Greetings. Welcome to the Splash Beverage Group third-quarter conference call. At this time, all participants are in a listen-only mode. If you would like to ask a question through the webcast, please click on the Ask Question box on the left side of your screen, type in your question, and hit Submit. Please note this conference is being recorded. I would now like to turn the conference over to your host, Robert Nistico, CEO of Splash Beverage Group. You may begin.
Good afternoon, everyone. This is Robert Nistico, CEO of Splash Beverage Group. I also have Julius Ivancsits, our CFO, and Bill Meissner, our President and Chief Marketing Officer. We appreciate everyone taking the time this morning for joining us on our quarterly earnings call for the period ending September 30, 2024. Before we get started, I want to reiterate why I started Splash and the investment thesis behind the business. Splash Beverage Group is focused on identifying, acquiring, and building early-stage or undervalued beverage brands with strong growth potential in both the U.S. and international markets. Additionally, the company operates its division, Qplash, which markets well-known beverage brands to both business-to-business and business-to-consumer customers, leveraging e-commerce for direct delivery. The company has had its challenges, but the value proposition of creating this organization is solid, and we have built a foundation to generate attractive returns for all our shareholders.
Let me pivot now to topics that will be covered during the call. On our agenda today, we will talk about Q3 2024 results, distribution and brand strategy, capital structure, and financing update, mergers and acquisition update, and, of course, a Q&A session where we look forward and hope that we have a lot of good hard questions. Let's begin with tailwinds and headwinds since the last update. With regard to tailwinds, we've expanded our distribution network in numerous territories. We're in the process of the restart of Qplash, Splash's online resale business, which began at the end of August. Q3 2024, Splash gross margins are 30% up from 23% in Q2 2024 and 11% in Q1 2024. Strategic sourcing programs are starting to have an impact, which is great. Lower SG&A spending for the period, down $500,000 from Q2 2024. Capital raised approximately $8 million since August of 2024.
Approval of our board of directors, auditors, and issued shares of stock supported by our shareholders. Headwinds: liquidity. Ongoing challenges for well over a year since 2023. That's really been our main issue. ABG Tapout lawsuit. We've been getting questions on this. Since we decided to not continue with Tapout, we're in a little bit of a legal struggle with these guys, but we believe we'll come through this in a very positive fashion. Timing of funding inflows. Delays in liquidity impacting inventory and sales. It's difficult on liquidity when you can't control the timing of the inflow of cash. I'll now turn it over to our CFO, Julius, and we will provide an update on financial performance in the quarter.
Thank you, Robert. As Robert previously alluded to, the headwind on liquidity and timing of inflows impacted our Q3 performance. Q3 2024 net sales were $381,000, down slightly from Q2 2024, which is a little over $1 million. Sales declines were driven by limited inventory due to the liquidity challenges that we mentioned previously. It is important to note the business did restart its resale business, Qplash, in August and continues to ramp up. This is key for our liquidity, given it has short cash conversion cycles and high gross margins. Q3 gross margins increased $244,000 from Q2 to $981,000 in Q3. The margin improvement was driven by lower wine cost at Copa Di Vino and Qplash business, which had gross margins of 59%. Compared to Q1 2024, gross margin percentages have almost tripled from 11% to 30%.
Q3 OPEX was down $1 million from the prior quarter, driven by expense controls, elimination of the Tapout license fee, and lower share-based compensation. EBITDA for the period was a loss of $1.7 million for the period versus a loss of $2.2 million in Q2 2024, driven by higher gross margins and lower SG&A spending. The $1.7 million loss in the period is a $2 million improvement compared to Q3 2023. Net loss for Q3 was $4.6 million. This is a $700,000 improvement from prior quarter and $1 million lower than Q3 2023. Liquidity and working capital, as previously noted, was tight for the period, but Splash did end up with a cash balance of $457,000 in the bank compared to a very nominal amount at the end of Q2 2024. Collections were solid for the period. Inventory was flat compared to the prior quarter as well.
I would like to turn this over to Bill Meissner, our President and CMO, to discuss commercial trends in the business, including distribution wins and brand strategy.
