BRC Inc. (NYSE: BRCC ) is at an interesting point in time. The coffee company has continued retail distribution expansion, but its direct-to-consumer and margin performances remain highly concerning. At the same time, BRC has launched its energy drink line with KeurigI am an avid investor with a major focus on small cap companies with experience in investing in US, Canadian, and European markets. My investment philosophy to generating great returns on the stock market revolves around identifying mispriced s ...

Group 1 - Black Rifle Coffee Company (BRC Inc.) held its Q1 2025 earnings conference call on May 6, 2025, at 8:30 AM ET [1] - The call was hosted by Matthew McGinley, Vice President of Investor Relations, and included key company executives [1][2] - The financial results for Q1 2025 were released prior to the call, and related materials are available on the company's Investor Relations website [3] Group 2 - The conference call included a Safe Harbor statement regarding forward-looking statements, highlighting the risks and uncertainties involved [4] - Non-GAAP financial measures, such as adjusted EBITDA, were discussed during the call, with reconciliations provided in the earnings release [5]

BRC (BRCC) Q1 2025 Earnings Call May 06, 2025 08:30 AM ET Company Participants Matt McGinley - VP - IRChris Mondzelewski - CEOStephen Kadenacy - CFOSarang Vora - Equity ResearchMartin Mitela - Senior Equity Research AssociateDaniel Biolsi - Managing Director Conference Call Participants Michael Baker - Managing Director, Senior Research AnalystNone - AnalystGeorge Kelly - Managing Director, Senior Research Analyst Operator Welcome to Black Rifle Coffee Company First Quarter twenty twenty five Earnings Confe ...

Financial Data and Key Metrics Changes - First quarter revenue declined by 9% year-over-year, primarily due to $8.5 million in barter transactions and a $3.4 million benefit from a change in loyalty rewards accruals in the previous year. Excluding these items, revenue increased by 4% [17] - Adjusted EBITDA declined by $11.6 million compared to the first quarter of the previous year, totaling approximately $1 million for Q1 2025 [21] - Gross margin decreased by 680 basis points to 36% of sales, impacted by increased trade investment, green coffee inflation, and changes in loyalty rewards [20] Business Line Data and Key Metrics Changes - The wholesale segment, which sells packaged coffee and ready-to-drink beverages, declined by 6% year-over-year. However, excluding non-recurring revenue from the previous year, sales in this segment grew by 9% [17] - Direct-to-consumer (DTC) revenue declined by 15% in the first quarter, but adjusting for last year's loyalty reserve, the decline was closer to 5% [19] - The Outpost segment grew revenue by 2%, driven by higher franchise revenue and increased average order value [19] Market Data and Key Metrics Changes - In the U.S. Food, Drug, and Mass channels, the coffee category declined in unit volume during the first quarter, but Black Rifle Coffee Company achieved 21% sales growth, significantly outpacing the category's 4% increase [6] - The ready-to-drink coffee business saw first-quarter sales up 7% in a category that declined by 6%, maintaining the company's position as the third-largest RTD coffee brand in the U.S. [11] Company Strategy and Development Direction - The company is focused on long-term growth by scaling the brand, deepening retail partnerships, and ensuring efficient investment in the business [5] - The launch of Black Rifle Energy is a key initiative, with plans to expand distribution and marketing efforts in priority markets [12][13] - The company is committed to cost reduction and efficiency initiatives, aiming for annualized cost savings of $8 million to $10 million [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging operating environment but expressed confidence in the company's positioning for growth in 2025 and beyond [4] - The impact of tariffs and green coffee inflation was highlighted, with an estimated $5 million impact on EBITDA in 2025 [24] - The company maintains its full-year revenue guidance of $395 million to $425 million, expecting sequential growth throughout the year [22] Other Important Information - The company continues to make monetary and product donations to military units and first responder organizations, emphasizing its mission-driven approach [14][15] - The company has implemented a price increase to offset rising green coffee prices, which have more than doubled since early 2024 [25] Q&A Session Summary Question: How does the business react to an economic slowdown? - Management noted that during economic slowdowns, consumers tend to shift from coffee shops to at-home coffee, which can benefit premium brands like Black Rifle [33] Question: What is the outlook on guidance, particularly regarding gross margin? - Management indicated that increased trade spending and coffee inflation have impacted gross margin expectations, but they remain confident in achieving their EBITDA range [36][37] Question: Can you share early feedback on the energy drink launch? - Early feedback has been positive, with strong distribution and marketing efforts planned to support the launch [41][43] Question: What strategies are being implemented to stabilize the DTC business? - The company is focusing on improving conversion rates, particularly through its mobile app, while reallocating resources towards wholesale and energy initiatives [52][55] Question: How is pricing being managed in light of inflation and tariffs? - Management stated that pricing actions are being taken strategically to remain competitive while managing the impact of tariffs and inflation on costs [60][62]

