Greetings, and welcome to the Black Rifle Coffee Company Fourth Quarter and Fiscal Year 2024 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Matthew McGinley, Vice President of Investor Relations for Black Rifle Coffee Company. Thank you. You may begin.

Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Fourth Quarter and Fiscal Year 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 risk 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 like to now turn the call over to Chris Mondzelewski, CEO, of Black Rifle Coffee.

Thanks, Matt. Good morning, everyone. Joining me today are Steve Kadenacy, our Chief Financial Officer, and Matt McGinley, our Head of Investor Relations. In 2024, Black Rifle focused on strengthening our core business to position the company for long-term success. Strategic investments in operations, infrastructure, and brand drove meaningful financial improvements while enhancing our operating structure and efficiency. These efforts have laid the foundation for scalable growth that will expand our market reach and drive long-term profitability for the business. I'm pleased with this distribution growth, financial improvements, and adjacent category expansion we achieved in fiscal year 2024. Adjusted EBITDA tripled, gross margin improved by 9.5 points, and we saw outstanding distribution growth in packaged coffee at grocery with ACV increasing by 28 points to 45% over the year. These improvements demonstrate the strength of our business model and the results we can achieve with disciplined execution. Looking ahead to 2025, we will remain focused on driving brand awareness, expanding distribution, and deploying capital efficiently to maximize returns. We remain committed to product innovation in existing categories while expanding into new segments, including our recent launch of Black Rifle Energy. The Energy launch is off to a strong start and will continue to ramp throughout 2025 and 2026. In packaged coffee, we continue to gain share and expect further retail expansion, including new distribution and an increased shelf presence at existing food, drug, and mass retailers as we add SKUs. While our direct-to-consumer segment is not a primary growth driver, it remains an important part of our long-term strategy that connects us to our most loyal consumer. Our focus in 2025 will be on stabilization and optimization of this channel. Moving to Slide 7. According to Nielsen consumption data in the U.S. food, drug, and mass channels, the coffee category declined modestly in 2024 due to a drop in unit volume, turning positive only in the fourth quarter as mainstream and value brands implemented price increases. As reported by Nielsen, Black Rifle sales grew by 13% in a category that was up 1% in the fourth quarter. For the year, Black Rifle grew 22% despite the category declining by 0.5%. Across all channels, our distribution as measured by ACV reached 49% in the fourth quarter. And in grocery, our ACV increased by 28 points to 45%. We anticipate continued distribution growth in 2025, both through new retail partnerships and expanded shelf presence with existing retailers. Move now to Slide 8. Our direct-to-consumer segment, which ships coffee, apparel, and accessories to Black Rifle fans, was the original business line when the company was founded a decade ago and remains a core part of our operations. It serves as an excellent platform to build brand awareness, test new products, and provide access to the brand for those who appreciate the convenience of direct delivery, those who don't have access to the brand at retail, and those who enjoy exclusive limited-edition roasts available only on our website. As is the case with most DTC businesses in recent years, ours has been affected by shifts in consumer spending, with behavior moving away from DTC channels and back toward brick-and-mortar retail locations. Overall, this has been beneficial. The growth of our wholesale business has made the brand more accessible, allowing our DTC customers to find the brand in about half of retail locations within the grocery and convenience store channels as measured by ACV. We will continue to allocate resources to prioritize growth in the wholesale channel, but our goal is to revitalize our DTC segment in 2025 and stabilize transactions. We've enhanced our leadership team and are improving the user interface of our website and app, while simultaneously enhancing our product offerings and assortment. Coffee Club members account for two-thirds of the revenue in this segment. We've made enhancements to the subscriber experience by enhancing access to and awareness of features in the subscriber brand portal, such as perks and discounts with partner brands. Additionally, we've improved areas like the subscriber store where customers can find exclusive products and promotions. For nonsubscribers, we are focusing on driving higher-quality traffic by adopting a more strategic approach to promotion to optimize repeat purchases. Similar to our approach in retail distribution, we want consumers to have the flexibility to purchase Black Rifle products through the channel they prefer. Walmart.com, Amazon, and other online retailers