Greetings and welcome to the Black Rifle Coffee Company Third Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt McGinley. Thank you. You may begin.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Third Quarter 2024 Financial Results Conference Call. We released our results yesterday, and they can be found on our website at ir.blackriflecoffee.com. 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 included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Christopher Mondzelewski, CEO of Black Rifle Coffee Company.

Thanks, Matt, and good morning, everyone. Joining me today is Evan Hafer, our Founder and Executive Chairman; and Stephen Kadenacy, our Chief Financial Officer. Before we dive into the review of our business, I want to take a moment with Veterans Day approaching to express our heartfelt gratitude. As a veteran-founded company and with 50% of our employees or their family members connected to the military, we are profoundly grateful to those currently serving and to all who have served. Your courage and your sacrifice inspire everything we do. Supporting the veteran community is at the heart of who we are, and we are honored to uphold that commitment, not just on Veterans' Day, but every day. Turning to our quarterly results. We have made substantial progress this year in building a solid foundation that strengthens the core of our business and establishes a scalable model to support the long-term growth and value creation we expect. Our investments in operational excellence, spanning our supply chain, forecasting capabilities and overall business management continue to drive meaningful improvements. To that end, I'm pleased with our performance this quarter, including an 18-point sequential increase in ACV at grocery, a year-over-year improvement in gross margin of more than 8 points and 15% growth in adjusted EBITDA compared to the third quarter of last year. On last quarter's call, we announced the launch of Black Rifle Energy. And during this quarter, we announced our energy distribution partnership with Keurig Dr. Pepper, which builds on the K-Cup partnership we established with KDP earlier this year. KDP shares a deep commitment to our mission of supporting veterans' causes, and we are proud to have them as a partner. According to Nielsen, the energy drink category generates over $20 billion in retail sales across tracked channels, significantly outpacing the two categories where we currently compete: coffee at over $11 billion and ready-to-drink coffee at $4 billion. Most importantly, this is a category that aligns well with our fans, especially among younger audiences. While our soul will always be in coffee, we are proud to soon offer energy products in a format that broadens both our audience and the occasions for consumption. KDP's direct store delivery network currently reaches 80% of the U.S. population and will provide us with access to over 180,000 retail outlets nationwide. This partnership allows us to scale nationally with efficiency and at a speed that would have been difficult to replicate on our own. We are particularly encouraged by KDP's commitment to capturing market share in the energy category through a portfolio-based strategy. With the addition of Black Rifle Energy, KDP is assembling a lineup of four distinct brands, each tailored to different flavors, occasions, and consumer demographics. As more volume flows through KDP's manufacturing and distribution network, we believe every brand in the portfolio will benefit. We expect this approach to collectively maximize efficiency, reach, and market penetration across the energy category. We will dive deeper into our energy strategy shortly. But before we do, it's important to reinforce the principles that have defined Black Rifle from day one. Our company was founded by special operations veterans who are experts in guerrilla warfare, and we apply that mindset across every facet of Black Rifle. We are a substantially smaller organization with fewer resources than many of the companies we compete against. This requires us to deploy small, agile teams, adapt quickly to market changes and act with speed, much like a guerrilla force in the field. Resourcefulness is our DNA. We rely on lean operations and unconventional tactics to maximize our impact while keeping costs low. Our people and our culture drive this. Many of our leaders bring this same thinking from their respective military experiences, but all Black Rifle associates share this mindset. Our loyal customer base forms the backbone of our success, a community driven by shared values, much like the morale and identity that fuel elite military units. We will continue to innovate our product offerings and expand into new categories like energy. If it makes sense to partner, as it does in energy, we will align with large, well-capitalized operators to magnify our impact. If it makes sense to develop internal resources, such as roasting our own coffee or using our own sales force to grow distribution in the FDM channels, we will pursue that route. We have a strong team, strong brand identity and a loyal customer base that understands our mission-driven business model. As an upstart, we fight hard. We have the ability to capitalize on market opportunities and punch well above our weight. Returning to the quarter's results, I'll now discuss our channel highlights, beginning with Slide 6. According to Nielsen consumption data in the food, drug, and mass channel, we achieved 15% growth in the third quarter, outperforming a flat category. Year-to-date, we have grown nearly 26%, while the category declined by 1%. Category trends have been challenging, but September marked the first month in over a year where ground coffee sales for the category had positive dollar growth. In the grocery channel, our ACV increased 32 points year-over-year and 18 points quarter-over-quarter to 41%, and we expect continued distribution growth throughout 2025. With Black Rifle products becoming more widely available at retail, we are excited about the opportunity to expand our reach and better meet consumer demand. Moving to Slide 7, we gained share and grew distribution in ready-to-drink in the third quarter. We ended the quarter with 47% ACV, a 5-point increase from the prior year. On a year-to-date basis, the ready-to-drink category has slowed, declining 5.1% compared to the prior year time period, but Black Rifle continues to outperform the category by 460 basis points. Slide 8. We were able to showcase Black Rifle Energy at the National Association of Convenience Store Conference in Las Vegas last month and received positive feedback on the taste and distinctive packaging. We remain on track for shipments to commence late in the fourth quarter with broader distribution growth expected next year. As we highlighted last quarter, our research suggests that 58% of our consumers are already energy drinkers and about 90% of our consumers are interested in energy drinks derived from natural sources. Many of the fans of our brand are looking for a more refreshing profile for their energy consumption outside of coffee, and we believe this category will be a natural extension of the brand. Just as we source the best beans for our coffee, we're using top quality ingredients in our energy drinks. We've crafted a clean energy system with green coffee extract and other natural caffeine sources, and all four launch flavors scored highly with consumers. Our can design embodies Black Rifle's mission-driven ethos, and we believe it will deliver visibility on the shelf or in the coolers, setting us apart from the competition. Turning to Slide 9. Our direct-to-consumer or DTC business continues to be impacted by broader market trends with consumers shifting away from DTC channels and returning to retail purchasing patterns in the post-pandemic period. This is one of the reasons we started building our wholesale coffee business in FDM a little over a year ago. We've aligned our sales and marketing efforts to prioritize growth in the wholesale channel. We anticipate that some of our DTC customers will continue shifting their purchases from online to in-store. Our subscription business is the largest revenue contributor to our DTC segment. We continue to see stabilization in our subscription counts in the third quarter with positive subscriber growth in September. We've enhanced our website to include simpler subscription bundling options, and the average order volume of new subscriptions in the third quarter was 10% higher than with existing subscribers. Finally, in our Outposts, we focused on execution with the plan implemented in the third quarter gaining momentum in October. Stronger promotions have driven ticket growth and improved inventory management has enhanced efficiency. While progress is emerging, we expect more consistent results as these efforts solidify. We continue to see significant potential in the Outpost business, but have prioritized investments in wholesale distribution and brand awareness. We are refining our store template and evaluating the optimal balance between company-owned and franchise-operated units with a full strategy for this segment expected next year. Steve will now provide a review of our financial results.

