Vintage Wine Estates, Inc. (VWE) on Q4 2021 Results - Earnings Call Transcript
Operator: Hello, everybody. And welcome to the Vintage Wine Estates Incorporated Fiscal Year and Fourth Quarter 2021 Earnings Call. My name is Sam and I’ll be coordinating your call today. I will now hand you over to your host, Anna Kate Heller from Investor Relations to begin. Anna Kate, please go ahead.
Anna Kate Heller: Thank you. Good morning, and thanks for joining us on Vintage Wine Estates fourth quarter and fiscal year 2021 earnings conference call. You should have a copy of our earnings release that crossed the wires yesterday, after the market. You should also have a copy of our release announcing the acquisition of Vinesse, a Direct-to-Consumer platform company, specializing in wine clubs. If you do not, they can be found on our website at vintagewineestates.com under the Investor Relations heading. We also have available on the website slides that we will reference during our conversation today. Joining on the call today are Pat Roney, founder and CEO; Terry Wheatley, President; and Kathy DeVillers, CFO. Pat and Terry will provide an overview of VWE’s fiscal year results, its strategy for growth and the outlook for fiscal 2022. After which, we will open the call for questions. Management will be making some forward-looking statements during this presentation and also during the Q&A session. These statements imply the future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from where we are today. These risks and uncertainties and other factors are provided in the release on the slides, and in the company’s filings with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov. I’ll also point out that during today’s call, we will discuss some non-GAAP financial measures, which management believes are useful in evaluating the Company’s performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany yesterday’s release and slides. And now, I’d like to turn the call over to Terry Wheatley.
Terry Wheatley: Thank you, Anna Kate. And welcome everyone to our first financial results conference call as a public company. Now, please, if you would turn to slide 4. These are certainly exciting times for the Vintage Wine Estates. We successfully completed going-public and the business combination transaction with Bespoke Capital that infused capital into the Vintage Wine Estates. For those that may not be familiar with us, Vintage Wine Estates is one of the largest, fastest growing wine companies in the United States. While you may not recognize the name VWE, you likely do know many of the brands such as Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. VWE has profitably grown over the last decade, both organically and with more than 20 acquisitions in the last 10 years, two of which have been announced in the brief time since we became a public company in June of this year. This includes the Vinesse acquisition we announced just last night. We have an aggressive organic and acquisitive growth strategy, and believe we have the business model, the infrastructure and the team to execute on that plan. In fact, we delivered on our growth goals for the year and believe our fiscal 2021 results validate our ability to execute on our strategy. Net revenue grew 16% in fiscal 2021. We achieved pro forma adjusted EBITDA of over $46 million, and we sold nearly 2 million cases of wine. Please now look at slide 5. Importantly, as we have transformed into a public company, we have made and continue to make investments to build a scalable organization that we believe will provide increasing operating leverage as we grow. Our finance and accounting team has been challenged with the additional burden of business combination and going-public transaction and then the closing and the audit of fiscal 2021. This challenge was exacerbated by the sudden death of a key employee and the difficulty in identifying and hiring staff. We have brought on two new seasoned personnel in SEC reporting. We have retained outsource support and continue to look to build the team. The finance and accounting team are busy implementing the necessary process and control to enable repeatable processes with the elimination of error and waste. We are also fortunate to have Russell Joy joining us as Chief Operating Officer. He has deep experience in the industry, operational expertise, and a strong accounting