Q4 2022 Eastside Distilling Inc Earnings Call
Good day, everyone and welcome to the Eastside distilling fourth quarter 2022 earnings conference call. All participants will be in a 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 Touchtone phone you withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Amy Besides corporate Secretary. Please go ahead.
Thank you good afternoon, everyone and thank you for joining us today to discuss Eastside distilling financial results.
Fourth quarter and year end 2022, I'm, Amy Broussard, <unk> 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 Cohen, the company's Chief Executive Officer, and Chief Financial Officer, Ms. Amy Atlanta, You said to Chief Commercial Officer, Ms. Tiffany Milton you said controller and Mr. Bruce well craft controller.
During their remarks, we will open the call to your questions.
Before we begin with prepared remarks, we submit for the record the following statement.
Certain matters discussed on the conference call today, but the management of besides just selling maybe forward looking statements within the meaning of section 27 of the Securities Act of 1933 as amended and 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 forward looking statements describe future expectations plans results for strategies and are generally preceded by the words, such as may future plan or planned will or should expected anticipates draft eventually or projected listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstance.
Cause events or results to differ materially from those projected in the forward looking statements.
Such matters involve risks and uncertainties that may cause actual results to differ materially include but are not limited to the company's acceptance and the company's products in the market success in obtaining new customers success in product development ability to execute the business model and strategic plans success in integrating acquired entities and assets ability.
To obtain capital ability to continue its going concern and all of 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 Companys annual report on Form 10-K for the year ended December 31, 2022 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.
Welcome to <unk> fourth quarter two.
2022 earnings conference call.
I am Jeffrey Glenn the interim CEO and CFO and appreciate your interest in our company.
2022 was a transformational year for Eastside distilling.
The business, we have today is very different from that of last year or the year prior.
The most obvious changes that craft, our beverage services business.
Last year, we built out and began operating a state of the art digital can printing plant in Portland, Oregon.
Remind everyone on the call. This is the only digital direct they can decorating operation in the Pacific Northwest.
This new facility allows us to create extraordinary Kansas.
For the craft beverage segment that.
That is 100% recyclable and doesn't use past plastic shrink sleeves or particular labels.
But cans, we are now producing are important marketing tools for our customers.
Been stating this for the past three quarters of this technology I believe.
We will transform the craft beverage space it's.
It's a critical tool for them.
And I believe we're seeing that proof now.
We have converted nearly all of our existing customer base.
To this 100% recyclable products and we've won many new customers.
Moreover, we've watched a number of our customers.
I really fully embraced the capabilities of this new technology and they're using it successfully at retail.
Now if you've followed the company over the past.
A few quarters in the past year.
Getting this investment of craft up and running has been a huge challenge.
I mean think about it it's a brand new product.
It's new technology.
It's a new market for us we've had to build a new plant installed and team building.
Processes, it's been a huge undertaking.
And initially we had projected a faster ramp up to full capacity.
But we face a steep learning curve that impacted our ability to get to scale through last year.
Now our printing performance has improved in 2020 to the fourth quarter was particularly challenging as we had to address debottlenecking. Among many other issues that were inhibiting our ability to achieve that full capacity that we're looking for.
Seasonal slowness in the beer category.
A core part of our current customer set in the fourth quarter gave us a chance to improve our processes and printing, but it meant not achieving that full capacity in the quarter.
So that had a negative impact on the gross margin in the quarter and you can see that in the numbers.
Each challenge, we face, though during the year, we sorted out a solution to the credit of the team.
We improved our processes and always we always see.
For our customers.
And we did the same thing in the fourth quarter.
Now as we sit here now on the last day of the first quarter of 2023, I can say our performance this quarter will be much better although coming out of the year. We started January very low we've seen sequential.
Our improvement in January February and March.
And in March.
Printer well over a million cans alone this month a record for us.
In mobile we have also made a number of permits in the fourth quarter and the first part of this year and we expect a better performance there as well.
But now let me turn to our spirits business.
Like craft it had its own challenges and in 2022, we made a very hard decision to reposition our zinnia tequila brand in retail channels, where we'd be able to make an adequate return on all the investment spending.
This meant exiting a number of distribution deals, where we were effectively losing money so each quarter of last year.
We saw volumes decline.
And they continue doing that in the fourth quarter.
But at the same time, we are working on improving our distribution partnerships.
States.
Now walking away from this volume.
It's hard to do but it was critical for the long term success of the company.
Now we have completed this realignment of investment it is Jamie.
With restructuring actions that took place in the first quarter of this year.
And this concludes a big shift from an over investment and again.
It's a more balanced approach allows us to leverage the opportunity in both well Unfortunately, the potato vodka and Burnside, our other portfolio of brands.
