The Duckhorn Portfolio Announces Fiscal Third Quarter 2024 Financial Results

ST. HELENA, Calif.--(BUSINESS WIRE)--The Duckhorn Portfolio, Inc. (NYSE: NAPA) (the "Company") today reported its financial results for the three months ended April 30, 2024.

Third Quarter 2024 Highlights

• Net sales were $92.5 million, an increase of $1.3 million, or 1.4%, versus the prior year period.
• Gross profit was $51.4 million, an increase of $0.9 million, or 1.8%, versus the prior year period. Gross profit margin was 55.6%, up 20 basis points versus the prior year period.
• Net income was $13.3 million, or $0.12 per diluted share, versus $16.8 million, or $0.15 per diluted share, in the prior year period. Adjusted net income was $16.3 million, or $0.14 per diluted share, versus $19.0 million, or $0.16 per diluted share, in the prior year period.
• Adjusted EBITDA was $37.7 million, an increase of $1.9 million, or 5.3%, and adjusted EBITDA margin was 40.8%, up 150 basis points versus the prior year period.
• Cash was $15.7 million as of April 30, 2024. The Company's leverage ratio was 2.1x net debt (net of debt issuance costs) to trailing twelve months adjusted EBITDA.

"Our teams continued to execute against a challenging industry backdrop," said Deirdre Mahlan, President, CEO and Chairperson. "While top line results were impacted by the softer wine market, our ongoing commitment to operational excellence enabled us to maintain strong performance in the third quarter, with an adjusted EBITDA margin of 40.8%. As we approach the end of the year, we are making substantial progress with the integration of Sonoma-Cutrer, capturing higher than expected cost synergies, and significantly advancing our Route-to-Consumer realignment, which we announced in late May. Looking ahead, we believe the Company is well positioned to deliver sustained profitable growth and long-term shareholder value."

Third Quarter 2024 Results

	Three months ended April 30,						Nine months ended April 30,
	2024			2023			2024			2023
Net sales growth (decline)	1.4	%		(0.4	)%		(1.6	)%		2.9	%
Volume contribution	(4.6	)%		3.5	%		(3.5	)%		4.2	%
Price / mix contribution	6.0	%		(3.9	)%		1.9	%		(1.4	)%

	Three months ended April 30,						Nine months ended April 30,
	2024			2023			2024			2023
Wholesale - Distributors	60.4	%		68.6	%		66.6	%		68.9	%
Wholesale - California direct to trade	16.0			17.5			16.9			17.4
DTC	23.6			13.9			16.5			13.7
Net sales	100.0	%		100.0	%		100.0	%		100.0	%

Net sales were $92.5 million, an increase of $1.3 million, or 1.4%, versus $91.2 million in the prior year period. The increase in net sales was driven primarily by the shift in timing of the DTC Kosta Browne appellation series offering from the fourth quarter in fiscal 2023 to the third quarter in fiscal 2024. Higher price / mix was partially offset by lower shipment volume.

Gross profit was $51.4 million, an increase of $0.9 million, or 1.8%, versus the prior year period. Gross profit margin was 55.6%, improving 20 basis points versus the prior year period as a result of cost of sales improvement.

Total selling, general and administrative expenses were $29.7 million, an increase of $5.8 million, or 24.0%, versus $24.0 million in the prior year period, driven by higher transaction costs related to our acquisition of Sonoma-Cutrer Vineyards. Adjusted selling, general and administrative expenses were $21.0 million, an increase of $0.5 million, or 2%, versus $20.5 million in the prior year period, driven by careful cost controls.

Net income was $13.3 million, or $0.12 per diluted share, versus $16.8 million, or $0.15 per diluted share, in the prior year period. Adjusted net income was $16.3 million, or $0.14 per diluted share, versus $19.0 million, or $0.16 per diluted share, in the prior year period. The decrease in adjusted net income was primarily driven by higher interest, taxes and depreciation expense related to the acquisition of our Geyserville production winery in Fiscal 2023, partially offset by favorable gross profit.

Adjusted EBITDA was $37.7 million, an increase of $1.9 million, or 5.3%, versus $35.8 million in the prior year period. This increase was driven primarily by an improvement in gross margin and cost controls that resulted in slower growth of selling, general and administrative expenses. As a result, adjusted EBITDA margin improved 150 basis points versus the prior year period.

