BRCC

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the annual audited consolidated financial statements, notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), contained in our Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K"). In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause the Company's actual results to differ materially from management’s expectations. When used in this report, the terms “we,” “us,” “our,” “BRCC,” “Black Rifle Coffee,” “Black Rifle Coffee Company,” and the “Company” mean BRC Inc. and its consolidated subsidiaries, collectively, unless the context requires otherwise. Overview Black Rifle Coffee Company is a Veteran-founded and led premium coffee, and energy drink company operating through one reportable segment composed of three primary channels: Wholesale, DTC, and Outposts. We leverage in-house media and content creation to support brand awareness, customer engagement, and community building. Founded in 2014 by U.S. Army Veteran Evan Hafer, Black Rifle Coffee began with a one-pound coffee roaster in a garage, where Mr. Hafer personally roasted, packaged, and shipped coffee directly to consumers. Today, we have grown into a widely recognized and nationally distributed brand steadfast in its commitment to supporting active-duty military, Veterans, first responders, and all who love America. Trends Certain trends affecting our business within the respective sales channels are as follows: •Wholesale channel revenue continues to increase as we add new customers and expand our shelf presence in the Food, Drug, and Mass ("FDM") market. We expect continued revenue growth in this channel as we invest to increase brand awareness, efficient promotional activity at-shelf, new product launches, and expanded distribution in the FDM market. •DTC channel revenue has grown as we continue to optimize customer acquisition, enhance retention, and provide our customers with a personalized and engaging shopping experience through targeted content and tailored product offerings on our website. Additionally, we are increasing our investment in major third-party e-commerce marketplaces in response to changing consumer purchasing behavior. •Outpost channel revenue is stabilizing as we focus on improving transaction volumes and average order values through customer retention programs and tailored product offerings. In 2026, we expect consistent performance in this channel as we reallocate investments to other channels while seeking to improve profitability through operational and strategic changes, which may include the closure of underperforming Outposts. Recent Developments Operational Improvement Plan During the second quarter of 2025, we implemented the Operational Improvement Plan to reduce costs and improve the efficiency of certain company-wide functions. This plan was extended in the third quarter of 2025 as a result of the relocation of our corporate headquarters and a change in our third-party logistics provider. The cost of this plan was approximately $6.8 million consisting of severance and transition costs, substantially all of which have been incurred as of June 30, 2026. We estimate that the costs savings as a result of this plan will exceed $12.2 million on an annualized run rate basis. As of June 30, 2026, we have realized approximately $10.4 million of these savings. Key Factors Affecting Our Performance Our Ability to Increase Brand Awareness Maintaining and growing brand awareness and loyalty is critical to our success. We believe we have developed an effective marketing strategy that enhances brand awareness and drives consumer engagement, leading to conversion and repeat purchases. Consumer appreciation of our brand, enhanced by our mission to give back to the veteran and first responder communities, is primarily reflected in our sales across our three channels. We intend to continue to refine and develop our brand strategy utilizing reach-based formats such as streaming advertising and other select marketing channels. In addition, we will leverage our social media presence and employ targeted digital advertising to expand the reach of our brand. 18 Table of Contents Our Ability to Grow Our Customer Base in Our Wholesale Channel We continue to expand our customer base through our Wholesale channel, with our products now available in a growing number of physical retail locations. Wholesale customers include large national retailers, regional retailers, distributors, and dealers, reflecting increased market presence and distribution reach. Our Ability to Acquire and Retain Customers at a Reasonable Cost We believe that consistently acquiring and retaining customers at a reasonable cost will be a key driver of our future performance. We continue to build brand awareness and reach new consumers by investing in existing and new channels and markets. Our capabilities in digital marketing and consumer engagement provide a competitive advantage in attracting, converting, and retaining our consumers. We remain focused on measuring and optimizing marketing performance to ensure that our advertising spend is