Q1 2021 Eastside Distilling Inc Earnings Call
Please note 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 and good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial results for the first quarter 2021.
And Amy Burchard with Eastside distilling and I'll be your moderator for today's call.
Earlier, Eastside issued first quarter 2021 financial results and our press release.
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 Gwen Eastside Chief Financial Officer. Following their remarks, we will open the call to your questions.
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 section 21 E of the Securities and exchange.
Of 1934 as amended and such forward looking statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and forward looking statements describe future expectations plans and results of our strategies and are generally preceded by the words, such as may and future.
Or planned will or should expected anticipates draft eventually or projected.
And ours are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances 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 limb.
And to the company's acceptance and the company's products and the market success, and obtaining new customers success and product development and ability to execute the business model and strategic plan and succeed.
And integrating acquired entities and assets ability to obtain capital ability to continue its going concern and all the risks and related information described from time to 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 31st 2020 filed with the Securities and Exchange Commission.
Now with that said I'd like to turn the call over to Geoffrey Kwan Jefferies. Please proceed.
Thank you Amy and good afternoon, and welcome to our first quarter earnings call. We achieved a number of milestones and the first quarter all of which were key and our business transformation plan.
As we reported and our fourth quarter call and Q1, we closed the redneck Riviera termination and asset purchase purchase agreement.
And you receive forgiveness for the two P. P P loans and finalize the junior purchase consideration.
These events all had an impact on both the income statement and the balance sheet, which I will detail in a moment.
It's important to remember Q1 is typically one of our slowest quarters of the year and this year in particular, we expect it to be slow coming out of that.
Pandemic with Oregon, and California is still largely shut down now.
And notwithstanding this we had a good quarter and both spirits and craft Canning.
Made more transformational changes to our cost structure, and Q1, which will benefit us as we see volumes and our business pick up pick up and develop as we go through the year.
The company is evolving and continues to make progress reducing its cash burn rate.
Now, let's look at the numbers note, we are presenting the numbers with redneck Riviera pulled out as a discontinued operation to make the results year over year more comparable.
Consolidated gross sales for the first quarter increased 4% to $3 2 million compared to $3 1 million from the same period and 2020.
Spirit sales were down two.
And 1% and a quarter when we compared to the prior year before the COVID-19 pandemic largely due to lower NGL volumes.
Craft Canning had another strong quarter with sales growing 31%.
During the quarter, we sold a total of 80 909 liter equivalent cases compared to 9700 and the prior year.
Portland potato vodka sales were higher.
Year over year was and you cases, where lower Burnside's gross revenue dollars were higher and summer and similar case sales as we began to reposition the brand.
The pandemic continued to negatively affect on from sales in the quarter.
We have purposely pulled back from unprofitable Zuni sales activities and Q1, which also affected case sales and the quarter.
Gross profit dollars improved and the quarter to $749000 up from 725000 last year and gross margin calculated off net revenue was 24% for the quarter flat and with the prior year. However.
We did take an inventory adjustment in the quarter of $164000, which reduced gross margins. Excluding this adjustment adjustment, we would have seen a nice improvement and margins to me like 30%. It's important to note. This improvement was despite the fact, we had not shipped any of the new eastside products and to distribution and the quarter.
Below the gross profit line and you can see much of the improvement Paul and I have been talking about over the last two conference calls.
Operating expenses and the quarter were $622000 lower than the prior year. However, this includes $277000 and professional fees incurred in the quarter that were onetime in nature. Excluding those expenses the improvement was nearly $900000 of expense reduction and.
Quarter.
We reported a gain from a number of onetime items as I mentioned before selling the redneck Riviera inventory.
Termination fee and the P. P P forgiveness, and a purchase price adjustment for Azalea.
And total those items helped to drive net income to $3 $7 million, which is 33 cents a share or <unk> 31 cents a share on a fully diluted basis.
EBITDA for Q1 was $4 1 million compared to a loss of $2 6 billion and the same period last year.
However, adjusting this number for onetime gains and nonrecurring professional expenses stock compensation and the inventory just and I mentioned earlier adjusted EBITDA was a loss of $1 2 million and Q1.
Now turning to the balance sheet, we are making progress and you'll see even more progress and our second quarter and poor.
See we have lowered our working capital investment with a reduction of inventories notwithstanding a meaningful decline and payables.
And your purchase agreement has been moved to long term debt.
And we've issued 682000 shares of stock and notes with a face value of 7.88 million to intersect the notes bear interest at 6% with a bullet maturity and three years subsequent to the close of the quarter. We issued the last tranche of shares and had $12 3 million shares outstanding as of today.
In addition in April we refinanced maturing $2.3 million and notes with proceeds from our private private notes placed with bigger capital Fund L. P and district to capital fund that.
That transaction also increased cash from the balance sheet.
As I explained on our last call, we continue to restructure the business to lower our breakeven and cash burn rate.
And the current quarter, we have already taken incremental restructuring actions to align our investments to improve spirit's performance and we have more.
Made incremental investments and sales and operational planning these investments had been people and process and we are immediately seeing returns from these investments and you can see both spirits and craft Kenny margins, improving improvements coming and the quarters ahead.
