Greetings, and welcome to the Black Rifle Coffee Company Fourth Quarter and Fiscal Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Matthew McGinley, Vice President of Investor Relations for Black Rifle Coffee Company. Thank you. You may begin.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. We released our results yesterday, and they can be found on our website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the Company's safe harbor statement. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risk and uncertainties which could cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA and free cash flow. Whenever we refer to EBITDA, we mean adjusted EBITDA, unless otherwise noted. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would like to now turn the call over to Chris Mondzelewski, CEO, of Black Rifle Coffee. Mondz?

Thanks, Matt. Good morning, everyone. Joining me today are Steve Kadenacy, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. In 2024, Black Rifle focused on strengthening our core business to position the company for long-term success. Strategic investments in operations, infrastructure, and brand drove meaningful financial improvements while enhancing our operating structure and efficiency. These efforts have laid the foundation for scalable growth that will expand our market reach and drive long-term profitability for the business. I'm pleased with this distribution growth, financial improvements, and adjacent category expansion we achieved in fiscal year 2024. Adjusted EBITDA tripled, gross margin improved by 9.5 points, and we saw outstanding distribution growth in packaged coffee at grocery with ACV increasing by 28 points to 45% over the year. These improvements demonstrate the strength of our business model and the results we can achieve with disciplined execution. Looking ahead to 2025, we will remain focused on driving brand awareness, expanding distribution and deploying capital efficiently to maximize returns. We remain committed to product innovation in existing categories while expanding into new segments, including our recent launch of Black Rifle Energy. The Energy launch is off to a strong start and will continue to ramp throughout 2025 and 2026. In packaged coffee, we continue to gain share and expect further retail expansion, including new distribution and an increased shelf presence at existing food, drug, and mass retailers as we add SKUs. While our direct-to-consumer segment is not a primary growth driver, it remains an important part of our long-term strategy that connects us to our most loyal consumer. Our focus in 2025 will be on stabilization and optimization of this channel. Moving to Slide 7. According to Nielsen consumption data in the U.S. food, drug, and mass channels, the coffee category…

Thank you, Mondz. I'll start with Slide 12. While revenue declined by 1% in 2024 compared to 2023, we saw solid growth in bag coffee, pods, RTD coffee, and energy. The offsets were Outpost, DTC, and a normalizing trend in liquidation-related revenue from the prior year. We continue to believe our Wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to grocers, mass merchants and convenience stores will be the primary driver for Black Rifle. As such, we remain focused on gaining new retail distribution, expanding our shelf presence with existing retail customers and supporting velocity growth through marketing and promotions. Our segment level performance for 2024 reflected our strategic shift towards the Wholesale segment. Wholesale revenue increased from 57% of total sales in 2023 to 63% in 2024. Wholesale segment revenue grew 9% in 2024 or 13%, excluding barter transactions. Sales to FDM retailers were 3.5x higher in 2024 than they were in the prior year, and sales to our largest customer grew by 8% year-over-year. Our direct-to-consumer segment saw a revenue decline by 14% in 2024. This was driven by the growing availability of Black Rifle products in retail, shifting consumer preferences away from direct-to-consumer channels and our deliberate reallocation of resources towards wholesale and away from DTC. Moving down the P&L. By building operational efficiency and deploying resources towards the highest return initiatives, we meaningfully improved our margin rate, profitability, and free cash flow generation in 2024. Gross margin improved by 950 basis points to 41.2%. The majority of this increase was driven by supply chain productivity and the cycling of ready-to-drink transformation costs. Investment in trade spend and pricing was a 150 basis point headwind to the gross margin, while coffee inflation had a 50 basis point impact on gross margin for the year. Adjusted…

[Operator Instructions] Our first question comes from the line of [ Glenn West ] with William Blair.

Glenn West stepping in for Jon Andersen here. I think Mondz mentioned Energy is at about 17% ACV as of the end of the first quarter. Maybe you could let us know kind of where you expect distribution to be kind of exiting the year. And I know Monster on their recent call kind of talked about like a resurgence in the energy category. So if you start to see kind of the category starting to pick up more rapidly, is there kind of optionality to get more distribution out earlier than you have planned?

Glenn, thank you for the question. Yes, look, we're very excited. As we talked about in our last call, prior to ever launching Energy, and I just reinforce that we feel great about our overall product offering. We believe we've got an ingredient line flavor profile that's going to be successful any way that you cut it. And then, yes, we did talk about a recovery of the category. There had been conversation about the category declining at one point. The category is actually, as a total, growing 5% now. And the No Sugar segment, which is what we compete in, is growing significantly faster than that. So we feel great about the category dynamics. As far as our own launch, our distribution is growing rapidly week-by-week. So yes, we're well up over 17% ACV. I'll remind everyone that at our conference, we talked about a goal for the year between 20% and 30% ACV. We're not in a position to change our guidance on that. But clearly, we feel great about the progress only in the beginning of March to be already taken such a significant portion of that goal. On top of that, in limited measurement, we're actually seeing the product turn reasonably well in the retailers that we have begun distribution. So expect that in Q2, we'll provide some more details on overall performance as we'll be into the season by then, and we'll have more data, but we're really excited about the start.

