The Duckhorn Portfolio Announces Third Quarter 2023 Financial Results

Raises Fiscal Year 2023 Outlook

Net Sales of $91.2 million

Net Income of $16.8 million; Adjusted Net Income of $19.0 million

Adjusted EBITDA of $35.8 million

ST. HELENA, Calif., June 08, 2023--(BUSINESS WIRE)--The Duckhorn Portfolio, Inc. (NYSE: NAPA) (the "Company") today reported its financial results for the three months ended April 30, 2023.

Third Quarter 2023 Highlights

• Net sales were $91.2 million, a decrease of $0.3 million, or 0.4%, versus the prior year period.

• Gross profit was $50.5 million, an increase of $6.5 million, or 14.9%, versus the prior year period. Gross profit margin was 55.4%, up 740 basis points versus the prior year period. Adjusted gross profit was $51.0 million, an increase of $2.9 million, or 6.0%, versus the prior year period. Adjusted gross profit margin was 55.8%, up 330 basis points versus the prior year period.

• Net income was $16.8 million, or $0.15 per diluted share, versus $15.6 million, or $0.14 per diluted share, in the prior year period. Adjusted net income was $19.0 million, or $0.16 per diluted share, versus $19.2 million, or $0.17 per diluted share, in the prior year period.

• Adjusted EBITDA was $35.8 million, an increase of $2.9 million, or 9.0%, and margin increased 340 basis points versus the prior year period.

• Cash was $36.1 million as of April 30, 2023. The Company’s leverage ratio was 1.7x net debt (net of deferred financing costs), to trailing twelve months adjusted EBITDA.

"Given our consistent out-performance year-to-date and confidence in sustained momentum for the balance of the year, we are pleased to again be upwardly revising our Fiscal 2023 guidance," commented Alex Ryan, President, Chief Executive Officer and Chairman. "We believe we are well-positioned to meet our financial targets and to drive long-term value for our stockholders."

"Our third quarter results provide another example of how our unique combination of superior brand strength, differentiated go to market strategy and advantaged scale enable us to continue taking share, even against an uncertain near-term macroeconomic environment."

Ryan continued, "Our consistent third quarter performance, including volume growth and robust margin expansion, are a testament to both our operational fortitude and our customers’ resilience, as wine enthusiasts and trade partners alike continue to trust in our winery brands to deliver exceptional quality."

Third Quarter 2023 Results

	Three months ended April 30,
	2023			2022
Net sales growth	(0.4	) %		1.3	%
Volume contribution	3.5	%		(0.6	) %
Price / mix contribution	(3.9	) %		1.9	%

	Three months ended April 30,
	2023			2022
Wholesale – Distributors	68.6	%		62.0	%
Wholesale – California direct to trade	17.5			16.6
DTC	13.9			21.4
Net sales	100.0	%		100.0	%

Net sales were $91.2 million, a decrease of $0.3 million, or 0.4%, versus $91.6 million in the prior year period. The decrease in net sales was primarily attributable to the impact of previously announced shifts in DTC channel shipments between Fiscal Q3 and Fiscal Q4 versus the prior year period, partially offset by price increases and volume contribution. Absent the planned shifts in DTC channel shipments, we would have seen low double digit net sales growth in the quarter, which speaks to the health of the business.

Gross profit was $50.5 million, an increase of $6.5 million, or 14.9%, versus the prior year period. Gross profit margin was 55.4%, improving 740 basis points versus the prior year period. Margins expanded as a result of favorable brand mix and price increases taken earlier in the fiscal year, lapping seltzer inventory reserves in the prior year period that were unrelated to our core operating performance, and partially offset by margin impacts from the shifts in DTC shipment timing. Adjusted gross profit was $51.0 million, an increase of $2.9 million, or 6.0%, versus the prior year period. Adjusted gross profit margin was 55.8%, up 330 basis points versus the prior year period.

Total selling, general and administrative expenses were $24.0 million, an increase of $0.9 million, or 3.7%, versus $23.1 million in the prior year period. Adjusted selling, general, and administrative expenses were $20.5 million, an increase of $0.9 million, or 4.4%, versus the prior year period. The increase was largely attributable to higher compensation and other selling costs, partially offset by timing of expenses versus the prior year period.

Net income was $16.8 million, or $0.15 per diluted share, versus $15.6 million, or $0.14 per diluted share, in the prior year period. Adjusted net income was $19.0 million, or $0.16 per diluted share, versus $19.2 million, or $0.17 per diluted share, in the prior year period. The results for the quarter were bolstered by higher gross profit and partially offset by increases in operating and interest expenses.

