Q2 2021 Eastside Distilling Inc Earnings Call

[music].

Good evening and welcome to the Eastside Distilling reports second quarter 2021 financial results conference call.

All participants will be in listen only mode.

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After today's presentation there'll be an opportunity to ask questions asked me. A question you May Press Star then one on your telephone keypad.

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Please note this event is being recorded.

Now I'd like to turn the conference over to Paul Blalock.

Please go ahead. Thank you good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial results for the second quarter of 2021.

In your brassard with Eastside distilling and I'll be your moderator for today's call.

Earlier Eastside issued second quarter 2021 financial results in a press release, joining us on today's call to discuss these results are Mr. Paul block, the Companys, Chairman and Chief Executive Officer, and Mr. Jeffrey Glenn You said 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 Exchange Act of $19.34, as amended and such forward looking statements are made pursuant to the safe her.

Provision of the private Securities Litigation Reform Act of 1995 the forward.

We're looking statements describe future expectations plans results or strategies and are generally preceded by the words, such as may 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 events or results to differ materially from those projected in 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 in the market success in obtaining new customers success in product development ability to execute the business model and strategic plans success in 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 in 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, 2020 filed with the Securities and exchange.

Change Commission now with that said I'd like to turn the call over to Jeff frequent Jefferies. Please proceed.

Thank you Amy and good afternoon, and welcome to our second quarter earnings call. We reported our numbers after the close and you have a locked in we have a lot to discuss so I'd like to pick up but the theme that we've been discussing all year.

That is fixed.

Build and grow.

Well in late 2020, and early 2021 we were in the system build stage in the second quarter, we were in the growth stage, albeit early despite.

Despite reporting results that it was lapping the beginning of the pandemic in 2020.

As we reported in the first quarter, we closed the redneck Riviera termination and asset purchase agreement and Redneck has now been accounted for as a discontinued operation for those details on that presentation. Please refer to the 10-Q.

For the second quarter, we reported revenue of $3.6 million a decline from $3 eight reported in the same period in the prior year.

It's important to remember, both our Portland potato vodka business and.

And craft Canning had very strong performances in early Q2 of last year.

The beginning of the shutdown of the on premise has done here in the Pacific Northwest drove these businesses to great results last year.

Notwithstanding this tough comparison.

Spirits had a great quarter spirits had an increase in volume of 12% and a 17% increase in the revenue for the current quarter.

During the quarter, we sold a total of 9327 nine literally equivalent cases compared to 8299 in the prior year. This.

This increase was driven by zoom yet.

Burnside and Burnside and particular reported reported strong volumes with an acreage 18% increase in nine liter volumes over the prior year I remember Burnside. Unlike azania performed well in 2020, so we're particularly excited about the strong performance in Q2.

Are you said brands begin their rollout in Q2, but that didn't have a significant impact on the volume in the quarter.

Portland potato vodka was down 4% with volumes still a strong showing when considering that was up 20% last year in the second quarter.

But junius volume performance was driven by the return to on premise dining and that was better than expected.

You recall, we've been working to reposition is doing it and to improve the gross margins and we are pleased with the results this quarter.

In the second quarter last year at the beginning of the pandemic craft customers scrambled to source cans and secure every available Canning line to move beer production.

Cans from kegs.

Key beneficiary of that trend last year, while craft continues to win new customers. This year that division saw sales, 17% lower than last year as we lap that tough comparison.

Consolidated gross profit for the quarter was $1.1 million compared to $1 four in the prior year's second quarter.

Gross margins were largely impacted by supply chain pressures at craft Canning, while service margins were strong our sales and consumables were significantly lower as well as the margins we capture there now.

We have seen supply chain pressures in every segment of our business such as craft.

We responded with announced price increases and expect to capture margin in the back half of the year.

Below the line Opex expenses continued to improve quarter over quarter and this quarter, we saw a 22% reduction in SG&A and these results flow through into an improvement in EBITDA and we reported a loss of $1.1 million compared to a loss of $1 two in the prior year second quarter, but adjusting for restructuring charges and those are one time severance expenses.

Professional fees and non cash compensation adjusted EBITDA was a loss of $706000 for the quarter, a 26% improvement over the prior year's second quarter and another sequential improvement from Q1 of this year.

Now, let's turn to the cash flow and the balance sheet.

We continue to improve our liquidity position ending the quarter with $1.1 million in cash.

In Q2, we refinanced $2.3 million in maturities with a new convertible note and we finalize the junior earn out at $15 million and moved the balance owed to intersect approximately half that amount to a long term liability.

This treatment lowered the dilution impact on our shareholders and subsequent to the end of the quarter. We had 900000 warrants funded adding an incremental $2.4 million of equity to the balance sheet.

We are happy to report we are in the process of finalizing the amendment extending the lives of maturity out to mid October.

We anticipate we will be refinancing that ABL facility with a similar facility in the near future.

Now all of these actions on the balance sheet are designed to improve the liquidity position of the company.

The limiting dilution to shareholders and most importantly.

Putting gas in the tank for growth.

The company recently announced a three year strategic plan and has already made key capital investments to drive the rapid growth of gross profit dollars and Paul will talk about that shortly but before we hand it over to Paul I want to briefly address the balance of the year and our outlook.

At the beginning of the year, if you recall, we had said.

We expected a strong year with revenue growth to be about 22% year over year, excluding redneck Riviera.

While sales of students spirits is on plan, we have work to do at craft we have.

