Splash Beverage Group Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2024

There are 8 speakers on the call.

Operator

Greetings. Welcome to the Splash Beverage Group Second Quarter Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. I will now turn the conference over to your host, Robert Nistico, Chairman and CEO of Splash Beverage Group.

Operator

You may begin.

Speaker 1

Thank you very much. Hi, everybody. Thank you for joining us. This is Robert Nistico, CEO of Splash Beverage Group. Also with us today, we have Julian Ivinsitz, our CFO and of course, Bill Meisner, our President and Chief Marketing Officer, on the call as well.

Speaker 1

And each will be speaking with respect to their individual responsibilities. Honestly, a lot of you haven't had a lot of exposure to Julius because he's only been with us for about 4 months now, but we're thrilled to have him. He's been a tremendous addition to the team. And Bill, of course, has been with us for a number of years, who is really truly one of the best presidents and marketing people I've ever worked with. So you'll have a chance to hear from them and ask questions as we get into this.

Speaker 1

Today, we'll be discussing today's the company's financial performance, key developments, excuse me, providing insights to what these result means for the future, future being the key word. We have a formal dialogue we have to follow here, but we're going to try and keep it as informal as possible. And then, of course, we'll open the web portal up for questions when we're done. 6 basic topics today briefly on Q2 and H1 results. We all know what they are.

Speaker 1

So we're really more interested in how we're moving forward now, which we're very excited about by the way. Distribution and brand strategy, super important stuff as we move forward into the back half of the year and into next year. Capital structure and financing update, really a key subject as we're moving into the back half of the year again. Of course, financial outlook for the next 18 months. We also want to talk about mergers and acquisitions, key part of our narrative, if you will.

Speaker 1

And of course, we'll have a Q and A session. All right. Just really brief, super high level on the quarter. We reported revenue of $1,050,000 for the quarter, which is very light compared to $1,500,000 in the first quarter and of course $5,000,000 last quarter, sales decline is really attributed to 100 percent to limited liquidity. It prevented us from procuring inventory for QPlash and frankly supporting the chain authorizations that we've gotten recently.

Speaker 1

So we're going to address all this in great detail here in a little bit. Net loss came in at $5,300,000 basically $0.11 per share and compared with 13% in Q2 last year 2023. So that's kind of our look in the rearview mirror. We're going to talk a lot about financing liquidity here as we move forward. So now I'm going to turn it over to Julius, a little bit more detailed review of the financial performance.

Speaker 1

And Julius, it's all yours.

Speaker 2

Okay. Thank you, Robert. I just want to dive a little bit briefer into the financials. For revenue, as Robert denoted, revenue was a little hair over $1,000,000 for the quarter and that was down compared to driven by the nominal sales at QSplash. It's important to note that our sales performance wasn't only impacted at Q Slash due to liquidity, but was also on our COPADOVINO brand as well.

Speaker 2

The liquidity prevented us from procuring enough wine to get all of our orders out the door and carry $250,000 of backlog from June into July. So the demand was strong for the brand and Bill will dive deeper into that. On the gross margin side, the margins actually did improve from the prior quarter. We made about $244,000 in gross profit compared to $164,000 in the prior quarter. And we did expand our gross margins by 12% from 11% in Q1 to 23% in Q3.

Speaker 2

And this can really be attributable to just lower raw material cost versus the prior period. Given our liquidity challenges, we really did focus in on our SG and A spending, which was $2,600,000 in the quarter. That was 9% lower than in Q1 52% lower than Q2 of last year. So given the limited liquidity, the business, as I said, was very diligent on managing spending across the board from everything from travel and entertainment to sales and marketing and then backfilling individuals who left through natural attrition. Just kind of going a couple further with a couple other points here.

Speaker 2

EBITDA for the period was a loss of $2,600,000 This is actually an improvement of $300,000 from Q2 and half of what the loss was in Q2 2023. So Robert kind of noted previously on the net losses for the period. One thing is if you score card for stock based compensation in Q2 versus Q1, net loss was actually flat at $4,000,000 from the prior quarter and a $600,000 improvement from prior year. The last thing just in terms of the financials is we've kind of said this a couple of times now, liquidity was tight for the period and we had nominal cash at the end of the quarter. But if you back it up a little bit, collections were solid for the period, actively just managing that.

Speaker 2

Inventory levels were down $100,000 from the prior quarter as anything that we procured was effectively immediately consumed. And even with our light liquidity situation, current liabilities were effectively unchanged from Q1 to Q2. So we really just worked everything as effectively as we could with the liquidity challenges that we had. So I'll turn it over now to Bill and he can discuss some of the commercial trends, distribution wins, brand strategies and update on product development.

Speaker 3

Thanks, Julius. Indeed, while inventory shortages hindered our commercial results for the quarter, we had numerous successes to build sales momentum into the balance of 2024 2025. So I'll just take you through some of those. One key thing is the demand for our products was measured by orders coming into the system and that was 20.1% higher than Q2 2023. The inventory funding challenges were simply the reason the orders didn't get out, but order demand was significantly greater year over year and that has only grown in size and intensity.

Speaker 3

Populoco was expanded to all SeaWorld Parks and Entertainment venues across California, Florida, Pennsylvania, Virginia and Texas. Copa Divino and Popoloco received an authorization from Chevron's Extra Mile Convenience Stores. This authorization is across 6 50 stores across 6 states. Copadivino and Populoco received an expansion into 300 Murphy Oil USA stores in 7 states. Copadivino received an authorization from AMPM Convenience Stores and that is up to 1100 stores across several states, one of the larger chains in the United States.

