Q1 2022 Eastside Distilling Inc Earnings Call
Good day and welcome to the Eastside Distilling reports first quarter 2022 financial results conference call.
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Please note. This event is being recorded I would now like to turn the conference over to Amy Broussard Corporate Affairs Director and 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 first quarter 2022, I'm, Sorry, you said 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 are Mr. Jeffrey when the company's interim Chief Executive Officer.
And Chief Financial Officer, Ms. Tiffany Milton the Companys controller and Miss Amy lamps are the company's chief commercial officer. Following their remarks, we will open the call to your questions now 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, maybe forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended second 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.
1995, the forward 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 expected anticipates draft eventually or projected listeners are cautioned that such statements are subject to a multitude of risks and uncertainties.
It 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 of the companys products and market success in obtaining new customers success in product development ability.
To execute the business model and strategic plans success.
In integrating acquired entities and assets ability to obtain capital ability to continue its going concern and all the risks and related information described from time to time in the company's filings with the Securities and Exchange Commission, including the financial statements and related information pertaining to the company's annual report on Form 10-K for the year ended December 31st 2020.
One filed with the Securities and Exchange Commission now with that said I'd like to turn the call over to Jeffrey Gwen Jefferies. Please proceed.
Thank you Amy and let me add let me add my welcome to our first quarter conference call.
Turning to the.
The first quarter was a very important quarter for the company and the results. We are presenting today don't fully reflect the full impact of what was accomplished in the quarter.
And looking at our Q1 performance, we still need to improve upon revenue growth in our spirits tanning and printing businesses.
And I believe we've laid the foundation for this for the balance of the year.
Let's start with other craft canning of printing business.
I'd like to remind everyone that we wake up every day with the intent to help our craft beverage customers win at retail.
This vision has driven us toward a new business model and after a lot of planning and investment we have taken the first steps towards implementing this strategy.
In summary, crafts went through a huge transformation in Q1, and I couldnt be more proud of the Kraft team.
We moved our mobile Homebase and largest warehouse into a brand new 50000 square foot facility, we referred to as Oregon.
This facility now how important mobile business stores cans, and disposables, which we sell to our customers and it also is the home to our new digital printing operation.
In the quarter, we took delivery and began the installation of our first central call D to 40 digital can printer.
Installation was finished in April and this machine to digitally print multiple can sizes of aluminum craft beverage cans with high impact graphics that rivaled the graphics seen in magazines.
And I have spoken at length about how transformational I believe this technology will be to our customers and many of our prior calls.
In Q1, we did not print any production cans are first production can.
Well, our run fell into April and I'm excited to announce we printed one volatile substance craft beer is our first production.
Building and installing a highly automated digital printing plant was a huge and costly feet that impacted our first quarter results. We had no digital printing revenue in Q1, yet start to incur the expenses that that for that effort, which impacted our results.
The mobile business had a tough comparison to last year, where the impact of Covid last year helped outcome that business.
This quarter last year on premise dining was still largely shut down.
And this year a majority of our core craft customer beer customers were racing to keep up with on premise distribution that typically doesn't involve kids and.
And we expect better results for crop as we move through the year and ramp up digital printing.
We are now breaking out craft result, so you'll be able to see this transformation mark our progress yourself.
Now turning to spirits, where we also made progress in the quarter.
Like to point out in the in Q1, we had strong wholesale spirits sales.
Approximately 800 barrels of excess brown spirits barrels that are not currently needed in our product pipeline were sold we achieved very high prices for these for this for the spirits and.
And that sale positively impacted our results.
Now nine liter case shipments for our key brands were 7491 versus 8894 in the prior year. The majority of this difference was lower sales of Virginia Tequila.
Which also negatively impacted our revenue mix.
As we have said that the last few quarters, we are purposefully walking away from very low margin legacy tequila placements.
And taking full advantage of our premium tequila products.
Tiffany will get into the results in a moment, but I'd like to highlight how our product margins are improving.
Wholesale whisky gross margins were 39%, while branded margins were 35% in the quarter healthy levels. This was an important quarter for spirit and that we achieved two critical objectives first.
We re engage our distribution partners in Oregon, California, and Arizona.
Second we made tangible progress improving our supply chain costs, and tequila, which has long been an issue for the company.
We will continue to push to improve and these two deliverables.
This year, but are also turning to a third which I'm going to talk about today, which is improving the effectiveness effectiveness of our marketing spend.
