BRC Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The financial statements are for Authentic Brands LLC, the operating business before the February 9, 2022 business combination; they are not standalone fourth-quarter results. BRC Inc. completed the transaction after year-end and began NYSE trading on February 10, 2022.
Business context and performance
Black Rifle Coffee is a veteran-founded coffee, media and merchandise business with three channels: direct-to-consumer (DTC), wholesale and company-operated or franchised Outposts. It reported more than 287,000 Coffee Club subscribers and 16 Outposts across six states at year-end. The company operated as one reportable segment.
Key financial metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $233.1 million | $163.9 million | Up 42% |
| Gross profit / gross margin | $89.7 million / 38.5% | $69.4 million / 42.3% | Margin down 3.8 percentage points |
| Operating expenses | $101.3 million | $63.6 million | Up 59% |
| Operating income (loss) | $(11.6) million | $5.8 million | Turned to a loss |
| Net income (loss) | $(13.8) million | $4.3 million | Turned to a loss |
| Operating cash flow | $(7.7) million | $11.5 million | Declined $19.2 million |
| Capital expenditures | $19.3 million | $9.8 million | Increased $9.5 million |
| Cash and cash equivalents, year-end | $18.3 million | $35.2 million | Down $16.9 million |
| Debt principal, year-end | $35.1 million | $13.5 million | Up $21.6 million |
Revenue by channel in 2021: DTC $165.3 million, up 20%; wholesale $55.8 million, up 139%; and Outposts $12.0 million, up 329%. DTC generated approximately 71% of revenue; more than 40% of total revenue came from recurring subscriptions.
Cost of goods sold rose 52%, faster than revenue, reflecting product mix—including RTD products with lower margins—and higher shipping costs. Marketing and advertising rose 43% to $36.4 million; salaries, wages and benefits rose 60% to $38.7 million; and general and administrative expense rose 88% to $26.2 million. Interest expense increased 94% to $2.0 million, including a $0.7 million debt-extinguishment loss.
Liquidity, debt and transaction
At December 31, 2021, working capital was negative $6.0 million. The balance sheet reported $12.0 million of current maturities of long-term debt and $22.7 million of non-current debt, net of issuance costs. Management cited $19.1 million of available borrowings under credit facilities and expected liquidity to cover ordinary-course needs for at least 12 months, while warning that operating losses and negative operating cash flow may continue.
The February 2022 business combination generated $126.8 million of net cash proceeds after debt repayments and transaction expenses. The company also reported repayment of $8.0 million under its credit facility and $15.0 million under its promissory note, and redemption of Series A preferred units. The transaction included $200 million in PIPE and backstop investments and a separate $100 million forward-purchase investment. These are post-year-end events, not FY 2021 operating results.
Outlook, commentary and risks
- No formal financial guidance is provided. Management anticipates continued investment in expansion and states it may continue to incur net operating losses and negative operating cash flow; it expects costs and capital expenditures to rise as the business grows.
- Management planned 15 additional company-operated Outposts and five franchise Outposts in 2022. Expansion, new products and channel growth may require significant spending, and management cautions that profitability gains are not assured.
- Inflation and rising Arabica coffee, freight, labor and other input costs pressured margins. The company says price increases may be needed, with no assurance customers will accept them.
- DTC remains the largest channel and depends on customer retention, subscriptions and third-party fulfillment. Management reported DTC growth normalizing as consumers returned to offices.
- RTD production and distribution rely on a single co-manufacturer and a key broker. Coffee sourcing, shipping, fulfillment and marketing are also concentrated among a limited number of providers.
- Brand reputation is a material risk: the filing describes prior negative publicity that contributed to subscription losses and lost wholesale partners. The company also cites social-media dependence, customer-data security, food safety, competition, labor availability, COVID-related disruption and execution risks from rapid growth.
- The filing reports no material litigation pending. It discloses a vendor technology-system incident that exposed certain customer data; the company says it remedied the identified vulnerabilities.
- The post-combination Tax Receivable Agreement generally requires payment to continuing unitholders of 85% of certain realized tax savings. The company is a public benefit corporation and a controlled company; its founder holds substantial voting influence.
Most important facts for investors to verify
- Whether revenue growth can continue while gross margin, operating results and operating cash flow recover from FY 2021 deterioration.
- Current liquidity, debt balances and repayment terms after the business combination, including the effect of the transaction proceeds and debt repayments.
- Whether coffee, freight and labor cost increases are offset by pricing or efficiency without undermining demand, subscriptions or margins.
- Actual economics and execution of planned Outpost openings, and whether wholesale and RTD growth is sustainable given partner concentration.
- The extent and timing of Tax Receivable Agreement payments, dilution from equity and warrants, and the implications of the Up-C structure and founder voting control.
- Public-company control readiness: management said disclosure controls were effective at year-end, but the filing included no management assessment or auditor attestation on internal control over financial reporting under the newly public company transition relief.