Speaker 3

We executed a successful launch of Cofre Divino's new 4 pack and a test in 28 Walmart stores in Tampa, Florida, which we're very excited about and performing well. It's certainly our hope to be expanded in Walmart as we go and perform in that test. We executed a successful launch of a test in Walgreens. This is in 59 stores in the Greater Las Vegas area, and similarly are performing there and expect to continue to grow with Walgreens following the test. We were able to expand coverage for all brands into a state that we were previously not in, Colorado, with a group called Legacy Distribution.

Speaker 3

Salt received an authorization

Speaker 4

We're sorry because of technical difficulties, we are unable to route your call. Please try your call again. This is a recording.

Speaker 3

Tequila. So the bulk of the category is really in straight blanco tequilas and we have been the go to flavored tequila brand. This really puts us into the meat of that market with blanco tequila. And then from a momentum perspective, it was just a very successful quarter that will buttress our results for the second half of the year despite the headwinds that we faced on liquidity and inventory. Our sales team remains focused and our ever growing national distribution network of high quality distributors and retailers remains enthusiastic for our brands and the innovation to come.

Speaker 3

I'll now turn it back to Robert who will provide an update on our capital structure.

Speaker 1

Thanks, Bill. That's great stuff. Good work. Everybody, the message there is there are even though in the face of serious liquidity issues, this group didn't sit on their hands. We achieved all these things with virtually very little money.

Speaker 1

So while we are organizing ourselves with the financing group that we'll talk about here in a minute, we were able to achieve quite a bit staging ourselves. So when money starts to come in as it is as of yesterday, we can actually capitalize on that and really start building out revenue as we roll into December and into next year. These are a ton of authorizations. It's an amazing job the sales and marketing team has done. We applaud them and thank you for really digging in and doing what we could do with limited resources.

Speaker 1

So also just so it's clear, I want to make sure people understand really how we got into this position. I mean it happens. Sometimes companies face cash crunches, liquidity issues. For us, we had a signed deal. We had documents signed.

Speaker 1

We even had a level of fund proof of funds from a group out of Europe. For reasons outside of Splash, that deal never came to fruition, and we waited and we waited. Fortunately, we're not the type of group to only count on 1 horse, so we had some redundancy. Unfortunately, that group out of Florida never got their funding. So we had to hustle.

Speaker 1

And of course, you guys know that we took on some capital from some investment banks. Those can be considered expensive from a dilution standpoint. The really good news there though is we have retired one of them and it was significant amount of money. It was originally $2,400,000 and all that I guess I can call it overhang is now behind us. God love them, we needed the money.

Speaker 1

Sometimes you just have to do it. But it was difficult and it put a lot of downward pressure on the stock. There's no surprise there, no secret. The really good news though is that, that group is behind us and God bless them for helping us, but glad it's behind us. I'll say it that way.

Speaker 1

Moving forward, we announced loosely that or in a superficial way that we had an agreement with the group out of Upstate New York, Rochester specifically, high net worth individuals managed by Capital Securities and Rochester Wealth Management, really good group of people up there. We, of course, have a formal agreement with them for a private placement. This morning, that press release was sort of the very early results of that of those efforts. It's been a lot of work, but also a lot of fun. We have the first tranche about half the money in for the first tranche in hand.

Speaker 1

We'll be obviously required to put an 8 ks out with that here shortly. Money is still flowing in. In fact, it's actually kind of there's some amusing pieces to it. Some folks mail checks, some folks send ACHs, but as long as the money comes, we're happy. But the message here is that, that effort is well underway.

Speaker 1

We have signed documents, as I mentioned in the press as we mentioned in the press release this morning, and the money continues to flow in. We will be doing it in 2 tranches. There may be a third, but I'm not going to say that for sure. The second tranche, we have signed documents as well to the tune of about half, a little more than half, 2 thirds of it. So we're very, very, very confident and excited that money is flowing in.

Speaker 1

And with all the work that the sales and marketing team has done, we'll be able to really, really leverage that and convert that into revenue. Additionally, Julius has worked hard on ABL or revolver, if you will, line of credit. As this money comes in, that triggers that, which will allow us to have extra liquidity from a credit base standpoint. And Julius will talk about that in a little bit. Let's see.

Speaker 1

Okay. Yes, so basically, it's been a difficult couple of quarters. It's I personally put more money in the business because I know where we're going. And we've had some of our legacy investors help out. We finance things through accounts receivable and whatnot.

Speaker 1

So we're past that point now and it's time to get out of 1st gear and move forward. So we're very excited about that. Julius will now discuss outlook for the balance of 2024 and into 2025.

Speaker 2

Okay. Thank you, Robert. I want to pivot to what has occurred and just really looking ahead at a promising future at Splash. The projections I'm referring to exclude any acquisitions and then are based upon the financing that we received yesterday and that will be coming over the next couple of weeks. So from a revenue guidance standpoint, management, we expect revenue to be in the range of $9,000,000 to $10,000,000 for full year 2024 $38,000,000 to $42,000,000 for 2025.

Speaker 2

This will be driven by organic growth in COPA DiVino, our Pofa logo brands along with the reboot or say better word restart of our QSplash, which is our e commerce platform. So I know we will get to the M and A side a little bit later, but any M and A would be accretive to the figures that I just noted. On a gross margin perspective, I do expect gross margins to land in the high 20s for full year 2024 and moving up about 10 percentage points to the high 30s in 2025 and this will be driven by operational efficiencies and procurement savings. So if I jump to EBITDA, is EBITDA is projected to be a loss of around $9,000,000 for 2024. And given the programs that we have on the way, we expect that we're going to be EBITDA positive by late Q2 2025, early Q3 2025 based upon our current footprint.

