Splash Beverage Group - Q2 2024
August 22, 2024
Transcript
Operator (participant)
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. You may begin.
Robert Nistico (Chairman and CEO)
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 Julius Ivancsits, our CFO, and of course, Bill Meissner, our President and Chief Marketing Officer, on the call as well, and each will be speaking with respect to their individual responsibilities. You know, honestly, a lot of you haven't had a lot of exposure to Julius because he's only been with us for about four months now, but we're thrilled to have him. He's been a tremendous addition to the team. 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.
You'll have a chance to hear from them and ask questions, as we get into this. Today, we'll be discussing today's the company's financial performance, key developments, excuse me, providing insights to what these results mean for the future. Future being the key word. You know, we have a formal dialogue we have to follow here, but I'm gonna try and keep it as informal as possible. Then, of course, we'll open the web portal up for questions, when we're done. Six basic topics today. You know, briefly on Q2 and H1 results. We all know what they are, 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 eighteen months. We also want to talk about mergers and acquisitions, you know, key part of our narrative, if you will. And of course, we'll have a Q&A session. All right, just really brief, super high level on the quarter. You know, we reported revenue of $1.05 million for the quarter, which is very light, you know, compared to $1.5 million in the first quarter and, of course, $5 million last quarter.
You know, the sales decline is really attributed to 100% to limited liquidity. It prevented us from procuring inventory for Qplash, and frankly, supporting the chain authorizations that we've gotten recently. So, we're gonna address all this in great detail here in a little bit. Net loss came in at $5.3, basically $0.11 per share, and compared with 13% in Q2 to last year, 2023. So, you know, that's kind of our look in the rearview mirror. We're gonna talk a lot about financing liquidity here as we move forward. So now I'm gonna turn it over to Julius, a little bit more detailed review of the financial performance, and Julius, it's all yours.
Julius Ivancsits (CFO)
Okay, thank you, Robert. I just want to dive a little bit briefer into the financials. For revenue, as Robert denoted, revenue was, you know, a little hair over $1 million for the quarter, and that was down compared to, driven by the nominal sales at Qplash. You know, it's important to note that our sales performance wasn't only impacted at Qplash due to liquidity, but was also on our Copa di Vino brand as well. 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.
You know, on the gross margin side, you know, 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. We did expand our gross margins by 12%, from 11% in Q1 to 23% in Q3. This can really be attributable to just lower raw material costs versus the prior period. Given our liquidity challenges, we really did focus in on our SG&A spending, which was $2.6 million in the quarter. That was 9% lower than in Q1 and 52% lower than Q2 of last year.
So given the limited liquidity, the business, as I said, was very diligent on managing its spending across the board, from everything from, you know, 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. EBITDA for the period was a loss of $2.6 million. 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 scorecard for stock-based compensation in Q2 versus Q1, net loss was actually flat at $4 million from the prior quarter and a $600,000 dollar improvement from prior year. You know, the last thing, just in terms of the financials is, you know, we've kind of said this a couple times now, liquidity was tight for the period, and we had nominal cash at the end of the quarter. But, you know, if you back it up a little bit, you know, collections were solid for the period, actively just managing that. 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, you know, 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, you know, some of the commercial trends, distribution wins, brand strategies, and update on product development.
Bill Meissner (President and CMO)
... 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 and 2025. 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. Pulpoloco was expanded to all SeaWorld parks and entertainment venues across California, Florida, Pennsylvania, Virginia, and Texas. Copa di Vino and Pulpoloco received an authorization from Chevron's ExtraMile convenience stores. This authorization is across 650 stores across six states.
Copa di Vino and Pulpoloco received an expansion into 300 Murphy USA stores in seven states. Copa di Vino received an authorization from AMPM convenience stores, and that is up to 1,100 stores across several states, one of the larger chains in the United States. We executed a successful launch of Copa di Vino's new four-pack in 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. SALT received an authorization-
Speaker 7
We're sorry, because of technical difficulties, we are unable to route your call. Please try your call again. This is a recording. Four, one, six, three.
Bill Meissner (President and CMO)
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. I'll now turn it back to Robert, who will provide an update on our capital structure.
Robert Nistico (Chairman and CEO)
Thanks, Bill. That's great stuff. Good work. You know, everybody, the message there is, you know, there are even though in the face of serious liquidity issues, you know, this group didn't sit on their hands. We achieved all these things with virtually very little money. So while we were 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 marketing team has done.
