BRC Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
March 15, 2023

Key Takeaways

  • In less than six months since launching at Walmart, Black Rifle Coffee rose to the #4 brand in bagged coffee and the #1 branded 12-ounce bag, capturing a 3.8% share and driving 35% of households as new coffee buyers at Walmart.
  • The Ready-to-Drink segment expanded to over 61,000 doors by year-end with 44% sales growth over the prior year—outpacing the category by four times—and targets 100,000 doors plus new flavor innovations in 2023.
  • Full-year 2023 revenue guidance was lowered to $400 million-$440 million (33%-46% growth), down from the prior $500 million target due to timing shifts in RTD load-ins and FDM account rollouts.
  • The company reaffirmed a commitment to reach adjusted EBITDA profitability in 2023 with a $5 million-$20 million target, driven by price increases, cost leverages, and marketing efficiencies.
  • Management is shifting marketing spend away from lower-margin D2C acquisition toward high-return wholesale campaigns, expecting improved return on ad spend and lower customer acquisition cost.
AI Generated. May Contain Errors.
Earnings Conference Call
BRC Q4 2022
00:00 / 00:00

There are 10 speakers on the call.

Operator

Greetings. Welcome to the Black Rifle Coffee Company 4th Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Tanner Doss. You may begin.

Speaker 1

Good afternoon, everyone. Thank you for joining Black Rifle Coffee Company's conference call to discuss our Q4 2022 financial results, which we released today and can be found on our website at ir.blackriflecoffee.com. With me on the call today is Evan Hayfer, Founder and CEO Tom Davin, Co CEO Greg Iverson, our Chief Financial Officer Toby Johnson, our Chief Operating Officer and Heath Nielsen, our Chief Retail Officer. Before we get started, I would like to remind you of the company's Safe Harbor language, which I'm sure you are all familiar with. On today's call, management may make forward looking statements, including guidance and underlying assumptions.

Speaker 1

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. Reconciliations of these non GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and they are also available on our investor website. Now I'd like to turn the call over to Evan Hayford, Founder and CEO of Black Rifle Coffee Company.

Speaker 1

Evan?

Speaker 2

Thanks, Tanner, and good afternoon, everyone. It's hard to imagine it's been a full year since our first earnings call as a public company, but I'm excited to share some highlights from 2022 and lay out our goals for 2023. Just under a decade ago, I started this business in my garage with a 1 pound coffee roaster, roasting 1 bag at a time with my wife. At that time, we were just a small D2C brand focusing on a small portion of the coffee drinking public. Fast forward to today, Black Rifle has established itself Not only as a mainstream brand, but also as an omnichannel CPG business.

Speaker 2

Less than 6 months into our launch at Walmart, We have risen to the number 4 brand in bagged coffee and within that the number 1 selling branded 12 ounce bagged coffee, The largest dollar volume package size within Walmart's Bagged Coffee segment. We've also solidified ourselves as the fastest growing brand and ready to drink coffee, outpacing the category growth by over 4 times at year end. We are the number 3 RTD coffee Within the convenience channel outpacing Dunkin', we've partnered with some of the most recognizable brands in the world, launching a co branded coffee with Amazon Prime Video and becoming the official coffee of the Dallas Cowboys. In addition, we've continued to maintain the biggest branded subscription coffee business in the United States and grown the largest social media following across all coffee companies and other lifestyle brands. We've done all of this with our aided brand awareness in the mid-20s.

Speaker 2

I'm more excited than I've ever been about the future of this brand as we're just getting started on this journey to a $1,000,000,000 business. Looking into 2023, We have 3 main goals that we are focused on, which are 1, driving top line revenue growth 2, increasing brand awareness And 3, achieving profitability. Our decision to distribute bagged coffee and rounds within Food, Drug and Mass or FDM Was driven with all three goals in mind. The at home coffee segment is an $11,000,000,000 market with Walmart's coffee sales representing About a third of that volume entering into the FDM channel allowed us to participate

Speaker 3

in

Speaker 2

the segment where most coffee is purchased For at home consumption, not only is FDM Coffee our most profitable channel, but it's also the most cost efficient way to increase brand awareness and reach new customers. We previously mentioned that 66% of our shoppers exclusively purchase coffee from brick and mortar locations. These shoppers were previously unreachable to our brand, but we are increasing our availability to be accessible wherever coffee customers shop. In late Q3 of 2022, we entered over 4,400 Walmart Stores with a product assortment of 24 SKUs, including both Bagged Coffee and Rounds. Black Rifle has quickly risen to the number 4 brand in Bagged Coffee, eclipsing the sales of a number of established brands.

Speaker 2

The incrementality that our brand is driving on shelf is extremely compelling. Per numerator data, almost 35% of households Purchased Black Rifle Coffee were new coffee buyers to Walmart. These shoppers had shopped at Walmart previously, but had not purchased anything from the coffee category In the prior 26 weeks prior to launch, additionally, the data indicates 62% of their households purchased Black Rifle, were switching from another brand. With over 30,000,000 shoppers visiting Walmart stores each day, we're confident that our premium products and mission driven brand We'll continue to create a new and loyal customer, while increasing our brand awareness. We are less than 6 months into our launch into the FDM strategy, And we've been focused on executing and delivering on the commitments of our initial rollout.

Speaker 2

We're still at the beginning of this journey, but the initial results indicate We are winning and taking market share from other established brands and the largest coffee retailer in FDM. This confirms that our strategic expansion was the right decision for the company. As we continue to transition from primarily D2C to an omnichannel CPG business, our marketing strategy is nearing that transition. With this, we are able to focus our marketing spend on high level brand awareness as well as wholesale specific marketing campaigns. We're spending less total dollars in D2C and because of this, we've elevated our expectations for returns on this spend.

