Earnings call transcript Q3 2023

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Operator

Good day, and welcome to the Vintage Wine Estates Third Quarter 2023 Financial Results. All participants will be in list-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Deborah Pawlowski, Investor Relations. ahead. go Please

Deborah Pawlowski

good today and We appreciate certainly Thanks, your afternoon, interest time and Estates. in your Dave, everyone. Vintage Wine

flooded a quite you information. have bit We of with

XX-Q. we for quarter results year-to-date and our quarter. period, the XX-Q. restated Following And details as our filed well third and market release that quarter close, first the second quarter third The as we've press the filed or second also

our our the and call here, Interim with our CEO, Kris President; Moramarco, CFO. Wheatley, on Johnston, So are Terry me Jon

if don't provide the release, going is you website that Then quarter. details our So you of our more have our Kris the results. of on Jon day, or will to Terry a and earnings begin conversations can copy on ir.vintagewineestates.com. deck find with them the a will slide at overview accompany brief

our open analysts to We will ask call investors then questions. and the to

you our you slide find safe will will statement. X, harbor to turn If

actual results here These factors materially during or some be website and may from future to what today. that are you other As our we were find uncertainties state and and statements subject SEC apply as in factors to session. our uncertainties, events that on statements aware, and to that other risks differ will make the Q&A risks well provided filings These cause as can could you forward-looking this at we presentation sec.gov.

our we during that are call, out will some evaluating point today's we also measures, performance. will believe non-GAAP discuss I useful in financial which

for with information a presentation consider isolation not additional results GAAP. or in substitute the should prepared You accordance in this as of

that today's and release. GAAP the We have with measures slides non-GAAP in provided accompany tables comparable of reconciliations

the Jon turn you me Jon? let to to So, begin over discussion.

Jon Moramarco

afternoon, good Deb, Thanks, everyone. and

the and As you turn acting have busy been early been very have Interim can working February, as to around. know, business that since attest I we CEO I

and to We quality focus and profitable are structure to deliver business future the growth structure, operating assets on creating more focused a a our opportunities. realigning on solid rebuilding

I start have we me Let what this on taking have of and actions since role found taken. overview with a quick the

excellent people. First, VWE of has an team

being they passionate experienced winemaking, marketing, grace, agriculture, and what very about they In and knowledgeable highly do. are bottling, addition to about sales

team the a have processes debt hand consolidation are brought reporting. finance this growing our accounting each processes, that restructuring to and has book We all our of through entry from on financial they

programs. have have business growing rooms, a tasting we the business award-winning excellent some of stronger wine as as creative vineyards key on stronger, Second, number that and to brands, power. and Cider operational great potential transform brands centered a we company, earnings wines, excellence And well finally, profitable and marketing this very and creates awesome sales top-tier US more into

were There we needed of number a also to change. things

impacts took of and brands, freight we increased our business. operating million. costs in in with items, cash to we of and actions our initial already the too midst we The the consumers slowing team headcount reduced our about to part raising have by restructuring spend the shipping $XX much business, the have and contribution management. be had with identified debt of inflation that on significant certain We of effort, by face net rapid included that simplifying on resulted discretionary at vigilant income as for This of agreements about X% DXC prices And beginning the March.

be about amount volume. SKUs driven of of reduction believe reduce we're SKUs X,XXX our total XXX. We the about half This up a XXX far. can half further nominal products by These our from to X,XXX to about tail able cut products I tail from parent represented to by cleaned again. we and that down thus down in will

strategic The greater calling any many XX-year have that significant company's imagine. of history acquisitions, there been inventories. as never you operating creates the smaller action efficiencies, might included Over and

results the the reducing I will of financials Terry and will vineyard Kris, out point directly to from but to our sale proceeds debt. and of the leave that review our Tenma

restructuring asset evaluation also plans our contemplating we of debt scenarios, reduction. potential accelerate other of to are part As

on driving operating leveraging focused cash monetizing generating resources, and are We efficiencies, key assets.

