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Greetings, and welcome to the Black Rifle Coffee Company First Quarter 2026 Earnings Call. [Operator Instructions]

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matthew McGinley, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's First Quarter 2026 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA, we mean adjusted EBITDA, unless otherwise noted. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Monz?

Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. 2026 is off to a strong start with first quarter performance reflecting meaningful progress against our core growth priorities. In coffee, we are seeing the benefits of disciplined execution come through clearly in our results. Distribution gains across key retail partners are translating into higher volume, better shelf productivity and improved SKU level performance. Importantly, this is not just about expanding doors. It is about expanding our shelf presence and making the space we earn more productive, which improves retailer velocity and supports stronger growth and profitability for both our partners and Black Rifle. We remain focused on disciplined resource allocation, prioritizing the channels, customers and products where we see the highest return. Operationally, the business is becoming more efficient. Productivity initiatives and process discipline are contributing to improved margins and more effective conversion of revenue into earnings. While the external environment remains dynamic, we are operating with greater control and visibility, maintaining a clear focus on translating commercial progress into improved business results. Overall, first quarter performance reinforces our confidence in the business and our ability to deliver profitable growth through 2026.

Moving to Slide 6. In packaged coffee, first quarter growth reflected broad-based strength across customers and formats, including strong dollar and unit performance at mass merchants, sales that nearly doubled in grocery and pack size innovation that supported new bagged coffee distribution in the dollar channel. According to Nielsen, Black Rifle Coffee grew 34.6% in the quarter or more than 2.5x the category growth rate, driving meaningful share gains. Bagged coffee dollar share increased 55 basis points to 3.3% and pods increased 45 basis points to 2.2% at the end of the quarter. Importantly, these gains were supported by continued improvements in shelf productivity. In grocery, bagged coffee unit velocity increased despite higher pricing and expanded shelf presence, underscoring strong consumer demand and our competitive position at retail.

Turn to Slide 7, please. Execution against our land and expand strategy continues to translate into gains in retail breadth and shelf presence. In the first quarter, we expanded distribution by approximately 7 points of ACV year-over-year, reflecting continued success in adding new retail doors and broadening our in-store visibility. At the same time, we are increasing our presence within these doors. The average grocer is now carrying nearly two more Black Rifle items than a year ago as we continue to build on initial placements and expand shelf sets. Taken together, these results demonstrate that both elements of the strategy are working. We are adding new points of distribution while also deepening our assortment across existing accounts. These gains are strengthening relationships with new and existing retailers while reinforcing our ability to earn additional shelf space over time.

Slide 8. Across the broader category, much of the dollar growth remains price driven, particularly among legacy brands. Our performance continues to be driven by both unit gains and pricing. We remain among the strongest performers in unit growth, reflecting continued consumer demand at the shelf. In a category where much of the reported growth is price led, that performance is translating into share gains and stronger shelf productivity. That matters to retailers because they understand that healthy category growth comes from increasing consumer demand on a unit basis, not from pricing alone. Packaged coffee remains a core driver of the business, and these trends reinforce the quality and sustainability of our growth in the category.

Turning to Slide 9. Our direct-to-consumer business continues to show improvement, delivering its second consecutive quarter of year-over-year growth as our channel strategy evolves. Marketplaces are playing a larger role in scaling the model. These platforms expand our reach by meeting customers where they already shop and provide a low friction entry point for customer acquisition. Importantly, they add incremental consumer reach and demand while complementing rather than replacing our retail presence and owned channels. At the same time, blackriflecoffee.com serves a distinct strategic role. It remains the core platform for subscriptions and our most loyal customers, supporting deeper engagement, exclusive offerings and stronger pricing discipline. We are seeing early traction from this refined approach. Marketplaces are driving customer acquisition and top-of-funnel growth, while our owned channel is focused on retention, repeat purchases and long-term customer value. As a result, direct-to-consumer is contributing more consistently, reflecting clearer roles for the marketplaces and blackriflecoffee.com within the broader business.

Slide 10. In ready-to-drink coffee, category trends remained challenging in the first quarter with convenience channel softness weighing in on both our performance and the broader category. Despite that, we expanded distribution with ACV up nearly 8 points year-over-year, reflecting continued success in adding new doors and broadening our presence across retail. We are concentrating on the areas we can control. We are prioritizing channels and partners where we are seeing stronger demand while continuing to deepen our presence in grocery, mass merchants and other retail environments that support more consistent takeaway. At the same time, we are using product and innovation as a disciplined growth lever, ensuring new items and platforms are aligned with the channels and occasions where they can perform most effectively. This approach supports a more focused RTD strategy, prioritizing retail environments where takeaway is most consistent and the economics are most compelling.

Slide 11. In energy, we continue to move from our initial launch to a more deliberate phase of expansion, reaching 21% ACV across more than 22,000 doors in the first quarter. Our focus this year in energy remains on selectively expanding in markets and channels where we are seeing early traction. This approach allows us to concentrate investment behind the strongest opportunities while scaling energy at a measured pace. Before I turn it over to Matt, I want to briefly highlight how we're continuing to support the communities at the core of our mission. During the first quarter, we remained active across a range of initiatives that brought together partners, veterans, military families and local communities through events, direct support and collaborations. We partnered with Operation Homefront and the Dallas Cowboys to host a baby shower for new and expecting military families. We also partnered with Team Red, White & Blue in support of a nationwide effort to honor those who served in the global war on terror, while raising funds to support veteran health and wellness. We worked with Beyond the Call to launch a limited time roast honoring the legacy of World War II veterans and helping fund efforts to preserve their stories. Across these efforts, we continue to support members of our community, serving in the Middle East and around the world, helping ensure they and their families have the resources, connection and recognition they deserve. That same commitment will carry forward as we move through the year, including through initiatives tied to America's 250th anniversary that celebrate service and expand our support for veterans and their families. Supporting this community is not a stand-alone initiative for us. It is core to who we are and how we operate.

Thank you, Monz. I'll begin my remarks on Slide 13. In the first quarter, net revenue increased 21% year-over-year, driven primarily by both wholesale and direct-to-consumer. Wholesale revenue increased 31.5% year-over-year, reflecting distribution gains, pricing and continued contribution from Black Rifle Energy. Performance was broad-based across key customers with sales to mass merchants increasing more than 20% and grocery sales more than doubling. We also benefited from pack size innovation, which supported new placements in the dollar channel. Direct-to-consumer revenue increased 7% in the first quarter, driven primarily by increased sales through third-party marketplaces. Actions taken over the past year to stabilize the business are now translating into more consistent performance and a return to growth. As a result, direct-to-consumer is contributing more consistently to consolidated growth and is positioned to support sustained growth.

Turning to Slide 14. First quarter gross margin was 33%, down 305 basis points year-over-year, reflecting the impact of nonrecurring items and elevated coffee costs. Importantly, we continue to make progress on controllable levers, including improvements in trade efficiency and supply chain, which helped mitigate these pressures. Elevated green coffee costs and carryover impact of 2025 tariffs embedded in inventory continue to weigh on gross margin. However, pricing actions implemented in 2025 largely offset these impacts with the net effect of inflation and tariffs limited to approximately 20 basis points in the quarter.

Gross margin was also impacted by nonrecurring items, including roughly 100 basis points of costs associated with onboarding a new direct-to-consumer fulfillment provider and approximately 210 basis points from a onetime noncash write-down tied to coffee extract resulting from a formulation change. This extract impact was not added back to adjusted EBITDA. These items were mitigated in part by underlying operational improvements, including approximately 50 basis points of benefit from supply chain initiatives and mix. Looking ahead, we have substantially locked our green coffee requirements for 2026, providing improved cost visibility. While commodity costs remain elevated in the near term, we expect gross margins to stabilize relative to 2025 levels, supported by pricing, productivity initiatives and favorable mix. This stabilization sets a stage for margin recovery over time. We remain confident in our ability to achieve our long-term gross margin target of 40%, driven primarily by structural improvements within our control, including mix and efficiency in both trade spend and supply chain. While recent movement in the coffee forward curve is constructive, our path to the target does not rely on incremental pricing actions.

Moving down the P&L to Slide 15. Operating expense improvements were driven by efficiency gains from last year's operational improvement plan, improved marketing efficiency and lower spend across consulting, software and legal. These actions reflect a more targeted allocation of resources towards key growth drivers, enabling greater operating leverage while supporting the business as it scales. Total operating expenses declined over 8% year-over-year, driven by a 10% reduction in marketing expense and a 14% decline in general and administrative expense. Despite the year-over-year decline in gross margin rate, revenue growth drove higher gross profit dollars. Combined with operating expense reductions, this resulted in more than an eightfold increase in adjusted EBITDA and a 570 basis point expansion in adjusted EBITDA margin with adjusted EBITDA increasing from under $1 million to over $7 million year-over-year. This performance highlights the operating leverage embedded in the model as revenue growth translates more efficiently into earnings against a more disciplined and structurally improved cost base. Turning to the balance sheet. We ended the quarter in a strong financial position with $39 million of debt outstanding or approximately 1x net debt to trailing 12-month adjusted EBITDA and about 1x based on our 2026 guidance. At quarter end, we had more than $52 million of total liquidity, including cash on hand and available capacity under our credit facility, providing ample flexibility to support the business. Free cash flow improved by approximately $11 million year-over-year, with $6 million generated in the first quarter of 2026 compared to a use of over $5 million in the prior year period, driven by improved operating profitability and more efficient working capital management. As previously disclosed, we received notice from the New York Stock Exchange in February regarding the minimum price requirement. Our shares are currently trading above $1, and we would regain compliance if at the end of the applicable measurement period, both our closing share price and the average closing share price over the prior 30 trading days are at least $1. As we work through the standard cure period, we remain focused on executing our 2026 plan, improving the fundamentals of the business and driving long-term shareholder value.

Moving to the outlook on Slide 17. For 2026, we are increasing our revenue outlook to at least 8% growth or approximately $430 million. We're also increasing our adjusted EBITDA guidance to at least 35% growth or approximately $29 million, up from our prior outlook of at least 30% growth. This updated outlook is supported by current visibility into demand, pricing actions already in market and secure distribution gains. Consistent with our approach from last quarter, our guidance reflects a level of performance we believe is supported by visibility we have today. We have strong momentum in the business and no reason based on current trends to believe that changes in the second half. At the same time, we're taking a disciplined approach and not assuming incremental distribution wins, pricing actions or other benefits that have not yet been realized. As we gain additional visibility through the year, we will update the outlook as appropriate. From a cadence standpoint, revenue is expected to build over the course of the year, broadly consistent with the progression we saw in 2025. First quarter performance exceeded our internal expectations, supported in part by normal shipment timing that likely benefited Q1 revenue by a few million dollars. We expect that timing benefit to normalize in the second quarter. As a result, second quarter revenue is expected to be at least 10% year-over-year compared to 21% in the first quarter, reflecting both underlying business momentum and this timing impact. We continue to expect gross margins in the range of 34% to 36% in 2026 compared to 34.6% in 2025. The outlook reflects pricing actions taken in 2025, supply chain productivity and favorable channel and product mix alongside external factors that remain dynamic. Second quarter gross margin is expected to be consistent with the first quarter, reflecting continued pressure from coffee inflation and the more recent impact of higher fuel costs. Gross margin should improve in the back half of the year as higher cost inventory is worked through and productivity and mix benefits continue to build. For the second quarter, we expect adjusted EBITDA of at least $5 million, more than double the prior year period, while absorbing the impact of the first quarter shipment timing benefit and the timing of certain expenses. Adjusted EBITDA is expected to step up further in the second half of the year as revenue builds, gross margin improves and operating leverage increases. While we are not providing formal cash flow guidance, we remain focused on margin expansion and improved working capital efficiency to enhance cash generation. With capital expenditures expected to remain in line with prior year levels, we expect to generate positive cash flow. Looking ahead, the business is benefiting from a more streamlined operating structure, stronger cost discipline and improved earnings conversion. The actions taken in 2025 are flowing through the P&L, supporting more consistent profitability and greater financial flexibility in 2026. We see this most clearly in coffee, where pricing, distribution gains and productivity initiatives are expanding gross profit and improving returns. Our priorities remain focused on operating discipline, cash generation and thoughtful capital allocation. With visibility into demand, pricing and distribution, we are well positioned to improve earnings quality and sustain profitable growth in 2026 and beyond. Operator, we are now ready for the Q&A session.

[Operator Instructions] Our first question comes from the line of Mike Baker with D.A. Davidson.

Congratulations on a good quarter. Beating and raising is nice. I did want to ask -- you gave a little bit of color on the second quarter guide, but I guess I'm trying to square the at least 8% with what you talked about as the progression through the year similar to last year. Last year, the year progressed, I think the second quarter was $5 million above the first quarter, then $5 million more in the third quarter, then $10 million in the fourth quarter. If you do that, you get something like 18% growth, which is way above 8%. Now I guess you just told us that the second quarter will be, I think if I do the math, down about $5 million. But then does the third quarter and fourth quarter progress from there in that $5 million to $10 million growth rate per quarter? Just some more color on how -- just squaring all those different factors that -- yes, how do we sort of reconcile all those?

Yes, Mike, that's a great question. Let me hit that one straight on. So as I mentioned in the prepared remarks and also in the last quarter call, we're taking a disciplined approach to guidance. Now our outlook reflects only what we have confirmed at this point. So that's in market pricing and also distribution gains that have been secured. We're not baking anything else in that has not yet been realized. Now we do have real momentum in the business, and we don't want to get too exuberant with that. And based on what we see today, we do expect some of that to carry on through to the second half. However, we're 1 quarter in, and we'll update the outlook as things materialize throughout the year. Now here's a couple of dynamics worth flagging for the shape of the year. On top line, our comps are going to get progressively tougher as we enter the back part of the year as we lap 4 significant tailwinds that all kicked off around mid-2025. Now the first one being pricing. Now remember, we took 2 pricing actions in 2025, one midyear and one came in, in early Q4. The second one would be the 7-point plus ACV gains. Now most of the customer resets are in that midyear timing. So that's going to be -- that's a headwind that's going to cause a tougher comp when we get into the back half. And then finally, our third-party marketplace acceleration initiative kicked in mid last year. So those comps will be tough as well. And then there is one more. Now remember, we did about $5 million in liquidation in the back half of last year, which we do not plan to replicate in 2026. But when you flip to adjusted EBITDA, the Q1 beat of $5 million does flow through to guidance. Now we took adjusted EBITDA from, as you know, at least 30% growth to at least 35% growth. But that was partially offset by a couple of things. Number one, we have about a $1.4 million fuel risk related to the fuel surcharges we see coming through parcel as well as line haul rates and also the $2.3 million onetime write-down of the final installment of extract that hit in Q1. Now if you net all that together, that goes to the roughly $1 million increase in EBITDA that we're raising guidance by. Now hopefully, that clarifies the bridge somewhat, but happy to elaborate.

