Splash Beverage Group Inc (NYSE:SBEV) Q4 2022 Earnings Call dated Apr. 11, 2023.
Corporate Participants:
John McNamara — Investor Relations
Robert Nistico — Chief Executive Officer
Ron Wall — Chief Financial Officer
William Meissner — President and Chief Marketing Officer
Analysts:
Scott Buck — H.C. Wainwright & Co., LLC — Analyst
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Joseph Crivelli — JAG Funds — Analyst
Unidentified Participant — — Analyst
Presentation:
Operator
Greetings. Welcome to the Splash Beverage Group 2022 Fourth Quarter and Full-Year Conference Call. [Operator Instructions]
I will now turn the conference over to your host, John McNamara, you may begin.
John McNamara — Investor Relations
Thanks, Holly. Good morning, everybody and thank you, again, for joining us for the Splash Beverage Group’s 2022 fourth quarter and full-year financial results conference call. With us this morning from management are Robert Nistico, Chairman and Chief Executive Officer; and Ron Wall, Chief Financial Officer.
Before we begin, we would remind everybody that certain matters discussed during today’s call, where during the answers — Q&A session that may be provided to investors may constitute forward-looking statements as defined under the federal securities laws. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company’s Annual Report on Form 10-K filed with the SEC. Copies of these documents are available on the SEC’s website, as well as on the company’s website. Actual results may differ materially from those expressed or implied by such forward-looking statements, the company undertakes no obligation to update these statements for revisions or changes after the date of this call except as required by law.
With that, I’d now like to turn the call over to Robert Nistico, Chief Executive Officer. Go ahead, Robert.
Robert Nistico — Chief Executive Officer
Thank you, John, and good morning, everybody and welcome to our very first conference call. We are extremely excited, feels like the company is growing up. A lot of work we’ve gotten has taken place to get us to this point and we’re very, very excited about the future. We also believe we’re in a very interesting inflection point, which I’ll get into in a second. And we’ve all listened to a million of these things throughout our careers. Everybody on this call, I’m quite sure it’s capable of reading financial statements on their own. So we’re not going to spend a ton of time digging into line item by line item. There’s also some room for that for Q&A and I’m sure most of you have read these statements already.
So, I’m really more interested in sharing with you sort of the resetting the vision for the future of Splash and really what our objectives are, more so than rehashing the history, but history is important. I got to tell you, we’re very proud of the fact that we’ve said — we’ve done just about everything we’ve said. This was a great step forward for us $18 million, $19 million in revenue, we’ve been now on a national exchange, NYSE American as you all know, for a year and we’re looking forward to growing our business and shareholder value as time goes on.
A little bit more about kind of where we are and where we’re headed. It’s important, everybody understands that this was brick and mortar and it takes a long time to get things set up, but once you do, it’s a very, very, very fun business and as you all know, there can be tremendous cash events when a company exits a beverage brand and that’s sort of the eye on the prize that we all have here. But as we grow our legacy brands which is very, very important because that is really what’s driving our distribution efforts and distribution — most of you heard me say this a bunch of times that distribution is extremely important. It sounds like that’s common sense, but you’d be surprised how many people miss that. So, setting up our plug and play scenario for our legacy brands and then potential acquisitions is critical.
And we have done a very, very good job of that. I think you all know, we have a formal relationship with AB ONE and InBev, but we don’t stop there, we can distribute outside that network, if we choose to. The key thing here is the legacy brand growth as I mentioned and also potential acquisitions. I get a lot of questions about that, and acquisition is really, really important subject and we obviously on a public environment have to be cautious of what we say and what we don’t say, but I’ve said publicly many times, we’re constantly evaluating acquisition targets. We have numerous ones under evaluation right now as we speak. And we’ve actually evaluated some and turned them down. So we’re very serious about that.
And if you look at the organization, we put together, our management team, our board, Bill Meissner, our President and Chief Marketing Officer, then President and CEO of many companies. Ron Wall is also sitting across the desk from me here, coming out of William Grant running finance and accounting in 50 plus countries, our board myself, it’s really a pretty good group of people. So our objective here is, is to grow this thing well beyond $18 million, $19 million.
That said, we are laser-focused on both those subjects. And also part of our legacy brand growth, I get a lot of questions about Pulpoloco our acquisition regarding that brand and it’s a very, very important acquisition for us, even though it’s small, we’re still dealing with the Spanish Consulate and the Spanish government, because it’s the Spanish entity. So it takes a little bit more time than we want it to, but the exclusive rights to CartoCan is a very important part of our growth in the future. That’s a long-term project, more to come on that, but I want everybody to understand that is very much in play and we really look forward to that because for two reasons, it can really help us ratchet down our cost of goods on raw materials for a certain brands that packaging works for, but also what it does, we will have excess capacity for that and we will — our intention will be to sell that excess capacity when the time comes. So, lots of really cool projects on the docket, if you will, for 2023.
