UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ______ to ______ |
Commission file number 001-40016
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, Nevada 89451
(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:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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 ☒
As of May 2, 2022, 60,945,682 shares of the registrant’s common stock were outstanding.
Explanatory Note
Overview of Restatement
In this Amendment No. 1 on Form 10-Q/A, Vintage Wine Estates, Inc. (“VWE”, “we”, “us”, "our" or “the Company”) is amending its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on May 16, 2022 (the "Original 10-Q"). We are filing this amended Quarterly Report on Form 10-Q/A to restate our previously issued unaudited condensed consolidated financial statements and related financial information as of, and for, the three and nine months ended March 31, 2022 (the "Subject Periods"). In this Quarterly Report on Form 10-Q/A, the Company amends the Original 10-Q to:
| a. | restate its unaudited condensed consolidated financial statements and the notes thereto for the Subject Periods; |
| b. | amend its Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for the Subject Periods; and |
| c. | amend the disclosure under Part 1, Item 4. Controls and Procedures. |
Background on Restatement
As previously disclosed, on September 12, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, after discussion with management, determined that the Company’s previously issued financial statements for the Subject Periods should no longer be relied upon and should be restated due to the identification of an accounting error.
The restatement resulted from an accounting error in the treatment of our interest rate swap agreements and materially impacted our condensed consolidated financial statements for the three and nine months ended March 31, 2022.
The correction of the accounting error led to a net reduction in previously recognized interest rate swap liabilities of $4.2 million for the three and nine months ended March 31, 2022, an increase in interest rate swap assets of $5.1 million for the three and nine months ended March 31, 2022, an increase in accrued liabilities and other payables of $2.7 million for the three and nine months ended March 31, 2022 and an increase in net unrealized gain on interest rate swap agreements of $6.7 million for the three and nine months ended March 31, 2022, net of income taxes.
The error was discovered during the course of the preparation of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022 ("fiscal 2022"), and the audit of the financial results for fiscal 2022. None of the errors implicate misconduct with respect to the Company or its management or employees.
Effect of Restatement
The following table sets forth the effects of the restatement on affected items within our previously reported condensed consolidated statements of operations and comprehensive income (loss).
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| March 31, |
|
| March 31, |
| ||||||||||
(in thousands, except per share amounts) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income |
| $ | 6,703 |
|
| $ | - |
|
| $ | 6,703 |
|
| $ | - |
|
Basic and diluted earnings per share |
| $ | 0.10 |
|
| $ | - |
|
| $ | 0.11 |
|
| $ | - |
|
Control Considerations
In connection with the restatement, management has reassessed its conclusions regarding the effectiveness of our internal control over financial reporting as of March 31, 2022 and determined that a material weakness in our internal control over financial reporting existed as of that date. As a result of the material weakness, our disclosure controls and procedures were not effective as of March 31, 2022. Management will be implementing changes to strengthen our internal controls and remediate the material weakness.
In accordance with applicable SEC rules, this Quarterly Report on Form 10-Q/A includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer) dated as of the filing date of this Quarterly Report on Form 10-Q/A.
Except as described above, this Quarterly Report on Form 10-Q/A does not amend, update or change any other items or disclosures in the Original 10-Q and this Quarterly Report on Form 10-Q/A does not purport to reflect any information or events subsequent to the filing date of the Original 10-Q. As such, this Quarterly Report on Form 10-Q/A speaks only as of the date the Original 10-Q was filed, and we have not undertaken herein to
1
amend, supplement or update any information contained in the Original 10-Q to give effect to any subsequent events. Accordingly, this Quarterly Report on Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original 10-Q.
Part I—Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
|
| As Restated |
|
|
|
| ||
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 69,109 |
|
| $ | 118,879 |
|
Restricted cash |
|
| 6,600 |
|
|
| 4,800 |
|
Accounts receivable, net |
|
| 39,649 |
|
|
| 21,193 |
|
Other receivables |
|
| 13,668 |
|
|
| 7,490 |
|
Inventories |
|
| 221,264 |
|
|
| 221,145 |
|
Interest rate swap assets |
|
| 716 |
|
|
| - |
|
Prepaid expenses and other current assets |
|
| 10,968 |
|
|
| 8,538 |
|
Total current assets |
|
| 361,974 |
|
|
| 382,045 |
|
Property, plant, and equipment, net |
|
| 234,141 |
|
|
| 213,673 |
|
Goodwill |
|
| 158,185 |
|
|
| 109,895 |
|
Intangible assets, net |
|
| 64,809 |
|
|
| 36,079 |
|
Interest rate swap assets, long-term |
|
| 4,417 |
|
|
| - |
|
Other assets |
|
| 7,635 |
|
|
| 1,806 |
|
Total assets |
| $ | 831,161 |
|
| $ | 743,498 |
|
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Line of credit |
| $ | 146,732 |
|
| $ | 87,351 |
|
Accounts payable |
|
| 14,777 |
|
|
| 17,301 |
|
Accrued liabilities and other payables |
|
| 33,138 |
|
|
| 25,078 |
|
Interest rate swap liabilities |
|
| 977 |
|
|
| - |
|
Current maturities of long-term debt |
|
| 21,200 |
|
|
| 22,964 |
|
Total current liabilities |
|
| 216,824 |
|
|
| 152,694 |
|
Other long-term liabilities |
|
| 8,740 |
|
|
| 2,767 |
|
Long-term debt, less current maturities |
|
| 172,324 |
|
|
| 183,541 |
|
Interest rate swap liabilities, noncurrent |
|
| - |
|
|
| 13,807 |
|
Deferred tax liability |
|
| 29,965 |
|
|
| 16,752 |
|
Deferred gain |
|
| 10,999 |
|
|
| 12,000 |
|
Total liabilities |
|
| 438,852 |
|
|
| 381,561 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
| ||
Redeemable noncontrolling interest |
|
| 1,684 |
|
|
| 1,682 |
|
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred stock, no par value, 2,000,000 shares authorized, and none issued and outstanding at March 31, 2022 and June 30, 2021. |
|
| - |
|
|
| - |
|
Common stock, no par value, 200,000,000 shares authorized, 61,691,054 issued and 61,377,515 outstanding at March 31, 2022 and 60,461,611 issued and outstanding at June 30, 2021. |
|
| - |
|
|
| - |
|
Additional paid-in capital |
|
| 373,196 |
|
|
| 360,732 |
|
Treasury stock, at cost: 313,539 and zero shares held at March 31, 2022 and June 30, 2021, respectively |
|
| (2,833 | ) |
|
| - |
|
Retained earnings |
|
| 20,880 |
|
|
| - |
|
Total Vintage Wine Estates, Inc. stockholders' equity |
|
| 391,243 |
|
|
| 360,732 |
|
Noncontrolling interests |
|
| (618 | ) |
|
| (477 | ) |
Total stockholders' equity |
|
| 390,625 |
|
|
| 360,255 |
|
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
| $ | 831,161 |
|
| $ | 743,498 |
|
2
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except share and per share amounts)
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| As Restated |
|
|
|
|
| As Restated |
|
|
|
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wine, spirits and cider |
| $ | 50,859 |
|
| $ | 37,238 |
|
| $ | 157,292 |
|
| $ | 132,086 |
|
Nonwine |
|
| 28,074 |
|
|
| 9,659 |
|
|
| 60,939 |
|
|
| 31,623 |
|
|
|
| 78,933 |
|
|
| 46,897 |
|
|
| 218,231 |
|
|
| 163,709 |
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Wine, spirits and cider |
|
| 38,764 |
|
|
| 23,561 |
|
|
| 98,428 |
|
|
| 82,180 |
|
Nonwine |
|
| 12,152 |
|
|
| 5,095 |
|
|
| 29,886 |
|
|
| 17,288 |
|
|
|
| 50,916 |
|
|
| 28,656 |
|
|
| 128,314 |
|
|
| 99,468 |
|
Gross profit |
|
| 28,017 |
|
|
| 18,241 |
|
|
| 89,917 |
|
|
| 64,241 |
|
Selling, general, and administrative expenses |
|
| 27,035 |
|
|
| 18,378 |
|
|
| 70,662 |
|
|
| 50,932 |
|
Loss (gain) on sale of property, plant, and equipment |
|
| 98 |
|
|
| (322 | ) |
|
| (493 | ) |
|
| (1,999 | ) |
Gain on litigation proceeds |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,750 | ) |
Income from operations |
|
| 884 |
|
|
| 184 |
|
|
| 19,748 |
|
|
| 20,058 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (3,729 | ) |
|
| (3,842 | ) |
|
| (10,825 | ) |
|
| (9,173 | ) |
Net unrealized gain on interest rate swap agreements |
|
| 13,841 |
|
|
| 5,589 |
|
|
| 17,870 |
|
|
| 8,212 |
|
Other, net |
|
| 1,957 |
|
|
| 327 |
|
|
| 1,945 |
|
|
| 684 |
|
Total other income (expense), net |
|
| 12,069 |
|
|
| 2,075 |
|
|
| 8,990 |
|
|
| (277 | ) |
Income before provision for income taxes |
|
| 12,953 |
|
|
| 2,259 |
|
|
| 28,738 |
|
|
| 19,780 |
|
Income tax provision |
|
| 3,543 |
|
|
| 1,633 |
|
|
| 7,997 |
|
|
| 4,517 |
|
Net income |
|
| 9,410 |
|
|
| 626 |
|
|
| 20,741 |
|
|
| 15,263 |
|
Net income (loss) attributable to the noncontrolling interests |
|
| (74 | ) |
|
| 53 |
|
|
| (139 | ) |
|
| 343 |
|
Net income attributable to Vintage Wine Estates, Inc. |
|
| 9,484 |
|
|
| 573 |
|
|
| 20,880 |
|
|
| 14,920 |
|
Accretion on redeemable Series B stock |
|
| - |
|
|
| 1,446 |
|
|
| - |
|
|
| 4,760 |
|
Net income (loss) allocable to common stockholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 10,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings (loss) per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.15 |
|
| $ | (0.04 | ) |
| $ | 0.34 |
|
| $ | 0.38 |
|
Diluted |
| $ | 0.15 |
|
| $ | (0.04 | ) |
| $ | 0.34 |
|
| $ | 0.35 |
|
Weighted average shares used in the calculation of earnings per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 61,410,403 |
|
|
| 21,920,583 |
|
|
| 60,773,258 |
|
|
| 21,920,583 |
|
Diluted |
|
| 61,410,403 |
|
|
| 21,920,583 |
|
|
| 60,773,258 |
|
|
| 24,564,309 |
|
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)
|
| 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 |
| ||
Net income (loss) |
|
| 3 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| 2,804 |
|
|
| (28 | ) |
|
| 2,776 |
| ||
Balance, September 30, 2021 |
| $ | 1,685 |
|
|
|
| 60,461,611 |
|
| $ | - |
|
|
|
|
|
|
|
| $ | 360,732 |
|
| $ | 2,804 |
|
| $ | (505 | ) |
| $ | 363,031 |
| ||
Net income (loss) |
|
| 5 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| 8,592 |
|
|
| (45 | ) |
|
| 8,547 |
| ||
Balance, December 31, 2021 |
| $ | 1,690 |
|
|
|
| 60,461,611 |
|
| $ | - |
|
|
|
|
|
|
|
| $ | 360,732 |
|
| $ | 11,396 |
|
| $ | (550 | ) |
| $ | 371,578 |
| ||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| 1,943 |
|
|
| - |
|
|
| - |
|
|
| 1,943 |
| |||
Issuance of common stock in business combination |
|
|
|
|
|
| 1,229,443 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,521 |
|
|
| - |
|
|
| - |
|
|
| 10,521 |
| |
Repurchase of common stock |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 313,539 |
|
|
| (2,833 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,833 | ) | |
Net income (loss) |
|
| (6 | ) |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,484 |
|
|
| (68 | ) |
|
| 9,416 |
|
Balance, March 31, 2022, As Restated |
| $ | 1,684 |
|
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 313,539 |
|
| $ | (2,833 | ) |
| $ | 373,196 |
|
| $ | 20,880 |
|
| $ | (618 | ) |
| $ | 390,625 |
|
|
| Redeemable Non-Controlling |
|
|
| Common Stock |
|
| Treasury Stock |
| Additional |
|
| Retained |
|
| Non-Controlling |
|
| Total Stockholders' Equity |
| ||||||||||||
|
|
|
|
|
| Shares |
|
| Amount |
|
| Shares |
| Amount |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, June 30, 2020 |
| $ | 1,382 |
|
|
|
| 26,460,375 |
|
| $ | - |
|
|
|
|
|
| $ | 92,940 |
|
| $ | 15,191 |
|
| $ | (395 | ) |
| $ | 107,736 |
|
Accretion on redeemable stock |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 5,880 |
|
|
| (5,880 | ) |
|
| - |
|
|
| - |
|
Stock-based compensation expense |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 330 |
|
|
| - |
|
|
| - |
|
|
| 330 |
|
Net income |
|
| 278 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 5,058 |
|
|
| 26 |
|
|
| 5,084 |
|
Balance, September 30, 2020 |
| $ | 1,660 |
|
|
|
| 26,460,375 |
|
| $ | - |
|
|
|
|
|
| $ | 99,150 |
|
| $ | 14,369 |
|
| $ | (369 | ) |
| $ | 113,150 |
|
Accretion on redeemable stock |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 5,376 |
|
|
| (5,376 | ) |
|
| - |
|
|
| - |
|
Stock-based compensation expense |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 128 |
|
|
| - |
|
|
| - |
|
|
| 128 |
|
Net income (loss) |
|
| 2 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 9,289 |
|
|
| (40 | ) |
|
| 9,249 |
|
Balance, December 31, 2020 |
| $ | 1,662 |
|
|
|
| 26,460,375 |
|
| $ | - |
|
|
|
|
|
| $ | 104,654 |
|
| $ | 18,282 |
|
| $ | (409 | ) |
| $ | 122,527 |
|
Accretion on redeemable stock |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 9,969 |
|
|
| (9,969 | ) |
|
| - |
|
|
| - |
|
Stock-based compensation expense |
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| 143 |
|
|
| - |
|
|
| - |
|
|
| 143 |
|
Net income (loss) |
|
| (8 | ) |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
| 573 |
|
|
| 61 |
|
|
| 634 |
|
Balance, March 31, 2021 |
| $ | 1,654 |
|
|
|
| 26,460,375 |
|
| $ | - |
|
|
|
|
|
| $ | 114,766 |
|
| $ | 8,886 |
|
| $ | (348 | ) |
| $ | 123,304 |
|
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
| Nine Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| As Restated |
|
|
|
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income |
|
| 20,741 |
|
| $ | 15,263 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 17,365 |
|
|
| 7,732 |
|
Amortization of deferred loan fees and line of credit fees |
|
| 296 |
|
|
| 357 |
|
Amortization of label design fees |
|
| 668 |
|
|
| 251 |
|
Litigation proceeds |
|
| - |
|
|
| (4,750 | ) |
Stock-based compensation expense |
|
| 1,943 |
|
|
| 601 |
|
Provision for doubtful accounts |