Yes. Okay. No, I appreciate that. If I could ask one more question unrelated. The SKU count, I think the slide shows about average 5 SKUs per door, if I'm understanding that slide right. But can you tell us about the spread? Like what's the high, what's the low? What's the -- of the possible as you continue to add SKUs per door?

Hi Mike, this is Chris. Yes. Thanks for that question. So yes, just to reiterate, we've been talking about this pretty consistently. Our land and expand strategy, which we've really been pushing here in the last couple of years as we've been driving this grocery expansion is really playing out well for us, right? And the first aspect of that, of course, is the ACV gains, which we've talked quite a bit about. You see that we continue to pick up on that. We expect to be able to continue to add to our ACV or our overall breadth of reach throughout the country. The third item, I'll come back to what you said here last. The third item is velocity. We feel very good about the fact that our velocity has actually increased as we've been doing this. We don't expect that to happen long term, by the way. We think that velocity will start to level out as you put more and more items on shelf, your per unit velocities will start to level out. But as a premium brand, having our velocity right at the index of the category is a fantastic place to be. And then what you asked about the average items is actually the most important part. So as you saw in the numbers that we shared, we were sitting at only a couple of items on shelf a couple of years ago. And in the last year, we've added 2 additional items on average across all retailers. You're right. The number that we show as our average is just that. There are obviously some retailers that sit right at that 5.5% mark, but most of them are either under or above that. New retailers, when they come on, will tend to come on with 2 to 4 SKUs depending on what their shelf set looks like and what channel they compete in. And from there, we often see an expansion up to 6 to 8. And then to directly answer your question, we have grocery customers who are as high as 13 or 14. I'd like to believe that, that is what ultimately a healthy shelf set for us looks like right now, although as we continue to innovate over time, that number will continue to grow. So as we think about our growth profile and how our model will continue to work, -- it's going to be off of the back of that ACV increase. We still have plenty of room to push that north. And then most importantly, on those average items, while we sit at 5.5 now, there's no reason that we can't be at 12, 13, 14 items on a grocery shelf.

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

Great. Congratulations on the quarter as well and positive momentum in second. My question is more on a product level. I know in the prepared remarks, you talked about expansion of a new pack size across dollar stores. It seems like your Walmart business or the mass business is up running double digits. Can you talk from a product standpoint, what's driving this strength? Is it the packed coffee or like some of the newer ones that cold brew or just from a product level standpoint, can you help us unpack the strong results? What's helping the trend?

Yes, Sarang, it's Chris. Yes, thanks for the question. From an overall standpoint, very much in coffee, right? So bagged and pod coffee continue to have incredible momentum. In fact, if we go to what is still the core of our business, our #1 customer, Walmart, we are looking at share growth in both segments despite having a well-established brand at Walmart. We have 9.4% share now in the bag category, and we are up 30 basis points to a 5.3% share in the pods category. So that illustrates that even with our most established pieces of business, we continue to drive very strong share gains in what is the core of our business. which is the pods and the bags. RTD coffee continues to be a very important part of our business. We have not had as strong a growth. We've been right with the category. The category has been down low single digits. We expect that to recover. We're playing a very important role. We see ourselves as the #3 player in RTD coffee. We see ourselves as playing a key role in turning that category. We had a couple of innovation items this year, our cold brew. We have a few more innovation items that we're working on in the background. You asked about cold brew. Is that playing a key role? Not yet. Very, very early. We're just in the initial shipments of that item as we go into the summer season for cold consumption overall in the category. So we're excited about it. We're excited about the potential. And we continue to feel great about the fact that we have the #3 cold coffee business in America. But again, the pods in the bags based off of the model that I just talked about in Mike's question, the land and expand strategy, driving ACV, driving average items, we believe there's just continued great potential to run that model and generate growth over the next 2 to 3 years.

That's great. And I had a follow-up on marketing spend. I mean the dollar -- marketing spend dollar continues to be down year-over-year past few quarters. Can you help us understand how we should think about marketing going forward?

Yes, Sarang, that's a great question. Yes, so the marketing spend has been down over the last couple of quarters, and it's primarily due to us reallocating more spending upper funnel and taking away some of the lower ROAS bottom funnel activity. Now you're going to see that ramp up considerably as we go into late Q2 and into Q3 and Q4 as we hit America's 250th and a lot of our promotional windows that happened through the summer. So you will see an uptick. And again, year-over-year, we're looking at relatively the same level of spending when it comes to a percentage of sales basis. So we will spend more year-over-year on marketing in total.

I think it's important to reinforce, Sarang, which we've talked about before, that our marketing is, we believe, a substantial competitive advantage for us as a business. And the reality is it's a very efficient model for us. So we don't have to spend the same kind of percentages as some of our competitors in order to be able to get equal or even better results. Behind the scenes, we obviously track our brand awareness, attributes of our brand, and we feel great about how all of those things are progressing. And the result of that, of course, is ultimately what we see as far as takeaway on the shelf. So dollars only tell a piece of the story for us. It's really impressions and quality impressions that become most important to us being able to build the brand over the long term.

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

How did your wholesale growth break down between price and volume in the quarter? Is it similar to the 22% unit to 9% price for the year?

Yes. So the -- Dan, the overall, like we had 21% growth in the quarter. We had about 6% of that came from pricing. The vast majority of that growth that we had was unit growth for the quarter. And for the year, the pricing will begin to fade a little bit as we get into the back half. But overall, the unit growth is going to be the dominant driver of our overall top line this year, and that's driven by the things that Monz was talking about. One is the velocity increases we've seen year-over-year. Second is the more doors that we're in. And the third thing is the increase in average items carried. So it's really a volume-driven gain here. It's not -- it's one where pricing has helped, but it's not the primary driver of our upside.

And then did you see any change in the consumer behavior from higher fuel costs? And could you note any difference between like the C-stores or RTDs compared to your packaged coffee sales?

We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue.

We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue.

We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue.

Yes. We specifically looked at that quite a bit with regard to the convenience channel really beginning in March and through April. And we looked at it extensively, and we just couldn't see any impact yet with higher fuel cost impacting the category or the channel at all. So not that, that couldn't happen, but we just -- we haven't seen those impacts yet.

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

Yes. So thank you. As we close, I want to highlight a couple of key points for us. First, fundamentals of our business continue to strengthen. We're delivering growth that is increasingly driven by distribution gains, improved shelf productivity, as I talked about earlier, and then unit velocity. It's not just the pricing. It is a gains that we believe are healthy. They're more durable that are going to carry us over the next 2 to 3 years. That is driven by our operating model then. Those actions that we've been taking over the last couple of years to simplify the business, improve cost discipline, focus our resources are now really starting to translate into results. We are converting revenue into earnings more effectively than we have before, and we are generating positive cash flow. And with all of that, we're maintaining flexibility on the balance sheet, and we're going to continue to do that strategically in the business. Third, we're operating with greater control and visibility. Our 2026 outlook is grounded in confirmed drivers, as Matt talked about. These are not things we're still working against. We actually have built them. We have secured them distribution-wise, pricing-wise, productivity initiatives that we know are within our control. And as we execute, we expect to build on the foundation throughout the year, and we'll continue to obviously update as that happens. So overall, we remain focused on disciplined execution, improving our earnings quality, driving long-term shareholder value. I appreciate everybody's continued support. Look forward to updating you next quarter.

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

Ladies and welcome to Black Rifle Company Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Matthew McGinley.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. We released our results yesterday in the press release and the related materials are available on our investor website at irblackrifle.com. Before we begin, I would like to mind you of the company's safe harbor statement on our statements. During today's call, management may make forward-looking statements along guidance and underlying assumptions. These statements are based on expectations that involve risks uncertainties, which could cause actual results to differ materially. For further discussion please refer to our previous filings with SEC.

Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA on an adjusted EBITDA less otherwise a reconciliation of non-GAAP measures to the most directly comparable included in our earnings release, which is furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations web turn Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Monz.

Thanks, Matt, and good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. 2025 was a year of measurable operating progress for Black Rifle led by strong performance in packaged coffee. For the year, packaged coffee grew 31.1%, approximately 3x the broader category growth rate with units up more than 22% and share up 60 basis points in bagged coffee. That momentum accelerated in the fourth quarter as distribution expansion translated into measurable improvements in productivity and share with key retail partners. The combination of expanded doors and stronger per SKU productivity materially strengthened our retail position as we exited the year.

We also advanced our ready-to-drink and energy platforms, securing incremental distribution and broadening our presence in priority accounts. These gains reflect disciplined commercial execution and reinforce the strength of the brand. 2025 presented a challenging operating backdrop Coffee markets remained volatile and consumers faced ongoing pressure. Throughout the year, we remain disciplined on pricing, tightly managed expenses and aligned resources with the highest return opportunities across the portfolio. We also took meaningful steps to streamline our platform. Our asset base is leaner and more focused with capital and talent directed towards initiatives that support durable, profitable growth.

As we look ahead, the actions taken in 2025, combined with expanding distribution, improving shelf productivity and moderating cost pressures, position us for a return to strong EBITDA growth in 2026. We're encouraged by the progress we've made and confident in the trajectory of the business as we enter the new year. Moving to Slide 7. Momentum in packaged coffee accelerated as we exited the year. In the fourth quarter, our packaged coffee business grew 34% compared to nearly 13% growth for the broader category. That performance translated into continued share gains. In bagged coffee, market share reached 3.3% nationally, up 60 basis points year-over-year, while pods increased to 2.2% nationally, up 4 basis points. Importantly, these gains were supported by improving shelf productivity, not just expanded distribution. Velocity strengthened throughout the year and reached parity with the overall bagged coffee category in grocery despite pricing approximately 40% above the category average.

We are seeing stronger consumer takeaway and repeat purchase, reinforcing sustained velocity improvement. Achieving category level velocity at a premium price point reinforces the strength of consumer demand and the durability of our retail position as we enter 2026. Move to Slide 8, please. Our land and expand strategy continues to prove itself as a scalable and repeatable growth engine. We begin with a focused assortment entering retailers with a concentrated set of high-performing items designed to demonstrate the value of the brand to the category. Once performance is established, we earn the right to broaden the assortment by adding incremental items to the shelf.

On the land side, we delivered another year of retail expansion. Distribution reach increased nearly 8 points in 2025, bringing ACV to 54.9%, that steady expansion reflects continued success in adding new retail doors and strengthening our national presence. The expand component is working as well. improving velocity translated directly into higher shelf productivity, which supported broader assortments and additional shelf space. On average, grocers added 2 incremental Black Rifle items in 2025 alone, and since entering grocery 3 years ago, we have nearly tripled our shelf presence. This disciplined execution is translating into greater shelf visibility, stronger retail economics and deeper long-term retailer commitment to the brand.

Slide 9. Looking at the broader category, much of the reported growth continues to be price led with higher shelf pricing driving dollar expansion across legacy brands, while underlying unit trends remain muted. Our performance looks different. The majority of our growth is volume driven. -- units increased more than 22% in 2025, reflecting real consumer takeaway rather than pressing actions. That distinction matters. We are adding households increasing purchase frequency and expanding share within existing accounts. As distribution expense and repeat purchase strengthens, our growth is becoming broader and more sustainable. In a category heavily influenced by price, our gains are rooted in unit expansion, repeat purchase and stronger shelf productivity. Those dynamics reinforce durable top line momentum and operating leverage. As volume scales, we expand gross profit dollars and improve fixed cost absorption while delivering strong productivity and economics to our retail partners.

Packaged coffee is firmly established as the core economic engine of the business, and we see meaningful runway for continued growth. Turning to Slide 10. Our direct-to-consumer business stabilized in 2025 and returned to growth in the fourth quarter. While retail continues to be the primary driver of top line growth, direct-to-consumer remains an important strategic channel. Our owned website allows us to engage directly with our most loyal customers, gather insight and feedback and introduce new products and messaging.

Our approach is not to force traffic to a single destination, but to ensure Black Rifle products are available wherever consumers choose to shop. We saw improvement on our core website during the year, and at the same time, continued growth across third-party marketplaces. Those platforms are extending our reach, supporting repeat purchase and complementing retail distribution.

Taken together, direct-to-consumer is operating from a more stable base and contributing positively to the broader business. Slide 11. In ready-to-drink coffee, performance in 2025, varied by channel. We expanded distribution, increasing ACV by 10 points to 55.9% with the strongest performance in grocery, mass and dollar, where we outperformed the category for the full year. The category remained under pressure in convenience which represents more than half of track ready-to-drink sales. As C-store trends weakened, fourth quarter results reflected that softness. We are not assuming a category recovery and are focused on the factors we can control. That means prioritizing our top retail partners, improving shelf productivity and using innovation as a disciplined growth lever. New flavors in our Cold Brew platform are intended to drive incremental takeaway and improve velocity within our existing distribution footprint.

Packaged coffee remains our core economic engine, RTD is an important adjacency and we are scaling it deliberately with a focus on returns and disciplined execution. Slide 12. In energy, distribution expanded in line with our launch year plan, reaching approximately 22% ACV across nearly 20,000 retail doors in 2025. As we move into 2026, the focus shifts from launch execution to scaling the business in the right markets with the right partners and with a clear emphasis on where we can win. That discipline continues to guide our approach. We are prioritizing geographies and channels where we can drive velocity and returns rather than pursuing distribution for its own sake. This return-focused strategy positions the energy business to scale responsibly and contribute to the overall growth of the Black Rifle brand. Before I hand it off to Matt, I want to briefly touch on how we continue to show up for the communities we serve.

