The Duckhorn Portfolio(NAPA) - 2024 Q4 - Annual Report

Financial Performance - Net sales for Fiscal 2024 were $405,481,000, a slight increase of 0.6% compared to $402,996,000 in Fiscal 2023[266] - Gross profit for Fiscal 2024 was $214,926,000, down from $215,689,000 in Fiscal 2023[266] - Net income attributable to The Duckhorn Portfolio, Inc. decreased to $56,013,000 in Fiscal 2024 from $69,298,000 in Fiscal 2023[266] - Adjusted EBITDA increased to $155,084,000 in Fiscal 2024, compared to $144,509,000 in Fiscal 2023[266] - Selling, general and administrative expenses increased to $120.1 million in Fiscal 2024, representing 29.6% of net sales, compared to 27.2% in Fiscal 2023[302] - Total selling, general and administrative expenses increased by $10.4 million, or 9.5%, for Fiscal 2024 compared to Fiscal 2023, reaching $120.1 million[306] - Interest expense increased by $6.4 million, or 54.4%, for Fiscal 2024, totaling $18.1 million, primarily due to higher average outstanding debt balances[307] - Income tax expense decreased by $4.4 million, or 17.4%, for Fiscal 2024, amounting to $20.8 million, mainly due to a decrease in income before taxes[308] - Basic earnings per share decreased to $0.45 in fiscal 2024 from $0.60 in fiscal 2023, a drop of 25%[384] - Net income for fiscal year 2024 was $56,021,000, a decrease from $69,286,000 in fiscal year 2023[388] Sales and Market Presence - The wholesale channel accounted for 69.8% of net sales in Fiscal 2024, up from 67.9% in Fiscal 2023[272] - Net sales growth contribution for Fiscal 2024 was primarily driven by a volume contribution of 3.1%, despite a negative price/mix contribution of (2.5)%[277] - The company expects Duckhorn Vineyards, Decoy, and Sonoma-Cutrer to drive the majority of net sales growth in future periods[274] - The five largest customers represented approximately 45% of net sales in Fiscal 2024, with Customer A contributing 14%, Customer B 12%, and Customer C 10%[440] - Duckhorn Vineyards & Decoy brands contributed 76.1% of total net sales in Fiscal 2024, down from 79.2% in Fiscal 2023[447] Acquisitions and Investments - The acquisition of Sonoma-Cutrer on April 30, 2024, is expected to enhance market presence and contribute to net sales growth[263] - The company completed the acquisition of Sonoma-Cutrer for approximately $267.1 million, consisting of 31,531,532 shares of common stock and $50 million in cash[291] - The acquisition of Geyserville Winery was completed for $54.6 million, funded by $15 million from the Credit Facility and available cash, enhancing processing and storage capabilities[293] - The company incurred $49,614,000 for the acquisition of a business in fiscal year 2024[388] - The acquisition of Sonoma-Cutrer is expected to enhance the Company's portfolio of luxury Chardonnay wines[449] Cash Flow and Liquidity - Net cash provided by operating activities was $4.2 million for Fiscal 2024, a significant decrease of $65.9 million compared to $70.1 million in Fiscal 2023[325] - As of July 31, 2024, the company had $10.9 million in cash and $324.0 million in undrawn capacity on its revolving line of credit[316] - The company expects cash flows generated from operations and its Credit Facility to be adequate for future business growth plans and contractual obligations[318] - Net cash provided by financing activities in Fiscal 2024 was $77.6 million, significantly up from $5.7 million in Fiscal 2023, primarily due to borrowings under the line of credit of $135.0 million[328] Assets and Liabilities - Total current assets increased to $537.5 million in fiscal 2024 from $387.5 million in fiscal 2023, representing a 38.6% growth[382] - Total liabilities increased to $544.6 million in fiscal 2024 from $405.3 million in fiscal 2023, representing a 34.3% increase[382] - The company's total assets reached $1.8 billion in fiscal 2024, up from $1.3 billion in fiscal 2023, indicating a growth of 34.8%[382] - The company's goodwill balance was $483.9 million as of July 31, 2024, with an annual impairment test conducted as of June 30[377] Operational Insights - Approximately 10% of the grapes are sourced from the company's Estate properties, with 90% sourced from third-party growers, allowing for flexibility in production[283] - The company maintains a diversified sourcing model, with the ability to adjust grape sourcing based on market conditions, optimizing gross profit[283] - The cost of grapes purchased for wine production was $85.7 million in Fiscal 2024, compared to $71.0 million in Fiscal 2023[432] - The company does not engage in commodity hedging for grape purchases, which are subject to market conditions and can impact future results[363] Tax and Compliance - The effective tax rate for Fiscal 2024 was 27.1%, up from 26.7% in Fiscal 2023, primarily due to nondeductible transaction costs[309] - The Company’s effective tax rate may be affected by the realization of deferred tax assets, which are evaluated based on future taxable income forecasts[428] - The company is in compliance with all covenants under its Credit Agreement as of July 31, 2024[333] Other Financial Metrics - Total other expenses, net, increased by $6.5 million, or 56.6%, for Fiscal 2024, totaling $18.0 million[307] - Depreciation and amortization expenses rose to $37,168,000 in fiscal year 2024, up from $27,768,000 in fiscal year 2023[388] - Equity-based compensation increased to $7,319,000 in fiscal year 2024 from $6,290,000 in fiscal year 2023[388] - The Company recognized consideration given to customers totaling $52.7 million, $57.5 million, and $66.3 million for Fiscal 2024, 2023, and 2022, respectively, as a reduction to net sales[407] Brand and Market Strategy - The company operates a portfolio of winery brands, including Duckhorn Vineyards and Sonoma-Cutrer, focusing on luxury and ultra-luxury wine production[389] - The launch of Decoy Featherweight Sauvignon Blanc in January 2024 targets the lower-in-calorie/lower-in-alcohol wine category[261] - The company plans to continue investing in direct-to-consumer (DTC) capabilities to enhance consumer engagement and brand loyalty[262]