Willamette Valley Vineyards, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. The company produces and sells premium Oregon wines through direct-to-consumer channels and distributors.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | $33.934 million | $31.787 million | Up 6.8% |
| Gross profit / margin | $18.814 million / 55.4% | $18.666 million / 58.7% | Profit up 0.8%; margin down 3.3 percentage points |
| Operating income (loss) | $(0.546) million | $3.690 million | Declined $4.236 million |
| Net income (loss) | $(0.646) million | $2.445 million | Declined $3.092 million |
| Net income (loss) applicable to common shareholders | $(2.513) million; $(0.51) per share | $1.001 million; $0.20 per share | Includes $1.866 million of preferred dividends in 2022 |
| Operating cash flow | $(2.666) million | $2.573 million | Cash used primarily amid the net loss and working-capital increases |
| Investing cash flow | $(15.480) million | $(10.301) million | Primarily construction and vineyard development |
| Cash and cash equivalents | $0.339 million | $13.747 million | Down $13.409 million |
Cost of sales rose 15.2% to $15.120 million, attributed to higher fruit and packaging costs and the mix of vintages sold. Selling, general and administrative expenses increased 29.3% to $19.361 million, including costs of new tasting-room and restaurant locations. Management attributed $1.821 million of contribution losses to the opening of four new locations. EBITDA, a non-GAAP measure, was $1.912 million, down 67.0% from $5.797 million.
At year-end, working capital was $17.9 million and the current ratio was 2.80. Total assets were $98.684 million; total liabilities were $28.322 million. Debt included $7.063 million of long-term debt, a $1.201 million installment note, and $0.167 million drawn on a $5 million revolving credit facility. Operating lease liabilities were $9.275 million, with $12.443 million of undiscounted contractual lease payments. The company was out of compliance with a credit covenant at year-end; the bank waived the violation through the next measurement date, December 31, 2023.
Material changes and operating developments
- Direct sales grew 18.5% and represented 46.4% of net sales, compared with 41.8% in 2021. Distributor sales declined 1.7%; one distributor accounted for approximately 17.5% of 2022 revenue.
- Wine case sales fell 8.1% to 187,371 cases, mainly because of lower distributor shipments. Production was 186,792 cases, down from 206,954. The 2022 grape harvest totaled 3,816 tons, versus 3,072 tons in 2021.
- Four new retail locations contributed to higher direct revenue and higher selling costs. Domaine Willamette, a sparkling-wine facility and tasting room, opened in September 2022.
- Capital investment was substantial: cash additions to property and equipment were $14.809 million, and vineyard development additions were $0.670 million.
- Preferred stock issued and outstanding rose to 9.186 million shares from 7.524 million. Series A preferred stock carries a cumulative annual dividend of $0.22 per share and a liquidation preference; common-stock dividends are not anticipated in the foreseeable future.
Outlook, risks, and unusual items
The filing provides no specific company revenue or earnings guidance. Management said cash from operations and available credit and preferred-stock financing should meet foreseeable needs. It expects the U.S. wine industry to stabilize in 2023 and identifies direct-to-consumer growth, brand development, and vineyard expansion as strategic priorities. Management also noted that current production depends partly on purchased grapes; owned and leased vineyards are expected at full production to supply about 72% of grapes needed for current Estate Winery capacity.
Key risks include weather, smoke and wildfire damage, grape disease and pests (including phylloxera at Tualatin Estate), grape availability and quality, competition, distributor performance and concentration, changes in consumer demand, alcohol regulation and taxation, and access to adequate financing. The company reported no material pending legal proceedings and no material subsequent events. The independent auditor issued an unqualified opinion and reported no critical audit matters; management concluded internal control over financial reporting was effective. The auditor was not engaged to audit internal controls.
Important facts for investors to verify
- Whether the company meets the credit facility covenants at the December 31, 2023 measurement date and renews or otherwise replaces the facility due July 31, 2023.
- How quickly the new locations improve contribution margins, and whether operating cash flow recovers after the large 2022 investment program and cash reduction.
- The timing and cost of preferred dividends and any potential redemption obligations, alongside continued preferred-stock fundraising capacity.
- Whether distributor shipments, customer receivables, and sales concentration remain manageable, given the leading distributor’s 17.5% revenue share and two customers’ 41% combined share of year-end receivables.
- Grape supply, vineyard disease and weather exposure, and inventory quality and sell-through; year-end inventory was $22.201 million, including 688,154 gallons of bulk wine.