background we expect will serve us very well. Our acquisitions also bring talent in many forms that we expect to leverage as we grow. Let me talk about some of the conditions of the wine industry and how our omni-channel presence provide a strong advantage to drive growth. Volume growth in the wines has been positive, albeit at a slower rate than value growth, with a 3% increase in domestic wine volume to 313 million. We believe we’re on track to outpace the industry growth. Looking forward, market commentators expect market growth trends to remain positive, although without the benefit of the COVID bump. Now, let me review with you briefly the result from each of the segments. One of the key strengths is our well-diversified operating segments, Wholesale, Direct-to-Consumer and Business-to-Business. In our Wholesale segment, net revenue decreased 3.3% to $72.9 million, while operating income increased $1.8 million to $15 million. Wholesale wine sales have benefited over the year from increases in core priority brand and innovation in the off-premise channel. However, this was more than offset by the declines in the on-premise due to the COVID-19 pandemic. Some core brand highlights include Bar Dog, which has grown 68% in Nielsen sales dollars to now be a nearly $7 million brand. It’s demonstrating strong growth across retail on-premise and off-premise channels. Our Firesteed brand has also performed very well, growing to be of similar size with Nielsen sales increasing 9%. An overall shift in mix to super premium and luxury winery brands helped expand our Wholesale margin. A decrease in general and administrative expenses due to COVID-19 restrictions in the market provided the segment with some cost savings, which contributed to the overall increase in Wholesale operating income for the year. In new strategic initiative, in April 2021, our Wholesale operations launched e-grocery group, which is exclusively focused on digital products, sanitation and digital optimization of VWE wholesale products to drive digital shelf conversion. With a specific focus on omnichannel retailers, pure play, third and fourth party platforms and marketplaces by June 30, 2021, our e-grocery had already launched eight plus content syndication to albertsons.com, kroger.com, target.com, harristeeter.com, amazon.com, Instacart and Shipt. In our get Business-to-Business segment, we had an excellent year with net revenue increasing 43% to $77.4 million, while operating income increased 21% to $17.9 million. The strong results in this segment are a reflection of our successful innovation in both, wine and spirits. We continue to offer high-quality brands with an emphasis on engaging and connecting with customers. Mix in this segment did impact margins from the lower volumes delivered to a key customer at a lower average margin. We believe our approach to the segment of the business is strong, offering us continued opportunity for market share growth. Now, our Direct-to-Consumer segment continued to achieve very strong growth with net revenue increasing by 20% to $66.6 million, while operating income increased 60% to $11.4 million. Operating margin expanded nicely in this segment as well. The COVID-19 consumer behavior shift drove significant gains in e-commerce, wine clubs and QVC for 2021. Our direct-to-consumer channels were ready, both in technical scale and experience to weather COVID. Gains in this channel were a direct result of our fiscal 2020 and our fiscal ‘19 customer promotion, platform and implementation. Tasting rooms, while closed, found sales in SMS, email and virtual event guest engagement. Cameron Hughes continued to see healthy growth with good contribution margin, and our Windsor telemarketing showed gains, despite physical corporate events closures, highlighting the fiscal ‘19 and fiscal ‘20 investment in the brand site redesign and our outbound marketing to drive customer acquisition. QVC achieved record revenue, which was a result of increased on air programming time, dedicated to the wine category, addition of Zulily and new brand partnerships. We expect the segment to remain a very strong growth driver of the business with our DTC capabilities further enhanced by the acquisition of the Sommelier Company and with Vinesse. Now with that, let me turn it over to Pat to talk more about our results, the recent acquisitions and our outlook. Pat?
