Log in
E-mail
Password
Show password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

VINTAGE WINE ESTATES, INC.

(VWE)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

VINTAGE WINE ESTATES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

10/13/2021 | 04:44pm EST
You should read the following discussion and analysis of financial condition and
results of operations together with our audited consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. This discussion may contain forward-looking statements based upon current
expectations that involve risks, uncertainties, and assumptions. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Risk
Factors" or in other parts of this Annual Report on Form 10-K. Unless the
context otherwise requires, references in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" to "we", "us", "our"
and "the Company" are intended to mean the business and operations of Vintage
Wine Estates, Inc. ("VWE") and its consolidated subsidiaries.

Overview


Vintage Wine Estates is a leading vintner in the United States ("U.S."),
offering a collection of wines produced by award-winning, heritage wineries,
popular lifestyle wines, innovative new wine brands, packaging concepts, as well
as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos
Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since
our founding over 20 years ago, we have grown organically through wine brand
creation and through acquisitions to become the 15th largest wine producer based
on cases of wine shipped in California. We've exceeded 20% net revenue and
adjusted EBITDA compound annual growth rates since 2010. We now sell nearly 2
million cases annually.

Our key differentiator is our diversification-what we call our three-legged stool business model.


We are diversified in our brand collection, producing over 50 brands ranging in
retail price from $10 to $150, with a focus on the fastest growing $10 and $20
segment. Approximately eighty percent of our business is done in this critical
segment.

We are diversified in our omni-channel sales strategy balanced between
direct-to-consumer, 30% of sales, traditional wholesale, 33% of sales and
business-to-business at 35% of sales. Our direct-to-consumer segment is
particularly robust. Where most wine companies have two direct sales levers to
pull: tasting rooms and wine clubs, we have seven: tasting rooms, wine clubs,
ecommerce, Cameron Hughes, Windsor/custom label design and engraving, QVC/HSN
and The Sommelier Company.

We are diversified in our sourcing with a strong asset base of 2,800 owned and
leased vineyard acres in located in the premier winegrowing regions of the U.S.
and 10 owned winery estates. These properties extend from the Central Coast of
California to storied appellations in Napa Valley and Sonoma County, north to
Oregon and Washington. We obtain fruit for our wines from owned and leased
vineyards, as well as other sources, including independent growers and the spot
wine market.

We have completed over 20 acquisitions in the past 10 years and completed over
10 acquisitions in the past 5 years. We generally acquire the brands and
inventories of a targeted business, eliminating redundant corporate overhead. We
then integrate the acquired assets into our highly efficient production,
distribution and omni channel selling networks, quickly increasing the sales and
margins of the acquired business.

Our growth has allowed us to reinvest in our business and create the scale and
infrastructure needed to successfully manage a variety of different wine brands
and channels and reduce costs. Our owned winery facilities have the current
capacity to produce up to 7 million cases of wine per year. As of the date of
this report, we are near completion of a $45 million investment into our Ray's
Station production facility, which includes a high-speed bottling facility with
the capacity to bottle over 13.5 million cases annually and a 364,000 square
foot warehouse and distribution center.

Additional bottling capacity will not only be used for our products, but also
will allow us to further expand our bottling and fulfillment services offered to
third parties on a contract basis. The additional capacity of the bottling
facility may not initially be fully utilized but provides us with capacity
consistent with our growth plans. Our scale and consolidated operations are
expected to enable us to increase margins of the businesses that we acquire,
providing accretive value promptly after the acquisition.

Strategy


Our strategy is to continue to grow organically and through acquisitions with a
view towards making two to three acquisitions per year over the next five years.
We believe we have completed more brand mergers and acquisitions in the U.S.
wine industry over the last 10 years than any other company in the industry.
These acquisitions have allowed us to diversify our wine sourcing into regions
outside of California, expand our portfolio of brands, increase our vineyard
assets and provide our DTC and retail customers with a range of wines to choose
from.

We have historically targeted a significant increase in the target company's
EBITDA within three years of the acquisition. To achieve these results, our
acquisitions are subject to a rigorous, data-driven, due diligence and
underwriting process, to assure that minimum financial thresholds with
meaningful upside can be satisfied in each transaction. In accordance with GAAP,
the results of the acquisitions we have completed are reflected in our
consolidated financial statements. We typically incur minimal transaction costs
in connection with identifying and completing acquisitions and ongoing
integration costs as we integrate acquired companies and seek to achieve
synergies.



                                       24

--------------------------------------------------------------------------------

  Table of Contents



Recent Developments

Our Business Combination

We were formed in 2019 as Bespoke Capital Acquisition Corp. ("BCAC"), a special
purpose acquisition corporation incorporated under the laws of the Province of
British Columbia. BCAC was organized for the purpose of effecting an acquisition
of one or more businesses or assets by way of a merger, amalgamation, share
exchange, asset acquisition, share purchase, reorganization or any other similar
business combination involving BCAC.

On June 7, 2021, BCAC consummated its business combination (the "Business
Combination") with Vintage Wine Estates, Inc., a California corporation ("Legacy
VWE"), pursuant to a transaction agreement dated February 3, 2021. As a result
of the Business Combination and the related transactions, BCAC changed its
jurisdiction of incorporation from the Province of British Columbia to the State
of Nevada, BCAC changed its name to "Vintage Wine Estates, Inc." and Legacy VWE
became our wholly-owned subsidiary.

For accounting purposes, and in accordance with generally accepted accounting
principles, BCAC was treated as the acquired company and Legacy VWE was treated
as the acquirer.

U.S. Wildfires

Significant wildfires in California, Oregon and Washington states, have recently
engulfed the affected regions in smoke and flames. The long-term trend is that
wildfires are increasing resulting from drought conditions. Drought conditions
due to global climate change have increased the severity of destructive
wildfires which have affected the U.S. grape harvest. When vineyards and grapes
are exposed to smoke, it can result in an ashy, burnt, or smoky aroma, described
as "smoke tainted". Industry grape suppliers have also experienced smoke and
fire damage from the wildfires. Damage to our grape harvest and vineyards caused
from the wildfires has impacted our revenues, costs of revenues and winery
overhead for the periods presented.

Acquisitions and Divestitures

The Sommelier Company


On June 22, 2021, we acquired the net assets of The Sommelier Company consisting
of customer relationships, independent Sommelier relationships and brand
trademarks, for total consideration of $12.0 million. Consideration transferred
consisted of a cash payment of $8.0 million and contingent consideration up to
$4.0 million, whereby the Company will pay the seller three annual earn-out
payments over three years, determined as a percentage of EBITDA.

Kunde Acquisition


On April 19, 2021, we acquired 100% of the outstanding equity of Kunde
Enterprise Inc. ("Kunde") for total consideration, including amounts to acquire
the combined 33.3% ownership held by two of the Company stockholders, of which
one is an executive officer of the Company, of approximately $53.0 million, net
of $5.9 million in pre-existing net liabilities due to Kunde. Kunde produces and
sells premium Sonoma Valley varietal wines via the wholesale channel as well as
internationally and locally through its tasting room, wine club, and internet
site. In addition, Kunde provides wine storage, processing, and bottling
services for other wineries. The operations of Kunde align with those of us,
providing for expanded synergies and growth through the acquisition. See Note 3
to the consolidated financial statements.