Fiscal Year 2024 Guidance

The Company is updating guidance to the ranges below for Fiscal Year 2024 (which includes sales of Sonoma-Cutrer Vineyards wines in the fourth quarter):

(amounts in millions, except per share data and percentages)	Fiscal year ended July 31, 2024
Net sales (including Sonoma-Cutrer Vineyards net sales)	$398	-	$408
Sonoma-Cutrer Vineyards net sales of approximately	$16
Adjusted EBITDA	$146	-	$150
Adjusted EPS	$0.56	-	$0.58
Diluted share count	123.5
Effective tax rate	27%	-	29%

Conference Call and Webcast

The Company will host a conference call to discuss these results at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time.) Investors interested in participating in the live call can dial 833-470-1428 from the U.S. and 404-975-4839 internationally, and enter confirmation code 799215. A telephone replay will be available approximately two hours after the call concludes through Thursday, June 20, 2024, by dialing 866-813-9403 or 929-458-6194, and entering confirmation code 213170.

There will also be a simultaneous, live webcast available on the Company's investor relations website at https://ir.duckhorn.com/events-and-presentations. The webcast will be archived for 30 days.

About The Duckhorn Portfolio, Inc.

The Duckhorn Portfolio is North America's premier luxury wine company, with eleven wineries, ten state-of-the-art winemaking facilities, eight tasting rooms and over 2,200 coveted acres of vineyards spanning 38 Estate properties. Established in 1976, when vintners Dan and Margaret Duckhorn founded Napa Valley's Duckhorn Vineyards, today, our portfolio features some of North America's most revered wineries, including Duckhorn Vineyards, Decoy, Sonoma-Cutrer, Kosta Browne, Goldeneye, Paraduxx, Calera, Migration, Postmark, Canvasback and Greenwing. Sourcing grapes from our own Estate vineyards and fine growers in Napa Valley, Sonoma County, Anderson Valley, California's North and Central coasts, Oregon and Washington State, we offer a curated and comprehensive portfolio of acclaimed luxury wines with price points ranging from $20 to $230 across more than 15 varietals and 39 appellations. Our wines are available throughout the United States, on five continents, and in more than 50 countries around the world. To learn more, visit us at: https://www.duckhornportfolio.com/. Investors can access information on our investor relations website at: https://ir.duckhorn.com.

Use of Non-GAAP Financial Information

In addition to the Company's results, which are determined in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company believes the following non-GAAP measures presented in this press release and discussed on the related teleconference call are useful in evaluating its operating performance: adjusted gross profit, adjusted selling, general and administrative expenses, adjusted EBITDA, adjusted net income and adjusted EPS. Certain of these non-GAAP measures exclude depreciation and amortization, non-cash equity-based compensation expense, purchase accounting adjustments, casualty losses or gains, impairment losses, inventory write-downs, changes in the fair value of derivatives, and certain other items, net of the tax effects of all such adjustments, which are not related to the Company's core operating performance. The Company believes that these non-GAAP financial measures are provided to enhance the reader's understanding of our past financial performance and our prospects for the future. The Company's management team uses these non-GAAP financial measures to evaluate business performance in comparison to budgets, forecasts and prior period financial results. The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation is provided herein for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Readers are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Forward-Looking Statements

