Q1 2024 Vintage Wine Estates Inc Earnings Call
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Good afternoon. Thank you for attending today's vintage wine estate's first quarter fiscal year 'twenty for financial results. My name is Hannah and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like.
So asking a question please press star one.
I would now like to pass the conference over to our host.
Polaski.
Investor Relations with vintage one of those states you May go ahead.
Thank you Panna and good afternoon, everyone. We certainly appreciate your time today and your interest in vintage wanted to state.
On the call with me are Kaufman, our new President and CEO, who just recently joined the company on October 30th also with US is Chris Johnston our CFO.
You should have a copy of our earnings release that went out after market closed today.
Slide deck that will accompany our conversation was also distributed aftermarket. If you do not have these materials you can find them on our website at IR dot vintage wanted to state Dot com.
That is going to begin with his 100 day plan priorities and an overview of our progress then Chris will review financial results after which Seth will wrap up.
We will then open the call for questions.
If you'll turn to slide two of the quarterly deck, you will find our safe Harbor statement on forward looking statements. As you know we will make forward looking statements. During this presentation and the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what we say.
Here today.
These risks and uncertainties and other factors were provided in the company's SEC filings that you can find on our website or at SEC Gov.
We're looking statements are made as of the date hereof and the company undertakes no obligation to update or revise any forward looking statements, except as may be required by law.
I will also point out that during today's call, we will discuss some non-GAAP financial measures as well as key performance indicators, which we believe are useful in evaluating our performance.
On slide 14 of the quarterly deck, you will find discussion on non-GAAP financial measures and key performance indicators.
You should not consider the presentation of this non-GAAP information in isolation or as a substitute for results prepared in accordance with GAAP.
We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides and release in.
In addition, we use case volume is a key performance indicator to gauge performance and inform our strategy and tactics.
So with that if you would turn to slide three I will turn it over to Seth to begin.
Yeah.
Thanks, so much Deb and good afternoon, everyone.
With just over two weeks enroll I'm very happy to be talking with you today.
Before I jump in I would like to thanks, John Moura Marco for his time as interim CEO and the great work and leadership to establish the critical five point plan for this transition year.
<unk> is an essential component of our turnaround and I truly appreciate the groundwork and progress already being made here.
I came to vintage wanted to state because I very strongly believe in the future opportunity for this company.
VW, we have spent the better part of calendar year 2023, working to overcome the distressed position that found itself in after a very challenging 2022.
Challenges were varied.
From increasing macro headwinds to the need to significantly improve internal controls and processes.
The leverage on the balance sheet that stemmed from the years of active acquisition.
Many other things in between.
Nevertheless, I came here because of the future we can create for GWA.
I believe the underlying business is sound.
On the balance sheet that stemmed from the years of active acquisition.
Many other things in between.
Nevertheless, I came here because of the future we can create for GWA.
I believe the underlying business is sound.
<unk>.
To support our efforts in the critical delivery of our five point plan during this transition year.
This priority is essential and I believe the five point plan will allow us to materially improve profitability and cash flow.
Currently my second.
Priority will be spending the necessary time energy and efforts to get to know the team in the business in depth.
I will also be interfacing with all stakeholders to get this thorough grounding, including with you our investors and analysts.
I believe through question and listen.
I can better understand what can differentiate us and what hasn't worked.
This will inform our process as we re imagine our future.
Final.
I will be working with our team to kick off some Dallas excuse me foundational piece of strategic work to design our future.
We expect the output of this robust strategic planning process to be a comprehensive vision and strategy for defining and addressing our market potential as well as the go forward plan to drive execution and create long term value.
This plan will be both data and people informed.
We will look both internally and externally to understand how to best prioritize future growth drivers.
How to leverage and build capabilities.
How to optimize cost and importantly, how to secure a solid marketplace advantage into the future.
I look forward to coming back to you with this output after the work.
If you'll turn to slide four I will hit on some critical points and early observation.
VW is in a turnaround situation that truly has great upside potential.
We are beginning to demonstrate progress against the immediate intervention plan put in place for the five point plan.