Pat Roney: Thank you, Terry, and good morning, everyone. We appreciate your interest in Vintage Wine Estates. I’ll start on slide seven. I believe there are three key points you should take away today. First, through strong execution of our strategy, we delivered on our expectations for the fiscal year for both, revenue and pro forma adjusted EBITDA. Second, we are reaffirming our FY22 guidance and actually providing some upside from our previous expectations. This is being driven by our strategy. And third, we are creating the scalable organization. This includes enhancing our reach through multiple channels to market, expanding our production and distribution capabilities, and reinforcing in support areas, such as finance and accounting. Let me take a moment to provide a deeper review of the results for the year. Revenue for the year was up over 16%, driven by volume increases as Terry mentioned, in the B2B and the DTC segments. Lower Wholesale volumes reflected the impact of COVID, particularly on on-premise, having consumers in their buying practices. That also though helped to drive the growth in DTC. We also had the benefit of the Kunde acquisition that was completed in mid April. You combine that with the Sommelier Company or TSC, which we acquired later in June, acquisitions contributed approximately $2.3 million in revenue in the fourth quarter, or 1% for the year. As you might imagine, given the timing, TSC’s contribution was nominal. There were a number of impacts to gross margin for the year. We had atypical inventory adjustment of $9 million with 11.9% impact on margin. This was related to higher than typical overhead on lower volume as a result of the wildfires in the Northern California. In fact, we adjusted for about 0.5 million gallons lower for our two most expensive Sonoma and Napa production areas. We had to delay our yearend report and file an extension for our 10-K filing because of the difficulties with this accounting issue and the material weaknesses recognized on our processes. Our finance and accounting department has been somewhat stressed these last several months with the significance of the transaction to go public and other unfortunate personnel challenges. This included the untimely passing of a key member of our accounting department as well as challenges finding and hiring the right people. This prevented certain reconciliations from occurring on a timely basis. As Terry mentioned, we are building up the team and improving our processes. Our goal is to quickly implement the processes needed to cure the deficiency quickly. Looking to slide 8, we’ve been very busy completing the going -- ongoing public company transaction and getting through our yearend close and audit. We have also completed in the short period of time two acquisitions that while relatively small in size are strategically excellent fits for Vintage Wine Estates. TSC, which has established itself as an expert in the industry for private wine tasting events and wine education, enhances our DTC market channel. We can provide many premium and luxury brands through their marketing reach. Our cost synergies as well as we utilize our own wines and our own marketing programs in this process. On slide 9, you can see the details regarding the Vinesse acquisition that we announced yesterday, after the market closed. We expect to close this transaction on Friday. Vinesse is a well-established DTC platform that has been building these wine clubs for nearly 30 years and has over 60,000 members. And so, we expect to capture significant cost synergies by bringing their wine-making and distribution in-house and marketing our brands though their wine channels. This is an excellent example of our strategy at work, as we acquire these many avenues to market our luxury wines to their consumers. If you turn to slide 10, we believe our results clearly demonstrated our ability to execute on our strategy to grow both organically and through acquisitions. And we are confident in our ability to continue to execute our plan. We expect fiscal ‘22 pro forma revenue to grow to $265 million to $275 million, while pro forma adjusted EBITDA will expand to $63 million to $65 million. I want to reinforce the significance of this going-public transaction to our strategy. With this transaction, we added capital and financial strength that enables us to accelerate consolidation of the fragmented premium wine market in the United States. And we are excited about the robustness of our acquisition pipeline. I would be disappointed if we don’t complete at least two more acquisitions before the end of fiscal year in ‘22. Looking at slide 11, Vintage Wine Estates’ key growth drivers are the combination of our omni-channel strategy and acquisition capabilities, which have enabled us to deliver strong, above-market growth in revenue and EBITDA. We believe our strategy drives growth, improves profitability and ultimately generates strong cash flow that enables reinvestment for continued expansion. We have been executing this strategy for a number of years and can do it very well. We are excited to be able to accelerate our plans to deliver significant growth and become a much larger player in the industry. With that, Sam, we can open the call for questions.
Operator: Thank you. Our first question comes from Vivien Azer from Cowen. Vivien, your line is now open. Please proceed with your question.
Vivien Azer: Thank you. Good morning.
Terry Wheatley: Good morning.
Vivien Azer: So, I wanted to dig into the guidance a little bit, please. Certainly, coming off of a very solid trend and some M&A that was just recently announced, Pat and/or Terry, if you could just unpack the components of that guidance and specifically organic versus inorganic, given the guidance is pro forma? And then, any incremental color you could offer in terms of the specific segment drivers? Thank you.
Pat Roney: Well, I think it’s important to note that a lot of our growth last year came organically, and we expect to have strong, continued organic growth over the fiscal year. But, what excites me of course the most is that we have plenty of opportunities to continue our acquisition capabilities. And especially when we see things like Vinesse where we can add $20 million of revenue to our Direct-to-Consumer component, and we have significant other opportunities that we are looking at. So, I expect the growth will continue to come from a combination of both, organic and acquisition. And we typically have been half organic growth and half acquisitions. And I wouldn’t be surprised if we continue on that trend.
