UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to______
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Trading |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of October 4, 2023,
Explanatory Note
This Form 10-Q/A amends the Company’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on May 10, 2023 (the “Original Filing”). This Form 10-Q/A is being filed to restate the Company’s unaudited condensed consolidated financial statements for the three and six months ended December 31, 2022. The restatement reflects the correction of an error related to the classification of assets as part of the historical purchase price allocations for certain business combinations, which impacted the loss on a partial disposition of Laetitia Vineyard and Wineries land and related vineyards that occurred during the three months ended December 31, 2022, and the treatment of a deferred gain as part of the implementation of ASC 842, Leases. These adjustments were evaluated by management in accordance with SEC Staff Accounting Bulletin Topic 1M, "Materiality," and SEC Staff Accounting Bulletin Topic 1N, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements," and management determined the effects of the restatement to be material. In light of the restatement, the Company is also correcting and/or reclassifying certain immaterial out-of-period items and other adjustments in all periods presented. See Note 2 to the unaudited condensed consolidated financial statements included in this Form 10-Q/A for further information regarding the restatement and reclassifications.
The Company is filing this Form 10-Q/A to amend and restate the Original Filing with modification as necessary to reflect the restatement. The following items have been amended to reflect the restatement:
In addition, the Company’s Interim Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this Form 10-Q/A (Exhibits 31.1, 31.2, 32.1 and 32.2).
Except as otherwise described above and as otherwise set forth in this Form 10-Q/A, this Form 10-Q/A does not amend, modify or update any other information contained in the Original Filing. This Form 10-Q/A does not purport to reflect any information or events subsequent to the Original Filing, except as expressly described herein. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing. Among other things, forward-looking statements and risk factor disclosure in the Original 10-Q have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements and risk factors should be read in their historical context.
1
Part I—Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, 2022 |
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June 30, 2022 |
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(Unaudited) |
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As Restated |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net |
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Other receivables |
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Inventories |
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Assets held for sale |
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Current interest rate swap asset |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Operating lease right-of-use assets |
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Finance lease right-of-use-assets |
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Goodwill |
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Intangible assets, net |
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Interest rate swap asset |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, redeemable noncontrolling interest, and stockholders' equity |
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Current liabilities: |
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Line of credit |
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$ |
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$ |
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Accounts payable |
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Accrued liabilities and other payables |
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Current operating lease liabilities |
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Current finance lease liabilities |
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Current maturities of long-term debt |
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Total current liabilities |
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Other long-term liabilities |
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Long-term debt, less current maturities |
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Long-term operating lease liabilities |
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Long-term finance lease liabilities |
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Deferred tax liability |
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Deferred gain |
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Total liabilities |
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Redeemable noncontrolling interest |
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Stockholders' equity: |
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Preferred stock, |
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Common stock, |
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Additional paid-in capital |
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Treasury stock, at cost: |
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( |
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( |
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Accumulated Deficit |
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( |
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( |
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Total Vintage Wine Estates, Inc. stockholders' equity |
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Noncontrolling interests |
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( |
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( |
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Total stockholders' equity |
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Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended December 31, |
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Six Months Ended December 31, |
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2022 |
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2021 |
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2022 |
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2021 |
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As Restated |
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As Restated |
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Net revenue |
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Wine, spirits and cider |
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$ |
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$ |
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$ |
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$ |
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Nonwine |
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Cost of revenue |
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Wine, spirits and cider |
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Nonwine |
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Gross profit |
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Selling, general, and administrative expenses |
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Amortization expense |
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Goodwill impairment losses |
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Intangible assets impairment losses |
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Gain on remeasurement of contingent liability |
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( |
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Gain on litigation proceeds |
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Gain on sale leaseback |
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Loss on sale of property, plant, and equipment |
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(Loss) income from operations |
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( |
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( |
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Other income (expense) |
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Interest expense |
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( |
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( |
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( |
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( |
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Net unrealized (loss) gain on interest rate swap agreements |
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( |
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Loss on extinguishment of debt |
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( |
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Other, net |
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( |
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Total other (expense), net |
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( |
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( |
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( |
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(Loss) Income before provision for income taxes |
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( |
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( |
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Income tax (benefit) provision |
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( |
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( |
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Net (loss) income |
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( |
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( |
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Net loss attributable to the noncontrolling interests |
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( |
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( |
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( |
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( |
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Net (loss) income attributable to common stockholders |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net earnings per share allocable to common stockholders |
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Basic |
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$ |
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$ |
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$ |
( |
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$ |
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Diluted |
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$ |
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$ |
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$ |
( |
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$ |
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Weighted average shares used in the calculation of earnings per share allocable to common stockholders |
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Basic |
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Diluted |
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See notes to unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)
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Redeemable Non-Controlling |
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Common Stock |
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Treasury Stock |
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Additional |
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Retained |
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Non-Controlling |
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Total Stockholders' Equity |
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Shares |
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Amount |
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Shares |
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Amount |
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Balance, June 30, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Repurchase of public warrants |
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- |
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- |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
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Shareholder distribution |
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( |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income (loss) |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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( |
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Adoption of ASC 842 (Note 10) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance, September 30, 2022, As Restated |
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$ |
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$ |
- |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Vesting of restricted stock |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Taxes paid related to net share settlement of equity awards |
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- |
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( |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
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Net income (loss) |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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( |
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Balance, December 31, 2022, As Restated |
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$ |
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$ |
- |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Redeemable Non-Controlling |
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Common Stock |
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Treasury Stock |
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Additional |
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Retained |
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Non-Controlling |
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Total Stockholders' Equity |
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Shares |
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Amount |
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Shares |
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Amount |
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Balance, June 30, 2021 |
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$ |
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$ |
- |
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- |
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$ |
- |
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$ |
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$ |
- |
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$ |
( |
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$ |
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Out-of-period adjustments |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
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Net income (loss) |
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- |
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- |
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- |
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- |
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( |
) |
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Balance, September 30, 2021 |
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$ |
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$ |
- |
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- |
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$ |
- |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income (loss) |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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Balance, December 31, 2021 |
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$ |
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$ |
- |
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- |
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$ |
- |
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$ |
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$ |
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$ |
( |
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$ |
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See notes to unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Six Months Ended December 31, |
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2022 |
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2021 |
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As Restated |
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Cash flows from operating activities |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net (loss) income to net cash from operating activities: |
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Depreciation |
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Amortization expense |
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Amortization of deferred loan fees and line of credit fees |
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Goodwill and intangible assets impairment losses |
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Remeasurement of contingent consideration liabilities |
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( |
) |
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Stock-based compensation expense |
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Provision for credit losses |
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Provision for inventory reserve |
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Net unrealized gain on interest rate swap agreements |
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( |
) |
|
|
( |
) |
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
Loss on disposition of assets |
|
|
|
|
|
|
||
Deferred gain on sale leaseback |
|
|
|
|
|
( |
) |
|
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Deferred rent |
|
|
|
|
|
|
||
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
( |
) |
|
Other receivables |
|
|
|
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued liabilities and other payables |
|
|
|
|
|
|
||
Net change in lease assets and liabilities |
|
|
( |
) |
|
|
|
|
Other |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
||
Proceeds from disposition of assets |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Acquisition of businesses |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
||
Principal payments on line of credit |
|
|
( |
) |
|
|
( |
) |
Proceeds from line of credit |
|
|
|
|
|
|
||
Payment of deferred financing costs |
|
|
( |
) |
|
|
|
|
Outstanding checks in excess of cash |
|
|
( |
) |
|
|
|
|
Loan fees |
|
|
( |
) |
|
|
|
|
Principal payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from long-term debt |
|
|
|
|
|
|
||
Principal payments on finance leases |
|
|
( |
) |
|
|
|
|
Distributions to noncontrolling interest |
|
|
( |
) |
|
|
|
|
Repurchase of public warrants |
|
|
( |
) |
|
|
|
|
Payments of minimum tax withholdings on stock-based payment awards |
|
|
( |
) |
|
|
|
|
Payments on acquisition payable |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes |
|
$ |
|
|
$ |
( |
) |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
||
Contingent consideration in a business combination |
|
$ |
|
|
$ |
|
||
Increase in operating lease assets and liabilities upon adoption of ASC 842 |
|
$ |
|
|
$ |
|
||
Increase in finance lease assets and liabilities upon adoption of ASC 842 |
|
$ |
|
|
$ |
|
||
Accrued interest on term loan and line-of credit refinanced to principal |
|
$ |
|
|
$ |
|
||
Line of credit refinanced as term debt |
|
$ |
|
|
$ |
|
||
Term debt refinanced with line of credit proceeds |
|
$ |
|
|
$ |
|
||
Financing costs deducted from long-term debt proceeds |
|
$ |
|
|
$ |
|
||
Financing costs deducted from line of credit proceeds |
|
$ |
|
|
$ |
|
||
5
See notes to unaudited condensed consolidated financial statements.
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies (as restated)
Basis of Presentation
The condensed consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of the acquisition or up to the date of disposal, respectively.
References to the "Company," "we," "our," "us," and similar pronouns in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2022 (this "Form 10-Q") refer to Vintage Wine Estates, Inc., a Nevada corporation, and its majority owned subsidiaries or controlled subsidiaries unless the context requires otherwise.
Our fiscal year ends on June 30. References to fiscal 2023 and 2022 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2023 and June 30, 2022, 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.
Inflation and supply chain constraints, as well as the ongoing COVID-19 pandemic ("COVID-19"), continue to disrupt the U.S. and global economies and there remains uncertainty about the impact on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.
Management expects economic uncertainties including inflation and supply chain constraints to continue to impact several areas of the business including sales, cost of goods, operating expenses and cash flows.
In the opinion of management, all adjustments necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included in this Form 10-Q/A. 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 2023 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2023 or any other future interim or annual period. These condensed consolidated financial statements are unaudited and accordingly, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on October 13, 2023. The June 30, 2022 condensed consolidated balance sheet was derived from the audited consolidated financial statements as of that date.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the six months ended December 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 experience and on various other assumptions that we believe are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Significant estimates include, but are not limited to depletion allowance, allowance for credit losses, the net realizable value of inventory, expected future cash flows including growth rates, discount rates, and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets in acquisitions, intangible assets and goodwill for impairment, amortization methods and periods, the estimated fair value of long-term debt, the valuation of interest rate swaps, contingent consideration, common stock, stock-based compensation, accounting for income taxes and net assets held for sale. Actual results could differ materially from those estimates.
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:
7
(in thousands) |
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
|
|
As Restated |
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash as shown in the consolidated statement of cash flows |
|
$ |
|
|
$ |
|
||
In connection with the amended and restated loan and security agreement (see Note 11), the Company entered into a Deposit Control Agreement which required $
Accounts Receivable and Allowance for Credit Losses
The Company adopted Accounting Standards Update ("ASU") ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) and its related amendments as of July 1, 2022, see “Recently Adopted Accounting Pronouncements” below.
Accounts receivable are recorded at the invoiced amount. We consider an account past due on the first day following its due date. We monitor past due accounts periodically and establish appropriate reserves to cover expected losses, and consider historical experience, the current economic environment, customer credit ratings or bankruptcies and reasonable and supportable forecasts to develop our allowance for expected credit losses. We review these factors quarterly to determine if any adjustments are needed to the allowance. Account balances are written-off against the established allowance when we feel it is probable the receivable will not be recovered.
The provision for credit losses for the periods ended December 31, 2022 and June 30, 2022, was $
Other receivables include insurance related receivables, income tax receivables and other miscellaneous receivables.
