BRC Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 11 speakers on the call.

Operator

Greetings. Welcome to the Black Rifle Coffee Company 2Q 'twenty three Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Cerna Doss. You may begin.

Speaker 1

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our Q2 2023 financial results, which were released today and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Heffer, Founder and CEO Tom Davin, Co CEO and Greg Iverson, our Chief Financial Officer. We will also have Chris Mondalewski, our new President as well as Mark Weinstein, our Interim CFO, Before we get started, I'd like to remind you of the company's Safe Harbor language, which I'm sure you are all familiar with. On today's call, management may make forward looking Statements, including guidance and underlying assumptions.

Speaker 1

Forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further Discussion of our 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. Reconciliations of these non GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and they are also available on our investor website. I'd like to turn the call over to Evan Hayfer, Founder and CEO of Black Rifle Coffee Company.

Speaker 1

Evan?

Speaker 2

Thanks, Tanner, and good afternoon, everyone. From day 1 of starting Black Rifle Coffee Company in my garage, My core focus has been to create an authentic connection between our brand and our community, demonstrating to military veterans and first responders That we can build something that will last generations. We don't stray from our beliefs and it can be felt by our customers who are looking for authenticity in a world where most brands Don't stand for anything or change their beliefs based on whoever is yelling the loudest. As we've transitioned from a pure direct consumer business into an omnichannel CPG Business. Black Rifle has proven to be a real American business success story.

Speaker 2

We are still early in our company's life cycle, But we have proven that our brand resonates with American Public, and we're excited to have all of our products show up in stores where our customers are shopping every day. Last year, we made the strategic decision to launch our products into food, drug and mass. And to date, that decision has paid off. We've gone from a niche premium direct to consumer coffee brand to the number one selling 12 ounce bag coffee sold in over 4,400 Walmart This has all been done on the strength of our brand and word-of-mouth reviews. This excitement for the brand and being on shelf Where over 30,000,000 people a day shop has also increased our aided brand awareness from 20% to over 28% in the last year.

Speaker 2

While we're pleased with the 8% point increase, we have 72% left to go. Over the last 4 weeks with little to no marketing spend, Black Rifle Coffee represented 4.4% of total coffee sales in the largest coffee aisle within grocery and FTM. That 4.4% is only made up of 12 ounce bags and K Cups or rounds, which is representative of only half of the total categories within the Walmart Over the past 6 months, we've been working with Walmart to create new SKUs that we recently launched during their coffee reset That will begin to address the remaining 50% of the aisle. Although we were early in the reset period, we've seen our new product innovation further increase Walmart coffee Tom will share the additional color in this section. As we mentioned on our last call, the success of our entry into grocery was going to be building on itself And we would soon be launching additional FDM partnerships.

Speaker 2

Today, I'm excited to announce that we are shipping our product To our 2nd national grocery chain and 2 other regional partners, we are deep in conversations with additional grocers and FDM accounts, And we will continue to roll out Black Rifle Coffee into the additional grocery chains during 2024. In order to capitalize on the growth opportunity of CPG, I knew we needed to bring additional talent to the team to elevate our brand to the next level, which is why we hired a new President and CMO, Chris Mondalewski. Chris has brought over 25 years of experience within the CPG industry, most recently as the Chief Growth Officer at Mars Pet Care. And more importantly, He has been a coffee subscriber since 2015. He is intimately familiar with our brand and he understands how to deliver the Black Rifle coffee brand experience to our customer base as well as expand our TAM into new cohorts of potential customers.

Speaker 2

Chris will be focused on 3 main goals over the next year: Continue to aggressively lead the distribution expansion of our business across channels, especially in FD and M, working hand in hand with me On the marketing and branding front, to unlock marketing programs and expand into new customer groups, working with Tom Davin and the rest of the business units to continue to drive efficiencies and be predictable across the business. Having Chris in this new role will allow me to get back to doing what I love, is 100% focused on building and evolving the Black Rifle Coffee brand. I will be working on our large strategic partnerships at Black Rifle Coffee. More importantly, I will be 100% on the needs and wants of our customers. We are still very early in the cycle of Black Rifle Coffee, And I couldn't be more excited for the future.

