BRC Inc. Price & Performance (BRCC)

Before we begin, I would like to remind you of the company's Safe Harbor statement. During today's call, management may make forward looking statements including guidance and the underlying assumptions, These statements are based on expectations, that involve 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, and free cash flow, Whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted. Reconciliations of non GAAP measures to the most directly comparable GAAP measures are in in our earnings release was furnished to the SEC is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide four. I would like to now turn the call over to Chris Mondaleski, CEO of Black Rifle Coffee. Mons Thanks, Matt. Good morning, everyone. Joining me today are Steve Gudennessey, our Chief Financial Officer and Matt McGinley, our Head of Investor Relations. In 2024, Black Rifle focused on strengthening our core business to position the company for long term success.

Strategic investments in operations infrastructure and brand drove meaningful financial improvements while enhancing our operating structure and efficiency. These efforts have laid the foundation for scalable growth that will expand our market reach and drive long term profitability for the business. I'm pleased with this distribution growth, financial improvements, and adjacent category expansion we achieved in fiscal year twenty twenty four. Adjusted EBITDA tripled. Gross margin improved by 9.5 points and we saw outstanding distribution growth in packaged coffee at grocery with ACV increasing by 28 points to 45% over the year. These improvements demonstrate the strength of our business model. And the results we can achieve with disciplined execution. Looking ahead to 2025, we will remain focused on driving brand awareness expanding distribution and deploying capital efficiently to maximize returns. We remain committed to product innovation in existing categories while expanding into new segments. Including our recent launch of Black Rifle Energy. The energy launch is off to a strong start and will continue to ramp throughout 2025 and 2026. In packaged coffee, we continue to gain share and expect further retail expansion. Including new distribution, and increased shelf presence at existing food, drug and mass retailers as we add SKUs.

While our direct to consumer segment is not a primary growth driver, it remains an important part of our long term strategy that connects us to our most loyal consumer. Our focus in 2025 will be on stabilization and optimization of this channel. Moving to Slide seven, According to Nielsen consumption data in The U. S. Food, drug and mass channels, the coffee category declined modestly in 2024 due to a drop in unit volume, turning positive only in the fourth quarter as mainstream and value brands implemented price increases. As reported by Nielsen, Black Rice [indiscernible] For the year, Black Rifle grew 22% despite the category declining by 0.5%. Across all channels, our distribution as measured by ACV reached 49% in the fourth quarter. And in grocery, our ACV increased by 28 points to 45%. We anticipate continued distribution growth in 2025 both through new retail partnerships and Move now to Slide eight. Direct to consumer segment which ships coffee, apparel and accessories to Black Rifle fans, the original business line when the company was founded a decade ago. And remains a core part of our operations. Serves as an excellent platform to build brand awareness, test new products and provide access to the brand for those who appreciate the convenience of direct delivery.

And those who enjoy exclusive limited edition roasts available only on our website. As is the case with most DTC business in recent years, ours has been impacted by shifts in consumer spending. With behavior moving away from DTC channels and back Overall, this has been beneficial. The growth of our wholesale business has made the brand more accessible allowing our DTC customers to find the brand in about half of retail locations, within the grocery and convenience store channels as measured by ACV. We will continue to allocate resource to prioritize growth in the wholesale channel. But our goal is to revitalize our DTC segment in 2025 and stabilize transactions. We've enhanced our leadership team, and are improving the user interface of our website and app. While simultaneously enhancing our product offerings and assortment. Coffee club members account for two thirds of the revenue in this segment. We've made improvements to the subscriber experience by enhancing access to and awareness of features in the subscriber brand portal. Such as perks and discounts with partner brands. And promotions. For non subscribers, we are focusing on driving higher quality traffic by adopting a more strategic approach to promotion to optimize repeat purchases.

Similar to our approach in retail distribution, we want consumers to have the flexibility to purchase Black Rifle products through the channel they prefer. [indiscernible] walmart.com Amazon and other online retailers provide excellent access to the brand and we plan to enhance our efforts this year by improving search support and enhancing the effectiveness of paid advertising to drive awareness and conversion in this channel. Slide nine. According to Nielsen, the ready to drink coffee category declined by 8% in 2024. But our RTD sales increased by 0.5% and we maintained a similar spread in outperformance delivering 5% growth.

