VWE - Earnings call transcript Q2 2022 | Vintage Wine Estates, Inc.

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Operator

Good afternoon, ladies and gentlemen. Thank for attending today’s Vintage Wine Estates’ 2Q 2022 Earnings Call. My name is Tia and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I will now like to pass the conference over to your host, Deborah Pawlowski with Vintage Wine Estates.

proceed. may You

Deborah Pawlowski

hello and and certainly your appreciate Thanks, interest everyone. in today your Vintage time Tia, We Wine Estates.

questions. the Terry and our Joining Founder going to Pat on call overview Pat are are me of well ‘XX. an Roney, and year for for and the Terry CEO; outlook fiscal discuss After quarter the our we DeVillers, results second Wheatley, open Kathy President; our strategy provide of our fiscal as our and XXXX for that, CFO. today our will growth as remainder call

from you make as other during differ website are and uncertainties other stated results As are are Q&A here forward-looking documents with as aware, or as the during materially today. statements actual well as as found in and Securities X. probably we session discussion, at can events factors and some imply provided where formal Slide cause to are uncertainties be risks that future our could outlined will factors Commission. on at subject this risks Exchange the These documents with is other These filed which well statements and as well These sec.gov. to here that release

will financial in this will evaluating During discuss be some today’s measures. call, useful our we non-GAAP We believe performance.

of that as You the press should Reconciliations in not GAAP provided substitute discussion. to accompany for a information or as prepared consider today’s this results accordance earning release, isolation of as in the GAAP. non-GAAP presentation measures in well in with slides additional the are

on have be not the can do found If our vintagewineestates.com. website at they you slides,

X, will turn you will Terry over if that, to it I begin. with to to turn Slide Terry? So,

Terry Wheatley

execute exciting grow while scale These multi-brand our and continue strategy, on omni-channel our business. Estates Deb, times plan, investing we as welcome the very to and in you, Thank at further market gaining advancing Vintage Great. share, Wine here be to everyone. infrastructure

our XX% net a business. over growth were was our Our part year. excellent This in second revenue rate of saw The various EBITDA with Wine led was EBITDA a last products impressive quarterly in XX% direct-to-consumer including for channels, traffic. growth quarter also combination results growth an Estates in of XXX% quarter by tasting to increase through growing driven for This demand room record due with to increased Vintage DTC over a by XX.X million. our year-on-year strong

of in year. acquisition ACE the acquisition the continue to on with this On Cider November, execute acquisition we January Vinesse of our October, Group Beverage front, Meier’s strategy in and in the of

legged three no our itself the as it, call that by strategy, of these driving I Our of stool is success. one kind is delivers results. business There element

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expect mentioned, Turning rooms, include will of and fairly digitally X, was clubs, across Vinesse through efforts significant up many native our ecommerce, you wine Slide direct-to-consumer all remain we X%, segment, average in excellent QVC, balanced to see Adding will product among the income sites as and key XX.X%, growth three help of XX%, In consistently future, addition growth. the direct-to-consumer Cider, we our volume note, ACE was direct-to-consumer operating amplify business an as channels. transaction and XX%, our These to for tasting we our improvement evenly channels. have telemarketing, reflecting now sustain brands. improved which our Of our I and mix. channel value we we have order up

and and brands. Wholesale, XX% to from impressive XX.X% of growth, ACE on depletion an and X.X% benefited up our up acquisition the about was up across the for revenue segment, our was Cider Moving volume strong both which priority

pushed to Pat? BXB on the strong. let existing quarter, With label me outlook. and our out that, special out to it had customer This our about with from and our acquisitions, another demand more is went private We recent in production Pat that over an and a that and our custom was program quite talk and Next had well. turn we program the shipped results, services. crush business, been first

Pat Roney

Terry, Terry with quarter. the segment have you, little growth DTC up Thank XX.X the strong Slide increase. good million afternoon, our in revenue million XX% to everyone. as X.X contributed in we net To a Acquisitions add very and color on mentioned, X,