The $53.0 million purchase consideration was comprised of approximately $21.5
million of cash, approximately $11.7 million of notes payable to the sellers,
and the issuance of 906,345 shares (2,589,507 shares retroactively restated
giving effect to the recapitalization transaction discussed in Note 1) of the
Company's Series A stock, with a value of $25.8 million, totaling $58.9 million
less the release of pre-existing net liabilities between the Company and Kunde
of $5.9 million. Two of the three notes payable issued to the sellers have a
interest rate of Prime plus 1.00%, compounded quarterly, and mature on January
5, 2022, while the third note has a stated interest rate of 1.61%, compounded
quarterly, and matures on December 31, 2021. To fund the cash portion of the
purchase consideration, we utilized our line of credit and delay draw term loan.
For a summary of the allocation of the purchase price to the fair value of the
assets acquired, see Note 3 to the consolidated financial statements.

Owen Roe Winery


In September 2019, the Company acquired assets, including inventory, land,
winery equipment and brand trademarks from Owen Roe Winery for total
consideration of approximately $16.1 million. Consideration consisted of cash of
approximately $15.1 million and contingent consideration of $1.0 million whereby
we will pay the seller a fixed fee based on sales of the wine brands acquired
for four years.

Divestiture of Certain Assets

Grounded Wine Project Divestiture


On October 31, 2020, we entered into a purchase and sale agreement with a former
employee pursuant to which we sold our 51% interest in Grounded Wine Project,
LLC ("GWP"), certain bulk wine and cased goods inventory related to GWP's
business, and certain other assets used in the



                                       25

--------------------------------------------------------------------------------

Table of Contents




operation of GWP's business, including trademarks, customer lists, website
content, domain names, marketing materials and certain assignable contracts, but
excluding cash on hand and accounts receivable relating to the GWP business, for
a purchase price of $1.0 million. In connection with the sale, we entered into
an interim services agreement with the purchaser for a period ending on the
earlier of six months from the closing date and purchaser's receipt of necessary
permits for the operation of GWP, whereby we would continue to operate GWP and
store and maintain its wine assets and purchaser would provide certain services
to us relating to the operation of GWP. The services agreement was extended to
August 31, 2021. Management routinely evaluates the profitability of our brands
and determined that GWP branded products were underperforming our expectations
for the two years prior to June 30, 2020. GWP accounted for approximately 0.09%
and 0.62% of our consolidated net revenues for fiscal years ended June 30, 2021
and 2020.

Sales Pro and Master Class Divestiture


On December 30, 2019, we entered into an asset purchase agreement with a current
employee pursuant to which we agreed to sell the intellectual property and
marketing materials of Sales Pro and Master Class in exchange for a royalty
payment per case sold by the purchaser between January 1, 2020 and December 1,
2025. The effective date of the transfer of Sales Pro and Master Class was
January 1, 2020. We acquired Sales Pro and Master Class as part of the
acquisition of the assets of Cameron Hughes Wine. Sales Pro and Master Class is
engaged in in-store wine tasting and promotion, which is not core to our
business. Sales Pro and Master Class represented approximately 1.4% of our
consolidated net revenues for fiscal 2020.

Potential Divestiture of Certain Real Estate Assets

In the first quarter of fiscal 2020, our board of directors authorized management to explore the divestiture of certain non-core real estate assets with a combined appraised value in excess of $70.0 million. These efforts continue as of June 30, 2021.

Key Measures to Assess the Performance of our Business


We consider a variety of financial and operating measures in assessing the
performance of our business, formulating goals and objectives and making
strategic decisions. The key GAAP measures we consider are net revenues; gross
profit; selling, general and administrative expenses; and income from
operations. The key non-GAAP measure we consider is Adjusted EBITDA. We also
monitor our case volume sold and depletions from our distributors to retailers
to help us forecast and identify trends affecting our growth.

Net Revenues


We generate revenue from our segments: Wholesale, B2B, DTC and Other. We
recognize revenue from wine sales when obligations under the terms of a contract
with our customer are satisfied. Generally, this occurs when the product is
shipped, and title passes to the customer, and when control of the promised
product or service is transferred to the customer. Our standard terms are free
on board, or FOB, shipping point, with no customer acceptance provisions.
Revenue is measured as the amount of consideration expected to be received in
exchange for transferring products. We recognize revenue net of any taxes
collected from customers, which are subsequently remitted to governmental
authorities. We account for shipping and handling as activities to fulfill our
promise to transfer the associated products. Accordingly, we record amounts
billed for shipping and handling costs as a component of net sales and classify
such costs as a component of costs of sales. Our products are generally not sold
with a right of return unless the product is spoiled or damaged. Historically,
returns have not been significant to us.

Gross Profit


Gross profit is equal to net revenues less cost of sales. Cost of sales includes
the direct cost of manufacturing, including direct materials, labor and related
overhead, as well as inbound and outbound freight and import duties.

Selling, General and Administrative Expenses


Selling, general and administrative expenses include expenses arising from
activities in selling, marketing, warehousing, and administrative expenses.
Other than variable compensation, selling, general and administrative expenses
are generally not directly proportional to net revenues, but are expected to
increase over time to support the needs of the Company.

Income from Operations


Income from operations is gross profit less selling, general and administrative
expenses; acquisition and restructuring related expense or income and
amortization of intangible assets. Income from operations excludes interest
expense, income tax expense, and other expenses, net. We use income from
operations as well as other indicators as a measure of the profitability of our
business.

Case Volume

In addition to acquisitions, the primary drivers of net revenue growth in any
period are attributable to changes in case volume and changes in product mix and
sales price. Case volume represents the number of 9-liter equivalent cases of
wine that we sell during a particular period. Case volume is an important
indicator of what is driving gross margin. This metric also allows us to develop
our supply and production targets for future periods.





                                       26

--------------------------------------------------------------------------------

  Table of Contents



                       VWE 9L Equivalent Case Sales by Segment
                                 Year ended June 30,
(in thousands)             2021                       2020
Wholesale                          969                      1,037
B2B                                558                        411
DTC                                348                        274
Total case volume                1,875                      1,722




Case volume was up 9% for the fiscal year driven by volume increase in the B2B
and DTC segments. B2B volumes grew 35.8% for the year due to expanded
relationships in private label. DTC volume was up 27% driven by increased
tasting room activity and special programming through a large e-commerce
company. Wholesale volumes were down 6.6% due to the discontinuation of certain
brands partially offset by the inclusion of Kunde in the fourth quarter.

Depletions

Within our three tier distribution structure, depletion measures the sale of our inventory from the distributor to the retailer. Depletions are an important indicator of customer satisfaction, which management uses for evaluating performance of our brands and for forecasting.

Non-GAAP Financial Measures


In addition to our results determined in accordance with GAAP, we use EBITDA,
Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of
performance to evaluate the effectiveness of our business strategies. These
metrics are also frequently used by analysts, investors and other interested
parties to evaluate companies in our industry, when considered alongside other
GAAP measures.

Adjusted EBITDA is defined as earnings (loss) before interest, income taxes,
depreciation and amortization, stock-based compensation expense, casualty losses
or gains, impairment losses, changes in the fair value of derivatives,
restructuring related income or expenses, acquisition and integration costs, and
certain non-cash, non-recurring, or other items included in net income (loss)
that we do not consider indicative of our ongoing operating performance,
including COVID-related adjustments. COVID related adjustments relate to the
delayed GAZE brand launch and nonrecurring costs of implementing safety
protocols for production facilities, warehouse, tasting rooms and offices.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.



