Q2 2022 Eastside Distilling Inc Earnings Call
Good afternoon, and welcome to the Eastside distilling third quarter 2022 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I'd now like to turn the conference over to Heather White with Eastside distilling. Please go ahead.
Thank you good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial result for the second quarter 2022.
Or white with Eastside distilling and I'll be your moderator for today's call.
Joining us on today's call to discuss these results are Mr. Jeffrey Cohen, the company's interim Chief Executive Officer, and Chief Financial Officer, Ms. Stephanie Belton, Besides controller and Mr. Bruce well crafts controller.
Following their remarks, we will open the call to your questions now.
Now before we begin with the prepared remarks, we submit for the record the following statement.
Certain matters discussed on this conference call by the management of Eastside distilling may be forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended.
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 forward looking statements describe future expectations plans results or strategies and are generally preceded by words, such as may future plan or planned will or should expected anticipate draft eventually or projected.
Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances events or results to differ materially from those projected in the forward looking statements.
Such matters involve risks and uncertainties that may cause actual results to differ materially include but are not limited to the company's acceptance and the company's products in the market.
Success in obtaining obtaining new customers.
In product development ability to execute the business model and strategic plan.
Success in integrating acquired entities and assets.
Our 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 the form 10.
K for the year ended December 31, 2021 filed with the Securities and Exchange Commission.
Now with that said I'd like to turn the call over to Jeffrey Glenn Jefferies. Please proceed.
Thank you Heather and let me welcome you all to our second quarter Conference call.
You should have had an opportunity to review our earnings press release, Tiffany Milton will take you through the performance of the company a few minutes.
I'd like to update you on our performance as well and some of our progress to date and the transformation of our businesses as we implement a three year strategic plan.
Our spirits business had a good quarter.
We executed some key strategic wholesale agreements.
And realized some gains on the sale of excess brown spirits that are not fully in our operational plan.
Spirits gross margins in the quarter.
Was 53%, which I think is a record for the company and is up from the 21% in the prior year.
Breaking that down.
Year to date, we have achieved 32% gross margins and our spirits wholesale.
Landed our retail businesses.
And could you give me a percent and bulk spirits sales.
And this margin improvement underscores some comments I think I've made in prior calls that we sit on very valuable.
Aged whiskey inventory this inventory is in very short supply.
The increased in value over the course of the pandemic.
No it's been critical for us to capture these expanded gross margins in our traditional branded spirits business.
As we've said in the past, we will no longer sell to spirit.
At a law, so retailers and distributors can enjoy disproportionate profits.
Now, let's take a look at the second quarter, our branded spirits results.
In volume price and mix.
Volume was a headwind.
But most of our decline there was a result of lower sales of the junior.
Through channels, where we were losing money now adjusting for onetime sales of about 175 cases of Burnside Tasters club last year volumes of burn side would have been down 6% year over year for the quarter versus the 20th we reported.
We have begun to see improvements as we move price points up for the key skus.
Our mix has been a somewhat affected negatively by the fact that we're selling less of junior which has a much higher gross revenue rate than the rest of the portfolio, but that's been offset by some savings and a lack of discounting all apart.
As we head into the third quarter.
We need to make more progress on improving volumes.
But you should expect to see us continue to lap the discontinued.
Sales to discount channels and that impact on year over year comparisons.
The sales team at a number of key wins in spirits in the quarter.
For example, you're invited by club Corp, the largest owner operator of golf clubs and country clubs in the U S to test, our junior Tequila and their Texas market.
We were authorized in 52 F C stores that the division of Kroger and Washington.
Starting in Q3, and also one climate placement and another 17 Pinky stores in Texas.
So the sales team has done a good job in laying the groundwork for profitable sales growth growth and we hope to have more wins here to report in the coming months.
We've made progress in spirits.
We believe with more investment dollars, we could probably accelerate this growth.
Now for the balance of the year, we faced a number of opportunities and challenges.
We need to continue to implement the shifts where we're taking strategic price increases where.
Where we were a reducing input costs and invest in local marketing.
This is not going to be easy in a market where distributors are destocking.
And inventory is running at very low levels.
With consumers facing higher prices.
Less disposable dollars they are shifting to lower price points. This kind of environment favors large spirits distributors, but we.
We have outstanding products and in some markets strong brand equity.
