☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Washington | 91-1141254 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
929 North Russell Street | ||
Portland, Oregon | 97227-1733 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer ☐ |
Accelerated filer ☒ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
Securities Registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.005 par value | BREW | The NASDAQ Stock Market LLC |
Exhibit Number | Exhibit Description |
31.1* | Certification of Chief Executive Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a) |
31.2* | Certification of Chief Financial Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a) |
99.1** | Press Release dated May 8, 2019 (revised) |
CRAFT BREW ALLIANCE, INC. | |||
May 10, 2019 | By: | /s/ Edwin A. Smith | |
Edwin A. Smith | |||
Corporate Controller and Principal Accounting Officer |
1. | I have reviewed this Amendment No. 1 on Form 10−Q/A of Craft Brew Alliance, Inc. (the “Registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. |
Date: | May 10, 2019 | |
By: | /s/ Andrew J. Thomas | |
Andrew J. Thomas | ||
Chief Executive Officer |
1. | I have reviewed this Amendment No. 1 on Form 10−Q/A of Craft Brew Alliance, Inc. (the “Registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report. |
Date: | May 10, 2019 | |
By: | /s/ Christine N. Perich | |
Christine N. Perich | ||
Chief Financial Officer |
• | Total shipments grew 1.5% over the first quarter in 2018, which includes a 10% increase in shipments for Kona and a collective 13% increase in total shipments for newly acquired brands Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing. |
• | Core beer sales increased more than 3%, driven by increased shipment volume and a 1.6% increase in revenue per barrel over the first quarter last year. |
• | Total company gross margin expanded 270 basis points to 34.4%, driven by increased shipment volume, pricing, and cost efficiencies. Beer gross margin expanded 250 basis points to 38.0%. |
• | SG&A was $25.6 million for the first quarter, which reflects our largest-ever national marketing investment to fuel Kona’s growth in 2019, as well as a one-time event that resulted in the accrual of a pre-tax expense of $4.7 million related to the settlement of the Kona class action lawsuit. |
• | As a result of the unanticipated $4.7 million expense referenced above, EPS was a loss of $0.38 per share on a GAAP basis. Excluding the expense, EPS was a loss of $0.19 per share on a non-GAAP adjusted basis. |
• | Total Kona shipments increased by 10% in the first quarter, contributing to a 1.5% increase in total CBA shipments over the first quarter in 2018. |
◦ | Domestic shipment growth of 14% for Kona and 12% for newly acquired brands contributed to a 4.5% increase in domestic CBA owned shipments over the first quarter last year. |
• | Total Kona depletions increased by 1.4% in the first quarter, while CBA depletions decreased by 4.5%, primarily attributed to Redhook and Widmer Brothers, as well as a timing-related decrease in international depletions. |
◦ | Domestic Kona depletions increased by 5% and 13% for newly acquired brands, while total domestic CBA depletions decreased by 3% compared to the first quarter in 2018. |
◦ | Fueled by our first quarter heavy-up marketing investment, Kona’s growth has continued in April, with depletions up 16%, driving a total CBA depletions increase of 8% over the same month last year. |
• | Our core beer sales increased 3.1% over the same quarter last year. Total net sales of $47 million, a 1% decrease from the first quarter in 2018, reflect a reduction of $1.8 million in alternating proprietorship fees that we received in 2018 but not in 2019 due to the change in ownership structure of AMB, Cisco and Wynwood. |
• | Total company gross margin expanded by 270 basis points to 34.4%, compared to 31.7% in the first quarter of 2018, reflecting pricing improvements and a 5% decrease in overall cost of goods sold. |