Speaker 2

This higher return on ad spend of ROAS is driving lower customer acquisition cost and increasing profitability. This overall shift into marketing spend We'll enable leverage on the marketing line for 2023 and beyond. Being efficient in our marketing spend is one of the drivers for achieving profitability in 2023. We are also reducing corporate SG and A costs and driving gross margin as we strive to achieve our adjusted EBITDA goals for the year. Growing our brand and driving profitability allows us to support our mission by continuing to give back to those who have served.

Speaker 2

Our mission was the foundation of this company When I started it almost a decade ago, in 2022, we've donated over $2,000,000 in cash, in coffee, into veteran, active duty and first responder causes. Close to half of all of our employee base are veterans and veteran spouses, and we continue to hire more as the business grows. We want to be a shining example for how military veterans can build a successful company. Our mission comes with challenges, but so does every mission for which we've deployed. Our challenges are different now, but we meet them with the same determination and expectations for results as I did when I was at Green Beret.

Speaker 2

I founded this company to make a difference in veterans' lives, and we're doing that every day. I'm proud of our team for the tremendous growth they've driven over the past year and how well they've adapted to growing multiple businesses Simultaneously, I'm just as driven now as I was when I started the business back in 2014. 2023 will be a banner year for Black Rifle. With that, I'll

Speaker 4

turn it over to you, Tom. Thanks, Evan, and good afternoon, everyone. I will begin by highlighting the key initiatives for our commitment to profitability For 2023, including details from each channel of our business. Then I will briefly discuss our Q4 earnings and provide updated guidance for 2023. Commitment to profitability.

Speaker 4

As some of you may have seen at our ICR presentation in January, We highlighted 3 key drivers of our commitment to profitability for 2023. Number 1, expansion of our wholesale channel. This channel is our most profitable sales channel with our highest margins and return on capital. Our entry into the FDM channel with Bank Coffee and is a significant catalyst for growth. We launched in late September of last year and this mix shift will continue to benefit our financial performance And 2023 from having a full year of sales.

Speaker 4

Ready to Drink is continuing to scale rapidly in the convenience store and FDM channels, We are targeting more than 100,000 doors by year end, up from 61,000 at the end of 2022. Note that we had approximately 70,000 doors at the end of Q3. One retailer with 18,000 doors ran a test for a limited time in Q2 and Q3, the test was successful, but the doors were not included in the Q4 number because the test was completed in the prior quarter. We're now shipping product to this retailer at the end of Q1 for ongoing distribution, recapturing those 18,000 doors. Innovation will be a key growth driver for this segment.

Speaker 4

We've introduced innovation for the first time by launching 2 new core SKUs in Q1, Salted caramel and vanilla, plus 3 additional seasonal limited time offerings. The first of these LTOs is a Berry Mocha SKU Entering the market at Memorial Day, we believe that taking advantage of the demand for Black Rifle's coffee and RTD within the wholesale channel We'll create the most strategic value for the company and our shareholders. Number 2, price increases. We've now taken pricing across all channels of our business. We've also taken additional pricing actions in February for RTD and another price increase for our direct to consumer subscribers in Q1 of 2020 Our consumers have not exhibited any tendencies to trade down nor have we seen lower coffee consumption in response to the price increases.

Speaker 4

Number 3, cost leverage. Over the past couple of years, the management team has invested in developing the omnichannel platform And the infrastructure to support it. In 2023, we will balance the need to attain EBITDA profitability while not compromising growth. We began this work in Q1, resulting in reductions to SG and A, including an 8% reduction in corporate headcount. We are being selective with our spending as it has become clear the wholesale business is going to be our key driver of growth for the next several Allowing us to focus our efforts and realize operating leverage.

Speaker 4

Historically, we have invested ahead of revenues, we stood up new lines of business. As we move out of the launch phase, a tailwind for the wholesale channel is that as the business scales, our investment as a percentage of revenue We'll continue to decrease. Outside of SG and A reduction, we will also benefit from easing inflationary pressures, which we anticipate will support our efforts As part of our commitment to growth and profitability, we've recently added 2 executives who have dramatically enhanced Our leadership capabilities. Chris Clark joined as our new Chief Technology Officer from Levi Strauss, where he served as Chief Information Officer. Chris is a West Point graduate and served as a U.

Speaker 4

S. Army Aviation Officer prior to transitioning into Corporate America. We also brought aboard Marty Manning, our Chief Human Resources Officer, who came to us for more than a decade at General Electric And most recently was the CHRO of Ascend Learning. Marty also served in the U. S.

Speaker 4

Navy as a surface warfare officer and intelligence officer. These are just two examples of the caliber of people who are joining our cause to build this business for the future. Channel highlights. Now I will expand on the key channels and profitability levers we have taken within each. As Evan mentioned earlier, we are Fortunate enough to be able to launch Bank Coffee and Rounds or K Cups in Walmart in September of last year.

Speaker 4

The launch included initial assortment of 24 SKUs or roughly 12 linear feet of our ground coffee and K Cups or what we call rounds In the 4,400 Walmart Stores, note that certain Walmart Stores with a smaller coffee section do not have all 24 SKUs. This launch was an exciting opportunity for Black Rifle as the FDM coffee space represents $11,000,000,000 and growing at home coffee market, which Walmart represents close to a third of that volume. As of P13 Nielsen data, less than 4 months into our initial launch, We represented 3.5% of Walmart's total coffee business and this share continues to accelerate, Growing up 3.8% through the end of February. From a dollar standpoint, the 12 ounce bag size is the highest dollar volume pack in the coffee aisle. Black Rifle Coffee is the number one branded bag in this pack size with 22% of the sales over the last 4 weeks Needless to say, we are excited about the consumer response and the initial launch results.