Disaggregation of Revenue
The following table summarizes revenue by geographic region:
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
(in thousands) |
|
As Restated |
|
|
|
|
|
As Restated |
|
|
|
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table provides a disaggregation of revenue based on the pattern of revenue recognition:
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
(in thousands) |
|
As Restated |
|
|
|
|
|
As Restated |
|
|
|
|
||||
Point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Over a period of time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 December 31, 2022 and June 30, 2022, we had $
8
The following table summarizes customer concentration of:
|
|
Three Months Ended December 31, |
|
Six Months Ended December 31, |
||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Revenue as a percent of total revenue |
|
|
|
|
|
|
|
|
Customer A |
|
* |
|
|
|
|||
Customer B |
|
* |
|
* |
|
* |
|
|
Customer C |
|
* |
|
|
* |
|
||
Customer D |
|
* |
|
* |
|
* |
|
* |
Customer E |
|
* |
|
* |
|
* |
|
* |
The following table summarizes customer concentration of:
|
|
December 31, 2022 |
|
June 30, 2022 |
Receivables as a percent of total receivables |
|
|
|
|
Customer A |
|
|
||
Customer B |
|
* |
|
* |
Customer C |
|
* |
|
* |
Customer D |
|
|
* |
|
Customer E |
|
|
* |
* Customer revenue or receivables did not exceed 10% in the respective periods.
Revenue for sales from Customer A is included within the Wholesale and Business-to-Business segments, Customer B is included within the Business-to-Business segment, Customer C is included within the Business-to-Business segment, Customer D is included within the Wholesale segment, and Customer E is included within the Business-to-Business segment.
Principal vs. Agent Considerations
As part of our revenue recognition process, we evaluate whether we are the principal or agent for the performance obligations in our contracts with customers. When we determine that we are the principal for a performance obligation, we recognize revenue for that performance obligation on a gross basis. When we determine that we are an agent for a performance obligation, we recognize revenue for that performance obligation net of the related costs. In determining whether we are the principal or the agent, we evaluate whether we have control of the goods or services before we transfer the goods or services to the customer by considering whether we are primarily obligated for transferring the goods or services to the customer, whether we have inventory risk for the goods or services before the goods or services are transferred to the customer, and whether we have latitude in establishing prices.
Inventories
Inventories of bulk and bottled wines, spirits, and ciders and inventories of non-wine products and bottling and packaging supplies are valued at the lower of cost using the FIFO method or net realizable value. Costs associated with winemaking, and other costs associated with the manufacturing of products for resale, are recorded as inventory. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Inventories are classified as current assets in accordance with recognized industry practice, although most wines and spirits are aged for periods longer than one year.
Leases
The Company adopted ASU 2016-02, Leases ("Topic 842") and its related amendments as of July 1, 2022, see “Recently Adopted Accounting Pronouncements” below. The Company has both operating leases and finance leases. The Company’s non-cancelable leases for winery facilities, vineyards, corporate and administrative offices, tasting rooms, and some equipment are classified as operating leases. The Company’s non-cancelable leases for certain equipment that include a bargain purchase option at the end of the lease term are classified as finance leases.
The Company recognizes a right of use (“ROU”) asset representing its right to use the underlying asset for the lease term on the condensed consolidated balance sheet and related lease liabilities representing its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The ROU asset also includes adjustments for lease incentives receivable, deferred rent and prepaid rent when applicable. The Company’s lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company has made an accounting policy election not to recognize ROU assets and lease obligations for its short-term leases, which are defined as leases with an initial term of 12 months or less. However, the Company will recognize these lease payments in the condensed consolidated statements of operations and comprehensive income (loss) on a straight-line basis over the lease term and variable lease payments in the period in which the obligation is incurred.
9
Lease expense for operating leases is recognized on a straight-line basis over the lease term. For finance leases, the right-of-use asset is amortized to amortization expense and interest expense is recorded in connection with the lease liability. Payments under lease arrangements are primarily fixed, however, most lease agreements also contain some variable payments. Variable lease payments other than those that depend on an index or a rate are expensed as incurred and not included in the operating lease ROU assets and lease liabilities. These amounts primarily include payments for taxes, parking and common area expenses. See Note 10.
Assets Held for Sale
The Company classifies an asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in selling, general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Casualty Gains
We suffered smoke-tainted inventory damage resulting from the October 2017 Napa and Sonoma County wildfires. We filed an insurance claim for this damage, which was settled in fiscal 2021 for approximately $
Segment Information
We operate in
Earnings Per Share
Basic net income (loss) per share is calculated by dividing the net income (loss) allocable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. For purposes of the calculation of diluted net income (loss) per share, stock options warrants to purchase common stock, and restrictive stock units 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 Company does not pay dividends or have participating shares outstanding.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
Recently Adopted Accounting Pronouncements
In December 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-06: Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting from December 31, 2022 to December 31, 2024. ASU 2020-04 provides optional expedients and exceptions to 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. After December 31, 2024, entities will no longer be permitted to apply the relief in Topic 848. The Company determined that adoption of this ASU will not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Codification 842 or "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
10
lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of its classification. Leases with a term of 12 months or less are accounted for in the Company's consolidated statements of operations.
The Company adopted Topic 842 effective July 1, 2022 using the modified retrospective approach, whereby we recognized a transition adjustment at the effective date of Topic 842, rather than at the beginning of the earliest comparative period presented. Prior period information was not restated. In addition, the Company applied the package of transition practical expedients, which allows the Company to carryforward its population of existing leases, the classification of each lease and the treatment of initial direct costs as of the period of adoption. The Company did not elect the practical expedient related to hindsight analysis which allows a lessee to use hindsight in determining the lease term and in assessing impairment of the entity’s ROU assets.
The Company identified the population of real estate and equipment leases to which the guidance applies and implemented changes in its systems, procedures and controls relating to how lease information is obtained, processed and analyzed. In connection with the restatement, the Company has reclassified the deferred gain related to a previous sale and leaseback of $
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses.
The Company adopted ASU No. 2016-13, as amended effective July 1, 2022. We consider historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop our allowance for credit losses. We review these factors quarterly to determine if any adjustments are needed to the allowance. This guidance did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The recently issued accounting pronouncements are not expected to have an impact on the Company.
2. Restatement, Reclassification and Revision of Previously Issued Condensed Consolidated Financial Statements
The Company has restated its unaudited condensed consolidated financial statements as of and for the three and six months ended December 31, 2022.
Errors were discovered during the course of management’s review of the Company’s financial statements in the process of closing the fiscal year ended June 30, 2023 and in conjunction with the year-end audit. The errors were primarily related to the correction of an error related to the classification of assets as part of the historical purchase price allocations for certain business combinations, which impacted the loss on a partial disposition of Laetitia Vineyard and Wineries land and related vineyards that occurred during the three months ended December 31, 2022, and the treatment of a deferred gain as part of the implementation of ASC 842, Leases ("ASC 842"). In light of the restatement, the Company is also correcting and/or reclassifying certain immaterial out-of-period items and other adjustments in all periods presented, which include but are not limited to those related to the determination of the service period used in the recognition of stock-based compensation expense and classification of assets as part of the historical purchase price allocations for certain business combinations. Certain prior year amounts have been reclassified for consistency with the current year presentation. In addition, our beginning accumulated deficit increased by $
Regarding our previously reported unaudited condensed consolidated balance sheet as of December 31, 2022, the following table presents the adjustment of $
In addition, the Company is adjusting for certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:
11
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
December 31, 2022 |
|
|||||||||
(in thousands) |
|
As Previously Reported |
|
|
Adjustments |
|
|
As Restated |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Other receivables |
|
|
|
|
|
( |
) |
|
|
|
||
Inventories |
|
|
|
|
|
( |
) |
|
|
|
||
Total current assets |
|
|
|
|
|
( |
) |
|
|
|
||
Property, plant, and equipment, net |
|
|
|
|
|
( |
) |
|
|
|
||
Intangible assets, net |
|
|
|
|
|
( |
) |
|
|
|
||
Total assets |
|
|
|
|
|
( |
) |
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
|
|
|
|
( |
) |
|
|
|
||
Accrued liabilities and other payables |
|
|
|
|
|
|
|
|
|
|||
Current maturities of long-term debt |
|
|
|
|
|
( |
) |
|
|
|
||
Total current liabilities |
|
|
|
|
|
( |
) |
|
|
|
||
Long-term debt, less current maturities |
|
|
|
|
|
|
|
|
|
|||
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|||
Deferred gain |
|
|
|
|
|
( |
) |
|
|
|
||
Total liabilities |
|
|
|
|
|
( |
) |
|
|
|
||
Redeemable noncontrolling interest |
|
|
|
|
|
( |
) |
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|||
Additional paid-in capital |
|
|
|
|
|
( |
) |
|
|
|
||
Accumulated Deficit |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total Vintage Wine Estates, Inc. stockholders' equity |
|
|
|
|
|
|
|
|
|
|||
Noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
|
|
|
|||
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
( |
) |
|
|
|
||
12
Regarding the previously reported unaudited condensed consolidated statement of operations for the three and six months ended December 31, 2022, the following table presents the impact of the restatement of $
In addition, the Company is adjusting for certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended December 31, 2022 |
|
|
Six Months Ended December 31, 2022 |
|
||||||||||||||||||
(in thousands, except share and per share amounts) |
|
As Previously Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Previously Reported |
|
|
Adjustments |
|
|
As Restated |
|
||||||
Net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wine, spirits and cider |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wine, spirits and cider |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Nonwine |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Selling, general, and administrative expenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Intangible assets impairment losses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Gain on remeasurement of contingent liability |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Gain on sale leaseback |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Loss on sale of property, plant, and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Loss before provision for income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Income tax (benefit) provision |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net loss |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net loss attributable to the noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net loss attributable to common stockholders |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net loss per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
13
The following table presents the impact of the adjustments and reclassifications discussed above on the unaudited condensed consolidated cash flow statement for the six months ending December 31, 2022:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended December 31, 2022 |
|
|||||||||
(in thousands) |
|
As Previously Reported |
|
|
Adjustments |
|
|
As Restated |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation |
|
|
|
|
|
|
|
|
|
|||
Amortization expense |
|
|
|
|
|
( |
) |
|
|
|
||
Amortization of deferred loan fees and line of credit fees |
|
|
|
|
|
|
|
|
|
|||
Goodwill and intangible assets impairment losses |
|
|
|
|
|
( |
) |
|
|
|
||
Remeasurement of contingent consideration liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
( |
) |
|
|
|
||
Provision for inventory reserve |
|
|
|
|
|
|
|
|
|
|||
Deferred income tax benefit |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Loss on disposition of assets |
|
|
|
|
|
|
|
|
|
|||
Deferred gain on sale leaseback |
|
|
( |
) |
|
|
|
|
|
|
||
Deferred Rent |
|
|
( |
) |
|
|
|
|
|
|
||
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
|
|
|
|||
Accounts receivable |
|
|
|
|
|
( |
) |
|
|
|
||
Other receivables |
|
|
|
|
|
|
|
|
|
|||
Inventories |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
|
|
|
|||
Accrued liabilities and other payables |
|
|
|
|
|
( |
) |
|
|
|
||
Net change in lease assets and liabilities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
|
|||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|||
Payment of deferred financing costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Outstanding checks in excess of cash |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Loan fees |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
( |
) |
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
|
( |
) |
|
|
|
||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|||
Increase in finance lease assets and liabilities upon adoption of ASC 842 |
|
|
|
|
|
( |
) |
|
|
|
||
Reclassifications and Revisions
