BRC Inc

Previous wording

Black Rifle Coffee Company is a rapidly growing Veteran-led premium coffee and media company that operates through three channels: Wholesale, Direct to Consumer ("DTC"), and our Outpost Retail Stores. Our business started with a loyal and quickly expanding community of consumers through our DTC channel, through which we now have approximately 209,000 active Coffee Club subscribers as of March 31, 2024. We are now experiencing rapid growth in our Wholesale channel as we have continued our expansion into grocery stores, specialty stores, and other intermediaries. Our Outpost channel experienced growth through 2023 during the initial rollout of our Outpost retail stores; however, we anticipate limited growth in this channel in 2024 as we evaluate our strategy for retail stores, and we expect to recommence investment in this channel in future years.

Current wording

Black Rifle Coffee Company is a rapidly growing Veteran-led premium coffee and media company that operates through three channels: Wholesale, Direct to Consumer ("DTC"), and our Outpost Retail Stores. Our business started with a loyal and quickly expanding community of consumers through our DTC channel, which benefits from approximately 201,200 subscribers as of June 30, 2024. We have experienced recent declines in this channel as our points of distribution have expanded in other channels and consumers find the brand where they shop. Focused growth in our Wholesale channel continues as we have expanded into grocery stores, club stores, specialty stores, and other intermediaries. Our Outpost channel experienced growth through 2023 during the initial rollout of our Outpost retail stores; however, we anticipate limited growth in this channel in 2024 as we evaluate our strategy for retail stores, and we expect to recommence investment in this channel in future years.

Previous wording

To support our premium quality product, we own one roasting facility focused on large and small batch roasting. Our coffee beans are primarily roasted in-house and 100% in the United States to ensure consistency and quality of product. Our coffee beans are sourced only from the highest quality suppliers. Our state-of-the-art equipment guarantees freshness and offers significant capacity for expansion.

Current wording

To support our premium quality product, our coffee beans are primarily roasted in-house at our Tennessee based roasting facility and 100% in the United States to ensure consistency and quality of product. Our coffee beans are sourced only from the highest quality suppliers. Our state-of-the-art equipment guarantees freshness and offers significant capacity for expansion.

Previous wording

•Outpost channel revenue has decreased due to declining volumes at our existing Outpost retail locations. We anticipate limited growth in this channel in 2024 as we shift investments into other channels while we work to improve the quality of our earnings through operational and strategic changes, some of which might result in store closures for underperforming Outposts. We expect accelerated growth in the Outpost channel in future years as investments shift back.

Current wording

•Outpost channel revenue has decreased due to declining volumes at our existing Outpost retail locations. We anticipate limited growth in this channel in 2024 as we shift investments into other channels while we work to improve the quality of our earnings through operational and strategic changes, some of which might result in store closures for underperforming Outposts. We expect accelerated growth in the Outpost channel in future years as we recommence investment in this part of our business.

Previous wording

Our ability to promote and maintain brand awareness and loyalty is critical to our success. We believe we have created a highly efficient marketing strategy that provides us the ability to increase brand awareness and drive consumer interaction. Consumer appreciation of our brands is primarily reflected in the increase of our sales across our three channels over the last few years. We expect to continue to develop and implement forward-looking brand strategies that leverage social media and employ targeted digital advertising to expand the reach of our brand.

Current wording

Our ability to promote and maintain brand awareness and loyalty is critical to our success. We believe we have created a highly efficient marketing strategy that provides us the ability to increase brand awareness and drive consumer interaction. Consumer appreciation of our brands is primarily reflected in the increase of our sales across our three channels over the last few years. We expect to continue to develop and implement forward-looking brand strategies that utilize highly efficient, reach-based formats such as national television, streaming advertising, and other select avenues. In addition, we will leverage our social media footprint and employ targeted digital advertising to expand the reach of our brand.

Previous wording

We believe our ability to consistently acquire and retain new customers at a reasonable cost will be a key factor affecting our future performance. We continue to have a strong presence activating in major markets to reach new consumers and drive brand awareness. As a result our brand awareness is showing tremendous growth, reaching an estimated 30% in the United States. To accomplish our goal of continuing to extend brand awareness, we will continue deploying to highly efficient, reach-based formats such as national television, streaming advertising and through select partnership opportunities. In addition, we will strive to strengthen our social media footprint across various platforms such as Facebook, Instagram and YouTube. As we continue to expand our deployment venues, our expertise in digital creative and engagement provides a distinct advantage to reach, engage and convert our consumers. We will continue to utilize marketing measurement to ensure our advertising and marketing spend is effective and efficient while expanding our brand reach.