Speaker 4

We are committed to deepening our current relationship and maximizing the opportunity at hand within FDM. In 2023, We will be bringing relevant shopper innovation and initiating marketing campaigns to drive further awareness in trial. We look forward to sustained growth within the FDM channel as we shift marketing and promotional resources to support expansion. As you can imagine with the public Nielsen and IRI data. We've had lots of inquiries from other FDM retailers, and we will look to add at least one additional FDM account During the summer reset period for the FDM coffee aisle, we will scale our FDM business as rapidly as possible without sacrificing quality or customer service.

Speaker 4

That said, there are several keys to expanding across this channel. Most importantly, our entry into Walmart Showing the relevance of our brand nationally and with a broad base of consumers, which will guide our launches with other retailers. We have the capacity to support coffee expansion across the FDM category. We also have the opportunity to tailor our pack sizes To be relevant to grocery shoppers, particularly in the case of rounds or K Cups, we will continue a deliberate FDM rollout Strategy for the next several years to ensure our brand presentation is maximized and that we deliver a high level of service to all FDM accounts. RTD growth levers.

Speaker 4

Now turning to the other portion of the wholesale channel, RTD or ready to drink coffee. The addressable market for the ready to drink coffee business It's $4,000,000,000 growing at approximately 11% per annum versus 3% for the roasted coffee segment, driven primarily by younger consumers. This explosive growth and adoption of cold coffee consumption has been a major reason why we continue prioritizing growth And market share in this category. Throughout 2022, we added 20,000 doors and increased our ACV percentage to 38.3 percent from 13.5 percent at the end of 2021. More importantly, per Nielsen, our RTD Our sales compared to a year ago were up almost 44% over the last 13 weeks through December 31, More than 4 times is a category growth of 9.8%.

Speaker 4

This has been achieved by unit growth of 34% versus the category, which shows our demand for the brand and our loyal customer base. As we entered 2023, we are seeing momentum build for the RTD business Compared to the December results over the last 13 weeks as of February 25, our dollar growth has increased 1300 basis points From 44% to 57%, driven by a 500 basis point increase in unit growth from 34% to 39% And a price increase of approximately 800 basis points that occurred in early February. Drivers for this momentum include innovation launches, Increased distribution and incremental facings. We announced our first RTD innovation with the launch of 2 additional core SKUs and 3 seasonal limited time offerings. We've also continued to expand our distributor network and recently unlocked Access to over 12% of the U.

Speaker 4

S. Population, taking our coverage to 96%. The half one reset period It has also allowed us to expand on top of our current base of 150,000 facings, Adding an incremental 100,000 facings. We are seeing these incremental facings being reflected in current planograms In both legacy retailers and new doors, towards the end of Q1, we began shipping product in support of roughly 40% of these new facings, With the remainder shipping in Q2. In Q3 of last year, we outlined our startup challenges with new RTD production and ingredient supply, Which delayed our ability to fully leverage our RTD capacity unlocks in 2022.

Speaker 4

These speed bumps are now behind us with all 3 of our co man partners Executing the 2023 plan to capitalize on all of our growth initiatives for this year and beyond. Lastly, I want to highlight our inventory levels going into F1. As many of you know, the convenience store reset cycles happen twice a year For seasonal load ins, with the majority of resets occurring in the spring, the most impactful way to grow distribution 2023 is the 1st year we've been able to produce enough cases to be fully prepared for the half one reset. Our new capacity has allowed us to build adequate inventory to meet commitments to our customers and distributors throughout the year, supporting accelerating growth levels We've seen within our brand in this category. As Greg will tell you later, you should expect our inventory levels to normalize As this product hits the shelves in Q2, direct to consumer.

Speaker 4

Now turning to our direct to consumer or D2C channel. Our relationship with our consumer is significantly stronger than other traditional brands, with over 2,000,000 lifetime online customers Become advocates and influencers to others, driving people to the brand. We have the largest branded coffee subscription business in the U. S. With over 270,000 subscribers at year end, like many D2C brands, we've seen the cost to acquire customers Continue to climb.

Speaker 4

In response, we've modified our approach to investing in new subscribers such that we achieve a payback now in 1 month versus 4 to 6 months previously. To date, our churn rate is staying within our historical average of 3% to 4% per month Despite the 2 recent price increases, we continue to refine our marketing strategies and are focused only on spending on initiatives that will meet Or beat our demanding internal return thresholds. Outpost strategy. Lastly, I want to expand on our Outpost In Q4, we opened 4 company owned stores in core markets in Texas and Arizona, ending the year with 15 company owned outposts and 11 Franchise Outposts. We are a relatively small company with huge demand for our products across multiple sales channels.

Speaker 4

And because of this, we've had to prioritize internal bandwidth as well as capital. We've decided to phase our growth decisively prioritizing FDM and ready to drink sales in the near term, which will also maximize short and long term profitability. This shift in focus frees up cash from reduced CapEx and SG and A given that the growth in FDM and RTD We continue to see tremendous long term opportunity for the outpost segment, but we need to continue refining our prototype model to ensure that our outposts can reach our demanding return thresholds before ramp up expansion. Work on the prototype is ongoing. We plan to build prototype units In 2024.

Speaker 4

For 2023, we now plan to open 3 company owned outposts, all of which will be in Core Texas markets where we are operating other outposts today. Q4 update and guidance for 2023. Finally, I want to update you on our 2023 full year guidance. Last August, we provided our preliminary 2023 outlook of $500,000,000 or more in revenue. Given a number of market variables we don't fully control, we've concluded that we are overly ambitious With our initial 2023 revenue target, due to the timing of various load in cycles and customer on boardings within the wholesale Our We are still committed to achieving adjusted EBITDA profitability in 2023 and are reaffirming that commitment today.

