CWGL 10-Q Quarterly Report Sept. 30, 2024 | Alphaminr
Crimson Wine Group, Ltd
ALPHAMINR

CWGL 10-Q Quarter ended Sept. 30, 2024

Balance Sheet
Cash Flow
Income Statement
Debt
CRIMSON WINE GROUP, LTD
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-54866

CRIMSON WINE GROUP, LTD.
(Exact name of registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of
13-3607383
(I.R.S. Employer
Incorporation or Organization) Identification Number)
5901 Silverado Trail , Napa , California
(Address of Principal Executive Offices)
94558
(Zip Code)
( 800 ) 486-0503
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
______________________
Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X

On November 1, 2024 there were 20,676,252 outstanding shares of the registrant’s Common Stock, par value $0.01 per share.

CRIMSON WINE GROUP, LTD.
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts and par value)
(Unaudited)
September 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 24,335 $ 22,777
Investments available for sale 2,001 8,002
Accounts receivable, net 6,968 7,685
Inventory 64,901 58,094
Other current assets 1,971 2,059
Total current assets 100,176 98,617
Property and equipment, net 115,443 116,460
Goodwill 1,262 1,262
Intangible and other non-current assets, net 4,736 5,750
Total non-current assets 121,441 123,472
Total assets $ 221,617 $ 222,089
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 15,390 $ 12,843
Customer deposits 1,214 666
Current portion of long-term debt, net of unamortized loan fees 1,130 1,129
Total current liabilities 17,734 14,638
Long-term debt, net of current portion and unamortized loan fees 15,694 16,542
Deferred tax liability, net 2,580 2,742
Other non-current liabilities 26 9
Total non-current liabilities 18,300 19,293
Total liabilities 36,034 33,931
Contingencies (Note 12)
Stockholders’ Equity
Common shares, par value $ 0.01 per share, authorized 150,000,000 shares; 20,708,976 and 21,033,578 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively
207 210
Additional paid-in capital 278,395 278,580
Accumulated other comprehensive income 134 88
Accumulated deficit ( 93,153 ) ( 90,720 )
Total stockholders’ equity 185,583 188,158
Total liabilities and stockholders’ equity $ 221,617 $ 222,089

See accompanying notes to unaudited interim condensed consolidated financial statements.
1
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net sales $ 16,912 $ 18,030 $ 50,088 $ 50,969
Cost of sales 8,810 9,604 25,499 27,012
Gross profit 8,102 8,426 24,589 23,957
Operating expenses:
Sales and marketing 4,656 4,500 14,410 13,330
General and administrative 3,759 3,528 11,271 10,556
Total operating expenses 8,415 8,028 25,681 23,886
Net (gain) loss on disposal of property and equipment ( 12 ) 2 361 36
(Loss) income from operations ( 301 ) 396 ( 1,453 ) 35
Other (expense) income:
Interest expense, net ( 234 ) ( 245 ) ( 543 ) ( 572 )
Other income, net 585 2,172 1,349 2,769
Total other income, net 351 1,927 806 2,197
Income (loss) before income taxes 50 2,323 ( 647 ) 2,232
Income tax expense (benefit) 12 612 ( 180 ) 587
Net income (loss) $ 38 $ 1,711 $ ( 467 ) $ 1,645
Basic and fully diluted weighted-average shares outstanding 20,752 21,267 20,836 21,375
Basic and fully diluted earnings (loss) per share $ 0.00 $ 0.08 $ ( 0.02 ) $ 0.08

See accompanying notes to unaudited interim condensed consolidated financial statements.

2
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net income (loss) $ 38 $ 1,711 $ ( 467 ) $ 1,645
Net unrealized holding gains on investments arising during the period, net of tax 39 51 46 124
Comprehensive income (loss) $ 77 $ 1,762 $ ( 421 ) $ 1,769


See accompanying notes to unaudited interim condensed consolidated financial statements.

3
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
2024 2023
Net cash flows from operating activities:
Net (loss) income $ ( 467 ) $ 1,645
Adjustments to reconcile net (loss) income to net cash from operations:
Depreciation and amortization of property and equipment 5,179 4,563
Amortization of intangible assets 965 965
Loss on write-down of inventory 494 687
Provision for credit losses ( 139 ) 7
Net loss on disposal of property and equipment 361 36
(Benefit) provision for deferred income taxes ( 180 ) 587
Stock-based compensation (reversal) expense ( 185 ) 366
Net change in operating assets and liabilities:
Accounts receivable 856 ( 2,681 )
Inventory ( 7,301 ) ( 3,908 )
Other current assets 72 ( 441 )
Other non-current assets 22 ( 129 )
Accounts payable and accrued liabilities 2,196 ( 67 )
Customer deposits 556 1,053
Other non-current liabilities 17 —
Net cash provided by operating activities 2,446 2,683
Net cash flows from investing activities:
Purchase of investments available for sale ( 9,185 ) ( 16,137 )
Redemptions of investments available for sale 15,250 17,000
Acquisition of property and equipment ( 4,274 ) ( 7,461 )
Principal payments received on notes receivable 43 16
Proceeds from disposals of property and equipment 57 23
Net cash provided by (used in) investing activities 1,891 ( 6,559 )
Net cash flows from financing activities:
Principal payments on long-term debt ( 855 ) ( 855 )
Repurchase of common stock ( 1,924 ) ( 1,663 )
Net cash used in financing activities ( 2,779 ) ( 2,518 )
Net increase (decrease) in cash and cash equivalents 1,558 ( 6,394 )
Cash and cash equivalents - beginning of period 22,777 25,705
Cash and cash equivalents - end of period $ 24,335 $ 19,311
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest $ 712 $ 752
Income tax payments, net $ 11 $ 11
Non-cash investing and financing activity:
Unrealized holding gains on investments, net of tax $ 46 $ 124
Acquisition of property and equipment invoiced or accrued but not yet paid $ 306 $ 636

See accompanying notes to unaudited interim condensed consolidated financial statements.
4
CRIMSON WINE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’ EQUITY
(In thousands, except share amounts)
(Unaudited)
Accumulated
Additional Other
Common Stock Paid-In Comprehensive Accumulated
Shares Amount Capital Income (Loss) Deficit Total
Three Months Ended September 30, 2024
Balance, June 30, 2024 20,792,045 $ 208 $ 278,851 $ 95 $ ( 92,684 ) $ 186,470
Net income — — — — 38 38
Other comprehensive income — — — 39 — 39
Stock-based compensation (reversal) expense — — ( 456 ) — — ( 456 )
Repurchase of common stock ( 83,069 ) ( 1 ) — — ( 507 ) ( 508 )
Balance, September 30, 2024 20,708,976 $ 207 $ 278,395 $ 134 $ ( 93,153 ) $ 185,583
Three Months Ended September 30, 2023
Balance, June 30, 2023 21,357,656 $ 213 $ 278,347 $ 24 $ ( 91,911 ) $ 186,673
Net income — — — — 1,711 1,711
Other comprehensive income — — — 51 — 51
Stock-based compensation — — 102 — — 102
Repurchase of common stock ( 164,694 ) ( 1 ) — — ( 1,064 ) ( 1,065 )
Balance, September 30, 2023 21,192,962 $ 212 $ 278,449 $ 75 $ ( 91,264 ) $ 187,472
Nine Months Ended September 30, 2024
Balance, December 31, 2023 21,033,578 $ 210 $ 278,580 $ 88 $ ( 90,720 ) $ 188,158
Net loss — — — — ( 467 ) ( 467 )
Other comprehensive income — — — 46 — 46
Stock-based compensation (reversal) expense — — ( 185 ) — — ( 185 )
Repurchase of common stock ( 324,602 ) ( 3 ) — — ( 1,966 ) ( 1,969 )
Balance, September 30, 2024 20,708,976 $ 207 $ 278,395 $ 134 $ ( 93,153 ) $ 185,583
Nine Months Ended September 30, 2023
Balance, December 31, 2022 21,448,212 $ 214 $ 278,083 $ ( 49 ) $ ( 91,248 ) $ 187,000
Net income — — — — 1,645 1,645
Other comprehensive income — — — 124 — 124
Stock-based compensation — — 366 — — 366
Repurchase of common stock ( 255,250 ) ( 2 ) — — ( 1,661 ) ( 1,663 )
Balance, September 30, 2023 21,192,962 $ 212 $ 278,449 $ 75 $ ( 91,264 ) $ 187,472

