Vintage Wine Estates, Inc. (NASDAQ:VWE) Q4 2022 Earnings Conference Call September 13, 2022 4:45 PM ET
Corporate Participants
Deborah Pawlowski – Investor Relations
Pat Roney – Founder, Chief Executive Officer
Terry Wheatley – President
Kris Johnston – Chief Financial Officer
Conference Call Participants
Vivian Azer – Cowen
Mike Baker – DA Davidson
Luke Hannan – Canaccord Genuity
Joe Feldman – Telsey Advisory Group
Greetings. Welcome to the Vintage Wine Estates Fourth Quarter Fiscal Year 2022 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. And please note that this conference is being recorded.
I would now turn the conference over to Deborah Pawlowski, Investor Relations of Vintage Wine Estates. Thank you. You may begin.
Deborah Pawlowski
Thanks, John, and hello, everyone. We certainly appreciate your time today and your interest in Vintage Wine Estates. Joining me on our call are Pat Roney, our Founder and CEO, and Terry Wheatley, our President and Kris Johnston, our CFO.
You should have a copy of our earnings release across the wires after the market as well as the slide deck that will accompany our conversations today. If not these documents can be found on our website at ir.vintagewineestates.com.
Pat will begin with a brief overview of the quarter, then Terry and Kris will provide more details on the results. Kris will also review our guidance for fiscal 2023. We will then open the call to our investors and analysts to ask questions.
If you turn to Slide 2, you will find our Safe Harbor statement. As you may be aware, we will make some forward-looking statements during this presentation and the Q&A session. These statements apply, future events 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 were provided in our 10-K filed with Securities and Exchange Commission as well as noted on our press release. You can find these documents on our website or in sec.gov.
I will point out that during today’s call, we will also discuss some non-GAAP financial measures, which we believe are useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of comparable GAAP with non-GAAP measures in the tables that accompany today’s slides.
With that, if you will turn to Slide 3, I will turn it over to Pat to begin. Pat?
Pat Roney
Thanks, Deb, and welcome everyone. I think we’ve made excellent progress as an organization in our first full year as a public company. We had quite a bit to learn had to make some changes to the organization, needs to add some skills and experience to develop the cadence of the public company requirement, with quarterly reporting, audits more sophisticated forecasting, the breadth of disclosures and many other demands. I’m proud of the team and their dedication to achieving our vision and advancing Vintage Wine Estates to being a leader in the U.S. wine industry.
Revenue came in as expected for the quarter and the year with strong results in both direct to consumer and B2B. We were able to deliver despite the persistent headwinds of supply chain constraints, which continue to pose challenges with getting products out the door as well as creating production and efficiencies. We had the benefit in wholesale and DTC from increased prices, although inflation continued to result in more increases in cost inputs. Although results were impacted by a $19 million non-cash inventory adjustment, as well as recording some overhead absorption for the first half and the fourth quarter, I’m quite pleased with a significant progress Kris and on our team have made with implementing the changes necessary to enable greater accuracy and consistency in our reporting.
In the short time since she’s been with us, Kris has measurably upgraded and expanded the accounting and financing team, implemented procedures training and oversight measures to drive greater accountability throughout the organization. Improved timeliness and accuracy and reporting improves our operational decision-making processes as well. And more importantly, the culture of the organization is being tapped into as a strength to help drive these changes.
And while we’ve had equipment delays for expanded canning and bottling lines, we’re continuing to make progress with integrating our acquisitions to drive through synergies. Beyond our strong organic growth, our acquisition pipeline remains very promising. And we expect that we’ll be able to announce something in the not so distant future.
With that, let me turn it over to Terry to talk more about our segments. Terry?
Terry Wheatley
Yes, thanks, Pat. Now please turn to Slide four.
Our direct-to-consumer segment continues to demonstrate the strength of our digital marketing capabilities and our customer focus. In the quarter, direct-to-consumer was up 29% and we grew that segment 39% for the year. We hit new records in our tasting room traffic and club membership in the quarter and captured price as well. Wholesale was up against tough comps, as you know, but we did capture over 2% in price in this segment. While depletions were negative in the quarter for the 12-month period, we remained positive.
Our b2b sales were bolstered by the Meier’s acquisition, and also sales of bulk distilled spirits. Our leading brands of Bar Dog, Firesteed, Clos Pegase and Photograph continue to demonstrate strong market appeal. Bar Dog was just awarded hot prospect by Impact magazine for the 2021 calendar year, which really resonates with our key retailers.