Speaker 4

To achieve this outcome, we are taking a more conservative approach to 2023 revenue and adjusting our SG and A costs accordingly. Today, we are resetting our 2023 revenue target to a range of $400,000,000 to $440,000,000 Approximately 33% to 46% growth over 20 22's revenue of 301,000,000 Our gross margins will be in the range of 36% to 37.5%. Even with the lower revenue range, we are committed to $5,000,000 to $20,000,000 of adjusted EBITDA. Those of you who remember, this is actually very similar to the 20 20 The outlook we provided when we went public a little over a year ago. To bridge the gap from our initial $500,000,000 revenue target, I want to provide more context for what has changed that led us to revise our outlook.

Speaker 4

Ready to drink. We made a $40,000,000 adjustment driven by Timing to our RTD forecast due to the follow through from start up delays in 2022 and a slower ramp up of sales for the Additionally, we transitioned from a third party sales firm in Q4 and built an entirely new internal sales This allows us to better control our business and relationships with distributors as well as end customers. While leading this transition, our team has taken a more conservative approach to forecasting relative to the 3rd party. All of our sales plans are now built from The bottoms up view of our distributors and end customers, so we have much more confidence given the enhanced visibility this has provided. FDM.

Speaker 4

We've adjusted the FDM Bagged Coffee and Rounds revenue by $30,000,000 based on the timing of adding additional FDM accounts, thus pushing some of the revenue into 2024. As I mentioned earlier, we've had strong interest from multiple large FDM players. We're currently working on different sizing of products, building out our supply chain and refining our pricing architecture for these potential customers. There is interest from certain retailers to include BlackRock for Coffee in their 2023 summer resets, but we will be able to do a much more comprehensive Across the FDM channel in 2024. Based on the initial results at Walmart showing Black Rifle's Brand strength across all regions of the country and our relevance to a broad set of shoppers, we will be able to design these launches As national rollouts with the optimal shelf assortment for our brand, Outposts, we're making a $10,000,000 reduction in Outposts revenue Given the slower pace of openings in 2022 and 2023, as we prioritize our investments to support the wholesale While we know our retail business has significant growth potential, the core of any strategy is prioritizing resource allocation.

Speaker 4

With the ROIC highest in the wholesale business, we're shifting our resource to capitalize on that demand And achieve adjusted EBITDA profitability in 2023. We are excited for the opportunities ahead for The Black Rifle Coffee Company and believe we are well positioned for Sustained profitable growth for years to come. With that, I will turn it over to Greg to walk through the financials and give some additional details on our full year guidance as well as some detail regarding Q1.

Speaker 5

Thanks, Tom, and good afternoon, everyone. Today, I will discuss our 2022 4th quarter and full year financial results, touch on our balance sheet and liquidity position and then share some further details on our fiscal year 2023 outlook. Turning first to our financial results. For the Q4, total revenue increased 30% to $93,600,000 compared to $71,800,000 in Q4 of last year. For the full year, our total revenue grew by 29% to 301,300,000 The meaningful increase in revenue was driven by growth within our wholesale and outpost channels, which continue their impressive growth from 2021 by 140% 33%, respectively.

Speaker 5

Now I will give some additional details on our 3 sales channels. First, our direct to consumer revenue decreased 8% in the 4th quarter to $45,600,000 compared to $49,600,000 last year. For the full year 2022, our direct to consumer revenue decreased by $6,300,000 or 3.8 percent to $159,000,000 due to a decrease in our new customer acquisition for non subscription customers. This decline was mainly attributable to decreased digital advertising spend as we continue to prioritize our high growth and high returning wholesale channel. Turning to wholesale.

Speaker 5

Our wholesale revenue increased 140.1 percent to $41,200,000 in Q4 compared to $17,200,000 last year. For the full year 2022, our wholesale revenue increased $63,600,000 Or 114%, bringing our total wholesale revenue to $119,400,000 The increase was Primarily driven by growth in our RTD product, which ended the year in over 61,000 doors. Our percent ACV All commodity volume, as measured by Nielsen, which measures distribution across both convenience, gas and FDM, Increased to 38.3 percent versus 13.5 percent a year ago. Additionally, our entry into Food, Drug and Mass Also drove very significant growth during the last 4 months of the year as we successfully launched into over 4,400 Walmart Stores. Next, Revenue in Outposts increased 34.3 percent to $6,800,000 in Q4 compared to $5,100,000 last year.

Speaker 5

Outposts revenue growth throughout 2022 increased $10,900,000 or 91 percent to $22,900,000 compared to $12,000,000 for 2021. Throughout 2022, we opened a total of 7 new company operated stores in Texas and Arizona, bringing our total number of outposts to 26 with 15 company owned stores and 11 franchise stores. Turning to our profitability. Our Q4 gross margin was 31.5 percent, decreasing 2 90 basis points from 34.3% in Q4 of last year. For the full year 2022, our gross margin was 32.9%, a decrease of 5.56 basis points From 38.5 percent in 2021.

Speaker 5

The decrease was driven by inflationary pressures as well as costs related to RTD production start up, which reduced our Q4 gross margin by 190 basis points and full year 2022 gross margin by 170 basis points. We have taken action across multiple fronts to combat the cost of inflation we have been experiencing. In addition, as Tom mentioned, We took price in line with our competitors across our product portfolio and in each sales channel. We implemented the majority of these pricing actions in the second half of 2022 and into Q1 of 2023, so the full impact of these actions will flow through our P and L throughout the remainder of 2023. As a result, we expect our margins will improve sequentially beginning in Q1.