See accompanying notes to unaudited interim condensed consolidated financial statements.

5
CRIMSON WINE GROUP, LTD.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Background and Basis of Presentation

Background

Crimson Wine Group, Ltd. and its subsidiaries (collectively, “Crimson” or the “Company”) is a Delaware corporation that has been conducting business since 1991. Crimson is in the business of producing and selling luxury wines (i.e., wines that retail for over $ 16 per 750ml bottle). Crimson is headquartered in Napa, California and through its subsidiaries owns seven primary wine estates and brands: Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards, Seghesio Family Vineyards, Double Canyon, Seven Hills Winery and Malene Wines.

Financial Statement Preparation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The unaudited interim condensed consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Significant Accounting Policies and recent accounting pronouncements under such Note) included in the Company’s audited consolidated financial statements for the year ended December 31, 2023, as filed with the SEC on Form 10-K (the “2023 Report”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The unaudited condensed consolidated balance sheet at December 31, 2023 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by GAAP for annual financial statements.

Significant Accounting Policies

There were no changes to the Company’s significant accounting policies during the nine months ended September 30, 2024. See Note 2, “Significant Accounting Policies,” of the 2023 Report for a description of the Company’s significant accounting policies.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to improve reportable segment disclosures, primarily through enhanced disclosures related to significant segment expenses regularly provided to the chief operating decision maker (“CODM”), requiring disclosure of other segment items by reportable segment and a description of its composition, extending certain current annual disclosures to interim periods, and additional information regarding the title and position of the CODM and how the CODM uses the segment reportable measure(s) to assess performance and determine resource allocation. Additionally, it requires single reportable segment public entities to apply Topic 280 in its entirety. ASU 2023-07 will be effective for the Company beginning with the fiscal year ended December 31, 2024, and for interim periods beginning in the fiscal year ended December 31, 2025, on a retrospective basis. Early adoption is permitted. Management is currently assessing the impact of ASU 2023-07 on the Company’s condensed consolidated financial statements and related disclosures.


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2. Revenue

Revenue Recognition

Revenue is recognized once performance obligations under the terms of the Company’s contracts with its customers have been satisfied; this occurs at a point in time when control of the promised product or service is transferred to customers. Generally, the majority of the Company’s contracts with its customers have a single performance obligation and are short term in nature. Revenue is measured in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company accounts for shipping and handling activities as costs to fulfill its promise to transfer the associated products. Accordingly, the Company records amounts billed for shipping and handling costs as a component of net sales, and classifies such costs as a component of cost of sales. The Company’s products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been material to the Company.

Wholesale Segment

The Company sells its wine to wholesale distributors under purchase orders. The Company transfers control and recognizes revenue for these orders upon shipment of the wine from the Company’s third-party warehouse facilities. Payment terms to wholesale distributors typically range from 30 to 120 days. The Company pays depletion allowances to its wholesale distributors based on their sales to their customers. The Company estimates these depletion allowances and records such estimates in the same period the related revenue is recognized, resulting in a reduction of wholesale product revenue and the establishment of a current liability. Subsequently, wholesale distributors will bill the Company for actual depletion allowances, which may be different from the Company’s estimate. Any such differences are recognized in sales when the bill is received. The Company has historically been able to estimate depletion allowances without significant differences between actual and estimated expense.

Direct to Consumer Segment

The Company sells its wine and other merchandise directly to consumers through wine club memberships, at the wineries’ tasting rooms, and through its website, third-party websites, direct phone calls, and other online sales (“Ecommerce”).

Wine club membership sales are made under contracts with customers, which specify the quantity and timing of future wine shipments. Customer credit cards are charged in advance of quarterly wine shipments in accordance with each contract. The Company transfers control and recognizes revenue for these contracts upon shipment of the wine to the customer.

Tasting room and Ecommerce wine sales are paid for at the time of sale. The Company transfers control and recognizes revenue for wine sales when the product is either received by the customer (on-site tasting room sales) or upon shipment to the customer (“Ecommerce sales”).

Other

From time to time, the Company sells grapes or bulk wine because the grapes or wine do not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have purchased or produced more of a particular varietal than it can use. Grape and bulk sales are made under contracts with customers, which include product specification requirements, pricing, and payment terms. Payment terms under grape contracts are generally structured around the timing of the harvest of the grapes and are generally due 30 days from the time the grapes are delivered. Payment terms under bulk wine contracts are generally 30 days from the date of shipment and may include an upfront payment upon signing of the sales agreement. The Company transfers control and recognizes revenue for grape sales when product specification has been met and title to the grapes has transferred, which is generally on the date the grapes are harvested, weighed and shipped. The Company transfers control and recognizes revenue for bulk wine contracts upon shipment.

The Company provides custom winemaking services at Double Canyon, Chamisal Vineyards, and Pine Ridge Vineyard’s winemaking facilities. Custom winemaking services are made under contracts with customers, which include specific protocols, pricing, and payment terms and generally have a duration of less than one year. The customer retains title and control of the wine during the winemaking process. The Company recognizes revenue for winemaking services when contract specific performance obligations are met.

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Estates hold various public and private events for customers and their wine club members. Upfront consideration received from the sale of tickets or under private event contracts for future events is recorded as deferred revenue. The balance of payments are due on the date of the event. The Company recognizes event revenue on the date the event is held.

Other revenue also includes tasting fees and retail merchandise sales, which are paid for and received or consumed at the time of sale. The Company transfers control and recognizes revenue for tasting fees and retail merchandise sales at the time of sale.

Refer to Note 11, “Business Segment Information,” for revenue by sales channel amounts for the three and nine months ended September 30, 2024 and 2023.

Contract Balances

When the Company receives payments from customers prior to transferring goods or services under the terms of a contract, the Company records deferred revenue, which it classifies as customer deposits on its unaudited condensed consolidated balance sheets and represents a contract liability. Customer deposits are liquidated when revenue is recognized. Revenue that was included in the contract liability balance at the beginning of each of the 2024 and 2023 years consisted primarily of wine club revenue, grape and bulk sales, and event fees. Changes in the contract liability balance during the nine-month periods ended September 30, 2024 and 2023 were not materially impacted by any other factors.