Thank you, Mondz. Please turn to Slide 11. Third quarter revenue declined 2% year-over-year, primarily due to cycling of barter transactions from the prior year, shifting consumer preferences away from direct-to-consumer channels and a slower pace of growth in the coffee and ready-to-drink categories. While the barter transaction was necessary to address excess RTD inventory last year, it is not a revenue stream we aim to replicate in ongoing operations. As Mondz mentioned earlier, we reallocated resources towards growing our wholesale business as consumer behavior shifted away from DTC channels post-pandemic and our brand became more accessible in retail. The good news is that our strategy is paying off. Year-to-date sales in our wholesale segment have grown 17% compared to the same period last year, and we achieved a 3% revenue growth this quarter in wholesale. Sales to our largest customer were steady this quarter compared with the same period last year, and sales to other FDM retailers are three times larger than they were in the third quarter of last year, driven primarily by our products now being carried in more retailers. Looking ahead, we expect continued distribution growth in coffee and increased sales of Black Rifle Energy to be key growth drivers in both 2025 and 2026. Our earnings and free cash flow metrics continued to improve in the third quarter. EBITDA rose from 6.2% to 7.2% of sales as gross margin gains outpaced our investments in marketing and advertising. Our focus on driving efficiencies across the business and directing resources towards the highest return initiatives is clearly impacting both margin rate and cash flow generation. On a year-to-date basis, we've seen a $60 million improvement in free cash flow generation compared to the same period in 2023. This improvement is primarily driven by better margins and reduced working capital investment. Inventory grew sequentially in the third quarter due to K-Cup purchases, which pulled a launch fee forward into this year and provided per cup cost savings to lower COGS as the product sells. This program accounted for most of the inventory build this quarter, and we expect its depletion to generate cash through year-end. Moving to Slide 12. Our focus on productivity improvements has resulted in gross margins exceeding our 40% target for the third consecutive quarter, and we anticipate staying above that threshold for the year. Supply chain enhancements have driven productivity gains, adding 400 basis points to our third quarter gross margin. Additionally, favorable product mix provided a 160 basis point lift, supported by distribution growth in the coffee aisle at FDM retailers. While we actively mitigate margin volatility through forward purchase contracts for green coffee, higher green coffee prices exerted modest pressure on gross margins in the quarter. Overall, we are very pleased with the progress we have made in improving profitability this year. Slide 13. Adjusted EBITDA for the quarter was $7.1 million, up from 15% from the same period in the prior year as gross margin improvement more than offset planned investment in marketing as well as normalization of payroll accruals compared to the prior year. Year-to-date, we have generated nearly $30 million in EBITDA, a significant improvement from just above breakeven in the same period last year, and with our EBITDA margin rising over 10 points to 10.4%. We remain committed to optimizing administrative resources and external expenses to support growth and are confident that this strategy will deliver economies of scale as revenue builds. Turning to Slide 15. We narrowed our revenue guidance from the prior range with variability primarily driven by the timing of shipments later in the quarter and the ramp in seasonal volume. We remain confident in the trajectory of our top line growth and expect to gain market share in both coffee and ready-to-drink categories. Year-to-date, our gross margin has improved by over 8 points to 42.3%, driven by productivity improvements, favorable mix, and lapping RTD headwinds. We raised our full year gross margin guidance to 42% and expect fourth quarter gross margin to be in the high 30s range, reflecting normal seasonality in promotions and the absence of smaller one-time benefits. We also narrowed our EBITDA guidance to $35 million to $40 million for the year, which represents an increase at the midpoint from our prior range. We adjusted our free cash flow conversion expectations as a percentage of EBITDA and now expect to be free cash flow positive for the year. This year, we have been laser-focused on improving profitability and reducing working capital, which resulted in an impressive inflection in free cash flow generation year-to-date compared to the same period in 2023. Our initial cash flow guidance was based on different assumptions around revenue and product mix. Additionally, we now expect to carry higher inventory than originally planned to support growth in the FDM channel. Overall, we have been gaining market share across bag coffee, K-Cups and RTD coffee, and we expect Black Rifle Energy to deliver similar success in 2025. The positive trends in our business are enhancing our ability to further our mission of supporting the veteran community while generating long-term value for shareholders. Before we open the call for Q&A, I'd like to mention that we will be hosting an investor event on January 14 at the ICR Conference in Orlando, where we will share more details on our longer-term goals. We hope you will join us either in person or via webcast.