This press release includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as "anticipate," "expect," "plan," "could," "may," "will," "believe," "estimate," "forecast," "goal," "project," and other words of similar meaning. These forward-looking statements address various matters including statements regarding the timing or nature of future operating or financial performance or other events. For example, all statements The Duckhorn Portfolio makes relating to its estimated and projected financial results or its plans and objectives for future operations, growth initiatives or strategies are forward-looking statements. Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, the Company's ability to manage the growth of its business; the Company's reliance on its brand name, reputation and product quality; the effectiveness of the Company's marketing and advertising programs, including the consumer reception of the launch and expansion of our product offerings; general competitive conditions, including actions the Company's competitors may take to grow their businesses; overall decline in the health of the economy and the impact of inflation on consumer discretionary spending and consumer demand for wine; the occurrence of severe weather events (including fires, floods and earthquakes), catastrophic health events, natural or man-made disasters, social and political conditions, war or civil unrest; risks associated with disruptions in the Company's supply chain for grapes and raw and processed materials, including corks, glass bottles, barrels, winemaking additives and agents, water and other supplies; risks associated with the disruption of the delivery of the Company's wine to customers; disrupted or delayed service by the distributors and government agencies the Company relies on for the distribution of its wines outside of California; the Company's ability to successfully execute its growth strategy; risks associated with our acquisition of Sonoma-Cutrer Vineyards, Inc.; decreases in the Company's wine score ratings by wine rating organizations; quarterly and seasonal fluctuations in the Company's operating results; the Company's success in retaining or recruiting, or changes required in, its officers, key employees or directors; the Company's ability to protect its trademarks and other intellectual property rights, including its brand and reputation; the Company's ability to comply with laws and regulations affecting its business, including those relating to the manufacture, sale and distribution of wine; the risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions specific to both domestic and to international markets; claims, demands and lawsuits to which the Company is, and may in the future, be subject and the risk that its insurance or indemnities coverage may not be sufficient; the Company's ability to operate, update or implement its IT systems; the Company's ability to successfully pursue strategic acquisitions and integrate acquired businesses; the Company's potential ability to obtain additional financing when and if needed; the Company's substantial indebtedness and its ability to maintain compliance with restrictive covenants in the documents governing such indebtedness; the Company's largest shareholders' significant influence over the Company; the potential liquidity and trading of the Company's securities; the future trading prices of the Company's common stock and the impact of securities analysts' reports on these prices; and the risks identified in the Company's other filings with the SEC. The Company cautions investors not to place considerable reliance on the forward-looking statements contained in this press release. You are encouraged to read the Company's filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The forward-looking statements in this press release speak only as of the date of this document, and the Company undertakes no obligation to update or revise any of these statements. The Company's business is subject to substantial risks and uncertainties, including those referenced above. Investors, potential investors, and others should give careful consideration to these risks and uncertainties.

THE DUCKHORN PORTFOLIO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except shares and per share data)
	April 30, 2024			July 31, 2023
ASSETS
Current assets:
Cash	$	15,735		$	6,353
Accounts receivable trade, net		44,893			48,706
Inventories		454,921			322,227
Prepaid expenses and other current assets		6,445			10,244
Total current assets		521,994			387,530
Property and equipment, net		565,806			323,530
Operating lease right-of-use assets		17,189			20,376
Intangible assets, net		195,557			184,227
Goodwill		483,818			425,209
Other assets		9,100			6,810
Total assets	$	1,793,464		$	1,347,682
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,344		$	4,829
Accrued expenses		30,915			38,246
Accrued compensation		10,802			16,460
Current maturities of long-term debt		9,721			9,721
Due to related party		1,730			-
Other current liabilities		5,990			5,204
Total current liabilities		64,502			74,460
Revolving line of credit		102,000			13,000
Long-term debt, net of current maturities and debt issuance costs		203,206			210,619
Operating lease liabilities		13,398			16,534
Deferred income taxes		151,175			90,216
Other liabilities		647			445
Total liabilities		534,928			405,274
Stockholders' equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 147,048,822 and 115,316,308 issued and outstanding at April 30, 2024 and July 31, 2023, respectively		1,470			1,153
Additional paid-in capital		1,008,643			737,557
Retained earnings		247,839			203,122
Total The Duckhorn Portfolio, Inc. stockholders' equity		1,257,952			941,832
Non-controlling interest		584			576
Total stockholders' equity		1,258,536			942,408
Total liabilities and stockholders' equity	$	1,793,464		$	1,347,682

THE DUCKHORN PORTFOLIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except shares and per share data)
	Three months ended April 30,							Nine months ended April 30,
	2024				2023			2024				2023
Net sales (net of excise taxes of $1,114, $1,126, $3,915 and $4,179, respectively)	$	92,532			$	91,242		$	298,086			$	302,901
Cost of sales		41,089				40,731			134,472				142,494
Gross profit		51,443				50,511			163,614				160,407
Selling, general and administrative expenses		29,739				23,989			89,469				79,307
Income from operations		21,704				26,522			74,145				81,100
Interest expense		4,531				2,993			13,035				7,839
Other (income) expense, net		(3,054	)			729			(2,171	)			3,385
Total other expenses, net		1,477				3,722			10,864				11,224
Income before income taxes		20,227				22,800			63,281				69,876
Income tax expense		6,906				6,006			18,556				18,358
Net income		13,321				16,794			44,725				51,518
Net loss (income) attributable to non-controlling interest		2				3			(8	)			11
Net income attributable to The Duckhorn Portfolio, Inc.	$	13,323			$	16,797		$	44,717			$	51,529
Earnings per share of common stock:
Basic	$	0.12			$	0.15		$	0.39			$	0.45
Diluted	$	0.12			$	0.15		$	0.39			$	0.45
Weighted average shares of common stock outstanding:
Basic		115,804,326				115,255,671			115,504,766				115,209,972
Diluted		115,834,119				115,367,455			115,627,182				115,425,034