Thank you, Julius. While the revenue was slightly down from Q2 2024, we continue to lay the foundation for growth in 2025 and beyond. Despite significant shipping challenges driven by liquidity, backlog orders plus shipped orders for Q3 were up 3.3% versus Q3 a year ago on Copa and 12.2% on Pulpoloco. Actual shipped orders were up on Pulpoloco 7.5% versus Q3 a year ago. In past shareholder communications, we have emphasized the importance of distribution for success in our category and continue to expand our distribution network. Copa Di Vino and Pulpoloco had key Pacific Northwest distribution expansion, giving the brands full state coverage in the state of Washington with both King Beverage and Olympic Eagle, two AB wholesalers there. We expanded our Northeast distribution coverage in Massachusetts with Atlas Distributing, and we expanded our Southwest distribution coverage in the important state of Texas.
Our new distributor partner there, Reed Beverage, gives Splash now full coverage in all of West Texas, including Amarillo, Lubbock, and El Paso for all the brands. On the retail win front, Circle K has authorized Copa Di Vino for all franchise stores. The four SKUs that were authorized are Red Blend, Cabernet, Sauvignon Blanc, and Chardonnay. Circle K is one of the leading C-store chains, and there are more than 800 franchise locations in the U.S. The Pennsylvania Liquor Control Board, through our broker Breakthru Beverage, has authorized our exciting new tequila brand, Chispa. Our team has been relentless, even with the challenges. As liquidity normalizes, these achievements will set a higher floor for sustainable success moving forward. I will now turn it back over to Robert, who will provide an update on our capital structure.
Thank you for the update, Bill. I want to publicly thank Bill and the commercial team for its dedication over the last year in a tough liquidity environment. Before I provide an update on the capital raised over the last quarter or so, I also want to thank our legacy investors who continue to support the vision of Splash Beverage. The confidence in the business and the leadership team is very much appreciated. Okay, now on to the capital structure. On October 16th of this year, 2024, we did release a press release with completion of the first tranche of the capital raised for our strategic acquisition. Since August of 2024 of this year, the company has secured commitments of roughly $8 million fundraising to expand its markets and presence and support working capital.
The capital raise was achieved through private placement of convertible notes along with equity in the pending acquisition. The capital will provide Splash Beverage Group essential working capital for its legacy business while enabling it to pursue, or I should say us to pursue, complementary acquisition anticipated to enhance the company's product offerings and operational efficiencies. This is very important. We continue to actively recruit investors to ensure we have the necessary liquidity to support our growth. While the response from family office and individuals has been fantastic, timing of receipts and funds has been a challenge. To complete our retail-level fundraising, we're actively working with two additional institutions to raise significant amounts of capital with targets between $7 and $12 million. We do need to keep the names of those parties confidential currently. However, we do have funding engagement.
We are formally engaged, excuse me, with two institutions that look to make significant investments into Splash Beverage. We are in the middle of the due diligence process with both organizations and look forward to having signed documents for financing before the holidays with one of the two providers, if not both, who best aligns for our long-term vision and creates capital structure to generate the appropriate returns on our investor base. Once we complete the raise from both our retail and institutional investors, it will allow us to move forward with a definitive agreement with the energy drink company, which fits fantastically into our portfolio. We anticipate this deal closing in early January. However, with the pending holiday season and the necessary financial audit, it could be slightly longer. However, both organizations are highly committed to transacting the deal.
Let me turn it back over to Julius with an update on Project White Hot, Splash's strategic plan before we continue to discuss mergers and acquisitions.
Thank you, Robert. Just to recap, Project White Hot serves as Splash's guiding principles for our strategic decision-making, and the project has five strategic pillars: one, sustainable and profitable growth; two, operational excellence; three, e-commerce; four, bolt-on acquisitions; five, capital structure. Project White Hot is expected 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. Since we last talked, we've been successful on several fronts, even with the headwinds of limited liquidity, and the result can be seen in our Q3 earnings with our uptick in gross margins, so looking at the pillars and just the recent successes for sustainable and profitable growth, we've expanded our distribution network, as Bill has previously discussed. E-commerce, Qplash, we restarted our resale business in August after very limited activity since January 2024.
On the operational excellence side, we've had success in strategic wine sourcing. We're hitting milestones to executing our plan for a third-party logistics provider out of Texas, and we've also identified alternative suppliers for key raw materials, either at a lower cost or to have dual sourcing options. From a bolt-on acquisition standpoint, we do have the LOI that we alluded to on the energy drink company and continue to move forward with Western Son. And we continue to work our M&A pipeline and have some new discussions with a very early stage on a ready-to-drink spirits company as well. From a capital structure perspective, we have commitments for roughly $8 million in capital, and we continue to work with the institutions to lower our cost of capital and provide working capital for our existing business and acquisition-related financing. This concludes this strategic initiative update.