Looking at Slide five, we continue to exercise our three-legged stool strategy and are confident our omni-channel approach provides us a competitive advantage. We also believe our diversity within our go-to-market channels, and diversified vineyard sourcing helps to mitigate risk. Our highest margin channel direct-to-consumer represents 32% of our net revenue. This includes our wine clubs for brand loyalists, our tasting rooms, ecommerce, telesales with our personalized label division, our digitally native Cameron Hughes brand, our Sommelier Company personalized services and QVC. It’s the QVC relationship through which we offer a number of innovative brands, including Kevin O’Leary from Shark Tank.
As mentioned, our hotel segment faced tough comps and represents 29% of our net revenue. And our b2b segment, which represented 39% of our net revenue, this past fiscal year, was skewed by bulk alcohol sales. We expect us to normalize moving forward.
With that, let me turn it over to Kris to talk more about our results and our outlook for fiscal 23. Kris?
Kris Johnston
Thank you, Terry, and good afternoon, everyone.
Turning to Slide six, you will see additional segment discussion. Revenue grew 32% in the quarter, which included 13.3 million of acquired revenue. For the year, revenue was up 33%, which included 31.7 million of acquired revenue. As Terry mentioned, we had very strong growth in our DTC segment with revenue up 29% in the quarter to 23.1 million. This was the result of strong organic growth of 10% and 3.4 million of acquired revenue. You will find in the supplemental slides that we have a table that provides our acquired revenues by quarter as reported in fiscal year ’22. While DTC volume was down somewhat, this was offset with price.
Moving on to wholesale, revenue increased 23% to 21.6 million including 5.7 million of acquired revenue. This and pricing helped to offset lower wine volume. Note that wholesale volume shows a substantial increase due to the inclusion of ACE Cider which is a high-volume business. We are working to address what we see as a weakness in our Layer Cake brand which is impacting the segment. There are plans to reposition the brand and in addition, wholesale was impacted by some out of stocks in certain 2020 varietals and tight supply by wildfire impacts.
Next, on our b2b business, 55% revenue growth was driven by acquisitions and sales of bulk distilled alcohol. Meier’s contributed 4.2 million in the quarter. We had a modest decline in private label programs due to lack of inventory for specific programs.
If you’ll turn to Slide seven, I’d like to look at what our adjusted gross margins would have been without the unusual events related to the remediation efforts that we have been undergoing.
First, looking at the quarters, we had approximately 6.8 million in overhead absorption costs in the fourth quarter that actually were related to the first half. These were deemed material across these reporting periods. As a result, the first and second quarters were slightly overstated and the fourth quarter was understated on a GAAP basis. I also think that you can take the 19.1 million of adjustments that we took in the fourth quarter and add that back to gross profit. Adjusted our gross margin for the quarter would have been 36.2% and for the year adjusted gross margin would be 38.9%.
Turning to Slide eight, I’ll touch on Adjusted EBITDA and net income. Adjusted EBITDA for the year increased 21% to 46.8 million. Our fourth quarter adjusted EBITDA of 7.6 million was lower than expected for a number of reasons. You should consider in evaluating our adjusted EBITDA, that there’s also about 2.5 million in SG&A that we do not expect to repeat going forward.
Other impacts to margin included approximately 2.5 million of COGS that was the result of a few factors. First, we haven’t captured all of the cost synergies we expect with acquisitions. As we have mentioned before, this can be a two-year process to fully integrate. Second, while we have instituted price increases, it’s [now] [ph] fully cover previously incurred, inflationary COGS cost increases.
And finally, margin was also affected by production inefficiencies that resulted from supply chain constraints. While our operations are doing an excellent job adapting to what supplies are available and changing out our production lines, this is not an optimal way to operate. Taking into account this 5 million adjusted EBITDA margin for the quarter would have been 16.7% and for the year, it would have been 17.6%.
Moving on, given our acquisitive profile, we believe adjusted net income presents a more accurate reflection of our normalized performance. On that basis adjusted non-GAAP cash net income was 10 million for fiscal 2022 or 0.17 per diluted share.
Slide nine provides an understanding of our capital structure at year end. We have a strong balance sheet and the financial flexibility to continue to invest in our growth strategy. Our CapEx in fiscal 23 will be about 12 million to 15 million of which less than 3 million is for maintenance CapEx. The rest is focused on capturing synergies, improving productivity and capacity expansion to support our growth.