Our first question comes from Michael Baker with D.A. Davidson.

I wanted to talk about the delays we experienced last quarter regarding some new retail partners. Rather than the anticipated 2024 timeline, it seems you were expecting these retailers to come on board in early 2025. Can you provide an update on how that is progressing and if we still expect to be in those retailers by early 2025?

Michael, it's Chris. Thanks for the question. So yes, it continues to progress exactly the way that we had talked about it last quarter. All of the conversations with every major retailer in the country continue to go very well. This last quarter, we were able to add Food Lion and Harris Teeter. That has continued to move our distribution north. We're at 47% ACV right now. If you look at the top five brands in the category, they all exist kind of in that 70%, 75% ACV range. We continue to believe that that is the right target for us as a business. So as we add the other accounts next year on the timings that we talked about previously, largely in Q2, we will see the distribution continue to increase. And ultimately, that will be the objective for our business.

It appears that the downward guidance from last quarter was mainly due to timing, and we expect to see improvements next year, which is encouraging. I have one more follow-up question before I hand it over to others. Regarding the free cash flow guidance, I'm a bit confused. It seems like the flow-through has changed from 80% to just a positive figure now. My understanding is that the free cash flow guidance is expected to be somewhat lower due to increased inventory. Is that correct? It's just a bit unclear.