Subsequent to the issuance of the Company's financial statements as of the year ended June 30, 2022, the Company discovered an error in its classification of purchase price for specific properties, which resulted in the Company overstating depreciable assets and the related depreciation expense for post-acquisition periods. Management has evaluated this misstatement, which understated property, plant and equipment, net and overstated inventories and the related cost of revenue, and concluded it was not material to prior periods, individually or in the aggregate. However, correcting the cumulative effect of the error in the current period would have had a material effect on the results of operations for such period. Therefore, the Company is revising the relevant prior period consolidated financial statements and related footnotes for this error and other immaterial out-of-period items for comparative purposes. The Company will also correct previously reported financial information for such immaterial errors in future filings, as applicable. Additionally, comparative prior period amounts in the applicable notes to the unaudited condensed consolidated financial statements have been revised, certain prior year amounts have been reclassified for consistency with the current year presentation, and our beginning accumulated deficit increased by $
14
Regarding our previously reported consolidated balance sheet as of June 30, 2022, the following table presents the impact of certain immaterial out-of-period items, reclassifications and other adjustments including but not limited to:
CONSOLIDATED BALANCE SHEET
|
|
June 30, 2022 |
|
|||||||||
(in thousands) |
|
As Previously Reported |
|
|
Adjustments |
|
|
As Revised |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Current assets: |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Restricted cash |
|
|
|
|
|
( |
) |
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
( |
) |
|
|
|
||
Inventories |
|
|
|
|
|
|
|
|
|
|||
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
|
|
||
Total current assets |
|
|
|
|
|
( |
) |
|
|
|
||
Property, plant, and equipment, net |
|
|
|
|
|
|
|
|
|
|||
Intangible assets, net |
|
|
|
|
|
( |
) |
|
|
|
||
Total assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
|
|
|
|
|
|
|
|
|||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Accrued liabilities and other payables |
|
|
|
|
|
|
|
|
|
|||
Total current liabilities |
|
|
|
|
|
|
|
|
|
|||
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|||
Deferred tax liability |
|
|
|
|
|
( |
) |
|
|
|
||
Total liabilities |
|
|
|
|
|
|
|
|
|
|||
Redeemable noncontrolling interest |
|
|
|
|
|
( |
) |
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|||
Additional paid-in capital |
|
|
|
|
|
( |
) |
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Vintage Wine Estates, Inc. stockholders' equity |
|
|
|
|
|
( |
) |
|
|
|
||
Noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
( |
) |
|
|
|
||
Total liabilities, redeemable noncontrolling interest, and stockholders' equity |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
15
The following table presents the impact of certain immaterial out-of-period items, reclassifications and other adjustments to our previously reported unaudited condensed consolidated statement of operations for the three and six months ending December 31, 2021, including but not limited to a $
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended December 31, 2021 |
|
|
Six Months Ended December 31, 2021 |
|
||||||||||||||||||
(in thousands, except share and per share amounts) |
|
As Reported |
|
|
Adjustments |
|
|
As Revised |
|
|
As Reported |
|
|
Adjustments |
|
|
As Revised |
|
||||||
Wine, spirits and cider |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wine, spirits and cider |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross profit |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Selling, general, and administrative expenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Loss on remeasurement of contingent liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income from operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net unrealized gain on interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total other income (expense), net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Income before provision for income taxes |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income tax provision |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income (loss) attributable to the noncontrolling interests |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net income attributable to Vintage Wine Estates, Inc. |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Net income allocable to common stockholders |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
|
||||
Net earnings (loss) per share allocable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
|
||||
Diluted |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
$ |
|
|
|
( |
) |
|
$ |
|
||||
The following table presents the impact of the adjustments and reclassifications discussed above on the unaudited condensed consolidated cash flow statement for the six months ending December 31, 2021:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended December 31, 2021 |
|
|||||||||
(in thousands) |
|
As Reported |
|
|
Adjustments |
|
|
As Revised |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation |
|
|
|
|
|
( |
) |
|
|
|
||
Amortization expense |
|
|
|
|
|
|
|
|
|
|||
Amortization of deferred loan fees and line of credit fees |
|
|
|
|
|
|
|
|
|
|||
Remeasurement of contingent consideration liabilities |
|
|
|
|
|
|
|
|
|
|||
Net unrealized gain on interest rate swap agreements |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
(Benefit) provision for deferred income tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in operating assets and liabilities (net of effect of business combinations): |
|
|
|
|
|
|
|
|
|
|||
Inventories |
|
|
|
|
|
|
|
|
|
|||
Accrued liabilities and other payables |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|||
Interest |
|
|
|
|
|
( |
) |
|
|
|
||
Income taxes |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
16
3. Business Combinations
Vinesse
The purchase price totaling $
The allocation of the consideration for the net assets acquired from the acquisition of Vinesse were as follows:
(in thousands) |
|
|
|
|
Sources of financing |
|
|
|
|
Cash |
|
$ |
|
|
Accrued other |
|
|
|
|
Contingent consideration |
|
|
|
|
Fair value of consideration |
|
|
|
|
|
|
|
|
|
Assets acquired: |
|
|
|
|
Fixed assets |
|
|
|
|
Inventory |
|
|
|
|
Trade Names and Trademarks |
|
|
|
|
Customer relationships |
|
|
|
|
Total identifiable assets acquired |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
The Company used the carrying value as of the acquisition date to value fixed assets, as we determined that they represented the fair value at the acquisition date.
Inventory was comprised of finished goods, bulk and raw materials. The fair value of finished goods inventory and bulk inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trade names and trademarks fair value was derived using the Relief-From-Royalty Method (“RFR”). Key assumptions in valuing trade names and trademarks included (i) a royalty rate of
Customer relationships fair value was derived using the Multiple-Period Excess Earnings Method (“MPEEM”), utilizing a discount rate of
The results of operations of Vinesse are included in the accompanying condensed consolidated statements of operations from the October 4, 2021 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
ACE Cider
On
The purchase price totaling $
17
The allocation of the consideration for the net assets acquired from the acquisition of ACE Cider were as follows:
(in thousands) |
|
|
|
|
Sources of financing |
|
|
|
|
Cash |
|
$ |
|
|
Accrued other |
|
|
|
|
Contingent consideration |
|
|
|
|
Fair value of consideration |
|
|
|
|
|
|
|
|
|
Assets acquired: |
|
|
|
|
Fixed assets |
|
|
|
|
Inventory |
|
|
|
|
Trademarks |
|
|
|
|
Customer relationships |
|
|
|
|
Deferred tax liability |
|
|
( |
) |
Total identifiable assets acquired |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
The Company used the carrying value as of the Acquisition Date to value fixed assets, as we determined that they represented the fair value at the Acquisition Date.
Inventory was comprised of finished goods, bulk cider and raw materials. The fair value of finished goods inventory and bulk cider inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trademarks fair value was derived using the RFR. Key assumptions in valuing trademarks included (i) a royalty rate of
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of
The results of operations of ACE Cider are included in the accompanying condensed consolidated statements of operations from the November 16, 2021 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
Meier's
The purchase price totaling $
The terms of the acquisition also provide for the possibility of additional contingent consideration of up to $
18
The preliminary allocation of the consideration for the net assets acquired from the acquisition of Meier's were as follows:
(in thousands) |
|
|
|
|
Sources of financing |
|
|
|
|
Cash |
|
$ |
|
|
Shares of common stock |
|
|
|
|
Contingent consideration |
|
|
|
|
Settlement of pre-existing relationship |
|
|
( |
) |
Fair value of consideration |
|
|
|
|
|
|
|
|
|
Assets acquired: |
|
|
|
|
Accounts receivable |
|
|
|
|
Fixed assets |
|
|
|
|
Inventory |
|
|
|
|
Other assets |
|
|
|
|
Trademarks |
|
|
|
|
Customer relationships |
|
|
|
|
Accounts payable and accrued expenses |
|
|
( |
) |
Deferred tax liability |
|
|
( |
) |
Total identifiable assets acquired |
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
The number of shares of common stock were valued based on the Closing Date share price, resulting in a fair value of $
The contingent consideration was fair valued using the Monte Carlo simulation model, resulting in fair value earnout payments of $
The Company valued the fair value of accounts receivable, other assets, accounts payable and accrued expenses and fixed assets at the acquisition date.
Inventory was comprised of finished goods, work in process and raw materials. The fair value of finished goods inventory and work in process inventory was derived using projected cost of goods sold as a percentage of net revenue. Raw materials inventory was valued at its book value.
The trade names and trademarks fair value was derived using the RFR. Key assumptions in valuing trade names and trademarks included (i) a royalty rate of
Customer relationships fair value was derived using the MPEEM, utilizing a discount rate of
The results of operations of Meier's are included in the accompanying condensed consolidated statements of operations from the January 18, 2022 acquisition date.
Transaction costs incurred in the acquisition were insignificant.
Other Acquisitions
On February 14, 2022, the Company purchased certain intellectual property pertaining or related to a canned cannabis beverage brand. The Company purchased the intellectual property at a purchase price of $
4. Inventory (as restated)
Inventory consists of the following:
(in thousands) |
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
Bulk wine, spirits and cider |
|
$ |
|
|
$ |
|
||
Bottled wine, spirits and cider |
|
|
|
|
|
|
||
Bottling and packaging supplies |
|
|
|
|
|
|
||
Nonwine inventory |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
19
For the three months ended December 31, 2022 and 2021, the Company recognized costs related to reducing inventory to its net realizable value of $
For the six months ended December 31, 2022 and fiscal year ended June 30, 2022, the Company's inventory balances are presented net of inventory reserves of
5. Assets Held for Sale (as restated)
During the period ended December 31, 2022, the Company had three asset groups classified as held for sale, one of which was sold during the period on December 15, 2022. The remaining assets held for sale include certain real property related to Tenma vineyards land and assumption of a land lease related to the Tamarack Cellars production facility. These assets are being marketed for sale. The Company intends to complete the sales of the assets within twelve months.
The carrying amounts of assets held for sale consists of the following:
(in thousands) |
|
December 31, 2022 |
|
|
Tenma vineyards land held for sale |
|
$ |
|
|
Tamarack Cellars property, plant and equipment held for sale |
|
|
|
|
Less accumulated depreciation and amortization |
|
|
( |
) |
Total assets held for sale |
|
$ |
|
|
The cash flows related to held for sale assets have not been segregated and remain included in the major classes of assets.
There were
During the three months ended December 31, 2022 the Company sold a portion of Laetitia Vineyard and Winery's land and related vineyards, previously held for sale, for a sale price of $
6. Property, Plant, and Equipment (as restated)
Property, plant, and equipment consists of the following:
|
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
(in thousands) |
|
As Restated |
|
|
|
|
||
Buildings and improvements |
|
|
|
|
$ |
|
||
Land |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Cooperage |
|
|
|
|
|
|
||
Vineyards |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense related to property and equipment was $
20
7. Goodwill and Intangible Assets (as restated)
Goodwill
The following is a rollforward of the Company's goodwill by segment:
|
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Total |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Goodwill Impairment |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Our reporting units are the same as our reportable segments. We test our reporting units for impairment annually, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. During the three months ended December 31, 2022, we identified a number of goodwill impairment indicators that led us to conclude that an impairment test on goodwill was required to determine if the fair values of certain reporting units were below their carrying values. Most notably, revenue and earnings before income tax depreciation and amortization (EBITDA) for the second quarter (a historically strong quarter given the seasonal impact of holiday sales) fell short of projections. Additionally, we experienced increases in operational costs associated with higher cost of wine, freight and other supply chain items consistent with trends in the current economic environment. Both of these factors had a negative impact on our overall financial performance and led us to experience declining cash flows when compared to earlier quarter projections. Along with the continued market fluctuations, the Company's stock price continued to consistently decline during our second quarter of fiscal 2023.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if management’s expectations or plans otherwise change, then one or more of our reporting units might become impaired in the future.
We utilized the discounted cash flow method under the income approach and the Guideline Public Company Method (GPCM) under the market approach to estimate the fair value of our reporting units. Some of the more significant assumptions inherent in estimating the fair values under the income approach include the estimated future annual net cash flows for each reporting unit (including net sales, cost of revenue, selling, general and administrative expense updated as of the end of the second quarter, depreciation and amortization, working capital, and capital expenditures), estimated growth rates, income tax rates, long-term growth rates, and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. Under the GPCM approach, the significant assumptions include the consideration of stock price and financial metrics from guideline companies.
