Greetings, and welcome to the Black Rifle Coffee Company First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Tanner Doss, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone. Thank you for joining Black Rifle Coffee Company’s conference call to discuss our first quarter 2022 financial results, which we released this morning and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Hafer, Founder and Chief Executive Officer; Tom Davin, Co-Chief Executive Officer; Greg Iverson, Chief Financial Officer; Toby Johnson, Chief Operating Officer and Heath Nielsen, Chief Retail Officer. Before we get started, I would like to remind you of the company’s Safe Harbor language, which I’m sure you are familiar with. On today’s call, management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of 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 on the earnings released furnished to the SEC and also available on our Investor website. Now, I’d like to turn the call over to Evan Hafer, Founder and Chief Executive Officer of Black Rifle Coffee Company.

Thanks, Tanner, and good morning, everyone. Thank you for joining us to discuss our first quarter 2022 results. Before we dive into the results of the first quarter, I briefly want to touch on our mission and vision we work towards every day. I believe that Black Rifle Coffee Company is uniquely positioned in the market because we are the only mission-driven lifestyle brand in the coffee industry. And our mission is core to everything we do. The mission is a major driver behind our success to-date because it resonates with our customers, our retail partners, vendors and even our landlords. Our in-house marketing team and content creators have enabled us to build a large and growing community, who are loyal to the brand and what we are for vets, first responders and their families. People always ask me what has made Black Rifle Coffee so successful over the past eight years? And I'll always respond with the same answer. First and foremost, people align with and support the mission of helping Veterans, first responders and their families. We believe, we're the only publicly traded company addressing this mission. And we went public as a public benefit corp to ensure that we'll never lose sight of the overall goal. Second, it's a community that we have built around the brand. The community started organically as myself, Mat Best and Jarred Taylor started making videos on YouTube that were inside jokes for military and veterans that has grown into a community of over 2 million customers, and evangelists who support our mission. I've had thousands of people come up to me in airports and grocery stores to give me a high five and show me their Black Rifle Coffee hat or shirt and say thank you, for all the Black Rifle…

Thanks, Evan, and good morning everyone. For today's call, I will provide color on our first quarter results, which Greg Iverson will discuss in greater detail then move to growth initiatives for the quarter and beyond, because we attack our significant coffee market opportunity. I'll frame the discussion by reiterating the competitive strengths of the Black Rifle Coffee business model. First, as Evan discussed we are mission driven lifestyle brand with a passionate and loyal customer base. The support for our mission and our premium quality coffee, drive exceptional customer retention and affinity for the brand, as evidenced by our category-leading net promoter score of 78. Second, we have a massive market opportunity. U.S. coffee market is over $45 billion and we estimate that the Black Rifle Coffee's serviceable addressable market is approximately $28 billion. This includes over 100 million consumers, who are aligned with our brand values. Our current guidance of $315 million in 2022 revenue, equates to roughly a 1% share of the serviceable, addressable market. So, we are positioned for many years of sustained growth. Third, we have a powerful and proven omnichannel strategy to drive our growth. We are a digitally native coffee and merchandise business that enables us to participate in multiple complementary channels, creating branded experiences that deliver community premium quality, convenience and value. We achieved all of this across three primary channels; direct-to-consumer, outpost and wholesale channels, comprising our unique omnichannel flywheel. Our results for the first quarter reflect continued top-line growth as we made progress across our three sales channels. Our performance is further proof of the power of our mission, our market opportunity and the omnichannel models we continue to expand our consumer touchpoints across the United States. Our net sales grew by 35% to $65.8 million, relative to the first…

Thanks, Tom, and good morning everyone. Today I will discuss our 2022 first quarter results and walk quickly through our balance sheet following our SPAC merger. Give some additional details on our share count and comment on current outlook for 2022. Turning first to our financial results, we are pleased to have continued our impressive growth trajectory and delivered solid results in the first quarter. For the first quarter, total revenue increased 35% to 65.8 million compared to 48.7 million in Q1 of last year. The meaningful increase in revenue was driven by our wholesale and outpost channels, which continued their impressive growth from 2021 by 135% and 397%, respectively. Now I will give some additional details on our three sales channels. First, our direct-to-consumer revenue was $38.3 million in both Q1 of 2022 and 2021. As a reminder in Q1, 2022, we are comping against a prior year period with unprecedented consumer demand. For reference, the year-over-year growth from Q1 2020 to Q1 2021 was over 66%. Importantly, while D2C revenue was flat for the quarter, our subscriber base grew 11% in the first quarter to 295,900 versus the prior year period. Turning to our wholesale channel. Revenue increased 135% to $22 million in Q1, compared to $9.4 million during Q1 of last year. The increase was primarily driven by growth in our RTD product and expanding wholesale partnerships. Our RTD product can now be found in over 47,000 doors and all four of our SKUs continue to be ranked in the top 25 in both C-store and grocery drug and mass. As we continue to penetrate the overall RTD market, our supply chain team has worked tirelessly throughout the quarter to continue to find co-manufacturing capacity. We locked down two new co-manufacturers for our RTD product, more than…

