Q3 2021 Eastside Distilling Inc Earnings Call
Good afternoon, and welcome to the Eastside distilling third quarter 2021 financial results Conference call. All participants will be in listen only mode should you need assistance. Please see the a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Andy Broussard Corporate Secretary. Please go ahead.
Thank you good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial results for the third quarter 2021, I'm, Amy sorry, but you said just feeling and I'll be your moderator for today's call.
Earlier, you said issued third quarter 2021 financial results in a 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 Besides Chief Financial Officer.
During 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 of the <unk>.
Securities Exchange Act 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.
The forward looking statements describe future expectations plans results or strategies that are generally preceded by 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.
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.
Its annual report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission.
Now with that said I'd like to turn the call over to Paul Block Paul. Please proceed.
Thank you Amy and I'd like to thank all of our participants for joining the Q3 earnings call. Today. Certainly appreciate your continued interest and Eastside distilling and your support as we strive to fix build and grow the company.
Despite all the obstacles of the marketplace in this turnaround we continue to make significant progress, especially on the balance sheet.
Must say for the first time in over a year, it's nice to have adequate cash and liquidity to run the operations of the company for today tomorrow and throughout the year.
We can now fund changes in working capital draw can inventory for craft.
We can fund investment capital needed to build new revenue streams like digital can printing.
We can increase much needed discretionary spend for spirits to fuel sales and marketing.
As you know the company is broadly underinvested in its spirits brands for years and has significantly curtailed many growth initiatives due to balance sheet cash burn issues.
And additional liquidity, we've made significant product progress in the debt stack and structure.
Company continues to extinguish maturing notes and loans substituting them with much improved loan terms and strategic partners.
As good stewards of your capital we continue to work diligently to accelerated value, Jeff Gwyn, our CFO will give more detail on the balance sheet in his overview.
So what I'd like to do now is move on to the operational progress and performance for Q3.
We remain on track to deliver the three year strategic growth outlined in our plan. Unfortunately, the Q3 2021 consolidated revenue was a bit softer than we forecasted down 23%.
Primarily due to our craft Canning and bottling division.
We did believe in the short term, we could ride the coattails of Covid a bit longer as we serviced craft beer filling in craft beer raw material purchases Q.
Q3, 2020 was the peak of the Covid lift for craft as the pandemic was just emerging and summer was driving seasonal production demand.
Therefore, we're experiencing a bigger year on year decrease for craft in Q3 2021 down 32%.
Despite the near term softness in the mobile revenue stream, we have accelerated our fixed facility initiative in the first facility with pasteurization capability will be up and running in two weeks from today and a second similar fixed facility will be operational by Q2 2022.
In addition to the fixed facilities. We're in the final stages of closing a can purchase agreement with G. III.
Q3s are supply chain subsidiary of gallow with significant scale.
If you recall aluminum cans shortages also caused many issues for us at craft throughout this year.
We now have guaranteed adequate supply of cans at an agreed upon price throughout 2022.
This is an absolutely critical component as we receive our digital cramped printer in Q1 and bring it operational in Q2.
We also have.
Have a new 50000 square foot facility that we will secure for craft as of December one 2021.
With rent debated until April 1st 2022.
This facility will house the first printer.
A small fixed line or another small fixed line and the Portland craft operation.
The facility has the ability to accommodate a second printer that we plan to purchase and receive later in.
In 2022.
Now for those of you who recall the mix of growth in the craft three year plan. The mobile business unit growth was relatively flat with fixed facilities and digital printing leading the charge.
As mentioned to offset short term softness in the mobile business unit, we're accelerating the start up of the fixed facility business unit.
As planned we will be using the printer and can supply to attract customers to mobile and to drive the overall craft revenue forward.
In an effort to accommodate the shift in market demand will further boost mobile revenue for craft by adding two small mobile lines that will serve new small customers and current customers wanting smaller runs.
One of the larger lines mobile lines will be used to.
Four it will be used for the new Spokane market and the second line will be moved to the fixed facility in Milwaukee.
We continue to be agile respond to market conditions with the need for speed of execution to build a reoccurring stream of revenue that meets our strategic operational objectives.
To fuel the new printer.