(in thousands)                                          June 30, 2021       June 30, 2020
Net income (loss)                                      $        10,088     $        (9,700 )
Interest expense                                                11,581              15,422
Income tax provision (benefit)                                     766              (9,957 )
Depreciation and amortization                                   11,436      

11,805

Amortization of label design fees                                  464                 260
Gain on litigation proceeds, net of legal fees                  (3,845 )                 -
Taint provision                                                      -      

4,859

Stock-based compensation expense                                 3,334                 289
Inventory adjustment for wildfire impact - vineyard              3,302                   -
Inventory adjustment for wildfire impact - winery
overhead                                                         9,000                   -
PPP loan forgiveness                                            (6,604 )                 -
Net unrealized (gain) loss on interest rate swap
agreements                                                      (6,136 )    

12,945

(Gain) loss on disposition of assets                            (2,336 )            (1,052 )
Deferred lease adjustment                                          352                 501
Transaction expenses                                             4,339                   -
Impairment of intangible assets                                  1,081      

1,281

Remeasurement of contingent consideration
liabilities                                                       (329 )            (1,035 )
Post-acquisition accounts receivable write-down                    109                 434
COVID impact                                                     1,563                 200
Inventory acquisition basis adjustment                             401               1,271
Adjusted EBITDA                                        $        38,566     $        27,523
Revenue                                                        220,742             189,919
Adjusted EBITDA Margin                                            17.5 %              14.5 %


Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures of
financial performance under GAAP. We believe these non-GAAP measures provide
analysts, investors and other interested parties with additional insight into
the underlying trends of our business and assists these



                                       27

--------------------------------------------------------------------------------

Table of Contents




parties in analyzing our performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our core
operating performance, which allows for a better comparison against historical
results and expectations for future performance.

Management uses these non-GAAP measures to understand and compare operating
results across reporting periods for various purposes including internal
budgeting and forecasting, short and long-term operating planning, employee
incentive compensation, and debt compliance. These non-GAAP measures are not
intended to replace the presentation of our financial results in accordance with
GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA Margin are not
calculated in the same manner by all companies, and accordingly, are not
necessarily comparable to similarly titled measures of other companies and may
not be an appropriate measure for performance relative to other companies.
Adjusted EBITDA should not be construed as indicators of our operating
performance in isolation from, or as a substitute for, net income (loss), which
is prepared in accordance with GAAP. We have presented Adjusted EBITDA and
Adjusted EBITDA Margin solely as supplemental disclosure because we believe it
allows for a more complete analysis of our results of operations. In the future,
we may incur expenses such as those added back to calculate Adjusted EBITDA. Our
presentation of Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by these items.

Trends and Other Factors Affecting Our Business

Various trends and other factors affect or have affected our operating results, including:


COVID-19

The outbreak of COVID-19, which the World Health Organization declared a
pandemic in March 2020, has spread across the globe and the U.S and has
disrupted the global economy and most industries, including the wine industry.
In an effort to contain and slow the spread of COVID-19, governments implemented
various measures, such as ordering non-essential businesses to close, issuing
travel advisories and restrictions, canceling large public events, ordering
shelter-in-place and requiring the public to practice social distancing. While
many of these measures have been lifted or eased, some are continuing and others
are being reimplemented as COVID-19 continues to spread.

Although we have not experienced significant business disruptions to date from
the COVID-19 pandemic, we experienced a year over year decline in visitors to
our 14 tasting rooms during fiscal year ended June 30, 2021 primarily due to
continued COVID-19 measures. However, the decrease in the business we derive
from our tasting rooms was offset by an increased amount of e-commerce and DTC
wine sales. We sold approximately 1,875 cases for the year ended June 30, 2021
compared to 1,722 cases for the year ended June 30, 2020. We expect that,
following acceptance of COVID-19 vaccines and lifting of travel restrictions,
tasting room volumes will, over time, increase from the current lows.

In response to governmental directives and recommended safety measures, we
modified our workplace practices. While we have implemented personal safety
measures at all of our facilities where our employees are working onsite, any
actions that we take may not be sufficient to mitigate the risk of infection and
could result in a significant number of COVID-19 related claims. Changes to
state workers' compensation laws, as have recently occurred in California, could
increase our potential liability for such claims. To support employees and
protect the health and safety of employees and customers, we provided temporary
pay increases to certain employees and purchased additional sanitation supplies
and personal protective materials. These measures will increase operating costs
and adversely affect liquidity.

In the longer-term, the COVID-19 pandemic is likely to adversely affect the
economies and financial markets, and could result in an economic downturn and a
recession. It is uncertain how this would affect demand for our products. While
we continue to see robust demand in our industry, and have seen little impact to
our business from the COVID-19 pandemic, we are unable to predict the full
impact the COVID-19 pandemic will have on our future results of operations,
liquidity and financial condition due to numerous uncertainties, including the
duration of the pandemic, the actions that may be taken by government
authorities across the U.S., the impact to our customers, employees and
suppliers, and other factors described in the section titled "Risk Factors" in
this Annual Report on Form 10-K. These factors are beyond our knowledge and
control and, as a result, at this time, we are unable to predict the ultimate
impact, both in terms of severity and duration, that the COVID-19 pandemic will
have on our business, operating results, cash flows and financial condition.

Seasonality


There is a degree of seasonality in the growing cycles, procurement and
transportation of grapes. The wine industry in general tends to experience
seasonal fluctuations in revenues and net income. Typically, we have lower sales
and net income during our third fiscal quarter (January through March) and
higher sales and net income during or second fiscal quarter (October through
December) due to usual timing of seasonal holiday buying, as well as wine club
shipments. We expect these trends to continue.

Weather Conditions


Our ability to fulfill the demand for wine is restricted by the availability of
grapes. Climate change, agricultural and other factors, such as wildfires,
disease, pests, extreme weather conditions, water scarcity, biodiversity loss
and competing land use, impact the quality and quantity of grapes available to
us for the production of wine from year to year. Our vineyards and properties,
as well as other sources from which we purchase grapes, are affected by these
factors. For example, the effects of abnormally high rainfall or drought in a
given year may impact production of grapes, which can impact both our revenues
and costs from year to year.



                                       28

--------------------------------------------------------------------------------

Table of Contents

In addition, extreme weather events, such as wildfires can result in potentially significant expenses to repair or replace a vineyard or facility as well as impact the ability of grape suppliers to fulfill their obligations to us.

Industry and Economic Conditions


The wine industry is recession resistant, with sustained growth over the past 25
years despite downturns in economic conditions from time to time. Consumers are
increasingly purchasing higher priced wines and other alcoholic beverages, which
has accelerated throughout the COVID-19 pandemic. Consumption increases are
largely in the $10.00 or more retail price per bottle premium and luxury wine
categories. Over the past ten years, the premium segment ($10 to $20 retail
sales price) has grown on average by 6.6% annually. We benefit from this trend
by focusing on the premium wine segment. Approximately 80% of our wine sales are
in the $10.00 to $20.00 per bottle range.

Casualty Gains


We suffered smoke-tainted inventory damage resulting from the October 2017 Napa
and Sonoma County wildfires. We filed an insurance claim for this damage, which
was settled in December 2020 for approximately $3.8 million, net of legal costs.
The gain of litigation proceeds consists of payments we received from our
insurer .



