Greetings. Welcome to the Black Rifle Coffee Company Fourth Quarter and Full Year 2022 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tanner Doss, you may begin.

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our fourth quarter 2022 financial results, which we released today and can be found on our website at ir.blackriflcoffee.com. With me on the call today is Evan Hefer, Founder and CEO; Tom Davin, Co-CEO; Greg Iverson, our Chief Financial Officer; Toby Johnson, our Chief Operating Officer; and Heath Nielsen, our Chief Retail Officer. Before we get started, I would like to remind you the company's safe harbor language, which I'm sure you're all 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 a 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 in the earnings release furnished to the SEC, and they are also available on our investor website. Now I'd like to turn the call over to Evan Hefer, Founder and CEO of Black Rifle Coffee Company. Evan?

Thanks, Tanner, and good afternoon, everyone. It's hard to imagine it's been a full year since our first earnings call as a public company, but I'm excited to share some highlights from 2022 and lay out our goals for 2023. Just under a decade ago, I started this business in my garage with a 1-pound coffee roaster, roasting one bag at a time with my wife. At that time, we were just a small D2C brand focusing on a small portion of the coffee drinking public. Fast forward to today, Black Rifle has established itself not only as a mainstream brand but also as an omnichannel CPG business, less than six months into our launch at Walmart, we have risen to the number four 4 brand in bagged coffee and within that, the number one selling branded 12-ounce bagged coffee, the largest dollar volume package size within Walmart's bagged coffee segment. We've also solidified ourselves as the fastest-growing brand in ready-to-drink coffee, outpacing the category growth by over four times at year-end. We are the number three RTD coffee within the convenience channel, outpacing Dunkin'. We partnered with some of the most recognizable brands in the world, launching a co-branded coffee with Amazon Prime Video and becoming the official coffee of the Dallas Cowboys. In addition, we've continued to maintain the biggest branded subscription coffee business in the United States and grown the largest social media following across all coffee companies and other lifestyle brands. We've done all of this with our aided brand awareness in the mid-20s. I'm more excited than I've ever been about the future of this brand as we're just getting started on this journey to a $1 billion business. Looking into 2023, we have three main goals that we are focused on, which are, one,…

Thanks, Evan, and good afternoon, everyone. I will begin by highlighting the key initiatives for our commitment of profitability for 2023, including details from each channel of our business. Then I will briefly discuss our Q4 earnings and provide updated guidance for 2023. Commitment to profitability. As some of you may have seen at our ICR presentation in January, we highlighted three key drivers of our commitment to profitability for 2023. Number one, expansion of our wholesale channel. This channel is our most profitable sales channel with our highest margins and return on capital. Our entry into the FDM channel with bank coffee and rounds is a significant catalyst for growth. We launched in late September of last year, and this mix shift will continue to benefit our financial performance in 2023 from having a full year of sales. Ready-to-drink is continuing to scale rapidly in the convenience store and FDM channels, where we are targeting more than 100,000 doors by year-end, up from 61,000 at the end of 2022. Note that we had approximately 70,000 doors at the end of Q3. On retailer with 18,000 doors ran a test for a limited time in Q2 and Q3. The test was successful, but the doors were not included in the Q4 number because the test was completed in the prior quarter. We're now shipping product to this retailer at the end of Q1 for ongoing distribution, recapturing those 18,000 doors. Innovation will be a key growth driver for this segment. We've introduced innovation for the first time by launching two new core SKUs in Q1, salted caramel and vanilla, plus three additional seasonal limited time offerings. The first of these LTOs is a Berry Mocha SKU, entering the market at Memorial Day. We believe that taking advantage of the demand…