Finally, we have made improvements and process and controls to ensure we are accurately capturing and reported results from a timely basis.
I am pleased with the progress to date and believe we are and Pat on plans and to deliver a much stronger company.
The management team is entirely new here from.
From the CEO and Chief branding officer head of craft Canning and head of sales all new individuals and with the exception of myself, everyone has a long skill set and spirits and consumer products manufacturing.
Took time.
It took and investment and it took your patience, but the team is in place. So now you can expect some results going forward.
Now with the details of the quarter out of the way I'll turn it over to Paul.
Uh huh.
And thank you Jeff and.
Thank you all for taking the time to join our earning calls today.
And it's been a short time since our last call. We do have some substantial progress to report as Jeff mentioned.
And the last call I discussed Eastside distilling turnaround focus on fixing building and growing along with the five value creation initiatives.
Our focus.
<unk> accretive gross brand differentiation and product innovation.
Good day.
I wanted to share the results we achieved in Q1 relative to these areas of focus and initiatives specifically the key initiatives of growth.
From an operational perspective, we remain focused on improving operating income.
Reducing operating expense and breaking even on an unlevered free cash flow basis.
This and.
And solid data Q1 results are an indication of our progress to date and the anticipated results forward.
That said overall company consolidated net sales were up 4%.
Gross profit up 25% and.
And Opex down 17.
Now please note that these consolidated gross profit.
Increases are not adjusted for the one time inventory increase Jeff mentioned and are captured at the adjusted EBITDA level.
I wanted to share these numbers with healthy adjustment to highlight the under underlying trend.
From a management perspective.
All key performance indicators are going and the right direction, but.
We realize we need to be better and go faster.
The task now is to focus on execution with our new team and continue to drive profitable sales and reduce costs.
As we continue to increase operating income.
Decreased operating expense true.
Sustainable underlying fundamentals and critical strategic pivots to.
The company will move faster toward our goal of breakeven unlevered free cash flow.
And our spirits portfolio and Q1.
We achieved the results, we planned and anticipated, but the opportunity to be better and go faster still exists.
But this first quarter.
Portland Potato vodka brand revenue was up 5% year on year.
Due to the change and the new Forte bottle and core cap.
We look forward to continued brand momentum and Oregon, and expanding Portland, potato vodka to Washington, and California in the coming months.
At Burnside brand revenue was up 9% year on year.
And to increase distribution and focused on more premium offerings.
Plan to continue our expansion to 10 states and.
Maintain the brand growth throughout the year with focus on more premium product offerings.
The eastside branded portfolio.
Now in production and produced and shipped to the Oh, LCC and the state of Oregon.
We were a little bit behind and our planned launch.
Due to regulatory compliance completion.
But now fully stocked and the oil cc and selling to the retail.
He sighed brand portfolio is ready to go.
Repeat sales and the accounts, we've secured have been steady and distribution gains are ongoing.
On another point the Eastside brand recently won a double gold medal for the American single Mall, and a gold medal for the Lions Rye at the San Francisco spirits competition.
We've already gold medal stickers for these products and we could share our success with our loyal consumers.
And as Jeff mentioned, the Zhonya brand revenue was down 30% for Q1, 2021 day.
Too slow on premise sales and our intentional reduction of deep discounts.
Trend has been anticipated as we manage COVID-19.
Preset a junior pricing.
And change trade channel practices.
The plan forward is to leverage the unique premium batch produce organic product.
Focus up and down the street and concentrate on the west and geography of the United States.
We've eliminated.
Historical unprofitable on premise deep discounts and we've also eliminated the broad approach to <unk>.
<unk> sales for junior across the country.
You know overall I.
The most important results with our spirits portfolio and Q1 'twenty 'twenty. One is the gross margin improvement of 24 points.
Here's the vision was that a 1% gross margin in 2020, and now has increased to 2020 <unk>.
Now increased to 25%.
In Q1, 2021.
And this is a clear indication or executing on what we attended.
And again these results were not adjusted.
For the one time inventory increase however.
And do reflect the underlying progression against our overall goal to improve margin.
Our spirits.
Plan forward is to focus on the five strategic pivots.
Is the focus on five strategic pivots that we continue to execute with a great sense of urgency.
We're pivoting from a broad national approach to a concentrated geographic approach of five plus five.
Oh kissing on five primary states and the west and five secondary states and the West and East.
We're pivoting from a sales team that sells one account at a time to sales team that manages distributors statewide.
Plan is now underway and an effort to engage our three tiered distributors as true partners.
And as distribution marketing and price and a more profitable manner.
We're pivoting from a focus on price discounts to drive distribution and sales to our focus on brand merchandising at the point of purchase.
Build awareness trial and preference among our target audience.
And the off premise accounts this means getting to the floor with displays features and consumer promotions.
And the on premise this means conducting brand promotion nights and link consumer and brand experiences.
We're pivoting from a sales structure of 'twenty one.
Account managers to our sales structure of seven <unk>.
Distributor managers.
We've employed individuals sales capability that understands building premium brands through merchandising and promotion.
