SBEV - Splash Beverage Group Inc. (SBEV) Q4 2022 Earnings Call Transcript
2023-04-11 14:08:04 ET
Splash Beverage Group, Inc. (SBEV)
Q4 2022 Earnings Conference Call
April 11, 2023, 10:00 AM ET
Company Participants
John McNamara - IR
Robert Nistico - Chairman and CEO
Ron Wall - CFO
Bill Meissner - President and Chief Marketing Officer
Conference Call Participants
Scott Buck - H.C. Wainwright
Cobb Sadler - Catamount Strategic Advisors
Joseph Crivelli - JAG Funds
Presentation
Operator
Greetings. Welcome to the Splash Beverage Group 2022 Fourth Quarter and Full Year Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.
I will now turn a conference over to your host, John McNamara. You may begin.
John McNamara
Thanks, Holly. Good morning, everybody, and thank you again for joining us for the Splash Beverage Group's 2022 fourth quarter full year financial results conference call. With us this morning from management, are Robert Nistico, Chairman and Chief Executive Officer and Ron Wall, Chief Financial Officer.
Before we begin, we would remind everybody that certain matters discussed during today's call or during the answers Q&A session that may be provided to investors may constitute forward-looking statements, as defined under the Federal Securities laws. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the risk factors section of the company's annual report on Form 10-K filed with the SEC. Copies of these documents are available on the s SEC's website as well as on the company's website. Actual results may differ materially from those expressed or implied by such forward-looking statements. The company undertakes no obligations update these statements for revisions or changes after the date of this call, except as required by law.
With that, I'd now like to turn the call over to Robert Nistico, Chief Executive Officer. Go ahead, Robert.
Robert Nistico
Thank you, John, and good morning everybody, and welcome to our very first conference call. We are extremely excited. Feels like the company's growing up. A lot of work has gotten us taken place to get us to this point, and we're very, very excited about the future. We also believe we're in a very interesting inflection point, which I'll get into in a second. And, we've all listened to a million of these things throughout our careers. Everybody on this call, I'm quite sure is capable of reading financial statements on their own. So we're not going to spend a ton of time digging into line item by light item. There's also some room for that for Q&A, and I'm sure most of you have read these statements already.
So I'm really more interested in sharing with you, sort of the, resetting the vision for the future of Splash and really what our objectives are more so than rehashing the history. But the history is important. I got to tell you we're very, very proud of the fact that, we've said -- we've done just about everything we've said. This was a great step forward for us. $18 million, $19 million in revenue. We've been now on the National Exchange, NYSC America, as you all know for a year. And we're looking forward to growing our business and shareholder value as time goes on.
A little bit more about kind of where we are and where we're headed. It's important everybody understands that, this is brick and mortar and it takes a long time to get things set up. But once you do, it's a very, very, very fun business. And as you all know, there can be tremendous cash events when company exits a beverage brand.
And that's sort of the eye on the prize that we all have here. But as we grow our legacy brands, which is very, very important, because that is really what's driving our distribution efforts. And distribution, most of you heard me say this a bunch of times, but distribution is extremely important. It sounds like that's common sense, but you'd be surprised how many people missed that.
So setting up our plug and place scenario for our legacy brands and then potential acquisitions is critical. And we have done a very, very good job of that. I think you all know we have a formal relationship with AB ONE and InBev, but we don't stop there. We can distribute outside that, that network if we choose to.
The key thing here is the legacy brand growth, as I mentioned, and also potential acquisitions. I get a lot of questions about that. And acquisition is a really, really important subject. And we obviously in a public environment have to be cautious of what we say and what we don't say. But I've said publicly many times, we're constantly evaluating acquisition targets. We have numerous ones under evaluation right now as we speak. And we've actually evaluated some and turned them down. So we're very serious about that.
And if you look at the organization, we've put together our management team, our board, Bill Meissner, our President and Chief Marketing Officer, been president and CEO of many companies. Ron Wall, also sitting across the desk from me here. Coming out to William Grant, running finance and accounting in 50 plus countries. Our board myself, it's really a pretty good group of people. So our objective here is to grow this thing well beyond $18 million $19 million.
That said, we are laser-focused on both those subjects. And also part of our legacy brand growth. I get a lot of questions about Pulpoloco and our acquisition regarding that brand. And it's a very, very important acquisition for us, even though it's small. We're still dealing, uh, with the Spanish Consulate and the Spanish government because it's a Spanish entity. So it takes a little bit more time than we want it to. But exclusive rights to CartoCan is a very important part of our growth in the future.