provide excellent access to the brand, and we plan to enhance our efforts this year by improving search support and enhancing the effectiveness of paid advertising to drive awareness and conversion in this channel. Slide 9. According to Nielsen, the Ready to Drink coffee category declined by 8% in 2024. But our RTD sales increased by 0.5%. In the fourth quarter, category trends improved to a 4% decline and we maintained a similar spread in outperformance, delivering 5% growth. For the year, we increased ACV by 4 points to 47% and grew our market share by 50 basis points to 4.6%, making us the #3 brand in the RTD coffee category behind only Starbucks and Monster. We built this portion of our business from the ground up, establishing manufacturing partnerships and working with over 210 distributors to bring our products to retail. While I'm proud that we've achieved the #3 position, what's even more remarkable is that we are only distributed in about half of the available markets for RTD coffee. This category presents a significant growth opportunity as we expand distribution and narrow the gap with the market leaders. RTD coffee is now a meaningful part of our business. And while the route to market differs, the lessons we've learned in this category are being directly applied to our Energy launch. Moving to our new Energy offerings. We took Black Rifle Energy from concept to commercialization in about six months. We shipped our first orders of Black Rifle Energy in December 2024, and the product became available at retail with limited distribution starting in January 2025. Given that the product has only been in stores for a limited time, we don't yet have conclusive data on market performance. That said, in the first month, we reached 17% ACV and Black Rifle Energy is available in nearly 7,000 retailers. With the support of our partner, Keurig Dr Pepper, we expect our Energy product line to be a significant contributor to growth in 2025. To support this, we are prioritizing 12 key launch markets and allocating resources to drive early adoption. Energy-specific marketing spend will ramp up throughout the year in parallel with distribution expansion. In 2025, we anticipate distribution gains in convenience, FDM, and other channels. The Energy drink category generated over $20 billion in sales in 2024, significantly larger than the packaged coffee category at $12 billion and Ready to Drink coffee at $4 billion. Our research shows 58% of our coffee consumers also drink energy beverages with 90% preferring natural ingredients. We designed Black Rifle Energy with a clean energy system, featuring green coffee extract and natural caffeine sources in four delicious flavors validated through consumer testing. Additionally, the can design is distinctively Black Rifle and crafted for strong visibility on shelves and in coolers. The partnership we announced last year with Keurig Dr Pepper for the manufacture and distribution of Black Rifle Energy will enable us to ramp up at a fast and disciplined pace, particularly in convenience stores. KDP has been an excellent partner, providing not only access to its DSD network, which reaches 180,000 retail doors, but also for their shared commitment to supporting veterans. We'll have more to share on Energy in future quarters, but we are pleased with the product and its initial launch trajectory. Before I turn the call over to Steve for a review of the financials, I want to take a moment to talk about something bigger than our business, our mission. Black Rifle Coffee creates shareholder value as a premium beverage company. But at our core, we have always been committed to supporting our active-duty service members, veterans, first responders, and all those who serve our nation. That commitment recently took our community outreach team to New York City and Los Angeles. In New York City, we visited firehouses where firefighters are constantly called into action and police stations in Brooklyn, where officers face daily challenges few truly understand. In Los Angeles, as wildfires tore through communities, we delivered seven pallets of coffee and energy drinks to the firefighters and sheriff departments working around the clock. Some of these men and women had been on the front lines for two weeks, exhausted, covered in ash, but still showing up because that's what they do. Our goal was simple: To say thank you, to remind them that their sacrifice is seen, valued, and deeply appreciated. We also remain steadfast in our commitment to supporting our service members. In recent months, we've sent Black Rifle products to deployed and deploying army infantry units, naval special warfare teams, and special operations forces to name just a few. This is what Black Rifle Coffee is all about. It's not just about selling beverages; it's about building a community. It's about showing up for the people who have shaped us, the veterans and first responders who make up half of our team and the customers who stand with us. Because when you truly serve those who serve, you don't just gain customers; you create lifelong supporters, and that's what we're here to do. With that, I would like to turn the call over to Steve.

