Q4 2021 Eastside Distilling Inc Earnings Call

Good day, and welcome to the east side to stay like fourth quarter and year and 2021 financial results Conference call all.

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Now like to turn the conference over to Amy Burchard, Besides corporate Affairs director and corporate Secretary. Please go ahead.

Thank you good afternoon, everyone and thank you for joining us today to discuss Eastside, just feeling financial results.

Fourthquarter any ear and 2021, I'm, Amy Burchard E sides, Corporate affairs, director and corporate Secretary and I'll be your moderator for today's call.

Joining us on today's call to discuss these results I'm Mister Jeffrey Glen the company's interim Chief Executive Officer, and Chief Financial Officer, Miss Tiffany melts in the company of controller and Miss Amy Lancer, The company's Chief commercial officer. Following their remarks, we will open the call to your questions. I also wanted to all shareholders to be on the look out for an hour.

<unk> guarding our Q1 results released midnight or 2022 annual meeting date, and we are also planning to host an investor day in Portland sometime mid to late summer more details to come now before we begin with prepared remarks, we submit for the record. The following statement certain matters discussed on this conference call by the.

The management of Eastside distilling, maybe forward looking statements within the meaning of section 27, eight and the security is active 1933 as amended section 21 E of the 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 former.

Looking statements describe future expectations plans results or strategies and are generally preceded by the words such as May future plan, our plan will or should expect it anticipates draft eventually or projected listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circuit.

Stances 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 companies acceptance in 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 and integrating acquired entities in assets ability to obtain capital ability to continue its going concern and all the risks cause I'm 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 I'm Farm 10.

Kate for the year ended December 31st 2021 filed with the Securities and Exchange Commission now with that said I'd like to turn the call over to Jeffrey Glen Jeffrey. Please proceed.

Thank you and then you said I'm Jeffrey Glen the interim CEO Zerkle and I would like to add my welcome to a four quarter and two school year 2021 call that's cool I.

I will begin my remarks, with some major accomplishments in the year since.

Talk about a performance in the fourth quarter. It was we clearly need to improve upon and finally, what you can expect from us in 2022.

Given the meal and will take us through the details of the quarter.

Here and of course, we will answer your questions about the ambulance or a cheap commercial officer to join us on the call and she can add her perspective during the quarter about the courtroom and the question is to answer section of this of a call today.

The 2021 was an important you for you. So I'm just doing those <unk> successfully navigating a dynamic environment and delivered on some key objectives, such as margin improvement in spurts.

We restructure the balance sheet and we began our investment program outlined it out through your <unk> Your plan.

However, we were disappointed in the other performance metrics, who failed to grow volume spirits, and we struggled through the here with a challenging environment craft.

However, I do believe we are still in front to deliver our long term financial growth goals and I'm confident you'll see progress there this year.

We entered 2022 with a completely revamped craft business strategically focused on the significant opportunity to leverage.

The art digital can printing technology to bring new products and services to our network in specific northwest.

This is gone from the idea on paper.

Having built on a digital printing facility one of its time in Portland, and just a handful of months.

This is a testament to the vision the dedication and the resilience of the entire craft team and I.

Celebrate them.

And spirits, we're executing performance.

Improve it plans.

That will drive sustainable growth.

The focus of this is on your term improvements uhm specific when our business of Oregon.

And the plans required innovation investment and execution.

And we have proven that we can do these things.

We invested in key partnerships, such as the Portland, Trailblazers, <unk> Blazers and the Motor Center to bring our award winning spirits. It sounds as thousands of new customers.

And last year, we partner with ways to launch a potato Barker install that product saw it in a few hours and I think this is a great example of innovation teams capable of delivery.

We have also increased our commitment to our community by working with organizations such as American forced to plant trees heal the bay.

But the coast and recently developed the campaign.

Uhm proceeds from Portland, potato vodka sales.

In Oregon to Ukraine refugees via the IRC. These partnerships are important for a number of reasons and they play a key role in our plan to revive growth in our home market.

A significant portion of the spirit schedule has been to drive growth in key markets, including California, Arizona and.

Texas.

Last year, we have struggled and suffered as we met with the distributor resistance to support and an investor brands above convenient brands and this largely impacted.

You said legacy brand launch that we talked about last year.

Now we've redoubled her efforts we believe we are on the path to improving our engagement from a key distributor partners in 2022.

But there's a lot of work to be done there.

As craft spirits recovers.

Both on and off premise to Prepandemic demand levels, we believe we will be positioned to nude growth across our portfolio.

But throughout the year, we have invested time and effort in improving our supply chain.

And our ability to manage our gross margins.

Oh this is required <unk> skew rationalization price increases.

Which in some cases mint last one and it's also required invested in supply chain initiatives.

All of these things take time.

Although these initiatives had a negative impact on sales volume and we saw that again in the fourth quarter. They are critical for the long term profitable growth of.

Of the company.

We have more work to do our spirits business and I believe you should expect to see progress through the year.

We're starting with the outstanding products and a compelling market category.

The pace of improvement there will pick up as we execute on or go to market strategy and build awareness and a key markets.

Past faces a transformative your head.

We've been talking about this business for the last two calls, but I'm excited to say that we're getting close to taking a key next up in our growth plans at craft.

And the first quarter of 2022, we have moved out of her old facility and into the newly built 50000 square foot digital can printing facility.

This facility is the first of its kind of Pacific northwest.

And will serve a vast craft beverage customer base.