For the year, we increased ACV by four points, to 47% and grew our market share by 50 basis points to 4.6% making us the number three brand in the RTD coffee category. Behind only Starbucks and Monster BRC. We built this portion of our business from the ground up. Establishing manufacturing partnerships, and working with over two ten distributors to bring our products to retail. [indiscernible] I'm proud that we've achieved the number three position, what's even more remarkable is that we are only distributed in about half of the available markets for RTD coffee. This category presents a significant growth opportunity as we expand and narrow the gap with the market leaders. RTD coffee is now a meaningful part of our business And while the route to market differs, the lessons we've learned in this category are being directly applied to our energy launch. Moving to our new energy offerings on Slide 10. We took Black Rifle Energy from concept to commercialization in about six months. We shipped our first orders of Black Rifle Energy in December 2020 and the product became available at retail limited distribution starting in January 2025. Given that the product has only been in stores for a limited time, we don't yet have conclusive data on market performance.

That said, in the first month, we reached 17% ACV, In Black Rifle Energy, is available in nearly 7,000 retailers. With the support of our partner, Keurig Doctor Pepper, we expect our energy [indiscernible] to be a significant contributor to growth in 2025. To support this, we are prioritizing 12 key launch markets allocating resources to drive early adoption. Energy specific marketing spend will ramp up throughout the year in parallel with distribution expansion. In 2025, we anticipate distribution gains in convenience, FDM, and other channels. The energy drink category generated over $20,000,000,000 in sales in 2024. Significantly larger than the packaged coffee category at $12,000,000,000 in in ready to drink coffee at 4,000,000,000 Our research shows 58% of our coffee consumers also drink energy beverages. With 90% preferring natural ingredients. We designed Black Rifle Energy with a clean energy system Featuring green coffee extract and natural caffeine sources, in four delicious flavors validated through consumer testing. Additionally, the can design is distinctively black rifle and crafted for strong visibility on shelves and in coolers. The partnership we announced last year with Keurig Doctor Pepper for the manufacture [indiscernible] will enable us to ramp up at a fast and disciplined pace.

Particularly in C Store. KDP has been an excellent partner providing not only access to its DSD network, which reaches 180,000 retail doors, but also for their shared commitment to supporting veterans. We'll have more to share on energy in future quarters. But we are pleased with the product and its initial launch trajectory. Before I turn the call over to Steve for a review of the financial I want to take a moment to talk about something bigger than our business. Our mission. Black Rifle Coffee creates shareholder value as a premium beverage company. But at our core, we have always been committed to supporting our active duty service members. Veterans, first responders, and all those who serve our nation. That commitment recently took our community outreach team to New City and Los Angeles. In New York City, we visited firehouses, where firefighters are constantly called into action and police stations in Brooklyn where officers BRC daily challenges few truly understand. In Los Angeles, as wildfires tore through communities, we delivered seven palates of coffee and energy drinks to the firefighters and sheriff's departments working around the clock. Some of these men and women exhausted, covered in ash, but still showing up because that's what they do.

Our goal is simple, to say thank you to remind them that their sacrifice is seen valued, and deeply appreciated. We also remain steadfast in our commitment to supporting our service member In recent months, we've sent Black Rifle products to deployed and deploying Army infantry units. Naval special warfare teams and Special Operations Forces to name just a few. This is what Black Rifle Coffee is all about. It's not just about selling beverages, it's about building a community. About showing up for the people who have shaped us the veterans and first responders who make up half of our team, the customers who stand with us. Because when you truly serve those who serve, you don't just gain customers, you create lifelong supporters. And that's what we're here to do. With that, I would like to turn the call over to Steve.

Thank you, Mons.

I'll start with Slide 12.

While revenue declined by 1% in 2024 compared to 2023, we saw solid growth in bagged coffee, pods, RTD coffee and energy.

The offsets were outposts, DTC and a normalizing trend in liquidation related revenue from the [indiscernible] We continue to believe our wholesale segment which primarily sells packaged coffee and ready to drink beverages to grocers, mass versions and convenience stores, will be the primary driver for Black Rifle. As such, we remain focused on gaining new retail distribution, expanding our shelf presence with existing retail customers and supporting velocity growth through marketing and promotions. Our segment level performance for 2024 reflected our strategic shift towards the wholesale segment.

