Q4 2020 Eastside Distilling Inc Earnings Call

Good day and welcome to the Eastside distilling reports fourth quarter and year end 2020 financial results.

All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then one. Please note. The this event is being recorded I would now like to turn the conference over to Amy Broussard Corporate Affairs Director. Please go ahead.

Thank you so much good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial results for the fourth quarter and year end 2020.

I'm Amy per start with Eastside distilling and I'll be your moderator for today's call.

Earlier, you said the issue that their fourth quarter and year end 2000 and <unk>.

Actual results and our press release and the company filed its 2020 form 10-K.

Joining us on today's call to discuss these results are Mr. Paul block, the company's chairman and Chief Executive Officer, and Mr. Jeffrey When Eastside Chief Financial Officer. Following their remarks, we will open the call to your questions.

He was signed before we begin with prepared remarks, we submit for the record the following statement.

Certain matters discussed on this conference call by the management of Eastside distilling may be forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended.

And one E of the Securities Exchange Act of $19 34, as amended and such forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Forward looking statements describe future expectations plans and results.

<unk> that are generally of preceded by words, such as May and future plan or planned will or should expected anticipates draft eventually or projected listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances.

And our stress events or results to differ materially from those projected and the forward looking statements.

Such matters involve risks and uncertainties that may cause actual results to differ materially include but are not limited to the company's acceptance and the company's products and the market success in.

And so the new customer success and product development ability to execute the business model and strategic plans success and integrating acquired entities and assets ability to obtain the capital ability to.

Continue is going concern and all the risks and related information described from.

To obtain the time and the company's filings with the Securities and Exchange Commission, including the financial statements and related information pertaining to the company's annual report on form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission now with that said I'd like to turn the call.

Over at the Jefferies with Jefferies. Please proceed.

Thank you Amy I'm pleased to report, we continued to make significant progress and improving the operating performance of Eastside during both the fourth quarter.

I'm, sorry, the fourth quarter and the first few months of 2021.

In February we closed.

The redneck Riviera termination and the asset sale agreement, while we continued to manufacture some redneck products from Q1 of this year. We are now wholly focused on those brands, we own and our craft Canning Division.

That transaction was one of the many steps we've taken the significantly improve our balance sheet and liquidity position.

We have made progress across a number of fronts, which Paul will elaborate on shortly however, first lets review the fourth quarter and fiscal year end results. Please note we have presented redneck Riviera as discontinued operations and our 10-K per bag the ASC $205 20.

This should make comparing our reported results.

Through 2020 one much easier.

Gross sales for the year ended December 31, 2020 increased 21% of $14 $8 million from $12 $2 million from the prior year. This was primarily due to the junior acquisition and an increase in sales at Kraft.

Gross profit.

Increased 12% of $4 6 billion compared to $4 1 million in line with the increase in sales.

Total operating expenses and 2020 declined nine 1% the $12 7 million from $14 million in the prior year. This reduction was due to lower compensation and benefits reduced legal and professional.

Please and lower rent and insurance expenses.

The offset by higher non cash depreciation and amortization expenses.

As we have stated over the prior two quarters, we have begun a restructuring.

Of the company's operations that has led to significant reductions in overhead.

You can.

See the beginnings of the impact of this restructuring and this report.

However, you should see more evidence of this as we get into our seasonally strongest part of the year.

The net loss, including discontinued operations and 2020 was a loss of $9 $9 million on a loss of 90.

98 per share this compares to a loss of $16 $9 million or of $1.82 a share and the prior year.

And the fourth quarter of the company delivered 9180 cases of the spirits, excluding redneck Riviera.

Of that total Portland potato vodka.

About 5000 cases and continues to expand as we continue to expand the distribution of this brand outside of Oregon.

The company shipped.

2000, and 553 cases, and 1171 cases of Azania, and Burnside, respectively and the quarter.

As you all.

All are aware of number of states, including California reinstated the shutdown of on premise dining, which affected as junior and Brookside and the quarter on.

On a consolidated basis, excluding redneck, we generated $3 5 billion and fourth quarter gross sales on a 20% increase of the same period and 2019 gross.

Scented grew significantly over the prior year two of million dollars the.

The company generated a net loss per share of the loss of 24 cents compared to a loss and the prior year.

Of 82 cents.

During the fourth quarter, we wrote off $408000 of brand related assets and paid $425000 and stock.

Profit group and station adjusted.

Adjusted EBITDA.

It was $1 $1 million loss for the quarter that EBITDA number includes some onetime in nature of items such as professional fees.

Given the environment and our key markets during the quarter. We are pleased with this performance now.

Now turning to the cash flow and the balance sheet the company.

Based on end of the year with $836000 and cash.

And had $6 4 million outstanding under the live Oak ABL facility.

I'd like to draw your attention to the $15 4 million deferred consideration frozen for the Danya acquisition and the first quarter of this year, we issued one 2 million shares at a weighted average.

Average price of $4 67.

This reduces that liability and the remaining purchase consideration will be determined shortly the company will issue to interest at both shares and a three year, 6% subordinated note with a bullet maturity.

As I suggested earlier, we've made meaningful progress on improving our balance.

And sheet and liquidity and the first months of the year since the close of the Redneck termination agreement and we have reduced our outstanding balance with live oak to only $2 $9 million.

We have also received full forgiveness on a $1.6 million and P. P P loans and the first quarter we.