We decreased our sales force.
From <unk>.
And 3.6 billion down to a cost of 1.2 million now while the right sizing initiatives of our spirits sales force a significant operating expense.
The change is much more about hiring and deploying the right people to drive our strategy and an accelerated pace.
In addition to our new SVP of sales.
Ray Restful that I introduced and talked about in our last meeting.
We recently recruited.
Industry Executive Eric Pascal as our sales manager to lead our very important west region.
Eric studied at West point, he has a b, a and marketing and and NBA and management. He's been classically trained and E J Gallo and work for Bacardi Seagram and print Roe.
And in addition to Eric We've also recently recruited Kyle trough as sales manager to lead our southwest region.
Karl is 14 years experience in wine and spirits.
And key account management, most recently call was recruiters from action wine and spirits, a boutique distributor, serving Arizona and surrounding markets.
We have retained and maintained our eastside veteran Ryan Meek sales manager through the very important northwest region, and our Eastside veteran Bill Griffin as sales manager to lead the southwest region.
Eastern region, and the U S will be a secondary focus from the time being with.
With the goal of maintaining sales and distribution.
Overall the team believes we can triple the spirits revenue just in the western part of the country alone.
So in addition to a focus on spirits sales growth.
We've also are focusing on spears production optimization optimization.
On our list of things to do.
We continue to focus on that line item is it automation and will.
And will allow us to use our team more proficiently through multi tasking near term.
Contract packing midterm and full internal capacity utilization long term.
Eventually.
We plan to fully integrate the craft and the spirits operation for optimal input.
As you can see we continue to build a professional team suitable of leading a 200 million dollar and national craft inspired alcohol beverage company non.
Not just the $20 million local craft distillery.
Our spirits team will not only be capable of driving short term business objectives and growth, but also be able to adapt to the infrastructure evolution as the enterprise scales and grows.
I believe and I think we all beliefs were clearly changing the game we're.
And we're doing more with less.
And we're creating a unique position for the spirits portfolio.
And while the spirits vision is certainly an exciting part of the company and we spent most of our time talking about spirits.
Grass Canning division is the bread and butter of the company.
Craft Division.
Reported the craft division sales were up a robust 31% for Q1, 2021 person a year ago, demonstrating strong underlying demand for <unk> services and raw Canning materials.
However, gross profit was down 13% for the same period due to the changing customer base profile and variation and customer profitability.
The craft business is anticipated to run at 85, and 90% of capacity as we begin to enter the peak summer months. The team has done a very good job of engaging new customers and expanding services to contiguous locations.
So the operational challenge going forward is to manage the margin as the business unit grows and we bring new customers in and the mix changes.
In addition to the organic growth from mobile Canning reevaluating small bolt on opportunities for accretive expansion.
And we're budgeted this incremental growth and our physical capital plan and have identified several interesting opportunities to date.
The overall goes to expand mobile geography and services.
First the Phi a portion of the business to fixed locations and expand into bottle manufacturing.
Craft continues to generate substantial cash for east side and the plan is to increase the craft cash flow to acquisition and expansion.
Yeah.
Now turning back to the consolidated business.
Our immediate focus is to continue to achieve the 2021 goals, we share with you and our last call.
And those were at a gross sales 22%.
Broke gross profit 53%.
And reduce our operating expense 23%.
All ambitious goals for sure, but we have a solid Q1 and place and strong plans and programs to drive profitable growth the remainder of the year.
And with <unk>.
And our operational plan and strategic pivots and place.
We continue to focus and execution and acceleration.
During the month of May we'll be conducting a full forecast for 2020 one.
Both record actual results year to date and to forecast and dissipated results for the year to go.
The may forecast exercise serves two purposes, one to ensure we are on track to achieve the 2021 goals I, just mentioned and two to set a benchmark for our three year strategic growth plan and will begin this June.
And once completed the three year strategic growth plan will serve as our investment pieces to go.
And our operations and capital structure and to serve as the foundation to market the company to the investing community.
We continue to believe the company is undervalued with high potential for future accelerated growth.
We believe we have created a unique position with high caliber talent to scale craft spirits, and a category that tends to be local and artistic and.
We continue to demonstrate results will look to raise a small tranche of capital to fuel additional accretive growth.
To this and Jeff and I plan to initiate a strong external invest investor marketing campaign, and the fall to generate interest and each side.
And to share our plans for the expanded growth ahead.
Well, we thank you as always for your interest and support and Eastside distilling.
And we'll now open the line for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Kelvin and so with Wingstop capital. Please go ahead.
Hi, Dan Congratulations Paul and the amazing ballpark and see that the path.
Inbound and you guys, but on track and this is all of us.
Two questions with the cash infusion of $3 3 million from the private placement.
Does that accelerate anything in the company and what I saw that and you get a bunch and D. We are going after.
And do you foresee us needing to raise more capital B from bank and for other profit.
Greg This is Jeff.
I'll I'll take that question.
And Paul if you want to jump in volume.
Jumped and afterwards.
The 3.3 million actually.
Does raise to primarily to refinance and those two are maturing.
Here in the end of April.
