Eastside Distilling Inc (EAST) 2023 Q3 法說會逐字稿

Good afternoon and welcome to the Eastside Distilling third quarter 2023 financial results conference call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Tiffany Milton controller.

Please go ahead.

Thank you.

Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling financial results for the third quarter of 2023.

I am Tiffany Milton site controller and joining us on today's call to discuss these results are Geoffrey Gwin, the company's Chief Executive Officer, and

[Bruce wells, craft controller].

Following our 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 may be forward-looking statements within the meaning of Section 27 A. 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.

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, anticipates, 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 and the market success in obtaining new customers, success and product development, ability to execute a 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 10K 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 Geoffrey Gwin, Geoffrey.

Please proceed.

Thank you, Tiffany, and welcome, everyone, to the third quarter earnings conference call.

I appreciate the opportunity to discuss our performance and outlook with you.

While we've made strides towards our goal of achieving positive operating cash flow of both the craft digital investments and our spirits business.

There are challenges we need to address all you have on I have spoken about the collective goals I have laid out for both craft & Spirits segments to generate EBITDA and importantly, net income that not only allows us to invest in growth, but also to deleverage and to offset the public company costs.

And while we've made progress towards these goals, it's clear that we still have work to do one significant challenge facing the growing economic headwinds in both the craft beverage and spirits categories.

Unfortunately, these headwinds have intensified towards the end of the third quarter and into the

[fall].

External economic environment plays a crucial role in our ability to achieve our financial objectives.

Understanding and navigating these challenges will be keyof reaching our target.

Now in the craft digital printing segment, the quarter showcased positive developments with notable wins in our new digital printing customers, such as Ford and thirsty in the water category who by the way is at the forefront of using digital printing to market to consumers.

Cross record-breaking quarter with [$4.8 million] digital cameras demonstrates continued demand for our services.

While we face challenges in the mobile encompass improvements in scrap and utilization offset some of these issues.

As we approach the fourth quarter, we anticipate seasonal softness as a trend observed in the same period last year.

And moving on to spirits, we experienced a notable improvement with Spirit's EBITDA loss of only $70,000 in the quarter, a significant reduction compared to the previous year despite an overall decline in the top line, Portland Potato bottle performed well and we observed softness in various spirit categories, including the tequila category, which has historically been a very strong performer.

Despite these challenges, we managed to mitigate the impact by implementing successful pricing strategies in key markets.

While Burnside zone.

You require more attention to the underinvestment, our strategic focus on winning territories, rightsizing production and improving the supply chain is yielding positive results as reflected in the EBITDA performance.

Corporate and G&A expenses remain a challenge for a company.

Our size but we've made progress in reducing costs.

Activity will provide some details on the onetime loss associated with the completed debt for equity swap.

If you exclude those losses, our adjusted EBITDA shows meaningful progress in the quarter.

As we enter the fourth quarter, we acknowledge the need for further improvements across all aspects of the business to achieve positive cash flow and net income.

Our ongoing efforts to address challenges, enhance operational efficiency and capitalize on opportunities puts us in a position for success.

We remain committed to our goals and are optimistic about the future.

Now I'll turn it over to Tiffany to provide additional insights into our financials and the completed debt-for-equity swap.

Tiffany, please go ahead.

Thank you, Geoffrey, and thank you all again, for joining our call today to review the third quarter.

On a consolidated basis, our gross sales were $3.1 million for both the third quarter of 23 and 22, primarily due to growth in digital campaigns offset by lower mobile scanning and spirits sales.

Our sales were $2.2 million for 23 and $1.9 million for 22.

As we continue to improve our printed can production spirit sales were [$8,50,000] for 23 compared to $1.2 million for 22 primarily due to bulk spirits sales of $2,44,000 in Q3 of 2022.

Our consolidated gross profit was $5,00,000 for Q3 23 compared to $2,00,000 for Q3 of 2022 due to Kraft's improvement from digital can printing.

Our consolidated gross margins were 17% for 23 and 6% for 2022.

Kraft had margins of 16% for 2023 and negative 7% for 2022.

Spirits margins were 21% for 23 and 29% for 2022.