And maybe if I can squeeze one more in kind of on Energy. In terms of marketing spend, I know you had kind of mentioned you're going to try and match with distribution as it's ramping up. Kind of more specifically, when are you going to kind of fully ramp up the ad spend and kind of push the Energy product? I know you guys have been running past 2 quarters about 10% of sales marketing spend, but when are we going to kind of see that ramp up?

Yes, great question. So with the marketing spend, as we talked about at ICR, we're going to be putting a significant portion of our budget towards Energy. And as a lifestyle brand, the great thing is as we build Black Rifle, all boats rise behind that. So we feel good that that will impact our entire business. As far as timing and focus, we've got a great plan in place. So a lot of it has not hit the market yet, as you would expect with energy, it's more of a summer season selling period. So expect the marketing to start to come on in March, but really start to heavy up as we get closer to those key 90 to 120 days of summer months. That's when we're going to get the best return on a lot of that marketing. Likewise, we're working very closely with our partners, Keurig Dr Pepper, to ensure that we really focus that spending in the most important markets for us in a launch year. So looking at some of the category indexes and some of the brand indexes, we will ensure that we have heavy up spends against what we believe are going to be the most important markets for us to demonstrate success in. So again, come Q2, once we have some of that marketing out in the market, I'd be very happy to share some of the specifics of that.

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

First, with respect to your DTC business, I was hoping you could be a little more specific just on your plans to stabilize that business. And I know you don't guide by segment, but can you help at all just with respect to sort of what's baked into your 2025 guidance for when you anticipate the revenue line there stabilizing?

So let me kick off a little bit on what we're actually doing, your question around what we're actually doing to stabilize it. And then I'll kick it over to Steve a bit to talk to the guidance. So with the DTC business, one of the things I want to reinforce is we're staying very focused with the resourcing. We are fortunate to have some real subject matter experts in that business now. And it's not about putting additional spend. As I just talked about, we're really going to be skewing our spend towards our continued wholesale expansion as well as our Energy launch. But with the limited spending we have, we want to deploy those resources in a very direct manner where we can focus on our subscribers. We're pleased that in recent months, we've actually seen a stabilization. What I mean by that is that we're losing and gaining subscribers now at the same rate. So that was first step for us as far as stabilization of subscriber counts. And over the next year, what we're going to continue to focus on is actually to grow subscribers in the business versus going out and looking to bring in onetime buyers. We will not be spending -- as we have not been in the last 12 months, we will not be spending additional marketing dollars to go out and attempt to convert new onetime buyers in the business. We'll be focusing very much on subscription-based programs and how we bring those most loyal consumers inside of our walls. Again, when you have a subscriber, the LTV of that subscriber can be anywhere from $200 to $600. It's a great payback for our business in the way that we're able to not only financially, but in the way we're able to communicate with those subscribers. So that will be the focus for us. As far as the non-subscription component of the business, we're going to continue to stick to our mantra, which is we want consumers to buy where they're most comfortable buying. If they want to come to our site and buy, that's great. We will have that available. If they want to go to another digital site like an Amazon or walmart.com, we have great businesses there. Or of course, as we've talked about, we're growing our brick-and-mortar business every year. Steve?

Yes. The only thing I would add is there's a lot of really good things happening within our DTC business. As Mondz mentioned, we're seeing a stabilization in the subscribers, which really drives the base of that. But we've also reinvigorated the merchandise and gear drops that we have, and we're seeing -- we track DTC on a daily basis, and we're seeing positive numbers relative to our expectations and a decrease in the decline already in the first quarter here. We also are doing quite well on Amazon, which is in this segment as well, and we're seeing very good increases on Amazon. So within our guidance, we're not overly dependent on DTC growing. However, if it does stabilize and outperform, it could be upside to our guidance.

And then just 2 quick follow-ups for me. First, on your largest customer, excuse my voice, I'm losing my voice here. I'll try to get through this. Your largest customer, I think, is flattening out. I was curious if I'm reading into your 10-K correctly. What's kind of the recent trend there? And then secondly, more of an accounting question. The barter transactions, the marketing sort of benefit that you'll receive, how do you expect that to flow through your P&L in 2025? And then I'll hop back in the queue.