And in May and.
And those down from about $2 3 million and then we had so we had an incremental $1 million.
The.
In addition to the to.
The proceeds to refinance the notes but of that $1 million. We obviously paid some transaction costs that youll see and the second quarter. So we didn't get the full benefit we're not gonna get the full benefit of the 1 million, but we did add to the liquidity and balance sheet and out to your your second part of that question as Paul alluded to the company has a tremendous number of <unk>.
Opportunities to grow.
And even with our stock here.
We think there's an opportunity to possibly raise a little bit of capital and fuel growth.
From here as we go through the year, but as Paul mentioned, we'll build and the three year plan and we're going to be very thoughtful.
Coming to the investments moving and showing them, how we're going to make.
Any investment from external capital.
Our work for all of you and buffers.
And the company, we're not looking to do a very large dilutive.
Cowboys Paul.
Alright.
And he and I just wanted to check with you.
And from the 8-K I saw that there was a $2 $2 million of other income this quarter Jewish I've asked and I know some color on day $2 2 million other income and would it be one time or would it be recurring.
Yeah, if you go down into the.
The press release, we break out the flow through.
Some of the onetime items.
And down to adjusted EBITDA, and it's important and take a look at that.
And as I've said in my prepared.
We had a lot of one time items. So we had.
Gain on forgiveness of the PPP loans is about $1 4 million, where it came from.
And termination of the line.
License agreement with the Redneck Riviera is about $2 8 million and then we also sold from inventory associated with that transaction that was about a million and then we also and we've talked about this we've been working with intersect to finalize the Virginia.
Out.
And then he was again the tequila business we bought.
A couple of years ago and.
18 months ago, and and that revaluation at the end of the year and adjustment of the final earn out was another.
Call it three quarters and $1 million of a onetime item and through the income statement. So you will see those all and that bridge.
At the bottom of the press release.
Alright. Thank you so much I have one last question and.
And analyzing the Kenny landscape for a while and I agree to a basis for growth.
Are we looking to grow all canning operation by investing and more trucks for FY 2021 and the market size thick enough to double our current and Canning operation.
Yes, it's one of the steps we are pursuing the scaling a bit.
I can respond to that this is Paul.
And just to start with your last question, yes, the market is.
And I think it's and the billions of dollars the entire beverage.
Our manufacturing industry, and the United States and contract.
Packing excuse me.
It is.
A significant size that so the size of the prizes is enormous and the challenges.
Strategically pickoff accretive accretive op opportunity.
<unk>.
And as I mentioned and my prepared statements, we think that.
You know theres, not just opportunity and mobile.
Mobile is good.
And mobile can be expanded and there's significant opportunity to expand there and we.
We will.
But there's also opportunity as I mentioned in fixed locations and when I say fixed locations, what do I mean, what's the difference well with mobile Canning, it's impossible to Pasteurize products.
Because it's and it's very it's impossible to really put a pasteurize there on a truck.
But if you have.
A.
Fixed location, you can then get into pasteurization and pasteurization.
And in high demand and.
And we would as I mentioned on previous calls with a 500000 dollar investment, possibly convert that into 3 million of incremental sales and then obviously have the cash flow proportionate to the margin there.
So that's number two.
And then.
Number three as we get better and manufacturing bottles for spirits.
Could be opportunity to actually do contract manufacturing and bottles as well as cans.
Because we will then become.
More capable and more confident.
And so what does that do for us well.
Great to expand Canning and be focused but its also very good to be diversified.
So that if mobile Canning is a little soft your fixed.
Locations may be up and pasteurization may be and demand if canning and general is down a bit bottles may be up so.
We really are looking this and in.
Beyond just mobile trucks and we're looking at is more as a comprehensive alcohol beverage contract manufacturer.
Alright, that's all from me on my and thank you.
The next question is ranked Skus me. The next question is from Bjorn Eng with Tenex capital. Please go ahead.
Hey, Paul Hey, Geoffrey Good evening, Thanks, Paul Hudson detailed turnaround and business plan for each site I think that you guys have got the right team to propel D E site brand forward and.
And that to be a shale and the off site. So I just got two questions here Oh S consumers off whiskey tequila and other species, we do see branding and marketing playing an important role in creating a consumer mindset, which translate to our b to D to undo sudden margins could you elaborate.
On the competitive advantage, we currently have over our competition and how can we carved out a niche for ourselves.
Yes, it will be and that's a great question and I would say probably the one.
Single competitive advantage, we have which is a great. One is we have absolutely best in class products.
Whether it's as I said to Eastside products, just one from gold medals.
A junior is phenomenal product, it's organic it's a batch made and handmade.
And everyone who tries it loves it.
And inside our premium products.
And you saw a bachmann and the new Burnside and black so.
A P. P V. We're just talking about that the other day for time distilled potato vodka very unique so.
I would say.
Our products are one of our most important differentiators.
The second thing we're working on is our identity because there's two things that make up a brand.
Product attributes and consumer values. So we're thinking our brands to consumer values and experiences for example.
Our Portland potato vodka.
Decided to link Portland, potato vodka to the beach and were going to the beach communities.