Speaker 2

We also have Mons, our new President and Mark Weinstein, our Interim CFO, On the call to answer any additional questions you might have. Before I turn the call over to Tom to walk through the quarter, I want to say thanks to Greg Iverson on his last earnings Carl is our CFO. Greg was instrumental in getting this business ready for IPO, and he's also done an amazing job the last 3 years. We will miss having him around the office and I want to wish him luck in his next mission. With that, I'll turn the call over to Tom.

Speaker 2

TD, go ahead.

Speaker 3

Thanks, Evan, and good afternoon, everyone. I'll start with the topic of company profitability, then address performance by channel And conclude with 2023 guidance. Before addressing these topics, I'd like to preface my comments with some observations to set the context. First, the Black Rifle Coffee brand is gaining broad acceptance and as a result, we are growing rapidly, far outpacing the coffee category and a long list of competitors. As military veterans leading a public company, we strive to set aggressive but achievable goals Supported by initiatives to mitigate risk, this is our 7th earnings call as a public company.

Speaker 3

Obviously, our omnichannel growth strategy has evolved over time as we've Responded to consumer behavior and results in the marketplace. The success we've seen in the wholesale segment, particularly food, drug and mass This enabled us to sharpen our focus and more clearly chart our path to profitability. One investor said recently, I'd like to see Black Rifle Coffee be more boring, at least as a business model. We've taken that sentiment to heart, meaning we will continue to streamline our processes, Use technology to drive productivity and hold ourselves accountable to do what we said we would do. Profitability.

Speaker 3

As I outlined on our Q1 call, We are committed to becoming profitable in 2023 at the adjusted EBITDA line. I am pleased to report that we achieved adjusted EBITDA profitability In Q2, our trending hit our profitability targets for the year. The key levers are the continued makeshift into the food, drug and mass channel, Cost savings and productivity across the business. Our entire organization is aligned behind the imperatives of focus and profitable growth. I will now highlight each of our business channels.

Speaker 3

Wholesale, the strategic decision to focus on this channel has started to prove out over the past two quarters. Our wholesale channel revenue growth was 109% year over year, proving again that the BRCC brand has brought appeal with a wide range of shoppers. Food, Drug and Mass. Although we are still less than a year into our launch within the FDM channel, we continue to gain market share rapidly. Evan shared that according to the most recent Nielsen data, over the last 4 weeks, Black Rifle Coffee represented 4.4% of total Walmart coffee sales.

Speaker 3

This success of Walmart has earned BRCC the opportunity to begin to address the remaining 50% Of Walmart's coffee business, 16 new innovation SKUs are being shipped to stores as we speak, including our first canister coffee SKU Comprising 24 ounces of ground coffee, cold brew concentrates and 32 fluid ounces with multiple flavors, 2 SKUs of instant coffee and 3 additional bagged coffees and 6 additional pack sizes and flavors of rounds or K Cups. With the new product launches, we are increasing our shelf facings at Walmart by roughly 67%. Based on Nielsen data, Walmart's Coffee sales continue to outpace the total FDM category by more than 2.5 times. Black Rifle Coffee is honored to be part of this ongoing success story. Relative to the new FDM accounts Evan referenced, we look forward to sharing additional details as Black Rifle Coffee product arrives on shelves, Ready to drink.

Speaker 3

Our RTD product continues to outperform the segment, which has enabled BRCC to continue to take market share. Over the last 52 weeks, Black Rifle outperformed the category by over 8 times in terms of units and dollars. Our products are now being sold in over 82,000 doors, well on our way to the 100,000 door target by year end 2023. Our percentage ACV continues to grow, currently at 41%, with FDM and convenience stores combined, Up from 38% at year end 2022, the Ready to Drink segment as a whole experienced some deceleration over the past couple of quarters. Although Black Rifle Coffee's unit sales were up 26% quarter over quarter, the category has seen unit sales fall Almost 8% during the same time period.

Speaker 3

While we're growing in RTD and taking share, we did not expect the category to slow in the last quarter. As a result of the category deceleration, we have completed a full top down and bottoms up review of the RTD business. The outcome of this review has resulted in renewed focus on quality of distribution, greater sense of urgency around margin And the increased profitability, all supported by leadership changes to enable execution of our ready to drink playbook. We'll continue to monitor the overall macro trends in RTD and improve our execution throughout the system. Direct to consumer, We operate the largest branded subscription coffee business in the United States with over 239,000 subscribers.