To close the gap plan in place at craft and we will see how we execute that plan, we do expect to be up in sales at the end of the year.

Not at the beginning of the year. We also said we had significant improvements we thought we could see significant improvements in gross profit up 50% and better SG&A down 23%. We are on track to deliver the SG&A improvements for the year, but the targeted gross margins will be harder to achieve this year.

Margin performance will be driven by second half performance of expanded distribution of spirits. He said new products.

Price increases and better performance at craft or.

And we do expect gross margin improvements of this magnitude, but they will take more time.

With these results.

While these results are important and reflect the improvements we are making.

I believe the most important news to share all the details around the new strategic direction of the company.

We have an outstanding management team, which is finally in place and it has a plan in hand.

That plan is designed to drive significant gains across all our financial metrics.

And now with those details of the quarter out of the way I'll turn it over to Paul.

Paul.

Hey, Thank you Jeffrey and good afternoon, everyone.

As we conclude the SEC.

Second quarter.

First half of 2021.

I believe we have about 90% of the company turned around turnaround behind us as Jeff had mentioned.

But turning the ship it just been particularly difficult today side.

Due to the lack of liquidity.

Cash burn rate competing interests and the wrong people in the wrong place.

While we still have a few things to fix and build ready to shift our focus.

<unk>.

I do have a few Q2 results and I'd like to mention that we are particularly proud of.

The first one is achieving a current cash balance of $1 million as of June 2021 actually for the team.

This is a significant accomplishment in part due to good operational management, but really.

It's due to the extraordinary efforts of our CFO Jeffrey Gwen.

Along with the unwavering support of bigger in district, two capital Fund.

The second improvement.

Very proud of and that we reported in our Q2 and a half year results.

Is improving the current ratio from December 2020, which was at 41%.

To June 2021 at.

At 128%.

Which is an extremely.

Big change for US the reason for this ratio improvement is the substantial reduction of her current liabilities.

Settlement of D. Assuming your earn out.

The restructuring of the notes payable and the reduction of the LIFO credit facility again, recognizing the great effort of our CFO, Jeff and our stakeholders.

The third.

Area that we're proud of is increasing stockholders equity of December 2020, which was.

A negative $1.1 million.

June 2021 that was up plus $8.7 million.

This was primarily achieved by securing relief from our PPP loan.

<unk> debt to equity and income from discontinued Redneck Riviera operations and.

And lastly.

We're very proud of growing EBITDA grew 70% year on year.

Which was.

Negative three eight as of June 2020.

And as we reported now a plus 3 million June 2021.

This was primarily achieved via net income from discontinued R&R operations.

And lower loss from operations overall, so four areas that I just wanted to mention that we're extremely proud for them.

Product.

When I started as CEO about one year ago in July 2020, I was optimistic about the prospects for each site.

The path to success.

And the obstacles ahead, we're not clear.

Could see the possibility and the opportunity to stabilize operations begin to build value.

Now one year later.

The impact of the Covid pandemic and the.

Plethora of obstacles that we've had I'm, even more excited about the potential of the company.

Primarily because the path forward is clearly delineated and we now have a specific and realistic three year strategic growth plan.

In addition to the one year's turnaround, mostly behind us and a clear three year plan.

We have the right people in the right place and most importantly, we have you.

We have our stakeholders that are very supportive of the team and our plan forward.

And more than the financial support itself.

I can't emphasize enough how much management appreciates moral support and you expressed confidence in the team and in our future.

Your desire to see US win is very motivating and I can assure you. This type of support that propelled the team to deliver extraordinary results as we execute our three year plan.

So.

With one year complete.

Like to share how I see the business and how you might think about the business.

Obviously, the market is not static and with Covid ups and downs as Jeffrey mentioned, the dynamics and challenges are more significant than ever so.

So we must.

A clear course learn very fast as we compete in a hyper dynamic market.

Be flexible to change rapidly and most of all focus on execution.

Deliver the plan.

First spirits division, while we have work to do I believe are now on the right course.

Since our Q1 call our VP of spirits sales Ray Wetzel was taken out.

Immediately recruited two sales industry managers, one in California, and one in Arizona.

He built a new pricing model by brand by state.

Guide, our sales team and our distributors forward.

We stopped all below cost discounting that was destroying profit. He focus this team on six states for brands and 20th Skus.

With only two months in the new role Ray and his team achieve disproportionate results in their second month at the helm.

In the month of June.

So June specifically.

With reported sales up 19%.

For spirits gross profit up 20 <unk>.

And operating expenses down 28%.

For the month compared to June 2020.

As we speak today raise making distributors changes in the state of Texas that will expand our brands from one to four and our excuse from 6% to 20.

Janet Oak, who you all know our chief branding officer is now partnering with way.

To execute a three prong approach to building our four brands, which we've discussed that include engaging.

Consumers at the point of purchase with point of sale Targa.

Targeting micro community events to sample products and linked consumer experiences.

Hi.

Bill brand champions, primarily through social media.

Most recently to round out the spirits team, we just recruited Joe hybrid him to <unk>.

Spearhead all of our spirits supply chain, Joe will work with Ray and Janet as we continue to produce.

<unk> quality spirits products.

Explore select new products and as we streamline the supply chain to optimize efficiency.

Joe will be building, our distilling capability, along with purchasing our finest product for lending and barrel aging.

In addition to being a head winemaker for E. J Gallo Joe has also been an extraordinary distiller.

He's the superior executives with a depth of industry knowledge across the supply chain.