Vivien Azer: Perfect. And just to follow up on incremental color at the segment level, please?
Pat Roney: I think that we organically will see a lot of growth in the B2B segment. And then, in terms of acquisitions, the Direct-to-Consumer will be a significant area of the acquisition market, and then, as well, on the Wholesale side and particularly on the Wholesale, as we look to establish additional ways to market and opportunities on the shoulders of the wine category. So, we really see consistent growth in all three platforms.
Terry Wheatley: Yes. And I would add, in our earlier conversations, we talked about our Wholesale segment growing at 6%, you’re looking at the trends right now. I know you’re looking at and seeing that the 10 to 20, 13 weeks is offhand, but we’re going to outperform that. And if you look at some of our focus brands, Bar Dog right now in the Nielsen’s was up 68%. We’ve got really strong growth on Firesteed. Layer Cake is going to just see right at that, and what the industry commentators are saying, it’s going to be 1 to 2 on volume, and 3 to 5 on value, we’re going to be beat tat in the Wholesale side. And as like Pat said on the B2B, we have some great exclusive brands lined up that will go into there. So, the number that we were talking about earlier about B2B will probably beat that. And Direct-to-Consumer, we’re spot on, on the growth right now, thinking that anywhere between 8 and 10. So, those organic segments we believe are on track on our guidance that we’ve been saying all along.
Operator: Our next question comes from Mike Baker from D.A. Davidson. Mike, your line is now open. Please go ahead.
Mike Baker: Okay. Thanks. A couple of questions. One, just real quick one, just to follow up on that guidance and acquisitions, what’s in there. So, historically, you’ve talked about two, now you think you’ll do three, but your guidance has only included one. So, I think that’s how you’ve talked about in the past. I just want to understand what’s in that $265 million to $275 million? Is that one acquisition? So, if you do two or three, it’s upside and if it is one, is that already this Vinesse acquisition would you’ve already made but doesn’t close yet? Thanks.
Pat Roney: So, when we talk one acquisition, it was really the issue of the size. And sometimes we’re looking at some -- perhaps, like we have some smaller acquisitions, that will translate really to the same of what we provided in our guidance. Clearly, Vinesse is a significant acquisition in terms of revenue and opportunity, and upside in EBITDA because it’s a classic example of the synergies that we look to where we can immediately create value for cost savings. And in that case, tremendous amount of cost savings in the pick-and-pack side and the wine making side and put it on to our platform. But I would clearly say that there’s upside in the expectations of our guidance through additional acquisitions. At this point, we’re very, very comfortable with reaffirming the guidance that we provided, and we’ll certainly evaluate that guidance later in the year.
Mike Baker: Okay. Thanks. That’s helpful. Second one, just more color on some of the margin pressure that I think, your adjusted EBITDA, even if you take out that $9 million inventory write-down, was down about 330 basis points. You talked about mix. Is that -- is it just mix by channel or within in each channel, it sounds like, there was also a mix issue. In other words I think you said within B2B, the mix was -- the mix hurt the margins within B2B. Because in other words, if we use the margins that you disclosed or at least sort of loosely disclosed by each of the segments, it wouldn’t account for that 330 basis-point decline. So, there has got to be the mix within the mix or something else, and maybe something on the cost side? Just a little bit more color on some of the margin pressures.
Pat Roney: So, that is really is mix related in a couple of the channels, it’s mixed related. And on the B2B side, with some of our larger customers at lower margins that this has accelerated a little bit faster, same thing on the Direct-to-Consumer. Again, our higher margin segments are the tasting room and wine clubs, and they continue to be impacted by COVID, yet some of our home shop -- our customers and our television segments and some of our others were growing at a much faster rate and this tend to be a little bit lower margin business on that side. And again, on the Wholesale segment of the business, the margins that go into the chain groceries are less than the margins that go into on-promise and the independent retailers. So, just the combination. The other key thing to note is that none of our production efficiencies that really kicked in until the start of this new fiscal year with the new bottling line and new warehouse expansion. So, again, we continue to be very confident about the growth in our EBITDA margins, and we expect to demonstrate that over the coming quarters.