Thanks, Tom, and good afternoon, everyone. Today, I will discuss our 2022 fourth quarter and full year financial results, touch on our balance sheet and liquidity position and then share some further details on our fiscal year 2023 outlook. Turning first to our financial results. For the fourth quarter, total revenue increased 30% to $93.6 million compared to $71.8 million in Q4 of last year. For the full year, our total revenue grew by 29% to $301.3 million. The meaningful increase in revenue was driven by growth within our wholesale and outpost channels, which continued their impressive growth from 2021 by 140% and 33%, respectively. Now I will give some additional details on our three sales channels. First, our direct-to-consumer revenue decreased 8% in the fourth quarter to $45.6 million compared to $49.6 million last year. For the full year 2022, our direct-to-consumer revenue decreased by $6.3 million or 3.8% to $159 million due to a decrease in our new customer acquisition for non-subscription customers. This decline was mainly attributable to decreased digital advertising spend as we continue to prioritize our high-growth and high returning wholesale channel. Turning to wholesale. Our wholesale revenue increased 140.1% to $41.2 million in Q4 compared to $17.2 million last year. For the full year 2022, our wholesale revenue increased $63.6 million or 114%, bringing our total wholesale revenue to $119.4 million. The increase was primarily driven by growth in our RTD product, which ended the year in over 61,000 doors. Our percent ACV or all commodity volume, as measured by Nielsen, which measures distribution across both convenience, gas and FDM increased to 38.3% versus 13.5% a year ago. Additionally, our entry into food, drug and mass also drove very significant growth during the last four months of the year as we successfully launched into…

Thank you. [Operator Instructions] And our first question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

Okay. Great, thanks. Cheese, a lot there. But I think that the big issue, the biggest question for me is on the change in the revenue outlook. And you obviously went through pains to explain quite a bit of it, but two follow-up questions there. One, so I guess, am I to understand it that the original plan of $500 million or the previous plan, I should say, of $500 million, that included a new FDM customer besides Walmart, and now you're pushing that out to 2024, but originally, you did think you would have a new customer in 2023? And then on the RTD side, you said a slower ramp for spring sales. That surprised me, is that a lack of demand type thing? Or why slower demand in the spring? And does that relate to the issues in the fourth quarter?

Hey, Mike, Tom Davin here. I'll take number one. Yes. Originally, again, going back to last July, August when we conceptualize the $500 million or more. We anticipated bringing on additional FDM customers sooner. Now we're staying very focused on the one customer we have, and it's been a great partnership. And related to the second part of your question, I'll have Toby take that one.

Yes. And let me build on the first question. We will be on the shelf with at least one FDM customer in 2023. As you can imagine, based on our results, our phone has been ringing and there's a lot of interest from customers. And the great news about that is with the results we've had at Walmart, we've proven that a national rollout is the best way to do that. We are working through the right partners for where we will be, the right assortment for what will be on shelf, all informed by the data that we have and the resonance our brand has had nationally. So we do have plans to be in FDM. We just have pushed out the more comprehensive launch into 2024 based on reset windows and timing, which is mostly in the back half of 2023. On RTD, so as we enter 2023, we still have incredible momentum on this brand. And you may have heard it in the prepared remarks, but just to call out the Nielsen data, our dollar growth as we were leaving the year on 12/31 for the last 13 weeks was up 44%. That has actually accelerated through 225 being - it was up 57% at that point. So we're seeing continued acceleration on the brand. We've also had incredible response from retailers as they've redrawn their planograms for resets in half 1 this year. And the great news is we are prepared to take advantage of that opportunity, adding 100,000 facings to our base of 150,000 facings. If you compare this year with last year, we did not have inventory to fully take advantage of this reset window with our CNG [ph] customers. So some of the learning has been as we've looked at how that rollout actually occurs and the pacing of that rollout, it is a little bit more moderated in Q1 with an acceleration into Q2. So that really explains the difference. It's not a change in demand. It's not a change in momentum. It's really just meeting the timing of the category and our retailers and what they're executing.

Okay. So you took down your revenue by $60 million to $100 million, but you're not seeing any signs in slowing demand, at least not in the - maybe in the direct-to-customer business, but in the other - in the bigger business - or in the faster growing business, you're not seeing any slowdown in demand. It's just about timing of getting all the products launched correctly in servicing your customers correctly. Is that a fair characterization?

Yes, absolutely.

And I can add to that, which is we're really focused on delivering an exceptional service to the customer, not only from the Walmart perspective or a grocery customer, but really servicing them at the top priority. So we really have to focus on making this not only excellent but in the top category of excellence. So when we look at how this business continues to grow, we have to build a business that's going to be around for 100 years. We don't want to make mistakes that we're going to scale into. So we've really got to focus on how important this is and really focus on the customer delivery.

Okay. I think I get it. If I could ask one more quick one. Just again, the reason why the number of RTD doors went down by 9,000 versus the third quarter 10-Q, explain that again? And why that's not - shouldn't be a concern or it doesn't show a loss of customer?

Toby?