The new lines and the new market for mobile we plan to add 22 additional full time employees for craft by Q1 of 2022.
Now turning to the spirits division the opportunity for growth has not changed just the headwinds and speed of execution.
For those that remember that reviewed the Q3 results.
The spirits nine leader EQ case volume is down.
7% however.
When normalized for discontinued products and the 2021 time sell in with no sell out of Portland potato vodka in California volume is actually up 8% for.
For the third quarter of 2021 year on year.
Now of course, our goal is to achieve a much higher rate of growth than 8% and the Q3 spirits volume would have been even more robust if not for the issues on the <unk> supply chain and the slower conversion of our wholesale distributors and priority states for azania.
We unfortunately experienced lingering periods of out of stock due to limited company liquidity throughout the year.
In addition to our out of stocks, our Mexican bottle supplier informed us in the summer of 2021.
Our bottle was no longer available due to the high demand of big players and COVID-19 issues.
We're currently finalizing a five year agreement with O I packaging solutions, a leading supplier of glass bottles to supply the full portfolio of east side, and we now have a short and long term power solution for us year on year.
We continue to work with our distillery in Mexico to optimize production increased supply and reduced costs.
More information on art discussion and success going forward relative to our Mexican supply.
In terms of our wholesale distributors.
Our goal has been to convert our large mega distributors.
Where we are a small fish to craft focus distributors, where we are a big fish.
Made the change in Texas from R&D C to Greenlight as I mentioned before and were just recently made the change in Colorado from R&D sort of classic.
Effective January one.
Our focus now has shifted to a junior.
Sorry to Arizona, which is targeted to change in February 2022, and then to California, which is targeted to change in April of 2022.
Although I have reported the new Texas distributor change in the last conference call. The additional products from East side portfolio are just now hitting the streets with Burnside Bourbon and.
Portland potato vodka.
We've continued to focus on point of purchase micro event sponsorship and targeted digital marketing to this and we just announced our sponsorship of the Portland Trail Blazers, which will give us tremendous brand visibility and product sampling product sales opportunity in our large.
Market.
In addition, we anticipate these product sales at the motor sector for both basketball games and music concert.
Our spirits brand strategy continues to connect with consumers directly on an experiential level with local events that correlate with the target consumers' lifestyle.
Equally important is the opportunity for consumers to simultaneously sample products and enjoy the distinct features of hand crafted east side spirits.
And most important of all is the opportunity we have to reconnect with these consumers at the point of purchase with point of sale.
We are pursuing and securing other events sponsorships tied to the sales promotion and retail merchandising like heal the Bay Beach cleanup in California could.
To coast run in Oregon, and Cinco de Mayo.
Across all priority markets.
We will continue to announce our biggest sponsorships and events as they come to fruition.
While our plan is to stay focused on his junior Burnside and Portland potato spirits brands, we're now finalizing Burnside ready to drink cocktails.
Bourbon in Cola, and Honey and lemonade, both with a very distinct product attribute of 12% alcohol by volume.
We will also be launching the E side, Jerry in the east side Cranberry Whiskey in Q1, 2022, and we continue to develop our zhonya organic a margarita ready to drink cocktails.
With all of these accomplishments in place for spirits.
We're turning our focus and increasing our focus.
For a more methodical approach.
Of.
Concentrating on three primary brands in our top six priority states.
We are targeting markets.
Setting objectives for physical at effective distribution.
Measuring lift from our promotions.
And accelerating velocity per point of distribution.
Again, the most critical element of success for east side overall.
I had a quick liquidity.
With liquidity now in place and our strategy established it's now time to thrive and kick in execution.
With a balance sheet. That's now now fully supports the operating plan. We can move forward in a more deliberate manner to purchase product build programs and execute plans.
And before we open the line for questions, Let's first hear from Jeff Quinn, Our CFO, who will review the quarter and specific performance year to date.
Thank you Paul and let me add my welcome to our third quarter call.
You have heard us repeat all year fix build and grow and I'd like to take the Liberty to start my discussion of our results with the balance sheet and address how we have fixed it and prepared for growth.
When we finished our 2020.
Fiscal year end, our cash balances were depleted. Moreover, if you recall in our 10-K.
