BRC Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. BRC sells coffee, beverages, apparel and related products through direct-to-consumer (DTC), wholesale and Outpost channels. Its February 9, 2022 business combination was accounted for as a reverse recapitalization, with Authentic Brands as the accounting predecessor; the six-month per-share loss covers only the post-combination period.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $66.4 million | $52.4 million | $132.2 million | $101.1 million |
| Gross profit | $22.6 million | $21.3 million | $45.8 million | $40.9 million |
| Gross margin | 34.0% | 40.7% | 34.6% | 40.5% |
| Operating expenses | $39.4 million | $26.1 million | $78.5 million | $45.3 million |
| Operating loss | $16.8 million | $4.8 million | $32.7 million | $4.4 million |
| Net loss | $45.1 million | $5.3 million | $301.9 million | $5.2 million |
- Q2 channel revenue: DTC $37.0 million, down 7%; wholesale $24.0 million, up 145%; Outposts $5.4 million, up 98%. Wholesale growth reflected RTD sales and expanded retail distribution; Outposts increased to ten from three a year earlier.
- Profitability: Revenue rose 27% in Q2, but gross margin fell 6.7 percentage points. Management cited higher coffee and RTD costs and a product mix shift toward lower-margin RTD. Operating expenses increased 51%, including higher payroll and general and administrative costs associated with growth and public-company operations.
- Net loss and unusual items: Q2 consolidated net loss included a $38.6 million earn-out fair-value loss, partly offset by $5.4 million and $5.2 million fair-value gains on warrant and derivative liabilities. For the six months, reported non-operating expense was $269.0 million, including fair-value losses of $209.7 million on earn-outs, $56.7 million on warrants and $2.3 million on a derivative. These fair-value adjustments were added back in the cash-flow reconciliation. Q2 loss attributable to BRC was $10.8 million; $34.3 million was attributable to non-controlling interests.
- Per-share result: Q2 basic and diluted loss per Class A share was $0.22. The six-month figure was $1.49 and represents only the period after the business combination.
Cash, debt and liquidity
- Cash and cash equivalents were $93.1 million at June 30, 2022, versus $18.3 million at December 31, 2021. Working capital was $107.3 million.
- Six-month operating cash outflow was $54.5 million, compared with $6.0 million in the prior-year period; investing cash outflow was $9.4 million, largely for Outpost and roasting-facility projects. Financing provided $138.7 million, primarily reflecting business-combination proceeds, partly offset by debt repayment and equity redemptions.
- Long-term debt, net, was $20.5 million, down from $34.7 million at year-end. The company reported $24.3 million of available borrowing capacity at June 30, subject to borrowing-base and covenant conditions. It subsequently borrowed $14.0 million on a credit facility in July.
- Management said available cash, operating cash and credit facilities should fund ordinary-course needs and commitments for at least the next 12 months, while also expecting possible ongoing operating losses and negative operating cash flow.
Material changes, outlook and risks
- Growth came mainly from wholesale and Outposts, while DTC revenue declined, attributed to lower non-subscription sales and changed consumer spending patterns. Wholesale retail doors more than doubled year over year, from 30,300 to 66,800.
- Management provided no numerical revenue or earnings guidance. It expects general and administrative expenses and capital expenditures to increase as the company expands its operations, product range and customer base.
- Cost risks include coffee and other commodity prices, inflation, shipping and fulfillment, and labor and construction costs. Management noted that pricing and efficiency actions may not fully offset future increases.
- At June 30, the company disclosed approximately $73.0 million of operating leases not yet commenced, primarily long-term real estate leases, plus minimum coffee purchase commitments of $21.1 million for 2022, $35.8 million for 2023 and $26.5 million for 2024. It also disclosed $62.6 million of operating lease liabilities in its lease maturity table; the balance sheet separately reports current and non-current operating lease liabilities totaling $10.6 million.
- The company reported no material change to previously disclosed risk factors and said ordinary-course legal matters were not expected to have a material adverse effect. It identified supply-chain disruption, customer and brand risks, competition, execution of growth plans, and dependence on co-manufacturers and business partners among its risks.
Important facts for investors to verify
- Whether wholesale and Outpost growth can continue while DTC sales are declining and gross margins are contracting.
- How coffee, RTD, freight and other cost inflation affects margins, and whether pricing can offset those pressures.
- The cash required for expansion, operating-lease commitments and purchase agreements, including the July $14.0 million borrowing and remaining facility availability.
- The lease disclosures: reconcile the $62.6 million maturity-table liability with the $10.6 million reported balance-sheet operating lease liabilities and the $73.0 million of leases not yet commenced.
- The scale of non-controlling ownership and the effect of future unit exchanges, equity awards and other share issuances on Class A shareholders.