We've made good progress on refinancing of all.

All of our maturities for 2020, one and will have more report there during the first quarter conference call and May.

Before wrapping up on my comments I'd like to take a moment and update you on our restructuring actions as we've described and the prior two calls we've been actively integrating three companies.

Now that we're looking into 'twenty.

And in 'twenty, one we can see that we have made significant progress charting our course and have built a robust plan.

As the executed will keep the company on the path of growth and eventually profitability.

This is this has included a complete transformation of large parts of the company internally.

Yeah.

You should expect better results of stronger balance sheet and clear growth opportunities this year.

We continue to reshape the company with a focus on building and professional platform integrating the systems and processes.

The transformation is touching all areas of the company now I'd like to turn it over to Paul who can share more.

More of the exciting developments here at the company and and update you on our operating plans for 2020 one Paul.

Alright, Thank you, Jeff and thank you all for taking the time to join our earnings call. This afternoon. I mean, he kind of made great progress since our last call and I'm excited to share the details.

Details today.

And I have to say our biggest news to date is the addition of theirs Levy Navarro to the company's board of directors.

And Larry Navarro has been appointed as chair of the compensation Committee and will also serve on the audit and nominations.

Our committee for the company and flaring of ours.

An experienced CEO of public and private company board of director and consumer products practice leader and.

And I have to say, what's particularly relevant is Liz currently serves as the board of directors of Burke beverages, one of the country's larger wine and spirits distributors.

In addition to our extensive board.

The experience.

He is very familiar with the alcohol beverage industry and three tier of distribution. So welcome aboard list.

What is also exciting the progress each side is making to fix build and grow.

Overall the size company.

We're one of the only public.

Publicly listed the craft spirits companies and a category that is about to return towards 30% plus compound annual growth rate.

I can assure you that consumer demand for craft spirits has not diminished and continues to be as robust as ever we anticipate the category will pick up.

Speed as Martin Zone open up over the summer.

Well articulate today exactly OE side will capitalize on the category growth and the how we will achieve our goals and objectives in 2021.

First before I did that I wanted to report on the progress, we're making to fix building.

Build and grow the overall enterprise.

So look first and what we're fixing and how we've progressed number one we're fixing the balance sheet liquidity and overall debt structure.

And we've divested redneck Riviera, as Jeff mentioned, which significantly decreases our secured debt.

Significantly decreases are illiquid, working capital and significantly increases our cash balance and overall liquidity.

Again, as Jeff mentioned were the.

Progressing with a financial transaction that will allow us to potentially pay off of our subordinated notes and add.

And the additional $1 million of cash to the balance sheet. The next step is to build investment capital to fuel growth for all of our opportunities now.

And now secondly.

We're fixing the margin issue, we have historically had within the spirits division.

Last year and 2020.

And our craft C and B Division gross margin was 43%. However, the spirits version was the only 23% with the Zhonya core products well below 20.

We're now repositioning and repricing all of our spirits brands and we're now focusing on our highest margin brands.

Like the new Eastside brand with the 74% gross margin and our Portland potato vodka brand with a 44% gross margin.

The same time, we're working to improve as junior and Burnside margins as well. The overall plan for 2021 is the increase the total spirits division.

Margins from 23% gross.

Gross margin in 2020.

237% gross margin in 2021, and we are well on our way to accomplish this objective and.

Third we're fixing the company systems and control.

With the addition of Twosies and C. P A's.

One as the controller and one is the V P of F DNA.

Company has the benefit of deeper and faster fact based data to evaluate deficiencies and the plan for optimal effectiveness.

In addition to improving company.

Controls, we're using these resources to fix our pricing promotion and discretionary spend systems and its POI resources against the highest ROI opportunities.

So now what are we building and how are we how are we progressed.

First we continue to build a professional.

Fresh and a platform with our most important asset our people.

I've mentioned, the two new additions to our executive finance team to support our CFO, Jeff Quinn, which is Tiffany Melton, our new CPA of controller, and Amy Lancer, our new C. P. A F P and a leader.

We're also fortunate to secure and exceptional executive to lead the craft Sandeep business Microcar staff.

Michael.

He is also overseeing all spirit supply chain and bringing best practice the spirit supply chain.

And has created and overall operator.

Operators settle the center of excellence for E site.

In addition to craft the M. B, Michael is busy helping us with all of our spirit of supply.

And by now and many of you know about our new Chief branding officer, Janet Oak, you'll be seeing much of janet's work and she launches the new Eastside brand.

Build the new identity for the Eastside company, and Repositions, Portland, potato vodka, Burnside whiskey and it is junior to kill.

And the short period.

And of time Janet.

Janet efforts have contributed to explosive growth.

Over.

Her tenure and in the last few months.

Just this week, we've recruited a world class SVP of sales for the spirits Division Gray weapons.

Ray is a seasoned and beverage sales executive with experience at Diageo Red Bull and Jay.

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And the addition of Ray brings east side of well balance.

<unk> leader that understands how to build brands through of profitable focused and strategic sales approach.

Secondly, under building, we're focused on building the crafts CMP business with Michael and place it up to speed.

Feed for building a solid platform for kraft's D&B.

That has expansion opportunity.

It was focused on the total alcohol beverage con.

The contract manufacturing category as our competitive set.

And this means the size of the price is significant and we can build the plan that offers high margin.