That's right. This is Steve. Good question. We still expect very good cash flow for the year. We've already improved our cash flow year-over-year by $60 million. We expect very robust cash flow in Q4, but we did have acceleration of K-Cup purchases in the quarter. We did that strategically because we received a $0.03 per cup discount, and it was 26 million cups going forward. And as you know, in the gross margin, all the little things that you do really add up. So we are focused on the pennies to drive the profit. But we still expect robust cash flow. But given the inventory changes, we did change the way we were looking at it.

Our next question comes from the line of Sarang Vora with Telsey Advisory Group.

So two questions here. First, on the fourth quarter guidance, it does seem like when you exclude the barter transaction from last year, which was, I think, about $28 million to sales, you are seeing a sequential improvement in the sales and a return to a positive sales growth trajectory. So curious to know like what's driving that sequential change? Are you seeing a bit of more of a normalization, account wins coming back? Just curious to know like how we should think about fourth quarter relative to third quarter and turning positive trend on the sales, excluding the barter.

It's a good question. Obviously, we had some headwinds in the quarter relative to our DTC business and our Outpost business, which we expected to be down, and we let you all know that. But we had enough tailwinds to make up for also cycling that KBS transaction. If you look ex KBS revenue overall was up 2%. FBM ex our largest customer was up 200% or three times, and wholesale ex the barter transaction was up 12%. So in the markets that we're focused on, we are succeeding, and that's coming out in our ACV and it's coming out in our underlying growth rates.

And I think just to build on that, Sarang, we talked a little bit last quarter about wanting to put the right level of promotional activity in the market in order to ensure that as we hit the coffee season, we can continue to be a key winner. And we're pleased with the results on that. If you look at the latest period, we were among the fastest growers at 28% in grocery growth. And as Steve said, we will continue to sharpen our ability to understand exactly where we want to have our promotional level in the markets with any of our key customers, and that will continue as we look at Q4. So we hope that this momentum that we have right now is going to push forward into Q4, and that largely is the driver. Even in RTD, I want to mention, we've got the category declining throughout the year. But in the latest period, we're at 1.3% growth, which is well above where the category plays. So again, in any of the segments we're playing in, we expect that growth above market to play out in Q4.

That's great. And a more exciting one is the energy drinks. I mean we can't wait to try what comes out in December. Just curious if you can share, I know there's an Analyst Day coming up to the extent you can share like how we should think about the ramp into '25 or any color you can give us on the margin structure of the energy business? Is it still like 40% gross margin and above? Or how do you plan to distribute it like roll out nationwide in '25? Any color or thoughts, early thoughts would be helpful on energy drinks.

Great. Well, let me start, and Steve will probably build on a few of my comments. We're extremely excited. So I talked a little bit in my opening remarks about for us as a business, we're very lean. We're going to remain lean, and it's really important in our business model that we find partners who are well aligned with what we do from a value standpoint, focusing our mission on the military. But likewise, we need to work with partners that really multiply our capabilities. And KDP has been a fantastic example of that. We've talked already about the partnership in pods, and we're seeing success with that already. We're extremely excited about this partnership in energy with KDP. So they will play a key role clearly in the rollout of this. We've been designing the product with them together, and we're designing the rollout plan with them. That rollout will happen efficiently, and we're going to do it in a smart manner. We're going to focus very much on on-demand channels such as convenience stores in the early going to ensure that we can get strong trial of the product. Clearly, we'll have a lot of promotion and advertising behind that as well, so we can ensure we're very proud of the product quality. It's a no-sugar item. The flavor profile is fantastic. You will get to try it hopefully here soon. And we want to make sure we get those cans in folks' hands. As far as guidance on the distribution, we're not going to give exact numbers. Ultimately, we believe that we can get to 80% ACV on this product. That's a big part of the reason why we're working with KDP: the muscle that they have in the DSD arena. That won't be something that will happen in the first year. That happens over a period of years. So I think the ramp-up next year will be, again, focused on those high, what I'd like to call immediate demand channels like convenience stores, gas stations, etc. And then as we build that scale, we'll go into larger customers as we move into '26. So again, we're not going to talk to the specifics of that, but we're very excited about the plan we have in place. We think it's going to be successful.