Speaker 5

As a percentage of sales, our operating expenses during Q1 increased by 1200 basis points to 52.3% as compared to last year. We will walk through the drivers of these increases beginning with marketing and advertising. For the Q4 of 2022, Marketing expense increased 22.5 percent to $13,600,000 from $11,100,000 in the Q4 of 2021. As a percentage of sales, marketing decreased by approximately 90 basis points to 14.5% compared to the same quarter last year. For full year 2022, our marketing expense increased 5% to $38,200,000 compared to $36,400,000 in 2021.

Speaker 5

Importantly, for the full year 2022, marketing expense as a percentage of revenue decreased from 15.6 percent to 12.7%, a decline of 290 basis points as we're beginning to see the leverage on our branding investments as our business scales and we focus our investments in our wholesale channel. Moving on, Salaries, wages and benefits expense for the Q4 of 2022 increased 87.8 percent to $16,900,000 from $8,900,000 in the Q4 of 2021. As a percentage of revenue, it increased by approximately 5.50 basis points to 18% compared to 12.5% last year. For the year, salaries, wages and benefits increased 66% to $64,300,000 compared to $38,700,000 for 2021. The increase was driven by employee headcount to Our significant sales growth across multiple sales channels.

Speaker 5

We've invested heavily in building out our management teams, particularly within our wholesale sales channel. Also, as a reminder, a large portion of our outpost cost structure is included in the salaries, wages and benefits line as it includes the compensation costs for our employees working at our outposts. G and A expenses increased 112.6 percent to $18,500,000 compared to $8,700,000 in the Q4 of 2021. As a percentage of revenue, G and A increased by approximately 760 basis points to 19.7 percent of revenue compared to 12.1% last year. For the full year, G and A increased 146.5 percent to $64,500,000 compared to $26,200,000 for the same period in 2021.

Speaker 5

This increase was driven by our investments Corporate infrastructure, including technology, to support the growth of our business across multiple channels as well as growth in our corporate outposts. As Evan and Tom mentioned, we invested capital in all areas of the business to scale each of our channels after becoming a public company. Now that we're into 2023, We are beginning to see the operating leverage in those investments. Additionally, given the prioritization around our wholesale business, We have taken the opportunity to right size some of the areas of our business. To that end, we've made material progress on rightsizing our corporate SG and A In Q1, we look forward to sharing more details on those initiatives on our Q1 earnings call.

Speaker 5

In addition to the GAAP measures I have just mentioned, Adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the quarter, Adjusted EBITDA was a loss of $11,400,000 compared to a loss of $863,000 in 2021. For the year, we reported an adjusted EBITDA loss of $34,000,000 compared to a loss of $145,000 a year ago. This decrease was primarily due to increased spending to scale and rapidly grow our multiple sales channels. Now I'll briefly touch on our balance sheet and liquidity.

Speaker 5

We ended 2022 with $38,900,000 of cash on the balance sheet compared to $18,300,000 as of December 31, 2021. We also had $49,200,000 of debt compared to $34,700,000 as of December 31, 2021. On our balance sheet, you will also see a material inventory build, which is mostly in RTD. You will remember that last year, we were selling every case that we made And it forced us to focus on our core customer base and not be able to onboard new distributors or customers. Accordingly, for the first time, We have been building inventory to support the accelerated growth we are anticipating in RTD throughout 2023.

Speaker 5

Due to this inventory build, We used $37,500,000 of cash in Q4 to prepare for the RTD expansion. So while we drew down some of our liquidity for that, We expect to turn much of that working capital into cash beginning in our Q2. Today, we have $55,000,000 of liquidity, which we define as cash plus available borrowings on our senior credit facility, which is prior to our $15,000,000 minimum liquidity condition required under the facility. We believe our current liquidity, combined with positive EBITDA in 2023, prudent working capital management and focused CapEx investment Provide us sufficient liquidity to continue growing the business. Before we take your questions, I'd like to expand on the 2023 guidance that Tom shared earlier in our call.

Speaker 5

While we do not plan on providing quarterly guidance for the remainder of the year, given how far we are into Q1 In our newly announced 2023 plan, we thought it would be helpful to provide some color on Q1 and our quarterly cadence throughout 2023. For Q1, we expect revenue of $80,000,000 to $82,000,000 The small range is primarily due to order fulfillment timing for RTD And FDM orders expected to be fulfilled during the last week of the quarter as some of those deliveries may move into April. Turning to gross margin. We expect an improvement in our Q1 gross margin of 100 basis points versus Q4 of 2022. Lastly, for Q1 adjusted EBITDA, we expect to see a sequential improvement of a couple of $1,000,000 From Q4 of 2022 on a lower revenue base, but higher gross margin and lower SG and A.

Speaker 5

For the remainder of the year, We expect to see revenue growth rates and our gross margin accelerate. And lastly, we expect our adjusted EBITDA will approach breakeven in Q2 and be positive in Q3 and increase into Q4. With that, I will turn the call over to the operator for questions.

Operator

Thank you. And at this time, we will be conducting a question and answer session. And our first question comes from the line of Michael Baker with D. A. Davidson.

Operator

Please proceed with your question.

Speaker 6

Okay. Great. Thanks. Geez, a lot there. But I think The big issue, the biggest question for me is on the change in the revenue outlook.

Speaker 6

And you obviously went Two pains to explain quite a bit of it, but two follow-up questions there. 1, so I guess, am I to understand it that the original plan of $500,000,000 or the previous plan, I should say, of I should say $500,000,000 that included a new FDM customer besides Walmart and now you're that out to 2024, but originally you did think you would have a new customer in 2023. And then on the RTD side, You said a slower ramp for spring sales, that surprised me. Is that a lack of demand type thing or why slower demand in the spring? And does that relate to the issues in the Q4?