me over With to Terry. that, let turn it

Terry Wheatley

All begin slide Jon. I'll Thanks, on with my the segment. right. discussion wholesale X

For about of ACE up $XX.X was the $X.X nine-month or from to including million period, million Cider. revenue wholesale $X.X revenue acquired X% million

Cherry Photograph. continue outpace brands the to including Pie, managed US Dog, BXB and market, overall wine Our Bar Kunde

managed down million. third-party Cake, Layer as such brands $X.X underperformed were However, and

inventories believe our nine-month million We decision brand. and spending impacted The no Guggenheim as produce also major by was also that slowed. distributors a longer the to reducing period consumer were $X.X from period throughout retailers the decline

the from of the goodwill distributors and will million impact will recorded and are Cider packaging for period intangible loss quarter. response in shipping fall in new Dog the reflects by the months. operating non-cash and the Bar $XXX.X begin coming Layer that in ACE that second new begin shipments year-to-date asset of Cake the We encouraged impairment impacting Wholesale authorizations early

to Turning slide X.

Let's look segment results. the at BXB

improve the price to whiskey, make focused has that the we opportunity an customer the of segment profitable. last benefited when had sale program line bottling increase more when a over wouldn't profitability. not heavily accept elected a few bulk to are this We continue we on It a to years from

that capturing ensure We are profitability. costs, customers working are operational sense improve on we to eliminating lines all our not make our focus did of excellence to with and

revenue $X.X $XX.X BXB added period, million. or Meier's million The $XX year-to-date XX.X% acquisition increased in to revenue. million the For

of spirits. in with program. decision reduction a also million was million to from profitable less this distilled and label private of $XX.X activities a discontinue related a a We customer to production mutual sales, growth had from a $X.X Offsetting sales custom million $X.X bulk

distilled million bulk spirit million reduced quarter, third a and helped customer for and the bottled from the from production $X.X For of discontinued custom in $X.X sales million wine million. distilled to a spirit Meier's retail the offset acquisition $X.X increase decline the contribution large sales and $X.X

impairment. of on impact the intangible product lines, the and down to of volume asset was profitable production related less income as $X.X inflation well and operating as Year-to-date the the inefficiencies elimination from lower non-cash million

the by savings production encouraged last that the output deliver in expect to increased are of we in our We future. goods cost quarter

Now, let's X to favorite DTC. and discuss segment, slide move my on

While first couple segment. in television This major $X.X the to consumer programming quarter, the interest we a by not year impacted to A this behavior inflation million higher had and quarters revenue customer the their the shifted last changing reacting for year-to-date. rates. that strong about have to of to respond start been easiest was retail

rooms with coupled addition, sales high with tasting costs, bad lodging dealt exorbitantly In slowed e-commerce and weather.

down nine XXXX. was first of months As a result, the for DTC fiscal revenue X%

Year-to-date clubs, higher in has income the by third are wine subsided up were overhead and to though, non-cash quarter telesales e-commerce return guests million Encouragingly $X.X and intangible impacted costs wine impairment burden. country. and the to was and charges, asset freight wet operating starting increased weather

go turn Chris to greater the to Kris? me over on let Now, financials. it into details

Kris Johnston

Thanks, Terry.

Just in and X, bulk more X% you revenue, a eliminated mentioned, This nine up for programming product primarily result briefly first of Terry distilled on slide than the XXXX, custom of can fiscal as which spirit acquired the DTC. changes see changes months production and consolidated including items in weakness sales. offsets line, increased was revenue,

review gross margin. to and If trends you profit X, I'll slide in turn

third million impacts had for period. adjustment, in would impact third XX.X%. quarter a been gross and a nine gross the quarter. been to XX% Without point write-down third have a X.X margin the In addition impact year-to-date margin in supply chain the on This would the to inventory and constraints, point XX.X months inflation have quarter of and the the we margin $XX.X took

inventory to to adjustments, $X.X put to that I about that that do goods and million that Terry of the and Jon want reduction eliminated about, can dry we we SKU goods of us bulk spoke enable a with expect offerings future The and are out $X.X bulk obsolescence. mentioned, finished drive to line in use million inventory. point utilization revaluing drove be due write-down product