Financial Performance - Revenue for Q1 2025 was $89,974,000, a decrease of 8.6% compared to $98,392,000 in Q1 2024[17] - Gross profit for Q1 2025 was $32,472,000, down 23.1% from $42,185,000 in Q1 2024[17] - Net loss attributable to BRC Inc. for Q1 2025 was $2,888,000, compared to a net income of $548,000 in Q1 2024[17] - Total net sales for the three months ended March 31, 2025, were $89,974,000, a decrease of 8.5% from $98,392,000 in the same period of 2024[55] - Wholesale revenue decreased to $56,791,000 in Q1 2025 from $60,428,000 in Q1 2024, representing a decline of 10.8%[55] - Direct-to-Consumer (DTC) revenue fell to $27,720,000 in Q1 2025, down 15.0% from $32,614,000 in Q1 2024[55] - The net income (loss) attributable to Class A Common Stock for Q1 2025 was $(2,888) thousand, a decrease from $548 thousand in Q1 2024, indicating a significant decline[136] - Net revenue for the three months ended March 31, 2025 decreased by $8.4 million, or 9%, to $89.974 million compared to $98.392 million for the same period in 2024[165] - Gross profit for the three months ended March 31, 2025 was $32.472 million, a decrease of $9.713 million, or 23%, with a gross margin of 36% compared to 43% in 2024[164] Assets and Liabilities - Total current assets as of March 31, 2025, were $95,062,000, slightly down from $95,471,000 as of December 31, 2024[14] - Total liabilities increased to $178,705,000 as of March 31, 2025, compared to $177,886,000 as of December 31, 2024[14] - Cash and cash equivalents decreased to $3,902,000 at the end of Q1 2025 from $6,810,000 at the end of 2024[14] - Long-term debt increased to $66,472,000 as of March 31, 2025, from $63,027,000 as of December 31, 2024[14] - The allowance for sales returns and charge backs was $467 million as of March 31, 2025, compared to $560 million as of December 31, 2024[57] - Accounts receivable allowance for doubtful accounts was $626 million as of March 31, 2025, up from $593 million as of December 31, 2024[64] - Inventories, net increased to $50,498 million as of March 31, 2025, from $42,647 million as of December 31, 2024[65] - Property, plant, and equipment, net decreased to $56,645 thousand as of March 31, 2025, down from $59,204 thousand as of December 31, 2024, a decline of 4.3%[93] Operating Expenses - Operating expenses for Q1 2025 were $37,904,000, a slight decrease from $38,230,000 in Q1 2024[17] - Total operating expenses decreased by $0.3 million, or 1%, to $37.904 million, with marketing and advertising expenses increasing by $3.713 million, or 49%[170] - Interest expense increased by $0.319 million, or 16%, to $2.370 million due to higher average debt balances[175] Cash Flow - The company reported a net cash used in operating activities of $4,141,000 for Q1 2025, compared to net cash provided of $4,914,000 in Q1 2024[23] - Net cash used in operating activities was $4.1 million for the three months ended March 31, 2025, a decrease of $9.1 million compared to net cash provided of $4.9 million in the same period of 2024[180] - Net cash used in investing activities was $1.2 million for the three months ended March 31, 2025, a decrease of $1.5 million from $2.7 million in the corresponding period of 2024[181] - Net cash provided by financing activities was $2.4 million for the three months ended March 31, 2025, an increase of $13.1 million compared to net cash used of $10.7 million in the same period of 2024[182] Revenue Recognition and Customer Programs - The company’s revenue recognition follows the ASC 606 standard, ensuring that revenue is recognized when control of the product transfers to the customer[40] - The company’s loyalty program allows customers to earn up to 5% on purchases, with points expiring after one year[46] - The company recognized a revenue increase of $3,361,000 in its DTC channel due to changes in the loyalty program policy regarding expired points[47] - The company’s franchise agreements require ongoing fees based on store revenues, which are recognized as sales occur[49] Future Outlook and Strategy - The company aims to expand its product line to increase growth opportunities and reduce product-specific risks through diversification[156] - The company plans to continue investing in customer acquisition and new product launches to drive revenue growth in the Wholesale channel[151] - Future growth in the Outpost channel is anticipated as the company reallocates investments and improves profitability through operational changes[151] - The company is focused on optimizing marketing performance to manage customer acquisition costs effectively[154] Legal and Tax Matters - The Company is currently involved in various legal disputes, including a lawsuit from Tang Capital seeking $10,535 thousand in compensatory damages[143] - The Company has recorded a valuation allowance against deferred tax assets (DTAs) due to uncertainty regarding their realization[134] - The effective tax rate for the period ended March 31, 2025, differs from the U.S. federal statutory rate primarily due to changes in valuation allowance and non-controlling interest[133] - The Company has accrued $320 thousand related to potential sales and other tax exposure as of March 31, 2025, which is included in "Accrued liabilities" on the consolidated balance sheets[141]

