Greetings. Welcome to the Black Rifle Coffee Company First Quarter 2023 earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Tanner Doss, Vice President of Investor Relations. You may begin.

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our first quarter 2023 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. 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.

Thanks Tanner. And good afternoon, everyone. It’s hard to believe that this is our sixth earnings call since we became a public company. As most of you know, with only a decade ago that I was bagging coffee with wife in our garage. At that time, I had a vision to create a business centered on supporting the veteran community with an authenticity that doesn't exist in other businesses. Over the past eight years, Black Rifle Coffee has evolved from my original vision of a premium direct-to-consumer subscription coffee business into an omnichannel CPG business. And today I am pleased to report that we have met or exceeded our financial expectations in Q1 and we are well positioned for the remainder of the year. While our business model has evolved, I'm most proud of the company's mission and purpose has remained steadfast. Our commitment to serving veterans, active duty military, first responders, and their families has stayed constant. Being a mission oriented and purpose driven company has always allowed Black Rifle Coffee to punch above our weight class with regards to attracting and retaining talent. I've always tried to surround myself with the best and the brightest team members that are going above and beyond to support Black Rifle's mission to create value for all of our stakeholders. Last quarter I highlighted our new CHRO, Marty Manning and our new CTO, Chris Clark, both of whom are talented executives with deep business experience who also served our country through active duty military service. Both Marty and Chris are passionate about Black Rifle's mission and have the skills and experience to help me continue to deliver sustainable growth. Today, I'm also excited to announce our new Chief Marketing Officer, Chris Mondzelewski. Chris brings over 20 years of consumer marketing, business and…

Thanks Evan, and good afternoon, everyone. I will start by highlighting details from each channel of our business, including an update on key profitability initiatives. Channel highlights, starting first with our wholesale channel, Q1 of 2023, marked the first quarter in our company's history that the wholesale channel was the largest revenue driver for the quarter. Wholesale channel is still very early in its trajectory, providing significant revenue growth opportunities for the foreseeable future. Our decision to shift focus to the food, drug and mass or FDM channel was an important step on our path to profitability and a major contributor to BRCC becoming an omnichannel CPG business. As we mentioned on last quarter's call, in less than seven months from initial discussion, our coffee earned placement on shelves in over 4,400 Walmart stores. We have quickly grown to become the number one brand of bagged coffee in twelve ounce and smaller sizes. Further, Black Rifle Coffee achieved a 3.8% share of the overall Walmart coffee segment per Nielsen data. Note that this was without any marketing or promotion. I'm excited to share that earlier this week we launched our first promotion with Walmart featuring end caps that show our Medal of Honor Roast, where proceeds from all sales will be donated to the Medal of Honor Museum in Arlington, Texas, as yet another example of how Black Rifle Coffee is working to fulfill its mission to support the veteran community. As mentioned on our last earnings call, we plan to enter one or more new food, drug and mass accounts towards the second half of this year as resets occur in the June to October time frame. We will share additional details regarding innovation and growth within the FDM channel during our Q2 call in August. Shifting now to…

Thanks Tom, and good afternoon, everyone. Today I will discuss our 2023 first quarter financial results and reaffirm our 2023 full year outlook. Turning first to our financial results for the first quarter, total revenue increased 27% to $83.5 million, compared to $65.8 million in Q1 of last year. The meaningful increase in revenue was driven by our wholesale channel, which continued its impressive growth from the first quarter of 2022, increasing by 82%. Now I will give some additional details on our three sales channels. Beginning with wholesale, revenue increased 82% to $40 million in Q1, compared to $21.9 million during Q1 of last year. The increase was primarily driven by our entry into food, drug and mass as we began selling our bag coffee and rounds in over 4,400 Walmart stores. We also saw a material increase in our Ready-To-Drink percent ACV, which measures distribution across both convenience, gas and FDM. RTD percent ACV more than doubled to 38.5%, versus 15.5% a year ago. This increase was driven by adding 16,000 incremental doors as well as introducing innovation for the first time in Q1 of 2023. Next, our Direct-To-Consumer revenue decreased by 4% to $36.8 million in Q1 of 2023, compared to $38.3 million in Q1 of last year. This decline was mainly the direct result of decreased digital advertising spend as we continue to prioritize our high growth and high returning wholesale channel. Next, revenue from Outposts increased 21% to $6.7 million in Q1 compared to $5.5 million last year. The main driver was an increase in our company owned store count, which increased to 16 outposts as of Q1, 2023 compared to 9 in Q1 2022. As Tom mentioned, we opened one store in Waco, Texas, during Q1, bringing our total number of outposts to 27…

[Operator Instructions] And our first question comes from the line of Sharon Zackfia with William Blair.