In the quarter, we saw both retail spirits volume and mix decline, however price improved.
On our key brands, we are utilizing marketing spend to turn this around and drive both velocity and twice.
And I think it's worth mentioning we have not taken advantage of inflationary pressures to achieve price gains.
I believe what you see happening in the wholesale spirits market will eventually make its way into retail.
We sell outstanding products are Buckman Bourbon has been with 99% of what comes out of Kentucky in my opinion that we have yet to achieve what I would call the fair price for this product.
We will continue to make investments to unlock this opportunity to drive up gross margin dollars.
Now in order to get there we need to have better visibility into how our brands are performing.
And over the past year, we have made investments in people and systems and now have the data necessary to gain insights.
How to improve the spirits results.
Oregon is a very important market to us our performance in this market is critical.
And I believe we have made more progress there too.
And our current quarter, where we have built and implemented a strike plant in Oregon, where we are working with a broker to quickly close 81 distribution gaps in high velocity retail accounts on our core skus.
Our program calendars aligned with our brokers and we have key.
Initiatives.
We will be executing throughout the year to drive positive growth.
Now this program calendar includes a is it was also in place excuse me and our top five junior states outside of Oregon.
Here, we plan to replace the low margin sales with higher margin sales that we've been talking about for the past few quarters.
So a lot has been accomplished in spirits, and we'll make more progress to report.
I think we'll have more progress to report in the second quarter.
Now pulling back and looking at consult solid results.
And taking out one time restructuring charges, our G&A continues to improve year over year.
On the balance sheet, you should see working capital cycle times improve.
We hit our plan and you should also see us generate free cash flow in the back half of the year.
For Q2 expect to see improvements at Kraft as well as a methodical ramp up of printing remember, we're coming off of a zero base.
Green customers along on this journey so it will take a while but we're very encouraged by the initial results.
And finally, you should expect to see volume improvements in spirits as we go through the year.
Now with all that I'll now turn it over to Tiffany to walk you through our results in some more detail and then we will take your questions.
Okay.
Thank you, Jeff Let's review, our first quarter results.
On a consolidated things that aren't breast cells were three 8 million for Q1, 2022 compared to $3 2 million for Q1, 2020 one.
Sales were 2.7 million this year compared to one point last year driven by bulk south.
Cross sells for $1 1 million this year compared to one 9 million last year, reflecting increased competition and it first thing by customers and the significant resources devoted to the printer installation.
The encouraging news is that the printer is fully operational.
And our current and past mobile customer are excited about the new technology, which had not yet been available in the Pacific northwest.
Our consolidated gross profit.
150000 for Q1, 2022 compared to a five minute or so.
Our Q1, 2021 again, driven by the bulk spirits sales and partially offset by craft.
Our consolidated gross margins were 25% for 'twenty, 'twenty, two and 17% for 'twenty or 'twenty one.
You're a smart guns or 37% share of breakfast, 16% last year, Oh, crap smart guns were down 3% this year.
19% last year.
Craft breast smart doesn't reflect the challenges that I referred to above.
We will continue to reduce our operating expenses. So to your point 6 million in 2022 from $2 8 million in 2020 one.
The increase in operating expense was due to lower head count and professional fees and marketing.
Kraft had slightly higher operating expense each of our new archive and Spokane warehouses.
Without our noncash restructuring charge, our operating expenses would have been improved by almost 500000.
Adjusted EBITDA improved to down 1 million for 'twenty, 'twenty, two or down one 4 million for 2020 one.
Presenting a continued effort to improve gross profit and reduced overhead.
City, but I quit the proceeds from the Rednecks L. P. P. P loan forgiveness and other significant one time items that occurred last year.
Turning to the balance sheet.
We call it for the purchase of the digital printer prepaid and reflected the change in working capital.
Liabilities increased versus last year, reflecting our investment in inventory to support the town center as well as to ensure we have adequate levels.
As we enter our key selling season.
We ended the quarter with $2 6 million of cash on the balance sheet I'm more excited about the balance of year.
We will now open the floor for question operator.
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At this time, well pause momentarily to assemble our roster.
The first question today.
Some fun, Sean Mcgowan with Roth Capital Partners. Please go ahead.
Hey, guys. Thanks for taking the questions.
With.
Well to start with on.
Spirits, it looks like that line of exercise traction customer programs.
Logan can talk with them about what's going on there and how it gets it that would be what would you expect in the future.
