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spk01: Good morning and welcome to the Vintage Wine Estate's fourth quarter and fiscal year 2023 financial results call. My name is Carla and I will be your operator for today's call. If you would like to register a question for the Q&A portion of the call, please press star followed by one on your telephone keypad. When asking your question, please ensure your telephone is unmuted locally. And to evoke a question, you can press star followed by two. I would now like to pass the conference over to our host, Deborah Pawlowski. investor relations of vintage wine estates to begin. Deborah, please go ahead when you're ready.
spk03: Thank you, Carla, and good morning, everyone. We certainly appreciate your time today and your interest in vintage wine estates. On the call with me are John Morimarco, our interim CEO, and Chris Johnston, our CFO. You should have a copy of our earnings release that went out after market close on Friday. And there is a slide deck that will accompany our conversation today that was distributed via email and posted this morning on our website. If you do not have these materials, you can find them at ir.vintagewineestates.com. Following the market close on Friday, in addition to the release on financial results for the fourth quarter and fiscal year 2023, We also issued a press release announcing that we had closed on an amendment to our lending agreement. The amendment can be found in the 8K that was filed on Friday as well. In addition, we filed our restated interim period 10Qs for fiscal 2023, as well as the fiscal 2023 10K. We recognize that it's unusual to file this kind of information on a Friday after market, so let me give you some background. Our extended SEC filing deadline was last Friday, and there were several dependencies that needed to be achieved in order to meet that deadline. The 10-K, which also includes immaterial revisions to numbers for fiscal 2022, was dependent upon the restatement of the three quarters and the related changes for 2022's quarters. And the amended credit agreement was dependent upon the final financials. Given that, we did not want to miss the filing deadline. Fritz's team and all of our partners, including our auditors, tax accountants, BMO, who is the administrator of our lending agreement, and the nine other lenders in our loan syndicate, as well as our legal advisors, worked tirelessly to make the Friday deadline. While we understand that being in a situation itself created a bind, I think recognizing how far the organization has come in 2023 should not be overlooked. We scheduled a call this morning, both to give folks time to digest all the information, but also because I really didn't think anyone would appreciate a Friday evening teleconference. So John is going to begin with an overview of his objectives as interim CEO and the progress the company has made in the last eight months since he was appointed in that position. Chris will review financial results and then John will wrap it up. We will then open the call for questions. On slide two and three of the quarter deck, you will find discussion on forward-looking statements, non-GAAP measures, and key performance indicators. As you know, we will make forward-looking statements during this presentation and during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors were provided in our SEC filings that you can find on our website or at sec.gov. I will also point out that during today's call, we will discuss some non-GAAP financial measures, as well as key performance indicators, which we believe are useful in evaluating our performance. You should not consider the presentation of this non-GAAP information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today's slides and release. In addition, we use case volume as a key performance indicator to gauge performance and inform our strategy and tactics. With that, if you turn to slide four, I will turn it over to John to begin the discussion. John?
spk00: Thank you, Deb, and good morning, everyone. These last eight months since I was appointed as interim CEO, have been extremely busy. My objective during this time has been to strengthen the foundation of the business and provide a more focused enterprise for Seth Kaufman, our new CEO, who will be joining us in just a couple of weeks. This has been a turnaround for the organization and led us to creating the five-point plan to communicate both internally as well as externally our operating plans and priorities. You have seen this before, so I won't go through it in detail. but we'll confirm that the plan does keep top of mind for everyone at VWE what is important for our success. Turning to slide five, we highlight the miserable progress the team has accomplished since they came on board that we expect to contribute to our margin improvement as we advance through fiscal 24 and beyond. To drive margin improvement, we have streamlined the organization on many fronts from personnel to SKUs. There is still work to be done on SKUs, but the heavy lifting has already created efficiencies and taken out costs. Understanding margins has been critical to our thinking in this process. SKU reduction was very selective and prioritized on lower margin product. In addition to reducing SKUs, we are being more strategic regarding product to improve margins such as optimizing blend. I should point out that we'll get some tailwinds as well as we deplete the higher cost 2020 vintage. From a productivity perspective, our warehousing operations are running much more efficiently and throughput through our Hopland bottling facility has measurably increased. In addition to improved productivity, we have taken out costs by lightweighting glass and rationalizing our bottle molds. The plan has driven a different mindset as well, and as a result, we are much better at recovering shipping costs. Analytics with market data has informed our pricing strategies, and as a result, we have been able to capture on average about 2.8% with price. As part of the five-point plan to monetize assets, we are initiating processes to sell certain properties. Our amended credit agreement includes the strategy for us to achieve our goal to reduce debt using properties that are underlying collateral to the lending agreement. In July, we restructured the leadership team to improve internal communications and drive collaboration. This new structure empowers the team to rethink how things have been done historically and be creative in our efforts to collectively achieve our plan objectives. Seth will likely bring a fresh perspective to further evolve how we operate. In addition to our human resources, we've refocused our marketing and sales spend to key core brands. This applies at wholesale as well as direct-to-consumer channel. The diversification strategy with Ace Cider and leveraging international accounts and distributor relationships are proving effective as we gain points of distribution and expand market reach. With that, let me pass it over to Chris to review the financials.