the this business when across results There look underlying that are year-over-year couple fact, a more a of reflective that margin in current elements other makes year's gross comparison, fundamentals. weaker, XX% normalized is periods of on

on to SG&A first elevated X. million. Slide $XX.X Moving months the nine is for at

did $X.X For approximately $XX.X quarter, compensation because forfeitures. low the is artificially we admittedly stock-based get while in of to this million third million,

look will leadership we our associated strategic efforts costs we forward, changes. and with incur anticipate, As we

the slides on the $XX.X GAAP. atypical. are for I bridge Itemized million that X.X you, year-over-year suggest our about than that changes million more in

that footprint effort. will Although, operational mentioned, I to would evaluate costs again caution that and as we Jon cost as related incurred likely be our structure, there

of XXXX million QX SG&A move million. resulted $X about Without have of for on in the assets, intangible adjustments, would non-cash the excluding loss the simply the we XX, demonstrates lower profit months have and financial had the impairment impairment charge, charge of inventory on the gross nine fiscal you this our first to of the operating Slide impact for million And inventory results. an non-cash write-down, elevated operating income. would approximately $XX.X $XX If

shed a we improve center XX, around roughly see Slide we are XXXX best operational focus and to that at business, unnecessary we as fiscal important breakeven, profitable less footprint markets transition note I business here where it's On from we our simplify SKUs, profitable on channels, we can products as to and year and measurably excellence. think and generate the resources, growth, shed believe our can focus

capitalization. current our depicts XX Slide

been challenging you As might imagine, have these times.

number a have are working of that we our favor. in Fortunately, things

tasting longstanding a industry, our the with our including experience strong relationship importantly, wine of our underlying supports recognition bank, have through vineyards assets, and a business the deep First, a of and we of understanding in our room. value

And that point. is my second

if you sheet appraised of value, market XX% try gross to to by facility, of $XXX and would about order credit about assess our balance on up used tangible and While inventory our XX%. as assets the collateral to $XXX our in our properties you PP&E PP&E million, Add on you assess liquidation get real on to million. based equipment, have about sheet reflects and were balance or to value values the

of While I debt our a we more this to have need to we underlying as don't Nonetheless, reduce the necessarily support to to ratio, level. level debt. quickly get possible believe like we reasonable assets as leverage

our with with of We continue covenants. goal bank risk with of the non-compliance discussions group, alleviating

working to address are We quarters. few the next

example, costs to to realignment execute incur For need add the we to think our back on should scenarios. will we we able business be

working with our of with bank. the expectations can expect business, that to to build We our execute delivering linearities quality I are from believe and we and customer a the on which the the that collaboration our foundation vision combination our and a coupled on-hand wine from producing to we revolver weather the experiences. have grow family the the in by sufficient of and to business brands to availability intentionally operations generate cash, capital cash simplify incredible of finest investing with further storm solid establish we

turn I'll back Jon, now. you it to

Jon Moramarco

you If still happen, levers work to reemphasize lot earlier, But turn profitability, pull There debt. Slide number to make need goals this are thus to mentioned we do. and reduce of and our point to Chris' primary that have cash I'll far. as I are of increase XX, successful a to been generate have we a we

by efforts. These efforts simplify also a As we reduced less a inventory impacts I should weakness will have reporting impact but revenue and on material mentioned, controls have SKUs work half on to remediation X% than administrative which operations. meaningful impact the on efforts, had which positive our our

being to very data our on as working brands, suggests distributors is the working volume with strongest Nielsen's which are well. the with We pricing, proactive drive

and to monetization in the we rethinking We June. for Board of processes assets Directors for plan have our the evaluating to accelerate are on options reduction presenting creating We around our throughout the greater and realigning are business organization. debt discipline we

labor business, supply created While to for and inflation, higher on interest have stresses previously. the COVID and did challenges rates BWE, repercussions not opportunities chain created of address the we

some we of the a shedding that a transition are does As in result, include midst revenues.