<unk> is very fortunate to have Joe is a new team member.

So despite.

A bit of a soft spot for spirits revenue in the first half of 2021. The team is now in place of course is set and the growth will accelerate in the back half of 2021.

And the next step for spirits is to ensure we maintain adequate cash to execute the plan.

So switching over to craft with the craft CMV division the.

The environment for manufacturing and supply chain has changed in a rapid manner.

Limiting our double digit growth plan in the first half as Jeffrey mentioned.

Because the specialty and craft Canning industry, one of the biggest issues is been can't supply.

<unk> cost.

For the West Coast mobile Canning industry in general.

<unk> demand has been consistent with capacity utilization it shifted.

Less larger runs two smaller run.

Craft revenue is.

<unk> increased due to the higher price charged for the smaller runs.

Been offset by lower revenue generated by each of the small run.

As Jeff mentioned first half craft profit was impacted by lower can margins.

And the increased downtime between smaller runs.

<unk> has since taken action to raise can't prices mid 2021 to improve margins.

And to increase service revenue with new customers in the back half to mitigate lower revenue from smaller run.

So clearly the overall solution for craft.

Scribed in our three year plan is to pivot.

Is it from a single.

Mobile Canning business, serving small craft brewers in the micro beverage market.

Two.

<unk> and Canning.

Solutions, serving small medium and large customers in the micro beverage market.

Now as we mentioned in the three year plan. The primary driver of this end to end strategy will be expanding craft capability digital craft printing.

Can printing solves a number of issues for the customer.

First it's uniquely recycle cycle.

Where plastic sleeves, and other labels or not.

Second it eliminates the need for label application on the line, which will increase efficiency and reduce bottlenecks.

Third the graphic quality.

Comparable to large back.

Large bets Scotch silk screen cans and finally, it can be customized to any size order.

Craft management estimates that 80% of our current <unk>.

<unk> mobile customers preferred digital printing option and they move to digital printing, which could amount to 8 million cans and significant incremental revenue per can.

In addition to serving our own mobile customers.

The opportunity to print cancer other beer wine RTD and seltzer beverage customers is significant.

Craft team believes one can't printer at capacity in.

And produce 24 million cans and generate over $5 million in revenue.

The second driver of the craft strategy is the addition.

Pasteurizer at a fixed camp facility.

Because the pasteurized or so larger mobile options not feasible do.

The immediate revenue from pasture.

<unk> can products could exceed $5 million in the near term.

<unk>, we believe <unk>.

Fixed facility can generate $20 million in revenue overall.

With three strategic pillars in place and our three year plan for craft printing.

<unk> and mobile.

Craft can expand well beyond the current mobile for your customer base and potentially exceed $50 million in revenue as outlined in the three year plan.

A big part of the three year plan will be accessing additional shares and we appreciate your vote to approve the incremental shares on the proxy statement.

The three year plan only requires the use of five to 7 million shares with the remaining 13 to 15 million shares on the shelf and available for highly accretive acquisitions.

We believe craft can generate strong cash flow with a portion of the cash flow allocated to spirits and the remaining allocation to debt and debt reduction.

The two business units are highly complementary.

And together and combined we believe can accelerate value.

We really look forward to discussing this in more detail with you and if you're interested to discuss the three year strategic growth plan further.

Courage, you to contact Amy <unk>, and she will schedule time with Jeffrey Ni.

Again, we thank you very much for your interest your support and we'll now open the line for questions.

We will now begin the question and answer session.

I'll ask a question you May press Star then one on your telephone keypad.

Are using a speakerphone, please pick up the handset before pressing the keys.

Jay Your question. Please press Star then case.

At this time, we will pause momentarily to assemble our roster.

Your first question comes from Don Yang with Tenex capital. Please go ahead.

Hey, Paul Hey, Congrats on a great quarter, we had been following the progress I'll decide anything exciting to see how the story is unfolding.

I have a question from Paul <unk> from our previous earnings call.

Research based approach to market our brand of Pvs. So could you give us an update on that front, but the bulk of the data what kind of reopening the brand with the beach community became more consumer mindshare, and how do we measure our progress and success of our marketing campaigns.

Thank you.

Okay well. Thank you for all your support I appreciate you attending.

First of all.

We are continuing to research our brands.

The most recent research we've concluded.

It has been on new products.

And we researched a number of concepts.

That led us to flavored whiskey.

And we're now moving the flavored whiskey for E side a cranberry.

<unk>, Barry and a cherry into the market.

To evaluate the end market.

Throughput and revenue and that specific research was very positive about those flavored whiskeys.

Particular.

We also are moving forward with an organic junior Margarita.

<unk> research tested very well.

We're now perfecting our product.

Packaging and we have yet to move that into the market, but that will be the next step.

And one of the last new products, we researched has been.

Burnside.

And that tested very well for an RTD and we're moving that now from product concept and product development into market in the near future.

The second research, we conducted that has propelled us to potentially move in a different direction has been some of the packaging and positioning research on tequila.

And we've looked into different packages and we're now looking at different positioning so thats propels us forward the way once we get settled down the way we're going to manage.

Research forward and really understand how these brands are expanding is through a brand equity matrix.

So when Janet Janet and I happen to work together maybe.

Don't know 15, 20 years ago, and we put together a brand equity model for the spirits industry.

And the brand equity model primarily.

Looks at.

Attribute ratings.

Derived attributes, which are basically a combination of attributes now as we get more funding. We can then move to more primary.