[Operator Instructions] Our first question is come through the line of Sharon Zackfia with William Blair.

I guess a question on the reiteration of the positive EBITDA for the year. I mean, clearly, you guys have a lot of demand for the brand. And you're putting a lot of effort towards being able to satisfy that demand. And I guess I'm just wondering, why the push towards positive EBITDA when there's a lot of investments here to be made. And, I mean, it is a little bit tough to get to the positive EBITDA kind of in the back half of the year, you need to have a pretty big stair steps, so can you help us think through kind of what changes dramatically in the second half versus the first half?

Hey, Sharon, Tom Davin here. Thank you for your question. And I appreciate you joining the call. We've got a whole team here. So as Greg mentioned, Q2 is going to look a lot like Q1 in terms of gross margin and adjusted EBITDA. So obviously that means we have to model out positive adjusted EBITDA in the second half of the year. So we are banking on; number one, continued strength in the outpost and wholesale business, particularly wholesale driven by RTD, upside continued strength there. We see the pricing activity kicking in the second half of the year. And on top of that, we have got a number of productivity initiatives that we are just launching right now. So, it's going to be tight, but we are still targeting that breakeven on a full year basis. Greg, anything to add?

No, Tom, you covered it. It's the three things. It's upside based on additional capacity, particularly within RTD. It's the productivity initiatives that we have been planning are in the early stages of execution and then it's continued pricing actions.

Thanks for that. I guess a follow up on the pricing actions. I know you haven't done RTD yet. But are you seeing any price resistance out there to the price you have taken so far? And can you update us on what your outpost pipeline looks like for a new company on development in '23?

Sure. I'll touch on the pricing. So as we look across the portfolio, we see the leading indicator being the outpost pricing where we have already taken 8% on drinks and over 10% on bagged and boxed coffee. We are not seeing pushback, either qualitatively or quantitatively there. The price increase on the rated drink side will kick-in in June. We'll see that benefit in the second half of the year. We have also taken pricing on Amazon and on our website, we've taken bag coffee, box coffee pricing, and outbound shipping or shipping to the consumer's home. So overall, we are not seeing pushback or any demand elasticity at this point. Evan?

Yes. I think that you can also look at some indicators from the trailing six months as to that DTC conversion rates on organic and paid traffic. Those have been relatively consistent, so there is never in the last 180 days, as far as seasonality is concerned, been a decrease or an unpredicted decrease in conversion. So we took price on DTC, non-sub for coffee in both coffee and apparel. We didn't see a decrease in price. We have also decrease the amount of promos, so that could be considered taking price as well.

Heath, do you want to talk about the pipeline for outposts and what you've brought to the fight?

Yes, absolutely. And Sharon, it's great to talk to you for the first time on the call here. So we are still on target for our 2023 guidance of 30 stores. What we have done is we have focused our market planning in some strong key markets, Texas, Arizona, specifically, where we have been focusing on bringing in some top-quality locations. Back on the pricing in the outpost we have seen zero change in habit. It was nice to be able to launch three new beverages this week. And with that, the demand continues to be incredibly strong.

Great. I want to ask about ice beverages, but I know I've surpassed my two questions already. Thanks.

Our next questions come from the line of Joe Altobello with Raymond James.

First question, is Walmart in the 47,000 RTD doors reported as of March 31?

Yes. Toby, you want to handle that one?

Yes, so we started our RTD distribution in Walmart last fall with about 400 stores. We are in the process of expanding that distribution to over 4,000 stores. So there is a Walmart number that's in that 47,000.

And what's the seasonality that extent, you mentioned, obviously, there's shelf resets that go on throughout the year. So is that more fourth quarter weighted in terms of expansion?

We do see some retailers who are very disciplined about their reset schedules. But for our brand in particular, we've had just incredible partnership from our retail partners. They've actually cut us into the shelf off of that schedule in many cases. So we try to be ready and it's really one of the big drivers behind building our capacity. When we have the ability to partner and expand that distribution, we want to take advantage of it. So we've seen steady growth, even outside of those windows, although typically what you see from retailers is change in who they're carrying during those specific resets. We're very grateful for the partnerships that we've been building.