Current liabilities of $30 million with cash of less than 1 million to address those liabilities.
With a business that was still consuming cash we have little time to deploy our business plans.
Among these current liabilities, we faced an eminent maturity of our ABL facility as well as upcoming unsecured notes maturing in the second quarter.
So in the first quarter, we engaged a broad range of stakeholders and we began working through an initial financing plan.
One critical component.
Was completed with the R&R deal.
Which included the sale of unproductive inventory and closing that money losing business.
Successful completion of that deal injecting much needed liquidity into the company given us cash to pay down debt and address the upcoming maturities.
That hard work in the first quarter led to our successful private placement of convertible.
Notes, which we reported in the second quarter.
I'm happy to report that in the third quarter, we continued to achieve more milestones probably the most significant of which was the finalization and board approval of the three year strategic plan.
An exhaustive effort to blueprint the growth that we've been referring to since we started last year.
In August shareholders embraced that plan and voted to increase the share count.
Huge confidence in management, which Paul and I appreciate it.
Since then we've seen a number of strategic large investors recognize the plan and invest in the company.
I'd like to take a moment to thank these stakeholders for their confidence in the team and the strategy.
Those partnerships have allowed us to immediately go to work on improving the company's balance sheet.
Liquidity and begin investing in the future.
I'll summarize these some.
Some of the third quarter successes successes, starting with the fact that early in the quarter, we seized an opportunity to accelerate our business transformation plan at craft with the purchase of a key can print equipment that Paul referred to from our partner had your call.
This is the single largest investment we have made since from the Redneck Riviera deal.
The Hendrick off investment was funded by $2 4 million in equity warrant proceeds we pulled forward.
And rather than do a dilutive unlikely disruptive equity placement, we engaged b Riley and launched an ATM ATM had immediate success.
Place two significant blocks of stock with institutional investors via reverse inquiry and continue the ATM through the quarter.
This program allows us to raise equity at very low transactional costs.
In total we have raised over $3 million equity.
In addition, we successfully placed another $2 5 million and the private series B preferred transaction with another important stakeholders.
In total thank.
In Q3, and subsequent to the close of the quarter, you've raised nearly $8 million of equity and preferred.
I consider this a huge success given where we started with the 1 million cash and we're trying that.
We've carefully manage the increases in the share count and just like many of you who are focused on keeping share issuance to a minimum.
As of today I can report that our shares outstanding totaled 15, a half month.
No.
We have reduced short term debt.
By $23 7 million, either refinancing out longer or paying it down.
Since we started the year.
Looking at next year, we see even more pumps there.
And today, we announced more news as we are in the final stages of closing a senior loan with CMO lending group, which is the $9 $6 million ABL facility backed by our assets, including our valuable whiskey.
That line, along with cash on hand will finish off the repayment of playbook and add to liquidity and provide more growth capital.
We went through due diligence there and in documentation and expect the loan to close late November, but probably more likely early December.
Now where does all of this activity to leave the company today.
Today, we have $3 5 million or more in cash largely paid for our first digital printer.
Once the Sienna ABL line as close on liquidity will expand to over $13 million, assuming full use of the ABL line.
For those that like ratios our current ratio at December was.
As I mentioned for two that's $12 million 8 million of current assets over $30 million of liabilities.
The district, and we now stand at one eight.
Net debt debt due in less than a year less cash on hand.
$1 1 million a significant improvement.
And assuming that stock stays around the price points are higher.
C N ABL is closed our next meaningful maturity, which the company would have to repay in cash.
That over two years.
So in summary.
Balance sheet has been fixed and rebuilt.
And most importantly, it's been loaded for investment growth.
Now, let's turn to the income statement and cash flow.
Third quarter sales were down three point, we're down to $3 3 million compared to $4 3 million in the prior year and as Paul said the majority of that decline is from a craft Canning division due to lower demand with drilling services and Kansas is recycled behind pandemic last year.
Net sales were $1 4 million flat to the prior year remember net sales experience includes commissions discounts and excise taxes.
If you adjust for the Ptv selling luxury as Paul stated we'd be Paul.
