The Duckhorn Portfolio, Inc.

Please continue to stand by. Music Music Thank you. Greetings and welcome to the Duckhorn Portfolio's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during that session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Sean Sullivan, Executive Vice President, Chief Administrative Officer, and General Counsel.

Good afternoon and welcome to the Duckhorn Portfolio's fourth quarter 2021 earnings conference call. Joining me on today's call are Alex Ryan, Duckhorn's President, CEO, and Chairman, and Laurie Bedoin, our Chief Financial Officer. In a moment, we'll hear brief remarks followed by Q&A. By now, everyone should have access to the earnings release for the fiscal year ended July 31st, 2021, that went out this afternoon at approximately 4.15 p.m. Eastern time. The press release is accessible on the company's website at ir.duckhorn.com. And shortly after the conclusion of today's call, a webcast will be archived for the next 30 days. Before we begin, Let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. If you refer to Duckhorn's earnings release, as well as the company's most recent SEC filings, you will see a discussion of factors that can cause the company's actual results to differ materially as a result of these forward-looking statements. please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release and our earnings presentation a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

Now I will turn it over to Alex. Thank you, Sean, and good afternoon. We really appreciate you joining us today to review what was a record-setting fourth quarter and fiscal year. Following my opening remarks, I will ask Sean to provide a few updates on our longstanding commitment to sustainability that is exemplified by our continuing ESG initiatives. He will then turn things over to Lori, who will take us through our Q4 financial results and fiscal year 22 outlook before we open the call for questions. To kick things off, let's begin with a few fourth quarter performance highlights, as well as reflect on some of the notable achievements over the past year. We ended the year on a high point with our Q4 net sales growth coming in at a robust 36% growth rate, helping to profitably deliver over 24% full-year net sales growth, the highest level of organic growth we've realized since 2014. Adjusted EBITDA grew a healthy 12% for fiscal year 2021. Fiscal year 2021 includes public company costs which did not exist in the prior year period. When proportionally burdening fiscal year 2020 by these public company costs, our fiscal year adjusted EBITDA increased 14% year over year. Q4 net sales strength was broad-based, with all channels and end markets on and off-premise contributing double-digit growth. The continuation of the recovery of the on-premise first absorbed in Q3 was the primary driver of growth in Q4, leading to another quarter of nearly 40% growth in our wholesale to distributor channel. Q4 volumes remained a source of strength, coming in at roughly 40% growth for the third time this year, Depletions track consistently with shipments for the period, underscoring our strong brand equity and the consumer's affinity for our high-quality luxury wines. In fact, in a more recent development, the momentum we've observed over the course of the past year has taken us to new heights. According to IRI, in over the 12-week period ending on September 5th, our gateway duck, Decoy, became the number one luxury brand in the wine industry by dollar sales, a major accomplishment For our growing sales and marketing team, a testament to the brand's broad appeal for those consumers, seeking out an exceptional luxury wine at an attainable price. Over the same 12-week period, the Duckhorn portfolio is contributing more growth dollars in the luxury wine segment than any other wine supplier. demonstrating the momentum we have across our business and the effectiveness of our highly differentiated go-to-market strategy, which provides our retailer and distributor partners a one-stop shop for all their luxury wine needs. Finally, on a 12-week basis, the Duckwind portfolio was the fastest growing in terms of percent of revenue growth and absolute revenue growth among the top 20 suppliers in all price points in the U.S., Let's take a moment to discuss our channel performance. Looking at our wholesale channel, which includes both distributors and California direct-to-retail and has historically accounted for approximately 80% of our annual net sales, we continue to see great strength behind our portfolio of high-quality brands, one-stop luxury wine shop go-to-market strategy, and additional investments in our sales force. During the quarter, we realized over 100% growth In on-premise, as it lapped, a COVID-impacted prior year period, while off-premise also showed solid double-digit growth across all key metrics, including cases, accounts sold, and points of distribution. This underscores our acute ability to drive distribution by onboarding new and further penetrating existing accounts. Drilling down to trade channels, independent, both for on- and off-premise, We're primary drivers of growth, indicating diversity of our account base and speaking to the broad appeal of our luxury portfolio of wines among the trade. In a period where recently reopened on-premise businesses are carrying slimmed-down wine lists and off-premise customers are seeking out strong brands to drive traffic and ring, the Duckland portfolio's broad range and strong brand equity was a clear choice for our trade partners and consumers. Given the highly attractive financial and experiential luxury