|
| 45 |
|
|
| 87 |
|
Impairment of inventory |
|
| - |
|
|
| 3,302 |
|
Net unrealized gain on interest rate swap agreements |
|
| (17,870 | ) |
|
| (8,212 | ) |
(Benefit) provision for deferred income tax |
|
| 888 |
|
|
| - |
|
Loss (gain) on disposition of assets |
|
| 508 |
|
|
| (999 | ) |
Deferred gain on sale leaseback |
|
| (1,000 | ) |
|
| (1,000 | ) |
Deferred rent |
|
| 285 |
|
|
| 376 |
|
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
| ||
Accounts receivable |
|
| (21,261 | ) |
|
| (1,001 | ) |
Related party receivables |
|
| - |
|
|
| (2,038 | ) |
Other receivables |
|
| 376 |
|
|
| (2,338 | ) |
Litigation receivable |
|
| - |
|
|
| 4,750 |
|
Inventories |
|
| 4,244 |
|
|
| (8,964 | ) |
Prepaid expenses and other current assets |
|
| (2,232 | ) |
|
| (5,829 | ) |
Other assets |
|
| (6,215 | ) |
|
| 1,688 |
|
Accounts payable |
|
| (8,106 | ) |
|
| 616 |
|
Accrued liabilities and other payables |
|
| 5,421 |
|
|
| 16,073 |
|
Related party liabilities |
|
| - |
|
|
| 3,698 |
|
Net cash (used in) provided by operating activities |
|
| (3,903 | ) |
|
| 19,661 |
|
Cash flows from investing activities |
|
|
|
|
|
| ||
Proceeds from disposition of assets |
|
| 105 |
|
|
| 1,064 |
|
Purchases of property, plant, and equipment |
|
| (15,723 | ) |
|
| (30,688 | ) |
Label design expenditures |
|
| (225 | ) |
|
| (375 | ) |
Proceeds on related party notes receivable |
|
| - |
|
|
| 756 |
|
Acquisition of businesses |
|
| (74,268 | ) |
|
| - |
|
Net cash used in investing activities |
|
| (90,111 | ) |
|
| (29,243 | ) |
Cash flows from financing activities |
|
|
|
|
|
| ||
Repurchase of common stock |
|
| (2,833 | ) |
|
| - |
|
Principal payments on line of credit |
|
| (67,210 | ) |
|
| (25,195 | ) |
Proceeds from line of credit |
|
| 126,591 |
|
|
| 32,281 |
|
Outstanding checks in excess of cash |
|
| 2,900 |
|
|
| 9,277 |
|
Principal payments on long-term debt |
|
| (13,178 | ) |
|
| (15,234 | ) |
Proceeds from long-term debt |
|
| - |
|
|
| 8,902 |
|
Principal payments on related party note |
|
| - |
|
|
| (489 | ) |
Deferred offering costs |
|
| - |
|
|
| (768 | ) |
Payments on acquisition payable |
|
| (226 | ) |
|
| (486 | ) |
Net cash provided by financing activities |
|
| 46,044 |
|
|
| 8,287 |
|
Net change in cash and restricted cash |
|
| (47,970 | ) |
|
| (1,295 | ) |
Cash and restricted cash, beginning of period |
|
| 123,679 |
|
|
| 1,751 |
|
Cash and restricted cash, end of period |
| $ | 75,709 |
|
| $ | 456 |
|
Supplemental cash flow information |
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
|
| ||
Interest |
| $ | 9,415 |
|
| $ | 9,230 |
|
Income taxes |
| $ | 22 |
|
| $ | 25 |
|
5
Noncash investing and financing activities: |
|
|
|
|
|
| ||
Contingent consideration in a business combination |
| $ | 8,460 |
|
| $ | - |
|
Issuance of common stock in business combination |
| $ | 10,521 |
|
| $ | - |
|
Accretion of redemption value of Series B redeemable cumulative stock |
| $ | - |
|
| $ | 4,760 |
|
Accretion of redemption value of Series A redeemable stock |
| $ | - |
|
| $ | 16,466 |
|
Offering costs |
| $ | - |
|
| $ | 535 |
|
See notes to condensed consolidated financial statements.
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
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/A for the quarter ended March 31, 2022 (this "Form 10-Q/A") 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 2022 and 2021 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2022 and June 30, 2021, respectively.
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.
The COVID-19 pandemic ("COVID-19") continues to affect the U.S. and global economies. Restrictions imposed by federal, state, and local governments have disrupted and will continue to disrupt our business. While many of the restrictions have expired, some are continuing. We expect the COVID-19 pandemic to have a minimal impact on sales revenues, as we believe we are well-positioned to take advantage of increased direct-to-consumer sales platforms in lieu of in-person transactions.
In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Except as disclosed elsewhere in this Form 10-Q/A, all such adjustments are of a normal and recurring nature. In addition, financial results presented for this fiscal 2022 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2022 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, 2021, filed with the SEC on October 13, 2021. The June 30, 2021 condensed consolidated balance sheet was derived from the audited consolidated financial statements as of that date.
Merger and Reverse Recapitalization
We were formed in 2019 as Bespoke Capital Acquisition Corp. (“BCAC”), a special purpose acquisition company incorporated under the laws of the Province of British Columbia. BCAC was organized for the purpose of effecting an acquisition of one or more businesses or assets by way of a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or any other similar business combination involving BCAC.
On June 7, 2021, BCAC completed its business combination (the "Merger") with Vintage Wine Estates, Inc., a California corporation ("Legacy VWE") pursuant to a transaction agreement dated February 3, 2021 (as amended, the “Transaction Agreement”) by the merger of VWE Acquisition Sub Inc., a wholly owned subsidiary of BCAC (“merger sub”) with and into Legacy VWE, with Legacy VWE continuing as the surviving entity and as a wholly owned subsidiary of BCAC. In connection with the Merger, BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada and BCAC changed its name to Vintage Wine Estates, Inc. Upon the consummation of the Merger, the Company received approximately $248.7 million, net of fees and expenses. See Note 3 for additional details regarding the transaction.
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, 2021. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the nine months ended March 31, 2022.
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
7
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 doubtful accounts, 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, amortization period of label and package design costs, the estimated fair value of long-term debt, the valuation of interest rate swaps, contingent consideration, common stock, stock-based compensation and accounting for income taxes. Actual results could differ materially from those estimates.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Specifically, we reclassified accrued trade commissions to other accrued expenses and reclassified custom production and other receivables to Wholesale trade accounts receivables.
Cash
Cash consists of deposits held at financial institutions.
Restricted Cash
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 such amounts as shown in the condensed consolidated statement of cash flows:
(in thousands) |
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Cash and cash equivalents |
| $ | 69,109 |
|
| $ | 118,879 |
|
Restricted cash |
|
| 6,600 |
|
|
| 4,800 |
|
Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statement of cash flows |
| $ | 75,709 |
|
| $ | 123,679 |
|
Restricted cash consists of $4.8 million that was deposited into a restricted cash account as collateral for the credit facility, subject to release upon the completion of certain construction costs and $1.8 million that was deposited into a restricted cash account as collateral for our captive insurance letter of credit.
Interest Rate Swap Agreements
GAAP requires that an entity recognize all derivatives (including interest rate swaps) as either assets or liabilities on the consolidated balance sheets and measure these instruments at fair value. The Company has entered into interest rate swap agreements as a means of managing its interest rate exposure on its debt obligations. These agreements mitigate our exposure to interest rate fluctuations on our variable rate obligations. We have not designated these agreements as cash-flow hedges.
Accordingly, changes in the fair value of the interest rate swaps are included in the condensed consolidated statements of operations as a component of other income (expense). We do not enter into financial instruments for trading or speculative purposes.
Revenue Recognition
Point in Time —Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
We recognize revenue when obligations under the terms of a contract with our customers are satisfied. Generally, this occurs when the product is shipped and 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 (“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. Revenue is recognized 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 the Company.
Over Time —Certain long-term contracts in our Business-to-Business ("B2B") segment are for custom wine making services and include services such as fermentation, barrel aging, procurement of dry goods, bottling and cased goods. Additionally, we provide storage services for wine inventory of various customers.
8
We recognize revenue over time as the contract specific performance obligations are met.
Disaggregation of Revenue
The following tables summarizes revenue by geographic region:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Geographic regions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
United States |
| $ | 77,586 |
|
| $ | 45,929 |
|
| $ | 213,713 |
|
| $ | 159,830 |
|
Canada |
|
| 500 |
|
|
| 644 |
|
|
| 1,812 |
|
|
| 1,997 |
|
Europe, Middle East, & Africa |
|
| 180 |
|
|
| 55 |
|
|
| 821 |
|
|
| 261 |
|
Asia Pacific |
|
| 488 |
|
|
| 157 |
|
|
| 1,325 |
|
|
| 1,211 |
|
Other |
|
| 179 |
|
|
| 112 |
|
|
| 560 |
|
|
| 410 |
|
Total net revenue |
| $ | 78,933 |
|
| $ | 46,897 |
|
| $ | 218,231 |
|
| $ | 163,709 |
|
The following table provides a disaggregation of revenue based on the pattern of revenue recognition:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Point in time |
| $ | 65,170 |
|
| $ | 38,285 |
|
| $ | 180,116 |
|
| $ | 137,328 |
|
Over a period of time |
|
| 13,763 |
|
|
| 8,612 |
|
|
| 38,115 |
|
|
| 26,381 |
|
Total net revenue |
| $ | 78,933 |
|
| $ | 46,897 |
|
| $ | 218,231 |
|
| $ | 163,709 |
|
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 March 31, 2022 and June 30, 2021, we had $65.8 million and $121.6 million respectively, in one major financial institution 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:
|
| Three Months Ended March 31, |
| Nine Months Ended March 31, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
Revenue as a percent of total revenue |
|
|
|
|
|
|
|
|
Customer A |
| 15.6% |
| 41.0% |
| 18.3% |
| 40.0% |
Customer B |
| * |
| * |
| 10.0% |
| 12.0% |
Customer C |
| * |
| * |
| 10.1% |
| * |
Customer D |
| * |
| * |
| * |
| * |
The following table summarizes customer concentration:
|
| March 31, 2022 |
| June 30, 2021 |
Receivables as a percent of total receivables |
|
|
|
|
Customer A |
| 44.3% |
| 35.0% |
Customer B |
| * |
| 21.0% |
Customer C |
| * |
| * |
Customer D |
| 11.5% |
| 10.4% |
* Customer revenue or receivables did not exceed 10% in the respective periods.
Revenues for sales from Customer A are included within the Wholesale and Business-to-Business reporting segments, Customer B are included within the Business-to-Business reporting segment and Customer C and Customer D are included within the Wholesale reporting segment.
Inventories
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
9
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.
Business Combinations
Business combinations are accounted for under Accounting Standards Codification (“ASC”) 805—Business Combinations, using the acquisition method of accounting under which all acquired tangible and identifiable intangible assets and assumed liabilities and applicable noncontrolling interests are recognized at fair value as of the respective acquisition date, while the costs associated with the acquisition of a business are expensed as incurred.
The allocation of purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, a market participant’s expectation of future cash flows from acquired customers, acquired trade names, useful lives of acquired assets, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from such estimates. During the measurement period, which is generally no longer than one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are recognized in operations.
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 Chief Executive Officer, allocates resources and assesses performance based upon discrete financial information at the segment level.
Income Taxes
Deferred income taxes are determined using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred income tax asset is considered to be unlikely.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income tax matters as a component of income tax expense.
Stock-Based Compensation
Stock-based compensation provided to employees is recognized in the consolidated statement of operations based on the grant date fair value of the awards. The fair value of restricted stock units is determined by the grant date market price of our common shares. The fair value of stock options is determined on the grant date using a Monte Carlo simulation model. The determination of the grant date fair value of stock option awards granted is affected by a number of variables, including the fair value of the Company's common stock, the expected common stock price volatility over the life of the awards, the expected term of the stock option, risk-free interest rates and the expected dividend yield of the Company's common stock. Due to the Company's limited trading history since becoming a public company on June 7, 2021, the Company derived its volatility from the average historical stock volatilities of several peer public companies over a period equivalent to the expected term of the awards.
The compensation expense recognized for stock-based awards is net of estimated forfeitures and is recognized ratably over the service period of the awards. All income tax effects of stock-based awards are recognized in the consolidated statements of operations as awards vest or are settled. We classify stock-based compensation expense in selling, general and administrative ("SG&A") expenses in the consolidated statement of operations.