For the quarter volumes in the press release, However, I would like to point your attention to our brand performance, particularly on gross margin on a gross margin basis now we don't normally go into specifics here on margins by brand, but I want to make a very important point and share any milestone.
<unk> gross margin gross profit margin.
It was better year over year, despite the lower sales due to price increases and a focus on higher margin Skus Burnside.
Rocky Mountain region.
And the category premium spirit brands have all out assault from supply shortages and we are in India position with over 3000 barrels of brown spirits raw materials that we pull from to build out products.
And in general we saw the reverse and an increase in volume.
The lower profitability.
The lower profitability was due to a shift in selling more lower priced Ravi Sir.
And the one liter skus due to the fact, we were out of stock for much of the quarter and $7 50 higher value Skus again, as a reminder, Virginia is imported.
Less control over that supply chain, but we're working on that and.
So on a consolidated basis, even though we had a reduction in gross revenues.
Monty you made up for the craft gross margin shortfall in spirits with a reduction in discounts improve.
Improved position so here's the milestone.
<unk> introduced a spirits is successfully being repositioned.
Higher gross margin levels, we just need to sell more.
Now moving down the income statement, we had better performance in Opex with meaningful expense improvements in SG&A.
Our loss from operations was $1 5 million better than last year's.
One 6 million and adjusted EBITDA was a loss of $611000, a 16% improvement over the prior year.
And we have provided a reconciliation of EBITDA and adjusted EBITDA in the press release. So please refer to that for more details.
Our net loss per share was 32 cents versus <unk> 17 last year.
And I want to call out the fact that the GAAP treatment of the warrant pull forward that occurred in the quarter required we treat the exercise as a deemed dividend.
And was recorded as a loss attributable to common shareholders pushing up EPS losses for the quarter and you can refer to the income statement for the details on that.
Yeah.
On balance looking across our financial report this quarter, we've made substantial progress.
We'd like to see more volume growth experienced in the immediate impact of about pivoting craft Canning, we are on track with us.
The growth thesis and believe we will see more tangible progress in the quarters ahead.
Now with all that said, let's turn this over to you for questions.
Operator.
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 were 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 comes from Kelvin CECO with Slingshot capital. Please go ahead.
I agree I think Paul Joe If we had AAV is fantastic with both of you are good.
I got a loyalty level, both Dod great execution I think your earnings call as always implement these AD okay.
So it's something I appreciate it I think they appreciate the quality of the team.
Start off by asking about.
Are we at currently.
Yeah, Hey, Kevin how are you doing this fall.
Yeah, I think we're at the.
I've said in the last call with towards the backend.
Yes, Ben.
A year of mitigating risks.
Taking care of all the skeletons in the closet I would say.
There's one or two other issues.
Better on our list of things to do but other than that.
Pretty much have most of it behind us.
I mean, the biggest part of the turnaround and the balance sheet.
Honestly.
And to get in a position now where we just had.
Cash.
And also due to you and your team and your investment.
It's been great. So I'd say we're in the.
Right.
That 25%, we've got 80% to 90% of it complete now.
Alright.
So given where we are right now, yes, fix the balance sheet and our branding all of us.
Janet I think find that an incredible deal with Apollo trailblazers.
Those two are Dino and the team that's about to my question number one it seems that we are more willing to spend on marketing all of US right. Now is that the right way to think about it and second would you elaborate more on this view for example.
What are some potential outcomes, we are seeking from it and are we going to bring this excitement through the social media as well.
Yes, okay well.
Inc. Marketing is the right and in the markets, where we have distribution.
Now that's why you see it.
Thinking about Oregon.
We have over.
280 points of distribution in Oregon, which is.
Great well, we probably can double it I mean, even though oregon's our top market, there's a lot of room for growth.
And I think spending in a market, where we have a lot of visibility.
Distribution base and we can build on that is the right way to go the trailblazers will give us tremendous.
Awareness and hopefully more unaided awareness.
The cost per point.
Of contact is very cost effective.
I won't be able to sample and engage our consumers. So I think marketing spend is the right way to go in the market.
And for mobile Canning and with the digital can breathing and peso rider coming in together with our partnership with <unk>.