efficient, while managing customer acquisition costs and maximizing returns on marketing investments. Our Ability to Drive Repeat Purchases of Our Products We gain substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth rate may be affected by the repeat purchase behavior among our existing and newly acquired customers. Our Ability to Expand Our Product Line Our goal is to continue to expand our product line over time to increase our growth opportunities and reduce product-specific risks through diversification into multiple products intended for regular consumer use. Our pace of growth will be partially affected by the timing and scale of new product launches. We believe that it is important to our business to continue to innovate with new products and flavors. Our Ability to Manage Our Supply Chain Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers and co-manufacturers located inside and outside the United States. The majority of our green coffee beans come from Colombia, Brazil, and Nicaragua, and since 2020, we have also sourced green coffee beans from more than ten additional countries in Latin America, Africa, and Asia to diversify our supply chain and offer our customers specialty and limited-time-only roasts. Quality control is a critical component of our manufacturing and supply chain operations. All of our bagged coffee is roasted in the United States. Our licensed, Coffee Quality Institute-certified grader and former Green Beret, oversees cupping, grading, scoring, and sourcing of our coffees. We also must effectively manage our co-manufacturers and suppliers. Components of Our Results of Operations Revenue, net We sell our products both directly and indirectly to our customers through a broad set of physical and online platforms. Our revenue, net reflects the impact of product returns as well as discounts and fees for certain sales programs, trade spend, promotions, and loyalty rewards. Cost of goods sold Cost of goods sold primarily includes raw material costs, labor costs directly related to producing our products including wages and benefits, shipping costs, and other overhead costs related to certain aspects of production, warehousing, fulfillment, shipping, and credit card fees. Operating expenses Operating expenses consist of marketing and advertising expenses related to brand marketing campaigns through various online platforms, including email, digital, website, social media, search engine optimization, as well as performance marketing efforts including retargeting, paid search and product advertisements, as well as social media advertisements and sponsorships. Operating expenses also consist of salaries, wages, and benefits and payroll related expenses for labor not directly related to producing our products. Payroll expenses include both fixed and variable compensation. Variable compensation includes bonuses and equity-based compensation. General and administrative costs include other professional fees and services, and general corporate infrastructure expenses, including utilities and depreciation and amortization. 19 Table of Contents Interest expense, net Interest expense, net consists of interest on our borrowing arrangements, the amortization of debt discounts, and deferred financing costs. Results of Operations This discussion and analysis pertains to comparisons of material changes on the consolidated financial statements for three and six months ended June 30, 2026 and 2025. Comparison of the three months ended June 30, 2026 to the three months ended June 30, 2025 The following table summarizes our results of operations for the periods indicated (dollars in thousands, unaudited): Three Months Ended June 30, 2026 2025 $ Change % Change Revenue, net $ 107,020 $ 94,837 $ 12,183 13 % Cost of goods sold 70,537 62,664 7,873 13 % Gross profit 36,483 32,173 4,310 13 % Gross margin(1) 34 % 34 % Operating expenses Marketing and advertising 10,530 9,770 760 8 % Salaries, wages, and benefits 15,468 15,791 (323) (2) % General and administrative 9,271 14,311 (5,040) (35) % Other operating expense, net 113 4,925 (4,812) (98) % Total operating expenses 35,382 44,797 (9,415) (21) % Operating income (loss) 1,101 (12,624) 13,725 109 % Non-operating expenses Interest expense, net (1,254) (1,844) (590) (32) % Total non-operating expenses (1,254) (1,844) (590) (32) % Loss before income taxes (153) (14,468) (14,315) (99) % Income tax expense 33 44 (11) (25) % Net loss $ (186) $ (14,512) $ (14,326) (99) % (1) Gross margin is calculated as gross profit as percentage of revenue, net. Revenue, net Net revenue for the three months ended June 30, 2026 increased $12.2 million, or 13%, to $107.0 million as compared to $94.8 million for the corresponding period in 2025. The following table summarizes net sales by channel for the periods indicated (dollars in thousands, unaudited): Three Months Ended June 30, 2026 2025 $ Change % Change Wholesale $ 70,623 $ 61,316 $ 9,307 15 % DTC 31,400 27,640 3,760 14 % Outpost 4,997 5,881 (884) (15) % Total net sales $ 107,020 $ 94,837 $ 12,183 13 % Net revenue for our Wholesale channel for the three months ended June 30, 2026, increased $9.3 million, or 15%, to $70.6 million as compared to $61.3 million for the corresponding period in 2025. The increase was primarily driven by expanded packaged coffee distribution, SKU expansion at FDM retailers, and pricing. 