And more syndicated research and we can then pick up on some of these attribute ratings for our brand and specifically measure the equity development.

Unfortunately money has been very tight there's just been trying to buy material.

Hey.

Salaries, but with everyone's support now returning.

Warner.

And we will be able to do more.

Alright, Thanks, Paul So that's what my next question as to renew lobbying by different interest groups.

Laws on direct to consumer, especially default alcoholic drinks so.

How does this impact our business and relationships with key distribution channels.

Well it impacts us directly because we can sell direct to consumers.

It's a little bit tricky when you're in the three tier distribution system.

But it does impact us I'll tell you the thing that impact us impacts us even more here in the United States.

If you're following the attorney general.

And his white paper on three tier distribution in the spirits industry.

<unk> come out and said that it's apparent to him that a lot of the big distributors in some of those that we're even with today have been creating a monopoly in blocking small craft beverages and small craft distillers like ourself from participating in the marketplace by taking on new products and expanding.

Allowing us to expand into new markets. So direct to the consumer we're taking advantage of.

We're also taking advantage of these specific clubs and we can sell directly to.

But most importantly to me the biggest trend and the biggest influence has been around the attorney General view of three tier distribution and the monopolization that could be taking place with larger distributors that will benefit us more than anything.

Alright. Thanks, Thanks, a lot Paul planning cycle. So I've just got one more question on disappearing site.

Wondering what is the difficult mockup at the industry practices is it is somewhere between 15% to 20%.

Okay for you to comment on that please.

Oh sure.

No the markup is higher.

Because what we look at is when we look at our price matrix, we look at Mark up in margin.

And the first thing is mark up and.

And their markup is closer to 30.35.

And their margin is closer to 20 or 25.

So they're marking up higher and then obviously then theyre taking their margins. So so yes, mark up is.

I'd just call it 35%.

Plus and their margin is in the realm of 'twenty two to 'twenty five.

Alright, alright, thanks, a lot Paul Thanks for the insight I can ask one question on <unk>, but I think I will jump back to the queue. Thank you.

Hey, Thank you.

Again, if you have a question. Please press Star then one you're.

Your next question comes from Ross Taylor with Ara.

Please go ahead. Thank you.

Can you guys go a little deeper into how you're going to get utilization back up and in the craft side are you going to therefore drive back higher margins, you talked about price increase and things of that nature.

I will.

Kind of thought of craft as effectively a very important driver going forward.

And this pickup obviously is something that would seem to me to be addressed.

Early quickly also you talked about the ability to printing on the can.

Can you talk about what kind of margin increase that.

We should expect to see from that and what kind of growth we should see.

And does that.

In and of itself will that be.

Meaningfully increased demand or.

Yeah.

Mobile Canning business versus.

<unk> is driving up the price for those that you currently.

The value added from any such standpoint from those who are working with.

Well I'll take a quick shot and then I'll, let Jeff jump in.

The margin drop off on craft as Jeff said was extraordinary I mean.

The half year last year, the margin for craft was 46% and through the half year. This year is 37% so while there's been margin decline.

The pandemic really drove it up.

But we're still at pretty good margin levels.

So the challenge is to.

<unk>.

Maintain that 37% push it up a few clicks get it closer to 40 through the price increase and other mitigation measures.

So our position on the margin is.

Yeah. It was disproportionately high before now, it's probably where it's.

Should be.

And we were hoping we can hang hang on a little bit longer it hasnt.

So switching over to printing the printing margins.

For customers that would buy.

Can the printers would be in the realm of that margin expectation somewhere at 38% to 40%. So there would be no margin deterioration it would continue to support our margin.

And the one thing the way we can.

We believe we can fortify the margin and the market going forward.

Is to is to bring end to end solution. So if we can offer printing.

We can offer.

Canning.

And in some cases pasteurization that would be enormous let me give you just one small quick example.

First of all printing is sustainable.

Which is huge but secondly, a lot of these craft brewers are putting sleeves on their cans and then there are heated to shrink and.

And that he is actually altering.

Taste of the product so what they can do is now they can print cans not sleeves them and not eat them on the other hand, some customers actually want products to be pasteurize that can't be.

So for us to bring more capability more end to end solutions and more of a complete package to the market.

Well really actually open up a bigger market to us and a bigger size of the prize so really we're shifting from <unk>.

Mobile craft beer to entity, and then craft beverage and that's a big shift creates a new market and actually allows us to bring in.

We think more customers the other point I'd like to make I could go on forever, but I'll keep it short as with mobile Canning, it's really hand to mouth right meaning.

We get a customer.

Maybe we don't they don't return or we get a new customer their own return.

We bring end to end solutions that we bring the printing we can actually start to ask customers.

Two.

Come on for longer term and potentially sign.

Contract packing agreement.

So a lot of what we're talking about has tremendous upside longer term engagement with the customer and maintains our margin and we'd be certainly happy to elongate on that discussion, but for today I'll keep it brief and I'll, let Jeff chime in if you'd like.

Yeah, Paul I would just say Ross one thing that.

I can rest assured we're not happy with how we buy cans.

At craft.

We're in a business, where we're sourcing cans from <unk>.

Middle Man, it's been a scramble to buy cans, frankly, and as you sometimes get in a position where you're unable to get the cans customers by cancer themselves and they're developing their own supply chain and you lose the opportunity to catch the margin there and that had a big impacting the gross margin specifically craft without change in the quarter, where you would have seen.

Something completely different but to Paul's point about the strategic direction of the company with end to end strategy.

Lately changes that picture.