We're starting out with surfing and windsurfing.
So.
That adds a differentiator of identity.
For burn side.
We're doing a more style.
Oriented approach, which is black and white.
And.
We're looking at a new RTD for burn side, that's a black and gold can.
So it's as much as the product as it is the identity I take the other one point of difference for us.
Not to go on too long.
But it is the fact that we are in between.
The local craft distiller, they're small.
Very smart, but artistic as I mentioned in my prepared comments and.
And we're below the big guys with a very smart experienced team and.
Built brands and knows how to sustained velocity.
And at a point of distribution and.
And can really bring energy and oversight to our distribution network. So I think that's kind of unique to so I would say product for share identity. We're building and we've built this team to actually.
Kind of be like asleep or sell them.
Hum.
Above the craft distilleries, but below the big guys. So very smart very analytical but extremely entrepreneurial. So I would say those are the three things and.
The one thing that we do need.
And we don't need a lot of it we're not looking to create dilution, but we do need some capital and.
We want to continue to demonstrate that we're performing and we'll deliver results were consistent what we say, we'll do and then be entrusted with some investment capital to get the company growing.
We don't Wanna be $20 million, we want to be 200.
And it will take a little bit of of extra capital, especially on the craft side.
Where will we will acquire a small bolt on operations and the spirits side, we will invest and the branding we're not looking to buy more brands per se, we've got plenty of opportunity within our current portfolio. So.
I hope that answers your question and thank you for that.
Alright, Paul and thanks, a lot for the details. So I just got one question on the ready to drink Coke deal. So you I just thought you wish you were sharing about the new bonds high Black and go on T. D G.
So I'd just like to get your thoughts on Crete, and what are you doing on creating mall, Ken RTD coffee deals 40 off off premise market S. We seeded the on premise market east you affect that by Coby and mall, we have actually witnessed the success of our branch light Celsius Holdings, I and once the beverage where they have.
And different flavors for consumers to try out which attracts more variety and customer curiosity for the brand. So do you see potential in the RTD segment and do we have pledged to invest in that segment could you wash true D revenue potential of these.
Yeah, well first yes, there's tremendous potential and our TD and we just did and audit one store and I think we had somewhere of wrap out 30% to 35, our Ts and the store, we're looking at alcohol by volume and price points and product type.
So the opportunity is enormous and people want convenience they want flavor they won't colors and they want it now and they want a high alcohol content. So the market is right, it's very crowded though.
So when we come in we have to be as you asked your first question very differentiated and we think we can do that at the premium level with high quality product and you know.
Maybe shooting for maybe a more expensive product, but a higher quality product, so giving value for that expense.
Yeah. So we're looking at right now we've tested.
Probably 10 different new products three rose to the top and our first concept store sort flavored whiskey.
And our flavored whiskey, just and a bottle and a 750 cherry flavored and and.
And then the Marion Barry both tested very well and then for our T. DS what really tested well was and azania organic Margarita.
And Ah Burnside, and Cola and Burnside honey and eliminate so.
What do we think the revenue could be for our T D for Eastside.
It could be fairly significant I mean, you know right now it's it's an extraordinary lucrative space, we just need to get out there and we need to differentiate so.
I don't see any reason it can't be 10, 20 30 million for E side, but.
That will require.
Requires some investment and marketing and it will require us getting out there with a very unique product and I think both the azalea and the burn side could be.
<unk> and could deliver on the product and right now what we're doing is we're where we've already concept tested and.
And they both tested very well in terms of purchase and that now we're building product and we're evolving the business case scenario.
So we'll have motor and report back on that but we're with you. We think that very interesting, we just need to be careful because a lot of big players spending a lot of money.
So.
We want to be methodical and we want to be fast, but as I keep saying, we want to be focused and deliberate.
Yeah.
Alright. Thank you so much Paul I like how you always saw methodology go in your answer and I. Appreciate you and it's a lot of useful details is net.
Anita a privilege to be your shareholder and we are supporting you all do we thanks, a lot for the heartworm and looking forward to getting won't review and Jeffrey.
Well, thank you and how much appreciate it.
The next question is from Kelvin Szeto with G. I M partners. Please go ahead.
Hi, Paul This is Calvin calling from Singapore, and we care a lot about return on invested capital and everything Brad good and it's absolute math and I just wanted to say to young kneeling on these two and expects you have a strong game plan for his diet and you're always on SBC mixing different well Betsy if someone of the caliber alone we've joffrey and.
Janet to guide the company. So my first question is given that our as you know sales were mostly affected because of on on premise dining was close.
And even right now a thing and quite a while 2021 and number of cases AVX ship out it's still lower than quarter. One 2000, twenty's. So how are we able to do a more resilient and he says their own and sooner and.
And lip steels during a difficult period like this and I just wanted to know if E. Commerce is also another possibly D day.
You guys may be considering thank you.
Yes, and Calvin how you're doing two very good questions.
You know firsthand and junior.
I think as soon yet.
Way to think about it is going to be we might have to take a step back before we take two or three steps forward.
And.
And what we're finding on is doing is the brand has really been driven on price.
