The Duckhorn Portfolio Files For U.S. IPO
Summary
- The Duckhorn Portfolio has filed to raise investment capital in what may be a $300 million IPO.
- The firm produces and sells luxury still wines in the United States and internationally.
- NAPA has performed impressively through the COVID-19 pandemic and appears positioned to continue its growth trajectory.
- Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Get started today »
Quick Take
The Duckhorn Portfolio (NYSE:NAPA) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.
The firm produces and markets luxury wines in the U.S. and more than 50 countries worldwide.
NAPA has performed impressively during the COVID-19 pandemic and I look forward to learning more about the IPO’s pricing and valuation assumptions.
Company
Saint Helena, California-based Duckhorn was founded to own vineyard production facilities and produce wines ranging from $20 to $200 per bottle, originally bringing the Merlot varietal to prominence.
Management is headed by president, Chairman and CEO Alex Ryan, who has been with the firm since the early 1990's when he began with the firm as Vineyard Manager.
Below is a brief overview video of Duckhorn Vineyards:
Source: ABC7 News Bay Area
The firm says it is the 'eleventh largest wine supplier by sales value overall in the United States.'
Duckhorn has received at least $536 million from investors including private equity firm TSG Consumer Partners.
Customer Acquisition
The firm sells its wines direct-to-consumer as well as through a network of wine distribution companies in the U.S. and abroad.
Duckhorn operates under ten different wine brands and sells both through a direct-to-consumer model as well as through retail accounts and the above-mentioned distributor network.
Selling, G&A expenses as a percentage of total revenue have been dropping significantly as revenues have increased, as the figures below indicate:
Selling, G&A | Expenses vs. Revenue |
Period | Percentage |
Three Mos. Ended Oct. 31, 2020 | 18.3% |
FYE Ended July 31, 2020 | 24.4% |
FYE Ended July 31, 2019 | 27.3% |
Source: Company registration statement
The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose sharply to 1.1x in the most recent reporting period, as shown in the table below:
Selling, G&A | Efficiency Rate |
Period | Multiple |
Three Mos. Ended Oct. 31, 2020 | 1.1 |
FYE Ended July 31, 2020 | 0.4 |
Source: Company registration statement
Market & Competition
According to a 2020 market research report, the global wine industry was an estimated $327 billion in 2020 and is forecast to reach $434 billion by 2027.
This represents a forecast CAGR of 4.2% from 2020 to 2027.
Also, the still wine segment is projected to reach $167 billion and grow at a similar CAGR of 4.2%.
Notably, the Sparkling Wine sector is expected to grow at a faster 4.8% CAGR through 2027.
Major competitive or other industry participants include:
E&J Gallo
Constellation (STZ)
Trinchero
Jackson Family Wines
Ste. Michelle
The Wine Group
Financial Performance
Duckhorn’s recent financial results can be summarized as follows:
Strong and accelerating topline revenue growth
Increased gross profit
Fluctuating gross margin
Growing operating profit and net income
Reduced cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
Three Mos. Ended Oct. 31, 2020 | $ 91,638,000 | 26.0% |
FYE Ended July 31, 2020 | $ 270,648,000 | 12.2% |
FYE Ended July 31, 2019 | $ 241,207,000 | |
Gross Profit (Loss) | ||
Period | Gross Profit (Loss) | % Variance vs. Prior |
Three Mos. Ended Oct. 31, 2020 | $ 44,275,000 | 22.0% |
FYE Ended July 31, 2020 | $ 136,882,000 | 21.1% |
FYE Ended July 31, 2019 | $ 113,003,000 | |
Gross Margin | ||
Period | Gross Margin | |
Three Mos. Ended Oct. 31, 2020 | 48.32% | |
FYE Ended July 31, 2020 | 50.58% | |
FYE Ended July 31, 2019 | 46.85% | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
Three Mos. Ended Oct. 31, 2020 | $ 25,915,000 | 28.3% |
FYE Ended July 31, 2020 | $ 63,191,000 | 23.3% |
FYE Ended July 31, 2019 | $ 55,868,000 | 23.2% |
Net Income (Loss) | ||
Period | Net Income (Loss) | |
Three Mos. Ended Oct. 31, 2020 | $ 17,522,000 | |
FYE Ended July 31, 2020 | $ 32,378,000 | |
FYE Ended July 31, 2019 | $ 22,101,000 | |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
Three Mos. Ended Oct. 31, 2020 | $ 2,487,000 | |
FYE Ended July 31, 2020 | $ 55,179,000 | |
FYE Ended July 31, 2019 | $ 42,466,000 | |
Source: Company registration statement
As of October 31, 2020, Duckhorn had $1.3 million in cash and $550.4 million in total liabilities.
Free cash flow during the twelve months ended October 31, 2020, was $28.8 million.
IPO Details
Duckhorn intends to raise $100 million in gross proceeds from an IPO of its common stock, although the IPO may be as high as $300 million.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
We intend to use the net proceeds from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We also intend to use a portion of the net proceeds we receive from this offering to repay [an as-yet undisclosed amount] of outstanding indebtedness under our Credit Facility, which matures on August 1, 2023 and bears an interest rate that ranges from the London Interbank Offered Rate (“LIBOR”), plus 125 basis points to LIBOR, plus 175 basis points.
Management’s presentation of the company roadshow is not available.
Listed bookrunners of the IPO are J.P. Morgan, Credit Suisse, Jefferies, Barclays, BofA Securities, Citigroup, Evercore ISI and RBC Capital Markets.
Commentary
Duckhorn is seeking public market investment to pay down debt and for its general corporate expansion initiatives.
The firm’s financials show strong topline revenue growth, operating and net profits and positive free cash flow.
Selling, G&A expenses as a percentage of total revenue have fallen as revenues have increased; its Selling, G&A efficiency rate has risen sharply.
NAPA is private equity owned, so it isn't surprising the firm has significant debt, a common feature of private equity owned companies at IPO.
Still, the company is growing topline revenue at faster rates than other private equity owned companies at IPO, so is not a 'typical' slow-growing, debt-heavy private equity portfolio company at IPO in that regard.
The market opportunity for still wine products worldwide is extremely large and expected to grow at a moderate rate of growth through 2027.
J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 87.3% since their IPO. This is a top-tier performance for all major underwriters during the period.
As the firm has shined throughout the COVID-19 pandemic, a potential risk to the company’s outlook would be less alcohol consumption as the world begins to emerge from the pandemic.
However, foodservice segment opportunities may increase due to gradual easing of the waning pandemic’s restrictions on dining, so the downside risks may be muted.
Duckhorn has grown its business in a sweet spot in the still wine market and has extensive distribution worldwide.
I look forward to learning more about the IPO’s pricing and valuation assumptions and will provide an opinion when we receive that information.
Expected IPO Pricing Date: To be announced.
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This article was written by
Donovan Jones is a research specialist with 15 years of experience identifying opportunities for IPOs and software companies.
He also leads the investing group
which offers: actionable information on growth stocks through first look S-1 filings, previews on upcoming IPOs, an IPO calendar for tracking what’s on the horizon, a database of U.S. IPOs, and a guide to IPO investing to walk you through the entire IPO lifecycle - from filing to listing to quiet period and lockup expiration dates.
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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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