As a result of our interim impairment test, we determined that the fair values of the Wholesale and Business-to-Business reporting units were less than their respective carrying amounts. We recognized a total impairment charge of $
21
Intangible Assets
The following tables summarize other intangible assets by class:
|
|
December 31, 2022 |
|
|
|||||||||||||
(in thousands) |
|
Gross |
|
|
Accumulated |
|
|
Accumulated Impairment Losses |
|
|
Net Intangible |
|
Weighted Average Remaining Amortization Period (in years) |
||||
Indefinite-life intangibles |
|
As Restated |
|
|
|
|
|
As Restated |
|
|
As Restated |
|
|
||||
Trade names and trademarks |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
N/A |
||
Winery use permits |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
N/A |
||
Total Indefinite-life intangibles |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer and Sommelier relationships |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Trade names and trademarks |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Total definite-life intangibles |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
||
|
|
June 30, 2022 |
|
|
|||||||||||||
(in thousands) |
|
Gross |
|
|
Accumulated |
|
|
Accumulated Impairment Losses |
|
|
Net Intangible |
|
Weighted Average Remaining Amortization Period (in years) |
||||
Indefinite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade names and trademarks |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
N/A |
||
Winery use permits |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
N/A |
||
Total Indefinite-life intangibles |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Definite-life intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer and Sommelier relationships |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Trade names and trademarks |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|||
Total definite-life intangibles |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
|
||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
||
Our indefinite-lived intangible asset balance consists of trade names, trademarks and winery use permits, which had an aggregate carrying amount of $
We evaluated the Company's winery use permits and determined that there was no evidence as of December 31, 2022 to suggest that any of the permits associated with the land and facilities of a given property had been compromised or no longer held the value assigned on the date of the acquisition. The value of the winery use permits is based off of the various ways the winery property can be used in the Company’s operations and is therefore not solely dependent on the value of the trade name and forecasted sales of the wine currently produced on that particular property.
We utilized the relief from royalty method under the income approach to estimate the fair value of our trade names and trademarks. Some of the more significant assumptions inherent in estimating the fair values include the estimated future annual net sales for each trademark and trade name, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, and a discount rate that reflects the level of risk associated with the future cost savings attributable to the trade name or trademark. Based on the analysis performed, it was determined that the Company had a trade names and trademark impairment charge totaling $
22
use for assessing ACE trademark given management's expectations. The impairment loss is included in intangible asset impairment losses in the condensed consolidated statements of operations.
The range of discount rates, long-term growth rates, EBITDA multiples and royalty rates we used to estimate the fair values of our reporting units (in relation to our goodwill impairment testing) and trademarks as of the December 31, 2022 impairment testing date for each reporting unit or trademark, were as follows:
|
|
Discount Rate |
|
|
Long-Term Growth Rate |
|
|
EBITDA Multiple |
|
Royalty Rate |
|
|||||||||||||||||
|
|
Min |
|
|
Max |
|
|
Min |
|
|
Max |
|
|
Min |
|
Max |
|
Min |
|
|
Max |
|
||||||
Reporting units |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
|
|
||||||||
Trademarks |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
|
|
|
|
% |
|
|
% |
||||||
Amortization expense of definite-life intangibles was $
As of December 31, 2022, estimated future amortization expense for definite-lived assets is as follows:
(in thousands) |
|
|
|
|
|
|
2023 remaining |
|
|
|
$ |
|
|
2024 |
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
Total estimated amortization expense |
|
|
|
$ |
|
|
8. Accrued Liabilities (as restated)
The major classes of accrued liabilities are summarized as follows:
(in thousands) |
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
Accrued purchases |
|
$ |
|
|
$ |
|
||
Accrued employee compensation |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Non related party accrued interest expense |
|
|
|
|
|
|
||
Contingent consideration |
|
|
|
|
|
|
||
Unearned income |
|
|
|
|
|
|
||
Captive insurance liabilities |
|
|
|
|
|
|
||
Total Accrued liabilities and other payables |
|
$ |
|
|
$ |
|
||
9. Fair Value Measurements (as restated)
The following tables present assets and liabilities measured at fair value on a recurring basis:
|
|
December 31, 2022 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swaps (1) |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration liabilities (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
23
|
|
June 30, 2022 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swaps (1) |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration liabilities (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) The fair value of interest rate swaps is estimated using a discounted cash flow analysis that considers the expected future cash flows of each interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the remaining period to maturity, and uses market-corroborated Level 2 inputs, including forward interest rate curves and implied interest rate volatilities. The fair value of an interest rate swap is estimated by discounting future fixed cash payments against the discounted expected variable cash receipts. The variable cash receipts are estimated based on an expectation of future interest rates derived from forward interest rate curves. The fair value of an interest rate swap also incorporates credit valuation adjustments to reflect the non-performance risk of the Company and the respective counterparty.
(2) We assess the fair value of contingent consideration to be settled in cash related to acquisitions using probability weighted models for the various contractual earn-outs. These are Level 3 measurements. Significant unobservable inputs used in the estimated fair values of these contingent consideration liabilities include probabilities of achieving customer related performance targets, specified sales milestones, consulting milestones, changes in unresolved claims, projected revenue or changes in discount rates.
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
Contingent |
|
|
(in thousands) |
|
As Restated |
|
|
Balance at June 30, 2022 |
|
$ |
|
|
Acquisitions |
|
|
|
|
Payments |
|
|
( |
) |
Change in fair value |
|
|
( |
) |
Balance at December 31, 2022 |
|
|
|
|
Less: current portion |
|
|
( |
) |
Long term portion |
|
$ |
|
|
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.
Our non-financial assets, such as goodwill, indefinite-lived intangible assets and long-lived assets are adjusted to fair value when an impairment charge is recognized. Such fair value measurements are based predominately on Level 3 inputs.
10. Leases (as restated)
Leases Under ASC 842
We have lease agreements for certain winery facilities, vineyards, corporate and administrative offices, tasting rooms, and equipment under long-term non-cancelable leases. We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
Beginning July 1, 2022, operating leases are included in operating lease right-of-use assets, current operating lease liabilities and long-term operating lease liabilities in our condensed consolidated balance sheet. Operating lease right-of-use assets and corresponding operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable.
In connection with the restatement, the Company has reclassified the deferred gain related to a previous sale and leaseback of $
24
Finance leases are included in finance lease right-of-use assets, current finance lease liabilities and long-term finance lease liabilities in our condensed consolidated balance sheet.
Our lease agreements include leases that contain lease components and non-lease components. For all asset classes, we have elected to account for both of these provisions as a single lease component.
We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of 12 months or less. In addition, we elected the package of transition practical expedients permitted under the transition guidance, which allows the Company to carry forward our leases without reassessing, whether any contracts are leases or contain leases, lease classification and initial direct costs.
Our leases have remaining lease terms from less than
Beginning fiscal 2022, we no longer had related party lease agreements.
The following table summarizes the components of lease expense:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
(in thousands) |
|
December 31, 2022 |
|
|
December 31, 2022 |
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease expense |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Interest on lease liabilities |
|
|
|
|
|
|
||
Total finance lease expense |
|
|
|
|
|
|
||
Variable lease expense |
|
|
|
|
|
|
||
Short-term lease expense |
|
|
|
|
|
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
The following table summarizes supplemental balance sheet items related to leases:
(in thousands) |
|
December 31, 2022 |
|
|
Operating Leases |
|
|
|
|
Operating lease right-of-use assets |
|
$ |
|
|
|
|
|
|
|
Current portion of operating lease liabilities |
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
Total operating lease liabilities |
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
Finance lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Current portion of finance lease liabilities |
|
|
|
|
Long-term finance lease liabilities |
|
|
|
|
Total finance lease liabilities |
|
$ |
|
|
The following table summarizes the weighted-average remaining lease term and discount rate:
Weighted-average remaining lease term (in years) |
|
|
|
|
Operating leases |
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
|
|
Operating leases |
|
|
% |
|
Finance leases |
|
|
% |
|
25
The minimum annual payments under our lease agreements as of December 31, 2022 are as follows:
(in thousands) |
|
Operating Leases |
|
|
Finance Leases |
|
||
Remaining fiscal 2023 |
|
$ |
|
|
$ |
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 and thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less imputed interest |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
|
|
|
|
|
||
Current portion of lease liabilities |
|
|
( |
) |
|
|
( |
) |
Total long term lease liabilities |
|
$ |
|
|
$ |
|
||
Note - Table excludes obligations for leases with original terms of 12 months or less which have not been recognized as ROU assets or liabilities in our condensed consolidated balance sheets.
On December 15, 2022, we closed on a purchase and sale agreement to sell a portion of Laetitia Vineyard and Winery’s land and related vineyards to a third-party buyer. Concurrent with the finalization of the sale, we entered into a lease agreement to lease back from the third-party buyer certain of the vineyards blocks sold. The rent, payable annually, on this two-year operating lease was deemed to be below market. Therefore, we recorded an off-market adjustment of $
26
11. Long-Term and Other Short-Term Obligations (as restated)
The following table summarizes long-term and other short-term obligations:
(in thousands) |
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
Note to a bank with interest at LIBOR ( |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Note to a bank with one month interest at SOFR ( |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Capital expenditures borrowings payable at LIBOR ( |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Capital expenditures borrowings payable, $ |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
||
Equipment Term Loan payable, $ |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
||
Note to a bank with interest fixed at |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Note to a bank with interest fixed at |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Delayed Draw Term Loan ("DDTL") with interest at LIBOR ( |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Delayed Draw Term Loan ("DDTL") $ |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less current maturities |
|
|
( |
) |
|
|
( |
) |
Less unamortized deferred financing costs |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Line of Credit
In April 2021, we entered into an amended and restated loan and security agreement (the “Amended and Restated Loan and Security Agreement”) to increase the credit facility to $
On November 8, 2022, we amended the amended and restated loan and security agreement to revise a definition used in a financial covenant under the agreement for the debt covenant calculation as of September 30, 2022 and subsequent periods.
On December 13, 2022, we entered into a second amended and restated loan and security agreement (the “Second A&R Loan and Security Agreement”), which further amended and restated the Amended and Restated Loan and Security Agreement and provides credit facilities totaling up to $
27
million (amounts are available to be drawn through December 13, 2023) (the “DDTL Facility”, and, together with the Term Loan Facility, the Revolving Facility, the Equipment Loan and the Capex Facility, the “Credit Facilities”).
Concurrent with the closing of the Second A&R Loan and Security Agreement, we executed a draw of approximately $
As part of the refinancing of the Term Loan Facility, the Company incurred various costs of $
As part of the refinancing of the Revolving Facility, the Company incurred various costs of $
Regularly scheduled principal repayments of the Credit Facilities (other than the Revolving Facility) are payable on a quarterly basis as follows: (i) with respect to the Term Loan Facility, an amount equal to the original principal amount of the Term Loan Facility multiplied by 1/100th, (ii) with respect to the Equipment Loan, an amount equal to $
Borrowings under the Credit Facilities bear interest at a rate per annum equal to, at the Company’s option, either (a) a Term Secured Overnight Financing rate “SOFR” for the applicable interest period relevant to such borrowing, plus a market-determined credit spread adjustment depending on such interest period (
In addition, the Second A&R Loan and Security Agreement and related loan documents provide for recurring fees with respect to the Credit Facilities, including (i) a fee for the unused commitments of the lenders under the Term Loan Facility, the Revolving Facility and the DDTL Facility, payable quarterly, accruing at a rate equal to
The Credit Facilities are secured by substantially all of the assets of the Company.
Additionally, the Second A&R Loan and Security Agreement includes customary representations and warranties, affirmative and negative covenants, financial covenants and certain other amendments, including, without limitation,
28
On February 13, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 90 days after the period end.
On March 31, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 120 days after the period end.
On May 9, 2023, we amended the Second A&R Loan and Security Agreement to revise the definition and calculation of certain financial covenants as of March 31, 2023. The amendment revised the definition of Adjusted EBITDA (as defined in the Second A&R Loan and Security Agreement) as utilized in the fixed charge coverage ratio calculation to allow certain addbacks to Adjusted EBITDA. Due to the amendment, at March 31, 2023, the Company believes it is in compliance with the covenants contained in the Second A&R Loan and Security Agreement.