We applaud them and thank you for really digging in and doing what we could do with limited resources. You know, so also, just so it's clear, I wanna make sure people understand really how we got into this position. I mean, it happens. You know, sometimes companies face cash crunches, liquidity issues. For us, we had a signed deal. We had documents signed. We even had 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. You know, fortunately, we're not the type of group to only count on one horse, so we had some redundancy. Unfortunately, that group out of Florida never got their funding. We had to hustle.
And of course, you guys know that we took on some capital from some investment banks. You know, those can be considered expensive from a dilution standpoint. The really good news there, though, is we have retired the one of them, and it was a significant amount of money. It was originally $2.4 million, and all that, I guess you can call it overhang, is now behind us. You know, God love them, we needed the money. You know, sometimes you just have to do it. But it was, you know, 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. 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 Capitol Securities and Rochester Wealth Management. A 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, will be obviously required to put an 8-K 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, you know, mail checks, some folks send ACHs. But, you know, as long as the money comes, we're happy. But the message here is that that effort is well underway. We have signed documents, as we mentioned in the press release this morning, and the money continues to flow in. We will be doing it in two 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, two-thirds of it. So we're very confident and excited that money is flowing in. With all the work that the sales and marketing team has done, we'll be able to really leverage that and convert that into revenue. Additionally, Julius has worked hard on an 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, you know, from a credit-based standpoint. Julius will talk about that in a little bit. So basically, it's been a difficult couple of quarters.
It's, you know, I've personally put more money in the business because I know where we're going. We've had some of our legacy investors help out. We've financed things through, you know, accounts receivable and whatnot. So we're past that point now, and it's time to get out of first gear and move forward. So we're very excited about that. Julius will now discuss outlook for the balance of 2024 and into 2025.
Julius Ivancsits (CFO)
Okay. Thank you, Robert. You know, 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 weeks. So from a revenue guidance standpoint, management, we expect revenue to be in the range of $9 million-$10 million for full year 2024, and $38 million-$42 million for 2025. This will be driven by organic growth in Copa di Vino, our Pulpoloco brands, along with the reboot, or say, a better word, restart of our Qplash, which is our e-commerce platform.
So, you know, I know we will get to the M&A side a little bit later, but M&A, any M&A would be accretive to the figures that I just noted. You know, on a gross margin perspective, I do expect gross margins to land in the high twenties 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, you know, EBITDA, EBITDA is projected to be a loss of around $9 million for 2024. And given the programs that we have on the way, we expect that we're going to be EBITDA positive by, you know, late Q2 2025, early Q3 2025, based upon our current footprint.
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 five strategic pillars. The first one focused on sustainable and profitable growth, the second, operational excellence, the third, our e-commerce platform, Qplash, bolt-on acquisitions, and then finally, our capital structure. So Project White Hot is expected to move the company to positive cash flow from operations and positive EBITDA, as I previously noted, without any M&A. And then the cost reductions and expected organic growth will get us there. It is strategic imperative for Splash 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 White Hot 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, you know, pending M&A. To go a little bit deeper on the strategic pillars, Splash 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, you know, in the rest of this year, going into next year. You know, 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 Copa di Vino and our Pulpoloco brands.
You know, I noted previously on the gross margin expansion, we expect to achieve 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 Qplash. With our balance sheet being recapitalized, this provides liquidity to procure inventory for our e-commerce platform. You know, year-to-date sales in 2024 for Qplash has been nominal, and we will relaunch in the coming weeks, where we expect sales for Qplash in the low to mid-20s in 2025, and that's just coming from our e-commerce platform. You know, again, just a couple more things here on the bolt-on acquisitions.
I do wanna remind everybody that Splash was created on the concept of a diversified portfolio of beverage brands, and, you know, our strategic pillar for bolt-on acquisitions is to execute our M&A strategy. You know, Robert will go a little bit deeper on the M&A side, onto the developments there. The last thing I just kinda wanna, you know, focus in on is capital structure. You know, 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. You know, the future M&A deals will be, you know, either come from debt, equity, or a combination of that.
But that's kind of really our outlook on Project White Hot, and then let me just turn it back over to Robert on the M&A side.
Robert Nistico (Chairman and CEO)
Yeah, thanks. Hey, Julius, would you mind going a little deeper into how Qplash will work? Because it sounds like a big jump in numbers, and I wanna make sure people understand why that's not only realistic, but it will happen.
