UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
(Amendment No. 2)
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to______
Commission file number 001-40016
VINTAGE WINEESTATES, INC.Vintage Wine Estates, Inc.
(Exact name of registrant as specified in its charter)
Nevada |
|
|
| 87-1005902 |
(State or other jurisdiction of incorporation or organization) |
|
|
| (I.R.S. Employer Identification No.) |
937 Tahoe Boulevard,Suite 210
Incline Village, Nevada89451
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (877) 289-9463
Securities registered pursuant to Section 12(b) of the Act:
|
| Trading |
|
|
Common stock, no par value per share |
| VWE |
| The Nasdaq Stock Market LLC |
Warrants to purchase common stock |
| VWEWW |
| The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | |||||
|
| Smaller reporting company |
| |||
Emerging growth company | ☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☐☒ No ☒
As of October 4,November 7, 2023, 59,565,79059,626,423 shares of the registrant’s common stock were outstanding.
Explanatory Note
Vintage Wine Estates, Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-Q/A for the quarter ended September 30, 2022 (this “Form 10-Q/A”).
This Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission (“SEC”) on May 10, 2023 (the “Previous Filing”). This Form 10-Q/A is being filed to restate the Company’s unaudited condensed consolidated financial statements for the three months ended September 30, 2022. The restatement reflects the correction of an error related to the treatment of a deferred gain as part of the implementation of ASC 842, Leases. This adjustment was evaluated by management in accordance with SEC Staff Accounting Bulletin Topic 1M, "Materiality," and SEC Staff Accounting Bulletin Topic 1N, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements," and management determined the effects of the restatement to be material. In light of the restatement, the Company is also correcting and/or reclassifying certain immaterial out-of-period items and other adjustments in all periods presented. See Note 2 to the unaudited condensed consolidated financial statements included in this Form 10-Q/A for further information regarding the restatement and reclassifications.
The Company is filing this Form 10-Q/A to amend and restate the Previous Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:
In addition, the Company’s Interim Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this Form 10-Q/A (Exhibits 31.1, 31.2, 32.1 and 32.2).
Except as otherwise described above and as otherwise set forth in this Form 10-Q/A, this Form 10-Q/A does not amend, modify or update any other information contained in the Previous Filing. This Form 10-Q/A does not purport to reflect any information or events subsequent to the Previous Filing, except as expressly described herein. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Previous Filing. Among other things, forward-looking statements and risk factor disclosure in the Original 10-Q have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Previous Filing, and such forward-looking statements and risk factors should be read in their historical context.
1
Part I—Financial Information
Item 1. Financial Statements
VINTAGE WINE ESTATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
| September 30, 2022 |
|
| June 30, 2022 |
| |||||||||||
|
| (Unaudited) |
|
|
|
| September 30, 2023 |
|
| June 30, 2023 |
| |||||
Assets |
| As Restated |
|
|
|
|
| (Unaudited) |
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 45,920 |
|
| $ | 44,758 |
|
| $ | 18,624 |
|
| $ | 18,233 |
|
Restricted cash |
|
| - |
|
|
| 4,800 |
| ||||||||
Accounts receivable, net |
|
| 38,424 |
|
|
| 37,869 |
|
|
| 33,448 |
|
|
| 24,561 |
|
Other receivables |
|
| 3,874 |
|
|
| 3,866 |
|
|
| 566 |
|
|
| 507 |
|
Inventories |
|
| 199,672 |
|
|
| 192,922 |
|
|
| 199,402 |
|
|
| 201,363 |
|
Assets held for sale |
|
| 13,221 |
|
|
| - |
| ||||||||
Assets held for sale, net |
|
| - |
|
|
| 511 |
| ||||||||
Current interest rate swap asset |
|
| 5,826 |
|
|
| 2,877 |
|
|
| 4,715 |
|
|
| 4,669 |
|
Prepaid expenses and other current assets |
|
| 9,478 |
|
|
| 11,864 |
| ||||||||
Prepaid expenses |
|
| 8,688 |
|
|
| 14,895 |
| ||||||||
Total current assets |
|
| 316,415 |
|
|
| 298,956 |
|
|
| 265,443 |
|
|
| 264,739 |
|
Property, plant, and equipment, net |
|
| 224,466 |
|
|
| 238,719 |
|
|
| 215,242 |
|
|
| 215,967 |
|
Operating lease right-of-use assets |
|
| 35,509 |
|
|
| - |
|
|
| 30,082 |
|
|
| 32,945 |
|
Finance lease right-of-use-assets |
|
| 689 |
|
|
| - |
|
|
| 606 |
|
|
| 630 |
|
Goodwill |
|
| 154,951 |
|
|
| 154,951 |
| ||||||||
Intangible assets, net |
|
| 61,391 |
|
|
| 63,097 |
|
|
| 37,476 |
|
|
| 38,994 |
|
Interest rate swap asset |
|
| 12,555 |
|
|
| 6,280 |
|
|
| 4,167 |
|
|
| 4,317 |
|
Other assets |
|
| 5,187 |
|
|
| 3,464 |
|
|
| 3,229 |
|
|
| 3,562 |
|
Total assets |
| $ | 811,163 |
|
| $ | 765,467 |
|
| $ | 556,245 |
|
| $ | 561,154 |
|
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Line of credit |
| $ | 140,066 |
|
| $ | 144,215 |
|
| $ | 121,919 |
|
| $ | 115,444 |
|
Accounts payable |
|
| 21,650 |
|
|
| 13,473 |
|
|
| 20,084 |
|
|
| 20,413 |
|
Accrued liabilities and other payables |
|
| 28,711 |
|
|
| 26,997 |
|
|
| 17,124 |
|
|
| 19,668 |
|
Accrued employee compensation |
|
| 10,495 |
|
|
| 6,618 |
| ||||||||
Current operating lease liabilities |
|
| 5,197 |
|
|
| - |
|
|
| 6,210 |
|
|
| 6,243 |
|
Current finance lease liabilities |
|
| 263 |
|
|
| - |
|
|
| 297 |
|
|
| 304 |
|
Current maturities of long-term debt |
|
| 14,738 |
|
|
| 14,909 |
|
|
| 17,605 |
|
|
| 14,449 |
|
Total current liabilities |
|
| 210,625 |
|
|
| 199,594 |
|
|
| 193,734 |
|
|
| 183,139 |
|
Other long-term liabilities |
|
| 6,315 |
|
|
| 7,055 |
|
|
| 7,321 |
|
|
| 4,196 |
|
Long-term debt, less current maturities |
|
| 165,577 |
|
|
| 169,095 |
|
|
| 170,013 |
|
|
| 173,409 |
|
Long-term operating lease liabilities |
|
| 31,637 |
|
|
| - |
|
|
| 25,104 |
|
|
| 26,792 |
|
Long-term finance lease liabilities |
|
| 429 |
|
|
| - |
|
|
| 317 |
|
|
| 334 |
|
Deferred tax liability |
|
| 34,536 |
|
|
| 29,325 |
|
|
| 701 |
|
|
| 506 |
|
Deferred gain |
|
| - |
|
|
| 10,666 |
| ||||||||
Total liabilities |
|
| 449,119 |
|
|
| 415,735 |
|
|
| 397,190 |
|
|
| 388,376 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
| |||||||||||
Commitments and contingencies (Note 7) |
|
|
|
|
| |||||||||||
Redeemable noncontrolling interest |
|
| 1,282 |
|
|
| 1,494 |
|
|
| 255 |
|
|
| 262 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stock, no par value, 2,000,000 shares authorized, and none issued and outstanding at September 30, 2022 and June 30, 2022. |
|
| - |
|
|
| - |
| ||||||||
Common stock, no par value, 200,000,000 shares authorized, 61,691,054 issued and 58,819,160 outstanding at September 30, 2022 and June 30, 2022. |
|
| - |
|
|
| - |
| ||||||||
Preferred stock, no par value, 2,000,000 shares authorized, and none issued and outstanding at September 30, 2023 and June 30, 2023. |
|
| - |
|
|
| - |
| ||||||||
Common stock, no par value, 200,000,000 shares authorized, 62,437,684 issued and 59,565,790 outstanding at September 30, 2023 and 62,234,028 issued and 59,362,134 outstanding at June 30, 2023. |
|
| - |
|
|
| - |
| ||||||||
Additional paid-in capital |
|
| 379,367 |
|
|
| 376,099 |
|
|
| 383,064 |
|
|
| 381,689 |
|
Treasury stock, at cost: 2,871,894 shares held at September 30, 2022 and June 30, 2022. |
|
| (26,034 | ) |
|
| (26,034 | ) | ||||||||
Retained earnings (accumulated deficit) |
|
| 8,192 |
|
|
| (1,092 | ) | ||||||||
Treasury stock, at cost: 2,871,894 shares held at September 30, 2023 and June 30, 2023, respectively. |
|
| (26,034 | ) |
|
| (26,034 | ) | ||||||||
Accumulated deficit |
|
| (197,366 | ) |
|
| (182,308 | ) | ||||||||
Total Vintage Wine Estates, Inc. stockholders' equity |
|
| 361,525 |
|
|
| 348,973 |
|
|
| 159,664 |
|
|
| 173,347 |
|
Noncontrolling interests |
|
| (763 | ) |
|
| (735 | ) |
|
| (864 | ) |
|
| (831 | ) |
Total stockholders' equity |
|
| 360,762 |
|
|
| 348,238 |
|
|
| 158,800 |
|
|
| 172,516 |
|
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
| $ | 811,163 |
|
| $ | 765,467 |
|
| $ | 556,245 |
|
| $ | 561,154 |
|
See notes to unaudited condensed consolidated financial statements.
21
VINTAGE WINE ESTATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except share and per share amounts)
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Three Months Ended September 30, |
| |||||||
|
| As Restated |
|
|
|
|
| 2023 |
|
| 2022 |
| ||||
Net revenue |
|
|
|
|
|
|
|
|
|
| ||||||
Wine, spirits and cider |
| $ | 52,270 |
|
| $ | 36,635 |
|
| $ | 52,663 |
|
| $ | 52,270 |
|
Nonwine |
|
| 25,810 |
|
|
| 19,400 |
|
|
| 20,611 |
|
|
| 25,810 |
|
|
|
| 78,080 |
|
|
| 56,035 |
| ||||||||
Total revenue |
|
| 73,274 |
|
|
| 78,080 |
| ||||||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
| ||||||
Wine, spirits and cider |
|
| 33,021 |
|
|
| 23,720 |
|
|
| 34,935 |
|
|
| 33,021 |
|
Nonwine |
|
| 15,529 |
|
|
| 11,662 |
|
|
| 13,639 |
|
|
| 15,529 |
|
|
|
| 48,550 |
|
|
| 35,382 |
| ||||||||
Total cost of revenue |
|
| 48,574 |
|
|
| 48,550 |
| ||||||||
Gross profit |
|
| 29,530 |
|
|
| 20,653 |
|
|
| 24,700 |
|
|
| 29,530 |
|
Selling, general, and administrative expenses |
|
| 31,449 |
|
|
| 16,978 |
|
|
| 28,749 |
|
|
| 31,449 |
|
Amortization expense |
|
| 1,811 |
|
|
| 651 |
|
|
| 1,636 |
|
|
| 1,811 |
|
Loss on remeasurement of contingent liability |
|
| 185 |
|
|
| 155 |
|
|
| 971 |
|
|
| 185 |
|
Gain on litigation proceeds |
|
| (530 | ) |
|
| - |
| ||||||||
Gain on sale leaseback |
|
| - |
|
|
| (334 | ) | ||||||||
Loss (gain) on sale of property, plant, and equipment |
|
| - |
|
|
| (6 | ) | ||||||||
(Loss) income from operations |
|
| (3,385 | ) |
|
| 3,209 |
| ||||||||
Restructuring expenses |
|
| 4,002 |
|
|
| - |
| ||||||||
Gain on insurance and litigation proceeds |
|
| - |
|
|
| (530 | ) | ||||||||
Gain on sale of assets |
|
| (797 | ) |
|
| - |
| ||||||||
Loss from operations |
|
| (9,861 | ) |
|
| (3,385 | ) | ||||||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
| (3,381 | ) |
|
| (3,603 | ) |
|
| (4,925 | ) |
|
| (3,381 | ) |
Net unrealized gain on interest rate swap agreements |
|
| 9,327 |
|
|
| 1,572 |
| ||||||||
Net (loss) gain on interest rate swap agreements |
|
| (95 | ) |
|
| 9,327 |
| ||||||||
Other, net |
|
| 271 |
|
|
| 39 |
|
|
| 27 |
|
|
| 271 |
|
Total other income (expense), net |
|
| 6,217 |
|
|
| (1,992 | ) | ||||||||
Income before provision for income taxes |
|
| 2,832 |
|
|
| 1,217 |
| ||||||||
Total other (expense) income, net |
|
| (4,993 | ) |
|
| 6,217 |
| ||||||||
(Loss) income before provision for income taxes |
|
| (14,854 | ) |
|
| 2,832 |
| ||||||||
Income tax provision |
|
| 1,474 |
|
|
| 449 |
|
|
| 244 |
|
|
| 1,474 |
|
Net income |
|
| 1,358 |
|
|
| 768 |
| ||||||||
Net (loss) income |
|
| (15,098 | ) |
|
| 1,358 |
| ||||||||
Net loss attributable to the noncontrolling interests |
|
| (174 | ) |
|
| (25 | ) |
|
| (40 | ) |
|
| (174 | ) |
Net income attributable to Vintage Wine Estates, Inc. |
|
| 1,532 |
|
|
| 793 |
| ||||||||
Accretion on redeemable Series B stock |
|
| - |
|
|
| - |
| ||||||||
Net income allocable to common stockholders |
|
| 1,532 |
|
| $ | 793 |
| ||||||||
Net (loss) income attributable to common stockholders |
| $ | (15,058 | ) |
| $ | 1,532 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| $ | 0.03 |
|
| $ | 0.01 |
|
| $ | (0.25 | ) |
| $ | 0.03 |
|
Diluted |
| $ | 0.03 |
|
| $ | 0.01 |
|
| $ | (0.25 | ) |
| $ | 0.03 |
|
Weighted average shares used in the calculation of earnings per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
| 58,819,160 |
|
|
| 60,461,611 |
|
|
| 59,413,048 |
|
|
| 58,819,160 |
|
Diluted |
|
| 58,819,160 |
|
|
| 60,461,611 |
|
|
| 59,413,048 |
|
|
| 59,137,036 |
|
See notes to unaudited condensed consolidated financial statements.
2
VINTAGE WINE ESTATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)
|
| Redeemable Non-Controlling |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Non-Controlling |
|
| Total Stockholders' Equity |
| |||||||||||||||
|
|
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, June 30, 2023 |
| $ | 262 |
|
|
| 62,234,028 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 381,689 |
|
| $ | (182,308 | ) |
| $ | (831 | ) |
| $ | 172,516 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,269 |
|
|
| - |
|
|
| - |
|
|
| 1,269 |
|
Restricted stock units vested |
|
| - |
|
|
| 233,311 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 129 |
|
|
| - |
|
|
| - |
|
|
| 129 |
|
Taxes paid related to net share settlement of equity awards |
|
| - |
|
|
| (29,655 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (23 | ) |
|
| - |
|
|
| - |
|
|
| (23 | ) |
Net loss |
|
| (7 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (15,058 | ) |
|
| (33 | ) |
|
| (15,091 | ) |
Balance, September 30, 2023 |
| $ | 255 |
|
|
| 62,437,684 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 383,064 |
|
| $ | (197,366 | ) |
| $ | (864 | ) |
| $ | 158,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Redeemable Non-Controlling |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| (Accumulated Deficit) Retained |
|
| Non-Controlling |
|
| Total Stockholders' Equity |
| |||||||||||||||
|
|
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, June 30, 2022 |
| $ | 1,494 |
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 376,099 |
|
| $ | (1,092 | ) |
| $ | (735 | ) |
| $ | 348,238 |
|
Adoption of ASC 842 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,752 |
|
|
| - |
|
|
| 7,752 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,440 |
|
|
| - |
|
|
| - |
|
|
| 3,440 |
|
Repurchase of public warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (172 | ) |
|
| - |
|
|
| - |
|
|
| (172 | ) |
Shareholder distribution |
|
| (66 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net income (loss) |
|
| (146 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,532 |
|
|
| (28 | ) |
|
| 1,504 |
|
Balance, September 30, 2022 |
| $ | 1,282 |
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 379,367 |
|
| $ | 8,192 |
|
| $ | (763 | ) |
| $ | 360,762 |
|
See notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYVINTAGE WINE ESTATES, INC.
(Unaudited)
(in thousands, except share amounts)
|
| Redeemable Non-Controlling |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Retained Earnings (Accumulated |
|
| Non-Controlling |
|
| Total Stockholders' Equity |
| |||||||||||||||
|
|
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, June 30, 2022 |
| $ | 1,494 |
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 376,099 |
|
| $ | (1,092 | ) |
| $ | (735 | ) |
|
| 348,238 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,440 |
|
|
| - |
|
|
| - |
|
|
| 3,440 |
|
Repurchase of public warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (172 | ) |
|
| - |
|
|
| - |
|
|
| (172 | ) |
Shareholder distribution |
|
| (66 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net income (loss) |
|
| (146 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,532 |
|
|
| (28 | ) |
|
| 1,504 |
|
Adoption of ASC 842 (Note 10) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,752 |
|
|
| - |
|
|
| 7,752 |
|
Balance, September 30, 2022, As Restated |
| $ | 1,282 |
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 2,871,894 |
|
| $ | (26,034 | ) |
| $ | 379,367 |
|
| $ | 8,192 |
|
| $ | (763 | ) |
| $ | 360,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Redeemable Non-Controlling |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Retained |
|
| Non-Controlling |
|
| Total Stockholders' Equity |
| |||||||||||||||
|
|
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance, June 30, 2021 |
| $ | 1,682 |
|
|
| 60,461,611 |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 360,732 |
|
| $ | - |
|
| $ | (477 | ) |
| $ | 360,255 |
|
Out-of-period adjustments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (667 | ) |
|
| (169 | ) |
|
| (836 | ) |
Net income (loss) |
|
| 3 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 793 |
|
|
| (28 | ) |
|
| 765 |
|
Balance, September 30, 2021 |
| $ | 1,685 |
|
|
| 60,461,611 |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 360,732 |
|
| $ | 126 |
|
| $ | (674 | ) |
| $ | 360,184 |
|
See notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Three months ended September 30, |
| |||||||
|
| As Restated |
|
|
|
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 1,358 |
|
| $ | 768 |
| ||||||||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
| |||||||||||
Depreciation |
|
| 3,996 |
|
|
| 1,502 |
| ||||||||
Net (loss) income |
| $ | (15,098 | ) |
| $ | 1,358 |
| ||||||||
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
| |||||||||||
Depreciation expense |
|
| 4,131 |
|
|
| 3,996 |
| ||||||||
Non-cash operating lease expense |
|
| 37 |
|
|
| - |
|
|
| 1,387 |
|
|
| 37 |
|
Amortization expense |
|
| 1,880 |
|
|
| 651 |
|
|
| 1,714 |
|
|
| 1,880 |
|
Amortization of deferred loan fees and line of credit fees |
|
| 98 |
|
|
| 99 |
|
|
| 236 |
|
|
| 98 |
|
Stock-based compensation expense |
|
| 1,269 |
|
|
| 3,440 |
| ||||||||
Provision for credit losses |
|
| (17 | ) |
|
| (8 | ) | ||||||||
Provision for inventory reserves |
|
| 110 |
|
|
| - |
| ||||||||
Remeasurement of contingent consideration liabilities |
|
| 185 |
|
|
| 155 |
|
|
| 971 |
|
|
| 185 |
|
Stock-based compensation expense |
|
| 3,440 |
|
|
| - |
| ||||||||
Provision for doubtful accounts |
|
| (8 | ) |
|
| (15 | ) | ||||||||
Net unrealized gain on interest rate swap agreements |
|
| (9,327 | ) |
|
| (1,572 | ) | ||||||||
(Benefit) provision for deferred income tax |
|
| 2,296 |
|
|
| (1,059 | ) | ||||||||
(Gain) loss on disposition of assets |
|
| - |
|
|
| (6 | ) | ||||||||
Deferred gain on sale leaseback |
|
| - |
|
|
| (334 | ) | ||||||||
Deferred rent |
|
| - |
|
|
| 128 |
| ||||||||
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
| |||||||||||
Net loss (gain) on interest rate swap agreements |
|
| 95 |
|
|
| (9,327 | ) | ||||||||
Provision for deferred income tax |
|
| 195 |
|
|
| 2,296 |
| ||||||||
Gain on sale of assets |
|
| (797 | ) |
|
| - |
| ||||||||
Change in operating assets and liabilities: |
|
|
|
|
| |||||||||||
Accounts receivable |
|
| (547 | ) |
|
| 863 |
|
|
| (8,870 | ) |
|
| (547 | ) |
Other receivables |
|
| (8 | ) |
|
| (2,850 | ) |
|
| (59 | ) |
|
| (8 | ) |
Inventories |
|
| (6,953 | ) |
|
| (444 | ) |
|
| 1,851 |
|
|
| (6,953 | ) |
Prepaid expenses and other current assets |
|
| 2,388 |
|
|
| 884 |
|
|
| 6,207 |
|
|
| 2,388 |
|
Other assets |
|
| (1,861 | ) |
|
| 57 |
|
|
| 68 |
|
|
| (1,861 | ) |
Accounts payable |
|
| 2,103 |
|
|
| (3,071 | ) |
|
| (1,452 | ) |
|
| 2,103 |
|
Accrued liabilities and other payables |
|
| 3,702 |
|
|
| 3,060 |
|
|
| 3,853 |
|
|
| 3,702 |
|
Net change in lease assets and liabilities |
|
| (791 | ) |
|
| - |
|
|
| (245 | ) |
|
| (791 | ) |
Other |
|
| - |
|
|
| (836 | ) | ||||||||
Net cash provided by (used in) operating activities |
|
| 1,988 |
|
|
| (2,020 | ) | ||||||||
Net cash (used in) provided by operating activities |
|
| (4,451 | ) |
|
| 1,988 |
| ||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from disposition of assets |
|
| - |
|
|
| 6 |
| ||||||||
Purchases of property, plant, and equipment |
|
| (3,454 | ) |
|
| (7,792 | ) | ||||||||
Proceeds from sale of assets |
|
| 1,364 |
|
|
| - |
| ||||||||
Purchases of property, plant and equipment |
|
| (3,462 | ) |
|
| (3,454 | ) | ||||||||
Net cash used in investing activities |
|
| (3,454 | ) |
|
| (7,786 | ) |
|
| (2,098 | ) |
|
| (3,454 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
| ||||||
Principal payments on line of credit |
|
| (34,466 | ) |
|
| (6,304 | ) |
|
| (2,519 | ) |
|
| (34,466 | ) |
Proceeds from line of credit |
|
| 30,317 |
|
|
| 17,675 |
|
|
| 8,995 |
|
|
| 30,317 |
|
Outstanding checks in excess of cash |
|
| 6,074 |
|
|
| 387 |
| ||||||||
Change in outstanding checks in excess of cash |
|
| 1,123 |
|
|
| 6,074 |
| ||||||||
Principal payments on long-term debt |
|
| (3,753 | ) |
|
| (2,482 | ) |
|
| (328 | ) |
|
| (3,753 | ) |
Principal payments on finance leases |
|
| (67 | ) |
|
| - |
|
|
| (78 | ) |
|
| (67 | ) |
Payments of minimum tax withholdings on stock-based payment awards |
|
| (23 | ) |
|
| - |
| ||||||||
Distributions to noncontrolling interest |
|
| (66 | ) |
|
| - |
|
|
| - |
|
|
| (66 | ) |
Repurchase of public warrants |
|
| (172 | ) |
|
| - |
|
|
| - |
|
|
| (172 | ) |
Payments on acquisition payable |
|
| (39 | ) |
|
| (74 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (2,172 | ) |
|
| 9,202 |
| ||||||||
Payments on acquisition earnout |
|
| (230 | ) |
|
| (39 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 6,940 |
|
|
| (2,172 | ) | ||||||||
Net change in cash, cash equivalents and restricted cash |
|
| (3,638 | ) |
|
| (604 | ) |
|
| 391 |
|
|
| (3,638 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 49,558 |
|
|
| 123,679 |
| ||||||||
Cash, cash equivalents and restricted cash, end of period |
| $ | 45,920 |
|
| $ | 123,075 |
| ||||||||
Cash, cash equivalents and restricted cash, beginning of year |
|
| 18,233 |
|
|
| 49,558 |
| ||||||||
Cash and cash equivalents, end of year |
| $ | 18,624 |
|
| $ | 45,920 |
| ||||||||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid during the period for: |
|
|
|
|
| |||||||||||
Interest |
| $ | 3,187 |
|
| $ | 2,603 |
| ||||||||
Income taxes |
| $ | - |
|
| $ | - |
| ||||||||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Increase in operating lease assets and liabilities upon adoption of ASC 842 |
| $ | 36,776 |
|
| $ | - |
|
| $ | - |
|
| $ | 36,776 |
|
Increase in finance lease assets and liabilities upon adoption of ASC 842 |
| $ | 67 |
|
| $ | - |
|
| $ | - |
|
| $ | 67 |
|
Operating lease assets obtained in exchange for operating lease liabilities |
| $ | 5 |
|
| $ | - |
| ||||||||
Finance lease assets obtained in exchange for finance lease obligations |
| $ | 81 |
|
| $ | - |
| ||||||||
Issuance of shares in lieu of payment to consultant |
| $ | 129 |
|
| $ | - |
|
See notes to unaudited condensed consolidated financial statements.