Wholesale revenue increased from 57% of total sales in 2023 to 63% in 2024. Wholesale segment revenue grew 9% in 2024 or 13% excluding barter transactions.

Sales to FDM retailers were 3.5 times higher in 2024 than they were in the prior year and sales to our largest customer grew by 8% year over year. Our direct to consumer segment saw a revenue decline by 14% in 2024. This was driven by the growing availability of black rifle products in retail shifting consumer preferences away from direct to consumer channels and our deliberate reallocation of resources towards wholesale and away from DTC. Moving down the P and L, by building operational efficiency and deploying resources towards the highest return initiatives, we meaningfully improved our margin rate, profitability and free cash flow generation in 2024. Gross margin improved by nine fifty basis points to 41.2%. The majority of this increase was driven by supply chain productivity and the cycling of ready to drink transformation costs. Investment in trade spend and pricing was 150 basis point headwind to the gross margin, while coffee inflation had a 50 basis point impact on gross margin for the year. Adjusted EBITDA more than tripled in 2024 compared to the prior year, with more than two thirds of that improvement driven by gross profit. Headcount and G and A reductions including lower professional fees drove the remaining improvement in adjusted EBITDA and more than offset planned increases in marketing.

Adjusted EBITDA margin improved by six eighty basis points rising from 3.2% of sales in 2023 to 10% in 2024. Free cash flow generation improved by over $55,000,000 compared to 2023. And free cash flow in 2024. This improvement was driven by gross profit [indiscernible] and a reduction in operating expenses. Moving to our quarterly performance on Slide 13. Primarily due to the significant depletion of RGD inventory via barter. Shifting consumer preferences away from DTC consumer channels and continued soft in the coffee and ready to drink categories. Excluding these liquidation transactions, fourth quarter revenue declined by 1% year over year. As a reminder, we use barter transactions in 'twenty three and 'twenty four to reduce inventory. The media credits received will support our brand's growth particularly in the energy category, Wholesale revenue declined by 9% in the fourth quarter but excluding barter transaction it increased by 12% year over year.

Sales to FDM retailers more than doubled in the fourth quarter compared prior year, Our DTC and Outpost segments experienced decline in transactions during the quarter, but average order value grew in the fourth for the fourth consecutive quarter [indiscernible] Slide 14. Gross margin improved by nearly 12 percentage points year over year to 38% of sales in the fourth quarter. The reduction in ready to drink transformation costs drove an 11 percentage point improvement in gross margin. Excluding these costs, gross margin improved by 30 basis points. With productivity gains offset by trade investments, pricing and higher input costs related to coffee.

Slide 15. Compared to the prior year's fourth quarter, a adjusted EBITDA declined by $2,200,000 to 9,900,000.0 with EBITDA margin down 80 basis points to 9.4% of sales, decline was primarily due to the change in revenue trade spending, and green coffee inflation that was not fully offset by our productivity improvements. Overall, we are very pleased with the progress made in improving and we will continue to remain focused on directing resources towards the highest return initiatives driving productivity and enhancing operating efficiencies in 2025. Turning to the outlook on Page 17. At the investor event we hosted in January, we provided three year financial targets including expectations for a 10% to 15% revenue CAGR adjusted EBITDA growth at a 15% to 25% CAGR, and a 40% or better gross margin in 2027. Remain confident in achieving our three year financial guidance. As outlined in January, we expect 2025 revenue and a adjusted EBITDA growth rates along with gross margin to be below our long term targets. This is due to the timing of the energy launch distribution, which extends into late twenty twenty five and 2026, as well as the trade and marketing investments supporting the launch. Page 18.

In 2025, we expect revenue range to be between $395,000,000 and $425,000,000 implying 9% at the top end of our energy as our energy launch gained steam our distribution growth in FDM continues. While we are excited about the opportunities ahead in 2025, we had $30,400,000 in barter transactions and loyalty reserve benefit in the prior year, The impact of the cycling of this change will be most significant in the first quarter twenty twenty five were $11,800,000 of revenue reoccur.

