Q3 2024 Splash Beverage Group Inc Earnings Call
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Speaker Change: Greetings. Welcome to the Splash Beverage Group third quarter conference call. At this time, all participants are in a listen-only mode. If you would like to ask a question through the webcast, please click on the Ask Question box on the left side of your screen, type in your question, and hit Submit. Please note this conference is being recorded. I would now like to turn the conference over to your host, Robert Nistico, CEO of Splash Beverage Group. You may begin.
Speaker Change: Good afternoon, everyone. This is Robert Nistico, CEO of Splash Beverage Group. I also have Julius Ivancsits, our CFO, and Bill Meissner, our President and Chief Marketing Officer.
Speaker Change: We appreciate everyone taking the time this morning for joining us on our quarterly earnings call.
Speaker Change: for the period ending September 30, 2024. Before we get started, I want to reiterate why I started Splash and the investment thesis behind the business. Splash Beverage Group is focused on identifying, acquiring, and building early stage or undervalued beverage brands with strong growth potential.
in both the U.S. and international markets.
Speaker Change: Division Q-Plash, which markets well-known beverage brands to both business-to-business and business-to-consumer customers, leveraging e-commerce for direct delivery. The company has had its challenges.
Speaker Change: but the value proposition of creating this organization is solid and we have built a foundation to generate attractive returns for all our shareholders. Let me pivot now to topics that will be covered during the call on our agenda today.
Speaker Change: We will talk about Q3 2024 results, distribution and brand strategy, capital structure and financing update, mergers and acquisition update, and of course a Q&A session where we look forward and hope that we have a lot of good hard questions.
Let's begin with tailwinds and headwinds since the last update.
Speaker Change: With regard to tailwinds, we've expanded our distribution network in numerous territories.
Speaker Change: We're in the process of the restart of CubeClash, Splash's online resale business, which began at the end of August.
2-3-20-24
Speaker Change: Splash gross margins, 30% up from 23 in Q2 2024, and 11% in Q1 2024. Strategic sourcing programs starting to have an impact, which is great.
Speaker Change: Lower SG&A spending for the period down $500,000 from Q2-24. Capital raise of approximately $8 million since August of 2024. Approval of our board directors, auditors, and issuance of their shares of stock.
supported by our shareholders.
Speaker Change: headwinds, liquidity, ongoing challenges, you know, for well over a year since 2023. That's really been our main issue.
Speaker Change: ABG Tapout lawsuit, we've been getting questions on this since we decided to not continue with Tapout. We're in a little bit of a legal struggle with these guys.
Speaker Change: We believe it will come through this in a very positive fashion. Timing of funding inflows.
Speaker Change: Delays in liquidity impacting inventory and sales. It's difficult on liquidity when you can't control the timing of the inflow of cash. I'll now turn it over to our CFO, Julius, and we will provide an update on financial performance in the quarter.
Julius Ivancsits: Thank you, Robert. As Robert previously alluded to, the headwind on liquidity and timing of inflows impacted our Q3 performance.
Julius Ivancsits: Q3'24 net sales were $381,000, down slightly from Q2'24, which is a little over $1 million.
Julius Ivancsits: Sales declines were driven by limited inventory due to the liquidity challenges that we mentioned previously. It is important to know the business did restart its resale business, Qplash, in August and continues to ramp up. This is key for our liquidity given it has short cash conversion cycles and high gross margins.
Julius Ivancsits: Q3 gross margins increased $244,000 from Q2 to $981,000 in Q3. The margin improvement was driven by lower wine costs at Copadobino and Qplash Business, which had gross margins of 59%.
Julius Ivancsits: Q3 OpEx was down $1 million from the prior quarter, driven by expense controls, elimination of the tap-out license fee, and lower share-based compensation.
Julius Ivancsits: EBITDA for the period was a loss of $1.7M for the period versus a loss of $2.2M in Q2-24, driven by higher gross margins and lower SG&A spending. The $1.7M loss in the period is a $2M improvement compared to Q3-23.
Julius Ivancsits: Liquidity and working capital, as previously noted, was tight for the period, but Splash did end up with a cash balance of $457,000 in the bank, compared to a very nominal amount at the end of Q2'24.
Speaker Change: Collections were solid for the period. Inventory was flat compared to the prior quarter as well. I would like to turn this over to Bill Meissner, our President and CMO, to discuss commercial trends in the business, including distribution, wins, and brand strategy.
Thank you, Julius.
Bill Meissner: While the revenue was slightly down from Q2 2024, we continued to lay the foundation for growth in 2025 and beyond.
Bill Meissner: Despite significant shipping challenges driven by liquidity, backlog orders plus shipped orders for Q3 were up 3.3% versus Q3 a year ago on COPA and 12.2% on COPA Welcome.
