BRC Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts below are in U.S. dollars; unless stated otherwise, amounts are in millions. The Business Combination closed on February 9, 2022. The statements combine pre- and post-transaction results, while Class A earnings per share reflects only the post-combination period. Comparisons therefore require care.
Business context
BRC sells coffee, beverages, apparel and related products through direct-to-consumer (DTC), wholesale and company-operated or franchised Outposts. It reported more than 2 million lifetime consumers, nearly 300,000 active Coffee Club subscribers and approximately 12.4 million social media followers as of March 31, 2022. The Business Combination was accounted for as a reverse recapitalization, with Authentic Brands as the accounting predecessor. Following the transaction, BRC owned 22.5% of Authentic Brands; non-controlling interests held 77.5%.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $65.8 | $48.8 |
| Gross profit | $23.2 | $19.6 |
| Gross margin | 35.3% | 40.3% |
| Operating expenses | $39.1 | $19.2 |
| Operating income (loss) | $(15.8) | $0.5 |
| Net income (loss) | $(256.8) | $0.1 |
| Cash used in operating activities | $(32.6) | $(5.7) |
| Capital expenditures | $4.2 | $2.0 |
The reported Q1 2022 net loss included $240.7 million of non-operating fair-value losses: $171.1 million on earn-out liabilities, $62.1 million on warrant liabilities and $7.5 million on a derivative liability. These are valuation changes, not operating cash outflows in the period. The loss attributable to BRC Inc. was $62.9 million; post-combination Class A net loss per share was $1.36.
Revenue by channel was DTC $38.3 million, wholesale $22.0 million and Outposts $5.5 million. Cash and cash equivalents were $110.1 million, with an additional $8.3 million of restricted cash. Working capital was $117.9 million. Net debt carrying value was $18.6 million; the company also reported $30.7 million of available borrowings, subject to borrowing-base requirements and covenants. Total liabilities were $399.8 million, including $217.4 million of earn-out liabilities and $98.6 million of warrant liabilities.
Changes versus the prior comparable period
- Revenue grew 35%, principally from wholesale RTD sales and expansion of Outposts. Wholesale revenue rose 135% to $22.0 million; Outpost revenue rose 397% to $5.5 million. DTC revenue was essentially flat at $38.3 million.
- Cost of goods sold increased 46%, faster than revenue, and gross margin declined 5.0 percentage points to 35.3%. Management cited higher coffee and other product costs, freight inflation, and a sales mix shift toward RTD products, which have lower margins than bagged coffee.
- Operating expenses more than doubled, increasing 104% to $39.1 million. Salaries, wages and benefits rose with headcount and expansion; general and administrative costs increased with public-company transition and business growth.
- Operating cash use increased to $32.6 million from $5.7 million, reflecting working-capital movements and operating needs. Financing provided $136.9 million, principally reflecting the Business Combination, offset by debt repayment and preferred-equity and member redemptions.
Outlook, risks and unusual items
- Management said available liquidity was expected to fund working capital and ordinary-course commitments for at least the next 12 months. It also expects that operating losses, negative operating cash flow, general and administrative expense and capital expenditures may continue to increase as the business expands. No quantified revenue, earnings or margin guidance was provided.
- Management identified coffee and other commodity costs, freight and broader inflation as risks to profitability. Pricing actions and purchasing efficiencies may not fully offset cost increases, and competitive conditions could limit pricing flexibility.
- The company had $55.1 million of operating leases signed but not yet commenced, primarily for real estate; these are expected to commence from 2022 through 2024 and have 10- to 20-year terms. Existing operating lease liabilities were $47.5 million at quarter end.
- Subsequent to quarter end, the second earn-out vesting milestone occurred in April. In May, substantially all warrants were cashlessly exercised, resulting in 6.4 million Class A shares; the remaining warrants were redeemed, and none remained outstanding. The applicable-premium restricted cash was also released after related shares and units were issued.
- A resale registration statement covering up to 203.8 million Class A shares became effective May 4, 2022. The filing warns that sales or the perception of sales could pressure the share price. Certain holders were subject to a lock-up through August 9, 2022.
- The company said there were no material changes to previously disclosed risk factors other than the resale-share risk. It did not expect ordinary-course legal proceedings to have a material adverse effect. Management concluded disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- How much of revenue and growth is repeatable, particularly wholesale RTD and Outpost expansion, and whether DTC performance stabilizes.
- Whether gross margin can recover given coffee, freight and inflation pressures and the product mix shift.
- Underlying operating performance and cash burn excluding the large, non-cash fair-value remeasurements; monitor working capital and capital spending.
- The fully diluted share count and economic ownership after earn-out vesting, warrant exercises, unit exchanges and registered resales. As of May 12, the filing reported 51.8 million Class A and 159.8 million Class B shares outstanding.
- Availability and terms of credit facilities, including borrowing-base and covenant limits, and the cost of planned Outpost and lease commitments.