Sommelier ongoing Vinesse ACE counting our and are into We operations. fully acquired they’re integrated since revenue and the Kunde the revenue and Company in

acquisitions operating increase in revenue acquired points of which approximately our Our strong drove result reflected the inflationary in Wholesale XXX months luxury margin the income an costs, initial input X.X there. the on issue our was nearly pressures The of expanded impact Cider. as as This growth. primarily is impacted currently million to also for XX% ACE synergies. other cost revenue, marketing in on by the as brands also for included which lower you’re focus income of well before had was which industry, our Operating and was focus XX.X%. out two is margin industry likely segment, an virtually the basis we cost a Operating aware, segment as in every

in segment’s operating BXB quarterly the improved net as call. last quarter, up reflecting BXB year-on-year, delayed from margins XX% XX% revenue also that originally our to discussed margin The mix. were first segment by income Our higher shipments XX%. benefited the from increased with we

segment actively and terms addressing outlook and In confident of that impacted labor BXB chain operations, been our we for business. previously the of have remain supply have constraints the

acquisitions, Now and income opportunities. if yet period EBITDA net you year-on-year from million, is for to the points redundant XX.X to the typically reflected FYXX. integrate our six fully was months of EBIT capture the turn margin same What with basis and recent quarter. EBITDA I’ll Adjusted from Slide in accept we up nine XXX capture synergies, XX.X%, up to isn’t It the costs EBIT takes X, on roll acquisitions. about our the touch adjusted XXX% up

the step we nature, at non-recurring first an income after adjusting our the offset up driven of which accurate income, primarily approximately that be bottling more our interest in in higher quarter. believe to On and months improvement increase which for our XXX% going expense. strength $XX of CapEx up income or was for expense forward, are we reflection net amortization acquisitions, quarter. they strong net in be that our margin normalized us the X the in strong adjusted saw completed expansion, was our million quarter This warehousing measure. to million million with or following income fact, the will partially net was inventory items capacity to performance, as cost will forecast In Slide in plans. costs so demonstrates acquisitions, the net operating by temporary the financial level. an by adjusted non-cash We the to execute was presents from in growth primarily acquisition, the completion This our the QX. six the sales reporting integration year as provides as Adjusted be performing well such a year-on-year. XX.X $XX related We likely was flexibility then in

the We we are intensive operate. CapEx way not a business

be million from In fact, on modest that as barrels. going about it with million most the forward, maintenance expect $X of at to business, is CapEx our $X today, spent we to relatively

January to increases. X, We On growth will you update this opportunities. identify as guidance some we include completed which of price CapEx, well in are this Meier’s expansion will as increasing acquisition, we and Slide see year, as the that we for our

any in include prospective As forma you our not know, pro expectations we of guidance. do acquisitions

in $XXX fiscal $XXX the midpoint about growth the of XX% of this over We represents range, million expect range revenue will ‘XX. to million. be the At

of advantage our factored and risk Cider’s In well the have the summer expect EBITDA supply estimate the of half to ACE early related as second be has from labor constraints, we will the pricing. evenly The quarter fairly as chain split, fourth year in we season. although stronger offsets guidance, our

manage We impacting customers’ unprecedented identify chain shipments to expect work carefully alternative to constraints supply and navigate we meet the as everyone, continue demands. to supply sources to

possible wherever starting combat in the in input to we increases seeing. cost price strategic implementing are the are and channels March increases brands We

As $XX for $XX a adjusted be year result, million in to million the we to EBITDA the range. expect

begin costs, our to expect to acquisitions FYXX. and from through company public our realize synergies lower as move we We

per in acquisition especially and continue leading brewery, private potential completed oldest we wine, fiscal actively sufficient most is for January. pipeline we and winery, believe robust a producer, bottling our blending, This bottler, annually. XX, beverage us These and is broad for secure custom reviewing Meier’s three beverage portfolio great the product one of targets. state-of-the-art labeling The provider accretive variety Meier’s Meier’s of line and for $XX.XX this third over beverage and beverage market. XXX XX to bottling was and liquidity have drink that ready another and of half and Group blending include and half and and a Meier’s valued to the which to processing, capabilities a this which storage, we particular, was Operating had million, enhances bonded lines and beer share. a our of In Beverage was tap for net Slide non-alcoholic to cases marketer, and XX alcohol addition XXX,XXX service annual capabilities. and to million and distilled about scale, over facilities a Looking non-alcohol canning funded was is providing highly A products. spirits wine a contract categories the importer, of cash in owns funded stock year custom have acquisitions, avenue manufacturing, for are revenue at our in versatile our production leading years, in produces products, revenue by operations spirits, contract with Midwest. adds fragmented capabilities on plant and acquired alcohol by in to