Could you share with us how this would help to generate more sales and capture more margin to fall craft Canning.
Well.
First of all when you think of mobile <unk>.
Mobile Canning.
Throughout the United States.
Has been focused on craft beer.
And I think as Kelvin just said there is an enormous beverage market.
That's growing.
Can boost your.
Energy drinks.
Coffee teams.
Our Tvs alcoholic beverages.
Mobile has only served.
One small segment of beverage that's been the craft beer segment.
And the craft beer segment overall forget about the pandemic has really been giving up share of stomach to.
To craft spirits and to wine.
So just by its very nature. It had a great Hay day edits rescinded with the pandemic data is kind of just.
Dial it up a little bit more in the near term.
What we're doing now is we're pivoting quickly.
Some just craft beer with the mobile business unit operation.
Being able to service the entire beverage business now, we're not going to service the big guys.
Anheuser Busch or monster or some of the others.
Come to service the smaller players.
And when you have pasteurization, you can do a lot more and when you have different type of pillars, we can.
Certainly service higher carbonated pasteurized beverages like can breaches, we can do cold filling in cold storage. So we can start to look at coffee and tea and we can move beyond other types of.
<unk> malt beverages, and even into our TV. So there.
In the fixed facility with pasteurization opens up a different marketplace in a marketplace that is growing significantly and some of it is is underserved now when you overlay.
The printing with digital printing it really creates a technological innovation.
Because a lot of these smaller beverages.
Or not.
Using silk screening to print their cans, they're using either plastic sleeve or paper wrap.
In the case of plastic sleeve, they're not biodegradable they go into landfill and with many paper apps, depending on the aim for US those two are not biodegradable so when.
When you overlay.
And an opportunity to target an expanded market with digital printing.
We now have.
The idea to move into something that's.
User friendly environmentally friendly still the same cost.
And now serve it's a bigger market for the mobile market.
The digital printing.
Also being innovation.
It will allow our can lines can move faster because we won't be putting labels and applying paper labels on the line they'll have already been printed and so the efficiency will increase in the mobile line and the cost will come down for users.
One is the mobile lines.
It will also give us a competitive advantage against other mobile.
Purveyors in the market because they won't have digital printing so in the near term it will be a tremendous competitive advantage.
So again.
While we're not ecstatic about our short term softness our focus is clearly on exponential and accelerated growth.
Leaning into markets that are growing that are underserved and we know we can have a point of difference.
No.
Hopefully that answers your question not too long winded.
It would be on a Friday just throw in one other one other just a tagline on the end of this is.
Kevin was mentioning enhancing evolution in 10 months turn beverage and one of the things about that story in the history of that company that all is well.
But I'm reminded of is how underappreciated they were when they made that pivot.
And when they are focusing on a category that was.
Not appreciated.
The energy drink market was in its infancy, and one part of it.
We're still trying to understand how significant is the marketing advantage of working with the digital.
Printing machine for cans as opposed to the long supply chain for the other forms of packaging that the current craft market users.
This is a.
With the.
Consumer product and the marketing attack points in.
I'd point of sale are tremendous I mean, they're basically creating new forms of advertising.
By season.
What they put on cans.
Like anything else in the grocery store I would argue and this is a machine that is going to allow us to let them do something that is even more fantastic. So.
What does that mean for us I think it's really hard to quantify.
But I think it's the tip of the sphere.
And craft is going to look completely different next year than this year.
Yeah.
Got it thanks, Paul Thanks, Jeffrey I think what you both described sounds exciting opening up new markets. So just got one last question for the customers that craft Canning is currently serving could you share some feedback that content on the ground like Colorado, navigating and adapting to the shift in <unk>.
So the squeeze in another that I have one idea towards R&D digital printing and personalize our value add that east can provide to them.
Well I can take a shot at that Jeff can chime in if he'd like but.
I think what's been interesting one of the things that has been an unintended consequence.
In the mobile market space with the small craft brewer.
<unk>.
Has been these PPP loans.
So the government has given out a lot of loans to small purveyors and a lot of them have used those loans to buy their own equipment.
So that's something that was an unintended consequence that nobody really could foresee so a lot of them have shifted over to there not a lot, but a significant amount has really just invested in their own equipment.