That's a long-term project, more to come on that, but I want everybody to understand that that is very much in play. And we really look forward to that because for two reasons: it can really help us ratchet down are cost-of-goods on raw materials for certain brands that packaging works for, but also what it does, we will have excess capacity for that. And we will -- our intention will be to sell that excess capacity when the time comes. So, lots of really cool projects on the, on the docket, if you will for 2023.
I think I'll pause there and I'll let Ron run through the basics on the numbers. And then we'll take some questions. And then I'll close up with a few last comments. Everybody, here's Ron Wall.
Ron Wall
Thank you, Robert. Good morning, everybody. As Robert mentioned, revenues for the full year have increased. Our net revenues were $18.1 million, up from $11.3 million in 2021, 60% increase. On a quarterly basis, the fourth quarter revenues increased to $4.8 million, up from $3.1 million in the prior year, or 56% increase. Increases were primarily due to sale increases from our company's e-commerce division, distribution platform, Qplash.
On an annual basis, our gross margins came in at 32.7%, which is a 2 percentage point decline from 2021 of 36.6, but 8 percentage points ahead of 2020. The decline in '22 versus 2021 is predominantly driven by inflationary pressures that we're experiencing.
Net losses in 2022 were $21.7 million, down from 2021 losses of $29.1 million. Our cash operating expenses increased by 36% in 2022, with the three key drivers accounting for 87% of that increase being our marketing expenses, to drive sales and freight-to-customers and Amazon fees, which increase with our -- as our revenues grow. We used approximately $14.1 million of cash in operations during 2022. This is down slightly from 2021, where they were $14.6 million. And as of December 31, 2022, the company had total cash and cash equivalent of $4.4 million compared to $4.2 million at the same time and 2021.
That's the brief overview on the financials. And with that, we're going to be happy to take any questions you have.
Question-and-Answer Session
Operator
Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is coming from Scott Buck at H.C. Wainwright.
Scott Buck
Hey, good morning, guys. Thanks for taking my questions. Robert, a couple on distribution. First, can you talk a little bit about, maybe some of the agreements that you've signed recently and what the opportunity there is for future sales?
And then second part of that is, what's the pipeline look like for additional distribution agreements?
Robert Nistico
Yeah. Hey, Scott, and thank you for the question. As I mentioned over and over again, distribution is everything. And yeah, we have signed significant agreements over the last four-five-six months really building out that network. And it's also important people understand that, our -- most of these distribution agreements are what we call DSD, direct store delivery distribution agreements with primarily Bud Network for the most part. We also have some of the La Cour. We also have [indiscernible] and the Southwest, excuse me. So we're covered pretty well.
We also have agreements with most of the broadliners. So distribution is very, very important. So our ability, as I mentioned earlier, in a plug and play is very, very, very good. And that really is the key to future success. And that's one of the reasons I say all the time. We're at an inflection point here.
So as best I can answer your question, I can't say distributor-by-distributor, how many doors they have, and what that means for us, it would be speculation. But having the ability to focus on our existing brands and any potential new brands to plug those into that system is extremely valuable. So -- and we're nowhere near the end of the runway on this. We're really actually just getting started. And I know it's a slow process, but we're extremely pleased with where we are with our distribution abilities at this point.
Scott Buck
Now that's helpful, Robert. I appreciate that. And second, can you talk a little bit about the rollout of tap out energy? I know that's coming up here on the horizon.
Robert Nistico
Yeah. I believe Bill Meissner is on the line also. Bill, would you mind? Would you like to speak to that? He's really running that project 24/7 right now.
Bill Meissner
Sure. We're extremely excited about that. Cans are in production and they should be available to our contract manufacturer by the end of this month. And we're hoping to roll this out the last week of April, first week or so of May. And with great optimism, this brand has excellent gross margins and a lot of excitement from the distributor base that we have today.
Scott Buck
I appreciate that. And then just last one from me, guys. I've spoken a little bit about improving some of the efficiencies and cost of goods, and helping expand gross margins a little bit. Can you speak to that little?
Robert Nistico
Yeah, absolutely. We're at that point now where, we have enough of a foundation in the business and the business is growing. We can start drilling down a little deeper on many subjects. One might be raw materials specifically themselves. If you look at the on making this as an example, our salt tequila bottle, the coin that, that's affixed to the front of the bottle, that was a fairly expensive decorative piece. And we're working on finding a better source for those sorts of things -- for those individual raw components as the brands accelerate.