I think I’ll pause there and I’ll let Ron runs through the basics on the numbers and then we’ll take some questions and then I’ll close up with a few last comments. Everybody, here is Ron Wall.
Ron Wall — Chief Financial Officer
Thank you, Robert. Good morning, everybody. As Robert mentioned, revenues for the full year have increased, our net revenues were $18.1 million, up from $11.3 million in 2021, a 60% increase. On a quarterly basis, the fourth quarter revenues increased to $4.8 million, up from $3.1 million in the prior year or 56% increase. The increases were primarily due to sale increases from our company’s e-commerce division, distribution platform Qplash. On an annual basis, our gross margins came in at 32.7%, which is a 2 percentage point decline from 2021 or 36.6% but 8 percentage points ahead of 2020. The decline in ’22 versus 2021 is predominantly driven by inflationary pressures that we’re experiencing.
Net losses in 2022 were $21.7 million, down from 2021 losses of $29.1 million. Our cash operating expenses increased by 36% in 2022 with the three key drivers, accounting for 87% of that increase being our marketing expenses to drive sales and freight to customers and Amazon fees which increase with our — as our revenues grow. We used approximately $14.1 million of cash in operations, during 2022, this is down slightly from 2020 –sorry, from 2021, they were $14.6 million. And as of December 31, 2022, the company had total cash and cash equivalents of $4.1 million — $4.4 million compared to $4.2 million at the same time in 2021.
That’s the brief overview on the financials. And with that, we’re going to be happy to take any questions you have.
Questions and Answers:
Operator
[Operator Instructions] Your first question for today is coming from Scott Buck at H.C. Wainwright.
Scott Buck — H.C. Wainwright & Co., LLC — Analyst
Hey, good morning guys, thanks for taking my questions. Robert, a couple on distribution. First, can you talk a little bit about maybe some of the agreements that you signed recently and what the opportunity there is for future sales? And then second part of that is, what’s the pipeline look like for additional distribution agreements?
Robert Nistico — Chief Executive Officer
Yeah, hey, Scott, and thank you for the question. As I mentioned over and over again, distribution is everything and, yeah, we have signed significant agreements over the last four, five, six months really building out that network. And it’s also important, people understand that our — most of these distribution agreements are what we call DSD, direct store delivery, distribution agreements with primarily BUD Network [Phonetic] for the most part, we also have some MillerCoors, we also have Kalil in Southwest, excuse me. So we’re covered pretty well. We also have agreements with most of the broadliners. So distribution is very, very important.
So our ability, as I mentioned earlier to plug and play is very, very, very good. And that really is the key to future success and that’s one of the reasons I’d say all the time, we’re at an inflection point here. So as best I can answer your question, I can’t say, distributor by distributor how many doors they have and what that means for us, it would be speculation, but having the ability to focus on our existing brands and any potential new brands that plug those into that system is extremely valuable. So — and we’re nowhere near at the end of the runway on this, we’re really actually just getting started. And I know it’s a slow process, but we’re extremely pleased with where we are with our distribution abilities at this point.
Scott Buck — H.C. Wainwright & Co., LLC — Analyst
That’s helpful, Robert. I appreciate that. And second, can you talk a little bit about the rollout of TapouT Energy, I know that’s coming up here on the horizon?
Robert Nistico — Chief Executive Officer
Yeah. I believe Bill Meissner is on the line also. Bill, would you mind you like — would you like to speak to that? He’s really running that project 24/7 right now.
William Meissner — President and Chief Marketing Officer
Sure. We’re extremely excited about that, cans are in production and they should be available to our contract manufacturer by the end of this month and we’re hoping to roll this out in the last week of April, first week or so of May. And with great optimism, this brand has excellent gross margins and a lot of excitement from the distributor base that we have today.
Scott Buck — H.C. Wainwright & Co., LLC — Analyst
I appreciate that. And then just last one from me guys. You’ve spoken a little bit about improving some of the efficiencies in cost of goods and helping expand gross margins a little bit, can you speak to that at all?
Robert Nistico — Chief Executive Officer
Yeah, absolutely. We’re at that point now where we have enough of a foundation in the business and the business is growing, we can start drilling down a little deeper on many subjects, one might be raw materials specifically themselves. If you look at the — I’m making this as an example, our Salt Tequila bottle. The coin that’s fixed to the front of the bottle. That was a fairly expensive decorative piece and we’re working on finding a better source for those sorts of things — for those individual raw components as the brands accelerate. So — and then the portfolio approach to the whole business, that’s really what that’s about, where we can’t leave, we buy the same materials from the same vendors over the entire portfolio. And as all brands grow, efficiencies grow and costs get ratcheted down.