Secondly, certainly.
With the on premise opening up they can go back to cake business and forego their can business. So what's happened across the United States is a lot of.
The small brewers are running shorter run smaller runs.
Which obviously are less efficient.
And the third thing I think that's really shifted has been their ability to purchase raw materials. When Covid first started there were no can availability there were no.
Corrugated.
No Pat Tech for the.
The holders that go on top.
And so everybody just bought from us because we had a supply and actually we really didn't have a supply because.
It was touch and go on the cans in corrugated impact back so.
They just look to us for all of their supply and now they are buying a lot more on their own as the supply loosens up a bit.
And as I said, we now have all our cans locked and loaded for 2022, both quantity and price St with our bottles that's very different.
So I think.
A lot has changed over the years.
And I think theyre shifting more towards buying their own material is shifting more towards you.
Using their own equipment, and they're shifting more towards servicing a different type of package now that on premise is open up so those are all trends that have changed.
Our pivot.
It is timely I mean, we put it in place four or five months ago. When we did the three year plan.
It's just that the market.
Has.
The trend that we're going against are.
It a little bit different Q3 trend.
With Cigna.
Significantly accelerated last year, if you look at our Q3, we've been pretty flat ever since Q2.
Youll look at our trend if you trend out craft.
A small increase over the summer and it's pretty flat now in Q3 and will be flat in Q4. So really the biggest variation has been the list that's occurred.
And I think that's the same for all mobile cameras.
The countries so.
The shift will occur in that.
Brewers will take on more of the responsibility.
<unk>.
Raw material purchase and do their own equipment.
And I think craft those that pivot the quickest will be the winners.
Got it thanks, Paul I think Thats, all I have I think following how ESI has face and knew that this business from where it is is amazing and exciting and I'm looking forward to the growth plan ahead. Thanks a lot.
Hey, Thank you Ed.
Sometimes internally.
I know we are doing some good things like Jeff said margins up 50% on spirits Opex operating expenses down 27%.
We're getting quality distribution not quantity, but sometimes inside.
Relentless knocking out the issues one after another and I think.
We're got eight added Kennedy issues behind us one or two more so we appreciate the external view on your encouragement. So thank you.
Again, if you have a question. Please press Star then one the next question is from Kelvin So with <unk> partners. Please go ahead.
Hey, guys I'm happy to hear from you guys gave me first of all like to see that I'm happy to see that our company has sort of stabilized itself by being the turnaround is more or less done and you know kudos to Paul and geography and is testament to to show that.
The asset that you guys have put in terms of stabilizing our gross margins, even though the revenues have came down you know a little bit, but our gross profit remained strong and the operating losses did not actually widened. So I think the order, but we could shift now to really.
Our pursuit of growth verticals that we wanted to Costco up two questions on my end.
First of all.
Even though we have kept all losses this quarter it seems that our spirits business is.
Badly by our distribution strategy. So could you give us more colors on what happened towards the distributors, but he's he's a one time event. So that we can understand that and I could just ask one about the spirits trajectory going forward.
Yeah.
Well.
It's just been a little bit slower in terms of that.
Engaging our bigger distributors or transitioning from our bigger distributors. So.
I would say that.
As a one time event basically.
A one time pivot so to speak in terms of our strategic focus and I was talking to the board about this the other day.
When we.
We're pricing our products lower.
And targeting national on and off premise chain accounts.
Just get distribution.
Large distributors made a lot of sense.
Because we were out getting the distribution, mostly through lower price, which as we talked about in prior calls we believe that non sustainable because that's a race to the bottom.
And actually over time, I think even our past board realized that we're getting a lot of distribution, but we weren't getting a lot of velocity.
So we've completely changed our strategy to be more special to be more premium to be more craft oriented and what that means is shifting our focus from large chains on an off premise large distributors going up and down the street being focused on engaging.
Not only our retailers, but our consumers and that means that sometimes the bigger distributors or most of the time really arent the right distributors, because they're really good at taking orders.
Not really good at working out in the market.
And let me just give one example, I was talking to our salesperson in Texas.
Where we changed our distributor.
And he told me that he is.