20 Table of Contents Net revenue for our DTC channel for the three months ended June 30, 2026 increased $3.8 million, or 14%, to $31.4 million as compared to $27.6 million for the corresponding period in 2025. The increase was primarily driven by growth at third-party digital marketplaces, which was partially offset by declines in subscription revenue. Net revenue for our Outpost channel for the three months ended June 30, 2026, decreased $0.9 million, or 15%, to $5.0 million as compared to $5.9 million for the corresponding period in 2025. The decrease was primarily driven by a decline in transactions and average order value at Company-operated Outposts. Cost of goods sold Cost of goods sold for the three months ended June 30, 2026 increased $7.9 million, or 13%, to $70.5 million as compared to $62.7 million for the corresponding period in 2025. Gross margin increased modestly to 34.1% for the three months ended June 30, 2026 compared to 33.9% for the corresponding period in 2025. The improvement in gross margin was primarily attributable to pricing actions, lower shipping and fulfillment costs driven by productivity gains, and changes in the reserve for excess and obsolete inventory compared to the prior year, which was partially offset by higher green coffee input costs and tariffs, as well as higher third-party e-commerce marketplace fees, which increased in line with the revenue growth in these channels. Operating expenses Marketing and advertising expenses for the three months ended June 30, 2026 increased $0.8 million, or 8%, to $10.5 million as compared to $9.8 million for the corresponding period in 2025. The increase was primarily driven by higher spending on content production and media, agency, and partnerships, which was partially offset by lower ad placement and in-store marketing costs. As a percentage of revenue, marketing and advertising expense decreased to 9.8% for the three months ended June 30, 2026 from 10.3% for the corresponding period in 2025, as revenue growth outpaced the increase in marketing investment. Salaries, wages, and benefits expenses for the three months ended June 30, 2026 decreased $0.3 million, or 2%, to $15.5 million as compared to $15.8 million for the corresponding period in 2025. This decrease was primarily attributable to lower severance costs and reduced payroll from the lower headcount as a result of our Operational Improvement Plan, partly offset by higher bonus and stock-based compensation expense in the current period. As a percentage of revenue, salaries, wages, and benefits expense decreased to 14.5% for the three months ended June 30, 2026 from 16.7% for the corresponding period in 2025, reflecting both lower spend and revenue growth. General and administrative expenses for the three months ended June 30, 2026 decreased $5.0 million, or 35%, to $9.3 million as compared to $14.3 million for the corresponding period in 2025. The decrease was primarily attributable to lower legal fees, lower consulting and professional fees, and reduced depreciation and amortization expense as certain assets became fully depreciated, reflecting actions taken to simplify and rationalize the Company's cost structure. As a percentage of revenue, general and administrative expense decreased to 8.7% for the three months ended June 30, 2026 from 15.1% for the corresponding period in 2025. Other operating expense, net for the three months ended June 30, 2026 decreased approximately $4.8 million, or 98%, to $0.1 million as compared to $4.9 million for the corresponding period in 2025. The decrease was primarily due to the absence of legal contingency charges as compared to the corresponding period of 2025. Interest expense, net Interest expense, net for the three months ended June 30, 2026 decreased approximately $0.6 million, or 32%, to $1.3 million as compared to $1.8 million for the corresponding period in 2025. The decrease was primarily driven by a lower average outstanding balance of the ABL Facility during the second quarter of 2026 compared to the corresponding period in 2025. 21 Table of Contents Comparison of the six months ended June 30, 2026 to the six months ended June 30, 2025 The following table summarizes our results of operations for the periods indicated (dollars in thousands, unaudited): Six Months Ended June 30, 2026 2025 $ Change % Change Revenue, net $ 216,247 $ 184,812 $ 31,435 17 % Cost of goods sold 143,676 120,165 23,511 20 % Gross profit 72,571 64,647 7,924 12 % Gross margin(1) 34 % 35 % Operating expenses Marketing and advertising 20,710 21,092 (382) (2) % Salaries, wages, and benefits 29,577 29,354 223 1 % General and administrative 19,369 26,099 (6,730) (26) % Other operating expense, net 495 6,158 (5,663) (92) % Total operating expenses 70,151 82,703 (12,552) (15) % Operating income (loss) 2,420 (18,056) 20,476 113 % Non-operating