54
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies(as restated)
Basis of Presentation
The condensed consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of the acquisition or up to the date of disposal, respectively.
References to the "Company," "we," "our," "us," and similar pronouns in this Quarterly Report on Form 10-Q/A10-Q for the quarterthree months ended September 30, 20222023 (this "Form 10-Q/A"10-Q") refer to Vintage Wine Estates, Inc., a Nevada corporation, and its majority owned subsidiaries or controlled subsidiaries unless the context requires otherwise.
Our fiscal year ends on June 30. References to fiscal 2023 and 20222024 in these condensed consolidated financial statements are to the fiscal yearsyear ending or ended June 30, 2023 and June 30, 2022, respectively.2024.
Our unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission ("SEC") instructions to Quarterly Reports on Form 10-Q and include the information and disclosures required by accounting principles generally accepted in the United States ("GAAP") for interim financial reporting.
Inflation and supply chain constraints, as well as the ongoing COVID-19 pandemic ("COVID-19"), continue to disrupt the U.S. and global economies and there remains uncertainty about the impact on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.
Management expects economic uncertainties including inflation and supply chain constraints to continue to impact several areas of the business including sales, cost of goods, operating expenses and cash flows.
In the opinion of management, all adjustments necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included in this Form 10-Q/A.10-Q. Except as disclosed elsewhere in this Form 10-Q/A,10-Q, all such adjustments are of a normal and recurring nature. In addition, financial results presented for this fiscal 20232024 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 20232024 or any other future interim or annual period. These condensed consolidated financial statements are unaudited and accordingly, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on October 13, 2023. The June 30, 20222023 condensed consolidated balance sheet was derived from the audited consolidated financial statements as of that date.
Restatement of Previously Issued Condensed Consolidated Financial Statements
The Company restated its unaudited quarterly financial data, on October 13, 2023, for the periods ended September 30, 2022, December 31, 2022 and March 31, 2023. All amounts in this quarterly report on Form 10-Q affected by the restatement, including but not limited to the three months ended September 30, 2022, reflect such restated amounts.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Except as noted below, there2023. There have been no material changes in the Company’s significant accounting policies during the three months ended September 30, 2022.2023.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Significant estimates include, but are not limited to depletion allowance, allowance for credit losses, the net realizable value of inventory, expected future cash flows including growth rates, discount rates, and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets in acquisitions, intangible assets and goodwill for impairment, amortization methods and periods, the estimated fair value of
6
long-term debt, the valuation of interest rate swaps, contingent consideration, common stock, stock-based compensation, and accounting for income taxes, and net assets held for sale.as applicable. Actual results could differ materially from those estimates.
Restricted CashReclassifications
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet that sums to the total of the same suchCertain prior year amounts as shown in the condensed consolidated statement of cash flows:
(in thousands) |
| September 30, 2022 |
|
| June 30, 2022 |
| ||
|
| As Restated |
|
|
|
| ||
Cash and cash equivalents |
| $ | 45,920 |
|
| $ | 44,758 |
|
Restricted cash |
|
| - |
|
|
| 4,800 |
|
Total cash, cash equivalents and restricted cash as shown in the consolidated statement of cash flows |
| $ | 45,920 |
|
| $ | 49,558 |
|
In connectionhave been reclassified for consistency with the amended and restated loan and security agreement (see Note 11),current year presentation. These reclassifications had no effect on the Company entered into a Deposit Control Agreement which requiredreported results of operations. Specifically, we reclassified $4.86.6 million of the total cash receivedaccrued employee compensation from accrued liabilities and other payables to be placed into a restricted cash collateral account, subject to release upon the completionaccrued employee compensation as of certain construction work and certificatesJune 30, 2023.
5
Accounts Receivable and Allowance for Credit Losses
The Company adopted Accounting Standards Update ("ASU") ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) and its related amendments as of July 1, 2022, see “Recently Adopted Accounting Pronouncements” below.
Accounts receivable are recorded at the invoiced amount. We consider an account past due on the first day following its due date. We monitor past due accounts periodically and establish appropriate reserves to cover expected losses, and consider historical experience, the current economic environment, customer credit ratings or bankruptcies and reasonable and supportable forecasts to develop our allowance for expected credit losses. We review these factors quarterly to determine if any adjustments are needed to the allowance. Account balances are written-off against the established allowance when we feel it is probable the receivable will not be recovered.
The provision for credit losses for the periods ended September 30, 20222023 and June 30, 2022,2023, was $0.4 million.immaterial. We do not accrue interest on past-due amounts. Bad debt expense was insignificantimmaterial for all reporting periods presented.
Other receivables include insurance related receivables, income tax receivable and other miscellaneous receivables.
Disaggregation of Revenue
The following table summarizes revenue by geographic region:
|
| Three Months Ended September 30, |
|
| September 30, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
| As Restated |
|
|
|
| ||||||||||
Geographic regions: |
|
|
|
|
| |||||||||||
United States |
| $ | 77,543 |
|
| $ | 54,498 |
|
| $ | 72,825 |
|
| $ | 76,373 |
|
International |
|
| 537 |
|
|
| 1,537 |
|
|
| 449 |
|
|
| 1,707 |
|
Total net revenue |
| $ | 78,080 |
|
| $ | 56,035 |
|
| $ | 73,274 |
|
| $ | 78,080 |
|
The following table provides a disaggregation of revenue based on the pattern of revenue recognition:
|
| Three Months Ended September 30, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
|
| As Restated |
|
|
|
| ||
Point in time |
| $ | 66,431 |
|
| $ | 47,170 |
|
Over a period of time |
|
| 11,649 |
|
|
| 8,865 |
|
Total net revenue |
| $ | 78,080 |
|
| $ | 56,035 |
|
7
|
| September 30, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Point in time |
| $ | 61,497 |
|
| $ | 66,431 |
|
Over time |
|
| 11,777 |
|
|
| 11,649 |
|
Total net revenue |
| $ | 73,274 |
|
| $ | 78,080 |
|
Concentrations of Risk
Financial instruments that potentially expose us to significant concentrations of credit risk consist primarily of cash and trade accounts receivable. We maintain the majority of our cash balances at multiple financial institutions that management believes are of high-credit quality and financially stable. At times, we have cash deposited with major financial institutions in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limits. At September 30, 2022 and June 30, 2022, we had $45.2 million and $49.0 million respectively, in major financial institutions in excess of FDIC insurance limits. We sell the majority of our wine through U.S. distributors and the Direct-to-Consumer channel. Receivables arising from these sales are not collateralized. We attempt to limit our credit risk by performing ongoing credit evaluations of our customers and maintaining adequate allowances for potential credit losses.
The following table summarizes customer concentration of:
|
| Three Months Ended September 30, | ||
|
| 2022 |
| 2021 |
Revenue as a percent of total revenue |
|
|
|
|
Customer A |
| 19.2% |
| 25.5% |
Customer B |
| * |
| 12.6% |
The following table summarizes customer concentration of:
|
| September 30, 2022 |
| June 30, 2022 |
Receivables as a percent of total receivables |
|
|
|
|
Customer A |
| 35.0% |
| 26.0% |
Customer B |
| * |
| * |
* Customer revenue or receivables did not exceed 10% in the respective periods.
Revenue for sales from Customer A are included within the Wholesale and Business-to-Business segments and Customer B are included within the Business-to-Business segment.
Principal vs. Agent Considerations
As part of our revenue recognition process, we evaluate whether we are the principal or agent for the performance obligations in our contracts with customers. When we determine that we are the principal for a performance obligation, we recognize revenue for that performance obligation on a gross basis. When we determine that we are an agent for a performance obligation, we recognize revenue for that performance obligation net of the related costs. In determining whether we are the principal or the agent, we evaluate whether we have control of the goods or services before we transfer the goods or services to the customer by considering whether we are primarily obligated for transferring the goods or services to the customer, whether we have inventory risk for the goods or services before the goods or services are transferred to the customer, and whether we have latitude in establishing prices.
Inventories
Inventory consists of the following:
(in thousands) |
| September 30, 2023 |
|
| June 30, 2023 |
| ||
Bulk wine, spirits and cider |
| $ | 78,873 |
|
| $ | 84,602 |
|
Bottled wine, spirits and cider |
|
| 105,870 |
|
|
| 100,075 |
|
Bottling and packaging supplies |
|
| 13,455 |
|
|
| 15,690 |
|
Nonwine inventory |
|
| 1,204 |
|
|
| 996 |
|
Total inventories |
| $ | 199,402 |
|
| $ | 201,363 |
|
Inventories of bulk and bottled wines, spirits, and ciders and inventories of non-wine products and bottling and packaging supplies are valued at the lower of cost using the FIFO method or net realizable value. Costs associated with winemaking, and other costs associated with the manufacturing of products for resale, are recorded as inventory. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Inventories are classified as current assets in accordance with recognized industry practice, although most wines and spirits are aged for periods longer than one year. The inventory reserve for the three months ended September 30, 2023 and 2022 was immaterial.
LeasesIndefinite-Lived Intangible Assets
The Company adopted ASU 2016-02, Leases ("Topic 842") and its related amendments as of July 1, 2022, see “Recently Adopted Accounting Pronouncements” below. The Company has both operating leases and finance leases. The Company’s non-cancelable leases for winery facilities, vineyards, corporate and administrative offices, tasting rooms, and some equipment are classified as operating leases. The Company’s non-cancelable leases for certain equipment that include a bargain purchase option at the end of the lease term are classified as finance leases.
The Company recognizes a right of use (“ROU”) asset representing its right to use the underlying asset for the lease term on the condensed consolidated balance sheet and related lease liabilities representing its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The ROU asset also includes adjustments for lease incentives receivable, deferred rent and prepaid rent when applicable. The Company’s lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option. The
8
Company has made an accounting policy election not to recognize ROU assets and lease obligations for its short-term leases, which are defined as leases with an initial term of 12 months or less. However, the Company will recognize these lease payments in the condensed consolidated statements of operations and comprehensive income (loss)on a straight-line basis over the lease term and variable lease payments in the period in which the obligation is incurred.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. For finance leases, the right-of-use asset is amortized to amortization expense and interest expense is recorded in connection with the lease liability. Payments under lease arrangements are primarily fixed, however, most lease agreements also contain some variable payments. Variable lease payments other than those that depend on an index or a rate are expensed as incurred and not included in the operating lease ROU assets and lease liabilities. These amounts primarily include payments for taxes, parking and common area expenses. See Note 10.
Assets Held for Sale
The Company classifies an asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in selling, general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Casualty Gains
We suffered smoke-tainted inventory damage resulting from the October 2017 Napa and Sonoma County wildfires. We filed an insurance claim for this damage, which was settled in fiscal 2021 for approximately $3.8 million, net of legal costs. In fiscal 2022, we received an additional $2.7 million, net of legal costs, related to wildfire claims. During the three months ended September 30, 2023 and 2022, wethe Company did not identify any impairment triggers.
Casualty Gains
In relation to various weather and wildfire events, the Company received an additionalinsurance and litigation proceeds of zero and $0.5 million. The gain on litigation proceeds consists of payments we received from our insurer. million during the three months ended September 30, 2023 and 2022, respectively.
Segment Information
We operate in three reportable segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker (“CODM”), our Interim Chief Executive Officer for the three months ended September 30, 2023, allocates resources and assesses performance based upon discrete financial information at the segment level.
Earnings Per Share
Basic net income (loss) per share is calculated by dividing the net income (loss) allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of the calculation of diluted net income (loss) per share, stock options, and warrants to purchase common stock and restricted stock units are considered potentially dilutive securities but are excluded from the calculation of
6
diluted net income (loss) per share when their effect is antidilutive. As a result, in certain periods, diluted net lossincome (loss) per share is the same as the basic net lossincome (loss) per share for the periods presented.share.
The Company does not pay dividends or have participating shares outstanding.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Topic 842, which supersedes the guidance in ASC 840, Leases. The new standard, as amended by subsequent ASUs on Topic 842 and recent extensions issued by the FASB in response to COVID-19, requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the
9
lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of its classification. Leases with a term of 12 months or less are accounted for in the Company's consolidated statements of operations.
The Company adopted Topic 842 effective July 1, 2022 using the modified retrospective approach, whereby we recognized a transition adjustment at the effective date of Topic 842, rather than at the beginning of the earliest comparative period presented. Prior period information was not restated. In addition, the Company applied the package of transition practical expedients, which allows the Company to carryforward its population of existing leases, the classification of each lease and the treatment of initial direct costs as of the period of adoption. The Company did not elect the practical expedient related to hindsight analysis which allows a lessee to use hindsight in determining the lease term and in assessing impairment of the entity’s ROU assets.
The Company identified the population of real estate and equipment leases to which the guidance applies and implemented changes in its systems, procedures and controls relating to how lease information is obtained, processed and analyzed. In connection with the restatement, the Company has reclassified the deferred gain related to a previous sale and leaseback of $7.8 million, net of taxes of $2.9 million, to retained earnings. Refer to Note 2. Further, the Company recognized $37.6 million in ROU assets that represent the Company's right to use the underlying assets for the lease term and $39.2 million in lease obligations that represent the Company's obligation to make lease payments arising from the lease. The ROU assets recognized upon adoption of Topic 842, included the reclassification of approximately $2.1 million of deferred rent and $0.4 million of prepaid rent. See Note 10.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses.
The Company adopted ASU No. 2016-13, as amended effective July 1, 2022. We consider historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop our allowance for credit losses. We review these factors quarterly to determine if any adjustments are needed to the allowance. This guidance did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The recently issued accounting pronouncements are not expected to have an impact on the Company.Act
2. Restatement, Reclassification and Revision of Previously Issued Condensed Consolidated Financial StatementsRestructuring
On July 20, 2023, the Company's executive officers, authorized by the Board of Directors (the "Board") to take such action, approved an organizational restructuring plan (the "Plan") intended to expand margin through simplification and improved execution, measurably reduce costs, improve cash management, monetize assets, reduce debt and grow revenue of its key brands. As part of the Plan, there was a reduction in force affecting approximately 25 roles, or 4% of the workforce. The Company has restated its unauditedtotal restructuring expense, shown on a separate line in the Company's condensed consolidated financial statements as of operations and comprehensive income, for the three months ended September 30, 2022.
An error2023 was discovered during the process$4.0 million, substantially all of closing the fiscal year ended June 30, 2023 and in conjunction with the year-end audit. The errorwhich was related to employee severance and related benefit costs. The amount is expected to be paid over the treatment of a deferred gain as part of the implementation of ASC 842, Leases ("ASC 842"). In light of the restatement, the Company is also correcting and/or reclassifying certain immaterial out-of-period items and other adjustments in all periods presented, which include but are not limited to those related to the determination of the service period used in the recognition of stock-based compensation expense and classification of assets as part of the historical purchase price allocations for certain business combinations. Certain prior year amounts have been reclassified for consistency with the current year presentation. In addition, our beginning retained earnings decreased by $0.7 million, net of a tax benefit of $0.3 million, as a consequence of the impact of those identified immaterial errors to periods prior to July 1, 2021.
10
Regarding our previously reported unaudited condensed consolidated balance sheet as of September 30, 2022, the following table presents the adjustment of $10.7 million deferred gain arising from a prior-year sale leaseback transaction that should have been recognized as a cumulative-effect adjustment to retained earnings as part of the implementation of ASC 842, offset by previously recognized amortization for the quarter ended September 30, 2022 of $0.3 million.
In addition, the Company is adjusting for certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:next 24 months.
CONDENSED CONSOLIDATED BALANCE SHEET(Unaudited)
|
| September 30, 2022 |
| |||||||||
(in thousands) | As Previously Reported |
|
| Adjustments |
|
| As Restated |
| ||||
Assets |
|
|
|
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 44,622 |
|
| $ | 1,298 |
|
| $ | 45,920 |
|
Inventories |
|
| 200,759 |
|
|
| (1,087 | ) |
|
| 199,672 |
|
Assets held for sale |
|
| 6,553 |
|
|
| 6,668 |
|
|
| 13,221 |
|
Total current assets |
|
| 309,536 |
|
|
| 6,879 |
|
|
| 316,415 |
|
Property, plant, and equipment, net |
|
| 228,204 |
|
|
| (3,738 | ) |
|
| 224,466 |
|
Intangible assets, net |
|
| 62,672 |
|
|
| (1,281 | ) |
|
| 61,391 |
|
Total assets |
| $ | 809,303 |
|
| $ | 1,860 |
|
| $ | 811,163 |
|
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 20,352 |
|
| $ | 1,298 |
|
| $ | 21,650 |
|
Accrued liabilities and other payables |
|
| 28,279 |
|
|
| 432 |
|
|
| 28,711 |
|
Total current liabilities |
|
| 208,895 |
|
|
| 1,730 |
|
|
| 210,625 |
|
Deferred tax liability |
|
| 29,952 |
|
|
| 4,584 |
|
|
| 34,536 |
|
Deferred gain |
|
| 10,332 |
|
|
| (10,332 | ) |
|
| - |
|
Total liabilities |
|
| 453,137 |
|
|
| (4,018 | ) |
|
| 449,119 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
| |||
Additional paid-in capital |
|
| 382,376 |
|
|
| (3,009 | ) |
|
| 379,367 |
|
Accumulated deficit (retained earnings) |
|
| (864 | ) |
|
| 9,056 |
|
|
| 8,192 |
|
Total Vintage Wine Estates, Inc. stockholders' equity |
|
| 355,478 |
|
|
| 6,047 |
|
|
| 361,525 |
|
Noncontrolling interests |
|
| (594 | ) |
|
| (169 | ) |
|
| (763 | ) |
Total stockholders' equity |
|
| 354,884 |
|
|
| 5,878 |
|
|
| 360,762 |
|
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
| $ | 809,303 |
|
| $ | 1,860 |
|
| $ | 811,163 |
|
11
Regarding the previously reported unaudited condensed consolidated statement of operations for the three months ended September 30, 2022, the following table presents the impact of the restatement of $0.3 million amortization, adjusted through gain on sale leaseback, of a deferred gain of $10.7 million arising from a prior-year sale leaseback transaction that should have been recognized as a cumulative-effect adjustment to equity as part of the implementation of ASC 842.