Financial Performance - Net revenue for Q1 2025 decreased by 8.6% to $90.0 million compared to $98.4 million in Q1 2024[5] - Gross profit fell to $32.5 million, a 23.0% decrease year-over-year, with gross margin declining to 36.1% from 42.9%[8] - The net loss for Q1 2025 was $7.8 million, a decrease of $9.7 million compared to net income of $1.9 million in Q1 2024[12] - Adjusted EBITDA for Q1 2025 was $0.9 million, down from $12.5 million in Q1 2024[12] - Operating income for Q1 2025 was a loss of $5,432,000, compared to an operating income of $3,955,000 in Q1 2024[28] - Net income attributable to BRC Inc. for Q1 2025 was a loss of $2,888,000, compared to a net income of $548,000 in Q1 2024[28] - For the three months ended March 31, 2025, the company reported a net loss of $7.846 million compared to a net income of $1.855 million in the same period of 2024[46] - EBITDA for the three months ended March 31, 2025, was $(2.856) million, a decrease from $6.368 million in 2024[46] - Adjusted EBITDA for the three months ended March 31, 2025, was $897,000, down from $12.518 million in 2024[46] Revenue Channels - The wholesale revenue channel generated $56,791,000 in Q1 2025, down from $60,428,000 in Q1 2024, a decrease of 4.3%[38] - Revenue for the three months ended March 31, 2025, was $89,974,000, a decrease of 8.5% compared to $98,392,000 in the same period of 2024[28] Distribution and Market Performance - Black Rifle Energy™ achieved 21% All Commodity Volume (ACV) within its first three months of retail distribution[6] - Packaged coffee distribution increased by 12.2 percentage points to 50.2% ACV, while Ready-to-Drink coffee distribution grew by 5.1 percentage points to 47.9% ACV compared to Q1 2024[6] - The company continues to focus on expanding distribution across traditional retail, online platforms, and new beverage categories[4] Expenses and Costs - Marketing expenses rose by 48.8% to $11.3 million, representing 12.6% of revenue, up from 7.7% in Q1 2024[9] - The company incurred $2.590 million in equity-based compensation for the three months ended March 31, 2025, compared to $1.952 million in 2024[46] - Non-routine legal expenses for the three months ended March 31, 2025, amounted to $338,000, significantly lower than $2.371 million in 2024[46] - The company wrote off $825,000 in site development costs for the three months ended March 31, 2025, compared to $1.181 million in 2024[46] - Interest expense increased to $2.370 million for the three months ended March 31, 2025, from $2.051 million in 2024[46] - Depreciation and amortization costs rose to $2.576 million for the three months ended March 31, 2025, from $2.413 million in 2024[46] - Tax expense remained relatively stable at $44,000 for the three months ended March 31, 2025, compared to $49,000 in 2024[46] Guidance and Future Expectations - Full-year revenue guidance for FY2025 is maintained at $395.0 million to $425.0 million, with a growth expectation of 1% to 9%[14] - Gross margin for FY2025 is now expected to be in the range of 35% to 37% due to tariff impacts[6] Assets and Liabilities - Total current assets as of March 31, 2025, were $95,062,000, slightly down from $95,471,000 at the end of 2024[31] - Total liabilities increased to $178,705,000 as of March 31, 2025, compared to $177,886,000 at the end of 2024[31] - Cash and cash equivalents decreased to $3,902,000 at the end of Q1 2025 from $6,810,000 at the beginning of the period[33] - The company reported a net cash used in operating activities of $4,141,000 for Q1 2025, compared to net cash provided of $4,914,000 in Q1 2024[33] Subscriber Metrics - DTC subscribers decreased to 181,900 in Q1 2025 from 209,000 in Q1 2024, reflecting a decline of 13.0%[39]