Thank you, Mondz. I'll start with Slide 12. While revenue decreased by 1% in 2024 compared to 2023, we experienced robust growth in bag coffee, pods, ready-to-drink coffee, and energy products. The declines were attributed to Outpost, direct-to-consumer channels, and a typical normalization in liquidation-related revenue from the previous year. We continue to believe that our Wholesale segment, which mainly sells packaged coffee and ready-to-drink beverages to grocers, mass merchants, and convenience stores, will be the key growth driver for Black Rifle. Therefore, we are focused on securing new retail distribution, enhancing our shelf presence with existing retail partners, and fostering velocity growth through marketing and promotions. Our segment performance in 2024 demonstrated our strategic shift towards Wholesale, with Wholesale revenue rising from 57% of total sales in 2023 to 63% in 2024. Wholesale revenue grew by 9% in 2024 or 13% excluding barter transactions. Sales to FDM retailers in 2024 were 3.5 times higher than the previous year, and our largest customer’s sales grew by 8% year over year. Our direct-to-consumer segment saw a revenue drop of 14% in 2024, driven by the increasing availability of Black Rifle products in retail stores, changing consumer preferences away from direct-to-consumer channels, and our strategic reallocation of resources towards wholesale. Looking at the Profit and Loss, we significantly improved our margin rate, profitability, and free cash flow generation in 2024 by enhancing operational efficiency and focusing resources on high-return initiatives. Our gross margin improved by 950 basis points to 41.2%, primarily driven by supply chain productivity and cycling of ready-to-drink transformation costs. Trade spend and pricing created a 150 basis point headwind to gross margin, and coffee inflation impacted it by 50 basis points for the year. Adjusted EBITDA more than tripled in 2024 compared to the prior year, with over two-thirds of the improvement attributed to gross profit. Reductions in headcount and general and administrative expenses, including lower professional fees, contributed to the increase in adjusted EBITDA and more than offset the planned marketing increases. The adjusted EBITDA margin improved by 680 basis points, increasing from 3.2% of sales in 2023 to 10% in 2024. Free cash flow generation improved by over $55 million compared to 2023, with positive cash flow from operations and free cash flow in 2024, driven by gross profit growth and reduced operating expenses. Turning to our quarterly performance on Slide 13, fourth-quarter revenue fell by 12% year over year, mainly due to significant depletion of ready-to-drink inventory via barter, changing consumer preferences away from direct-to-consumer channels, and ongoing softness in coffee and ready-to-drink categories. Excluding liquidation transactions, fourth-quarter revenue dropped by 1% year over year. As a reminder, we used barter transactions in 2023 and 2024 to manage inventory levels. The media credits received will support our brand's growth, especially in the Energy category. Wholesale revenue decreased by 9% in the fourth quarter, but excluding barter transactions, it increased by 12% year over year. Sales to FDM retailers more than doubled in the fourth quarter compared to the prior year. Our DTC and Outpost segments experienced a drop in transactions during the quarter, although average order value grew for the fourth consecutive quarter in Outpost. Moving to Slide 14, gross margin improved by nearly 12 percentage points year over year to 38% of sales in the fourth quarter. The reduction in ready-to-drink transformation costs contributed to an 11 percentage point increase in gross margin. Excluding these costs, gross margin improved by 30 basis points with productivity gains offset by trade investments, pricing, and higher input costs related to coffee. On Slide 15, compared to the previous year's fourth quarter, adjusted EBITDA fell by $2.2 million to $9.9 million, with EBITDA margin down 80 basis points to 9.4% of sales. This decline was mainly due to the change in revenue, trade spending, and green coffee inflation not fully offset by our productivity improvements. Overall, we are very pleased with the progress made in improving profitability in 2024, and we will continue to focus on directing resources towards high-return initiatives, enhancing productivity, and improving operating efficiencies in 2025. Moving to the outlook on Page 17, at the Investor event in January, we presented our three-year financial targets, including expectations for a 10% to 15% revenue compound annual growth rate, adjusted EBITDA growth at a 15% to 25% CAGR, and achieving a 40% or better gross margin by 2027. We are confident in reaching our three-year financial guidance. However, as outlined in January, we expect revenue and adjusted EBITDA growth rates, as well as gross margin in 2025, to be below