And then the portfolio approach to the whole business, that's really what that's about, where we can, we, we buy the same materials from the same vendors over the entire portfolio. And as all brands grow, efficiencies grow and costs get ratcheted down.
In addition to that, we're also sensitive to manufacturing locations. TapouT is a great example. We're now producing TapouT in multiple locations across the country to really ratchet down, freight out and, and ultimately fuel costs and freight costs. So, we're at that point right now where we really can start making material adjustments. And we look forward to gaining tremendous efficiencies for the rest of this year and, and into 2024.
Scott Buck
That's helpful. I appreciate the time, guys. Thank you very much, and congrats on the year.
Robert Nistico
Thanks, Scott.
Operator
Your next question is coming from Cobb Sadler at Catamount.
Cobb Sadler
Hey, hey guys. Thanks for the update call. And congrats on doing in-person. I have a question on, so look, the Q1 has been over for 10 days, you got to have some idea how it looks. Can you share with us, what kind of growth metrics you're seeing? Because the inflection, does it start during the quarter? Is it going to start after the quarter? Is it going to start mid-year? Can you just give us an update of what you saw in Q1? And I have a couple follow up.
Robert Nistico
Yeah, and I appreciate the question very much. And hello Cobb by the way.
Cobb Sadler
Hey, how you doing?
Robert Nistico
Good, good. Yeah, so we're not giving guidance here on this call. So I'll be a little bit general in my response to you. And what I say to people, before we released the K as an example. We've done a pretty good job of continuing momentum and growth quarter-to-quarter year-over-year. And we don't see any reason for that to change. And, along with the very clear communication that I've given with respect to distribution and brand placements, we are expecting to see acceleration for each brand throughout the year. And that's just a function of putting more product on shelves.
The other positive thing that I can say to help answer your question is, we're -- once one chain brings something on one brand on, a lot of times it's easier to get the second brand on. And if you recall about a week or so ago, we formally announced our relationship was 7-Eleven and Pulpoloco Sangria. Once that happens, then they're much more open to see other brands, authorized for that particular chain. So you can expect to see more of that this year as well, quarter-to-quarter-to quarter. So, uh, all those things equal up to meaningful growth. And that's as vague and specific as I can be.
Cobb Sadler
Okay. Okay. So it sounds like, as far as accelerating growth though, what that's going to take is multiple brands taking off kind of the flywheel effect basically. You get a couple brands selling into a particular chain, and then you add. So that's going to be the growth. But do you have any metrics on velocity? I mean, what have you seen so far? Could you just take a customer, and as an example and, and let us know what you've seen from the first sale of that customer to kind of today? If you have one that's starting to mature or getting close to maturing? Or is it just too early days to know, to do?
Robert Nistico
Yeah. Yeah. I'm not, I'm not evading your question, but it's awfully early to get, any real meaningful data out of that. Now I can say, when we activated Circle K on the west coast of the U.S. with Copa di Vino, the same store sales in that example were very, very good. And that's allowing us to present other brands into that environment. So, I know exactly what you're looking for. I can tell you that the early returns here are good. But we don't have enough data back from the chains yet to really give a hard evaluation on that. But I can tell you anecdotally, so far so good.
Cobb Sadler
Okay. And then on your acquisition strategy, I think you outlined that you were -- on your last -- in your -- actually it was a presentation. You have three kind of targets that have made it through the funnel and or at least most of the funnel. I think you're at like 90% completion for one. I mean, could you tell us like what the timeframe is on that and what needs to happen? What's in the remaining 10% of them just signing you the doc? So like, how long it will be and what's the hold up on the one you're closest with [indiscernible] a little more generally about the pipeline the two others, and any other pipeline that you may be close with and how you'll finance it. Thanks.
Robert Nistico
Yeah. So those are pretty specific questions. And, and yeah, I gave an example of, there are constantly brands coming across our desk. I mean, same for Bill, same for myself, same for Ron. We -- some -- just to give you what I gave the other day was just a general example, not a specific example on a specific brand, but we might be just opening a, a deck on one brand to evaluate, and others we might be really vetting those brands and we might be 90% through that vetting process. That doesn't mean we're 90% through acquiring the brand. So I hope that's clear. But again, I appreciate the question very much.