Sure well, maybe Amy do you want to.
Oh, yeah, Yeah, I can take that one.
So we are you know cycling some pretty deep discount plan as Danielle last year and H Y. So we were expecting the reduction.
And the customer programs or discounts line.
That being said there is a bit of a lagging and processing those since they come through that distributor as a charge back.
We definitely will see a reduction in discounting for the full year.
10 year versus last year.
Okay. Thank you.
And could you Oh could be Jeff for you or someone else.
Just talk a little bit more about how do we look at the front or on the balance sheet. It sounds like it's hitting a couple of different ways right.
Yeah, Yeah, so maybe I'll start and Tiffany can add if she wants to but the way we can for the printer as you know we it wasn't installed in Q1.
We received it but it wasn't in service in the quarter. So.
We've been making payments on it so you'll see it in prepaid.
And then and second quarter, you'll see it move to PP&E now will have an opportunity to decide if we want to finance it or not and if we do a sale leaseback or something like that.
<unk> come off the balance sheet, but right.
Right now that's kind of how you can think about it and and just to clarify.
Shifting like a right of use thing.
Yeah right.
Lisa counting has changed dramatically and Tiffany has cooled me on this.
More than one time, so I'll, let her explain it if we really want to get into that kind of topic, but yes it'll be.
The address that way.
Okay, and it's also affecting inventories then because you did.
Loading up on cans.
First great right. So one of the key things that I've talked about in the past couple of calls.
Last year, we really struggled with cans.
We well the no.
We were in a position where we were caught super short cans, we were going.
Looking for scheduled for cans and in fact their margins last year.
Electroshock for customers.
And it frankly, it allowed you know competitive entrants into the market I think which was unfortunate.
Unfortunate, but tissue is different this year.
We are in a much different position because we've talked about and we've talked about on other calls in the digital printing evolution is huge because Portland is full of people that are.
Putting cans into the.
Into retail that are not recyclable and a digital printing is 100% recyclable. So I think you're going to see a very quick transformation much like you saw in Canada, where people are going to start to be.
Aggressively move into.
It's a digital printing.
And so in preparation for this we've.
The contract with a large cancer player.
And it dramatically improves our position in cans and we have plenty of cans to work with so we spent some money in the first quarter.
Building, our inventory of cans. So we wouldn't have any issues with pulling down the printing process.
Thanks.
And then my last question was can you give us a little bit more color on the crap fourth bottling gross margin you know kind of what were some of the onetime items that hit that what can we expect.
Yeah. So that's a hard one to pull out because and we've talked about this a lot. We went through the process of thinking about trying to walk people through what a normalized margins, but to be perfectly honest with you Sean.
Not sure what the craft's gross margins are going to look like.
Because there's so many moving pieces here.
Campaign business has already led us in some direction that we didn't expect so when we look at where our plan was for the beginning of the year for printing and as we go through the balance of the year. The margins are going to look different because of the the opportunities are different than we expected, but I mean you can.
Think about this from the standpoint, the facilities that we were operating it was nothing larger than.
A pretty.
Medium to small sized warehouse in Portland, and we've moved to a very large facility tremendous amount of space.
Moved into early in the quarter.
And then prepared ourselves actually start taking delivery of components all through the quarter and then built out the the printing plant and the back end of the quarter into into April .
And so you know there are there are a lot of you know.
Vince is a transition that impacted the company in the quarter.
And so you know it's hard to pull out specifics, but I think what I would suggest is that let's get into the second quarter numbers, we're gonna be reporting both revenue and expense and we'll be able to start to guide you towards a normalized margin in printing and because youre going to have craft broken out separately, you'll be able to see that yourself and what kind of food.
That performance adult, but I'm encouraged I think we'll see some some much better numbers as we get into the year.
Thank you very much.
The next question comes from Kelvin He told with Greater Lake. Please go ahead.
Hey, Kevin Hagiography Yep, hi, Thanks, so much for the commentary on the space I think Cindy is that around in this update.
Our strategy will be extra boost and also we had a great time learning about the company meeting the people behind the business and thanks for hosting us though.
You know from the praises of eggs to me I think everything is going up. These days. So I just wanted to find out how has the <unk>.
Inflation effect that the cost of our business is could you comment a bit on the way.
As we are mitigating the adverse effects because I recall you know we are quicker now to pass down to close to our customers. So just wonder how our customers are responding to a request. Thanks.