Last quarter, we committed to eliminate $25 million in medical debt for veterans through operation Debt of Gratitude in partnership with Born primitive and for Give Co. I'm proud to say we exceeded that goal, wiping out more than $34 million in medical debt and helping approximately 15,000 veterans enter 2026 free from that burden. We also helped feed more than 1,000 military families through Operation Homefront during the holidays and continued supporting the Special Operation Warrior Foundation and other veteran and first responder organizations across the country. With members of our community and even our families currently deployed in the Middle East and around the world, we remain committed to supporting them and those waiting for them at home. That same commitment will guide us as we move into 2026 in honor Americas 250th birthday through initiatives that celebrate service and expand programs that create meaningful impact for veterans and their families.

Supporting this community isn't a campaign for us. It's foundational to who we are and how we grow. I will now turn it over to Matt Amigh.

Thank you, Monz. I'll begin my remarks on Slide 14. For the full year, net revenue increased 2% year-over-year excluding the impact of the 2024 loyalty rewards accrual change and other nonrecurring items in both periods, net revenue increased 8%, primarily driven by wholesale growth. Our Wholesale segment, which sells packaged coffee and ready-to-drink beverages to retailers grew 5% year-over-year or 13% excluding nonrecurring items, reflecting stronger velocity, expanded distribution across both doors and items and continued contribution from Black Rifle Energy. Sales to mass merchants increased double digits and grocery sales more than doubled. Direct-to-consumer declined 5% for the year, but was slightly positive, excluding the 2024 loyalty benefit.

With the stabilization achieved in 2025, direct-to-consumer is no longer a material offset the growth elsewhere in the business, allowing wholesale performance to more clearly drive consolidated results. Moving down the P&L. Operating efficiency gains in 2025 from restructuring actions and reallocating resources towards higher-return initiatives partially offset higher commodity costs and tariffs. For the year, gross margins declined 6.5 points and EBITDA declined more than 40%. As shown on Slide 15, the operating expense reductions we implemented, combined with improving revenue, limited the fourth quarter EBITDA decline to just 2%. In the fourth quarter, revenue increased 7% year-over-year or 11% excluding nonrecurring revenue in both periods.

Wholesale revenue increased 8% year-over-year or 16% excluding nonrecurring items. Direct-to-consumer revenue increased 7%, marking the first quarter of growth in this segment in more than 3 years. Turning to Slide 16. We provide a detailed view of this year's gross margin drivers and the path forward. Gross margin was 32.1% in the fourth quarter, a decrease of 610 basis points year-over-year. Onetime items, including start-up costs associated with onboarding a new direct-to-consumer fulfillment provider and a noncash impairment of coffee extract related to a formulation change pressured margins by 270 basis points partially offset by 170 basis points of productivity and favorable mix. Coffee inflation and tariffs net of pricing were the single largest headwind impacting gross margins by approximately 420 basis points in the fourth quarter and 350 basis points for the full year.

Coffee prices nearly doubled from 2024 to 2025 and remain elevated and volatile due to weather-related yield declines and tariff-driven shifts in global supply. U.S. tariffs on coffee were fully removed in November and improved harvest expectations have contributed to a recent price moderation. Arabica prices peaked near $3.75 in early January and have since declined into the high $2 range, while the futures curve implies continued normalization through 2026 and 2027. We expect some residual impact from elevated coffee costs and previously capitalized tariffs to flow through inventory in 2026. However, pricing actions, productivity initiatives and favorable mix are expected to offset those pressures and stabilize gross margins relative to 2025. Longer term, we remain confident in our ability to reach our 40% gross margin target. The path is driven primarily by structural levers within our control, including product and channel mix, trade efficiency and supply chain productivity.

The green coffee forward curve has recently shown downward pricing pressure, which would accelerate progress. That said, reaching our long-term target does not rely on additional pricing actions. Slide 17. Operating expenses increased 1% year-over-year on a reported basis. Excluding nonrecurring items related to our 2025 restructuring and certain legal expenses, operating expenses were lower by 7%. Marketing expense decreased 10%, reflecting lower nonworking spend and a reallocation towards programs more directly tied to revenue. Salaries, wages and benefits were flat despite a 15% reduction in headcount primarily due to lapping of a $3 million incentive compensation reduction in the prior year. General and administrative expenses increased 28% in the quarter and reflect a significant portion of these nonrecurring items.

Excluding those items, general and administrative expenses decreased 25%. Fourth quarter performance demonstrates the operating leverage now embedded in the model as revenue improves against a more disciplined cost structure. Turning to the balance sheet. Through the equity offering completed in July, we repaid the outstanding balance of our asset-based lending facility and reduced total debt by more than $30 million in 2025. We ended the year with $39 million of debt outstanding, representing approximately 1.8x net debt to 25% adjusted EBITDA and approximately 1.4x adjusted EBITDA based upon our 2026 guidance. At the end of the year, we had more than $50 million of total liquidity, including cash on hand and available capacity under our credit facility. Cash used in operating activities was approximately $10 million in 2025 with roughly $9 million attributable to working capital normalization.

We do not expect working capital to be a comparable use of cash in 2026. As previously disclosed, we received notice from the New York Stock Exchange regarding the minimum price requirement. The notice has no immediate impact on our listing, operations or financial reporting obligations. We have the standard cure period and are focused on executing our business plan to regain compliance. Our focus remains on disciplined execution in driving long-term shareholder value. Moving to the outlook on Slide 19. In 2026, we expect revenue growth of at least 7% or approximately $425 million. This outlook reflects current visibility into demand trends pricing already in market and distribution gains that are secured and operationally in place while incorporating category volatility within our ready-to-drink portfolio.

Our guidance is grounded in confirmed commercial drivers and does not assume incremental distribution wins or other actions that remain pending. As we continue executing against our 2026 priorities, we expect to incorporate incremental gains through our regular quarterly updates. From a quarterly cadence standpoint, we expect revenue dollars to build sequentially through the year, consistent with the progression experienced in 2025.

In the first quarter, we expect revenue growth of at least 10% compared to the first quarter of 2025, reflecting current momentum in the business and the early year benefit of distribution gains implemented in late 2025. We expect gross margins in the range of 34% to 36% in 2026 compared to 34.6% in 2025. The range reflects continued execution progress and external variables that remain dynamic. We benefit from the annualized impact of pricing actions taken in 2025, continued productivity initiatives across our supply chain and favorable channel and product mix. At the same time, coffee prices have moderated in recent months but remain above the 2025 average cost, which limits the pace of our margin expansion. We also expect residual tariff impacts early in 2026 as inventory produced under prior tariff rates flows through cost of goods sold.

In addition, we're making incremental trade and slotting investments to support distribution expansion, which will weigh modestly on gross margins as we scale into new doors. We expect at least 30% growth in EBITDA in 2026 compared to the $21.4 million generated in 2025. The primary drivers of the growth are higher gross profit dollars from revenue expansion and a reduction in operating expenses. We expect operating expenses to decline year-over-year driven largely by lower general and administrative expenses as cost savings actions implemented in 2025 continued to benefit us in 2026. Marketing expense is expected to grow in line with sales while labor expense growth should remain muted. From a cadence standpoint, we expect EBITDA will remain second half weighted. In 2025, approximately 15% of the full year EBITDA was generated in the first half. In 2026, we expect the first half EBITDA to represent roughly 1/4 to 1/3 of the full year with the balance generated in the back half of the year as revenue scales and leverage increases.

While we're not providing formal cash flow guidance, converting revenue growth into higher profit margins and improved working capital efficiency is a core focus. We will continue to invest where appropriate to support growth but a capital expenditure levels consistent with prior year, we expect to be cash flow generative. As we look ahead, the trajectory of the business is clear. We have simplified the model, strengthened our cost structure and improve the underlying economics of our company. The actions we took in 2025 are translating to higher profitability, tighter expense discipline and a stronger balance sheet entering 2026. We are carrying real momentum into the year, particularly in coffee, where pricing, distribution gains and productivity initiatives are working together to expand gross profit dollars and improve returns on invested capital.

At the same time, we are converting that growth into EBITDA expansion and operating cash flow, reinforcing financial flexibility. Our focus remains consistent. Disciplined execution, operational efficiency across the entire income statement, structural efficiency within operating expenses and a thoughtful capital allocation. We believe that combination positions us to further strengthen the business and drive durable, profitable growth in 2026 and beyond. Operator, we're now ready for the Q&A session.

[Operator Instructions] Our first question is from Sarang Vora with Telsey Advisory Group.

Great. First of all, congratulations. It's good to see the momentum -- business momentum coming back. My first question is on the coffee side, the land and expand strategy that you talked about seemed to be really catching up. You are seeing the momentum in the business. One of the main drivers, I feel is expansion of SKUs across your retail network. So can you help us understand -- I see the average number of SKUs is about 5 to 6 right now across the retail doors. Can you help us understand where it is at some of the higher level, which retailers you see at the higher level penetration? And then any color you can share in terms of like bagged coffee or some of the newer products like K-Cups or cold brew, like how the performance of some of these other coffee products have been as well.

Thanks, Sarang. It's Chris. Thanks very much for the question. Yes. So our land and expand strategy is the core of our growth model and is working quite well. So just to reiterate, the strategy is to put 2 to 3 of our best items per segment, right, in bags and pods, drive those to strong performance. And then as we move into that upper half of velocity with that particular retailer generate shelf expansion off of that. So to answer your question directly, we've absolutely seen -- so you quoted the total number, right? We mentioned that in the upfront comments. We've gone -- we've tripled our number. I'm not going to give you specific retailer names, but if we think about the -- a number of the retailers that launched -- well, our largest -- our largest retailer, we have 20 items on shelf. That may not be a comparative across grocery. But in a number of our grocery retailers that launched shortly thereafter, we have 14 items, 12 items, 8 items would be 3 examples of a national retailer and 2 large regional retailers.

So the reality is, is that we believe that continuing to drive items up into that 12% to 15% range is absolutely achievable for us. We've demonstrated that. And to then answer your final question on which items are performing well. It continues to be our core items that drive the highest velocities. We're going to continue to innovate and make sure that we provide where items that go within where we know consumers' preferences are moving. We're not going to talk specifically about any of the innovation items that we're launching in those areas this year. They haven't yet hit the shelf. But like every year, we are going to bring new news to our retailers. We believe heavily in driving new items in, in order to help drive that category expansion.

That's great. And it's really good to see the momentum coming back on the coffee side. My second question is on the energy side. We are almost a year into the launch of the energy drinks, can you share any lessons learned over the year? And also a little more color on the plans for 2026 like markets that you are trying to expand flavor profiles changes in SKUs? Any color you can share on the energy side would be helpful.

Sure. So it was a great learning year for us. We were pleased with the first year of execution as we've talked about, it was a regional launch position for us in the first year. We want to continue to be very careful that we do not put more resource against energy than our core coffee business with the kind of momentum we have in coffee. That's obviously the first dollar spent for us. We continue to believe in the potential of energy because of, a, the size of that category and the dynamics of that category and even more importantly, b, nearly 2/3 of our consumers are already drinking energy as part of their route team. So we know that it is a tight fit to our consumer base. So to answer your question, in the first year, we did a regional launch as we talked about. We had markets that were very successful for us where we were able to drive from 3 to 5 units on shelves at a time and see the velocities respond around that.

And we had other markets where we had less success. And I think not surprisingly, similar to any other CPG business, certainly businesses in the cold where we get better placement, better distribution and couple of the marketing programs around that, we see the best success. But the key piece for us is that we have seen markets with very high success, and we have seen our retail chains with very high success. I'm not going to say which ones, we haven't given guidance on that. But as we go into '26, the plan very much revolves around that. Rather than saying we're going to continue to drive our ACV to a significantly higher level, which would cost us a lot more in marketing dollars to support that. We're going to keep a regional focus.

We like to talk about the smile states of the U.S., which is where a lot of our brand strength is. So while I'm not going to talk to the specific markets that will continue to be in the regions that we do best in as Black Rifle and we will focus with our partners, KDP on very strong execution, building off of our learnings in '25 and continue to evaluate what is the best overall model for us from a marketing and commercialization standpoint to drive success with that item.

And again, being careful that we don't ever pull more resource than we want to across from the coffee business. Coffee is core for us. Energy is an incredible opportunity for us that we want to continue to prepare for the future on.

Our next question is from Daniel Biolsi with Hedgeye.

I was wondering if you could share what you expect lower coffee bean costs will impact for industry prices on the shelf. And what have you seen with your latest price increase?

Sure, Dan. This is Matt. Yes, what we're seeing right now is we're seeing that coffee nearly doubled over the last 2 years in 2023 -- or excuse me, 2025, we're sitting about $2.83. And in 2026, we expect it to increase slightly, but we are seeing a pullback in the commodities over the last, I would say, 20 days, 20 trading days where the price per pound of coffee has gone down on average about 18% for the forward curve months. So we are seeing a moderation there. Now we have taken 2 price increases in 2025. One was in Q3 and then the second one just settled in, in late Q4. And both of those price increases were in the upper single-digit ranges. The response to -- consumer response from that is in line with expectations, relatively low elasticity, sitting like less than 0.5 elasticity factor. So everything has gone according to plan with the price increases we see in market. We'll continue to stay close to how the market performs, how our elasticities will look, how trade promotional and will adjust as needed.

Thank you. And then I know you guys think about this a lot more than most of us. But do the current actions by our military change your messaging or your priorities in terms of marketing during these times.

No. The reality is that this brand from its inception, when the founders first came up with Black Rifle that was always centered around veterans. It was -- they were at the time, active in the military service. And we have always had veterans at the core of everything that we do when it comes to our giveback to the community, which I talked about earlier as well as how we market the brand. Obviously, all of the troops overseas are in our thoughts and prayers like every other American out there, but it doesn't change anything we're doing. We've been focused on veterans from the very beginning. And times like this are just a great reminder to everyone in America as to why we need to be backing our veterans every single day because they are constantly put in harm's way, and we all owe a real -- gratitude to them for that.

There are no further questions at this time. I would like to hand the call back over to management for closing remarks.