Craft expanded assortment of services will make us unique in a market truly.

Truly offering a one stop shop to all needs of the growing craft beverage customer.

We still have incremental investors to make to get us to a key milestones in a through your plane. However, the first step with securing the hunter cough partnership.

And since then we've made other sequential steps, including financings can supply facility.

Facility buildup and installation that gets to this point.

It's critical we execute well from here in order to deliver this component of us to do strategic plan.

Digital can printing will also improve our existing craft business.

If we didn't have last year.

I believe this new technology.

In digital campaigning will highlight the power.

Of hyper local marketing, specifically and craft beverage.

This term hyperlocal marketing is not well understood when it comes to consumer products.

Specifically in craft average, but in truth, we are still dreaming of what is possible I'll.

I'll, just technology's expanding was possible.

And allowing us to merchandise craft beverage size has never been done before.

I would argue we are a key craft Margaret that is in the forefront of the spiritual trend and we are delivering our customers tools and I've never had before.

So in summary, I'm excited about some of the opportunities we have before us.

I'm also excited that we plan to deliver improvements that are measurable and both businesses. This year.

I want to assure you Ah near term goal is to drive growth to a point, where we no longer need external capital to sustain the business.

I believe we can accomplish that this year that doesn't mean, we might not seek the ability to grow fast with the inclement acampo. However, we will continue to be measured and disciplined with capital allocation.

You should expect us to be vocal about our progress in the year and we will work to engage as many external stakeholders as possible to.

To highlight our strategy and the progress we're making.

No I would like to turn it over to Tiffany Milton a controller, who can take us through the financial performance of the company.

Thank you, Jeff and thank you all for joining a call today I'm Tiffany Melton the controller for a side I've been with the company. Since January 2020, I thought was preparing the ear and audit of our financial statements answer this call a side of reflecting on where we started a year ago. When I joined we are finalizing the sale of Redneck Riviera It seems like since.

At that time things haven't slowed down a bit we have made great progress we've taken a clean sheet approach to rebuilding many of the company's processes developed internal reporting which is key to decision, making and we continually add great people to the company I've had the pleasure of getting to know when working with a great team for both spirits and craft and let me tell you we're all committed.

<unk> to driving this company towards success, all using our unique talents and skill sets to make that happen well. We've had a lot of internal successes those haven't necessarily trans lated to the bottom line, yet and I do have to size, yet, but I truly feel that in 2022, we will finally drive our internal successes to the bottom line.

<unk> one of our significant accomplishments for the 2021 10-K is finally reporting segment, we feel that it's important for investors and financial statement users to be able to see and understand what is driving a consolidated results by segment now let's review our 2021 result.

Overall, we raised almost $12 million during the year and cleaned up the balance sheet by reducing our overall dot I almost $13 million from over 27 million at your end 2020th to less than $15 million a year and 21 are working capital increased by a whopping $22 million, primarily reflective of the reduction of.

<unk> Dot F 18 million, we'd become current on our tables and reduce them over $1 million during 21, and we continue to work with vendors to receive a favorable terms.

Our prepaid that you're in 21 reflect payments for our printer that we sense received <unk> and is in the process of being installed.

Turning to the statements of operations on a consolidated basis are gross sales for almost 13 million for 21 compared to $15 million for 2020 spirit sales were flat at about 6 million for both years and cross sale for 7 million for 21, and almost 9 million for 2020 to consolidate a decrease of $2 million was.

Primarily driven by craft as a result of the pandemic in 2020 and increased competition in 21.

Arkansas dated gross profit with 3 million for 21 compared to 3.6 million for 2020, again, driven by craft and partially offset by spirit with a significant reduction in <unk> and customer programs for the year ended 2021, we request certain expenses from SG&A to Cock, which are also reflected in 2020th.

Comparability.

Arkansas data gross margins for 24% for 21 and 26% for 2020.

Garrett Martin's for 28% for 21, and 18% for 2020 and craft had margin of 20 per cent for 21 and 31% for 2020.

Gross profit doesn't reflect our internal successes are operating expenses, certainly do we significantly reduce them by almost $3 million in both sales and marketing and a G N E.

We've reduced the spirit sales team to focus on our key states, we are thoughtful and conscientious as to where we spend our marketing dollars in order to make them count. We've also decreased our overall corporate compensation by reducing head count and cycling through the depreciation related to leasehold improvements of our spirits production warehouse both of these have translated.

To our adjusted EBITDA of negative 4 million for 21 and negative 5 million for 2020, we still have a lot of room for improvement we've been very actively working on our balance sheet, which has resulted in higher professional fees and we expect those to be lower than 2022 hour net loss decreased to $2 million for 21 from announced.

Standing $10 million and 2020 is an 8 million dollar decrease again, reflecting our internal successes to the bottom line.

I would like to wrap up the financial results with this reflection and just commentary for Q4 2020. He mentioned transforming the company internally by building a professional platform integrating systems and processes to transform all areas of the company I strongly feel that we have achieved this goal honestly it has taken us a little longer to achieve than we initially.

He thought as he started down this path we realized it was a little rockier than we anticipated, but our success. This year is that we prevailed we have a tremendous team in place with relevant related industry professional experienced that will drive results in 2022, a team that is continuously focused on the bottom line for the total company. We will now open the floor for questions.

Operator.

We will now begin the question and answer session to ask a question you May press stars and one on your Touchtone phone.