our long-term targets due to the timing of the Energy launch distribution, which extends into late 2025 and 2026, along with the trade and marketing investments associated with the launch. For 2025, we expect revenue to range between $395 million and $425 million, suggesting a 9% growth at the upper end of our range, driven by the momentum of our Energy launch and continued distribution growth in FDM. However, we had $30.4 million in barter transactions and loyalty reserve benefits in the previous year, and the impact of this change will be particularly pronounced in the first quarter of 2025, where $11.8 million in revenue will not recur. Given the first-quarter challenges and expected growth throughout the year in both packaged coffee and energy, we anticipate that the first quarter will reflect the lowest revenue generation, followed by a sequential increase in revenue throughout the year. For 2025, we expect gross margin to fall within the 37% to 39% range compared to 41.2% in 2024, with key headwinds from green coffee inflation, the recycling of loyalty reserves, and trade investments for the Energy launch. These pressures will be partially offset by ongoing productivity initiatives and a more favorable product mix. We use forward purchase contracts to reduce potential volatility in green coffee prices and enhance our ability to forecast our P&L approximately one year in advance. Currently, over 95% of our pricing and all of our volume commitments for 2025 are locked in. Although our green coffee input costs will be 35% higher this year, we have effectively managed this inflation, keeping its impact significantly below the surge in Arabica spot prices, which have more than doubled in the last year. With these purchase contracts in place, we do not expect notable additional margin pressure due to green coffee prices in 2025. However, we will continue to evaluate market dynamics and input cost changes to maintain a disciplined and strategic approach to our pricing strategy. We project generating $20 million to $30 million in adjusted EBITDA in 2025, down from $39.3 million in 2024. On both a rate and dollar basis, this change will primarily be driven by the previously discussed alterations in gross profit. Factors influencing this include a $9 million to $10 million headwind from higher green coffee prices, a $6 million impact from loyalty program adjustments, and $4 million in trade investments and promotions. We expect marketing and compensation expenses to rise modestly in 2025 compared to 2024, but with efficiency improvements in other areas. We anticipate a slight increase in operating expenses as a percentage of sales. As Mondz noted, we are pleased with the early progress of Black Rifle Energy. Our guidance fully supports the rollout in our 12 priority markets. We expect a two-year ramp for the distribution of our energy product and plan to align spending with distribution needs and opportunities to accelerate growth. Thus, trade and marketing expenditures may either be expedited into 2025 or deferred depending on emerging opportunities. We will remain transparent about any business decisions and their potential impact on profitability. For modeling purposes, we expect gross margins to remain relatively stable on a quarterly basis within the 37% to 39% range projected for the year. However, adjusted EBITDA will likely be limited in the first half of the year, with EBIT dollars and rates expected to increase throughout the year alongside revenue growth. We continue to see strong underlying retail demand trends, which we expect to persist as we progress through the year. Therefore, we anticipate revenue growth will be more concentrated in the latter half of the year. Before we begin the Q&A session, I want to conclude the call by expressing my gratitude for the progress made in reducing costs, enhancing operational efficiency, and improving cash flow generation during my 18 months as CFO of Black Rifle. Black Rifle is significant to me, not just as a leader but also as an early investor and financial sponsor in taking the company public. When the Board invited me to join as CFO, my aim was to strengthen Black Rifle's finance and accounting teams and improve the operational excellence and financial foundation of the company. We have made substantial advancements in these areas, as evident in our financial results for 2024. I am proud of what our team has achieved. With this realignment largely complete, the Board has begun the search for the next CFO to help navigate the company through its next growth phase. We expect to announce my successor soon, at which time I will transition to a role on the Board of Directors. I want to thank the Black Rifle team, our investors, Board, partners, suppliers, and customers for their trust and support. The company has a promising future, and I look forward to supporting it as a member of the Board in the coming years. Operator, we are now ready for Q&A.