Speaker 3

We've continued to see a slight decline in new customers quarter over quarter, which aligns with our internal models as we reduce investments that fall below our hurdle rates. With profitability as an imperative, we continue to be disciplined on CAC or cost to acquire customers As CAC is still elevated relative to the LTV of new customers, we continue to direct investment dollars Into the FDM category, the area of the business that is providing the greatest returns. Outposts, as we announced last quarter, I have assumed direct leadership the Post division for the immediate future. We have 3 main objectives in 2023 for the retail business. Number 1, Continue to enhance the customer experience within our company owned and franchise locations to maximize revenue.

Speaker 3

Number 2, Develop the leadership capabilities of the outpost team in order to drive performance at each retail outpost. Number 3, refine our new prototype model to further elevate the BRCC experience while value engineering overall build out costs To ensure future outposts generate strong returns on investment, we continue to see significant long term opportunity for this segment of our growth strategy. Guidance. Wrapping up my section, I'll provide an update on guidance for 2023. As you know, we previously guided to revenue in the range of $400,000,000 to $440,000,000 gross margin 36% to 37.5 percent adjusted EBITDA $5,000,000 to $20,000,000 for the year.

Speaker 3

With the aforementioned ready to drink category deceleration, we now expect 2023 results to be at the low end of the guidance across all three metrics, Representing low to mid-thirty percent revenue growth, continued improvement in gross margin and adjusted EBITDA profitability. We expect to see sequential improvements in gross margins and adjusted EBITDA in both Q3 and Q4. I'll now turn the call over to Greg Iverson to walk through

Speaker 4

But before I review the financials, I'd like to thank Evan, Tom and the entire BRCC family for their support and friendship over the past 3.5 years. While I will miss working closely with everyone, I know that the company is in extremely capable hands, and I will remain a committed Black Rifle Coffee customer for life. In the context of doing what we say we're going to do, we previously guided towards $91,000,000 of revenue and adjusted EBITDA that approaches breakeven in the 2nd quarter, And I am pleased to report we exceeded both forecasts. For the Q2, total revenue increased 39% to $91,900,000 compared to $66,400,000 in Q2 of last year. Now I will give some additional details on our 3 sales channels.

Speaker 4

I'll begin with wholesale, where revenue increased 109 percent to $50,000,000 in Q2 compared to $24,000,000 during Q2 of last year. The increase was primarily driven by our entry into food, drug and mass as we began selling our bagged coffee and rounds at over 4,400 Walmart stores beginning in September of last year. We also saw a material increase in our ready to drink product sales as our product is being sold in over 82,000 doors, up from 67,000 doors a year ago. Next, our direct to consumer revenue decreased by 6% to $34,600,000 in Q2 of 2022 compared to $37,000,000 in Q2 of last year. This expected decline was mainly the direct result of decreased digital advertising spend as we continue to prioritize our high growth and high returning wholesale channel.

Speaker 4

Next, revenue from outposts increased 35% to $7,400,000 in Q2 compared to $5,400,000 last year. The main driver was an increase in our company owned store count, which increased to 17 outposts as of Q2 2023 compared to 10 in Q2 2022. This brings our total number of outposts to 30 with 17 company owned and 13 franchise stores. Turning to profitability. Our Q2 gross margin was 35%, Increasing approximately 100 basis points from 34% in Q2 of last year.

Speaker 4

Sequentially, gross margin improved 210 basis points versus the Q1 of 2023. The increase was driven primarily by channel mix shift as our wholesale channel has higher gross margins than our other channels. Next, Our total operating expenses for Q2 increased by $5,500,000 or 14 percent to $44,900,000 versus $39,400,000 in Q2 of last year. As a percentage of revenue, our operating expenses Q2 decreased by 9 87 basis points to 49.5 percent as compared to last year As we drove significant operating leverage across our expense base, I will walk through our operating expenses in more detail, beginning with marketing and advertising, which decreased 22.3 percent to $7,000,000 from $9,000,000 in the Q2 of last year. As a percentage of revenue, marketing decreased by approximately 600 basis points to 7.6% compared to the same quarter last year.