Earnout Shares
The Legacy VWE shareholders may become entitled to receive up to an additional 5,726,864 shares of the Company’s common stock (the “Earnout Shares”) pursuant to the Transaction Agreement. The Earnout Shares will be released if the price of our common stock meets certain thresholds in the 24 months following the closing of the Merger (see Note 3). The Earnout Shares meet the accounting definition of a derivative financial instrument, are considered to be indexed to the Company’s common stock and meet other conditions in ASC 815-40, Derivatives and Hedging: Contracts in Entity's Own Equity, to be classified as equity.
The Company’s obligation to issue the Earnout Shares is recorded as a dividend to the Legacy VWE shareholders at fair value as of the date of the Merger.
10
The fair value of the Earnout Shares was determined using a Monte Carlo valuation model, which requires significant estimates including the expected volatility of our common stock. The expected annual volatility of our common stock was estimated to be 55.0% as of the date of the Merger, based on the historical volatility of comparable publicly traded companies.
Redeemable Series A and Series B Stock
Prior to the Merger, Legacy VWE had Series A and B stock outstanding. All of the Series B stock and the majority of the Series A stock was classified as temporary equity due to the shares being redeemable at the option of the holder. The carrying value of the redeemable Series A stock and redeemable Series B stock was being accreted to its respective redemption values, using the effective interest method, from the date of issuance to the earliest date the holders could demand redemption. Accretion of redeemable Series B stock included the accretion of dividends and issuance costs. Increases to the carrying value of redeemable Series A stock and redeemable Series B stock were charged to retained earnings or, in its absence, to additional paid-in-capital. Upon any repurchase of redeemable stock, the excess consideration paid over the carrying value at the time of repurchase is accounted for as a deemed dividend to the stockholders.
In conjunction with the closing of the Merger, a majority of the redeemable Series B stock was redeemed and the remaining redeemable Series B shares, along with all redeemable Series A shares, were converted into shares of the Company's common stock. All Series A and Series B shares which were converted into shares of the Company's common stock were retroactively adjusted using the exchange ratio and reclassified into permanent equity as a result of the Merger.
Earnings Per Share
Basic and diluted net income (loss) per share allocable to common stockholders is presented in conformity with the two-class method required for participating securities. We considered our Series B stock to be participating securities as, in the event a dividend is paid on Series A stock, the holders of Series B stock would be entitled to receive dividends on a basis consistent with the Series A stockholders. The two-class method determines net income per share for each class of common and participating securities according to dividends declared or accumulated as well as participation rights in undistributed earnings. The two-class method requires income available to stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. Legacy VWE’s redeemable Series B stock was considered to be a participating security. Under the two-class method, any net loss attributable to common stockholders is not allocated to the Series B stock as the holders of the Series B stock did not have a contractual obligation to share in losses.
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, convertible debt (previously convertible into Legacy VWE Series A stock) and stock options and warrants to purchase common stock are considered potentially dilutive securities but are excluded from the calculation of diluted net income (loss) per share when their effect is antidilutive. As a result, in certain periods, diluted net loss per share is the same as the basic net loss per share for the periods presented.
The computation of net income (loss) available to Series A stockholders is computed by deducting the dividends declared, if any, and cumulative dividends, whether or not declared, in the period on Series B stock (whether paid or not) from the reported net income (loss).
As the Merger has been accounted for as a reverse recapitalization, the consolidated financial statements of the merged entity reflect the continuation of Legacy VWE’s consolidated financial statements, with the Legacy VWE equity, which has been retroactively adjusted to the earliest period presented to reflect the legal capital of the legal acquirer, BCAC. As a result, net income (loss) per share was also restated for periods ended prior to the Merger.
Self-Insurance
On September 9, 2021, the Company formed VWE Captive, LLC, a wholly-owned captive insurance company ("Captive"), which became operational on October 1, 2021. The Company formed Captive to self-insure the first $10.0 million of claims, above which limit, Captive has secured insurance. The insurance policy protects us against a portion of our risk of loss related to earthquakes, flood and named wildfires and windstorms.
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 March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to
11
applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance in this ASU was effective upon its issuance; if elected, it is to be applied prospectively through December 31, 2022. The impact this ASU will have on our condensed consolidated financial statements will not be known until we have a modification to our financial instruments converting from LIBOR to another interest rate.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (“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 or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the 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 their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 will be effective for the Company for fiscal year ending June 30, 2023 and for interim periods in the year beginning July 1, 2022.
We have not yet determined the full effects of Topic 842 on the Company's consolidated financial statements but do expect that it will result in a substantial increase in our long-term assets and liabilities and enhanced disclosures. Based on our initial assessment, we plan to be using the modified retrospective approach and electing the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The adoption of this guidance will at least result in the recognition of operating lease right-of-use assets and operating lease liabilities in our vineyard leases with a weighted-average remaining lease term of less than 10 years upon the adoption on July 1, 2022.
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 guidance is effective for the Company for fiscal year ending on June 30, 2024 and interim periods beginning for the fiscal year commencing on July 1, 2023. Early adoption is permitted. We do not expect the adoption of this standard will have a significant impact on the consolidated financial statements given our historically low bad debt expense.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in the updated guidance simplify the accounting for income taxes by removing certain exceptions and improving consistent application of other areas of the topic by clarifying the guidance. The amendments in this update are effective for the Company for fiscal year ending June 30, 2023 and interim periods within the fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact and timing of adopting ASU 2019-12, however at this time, the adoption is not expected to have a significant impact on the consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in the updated guidance require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update are effective for the Company for fiscal years ending June 30, 2024 and for interim periods in the year beginning July 1, 2023. Early adoption is permitted including adoption at an interim period. We are currently evaluating the impact and timing of adopting ASU 2021-08, however at this time, the adoption is not expected to have a significant impact on the consolidated financial statements.
2. Restatement of Previously Issued Condensed Consolidated Financial Statements
The Company has restated its condensed consolidated statements as of and for the three and nine months ended March 31, 2022.
During the audit for the fiscal year ending June 30, 2022, an accounting error was identified in the treatment of the Company's accounting for interest rate swap liabilities that materially impacted our condensed consolidated financial statements for the three and nine months ended March 31, 2022. The Company had erroneously accounted for these interest rate swaps as liabilities when the interest rate swaps should have been accounted for as assets. The error resulted in an overstatement of liabilities of $1.6 for the nine months ended March 31, 2022, an understatement of assets of $5.1 million for the three and nine months ended March 31, 2022 and an understatement in unrecognized gain on interest rate swap agreements of $6.7 million for the three and nine months ended March 31, 2022, net of income taxes.
The following tables present the impact of the adjustments described above to our previously reported condensed consolidated balance sheets for the nine months ended March 31, 2022, and the related condensed consolidated statements of operations, condensed consolidated statements of stockholders’ equity and condensed consolidated cash flows for the three and nine months ended March 31, 2022.
12
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
|
| March 31, 2022 |
| |||||||||
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Assets |
|
|
|
|
|
|
|
|
| |||
Current assets: |
|
|
|
|
|
|
|
|
| |||
Cash |
| $ | 69,109 |
|
|
|
|
| $ | 69,109 |
| |
Restricted cash |
|
| 6,600 |
|
|
|
|
|
| 6,600 |
| |
Accounts receivable, net |
|
| 39,649 |
|
|
|
|
|
| 39,649 |
| |
Other receivables |
|
| 13,668 |
|
|
|
|
|
| 13,668 |
| |
Inventories |
|
| 221,264 |
|
|
|
|
|
| 221,264 |
| |
Interest rate swap assets |
|
| - |
|
|
| 716 |
|
|
| 716 |
|
Prepaid expenses and other current assets |
|
| 10,968 |
|
|
|
|
|
| 10,968 |
| |
Total current assets |
|
| 361,258 |
|
|
| 716 |
|
|
| 361,974 |
|
Property, plant, and equipment, net |
|
| 234,141 |
|
|
|
|
|
| 234,141 |
| |
Goodwill |
|
| 158,185 |
|
|
|
|
|
| 158,185 |
| |
Intangible assets, net |
|
| 64,809 |
|
|
|
|
|
| 64,809 |
| |
Interest rate swap assets, long-term |
|
| - |
|
|
| 4,417 |
|
|
| 4,417 |
|
Other assets |
|
| 7,635 |
|
|
|
|
|
| 7,635 |
| |
Total assets |
| $ | 826,028 |
|
| $ | 5,133 |
|
|
| 831,161 |
|
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
|
|
| - |
| ||
Current liabilities: |
|
|
|
|
|
|
|
| - |
| ||
Line of credit |
| $ | 146,732 |
|
|
|
|
|
| 146,732 |
| |
Accounts payable |
|
| 14,777 |
|
|
|
|
|
| 14,777 |
| |
Accrued liabilities and other payables |
|
| 30,460 |
|
|
| 2,678 |
|
|
| 33,138 |
|
Interest rate swap liabilities |
|
| - |
|
|
| 977 |
|
|
| 977 |
|
Current maturities of long-term debt |
|
| 21,200 |
|
|
|
|
|
| 21,200 |
| |
Total current liabilities |
|
| 213,169 |
|
|
| 3,655 |
|
|
| 216,824 |
|
Other long-term liabilities |
|
| 8,740 |
|
|
|
|
|
| 8,740 |
| |
Long-term debt, less current maturities |
|
| 172,324 |
|
|
|
|
|
| 172,324 |
| |
Interest rate swap liabilities, noncurrent |
|
| 5,225 |
|
|
| (5,225 | ) |
|
| - |
|
Deferred tax liability |
|
| 29,965 |
|
|
|
|
|
| 29,965 |
| |
Deferred gain |
|
| 10,999 |
|
|
|
|
|
| 10,999 |
| |
Total liabilities |
|
| 440,422 |
|
|
| (1,570 | ) |
|
| 438,852 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
| - |
| ||
Redeemable noncontrolling interest |
|
| 1,684 |
|
|
|
|
|
| 1,684 |
| |
Stockholders' equity: |
|
|
|
|
|
|
|
| - |
| ||
Preferred stock, no par value, 2,000,000 shares authorized, and none issued and outstanding at March 31, 2022 and June 30, 2021. |
|
| - |
|
|
|
|
|
| - |
| |
Common stock, no par value, 200,000,000 shares authorized, 61,691,054 issued and 61,377,515 outstanding at March 31, 2022 and 60,461,611 issued and outstanding at June 30, 2021. |
|
| - |
|
|
|
|
|
| - |
| |
Additional paid-in capital |
|
| 373,196 |
|
|
|
|
|
| 373,196 |
| |
Treasury stock, at cost: 313,539 and zero shares held at March 31, 2022 and June 30, 2021, respectively |
|
| (2,833 | ) |
|
|
|
|
| (2,833 | ) | |
Retained earnings |
|
| 14,176 |
|
|
| 6,704 |
|
|
| 20,880 |
|
Total Vintage Wine Estates, Inc. stockholders' equity |
|
| 384,539 |
|
|
| 6,704 |
|
|
| 391,243 |
|
Noncontrolling interests |
|
| (617 | ) |
|
| (1 | ) |
|
| (618 | ) |
Total stockholders' equity |
|
| 383,922 |
|
|
| 6,703 |
|
|
| 390,625 |
|
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
| $ | 826,028 |
|
| $ | 5,133 |
|
| $ | 831,161 |
|
13
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except share and per share amounts)
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||||||||||
| 2022 |
|
| 2022 |
| ||||||||||||||||||
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
|
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| ||||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Wine, spirits and cider | $ | 50,859 |
|
|
|
|
| $ | 50,859 |
|
| $ | 157,292 |
|
|
|
|
| $ | 157,292 |
| ||
Nonwine |
| 28,074 |
|
|
|
|
|
| 28,074 |
|
|
| 60,939 |
|
|
|
|
|
| 60,939 |
| ||
|
| 78,933 |
|
|
|
|
|
| 78,933 |
|
|
| 218,231 |
|
|
|
|
|
| 218,231 |
| ||
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Wine, spirits and cider |
| 38,764 |
|
|
|
|
|
| 38,764 |
|
|
| 98,428 |
|
|
|
|
|
| 98,428 |
| ||
Nonwine |
| 12,152 |
|
|
|
|
|
| 12,152 |
|
|
| 29,886 |
|
|
|
|
|
| 29,886 |
| ||
|
| 50,916 |
|
|
|
|
|
| 50,916 |
|
|
| 128,314 |
|
|
|
|
|
| 128,314 |
| ||
Gross profit |
| 28,017 |
|
|
|
|
|
| 28,017 |
|
|
| 89,917 |
|
|
|
|
|
| 89,917 |
| ||
