Greetings, and welcome to the Black Rifle Coffee Company First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tanner Doss, Vice President of Investor Relations. Thank you, Tanner. You may begin.

Good morning, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our first quarter 2024 financial results, which were released yesterday and can be found on our website at ir.blackriflecoffee.com. Before we start, I would like to remind you of 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 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. Whenever we refer to EBITDA in our comments, we're referring to adjusted EBITDA unless otherwise noted. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC, and they're also available on our investor website. Now if you could please turn to Slide 4 in the presentation we provided on our Investor Relations website, I'd like to turn the call over now to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Mondz?

Thanks, Tanner, and good morning, everyone. Joining me today is Evan Hafer, our Founder and Executive Chairman, and Steve Kadenacy, our Chief Financial Officer. We've provided a presentation that we will refer to throughout the call, which you can find on our investor website. Please turn to Slide 4. In our last meeting, we discussed the importance of holistic management of our business. We have already demonstrated we have a phenomenal consumer brand and mission, driving fantastic growth and industry-leading loyalty. Over the past 9 months, the management team and I have challenged our organization to build a profitable business as well. While continuing our industry-leading growth, we have stretched our team and resources to deliver core margin and expense control. I'm proud to say we are succeeding. I could not be prouder of our organization. In Q1, we delivered record margin, profitability and cash flow, all while continuing to achieve industry-leading growth. After 23 years in the CPG business, it has not lost on me the difficulty of what the team is doing, but their dedication goes beyond any other colleagues I've had the chance to lead. Our dedication to the Black Rifle mission drives us every day, and we are certain that the focus on our serving our community will continue to drive success. On top of our core business achievements, we are also excited to announce our partnership with Keurig Dr Pepper. Partnering with an iconic company like KDP is a testament to our team's efforts and the growing impact of our brand throughout the beverage industry. As was announced a few weeks back, we've entered into a long-term agreement for manufacturing and licensing of our single-serve pods with KDP. We are well on our way to becoming a best-in-class CPG brand. And this partnership will not…

Thank you, Mondz. Please turn to Slide 13. In Q1, our focus on operational excellence continued to pay off, as we saw profitability really gain momentum. Our team's dedication to the strategic initiatives that we kicked off last year has propelled us forward, particularly in the productivity initiatives benefiting freight and logistics. Supply chain efficiencies added 330 basis points to our gross margin quarter-over-quarter. We also benefited from pricing and mix shifts towards high-end margin FDM business, adding 250 basis points from last quarter. With these gross margin improvements, we achieved our long-range gross margin goal of 40% plus this quarter, a few quarters before I expected we would. Below the line, we saw SG&A improvements from last year's cost initiatives of reducing reliance on external consultants and aligning our headcount to reflect the shift in the business towards the FDM channel. With that, SG&A dropped to 38.9% of revenue this quarter compared to 53.6% just a year ago. Turning to Slide 14. Top line growth of 18% was driven by substantial growth in our wholesale business, primarily from FDM. It's worth noting that we made a change to the terms and conditions of our loyalty program in Q1 to align with best practices and provide more predictability in our financials. This change resulted in $3.4 million of additional revenue in the quarter as we reduced our reserve. This event increased our DTC revenue in the quarter, but also fell straight through to the gross margin, boosting our gross margin by 2%. That said, even without the boost from the loyalty program, our gross margin still exceeded our 40% goal. Shifting to overall profitability, we've reached a significant milestone. Net income was positive for the first time at $1.9 million, and adjusted EBITDA increased to $14.1 million, up from a…

[Operator Instructions] Our first question is from Michael Baker with D.A. Davidson.

Okay. Great quarter, guys. I wanted to dig into the FDM business, wholesale business a little bit more. Where is the growth -- what are the biggest drivers to growth? Is it adding new retail partners? Is it increasing doors within those partners? Is it increasing shelf space within those doors? Is it all of the above? And then maybe as part of that, could you remind us how much Walmart was as a percent of your FDM business in 2023? And what the expectation is that going forward as you diversify away from that customer?