Let me start out addressing our largest customer. I'll kick it over to Steve to talk a bit to the barter transactions. So we're thrilled with our continued progress with our largest and first customer. We have over $110 million business now. It continues to be by far our biggest source of revenue. We did see some flattening in the last year, but that was expected as we continue to expand the remainder of the market. There was an expectation that we would see possibly even some decline, which in our key segments of ground and pods, we actually did not see. We did lose a canister item. We continue to work with them on what the right overall assortment is going to be for us overall. But again, as we think about how our business stacks up, we're sitting now as the #4 brand in bags. We're sitting as the #6 brand overall in pods. And we feel great about the next 12 months, the conversations we're having about adding other items, innovation items that will be coming on as we think about the back part of the year. So yes, there has been a bit of a slowing that was expected for us with expansion of the total market, but we feel great about the position we are in, and that continues to be our #1 relationship in the market.

On the media credits, we're actually quite excited to begin to use those more robustly in 2025. Reason is that a lot of the practical usage of those is highly applicable to our Energy launch. And the way that floats from an accounting perspective is we have an asset on the balance sheet and the media credits. And when we use those, it accretes into our marketing expense line. However, from a cash perspective, the dollar of marketing expense is actually sometimes $0.30, sometimes $0.60 depending on what we use it for. So it's a very efficient P&L usage from a cash perspective, which is obviously super important for a growth business.

Maybe, George, maybe just one follow-up on the comment about our largest customer. We were up around 8% with them year-over-year in 2024. You can see that from the disclosures we put in our 10-Ks and Qs. So we're pleased with that program, and we actually did see growth with our largest customer this year.

Our next question comes from the line of Daniel Biolsi with Hedgeye.

So what are your plans for price increases? And is that really just contemplated for the bagged coffee, and is that reflected in the 2.5% green coffee inflation?

So we would always have the discussions with our customers about pricing before we would take that in a public forum. While we have about 1.5% market share of the total category, we're really more of a follower than a leader in terms of pricing. As you may have seen, our competition recently instituted some price increases, and we're watching those impacts closely. Based on that, we might have the opportunity to take some price and offset some of the margin pressure we're currently experiencing there. We haven't announced any prices to the street in terms of -- or price increases to the street yet. But I would note that coffee as a commodity is up over 100% year-over-year. It's more than doubled. We've been very favorable in the pricing that we've been able to contract with that, and we're fully locked in for this year. And we're seeing a price increase that's only about 35% compared to the spot rate that's over 100%. But like I said, we're mindful of what's happening within the market, and we're analyzing the opportunity to potentially address that with pricing.

So additional price increases could represent upside to the guidance?

We have no price increases currently in our estimates for 2025. So if we were to take price, yes, it would be upside.

And then for the Energy drink launch, how much was shipped into Q4? And for the slotting fees that are -- is that going to be really captured in Q1 rather than Q4? And as that distribution ramps up, should we expect sort of the slotting fees to not be an incremental increase because of what is going to be incurred earlier on?

So for energy drinks, we did have some -- we did have some shift into Q4. I'm not going to talk specifically to the number. I think overall, as we've talked about, as we have been loading in in Q1, we're well ahead of our expectations as far as how we're seeing the distribution grow in the market. So I would say that anything that occurred as far as preloading of distributors in Q4 versus what we have planned in the 2025 guidance, that's all built in, and that's all been pacing the way that we have expected it to.

And as far as the gating on that product or trade promotion that we would expect, I mean, there is more of it that does occur in the front half. We also would have more coffee inflation in the first half of the year. So our year-over-year change in gross margin would likely be the biggest in the front half of the year when those 2 impacts are the largest, but we'll have trade investment that will span throughout the course of the year.

[Operator Instructions] Our next question comes from the line of Bill Chappell with Truist Securities.

This is [ David Fulcrum ] on for Bill Chappell. So I guess with kind of tariffs being a topic of conversation of yours, just wondering if you could kind of remind us how much of your COGS exposure is to aluminum? And do you all have any like hedging programs in place? And if so, what kind of time frame would you have on those?

We do not have hedging programs relative to aluminum. But our supply chain guys have a pretty good handle on what we're going to need for this year, and we're not seeing significant headwind there.

Specifically around the packaging, packaging is around the low double-digit percentage of our total COGS. Cans would be a very small percentage of that. We're more exposed to some other commodities than we are to cans.

And I guess one more kind of housekeeping question. I was just wondering if you could help us unpack the other expense line item, kind of a big jump in that. Is that something that we need to be keeping an eye on going forward?

Yes. The jump there was just a noncash impairment of 3 of our coffee shops relative to the CapEx that we had on that were underperforming. They're still open and operating, but we did impair the capital expenditures that had previously been spent. And I wouldn't expect ongoing there. We always look at impairments based on how they're performing, and there could be subsequent ones, but I wouldn't plan significant ones in any particular quarter.