So let me just close by saying we are focused on disciplined growth, continuing to expand our margins and generating cash. The actions we've taken this year are a foundation for the business as we enter '26. We have very clear priorities, very measurable targets, and our brand is stronger than ever. Distribution is growing, and we have greater financial flexibility than at any other point of time in the company. Execution will continue to be our focus going forward. And again, we appreciate everyone calling. We appreciate your continued support and look forward to updating you next quarter.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

It's 9:00. Let's get going. I'm Mike Baker, one of the consumer analysts from D.A. Davidson. Very happy to introduce the management team of Black Rifle Coffee. We have the whole team here. We got the company Founder and Executive Chairman, Evan Hafer; President and CEO, Chris Mondzelewski; CFO, Matt Amigh; and Vice President of Investor Relations, Matt McGinley, all, of course, military veterans, which I think is always important, but particularly important as we get ready to celebrate our country's 250th birthday. We continue to see this as one of the most intriguing growth stories in consumer on the cusp of pulling all the levers to accelerate growth. So we think it's a great story to start to understand.

And I'm going to turn it over to Matt, I think, for safe harbor.

Thanks, Mike. I have 2 quick housekeeping notes before we begin. First, a copy of the presentation and press release with guidance that we will reference today is available on our Investor Relations website and has been furnished with the SEC. Second, I'd like to remind you of the company's safe harbor statement regarding forward-looking statements.

During today's presentation, management will make forward-looking statements, including, among other things, guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which may cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC.

Additionally, this presentation will include non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our press release, which is available on our Investor Relations website.

And with that, I'll turn it over here to Evan.

Great. Can everybody hear me okay? So I'm Evan Hafer. I'm the Founder and Executive Chair of Black Rifle. I don't know if you guys have looked into the company enough to understand me, my background and the company's history and the genesis of it. But I started my journey in coffee, and we're not going to go all the way back. I'm going to give you like a quick snippet of this.

In the late '90s, when I was going to the University of Washington, Seattle, in coffee. I translated my love for coffee as I like propelled myself into my next thing, which is to go become a Green Beret and then I went on to work for the CIA and I spent 20 years essentially leading teams in the most complex war torn and dangerous environments in the world with the intent to always start a coffee company from the late '90s all the way through until 2014. And the genesis of this actually started on the back tailgate of a truck in the middle of the desert.

I've been roasting coffee for 20 years. I have an extreme amount of passion, dedication, and I'm extremely detail oriented when it comes to the product and the preservation of making the perfect product for the customer. But I don't want to pontificate about my history, but it's important from a context perspective because as we look at Black Rifle, we've looked at the stock over the last 3 years. What I really need you to take away from this is failure is not an option.

Failure is not an option for Black Rifle. Failure is not an option for this team. And as we've taken our lumps and we've seen them, right, to not acknowledge them would be a little bit ridiculous. What I can tell you as we've got the internal team drive passion and an unfair advantage in the marketplace right now to win over the next 3 years.

So I'll flip you back to Mosul, Iraq in 2008. I was driving from the north side of the city to the south side of that city. And it's the most dangerous city in the most war-torn environment in Iraq, and it's the size of Los Angeles. So I was in a rolling ambush that started in the north side of the city that lasted all the way through in a little car as I'm working my way through essentially a city of multimillions of people in one of the most war torn and complex environments in the world.

What I learned through time and repetition and 43 deployments, countless leadership and complex problems that galvanized through events like that in Mosul, as I'm using a map sheet to navigate my way through a city as people are quite literally trying to kill me. Is that -- solving complex problems, navigating your way through complexity, not being overexposed psychologically from a negative perspective is that you've got to work the problem. You've got to understand with not only the wisdom and intellect that you've collected throughout the years, but how to drive people to the end result to not only survive, but increase your thrive or lethality perspective in the military.

What you're seeing in Black Rifle is I kind of translate that back and why do I say failure is not an option. I've been doing this for 30 years in the context of leading teams through complex problems, establishing technical and tactical high ground and executing on being able to win with a team and understanding the true strategic advantage.

And I'm here today, the first time at ICR because I think you need to see and/or hear the reassurance that the next 2 years is about being able to deliver, and if we flip back to a plan to deliver brand momentum, capitalize on the greatest opportunities for Black Rifle and continue to maintain that consistent cohesion of delivery to establish trust.

And that's why we're here, obviously, and that's why I'm here. Why do we think that we can do it? Well, I started this company in my garage with literally zero background in the complexities of scaling and growing a company with a $1,500 roaster. I didn't have an investment partner. I didn't have capital. I doubled the company every year for a decade up to what were we at when we took it public, $250 million top line.

Out of my garage with no partner, no financial background in the context of I know how to drive brand momentum, we have an unfair advantage and a strategic advantage in the context of we are the only mission-driven authentic story associated with a huge percentage of veterans in this nation and not only that, but 70-plus percent of the people want to support a veteran-backed benefits corp like Black Rifle.

We're the only one on shelf. We're continuing to not only build brand momentum and then drive back into the core competency of the company, which is social media, viral and community, which is the #1 thing that we do. But we'll continue to not only invest in that community, but drive brand momentum more than any other of our competitors and more importantly, tell the story, galvanize the community and execute against passion through the greatest opportunities that we, as Black Rifle can see, and you'll see as we walk through the numbers.

So I'll leave you with this, which is failure is not an option for the team. We're here over the next 2 years to build credibility and consistency back. And as you start to see where the opportunities truly lie is that our strategic advantage is that we're authentic, mission-driven company that's continuing to win on shelf with this great Coffee business that I established 12 years ago. So I'll transition it over.

All right. So thanks, Evan. I appreciate it. We're going to jump through some of these slides pretty quickly. I think as far as what sets us apart, clearly, Evan just covered all of that. So I'm not going to spend any time on this. Focusing on what wins, again, content, coffee, customers. I have some slides here as we get into the deck that in the interest of time, I'm going to show this from a numbers standpoint that I want to get to. Do you want to cover this real quick, Evan?

We've talked about this in the unconventional brand, deep loyalty. But here is the way that this actually plays out in the data. We want you guys to just leave here understanding that what we've been able to create in a decade is beating institutions that have been around for 100 years.

So why should we believe? It's because we have the real momentum on shelf and ultimately, the data proves that out. We're with the most powerful influential people in the world with the most strategic partners and ultimately, some of the largest, biggest megaphones, and those partners are authentic, passion-driven. They're committed to the brand, they're committed to the mission.

And one of the things I would point out on this slide as well, Evan, as he goes out and establish these partnerships, and again, it's a great advantage. We still have all 3 founders involved in this business. And as they're out there establishing these partnerships, these are some big names, right? The guy in the middle is arguably one of the biggest names in the world when it comes to media, the largest podcast in the world, I believe, Evan.

It's #1 in 53 countries...

The guy next to that, you may not know, Riley Green is the most up-and-coming name in country music right now. They're not here because we pay them money. Money changes hands. They're here with us because they believe in the brand, the same way that Evan just talked about, right? That's a strategic advantage we have, is that when your brand actually matters and stands for something, you have celebrities who are willing to step into it with you and consumers can tell the difference.

They really can when it's a financial arrangement versus when it's something that these guys really, really care about. This is just ultimately how it comes to life. It is ultimately the same way that any CPG business is going to win when you look at the different areas that we invest marketing into. But again, the ability to have these personalities and the ability to be able to have the social component, right, the pass-on component of it, that's the real strategic advantage for us.

We have a quick video here that just kind of brings that to life for you, I believe.

[Presentation]

So the reason we chose that. And again, I should point out, we have JT, one of our founders over here. I believe some of your kids are in that ad. When we put these things together, we do it very organically. That video, we spent almost nothing on. We're using all of our internal founders and employees to do it, and it got millions and millions of views, right? Because it's got pass on content. Anybody who's had any association with the military, male, female found that [ cue, ] they passed it on to their friends.

And we're able to generate brand awareness that way. So that is the best articulation, I think, of how our creative model works. Beyond the creative model, this is fundamentally how we then transition that into revenue, right? Brand, product, Evan talked about, innovation. We're always looking for what is that next area that our fans are going to that is adjacent. I'll talk about energy here in a minute. And then strategic partnerships. We have a really clear model that we use with our strategic partners.

And again, I'll show it to you on an upcoming page here. This just really gets at what the core components of our current revenue mix are. The majority of the business is in the first bucket, and that is the core of our business. We're a coffee company through and through, right? Pods, bags, this is where we generate the vast majority of our cash profitability. And as you're going to see on the next slide, this business is winning, big time, right?

So we have to make sure we never pull investment off of that to drive innovation. The Ready-to-Drink Coffee business, this was innovation 2 years ago, which has now become scale, #3 in America. And it's a fantastic way for us to be able to get folks into the business that aren't into buying hot coffee. And then energy, I think those of you who have been following us, you're familiar with this. This is innovation for us, right? We're going to take our time with this.

We're going to make sure we build it the right way. We're going to make sure it does not steal investment away from those first 2 buckets, which are at scale for us. Here are the results of it. Again, this is pulled straight out of consumption data.

And you can see that. Not only are we winning, we're winning in both aspects of how you create revenue, right? Everybody on here is generating some level of price growth in the market. Obviously, costs are up in coffee. You all know that. Everybody is pricing behind that. What we are really proud of is that we are #1 in America in driving the unit growth, right? We're still driving 22% unit growth on top of the pricing we're doing.

Our pricing looks a lot lighter. I will tell you, we've already priced in the high teens that will be flowing through. So you'll see a bit more of that. Maybe the unit growth will come down a little bit, but we are confident that our model is going to allow us to do both. In this slide here, like this is what we do. This is the best snapshot of how our model is working, right?

And those of you who have listened to our investor calls, I talk about our Land & Expand strategy on a consistent basis. And what that means here in numbers is if you look at the bottom left quadrant, right, in that quadrant, you're seeing this slow build of ACV. And for those of you who aren't familiar with ACV, ACV is a measure of breadth.

How many stores are you in across the country? So we're now in 55% of the stores across the country in grocery and mass, the measurable stores in AC Nielsen. And as that slowly goes up, the goal is you're coming -- you have new customers coming in and you have to increase your velocity as you come on shelf. When we initially come on shelf, it may be 2 items, it may be 4 items. It's usually not a big set, right, because we're a new brand coming in.

And what that means is your velocity starts a bit lower. And you can see back in '23, we were at a lower velocity number versus the category. Fast forward to '25, we're now equal to the category, which remember, the category is made up of a lot of value players as well, right? So for us being a super-premium brand, equal in velocity, that puts us in a strong position. And also remember, this is an average, right?

So you still have new accounts coming on, which are at that [ 2, 4 range, ] and you got accounts that are up [ 6, 8, ] and those are the ones that are driving well over 100% on that velocity number. The key chart on here, however, is the bottom right. If you look at the bottom right, this is it all coming together for us, which is when you get first on shelf and you drive that velocity and the retailer feels like they have a healthy margin, they're going to put more items on shelf.

Any buyer would make that decision. And you can see it happening in our numbers, right? So third quarter '23, we are averaging about 2, like I said, when you go into a new account, you don't get much at first. We're now averaging in the last quarter, close to 6. And again, it's an average, right? So you still have new accounts coming on that are at 2 and you have accounts like our strategic partners, Kroger, Meyer et cetera, who are well over 10, right, on their way to 20, even north of that, which we know is possible because that's what we have in the largest customer in America, Walmart.

Our RTD Coffee business, again, this is a scale business for us now, right? Innovation 2 years ago, it's now #3 in America. This category has been a tough one, though, right? The category has declined in the last couple of years. Why is that? Well, it has not kept up with consumer demands. We believe that this category has not done the things that other Ready-to-Drink categories need to do to be relevant to consumers. So this year, now that we have scale going into '26, we're going to start taking that on.

We're not just about a share game anymore. We're going to start pushing the category as well. As a #3 player, that is our responsibility to do that. We have a major innovation coming out right now, which is Cold Brew. It's already doing great, high acceptance with our retailers. That will be on shelf in January and building up from there. And we have one other major innovation, which I'm not ready to announce yet because we have not fully presented it to our retail partners. That will be coming a few months later.

But with these 2 major innovations, we are confident that we can start to change, not only continue our share trajectory upward, but to change that trajectory of what the category looks like in RTD coffee as well. And then finally, I talked about energy. Look, it is what it is. When I sat here last year, I gave you a bigger number than what we're calling right now in energy. And the reason is because our strategy was different, right? We are a nimble company. If there's one thing I've learned from this guy and his 2 founder partners, it's you damn well better stay nimble. You heard the story that he told about where the culture of our company comes from.

We carry that culture into everything we do from a corporate standpoint as well. So as we've looked at our Energy business, you know what, it's tough man. It is a tough category. We have had some real success points in cities we've gone into and invested properly. And in areas where we've not invested properly, we did not have success. So as we go into '26, we're not going to make the same mistake again. What we're going to do is we're going to shore it up.

We work with KDP on this, right, our retail -- our distribution partners, Keurig Dr Pepper. And we're going to make sure we're distributing into geographies where we can fully support in the way that we knew we were able to drive success in '25. That won't be the whole country. That will be a portion of the country, and that will allow us to continue to smartly build this optionality for ourselves while we still have the majority of our money going back against that Coffee business, which is really kicking for us right now. Let me kick it right now to Matt to quickly go through our P&L.

Thanks, Mondz. So what we're going to talk about now is how we diversified the customer base over the last 6 years. It's a pretty remarkable story. You can see in 2019, the business was 90% direct-to-consumer, 90%. If you progress over to the right, 2022, we got our first entrance way into meaningful distribution in food, drug and mass through the addition of Walmart.

Fast forward to '23, '24, '25, that's the Land & Expand strategy that Mondz walked us through. That's Kroger, Safeway, Albertsons coming online. If you look at 2025, our projected numbers of $395 million in net revenue, 65% of that revenue will come from wholesale. That's important. That was a deliberate diversification designed to establish the wholesale business as a primary growth engine for the company. That's important for 2 reasons.

Number one, we're meeting consumers where they shop. We're not trying to pull more people into the website. We're meeting them where they're buying coffee today. And that's very, very important if you think about most of the coffee in the U.S. is sold through retail channels and wholesale channels. Number two, it's much more profitable. The margins are inherently stronger on the wholesale business, they are in D2C.