We can walk you through how literally can has produced a ball and makes its way onto grocery store Shelton is consumed when you think about where that can have to go where it has to travel the lead times the graphic impact as Paul was saying later after its use of Recyclability.

And I'll walk you through the new.

Pat Mccann takes.

Future 2.0 of craft Canning is going to look completely different and it's going to make craft.

Bruce.

How to adapt quickly to.

This new opportunity with digital printing and I'm, just pleased that we're going to be on the forefront of that and we have a great partner there we haven't talked a lot about that but.

It's transformational for craft and it's going to be a huge driver of the gross margin improvement that we've talked about we said, we're going to see gross margins up 50% I don't know I don't have any doubt that we're going to be beyond that number.

Some near future, it's about timing and the execution of the plans there.

It's about executing that now.

I'm pretty confident.

We're not going to have this kind of.

The impact on our gross margins because you know.

Can pass through.

Gross margin was not going to be that important to the company in future quarters.

So yes that raises.

Real question.

How many can.

And I'm going to ask him, while I think of them as you know unsustainable consciousness.

How many can do you need to be using to where you can go direct to ball or one or the other can producers.

Then is you talked the significantly greater margin.

On a cents per share you'll make a penny or two a can now yes.

What do you end up making moves to get things and you end up being able to do both printing.

Here, you talked about Pasteurizing any going from basically <unk>.

Beverage from brewing I take that to mean.

Everything from.

<unk> line product to tires and things of that nature. So.

How big a market Norwegian does that expand due to and then also long term contract how unique is what is that.

Technology and <unk>.

People really willing to pay for it and lastly.

It sounds everyone thinks the craft is really kind of like the cool the environmental things.

Kind of the way you hit back at the man.

What you are saying is that basically if I have a currently a craft canning with a shrink wrap I can throw it in my recycling thing, but someone has to pick that out and it's not recycled.

Right.

<unk>.

Actively how do you have your market the advantages the environmental advantages.

This technology so that.

Itself and I walked down the aisle and see all these super volatile label I want one and how do I know.

I'm not going to know that it's actually printed on the can and not.

Simply yes.

Adhere to the can.

Yeah, well, let me let me hit one point so let's go back to the can number a person can Paul alluded to it I think we are.

Talking about.

An opportunity right now to convert.

<unk>.

8 million cans of existing customers.

I would actually call that and say that when.

When we look at how many cans, we buy to today.

We look at where we are on the Capex plan.

Part of what we think will be at the end of next year I mean, we're going to be talking about.

Changing that number by a factor of at least four.

I mean, you move from.

So 50 million cans and.

Youre not buying from a middleman.

And if we're not buying from ball and kind of directly we're going to be the biggest importer of cans in the Pacific Northwest and I don't think the ball and groundwork that so.

We're here to tell you we're going to take.

Take this strategy to the Pacific Northwest and we are going to dominate.

And we're going to dominate and we're going to provide outstanding opportunities for customers to do marketing that you have never witnessed before.

And the timeframe on how they execute is going to be.

I mean, it's going to be completely different from what they do with today, which is long lead times for labels and shrink wrap products. So.

So we can get into some more details some of this still has to get.

<unk> put into place and we have to execute we don't want to share too much of the strategy upfront, but this is transformational and just did not neglect the spirits side, what we're doing in spirits I think can be as transformational as this or some of the new products.

The the distribution focus that we're doing pulse alluded to this in his script and I think you have to pay attention to that where we're changing distribution in Texas.

It's kind of speaks to what pulse spoke about with this.

Effort for people to realize that craft is pushing its way.

And up until now and so a lot of resistance from distribution to it.

Take more share in craft markets.

That's going to change and we're already seeing that start to change in some key states mhm.

Uh-huh.

Okay. So let me take it go.

Got it.

Go ahead, no I wanted to take a shot at the recycling because you hit on a really.

Big Big topic here and the irony is that.

Just what you said.

Everybody's drinking all the craft beers.

Millennials young people or relatively like you said.

Countercultural and they're all for sustainability, but theyre drinking out of cancer that can't be recycled.

So it's gonna be like an Intel inside.

<unk> marketing to the customers to the small Brewers, but trust me, they're going to do the marketing and we're going to put a small logo on their like like Nutrasweet did I was in the sweetener business.

That says craft recycling.

We are giving that this is our can this is recyclable.

And we have a small logo on their and our customers are going to want to market. It themselves because it's a huge benefit to their end users and the irony is theyre.

They're not doing it now so that'll.

That alone would cause almost complete changeover.

And in the market. So I think you hit a hot button there were on top of it we'll be doing the beta b and the customers are doing be doing the BDC I promise you.

Okay, and then two quick things one that Youre talking.

About being able to increase you can utilization by Forex over the next year.

I'm, saying that the number.

With what we have in the plan.

And what we think we can do it.

Well.

It's not unreasonable to see our cam throughput increased by four fold.

Okay.

<unk> is obviously powerful and meaningful even without these other advantages I wanted go real quick to the east side.

Product.

Hey, I have to say I don't know, they're not available back to you I've got my hands on a bottle of beer Rye Whiskey and I had a friend with me who basically I think took a strong finished the bottle in about a.

A few hours it was an amazingly good luck there.

And I'm not a rye whiskey drinker and I thought it was really powerful how do you get that product out there so that people start to recognize.

Well honestly really good debt.

Yeah.

Well can I jump in there real quick Paul I'd say, one thing and then Paul can explain how are we going to sell it.