In addition to that, we’re also sensitive to manufacturing locations, TapouT is a great example. We’re now producing TapouT in multiple locations across the country to really ratchet down freight out and ultimately fuel costs and freight costs. So we’re at that point right now where we really can start making material adjustments and we look forward to gaining tremendous efficiencies for the rest of this year and into 2024.
Scott Buck — H.C. Wainwright & Co., LLC — Analyst
That’s helpful. Appreciate the time guys. Thank you very much and congrats on the year.
Robert Nistico — Chief Executive Officer
Thanks, Scott.
Operator
Your next question is coming from Cobb Sadler at Catamount.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Hey guys, thanks for the update call and congrats on doing in person. I have a question on — so it would be — the Q1 has been over for 10 days. You [Technical Issues] can you share with us what kind of growth metrics you’re seeing or because the inflection, they’re going to start during the quarter or they’re going to start after the quarter or they’re going to start mid-year. Can you just give us an update of what you saw in Q1 and I have a couple follow-ups?
Robert Nistico — Chief Executive Officer
Yeah. And I appreciate the question very much, and hello Cobb, by the way.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Hey, how you’re doing?
Robert Nistico — Chief Executive Officer
Good, good. Yeah. So we’re not giving guidance here on this call. So I’ll be a little bit general in my response to you. And what I’d say to people before we released the K as an example, we’ve done a pretty good job of continuing momentum and growth quarter-to-quarter or year-over-year and we don’t see any reason for that to change. And along with the very clear communication that I’ve given with respect to distribution and brand placements, we are expecting to see acceleration for each brand throughout the year and that’s just a function of putting more products on shelf.
The other positive thing that I can say to help answer your question is, we’re — once one chain bring something on, one brand on, a lot of times, it’s easier to get the second brand on. And if you recall about a week or so ago, we formally announced our relationship with 7-Eleven and Pulpoloco sangria. Once that happens, then they’re are much more open to see other brands authorized for that particular chain. So you can expect to see more of that this year as well quarter to quarter to quarter. So all those things equal up to meaningful growth and that’s — that is vegan [Phonetic] specific as I can be.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Okay, okay. So it sounds like as far as accelerating growth though, what that’s going to take is multiple brands taking off kind of the flywheel effect basically, you get a couple brands selling into a particular chain and then you add. So that’s going to be the growth. So do you have any metrics on velocity, I mean, what have you seen so far? Could you just take a customer and — as an example and what is that — what you’ve seen from the first sale with that customer to kind of today. If you have one that’s starting to mature or getting close to maturing or is it just too early days to know — to do?
Robert Nistico — Chief Executive Officer
Yeah. It’s — I’m not abating [Phonetic] your question but it’s awfully early to get any real meaningful data out of that. Now, I can say when we — when we activated Circle K on the West Coast of the U.S. with Copa Di Vino. The same-store sales in that example were very, very good and that’s allowing us to present other brands into that environment. So, I know exactly what you’re looking for. I can tell you that the early returns here are good but we don’t have enough data back from the chains yet to really give a hard evaluation on that, but I can tell you anecdotally, so far so good.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Okay. And then on your acquisition strategy, I think you outlined that your — in your — actually, there was a presentation — you have 33 kind of targets that have made it through the funnel and or at least most of the funnel. I think you’re at like 90% completion for one, I mean, could you tell us like what’s the time frame is on that and what needs to happen, what’s the remaining 10% [Technical Issues] and what’s the hold-up on the one [Technical Issues] pipeline. The two others than any other pipeline that you may be close with and how you finance it? Thanks.
Robert Nistico — Chief Executive Officer
Yeah. So, those are pretty specific questions. And yeah, I gave an example of there are constantly brands coming across our desk. I mean, same for Bill, same for myself, same for Ron. We — some — just to give you — what I gave the other day was just a general example, not a specific example on a specific brand, but we might be just opening a deck on one brand to evaluate and others we might be really vetting those brands and we might be 90% through that vetting process. That doesn’t mean we’re 90% through acquiring the brand. So I hope that’s clear. But, again, I appreciate the question very much.