                                       29

--------------------------------------------------------------------------------

  Table of Contents



Results of Operations

Comparison of the years ended June 30, 2021 and 2020


The following table summarizes our operating results for the periods presented:



                                               Year Ended June 30,           Dollar        Percent
(in thousands, except shares and per
share data)                                   2021             2020          Change        Change
Net revenues
Wine and spirits                          $    177,331     $    155,741     $  21,590            14 %
Nonwine                                         43,411           34,178         9,233            27 %
                                               220,742          189,919        30,823            16 %
Cost of revenues
Wine and spirits                               119,350           98,236        21,114            21 %
Nonwine                                         26,041           20,051         5,990            30 %
                                               145,391          118,287        27,104            23 %
Gross profit                                    75,351           71,632         3,719             5 %
Selling, general, and administrative
expenses                                        72,505           64,699         7,806            12 %
Impairment of intangible assets                  1,081            1,282          (201 )         -16 %
Gain on sale of property, plant, and
equipment                                       (2,336 )         (1,052 )      (1,284 )         122 %
Gain on litigation proceeds                     (4,750 )              -        (4,750 )           *
Gain on remeasurement of contingent
consideration liabilities                         (329 )         (1,035 )         706            68 %
Income from operations                           9,180            7,738         1,442            19 %
Other income (expense)
Interest expense                               (11,581 )        (15,422 )      (3,841 )         -25 %
Net unrealized gain (loss) on interest
rate swap agreements                             6,136          (12,945 )      19,081           147 %
Gain on Paycheck Protection Program
loan forgiveness                                 6,604                -         6,604             *
Other, net                                         515              972          (457 )         -47 %
Total other income (expense), net                1,674          (27,395 )      29,069           106 %
Income (loss) before provision for
income taxes                                    10,854          (19,657 )      30,511           155 %
Income tax provision                              (766 )          9,957       (10,723 )        -108 %
Net income (loss)                               10,088           (9,700 )      19,788           204 %
Net income attributable to the
noncontrolling interests                          (218 )            (41 )        (177 )         432 %
Net income (loss) attributable to
Vintage Wine Estates, Inc.                       9,870           (9,741 )      19,611           201 %
Accretion on redeemable Series B stock           5,785            4,978           807            16 %
Net income allocable to common
stockholders                              $      4,085     $    (14,719 )   $  18,804           128 %

Net earnings (loss) per share allocable
to common stockholders
Basic                                     $       0.14     $      (0.67 )
Diluted                                   $       0.14     $      (0.67 )
Weighted average shares used in the
calculation of earnings (loss) per
share allocable to common stockholders
Basic                                       24,696,828       21,920,583
Diluted                                     25,179,502       21,920,583


*Not meaningful

Net Revenues

Net revenues for the year ended June 30, 2021 increased $30.8 million, or 16.2%,
to $220.7 million, from $189.9 million for the year ended June 30, 2020. The
increase was driven by an increase in B2B net revenues of approximately $23.4
million, coupled with an increase in DTC net revenues of approximately $11.0
million, partially offset by a decrease in Wholesale net revenues of
approximately $2.5 million and a decrease in Other net revenues of approximately
$1.0 million. Nearly all of the increase in B2B net revenues for fiscal 2021 as
compared to fiscal 2020 resulted from organic growth with less than 1% coming
from acquisitions.

Gross Profit

Gross profit for the year ended June 30, 2021 increased $3.7 million, or 5.2%,
to $75.4 million, from $71.6 million for the year ended June 30, 2020. The
increase in gross profit was driven by the increased volume in the B2B and DTC
segments partially offset by wholesale volume and mix and by an atypical year
end inventory adjustments of approximately $9.0 million (11.9% impact on
margin), primarily related to the impact of wildfires on the



                                       30

--------------------------------------------------------------------------------

Table of Contents




2020 harvest. In addition, the shift in mix to greater B2B volume, which is the
lowest gross margin business, combined with a shift of channels within the DTC
segment had an approximate 5.5% reduction of margin.

Selling, General, and Administrative Expenses


Selling, general, and administrative expenses for the year ended June 30, 2021
increased $7.8 million, or 12.1%, to $72.5 million, from $64.7 million for the
year ended June 30, 2020. The increase in selling, general and administrative
expenses was driven primarily by costs related to going public, increased costs
of insurance, freight, shipping and labor.

Income from Operations


Income from operations for the year ended June 30, 2021 increased $1.4 million,
or 18.6%, to $9.2 million from $7.7 million for the year ended June 30, 2020.
The increase was driven by growth in B2B and DTC segments, gain on litigation
proceeds related to the smoke taint lawsuit, and gain on sale of assets
partially offset by lower wholesale revenue, inventory adjustments and
impairment of intangible assets.

Other Income (Expense)


Total other income (expense) was $1.7 million income for the year ended June 30,
2021 compared to $(27.4) million expense for the year ended June 30, 2020, a net
increase year over year of $29.1 million or 106.1%. The change was due primarily
to a change from an unrealized loss on interest rate swap agreements to an
unrealized gain accounting for $19.1 million of the change. In addition, $6.6
million related to the forgiveness of the Paycheck Protection Program ("PPP")
loan of $6.6M, and a $3.8 million decrease in interest expense due to amendments
to the debt and lower interest rates.

Income Tax Provision


Income tax expense was $(766) thousand for the year ended June 30, 2021 compared
to income tax benefit of $10.0 million for the year ended June 30, 2020. The
income tax expense in fiscal 2021 was primarily due to an increase in annual net
income and costs related to the transaction, partially offset by the PPP Loan
forgiveness, stock based compensation and research and development tax credits.
The income tax benefit for the year ended June 30, 2020 was primarily due to a
net loss in fiscal 2020, the release of valuation allowance, a research and
development tax credit and other adjustments.

Segment Results


Our financial performance is classified into the following segments: Wholesale,
B2B, DTC and Other. Our corporate operations, including centralized selling,
general and administrative expenses and other factors, such as the
remeasurements of contingent consideration and impairment of intangible assets
and goodwill are not allocated to the segments, as management does not believe
such items directly reflect our core operations. Other than our long-term
property, plant and equipment for wine tasting facilities, and the customer list
and trademark intangible assets specific to the Sommelier acquisition, our
revenue generating assets are utilized across segments. Accordingly, the
foregoing items are not allocated to the segments and are not discussed
separately as any results that had a significant impact on operating results are
included in the consolidated results discussion above.

We evaluate the performance of our segments on income from operations, which
management believes is indicative of operational performance and ongoing
profitability. Management monitors income from operations to evaluate past
performance and identify actions required to improve profitability. Income from
operations assists management in comparing the segment performance on a
consistent basis for purposes of business decision-making by removing the impact
of certain items that management believes do not directly reflect the core
operations and, therefore, are not included in measuring segment performance. We
define income from operations as gross margin less operating expenses that are
directly attributable to the segment. Selling expenses that can be directly
attributable to the segment are allocated accordingly.

Segment Results for the Years Ended June 30, 2021 and 2020

Wholesale Segment Results

(in thousands, except %) Year Ended June 30, Dollar Percent Wholesale Segment Results 2021

           2020        Change      Change
Net revenues                $    72,908     $ 75,435     $ (2,527 )    -3.3%
Income from operations      $    15,044     $ 14,777     $    267      1.8%


Wholesale net revenues for the year ended June 30, 2021 decreased by
approximately $2.5 million, or 3.3%, from the year ended June 30, 2020. The
decrease was attributable to a decrease in case volumes due to the normalized
case volumes in the 2021 period as compared to the 2020 period when retailers
increased case volume related to COVID as well as the impact of the
discontinuation of two brands and partially offset by favorable mix.

