Business Overview and History
Splash Beverage Group, Inc. (SBEV) is a portfolio company of leading beverage brands that has navigated a challenging operating environment in recent years. Despite facing liquidity constraints and legal disputes, the company has remained focused on expanding its distribution network, streamlining operations, and pursuing strategic acquisitions to drive long-term growth.
Splash Beverage Group was founded in 2013 with the goal of identifying, acquiring, and building early-stage or undervalued beverage brands with strong growth potential. The company operates through two primary business segments: the manufacture and distribution of non-alcoholic and alcoholic beverages, and the e-commerce sale of beverages through its Qplash division.
In 2018, Splash Beverage Group achieved a significant milestone with the acquisition of Copa di Vino, a premium single-serve wine brand. This acquisition allowed the company to expand its portfolio and gain a foothold in the wine market. The following year, in 2019, Splash Beverage further diversified its product lineup by adding the TapouT brand of energy drinks, recovery drinks, and other products through a licensing agreement.
However, the company faced significant challenges in 2023, reporting a net loss of $21 million for the year and negative cash flow from operations of $10.2 million. These liquidity issues made it difficult for Splash Beverage to maintain inventory levels and drive sales growth. Additionally, the company became embroiled in a legal dispute with ABG TapouT, LLC over the TapouT licensing agreement.
Despite these setbacks, Splash Beverage continued to work on expanding its distribution network and product offerings. In 2024, the company made significant progress by securing new authorizations for its Copa di Vino and Pulpoloco Sangria brands with major retailers such as Walmart, Walgreens, AM/PM convenience stores, and Murphy USA. Furthermore, Splash Beverage acquired the rights to a new tequila brand, SALT, which it began rolling out in Pennsylvania.
Splash's portfolio includes several well-known brands, such as Copa di Vino wines, Pulpoloco sangrias, and SALT Tequila. The company has worked to expand the distribution of these products across the United States, leveraging its comprehensive distribution network and e-commerce platform to reach a wider customer base.
In recent years, Splash has faced several headwinds, including liquidity challenges and a legal dispute with TapouT, LLC over a licensing agreement. Despite these obstacles, the company has remained focused on executing its strategic initiatives, which include strengthening its balance sheet, improving operational efficiency, and pursuing complementary acquisitions.
Financial Performance and Liquidity
Splash Beverage Group's financial performance has been significantly impacted by the liquidity constraints it has faced in recent quarters. For the fiscal year 2023, the company reported revenue of $18.85 million, with a net loss of $21 million and negative operating cash flow of $10.2 million. The challenging financial situation continued into 2024, with the company reporting net revenues of $3.57 million for the nine months ended September 30, 2024, down from $16.16 million in the same period of the prior year. This substantial decline was primarily due to limited inventory availability, which hampered the company's ability to service its customer base.
The decline in revenue was particularly pronounced in the third quarter of 2024, with revenue dropping to $981,860, an 80.9% decrease from $5.14 million in Q3 2023. This significant reduction was largely attributed to lower sales in the e-commerce division Qplash, which was severely impacted by inventory shortages.
Breaking down the performance by business segment, the Splash Beverage Group segment, which focuses on the manufacture and distribution of non-alcoholic and alcoholic brand beverages, generated $3.11 million in net revenues for the nine months ended September 30, 2024, down from $4.13 million in the same period of the prior year. The E-commerce segment, represented by the Qplash platform, saw a dramatic decrease in net revenues from $12.03 million to $458.77 million over the same period, primarily due to inventory constraints.
Despite the revenue decline, Splash has made progress in improving its profitability. Gross margins increased from 11% in Q1 2024 to 30% in Q3 2024, driven by strategic sourcing initiatives and the ramp-up of the higher-margin Qplash e-commerce business. The company's operating expenses also decreased by $1 million in Q3 2024 compared to the prior quarter, as the company implemented cost-cutting measures and eliminated certain expenses, such as the TapouT license fee.
The company's liquidity position remains challenging, with a current ratio of 0.17 and a quick ratio of 0.10 as of September 30, 2024. Cash on hand stood at $456,890, while the debt-to-equity ratio was -1.04 as of December 31, 2023. To address its liquidity challenges, Splash has been actively raising capital through the private placement of convertible notes and equity. Since August 2024, the company has secured commitments of approximately $8 million, which it plans to use to support its working capital needs and fund a complementary acquisition.
Expansion and Acquisition Strategy
In addition to its efforts to strengthen its balance sheet, Splash Beverage Group has remained focused on expanding its distribution network and pursuing strategic acquisitions.
The company has reported several distribution wins in recent quarters, including authorizations for its brands in major retail chains such as Circle K, Total Wine & More, and Chevron ExtraMile. These achievements have laid the groundwork for sustainable growth as the company's liquidity situation improves.
Splash has also been actively exploring acquisition opportunities to complement its existing portfolio. In October 2024, the company announced that it had signed a letter of intent to acquire an unnamed energy drink company, which it believes will be transformative for the business. Management has indicated that this acquisition is expected to add over $30 million in top-line revenue, significantly expanding Splash's revenue base and improving its overall financial profile.
Additionally, Splash is working on acquiring the Western Son vodka brand. The company is currently raising a blend of debt and equity financing to complete this deal, with the goal of closing it by the end of 2024 or early 2025, though the holiday season may push the closing into Q1 2025.
Outlook and Risks
While Splash Beverage Group has faced significant challenges in recent quarters, the company's management team remains optimistic about its long-term prospects. With the recent capital raise and the potential acquisitions of the energy drink company and Western Son vodka brand, Splash is positioning itself to address its liquidity issues and invest in driving growth across its portfolio of brands.
Management has provided guidance indicating that they expect to move the company to positive cash flow from operations and positive EBITDA on a run rate basis by Q3 2025, excluding any M&A activity. This target, combined with the potential revenue boost from the pending acquisitions, suggests a focus on achieving sustainable profitability in the medium term.
However, the company is not without its risks. The ongoing legal dispute with TapouT, LLC, as well as the broader macroeconomic environment, could continue to impact Splash's financial performance. Additionally, the successful integration of any acquired businesses will be crucial to the company's long-term success.
The global beverage market is expected to grow at a compound annual growth rate (CAGR) of 5.2% from 2023 to 2030, driven by increasing demand for functional and ready-to-drink (RTD) beverages. This trend could provide tailwinds for Splash's portfolio of brands, assuming the company can effectively capitalize on these market dynamics.
Conclusion
Splash Beverage Group has navigated a turbulent period in its history, but the company's management team has remained focused on executing its strategic initiatives. With a strengthened balance sheet, an expanded distribution network, and the potential for transformative acquisitions, Splash appears to be well-positioned for growth in the coming years. The company's focus on the U.S. market, where it primarily sells its products, allows for a concentrated growth strategy.
However, investors should closely monitor the company's progress in addressing its legal and operational challenges, as well as its ability to successfully integrate any acquired businesses. The significant decline in revenues and ongoing liquidity issues underscore the importance of executing on the company's turnaround strategy. If Splash can successfully complete its planned acquisitions and meet its guidance for achieving positive cash flow and EBITDA by Q3 2025, it could mark a significant turning point for the company's financial performance and market position in the competitive beverage industry.