On October 12, 2023, the Company entered into a fourth amendment to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”) by and among the Company, the Borrowers, the Lenders party thereto, and Agent. The Fourth Amendment, among other things:
As a result, as of the date hereof, the Company has received a waiver for certain events of default and is in compliance with its covenants contained in the Second A&R Loan and Security Agreement.
The effective interest rate under the revolving facility was
Maturities of Long-Term and Other Short-Term Borrowings
Maturities of long-term and other short-term borrowings for succeeding years are as follows:
Remaining 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
29
12. Stockholders' Equity (as restated)
Common Stock
We had reserved shares of stock, on an as-if converted basis, for issuance as follows:
|
|
December 31, 2022 |
|
|
June 30, 2022 |
|
||
Warrants |
|
|
|
|
|
|
||
Earnout shares |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Warrants
At December 31, 2022, there were
The Public Warrants are exercisable commencing on August 11, 2021 and expire
At December 31, 2022, there were
Earnout Shares
In connection with the closing of the business combination between Bespoke Capital Acquisition Corp. and Vintage Wine Estates, Inc., a California corporation (“VWE Legacy”) pursuant to a transaction agreement dated February 3, 2021, as amended, certain shareholders of shareholders of VWE Legacy are entitled to receive up to an additional
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, $
Meier's Earnout Shares
In connection with the closing of the Meier's business combination with Paul T. Lux Irrevocable Trust pursuant to a merger agreement dated January 18, 2022, Mr. Lux is entitled to receive up to an additional $
2021 Stock Incentive Plan
Effective June 7, 2021, the Company adopted the 2021 Omnibus Incentive Plan (as amended, the "2021 Plan”). The 2021 Plan provides for the issuance of stock options, stock appreciation rights, performance shares, performance units, stock, restricted stock, restricted stock units and cash incentive awards. The 2021 Plan was approved by shareholders at the Annual Meeting of Shareholders on February 2, 2022.
The following table provides total stock-based compensation expense by award type:
30
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in thousands) |
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
||||
|
|
As Restated |
|
|
|
|
|
As Restated |
|
|
|
|
||||
Stock option awards |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||
Restricted stock units |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Total stock-based compensation |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||
Stock-based compensation expense is included as a component of selling, general and administrative expenses in the condensed consolidated statement of operations.
Stock Options
Stock options granted under the 2021 Plan are subject to market conditions. The stock options are exercisable for
The following table presents a summary of stock option activity under the 2021 Plan:
|
|
Stock Options |
|
|
Weighted-Average Exercise Price |
|
|
Weighted-Average Remaining Contractual Life (Years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
- |
|
|||
Total unrecognized compensation expense related to the stock options was $
Restricted Stock Units
Restricted stock units are subject only to service conditions and vest in four equal installments of
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, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited or cancelled |
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
||
Total unrecognized compensation expense related to the restricted stock units was $
During the three months ended December 31, 2022,
31
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 $
For accounting purposes, common stock and/or warrants repurchased under our repurchase plan were recorded based upon the settlement date of the applicable trade. Such repurchased shares are presented using the cost method. During the three and six months ended December 31, 2022, the Company repurchased zero and
The table below summarizes the changes in repurchases of common stock and warrants:
|
|
Three Months Ended |
|
|
(in thousands) |
|
December 31, 2022 |
|
|
Balance at September 30, 2022 |
|
|
|
|
Repurchases of common stock |
|
|
- |
|
Repurchases of warrants |
|
|
|
|
Balance at December 31, 2022 |
|
|
|
|
|
|
Six Months Ended |
|
|
(in thousands) |
|
December 31, 2022 |
|
|
Balance at June 30, 2022 |
|
|
|
|
Repurchases of common stock |
|
|
- |
|
Repurchases of warrants |
|
|
|
|
Balance at December 31, 2022 |
|
|
|
|
13. Income Taxes (as restated)
For the three months ended December 31, 2022, the effective tax rate differs from the federal statutory rate of
For the six months ended December 31, 2022, the effective tax rate differs from the federal statutory rate of
14. Commitments and Contingent Liabilities and Litigation
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 material impact on the Company’s consolidated financial position or results of operations, the adjudication of such matters are subject to inherent uncertainties and management’s assessment may change depending on future events.
Litigation
On November 14, 2022, a purported securities class action lawsuit was filed in the U.S. District Court for the District of Nevada against the Company and certain current and former members of its management team. The lawsuit is captioned Ezzes v. Vintage Wine Estates, Inc., et al. (“Ezzes“), and alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by making material misstatements or omissions in certain of the Company's periodic reports filed with the SEC relating to, among other things, the Company’s business, operations, and prospects, including with respect to the Company’s inventory metrics and overhead burden. The lawsuit seeks an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On November 28, 2022, a second purported securities class action lawsuit, captioned Salbenblatt v. Vintage Wine Estates, Inc., et al. (“Salbenblatt”), was filed in the same court, containing similar claims and allegations, and seeking similar relief, as the Ezzes lawsuit. On February 14, 2023, the Court consolidated both actions and appointed the lead plaintiffs. The Salbenblatt action was transferred to and consolidated with the Ezzes action. On May 1, 2023, the lead plaintiffs filed a consolidated amended class action complaint (“amended complaint”). On June 30, 2023, the defendants filed a motion to dismiss the amended complaint. The motion to dismiss was fully briefed on September 25, 2023, and is pending. The Company believes this litigation is without merit and intends to defend against them vigorously. However, litigation is inherently uncertain, and the Company is unable to predict the outcome of this litigation and is unable to estimate the range of loss, if any, that could result from an unfavorable outcome. The Company also cannot provide any assurance that the ultimate resolution of this litigation will not have a material adverse effect on our reputation, business, prospects, results of operations or financial condition.
32
The Company is involved in two disputes relating to an Asset Purchase Agreement (“APA”) and a related Non-Compete Agreement/Non-Solicitation Agreement (the “Non-Compete Agreement”) from a 2018 acquisition. Claimant has alleged that the Company did not make certain earnout payments allegedly due under the APA and has alleged that the Company misused alleged rights of publicity with respect to the brands in violation of the Non-Compete Agreement. On or about August 30, 2023, Claimants served a demand for arbitration on the Company. At present, Claimants collectively have not quantified the total amount of their alleged damages for all claims; however based on information provided by Claimants, the Company would anticipate that any claim of damages would likely be at least approximately $
From time to time, the Company may become subject to other legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
Indemnification Agreements
In the ordinary course of business, we may provide indemnification of varying scope and terms to vendors, lessors, customers and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. These indemnities include indemnities to our directors and officers to the maximum extent permitted under applicable state laws. The maximum potential amount of future payments we could be required to make under these indemnification agreements is, in many cases, unlimited. Historically, we have not incurred any significant costs as a result of such indemnifications.
Other Commitments
Contracts exist with various growers and certain wineries to supply a significant portion of our future grape and wine requirements. Contract amounts are subject to change based upon actual vineyard yields, grape quality and changes in grape prices.
(in thousands) |
|
Total |
|
|
Remaining 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
|
|
$ |
|
|
Grape and bulk wine purchases under contracts totaled $
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 $
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 December 31, 2022 and 2021, payments related to sponsorship and marketing services totaled $
The Company has a revenue sharing agreement with Sonoma Brands Partners II, LLC where a portion of B.R. Cohn and Clos Pegase sales during various events throughout the year go to Sonoma Brands Partners II, LLC. Sonoma Brands Partners II, LLC is managed by a member of the Company's board of directors. For the six months ended December 31, 2022 and 2021, payments to Sonoma Brands Partners II, LLC totaled $
The Company has a contract with Bin-to-bottle, a storage and bottling company owned by Patrick Roney, for storage purposes. The expenses incurred for storage were immaterial for the years ended June 30, 2023 and 2022.
Financial Advisory Agreement
In April 2022, the Company entered into an arrangement with Global Leisure Partners LLC ("GLP") to act as a financial advisor to the Company in connection with its exploration of acquisitions, mergers, investments and other strategic matters. A director of the Company having the authority to
33
establish policies and make decisions is an executive of GLP. Although members of the board of directors are typically independent from management, members of the board of directors would be considered management based on the definition of management in ASC 850, Related Party Disclosures. Payments to GLP in respect of capital markets and mergers and acquisitions matters totaled $
16. Segments (as restated)
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM, or decision-making group, in deciding how to allocate resources and in assessing performance. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Our operations are principally managed on a sales distribution basis and are comprised of three reportable segments: Wholesale; Direct-to-Consumer; and Business-to-Business. The factors for determining the reportable segments include the manner in which management evaluates performance for purposes for allocating resources and assessing performance.
We report our segments as follows:
Wholesale -- We sell our wine, spirits and cider to wholesale distributors under purchase orders. Wholesale operations generate revenue from product sold to distributors, who then sell them off to off-premise retail locations such as grocery stores, wine clubs, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars.
Direct-to-Consumer ("DTC") -- 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 ("B2B") -- Our Business-to-Business sales channel generates revenue primarily from the sale of private label wines and spirits, and custom winemaking services. Annually, we work with our national retail partners to develop private label wines incremental to their wholesale channel businesses.
Other -- Other is included in the tables below for purposes of reconciliation of revenues and profit but is not considered a reportable segment. In 2022, it included revenue from grape and bulk wine sales and storage services. In 2023 and going forward, these immaterial revenues are recorded in the B2B segment. We record corporate level expenses, non-direct selling expenses and other expenses not specifically allocated to the results of operations in Other.
The following tables present net revenue and income from operations directly attributable to the Company's segments:
|
|
Three Months Ended December 31, 2022 |
|
|||||||||||||||||
(in thousands) |
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
|||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Three Months Ended December 31, 2021 |
|
|||||||||||||||||
(in thousands) |
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
|||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Income (loss) from operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
Six Months Ended December 31, 2022 |
|
|||||||||||||||||
(in thousands) |
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
|||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Income (loss) from operations |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
34
|
|
Six Months Ended December 31, 2021 |
|
|||||||||||||||||
(in thousands) |
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
|||||
Segment Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Income (loss) from operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
There was no inter-segment activity for any of the given reporting periods presented.
Depreciation expense recognized by operating segment is summarized below:
(in thousands) |
|
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
||||||
For the three months ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2022 |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
2021 |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
(in thousands) |
|
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
||||||
For the six months ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2022 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
2021 |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Amortization expense recognized by operating segment is summarized below:
(in thousands) |
|
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
||||||
For the three months ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2022 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
2021 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||
(in thousands) |
|
|
Wholesale |
|
|
Direct-to-Consumer |
|
|
Business-to-Business |
|
|
Other |
|
|
Total |
|
||||||
For the six months ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
2022 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
2021 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|||||
35
17. Earnings Per Share (as restated)
The following table reconciles the number of common shares used to compute basic and diluted earnings per share attributable to Vintage Wine Estates, Inc., shareholders:
|
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
(in thousands, except for per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Less: loss allocable to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (loss) income allocable to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator – Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income allocable to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net (loss) income allocated to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator – Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income allocated to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net (loss) income allocated to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator – Basic Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator – Diluted Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares - Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common Shares |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net (loss) income per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common Shares |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
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 December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Shares subject to warrants to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares subject to options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
18. Subsequent Events (as restated)
On January 17, 2023, a member of the executive team resigned from the company. Along with the resignation, all outstanding stock options and unvested restricted stock units previously granted to this executive under the Company's 2021 Plan ceased to vest and any unvested awards were forfeited. The Company recognized a reduction to stock-based compensation expense related to these forfeitures in the amount of $
On January 19, 2023, the Company amended its interest rate swap agreements with Bank of the West effective January 15, 2023, which had floating rates tied to LIBOR prior to the effective date, to align the floating rates to SOFR in accordance with the Company's Second A&R Loan and Security Agreement.