Hi, good afternoon. I was curious on the new Chief Marketing Officer, if you could maybe give us what you think the top three priorities for him would be and if there's any particular demographic that you feel like you're not reaching as well as you should, that perhaps his expertise could help kind of bring to the table. And then I have a follow up.

Hey, Sharon, it's Tom Davin. Thanks for the question. And I'm going to turn that one over to Evan Hefer.

Yes, I think that from mapping out his priorities. The big thing that we've been discussing is aligning the omnichannel business around our marketing initiatives and objectives. So as we start to look at the opportunities within the sales channel, it's really about optimizing our marketing dollars and being able to reach the customer base more effectively. So when we look at it, it's mission, goals, objectives, and then really capturing the right type of team so that we're developing new talent and recruiting another layer of talent to capture those opportunities.

Thanks for that. And I think there was some mention of some incremental pressure on gross margin in the second quarter. I just want of to clarify kind of order of magnitude of what you're thinking and if that creates a more back end, sorry, I'm having problems talking. Maybe you can tell I have a cold here. Back end weighted cadence to gross margin then perhaps the street had been thinking.

Yes, Sharon, it's Greg. I can address that. The one new factor that we brought up in our commentary related to gross margin is the promotion we're running for Ready-To-Drink. So that will have some impact on Q2, but it's not a primary driver. So, as you saw, our Q1 gross margins were in line with the expectations improvement sequentially versus Q 4. And we continue to expect sequential step ups in gross margin starting in Q2 and beyond. And that's factoring in this additional promo.

Okay, I'm going to try for one more question if my voice holds out. Tom, my cell was kind of cutting in and out. Did you reiterate plans for 100,000 RTD doors this year?

I'm not sure we explicitly reiterated that, but we have before, so that is very much a good number, Sharon.

And we shared that in our last earnings call. That's consistent.

And our next question comes from the line of George Kelly with Ross MKM.

Can you guys hear me? Oka, sorry about that. Curious if you can update us on the Walmart market share and if that's continued to grow subsequent to the quarter.

Yes. I'm happy to take that. So we've held our market share at 3.8%, which is what we shared in our last earnings call. So we've maintained pace with the growth of the category. We feel really pleased with how the Walmart business has continued to develop and the core trends that we're building. What we have, which is consistent with what's in our plans, are some additional things that you'll see if you go into a Walmart right now, you'll see our first end cap in Walmart that we've had since we launched. We're really proud of this one. We think it's going to help us drive trial and awareness for our product, which is the number one thing we can do. We have great repeat rates on our products in Walmart, and that will just help continue to drive people into the aisle. But the other thing that we've done on that end cap is we have a Medal of Honor 22 count round pack. All of the profits from that pack will go to the Medal of Honor Foundation. So as people are discovering our brand and trying it for the first time, they're also learning about our mission and what we stand for as a company.

Okay, great. That's helpful. And then second question for me, still on the FDM business, trying to think about next year and beyond. And I understand that you've really been focused this year on Walmart. I think you said in your prepared remarks that there's a second big partner coming in the back half. Correct me, if I'm wrong, but just thinking about next year, like is there a moment when you can turn on a whole bunch of additional partners and you'll feel more comfortable in sort of turning on a big door number? Or will it be sort of steady-ish it goes and it'll be incremental, at least for the next few years?

Yes. We remain confident in what we've shared, which is that we will be adding one or more new partners in FDM in 2023. We're also building out relationships that will enable us to scale that business. To your point, from a capacity standpoint, the right packs for the channel, and we remain confident in that expansion plan. As you may know, the reset windows for the FDM channel stretch kind of in the July through October time frame. So that will be one of the things that is more back half loaded in the 2023 plan, and it aligns with our plans that we laid out last quarter.

Our next question comes from the line of Sarang Vora with Telsey Advisory Group.

Hey. Great quarter and great to see the guidance maintained. My question is on Walmart. I mean you have a great market share. It's growing. You're launching the first promotion, end cap promotion. Can you share like, how else can you deepen the relationship? Is there a thought of more SKUs, price changes and just touching on that from the marketing side, I know you are focused on driving awareness across the customer at Walmart. So, just curious to know, on the marketing side, how is the marketing transitioning from more DTC focus to Walmart? Like, how do you get that attention of that Walmart customer? So just curious to know some of these details. Thank you.