One of the things about this company that people have started to understand is we bought a lot of brown spirits, a long time ago with the view that we're going to be selling Burnside nationwide right behind Redneck Riviera Redneck Riviera Ross.

This is <unk>.

Do you have what the old.

<unk> was going to be the rollout redneck Riviera create this pipe and down that pipe, we're going to be selling Burnside and mass.

And they built the back end of this for that not to production, but the raw material. They bought a tremendous amount of brown spirits and not cheap stuff. Good stuff. They went out and they bought brown spirits from groups that were going out of business. They bought inventory when it was available company sits on really important valuable brown spirits and.

We can't predict.

Use it.

As you know.

And at a reasonable rate.

Pat just gets older.

It's aging.

So then we can sell it when people wake up to you know how good. This this product is I think the pace of sales increase youre seeing that Burnside. This quarter was phenomenal I think it was a really impressive showing and there was nothing behind it we just put in place right once all the time.

Sales he has kind of wound up yet to throw the first pitch. So theres a lot of horsepower behind Burnside to come and I'm excited about it I'm sorry to watch Paul drive the team.

And have that distribution would be more.

More clear, but it's important for people to realize that this is really outstanding spirits to start with and it's a product that wins awards.

So I think that's the important point to start with yes.

Yeah, and even better than winning rewards I'll be honest, it's just one of them.

The hardest things to do with the 60 or $80 or something that you're not sure you're going to like.

And so when I drank it I think with some trepidation that I wasn't quite sure what I would do with it I didn't like it but it was pretty damn amazing stuff.

Yes, no we've won we've.

We've launched new products, we launched Burnside, Black, which is Orion a bourbon cask.

We've launched.

And east side American single malt Scotch tasting sharing cast both of those got immediate gold medals.

But the way we're going to do it is.

Similar if you want to look at a story that is advanced look at maker's, Mark because I used to work on that and I would like to make with bill Samuels and pick and Stairmaster bird.

But it's word of mouth, that's how we're going to grow these brands and the way we're going to get word of mouth is through micro marketing and you don't see it on the east coast, because we can't do that across the.

Country, we got to start concentric Lee with <unk>.

<unk>.

First and as we said we're going to be starting in the neighborhoods, we're going to be starting at the parent or purchase the point of purchase is going to be our medium of communication.

Consumers walk in the store.

That's where our advertising is going to happen because thats, where their decision happens and then we're going to.

Do micro events.

We link consumer experiences with the brand experiences and.

Then.

Obviously, we're going to engage consumers directly so it's word of mouth and micro marketing, but we will build these brands.

And we will do it.

[laughter] like one consumer at a time, but that's why we're focusing on the on these key states and you might not see it although we will be in the east coast, but it is not our target.

Okay, well I understand that I need to acquire patients, but it had been in the east side shareholder for a wild basin.

I seem to have acquired.

[laughter].

We'll ship it directly to you just to ask us and we'll send it to you.

Expect a call in the near future.

I'll, let you know.

No problem.

Sure.

Thank you gentlemen.

Your next question comes from Harold Weber.

The <unk> capital. Please go ahead.

Hi, guys how are you doing.

Great and the arrows.

The hope you guys are healthy.

The.

So it was just being asked I wanted to get an idea of when you go in and.

Do some kind of pilot test marketing add on the east coast with some of these premium products.

Hum.

I see the market is what should I say.

<unk> is very open to stuff like this I see new things coming that constantly and I'm wondering when are we going to be able to strike.

On brand building.

Maybe you could do some of that micro marketing in some regions over here.

So I was wondering if you could give some color about that.

And in regards to the.

The credit to Canning these.

I'm trying to understand is properly. This is digital printing. So this is a machine that's mounted on the truck or this is a separate facility how does that work.

Yeah, I'll start and Paul can jump in on the distribution.

Yes, the printing that we're talking about is in digital.

Direct to <unk> printing.

Technology is.

Very new.

However has been well trialed and theres not too many people in North America with this technology, and we think Theres a limit to the ability to bring this technology to the market. So we're involved with the partnership to bring that to the Pacific Northwest to Europe.

Your question and it's too big to go on their trucks so think.

Think of it like a can bank.

One can we source in print.

Four.

For customers and then we hold it in our existing footprint.

And activity, we don't think there's any other mobile operator, thats going to have the technology that we have.

Okay. So currently now Margaret Yeah and.

And then you printed cans and put them on the truck because that the idea of basically the that's right that's right.

The cans are getting moved all over the place and logistics to to get them to a point, where we can fill them look we're not doing that.

<unk> were up in the labeling we don't do those now we don't.

We have a label there, but we don't do the shrink wrapping but.

But to your point about the move to the East Coast I think an important part of the strategic plan.

I would encourage people to look at and think through is the the.

Our focus on the craft markets I mean, it's a really important when you think about the business and craft brew.

Beer.

The.

Craft markets Havent really exploded and you can go just about anywhere in the United States and see it taking hold in Russia in the restaurants.

In grocery stores.

In the case of I'm afraid.

Okay.

Neither boom that I'm talking to the spirits. The model were moved whiskeys Brazilians the potato if that's right I'm talking right.

I'm getting there I'm, sorry, I'm, a little longer so what I'm going to say is in spirits, we haven't seen that yet in the sense that we don't it's not as open as Paul referred to earlier there has been.

Obstacles and distributional. However, it is happening in core craft markets.

So we in the three year plan have identified core markets in what.