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

My first question is about the distribution of energy drinks. You have focused on 12 priority markets. Can you share a little bit more color on the distribution ramp? Is it mass market? Is it convenience store in this priority market? Or is it like the convenience store comes after the mass market? I'm just trying to understand how the ramp of distribution goes for the energy drinks this year and into next? Like is there channels that you are targeting, markets you are targeting? I'm curious to know how you ramp up the energy business.

Yes, thanks, Sarang. Let me give some general outline on it. I think the -- so as we talk about those 12 markets, those 12 key markets will be blitz is the term we're using, through the end of March and the beginning of April. So while there is limited distribution starting to grow already in the C-store channel, you're really going to start to see the increases hit as you get towards the end of May and the beginning of April when many of those C-stores, whether they're larger chains or whether they're mom-and-pop C-stores are changing out their shelf sets for the summer season. On top of that, as you call out, we do have larger mass customers, including our largest customer, which have come online earlier. These tend to come online all at once as they do a general shelf set change, particularly the center store component of their business. So as that has happened, in this particular case with our largest customer, you saw a pretty significant increase right out of the gates at the beginning of the year. And that will be the case with any of the mass customers that come on. So it will come on in more of a step function than a general build. But yes, I mean, to give general guidance on it, I think you're going to continue to see a steady build as we're seeing now. And then again, as we hit that March, April time frame, there will be an acceleration of that as we go into the season. Our focus this year, as we've talked about, will very much be in convenience store within those core markets that we talked about. We'll be working hand-in-hand with Keurig Dr Pepper. This is where their capability of their, what they call, up and down the street sales force is key to us. It is the DSD drivers who are able to access a lot of the convenience store that we would not be able to access on our own. So we will focus on that as a strategic advantage. And we will do so knowing that convenience store is really the #1 form of trial. We will, of course, have marketing events, et cetera, in order to allow consumers to be able to try our product, but the #1 component of trial will come from C-store distribution in those focused markets. And then a lot of the repeat volume will come in the mass channel that we're adding either at the same time or as you mentioned, in some cases, will come afterwards. So look, we'll continue to drive this. And the goal over the next 2 years is to drive it, as we talked about, to full national distribution, but we want to do it in a really focused manner where we can hit the geographies first that we know we have our marketing against in order to increase our chances of success.

And my second question is on product innovation or changes on the merchandising side. Can you talk about some of the newness that you are trying to bring into '25? I specifically remember a slide in your Analyst Day at ICR, where one of the slides said product innovation in RTD coffee launching in second half of '25. So I'm curious if you could talk about some kind of a newness coming in on the coffee side beyond the energy drinks.

I'm not going to provide specifics of any innovation that we haven't launched yet. But suffice to say, we are working on innovation in every segment that we compete in. Innovation is a key part of our success. It has been up to now. We'll continue to innovate against center store. So we have new items that we're working on with some of our largest grocery and mass partners for increased distribution. The goal for us -- and I point to a distribution statistic maybe to outline this, right? So if you look at last year, we grew -- we're at about 47% ACV in grocery. We grew about 10% overall in ACV. We grew 20% in what we call total points of distribution twice as fast as what we were growing in ACV. So what that means is that not only are we adding depth -- I'm sorry, not only are we adding breadth in new customers, but we're adding depth to our existing customers. And a lot of that comes through the innovation that we're doing going forward. So as we look to continue to add breadth to our existing customers that we're having success with, we will continue to build items that we believe are relevant to the shelf set in order to do that. Similarly, when it comes to RTD coffee, we had a fantastic year where we were able to add distribution. We were able to grow velocity. And despite a declining category, we had significant growth for the year at 5% and we're now sitting as the #3 brand in RTD coffee. So it puts us in a very strong position to be able to move on innovation items there as well. And then finally, on Energy, we're, of course, just launching it as we speak, but we believe very much in being prepared for success. So suffice to say, we have plans there as well as we think about different pack configurations that we would need for different channels or even flavor expansion as we push forward with that business. All of these things are being planned in the background.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Mondzelewski for any final comments.

Yes. I'll just close the session today by saying, we're extremely excited about the potential of our new Energy business. We're very, very excited about the continued progress of our center store coffee and RTD coffee businesses. But I'm going to close with just a quick personal note. This will be my last meeting with Steve. Steve has been an incredible partner as our CFO for the last 18 months. I'd remind everyone, he was a key investor in the business in the early days. He really brings to life the Black Rifle ethos in the sense that as an investor in the business, he chose to roll his sleeves up, come into the business with us, really put us into a very strong position as he is now going to move on to, thankfully, a role also within Black Rifle on our Board. So I'm delighted that I will continue to get to work with Steve, and I just want to thank him very much for what he brought to our business. And with that, I hope everyone has a wonderful day.

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