Willamette Valley Vineyards, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; year-over-year comparisons are to Q1 2023. The company produces and sells wine through direct-to-consumer and distributor channels. The interim results are unaudited and are not necessarily indicative of full-year results.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $8.80 million | $8.31 million | +5.9% |
| Gross profit / margin | $5.27 million / 59.9% | $4.48 million / 53.9% | +17.7%; +6.0 percentage points |
| Operating loss | $(0.60) million | $(0.97) million | Loss narrowed |
| Net loss | $(0.52) million | $(0.74) million | Loss narrowed 29.9% |
| Loss attributable to common shareholders | $(1.08) million; $(0.22) per share | $(1.26) million; $(0.25) per share | Loss narrowed 13.7% |
| Operating cash flow | $(3.01) million | $(1.28) million | Cash use increased |
| Investing cash flow | $(0.33) million | $(1.50) million | Cash use decreased |
| Financing cash flow | $3.36 million | $2.60 million | Cash generated |
Sales rose by $494,140, supported by higher direct sales and distributor shipments. The company sold 43,208 cases of produced wine, up 2.0%. Gross profit increased as product mix and higher distributor pricing improved margins, while cost of sales declined 7.8%. Operating expenses rose 7.7% to $5.88 million; general and administrative expense increased 25.7%, primarily due to higher legal costs. Interest expense increased 84.6% to $229,687, reflecting higher debt and interest rates.
Direct sales were $4.29 million and distributor sales were $4.52 million. Direct sales contribution margin was negative $272,370, compared with negative $432,785 in Q1 2023; distributor contribution margin was $1.78 million, compared with $1.17 million. Segment net income is not reported because corporate expenses are not allocated to segments.
Financial position and liquidity
- Cash was $256,472 at March 31, 2024. Working capital was $21.6 million and the current ratio was 2.87:1.
- Total assets were $106.19 million and total liabilities were $35.11 million. Inventory was $28.88 million, up from $28.31 million at year-end 2023.
- Operating cash use was driven principally by lower grapes payable and increased inventory. Financing cash inflows included $2.5 million of long-term debt proceeds, additional line-of-credit borrowings, and preferred stock issuance.
- Line-of-credit borrowings were $3.32 million at an 8.0% rate, against a stated maximum facility of $5.0 million. AgWest long-term debt totaled $9.96 million, including current maturities; the filing lists $6.07 million of principal payments due in 2025. The separate property installment note balance was $1.07 million.
- Redeemable preferred stock totaled $43.92 million, with a $43.06 million liquidation preference. Q1 accrued preferred dividends were $563,177 and reduced the amount attributable to common shareholders.
Changes, outlook, and risks
- Compared with Q1 2023, revenue, gross profit, and case sales increased, and net loss narrowed. Higher general and administrative costs and interest expense partly offset improved gross profit.
- Management said near-term results may be negatively affected by preferred dividends, strategic planning and development, and other growth-related costs. It expects operating cash flow and available credit facilities to meet short-term needs. No specific numerical earnings or revenue guidance is provided.
- The company was out of compliance with a line-of-credit covenant at December 31, 2023; Umpqua Bank waived the violation through the next measurement date, December 31, 2024. The filing does not state whether covenant compliance was achieved at March 31, 2024.
- Disclosed business risks include financing availability, access to high-quality grapes, weather, disease and wildfire smoke, consumer spending and premium-wine demand, competition, and distributor relationships. The company has long-term grape purchase commitments, but cannot quantify the minimum or maximum payments. Management believes pending legal matters are not likely to materially affect financial condition or results, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Whether the company meets its credit covenants at the December 31, 2024 measurement date and whether any further waiver or financing is needed.
- Whether operating cash use moderates, given the quarter’s $3.01 million cash outflow and dependence on borrowing and preferred-stock proceeds.
- Whether improved gross margin and distributor contribution persist, and whether direct-to-consumer sales can cover their directly attributable selling costs.
- How higher debt and interest costs, preferred dividends, and planned growth investments affect future results and liquidity.
- The timing and cash impact of the substantial 2025 debt maturity and the company’s grape purchase commitments.