Julius Ivancsits (CFO)
Yeah, sure. So, you know, basically, you're selling pretty much through, you know, Amazon as a reseller. So it's a really fantastic business that you're effectively, you know, buying inventory and selling it on a cost-plus model. And for folks, if they don't know, we only have four individuals that are supporting that business, so the overhead is very low. So the turnaround time on that is fairly quickly. And, you know, we used to do around $4 million-$4.5 million a quarter in Qplash 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 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. So, you know, you're looking at procuring something and getting monies back in five to 10 business days.
Robert Nistico (Chairman and CEO)
Yeah, okay, great. Thank you. Yeah, 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. All right, M&A update. There's been a... You know, we've been working on Western Son 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. Our intention is to close this thing, hopefully by the end of the year, but it might- it'll probably roll into January. We've structured the raise like this. It's a blend of debt and long, long-term debt and equity.
Basically, the numbers are right around $75 million, three quarters of that, or $50 million of it, if you will, is long-term debt, and then the $25 million being, you know, with an equity partner. 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 billion-dollar 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, you know, execute on our strategic plan with that group, you know, they're a perfect, you know, exit partner as well, 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&A piece, you know, is important, but I also wanna, you know, talk a little bit about, you know, why.
You know, 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. I'm not gonna 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. 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, you know, either vendor numbers or distribution relationships with every major distributor in the country, and everybody knows we have a relationship Budweiser AB InBev. That's our go-to group, but we also have MillerCoors and Republic National and Southern Glazer's, Young's Market, whomever. But to take that brand that has already achieved a certain level, not massive numbers, but a 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, you know, I mean, it was absolutely perfect. It was exactly where we wanted to be. So we had to hit the pause button for a couple quarters, you know, and we're, we're-...
We're sorry, and it's just not at all what 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, geotarget the ones that make sense for that brand based on their geography, the time of year, you know, temperature, et cetera, and hire influencers, really go market by market by market, 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&A as we move forward. I wanna make this clear, too. We're not trying to be the next Diageo. We just wanna be the most efficient and the most profitable, and wherever that number falls out, it falls out.
And, you know, obviously, by doing that, we add shareholder value. So we're super excited about the potential of Western Son and possibly this other one. But that's that. And I'm gonna leave you or turn it over for questions, I should say. I wanna make sure this is crystal clear in everybody's minds. Our three key platforms to achieve for this company, and we've tattooed it on each other's foreheads, is, first of all, finishing out the raise that we're in the middle of right now. You know, like I said, money's coming in. You saw the press release. Second tranche, we believe, will go even easier. First is always the most difficult.
We actually have, like I said, signed documents in second tranche already, you know, from people we know, so we're, we're very confident in that. So we close 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, you know, next summer sometime, whether it's the end of Q2 or beginning of Q3. That's without any, 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 Son and potentially this other one that I'm not naming. And there are others.
You know, Bill Meissner and I, good Lord, we almost three a week come across our desk. Some are, some are gems, some aren't. But the fact that there's deal flow out there and, 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. So completing this raise, so people know that we're not gonna go do something, or we have to do something that's would be considered less desirable from a financing standpoint. You can never say never, but, you know, we believe we're past that. The second thing being executing on our narrative of larger acquisitions. The third thing being reaching profitability.
All three of these things are within reach between now and the second quarter of 2025, which is basically a blink in the eye. 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 (participant)
Absolutely. At this time, we will be conducting a question-and-answer session. You can submit a question at this time by clicking the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question.
Robert Nistico (Chairman and CEO)
All right, looks like we got our first question already. It's for Julius. Can you... Sorry, I gotta 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 of next year?
Julius Ivancsits (CFO)
Sure. The raise in and of itself gives us liquidity to actually procure raw materials. The things that we're looking at is one of our highest cost items is freight. We're looking at various adding 3PLs to our locations to actually have better freight lanes to get product. That will not only basically take costs down, that will actually reduce our cash conversion cycle as well. You know, we have various initiatives out there where the liquidity allows us to buy more efficiently, buy wine that we'll be buying that at anywhere between 10% and 20% discount from where we're currently procuring. Why? Because we if you're hand-to-mouth, you're buying whatever out there, and you're not getting any type of, you know, volume discounts.
You know, everything is on the table as well for, you know, 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. Hopefully, that answers the question.