High growth and accretive investments.

The resources, we invest and craft.

Have and will offer a positive ROI and of high conversion to free cash flow from.

And for 2020, one we have two to three opportunities ready to go pending investment capital allocation.

And third we're focused on building our spirits brand portfolio and.

And we deliver our 2021 plan for the Eastside brand will not only achieve of 74% gross margin as mentioned, but also over $600000 and gross profit.

And we will have created a valuable brand.

And of flagship for Eastside distilling.

Just this last week, we've shipped over 100 cases of our new Eastside Lions Rye whiskey to the distribution center of in Oregon, and so we're up and running.

And well on our way with the Eastside branded products.

And in addition to the Eastside branded products.

Products were focused on Portland potato vodka.

Currently the brand is growing double digits with the gross margin of 44% as I mentioned.

This brand merits focus and investment for times distilled and our new Forte corked bottle the per.

Product is the hit with craft oriented.

Tumors and.

And we believe can be our first brand per $10 million and revenue.

Now for US doing it is important to increase our gross margin on Blanca and nail and represented them.

From below 20%.

To above 30.

He is doing the black product on the other and as a fantastic handcraft.

Crafted the killer, where the gross margin over 50% and won't be the near term focus in 2021.

The skill of space is very competitive, but the category is growing rapidly we need to get ourselves and a position of profitable growth.

With the concentrated geographic focus to win with the kill.

And we'll have more on our overall to kill of plant at our next earnings call.

And last but certainly not least for the Burnside brand of whiskey products, we will focus on black and blue labels.

And local along with our head distiller created a new black label and.

It is of Bourbon cask double barrel Rye whiskey.

It's just delicious and.

And we'll be offering of barrel strength Buckman reserve.

10 year Bourbon whiskey.

The focus on the premium labels should shift our G. Gross margin on Burnside from 26 to over 30 <unk>.

Percent and eventually over 40.

Now, let's look at how we're going to grow in terms of our objectives and strategies and with that lets look at our revenue growth objectives for 2021.

For the overall company our plan is to grow revenue.

Plus 22% year on year now this is without the red.

Redneck Riviera brand.

The spirits revenue portion of the 2020 on growth plan is plus 30% year on year.

Which exceeds our craft spirits category growth forecast projection of 15%.

The primary revenue drivers for this growth will be the new eastside.

The brand Portland, potato vodka and a junior.

And also the other division the craft revenue portion of growth for the <unk> 2021 plan is 17%.

Year on year, which is on the beverage manufacturer and category growth forecasted projected at 8% to 9%.

On the primary revenue drivers for craft will be the two new truck lines and in 'twenty late 2020 and the new customers that will onboard and Q1 and Q2.

Looking to gross profit our growth objective for 2021 is planned to be plus 53%.

And year on year again without Redneck Riviera.

The spirits gross profit plan for 2021.

And is plus 213% year on year, driven by the addition of the new high margin Eastside branded portfolio.

And our efforts.

It's the reduce deep this price discounts across the board.

The craft craft gross profit plan is plus 19%, which correlates to the 20% increase and revenue.

And then looking at SG&A our growth objectives.

For 2020 one is.

Is planned to be actually a decrease of 23% year on year.

The spirits SG&A plan for 2020, one is planned to be down, 31% and that's driven by operational efficiency with the reduction.

And of overhead.

And the reduction of exorbitant professional fees and of course, all the good work Michael is doing with his center of excellence and integrating spirits into the craft the business.

And then D.

The SG&A for craft.

For 2021 is flat year on year.

So very compelling growth objectives.

The overall growth strategy to support this plan will be all about concentration of resources.

For Kraft will concentrate on our efforts and Oregon, Washington, and Colorado.

These three states equaled 100% of the Kras craft's gross profit.

The spirits will concentrate our efforts in five States, Washington, Oregon, California, Texas and Colorado.

And nice five states equaled 82% of the spirits.

Gross profit.

So in addition to the fix build and grow action plan I wanted to briefly share our five value of pillars that will drive our strategic path forward and create extraordinary value for you our shareholders.

The first value creation pillar is focus.

First.

<unk> correctly and Consensually to ensure we build a sustainable foundation of our business and a consistent stream of earnings for our shareholders. We've learned that of solid craft oriented business is not built and a rapid and national burst to gain distribution and any.

And it costs.

First of logo will focus on our core set of states and of course set of consumers as we concentrate our limited resources.

The second value creation pillar is proficiency combining.

Combining the craft CMV division with the spirit of supply chain to create and operational center of X.

So competency of Kraft C and D operations can bring effective and efficient supply chain execution to the spirits division as we buy make and distribute.

It does not only works as we focus on to 2021, but it also works as we expand in 2022.

And in addition to our Operation Center of Excellence, we've also.

Created of combined planning center of excellence for finance sales and marketing spearheaded by our F D and E D D.

This area of excellence is focused on forecast of production planning cash requirements and inventory management.

The third value creation pillar is accretive growth and.

And <unk> those initiatives, but after minds of our investment capital with the highest return and cash flow crafts. The MB is one of those opportunities offering high margin high growth and high cash conversion.

The second opportunity.

Of premium high margin spirits brands like the Eastside brand, where the gross profit of 74% and Portland potato vodka with of gross profit of 44 per cent.

The fourth value creation pillars brand differentiation.