Given the first quarter headwind and the expected build throughout the year in both packaged coffee and energy, we anticipate the first quarter to be the lowest for revenue generation followed by a sequential increase in revenue dollars throughout the year. 7% to 39% range compared to 41.2% in 2024. The primary headwinds include a 2.5 percentage point reduction from green coffee inflation, a 1.5 headwind from recycling the release of loyalty reserves, and a one point impact from trade investments for the energy launch and a more normalized promotional cadence. Partially offsetting these pressures, we anticipate a one point benefit from ongoing productivity initiatives and a more favorable product mix. We use forward purchase contracts to mitigate [indiscernible] approximately one year in advance. Currently, we have locked in over 95% of our pricing and all of our volume commitments for 2025. While our green coffee input costs will be 35% higher this year, We have effectively managed this inflation keeping its impact well below the surge in Arabica spot prices, which have more than With these purchase contracts in place, do not expect significant incremental margin pressure related to green coffee prices in 2025, However, we will continue to assess the market dynamics, input cost changes to ensure a disciplined and strategic approach to our pricing architecture.

We expect to generate 20,000,000 We On a rate and dollar basis, This will mostly be driven by the changes in gross profit we just discussed. These factors include the $9,000,000 to $10,000,000 headwind from higher green coffee prices a $6,000,000 impact from loyalty program adjustments and $4,000,000 in trade and investments and promotion. Our plan expects marketing and compensation expense to be modestly higher in 2025 compared to 2024, but with efficiency offsets elsewhere. We expect operating expense as a percent of sales to slightly increase. As Mons noted earlier, we are pleased with the early progress of Black Rifle Energy. Our guidance fully supports the rollout in our 12 priority markets, As previously communicated, we anticipate a two year distribution ramp for our energy product and plan to align spending with distribution ongoing support needs and opportunities to accelerate growth. Consequently, trade and marketing dollars may be pulled forward in 2025 or deferred to later periods depending on emerging opportunities. Decisions that we make and their potential impact on profitability. For modeling purposes, we expect gross margins to remain relatively consistent on a quarterly basis and in that 37% to 39% range guided for the full year. Adjusted EBITDA, however, will be likely limited in the first half of the year.

EBIT dollars and a rate will increase over the year along with the step up in revenue. Continue to see strong underlying retail demand trends and expect that to continue as we move through the year. As such, we expect revenue growth more weighted to the back half of the year. Before we begin the Q and A session, I want to conclude the call by saying that in the eighteen months I've had the privilege of serving as CFO of Black Rifle, our team has made significant strides in reducing costs improving operational efficiency and strengthening cash flow generation. Black Rifle holds a special place for me. Not only as a leader but also as an early investor and financial sponsor in taking the company public. The Board asked me to join as CFO, my goal was to strengthen Black Rifle's finance and accounting team and enhance its operational excellence and financial foundation. We have made meaningful progress in all areas as you can see from 2024 financial results. I am proud of the team's accomplishments. With this realignment largely complete the Board has initiated a search for the next CFO to help guide the company through its next stage of growth.

We expect to announce my successor soon at which point I will transition to a role on the Board of Directors. I want to thank the Black Rifle team our investors, board partners, suppliers and customers for their trust and support. And I look forward to supporting it as a member of the Board in the years ahead. Operator, we are now ready for Q and A. Thank you. At this time, we'll be conducting a question and answer session. [indiscernible] Our first question comes from the line of Glenn West with William Blair. Please proceed with your question.

Hey, guys. Glenn West stepping in for John Anderson here.

Thanks for taking my question. I think Manz mentioned energy is at about 17% ACV. As of the end of the first quarter. Maybe you could let us know kind of where you expect distribution to be kind of exiting the year? And I know Monster on the recent call kind of talked about a resurgence in the energy category. So if you start to see kind of the category starting to pick up more rapidly, is there kind of optionality to get more distribution out earlier than you have planned? Thanks.

Glenn, thank you for the question. Yes, look, we're very excited. As we talked about in our last call, prior to ever launching energy, I just reinforced that we feel great about our overall product offering. We believe we've got an ingredient line flavor profile that's going to be successful any way that you can cut it. And then yes, we did talk about a recovery of the category. There had been conversation about category declining at one point. The category is actually as a total growing 5% now and the no sugar segment, which is what we compete in, is growing significantly faster than that. So we feel great about the category dynamics As far as our own launch, our distribution is growing rapidly. Week by week. So yes, we're well up over 17% ACV. I'll remind everyone that at our conference, we talked about a goal for the year between 2030% ACV. We're not in a position to change our guidance on that, but clearly, we feel great about the progress only in the March to be already taken such a significant portion of that goal. On top of that, in limited measurement, we're actually seeing the product reasonably well in the retailers that we have begun distribution in.