Yes. Thanks, Michael. Let me address it. I can let others kind of build. I think taking the first piece of your question, where did the different pieces of FDM growth come from? All 3 of the areas that you outlined, all drove reasonably significant growth. I think we talked last time a lot about store expansion and new customer expansion. That played a key role. We did add 3 new banners during the quarter. There's quite a bit more coming in the back half of the year, to be clear, but we did get incremental distribution through those banners coming on, and we sit at a 38% ACV now. On top of that, within existing -- so we talked last time about Albertsons being in all banners, but we continue to expand stores within their footprint as an example. Obviously, that's a very large customer with many banners across the country. So as we continue to have success, we do continue to add distribution within that, albeit smaller, obviously, increase than when you're talking about actually bringing a new banner altogether. And then the final piece, which I'm probably the most excited about is, if you look at Walmart, as you called out, we've been in full distribution of Walmart, as you know, now well over a year. So, we've lapped kind of that initial distribution. And yet we continue to see very strong growth, and we're very happy about that. So, we continue to take share. And with that, I think you mentioned, are we expanding shelf space? Only within the reset windows, but you may recall us talking about last September, we did add significant items on shelf. So, we felt good about that. And of course, we're reaping the advantages of that right now. And then your final piece around the percentages of the business, I mean, a huge percentage of the business overall from an FDM standpoint last year, because we were just beginning expansion, so 90 plus. And then as we get towards the end of this year, we did mention last time that our rough guidance on that is that we would expect it to be closer to 50% or 60%. As we go into '25, we said we want to be in full FDM distribution. That number will probably end up closer to 40%, which is closer to their representation of what role they play in the overall coffee category. So to be clear, one of the great things about a partnership with Walmart is they're really big in coffee. They're really good at selling it, and we love the fact that we started with them. And while we will continue to change the percentage, they will continue to be our #1 customer.

Our next question is from George Kelly with ROTH Capital Partners.

Maybe if we could start with a question about your growth. If we look at growth over the medium term in your FDM and RTD businesses, I'm curious, I'm not looking for specific guidance. But what is sort of a reasonable growth rate to assume in both? I'm not sure if you could just provide kind of context just about how you're thinking about medium-term growth in both of those.

We're not going to guide specifically, George. But I think that you can kind of do some math on your own relative -- I mean, the growth this year is all coming from the FDM market or the wholesale market, which includes both. We've talked about our ACV goals relative to FDM. So, we expect to be fully deployed by the end of 2025, and I think you can see somewhat of a normal dispersion map of that increase over that year than 3 quarters' time period. And then relative to RTD, we're spending our time, refining our distribution network. We did some consolidations this quarter and changed a couple of distributors in Colorado and California. So, we're getting more efficient with our existing distributor network, but we also have plans to work, to expand that either by growing our own distributor network or partnering. So, that is a little bit more binary because of that. But we do plan to come back towards the end of the year with a longer range plan that will not only include more details on these 2 pieces of wholesale, but also our longer-term plans relative to retail as well.

Understood. You're saying that, that's something you plan to release publicly later this year?

Yes. And that has to do with really refining our tactical pause -- well, using the tactical pause to really refine our strategy in retail, because it is something that will fuel our longer-range plans even more so than core FDM because we expect to be fully deployed in core FDM by the end of next year.

Okay. And then 2 quick modeling questions. Curious if you could provide your Walmart share? And then secondly, on the loyalty accounting change that you mentioned, Steve, is there any kind of EBITDA impact on that? Or do you back that out of EBITDA?

On the latter one, it was -- which accounting change, sorry?

You mentioned that loyalty program, the 1Q....

No, it's in EBITDA. It was recognized into revenue and flowed straight to the bottom line.

Okay.

And on your Walmart question, we grew -- we continue to grow 24%, and our share is at 4.3 right now.

[Operator Instructions] Our next question is from Matt McGinley with Needham & Company.