If you're using a speaker phone please pick up your handset before pressing the keys if at any time a question that's been addressed and you would like to withdraw your question. Please press Star then too.

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

[noise]. Our first question will come from vigilant a with Tenex capital. Please go ahead.

Angel for you. So first off I want to come in you and your team previously you sure. There's a printer was going to be operational animal mush and you guys can't go to schedule. Despite the supply chain <unk>. So my first question is should be guarding the credit for C. D provided by a pack you Kenny and I mean, there's a decent.

Payment Bill Cosby carries such a high interest free and passenger Warren issuing chest with you at three.

Three says you almost view site, if you'll give me more of a piece on the company on a female cat, though and boy U I'm sure. They are so I'm sure did you resist behind these crazy plus a D. D. So could you just walk us through your talk process for all these categories.

Right right will be able to appreciate the question you know I actually look at the cost of capital and although it appears hard to you and and it certainly appears high to me, it's higher than what we paid in the past.

You know looking at what this thing is financing beyond it is I'm gonna be a good deal for everybody, including shareholders and I can based on the fact that of your first comment which is the digital printing businesses ready to go or I start next week.

And the take up by our customer bases is pretty phenomenal from what I've seen so far.

And.

When we finished the year as you were talking to the last conference call. The third quarter comes call. We were really close to getting N. A V. L facility in place that was critical frankly, I mean to say the system facility was critical for us to.

Finances, the the volume of cans that we're gonna need to buy.

I think it's important for the people and the call to understand that.

Last year, one of the things we struggle with US you know, we weren't able to sell disposable disposables you know the cans the tactics we.

You know face challenges of sourcing and and and selling them and make them a decent margin on them and that was a problem.

You can't go into can printing and not have cans. The volume that this thing's gonna chew up and spit out on the other hand is you know and the 20th of millions I mean, it's a huge number.

And so we had the lineup cans, we had to make sure that we have a strong partner the part I wanted to make sure that we have the ability to you know to meet the the the working capital needs of the company. So as we went into the third quarter. We had a deal lined up we thought it was gonna be a good deal and as we got deeper into the quarter you know.

Turned out that there wasn't as good of a deal as we thought it was gonna be you know there was some sweating, there and what what expectations were in.

And we ended up not getting the deal done in December and.

And looked at a couple of other opportunities and this was the what we felt like was the best deal. This deal has no covenants isn't it.

<unk> no dilution provisions at.

And so.

On the face of it is what it is right. Unlike other deals where you have covenants did you lose access to capital and have issues. This is a deal that's been built for adventure business opportunity and that's what we're facing with can printing. It's a venture. It's you know it's a it's a high return big growth.

The opportunity and as good as we are as good as Tiffany is forecast as good as the craft team is we need some flexibility.

To make sure that we hit the ball out of the park I don't want one pitch I want many pitches right and so this is a structure that we needed to to make sure that we got that done so, but I think down the road, we're all going to be pleased with the results and and looking back on his financing hopefully that will be you know happy with the the choices.

It was made.

Got Ya so just to expand on that'll be there'll be <unk> is why's that need for these wars cause I mean, the interest rate is really high enough on it. So I mean, if you just do a calculation my phone my shareholders point of view. If these law is good exercise.

Three D. It seems that the values potentially 10 per cent nitrogen so I mean any division at all.

Sorry, it's just one of those then and wanted that you've been together with you soon.

Yeah. So I mean, the thing that you have to think about when we went to the bank and process here as it is you know every time you pick a a term or an item off the plate.

It changes the cost of capital and the impact so in our case. We you know we have a handful of things we have great interest rate, we have optionality right. We have the the war value that we can put in the package we have other things that that that that that.

We could put in like like I said before strict covenants, we could put in you know certain kind of you know payment plans and an amortization of the principal and something like that and then the last thing is that we.

We still have first lien facility with a Y vote and we have.

You know bigger capital in district, two which has the second link. So we have to we had to fit something and that means all these other creditor requirements right.

And and so as we put it all together this was the the formula that worked.

What you'll see here is pack okay.

You know is really excited about the opportunity. He didn't want you know covenants. He wanted you know upsize he sees a huge opportunity with craft I think <unk> I agree with him and.

And so this was the package that we ended up having to having to work with we I think we did a pretty good job pushing back in some areas.

But you know as you know the this was not the best quarter for for a small cap stock to go looking for capital right. Now. This is a quarter was on multiple just come down everywhere and.

It's a pretty bold difficult time, and so I think you know this was I think of a better deal than we could've gotten if we would've gone out to a wider group, but as I said before the war and I think that this capitals critical and the returns and we're gonna get specific vehicle.

These investments are gonna be you know.

Unusually large and that's why I'm comfortable with the decision we made in Boardman.

Got Ya. So I just got one last question before I jump into the queue. I think one thing I'd like to come in is right. Now we are clearly showing the financials off craft carrying a series separately and for cascading you surprising to see D. Ross module dropped down to 10 per se.

From our tree yesterday did you plan on top of it is you know three per cent yamaji. So could you breakdown it'd be July how these new did you there'll be didn't catch any help appreciated yet.

Sure sure.

You know the thing that it's it's.

It's hard for people to see here and I've said this on the last number of conference calls.

Is digital printing does not.

You know immediately hit people with what what what the opportunity is and I've tried to anecdotally to share it here and there, but I'll I'll I I think I might have mentioned this before now and I apologize if some people for this before but you know if you go all the way back you know 10 years actually more than that.

I think it was two that was about 10 years ago 2011.