an could order depletion entails an to million $XX of spirits We expect million, of profitable and $XX elimination products be our which of less distilled the inventory. estimated this bulk

are transition line to business to growing in of US the and midst a profitable return company. are a We and the realigning

XX Slide far. encouraged say progress made on that thus with we me are we have to Let up just wrap the

the about excited are are us advance developing growth. the path of We driving further plans we to profitable along

in making We a are Board CEO. permanent search also encouraged with for is the process the the

both and in expect realignment should We business next we months. on the update able that further you plans to leadership few be our

open the we now. questions Dave, can that, lines With for

Operator

Azer Vivien begin Please We Instructions] question-and-answer will now with from first [Operator session. Our the comes go Cowen. TD question ahead.

Vivien Azer

evening. Hi. Good

Terry Wheatley

Hi, Vivien.

Vivien Azer

around very much business all the and for rationalization. realignment the up So progress we're story color. all business paying the thanks and here, I on Clearly, forward transparency the catch around appreciate

guys across you cut? where that XX%. the most operating appreciating Can segments there start have that you Thank think rationalization room and talking to are your love about just I'd So you and just fee another you XX% you. contextualize to

Jon Moramarco

of you Vivien, it's a wholesale and want is counts, you lot SKU actually of volume simplify greater a of rationalization actually -- were not keep of I a DTC, the undergoing away BXB and revenue. will the lot to But that business SKU at -- biggest the look they take be tertiary they near the low in it our count. lot because won't leads when SKU greater to in mind leads lot a don't and which will they SKUs simplification to efficiencies, profitability. necessarily But

Vivien Azer

perfectly reasonable. seems That Absolutely.

scale that, thought it of is comment for partners. probably follow-up maintain wholesale. a is been external with There certain though on that a Just legacy DTC to amount to germane of than has this relevancy and there school less

So think you that? about do how balancing

Jon Moramarco

I rather tertiary marketplace ample at SKUs. the if only actually at be shelf from X we'll only the think and specific today I -- so more attention but look SKUs divert brand brand attention at looking looking having looking with you Well, SKUs five SKUs, XX than we're tertiary we're a be may SKUs, better balance, at and the and brands, you with this saying sometimes XX than said, rather believe much and XX. attention than at may we And on look as get a positioning actually working

Terry Wheatley

our priorities, affect come same have so Firesteed and And forth. down Cohn Vivien, and Kunde Bar our it which still the to X with We Laetitia, X, and doesn't top B.R. and Dog Photograph priorities really and distributors.

So believe, we Those are not volumes, by priorities. backing off our accelerate. key we simplification the will

expect distributors or our our don't power with diminish. we to presence So

Vivien Azer

remarks, that Thanks the Awesome. theme Terry. prepared profitability. appropriately so. a I key And for a that, think, just on was follow-up Obviously, throughout

business M&A other just reflect variability out fall you where on the have you back level set hierarchy across on multiyear items operating lines. I profitability, your obviously, As of segment created please? should a across different basis, of and lot level segments, a the think Can profitability

Kris Johnston

talked down out to we've to expect get we takes the the that Vivien, before, those to that of on profitability as So at each that operate segments. we based segment, about level operating cost when one it

So, segments. consistent while DTC is margins we wholesale an do expect and the across the at three focus on operating level,

Vivien Azer

But the Okay. I as for to last consumer one list a pressure you on Understood. long out And called me. headwind being the just wholesaler for apologize of questions. inventories.

