Greetings, and welcome to the Black Rifle Coffee third quarter 2026 earnings call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew McGinley, Vice President, Investor Relations. Thank you. You may begin.
Good morning, everyone, and thank you for joining Black Rifle Coffee company's third quarter 2026 financial results conference call. We released our results yesterday, and the earnings 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 provisions 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 and could cause actual results to differ materially. For a discussion of these risks, please refer to our 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.
Reconciliations of non-GAAP financial 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, as well as in the investor presentation available there. Now, please refer to the presentation and turn to slide four. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Mondz?
Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman, Matt Amigh, our Chief Financial Officer, and Matt McGinley, our Head of Investor Relations. Through the first nine months of 2026, we've continued to make meaningful progress in growing our core coffee business and strengthening the Black Rifle brand. Revenue is up 14% year-over-year, and in the third quarter, we delivered growth in both our wholesale and direct-to-consumer businesses. We're encouraged by these results, but we also recognize that we have a significant opportunity ahead of us to translate the strength of our brand and the growth of our core coffee business into higher profitability and stronger cash flow. That's really the focus of Project Core, which we launched during the third quarter. I'll come back to that in a few minutes, but first, we'll walk through the quarter. Turn to slide six.
Our packaged coffee business continued to gain share in the third quarter. Growth was driven by expanded distribution and broad-based strength across our retail partners, even as we began to lap the pricing actions we took in 2025. Looking at the Nielsen data, Black Rifle packaged coffee sales grew 19.4% in the quarter, roughly 10 x the category's 2% growth rate. Looking at the trailing 52 weeks, our retail sales increased 28.9%, nearly 3x the category's 9.7% growth. We are seeing that outperformance translate directly into market share gains. Across Nielsen's total U.S. multi-outlet universe, our bagged coffee share increased approximately 65 basis points year-over-year to 3.4%, while our pod share grew nearly 30 basis points to 2.2%. Turn to slide seven. We continued to expand our retail distribution in the third quarter.
Packaged coffee distribution reached 58.7% ACV across the total U.S. multi-outlet channel, up more than 4.5 points from a year ago and approximately 2 points from the second quarter. In grocery specifically, distribution increased more than 6 points year-over-year to 54%. Importantly, we are not just adding new stores. We are also expanding our presence within the stores we already have. That is consistent with our land-and-expand strategy. Grocery stores carrying Black Rifle now stock approximately six of our items on average, compared with just over five a year ago. We believe there is further opportunity to expand that shelf presence as our products continue to earn their place at retail. Slide eight. Beyond distribution, we are also seeing strong underlying volume growth.
Over the latest 52 weeks, our packaged coffee unit sales increased 12.8%, while all but one of the other leading national brands we benchmark against experienced unit declines. That is an important distinction. We are growing because consumers are buying more Black Rifle coffee, not simply because they are paying more for it. In a category where overall volumes remain under pressure, that is a meaningful point of differentiation for our retail partners. Turn to slide nine, please. Our direct-to-consumer business delivered its fourth consecutive quarter of growth. We are also continuing to evolve our strategy around the distinct roles that our different digital channels play. Third-party marketplaces are our fastest-growing channel, allowing us to reach consumers on the platforms where they are already shopping. At the same time, blackriflecoffee.com remains the home for our subscriptions, exclusive products, and most loyal customers. We see these channels as complementary.
Marketplaces help us broaden our reach, while our owned platform supports retention and repeat purchase. Ultimately, our focus is on growing the overall DTC business while maintaining pricing discipline and improving profitability over time. Move to slide 10. Our largest mass retail customer is a great example of what Black Rifle can achieve as we build distribution and expand our assortment. Today, we hold nearly 10% share in bagged coffee and approximately 5% in pods at that customer. Compare that with less than 2% share in either format across the largest online marketplace in grocery, and you can see where the opportunity is ahead for us. These are substantial markets. The largest online marketplace and our largest mass retail customer each represent more than $4 billion in annual packaged coffee sales, while grocery represents another $6.8 billion. The opportunity is not identical across these channels.