Mike Baker: Okay, helpful. One more, if I could. Just on the impact of the wildfires. So, in the press release, it attributes the issue to the 2020 wildfires. I think, at past conferences, you had talked about not really having an impact from the 2021 wildfires that were raging the summer. Can you update us on that? Should we expect a similar impact down the road from the 2021 wildfires, or has there been any impact at all? Thanks.
Pat Roney: So, there really hasn’t been any impact at all from the 2021 fires. The kind of the closest fire to any of our wineries is about 200 miles away. And so, we’ve had no impact. The harvest actually is coming in a little bit faster this year. It’s a little bit smaller in size than average, but it’s a good, very, very high quality harvest. So, we’re pretty keen on that. And absent of something happening in the next week or two, we’re pretty comfortable that we’ll see zero impact from 2021.
Mike Baker: Okay, great. I’ll turn it over to somebody else. Thanks.
Operator: Our next question comes from Luke Hannan from Canaccord. Luke, your line is now open. Please proceed.
Luke Hannan: Okay. Thanks. Good morning. I just wanted to start on the Direct-to-Consumer segment, specifically your e-commerce platforms. I’m just curious to know if you’ve seen anything with regards to the cohort of customers that you would’ve added through the past 18 months or so. And if there has been any differences, as far as average order value or churn that you’ve seen from that cohort versus maybe some other customers that you have signed up, in previous years. Are those customers are still ordering with you, are they ordering in more amounts? And color there would be helpful.
Terry Wheatley: Yes. I would say, we really haven’t seen any big differences in the cohorts. Our average order size remains stable through this last year. So, I really haven’t seen any change in that, except, when you see this shift to more on the e-commerce side, our wine clubs were a little bit impacted last year. So, that brings it down a bit. But, we have so much more in our e-commerce side. And our average order size was at or a little bit better. So, I wouldn’t say there’s been a dramatic shift in the cohort in Direct-to-Consumer. But, you can look at the overall Direct-to-Consumer and see last year with our tasting room shut down, like we said earlier, we had platforms set up to be doing virtual tastings, doing outreach, doing advertising. We really did -- while our tasting was -- were closed, we really did benefit from a lot of the programs that we had set in place. And we had some different platforms set up for outreach, or text, all kinds of things that went through Direct-to-Consumer that really set us up to weather the storm that COVID provided.
Luke Hannan: Okay. That’s helpful. Thanks. Another question I had just on the impact of the guidance, I think it implies close to 500 basis points EBITDA margin expansion. Just curious what some of the drivers are for that, I think probably the big one is going to be the Ray’s Station facility, maybe Pat, if you wouldn’t mind just sharing with us what the I guess the expectation would be over the course of say the next 12 months, as far as ramping up production in that facility…
Pat Roney: You bet, Luke. And so that actually is the primary driver of the revenue -- of the gross -- the margin expansion. And we have placed the new bottling line in service as of the 1st of the July or the start of our new fiscal year. And we have the occupancy permit for the new warehouse. So, we’re starting to move all of our case goods into that facility. So, we expect that those efficiencies will come in, and we’ll see the benefit from that capital investment last year, not only this year, but several years to come.
Luke Hannan: Okay. And how I guess if you had to put a preliminary sort of timeline on it, how soon will you be able to have that production facility sort of fully ramped, and getting the most operating efficiencies out of that as you expect?
Pat Roney: We’re running -- the new bottling line is expected to run at 70% utilization and we’re currently running in the high-50s. I would expect that we would get up to 70% within the next 30 to 45 days, which is consistent with what our expectations were and the growth for that.