Excluding Varel sales, spirits margins were 27% for both 23 and 22.

Adjusted EBITDA was negative $4,30,000 for 23 and negative $1.4 million for 2022, primarily due to decreased operating expenses during Q3 23, we recorded a loss on the conversion of debt to equity of $1.3 million, which is excluded from adjusted EBITDA.

Kraft printing operations have yet to reach a turning point, demonstrating its full potential and delivering positive EBITDA in the quarter.

However, we continued to gain momentum in the printing sector and are exploring avenues to streamline operating costs.

These cost cutting measures are set to be expanded throughout the remainder of the year.

We'll now open the floor for questions.

Operator.

We will now begin the question and answer session to ask a question.

(Operator Instructions) Matthew Campbell, Laridae Capital.

Please go ahead.

Hey, good afternoon.

Just generally see some improvement here, continued improvement on the cost side.

I was wondering if you talk about mobile canning business on being down relative to maybe what your forecast was and at the same time, scrap digital growing and where what how you think about that business on a core basis in terms of better visibility?

Right.

Thanks for the question on mobile is not an easy business.

I mean, if you think about it a logistics business, you're moving from basically a canning line remotely to a customer.

You're built you have setting it up if your customers are struggling with their product, they have, you know, temperatures, right, right.

Cognition department is your problem.

You're trying to figure out how to basically can it deliver a great product and then you package it all up and go home and you're paying for the whole the whole time.

And so a critical part of that story is utilization concentration utilization not driving six hours, spent a lot of time on that, and that's something that the Kraft did well for a long time.

We were in Denver, Seattle, Portland, Spokane, down in the Northwest and on that side of business that we want to invest time money.

And frankly that's a business that we want to develop, you know, improve, but we want to be in the digital scanning business on the digital camera business.

I mean, we know for a fact large consumer product companies, Coca-Cola and Budweiser, the PGA have turned to digital printers to digitally printed special edition can or for various things that they're doing now with us, but hopefully with us at some point in the American.

That's the business that we want to invest there.

So we're going to spend less time on on mobile.

But having said that, mobile is critical right now because last year, we converted almost all our mobile customers to digital print customers while they were very important for the build-out of the demand curve for us.

So we're going to stay involved important digital and mobile on Canyon, and we're going to we serve our customers there, but we're going to focus on things.

Got it.

So when you look at that business, how much of the mobile business was like affected in this largely Fiat?

Yes, it's largely Seattle.

We are we initially expected to invest in Seattle to capture more market share and compete on price there.

And we decided that though we're just going to defend and compete important and, you know, very vigorously, we're not going to give up any share there.

And that's what we'll be on.

And so initially, when we looked at the year and I was looking at the opportunity for the company.

I was expecting for the third quarter that mobile would be stronger in Seattle and offensive thought that we would be able to run to convert more of the demand that we are building on the early part of the year in the third quarter and visual team, I think we got distracted at Kraft focusing on mobile restructuring actually in Seattle.

And and that's one reason why we're able to generate that EBITDA in the quarter that I thought we were going to do for the for that segment guide.

That's helpful.

And just a little bit more color around from Portland Potato Vodka.

It sounds like that's starting to bounce back for you on why is that occurring?

And then silhouette on junior and why you're selling?

So let's talk about the three major brands.

Don't have a lot of brands that are three major brands are mutated vodka and then burn side, those were focused and important in Pacific Northwest.

And then we have a junior tequila brand that we purchased a few years ago on that.

And on vodka for us is a critical our space because that's a place where we can do a lot of bonds and we can do a lot of volume in our country footprint in Portland, we can some really deliver more cases, more volume leverage, the fixed expense base, what you've seen with this company as we've been shifting investment from spirit brands, two on the digital came crashing and a lot of people asked me why are we doing that and they are experiencing is possibly a hot category.

And this and that the fruits of them have, is it is a hot category, but it's extremely difficult to do to compete in California with the three-tier distribution system and the way that this structure of that segment operates as you have gained a tremendous amount of capital.

Are you going to sell every partner or someone who can pull demand through our reluctant distributor.