Speaker 2

So kind of just to take this a little bit deeper, these financial projections will be driven by our strategic initiatives. So this is the first time, we've kind of gone public this Project White Hot. We have 5 strategic pillars. The first one focused on sustainable and profitable growth. The second operational excellence.

Speaker 2

The third, our e commerce platform QSplash bolt on acquisitions and then finally, our capital structure. So Project WhiteHod is expected to move the company to positive cash flow from operations and positive EBITDA, as I previously noted, without any M and A. And then the cost reductions and expected organic growth will get us there. It is strategic imperative for Slash Beverage Group to strengthen its capital position and restructure the company's operations to ensure a path to receiving positive cash flow from operations. Project WhiteHaus provides the organization a strategic plan to ensure laser like focus on optimizing our operating footprint, the need to support our next our growth cycle and have the organization ready for pending M and A.

Speaker 2

To go a little bit deeper on the strategic pillars, Flash has had success in expanding its production I'm sorry, its distribution and product offerings, a lot of it which Bill just noted, which will create momentum in the rest of this year going into next year. And as the liquidity challenges are lifted, we will be making strategic marketing investments in our tequila lines along with focusing additional advertising and promotion spending on Cope Divino and our Popolocal brands. I noted previously on the gross margin expansion, we expect to exceed significant cost savings, expanding these gross margins and this will be a combination of contract manufacturing, strategic raw material procurement and freight savings programs. These initiatives with step up sales will allow Splash to deliver on its procurement savings targets and gross margin expansion. A bit more just on QSplash.

Speaker 2

With our balance sheet being recapitalized, this provides liquidity to procure inventory for our e commerce platform. Year to date sales in 2024 for QSplash has been nominal and we will relaunch in the coming weeks where we expect sales for QSplash in the low to mid-20s in 2025. And that's just coming from our e commerce platform. Again, just a couple more things here. On the bolt on acquisitions, I do want to remind everybody that Splash was created on the concept of a diversified portfolio of beverage brands.

Speaker 2

And our strategic pillar for bolt on acquisitions is to execute our M and A strategy. Robert will go a little bit deeper on the M and A side on to the developments there. The last thing I just kind of want to focus in on is capital structure. We have successfully executed part of our strategic pillar through the securitization of our syndicated financing. And then Robert did note on the ABL revolver from an equity partner that will provide us additional liquidity.

Speaker 2

The future M and A deals will be either come from debt, equity or a combination of that. But that's kind of really our outlook on Project WhiteHawk. And then let me just turn it back over to Robert on the M and A side.

Speaker 1

Yes, thanks. Hey Julius, would you mind going deeper into how Qflash will work because it sounds like a big jump in numbers. I want to make sure people understand why that's not only realistic that it will happen?

Speaker 2

Yes, sure. So basically you're selling pretty much through Amazon as a reseller. So it's a really fantastic business that you're effectively buying inventory and selling it on a cost plus model. And for folks that they don't know, we only have 4 individuals that are supporting that business. So the overhead is very low.

Speaker 2

So the turnaround time on that is fairly quickly and we used to do around $4,000,000 to $4,500,000 a quarter in QSplash when there weren't liquidity challenges. So this isn't a very large stretch to kind of get back there. We'll need a couple of months to kind of get there, but it's a pretty well developed business model that we've used previously. And the beauty of that business is the cash conversion cycle is fantastic. You buy the inventory and you're effectively getting immediate payment.

Speaker 2

So you're looking at procuring something and getting monies back in 5 to 10 business days.

Speaker 1

Yes. Okay, great. Thank you. Yes, it's a really great platform for us and basically virtually cash flow neutral, if not positive by certainly by the middle of next year. Thanks for that.

Speaker 1

All right. M and A update. There's been we've been working on Western Sun Vodka for some time. It's been actually a great exercise because it's a really good group of people. We will work very well together assuming we close.

Speaker 1

Our intention is to close this thing hopefully by the end of the year, but it probably roll into January. We structured the raise like this. It's a blend of debt and long term debt and equity. Basically, the numbers are right around $75,000,000 3 quarters of that or $50,000,000 of it, if you will, is long term debt. And then the $25,000,000 being with an equity partner.

Speaker 1

We have to be careful. We can't talk about too many names openly yet, but we do have some numbers that are hard circled. And now a new player came in, I have to leave the name out, who's actually very interested and from the space that is interested in both sides, both the debt and the equity side. And I'll tell you this, it's about a $3,000,000,000 player, so they can certainly do it. It's not done, it's not even close to done, but they have requested to go to deeper due diligence, which is a great sign because they're from the space, which is really ideal because as we execute on our strategic plan with that group, they're a perfect exit partner as well.

Speaker 1

And they know that, we know that. So that's an ideal situation if it comes to fruition. It's early, but we'll keep you posted on that. We'll see how that goes. So the M and A piece is important, but I also want to talk a little bit about why.

Speaker 1

The platform of Splash was the vision for it was always to be a merry-go-round, if you will, of acquisition and exit. We never intended to make it an incubation platform. It's always supposed to have been an acceleration platform. So we have another potential acquisition in the hopper. We haven't announced it.

Speaker 1

I'm not going to reveal that today. We're not ready to do so. But it's a great example because it's a regional brand and that regional brand has proven itself, right? They did it right. It's an inch wide and a mile deep in a certain geography in the country.