So now, let's turn for a minute, let's talk about crop Canada right.
Kraft had a very important quarter.
At the end of April we turned on our new digital can printer and began the long awaited next phase of growth in that business as many of you know digital printing is transforming the craft beverage space.
We are taking share of can declaration from additional craft labor and shrink sleep providers.
The business proposition here is very simple.
Most traditional craft labels found on aluminum cans are.
Power technologies, where they.
Effectively make the cans are unable to be recycled and they have to go into landfills.
However, digital can printing cans. They are 100% recyclable now in a key market like Portland, where craft beverages, driven by environmentally conscious consumers. This is a powerful differ differentiator.
But that's not all the benefits of digital Cam printing, we also provide unparalleled decorating capabilities both of them.
Realistic graphics, and the ability to make label changes at the last minute.
These capabilities are game changers in space.
As a reminder, the space I'm, referring to is not just beer, but all types of craft beverage space, it's growing dramatically encompassing every and national beverage variety.
It's important to keep in mind this new technology will take time to reach its full potential so in the quarter, we began introducing our customers to our digital can printing capabilities.
And through the end of July over 60 customers had switched to digital can printed cans.
And we had printed over $1 4 million cans.
Our strategy has been to introduce Ken printing.
Two key customers believed.
I believe that once they see the benefit they will never return to traditional labels.
Given that focus and methodical ramp up in utilization that we still have a ways to go to show you all the profitability of our new digital printing business. However.
I believe we are on the way.
And seen Corinthian utilization improve weekly as we continue to build a printing.
Backlog of customers.
We have added a second printing shift and we will be in a position to improve printer utilization in the current quarter.
Now Kras mobile Canning business saw volume decline versus last year as many of our craft customers shifted to arent premise sales. We were also impacted by stiffer competition and fewer sales of consumables.
As I've shared in prior calls our investment in digital can printing will strengthen our performance in mobile Canning and open the door to new opportunities.
As an example.
We made an announcement this quarter about our new relationship with approach beverage. This is the direct.
Opportunity that came from.
Digital Cam printing.
We bring this key new customer digital can printing capabilities.
We have acquired its production assets in Poland. This will be our first co packing facility to attack the underserved micro craft beverage space.
So we're excited about all the changes it crashed and we believe we have made good progress positioning the company to grow.
Now, let's talk about some other important developments. So we continued to make progress working on our balance sheet in the quarter, we terminated our relationship and paid back live oak and.
And extended our bank line for a short period with first Interstate.
We are planning on replacing that line with an asset based facility in the current quarter.
The balance of the year, we faced two critical challenges.
We have to drive earnings improvement, despite an uncertain uncertain consumer environment, while pushing forward on our transformation plans.
With both craft and spirits.
We do need to identify sources of capital to help us drive incremental investment in both businesses.
And I believe we have the team the strategy and the opportunity to do so.
But before I hand, it over activity for some more numbers I'd like to introduce you to a new member of the team.
Bruce Wells, who has joined Kraft as our.
Controller, there and he will be glad to help answering your questions on cross performance.
Now do you have any can you take us through some of the details of the quarter.
Thank you, Jeff and thank you all for joining our call today, Let's review the second quarter on a consolidated basis. Our gross sales were over 5 million for the second quarter of 'twenty, two compared to $3 6 million for the second quarter of 'twenty. One spirit sales were over $3 7 million for 22 compared to $1 5 million for 'twenty, one due to bulk spirit.
Sales craft sales were $1 4 million for 'twenty, two and $2 1 million for 'twenty, one, reflecting our continued offering a bundled packages at discounted prices due to competition, which depressed sales in 2020 two.
<unk> also faced challenges with in sourcing and the continued effects of Covid in 2020 one.
In addition, the ramp up of the printing business that craft with slower than expected, but July almost outpaced both may and June combined we're still offering bundled services with a slight increase in price, but are now, including our printed Kansas part of that package. This was rolled out at the end of June our consolidated gross profit increased to 1.5.
For Q2, 'twenty two compared to 900000 for Q2, 'twenty, one again, driven by the bulk spirits sales, but partially offset by craft. Our consolidated gross margins were 31% for 22 and 26% for 2021 spirits margins were 53% for 22 and 21% for <unk>.