So expected in Q2, we'll provide some more details on overall performance as we'll be into the season by then and we'll have more data, but we're really excited about the start Thanks. And maybe if I can squeeze one more in kind of on energy. In terms of marketing spend, I know you kind of mentioned you're going to try and match with But distribution as it's ramping up kind of more specifically, when are you going to kind of fully ramp up the ad spend and kind of push the energy product. I know you guys have been running past two quarters about 10% of sales marketing spend, but when are we going to kind of see that ramp up?

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

So again, come Q2, once we have some of that marketing out in the market, I'd be very happy to share some of the specifics of that.

Thank you guys for your time. I'll pass on. Thanks, Glenn.

Thank you. Our next question comes from the line of George Kelly with ROTH Capital Partners. Please proceed with your question.

Everyone. Thanks for taking my questions.

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

So let me kick off a little bit on what we're actually doing, your question around what we're actually doing to stabilize it and then I'll kick it over to Steve a bit to talk to the guidance. So with the DTC business, one of the things I want to reinforce is we're staying very focused with the resourcing. We are fortunate to have some real subject matter experts in that business now And it's not about putting additional spend. As I just talked about, we're really going to be skewing our spend towards our continued wholesale expansion as well as our energy launch. But with the limited spending we have, we want to deploy those resources in a very direct manner where we can focus on our subscribers. We're pleased that in recent months, we've actually seen a stabilization. What I mean by that is that we're we're losing and gaining subscribers now at the same rate So that was first step for us as far as stabilization of subscriber counts. And over the next year, what we're going to continue to focus on is actually to grow subscribers in the business, versus going out and looking to bring in one time buyers.

We will not be spending as we have not been in the last twelve months, we will not be spending additional marketing dollars to go out and attempt to convert new one time buyers in the business. We'll be focusing very much on subscription based programs how we bring those most loyal consumers inside of our walls Again, when you have a subscriber, the LTV of that subscriber can be anywhere from $200 to $600 It's a great payback for our business in the way that we're able to not only financially, but in the way we're able to communicate with those subscribers. So that will be the focus for us. As far as the non subscription component of the business, we're going to continue to stick to our mantra, which is we want consumers to buy where they're most comfortable buying. If they want to come to our site and buy, that's great. We will have that available. If they want to go to another digital site like an Amazon or walmart.com BRC, we have great businesses there or of course, as we've talked about, we're growing our brick and mortar business every year.

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

That's helpful context. Thank you. And then just two quick follow ups for me.

First on your largest customer, excuse my voice, I'm losing my voice here, I'll try to get through this. Your largest customer, I think is flattening out I was curious if I'm reading into your 10 ks correctly, what's kind of the recent trend there? And then secondly, More of an accounting question.

The barter transactions, the marketing sort of benefit then you'll that you'll receive, how do you expect that to flow through your P and L in 2025?

And then I'll hop back in the queue. Thank you.

Let me start out addressing our largest [indiscernible] So we're thrilled with our continued progress with our largest and first customer. We have over $110,000,000 business now. It continues to be by far our biggest source of revenue. We did see some flattening in the last year, but that was expected as we continue to the remainder of the market. There was an expectation that we would see possibly even some decline which In our key segments of ground and pods, we actually did not see. We did lose a canister item. We continue to work with them on what the right overall assortment is going to be for us. Overall. But again, as we think about how our business stacks up, we're sitting now as the number four brand in bags We're sitting as the number six brand overall in pods And we feel great about the next twelve months, the conversations we're having about adding other items, innovation items that will be coming on as we think about the back part of the year. So Yes, there has been a bit of a slowing that was expected for us with expansion of the total market, but we feel great about the position we are in and that continues to be our number one relationship in the market.