Finally, XX, Vintage are see can Estates. to times you on these exciting at Wine summarize Slide really

XX of last proposition because growth a we’ve the years Over executed plan customers. value our excellent delivers for our unique that

As we our the that scale, our for even services and flexibility. call greater can we we financial strategy, on we questions. quality advance high with delivery With accelerate and open stronger and strengthened Deb, can Tia talent, brands believe

Operator

Absolutely.

of question first line We DA session. The now Instructions] the will is from Baker Davidson. the begin Q&A Michael [Operator with

proceed. may You

Michael Baker

will from pricing, competitors? to if you you think couple what where you -- don’t quantify do been been typically relative could. while going increase you I think you price, your what you up I you you I for Hi, questions etc. the elasticity others just have what put One are are on following increases when or experience – of up by, price price if do with in go see since volumes but there’ve any a it’s a that, can

please. little just increases, the detail bit on bunch more price So of a

Pat Roney

December started companies take would price the market I accepted that market early take as already significant So going of it’s that to generally, increases, widely some price this you has year. And increases. as is other tell the started to

taking the price stable competitive because a the period. as that the industry correct much fairly see, of -- going last wineries taking But and haven’t market. them the And through of price so in been I probably in XX being movement the Michael, to XX% sense of over industry increases lot significant category. costs issue rarefied And, these in in we see over are it’s don’t where very, you’re to because wineries expect, years, of times hasn’t as pricing elasticity taken we XX% very the in have with as the a we’re the overall most general an July January

Michael Baker

I our up which And is -- how which of overage or went we beat sales estimated so the it - by might sort much from lot of increases acquisition, guys a million, or think million is any at like there of quarter. this the acquisition we Can guidance way break out by the past seems of the that bit to XX price increases? acquisition, and the add this X lease quarter little number you the Meijer the

Pat Roney

the following the in the majority impact and of of the because price leading vast the So majority clearly of not on Meier’s is the are we -- increase guidance increases.

of this potentially more that the But that range. we from benefit modest we’re expect it’s year, not specifically towards in which higher have that the have We targeting. may lead a or number -- to some midpoint to that

Michael Baker

One Okay, could -- more more subject. fair one enough. I if

Just retailers, report about anything you’ve business, to with of with on retailers new of or been maybe terms some want your to working retailers? in new Wholesale some I programs programs some of existing there. partners, ask programs to new your some know report with some anything you retail

Terry Wheatley

Existing retailers, that has Photographs go they into March. set will Bar when in are going launching two into the right we SKU new Target. Dog new Target now Also [indiscernible]

SKUs have Dog to going We Meier’s. three of Bar new in

March is new Dog also, our in about Dog, still going Bar be retailer heard to we’ll get big we’re We a that’s Teeter Paula summer. April, also another the when to Harris SKU in. that. have that has Bar set setting new Food And Noir in These going doing announced not and are have We the Kornell have we’ll H-E-B that. setting excited chains April. two so months benefit putting Lion really they that three be that’s sparkling of from a in March, from which Pinot

not gotten to we have and shortly. word expect from from that We that hear

announcements new really news other will for ACE. is getting They’re us points now great March, The with so May, coming April, Cider. be that’s that exciting what on ACE of news distribution XXXX

Michael Baker

will turn it the to I Great, appreciate and color over someone else.

Operator

Baker. The Azer is Mr. question from Vivien you, line Thank next Cowen. the with of

You may proceed.

Vivien Azer

afternoon. Hi, Good thank you.

Terry Wheatley

Hi, Vivien.

