analyst day at ICR.
Speaker Change: One of the slides said product innovation and our duty coffee launching in second half of 'twenty five so I'm curious if you could talk about some kind of a newness coming in on the coffee side beyond the beyond the energy things. Thanks.
Speaker Change: Thanks, Ron Yeah, I'm not going to provide specifics of any innovation that we haven't launched yet but suffice to say we are working on.
Speaker Change: Innovation in every segment that we compete in innovation is a key part of our success. It has been up to now.
Speaker Change: We will continue to innovate against center store. So we have new items that we're working on with some of our largest grocery and mass partners increased.
Speaker Change: Increased distribution the Gulf for us.
Speaker Change: Two a distribution statistic maybe to outline this right. So if you look at last year.
Speaker Change: We grew worried about 47% ACB in grocery we grew about 10% overall in HCV, we grew 20% in what we call total points of distribution twice as fast as what we were growing in HCV. So what that means is that not only are we adding.
Speaker Change: Depth I'm, sorry, not only are we adding breadth and new customers, but we're adding depth to our existing customers and a lot of that comes through.
Speaker Change: The innovation that we're doing going forward. So as we look to continue to add breadth to our existing customers that we're having success with we will continue to build items that we believe are relevant to the shelf set in order to do that.
Speaker Change: Emily when it comes to RTD coffee, we had a fantastic year, where we were able to add distribution, we were able to grow velocity and despite a declining category.
Speaker Change: We had significant growth for the year.
Speaker Change: At 5% and.
Speaker Change: We're now sitting as the number three brand in RTD coffee. So it puts us in a very strong position to be able to move on innovation items, there as well and then finally on energy.
Speaker Change: Of course, just launching it as we speak but we believe very much in being prepared for success. So.
Speaker Change: Suffice to say, we have plans there as well as we think about different pack configurations that we would need for different channels or even flavor expansion as we push forward.
Speaker Change: With that business all of these things are being planned in the background.
Speaker Change: That's awesome good luck with 25.
Speaker Change: Thank you.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. MA Delaski for any final comments.
Speaker Change: Yes, I'll just close the session today by saying we are extremely excited about the potential of our new energy business. We're very very excited about the continued progress of our center store coffee and RTD coffee businesses.
Speaker Change: But I'm going to close with just a quick.
Speaker Change: Personal note.
Speaker Change: This will be my last meeting with Steve Steve has been an incredible partner as our CFO for the last 18 months I would remind everyone. You know he was a key investor in the business in the early days.
Speaker Change: He he really brings to life the black rightful ethos in the sense that you know as an investor in the business. He chose to roll his sleeves up come into the business with us really put us into a very strong position.
Speaker Change: As he is now going to move on to.
Speaker Change: Thankfully a role also within Blackrock on our board so I'm delighted.
Speaker Change: And then I will continue to get to work with Steve and I just want to thank him very much for what he brought to our business and with that I hope everyone has a wonderful day.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.