One of the important things to understand is we're sitting right on top of <unk>.

A treasure trove of this core craft market in the Pacific Northwest in Seattle, Portland, Oregon.

Colorado.

Parts of California, Texas. These are key craft markets, where it is happening in spirits is starting to really take off same thing is happening to other eastern markets. You. You highlighted you know whats happening in Vermont and another in Maine, other core markets like that but.

But one of the things that are different about the.

Connecticut.

That's really what I'm talking about huge amount of people paying premium prices for this kind of booths.

Yeah right.

Let me jump in.

Well look Harold.

We're really just trying to utilize our resources, which are very thin right now and obviously when we get the shares and Jeff does.

Good work with some of the credit facility, we will have more liquidity and more availability.

Okay.

Right.

Take your book.

But I take your point that will try and we'll try and get to Connecticut, or New York rate right. Now is just trying to deal with some of these bigger distributors, he's putting broker and east coast.

You have it in mind that it's meaningful to them.

That at some point, yes.

Forget to put it right next to your house, we're going to put a Billboard up how we're going to cover all of retail.

Yes.

So that's one.

I could do it with.

No.

[laughter].

Okay.

Okay. So the strengthening scenario with the cans.

Until when and how long is this going to take them when it until it actually becomes an operational reality.

Well right now.

Probably the first of the new year.

Okay.

An operation, which is amazing we're starting a we're starting a planning task force, we actually just kicked it off we had a board meeting yesterday. The board approved the three year plan. The board approved the Capex plan pending somebody your support with the shares and now we've put our planning task force together.

<unk>.

And we're going to the first thing we're going to do is explore.

In Kansas, Jeff talked him to try and.

Get some quantity.

Profit going on that part of the business, we're going to look at facilities and we're going to now.

Make sure we get the equipment on time and that we're ready to receive it I mean, that's a multi.

Ton operation It takes a lot of power.

And it takes a lot of planning so we're starting as of today.

And it'll be operational.

If all things work.

First of the year.

Your next question is a follow up kind of Don young with snacks pop health.

Hi.

Hey, Paul Hey, Jonathan on some very interesting conversation.

Thank you very much so I think that some follow up questions on the crop as well when we look at the price. It is not the <unk>. He has been rising because of commodity prices and <unk> segment and hopefully it would be have we been able to pass on these costs down to the customer this quarter and.

Those are some key on the supply of cans.

Well.

Yeah.

I'll hit that one.

So we do we can get the Kansas, we need we haven't.

Been short.

Sometimes it comes at a higher price, obviously and then we are unable to pass it through with the adequate margins. So as we said in the script. We've passed on some price increases those will take hold we'll be able to manage our margin better but.

The other thing to think about I think on this and it's really.

Probably hard to see that but everybody probably following other companies you've seen that the logistics.

That are going on right now are the <unk>.

Supply chain trouble, that's going on right now.

<unk> has a big impact on stuff like this so this is not just the price that they want the cash.

The raw material, that's moving but then if you have something and you need to they need to move to truckloads of cans from here to there when you get quotes on ship in there.

It's astronomical and it puts the price of the <unk> or something in Europe.

You have to eat that.

Build that into your margins so it's.

The effective full picture of the supply chain, having enough cans on hand, having them at the right price not having to do last minute freight and.

And how would that impact your margins.

And that's what we're fixing them.

Okay, I'd like to do something I would like to say without getting too deep in the microeconomics, but there's two fundamental issues happening.

Alright.

One is we're just a teeny tiny player buying these little.

Buying small batches of cans, which is killing us.

And to the market dynamics have been really.

Kind of Crazy.

And so we know that.

For one we if we get bigger we.

Have more buying power, we have more cloud and as Jeff said, we could either go direct or we can deal with some of the big players. The second thing is the market dynamics.

About a year year and a half ago prices of aluminum was we're pretty the cans are pretty stable, but all production stopped I mean, because the COVID-19 whether it be lumber if you look at lumber.

That's pretty synonymous with what happened to it just production just stop so then the price the availability was limited and so prices started to go up.

Now that was good for us in the fact that cancer with limited we had them so everybody came to us.

Now what's happened is.

Production started up again cancer available, but prices are still skyrocketing.

So.

We're going to solve the problem by becoming a bigger player.

And by arbitrage carefully arbitrage.

Price of cans and aluminum with the price to the customers.

Those I would say it would probably be the two biggest initiatives, we're going to take going forward.

Alright, thanks for the color on job. So my second question is so solely with regards to craft Canning and modeling so could you share the profit.

The stability of the different revenue mix I know you have Ken prepaying, the fixed Ken production as OSD mobile Canning.

Yes.

I can tell you that we make the most money right now on services.

As you can imagine and consumables were were.

Was the area that we're working on currently when we add the new component. The pulse speaking too it's going to have another big positive impact on margins, but I think the bigger opportunity is.

The synergies between all of them together and I can't stress this enough.

<unk> ability to for our brewer to be able to source a printed can have it filled.

It just takes around how a shortest kind of stopped.

Less travel might help to this team's gonna have to go through to get to the consumer is going to have a big impact on the ability to change how they approach their business how they target.

<unk>.

Products to produce how often to produce there.

With their marketing, how theyre going to tie in with local opportunities there.

It's a big opportunity and it's not just beer, it's going to open the doors up to being able to serve.

A large number of other customers beyond who we currently.

All of our customers so.

The margins are going to be.

I think improvement across the board from here that gives me the confidence.