The best way I can re-answer that is the board that we have is really a who's who in beverage and, and business. Same with our executive team. I think everybody knows all of our resumes. We're not here to build an $18 million or $19 million company. So acquisition is a very important subject to us, like I said earlier. And we continue to evaluate brands. We've gotten all the way to the end on another brand and decided last minute wasn't the right thing. So it's, it's the only way I can really answer that question.
And there are a million ways to finance things. There's just so many options. And that would really -- that would really depend on the brand, the segment that it's in the M&A environment at the time we go to close. But we're sensitive to all subjects around every bit of every acquisition. And that is a very, very important part of our growth. And I'll stop there, because I'm trying to answer your question as best I can, but it's a little too specific.
Cobb Sadler
Where are you on other brands that you have involved in the CartoCan? And what would you do - when do you think you'll have excess capacity, or maybe new drinks, but when do you think you'll have excess capacity for CartoCan and for sale? And then, how would you handle that? Would you license it to someone else, or would you just manufacture the cans via partner and sell those? Because I think you do have a cost advantage there on the CartoCan, it's like $0.07 or, $0.05 to $0.12 or something like that when aluminum is what, 20 or something. So there's going to be demand for it. And what would you plan for? That'll be it. Thanks.
Bill Meissner
No, no problem. So yeah, the vision for that is varied. I mean, we could do a hundred different things with that. A lot of that would depend on our relationship with CartoCan. But the simplest way to look at it, and it's simply an example, would be to sell that excess capacity and pocket that margin.
And what I like about that, I'm not saying that's exactly how it's going to go, make that very clear, but what I like about that example is it's almost a contract manufacturing model. There's very little risk involved in that if company X says, hey, we love this fully sustainable biodegradable package, we'd like to put something in it. We're like, okay, great, give us your labeling information and we'll produce it for you. And it gets paid for in front and we put accents in our pocket. It's a nice model.
Another way to handle that is to license to use your term off to another group and let them handle it, or you could even have a royalty arrangement. There's a million ways to do it. It's hard to know what we're going to do with that yet, as it's little bit early. I don't have a specific timeline for you, but it's definitely something we're working towards as fast as we can.
I have given an example, this is an actual live example. When I was in front of the Walmart buyer a while back, that particular buyer asked if we would be willing to sell them some excess capacity for their private label liquid. And I said, maybe. So we know the demand is out there, right, but we don't have enough specifics to give you specifics yet. But we are definitely working towards it. It's going to be a really cool. We believe it'll be a really cool piece of our portfolio moving forward. Thanks for your comments and questions Cobb.
Cobb Sadler
Okay. All right. Thanks a lot. Appreciate it.
Operator
Your next question for today is coming from Joseph Crivelli at JAG Funds.
Joseph Crivelli
Hey, Robert. Thank you for having a call. Nice to hear you. My question here is, as market conditions on the acquisition side changed on the multiples? And has that caused more of a delay as the multiples were acquiring has changed in the last 12 to 24 months?
Robert Nistico
Well, you can. Every situation is positive, uh, has a positive and a negative edge to the sword, right? So, you can argue that in a more challenging capital market environment, you might see a compression in multiples, which we believe we have, which is a great could, can create. And, hello Joe, just like I forgot to say hi to Cobb. Hello, Joe, apologize.
Joseph Crivelli
Hey, Robert. No problem.
Robert Nistico
Yeah. I mean, the idea here with the portfolio approach is very simple. And positive economic environments, maybe that's a time to exit a brand in more negative economic and capital market environments that's probably a time to, to buy brands and acquire brands. So, we all know that capital markets flipped a little over about almost a year ago, and it changed the environment. But no, we're still laser focused on, on acquisition and nothing, none of that's changing anything. It has to be, the right thing has to play nice in the sandbox, if you will, in the front of the business and the back of the business. And so we gain the most efficiencies and it makes sense for our brands and our distribution network. So we're not going to force something in unless it's the right thing.
Joseph Crivelli
No, no, I agree. I know the conditions have changed, which is could be very creative to the company going forward. The other question I had is, in the distribution front, under markets where you feel growth is, could come down in about eight to 10 months, and those areas are you focused on like more penetration in Northeast or Southwest or what pockets of areas geographically you seem to be focused on in the next eight to 12 months?
Robert Nistico
Yeah, I mean, I think you can plot that out based on our press releases. Clearly the Southwest and the Southeast, are focus areas for us. But as we expand and given certain chain authorizations, et cetera, that also helps drive us into some more areas in the Northeast. So yeah, there's a pretty specific approach to this and a lot of it's chain driven.
