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, 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.

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 194,000 subscribers as of September 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

Revenue decreased to $89.0 million for the three months ended June 30, 2024 compared to $91.9 million for the three months ended June 30, 2023, representing a decrease of 3% compared to prior year, driven primarily by a $4.6 million decrease in our DTC channel and a $2.1 million decrease in our Outpost channel partially offset by a $3.8 million increase in Wholesale revenues. Revenue increased to $187.4 million for the six months ended June 30, 2024 as compared to $175.4 million for the six months ended June 30, 2023, representing growth of 7%, compared to the prior year driven by a $24.2 million increase in Wholesale revenues, partially offset by declines of $8.8 million and $3.4 million in our DTC and Outpost channels, respectively.

Current wording

Revenue decreased to $98.2 million for the three months ended September 30, 2024 compared to $100.5 million for the three months ended September 30, 2023, representing a decrease of 2% compared to prior year, driven primarily by a $3.8 million decrease in our DTC channel and a $0.7 million decrease in our Outpost channel partially offset by a $2.1 million increase in Wholesale revenues. Revenue increased to $285.6 million for the nine months ended September 30, 2024 as compared to $276.0 million for the nine months ended September 30, 2023, representing growth of 3%, compared to the prior year driven by a $26.3 million increase in Wholesale revenues, partially offset by declines of $12.5 million and $4.1 million in our DTC and Outpost channels, respectively.

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. 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.

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 September 30, 2024. Moving forward, we believe that it is important to our business that we continue innovating with new products and flavors.

Previous 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):

Current wording

This discussion and analysis pertains to comparisons of material changes on the unaudited consolidated financial statements for three and nine months ended September 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

Components of Our Operating Income (Expenses)

Current wording

Components of Our Operating Income (Loss)

Previous wording

Net revenue for our Wholesale channel for the three months ended June 30, 2024, increased $3.8 million, or 8%, to $53.8 million as compared to $50.0 million for the corresponding period in 2023. The Wholesale channel performance was primarily driven by growth in distribution of packaged coffee in the FDM market along with increased sales in our RTD product line. In addition, we saw an increase related to a barter transaction whereby we exchanged finished goods inventory for prepaid advertising credits, partially offset by lower revenues in some declining categories impacting select retailers.

Current wording

Net revenue for our Wholesale channel for the three months ended September 30, 2024, increased $2.1 million, or 3%, to $63.7 million as compared to $61.5 million for the corresponding period in 2023. The Wholesale channel performance was primarily driven by growth in distribution of packaged coffee in the FDM market along with increased sales in our RTD product line, partially offset by a $4.2 million decrease related to barter transactions whereby we exchanged finished goods inventory for prepaid advertising credits and decreases in some declining categories impacting select retailers.

Previous 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.

Current wording

Net revenue for our DTC channel for the three months ended September 30, 2024 decreased $3.8 million, or 11%, to $29.0 million as compared to $32.8 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.

Previous wording

Net revenue for our Outpost channel for the three months ended June 30, 2024, decreased $2.1 million, or 28%, to $5.3 million as compared to $7.4 million for the corresponding period in 2023. Revenue decreased primarily due to lower transaction volumes due to lower Retail traffic.

Current wording

Net revenue for our Outpost channel for the three months ended September 30, 2024, decreased $0.7 million, or 11%, to $5.5 million as compared to $6.2 million for the corresponding period in 2023. Revenue decreased primarily due to lower transaction volumes due to lower Retail traffic.

Previous 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.

Current wording

Cost of goods sold for the three months ended September 30, 2024 decreased $9.6 million, or 14%, to $56.9 million as compared to $66.5 million for the corresponding period in 2023. Gross margin increased to 42% for the three months ended September 30, 2024 as compared to 34% for the corresponding period in 2023. The increase in gross margin was a result of product mix shift driven by an increase in the higher margin FDM market, productivity improvements in our RTD products, lower warehousing costs, and favorable changes in inventory reserves.

Previous 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.

Current wording

Marketing and advertising expenses for the three months ended September 30, 2024 increased $1.8 million, or 22%, to $10.1 million as compared to $8.3 million for the corresponding period in 2023. This increase was due to our expansion of partnerships, including our engagement with UFC, higher advertising spend, incremental shopper marketing, and an increase in trade promotions.

Previous 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.

Current wording

General and administrative expenses for the three months ended September 30, 2024 decreased $7.2 million, or 37%, to $12.3 million as compared to $19.5 million for the corresponding period in 2023. This decrease 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 the three months ended June 30, 2024 decreased $2.9 million, or 3%, to $89.0 million as compared to $91.9 million for the corresponding period in 2023.

Current wording

Net revenue for the nine months ended September 30, 2024 increased $9.6 million, or 3%, to $285.6 million as compared to $276.0 million for the corresponding period in 2023.

Previous 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.

Current wording

Net revenue for our Wholesale channel for the nine months ended September 30, 2024, increased $26.3 million, or 17%, to $177.8 million as compared to $151.5 million for the corresponding period in 2023. The Wholesale channel performance was primarily driven by continued growth of packaged coffee in the FDM market. In addition, we had a net $7.7 million increase in revenue recognized related to a barter transaction whereby we exchanged finished goods inventory for prepaid advertising credits.