On Slide 10, you can see our guidance for fiscal ’23. We expect revenue of between 300 million to 310 million. This includes about an incremental 20 million to 22 million from the fiscal 2022 acquisitions. Adjusted EBITDA should be between 55 million to 65 million, which represents a margin of nearly 20% at the midpoint of the range, improving by about 2 points over fiscal 2022. We have considered inflation somewhat stabilizing and supply chain easing to some extent in these estimates.
With that, let me turn it back to Pat to wrap up on Slide 11.
Pat Roney
Thanks, Kris. We are executing well on our strategy to drive growth are successfully diversifying and expanding our portfolio and upgrading our capabilities and capacity. We are excited to have added Kris to the team. We are actively advancing our acquisition pipeline. I believe that fiscal 2023 will be another strong year for Vintage Wine Estates as we transform the company into a much larger, more significant player in the wine industry.
With that, John, we can open the call for questions.
Question-and-Answer Session
Operator
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Vivian Azer with Cowen. Please proceed with your question.
Vivian Azer
Thanks. Good afternoon. So I wanted to dive in on guidance. Please just to start off, Pat or Terry or Kris. I’m curious what your expectations are for industry growth and kind of what’s implied in terms of kind of relative performance there as you think about organic sales in FY ’23. Thanks.
Pat Roney
I think in terms of industry growth, we may even be looking at it in a negative to slightly flat category growth in the overall category for the premium segment of the wines — premium wine segment. Then we’re looking ourselves to mid-single digit growth and we think that is going to continue to outperform the category this year. So we think there’s some upsides, but we’re still with inflationary pressures and everything else, we’re going to be cautious about that.
Vivian Azer
Certainly, that seems prudent, just given, yes, how high inflation is and the impact on the consumer. I’m curious as you guys established the guidance, are there any kind of current trends worth calling out? How are consumers responding to the pricing that you guys have taken presumably is it, that’s being taken across the category is downgrading worse than you’d expected any color around that? Thanks.
Pat Roney
I’ll start with that and Terry, you can jump in as well, in case you’d like to add some additional color. But we think the price increases are holding, we haven’t seen a lot of trading down and certainly not trading down below the $10 category segment. And I think that if anything, the inflationary trends continue and if costs continue to go up, while we don’t have in our plans for this year, any price increases, we may consider taking another price increase later in the year, depending on what happens with the trends and things like that. Terry, would you like to add anything?
Terry Wheatley
Yes. I can add a couple of things. Vivian where we play with Bar Dog and Photograph and some of our lifestyle brands what we call. I mean, we’re still outperforming the category right now. And you will see that that our price it’s starting to be reflected in the Nielsen. So our price has gone up about 2%, 3% in the Nielsen’s. But we still see on the latest 13 weeks, up 4% and the segment is flat. And then, flipping over to the direct-to-consumer side we took price March 1 in the direct-to-consumer side. We’re seeing that continue to be strong. We’ve had some industry magazines and different people commented that the Napa, Sonoma just not like on our tasting rooms, it’s starting to slow and what our traffic is slowing, but our revenue numbers are holding strong. And actually our coastal properties or SCV over in Bodega Bay or Lutetia down on the coast. The ocean down there, those numbers, the traffic numbers are strong, continue to climb, and our revenue numbers are good.
So we feel like we were in a good position with both our direct-to-consumer and on our wholesale side. And then when it comes to our b2b business, we do have increased interest from some of our major retailers back in the b2b game and looking for private label. So I do see that that’s going to be strong for us in 2023.
Vivian Azer
Got it. And just last one, apologies for focusing so much on the top line here. But that I do think it’s critical. Can you just expand at all on some of the challenges that you’re seeing with Layer Cake and some of the specific remedies that you plan on implementing? Thanks.
Terry Wheatley
Well, Layer Cake, it was caught between I want to say a rock and a hard spot during pandemic, it wasn’t in that top 20 brands. So it really didn’t get a lot of floor action there. And then as things have come back, it’s in a price segment that is struggling a bit. So we are working with our partners to do a complete repositioning a whole new marketing campaign, we expect to have some core packaging come out in the third quarter for us. So probably April, May, June of next year, that we think will really impact the brand. So we have a full core press on working on Layer Cake here.
Vivian Azer
Understood. I will jump back in the back. Thank you.
Operator
Thank you. And our next question comes from the line of Mike Baker with DA Davidson. Please proceed with your question.