Operator: Our next question comes from Joseph Feldman from Telsey Group. Joseph, your line is open. Please proceed with your question.
Unidentified Analyst: I have a question on acquisitions. I mean, you picked up the pace on acquisitions two to three -- more like three in ‘22 and more. Can you provide the landscape on acquisitions, like, initially, there’s a lot of wineries that you can acquire, but you’re also acquiring a lot of customer-focused acquisitions. So, can you share how the composition of acquisitions will be in ‘22 and forward? Will it be more like on the customer side, more on the winery side, or you’re looking at both? And what kind of increase the pace of acquisition, what drove the thought process, like how is the pipeline looking and stuff like that on acquisition? Thank you.
Pat Roney: So, the pipeline is looking very, very robust, to stay the least. Perhaps, there are more opportunities for me to execute in the next eight months. And we really have to take a look at it and just make sure that we can not only make the acquisitions but fully integrate. And then, our history has suggested that three per year -- three to four per year is a good number for us to do. And then, especially when we look at balancing those acquisitions, if we make an acquisition, that is -- such as Vinesse, which is 100% Direct-to-Consumer, we might make another acquisition. As we’ve indicated in the shoulders of the wine category, that brings more distribution platforms to us and is more focused on our Wholesale go-to-market segment. We may make an acquisition in the B2B side, although that tends to be more organic. So, I would say that, absent of last year where we really only did the Kunde and winery acquisition, because we were really focusing on getting the company public. And of course, during COVID, I would think that it’s perfectly normal for us to see three to four acquisitions in this fiscal year. And we will continue to first select on the opportunities for synergies and margin and enhancement and by acquisitions that provide the value. We love it when we can buy a pre-synergy acquisition at a 12x multiple and bring it within the first 10 -- first 12 months to a 5x, multiple, or 4x multiple of EBITDA. And those are the things that work well for us in our system. So, again, as we said before, no question Direct-to-Consumer is our number one priority, and it is great to make two acquisitions that are a 100% focused on that segment. And again, we look at the opportunities on the Wholesale side. I expect, we will continue to see another winery or two acquisitions. But, where are we going to acquire customers in the Direct-to-Consumer segment or where we can create a new platform that we can get into other things such as perhaps cannabis-based beverages or ready-to-drink beverages, we’re going to look at that as well. But, I’m very, very encouraged about the opportunities that are in front of us that fit our acquisition criteria and providing value and allowing us to grow at a reasonable price.
Operator: Our next question comes from Daniel Biolsi from Hedgeye. Daniel, your line is now open. Please proceed with your question.
Daniel Biolsi: Thank you. Can you speak to the strength you are seeing in the B2B channel, and are you in the majority of the retail doors you want to be, and how does that compare to the shelf space opportunity and the existing customers?
Terry Wheatley: We have tremendous opportunity in B2B. Right now, we are expanding on SKUs in some of our -- so, in Target we have photograph, we’re expanding SKUs. Hopefully that will go in, in spring set. There is multiple customers right now that we are in conversations on, on creating new brands for them. So, great upside there. So, we see the opportunity in B2B with the big retailers, as I don’t want to say unlimited, but I would say, it is unlimited because, the things -- the requests that are coming across the desk for either brand expansion that we currently have on new spirit programs in some of the big retailers, the opportunities are there.
Daniel Biolsi: Thanks. And then, if I could follow-up. For the Wholesale channel, can you speak to what you’re seeing in the off-premise, with the difficult compares there, and how the pace of recovery is in the restaurants like? And if you can remind us what your mix is, to your knowledge of how much has gone through the on-premise within Wholesale? Thank you.