The best way I can reanswer that is the Board that we have is really a who’s who in beverage and business are same with our executive team. I think everybody knows all of our resumes. We’re not here to build an $18 million or $19 million company. So acquisition here is a very important subject to us, like I said earlier, and we continue to evaluate brands. We’ve gotten all the way to the end on another brand and decided last minute, it wasn’t the right thing. So it’s the only way I can really answer that question. And, there are million ways to finance things, there’s just so many options that really — that would really depend on the brand, the segment that it’s in, the M&A environment at the time we go to close. But we’re sensitive to all subjects around every bit of every acquisition and that is a very, very important part of our growth and I’ll stop there, because I’m trying to answer your question as best I can, but it’s a little too specific.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Where are you on other brand — other brands as you have involved in the CartoCan. And what would you do — when do you think you’ll have excess capacity or maybe new drinks. But when you think you’ll have excess capacity for CartoCan for sale and then how would you handle that? Would you license it to someone else or would you just manufacture the can via partner and sell those? I think you do have a cost advantage there on the CartoCan, right, it’s like $0.07 or $0.05 to $0.12 or something like that when aluminum is what 20-year or something. So, there’s got to be demand for it and what would you plan for? And that’ll be it. Thanks.
Robert Nistico — Chief Executive Officer
That’s [Indecipherable]. So, yeah, the vision for that is, it varies. I mean, we could do a 100 different things with that, a lot of that would depend on our relationship with CartoCan, but the simplest way to look at it and it’s simply an example would it be to sell that excess capacity and pocket that margin. And what I like about that and I’m not saying that’s exactly how it’s going to go, make that very clear. But what I like about that example is, it’s almost a contract manufacturing model. There’s very little risk involved to that. If company X says, hey, we loved this fully sustainable biodegradable package, we’d like to put something in it, we’re like okay, great, give us your labeling information and we’ll produce it for you and it gets paid for [Indecipherable] and we put X cents in our pocket.
It’s a nice model. And other way to handle that is to license to use your term off to another group and let them handle it and/or you could even have a royalty arrangement. There’s a million ways to do. It’s hard to know what we’re going to do with that yet as it’s a little bit early. I don’t have a specific timeline for you, but it’s definitely something we’re working towards as fast as we can. And I have given an example versus an actual live example when I was in front of the Walmart buyer, a while back. That particular buyer asked if we would be willing to sell them some excess capacity for their private label liquid, and I said maybe. So we know demand is out there, right. But we don’t have enough specifics to give you specifics yet, but we are definitely working towards it, it’s going to be a really cool. We believe it will be a really cool piece of our portfolio moving forward. Thanks for your comments and questions Cobb.
Cobb Sadler — Catamount Strategic Advisors, LLC — Analyst
Okay. All right. Thanks a lot. Appreciate it.
Operator
Your next question for today is coming from Joseph Crivelli at JAG Funds.
Joseph Crivelli — JAG Funds — Analyst
Hey Robert, thank you for having the call. Nice to hear you. My question here is, has market conditions on the acquisition side changed on the multiples and has that caused more of a delay as the multiples for acquiring has changed in the last 12 months to 24 months?
Robert Nistico — Chief Executive Officer
Well, you can — every situation is positive, has a positive and a negative edge to the sword, right. So, you can argue that in a more challenging capital market environment, you might see a compression in multiples, which we believe we have, which is a great — can create and hello Joe, just like I forgot to say hi to Cobb. Hello, Joe, I apologize.
Joseph Crivelli — JAG Funds — Analyst
Hey, Robert.
Robert Nistico — Chief Executive Officer
So, yeah, I mean, it can — the idea here with a portfolio approach is very simple and positive economic environments, maybe that’s the time to exit a brand and more negative economic and capital market environments, that’s probably a time to buy brands and acquire brands. So, we all know the capital markets flipped little over about almost a year ago and it changed the environment. But, no, we’re still laser focused on acquisition and that’s changing anything, has to be the right thing, has to play nice in the sandbox if you will on the front of the business, on the back of the business. And so we’re gaining the most efficiencies and it makes sense for our brands in our distribution network. So we’re not going to force something in unless it’s the right thing.
Joseph Crivelli — JAG Funds — Analyst
I agree. I know the conditions have changed, which could be very accretive to the company going forward. The other question I had is in the distribution from other markets where you feel growth is — could come down in about 8 months to 10 months and those areas are you focused on like more penetration in the Northeast or Southwest or what pockets of areas geographically you seem to be focused on in the next 8 months to 12 months?
Robert Nistico — Chief Executive Officer
Yeah, I mean, I think you can you can plot that out based on our press releases. Clearly, the Southwest and the Southeast are focus areas for us. But as we expand and given certain chain authorizations, etc., that also helps drive us into some more areas in the Northeast. So, yeah, it’s — there’s a pretty specific approach to this, where a lot of it’s chain driven.