And that's fundamentally because it's much more economical to ship a case, a full pallet or a full truckload to a retail partner versus sending an individual bag of coffee to an end consumer. Now look, you may look at this and say, these guys, they're flat for the last 3 years. Keep in mind, if you listen to the earnings call, we talk about nonrepeatable revenue. In '23 and '24, we had about $24 million and $30 million, respectively, in those 2 years of non-repeatable revenue related to some liquidation sales of long inventory.

Look, those things are behind us. If you would adjust for that, we'd be talking about roughly a 7% to 8% growth rate from [indiscernible]. So think upper single digits. So what does this mean? So in the end, what this gives you is a more predictable, a more diversified and a more resilient revenue model. And that's going to pay off in dividends with earning visibility over time. Operating margins. Obviously, a tough year for gross margins. Now look, we have a pathway that still gets us to 40% over time, and we'll talk about that pathway in a moment.

But let me spend a few seconds here talking about '25 cost inflation. Green coffee prices obviously hit us hard and the whole category hard. If you look at the pricing we see in the marketplace today, it's at the historic highs, right, close to $3 to $4 a pound. If you look over the last 2 years, coffee prices have simply doubled. Look, it's due to the adverse weather conditions that happened through Central America, particularly Brazil, the tariffs added more inflation on top of that.

We have a plan to take care of it. There's things that we can control, and there's things we can't control. We can't control whether tariffs are levied. We can't control the weather in Brazil. But what we can do is we can control our own execution. So getting back to what Evan said in the onset, it's about what we do now, right? So we have 3 levers that we're going to aggressively pursue. One is pricing and promotional disciplines.

So we've taken 2 pricing actions -- actually 3 pricing actions in 2025 that have begun to pay off in the back half of '25 and will into 2026. We'll continue to monitor the external marketplace, what our competition is doing and where elasticities are to see if further pricing actions are warranted.

Number two, productivity and efficiencies. We're looking across the supply chain. Look, we're a 35% gross margin business, just do the backward math. We've got like $250 million in our COGS basket to go after, and that's what we're doing. Supply chain efficiencies, manufacturing efficiencies, RFP and sourcing out a lot of our raw material and packaging buys, we're aggressively going after all of those.

The one that I think really speaks to the health of the business and the transformation that we're doing would be mix. There's 2 types of mix accretion that we're going to see. Number one, as we mix our business more to wholesale, as I mentioned, it's much more economical to ship that. We'll see a margin bump because of that. Number two, the more we disproportionately grow our Packaged Coffee business, which has higher average margins than the company, the more we're going to improve our product mix. So we believe the combination of these 3 levers will get us back to 40% over time.

Now it's going to take some time. With the commodity prices the way they are today, we are seeing inflation going into 2026 still on coffee. If those coffee prices normalize, we could see restoration of the 40% gross margin sooner. If they don't, we're going to steadily progress down the path of those 3 key levers and sequentially improve margins over time. Operating expenses. The team has spent years on restructuring the business to get an operating structure that's prepared for a scaling business that we have today.

So we spent deliberate actions, restructuring actions against simplifying the organization, consolidating headcount to reestablish the operating cost base. If you look at the headcount chart on the Northeast quadrant there, you can see that we reduced headcount by nearly 50% from the highs in 2022. In addition to that, we worked on simplifying the organization by removing layers, redundancy and overall simplification of the business to reset that operating cost base. What we're left with is a relatively fixed cost operating base with the exception of marketing, which will grow in line with the growth rate of sales.

So in the end, what we're going to have is we're going to have an overhead structure that allows most of the gross margin benefit from the higher volume to fall straight through to the bottom line and really utilize our operating leverage. I'm just going to wrap it up right now with our long-term financial targets. We still see -- now think about these long-term targets is not tied to any specific year, just the longer-term algorithm of growth for the business. We see 10% to 15% on revenue, gross margins getting back eventually to 40% and adjusted gross margin outpacing the rate of sales based upon the operating leverage.

All right. That's it.

That's it.

Thank you all.

Thank you all.

Hopefully, we'll get a chance to see you later.

Greetings, and welcome to the Black Rifle Coffee Company Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matt McGinley, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Third Quarter 2025 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com.

Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website.

Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Mondz?

Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. The third quarter was another solid step forward for Black Rifle. Our team did an outstanding job executing against our priorities, driving strong commercial performance, maintaining cost discipline and positioning the business for sustainable profitable growth. We continue to see encouraging momentum across both the wholesale and direct-to-consumer channels as our brand gains traction with new customers and deepens its connections with existing ones.

As we move to the fourth quarter and into 2026, our focus remains clear; driving strong on-shelf execution as we expand our physical presence, maintaining costs effectively to enable reinvestment in growth initiatives and continuing to build a scalable platform for long-term success. We're broadening distribution, driving stronger velocities with key retail partners and advancing our product lineup to keep the brand fresh and relevant. The team's execution this quarter reflects a company that's more agile, more focused and more confident in its ability to perform even in a challenging cost environment. We're proud of the progress we've made and optimistic about the opportunities ahead.

Move to Slide 6, please. In the third quarter, Nielsen data showed continued strength in the U.S. coffee category within Food, Drug, Mass, growing 13.2% as higher shelf pricing to offset commodity inflation flowed through. Black Rifle once again outperformed the market with sales up 36.7% year-over-year, nearly triple the category's growth rate. Our land-and-expand strategy continues to prove effective. We start with a focused set of SKUs to demonstrate performance and earn additional shelf space as we build retailer confidence. In grocery, ACV increased 6 points year-over-year to 48% and total ACV across all tracked channels increased 9 points to 54%. Even with a 70% increase in average items carried, velocity in grocery improved more than 7%, highlighting the brand's strength with consumers. This combination of faster turns and expanding distribution is translating into stronger partnerships and continued shelf gains.

Move to Slide 7. Across the category, most of the dollar growth is being driven by price increases. In contrast, Black Rifle's growth is coming from almost entirely unit gains, which are up more than 20% year-to-date. This reflects real consumer demand, not price inflation. The brand continues to win new households, drive repeat purchases and gain share at retail. As we expand distribution and sustain velocity, we're driving durable volume-led growth that supports long-term brand health.

Slide 8. Our Direct-to-Consumer business remains an important part of our omnichannel strategy, deepening customer relationships, strengthening brand loyalty and providing valuable insights that guide how we engage with consumers across every channel. It also allows us to test new offerings, refine messaging and stay closely connected to our most engaged fans. Through both our own site and digital retail partners, Black Rifle products remain easily accessible to customers who prefer the convenience of home delivery.

While most of our recent top line growth has come from retail distribution and velocity gains, we're encouraged by the continued stabilization of our digital channels this quarter. Sales in our Direct-to-Consumer segment declined 4% year-over-year in the third quarter. However, after adjusting for the prior year benefit related to our loyalty reserve and the timing shift of promotion, results were slightly positive compared to last year. We also saw meaningful gains through leading third-party marketplaces, where awareness of the brand and repeat rates continue to build.

Beyond top line growth, we've made steady progress improving the overall customer experience. Website and mobile updates have enhanced navigation and checkout speed, while back-end improvements support smarter merchandising and more efficient SKU management. Within our subscription platform, we're adding new functionality and greater flexibility for members, including prepaid options, exclusive offers and a refreshed brand portal that highlights partner benefits and members-only gear. These ongoing upgrades reflect our focus on building a digital ecosystem that not only drives sales but deepens brand loyalty and supports the broader omnichannel strategy.

Slide 9. The Ready-to-Drink coffee category continued to face headwinds in the third quarter. particularly within the convenience channel. While category sales declined 3.1%, our performance remained resilient, down just 0.6% overall, reflecting solid execution and strong brand loyalty. In grocery, sales grew 18%, partially offsetting the softness seen in C-stores. Even in a challenging environment, we're gaining ground. Black Rifle remains the third largest RTD coffee brand in the U.S., and we expanded our ACV by 7 points year-over-year to 53%. That growth underscores the confidence our retail partners have in the brand and our proven ability to perform on shelf. We're still in the early stages of unlocking the full RTD opportunity with roughly half the category yet to be reached.

Slide 10. Black Rifle Energy continues to expand its footprint, now available in nearly 20,000 retail locations and reaching approximately 22% ACV. Distribution growth has been disciplined and targeted, guided by learnings from early markets. The energy drink category remains one of the largest and fastest-moving segments in beverages and roughly 2/3 of the category sales come from convenience stores. That channel remains a primary focus for expansion as Black Rifle Energy currently has its lowest penetration there and meaningful white space ahead. Our approach remains deliberate, focused on building awareness, driving new consumer trial and earning shelf space through performance rather than overextension. We're encouraged by the early traction and see meaningful opportunity for the brand to expand reach and contribution within our broader beverage portfolio in 2026.

Before I hand it off to Matt, I want to pause and reflect on what makes this company special. I'm incredibly proud of the progress we're making across the business and just as proud of the way our team continues to live out our mission every day. As we approach Veterans Day, it's a time to honor the men and women who have served our country and to recognize the many ways our team continues to serve them in return. This year, we're working with Born Primitive and ForgiveCo to help forgive up to $25 million in medical debt for more than 10,000 veterans. 1 in 5 veterans carries medical debt in collections compared to about 13% of the general population. That burden often leads to financial stress in housing and security, and this effort is about lifting that weight and giving back to those who have served. Whether it's helping rebuild communities after a flood, supporting warriors in crisis or rallying around causes like suicide prevention, Black Rifle is driven by our mission to veterans. I'm proud of what this team has achieved and excited about the road ahead.

Thank you, Mondz. I'll begin my remarks on the quarter with Slide 12. Third quarter net revenue increased 3% year-over-year, driven primarily by growth in our Wholesale segment. We are cycling a $2.4 million net benefit recognized in the prior year related to barter transactions and a change in loyalty reward accruals. Excluding these items, revenue increased 5%. Our Wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to retailers grew 5% year-over-year. Adjusting for the net $2.1 million in nonrecurring revenue recognized in the prior year, sales in this segment increased 9% in the third quarter. Growth was driven by gains in velocity and distribution, including increases in the number of doors and items carried as well as continued growth in sales from Black Rifle Energy.

Revenue in our Direct-to-Consumer segment was 4% lower in the third quarter. A high-volume promotional event occurred later in the quarter compared to prior year, which we estimate shifted approximately $1 million in revenue from the third quarter into the fourth. Excluding this timing impact and the prior year benefit from the loyalty reserve change, revenue would have been slightly positive year-over-year. Fans of the Black Rifle brand now have more ways to find our products as brick-and-mortar retail distribution expands and online sales through platforms such as Amazon and walmart.com continue to grow. This increased availability is critical to the brand's long-term growth and health, and we will continue investing in wholesale and other channels that we expect will drive the most sustainable long-term growth. Outpost segment revenue grew 6%, benefiting from higher franchise fees and continued progress in merchandising. Better bundling and in-store presentation helped drive the average order value.

Turning to Slide 13. Gross margin was 36.9% in the third quarter, a decrease of 520 basis points compared to prior year. The decline was primarily driven by a 390 basis point impact from increased trade investment and a 300 basis point impact from green coffee inflation and tariffs, partially offset by pricing actions. These pressures were further mitigated by approximately 170 basis points of benefits, including productivity gains and more favorable product mix.

Slide 14. Operating expenses declined by $3.6 million or 9% compared to the third quarter of last year. Marketing expenses decreased 14% on a dollar basis and improved 165 basis points as a percentage of sales, reflecting lower nonworking advertising spend and a reallocation of dollars towards programs more directly tied to revenue growth. Salaries, wages and benefits declined 13% on a dollar basis and improved by 255 basis points year-over-year. The quarter included approximately $800,000 of severance expense and total headcount was down 19% compared to the third quarter last year.

General and administrative expenses increased 5%, primarily due to costs related to settled legal matters, partially offset by efficiency gained in our corporate infrastructure. Despite the gross margin pressure we faced, scale benefits from revenue growth and efficiency gains drove a 19% increase in adjusted EBITDA to 8.4% of sales, representing a 115 basis point improvement compared to the same quarter last year.

Turning to capital and cash flow. We raised $40.25 million in gross proceeds through an equity offering in July, which enabled us to pay off the outstanding balance of our revolving credit facility and strengthen our cash position. We also generated $5.6 million of free cash flow in the quarter, further improving liquidity.

Moving to the outlook on Slide 16. On last quarter's call, we discussed our expectations that results would be toward the lower end of the full year guidance range we provided at the start of the year. We expect to finish the year with at least $395 million in revenue and at least 35% gross margin and at least $20 million in adjusted EBITDA, each of which remain within the previously communicated ranges.

We continue to expect a sequential step-up in revenue throughout the year, driven by ongoing distribution gains across both packaged coffee and ready-to-drink product lines. In the fourth quarter, this step-up should be slightly larger than the roughly $5 million quarterly increases seen earlier in the year, reflecting normal seasonality and a greater benefit from pricing actions. As a reminder, we are cycling $30.4 million of prior year revenue related to onetime items that are not expected to recur in 2025. This represents a $9.1 million headwind in the fourth quarter, which we expect will be the final quarter impacted by these prior year items.

Turning to gross margin. While commodity pressures and tariffs have been a meaningful headwind to the gross margins this year, we delivered a solid sequential improvement in the third quarter, reaching 36.9% compared to 35% in the first half of the year. We expect to see additional pricing benefit in the fourth quarter. However, that period is typically more promotional, and we'll also see a slightly greater impact from tariffs as higher cost inventory flows through the P&L. As such, we expect the fourth quarter gross margins to be closer to the 35% level we saw in the first half of the year rather than the nearly 37% achieved in the third quarter.

Our assumptions regarding the key drivers of the margin outlook compared to the prior year remain unchanged and include at least a 300 basis point headwind from green coffee inflation, net of pricing actions; a 250 basis point impact from increased trade investment behind the energy line and a more normalized promotional cadence; at least 100 basis point margin impact from recently implemented import duties with the full effect building through the second half of the year. These pressures are expected to be partially offset by at least 200 basis point benefit from productivity initiatives and a more favorable product mix. Green coffee prices have been volatile and remain elevated relative to historical levels. While movements in coffee and tariff costs are largely outside our control, we are not assuming any relief as we plan for 2026. Our focus remains on the elements we can control; executing productivity initiatives across the supply chain and refining our pricing architecture as needed.