'twenty one due to the bulk spirits sales and craft had margins of negative 28% for 2022, and 30% for 2020 one not the way we wanted it to go but craft margins reflect the package rates that we're offering to our customers that in Q1 and Q2. They didnt include a price increase despite an increase in our call.
And they reflect the intangible cost of getting the printer into full operation.
Our opex increased primarily a craft due to increased rent on our new arc Island, Spokane warehouses and the loss we had to recognize on the quote unquote disposal of our trucks as we entered into at least management agreement with enterprise and in accordance with GAAP, we had to record a loss on those trucks. When we turned the titles over at the enterprise to manage and maintain our fee.
But we moved them to a right of use assets and lease liabilities on our balance sheet Spirit's Opex was flat adjusted EBITDA was negative 350000 for 'twenty, two and a negative 700000 for 2020, one rubber representing our bulk spirits sales and continued efforts to drive success to the bottom line by reducing overhead and eliminating unnecessary.
So salary cost.
Almost a $350000 improvement from 'twenty to 'twenty one.
Turning to the balance sheet, we raised $1 million during the quarter ending with cash of $1 million as we invested in significant can't inventory far digital Cam printer. We also fully paid off a secured facility to live oak up $1 9 million with proceeds from our bulk spirits sales, we reduced our debt by 800000 in the first half of 2022.
And we'll continue to do so throughout the remainder of the year, our prepaid decreased over 2 million as the digital Cam printer became operational and moved to PP&E, which increased over 4 million or a P increased slightly to 300000 as we continue to invest in inventory I would like to wrap up the financial results with the thought we can improve.
Results, but we are on a rather steep learning curve, we experienced the craziness of the economy and supply chain issues with cost in shipping as well as hiring but we are still executing on our three year plan to increase sales, while being conscious of overhead spending in both businesses. We are excited about the growth potential of the printer for the remainder of the year as well.
Our spirits results and successes in Q2 and are eager to see where the business is headed.
Now open the floor for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause.
Materially to assemble our roster.
Our.
Our first question is from Kelvin Szeto with crater Lake. Please go ahead.
Hi, Jeffrey.
Thanks for your opening remarks.
I wanted to talk about our crop business.
<unk> comparison, yeah. So I think in this quarter, we're doing 1 million of revenue compared to $1, one which was last quarter. So that's a good thing right.
Even when you look at our gross profit.
The law says that she would widen.
A beat right. So I think it's usually companies do have positive gross profit margin about four hours and stagnant.
Can you talk more about these things we are banking on cross cutting too deeply birds in Iran.
Sure sure Calvin I'm happy to do that.
So one of the things you have to keep in mind about this quarter is this is a transition quarter for the printing business craft.
You know moved into a very large digital printing operation and we had no revenue to speak of to start with.
We turned on the printer.
Remember when you're operating you have to hire people you know put everything in place so the first.
Month, or so of the quarter, we were really just starting the process of moving digital printing.
Getting up and going and so youre going to see sequential improvement and youre going to see it basically if you. If you look at it monthly each month, we're improving on the premium results. So April was a slower start probably than we had hoped and then.
May was.
A better opportunity for us to start to get the printer opt.
Operating introduce it to more customers and then June was the same.
The sequential improvement I can just tell you know I mean July is much better than June and our goal is to continue to see improvements each month as we go through the balance of the year.
As you see the printer ramp up to what we think it's capable of doing you'll see the margins steadily improve now that was the printing side of it goes we also had.
On the mobile business that started to shift into it's a you know it's.
Our busier season, and we had a lot of work to do there one of the challenges that we're facing and craft.
Is hiring people I mean like everybody else you know Portland is super tight market.
For hiring people and we.
Face the challenges of getting the right people and the right job and in keeping turnover.
It's improved from last year, but we still came into the quarter with a substantially fewer operators in mobile than we had the year before.
Yeah got it thanks.
Another question to ask.
And again ill just adjusted EBITDA numbers right.
I think.
Having a shot at Ptc's key all losses, So I think that's a huge improvement.
Last quarter was quite a while.
If I do a bank debt interest expense I think we should be losing roughly you won't buy 1 million write off cash required to stay for another quarter.
So looking at our cash in the bank and some loans coming.
It seems like Ryanair fragile situation.
Should investors think about our current balance sheet situation.
Right I mean.
We.
Every day you know the company manages the business to improve liquidity.
