Earnings Call Transcript - BRCC Q2 2025

Operator, Operator

Greetings, and welcome to the Black Rifle Coffee Company Second Quarter Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew McGinley, Vice President of Investor Relations. Thank you, sir. You may begin.

Matthew Robert McGinley, Vice President of Investor Relations

Good morning, everyone, and thanks for joining Black Rifle Coffee Company's Second Quarter 2025 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. 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. Whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted. Reconciliation 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 Chris Mondzelewski, CEO of Black Rifle Coffee Company.

Christopher Mondzelewski, CEO

Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our new Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. As we enter the second half of the year, I want to acknowledge our team here at Black Rifle. Over the past year, we've taken meaningful steps to build a more disciplined and resilient organization, tightening execution, investing in critical capabilities, and preparing the business to scale more efficiently. That foundation enabled us to deliver results in line with our expectations this quarter, even as the macro cost environment became more challenging. As I noted last quarter, our organizational nimbleness has allowed us to navigate change and stay on course. We remain highly focused on positioning the business for long-term growth. We're continuing to expand our footprint with key retail partners to build momentum in both packaged coffee and ready-to-drink beverages and to ensure that every dollar we invest in the brand drives meaningful, measurable impact. That includes leaning into what's working while staying disciplined in our execution and continuing to innovate. We're encouraged by the progress and confident in the opportunities that lie ahead. Let's move to Slide 6. During the second quarter, Nielsen data showed a modest decline in unit volume for the U.S. coffee category within the food, drug, and mass channels. Despite this, category sales grew, driven largely by pricing actions taken across the industry. Black Rifle significantly outperformed the category, delivering 32% sales growth on a 29% increase in unit volume, well ahead of the category's 9.6% sales growth and 1% decline in units. Our distribution momentum continued this quarter with strong gains in grocery and mass merch retailers. In grocery, ACV increased by 19 percentage points year-over-year to reach 46.5%, while total ACV across all tracked channels rose 15 points to 56.6%. We continue to see significant room for expansion, both through new retail partnerships and by deepening our presence with existing customers. While we launched with a strong assortment at our largest retail customer, averaging 19 items on shelf and capturing 9.3% share in the bagged category, we typically begin with a smaller presence at new grocery and mass accounts. Our land and expand strategy is working as intended. We start with a few SKUs to establish presence, then grow assortments as performance warrants. We continue to see that play out across key accounts where strong velocities are translating into additional shelf space. In addition to gains in grocery and mass, we've expanded in club and secured national distribution with the leading rural lifestyle retailer. These moves increase visibility, drive trial and repeat, and grow household penetration. Moving to Slide 7. Our direct-to-consumer channel remains a key pillar of our broader digital strategy, offering a direct connection to our most loyal customers and generating valuable insights that shape brand and product decisions. Whether purchasing directly from Black Rifle or through a digital retail partner, consumers have ample opportunities to have our products delivered to their door. While the majority of our recent growth has come from brick-and-mortar retail, I'm pleased to report, consistent with what we've shared on prior calls that our digital channel stabilized in the quarter and returned to growth. In the second quarter, DTC revenue was 7.8% lower year-over-year. However, after adjusting for a $2.4 million loyalty reserve benefit that was recognized in the prior year, sales in the channel were actually slightly positive. We also saw strong growth across key third-party e-commerce platforms, underscoring our ability to capture demand in high-traffic digital marketplaces and