nature of our brands for both our trade partners and end consumers, we believe our distribution growth is sustainable. In addition, we believe the breadth and depth of our high-quality luxury wine portfolio is continued refresh through thoughtful innovation and disciplined M&A, along with our unique go-to-market strategy distinguishes us from the crowds. and will allow us to continue to take share in both the premium sub-segment, the fastest-growing substance in wine, and the broader market. Outside of our wholesale channel, our high-margin DTC business continues to see nice progress. The third consecutive quarter of sequential improvement led by strong year-on-year recovery and visitation at our various tasting rooms and strength in our wine club sales. During the quarter, Costa Brown also completed a successful estate offer where our most tenured members acquire our most expensive wines. As in years past, we elected to take modest price increases on certain wines this year. However, we have seen no observable impact to demand. We experienced similar outcomes in the wholesale channel. The ability to take Price may vary by channel, requiring us to remain thoughtful and mindful of both our trade partners' and consumers' needs. That said, because of our brand strength, high-quality wines, and the broader premiumization of the wine category, we are confident that we can continue to justify future price increases given the consumers' increasing demand for exceptional luxury experiences. Looking into the second half, This coming fiscal year in our DTC business, we will be launching a special and highly innovative new Costa Brown release sure to captivate members and the wine media alike. Our wine club continues to have consecutive quarters of strong new member conversion and provides a meaningful contribution to our DTC business. While evident that our portfolio of high-quality luxury brands is resonating with trade partners and consumers alike, I would be remiss if I did not acknowledge a recent slowdown in industry sales trends over the past few weeks. With a rise in cases from the Delta variant, the pace of on-premise recovery was tempered as the summer progressed. We are not immune to these broader dynamics. However, we view ourselves to be in an advantaged position Relative to the industry, given our strict focus on premium wines, brand strength, and scaled luxury platform, in spite of the Delta variant headwind and, importantly, very tough year-ago comparisons in off-premise, we've continued to soundly outperform both the broader and premium wine segments with solid positive growth in cases, accounts sold, and total points of distribution. In addition, we are considerably above pre-COVID levels for both on- and off-premise We are focused on continuing to seek out ways to drive distribution gains with both new and existing customers into the future. In summary, I am pleased with our fourth quarter and full year results, and I remain confident that we are still in the early innings of growing our share of the highly fragmented U.S. wine market profitably over the long term. Our successful track record and proven playbook are indisputable, and that is rooted in the five strategic goals growth pillars that have gotten us to where we are today. One, operating our scaled omnichannel platform in addition to our diversified sourcing and production capabilities. Two, leveraging our marketing and brand strength, especially our one-stop luxury wine shop sales approach. Three, driving innovation and bringing new experiences and high-quality luxury wines to our growing consumer base. Four, investing behind DTC as the marketing engine of the company that provides an important opportunity for us to engage with consumers, create duckhorn evangelists, and drive adoption across all channels and brands. And five, thoughtfully pursuing strategic assets and winery brands through M&A. We view this last pillar as a supplement to both our long-term organic growth and industry-leading margin profile. Before I turn things over to Sean, I'd like to address our upcoming leadership transition we recently announced. Carol Reber, our Chief Marketing and DTC Officer, will be stepping down from her current role to focus more time on personal commitment. Carol will remain CMO until a new CMO is named, which we anticipate will be sometime in early 2022. Carol's departure is not one that comes as a surprise for us. Over the last several months, we've worked together to thoughtfully coordinate and strategize a seamless transition. Our search process, led by a prominent executive search firm experienced in filling public company CMO roles, is well underway. Once the position is filled, Carol will remain on staff as a Senior Advisor into 2022. Carol has been instrumental to what successes we have realized over the course of her 11-year tenure at Duckhorn, and because of her tireless efforts and invaluable expertise, she has put us in an enviable position of strength. Among her many accomplishments, she has not only assisted in transforming Geekway into the attainable luxury power brand that it is today, but she has also established a best-in-class DTC business, one that has vastly expanded its footprint from three to seven tasting rooms. On behalf of all of our employees, the rest of executive leadership, and the board, I'd like to give a heartfelt thank you to our friend Carol and wishing her nothing but the best. Now, I'd like to turn it over to Sean for an update to our ESG initiatives, which are grounded in our history, central element to our strategic focus, and a competitive advantage for us in the market.