On February 7, 2023, the Company and Patrick Roney, founder of VWE, entered into a letter agreement (the “Letter Agreement”) whereby Mr. Roney voluntarily elected to transition from Chief Executive Officer of the Company to Executive Chairman of the Board, effective February 7, 2023. Pursuant to the terms of the Letter Agreement, the Employment Agreement between the Company and Mr. Roney effective June 7, 2021 (the “Prior Employment Agreement”) was terminated and upon such termination the Company agreed to provide Mr. Roney his accrued but unpaid Base Salary and PTO (as defined in the Prior Employment Agreement) through February 7, 2023, and any vested amounts or benefits that he is entitled to receive under any plan, program, or policy, as described in Section 5.1 of the Prior Employment Agreement. Mr. Roney expressly waived any claim to the severance benefits described in Section 5.2(b) of the Prior Employment Agreement. Pursuant to the terms of the Letter Agreement, Mr. Roney
36
will receive an annual base salary of $
Also on February 7, 2023, the Board appointed Jon Moramarco, a member of the Board, as the Company’s Interim Chief Executive Officer. In connection with such appointment, the Company entered into a consulting agreement (the “Consulting Agreement”) with bw166 LLC (“bw166”) and Mr. Moramarco, pursuant to which the Company will pay bw166 a monthly fee of $
On February 13, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 90 days after the period end.
On March 1, 2023, the Company laid off certain employees in order to cut costs and reduce redundancies in the workforce. Our expected cost savings, after taking into consideration employee termination costs of approximately $
On March 2, 2023, the Company sold the Tenma vineyard, which was held for sale as of December 31, 2022, for net cash proceeds of approximately $
On March 13, 2023, the Company exited its interest rate swap agreements with City National Bank resulting in a net cash inflow of approximately $
On March 31, 2023, the Company entered into a lease agreement to lease a building to a third-party beginning on April 1, 2023 for an initial term of
Concurrently with the lease on March 31, 2023, the Company sold certain equipment held at the leased premises for total consideration of $
On March 31, 2023, we amended the Second A&R Loan and Security Agreement to revise the deadline for submitting our December 31, 2022 consolidated financial statements to 120 days after the period end.
On May 9, 2023, the Company entered into an amendment to its Second A&R Loan and Security Agreement that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023.
On October 12, 2023, the Company entered into a fourth amendment to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”) by and among the Company, the Borrowers, the Lenders party thereto, and Agent. The Fourth Amendment, among other things:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
37
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, 2022 (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 Financial Statements
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been amended and restated to give effect to the restatement of our financial statements, as more fully described in Note 2 to our financial statements entitled “Restatement. Reclassification and Revision of Previously Issued Condensed Consolidated Financial Statements.” For further detail regarding the restatement, see the “Explanatory Note” to this Quarterly Report on Form 10-Q/A.
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 14th largest wine producer based on cases of wine shipped in California.
Growth Strategy
Our strategy is to continue to grow organically by leveraging our omnichannel sales capabilities and through select acquisitions that enhance our wine portfolio and expand our offerings through all three business segments for our customers. Acquisitions have enabled 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. We are also focused on improving profitability and driving cash generation by eliminating less profitable brands, exiting lower margin businesses, addressing wine making, warehousing and production efficiencies, simplifying our go-to-market strategy and monetizing select assets.
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected our operating results, including:
Economic Uncertainties
Inflation and supply chain constraints, as well as the ongoing COVID-19 pandemic ("COVID-19"), continue to disrupt the U.S. and global economies and there remains uncertainty about their impact on the economy. We cannot estimate with any certainty the length or severity of the economic uncertainties or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position, results of operations or cash flows.
Management expects economic uncertainties including inflation and supply chain constraints to continue to impact financial metrics for several areas of the business including sales, cost of goods, operating expenses and cash flow.
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 (which has now closed), Italy and Poland. While the Company has not been impacted directly by supply chain disruptions as a result of the invasion, risks remain to the Company’s business including potential cybersecurity risks and other indirect operational or supply chain challenges, and the competition to secure wine bottle capsules has increased from suppliers due to the closing of the plant of the Company’s Italian supplier in Ukraine.
Weather Conditions
Our ability to fulfill the demand for wine is restricted by the availability of grapes. Climate change, agricultural and other factors, such as wildfires, disease, pests, extreme weather conditions, water scarcity, biodiversity loss and competing land use, impact the quality and quantity of grapes available to us for the production of wine from year to year. Our vineyards and properties, as well as other sources from which we purchase grapes, are affected by these factors. For example, the effects of abnormally high rainfall or drought in a given year may impact production of grapes, which can impact both our revenue and costs from year to year.
38
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.
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 revenue and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during our second fiscal quarter (October through December) due to usual timing of seasonal holiday buying, as well as wine club shipments. We expect these trends to continue.
Key Measures to Assess the Performance of our Business
We consider a variety of financial and operating measures in assessing the performance of our business, formulating goals and objectives and making strategic decisions. The key GAAP measures we consider are net revenue; gross profit; selling, general and administrative expenses; and income from operations. The key non-GAAP measures we consider are Adjusted EBITDA and Adjusted EBITDA Margin. We also monitor our case volume sold from our distributors to retailers to help us forecast and identify trends affecting our growth.
Net Revenue
We generate revenue from our segments: Wholesale, Business-to-Business ("B2B") and Direct-to-Consumer ("DTC"). We recognize revenue from sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, at which point title passes to the customer and control of the promised product or service is transferred to the customer. Our standard terms are free on board, or FOB, shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. We recognize revenue net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return, unless the product is spoiled or damaged. Historically, returns have not been significant to us.
Gross Profit
Gross profit is equal to net revenue less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, and physical inventory adjustments, as well as inbound and outbound freight and import duties.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses arising from activities in selling, marketing, warehousing, and administrative expenses. Other than variable compensation, selling, general and administrative expenses are generally not directly proportional to net revenue, but are expected to increase over time to support the needs of the Company.
Income from Operations
Income from operations is gross profit less selling, general and administrative expenses; impairment losses on goodwill and intangible assets; acquisition and restructuring related expense or income and amortization of intangible assets. Income from operations excludes interest expense, income tax expense, and other expenses, net. We use income from operations as well as other indicators as a measure of the profitability of our business.
Case Volumes
In addition to acquisitions, 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 represents the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volumes for our DTC and Wholesale segments are an important indicator for us to determine what is driving gross margin, although our B2B segment sales are not related to case volumes. This metric also allows us to develop our supply and production targets for future periods for our DTC and Wholesale segments.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we use 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, and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenue.
39
Results of Operations (as restated)
Our financial performance is classified into the following segments: Wholesale, B2B, and DTC. Our corporate operations, including centralized selling, general and administrative expenses are not allocated to the segments, as management does not believe such items directly reflect our core operations. However, we allocate re-measurements of contingent consideration and impairment of goodwill and intangible assets to our segments. Other than our long-term property, plant and equipment for wine tasting facilities, and customer lists, trademarks and trade names specific to acquired companies, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as the results of any such measures that had a significant impact on operating results are already included in the consolidated results discussion above.
We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.
Three Months Ended December 31, 2022 Compared with Three Months Ended December 31, 2021
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
|
|
Three Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
23,083 |
|
|
$ |
22,171 |
|
|
$ |
912 |
|
|
4.1% |
Income (loss) from operations |
|
$ |
(126,896 |
) |
|
$ |
4,204 |
|
|
$ |
(131,100 |
) |
|
-3,118.5% |
Wholesale net revenue increased $0.9 million, or 4.1%, from the three months ended December 31, 2021. The increase was primarily attributable to acquired revenue of $1.3 million, partially offset by a $0.4 million decline in international sales.
Wholesale loss from operations was $126.9 million, a $131.1 million, or 3,118.5%, decline from income from operations in the prior-year period. The loss was primarily attributable to non-cash goodwill and intangible assets impairments of $116.3 million and $10.3 million, respectively. Also impacting the loss from operations was a $1.5 million increase in the fair value of contingent consideration related to the acquisition of ACE Cider and a $3.6 million increase in cost of revenue resulting from inflation and supply chain challenges, increased headcount as well as higher labor costs.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
|
Three Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
28,814 |
|
|
$ |
25,225 |
|
|
$ |
3,589 |
|
|
14.2% |
Income (loss) from operations |
|
$ |
(1,167 |
) |
|
$ |
7,255 |
|
|
$ |
(8,422 |
) |
|
-116.1% |
B2B net revenue increased $3.6 million, or 14.2%, from the three months ended December 31, 2021. Growth was driven by $3.5 million in acquired revenue, increased custom production volumes and the timing of bulk distilled alcohol sales. These increases were partially offset by a decrease in private label revenue due to discontinued programs.
B2B income from operations decreased $8.4 million, or 116.1%, from the three months ended December 31, 2021 due to higher costs related to contract winemaking and bottling, as well as goodwill and intangible non-cash assets impairments of $9.0 million and $0.1 million, respectively. These costs were partially offset by a $4.9 million gain on remeasurement of contingent consideration related to the acquisition of Meier's and higher volume.
40
DTC Segment Results
The following table presents summary financial data for our DTC segment:
|
|
Three Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
26,472 |
|
|
$ |
34,806 |
|
|
$ |
(8,334 |
) |
|
-23.9% |
Income from operations |
|
$ |
1,424 |
|
|
$ |
10,523 |
|
|
$ |
(9,099 |
) |
|
-86.5% |
DTC net revenue decreased $8.3 million, or 23.9%, from the three months ended December 31, 2021, driven by programming changes for a major television retailer and softening consumer discretionary spending, although tasting room activity remained steady.
DTC income from operations decreased $9.1 million, or 86.5%, from the three months ended December 31, 2021, primarily as a result of $2.2 million in non-cash intangible assets impairment as well as increased freight costs not covered by customer/retail pricing, higher overhead burden, a $1.3 million increase in amortization expense related to acquisitions and an incremental operating loss from acquisitions of $0.3 million.
Six Months Ended December 31, 2022 Compared with Six Months Ended December 31, 2021
Wholesale Segment Results
The following table presents summary financial data for our Wholesale segment:
|
|
Six Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
47,070 |
|
|
$ |
38,374 |
|
|
$ |
8,696 |
|
|
22.7% |
Income (loss) from operations |
|
$ |
(124,608 |
) |
|
$ |
7,245 |
|
|
$ |
(131,853 |
) |
|
-1,819.9% |
Wholesale net revenue increased $8.7 million, or 22.7%, reflecting an increase in ACE Cider revenue totaling $8.3 million.
Wholesale income from operations decreased $131.9 million, or 1,819.9%, from the six months ended December 31, 2021. The decrease was primarily the result of $116.3 million and $10.3 million goodwill and intangible assets impairments, respectively. Also increasing costs were a $2.3 million increase in the fair value of contingent consideration, as well as higher costs due to inflation and supply chain challenges, $3.5 million in incremental overhead burden, and an incremental operating loss of $1.0 million related to acquisitions.
B2B Segment Results
The following table presents summary financial data for our B2B segment:
|
|
Six Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
62,994 |
|
|
$ |
49,692 |
|
|
$ |
13,302 |
|
|
26.8% |
Income from operations |
|
$ |
9,366 |
|
|
$ |
13,484 |
|
|
$ |
(4,118 |
) |
|
-30.5% |
B2B net revenue increased $13.3 million, or 26.8%, from the six months ended December 31, 2021. The increase reflected increased custom production and distilled bulk spirits sales as well as $8.1 million of acquired revenue. These improvements were offset by lower private label sales due to discontinued programs.
B2B income from operations decreased $4.1 million, or 30.5%, from the six months ended December 31, 2021. The decrease was attributable to goodwill and intangible assets impairments of $9.0 million and $0.1 million, respectively, as well as to higher freight and other costs not covered by contractual billings, partially offset by a $4.9 million gain on remeasurement of contingent consideration related to the acquisition of Meier's, improved margin on bulk distilled alcohol sales and $0.1 million contribution from acquisitions.