The outstanding contract liability balance was $ 1.2 million at September 30, 2024 and $ 0.7 million at December 31, 2023. Of the amounts included in the opening contract liability balances at the beginning of each period, approximately $ 0.5 million and $ 0.3 million were recognized as revenue during each of the nine-month periods ended September 30, 2024 and 2023, respectively.

Accounts Receivable, Net

Accounts receivable are reported net of an allowance for credit losses. Credit is extended based upon an evaluation of the customer’s financial condition. Accounts are charged against the allowance for credit losses as they are deemed uncollectible based on a periodic review of the accounts. In estimating an allowance for credit losses that is representative of the lifetime expected credit losses on its trade receivables, the Company utilizes historical loss data adjusted for current conditions (current balance and aging categories) and reasonable and supportable estimates of future defaults based on collection attempts and communication. The Company’s accounts receivable balance is net of an allowance for credit losses of less than $0.1 million as of September 30, 2024 and $ 0.2 million as of December 31, 2023.

The following table reflects changes in the allowance for credit losses balance during each of the nine-month periods ended September 30, 2024 and 2023 (in thousands):

2024 2023
Balance at January 1, $ 173 $ 187
Current period provision ( 139 ) —
Write-offs charged against the allowance — ( 14 )
Balance at September 30, $ 34 $ 173

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3. Inventory

A summary of inventory at September 30, 2024 and December 31, 2023 is as follows (in thousands):
September 30, 2024 December 31, 2023
Finished goods $ 28,093 $ 23,921
In-process goods 36,569 33,856
Packaging and bottling supplies 239 317
Total inventory $ 64,901 $ 58,094

The Company’s inventory balances are presented at the lower of cost or net realizable value. The Company reduces the carrying value of inventories that are obsolete or in excess of estimated usage to estimated net realizable value. The Company’s estimates of net realizable value are based on analyses and assumptions including, but not limited to, historical usage, projected future demand, and market requirements. Reductions to the carrying value of inventories are recorded in cost of sales. If future demand and/or profitability for the Company’s products are less than previously estimated, then the carrying value of the inventories may be required to be reduced, resulting in additional expense and reduced profitability. The Company’s inventory write-downs may consist of reductions to bottled or bulk wine inventory. Crop insurance proceeds from farming losses may be recorded as offsets against previously recognized write-downs.

Inventory write-downs of $ 0.4 million and $ 0.2 million were recorded during the three-month periods ended September 30, 2024 and 2023, respectively. Inventory write-downs of $ 0.5 million and $ 0.7 million were recorded during the nine-month periods ended September 30, 2024 and 2023, respectively.


4. Property and Equipment

A summary of property and equipment at September 30, 2024 and December 31, 2023, and depreciation and amortization for the three and nine months ended September 30, 2024 and 2023, is as follows (in thousands):

Depreciable Lives
(in years) September 30, 2024 December 31, 2023
Land and improvements N/A $ 44,912 $ 44,912
Buildings and improvements
20 - 40
66,718 66,083
Winery and vineyard equipment
3 - 25
39,275 40,242
Vineyards and improvements
7 - 25
33,271 34,812
Caves
20 - 40
5,639 5,639
Vineyards under development N/A 4,852 3,892
Construction in progress N/A 3,043 1,053
Total 197,710 196,633
Accumulated depreciation and amortization ( 82,267 ) ( 80,173 )
Total property and equipment, net $ 115,443 $ 116,460

Three Months Ended September 30, Nine Months Ended September 30,
Depreciation and amortization: 2024 2023 2024 2023
Capitalized into inventory $ 1,244 $ 1,133 $ 3,745 $ 3,403
Expensed to general and administrative 486 402 1,434 1,160
Total depreciation and amortization $ 1,730 $ 1,535 $ 5,179 $ 4,563
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5. Financial Instruments

The Company’s material financial instruments include cash and cash equivalents, investments classified as available for sale, and short-term and long-term debt. Investments classified as available for sale are the only assets or liabilities that are measured at fair value on a recurring basis.

All of the Company’s investments mature within one year or less. The par value, amortized cost, gross unrealized gains and losses, and estimated fair value of investments classified as available for sale as of September 30, 2024 and December 31, 2023 are as follows (in thousands):
September 30, 2024 Par Value Amortized Cost Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Level 1 Level 2 Total Fair Value
Measurements
Certificates of Deposit 2,000 2,000 1 — — 2,001 2,001
December 31, 2023 Par Value Amortized Cost Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Level 1 Level 2 Total Fair Value
Measurements
Certificates of Deposit $ 8,000 $ 8,000 $ 5 $ ( 3 ) $ — $ 8,002 $ 8,002

The Company believes the gross unrealized losses are temporary as it does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before the recovery of their amortized cost basis.

As of September 30, 2024 and December 31, 2023, the Company did not have any other assets or liabilities measured at fair value on a nonrecurring basis. For cash and cash equivalents and short-term debt, the carrying amounts of such financial instruments approximate their fair values. As of September 30, 2024, the Company has estimated the fair value of its outstanding debt to be approximately $ 14.1 million compared to its carrying value of $ 16.9 million, based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other factors. Level 3 inputs include market rates obtained from American AgCredit, FLCA (“American AgCredit”) as of September 30, 2024 of 7.18 % and 7.04 % for the 2015 Term Loan (as defined below) and 2017 Term Loan (as defined below), respectively, as further discussed in Note 8, “Debt.”

The Company does not invest in any derivatives or engage in any hedging activities.


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6. Intangible and Other Non-Current Assets

A summary of intangible and other non-current assets at September 30, 2024 and December 31, 2023, and amortization expense for the three and nine months ended September 30, 2024 and 2023, is as follows (in thousands):
September 30, 2024 December 31, 2023
Amortizable lives
(in years) 		Gross carrying amount Accumulated amortization Net book value Gross carrying amount Accumulated amortization Net book value
Brands
15 - 17
$ 18,000 $ ( 14,014 ) $ 3,986 $ 18,000 $ ( 13,218 ) $ 4,782
Distributor relationships
10 - 14
2,700 ( 2,563 ) 137 2,700 ( 2,415 ) 285
Legacy permits 14 250 ( 238 ) 12 250 ( 225 ) 25
Trademark 20 200 ( 161 ) 39 200 ( 153 ) 47
Total $ 21,150 $ ( 16,976 ) $ 4,174 $ 21,150 $ ( 16,011 ) $ 5,139
Deferred tax asset 450 450
Other non-current assets 112 161
Total intangible and other non-current assets, net $ 4,736 $ 5,750
Three Months Ended September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Total amortization expense $ 321 $ 322 $ 965 $ 965

The estimated aggregate future amortization of intangible assets as of September 30, 2024 is identified below (in thousands):
Amortization
Remainder of 2024 $ 321
2025 1,168
2026 1,073
2027 1,073
2028 469
Thereafter 70
Total $ 4,174



7. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 December 31, 2023
Accounts payable and accrued grape liabilities $ 9,122 $ 7,524
Accrued compensation related expenses 3,402 2,965
Sales and marketing 1,066 575
Acquisition of property and equipment 306 210
Accrued interest 224 235
Depletion allowance 335 675
Production and farming 450 318
Other accrued expenses 485 341
Total accounts payable and accrued liabilities $ 15,390 $ 12,843
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8. Debt