Our first question comes from Glenn West with William Blair.

Glenn West stepping in for Jon Andersen here. I think Mondz mentioned Energy is at about 17% ACV as of the end of the first quarter. Maybe you could let us know kind of where you expect distribution to be kind of exiting the year. And I know Monster on their recent call kind of talked about like a resurgence in the energy category. So if you start to see kind of the category starting to pick up more rapidly, is there kind of optionality to get more distribution out earlier than you have planned?

Glenn, thank you for the question. Yes, look, we're very excited. As we talked about in our last call, prior to ever launching Energy, and I just reinforce that we feel great about our overall product offering. We believe we've got an ingredient line flavor profile that's going to be successful any way that you cut it. And then, yes, we did talk about a recovery of the category. There had been conversation about the category declining at one point. The category is actually, as a total, growing 5% now. And the No Sugar segment, which is what we compete in, is growing significantly faster than that. So we feel great about the category dynamics. As far as our own launch, our distribution is growing rapidly week-by-week. So yes, we're well up over 17% ACV. I'll remind everyone that at our conference, we talked about a goal for the year between 20% and 30% ACV. We're not in a position to change our guidance on that. But clearly, we feel great about the progress only in the beginning of March to be already taking such a significant portion of that goal. On top of that, in limited measurement, we're actually seeing the product turn reasonably well in the retailers that we have begun distribution. So expect that in Q2, we'll provide some more details on overall performance as we'll be into the season by then, and we'll have more data, but we're really excited about the start.

And maybe if I can squeeze one more in kind of on Energy. In terms of marketing spend, I know you had kind of mentioned you're going to try and match with distribution as it's ramping up. Kind of more specifically, when are you going to kind of fully ramp up the ad spend and kind of push the Energy product? I know you guys have been running past two quarters about 10% of sales marketing spend, but when are we going to kind of see that ramp up?

Yes, great question. So with the marketing spend, as we talked about at ICR, we're going to be putting a significant portion of our budget towards Energy. And as a lifestyle brand, the great thing is as we build Black Rifle, all boats rise behind that. So we feel good that that will impact our entire business. As far as timing and focus, we've got a great plan in place. So a lot of it has not hit the market yet, as you would expect with energy, it's more of a summer season selling period. So expect the marketing to start to come on in March, but really start to heavy up as we get closer to those key 90 to 120 days of summer months. That's when we're going to get the best return on a lot of that marketing. Likewise, we're working very closely with our partners, Keurig Dr Pepper, to ensure that we really focus that spending in the most important markets for us in a launch year. So looking at some of the category indexes and some of the brand indexes, we will ensure that we have heavy-up spends against what we believe are going to be the most important markets for us to demonstrate success in. So again, come Q2, once we have some of that marketing out in the market, I'd be very happy to share some of the specifics of that.

Our next question comes from the line of George Kelly with ROTH Capital Partners.

First, with respect to your DTC business, I was hoping you could be a little more specific just on your plans to stabilize that business. And I know you don't guide by segment, but can you help at all just with respect to sort of what's baked into your 2025 guidance for when you anticipate the revenue line there stabilizing?

Let me start by discussing what we are doing to stabilize our DTC business. We are focused on our resources and are fortunate to have some real experts on our team. Our approach does not involve additional spending. Instead, we are prioritizing our spending towards wholesale expansion and our Energy launch. With our limited budget, we aim to deploy resources directly to focus on our subscribers. Recently, we have seen stabilization, meaning we are losing and gaining subscribers at the same rate. This is a crucial first step in stabilizing our subscriber counts. Over the next year, our main goal will be to grow our subscriber base instead of attracting one-time buyers. We will not be allocating additional marketing dollars for acquiring new one-time buyers, as we have not done in the past year. Our focus will be on subscription-based programs and nurturing our most loyal consumers. The lifetime value of a subscriber can range between $200 to $600, which is beneficial for our business both financially and in terms of communication. Regarding the non-subscription side, we will maintain our philosophy that we want consumers to purchase where they feel most comfortable. Whether they choose to buy from our site, other digital platforms like Amazon or Walmart.com, or our expanding brick-and-mortar locations, we will accommodate them. Steve?

Yes. I would like to mention that there are many positive developments occurring in our DTC business. As Mondz pointed out, we're observing a stabilization in our subscriber numbers, which is a key factor for us. Additionally, we've revitalized our merchandise and gear drops, and our daily tracking of DTC shows encouraging figures that align with our expectations, along with a reduction in decline in the first quarter. Our performance on Amazon is also strong, showing significant growth as part of this segment. While we are not overly reliant on DTC growth in our guidance, if it does stabilize and perform better than anticipated, it could provide additional upside to our forecasts.

And then just two quick follow-ups for me. First, on your largest customer, excuse my voice, I'm losing my voice here. I'll try to get through this. Your largest customer, I think, is flattening out. I was curious if I'm reading into your 10-K correctly. What's kind of the recent trend there? And then secondly, more of an accounting question. The barter transactions, the marketing sort of benefit that you'll receive, how do you expect that to flow through your P&L in 2025? And then I'll hop back in the queue.