Company Overview - BRC Inc. was founded in 2014 by U.S. veterans and operates under the Black Rifle Coffee brand, selling coffee and related merchandise [1] - The company has established relationships with major wholesale customers, including Walmart [1] Investment Philosophy - The investment philosophy focuses on identifying mispriced securities by understanding the financial drivers of a company, often revealed through a DCF model valuation [1] - This approach allows for flexibility beyond traditional investment categories such as value, dividend, or growth investing, considering all prospects of a stock to assess risk-to-reward [1]

Financial Data and Key Metrics Changes - Revenue declined by 1% in 2024 compared to 2023, with solid growth in bag coffee, pods, RTD coffee, and energy [32] - Adjusted EBITDA tripled in 2024, with adjusted EBITDA margin improving from 3.2% in 2023 to 10% in 2024 [38] - Gross margin improved by 950 basis points to 41.2% in 2024, driven by supply chain productivity [36] Business Line Data and Key Metrics Changes - Wholesale revenue increased from 57% of total sales in 2023 to 63% in 2024, growing 9% overall [34] - Direct-to-consumer segment revenue declined by 14% in 2024, attributed to increased retail availability and shifting consumer preferences [35] - Packaged coffee saw a 22% growth in 2024, while the overall coffee category declined by 0.5% [11] Market Data and Key Metrics Changes - Nielsen data indicated that the coffee category declined modestly in 2024, but Black Rifle sales grew by 13% in Q4 [11] - Ready-to-drink (RTD) coffee category declined by 8% in 2024, while Black Rifle's RTD sales increased by 0.5% [18] - Black Rifle's market share in the RTD coffee category grew by 50 basis points to 4.6%, making it the 3 brand [19] Company Strategy and Development Direction - The company is focused on driving brand awareness, expanding distribution, and product innovation, including the recent launch of Black Rifle Energy [9] - Strategic investments in operations and infrastructure are aimed at enhancing efficiency and scalability for long-term growth [7] - The company plans to revitalize its direct-to-consumer segment while prioritizing growth in the wholesale channel [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 10% to 15% revenue CAGR and 15% to 25% adjusted EBITDA growth over the next three years [46] - The company anticipates revenue for 2025 to be between $395 million and $425 million, with gross margin expected to be in the 37% to 39% range [49] - Management noted that the first quarter of 2025 is expected to be the lowest for revenue generation, with sequential increases anticipated throughout the year [48] Other Important Information - The company has locked in over 95% of its pricing and volume commitments for 2025 to mitigate volatility in green coffee prices [50] - A search for a new CFO has been initiated as the current CFO transitions to a role on the Board of Directors [59] Q&A Session Summary Question: What is the expected distribution for Energy by the end of the year? - Management indicated that distribution is growing rapidly, with a goal of reaching between 20% and 30% ACV by year-end [65] Question: When will marketing spend for Energy ramp up? - Marketing spend will begin in March and increase significantly as the summer selling season approaches [70] Question: What are the plans to stabilize the DTC business? - The focus will be on subscription-based programs and stabilizing subscriber counts, with no additional marketing spend for one-time buyers [76][78] Question: What is the trend with the largest customer? - Revenue from the largest customer grew by 8% year-over-year, with expectations of continued growth despite some flattening [87][93] Question: How will barter transactions impact the P&L in 2025? - Media credits from barter transactions will be used efficiently in marketing expenses, providing a cost-effective way to support growth [90][91] Question: What are the plans for price increases? - No price increases are currently included in the 2025 estimates, but there may be opportunities to adjust pricing based on market conditions [100]

