Eastside Distilling Q2 2024 Earnings Call Transcript

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August 14, 2024

There are 3 speakers on the call.

Operator

Good day, and welcome to the Eastside Distilling Second Quarter 20 24 Financial Results Conference Call. All participants will be in listen only mode. Please note, today's event is being recorded. I would now like to turn the conference over to Tiffany Milton, Controller. Please go ahead.

Speaker 1

Thank you. Good evening, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the Q2 of 2024. I'm Tiffany Milton, Eastside's Controller. And joining us on today's call to discuss these results is Jeffrey Gwynn, the company's Chief Executive Officer. Following our remarks, we will open the call to your questions.

Speaker 1

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 27A of the Securities Act of 1933 as amended, Section 21E 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 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 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 new customers, success in product development, ability to execute the business model and strategic plans, success in integrating acquired entities and assets, ability to obtain capital, ability to continue its going concern and all the risks and related information described from time to time in the company's filings with the Securities and Exchange Commission, including the financial statements and related information pertaining to the company's annual report on Form 10 ks for the year ended December 31, 2023, filed with the Securities and Exchange Commission.

Speaker 1

Now with that said, I'd like to turn the call over to Jeffrey Gwen. Jeffrey, please proceed.

Speaker 2

Thank you, Tiffany, and welcome, everyone. I'm glad you could join us today. As we reach the midpoint of 2024, it's a good time to reflect on our progress. We set ambitious goals for the first half of the year and while we've made significant strides, there's still a lot to do in the latter half. Consolidated sales were up 11% in the quarter and we've seen a notable improvement in gross margin compared to the prior year.

Speaker 2

However, what stands out to me is the success that we're having in our operating businesses and key performance metrics that we're following. Pratt, for example, saw a nearly 50% increase in digital printing revenue. I mean, they're setting records pretty much quarterly for Canon sales. And our order books are full. We're addressing the challenge of scaling up our digital can printing capacity.

Speaker 2

Now we have a plan in place to significantly boost this capacity and we're focused on executing it for the rest of the year, and I do think that we'll unlock additional capacity. But this quarter's performance to me just confirms what I've said on numerous conference calls in the past, that digital campaigning is gaining traction, strong traction in the market. Now, Craft still needs to address critical issues like it needs to improve its gross margins. We need to reduce machine downtime, minimize scrap, all these things impacted margins and operating cash flow in Q2. And I'm optimistic that we're going to see improvements in the second half of the year.

Speaker 2

Now turning to spirits, that business has made substantial progress as well. And remember, the primary goal in that business is to generate positive cash flow. I think we're very close to that. Now case volumes were in fact down 12%, but that was driven in part by this reset of our tequila go to market strategy that we initiated last year, resetting distribution, starting with new distribution in new markets and changing our prices and improving gross margins. And we've seen better performance in states like Oregon and Arizona.

Speaker 2

Our PPV performance in Oregon has been outstanding. And I think we'll have some good numbers reported for the back half of the year across the entire portfolio. Despite the lower sales and the fact that we didn't sell any barrels substantial barrels in the quarter, gross profits increased substantially, 84% and EBITDA also improved as I referred to earlier. I think for the quarter, we only reported $53,000 loss in EBITDA. So we've had a lot of progress and we expect to see more progress in Q3.

Speaker 2

Finally, our corporate expenses have decreased yet again quarter over quarter, and we've done that pretty much every quarter for the last 2 years. We're working to build a sustainable and growing company. And I think we'll continue to make progress in doing that and we made progress this quarter. Now with that said, I'll turn it over to Tiffany and Shu can present the numbers. After that, we can take some questions.

Speaker 1

Thank you, Jeffrey. I'll summarize the financial results for the quarter, and then we will take questions. On a consolidated basis, our gross sales were $3,100,000 for the Q2 of 'twenty four and $2,800,000 for Q2 'twenty three, primarily due to an increase in printed can sales. Craft sales were $2,400,000 for 'twenty four and 1,900,000

Speaker 2

dollars for 'twenty three as our

Speaker 1

printing operation improved sales and production throughput. Kraft printed a record 6,000,000 cans in Q2 of 'twenty four. Spirit sales were 700,000 for 'twenty four and 800,000 for 'twenty three, decreasing as a result of lower volumes, primarily in tequila due to changes in our go to market strategy with distributors. Our consolidated gross profit was $200,000 for Q2 'twenty four and $26,000 for 2023, primarily due to our printed can sales. Our consolidated gross margins were 5% for 'twenty four and 1% for 'twenty three.

Speaker 1

Craft had no reportable profit margin for 2024 and negative 3% for 2023. Spirits margins were 26% for 2024 and 12% for 2023. Operating expenses were $1,300,000 for Q2 'twenty four and $1,400,000 for Q2 'twenty three. Our lowered expenses reflect the success of our continued restructuring efforts throughout 2024. Our net loss was $1,500,000 for Q2 2024 and $1,600,000 for Q2 'twenty three and our adjusted EBITDA was flat at about negative $900,000 for both periods.

Speaker 1

During Q2, we closed on a $1,100,000 debt facility for working capital. We will now open the floor for questions. Operator?

Operator

Thank you. We will now begin the question and answer session. This concludes our question and answer session. I'd like to turn the conference back over to management for any closing remarks.

Speaker 2

Great. Thank you, Rocco. Thank you for the opportunity to share these results with you for the Q2, and we'll look forward to talking to you soon for the Q3. Thank you.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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