Wholesale income from operations for the year ended June 30, 2021 increased by
approximately $267 thousand, or 1.8%, from the year ended June 30, 2020. The
increase was attributable to improved mix, partially offset by a decreased case
volumes.



                                       31

--------------------------------------------------------------------------------

  Table of Contents



B2B Segment Results



(in thousands, except %)     Year Ended June 30,         Dollar      Percent
B2B Segment Results           2021           2020        Change      Change
Net revenues               $    77,440     $ 54,056     $ 23,384      43.3%
Income from operations     $    17,944     $ 14,783     $  3,161      21.4%


B2B net revenues for the year ended June 30, 2021 increased by approximately
$23.4 million, or 43.3% from the year ended June 30, 2020. The increase was
attributable to increased custom production as well as increased case volumes,
reflecting the Company's continued strong relationships with private label and
custom production customers.

B2B income from operations for the year ended June 30, 2021 increased by $3.2
million, or 21.4%, from the year ended June 30, 2020. The increase was
attributable to the increased custom production activity coupled with increased
case volumes delivering a low mix.

DTC Segment Results




(in thousands, except %)     Year Ended June 30,         Dollar      Percent
DTC Segment Results           2021           2020        Change      Change
Net revenues               $    66,605     $ 55,639     $ 10,966      19.7%
Income from operations     $    11,437     $  7,149     $  4,288      60.0%


DTC net revenues of $66.6 million for the year ended June 30, 2021 increased by
approximately $11.0 million, or 19.7%, from the year ended June 30, 2020. The
increase was primarily attributable to the an increase in case volume from
tasting rooms and e-commerce. The overall mix affected by a shift to special
programming through a large e-commerce company.

DTC income from operations for the year ended June 30, 2021 increased by
approximately $4.3 million, or 60.0%, from the year ended June 30, 2020. The
increase was due to improved traffic in tasting rooms compared to the prior year
and wine clubs resulting in positive mix and continued strong growth in
e-commerce.

Other Segment Results


(in thousands, except %) Year Ended June 30, Dollar Percent Other Segment Results 2021 2020 Change Change Net revenues

               $    3,789     $   4,789     $ (1,000 )   -20.9%

Income from operations $ (35,245 ) $ (28,971 ) $ (6,274 ) 21.7%



Other net revenues for the year ended June 30, 2021 decreased by approximately
$1.0 million, or 20.9%, from the year ended June 30, 2020. The decrease was
primarily attributable to fewer bulk wine sales in the year compared to the year
prior.

Other losses from operations for the year ended June 30, 2021 increased by $6.3
million, or 21.7%, from the year ended June 30, 2020. The increase in losses
were due to the go public transaction costs, increased costs of warehousing
freight, insurance and labor partially offset by the proceeds from the smoke
taint litigation and the gain on sale of assets.

Liquidity and Capital Resources


Our ongoing operations have, to date, been funded by a combination of cash flow
from operations, the Business Combination with BCAC, borrowings under our credit
facility and other debt financing. As of June 30, 2021, we had cash and cash
equivalents on hand of approximately $118.9 million and approximately $125.0
million in borrowing capacity available under our credit facility. We had
approximately $293.9 million in total debt as of June 30, 2021.

Our principal uses of cash have been to provide working capital, meet debt
service requirements, fund capital expenditures and finance strategic plans,
including acquisitions. We continuously reinvest in our properties and
production assets and are currently working on several capital projects. Our
capital expenditures are expected to be approximately $5 million to $9 million
over the next twelve months, $5.6 million of which will be used to complete the
construction of additional warehouse and storage space at our Ray's Station
facility located in Hopland, California.

We believe our existing cash and cash equivalents, cash flow from operations,
and availability under our credit facility will provide sufficient liquidity to
fund our current obligations, projected working capital requirements, debt
service requirements and capital spending requirements. We may also seek to
finance capital expenditures under capital leases or other debt arrangements
that provide liquidity or favorable borrowing terms. COVID-19 has negatively
impacted the global economy and financial markets which could interfere with our
ability to access sources of liquidity at favorable rates and generate operating
cash flows. We took advantage of the Paycheck Protection Program (the "PPP")
established as part of the Coronavirus Aid, Relief and Economic Security Act
("CARES Act").



                                       32

--------------------------------------------------------------------------------

Table of Contents




We continue to consider acquisition opportunities, but the size and timing of
any future acquisitions and the related potential capital requirements cannot be
predicted. While we have in the past financed certain acquisitions with
internally generated cash, term loans and our credit facility, in the event that
suitable businesses are available for acquisition upon acceptable terms, we may
obtain all or a portion of the necessary financing through the incurrence of
additional long-term borrowings.

Our future capital requirements will depend on many factors, including funding
needs to support our business growth and to respond to business opportunities,
challenges or unforeseen circumstances. If our forecasts prove inaccurate, we
may be required to seek additional equity or debt financing from outside
sources, which we may not be able to raise on terms acceptable to us, or at all.
If we are unable to raise additional capital when desired, our business,
financial condition and results of operations would be adversely affected.

Indebtedness

Credit Facility


During our fiscal year ended June 30, 2020, we entered into a $350 million
credit facility consisting of (i) a $100.0 million term loan; (ii) a $50.0
million capital expenditure facility; and (iii) a $200.0 million revolving
credit facility. On April 13, 2021, we entered into an amended and restated loan
and security agreement to increase the credit facility from an aggregate of
$350.0 million to $480.0 million, consisting of an accounts receivable and
inventory revolving facility up to $230.0 million, a term loan in a principal
amount of up to $100.0 million, a capital expenditures facility in an aggregate
principal of up to $50.0 million, and a new delay draw term loan facility in an
aggregate principal amount of up to $100.0 million. All other terms of the
original agreement generally remain the same. Concurrent with the amendment, we
executed approximately a $29.3 million delayed draw term loan. Proceeds from the
new loan were used to pay down $10.8 million and $12.0 million of the existing
term loan and outstanding line of credit, respectively, deposit cash of $4.8
million into a restricted cash collateral account, and pay bank fees and third
party expenses associated with the amendment.

The credit facility can be used to fund acquisitions, real estate purchases,
capital equipment purchases and for other general corporate purposes. The credit
facility is collateralized by our eligible inventory and accounts receivable and
matures as follows:



(in thousands)
Description                     Maximum funding        Maturity
Term loan                      $         100,000     July 18, 2026

Revolving credit facility $ 230,000 July 18, 2024 Delay draw term loan

           $         100,000     July 18, 2024

Capital expenditure facility $ 50,000 July 18, 2026





Repayments of the term loan and the capital expenditure facility are calculated
based on whether the purpose of the original loan or draw was for real estate or
capital equipment purchases or draw and are subject to periodic third-party
valuations. For real estate purchases, quarterly repayments are equal to 1% of
the original principal balance at closing. For capital equipment purchases,
quarterly repayments are equal to 1/28th of the original balance. Any unpaid
principal is due upon the termination of these loans at maturity. Repayment of
the revolving credit facility is required if the borrowing base (as defined in
the credit facility) does not support the amount of borrowing on the facility.
Borrowings under the credit facility bear interest at a rate per annum equal to,
at our option, either (a) a LIBOR rate determined by reference to the LIBOR rate
for dollar deposits with a term equivalent to the interest period relevant to
such borrowing as administered by the ICE Benchmark Administration, plus an
applicable margin or (b) an adjusted base rate, or ABR, determined by reference
to the highest of (i) 0.50% above the federal funds effective rate, (ii) the
rate of interest established by the administrative agent as its "prime rate" and
(iii) 1.0% above the LIBOR rate for dollar deposits with a one-month term
commencing that day, plus an applicable margin. See Note 8 to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for a
discussion of our interest rate swap transactions.