Yeah. So there's a really good question and we see the inflation like everyone else does I mean are there places where you see it <unk>.
Significantly impact us, which in the forums in the form of prices and logistics and you know our inbound freight.
Getting things up into Portland.
But it's also in and the and the supply and availability of things from glass to other things and it can lead to you know out of stocks, which is what we struggle with last year with Virginia.
And very very Super long lead times.
When I think about that question I also think about the opportunity because.
Because I can tell you one thing everybody is facing the same challenges our customers that their craft.
Canning customers have super long working capital cycles, and we're gonna be able to shorten that dramatically because we're gonna be able to you know whatever.
Whatever level they want delivered the next day.
That's going to cut off a huge amount of their supply chain their cost and invested in working capital is going to drop pretty dramatically. It's a huge competitive advantage that we're going to have there but.
But on our end, we haven't really pushed through a lot of price increases through.
Like what we're seeing in one benefit the company has as we sit on.
A lot of barreled inventory.
Yeah, Daryl spirits that age out past a decade.
And were seeing the values of those just continue to go up.
And so that is another big opportunity. So the challenge is when you can make almost as much more money selling.
Selling something wholesale rather than take it through retail pay a three tier distribution fees to your broker it's hard not to want to go that direction, but it doesn't build long term value for our shareholders and for our customers. So we havent raised out to take advantage of price increases in wholesale other than.
These one off barrel sales here and there.
I think you should expect to see us look to take advantage of price increases I think bourbon prices are going to be moving up.
I mean, just a bit.
Demand that we see for people clamoring to buy wholesale Bourbon with over five years old.
Tells me that there's a shortage of this stuff age.
Aged you know crop premium.
Been out there and so if you walk into an a and a grocery store and you can buy.
You know.
A nice age craft Bourbon for $50, you know around that price point, you're getting a deal.
And most of our brokers are all there.
But when you can find it for $80 or some places, but I mean, that's like a $150 products. So there's a lot of room for us to move. So we can do that we can push and make changes some markets you can't move the price you know overnight you have to go.
Go through them.
Price change, but we have that to consider.
On the Kraft side, you know right now we're just benefiting from the bundling of services offering a great product printing on can we got an outstanding group that sells does a really great job doing that and we can really deliver I think a complete <unk>.
A lot of people that are yeah, there would benefit from that in our markets.
For Kraft, so we've seen inflation and just about every aspect of the business, but we haven't really taken advantage of it on the income statement.
I'm not going to promise you that we're gonna racer joint because I'd rather <unk>.
Drive the volume.
We're looking for the turnaround in this business is going to start with volume moving up and is capturing the margins that we've already built in by structural changes lower G&A.
A better contribution margins from the structural reductions we've got in our cost of goods sold.
And that'll get us heading in the right direction, but but you're right I mean, it's something to watch and as you know when you get a dollar price.
That's a dollar of gross margin that immediately hit it.
The bottom line, assuming nothing else changes, so we're going to keep our eyes on that and see what happens this year.
Got it got it. Thanks, so much so one thing I know these are you know I think a lot of earnings calls. These days is you know.
And at least I'm asking this question you know what you thought that our reserve is increased.
Increasing the interest rates throughout the year.
A lot of talk about a potential recession, I think nobody knows where it's going to have that or not.
So this is a broad one just really wanted to get your perspective on this you know how how does that affect our business because I also know that opposition.
<unk> quite resilient in nature because of the products that we're selling so wanted to get your view on it.
Right.
So I mean.
Amy answer might be able to shed some light on her views them as she's been spirits industry for years, but I don't particularly think that we will be.
Dramatically impacted.
On the spirit side by a recession and certainly there will be challenges to the consumer there is gonna be challenges on premise, but but we're really in a sweet spot we deliver a great product we're not the most expensive a product on the shelves and our various categories we have.
Had focused on elevating our tequila.
Zen you Black is an expensive product as I talked about button was expensive, but these aren't big workhorses for the company yet I'd like to see them become so down the road. So I don't foresee that I think our challenge is going to be on the interest rate side. As you mentioned, we don't really have that much.
Exposure to floating rate debt I mean, most of our situations are pretty fixed.
Fixed rate.
I think the question for us really is going to be what happens to the demand down the road, but I feel pretty confident that we're in a good place and as I said in my remarks if.