And will propel us to develop a unique identity.

The need for each of our brands.

We seek to connect our brands with our consumers and experiential manner.

Janet Oak, our Chief brand Officer.

And we'll be sending you each of you our updated brand book for our spirits portfolio and will highlight our progress in this area.

I'd say.

This is one of the most exciting areas of progress we've made to date.

And finally, the fifth value creation pillars product innovation, we will consistently focus improve and or create products that are for farm to flask ingredients.

Handcrafted production and of premium taste experience.

Although unique eye.

And identity for spirits is vital.

We're responding unique premium product is equally as important.

So in summary, we're fixing or building and we're growing eastside distilling with focus proficiency accretive growth brand differentiation.

<unk> and product innovation.

Our plan this year is clear it's to achieve plus 22% revenue growth.

The 53% gross profit.

And decrease SG&A of 23 per cent.

We're very excited about the future and we thank you for your time today your interest.

And your investment and East side, we'll now open up the line for questions.

And we will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing on the keys to.

To withdraw your question.

Interest the Star then two again the the Star then one to ask the question and at this time with the pause momentarily to assemble the roster.

And our first question today will come from.

Please pray Weber with Aegis capital. Please go ahead.

Yeah, Hi, guys how are you doing.

And.

One of the questions I had wanted to ask you was it.

If you could give an idea of the.

And the I mean, you talked about some of it about the.

Here are the brain's, though we're going to focus on as far as our expansion.

And you know are there.

Hold is stable and we have obviously you're going to focus on a number of them and then the other ones and I don't know exactly what it'll be so I was hoping you could.

Clarify that a little bit and.

And.

Or is and how we're making on rolling this stuff out on the east coast.

Well I guess I can take that Harold thank you.

Well I mean, the one brand and I didn't mention and that is conspicuous absence of is way way.

It doesn't mean that we're we're not gonna keep way.

As for him.

But that usage occasion, and coffee law Kumar of coffee Rob.

Is is fairly minimal and and and small relative to some of the other bigger growth areas like whiskey, and tequila and vodka and sawn.

So yeah we're.

The way focus on vodka, tequila, and whiskey and those have been typically the three biggest growth categories and the three brands and doing your Burnside and Portland potato vodka and the reason I spoke more about concentration.

Is because we have very limited resources.

We're gonna from small company.

You know Rican dream about expansion, but we also have to maintain velocity per point of distribution and that's been a significant issue.

And we've changed distribution with a lot of money, which caused.

Were significant cash burn and of high net operating loss.

So that strategy.

Didn't work.

And now we're employing a strategy that's a bit more focused and concentrated.

That will get gain and keep distributions.

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And it will attempt to bring in a loyal consumers and build relationships with them.

And a specific area before we move on so that it seems to be more in the west right now, we're not going to give up any distribution and.

And the Midwest or east the.

And that's.

It's going to be more of our venture area for the time being.

So we'll continue to leverage our distributor relationships are key account relationships and we'll continue to look to gain distribution, but not in the same focused and rapid manner that we were on the west.

Okay.

How is what's the reception been on the new.

When you're a small batch of premium.

East side of the products.

Well as I said, we just got 100 cases of the new Eastside.

Right and we're hoping to get your all samples of that at some point. So you can try it but anybody's tastes the R series task.

Interest and 70 year old share cask barrels that will retail for $148.

They're just they just are.

Overwhelmed with the product quality.

So the single how much capability do we have of supply.

Well, it's like culture Rehabs.

You know we did have 8000 barrels now we're down to 4000 barrels so.

Some of the more.

As.

Our skus is not as prevalent but we have significant supply 4000 barrels and a significant part of that is the the aged whiskey.

So and I don't have an exact number on the exact number Paul so the bottom line is that if we have plenty of demand we can supply it we can.

And fulfill them got it you got it and the idea is it's limited edition now, yes, but that and we're making one batch but that doesn't mean, we can't make another batch and that doesn't mean as things grow we can't make it a permanent product that's right.

You know what's in the back of our minds.

And so as you think about this business forward.

You should think about of brand.

And the and the the the.

And the products, we're focused on and are the three whiskeys.

You know the the.

Single malt Sherri task, you know, the Bourbon and Rye and those of the highest.

Margins and those sort of products.

And the back of her head would like to continue.

As good as it is from.

What I see on on my end over here. It is a giant demand for that stuff and if we can get it out there so as long as weak and the supply at a I think it will be very successful.

And we're not saying we won't go to specific areas in the east or the east coast of the Midwest, but we just wanted to be focused.

Okay.

And the I am assuming the same thing goes for the substantial of rollout it sounds like you're doing with the about the alright.

Yes, well of the Portland potato vodka is a true we have if you recall I mentioned that we had shift the packaging into the fourth tape part of which is the same bottomless Burnside and we've put a cork on it because of that of screwed top and we just didn't see all of the skirt top reflected the high quality.

All of the installation and ingredients that we put into P. P V and sales have been.

And as I said double digit and really over 30 per cent.

You know it doesn't stay that way every week, but the demand has been significant.

And the more we focus on the Kraft nature of that.

The faster growers now of Janet's done is she has come up with the whole identity, which you'll see when you get the brand book around the breath of fresh air and around the coastal communities. So it will be launching and California immediately as we speak into some of the surf and communities and building distribution.

Prof Air testing are positioning our pricing, we're also trying to improve.