Speaker 1

So then because we're distribution experts, I mean, we really are I hate to compliment it, but we really are good at it. And we have either vendor numbers or distribution relationships with every major distributor in the country and everybody knows we have a relationship with Budweiser, AV1, InBev. That's our go to group, but we also have MillerCoors and Republic National and Southern Glaziers, Young's Market, whomever. But to take that brand that has already achieved a certain level, not massive numbers, but certain level of repeat purchase and then accelerating that in our system because we have that distribution network and the retail support across country now, we spent enormous amount of time putting that together. Right before we had our liquidity problem, we were I mean, it was absolutely perfect, exactly where we wanted to be.

Speaker 1

So we had to hit the pause button for a couple of quarters and we're sorry. And it's just not at all anybody wanted to happen. But now that we're powering through that, this proposed potential unnamed acquisition is a great example of why we do it. So now we can take adjacent markets, geo target the ones that make sense for that brand based on their geography, their the time of year, temperature, etcetera. And higher influencers really go market by market by market.

Speaker 1

And the distribution piece, which most people fall down on, is really our easy button, if you will. So we're very excited about M and A as we move forward. I want to make this clear too. We're not trying to be the next Diageo. We just want to be the most efficient and the most profitable.

Speaker 1

And wherever that number falls out, it falls out. And obviously, by doing that, we add shareholder value. So we're super excited about the potential of Western Sun and this potential and possibly this other one. But that's that. And I'm going to leave you, we'll turn it over for questions, I should say.

Speaker 1

I want to make sure this is crystal clear in everybody's minds. Our 3 key platforms to achieve for this company and we've tattooed it on each other's foreheads is, 1st of all, finishing out the raise that we're in the middle of right now. Like I said, money is coming in. You saw the press release. 2nd tranche, we believe will go even easier versus always the most difficult.

Speaker 1

We actually have, like I said, signed documents in 2nd tranche already from people we know. So we're very confident in that. So we closed this out. And it's on our base of operations. If you heard Julius, this raise on our current base of operations will bring us to revenue neutral profitability by next summer sometime, whether it's the end of Q2 or beginning of Q3.

Speaker 1

That's without any acquisitions. That's a really great thing to be able to say. And all that work was being done while we were sitting here trying to put the financing or getting the financing put together. The second thing is executing on our narrative of larger acquisition. Well, that would be Western Sun and potentially this other one that I'm not naming.

Speaker 1

And there are others. Bill Meisner and I, good Lord, we almost 3 a week come across our desk. Some are gems, some aren't. But the fact that there's deal flow out there and it comes to us, that's a really valuable thing for us in the future. And then the third and final thing is actually reaching profitability.

Speaker 1

So completing this raise, so people know that we're not going to go do something or we have to do something that would be considered less desirable from a financing standpoint. You can never say never, but we believe we're past that. The second thing being executing on our narrative of larger acquisitions. The third thing being reaching profitability. These all three of these things are within reach between now and the Q2 of 2025, which is basically a blink in the eye.

Speaker 1

All right. Thank you for your attention. A lot of words. We'd like to open it up for questions now. And operator, please explain how to load your questions in the portal, please.

Operator

Absolutely. At this time, we will be conducting a question and answer session.

Speaker 1

All right. Looks like we got our first question already. It's for Julius. Can you sorry, I got to put my glasses on. Can you please explain a little bit further on the operational excellence, I believe you called it, of how we get to profitability with this current raise by the middle

Speaker 2

of next year? Sure. So the raise in and of itself gives us liquidity to actually procure raw materials. And so the things that we're looking at is one of our highest cost items is freight. And so we're looking at adding 3PLs to our locations to actually have better freight lanes to get product.

Speaker 2

And that will not only basically take costs down, that will actually reduce our cash conversion cycle as well. We have various initiatives out there where the liquidity allows us to buy more efficiently by wine that we'll be buying that at anywhere between a 10% and a 20% discount from where we're currently procuring. Why? Because if you're hand to mouth, you're buying whatever out there and you're not getting any type of volume discounts. Everything is on the table as well from cups and labels and so forth where we're continuously looking at where we can take cost out of the business, carry lower inventory levels and then be more efficient.

Speaker 2

Hopefully that answers the question.

Speaker 1

All right. Thank you. Here's a question for me on Western Sun and I think I'll start and maybe Bill Meisner will jump in as well. The question is what's taken so long is the deal at risk? The excuse me, I'm trying to read the screen.

Speaker 1

Okay, and is the deal at risk. So going back to my statement about us acquiring brands that have regional success already. Generally, what that means is, it's going to be in a revenue level that is too low for the strategics to be interested in. And that's the beauty of the vision for our platform. We want to grab those brands in that $15,000,000 $20,000,000 $30,000,000 range and accelerate them.

Speaker 1

I mentioned the word incubation before. Incubation is a very difficult thing to do. Unless you get really lucky, it costs a lot of money, takes a lot of time and it takes away from your core business and your legacy brands as well. But so finding brands and acquiring brands in that, I'll call it $20,000,000 to $30,000,000 range is ideal for us. We accelerate them to $40,000,000 $50,000,000 $60,000,000 depending on the segment beverage, whether it's non alk or alk is absolutely perfect.

Speaker 1

And then that's where the strategics come in. Why it's taken so long? It's not easy. It's an because we also operate in sort of no man's land from a revenue standpoint. We worked very hard against it.

Speaker 1

I think we finally found the right blend of debt and equity, and now we're getting a tremendous response. And we also brought on a gentleman to help us with that raise, and he was a top Director at Drexel. So that's been a help as well. Bill, anything I'm missing there?

Speaker 3

Well, just as far as the question on risk, I can just assure everyone that the Western Sun team is very motivated. We work great together and they want this deal just like we do. They see this brand going to the next level and they know that Splash is the partner that can help the brand get there. They are very much in favor and continue to be patient and work with us.