Speaker 4

This decrease in expense with our marketing and advertising spend that we have been anticipating. Next, our salaries, wages and benefits increased 20% to $18,400,000 from $15,500,000 in the Q2 of last year. Importantly, as a percentage of revenue, It decreased by approximately 3 50 basis points to 20% compared to 23.4% in Q2 of last year, As again, we are driving leverage in our operating expenses. The increase in dollars was due to a year over year increase Employee headcount to support our significant revenue growth. While we increased headcount year over year, we actually reduced our headcount, excluding employees at newly opened outposts sequentially in both Q1 and Q2 as part of our efforts to improve operational efficiency.

Speaker 4

Moving on, our G and A expenses increased 27.7 percent to $18,900,000 compared to $14,800,000 in the Q2 of last year. As a percentage of revenue, G and A decreased by approximately 175 basis points to 20.6 percent of revenue compared to 22.3% last year. This increase in dollars was driven primarily by non routine legal expenses. As with our marketing and our salaries and wages, we achieved significant leverage in our G and A expense in the quarter. In addition to the GAAP measures I've discussed, Adjusted EBITDA is an important profitability measure that we use internally to manage our business.

Speaker 4

For the Q2, we generated positive adjusted EBITDA of $147,000 versus a loss of $10,500,000 a year ago. This massive improvement was driven by our revenue growth, Gross margin improvement and operating expense leverage. We're very proud of the great work our teams have done to drive profitable revenue growth and optimize our expense structure, which supported our modest profitability Q1 of 2023. We ended Q1 with $19,800,000 of cash on the balance sheet compared to $39,000,000 as of December 31. We also had $77,900,000 of debt compared to $49,200,000 as of December 31.

Speaker 4

As expected, our inventory balance grew slightly and it was at its peak in Q2 as it has now begun decreasing in July August. You will continue to see our inventory balance decrease throughout the remainder of the year as we convert our RTD inventory into cash over the coming quarters. Lastly, I'm pleased to announce that earlier today, we closed on a new credit facility consisting of an ABL credit agreement and a term loan These facilities have allowed us to repay most of our existing indebtedness and will provide us with additional liquidity and a long term capital structure to support our continued growth. With that, I will turn the call over to the operator for questions.

Operator

At this time, we will be conducting a question and answer Our first question comes from the line of Joe Altobello with Raymond James. Please proceed with your question.

Speaker 5

Thanks. Hey, good afternoon, guys. A couple of questions for you. I guess, first, just to start with the RTP category. Just to be clear, I think you said the category was down 8% in the second quarter.

Speaker 5

Is that correct?

Speaker 3

That's correct, Joe. Tom Davin here.

Speaker 5

Hey, Tom. And what does that look like in the Q1? I just want to see what the sequential slowdown was.

Speaker 3

It was down we pulled that, Tanner, yesterday. It was down 4% it was down 2% in Q4 of last year, 2022.

Speaker 5

Okay. So it's been progressively slowing. Given your view of the category, what's been driving that?

Speaker 3

We don't have a good answer for that. I mean, you had a nice pop during the COVID period. I can't say that traffic into convenience and gas has gone down. It does seem like people may be shifting into energy drink

Speaker 6

I think the one factor would be higher prices. We've seen higher prices continue to Moving to the market and as that becomes more of a differential, then we've seen the category sort of commensurately move downwards.

Speaker 5

Okay. And then maybe a little bit more color on the new FDM partnerships you guys announced. You said you have a new national Partner and 2 new regional grocery partners. Can you give us some insight into who they are and when you expect to start shipping?

Speaker 3

Yes, I'm going to pitch that one to Chris Monzeluski, who we call Mons. So, Mons, over to

Operator

you. Great.

Speaker 6

Thanks, Tom. Yes, we're excited. We do have a new it's a large West Coast retailer. We're currently shipping all Divisions of that retailer, we expect to be in all stores by the end of the year. And then, as you mentioned, we do have a number of smaller retailers that we're working with Towards the end of the year as well.

Speaker 6

And we're in conversations with, honestly, at this point, most large retailers in the United States.

Speaker 5

Okay. Thank you.

Operator

Our next question comes From the line of Kegan Cox with D. A. Davidson, please proceed with your question.