Terry Wheatley: Yes. On premise is small for us. Overall, it’s 5% or less of our total company and on-premise. So, even with the shutdowns, it did hurt us, but not as bad as it did, maybe some other companies. We are seeing it starting to rebound. We didn’t -- because we just don’t have brands in the top, let’s say 50, those are the brands that really benefited from the pantry-loading that went on during the pandemic. So, we are starting to see some really great numbers coming out of July and August. So, we’re rebounding really strong there. On-premise is coming back. Our numbers look great in terms of new points of distributions that are coming back on in on-premise. I will say, our national account team in on-premise really worked hard during the pandemic to make sure that even though those restaurants were shut down, or big hotels, foodservice was limited, we held those points of distribution. And now that they’re kind of selling off on the inventory that they have stacked up, we’re seeing some new authorizations coming through there. So, feeling really very good about the guidance we gave in the Wholesale channel. We will beat what the current trends are. And again, those commentators are saying -- industry commentators are saying that it’s a 1 to 2 on the table wine in cases and another maybe 3 to 5 in value. We believe we’re going to beat that through the robust side that is -- we’re already seeing in July and August, rebounding, and actually some new authorizations that we’re expecting that will start setting in March of next year.
Operator: Our next question comes from Mike Baker again from D.A. Davidson. Mike, your line is now open. Please proceed.
Mike Baker: Thanks. Just a couple more follow-ups. Within the EBITDA margin guidance, which reflects about 23.6, 23.8 or so versus ‘19 and change last year, how should we think about gross margin and SG&A? You have a lot of adjustments in the EBITDA line. You don’t necessarily break them down by gross margin and SG&A, we can . But, I guess if you add back $900 million to the annual gross margin number, you get about 38%. What should we think about of the right gross margin level in 2022, within your guidance? Thanks.
Pat Roney: So, the majority of the adjustments to EBITDA were in the SG&A line, a little bit in the gross margin with the inventory adjustment as well as the impact on the vineyards and the wildfires. But I think consistently on a gross margin basis, total company, we’re going to look at that 41% to 42% kind of range. And obviously, the mix, the Direct-to-Consumer has the highest gross margin and adding Vinesse another $20 million of revenue on that side, and the Sommelier Company has a very high gross margin. Those two will expand that gross margin opportunities. But again, the B2B segment continues to grow and we got a lot of voracious retailers that are looking for more growth of their programs. And so, I think, when we net it all out, we’ll continue to see total gross margins after direct selling cost and direct marketing cost in all three segments to average in the 30% to 32% kind of range pretty corporate overhead. So, that’s why we’re comfortable with our adjusted EBITDA ranges.
Mike Baker: Okay, understood. One more follow up, more qualitative, perhaps. Any color, commentary or impact from anything on the supply chain, freight costs? I think, one point, barrel costs are way up. Anything you’re seeing in terms of inflation and supply chain or raw material inflation, or those types of issues that have really impacted, so many retailers to just learn what you’re seeing in those areas?
Pat Roney: So, I think we’re seeing some of the same kind of trends that some of the other retailers are seeing. Transportation costs are up substantially, no question about it. All over the world, they’re up, and they’re up and bringing new goods in from Europe and China. And just the ability to get trucking and to get orders out is something that’s a bit of a challenge. And the secondary challenge is one that again everybody across all segments is having, are labor costs and getting the workforce back to work. And we see challenges in terms of getting people, and we’ve increased the stay bonuses and increased some of the salary ranges. But, those things are -- while they’re not desirable, they are manageable, and that’s what we’re doing. And our materials in terms of glass and other packaging are not really going through significant changes in pricing. So, that’s a good thing, nor our grapes or wine costs. So, we’re pretty comfortable on that segment of the business. So, we’re going to -- we will continue to have the challenges that all industries are having right now, but we expect to be able to manage through those.
Mike Baker: Okay. Thanks for the additional time.
Pat Roney: Thanks, Mike.
Operator: There are no further questions. I’ll now hand back over to Pat Roney for any closing remarks.
Pat Roney: Thank you for joining us today. I hope you’re as excited as we are as the multitude of opportunities we have in scale at Vintage Wine Estates. We look forward to speaking to you again very, very soon. And hopefully we’ll have some more exciting news and some more acquisitions to talk about in the relatively near future. Have a great day today.
Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.