Yes. So we were working with a retailer with 18,000 doors. There's a certain number of them. I'll let you extrapolate which ones that could be. That retailer, we executed a test with them in Q2 and Q3 of last year. So you see those that 18,000 doors reflected in the number. The timing of that test was planned for that window. And then those doors came out of our Q4 numbers. We are currently shipping to that retailer for ongoing distribution this month. So those doors will be reflected and recaptured. Our target that we had set for the year was 100,000 doors. We feel very confident in our ability to hit that target and exceed it in 2023.

So if we were to see the 1Q, 10-Q, it will have those doors back in, in other words, plus others, plus more?

Yes, Michael, this is Greg. I think depending on the timing of the load-in at the actual stores, but certainly by Q2, you should expect to see them fully in there. And just adding to what Toby said, this is something that we expected and we had planned on, probably just something we should have telegraphed a little bit more since it does look like a big number, a big decline, which is misleading.

Fair enough. Okay. I'll pass it on. Thank you.

Thanks, Mike.

Our next question comes from the line of Bill Chappell with Truist Securities. Please proceed with your question.

Yeah, thanks. Good afternoon.

Hey, Bill.

Just kind of want to ask, I guess, a similar type question on the top line guidance. If I was to annualized fourth quarter revenue of $93 million, and that is basically the midpoint of your guidance assumes 12% top line growth. And if you got an 8% price increase, that basically assumes 5% volume growth. I know that's oversimplifying it, but maybe help me understand how that's not the way to look at it? Because it seems like that's how - and does - are we implying that first quarter revenue will be down sequentially pretty meaningful and then build back up? Thanks.

Yes, Bill, this is Greg. I can take those, and I'm sure Tom and Toby can add in as well. But on the first one, if we just talk about price specifically. So you won't see the full 8% roll through in pricing. And that's because as we just went into Walmart in September. So we haven't taken a price increase in that line item. So the actual price increase on a year-over-year basis, when you look at it across all the channels is closer to 4% to 5% for the fourth quarter. It should be a little bit more than that as we go into Q1 because we did take some additional price increases that we discussed a little bit earlier on the call. And then confirming what you said earlier, which is that we will see a sequential step down in revenue from Q4 to Q1. If you go back in time and look at the company's historical financials, you've seen that's always the case. We always have elevated non-subscription sales within our direct-to-consumer channel during that peak holiday period. And so our revenue will step down in Q1 versus Q4 based on that seasonality.

Got it. So - but - all right, well, I'll leave it at that. And then the second, just on Walmart. Certainly impressive of kind of the early start, but trying to understand where kind of the 3.8% market share was versus your expectations? Do you think you can get 5 or 6? I mean, obviously, 3.8% [ph] being at number four implies that number one and number two have a large, large, large share of the market. So just trying to understand where you think this can go over this year? Thanks.

Toby?

Yes. We're incredibly grateful for the collaboration that we've had with Walmart, and we are very pleased with the initial six months that we've had with them. We do believe that there is momentum and opportunity to continue to grow. If you look at their coffee business, we're playing currently with the launch that we've had in about half of the products, about 50% of the product lines in coffee. So that 3.8% of such a large business, they are about a third of overall FDNs, $11 billion business. Those are big numbers when you're talking about a retailer that's that large. So we're very pleased. I think one of the things we're most proud of that were mentioned in the earlier remarks is the incrementality that we're bringing to the category. So according to numerator data, about 35% of households were new to the copy aisle. Not all were new to Walmart, but they had not purchased coffee at Walmart in the 26 weeks leading up to our launch. We are really excited about that. And when you couple it with how our products are resonating, the 12-ounce bag size being the number one branded player with 22% of the share shows that we're resonating with customers and with shoppers. That makes us feel really good about this initial launch. We are certainly staying humble and staying hungry looking for areas to improve and continue to build on the relationship. But our initial results, we are extremely proud of them.

Okay. So just to clarify, like, do you think you can get mid-single digit share this year, double-digit, 22%. Where do you - where should we be moving higher sequentially?

We would certainly want to build on our share. I don't know that we're publishing our - with a business that's growing this fast, it's difficult to give you the level of precision. I think you would hope for on exact share target, but we do see opportunities to continue to build. For example, just increasing consumption by driving awareness, as we layer marketing campaigns to ensure that people are aware that we sell our products at Walmart. That should drive consumption. We have other things that we're working on as well that we think will add to the business. Certainly, we are not resting on our laurels, but we're not - I don't think we've published an exact share target. I would say it's north of 3.8.