Speaker 1

Okay, great. We're having I think it looks like difficult to hear on this. Maybe we should stand by one second everybody. I'm sorry. Yes, operator, I think it looks like it's the web portal isn't working very fast.

Speaker 1

So why don't we go ahead and open up the phone queue, please?

Operator

Absolutely. Thank you. Okay. The first question comes from Scott Buck with H. C.

Operator

Wainwright. Please proceed.

Speaker 5

Hey, good afternoon, guys. I appreciate the update. You're throwing a lot of information at us. Robert, I'm curious, the holdup on Sun, that's almost entirely driven by lining up the financing. Is that fair?

Speaker 1

Yes. That's exactly right. There's also it's also spirits, right? So you also have COLA waivers and licensing and permitting you have to think about as well. So it's not a really quick down and done sort of thing.

Speaker 1

But yes, we think we figured out the financing blend and style now, and that's why we're getting a much better indication that we're going to get this done. We've hard circled a portion of it, by the way. I don't want to give you the exact percentage, but it's meaningful. And then this other group that I mentioned, that asked not to be mentioned, the $3,000,000,000 group, they're real. So we'll see where that takes us.

Speaker 2

And Scott, just to your statement about all these Sorry about that. Yes. So kind of you're saving a lot of information. I really wanted this call by design to really just put things out there, right, is we wanted to kind of really just kind of present our vision of what we're looking in the future, things that just didn't pop in the quarter in the financials to really show the momentum and just build the confidence in the external market on how we're using these funds, what the future looks like and to express our enthusiasm for the business.

Speaker 5

Yes. No, I think it's very helpful. In the most recent investor deck, it looks like with the closing of Western Sun that you guys will be moving some production to the Dallas area. Is that correct?

Speaker 1

Well, I'll say it this way. The Western Sun Campus is located in Pilot Point, which is North North Texas. And some of our production and not all of it, but some of our production and logistics can be relocated there, which will be great. Just shipping lane savings alone will be tremendous. So yes, not everything necessarily, but yes, portion of it for sure.

Speaker 5

Okay. Yes, I guess that's where I was going with the question. What are the potential cost savings or margin benefits if you moved some of the production or helped some of the inventory there?

Speaker 2

Well, yes, just if we just focus on the freight lanes is we're probably looking at a 30% savings just on our freight costs.

Speaker 1

Which is material.

Speaker 2

Which is for us, it's very material. So I mean it's not just like it's 1 or 2 points. And then also just that's a big piece of it. If you look at it from your outside Portland to looking for kind of the Dallas area and how just basically the truck lanes go, that's just very big for us.

Speaker 1

So we can bring wine from the West Coast. It's a good thing. And I don't believe those savings are even in your current.

Speaker 2

No, no. Like we have some strategic wine procurement savings and that's just buying better. But again, we haven't even incorporated yet geography on where that wine would come from. Also too is if you look at a Copa Divino, it's not vintage. So whether that wine is from Pacific West from California or since we're talking about Texas, it could be a Texas wine.

Speaker 2

Not necessarily would do that, but just kind of throwing that out there that that's not even baked into the numbers yet.

Speaker 1

Yes. That's the accountant talking, not the marketing guy.

Speaker 5

And just to be clear, guys, I know you brought you both brought it up on the call, but the guide for 25, that does not include Western Sun, right?

Speaker 2

That is correct. That's correct.

Speaker 1

That's correct.

Speaker 2

That's correct.

Speaker 1

Yes.

Speaker 5

Okay. All right.

Speaker 1

So we're really in a pretty good spot here, even though it took us a while to get here.

Speaker 5

Right. I'm curious proceeds from this most recent raise, what do you have to either catch up on accounts payable with, refill inventory with, I mean, what kind of goes into kind of cleaning things up before you can think about it as growth capital?

Speaker 2

Yes. So obviously, we've been hand to mouth on cash and we're behind on some of the bills and our vendors have been really quite excellent in working with us. So with the raise that we have, we're not just going to write a check next week and pay everybody off. There'll be an 8 to 10 week pay down of anybody that were past due. And then again, it's on the inventory side, whether it's making investments in Q Slash or wine, we'll be buying just smartly, and then just buying in higher quantities so we can get some purchasing price leverage.

Speaker 2

So again, I think And the one thing also I want to highlight as well is when you're so limited on liquidity, you have senior leadership just basically spending a lot of time on managing vendors, right? That takes away from our strategic focus. And to have the cash in the bank to focus in on bigger ticket items, will be a welcome relief for us.

Speaker 5

Yes. Can you share the pricing information on this raise or will that be included in the 8 ks that's filed either this afternoon or tomorrow?

Speaker 1

Yes, you'll see it in the 8 ks, but it's reasonable. I think people will be very comfortable. It's not like some it's very reasonable. And it's 18 to 20, 2 years down the line from a debt standpoint. Yes, I think people will be comfy with it.

Speaker 5

Okay, perfect. And then last thing, Julius, can you give us a little more information on the ABL? I mean, how what is the capacity of the revolver, I guess, or whatever the Yes.

Speaker 2

We've got a term sheet, and basically it's your standard ABL just AR and inventory. And one of the things is with that it was contingent in us doing syndicated financing. So the range that I can give you is $3,000,000 to $5,000,000

Speaker 5

And we'll get more information on that in the coming weeks as this current raise is finalized, right?

Speaker 2

Yes, correct. Again, there'll be a gradual buildup, right? You got to buy inventory to finance the inventory. And so that will kind of ratchet itself up.