And Sarang, relative to your question on energy margins, over time, energy margins are going to be very strong. The first year, they will be less strong. It will be under 40%, largely because of the slotting and the trade expenses related to rolling out the product. So just something to keep in mind there, strong but growing significantly over time. And maybe just to expand that to how you should think about 2025, and we're not giving guidance now, but we will have stronger growth, but we still have some headwinds. So on the strong growth side, we'll have energy, and we'll continue to expand in FDM. But we will still be cycling the partner transactions of $15 million that we have year-to-date. Coffee prices are rising. We're seeing that impact, although we're fairly successful at mitigating it. And I've already mentioned the slotting and trade. So you've got a bundle, and we expect stronger growth, but we'll still be fighting some headwinds.

One final point just to reinforce is that we've talked a lot about building our margin this year through the expansion of our center store coffee business. That really gives us a good amount of firepower as we go into next year. As you think about the advertising plan and the working capital plan, the combination of the partnership with KDP, where they take on a lot of that resource through their sales force through management of the inventory, coupled with the strong margin we have in our business, gives us the room to go out there and do the most important thing. At the end of the day, at Black Rifle, our brand is first and foremost. So the majority of the investment that we will be putting into this is going to be out there building that brand.

Our next question comes from Jon Anderson with William Blair.

I wanted to ask on FDM. You made solid progress sequentially on ACV. I think sitting at 41% right now. You may have referred to this earlier, but I want to just a clarification. Are you still expecting to get towards kind of your full distribution target by the end of 2025? And what level do you anticipate reaching at that point in time? Is it 75%? Is it 85%? What's kind of the underlying goal there?

Thank you for your question, Jon. To clarify, several of our major customers are transitioning to next year, so we do not anticipate reaching our final ACV goal this year. However, I want to emphasize that each of those conversations has gone exceptionally well. We believe that by the end of 2026, we will achieve what we define as 'full distribution.' This typically falls within the 70% to 75% range for the top five brands in the category, which ultimately sets our goal for the business as we approach the end of 2026.

And you referred to your largest customer and the business being stable year-over-year. Any more color you might be able to provide on your business with that largest customer, how its velocities are performing, what you're thinking from maybe an item level distribution opportunity going forward?

Sure. Yes. We feel great about our business in our largest customer. We sit at a four share currently. We went through a period in the summer where we really had to work our portfolio in a manner where we believe we had the right SKUs across the right stores. We did see some of our TDPs come down or total distribution points come down during that period. That is very common when you're looking at your third year of distribution that you're going into with a customer. We continue to be a leading growth player there. We have strong growth in the current period. We've really sharpened our promotional strategy to ensure that our prices are exactly where we want to have them. And that has resulted actually in velocity increases that are up substantially behind those promotions. Where we've been able to get those promotions executed, we're actually seeing double-digit increases in velocity. And the bottom line is that we remain well above the category average, 50% plus above the category average when it comes to units per store per week in any of our customers that we have distribution, but certainly in our largest. So, we'll continue that plan going forward. As far as how we manage that next year, yes, we're not ready to talk specifics on that, but we do have some exciting innovation ideas. We talk a lot about energy. Clearly, we put a lot of resource into building that. But as you would imagine, having a strong center of store coffee business with the margins that it has, our innovation teams have been working hard there as well to ensure that as you look at our existing lines of business that we have in our largest customer and as we're expanding into new customers, we will have new items to be able to cut into the shelves there as those resets happen next year.

I did want to ask on energy. The research that you've done around this sounds very encouraging with respect to the receptivity of your users. Do you think there's a real opportunity for energy to be highly incremental? Or is there some risk that it could be cannibalistic to the customers in terms of looking for that kind of energy boost? I'm trying to get a sense that based on the research that you've done, how incremental you think this will be in terms of bringing new users to the franchise and perhaps serving existing users across more occasions, so heightening the buy rate for the brand overall.