No coke.

Tempted to go with a quasi hyper local marketing strategy sales of Coca down negative uhm volumes. They were facing some real <unk> real challenges in their network worldwide.

And they dreamed up the idea to come up with 250 names.

Individuals' names and they started a campaign called share a coke.

And they pick the 250, most common names doing why they pick 250, because the way that they print their cans, there's no way they could do more than that right. Then there's no way they can get more variation that I've got this super expensive.

And the end result.

Was coca turned around as bowling is hugely successful.

What they did is nothing compared to what we're about to unleash on Portland.

Digital printing is probably one of the biggest transformation opportunities for small craft beverage guys.

I mean, if you want to ask me my opinion and my opinion on this is my personal goal is to get rid of them and destroy crappy beer.

And we're gonna bring.

One of the best tools, that's ever been invented to make small brewers.

Bring their their product and make note the customer aware of what they can do.

This past week and again this is gonna be <unk> yeah.

More directly answer your question this past week and I bought a six pack I'm sorry, a four pack four beers and pay $23 for them in my local grocery store.

And when I walked in and I was looking at the price points I was shocked how in the world to them can these guys get away with 20, almost 24 $24 yeah.

Yeah, that's like $6 a beer at at a grocery store.

And it's a craft.

Beer, you probably never heard of it before it's it's called Forever and always and then put the label on this beer is a sticker that runs halfway around the can and it's got at least.

You know a million colors on this label, it's incredible work of art.

The beer is just as good as the label is.

But the point with this is that beer stood out that label stands out that brand is elevated and it's unknown. It's available in <unk>, you know not well known you know craft manufacturer in the area, yet they're able to to win retail and command a premium.

Price point, the cost of what we're gonna deliver our customer is nothing for six dollar product it's nothing.

You know this.

<unk> is going to transform.

So that they can basically kick every single product that Anheuser busch's mix out of the grocery store.

And I really believe strongly that this tool is going to be transformational for our customer base and when they see it and they see it working and they get more creative with it it's gonna be even more powerful and we're gonna be able to charge a premium for it.

And we know what's happening because of the customer base that we have now the customers that we used to have they've outgrown us have all come back and said they want us they want to work with us.

Right and we saw the same thing on can supply could get people to pick up the phone you know now we have a major can deal at incredible rates right and we can go after business that we weren't able to go after before it. So if you and I really believe craft Canning is gonna be.

The point of the spear, that's gonna reinvigorate this company and its going to handsomely reward investors that believe in it and if we can execute this well. This is gonna be a really really big growth opportunity for the company.

Yeah.

Alright. Thank you all for your Valiquette P. All coffee does platform. Yeah. So you know we've been following the company closely over the past year and you'd be eventually ups and downs together I believe that right now we own the cops on Green has indeed turned around and I just want to say.

We appreciate the hardware from you and your team and we will continue to support you in Virginia here. Thanks Jeffrey.

Great. Thanks norm.

Our next question will come from Calvin Szeto with Greater Lakes. Please go ahead.

Yes.

Hey, Jeffrey.

Doing so.

Hey.

I recognize you guys. Thank you so much.

A copy of all time and I think honestly showed is going to see that back here.

Today I think one concern in my mind is that we are going to tightening monetary policy.

And persistent inflation.

I did my math it seems like we are still losing money and get there.

It's quite wide, possibly be self funded essentially breakeven balance she is already quite stretched right now so I no doubt previous call was not too long ago.

On the sound in February 2022, So do you see any silver lining that suggests that this gap could be closed earlier since the previous call.

Yes, I do I mean, I I mean, we can we can have some other members of the team.

Sure I'll, yes.

Maybe the ambulance you can talk a little bit about the outlook on this on spirits.

Keep in mind, the fourth quarter.

As a seasonally weak quarter for us in both sides of it because I mean spirit does have a bump and then you know as we get into November but.

So it's a weird quarter end and for that matter as we start the year.

It's a weaker quarter, but up but the point that I've made before doing it I'll make it again here is that when you go back and you look at the comparison between what the craft and for that matter East side. Our income statement is going to look like this year.

Versus last year.

By the time, we get to the end of the year. It wont even look the same.

The margins won't look the same.

Revenue growth from what you're saying you know the sequential change between quarters won't be the same we're working we're really talking about a completely different business on a per half of our business spirits on the other hand, you know as we've said in the call is a real work in progress I mean, I think the biggest disappointment for me last year was we had.

Outstanding products I mean, our four core Burnside products.

<unk> are phenomenal.

Bourbons I mean, they're just really extraordinary and when you compare them to a pendleton.

Crappy Canadian blended whiskey.

That has no connection to Portland.

And it does 20 times our volume it's ridiculous.

Right and the challenge has been we've invested so much of our time and money chasing money, losing opportunities like Redneck Riviera.

Trying to fix the Tequila brand it took us a while to get that organized.

And and struggling with that.

We really lost the focus that we needed to basically go to market and make things work in the most critical part of that mistake was losing the focus of the distributor.

And you don't get that back.

From November December right, you just don't.

Pick up the phone and say hey start semi stuff again, you know it takes its time for you to engage them make them aware push show them that you're investing we're doing that Kelvin.

We spent a lot of money invested in the Motor Center, we've launched.

A special Burnside bar there.

You know at the Portland Trail Blazers game last week, we opened it up and had a big.

Tasting and we're doing more of that we're doing more engagement and we've probably done more to local market funding and attacking the market. I mean, we've had last year and Amy can probably step in it.