◦ | Beer gross margin expanded by 250 basis points to 38%, compared to 35.5% in the first quarter of 2018, reflecting pricing increases and shipment growth, as well as ongoing improvements in operating efficiency and sourcing. |
◦ | Brewpub gross margin expanded 490 basis points to 10.9%, reflecting continued strong performance from our Kona pubs in Hawaii and the addition of our newly acquired AMB and Wynwood brewpub operations. |
• | Selling, general and administrative expense (“SG&A”) increased by $10.8 million to $25.6 million. |
◦ | The increase is primarily due to the planned $4.6 million investment to launch our largest national marketing campaign behind fueling Kona’s growth throughout the spring and summer selling season and the accrual of an unanticipated $4.7 million pre-tax expense related to the class action settlement. |
• | On a GAAP basis, we recorded a net loss of $7.4 million in the first quarter as a result of the increased SG&A expense. |
◦ | On an adjusted non-GAAP basis and excluding the $4.7 million pre-tax expense related to the one-time event, or $3.6 million after the tax effect of $1.1 million, our first quarter net loss was $3.8 million. |
• | On a GAAP basis, we recorded a net loss per share of $0.38 in the first quarter as a result of the increased SG&A expense. |
◦ | On an adjusted non-GAAP basis and excluding the $4.7 million pre-tax expense related to the one-time event, our loss per share was $0.19. |
• | Maintaining depletions and shipments each ranging between an increase of 5% to an increase of 8%, reflecting a significant increase in commercial investments and insights from our consumer research. |
• | Maintaining average price increases of 1% to 2%, reflecting improved revenue management capabilities. |
• | Maintaining gross margin rate of 34.5% to 36.5%, reflecting increases in net revenue per barrel, continued improvements in brewery operations, lower fixed overhead, and ongoing efforts to stabilize our pub operations. |
• | Updating SG&A range to between $75 million and $79 million, primarily reflecting the incremental expense related to the Kona settlement. |
• | Updating capital expenditures range to between $13 million and $17 million, due to a timing shift of certain expenses related to our new Kona brewery, now set to go online the first quarter of 2020. |
• | Updating effective tax rate of 25%, reflecting the impact of the Kona class action lawsuit settlement. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Sales | $ | 49,768 | $ | 50,085 | |||
Less excise taxes | 2,776 | 2,598 | |||||
Net sales | 46,992 | 47,487 | |||||
Cost of sales | 30,809 | 32,416 | |||||
Gross profit | 16,183 | 15,071 | |||||
As percentage of net sales | 34.4 | % | 31.7 | % | |||
Selling, general and administrative expenses | 25,565 | 14,748 | |||||
Operating income (loss) | (9,382 | ) | 323 | ||||
Interest expense | (308 | ) | (134 | ) | |||
Other income, net | — | 34 | |||||
Income (loss) before income taxes | (9,690 | ) | 223 | ||||
Income tax provision (benefit) | (2,326 | ) | 62 | ||||
Net income (loss) | $ | (7,364 | ) | $ | 161 | ||
Basic and diluted net income (loss) per share | $ | (0.38 | ) | $ | 0.01 | ||
Weighted average shares outstanding: | |||||||
Basic | 19,412 | 19,310 | |||||
Diluted | 19,412 | 19,488 | |||||
Total shipments (in barrels): | |||||||
Core Brands | 164,400 | 160,600 | |||||
Contract Brewing | 5,100 | 6,400 | |||||
Total shipments | 169,500 | 167,000 | |||||
Change in depletions (1) | (5 | )% | (4 | )% |
(1) | Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
March 31, | |||||||
2019 | 2018 | ||||||
Current assets: | |||||||
Cash, cash equivalents and restricted cash | $ | 1,670 | $ | 2,814 | |||
Accounts receivable, net | 27,831 | 28,569 | |||||
Inventory, net | 19,748 | 15,910 | |||||
Other current assets | 5,310 | 2,508 | |||||
Total current assets | 54,559 | 49,801 | |||||
Property, equipment and leasehold improvements, net | 111,602 | 104,394 | |||||
Operating lease right-of-use assets | 19,390 | — | |||||
Goodwill | 21,935 | 12,917 | |||||
Trademarks | 44,245 | 14,415 | |||||
Intangible and other assets, net | 5,999 | 6,364 | |||||
Total assets | $ | 257,730 | $ | 187,891 | |||