Marketplaces and mass retail are more heavily weighted toward pods, with online purchases skewing towards larger pack sizes. Grocery, on the other hand, has a more balanced mix of bags and pods. Our strategy is to tailor our assortment to those different purchasing patterns while continuing to build distribution and expand our shelf presence. Slide 11. In ready-to-drink coffee, Black Rifle has established a significant national presence. We remain the number three brand in single-serve RTD coffee with distribution of approximately 53% ACV. That said, category conditions remain challenging. Over the past 52 weeks, single-serve RTD coffee category sales declined 4%, while Black Rifle's RTD retail sales declined 7%. Our focus now is on generating stronger returns from the foundation we've built. That means concentrating our investments on our strongest customers and products, improving productivity across our existing distribution, and lowering our cost to serve.
This is a good example of the more disciplined approach we're taking to investment and resource allocation across the company, which brings me to Project Core. Turn to slide 12, please. Project Core is our multi-year initiative to sharpen our focus on Black Rifle's core coffee business and brand. The objective is straightforward: improve profitability and earnings quality, simplify our operations, and reduce the capital intensity of our business. At the center of this work is a very clear understanding of who we are. Black Rifle is a mission-driven, brand-first premium coffee company, and our goal is to combine the strength of that brand with best-in-class execution. We've organized Project Core around five strategies aligned to the three priorities you see on the slide. First, media and mission remain our engine for building consumer demand. We're bringing greater rigor to measuring how those investments translate into retail sales.
Second, we're focused on winning in grocery and mass retail, customer by customer. Third, we're building our presence on the digital shelf, led by third-party marketplaces, while blackriflecoffee.com remains the home for our subscribers and most loyal customers. Fourth, we're taking a more integrated approach to managing pricing, trade spending, product costs, and overhead, with the goal of building a business where earnings grow faster than revenue. Fifth, we're simplifying operations outside our core business. Those operations need to justify their place in the portfolio. If they can't, we'll look to partner or exit them. Across all five strategies, we're applying a simple test to every initiative. Does it grow demand for the brand, improve margins, free up capital, or reduce asset intensity? We've already begun taking meaningful action.
That includes the planned sale of our Manchester roasting facility, the restructuring currently underway in our Outpost business, and the divestiture of a non-core brand. Matt Amigh will walk through those actions in more detail shortly. I want to emphasize one important point. Our increased focus on profitability does not diminish our ambition for growth. Project Core is about making sure we capture more of the value that growth creates. Before I turn the call over to Matt, I want to spend a moment on something that's been central to Black Rifle since the very beginning, our mission. That commitment was on full display again this quarter. We supported 10 charitable events and initiatives, contributed more than $590,000 to organizations serving veterans, active duty military personnel, first responders, and their families, and delivered more than 4,300 bags of coffee to 45 military units around the world.
To commemorate the 25th anniversary of 9/11, we partnered with the Gary Sinise Foundation to deliver 300 appreciation packages to New York City fire stations. We also joined the Major Brent Taylor Foundation to bring 30 Gold Star families together for a weekend of remembrance. We delivered 1,000 appreciation gifts to service members, caregivers, and medical staff at Walter Reed. Behind every one of these efforts are people who have dedicated their lives to serving others, and families who have made sacrifices that too often go unseen. We owe them a tremendous debt of gratitude, and having the opportunity to give something back is one of the most meaningful parts of what we do at Black Rifle. With that, I'll turn it over to Matt.
Thank you, Mondz. I'll begin my remarks on slide 14. Third quarter net revenue increased 7.3% year-over-year to $108 million, reflecting growth in both wholesale and direct to consumer. Wholesale revenue increased 8.1%, driven by our entry into the dollar channel earlier this year, where pack size innovation opened new distribution across 19,000 doors, as well as continued distribution gains in grocery, where revenue grew by more than 50% year-over-year, including chain-wide distribution at a large Texas-based regional grocer. Direct to consumer revenue increased 8.5% year-over-year, led by approximately 65% growth in third-party marketplaces, partially offset by lower subscription revenue and the divestiture of a non-core brand. Excluding the divested brand, D2C revenue increased 12.3%. Turning to slide 15. Third quarter gross margin was 37.1%, up 25 basis points year-over-year.