I will turn it over to Robert for an update on mergers and acquisitions.
Thank you, Julius. Appreciate the update. I think the key message here, folks, is we're not sitting around waiting for liquidity. We're doing everything we can to fine-tune the organization and prepare us for when the final funding does hit here in the very near future. Thank you for the update. Before I provide an update on Western Son and other M&A, I'd like to provide some insight on recent transactions in the energy drink space over the last four weeks. It's pretty darn exciting. KDP, Keurig Dr Pepper, some of you may know, they announced their purchase of acquisition of the energy drink maker Ghost for more than $1 billion. Molson Coors has taken a majority stake in Zoa, which I think was The Rock's startup.
Both announcements really confirm belief in the better-for-you energy drink space, which outperforms the broader energy drink category while both are still growing. This gets us extremely excited about our pending acquisition in this market segment. Our pending acquisition, we are under a letter of intent, but we can't disclose a name at this time. It's the right product with great partners at a fair valuation, which will allow us to capture our fair share, or I like to say our unfair share of the energy drink segment with highly attractive margins and a competitive overhead structure. This dovetails nicely with Qplash, our resale business, and will provide growth north of 30% via our distribution network. Apologies for the excitement in my voice, but as you can tell, we're very excited about this opportunity.
The gating item is to move to definitive agreements, is to finish securing the financing for the transaction, and we've secured a good slug through retail investors, and the institutions will help us take us over the top. As everyone is aware, we publicly announced a letter of intent with Western Son. Western Son has an amazing vodka and was recently ranked as the number one tasting vodka by Newsweek Magazine. We're working on raising funds with 50% of the cost circled, and we'll do provide periodic updates to their ownership group. Thank you, everyone, for your attention. In summary, our issues have been 100% related to liquidity. We're in the process of solving that, as you've heard, very quickly. We're quite excited about it. We'll now open up the call to questions.
Stand by as questions are coming in as we speak.
Okay. All right. Looks like the bulk of our questions are regarding liquidity and acquisition. So I'm going to make a couple of general statements before I ask our specific questions, and I'll also have Julius and Bill help us here. Regarding liquidity, again, I mentioned two or three times a minute ago, our issues have been 100% about liquidity. One of the questions here is concern over missing timelines on acquisitions and raising funding. Fair question. I think I said this to someone earlier today. There's no one more impatient than I am, than anyone on the planet than I am, but with liquidity challenges, it affects all types of timelines, and I mentioned a minute ago what's super important that we don't sit on our hands and hide in the corner. As Julius described, we spend a lot of time working on margins.
We're working on different production options, etc., etc., to make sure we're positioned beautifully to close out the liquidity. We are extremely close. We mentioned we have two additional, what I like to call backups, but will ultimately be long-term partners with us. One that we especially like is a private equity group that can help us with future acquisitions and deal flow. We're very excited to be working with that team and fabulously, just really just a fabulous group of people out of the Upper Midwest that we're very excited to work with. I'll stop there because at this point, we elected not to release names, so liquidity has been it. Regarding our current raise, yeah, we brought on $X. You've seen that in the 8-Ks and I think we brought on another $1 million and change since then, so we're getting very close on that.
We do have signed documents for the balance. Somebody wrote here just recently, they thought it was $12 million. It's never been $12 million. It was $8-$10 million. We have, as I mentioned earlier and Julius mentioned, we have commitments up to $8 million. We're just shy of that, but we do have signed documents and expect that to happen here literally any time. With the holidays, it tends to slow things down, but we'll keep you posted via 8-Ks and press releases. Everything's moving forward. Yeah. Question on our sangria that we've imported in the paper can technology. Sorry, I'm reading the question. Okay. Yeah. Same thing. It's just been a functional liquidity. I've said this publicly many times. Absolutely nothing has changed there. It's a fabulous brand. We're scanning now, and 7-Eleven is slowly loading those accounts across the country.
The key factor for completing this is, again, liquidity. We still have to convey approximately an unprecedented number, but it's a small percentage of capital raised to complete that transaction. Nothing's changed. It's just taken time because of liquidity. Bill, there's a question on Western Son. I know we've made some progress there. If you'd like to answer. Western Son, where are we on that transaction, and when do you anticipate closing on that brand? Bill Meissner, go ahead.
