Willamette Valley Vineyards, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited interim results; the company cautions that quarterly results are not necessarily indicative of full-year performance. Comparisons below are with Q1 2021 unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $6.24 million | $5.77 million | Up 8.3% |
| Gross profit / margin | $3.72 million / 59.6% | $3.49 million / 60.6% | Profit up 6.5%; margin down 1.0 percentage point, attributed to higher costs of newer vintages |
| Operating expenses | $3.86 million | $3.32 million | Up 16.2%; sales and marketing and G&A both increased |
| Operating income (loss) | $(136,232) | $176,009 | Turned to an operating loss |
| Net income (loss) | $(98,942) | $122,685 | Turned to a net loss |
| Loss applicable to common shareholders | $(565,554), or $(0.11) per share | $(236,951), or $(0.05) per share | Higher net loss and preferred dividends accrued |
| Cash from operating activities | $(670,304) | $(398,853) | Greater operating cash use |
| Cash used in investing activities | $(5.14) million | $(752,022) | Primarily construction and vineyard development |
| Cash from financing activities | $629,993 | $440,895 | Primarily preferred-stock proceeds, net of debt repayments |
Financial position and liquidity
- Cash was $8.57 million at March 31, 2022, down from $13.75 million at December 31, 2021; the company cited construction spending and payment of grape payables.
- Working capital was $23.9 million and the reported current ratio was 4.23:1.
- Total assets were $92.97 million and total liabilities were $23.21 million at quarter-end.
- Farm Credit Services debt totaled $5.42 million, including current maturities, before unamortized debt issuance costs. The separate property installment note had a $1.27 million balance. The $2 million revolving credit facility had no balance outstanding and runs through July 31, 2023.
- Operating lease liabilities totaled $7.92 million, including $530,218 current. Lease right-of-use assets were $7.70 million.
- The company reported compliance with its debt covenants and stated that operating cash flow and available credit facilities should meet short-term needs. It continues to evaluate funding for longer-term requirements.
Material changes and business developments
- Direct-sales revenue rose $651,124, while distributor revenue fell $174,144, which the company attributed mainly to unavailable inventory for shipment. Direct sales were $2.96 million; distributor sales were $3.29 million.
- Wine cases sold fell 11.6% to 33,639, primarily because some vintages were unavailable until later in the quarter. Revenue nevertheless increased, led by direct-to-consumer sales, including tasting rooms, wine club and kitchen sales.
- Sales and marketing expense increased 17.1%, partly due to higher direct-sales activity and startup costs for new tasting rooms. G&A increased 14.8%, primarily from maintenance, human-resource and IT costs.
- Capital investment increased substantially: property and equipment additions were $5.03 million in Q1 2022 versus $547,871 in Q1 2021. Property and equipment, net, rose to $45.72 million, including $19.62 million of construction in progress.
- The Domaine Willamette tasting room project in Dundee was expected to cost approximately $15.6 million. Construction had restarted after a pandemic-related pause; approximately $12.1 million had been spent by March 31. The company expected funding from cash on hand and preferred-stock financing.
- The company issued 960,323 preferred shares during the quarter, adding $4.90 million to preferred-stock equity, net of associated amounts shown in the equity statement. Preferred dividends accrued were $466,612.
Outlook, risks and contingencies
No specific revenue, earnings or cash-flow guidance is provided. Management expects near-term results to be affected by preferred dividends, strategic planning, development and other growth-related costs. The company describes COVID-19 impacts as uncertain; renewed restrictions could hurt direct-to-consumer and hospitality-channel demand. It also identifies risks involving financing availability, quality grape supply, weather, smoke or disease, consumer demand, competition and distributor relationships.
The company reported no material legal proceedings or known unrecorded legal liabilities expected to materially affect its financial condition or results, while noting that litigation outcomes cannot be predicted with certainty. Long-term grape purchase commitments have costs that cannot be quantified from the filing because quantities and qualifying grape availability vary. Two additional 10-year operating leases were expected to commence in 2022 and were not yet recorded as liabilities at quarter-end.
Most important facts for investors to verify
- Whether direct-sales growth can continue and distributor shipments recover as wine inventory becomes available; case volume declined despite higher revenue.
- Whether operating expenses and higher product costs continue to pressure margins and profitability.
- Remaining Dundee project costs, completion timing and funding mix, given Q1 investing cash use of $5.14 million and the quarter-end cash balance of $8.57 million.
- Preferred-stock terms, accrued dividends and future issuance or redemption implications for common shareholders.
- Potential effects of grape supply, weather, pandemic-related restrictions, and the two uncommenced leases on cash needs and operating performance.