Company: IPST
Filing Date: 2025-08-14
Form Type: 10-Q
Source: 0001788230-25-000126
Chunk: 263

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-08-14
Form: 10-Q
Item: Part II, Item 8
Chunk 263
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 $1,157,000 GAAP Gross Profit Additions/(Deductions):Unabsorbed Overhead607,000 511,000 1,043,000 1,172,000 Adjusted Gross Profit excluding unabsorbed overhead$834,000 $1,259,000 $1,542,000 $2,329,000 GAAP Gross Margin17.2 %40.6 %20.7 %32.6 %Adjusted Gross Margin excluding unabsorbed overhead63.1 %68.3 %63.9 %65.6 %

The above Adjusted Gross Margin excluding unabsorbed overhead shows the cost of production of our products and services based on raw inputs and direct labor and overhead, removing all unabsorbed overhead expenses for unused capacity. This allows us to examine the cost of each product and its margin as we evaluate where our areas of product focus should be. Considering we had low margin activity in our portfolio through early 2024 (for example, well vodka and third-party production) an Adjusted Gross Margin excluding unabsorbed overhead greater than 50% is remarkable for a craft producer. As we increase the use of unused capacity, reduce capacity and continue to shift away from low margin activities towards our focus on higher margin products, we would expect to see both the GAAP Gross Margin and the Adjusted Gross Margin excluding unabsorbed overhead increase. 

It is important to note specifically that the Adjusted Gross Margin excluding unabsorbed overhead includes revenue from low margin barrel production contracts we had through early 2024 and that we do not expect to be performing for the foreseeable future as we focus on higher margin activities.

In an ideal scenario a producer would be at 100% utilization and producing high margin items exclusively. Knowing this, we are examining operations, assets and our existing real estate footprint to drive better utilization and reduce overhead with the goal of driving down unabsorbed overhead and decreasing unused asset capacity. 

The following table presents a reconciliation of net income / (loss) to EBITDA and adjusted EBITDA for the three and six months ended June 30, 2025 and 2024:

Three Months Ended June 30, (rounded to $000’s)Six Months Ended June 30, (rounded to $000’s)EBITDA Analysis2025202420252024Net Income / (Loss)$(7,295,000)$8,