napa-20231031

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40240

The Duckhorn Portfolio, Inc.

(Exact name of registrant as specified in its charter)


Delaware						81-3866305
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1201 Dowdell Lane Saint Helena, CA 94574

(Address of principal executive offices)

(707) 302-2658

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.01 per share

NAPA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated
filer

Accelerated

filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 115,367,710 shares of common stock, $0.01 par value per share, as of November 29, 2023.


Table of Contents


			Page

PART I
Item 1. Financial Statements			5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
Item 4. Controls and Procedures			38

PART II
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 5. Other Information			40
Item 6. Exhibits			41

Signatures			42


Index to Condensed Consolidated Financial Statements
			Page
Condensed Consolidated Financial Statements (unaudited)			6
Condensed Consolidated Statements of Financial Position (unaudited)			6
Condensed Consolidated Statements of Operations (unaudited)			7
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)			8
Condensed Consolidated Statements of Cash Flows (unaudited)			9
Notes to Condensed Consolidated Financial Statements (unaudited)			10
Note 1 Description of Business			10
Note 2 Basis of Presentation and Recent Accounting Pronouncements			10
Note 3 Revenue			12
Note 4 Inventories			12

Note 5 Accrued Expenses			13
Note 6 Debt			13
Note 7 Derivative Instruments			14
Note 8 Fair Value Measurements			16
Note 9 Commitments and Contingencies			18

Note 10 Equity-Based Compensation			19

Note 11 Earnings Per Share			21
Note 12 Income Taxes			21
Note 13 Subsequent Events			21


The Duckhorn Portfolio, Inc. Condensed Consolidated Statements of Financial Position (Unaudited, in thousands, except share and per share data)


	October 31, 2023		July 31, 2023
ASSETS
Current assets:
Cash	$	21,182	$	6,353
Accounts receivable trade, net	71,254		48,706
Inventories	389,199		322,227

Prepaid expenses and other current assets	8,393		10,244
Total current assets	490,028		387,530
Property and equipment, net	328,468		323,530
Operating lease right-of-use assets	18,834		20,376
Intangible assets, net	182,337		184,227
Goodwill	425,209		425,209
Other assets	8,327		6,810
Total assets	$	1,453,203	$	1,347,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,023	$	4,829
Accrued expenses	90,022		38,246
Accrued compensation	8,651		16,460
Deferred revenue	11,199		66



Current maturities of long-term debt	9,721		9,721
Other current liabilities	4,870		5,138
Total current liabilities	157,486		74,460
Long-term debt, net of current maturities and debt issuance costs	231,148		223,619

Operating lease liabilities	15,141		16,534

Deferred income taxes	90,216		90,216
Other liabilities	445		445
Total liabilities	494,436		405,274
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 115,367,710 and 115,316,308 issued and outstanding at October 31, 2023 and July 31, 2023, respectively	1,154		1,153
Additional paid-in capital	738,365		737,557
Retained earnings	218,659		203,122
Total The Duckhorn Portfolio, Inc. stockholders’ equity	958,178		941,832
Non-controlling interest	589		576
Total stockholders’ equity	958,767		942,408
Total liabilities and stockholders’ equity	$	1,453,203	$	1,347,682


	Three months ended October 31,
		2023		2022
Net sales (net of excise taxes of $1,394 and $1,584, respectively)		$	102,509	$	108,171
Cost of sales		48,656		53,461
Gross profit		53,853		54,710

Selling, general and administrative expenses		30,483		25,739
Income from operations		23,370		28,971

Interest expense		4,004		2,162
Other income, net		(1,813)		(87)
Total other expenses, net		2,191		2,075
Income before income taxes		21,179		26,896
Income tax expense		5,629		7,087
Net income		15,550		19,809
Less: Net (income) loss attributable to non-controlling interest		(13)		6
Net income attributable to The Duckhorn Portfolio, Inc.		$	15,537	$	19,815

Earnings per share of common stock:
Basic		$	0.13	$	0.17
Diluted		$	0.13	$	0.17

Weighted average shares of common stock outstanding:
Basic		115,339,774		115,184,161
Diluted		115,451,719		115,275,692


	Three months ended October 31,
	Common stock			Additional paid-in capital	Retained earnings		Total The Duckhorn Portfolio, Inc. stockholders’ equity		Non-controlling interest		Total stockholders’ equity
	Shares	Amount
Balances at July 31, 2023	115,316,308	$	1,153		$	737,557	$	203,122	$	941,832	$	576	$	942,408
Net income	—	—			—		15,537		15,537		13		15,550
Issuance of common stock under equity incentive plans	79,639	1			—		—		1		—		1
Equity-based compensation (Note 10)	—	—			1,150		—		1,150		—		1,150
Taxes paid related to net share settlement of equity awards	(28,237)	—			(342)		—		(342)		—		(342)
Balances at October 31, 2023	115,367,710	$	1,154		$	738,365	$	218,659	$	958,178	$	589	$	958,767