You had a fantastic quarter for gross margin improvement, but you kept the full-year guidance the same at 37%, 40%, despite generating 43% gross margin in the first quarter. I know you called out that DTC revenue release is a 2 point benefit that goes away. But I think you also get some benefit from your barter transactions. But I'm just wondering like what else goes away that was a benefit? Or is there some change in mix that then pushes your gross margin to the lower end of that, or below what you clearly did in the first quarter? Stephen M. Kadenacy BRC Inc. – CFO & Principal Accounting Officer Thanks, Matt. Well, we guided to the upper end of that 37% to 40% range. Right now, we've seen 1 quarter above 40%. We got there quicker. I would say, most of all -- with that and quite frankly, our adjusted EBITDA guidance of $32 million to $42 million, we're being cautious. We've had a great quarter. We've really tightened the business efficiency over the last 6 months, 7 months relative to a year ago. We're really running quite efficiently on a number of metrics. However, we recognize that we need to invest back in the business, and that's going to take effort, particularly on the bottom line. This probably doesn't completely directed at your gross margin question. But we're being super cautious to make sure that we can constantly do what we say we're going to do and exceed expectations.

I think just to build on Steve's point a little bit to illustrate kind of how that might play out, I mean, I think we have some good detail in some of the presentation slides that we released on the margin improvement that we put in place. There are, as we called out, some one-time occurrences. Steve was very clear about that. There's also a lot of -- most of it is driven by clear fundamental changes in the business, and we're really pleased about that. To Steve's point, we need to see that play out. But a lot of the decisions that we've been able to make on the RTD business and consolidating our supply chain, our planning, you may recall even 3, 4 quarters ago, we talked about putting significantly better planning resources in place for inventory control, but that's also led to the ability to drive cost out of the supply chain. Those things are obviously real. And as far as how that plays out in the total P&L, what that does is it gives us great opportunity. So now as we take on new customer distribution, which we've talked about, obviously, quite a bit already, we have additional investment we can make there. We're still not going to be driving heavy price promotion. That's not what we are. We're a super premium business, but there are many other investments we can make with customers in order to be able to really get the brand off to a great start. And again, for that reason, we just want to make sure that we're building a little bit of conservatism into what that looks like.

Got it. And for the -- what will be the Keurig Dr Pepper partnership provide you that your current co-packers can't deliver on? You know that, that will take some time for that to show up. But I guess, what channel does that give you access to? And how does that accelerate the top line over time and provide for operating efficiencies?

Yes. There's really, I think, 3 great advantages to doing this. I mean, the first is just -- they're the best in the business. There's no other way to cut it. They're the ones that invented this technology. Their ability to produce at the highest quality levels consistently and put the very best product on shelf is astounding. They blew us away with that. And we agreed that for a super premium brand like Black Rifle, not that we aren't proud of the other pods we've distributed historically, but this puts us at an even higher level. The second piece is it gives us some great efficiency. I won't go into all the details of that. But as I talked about, the ability to consolidate down our supply chain, keep things simpler, being able to have one scaled manufacturer like that, that has such incredible capabilities across the market from a distribution standpoint, et cetera, helps as well. And then the third, you call out in the beginning is the ability to actually drive incremental sales. So, yes, there are a lot of opportunities. I don't necessarily want to pin down any specific one because we're still in the process of building that plan out with Keurig Dr Pepper, but it gives us access to all of the areas that you would find their products, right? So when you think about hotels, office, some of the channels or customers maybe that we don't want to have to build our own sales force against, they can help us with club. And then we also mentioned this -- I mentioned this earlier, their website. They have done a fantastic job of building a coffee business on keurig.com, gives us access to that as well.

There are no further questions in the queue. I would like to hand the call back over to Christopher Mondzelewski for any closing comments.

Yes. So, I'll close the call the way that I traditionally like to do it. I think this quarter is, I guess, maybe the most important quarter of the year for us in a lot of ways as we end this quarter. We come up against Memorial Day, which is a period that we hold sacred at Black Rifle. I'll just end the call by calling out. You'll notice that, that is a holiday that we will not promote. We will not do anything. We believe that is something that should only be a day of remembrance. So, I guess, since I won't have a chance to talk to all of you on Memorial Day, I'll just call out now that everybody please reflect on that weekend. Certainly, for us here, 60% better in workforce. We all know a lot of people who have lost their lives over the years in combat, in the military. So, that's what we will be focusing on that weekend. But other than that, we're going to continue to press our resources towards the improvements that we've been putting in the business and we're thrilled with the progress we've made.

Thank you.

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