Yes, that's a fantastic question. We put a lot of research into that. And we feel actually great about the incrementality. There's never a situation where you have zero overlap, but it's going to be very low. The reality is that when we look at the consumer dynamics of the Black Rifle fan or of the total market, either way, energy plays a very different role than coffee does. There are certainly consumers who drink both. We find that the consumers that drink both will tend to do it during different usage occasions. So, coffee tends to skew towards the morning. Energy will tend to skew more towards the afternoon. There are a lot of consumers, however, that really do have preferences in one arena or the other. They're either coffee drinkers and they want to be able to add an RTD coffee to their existing routine, which may involve hot coffee already. And the growing demographic is really those consumers that are drinking purely cold, more refreshing flavor profile beverages. These tend to be the younger demographics. And as we look at the Black Rifle fan base, I would remind everyone, we have a huge fan base already, right? I mean, across all of our media sources, we have up to 13 million folks who are following Black Rifle. As we access that fan base, we find that a huge percentage of them are already energy drinkers and open to energy as a brand. The other thing we feel good about is that even within the energy category, we believe that we will be highly incremental. There are certainly brands out there that we will compete with. It's a crowded category as far as the number of brands, but it's a giant category at $20 billion. So, there's plenty of room to come in. And we believe that with our lifestyle positioning, our focus on mission, and then the product profile that we put together, again, clean ingredients, zero sugar, we really believe that, again, not only are we going to be incremental to our coffee business, we think we could be quite incremental to the energy category as a whole.

The last one, if I can just squeeze one more in. I think in the prepared comments, you mentioned that the subscriber base actually inflected positive in September or at a minimum, you were seeing slowing declines. What are your expectations on that going forward? And how should we think about that into '25?

So yes, to give you some context on our current situation, we are pleased with the stabilization we are seeing. That aspect of our business has been on a decline, which we have previously discussed. This decline is entirely due to the changes in consumer behavior after the pandemic. However, as we gather more data, we are noticing a significant number of our consumers shifting towards grocery, which is a positive sign. We are happy about this trend, and our goal is to ensure that our products are accessible to them wherever they wish to buy. Our primary focus in our subscription business is our subscribers. While we appreciate one-time purchases, our subscribers hold great value for us. In fact, in the most recent period, we have observed an increase in our subscriber base. Although we still experience churn and lose subscribers each period, this churn is decreasing, and there have been weeks where we see a net gain in subscribers. That will remain our objective moving forward. I am not providing specific guidance on this part of our business for 2025 at this time. However, we do not anticipate strong growth due to ongoing shifts in consumer dynamics back toward in-store shopping. Our focus will continue to be on stabilizing our subscriber base, and with time, I believe we can achieve growth in that segment of our overall direct-to-consumer business.

Our next question comes from the line of JP Wallum with ROTH Capital Partners.

If I could maybe just start on the FDM side. I want to kind of dig in a little bit to Albertsons and just sort of understand how it's ramped. I think that's one of your maybe main accounts or large retailers that you've been in kind of for a year plus at this point. So if you could maybe just share kind of where your market share is at Albertsons and just sort of what that ramp means for your expectations as you roll out on shelves next year at additional retailers?

Sure. Thanks for the question. Yes, we began the rollout around the third quarter of last year, and we are currently experiencing its impact. We feel optimistic about our progress, as we have achieved 85% distribution across all of Albertsons, which is typical for their leading brands. Our market share continues to grow, placing us among their top 20 brands, and in several segments, our ranking is even higher. Regarding our ready-to-drink business, it's been in distribution for a while and is growing at 15%, which outperforms the category. Overall, we are seeing nearly 60% growth, a strong improvement compared to last year. As we move into the full distribution phase, the execution and promotional efforts we have in place are enhancing our sales velocity, similar to our performance with other retailers. We anticipate ongoing share growth as we progress through 2025. Overall, we view this rollout as a significant success, although we still have opportunities to improve, as our share remains between 1 and 2. Given that we have a 4% share with our largest customer, we will continue to focus on managing our product portfolio in store to maximize our share gains as we advance into 2025.

I think that last point is really important. We have massive improvement in front of us. We have a small share as we roll out in new retail outlets and then we expand SKUs over time. So ACV is only one element, then comes the revenue on those SKUs, and then comes SKU expansion. And what we're seeing is our velocities are doing quite well. And obviously, we're outperforming the category, and that bodes well for us to improve our SKU count on shelf.