From an operating perspective, both teams are ready to go. From a due diligence perspective, everything has been completed. At this point, we're trying to finalize the raise. We've made great progress on. We're dividing it between a debt and equity raise, and on the equity raise, we've made excellent progress and are essentially there. You have to marry both elements at the same time, so we're circling back on the debt front and trying to get that completed. It will go fast once that's done, but this is, at this point with the holidays, it is correct to assume that it could leak into Q1, and I think, presuming that we make good progress by year-end, the Western Son team will continue to work with us on an extension, but that is just me speculating, but I believe they would.
Okay. Thanks, Bill. And just to make sure that's clear, it's a blend of equity and debt, and it's a chicken and the egg situation. The debt folks don't want to commit until the equity folks have committed and vice versa. But it looks like we're basically there now on the debt side. This is really important news. So now the, excuse me, on the equity side, now the debt folks are starting to dig in again. But Bill's right. I think we've got some challenges with the holidays, of course, slowing things down. Oh, the unnamed acquisition for the energy drink space will have happened this year. Unlikely. Still could. Our target has always been December 15th because we'd like to capture that revenue and put it on our annual report. But at the end of the day, that's a nice-to-have, not a need-to-have.
But again, we remain completely engaged and under letter of intent with those folks. Once we close out the rest of the capital raise, then that triggers the audits, and then we move forward. And remember, we don't have to be fully audited. The SEC allows 71 days to produce consolidated financials, so we'll close as quickly as we can. It's a fantastic acquisition for us. It's a significant amount of top-line and gross revenue. The top-line number is above $30 million. It really, really is transformative for the company. We're quite excited about it. And if you pay attention to the energy drink space, you'll understand that the ballpark we're playing in there is pretty cool stuff. So note, one more question on liquidity. Yeah. So typically, how much money has been raised since our last press release? I believe it's right around $1 million.
Julius, do you have that number handy?
I don't have the exact dates as the PR, but we're kind of like a little bit over $8 million on commitments from various stakeholders.
Okay. Great. Thank you. Got a question about the note in default that was on our or in technical default, I should say, that was on our Q report. When will that be paid back? Hang on. Keep reading this. Sorry, everybody. It's just hard to read the screen. Yeah. When will that be paid back? Okay. So our intention is to pay that back as we raise additional equity in the organization with the current capital raises. There'll be plenty of cash to do that. We'll see how that goes in the next week or so. All right. There's another couple of questions coming in, waiting for them to load. I'll just speak for a second while that's happening. And look, I understand everybody's impatient. Like I said, as I am, this has been a difficult year for us.
Micros and small caps have just had a heck of a challenge just raising money, and of course, share price doesn't help with that. I got to tell you, we appreciate our shareholders so much and hanging in there while we're fixing the liquidity challenge. I can't thank you guys enough for hanging in there with us. And oh, it's another Western Son question. Yeah. So Western Son, basically, thank you for the information on the timing. What are the terms? Oh, okay. Yeah. We can't disclose the terms just yet, exactly what they are, but it is a blend of debt, debt, and equity, as Bill Meissner mentioned. Next question. Why won't you release the name of the energy drink target? There's different types of confidentiality. There is inside information, public information, but there's also corporate confidentiality as well. Remember, the model for Splash is a shared service model.
So the idea being, we find a target that's proven itself. We acquire that target and fold it into our organization, and that is done through the production of headcount. So we're being sensitive to those people, and we want to be careful to not bring that name out at this point. That's the main reason for that. Julius, Bill, are you seeing any questions I missed?
No.
No.
All right. With that, I want to thank everybody for joining us. This concludes our quarterly conference call for Q3 results. We appreciate, as I mentioned a minute ago, everyone's long-term support. Our legacy investors have been absolutely fantastic. We remain extremely, extremely excited about the future. We believe we've just about powered through the difficult liquidity issue for the past year. Thanks. I want to thank everybody for your support, long-term support. Hang in there. We are so close. And don't forget, I'm one of the largest shareholders of Splash myself. So I'm personally excited about the future. And we just want to wish everybody a fantastic Thanksgiving and happy holidays. We appreciate your support one last time, and I wish you all a great week. Thank you very much. This concludes our Q3 quarterly reporting conference call.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.