Yes, it's really a combination of marketing activities and innovation. So a lot to come on that.

Thanks.

Our next question comes from the line of Joe Altobello with Raymond James. Please proceed with your question.

Thanks. Hey, guys, good afternoon. Just want to go back to the guide for '23 on the top line and particularly RTD, I think you mentioned it's really not demand related, but more timing related with respect to the spring resets. I'm just unclear why that is because don't the resets happen every time or at the same time every year. So why would that be a surprise, I guess.

I think it's very similar to what I shared earlier, Joe. This - for Black Rifle, this is our first time really executing through this demand reset window. Last year, we entered the year with very, very lean inventory. So our ability to plan from like a year-over-year reset standpoint was limited. And what we're learning is just the sequencing of as the resets happen, how does that build flow through our complex go-to-market, which includes close to 200 distributors, which then flow product to the shelf. Like I said, we've had visibility to the planograms, to the commitments, none of those have changed. I think what we've learned and will help better inform our planning going forward, it's just the sequencing of product through the value chain to actually execute what people have committed to, which hasn't changed as we've delivered our plans. It really is just more timing.

Okay. So it's a little bit of a learning curve there is – to that degree as well. Got you. And then secondly, in terms of the pricing impact, you mentioned a couple of incremental price increases you've already taken here in Q1. If we look at your revenue outlook, how much pricing is built into that? And do you anticipate additional price increases later this year in regards?

Hey, Joe, it's Greg. I can address that. So two price - there's two things we've already done in 2023 from a pricing perspective. The first is we had further increases in ready-to-drink of about 8% we rolled out in February. We also made some adjustments within our D2C subscription for bag coffee and reduced the discounts on multi-bag subscriptions. So those two actions, like I said, have already been taken. Our guidance of $400 to $440 doesn't contemplate any further pricing actions. So anything that we take incrementally would be upside to that plan.

Okay. Just one last one, if I could. Just to clarify, the gross margin guide for Q1, I think you said up 100 basis points sequentially. I assume that's up 100 basis points off of the reported not the adjusted Q4 gross margin?

Yes, that's right, off of reported.

Okay, great. Thank you.

Thanks, Joe.

Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Hey, thanks. Thanks a lot. I guess just to round out the revenue guidance discussion. I guess, Tom, you framed it as driven by things not fully in your control. But then as you've spoken through it subsequently, it feels as though it's either the byproduct of the learning curve you just mentioned to Joe's question, or the byproduct of specific choices on your part. So I guess, can you just clarify and explain a little bit further. I mean, how much of this is really driven by externalities that you weren't able to realistically forecast versus just you perhaps overreaching six months ago or versus you now electing to go deliberately slower to make sure you're doing everything you're doing to the highest standard possible for your current customers. I'm just unclear as to what the real drivers are, whether it's overly ambitious? Or are you pulling back to deliver quality service or externalities as you originally framed it?

Right. So great question. And again, breaking it down by component ready-to-drink, I think Toby did a great job addressing the kind of lag that we didn't fully appreciate of sending product through the value chain that consists of all these distributors across multiple markets, ultimately to the end customer. And customers have committed to those incremental 100,000 facing. So that's a significant increase from where we are. And again, going back to last July and August, when we conceptualize that original revenue number we didn't know about the timing of when the product would actually push through to be on the shelf.

And just one add, Tom mentioned this in his remarks. We also brought our sales team in-house at the end of the year, really in Q4 is when we set up our internal sales team. So we were relying on a third party. We have since done a bottoms-up build by retailer, by SKU with assumptions for unit per store per week velocity on everything that's on the shelf with a much higher level of granularity. And that's also informed the update to our plans.

Then on FDM. I guess it's fair to say we didn't know what we didn't know back in last July and August. So now I think we appreciate what it takes, as Evan said, to delivered a really high level of executional quality to support retail partners. In this case, Walmart has been a tremendous partner. And while, as Toby mentioned, we will add at least one other FDM customer, and we've got a long list of people who are very interested at this point. We definitely don't want to compromise our service levels to the existing customer. And when we do a rollout, we want it to be a full national rollout even by the broad appeal we have for the brand.

And just to add one other point. If you look at the timing and processes that FDM customers use for their resets, they were doing their line reviews for their summer resets in the fall of 2022 as we were rolling out initially at Walmart. So our timing was a little bit off from being fully integrated into our customers' processes. We now will not have an issue with that going forward. Despite being off cycle, we do have interest from a select number of retailers who would like to have us on shelf in 2023, but the level of cohesive rollout that we will have by actually being on the process of our retailers will be incrementally higher for 2024.