Balances at July 31, 2022	115,184,161	$	1,152		$	731,597	$	133,824	$	866,573	$	588	$	867,161
Net income (loss)	—	—			—		19,815		19,815		(6)		19,809
Equity-based compensation (Note 10)	—	—			1,180		—		1,180		—		1,180
Balances at October 31, 2022	115,184,161	$	1,152		$	732,777	$	153,639	$	887,568	$	582	$	888,150


(in thousands)	October 31, 2023		July 31, 2023
Finished goods	$	134,070	$	145,355
Work in progress	234,856		161,795
Raw materials	20,273		15,077
Inventories	$	389,199	$	322,227


	Derivative Assets			Derivative Liabilities
(in thousands)	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Interest rate swap contract	Other assets	$	3,082	Other liabilities	$	—
Foreign currency forward contract	Prepaid expenses and other current assets	—		Other current liabilities	7
Total derivatives not designated as hedging instruments		$	3,082		$	7


		Three months ended October 31,
(in thousands)	Classification		2023		2022
Interest rate swap contract	Other income, net		$	(1,965)	$	(145)
Foreign currency forward contracts	Other income, net		76		(223)
Total gain			$	(1,889)	$	(368)


(in thousands)	Fair value measurements using:
	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets:
Interest rate swap contract	$	—	$	3,082	$	—

Deferred compensation plan asset	$	—	$	2,387	$	—
Liabilities:

Deferred compensation liability	$	—	$	3,523	$	—
Foreign currency forward contracts	$	—	$	7	$	—


	Number of options outstanding	Weighted-average exercise price (per share)		Weighted-average remaining contractual life (in years)	Aggregate intrinsic value (in thousands)
Balance at July 31, 2023	2,321,233	$	15.98	8.0	$	—
Granted	1,254,867	9.90
Exercised	—	—
Forfeited	(414,743)	15.62
Expired	(122,639)	16.64
Balance at October 31, 2023	3,038,718	$	13.49	8.2	$	665

Exercisable as of October 31, 2023	830,135	$	16.39	5.4	$	—


	Three months ended October 31,
	2023		2022
Cash flows from operating activities
Net income	$	15,550	$	19,809
Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization	7,329		5,757
Gain on disposal of assets	(42)		(32)
Change in fair value of derivatives	(1,889)		(368)
Amortization of debt issuance costs	194		402


Equity-based compensation	1,150		1,180

Change in operating assets and liabilities:
Accounts receivable trade, net	(22,547)		(32,619)
Inventories	(66,115)		(55,626)
Prepaid expenses and other current assets	1,781		442
Other assets	283		122
Accounts payable	28,045		42,670
Accrued expenses	51,985		37,262
Accrued compensation	(7,808)		(3,733)
Deferred revenue	11,132		11,797
Other current and non-current liabilities	(982)		(679)
Net cash provided by operating activities	18,066		26,384
Cash flows from investing activities
Purchases of property and equipment, net of sales proceeds	(10,395)		(6,418)

Net cash used in investing activities	(10,395)		(6,418)
Cash flows from financing activities
Payments under line of credit	(13,000)		(20,000)
Borrowings under line of credit	23,000		5,000


Payments of long-term debt	(2,500)		(2,808)
Taxes paid related to net share settlement of equity awards	(342)		—


	Three months ended October 31,
		2023		2022
Wholesale - Distributors		77.0	%	76.4	%
Wholesale - California direct to trade(a)		15.6		15.8
DTC(b)		7.4		7.8
Net sales(c)		100.0	%	100.0	%


(in thousands)	October 31, 2023		July 31, 2023
Bulk wine and other received not invoiced	$	46,433	$	529
Trade spend(a)	16,879		12,721
Income taxes payable(b)	5,042		11,019
Deferred compensation liability(c)	3,523		3,261
Barrel purchases	2,271		2,589
Accrued professional fees	2,314		599
Accrued invoices and other accrued expenses	13,560		7,528
Accrued expenses	$	90,022	$	38,246


	Three months ended October 31,
	2023		2022

Expected term (in years)(a)	6.22		6.23
Expected dividend yield(b)	—	%	—	%
Risk-free interest rate(c)	4.55	%	3.96	%
Expected volatility(d)	30.9	%	33.9	%


	Number of units	Weighted-average grant-date fair value (per share)
Unvested as of July 31, 2023	562,861	$	15.52