If our plan plays out on crafting spirits and I'm not saying, it's in the can and the bad yet.
If our plan plays out we're not using any more external capital from other people other than the.
To refinance existing debt or do big growth projects, we're not using external capital in the back half of the year to fund operating losses.
Be moving towards.
Generating positive free cash flow from releasing working capital.
From improved results.
So I'm not as worried about that aspect of this is that would be if I was a a small company that had a two year burn or through your burn down the road to tilt to finance.
And in this market environment. So yeah, I'm feeling good having said that I mean, we have near term challenges like everybody does it really big working capital component and we're starting up a brand new business.
That's gonna be as big if not bigger than our existing business.
So that's a that's a that's a working capital execution channels, we're going to keep on top of it but I'm encouraged that this environment is that kind of throws off.
Alright, thank you so much.
The next question comes from Ross Taylor with E. R. S investment partners. Please go ahead.
Thank you well, Jeff its great to hear you say that we're basically done with the need to raise external capital I think that alone is a huge homerun and it's been a long road, but I hope the market will recognize that that would be the transition you from a survival stage two a growth stage again.
Okay.
Second Yeah can you talk about kind of the run rate, whether it's in EBIDTA, whether it's in revenues or whether it's in volumes that you expect to be at with cans and printing at the end of the year.
I could tell you what I think you've got a bigger than sitting here staring at my model.
But I.
The challenge we have.
Ross as you know is that this company has been waiting for go for good do forever, we've been waiting for something to finally happened and the turnaround.
It's easier for me to point you to the changes in our business.
And then we can start to see the progress as we move forward.
As I get into the second quarter and the third quarter when they have a lot more confidence and telling you where I think we're gonna N and I'd like to start you know being in a position to.
Focus the eyeglasses, so to speak and give you better numbers than just positive free cash flow I think that's kind of a ridiculous statement frankly from my part, but as we have more visibility and we're gonna be able to say this is what we expect for EBITDA for the year and what we're in and are you now and what the run rate would be at the end the year, but let me just walk you.
Backwards into.
How the business changes digital Cam printing transformed this company because the machine that we installed this year.
Can generate 25 million cans a year easily.
Ready to date.
We have on the books off our 350000 cans printed you know not all of them have been printed yet, but they're it's queued up right, so where we'll be highlighting our landmark says we sweep by them over the coming weeks, but I'm excited about that so when you think about that and you think about the cost of accounts.
I can tell you what our cost is.
And you think about the incremental cost of a label right.
Yeah.
Do your research and start to multiply it by 25 million you can see what a revenue number looks like.
And then I think that the margins that we will see the gross margins we will see in this business will do nothing but improve.
From where they are here and be a what I would call them.
Our gross margin better than the industry average in this case.
And the reason why it's gonna be betters, because where we're gonna be capturing more revenue funnel them. The customer is going to be doing more for them.
And and we're gonna be able to leverage more of the fixed overhead that we have been controlling and walking into one facility like we've talked about so.
I could bear on you to you now.
After your patients for another quarter at least maybe two we're gonna start getting really precise on what we think we can do.
Spirits is also important in this because.
You know one of the things that we talked about was the challenges last year. When he has alienated our key partner and distribution partner and on the West coast markets, even in Oregon, and Oh I'm more encouraged about that you know today than it was just three four weeks ago, we've had a good.
Reaction to our to our plans to Reengage and partner in and if you have both sides of this business moving where we're gaining getting volume gains.
We've transformed one business and we have one that's been getting born gains on a better.
<unk> expense structure.
Then the east side that you're going to see at that point, it's gonna look completely different from what you've ever seen before even in the former days of Redneck Riviera.
Okay. So if you can look at doing 25 million cans, a year kind of.
Reasonably full run rate not.
That's certainly full run rate.
Should we expect that you are going to be at or close to that run rate at the end of next year.
Yes.
Okay.
And I understand that you won't need to be patient and my only issue is that the market is clearly not patient with you I think you're.
Right here just the wall here yeah. It cost me I'll help you assure yourself, where a discount to what it would cost me to buy in Amazon 'twenty five 'twenty call that expires Friday.
So we need to create some level of excitement here does not mean you need to.
It's a market I'm satisfied.
And so he and I and all.
I'll answer that this offer we want every single investor on the call and those that were able to hear the call live and came on after the fact.
To come visit.