meet consumers where they prefer to shop. We've made meaningful enhancements to both the subscription and non-subscription experience. Updates to our website and mobile app have improved usability while back-end improvements have enabled more precise merchandising and SKU optimization. For Coffee Club members, we've expanded perks, introduced prepaid subscription options, and launched a new brand portal featuring partner benefits and members-only gear. Our digital business remains a vital channel for fostering loyalty, testing new offerings, deepening customer relationships, and supporting our expansion with some of the nation's largest retailers, and we're committed to evolving it in ways that drive long-term growth. On Slide 8, our ready-to-drink coffee business continues to outperform the broader category. In the second quarter, we delivered 7% sales growth in a category that declined 4% according to Nielsen. Unit volume for Black Rifle was up 9%, while category units fell 6%, a clear testament to the strength of our brand and our ability to grow in a contracting market. We've maintained our position as the third largest RTD coffee brand in the U.S. And during the quarter, we expanded ACV by 6 points year-over-year to reach 53.5%. While we've made meaningful progress, we're still in the early stages of realizing the full opportunity with approximately half the market still available to be penetrated. Similar to our bags and pods business, we will continue to drive outsized growth through new retail partnerships and expanded shelf presence with existing customers. Slide 9. We've made strong progress in the launch year of Black Rifle Energy and are pleased with its momentum building at retail. Since launching in January, distribution has steadily expanded. And by the end of the second quarter, the product was available in over 15,000 retail locations, reaching 23% ACV. While the energy drink category is highly competitive, the early traction gives us confidence in the brand's ability to continue gaining shelf space and driving sales. We're executing a disciplined rollout in partnership with Keurig Dr Pepper and their national direct store delivery network supported by marketing efforts aimed at building awareness and trial, particularly in the convenience channel where the energy drink category is most active. Our entry into energy is grounded in clear consumer data. The majority of our coffee customers also purchase energy drinks, a significant portion of our digital audience engages with the brand even if they don't drink coffee. We see this as a natural extension of our brand and a compelling long-term growth opportunity, one that expands our reach, adds consumption occasions, and brings new consumers into the franchise. We're encouraged by the early results and excited about what's ahead. Finally, I want to take a moment to highlight the work we continue to do at the intersection of brand, mission, and service, a focus that remains central to who we are. For Evan, myself, and our organization, this serves as the long-term bellwether of what truly defines Black Rifle. In the second quarter, we deepened our engagement with the communities that define our brand, service members, veterans, first responders, and their families. From major 4th of July activations at Fort Campbell and Camp Lejeune, where we supported tens of thousands of military families to events commemorating the Army's 250th birthday to on-the-ground disaster responses in Kerrville, Texas, our team showed up in meaningful ways. In Kerrville, we remained on site for several weeks following severe flooding, distributing hot coffee, thousands of cans of Black Rifle Energy and RTD coffee, and offering support to first responders working through a challenging recovery. This work isn't about marketing or optics, it's about impact. It's about showing up when and where we're needed and standing behind the people who represent the very best of our country. That sense of purpose continues to drive our brand forward. It's what makes Black Rifle more than a beverage company. It's what makes us a community. Before we dive into the financials, I also want to take a moment to welcome Matt Amigh, our new Chief Financial Officer. Matt brings nearly 30 years of experience in the consumer packaged goods industry. He's been with us for just under a month, but he's hit the ground running, and we're excited to have him on board. With that, I'll turn it over to Matt to walk through the quarter.