Selling, general, and administrative expenses |
| 27,035 |
|
|
|
|
|
| 27,035 |
|
|
| 70,662 |
|
|
|
|
|
| 70,662 |
| ||
Loss (gain) on sale of property, plant, and equipment |
| 98 |
|
|
|
|
|
| 98 |
|
|
| (493 | ) |
|
|
|
|
| (493 | ) | ||
Gain on litigation proceeds |
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| ||
Income from operations |
| 884 |
|
|
|
|
|
| 884 |
|
|
| 19,748 |
|
|
|
|
|
| 19,748 |
| ||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| (3,729 | ) |
|
|
|
|
| (3,729 | ) |
|
| (10,825 | ) |
|
|
|
|
| (10,825 | ) | ||
Net unrealized gain on interest rate swap agreements |
| 4,553 |
|
|
| 9,288 |
|
|
| 13,841 |
|
|
| 8,582 |
|
|
| 9,288 |
|
|
| 17,870 |
|
Other, net |
| 1,957 |
|
|
|
|
|
| 1,957 |
|
|
| 1,945 |
|
|
|
|
|
| 1,945 |
| ||
Total other income (expense), net |
| 2,781 |
|
|
| 9,288 |
|
|
| 12,069 |
|
|
| (298 | ) |
|
| 9,288 |
|
|
| 8,990 |
|
Income before provision for income taxes |
| 3,665 |
|
|
| 9,288 |
|
|
| 12,953 |
|
|
| 19,450 |
|
|
| 9,288 |
|
|
| 28,738 |
|
Income tax provision |
| 958 |
|
|
| 2,585 |
|
|
| 3,543 |
|
|
| 5,412 |
|
|
| 2,585 |
|
|
| 7,997 |
|
Net income |
| 2,707 |
|
|
| 6,703 |
|
|
| 9,410 |
|
|
| 14,038 |
|
|
| 6,703 |
|
|
| 20,741 |
|
Net income (loss) attributable to the noncontrolling interests |
| (73 | ) |
|
| (1 | ) |
|
| (74 | ) |
|
| (138 | ) |
|
| (1 | ) |
|
| (139 | ) |
Net income attributable to Vintage Wine Estates, Inc. |
| 2,780 |
|
|
| 6,704 |
|
|
| 9,484 |
|
|
| 14,176 |
|
|
| 6,704 |
|
|
| 20,880 |
|
Accretion on redeemable Series B stock |
| - |
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| ||
Net income (loss) allocable to common stockholders | $ | 2,780 |
|
| $ | 6,704 |
|
| $ | 9,484 |
|
| $ | 14,176 |
|
| $ | 6,704 |
|
| $ | 20,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings (loss) per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic | $ | 0.05 |
|
| $ | 0.10 |
|
| $ | 0.15 |
|
| $ | 0.23 |
|
| $ | 0.11 |
|
| $ | 0.34 |
|
Diluted | $ | 0.05 |
|
| $ | 0.10 |
|
| $ | 0.15 |
|
| $ | 0.23 |
|
| $ | 0.11 |
|
| $ | 0.34 |
|
Weighted average shares used in the calculation of earnings per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| 61,410,403 |
|
|
|
|
|
| 61,410,403 |
|
|
| 60,773,258 |
|
|
|
|
|
| 60,773,258 |
| ||
Diluted |
| 61,410,403 |
|
|
|
|
|
| 61,410,403 |
|
|
| 60,773,258 |
|
|
|
|
|
| 60,773,258 |
|
14
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)
|
| 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 |
| ||
Net income (loss) |
|
| 3 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| 2,804 |
|
|
| (28 | ) |
|
| 2,776 |
| ||
Balance, September 30, 2021 |
| $ | 1,685 |
|
|
|
| 60,461,611 |
|
| $ | - |
|
|
|
|
|
|
|
| $ | 360,732 |
|
| $ | 2,804 |
|
| $ | (505 | ) |
| $ | 363,031 |
| ||
Net income (loss) |
|
| 5 |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
| 8,592 |
|
|
| (45 | ) |
|
| 8,547 |
| ||
Balance, December 31, 2021 |
| $ | 1,690 |
|
|
|
| 60,461,611 |
|
| $ | - |
|
|
|
|
|
|
|
| $ | 360,732 |
|
| $ | 11,396 |
|
| $ | (550 | ) |
| $ | 371,578 |
| ||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| 1,943 |
|
|
| - |
|
|
| - |
|
|
| 1,943 |
| |||
Issuance of common stock in business combination |
|
|
|
|
|
| 1,229,443 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,521 |
|
|
| - |
|
|
| - |
|
|
| 10,521 |
| |
Repurchase of common stock |
|
|
|
|
|
| - |
|
|
| - |
|
|
| 313,539 |
|
|
| (2,833 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,833 | ) | |
Net income (loss) |
|
| (6 | ) |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,780 |
|
|
| (68 | ) |
|
| 2,712 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,704 |
|
|
|
|
|
| 6,704 |
| |||||||
Balance, March 31, 2022, As Restated |
| $ | 1,684 |
|
|
|
| 61,691,054 |
|
| $ | - |
|
|
| 313,539 |
|
| $ | (2,833 | ) |
| $ | 373,196 |
|
| $ | 20,880 |
|
| $ | (618 | ) |
| $ | 390,625 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended March 31, |
| |||||||||
| 2022 |
| |||||||||
| As Previously Reported |
|
| Adjustments |
|
| As Restated |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
| |||
Net income | $ | 14,038 |
|
|
| 6,703 |
|
| $ | 20,741 |
|
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
| 17,365 |
|
|
|
|
|
| 17,365 |
| |
Amortization of deferred loan fees and line of credit fees |
| 296 |
|
|
|
|
|
| 296 |
| |
Amortization of label design fees |
| 668 |
|
|
|
|
|
| 668 |
| |
Litigation proceeds |
| - |
|
|
|
|
|
| - |
| |
Stock-based compensation expense |
| 1,943 |
|
|
|
|
|
| 1,943 |
| |
Provision for doubtful accounts |
| 45 |
|
|
|
|
|
| 45 |
| |
Impairment of inventory |
| - |
|
|
|
|
|
| - |
| |
Net unrealized gain on interest rate swap agreements |
| (8,582 | ) |
|
| (9,288 | ) |
|
| (17,870 | ) |
(Benefit) provision for deferred income tax |
| 888 |
|
|
|
|
|
| 888 |
| |
Loss (gain) on disposition of assets |
| 508 |
|
|
|
|
|
| 508 |
| |
Deferred gain on sale leaseback |
| (1,000 | ) |
|
|
|
|
| (1,000 | ) | |
Deferred rent |
| 285 |
|
|
|
|
|
| 285 |
| |
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
|
| |||
Accounts receivable |
| (21,261 | ) |
|
|
|
|
| (21,261 | ) | |
Related party receivables |
| - |
|
|
|
|
|
| - |
| |
Other receivables |
| 376 |
|
|
|
|
|
| 376 |
| |
Litigation receivable |
| - |
|
|
|
|
|
| - |
| |
Inventories |
| 4,244 |
|
|
|
|
|
| 4,244 |
| |
Prepaid expenses and other current assets |
| (2,232 | ) |
|
|
|
|
| (2,232 | ) | |
Other assets |
| (6,215 | ) |
|
|
|
|
| (6,215 | ) | |
Accounts payable |
| (8,106 | ) |
|
|
|
|
| (8,106 | ) | |
Accrued liabilities and other payables |
| 2,836 |
|
|
| 2,585 |
|
|
| 5,421 |
|
Related party liabilities |
| - |
|
|
|
|
|
| - |
| |
Net cash (used in) provided by operating activities |
| (3,903 | ) |
|
| - |
|
|
| (3,903 | ) |
15
Cash flows from investing activities |
| - |
|
|
|
|
|
| - |
|
Proceeds from disposition of assets |
| 105 |
|
|
|
|
|
| 105 |
|
Purchases of property, plant, and equipment |
| (15,723 | ) |
|
|
|
|
| (15,723 | ) |
Label design expenditures |
| (225 | ) |
|
|
|
|
| (225 | ) |
Proceeds on related party notes receivable |
| - |
|
|
|
|
|
| - |
|
Acquisition of businesses |
| (74,268 | ) |
|
|
|
|
| (74,268 | ) |
Net cash used in investing activities |
| (90,111 | ) |
|
|
|
|
| (90,111 | ) |
Cash flows from financing activities |
| - |
|
|
|
|
|
| - |
|
Repurchase of common stock |
| (2,833 | ) |
|
|
|
|
| (2,833 | ) |
Principal payments on line of credit |
| (67,210 | ) |
|
|
|
|
| (67,210 | ) |
Proceeds from line of credit |
| 126,591 |
|
|
|
|
|
| 126,591 |
|
Outstanding checks in excess of cash |
| 2,900 |
|
|
|
|
|
| 2,900 |
|
Principal payments on long-term debt |
| (13,178 | ) |
|
|
|
|
| (13,178 | ) |
Proceeds from long-term debt |
| - |
|
|
|
|
|
| - |
|
Principal payments on related party note |
| - |
|
|
|
|
|
| - |
|
Deferred offering costs |
| - |
|
|
|
|
|
| - |
|
Payments on acquisition payable |
| (226 | ) |
|
|
|
|
| (226 | ) |
Net cash provided by financing activities |
| 46,044 |
|
|
|
|
|
| 46,044 |
|
Net change in cash and restricted cash |
| (47,970 | ) |
|
|
|
|
| (47,970 | ) |
Cash and restricted cash, beginning of period |
| 123,679 |
|
|
|
|
|
| 123,679 |
|
Cash and restricted cash, end of period | $ | 75,709 |
|
|
|
|
| $ | 75,709 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
|
|
|
| ||
Interest | $ | 9,508 |
|
|
|
|
| $ | 9,415 |
|
Income taxes | $ | 22 |
|
|
|
|
| $ | 22 |
|
Noncash investing and financing activities: |
| - |
|
|
|
|
| $ | - |
|
Contingent consideration in a business combination | $ | 8,460 |
|
|
|
|
| $ | 8,460 |
|
Issuance of common stock in business combination | $ | 10,521 |
|
|
|
|
| $ | 10,521 |
|
Accretion of redemption value of Series B redeemable cumulative stock | $ | - |
|
|
|
|
| $ | - |
|
Accretion of redemption value of Series A redeemable stock | $ | - |
|
|
|
|
| $ | - |
|
Offering costs | $ | - |
|
|
|
|
| $ | - |
|
3. Merger and Reverse Recapitalization
On June 7, 2021, Legacy VWE and BCAC consummated the Merger, with Legacy VWE surviving the Merger as a wholly owned subsidiary of BCAC, which was renamed Vintage Wine Estates, Inc. Immediately prior to the closing of the Merger, the Company purchased 2,889,507 shares of Series B stock from TGAM Agribusiness Fund Holdings LP for $32.0 million, including unpaid cumulative dividends and all remaining shares of outstanding Series B stock of Legacy VWE were converted into shares of Legacy VWE Series A common stock. Upon the consummation of the Merger, each share of Legacy VWE Series A and Series B common stock issued and outstanding was canceled and converted into the right to receive 2.85708834472042 shares (the “Exchange Ratio”) of common stock of the Company. For periods prior to the Merger, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio. VWE Legacy shareholders were issued 26,828,256 shares of the Company’s common stock of which 1,000,002 shares were placed in escrow to cover potential adjustments to the purchase price.
To satisfy the requirements of full repayment of the Company’s Paycheck Protection Program loan (the “PPP Loan”) upon a change of control, we placed into escrow $6.6 million in advance of the pending merger and reverse recapitalization. Funds held in escrow were released back to the Company upon receiving notification of the full forgiveness of the PPP loan prior to June 30, 2021.
In September 2021, upon finalization of the purchase price, all 1,000,002 shares of the shares in escrow were released to the VWE Legacy shareholders.
Upon the closing of the Merger, the Company's certificate of incorporation authorized 200,000,000 shares of common stock, no par value per share and 2,000,000 shares of preferred stock, no par value per share. As of June 7, 2021 (the "Closing Date"), there were 60,461,611 shares of the Company’s common stock issued and outstanding and warrants to purchase 26,000,000 shares of the Company’s common stock outstanding. There was no preferred stock outstanding as the Closing Date.
In connection with the Merger, BCAC entered into subscription agreements (each, a “Subscription Agreement”) with two investors (each a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and BCAC agreed to sell to the Subscribers, an aggregate of 10,000,000 shares of common stock (the “PIPE Shares”), for a purchase price of $10 per share and an aggregate purchase price of $100.0 million, in a private placement pursuant to the subscription agreements (the “PIPE”). The PIPE investment closed just prior to the consummation of the Merger.
16
The Merger is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, BCAC was treated as the “acquired” company and Legacy VWE was treated as the acquirer company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy VWE issuing stock for the net assets of BCAC, accompanied by a recapitalization. The net assets of BCAC are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are those of Legacy VWE.
Earnout Shares
The VWE Legacy shareholders 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 March 31, 2022.
4. Acquisitions
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 |
|
Deferred tax liability |
|
| (1,323 | ) |
Total identifiable assets acquired |
|
| 6,200 |
|
|
|
|
| |
Goodwill |
| $ | 10,800 |
|
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 revenues. Raw materials inventory was valued at its book value.
17
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.
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.
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 |
|
| (6,531 | ) |
Total identifiable assets acquired |
|
| 19,924 |
|
|
|
|
| |
Goodwill |
| $ | 27,516 |
|
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 revenues. 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 3.0% and (ii) discount rate of 13.0%.
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of 13.5%, and Cost Approach. Customer relationships were weighted; 90.0% using the MPEEM model and 10.0% using the Cost Approach.
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 preliminary allocation of the consideration for the net assets acquired from the acquisition of Meier's were as follows:
18
(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 |
|
| 11,358 |
|
Inventory |
|
| 4,280 |
|
Other assets |
|
| 356 |
|
Trademarks |
|
| 600 |
|
Customer relationships |
|
| 5,600 |
|
Accounts payable and accrued expenses |
|
| (2,682 | ) |
Deferred tax liability |
|
| (5,359 | ) |
Total identifiable assets acquired |
|
| 17,822 |
|
|
|
|
| |
Goodwill |
| $ | 9,974 |
|
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 revenues. 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 26.0%.
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of 27.0%. Customer relationships were weighted 100.0% using the MPEEM model.
Transaction costs incurred in the acquisition were insignificant.
The allocations of the fair value of the acquired businesses were based on preliminary valuations of the estimated net fair value of the assets acquired. The fair value estimates are subject to adjustment during the measurement period (up to one year from the acquisition date). The primary areas of accounting for the acquisitions that are not yet finalized relate to the fair value of certain intangible assets acquired and residual goodwill. Goodwill created in the acquisitions were structured as stock sales and therefore, is non tax deductible and non amortizable. The fair values of the net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired, we will evaluate any necessary information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date, if any, that, if known, would have resulted in revised values for these items as of that date. The net working capital adjustments related to the acquisitions are estimated as of the closing date and will be adjusted based on that estimate. Net working capital adjustments of $5.3 million are recorded in other assets on the condensed consolidated balance sheet. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.