Mike Baker
Okay. I wanted to just ask you, if you can flash out the guidance a little bit next year, first on the sales line, the 300 to 310. What does that say about organic growth? How much is expected? Well, I guess you said, 20 million to 22 million from the acquisitions you made in 2022. But I presume does that include any other acquisitions, which I guess would then mean that you expect the organic business to be flat. If my math is right, even down slightly, is that the right way to think about it. In just bigger picture, what has changed from the idea of organic growth of 8% to 9%. And then, add another 10% to that from acquisitions, to look for 20% annual growth?
Pat Roney
I actually think there is organic growth for next year of mid-single digits. And then to the — you’re correct, Michael, we have no acquisitions in these numbers. There’s a little bit of acquisition revenue from in there and under acquisitions related to last year’s acquisitions. But we’ve taken the path that our current baseline guidance doesn’t include any acquisitions even though we continue to be active on the acquisition front. And when we have an acquisition add, we’re going to announce that and revise guidance.
Mike Baker
Okay, well, I suppose whether it’s acquisitions or how you’re counting it, I think total sales growth of like 2% to 6% next year. Again, two quarters ago, we’re talking about 20% growth, half from acquisitions half, half from organic growth. So, in your mind, what has changed in the last six months just the consumer pulling back? Is it inflation? I guess what’s the — what has changed in the business to lead to such a lower sales outlook?
Pat Roney
Well, again, to the acquisition, that 10% growth, it’s not off the table on the acquisitions, it’s just not reflected in our guidance number currently. And the overall growth from 294 to the range that we’re projecting, is reflects more of a midpoint, slightly more conservative growth, given the uncertainties that we don’t know about with inflation and what’s happening with the consumer in general, and whether the supply side of it is going to improve in terms of our ability to get glass and get product out to the market.
Mike Baker
Okay. I understand. You are just not including that other potential 10% from acquisitions, and I don’t know, we don’t know what the number will be, I guess, this year, but I guess point is as potential upside to these numbers, whereas in the past for me talked about it is, guidance or an expectation. Okay. And then, I think, sorry, we didn’t get the slides until late, but I haven’t had a chance to go through them all. But I think my math — I guess the math — once I got this wrong about your wholesale business X acquisitions was down in the fourth quarter about 9%. I think that’s right, correct me if I’m wrong. But if — can you just sort of differentiate between on premise, off premise market share? Why do you think that is down if that math is even close to right?
Pat Roney
Yes. I think that’s a good question for Terry and for Kris.
Terry Wheatley
Yes. Kris you can jump in. But I think in the fourth quarter in the wholesale, I mean, that was driven primarily by Layer Cake offset by increases with Bar Dog, Photograph. Clos Pegase showed some really great gains in the last quarter. And, Kris, if you want to speak to that as well.
Kris Johnston
Yes. I agree. Terry, it’s really across the segment there. We were impacted with this softening Layer Cake, as we’ve addressed previously in the call, but I’m aligned with the comments.
Mike Baker
Okay. And more — so that’s off premise primarily. Is that right?
Terry Wheatley
Yes, that is really off premise when it comes to Layer Cake and Bar Dog, Photograph, of course, is in target. We are seeing gains coming in on our wholesale side, just [indiscernible], has showed some nice gains in the fourth quarter in on-premise. But again, it’s offset by larger declines on the Layer Cake side, in the wholesale side.
Mike Baker
Okay. One more if I could, just long-term EBITDA margin outlook. Again, I believe that one point we’re thinking mid-20%, this year was close to — so I guess your guidance, your guidance next year will be about 20%. Is there — what do you think — was some of the increased costs and supply chain issues? Where do you think the long-term EBITDA margin shakes out for this business?
Pat Roney
I still – I’m very, very confident in the long-term that we’re going to be 25% plus in EBITDA margins, as we continue to work through the supply chain issues and can continue to get better our inventory management and the production efficiencies that we have coming on. And it actually growth in some of our higher margin segments of the business with the DTC and some more growth in some of our higher margin brands, then we continue to expect that. And virtually all the acquisitions that we’re looking at are higher margin businesses as well. So all those combinations will help.
Kris Johnston
Yes. And, Pat, if I can just add, through our increasing SG&A, we’ve added incremental infrastructure, which really is going to enhance our ability to scale and hit those numbers that Pat is referring to. So we’re being conservative in capturing that in our guidance for 23.
Mike Baker
Okay, fair enough. Thanks. I’ll turn it over to someone else.
Operator
Thank you. And our next question comes from the line of Luke Hannan with Canaccord. Please proceed with your question.