Matthew Amigh, Chief Financial Officer

Thank you, Mondz. I've been a huge fan of Black Rifle since the business was founded nearly a decade ago, and it's a real honor to join this team. The brand has a significant opportunity for growth across packaged coffee, ready-to-drink, energy, and multiple other channels. I'm excited to be part of that momentum and help support the team as we scale this business together. I'll begin my remarks on the quarter with Slide 11. Second quarter net revenue increased 7% year-over-year, driven primarily by growth in the wholesale segment. We are cycling a net $3 million impact from prior year barter transactions and a $2.4 million benefit related to a change in loyalty reward accruals recognized in the second quarter of 2024. Excluding these items, second quarter revenue increased 14%. Our wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to retail, grew 14% year-over-year. Adjusting for the $3 million in nonrecurring revenue in the prior year, sales in this segment increased 21% in the second quarter. Growth was led by strong performance from Black Rifle Energy as well as new distribution gains and expanded shelf presence in grocery and mass merchandise retailers. Revenue in our direct-to-consumer segment was 8% lower in the second quarter. Excluding the $2.4 million impact from the prior year loyalty rewards accrual change, revenue in this segment increased modestly. Our focus remains on ensuring the Black Rifle products are available wherever our consumers shop, whether it's in brick-and-mortar retail or online platforms like blackriflecoffee.com, Amazon, or walmart.com. While we will continue allocating resources towards the wholesale channel, we're encouraged by the progress we've made in stabilizing our direct-to-consumer business. The Outposts segment grew revenue by 11.3%, driven by higher franchise fees and an increase in average order value, supported by enhanced merchandising and more effective bundling strategies. Slide 12. Gross margin was 33.9% in the second quarter, reflecting a 790 basis point reduction compared to the prior year. The decrease was primarily driven by a 430 basis point impact from green coffee inflation, a 290 basis point impact from trade and pricing, and a 160 basis point impact related to the change in loyalty reward accruals. These margin pressures were partially offset by 170 basis points of benefit from productivity gains and a more favorable product mix. Slide 13. Given the ramp-up in wholesale distribution, seasonal factors, and the timing of the trade and advertising spend, we anticipated that both revenue and EBITDA would be more heavily weighted towards the back half of the year. In the second quarter, gross margin pressure, partially offset by higher volume contributed to a $5.1 million decline in adjusted EBITDA from the same period last year, bringing the total to $2.4 million for the second quarter. Operating expenses were relatively flat compared to the second quarter last year and did not have a material impact on the change in adjusted EBITDA. Our quarter-end headcount was approximately 20% lower year-over-year, resulting in lower salaries, wages, and benefits. We largely reinvested those savings into marketing to support growth. General and administrative expenses increased 31%, primarily due to legal costs related to matters resolved after quarter-end and higher depreciation tied to capitalized software, both of which are added back in the calculation of adjusted EBITDA. Moving to Slide 15. We are maintaining our full-year revenue guidance of $395 million to $425 million. We continue to expect a sequential step-up in revenue throughout the year, driven by ongoing distribution gains in both packaged coffee and energy as well as targeted marketing and trade investments to drive brand awareness and repeat purchases. While the step-up remains on track, current pacing implies that we may finish towards the lower end of the range. As a reminder, we are cycling $30.4 million of prior-year revenue that was driven by one-time factors and not expected to recur in 2025. This represents a $5.8 million headwind in the second quarter and is expected to have a $3.6 million impact in the third quarter. We continue to expect full-year gross margins in the range of 35% to 37%. We delivered 35% in the first half and expect a modest improvement in the second half as pricing and productivity gains help partially offset the new impact of tariffs. Since the U.S. does not have geography suitable for large-scale coffee production, we import the majority of our green coffee from Central America, Colombia, and Brazil. We have flexibility to shift purchases between origins if pricing becomes unfavorable. As we noted on the last quarter's call, tariff-related cost pressures were incremental to our original expectations on gross margin and adjusted EBITDA. We indicated last quarter that both metrics would likely fall below the midpoint of our full-year guidance ranges, and that remains our expectation. Key drivers of the margin outlook compared to the prior year include at least 300 basis point headwind from green coffee inflation net of pricing actions, a 250 basis point impact from incremental trade investment behind the energy line and a more normalized promotional cadence, at least a 100 basis point margin impact from recently implemented import duties with the full effect expected in the second half. These pressures are expected to be partially offset by at least 200 basis points of productivity initiatives and a more favorable product mix. Looking ahead to 2026, we've secured approximately 40% of our expected coffee needs through forward purchase agreements and we'll continue to lock in additional supply through the end of the year. If green coffee spot pricing remains stable, we expect it to have a neutral impact on gross margins in 2026, representing neither a material headwind nor tailwind. We remain focused on improving gross margins through productivity initiatives that we continue to work on across our supply chain, and we'll evaluate further adjustments to our pricing architecture, consistent with actions taken by other packaged coffee manufacturers. For adjusted EBITDA, we're maintaining our full-year guidance of $20 million to $30 million. We remain focused on driving operating leverage by tightly managing gross profit and expenses to ensure we can scale efficiently while supporting the long-term growth of the business. We remain on track to achieve $8 million to $10 million of annualized cost savings from organizational efficiency initiatives launched this quarter. Subsequent to quarter-end, we raised $40.25 million in gross proceeds through an equity offering of our Class A common stock. While the capital will ultimately support the continued rollout of the energy portfolio, the immediate use of the proceeds was to retire outstanding balances on our revolver. We were impressed with the quality of the investor base brought in through the raise and expect the offering to enhance trading liquidity going forward. In addition to strengthening our balance sheet, this also helps mitigate potential risk to our investment and growth plan as we look to 2026, particularly if coffee prices or tariffs were to move unfavorably and result in at least $1 million of interest expense savings this year. Before we move to Q&A, I want to thank both the internal team and our external partners and investors for the warm welcome and continued support. I am grateful for the opportunity to step into this position and join a company with a strong foundation and meaningful growth ahead. I believe deeply in the mission, the team, the strategy, and of course, the brand. I'm excited about what we can accomplish together and look forward to what's ahead.

Operator, Operator

The first question comes from Mike Baker with D.A. Davidson.