Second in share and share more about that but just to finish on on on the gap.

I believe you already begin to see some of the changes that you would have in the first quarter and we'll see the that funding gap start to close but the big part of that is gonna be when craft starts really kicking in with its transformation plan, which really begins in the second quarter and do you want to share some about the outlook for 'twenty two on on spirits.

Sure I mean to Jeff's point, we have so much room to grow on distribution we have.

Do you sense distribution on Portland, potato vodka in Oregon and retail.

Very very low in the on premise Burnside.

We have a very low distribution even at retail so that's a high priority for us and our junior distribution on the core five states as well as well so as we engage with the distributors and of course, there's distribution gaps you'll definitely see performance improving.

Also just mention the the great work that Janet Oak is doing on the brand building activities like the Motor Center, we're very focused on our base business. So you know motor Center and Trailblazers for Burnside hug the coast for P. P b.

So that should make a really big difference. We also have a you know a couple of new salespeople, one in Oregon and the on premise and then one in northern California ought to focus on ASEAN yeah.

And then another.

Exciting development for us in terms of our focus on gross margin management is not you know we've done some work on Joe Ebrahim and operations has done a lot of work working with Agua <unk> still got the cost of Yeah Junior look went down and is now working on optimizing whiskey.

For our Burnside, so you'll definitely see an improvement in gross margins as well.

Alright.

Good evening.

Yeah, Alright, I do have a second question.

So yeah I think we saw it at the company's strength then we have some good highest recently and I think the more important thing is the arrival of the first digital.

So could you educate us like hypothetically you with our second printer.

How much does this change our business in terms of revenue and profitability T M.

One other thing that I'm thinking about is can we apply the same pricing to even bigger customers as well because we don't really want to sacrifice margins as we scale right.

Right.

Right well.

I don't have anything to say yet about this about our second printer, but if we did have the second printer we would.

Really be in a position to control the Pacific Northwest.

And as I've said I think on the last call. We knew we know who the big movers are in this space you know there there's a great startup company down in Austin, Texas, We have a lot of respect for those guys are amazing you can see them on Instagram its fun to watch them build.

Empower their customers for digital printing.

There's other there's two other.

Printers that are that are in different parts of the United States. Our goal is to absolutely control the Pacific northwest with this.

We're gonna do not just digital printing, but also move into other opportunities to serve you know craft beverage.

Kevin one of the things that we're doing is right. Now this is kind of largely serve our customer base and end customers that we we've touched before.

But you know, adding capability, adding capacity to do more just means we're gonna be able to to reach up and get more and more customers, but to your point I would mention this.

We.

Are the people that are that are decorating their cans have a few choices. They can decorate their kansas with a label like I talked about the small brewery that goes with a super high end label. They can decorate their Kansas shrink sleeve, if they do shrink sleeve they have to put the shrink sleeve on the can.

Before they put the beer and it usually because they either eat up the shrink sleeve and it messes up the beer if it's a non.

Beer product and and they and they have it shrinks, we first and they put it through the canning processing assets the heated up.

Pasteurize it can mess up the label so theres a lot of logistical challenges, which means that people are buying these cans and shipping them. All over you know regionally and all over the United States and the last choice is to go to the major can producers like you know.

The large crown and some of the.

The others, we all know about and they print and they can actually you print the old fashioned way with no screen printing, but what we've heard and what you've seen specifically with ball.

Is it they are kicking customers out who don't do.

At least a million cans per SKU a year in volume.

That basically means there's customers who are going to have to figure out how to decorate their cans, because theyre not going to debate anymore with decorated cans that means that not only losing the cans are probably losing that can supply.

So what we didn't see initially.

Which was what we saw initially was we're going to collect all the customers that and serve their customers in a market now we're realizing there are a lot bigger customers, who we never really touched that are falling down into our market because they have no other choices.

If you're in that environment, you have the capability to command the margin that you need to get the returns and.

And so that's our that's our plan.

Plan, but as I've said before and we've talked about this and I would.

I'd like to say that to the wider group is a bigger plan is to catch more volume.

Be more important to the customer to give them more tools to win to deliver a better product something that improves their ability in working capital to manage their own working capital lower priced product because of the working capital savings and so we think we can bring all of those pieces together.

And so the whole bag of tricks as opposed to just one.

Craft Canning has been a one trick pony and then the pandemic pulled out a second trip and it worked and then it came back to what we saw before.

This new.

Company is completely different from from from what it's been in the past.

So.

I do believe we're going to be able to capture margins I do believe we're going to be able to grow more than ones you know.

Business lines SKU I do believe we're going to grow by by customer type of it's not because it's being craft Brewers anymore, we're gonna be growing and growing categories and I think you know with the success, you're going to see more and more investment and more opportunity more capacity and a bigger footprint in the Pacific northwest.

Alright, great. Thank you so much fun agreed details so I will just antibusing remark back in 2019.

It quite is enough of it in Milan and craft Canning four 5 million right. So that's about 20 million today, we have the market kept all steeped in million plus.

<unk> base business. So it did as I said, we have performed <unk> capital raising so it's either the market is unabated us all we are not getting something right. So I hope. It's the first case and like you I really want to believe that <unk> finally, making a strong come back.

Best of luck and we'll catch up soon I'll call back back to the call.

Great. Thanks, Kevin I think you I think you know your point is correct I mean, it's time for the market to see results and we're going to deliver results. This year youre going to see a different east side and and Mike My Hope is that it comes out.