I spoke to earlier about still achieving those.

Improvements in gross margins.

Yes, just to add to that the other thing we haven't talked about we could kind of elaborate here are quite quite specifically, but.

We're going to change our game plan right now we service kind of a medium market.

In the mobile market.

But there is opportunity to even go down to much smaller customers that are just starting out.

With smaller trucks and box trucks, which we're going to do so we're going to add two or three smaller trucks smaller lines. So we can bring in smaller customers. We're also going to look at having.

Not so small medium and then potentially larger runs but that could be either service through larger mobile opportunity or the fixed facility.

So we're actually going to expand.

I really think about when we think event and it's not just printing filling and packing. It's also a small medium and large and we will have the ability to go out and do things for customers.

Whether theyre doing this small medium or large run and let's say a brewer wants to do on October 1st instead of taking a week to run it on our mobile line, we could bring in in our fixed facility and run it in one day.

Print there can so there's just.

It's going to bring a lot more customers into the fold.

And by having so much capability that we can uniquely offer.

We should be able to command a disproportionate margin over other competitors in the marketplace.

Alright, Thanks, a lot Paul Thanks, Geoffrey So just one last question from me so in.

Our three year operating plan.

Did you plan I believe which is conservative I was wondering if we can give you project any recurring revenue is that display.

Great question. The reason, we didn't put any RTD and the plan is because we when we went to the board. We really didn't have like would you asked are we doing market research how are we moving forward methodically and what are we doing.

We really didn't have any products in the market or any proof of concept ready to go.

And you know.

To be honest you know the board was digesting a lot.

All craft plan and the overall.

Capex requests. So we said you know what we'll leave our Tvs out of the three year plan.

But we're going to continue pushing ahead and as we launch them in market and we have proof of concept and we have.

Real quantitative in market.

The results.

We'll bring them forward and we'll include them in the plan. So they're very much part of our of our ethos as you can imagine I mean, what's better than us producing rtd's and craft manufacturing them right.

But we only want to put things in the plan that had a little bit more teeth to them. So.

So great question, where you didn't forget about them as.

As we do our strategic plan next year or in fact, as we do our budget.

We'll obviously be putting those type of products back in.

And allocating funds to them specifically.

Alright, Thanks, a lot Paul jump in.

So we are really looking forward to CD three year strategic plan with you and nice progress at <unk> and <unk>.

Just wanted to say thank you all for the hard work and have a great deal.

Yeah. Thank you Shannon.

We're happy to jump on the line and go through the three year plan in more detail I know you wanted to do that.

Your next question comes from Matthew Campbell with <unk> capital. Please go ahead.

Yeah, Hi, guys. So I'm going to ask just one question.

Uh huh.

Interested to see that Burnside grew really well year over year and.

And I think it was your job that said and he has and our guy hasn't even thrown out the first pitch yet which.

It led me to do.

Add to this question how much money have you guys actually put behind the marketing Burnside last year and this year.

Well that would be almost nothing.

Because other than digital media.

It would be next to zero.

And I could tell you specifically, where the volume came from Burnside.

Both freight Wetzel and Janet Oak worked very diligently to get Burnside and the Tasters club and they took 300 and I think 50 cases.

Burnside and then re really as soon as he came in and really work with the California distributor who didn't really.

It's been difficult because there are these big huge.

Mega distributors any guide them to take another another 350 cases of Burnside.

But getting the distributors to take it and really get them to sell through and micro market are two different things, but that's where a big part of the Burnside upside came from.

But the team is so excited about Burnside, because the Burnside black which is a phenomenal product we launched.

Beryl strength Bachman, which is phenomenal.

And just goose hollow and the regular buckman are great. So we're gonna be switching now as we get money.

In 2022 will be really getting product on the floor. That's the goal on the floor with header cards with marketing at the point of purchase.

Burnside also is increasing because crazy enough. We sponsored this is little baseball team I don't even think they are AAA or club team called the Portland Pickles.

And I don't know how many cases of Burnside, we sell a night when the Portland Pickles play you do a shot of Burnside in a pickle chaser.

And these are the kind of events.

Hey.

[laughter] alright.

The piccolo today, Sir but these are the kinds of events that we're going to do is that are these little micro community events that allow for sampling and sell.

10, 10 cases, an event, it's amazing so we're gonna be dialing it up we've done basically nothing is the answer.

And now we're going to be doing a lot, it's going to be very focused and.

It's going to communicate a message.

That that supports the product and the values of the brand.

Thanks, Paul that's helpful. Good luck I'm looking forward to seeing what you guys can do with a little cash in the till and it's nice to see that we're 90% of the turnaround is behind us.

And we're going into growth mode that that to me is the message here, whether we get to New York, and Maine and Connecticut.

This year or next year or two years I really don't care just grow the business and do it profitably.

That'll make us all happy so thanks, a lot and keep up the good work.

Yes. Thank you thanks, Matt appreciate it.

This concludes our question and answer session I would like to turn the conference that guys Thats looked at Buck for any closing remarks.

Hello, and thank you everyone. We really appreciate it again.

If you'd like a little more color on the three year plan, we're happy too.

To tell the story because we're really excited about it I think in the back half, yes, Youll see youll see some interesting stuff on spirits next year as Matt said, we can really get some marketing out of a few extra.

Alexandra <unk> from gas in the tank.

We appreciate your participation today, calling if you'd like to get your F&I on the horn and chairs.

Good luck and thank you.

The conference has now concluded thank you for attending today's presentation.

[music].