Bill Meissner: Actual shift orders were up on Popoloco 7.5% versus Q3 a year ago.
Bill Meissner: In past shareholder communications, we have emphasized the importance of distribution for success in our category.
and continue to expand our distribution network.
Bill Meissner: Copa Divino and Poco Loco had key Pacific Northwest distribution expansion, giving the brand's full state coverage in the state of Washington with both King Beverage and Olympic Eagle, two AV wholesalers there. We expanded our Northeast distribution covered in Massachusetts with Atlas Distributing, and we expanded our Southwest distribution coverage in the important state of Texas, our new distributor partner there, Reed Beverage.
Bill Meissner: gives Flash now full coverage in all of West Texas including Amarillo, Luddock, and El Paso for all the brands. On the retail win front, Circle K has authorized Copa Divino for all franchise stores.
Bill Meissner: The four SKUs that were authorized are Red Blend, Cabernet, Sauvignon Blanc, and Chardonnay.
Bill Meissner: Circle K is one of the leading C-Store chains, and there are more than 800 franchise locations in the U.S. The Pennsylvania Liquor Control Board, through our broker Breakthrough Beverage, has authorized our exciting new tequila brand, Cheeseburger.
Speaker Change: Our team has been relentless, even with the challenges. As liquidity normalizes, these achievements will set a higher floor for sustainable success moving forward. I will now turn it back over to Robert, who will provide an update on our capital structure.
Robert Nistico: Thank you for the update, Bill. I want to publicly thank Bill and the commercial team for its dedication over the last year and tough liquidity environment.
Robert Nistico: Before I provide an update on the capital raise over the last quarter or so, I also want to thank
Robert Nistico: are legacy investors who continue to support the vision of Splash Beverage. The confidence in the business and the leadership team is very much appreciated. Okay, now on to the capital structure. On October 16th...
of this year, 2024, we did release a press release.
With completion of the first tranche of the capital raise
for our strategic acquisition.
Robert Nistico: Since August of 2024, this year, the company has secured commitments of roughly $8 million fundraising to expand its markets and presence and support working capital.
Robert Nistico: The capital raise was achieved through private placement of convertible notes along with equity in the pending acquisition.
Speaker Change: The capital will provide Splash Beverage Group essential working capital for its legacy business while enabling it to pursue, or I should say us to pursue complementary acquisition anticipated to enhance the company's product offerings and operational efficiencies.
This is very important.
Speaker Change: We continue to actively recruit investors to ensure we have the necessary liquidity to support our growth. While the response from family, office, and individuals has been fantastic, timing of receipts and funds has been a challenge. To complete our retail-level fundraising,
Speaker Change: We're actively working with two additional institutions to raise significant amounts of capital with targets.
Speaker Change: between $7 and $12 million. We do need to keep the names of those parties confidential currently. However, we do have funding engagement. We are formally engaged, excuse me, with two institutions that look to make significant investments in the splash beverage.
Speaker Change: We are in the middle of the due diligence process with both organizations. I look forward to having signed documents for financing before the holidays.
with one of the two providers, if not both.
Speaker Change: who best aligns for our long-term vision and creates capital structure to generate the appropriate returns.
Speaker Change: on our investor base. Once we complete the raise from both our retail and institutional investors, it will allow us to move forward with a definitive agreement with the energy drink company, which fits fantastically into our portfolio. We anticipate this deal closing.
Speaker Change: in early January. However, with the pending holiday season and the necessary financial audit, it could be slightly longer.
Speaker Change: However, both organizations are highly committed to transacting the deal. Let me turn it back over to Julius with an update on Project White Hot, SPLASH's strategic plan before we continue to discuss mergers and acquisitions.
Julius Ivancsits: Thank you, Robert. Just to recap, Project Whitehot serves as SPLASH's guiding principles for our strategic decision making. And the project has five strategic pillars. One, sustainable and profitable growth. Two, operational excellence. Three, e-commerce.
4, bolt-on acquisitions, 5, capital structure.
Julius Ivancsits: Project WhiteHat is expected to move the company to positive cash flow from operations and positive EBITDA on a run rate basis.
Julius Ivancsits: by Q3'25, excluding any M&A. Since we last talked, we've been successful on several fronts, even with the headwinds of limited liquidity, and the result can be seen in our Q3 earnings with our uptick in gross margins.
Speaker Change: So looking at the pillars and just the recent successes for sustainable and profitable growth, we've expanded our distribution network as Bill has previously discussed.
Speaker Change: eCommerce, QFlash, we restarted our resale business in August after very limited activities since January 24.
on the operational excellence side.