Joe, the other quick point on that is Walmart tested with a 211 ounce SKUs, they're rolling out with all four of our SKUs, which rarely ever happened.

One last one for me. On CapEx, you mentioned that the cost of building the outpost has gone up. And I think the old number was about 1.4 million per outpost. So what does that number look like today? And what's the total CapEx you're thinking for '22 and '23?

We know the numbers going to be higher Joe, we don't have a firm estimate on that yet. We expect to give you an update on the next earnings call in August. But we are definitely seeing some inflationary pressures and construction costs right now.

Joe adding to that, the inflationary pressures we'll see really with our 2023 openings, less of an impact on the openings in 2022, where some of the work is underway.

Yes. We’re pretty locked in for this fiscal year.

Our next question is come from the line of Steve Powers with Deutsche Bank.

Maybe first, could you just talk a little bit further about the flat DTC sales in the quarter? I definitely understand and appreciate the comparison dynamics. But because I'm just looking for a little bit more perspective on the lack of growth alongside the 11% subscriber growth, he called out just it implies, blunt metric 10% decrease in the revenue per subscriber overall. And I just love a little color about how you think about that, how you think about that metric and how you think about that metric trending over time?

This is Evan here. I think what you're seeing is you're seeing a natural progression or evolution of the marketing spend directly related to the most, I would say advantageous or opportunity-based channels in Black Rifle. So as we start to look at, this is an omnichannel business, we have to really start allocating our marketing [dollars] to the things that are hypergrowth and effective. The DTC softness, I think a lot of people have felt that over the last, I'd say 12 months. So right now, we're in the process of doing is pulling in, reorganizing what I would say is an owned media strategy around how do we activate influencers from the DTC side, but also gives us direct benefit to general branding. So when we look at the billions of impressions that we're doing across the internet, which I think we're one of, if not the only Coffee Company that emphasizes something like this. Our dollars are being emphasized on the hypergrowth opportunity based in areas of the business. So it's not necessarily something that we do understand why, it's not something that we're concerned with.

We’ve also add, if you do the rough metric, where I think you've got number of subscribers in the denominator and the numerator as total DTC revenue. That math actually doesn't work because you've got subscription revenue, non-sub DTC revenue and Amazon in there. So where we're off year to year is going to be in that non-sub DTC. So we are seeing an increase in not just subscribers, but overall subscriber revenue. The softness is the dot non sub DTC year-on-year.

And that really, just to highlight that, Steve, before we get off is, remember this business for the majority of its life is a direct-to-consumer and subscription-based company. So now as we start to grow into more of an omni channel emphasis, those dollars have to be allocated and the emphasis of the branding has to be allocated to other channels. So it's a natural evolution that I think that we're actually happy with. I think that we've seen an instrumental amount of growth in those other channels, which I'm very happy with.

Yes, and adding just one more point before we move off, this is an important topic is the result in DTC are entirely in line with our internal projections. So what you see there, both from a subscriber perspective, and a non-subscriber is exactly what we expect or very close to what we expected for the quarter.

Separate, different topic. You mentioned, just hired the higher salary, wages and benefits costs, mostly headcount driven. I guess, I'm just curious how you're thinking about wage inflation, especially, at the outposts, and in your outposts, model growing going forward, how big a concern or just factor is that in the sort of the total cost of operation of those outposts as you ramp them up and build them out?

Heath, you want to take that one?

Yes, we've been incredibly fortunate to see incredibly low turn within our outposts. It's absolutely dedicated to the lifestyle and the community that we've built. And so we have a very, very loyal customer base as well. And so, you know, we're building a company that's high on culture. And people want to work for us. And so, recruiting efforts are strong, everywhere we've opened, we've been able to open that full capacity and feel very strongly that that will maintain.

Yes, I think, and I'll add some additional color to that. Over the last eight years of running this company, and talking to multiple people that want to come to work for this company, and now into the 1000s, if not tens of thousands, what we see is, people want to come to work for Black Rifle Coffee, because we're a mission based company that has a very, I would say, special and refined culture, people are looking for something in a place where they can work that has an authentic bind as far as a community-based element, we have a connection not only to who works here, but also to the community of subscribers and people that are Black Rifle Coffee drinkers. I think that makes us very unique. It also gives us a moat around some of these inflationary issues that some of these other businesses are experiencing. We have a unique and special connection to people. And when I look at this, we got this pipeline that we're generating from a skill bridge perspective, pulling people off active duty and then -- when I say active duty, active-duty military, so depending on how you classify that they're retiring or getting out, and they're coming to work for Black Rifle Coffee at a much higher rate than other employers. So we're competing against people that have unique cultures like General Electric, and we're winning against them every day, which I think sets something extremely positive about the culture and the unique company that we have here at Black Rifle.

