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Heritage Distilling Holding Co Inc(CASK) - 2025 Q1 - Quarterly Report
CASKHeritage Distilling Holding Co Inc(CASK)2025-05-20 21:21

Financial Performance - Total net sales for the three months ended March 31, 2025, were approximately 1,092,000,adecreaseofapproximately1,092,000, a decrease of approximately 614,000, or 36.0%, compared to 1,706,000inthesameperiodof2024[289].−Thecompany’snetincome(loss)forthethreemonthsendedMarch31,2025,was1,706,000 in the same period of 2024[289]. - The company’s net income (loss) for the three months ended March 31, 2025, was (3,033,047), compared to net income of 452,839inthesameperiodof2024,representingasignificantdecline[288].−GAAPtotalnetsaleswere452,839 in the same period of 2024, representing a significant decline[288]. - GAAP total net sales were 1,092,000, a decrease from 1,706,000in2024,representingadeclineofapproximately361,706,000 in 2024, representing a decline of approximately 36%[323]. - GAAP gross profit for the same period was 272,000, down from 409,000in2024,indicatingadecreaseofabout33.5409,000 in 2024, indicating a decrease of about 33.5%[323]. - Adjusted gross profit excluding unabsorbed overhead was 733,000 in 2025 compared to 1,071,000in2024,reflectingadeclineofapproximately31.51,071,000 in 2024, reflecting a decline of approximately 31.5%[323]. - Adjusted EBITDA for the three months ended March 31, 2025, was (2,213,000), compared to (1,906,000)in2024,indicatingaworseningofapproximately16.1(1,906,000) in 2024, indicating a worsening of approximately 16.1%[327]. Sales and Marketing - Direct-to-consumer sales are conducted in 46 states, covering approximately 96.8% of the U.S. population, allowing for higher-margin sales and valuable consumer data collection[255]. - Sales and marketing expenses are anticipated to increase as the company expands its headcount and marketing campaigns[271]. - Sales and marketing expenses rose to approximately 1,315,000 in Q1 2025, an increase of 125,000comparedto125,000 compared to 1,190,000 in Q1 2024[308]. - The Salute Series and Military DtC Spirits saw a unit sales growth of 107.8% year-over-year, while revenue growth was 76.8%, attributed to a broader selection of lower-priced products[295]. Cost Management - The cost of oak barrels has escalated by approximately 30% since early 2022, but prices began to stabilize in 2024[261]. - The company expects gross margins to fluctuate over time due to market conditions, pricing, and cost structure[270]. - The company aims to reduce unabsorbed overhead and improve gross margins by focusing on higher-margin products and optimizing production capacity[301]. - Gross profit excluding unabsorbed overhead for Q1 2025 was approximately 485,000,adecreaseof28.8485,000, a decrease of 28.8% from 681,000 in Q1 2024[305]. - Gross margin excluding unabsorbed overhead increased to 67.1% in Q1 2025 from 62.8% in Q1 2024, indicating improved cost management[306]. Operational Challenges - Operating loss for the three months ended March 31, 2025, was (2,451,177),comparedto(2,451,177), compared to (2,226,870) for the same period in 2024, reflecting an increase in operating expenses[288]. - The decrease in net sales of services was approximately 220,000,withthird−partyproductionsalesdroppingfrom220,000, with third-party production sales dropping from 111,000 in Q1 2024 to 6,000inQ12025,andretailservicesdecreasingfrom6,000 in Q1 2025, and retail services decreasing from 300,000 to 239,000[294].−Unabsorbedoverheadasacomponentofproductcostwas56.6239,000[294]. - Unabsorbed overhead as a component of product cost was 56.6% in Q1 2025 compared to 54.5% in Q1 2024, indicating ongoing challenges in capacity utilization[300]. Investment and Financing - The company expects to incur additional losses and higher operating expenses as it continues to invest in inventory and assets for growth[328]. - The Silverview Loan, originally maturing on April 15, 2025, has been extended to October 25, 2026, with a fixed interest rate of 15.0% per annum[338]. - As of the IPO date (November 25, 2024), the outstanding principal balance on the Silverview Loan was 12,250,000, with approximately 1,568,000paidtowardsprincipal,leavinganoutstandingbalanceofapproximately1,568,000 paid towards principal, leaving an outstanding balance of approximately 10,682,000[340]. - The company expects to remain in compliance with all financial covenants in the Silverview Loan agreement after using approximately 2,375,000ofthenetproceedsfromtheIPOtorepayaportionoftheloan[341].MarketPositionandGrowth−Thecraftspiritssegmentgeneratedrevenuesofover2,375,000 of the net proceeds from the IPO to repay a portion of the loan[341]. Market Position and Growth - The craft spirits segment generated revenues of over 21.4 billion in 2023, with an estimated CAGR of 29.4% from 2024 to 2030[252]. - The craft spirits market is the fastest-growing segment of the overall 288billionspiritsmarket,positioningthecompanyforsignificantgrowthopportunities[252].−ThecompanyhasdevelopedanewsaleschannelincollaborationwithNativeAmericantribes,whichisexpectedtobroadenbrandrecognitionandsales[257].ComplianceandRegulatory−ThecompanyiscurrentlynotincompliancewithNasdaq′sminimumbidpricerequirement,withacomplianceperioduntilOctober13,2025,toregaincompliance[334].−TheprovisionforincometaxeswasimmaterialforbothQ12025andQ12024duetoanetlossposition[316].Miscellaneous−Thecompanyhasrecognizedanaggregateof288 billion spirits market, positioning the company for significant growth opportunities[252]. - The company has developed a new sales channel in collaboration with Native American tribes, which is expected to broaden brand recognition and sales[257]. Compliance and Regulatory - The company is currently not in compliance with Nasdaq's minimum bid price requirement, with a compliance period until October 13, 2025, to regain compliance[334]. - The provision for income taxes was immaterial for both Q1 2025 and Q1 2024 due to a net loss position[316]. Miscellaneous - The company has recognized an aggregate of 2,684,395 in previously-unrecognized compensation expense for RSU awards upon completion of its IPO[273]. - The company retained a 12.2% ownership interest in Flavored Bourbon, LLC, with a guaranteed payout of 25.3millionuponathird−partysaleofthebrand[278].−Thecompanyrecordedagainof25.3 million upon a third-party sale of the brand[278]. - The company recorded a gain of 3,421,000 on the increase in fair value of its investment in Flavored Bourbon, LLC for the six months ended June 30, 2024[278]. - The company had no off-balance sheet arrangements as of March 31, 2025[352]. - The company is exposed to market risks from fluctuations in interest rates, which may adversely affect operations and financial condition[361].