On the media credits, we're actually quite excited to begin to use those more robustly in 2025. Reason is that a lot of the practical usage of those is highly applicable to our energy launch. And the way that floats from an accounting perspective is we have an asset on the balance sheet of the media credits and when we use those, it accretes into our marketing expense line. However, a cash perspective, the dollar of marketing expense is actually sometimes $0.3 sometimes $0.6 depending on what we use it for. So it's a very efficient P and L usage from a cash perspective, which is obviously super important for our growth business.

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

Our next question comes from the line of Daniel Bilosi with Hedgeye. Please proceed with your question.

Thank you. So what are your plans for price increase And is that really just contemplated for the bagged coffee? And is that reflected in the point 5% green coffee inflation would always have the discussions with our customers about pricing before we would take that in a public forum. While we have about 1.5% market share of the total category with really more of a follower than a leader in terms of pricing, As you may have seen, our competition recently instituted some price increases in more watching those impacts closely. Based on that, we might have the opportunity to take some price and offset some of the margin pressure work we're currently experiencing there. We haven't announced any prices to the the Street in terms of price increase to the Street yet. But I would note that coffee as a commodity is up over 100% year over year. It's more than double We've been very favorable in the pricing that we've been able contract with that and we're fully locked in for this year and we're seeing price increase, it's only about 35% compared to the spot rate that's over 100%. But like I said, we're mindful of what's happening within the market and we're we're analyzing the opportunity to potentially address that with pricing.

So additional pricing So if we were to take price, yes, it would be upside. Great. Thanks. And then for the energy drink launch, how much was shipped into Q4? And for the sliding fees that are is that going to be really captured in Q1 rather than Q4? And as that distribution ramps up, should we expect sort of the sliding piece to not be an incremental increase because of what is going to be incurred earlier on?

So for energy drinks, we did have some we did have some shift into Q4. I'm not going to talk specifically to the number. I think overall, as we've talked about, as we have been loading in Q1, we're well ahead of our expectations as far as how we're seeing the distribution grow in the market.

So I would say that anything that occurred as far as preloading of distributors in Q4 versus what we have planned in the 2025 guidance, that's all built in and that's all been pacing the way that we have expected. And as far as the gating on that, Slide or trade promotion that we would expect. I mean, there is more of does occur in the front half. We also would have more coffee inflation in the first half of the year. So our year over year change in gross margin would likely be the biggest in the front half of the year when those two those two impacts are the largest, but we'll have trade investment that will span throughout the course of the year.

Okay. Thank you. That's what I was looking for. Our next question comes from the line of Bill Chappell with Truist Securities.

Please proceed with your question.

Hi, good morning. This is David Huncome on for Bill Chappell.

Thanks for taking our question.

So I guess with tariffs being topic of conversation with Azure, just wondering if you could kind of remind us how much of your COGS exposure is to aluminum and do you all have any like hedging programs in place? And if so, what kind of time would you have on those?

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

Got it. Thank you. And specifically around the packaging, packaging is around [indiscernible] double digit percentage of our total cost cans would be a very small percentage of that. More exposed to some other commodities than we are cans. Got it. Thanks for the extra color there. And I guess one more kind of housekeeping question. I was just wondering if you could help help us unpack the other expense line item, just kind of a big jump in that. Is that something that we need to be keeping an eye on going forward?

Yes, the jump there were was just non cash impairment of three of our coffee shops relative to the CapEx that we had on that were under performing They're still open and operating but we did impair the capital expenditures that had previously been spent.

And I wouldn't expect ongoing there. We always look at impairments based on how they're performing and there could be subsequent ones, but I wouldn't I wouldn't plan significant ones in any particular quarter.

Got it. Thanks.

Thank you. Next question comes from the line of Suraj Voorhe with Telsey Advisory Group.

Please proceed with your question.

Great. Thank you for taking my question. And now pardon me for the voice as well. My first question is about the distribution of energy drinks. You have focused on 12 priority distribution ramp? Is it mass market? Is it convenience store in this this priority market? Or or is it like the convenience store comes after the Mac market? I'm just trying to understand how the ramp of distribution goes for the energy drinks this year and into next Like, is there channels that you are targeting markets you are targeting? I'm curious to know how you ramp up the energy business?