In addition, the Company is adjusting for certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
|
| Three Months Ended September 30, 2022 |
| |||||||||
(in thousands, except share and per share amounts) |
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Net revenue |
|
|
|
|
|
|
|
|
| |||
Wine, spirits and cider |
| $ | 51,419 |
|
| $ | 851 |
|
| $ | 52,270 |
|
Total net revenue |
|
| 77,229 |
|
|
| 851 |
|
|
| 78,080 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
| |||
Wine, spirits and cider |
|
| 34,631 |
|
|
| (1,610 | ) |
|
| 33,021 |
|
Nonwine |
|
| 14,938 |
|
|
| 591 |
|
|
| 15,529 |
|
Total cost of revenue |
|
| 49,569 |
|
|
| (1,019 | ) |
|
| 48,550 |
|
Gross profit |
|
| 27,660 |
|
|
| 1,870 |
|
|
| 29,530 |
|
Selling, general, and administrative expenses |
|
| 33,707 |
|
|
| (2,258 | ) |
|
| 31,449 |
|
Loss on remeasurement of contingent liability |
|
| 826 |
|
|
| (641 | ) |
|
| 185 |
|
Gain on sale leaseback |
|
| (334 | ) |
|
| 334 |
|
|
| - |
|
Gain on sale of property, plant, and equipment |
|
| (118 | ) |
|
| 118 |
|
|
| - |
|
Loss from operations |
|
| (7,702 | ) |
|
| 4,317 |
|
|
| (3,385 | ) |
(Loss) income before provision for income taxes |
|
| (1,485 | ) |
|
| 4,317 |
|
|
| 2,832 |
|
Income tax provision |
|
| (849 | ) |
|
| 2,323 |
|
|
| 1,474 |
|
Net (loss) income |
|
| (636 | ) |
|
| 1,994 |
|
|
| 1,358 |
|
Net loss attributable to the noncontrolling interests |
|
| (343 | ) |
|
| 169 |
|
|
| (174 | ) |
Net (loss) income attributable to Vintage Wine Estates, Inc. |
|
| (293 | ) |
|
| 1,825 |
|
|
| 1,532 |
|
Net (loss) income allocable to common stockholders |
| $ | (293 | ) |
| $ | 1,825 |
|
| $ | 1,532 |
|
Net earnings (loss) per share allocable to common stockholders |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | (0.00 | ) |
| $ | 0.03 |
|
| $ | 0.03 |
|
Diluted |
| $ | (0.00 | ) |
| $ | 0.03 |
|
| $ | 0.03 |
|
12
The following table presents the impact of the adjustments and reclassifications discussed above on the unaudited condensed consolidated cash flow statement for the three months ending September 30, 2022:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Three Months Ended September 30, 2022 |
| |||||||||
(in thousands) |
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
| |||
Net (loss) income |
| $ | (636 | ) |
| $ | 1,994 |
|
| $ | 1,358 |
|
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation |
|
| 3,215 |
|
|
| 781 |
|
|
| 3,996 |
|
Amortization expense |
|
| 1,978 |
|
|
| (98 | ) |
|
| 1,880 |
|
Amortization of deferred loan fees and line of credit fees |
|
| - |
|
|
| 98 |
|
|
| 98 |
|
Remeasurement of contingent consideration liabilities |
|
| 826 |
|
|
| (641 | ) |
|
| 185 |
|
Stock-based compensation expense |
|
| 4,651 |
|
|
| (1,211 | ) |
|
| 3,440 |
|
Provision for doubtful accounts |
|
| (280 | ) |
|
| 272 |
|
|
| (8 | ) |
(Benefit) provision for deferred income tax |
|
| (27 | ) |
|
| 2,323 |
|
|
| 2,296 |
|
Gain on disposition of assets |
|
| (118 | ) |
|
| 118 |
|
|
| - |
|
Deferred gain on sale leaseback |
|
| (334 | ) |
|
| 334 |
|
|
| - |
|
Deferred rent |
|
| (2,079 | ) |
|
| 2,079 |
|
|
| - |
|
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| 48 |
|
|
| (595 | ) |
|
| (547 | ) |
Inventories |
|
| (6,957 | ) |
|
| 4 |
|
|
| (6,953 | ) |
Prepaid expenses and other current assets |
|
| 3,916 |
|
|
| (1,528 | ) |
|
| 2,388 |
|
Accounts payable |
|
| 2,363 |
|
|
| (260 | ) |
|
| 2,103 |
|
Accrued liabilities and other payables |
|
| 5,293 |
|
|
| (1,591 | ) |
|
| 3,702 |
|
Net change in lease assets and liabilities |
|
| 1,288 |
|
|
| (2,079 | ) |
|
| (791 | ) |
Net cash provided by operating activities |
|
| 1,988 |
|
|
| - |
|
|
| 1,988 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
| |||
Outstanding checks in excess of cash |
|
| 4,042 |
|
|
| 2,032 |
|
|
| 6,074 |
|
Net cash used in financing activities |
|
| (4,204 | ) |
|
| 2,032 |
|
|
| (2,172 | ) |
Net change in cash, cash equivalents and restricted cash |
|
| (5,670 | ) |
|
| 2,032 |
|
|
| (3,638 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 50,292 |
|
|
| (734 | ) |
|
| 49,558 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 44,622 |
|
| $ | 1,298 |
|
| $ | 45,920 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
| |||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
| |||
Increase in finance lease assets and liabilities upon adoption of ASC 842 |
| $ | 759 |
|
| $ | (692 | ) |
| $ | 67 |
|
Reclassifications and Revisions
Subsequent to the issuance ofchanges in the Company's financial statements as of the year ended June 30, 2022, the Company discovered an error in its classification of purchase price for specific properties, which resulted in the Company overstating depreciable assets and the related depreciation expense for post-acquisition periods. Management has evaluated this misstatement, which understated property, plant and equipment, net and overstated inventories and the related cost of revenue, and concluded it was not material to prior periods, individually or in the aggregate. However, correcting the cumulative effect of the error in the current period would have had a material effect on the results of operations for such period. Therefore, the Company is revising the relevant prior period consolidated financial statements and related footnotes for this error and other immaterial out-of-period items for comparative purposes. The Company will also correct previously reported financial information for such immaterial errors in future filings, as applicable. Additionally, comparative prior period amounts in the applicable notes to the unaudited condensed consolidated financial statements have been revised, certain prior year amounts have been reclassified for consistency with the current year presentation, and our beginning retained earnings decreased $0.7 million, net of a tax benefit of $0.3 million, as a consequence of the impact of those identified immaterial errors to periods prior to July 1, 2021.restructuring-related accrued employee compensation liabilities:
13
Regarding our previously reported consolidated balance sheet as of June 30, 2022, the following table presents the impact of certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:
(in thousands) |
|
|
| |
Balance at June 30, 2023 |
| $ | - |
|
Restructuring expense |
|
| 4,002 |
|
Cash payments |
|
| (393 | ) |
Balance at September 30, 2023 |
| $ | 3,609 |
|
CONSOLIDATED BALANCE SHEET
|
| June 30, 2022 |
| |||||||||
(in thousands) | As Previously Reported |
|
| Adjustments |
|
| As Revised |
| ||||
Assets |
|
|
|
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 43,692 |
|
| $ | 1,066 |
|
| $ | 44,758 |
|
Restricted cash |
|
| 6,600 |
|
|
| (1,800 | ) |
|
| 4,800 |
|
Accounts receivable, net |
|
| 38,192 |
|
|
| (323 | ) |
|
| 37,869 |
|
Inventories |
|
| 192,102 |
|
|
| 820 |
|
|
| 192,922 |
|
Prepaid expenses and other current assets |
|
| 13,394 |
|
|
| (1,530 | ) |
|
| 11,864 |
|
Total current assets |
|
| 300,723 |
|
|
| (1,767 | ) |
|
| 298,956 |
|
Property, plant, and equipment, net |
|
| 236,100 |
|
|
| 2,619 |
|
|
| 238,719 |
|
Intangible assets, net |
|
| 64,377 |
|
|
| (1,280 | ) |
|
| 63,097 |
|
Total assets |
| $ | 765,895 |
|
| $ | (428 | ) |
| $ | 765,467 |
|
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 13,947 |
|
| $ | (474 | ) |
| $ | 13,473 |
|
Accrued liabilities and other payables |
|
| 24,204 |
|
|
| 2,793 |
|
|
| 26,997 |
|
Total current liabilities |
|
| 197,275 |
|
|
| 2,319 |
|
|
| 199,594 |
|
Other long-term liabilities |
|
| 6,491 |
|
|
| 564 |
|
|
| 7,055 |
|
Deferred tax liability |
|
| 29,979 |
|
|
| (654 | ) |
|
| 29,325 |
|
Total liabilities |
|
| 413,506 |
|
|
| 2,229 |
|
|
| 415,735 |
|
Redeemable noncontrolling interest |
|
| 1,663 |
|
|
| (169 | ) |
|
| 1,494 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
| |||
Additional paid-in capital |
|
| 377,897 |
|
|
| (1,798 | ) |
|
| 376,099 |
|
Accumulated deficit |
|
| (571 | ) |
|
| (521 | ) |
|
| (1,092 | ) |
Total Vintage Wine Estates, Inc. stockholders' equity |
|
| 351,292 |
|
|
| (2,319 | ) |
|
| 348,973 |
|
Noncontrolling interests |
|
| (566 | ) |
|
| (169 | ) |
|
| (735 | ) |
Total stockholders' equity |
|
| 350,726 |
|
|
| (2,488 | ) |
|
| 348,238 |
|
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
| $ | 765,895 |
|
| $ | (428 | ) |
| $ | 765,467 |
|
14
The following table presents the impact of certain immaterial out-of-period items, reclassifications and other adjustments to our previously reported unaudited condensed consolidated statement of operations for the three months ending September 30, 2021 including but not limited to a $3.1 million adjustment to cost of revenue: wine, spirits and cider due to an understatement of costs resulting from incorrect overhead absorption.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
|
| Three Months Ended September 30, |
| |||||||||
|
| 2021 |
| |||||||||
(in thousands, except share and per share amounts) |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| |||
Net revenue |
|
|
|
|
|
|
|
|
| |||
Wine, spirits and cider |
| $ | 36,287 |
|
| $ | 348 |
|
| $ | 36,635 |
|
Total net revenue |
|
| 55,687 |
|
|
| 348 |
|
|
| 56,035 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
| |||
Wine, spirits and cider |
|
| 20,588 |
|
|
| 3,132 |
|
|
| 23,720 |
|
Total cost of revenue |
|
| 32,250 |
|
|
| 3,132 |
|
|
| 35,382 |
|
Gross profit |
|
| 23,437 |
|
|
| (2,784 | ) |
|
| 20,653 |
|
Selling, general, and administrative expenses |
|
| 16,983 |
|
|
| (5 | ) |
|
| 16,978 |
|
Amortization expense |
|
| 651 |
|
|
| - |
|
|
| 651 |
|
Loss on remeasurement of contingent liability |
|
| - |
|
|
| 155 |
|
|
| 155 |
|
(Loss) from operations |
|
| 6,143 |
|
|
| (2,934 | ) |
|
| 3,209 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
| |||
Net unrealized gain on interest rate swap agreements |
|
| 1,393 |
|
|
| 179 |
|
|
| 1,572 |
|
Total other income, net |
|
| (2,171 | ) |
|
| 179 |
|
|
| (1,992 | ) |
Income before provision for income taxes |
|
| 3,972 |
|
|
| (2,755 | ) |
|
| 1,217 |
|
Income tax provision |
|
| 1,193 |
|
|
| (744 | ) |
|
| 449 |
|
Net income |
|
| 2,779 |
|
|
| (2,011 | ) |
|
| 768 |
|
Net income attributable to Vintage Wine Estates, Inc. |
|
| 2,754 |
|
|
| (1,961 | ) |
|
| 793 |
|
Net income allocable to common stockholders |
| $ | 2,754 |
|
| $ | (1,961 | ) |
| $ | 793 |
|
Net earnings per share allocable to common stockholders |
|
|
|
|
|
|
|
|
| |||
Basic |
| $ | 0.05 |
|
| $ | (0.04 | ) |
| $ | 0.01 |
|
Diluted |
| $ | 0.05 |
|
| $ | (0.04 | ) |
| $ | 0.01 |
|
The following table presents the impact of the adjustments and reclassifications discussed above on the unaudited condensed consolidated cash flow statement for the three months ending September 30, 2021:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Three Months Ended September 30, |
| |||||||||
|
| 2021 |
| |||||||||
(in thousands) |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 2,779 |
|
|
| (2,011 | ) |
| $ | 768 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation |
|
| 3,503 |
|
|
| (2,001 | ) |
|
| 1,502 |
|
Amortization expense |
|
| 750 |
|
|
| (99 | ) |
|
| 651 |
|
Amortization of deferred loan fees and line of credit fees |
|
| - |
|
|
| 99 |
|
|
| 99 |
|
Remeasurement of contingent consideration liabilities |
|
| - |
|
|
| 155 |
|
|
| 155 |
|
Net unrealized gain on interest rate swap agreements |
|
| (1,393 | ) |
|
| (179 | ) |
|
| (1,572 | ) |
(Benefit) provision for deferred income tax |
|
| - |
|
|
| (1,059 | ) |
|
| (1,059 | ) |
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
|
|
| |||
Inventories |
|
| (4,671 | ) |
|
| 4,227 |
|
|
| (444 | ) |
Accrued liabilities and other payables |
|
| 1,356 |
|
|
| 1,704 |
|
|
| 3,060 |
|
Other |
|
| - |
|
|
| (836 | ) |
|
| (836 | ) |
Net cash provided by operating activities |
|
| (2,020 | ) |
|
| - |
|
|
| (2,020 | ) |
15
3.Business Combinations
Vinesse
On October 4, 2021, the Company acquired 100% of the members' interest in Vinesse, LLC, a California limited liability company ("Vinesse"). Vinesse is a direct-to-consumer platform company that specializes in wine clubs with over 60,000 members. Founded in 1993, Vinesse has developed a long-time following by offering boutique wines to a broader audience and making wine accessible and easy to love. The operations of Vinesse align with those of the Company, which management believes provides for expanded synergies and growth through the acquisition.
The purchase price totaling $17.0 million was comprised of cash of $14.0 million, consulting fees of $0.2 million per year for three years totaling $0.6 million and a three-year earnout payable of up to $2.4 million. To fund the cash portion of the purchase consideration, we utilized the line of credit under the amended and restated loan and security agreement.
The preliminary allocation of the consideration for the net assets acquired from the acquisition of Vinesse were as follows:
(in thousands) |
|
|
| |
Sources of financing |
|
|
| |
Cash |
| $ | 14,000 |
|
Accrued other |
|
| 600 |
|
Contingent consideration |
|
| 2,400 |
|
Fair value of consideration |
|
| 17,000 |
|
|
|
|
| |
Assets acquired: |
|
|
| |
Fixed assets |
|
| 121 |
|
Inventory |
|
| 2,502 |
|
Trade Names and Trademarks |
|
| 1,200 |
|
Customer relationships |
|
| 3,700 |
|
Total identifiable assets acquired |
|
| 7,523 |
|
|
|
|
| |
Goodwill |
| $ | 9,477 |
|
The Company used the carrying value as of the acquisition date to value fixed assets, as we determined that they represented the fair value at the acquisition date.
Inventory was comprised of finished goods, bulk and raw materials. The fair value of finished goods inventory and bulk inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trade names and trademarks fair value was derived using the Relief-From-Royalty Method (“RFR”). Key assumptions in valuing trade names and trademarks included (i) a royalty rate of 1.8% and (ii) discount rate of 17.5%.
Customer relationships fair value was derived using the Multiple-Period Excess Earnings Method (“MPEEM”), utilizing a discount rate of 18.0%, and Cost Approach. Customer relationships were weighted; 50.0% using the MPEEM model and 50.0% using the Cost Approach.
The results of operations of Vinesse are included in the accompanying condensed consolidated statements of operations from the October 4, 2021 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
ACE Cider
On November 16, 2021, the Company acquired 100% of the capital stock of ACE Cider, the California Cider Company, Inc., a California corporation ("ACE Cider"). ACE Cider is a wholesale platform and specializes in hard cider, an alcoholic beverage fermented from apples. The operations of ACE Cider allow the Company to enter into the beer distribution category.
16
The purchase price totaling $47.4 million was comprised of a cash payment and contingent consideration.
The preliminary allocation of the consideration for the net assets acquired from the acquisition of ACE Cider were as follows:
(in thousands) |
|
|
| |
Sources of financing |
|
|
| |
Cash |
| $ | 46,880 |
|
Accrued other |
|
| 60 |
|
Contingent consideration |
|
| 500 |
|
Fair value of consideration |
|
| 47,440 |
|
|
|
|
| |
Assets acquired: |
|
|
| |
Fixed assets |
|
| 4,205 |
|
Inventory |
|
| 1,350 |
|
Trademarks |
|
| 6,600 |
|
Customer relationships |
|
| 14,300 |
|
Deferred tax liability |
|
| (6,554 | ) |
Total identifiable assets acquired |
|
| 19,901 |
|
|
|
|
| |
Goodwill |
| $ | 27,539 |
|
The Company used the carrying value as of the Acquisition Date to value fixed assets, as we determined that they represented the fair value at the Acquisition Date.
Inventory was comprised of finished goods, bulk cider and raw materials. The fair value of finished goods inventory and bulk cider inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trademarks fair value was derived using the RFR. Key assumptions in valuing trademarks included (i) a royalty rate of 2.75% and (ii) discount rate of 12.5%.
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of 13.0%, and Cost Approach. Customer relationships were weighted; 90.0% using the MPEEM model and 10.0% using the Cost Approach.
The results of operations of ACE Cider are included in the accompanying condensed consolidated statements of operations from the November 16, 2021 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
Meier's
On January 18, 2022, the Company acquired 100% of the capital stock in Meier's Wine Cellars, Inc., DBA Meier's Beverage Group, an Ohio company ("Meier's"). Meier's is a wholesale and business-to-business company that specializes in custom blending, contract storage, contract manufacturing, and private labeling for wine, beer, and spirits. Over the years, Meier's continued extending their winemaking skills by producing table wines, sparkling wines, dessert wines, vermouths and carbonated grape juice.
The purchase price totaling $25.0 million was comprised of cash of $12.5 million and 1,229,443 shares of common stock with a value of $12.5 million.
The terms of the acquisition also provide for the possibility of additional contingent consideration of up to $10.0 million based on Meier's exceeding current EBITDA levels over each of the next three years. The earn out consideration will be paid in a combination of 50% cash and 50% stock. The common stock shares issued are also subject to the terms of the lock-up agreement.
17
The preliminary allocation of the consideration for the net assets acquired from the acquisition of Meier's were as follows:
(in thousands) |
|
|
| |
Sources of financing |
|
|
| |
Cash |
| $ | 12,500 |
|
Shares of common stock |
|
| 10,521 |
|
Contingent consideration |
|
| 4,900 |
|
Settlement of pre-existing relationship |
|
| (125 | ) |
Fair value of consideration |
|
| 27,796 |
|
|
|
|
| |
Assets acquired: |
|
|
| |
Accounts receivable |
|
| 3,669 |
|
Fixed assets |
|
| 12,859 |
|
Inventory |
|
| 4,280 |
|
Other assets |
|
| 356 |
|
Trademarks |
|
| 700 |
|
Customer relationships |
|
| 6,400 |
|
Accounts payable and accrued expenses |
|
| (2,682 | ) |
Deferred tax liability |
|
| (6,033 | ) |
Total identifiable assets acquired |
|
| 19,549 |
|
|
|
|
| |
Goodwill |
| $ | 8,247 |
|
The number of shares of common stock were valued based on the Closing Date share price, resulting in a fair value of $12.0 million, less a discount of $1.5 million due to lack of marketability for shares of common stock, resulting in the shares of common stock valued at $10.5 million.
The contingent consideration was fair valued using the Monte Carlo simulation model, resulting in fair value earnout payments of $4.9 million.
The Company valued the fair value of accounts receivable, other assets, accounts payable and accrued expenses and fixed assets at the acquisition date.
Inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods inventory and work in process inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trade names and trademarks fair value was derived using the RFR. Key assumptions in valuing trade names and trademarks included (i) a royalty rate of 1.1% and (ii) discount rate of 27.0%.
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of 28.0%. Customer relationships were weighted 100.0% using the MPEEM model.
The results of operations of Meier's are included in the accompanying condensed consolidated statements of operations from the January 18, 2022 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
Other Acquisitions
On February 14, 2022, the Company purchased certain intellectual property pertaining or related to a canned cannabis beverage brand. The Company purchased the intellectual property at a purchase price of $0.4 million. The value of the assets acquired were based on the estimated fair value and are subject to adjustment during the measurement period (up to one year from the acquisition date). An executive officer of the Company has a related party relationship and serves as a member of the board of directors.
18
4.Inventory (as restated)
Inventory consists of the following:
(in thousands) |
| September 30, 2022 |
|
| June 30, 2022 |
| ||
|
| As Restated |
|
|
|
| ||
Bulk wine, spirits and cider |
| $ | 91,848 |
|
| $ | 88,978 |
|
Bottled wine, spirits and cider |
|
| 88,201 |
|
|
| 86,785 |
|
Bottling and packaging supplies |
|
| 18,367 |
|
|
| 16,328 |
|
Nonwine inventory |
|
| 1,256 |
|
|
| 831 |
|
Total inventories |
| $ | 199,672 |
|
| $ | 192,922 |
|
For the three months ended September 30, 2022 and 2021, the Company did not recognize any losses related to reducing inventory to its net realizable value.