Adjusted EBITDA was $35.8 million, an increase of $2.9 million, or 9.0%, versus $32.9 million in the prior year period. Adjusted EBITDA margin increased 340 basis points versus the prior year period. These results were primarily driven by higher sales volumes, price increases and favorable brand mix, partially offset by the impacts of the DTC shipment timing shifts and higher operating expenses noted earlier.

Fiscal 2023 Guidance

The Company is upwardly revising net sales, adjusted EBITDA, and adjusted EPS guidance previously provided for Fiscal 2023.

The Company’s revised guidance ranges are presented below for Fiscal 2023:

(amounts in millions, except per share data and percentages)	Fiscal year ended July 31, 2023
Net sales	$400	-	$404
Adjusted EBITDA	$138	-	$140
Adjusted EPS	$0.64	-	$0.66
Diluted share count	115	-	116
Effective tax rate	25%	-	27%

Conference Call and Webcast

The Company will host a conference call and webcast today 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 844-200-6205 from the U.S. and 929-526-1599 internationally, and enter confirmation code 085472. A telephone replay will be available approximately two hours after the call concludes through Thursday, June 22, 2023 by dialing 929-458-6194 or 866-813-9403, and entering confirmation code 536706. There will also be a simultaneous, live webcast available on the Company’s investor relations website at https://ir.duckhorn.com. 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 ten wineries, eight state-of-the-art winemaking facilities, seven tasting rooms and over 1,100 coveted acres of vineyards spanning 32 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, Paraduxx, Goldeneye, Migration, Canvasback, Calera, Kosta Browne, Greenwing and Postmark. Sourcing grapes from our own Estate vineyards and fine growers in Napa Valley, Sonoma County, Anderson Valley, California’s North and Central coasts, and Washington State, we offer a curated and comprehensive portfolio of acclaimed luxury wines with price points ranging from $20 to $200 across more than 15 varietals and 31 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 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; the impact of COVID-19 and its variants on the Company’s customers, suppliers, business operations and financial results; 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; 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 sponsor’s significant influence over the Company, and the Company’s status as a "controlled company" under the rules of the New York Stock Exchange; 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 share and per share data)

	April 30, 2023				July 31, 2022
ASSETS
Current assets:
Cash	$	36,077			$	3,167
Accounts receivable trade, net		43,274				37,026
Inventories		327,313				285,430
Prepaid expenses and other current assets		10,929				13,898
Total current assets		417,593				339,521
Long-term assets
Property and equipment, net		267,474				269,659
Operating lease right-of-use assets		20,875				23,375
Intangible assets, net		186,116				191,786
Goodwill		425,209				425,209
Other long-term assets		5,286				1,963
Total long-term assets		904,960				911,992
Total assets	$	1,322,553			$	1,251,513
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,914			$	3,382
Accrued expenses		31,909				29,475
Accrued compensation		12,063				12,893
Deferred revenue		13,156				272
Current operating lease liabilities		3,647				3,498
Current maturities of long-term debt		9,721				9,810
Other current liabilities		3,214				672
Total current liabilities		76,624				60,002
Long-term liabilities
Revolving line of credit, net		—				108,674
Long-term debt, net of current maturities and debt issuance costs		213,158				105,074
Operating lease liabilities		17,117				19,732
Deferred income taxes		90,483				90,483
Other long-term liabilities		2,217				387
Total long-term liabilities		322,975				324,350
Total liabilities		399,599				384,352
Stockholders' equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 115,293,780 issued and outstanding at April 30, 2023 and 115,184,161 issued and outstanding at July 31, 2022		1,153				1,152
Additional paid-in capital		735,871				731,597
Retained earnings		185,353				133,824
Total The Duckhorn Portfolio, Inc. stockholders' equity		922,377				866,573
Non-controlling interest		577				588
Total stockholders' equity		922,954				867,161
Total liabilities and stockholders' equity	$	1,322,553			$	1,251,513

THE DUCKHORN PORTFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)