Gross margin included 325 basis points, or $3.5 million, a benefit from the refund of previously paid tariffs. As expected, pricing and coffee cost inflation had a neutral impact on the quarter. Productivity gains, including lower fulfillment costs from our logistics transition, helped offset the mix impact of growth in lower margin channels, particularly third-party marketplaces. We also increased trade investment with key retail partners, including a promotional program at a key customer, and higher freight rates and fuel costs weighed on margins by 80 basis points. Our 2026 green coffee requirements are fully covered, and we now have secured more than 90% of our expected 2027 volume at prices below those contracted for 2026, providing greater visibility into our cost position heading into the next year.
Looking ahead, our focus remains on improving the profitability of our sales mix, increasing the effectiveness of trade spending, and continuing to reduce our production, fulfillment, and freight costs. This focus is not an episodic event, but rather a systematic and repeatable process to drive productivity savings to fuel growth and cash generation. Moving down the P&L to slide 16. Third quarter operating expenses were $47.6 million compared to $36.6 million in the prior year period. The increase was primarily attributable to $11.7 million of non-cash impairment charges associated with Project Core. Excluding depreciation and amortization and the items reflected in our adjusted EBITDA reconciliation, operating expenses increased approximately $1.2 million, or 4.1%, to $31 million. That's below our 7.3% revenue growth, and as a percentage of revenue, adjusted operating expenses declined approximately 90 basis points year-over-year to 28.7%.
Most of this increase reflected continued investment in building the brand. Marketing expense increased 18% to $10.3 million, or 9.5% of revenue, compared to 8.6% a year ago. The increase was driven by higher investment in performance media to support sales, along with content production, influencer programs, and agency support, including programming around America's 250th anniversary. On a year-to-date basis, marketing remains below last year's level as a percentage of revenue at 9.6%, compared with 10.4%, as marketing efficiency improves through disciplined marketing mix optimization. Adjusted EBITDA increased 12.3% to $9.5 million from $8.4 million in the prior year, with adjusted EBITDA margin expanding approximately 40 basis points to 8.8%. Turning to the balance sheet.
We ended the quarter with $9.2 million of cash and $35 million of debt outstanding, with no borrowings under our revolving credit facility and approximately $50 million of available capacity. Net leverage was approximately 0.8 x trailing 12 month adjusted EBITDA. Year-to-date, we generated $8.8 million of free cash flow, compared with a $4.1 million use in the prior year period. This approximately $13 million year-over-year improvement was driven primarily by higher profitability, lower capital expenditures, and reduced inventory balances. Our balance sheet and available liquidity provide the financial flexibility to continue investing in the business while executing the initiatives under Project Core.
On August 21st, we completed a one for 10 reverse stock split of our Class A and Class B common stock, a proactive step to provide a meaningful cushion above the New York Stock Exchange's minimum bid price requirement and broaden our appeal to institutional investors, some of whom have policies that limit the investment in lower-priced shares. All share and per-share amounts have been adjusted to reflect the split for all periods presented. Before turning to our outlook, I want to build upon Mondz's discussion of Project Core by highlighting three significant actions we have taken and what they mean for Black Rifle financially. Each meets the test he described by improving margins, reducing asset intensity, or freeing up capital.
First, we signed a definitive agreement to sell our Manchester, Tennessee roasting facility to Cascade Coffee, a longstanding manufacturing partner, for $10 million in cash at closing and a $7 million seller note due in 12 months. We will apply $8.6 million of the $10 million in cash proceeds to the term loan, which further reduces net leverage heading into year-end. Cascade will assume operations and retain the facility's employees, allowing us to reduce our manufacturing footprint and capital requirements while maintaining an experienced workforce in a facility that can deliver the quality our customers expect. We also secured a long-term supply agreement with Cascade at improved tolling rates, so consolidating production with them is expected to lower our production costs and improve our working capital beginning in 2027.
Together, with the sale proceeds and the reduction in working capital, this is an asset-light move that improves both the balance sheet and the P&L. Second, we are restructuring our Outpost business, closing 12 company-operated locations and retaining five. Going forward, we expect growth in this business to come primarily through franchising, allowing us to expand our presence with significantly lower capital requirements. Third, we completed the divestiture of a non-core brand sold primarily through direct-to-consumer channels, which generated approximately $6.5 million of revenue over the trailing 12 months. The brand divestiture and Outpost closures are expected to create a revenue headwind of approximately $3 million in the fourth quarter compared to last year. Once completed, the Outpost closures are expected to reduce annualized revenue by approximately $8 million-$10 million, while improving profitability by eliminating losses at underperforming locations.