And this is no different this quarter in the next quarter, but I think what we've shown in two quarters. Now is that we are able to monetize assets and raise liquidity to the extent that we need to so you know example, as an example, this quarter as we.
We're able to to monetize some of the brown spirits that was not currently in our growth plan.
Last year the company went through an exercise where we identified exactly what we needed.
<unk> put together a cost reduction plan for the burn side of business and then identified it.
A large number of the barrels that we didn't think we were going to need.
Immediately or that we'd rather swap out and get a different age.
Set up in our and our and our product plans. So the first quarter. We did some sales as you saw here in the second quarter he does themselves.
Tell you we've done a small amount in the third quarter.
So we're going to manage our liquidity to get us to a point, where the the craft side of the business has ramped up.
Is throwing off EBITDA that's been the plan all along I think we've talked about that for over a year now is that we see line of sight to a business that craft is generating cash and we see a line of sight to accompany a business that.
On the spirit side that will consume less cash initially and I. Obviously, we had more capital we could grow it faster and ER and then youre going to have a healthier business going forward. So that's the that's the the the game plan when it comes to the balance sheet. You know we have as you know a number of constituents.
Investing in the company.
I think they believe in the growth story here and I believe there's an opportunity for us to continue to walk people through the growth opportunity. That's ahead with both craft and spirits and you know the team is going to do the best we can to.
Push out some of these maturities and and get and get people focused on the longer term I mean, I think that's a key part, which we had the same challenges last year in the prior year now obviously the capital markets are different this year than we've had last in the prior year, but I still see a lot of value here and growth opportunities.
The company and you know our goal is to get people to focus on that and continue to make improvements quarterly and the balance sheet.
Yeah. Thanks for the details.
So I think just a follow up on that right. So.
Previously, we have an existing laundry, but TQ L E N.
A few days back was increased by half a million. So how should investors think about this amount and then in terms of its bus right, because it's not big and small as well.
Is this kind of like buying out of money you need to have the right to be foggy breakeven because from my point of view is like you know we can be overloading, our P&L lease interest expenses is coming close to a million and we kind of increased our share count perpetually.
Yeah.
That's a good point, we are facing a higher cost of capital. These this quarter you can see it in the interest expense I mean thought.
More and more significant than in the prior year quarter.
And it's an issue that you.
I think we have to focus on I mean, when you look at the balance sheet today.
I think we can see cracks get to a point, where it's generating positive EBITDA at a faster rate than spirits is and basically that that balance sheet right. There is unencumbered other than what we have right now with first Interstate bank.
So all of that said east side and then there's a.
Art and there will be probably have a higher debt capacity. So you know one of the challenges to see if we can use the capacity there to ship and balance the debt load that you've had but in the long run in the long run you know companies don't thrive.
When investors throw Oh.
When investors basically apply a super high cost capital I mean.
That's a that's a challenge that everybody's facing I think right now and I'm expecting it to be somewhat transitory I mean, we're not going to see long periods of time, where you know.
Our cost of capital is going to be as high if we deliver the playing Calvin we've talked about repeatedly at at Kraft and you see the growth there and you see the improvements at spirit I believe that we're going to have opportunities to finance and grow the company.
Going forward.
Clearly <unk> has been an important.
A component of Oh constituents of the company I mean.
When we purchased the junior.
You know shortly after that purchase did you really helped us with financing for working capital and they've done it.
Periodically through the last couple of years I think that's a testament to their interest in the company and and their willingness to partner with us and see the company to be successful and you know so I'm.
Hopeful that that will continue and we will find other partners that see the opportunity in the company, both spirits and craft and and will we see you know a chance to really continue to invest and grow the company faster.
Yep got it just one final last question from me the way I look at it is that if that is the link has been incredibly blessed right shepherded by Michael because acute carrying as you mentioned about great stuff as well at the Bonita Amy's Bruce has value yourself. So I really do hope that we can turn this company around sooner.
Right, so that we can call.
And so the lead the market and start talking in some big wins.
Was referencing I was looking at some earnings calls of companies like MGM.
Many Ceos have been openly talking about how the company should be valued and why do you buy back shares aggressively because they see a huge disconnect between what the companies well Sudan and the public market value right now so for us I get that we are investing in growth and then paying down debt eventually.