spk02: Thanks, John. I will begin my review on slide 6. Revenue for the quarter declined $12.2 million, or about 16%. For the year, revenue was down $9.6 million, or approximately 3%. Let me review for you the impacts in the quarter by segment first. Wholesale was down 10% in the quarter as growth at Ace Cider, as well as improvements in brands not marketed by us, helped to offset lower sales in our wholesale channel. Looking sequentially, product mix was the primary reason for lower revenue on higher case volume and was directly attributable to ACE cider, which drove the higher volume but has a lower per unit pricing versus the traditional wine category. The $7 million decline in B2B revenue compared with last year's fourth quarter was primarily the result of a $3.4 million decline related to the lower margin private label programs we eliminated, and a 2.1 million decline in high margin bulk whiskey sales. DTC was down about 12% or 2.6 million in the quarter, mostly from lower e-commerce and wine club sales. Tasting rooms were down a modest 2%. Encouragingly, they were up over 30% sequentially, even as traffic in the region has been softer as we compete with consumers choosing to go to Europe over coming back to their annual wine tour. For the year, wholesale was up almost 3 million or slightly over 3%. The improvement was the result of both acquired revenue and organic growth related to Ace Cider. This more than offset declines in distributor sales, which have been impacted by our skew reductions and shifting brand priorities. DTC for the year faced many challenges and declined almost 10%. The largest declines were in e-commerce sales and lower sales to a major television retailer, which was redirecting programming to address changing consumer spending patterns as interest rates ramped. Together, these channels were responsible for almost 90% of the total DTC decline year over year. Tasting rooms were also down, but not to the degree of the others. B2B fared the best for the year with the addition and growth of Meyers and strong custom production sales which helped to offset the 13.9 million decline related to the eliminated private label program for a major big box retailer, as well as 4.2 million less in bulk whiskey sales. Let's turn to slide seven. Gross profit and margin improved in the fourth quarter. I should point out that last year's fourth quarter was negatively impacted by approximately 19 million of other non-cash adjustments, so the comparative is tough to analyze. For the year, the improvements being driven through the organization are helping to offset higher input costs and the approximate 200 basis point headwind of lower bulk whiskey sales. We believe we still have a lot of room to improve revenue and expand margins and that we have implemented the plans to deliver step change margin expansion in fiscal 24. Turning to slide eight, there were a number of unusual impacts to SG&A in the quarter and the year as highlighted on the slide. We will expect in the first quarter of fiscal 24 that legal, professional fees, and audit fees will remain elevated given all that was required to close on the credit agreement amendment and restate the quarters for the year. On slide nine, you can see operating and net loss for the fourth quarter and year. This was a challenging year But we believe we have implemented with our five-point plan the changes needed to strengthen our foundation and meaningfully improve our business. I should point out that rising interest rates also impacted interest expense, which was up 2 million or 65% in the quarter and up 4.5 million or 32% for the year. Turning to slide 10, our adjusted EBITDA loss was 10.5 million in the quarter and 11.4 million in the year. While fiscal 24 will be a transition year, we expect EBITDA to be positive and to outperform fiscal 22. Let me address our capitalization and the amended credit agreement on slide 11. Our amended credit agreement provides us greater flexibility in regards to covenants, and it includes a cash sweep, so cash balances will remain below $20 million. We do have incremental principal payment requirements, which, if not met, will result in higher interest rates. We expect, however, with the monetization of certain assets, we will meet those prepayment requirements and reduce our debt. Capital expenditures for the year are planned to be 12 million, but we will be carefully managing that and looking for opportunities to reduce that spend. There are investments we are looking to make to add efficiencies and that are required for us to remain fully compliant with an ever-evolving regulatory environment. On slide 20, we want to visually demonstrate our expected liquidity for fiscal 24, which can practically be derived with publicly available information. We have itemized some of the major assumptions that we use in creating the bridge. While liquidity remains relatively unchanged by year-end, We expect that the lower debt balances should reduce future interest costs, which we have not depicted in this graphic. Our liquidity estimates are sufficient to execute our operational plans for Fiscal 24. Our focus is on driving better cash generation as we advance through this transition year and set us up for stronger performance in Fiscal 25 and beyond. Many of the elements of our five-point plan that we continue to execute on we expect will deliver expanded margins in the future. This includes continued productivity enhancements, pricing strategies, blend optimizations, and cost takeouts. Turning to slide 13, we have refined our guidance for fiscal 24. We expect that revenue will be in the range of $260 to $270 million, and that we can achieve a 38% gross margin on that revenue. SG&A will decline to 98 million, excluding restructuring costs of about 5 to 6 million. I'll remind you, as I mentioned earlier, we do expect professional service fees to be elevated in the first quarter. Depreciation expense is estimated to be 16 million, and non-cash amortization will be approximately 6 million. With that, let me turn it back to John.
spk00: Thanks, Chris. Just to wrap up, I would like to believe that as I prepare to hand the reins over to Seth, that I am providing him a better business with a solid foundation, both operationally and financially, from which he can drive further improvements and grow revenue. He will be gaining a focused and energized team that is excited to take VWE to the next level. With that, Carla, we can open the lines for questions.
spk01: Thank you. If you'd like to ask a question, you may do so by pressing star followed by one on your telephone keypad. To revoke your question, please press star followed by two. And when preparing for your question, please ensure your phone is unmuted locally. We can pause here briefly whilst questions are registered. As a reminder to ask a question, please press star followed by one. We have no questions registered at this time, so I will hand back to Deborah Pawlowski for final remarks.
spk03: Deb, you're on mute. I have to figure out what's muted. Thank you. Thanks, Carla. And thanks, everyone, for joining us today. We certainly appreciate your interest in Helios in Vintage Wine Estate. and look forward to updating all of you on our first quarter fiscal 2024 in November. Please feel free to reach out to me with any follow-up questions that you may have, and have a great day.
spk01: This concludes today's call. Thank you for your participation. You may now disconnect your lines.
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