We will continue to execute against as we work on our longer term strategy.
The five point plan is intended to continue driving the relevant action for stabilizing the business. This includes simplification.
Productivity prioritizing.
Prioritizing our key brands.
And of course building the right team.
I believe it is clear we have room for growth.
For example.
I know from experience that significantly improving our consumer Centricity will help us drive better awareness and desirability of our brands.
Turning to increase Paul and importantly, the potential for stronger pricing power, which I believe will translate to the company.
There are several structural opportunities we can work on around team alignment and.
Information systems and of course, continuing to step up our discipline around processes.
I can also tell you there will be a materially dialed up sense of urgency across our business and teams.
You will see a determined focus on GWA, making the necessary change quickly through this transition year and of course beyond.
We will hold ourselves accountable for bolt turning the business around.
Defining the right long term direction for the enterprise to create the most value for shareholders.
On slide five are the priorities of our five point plan, which you've seen before.
We believe this is a solid interim intervention plan for stabilizing the business and transitioning into a more profitable cash generating enterprise.
We intend to rely on the five point plan through this transition year as we simultaneously re imagine our future.
Given where we are today and the significant work remaining to turn that business around while building for the future. We are withdrawing guidance for fiscal 'twenty four.
I feel it is of Paramount importance for us to further advance our efforts.
Solidify our processes and develop a long term plan to deliver the most value for our shareholders.
I have confidence in our ability to deliver.
I believe we need to re imagine our potential and.
Uncover our future opportunities during this transition year.
All in service of building, a more substantial and sustainable growth enterprise.
Chris I'll turn it over to you.
Thanks, Seth I will begin my review on slide six.
Revenue for the quarter was down $4 8 million or about 6%.
Strength in our <unk> business helped to offset the decline in sales in DTC and wholesale.
DTC was down about 10% or $2 million, primarily driven by weakness in digital marketing sales and the impact of the sale of the semi company offset by improvements in tasting rooms and wine clubs.
Encouragingly the price improvements we've put in place earlier in 2023 are being realized with improving margins.
Wholesale was down 20% in the quarter to $19 million.
The largest impact came from the house of the Dragon program timing that benefited the comparator period.
We don't expect that to resume until late spring early summer of 2024.
Also we saw slowing in sales of a brand that is managed externally as well as with international sales.
And had the impacts of lower volume due to our SKU rationalization efforts.
<unk> was down 29000 cases or 9%.
We were up against the tough comps this quarter as last year's first quarter was quite strong due to making up shipments as ace was out of stock in the previous couple of quarters.
Note that we did capture price with this brand as revenue dollars were relatively unchanged.
These declines were somewhat offset by strong performance of our key core brands, including BARDA Cherry Pie fire seed and candy.
Case volumes for these brands were up 14%.
I should point out that when looking at margin for the wholesale segment, a little over half of the $4 million in restructuring charges in the quarter or $2 3 million was related to the wholesale business.
<unk> revenue was up approximately 6% to $36 1 million.
This was largely attributable to a large private label wine shipment.
This program is expected to slow quarter by quarter through the year as product is shipped lump sum.
This more than offset a $4 4 million reduction of both distilled spirits sales.
Let's turn to slide seven.
Gross profit declined $4 8 million compared with the prior year period grew.
Gross margin was down 410 basis points.
We did see improvement sequentially as pricing higher productivity and efficiencies, resulting from the five point plan are realized.
Compared with the trailing fourth quarter gross margin improved 690 basis points.
We expect to continue to see improvement in gross margin as we advance through this transition here.
Two elements of our five point plan are on margin expansion and generating cash.
Turning to slide eight SG&A declined $2 7 million or nearly 9% compared with last year's first quarter.
This was despite $1 million and elevated legal and audit fees related to the yearend audit and extended filing deadlines.
Stock compensation expense was down $2 2 million and last year's first quarter included $2 3 million in costs related to historic acquisitions.
On slide nine as operating a net loss for the quarter as well as adjusted EBITDA.