expenses Interest expense, net (2,494) (4,213) (1,719) (41) % Total non-operating expenses (2,494) (4,213) (1,719) (41) % Loss before income taxes (74) (22,269) (22,195) (100) % Income tax expense 66 88 (22) (25) % Net loss $ (140) $ (22,357) $ (22,217) (99) % (1) Gross margin is calculated as gross profit as percentage of revenue, net. Revenue, net Net revenue for the six months ended June 30, 2026 increased $31.4 million, or 17%, to $216.2 million as compared to $184.8 million for the corresponding period in 2025. The following table summarizes net sales by channel for the periods indicated (dollars in thousands, unaudited): Six Months Ended June 30, 2026 2025 $ Change % Change Wholesale $ 145,325 $ 118,107 $ 27,218 23 % DTC 61,120 55,361 5,759 10 % Outpost 9,802 11,344 (1,542) (14) % Total net sales $ 216,247 $ 184,812 $ 31,435 17 % Net revenue for our Wholesale channel for the six months ended June 30, 2026, increased $27.2 million, or 23%, to $145.3 million as compared to $118.1 million for the corresponding period in 2025. The increase was primarily driven by expanded packaged coffee distribution, SKU expansion at FDM retailers, and pricing. Net revenue for our DTC channel for the six months ended June 30, 2026 increased $5.8 million, or 10%, to $61.1 million as compared to $55.4 million for the corresponding period in 2025. The increase was primarily driven by growth at third-party digital marketplaces, which was partially offset by declines in subscription and non-subscription revenue. Net revenue for our Outpost channel for the six months ended June 30, 2026, decreased $1.5 million, or 14%, to $9.8 million as compared to $11.3 million for the corresponding period in 2025. The decrease was primarily driven by a decline in transactions and average order value at Company-operated Outposts. 22 Table of Contents Cost of goods sold Cost of goods sold for the six months ended June 30, 2026 increased $23.5 million, or 20%, to $143.7 million as compared to $120.2 million for the corresponding period in 2025. Gross margin decreased to 34% for the six months ended June 30, 2026 as compared to 35% for the corresponding period in 2025. The decrease in gross margin was primarily attributable to higher costs driven by inflation and tariffs, which was partially offset by pricing actions, productivity gains from the Operational Improvement Plan, and changes in the reserve for excess and obsolete inventory compared to the prior year. Operating expenses Marketing and advertising expenses for the six months ended June 30, 2026 decreased $0.4 million, or 2%, to $20.7 million as compared to $21.1 million for the corresponding period in 2025. Marketing and advertising expense also decreased to 9.6% of net revenue for the six months ended June 30, 2026 from 11.4% for the corresponding period in 2025. This decrease was primarily driven by lower spending on ad placement and in-store marketing, which was partially offset by higher content production and media investment. Salaries, wages, and benefits expenses for the six months ended June 30, 2026 increased $0.2 million, or 1%, to $29.6 million as compared to $29.4 million for the corresponding period in 2025. As a percentage of revenue, salaries, wages, and benefits expense decreased to 13.7% from 15.9% for the corresponding period in 2025. This increase was primarily attributable to higher bonus and stock-based compensation expense in the current period, largely offset by lower payroll costs from reduced headcount as a result of our Operational Improvement Plan and lower severance costs compared to the corresponding period in 2025. General and administrative expenses for the six months ended June 30, 2026 decreased $6.7 million, or 26%, to $19.4 million as compared to $26.1 million for the corresponding period in 2025. This decrease reflects actions taken to simplify and rationalize the Company's cost structure, including lower legal fees, lower consulting and professional fees, as well as lower depreciation and amortization expense driven by certain assets becoming fully depreciated. As a percentage of revenue, general and administrative expense decreased to 9.0% for the six months ended June 30, 2026 from 14.1% for the corresponding period in 2025. Other operating expense, net for the six months ended June 30, 2026 decreased approximately $5.7 million, or 92%, to $0.5 million as compared to $6.2 million for the corresponding period in 2025. The decrease was primarily related to the absence of legal contingency charges recorded in the corresponding period in 2025, as well as a prior-year loss on the disposal of terminated Outpost sites which declined significantly in the current period. Interest expense, net Interest expense, net for the six months ended June 30, 2026 decreased approximately $1.7 million, or 41%, to $2.5 million as compared to $4.2 million for the corresponding period in 2025. The decrease was primarily driven by a lower average outstanding balance of the ABL Facility during the first six months of 2026 compared to the corresponding period in 2025. Liquidity and Capital Resources Liquidity Overview