Clear and you're going to see the results.

<unk> and and we're gonna be only able this accelerates from there so let's see how it goes.

Alright.

Our next question will come from Harold Weber with Aegis capital. Please go ahead.

Hello, guys, Hi, How're you doing.

But.

I would like to get a little more color on the printing story when is this going to be producing at what you'd consider to be a.

Regular run rate.

Right so the.

The printer.

The machines, it's more than just the printer, it's a whole system.

Right.

So with this system going to be up and running on it not just in our pilot run, but being able to produce consistently quantities.

Post to be based.

Based on the nameplate production basis next week.

Okay next week.

Reducing based on their the the official way you had quoted about 25 million capacity, well 2 million a month right. We don't go to $25 million and you know one week. So I realize that that's going to that involves multiple shifts and the machine running pretty much you know three full share.

<unk>.

And but.

We've already scheduled our first customers, we have a number of schedules I'd say as many as a third of our customer base is already.

Hum signed up to begin we're scheduling them out we have the Germans in our new facility in there finalizing the installation of the printers is the last step is really the alignment of the ink.

Just basically if you think about it in relation to your own printer.

That's kind of the one of the old.

Things you have to do before you are you're often running in printing, but once that last step is done and done where we're you know we're putting in with.

With Cuba facility up with a ton of cans and we bought pre bought a bunch of cans.

So that ends up to be a good deal because its aluminum prices goes up we've already got you know cans are ready to go that's one variable side of the picture that we have to worry about.

And so.

Prepped and ready to go and held I think we're going to have a good start we do know that this is a pretty complicated.

Machine, we get we have a machine that's different from the machines that were delivered in North America.

To earlier customers and we know that our machine has some capability to other customers don't have.

And we were one of the few people we understand that were spent a lot of time in Germany testing arc hands, our team on our machine. So we've done everything we possibly can do to prep this thing for a launch.

And <unk>.

Seamless launch so.

Confident you know the team's confidence I think we have outstanding people and in the in the game here and I think we're going to do a great job this quarter, whether we go from.

Three initial customers they take all the printing time initially too you know completely fullness get Chilean scheduling and moving to a three three.

Three shifts.

The shifts you know planned much earlier than we planned I don't know I mean, we will have to see how we go the most important thing.

Is what I said earlier this is a tool that we're giving our customers a market advantage.

And we want to make them successful if we can make our customers who take this on successful immediately and many different ways more than just printing incredible designs on cans and having people get excited about it working capital advantages.

In times of market shorter runs and on their their production if we can make them successful in multiple ways.

We're gonna be successful down the road.

So as much as everybody wants us to hit the ground running and be spitting out dollars left and right. The most important.

I have a lot of people winning on this so.

Well I understand that's what I'm trying to get an idea of when you feel it's going to be up and running.

Consistently.

Okay. When do you think it's going to be producing commercial let's say I guess I understand you're scheduling a shift at a time, okay. That's fine.

Is it going to be running a full shift in the next two weeks.

Sure, Yeah, Hey, there's going to be.

He often running yeah. Okay. So according to that that means based on your your.

Previous numbers, let's say use the 25 million number that would be based on running three shifts is that right.

Yeah.

Yes, but that has a oh.

Percentage, you know efficiency associated with it which I don't want to go into any more a lot more detail of that but we're basically.

Running the machine to to to get to $25 million, there's capacity to do more than that but it's a function of.

How many.

On boarded customers, we want to bring on how many you know pilot cans, we wanted to do for them. So they can see what it looks like what the graphics are.

How fast we do transitions between 16 ounces 12 ounces theres a lot of pieces to this that makes it a little bit more complicated to figure out how the what the actual number of cans are but I would tell you. This.

As I said in my script I'm Gonna keep you Harold.

Very well updated and everybody on the progress, we're making intra quarter on getting this business up and going its two critical for US just to wait and report every quarter on this we will update the market.

The success, we're having or lack of success, we're having in getting the full scale and at a place where we expect it to be.

Hum.

I'm pleased to hear that because yes.

Waiting three months to get an update on this is really not satisfactory basis, what we've been through.

The other question as we talked about expanding distribution on the spirit side East Coast I Wonder if you made any progress on that yet.

Yes.

We have talked with distributor distribution on the east coast, but.

And I think that I think we made a we've talked about this before and this goes back a number of years one of the things that the people have to understand about the three tier distribution system is the strength and the control the distribution has in spirits.

Pretty profound and.

And if we've learned anything in east side.

You can have an outstanding marketing team you can have a great product and a product that really as you know.

<unk> unique and very hard to compete with but that's not enough to be successful in spirits.

Believe it or not that is not enough you have to bring in and sell a sales partner in the form of a distributor you can go with the small guy.

And you can sell in a few places you can try to go over the top and go with an online.

Retailer and you can have very limited spotted distribution pay a ton of money in shipping.

Or you can engage.

Distributor in the local market and make that work down the problem with that and I'm getting to your answer is.

When you go into a liquor store Ah crap assortment in particular, a liquor store.

Hundreds of brand.

So when you bring our brand to a market typically what you're doing as you're bringing your brand in it and you're taking a brand out. So for example in Oregon, We're gonna kill Pendleton, that's our goal we're going in and we're taking them off the shelf.

Gonna take off monopole over we're gonna take that crappy vodka brand off the shelf. So if I'm going to go into the market in the east coast.