Kevin already mentioned he had a chance to come from Asia and he was with us for a while we had some other large you know of our large strategic investors come visit and so at the end of this month starting on the 31st of May we'll be hosting anybody they can get the Portland enrolled take are investing you know.
Stakeholders.
Digital campaigning facility with 31st in the first I believe it is Amy bizarre its gonna help help us organize some of this.
And you'll have a chance to meet the team you're going to have a chance to see how this works you'll you'll see for yourself why it's an important investment for the company and I think you'll have a you're enough information from that to really better understand what the direction of the.
East side and in addition to that we'll talk a little bit about spirits as well I'll spend some time talking about that side of the business. So you know again anybody that is interested in being in Portland.
In a few weeks we can.
Be happy to set that up and we would love to host you guys for a few days.
The business, but I agree with you as people start to understand what the business strategy. As you can hear me talk about it you can read it in Q.
You know you can go over but when you see it and tangibly can touch it and understand why it works in here for more than my people that have been the craft Canning business for years now describe it.
The offerings that they have that our customers have now and what they're getting with us.
And the breadth of where we can go with US beyond just you know beer customers, it's a big change.
I appreciate the offer but I'll say as someone with decades of experience, we need to attract people aren't going to get on an airplane and fly the Portland, we need to create a pause and we need to create an energy and bluntly, we need to create a sense of greed and.
And this kind of market and therefore I do actually argue that you need to start to put out some of these things you don't want to talk to us.
But it sounds like you've got some pretty high numbers. You think you can achieve right now the street literally it's more worried about you as a going concern than they are about you as a growing business. So I'll start to talk to us about where are we where you see you need to be on the low end to consider yourself, having achieved the low end of your expectations. Because my bet is there are a lot better.
And then people actually our pricing as I said I think that to me you know you and I know each other well and speaking to but I think we need to create that green and you need to make people come off this call and say I want to own this stock because literally it's it's a call option. It's a warrant it we'll never expire if you don't go broke it will never expire and I can't think of a bed.
The way to spend.
73 cents, a share or 74 cents or a dollar or $1 25 in here because you know you're talking about that second thing I wanted to ask you about is how do you get people to care about the recyclability of their can.
Most people I know don't even think about the recyclability of those can now maybe that's because I live in the northeast.
No I can't think of anyone who has ever looked at it can and said Wow I can't recycle that they tend to talk to them to the recycle bin whether they can in all right. How do you create that you know as a policy does that drive revenue on the topline and get your premium pricing.
One of the things that I have to say that I have.
The special about Portland is people and Portland are unique in a lot of ways and one of the things they really need about it when they have it.
When they have the information they understand you know how they can help the environment.
I mean, it's hard to find someone who's not.
Wanting to run in that direction and that's distinctly different obviously as you said to the people that you might find in other parts of the country.
And so I think people will care when they understand why it's important to cure them.
And and I think people will.
We will also under care start to care when they get pushed in that direction and Portland's you know very progressive about taking care of.
Our environment and this is an outstanding way to do that.
Just for the people on the call that might not understand what we're talking about it.
Aluminum cans are exploding and the reason why you see them everywhere because you know people are tired of plastic just the other day I was.
But in the grocery store and I saw instant death, it's a basically a water and you can buy at $4 70, or something that can and it's and it's a it's a water brand. That's exploded. It's just in a silver bright can.
You know, it's nothing more than just you know tap water.
But the packaging has been instrumental in that marketing story, and so you know well.
Cancer explore them because they're 100% recyclable, we don't there's not any loss with that when you go through the recycling process, but the challenge with it is if you shrink wrap the can which is what you've seen a lot of companies.
Companies with dinner.
That are decorating cans or use a sticker label on it.
Then they usually get kicked out of the recycling bin or you have to take off the shrink wrap and.
And that's a time consuming.
If you like me I sit there and pick up my Dear sometimes in and play with the label and that you know it'll take you want to get that thing off so the other part about this that's hard is that it's not just recycling. If you have a can you decorate it it wasn't a shrink wrap and then you need to pass horizon and you heat that can up to the label can getting mess.
And so that's.
One aspect about non beer customers that make it harder and obviously you have to label a beer can cure.
They are fully because yeah, it's a it's a more challenging.
<unk> product to put in a can but.
In any event I think.
Ross, we're going to get there and get people excited.
Excited about this aspect and this aspect is only one small lever.
A wide digital campaign and so exciting it's one of the of the many levers that make this a you know.