And there's a lot of accounts and we've identified where we're actually.
Give providing deep discounts that are causing us to lose a profit and lose money per case, there was one account and Florida, where we were giving $117 discount per case, and we were losing $70.
So.
When we stop that discount obviously, the account and may interrupt some business, but we're also stopping or loss of.
Probably $15000 on an annualized basis, and just that one account.
And we've identified a number of these accounts.
So the first step.
Is to really get our pricing.
And our price promotion strategy in place and we're working on our pricing model working with our distributors and we're recalibrating, our frontline and our promotional prices. We're looking at distributor margins and we're working with our distributors and in fact, our distributors have been very supportive of us.
They have said look you guys have and work to do there.
We will work with you.
But a lot of the volume has been been pushed out through low low price points, which is the antithesis of via zoom and your product.
No.
What's the opportunity for us junior and the opportunity is to really market phenomenal product and you don't do that by pricing. It has the lowest tequila and you do it by pricing. It is it tequila and deserves the price point for this batch made handcrafted.
Ganic product that's some of the best tasting Tequila available and then we need to get that March.
Message out.
And we need to merchandise the brand at the point of purchase and get it off the shelf and get it in front of consumers and the near term.
Going to be focusing on the junior black.
Which has.
Our frontline price.
Gross margin of 60%.
So that's not an issue great tasting product it retails for one O nine frontline and we could discounted down to below 100, and still have a great margin.
So and the near term its to really focus on black and the long term and the midterm, it's to get the pricing right and and the longer term is to reposition repackage and refocus the brand.
For more exponential growth.
So in the near term yet, it's going to be tough to see a little bit of volume decrease on azania.
But we're fixing it for long term growth and for sustainable growth behind the great product and then your second question on ecommerce is very family and we're all over the E Commerce.
And as much as we can be with our evolution because you know we're just now.
Fixing so many things and the company, but e-commerce for spirits is a great platform. So with E site brand. We're looking at whiskey clubs online we're looking at selling the limited edition on line and for that matter. We're looking at trying to have all of our products available online through as many outlets as possible.
And we really appreciate all your questions and your support and thanks for communicating with us and an ongoing basis.
Alright.
Boy I like the exact steps you're taking you know I think discounting is a dangerous and I'll, let spire obese patients the brand, but now we have a proper pricing and plays I think as you know will be perceived differently and I just wanted to say that demo and things that young team is executing and it's a new quota I think it's just really amazing. My last question is this where we are quiet.
I think the previous CEO, Steve believed that this is a brand and this could be a brand.
That could do roughly $5 million or sales or more and these are people us equities.
Acquisition call.
I think it is important to recalibrate expectations and I'm not holding you to it but just out of curiosity and does it still hold true and your understanding of the brand or erotic with just basic.
Belief about the other day as a potential thanks so much.
Yes, well, Jeff can chime in too and a separately, but I believe the brand has tremendous potential.
And I believe it could be a five or a $10 million brand.
But it needs to be properly positioned.
Marketed and priced and then it can be a brand that can grow when.
When you try and grow our brand.
By reducing price what happens is you get price sensitive consumers that bridge by and.
And you don't create a loyal consumer base.
So yes, I think maybe he was looking at getting no the underlying fundamentals of Zhonya when he was acquiring it.
But we do need to change those fundamentals and I think if there changed the brand can have tremendous opportunity and and could be 5 million absolutely.
Hello, gentlemen, I just yeah.
Yeah, Yeah, I would just add one other thought about.
I think as Union has a tremendous amount of opportunity. Paul mentioned, you know we're focused on the black and if you've ever had a chance to taste it.
Tastes more like a bourbon.
And then it tastes and I got to Cuba, it's pretty phenomenal it's not.
Sheila that you approach and you and you put it in a category with all the other deal. This is a super premium product and we you know we think that when people have a chance to trial and then there's really.
A huge amount of upside and you have the margin mix that Paul is referring to and the margins, but the point that I want to make it.
Kevin and I actually think that all our brands are superstars I mean look at what happened to Portland potato vodka last year and.
And the pandemic and Oregon, when four salespeople that we're all in this brand, we're saying Oh, it's topped out at kimco anymore. It's accelerated.
It was a couple of you know Paul.
Paul mentioned it in his script he repositioned it.
And with a couple of changes and Theres more to do there and this brain has really accelerated and it spreads out of the region and I think it could be a super regional brand and I think Burnside and also a brand that can be extraordinary and it wasn't marketed well I mean, if you think about the way that we approached it in the past and multiple colors and it was kind of hard to understand what which one of you buy and what price and.
We lost track of the fact with the Super premium Bourbon and one of the hottest millennial markets and North America.
Oregon and appointment and.
And.
So I just think your comment.
As pointed towards Zhonya, but frankly all of these brands could be <unk>.
Very large at some point.
Well to Jeff's point.
What we promised.
And we would be more quantitative and.
And we brought and Janet Oak as our Chief branding officer.
And we tested Portland, potato vodka, and a new bottle and.
The research said it would grow 30 day purchase intent was up 30% and when we changed.
It's a market volume was up 20% to 30%.