In addition, we pay certain recurring fees with respect to the credit facility,
including (i) a fee for the unused commitments of the lenders under the
revolving credit facility and the capital expenditure facility as of the end of
each month, accruing at a rate equal to 0.125% per annum, which may be reduced
to 0.0% if the average availability under the revolving credit facility is less
than 50%, (ii) letter of credit fees, including a fronting fee and processing
fees to each issuing bank, which vary depending on the applicable margin rate
based on the average availability under the revolving credit facility and (iii)
administration fees. Amortization expense related to debt issuance fees was
approximately $0.1 million and $0.2 million for the years ended June 30, 2021
and 2020, respectively.

The credit facility contains various covenants and restrictions that may, in certain circumstances and subject to carve-outs and exceptions, limit our ability to, among other things:

•
create liens;
•
make loans to third parties;
•
incur additional indebtedness;



                                       33

--------------------------------------------------------------------------------

  Table of Contents



•
make capital expenditures in excess of agreed upon amounts;
•
merge or consolidate with another entity;
•
dispose of our assets;
•
make dividends or distributions to our shareholders;
•
change the nature of our business;
•
amend our organizational documents;
•
make accounting changes; and
•
conduct transactions with affiliates.

We are required to maintain compliance with a minimum fixed charge coverage ratio covenant of not less than 1.10:1.00.


We may prepay, in full or in part, borrowings under the credit facility without
premium or penalty, subject to notice requirements, minimum prepayment amounts
and increment limitations, provided that prepayments on all LIBOR loans will be
subject to customary "breakage" costs.

Convertible Notes

Woodbridge Notes


On January 2, 2018, we issued a secured convertible promissory note in favor of
Jayson Woodbridge in the original principal amount of $19.0 million. Interest on
the outstanding principal amount accrues at the prime rate, as published in the
Wall Street Journal on the issuance date, subject to adjustment every six
months. The principal amount of the convertible promissory note was due and
payable in four equal annual installments commencing on January 2, 2019. The
outstanding principal amount of the note could be repaid at any time without
premium or penalty. The holder of the note could, at its option, convert all or
part of any regularly scheduled principal payment into shares of Series A stock.
In addition, the holder had conversion rights upon a liquidity event. As of June
30, 2021, Jayson Woodbridge converted the remaining outstanding principal of the
secured convertible promissory note of $4.8 million resulting in us having no
further liability or obligations under this convertible promissory note.

Rudd Trust Notes


On January 2, 2018, we entered into a convertible promissory note, which was
subsequently amended, in favor of the Rudd Trust in the original principal
amount of $9.0 million, which was issued pursuant to a credit agreement of the
same date. Interest on the outstanding principal amount accrued at the prime
rate in effect on the issuance date plus 4%, subject to adjustment on the first
day of each calendar quarter. The note matured on May 31, 2021. In May 2021, we
repaid $9.0 million aggregate principal, at which time we had no further
liability or obligations under this convertible promissory note.

Patrick Roney Note


On January 2, 2018, we entered into a convertible promissory note, which was
subsequently amended, in favor of Patrick Roney in the original principal amount
of $1.0 million issued pursuant to a credit agreement of the same date. Interest
on the outstanding principal amount accrued at the prime rate in effect on the
issuance date plus 4%, subject to adjustment on the first day of each calendar
quarter. The note matured on May 31, 2021. We repaid $1.0 million aggregate
principal, at which time we had no further liability or obligations under this
convertible promissory note.

Paycheck Protection Program

Our Paycheck Protection Program loan (the "PPP Loan"), under Division A, Title I
of the Coronavirus Aid, Relief and Economic Security ("CARES") Act on April 14,
2020, of approximately $6.5 million required monthly amortized principal and
interest payments to begin six months after the date of disbursement. In October
2020, the deferral period associated with the monthly payments was extended from
six to ten months. While the PPP Loan currently had a two-year maturity, the
amended law permitted the borrower to request a five-year maturity from its
lender.

Under the terms of the CARES Act, as amended by the Paycheck Protection Program
Flexibility Act of 2020, we were eligible to apply for and receive forgiveness
for all or a portion of the PPP Loan. Such forgiveness is determined, subject to
limitations, based on the use of loan proceeds for certain permissible purposes
as set forth in the PPP, including, but not limited to, payroll costs (as
defined under the PPP) and mortgage interest, rent or utility costs
(collectively, "Qualifying Expenses"), and on the maintenance of employee and
compensation levels during the twenty-four week period following the funding of
the PPP Loan.

On June 25, 2021, the Company received notification from the Small Business
Association that the Company's Forgiveness Application of the PPP Loan and
accrued interest, totaling approximately $6.6 million, was approved in full, and
the Company had no further obligations related to the PPP Loan. Accordingly, the
Company recorded a gain on the forgiveness of the PPP Loan.



                                       34

--------------------------------------------------------------------------------

  Table of Contents



Cash Flows

Information about our cash flows, by category, is presented in our consolidated statements of cash flows and is summarized below:



                         Year Ended June 30,
(in thousands)            2021          2020
Operating activities   $    8,991     $ (23,045 )
Investing activities   $  (60,288 )   $   1,289
Financing activities   $  173,225     $  20,730

Cash Flows provided by (used in) Operating Activities


Net cash provided by operating activities was $9.0 million for the year ended
June 30, 2021 compared to net cash used in operating activities of $23.0 million
for the year ended June 30, 2020, representing an increase of net cash of $32.0
million. The increase in net cash provided was primarily attributable to the
increase in net income of $19.8 million, net changes in certain non-cash
adjustments of $0.9 million to reconcile net income to operating cash flow and
net changes in other operating assets and liabilities as detailed on the
consolidated statement of cashflows.

Cash Flows provided by (used in) Investing Activities


Net cash used in investing activities was $60.3 million for the year ended June
30, 2021, compared to net cash provided by investing activities of $1.3 million
for the year ended June 30, 2020, representing an increase of net cash used of
$61.6 million. Cash flows from investing activities are utilized primarily to
fund acquisitions, capital expenditures for improvements to existing assets and
other corporate assets. The increase in net cash used was primarily attributable
to the purchase of plant, property and equipment of $38.0 million and $23.6 to
acquire businesses.

Cash Flows provided by (used in) Financing Activities


Net cash provided by financing activities was $173.2 million for the year ended
June 30, 2021 compared to net cash provided of $20.7 million for the year ended
June 30, 2020, representing an increase of net cash provided of $152.5 million.
The increase in net cash provided consisted primarily of $250.1 million of cash
provided by the merger and PIPE financing, net of transactions costs, offset by
cashed used of $27.5 million for payments, net of proceeds on our line of credit
and long-term debt and cash used of $32.0 million to purchase Series B
redeemable stock (See Note 2).