Current liabilities: | |||||||
Accounts payable | $ | 23,408 | $ | 15,012 | |||
Accrued salaries, wages and payroll taxes | 6,379 | 4,692 | |||||
Refundable deposits | 4,093 | 4,291 | |||||
Deferred revenue | 5,176 | 4,035 | |||||
Other accrued expenses | 8,534 | 3,742 | |||||
Current portion of long-term debt and finance lease obligations | 829 | 802 | |||||
Total current liabilities | 48,419 | 32,574 | |||||
Long-term debt and finance lease obligations, net of current portion | 48,996 | 10,124 | |||||
Other long-term liabilities | 31,030 | 14,067 | |||||
Total common shareholders' equity | 129,285 | 131,126 | |||||
Total liabilities and common shareholders' equity | $ | 257,730 | $ | 187,891 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (7,364 | ) | $ | 161 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 2,726 | 2,736 | |||||
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements | 8 | (516 | ) | ||||
Deferred income taxes | (2,341 | ) | (605 | ) | |||
Other, including stock-based compensation | 538 | 558 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | 2,466 | (285 | ) | ||||
Inventories | (2,531 | ) | (1,791 | ) | |||
Other current assets | (2,406 | ) | 1,128 | ||||
Accounts payable, deferred revenue and other accrued expenses | 11,681 | 3,015 | |||||
Accrued salaries, wages and payroll taxes | 745 | (1,185 | ) | ||||
Refundable deposits | (70 | ) | (475 | ) | |||
Net cash provided by operating activities | 3,452 | 2,741 | |||||
Cash flows from investing activities: | |||||||
Expenditures for Property, equipment and leasehold improvements | (5,173 | ) | (1,104 | ) | |||
Proceeds from sale of Property, equipment and leasehold improvements | 16 | 22,456 | |||||
Restricted cash from sale of Property, equipment and leasehold improvements | — | 515 | |||||
Net cash provided by (used in) investing activities | (5,157 | ) | 21,867 | ||||
Cash flows from financing activities: | |||||||
Principal payments on debt and finance lease obligations | (277 | ) | (174 | ) | |||
Net borrowings (repayments) under revolving line of credit | 2,609 | (22,199 | ) | ||||
Tax payments related to stock-based awards | (157 | ) | — | ||||
Net cash provided by (used in) financing activities | 2,175 | (22,373 | ) | ||||
Increase in Cash, cash equivalents and restricted cash | 470 | 2,235 | |||||
Cash, cash equivalents and restricted cash, beginning of period | 1,200 | 579 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 1,670 | $ | 2,814 |
Twelve Months Ended | ||||||||||||||
March 31, | ||||||||||||||
2019 | 2018 | Change | % Change | |||||||||||
Net sales | $ | 205,691 | $ | 210,641 | $ | (4,950 | ) | (2.3 | )% | |||||
Gross profit | $ | 69,435 | $ | 67,660 | $ | 1,775 | 2.6 | % | ||||||
As percentage of net sales | 33.8 | % | 32.1 | % | 170 | bps | ||||||||
Selling, general and administrative expenses | 73,389 | 59,742 | 13,647 | 22.8 | % | |||||||||
Operating income | $ | (3,954 | ) | $ | 7,918 | $ | (11,872 | ) | (149.9 | )% | ||||
Net income | $ | (3,383 | ) | $ | 11,471 | $ | (14,854 | ) | (129.5 | )% | ||||
Income per share: | ||||||||||||||
Basic | $ | (0.17 | ) | $ | 0.59 | $ | (0.76 | ) | (128.8 | )% | ||||
Diluted | $ | (0.17 | ) | $ | 0.59 | $ | (0.76 | ) | (128.8 | )% | ||||
Total shipments (in barrels): | ||||||||||||||
Core Brands | 723,200 | 743,000 | (19,800 | ) | (2.7 | )% | ||||||||
Contract Brewing | 26,900 | 19,500 | 7,400 | 37.9 | % | |||||||||
Total shipments | 750,100 | 762,500 | (12,400 | ) | (1.6 | )% | ||||||||
Change in depletions (1) | (2 | )% | (2 | )% |
(1) | Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net income (loss) | $ | (7,364 | ) | $ | 161 | ||
Interest expense | 308 | 134 | |||||
Income tax provision (benefit) | (2,326 | ) | 62 | ||||
Depreciation expense | 2,601 | 2,693 | |||||
Amortization expense | 125 | 43 | |||||
Stock-based compensation | 418 | 485 | |||||
Loss on disposal of assets | 8 | (516 | ) | ||||
Kona class action expense | 4,840 | — | |||||
Adjusted EBITDA | $ | (1,390 | ) | $ | 3,062 |
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