Improved margins on that brand and as we see success and we can roll.

And our next question will come from Ross Taylor with.

A R. S investment partners. Please go ahead.

You bet on that.

I'm on my question was just answered, but I wanted to get a chance all of them and I haven't had a chance to go through the K, yet, but can you talk about the canning business and except for business what kind of revenue is what kind of operating margin what kind.

On the free cash flow of generates it really looks to me like you've got to.

Different arms of this company and that eventually the Canning business. While it offers the really interesting growth opportunities will become could become the sort of a bank to finance the expansion of the brand and business. So I'd love to get a better.

Better understanding of the economics of the Canning business.

Jeff did you want to try that sure. Thanks Ross Yeah.

The Canning businesses is this is a phenomenal business when you look at it on on a cash flow.

Return on capital basis, I mean think about the business has very little.

On Capex.

And it's got some working capital, but mainly it's in the form of building receivables the seasonal business, although the seasonality of arguably could be.

Less so when you're completely want them full out.

We just got out of both the weakest season of the year. So it wasn't really a big driver and the first quarter.

But I mean, Paul spoke to it and the in the script I mean, we see strong gross margins above 40. When this thing is fully going and we're already into the the season, where we're picking up here, where we have almost full utilization of the equipment and we're going into the year with two more production.

Packages and we had last.

Year to more lines the crew.

<unk> business is misunderstood by the market I think because people think about co packing and think about low margins, but worst Serbian of customer that is in desperate need of what we offer I mean think about of small brewer, who starts brewing and his backyard, where as you know.

And his garage and he makes a business out of it and it gets to the point, where he realizes the he has a route to market. He has a fan base and all of these been using us.

On the route to market through bars and on premise and the tags.

And then.

When we get through he gets the a critical mass where you can start to can't well his his choices and.

On a limited you can't really deliver his product to a large co packing facility to produce the that pretty soon enough.

You know he's can't afford of Canning line and so there's you know the.

The space there on the smaller side, where there's really outstanding margins and that's the way we're attacking and.

And.

Ken and the customer growth has been phenomenal. This year. It was shut down in the last year one of the things that we're going to do better. This year is managing the life of that customer.

The craft literally had no salespeople basically and.

And we can do a better job of growing with our customer off from offering and more products are.

Helping them on.

And we already started with some partnerships with some of our key customers and you'll see that show up with kraft's numbers. So we're excited about kraft.

Can you talk about what what is the revenue potential of if you're running full out and what is the revenue add you would expect from a potential add from the two new line or bringing on.

And we're all lines created equal.

That's a great question, but think about it and we spoke to some investors about this you know at the of the Roth Conference and I would and I think we've talked about it and the past as well as one of the ways that this this business becomes more profitable as the efficiency and the.

Imagine.

We're bringing the production two of the customer.

Alright, so were.

Moving to the.

And the customer and and if we if we have a long route to the customer and then we.

Service them and then they come back you know we have to manage the turnaround and do it again and the next day to a new.

And so the part of the the way that this business becomes more profitable as by efficiency right and by really doing a better job planning position of assets. So one of the strategies that we're employing this year and building around this hub and spoke system of moving assets around.

I mentioned of the partnerships and the last response of just about some of our customers and being able to actually part of with people and move our assets further into the field. So we don't have the.

Tremendously long unproductive.

And transit times for the teams, but to answer your question, specifically known and Theyre not Korea differently. There are some investments we can make.

Make this year to dramatically grow that's not built into the plan of the numbers of Paul talks about and that's something that we're opportunistically going to try to attack.

And that's the incremental services that we could offer the had very high margins.

The the customers will find very important and attractive and this.

This business has a number of different directions, we could grow.

The volume.

Price mix, it's it's really a fabulous asset the and the and the team is outstanding.

Well actually I can answer that specifically.

The current well I mean, just in terms.

Question about what is the output the al.

I'll put of the assets that we currently have could do $15 6 million if they ran at 100% utilization and every month of the year.

But the issue with that is this year were $10 2 million because as Jeff said, we're on.

Of your curve.

And we have the shoulder periods and the thing that really restricts us at Marvell.

So it's it's you know it's got proximity of constraints.

But if this business were to operator, and 100% utilization it would deliver 15 6 million so.

You know the.

The thought is.

It's hard because you have to be able to expand these mobile trucks.

And to different markets or take more of market share and your current market. So.

But the big opportunity I think you hit it right on the head is is this.

On the Belgium and.

And we didn't really talk about the business model or the investment thesis overall.

But if we had some time and I won't take a lot of time on the call maybe separately I.

I think the business model works extremely well with craft. One you mentioned one point you know it can really feel free cash flow of that can fund.

On the spirits and and not create a big cash burn for the enterprise and second I think it looks different it is different you are absolutely right but.

But if we start getting and the RTD Mark and.

And we have of can production division.

And you know what if we do per.

Premium on T D's, and what if we could and organic is doing and Margarita I mean, it's already of the sales teams like please get us that.

And now and we have a number of other ideas. So I think as we look at the.

You know the longer term strategy, which we're gonna be coming to you and the summer of five year.

And the three year plan and how can we really you know Rev up the engine here.

And we'll be looking at that exactly what you said you know what is the complementary.

Compatibility of these to you know where do they diverged where do they emerge and how do we leverage that and to accelerate growth.