DTC Segment Results
The following table presents summary financial data for our DTC segment:
|
|
Six Months Ended December 31, |
|
|
Dollar |
|
|
Percent |
||||||
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|||
Net revenue |
|
$ |
46,464 |
|
|
$ |
50,069 |
|
|
$ |
(3,605 |
) |
|
-7.2% |
Income from operations |
|
$ |
3,393 |
|
|
$ |
12,554 |
|
|
$ |
(9,161 |
) |
|
-73.0% |
41
DTC net revenue declined $3.6 million, or 7.2%, from the six months ended December 31, 2021. Acquired revenue of $3.0 million was offset by programming changes for a major television retailer and softening consumer discretionary spending.
DTC income from operations decreased $9.2 million, or 73.0%, from the six months ended December 31, 2021. The decrease was primarily attributable to $2.2 million of intangible assets impairments, increased costs of inventory as well as higher costs of $1.7 million in freight, $0.7 million in catalog and mailing expenses, $0.4 million of media advertising costs and $0.3 million additional consulting fees of $1.5 million amortization from customer lists.
Case Volumes
The following tables summarize 9-liter equivalent cases by segment:
|
|
Three Months Ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Unit Change |
|
|
% Change |
|
||||
Wholesale |
|
|
453 |
|
|
|
379 |
|
|
|
74 |
|
|
|
19.5 |
% |
B2B |
|
* |
|
|
* |
|
|
* |
|
|
* |
|
||||
DTC |
|
|
125 |
|
|
|
160 |
|
|
-35 |
|
|
|
-21.9 |
% |
|
Total case volume |
|
|
578 |
|
|
|
539 |
|
|
|
39 |
|
|
|
7.2 |
% |
The decrease in DTC volumes was primarily driven by reduced volumes for a customers' televised sales program.
|
|
Six Months Ended December 31, |
|
|
|
|
|
|
|
|||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Unit Change |
|
|
% Change |
|
||||
Wholesale |
|
|
992 |
|
|
|
588 |
|
|
|
404 |
|
|
|
68.7 |
% |
B2B |
|
* |
|
|
* |
|
|
* |
|
|
* |
|
||||
DTC |
|
|
224 |
|
|
|
220 |
|
|
4 |
|
|
|
1.8 |
% |
|
Total case volume |
|
|
1,216 |
|
|
|
808 |
|
|
|
408 |
|
|
|
50.5 |
% |
The increase in case volumes was primarily due to our wholesale segment, driven by the ACE Cider acquisition that ships higher case volumes of lower priced product.
*B2B segment sales are not primarily related to case volumes, therefore the Company has elected to not report case volumes for this segment as it would not be indicative of the underlying performance of the business.
Non-GAAP Financial Measures (as restated)
The following is a reconciliation of net income (loss) to Adjusted EBITDA and net (loss) income margin to Adjusted EBITDA margin for the periods presented:
|
|
Three Months Ended December 31 |
|
|
Six Months Ended December 31 |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net (loss) income |
|
$ |
(130,182 |
) |
|
$ |
6,688 |
|
|
$ |
(128,824 |
) |
|
$ |
7,456 |
|
Interest expense |
|
|
5,650 |
|
|
|
3,493 |
|
|
|
9,031 |
|
|
|
7,096 |
|
Income tax provision |
|
|
(23,652 |
) |
|
|
2,572 |
|
|
|
(22,178 |
) |
|
|
3,021 |
|
Depreciation |
|
|
3,860 |
|
|
|
4,083 |
|
|
|
7,856 |
|
|
|
5,585 |
|
Amortization |
|
|
1,805 |
|
|
|
1,204 |
|
|
|
3,616 |
|
|
|
1,855 |
|
Stock-based compensation expense |
|
|
3,250 |
|
|
|
- |
|
|
|
6,690 |
|
|
|
- |
|
Net unrealized gain on interest rate swap agreements |
|
|
839 |
|
|
|
(3,347 |
) |
|
|
(8,488 |
) |
|
|
(4,919 |
) |
Goodwill and intangible asset impairment losses |
|
|
137,928 |
|
|
|
- |
|
|
|
137,928 |
|
|
|
- |
|
Loss on disposition of assets |
|
|
4,430 |
|
|
|
82 |
|
|
|
4,430 |
|
|
|
76 |
|
Deferred rent adjustment |
|
|
- |
|
|
|
110 |
|
|
|
- |
|
|
|
238 |
|
Gain on litigation proceeds |
|
|
- |
|
|
|
- |
|
|
|
(530 |
) |
|
|
- |
|
Adjusted EBITDA |
|
$ |
3,928 |
|
|
$ |
14,885 |
|
|
$ |
9,531 |
|
|
$ |
20,408 |
|
Revenue |
|
$ |
78,401 |
|
|
$ |
83,611 |
|
|
$ |
156,481 |
|
|
$ |
139,646 |
|
Net (loss) income margin |
|
|
-166.0 |
% |
|
|
8.0 |
% |
|
|
-82.3 |
% |
|
|
5.3 |
% |
Adjusted EBITDA margin |
|
|
5.0 |
% |
|
|
17.8 |
% |
|
|
6.1 |
% |
|
|
14.6 |
% |
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. See Note 7, Goodwill and Intangible Assets, in Item 1, Financial Statements, for details related to our December 31, 2022 impairment testing.
42
Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA and Adjusted EBITDA margin, which are not prepared in accordance with GAAP, should not be construed as an indicator of our operating performance in isolation from, or as a substitute for, respectively, net (loss) income or net (loss) income margin (defined as net (loss) income divided by revenue), which are indicators prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by these items.
Liquidity and Capital Resources (as restated)
We are implementing our Five-Point Plan which we believe will enable us to drive stronger earnings power, provide a sustainable foundation for future growth and allow us to continue as a leading vintner with a strong portfolio of affordable luxury brands by focusing on the plan's five priorities: (1) margin expansion, (2) cost reduction, (3) cash management, (4) monetizing assets, and (5) revenue growth. In 2024, our priorities under our Five-Point Plan are to deliver profitability, generate cash, and reduce debt. In order to meet these objectives our near-term goals are to simplify the business, reduce costs, improve production throughout our operations, focus on key brands, and pay down debt through the monetization of assets and reducing costs, among other things.
Debt
On December 13, 2022, we entered into a Second Amended and Restated Loan and Security Agreement (the “Second A&R Loan and Security Agreement”), which provides credit facilities totaling up to $458.4 million. These credit facilities consist of: (i) a term loan facility of $156.5 million maturing on December 13, 2027,(the “Term Loan Facility”), (ii) an accounts receivable and inventory revolving facility of $229.7 million (with a letter of credit sub-facility in the aggregate availability amount of $20.0 million maturing on December 13, 2027,(the “Revolving Facility”), (iii) an equipment loan facility of $4.2 million maturing on December 31, 2026, (the “Equipment Loan”), (iv) a capital expenditure facility of $15.2 million maturing on June 30, 2027 (the “Capex Facility”) and (v) a delayed draw term loan facility of $52.9 million maturing on December 13, 2027, (the “DDTL Facility”, and, together with the Term Loan Facility, the Revolving Facility, the Equipment Loan and the Capex Facility, the “Credit Facilities”). Outstanding balances under the Credit Facilities will bear interest at the rates specified in the Second A&R Loan and Security Agreement, which vary based on the type of Credit Facility and certain other conditions. Interest payments on the outstanding balances under any of the Credit Facilities will be due monthly, quarterly or bi-annually depending on the interest period selected by the Company. Principal payments, as specified in the Second A&R Loan and Security Agreement, will be due quarterly on all the Credit Facilities except for the Revolving Facility which is due at maturity.
The Second A&R Loan and Security Agreement contains customary representations and warranties, affirmative and negative covenants, including, among others, (i) a financial covenant with respect to a maximum debt to capitalization ratio of 0.60:1.00 through December 31, 2023, and stepping down to 0.575:1.00 for each quarter until March 31, 2024 and 0.55:1.00 for each quarter until December 31, 2024 and thereafter and (ii) a minimum fixed charge coverage ratio (based on trailing twelve-month EBITDA adjusted for capital expenditures, taxes and certain other items) of 1.10:1.00 measured on a rolling four quarter basis, provided that the minimum capital expenditure amount for purposes of calculating the fixed charge coverage ratio will increase by $175,000 per quarter until it reaches $1.5 million.
On May 9, 2023, we entered into an amendment to its Second A&R Loan and Security Agreement (defined in Note 11) that adjusted the definition of certain financial covenants for the quarter ended March 31, 2023. As a result, the definition of Adjusted EBITDA (as defined in the Second A&R Loan and Security Agreement) as utilized in the fixed charge coverage ratio was modified to allow certain addbacks to Adjusted EBITDA. As a result, at March 31, 2023, we believe we will be in compliance with the covenants contained in the Second A&R Loan and Security Agreement. Refer to Note 11– Long-Term and Other Short-Term Obligations, of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q/A) for further discussion.
On October 12, 2023, the Company entered into a fourth amendment to the Second Amended and Restated Loan and Security Agreement (the “Fourth Amendment”) by and among the Company, the Borrowers, the Lenders party thereto, and Agent. The Fourth Amendment, among other things: (i) waives certain existing events of default relating to the Company’s failure to comply with the financial covenants and financial reporting requirements set forth in the Credit Agreement for prior fiscal periods; (ii) reduces the aggregate revolving commitment and the aggregate delayed draw term loan commitment to $200,000,000 and $38,100,000, respectively; (iii) replaces the maximum debt to capitalization financial covenant with a minimum adjusted EBITDA financial covenant of not less than (1) $4,000,000 for the fiscal quarter ending September 30, 2023, (2) $17,000,000 for the two fiscal quarter period ending December 31, 2023, (3) $27,000,000 for the three fiscal quarter period ending March 31, 2024, (4) $34,000,000 for the four fiscal quarter period ending June 30, 2024, and (5) $35,000,000 for each four fiscal quarter period ending thereafter; (iv) adds a minimum liquidity covenant of $25,000,000 (or, for fiscal quarters ending in December, $15,000,000), which applies only for the fiscal quarters ending September 30, 2023 through and including December 31, 2024 (the “Covenant Modification Period”); (v) suspends the minimum fixed charge coverage ratio covenant for the fiscal quarters ending September 30, 2023 through and including June 30, 2024 and provides for a step-down of the minimum fixed charge coverage ratio to 1.00:1.00 for the remainder of the Covenant Modification Period; (vi) adds an equity cure right for the Company in the event of future breaches of the financial covenants; (vii) reduces revolver availability by (1) $15,000,000 during the months of February through September of each year and (2)
43
$10,000,000 during the months of October through January of each year; (viii) suspends the exercise of incremental facilities during the Covenant Modification Period; (ix) restricts all permitted acquisitions during the term of the credit facilities, unless previously approved by the required Lenders; (x) increases in the applicable margin for all credit facilities to 3.00% for SOFR Loans and 2.00% for ABR Loans, which margins will step-up further if certain prepayments of the Term Loans are not made by certain dates prescribed in the Amendment; (xi) adds additional mandatory prepayments of (1) $10,000,000 by no later than March 31, 2024, (2) an additional $10,000,000 by no later than June 30, 2024 and (3) an additional $25,000,000 by no later than December 31, 2024; (xii) adds additional mandatory prepayments in the event that the Borrowers maintain a cash balance in excess of $20,000,000; (xiii) permits additional sales of certain real property with an aggregate appraised value of approximately $60,000,000, in addition to related personal property assets; and (xiv) adds certain additional reporting requirements to Agent and the Lenders.
As a result, as of the date hereof, the Company has received a waiver for certain events of default and is in compliance with its covenants contained in the Second A&R Loan and Security Agreement. Refer to Note 11– Long-Term and Other Short-Term Obligations, of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q/A) for further discussion.
The Company anticipates using any of the proceeds of the credit facilities for working capital and general corporate purposes, purchases of real estate (including vineyards) and equipment and paying down outstanding balances on the credit facilities.