Pro-forma Consolidated Financial Information (Unaudited)
The results of operations for the acquisitions and the estimated fair values of the assets acquired have been included in the Company’s consolidated financial statements since its respective date of acquisition. For the period ended March 31, 2022, and since the date of its acquisition, the acquisitions contributed approximately $18.4 million to the Company’s revenues and increased net income by approximately $0.7 million.
The unaudited pro forma financial information in the table below summarizes the combined results of the Company’s operations and those of Vinesse, ACE Cider and Meier's for the periods shown as if the acquisitions had occurred on July 1, 2020. The pro forma financial information includes the business combination accounting effects of the acquisitions, including amortization charges from acquired intangible assets. The pro
19
forma financial information presented below is for informational purposes only, and is subject to a number of estimates, assumptions and other uncertainties.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Total pro forma revenues |
| $ | 78,933 |
|
| $ | 59,057 |
|
| $ | 241,381 |
|
| $ | 204,102 |
|
Pro forma net income (loss) |
| $ | 9,410 |
|
| $ | 2,303 |
|
| $ | 21,619 |
|
| $ | 21,174 |
|
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 $0.3 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.
5. Inventory
Inventory consists of the following:
(in thousands) |
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Bulk wine, spirits and cider |
| $ | 109,408 |
|
| $ | 119,333 |
|
Bottled wine, spirits and cider |
|
| 89,808 |
|
|
| 90,083 |
|
Bottling and packaging supplies |
|
| 20,526 |
|
|
| 10,482 |
|
Nonwine inventory |
|
| 1,522 |
|
|
| 1,247 |
|
Total inventories |
| $ | 221,264 |
|
| $ | 221,145 |
|
For the three months ended March 31, 2022 and 2021, respectively, the Company recognized no impairment of inventory. For the nine months ended March 31, 2022 and 2021, respectively, the Company recognized impairment of inventory of zero and $3.3 million.
6. Property, Plant and Equipment
Property, plant and equipment consists of the following:
(in thousands) |
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Buildings and improvements |
| $ | 140,241 |
|
| $ | 129,288 |
|
Land |
|
| 36,215 |
|
|
| 33,734 |
|
Machinery and equipment |
|
| 74,677 |
|
|
| 58,227 |
|
Cooperage |
|
| 11,804 |
|
|
| 10,551 |
|
Vineyards |
|
| 21,174 |
|
|
| 21,364 |
|
Furniture and fixtures |
|
| 1,581 |
|
|
| 1,343 |
|
|
|
| 285,692 |
|
|
| 254,507 |
|
Less accumulated depreciation and amortization |
|
| (64,591 | ) |
|
| (52,791 | ) |
|
|
| 221,101 |
|
|
| 201,716 |
|
Construction in progress |
|
| 13,040 |
|
|
| 11,957 |
|
|
| $ | 234,141 |
|
| $ | 213,673 |
|
Depreciation and amortization expense related to property and equipment was $6.0 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively and $14.1 million and $8.1 million for the nine months ended March 31, 2022 and 2021, respectively.
20
7. Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of goodwill by segment:
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Total |
| ||||
Balance at June 30, 2021 |
| $ | 88,808 |
|
| $ | 20,342 |
|
| $ | 745 |
|
| $ | 109,895 |
|
Goodwill acquired in Vinesse business combination |
|
|
|
| $ | 10,800 |
|
|
|
|
| $ | 10,800 |
| ||
Goodwill acquired in ACE Cider business acquisition |
|
| 27,516 |
|
|
|
|
|
| - |
|
|
| 27,516 |
| |
Goodwill acquired in Meier's business acquisition |
|
|
|
|
|
|
|
| 9,974 |
|
|
| 9,974 |
| ||
Balance at March 31, 2022 |
| $ | 116,324 |
|
| $ | 31,142 |
|
| $ | 10,719 |
|
| $ | 158,185 |
|
Intangible Assets
The following tables summarize other intangible assets by class:
|
| March 31, 2022 | ||||||||||||
(in thousands) |
| Gross |
|
| Accumulated |
|
| Net Intangible |
|
| Weighted Average Remaining Amortization Period (in years) | |||
Indefinite-life intangibles |
|
|
|
|
|
|
|
|
|
|
| |||
Trade names and trademarks |
| $ | 29,829 |
|
| $ | - |
|
| $ | 29,829 |
|
| N/A |
Winery use permits |
|
| 6,750 |
|
|
| - |
|
|
| 6,750 |
|
| N/A |
Total Indefinite-life intangibles |
|
| 36,579 |
|
|
| - |
|
|
| 36,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
| |||
Customer and Sommelier relationships |
|
| 29,900 |
|
|
| (3,320 | ) |
|
| 26,580 |
|
| 4.7 |
Trade names and trademarks |
|
| 1,800 |
|
|
| (150 | ) |
|
| 1,650 |
|
| 3.8 |
Total definite-life intangibles |
|
| 31,700 |
|
|
| (3,470 | ) |
|
| 28,230 |
|
|
|
Total other intangible assets |
| $ | 68,279 |
|
| $ | (3,470 | ) |
| $ | 64,809 |
|
|
|
|
| June 30, 2021 | ||||||||||||
(in thousands) |
| Gross |
|
| Accumulated |
|
| Net Intangible |
|
| Weighted Average Remaining Amortization Period (in years) | |||
Indefinite-life intangibles |
|
|
|
|
|
|
|
|
|
|
| |||
Trade names and trademarks |
| $ | 23,229 |
|
| $ | - |
|
| $ | 23,229 |
|
| N/A |
Winery use permits |
|
| 6,750 |
|
|
| - |
|
|
| 6,750 |
|
| N/A |
Total Indefinite-life intangibles |
|
| 29,979 |
|
|
| - |
|
|
| 29,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
| |||
Customer and Sommelier relationships |
|
| 6,300 |
|
|
| (200 | ) |
|
| 6,100 |
|
| 4.7 |
Total definite-life intangibles |
|
| 6,300 |
|
|
| (200 | ) |
|
| 6,100 |
|
|
|
Total other intangible assets |
| $ | 36,279 |
|
| $ | (200 | ) |
| $ | 36,079 |
|
|
|
21
Amortization expense of definite-life intangibles was $1.7 million and $25.0 thousand for the three months ended March 31, 2022 and 2021, respectively and $3.3 million and $75.0 thousand for the nine months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, estimated future amortization expense for definite-lived assets is as follows:
2022 remaining |
|
|
| $ | 1,659 |
|
2023 |
|
|
|
| 6,637 |
|
2024 |
|
|
|
| 6,626 |
|
2025 |
|
|
|
| 5,106 |
|
Thereafter |
|
|
|
| 8,202 |
|
Total estimated amortization expense |
|
|
| $ | 28,230 |
|
8. Accrued Liabilities
The major classes of accrued liabilities are summarized as follows:
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
(in thousands) |
| As Restated |
|
|
|
| ||
Accrued purchases |
| $ | 11,616 |
|
| $ | 10,790 |
|
Accrued employee compensation |
|
| 3,921 |
|
|
| 3,981 |
|
Other accrued expenses |
|
| 9,857 |
|
|
| 6,754 |
|
Accrued interest expense |
|
| 1,225 |
|
|
| 202 |
|
Contingent consideration |
|
| 4,471 |
|
|
| 2,151 |
|
Unearned Income |
|
| 418 |
|
|
| 1,200 |
|
Captive insurance liabilities |
|
| 1,630 |
|
|
| - |
|
Total Accrued liabilities and other payables |
| $ | 33,138 |
|
| $ | 25,078 |
|
22
9. Long-Term and Other Short-Term Obligations
The following table summarizes long-term and other short-term obligations:
(in thousands) |
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Note to a bank with interest at LIBOR (1.76%) at Mach 31, 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. |
|
| 77,858 |
|
|
| 81,055 |
|
|
|
|
|
|
|
| ||
Capital expenditures borrowings payable at LIBOR plus 1.75%, payable in quarterly installments of $1,077, rolled into capital expenditures payable at Alternate Base Rate (ABR) (3.25% at June 30, 2021) plus 0.75%. At July 26,2021 Bank of the West converted capital expenditures payable back to Libor (0.50%) plus 1.75% to align with Company Swaps with draw expiring July, 2026. |
|
| 41,853 |
|
|
| 45,084 |
|
|
|
|
|
|
|
| ||
Note to a bank with interest fixed at 3.6%, payable in monthly installments of $60 principal with applicable interest; matures in April 2023. |
|
| 768 |
|
|
| 1,227 |
|
|
|
|
|
|
|
| ||
Note to a bank with interest fixed at 2.75%, payable in monthly installments of $61 principal with |
|
| 1,419 |
|
|
| 1,876 |
|
|
|
|
|
|
|
| ||
Delayed Draw Term Loan ("DDTL") with interest at LIBOR (2.32%) at March 2022 plus 1.75%, payable in quarterly installments of $1,260. Matures in July 2024. |
|
| 67,142 |
|
|
| 29,250 |
|
|
|
|
|
|
|
| ||
DDTL with ABR (4.00% at December 2021). Matures in July 2024. Interest only through draw period. Repaid in fiscal 2022. |
|
| - |
|
|
| 37,892 |
|
|
|
|
|
|
|
| ||
Short term unsecured promissory note; principal and interest payable upon maturity with interest at the prime rate plus 1.00%; matured and paid April 2022. |
|
| 2,917 |
|
|
| 2,917 |
|
|
|
|
|
|
|
| ||
Short term unsecured promissory note; principal and interest payable upon maturity with interest at the prime rate plus 1.00%; matured and paid April 2022. |
|
| 2,917 |
|
|
| 2,917 |
|
|
|
|
|
|
|
| ||
Short term unsecured promissory note; principal and interest payable upon maturity with interest at 1.06%; matured December 31, 2021 and paid January 3, 2022. |
|
| - |
|
|
| 5,834 |
|
|
|
| 194,874 |
|
|
| 208,052 |
|
Less current maturities |
|
| (21,200 | ) |
|
| (22,964 | ) |
Less unamortized deferred financing costs |
|
| (1,350 | ) |
|
| (1,547 | ) |
|
| $ | 172,324 |
|
| $ | 183,541 |
|
Maturities of Long-Term and Other Short-Term Borrowings
As of March 31, 2022, maturities of long-term and other short-term borrowings for succeeding years are as follows:
(in thousands) |
|
|
| |
Remaining 2022 |
| $ | 9,585 |
|
2023 |
|
| 14,909 |
|
2024 |
|
| 14,152 |
|
2025 |
|
| 64,372 |
|
2026 |
|
| 8,571 |
|
2027 |
|
| 83,285 |
|
|
| $ | 194,874 |
|
Line of Credit
In April 2021, we entered into an amended and restated loan and security agreement to increase the credit facility from an aggregate $350.0 million to $480.0 million 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 $50.0 million. The effective interest rate under the revolving facility was 3.1% and 2.7% as of
23
March 31, 2022 and 2021, respectively. The Company had $77.1 million and $125.0 million available under the line of credit as of March 31, 2022 and June 30, 2021, respectively.
Amortization of deferred loan costs related to the line of credit was $33.0 thousand and $111.8 thousand for the three months ended March 31, 2022 and 2021, respectively and $99.0 thousand and $335.7 thousand for the nine months ended March 31, 2022 and 2021, respectively.
The Company was in compliance with its line of credit covenants as of March 31, 2022.
10. Fair Value Measurements (restated)
The following tables present assets and liabilities measured at fair value on a recurring basis:
|
| March 31, 2022, As Restated |
| |||||||||||||
(in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 51,576 |
|
| $ | - |
|
| $ | - |
|
| $ | 51,576 |
|
Interest rate swaps (2) |
|
|
|
|
| 5,133 |
|
|
|
|
|
| 5,133 |
| ||
Total |
| $ | 51,576 |
|
| $ | 5,133 |
|
| $ | - |
|
| $ | 56,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration liabilities (1) |
| $ | - |
|
| $ | - |
|
| $ | 12,205 |
|
| $ | 12,205 |
|
Interest rate swaps (2) |
|
|
|
|
| 977 |
|
|
|
|
|
| 977 |
| ||
Total |
| $ | - |
|
| $ | 977 |
|
| $ | 12,205 |
|
| $ | 13,182 |
|
|
| June 30, 2021 |
| |||||||||||||
(in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 6,525 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,525 |
|
Total |
| $ | 6,525 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration liabilities (1) |
| $ | - |
|
| $ | - |
|
| $ | 4,631 |
|
| $ | 4,631 |
|
Interest rate swaps (2) |
|
| - |
|
|
| 13,807 |
|
|
| - |
|
|
| 13,807 |
|
Total |
| $ | - |
|
| $ | 13,807 |
|
| $ | 4,631 |
|
| $ | 18,438 |
|
(1) 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.
(2) 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 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.
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
(in thousands) |
| Contingent |
| |
Balance at June 30, 2021 |
| $ | 4,631 |
|
Acquisitions |
|
| 7,800 |
|
Payments |
|
| (226 | ) |
Balance at March 31, 2022 |
|
| 12,205 |
|
Less: current portion |
|
| (4,471 | ) |
Long term portion |
| $ | 7,734 |
|
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.
24
11. Redeemable Stock and Redeemable Noncontrolling Interest
Series A Redeemable Stock
The Company did not have Series A Redeemable stock for the three months ended and nine months ended March 31, 2022.
January 2018 Tamarack Cellars Series A Redeemable Stock
The amount accreted as deemed dividends for the Series A shares were $1.2 million for the three and nine months ended March 31, 2021.
April 2018 Series A Redeemable Stock
The amounts accreted as deemed dividends for the Series A shares were $3.9 million and $2.0 million for the three and nine months ended March 31, 2021, respectively.