Okay. Okay. Maybe just two follow-ups. One directly follow-up or a direct follow-up maybe for you, Toby. Just on that - the internal sales company build out, I mean it sounds like that's in the end, that's going to be a positive, but it sounds in the near term like it's a negative. So how much of the $40 million in ready-to-drink reduction is a byproduct of that change? That would be kind of follow-up number one. And then, I guess, Greg, for you to maintain the positive EBITDA guidance with revenue down 16% at the midpoint. It seems - it just requires a lot of cost-cutting just to do that. And obviously, you mentioned initiatives on corporate SG&A that we're going to hear more about on the next call. But it's just - I'm not sure that's enough. So it feels like you - in order to keep the profitability with the reduced revenue, you're going to have to cut into either selling or marketing. And I guess, the concern there is that, that makes what would otherwise just be timing issues, maybe more than that because you're not able to invest to build the demand that you would otherwise be investing in. So just help me kind of conceptualize where you're going to source this EBITDA from without impairing the go-forward growth?

So I'll try to answer the first part. The way I would look at it is that we have - versus a reduction of negative, this is an addition of positives to our ability to meet the demand and the momentum on this business. And there's a couple of things, and we have to remember even to the last earnings call, our addition of capacity was a major enhancer for this business and the momentum behind it. That was a little bit delayed last year. So our ability to flow that new capacity out and into the market due to some of the delays, sourcing of raw ingredients, et cetera, that we started up was a little bit shifted to the right. Our ability to have our hands on the wheel of our business is an incremental positive for us to be more granular in the way we plan and to have direct relationships with all of our key constituents. We went through this journey in a really positive way. We're grateful for the partners we've had that help us build the business. So we don't - we're not trying to disparage them. It's just - it's a natural step in our business as we evolve to build capability, to have internal capability and a level of granularity in managing our business. So I think those will be enhancements for this year as we move forward on RTD versus trying to ascribe a certain amount of blame for things that - the way that we had built the business in the past, the way we built the business that enabled us to grow at an incredibly rapid pace starting in March of 2020, the perfect time to launch a business that sells product in the CNG channel. And we're just continuing to build on that and evolve in a way that many CPG companies do as they gain scale.

And Steve, this is Greg. I'll take your second question related to our path to positive EBITDA in 2023. So starting first with gross margin. You've seen our guidance there where we said expect a range of 36% to 37.5%. So that is a pretty significant increase from where we ended 2022. We've talked a little bit about some of the pricing initiatives that we've taken both in Q1, as well as those that we took in late 2022 that we'll continue to benefit and roll into 2023. We also have a really significant productivity portfolio, particularly within our shipping and fulfillment. So there's a lot of cost savings that our transportation team is going to be driving. And then the last point to is mix is important because we mentioned the area of the business that's growing by far, the fastest is our wholesale channel where we have the highest gross margins. So moving down through the rest of the P&L, next on marketing expense. The key call-out here is expect marketing expense on a dollar basis to be down year-over-year. So that obviously suggests significant leverage on that marketing line, and that's something that I think we've been telegraphing pretty consistently over time, which is as we pivot more and more into the wholesale channel, the wholesale channel requires a lot less marketing spend than our D2C channel. And then it's also part of why our guidance around the B2C channel, we think is pretty modest and pretty conservative because we're just not investing a lot in that targeted customer acquisition for D2C. And then rounding it out with SG&A, our intent is to keep our - I'm sorry, G&A, keep our G&A dollars as close to flat year-on-year as we can. We're - our salaries and wages is going to be up year-on-year just because as you well know, we ended 2022 with a lot more staff than where we started the year and are rolling in. So - and we'll continue to add a little bit selectively. So where we're going to find - and where we're finding a lot of efficiencies within G&A is really within our outside professional services or consulting fees and other third-party spend, where we made really substantial investments in 2022 to help us build out and grow these new channels. Hopefully, that's helpful.

It is. I threw a lot at you and you guys did a great job of putting everything. So thank you.

Thanks, Steve.

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

Thank you, everyone, for joining the Black Rifle Coffee Company Q4 2022 earnings conference call. We look forward to follow up discussions with many of you investors. In the meantime, have a great evening. Thank you.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.