Speaker Change: We've had success in strategic wine sourcing. We're hitting milestones to executing our plan for a third-party logistics provider out of Texas. And we've also identified alternative suppliers for key raw materials, either at a lower cost or to have dual sourcing options.
Speaker Change: From a bolt-on acquisition standpoint, we do have the LOI that we alluded for on the Energy Drink Company and continue to move forward with Western Sun, and we continue to work our M&A pipeline and have some now discussions with a very early stage on a ready-to-drink spirits company as well.
from a capital structure perspective.
You know, we have commitments for roughly $8 million.
Speaker Change: in capital, and we continue to work with the institutions to lower our cost of capital and provide working capital for our existing business and acquisition-related financing. This concludes the Streets Initiative update. I will turn it over to Robert for an update on mergers and acquisitions.
Robert Nistico: Thank you, Julius. I appreciate the update. I think the key message here, folks, is
Robert Nistico: You know, we're not sitting around waiting for liquidity, we're doing everything we can to fine tune the organization and prepare us.
Robert Nistico: for when the final funding does hit here in the very near future. Thank you for the update. Before I provide an update on Western Sun and other M&A, I'd like to provide some insight on recent transactions in the energy drink space over the last four weeks. It's pretty darn exciting. KDP, Keurig Dr. Pepper.
Robert Nistico: Some of you might know they announced their purchase of acquisition of the energy drink maker Ghost for more than a billion dollars and Molson Coors has taken a majority stake in Zola, which I think was the rocks.
Robert Nistico: Both announcements really confirm belief in the better for you energy drink space, which outperforms the broader energy drink category, while both are still growing.
Robert Nistico: This gets us extremely excited about our pending acquisition in this.
in this market segment are pending acquisition.
Robert Nistico: And we are under a letter of intent, but can't disclose a name at this time.
Robert Nistico: It's the right product with great partners at a fair valuation, which will allow us to capture our fair share, or I like to say our unfair share, of the energy drink segment.
with highly attractive margins and a competitive overhead structure.
Robert Nistico: This dovetails nicely with QPLAS, our resale business, and will provide growth north of 30% via our distribution network.
Robert Nistico: Apologies for the excitement in my voice, but you can tell we're very excited about this opportunity.
Robert Nistico: The gating item is to move to a definitive agreement, is to finish securing the financing for the transaction, and we've secured a good slug through retail investors, and the institutions will help us take us over the top.
Robert Nistico: As everyone is aware, we've publicly announced a letter of intent with Western Sun. Western Sun, as an amazing vodka, was recently ranked as the number one tasting vodka by Newsweek magazine.
Robert Nistico: We're working on raising funds with 50% of the cost circled, and we'll do provide PRS updates to their ownership group.
Thank you, everyone, for your attention.
100% related to liquidity.
Robert Nistico: We're in the process of solving that, as you've heard, very quickly, we're quite excited about it. We'll now open up the call to questions.
Stand by as questions are coming in as we speak.
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The End
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Okay, all right
Robert Nistico: Looks like the bulk of our questions are regarding liquidity and acquisition. So, I'm going to make a couple of general statements before I answer specific questions, and I'll also have Julius help us here.
Robert Nistico: regarding liquidity. Again, I mentioned two or three times a minute ago, our issues have been 100% about liquidity.
One of the questions here is
concern over
missing timelines on acquisitions and raising funding.
Fair question
Robert Nistico: I think I said this to someone earlier today, there's no one more inpatient than I am, than anyone on the planet than I am. But, you know, with liquidity challenges, it affects all types of timelines. And I mentioned a minute ago, what SuperCorp does.
that
please do close out the loop. We are.
Robert Nistico: extremely close. We mentioned we have two additional, what I like to call backups, but will ultimately long-term partners with us.
Robert Nistico: One that we especially like is a private equity group that can help us with future acquisitions and deal flow. We're very excited to be working with that team and fabulously
Robert Nistico: just a fabulous group of people out of the upper Midwest that we're very excited to work with. I'll stop there, because at this point we've elected not to release names. So liquidity has been it. Regarding our current raise, yeah, we brought on X dollars. You've seen that in the 8Ks.
Robert Nistico: I think we brought on another million and change since then, so we're getting very close on that. We do have signed documents for the balance.
Robert Nistico: Somebody wrote here just recently, they thought it was 12 million. It's never been 12 million, it was 8 to 10. And we have, as I mentioned earlier, and Julius mentioned, we have commitments up to 8 million. So just we're just shy of that, but we do have signed documents and expectations.
Robert Nistico: that to happen here, you know, literally any any time. With the holidays, it tends to slow things down, but we'll keep you posted.
and press releases. Everything's moving forward.