Loss from operations of $10 million includes the impact of $4 million in restructuring costs that were somewhat offset by the 800000 gain from the sale of the Tamarac building in July.
As I mentioned earlier, approximately $2 3 million of the restructuring costs were in the wholesale segment with the remaining restructuring impacting other corporate areas.
Net loss attributable to common stockholders was $15 million, reflecting the impact of $5 million in interest expense interest expense was up $1 5 million on higher rates.
Adjusted EBITDA was approximately 450000 in the quarter.
While down $5 3 million compared with a year ago.
Originally it is up from the adjusted EBITDA losses realized the last two quarters of fiscal 'twenty three as we worked to simplify the business and reduce skus.
Turning to slide 10, we can discuss our liquidity and capitalization.
We believe we have sufficient liquidity to execute on our plan for this transition year as we work to improve cash generation throughout the year.
More of our actions to drive margin improvement will flush through as we progress.
We expect that will position us for delivering on the envisaged renewed focus strategy. The go forward plan as we enter fiscal 2025.
We are all looking forward to working to develop this vision under <unk> leadership, given his extensive experience in consumer focus and building enterprises that drive profitable growth.
Our amended credit agreement provides us greater flexibility in regards to covenants such that we were in compliance at the end of the quarter.
Certain covenants such as minimum EBITDA.
Our required and builds through the year, but I should also point out that the calculation of EBITDA under the lending agreement is not the same as what we report.
So lending agreement includes additional add backs.
It also requires a sweep of our cash account so cash balances will remain below $20 million.
We are working with an adviser regarding the monetization of assets to provide cash for the incremental principal payments required and to avoid higher interest rates.
This partner's defined objective is to bring qualified parties to the table to look at the various allowed assets per our credit agreement.
That we can monetize.
We are also carefully managing our capital expenditures to preserve cash and have reduced our expectation for the year to a range of $8 million to $10 million. We are focused on investments that are revenue generating and efficiencies and that are required for compliance purposes.
I thought it worthwhile to provide some background on the shareholder proposal regarding the reverse stock split.
Our focus is on executing our plan, reducing costs and generating cash to pay down debt.
We are also as Seth mentioned developing our long term strategy.
We would like to believe the capital markets will recognize the progress and improvements and we would return to being compliant with nasdaq's minimum bid requirement of $1.
The board and management believe we need to be ready with a risk mitigation tool to regain compliance if absolutely necessary in order to maintain our NASDAQ listing.
The proposal requires shareholder approval and does not imply that a reverse stock split is eminent.
More information on our reverse stock split, including any anticipated effects and risks related there too can be found in our definitive proxy filed in connection with our upcoming stockholders meeting.
If you'll turn to slide 11, I will turn it back to Seth.
Thanks, Chris.
I'm really excited about the work ahead.
While there is much to be done we believe we have a solid foundation from which we can build a stronger more dynamic and profitable business.
From our brands to our heritage wineries through each of our teams and every team member we have a great starting point.
I already see that we are energized and focused and I believe that with the right leadership in right direction for the enterprise. This passionate team can most certainly drive significant long term value.
I know this has been a long haul for many of you, but I hope you can sense, our excitement for what is yet to be.
With that we can open the line for questions.
Okay.
I'd like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove that question. Please.
Please press star followed by two.
To ask a question on Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We will pause briefly ask questions are registered.
There are no questions waiting at this time, so I will turn the call over to Seth Kaufman for any closing remarks.
Yeah.
Thanks, so much and thank you everyone for joining us today.
We really appreciate your interest in vintage one of states and look forward to continuing to keep you updated on our progress as we advance through this transition year and create our vision and plans for our future.
Please feel free to reach out to our Investor relations team with any follow up questions you may have.
As I mentioned in my formal remarks, my deep dive into the business includes important interactions across all stakeholders, including our investors and analysts.
We will be scheduling introductory calls later in December so if you're interested in meeting with me. Please let me know.
Thanks, So much and I hope you have a great rest of your day.
That concludes today's vintage wine estate's first quarter fiscal year 'twenty for financial results call. Thank you for your participation you may now disconnect your lines.
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