Thank you and.

Year of your second question and the past the bottling and production was.

Perhaps I'll say kind of the less than efficient.

Where do we stand and what steps are we taking what steps you'll need to be taken to get that to where you think that it's operating at you know.

The effective efficiency.

Yes.

We're well on our way.

I mean, the first thing we did was.

Right.

Take out all of the Redneck Riviera and.

Inventory that we had we had bottles we of barrels.

We had a lot of the.

The space that wasn't really utilize so we're gonna cut our footprint of more than half number one.

And we're gonna be as I said its bye.

Make and.

And and distribute.

So where we're kind.

Concentrating our buying and our sourcing into one area, because theres, obviously more efficiency and scale.

And we're putting more policies in place III bid systems and more things that will create lower costs on the purchasing side of raw material.

And then and the manufacturing.

On side.

We're gonna be actually closing down the Milwaukee.

Facility eventually or is it and three months four months and we're going to integrate it with Kraft and Kraft can actually start to become a contract manufacturer for bottling spirits, which are in high demand.

So you know we can fill out our capacity and utilize our full capacity, if we need be which you know will drive down.

You know fixed overhead allocation so the.

I'd say to give you you know I think were.

Like maybe 50, 60%.

Where we want to be once we close the Milwaukee and we automate the bottling line would be pretty close to a 100% where we wanted to be and.

You know there was the big discussion on outsourcing personally I think we have a lot more flexibility.

And if we wanted to be innovators and we want to be SaaS tomorrow.

The Senate and we want to be creative by producing our own product. We just have to be efficient. So I'd say, we're 60 70 per cent and maybe by the next earnings call. We'll have some of our news.

Well, that's a pretty exciting progress. Thank you very much you guys are doing.

It's been it's been I know of hard.

The market.

You've earned and the accolades you get flow.

Oh. Thank you so much for the working for you guys. So you know when you provide the capital we get the return.

[laughter] Thanks Ross.

Okay.

And our next question will come from Matt Campbell with law.

ROE and capital. Please go ahead.

Hi, gentlemen, just wanted to kind of.

Support what the previous.

Questioner said you guys are doing a really good job of streamlining right sizing the balance sheet streamlining the business focusing.

Your day God.

Hospitable.

Business opportunities and our you know really are bringing on it but very very complementary people, it's great to see a sea of bringing on people that have the nominal industry experience as well as this new board member I just Wanna.

And graduate and you guys aren't a lot of heavy lifting and a really exciting.

Cited about what you guys are doing because we're starting to see a real turn here and I'm I'm I'm excited so keep up the great work.

Thanks, Matt.

And I know you were and when we talked before your interest.

And you know sales leadership, so we've we've checked that box and where we're really that's going to be.

I don't think we realize how that can accelerate and overall growth.

Yeah, No I'd say you guys are doing all of the right things and again really excited to see that the we've done a good.

Kristin of.

Taking the.

Redneck was exciting.

To look at but it wasn't profitable for investors and by getting that off of about getting that off of our out of our business and by focusing and streamlining and and and you know cutting the balance sheet debt.

Good job and it's exciting to see where we're going so I you know I applaud, what you're doing and you know.

T per ads doubt and and.

Good things will come.

Thanks, Matt.

Just just as a quick follow up to that for.

For the Busters and are on the call of the 10-K that we're releasing.

So on and this amount of detail on it I mean, the management team has gone to great lengths to try to exhaustively give you information to help you follow this transformation and it's hard to see.

Midway and I think it's page 50, or so you'll see we've pulled out the redneck Riviera and income statement and balance sheet and you can literally see.

The terms of.

How.

Effectively unprofitable it was but but but the other aspect about it was how much capital that's being used.

And.

And so I think it's important for you to take some time and and think about that and think about the how the company is going to operate without that you know the other thing that I did want of course as we did say that we've made.

For your true improvement and the Companys performance and its hard to see that and.

And our weakest quarter and craft and it's hard to see that you know at year end and when we have a lot of.

Would I like to think of as one time items. So while we've reported to you know of.

The negative EBITDA number of $1 1 million, which seems like it's worse.

Sequentially, it's actually not that far off and since the we had a number of professional fees and fees around closing the redneck deal. We also cleaned up inventory at year end and <unk>.

You can imagine exiting a number of skus preparing for all of these new.

The products, we did quite a bit there there.

There was some compensation adjustments and also some settlements that we took care of the things cleaned up from the balance sheet and a T. T beam item wishes and subsequent events I believe that that total there was over $650000.

And then I would consider would be reoccurring necessarily and and expenses.

And so the company is starting to reflect the performance and all of the work that's been done over the last year and moving into the fall and as I said in my script when volume picks up and this company with the new products higher margin dollars, there and crops and really starting to run and youre going to see really.

The improved performance and it's going to be easier to see.

Yeah.

And our next question will come from Ross Taylor with Arris investment partners. Please go ahead.

I thought I'd break line into two pieces on that one. Thank you Jeff you actually just answered a number of the questions.

I wanted to ask about the nature of the one time items and alike and and.

And kind of give us an idea of what run rate should be we can take it out of it sounds like if the back step out that's been the case.

And also will you walk us through what brought you to the idea of come.

Coming out with this kind of premium prestige brand.

And and you've.

You've talked about very high margin and are those margin.

Stable.