So we're taking fact based research data.
And we're converting it into market and we're seeing the results. We've got no research on this junior.
And we've just been trying to you know kind of fix the pricing and and.
Just are our focus so when we really get into the research and the methodology I'm sure, we'll find significant ways to create more upside.
You know kind of in vitro that we can take into the market.
And so we're creating a methodology and works and we can and we can replicate it and what that allows us to do is not waste money.
And that's the other thing we promised as we were going to test things, we're going to go out into the market and ensure that they work then put some allocation of funds behind it and spend instead of spend millions and millions of dollars and not be able to report back the results.
I just wanted to throw that into but thanks.
Thank you gel free and Paul for sharing so maybe you can give us about your brands and I think you know our earnings call is one where it makes show and it's one that drink trial and ring. So that's really exciting I just like to squeeze one more question that you buy me it'll be by home hub back to to call on C. D. C. Just announce that fully vest and the debt piece.
<unk> can remove masked in most places and so on a broader level what does it mean for us in terms of how we can execute on all marketing all reactivating the demand from our customers. So that's my last question and thank.
Thank you so much.
Yes, well you're right.
I think New York is gone up open up.
Entirely this summer and I think the whole country is going to be following so what that makes possible is it is people will be gathering at parties and entertaining more.
They've been kind of drinking alone I know I have.
But you know.
No opportunity to socialize, so the social setting.
Increase exponentially.
And people will be enjoying others company and of course, there's nothing.
Among millennials and especially as the cocktail culture has just been on fire. So so young people will be we'll be organizing and and partying and socializing.
As well all ages and demographics. So I think that we will reset the playing field force of course on premise.
And we'll start to come alive again and that will be helpful. For us because that's really as I said in my prepared statement, where we can link the brand experience with the consumer experience and we're going to do it very differently than we did it before we're not just going to go in and price low to get the well and chain accounts.
That doesn't do a lot force, it's great to get on the menu, but it's really great to interact with the consumer while their friends, while they're drinking your your product and wall Youre promoting your brands. So that's going to give us a great vehicle.
Do the experiential marketing that ive been talking about that's the place where it can happen and we.
We're going to be focused and we're going to be.
We're going to be pivoting to on premise promotions not D at deep discounts to get and the well.
Thanks, So much I can't wait to Jenny we have all of you and thank you for providing our leadership. We do appreciate your assets every quarter. Thank you so much.
Sure.
Again, if you have a question. Please press Star then one.
The next question is from Ross Taylor with E. R. S investment partners. Please go ahead.
Thank you most of my questions have been answered, but I do have.
Something I'd like to further explore it strikes me when I'm listening to you talk that.
And the idea we experience the high quality of the alcohol and the like.
Correct me is social media and Influencers and the like are going to be in.
Influential or even key and driving this and I look at the space and I noticed the other day there was a sale.
A couple of weeks ago, and Irish Whiskey brand sponsored or founded by a W. W. E T.
Now the and the line so I'm seeing this what our social Influencer and social media.
<unk> and how are we going to get people to basically force multiply.
The east side opportunity because I find the hardest thing with alcohol and the more expensive. It gets the harder it is to buy it without.
Reference point out to the quality that you're getting and someone's telling you that you were.
Pretty good.
Or tactic, that's a great question and.
I you know we.
Our team.
All of US combined have had experience with that before.
And <unk>.
You know we've been so focused on blocking and tackling that we really need to get to the fun part.
Which is the marketing and merchandising and tie ins with celebrities so.
And the opportunities are probably.
As many as we'd like.
We've had a number of calls.
From agents.
Wanting to align their celebrities with our brands.
And we also have probably a number of opportunities for product placement and.
And we've also.
And honestly.
And intentionally underutilized or social media.
Until we can really get.
Our positioning and our focus and our marketing right.
So I think the opportunity is.
Is wide open our strategy is all about gorilla marketing and all about influencing the influencers to your point.
So we understand that we haven't done it really to date because.
You know Unfortunately I've spent most of my day working on cost of goods is standard for the May forecast and working on a lot of the price modeling. So when we get a lot of the fundamentals finished which we're really.
Like one or two months away.
We are really going to be able to turn all of our attention to what we have done in the past and what we've done and that's been successful which is influencing influences, which means finding people who have a high influence among others.
No we're constantly looking for people and social media.
And I would have.
50, <unk> hundred thousand followers, but I think we could do.
A much better job back and we're not doing the job. It's just we're not focused on it for the time being.
We can bring and celebrities we can get product placements.
We can.
Increased social media and that's going to be a big discussion at our June strategy session, which we're having a couple of weeks from now or will bring the entire executive team together will play out the rest of this year and we'll play it out the next three years and I think now it's time to kind of turn the conversation there I wish I had more to tell you but.
And honestly.
We've been doing a lot of fixing and feeling really good like Jeff said about the fixing part.
And now we're ready to start to build so you'll see more there and we'll report more on that area.
For you going forward.
Okay.
Second question and I have as you've mentioned the potential or possibility for a capital raise it would strike me as obviously given the size of the company Andy.