Cash and Cash Equivalents
Our cash and cash equivalents balance was $41.7 million at December 31, 2022 compared with $44.8 million at June 30, 2022, exclusive of restricted cash. At December 31, 2022, our cash and cash equivalents were held in cash depository accounts with major banks.
Cash Flows (as restated)
The table below presents a summary of our sources and uses of cash:
|
|
Six Months Ended December 31, |
|
|
|
|
||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Operating activities |
|
$ |
1,050 |
|
|
$ |
(5,623 |
) |
|
$ |
6,673 |
|
Investing activities |
|
$ |
380 |
|
|
$ |
(73,040 |
) |
|
$ |
73,420 |
|
Financing activities |
|
$ |
(9,295 |
) |
|
$ |
36,729 |
|
|
$ |
(46,024 |
) |
The cash flows related to held for sale assets have not been segregated and remain included in the major classes of assets.
Cash Flows provided by (used in) Operating Activities
Net cash provided by operating activities increased $6.7 million to $1.1 million for the six months ended December 31, 2022 compared with net cash used in operating activities $5.6 million for the prior-year period. The increase was the result of the $126.0 million in non-cash adjustments offsetting the loss in net income combined with improvements in receivables and payables.
Cash Flows provided by (used in) Investing Activities
Net cash used in investing activities decreased $73.4 million to $0.4 million for the six months ended December 31, 2022, compared with net cash used in investing activities of $73.0 million for the prior-year period. While cash flows from investing activities are utilized primarily to fund acquisitions, capital expenditures for improvements to existing assets and other corporate assets, net cash provided from investing activities for the six months ended December 31, 2022, reflected $8.7 million of proceeds from the sale of land and related vineyards which offset capital expenditures. Cash used in investing activities in the prior-year period included $61.8 million for acquisitions.
Cash Flows provided by (used in) Financing Activities
Net cash used in financing activities was $9.3 million for the six months ended December 31, 2022 and reflected the refinancing of our line of credit and long-term debt and related costs. In the prior-year period, net cash provided by financing activities was $36.7 million.
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 December 31, 2022, the Company had no off-balance sheet arrangements.
Significant Accounting Policies
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and
44
judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. For a description of our critical accounting policies, refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. As a result of adopting ASC 842 effective July 1, 2022, there have been material changes to our lease accounting policies during the six months ended December 31, 2022, that are described in Note 1 to our condensed consolidated financial statements included in Part I, Item I of this Form 10-Q.
Goodwill and Intangible Assets
The aggregate carrying amount of goodwill is $29.7 million as of December 31, 2022. Our intangible assets had an aggregate carrying amount of $47.0 million as of December 31, 2022.
We test our goodwill and indefinite-life intangible assets for impairment annually, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or indefinite-life intangible asset is less than its carrying amount. Such events and circumstances could include a sustained decrease in our market capitalization, increased competition or unexpected loss of market share, increased input costs beyond projections (for example due to regulatory or industry changes), disposals of significant brands or components of our business, unexpected business disruptions (for example due to a natural disaster or loss of a customer, supplier, or other significant business relationship), unexpected significant declines in operating results, or significant adverse changes in the markets in which we operate. We test our reporting units for impairment by comparing the estimated fair value of each reporting unit to its carrying amount. We test indefinite-life intangible assets for impairment by comparing the estimated fair value of each indefinite-life intangible asset to its carrying amount. If the carrying amount of a reporting unit or indefinite-life intangible asset exceeds its estimated fair value, we record an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed the associated carrying amount.
The Company has three operating segments: Wholesale, Direct-to-Consumer, and Business-to-Business. We determined these three operating segments do not have components for which discrete financial information is available. The lowest level at which discrete financial information is available is at the operating segment level. Additionally, the components within each of the operating segments have similar long-term average gross margins; similar products, similar (shared) production processes, similar types of customers and similar (shared) distribution methods. Therefore, we concluded that our reporting units used for purposes of the goodwill impairment analysis are the same as our reporting segments.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units and trademarks requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, change, or if management’s expectations or plans otherwise change, then one or more of our reporting units or intangible assets might become impaired in the future.
We generally utilize the discounted cash flow method under the income approach and the GPCM under the market approach to estimate the fair value of our reporting units. Some of the more significant assumptions used in estimating the fair values of the individual reporting units under both approaches include the estimated future annual net cash flows for each reporting unit (including net sales, cost of revenue, selling, general and administrative expenses, depreciation and amortization, working capital, and capital expenditures), income tax rates, long-term growth rates, and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, management’s plans, and guideline companies.
We generally utilize the relief from royalty method under the income approach to estimate the fair value of our indefinite-lived intangible assets associated with trade names and trademarks. Some of the more significant assumptions used in estimating the fair values of the individual reporting units under both approaches include the estimated future annual net sales for each trademark, royalty rates (as a percentage of net sales that would hypothetically be charged by a licensor of the brand to an unrelated licensee), income tax considerations, long-term growth rates, and a discount rate that reflects the level of risk associated with the future cost savings attributable to the indefinite-life intangible asset. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management’s plans, and guideline companies.
Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based on the facts and circumstances present at each annual and interim impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation.
Definite-lived intangible assets, which consist primarily of customer and Sommelier relationships, are amortized on a straight-line basis over the estimated periods benefited. We review definite-lived intangible assets for impairment when conditions exist that indicate the carrying amount of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of definite-lived intangible assets held for use, we group assets at the asset group level which is lowest level for which cash flows are separately identifiable. Our asset groups are the same as our reporting units. If an impairment is determined to exist, the impairment loss is calculated as the amount by which the carrying amount of the asset group exceeds its fair value.
45
See Note 7, Goodwill and Intangible Assets, in Item 1, Financial Statements, for details related to our December 31, 2022 impairment testing.
Recent Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 1, Basis of Presentation and Significant Accounting Policies in the notes to our unaudited condensed consolidated financial statements.
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q 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.
46
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Except as set forth below, 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.
Inflation
Several areas of the business continue to be impacted by inflation. We continually monitor the impact of inflation in an attempt to minimize its effects through pricing strategies and cost reductions. However, if our costs were to become subject to more significant inflationary pressures, we may not be able to fully offset such higher costs, particularly if inflationary pressures continue for a prolonged period. These matters could harm our business, results of operations or financial condition.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures (as restated)
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our interim Chief Executive Officer and Chief Financial Officer have concluded that, as a result of material weaknesses in our internal control over financial reporting as discussed below, our disclosure controls and procedures were not effective as of June 30, 2023. Management’s conclusion was based on discoveries and observations made during the 2022 and 2023 audits.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our principal executive and principal financial officers, conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2023, using criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that as a result of material weaknesses in our internal control over financial reporting and discussed below, our internal control over financial reporting was not effective as of June 30, 2023.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Material Weakness in Internal Control Over Financial Reporting (as restated)
The Company did not maintain an effective control environment based on the criteria established in the COSO framework, which resulted in a material weakness in the control environment. This material weakness consists of an overall lack of a sufficient control environment to produce materially correct financial statements, including a lack of U.S. GAAP expertise for the types of transactions we have been involved in which resulted in the restatement of the Company’s condensed consolidated financial statements as of and for the interim periods ended September 30, 2022, December 31, 2022, and March 31, 2023.
The material weakness in the control environment related to the following COSO components:
47
In addition, the material weakness in the control environment contributed to the following material weaknesses:
Management's Plan to Remediate the Material Weakness (as restated)
In October 2023 the Company engaged a globally recognized Assurance and Advisory firm to assist in remediation efforts including risk assessment and SOX framework evaluation, process design walkthroughs, key control identification, control gap and process improvement assessment, training, and control operating effectiveness testing. This firm will leverage the work the Company began performing in 2023, which included performing comprehensive process walkthroughs and designing and implementing additional controls and procedures to mitigate the risk of material misstatement.
Management continues to strengthen key functions throughout the organization including, but not limited to, the accounting and financial reporting teams. We have added and filled a new position effective July 2023, Director of Technical Accounting. This position will improve the Company’s ability to assess, conclude and implement new accounting pronouncements as well as other technical accounting matters. We have added new leadership positions in operations, Vice President of Supply Chain (July 2023) and Vice President of Production (October 2023). Additionally, we have added and filled Accounts Payable Manager and Treasury Manager positions. These positions will assist in focused control work, including improved cutoff and receiving procedures. In addition, we have augmented staffing needs with contractors to assist in performing and supporting day-to-day operations. The Company intends to continue to assess its staffing needs in order to continually implement process improvements and address any gaps in its internal control processes.
The Company has established a process to ensure account reconciliations are performed at least quarterly. Additional controls and procedures have been implemented to mitigate the risk of a material misstatement include the standardization of our monthly close checklists to facilitate timeliness of activities performed, the formalization of account reconciliation templates, the determination of the appropriate level of review for each account based on an assessment of risk and complexity, and the performance of additional account reconciliation training for relevant staff. Incremental accounting staff (both full time and contractor) were added throughout 2023 to assist in the completion of account reconciliations, including additional review support. During the financial close process for the fiscal year ended June 2023, we concluded that improvements were needed in the controls over the process for confirming and periodically updating management assumptions (e.g., redemption rates used to support liabilities and inventory turns used to absorb overhead costs to cost of goods sold related to custom production activities). Management is currently assessing all key inputs used in supporting account balances and implementing a process to reconfirm and/or reassess quarterly.
The Company has also updated and is in the process of reissuing its policy on Travel & Expense Reimbursement. Key process improvements include immediate elimination of manual travel and expense reimbursements, mandatory use of the travel & expense management system, systematic controls requiring receipt submission and manager approval workflow.
The Company has restructured the leadership team to better align with the business opportunities and created improved communications and collaboration.
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Part II—Other Information
Item 1. Legal Proceedings
On November 14, 2022, a purported securities class action lawsuit was filed in the U.S. District Court for the District of Nevada against the Company and certain current and former members of its management team. The lawsuit is captioned Ezzes v. Vintage Wine Estates, Inc., et al. (“Ezzes“), and alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by making material misstatements or omissions in certain of the Company's periodic reports filed with the SEC relating to, among other things, the Company’s business, operations, and prospects, including with respect to the Company’s inventory metrics and overhead burden. The lawsuit seeks an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On November 28, 2022, a second purported securities class action lawsuit, captioned Salbenblatt v. Vintage Wine Estates, Inc., et al. (“Salbenblatt”), was filed in the same court, containing similar claims and allegations, and seeking similar relief, as the Ezzes lawsuit. On February 14, 2023, the Court consolidated both actions and appointed the lead plaintiffs. The Salbenblatt action was transferred to and consolidated with the Ezzes action. On May 1, 2023, the lead plaintiffs filed a consolidated amended class action complaint (“amended complaint”). The defendants’ response to the amended complaint is due June 30, 2023. The Company believes this litigation is without merit and intends to defend against them vigorously. However, litigation is inherently uncertain, and the Company is unable to predict the outcome of this litigation and is unable to estimate the range of loss, if any, that could result from an unfavorable outcome. The Company also cannot provide any assurance that the ultimate resolution of this litigation will not have a material adverse effect on our reputation, business, prospects, results of operations or financial condition.
From time to time, the Company may become subject to other legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
Item 1A. Risk Factors
Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Number |
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Description of Exhibit |
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3.1 |
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3.2 |
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10.1 |
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10.2 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.* |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document.* |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document.* |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). * |
* |
Filed herewith. |
** |
Furnished herewith. |
† |
Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
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Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Vintage Wine Estates, Inc. |
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Date: October 13, 2023 |
By: |
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/s/ JON MORAMARCO |
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Name: |
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Jon Moramarco |
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Title: |
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Interim Chief Executive Officer |
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Date: October 13, 2023 |
By: |
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/s/ KRISTINA JOHNSTON |
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Name: |
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Kristina Johnston |
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Title: |
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Chief Financial Officer |
51