These actions also result in a leaner organization. We exited the third quarter with approximately 425 employees and expect approximately 260 by early 2027, a reduction of nearly 40%, largely reflecting the transition of Manchester employees to Cascade and the Outpost closures. For perspective, we had 918 employees at the end of 2022, our first year as a public company. The expected level of approximately 260 would be more than 70% lower as we transition to a simpler, more profitable, and asset-light operating model. Moving to the outlook on slide 18. We are reaffirming our 2026 outlook of at least 8% revenue growth, or approximately $430 million, and at least 35% adjusted EBITDA growth, or approximately $29 million. Through the first nine months, revenue has increased 14% and adjusted EBITDA has nearly doubled.
For the fourth quarter, the floor of our guidance implies revenue of at least $106 million, compared with $113 million last year. That comparison includes two items: approximately $5 million in liquidation revenue in last year's fourth quarter, though we don't expect to repeat at that level, and approximately $3 million of revenue headwind this year from a recent divestiture and the planned Outpost closures. Adjusting for these items, even the floor of our guidance implies a modest year-over-year growth, reflecting continued momentum in our core coffee business. On gross margin, we continue to expect full-year results within our guidance range of 34%-36%. Through September, gross margin was 34.8%. For the fourth quarter, we now expect gross margin of approximately 34%, compared with approximately 36% when we spoke in August.
The change primarily reflects increased trade investment with key retail partners during holiday periods and higher transportation costs. Our retail velocity has been strong this year, and this investment is designed to build on that momentum and position us to earn additional shelf space as we head into 2027. We expect continued fulfillment efficiencies to partially offset these factors. The third-quarter tariff refund was not included in our August outlook and helps offset these higher costs, supporting our reaffirmed full-year guidance. For adjusted EBITDA, the floor of our full-year guidance implies fourth-quarter results of approximately $6 million, compared with at least $8.3 million implied in August. The reduction primarily reflects the increased trade investment and transportation costs I just described. As planned, holiday marketing will be our highest quarterly spend of the year.
Looking ahead, these three actions under Project Core represent significant steps towards a simpler, more profitable, and less capital-intense Black Rifle. Our ambition is not simply to grow revenue. It is to translate that growth into stronger margins, higher profitability, and substantially greater cash flow generation. We look forward to sharing our 2027 outlook on our fourth-quarter earnings call. Operator, we are now ready for the Q&A session.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Michael Baker with D.A. Davidson. Please proceed with your question.
Okay. Thanks. Sounds like, correct me if I am wrong, you are de-emphasizing ready-to-drink. No mention of energy drinks on the call, or even think of the slides. Clearly just focus on the core coffee business. I guess my question is, how does that change the long-term opportunity for the company? Could I ask, how does it change the sort of earnings algorithm? What is the reasonable growth rate expectation and long-term margin expectation? Surely the outlook has to have changed by de-emphasizing these businesses.
Hey, Michael, it is Chris. Thanks for the question. I will begin answering it at a strategic level, and I am going to kick it over to Matt, who will give you as many numbers as he is comfortable sharing. Yeah, I think, look, we talked about Project Core. I am going to double down on that for us strategically is around focus on pods and bags. That has always been the core of our business.
As we have been talking about over the last couple of years, we continue to funnel our investment against what we continue to believe is the tailwind component of the market for us, both from a growth as well as a profitability standpoint, and that is, in fact, pods and bags. We are having incredible success with that. Through the quarter, we again saw close to 20% growth overall, higher on bags. Pods was still three times the category.
We're the only brand out there, one of only two brands out there that are growing units while also driving pricing still. The reality is, we feel great about that part of our business. The RTD coffee business has been challenged as a category. We've talked about that. There are significant headwinds in that category. We are absolutely not giving up on that business, but we are being smart about our investment profile. We're going to continue to put our dollars where we see the highest return, and in the background, we continue to work on initiatives that we believe could be key to us growing that component of the business, but doing it in a smart way where we can do it profitably and make sure that we're taking care of the overall mix of the business.