Michael Allen Baker, Analyst

Good quarter. So I wanted to ask you about the 3-year outlook, which you maintained in your presentation. It requires a pretty significant ramp in '26 and '27 versus the 2025 outlook. Can you talk about the key drivers to that? Is it energy drink? Is it ready-to-drink? Is it more retail customers, more doors per customer, more SKUs per door, etc.? Just what are the building blocks to get that kind of ramp in 2026 and 2027?

Christopher Mondzelewski, CEO

Mike, it's Chris. Thanks for the question. Let me frame things up a little bit, kind of how we look at it strategically, and then I'm going to kick it over to Matt here, who can elaborate a little bit on it. So yes, we're going to continue to maintain that guidance. I think when you look at our business right now, one of the things we're very proud of is that all aspects of our business are growing. While we don't give segment guidance at this point, every piece of our business, whether you're talking the pods, the bags, the RTD coffee, and of course, energy, which we launched this year are growing for us, as is Outposts, which was not growing a year ago. And then one of the ones we're most proud of given some of the hard work we've done even driving efficiency is our DTC business. So when you look at our DTC business as a whole, as you strip out the loyalty points, that is now growing for us as well. So with every segment of our business growing, while we're not going to give guidance on exactly where that 10% to 15% overall is going to come from, suffice to say that we have a lot of tools in our toolbelt that we can pull from. Matt, do you want to build on that?

Matthew Amigh, CFO

Yes. I would just say, Mike, that when you look at the ACV that we have right now across packaged coffee and RTD, we still have a ways to go. So we're sitting about 56% on packaged coffee and about 54% on RTD. So we can expect anywhere from 80% to 85% ACV across FDM. As Mondz mentioned, D2C, we're super happy with the performance in the second quarter, stabilizing the business in the second quarter and then looking forward to making the right investments in that business to scale that business in a very efficient manner. So yes, we do see line of sight to the long-range guidance.

Michael Allen Baker, Analyst

I wanted to ask about Walmart. In your quarterly report, it showed that sales were 26% compared to 33% last year. While this indicates some diversification, it does suggest a decrease year-over-year. Could you explain why that decline occurred? Additionally, I've noticed Fire Department Coffee being advertised at Walmart, and it resembles your brand. Can you discuss the competition at Walmart?

Christopher Mondzelewski, CEO

Yes, I can address that. When we examine our overall sales at Walmart, the internal sales fluctuate due to various factors such as shipment timings. Last year, we experienced a loss with one item in our canister line, which impacted us. However, we're moving past that and will be reintroducing that item in some regions during Q3. What's most significant for us is the takeaway. We analyze the scanner takeaway in Walmart stores since it serves as a reliable predictor of future sales. We are performing strongly at Walmart. Although we are already at full distribution and won't see any additional store count benefits, our takeaway or store consumption in Walmart is growing by nearly 10%, which will naturally drive our internal revenue as well. A part of this is due to timing. As we approach Q3 and Q4, we are enthusiastic about the innovation we will be introducing alongside our core items that have consistently performed well. We are very optimistic about our partnership with Walmart, who remains our top customer by a large margin. Regarding competition, we embrace it. I consider Fire Department Coffee a notable brand, but I don't view them as direct competition. Their success doesn’t correlate with ours. We're encouraged that they are a brand established by a first responder, and we are familiar with their founder. We will keep focusing on our strengths. Across all grocery segments in Walmart, we continue to show growth at the register, which is crucial as that's where the consumer picks up our products. While competition in these categories will always be intense, we believe our unique brand positioning is effectively protecting us.

Michael Allen Baker, Analyst

Yes, that's fair. If I could ask one more quick question. What was I going to ask? I guess I’ll pass it over to someone else. If I remember my question, I’ll come back.

Operator, Operator

The next question comes from Glenn West with William Blair.

Glenn West, Analyst

Glenn West on for Jon Andersen. One thing I wanted to ask about on Slide 8, where you're showing kind of the RTD ACV and share data. Obviously, ACV increasing and there's probably a little slight lag to this, but the share kind of staying steady there at 4.6% for the past couple of quarters. Can you guys talk about what you're going to do to kind of drive that share higher? Is that still just more distribution? Or is there more targeted marketing coming in? How are we going to push it higher from there?

