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Heritage Distilling Holding Co Inc(CASK) - 2024 Q3 - Quarterly Report
CASKHeritage Distilling Holding Co Inc(CASK)2024-12-27 21:13

Financial Performance - Total net sales for the three months ended September 30, 2024, were approximately 1,761,434,adecreaseof1,761,434, a decrease of 326,596 or 15.7% compared to 2,088,030forthesameperiodin2023[276].−Productsalesincreasedbyapproximately2,088,030 for the same period in 2023[276]. - Product sales increased by approximately 186,000 or 15.6% to 1,375,230forthethreemonthsendedSeptember30,2024,drivenbythelaunchoftheSaluteSeriesproductline[280].−Servicesalesdecreasedbyapproximately1,375,230 for the three months ended September 30, 2024, driven by the launch of the Salute Series product line[280]. - Service sales decreased by approximately 512,412 or 57.1% to 386,204forthethreemonthsendedSeptember30,2024,primarilyduetotheterminationofathird−partybottlingcontract[280].−TotalnetsalesfortheninemonthsendedSeptember30,2024,wereapproximately386,204 for the three months ended September 30, 2024, primarily due to the termination of a third-party bottling contract[280]. - Total net sales for the nine months ended September 30, 2024, were approximately 5,310,000, a decrease of 215,000,or3.9215,000, or 3.9%, compared to 5,525,000 for the same period in 2023[299]. - Product sales increased by approximately 678,000,or20.1678,000, or 20.1%, to approximately 4,051,000 for the nine months ended September 30, 2024, compared to 3,373,000forthesameperiodin2023[302].−Servicesalesdecreasedbyapproximately3,373,000 for the same period in 2023[302]. - Service sales decreased by approximately 894,000, or 41.5%, to approximately 1,259,000fortheninemonthsendedSeptember30,2024,comparedto1,259,000 for the nine months ended September 30, 2024, compared to 2,152,000 for the same period in 2023[302]. - The company reported a net income of approximately 5,526,000fortheninemonthsendedSeptember30,2024,asignificantimprovementcomparedtoanetlossof5,526,000 for the nine months ended September 30, 2024, a significant improvement compared to a net loss of (31,642,000) for the same period in 2023[325]. Cost and Expenses - Cost of sales decreased by approximately 240,685or17.5240,685 or 17.5% to 1,131,691 for the three months ended September 30, 2024, compared to 1,372,376forthesameperiodin2023[276].−Generalandadministrativeexpensesareexpectedtoriseduetopubliccompanycompliancecostsandinfrastructureenhancementstosupportbusinessgrowth[264].−Salesandmarketingexpensesdecreasedbyapproximately1,372,376 for the same period in 2023[276]. - General and administrative expenses are expected to rise due to public company compliance costs and infrastructure enhancements to support business growth[264]. - Sales and marketing expenses decreased by approximately 199,000 to approximately 1,271,000forthethreemonthsendedSeptember30,2024,comparedto1,271,000 for the three months ended September 30, 2024, compared to 1,470,000 in 2023[288]. - General and administrative expenses increased by approximately 136,000toapproximately136,000 to approximately 1,439,000 for the three months ended September 30, 2024, compared to 1,303,000in2023[290].−Salesandmarketingexpensesdecreasedbyapproximately1,303,000 in 2023[290]. - Sales and marketing expenses decreased by approximately 803,000 to 3,760,000fortheninemonthsendedSeptember30,2024,comparedto3,760,000 for the nine months ended September 30, 2024, compared to 4,563,000 for the same period in 2023[310]. - General and administrative expenses decreased by approximately 1,371,000to1,371,000 to 4,632,000 for the nine months ended September 30, 2024, compared to 6,003,000forthesameperiodin2023[311].ProfitabilityMetrics−GrossprofitforthethreemonthsendedSeptember30,2024,was6,003,000 for the same period in 2023[311]. Profitability Metrics - Gross profit for the three months ended September 30, 2024, was 629,743, down from 715,654in2023,reflectingadecreaseof715,654 in 2023, reflecting a decrease of 85,911[276]. - Gross profit increased by approximately 396,000,or28396,000, or 28%, to approximately 1,786,000 for the nine months ended September 30, 2024, compared to 1,390,000forthesameperiodin2023[308].−Thegrossmarginimprovedfrom341,390,000 for the same period in 2023[308]. - The gross margin improved from 34% in Q3 2023 to 35% in Q3 2024, indicating a successful shift towards higher-margin activities[277]. - The gross margin improved to approximately 33.6% for the nine months ended September 30, 2024, compared to 25.2% for the same period in 2023[308]. Strategic Initiatives - The company aims to expand its wholesale distribution by leveraging brand recognition gained through DtC sales, which supports larger-scale growth across retail chains[253]. - Collaboration with Native American tribes through the Tribal Beverage Network (TBN) is expected to enhance brand recognition and sales, with royalties on gross sales from tribal-owned businesses[254]. - Management plans to shift focus from low-margin third-party production to opening more TBN locations and increasing high-margin DtC sales of the Salute Series line, aiming for significant revenue gains[309]. - The company expects overall gross margin to increase as more high-margin products are added to the wholesale distribution channel[286]. Market Trends and Challenges - The craft spirits segment generated over 21.4 billion in revenue in 2023, with an estimated CAGR of 29.4% from 2024 to 2030[249]. - The company plans to manage inflationary pressures on raw materials and labor costs while adapting to changing consumer preferences for premium products[256]. - The company has experienced a 30% increase in oak barrel costs since early 2022, but has seen a significant reduction in the price of quality aged bourbon barrels, which may lower input costs for premium products[256][257]. Financing and Cash Flow - The company expects to fund operations and expansion plans into at least the third quarter of 2025 using net proceeds from its IPO and cash generated from sales[328]. - The company reported a net cash provided by financing activities of 6,210,000fortheninemonthsendedSeptember30,2024,comparedto6,210,000 for the nine months ended September 30, 2024, compared to 6,047,000 for the same period in 2023[336]. - The company incurred net cash used in operating activities of approximately (6,228,000)fortheninemonthsendedSeptember30,2024,comparedto(6,228,000) for the nine months ended September 30, 2024, compared to (6,068,000) for the same period in 2023[336]. - The company has been out of compliance with various financial covenants under the Silverview Loan but received waivers for past defaults and breaches as of October 1, 2024[327]. Company Status and Compliance - The company is classified as an "emerging growth company" and has elected to use an extended transition period for complying with new or revised accounting standards[353]. - The company will cease to be an emerging growth company when total annual gross revenues reach $1.235 billion or more[354]. - There is uncertainty regarding investor perception of the company's common stock attractiveness post-emerging growth status, which may affect trading activity and share price volatility[355].