July 2018 Issuance of Series A Redeemable Stock
The amounts accreted as deemed dividends for the Series A shares were $3.3 million for the three and nine months ended March 31, 2021.
Series B Redeemable Stock
The Company did not have Series B Redeemable stock for the three months ended and nine months ended March 31, 2022.
April 2018 Series B Redeemable Cumulative Series Stock
The amounts accreted as deemed dividends for the Series B stock were $1.4 million and $4.8 million for the three and nine months ended March 31, 2021, respectively.
The redemption amount of the Series B redeemable stock was $47.5 million at March 31, 2021.
Total unpaid cumulative dividends on the Series B redeemable stock as of March 31, 2021 approximated $5.0 million.
12. Stockholders' Equity
Common Stock
We had reserved shares of stock, on an as-if converted basis, for issuance as follows:
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Warrants |
|
| 26,000,000 |
|
|
| 26,000,000 |
|
Earnout shares |
|
| 5,726,864 |
|
|
| 5,726,864 |
|
Total |
|
| 31,726,864 |
|
|
| 31,726,864 |
|
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 share-based compensation expense by award type:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
(in thousands) |
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||||
Stock option awards |
| $ | 828 |
|
| $ | - |
|
| $ | 828 |
|
| $ | - |
|
Restricted stock units |
|
| 1,115 |
|
|
| - |
|
|
| 1,115 |
|
|
| - |
|
Total share-based compensation |
| $ | 1,943 |
|
| $ | - |
|
| $ | 1,943 |
|
| $ | - |
|
Stock-based compensation expense is included as a component of selling, general and administrative expenses in the condensed consolidated statement of operations.
Stock Options
25
Stock options granted under the 2021 Plan are subject to market conditions. 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 least $12.50 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.
The following table presents a summary of stock option activity under the 2021 Plan:
|
| Stock Options |
|
| Weighted-Average Exercise Price |
|
| Aggregate Intrinsic Value |
| |||
Outstanding at June 30, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
Granted |
|
| 2,675,651 |
|
|
| 10.50 |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
Canceled and forfeited |
|
| (25,600 | ) |
|
| 10.50 |
|
|
| - |
|
Outstanding at March 31, 2022 |
|
| 2,650,051 |
|
|
| 10.50 |
|
|
| - |
|
Total unrecognized compensation expense related to the stock options was $7.1 million, which is expected to be recognized over a weighted-average period of 3.3 years. No stock options were vested and exercisable as of March 31, 2022.
For the period ended March 31, 2022, the weighted-average grant date fair value was $3.27. The fair value of the options was estimated at the grant date using the Monte Carlo Simulation model with the following assumptions: weighted average risk free rate 1.8%; weighted average expected term 5.5 years; weighted average expected volatility 40%; and no expected dividend yield.
Restricted Stock Units
Restricted stock units are subject only to service conditions and vest ratably over four years.
The following table presents a summary of restricted stock units activity for the periods presented:
|
| Restricted Stock Units |
|
| Weighted-Average Grant Date Fair Value |
| ||
Outstanding at June 30, 2021 |
|
| - |
|
|
| - |
|
Granted |
|
| 1,398,526 |
|
|
| 8.22 |
|
Issued |
|
| - |
|
|
| - |
|
Canceled and forfeited |
|
| - |
|
|
| - |
|
Outstanding at March 31, 2022 |
|
| 1,398,526 |
|
|
| 8.22 |
|
|
|
|
|
|
|
|
Total unrecognized compensation expense related to the restricted stock units was $9.4 million, which is expected to be recognized over a weighted-average period of 3.3 years. No restricted stock units vested as of March 31, 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 repurchased under our stock repurchase plan is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. During the three months ended March 31, 2022 the Company repurchased 313,539 shares of common stock that are held in treasury. These shares are considered issued but not outstanding. The total cost of the shares repurchased was $2.8 million.
The table below summarizes the changes in treasury stock:
26
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Treasury stock: |
|
|
|
|
|
| ||
Balance at December 31, 2021 |
|
| - |
|
|
| - |
|
Repurchases of common stock |
|
| 313,539 |
|
|
| 313,539 |
|
Balance at March 31, 2022 |
|
| 313,539 |
|
|
| 313,539 |
|
13. Income Taxes
The increase in our effective tax rate for the nine months ended March 31, 2022 was primarily due to changes in permanent items, which primarily consist of the Research and Development ("R&D") Tax Credits, as compared to the nine months ended March 31, 2021.
The decrease in our effective tax rate for the three months ended March 31, 2022 was primarily due to changes in pre-tax income and permanent items, which primarily consist of the Research and Development ("R&D") Tax Credits, as compared to the three months ended March 31, 2021.
For the nine months and three months ended March 31, 2022, our effective tax rate differs from the federal statutory rate of 21% primarily due to state taxes. For the nine months and three months ended March 31, 2021, our effective tax rate differs from the federal statutory rate of 21% primarily due to permanent items, which primarily consist of the R&D Tax Credit.
The provisional measurements of fair value for income taxes payable and deferred taxes for the acquisitions of Vinesse, ACE Cider, and Meier may be subject to change 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. Commitments and Contingencies
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 significant 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.
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 aware of any indemnification claims.
Lease Agreements
We have lease agreements for certain winery facilities vineyards, corporate and administrative offices, tasting rooms, and equipment under long-term non-cancelable operating leases. The lease agreements have initial terms of two to 15 years, with two leases having multiple five-year or 10-year renewal terms and other leases having no or up to five-year renewal terms. The lease agreements expire ranging from March 31, 2022 through November 2031. Beginning fiscal 2022, we no longer have related party lease agreements.
The minimum annual payments under our lease agreements are as follows:
(in thousands) |
| Total |
| |
Remaining 2022 |
| $ | 1,978 |
|
2023 |
|
| 6,453 |
|
2024 |
|
| 6,551 |
|
2025 |
|
| 6,252 |
|
2026 |
|
| 5,834 |
|
2027 and thereafter |
|
| 17,610 |
|
|
| $ | 44,678 |
|
Total rent expense, including amounts to related parties, was $2.9 million and $2.2 million for the three months ended March 31, 2022 and 2021, respectively and $1.3 million and $5.7 million for the nine months ended March 31, 2022 and 2021, respectively.
Other Commitments
27
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 2022 |
| $ | 21,015 |
|
2023 |
|
| 13,594 |
|
2024 |
|
| 6,301 |
|
2025 |
|
| 3,553 |
|
2026 |
|
| 353 |
|
|
| $ | 44,816 |
|
Grape and bulk wine purchases under contracts totaled $9.2 million and $11.5 million and $30.4 and $30.4 million for the three and nine months ended March 31, 2022 and 2021, respectively. The Company expects to fulfill all of these purchase commitments.
15. Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“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:
Wholesale Segment—We sell our wine to wholesale distributors under purchase orders. Wholesale operations generate revenue from product sold to distributors, who then sell it 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—Our Business-to-Business sales channel generates revenue primarily from the sale of private label wines and custom winemaking services. Annually, we work with our national retail partners to develop private label wines incremental to their wholesale channel businesses. Additionally, we provide custom winemaking services.
Corporate and Other Segment—Our Corporate and Other segment generates revenues from grape and bulk sales and storage services. Other, non-allocable expenses include corporate expenses, non-direct selling expenses and other expenses not specific to an identified reporting segment.
The following tables present net revenues and income from operations directly attributable to the Company's segments:
|
| Three Months Ended March 31, 2022 |
| |||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Corporate and Other |
|
| Total |
| |||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net revenues |
| $ | 24,549 |
|
| $ | 19,595 |
|
| $ | 33,657 |
|
| $ | 1,132 |
|
| $ | 78,933 |
|
Income (loss) from operations |
| $ | 3,270 |
|
| $ | 916 |
|
| $ | 10,457 |
|
| $ | (13,759 | ) |
| $ | 884 |
|
|
| Three Months Ended March 31, 2021 |
| |||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Corporate and Other |
|
| Total |
| |||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net revenues |
| $ | 21,092 |
|
| $ | 14,675 |
|
| $ | 11,026 |
|
| $ | 104 |
|
| $ | 46,897 |
|
Income (loss) from operations |
| $ | 6,138 |
|
| $ | 1,986 |
|
| $ | 3,391 |
|
| $ | (11,331 | ) |
| $ | 184 |
|
28
|
| Nine Months Ended March 31, 2022 |
| |||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Corporate and Other |
|
| Total |
| |||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net revenues |
| $ | 62,923 |
|
| $ | 69,316 |
|
| $ | 83,349 |
|
| $ | 2,643 |
|
| $ | 218,231 |
|
Income (loss) from operations |
| $ | 12,654 |
|
| $ | 14,834 |
|
| $ | 26,274 |
|
| $ | (34,014 | ) |
| $ | 19,748 |
|
|
| Nine Months Ended March 31, 2021 |
| |||||||||||||||||
(in thousands) |
| Wholesale |
|
| Direct-to-Consumer |
|
| Business-to-Business |
|
| Corporate and Other |
|
| Total |
| |||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net revenues |
| $ | 55,399 |
|
| $ | 48,650 |
|
| $ | 57,704 |
|
| $ | 1,956 |
|
| $ | 163,709 |
|
Income (loss) from operations |
| $ | 14,760 |
|
| $ | 9,997 |
|
| $ | 18,052 |
|
| $ | (22,751 | ) |
| $ | 20,058 |
|
There was no inter-segment activity for any of the given reporting periods presented.
Excluding long-term property, plant and equipment for wine tasting facilities and customer relationships and Sommelier relationships allocated specifically to the Direct-to-Consumer reporting segment, revenue generating assets are utilized across segments therefore, the Company does not allocate assets to its reportable segments, as they are not included in the review performed by the CODM for purposes of assessing segment performance and allocating resources.
Depreciation expense recognized for assets included in the Direct-to-Consumer reporting segment was $0.3 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively and $0.8 million and $1.1 million for the nine months ended March 31, 2022 and 2021, respectively. Amortization expense included in the Direct-to-Consumer reporting segment was $0.6 million and $25.0 thousand for the three months ended March 31, 2022 and 2021 respectively and $2.0 million and $75.0 thousand for the nine months ended March 31, 2022 and 2021, respectively. All of the Company’s long-lived assets are located within the United States.
29
16. Earnings Per Share (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 March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
(in thousands, except for per share amounts) |
| As Restated |
|
|
|
|
| As Restated |
|
|
|
| ||||
Net income |
| $ | 9,410 |
|
| $ | 626 |
|
| $ | 20,741 |
|
| $ | 15,263 |
|
Less: Series B dividends and accretion |
|
| - |
|
|
| 1,446 |
|
|
| - |
|
|
| 4,760 |
|
Less: (loss) income allocable to noncontrolling interest |
|
| (74 | ) |
|
| 53 |
|
|
| (139 | ) |
|
| 343 |
|
Net income (loss) allocable to common shareholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 10,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator – Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) allocable to common shareholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 10,160 |
|
Less: net income allocated to participating securities (Series B) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,752 |
|
Net income (loss) allocated to common shareholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 8,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator – Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) allocated to common shareholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 8,408 |
|
Add: net income attributable to convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 147 |
|
Reallocation of income under the two-class method |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 44 |
|
Net income (loss) allocated to common shareholders |
| $ | 9,484 |
|
| $ | (873 | ) |
| $ | 20,880 |
|
| $ | 8,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator – Basic Common Shares |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding - Basic |
|
| 61,410 |
|
|
| 21,921 |
|
|
| 60,773 |
|
|
| 21,921 |
|
Denominator – Diluted Common Shares |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 406 |
|
Convertible debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,237 |
|
Weighted average common shares - Diluted |
|
| 61,410 |
|
|
| 21,921 |
|
|
| 60,773 |
|
|
| 24,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common Shares |
| $ | 0.15 |
|
| $ | (0.04 | ) |
| $ | 0.34 |
|
| $ | 0.38 |
|
Net income (loss) per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common Shares |
| $ | 0.15 |
|
| $ | (0.04 | ) |
| $ | 0.34 |
|
| $ | 0.35 |
|
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 March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Shares subject to warrants to purchase common stock |
|
| 26,000,000 |
|
|
| - |
|
|
| 26,000,000 |
|
|
| - |
|
Shares subject to options to purchase common stock |
|
| 2,650,051 |
|
|
| 816,868 |
|
|
| 2,650,051 |
|
|
| 277,700 |
|
Total |
|
| 28,650,051 |
|
|
| 816,868 |
|
|
| 28,650,051 |
|
|
| 277,700 |
|
30
The Company did not have any related party receivables or related party liabilities as of March 31, 2022 and June 30, 2021.
The components of related party revenues and expenses are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
(in thousands) |
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warehousing and fulfillment services |
| $ | - |
|
| $ | 166 |
|
| $ | - |
|
| $ | 715 |
|
Storage and bottling of alcoholic beverages |
|
| - |
|
|
| 29 |
|
|
| - |
|
|
| 50 |
|
Management fees |
|
| - |
|
|
| 115 |
|
|
| - |
|
|
| 388 |
|
Marketing and distribution |
|
| - |
|
|
| 1,625 |
|
|
| - |
|
|
| 1,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Concourse Warehouse lease |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 241 |
|
Swanson lease |
|
| - |
|
|
| 163 |
|
|
| - |
|
|
| 516 |
|
Z.R. Waverly lease |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 66 |
|
Warehousing and Fulfillment Services — Revenues from related parties for warehousing and fulfillment services for the three months ended March 31, 2022 and 2021 were zero and $166.3 thousand, respectively. Revenues from related parties for warehousing and fulfillment services for the nine months ended March 31, 2022 and 2021 were zero and $715.4 thousand, respectively. We did not have any accounts receivable from revenues with related parties for warehousing and fulfillment services at March 31, 2022 and June 30, 2021.