From an energy standpoint, that's an innovation we pushed out a couple of years ago. Clearly, we were very excited about it, as you would with any major innovation initiative. We've had some challenges, and we talked pretty openly about the fact that we have reduced the geography of that. We've had some successes, and we've certainly had some areas that need significant improvement as well. As such, we've been careful to tailor our dollars against that component of the business that we believe is appropriate to its size, which is obviously significantly smaller than any of the other components of our business on the coffee side. As far as long-term outlook, we're not in a position right now to give long-term guidance. We may be here in the future. Does it change our perspective? Certainly.
But again, as we go back to Project Core, this is about building a sustainable growth engine on coffee, first and foremost. That's a $14 billion coffee, as measured by Nielsen. Those are only Nielsen channels, so it's actually bigger than that. But $14 billion, we're 3.2 in bags, we're 2.7 in pods. We have significant room for improvement or growth, I should say, in that category as we think about our long-term ambition. We've talked about land-and-expand and how we're going to drive it behind that, which is about not only distribution increases, but velocity increases, which we've already been demonstrating as we've been growing the distribution. So we believe there is significant long-term growth potential behind that alone.
Then, yes, I think as the cold business, as we're able to smartly make those investments in the cold side of our business, that will play a role as well. Then most importantly, Michael, we're going to do that in a very profitable way, that is going to generate significant free cash flow back into the business and allow that whole engine to continue to work for us.
Okay.
Michael, I would add to what Mondz said about Project Core. When it comes down to it, we are going to improve profitability and earnings quality for sure, simplify the operations and improve free cash flow, and make this business asset-light. I think you can see that in some of the moves we announced today. As Mondz mentioned, we are not going to guide 2027 today.
We will wait till the Q4 call to do that. What I can say about it is, when you go up, there are several building blocks that we already know about 2027. As I mentioned a little bit ago, we have about 90% of our coverage for 2027 already locked in at prices lower than 2026. We are feeling good about that. As Mondz always mentioned, the team is putting a great effort right now on productivity savings, and we are beginning to see those really come through.
A piece of that would be the sale of Manchester. That is going to work out as a lowering tolling rate going forward under a long-term agreement. So we have good building blocks on the gross margin side. What I can say is, again, it is about expanding the margin and EBITDA as well as free cash flow, and you can expect that from us in 2027.
Fair enough. Can I ask one other question? So, I think both for the third quarter and the full-year, the profitability would have been below where you had talked about in the past if not for the tariff refund. I think some things have changed, like higher transportation costs perhaps. Perhaps you are leaning more into marketing, spending some of that tariff money back, or at least the trade promotions. But if you could sort of talk to us about what has changed. You are getting the positive from the tariffs, but presumably there are offsets somewhere else such that they even out and the guidance has not changed even with that benefit.
Yeah. I will start the conversation on that, Michael. The answer to your question on that, Michael, is we are really happy with the way the year is playing out right now. Year-to-date revenue is up about 14%. Free cash flow went from a consumption of $4 million to generating $8 million, so almost a $13 million change in free cash flow year-over-year. Adjusted EBITDA at almost $24 million year-to-date, it is nearly double. So we are very pleased with the way the year is playing out. Now, Q3, I will just be direct on this. Yeah, we would have been under what we framed up if it was not for the tariffs, but that is based on one big decision that we made, which was, hey, we are going to spend some of that back in promotion at our key accounts on very effective promotion.
That's going to put us in a very good position with velocities as we exit the year, as we get ready for the line reviews with our key accounts, and we're going to expect more distribution gains. We're spending some of that back on promotion to strengthen our position in 2027. When it comes down to the other driver, I think you talked about it a few minutes ago, it's going to be freight and fuel, right. The driver capacity out there is a real capacity issue with drivers, and that's coming through in lane rate. We're seeing that clearly. We didn't anticipate that the war would continue on and the price of diesel would be over $6, and we're adjusting for that as well. You'll see that in the Q4 outlook that we have.