Previous wording

Net revenue for our DTC channel for the six months ended June 30, 2024 decreased $8.8 million, or 12%, to $62.6 million as compared to $71.4 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 $5.1 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.

Current wording

Net revenue for our DTC channel for the nine months ended September 30, 2024 decreased $12.5 million, or 12%, to $91.6 million as compared to $104.2 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 $5.7 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

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.

Current wording

Net revenue for our Outpost channel for the nine months ended September 30, 2024, decreased $4.1 million, or 20%, to $16.1 million as compared to $20.3 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

Cost of goods sold for the six months ended June 30, 2024 decreased $7.8 million, or 7%, to $108.0 million as compared to $115.7 million as compared to the corresponding period in 2023. Gross margin increased 840 basis points to 42% for the six months ended June 30, 2024 as compared to 34% 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 nine months ended September 30, 2024 decreased $17.4 million, or 10%, to $164.8 million as compared to $182.2 million as compared to the corresponding period in 2023. Gross margin increased to 42% for the nine months ended September 30, 2024 as compared to 34% for the corresponding period in 2023. The increase in gross margin was a result of product mix shift driven by an increase in the higher margin FDM market, productivity improvements in our RTD products, and lower warehousing costs.

Previous wording

Marketing and advertising expenses for the six months ended June 30, 2024 increased $0.9 million, or 6%, to $15.0 million as compared to $14.2 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 nine months ended September 30, 2024 increased $2.7 million, or 12%, to $25.1 million as compared to $22.4 million for the corresponding period in 2023. This increase was due to our expansion of partnerships, including our engagement with UFC, higher advertising spend, incremental shopper marketing, and an increase in trade promotions.

Previous wording

Salaries, wages and benefits expenses for the six months ended June 30, 2024 decreased $5.3 million, or 14%, to $32.9 million as compared to $38.2 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.

Current wording

Salaries, wages and benefits expenses for the nine months ended September 30, 2024 decreased $2.7 million, or 5%, to $49.4 million as compared to $52.1 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 for the six months ended June 30, 2024 decreased $10.8 million, or 29%, to $26.3 million as compared to $37.1 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 nine months ended September 30, 2024 decreased $17.9 million, or 32%, to $38.6 million as compared to $56.5 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

Components of Our Non-Operating Income (Expenses)

Current wording

Components of Our Non-Operating Expenses

Previous wording

The following table summarizes non-operating income (expenses) for the periods indicated (dollars in thousands, unaudited):

Current wording

The following table summarizes non-operating expenses for the periods indicated (dollars in thousands, unaudited):

Previous wording

Interest expense for the six months ended June 30, 2024 increased $3.2 million, or 291%, to $4.4 million as compared to $1.1 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, net for the three months ended September 30, 2024 decreased $1.1 million, or 31%, to $2.5 million as compared to $3.5 million for the corresponding period in 2023. The decrease was primarily attributable to interest on a bridge loan as well as a loss on extinguishment of debt both incurred in the third quarter of 2023 in connection with the refinancing whereby we entered into a new $75.0 million senior credit facility, a $50.0 million term loan facility, and a $6.0 million bridge loan. The bridge loan was repaid during 2023. These decreases were partially offset by an increase in interest expense as a result of increases in average debt balance and higher interest rates under the new senior credit facility and term loan facility which bear interest at the term SOFR 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 the 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

Other income (expense), net consists of miscellaneous income (expense) items such as bank fees and credit card rebates in 2023.

Current wording

Other expense, net consisted of miscellaneous income (expense) items such as bank fees and credit card rebates in 2023.

Previous 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.

Current wording

Interest expense, net for the nine months ended September 30, 2024 increased $2.1 million, or 46%, to $6.8 million as compared to $4.7 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 SOFR 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

Other income (expense), net consists of miscellaneous income (expense) items such as bank fees and credit card rebates in 2023.

Current wording

Other income, net consisted of miscellaneous income (expense) items such as bank fees and credit card rebates in 2023.

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 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.

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 September 30, 2024, our cash and cash equivalents was $7.3 million, our working capital was $12.4 million, and under our credit facilities, we had $9.4 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. There 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 $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.

Current wording

Net cash provided by operating activities was $9.1 million for the nine months ended September 30, 2024, compared to net cash used in operating activities of $40.4 million for the corresponding period in 2023. The total increase of $49.5 million in net cash provided was primarily due to a net loss of $42.7 million improving to net loss of $0.9 million for 2024.

Previous 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.

Current wording

Net cash used in investing activities was $6.1 million for the nine months ended September 30, 2024, compared to net cash used in investing activities of $13.3 million for the corresponding period in 2023. The $7.2 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 $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.

Current wording

Net cash used in financing activities was $9.3 million for the nine months ended September 30, 2024, compared to net cash provided by financing activities of $22.8 million for the corresponding period in 2023. The $32.1 million decrease in net cash provided by financing activities was primarily due to a decrease in proceeds from issuance of long-term debt net of debt issuance costs of $84.6 million, partially offset by a decrease in repayments of long-term debt of $52.6 million.

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 $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.

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 $5.7 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 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.

Current wording

Liabilities relating to operating leases that have commenced as of September 30, 2024 have been reported on the balance sheet as operating lease liabilities. As of September 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 $3.6 million in the next twelve months, and approximately $37.9 million beyond twelve months through 2043.