Christopher Mondzelewski, CEO

Glenn, it's Chris. Yes, I mean, you're right in your assumption. I think that's one factor, which is that ACV is always a leading indicator of what's then going to come from sales. So we've talked about this a bit in the past. As we build ACV, and we tend to give guidance on ACV, but we'll always remind that ACV in itself is not always a direct indicator of revenue. It's a direct indicator that you're on shelf of a new set of customers, which then assuming we execute well, will result in revenue in that particular customer group. So that is largely what you're seeing. We have some large national customers that have come on board with us, which is driving that spike in ACV. Those velocities always start lower as they come up, and you're going to start to see that share number come up as well. But broadly, we just couldn't be more excited about this piece of our business. I mean, we're the #3 player in the market right now, and we continue to grow at a much faster rate than the other larger players in the category. We're going to continue to take advantage of that because it's a strong story for us with retailers. We have some significant innovation, which we're not ready to talk about specifically yet that will be coming later this year. We're going to use our momentum to build off of that. And we've talked a bit in the past about what we've been doing to optimize our organization in facing into cost pressures. But within that, we have been investing heavily in the areas that we know are going to be important to us to succeed. So the sales force in this case, we've put some really powerful sales assets in place, particularly with our RTD business that, again, are going to just be sharpening that execution even further. So high level of confidence on my part that you're going to start to see those share numbers start to tick up behind that ACV increase as well.

Glenn West, Analyst

Okay. That's helpful color. And then maybe one follow-up, not to hit on ACV again, but energy, one thing that stuck out to me is that it's only 7% ACV in convenience stores. Obviously, C-store is super important for energy. So what's kind of the distribution look like and the strategy there for energy, specifically in that C-store channel?

Christopher Mondzelewski, CEO

Yes. That was a very specific target that we went after. We're actually right where we had hoped to be on energy. You may recall in the past, I've talked a bit about the markets. We chose to go into a limited number of markets in the first year, and that was a conversation we had with KDP. We really wanted to get the model right. We really wanted to learn how to market this correctly in those cities. We chose cities that had strong category and brand indexes. Obviously, you can imagine across South Texas, San Diego was one. And we've done well there. In many of those cities, the ACV within those cities tends to be somewhere between 50% and 70%. And the aggregate of that, of course, is a lower number when you look at it nationally because there are some very big geographies that we're simply not distributed in yet, that was a purposeful choice that we made alongside Dr Pepper. Energy for us is a great future growth platform, but we also want to make sure that we're never stealing resource from coffee, which is core to us, right? And we just talked about our RTD coffee business and the size of that, #3 in the market. And then, of course, our pods, our bags business continues to grow well ahead of the market. So the lion's share of our resources will continue to go against that. That allowed us to put targeted strong investment in those launch markets for energy. And again, the aggregate of that ended up being that 7% ACV you see.

Operator, Operator

Next question comes from George Kelly with ROTH Capital Partners.

George Arthur Kelly, Analyst

First one is just on your expectations for pricing in the back half of the year. Wondering if you could share a little bit just about what your plans are by business segment just broadly? And I guess, secondarily, have you continued to tweak your bagged coffee pricing at Walmart? I thought I saw another change just recently when I was on the store. So any detail there would be helpful.

Matthew Amigh, CFO

Good question, George. Thanks for that. So we never comment on future pricing. Obviously, you can appreciate that. We'd want to tell our customers first and then go to the Street. But I can tell you that we did execute a pricing action across packaged coffee in May, which is settling into the marketplace right now, which probably explains why you've seen the pricing change on shelf that you've seen. So that was largely across packaged coffee and largely across the wholesale market.

George Arthur Kelly, Analyst

Okay. Okay. And then second question, you mentioned club in your prepared remarks. So I guess I'm curious if you could be more specific just about the kind of what you're seeing at club? And are you getting more club distribution? Is it becoming a sort of more material channel for you? I know you've had a long-standing customer there, but maybe it's broadened. And how big can that channel be for you? Like is that a big focus for '26?

Christopher Mondzelewski, CEO

So I want to be careful. We're not going to give any specific guidance on any customer individually. However, club as a channel is a significant portion of the categories that we operate in. They're great sellers of coffee, ready-to-drink coffee, and energy. They obviously play a different role than the other channels that we're in. But for a brand with our strength, well over 50% brand awareness at this point, a channel like this makes a lot of sense. And our early indicators are that we're going to have a great deal of success here. What I will say is at this point in time, we have programs going with all three major clubs. We are in distribution with all three major clubs. As you know, they all operate very differently. So the way we're doing these programs, we're working in line with their go-to-market strategies. And again, like every other part of the business, we're going to test our way in to ensure that we understand the model, that we understand how to get strong returns on the marketing that we put against that channel or that customer. And then as we see success with that, we're going to double down on it. So final point, you mentioned it will be part of our plan in '26. Again, we're not going to piece apart where that growth plan comes from. But back to the earlier question, 10% to 15% guidance that we're giving over the next few years, this is just one additional tool, as you point out, all of that open distribution in the market that we know, given some of the successes we've had against the three largest clubs out there that we have some great growth opportunity going forward.

