Willamette Valley Vineyards, Inc. — FY2021 Form 10-K
Business context and period. The company produces and sells premium, super-premium and ultra-premium Oregon wines through direct-to-consumer channels and distributors. This annual report covers the fiscal year ended December 31, 2021; comparisons are with FY2020.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $31.79 million | $27.31 million | +16.4% |
| Gross profit / margin | $18.67 million / 58.7% | $16.73 million / 61.2% | Profit +11.6%; margin down 2.5 percentage points |
| Operating income | $3.69 million | $5.00 million | -26.2% |
| Net income | $2.45 million | $3.39 million | -28.0% |
| Income attributable to common shareholders | $1.00 million; $0.20 per share | $2.28 million; $0.46 per share | Income -56.1% |
| Operating cash flow | $2.57 million | $4.87 million | Down $2.30 million |
| Cash and cash equivalents | $13.75 million | $14.00 million | Down $0.25 million |
| Working capital / current ratio | $24.5 million / 3.05:1 | Not stated here | — |
| Long-term debt, gross | $5.54 million | $5.99 million | Down $0.45 million |
Net income includes $1.44 million of preferred dividends in determining income attributable to common shareholders, versus $1.12 million in FY2020. The company also reported $1.30 million in notes payable and $6.40 million in operating lease liabilities at year-end. Its $2.0 million revolving credit facility had no borrowings outstanding; the company reported compliance with its financial covenants. EBITDA, a non-GAAP measure, was $5.80 million, down 16.9% from $6.98 million.
Cash used in investing was $10.30 million, mainly for construction and vineyard development. Financing provided $7.48 million, primarily from preferred-stock proceeds and investor deposits, partly offset by debt repayment and preferred dividends.
Material changes and operating trends
- Wine case sales rose 12.7% to 203,817. Net sales growth reflected higher direct sales (+26.0%) and out-of-state distributor sales (+25.0%); in-state distributor sales declined 12.7% amid limited product availability.
- Direct sales represented approximately 41.7%–41.8% of net sales, compared with 38.6% in FY2020. Distributor sales made up the balance. Direct sales generally earn higher margins.
- Gross margin declined as per-case margins were pressured by higher product costs, including wines released from the 2020 vintage. Cost of sales rose 24.0%, faster than sales.
- Selling, general and administrative expenses increased 27.7% to $14.98 million, reflecting more tasting-room operating days and higher selling, shipping, packaging and administrative costs. The company attributed lower operating and net income principally to these expense increases.
- Harvested grapes totaled 3,072 tons, versus 2,501 tons in 2020. The company grew approximately 50% of grapes harvested in 2021 and purchased the remainder. It produced 206,954 cases and ended the year with 101,627 bottled cases and 502,755 gallons of bulk wine.
Outlook, risks and other notable items
- Plans and outlook: The filing gives no formal earnings or revenue guidance. Management said cash from operations, existing credit facilities and the preferred-stock program should meet foreseeable operating needs. It planned to plant approximately 42 acres in 2022, with those vines expected to begin producing in 2026.
- Construction commitment: The Domaine Willamette tasting-room project was expected to be completed in FY2022, at an estimated total cost of approximately $15.6 million. About $9.5 million had been spent by year-end 2021. The filing describes funding plans in different places as a combination of cash and preferred-stock financing, and also as expected funding from cash on hand; verify the updated funding plan and completion status.
- Preferred stock: The Series A preferred stock carries a cumulative 5.3% dividend, or $0.22 per share annually, and a liquidation preference senior to common stock. The company declared and paid dividends and reported that it was current. At year-end, $4.13 million of investor deposits for preferred shares remained recorded as a liability for shares to be issued in 2022. Preferred issuance increases the senior claims ahead of common equity.
- Key risks: Grape quality and availability are exposed to weather, drought, frost, disease, phylloxera and wildfire smoke. The company relies on purchased grapes and distributors; one distributor accounted for 18.1% of FY2021 revenue. Other risks include competition, premium-wine demand, inflationary and operating costs, COVID-19 restrictions, regulation and alcohol taxes, and cybersecurity incidents.
- Other disclosures: Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion and reported no critical audit matters; the company was not required to obtain an auditor attestation on internal controls. No material legal proceedings or material subsequent events were identified.
Important facts for investors to verify
- Whether direct-to-consumer growth and higher wine-club sales can offset the decline in in-state distributor sales, and how distributor concentration changes.
- Whether gross margin stabilizes as higher-cost vintages move through inventory, given the margin decline and faster growth in cost of sales and operating expenses.
- The updated total cost, remaining funding, completion timing and expected returns of the Domaine Willamette project.
- Preferred-stock fundraising, the conversion of investor deposits into issued shares, dividend obligations and any implications for common shareholders.
- Grape supply, crop quality and costs, including the effects of weather, wildfire smoke, phylloxera and planned vineyard expansion.
- Cash generation and liquidity after substantial capital spending, alongside debt, lease and grape-payment commitments.