Yes. Thanks, Sarang. Let me give some general outline on it. I think so as we talk about those 12 markets, those 12 key markets will be blitzed is the term we're using through the March and the April. So while there is limited distribution starting to grow already, in the C store channel, you're really going to start to see the increases hit as you get towards the May and in the beginning April when many of those C stores, whether they're larger chains or whether they're mom and pop C stores are changing out their shelf sets for the summer season. On top of that, as you call out, we do have larger mass customers, including our largest customer, which have come online earlier. These tend to come online all at once as they do a general shelf set change particularly the center store component of their business, So as that has happened, in this particular case with our largest customer, saw a pretty significant increase right out of the gate to the beginning of the year. And that will be any of the mass customers that come on. So it will come on in more of a step function than a general build.

But yes, I mean, to give general guidance on it, I think you're going to continue to see a steady build as we're seeing now And then again, as we hit that March April timeframe, there will be an acceleration of that as we go into the season. Our focus this year as we've talked about will very much be in convenience store within those core markets that we talked about. We'll be working hand in hand with Curry Doctor Pepper. This is where their capability of their what they call up and down the street sales force is key to us. It is the DSD drivers who are able to access a lot of the convenience stores that we would not be able to access on our own So we will focus on that as a strategic advantage and we will we will do so knowing that convenience store really the number one form of trial. We will will, of course, have marketing events, etcetera, in order to allow consumers to be able to try our product But the number one component of trial will come from C store distribution in those focused markets And then a lot of the repeat volume will come in the mass channel that we're adding either at the same time or as you mentioned, some cases will come afterwards.

So Look, we'll continue to drive this and the goal over the next two years is to drive it as we've talked about the full national distribution, but we want to do it in a really focused where we can hit the geographies first that we know we have our marketing against in order to increase our chances of success. That's great. And my second question is on product innovation or changes on the merchandising side. Can you talk about some of the newness that you are trying to bring into '25 I specifically remember a slide in your Analyst Day at ICR where One of the slides said product innovation in RTD coffee launching in second half of 'twenty five. So I'm curious if you could talk about some kind of a newness coming in on the coffee side beyond the energy drinks?

Thanks, Duran. Yes, I'm not going to provide specifics of any innovation that we haven't launched yet, but suffice to say, we are working on innovation in every segment that we compete in. Innovation is a key part of our success. It has been up to now. We'll continue to innovate against center store. So we have new items that we're working on with some of our largest grocery and mass partners for increased distribution. The goal for us and I get I point to a distribution statistic maybe to outline this, right? So if you look at last year, we grew, we're at about 47% ACV in grocery We grew about 10% overall in ACV. We grew 20% in what we call total points of distribution twice as fast as what we were growing in ACV. So what that means is that not only are we adding depth, I'm sorry, not only are we adding breadth, in new customers, but we're adding depth to our existing customers And a lot of that comes through the innovation that we're doing going forward. So as we look to continue to add breadth to our existing customers, that we're having success with we will continue to build items that we believe are relevant to the shelf set in order to do that.

Similarly, when it comes to RTD coffee, we had a fantastic year where we were able to add distribution We were able to grow velocity and despite a decline in category, we had significant growth for the year at 5% and we're now sitting as the number three brand in RTD coffee. So it puts us in a very strong position to be able to move on innovation items there as well. And then finally on energy, course just launching it as we speak, but we believe very much in being prepared for success. So suffice to say, we have plans there as well. As we think about different pack configurations that we would need for different channels or even flavor expansion as we push forward with that business, all of these things are being planned in the background. That's awesome. Good luck with 25.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. Turn the floor back to Ms. Ramon Dolesky for any final comments.

Yes. I'll just close the session today by saying we're extremely excited about the potential of our new energy business. We're very, very excited about the continued progress of our center store coffee and RTD coffee businesses But I'm going to close with just a quick personal note be my last meeting with Steve Steve has been an incredible partner as our CFO for the last eighteen months. Remind everyone, he was key investor in the business in the early days.

He really brings to life the Black Rifle ethos in the sense that as an investor in the business, he chose to roll his sleeves up come into the business with us, really put us into a very strong position as he is now going to move on to thankfully a role also within Black Rifle on our Board. So I'm delighted that I will continue to get to work with Steve and I just want to thank him very much for what he brought to our business. With that, I hope everyone has a wonderful day.

Thank you. This concludes today's