For the three months ended September 30, 2022 and fiscal year ended June 30, 2022, the Company's inventory balances are presented net of inventory reserves of zero and $2.2 million, respectively, for bulk wine, spirits and cider inventory, $1.5 million and $1.8 million, respectively, for bottled wine, spirits and cider inventory and $0.4 million and $0.4 million, respectively, for bottling and packaging supplies inventory.
5.Assets Held for Sale (as restated)
During the period ended September 30, 2022, the Company had two asset groups classified as held for sale. The assets held for sale include certain real property related to Laetitia vineyards and land and property, plant and equipment and assumption of a land lease related to the Tamarack Cellars production facility. These assets are being marketed for sale. The Company intends to complete the sales of the assets within twelve months.
The carrying amounts of assets held for sale consists of the following:
(in thousands) |
| September 30, 2022 |
| |
Laetitia vineyards land held for sale |
| $ | 13,233 |
|
Tamarack Cellars property, plant and equipment held for sale |
|
| 2,767 |
|
Less accumulated depreciation and amortization |
|
| (2,779 | ) |
Total assets held for sale |
| $ | 13,221 |
|
The cash flows related to held for sale assets have not been segregated and remain included in the major classes of assets.
There were no assets classified as held for sale for the year ended June 30, 2022.
6.Property, Plant and Equipment (as restated)
Property, plant and equipment consists of the following:
(in thousands) |
| September 30, 2022 |
|
| June 30, 2022 |
| ||
|
| As Restated |
|
|
|
| ||
Buildings and improvements |
| $ | 138,875 |
|
| $ | 139,223 |
|
Land |
|
| 35,318 |
|
|
| 46,632 |
|
Machinery and equipment |
|
| 77,935 |
|
|
| 77,676 |
|
Cooperage |
|
| 9,289 |
|
|
| 10,165 |
|
Vineyards |
|
| 10,968 |
|
|
| 12,860 |
|
Furniture and fixtures |
|
| 1,796 |
|
|
| 1,754 |
|
|
| 274,181 |
|
|
| 288,310 |
| |
Less accumulated depreciation and amortization |
|
| (68,032 | ) |
|
| (66,987 | ) |
|
| 206,149 |
|
|
| 221,323 |
| |
Construction in progress |
|
| 18,317 |
|
|
| 17,396 |
|
| $ | 224,466 |
|
| $ | 238,719 |
|
Depreciation and amortization expense related to property and equipment was $4.0 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively.
19
7.Goodwill and Intangible Assets (as restated)
Goodwill
There were no changes in the carrying amounts of goodwill from fiscal year ended June 30, 2022.
Intangible Assets
The following tables summarize other intangible assets by class:
|
| September 30, 2022 | ||||||||||||
(in thousands) |
| Gross |
|
| Accumulated |
|
| Net Intangible |
|
| Weighted Average Remaining Amortization Period (in years) | |||
Indefinite-life intangibles |
| As Restated |
|
|
|
|
| As Restated |
|
| As Restated | |||
Trade names and trademarks |
| $ | 28,922 |
|
| $ | - |
| $ | 28,922 |
|
| N/A | |
Winery use permits |
|
| 6,750 |
|
|
| - |
|
|
| 6,750 |
|
| N/A |
Total Indefinite-life intangibles |
|
| 35,672 |
|
|
| - |
|
|
| 35,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
| |||
Customer and Sommelier relationships |
|
| 30,700 |
|
|
| (6,523 | ) |
|
| 24,177 |
|
| 4.2 |
Trade names and trademarks |
|
| 1,900 |
|
|
| (358 | ) |
|
| 1,542 |
|
| 3.7 |
Total definite-life intangibles |
|
| 32,600 |
|
|
| (6,881 | ) |
|
| 25,719 |
|
|
|
Total other intangible assets |
| $ | 68,272 |
|
| $ | (6,881 | ) |
| $ | 61,391 |
|
|
|
|
| June 30, 2022 |
|
| |||||||||||||
(in thousands) |
| Gross |
|
| Accumulated |
|
| Accumulated Impairment Losses |
|
| Net Intangible |
| Weighted Average Remaining Amortization Period (in years) | ||||
Indefinite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade names and trademarks |
| $ | 30,203 |
|
| $ | - |
| $ | (1,281 | ) | $ | 28,922 |
| N/A | ||
Winery use permits |
|
| 6,750 |
|
|
| - |
|
|
| - |
|
|
| 6,750 |
| N/A |
Total Indefinite-life intangibles |
|
| 36,953 |
|
|
| - |
|
|
| (1,281 | ) |
|
| 35,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer and Sommelier relationships |
|
| 30,700 |
|
|
| (4,922 | ) |
|
| - |
|
|
| 25,778 |
| 4.4 |
Trade names and trademarks |
|
| 1,900 |
|
|
| (253 | ) |
|
| - |
|
|
| 1,647 |
| 3.5 |
Total definite-life intangibles |
|
| 32,600 |
|
|
| (5,175 | ) |
|
| - |
|
|
| 27,425 |
|
|
Total other intangible assets |
| $ | 69,553 |
|
| $ | (5,175 | ) |
| $ | (1,281 | ) |
| $ | 63,097 |
|
|
Amortization expense of definite-life intangibles was $1.7 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, estimated future amortization expense for definite-lived assets is as follows:
(in thousands) |
|
|
|
|
| |
2023 remaining |
|
|
| $ | 5,116 |
|
2024 |
|
|
|
| 6,811 |
|
2025 |
|
|
|
| 5,292 |
|
2026 |
|
|
|
| 4,527 |
|
2027 |
|
|
|
| 3,179 |
|
Thereafter |
|
|
|
| 794 |
|
Total estimated amortization expense |
|
|
| $ | 25,719 |
|
20
8. Accrued Liabilities (as restated)
The major classes of accrued liabilities are summarized as follows:
|
| September 30, 2022 |
|
| June 30, 2022 |
| ||
(in thousands) |
| As Restated |
|
|
|
| ||
Accrued purchases |
| $ | 13,573 |
|
| $ | 6,728 |
|
Accrued employee compensation |
|
| 4,551 |
|
|
| 5,580 |
|
Other accrued expenses |
|
| 5,102 |
|
|
| 8,867 |
|
Non related party accrued interest expense |
|
| 517 |
|
|
| 429 |
|
Contingent consideration |
|
| 3,256 |
|
|
| 2,710 |
|
Unearned Income |
|
| 296 |
|
|
| 642 |
|
Captive insurance liabilities |
|
| 1,416 |
|
|
| 2,041 |
|
Total Accrued liabilities and other payables |
| $ | 28,711 |
|
| $ | 26,997 |
|
9. Fair Value Measurements (as restated)
The following tables present assets and liabilities measured at fair value on a recurring basis:
|
| September 30, 2022 |
|
| September 30, 2023 |
| ||||||||||||||||||||||||||
(in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Money market funds |
| $ | 36,738 |
|
| $ | - |
|
| $ | - |
|
| $ | 36,738 |
|
| $ | 9,943 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,943 |
|
Interest rate swaps (1) |
|
|
|
| 18,381 |
|
|
|
|
| 18,381 |
|
|
| - |
|
|
| 8,882 |
|
|
| - |
|
|
| 8,882 |
| ||||
Total |
| $ | 36,738 |
|
| $ | 18,381 |
|
| $ | - |
|
| $ | 55,119 |
|
| $ | 9,943 |
|
| $ | 8,882 |
|
| $ | - |
|
| $ | 18,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Contingent consideration liabilities (2) |
| $ | - |
|
| $ | - |
|
| $ | 9,302 |
|
| $ | 9,302 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,397 |
|
| $ | 9,397 |
|
Total |
| $ | - |
|
| $ | - |
|
| $ | 9,302 |
|
| $ | 9,302 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,397 |
|
| $ | 9,397 |
|
|
| June 30, 2022 |
|
| June 30, 2023 |
| ||||||||||||||||||||||||||
(in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Money market funds |
| $ | 36,616 |
|
| $ | - |
|
| $ | - |
|
| $ | 36,616 |
|
| $ | 9,874 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,874 |
|
Interest rate swaps (1) |
|
|
|
| 9,157 |
|
|
|
|
| 9,157 |
|
|
| - |
|
|
| 8,986 |
|
|
| - |
|
|
| 8,986 |
| ||||
Total |
| $ | 36,616 |
|
| $ | 9,157 |
|
| $ | - |
|
| $ | 45,773 |
|
| $ | 9,874 |
|
| $ | 8,986 |
|
| $ | - |
|
| $ | 18,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Contingent consideration liabilities (2) |
| $ | - |
|
| $ | - |
|
| $ | 9,156 |
|
| $ | 9,156 |
|
| $ | - |
|
| $ | - |
|
| $ | 8,656 |
|
| $ | 8,656 |
|
Total |
| $ | - |
|
| $ | - |
|
| $ | 9,156 |
|
| $ | 9,156 |
|
| $ | - |
|
| $ | - |
|
| $ | 8,656 |
|
| $ | 8,656 |
|
(1) The fair value of interest rate swaps is estimated using a discounted cash flow analysis that considers the expected future cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the remaining period to maturity, and uses market-corroborated Level 2 inputs, including forward interest rate curves and implied interest rate volatilities. The fair value of an interest rate swap is
7
estimated by discounting future fixed cash payments against the discounted expected variable cash receipts. The variable cash receipts are estimated based on an expectation of future interest rates derived from forward interest rate curves. The fair value of an interest rate swap also incorporates credit valuation adjustments to reflect the non-performance risk of the Company and the respective counterparty.
(2) We assess the fair value of contingent consideration to be settled in cash related to acquisitions using probability weighted models for the various contractual earn-outs. These are Level 3 measurements. Significant unobservable inputs used in the estimated fair values of these contingent consideration liabilities include probabilities of achieving customer related performance targets, specified sales milestones, consulting milestones, changes in unresolved claims, projected revenue or changes in discount rates.
21
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
| Contingent |
| |||||
(in thousands) |
| As Restated |
|
| Contingent |
| ||
Balance at June 30, 2022 |
| $ | 9,156 |
| ||||
Balance at June 30, 2023 |
|
| 8,656 |
| ||||
Acquisitions |
|
| - |
|
|
| - |
|
Payments |
|
| (39 | ) |
|
| (230 | ) |
Change in fair value |
|
| 185 |
|
|
| 971 |
|
Balance at September 30, 2022 |
|
| 9,302 |
| ||||
Balance at September 30, 2023 |
|
| 9,397 |
| ||||
Less: current portion |
|
| (3,256 | ) |
|
| (2,427 | ) |
Long term portion |
| $ | 6,046 |
|
| $ | 6,970 |
|
The current and long-term portion of contingent consideration is included within the accrued liabilities and other payables and other long-term liabilities, respectively, in the condensed consolidated balance sheets.
10. Leases (Our non-financial assets, such as restated)
Leases Under ASC 842
We have lease agreements for certain winery facilities, vineyards, corporate and administrative offices, tasting rooms, and equipment under long-term non-cancelable leases. We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
Beginning July 1, 2022, operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities in our condensed consolidated balance sheet. Operating lease right-of-useindefinite-lived intangible assets and corresponding operating lease liabilitieslong-lived assets are recognized at commencement dateadjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on the present value of lease payments over the lease term. Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable.Level 3 inputs.
In connection with the restatement, the Company has reclassified the deferred gain related to a previous sale and leaseback of $7.8 million, net of taxes of $2.9 million, to retained earnings. See Note 2.
Finance leases are included in finance lease right-of-use assets, current finance lease liabilities and long-term finance lease liabilities in our condensed consolidated balance sheet.
Our lease agreements include leases that contain lease components and non-lease components. For all asset classes, we have elected to account for both of these provisions as a single lease component.
We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of 12 months or less. In addition, we elected the package of transition practical expedients permitted under the transition guidance, which allows the Company to carry forward our leases without reassessing, whether any contracts are leases or contain leases, lease classification and initial direct costs.
Our leases have remaining lease terms from less than 4one year to 10 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain and there is significant economic incentive to exercise that option.
Beginning fiscal 2022, we no longer had related party lease agreements.
22
The following table summarizes the components of lease expense:
|
| Three Months Ended |
| |
(in thousands) |
| September 30, 2022 |
| |
Operating lease expense |
| $ | 1,808 |
|
|
|
|
| |
Finance lease expense |
|
|
| |
Amortization of right-of-use assets |
|
| 70 |
|
Interest on lease liabilities |
|
| 9 |
|
Total finance lease expense |
|
| 79 |
|
Variable lease expense |
|
| 157 |
|
Short-term lease expense |
|
| 35 |
|
Total lease expense |
| $ | 2,079 |
|
The following table summarizes supplemental balance sheet related to leases:
(in thousands) |
| September 30, 2022 |
| |
Operating Leases |
|
|
| |
Operating lease right-of-use assets |
| $ | 35,509 |
|
|
|
|
| |
Current portion of operating lease liabilities |
|
| 5,197 |
|
Long-term operating lease liabilities |
|
| 31,637 |
|
Total operating lease liabilities |
|
| 36,834 |
|
|
|
|
| |
Finance Leases |
|
|
| |
Finance lease right-of-use assets |
|
| 689 |
|
|
|
|
| |
Current portion of finance lease liabilities |
|
| 263 |
|
Long-term finance lease liabilities |
|
| 429 |
|
Total finance lease liabilities |
| $ | 692 |
|
The following table summarizes the weighted-average remaining lease term and discount rate:
| ||||
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
|
The minimum annual payments under our lease agreements as of September 30, 2022 are as follows:
(in thousands) |
| Operating Leases |
|
| Finance Leases |
| ||
Remaining fiscal 2023 |
| $ | 4,795 |
|
| $ | 219 |
|
2024 |
|
| 6,849 |
|
|
| 285 |
|
2025 |
|
| 6,529 |
|
|
| 157 |
|
2026 |
|
| 6,521 |
|
|
| 79 |
|
2027 |
|
| 6,195 |
|
|
| - |
|
2028 and thereafter |
|
| 12,479 |
|
|
| - |
|
Total lease payments |
|
| 43,368 |
|
|
| 740 |
|
Less imputed interest |
|
| (6,534 | ) |
|
| (48 | ) |
Present value of lease liabilities |
|
| 36,834 |
|
|
| 692 |
|
Current portion of lease liabilities |
|
| (5,197 | ) |
|
| (263 | ) |
Total long term lease liabilities |
| $ | 31,637 |
|
| $ | 429 |
|
* Table excludes obligations for leases with original terms of 12 months or less which have not been recognized as ROU assets or liabilities in our condensed consolidated balance sheets.
23
11. Long-Term andand Other Short-Term Obligations (as restated)
The following table summarizes long-term and other short-term obligations:
(in thousands) |
| September 30, 2022 |
|
| June 30, 2022 |
| ||
Note to a bank with interest at LIBOR (1.76%) at September 30, 2022 plus 1.75%; payable in quarterly installments of $1,180 principal with applicable interest; matures in September 2026; secured by specific assets of the Company. Loan amended April 2021. Quarterly payments of $1,066 reduced from $1,180 starting June 2021. Revised maturity date July 2026. |
| $ | 75,726 |
|
| $ | 76,792 |
|
|
|
|
|
|
|
| ||
Capital expenditures borrowings payable at LIBOR (0.50%) at September 30, 2022 and June 30, 2022 plus 1.75%, payable in quarterly installments of $1,077 at September 30, 2022 and June 30, 2022 with draw expiring July, 2026. |
|
| 39,699 |
|
|
| 40,776 |
|
|
|
|
|
|
|
| ||
Note to a bank with interest fixed at 3.6%, payable in monthly installments of $60 principal with applicable interest; matures in April 2023. |
|
| 418 |
|
|
| 593 |
|
|
|
|
|
|
|
| ||
Note to a bank with interest fixed at 2.75%, payable in monthly installments of $61 principal with |
|
| 1,071 |
|
|
| 1,246 |
|
|
|
|
|
|
| |||
Delayed Draw Term Loan ("DDTL") with interest at LIBOR (2.32%) at September 2022 plus 1.75%, payable in quarterly installments of $1,260 starting March 2022. Matures in July 2024. |
|
| 64,622 |
|
|
| 65,882 |
|
|
| 181,536 |
|
|
| 185,289 |
| |
Less current maturities |
|
| (14,738 | ) |
|
| (14,909 | ) |
Less unamortized deferred financing costs |
|
| (1,221 | ) |
|
| (1,285 | ) |
| $ | 165,577 |
|
| $ | 169,095 |
|
|
| September 30, |
|
| June 30, |
| ||
(in thousands) |
| 2023 |
|
| 2023 |
| ||
Note to a bank with one month interest at SOFR (5.33%) at September 30, 2023 plus 2.35%; payable in quarterly installments of $1,454 principal with applicable interest; matures in December 2027; secured by specific assets of the Company. |
|
| 142,531 |
|
|
| 142,532 |
|
|
|
|
|
|
|
| ||
Capital expenditures borrowings payable at SOFR (5.33%) at September 30, 2023 plus 2.35%, payable in quarterly installments of $801 with draw expiring June 2027. |
|
| 12,762 |
|
|
| 12,762 |
|
|
|
|
|
|
|
| ||
Equipment Term Loan payable at SOFR (5.33%) at September 30, 2023 plus 2.35%, payable in quarterly installments of $250 with draw expiring December 2026. |
|
| 3,433 |
|
|
| 3,433 |
|
|
|
|
|
|
|
| ||
Note to a bank with interest fixed at 2.75%, payable in monthly installments of $61 principal with applicable interest; matures in March 2024. |
|
| 362 |
|
|
| 541 |
|
|
|
|
|
| ||||
Note to a bank with interest fixed at 7.50%, payable in monthly installments of $61 principal with applicable interest; matures in April 2026. |
|
| 1,724 |
|
|
| 1,873 |
|
|
|
|
|
|
|
| ||
Delayed Draw Term Loan ("DDTL") with interest at SOFR (5.33%) at September 30, 2023 plus 2.35%, payable in quarterly installments of $818. Matures in December 2027. |
|
| 28,183 |
|
|
| 28,183 |
|
Total debt |
|
| 188,995 |
|
|
| 189,324 |
|
Less: current maturities |
|
| (17,605 | ) |
|
| (14,449 | ) |
Less: unamortized deferred financing costs |
|
| (1,377 | ) |
|
| (1,466 | ) |
Long-term debt, net |
| $ | 170,013 |
|
| $ | 173,409 |
|
Line of Credit
The Company has a $480.0 million amended and restated loan and security agreement consisting of an accounts receivable and inventory revolving facility up to $230.0 million, a term loan in a principal amount of up to $100.0 million, a capital expenditures facility in an aggregate principal of up to $50.0 million, and a delay draw term loan facility up to an aggregate of $100.0 million which was limited to an aggregate of $55.0 million. Upon consummation of the merger transaction, the requirements of the delayed draw term loan were met. The effective interest rate under the revolving facility was 2.67.4% and 4.02.6% as of September 30, 20222023 and 2021, respectively. The Company had availability under the line of credit as of September 30, 2022 and June 30, 2022, respectively.
On November 8, 2022, we amended the amended and restated loan and security agreement to revise a definition used in a financial covenant under the agreement for the debt covenant calculation as of September 30, 2022 and subsequent periods.
On December 13, 2022, we entered into a second amended and restated loan and security agreement (the “Second A&R Loan and Security Agreement”), which further amended and restated the Amended and Restated Loan and Security Agreement and provides credit facilities totaling up to $458.4 million. The credit facilities under the Second A&R Loan and Security Agreement consist of: (i) a term loan facility in the principal amount of approximately $156.5 million (the “Term Loan Facility”), (ii) an accounts receivable and inventory revolving facility in the principal amount of approximately $229.7 million with a letter of credit sub-facility in the aggregate availability amount of $20.0 million (the “Revolving Facility”), (iii) an equipment loan facility in the principal amount of approximately $4.2 million (the “Equipment Loan”), (iv) a capital expenditure facility in the principal amount of approximately $15.2 million (the “Capex Facility”) and (v) a delayed draw term loan facility in the principal amount of approximately $52.9 million (amounts are available to be drawn through December 13, 2023) (the “DDTL Facility”, and, together with the Term Loan Facility, the Revolving Facility, the Equipment Loan and the Capex Facility, the “Credit Facilities”).
Concurrent with the closing of the Second A&R Loan and Security Agreement, we executed a draw of approximately $154.6 million on the Term Loan Facility, $125.0 million on the Revolving Facility, $4.2 million on the Equipment Loan, $15.2 million on the Capex Facility and $30.6 million on the DDTL Facility. The proceeds from the loan were used to, among other things, pay down outstanding amounts of under the Company’s existing credit facilities including the Amended and Restated Loan and Security Agreement.
The Term Loan Facility matures on December 13, 2027, and the Second A&R Loan and Security Agreement extends the maturities of the other credit facilities as follows: (i) the Revolving Facility matures on December 13, 2027, (ii) the Equipment Loan matures on December 31, 2026, (iii) the Capex Facility matures on June 30, 2027 and (iv) the DDTL Facility matures on December 13, 2027. The refinancing of the Second A&R Loan and Security Agreement was evaluated in accordance with ASC 470-50, Modifications and Extinguishments on a lender-by-lender basis. Certain lenders did not participate in the refinancing and the repayment of their related outstanding debt balances has been accounted for as an extinguishment of
24
debt. Proceeds of borrowings from new lenders were accounted for as a new debt financing. The Company recorded a loss on extinguishment of debt of $0.5 million in the accompanying consolidated statement of operations and comprehensive income.For the remainder of the lenders, this transaction was accounted for as a modification because the difference between present value of the cash flows under the terms of the modified agreement (the Second A&R Loan and Security Agreement) and the present value of the cash flows under terms of the original agreement was less than 10% on a lender-by-lender basis.