Robert Nistico (Chairman and CEO)
All right, thank you. Here's a question for me re-- on Western Son, and I think I'll start, and maybe Bill Meissner will jump in as well. The question is: What's taking so long? Is the deal at risk? Excuse me, I'm trying to read this screen. Oh, okay, and is the deal at risk? You know, 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. That's the beauty of the vision for our platform. You know, we want to grab those brands in that $15 million-$30 million range and accelerate them. You know, 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, it takes a lot of time, and it takes away from your core business and your legacy brands as well. Finding brands and acquiring brands in that, in that, I'll call it, you know, $20 million-$30 million range, is ideal for us. We accelerate them to $40 million, $50 million, $60 million, depending on the segment, you know, beverage, whether it's non-alc or alc, is absolutely perfect, and then that's where the strategics come in. You know, why it's taken so long? It's not easy. You know, because we also operate in sort of no man's land from a revenue standpoint. You know, we worked very hard against it.
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, 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?
Bill Meissner (President and CMO)
Just as far as the question on risk, I can just assure everyone that the Western Son 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.
Robert Nistico (Chairman and CEO)
Okay, great. We're having, I think, what looks like technical difficulty here on this. Maybe we should... Stand by one second, everybody. I'm sorry. Maybe we should. Let's do it. Yeah, operator, I think it looks like it's the web portal isn't working very fast, so why don't we go ahead and open up the phone queue, please?
Operator (participant)
Absolutely. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Okay, the first question comes from Scott Buck with H.C. Wainwright. Please proceed.
Scott Buck (Analyst)
Hey, good afternoon, guys. Appreciate the update. Robert, I'm curious, the hold up on Son, that's almost entirely driven by lining up the financing. Is that fair?
Robert Nistico (Chairman and CEO)
Yeah, that's exactly right. There's also, you know, it's also spirits, right? So you also have, you know, control waivers and licensing and permitting you have to think about as well. So it's not a really quick, you know, down and done sort of thing. But yeah, 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 gonna get this done. We've hard circled a portion of it, by the way. I don't wanna 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 billion group, they're real. So we'll see where that takes us.
Bill Meissner (President and CMO)
Scott, to you-
Scott Buck (Analyst)
Great. Appreciate that-
Bill Meissner (President and CMO)
Hey, Scott, just to your-
Scott Buck (Analyst)
Sorry, go ahead, Bill.
Bill Meissner (President and CMO)
Yeah, so kind of you're saving on a lot of information. I really wanted this call by design to really just, you know, put things out there, right? We wanted to kind of really just kind of present, you know, 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, you know, how we're using these funds, what the future looks like, and to express our enthusiasm for the business.
Scott Buck (Analyst)
Yeah. No, I, I think it's very helpful. In the most recent investor deck, it looks like with the closing of Western Son, that you guys will be moving some production to the Dallas area. Is that correct?
Robert Nistico (Chairman and CEO)
I'll say it this way. The Western Son campus is located in Pilot Point, which is North Texas. 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. Yeah, not everything necessarily, but yeah, a portion of it for sure.
Scott Buck (Analyst)
Okay. I get yeah, 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 held some of the inventory there?
Robert Nistico (Chairman and CEO)
Yeah, if we just focus on the freight lanes, we're probably looking at a 30% savings just on our freight costs.
Julius Ivancsits (CFO)
Which is material-
Scott Buck (Analyst)
Okay.
Robert Nistico (Chairman and CEO)
Which is for us very material. So, I mean, it's not just like it's one or two points. And then, you know, also, it just, that's a big piece of it. You know, if you look at it from, you know, you're outside Portland to looking for, you know, kind of the Dallas area and how just basically the trucker lanes go, that's just very big for us.
Scott Buck (Analyst)
So we can bring wine-
Julius Ivancsits (CFO)
Yeah, I know that's.
Scott Buck (Analyst)
We can bring wine from the West Coast, you know, it's a good thing, and I don't believe those savings are even in your...
Julius Ivancsits (CFO)
... No, no, like we have some strategic wine procurement savings, and that's just buying better, but you know, again, we haven't even incorporated yet geography on where that wine would come from. Also, too, is if you look at a Copa, a Copa di Vino, it's not vintage. So whether that wine is from the Pacific, you know, West, from California, or since we're talking about Texas, you know, could be a Texas wine. Not necessarily would do that, but just kind of throwing that out there that that's not even baked into the numbers yet.
Robert Nistico (Chairman and CEO)
Yep, that's the accountant talking.