It's not for everybody, but for those who want to volunteer, it's quite unique.

Our next question is come from the line of George Kelly with ROTH Capital.

So, just a couple for you on the RTD business. I think you said in your prepared remarks that you couldn't supply all the demand that you saw. So could you quantify how much sort of how much revenue that could have represented?

You bet. George. So, I'm going to let Toby handle that. We haven't quantified it exactly, but we can give you some directional guidance.

Hi, George. So with the explosive demand that we have seen for our product, we knew last fall that, even though we came into 2022 more than doubling our capacity, it wouldn't be enough. So, we started partnering with additional suppliers and we have signed two new contracts, and what we have seen is that, demand is not slowing down. So the great news is, this additional capacity in the partnerships that we have been building will enable us to meet even more of the demand that we see for our products, beginning in half two of 2022. So we're very confident that we can continue to meet demand and we are building even more capacity for the future. I think we've said before, what we had coming into the year was enough to meet what was in our projections. So, this is really all about capturing the upside and the growth and the momentum for the brand.

And just to make sure that, I heard you, right. Can you, I mean, was it a material amount of revenue that you lost in the quarter just because you were unable to supply it?

Yes, George. Like Tom said, we are not going to quantify it, but I guess what I'd say is the demand is materially higher than our existing capacity. And so, when we bring this additional capacity online here in the not too distant future that, that is going to drive some significant growth within that RTD product line in the wholesale channel.

And then second question for you, still on RTD. But I've been amazed that you have been able to grow that business so quickly, without more incremental advertising dollars. And I know Evan, you were talking about how your ad budget is kind of shifting into the channels that are getting the best returns. But is it sustainable? If I just look year over year, it's not that much incremental spending. And would you suspect later this year and next year to see that really inflect higher as you support support these businesses?

No. And when I look at the outlook in marketing dollars, as far as how we are allocating those resources really, and not to go into the specifics as far as how we are marketing. But the way that we are generating media in house and offsetting ultimately the cost and being able to authentically reach our customers through multiple social media channels, which I think is something very unique to Black Rifle outside of a lot of other companies, we can generate better media that resonates more authentic with our audience and communicate with them more effectively than majority of all the other companies out there. So, when we pivot the type of branding and messaging around a specific product, it's done, in-house. You won't necessarily see those parsed out indirectly allocated to RTD or an increase to that over the next. I would say 12 to 18 months. You'll see it, the messaging, the branding the intent or the channels specific allocation, but it's still bucketed as branding specific. Does that make sense?

Our next question is come from the line of Bill Chappell with Truist Securities.

First, Evan, on your kind of, I think, in your prepared remarks talking about cold beverages moving in to other categories? Just trying to understand when and also kind of what your thoughts are of how far the brand can, where customers will admit it and will it go as far as non-coffee drinks? Will it go to alcohol? Will we go to other things? Or just kind of anything you can expand on those comments?

Sure. I think from my perspective, I'm looking at what do my customers want? Not what do I want to give my customers. I think this is more of a listen than it is me forcing the communication and the development around that. So what we heard over the last several months, specifically in our outpost is that people want more cold beverages. So our job is to go in and dive around cold beverages and then look at how we can continue to not only develop inside for the customers and the outputs, but what also will resonate in different channels with them. So I think that's also one of the things that's made us successful in the RTD and why there's been such hyper growth specifically related to that category is we're listening to our customers, developing in-house and then releasing those into the channel that ultimately yields as I think, the highest return. So from his perspective, and I can pitch it over to him, he can talk about the cold beverage cycle. I think that's kind of where our head is out as far as the future development. So that leads us into additional products that are cold, you're going to see one the dev cycle come in earlier, and then you'll look at a wide variety of options. So not going into specifics, we've had multiple people approached us about doing co-branded alcohol based cold beverages, and we really just haven't had the bandwidth. Eventually, some things like that will come online in more of a dev cycle to see how they go. But right now, we're just trying to capture the natural growth of all the other cold beverages. Heath, do you have anything to add to that?