Great. That's very helpful. And then maybe I just want to make sure that I understand. It sounds like, I think, Chris, you said end of 2026 is now when you expect to see full distribution in the FDM business. And I believe it was maybe by end of 2025 on past calls. So I just want to double-check, a, that that's correct? And then b, if you could just kind of dig in a little bit, have conversations with retailers about resets not gone as planned? Any additional color there would be very helpful.

To clarify, yes, that's accurate. We anticipate being in full distribution by the end of 2026. I previously mentioned that the leading players are achieving between 70 to 75. As we bring on major customers in the U.S., we think this is where we can land. We did mention last quarter that some customers shifted their timelines from 2025 to 2026, which slightly impacted our expectations. The positive news, as Steve highlighted, is that we are experiencing the success we anticipated with every customer we have onboarded. Despite these timing adjustments, which are mainly due to our customers' schedules and plans, we remain very optimistic about the rollouts and our ability to secure immediate positions in the market. What I mean by that is we're seeing sales velocities well above the category average in our first year with these grocers. This gives us strong assurance that over time, we can introduce more products and further increase our market share with each customer.

Our next question comes from the line of Joe Altobello with Raymond James.

Just first, a quick housekeeping item. The revenue guidance or the implied revenue guide for Q4, what are you guys assuming in terms of initial trade load for energy? I know it's late in the quarter, so it's probably small, but just curious.

What do we assume what for energy, sorry, Joe?

The initial trade load for energy. Shipments.

The trade really occurs when the product is on the shelf. Any guidance we provide would essentially be an estimate at this stage. Therefore, we are unable to provide precise figures, but it is not significant, and it is recorded as contra revenue.

Got you. Okay. And in terms of '25, I know you're not giving guidance today, but you did mention some margin headwinds next year, higher green coffee prices, the energy launch, etc. So at least directionally, can you kind of help us think about how we should think about EBITDA margins next year after the big improvement this year?

Yes. I mean we're very focused on continuing operational excellence. So we're driving costs currently out of the business, as you can see in our current margins, and we'll continue to do that. But there's no question that our trade and slotting fees are going to be higher next year. Our coffee prices are going to be higher, but we're also focused on other productivity improvements within the supply chain to drive gross margin. And as I mentioned, I kind of gave guidance that energy will be below 40%. So that is going to be the primary driver, in addition to the marketing expense around the energy launch. So I can't give you exact numbers, but I wouldn't expect significant growth from a percentage standpoint on the bottom line.

Our next question comes from the line of Bill Chappell with Truist Securities.

First question on the coffee outlook. Obviously, the overall category has been weak for the past few months in terms of volume. As you look to next year, do you anticipate that distribution and market share will primarily drive growth, or do you believe the category will recover to some extent?

Bill, thanks for the question. So I think let me break it apart. I think each category we have a different perspective on. When you look at center store coffee, we actually saw an increase in the latest period. It did have a weak year overall so far, but there's 3% growth in the latest period. And we believe that that will continue to recover over the seasons, so to speak. And as far as how we go into next year, our belief is that coffee is a category that has been around a long time in the U.S. It has gone through dips at times. We believe it's here to stay. I don't think that center store coffee is going to be an explosive category necessarily, the way that we see some of the RTD segments. But at the same time, we do believe that we will see that category return to growth. That being said, the vast majority of our growth will continue to come from, as you said, distribution gains and then our ability to continue to drive share. That's the nice thing that is even if we had a year where the category saw softness again, there's still a great opportunity for Black Rifle to drive strong growth through those two elements. When it comes to RTD, it has been weaker. And I think there's a number of factors that play into that. RTD coffee tends to be a bit more of an expensive RTD segment given the ingredients than other segments that are out there. So as wallets have tightened, that is certainly a factor that has played out. And I think some of it is the category itself, ensuring that any category has to innovate itself to continue to meet consumer demands. And that's something that we're working very hard on behind the scenes. So while we don't necessarily expect explosive growth on RTD coffee specifically, we do believe that we can still grow rather explosively versus that category given our ability to continue to meet consumer demands where they are at. I'm not going to talk in specifics about this. But just like any other segment of our business, we're going to continue to evolve our portfolio. We believe that we can do that at a greater speed and exactness than our competition, given how we're constructed as a business, and we will take advantage of that as we go into '25.