A summary of debt at September 30, 2024 and December 31, 2023 is as follows (in thousands):

September 30, 2024 December 31, 2023
Revolving Credit Facility (1)
$ — $ —
Senior Secured Term Loan Agreement due 2040,
with an interest rate of 5.24 % (2)
10,400 10,880
Senior Secured Term Loan Agreement due 2037,
with an interest rate of 5.39 % (3)
6,500 6,875
Unamortized loan fees ( 76 ) ( 84 )
Total debt 16,824 17,671
Less current portion of long-term debt 1,130 1,129
Long-term debt due after one year, net $ 15,694 $ 16,542
______________________________________
(1)    The Revolving Credit Facility, a $ 60.0 million revolving credit facility between the Company and American AgCredit, as agent for the lenders thereunder, is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. The Revolving Loan provides up to $ 10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan provides up to $ 50.0 million in the aggregate for a fifteen year term. In addition to unused line fees ranging from 0.125 % to 0.225 %, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the Term Secured Overnight Financing Rate. On June 15, 2023, the Company executed a renewal agreement with American AgCredit, which includes an extension of the termination date of the Revolving Loan and the Term Revolving Loan to May 31, 2028 along with updates to other terms of the credit agreement governing such loans.
(2)    Pine Ridge Winery, LLC, a wholly-owned subsidiary of Crimson, is party to a senior secured term loan agreement due on October 1, 2040 (the “2015 Term Loan”). Principal and interest are payable in quarterly installments.
(3)    Double Canyon Vineyards, LLC, a wholly-owned subsidiary of Crimson, is party to a senior secured term loan agreement due on July 1, 2037 (the “2017 Term Loan”). Principal and interest are payable in quarterly installments.

Debt covenants include the maintenance of specified debt and equity ratios, a specified fixed charge coverage ratio, and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain investments, certain mergers, consolidations and sales of assets. The Company was in compliance with all existing debt covenants as of September 30, 2024.

A summary of debt maturities as of September 30, 2024 is as follows (in thousands):
Principal due the remainder of 2024 $ 285
Principal due in 2025 1,140
Principal due in 2026 1,140
Principal due in 2027 1,140
Principal due in 2028 1,140
Principal due thereafter 12,055
Total $ 16,900










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9. Stockholders ’ Equity and Stock-Based Compensation
Share Repurchase

In March 2023, the Company commenced a share repurchase program (the “2023 Repurchase Program”) that provided for the repurchase of up to 2,000,000 shares of outstanding common stock. Under the 2023 Repurchase Program, any repurchased shares are constructively retired. In 2023, the Company repurchased a total of 414,634 shares of its common stock at an average purchase price of $ 6.25 per share for an aggregate purchase price of $ 2.6 million. During the nine months ended September 30, 2024, the Company repurchased 324,602 shares of its common stock at an average purchase price of $ 5.91 per share for an aggregate purchase price of $ 1.9 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.

Stock-Based Compensation

In February 2013, the Company adopted the 2013 Omnibus Incentive Plan (the “2013 Plan”), which provides for the granting of up to 1,000,000 stock options or other common stock-based awards. In July 2022, upon the approval of the Board of Directors and the Company’s stockholders, the Company adopted the 2022 Omnibus Incentive Plan (the “2022 Plan”) to supersede and replace the 2013 Plan. The 2022 Plan provides for the granting of up to 678,000 stock options or other common stock-based awards. The terms of awards that may be granted, including vesting and performance criteria, if any, will be determined by the Board of Directors.

In December 2019, under the 2013 Plan, option grants for 89,000 shares were issued. The options vest annually over five years and expire seven years from the date of grant. In July 2021, stock option awards for 233,000 shares were issued to certain members of management. Subject to the terms of the respective option award agreements, the options vest in four equal increments in January 2022, January 2023, January 2024 and January 2025, and the options will expire seven years from the date of grant. In March 2022, stock option awards for 500,000 shares were granted to the Company’s Chief Executive Officer. Such options are divided into four tranches, are subject to both performance-based vesting requirements and time-based vesting requirements, and expire ten years from the date of grant. In March 2023 and March 2024, stock option awards for 500,000 and 115,000 shares, respectively, were granted to certain officers and employees of the Company. Such options are divided into five tranches, are subject to both performance-based vesting requirements and time-based vesting requirements, and expire ten years from the date of grant. The performance-based vesting requirements for the grants made from 2022 through 2024 are tied to annual or cumulative Adjusted EBITDA targets, as defined within the respective underlying option award agreements. The exercise price for all respective options was either the closing price or average trading price on the date of grant.

As of September 30, 2024, the Company determined the achievement of certain targets for the aforementioned performance-based agreements were not probable based on updates to the Company’s financial projections and assumptions regarding industry conditions. Consequently, the Company recognized a cumulative reversal of previously recorded stock-based compensation expenses for award tranches with performance targets that were deemed not probable of achievement. The Company has recorded the appropriate adjustments within stock-based compensation expenses for the three and nine months ended September 30, 2024.

Estimates of stock-based compensation expense require a number of complex and subjective assumptions, including the selection of an option pricing model. The Company determined the grant date fair value of the awards using the Black-Scholes-Merton option-pricing valuation model.
During the nine months ended September 30, 2024, the Company granted stock options in respect of 115,000 shares. The fair value of these grants was computed based on the following assumptions:
Shares issued 115,000
Expected term
7.39 - 9.39 years
Expected dividend yield — %
Risk-free interest rate 4.22 %
Expected stock price volatility
28 - 30 %
Stock price $ 5.78
Weighted-average grant date fair value $ 2.61
Grant date fair value (in thousands) $ 300
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As of September 30, 2024, stock options totaling 1,273,000 shares remained outstanding. There were no stock option exercises, forfeitures, or expirations during the nine months ended September 30, 2024. The stock-based compensation expense for these grants is based on the grant date fair value, which will be recorded over the respective vesting periods. $ 456 thousand and $ 185 thousand were recorded as net credits to stock-based compensation expense for the three and nine months ended September 30, 2024, respectively. These net credits were driven by reversals of stock-based compensation expenses recorded previously for performance-based agreements that were deemed not probable to vest as of September 30, 2024. $ 102 thousand and $ 366 thousand were recorded as stock-based compensation expense for the three and nine months ended September 30, 2023, respectively. Stock-based compensation expense was recorded to general and administrative expense in the unaudited interim condensed consolidated statements of operations.


10. Income Taxes
The consolidated income tax expense or benefit for the three and nine months ended September 30, 2024 and 2023, was determined based upon the Company’s estimated consolidated effective income tax rates calculated without discrete items for the years ending December 31, 2024 and 2023, respectively, and then adjusting for any discrete items.
The Company’s effective tax rates for the three months ended September 30, 2024 and 2023 were 24.3 % and 26.3 %, respectively. The Company’s effective tax rates for the nine months ended September 30, 2024 and 2023 were 27.8 % and 26.3 %, respectively.
The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three and nine months ended September 30, 2024 was primarily attributable to state income taxes and other permanent items.