Critical Accounting Policies and Estimates


Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of our consolidated financial statements and related disclosures
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, costs and expenses, and the disclosure of
contingent assets and liabilities in our consolidated financial statements. We
base our estimates on historical experience, known trends and events, and
various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. We evaluate our estimates and assumptions on an ongoing basis. Our
actual results may differ from these estimates under different assumptions or
conditions. We believe that the accounting policies discussed below are critical
to understanding our historical and future performance, as these policies relate
to the more significant areas involving management's judgments and estimates.

While our significant accounting policies are described in more detail in Note 1
to our audited consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K, we believe that the following
accounting policies are those most critical to the judgments and estimates used
in the preparation of our consolidated financial statements.

Revenue Recognition


We recognize revenue from the sale of wine, including private label wines, to
wholesale distributors and to consumers. We also recognize revenue from custom
winemaking and production services, grape and bulk sales, private events held at
its winery estates and storage services, as well as the sale of other
merchandise and services.

We recognize revenue when control of promised goods or services is transferred
to a customer in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. To determine
revenue recognition for its arrangements, we perform the following five steps:
(i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv)
allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. We recognize revenue when obligations under the terms of a contract
with our customer are satisfied. Generally, this occurs when the product is
shipped, and title passes to the customer, and when control of the promised
product or service is transferred to the customer. Our standard terms are free
on board ("FOB") shipping point, with no customer acceptance provisions. Revenue
is measured as the amount of consideration expected to be received in exchange
for transferring products. Revenue is recognized net of any taxes collected from
customers, which are subsequently remitted to governmental authorities. We
account for shipping and handling as activities to fulfill our promise to
transfer the associated products. Accordingly, we record amounts billed for
shipping and handling costs as a component of net sales and classify such costs
as a



                                       35

--------------------------------------------------------------------------------

Table of Contents




component of costs of sales. Our products are generally not sold with a right of
return unless the product is spoiled or damaged. Historically, returns have not
been significant to us.

Revenue is generated from one of our three reporting segments as described below:


Wholesale: Wholesale operations generate revenue from product sold to
distributors, which then sell the product to off-premise retail locations such
as grocery stores, wine clubs, specialty and multi-national retail chains, as
well as on-premise locations such as restaurants and bars. We transfer control
and recognize revenue for these orders upon shipment of the wine out of our own
or third-party warehouse facilities. We pay depletion and marketing allowances
to certain distributors, based on sales to our customers, or the allowance is
netted against the purchase price.

Direct to Consumer: We sell our wine and other merchandise directly to consumers
through wine club memberships, at wineries' tasting rooms and through the
internet. Wine club membership sales are made under contracts with customers,
which specify the quantity and timing of future wine shipments. Customer credit
cards are charged in advance of wine shipments in accordance with each contract.
We recognize revenue for these contracts at the time that control of the wine
passes to the customer, which is generally at the time of shipment. Tasting room
and internet wine sales are paid for at the time of sale. We transfer control
and recognize revenue for this wine when the product is either received by the
customer (on-site tasting room sales) or upon the shipment to the customer
(internet sales). Sales taxes are calculated based upon the customer's location
and are collected at the time of the sale and recorded in a sales tax liability
account. Sales reporting requirements to the states are performed as required by
the state and sales taxes are remitted to the government agencies when due.

Our winery estates hold various public and private events for customers and our
wine club members. Upfront consideration received from the sale of tickets or
under private event contracts for future events is recorded as deferred revenue.
We recognize event revenue on the date the event is held.

Business-to-Business: This segment generates revenue primarily from the sale of
private label wines and custom winemaking services. Annually, we work with our
national retail partners to develop private label wines incremental to our
wholesale channel businesses. Additionally, we provide custom winemaking and
production services. These services are made under contracts with customers,
which include specific protocols, pricing, and payment terms. The customer
retains title and control of the wine during the production process. We
recognize revenue over time as the contract specific performance obligations are
met. Additionally, we provide storage services for wine inventory of various
customers. The customer retains title and control of the inventory during the
storage agreement. We recognize revenue over time for storage services, and when
the contract specific performance obligations are met.

Other: Our Other segment includes revenue from grape and bulk sales, storage
services, and for the year ended June 30, 2020 revenue under the Sales Pro LLC
("SalesPro") and Master Class Marketing, LLC ("Master Class") business line sold
in 2019. We transfer control and recognize revenue for grape sales when product
specification has been met and title to the grapes has transferred, which is
generally on the date the grapes are harvested, weighed and shipped. We transfer
control and recognizes revenue for wine and spirits bulk contracts upon
shipment. SalesPro and Master Class revenue represents fees earned from
off-premise tastings for third-party customers. These customers include other
wine and beer brand owners and producers.

Income Taxes


Deferred income taxes are determined using the asset and liability method. Under
this method, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is
recorded when the expected recognition of a deferred income tax asset is
considered to be unlikely.

We recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
tax authorities, based on the technical merits of the position. The tax benefit
is measured based on the largest benefit that has a greater than 50% likelihood
of being realized upon ultimate settlement. We recognize interest and penalties
related to income tax matters as a component of income tax expense.

Inventories


Inventories of bulk and bottled wines and spirits and inventories of non-wine
products and bottling and packaging supplies are valued at the lower of cost
using the FIFO method or net realizable value. Costs associated with winemaking,
and other costs associated with the manufacturing of products for resale, are
recorded as inventory. Net realizable value is the value of an asset that can be
realized upon the sale of the asset, less a reasonable estimate of the costs
associated with either the eventual sale or the disposal of the asset in
question. Inventories are classified as current assets in accordance with
recognized industry practice, although most wines and spirits are aged for
periods longer than one year.

Goodwill and Intangible Assets


Goodwill represents the excess of consideration transferred over the estimated
fair value of assets acquired and liabilities assumed in a business combination.
We have three reporting units under which goodwill has been allocated. We
conduct a goodwill impairment analysis annually for impairment, as of the end of
the respective fiscal year, or sooner if events or circumstances indicate the
carrying amount of the asset may not be recoverable.



                                       36

--------------------------------------------------------------------------------

Table of Contents




Our intangible assets represent purchased intangible assets consisting of both
indefinite and finite lived assets. Certain criteria are used in determining
whether intangible assets acquired in a business combination must be recognized
and reported separately. Our indefinite lived intangible assets, representing
trademarks and winery use permits, are initially recognized at fair value and
subsequently stated at adjusted costs, net of any recognized impairments. The
indefinite lived assets are not subject to amortization. Our finite-lived
intangible assets, comprised of customer relationships and Sommelier
relationships, are amortized using a method that reflects the pattern in which
the economic benefits of the intangible assets are consumed or otherwise used.
If that pattern cannot be reliably determined, the intangible assets are
amortized using the straight-line method over their estimated useful lives and
are tested for impairment along with other long-lived assets. Amortization
related to the finite-lived assets is included in selling, general and
administrative expenses. Intangible assets are reviewed annually for impairment,
as of the end of the reporting period, or sooner if events or circumstances
indicate the carrying amount of the asset may not be recoverable.

Stock-Based Compensation, Stock Option and Series A Stock Valuation


Stock-based compensation is reported at calculated fair value based on the grant
date of the share-based payment. The Black-Scholes option-pricing model is used
to estimate the calculated fair value of each option grant on the date of grant.
We amortize the calculated value to stock-based compensation expense using the
straight-line method over the vesting period of the option.