I got to be ready to go to battle and take somebody out.

And I'm going to tell you. This my best place to beat the <expletive> out of these people Harold is in Portland, and that's why we're gonna start and that's why I keep saying, we're gonna start back in Portland, We didn't do that last year right. We try to do it more broadly we tried to bring too much the market and it was a weak effort. It was a really weak effort and we've got a bucket.

And R&D C has told US Hey, you got your Buck kicked [laughter].

So we're back and we're going to fight this time.

You've never seen inside site, and we're going to do it in our home market.

And we're gonna kick.

Competition, but we're going to take them off the shelf and we're going to do with Moda, we're going to do with the trail Blazers, we're going to do with our point of sale opportunities and if we can't get it done we're going to keep throwing stuff at it until we win in Portland.

And then when we went in Portland and people believe that we can fight and win then we're going to go to other markets and we're gonna kick butt in other markets and we're going to do with great product.

We're gonna do is very wide spending.

So that's the game plan now I could spend a ton of money Herald now and can bring Burnside to Connecticut and people would love it.

But the return on that investment is going to take too long.

Some to do what needs to be done for this company I'd, rather put that money and craft, where I can mint money tomorrow with the new strategy, so that the team bill.

Believes that the board believes it is time for the market to believe it and the way that you're going to believe it is when you see our second quarter numbers.

When you come to visit which we're gonna do our Investor day in.

And and Portland, and we're not going to just focus on craft youre going to see the Willy Wonka is chocolate factory in the big machine.

Gonna take your important I'm going to show you, where we're kicking people but in spirits.

The team knows it they've been put on notice that we're going to show. The success. This summer and I think our team is ready to prove on both sides of the ledger that we're underdogs and we've done you know, losing we're going to win and we're going to win this year.

So all of that sounds very fine.

Truly.

Still maintain debt I mean, you guys did a whole bunch of stuff months ago with so many of the products on social media and generated a whole lot of buzz without anything in close your next to nothing.

Products sold out in four hours three hours on just Pepsi Bud vodka, Okay. I maintain that you could do other social media stuff without spending a zillion dollars and getting some additional coverage and exposure.

Here.

It's 40 million people over here you got 2 million people over there I would tell you that there is a monstrous market, but the distilled spirits over here and I believe they do I agree.

Instead, it and not banking on only kicking somebody elses bought at home, but that doesn't mean, you're successful even if you do that the cadence of success is just show you could do what else with big deal, if you're beating up a guy at home, that's something that nobody's going to take that Oh, you're doing a great job that just means you're doing okay.

You need to be doing some of that over here.

Is the number one market in America.

Yep Yep, if we're going to be hundreds of thousands of cases, we have to be there. That's correct. It's a hunter what we're doing at 37, let's see you got I mean come on man.

I'm waiting for that I'm loving that I'm sitting there waiting for years I forget about 100, thousands hundreds of thousands.

Cases tear it didn't even several thousand yeah. The reality is exactly that.

Your where you were talking about 3700 cases, right and pills and 65000 in Oregon, All the Booz is sitting there in Oregon, we ship it all the way to to to Connecticut, you're at it you're fighting with the proximal and and <unk> and they are have a huge cost advantage. This is don.

No problem with with Redneck Riviera, that's why they got destroyed with Redneck Riviera, Okay, Here's hoping I need I'm glad that's not a premium product that we're out of that that's not our issue I wish it was a how do we Ah.

Generate enthusiasm for our premium products.

Yeah, So I and I and I'm going to go back to the playbook that made pelton successful and the one that made Tito successful. They started in our home market. They dominated it people became passionate about it and then they were introduced and asked to join the national stage.

And they moved and took you know took rolled the table.

But that's the point you can't go fight markets thinly capitalized and believe that you're going to win in spirits, unless unless you got Kylie jenner or someone who's promoting your name right. We don't have that we don't have that you know big push behind US no doubt I think we want that because it's free.

Right and it's not authentic and Burnside is an authentic Portland based brand.

That's outstanding.

And I think once we will.

We make this transition and have it working in Portland than we're going to have an opportunity to come and it's going to be all over your market at some point I hope sooner rather than later, but let's see.

Our next question will come from Ross Taylor with E. R. S investment partners. Please go ahead.

Thank you well, it's clear Jeff that your investors are hungry or.

Or traction in this process.

And so I don't want to draw it out a lot more here I was just kind of wanted to get an understanding and our feeling is when you mentioned early in your prepared remarks that you were making progress.

How close is that progress is going to have us at year end to basically becoming a self sustaining organization.

If we execute on the plan that we have.

On the table here.

We will be self funded.

The extent that we don't want to make a huge.

Very big investments and you know in our business, which I'm not saying we wouldn't do that.

I'm going to pull the the you know.

I mean I'm, a basically tell you that if we execute the plan on the table today.

Right, we will be.

And the position that we've been talking about for two years.

By the end of the year, right, which is generate enough cash to meet our own needs right now that doesn't mean, there's any cash when we do a lot of growth from here.

I'm going to tell you one if I can shorten that gap and get us to that point, then I would expect the market's going to give me credit for the company credit for it and we're gonna be often running with the capability to raise capital if we needed to to make ourselves grow much much faster than even.

The growth that you would see this year.

So.

That's that's what I would say on that.

Okay.

Would say that I think at this stage. This company has always had really big vision and it's never lived up to its vision. So before you start thinking about some of the U K to I would think about getting to the top of Mt Hood.