I'll talk a little bit about Walmart and how we're looking at that business as far as expansion. So Walmart's resets take place in July. Our job as a partner to Walmart is to continue performing for their shopper. For Black Rifle, innovation is in our DNA, so we will continue to bring new product offerings to all of our retail partners for their consideration. So we are continuing to develop and innovate, and we'll bring that forward to our partners. From a marketing standpoint, as I mentioned, the most important thing is driving trial, driving people into Walmart to try our products. We are already working with our new CMO to help us do that. And we will see increased marketing efforts that drive awareness for our presence on the shelf at Walmart. And as I mentioned, just being on an end cap is a great way of driving that trial and awareness as well. 30 million people a day walking into a Walmart when they see that end cap, it'll help drive them to our brand and into the aisle.

That's great. And one question for Greg. Inventory is pretty high, and I understand it's RTD right now, which will kind of slow down as you go through this promotion in second quarter. Just a thought on how does inventory look by the end of this year? Do you have any thought on that?

Yes, absolutely. And you're right. It's exactly as we described on the call that we've been proactively building inventory, RTD inventory that is in the fourth quarter and then again in Q1. That's for the innovation SKUs as well as the seasonal load in for C stores. So our production schedule in the back half of the year really moderates. And then also the expectation is that the volumes of sales really ramp up. So, yes. We expect our inventory levels to come down significantly, not necessarily in the second quarter, but in the third and the fourth quarter, so that we end the year with the inventory levels really in line with what we intend to maintain as part of normalized safety stock.

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

Thanks. Hey, guys. Good afternoon. Apologize if I missed it, but why were wholesale doors down sequentially?

I can talk about that. So if you look at our wholesale doors, we did have a slight dip from Q4 to Q1. And that was driven by one of our specialty retail partners who brought in bagged coffee as a holiday seasonal offering for gifting, which did roll off in Q1. Despite that small change in doors, our dollar growth across FDM coffee and specialty continues to track with our predictions, and we do remain very confident in our plans for 2023 and beyond. The other thing I would call out is doors are a bit of an imperfect measure for that growth because each door has variability and velocity that it rates for our business. So the most recent doors that we've added in the FDM channel really have the highest impact to our business because of the significant shopper foot traffic that goes into those doors. Additionally, the shopping trip within those doors is a grocery shopping trip which has coffee on the list for purchase during that visit. So our velocities and our sales coming out of those doors are going to be incrementally higher.

Okay, no, that's helpful, and I apologize I have another door question. RTD doors, I think we're up 1,800 or so sequentially. I know you had a test with a retailer that had 18,000 doors that was coming back. Maybe help us understand the timing of when those 18,000 doors come back into the system.

Yes. So for RTD, the gains that we saw in ACV, if you look from the beginning of the year, they're up about 3%, and that mirrors the door gains, which from the beginning of the year, around 2,700. The biggest drivers of those door gains are C store customers, namely 711, Circle K, Racetrack and GPM. That large retailer that we mentioned is still going to flow through our door count, but it is not captured in the door count right now. It will be reflected in the 5/20, May 20 release of Nielsen Data. The other thing I'll call out about ACV specifically is our new SKUs that we've launched, the vanilla bomb and salted caramel which are approximately 10% of our sales currently as we're building their distribution. They are also not reflected in that ACV number. They will be in the 5/20 release as well.

Okay. And maybe one last one, if I could. The guidance for 2023, does that assume that you get another FDM account this year?

Yes, the guidance would be consistent with what we shared and outlined. One incremental partner at a minimum. So we're sustaining and reiterating that guidance and it's very much aligned with the plans we shared in the last earnings call.

Okay. So it does assume at least one incremental FDM customer.

And our next question comes from the line of Bill Chappell with Truist Securities.

Thanks. Good afternoon. Just following up your commentary about great repeat rates at Walmart and I am very pleased. Can you kind of give us a little bit of idea how that breaks down geographically or from rural Walmart versus more urban Walmart? Because I guess I don't view or I don't think the Walmart customer is not just kind of one customer. And I know your base has been more geographically to the south, southwest so just trying to understand how the brands performing as you get kind of more out of that core region.

We are resonating with the American shopper. America shops at Walmart and that's who we're resonating with. It is not in certain states. It's fairly universal across various geographies. And so we don't see that ,we actually don't see that in our base business on D to C either. Our number one market is the greater New York area. Number two is the greater Dallas area. Number three is Los Angeles. So what's nice about where Walmart are located is it's a very complementary business to our D to C business. A lot of our D to C consumers and customers are located in more urban locations. And most retailers, including Walmart, are not in dense urban areas. So it is a nice complement to our business. And that's generally what we're seeing. We definitely are pleased with the national rollout of our Walmart business, and that is informing how we will roll out at other grocery customers. And again, this is consistent with the plans that we had laid out for 2023 and beyond.

Got it. So you're getting similar market share across all 4,400 Walmart?