Now, we are holding the year at at least 8% growth on net revenue, which is about $430 million. Keep in mind, that includes us having a $3.5 million headwind from the closure of the Outposts as well as the divestiture. In essence, that really is a raise if you take into account those adjustments. When it comes to the bottom line, we're feeling good about the at least 35% growth and around $29 million. Again, the reason you're not going to see that pop in Q4 EBITDA is simply the fact that we're going to run a little bit hotter on promotion to strengthen our position for 2027, and then the fuel and lane rate costs.
Yeah, it makes sense to reinvest the tariffs. Thanks. Appreciate the color, and we'll turn it over to someone else.
Thanks, Michael.
Thanks, Michael.
Thank you. Our next question comes from the line of Eric Des Lauriers with Craig-Hallum. Please proceed with your question.
Hey, guys. Thanks for taking my question, and congrats on the continued market share gains and the announced Project Core here. Most of my questions just kind of focusing on Project Core. Wondering if you can provide a bit more color on the sort of integrated approach to trade spend here. Can you just kind of give us a bit more detail on what to expect from that front?
Yeah, I'll kick it off. Matt can jump in. Thanks for the question, Eric. I think this is something we're very excited about. Project Core, this is really the first that we're talking about it publicly. That is something that we've been driving internally already for some time. It's been producing the focus that I talked about on the last question from Michael. There are five elements to it. They're all quite simple, and that's, to me, what makes the best strategies. It starts with, for media and mission for us, brand and mission. That is number one for us. The brand is everything to any successful premium CPG business, but particularly for us at Black Rifle as a lifestyle brand.
We've seen that brand carry us to significant gains across the market, and that will always be our number one priority, the ability to invest and make that most efficient. Win center store is the second element of Project Core. Center store, then, we are defining that as pods and bags. I just talked about, that is going to be a lion's share of our investment. It's, again, a $14 billion category. We have a growing but small share, and we believe that we can significantly grow that share over the next few years. The third is digital shelf. Again, we've talked very much about how we look at our DTC business as one combined digital shelf to the consumer, whether they're buying off of our site, whether they're buying off of Amazon, walmart.com, target.com, any retailer site. That is a decision the consumer's going to make.
They're deciding that they would like to buy digitally. They'd like to have that product delivered to them in some form. We are going to be omnipresent in our ability to support that. We're not going to tell the consumer how to shop, but we are going to be there for the consumer at a very strong value. Again, we've had a lot of success with this. We continue to grow our DTC business with this approach, and we've added profitability to the business with this approach. Number four is going to be focused on margin and earnings. Matt will elaborate a bit on that. Again, he's been talking about this now quarter after quarter. We will continue to edge our margin in a positive direction for the overall business in a healthy way, where we're still investing back to drive growth.
On an earnings front, we will continue to optimize the overall remainder of the business. We've done a good job, I think, of controlling our G&A costs, line items that kind of fall below the P&L, and we will continue to do that to ensure really strong cash conversion off of those earnings as well. Finally, a component that's wrapped into all of it is simplify the non-core. Again, for those of you who've been following our business, you understand that we do run a multi-leg business. We have multiple components out there, and we're always going to be innovating with our business, but we need to be very careful that we are always putting our investments against where we see those strongest returns. So, you heard us talk about our Manchester facility and a partnership.
That's a great example of where we get a win-win scenario. We get product produced at an exceptionally high quality, and we do it in a way where that doesn't become a cash constraint on our P&L. The Outpost closure, just another example again. We still view Outposts as a significant way to build our brand in the future, but we're going to be smart about it. We're going to make sure that items like that do not become a drag on the P&L that would then limit our investment back into what we define as the core, which again, are the bags, the pods component of our business. Matt, you want to build on that at all?
Yeah, Eric. Outside the five principles that Mondz walked you through, it comes down to a very simple filter we put on each of these actions that we plan on doing. Number one, hey, does it lift margin? Number two, does it make us asset-light? Number three, does it free up capital? Does it protect our growth brand, right? So, does it protect our core business? So, these three actions, you see that filter pass on each of those. So, with the Outpost restructuring, we're going to close down 12 of the company-operated Outposts and another eight undeveloped sites. We're going to exit those as well that we have sitting on the books. Now, we're going to keep the best five, as Mondz mentioned.