Vivien Azer

late at relative terms any key any So, segment the Thanks. here. I I just apologize, curious little underperformance the in or hopped performance But a on key out in call bit point quarter, guys that of price around observed price the portfolio? callouts you in the

Terry Wheatley

really to XX, a actually the we’re if kind wholesale in XX just VWE bit XX% focused side segments. to XX% higher. XX off an Yeah, we’re in XX.XX. price grew industry, was on We four XX that XX as weeks that three in of XX, looking off on The at XX in XX and that the portfolio those to little

look $XX that so think, during The I’m at Firesteed price I basically point; XX doing, that we’re so our that and on know, we Bar five we again, for looking was total at really focused focused I I’m off, and top that. what -- price. overall. were It I’m $XX X.X% doing, But priority really weeks, We that that with for brands, off, the back in at. the is it it again, is is is XX out we’re outperform weeks in you the was looking So overall US industry. Photograph what on Dog XX doing, did to what flat pleased

Vivien Azer

the there Thanks. think a Do more comp you of to health here to simply it’s issue the Terry, be. Absolutely, or price reason you on to read happening and what think is do hypothesize is ongoing into to be plenty consumer? segment. COVID broader of you

Terry Wheatley

For think – us, that I

Vivien Azer

for No, you are share getting the industry.

Terry Wheatley

Yeah, we’re yes, absolutely getting share.

people those We be up go price benefiting you now see we’ll the XX% right into just really so on And move accounts, we most see point see January, XX.XX, premise, April. was seeing see is change price new and We’ll up until the our we’re March, are that up and XX.XX, we June won’t about premise, in lasts. from is the wholesale, then retail driven competitive those great, half single December of point, see have won’t taking those price they to translate won that our quarter and a by what points they’re up May. long really probably they placements, how a and We were for standpoint, went be XX% July. prices they’re which going so on going really in moves, guides the April from distribution in the about until were really to if XX.XX, which as that. If were was so XX.XX. And

Vivien Azer

super helpful. Pat that’s then Understood, you. for And my last one quickly, just

rising much topical targets. interest curious Thank rates how more informing you’re just that’s how are having Given currently, potential that conversations you. with

Pat Roney

Well, I our going capital rates, internal side costs, it raises expectations lot little of a think we own we understanding hurdle even think capital seller numbers, that our future have terms that’s in We in of we have and not of ourselves of -- a for the certainly to the provide locked increase significant we’re the in to a more what but us. acquisitions, actually interest and interest may fair within terms that side certainly benefit rates is. the cost the our

Vivien Azer

you. That’s great Thank to hear.

Operator

with is Canaccord Ms. The Hannan Genuity. line you, question next from the Thank Azer. of Luke

proceed. You may

Luke Hannan

to get and, specifically, in you’re behavior maybe customer Yeah, into trends the XXXX that thanks. any changes. Good just far I calendar afternoon, want thus seeing

room begin that you’re as quite seeing much tasting to that Thanks. still far, or clearly noticing there difference you’re any as maybe was traffic consumer, they the habits, etc, far quarter, quarter is quarter? this purchase but so This it last thus terms to in were not XXXX marked healthy, relative is of it

Pat Roney

and Well, hospitality incredibly in out we’ve as I demand very, the in would our more. you strong tell very continued to rooms segment, want strong tasting demand get that seen very people

Some grow continue the the bit, segment. us consumption, and that is for the pivot a to flat wine have that their business general. channel a that little little total down trend, think, a $XX on-premise, direct in back outpace just look we good, but consumer again, while And is on bit but seen to certainly we we industry to is good look so us continues our think to industry we or to largely not primary to only little for and the $XX bit ahead, in continue category that trends going

Luke Hannan

That’s great. ready Cider wanted it of the I a as And to a as drink specifically on I the fits that. is then Clearly, the to ACE category bit challenging, little into expand whole. year think, for a industry towards and XXXX little bit end the

and So change guess, for can expect it of pull specifically are XXXX, of of So sort and depletions for I guess, year. Cider into I fits growth expectations? you otherwise, that the out think the your or profile over business ball next how ready to drink to what ACE crystal as relates to category you that, your how the course