<unk> just gone is doing it because the distributor hadn't brought in Burnside or PPV yet.
At month nine months from September to October and sales.
Sales were up 20%.
That distributor was working with an industry. They were targeting accounts. The distributor was more open to his engagement and the engagement with more frequent.
So the way you should think about this as by Q2 of next year.
We will have either engaged our big distributors or converted our big distributors to marry our operating strategy.
For spirits.
Now.
These things always.
Take longer or have unintended consequences, and when we talked about Portland, potato vodka, selling in and not selling through one.
One of our old team members.
I've put a 1000 cases, the Portland potato vodka into one of our very large distributors in California, and I always joke that it was like the Raiders of the lost Ark and went into the distributor.
And until there was the personnel change we didn't even know it was there.
Until we started to try and sell more Portland potato vodka in based on new promotions in California. So.
The smaller distributors are going to be more nimble, we're going to be more agile and theyre going to work with us much more closely so the way to think about this is.
Comprehensive strategic pivot from on premise low price low margin too.
To really being a special craft oriented company.
And I'll give one more short anecdotal story I was interviewing an on premise person for Oregon and the other day.
And she said I said why do you want to work at East side, I said, what really attracts you to equilibrate.
Yeah, you could work anywhere.
You're working for some time.
Some big folks value could work for another big supplier. She does I want to work for a company that makes special products and his pride in their products and just doesn't want to sell quantity or wants to sell quantity quality.
And as the perfect. This is the right place so.
That's where we want to go.
And bringing our distribution network is going to take a couple more months and by Q2 I feel like we'll be well on our way.
Right that's awesome.
It seems that opportunity is really tremendous because we are making this one time machine tool.
Bill just stay at a more aligned with us and are more incentivized to grow into.
Into our three year plan to get them before so that's great hearing from you Paul.
My last question would be regarding the filing that we have done we have actually announced a partnership with Frito Lay's and.
In the recent years, we have seen companies like Coca Cola, and Pepsi Coke and drink the alcoholic space and Frito Lay's has a revenue run rate of over $18 billion and its parent company Pepsico is worth more than.
200 billion.
So its chips are really well known it all across the Wuhan earlier D. C O of Pepsi Cola announced a partnership with Boston Beer company to create an offering so how are we doing a similar model and I was just wondering how do we learn this partnership with Frito lay what mix you know damn decided to work with us.
50 million market cap craft distiller, what did they see in us for us to have this booking partnership stem.
Well I think it comes down to one word that I would use which is craftsmanship.
That's the first word I would use and the other word I think and again you'd have to ask them. But this is just my interpretation is our micro marketing ability.
And those two things are what they are focused on is they want to build a very unique product.
That has a very special.
Flavor profile and its handcrafted and they want to do it in a very kind of discovery.
Targeted micro marketing manner.
And I think in that regard the two of us share those too.
Kind of strategies and capabilities.
We are working together.
In regard to what's possible well.
Well I think it's a tremendous complement that they would want to work with us and I think it says something about who we are and why they would choose us and.
It makes me feel like maybe that's all.
I know you guys keep saying, we're very special and we really appreciate that but it's always nice to have somebody like.
Frito lay to come to us.
And choose us and we're going to deliver for them on every on every measure with the product and with the micro marketing approach now they're spending a little bit of their money on that and as to what's next and what's possible.
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That's the next chapter, but we need to do this we need to execute it well or close it down and then and then perhaps we can look at other possibilities.
While it looks like the future for our company is really getting more and more exciting when you have such a large partner that has the alignment of values and you know look as you pursue the market and grow together with them. So yeah I'll be excited to look forward to the next earnings call. Thank you guys. Thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Paul Black for any closing remarks.
Well. Thank you all very much we appreciate your time your interest and most importantly.
Your support as shareholders.
And Jeff and I will be continuing to work diligently.
To be good stewards of your capital I think one of the things that we've said really stood out is that and I. Appreciate you're seeing that is that we're really trying to curtail the operating loss if.
If we can drive revenue over time and maintain a reasonable operating loss.
I think we do have an exciting business model will have much more to report to you.
During the next annual earnings call. So have a great holiday season, and we look forward to talking with you then thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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