THE DUCKHORN PORTFOLIO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
	Nine months ended April 30,
	2024				2023
Cash flows from operating activities
Net income	$	44,725			$	51,518
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		26,698				20,528
(Gain) loss on disposal of assets		(19	)			75
Change in fair value of derivatives		(1,717	)			2,943
Amortization of debt issuance costs		582				774
Equity-based compensation		4,960				4,741
Change in operating assets and liabilities; net of acquisition:
Accounts receivable trade, net		3,813				(6,248	)
Inventories		(68,694	)			(39,278	)
Prepaid expenses and other current assets		4,101				1,633
Other assets		(753	)			(508	)
Accounts payable		(743	)			(352	)
Accrued expenses		(5,642	)			3,681
Accrued compensation		(5,934	)			(831	)
Deferred revenue		1,008				12,884
Other current and non-current liabilities		(2,794	)			193
Net cash (used in) provided by operating activities		(409	)			51,753
Cash flows from investing activities
Purchases of property and equipment, net of sales proceeds		(21,466	)			(14,111	)
Acquisition of business, net of cash acquired		(49,614	)			-
Net cash used in investing activities		(71,080	)			(14,111	)
Cash flows from financing activities
Payments under line of credit		(29,000	)			(119,000	)
Borrowings under line of credit		118,000				9,000
Issuance of long-term debt		-				225,833
Payments of long-term debt		(7,500	)			(117,666	)
Proceeds from employee stock purchase plan		119				181
Taxes paid related to net share settlement of equity awards		(630	)			(648	)
Payment of equity issuance costs		(118	)			-
Payments for debt issuance costs		-				(2,432	)
Net cash provided by (used in) financing activities		80,871				(4,732	)
Net increase in cash		9,382				32,910
Cash - Beginning of period		6,353				3,167
Cash - End of period	$	15,735			$	36,077
Supplemental cash flow information
Interest paid, net of amount capitalized	$	12,944			$	4,421
Income taxes paid	$	28,053			$	10,921
Non-cash investing and financing activities
Property and equipment additions in accounts payable and accrued expenses	$	400			$	332
Consideration payable for the acquisition of Sonoma-Cutrer Vineyards	$	778			$	-
Value of shares issued related to the acquisition of Sonoma-Cutrer	$	267,072			$	-

THE DUCKHORN PORTFOLIO, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Adjusted gross profit, adjusted selling, general and administrative expenses, adjusted net income, adjusted EBITDA and adjusted EPS, collectively referred to as "Non-GAAP Financial Measures," are commonly used in the Company's industry and should not be construed as an alternative to net income or earnings per share as indicators of operating performance (as determined in accordance with GAAP). These Non-GAAP Financial Measures may not be comparable to similarly titled measures reported by other companies. The Company has included these Non-GAAP Financial Measures because it believes the measures provide management and investors with additional information to evaluate business performance in comparison to budgets, forecasts and prior year financial results.

Non-GAAP Financial Measures are adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or recurring items.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that the Company calculates as net income before interest, taxes, depreciation and amortization, non-cash equity-based compensation expense, purchase accounting adjustments, transaction expenses, acquisition integration expenses, changes in the fair value of derivatives and certain other items which are not related to our core operating performance. Adjusted EBITDA is a key performance measure the Company uses in evaluating its operational results. The Company believes adjusted EBITDA is a helpful measure to provide investors an understanding of how management regularly monitors the Company's core operating performance, as well as how management makes operational and strategic decisions in allocating resources. The Company believes adjusted EBITDA also provides management and investors consistency and comparability with the Company's past financial performance and facilitates period to period comparisons of operations, as it eliminates the effects of certain variations unrelated to its overall performance.

Adjusted EBITDA has certain limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of the Company's results as reported under GAAP. Some of these limitations include:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect changes in, or cash requirements for, the Company's working capital needs;
• adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt;
• adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to the Company; and
• other companies, including companies in the Company's industry, may calculate adjusted EBITDA differently, which reduce their usefulness as comparative measures.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including net income and the Company's other GAAP results. In evaluating adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of adjusted EBITDA should not be construed as an inference that the Company's future results will be unaffected by the types of items excluded from the calculation of adjusted EBITDA.