Financial Data and Key Metrics Changes - Revenue declined by 1% in 2024 compared to 2023, with solid growth in bag coffee, pods, RTD coffee, and energy [32] - Adjusted EBITDA tripled in 2024, with adjusted EBITDA margin improving from 3.2% in 2023 to 10% in 2024 [38] - Gross margin improved by 950 basis points to 41.2% in 2024, driven by supply chain productivity [36] - Free cash flow generation improved by over $55 million compared to 2023, with positive cash flow from operations [39] Business Line Data and Key Metrics Changes - Wholesale revenue increased from 57% of total sales in 2023 to 63% in 2024, growing 9% or 13% excluding barter transactions [34] - Direct-to-consumer (DTC) segment revenue declined by 14% in 2024, driven by increased retail availability and shifting consumer preferences [35] - Packaged coffee saw outstanding distribution growth, with ACV increasing by 28 points to 45% in grocery [8] Market Data and Key Metrics Changes - Black Rifle sales grew by 22% in 2024, while the overall coffee category declined by 0.5% [11] - In the Ready to Drink (RTD) coffee category, Black Rifle maintained a market share of 4.6%, making it the 3 brand behind Starbucks and Monster [19] - The energy drink category generated over $20 billion in sales in 2024, significantly larger than the packaged coffee category at $12 billion [24] Company Strategy and Development Direction - The company is focused on strengthening its core business and expanding distribution while driving brand awareness and product innovation [7][9] - Plans to revitalize the DTC segment in 2025 while prioritizing growth in the wholesale channel [15] - The launch of Black Rifle Energy is expected to be a significant contributor to growth in 2025, with a focus on 12 key launch markets [22][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 3-year financial targets, including expectations for 10% to 15% revenue CAGR and adjusted EBITDA growth at 15% to 25% CAGR [46] - The company anticipates revenue in 2025 to range between $395 million and $425 million, with gross margin expected to be in the 37% to 39% range [47][49] - Management noted that the first quarter of 2025 is expected to be the lowest for revenue generation, followed by sequential increases throughout the year [48] Other Important Information - The company is committed to supporting active-duty service members, veterans, and first responders, emphasizing community outreach efforts [27][30] - The CFO announced plans to transition to a role on the Board of Directors, with a search for a new CFO underway [59] Q&A Session Summary Question: What is the expected distribution for Energy drinks by the end of the year? - Management indicated that distribution is growing rapidly, with a goal of reaching between 20% and 30% ACV by year-end [65] Question: When will marketing spend for Energy products ramp up? - Marketing spend is expected to start in March, with a significant increase as the summer selling season approaches [70] Question: What are the plans to stabilize the DTC business? - The focus will be on subscription-based programs and stabilizing subscriber counts, with limited spending on acquiring new one-time buyers [76][78] Question: What is the trend with the largest customer? - The largest customer remains a significant source of revenue, with an 8% year-over-year growth in 2024, despite some flattening expected [87][93] Question: How will barter transactions impact the P&L in 2025? - Media credits from barter transactions will be used efficiently in marketing expenses, providing a cost-effective way to support growth [90][91]

Core Insights - BRC Inc. (BRCC) reported revenue of $105.88 million for the quarter ended December 2024, indicating a year-over-year decline of 11.5% [1] - The earnings per share (EPS) for the same period was $0.04, a decrease from $0.19 a year ago [1]