As part of the refinancing of the Term Loan Facility, the Company incurred various costs of $2.3 million, including a $0.5 million original issue discount and $1.9 million in third-party debt issuance costs.
As part of the refinancing of the Revolving Facility, the Company incurred various costs of $2.6 million, including a $0.5 million original issue discount and $2.1 million in third-party debt issuance costs.
Regularly scheduled principal repayments of the Credit Facilities (other than the Revolving Facility) are payable on a quarterly basis as follows: (i) with respect to the Term Loan Facility, an amount equal to the original principal amount of the Term Loan Facility multiplied by1/100th, (ii) with respect to the Equipment Loan, an amount equal to $0.2 million, (iii) with respect to the Capex Facility, an amount equal to $0.8 million, and (iv) with respect to the DDTL Facility, an amount equal to the original principal amount of the DDTL Facility multiplied by 1/28th with respect to delayed draw term loans used to purchase equipment and 1/100th with respect to delayed draw term loans used to purchase real estate. Repayment of the Revolving Facility is required if the borrowing base (as defined in the Second A&R Loan and Security Agreement) does not support the amount of borrowing under the Revolving Facility. Any unpaid principal, interest and other amounts owing with respect to any Credit Facility is due at maturity of such Credit Facility.
Borrowings under the Credit Facilities bear interest at a rate per annum equal to, at the Company’s option, either (a) a Term Secured Overnight Financing rate “SOFR” for the applicable interest period relevant to such borrowing, plus a market-determined credit spread adjustment depending on such interest period (0.10% for one-month; 0.15% for three-months; and 0.25% for six-months), plus an applicable margin (2.25% for the Credit Facilities other than the Revolving Facility; for the Revolving Facility the applicable margin is based on a range of 1.50%-2.00% depending on average borrowing availability under the Credit Facilities) or (b) an Adjusted Base Rate, or ABR, determined by reference to the highest of (i) Federal Funds Rate plus 0.50%, (ii) the rate of interest established by the lender acting as the administrative agent as its “prime rate” and (iii) the Term SOFR for a one-month term in effect on that day plus 1.0% plus a market-determined credit spread adjustment of 0.10%, plus, in each case, an applicable margin (1.25% for the Credit Facilities other than the Revolving Facility; depending on average availability for the Revolving Facility, with the initial applicable margin for the Revolving Facility being 1.00%). The Company is currently in the process of amending our interest rate swap agreements to conform with the Credit Facilities. We do not expect the impact of these amendments to have a material impact on the Credit Facilities' interest rates.
In addition, the Second A&R Loan and Security Agreement and related loan documents provide for recurring fees with respect to the Credit Facilities, including (i) a fee for the unused commitments of the lenders under the Term Loan Facility, the Revolving Facility and the DDTL Facility, payable quarterly, accruing at a rate equal to 0.25% per annum with respect to the Term Loan Facility and the DDTL Facility and a rate within the range of 0.15%-0.20% per annum with respect to the Revolving Facility depending on average availability under the Revolving Facility (ii) letter of credit fees (which vary depending on the applicable margin rate based on the average availability under the Revolving Facility), fronting fees and processing fees to each issuing bank and (iii) administration fees.
The Credit Facilities are secured by substantially all of the assets of the Company.
Additionally, the Second A&R Loan and Security Agreement includes customary representations and warranties, affirmative and negative covenants, financial covenants and certain other amendments, including, without limitation, (i) a minimum fixed charge coverage ratio (based on trailing twelve-month EBITDA adjusted for capital expenditures, taxes and certain other items) of 1.10:1.00 measured on a rolling four quarter basis provided that the minimum capital expenditure amount for purposes of calculating the fixed charge coverage ratio will increase by $175.0 thousand per quarter until it reaches $1.5 million, (ii) the addition of a maximum debt to capitalization ratio covenant, initially set at 0.60:1.00 for each quarter until December 31, 2023 and stepping down to 0.575:1.00 for each quarter until March 31, 2024 and 0.55:1.00 for each quarter until December 31, 2024 and thereafter, (iii) certain new EBITDA addbacks (and one historical EBITDA deduction in the amount of approximately $1.4 million for the quarter ended September 30, 2022) and (iv) certain amendments to the conditions for permitted acquisitions and accordion increases.
On February 13, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 90 days after the period end.
On March 31, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 120 days after the period end.
On May 9, 2023, we amended the Second A&R Loan and Security Agreement to revise the definition and calculation of certain financial covenants as of March 31, 2023. The amendment revised the definition of Adjusted EBITDA (as defined in the Second A&R Loan and Security Agreement) as utilized in the fixed charge coverage ratio calculation to allow certain addbacks to Adjusted EBITDA. Due to the amendment, at March 31, 2023, the Company believes it is in compliance with the covenants contained in the Second A&R Loan and Security Agreement.
25
On October 12, 2023, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”"A&R Loan and Security Agreement") by and among the Company, the Borrowers party thereto (the "Borrowers"), the Lenders party thereto (the "Lenders"), and Agent.Bank of the West as Agent (the "Agent"). The Fourth Amendment, among other things: (i) waives certain existing
8
events of default relating to the Company’s failure to comply with the financial covenants and financial reporting requirements set forth in the Credit Agreementcredit agreement for prior fiscal periods; (ii) reduces the aggregate revolving commitment and the aggregate delayed draw term loan commitment to $200,000,000 and $38,100,000, respectively; (iii) replaces the maximum debt to capitalization financial covenant with a minimum adjusted EBITDA financial covenant of not less than (1) $4,000,000 for the fiscal quarter ending September 30, 2023, (2) $17,000,000 for the two fiscal quarter period ending December 31, 2023, (3) $27,000,000 for the three fiscal quarter period ending March 31, 2024, (4) $34,000,000 for the four fiscal quarter period ending June 30, 2024, and (5) $35,000,000 for each four fiscal quarter period ending thereafter; (iv) adds a minimum liquidity covenant of $25,000,000 (or, for fiscal quarters ending in December, $15,000,000), which applies only for the fiscal quarters ending September 30, 2023 through and including December 31, 2024 (the “Covenant Modification Period”); (v) suspends the minimum fixed charge coverage ratio covenant for the fiscal quarters ending September 30, 2023 through and including June 30, 2024 and provides for a step-down of the minimum fixed charge coverage ratio to 1.00:1.00 for the remainder of the Covenant Modification Period; (vi) adds an equity cure right for the Company in the event of future breaches of the financial covenants; (vii) reduces revolver availability by (1) $15,000,000 during the months of February through September of each year and (2) $10,000,000 during the months of October through January of each year; (viii) suspends the exercise of incremental facilities during the Covenant Modification Period; (ix) restricts all permitted acquisitions during the term of the credit facilities, unless previously approved by the required Lenders; (x) increases in the applicable margin for all credit facilities to 3.00% for the loans subject to SOFR Loansinterest rates (the "SOFR Loans") and 2.00% for ABR Loans,the loans subject to the Adjusted Base Rate (the "ABR Loans"), which margins will step-up further if certain prepayments of the Term Loansterm loans are not made by certain dates prescribed in the Fourth Amendment; (xi) adds additional mandatory prepayments of (1) $10,000,000 by no later than March 31, 2024, (2) an additional $10,000,000 by no later than June 30, 2024 and (3) an additional $25,000,000 by no later than December 31, 2024; (xii) adds additional mandatory prepayments in the event that the Borrowers maintain a cash balance in excess of $20,000,000; (xiii) permits additional sales of certain real property with an aggregate appraised value of approximately $60,000,000, in addition to related personal property assets; and (xiv) adds certain additional reporting requirements to Agent and the Lenders.
As a result, as of the date hereof,October 12, 2023, the Company has received a waiver for certain events of default and is in compliance with its covenants contained in the Second A&R Loan and Security Agreement.
Maturities of Long-Term and Other Short-Term Borrowings
As of September 30, 2022, maturitiesMaturities of long-term and other short-term borrowings for succeeding fiscal years are as follows:
|
| For the years ended June 30, |
| |||||
Remaining 2023 |
| $ | 11,156 |
| ||||
2024 |
|
| 14,152 |
| ||||
Remaining 2024 |
| $ | 14,119 |
| ||||
2025 |
|
| 64,372 |
|
|
| 13,956 |
|
2026 |
|
| 8,571 |
|
|
| 13,885 |
|
2027 |
|
| 83,285 |
|
|
| 12,672 |
|
2028 |
|
| 134,363 |
| ||||
| $ | 181,536 |
|
| $ | 188,995 |
|
12.5. Stockholders' Equity(as restated)
Common Stock
We had reserved shares of stock, on an as-if converted basis, for issuance as follows:
|
| September 30, 2022 |
|
| June 30, 2022 |
| ||
Warrants |
|
| 25,646,453 |
|
|
| 25,818,247 |
|
Earnout shares |
|
| 5,726,864 |
|
|
| 5,726,864 |
|
Total |
|
| 31,373,317 |
|
|
| 31,545,111 |
|
Warrants
At September 30, 2022,2023, there were 25,646,453 warrants outstanding to purchase shares of the Company's common stock at a price of $11.50 per whole share. The 25,646,453 warrants are made up of 18,000,000 Public Warrants (the "Public Warrants") and 8,000,0007,646,453 Private Warrants (the "Private Warrants") less the 353,547 warrants that have been repurchased as part of our share repurchase plan..
The Public Warrants are exercisable commencing on August 11, 2021 and expire five years after the commencement date. The Company may accelerate the expiry date by providing 30 days’ prior written notice, if and only if, the closing price of the Company’s common stock equals or
26
exceeds $18.00 per share for any 20 trading days within a 30-trading day period. The public warrant holder’s right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of acceleration of the expiry date.
At September 30, 2022, there were 8,000,000 purchased warrants at a price of $1.00 perThe Private Warrant, with each Private WarrantWarrants are exercisable commencing on August 11, 2021 for one common share at an exercise price of $11.50, subject to anti-dilution adjustments. The private warrantsPrivate Warrants expire five years after the commencement date.
Earnout Shares
In connection with the closing of the business combination between Bespoke Capital Acquisition Corp. and Vintage Wine Estates, Inc., a California corporation (“VWE Legacy”) pursuant to a transaction agreement dated February 3, 2021, as amended, certain shareholders of shareholders of VWE Legacy are entitled to receive up to an additional 5,726,864 shares of the Company’s common stock (the “Earnout Shares”) if at any point during the Earnout Period, from June 7, 2021 to June 7, 2023, the Company's closing share price on the Nasdaq on 20 trading days out of 30 consecutive trading days;
The Earnout Shares will be adjusted to reflect any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible common shares), reorganization, recapitalization, reclassification, combination and, exchange of shares or other like change. The Earnout Shares are indexed to the Company’s equity and meet the criteria for equity classification. The fair value of the Earnout Shares, $32.4 million, was recorded as a dividend to additional paid in capital due to the absence of retained earnings.
No Earnout Shares were issued as of September 30, 2022.
Meier's Earnout Shares
In connection with the closing of the Meier's business combination with Paul T. Lux Irrevocable Trust pursuant to a merger agreement dated January 18, 2022, Mr. Lux is entitled to receive up to an additional $5 million of the Company’s common stock, subject to the terms of the earnout agreement.
9
The Company will make earnout payments based on the product of the amount of adjusted EBITDA in calendar 2022, 2023 and 2024 over an EBITDA threshold, as defined in the merger agreement, and the earnout multiple of seven. The earnout payment shall be paid 50% in cash and 50% in the Company's common stock. No shares were issued through September 30, 2022.
2021 Stock Incentive Plan
Effective June 7, 2021, the Company adopted the 2021 Omnibus Incentive Plan (as amended, the "2021 Plan”). The 2021 Plan provides for the issuance of stock options, stock appreciation rights, performance shares, performance units, stock, restricted stock, restricted stock units and cash incentive awards. The 2021 Plan was approved by shareholders at the Annual Meeting of Shareholders on February 2, 2022.
The following table provides total stock-based compensation expense by award type:
|
| Three Months Ended |
| |||||
|
| September 30, 2022 |
|
| September 30, 2021 |
| ||
(in thousands) |
| As Restated |
|
|
|
| ||
Stock option awards |
| $ | 489 |
|
| $ | - |
|
Restricted stock units |
|
| 2,951 |
|
|
| - |
|
Total stock-based compensation |
| $ | 3,440 |
|
| $ | - |
|
Stock-based compensation expense is included as a component of selling, general and administrative expenses in the condensed consolidated statement of operations.2023.
Stock Options
Stock options granted under the 2021 Plan prior to May 17, 2023 have a ten-year term and are subject to certain market conditions. Theconditions, including that the stock options are exercisable for ten years and only become exercisable if the volume-weighted average price per share of our common stock is at leastmeets a $12.50 threshold over a 30-day consecutive trading period following the grant date. The fair value of the stock options was estimated using a Monte Carlo simulation valuation model. StockThese stock option awards vest, except as set forth in the award agreement, in four equal installments of 25%, with the first installment vesting 18 months after the vesting commencementgrant date with respect to an additional 25% of the total stock-based award on each of the 2nd, 3rd and 4th anniversaries of the grant date, providing in each case the employee remains in continuous employment or service with the Company or an Affiliate. Stock options granted under the 2021 Plan subsequent to May 17, 2023 are generally not subject to market conditions and vest, except as set forth in the award agreement, in four equal installments of 25%, with the first installment vesting commencement12 months after the grant date with an additional 25% of the total stock-based award on each of the 2nd, 3rd and 4th anniversaries of the grant date, providing in each case the employee remains in continuous employment or service with the Company or an Affiliate. Compensation expense is recognized ratably over the requisite service period.
27
The following table presents a summary of stock option activity under the 2021 Plan:
As Restated |
| Stock Options |
|
| Weighted-Average Exercise Price |
| Weighted-Average Remaining Contractual Life (Years) (As Restated) |
| Aggregate Intrinsic Value |
| ||||||||||||||||||||||
Outstanding at June 30, 2022 |
|
| 3,503,527 |
|
| $ | 10.50 |
|
|
| 8.9 |
|
| $ | - |
| ||||||||||||||||
|
| Stock Options |
|
| Weighted-Average Exercise Price |
|
| Weighted-Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||||||||||||||||||
Outstanding at June 30, 2023 |
|
| 2,869,837 |
|
| $ | 10.31 |
|
|
| 8.80 |
|
| $ | - |
| ||||||||||||||||
Granted |
|
| 173,364 |
|
|
| 10.50 |
|
|
| 10.0 |
|
|
| - |
|
|
| 359,214 |
|
|
| 1.26 |
|
|
|
|
| - |
| ||
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
| - |
| ||
Forfeited or cancelled |
|
| (1,250 | ) |
|
| 10.50 |
|
|
| - |
|
|
| - |
|
|
| (513,235 | ) |
|
| 10.50 |
|
|
|
|
| - |
| ||
Outstanding at September 30, 2022 |
|
| 3,675,641 |
|
| $ | 10.50 |
|
|
| 9.0 |
|
|
| - |
| ||||||||||||||||
Outstanding at September 30, 2023 |
|
| 2,715,816 |
|
| $ | 9.07 |
|
|
| 8.60 |
|
| $ | - |
|
Total unrecognized compensation expense related to the stock options was $7.93.3 million, which is expected to be recognized over a weighted-average period of 5.0 years. No stock options were vested and exercisable asAs of September 30, 2022.2023, 932,813 options were exercisable pending attainment of a market condition.
Restricted Stock Units
Restricted stock units are subject only to service conditions and those issued prior to May 17, 2023 vest, ratably overexcept as set forth in the award agreement, in four yearsequal installments of .25%, with the first installment vesting 18 months after the vesting commencement date and the other installments vesting on each of the 2nd, 3rd and 4th anniversaries of the vesting commencement date. Restricted stock units issued subsequent to May 17, 2023 vest, except as set forth in the award agreement, in four equal installments of 25%, with the first installment vesting 12 months after the vesting commencement date and the other installments vesting on each of the 2nd, 3rd and 4th anniversaries of the vesting commencement date.
The following table presents a summary of restricted stock units activity for the periods presented:activity:
As Restated |
| Restricted Stock Units |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at June 30, 2022 |
|
| 1,902,068 |
|
| $ | 8.14 |
|
Granted |
|
| 88,587 |
|
|
| 5.66 |
|
Issued |
|
| - |
|
|
| - |
|
Forfeited or cancelled |
|
| - |
|
|
| - |
|
Outstanding at September 30, 2022 |
|
| 1,990,655 |
|
| $ | 8.03 |
|
|
| Restricted Stock Units |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at June 30, 2023 |
|
| 1,162,439 |
|
| $ | 4.98 |
|
Granted |
|
| 1,794,562 |
|
|
| 1.03 |
|
Vested |
|
| (233,311 | ) |
|
| 3.31 |
|
Forfeited or cancelled |
|
| (132,881 | ) |
|
| 6.51 |
|
Outstanding at September 30, 2023 |
|
| 2,590,809 |
|
| $ | 2.32 |
|
Total unrecognized compensation expense related to the restricted stock units was $7.83.0 million, which is expected to be recognized over a weighted-average period of 2.7 2.4years. No restricted stock units vested as of September 30, 2022.
Stock and Warrant Repurchase Plan
On March 8, 2022, the Company's board of directors approved a repurchase plan authorizing the Company to purchase up to $30.0 million in aggregate value of our common stock and/or warrants through September 8, 2022. Purchases under the repurchase program may be made on the open market, in privately negotiated transactions or in other manners as permitted by the federal securities laws and other legal and contractual requirements and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases will depend on a number of factors, including price, trading volume, general market conditions and legal requirements, among others. The repurchase program does not require the Company to acquire a specific number of shares or warrants. The cost of the shares and warrants that are repurchased will be funded from available working capital.
For accounting purposes, common stock and/or warrants repurchased under our repurchase plan are recorded based upon the settlement date of the applicable trade. Such repurchased shares are presented using the cost method. During the quarter ended September 30, 2022, the Company repurchased 171,994 warrants at an average price of $1.02 per warrant. The total cost of the shares and/or warrants repurchased was $0.2 million.
The table below summarizes the changes in repurchases of common stock and warrants:
|
| |||
|
| |||
|
| |||
|
| |||
|
|
The Stock and Warrant Repurchase Plan Expired on September 9, 2022.
13. Income Taxes (as restated)
The increase in our effective tax rate for the three months ended September 30, 2022 was primarily due2023, the Company granted 151,052 fully-vested restricted stock units to changesa third party in pre-tax income and permanent items, which primarily consistconsideration of non-deductible officer compensation expense, as compared toconsulting services rendered.
6. Income Taxes
For the three months ended September 30, 2021.
28
Table2023, the effective tax rate differs from the federal statutory rate of Contents
21% primarily due to permanent items and valuation allowance. For the three months ended September 30, 2022, the effective tax rate differs from the federal statutory rate of 21% primarily due to permanent items related to non-deductible officers compensation expense. For the three months ended September 30, 2021, the effective tax rate differs from the federal statutory rateofficer compensation.
10
Table of Contents21% primarily due to state taxes.
The provisional measurements of fair value for income taxes payable and deferred taxes for the acquisitions of Vinesse, ACE Cider and Meier's may be subject to changes as additional information is received and certain tax returns are finalized. The Company expects to finalize the fair value measurements as soon as practicable, but not later than one year from the date of acquisition.
14.7. Commitments, Contingent Liabilities and ContingenciesLitigation
We are subject to a variety of claims and lawsuits that arise from time to time in the ordinary course of business. Although management believes that any pending claims and lawsuits will not have a significantmaterial impact on the Company’s consolidated financial position or results of operations, the adjudication of such matters are subject to inherent uncertainties and management’s assessment may change depending on future events.
Litigation
On November 14, 2022, a purported securities class action lawsuit was filed in the U.S. District Court for the District of Nevada against the Company and certain current and former members of its management team. The lawsuit is captioned Ezzes v. Vintage Wine Estates, Inc., et al. (“Ezzes“), and alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by making material misstatements or omissions in certain of the Company's periodic reports filed with the SEC relating to, among other things, the Company’s business, operations, and prospects, including with respect to the Company’s inventory metrics and overhead burden. The lawsuit seeks an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On November 28, 2022, a second purported securities class action lawsuit, captioned Salbenblatt v. Vintage Wine Estates, Inc., et al. (“Salbenblatt”), was filed in the same court, containing similar claims and allegations, and seeking similar relief, as the Ezzes lawsuit. On February 14, 2023, the Court consolidated both actions and appointed the lead plaintiffs. The Salbenblatt action was transferred to and consolidated with the Ezzes action. On May 1, 2023, the lead plaintiffs filed a consolidated amended class action complaint (“amended complaint”). On June 30, 2023 defendants filed a motion to dismiss the amended complaint. The motion to dismiss was fully briefed on September 25, 2023, and is pending. The Company believes this litigation is without merit and intends to defend against it vigorously. However, litigation is inherently uncertain, and the Company is unable to predict the outcome of this litigation and is unable to estimate the range of loss, if any, that could result from an unfavorable outcome. The Company also cannot provide any assurance that the ultimate resolution of this litigation will not have a material adverse effect on our reputation, business, prospects, results of operations or financial condition.