In addition, you will see that we've written down a large portion of the goodwill associated with the Zee.
And your acquisition.
We continue to look across our brand portfolio and target the most attractive segments to invest our scarce capital and given our high cost of capital. This is exactly the disciplined approach.
We have lacked in the past.
We're gonna stay at it.
Overinvestment in Virginia has meant an underinvestment in the Oregon brands.
That under investment is reflected in their volume performance in the fourth quarter.
But rest assure we will be increasing our investment there.
And the Oregon portfolio in 2023, and we expect to see significant improvements.
Now over the course of the year I've heard from many of you.
Expression of general frustration of the performance of our stock I too share that frustration I bought a lot myself early last year.
And I know many of you want an immediate solution that will unlock the value that we all believe is in this company for all stakeholders.
In December the <unk>.
Ward.
Along those lines constructed the company made to consider the potential sale of spirit brands.
One or all.
We've put every option on the table and gone through a process that does not complete stake.
We do anticipate that we will be wrapping that Pos is up shortly.
And while I'm not in a position to answer any questions on that topic today.
Can assure you that we will be <unk>.
Getting you all once the process has been completed.
Tiffany will take you through our yearend results in a moment, but I first would like to give you some rough guidance on what to expect from us This year.
We have set a goal.
To be EBITDA positive for both craft at spirit and.
In the spirits business by the third quarter.
Perhaps we'll likelihood that mark sooner than spirits.
We expect improving trends in spirits volumes and strong growth in craft due to our digital printing in Boston abuse goals will not be easy to achieve but I believe we.
We have put through a thorough plan together and then we have in place the board has approved it.
And if we execute it we will achieve.
Goals.
With that said I'll turn the call over to Tiffany who.
We will cover more detail and then get into some questions.
Thank you, Jeff and thank you all again for joining our call today, Let's review the fourth quarter on a consolidated basis. Our gross sales were over 2 million for the fourth quarter of 'twenty, two compared to almost 3 million for the fourth quarter of 'twenty. One spirits sales were 1.1 million from 22 compared to $1 4 million for 'twenty, one due to volume.
Softness and as soon as we reduced discounting and had soft holiday sale craft.
Craft sales were $1 2 million for 'twenty, two and one 4 million for 'twenty, one, reflecting our continued challenges in mobile Canning and we experienced some unexpected seasonality and can printing during the holidays. Our consolidated gross profit was negative 148000 for Q4 22 compared to positive 598000.
For Q4 2021, our consolidated gross margins were negative 6% for 'twenty, two and positive 23 per cent for 'twenty, one spirits margins were 13% for 'twenty, two and 38% for 'twenty, one and craft had margins of negative 23% for 'twenty, two and positive <unk> 10 per cent for 'twenty, one craft margins are.
Expect it to continue to improve as we build volume of printed Kansas as Jeff mentioned earlier.
Adjusted EBITDA was negative $1 6 million for 'twenty, two and negative $1 5 million for 'twenty, one due to the continued softness in both businesses.
In addition, we recorded an impairment loss related to our is doing your brand a seven and a half million.
Turning to the balance sheet, we raised a net of almost $2 million during the fourth quarter of 2022, ending with cash of $700000. As we continued to pay down debt, which was fully repaid all loans at craft. These financial results were not what we expected to deliver but we believe we are now better positioned than spirits as we've eliminated.
Apparent in coming quarters, we will now open the floor for questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from James Watson, a private Investor. Please go ahead.
Hi, Jeffrey.
Yes.
As to Canada, where yes, just the EBITDA margins.
Ralph.
The default 30%.
If I heard you correctly, Doug anything positive EBITDA by the tree if.
If I'm not wrong, so oh, the streaming will be quite a big one.
The breakeven level well it gives us confidence that we will each day.
Sure.
So the the.
The way I think you need to look at that business as I referenced in my remarks is it's really a completely different business than what you've seen before the company I mean in the past we've had a mobile canning operation, which for the people are new on the call. That's a business where you basically take a small mini canning line to abroad.
Korea, and you fill cans, there and we've transitioned to.
A big plant that does high quality Super high end digital.
Graphic printing and then we can also do the mobile going to but the point. There is that you know in the fourth quarter you saw a pretty big.
Gross margin.
Missed by craft and that's a function of the fact that we didn't get enough you know ramp Oswald of cans in the fourth quarter, we went from not having any digital planning.
There have been the only plant in the Pacific Northwest and you know less than a year and we converted 100% of our costumers lots a year beyond that you have to ramp up in and add a lot more customers were going from.