No. You're right on there, Evan. I would be being primarily based in the Sunbelt, Texas, Arizona, Florida, Georgia, they trend higher on the cold beverage side to begin with. And we're half or less of some competitors as it comes to our cold beverage platform. Right now we're focused primarily, I'd say around to kind of the tea base fruit fusion level, which is a good quality beverage. I do see us adding beverages in the next month or two heavier in that side. What's nice is that we have a very strong, incredibly loyal, coffee-based beverage and we love that. We were not seeing the poll as much on some of the higher milk and dairy levels. And so, we liked the idea of the addition of more than tea-based fruit fusion for us.

And then secondly, just back on DTC growth. You alluded that part of it's also a year ago, the comps everybody was working from home and obviously, they moved to the omnichannel, just kind of as I look forward, does that kind of imply at least through this year that business will be flattish excluding price increases and in terms of growth and long-term it's kind of flattish that's kind of flattish as people get their products at different retails. I'm just trying to understand from a model standpoint, how to look at that business?

Yeah, DTC always has a bit of seasonality to it, right. So when you look at the towards the back half of the year in any DTC company, you're going to look at Q4 as your big opportunity to put wins on the board. So, flattish, I guess this is what you would kind of represent as the general narrative for DTC. I don't expect us to be flattish. I expect the back half the year to be to do really well for us and the DTC. And the reason I say that is the internal components of what we're building for the marketing structure to reach the DTC customer more effectively now are going to pay off towards the end of the year. And when it pays off from the DTC perspective, it will also win general brands when I say general branding, it's also going to pay off from a general branding perspective. So we're going to yield some really, I think, great results towards the end of the year.

Our final question for this morning come from the line of [indiscernible] with Guggenheim.

I do have two follow-up questions, actually. First on the CapEx. And I appreciate you said you will give more details in the next earnings. But you mentioned 30 million CapEx for additional roasted capacity. Should we think about this year fully or could I spread around this year and next year?

Good morning, Tom here. I'm going to have Greg covered that one in terms of the timing of the Manchester CapEx project.

Yes, absolutely. What we talked about in the past is we're in the early stages of adding significant capacity and automation to our primary roasting facility in central Tennessee. You're right that the total investment there is about $30 million. What we've said in the past is that about 13 million to 14 million of that investment is going to occur in fiscal or in calendar, fiscal 2022. with the balance in 2023.

And then I mean, I like to come back to your guide, I mean, as you expect still to have an EBITDA positive towards the end of the year. So especially as the second quarter will be very similar to the first quarter, you will need in the second half throughout either greater gross margin, which I think will be challenging, especially as you will have more ready to drink in yourself, and also 15 outposts at the low end of the 15 and 20. So if gross margin is not getting any greater because of that, could you probably give a bit more guidance in terms of marketing sales and G&A. Because this -- the upside would probably come from those lines.

Yes, and I'm happy to and just reiterating what Tom said earlier, there's really three components to how we will drive to that breakeven or slightly positive adjusted EBITDA for the year. One is, its continued pricing actions. We've mentioned examples like ready to drink, which we announced, it'll take effect in June. And so we'll see some pretty meaningful impact from pricing and RTD in the back half of the year. We're continuing to evaluate pricing actions in other channels that, that could drive additional benefit. The second lever is productivity and we're beginning to see some of the benefits of these productivity initiatives with a lot more to come. And in the past, we've talked about -- we've been so hyper focused on growth and standing up new businesses, whether it's ready-to-drink, bringing on other wholesale partners, standing up our outposts. And so, there hasn't been near as much focus on productivity. We have been really balanced, I think this year in terms of, yes, we are still very, very focused on growth and we are growing significantly in the outpost on the wholesale channels. But we are also paying a lot of attention to these productivity initiatives, we have brought in outside resources to assist. And so, the point of all that is, there is meaningful productivity opportunities. And we will start to realize those benefits in the back half of the year. And then the third component too is really around volume. And so that volume to be incremental to our current revenue outlook of $315 million. We have got line of sight to some real upside from a ready-to-drink perspective and as far as our expectation in coming quarters, we can talk more about that

Thank you. That is all the time we have for questions today. I would now like to turn the call back over to Tom Davin for closing comments.

Thank you everyone for joining our Q1 earnings call. As you have seen, we are making progress on a number of key strategic initiatives. We are addressing capital, capacity and leadership constraints. We are investing most importantly to drive growth and we are gaining more and more proof points that the power of the omnichannel model is working well for Black Rifle Coffee. Thank you, everyone.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.