We'll create a model for what we want to franchise out in the future, and we'll build the growth out through a franchise model, which is obviously a lot less capital-intense. When it comes to Manchester, it really is a win-win opportunity for us, and we took advantage of it. Not only will we get $17 million in proceeds, $10 million upfront and $7 million 12 months out at the anniversary date, but Cascade is a long-term supplier of Black Rifle. They care about quality as much as we do. They're going to take on all the employees at Manchester, so they're going to get an experienced workforce that knows what we expect out of the brand. Over time, this is going to give us a cost advantage when it comes to the tolling fees, which step down over time, and we're very pleased with that.
Finally, the divestiture of the DTC brand, which was just a distraction, right? So, we're taking a brand that really didn't drive much on the top line and nothing on the bottom line. We're jettisoning that and making this business simpler. But again, as I said to Michael a little bit ago, these are all going to play through margin accretion, EBITDA accretion, and free cash flow accretion as well. So, you'll see this reflected when we guide for 2027 at the Q4 call.
That's all very helpful. I appreciate that extra color there. Just higher level, I know that you guys are going to give 2027 guidance on the next call, but overall, how should we think about the amount of savings that you expect from Project Core here? If you can break that down between COGS and OpEx, that'd be helpful. Just higher level, I've heard you guys comment just recently here on continuing to sort of edge up margin. So, presumably not all this is going to be reinvested, but can you just kind of talk, I guess, more philosophically on how to think about sort of reinvesting the savings from Project Core versus letting those basically fall to margin expansion?
To the extent that you will be reinvesting, should we be thinking of that as mostly in the promotion and trade spend that you've kind of called out for Q3 and Q4 here?
Hey, Eric. I will let Matt address some of the numbers you are asking for. Really quickly, though, I do want to emphasize, and you kind of closed this in the second part of your question, and I appreciate that, which is that this is more than just cost savings for us. This is really about growth. We are a growth company, and we are a growth company within what we have defined as the core of our business, again, the pods and the bags. Again, we have walked through the numbers and how we have driven that up to now is our land-and-expand strategy that we will continue to drive, and then the ability to lift the velocities of our items in market through smart marketing.
We need to have the fuel for that, and that is what Project Core is all about, is ensuring that we have every penny available to us to reinvest while still delivering a significantly profitable business with significant cash flow for the capital needs that we need going forward. So again, it is two parts for sure for us, focused on both the top and the bottom line of the business. But Matt, I will let you decide where you want to elaborate on numbers there.
Yeah. Eric, I do not want to sound cagey on the Project Core opportunities at all, but there are some things that we are still working through, which is, there will be a capacity expansion project going into the Manchester facility by Cascade. We are still working on the timing of when we will start to realize some of those savings. But what I can say, like when we think about how to think about 2027, we do know that we are locked completely for 2026 on green coffee pricing. We have over 90% locked in for next year, as I mentioned. It is lower than the cost structure with it we see this year when it comes to green coffee pricing, so we are feeling great about that.
Now, the Outpost closure will generate not so much gross margin benefit, but when you look at the lease expense and the G&A that goes against it for the labor, it is going to be accretive at the EBITDA level. So we will see some accretion come through for the Outpost closures. Those closure dates vary, and we are working through that right now. Many of them close down in 2026, but some stretch out into 2027.
So we are working on that timing. Look, we will definitely lap the third-quarter tariff, or excuse me, the third-quarter tariff benefit that we have seen. So, we do not consider that to be a run rate change in our cost structure at all. We are not assuming any pricing in 2027. The pricing has already settled in from the two actions we took in 2025. But again, think back to what Project Core means.
We're going to grow earnings faster than we grow revenue, and you will see an increase in margin and EBITDA and EBITDA margin free cash flow as we plan out 2027.
That's all helpful. Thank you very much for taking my question.
Sure, Eric.
Thank you. Our next question comes from the line of Joe Feldman with Telsey Advisory Group. Your line is now live.
Yeah. Hey, guys. Thanks for starting this morning. Wanted to ask, with regard to Project Core, how are you guys incorporating technology to generate productivity, and are there other opportunities? I think you touched on maybe a little bit of a reduction in headcount down the road, but could you share a little more color on, I guess, technology's role in that?