Julius Ivancsits (CFO)
Yep.
Robert Nistico (Chairman and CEO)
-not the marketing guy.
Scott Buck (Analyst)
Just to be clear, guys, I know you both brought it up on the call, but the guide for 2025, that does not include Western Son, right?
Julius Ivancsits (CFO)
That is correct.
Robert Nistico (Chairman and CEO)
That's correct.
Julius Ivancsits (CFO)
That's correct.
Robert Nistico (Chairman and CEO)
Yeah.
Scott Buck (Analyst)
Okay. All right,
Robert Nistico (Chairman and CEO)
So-
Scott Buck (Analyst)
Perfect.
Bill Meissner (President and CMO)
We're really in a pretty, pretty good spot here, even though it took us a while to get here.
Scott Buck (Analyst)
Right. 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 know, you can think about it as, as growth capital?
Julius Ivancsits (CFO)
Yeah. So, you know, obviously, you know, 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 gonna write a check next week and pay everybody off. There'll be, you know, an eight to 10 week, you know, pay down of anybody that we're past due. And then again, is on the inventory side, whether it's making investments in Qplash or, you know, wine, we'll be buying just smartly, and then just buying in higher quantities so we can get some purchasing price leverage. So again-
Scott Buck (Analyst)
Okay, and then-
Julius Ivancsits (CFO)
And the one thing I also 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.
Scott Buck (Analyst)
Yep. And can you share the pricing information on this raise, or will that be included in the 8-K that's filed either, you know, this afternoon or tomorrow?
Robert Nistico (Chairman and CEO)
Yeah, you'll see it in the 8-K, but it's reasonable. I think people will be very comfortable. It's not like, you know. It's very reasonable. And it's 18-22 years down the line, you know, from a debt standpoint. Yeah, I think people will be comfy with it.
Scott Buck (Analyst)
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-
Julius Ivancsits (CFO)
Yes
Scott Buck (Analyst)
The tool you're using?
Julius Ivancsits (CFO)
So we've got a term sheet, and basically, it's your standard, you know, ABL, just, you know, AR and inventory. And one of the things is with that, it was contingent on us doing syndicated financing. So the range that I can give you is $3 million-$5 million.
Scott Buck (Analyst)
We'll get more information on that in the coming weeks as this current raise is finalized, right?
Julius Ivancsits (CFO)
Yeah, correct. It, again, there'll be a gradual build-up, right? You got to buy inventory to finance the inventory. And so-
Scott Buck (Analyst)
Mm-hmm
Julius Ivancsits (CFO)
... that will kind of ratchet itself up.
Scott Buck (Analyst)
Okay, perfect.
Julius Ivancsits (CFO)
Yeah,
Scott Buck (Analyst)
And then just last-
Julius Ivancsits (CFO)
By the way, I mean, just to be honest, like with that, 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.
Robert Nistico (Chairman and CEO)
Yeah, it's good stuff.
Scott Buck (Analyst)
I'm sure. I'm sure. And then last thing, Robert, on the M&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 six months, 12 months from now?
Robert Nistico (Chairman and CEO)
Yeah. There are, you know, I'll just go there. Yeah, I'm just gonna go there. There's some corporate, you know, reasons why we've been quiet about, about that. So it's gonna be... Bear with me, I'm answering your question. When we talked about, you know, acquiring brands and excel-- 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 TapouT. TapouT has a lot of pre-existing brand awareness, so we thought, Well, we can work with that. But ultimately, because TapouT was really a lifestyle brand associated with the UFC and MMA, it was really an incubation project.
You know, I had some conversations about that this week with some folks, and that's fine. You know, in fact, you know, 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. 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.
Scott Buck (Analyst)
Yep.
Robert Nistico (Chairman and CEO)
We figured we're gonna end up spending, you know, millions of dollars, and, you know, to continue to incubate, and then, of course, you know, we still have, you know, we have licensing payments to consider as well, and it's gonna, and that takes a lot of time. So, you know, sticking to our core strategy of regional success, you know, we made the hard decision, and, you know, we're walking away from the brand. We haven't talked about it because there are distribution and chain, you know, considerations. We have to be able to work through that and get to all the chains and distributors. So, it's been, you know, we've kind of kept that on the down low a little bit, just from a functional standpoint.