Current wording

We believe our ability to consistently acquire and retain new customers at a reasonable cost will be a key factor affecting our future performance. We continue to have a strong presence activating in major markets to reach new consumers and drive brand awareness. As we continue to expand our deployment venues, our expertise in digital creative and engagement provides a distinct advantage to reach, engage and convert our consumers. We will continue to utilize marketing measurement to ensure our advertising and marketing spend is effective and efficient while expanding our brand reach and managing customer acquisition cost and returns on marketing investments.

Previous wording

Our goal is to continue to expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time. As an example, we launched RTD coffee products in March 2020 with two 11-ounce SKUs. We have since added another 11-ounce SKU and three high-caffeine, boldly-flavored 15-ounce SKUs. Four of these SKUs grew to become top-35 products in the RTD coffee category, both in units and dollars in 2023, and realized All Commodities Volume ("ACV") of 43% at March 31, 2024. Moving forward, we believe that it is important to our business that we continue innovating with new products and flavors and continue to explore the world to find the highest quality beans possible to deliver to our customers.

Current wording

Our goal is to continue to expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time. We realized All Commodities Volume ("ACV") of 47% at June 30, 2024. Moving forward, we believe that it is important to our business that we continue innovating with new products and flavors and continue to explore the world to find the highest quality beans possible to deliver to our customers.

Previous wording

This discussion and analysis pertains to comparisons of material changes on the unaudited consolidated financial statements for three months ended March 31, 2024 and 2023. The following table represents the selected results of operations for BRC Inc. for the periods indicated (dollars in thousands, unaudited):

Current wording

This discussion and analysis pertains to comparisons of material changes on the unaudited consolidated financial statements for three and six months ended June 30, 2024 and 2023. The following table represents the selected results of operations for BRC Inc. for the periods indicated (dollars in thousands, unaudited):

Previous wording

We sell our products both directly and indirectly to our customers through a broad set of physical and online platforms. Our revenue, net reflects the impact of product returns as well as discounts and fees for certain sales programs, trade spend, promotions, and loyalty rewards.

Current wording

We sell our products both directly and indirectly to our customers through a broad set of physical and online platforms. Our net revenue reflects the impact of product returns as well as discounts and fees for certain sales programs, trade spend, promotions, and loyalty rewards.

Previous wording

Net revenue for our DTC channel for the three months ended March 31, 2024 decreased $4.2 million, or 11%, to $32.6 million as compared to $36.8 million for the corresponding period in 2023, primarily due to lower customer acquisition due to declines in the overall DTC market as well as a strategic shift in advertising spend to other areas with higher returns and reduced promotional offerings to focus on profitability.

Current wording

Net revenue for our DTC channel for the three months ended June 30, 2024 decreased $4.6 million, or 13%, to $30.0 million as compared to $34.6 million for the corresponding period in 2023, primarily due to lower customer acquisition due to declines in the overall DTC market, a strategic shift in advertising spend to other areas with higher returns, and an increase in points of distribution in the Wholesale channel, that provides increased brick and mortar availability for the Black Rifle Coffee consumer. This decrease was partially offset by an increase of $1.8 million as a result of the decrease in the accrual for loyalty rewards points as a result of BRCC's change in policy around expiration of points in the first quarter of 2024.

Previous wording

Cost of goods sold for the three months ended March 31, 2024 remained flat compared to the corresponding period in 2023. Gross margin increased 990 basis points to 42.9% for the three months ended March 31, 2024 as compared to 33.0% for the corresponding period in 2023. The increase in gross margin was a result of product mix shift, as the FDM market has higher margins, productivity improvements in our RTD products and warehousing costs, and lower green coffee costs.

Current wording

Cost of goods sold for the three months ended June 30, 2024 decreased $8.0 million, or 13%, to $51.8 million as compared to $59.7 million for the corresponding period in 2023. Gross margin increased 680 basis points to 42% for the three months ended June 30, 2024 as compared to 35% for the corresponding period in 2023. The increase in gross margin was a result of product mix shift, as the FDM market has higher margins, productivity improvements in our RTD products and warehousing costs, and lower green coffee costs.

Previous wording

Marketing and advertising expenses increased by $0.5 million, or 7%, to $7.6 million as compared to $7.1 million for the corresponding period in 2023. This increase was due to our expansion of partnerships, including our engagement with UFC.

Current wording

Marketing and advertising expenses for the three months ended June 30, 2024 increased by $0.4 million, or 6%, to $7.4 million as compared to $7.0 million for the corresponding period in 2023. This increase was due to our expansion of partnerships, including our engagement with UFC.