Our principal use of cash is to support the growth of our business, including increasing working capital requirements related to inventories, accounts receivable, and general and administrative expenses. We also use cash to fund our debt service commitments, capital equipment acquisitions, and other growth-related needs. Our primary sources of cash are (1) cash on hand, (2) cash provided by operating activities, and (3) net borrowings from our credit facilities. As of June 30, 2026, our cash and cash equivalents were approximately $12.0 million, our working capital was $30.8 million, and under our credit facilities, we had $50.4 million of available borrowings. Our ability to draw from the credit facilities is subject to a borrowing base and other covenants. As of June 30, 2026, we are in compliance with our covenants under the credit facilities, and there are no defaults or events of default. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for at least the next twelve months. See Note 2, Long-Term Debt, to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report for information regarding the Credit Agreements. 23 Table of Contents Cash Flows from Operating, Investing and Financing Activities The following table summarizes our cash flows for the periods indicated (dollars in thousands, unaudited): Six Months Ended June 30, 2026 2025 $ Change % Change Cash flows provided by (used in): Operating activities $ 12,635 $ (7,464) $ 20,099 269 % Investing activities $ (1,070) $ (2,147) $ (1,077) (50) % Financing activities $ (3,866) $ 7,105 $ (10,971) (154) % Operating Activities Net cash provided by operating activities was $12.6 million for the six months ended June 30, 2026, compared to net cash used in operating activities of $7.5 million for the corresponding period in 2025. The total increase of $20.1 million in net cash provided by operating activities was primarily due to increased net income and working capital improvements. Investing Activities Net cash used in investing activities was $1.1 million for the six months ended June 30, 2026, compared to net cash used in investing activities of $2.1 million for the corresponding period in 2025. The $1.1 million decrease in net cash used in investing activities was primarily due to lower capital expenditures, including reduced investment in our Outpost locations, roasting facilities, and information technology. Financing Activities Net cash used in financing activities was $3.9 million for the six months ended June 30, 2026, compared to net cash provided by financing activities of $7.1 million for the corresponding period in 2025. The $11.0 million decrease in net cash provided by financing activities was driven by $6.5 million of net proceeds from long-term debt, primarily related to draws on our ABL Facility, in the prior year period, compared to net repayments of long-term debt in the current period. Commitments The Company has entered into several manufacturing and purchase agreements to purchase coffee products from third-party suppliers. The minimum purchase amounts are based on quantity and in the aggregate will be approximately $20.9 million for the remainder of 2026; $32.4 million for 2027; $15.1 million for 2028; and $14.9 million for 2029. See Note 8, Commitments and Contingencies to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report for information regarding such manufacturing and purchase agreements. Liabilities relating to operating leases that have commenced as of June 30, 2026 have been reported on the consolidated balance sheets as "Operating lease liabilities". Payments on leases are expected to be approximately $3.7 million in the next twelve months, and approximately $29.5 million beyond twelve months through 2043. Capital Expenditures Future capital requirements will vary materially from period to period and will depend on factors such as the addition of roasting capacity and the expansion of our corporate and information technology infrastructure to support changes in the Company. We currently expect to fund our material capital requirements with borrowings from our credit facilities, but we may also seek additional debt or equity financing. 24 Table of Contents Critical Accounting Estimates Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Critical accounting estimates are accounting estimates where the nature of the estimates is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and where the impact of the estimates on financial condition or operating performance is material. We evaluate critical estimates using these criteria on an ongoing basis and add or subtract critical estimates as appropriate. Based on this assessment, we conclude that we do not have any estimates where the nature of the estimates is material due to the level of subjectivity and judgment utilized. Our significant accounting estimates are discussed in Note 2, Summary of Significant Accounting Policies to the audited consolidated financial statements for the year ended December 31, 2025 included in Part II, Item 8 of our Annual Report on Form 10-K, filed with the SEC on March 2, 2026.