If you decided to make this and ongoing product or you know how much of the margin is because you're basically has some really valuable.

Brown liquor and barrels places that just not being kept on the books at anywhere near what it actually.

Actually it's worth when you mix, it and Basel IV and.

And how much is because you can get out there and you're selling it radically different price point.

Actually Paul let me take a stab at the pulp really answers this question and better than I could but I secretly loved the you know from jumping there with the my thoughts on on harvest.

It came to the bean and it's I think it's the it's a great segue into how this company is changing and then the early on them and Paul joined the company are.

Both he and I went up to the Portland, and we spent some time with the team we were all over the business and all of two quick questions.

Question and answer period and.

And.

The Daryl and if you've ever been to visit US we had barrels that we have barrels everywhere you know of barrels of just sitting there for what seemingly forever and Milwaukee and after that time, we went through working with the production staff and we started tasting and some of the the the one off products that had been.

And there for a while and just you know had been forgotten.

And literally forgotten by the company and the reason why they were forgotten is because the company spent so much time trying to keep redneck go and at the velocity across the entire company and they were trying to figure out what's happening with the junior and why the margins on that good and.

And so what's what was fascinated literally under our noses were gyms and.

And you start pace and these things and you realize this stuff is as Paul said delicious. It's incredible and then you begin to realized wait a second eastside builds.

The new products, but as we all know and.

And that's true fairly can the thinks of Eastside as something that's bumbling along here from the past two years and it became clear at least to me the.

This was an opportunity for us to really show the market that we and the ability of the people we have the.

The assets and.

And we have the knowledge to really build phenomena.

And of the products and I think it's been great, having Paul join and with his experience and spirits and the team that he built the begins kind of.

Open the rest of the teams is the what we have and.

And what our path to success could be so it's.

It's a great story and I think you'll really appreciate it when.

And on the taste it Paul.

Yes, I mean, I'm not going to repeat it all but.

It really gets exciting because jeffs right. It was it was basically of tactical response two of problem.

Because we had all of these barrels and all of these bottles and we said well how are we kind of moving house.

You.

The Astra fast enough and we said when we got to create a new brand and that led.

Sometimes the biggest setback seats of the biggest breakthroughs and that led to the biggest Ah ha, which was we need to re brand our company.

And we're always apologetic about Portland, and our and our origin.

Everyone's like all of Portland Sucks, and then they found out Portland is powerful and the craft business, it's like the God and so when you see our new website and where do you see the new brand book and give me a range because it is so different you won't even recognize the company are these brands.

And so with the Eastside branded was inspire us to look at the business model differently, and what we're doing and actually how powerful it is.

Because we're not distillers.

But you know what we're doing that's just phenomenal.

These were buying great product.

And we're getting great barrels and we're eating and blending the product to perfection.

And that along.

Laos and much more scale than it traditionally traditional Kraft company, so I'm not going the government all of that now, but just absolutely right. We went from tactical and let's get the barrels and bottles out.

The strategic platform of branding too and Ah ha of a business model that we can grow because kraft is usually.

Very local.

They have tasting room stay have a little distillery, but just imagine if you can bring.

And to farm two flasks ingredients that are of local and indigenous with big National brands.

So you don't give up the artists and all of you don't give up batch of produced you don't give up craft.

But you could do it with a national brand and Nobody's done any of this so.

So you know this is for another day.

She really could enter into a proprietary space.

That is between a D I share or whoever else I mean bacardi all of those guys that are doing stuff on big scale and the little small craft distilleries and go in between and push out geographically to Harold's.

But you know that might involve and look more investment capital, but this thing has really inspired us to a whole new level of actually.

Well and and that would be capital it would either be coming on success of kind of or could be funded depending on how the canning business plays out I do want to say I have one more question, but I do want to say I'm from.

Point on Portland does suck the California sucks more so.

[laughter].

The last question and that without thinking of California's tequila.

And kind of walk us through the agave market things had gotten kind of crazy it seemed like in there.

Seattle, a lot of agricultural cost and in Mexico, and the shot through the roof.

And I, even this the last month and March I guess.

Avocado prices nearly doubled and it's coming out of Mexico and the like the.

And that's obviously been and impact I would think and that business, particularly.

And when you have brands that service flow and high end up all the costs seem to have gone up a lot can you walk us through that and the snow kind of how and what the game play and is going forward.

Yeah.

Well I'll start I guess I'll show you want to start yeah, I'll start with the Gaba and and Paul can really talk about the other piece of the.

<unk>.

I mean, it really is the costume on product cost too much as it's structured now and we don't sell it right and Paul can really answer the cell that don't sell it right question much better than I can but that's that's one of the things. We're working on immediately is is.

Standing and and.

And charting the path.

The problem, we can get the the the margins right and the business now you know you can do that a number of ways you could do that by raising revenues right range raising the price point and you can do that by pushing on expenses and we're going to attack both sides of the problem and we're going on we're going to figure it out I still think the this is the I still think and I think everybody.

Four of the company thinks that the that's looked at it and this is al Dandy and opportunity and it gets to the core of what you sort of turning the page and doing which is making great.

Products, our partners down there are phenomenal on what they do they really are if you've tasted the junior block which competes.

Everybody and that there was Don Julio and its highest.

Q I mean, it is literally better and better than the Don Julio on my name on it.

And it's it's a it's an SKU and if you haven't tasted it almost takes like of Bourbon.