Adjusted Gross Profit

Adjusted gross profit is a non-GAAP financial measure that the Company calculates as gross profit excluding the impact of purchase accounting adjustments (including depreciation and amortization related to purchase accounting), non-cash equity-based compensation expense, and certain inventory charges. We believe adjusted gross profit is a useful measure to us and our investors to assist in evaluating our operating performance because it provides consistency and direct comparability with our past financial performance between fiscal periods, as the metric eliminates the effects of non-cash or other expenses unrelated to our core operating performance that would result in fluctuations in a given metric for reasons unrelated to overall continuing operating performance. Adjusted gross profit should not be considered a substitute for gross profit or any other measure of financial performance reported in accordance with GAAP.

Adjusted Net Income and Adjusted Selling, General and Administrative Expenses

Adjusted net income is a non-GAAP financial measure that the Company calculates as net income excluding the impact of non-cash equity-based compensation expense, purchase accounting adjustments, transaction expenses, acquisition integration expenses, changes in the fair value of derivatives and certain other items unrelated to core operating performance, as well as the estimated income tax impacts of all such adjustments included in this non-GAAP performance measure. We believe adjusted net income assists us and our investors in evaluating our performance period-over-period. In calculating adjusted net income, we also calculate the following non-GAAP financial measures which adjust each GAAP-based financial measure for the relevant portion of each adjustment to reach adjusted net income:

• Adjusted SG&A - calculated as selling, general, and administrative expenses excluding the impacts of purchase accounting, transaction expenses, acquisition integration expenses, equity-based compensation; and
• Adjusted income tax - calculated as the tax effect of all adjustments to reach adjusted net income based on the applicable blended statutory tax rate for the period.

Adjusted net income should not be considered a substitute for net income or any other measure of financial performance reported in accordance with GAAP.

Adjusted EPS

Adjusted EPS is a non-GAAP financial measure that the Company calculates as adjusted net income divided by diluted share count for the applicable period. We believe adjusted EPS is useful to us and our investors because it improves the comparability of results of operations from period to period. Adjusted EPS should not be considered a substitute for net income per share or any other measure of financial performance reported in accordance with GAAP.

THE DUCKHORN PORTFOLIO, INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited, in thousands, except per share data)
	Three months ended April 30, 2024
	Net sales				Gross profit				SG&A				Adjusted EBITDA				Income tax				Net income				Diluted EPS
GAAP results	$	92,532			$	51,443			$	29,739			$	13,323			$	6,906			$	13,323			$	0.12
Percentage of net sales						55.6	%			32.1	%			14.4	%
Interest expense														4,531
Income tax expense														6,906
Depreciation and amortization expense						95				(2,352	)			9,661
EBITDA													$	34,421
Purchase accounting adjustments						11								11				4				7				-
Transaction expenses										(4,229	)			4,229				720				3,509				0.03
Acquisition integration costs										(616	)			616				210				406				-
Change in fair value of derivatives														(2,975	)			(1,014	)			(1,961	)			(0.02	)
Equity-based compensation						184				(1,283	)			1,467				445				1,022				0.01
Lease income, net		(322	)			(322	)			(279	)			(43	)			(15	)			(28	)			-
Non-GAAP results	$	92,210			$	51,411			$	20,980			$	37,726			$	7,256			$	16,278			$	0.14
Percentage of net sales						55.6	%			22.7	%			40.8	%
	Three months ended April 30, 2023
	Net sales				Gross profit				SG&A				Adjusted EBITDA				Income tax				Net income				Diluted EPS
GAAP results	$	91,242			$	50,511			$	23,989			$	16,797			$	6,006			$	16,797			$	0.15
Percentage of net sales						55.4	%			26.3	%			18.4	%
Interest expense														2,993
Income tax expense														6,006
Depreciation and amortization expense						108				(1,903	)			7,238
EBITDA													$	33,034
Purchase accounting adjustments						224								224				59				165				-
Transaction expenses										(142	)			142				(60	)			202				-
Change in fair value of derivatives														882				232				650				0.01
Equity-based compensation						111				(1,427	)			1,538				345				1,193				0.01
Non-GAAP results	$	91,242			$	50,954			$	20,517			$	35,820			$	6,582			$	19,007			$	0.16
Percentage of net sales						55.8	%			22.5	%			39.3	%
Note: Sum of individual amounts may not recalculate due to rounding.

Contacts

Investor Contact
Ben Avenia-Tapper
[e-mail]
707-339-9232

Media Contact
Jessica Liddell, ICR
[e-mail]
203-682-8200