Speaker 7

Hi. I was just wondering, like we've seen coffee inflation today was down heading towards like a deflationary environment. I was wondering what the impact of lower coffee prices would be on your guys' gross margins?

Speaker 4

Sure, Keegan, this is Greg Iverson. I can take that. And just stepping back, as we've said on past calls, our practice To is to place forward purchase contracts for coffee usually about 12 months out. So what you said is exactly right. The cost of Coffee as a commodity has gone down pretty significantly over the last several months or quarters.

Speaker 4

The coffee that's Flowing through our P and L right now is all coffee that we had purchased, not physically, but at least had placed contracts on at rates last year that were higher. So we're not seeing the benefit of lower cost of coffee going through our P and L this year, but we certainly will as we go into 2024.

Speaker 7

Awesome. And then just a follow-up is, right, if we are heading to a deflationary coffee environment, What do you think the benefit or impact will be on like units?

Speaker 3

Can you say the last part

Speaker 4

of your question there?

Speaker 3

I haven't touched that either.

Speaker 7

Yes. What would be the impact on units, Like bags of coffee sold or grounds sold?

Speaker 4

Is your question around demand or potentially Pricing at the retail level?

Speaker 7

Yes, pricing and demand at the retail level.

Speaker 4

Yes. From a demand perspective, I think if you go And look, over time, the cost of coffee hasn't had a big impact on demand at the consumer level. In terms of any deflationary pressure or risk, that's something that we watch closely as I'm sure everybody within the coffee space does, but we're not seeing Any indications yet that the prices are going down or pressure from the retailers to start lowering price?

Speaker 7

Thank you.

Speaker 8

Thank you.

Operator

Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Speaker 9

Hey, good afternoon, everybody.

Speaker 3

Hey, John.

Speaker 9

Hey, I wanted to start with Walmart and ask Based on the performance to date and congrats on hitting 4.4%. Are you seeing similar strength, Similar results across geographies or is there anything to be learned from maybe performance Urban versus rural or different parts of the country? And then also on Walmart, as you get ready to launch or have launched Some of these new SKUs, it sounds like you've already launched. How quickly do those get to the shelf? And What are your expectations in terms of kind of incrementality of those SKUs?

Speaker 9

Do those tend to be highly incremental because they're different Form factors, different flavors, just some thoughts on incrementality there. Thanks.

Speaker 6

So when we look at all Walmart divisions, we've seen the products performing well. There is a bit of an index The Midwest and South, when you look at it from an index standpoint, but obviously in larger geographies like the West Coast, the Northeast, We still we see larger volumes as you would expect. So the performance has been strong nationally. We've been real happy thus far with the Cut in of our new items, they're on shelf. You should see them in a lot of the Walmarts you would go to now, possibly not all stores.

Speaker 6

6 to 8 weeks is when we'd expect to see full distribution of those new items on shelf, and incrementality will really depend on the item So for any of the items that are going into segments where we have existing distribution, so K Cups, as an example, We will obviously see some level of cannibalization and we've built that in to our own internal forecasts. That being said, given We're very happy with our market share. It still is a lower market share overall versus the category. We expect, as a result of that, to see a high level of incrementality. On items where we don't We have within the segment, for instance, our cold brew item.

Speaker 6

We actually expect that we'll see almost 100% incrementality.

Speaker 9

That makes sense. And then with regard to the expansion at FDM in the large West Coast retailer and some of the regionals by the year end, Can you talk about how you kind of the criteria you've used to kind of Select this next phase of retailers and then for the second half of twenty twenty three, and then Are we talking about maybe a much more, sounds like you're talking to most large retailers, as you said, a broader Roll out across a number of new chains in 2024, just trying to get a sense for again what Criteria, how you're thinking about phasing it and why you've selected the retailer to have post Walmart and then, yes, we'll start there.

Speaker 6

Yes, it's a great question. I think we're very proud of the brand that's been built. And as you know, it's a very premium brand. So we will seek partnerships with retailers that really see eye to eye with us on that. We've been delighted with the partnership with Walmart, Obviously, the success we've had there.

Speaker 6

So I think every retailer obviously is different. They operate under different models and we understand that. But It's important to us that we know that whatever deal we strike with that particular retail chain, we're going to get that execution that we would expect as A premium brand in the market. So again, working that within their own individual criteria is obviously important on their side, but then we have So again, that's the criteria that we're primarily focused on.