The Company is involved in two disputes relating to an Asset Purchase Agreement (“APA”) and a related Non-Compete Agreement/Non-Solicitation Agreement (the “Non-Compete Agreement”) from a 2018 acquisition. Claimant has alleged that the Company did not make certain earnout payments allegedly due under the APA and has alleged that the Company misused alleged rights of publicity with respect to the brands in violation of the Non-Compete Agreement. On or about August 30, 2023, claimants served a demand for arbitration on the Company. The Company paid the claimant $0.4 million subsequent to September 30, 2023. At present, claimants collectively have not quantified the total amount of their alleged damages for all claims; however based on information provided by claimants, the Company would anticipate that any claim of damages would likely be at least approximately $3.0 million. The Company disputes both that any amounts in excess of the accrued earn-out liability of approximately $0.4 million for the dispute period are owed and that the Company misused the alleged rights of publicity. The Company intends to vigorously defend itself against the claims. At this time, in view of the complexity and ongoing nature of the matters, we are unable to reasonably estimate a possible loss or range of loss that the Company may incur to resolve these matters or defend against these claims.
The Company has received a complaint in California Superior Court alleging certain violations of California employment law and seeking class certification for certain current and former employees of the Company. The Company intends to defend the matter vigorously. The Company is unable to predict the outcome of this matter and is unable to estimate the range of loss, if any, that could result from an unfavorable outcome.
From time to time, the Company is subject to other legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
Indemnification Agreements
In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. These indemnities include indemnities to our directors and officers to the maximum extent permitted under applicable state laws. The maximum potential amount of future payments we could be required to make under these indemnification agreements is, in many cases, unlimited. Historically, we have not incurred any significant costs as a result of such indemnifications and are not currently awareindemnifications.
11
Table of any indemnification claims.Contents
Other Commitments
Contracts exist with various growers and certain wineries to supply a significant portion of our future grape and wine requirements. Contract amounts are subject to change based upon actual vineyard yields, grape quality and changes in grape prices. Estimated future minimum grape and bulk wine purchase commitments are as follows:
(in thousands) |
| Total |
|
|
|
| ||
Remaining 2023 |
| $ | 40,524 |
| ||||
2024 |
|
| 20,706 |
| ||||
Year ending June 30, |
| Total |
| |||||
Remainder of 2024 |
| $ | 25,969 |
| ||||
2025 |
|
| 18,158 |
|
|
| 9,935 |
|
2026 |
|
| 3,786 |
| ||||
2027 |
|
| 347 |
| ||||
2028 |
|
| 264 |
| ||||
| $ | 79,388 |
|
| $ | 40,301 |
|
Grape, and bulk wine and cider purchases under contracts totaled $15.812.8 million and $10.315.8 million for the three months ended September 30, 20222023 and 2021,2022, respectively. The Company expects to fulfill all of these purchase commitments.
On February 7, 2023, the Company and Patrick Roney, founder of VWE, entered into a letter agreement (the “Letter Agreement”) whereby Mr. Roney voluntarily elected to transition from Chief Executive Officer of the Company to Executive Chairman of the Board, effective February 7, 2023. Pursuant to the terms of the Letter Agreement, the Employment Agreement between the Company and Mr. Roney effective June 7, 2021 (the “Prior Employment Agreement”) was terminated and upon such termination the Company agreed to provide Mr. Roney his accrued but unpaid Base Salary and PTO (as defined in the Prior Employment Agreement) through February 7, 2023, and any vested amounts or benefits that he is entitled to receive under any plan, program, or policy, as described in Section 5.1 of the Prior Employment Agreement. Mr. Roney expressly waived any claim to the severance benefits described in Section 5.2(b) of the Prior Employment Agreement. On October 17 2023, the Company and Mr. Roney entered into an amendment to the Letter Agreement pursuant to which his annual base salary was decreased. Pursuant to the terms of the Letter Agreement, as amended, Mr. Roney will receive an annual base salary of $212,500 for his service as restatedExecutive Chairman and will be eligible to participate in the Company’s employee benefit plans and programs in accordance with their terms and eligibility requirements. In connection with his appointment as Executive Chairman, all outstanding stock options and unvested restricted stock units previously granted to Mr. Roney under the Company’s 2021 Plan ceased to vest and any unvested awards were forfeited.
The Company has a contract with Bin-to-bottle, a storage and bottling company owned by Patrick Roney, founder of VWE and Executive Chairman, for storage purposes. The Company incurred zero and $6.0 thousand in expenses for the three months ended September 30, 2023 and 2022, respectively.
Also on February 7, 2023, the Board appointed Jon Moramarco, a member of the Board, as the Company’s Interim Chief Executive Officer. In connection with such appointment, the Company entered into a consulting agreement (the “Consulting Agreement”) with bw166 LLC (“bw166”) and Mr. Moramarco, pursuant to which the Company will pay bw166 a monthly fee of $17,500 and will reimburse bw166 and Mr. Moramarco for reasonable business-related expenses in connection with the Interim Chief Executive Officer services provided thereunder. Additionally, the Company agreed to award Mr. Moramarco a one-time grant of 100,000 restricted stock units pursuant to the 2021 Plan, which will vest in full on the one-year anniversary of the grant date. Mr. Moramarco is the Managing Partner of bw166 and has a controlling interest therein. The Consulting Agreement was terminated effective October 31, 2023.
Immediate Family Member and Other Business Arrangements
We provide at will employment to several family members of officers or directors who provide various sales, marketing and administrative services to us. Payroll and other expenses to these related parties was $125.0123 thousand and $71.0125 thousand for the three months ended September 30, 2023 and 2022, and 2021, respectively.
WeOn July 19, 2023, the Company and Terry Wheatley, President of VWE, entered into a Separation Agreement and Release of all Claims (the "Separation Agreement") whereby Ms. Wheatley voluntarily elected to resign from the Company. Pursuant to the terms of the Separation Agreement, the employment agreement between the Company and Ms. Wheatley effective June 7, 2021 (the "Prior Employment Agreement") was terminated and upon such termination the Company agreed to provide Ms. Wheatley her accrued but unpaid Base Salary and PTO (as defined in the Prior Employment Agreement) through July 19, 2023, and any vested amounts or benefits that she is entitled to receive under any plan, program, or policy, as described in Section 5.1 of the Prior Employment Agreement. Pursuant to the terms of the Separation Agreement, the Company agreed to pay Ms. Wheatley an amount equal to three years of her annual base salary, to be paid in monthly installments over twenty-four consecutive months, a one-time payment of $125 thousand and reimbursement for the cost of health insurance continuation coverage through December 31, 2023, if continuation coverage is elected by Ms. Wheatley.
12
In connection with the Separation Agreement, the Company and Ms. Wheatley entered into an asset purchase agreement (the "Wheatley APA") effective as of September 17, 2023, whereby the Company sold Ms. Wheatley all of its intellectual property rights related to its "Purple Cowboy," "Wine Sisterhood" and "Gem+Jane" trademarks for a nominal sum. Pursuant to the Wheatley APA, the Company holds a worldwide, non-exclusive license to use the Purple Cowboy intellectual property ("IP") until June 30, 2024 for the purpose of liquidating its existing Purple Cowboy inventory. Pursuant to the Wheatley APA, Ms. Wheatley is required to purchase, by December 31, 2024, all Purple Cowboy inventory held by the Company that was not sold by June 30, 2024, at cost plus shipping charges. From September 17, 2023 to June 30, 2024, the Company has agreed to make sponsorship payments to “Tough Enough to Wear Pink”, an initiative to raise money for breast cancer awareness, of all gross profits received from sales of inventory associated with the Purple Cowboy IP. The sponsorship payments are to be made at a rate of $20,000 per month with any adjustment needed to account for remaining gross profits not previously covered by the sponsorship payments to be made in the final payment in July 2024. In the event the sponsorship payments exceed the gross profits received by the Company from sales of Purple Cowboy inventory, Ms. Wheatley is required to refund such excess amount to the Company by July 30, 2024. The Company donated money to Tough Enough to Wear Pink from the profits made by the sale of Purple Cowboy, that totaled $65 thousand and marketing services and point of sale marketing materials to unincorporated businesses that are managed by immediate family members of a Company executive officer. For$75 thousand for the three months ended September 30, 2023 and 2022, respectively.
In addition, pursuant to the Wheatley APA, the Company holds a worldwide, partially non-exclusive and 2021, payments relatedpartially exclusive license to sponsorshipuse the Wine Sisterhood IP for the purpose of liquidating, and marketing services totaled $87.0 thousand and $75.0 thousand, respectively.until it has liquidated, its existing inventory associated with the Wine Sisterhood IP. Ms. Wheatley has also agreed to pay the Company a royalty of $1.00 per 9-liter case of “Gem+Jane” branded products sold for a period of three years from September 17, 2023.
We have a revenue sharing agreement with Sonoma Brands Partners II, LLC where a portion of B.R. Cohn and Clos Pegase sales during various events throughout the year are paid to Sonoma Brands Partners II, LLC. Sonoma Brands Partners II, LLC is managed by a member of the Company's board of directors. For the three months ended September 30, 2023 and 2022, and 2021, wepayments madeno payments to Sonoma Brands Partners II, LLC.
The Company has a contract with Bin-to-bottle, a storage and bottling company owned by Patrick Roney, for storage purposes. The expenses incurred for storageLLC were immaterial for the years ended June 30, 2023 and 2022.immaterial.
29
Financial Advisory Agreement
In April 2022, the Company entered into an arrangement with Global Leisure Partners LLC ("GLP") to act as a financial advisor to the Company in connection with its exploration of acquisitions, mergers, investments and other strategic matters. A director of the Company having the authority to establish policies and make decisions is an executive of GLP. Although members of the board of directors are typically independent from management, members of the board of directors would be considered management based on the definition of management in ASC 850, Related Party Disclosures. PDuringayments to GLP totaled $50 thousand for each of the three months ended September 30, 20222023 and 2021, payments in respect of capital markets and mergers and acquisitions matters totaled $50.0 thousand and zero, respectively.2022.
16.9. Segments(as restated)
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM, or decision-making group, in deciding how to allocate resources and in assessing performance. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Our operations are principally managed on a sales distribution basis and are comprised of three reportable segments: Wholesale; Direct-to-Consumer; and Business-to-Business. The factors for determining the reportable segments include the manner in which management evaluates performance for purposes for allocating resources and assessing performance.
We report our segments as follows:
Direct-to-Consumer ("DTC") - We sell our wine and other merchandise directly to consumers through wine club memberships, at wineries’ tasting rooms, and through eCommerce. Winery estates hold various public and private events for customers and our wine club members.
Wholesale Segment- —We sell our wine, spirits and cider to wholesale distributors under purchase orders. Wholesale operations generate revenue from product sold to distributors, who then sell them off to off-premise retail locations such as grocery stores, wine clubs, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars.
Direct-to-Consumer Segment—We sell our wine and other merchandise directly to consumers through wine club memberships, at wineries’ tasting rooms, at Sommelier wine tasting events, and through the Internet. Winery estates hold various public and private events for customers and our wine club members. The certified Sommeliers provide guided tasting experiences customized for each audience through virtual and in-person events globally.
Business-to-Business Segment—("B2B") - Our Business-to-Business sales channelsegment generates revenue primarily from custom winemaking services and the sale of private label wines and spirits, and custom winemaking services.spirits. Annually, we work with our national retail partners to develop private label wines incremental to their wholesale channel businesses. These services are made under contracts with customers, which includes specific protocols, pricing, and payment terms. The customer retains title and control of the product during the process.
13
Other —- Other is included in the tables below for purposes of reconciliation of revenues and profit but is not considered a reportable segment. In 2022, it included revenue from grape and bulk wine sales and storage services. In 2023 and going forward, these immateial revenues are recorded in the B2B segment. We record corporate level expenses, non-direct selling expenses and other expenses not specifically allocated to the results of operations in Other.
The following tables present net revenue and income from operations directly attributable to the Company's segments:
|
| Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| As Restated |
|
| Three months ended September 30, 2023 |
| ||||||||||||||||||||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Other |
|
| Total |
|
| Direct-to-Consumer |
|
| Wholesale |
|
| Business-to-Business |
|
| Other |
|
| Total |
| ||||||||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net revenue |
| $ | 23,987 |
|
| $ | 19,992 |
|
| $ | 34,180 |
|
| $ | (79 | ) |
| $ | 78,080 |
|
| $ | 17,983 |
|
| $ | 19,144 |
|
| $ | 36,148 |
|
| $ | (1 | ) |
| $ | 73,274 |
|
Restructuring expenses |
| $ | 63 |
|
| $ | 2,289 |
|
| $ | - |
|
| $ | 1,650 |
|
| $ | 4,002 |
| ||||||||||||||||||||
Income (loss) from operations |
| $ | 2,288 |
|
| $ | 1,969 |
|
| $ | 10,533 |
|
| $ | (18,175 | ) |
| $ | (3,385 | ) |
| $ | 2,214 |
|
| $ | (1,293 | ) |
| $ | 4,898 |
|
| $ | (15,680 | ) |
| $ | (9,861 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
| Three Months Ended September 30, 2021 |
|
| Three months ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Other |
|
| Total |
|
| Direct-to-Consumer |
|
| Wholesale |
|
| Business-to-Business |
|
| Other |
|
| Total |
| ||||||||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net revenue |
| $ | 16,203 |
|
| $ | 15,263 |
|
| $ | 24,467 |
|
| $ | 102 |
|
| $ | 56,035 |
|
| $ | 19,992 |
|
| $ | 23,987 |
|
| $ | 34,180 |
|
| $ | (79 | ) |
| $ | 78,080 |
|
Income (loss) from operations |
| $ | 3,042 |
|
| $ | 2,031 |
|
| $ | 6,229 |
|
| $ | (8,093 | ) |
| $ | 3,209 |
|
| $ | 1,969 |
|
| $ | 2,288 |
|
| $ | 10,533 |
|
| $ | (18,175 | ) |
| $ | (3,385 | ) |
There was no inter-segment activity for any of the given reporting periods presented.
30
Depreciation expense recognized by operating segment is summarized below:
(in thousands) | (in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Other |
|
| Total |
| (in thousands) |
| Direct-to-Consumer |
|
| Wholesale |
|
| Business-to-Business |
|
| Other |
|
| Total |
| ||||||||||||
For the periods ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
For the three months ended September 30: | For the three months ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| 2022 |
|
| $ | 40 |
|
| $ | 291 |
|
| $ | 235 |
|
| $ | 448 |
|
| $ | 1,014 |
| 2023 |
|
| $ | 317 |
|
| $ | 8 |
|
| $ | 279 |
|
| $ | 525 |
|
| $ | 1,129 |
|
| 2021 |
|
| $ | - |
|
| $ | 300 |
|
| $ | - |
|
| $ | - |
|
| $ | 300 |
| 2022 |
|
| $ | 291 |
|
| $ | 40 |
|
| $ | 235 |
|
| $ | 448 |
|
| $ | 1,014 |
|
Amortization expense recognized by operating segment is summarized below:
(in thousands) | (in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Other |
|
| Total |
| (in thousands) |
| Direct-to-Consumer |
|
| Wholesale |
|
| Business-to-Business |
|
| Other |
|
| Total |
| ||||||||||||
For the periods ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
For the three months ended September 30: | For the three months ended September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
| 2022 |
|
| $ | 596 |
|
| $ | 745 |
|
| $ | 364 |
|
| $ | - |
|
| $ | 1,705 |
| 2023 |
|
| $ | 596 |
|
| $ | 660 |
|
| $ | 380 |
|
| $ | - |
|
| $ | 1,636 |
|
| 2021 |
|
| $ | 10 |
|
| $ | 613 |
|
| $ | 3 |
|
| $ | 25 |
|
| $ | 651 |
| 2022 |
|
| $ | 821 |
|
| $ | 616 |
|
| $ | 374 |
|
| $ | - |
|
| $ | 1,811 |
|
Excluding the property, plant, and equipment specific to assets located at our tasting facilities, and the customer and sommelier relationships and intangible assets specific to the Sommelier acquisition, given the nature
All of our business, revenue generatinglong-lived assets are utilized across segments, therefore, discrete financial information related to segment assets and other balance sheet data is not available andlocated within the information continues to be aggregated.United States.
14
17.10. Earnings Per Share(as restated)
The following table reconciles the number of common shares used to compute basic and diluted earnings per share attributable to Vintage Wine Estates, Inc., shareholders:
|
| Three Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
(in thousands, except for per share amounts) |
| As Restated |
|
|
|
| ||
Net income |
| $ | 1,358 |
|
| $ | 768 |
|
Less: loss allocable to noncontrolling interest |
|
| (174 | ) |
|
| (25 | ) |
Net income allocable to common shareholders |
| $ | 1,532 |
|
| $ | 793 |
|
|
|
|
|
|
|
| ||
Numerator – Basic EPS |
|
|
|
|
|
| ||
Net income allocable to common shareholders |
| $ | 1,532 |
|
| $ | 793 |
|
Net income allocated to common shareholders |
| $ | 1,532 |
|
| $ | 793 |
|
|
|
|
|
|
|
| ||
Numerator – Diluted EPS |
|
|
|
|
|
| ||
Net income allocated to common shareholders |
| $ | 1,532 |
|
| $ | 793 |
|
Net income allocated to common shareholders |
| $ | 1,532 |
|
| $ | 793 |
|
|
|
|
|
|
|
| ||
Denominator – Basic Common Shares |
|
|
|
|
|
| ||
Weighted average common shares outstanding - Basic |
|
| 58,819,160 |
|
|
| 60,461,611 |
|
|
|
|
|
|
|
| ||
Denominator – Diluted Common Shares |
|
|
|
|
|
| ||
Weighted average common shares - Diluted |
|
| 58,819,160 |
|
|
| 60,461,611 |
|
|
|
|
|
|
|
| ||
Net income per share – basic: |
|
|
|
|
|
| ||
Common Shares |
| $ | 0.03 |
|
| $ | 0.01 |
|
Net income per share – diluted: |
|
|
|
|
|
| ||
Common Shares |
| $ | 0.03 |
|
| $ | 0.01 |
|
31
|
| Three Months Ended September 30, |
| |||||
(in thousands, except for per share amounts) |
| 2023 |
|
| 2022 |
| ||
Net (loss) income |
| $ | (15,098 | ) |
| $ | 1,358 |
|
Less: income (loss) allocable to noncontrolling interest |
|
| (40 | ) |
|
| (174 | ) |
Net (loss) income allocable to common shareholders |
| $ | (15,058 | ) |
| $ | 1,532 |
|
|
|
|
|
|
|
| ||
Numerator – Basic EPS |
|
|
|
|
|
| ||
Net (loss) income allocable to common shareholders |
| $ | (15,058 | ) |
| $ | 1,532 |
|
Net (loss) income allocated to common shareholders |
| $ | (15,058 | ) |
| $ | 1,532 |
|
|
|
|
|
|
|
| ||
Numerator – Diluted EPS |
|
|
|
|
|
| ||
Net (loss) income allocated to common shareholders |
| $ | (15,058 | ) |
| $ | 1,532 |
|
Net (loss) income allocated to common shareholders |
| $ | (15,058 | ) |
| $ | 1,532 |
|
|
|
|
|
|
|
| ||
Denominator – Basic Common Shares |
|
|
|
|
|
| ||
Weighted average common shares outstanding - Basic |
|
| 59,413,048 |
|
|
| 58,819,160 |
|
Denominator – Diluted Common Shares |
|
|
|
|
|
| ||
Effect of dilutive securities: |
|
|
|
|
|
| ||
Stock options |
|
| - |
|
|
| - |
|
Restricted Stock Units |
|
| - |
|
|
| 317,876 |
|
Weighted average common shares - Diluted |
|
| 59,413,048 |
|
|
| 59,137,036 |
|
|
|
|
|
|
|
| ||
Net (loss) income per share – basic: |
|
|
|
|
|
| ||
Common Shares |
| $ | (0.25 | ) |
| $ | 0.03 |
|
Net (loss) income per share – diluted: |
|
|
|
|
|
| ||
Common Shares |
| $ | (0.25 | ) |
| $ | 0.03 |
|
The following securities have been excluded from the calculations of diluted earnings per share attributable to common shareholders because including them would have been antidilutive:
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Shares subject to warrants to purchase common stock |
|
| 25,646,453 |
|
|
| 26,000,000 |
|
|
| 25,646,453 |
|
|
| 25,646,453 |
|
Shares subject to options to purchase common stock |
|
| 3,675,641 |
|
|
| - |
|
|
| 2,715,816 |
|
|
| 3,675,641 |
|
Shares subject to restricted stock units |
|
| 2,590,809 |
|
|
| 1,990,655 |
| ||||||||
Total |
|
| 29,322,094 |
|
|
| 26,000,000 |
|
|
| 30,953,078 |
|
|
| 31,312,749 |
|
18.11. Subsequent Events(as restated)
During the three months ended December 31, 2022, the Company identified a number of goodwill and intangible asset impairment indicators that led us to conclude that an impairment test was required. After performing fair value determinations, we recorded a goodwill impairment of $125.3 million and intangible assets impairments of $13.8 million for the three months ended December 31, 2022.Debt Amendment
On October 12, 2023, the Company entered into a fourth amendment to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”)Fourth Amendment by and among the Company, the Borrowers, the Lenders party thereto, and Agent. The Fourth Amendment, among other things:(i) waives certain existing events of default relating to the Company’s failure to comply with the financial covenants and financial reporting requirements set forth in the Credit Agreementcredit agreement for prior fiscal periods; (ii) reduces the aggregate revolving commitment and the aggregate delayed draw term loan commitment to $200,000,000 and $38,100,000, respectively; (iii) replaces the maximum debt to capitalization financial covenant with a minimum adjusted EBITDA financial covenant of not less than (1) $4,000,000 for the fiscal quarter ending September 30, 2023, (2) $17,000,000 for the two fiscal quarter period ending December 31, 2023, (3) $27,000,000 for the three fiscal quarter period ending March 31, 2024, (4) $34,000,000 for the four fiscal quarter period ending June 30, 2024, and (5) $35,000,000 for each four fiscal quarter period ending thereafter; (iv) adds a minimum liquidity covenant of $25,000,000 (or, for fiscal quarters ending in December, $15,000,000), which applies only for the fiscal quarters ending September 30, 2023 through and including December 31, 2024 (the “Covenant Modification Period”); (v) suspends the minimum fixed charge coverage ratio covenant for the fiscal quarters ending September 30, 2023 through and including June 30, 2024 and provides for a step-down of the minimum fixed charge coverage ratio to 1.00:1.00 for the remainder of the Covenant Modification Period; (vi) adds an equity cure right for the Company in the event of future breaches of the financial covenants; (vii) reduces revolver availability by (1) $15,000,000 during the
15
months of February through September of each year and (2) $10,000,000 during the months of October through January of each year; (viii) suspends the exercise of incremental facilities during the Covenant Modification Period; (ix) restricts all permitted acquisitions during the term of the credit facilities, unless previously approved by the required Lenders; (x) increases in the applicable margin for all credit facilities to 3.00% for SOFR Loans and 2.00% for ABR Loans, which margins will step-up further if certain prepayments of the Term Loansterm loans are not made by certain dates prescribed in the Fourth Amendment; (xi) adds additional mandatory prepayments of (1) $10,000,000 by no later than March 31, 2024, (2) an additional $10,000,000 by no later than June 30, 2024 and (3) an additional $25,000,000 by no later than December 31, 2024; (xii) adds additional mandatory prepayments in the event that the Borrowers maintain a cash balance in excess of $20,000,000; (xiii) permits additional sales of certain real property with an aggregate appraised value of approximately $60,000,000, in addition to related personal property assets; and (xiv) adds certain additional reporting requirements to Agent and the Lenders.