Speaker 4

Hey, Mike. Tom Daven here. I'll take number 1. Yes, originally, again, going back The last July, August, when we conceptualized the $500,000,000 or more, we anticipated bringing on additional FDM customers Sooner. Now we're staying very focused on the one customer we have and it's been a great partnership.

Speaker 4

And related to the second part of your question, I'll have Toby take that

Speaker 7

Yes. And let me build on the first question. We will be on the shelf with at least one FDM customer in 2023. As you can imagine, based on our results, our phone has been ringing and there's a lot of interest from customers. And the great news That is with the results we've had at Walmart, we've proven that a national rollout is the best way to do that.

Speaker 7

We are working through the right partners for where we will be, the right assortment for what will be on shelf, all informed by the data that we have And the resonance our brand has had nationally, so we do have plans to be in FDM. We just have pushed out the more comprehensive launch, into 2024 based on reset windows and timing, which is mostly in the back Half of twenty twenty three. On RTD, so, as we enter 2023, we still have incredible on this brand. And you may have heard it in the prepared remarks, but just to call out the Nielsen data, our dollar growth As we were leaving the year on twelvethirty one for the last 13 weeks was up 44%. That has actually accelerated Through 225 being it was up 57% at that point.

Speaker 7

So we're seeing continued acceleration on the brand. We've also had incredible response from retailers as they've redrawn their planograms for resets in half 1 this year. And the great news is we are prepared to take advantage of that opportunity, adding 100,000 facings to our base of 150,000 facings. If you compare this year with last year, we did not have inventory to fully take advantage of this reset window with our CNG customers. So some of the learning has been, as we've looked at how that rollout actually occurs and the pacing of that rollout, It is a little bit more moderated in Q1 with an acceleration into Q2.

Speaker 7

So that really explains the difference. It's not a change Demand, it's not a change in momentum. It's really just meeting the timing of the category and our retailers and what they're executing.

Speaker 6

Okay. So you took down your revenue by $600,000,000 to $100,000,000 but you're not seeing any signs in slowing demand, at least In the maybe in the direct to customer business, but in the other in the bigger business or in the faster growing businesses, you're not seeing any slowdown in demand. It's just about timing Of getting all the products launched correctly and servicing your customers correctly. Is that a fair characterization?

Speaker 2

Yes, absolutely. And I can add to that, which is we're really focused on delivering an exceptional Service to the customer, not only from the Walmart perspective or grocery customer, but really servicing them at the top priority. So we really have to focus on making this not only excellent, but in the top category of excellent. So when we look at How this business continues to grow, we have to build a business that's going to be around for 100 years. We don't want to make mistakes that we're going to scale into.

Speaker 2

So we've Really got to focus on how important this is and really focus on the customer delivery.

Speaker 6

Okay. I think I get it. If I could ask one more quick one. Just again, the reason why the number of RTD doors went down by 9,000 versus the 3rd quarter 10 You explain that again and why that's not shouldn't be a concern or doesn't show a loss of customer?

Speaker 7

Shelby? Yes. So we were working with A retailer with 18,000 doors, there's a certain number of them. I'll let you extrapolate which ones that could be. That retailer, we executed a test with them In Q2 and Q3 of last year, so you'll see those that 18,000 doors reflected in the number.

Speaker 7

The timing of that Test was planned for that window and then those doors came out of our Q4 numbers. We are currently shipping To that retailer for ongoing distribution this month, so those doors will be reflected and recaptured. Our target that we had set for the year was 100,000 doors. We feel very confident in our ability to hit that target and exceed it in 2023.

Speaker 6

So if we were to see the 1Q, 10Q, it will have those doors back in, in other words, plus others, plus more.

Speaker 5

Yes, Michael, this is Greg. I think depending on the timing of the load in at the actual stores, but certainly by Q2, you should expect to see them fully in there. And just adding to what Toby said, this is something that we expected and we had planned on, probably just something we should

Speaker 6

Fair enough. Okay. I'll pass it on. Thank you.

Speaker 8

Thanks, Mike.

Operator

Our next question comes From the line of Bill Chappell with Chappell Securities, please proceed with your question.

Speaker 8

Yes, thanks. Good afternoon.

Speaker 4

Hey, Bill.

Speaker 8

Hey. Hey. Just kind of want to ask, I guess, similar type question on the top line guidance. If I was to Annualized 4th quarter revenue of $93,000,000 that and that is basically the midpoint of your guidance assumes 12% top line growth. If you got 8% price increase, that basically assumes 5% volume growth.

Speaker 8

I know that's oversimplifying it, but maybe help me understand how that's Not the way to look at it, because it seems like that's how and does are we implying The Q1 revenue will be down sequentially pretty meaningful and then build back up? Thanks.

Speaker 5

Yes. Bill, this is Greg. I can take those, and I'm sure Tom and Toby can add in as well. But on the first one, if we just talk about Price specifically, so you won't see the full 8% roll through in pricing. And that's because as we just went into Walmart in September.

Speaker 5

So we haven't taken a price increase in that line item. So the actual price increase on a year over year basis When you look at across all the channels, it's closer to 4% to 5% for the Q4. It should

Speaker 3

be a little bit more

Speaker 5

than that as we go into Q1 Because we did take some additional price increases that we discussed a little bit earlier on the call. And then confirming what you said earlier, which is that we will see a sequential step down in revenue from Q4 to Q1. If you go back in time and look at the historical financials, you've seen that's always the case. We always have elevated non subscription sales within our direct Consumer channel during that peak holiday period. And so our revenue will step down in Q1 versus Q4 based on that seasonality.

Speaker 8

Got it. So, but all right. Well, I'll just leave it at that. And then the second just on Walmart, Certainly impressive of kind of the early start, but trying to understand where kind of the 3.8% market share Was versus your expectations, do you think you can get 5% or 6%, I mean, obviously, 3.8% being Number 4 implies that number 1 and number 2 have a large, large, large share of the market. So just trying to understand where you think this can go over this year?