An important transformation for people to consider.
Okay don't be afraid to be bolt ons. It sounds like you feel you've crossed the rubicon. So if you have either as I said.
I think your shareholders would appreciate I appreciate a little bit of boldness out of you guys. You clearly have the confidence you can hear it in your voice you hear it in the choice of words, you are using to understand let's get out there and be bold with this because if youre right.
This company is transforming but it would be nice to have it transform in a way. So that we don't have to wait till the end of the year to actually try to make some money on it.
Great.
We're working on it last I appreciate it thank you Sir.
The next question comes from the O N E.
Capital. Please go ahead.
Hey, Geoffrey Thank you so much for hosting us in Portland, a few weeks back we've learned so much about eastside distilling and city deal looks incredible with Steve Martin South Kent. So.
So I have a few questions on my end.
If I remember correctly, you talked about January being free cash flow in the second half of <unk>.
Is it fair to say that we have set the D that site is going to breakeven E trading to do.
So for example would it be bankruptcy that this quarter's results will be our low watermark and we should see improved results for the remainder of the year.
Right. So thanks.
Thanks, Brian Yeah I appreciate it was.
It was great to have you guys are in and how do you see that facility I think you got a better sense of what we've been talking about so on that question when I, let's just talk a minute about about.
When I refer to free cash flow so.
EBITDA, obviously, you know as you because if you think about it or I think about it. It's it's the income statement generation of cash flow when you assign the.
The balance sheet.
Categories of working capital.
Capex things like that to EBITDA and you get out of the free cash flow number and because we're already so loaded up in working capital we have tremendous amount of cans we have.
Pretty much gone through our Capex cycle here.
We have.
Invested in and then.
I'm, sorry, and Burnside.
Raw material that we've been sitting on for a while we don't have to be basically a pay for that so when we we shrink working capital that generates cash so for the back half of the year, that's how I'm looking at it I think we can get there but.
But to your point sequentially, yes, absolutely you're going to see improved results. So.
April we started can printing.
You know, we've got off to a pretty good start with that but it wasn't like lightening speed, we saw others get into digital printing and race off and then immediately have some issues. So we went through a pretty methodical ramp up.
Slow.
Took only some customers in didn't try to get over our skis with that and we're starting to build now and grow now one of the things that we have to think about it is the pace of that growth.
And we as we add customers and win more burden you load up the shifts here, what the with with the with the machinery, we're going to get to a point, where we can have a better ability to see the pace of a pick up we have and.
And that's going to inform us of how the second quarter is going to Pan out like you know how much improvement we should expect to see.
So, yes, I think I think we're going to see a better.
Second half this quarter is going to be one that looks different than you've ever seen before because we're going to have new revenues here.
And we're gonna be growing off of a.
A pretty low base, but I'm pretty encouraged you went out like I said I think that the company is in a good position.
We still have to manage you know refinancings, we have to manage.
The continued peak supers like we have a working capital here over the next month or so.
And you know as.
As we say in our Q and we need to transition away from traditional bank lending from our partners at live Oak and our partners are being have been outstanding partners.
Could've gotten here without their help you know, but there, but my books not interested in staying involved in a in a tiny facility in.
They have now we paid them down a little bit with corvid will continue to work to pay them out and refinance them, we'll do the same with the <unk>.
So we've got work to do.
But I'm optimistic that as we just talked about with roster, we're gonna be getting into a position where you're going to start to see better results as we move out here.
So I see there's a lot more focus towards cross cutting to SD Julien you don't and.
And I do see why this makes sense as I believe he is the key in these kind of their own story. So in terms of optimizing our operational expenses could you talk about even when all employees such as we expect that to hire more people to support the crop.
Right right. So that's a great. That's a very good question. The company went through a pretty dramatic downsizing.
Uh huh.
And both businesses.
Hum.
They have been redirected to a different point in the as far as the way, we think about strategy and so if you were to think about it. The that's been a difficult process to line up our investment in people and talent and and make sure that we are recovering the areas that we need to and we have areas for growth and I.
We have some more work to do I mean craft is definitely going to need.
And they're going to need some more more.
People, they're more partners to help meet the growing demand for their products and services and so we'll be making investments there and then there's all of the controls that need to be made underneath that I mean, as you think about a new line of business you got to account for it you got to collect there you got to work behind the scenes to make sure once it smoothly and.
I said in my script, we've been doing that on the spirit side for the past year.