Luke Hannan
Thanks. Good afternoon. I wanted to focus on the trends that you’re seeing quarter-to-date from your suppliers specifically on the cost increase side of things. Have you seen the pace and the magnitude of those abate at all in the quarter-to-date? And I guess building onto that, what exactly is built into your guidance as far as cost inflation, as well as trying to ascertain what the potential upside or downside risk could be if we see movement in things like freight or diesel et cetera?
Pat Roney
Well, I’ll let Kris speak to the actual numbers in terms of what we baked in for those. But I think in the fourth quarter of this last year and the first quarter of this year, we’re starting to see a little bit of easing on that and a little bit better availability of glass and other dry goods and the transportation. Transportation starting to free up a little bit more, although as everyone knows gas prices and petroleum prices are still high and maybe there are some upside — on that side of it is as we expect they will abate over the next year. Kris you might want to talk about anything that we put into the plan in terms of those cost increases.
Kris Johnston
Right. So we’ve definitely built off of the assumptions and the actuals used in FY ’22 but we have considered inflation somewhat stabilizing. So we haven’t continued to ramp it up at the levels we’ve been seeing historically. And we’ve focused in on supply chain easing some in our estimates. So again, we’ve held steady but not expecting it to continue to bloom.
Pat Roney
And again, we didn’t bake any price increases into our model or guidance either and if we find that the costs are going up higher than what we expected, then we will take price again after the L&D season.
Luke Hannan
Okay, understood. And then a quick clarification question on the acquisition synergies. I think you mentioned in the press release that for at least one of the transactions or activities you are undertaking is pushed out by about six months. Is that, can you just give us an update — a quick run through of when you expect to be able to get these synergies across the acquisitions that you’ve done in fiscal ’22 and when the update of one that might flow through the P&L and in fiscal ‘23?
Pat Roney
Yes. So we did have some machinery related delays, as well as some other supply chain delays. We had a new canning line going in for ACE hard cider that was supposed to be up and running in March and didn’t actually start with getting running until the month of August which created because there’s been a shift from glass to cans. It created some out of stock situations in that brand and actually had now been corrected and I think it had a very strong month just recently. And then, same thing with Meier’s, was not getting the new canning line up and running at that facility but we’ve always said it takes 24 months to fully integrate. And even though we’ve had some delays in the front which we’re — hopefully we weren’t going to have, we still fully expect within 24 months of each of the acquisitions that they’ll be providing good increases and profitability through synergies.
Luke Hannan
Okay, understood. And then, last question for me and then I’ll pass the line. Just on the balance sheet here. I know you mentioned the liquidity in the access to the [indiscernible] that you have, if there is a particular transaction or opportunity that arises you have the potential to expand your balance sheet if you need to. But just based on my math I just look at net debt to EBITDA for fiscal ’23 and this midpoint in your guidance implies that you’re close to 5x net levered, which does seemed a bit high. Is that kind of where you’re comfortable running the balance sheet? Or can you share your thoughts on where it stands as of today?
Pat Roney
Well, I think that as we look at net debt relative to our balance sheet we, ideally we put into long-term around the company in the three to four times net debt to EBITDA. But sometimes we may flex up in terms of acquisitions and look to pay those back, flex it back down within the two years and certainly for us because we have a lot of low cost interest rates with hedges in place for the next six to seven years that along with opportunities in the capital market suggests that we still have ample room to continue to make acquisitions and we’ll make acquisitions based upon the growth opportunities and the opportunities to improve our overall EBITDA margin and the growth in EBITDA for the total business.
Luke Hannan
Okay, understood. Thank you.
Operator
And our next question comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.
Joe Feldman
Hey, guys. Thanks for taking the questions. So first off, I wanted to clarify something on the adjusted EBITDA, and I think I maybe just figured it out. But through the first three quarters of the year you had $46 million of adjusted EBITDA you just did $7.6 million in the fourth quarter, my math that gets you to around $53.5 million, but the press release you guys say it’s the adjusted number is $46.8 million. But I’d like to better understand why there’s that gap, why would it have gone down in the first half of the year?
Kris Johnston
Yes, Joe. This is Kris. I’ll take that one. So that has to do with the $6.8 million that we’re calling out in the quarter related to our overhead adjustment, where we were unburdening earlier quarters and overburdening Q4. So when we’re talking about adjusted three months as of June 30, that really is where we’re coming up with our adjusted EBITDA number but full year, that’s net zero impact, because it nets across all four quarters.