George Arthur Kelly, Analyst

Okay. That's helpful. And then last one, just some I noticed in your Q, the Salt Lake property, it looks like that's either going to go up for sale or has sold already. What is the plan there? Are you going to lease it? Or are you moving headquarters? Any detail there.

Matthew Amigh, CFO

George, thanks for the question. So yes, the facility is held for sale right now. You saw that in the Q. We're looking for something that's more suitable for the size of the organization. The building was great as we started to evolve the business. But now with distribution centers across the U.S. and manufacturing in Tennessee, we no longer need a facility of that size. So it doesn't change our structure of the organization, which will be head office in Salt Lake City. We have an office in Nashville and one in San Antonio, Texas.

Operator, Operator

The next question comes from Joseph Altobello with Raymond James.

Martin Peter Mitela, Analyst

This is Martin on for Joe. I just want to quickly touch on the energy rollout. Congratulations on getting over 15,000 doors. You described the rollout as disciplined. So just trying to get an idea of what the back half ramp-up might look like for energy. Is there a target for how many doors?

Christopher Mondzelewski, CEO

We're not going to release a target on the number of doors. We're going to stick to kind of what we said, which is that it's a limited number of geographies that we're going into. So the geographies we're operating in now are the geographies that we will continue to operate in the remainder of the year. And then, obviously, as we go into next year, there will be significant expansion. The reality, though, is that you are going to see upside simply because we're going to continue to drive those markets, right? So as we have gone into the year, we've been able to drive ACV to a higher level. And the marketing that began, as you recall, back in March, April is going to continue, and we continue to build awareness of obviously, the brand, but even more importantly, the specific offerings of energy in a specific case. So again, I'm not going to give guidance on any increases we expect to see in the back part of the year. But suffice to say, within the geography that we have operated in thus far in the year, we continue to hopefully see increases behind the marketing that we're doing in the back part of the year.

Martin Peter Mitela, Analyst

Okay. Understood. And just as a follow-up, sort of a housekeeping item. You released preliminary gross margins and the reported gross margins fell just a little bit short of that. Was there something that happened that sort of impacted the margins in between the time between the preannounced numbers and the actual results?

Matthew Amigh, CFO

Yes. Thanks for that question. So yes, when we did the raise, we were in the midst of the second quarter close. And through that close process, we identified some obsolete inventory raw materials, and we took a reserve against the raw materials. It wasn't a very material item, and that's the difference between the 34.1% and the 33.9% gross margin that we ended with.

Operator, Operator

The next question comes from Daniel Biolsi with Hedgeye.

Daniel William Biolsi, Analyst

I was wondering if you could share the price versus volume components of the 14% wholesale growth for RTD and bag coffee and if you don't have it exactly just directionally.

Christopher Mondzelewski, CEO

100% of volume.

Matthew Amigh, CFO

Yes. Thanks for the question. So it is 100% of volume. The pricing really didn't settle in until the third quarter. So we'll see that effect going forward, partial quarter impact in Q3, full-on impact in Q4.

Christopher Mondzelewski, CEO

I think, Daniel, that's one of the things we're really excited about is that we've been able to drive the growth that we have purely off of units, which, again, for a business in our situation where penetration is going to be king for us, bringing on new consumers and every customer, that's kind of a bellwether metric for us. And then to Matt's point, we'll have the additional weapon of pricing going forward.

Daniel William Biolsi, Analyst

I think this partially answers my next question. I was hoping you could outline the main factors influencing the transition from the first half of the year to the second half with regard to the $20 million plus adjusted EBITDA target for the year. What are the largest factors affecting the change from the first half to the second half? I assume pricing will be the primary factor.