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11. Business Segment Information

The Company has identified two operating segments, Wholesale net sales and Direct to Consumer net sales, which are reportable segments for financial statement reporting purposes, based upon their different distribution channels, margins, and selling strategies. Wholesale net sales include all sales through a third party where prices are given at a wholesale rate, whereas Direct to Consumer net sales include retail sales in tasting rooms, remote sites and on-site events, wine club sales, direct phone sales, Ecommerce sales, and other sales made directly to the consumer without the use of an intermediary.

The two segments reflect how the Company’s operations are evaluated by its CODM and the structure of its internal financial reporting. The Company evaluates performance based on the gross profit of the respective business segments. Selling expenses that can be directly attributable to the segment are allocated accordingly. However, centralized selling expenses and general and administrative expenses are not allocated between operating segments. Therefore, net income information for the respective segments is not available. Based on the nature of the Company’s business, revenue generating assets are utilized across segments. Therefore, discrete financial information related to segment assets and other balance sheet data is not available and that information continues to be aggregated.

The following tables outline the net sales, cost of sales, gross profit, directly attributable selling expenses and operating income (loss) for the Company’s reportable segments for the three and nine months ended September 30, 2024 and 2023, and also includes a reconciliation of consolidated income (loss) from operations. Other/Non-Allocable net sales and gross profit include bulk wine and grape sales, event fees, tasting fees, and non-wine retail sales. Other/Non-Allocable expenses include centralized corporate expenses not specific to an identified reporting segment. Sales figures are net of related excise taxes.

Three Months Ended September 30,
Wholesale Direct to Consumer Other/Non-Allocable Total
(in thousands) 2024 2023 2024 2023 2024 2023 2024 2023
Net sales $ 9,421 $ 10,874 $ 6,421 $ 6,104 $ 1,070 $ 1,052 $ 16,912 $ 18,030
Cost of sales 5,546 6,932 2,217 2,006 1,047 666 8,810 9,604
Gross profit 3,875 3,942 4,204 4,098 23 386 8,102 8,426
Operating expenses:
Sales and marketing 1,760 1,618 2,016 1,868 880 1,014 4,656 4,500
General and administrative — — — — 3,759 3,528 3,759 3,528
Total operating expenses 1,760 1,618 2,016 1,868 4,639 4,542 8,415 8,028
Net loss (gain) on disposal of property and equipment — — 1 — ( 13 ) 2 ( 12 ) 2
Income (loss) from operations $ 2,115 $ 2,324 $ 2,187 $ 2,230 $ ( 4,603 ) $ ( 4,158 ) $ ( 301 ) $ 396


Nine Months Ended September 30,
Wholesale Direct to Consumer Other/Non-Allocable Total
(in thousands) 2024 2023 2024 2023 2024 2023 2024 2023
Net sales $ 27,932 $ 29,076 $ 19,139 $ 18,988 $ 3,017 $ 2,905 $ 50,088 $ 50,969
Cost of sales 16,547 18,372 6,800 6,273 2,152 2,367 25,499 27,012
Gross profit 11,385 10,704 12,339 12,715 865 538 24,589 23,957
Operating expenses:
Sales and marketing 4,927 4,821 5,964 5,389 3,519 3,120 14,410 13,330
General and administrative — — — — 11,271 10,556 11,271 10,556
Total operating expenses 4,927 4,821 5,964 5,389 14,790 13,676 25,681 23,886
Net loss on disposal of property and equipment — — 28 — 333 36 361 36
Income (loss) from operations $ 6,458 $ 5,883 $ 6,347 $ 7,326 $ ( 14,258 ) $ ( 13,174 ) $ ( 1,453 ) $ 35


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12. Contingencies

Litigation

The Company and its subsidiaries may become parties to legal proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to the Company’s consolidated financial position or liquidity. The Company does not believe that there is any pending litigation that could have a significant adverse impact on its consolidated financial position, liquidity or results of operations.

2017 Wildfires

In October 2017, significant wildfires impacted the Company’s operations and damaged its inventory. The Company has settled insurance claims totaling $ 1.3 million related to such wildfires through August 2020. In September 2023, the Company accepted and received a settlement payout from the Fire Victim Trust (the “Fire Victim Trust”), which was formed in connection with PG&E Corporation and Pacific Gas and Electric Company’s (together, “PG&E”) joint plan of reorganization under Chapter 11 to, among other things, review and resolve eligible claims arising from certain wildfires. The settlement payout received in September 2023 was for an amount of $ 1.9 million, which the Company recorded in other income, net. In July 2024, the Company received a supplemental payment in the amount of $ 0.2 million. These amounts represent a portion of the total amount approved by the Fire Victim Trust for lost business income over a 36-month period from October 2017 to September 2020. Although the Company may receive additional payouts from this settlement with PG&E, the amounts and timing are not guaranteed and could vary contingent on additional funding from PG&E towards the Fire Victim Trust for all fire victims.

Cybersecurity

As previously disclosed in the Company’s Current Reports on Form 8-K as filed with the SEC on July 5, 2024 and July 25, 2024, the Company detected a cybersecurity incident in which an unauthorized third party gained access to certain information systems of the Company on June 30, 2024. Upon detection, the Company promptly initiated response protocols and began taking steps to contain, assess and remediate the cybersecurity incident, including launching an investigation with external cybersecurity experts. Although the Company believes that the cybersecurity incident has not had, and is not reasonably likely to have, a material impact on its overall financial condition or results of operations, its investigation of this incident is ongoing and the Company may discover other impacts or new events related to this incident may occur that could affect the Company’s financial condition or results of operations. As of September 30, 2024, incurred cybersecurity expenses have been accrued and reflected within the Company’s unaudited interim condensed consolidated financial statements. Although the Company expects a substantial portion of these expenses will ultimately be covered by its insurer, the amounts and timing have not been finalized.

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13. Earnings (Loss) Per Share

The following table reconciles the weighted-average common shares outstanding used in the calculations of the Company’s basic and diluted earnings (loss) per share:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
($ and shares in thousands, except per share amounts) 2024 2023 2024 2023
Net income (loss) $ 38 $ 1,711 $ ( 467 ) $ 1,645
Common shares:
Weighted-average number of common shares outstanding - basic 20,752 21,267 20,836 21,375
Dilutive effect of stock options outstanding — — — —
Weighted-average number of common shares outstanding - diluted 20,752 21,267 20,836 21,375
Earnings (loss) per share:
Basic $ 0.00 $ 0.08 $ ( 0.02 ) $ 0.08
Diluted $ 0.00 $ 0.08 $ ( 0.02 ) $ 0.08
Antidilutive stock options (1)
462 1,183 462 1,183
__________________________________________
(1) Amounts represent stock options that are excluded from the diluted earnings per share calculations because the options are antidilutive.



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14. Subsequent Events

In connection with the ongoing settlement payout with the Fire Victim Trust as discussed in Note 12, “Contingencies,” in November 2024, the Company received a supplemental payment in the amount of $ 0.1 million. This amount is in line with a pro rata payment percentage increase approved by the Fire Victim Trust. Although the Company may receive additional payouts from its settlement with PG&E, the amounts and timing are not guaranteed and could vary contingent on additional funding from PG&E towards the Fire Victim Trust for all fire victims.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements included in this Quarterly Report on Form 10-Q (the “Report”) may contain forward-looking statements. See “Cautionary Statement for Forward-Looking Information” below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC (the “2023 Report”).