One of the things that's really hard for investors to understand as we've gone through a pretty significant.
Significant transformation.
On the spirit side, not really knowing what things cost or how much money. We made when we did things to having a lot more transparency into what we produce.
How much it cost us to produce and how much it costs to store it.
What happens when we go to retail how much we can discount without losing money and and I'd have to give credit to annual answer who's on the call today and she's done an absolutely fabulous job they're.
Coming from Heineken and starting to have US you know behave with with a lot more stewardship.
To managing spirit margins and that's one of the things that gives me a tremendous amount of confidence where we're heading in the right direction there but.
There's more changes to be made there's more investments to be made on both sides of the business, but I think we're a lot closer to where we need to be than we were this time last year.
Yeah.
Yeah.
Got it so just a follow up to what you had I think an important findings also ensuring that all the employees online and with the beat the Indies joined Catholic too. So how do we ensure that employees are high.
Foley business segments, especially D b side of things.
Right.
No.
We've been we went through a process a couple of months ago, when we really.
Worked on the on the culture of the organization.
We did have a pretty elaborate employee survey.
It took the temperature of both sides of the business and and we've put together an action plan, where we're going to really spur.
I spend more time in.
Employment I'd say over the next you know.
Two quarters, even into next year, and then we're gonna be actually changing our our three year strategy plan updating it for another year in the summer.
And it involves a lot of the key employees.
The investments that we're making.
Identify target motivate and encourage people.
You know to join some of the teams that were building and and then they could also benefit and the success of the company. So it's it's a topic that we talk about internally on both sides of the business spirits and also on Kraken, we've talked about it with the board.
Pretty much every board call.
And.
I think that will we'll have more there and you'll certainly be able to learn more about that as we go through the conference calls and certainly I hope you'll be able to know that.
We report a bigger problems like the 10-K, but.
There's nothing more important than the people that show up every day at Kraft and insights I mean, we have a great.
Product offering, but what makes this work is the dedication of the people that come here every day.
Spend their days.
Working on being an outstanding service.
Service provider crafts beverage companies, and making outstanding products, where people enjoy it so.
That's a key focus of the company.
Yeah.
Got you. So I just got one final question and you know obviously, we got to control what the market does to stock price.
Our stock price is below $1 right now and that's below the NASDAQ minimum requirement on one on the trading price. So what happens if we fall below these cranky when do we actually moved to the OTC exchange.
No.
No the company well.
We work we've worked with NASDAQ.
On the number of occasions to make sure that we stay in compliance with them on all of their requirements listing requirements and this is there's no difference here I mean, that's it gives you an opportunity to make changes that are necessary and our stock prices and in my opinion, just a functional.
Term that can be changed by the number of shares or however, you decide to adjusted it. It's the if the market cap that becomes important obviously and and as long as we have positive tangible tangible net worth and we meet some of the other requirements of the NASDAQ I don't foresee a problem with the state company and.
Staying in compliance.
So we'll keep you informed with that you know this market extremely extremely volatile.
How do you guys have to deal with it every day.
And we don't know, where you know where when the stock price will settle out once people start to look around and as Ralph said look at the values that are all of them and that's something it's not just that probably in our stock is probably in the other people's stock as well and then you know as stock start to reflect.
Probably a more normal environment without so much turmoil then we'll see where we are and we will address it if we need to but I don't foresee that we're going to need to address in the near term.
Got it. Thank you all for you. That's the only question I have I'm acting as being exciting and also a roller coaster.
Together these insight and I'm looking forward to see how Q2 and in subsequent quarters to be here. So thank you guys for the hard work and.
We will continue to support wherever we can thank you.
Okay.
Thanks, Brian appreciate it.
This concludes our question answer session.
I would like to turn the conference back over to Jeffrey Cohen for any closing remarks.
Great. Thank you again I just want to thank everybody that joined the call today.
That has put an investment here and following east side I am excited about the prospects for the company for the coming quarter and for the balance of the year as I said in my remarks earlier and as we talked about in the question and so I think the company.
Is it in a position to do much better and really improve results and the transformation that we've been talking about over the last basically two years investments. We've made have been made and now it's about execution. So I'm encouraged to see those results developed and I'm excited for the teammates that I have here.
They are working diligently to get this to happen and hopefully you'll you'll be pleased as we go.
Go through the balance of the year so.
Thanks, again for listening and we'll talk to you next time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.