BRC Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with fiscal 2021. BRC Inc. (Black Rifle Coffee Company) sells coffee, ready-to-drink beverages, merchandise and related products through direct-to-consumer (DTC), wholesale and Outpost channels. The February 2022 business combination created a public-company Up-C structure; the filing’s consolidated results include the predecessor business.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $301.3 million | $233.1 million |
| Gross profit / gross margin | $99.2 million / 32.9% | $89.7 million / 38.5% |
| Operating loss | $67.8 million | $11.6 million |
| Net loss | $338.0 million | $13.8 million |
| Cash used in operating activities | $116.2 million | $7.7 million |
- Revenue grew 29.3%. Wholesale revenue rose 114.1% to $119.4 million, Outpost revenue rose 90.5% to $22.9 million, and DTC revenue declined 3.8% to $159.0 million. DTC represented 52.8% of revenue, versus 70.9% in 2021; wholesale represented 39.6%, versus 23.9%.
- Gross margin fell 560 basis points. The filing attributes pressure to inflation in green coffee, shipping and other inputs, and a sales mix shift toward RTD products, which have higher product costs and lower margins than bagged coffee.
- Operating expenses increased 64.9% to $166.9 million, driven by higher headcount and investment in corporate infrastructure, including information technology and professional services.
- The $338.0 million net loss included $266.3 million of non-cash fair-value losses on earn-out, warrant and derivative liabilities. The earn-out and warrant liabilities were subsequently settled or extinguished; the reported net loss therefore substantially exceeds the operating loss. The company reported a $1.62 loss per Class A share for the post-business-combination period only.
- Cash and cash equivalents were $39.0 million at year-end, and working capital was $83.1 million. The filing’s liquidity discussion reports $31.3 million of available borrowings; facility disclosures separately show $21.2 million available under the senior credit facility and $5.9 million under the equipment line.
- Year-end debt principal was $49.6 million ($49.2 million net of issuance costs), including $30.0 million outstanding under a new $65 million asset-based revolving facility. The facility matures in November 2027, is secured by substantially all assets, and includes liquidity and, beginning in March 2024, fixed-charge-coverage covenants. The company reported covenant compliance at year-end.
- Investing cash outflow was $30.4 million, primarily for Outposts, roasting facilities and technology. Financing cash inflow was $167.3 million, including business-combination proceeds and net debt proceeds, partly offset by preferred-equity distributions/redemptions and transaction costs.
Changes, outlook and notable items
- Growth was led by expanded wholesale distribution, Walmart/FDM entry, RTD sales and new Outposts; DTC revenue declined as the company shifted advertising spend and subscriber numbers fell, although management said customer retention held steady. More than 72% of 2022 DTC revenue came from recurring subscriptions.
- Management expects FDM distribution to support growth and brand awareness and described continued expansion of wholesale, RTD and Outposts as strategic priorities. The filing anticipates three additional company-operated Outposts in 2023; it does not provide formal numerical revenue or earnings guidance.
- Management said higher coffee and other input costs may continue into 2023 and that price increases may be needed to protect profitability. Customer acceptance of higher prices is uncertain.
- Cash used in operations increased substantially, with inventory up $56.3 million and accounts receivable up $14.9 million during the year. Management believes available liquidity is sufficient for ordinary-course needs for at least 12 months, subject to borrowing-base limits and covenants.
- Material commitments include minimum coffee purchases of approximately $44.6 million in 2023 and $26.5 million in 2024, plus RTD-related minimum surcharges of approximately $2.3 million in 2023, $19.9 million in 2024 and $22.4 million in 2025. Uncommenced operating leases totaled $66.8 million, primarily long-term real-estate leases.
- The company relies on third-party manufacturers, distributors and logistics providers; it disclosed a dispute with its prior RTD broker over royalty scope and duration. It also noted that its Manchester roasting facility has no auxiliary roasting site or sufficient third-party backup if it becomes inoperable.
- A lawsuit brought by Tang Capital over denied warrant exercises remained pending: the court dismissed a declaratory-judgment claim but allowed a breach-of-contract claim to proceed. The company said it could not estimate a possible loss and intends to defend the case. Management stated it was not party to other material litigation.
- Other material risks include coffee-commodity and inflation exposure, customer and channel concentration, reliance on a single regional bank for substantially all deposits and as senior lender, brand/reputational sensitivity, cyber and data-security risks, and controlled-company governance. The company reported no plan to pay cash dividends.
Investor verification priorities
- Track whether wholesale and RTD expansion offsets the continuing DTC decline, and verify customer/subscriber trends and channel-level profitability.
- Assess gross-margin recovery, coffee and shipping costs, pricing actions, and consumer response to price increases.
- Reconcile cash burn and working-capital growth with inventory levels, operating cash flow and the company’s liquidity estimates; confirm borrowing availability and covenant headroom.
- Review debt obligations, purchase commitments, new lease commitments and the timing and economics of Outpost expansion.
- Monitor the Tang Capital litigation and the broker dispute, as well as supplier, co-manufacturer and fulfillment-provider concentration.
- Consider the Up-C structure, tax-receivable-agreement obligations (generally 85% of realized covered tax benefits), founder voting control and public-benefit-corporation duties when assessing cash available to public shareholders and governance.
Reporting and audit: Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022; the auditor was not required to provide an internal-control attestation while the company remained an emerging growth company.