Quantities or results referred to as “current quarter” and “current nine-month period” refer to the three and nine months ended September 30, 2024.

Cautionary Statement for Forward-Looking Information

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited interim condensed consolidated financial statements, which include results of Crimson Wine Group, Ltd. and all of its subsidiaries further collectively known as “we”, “Crimson”, “our”, “us”, or “the Company”, have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the general instruction for quarterly reports filed on Form 10-Q and Article 8 of Regulation S-X. All statements, other than statements of historical fact, regarding the Company’s strategy, future operations, financial position, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. Forward-looking statements include those relating to the Company’s financial condition, results of operations, plans, objectives, future performance, and business. These statements are based upon information that is currently available to the Company, and its management’s current expectations speak only as of the date hereof and are subject to risks and uncertainties. The Company expressly disclaims any obligation, except as required by federal securities laws, or undertaking to update or revise any forward-looking statements contained herein to reflect any change or expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statements are based, in whole or in part. The Company’s actual results may differ materially from the results discussed in or implied by such forward-looking statements.

Risks that could cause actual results to differ materially from any results projected, forecasted, estimated, or budgeted or that may materially and adversely affect the Company’s actual results include, but are not limited to, those discussed in Part I, “Item 1A. Risk Factors” in the 2023 Report. Readers should carefully review the risk factors described in the 2023 Report and in other documents that the Company files from time to time with the SEC.

Overview of Business

The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, custom winemaking services, special event fees, tasting fees and other non-wine retail sales such as merchandise.

The Company’s wines are primarily sold to wholesale distributors, who then sell to retailers and restaurants. The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations (“On-Premise”). The Company also sells wine (through distributors and directly) to supermarkets, grocery stores, liquor stores, and other chains, third-party Ecommerce and independent stores (“Off-Premise”). As permitted under federal, state and local regulations, the Company has increased its emphasis on generating revenue from direct sales to consumers, which occur through wine clubs, at the wineries’ tasting rooms, and through the Ecommerce channel. Direct sales to consumers are more profitable for the Company as it is able to sell its products at a price closer to retail prices rather than the wholesale price sold to distributors. From time to time, the Company may sell grapes or bulk wine because the grapes or wine do not meet the quality standards for its products, market conditions have changed resulting in reduced demand for certain products, or because the Company may have produced more of a particular varietal than it can use. When these sales occur, they may result in a loss.

Cost of sales includes grape and bulk wine costs, whether purchased or produced from the Company’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing, and shipping and handling costs. For the Company’s produced grapes, grape costs include annual farming costs, harvest costs, and depreciation of vineyard assets. For wines that age longer than one year, winemaking and processing costs continue to be incurred and capitalized to the cost of wine, which can range from three to 36 months. Reductions to the carrying value of inventories are also included in cost of sales.
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As of September 30, 2024, wine inventory included approximately 0.5 million cases of bottled wine and bulk wine, both in various stages of the aging process. Cased wine is expected to be sold over the next 12 to 36 months and generally before the release date of the next vintage.

Seasonality

As discussed in the 2023 Report, the wine industry in general historically experiences seasonal fluctuations in revenues and net income. The Company typically has lower sales and net income during the first quarter and higher sales and net income during the fourth quarter due to seasonal holiday buying as well as wine club shipment timing. The Company anticipates similar trends in the future.

Climate Conditions and Extreme Weather Events

Winemaking and grape growing are subject to a variety of agricultural risks. Various diseases, pests, natural disasters, and certain climate conditions can materially and adversely affect the quality and quantity of grapes available to Crimson thereby materially and adversely affecting the supply of Crimson’s products and its profitability. Given the risks presented by climate conditions and extreme weather, Crimson regularly evaluates impacts of climate conditions and weather on its business and plans to disclose any material impacts on the business. Along with various insurance policies currently in place, Crimson has made investments to improve its climate resilience and strives to effectively manage grape sourcing to help mitigate the impact of climate change and unforeseen natural disasters. Crimson continues to complete upgrades to its facilities to improve water resilience and fire mitigation measures with plans to advance these initiatives through improvements of irrigation and water systems over the next several years.

Following a series of challenging harvest cycles in 2020 and 2021 due to historical wildfires and severe weather conditions, the Company’s improved yields in recent years have replenished inventory levels towards normalized expectations. The Company’s inventory position coupled with better market conditions have reduced near-term pricing pressure on purchased bulk wine. Depending on the wine, the production cycle from harvest to bottled sales is anywhere from one to three years.

Inflation and Market Conditions

The Company expects profit margins to remain steady or increase if it is able to effectively manage cost of sales and operating expenses, subject to any volatility in the bulk wine markets, increased labor costs, increased commodity costs, including dry goods and packaging materials, and increased transportation costs. The Company continues to monitor the impact of inflation in an attempt to minimize its effects through pricing strategies and cost reductions. If, however, the Company’s operations are impacted by significant inflationary pressures, it may not be able to completely offset increased costs through price increases on its products, negotiations with suppliers, cost reductions, or production improvements.
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Results of Operations

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Net Sales
Three Months Ended September 30,
(in thousands, except percentages) 2024 2023 (Decrease) Increase % change
Wholesale $ 9,421 $ 10,874 $ (1,453) (13)%
Direct to Consumer 6,421 6,104 317 5%
Other 1,070 1,052 18 2%
Total net sales $ 16,912 $ 18,030 $ (1,118) (6)%

Wholesale net sales decreased $1.5 million, or 13%, in the current quarter as compared to the same quarter in 2023, reflecting decreases in both domestic and export wine sales. The decrease in domestic wine sales is primarily driven by slowing demand observed across the industry in the current quarter compared to the prior year quarter. The decrease in export wine sales is primarily driven by lower shipments to Europe and Asia.

Direct to Consumer net sales increased $0.3 million, or 5%, in the current quarter as compared to the same quarter in 2023. The increase was primarily driven by higher sales in Ecommerce and tasting rooms as compared to the same quarter in 2023. Current quarter promotions drove the increase in Ecommerce sales while higher visitations drove the increase of sales within tasting rooms.

Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, in the current quarter were comparable to the same quarter in 2023.
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Gross Profit
Three Months Ended September 30,
(in thousands, except percentages) 2024 2023 (Decrease) Increase % change
Wholesale $ 3,875 $ 3,942 $ (67) (2)%
Wholesale gross margin percentage 41 % 36 %
Direct to Consumer 4,204 4,098 106 3%
Direct to Consumer gross margin percentage 65 % 67 %
Other 23 386 (363) (94)%
Total gross profit $ 8,102 $ 8,426 $ (324) (4)%
Total gross margin percentage 48 % 47 %

Wholesale gross profit decreased $0.1 million, or 2%, in the current quarter as compared to the same quarter in 2023 primarily driven by lower sales volumes mostly offset by margin improvements. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 488 basis points primarily driven by sales mix of higher priced wines as well as lower cost vintages when compared to the same quarter in 2023.

Direct to Consumer gross profit increased $0.1 million, or 3%, in the current quarter as compared to the same quarter in 2023 primarily driven by higher sales volumes. Direct to Consumer gross margin percentage decreased 166 basis points primarily driven by lower recovery of freight costs when compared to the same quarter of 2023.