Speaker 5

Okay. Perfect. And then just

Speaker 2

yes, very flat. By the way, I mean, just to be honest, like with that is, Robert was actually kind of shocked that the terms that were coming through given what, call it, our financial situation, the fact that we could even pull that, everybody was pretty happy with.

Speaker 1

Yes, it's good stuff.

Speaker 5

I'm sure. I'm sure. And then last thing, Robert, on the M and A front, more on the divestiture front. I mean, of the brands that you currently have, anything that we could potentially not see in the portfolio 6 months, 12 months from now?

Speaker 1

Yes. There are I'll just go there. Yes, I'm just going to go there. There's some corporate reasons why we've been quiet about that. So it's going to be bear with me, I'm answering your question.

Speaker 1

When we talked about acquiring brands and acquiring regional brands that with regional success and repeat purchase and accelerating them, that's great. Our very first brand, when I came to Splash, the company already had a licensing agreement for Tap Out. Tap Out has a lot of pre existing brand awareness, so we thought, well, we can work with that. But ultimately, because Tap Out was really a lifestyle brand associated with the UFC and MMA, it was really an incubation project. And I had some conversations about that with some folks this week and that's fine.

Speaker 1

In fact, we had good authorizations on it and the brand was selling, but just not to the level that we, I don't want to say hoped, but to a level that we would evaluate whether it was worth continuing or not continuing. And it's not that the brand failed, it was actually from an incubation standpoint, pretty darn successful. But from a regional brand success standpoint, no, it wasn't worth it. And we figured we're going to end up spending 1,000,000 of dollars and to continue to incubate. And then of course, then we still have licensing payments to consider as well.

Speaker 1

And it's got that takes a lot of time. So sticking to our core strategy of regional success, we made the hard decision and we're walking away from the brand. We haven't talked about it because there are distribution and chain considerations. We have to be able to work through that and get to all the chains and distributors. So it's been we've kind of kept that on the down low a little bit just from a functional standpoint.

Speaker 1

But no, we will not be continuing with Tap Out. We wish them the best. We could incubate it. If we had all the cash in the world, honestly, I'd like to continue with it. But my guess is, and this is just a guess, if we were to do that, it would take 2 to 3 years to get it to where we want it and cost another $20,000,000 $22,000,000 I'd rather focus on our other brands that are really exciting, and of course, acquisition.

Speaker 5

Yes. Well, I appreciate the transparency there and appreciate you guys taking the time to host this call. Thank you.

Speaker 1

Of course. Nice talking to you, Scott.

Operator

Okay. The next question comes from Sean McGowan with ROTH Capital Partners. Please proceed.

Speaker 6

Thank you. I appreciate the opportunity to talk guys. Going back to your comments on guidance, would you mind repeating the expectation for the range in 25% on revenue? Did you say 30% to 34%?

Speaker 2

No, no, no, 38% to 40

Speaker 6

dollars Oh, dollars 38,000,000 to $40,000,000 Okay. I'm glad I asked you. And when you talked about it being EBITDA positive kind of late 2Q, Q3, would you expect to be EBITDA positive for the year?

Speaker 2

So again, it's like I'm conservative. I think for the full year, I'm expecting to be down like $2,000,000 to $2,500,000 full year and most of that's in the 1st and second quarter. But again, I have upside on that where I think we can pull that with a little sales momentum and we've kind of noted a couple of different things that aren't built into the numbers. But I don't want to get too rosy because I am 18 months out OpEx.

Speaker 6

Right. Okay. And then the last question on that guidance is, would given the potentially seasonality in business and other things going on, would you expect that once you cross that threshold into positive EBITDA in the second half of twenty twenty five, do you think you would stay there consistently in every quarter or could there be still some quarters that wind up negative?

Speaker 2

No, no, no. Because once we cross that threshold is once you start getting into the second half of 2025, our Copa Divino, our Popoloco and our tequila starts taking off and you have Q slash as more of a steady state, right? And I can only do so much on Q slash from a margin expansion standpoint because I'm in a resale model on cost plus. But when I start talking about the legacy brands, I have a lot more room there on commercial momentum.

Speaker 6

I guess what I'm asking though is would we then when the calendar turns to I know this is like way in the future and we'll all be retired. But if I turn the calendar to 26, am I taking a step back because I've made investments for growth and I'm in the post holiday 1st calendar quarter? Do I or do I just I cross the threshold and I stay positive after that? You stay positive. Yes, you stay positive.

Speaker 2

We won't go backwards on that. And then I think Robert and Bill can maybe get a little bit of sense of seasonality, but it won't be significant from the way that I see it.

Speaker 1

So Sean, by the way, nice talking to you. I hope you've been well. Yes. So but understand this too. On the legacy brands, on the beverage side of the business, with the exception of the chain we had a ton of chain authorizations for Tap Out and we already talked about that.

Speaker 1

But we're now just getting the meaningful regional and national chains for Popoloco and for Copa Divino and frankly some for Salt Tequila where we didn't have those before. So and everybody on this call, I think, understands that the chains are what build brands. So once you start getting into Walmarts of the world, the Walgreens, the AMPMs, the Circle Ks, etcetera, you're talking about a massive increase in revenue. So no, there's no reason for those numbers to slide backwards.

Speaker 2

Okay. And also note, it's all without M and A, just to kind of Yes. Look out. Yes, so like again, it's like 18 months out or going into 2026, this is all Saturn's M and A.

Speaker 6

Understood. I have two other questions. One is, thanks for the color on Tapout. I'm hearing you say that the challenge there is that it would require it to kind of be incubated, but you're not ruling out non alc, right?