Speaker 8

Thanks. Shelby?

Speaker 7

Yes. We're incredibly grateful for the collaboration that we've had with Walmart, and We are very pleased with the initial 6 months that we've had with them. We do believe that there's momentum and opportunity to continue to grow. If you look at their coffee business, we're playing currently with the launch that we've had in about half of the products, about 50% Of the product lines in coffee, so that 3.8% of such a large business, they're about a third Of overall FDM's $11,000,000,000 business, those are big numbers when you're talking about a retailer that's that large. So we're very pleased.

Speaker 7

I think one of the things we're most proud of that were mentioned in the earlier remarks is the incrementality that we're bringing to the category. So according to the numerator data, about 35% of households were new to the coffee aisle. Not all were new to Walmart, But they had not purchased coffee at Walmart in the 26 weeks leading up to our launch. We are really excited about that. And when you couple it with How our products are resonating, the 12 ounce bag size being the number one branded player with 22% of the share Shows that we're resonating with customers and with shoppers.

Speaker 7

That makes us feel really good about this initial launch. We are certainly staying humble and staying hungry, looking for areas to improve and continue to build on the relationship. But our initial results, we are extremely proud of them.

Speaker 8

Okay. So just to clarify, like do you think you can get Mid single digit share this year, double digit, 22%, where do you where should we be moving higher sequentially?

Speaker 7

We would certainly want to build on our share. I don't know that we're publishing our with a business that's growing this fast, It's difficult to give you the level of precision I think you would hope for, on an exact share target, But we do see opportunities to continue to build. For example, just increasing consumption by driving awareness as we layer marketing campaigns To ensure that people are aware that we sell our products at Walmart, that should drive consumption. We have other things that we're working on as well That we think will add to the business. Certainly, we are not resting on our laurels, but we're not I don't think we've published an exact share target.

Speaker 7

I would say it's north of 3.8.

Speaker 4

Yes, it's really a combination of marketing activities and innovation. So a lot to come on that. Thanks.

Operator

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

Speaker 9

Thanks. Hey, guys. Good afternoon. Just want to go back to the guide for 2023 on the top line and particularly RTD, I think you mentioned it's really not demand related, But more timing related with respect to the spring resets. I'm just unclear why that is because Don't the resets happen every time or at the same time every year?

Speaker 9

So why would that be a surprise, I guess?

Speaker 7

I think it's very similar to what I shared earlier, Joe. This for Black Rifle, this is our first Time really executing through this demand reset window. Last year, we entered the year with very, very lean inventory. So our ability to plan from like a year over year reset standpoint was limited. And What we're learning is just the sequencing of as the resets happen, how does that build flow through our complex go to market, which includes Close to 200 distributors, which then flow product to the shelf.

Speaker 7

Like I said, we've had Visibility to the planograms, to the commitments, none of those have changed. I think what we've learned and will help better inform our Planning going forward is just the sequencing of product through the value chain, to actually execute What people have committed to, which hasn't changed as we've delivered our plans, it really is just more timing.

Speaker 9

Okay. So it's a little bit of a learning curve there Right. I agree as well. Got you. And then secondly, in terms of the pricing impact, you mentioned a couple of incremental price increases you've already taken here In Q1, if we look at your revenue outlook, how much pricing is built into that?

Speaker 9

And do you anticipate additional price increases later this year

Speaker 5

Yes, Joe, it's Greg. I can address that. So there's 2 things we've already done In 2023 from a pricing perspective, the first is we had further increases in ready to drink of about 8% we rolled out In February, we also made some adjustments within our D2C subscription for bagged coffee and reduced the discounts on multi bag subscriptions. So those two actions, like I said, have already been taken. Our guidance of $400,000,000 to 4 doesn't contemplate any further pricing actions.

Speaker 5

So anything that we take incrementally would be upside to that plan.

Speaker 9

Okay. Just one last one, if I could. Just to clarify, the gross margin guide for Q1, I think you said up 100 basis points sequentially. I I assume that's up 100 basis points off of the reported, not the adjusted Q4 gross margin?

Speaker 5

Yes, that's right, off of reported.

Speaker 9

Okay, Great. Thank you.

Speaker 3

Thank you.

Operator

Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Speaker 8

Hey, thanks. Thanks a lot.

Speaker 3

I guess Just to round out the revenue guidance discussion, I guess, Tom, you framed it As driven by things not fully in your control, but then as you've spoken through it subsequently, It feels as though it's either the byproduct of the learning curve you just mentioned to Joe's question or The byproduct of specific choices on your part. So I guess, could you just clarify and explain a little bit further? I mean, How much of this is really driven by externalities that you weren't able to realistically forecast Versus just you perhaps overreaching 6 months ago or versus you now electing to go deliberately slower to make Sure. You're doing everything you're doing to the highest standard possible for your current customers. I'm just I'm unclear as to what the real drivers are, whether it's Overly ambitious or you pulling back to deliver quality service Or externalities as you originally framed it?

Speaker 4

Right. So, great question. And again, breaking it down by component, Ready to drink, I think Toby did a great job addressing the kind of lag that we didn't fully appreciate of sending Product through the value chain that consists of all these distributors across multiple markets, ultimately to the end customer. The end customers Have committed to those incremental 100,000 facing. So that's a significant increase from where we are.

Speaker 4

And again, going back to last July August, when we conceptualized that original revenue number, we didn't know about The timing of when the product would actually push through to be on the shelf.