Matthew Amigh, CFO

Yes, that's an excellent question. We provide annual guidance, and I prefer not to give quarter-to-quarter updates. However, our expectations indicate a significant increase in revenue and EBITDA. I appreciate the inquiry and will provide some insights on that. Our revenue is expected to rise from Q2 to Q3 and then experience a larger increase into Q4, driven by notable distribution gains and strong sales momentum across food, drug, and mass retail, along with a stabilization and shift to modest growth in direct-to-consumer channels. Additionally, we're seeing growth in convenience stores with ready-to-drink products and energy drinks also contributing. Pricing will play a crucial role in the sequential uptick, impacting Q3 partially and fully in Q4. It's important to note that we anticipate lower slotting costs in the latter half of the year since most of these expenses for new distribution in coffee, ready-to-drink, and energy occurred in the first half. This will provide a tailwind for the upcoming quarter. To summarize the quarterly increases, Q1 was around $90 million, moving to $94.8 million in Q2. Q3 is projected to reach or exceed $100 million, with Q4 also showing a sequential increase. This growth in Q4 is particularly significant due to the heightened seasonality in our business, which includes direct-to-consumer sales during Cyber Week and Black Friday, as well as increased foot traffic benefiting our wholesale business during the holiday season. Regarding EBITDA, we are guiding for a range of $20 million to $30 million. While we anticipate falling slightly below the midpoint, there still will be a substantial increase in EBITDA. It should be noted that EBITDA typically lags behind revenue, as gross profit grows alongside revenue in the latter part of the year. We're also focused on improving operational efficiencies in Q3 and Q4 as our operational efficiency project, initiated in the second quarter, matures and yields savings in the second half. Finally, we plan for a modest reduction in marketing investment, which is front-loaded, resulting in decreased spending in the latter half of the year.

Operator, Operator

We have a follow-up question from Mike Baker with D.A. Davidson.

Michael Allen Baker, Analyst

I remember my question. I wanted to ask about the energy drink. Do you have any updates? You provided some ACV numbers and discussed sell-in. I’m curious about the sell-through; what feedback are you getting from retailers? Additionally, could you remind us about the customer merchandising agreement that starts next year and how it may assist with the energy rollout?

Christopher Mondzelewski, CEO

Yes, I'm happy to reiterate my previous points and perhaps provide a bit more detail. We are very satisfied with our rollout progress, which has been focused on select geographies and a few national customers. Our attention has been primarily on these national accounts, and we're thrilled with their performance. Specifically, we have one major national convenience store chain and another significant customer, both of which have shown quarter-on-quarter growth in sales velocity, as we anticipated. While I won't disclose specific velocity figures, we are gradually reaching the sales levels of some of the larger competitors in the market. This indicates that our discussions with retailers about the product and its shelf performance have been very encouraging. Looking ahead, the upcoming selling season is crucial for us. We are preparing to engage with additional national and regional customers as we move into next year. This season will be vital, and we feel confident that we have the data from our initial rollout to present a compelling case for why Black Rifle should be an integral part of their energy offerings. Whether assessing our partnerships with national players or our entry into local markets, the results so far have been promising. Regarding the customer merchandising agreement, this was a significant reason for collaborating with Dr Pepper, who has considerable scale. While I won’t delve into the specifics of our negotiations for next year, we've previously indicated that this year was a testing phase in our chosen markets. Moving forward, we plan to expand based on our successes, although I don’t anticipate full national distribution next year. Instead, we aim to increase our presence in enough regions to build on our achievements while ensuring we maintain strong support for our core coffee and ready-to-drink coffee businesses. More updates will come as we progress through the year, but expect this initiative to be a key component of our strategy next year.

Operator, Operator

At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Christopher Mondzelewski, CEO

Yes. Just real quickly, I think we always talk a lot about the numbers of the business. I want to just point everyone to really what the founders, myself are proudest of in this business is our brand, the fact that we continue to build that brand in such an authentic manner. You heard about some of the stuff I talked about upfront in my comments, the programs we have going on. For those that are newer to Black Rifle, this is the lifeblood of what our business is. It's why we're all here. It allows us to play a meaningful role in giving back to America and those that matter most in America, our veterans and first responders, but it also builds our brand. It builds authenticity in our brand. It builds distinctiveness, and it's actually building awareness. We're seeing our brand awareness go up significantly off of these programs we're doing. So we're super proud of that, and I want to make sure that that gets mentioned. With that, I appreciate everyone taking the time, and we'll talk to you next quarter.

Operator, Operator

Thank you. This does conclude today's teleconference and webcast. You may disconnect at this time. Thank you for your participation, and have a great day.