BRC (US:BRCC)2024-11-04 21:27Part I - Financial Information Financial Statements (unaudited) This section presents BRC Inc.'s unaudited consolidated financial statements for Q3 2024, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets As of September 30, 2024, total assets decreased slightly to $233.7 million, total liabilities decreased to $180.1 million, and total stockholders' equity increased to $53.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 (unaudited) | Dec 31, 2023 (audited) | | :--- | :--- | :--- | | Total Current Assets | $102,988 | $107,738 | | Total Assets | $233,664 | $235,776 | | Total Current Liabilities | $90,588 | $84,109 | | Total Liabilities | $180,099 | $189,268 | | Total Stockholders' Equity | $53,565 | $46,508 | Consolidated Statements of Operations For Q3 2024, net revenue decreased 2% year-over-year to $98.2 million, while gross profit increased 21% to $41.3 million, leading to an operating income of $1.1 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $98,204 | $100,536 | $285,613 | $275,974 | | Gross Profit | $41,348 | $34,059 | $120,791 | $93,777 | | Operating Income (Loss) | $1,106 | $(6,986) | $6,040 | $(37,991) | | Net Loss | $(1,397) | $(10,694) | $(916) | $(42,680) | | Net Loss per Share (Basic & Diluted) | $(0.01) | $(0.05) | $(0.01) | $(0.21) | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $46.5 million at the beginning of 2024 to $53.6 million as of September 30, 2024, driven by equity-based compensation and other transactions, partially offset by net loss - Total stockholders' equity increased to $53,565 thousand as of September 30, 2024, up from $46,508 thousand at the start of the year11 Consolidated Statements of Cash Flows For the first nine months of 2024, the company generated $9.1 million in cash from operating activities, a significant turnaround from the $40.4 million used in the prior year Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $9,145 | $(40,359) | | Net cash used in investing activities | $(6,096) | $(13,296) | | Net cash (used in) provided by financing activities | $(9,311) | $22,797 | | Net decrease in cash | $(6,262) | $(30,858) | | Cash and cash equivalents, end of period | $7,336 | $6,667 | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's significant accounting policies, including revenue recognition, leases, equity-based compensation, and breakdowns of financial statement line items - A change in the BRCC Loyalty Program's points expiration policy resulted in a $5.7 million increase to revenue in the Direct to Consumer Channel for the nine months ended September 30, 202432 - The company entered into agreements to exchange finished goods inventory for prepaid advertising, recognizing $15.2 million of revenue and a corresponding asset for the nine months ended September 30, 20248183 - The company received a purchase incentive of $13.5 million from a co-manufacturing partner, which will be recognized as a reduction of cost of sales over five years85 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's Q3 2024 financial performance, highlighting revenue trends, gross margin improvements, and strategic channel adjustments Overview and Key Factors Affecting Performance BRC Inc. operates as a Veteran-led premium coffee and media company, focusing on expanding its Wholesale channel while managing DTC declines and re-evaluating Outpost strategy - The company's strategy involves a three-pronged approach to build its brand: Inform, Inspire, and Entertain144 - Current channel trends show increased revenue in Wholesale, declining revenue in DTC due to market shifts and reduced ad spend, and decreased revenue in the Outpost channel with limited growth expected in 2024149 Results of Operations For Q3 2024, net revenue decreased 2% year-over-year to $98.2 million, while gross profit rose 21% to $41.3 million, boosting gross margin to 42% from 34% Q3 2024 vs. Q3 2023 Net Sales by Channel (in thousands) | Channel | Q3 2024 | Q3 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Wholesale | $63,655 | $61,527 | $2,128 | 3% | | Direct to Consumer | $29,044 | $32,794 | $(3,750) | (11)% | | Outpost | $5,505 | $6,215 | $(710) | (11)% | | Total net sales | $98,204 | $100,536 | $(2,332) | (2)% | - Q3 2024 gross margin increased to 42% from 34% in Q3 2023, attributed to product mix shifts to higher-margin FDM, RTD productivity improvements, lower warehousing costs, and favorable inventory reserve changes166 - Q3 2024 General & Administrative expenses decreased by $7.2 million (37%) YoY due to reductions in corporate infrastructure, professional services, and IT169 Liquidity and Capital Resources The company's primary cash sources are cash on hand, operating activities, and credit facilities, which management believes are sufficient to fund working capital and commitments for the next twelve months - As of September 30, 2024, the company had $7.3 million in cash and cash equivalents, $12.4 million in working capital, and $9.4 million of available borrowings under its credit facilities185 - For the nine months ended September 30, 2024, net cash from operating activities was $9.1 million, a $49.5 million improvement from the same period in 2023188189 - The company has minimum purchase commitments of approximately $5.7 million for the remainder of 2024 and $26.1 million for 2025192 Quantitative and Qualitative Disclosures About Market Risk The company identifies primary market risks as commodity price volatility, interest rate fluctuations on variable-rate debt, and inflation, which are managed through price increases and efficiency improvements - The company's primary market risk is commodity price volatility for resources like coffee beans, dairy products, and aluminum cans195 - The company's debt facilities have variable interest rates; a hypothetical 5% increase would result in an additional annual interest expense of approximately $3.4 million on $68.2 million of outstanding variable rate debt197 - Inflationary factors impact product, overhead, and freight costs, which the company attempts to offset through price increases and efficiency improvements198 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, following the implementation of a new procure-to-payment system - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024199 - During Q3 2024, the company implemented a new procure-to-payment system and modified internal controls accordingly; no other material changes to internal controls were reported200201 Part II - Other Information Legal Proceedings The company is involved in several legal disputes, including warrant exercise lawsuits, a former consultant's royalty claim, and a co-manufacturer's breach of contract claim, with related accruals - The company is defending against multiple lawsuits (Tang Capital, John Brian Clark, Alta Partners) alleging breach of contract for refusing to permit the exercise of warrants137139140 - An accrual of $400,000 has been recorded related to a lawsuit from a former consultant, Strategy and Execution, Inc. (SEI)138 - An accrual of $2.7 million has been recorded related to a breach of contract complaint filed by a co-manufacturer140 Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the risk factors that were previously disclosed in Item 1A of the Company's 2023 Form 10-K204 Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, and Mine Safety Disclosures The report indicates 'Not applicable' for Unregistered Sales of Equity Securities and Use of Proceeds, Defaults Upon Senior Securities, and Mine Safety Disclosures - Items 2 (Unregistered Sales of Equity Securities and Use of Proceeds), 3 (Defaults Upon Senior Securities), and 4 (Mine Safety Disclosures) are reported as 'Not applicable'204205 Other Information This section discloses that on September 16, 2024, director Steven Taslitz adopted a Rule 10b5-1 trading plan to sell up to 337,241 shares of Class A Common Stock - On September 16, 2024, director Steven Taslitz adopted a Rule 10b5-1 trading plan to sell up to 337,241 shares of Class A Common Stock206 Exhibits This section lists the exhibits filed with the report, including the company's certificate of incorporation, by-laws, officer certifications, and XBRL data files - The report lists exhibits filed, including corporate governance documents, CEO/CFO certifications required by the Sarbanes-Oxley Act, and Inline XBRL documents209