I think there's different formats and different velocity based on traffic; different coffee sets based on the size of the store. So there is variability. It isn't uniform, but it definitely mirrors what we would expect, some variability, store to store. And we'll continue to optimize the assortment and the SKU count by store in order to make sure we're pleasing as many shoppers as possible that come into Walmart.

Got it. And can you just quantify what the repeat rate is right now, or is it just still too early to quantify?

It's a bit early to quantify. What I would say is we are monitoring this very closely. We've invested in Luminate data, which is proprietary data from Walmart. And what we see that's really encouraging is our loyalty, our repeat rates, they're on par with the biggest brands in the category, which is fantastic. And that's what really directs us to say driving trial is the key. Because when people come to our brand, they love our mission, they love what we stand for. And they also, we hear over and over again that the quality of our products and the taste, the premium nature of our coffee, is what brings them back again and again.

Got it. Lastly for me, just any thought on kind of apparel sales or accessory sales? Is that being kind of deemphasized per se right now?

No, I'll take that one. It's still very important to us as a lifestyle brand. It's maintaining the percentages in the retail outposts that we had talked about before. We mentioned that bagged coffee and merchandise makes up just under half of retail sales in our outposts that's held consistent. We're obviously adding new T-shirt, mug designs, driving innovation, and consumer excitement there. And of course, when you go to our website, we feature the coffee, but there's all sorts of great product and merchandise offered there. So again, very important to the branding element of the business as part of the omnichannel model. And we'll continue to innovate with all the exciting creative people we have around Black Rifle Coffee.

And our next question comes from the line of Steve Powers with Deutsche Bank.

Yes. Hey, thanks and good afternoon. Maybe picking up on comments on assortment, I guess, as you ramp up over the balance of the year, to what extent are you expecting to do that with the existing portfolio, the existing set of SKUs versus seeing a needer opportunity to expand the SKU set further, either different sizes and package types or different flavor varieties. And I'm thinking mainly about the wholesale FDM as well as the RTD part of the portfolio.

Yes, so I'll take that one. This is Toby. I'd say it's a combination. So the great thing is we have a lot of data from our introduction into the FDM channel so that we can really curate the SKUs that we would bring into a new set on a new shelf with a new partner. So looking at how many SKUs drive a large percentage of our sales, obviously the shelf presence in a big box store like Walmart may be different from a more local grocery location, but we can really optimize and drive a great representation of the sales that we've seen based on the data that we've gotten, which is fairly robust. As I mentioned earlier, we're always going to be looking at opportunities to innovate and to bring that it's in our DNA. We're going to bring that to our partners and work very collaboratively on what are the adjacent spaces and coffee that we can go. So we continue to work on that and we'll share more as we solidify some of those plans. From an RTD standpoint, have to mention that our Berry Mocha LTO is going into market right now. It's shipping, it's in a beautiful can. There's a lot of excitement about it. It tastes fantastic. We will continue to look at the RTD space for innovation. We do have a couple of other LTOs coming later this year. A Cowboys LTO in Texas and Oklahoma and then our pumpkin spice in the fall. So we continue to bring new, you couple that with our 100 days of summer promotion that we're really excited about. We think it's a fantastic opportunity to drive trial and steal share. We are positioned very well with the growth we already have in the business to just continue driving this into our consumers hands. And the partnership we have with the Boot Campaign, which is a 14 year old highly accredited nonprofit, they're focused on improving veterans lives by creating individual treatment programs for veterans and military families. When we promote for the first time, this is the first summer promotion we've had, we will be surrounding that with, again, something that just reinforces the mission of our company. So as people learn about us, they try us, they discover how delicious our products are. They also can learn about our mission and support veterans by buying our products everywhere they find us.

Okay, great. And Toby, while I've got you talking maybe just on it sounds like from the commentary earlier that product availability, both current inventory levels and sort of visibility to supply is pretty good right now. But I guess I just wanted to, a, validate, that and then b, maybe just ask if there are any points in the supply chain that are a bit tighter than others at any points of places, you're watching that maybe risk factors as you go forward. Thank you.

Yes. I mean we operate in a very dynamic global supply chain, so there's always things that we're going to continue to monitor, especially with where we source coffee from around the world. But we spent a lot of our time in 2022 taking the bottlenecks out of our capacity for all the products that we produce. So we feel very confident in our plans that we will be able to support those not only in 2023, but beyond based on the partnerships we've built across supplier community for all the products we make, from bags of coffee and K Cups rounds to our RTD products. So that is not a constraint on our business at this time. And we have reached the end of the question-and-answer session. And I'll now turn the call over to Tom Davin for closing remarks.

Thank you, everyone, for joining the Q1, 2023 conference call today. And thank you also for the support of our mission at Black Rifle Coffee. Have a great afternoon.

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