I agree.

I agree although Mt Hood pretty be mountain, but I'll go back to and use another anecdote and I've probably used us before.

Sergio Marshwan was seeing the hair and I'm not comparing us in any way to Sergio Marciano, but he was sitting there on a failed business in the form of Fiat and Chrysler.

And he laid out in front of us the investor.

Community, we're gonna take all the Jeep.

Are all the crappy cars, the Chrysler cars that we produce and we're going to stop making them I'm going to build jeeps and we're going to export them to Europe .

And we're going to make a ton of money.

Right, we're going to have this huge you know free cash flow capability and the analysts scoffed at it and I remember distinctly he said the plan is on the paper. It's there we have everything we need to execute the plan at all we have to do is execute the plan and I remember you know there was skepticism.

Sure.

On a very small scale, whereas in the same boat we.

We have everything we need to execute a plan that's going to surprise the market down the road the discount this little company that couldn't could.

And so it's up to the management team that's up to the team I'll call. The ones that are not on the call.

To execute the plan upon the paper and when they do that we're gonna have a great result.

I agree and I think but I think it's just important to remember that you can hear in the tone of this call. This call is a very different tone than any call I've sat on you guys in a long time now.

I think that's because people really want to see.

The traction I mean at your passion is clear you can listen to you you can here and it's not hard to know that you really believe.

That you're going to be successful in that not just you know and I've had this conversation I think you need to be successful you need to show this was like a <unk>.

But going entity I live in Connecticut, I don't need you boos back here, just yet I can find ways to people to mail it to me, but what I do need and I think all of US on this call need is we need to start to start working you need to get away from the fear that you're going to wake up one day and there's going to be an asterisk next to the name that says hey, you've done another equity.

Financing or B, you you've rolled over the top and I think that that's kind of where you're at I think you've got a vision executed but execute it with alacrity.

Yes.

Yeah.

Who do I appreciate it Ross yeah.

I'll talk to you later.

Our next question will come from Matt Campbell with lower day capital. Please go ahead.

Hey, Jeff Thanks.

Thanks for taking yeah, hi, thanks for taking the call.

Can you hear me.

Yeah.

Okay cool yeah, I'm I'll make this brief just to summarize do you guys have been doing a lot of work underneath the water skills like that a little dark that Scott piloting real hard and we can't see the results yet.

But you know the printer is now there that's going to give you guys. Some gasoline to move across the lake It sounds like the spirits business, you're going to improve margin now because you got a lot of those cost issues you've worked on so whether its a slower a road.

Not you're going to have a better business outlook, because the printing business.

It looks like you have a lot of customers that are demanding it they need it and you're there for them and that's exciting but like Ross said you know, it's it's about it's about showing the opportunity of I love hearing that we're going to see that you know come Q2 and are you going to have an analyst day, so really applaud.

Fact that you guys have been through what has been a long turnaround, but it feels like we're on good footing. So are looking forward to the progress and thank you for for all you're doing.

Thanks, Matt.

That said I'm I'm really hopeful that we're going to be able to get a number of you guys out to Portland.

Early summer.

And and then we can walk you through both businesses and you can see for yourself, where we are and benchmark, where we're where we are versus where you would expect us to be and I think we'll have a lot to show you then.

This concludes our question and answer session I would like to turn the conference back over to Jeffrey Cohen for any closing remarks.

So again I want to thank everybody for joining us for the call.

I will tell you I am passionate about east side.

I am passionate about the spirits that we have to sell.

How are we going to go to market and win and I am passionate about craft and the transformation I've had you know it's hard to be in a stock that struggled through so many difficulties like this company has.

And it's it's in fact, I think there are times when I take a phone call from an investor and we talk about.

The company and it almost as a point of running joke of how many mistakes made along the way with this company and I think what I wanted to say is is if you think about this company and the challenge that we've had you can start where the balance sheet and.

Which is where tangible.

Net worth it and it's a big hole.

The company has a huge hole.

At the bottom of its balance sheet and it looks like something that was L be owed back in the 19 nineties.

That to me is the most disappointing and.

And motivating thing that's sitting there for me.

This company deserves better and.

And the leadership.

It needs to take this company to a place where.

You know investors capitals rewarded you make a oh.

Can take risk with us and you get rewarded.

And we've laid out for you a plan to get us to a point, where you're gonna be rewarded on both sides of our business and so what I would encourage you to do is look at the balance sheet and then go back and remote. This we are going to break out the performance of the businesses you're going to watch them develop there was going to be no.

You know this when we complete transparency about how it develops over the year the spirits does poorly and craft as well you will see it.

If spirits are outstanding in craft is great you will see it.

We're gonna be there and be held accountable from this point going forward on what happens at the bottom of the balance sheet right.

With retained earnings and my goal is to fill that hole and I think I can do it with the team that we have and the opportunity that we have the company has been entrusted with a lot of capital.

Some of the investors on this call today last year and that capital is going to be used to make.

More money and enhance the returns of the company. So I encourage you to stay engaged you know reach out to Amy will set up some more calls as we make more progress as I've said earlier about to Herald, we were going to report intra quarter, our milestones and the critical development of the digital printing business and then hopefully we will see Ya.

In May we don't have a lot of time between now and the first quarter call, but we'll have more to talk about on the on the Cam printing and in April .

And or in May when we report results so with that I want to thank you again for taking the time to talk to US Tonight, and we'll talk soon.

Yes.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.