As there has been no public market for the stock options we have granted, the
grant date fair value of such awards has been determined by our board of
directors with the assistance of management and an independent third-party
valuation specialist. We believe our board of directors has the relevant
experience and expertise to determine the fair value of our stock options. The
grant date fair value of stock options was determined first by estimating our
aggregate equity value using a weighting of discounted cash flows, comparable
public companies, and comparable-transactions valuation methodologies. An
option-pricing method, which utilizes certain assumptions including volatility,
time to liquidation, a risk-free interest rate, and an assumption for a discount
for lack of marketability, was then used to allocate the total equity value to
our different classes of equity according to the rights and preferences. A
discount for lack of marketability was applied to determine the stock option
equity values. In determining the fair value of the stock options, the
methodologies used to estimate its enterprise value were performed using
methodologies, approaches, and assumptions consistent with the American
Institute of Certified Public Accountants Accounting and Valuation Guide,
Valuation of Privately-Held-Company Equity Securities Issued as Compensation
("AICPA Accounting and Valuation Guide"). The assumptions we used in the
valuation model were based on future expectations combined with management's
judgment. In the absence of a public trading market, the board of directors,
with input from management, exercised significant judgment and considered
numerous objective and subjective factors to determine the fair value of the
stock options as of the date of each award, including the following factors:

independent valuations performed at periodic intervals by an independent
third-party valuation firm;
•
operating and financial performance, forecasts and capital resources;
•
current business conditions;
•
the hiring of key personnel;
•
the status of research and development efforts;
•
any adjustment necessary to recognize a lack of marketability for the stock
options;
•
trends and developments in the industry;
•
the market performance of comparable publicly traded technology companies; and
•
the U.S. and global economic and capital market conditions.

The dates of our valuation reports, which were prepared on a periodic basis,
were not contemporaneous with the grant dates of our option awards. Therefore,
we considered the amount of time between the valuation report date and the grant
date to determine whether to use the latest valuation report for the purposes of
determining the fair value of the options for financial reporting purposes. The
additional factors considered when determining any changes in fair value between
the most recent valuation report and the grant dates included, when available,
the prices paid in recent transactions involving our Series A stock, as well as
our operating and financial performance, current industry conditions and the
market performance of comparable publicly traded companies. There were
significant judgments and estimates inherent in these valuations, which included
assumptions regarding our future operating performance and the determinations of
the appropriate valuation methods to be applied. If we had made different
estimates or assumptions, our stock-based compensation expense, net income
(loss) per unit attributable to our series A stockholders could have been
significantly different from those reported in this Annual Report on Form 10-K.

In valuing the series A stock, we determined the equity value of our business by
taking a weighted combination of the value indications using the income approach
and the market comparable approach valuation methods.

Income Approach

The income approach estimates value based on the expectation of future cash flows a company will generate, such as cash earnings, cost savings, tax deductions and the proceeds from disposition. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in its industry or similar lines of business as of each valuation date. This

                                       37

--------------------------------------------------------------------------------

Table of Contents




weighted-average cost of capital discount rate, or WACC, is adjusted to reflect
the risks inherent in the business. The WACC used for these valuations was
determined to be reasonable and appropriate given our debt and equity
capitalization structure at the time of each respective valuation. The income
approach also assesses the residual value beyond the forecast period and is
determined by taking the projected residual cash flow for the final year of the
projection and applying a terminal exit multiple. This amount is then discounted
by the WACC less the long-term growth rate.

Market Comparable Approach


The market comparable approach estimates value based on a comparison of the
subject company to comparable public companies in a similar line of business.
From the comparable companies, a representative market multiple is determined
which is applied to its financial metrics to estimate the value of its parent or
its subsidiary.

To determine our peer group of companies, we considered winery and consumer
product public companies and selected those most similar to us based on various
factors, including, but not limited to, financial risk, company size, geographic
diversification, profitability, growth characteristics and stage of life cycle.

In some cases, we considered the amount of time between the valuation date and
the award grant date to determine whether to use the latest valuation determined
pursuant to one of the methods described above or to use a valuation calculated
by management between the two valuation dates.

Once we determined an equity value, we utilized the Black-Scholes Option Pricing
Model ("BSOPM") to allocate the equity value to our options. BSOPM values its
options by creating call options on the respective equity value, with exercise
prices based on the liquidation preferences, participation rights and strike
prices. This method is generally preferred when future outcomes are difficult to
predict and dissolution or liquidation is not imminent.

Emerging Growth Company Election


We are an "emerging growth company" as defined in Section 2(a) of the Securities
Act, and have elected to take advantage of the benefits of the extended
transition period for new or revised financial accounting standards. We expect
to continue to take advantage of the benefits of the extended transition period,
although we may decide to early adopt such new or revised accounting standards
to the extent permitted by such standards. We expect to use this extended
transition period for complying with new or revised accounting standards that
have different effective dates for public and non-public companies until the
earlier of the date we (i) are no longer an emerging growth company or (ii)
affirmatively and irrevocably opt out of the extended transition period provided
in the JOBS Act. This may make it difficult or impossible to compare our
financial results with the financial results of another public company that is
either not an emerging growth company or is an emerging growth company that has
chosen not to take advantage of the extended transition period exemptions
because of the potential differences in accounting standards used.

In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act and compliance with applicable laws, if, as an emerging growth
company, we rely on such exemptions, we are not required to, among other things:
(a) provide an auditor's attestation report on our system of internal control
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of
2002; (b) provide all of the compensation disclosures that may be required of
non-emerging growth public companies under the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010; (c) comply with any requirement that may be
adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis); and (d) disclose certain executive compensation-related items such as
the correlation between executive compensation and performance and comparisons
of the Chief Executive Officer's compensation to median employee compensation.

We will remain an emerging growth company under the JOBS Act until the earliest
of (a) December 31, 2026, (b) the last date of our fiscal year in which we had
total annual gross revenue of at least $1.07 billion, (c) the date on which we
are deemed to be a "large accelerated filer" under the rules of the SEC or (d)
the date on which we have issued more than $1.0 billion in non-convertible debt
securities during the previous three years.

Recent Accounting Pronouncements

See Note 1 of notes to the consolidated financial statements for a discussion of recent accounting standards and pronouncements.

© Edgar Online, source Glimpses

All news about VINTAGE WINE ESTATES, INC.
12/03VINTAGE WINE ESTATES, INC. : Changes in Registrant's Certifying Accountant (form 8-K)
AQ
11/24VINTAGE WINE ESTATES, INC. : Changes in Registrant's Certifying Accountant, Financial Stat..
AQ
11/22INSIDER BUY : Vintage Wine Estates
MT
11/16Vintage Wine Estates Posts Lower Fiscal Q1 Earnings, Revenue Rises; Issues Fiscal Q2 Gu..
MT
11/15VINTAGE WINE ESTATES, INC. Management's Discussion and Analysis of Financial Condition..
AQ
11/15VINTAGE WINE ESTATES : Direct-to-Consumer Business Grows 37% Driving Total Revenue to $56 ..
PU
11/15VINTAGE WINE ESTATES, INC. : Results of Operations and Financial Condition, Regulation FD ..
AQ
11/15Vintage Wine Estates Acquires ACE Cider – Leading Brand Expands Product Portfolio..
AQ
11/15Vintage Wine Estates Direct-to-Consumer Business Grows 37% Driving Total Revenue to $56..
AQ
11/15Vintage Wine Estates, Inc. Acquires ACE Cider ? Leading Brand Expands Product Portfolio..
CI
More news
Analyst Recommendations on VINTAGE WINE ESTATES, INC.
More recommendations