Robert Nistico: Okay, yeah, so same thing. It's just been a function of liquidity. I've said this publicly many times. Nothing, absolutely nothing has changed there. Fabulous brand. We're scanning now and 7-Eleven is slowly loading those accounts across the country. The key factor for completing this is, again, liquidity. We still have to convey approximately...
Robert Nistico: It's a small percentage of capital raised to complete that transaction. Nothing's changed. It's just taken time because of liquidity.
Speaker Change: Bill, there's a question on Western Sun. I know we've made some progress there if you'd like to answer.
Western Sun, where are we on that transaction? And...
When do you anticipate closing on that brand?
Bill Meissner, go ahead.
Speaker Change: From an operating perspective, both teams are ready to go from a due diligence perspective. Everything has been completed. At this point, we're trying to finalize the raise. We've made great progress. We're dividing it between a debt and equity raise. And on the equity raise, we've made excellent progress and are essentially there.
Speaker Change: Mary both elements at the same time so we're circling back on the debt front and trying to get
Speaker Change: that completed. It will go fast once that's done, but this is, at this point with holidays, it is correct to assume that it could leak into Q1.
Speaker Change: And I think, presuming that we make good progress by year end, the Western Sun team will continue to work with us on an extension.
Speaker Change: But that is just me speculating, but I believe they would.
Okay, thanks Bill, and just to make sure that's clear.
Speaker Change: It's a blend of equity and debt, and it's a chicken-and-the-egg situation. Debt folks don't want to commit until the equity folks have committed, and vice versa. But it looks like we're basically there now on the debt side. This is really important news, so now the equity side, now the debt folks are starting to dig in again. The bill's right. I think we've got some challenges with the holidays.
and of course slowing things down.
Bye.
Speaker Change: So, the unnamed acquisition for the energy drink space will have happened this year.
unlikely, still could. Our target has always been December 15.
Speaker Change: because we'd like to capture that revenue and put it on our annual report.
Speaker Change: But, you know, at the end of the day, that's nice to have, not a need to have, but again, we remain completely engaged and under letter of intent with those folks once we close out the rest of the
Speaker Change: acquisition for us, a significant amount of top line and gross revenue. The top line number is above 30 million. It really, really is transformative for the company.
How much...
So note.
Speaker Change: Yeah, so how much money has been raised since our last press release? I believe it's right around a million. Julius, do you have that number handy?
Julius Ivancsits: I don't have the exact date since the PR but we're kind of like a little bit over eight million dollars on commitments from various stakeholders.
Speaker Change: Okay, great. Thank you. I've got a question about the note in default that was on our, or in technical default, I should say, that was on our Q report. When will that be paid back? Those are...
Speaker Change: Hang on, keep reading this. Sorry, everybody. It's just hard to read the screen.
Speaker Change: Yeah, when will that be paid back? Okay, so our intention is to pay that back as we raise additional equity in the organization with these current capital raises. There'll be plenty of cash to do that. We'll see how that goes the next week or so.
All right.
Speaker Change: I'll just speak for a second while that's happening. And look, I understand everybody's impatient. Like I said, as I am, this has been a difficult year for us, micros and small caps have just, they've had a heck of a challenge just raising money and of course share price doesn't help with that. I gotta tell you, we appreciate our shareholders so much and hanging in there while we're fixing the...
Speaker Change: Quiddity Challenge. I can't thank you guys enough for hanging in there with us.
and, oh, it's another western sun.
question
Speaker Change: Yeah, so Western Sun, basically, thank you for the information on the timing.
Speaker Change: What are the terms? Oh, okay. Yeah, we can't disclose the terms just yet.
Next question.
Speaker Change: Why won't you release the name of the energy drink target? There's different types of confidentiality. There is.
Speaker Change: you know, inside information, public information, but it's also corporate confidentiality as well. Remember, the model for SPLASH is a shared service model. So the idea being, you know, we find a target that's proven itself. We acquire that target and fold it into our organization and that is done through the production of headcount.
Speaker Change: Yeah, so we're being sensitive to those people and we want to be careful to not bring that name out at this point. That's the main reason for that.
Julius, Bill, are you seeing any questions I missed?
No.
Speaker Change: All right, with that, I want to thank everybody for joining us. This concludes our quarterly conference call for Q3 results. We appreciate, as I mentioned a minute ago, everyone.
Speaker Change: long-term support. Our legacy investors have been absolutely fantastic. We remain extremely, extremely excited about the future. We believe we've just about powered the difficult liquidity issue for the past year. Thanks. I want to thank everybody for your support, long-term support. Hang in there. We are so close. And don't forget, I'm one of the largest shareholders.
Speaker Change: and myself. So I'm personally excited about the future. And we just want to wish everybody a fantastic Thanksgiving and happy holidays. We appreciate your support one last time and I wish you all a great week. Thank you very much. This concludes our QC