Joe Feldman
Right. So it’s just worse overall then because it was over, I guess because it was overstated by $6.8 million in the first half. Okay, but you’re trying to adjust it in the fourth quarter, so I don’t know. Okay, we can take it offline. It seems like it’s not, your double, you are sort of benefiting from it twice. So with regard to acquisitions, why wouldn’t you just put the acquisitions on hold to clean up the rest of the business and get everything squared away and have the accounting controls in place and inventory adjustments in place and just clean up everything the right way and then have a new baseline to begin new acquisitions?
Pat Roney
I actually think we’ve got most of those controls in place today and we’re just finishing up the work with the accounting team to demonstrate that and with our outside accountants and we think that we’re pretty bullish on, go forward and then when the right acquisition opportunity comes along, I think you have to make the acquisition when the opportunity presents itself, it presents a very compelling story for it. I mean, if it was a marginal story, you’d probably not do it or you wouldn’t take a risky one but there, there are opportunities that we see to make acquisitions that we think are significantly accreted to our EBITDA that something can get integrated very easily and provides tremendous long-term growth for us. We’re going to go ahead and make those acquisitions.
Joe Feldman
Okay. And then with regard to the accounting controls, you touched on at the beginning of that, that response but where are we in terms of accounting controls? Like, it sounds like there’s still a little more work that needs to be done and what that mean for this first quarter of this year and potential more charges or what else has to be done at this point?
Pat Roney
Kris, I think you can answer that question.
Kris Johnston
I can take that. So with the build out of the team that we’ve done over the fourth quarter, it’s really about sustained operation of the items that we’ve put in place to evidence externally that we’ve got this and I’m confident that with what we’ve put in place and with the team that we have in place that we are moving in the right direction and we’ve got all of the right items in place so that we’re confident going forward.
Terry Wheatley
And Kris, would you like just add to that, Kris started in March. So she’s the new CFO, we have a new FP&A, we have a new Controller, we have a new Director of Accounting, all these people are new have been put in place by Kris over this last quarter. All of our teams are working very closely with Kris and her team, and I feel very confident with the reporting that’s coming out, all the controls she’s put in place. So, I’m feeling really great about it as well.
Joe Feldman
That’s great. Thank you guys.
Operator
Thank you. [Operator Instructions] And our next question comes from the line of [Peter Johnson] [ph], a Private Investor please proceed with your question. Yeah,
Unidentified Analyst
Yes, thank you. We also have some concerns about the balance sheet. I mean, if I’m doing the math correctly, if you look year-over-year cash is down about $75 million, while debt is up about $43 million so it’s about $118 million of additional net debt. And for that, I mean yes there was $73 million increase in sales but then we’re talking about a fairly modest sales rate projected. And again, I understand that projections may be conservative but that’s a little discouraging.
I don’t — I’m just wondering the same thing that prior person said that of course, you don’t want to pass up the opportunity for a fantastic acquisition. But by the same token, there seems to be a lot of stuff to clean up on and maybe lower the leverage here, I mean you spent $26 million buying back the stock it’s dropped 40% since then. We all agree that the stock is undervalued [indiscernible] even so that sort of highlights the perils of that. So I’m just wondering why we’re not choosing a more prudent path here?
Pat Roney
Certainly, none of us can reject when we do a stock buyback with how the market is going to react in terms of stock that also doesn’t, it’s more of a thinly traded stock and we look at those opportunities to evaluate where acquisition can help us actually grow the value of the stock and those are things that we’re certainly going to look at. I don’t think we’ll be doing any more stock buybacks anytime in the immediate future and I think we’re just going to continue to focus on improving the margins of the business and we’ve got the control the place now and I think that if we make, if we decided to make an acquisition — I expect that we’ll make significant amount of sense to the organization and to our investor base.
Kris Johnston
And Pat, I would just add —
Unidentified Analyst
Go ahead, I’m sorry.
Kris Johnston
The business is a strong cash flow generator, and we expect to be able to quickly work to pay down and delever.
Operator
Thank you. At this time, we have reached the end of the question-and-answer session. And I’ll now turn the call back over to Pat for any closing remarks.
Pat Roney
I’d just like to thank everybody for taking time today to listen to our presentation and look for a very strong and continued future for the growth of Vintage Wine Estates. And again, thank you everybody for your time today.
Operator
This concludes today’s conference, and you may now disconnect your lines at this time. Thank you for your participation and have a great day.
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