Buying a few million cans, a year to now where I know you know a different game the game of buying 20 plus million cans a year, so what will get us to that EBITDA positive number.
Is three things.
It's getting the mobile.
I'm sorry, the digital printing business to a point, where we're doing over a million and a half can a month.
And just to correct. The number was actually this month I think we're close to one point to now that number is a kind of a it's not sure you know.
A number that is written in stone because it depends on what cans in the margins and how we source cans and what customer base its going to.
Suffice it to say, we hit that number and where we're moving through that number and heading north of that number would generate positive EBITDA craft and then at Spirit's youre going to see something else happening there, you'll see we've done quite a bit of restructuring.
In spirits, we've reduced the workforce significantly really focused our sales.
On the core portfolio of brands and we believe that that business with some production restructuring is going to also turn around and generate EBITDA and then incorporate we're gonna we've shrunk our corporate.
Head count pretty significantly by half.
No and that's going to be the last piece. So I have a lot of confidence we're going to get there.
This is a complicated business for the size it is.
Multiple businesses, but the teams are focused plan.
In place there are a couple of things left to do in spirits, and then where we're at.
Fully locked in but I have every confidence that we're on our way to have a much better year. This year.
Yes, just wanted to do a whole lot because if we look at the gross profit margin for cross County.
I think he has been a negative gross profit margin.
Well, so when we talk about wanting to be right.
It doesn't matter because we're not seeing any positive cross market at this point.
So just because you.
Do you have a fixed expense.
And the Oregon facility, you have a large lease payment you have.
A team that we didn't have before our planning team.
The support staff right.
And we went and the losses that you saw in the euro craft or a function of putting that in place and then it's a scramble to to get that machine up and going you might get us to a point, where you have enough customers on that machine that we're generating enough gross margin dollars to absorb that fixed cost. So once you sell.
Customer.
Alright, well he's taken his supply chain away from traditional labels that can decoration, he's going to come back for more unless he goes out of business right.
Were you disappointed it goes back to the old label, we haven't had any of that happens so slowly building adding.
Adding customers.
Yeah.
Onboarding new customers of craft beers.
This means we're loading the volume on that machine getting the utilization up and as the gross margin dollars start to grow their absorbs the the overhead and then you see the margins Shawn so looking at the Martin's statically in them.
Rear window.
You're going to be.
Way off where this is gonna be going going forward.
Got it and also.
It's Paul.
<unk> disorder.
To be EBITDA positive.
DCF.
My question is how are we going to finance ourselves until we get to that level, because assuming we are losing about $1 million to $2 million a quarter.
I'll need about three to four basis, perhaps pass.
<unk> B b.
So what are your thoughts around it.
Well, there's a couple of interesting things that we have going for us on the one hand.
We EBITDA is not the same as free cash flow, we have a large barrel inventory.
And we have more barrels today than we need.
And so when we sell a bottle of Banca, we don't go and we have to.
Rebuild that raw material, but in the case of Bourbon were.
Selling it and we're not actually I'd replacement, so free cash flow.
It was a bigger number than spirits, then then EBITDA unless we turn on the spigot, it's been a lot of money on Capex, which we're not doing.
So that helps the company.
And you know the other thing that you have to think about is that you know well how we survived today.
We've rationalized things that really are high value not reflected on the balance sheet and we did that.
And throughout last year with our thinking.
Taking advantage of.
Very high.
Whiskey prices and are in front of the company as we.
Executed our buildout of craft.
I think those are some ways you can do it now having said that I'll be the first event last year I was hoping that we would be in a position that we can accelerate growth.
Another machine move faster and equity markets are obviously you havent.
It helped us get there micro caps are not below investment opportunities as they once were just a few years ago. So that window feels like it's close to some degree but you know this.
This is a situation where I really believe that if we perform.
Here in the first and second quarter and that wont.
I want to be crystal clear, the second quarter's going to be better than the first quarter.
And but if we performed and I'm hopeful that we're going to have multiple avenues to.
To pursue.
Growing the company.
Yeah.
Yeah.
Okay.
Again, if you have a question. Please press star then one can be joined into the queue.
Yeah.
Yes.
Yeah.
Okay.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Jeffrey Cohen for any closing remarks.
Yeah. So thank you I am you know looking ahead and seeing both of our businesses heading into a much improved direction I'm Super excited about the team what they've accomplished that craft, but also I'm really excited to see how spirit's equal performance here, because I think we've made a tremendous amount of investment.
Architect.
Plan, that's going to take us to a much better place on on both sides of our of our of our or our business since their books the craft services.
Our camping business and our spirits business in Oregon.
Thank you for your time today, and we look forward to talking to you here shortly in the first quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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