	Three months ended April 30,								Nine months ended April 30,
	2023				2022				2023				2022
Net sales (net of excise taxes of $1,126, $1,072, $4,179 and $4,056, respectively)	$	91,242			$	91,584			$	302,901			$	294,501
Cost of sales		40,731				47,622				142,494				148,652
Gross profit		50,511				43,962				160,407				145,849
Selling, general and administrative expenses		23,989				23,126				79,307				70,178
Income from operations		26,522				20,836				81,100				75,671
Interest expense		2,993				1,618				7,839				4,860
Other expense (income), net		729				(1,046	)			3,385				(2,477	)
Total other expenses, net		3,722				572				11,224				2,383
Income before income taxes		22,800				20,264				69,876				73,288
Income tax expense		6,006				4,699				18,358				18,483
Net income		16,794				15,565				51,518				54,805
Less: Net loss (income) attributable to non-controlling interest		3				—				11				(35	)
Net income attributable to The Duckhorn Portfolio, Inc.	$	16,797			$	15,565			$	51,529			$	54,770
Net income per share of common stock:
Basic	$	0.15			$	0.14			$	0.45			$	0.48
Diluted	$	0.15			$	0.14			$	0.45			$	0.47
Weighted average shares of common stock outstanding:
Basic		115,255,671				115,115,850				115,209,972				115,070,183
Diluted		115,367,455				115,281,724				115,425,034				115,347,808

THE DUCKHORN PORTFOLIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

	Nine months ended April 30,
	2023				2022
Cash flows from operating activities
Net income	$	51,518			$	54,805
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		20,528				17,345
Loss on disposal of assets		75				12
Change in fair value of derivatives		2,943				(1,947	)
Amortization of debt issuance costs		774				1,206
Equity-based compensation		4,741				4,240
Change in operating assets and liabilities:
Accounts receivable trade, net		(6,248	)			(5,851	)
Inventories		(39,278	)			(24,340	)
Prepaid expenses and other current assets		1,633				1,767
Other long-term assets		(508	)			(46	)
Accounts payable		(352	)			1,535
Accrued expenses		3,681				4,550
Accrued compensation		(831	)			(5,820	)
Deferred revenue		12,884				425
Other current and long-term liabilities		193				(26	)
Net cash provided by operating activities		51,753				47,855
Cash flows from investing activities
Purchases of property and equipment, net of sales proceeds		(14,111	)			(24,798	)
Net cash used in investing activities		(14,111	)			(24,798	)
Cash flows from financing activities
Payments under line of credit		(119,000	)			(77,000	)
Borrowings under line of credit		9,000				68,000
Issuance of long-term debt		225,833				—
Payments of long-term debt		(117,666	)			(8,538	)
Taxes paid related to net share settlement of equity awards		(648	)			(839	)
Proceeds from employee stock purchase plan		181				—
Payments for debt issuance costs		(2,432	)			—
Payments of deferred offering costs		—				(270	)
Net cash used in financing activities		(4,732	)			(18,647	)
Net increase in cash		32,910				4,410
Cash - Beginning of period		3,167				4,244
Cash - End of period	$	36,077			$	8,654
Supplemental cash flow information
Interest paid, net of amount capitalized	$	4,421			$	3,726
Income taxes paid	$	10,921			$	13,923
Non-cash investing activities
Property and equipment additions in accounts payable and accrued expenses	$	332			$	507

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

Adjusted gross profit, 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, casualty losses or gains, 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

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, casualty losses or gains, impairment losses (including certain inventory charges), 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 and 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

Three months ended April 30, 2023 and 2022
(Unaudited, in thousands, except per share data)

	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	%
	Three months ended April 30, 2022
	Net sales				Gross profit				SG&A				Adjusted EBITDA				Income tax				Net income				Diluted EPS
GAAP results	$	91,584			$	43,962			$	23,126			$	15,565			$	4,699			$	15,565			$	0.14
Percentage of net sales						48.0	%			25.3	%			17.0	%
Interest expense														1,618
Income tax expense														4,699
Depreciation and amortization expense						123				(1,933	)			6,237
EBITDA													$	28,119
Purchase accounting adjustments						54								54				14				41				—
Transaction expenses										(347	)			347				87				259				—
Inventory write-down						3,935								3,935				992				2,943				0.03
Change in fair value of derivatives														(990	)			(249	)			(741	)			(0.01	)
Equity-based compensation										(1,154	)			1,365				313				1,052				0.01
Wildfire costs										(43	)			43				11				32				—
Non-GAAP results	$	91,584			$	48,074			$	19,649			$	32,873			$	5,867			$	19,151			$	0.17
Percentage of net sales						52.5	%			21.5	%			35.9	%

Note: Sum of individual amounts may not recalculate due to rounding.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230608005691/en/

Contacts

Investors
Chris Mandeville, ICR
ir@duckhorn.com
707-302-2635

Media
Jessica Liddell, ICR
DuckhornPR@icrinc.com
203-682-8200