Pat Roney

we address we on of from the fact to with we’re that some on it’s and dual up pricing. markets, million, Cider consumer projects to very going think some drink very, category opportunities be carefully. products addition or ACE which and brands, many But million look the will $XX to where now it trends in in never the production to the our it’s that also innovation we excited we’re of ACE the $XX we in strong. will Meier’s Midwest better we competitive category whether will And to behind of Coast whether ready dominate legal in in very there, about coming the try make seltzer the benefit continue we’re are that terms see on in innovation again, category pick And that I drink. have me, it to more actually the We going see bullish of working that very, advertising and out the East CBD million, will will will ready be for production we to for the spend move market very $XX and have

Terry Wheatley

of National Program, ever There’s add is which XXXX that they driven ready which some great, ability I with of to a by What in. team Luke, and team actually ACE call where new X%. first great. And Kroger for launched I the drink cider. integration will get the sales but benefit these of for I High, distribution which really SKU a what mentioned, that. national ACE is being is that’s our it March to new Cider, sales they putting Imperial And can big is to think is a cider, The that’s also point our world of is their into market headquarters product

so list online if down, April, ACE benefit March, coming be again, you have authorizations look will I of new Cider. whole And will that a that May

as So come there will well. innovation through

at could ACE that some things portfolio, Cider. we looking add We’re excited so super that to about

Luke Hannan

Thank have. That’s great. much. very all I That’s you

Operator

Thank line Mr. the with Daniel is The next Hedgeye. Hannan. from Biolsi you, of question

You may proceed.

Daniel Biolsi

you. expect Thanks going my taking selling was that forward? what lag a X% fill, questions. Did by we and channel behind and depletions should for Thank

Pat Roney

Terry?

Terry Wheatley

quite No, again, clear I’m question was the not what? on

Daniel Biolsi

wholesale X.X% were it the like looks was organic predictions but flat. the about Well,

the the or back customers are they be lower to selling lag going work and in depletions just did expecting with the So filling are the inventory? level to you the future that

Terry Wheatley

were Wholesale having no, we really some and Well, February, I positive now And think shipments will I think at I sell. actually January some so into looking in that inventories. am

Daniel Biolsi

Okay. as your that shipments really chain far costs? or is besides is that the you impacting make to as ability the challenging And where is going, supply

Pat Roney

have to be catch we that, that we on time, us. Transportation time. the now are with many of to but quarter lead were on companies getting the where to chain working help of to are XX terms our enough resources some continue the time. through thought causes months we’re things lead it. because will three of people terms second after are demand deal just large might quarter and and but taking the corks, There harder But for bottling down are we’re -- so the this Europe able like deliver times and with get year, But quarter. last shortage through we that months to is of supply working lines in another in and source it’s XX provided. up enough certainly third just last we’ll getting lead it we I that first get The it’s watch are from you major the be Class all but capsules, supply supplies we months, -- can’t until are anticipate, of challenges company just on programs And think fourth the chains working will all longer the just the like the suppliers, XX extended. lead cost challenging in end we and it mean, in to going sometimes it, XXXX. general time, did to to monitor of probably

Terry Wheatley

And add -- supply another I would Oh, sorry. I’m chain

Daniel Biolsi

Sure. go ahead. Sure,

Terry Wheatley

trucks to another to going waiting come lined mornings issue chain and in just Several out. just distributors there. get trucks and up product our to are in to was I there’ll take supply pick come we up warehouses in will be that product the is getting XX add to enough

been So issue has distributors. trucking an our for

Daniel Biolsi

could. business like is growth premise country looking DTC if if difference going premise I like, on your seen Thank what the in than should those of more, Just restrictions, any of if New remove you in is Texas, states Okay. those forward, that York, any question. different in -- you. in sort and for had versus your expect, a you one more growth which open longer? Thank level Florida example, for and on your California high all out Have been This DTC as retail restrictions anything? that. had I we for

Terry Wheatley

all the not been that strong DTC a I’m has in very board on business. markets. across sure really regional It’s there our effect

really big don’t that have a I see So will effect.