That's a fact.

I mean, that's a real challenge However, thankfully, we have a strong market position and a control state in Oregon on that limits the the leverage the distributor has on taking the gross margin from US.

So on growing the strip business stock and in Oregon first, and then we'll demand we have more leverage with our partners, right?

So our pumps, the advance critical.

So what we've done there is we have lowered the cost there significantly liquid costs on the bottle packaging.

Our whole manufacturing process has been rebuilt.

We've sized that to improve the margins.

And so we're going to put more volume to our facility in [Milwaukee, Oregon], and we're going to it does those margins improve at PTV. and that's going to be the growth driver.

So what you're seeing in the summer as we got aggressive with our main competitors in Portland, we did okay.

We were positive in units.

We were mid single digit down, but based on what we're seeing in the economy I am happy with that.

Now the next thing you mentioned is, you know, Burnside, we're inside the disappointment Burnside.

As I say, we're in a position to really grow Burnside.

In fact, we have some outstanding Burnside products that we're working on, one of which there is a 17-year [Bourbon for Buscopan], and we think that's outstanding and we believe that we have an opportunity to roll off in unique products in the Burnside line and get more interest in that brand and get some growth.

But that's the challenge Burnside and assume that particular brand need investments.

And this company has been about restructuring and reducing costs and underinvestment there.

I've been on one of the things that I think slowed the turnaround in those two brands.

But here this is where the market make the decision small-cap market, the cost of capital where our stock is telling us that they don't our we don't have the capital to invest there.

You know, it's not on for infield.

It extremely expensive to borrow funds at this point.

So you did a debt-for-equity swap, you saw that.

So we have to pick our areas very carefully where we invest and we have a limited amount of capital to use and it's to retain the public company, our status and grow digital came from because that's immediate and the data that we've made.

And we have immediate impact because we're seeing customers who are who regenerative transitioning to this.

So the package.

So no contract work in progress and same thing with using and we have a little bit more capital.

We have a plan in place and we think we're going to be able to execute in the near term.

We're going to do some unique things in Burnside.

We think that are going to drive awareness and volume in Portland right now because he's leading the way.

That's helpful, Geoff.

I mean, completely appreciate the deck of cards.

You can handle it and had it here.

I think it's more of all the adjustments you've made to the business, and it's nice to see some improvement in the cost structure.

So we can continue to get this business turned around.

So applause called the work.

And I realize a lot of the work is hard for us to see today, but it's work that will pay dividends in the future to.

Thank you.

Thanks, Matt.

Just to be clear, you're seeing the progress now on the gross margin improved.

EBITDA came down was down significantly on within striking distance and spirits to a breakeven and start to turn the corner, I thought we'd be and their first in craft based on this, we might be that person spirits.

So let's say Q4 is not going to be an easy quarter because I think you're and I see it across the board, there's weakness everywhere.

And now Stan referenced our market today.

There's clearly supply chain challenges.

People looking, to underinvest in this environment.

Consumers are definitely that retailers scare.

There's a destocking going down.

The [Azure] had a big up on that.

Some of that happens in retail people take out inventory in the system has a big impact on the down the supply chain.

So we're going to feel that, but we're in a much better position on going into next year on what really need to be for spirits and wine across category and digital printing.

So I'm encouraged.

Great.

Thanks for the color and no questions at this time.

This concludes our question and answer session.

I would like to turn the conference back over to Geoffrey Gwin for closing remarks for you.

I appreciate it, and thank you all for listening.

A couple of important new supporting things to also note that our annual meeting this year is going to be on December 28, virtually.

We push it to the end of the year because as you know, we've been working on this debt for equity exchange to lower the debt on the balance sheet, an increase our equity, which we accomplished in the third quarter.

Along with that, we are going to need shareholder approval for the increase in share count.

And so we're going to have our annual meeting on the 28 in our view reach out directly to shareholders individually and encouraging me to vote to slate vote on the increase in shares, which is critical for us and continuing to operate a public company.

So I appreciate again, you guys participating in the call.

And if you have any questions, feel free to call me and Tiffany.

Thanks.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.