The biggest thing, Joe, to be frank, is that, when we became a public company a couple years ago, we had over 900 employees. We expect to end this year at around 425, and after Project Core is done, we expect to be down to about 260. A lot of that is just getting a lean organization and focusing on what's actually driving the top line. But we're incorporating technology into everything that we do, and we kind of rethink every position as we refocus and are positioning for this next phase of our growth, which is going to have a few top-line impacts next year from the divestitures that we're seeing. But remember that the EBITDA, at end state, the expectation here is that we're going to have EBITDA growth that's substantially higher than what we see for revenue growth.
Now, there's a lot that goes into that, but one of those things is technology, and we're incorporating all those things into our view in the future of this company.
I think, Joe, just to build on that, we see, to be honest with you, what Matt said is true. We see technology as an enabler for growth. That's the way we look at it. Some of the stuff we do is proprietary. I'm not going to go into the details of it. Whether we're ahead or behind the market when it comes to utilization of AI, et cetera, I don't know. We're not too concerned about that. What we're concerned about is, how is it enabling us to drive our growth model on a more accelerated basis? And I will tell you, again, if you follow our business, I know all of you do, I know you do, Joe, when it comes to our marketing, we absolutely take advantage of all of the leading-edge elements of technology in putting together our brand positioning, how we look at that.
And then, as you can imagine, even for some of the more traditional parts of the business, we've begun to utilize that as well. But again, we do it through a growth lens. We don't look at it as necessarily optimization of the business. Yes, those things happen naturally, but frankly, that's the easier part. The harder part, I think, and what we believe in, Matt and I, is challenging ourselves to say, "How do we use this technology to put ourselves in a position where we will be able to sustainably outgrow the market across our pods and bags business?
That's really helpful, guys. Thank you. Then maybe just to follow up, I wanted to drill down a little bit into the non-core. Was that one business that we're selling off? Is that it? Are there other areas? I think it was kind of touched on earlier by Mike, but is it like ready-to-drink or energy? Are those non-core that could go away?
Hey, Joe. This is Matt. So the D2C business that we divested was a very non-core brand called Grounds & Hounds, so it wasn't aligned with the brand messaging of Black Rifle. Like I said before, it was pretty much a distraction, didn't generate much, well, any EBITDA at all. So, that was a very deliberate decision that we made. When it comes to the other product lines that we have, they're still massive. If you think about the RTD business and roughly a 4.1 share in the marketplace right now, we're number three in market. So, the focus there would be more of improving the margin of the business and improving really the cost to get the product to market. So, that's where we'll focus on that business going forward.
But everything in the business we're looking at through the filters that Mondz described earlier, and we'll use that discipline to evaluate each and every product line.
Just to build on that, because it's a great point you're making. It does not mean that anything that is non-core is going to be unwound. By no means does it mean that. It does, however, mean we're going to focus investment significantly towards the core components of our business. We also potentially will revise what the core looks like over time. Again, right now, the category's challenged within cold coffee, and we have some work to do, as Matt said, on that business to ensure that we've got the right level of profitability and that we've got the growth ideas that we believe can help to turn that category. As we do that work in the background over the next couple of years, that very well could change our point of view on where that plays within core overall.
Again, there are elements of the business that are going to be clear decisions for us to unwind, like Matt talked about with Grounds & Hounds, but it does not mean it's a classic portfolio approach. Just because something isn't core in your portfolio does not necessarily mean that it won't be part of your business.
That's great. That's really helpful, guys. Thank you so much. Good luck with the fourth quarter.
Thank you.
Thanks, Joe.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I will turn the floor back to management for any final comments.
All right. Well, I appreciate the questions. Overall, we are building on our progress that we have made, strengthening the business. We are improving profitability and generating cash flow, and we believe we will continue to accelerate that as we go into 2027. We will give you, as Matt said, we will give you guidance on that as we go into the next quarter call. Project Core, it was exciting to talk about that for the first time. It is about accelerating the growth of our coffee business and using the stronger foundation to drive further earnings and cash generation for us going forward. We will reinvest behind the opportunities that we believe have the greatest potential for this business overall. Again, we appreciate everybody's interest in the business, and we will talk to you next quarter.
This concludes today's conference, and you may disconnect your line at this time. We thank you for your participation.