But no, we will not be continuing with TapouT. 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 it's... My guess is, and this is just a guess, if we were to do that, it would take two to three years to get it to where we want it and cost another $22 million. I'd rather focus on our other brands that're really exciting, and of course, acquisition.
Scott Buck (Analyst)
Yeah. Well, I appreciate the transparency there, and appreciate you, you guys taking the time to host this call. Thank you.
Robert Nistico (Chairman and CEO)
Of course. Nice talking to you, Scott.
Operator (participant)
Okay, the next question comes from Sean McGowan with Roth Capital Partners. Please proceed.
Sean McGowan (Analyst)
Thank you. Appreciate the opportunity to talk, guys. Going back to your comments on guidance, would you mind repeating the expectation for the range in 2025 on revenue? Did you say 30-34?
Julius Ivancsits (CFO)
No, no, no, 38-40.
Sean McGowan (Analyst)
Oh, thirty-eight to forty. Okay. I'm glad I asked you and when you talked about you being EBITDA positive, kind of late Q2, Q3, would you expect to be EBITDA positive for the year?
Julius Ivancsits (CFO)
Again, it's like I'm gonna be conservative. I think for the full year, I'm expecting to be down, like, $2 million-$2.5 million full year, and most of that's in the first 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 different things that aren't built into the numbers. But I don't wanna get too rosy because I am, you know, 18 months out on that.
Sean McGowan (Analyst)
Right. Right. Okay, and then the last question on that guidance is, would you know, given the potentially, you know, 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 2025, do you think you would stay there consistently, you know, in every quarter, or could there be still some quarters that wind up negative?
Julius Ivancsits (CFO)
No. No, no, because once we cross that threshold, is once you start getting into the second half of 2025, you know, our Copa di Vino, our Pulpoloco, and our tequila starts taking off, and you have Qplash as more of a steady state, right? And I can't, I can only do so much on Qplash from a margin expansion standpoint, because I'm in a resale model. I'm cost plus.
Sean McGowan (Analyst)
Right.
Julius Ivancsits (CFO)
But when I start talking about the legacy brands, I have a lot more room there on commercial momentum.
Sean McGowan (Analyst)
Mm-hmm. 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,
Robert Nistico (Chairman and CEO)
What, what-
Sean McGowan (Analyst)
If I turn the calendar to 2026, am I taking a step back because I've made investments for growth and, you know, and I'm in the post-holiday first, you know, first calendar quarter? Do I... Or do I just, I've crossed the threshold, and I stay positive, you know, after that, end of-
Julius Ivancsits (CFO)
Yeah, you stay positive.
Sean McGowan (Analyst)
Okay.
Julius Ivancsits (CFO)
We won't go backwards on that. And then I, like, I think Robert and Bill can maybe give a little bit of sense of seasonality, but it won't be significant from the way that I see it.
Bill Meissner (President and CMO)
So, Sean, by the way, nice talking to you. I hope you've been well.
Sean McGowan (Analyst)
Yeah.
Bill Meissner (President and CMO)
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, you know, for TapouT, and we already, you know, we already talked about that. But we're now just getting the meaningful regional and national chains for Pulpoloco and for, and for Copa di Vino, and frankly, some for SALT Tequila, where we didn't have those before. So, and everybody on this call, and I think understands, that the chains are what build brands, you know? So once you start getting into Walmarts of the world, the Walgreens, the AMPMs, the Circle Ks, et cetera, you're talking about a massive increase in revenue. So no, there's no reason for those numbers to slide backwards.
Sean McGowan (Analyst)
Mm-hmm. Okay.
Julius Ivancsits (CFO)
Also, no, it's all without M&A. Just kind of important to know.
Sean McGowan (Analyst)
Yes.
Robert Nistico (Chairman and CEO)
Without-
Julius Ivancsits (CFO)
Yeah. So like, again, it's like eighteen months out or, you know, going into 2026, this is all-
Sean McGowan (Analyst)
Right.
Julius Ivancsits (CFO)
Standard M&A.
Sean McGowan (Analyst)
Understood. I have two other questions. One is, you know, 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? You know, you-
Robert Nistico (Chairman and CEO)
Oh, no!
Sean McGowan (Analyst)
You would still look-
Robert Nistico (Chairman and CEO)
No, no.
Sean McGowan (Analyst)
Okay.
Robert Nistico (Chairman and CEO)
No. We're just talking about this brand specific.
Sean McGowan (Analyst)
Yeah.