Joseph Crivelli
Okay. Well, thanks for having the call. I really appreciate it.
Robert Nistico
Our pleasure.
Operator
Your next question is coming from Gary Getz [ph], a private investor.
Unidentified Analyst
Hi, Robert. Good to finally speak with you.
Robert Nistico
Hello, Gary.
Unidentified Analyst
I have a couple of questions. First is on this issue of exclusivity of CartoCan, could you provide some clarity on it? Is it like for internal use or -- I don't think, maybe you could correct me. I don't think you have the, the exclusive worldwide rights for it. Like, for example, if somebody like Coke or Pepsi wanted to use it. They would go directly to the owner of CartoCan.
Robert Nistico
No, no. No, we've never said we had global exclusive rights to CartoCan. With the acquisition of Copa di Vino, the founder of Copa di Vino was importing Pulpoloco from its founder based in Madrid. And as a result, those exclusive rights for the United States reported to our company when we completed the Copa di Vino acquisition. And since then, we've met with CartoCan people and we've intend to purchase the entire brand, well, just like we did with -- we've made this press releases, just like we did with Copa di Vino. And the, the plan is for us to expand the usage of that outside the U.S. But no, we don't have global --
Unidentified Analyst
But, you have U.S. rights to it. Like, for example, if a major beverage company wanted to use CartoCan in the U.S. Would they have to come to you?
Robert Nistico
Our understanding of that agreement is yes, we have exclusive rights in the U.S. Does that mean, a large strategic could figure a way around that? I have no idea. I can't speak to another organization.
Unidentified Analyst
Okay. But well, that's major. That major if you have exclusive U.S. rights to CartoCan.
Robert Nistico
Yeah, we're pretty excited about it.
Unidentified Analyst
Yeah, I'm very pleased to hear it. That could be like the diamond in the rough of Splash Beverage along with TapouT.
My next couple of questions are financial related. I noticed that the, the gross margin in the fourth quarter was about 60%. That it looks like an anomaly, but maybe you have some insight into that and what you see it to be going forward.
Ron Wall
Hi, Gary, this is Ron Wall. I'll take that one. In the fourth quarter, we did have some one-off adjustments. We wanted to be more transparent about the freight costs from ourselves to our customers and our Amazon selling fees. Those had been reported as part of cost of goods in the first three quarters. And in the fourth quarter, we made the adjustment to put those into SG&A and highlighted that in the 10-K with the amounts associated. So that the full year number, represents the gross margins of the company.
And the key reasons for doing that, one is that transparency, to get a good understanding of our gross margins without the volatility of that cost related to freight from ourselves to customers. It's been moving around for the last 18-24 months.
And also on the Amazon selling piece, as it tends to grow similar to the revenues on our e-commerce, to have that split out as a selling cost in SG&A. So that does show Q4, as a kind of one-off higher margin to make that annual adjustment. Going forward on the quarterly basis and the full year. It'll all be apples to apples for, for comparative purposes.
Operator
We have reached the end of the question-and-answer session. And I'll now turn a call over to Robert Nistico for closing remarks.
Robert Nistico
Thank you very much. And we appreciate everybody's questions. Nice to hear from everyone and everybody else who's on the call. I do want to just say a couple more things before we close up. Management, the board, we are extremely excited about our progress. Yes, there's more work that needs to be done, but we are executing and we're out in the marketplace every day working hard for all of us.
And I'll tell you, I mentioned the term inflection point more than once. I really believe we are at that point right now where brands really start to gain traction and accelerate. And I think everybody will be pleased, over the next, six, 12 and 18 months, as you keep up with our execution moving forward.
I talked a lot about distribution being everything. And it really is, most beverage companies, -- every beverage company has to survive. Nobody cares about Bill, Ron and Robert's Juice if it's not on shelf. And we're really good about putting things on shelf. We specifically are excited about Publix Grocery chain in the southeast with TapouT. We started loading those stores recently. We're getting to the end of that distribution project. A few more counties, a couple more states to work on. But, we're just -- we're really, really at a place and, and where we can start to execute against our, all of our brands and hopefully some great acquisitions coming down the line.
So that's it. We appreciate everybody's support. Very, very, very much every, everybody's been so great. And we're excited to help deliver more shareholder value in the future. And we look forward to more and more positive results throughout the year. Thank you everybody for coming and listening. And that's it.
Operator
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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Splash Beverage Group, Inc. (SBEV) Q4 2022 Earnings Call Transcript