Speaker 7

And just one add, Tom mentioned this in his remarks. We also brought our sales team in At the end of the year, really in Q4 is when we set up our internal sales team. So we were relying on a third party. We have since done a bottoms up build by retailer, by SKU with assumptions for unit per store per week velocity on everything that's on the shelf With a much higher level of granularity and that's also informed the update to our plans.

Speaker 4

Then on FDM, I guess, fair to say we didn't know what we didn't know back in last July August. So now I think we appreciate what it Thanks. As Evan said, they delivered a really high level of executional quality to support retail partners. In this case, Walmart has been a tremendous partner. And while, as Toby mentioned, we will add at least one other FDM customer, and we've got a long list of people who are very interested at this point.

Speaker 4

We definitely don't want to compromise our Service levels to the existing customer and when we do a rollout, we want it to be a full national rollout, Evidenced by the broad appeal we have for the brand.

Speaker 7

And just to add one other point, if you look at the Timing and processes that FDM customers use for their resets, they were doing their line reviews for their summer resets in the fall of 22 as we were rolling out initially at Walmart. So our timing was a little bit off from being fully integrated into our Customers' processes, we now will not have an issue with that going forward. Despite being off cycle, we do have interest From a select number of retailers who would like to have us on shelf in 2023, but the level of Cohesive rollout that we will have by actually being on the process of our retailers will be Incrementally higher for 2024.

Speaker 3

Okay. Okay. So, okay. Maybe just two follow ups. One directly follow-up or direct follow-up maybe for you, Tobey.

Speaker 3

Just On that the internal sales company build out, I mean, It sounds like that's in the end that's going to be a positive, but it sounds in the near term like it's a negative. So how much of the $40,000,000 in ready to drink reduction Is a byproduct of that change? That would be kind of follow-up number 1. And then I guess, Greg, for you, To maintain the positive EBITDA guidance with revenue down 16% at the midpoint, it seems just it just requires a lot of cost cutting Just to do that and obviously you mentioned initiatives on corporate SG and A that we're going to hear more about on the next call, but It's just that's I'm not sure that's enough. So it feels like you in order to keep the profitability With the reduced revenue, you're going to have to cut into either selling or marketing.

Speaker 3

And I guess the concern there is that, That makes what would otherwise just be timing issues, maybe more than that because you're not able to invest to build the demand that you would otherwise be investing in. So just help me kind of conceptualize where you're going to source this EBITDA from without impairing The go forward growth?

Speaker 7

So I'll try to answer the first part. The way I would look at it is that We have versus a reduction of negatives, this is an addition of positives to our ability to meet The demand and the momentum on this business, and there's a couple of things that we have to remember even to the last earnings call, Our addition of capacity was a major enhancer for this business and the momentum behind it. That was a little bit delayed last year. So Our ability to flow that new capacity out and into the market, due to some of the delays, sourcing of raw ingredients, etcetera, that we started up A little bit shifted to the right. Our ability to have our hands on the wheel of our business is an incremental positive for us To be more granular in the way we plan and to have direct relationships with all of our key constituents, we went through this journey in a really positive way.

Speaker 7

We're grateful for the partners we've had that helped us build the business. So we don't we're not trying To disparage them, it's just it's a natural step in our business as we evolve to build capability, to internal capability and a level of granularity in managing our business. So I think those will be enhancements for this year As we move forward on RTD versus trying to ascribe a certain amount of blame for things that the way that we had built the business in the past, The way we built the business enabled us to grow at an incredibly rapid pace, starting in March of 2020, the perfect time to launch a business That sells product in the CNG channel. And we're just continuing to build on that and evolve in a way that many CPG companies do as they gain scale.

Speaker 5

Steve, this is Greg. I'll take your second question related to our path to positive EBITDA in 2023. So Starting first with gross margin, you've seen our guidance there where we said we expect a range of 36% to 37.5%. So That is a pretty significant increase from where we ended 2022. We talked

Speaker 8

a little bit about some

Speaker 5

of the pricing initiatives That we've taken both in Q1 as well as those that we took in late 2022 that will continue to benefit and roll into 2023. We also have a really significant productivity portfolio, particularly within our shipping and fulfillment. So there's a lot of Cost savings that our transportation team is going to be driving. And then the last point too is mix is Important because we mentioned the area of the business that's growing by far the fastest is our wholesale channel where we have the highest gross margins. So moving down through the rest of the P and L, next on marketing expense.

Speaker 5

The key call out here is expect marketing expense on a dollar basis We're down year over year. So that obviously suggests significant leverage at that marketing line. And that's something that I think we've been telegraphing pretty consistently Time, which is as we pivot more and more into the wholesale channel, the wholesale channel requires a lot less marketing spend than our B2C channel. And then it's also part of why our guidance around the D2C channel we think is pretty modest and pretty conservative because we're just not investing a lot In that targeted customer acquisition for D2C. And then rounding it out with SG and A, Our intent is to keep our I'm sorry, G and A keep our G and A dollars as close to flat year on year as we can.

Speaker 5

We're now Our salaries and wages is going to be up year on year just because as you well know, we ended 2022 with a lot more staff where we started the year and are rolling in. So and we'll continue to add a little bit selectively. So where we're going to find Where we're finding a lot of efficiencies within G and A is really within our outside professional services or consulting fees Another third party spend where we made really substantial investments in 2022 to help us build out and grow these new channels. Hopefully, that's helpful.

Speaker 3

It is. It is. I threw a lot at you and you guys did a great job of hitting everything. So thank you.

Speaker 8

Thanks, Steve.

Operator

And we have reached the end of the question and answer session. I'll now turn the call over to Tom Davin for closing remarks.

Speaker 4

Thank you everyone for joining the Black Rifle Coffee Company Q4 2022 earnings conference We look forward to follow-up discussions with many of you investors. And in the meantime, have a great evening. Thank you.

Operator

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

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