Q2 2023 Eastside Distilling Inc Earnings Call

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Speaker 2: Good afternoon, everyone, and welcome to the Eastside Distilling Report's second quarter 2023 Financial Results Conference Call.

Speaker 2: All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero.

Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephones.

Speaker 2: Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Tiffany Milton, Controller. Ma'am, please go ahead. Thank you. Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the second quarter of 2023. I'm Tiffany Milton, Eastside's Controller, and joining us on today's call to discuss these results are Jeffrey Gwen, the company's Chief Executive Officer, and Bruce Wells, Crafts Controller. Following their remarks, we will open the call to your questions.

Speaker 2: 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 Spilling may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, Section 21E of the Securities Exchange Act of 1934 as amended, and Section 22A of the Securities Exchange Act of 1934 as amended.

Speaker 2: Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties.

Speaker 2: 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.

Speaker 2: success and 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, and the company's filings with the securities and exchange commission, including the financial statements and related information.

Speaker 2: pertaining to the company's annual report on form 10K for the year ended December 31st, 2022, filed with the Securities and Exchange Commission. Now with that said, I'd like to turn the call over to Jeffrey Gwen. Jeffrey, please proceed.

Speaker 3: Okay, great. Thank you, Tiffany. And welcome to our second quarter, 2023 conference call.

Speaker 3: We have a lot to discuss this quarter. And I'd like to encourage you to follow along with me as I reference a few slides about the business and our progress this quarter.

Speaker 3: As Tiffany said, you can download these slides from our website under the Investor Relations tab.

Speaker 3: Now if you're new to the company, we operate two distinctly unique businesses, including a craft beverage services business.

Speaker 3: which we refer to as craft canning and printing. And we also have a spirits business which sells a number of great brands, including Fernside Whiskey's Portland, Potato Vaca and Azunia Tequila.

Speaker 3: But I want to start today with a little background on craft. Because in my opinion, it's probably the one segment of our business that is not widely appreciated nor do people understand that really the potential here.

Speaker 3: Now, Crap is poised to carve out a unique position in a fast growing segment of the Crap beverage packaging segment.

Speaker 3: is in a lead position to be the pre-eminent provider of digitally printed aluminum cans for cap beverage companies in the Pacific Northwest. And so I want to start our conversation on crafts by turning to slide three, and we want to talk about that opportunity. Let's move on.

Speaker 3: So digital can printing is revolutionary.

Speaker 3: Visual Can Printing is Revolutionary. That's a bold statement.

Speaker 3: After watching this opportunity develop, I'm confident in that statement. The craft beverage category, and I'm including in this, the Beyond Beer category, is one of the most dynamic and competitive spaces there is.

Speaker 3: And you've seen brands come out of literally nowhere and dislodge legacy brands, a feat that few would have predicted.

Speaker 3: Brand that don't connect and evolve immediately lose distribution. Now here on this slide on the left you can see there are a number of benefits.

Speaker 3: of digital can printing.

Speaker 3: and printing are probably the most important.

Speaker 3: is what is listed below here.

Speaker 3: And that is, it's a technology that helps brands win and win big.

Speaker 3: that allows marketers to elevate their marketing.

Speaker 3: It's a critical tool and allows you to win in the marketplace now. Let's look at this in a bit more detail in the next slide

Speaker 3: This is slide four.

Speaker 3: But first, this technology allows for design work that is extraordinary. Take a look at the pictures on the left.

Speaker 3: The ability that this machine has to print is perfect for storytelling.

Speaker 3: It also allows for new packaging elements processing to sensory elements that you just don't have in aluminum cans

Speaker 3: with textured printing. And if you've ever held a can that has textured printing on it, it's pretty impactful.

Speaker 3: But the two elements that are right are the critical ones that I want to focus on for a minute.

Speaker 3: And that's the ability to use digital printing to shorten new product introductions.

Speaker 3: Now a concept you've got to get your head around is historically brands were developed with huge investments.

Speaker 3: Very long lead times with consumer research and testing.

Speaker 3: You had one shot to get it right.

Speaker 3: And you needed a large pile of money.