Baidu could you won't we bought hypothetically speaking you know in your mind.
Why should you cite distilling be well substantially higher than what it is being treated right now.
Well I mean this is the the question that all I think investors you don't have.
To think about them and go through that.
The process of.
Making a determination of where the companies work everyday.
Every day as you know go when the market determines.
Places the theoretical value on the company.
And I would argue that you know value you know can change pretty substantially from time to time, just based on perceptions I mean look at the view of the market.
In today's wins looking down.
You know towards a potential.
Recession versus what we've seen last year, so it changes right.
What I can tell you is that this company is unique.
This is a.
A public company, but it has a two distinctly different businesses and very unique and attractive areas and they all benefit from one thing right, which is the development of craft beverages, it's happening everywhere, we talked about it on a number of conference calls you see it as you.
Walk through the grocery aisle, you know talked about that at times you see it when you move into a craft markets. When you go into a liquor store was and you just see an incredible number of new brands that are developing.
This is a place that we're attacking different ways I mean, we've got the spirits brands on one hand that we build and produce and sell and then on the other hand, we have.
Businesses that benefit the offers craft services to beverage manufacturers and the Pacific Northwest and in Colorado. So I think this is a unique business and you got to keep in mind last quarter.
The first quarter, we operated on the craft side, one type of business. The mobile business. This quarter. The second quarter, we launched two businesses printing and co packing business.
Those two businesses are gonna be dwarf the other business that we have you know in the first quarter. So the change in the space that we're in is dramatic change inside the company is significant so things are changing very rapidly at the company now.
Putting a price on that is almost impossible at this point.
Right you can calculate the market cap at that subtract cash.
Go through that exercise and you can come over the enterprise value can multiply it by a number in the industry you can multiply per perceive board you know cash flow all the all of those are ways. We can do it but at the end of the day.
We have businesses that are developing very rapidly.
And.
I think the answer that question is gonna be down the road and it'll be a tangible.
Easier to identify question and you're right you know some companies identify themselves had been underfunded and they try to buy back stock and adjust the price you know and redeployed capital that way.
This is not a company that's going to do that because we need too much cash right now just to grow we are a public company. So we always are faced with the possibility of you know of having people apply different valuations on the company and you know so.
So we'll have to see how that develops in the marketplace, but for now I'll tell you that I do think that we have outstanding opportunities in the spaces that we're operating in we have great.
Opportunities within the company and the changes that we're making and our and I think we're going to be in a position to to prove to the market that you know this is a valuable company is probably undervalued today.
Great answer jobin, thanks, so much.
Thanks Kelvin.
The next question is from Kevin So with Slingshot capital. Please go ahead.
Hey, Jeffrey Hey, Kevin do you hear me.
Great.
I was thinking about the gross margins on the spirit site for the remainder of the year, assuming if we did not sell any excess barrels well well gross margins be and secondly could you expand a little bit more on the distribution agreements. We currently have.
Yeah Yeah.
Yeah. So.
I mean that gross margin on Spirit's really speaks to both the opportunity and the challenge of the company. So I all I want to answer the question.
A couple of ways. The first way is as we said in the conference call I mean, when you look at the spirits margins this quarter.
Versus the prior quarter last year, I mean, we're talking about 52% versus 21% right huge huge difference now.
The bulk.
Bulk spirits around 62% right and our.
In our existing businesses are much lower if we don't do bolt.
<unk> sales, which I already.
I already told you that we do some of it in the third quarter.
We'd be much lower than the 52%, but what I will tell you that in every product line that we're in.
We've worked to improve gross profit dollars and gross profit margin we've done it by raising price we've done about lowering costs.
And we've done it by trying to improve velocity now I talked about a volume price and mix on all my comments and we really have to we struggle with some volume and.
And you see it in our year over year comps.
On the brands and the details that we've given.
I think it's important for people to understand that when you have a business that seemingly was burning cash and just you know it.
We were just racing for growth.
Under.
Prior management and were trying to transition to a profitable growth we had to back out.
Of unprofitable.
Sales in spirits, I mean, we don't have the money to invest in something.
Something where we buy a dollar of tequila.
Tequila and we ended up getting 80 since back I mean, that's just not going to work for a company like ours anymore. So we have changed the game plan and were going for big opportunities I mean, we said it on the call we've announced.