Storage and Bottling of Alcoholic Beverages — We have entered into a number of transactions with a related party covering services related to the storage and bottling of alcoholic beverages. We made payments of zero and $28.9 thousand for the three months ended March 31, 2022 and 2021, respectively and payments of zero and $49.6 thousand for the nine months ended March 31, 2022 and 2021, respectively, to the related party.
Management Fees — Prior to July 1, 2021, we provided management, billing and collection services to a related party under a management fee arrangement. For the three months ended March 31, 2022 and 2021, we charged this related party management fees of zero and $114.5 thousand, respectively, for these services. For the nine months ended March 31, 2022 and 2021, we charged this related party management fees of zero and $388.1 thousand, respectively, for these services. We did not owe the related party for amounts collected on the related party's behalf at March 31, 2022 and June 30, 2021.
Marketing and Distribution — On December 31, 2020, the Company entered into a marketing and distribution arrangement with a related party, Kunde. Under the agreement, the related party paid the Company a commission for certain distribution sales. The Company recognized zero and $1.6 million in revenue from the arrangement in the three and nine months ended March 31, 2021 and 2020, respectively.
The Company is engaged in various operating lease arrangements with related parties.
Concourse Warehouse Lease — We lease 15,000 square feet (“sq. ft.”) of office space and 80,000 sq. ft. of warehouse space. We account for this lease as an operating lease. We recognized rent expense paid to Concourse of zero for the three months ended March 31, 2021 and $241.3 thousand for the nine months ended March 31, 2021 related to this lease agreement. Prior to September 2020, the facility was owned by and leased from Concourse LLC, a related party real estate leasing entity that was wholly owned by a shareholder. We have no ownership in Concourse. In September 2020, an independent party purchased the facility from Concourse, LLC and assumed the lease.
Swanson Lease — We leased a property with production space and a tasting room under an operating lease with an entity that is wholly owned by a shareholder. We recognized rent expense of approximately $163.6 thousand for the three months ended March 31, 2021 and $516.6 thousand for the nine months ended March 31, 2021, related to this lease agreement.
Z.R. Waverly Lease — We leased tasting room space under an operating lease with an entity that is wholly owned by a shareholder. We recognized rent expense of zero for the three months ended March 31, 2021 and $65.8 thousand for the nine months ended March 31, 2021, related to this lease agreement. In December 2020, we purchased the Z.R. Waverly leased facility in California from the shareholder for $1.5 million.
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 approximately $90.1 thousand and $69.1 thousand for the three months ended March 31, 2022 and 2021, respectively and $286.5 thousand and $249.9 thousand for the nine months ended March 31, 2022 and 2021, respectively.
We pay for sponsorship 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 the three months ended March 31, 2022 and 2021, payments related to sponsorship and
31
marketing services totaled $87.0 thousand and $87.5 thousand, respectively. For the nine months ended March 31, 2022 and 2021, payments related to sponsorship and marketing services totaled $279.0 thousand and $225.0 thousand, respectively.
Gem + Jane Asset Acquisition — On February 14, 2022, the Company purchased certain intellectual property pertaining or related to a canned cannabis beverage brand from CannaCraft, Inc. The asset acquisition was a related party transaction. Terry Wheatley, President of VWE, is a member of the board of directors of CannaCraft, Inc., having the authority to establish policies and make decisions. 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.
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, 2021 (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”, “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 Condensed Consolidated Financial Statements
The Company has restated its previously issued condensed consolidated financial statements contained in the Quarterly Report on Form 10-Q/A. Refer to the “Explanatory Note” preceding Part I – Financial Information, for the background on the restatement, periods impacted, control considerations and other information. In addition, we have restated certain previously reported financial information for the three and nine months ended March 31, 2022 in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to, information within the Liquidity and Capital Resources sections. See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Item 1, Financial Statement Schedules and Footnotes, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our condensed consolidated financial statements.
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, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 15th largest wine producer based on cases of wine shipped in California. We sell nearly two million cases annually.
Growth Strategy
Our strategy is to continue to grow organically and through acquisitions with a view towards making two to three acquisitions per year over the next five years. These acquisitions have allowed us to diversify our wine sourcing into regions outside of California, expand our portfolio of brands, increase our vineyard assets and provide our direct-to-consumer and retail customers with a range of wines to choose from.
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected our operating results, including:
COVID-19 Pandemic
The COVID-19 pandemic ("COVID-19") continues to disrupt the U.S. and global economies. While many measures implemented by governments in an effort to slow the spread of COVID-19 have been lifted or eased, some are continuing. We cannot estimate with any certainty the length or severity of the COVID-19 pandemic 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.
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 has increased from suppliers due to the closing of the plant in Ukraine.
32
Industry and Economic Conditions
The wine industry is recession resistant, with sustained growth over the past 25 years despite downturns in economic conditions from time to time. Consumers are increasingly purchasing higher priced wines and other alcoholic beverages, which has accelerated throughout the COVID-19 pandemic. Consumption increases are largely in the $10.00 or more retail price per bottle premium and luxury wine categories. We benefit from this trend by focusing on the premium wine segment. Approximately 80% of our wine sales are in the $10.00 to $20.00 per bottle range.
U.S. Wildfires
Significant wildfires in California, Oregon and Washington state, have engulfed the affected regions in smoke and flames. The long-term trend is that wildfires are increasing resulting from drought conditions. Drought conditions due to global climate change have increased the severity of destructive wildfires which have affected the U.S. grape harvest. When vineyards and grapes are exposed to smoke, it can result in an ashy, burnt, or smoky aroma, described as "smoke tainted”. Industry grape suppliers have also experienced smoke and fire damage from the wildfires. Damage to our grape harvest and vineyards caused from wildfires have impacted our revenues, costs of revenues and winery overhead for the periods presented.
Seasonality
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 revenues 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 these trends to continue.
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 revenues and costs from year to year.
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.
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 revenues; gross profit; selling, general and administrative expenses; and income from operations. The key non-GAAP measure we consider is Adjusted EBITDA. 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 Revenues
We generate revenue from our segments: Wholesale, Business-to-Business ("B2B"), Direct-to-Consumer ("DTC") and Corporate and Other. We recognize revenue from wine sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, and 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 revenues 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 revenues, but are expected to increase over time to support the needs of the Company.
33
Income from Operations
Income from operations is gross profit less selling, general and administrative expenses; acquisition and restructuring related expenses 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, the 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 represent the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volumes are an important indicator of what is driving gross margin. This metric also allows us to develop our supply and production targets for future periods.
The following tables summarize 9-liter equivalent cases by segment:
|
| Three Months Ended March 31, |
|
|
|
|
|
|
| |||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Unit Change |
|
| % Change |
| ||||
Wholesale |
|
| 357 |
|
|
| 318 |
|
|
| 39 |
|
|
| 12.3 | % |
B2B |
|
| 113 |
|
|
| 85 |
|
| 28 |
|
|
| 32.9 | % | |
DTC |
|
| 87 |
|
|
| 52 |
|
| 35 |
|
|
| 67.3 | % | |
Total case volume |
|
| 557 |
|
|
| 455 |
|
|
| 102 |
|
|
| 22.4 | % |
Case volumes were up 22.4% for the three months ended March 31, 2022, driven by increased shipments in all segments, from the three months ended March 31, 2021. Wholesale increased 12.3% due to increased volumes associated with the acquisition of ACE Cider, partially offset by reduced off premise shipments from our core brands. B2B volumes increased 32.9% related primarily to increased customer projects. DTC volumes increased 67.3% due to increased wine club and tasting room transactions coupled with shipments related to the acquisition of Vinesse.
Case Volume |
| Nine Months Ended March 31, |
|
|
|
|
|
|
| |||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Unit Change |
|
| % Change |
| ||||
Wholesale |
|
| 1,072 |
|
|
| 782 |
|
|
| 290 |
|
|
| 37.1 | % |
B2B |
|
| 452 |
|
|
| 437 |
|
| 15 |
|
|
| 3.4 | % | |
DTC |
|
| 307 |
|
|
| 240 |
|
| 67 |
|
|
| 27.9 | % | |
Total case volume |
|
| 1,831 |
|
|
| 1,459 |
|
|
| 372 |
|
|
| 25.5 | % |
Case volumes were up 25.5% for the nine months ended March 31, 2022, driven by increased volumes in the Wholesale and DTC segments from the nine months ended March 31, 2021. Wholesale volumes increased 37.1% due to shipments of high volume core brands as well as the acquisition of ACE Cider partially offset by the discontinuation of certain brands. B2B volumes remained stable with an increase of 3.4% for the nine months ended March 31, 2022. DTC volumes increased 27.9% for the nine months ended March 31, 2022 driven by increased tasting room and wine club activity, special programming through a large e-commerce company and the acquisition of Vinesse.
Depletions
Within our three tier distribution structure, depletion measures the sale of our inventory from the distributor to the retailer. Depletions are an important indicator of customer satisfaction, which management uses for evaluating performance of our brands and for forecasting.
Non-GAAP Financial Measures, (as restated)
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.
Adjusted EBITDA is defined as earnings (loss) 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 related income or expenses, acquisition and integration costs, 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, including COVID related adjustments. COVID related adjustments relate to the delayed GAZE brand launch and nonrecurring costs of implementing safety protocols for production facilities, warehouse, tasting rooms and offices. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.
The following is a reconciliation of net income to Adjusted EBITDA for the periods presented:
34
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||||
(in thousands) | As Restated |
|
|
|
|
| As Restated |
|
|
|
| ||||
Net income | $ | 9,410 |
|
| $ | 626 |
|
| $ | 20,741 |
|
| $ | 15,263 |
|
Interest expense |
| 3,729 |
|
|
| 3,842 |
|
|
| 10,825 |
|
|
| 9,173 |
|
Income tax provision |
| 3,543 |
|
|
| 1,633 |
|
|
| 7,997 |
|
|
| 4,517 |
|
Depreciation and amortization |
| 8,122 |
|
|
| 2,439 |
|
|
| 18,033 |
|
|
| 7,982 |
|
Stock-based compensation expense |
| 1,943 |
|
|
| 143 |
|
|
| 1,943 |
|
|
| 601 |
|
Net unrealized/(gain) loss on interest rate swap agreements |
| (13,841 | ) |
|
| (5,589 | ) |
|
| (17,870 | ) |
|
| (8,212 | ) |
(Gain)/loss on disposition of assets |
| 1,099 |
|
|
| 678 |
|
|
| 508 |
|
|
| (999 | ) |
Gain on litigation proceeds |
| (3,000 | ) |
|
| 905 |
|
|
| (3,000 | ) |
|
| (3,845 | ) |
Deferred rent adjustment |
| 47 |
|
|
| 126 |
|
|
| 285 |
|
|
| 376 |
|
Incremental public company costs |
| 912 |
|
|
| - |
|
|
| 3,060 |
|
|
| - |
|
Acquisition integration costs |
| 243 |
|
|
| - |
|
|
| 643 |
|
|
| - |
|
Deferred gain on sale leaseback |
| (1,000 | ) |
|
| (1,000 | ) |
|
| (1,000 | ) |
|
| (1,000 | ) |
Inventory adjustment for casualty losses |
| - |
|
|
| 3,302 |
|
|
| - |
|
|
| 3,302 |
|
Transaction expenses |
| - |
|
|
| 3,015 |
|
|
| - |
|
|
| 3,015 |
|
COVID related adjustments |
| - |
|
|
| - |
|
|
| - |
|
|
| 100 |
|
Inventory acquisition basis adjustment |
| 2,789 |
|
|
| 8 |
|
|
| 3,848 |
|
|
| 97 |
|
Adjusted EBITDA | $ | 13,996 |
|
| $ | 10,128 |
|
| $ | 46,013 |
|
| $ | 30,370 |
|
Revenue | $ | 78,933 |
|
| $ | 46,897 |
|
| $ | 218,231 |
|
| $ | 163,709 |
|
Adjusted EBITDA margin |
| 17.7 | % |
|
| 21.6 | % |
|
| 21.1 | % |
|
| 18.6 | % |
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 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 should not be construed as an indicator of our operating performance in isolation from, or as a substitute for, net income (loss), which is 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 should not be construed as an inference that our future results will be unaffected by these items.
Results of Operations
Our financial performance is classified into the following segments: Wholesale, B2B, DTC and Corporate and Other. Our corporate operations, including centralized selling, general and administrative expenses and other factors, such as the remeasurements of contingent consideration and impairment of intangible assets and goodwill are not allocated to the segments, as management does not believe such items directly reflect our core operations. Other than our long-term property, plant and equipment for wine tasting facilities, and the customer list and trademark intangible assets specific to the Sommelier, Vinesse, ACE Cider and Meier's acquisitions, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as any results that had a significant impact on operating results are 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 March 31, 2022 Compared to Three Months Ended March 31, 2021
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
35
|
| Three Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 24,549 |
|
| $ | 21,092 |
|
| $ | 3,457 |
|
| 16.4% |
Income from operations |
| $ | 3,270 |
|
| $ | 6,138 |
|
| $ | (2,868 | ) |
| -46.7% |
For the three months ended March 31, 2022, Wholesale net revenues increased $3.5 million, or 16.4%, from the three months ended March 31, 2021. The increase was attributable to an increase in sales of $5.0 million related to acquisition case volumes partially offset by reduced off premise sales from our core brands.
For the three months ended March 31, 2022, Wholesale income from operations decreased $2.9 million, or 46.7%, from the three months ended March 31, 2021. The decrease was attributable amortization of acquired customer relationships, higher costs due to inflation and supply chain challenges not yet offset from pricing actions going into effect in coming quarters.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
| Three Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 33,657 |
|
| $ | 11,026 |
|
| $ | 22,631 |
|
| 205.3% |
Income from operations |
| $ | 10,457 |
|
| $ | 3,391 |
|
| $ | 7,066 |
|
| 208.4% |
For the three months ended March 31, 2022, B2B net revenues increased $22.6 million, or 205.3%, from the three months ended March 31, 2021. The increase was primarily attributable to increased custom production as well as an increase of $3.1 million related to acquisitions.