Uniquely undervalued nature of the equity that any range you do.
Would be best and if it was done and that was a private placement and perhaps to a strategic player or someone in the states or someone who has a grill and falling interest and what youre doing well I'd love to hear you assure me that youre not going to actually get on the road and and tried to market and try to find people to raise.
And know how many millions of dollars you wanted to raise but rather.
And if you do need to raise capital when you do need to raise it led to a small handful of people who have deeper pockets and perhaps strategic who might actually pay your premium rather than a discount for it because I feel having waited for a while.
And I think that bottle volume.
Got that.
And you didn't you're handcuffed to another.
Six months waiting.
And that Youre going to drop a secondary and in the marketplace.
I'll jump in on that one Ross and I appreciate that and.
We're all.
Shareholders, along with you guys and.
The last thing we want to do is do something that's destructive for people's confidence and our intention.
And pension to build shareholder value and the end of the day is really what.
We're thinking every day is how do we move the stock up how do we move the stock up for existing and Busters.
And I think the bigger capital transactional and district two as an example that I mean it was an example of taking advantage of.
The place and the capital structure, where we could.
Maximize.
No the.
And the fact that we had paid down a lot of senior debt.
Offer and option and.
And value of the option and <unk> and.
And raised some cash flow and having to do them and very dilutive transaction and refinanced a couple of million dollars and notes right. So moving.
I mean, that's that's what we're thinking.
And just to try to find the best but for now having said that.
And I think it is important for us to go out and talk to people and I'll tell you why because then you know that's flow and number.
Number one the causes that.
The company has transitioned so significantly from what it was before to what is today, if I were to describe.
I can go and we can walk through the income statement and you can see transformation everywhere from balance sheet transformation inside the company itself the entire executive teams and semi my script is completely new the ideas and some of the products, while they haven't changed the way that we're going to markets.
So I think there's something that has to we have to do.
You know a pretty good job of walking people through what the plan is be very transparent about the plan. The plan. This year the plant from threats three a growth plan that Paul referred to and how we get there and and you know.
One investor and time and get people confident that weekend.
Be good stewards of their resources and so I think it's important that we build that I'd get inundated with calls from people wanting us to hire our Investor Relations group.
Go out and and drive.
I think the more effective way to do it is to bring you guys along and have everybody.
Interest and the company and learn about how we're going to make this into a million dollar company.
And that's going to take a number of conversations.
And that takes some creativity and it's going to take.
Busters part two and they have to.
I believe and this and we have to see people start to value of the company that that way.
More so than you know and <unk>.
Discount to what a liquidation value, which is where it feels like we are here.
I think your point's, well taken and and.
We have a lot of work ahead of us and we're and we're gonna be awesome and on track here and the summer once we get through the annual meeting and.
And had done that road of.
And the company.
Yeah, well I would say that I did the steps you've taken so far have been fantastic I don't think they've been really recognized by the market I would agree you're trading under liquidation value at this point and time and I think that the idea of getting in front of people and and honestly just kind of pushing it to boot and execution isn't there.
The valuable one and I do think that part of the problem has always been that people have been waiting around and thinking that they're going to get a chance to bayou cheaper and five and therefore, they step off and kind of just wait and since then.
Our assumption is that and you're going to need to do the deal.
What you did with refi was fantastic and I think it lays a template for what you can be doing going forward and.
And just keep pushing that way execute operationally and and honestly build the brand awareness and says we're talking about and.
And yes, I think you could find and tied to a holder base people, who might be willing to provide capital and.
Particularly given your demonstrated ability now to generate returns on what you meant that.
Well.
And if I could just chime in on that.
Just a purely say I told I agree with you.
We're going to focus on results because at the end of the day results will drive value and value and drive the share price up.
And we're gonna be patient we get calls every day you know not to we've got a lot of share of shelf, but we had even a few to discount shares too.
To do overnights, we've resisted and and all of that and plus that's our strategy is what you're articulating is to is to be oriented towards the premium price and be focused with our investors as opposed to seek a discount just to get cash in and be brought and our approach. So I think we're well aligned with you on that will seek.
Your guidance and we're happy to work with our current and Investor Group.
All we want to do is deliver results prove that we can do more and.
And and get some investment to do more.
Because I think a little bit I think we're demonstrating weeks take a little bit and go a long way.
I would I would agree and I think that that's why.
Argued with making sure that you don't don't sell yourself short I think you have food from all of that it's a matter of getting the market to recognize getting your investors.
Recognize that and I'm confident that the team you have in place.
And we'll get there and.
Hopefully I think theres a lot of things.
Fairly rapidly I think.
A change should accelerate from here and as it does I think.
We should change a year from now I think we're gonna be looking up and at a very different environment very different stock price and very different opportunities.
We agree.
We appreciate your support Ross.
Thanks.
Hi.
This concludes our question and answer session I would like to turn the conference back over to Paul block for any closing remarks.
Well I'd just like to thank everybody for joining today. Thank you for your interest and all the good questions and Jeff and I and the team are going to go back to work and and as you said keep accelerating forward.
Again appreciate your confidence and.
Thank you for joining the call have a great evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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