Speaker 3: Now with digital packaging investment that's low like ours.

Speaker 3: you're allowed to approach it with a different strategy, more of a point and shoot redirect approach.

Speaker 3: This adjust and repeatability allows you to be a brand creator that improves their chances of success.

Speaker 3: Lastly, I want you to consider this statement, and I'm going to quote here, the onion, which probably no one should ever quote, but I think it proves my point.

Speaker 3: When many years ago they said, everything in the entire world is collectible.

Speaker 3: they said, everything in the entire world is collectible. Yes.

Speaker 3: That's been proven to be true. Think on it. We've moved from Duchess to create trading cards to clothing to shoes. And yes, even beverage cans or work can be elevated by limited quality quantities, high differentiation, and become collectible.

Speaker 3: Visual can printing facilitates that. So the design proliferation we are seeing at craft is just stunning.

Speaker 3: and we are seeing winners emerge using our technology. Now let's turn to slide five and let's address the question, are consumers adopting this technology?

Speaker 3: And the simple answer to that is yes.

Speaker 3: We've printed over 12 million cans since we started this operation, and the chart here shows the ramp-up by month.

Speaker 3: And we still have a long way to go on volume, but we are getting better daily. Now, it's important to remember, when we win a customer, we are winning their supply chain. It's a huge commitment, and it shows trust to give us that supply chain. As you can see in Q4 of last year, we realized we needed to make some incremental investments in our printing plant. We made those to ensure we can meet our obligations to customers and we had volumes decline as we prepared for this year. Now, we're at the much higher utilization levels. Now, this next slide shows the magnitude of the EBDI improvement.

Speaker 3: Craft is on its way to generating cash and we plan to grow it through the year and into next year.

Speaker 3: Now let's turn for a minute and talk about the security of some of the next slide. This is slide seven. And I like to start my comments by saying this turn on has been a challenge, but the rewards for getting this right are significant.

Speaker 3: And this year, in this quarter, we made progress.

Speaker 3: Backing up for a minute, for those that haven't enjoyed this long and painful turn, I'd say in summary, the company has had a poor history.

Speaker 3: of investment in large-scale branding, sales, and distribution.

Speaker 3: But, to summarize it in a slide, when I first joined the company, we lacked focus.

Speaker 3: FAILB blood, financial resources.

Speaker 3: and a test vision to win in a very competitive business.

Speaker 3: We were a national company.

Speaker 3: And we had very little cash to support that size business.

Speaker 3: When I became a CEO , I pulled out an unpopular play from the playbook.

Speaker 3: And that is to shrink the money, losing activities, and focus investment in areas where we can win at our scale.

Speaker 3: So you have seen volumes decline there.

Speaker 3: that you've seen performance improves.

Speaker 3: So let's turn to the next slide and talk about that improvement.

Speaker 3: So on this slide, you can see the EBITDA improvement on lower volume over last year. And I'm happy to go into this in more detail in the question and answer section. But I believe we can see even more progress in the back half of this year.

Speaker 3: So, on this slide you can see the EBITDA improvement on lower volume over last year, and I'm happy to go into this in more detail in the question and answer section, but I believe we can see even more progress in the back half of this year. So, here are my three goals for SPIRITS.

Speaker 3: I want to invest in marketing that has been tested and works. I want to improve our cost position. We've gone a long way to doing that already. And I want to drive this thing become EBITDA positive.

Speaker 3: And from this level, achieving these goals, we can start to grow again, but we're gonna grow wisely.

Speaker 3: with adequate marketing, sales, and distribution.

Speaker 3: Okay, so my last slide before I turn over to Tiffany is to summarize our consolidated results.

Speaker 3: So on top of crack and spirits we have a small corporate

Speaker 3: segment which we use to, we call out so you can see really the profitability to 2M businesses.

Speaker 3: If you take out the bulk inventory sales we did last year, same period in first spirits, those comparable numbers look much better. And we did grow, and we did see meaningful improvements in IVIDA year over year, again, ex bulk sales, by over $1.2 million. GNA cash expenses have sequentially declined each quarter since I was elevated to this role. That's 18 months of...