For the three months ended March 31, 2022, B2B income from operations increased $7.1 million, or 208.4%, from the three months ended March 31, 2021. The increase was attributable to increased custom production as well as an increase of $ 0.5 million related to acquisitions.
DTC Segment Results
The following table presents summary financial data for our DTC segment:
|
| Three Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 19,595 |
|
| $ | 14,675 |
|
| $ | 4,920 |
|
| 33.5% |
Income from operations |
| $ | 916 |
|
| $ | 1,986 |
|
| $ | (1,070 | ) |
| -53.9% |
For the three months ended March 31, 2022, DTC net revenues increased $4.9 million, or 33.5%, from the three months ended March 31, 2021. The increase was primarily attributable to increased tasting rooms traffic as restrictions related to COVID-19 have been lifted and an increase of $3.3 million related to acquisitions.
For the three months ended March 31, 2022, DTC income from operations decreased $1.1 million, or 53.9%, from the three months ended March 31, 2021. The decrease was primarily due to increased amortization of acquired intangible assets of $0.7 million as well as incremental SG&A costs which do not yet represent expected synergies.
Corporate and Other Segment Results
The following table presents summary financial data for our Corporate and Other segment:
|
| Three Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 1,132 |
|
| $ | 104 |
|
| $ | 1,028 |
|
| * |
Income (loss) from operations |
| $ | (13,759 | ) |
| $ | (11,331 | ) |
| $ | (2,428 | ) |
| -21.4% |
*Not meaningful
For the three months ended March 31, 2022, Corporate and other net revenues increased $1.0 million from the three months ended March 31, 2021. The increase was primarily attributable to an increase in bulk wine sales when compared to the prior year three month period.
Loss from operations increased $2.4 million, or 21.4%, from the three months March 31, 2022. The increase in losses was due to the increased infrastructure costs required to be a public company, and the continued increased costs of labor, warehousing, freight and insurance.
36
Nine Months Ended March 31, 2022 Compared to Nine Months Ended March 31, 2022
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
|
| Nine Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 62,923 |
|
| $ | 55,399 |
|
| $ | 7,524 |
|
| 13.6% |
Income from operations |
| $ | 12,654 |
|
| $ | 14,760 |
|
| $ | (2,106 | ) |
| -14.3% |
For the nine months ended March 31, 2022, Wholesale net revenues increased $7.5 million, or 13.6%, from the nine months ended March 31, 2021. The increase was attributable to an increase in sales of $7.6 million related to an acquisition, partially offset by discontinued brands.
For the nine months ended March 31, 2022, Wholesale income from operations decreased $2.1 million, or 14.3%, from the nine months ended March 31, 2021. The decrease was attributable amortization of acquired customer relationships, higher costs due to inflation and supply chain challenges not yet offset from pricing actions going into effect in coming quarters.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
| Nine Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 83,349 |
|
| $ | 57,704 |
|
| $ | 25,645 |
|
| 44.4% |
Income from operations |
| $ | 26,274 |
|
| $ | 18,052 |
|
| $ | 8,222 |
|
| 45.5% |
For the nine months ended March 31, 2022, B2B net revenues increased $25.6 million, or 44.4%, from the nine months ended March 31, 2021. The increase was primarily attributable to increased custom projects and timing of private label sales as well as an increase of $3.1 million related to acquisitions.
For the nine months ended March 31, 2022, B2B income from operations increased $8.2 million, or 45.5%, from the nine months ended March 31, 2021. The increase was attributable to increases in custom production as well as an increase of $0.5 million related to acquisitions.
DTC Segment Results
The following table presents summary financial data for our DTC segment:
|
| Nine Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 69,316 |
|
| $ | 48,650 |
|
| $ | 20,666 |
|
| 42.5% |
Income from operations |
| $ | 14,834 |
|
| $ | 9,997 |
|
| $ | 4,837 |
|
| 48.4% |
For the nine months ended March 31, 2022, DTC net revenues increased $20.7 million, or 42.5%, from the nine months ended March 31, 2021. The increase was primarily attributable to increased case volumes from tasting rooms and wine clubs, and revenues earned from events as restrictions related to COVID-19 have been lifted and an increase in sales of $7.6 million related to an acquisition.
For the nine months ended March 31, 2022, DTC income from operations increased $4.8 million, or 48.4%, from the nine months ended March 31, 2021. The increase was due to increased margin contribution from improved traffic in tasting rooms, wine club shipments and events, partially offset by a loss of $0.3 million from an acquisition, net of amortization of acquired customer lists.
Corporate and Other Segment Results
The following table presents summary financial data for our Corporate and Other segment:
|
| Nine Months Ended March 31, |
|
| Dollar |
|
| Percent | ||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Change | |||
Net revenues |
| $ | 2,643 |
|
| $ | 1,956 |
|
| $ | 687 |
|
| 35.1% |
Income (loss) from operations |
| $ | (34,014 | ) |
| $ | (22,751 | ) |
| $ | (11,263 | ) |
| -49.5% |
For the nine months ended March 31, 2022, Corporate and Other net revenues increased $0.7 million, or 35.1%, from the nine months ended March 31, 2021. The increase was primarily attributable to an increase in bulk wine sales
37
Loss from operations decreased $11.3 million, or 49.5%, from the nine months ended March 31, 2021. The increase was due to the costs related to increased infrastructure cost required to be a public company and the continued increased costs of labor, warehousing, freight and insurance.
Liquidity and Capital Resources
We currently believe that, based on available capital resources and projected operating cash flows, we have adequate capital resources to fund our currently anticipated working capital needs; capital expenditures, business acquisitions, debt obligations, and tax payments over the next 12 months and beyond.
Cash and Cash Equivalents
Our cash and equivalents balance was $75.7 million at March 31, 2022 compared to $118.9 million at June 30, 2021. At March 31, 2022, our cash and cash equivalents were held in cash depository accounts with major banks.
Cash Flows
The table below presents a summary of our sources and uses of cash:
|
| For the Nine Months Ended |
|
|
|
| ||||||
|
| March 31, |
|
|
|
| ||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
| |||
Operating activities |
| $ | (3,903 | ) |
| $ | 19,661 |
|
| $ | (23,564 | ) |
Investing activities |
| $ | (90,111 | ) |
| $ | (29,243 | ) |
| $ | (60,868 | ) |
Financing activities |
| $ | 46,044 |
|
| $ | 8,287 |
|
| $ | 37,756 |
|
Cash Flows provided by (used in) Operating Activities
Net cash used in operating activities was $3.9 million for the nine months ended March 31, 2022 compared to net cash provided by operating activities of $19.7 million for the nine months ended March 31, 2021, representing an increase in net cash used of $23.6 million. The increase in net cash used was primarily attributable to the decrease in net income of $1.2 million, net changes in certain non-cash adjustments of $14.7 million to reconcile net income to operating cash flow and net changes in other operating assets and liabilities of $37.0 million as detailed on the condensed consolidated statement of cash flows.
Cash Flows provided by (used in) Investing Activities
Net cash used in investing activities was $90.1 million for the nine months ended March 31, 2022, compared to net cash used in investing activities of $29.2 million for the nine months ended March 31, 2021, representing an increase in net cash used of $60.8 million. Cash flows from investing activities are utilized primarily to fund acquisitions, capital expenditures for improvements to existing assets and other corporate assets. The increase in net cash used was primarily attributable to acquisitions of businesses of $74.3 million, partially offset by reduced purchases of property, plant and equipment of $11.3 million.
Cash Flows provided by (used in) Financing Activities
Net cash provided by financing activities was $46.0 million for the nine months ended March 31, 2022 compared to net cash used of $8.3 million for the nine months ended March 31, 2021, representing an increase in net cash provided of $37.8 million. The increase in net cash provided consisted primarily of $46.2 million of proceeds from our line of credit, net of payments on our line of credit and long-term debt.
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
As of March 31, 2022, the Company had no off-balance sheet arrangements.
Significant Accounting Policies
There have been no material changes to the significant accounting policies from what was previously disclosed in our Annual Report on Form 10-K filed with the SEC.
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.
38
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q/A 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 fact constitute forward-looking statements, including, without limitation, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and are often identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes to our quantitative and qualitative disclosures about market risk from what was previously disclosed in our Annual Report on Form 10-K filed with the SEC.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 as defined in Rules 13a-15(e) and 15d-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 Chief Executive Officer and Chief Financial Officer have concluded that, as a result of a material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2022. Management's conclusion was based on discoveries and observations made during the fiscal 2022 audit.
Material Weakness in Internal Control Over Financial Reporting
As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, during the audit of our fiscal 2021 consolidated financial statements, management identified a material weakness in our internal control over financial reporting relating to business processes and controls to perform reconciliations of certain account balances related to inventory and the received not invoiced and cellar accruals, on a regular basis. Through remediation efforts in fiscal 2022, we established processes and controls around our balance sheet account reconciliations, however, the processes and controls were not operating effectively throughout fiscal 2022, and as a result, accounting errors in the treatment of our interest rate swap agreements were identified resulting in the restatement of our unaudited condensed consolidated financial statements. As of June 30, 2022, the material weakness has not been fully remediated.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management's Plan to Remediate the Material Weakness
The Company has developed a comprehensive strategy in an effort to remediate this material weakness. We engaged a consulting firm to assist the Company in the continued development of improved business processes and control activities and we have engaged a separate consultant to focus specifically on inventory system processes improvements.
During fiscal 2022, we also conducted an assessment of staffing needs. Since this assessment, we have hired a Director of Inventory and Costing, a Controller and additional permanent and engaged temporary finance team members, each with relevant wine industry and accounting process
39
experience. Additionally, on March 7, 2022, the Company appointed Kristina L. Johnston as Chief Financial Officer of the Company. The Company believes Ms. Johnston's experience with public company internal controls and accounting processes, as well as her significant leadership experience will further enhance our internal control environment.
Additionally, the Company has started to design and implement additional controls and procedures designed to mitigate the risk of material misstatement including the standardization of our monthly close checklists and account reconciliation templates. The Company will need to assess its staffing needs on an ongoing basis in order to implement processes to ensure the completeness and the timely preparation and review of all balance sheet accounts and the establishment of defined segregation of duties between preparation and review.
The Company acknowledges it will take time and resources fully integrate these new 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 weakness noted above, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II—Other Information
Item 1. Legal Proceedings
None.
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, 2021, as supplemented by the information set forth below.
We cannot guarantee that we will repurchase our common stock or warrants pursuant to our repurchase program or that our repurchase program will enhance long-term stockholder value. Share and warrant repurchases could also increase the volatility of the price of our common stock and warrants and could diminish our cash reserves.
On March 8, 2022, our Board authorized a share repurchase program (the "Repurchase Program"), pursuant to which we may repurchase up to $30.0 million in aggregate value of shares of our common stock and/or warrants through September 8, 2022. The timing and amount of any repurchases will depend upon a number of factors, including price, trading volume, general market conditions and legal requirements, among others. The Company is not obligated to repurchase any specific number or amount of shares of common stock or warrants pursuant to the Repurchase Program, and it may modify, suspend or discontinue the Repurchase Program at any time. Repurchases pursuant to the Repurchase Program could affect our common stock price and warrant price and increase their volatility. The existence of the Repurchase Program could cause our common stock price and warrant price to be higher than they would be in the absence of such a program and, if securities are repurchased in the Repurchase Program, it will reduce the market liquidity for such securities. Additionally, the Repurchase Program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities. There can be no assurance that any repurchases will enhance long-term stockholder value and the market price of our common stock or warrants may decline below the levels at which we repurchased any such securities.
40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Securities
On January 18, 2022, the Company issued 1,229,443 shares of the Company's common stock in connection with our acquisition of Meier's Wine Cellars, Inc., an Ohio corporation ("Meier's") pursuant to a merger agreement dated as of such date. The shares were issued in a transaction not involving a public offering and are exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
Issuer Purchases of Equity Securities
The following table provides information about repurchases of our common stock and warrants during the quarter ended March 31, 2022:
Period |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced plans or programs (1) |
|
| Approximate dollar value of shares and/or warrants that may yet be purchased under the plans or programs (1) |
| ||||
January 1, 2022 - January 31, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | 30,000,000 |
|
February 1, 2022 - February 28, 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,000,000 |
|
March 1, 2022 - March 31, 2022 |
|
| 313,539 |
|
|
| 8.96 |
|
|
| 313,539 |
|
|
| 27,190,691 |
|
Total |
|
| 313,539 |
|
| $ | 8.96 |
|
|
| 313,539 |
|
|
|
|
(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 in aggregate value of our common stock and/or warrants through September 8, 2022. The repurchase program is more fully disclosed in Note 11, Stockholders' Equity, of the Notes to the Condensed Consolidated Financial Statements. As of March 31, 2022, we repurchased an aggregate 313,539 shares of our common stock in the open market pursuant to our repurchase program. As of March 31, 2022, we have not repurchased any warrants pursuant to our repurchase program.
41
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit Number |
| Description of Exhibit |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
|
|
|
10.1 |
| |
|
|
|
10.2 |
| |
|
|
|
31.1 |
| |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
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. |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document). |
42
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. | ||
|
|
| |
Date: September 13, 2022 | By: |
| /s/ PATRICK RONEY |
| Name: |
| Patrick Roney |
| Title: |
| Chief Executive Officer & Director |
|
|
|
|
Date: September 13, 2022 | By: |
| /s/ KRISTINA JOHNSTON |
| Name: |
| Kristina Johnston |
| Title: |
| Chief Financial Officer |
43