Sure. Can you provide more insight into why KDP, as a distribution partner, is beneficial for you? I understand that KDP is a strong partner, but I'm trying to grasp how their diverse approach with C4 and their own brand Ghost benefits you. It seems to me that those three brands might not entirely target separate audiences. Additionally, since KDP has limited shelf space for brands, I'm curious about how this arrangement is more advantageous compared to having a distributor that focuses primarily on you.

Yes, that's a great question. I want to start by mentioning that KDP has been strategically aligned with us since the beginning of the year, and they have been very transparent. We are particularly excited about their ambition to succeed in the energy space, which they discussed extensively in their recent call. The reality is that success in this category requires multiple brands; you can't rely on just one. From the start, we recognized this necessity. The collection of brands they have assembled are strong contenders. While there isn’t complete exclusivity among competing brands, the portfolio is thoughtfully constructed. Each brand operates in distinct segments of the energy market. For instance, Ghost, which is their latest addition, has flavor profiles that differ significantly from those of Black Rifle. You can see this difference in the unique flavors, like Ghost’s Sour Patch Kids and Swedish Fish compared to Black Rifle’s Freedom Punch and Ranger Berry. We are confident that our presence adds significant value. Another point I want to highlight is that their direct store delivery capabilities will excel based on the performance of those brands. Ultimately, the brands that connect with consumers will be the ones that achieve distribution. This strong route to market enhances efficiency and allows us to expand distribution more quickly than if we were to do it alone. Our brand will ultimately determine our longevity in the market, and we have a high level of confidence in it. In every segment we’ve entered, we have consistently gained market share, and we expect to do the same in the energy sector.

Our next question comes from the line of Daniel.

I wanted to ask about your marketing spend plans, what we saw in Q3. Is that an investment spend ahead of next year's distribution gains? Or is 10% of sales what I should be modeling going forward?

Yes. Well, we definitely ramped on the promotion side during the quarter and ads, agencies, and shopper marketing. And so there's the promo aspects of what we did in the quarter. I would expect that to continue into Q4 given the seasonality and the holidays that are coming. But it is a little spiky. Typically through the year, energy will likely change that because we're on a rollout phase even in Q1 and Q2 of '25.

I wanted to follow up on a previous question. When you decided to pursue energy drinks with a no sugar profile, did your research indicate that this was really targeting a different customer than the ready-to-drink beverages? It seems to me that it would, and that's where the growth of the category lies. I’m curious to know what your research revealed about this.

Yes. That's exactly right. So it was a reasonably easy decision for us for a number of reasons. One is that Black Rifle, again, our brand is everything to us. That brand positioned in the way that it does where we support both mission and very strong product quality has been one that has allowed us to deliver super premium products across the market. So any of the categories that we compete in, we put together a flavor or I should say, an ingredient profile that is #1 in the market. We've talked a lot about the quality of beans that we buy for all of our distribution. So we knew the same would be true in energy. We wanted to use the best ingredients. This is why we put together an energy blend that is completely naturally sourced using green coffee beans, other natural extracts. And the no sugar piece, to your point, that is what our consumers demand right now. They are looking for a product. It's a double-digit growth segment of the category. So again, that was an easy decision. We believe that segment will continue to grow. And again, from a flavor standpoint, we've talked about this. That's a much more subjective item. But when we've done testing, each one of our flavors has tested extremely well versus what we would consider to be like products in the rest of the category. So we feel quite confident in the product delivery.

And we have reached the end of the question-and-answer session. I'll now turn the call over to Chris Mondzelewski for closing remarks.

Awesome. So thanks, everyone, for joining us today. Big day, make sure everyone gets out there and boots. We're very encouraged by the momentum in our business, the wholesale business, our efficiency gains. We're particularly excited about our new partnership, our growing partnership with KDP as we gear up for the energy launch. And we're very much looking forward to being able to share some more detail on this at our ICR event in January. So hopefully, we'll get a chance to see all of you down there. Thanks for the continued support. Everyone, have a great day.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.