Speaker 1

You would still

Speaker 6

look No, no.

Speaker 1

No. We're just talking about this brand specific. In fact, this Bill Meisner can speak to this as well because he did the design, he did the positioning. He's an incredible marketer and President. We own the trade dress with the exception of the name Tap Out and the Icon and we own the liquid.

Speaker 1

So no, we are not getting out of the non out business. We want to do both.

Speaker 6

Okay. Makes sense. And then my last question is on Poca Loca. So we've talked, you and I, extensively over the years about other kind of other applications of that packaging technology. Can you give us a little update there on what some plans might be?

Speaker 6

Or is that kind of back partnered?

Speaker 1

No, no. Yes, that's an outstanding question. I'm glad you brought it up. I should have brought it up earlier. So part of the use of proceeds for this capital raise is the deposit on our 1st paper can roller.

Speaker 1

And if you don't mind, I want to talk about that a little bit because it has multiple positive impacts on the organization. Number 1, the reason we have a 711 authorization for Popoloco and we're loading stores on a daily basis, it's not just that it's a really nice liquid, it's a fabulous sangria. But the biodegradability of that package is unique and sustainable and recognized by the buyers there and other chains as well. So that packaging is super important to us. As we procure our 1st roller, our intent will be to put it here in the States, probably North Texas.

Speaker 1

The cost the estimated cost of those cans once it's here and for everybody on the call, it's an 8 layered paper can, the outside layer is the 8 layered, it's also the label. So the cost of that is roughly $0.04 domestically. I think right now that raw material as a package is about $0.09 as we import it. So we cut that less than half. Our current aluminum can printed is about $0.245 So that's a tremendous savings and that has ratcheting down COGS increasing margin.

Speaker 1

So now we can put line extensions in that thing. We can take some of our current brands, more of our current brands put it in there. I'm going to have Bill jump on in a second and talk about the water project in that paper can as well. But no, that is absolutely not back burnered. We're very excited about it.

Speaker 1

We hope to get that first machine here Q1. And this is not guidance, but this is anecdotal, but factual. When I was in Bentonville last time with Aida Aragon, our National Account VP, the Walmart buyer, the wine buyer asked me asked us straight up, can we have an exclusive on that for some of our private label wine? And I smiled and giggled and said, maybe, but inside I'm going, no, not yet. But we can sell excess capacity.

Speaker 1

And if you do the math, we could sell somewhere between $0.14 $0.16 a can. And you're an analyst, it's 3.80 cans a minute, add that up, right? So there's an opportunity to sell excess capacity here as well. So this is a tremendous project for us. No nothing has slowed down on that.

Speaker 1

It takes a long time to build these machines. Bill Meissner, do you want to talk for a sec about your water project in this package?

Speaker 3

Yes. We see tremendous opportunity to replace a fair amount of PET in the market with the CardoCam in a natural spring water. The amount of retailers and venues who have made specific KPIs on sustainability will really love the water in a Carter can. We are limited by that 8 ounce size, so that's a smaller segment of the overall water category, but absolutely huge in relative terms from a case volume perspective. So we think very highly of the future of water and Cartagena.

Speaker 3

If you think about these little kind of 8 ounce PET bottles and the waste that goes along with them and That's criminal.

Speaker 6

It's criminal.

Speaker 1

It's all.

Speaker 3

And here you have a overwhelmingly biodegradable package that is also recyclable and breaks down over time. It's just perfect for water. And I think there are some industry probably by guys like us that have been around a while like, well, water has to be in a PET or in glass, but liquid death kind of proved that is definitely not the case. And just absolutely blowing up in the aluminum can, which can't hold a candle to the sustainability of the Cartagena. Further on the innovation front, we have qualified that package for wine, which you might think what was great for sangria, why wouldn't it be for wine?

Speaker 3

It was actually took some time to figure out. So we will be able to be the 1st wine in Cartagena as well. So that is right there for us both of those two innovations in that platform.

Speaker 2

And just by the way, another just into the numbers that were quoted, I've built none of that in yet, right? It's too early to really put a monetary value on what that would mean to us, but it is upside to our figures.

Speaker 1

And as a CEO, I call that a sandbag. Well, I'm glad you brought

Speaker 6

that up, Julius, because the question that I would have is, okay, the revenue number is not in there, but are some of these initiatives going to take you some costs? Are they in there in your EBITDA guidance?

Speaker 2

Well, I kind of like almost like the way that I would kind of characterize this is you kind of got like a tolling arrangement for lack of a better word. I don't have that baked in.

Speaker 6

Okay. But, one

Speaker 2

But yes, but it's instantly profitable. The way that I approach it just again is like putting down the timing of this right with everything that's going on, it's hard to put a finger to kind of put this in an operating plan. But obviously it's something that we're looking into and the market has a strong need for that and that will help our business tremendously.

Speaker 1

And Sean, think of it this way. The reason it will probably go in our favor versus against us, assuming our numbers are correct at $0.04 a can, then you put water in it. So it's purified, but so do the math. Yes. It is instantly profitable.

Speaker 6

Okay. Thanks a lot. Appreciate the update guys.

Speaker 1

You bet. No problem. So I know we got a million questions out there. Let's try and answer a few more or we'll be here till midnight. Who's next?

Operator

Okay. Up next, we have David Figueroa with CECL Investment Inc. Please proceed.

Speaker 7

Hi, Robert. Can you hear me?

Speaker 1

Yes. Yes. Got you.

Speaker 7

Hey, David Figueroa. I've talked to you a couple of times in the past. I've been here for a while and stuck with it through thick and thin. I just, first of all, I want to thank you and your team for the tenacity to get through this really tough part in the growth of your business. So I just want to really thank you guys there.