As part of our operational improvement plan launched in the second quarter, we continue to expect to deliver $8 million to $10 million in annualized cost savings in the second half of 2025. We remain disciplined in managing expenses while continuing to invest selectively in capabilities to support growth and margin expansion. Looking ahead, our priorities are clear; sharpen execution, drive efficiency and build a stronger, more resilient business. The opportunities ahead are substantial, and we're focused on converting that potential into measurable progress. I'm confident in our plan, our team and the momentum we're carrying into 2026.

Operator, we are now ready for the Q&A session.

[Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson.

Two-parter as it relates to the guidance. So there is a change in the language on that guidance. It feels to me as if it's a little bit more cautious than what you thought 3 months ago. Is that the correct interpretation? And then my second guidance-related question is, in the presentation, you're sticking with the 3-year targets using 2024 as the base, and I think growing out to 2027 requires a pretty big ramp in '26 and '27 versus 2025. Can you remind us why you have confidence in that?

Michael, this is Matt Amigh here. Yes, let me explain the language a little bit more about our guidance change. We didn't change guidance overall, but we're guiding to the lower end of the range for sure. And as we mentioned on the last call, we want to go towards the lower end of the range, but the underlying puts and takes haven't changed. We're still seeing coffee inflation, trade investment will be higher in the fourth quarter than it was in the third. We still see tariffs, and they'll be offset by the operational improvement plan that we spoke about.

When it comes to the range, we use the words, at least, in that framework so that we don't -- so that the analysts don't anchor on like a midpoint. We want to be clear about the floor of our expectations. Now we're confident that we'll hit $395 million for the year. We're confident that we'll hit 35% gross margins for the year and at least $20 million in adjusted EBITDA. So Michael, what that means, though, that means we'll deliver about $110 million in revenue in Q4. Gross margins will be relatively the same as what we saw in the first half of the year, and we'll have about $8.4 million in EBITDA, which is about what we did in Q3. Now just as a reminder, that $110 million in net revenue, if you compare that against the Q4 from prior year and you exclude the onetime nonrecurring revenue related to the barter transaction, that will be a comparable base of $97 million in last year or about a 13% growth.

Switching to the second part of your question, we are confident in our long-term guidance. And again, that's 10% to 15% CAGR on the top line, approaching 40% margins by 2027. And then on the bottom line, a little bit more aggressive at 15% to 25% CAGR over that time period. We will see growth, obviously, when we get into '26, but we'll see even more growth moving into '27 as we start to really get the distribution points that we gained in '26 and they pay out on a full year benefit. When it comes to margin, we do have a ways to go on margin. We've executed 2 rounds of pricing in 2025. One in Q3, we have another one that is being executed right now in Q4. That will pay dividends when it comes to 2026, but we're also seeing more inflation when it comes to green coffee. Green coffee, right now, is at all-time highs at $4 a pound in the nearby and the forward curve is roughly about $3.30 for the year. So we'll continue to see the tariffs and the green coffee inflation, but we will see that margin pick up as we exit 2026 and into 2027.

Let me just build a little bit on that, Michael. As we think about the second part of your question, the 3-year guidance that we gave for the business, we're feeling more confident than ever on that guidance. If you think about the fundamentals that we talked about in the opening remarks, we're growing share in every segment of the business. We are the strongest unit growth player right now in the U.S. in coffee and we still have significant distribution room. So on top of the unit growth we're driving and the velocity that we're driving, we still have significant room to continue to expand distribution on every segment of our business. So again, as we think about the 10% to 15% guidance range that we put out there through '27, we feel highly confident in that.

Okay, great. Very complete answer. If I could ask one more, just more -- I presume this will be more qualitative, but any color on the energy drink, how consumers are accepting it? I think it's still in 12 markets, correct me if I'm wrong, but yes, any color on how that's progressing relative to your expectations?

Yes. I'll start off, Michael. I think we're pleased with the overall performance. So to remind everyone, we had a very limited launch this year. We went into 12, what are called up and down the street markets in partnership with our distribution partners, KDP. And on top of that, we had 2 national customers, mass customer and C-store customer. That was all we wanted to bite off in the first year, and we're pleased with the results. We've seen improvements in those customers through the year as we've been able to track them. And as we think about '26, it's going to continue to be careful steps forward with that business. We have an incredible coffee business right now. We are growing every segment, as I just mentioned, and we want to be very careful that we continue to put as much investment as is necessary in continuing the momentum in coffee. We're excited about energy, and we're going to continue to take strategic steps to expand that on a more regional basis. So while I'm not in a position to talk specifically about our plan in '26, it will be a step forward from where we were, but still really managing that in a targeted way where we can build that business the right way.

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

So one of the words you used on the transcript was expansion of portfolio. I think it related to the energy category. So can you help us understand how the category is expanding as you look at stronger growth out here along with distribution on the energy side?

Yes. Sarang, let me start that one. So as far as energy specifically, we had some information, I think, in the pre-read around that. We are continuing to evolve our portfolio to what we believe are the most relevant flavor segments of the market. So we're launching grape. We're very excited about that. We're seeing great initial response from the customers who we have presented that with in concert with KDP. And then we're also going to have a limited item, the Tiger Strike, which we’re taking advantage of the 250th anniversary of America next year, and we're very excited about this item on a limited basis as we think about the summer season. So yes, it's an important category to evolve yourself and make sure you're staying relevant with your flavor profiles. So we'll continue to double down and use that as a way to be able to increase distribution with some of our existing customers and as a way to go get new distribution.

We're driving innovation in the rest of our business as well. So we're very excited about the items we have going into coffee, pods, bags. And then we actually have a couple of our RTD items in the presentation as well, our cold brew items. These are 25 calorie, low sugar, exceptionally developed items that we, again, are already seeing a strong response from retailers on. And we look forward to -- we believe that we're at the point, as Black Rifle, where, yes, we participate in these categories. We need to be leaders in these categories. So you're going to continue to see us driving innovation into each of the segments that we compete in, in partnership with our retailers. And in the case with energy in partnership with KDP, and we're going to be doing things that we believe will drive leading growth in these categories, not just participating, but allowing us to continue to lead the growth and continue to drive share.

That's great. We can't wait to drive new products. I had a follow-up question on marketing. Dollars were down in the quarter. You are very focused on marketing. There's new brands coming and these flavor profiles coming in. How should we think about marketing spend as you look out for like next year and just the broader role of marketing in leveraging the cost part of the business?

Sarang, this is Matt. Yes, the way we're thinking about marketing as we go into 2026 is maintaining a relative marketing as a percentage of net sales as we go forward. But what we'll see is we'll shift -- we'll see more of a shift that you're seeing now, which is a shift away from nonworking into working. So we'll continue on with that shift, reducing contractors, reducing agency fees and things of that nature and putting it towards tactics and strategies that have more of an immediate impact on sales. So you'll see that. And one of the key things that the months will talk about is how we're improving our activations against some of our key partnerships that we have. So it's really driving more with what we already have and converting that to sales quicker.

Just building on what Matt said, we're going to continue to do what we're doing at a higher level as we build the business and make the business bigger. As we generate more margin dollars in the business, we want to be able to reinvest those dollars into the marketing that already works so well for us. We're very fortunate. We have an exceptionally strong brand team. We have an exceptionally strong brand. We focus very heavily on top line -- or I should say, top of funnel brand awareness, and it works. We have grown awareness every quarter over the last 3 years.

Nearly half the country is aware of Black Rifle at this point, and we're going to continue to drive that number through very strong owned media executions. As Matt said, partnerships, we have strong partnerships with the UFC, with the Dallas Cowboys. We will have some additional major partnerships that we'll announce as we get into the year. And then the part that we actually got very good at this year that we're going to continue to expand on is that execution in store. So we'll drive that money into our retailer partners, and we'll ensure that we are available at that point of purchase on display at the right price points. So again, we feel confident that we've got the right level of marketing in play as we go into '26.

And Sarang, just one more point on that is we have a maniacal focus on returns. So when it comes to the digital spending, we are looking at the right metrics to make sure that the activities are working out and paying out and breakeven or better. So we're focused on that.

Our next question comes from the line of Joseph Altobello with Raymond James.

This is Martin on for Joe. I want to quickly touch on the energy distribution. You've previously given a goal of an ACV about 70%, 80% by end of next year. Is that still something you're targeting?

So in the case of energy, I'll just double down on what I said before. We're going to expand off of the existing targeted plan that we have this year. We've not given guidance at this point on what we think '26 is going to look like as we get deeper into our '26 overall guidance, we can consider doing that. But yes, I mean, it's going to be -- again, we've had success in many of the markets that we've gone into. Others, we have learned some valuable lessons as is true of any new brand launch. And then as I said, most importantly, with the 2 national customers we were in, 1 C-store, 1 mass, we've actually had very good results. We've seen expansion of items on shelf. And so, we're going to build off of those learnings, and we're going to take it into an expanded geography. But again, I don't, at this point, want to give guidance on specifically what that looks like.

No, I understand. That's helpful. Would you just mind reminding us how much of your green coffee needs are already locked in for 2026?

Yes. Right now, we have approximately 50% of our coverage locked in '26.

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

Are you seeing a different demographic with your energy drinks versus the RTDs? And then do you envision the distribution to be the same between the RTDs and energy drinks when they mature?

As far as the demographics, it's similar. There are some differences as we look at it. It does tend to skew younger on the energy drinks. Our coffee portfolio is actually quite broad. So when you look at the total coffee portfolio as a whole, we actually hit a very, very wide range of demographics with that portfolio. When you start to talk about the cold canned beverages, the RTD coffee and the energy, the demographics are quite similar. It does tend to be a younger customer that skews towards that behavior.

As far as energy ultimate distribution, we'll see. Ultimately, they're very different categories. And so we're going to build those categories very differently. It's important to us that when we take on a market with energy, we can be concentrated in that market and that we can really go and invest the right way to win there. In the case of RTD coffee, we're already the #3 player in America, and we are the fastest growing of all of the major brands in America. So we're in a different position scale-wise. It allows us to play that differently from a national basis at this point with different forms of national marketing versus on energy in '26, you're going to see us marketing very heavily against that business, but it's going to be targeted within the geographies that we choose to go and compete with them.

Okay. And if you can sort of bracket how much of your distribution gains for RTDs and energy is between the coolers versus the center of store. How would you think about it in '25 versus '26? Are you sort of pursuing the same sort of goal to be in the coolers or is there more of an opportunity to maybe the center store or at some point, the club channel?

Well, it's a great point you're making. I'm not going to give specific numbers on cooler versus center store. We do track that, right? Our sales team, we're very fortunate to have a lot of deep RTD experience in our sales team. And one of their favorite sayings is cold is sold. So when you can get canned beverages into cold distribution, you see your sales increase dramatically. So that's a big part of the game. We have a lot of tactics that we operate down in our sales organization to ensure that we're not just getting distribution, but that we're getting that cold distribution, and that's a constant negotiation between us and our retailers.

Some retail partners are exclusively in cold distribution, that's particularly true of the C-stores. A lot of times in grocery, you may have dual distribution, you may have center store ambient as well as the cold distribution. It can be harder to get that cold distribution in a grocery store simply because it's more limited, the amount of space they have available. But that is absolutely right, what you're saying. As we drive into '26, we will have internal goals to increase those percentages, in some cases, pretty dramatically, right, in areas where we've already had success with the brand, it allows us to go in and say, let's increase that percentage of cold distribution. So what you're describing is a very fundamental part of how we're going to build and drive that business.

And also keep in mind, like the growth in the business is going to be coming from our coffee business, our packaged coffee business. And when you look at our distribution we have right now, it's roughly 50%. So we have a lot of headroom in terms of growing that business out, great margins on that business. The business is not just growing in terms of distribution, but average number of items is increasing, velocities are increasing, and it's a real powerhouse for us. So that's a business that we'll be very, very much focused on as we exit the year and move into '26.

And there are no further questions at this time. Therefore, I'd like to turn the floor back over to management for any additional or closing comments.

Yes. No, thanks very much. To close, I'll just say we're delivering disciplined profitable growth. We have a clear path forward. Our teams are executing well. We feel we have incredible brand momentum. We're going to continue to stay very focused on our customers, and we're going to balance that with our mission, as I talked about in the opening remarks. And we believe that, that combination will continue to drive stronger and stronger results for us. So we're grateful for your continued support, and we look forward to updating you over the next couple of quarters here as we continue to build on this momentum.

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

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

Good morning, everyone, and thanks for joining Black Rifle Coffee Company's Second Quarter 2025 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially.

For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Mondz?

Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our new Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. As we enter the second half of the year, I want to acknowledge our team here at Black Rifle. Over the past year, we've taken meaningful steps to build a more disciplined and resilient organization, tightening execution, investing in critical capabilities and preparing the business to scale more efficiently. That foundation enabled us to deliver results in line with our expectations this quarter, even as the macro cost environment became more challenging.

As I noted last quarter, our organizational nimbleness has allowed us to navigate change and stay on course. We remain highly focused on positioning the business for long-term growth. We're continuing to expand our footprint with key retail partners to build momentum in both packaged coffee and ready-to-drink beverages and to ensure that every dollar we invest in the brand drives meaningful, measurable impact. That includes leaning into what's working while staying disciplined in our execution and continuing to innovate. We're encouraged by the progress and confident in the opportunities that lie ahead.

Let's move to Slide 6. During the second quarter, Nielsen data showed a modest decline in unit volume for the U.S. coffee category within the food, drug and mass channels. Despite this, category sales grew, driven largely by pricing actions taken across the industry. Black Rifle significantly outperformed the category, delivering 32% sales growth on a 29% increase in unit volume, well ahead of the category's 9.6% sales growth and 1% decline in units. Our distribution momentum continued this quarter with strong gains in grocery and mass merch retailers.

