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 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]