Speaker 7

And I use Cuplash and I really, really I turned 66 in June, still pretty athletic trying to be anyway. But I really enjoy sipping on one of those energy drinks once a day. So I wanted to see how people are liking that. But that's I really like that. And, your tequila, I get the citrus and I you know, as much as possible, I'll have a drink before dinner, you know, 3 ounces for me, 2a half.

Speaker 7

But if fresh, more than orange, I'm just going to hybrid your your your drink recipe from Cinco de Mayo. So I go one fresh orange and, one lime I squeeze in, they're all fresh, good. And it's just I thoroughly enjoy it. And my wife does and all my friends that I make it for and children, they love it. And the Popoloca, we're not big drinkers on it, but we have it.

Speaker 7

We've drank it. My wife loves it. But I have to tell you the paper just feels so good in your hand. I'm not exaggerating. It's not like when you get a paper straw or something in the restaurant, you can't even stand drinking the drink.

Speaker 7

Well, this is not the case. I just want to say it really feels perfect in your hand. It sifts well. But, just how's the energy drink? Are there people like me that just love this darn thing and the tequila?

Speaker 7

That's all I ask.

Speaker 1

First of all, thanks for your comments. We appreciate you calling in. We appreciate you as a consumer also. So a couple of things. Yes, the hand feel that we call hand feel on that paper can is amazing.

Speaker 1

And yes, we're quite proud of the liquid. I don't know if you heard Bill Meissner talk about, we're launching with respect to the Salt Tequila, a Straight Silver. So we can actually be the only the real reason for that is we can be the only tequila then, the exclusive tequila in an on premise account in a bar or restaurant. Because right, so now because we had 3 now coming 4 flavors on the back bar, but we didn't have anything for straight tequila. So now we have that ability to be exclusive.

Speaker 1

So that's an important Can't wait. Yes, strategic move forward. And by the way, the silver is fantastic. Can't wait. Yes.

Speaker 1

So we were talking about the energy drink. So remember, we own the liquid, we own called trade dress, basically the label with the exception of Tap Out. So yes, it's not going to go away forever, but we will be transitioning that at some point in the near future. Also along those lines, there's a written question that came through and I want to address it because it's important. We're talking about this potential second acquisition.

Speaker 1

That thing is quick. It's not done, but it's very close to done. And we'll announce the details of that when it is done, but it's imminent. And then Western Sun, we're being kind of cautious about that. But our objective would be to close that by December 15, so we can capture that revenue for the year on a reporting basis.

Speaker 1

So those are 2 important points I didn't want to miss. But your comments are great and we love the Tap Out liquid. It's excellent. It's efficacious. It's clean.

Speaker 1

It's natural. So yes, we're not going to walk away from that. The work we've done, we're just going to walk away from the name Tap Out.

Speaker 6

Got

Speaker 7

you. Are people liking the energy drink as much as I do?

Speaker 1

Yes. Yes. People love it. I love it. I'm drinking one right now.

Speaker 7

Yes. I got another half to go in here.

Speaker 2

I've got the sparkling cherry lemon.

Speaker 7

All right. Thank you very much. I really appreciate your guys' tenacity.

Speaker 1

You bet. Yes, thanks for recognizing it. We appreciate you as well as a partner.

Speaker 2

You bet. Thank you.

Operator

Okay. We have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

Speaker 1

All right. Well, listen, I think this has been a good call. I hope we've answered most people's questions and been as clear and transparent as possible. We are incredibly excited for the future. It's been a difficult road.

Speaker 1

If it was easy, anybody could do it. And the gentleman talking about tenacity, persistence and perseverance wins. I live by that and I know Bill Meiser lives by that and Julius. We're excited about the future. We will be reporting more and more events in the very near future.

Speaker 1

And we're as we close-up on this round of financing, it really sets I'll leave you with this thought. It sets so many things into motion. All the work we did while we're waiting to organize this is now in front of us. It's like a master set of dominoes. So we're thrilled that money is starting to come in.

Speaker 1

We actually have, like I said, some in our possession now, material amount. And we look forward to the future and we hope we have everyone's long term support. We love this company and we value our shareholders like family. Remember, I'm a very large shareholder, so we're always going to have you in mind. We have to run a business, but we also equally care about share price and we expect great things for the future.

Speaker 1

Thank you very much for joining. And we appreciate you guys and men and women, and we hope you guys have a great rest of the week and weekend.

Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • In Q2 Splash Beverage reported only $1.05 million in revenue and a net loss of $5.3 million, attributing the decline entirely to limited liquidity, while gross margins improved to 23% and SG&A spending was cut by 9% sequentially.
  • The company secured major distribution expansions for Copa Divino and Popoloco, including authorizations in over 2,000 Chevron, Extra Mile, Murphy Oil and AMPM stores plus test launches at Walmart and Walgreens.
  • Splash closed the first tranche of a private placement with Capital Securities/Rochester Wealth Management and arranged an ABL revolver, providing the cash and credit line needed to restock inventory and support e-commerce growth.
  • Management forecasts full-year 2024 revenue of $9–10 million rising to $38–42 million in 2025, with gross margins lifting into the high-20s this year and high-30s next year, and expects to reach EBITDA breakeven by Q2/Q3 2025.
  • The M&A pipeline remains active, with a pending acquisition of Western Sun Vodka expected to close by year-end and additional bolt-on deals in advanced discussions to accelerate Splash’s diversified beverage portfolio.
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Earnings Conference Call
Splash Beverage Group Q2 2024
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