Executive Leadership Changes
On October 30, 2023 Seth Kaufman began his service as the Company’s President and Chief Executive Officer, as previously appointed by the Board on July 20, 2023. In connection with Mr. Kaufman's appointment, Jon Moramarco ceased his service as the Interim Chief Executive Officer of the Company. Mr. Moramarco will remain on the Company’s Board of Directors. The Consulting Agreement with Mr. Moramarco and bw166 for his services as Interim Chief Executive Officer was terminated effective October 31, 2023.
3216
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 20222023 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”,“we,” “us,” “our” and “the Company” are intended to mean the business and operations of Vintage Wine Estates, Inc., a Nevada corporation, and its consolidated subsidiaries.
Restatement of Previously Issued Financial Statements
This “Management’s DiscussionThe Company restated its unaudited quarterly financial data on October 13, 2023 for the periods ended September 30, 2022, December 31, 2022 and Analysis of Financial Condition and Results of Operations” has been amended and restated to giveMarch 31, 2023. The following discussion gives effect to the restatement of our unaudited interim consolidated financial statements as more fully described in Note 2 to our financial statements entitled “Restatement, Reclassification and Revision of Previously Issued Condensed Consolidated Financial Statements.” For further detail regardingfor the restatement, see the “Explanatory Note” to this Quarterly Report on Form 10-Q/A.three months ended September 30, 2022.
Business Overview
Vintage Wine Estates, Inc., is a leading vintner in the United States ("U.S."), offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake,ACE Cider, Bar Dog, B.R. Cohn, Cherry Pie, Firesteed, Kunde, Cameron Hughes Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. VWE also produces hard cider, another form of wine, under the ACE Cider brand. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 14th largest wine producer based on cases of wine shipped in California.
Growth Strategy and Five-Point-Plan
Our strategy is focused on growth with our wine brands by leveraging our omnichannel sales capabilities through all three business segments for our customers. We were presented with several new challenges in 2023, such as supply chain constraints, freight challenges, intense inflation, rapidly increasing interest rates and labor shortages which significantly impacted profitability and liquidity in 2023. To address these issues, in the latter half of 2023, we implemented our Five-Point Plan which we believe will enable us to drive stronger earnings, provide a sustainable foundation for future growth and allow us to continue to grow organically and through acquisitionsas a leading vintner with a view towards making two to three acquisitions per year over the next five years. These acquisitions have allowedstrong portfolio of affordable luxury brands. We believe our Five-Point Plan will enable us to diversifybetter scale and grow beyond 2024, which we anticipate will be a transition year for the Company. In 2024, our wine sourcing into regions outsidepriorities under our Five-Point Plan are to deliver profitability, generate cash, and reduce debt. In order to meet these objectives our near-term goals are to simplify the business, reduce costs, improve production throughout our operations, focus on key brands, and pay down debt through the monetization of California, expand our portfolio of brands, increase our vineyard assets and provide our direct-to-consumerreducing costs, among other things.
Restructuring
On July 20, 2023, the Company's executive officers, authorized by the Board of Directors (the "Board") to take such action, approved an organizational restructuring plan (the "Plan") to expand margin through simplification and retail customers withimproved execution, measurably reduce costs, improve cash management, monetize assets, reduce debt and grow revenue of its key brands. As part of the Plan, there was a rangereduction in force affecting approximately 25 roles, or 4% of wines to choose from.the workforce. The total restructuring expense, substantially all of which is employee severance and related benefit costs, for the three months ended September 30, 2023 was $4.0 million.
Trends and Other Factors Affecting Our Business
Various trendsEvents, including, but not limited to, the military incursionby Russia into Ukraine, the Israel-Hamas war, inflationary conditions and other factors affect orrising interest rates, have affected our operating results, including:
Economic Uncertainties
The ongoing COVID-19 pandemic ("COVID-19"), inflation and supply chain constraints continue to disruptcaused disruptions in the U.S. and global economieseconomy, and there remains uncertainty regarding general economic conditions, including concerns about the impacta potential U.S. or global recession may affect consumer spending on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences ondiscretionary items, including wine. This uncertainty could affect our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.results.
There is a degree of seasonality in the growing cycles, procurement and transportation of grapes. The wine industry in general tends to experience seasonal fluctuations in revenue and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during our second fiscal quarter (October through December) due to usual timing of seasonal holiday buying, as well as wine club shipments. We expect economic uncertainties including inflation and supply chain constraintsthese trends to continue to impact several areas of the business including sales, cost of goods, operating expenses and cash flows.continue.
Invasion of Ukraine
Russia's invasion of Ukraine has not had a direct impact on the Company. The Company does not have assets, operations or human capital resources located in Russia or Ukraine, does not invest or hold securities that trade in those areas and does not rely on goods or services sourced in Russia or Ukraine. However, the Company receives its capsules for wine bottles from a supplier in Italy, who has plants located in Ukraine, Italy and Poland. While the Company has not been impacted directly by supply chain disruptions as a result of the invasion, including potential cybersecurity risks and other indirect operational or supply chain challenges, the competition to secure wine bottle capsules has increased from suppliers due to the closing of the plant in Ukraine.
Weather Conditions
Our ability to fulfill the demand for wine is restricted by the availability of grapes. Climate change, agricultural and other factors, such as wildfires, disease, pests, extreme weather conditions, water scarcity, biodiversity loss and competing land use, impact the quality and quantity of grapes available to us for the production of wine from year to year. Our vineyards and properties, as well as other sources from which we purchase grapes, are affected by these factors. For example, the effects of abnormally high rainfall or drought in a given year may impact production of grapes, which can impact both our revenue and costs from year to year.
33
In addition, extreme weather events, such as wildfires can result in potentially significant expenses to repair or replace a vineyard or facility as well as impact the ability of grape suppliers to fulfill their obligations to us.
Seasonality17
Key Measures to Assess the Performance of our Business
We consider a variety of financial and operating measures in assessing the performance of our business, formulating goals and objectives and making strategic decisions. The key GAAP measures we consider are net revenue; gross profit; selling, general and administrative expenses; and income from operations. The key non-GAAP measuremeasures we consider isare Adjusted EBITDA.EBITDA and Adjusted EBITDA margin. We also monitor our case volume sold and depletions from our distributors to retailers to help us forecast and identify trends affecting our growth.
Net Revenue
We generate revenue from our segments: Wholesale, Business-to-Business ("B2B") and Direct-to-Consumer ("DTC"). We recognize revenue from sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, andat which point title passes to the customer and when control of the promised product or service is transferred to the customer. Our standard terms are free on board, or FOB, shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. We recognize revenue net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return, unless the product is spoiled or damaged. Historically, returns have not been significant to us.
Gross Profit
Gross profit is equal to net revenue less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, and physical inventory adjustments, as well as inbound and outbound freight and import duties.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses arising from activities in selling, marketing, warehousing, and administrative expenses. Other than variable compensation, selling, general and administrative expenses are generally not directly proportional to net revenue, but are expected to increase over time to support the needs of the Company.revenue.
Income from Operations
Income from operations is gross profit less selling, general and administrative expenses; impairment losses on goodwill and intangible assets; acquisition and restructuring related expense or income and amortization of intangible assets. Income from operations excludes interest expense, income tax expense, and other expenses, net. We use income from operations as well as other indicators as a measure of the profitability of our business.
Case Volumes
In addition to acquisitions, theThe primary drivers of net revenue growth in any period are attributable to changes in case volumes and changes in product mix and sales price. Case volumes represents the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volumes for our DTC and Wholesale segments are an important indicator offor us to determine what is driving gross margin. This metric also allows us to develop our supply and production targets for future periods.
Depletions
Withinperiods for our three tier distribution structure, depletion measures the sale of our inventory from the distributorDTC and Wholesale segments. B2B segment sales are not related to the retailer. Depletions are an important indicator of customer satisfaction, which management uses for evaluating performance of our brands and for forecasting.case volumes
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we use EBITDA, Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.
34
Beginning for the three months ended September 30, 2023, Adjusted EBITDA is defined as earningsnet income (loss) attributable to common stockholders before interest, income taxes, depreciation and amortization, stock-based compensation expense, casualty losses or gains, impairment losses, changes in the fair value of derivatives, restructuring relatedrestructuring-related income or expenses, and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance. Prior to the three months ended September 30, 2023, we used net income (loss) in our calculation of Adjusted EBITDA. We believe the use of net income (loss) attributable to common stockholders in our calculation of Adjusted EBITDA is more helpful than net income (loss) in evaluating our operating performance because it excludes amounts attributable to non-controlling interests. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenue. Presentations of Adjusted EBITDA and Adjusted EBITDA margin for prior periods have been recast to conform to the current period presentation.
Results of Operations(
Total net revenue decreased $4.8 million to $73.3 million and gross profit decreased $4.8 million to $25.0 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The decrease in nonwine net revenue is primarily related to the decrease in sales of bulk spirits. For the three months ended September 30, 2023, the unrealized loss on interest rate swap agreements increased $9.4 million compared to the prior period. In addition, the Company incurred expenses of approximately $1.0 million in professional fees during the
18
three months ended September 30, 2023 for the restatements of the 2023 interim financial statements. These expenses were partially offset by the $0.8 million gain from the $1.3 million sale of the Tamarack building in July 2023. These factors resulted in a net loss of $15.1 million for the three months ended September 30, 2023 compared to net income of $1.5 million for the three months ended September 30, 2022.
In the latter half of 2023, we implemented our Five-Point Plan which we believe will enable us to drive stronger earnings, provide a sustainable foundation for future growth and allow us to continue as restated)a leading vintner with a strong portfolio of affordable luxury brands. We believe our Five-Point Plan will enable us to better scale and grow beyond 2024, which we anticipate will be a transition year for the Company. As discussed above, the Company has incurred $4.0 million in restructuring expense. Other costs related to the Five-Point Plan include, but are not limited to, $0.6 million in transportation costs related to inventory management to optimize the distribution of products and $0.6 million in temporary retention costs.
Our financial performance is classified into the following segments: Wholesale, B2B, and DTC. Our corporate operations, including centralized selling, general and administrative expenses are not allocated to the segments, as management does not believe such items directly reflect our core operations. However, we allocate re-measurements of contingent consideration and impairment of goodwill and intangible assets to our segments. Other than our long-term property, plant and equipment for wine tasting facilities, and customer lists, trademarks and trade names specific to acquired companies, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as the results of any resultssuch measures that had a significant impact on operating results are already included in the consolidated results discussion above.
We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.
Three Months Ended September 30, 20222023 Compared to Three Months Ended September 30, 20212022
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
|
| Three Months Ended September 30, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
|
| As Restated |
|
|
|
|
|
|
|
|
| |||
Net revenue |
| $ | 23,987 |
|
| $ | 16,203 |
|
| $ | 7,784 |
|
| 48.0% |
Income from operations |
| $ | 2,288 |
|
| $ | 3,042 |
|
| $ | (754 | ) |
| -24.8% |
Wholesale net revenue for the three months ended September 30, 2022 increased $7.8 million, or 48.0%, from the three months ended September 30, 2021. The increase was primarily attributable to an increase in sales of $6.9 million related to acquisition case volumes.
Wholesale income from operations for the three months ended September 30, 2022 decreased $0.8 million, or 24.8%, from the three months ended September 30, 2021. The decrease was attributable to higher costs due to inflation and supply chain challenges.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
| Three Months Ended September 30, |
|
|
|
|
|
| ||||||
|
| 2022 |
|
| 2021 |
|
| Dollar |
|
| Percent | |||
(in thousands, except %) |
| As Restated |
|
|
|
|
| Change |
|
| Change | |||
Net revenue |
| $ | 34,180 |
|
| $ | 24,467 |
|
| $ | 9,713 |
|
| 39.7% |
Income from operations |
| $ | 10,533 |
|
| $ | 6,229 |
|
| $ | 4,304 |
|
| 69.1% |
B2B net revenue for the three months ended September 30, 2022 increased $9.7 million, or 39.7%, from the three months ended September 30, 2021. The increase was primarily attributable to increased custom production as well as an increase of $4.9 million related to acquisitions.
B2B income from operations for the three months ended September 30, 2022 increased $4.3million, or 69.1%, from the three months ended September 30, 2021. The increase was attributable to increased margin on bulk distilled alcohol sales partially offset by a loss from operations of $0.7 million related to acquisitions.
35
DTC Segment Results
|
| Three Months Ended September 30, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Change | |||
Net revenue |
| $ | 17,983 |
|
| $ | 19,992 |
|
| $ | (2,009 | ) |
| (10.0%) |
Restructuring expenses |
| $ | 63 |
|
| $ | - |
|
| $ | 63 |
|
| n/m |
(Loss) income from operations |
| $ | 2,214 |
|
| $ | 1,969 |
|
| $ | 245 |
|
| 12.4% |
The following table presents summary financial data for our DTC segment:(n/m) not meaningful
|
| Three Months Ended September 30, |
|
|
|
|
|
| ||||||
|
| 2022 |
|
| 2021 |
|
| Dollar |
|
| Percent | |||
(in thousands, except %) |
| As Restated |
|
|
|
|
| Change |
|
| Change | |||
Net revenue |
| $ | 19,992 |
|
| $ | 15,263 |
|
| $ | 4,729 |
|
| 31.0% |
Income from operations |
| $ | 1,969 |
|
| $ | 2,031 |
|
| $ | (62 | ) |
| -3.1% |
DTC net revenue for the three months ended September 30, 20222023 increased $4.7decreased $2.0 million, or 31.0%10.0%, from the three months ended September 30, 2021.2022. The increasedecrease was primarily attributable to increased e-commerceweakness in digital marketing sales and the impact of the sale of The Sommelier Company, which were partially offset by improvements in tasting rooms and wine club revenueclubs as well as an increasethe positive impact of $3.1 million related to acquisitions.price increases.
DTC income from operations for the three months ended September 30, 2022 decreased $0.12023 increased $0.2 million, or 3.1%12.4%, from the three months ended September 30, 2021.2022.
Wholesale Segment Results
|
| Three Months Ended September 30, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Change | |||
Net revenue |
| $ | 19,144 |
|
| $ | 23,987 |
|
| $ | (4,843 | ) |
| (20.2%) |
Restructuring expenses |
| $ | 2,289 |
|
| $ | - |
|
| $ | 2,289 |
|
| n/m |
(Loss) income from operations |
| $ | (1,293 | ) |
| $ | 2,288 |
|
| $ | (3,581 | ) |
| n/m |
(n/m) not meaningful
Wholesale net revenue for the three months ended September 30, 2023 decreased $4.8 million, or 20.2%, from the three months ended September 30, 2022. Double-digit growth in core focus brands of Bar Dog, Cherry Pie and Firesteed, as well as low single-digit growth of Kunde, helped to offset the decrease that was primarily attributable to a decrease in revenues due to the timing of programming, lower sales of an externally managed brand, lower international sales and lower sales related to discontinued stock keeping units. ACE Cider sales were relatively unchanged while case volume was down 9%, reflecting the impact of pricing.
19
Wholesale income from operations for the three months ended September 30, 2023 decreased $3.6 million from the three months ended September 30, 2022. The increase in loss from operations was primarily attributable to costs related to restructuring expenses that totaled $2.3 million as well as declines in net sales.
B2B Segment Results
|
| Three Months Ended September 30, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Change | |||
Net revenue |
| $ | 36,148 |
|
| $ | 34,180 |
|
| $ | 1,968 |
|
| 5.8% |
Income from operations |
| $ | 4,898 |
|
| $ | 10,533 |
|
| $ | (5,635 | ) |
| (53.5%) |
B2B net revenue for the three months ended September 30, 2023 increased $2.0 million, or 5.8%, from the three months ended September 30, 2022. The increase in net revenues was primarily attributable to increased private label wine sales of $7.2 million, which was partially offset by a decrease in sales of bulk distilled spirits of $4.4 million.
B2B income from operations for the three months ended September 30, 2023 decreased $5.6million, or 53.5%, from the three months ended September 30, 2022. The decrease was attributableis primarily related to higher costs due to inflation and supply chain challenges. a decrease in operating income for bulk distilled spirits of $4.0 million.
Case Volumes
The following tables summarizetable summarizes 9-liter equivalent cases by segment:the DTC and Wholesale segments:
|
| Three Months Ended September 30, |
|
|
|
|
|
|
| |||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Unit Change |
|
| % Change |
| ||||
Wholesale |
|
| 539 |
|
|
| 209 |
|
|
| 330 |
|
|
| 157.9 | % |
B2B |
| * |
|
| * |
|
| * |
|
| * |
| ||||
DTC |
|
| 99 |
|
|
| 60 |
|
| 39 |
|
|
| 65.0 | % | |
Total case volume |
|
| 638 |
|
|
| 269 |
|
|
| 369 |
|
|
| 137.2 | % |
*B2B segment sales are not primarily related to case volumes, therefore the Company has elected to not report case volumes for this segment as it would not be indicative of the underlying performance of the business.
The increase in case volumes was primarily due to wholesale which was driven by the ACE Cider acquisition that ships higher case volumes of lower priced product. Increased DTC volumes were driven by televised sales and Wine Clubs.
|
| Three months ended September 30, |
|
|
|
|
|
|
| |||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Unit Change |
|
| % Change |
| ||||
Direct-to-Consumer |
| 76 |
|
|
| 99 |
|
| -23 |
|
|
| -23.2 | % | ||
Wholesale |
|
| 449 |
|
|
| 539 |
|
|
| -90 |
|
|
| -16.7 | % |
Total case volume |
|
| 525 |
|
|
| 638 |
|
|
| -113 |
|
|
| -17.7 | % |
Non-GAAP Financial Measures(as restated)
The following is a reconciliation of net (loss) income attributable common stockholders to Adjusted EBITDA and net (loss) income attributable to common stockholders margin to Adjusted EBITDA margin for the periods presented:
| Three Months Ended September 30, 2022 |
|
| Three Months Ended September 30, 2021 |
| ||
| As Restated |
|
|
|
| ||
Net income | $ | 1,358 |
|
| $ | 768 |
|
Interest expense |
| 3,381 |
|
|
| 3,603 |
|
Income tax provision |
| 1,474 |
|
|
| 449 |
|
Depreciation |
| 3,996 |
|
|
| 1,502 |
|
Amortization |
| 1,811 |
|
|
| 651 |
|
Stock-based compensation expense |
| 3,440 |
|
|
| - |
|
Net unrealized gain on interest rate swap agreements |
| (9,327 | ) |
|
| (1,572 | ) |
Loss (gain) on disposition of assets |
| - |
|
|
| (340 | ) |
Deferred rent adjustment |
| - |
|
|
| 128 |
|
Gain on litigation proceeds |
| (530 | ) |
|
| - |
|
Adjusted EBITDA | $ | 5,603 |
|
| $ | 5,189 |
|
Revenue | $ | 78,080 |
|
| $ | 56,035 |
|
Net income margin |
| 1.7 | % |
|
| 1.4 | % |
Adjusted EBITDA margin |
| 7.2 | % |
|
| 9.3 | % |
| Three months ended |
| |||||
(in thousands) | September 30, 2023 |
|
| September 30, 2022 |
| ||
Net (loss) income attributable to common stockholders | $ | (15,058 | ) |
| $ | 1,532 |
|
Interest expense | $ | 4,925 |
|
| $ | 3,381 |
|
Depreciation Expense | $ | 4,131 |
|
| $ | 3,996 |
|
Restructuring expenses* |
| 4,002 |
|
|
| - |
|
Amortization expense |
| 1,636 |
|
|
| 1,811 |
|
Stock-based compensation expense |
| 1,269 |
|
|
| 3,440 |
|
Income tax provision |
| 244 |
|
|
| 1,474 |
|
Net loss (gain) on interest rate swap agreements |
| 95 |
|
|
| (9,327 | ) |
Gain on insurance and litigation proceeds |
| - |
|
|
| (530 | ) |
Gain on sale of assets |
| (797 | ) |
|
| - |
|
Adjusted EBITDA | $ | 447 |
|
| $ | 5,777 |
|
Net revenues | $ | 73,274 |
|
| $ | 78,080 |
|
Net Income (loss) attributable to common stockholders margin | n/m |
|
|
| 2.0 | % | |
Adjusted EBITDA margin |
| 0.6 | % |
|
| 7.4 | % |
(n/m) not meaningful
* Restructuring expenses are primarily comprised of employee severance and related benefit costs.
Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest, income taxes, depreciation and amortization, casualty losses or gains, stock-based compensation expense, changes in the fair value of derivatives, restructuring and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.
Adjusted EBITDA and Adjusted EBITDA margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assists these
3620
parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance.
Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA and Adjusted EBITDA margin, which are not prepared in accordance with GAAP, should not be construed as an indicator of our operating performance in isolation from, or as a substitute for, respectively, net (loss) income attributable to common stockholders or net (loss) income attributable to common stockholders margin (defined as net (loss) income attributable to common stockholders divided by revenue)net revenues), which are indicators prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by these items.
Liquidity and Capital Resources (as restated)
We currentlyare implementing our Five-Point Plan which we believe that, basedwill enable us to drive stronger earnings power, provide a sustainable foundation for future growth and allow us to continue as a leading vintner with a strong portfolio of affordable luxury brands by focusing on available capital resourcesthe plan's five priorities: (1) margin expansion, (2) cost reduction, (3) cash management, (4) monetizing assets, and projected operating(5) revenue growth. In 2024, our priorities under our Five-Point Plan are to deliver profitability, generate cash, and reduce debt. In order to meet these objectives our near-term goals are to simplify the business, reduce costs, improve production throughout our operations, focus on key brands, and pay down debt through the monetization of assets and reducing costs, among other things.
We believe our existing balances of cash and cash equivalents, along with our cash flows we have adequate capital resources to fundfrom operations and credit facilities described below, provide sufficient funds for our currently anticipated working capital needs;business operations as well as capital expenditures and other capital requirements associated with our business acquisitions, debt obligations, and tax paymentsoperations over the next 12 months and beyond.thereafter for the foreseeable future.
Debt
On December 13, 2022, we entered into a Second Amended and Restated Loan and Security Agreement (the “Second A&R Loan and Security Agreement”), which provides credit facilities totaling up to $458.4 million. These credit facilities consist of: (i) a term loan facility of $156.5 million maturing on December 13, 2027,(the “Term Loan Facility”), (ii) an accounts receivable and inventory revolving facility of $229.7 million (with a letter of credit sub-facility in the aggregate availability amount of $20.0 million maturing on December 13, 2027,(the “Revolving Facility”), (iii) an equipment loan facility of $4.2 million maturing on December 31, 2026, (the “Equipment Loan”), (iv) a capital expenditure facility of $15.2 million maturing on June 30, 2027 (the “Capex Facility”) and (v) a delayed draw term loan facility of $52.9 million maturing on December 13, 2027, (the “DDTL Facility”, and, together with the Term Loan Facility, the Revolving Facility, the Equipment Loan and the Capex Facility, the “Credit Facilities”). Outstanding balances under the Credit Facilities will bear interest at the rates specified in the Second A&R Loan and Security Agreement, which vary based on the type of Credit Facility and certain other conditions. Interest payments on the outstanding balances under any of the Credit Facilities will be due monthly, quarterly or bi-annually depending on the interest period selected by the Company. Principal payments, as specified in the Second A&R Loan and Security Agreement, will be due quarterly on all the Credit Facilities except for the Revolving Facility which is due at maturity.
The Second A&R Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants, including, among others, (i) a financial covenant with respect to a maximum debt to capitalization ratio of 0.60:1.00 through December 31, 2023, and stepping down to 0.575:1.00 for each quarter until March 31, 2024 and 0.55:1.00 for each quarter until December 31, 2024 and thereafter and (ii) a minimum fixed charge coverage ratio (based on trailing twelve-month EBITDA adjusted for capital expenditures, taxes and certain other items) of 1.10:1.00 measured on a rolling four quarter basis, provided that the minimum capital expenditure amount for purposes of calculating the fixed charge coverage ratio will increase by $175,000 per quarter until it reaches $1.5 million.
On May 9, 2023, we entered into an amendment to its Second A&R Loan and Security Agreement (defined in Note 11) that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023. As a result, the definition of Adjusted EBITDA (as defined in the Second A&R Loan and Security Agreement) as utilized in the fixed charge coverage ratio was modified to allow certain addbacks to Adjusted EBITDA. As a result, at March 31, 2023, we believe we will be in compliance with the covenants contained in the Second A&R Loan and Security Agreement. Refer to Note 11– Long-Term and Other Short-Term Obligations, of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q/A) for further discussion.
On October 12, 2023, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”"Second A&R Loan and Security Agreement") by and among the Company, the Borrowers party thereto (the "Borrowers"), the Lenders party thereto (the "Lenders"), and Agent.Bank of the West (the "Agent"). The Fourth Amendment, among other things: (i) waives certain existing events of default relating to the Company’s failure to comply with the financial covenants and financial reporting requirements set forth in the Credit Agreementcredit agreement for prior fiscal periods; (ii) reduces the aggregate revolving commitment and the aggregate delayed draw term loan commitment to $200,000,000 and $38,100,000, respectively; (iii) replaces the maximum debt to capitalization financial covenant with a minimum adjusted EBITDA financial covenant of not less than (1) $4,000,000 for the fiscal quarter ending September 30, 2023, (2) $17,000,000 for the two fiscal quarter period ending December 31, 2023, (3) $27,000,000 for the three fiscal quarter period ending March 31, 2024, (4) $34,000,000 for the four fiscal quarter period ending June 30, 2024, and (5) $35,000,000 for each four fiscal quarter period ending thereafter; (iv) adds a minimum liquidity covenant of $25,000,000 (or, for fiscal quarters ending in December, $15,000,000), which applies only for the fiscal quarters ending September 30, 2023 through and including December 31, 2024 (the “Covenant Modification Period”); (v) suspends the minimum fixed charge coverage ratio covenant for the fiscal quarters ending September 30, 2023 through and including June 30, 2024 and provides for a step-down of the minimum fixed charge coverage ratio
37
to 1.00:1.00 for the remainder of the Covenant Modification Period; (vi) adds an equity cure right for the Company in the event of future breaches of the financial covenants; (vii) reduces revolver availability by (1) $15,000,000 during the months of February through September of each year and (2) $10,000,000 during the months of October through January of each year; (viii) suspends the exercise of incremental facilities during the Covenant Modification Period; (ix) restricts all permitted acquisitions during the term of the credit facilities, unless previously approved by the required Lenders; (x) increases in the applicable margin for all credit facilities to 3.00% for the loans subject to SOFR Loansinterest rates (the "SOFR Loans") and 2.00% for ABR Loans,the loans subject to the Adjusted Base Rate (the "ABR Loans"), which margins will step-up further if certain prepayments of the Term Loansterm loans are not made by certain dates prescribed in the Fourth Amendment; (xi) adds additional mandatory prepayments of (1) $10,000,000 by no later than March 31, 2024, (2) an additional $10,000,000 by no later than June 30, 2024 and (3) an additional $25,000,000 by no later than December 31, 2024; (xii) adds additional mandatory prepayments in the event that the Borrowers maintain a cash balance in excess of $20,000,000; (xiii) permits additional sales of certain real property with an aggregate appraised value of approximately $60,000,000, in addition to related personal property assets; and (xiv) adds certain additional reporting requirements to Agent and the Lenders.
As a result, as of the date hereof, the Company has received a waiver for certain events of default and is in compliance with its covenants contained in the Second A&R Loan and Security Agreement.Agreement, as amended. Refer to Note 11– 4– Long-Term and Other Short-Term Obligations, of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q/A)10-Q) for further discussion.
21
The Company anticipates using any of the proceeds of the credit facilities for working capital and general corporate purposes, purchases of real estate (including vineyards) and equipment and paying down outstanding balances on the credit facilities.
Cash and Cash Equivalents
Our cash and cash equivalents balance was $45.9$18.6 million at September 30, 20222023 compared to $44.8$18.2 million at June 30, 2022, exclusive of restricted cash.2023. At September 30, 2022,2023, our cash and cash equivalents were held in cash depository accounts with major banks.
Cash Flows (as restated)
The table below presents a summary of our sources and uses of cash:
|
| Three Months Ended September 30, |
|
|
|
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
| |||
Operating activities |
| $ | 1,988 |
|
| $ | (2,020 | ) |
| $ | 4,008 |
|
Investing activities |
| $ | (3,454 | ) |
| $ | (7,786 | ) |
| $ | 4,332 |
|
Financing activities |
| $ | (2,172 | ) |
| $ | 9,202 |
|
| $ | (11,374 | ) |
The cash flows related to held for sale assets have not been segregated and remain included in the major classes of assets.
|
| September 30, |
|
|
|
| ||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
| |||
Operating activities |
| $ | (4,451 | ) |
| $ | 1,988 |
|
| $ | (6,439 | ) |
Investing activities |
| $ | (2,098 | ) |
| $ | (3,454 | ) |
| $ | 1,356 |
|
Financing activities |
| $ | 6,940 |
|
| $ | (2,172 | ) |
| $ | 9,112 |
|
Cash Flows provided by (used in) Operating Activities
Net cash providedused by operating activities was $2.0$4.5 million for the three months ended September 30, 20222023 compared to net cash used inprovided by operating activities of $2.0 million for the three months ended September 30, 2021,2022, representing an increase in net cash providedused of $4.0 million. The increase$6.4 million, primarily related to the decrease in net cash provided was primarily attributable to the increase in net income of $0.6 million, net decrease in certain non-cash adjustments of $1.9 million to reconcile net income to operating cash flow and net decrease in other operating assets and liabilities of $0.3 million as detailed on the condensed consolidated statement of cash flows.income.
Cash Flows provided by (used in) Investing Activities
Net cash used in investing activities was $2.1 million for the three months ended September 30, 2023, compared to net cash used in investing activities of $3.5 million for the three months ended September 30, 2022, compared to net cash used in investing activities of $7.8 million for the three months ended September 30, 2021, representing a decrease in net cash used of $4.3$1.4 million. Cash flows from investing activities are utilized primarily to fund acquisitions, capital expenditures for new and improvements to existing assets and other corporate assets. The decrease in net cash used for the three months ended September 30, 2023, was primarily attributable to reduced purchasesan increase in proceeds from the sale of property, plant and equipmentassets of $4.3 million.$1.4 million in the current period.
Cash Flows provided by (used in) Financing Activities
Net cash used inprovided by financing activities was $2.2$6.9 million for the three months ended September 30, 20222023 compared to net cash providedused of $2.2 million by of $9.2 millionfinancing activities for the three months ended September 30, 2021,2022, representing an increase in net cash usedprovided of $11.4 million. The$9.1 million, primarily due to an increase in net cash used consisted primarily of an increase of $16.8 million of net payments from ourborrowings on the line of credit and long-term debt, partially offset by an additional $6.1 million of outstanding checks in excess of cash.
Contractual Obligations
There have been no material changes to our contractual obligations from what was previously disclosed in our Annual Report on Form 10-K filed with the SEC.
Off-Balance Sheet Arrangements
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As of September 30, 2022, the Company had no off-balance sheet arrangements.credit.
Significant Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. For a description of our critical accounting policies, refer to “Critical Accounting Policies”Policies and Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. As a result of adopting ASC 842 as of July 1, 2022, there have been material changes to our lease accounting policies during the three months ended September 30, 2022, that are described in Note 1 to our condensed consolidated financial statements included in Part I, Item I of this Form 10-Q/A.
Recent Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 1, Basis of Presentation and Significant Accounting Policies in the notes to our unaudited condensed consolidated financial statements.
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q/A10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of historical fact constitute forward-looking statements, including, without limitation, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and
22
Results of Operations” and “Business” and are often identified by words like “believe,” “expect,” “continue,” “goal,” “plan,” “may,” “will,” “should,” “seek,” “anticipate,” “can,” or “could” and similar expressions.
Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed under the “Risk Factors” section of our Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q or other reports filed with the SEC.
Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date of this report. We undertake no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
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Item 3. Quantitative and Qualitative DisclosureDisclosures About Market Risk
There have been no material changesWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to our quantitative and qualitative disclosures about market risk from what was previously disclosed in our Annual Report on Form 10-K filed withprovide the SEC.information under this item.
Inflation
Inflationary pressures have caused and may continue to cause many of our material and labor costs to increase, which can adversely affect our profitability and cash flows. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, particularly if inflationary pressures continue during an economic downturn. These matters could harm our business, results of operations or financial condition.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures(as restated)
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our interim Chief Executive Officer and Chief Financial Officer have concluded that, as a result of material weaknesses in our internal control over financial reporting as discussed below, our disclosure controls and procedures were not effective as of JuneSeptember 30, 2023. Management’s conclusion was based on discoveries and observations made during the 2022 and 2023 audits.
Management’s Report onMaterial Weaknesses in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No system of controls, no matter how well designed and implemented, can provide absolute assurance that the objectives of the system of controls are met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and any instances of fraud within a company have been detected.
Our management, including our principal executiveAs previously disclosed in Part II, Item 9A. "Controls and principal financial officers, conducted an evaluation ofProcedures" in the effectiveness of our internal control over financial reporting as ofCompany's Annual Report on Form 10-K for the Fiscal year ended June 30, 2023, using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Ourour management has concluded that as a result ofidentified material weaknesses in our internal control over financial reporting and discussed below, our internal control over financial reporting was not effective as of June 30, 2023.
reporting.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Material Weakness in Internal Control Over Financial Reporting (as restated)
The Company did not maintain an effective control environment based on the criteria established in the COSOInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework, which resulted in a material weakness in the control environment. This material weakness consists of an overall lack of a sufficient control environment to produce materially correct financial statements, including a lack of U.S. GAAP expertise for the types of transactions we have been involved in which resulted in the restatement of the Company’s condensed consolidated financial statements as of and for the interim periods ended September 30, 2022, December 31, 2022, and March 31, 2023.
23
The material weakness in the control environment related to the following COSO components:
40
In addition, the material weakness in the control environment contributed to the following material weaknesses:
Management's Plan to Remediate the Material Weakness Weaknesses(as restated)
In October 2023 the Company engaged a globally recognized Assurance and Advisory firm to assist in remediation efforts including risk assessment and SOX framework evaluation, process design walkthroughs, key control identification, control gap and process improvement assessment, training, and control operating effectiveness testing. This firm will leverage the work the Company began performing in 2023, which included performing comprehensive process walkthroughs and designing and implementing additional controls and procedures to mitigate the risk of material misstatement.
This work has commenced, and prioritization activities are underway to focus initial remediation efforts on high-risk areas.
Management continues to strengthen key functions throughout the organization including, but not limited to, the accounting and financial reporting teams. We have added and filled a new position effective July 2023, Director of Technical Accounting. This position will improve the Company’s ability to assess, conclude and implement new accounting pronouncements as well as other technical accounting matters. We have added new leadership positions in operations, Vice President of Supply Chain (July 2023) and Vice President of Production (October 2023). Additionally, we have added and filled Accounts Payable Manager and Treasury Manager positions. These positions will assist in focused control work, including improved cutoff and receiving procedures. In addition, we have augmented staffing needs with contractors to assist in performing and supporting day-to-day operations. The Company intends to continue to assess its staffing needs in order to continually implement process improvements and address any gaps in its internal control processes.
As of the date of this report, the Company continues to utilize contractors to support day-to-day operations.
The Company has established a process to ensure account reconciliations are performed at least quarterly. Additional controls and procedures have been implemented to mitigate the risk of a material misstatement include the standardization of our monthly close checklists to facilitate timeliness of activities performed, the formalization of account reconciliation templates, the determination of the appropriate level of review for each account based on an assessment of risk and complexity, and the performance of additional account reconciliation training for relevant staff. Incremental accounting staff (both full time and contractor) were added throughout 2023 to assist in the completion of account reconciliations, including additional review support. During the financial close process for the fiscal year ended June 2023, we concluded that improvements were needed in the controls over the process for confirming and periodically updating management assumptions (e.g., redemption rates used to support liabilities and inventory turns used to absorb overhead costs to cost of goods sold related to custom production activities). Management is currently assessing all key inputs used in supporting account balances and implementing a process to reconfirm and/or reassess quarterly.
The Company has also updated and is in the process of reissuing its policy on Travel & Expense Reimbursement. Key process improvements include immediate elimination of manual travel and expense reimbursements, mandatory use of the travel & expense management system, systematic controls requiring receipt submission and manager approval workflow.
The Company has restructured the leadership team to better align with the business opportunities and created improved communications and collaboration.
Changes in Internal Control Over Financial Reporting
Except for the changes described above intended to remediate the material weaknesses identified in the Company’s internal control over financial reporting, which efforts continued into the three months ended September 30, 2023, there were no changes in the Company’s internal control over
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The Company acknowledges it will take time and resources to fully integrate the controls and processes described above and confirm them to be effective and sustainable. As the Company continues to refine and improve our financial reporting process, additional controls and procedures may also be required over time.
Changes in Internal Control over Financial Reporting
Other than changes intended to remediate the material weaknesses noted above, there have been no changes in our internal control over financial reporting during our most recent fiscalthe quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
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Part II—Other Information
Item 1. Legal Proceedings
None.The Company is involved in two disputes with One True Vine, LLC and Jayson Woodbridge (the "Claimant") (together, the "Claimants"), which relate to an Asset Purchase Agreement (“APA”) and a related Non-Compete Agreement/Non-Solicitation Agreement (the “Non-Compete Agreement”). Claimant has alleged that the Company did not make certain earnout payments allegedly due under the APA and has alleged that the Company misused alleged rights of publicity with respect to the brands in violation of the Non-Compete Agreement. On or about August 30, 2023, Claimants served a demand for arbitration on the Company. The Company paid the Claimant $0.4 million subsequent to September 30, 2023. At present, Claimants collectively have not quantified the total amount of their alleged damages for all claims; however, based on information provided by Claimants, the Company would anticipate that any claim of damages would likely be at least approximately $3.0 million. The Company disputes both that any amounts in excess of the accrued earn-out liability of approximately $0.4 million for the dispute period are owed and that the Company misused the alleged rights of publicity. The Company intends to vigorously defend itself against the claims. At this time, in view of the complexity and ongoing nature of the matters, we are unable to reasonably estimate a possible loss or range of loss that the Company may incur to resolve these matters or defend against these claims.
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business that could have a material adverse effect on our business, results of operations or financial condition. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. Other than as set forth above, there are no material updates to the matters previously disclosed in “Part I, Item 3 — Legal Proceedings” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
Item 1A. Risk Factors
Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The following table provides information about repurchases of our common stock and warrants during the quarter ended September 30, 2022:
Repurchases |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of warrants purchased |
|
| Average price paid per warrant |
|
| Total number of shares and warrants purchased as part of publicly announced plans or programs (1) |
|
| Approximate dollar value of shares and warrants that may yet be purchased under the plans or programs |
| ||||||
July 1, 2022 - July 31, 2022 |
|
| - |
|
| $ | - |
|
|
| 9,495 |
|
| $ | 1.34 |
|
|
| 9,495 |
|
| $ | 3,787,832 |
|
August 1, 2022 - August 31, 2022 |
|
| - |
|
|
| - |
|
|
| 113,099 |
|
|
| 1.02 |
|
|
| 113,099 |
|
|
| 3,672,471 |
|
September 1, 2022 - September 30, 2022 |
|
| - |
|
|
| - |
|
|
| 49,400 |
|
|
| 0.96 |
|
|
| 49,400 |
|
|
| 3,625,047 |
|
Total |
|
| - |
|
| $ | - |
|
|
| 171,994 |
|
| $ | 1.02 |
|
|
| 171,994 |
|
|
|
|
(1) on March 8, 2022, the Company announced that our board of directors approved a repurchase plan authorizing us to purchase up to $30.0 million in aggregate value of our common stock and/or warrants through September 8, 2022. The repurchase program expired on September 9, 2022 and is more fully disclosed in Note 12, Stockholders' Equity, of the Notes to the Condensed Consolidated Financial Statements. As of September 30, 2022, we repurchased an aggregate 2,871,894 shares of our common stock in the open market and 353,547 warrants pursuant to our repurchase program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.2023.
Item 5. Other Information
On November 8, 2022, we entered into an amendment to the Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with BankNone of the West as administrative and collateral agent for the lenders that are parties to the Loan Agreement (the “Amendment”) to amend the definition of Adjusted EBITDA by adding an additional adjustment to the definition of Adjusted EBITDA. Adjusted EBITDA is used in the calculation of the fixed charge coverage ratio covenant under the Loan Agreement. A copy of the Amendment will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q forCompany's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ending December 31, 2022.ended September 30, 2023, as such terms are defined under Item 408(a) of Regulation S-K.
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Item 6. Exhibits
Exhibit Number |
| Description of Exhibit |
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10.2 | ||
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10.5 | Form of DirectorRestricted Stock Unit Award Agreement (2021 Omnibus Incentive Plan).*◆ | |
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | Agreement between Vintage Wine Estates, Inc. and Global Leisure Partners LLC dated April 28, 2022* | |
10.11 | Global Leisure Partners VWE Retainer Addendum dated September 8, 2023 * | |
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31.1 |
| |
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31.2 |
| |
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32.1 |
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32.2 |
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101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.* |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document.* |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document.* |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
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|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document).* |
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* | Filed herewith. |
** | Furnished herewith. |
◆ | Indicates management compensatory plan, contract or arrangement. |
† | Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
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Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Vintage Wine Estates, Inc. | ||
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Date: | By: |
| /s/ |
| Name: |
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| Title: |
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Date: | By: |
| /s/ KRISTINA JOHNSTON |
| Name: |
| Kristina Johnston |
| Title: |
| Chief Financial Officer |
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