Previous wording

Salaries, wages and benefits expenses decreased by $4.6 million, or 23%, to $15.3 million as compared to $19.8 million for the corresponding period in 2023. This decrease, as part of our cost savings initiative, was primarily due to lower compensation costs driven by reductions in headcount during 2023 for which we realized the full benefit in the first quarter of 2024.

Current wording

Salaries, wages and benefits expenses for the three months ended June 30, 2024 decreased by $0.7 million, or 4%, to $17.6 million as compared to $18.4 million for the corresponding period in 2023. This decrease, as part of our cost savings initiative, was primarily due to lower compensation costs driven by reductions in headcount during 2023 for which we realized the full benefit in 2024.

Previous wording

General and administrative expenses decreased by $2.4 million, or 14%, to $15.3 million as compared to $17.8 million for the corresponding period in 2023. This decrease, as part of our cost savings initiative, was due to reductions in our corporate infrastructure and support that were inefficient or duplicative, including professional services, information technology, and office space.

Current wording

General and administrative expenses for the three months ended June 30, 2024 decreased by $8.3 million, or 43%, to $10.9 million as compared to $19.3 million for the corresponding period in 2023. This decrease, as part of our cost savings initiative, was due to reductions in our corporate infrastructure and support that were inefficient or duplicative, including professional services, information technology, and office space.

Previous wording

Net revenue for our Wholesale channel for the three months ended March 31, 2024, increased $20.4 million, or 51%, to $60.4 million as compared to $40.0 million for the corresponding period in 2023. The Wholesale channel performance was primarily driven by entry into the FDM market along with increased sales in our RTD product line.

Current wording

Net revenue for our Wholesale channel for the six months ended June 30, 2024, increased $24.2 million, or 27%, to $114.2 million as compared to $90.0 million for the corresponding period in 2023. The Wholesale channel performance was primarily driven by continued growth of packaged coffee in the FDM market along with increased sales in our RTD product line. In addition, we recognized revenue related to a barter transaction whereby we exchanged finished goods inventory for prepaid advertising credits.

Previous wording

Net revenue for our Outpost channel for the three months ended March 31, 2024, decreased $1.4 million, or 20%, to $5.4 million as compared to $6.7 million for the corresponding period in 2023. Revenue decreased primarily due to lower transaction volumes across all stores in the first quarter of 2024 compared to the corresponding period in 2023.

Current wording

Net revenue for our Outpost channel for the six months ended June 30, 2024, decreased $3.4 million, or 24%, to $10.6 million as compared to $14.1 million for the corresponding period in 2023. Revenue decreased primarily due to lower transaction volumes across all stores in the first half of 2024 compared to the corresponding period in 2023, due to lower Retail traffic.

Previous wording

Interest expense for the three months ended March 31, 2024 increased $1.7 million, or 535%, to $2.1 million as compared to $0.3 million for the corresponding period in 2023. The increase was primarily attributable to the increase in average debt balance and higher interest rates under our new term loan facility. The increase in interest rate is a result of our refinancing in the third quarter of 2023, whereby we entered into a new $75.0 million senior credit facility and a $50.0 million term loan facility with interest rates of term Secured Overnight Financing Rate plus 2.60% to 3.10%, based on average excess availability of the borrowing base and term SOFR plus 8.50%, respectively. This is compared to the interest rate under our previous senior credit facility of Bloomberg Short-Term Bank Yield plus 2.00% to 2.25%, based on average excess availability of the borrowing base.

Current wording

Interest expense for the three months ended June 30, 2024 increased $1.5 million, or 191%, to $2.3 million as compared to $0.8 million for the corresponding period in 2023. The increase was primarily attributable to the increase in average debt balance and higher interest rates under our new term loan facility. The increase in interest rate is a result of our refinancing in the third quarter of 2023, whereby we entered into a new $75.0 million senior credit facility and a $50.0 million term loan facility with interest rates of term Secured Overnight Financing Rate plus 2.60% to 3.10%, based on average excess availability of the borrowing base and term SOFR plus 8.50%, respectively. This is compared to the interest rate under our previous senior credit facility of Bloomberg Short-Term Bank Yield plus 2.00% to 2.25%, based on average excess availability of the borrowing base.

Previous wording

Our primary sources of cash are (1) cash on hand, (2) cash provided by operating activities, and (3) net borrowings from our credit facilities. As of March 31, 2024, our cash and cash equivalents was $4.0 million, our working capital was $6.3 million, and under our credit facilities, we had $11.5 million of available borrowings, after the consideration of the $15.0 million reduction required before the Availability Block Release Date, the date on which we have maintained a fixed charge coverage ratio of not less than 1.10 to 1.00 for two consecutive fiscal quarters following August 10, 2023, and no defaults or events of default are then continuing. Our ability to draw from the credit facilities is subject to a borrowing base and other covenants. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for at least the next twelve months.