“Other” includes a gross profit on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross profit decreased $0.4 million, or 94%, in the current quarter as compared to the same quarter in 2023 and is primarily driven by higher inventory write-downs and lower profitability on event fees.


Operating Expenses
Three Months Ended September 30,
(in thousands, except percentages) 2024 2023 Increase % change
Sales and marketing $ 4,656 $ 4,500 $ 156 3%
General and administrative 3,759 3,528 231 7%
Total operating expenses $ 8,415 $ 8,028 $ 387 5%

Sales and marketing expenses increased $0.2 million, or 3%, in the current quarter as compared to the same quarter in 2023 primarily driven by increased sales incentives.

General and administrative expenses increased $0.2 million, or 7%, in the current quarter as compared to the same quarter in 2023 primarily driven by $0.5 million in higher sales taxes and $0.2 million in higher professional fees and depreciation expenses, partially offset by reversals of previously recorded stock-based compensation expense (as discussed in Note 9, “Stockholders’ Equity and Stock-Based Compensation”) totaling $0.5 million.


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Other Income (Expense)
Three Months Ended September 30,
(in thousands, except percentages) 2024 2023 Change % change
Interest expense, net $ (234) $ (245) $ 11 4%
Other income, net 585 2,172 (1,587) (73)%
Total other income, net $ 351 $ 1,927 $ (1,576) (82)%

Interest expense, net, decreased by less than $0.1 million, or 4%, in the current quarter compared to the same quarter in 2023. The decrease was primarily driven by lower principal balances outstanding on the 2015 Term Loan and 2017 Term Loan (each term as defined below).

Other income, net, decreased $1.6 million, or 73%, in the current quarter compared to the same quarter in 2023 primarily driven by a lower settlement payout for $0.2 million received in the current year compared to the $1.9 million settlement payout received in the previous year from the Fire Victim Trust, formed in connection with PG&E Corporation and Pacific Gas and Electric Company’s joint plan of reorganization under Chapter 11 (the “Fire Victim Trust”), related to the 2017 wildfires.

Income Tax Expense

The Company’s effective tax rates for the three months ended September 30, 2024 and 2023 were 24.3% and 26.3%, respectively.
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Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Net Sales
Nine Months Ended September 30,
(in thousands, except percentages) 2024 2023 (Decrease) Increase % change
Wholesale $ 27,932 $ 29,076 $ (1,144) (4)%
Direct to Consumer 19,139 18,988 151 1%
Other 3,017 2,905 112 4%
Total net sales $ 50,088 $ 50,969 $ (881) (2)%

Wholesale net sales decreased $1.1 million, or 4%, in the current nine month period as compared to the same period in 2023, reflecting decreases in both domestic and export wine sales. The decrease in domestic wine sales is primarily driven by slowing demand observed across the industry in the current period compared to the prior year period. The decrease in export wine sales is primarily driven by lower overall shipments and sales mix of lower priced wines.

Direct to Consumer net sales increased $0.2 million, or 1%, in the current nine month period as compared to the same period in 2023. The increase was primarily driven by sales increases in tasting rooms and Ecommerce partially offset by a decrease in wine club sales as compared to the same period in 2023. Higher visitations drove the increase of sales within tasting rooms while current period promotions drove the increase in Ecommerce sales. The decrease in wine club sales is a result of lower club memberships in the current period compared to the prior year period.

Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, increased $0.1 million, or 4%, in the current nine month period as compared to the same period in 2023. The increase was primarily driven by higher sales generated from tasting and event fees.
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Gross Profit
Nine Months Ended September 30,
(in thousands, except percentages) 2024 2023 Increase (Decrease) % change
Wholesale $ 11,385 $ 10,704 $ 681 6%
Wholesale gross margin percentage 41 % 37 %
Direct to Consumer 12,339 12,715 (376) (3)%
Direct to Consumer gross margin percentage 64 % 67 %
Other 865 538 327 61%
Total gross profit $ 24,589 $ 23,957 $ 632 3%
Total gross margin percentage 49 % 47 %

Wholesale gross profit increased $0.7 million, or 6%, in the current nine month period as compared to the same period in 2023 primarily driven by margin improvements. Wholesale gross margin percentage, which is defined as wholesale gross profit as a percentage of wholesale net sales, increased 395 basis points primarily driven by sales mix of higher priced wines as well as lower cost vintages when compared to the same period in 2023.

Direct to Consumer gross profit decreased $0.4 million, or 3%, in the current nine month period as compared to the same period in 2023 primarily driven by channel mix of lower wine club sales and higher Ecommerce sales. Direct to Consumer gross margin percentage decreased 249 basis points primarily driven by sales channel mix as discussed above when compared to the same period of 2023.

“Other” includes a gross profit on bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales. Other gross profit increased $0.3 million, or 61%, in the current nine month period as compared to the same period in 2023 and is primarily driven by lower inventory write-downs.


Operating Expenses
Nine Months Ended September 30,
(in thousands, except percentages) 2024 2023 Increase % change
Sales and marketing $ 14,410 $ 13,330 $ 1,080 8%
General and administrative 11,271 10,556 715 7%
Total operating expenses $ 25,681 $ 23,886 $ 1,795 8%

Sales and marketing expenses increased $1.1 million, or 8%, in the current nine month period as compared to the same period in 2023 primarily driven by increased compensation expenses, sales incentives, and marketing expenses.

General and administrative expenses increased $0.7 million, or 7%, in the current nine month period as compared to the same period in 2023 primarily driven by $0.5 million in higher sales taxes, $0.4 million in higher professional fees and depreciation expenses, and $0.3 in higher compensation, partially offset by reversals of previously recorded stock-based compensation expense (as discussed in Note 9, “Stockholders’ Equity and Stock-Based Compensation”) totaling $0.5 million.


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Other Income (Expense)
Nine Months Ended September 30,
(in thousands, except percentages) 2024 2023 Change % change
Interest expense, net $ (543) $ (572) $ 29 5%
Other income, net 1,349 2,769 (1,420) (51)%
Total other income, net $ 806 $ 2,197 $ (1,391) (63)%

Interest expense, net, decreased by less than $0.1 million, or 5%, in the current nine month period compared to the same period in 2023. The decrease was primarily driven by lower principal balances outstanding on the 2015 Term Loan and 2017 Term Loan.

Other income, net, decreased $1.4 million, or 51%, in the current nine month period compared to the same period in 2023 primarily driven by a lower settlement payout for $0.2 million received in the current year compared to the $1.9 million settlement payout received in the previous year from the Fire Victim Trust related to the 2017 wildfires. The overall net decrease was partially offset by increased investment income correlated with a higher interest rate environment in the current year.

Income Tax (Benefit) Expense

The Company’s effective tax rates for the nine months ended September 30, 2024 and 2023 were 27.8% and 26.3%, respectively.
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Liquidity and Capital Resources

General

The Company’s principal sources of liquidity are its available cash and cash equivalents, investments in available for sale securities, funds generated from operations and bank borrowings. The Company’s primary cash needs are to fund working capital requirements and capital expenditures.

The Company believes that cash flows generated from operations and its cash, cash equivalents, and marketable securities balances, as well as its borrowing arrangements, will be sufficient to meet its presently anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months.

