Financial Performance - The craft spirits segment generated revenues exceeding $21.4 billion in 2023, with a projected CAGR of 29.4% from 2024 to 2030[323]. - For the three months ended September 30, 2025, total net revenue was $2,989,001, an increase of approximately $1,227,567 or 69.6% compared to $1,761,434 in 2024[374]. - Net income for the three months ended September 30, 2025, was $196,263,893, a significant increase of $199,696,824 compared to a net loss of $(3,432,931) in 2024[374]. - Total net revenue for the nine months ended September 30, 2025, was $5,402,806, a slight increase of $92,899 or 1.75% compared to $5,309,907 in 2024[408]. - Net income for the nine months ended September 30, 2025, was $185,935,769, compared to a net income of $5,426,409 in 2024, reflecting an increase of $180,509,360[408]. Sales and Revenue Trends - The spirits business net sales decreased to approximately $1,081,000 in 2025 from $1,774,000 in 2024, representing a decline of approximately $693,000 or 39.1%[375]. - Total sales for the Spirits Business decreased to $1,081,000 in Q3 2025 from $1,774,000 in Q3 2024, a decline of approximately 61.0%[394]. - Net sales in the Spirits Business decreased by approximately $1,816,000, or 34.2%, from $5,310,000 in 2024 to $3,494,000 in 2025[410]. - Product sales in the Spirits Business dropped by $1,337,000, with wholesale sales decreasing by $342,000 and retail sales decreasing by $769,000[411]. Cost and Profitability - The gross profit for the Spirits Business decreased by approximately $1,310,000, or 73.3%, from $1,786,000 in 2024 to $476,000 in 2025, with a gross margin of 13.6% compared to 33.6% in the previous year[425]. - The gross margin for products in the Spirits Business was (31.7)% for the three months ended September 30, 2025, a decrease of 50.4% from 18.7% in 2024[390]. - The cost of sales for the Spirits Business decreased by approximately $506,000, or 14.4%, from $3,524,000 in 2024 to $3,018,000 in 2025[415]. - Unabsorbed overhead as a component of product cost increased to 60.4% in 2025 from 48.2% in 2024, contributing to lower gross margins[420]. Digital Assets and Cryptocurrency - The company completed a $223.8 million PIPE transaction, acquiring 53.2 million $IP Tokens for its digital asset treasury[322]. - The company staked 43.5 million of its $IP Tokens to establish a validator business, generating recurring revenue[330]. - The fair value of intangible digital assets was reported at $455,648,074 as of September 30, 2025, based on a closing price of $8.54 per $IP Token[362]. - The company recognized a gain of approximately $245,841,000 on the change in fair value of intangible digital assets for the nine months ended September 30, 2025, compared to $0 for the same period in 2024[439]. Operational Challenges - The company faces various risks, including market volatility and regulatory challenges related to its cryptocurrency assets[331]. - The company has experienced modest inflation in raw inputs, particularly in grains and packaging materials, but maintains low exposure to tariff impacts[345]. - Shipping rates have largely returned to pre-COVID levels, despite recent bankruptcies in the freight market[346]. - The company expects to reduce unabsorbed overhead significantly in 2026 as it transitions to third-party production and reduces headcount[425]. Expenses and Liabilities - General and administrative expenses increased to approximately $1,981,000 in Q3 2025 from $1,439,000 in Q3 2024, an increase of approximately 37.7%[399]. - Sales and marketing expenses decreased to approximately $1,023,000 in Q3 2025 from $1,270,000 in Q3 2024, a reduction of approximately 19.4%[398]. - Interest expense decreased by approximately $164,000 to approximately $498,000 in Q3 2025 compared to $662,000 in Q3 2024[402]. - The company recorded a deferred income tax liability of $49,426,794 as of September 30, 2025, based on year-to-date net income before income taxes[405]. Future Outlook - The company is focusing on product innovation to drive long-term revenue growth, especially in the premium segments[349]. - The company anticipates improvements in overall gross profit and gross margin as it focuses on high-margin items and expands its distribution channels[428]. - The company expects to earn revenues from validator services on a full quarter basis moving forward, as these services were only operational for approximately two weeks in the quarter ended September 30, 2025[380]. - The company anticipates finalizing a Section 382 net operating loss review to assess the usability of past NOLs in light of the August 15, 2025 PIPE transaction[371].
Heritage Distilling Holding Co Inc(CASK) - 2025 Q3 - Quarterly Report