Current wording

Our primary sources of cash are (1) cash on hand, (2) cash provided by operating activities, and (3) net borrowings from our credit facilities. As of June 30, 2024, our cash and cash equivalents was $9.6 million, our working capital was $6.3 million, and under our credit facilities, we had $12.8 million of available borrowings, after the consideration of the $15.0 million reduction required before the Availability Block Release Date, the date on which we have maintained a fixed charge coverage ratio of not less than 1.10 to 1.00 based on a trailing four fiscal quarter calculation for two consecutive fiscal quarters following August 10, 2023, and no defaults or events of default are then continuing. Our ability to draw from the credit facilities is subject to a borrowing base and other covenants. The are no defaults or events of default at this time. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for at least the next twelve months.

Previous wording

Net cash provided by operating activities was $4.9 million for the three months ended March 31, 2024, compared to net cash used in operating activities of $15.4 million for the corresponding period in 2023. The total increase of $20.3 million in net cash provided was primarily due to a net loss of $17.3 million improving to net income for 2024 as well as a decrease in cash outflows for inventory and accrued liabilities. These changes were partially offset by decreases in cash inflows from accounts receivable and accounts payable.

Current wording

Net cash provided by operating activities was $7.2 million for the six months ended June 30, 2024, compared to net cash used in operating activities of $40.5 million for the corresponding period in 2023. The total increase of $47.7 million in net cash provided was primarily due to a net loss of $32.0 million improving to net income of $0.5 million for 2024 as well as a decrease in cash outflows for inventory and accrued liabilities. These changes were partially offset by decreases in cash inflows from accounts payable.

Previous wording

Net cash used in investing activities was $2.7 million for the three months ended March 31, 2024, compared to net cash used in investing activities of $4.9 million for the corresponding period in 2023. The $2.2 million decrease in net cash used was primarily due to reduced capital expenditure projects for our Outpost locations and roasting facilities.

Current wording

Net cash used in investing activities was $4.0 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $9.8 million for the corresponding period in 2023. The $5.8 million decrease in net cash used was primarily due to reduced capital expenditure projects for our Outpost locations, roasting facilities and information technology.

Previous wording

Net cash used in financing activities was $10.7 million for the three months ended March 31, 2024, compared to net cash provided by financing activities of $7.3 million for the corresponding period in 2023. The $18.0 million decrease in net cash provided by financing activities was primarily due to a decrease in net proceeds from issuance of long-term debt.

Current wording

Net cash used in financing activities was $7.2 million for the six months ended June 30, 2024, compared to net cash provided by financing activities of $31.1 million for the corresponding period in 2023. The $38.3 million decrease in net cash provided by financing activities was primarily due to a decrease in net proceeds from issuance of long-term debt as we generate positive operating cash flow to fund our operations in the current year.

Previous wording

The Company has entered into several manufacturing and purchase agreements to purchase coffee products from third-party suppliers. The minimum purchase amounts are based on quantity and in the aggregate will be approximately $17.5 million for the remainder of 2024; $26.1 million for 2025; and $30.0 million for 2026. See Note 14, Commitments and Contingencies to the unaudited consolidated financial statements included in Item 1 of Part I of this Quarterly Report for information regarding such manufacturing and purchase agreements.

Current wording

The Company has entered into several manufacturing and purchase agreements to purchase coffee products from third-party suppliers. The minimum purchase amounts are based on quantity and in the aggregate will be approximately $11.7 million for the remainder of 2024; $26.1 million for 2025; and $30.0 million for 2026. See Note 14, Commitments and Contingencies to the unaudited consolidated financial statements included in Item 1 of Part I of this Quarterly Report for information regarding such manufacturing and purchase agreements.

Previous wording

Liabilities relating to operating leases that have commenced as of March 31, 2024 have been reported on the balance sheet as operating lease liabilities. As of March 31, 2024, we have entered into operating leases that have not yet commenced which primarily relate to real estate leases. These leases will commence in fiscal year 2024 and fiscal year 2025 with lease terms of 15 years. Payments on leases are expected to be approximately $3.8 million in the next twelve months, and approximately $44.0 million beyond twelve months through 2043.

Current wording

Liabilities relating to operating leases that have commenced as of June 30, 2024 have been reported on the balance sheet as operating lease liabilities. As of June 30, 2024, we have entered into operating leases that have not yet commenced which primarily relate to real estate leases. These leases will commence in fiscal year 2024 and fiscal year 2025 with lease terms of 15 years. Payments on leases are expected to be approximately $3.7 million in the next twelve months, and approximately $41.1 million beyond twelve months through 2043.