Let me start out addressing our largest customer. I'll kick it over to Steve to talk a bit to the barter transactions. So we're thrilled with our continued progress with our largest and first customer. We have over $110 million business now. It continues to be by far our biggest source of revenue. We did see some flattening in the last year, but that was expected as we continue to expand the remainder of the market. There was an expectation that we would see possibly even some decline, which in our key segments of ground and pods, we actually did not see. We did lose a canister item. We continue to work with them on what the right overall assortment is going to be for us overall. But again, as we think about how our business stacks up, we're sitting now as the #4 brand in bags. We're sitting as the #6 brand overall in pods. And we feel great about the next 12 months, the conversations we're having about adding other items, innovation items that will be coming on as we think about the back part of the year. So yes, there has been a bit of a slowing that was expected for us with expansion of the total market, but we feel great about the position we are in, and that continues to be our #1 relationship in the market.

On the media credits, we're actually quite excited to begin to use those more robustly in 2025. The reason is that a lot of the practical usage of those is highly applicable to our Energy launch. And the way that floats from an accounting perspective is we have an asset on the balance sheet and the media credits. And when we use those, it accretes into our marketing expense line. However, from a cash perspective, the dollar of marketing expense is actually sometimes $0.30, sometimes $0.60, depending on what we use it for. So it's a very efficient P&L usage from a cash perspective, which is obviously super important for a growth business.

Maybe, George, just one follow-up on the comment about our largest customer. We were up around 8% with them year-over-year in 2024. You can see that from the disclosures we put in our 10-Ks and Qs. So we're pleased with that program, and we actually did see growth with our largest customer this year.

Our next question comes from the line of Daniel Biolsi with Hedgeye.

So what are your plans for price increases? And is that really just contemplated for the bagged coffee, and is that reflected in the 2.5% green coffee inflation?

We always discuss pricing with our customers before making any public announcements. While we hold about 1.5% of the total market share, we consider ourselves more of a follower than a leader regarding pricing. Recently, our competitors have implemented some price increases, and we are closely monitoring their effects. This situation might create an opportunity for us to adjust our prices and alleviate some of the margin pressure we are currently facing. We have not yet communicated any price increases to the market. However, I want to mention that coffee as a commodity has risen over 100% year-over-year; it has more than doubled. We have secured favorable pricing contracts for this year and are locked in at about a 35% increase, compared to the spot rate exceeding 100%. As I stated, we are aware of market developments and are evaluating the chance to respond with pricing adjustments.

So additional price increases could represent upside to the guidance?

We have no price increases currently in our estimates for 2025. So if we were to take price, yes, it would be upside.

How much was shipped for the Energy drink launch in Q4? Will the slotting fees be recorded in Q1 instead of Q4? As distribution increases, should we expect the slotting fees to not rise incrementally due to earlier incurred costs?

For energy drinks, we experienced some shift into Q4. I won't discuss the specific figures, but overall, as we have mentioned, we are significantly ahead of our expectations with the distribution growth in the market as we moved into Q1. Therefore, any preload of distributors in Q4 compared to our 2025 guidance is accounted for and is proceeding as we anticipated.

And as far as the gating on that product or trade promotion that we would expect, I mean, there is more of it that does occur in the front half. We also would have more coffee inflation in the first half of the year. So our year-over-year change in gross margin would likely be the biggest in the front half of the year when those two impacts are the largest, but we'll have trade investment that will span throughout the course of the year.

Our next question comes from Bill Chappell with Truist Securities.

This is David Fulcrum on for Bill Chappell. So I guess with kind of tariffs being a topic of conversation of yours, just wondering if you could kind of remind us how much of your COGS exposure is to aluminum? And do you all have any hedging programs in place? And if so, what kind of time frame would you have on those?

We do not have hedging programs relative to aluminum. But our supply chain guys have a pretty good handle on what we're going to need for this year, and we're not seeing significant headwind there.

Specifically around the packaging, packaging is around the low double-digit percentage of our total COGS. Cans would be a very small percentage of that. We're more exposed to some other commodities than we are to cans.