Speaker 3: declines. This quarter and in July , we also improve liquidity, raised in a total of 1.3 million and equity through the ATM, the sales that we have. And we continue to work on our debt for equity swap.

Speaker 3: We've made good progress, but we are not at the finish line yet. So the way I would characterize it is we're halfway through a big year for the company.

Speaker 3: and I have high expectations for our team and the results for the back half of the year.

Thank you Jeffrey and thank you all again for joining our call today. Let's review the second quarter. On a consolidated basis our growth sales were 2.8 million for the second quarter of 23 compared to 5.1 million for the second quarter of 22 primarily due to barrel sales of 2.6 million and Q2 of 22. Excluding bulk spirit sales, growth sales increased 200,000 from the prior year quarter. Craft sales were 1.9 million for 23 and 1.4 million for 22 as we sequentially improved our printed can production each month during the second quarter as Jeffrey referenced in slide 5.

Spirit sales excluding bulk were 800,000 for 23 compared to 1.1 million for 22 due to lower distributors sales.

Our consolidated growth profit with 26,000 for Q2, 23 compared to 1.5 million for Q2, 2022, excluding bulk, spirit sales, growth profit increased to 200,000 from the prior year quarter. Our consolidated growth margins were 1% for 23 and 30% for 2022.

Craft had margins of negative 3% for 2023 and negative 28% for 2022. Craft margins on a monthly basis sequentially improved through Q2 as we continue to build volume of printed cans. Barrett's margins were 12% for 23 and 52% for 2022, excluding barrel sales.

primarily due to decreased operating expenses, excluding bulk spirits net income of $1.6 million for Q2 2022, adjusted EBITDA improved $1 million from the prior year quarter. Printing at craft is finally reaching its potential in driving results, achieving positive EBITDA in June .

If you would like to ask a question, please press star and then one using a touch-ton telephone. If you are using a speaker phone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. So withdraw your questions, you may press star and two. Once again, that is star and then one to join the question team. We'll pause momentarily to assemble the roster. You must practice 99% of the sound quality.

In our first question today comes from Matthew Campbell from Laird Capital. Please go ahead with your question.

Yeah, I get afternoon. Good to see a lot of progress here. Specifically on the craft side of the business, how many ships are you currently operating today and where can you get to with this one printer?

Hey Matt, thanks for the question. So right now, craft is not operating on a 24-7 schedule. Through the week, we operate pretty much around the clock. But we're moving towards having the capability to do a 24-7 schedule around the clock.

But it's not just the number of shifts running. It's also the utilization of the printer. So we have one machine currently as we talked about in the past.

and we have the capability to get utilization up significantly. We know there's a number of people that have operated this machine actually worldwide and based on our partners we think that we can get to a point where we're doing double what we're doing today.

possibly a little bit less than that, but really utilizing the printer a lot more than where we are today. So we have a lot of room to improve here.

Got it. That's helpful. And then when we look at the spirits business, um, clearly you've been calling some distributors that were not profitable for you. Where are you in this process? And when do you, when do you think you'll start seeing growth in, in on the spirits business again?

So we are actually seeing growth in our biggest volume brand. So the three brands we should think about are Portland, Matae, Nevada, Burnside, and the Tequila Business. Historically, we've had to redirect investment from the Tequila Business, which is a broader distribution footprint.

We have the least ability to impact the supply chain there. And the other aspect of that is we have probably the least amount of

in Portland, Nevada, and we've seen those volumes grow. And those have sequentially improved and picked up and gotten to a point where we're seeing strong, double digit volume increases.

The Teeva business on the other hand has not grown as shrunk and that's offset the performance of the Portland potato vodka wins. Now I'd say

The focus here is to win an organ first.

So you should expect to see improvements as we go through the year. Thank you, that's helpful Jeff. Great work, I know this has been a long turnaround, but really appreciate all the hard work and the vision that you've had to make some hard decisions here.

and it's gratifying to see you can't start to turn the corner to help by a drive-cash flow so that you can make those investments in the Spirit's business. Appreciate the work. Yes. Thanks, Madam. Appreciate it.

Once again, if you would like to ask a question, please press star and one.