Robert Nistico (Chairman and CEO)
In fact, this Bill Meissner can speak to this as well because he did the design, he did the positioning. You know, he's an incredible marketer and President. We own the trade dress, with the exception of the name TapouT and the icon, and we own the liquid. You know? So, no, we are not getting out of the non-alc business. You know, we wanna do both.
Sean McGowan (Analyst)
Okay. Makes sense. And then my last question is on Pulpoloco. So we've talked, you and I, extensively over the years about, you know, other kind of, other applications of that packaging technology. Can you give us a little update there on, you know, what some plans might be, or is that kind of backburnered?
Robert Nistico (Chairman and CEO)
... No, no. Yeah, 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, this capital raise, is the deposit on our first paper can roller. And if you don't mind, I'm gonna talk about that a little bit because it has a multiple impact, a positive impact on the organization. Number one, you know, the reason we have a 7-Eleven authorization for Pulpoloco, and we're loading stores, you know, on a daily basis, is 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 first roller, you know, our intent will be to put it, you know, here in the States, probably North Texas. You know, the cost, the estimated cost of that, those cans once it's here, and for everybody on the call, it's an eight-layered paper can. The outside layer is the eighth layer, 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 those are tremendous savings, and that has, you know, ratcheting down COGS, increasing margin. 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. And I'm gonna 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 backburnered. We're very excited about it, and we hope to get that first machine here, you know, first quarter. You know, this is not guidance, but this is anecdotal, but factual.
You know, when I was in Bentonville last time with Aida Aragon, our National Account VP, the Walmart buyer, the wine buyer, asked us straight up, you know, "Can we have an exclusive on that for some of our private label wine?" And I smiled and giggled and said, "Maybe," you know, but inside I'm going, "No, not yet." But we can sell excess capacity, and if you do the math, we could sell somewhere between $0.14-$0.16 a can. And you're an analyst, so in 380 cans a minute, you 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. It takes a long time to build these machines.
Bill Meissner, do you wanna talk for a sec about your water project in this package?
Bill Meissner (President and CMO)
Yeah, we see tremendous opportunity to replace a fair amount of PET in the market with the CartoCan 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 CartoCan. We are limited by that eight-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 in CartoCan. If you think about these little kind of eight-ounce PET bottles and the waste that goes along with them, and-
Robert Nistico (Chairman and CEO)
Oh, it's criminal. It's criminal.
Bill Meissner (President and CMO)
It's awful. And, here you have a overwhelmingly biodegradable package, that is also recyclable and, you know, 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 a 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 CartoCan. Further, on the innovation front, we have qualified that package for wine, which you might think, Well, it was great for sangria, why wouldn't it be for wine?
It was actually took some time to figure out, so we will be able to be the first wine in CartoCan as well. So that is right there for us, both of those two innovations in that pack form.
Julius Ivancsits (CFO)
Just by the way, into the numbers that were quoted, I've built none of that in yet, right? It's, you know, too early to really put a monetary value on what that would mean to us, but it is upside to our figures.
Robert Nistico (Chairman and CEO)
As a CEO, I call that a sandbag.
Sean McGowan (Analyst)
I'm glad you brought that up, Julius, because the question that I would have is, okay, the revenue number is not in there, but it's are some of these initiatives gonna take you, you know, some costs? Are they in there, in your EBITDA guidance?
Julius Ivancsits (CFO)
Like, well, the way that I would almost kind of characterize this is you kind of got like a tolling arrangement, for lack of a better word.
Sean McGowan (Analyst)
Mm-hmm.
Julius Ivancsits (CFO)
I don't have that, I don't have that baked in.
Sean McGowan (Analyst)
Okay. But,
Julius Ivancsits (CFO)
But yeah, it's instantly profitable.
Sean McGowan (Analyst)
Right.
Julius Ivancsits (CFO)
You know, the way that I approach it, just, you know, 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, you know, and that will help our business tremendously.
Sean McGowan (Analyst)
And, Sean, think of it this way.
Bill Meissner (President and CMO)
... the reason it'll 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.
Sean McGowan (Analyst)
Yeah.
Bill Meissner (President and CMO)
This is instantly profitable.
Sean McGowan (Analyst)
Okay. All right. Thanks a lot. Appreciate the update, guys.
Bill Meissner (President and CMO)
Yeah, you bet.
Julius Ivancsits (CFO)
No problem.
Robert Nistico (Chairman and CEO)
So we're, I know we got a million questions out there. Let's try and answer a few more, or we'll be here till midnight. Yeah, who's next?