That we're in a test with a club Corp, and we've had other bit.
Significant opportunities if we land some of these things if we continue to drive up the volume price mix in the third and fourth quarter, you're going to see margins continue to improve and spirits and I think we're gonna be in a better place year over year now.
I'm sure he's on the phone as you probably can respond as well we've got a lot of work to do on the back half of the year to.
To get ourselves to a point.
Where we're achieving our plan and that's a function of a weaker consumer than we had at the first half of the year. So we will be taking temporary price reductions here in their strategic lever and we think theres an opportunity to to.
To take some share and improve our market position in some of our brands in some markets, but you know.
Our goal.
Is to is to see spirits sales outside of bulk improving.
Through the back half of the year.
Right.
Can you talk a little bit more about the current distribution agreements. We have all we have won in the quarter right right right right. So.
Club Corp, as a test as I talked about these with new customers.
We've we've got some opportunities with Kroger in Washington.
There are number of things the company has changed its strategy.
As we've talked about and partnering with a larger distributors like R&D see we we've spent some time working with other resource groups in southern California to help us re ignite gross sales in Virginia.
Yeah I think these have been all good investments, we're gonna have to see how they develop from here I mean, one of the things in spirit you have to remember is you can open the door right and we've seen this in the past you can be highly successful opening the door.
To a point of distribution and you can get your product to Michele Buck.
Or will you have to do as.
As you have to get customers to taste it to try to connect with it and come back and buy more.
Right and that's one of the things that is the Holy Grail I think in spirits go to market is what we call velocity.
And the best part about the story.
Our products are better.
And the others on the shelf.
Just to go through our Tequila is outstanding.
The black is and you know it.
It takes more like a Bourbon to me it is outstanding Tequila.
You know is is I would argue one of the best two year, Yeah, who is you can find it at the price point, it's a it's a bargain.
Our vodka is outstanding.
Outstanding as well, it's not cropping GNL made into something you can drink. This is true potato.
Hum.
And then based water F L I mean vodka.
Think of us as Super in the marketplace and it's priced competitively.
The the Burnside product line is outstanding as well I mean, I've said this would be the button in line is a better Bourbon and then I've tasted anywhere else in the United States.
And I personally can't get enough of it I can't remember I'm, an end market and buying stuff I'm looking to to get as much of it is I can take off the shelf person getting my bagging and get at home I think we have outstanding products and I think at the end of the day.
Is it going to be the things that drive the bigger opportunities when people like club Corp, and other start to taste. It when they start to realize hey, we can deliver an outstanding product at a better price point.
A true craft spirit.
Then you're going to start to see more of these types of wins right and.
So I'm hopeful we'll see some more in the year.
Great. So it sounds like about expanding into many places do they have the team in place to ensure that we can deliver the goods and not the supply shortages.
Previously we didn't have enough glass, so could you a yeah execute and expect production to meet the potential sales.
Yeah, Yeah, I mean, where the supply chain is a challenge that we all face.
Case, I mean every company faces the sweet taste on spirit type of space on the craft side. It is clearly the biggest issue now I think you know with gas prices coming back down here, we're going to have some relief on the on the diesel logistics front, but I'm pretty confident we're in a position where we can continue to improve.
And driver.
Our karnes lower relative to the to the to the revenue moves and so I think our gross margins will expand over time.
The more important thing is to drive velocity repeat sales in the quarter and turned over working capital so yeah.
We have what we need there, but as excited as I stated earlier at the beginning of the question and answer the biggest issue that we have to deal with near term as people.
I don't think the broader public understand the challenges of what's ahead of us.
And I'm not just talking about our company I'm talking about other markets other industries.
When you have full unemployment.
At full employment, right and and you're still dealing with stimulus that's that's lingering.
And.
This the challenges of how that starts to manifest itself in having to pay ever higher labor rates to the.
Now to fill gaps in your in your business, where you find that that's a problem.
And we're seeing it on both sides of the business and I don't think this is going to resolve.
Our resolve itself in a quarter or so so that's the biggest challenge on the supply chain is just handling our labor cost.
Right, Thanks, Jonathan for the detail.
I wonder a little bit more questions all of them.
Our digital print business could you share what's the current utilization rate.
Well do raise prices along with the completion and it has to wait till the piece.
All services yeah.
So we we or you can't it's not a linear thing I mean every day is a different.