Speaker 9

That's helpful. And last one for me. Just as you Get broader, higher ACV in food, drug and mass, more average items at shelf. Is that what is going to drive greater awareness for the brand? Are there other things that you're going to be doing To try and increase that 28% awareness, which frankly seems like a great opportunity, 28% seems low relative to some of the other Obviously, big brands in the market.

Speaker 9

And are there also does this is there a shift in kind of the marketing mix as you go forward, maybe in store Activity as again you build ACV and food, drug and mass? Thank you.

Speaker 2

Yes, this is Evan. I think that Chris coming in, I guess, 3 months ago now and kind of redefining what we're doing specifically in the marketing department, allowing us to get What I would say is that more efficient with our marketing dollars, we've been able to ultimately Build out a more strategic game plan related to how we're going to activate with FDM and then also What does the future of marketing look like for Black Rifle? How do we build out more of our strategic partnerships that allow us to grow awareness? At the same time, what I would say, it's a more efficient dollar. So as we start to expand outside of D2C, There's a lot of opportunity there to spend more efficiently with our marketing budget, which is obviously reflected in some of the financials.

Speaker 6

Yes, I was going to build just a bit to say, I wanted to address the first part of your question as well. You mentioned the ACV expansion. Absolutely, I think Certainly, in any category of CPG, your on shelf awareness is a huge part of your advertising. That's something that we focus a lot on, the distinctiveness of our brand, the distinctiveness of our package, the ability to drive secondary display. These things will all Drive awareness in the market.

Speaker 6

But to Evan's point, we're also very excited about our ability to do that through advertising of the brand. And again, This is a brand that's been built very much through owned media, and we're continuing to find other ways to do that through paid and earned, and you're going to see a lot more of that going forward with the business.

Speaker 9

And just one quick one. Are there From a capacity standpoint, any constraints in terms of continuing the ACV expansion and adding new partners?

Speaker 3

No. Not an issue. There's plenty of capacity out there. Plus, as we've talked Before we're building more capacity to roast in Manchester, Tennessee. So that's not an issue.

Speaker 9

Thanks so much.

Speaker 3

You bet. Thank you. Thanks, John.

Operator

Our next question comes from the line of George Kelly with ROTH Capital Partners.

Speaker 10

So first, another question on Walmart. I was curious if you could talk about the percent of the aisle that cold brew and canisters represent?

Speaker 3

George, I'm going to kick that one over to Man. So you're getting at the fact that we've talked about 50% of coffee at Walmart We've not participated in yet.

Speaker 10

Yes. Right. Yes. Just curious what those 2 new products, the innovation excuse what they represent of

Speaker 6

You said cold brew and which other one? I'm sorry. Canister. Oh, canister. So very different, I think.

Speaker 6

Cold brew is actually a very small percentage of the overall aisle. It's really a newer category for them. So versus canister, which actually is a huge portion of what they're selling already. So In the case of Canister, that's a quarter overall of what their business is from a category standpoint. So obviously, we're excited about having potential Incremental sales within that.

Speaker 6

And then in the case of cold brew, it's really just a very small segment at this point. It's growing. It's less than 2%. Again, we're excited about the potential of that. When you look at the consumer trends, that is where consumption is beginning to shift to.

Speaker 6

So Again, we expect to see probably in the case of canister, there will be a bit more moderate growth of that segment. While it's large, it has scale now. The case of Cold Brew, it has obviously much smaller overall play currently, but we expect to see much more explosive growth of that segment.

Speaker 10

Okay, great. That's helpful. And then, second question for you. I guess, a few questions on your RTD business. I was curious if

Speaker 7

you could spend a bit

Speaker 10

of time, you mentioned just briefly in the prepared remarks about You're focused on margin in that business. And so just curious is it still a pretty challenging Kind of near and medium term outlook, is there much you can do internally to improve margin there? And then the second part of the question is, Might you kind of de prioritize growth in that business? You've got this wonderful retail business that's Emerging and I think carries a much higher margin profile. So is RTD still as much a priority as it was a year or 2 years ago?