Daniel Biolsi

Okay. Thank you.

Operator

Advisory. The from line with you. of Joe question next Thank Telsey is Feldman the

may You proceed.

Joe Feldman

Thanks Yeah. for taking Hey, good guys. questions. the evening,

you an to should bit be to was EBITDA Meier’s went at wanted the the EBITDA just revenue with be end. on tiny the go pretty it Meier’s it the So to annualized impression basis high I’m a guess gave, much decent wondering, was guidance? that contributing you’d with million a actually guys the incremental XX I back, had guidance EBITDA guess Because I that that And regard margin. or under I how that of up adding

So explain maybe help can you that?

Pat Roney

supply see from Well, when of to have about you a talk and acquisition margin business lot labor are year, And in to EBITDA which Meier’s. general, -- continued the with we are with it’s the with EBITDA continue two issues half chain, issues we margin, lot going offset costs some that increased two, things. of Meier’s second is focused then the the integration of and of on that A associated that.

it’s what fairly really, to even is. than be a that stronger it’s guidance and, hopefully, our we guidance comfortable those things, year have all continue with of So we overall blend current may our

Joe Feldman

Got it.

just addressing if the the you’re offset the of and you chain and facing, then, facing, could times other pressure curious, things pressures regard mentioned addressing and remind you’re Now, increases? price that makes that you that these issues, to labor increases, us couple them I supply was than a us guess, to doing how that just beyond are you sense. you give the some are – I price with the are And that constraints you

Pat Roney

with million glass couple sure the supplier GX we’re qualifying bottling supplies. from make we’re that additional cases our X expanding to of that we’ve an Well, a of and facility Gallo from on we’re bringing our got reach its suppliers,

to people rates on side. additional other that people attract We’re incentives pay some to for labor increasing more and

as tough continued So pretty well labor are daily and COVID out general. issues constraint market issues in much market, the we’re a that basis, all there continued as supply in addressing the on from

Joe Feldman

now Yeah, focused distribution, because lot [phonetic] guess are of your you you’re into that a brought pipeline, just then, done I you recently. Meier’s, focused makes sense. we’re at for you one know, looking new you’ve acquisition one Somali -- I And last guys you’re me that guess you Pat, as you like bought I the company

I You’ve things, a outside done few of guess, wine.

just So go of or to of that for back more that out outside couple wine there? we next do better businesses the the some wondering, wine you’re are opportunity I’m is seeing opportunity or it

Pat Roney

opportunities I XX my But I, great going desk three certainly the would as I the the wine our we focus some to primary somebody No, very time. knew Meier’s, that be to to made from at if And I or we ones. And when going cider or all were made opportunities wouldn’t production acquire then sense the wine and bolt ACE I to were that to say years. right XX And on they day, that acquired at be we talent to that do think the we acquisition of are they acquisitions are have a probably, East have these some going that we’ve category, there’s there are that around just other standpoint. one business think time. themselves hard team. going right opportunities, to at it Coast, I clearly strategic strategic for ones present knew some It to the young lot is take in of two look present to wineries, non-winery done ones add -- same to the on and in that a acquisition will the and nature sense management strong we somewhere two the expand with are winery surprised capacity themselves, we just next be and

So of winery acquisitions in the tilt shortly. numbers back here will probably favor

Joe Feldman

luck good you. Thank Thanks Thank with Got the you. and quarter. it.

Pat Roney

you. Thank

Operator

Thank I for Roney now Pat at questions you. it will closing pass no to are back this additional There time. any remarks.

You proceed. may

Pat Roney

Well, coming call We thanks acquisition in provide days believe consistent joining be much together and certainly your for continued Thank quarters growth. everyone to for will what our opportunities and today. the with very today. you with organic you another in look XX continuing we time to again forward our, growth getting strong you and

Operator

day. and earnings you That call. Vintage have concludes great Wine ‘XX Estates’ today’s Thank a XQ

Vintage Wine Estates (VWESQ) 15 Feb 222022 Q2 Earnings call transcript