You know utilization rate right I mean, some days, it's higher some days its a little bit. The sequent you know the trend is improving over the course of of.
Of each week and month, we track this thing daily.
Tract.
<unk> printing can sold cash received.
This is a that it's that important for us to moderate and to develop it you know we.
Have the capability of print all types of things right. We can do.
<unk> thousand 69 through 12 weeks.
And so we can change the mix and.
And as we change the Mexican improved margins based on what the opportunities are.
So the utilization might not necessarily always be you know going directly up week. After week, if we're shifting to a higher mix of product opportunity.
You know then you could see yourself actually less but make more money generate more revenue.
And then we also have the challenges of changeovers bins and issues around that can move into excuse me have one planet.
We've talked about the fact, we want to have two printers and grow grow.
Grow the business and some scale of the company.
So, but I'm pleased with how we're doing I mean, you're talking about we were I think it was number five.
Number four.
A machine or number of boxes in North America. So we've learned a lot in the last couple of months our partners have been very helpful and have worked with us.
You know to help us improve utilization.
And we think there's going to be more improvement in this and as we go through the quarter here.
But I can't give you a number but I think we have plenty of room to improve if if you want to.
I put it in the well.
Now below 40%.
Utilization at this point, where we are today, we'd probably somewhere in the thirties.
Right right alright.
Our last question for me it will do back out the cross cutting business separate from the printing business is cross cutting actually having a positive gross profit margin right now.
Craft Canning the mobile business has changed pretty significantly year over year. So.
The the margins in that business I want to caution you can make the direct comparison.
And you can say, hey, we already generate positive margins, which we are but the business has changed so let's think about this for a second if.
If we or cannae for our customer and in the prior year, we were came for a customer and buying cans and selling them to them, but we didn't decorate the camp. This year, where came for a customer but we are also looking to replace ourselves as just buying and selling in the can and now we're printing there.
And for them now that's a big.
The eight or so.
So we might have been in a position last year, where we are you know buying a can sell it to them. So we didn't take care of the decoration. This year, we're doing the same thing, but where we're adding the decoration.
In some cases, we didn't buy the came from last year and we're looking to buy the cancel themselves.
The business profile has changed the Kraft and as we move into digital Cam printing, our customer base changes as well we've talked about this I mean, we're no longer just supporting the craft beverage space, we're starting to see a broader array of customers. We've talked about this now.
About the.
The deal that we did in the quarter, where we took over assets from approach beverage I mean this is a.
D V D water companies.
You know, bringing a larger amount of their Portland based business to us and and that's completely different than beer I mean, that's going to have a different demand profile.
And then than we have in the beer space, which has a seasonal peak usually in the summer. So we you know.
There's a lot happening at <unk>.
Craft the margins aren't where we want them to be we have a lot of them.
Areas do we have to improve.
On the mobile gaming side, but I think what's going to happen is when you look at this business in the future the co packing opportunity that where we watched them did they approach.
Hum acquisition.
Of the facility and the digital Cam printing is going to make mobile a tiny.
In comparison, it's going to be a smaller part of a bigger a big organization.
Alright, Thank you drop I hope to speak to you next quarter.
Great.
This concludes our question and answer session I would like to turn the conference back over to Jeffrey Cohen for any closing remarks.
Yeah I just wanted to thank everybody for joining the call I'm really excited about the transition that we're seeing in front of us. So it's not easy I mean, I think you can see it in her craft numbers how hard it is.
And we have a lot of work to do in spirits as well just based on the consumer and what we're facing in the back half of the year.
But the exciting part we didn't spend enough time on it but I'll just mention it now is that our team is also improving and we have.
Added Bruce Wells as I mentioned these are controlling a crap Tiffany has has joined us from from last year, and we're talking about really a pretty significant transformational change that we've seen in spirits haynesville answers stepped up and done a fabulous job in building out.
They go to market strategy, there and we have more investments to make on.
On both sides of the business and approach that the Oh I'd be happy to do it.
Purchased from approach, our new facility, there and also on the spirit type of I'm.
We're excited about the opportunity and I'm really getting excited about the team and I think as we go into the third quarter, we were gonna see.
More improvement and and looking forward to report that improvement to you as we get into the fall.
Alright, so is that all in the call and I. Thank you again for your time today.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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