And I guess one more kind of housekeeping question. I was just wondering if you could help us unpack the other expense line item, kind of a big jump in that. Is that something that we need to be keeping an eye on going forward?

Yes. The jump there was just a noncash impairment of three of our coffee shops relative to the CapEx that we had on that were underperforming. They're still open and operating, but we did impair the capital expenditures that had previously been spent. And I wouldn't expect ongoing there. We always look at impairments based on how they're performing, and there could be subsequent ones, but I wouldn't plan significant ones in any particular quarter.

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

My first question is about the distribution of energy drinks. You have focused on 12 priority markets. Can you share a little bit more color on the distribution ramp? Is it mass market? Is it convenience store in this priority market? Or is it like the convenience store comes after the mass market? I'm just trying to understand how the ramp of distribution goes for the energy drinks this year and into next? Like is there channels that you are targeting, markets you are targeting? I'm curious to know how you ramp up the energy business.

Thank you, Sarang. I’d like to provide an overview. In discussing the 12 key markets, we plan to intensify our efforts through the end of March and early April. Although we are seeing initial growth in distribution within the convenience store channel, the substantial increases will become apparent towards the end of May and early April, coinciding with the seasonal shelf changes at both larger chains and smaller independent stores. Additionally, we are engaging with larger mass customers, including our top client, who have begun to come on board earlier. These clients typically implement significant changes to their shelf layouts all at once, particularly in their center store offerings. This has resulted in a noticeable increase at the start of the year with our biggest customer, and a similar pattern is expected with others in the mass market. Thus, we anticipate a stepwise increase rather than a gradual buildup. Overall, we foresee a consistent growth trend, particularly ramping up in March and April as we enter the seasonal peak. Our primary focus this year will be in convenience stores within those targeted markets. We will collaborate closely with Keurig Dr Pepper, leveraging their sales force to access convenience stores that we couldn’t reach independently. This channel is critical for consumer trials, and while we will implement marketing activities to foster product trial, convenience store distribution will be the main driver for initial consumer engagement. Following that, we expect to see repeat purchases in the mass market as we expand our reach. Our objective over the next two years is to achieve full national distribution, but we intend to do so strategically, concentrating on areas where we have solid marketing plans to enhance our chances of success.

And my second question is on product innovation or changes on the merchandising side. Can you talk about some of the newness that you are trying to bring into '25? I specifically remember a slide in your Analyst Day at ICR, where one of the slides said product innovation in RTD coffee launching in the second half of '25. So I'm curious if you could talk about some kind of a newness coming in on the coffee side beyond the energy drinks.

I'm not going to share details about innovations that haven't been launched yet. However, we are focusing on innovation across all segments where we compete, as it is crucial to our success. We'll keep innovating in the center store, working on new products with our major grocery and mass partners to enhance distribution. Last year, we achieved around 47% ACV in grocery, growing overall ACV by 10% and doubling that growth in total points of distribution. This indicates that we are not only bringing in new customers but also enhancing relationships with our current clients through our ongoing innovations. We aim to introduce products that are relevant for the shelf set to further expand our existing customer base. In the RTD coffee segment, we had an excellent year, increasing distribution and velocity, and achieving a 5% growth despite the category's decline, positioning us as the third brand in RTD coffee. This strong position enables us to pursue innovative products in that sector as well. Additionally, we are launching our energy drinks, and we are preparing for their success with plans for different packaging options and flavor expansions tailored to various channels. All of these initiatives are currently being developed.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Mondzelewski for any final comments.

Yes. I'll just close the session today by saying, we're extremely excited about the potential of our new Energy business. We're very, very excited about the continued progress of our center store coffee and RTD coffee businesses. But I'm going to close with just a quick personal note. This will be my last meeting with Steve. Steve has been an incredible partner as our CFO for the last 18 months. I'd remind everyone, he was a key investor in the business in the early days. He really brings to life the Black Rifle ethos in the sense that as an investor in the business, he chose to roll his sleeves up, come into the business with us, really put us into a very strong position as he is now going to move on to, thankfully, a role also within Black Rifle on our Board. So I'm delighted that I will continue to get to work with Steve, and I just want to thank him very much for what he brought to our business. And with that, I hope everyone has a wonderful day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.