And the problem is as we haven't been able to get people to taste it and we haven't got it.

Taken.

Right out of the the Mark and the right way, but on the cost side, we're gonna on the teams working on lowering the cost and and not relying on agave moving down all tequila companies have this challenge we have it.

Specifically with our with our with our partners because with the kill that we're using the Super premium.

<unk> taken on top of it it's a seven year of Gaba, it's aged AR, and and and black it's extraordinary and it and.

And it serves the super premium market, but and here's the Ts are probably the part of the pulse response as well as we don't see it that way and when we get and our hand right. We don't take it to the market with the same oh.

Liam.

The focus of what we have on hand, and we've been selling it.

Oh well drink.

So this is true sipping tequila that you'd been basically has been marketed as.

Just you know someplace in the lower end of the shelf.

Right.

Yeah, there's a couple of issues, but I was and the coffee business.

And the coffee is up the report growing and Orange juice, Mike and Matt.

The trading places movie on them, but.

I've got a Gaba and nectar Chicago should be right there with it because.

And as supply increases.

He says, yes, and everything cost comes down and as demand decreases the price comes down and on it and.

And supply decreases and price goes back up so the agave market to me it looks like the coffee bean market.

But so so that's number one and so there's a lot of fluctuation and the cost.

Cost of of Ghazi the.

The second issue is as Jeff said, we have the ultra premium products its not an issue it's really.

Unbelievable and I mean, I Havent you know its been COVID-19, so I've been a little and restricted but anybody ever talk to.

Tasted of Juniors, just like Oh man this.

Okay.

Right.

We're not marketing.

That product, we're basically putting it and the well and try and as you know price promote it and sell it.

And so you know we're making these depressed margins. So what we have to figure out is.

How do we make a better margin.

The screen really of positioning of branding and the marketing challenge and we were on the phone with the sales force. The other day and we're thinking of ideas. You know we have this really cool agave Sir.

And somehow you know you've got to start bundling things are of packaging things are offering different products and a way that allows.

And that drives your margin up and to present, the product and a different way look at Tequila is all about you know it's a different usage occasion of different mindset right. If your Sip and Bourbon and by the fireplace, that's very different if youre doing shots of the tequila at the bar.

And so.

We have to capture.

You know a specific identity that resonates with consumers and tie and that premium product and a way that can command a higher price tiers. The gold I mean on the on the manufacturing side. It is what it is.

And you know net there's gonna.

Go up and down and we're going to squeeze them as hard as we can and find ways to be more efficient and effective and.

And we will.

But we also have to look.

And look at the branding and the packaging.

And start enjoying.

Excuse me some of them.

And the explosive growth.

It sounds.

You know of social media is going to have a big role to play and in the.

Places, where you can get it out in front of the people who might be you know.

And the Influencers, who can bring people to the brand and I would agree the hardest thing about the spending big money for for the likelihood is if you don't like it you know you and do it for a lot and so.

Obviously, the but that would help a great deal of getting people getting things out there where you get absolutely free.

Marketing or nearly free market and by getting it in front of the people if it's that good and I think that you know.

Perhaps once the things start to open up and of course, you can take it around to places and la La land and find people who might.

And actually they drink it like it and say they like it.

That's correct and one thing that I think will resonate with all of the investors. It's been around a lot longer than I have is one of the reasons and that.

And I've been told that you know we acquired the junior and the junior was happy to come to the east side was to piggy back.

Back on the back of Redneck Riviera.

Well, if you think about it Brett next strategy.

That national burst out of it.

You know into on.

Off premise chain accounts that are very expensive and very competitive.

And assuming you wanted to piggy back on that and they have to of certain extent, but except the on premise.

So they've been going on on premise chains in the world that are very competitive and very expensive and.

So that's why I sit on my script.

No our strategy up and down the street, which is trade jargon for local liquor stores and local on premise accounts, there's an extraordinary amount.

The amount of revenue there for the taking.

So it's not that we're going to cut off of our nose here.

I mean, you know there's there's there's revenue force, it's just how we want to achieve it and.

And my message is and the strategy working on employers.

Is spending on.

Our dollars that bring us the return so just to get a product into an account.

And a low price is not sustainable.

And you know I've been of marketing for 40 years price, if you're going to compete on price and you better be the lowest.

And I mean, that's what they the kit northwestern.

The business School and you know they did you know there's the differentiation and then and there's price advantage. So you. If you really going to compete on price and you need to be the lowest price product and just increased volume and go through scale and efficiency.

So, but that's not who we are.

So we really need to think about.

You know up and down the street concentration of efforts and.

And the brand will grow to kill is on fire, we just need to be relevant and we need to have the right margins and then we can invest.

Well I will say my current comment would be it's refreshing to see you're right.

The company has kind.

And like the blind men wandering around in the room of dark room and see.

And the every wallet seeds and nuts over every care, but it seems at this point, we might actually finally have.

Off the blindfold and.

To run this business like the tax the real professional company. So I appreciate that effort.

Thanks, Ross and that's sort of excited about the year yeah.

And this will conclude the question and answer session I would like to turn the conference over to Mr. Clark for any closing remarks.

Well I'd just like to say, thank you and now it's time for us to get back to work and deliver results. So.

Curious to everyone.

I appreciate you joining and thank you for your interest and we can continue the conversation at another time.

Yes.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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