Revolving Credit Facility

In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) with American AgCredit, FLCA (“American AgCredit”), as agent for the lenders. The Revolving Credit Facility is comprised of a revolving loan facility (the “Revolving Loan”) and a term revolving loan facility (the “Term Revolving Loan”), which together are secured by substantially all of Crimson’s assets. On June 15, 2023, the Company executed a fifth amendment to the Revolving Credit Facility with American AgCredit, which extended the termination date of the Revolving Loan and the Term Revolving Loan to May 31, 2028 along with updates to other terms of the Revolving Credit Facility. The Revolving Loan is for up to $10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan is for up to $50.0 million in the aggregate for a fifteen year term. In addition to unused line fees ranging from 0.125% to 0.225%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the Term Secured Overnight Financing Rate. The Revolving Credit Facility can be used to fund acquisitions, capital projects, and other general corporate purposes. Covenants include the maintenance of specified debt and equity ratios, limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to stockholders and restrictions on certain mergers, consolidations, and sales of assets. No amounts have been borrowed under the Revolving Credit Facility to date.

Term Loans

The Company’s term loans consist of the following:

(i) On November 10, 2015, Pine Ridge Winery, LLC (“PRW Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2015 Term Loan”) with American AgCredit for an aggregate principal amount of $16.0 million. Amounts outstanding under the 2015 Term Loan bear a fixed interest rate of 5.24% per annum. The 2015 Term Loan will mature on October 1, 2040. The 2015 Term Loan can be used to fund acquisitions, capital projects, and other general corporate purposes. As of September 30, 2024, $10.4 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.

(ii) On June 29, 2017, Double Canyon Vineyards, LLC (collectively with the PRW Borrower, “Borrower”), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the “2017 Term Loan”) with American AgCredit for an aggregate principal amount of $10.0 million. Amounts outstanding under the 2017 Term Loan bear a fixed interest rate of 5.39% per annum. The 2017 Term Loan will mature on July 1, 2037. The 2017 Term Loan can be used to fund acquisitions, capital projects, and other general corporate purposes. As of September 30, 2024, $6.5 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were less than $0.1 million.

Borrower’s obligations under the 2015 Term Loan and 2017 Term Loan are guaranteed by the Company. All obligations of Borrower under the 2015 Term Loan and 2017 Term Loan are collateralized by certain real property of the Company. Borrower’s covenants include the maintenance of a specified fixed charge coverage ratio and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness, limitations on distributions to stockholders, and restrictions on certain investments, the sale of assets, and merging or consolidating with other entities. The Company was in compliance with all debt covenants as of September 30, 2024.


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Consolidated Statements of Cash Flows

The following table summarizes the Company’s cash flow activities for the nine months ended September 30, 2024 and 2023 (in thousands):
Net cash provided by (used in): 2024 2023
Operating activities $ 2,446 $ 2,683
Investing activities 1,891 (6,559)
Financing activities (2,779) (2,518)

Cash provided by operating activities

Net cash provided by operating activities was $2.4 million for the nine months ended September 30, 2024, consisting primarily of $0.5 million of net loss adjusted for $6.5 million of non-cash items and $3.6 million net cash outflow related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation, amortization, loss on the write-down of inventory, net loss on disposal of property and equipment, along with other offsetting items. The change in operating assets and liabilities was primarily due to an increase in inventory, partially offset by increases in accounts payable and accrued liabilities and customer deposits and a decrease in accounts receivable.

Net cash provided by operating activities was $2.7 million for the nine months ended September 30, 2023, consisting primarily of $1.6 million of net income adjusted for $7.2 million of non-cash items and $6.1 million net cash outflow related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation, amortization, loss on the write-down of inventory, and deferred income taxes. The change in operating assets and liabilities was primarily due to an increase in inventory, accounts receivable, other current assets, and other non-current assets and a decrease in accounts payable and accrued liabilities, partially offset by an increase in customer deposits.

Cash provided by (used in) investing activities

Net cash provided by investing activities was $1.9 million for the nine months ended September 30, 2024, consisting primarily of the net redemptions of available for sale investments of $6.1 million and proceeds from disposals of property and equipment and principal payments received on notes receivable totaling $0.1 million, partially offset by capital expenditures of $4.3 million.

Net cash used in investing activities was $6.6 million for the nine months ended September 30, 2023, consisting primarily of capital expenditures of $7.5 million partially offset by the net redemptions of available for sale investments of $0.9 million.

Cash used in financing activities

Net cash used in financing activities was $2.8 million for the nine months ended September 30, 2024, consisting of the repurchase of shares of the Company’s common stock at an aggregate purchase price of $1.9 million and the principal payments on the Company’s 2015 and 2017 Term Loans of $0.9 million.

Net cash used in financing activities was $2.5 million for the nine months ended September 30, 2023, consisting of the repurchase of shares of the Company’s common stock at an aggregate purchase price of $1.7 million and the principal payments on the Company’s 2015 and 2017 Term Loans of $0.9 million.

Share Repurchases

In March 2023, the Company commenced a share repurchase program (the “2023 Repurchase Program”) that provided for the repurchase of up to 2,000,000 shares of outstanding common stock. Under the 2023 Repurchase Program, any repurchased shares are constructively retired. During the nine months ended September 30, 2024, the Company repurchased 324,602 shares of its common stock at an average purchase price of $5.91 per share for an aggregate purchase price of $1.9 million. In 2023, the Company repurchased a total of 414,634 shares of its common stock at an average purchase price of $6.25 per share for an aggregate purchase price of $2.6 million. The Company’s repurchase was funded through cash on hand, and the shares were retired.
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Off-Balance Sheet Financing Arrangements

None.

Critical Accounting Policies and Estimates

There have been no material changes to the critical accounting policies and estimates previously disclosed in the 2023 Report.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.

Item 4. Controls and Procedures.
The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth under Note 12, “Contingencies,” to the Company’s condensed consolidated interim financial statements included in Part I, “Item 1. Financial Statements (Unaudited)” of this Report is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 2023 Report, which could materially affect its business, results of operations or financial condition. The risks described in the 2023 Report are not the only risks it faces. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may eventually prove to materially adversely affect its business, results of operations or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share repurchase activity under the Company’s share repurchase program on a trade date basis, for the three months ended September 30, 2024 was as follows:

Fiscal Period Total Number of Shares Purchased Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans 1
Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans 1
July 1-31, 2024 24,527 $ 5.96 680,694 1,319,306
August 1-31, 2024 31,742 $ 5.98 712,436 1,287,564
September 1-30, 2024 26,800 $ 6.19 739,236 1,260,764
Total
83,069
1 On March 16, 2023, the Company announced that the Board of Directors authorized a share repurchase program pursuant to which the Company may repurchase up to an aggregate of 2,000,000 shares of the Company’s outstanding common stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as such terms are defined under Item 408(a) of Regulation S-K).



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Item 6. Exhibits.
2.1
3.1
3.2
31.1*
31.2*
32.1**
32.2**
101.INS* Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL.
* Filed herewith.
** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CRIMSON WINE GROUP, LTD.
(Registrant)
Date: November 7, 2024 By: /s/ Adam D. Howell
Adam D. Howell
Chief Financial Officer
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TABLE OF CONTENTS