Speaker 3

George, it's Tom. Thanks for the question. So, if you think about our With RTD, we've had a number of startup issues as you know as we brought in new co mans, as we fired up new SKUs, both core and LTO. So that's been a drag on profitability this year. Particularly as we look to next year, that will not be an issue.

Speaker 3

So we feel good about the future RTD margin profile. We really have good relationships with our co packers and we understand where we need to be. We know what their needs are. So that margin has stabilized. And really to your second point, We are prioritizing making money in RTD over just purely growing.

Speaker 3

So, we're not going to be adding a lot more SKUs, we've got plenty of SKUs right now. It's really about focus, plan the accounts, execute at the street level And drive incremental profitability.

Operator

And our next question comes from the line of Matt McGinley with Needham and Company. Please proceed with your question.

Speaker 8

Thank you. So with the revenue guidance revision on the ready to drink package velocities, How did the ready to drink product perform in new doors versus doors where you already had distribution? Was the slowdown that you saw consistent in old doors versus new doors? And secondarily, if you don't get to the 100,000 ready to drink doors by year end, would your revenue guide fall below that 30% for the year? Do you have good enough line of sight on that, Brady, during distribution that even if you did $100,000 I don't know if $100,000 is a magic number or not, but could you still deliver within that category?

Speaker 8

And I guess put it another way, is that 100,000 really an important deliverable?

Speaker 3

Hey, it's Tom, Matt. So I would say, I'll answer the second one first. No, it's not critical. It's more directional. So, we feel pretty good about the doors we're in.

Speaker 3

We feel like we'll continue to add doors and Gain more ACV. So that's not a big lever. To your first point, it really is more units per door per month. And in particular, we've not been happy with the performance of our LTO ready to drink products. So they've come up short on us.

Speaker 3

But overall, it's a matter of the category not being as strong as we expected, and we know we can execute better. So as mentioned in my prepared remarks, we've done A deep dive review on the business, Man's obviously coming on board has worked closely with the sales and marketing teams. We've made changes and everybody understands what they need to do. So we feel good about being able to hit that number for the year.

Speaker 4

And Matt, this is Greg. I'll just add to this because the whole idea of doors comes up quite a bit in these calls and other conversations. And so one of the things that's important for us to reiterate is you really can't model our business accurately using doors as a proxy for revenue. And in some cases, it's not even going to line up directionally. So back to your specific question, if you were to look at how we expect doors to grow

Speaker 8

And on the restructuring that you instituted in the Q1, I don't think you expected to fully realize those savings in the Q2, But should we expect to see your OpEx dollars decline in the Q3 from restructuring? Or does that outpost headcount increase that you referenced prevent those OpEx I'm just kind of wondering, should we expect those dollars to be down from here? Or does the outpost kind of grow it?

Speaker 4

Yes, Matt, Greg again. That's a good question. So you're absolutely right in terms of the outpost headcount. So as we mentioned, most of the outpost cost structure Sits within the G and A line. So all the salaries and wages for the folks who work at the outpost are in salaries and wages, the rent occupancy and other costs are in G and A.

Speaker 4

And so there was definitely growth in those areas in the second quarter as we opened new stores. That growth some of the efficiencies that we saw in both of those line items. So I think the important message is we've made really good progress

Speaker 2

in terms

Speaker 4

of Simplifying our business, improving our cost structure, finding efficiencies within our G and A, And that work isn't complete. That work will continue. We'll continue to find some opportunities to streamline the business while serving our customers and our consumers. And that will be offset a little bit by increases in salaries and wages and other costs as we do open 1 more outpost this year.

Speaker 9

Okay. Thank you very much. Thank you.

Operator

And we have reached the end of the question and answer session. I'll now turn the call back over To Tom Davin for closing remarks.

Speaker 3

Thank you to everyone who joined our Q2 Black Rifle Coffee Company Financial Results Earnings Call. Just to recap, net revenue increased 39% in the quarter to $91,900,000 That's up from 27% growth in Q1. As committed, we achieved EBITDA adjusted profitability. We're feeling excellent about where we'll end up for the balance of the year. And we've announced that we've launched a second national grocery customer with 2 additional regional chains And we completed a major refinancing.

Speaker 3

So thank you for your questions and we look forward to the follow-up calls.

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Earnings Conference Call
BRC Q2 2023
00:00 / 00:00
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