In grocery, ACV increased by 19 percentage points year-over-year to reach 46.5%, while total ACV across all tracked channels rose 15 points to 56.6%. We continue to see significant room for expansion, both through new retail partnerships and by deepening our presence with existing customers. While we launched with a strong assortment at our largest retail customer, averaging 19 items on shelf and capturing 9.3% share in the bagged category, we typically begin with a smaller presence at new grocery and mass accounts.

Our land and expand strategy is working as intended. We start with a few SKUs to establish presence, then grow assortments as performance warrants. We continue to see that play out across key accounts where strong velocities are translating into additional shelf space. In addition to gains in grocery and mass, we've expanded in club and secured national distribution with the leading rural lifestyle retailer. These moves increase visibility, drive trial and repeat and grow household penetration.

Moving to Slide 7. Our direct-to-consumer channel remains a key pillar of our broader digital strategy, offering a direct connection to our most loyal customers and generating valuable insights that shape brand and product decisions. Whether purchasing directly from Black Rifle or through a digital retail partner, consumers have ample opportunities to have our products delivered to their door directly.

While the majority of our recent growth has come from brick-and-mortar retail, I'm pleased to report, consistent with what we've shared on prior calls that our digital channel stabilization in the quarter and returned to growth. In the second quarter, DTC revenue was 7.8% lower year-over-year. However, after adjusting for a $2.4 million loyalty reserve benefit that was recognized in the prior year, sales in the channel were actually slightly positive.

We also saw strong growth across key third-party e-commerce platforms, underscoring our ability to capture demand in high-traffic digital marketplaces and meet consumers where they prefer to shop. We've made meaningful enhancements to both the subscription and non-subscription experience. Updates to our website and mobile app have improved usability while back-end improvements have enabled more precise merchandising and SKU optimization.

For Coffee Club members, we've expanded perks, introduced prepaid subscription options and launched a new brand portal featuring partner benefits and members-only gear. Our digital business remains a vital channel for fostering loyalty, testing new offerings, deepening customer relationships and supporting our expansion with some of the nation's largest retailers, and we're committed to evolving it in ways that drive long-term growth.

On Slide 8, our ready-to-drink coffee business continues to outperform the broader category. In the second quarter, we delivered 7% sales growth in a category that declined 4% according to Nielsen. Unit volume for Black Rifle was up 9%, while category units fell 6%, a clear testament to the strength of our brand and our ability to grow in a contracting market. We've maintained our position as the third largest RTD coffee brand in the U.S. And during the quarter, we expanded ACV by 6 points year-over-year to reach 53.5%. While we've made meaningful progress, we're still in the early stages of realizing the full opportunity with approximately half the market still available to be penetrated. Similar to our bags and pods business, we will continue to drive outsized growth through new retail partnerships and expanded shelf presence with existing customers.

Slide 9. We've made strong progress in the launch year of Black Rifle Energy and are pleased with its momentum building at retail. Since launching in January, distribution has steadily expanded. And by the end of the second quarter, the product was available in over 15,000 retail locations, reaching 23% ACV. While the energy drink category is highly competitive, the early traction gives us confidence in the brand's ability to continue gaining shelf space and driving sales.

We're executing a disciplined rollout in partnership with Keurig Dr Pepper and their national direct store delivery network supported by marketing efforts aimed at building awareness and trial, particularly in the convenience channel where the energy drink category is most active. Our entry into energy is grounded in clear consumer data. The majority of our coffee customers also purchase energy drinks, a significant portion of our digital audience engages with the brand even if they don't drink coffee.

We see this as a natural extension of our brand and a compelling long-term growth opportunity, one that expands our reach, adds consumption occasions and brings new consumers into the franchise. We're encouraged by the early results and excited about what's ahead. Finally, I want to take a moment to highlight the work we continue to do at the intersection of brand, mission and service, a focus that remains central to who we are. For Evan, myself and our organization, this serves as the long-term bellwether of what truly defines Black Rifle.

In the second quarter, we deepened our engagement with the communities that define our brand, service members, veterans, first responders and their families. From major 4th of July activations at Fort Campbell and Camp Lejeune, where we supported tens of thousands of military families to events commemorating the Army's 250th birthday to on-the-ground disaster responses in Kerrville, Texas, our team showed up in meaningful ways.

In Kerrville, we remained on site for several weeks following severe flooding, distributing hot coffee, thousands of cans of Black Rifle Energy and RTD coffee and offering support to first responders working through a challenging recovery. This work isn't about marketing or optics, it's about impact. It's about showing up when and where we're needed and standing behind the people who represent the very best of our country. That sense of purpose continues to drive our brand forward. It's what makes Black Rifle more than a beverage company. It's what makes us a community.

Before we dive into the financials, I also want to take a moment to welcome Matt Amigh, our new Chief Financial Officer. Matt brings nearly 30 years of experience in the consumer packaged goods industry. He's been with us for just under a month, but he's hit the ground running, and we're excited to have him on board. With that, I'll turn it over to Matt to walk through the quarter.

Thank you, Mondz. I've been a huge fan of Black Rifle since the business was founded nearly a decade ago, and it's a real honor to join this team. The brand has a significant opportunity for growth across packaged coffee, ready-to-drink and energy and multiple other channels. I'm excited to be part of that momentum and help support the team as we scale this business together. I'll begin my remarks on the quarter with Slide 11. Second quarter net revenue increased 7% year-over-year, driven primarily by growth in the wholesale segment.

We are cycling a net $3 million impact from prior year barter transactions and a $2.4 million benefit related to a change in loyalty reward accruals recognized in the second quarter of 2024. Excluding these items, second quarter revenue increased 14%. Our wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to retail, grew 14% year-over-year. Adjusting for the $3 million in nonrecurring revenue in the prior year, sales in this segment increased 21% in the second quarter.

Growth was led by strong performance from Black Rifle Energy as well as new distribution gains and expanded shelf presence in grocery and mass merchandise retailers. Revenue in our direct-to-consumer segment was 8% lower in the second quarter. Excluding the $2.4 million impact from the prior year loyalty rewards accrual change, revenue in this segment increased modestly.

Our focus remains on ensuring the Black Rifle products are available wherever our consumers shop, whether it's in brick-and-mortar retail or online platforms like blackriflecoffee.com, Amazon or walmart.com. While we will continue allocating resources towards the wholesale channel, we're encouraged by the progress we've made in stabilizing our direct-to-consumer business. The Outposts segment grew revenue by 11.3%, driven by higher franchise fees and an increase in average order value, supported by enhanced merchandising and more effective bundling strategies.

Slide 12. Gross margin was 33.9% in the second quarter, reflecting a 790 basis point reduction compared to the prior year. The decrease was primarily driven by a 430 basis point impact from green coffee inflation, a 290 basis point impact from trade and pricing and a 160 basis point impact related to the change in loyalty reward accruals. These margin pressures were partially offset by 170 basis points of benefit from productivity gains and more favorable product mix.

Slide 13. Given the ramp-up in wholesale distribution, seasonal factors and the timing of the trade and advertising spend, we anticipated that both revenue and EBITDA would be more heavily weighted towards the back half of the year. In the second quarter, gross margin pressure, partially offset by higher volume contributed to a $5.1 million decline in adjusted EBITDA from the same period last year, bringing the total to $2.4 million for the second quarter. Operating expenses were relatively flat compared to the second quarter last year and did not have a material impact on the change in adjusted EBITDA. Our quarter end headcount was approximately 20% lower year-over-year, resulting in lower salaries, wages and benefits. We largely reinvested those savings into marketing to support growth. General and administrative expenses increased 31%, primarily due to legal costs related to matters resolved after quarter end and higher depreciation tied to capitalized software, both of which are added back in the calculation of adjusted EBITDA.

Moving to Slide 15. We are maintaining our full year revenue guidance of $395 million to $425 million. We continue to expect a sequential step-up in revenue throughout the year, driven by ongoing distribution gains in both packaged coffee and energy as well as targeted marketing and trade investments to drive brand awareness and repeat purchases. While the step-up remains on track, current pacing implies that we may finish towards the lower end of the range.

As a reminder, we are cycling $30.4 million of prior year revenue that was driven by onetime factors and not expected to recur in 2025. This represents a $5.8 million headwind in the second quarter and is expected to have a $3.6 million impact in the third quarter. We continue to expect full year gross margins in the range of 35% to 37%. We delivered 35% in the first half and expect a modest improvement in the second half as pricing and productivity gains helped partially offset the new impact of tariffs.

Since the U.S. does not have geography suitable for large-scale coffee production, we import the majority of our green coffee from Central America, Colombia and Brazil. We have flexibility to shift purchases between origins if pricing becomes unfavorable. As we noted on the last quarter's call, tariff-related cost pressures were incremental to our original expectations on gross margin and adjusted EBITDA.

We indicated last quarter that both metrics would likely fall below the midpoint of our full year guidance ranges, and that remains our expectation. Key drivers of the margin outlook compared to the prior year include at least 300 basis point headwind from green coffee inflation net of pricing actions, a 250 basis point impact from incremental trade investment behind the energy line and a more normalized promotional cadence, at least a 100 basis point margin impact from recently implemented import duties with the full effect expected in the second half.

These pressures are expected to be partially offset by at least 200 basis points of productivity initiatives and a more favorable product mix. Looking ahead to 2026, we've secured approximately 40% of our expected coffee needs through forward purchase agreements and we'll continue to lock in additional supply through the end of the year. If green coffee spot pricing remains stable, we expect it to have a neutral impact on gross margins in 2026, representing neither a material headwind nor tailwind.

We remain focused on improving gross margins through productivity initiatives that we continue to work on across our supply chain, and we'll evaluate further adjustments to our pricing architecture, consistent with actions taken by other packaged coffee manufacturers. For adjusted EBITDA, we're maintaining our full year guidance of $20 million to $30 million.

We remain focused on driving operating leverage by tightly managing gross profit and expenses to ensure we can scale efficiently while supporting the long-term growth of the business. We remain on track to achieve $8 million to $10 million of annualized cost savings from organizational efficiency initiatives launched this quarter. Subsequent to quarter end, we raised $40.25 million in gross proceeds through an equity offering of our Class A common stock.

While the capital will ultimately support the continued rollout of the energy portfolio, the immediate use of the proceeds was to retire outstanding balances on our revolver. We were impressed with the quality of the investor base brought in through the raise and expect the offering to enhance trading liquidity going forward. In addition to strengthening our balance sheet, this also helps mitigate potential risk to our investment and growth plan as we look to 2026, particularly if coffee prices or tariffs were to move unfavorably and result in at least $1 million of interest expense savings this year.

Before we move to Q&A, I want to thank both the internal team and our external partners and investors for the warm welcome and continued support. I am grateful for the opportunity to step into this position and join a company with a strong foundation and meaningful growth ahead. I believe deeply in the mission, the team, the strategy and of course, the brand. I'm excited about what we can accomplish together and look forward to what's ahead. Operator, we are now ready for the Q&A session.

[Operator Instructions] The first question comes from Mike Baker with D.A. Davidson.

Good quarter. So I wanted to ask you about the 3-year outlook, which you maintained in your presentation. It requires a pretty significant ramp in '26 and '27 versus the 2025 outlook. Can you talk about the key drivers to that? Is it energy drink? Is it ready-to-drink? Is it more retail customers, more door per customers, more SKUs per door, et cetera? Just what are the building blocks to get that kind of ramp in 2026 and 2027?

Mike, it's Chris. Thanks for the question. Let me frame things up a little bit, kind of how we look at it strategically, and then I'm going to kick it over to Matt here, who can elaborate a little bit on it. So yes, we're going to continue to maintain that guidance. I think when you look at our business right now, one of the things we're very proud of is that all aspects of our business are growing. While we don't give segment guidance at this point, every piece of our business, whether you're talking the pods, the bags, the RTD coffee and of course, energy, which we launched this year are growing for us, as is Outposts, which was not growing a year ago.

And then one of the ones we're most proud of given some of the hard work we've done even driving efficiency is our DTC business. So when you look at our DTC business as a whole, as you strip out the loyalty points, that is now growing for us as well. So with every segment of our business growing, while we're not going to give guidance on exactly where that 10% to 15% overall is going to come from, suffice to say that we have a lot of tools in our tool belt that we can pull from. Matt, do you want to build on that [ at all ]?

Yes. I would just say, Mike, that when you look at the ACV that we have right now across packaged coffee and RTD, we still have a ways to go. So we're sitting about 56% on packaged coffee and about 54% on RTD. So we can expect anywhere from 80% to 85% ACV across FDM. As Mondz mentioned, D2C, we're super happy with the performance in the second quarter, stabilizing the business in the second quarter and then looking forward to making the right investments in that business to scale that business in a very efficient manner. So yes, we do see line of sight to the long-range guidance.

Okay. Great. Makes sense. A couple more. One, I wanted to ask about Walmart. In your Q, it was about -- I think it was, what, 26% of sales versus 33% last year. So I guess that's good and that you're seeing some diversification, but there might be some rounding in this, but it does imply down year-over-year. Can you talk about why that would be down? And I guess related to that, I don't know, I've been asked about this and I've seen it. We've seen -- I think it's called Fire Department Coffee advertised from Walmart, looks a lot like you guys. Can you talk about the competition at Walmart?

Yes. Let me address that. So when we look at the overall sales within Walmart, the internal sales, that's going to move back and forth based on a number of factors. timing of shipments, et cetera. We have talked about, we lost one item last year in the canister, which has hit us. We're actually coming up lapping that. We're going to be going back into some regions with that item coming in Q3. But most importantly for us is takeaway, right?

So we look at the scanner takeaway in the Walmart stores because that is always what will predict future sales. And the reality is we continue to be very strong in Walmart. Given the fact that we're in full distribution, there is no additional store count benefit that's going to come from Walmart, yet we continue to grow at near 10% in our takeaway or our store consumption with Walmart, which ultimately will lead, of course, to the internal revenue as well. So a component of that is simply timing.

And the reality is as we go into Q3, Q4, we're excited about some of the innovation that we're going to be pushing on top of all of the core items that have continued to do well there. We sit very bullish, very bullish with them continue -- obviously, our #1 customer continuing to be by far our #1 customer. Competition, we love competition. I think fire department is a great brand. I don't look at it as direct competition. We don't see any correlation of their success with us.