Joseph Crivelli — JAG Funds — Analyst
Okay. Well, thanks for the call. I really appreciate it.
Robert Nistico — Chief Executive Officer
Our pleasure.
Operator
Your next question is coming from Gary Getz, a private investor.
Unidentified Participant — — Analyst
Hi Robert. Good to finally speak with you.
Robert Nistico — Chief Executive Officer
Hello, Gary.
Unidentified Participant — — Analyst
I have a couple of questions, first is on this issue of exclusivity of CartoCan. Could you provide some clarity on it? Is it like for internal use or I don’t think and maybe you could correct me. I don’t think you have the exclusive worldwide rights for it, like, for example, if somebody like Coke or Pepsi wanted to use it, they would go directly to the owner of CartoCan? So may be —
Robert Nistico — Chief Executive Officer
No, we’ve never said we had global exclusive rights to CartoCan. With the acquisition of Copa Di Vino, the Founder of Copa Di Vino was importing Pulpoloco from its founder based in Madrid. And as a result, those exclusive rights for the United States ported to our company when we completed the Copa Di Vino acquisition. And since then, we’ve met with CartoCan people and we’ve intended to purchase the entire brand, just like we did with — we’ve made this press releases, just like we did with Copa Di Vino. And the plan is for us to expand the usage of that outside the U.S., but no, we don’t have global —
Unidentified Participant — — Analyst
But you have U.S. rights to it like, for example, if a major beverage company wanted to use a CartoCan in the U.S., would they have to come to you?
Robert Nistico — Chief Executive Officer
Our understanding of that agreement is, yes, we have exclusive rights in the U.S. Does that mean a large strategic could figure a way around that? I have no idea, I can’t speak to — I can’t speak to another organization.
Unidentified Participant — — Analyst
Okay. But, well, that’s major if you have exclusive U.S. rights to CartoCan —
Robert Nistico — Chief Executive Officer
Yeah, we’re pretty excited about it.
Unidentified Participant — — Analyst
Yeah, I’m very pleased to hear that could be like the diamond in the rough of Splash Beverage along with TapouT. Next couple of questions are financial related, I noticed that the gross margin in the fourth quarter was about 60% that it looks like anomaly, but maybe you have some insight into that and what do you see it to be going forward?
Ron Wall — Chief Financial Officer
Hi, Gary, this is Ron Wall, I’ll take that one on. In the fourth quarter, we did have some one-off adjustments we want it to be more transparent about the freight costs from our sales to our customers and our Amazon selling fees. Those have been reported as part of cost of goods in the first three quarters and in the fourth quarter, we made the adjustment to put those into SG&A and highlighted that in the 10-K with the amounts associated, so that the full year number represents the gross margins of the company. And the key reasons for doing that. One is that transparency to get a good understanding of our gross margins without the volatility of that cost related to freight from ourselves to customers, it’s been moving around for the last 18, 24 months. And also on the Amazon, sell like this, as it tends to grow similar to the revenues on our e-commerce to have that without as the selling costs in SG&A. So that does show Q4 as a kind of one-off, higher margin to make that annual adjustment. Going forward on a quarterly basis and the full-year, it will all be apples-to-apples for comparative purposes.
Operator
We have reached the end of the question-and-answer session. And I will now turn the call over to Robert Nistico for closing remarks.
Robert Nistico — Chief Executive Officer
Thank you very much. And we appreciate everybody’s questions, nice to hear from everyone and everybody else who’s on the call. I do want to just say a couple more things before we close up. Management, the Board, we are extremely excited about our progress. Yes, there is more work that needs to be done, but we are executing and we’re out in the marketplace every day working hard for all of us. And I’ll tell you, I mentioned the term inflection point more than once. I really believe we are at that point right now where brands really start to gain traction and accelerate. And I think everybody will be pleased over the next 6, 12 and 18 months as you keep up with our execution moving forward. I talked a lot about distribution being everything and it really is most beverage companies, every beverage company has to survive, nobody cares about Bill, Ron and Roberts, juice [Phonetic] if it’s not on shelf, and we’re really good about putting things on shelf.
We specifically are excited about Publix grocery chain in the Southeast with TapouT. We started loading those stores recently. We’re getting to the end of that distribution project. Few more counties, a couple of more states to work on, but we’re just — we’re really, really at a place where we can start to execute against all of our brands and hopefully some great acquisitions coming down the line. So that’s it. We appreciate everybody’s support very, very, very much, everybody’s been so great and we’re excited to help deliver more shareholder value in the future and we look forward to more and more positive results throughout the year.
Thank you, everybody for coming and listening and that’s it.
Operator
[Operator Closing Remarks]