I of think that's part it.

that to as higher actually expensive through for But of earnings it And that and adequately -- partners is Is guys to part that I reflect back consideration on going you heard you for commentary also your discussion? we've broader CPG, are Do wholesale partners. more that for interest that? the are prepared think the you cognizant the more and get prepared key for frankly you season hold rates Are are inventory? that? alcohol a

Jon Moramarco

also over I the last reporting. come of taken basically I've US. And has the a inventories the that out up numbers about about wine distributor million XX best months, inventory with but interim lot XX peer that the to taking And the days CEO, I'm is days on do I'm industry XX about from cases we six Vivien, hand. hand averaging. of on in think

much going to see say I reduction interest think to to more stabilize. costs. distributors going as we're carrying of don't it's more that to because We that of think starting inventories. inventories, But aren't back on pressure you go

their and sure too may that effort but constant continue I be headwind, going I still it's inventory, more a be to will headwind. as watch get be to pressure think been But don't past just a it distributors it's to a they getting will inventory. the make So we think short of significant on

Vivien Azer

for perspective. you all Thank that Understood.

Operator

Genuity. next Please question from ahead. comes The Luke Canaccord with Hannan go

Luke Hannan

Yes. to you. I I question Thanks. balance ask for here. questions everyone. clarification on want just afternoon, me. wanted couple of Good John, correct a a sure the first, sheet make to

end working get of elimination general, that release expect million I prepared from benefit. specifically the your spirits in that think to the capital of said Is remarks, you is that bulk $XX the of or towards to the just inventory? you million $XX

Jon Moramarco

million retailer top-line of would coming year. a in with bulk hand $XX and revenue we related to finishing to non-profitable going major the referenced to to business what be impact was for reduction up The see No. to -- actually some the in as was top-line year, and kind $XX call that spirit have a million just what's in to we that's of, the out elimination

Luke Hannan

Okay. Understood.

about to but sheet, the forward it's talked balance look stands you sale, for just the moving if not balance at then here. additional here, I as it's I it at just $X it end divestitures of of than on If So looks asset potentially appreciate some I going look the doing sheet and capture a like as quarter. million everything, held less assets the

guess my call do asset in more here we'll So as much you here part terms do you're hope it, question is to to Where with? that willing assets you see really can divestitures? of value how I highest the

Kris Johnston

Yes.

So the question, Luke. thanks It's Kris. for

So we to the are that want still monetize. assessing, to we look assets different

be assess. and finalized of present part come continuing the and Board what yet, that We will finalized June. haven't formally those with to plans we we're And

and So where of to we're looking we our pay can drive what most all at asset our looks debt. still think options, base like down value the we

Luke Hannan

as here here, your I I to if were are is a potentially that that I debt covenants. capital look coming you covenant you'd think seller with in capital close a is to buyer those right table net take potential total assets, if considering And would the counterparties, Okay. to the deck conversations these close at of to the your force where be

that to dynamic? how are you I So guys guess, manage going

Kris Johnston

continuing group. we're conversations they're that our So manage lender to with supportive. conversations more active we're come. to relationship. There's And And in

that not I'm overly juncture concerned monetize ability So at our this assets. impacting about to

Luke Hannan

and the Last at X.XX% pass of if interest the roughly to XX% rate that on blended and line. could It's of just that statements release mentioned in debt? of a debt handy? the press I'll rate I it. the the Got What XXXX. is have that of then XX% other pick know hedged me, is until go for Okay. one out, curious, into that I'm sure, you the

Kris Johnston

Yeah.

converted percentage. we've and it is in pull all floating in a we SOFR you and can we new basis. LIBOR I honestly, more And that lock term fixed entered that the So up line rate at agreement loans debt to a QX, into are rotating from the in on to the that at give a

-- So to the we're in X% X%, of I X% range believe.

Luke Hannan

it. Got

Thank Okay. you.

Operator

our Moramarco over closing like go for Jon turn ahead. Please back session. question-and-answer concludes This to I remarks. to would conference the any

Jon Moramarco

Thank you joining today. us again for

several Believe challenging, have hard your For you. or months are months the execute to underlying our we we on locale. are few results. last on these plans to me have And evening, on continually deliver our about updating progress. afternoon depending next been the working in improving look you and fundamentals to Thank the good excited future, care. forward Take

Operator

The attending conference has for presentation. now Thank you concluded. today's

disconnect. may You now

Vintage Wine Estates (VWESQ) 10 May 232023 Q3 Earnings call transcript