We love the fact that they're a brand that was founded by a first responder. We know him. And again, I think for us, we're going to continue to play our game. Across every segment in grocery and in Walmart, we continue to be able to demonstrate growth at the register, which is what really counts, where that consumer takes it away. So while the competition will always be fierce in these categories, we continue to believe that our distinctive brand positioning is protecting us well there.

Yes. Fair enough. If I could ask one more real quick. The -- what was I going to ask? Yes, I guess I'll turn it over to someone else. If I think of my question, I'll come back.

The next question comes from Glenn West with William Blair.

Glenn West on for Jon Andersen. One thing I wanted to ask about on Slide 8, where you're showing kind of the RTD ACV and share data. Obviously, ACV increasing and there's probably a little slight lag to this, but the share kind of staying steady there at 4.6% for the past couple of quarters. Can you guys talk about what you're going to do to kind of drive that share higher? Is that still just more distribution? Or is there more targeted marketing coming in? How are we going to push it higher from there?

Glenn, it's Chris. Yes, I mean, you're right in your assumption. I think that's one factor, which is that ACV is always a leading indicator of what's then going to come from sales. So we've talked about this a bit in the past. As we build ACV, and we tend to give guidance on ACV, but we'll always remind that ACV in itself is not always a direct indicator of revenue. It's a direct indicator that you're on shelf of a new set of customers, which then assuming we execute well, will result in revenue in that particular customer group. So that is largely what you're seeing.

We have some large national customers that have come on board with us, which is driving that spike in ACV. Those velocities always start lower as they come up, and you're going to start to see that share number come up as well. But broadly, we just couldn't be more excited about this piece of our business. I mean we're the #3 player in the market right now, and we continue to grow at a much faster rate than the other larger players in the category. And we're going to continue to take advantage of that because it's a strong story for us with retailers.

We have some significant innovation, which we're not ready to talk about specifically yet that will be coming later this year. We're going to use our momentum to build off of that. And we've talked a bit in the past about what we've been doing to optimize our organization in facing into cost pressures. But within that, we have been investing heavily in the areas that we know are going to be important to us to succeed.

So the sales force in this case, we've put some really powerful sales assets in place, particularly with our RTD business that, again, are going to just be sharpening that execution even further. So high level of confidence on my part that you're going to start to see those share numbers start to tick up behind that ACV increase as well.

Okay. That's helpful color. And then maybe one follow-up, not to hit on ACV again, but energy, one thing that stuck out to me is that it's only 7% ACV in convenience stores. Obviously, C-store is super important for energy. So what's kind of the distribution look like and the strategy there for energy, specifically in that C-store channel?

Yes. That was a very specific target that we went after. We're actually right where we had hoped to be on energy. You may recall in the past, I've talked a bit about the markets. We chose to go into a limited number of markets in the first year, and that was a conversation we had with KDP. We really wanted to get the model right. We really wanted to learn how to market this correctly in those cities. We chose cities that had strong category and brand indexes. Obviously, you can imagine across the South Texas, San Diego was one.

And we've done well there. We -- in many of those cities, the ACV within those cities tends to be somewhere between 50% and 70%. And the aggregate of that, of course, is a lower number when you look at it nationally because there are some very big geographies that were simply not distributed in yet, that was a purposeful choice that we made alongside Dr Pepper. Energy for us is a great future growth platform, but we also want to make sure that we're never stealing resource from coffee, which is core to us, right?

And we just talked about our RTD coffee business and the size of that, #3 in the market. And then, of course, our pods, our bags business continue to grow well ahead of the market. So the lion's share of our resource will continue to go against that. That allowed us to put targeted strong investment in those launch markets for energy. And again, the aggregate of that ended up being that 7% ACV you see.

Next question comes from George Kelly with ROTH Capital Partners.

First one is just on your expectations for pricing in the back half of the year. Wondering if you could share a little bit just about what your plans are by business segment just broadly? And I guess, secondarily, have you continued to tweak your bagged coffee pricing at Walmart? I thought I saw another change just recently when I was on the store. So any detail there would be helpful.

Good question, George. Thanks for that. So we never comment on future pricing. Obviously, you can appreciate that. We'd want to tell our customers first and then go to the Street. But I can tell you that we did execute a pricing action across packaged coffee in May, which is settling into the marketplace right now, which probably explains why you've seen the pricing change on shelf that you've seen. So that was largely across packaged coffee and largely across the wholesale market.

Okay. Okay. And then second question, you mentioned club in your prepared remarks. So I guess I'm curious if you could be more specific just about the kind of what you're seeing at club? And are you getting more club distribution? Is it becoming a sort of more material channel for you? I know you've had a long-standing customer there, but maybe it's broadened. And how big can that channel be for you? Like is that a big focus for '26?

So I want to be careful. We're not going to give any specific guidance on any customer individually. However, club as a channel is a significant portion of the categories that we operate in. They're great sellers of coffee, ready-to-drink coffee and energy. They obviously play a different role than the other channels that we're in. But for a brand with our strength, well over 50% brand awareness at this point, a channel like this makes a lot of sense.

And our early indicators are that we're going to have a great deal of success here. What I will say is at this point in time, we have programs going with all 3 major clubs. We are in distribution with all 3 major clubs. As you know, they all operate very differently. So the way we're doing these programs, we're working in line with their go-to-market strategies. And again, like every other part of the business, we're going to test our way in to ensure that we understand the model, that we understand how to get strong returns on the marketing that we put against that channel or that customer.

And then as we see success with that, we're going to double down on it. So final point, you mentioned it will be part of our plan in '26. Again, we're not going to piece apart where that growth plan comes from. But back to the earlier question, 10% to 15% guidance that we're giving over the next few years, this is just one additional tool, as you point out, all of that open distribution in the market that we know, given some of the successes we've had against the 3 largest clubs out there that we have some great growth opportunity going forward.

Okay. That's helpful. And then last one, just some I noticed in your Q, the Salt Lake property, it looks like that's either going to go up for sale or has sold already. What is the plan there? Are you going to lease it? Or like are you moving headquarters? Any detail there.

George, thanks for the question. So yes, the facility is held for sale right now. You saw that in the Q. We're looking for something that's more suitable for the size of the organization. The building was great as we started to evolve the business. But now with distribution centers across the U.S. and manufacturing in Tennessee, we no longer need a facility of that size. So it doesn't change our structure of the organization, which will be head office in Salt Lake City. We have an office in Nashville and one in San Antonio, Texas.

The next question comes from Joseph Altobello with Raymond James.

This is Martin on for Joe. I just want to quickly touch on the energy rollout. Congratulations on getting over 15,000 doors. You described the rollout as disciplined. So just trying to get an idea of what the back half ramp-up might look like for energy. Is there a target for how many doors?

We're not going to release a target on number of doors. We're going to stick to kind of what we said, which is that it's a limited number of geographies that we're going into. So the geographies we're operating in now are the geographies that we will continue to operate in the remainder of the year. And then obviously, as we go into next year, there will be significant expansion. The reality, though, is that you are going to see upside simply because we're going to continue to drive those markets, right? So as we have gone into the year, we've been able to drive ACV to a higher level. And the marketing that began, as you recall, back in March, April is going to continue, and we continue to build awareness of obviously, the brand, but even more importantly, the particular the specific offerings of energy in a specific case. So again, I'm not going to give guidance on any increases we expect to see in the back part of the year. But suffice to say, within the geography that we have operated in thus far in the year, we continue to hopefully see increases behind the marketing that we're doing in the back part of the year.

Okay. Understood. And just as a follow-up, sort of a housekeeping item. You released preliminary gross margins and the reported gross margins fell just a little bit short of that. Was there something that happened that sort of impacted the margins in between the time between the preannounced numbers and the actual results?

Yes. Thanks for that question. So yes, the -- when we did the raise, we were in the midst of the second quarter close. And through that close process, we identified some obsolete inventory raw materials, and we took a reserve against the raw materials. It wasn't a very material item, and that's the difference between the 34.1% and the 33.9% gross margin that we ended with.

The next question comes from Daniel Biolsi with Hedgeye.

I was wondering if you could share the price versus volume components of the 14% wholesale growth for RTD and bag coffee and if you don't have it exactly just directionally.

100% of volume.

Yes. Thanks for the question. So it is 100% of volume. The pricing really didn't settle in until the third quarter. So we'll see that effect going forward, partial quarter impact in Q3, full-on impact in Q4.

I think, Daniel, that's one of the things we're really excited about is that we've been able to drive the growth that we have purely off of units, which, again, for a business in our situation where penetration is going to be king for us, bringing on new consumers and every customer, that's kind of a bellwether metric for us. And then to Matt's point, we'll have the additional weapon of pricing going forward.

Okay. So I think this probably half answers my next question. So I was hoping you can sort of bucket the biggest swing factors from the first half of the year to the second half of the year with the -- maybe the $20 million plus adjusted EBITDA target for the year. What are the biggest swing factors from the first half to the second half? I guess pricing is going to be the number one.

Yes, that's a great question. So we provide annual guidance, and I don't want to get in the habit of providing quarter-to-quarter guidance. But given that our expectations are a large step-up in revenue as well as EBITDA, I think the -- I can certainly appreciate the question, and we'll provide some color on that. When we look at revenue, revenue is going to step up from Q2 to Q3 and then take a larger step into Q4.

And that is driven by the significant distribution gains and the velocity strength that we're seeing across food, drug and mass right now as well as the stabilization and the pivot to modest growth on D2C. Now couple that with the growth that we're seeing across C-store when it comes to the RTD and of course, energy is in the mix. Pricing does play a large part in that sequential step-up.

Again, that pricing will affect the partial quarter impact in Q3 and then full on in Q4. But also keep in mind, we're going to have lower slotting as we get to the back half of the year. Most of the slotting dollars behind new distribution on coffee as well as ready-to-drink and energy happened in the first half. So that will be a tailwind going into the quarter.

When you think about the quarterly step-up, Q1 about $90 million, moving to Q2 of $94.8 million. Q3 will be at or above $100 million, and then you can do the math on Q4 where we have another sequential step-up. The sequential step-up in Q4 is very important because that's where we have the highest seasonality in the business.

And think about that as direct-to-consumer with Cyber Week and Black Friday as well as the increased foot traffic that really bodes well for our wholesale business through the holiday season. When you look at EBITDA, so EBITDA, we're guiding to $20 million to $30 million. We feel like we're going to fall below that midpoint, but there is a significant step-up in EBITDA. Now the EBITDA trails revenue, right?

So the gross profit dollars come along with the growth in revenue over the back part of the year. But taking account, we're also going to bring more operational efficiencies into the picture in Q3 and Q4 as the operational efficiency project kicked off in the second quarter really matures and generates savings in the back half. And then finally, there's a modest decrease in marketing investment. Our plan was mostly front-end loaded, and we have a modest decrease in marketing investment in the back half.

[Operator Instructions] We have a follow-up question from Mike Baker with D.A. Davidson.

I remember my question. I wanted to ask about the energy drink. Any color you have? You gave us some ACV numbers and talked about sell-in. Any -- maybe it's more qualitative but discussion on sell-through, what are your retailers telling you? And then related to that, can you remind us about the customer merchandising agreement that kicks in next year and how that can help the energy rollout?

Yes. Mike, thanks. I think I'll reiterate what I said before and maybe give a little bit more color. Yes, we're very pleased with where we're at with the rollout. Again, limited geographies, only a couple of national customers. We've been very focused on those national customers. So I talked to the geographies a bit. I think if you think about the national customers we're in, we've been delighted with the performance.

If you look at -- it's one large national C-store chain, and it's obviously our other largest national customer. And in both cases, the velocities have increased quarter-on-quarter, which is exactly what we would expect beyond -- in both cases, the velocity has increased quarter-on-quarter. And on top of that, we're starting to get -- I'm not going to quote velocity numbers, but we are starting to get into the range of some of the larger players that are out there, which means that, yes, to answer your question, I'm not going to speak for the retailers, but we're having very positive conversations with them about the product and the performance of the product on shelf.

So we're bullish as we go in. Obviously, the sell season is going to be an important one for us this year. As you would imagine, we're approaching a lot more national customers as well as additional regional customers as we go into next year. So that sell season is going to be very important for us. We believe that we are armed with exactly what we wanted, which was the data from our initial rollout in order to be able to go in and put a strong proposal together that says, this is why Black Rifle can play a very important part of your overall energy portfolio.

So whether you're looking at it through the lens of the 2 national players or whether you're looking at it through the lens of the local markets we've gone into, we've been pleased so far with the results. And then you mentioned [ CMA ], yes, I mean, this was a big part of why we went into business with Dr Pepper. They obviously have a lot of scale. And as we had talked about -- again, I'm not going to talk to the details of exactly what we're negotiating for our plans next year. But what we've said publicly before is this was going to be a test year for us in the markets that we went into.

And as we go into next year, we're going to build off of that. I don't expect that we're going to be in full national distribution next year, but we're going to build off of our successes, and we're going to move into enough geographies that we know we are healthily building on our success while still allowing, again, for us to be able to put the full support against the core of our business, which is our coffee business and our RTD coffee business. So more to come. As we get into the latter part of the year, we'll probably provide a little bit more guidance on that, but expect it to play a key role in the plan next year.

At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Yes. Just real quickly, I think we always talk a lot about the numbers of the business. I want to just point everyone to really what the founders, myself are proudest of in this business is our brand, the fact that we continue to build that brand in such an authentic manner. You heard about some of the stuff I talked about upfront in my comments, the programs we have going on. For those that are newer to Black Rifle, this is the lifeblood of what our business is. It's why we're all here. It allows us to play a meaningful role in giving back to America and those that matter most in America. Our veterans are first responders, but it also builds our brand. It builds authenticity in our brand. It builds distinctiveness, and it's actually building awareness. We're seeing our brand awareness go up significantly off of these programs we're doing. So we're super proud of that, and I want to make sure that that gets mentioned. With that, I appreciate everyone taking the time, and we'll talk to you next quarter.

Thank you. This does conclude today's teleconference and webcast. You may disconnect at this time. Thank you for your participation, and have a great day.