Operator (participant)
Okay, up next, we have David Figueredo with CSU Investment Inc. Please proceed.
David Figueredo (Analyst)
Hi, Robert. Can you hear me?
Robert Nistico (Chairman and CEO)
Yeah. Yeah, gotcha.
David Figueredo (Analyst)
Hey, David Figueredo. 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. First of all, I wanted 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 wanted to really thank you guys there. And I use Qplash, and I really, really, you know, I turned 66 in June. I'm 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.
Your tequila, I get the citrus and I, you know, as much as possible, will have a drink before dinner, you know, three ounces for me, two and a half. But it's fresh with an orange. I kind of hybridized 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 Pulpoloco, we don't, we're not big drinkers on it, 'cause, you know, but we have it, you know, we've drank it. My wife loves it. But I have to tell you, the paper just feels so good in your hand, and I'm not exaggerating.
You know, it's not like when you get a paper straw or something, you know, in the restaurant. You can't even stand drinking a drink. Well, this is not the case. I just want to say it really feels perfect in your hand. It sips well. But just how's the energy drink? Are there people like me that just love the darn thing and the tequila stuff?
Robert Nistico (Chairman and CEO)
Yeah. First of all, thanks for your comments. We appreciate you calling in. We appreciate you as a consumer, also. So, a couple of things. Yeah, the hand feel, we call it hand feel on that paper can is amazing. And yeah, we're quite proud of the liquid. I don't know if you heard Bill Meissner talk about, you know, we're launching, and with respect to the SALT Tequila, a straight silver-
David Figueredo (Analyst)
Yes.
Robert Nistico (Chairman and CEO)
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. You know, because-
David Figueredo (Analyst)
Wow.
Robert Nistico (Chairman and CEO)
Yeah, right? So now, 'cause we had three, three, now coming four flavors on the back bar, but we didn't have anything-
David Figueredo (Analyst)
Mm-hmm.
Robert Nistico (Chairman and CEO)
for straight tequila. So now, now we have that ability to be exclusive. So that's an important-
David Figueredo (Analyst)
Can't wait.
Robert Nistico (Chairman and CEO)
Yeah, strategic move forward. And by the way, the silver is fantastic. The second thing-
David Figueredo (Analyst)
Can't wait.
Robert Nistico (Chairman and CEO)
Yeah. Yeah, so we were talking about the energy drink. So remember, we own the liquid, we own what's called-
David Figueredo (Analyst)
Yes
Robert Nistico (Chairman and CEO)
... trade dress, basically the label with the exception of TapouT. So yeah, that. It's not gonna 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 wanna address it 'cause it's important. You know, we're talking about, you know, this potential second acquisition. 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, it's imminent.
Then Western Son, you know, we're being kinda, you know, cautious about that, but our objective would be to close that by December fifteenth, so we can capture that revenue for the year, you know, on a reporting basis. So, those are two important points I didn't wanna miss, but your comments are great, and we love the TapouT liquid. It's excellent, it's efficacious, it's clean, it's natural. So yeah, we're not gonna walk away from that. The work we've done, we're just gonna walk away from the name TapouT.
David Figueredo (Analyst)
Gotcha. Are people liking the energy drink as much as I do?
Robert Nistico (Chairman and CEO)
Yeah. Yeah, people love it. I love it. I'm drinking one right now.
David Figueredo (Analyst)
Yeah, I got another half to go and-
Julius Ivancsits (CFO)
I've got the sparkling cherry lemon.
David Figueredo (Analyst)
All right. Thank you very much.
Robert Nistico (Chairman and CEO)
What's next?
David Figueredo (Analyst)
I really appreciate your guys' tenacity.
Robert Nistico (Chairman and CEO)
You bet. Yeah, thanks for recognizing it. We appreciate you as well as a partner.
David Figueredo (Analyst)
You bet. Thank you.
Operator (participant)
Okay, we have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.
Robert Nistico (Chairman and CEO)
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. You know, if it was easy, anybody could do it. And the gentleman talking about tenacity, you know, persistence and perseverance wins. I live by that, and I know Bill Meissner lives by that, and Julius. We're excited about the future. We will be reporting more and more events in the very near future, and 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 were waiting to organize this is now in front of us. It's like a master set of dominoes. So we're thrilled that money's starting to come in. 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 gonna 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.
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 (participant)
Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.