Eastside Distilling, Inc. (NASDAQ:EAST) Q1 2023 Earnings Call Transcript May 15, 2023
Eastside Distilling, Inc. beats earnings expectations. Reported EPS is $-0.1, expectations were $-0.12.
Operator: Good day, and welcome to the Eastside Distilling First Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Amy Lancer, Chief Commercial Officer. Please go ahead.
Amy Lancer: Thank you. Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling’s financial results for the first quarter of 2023. I’m Amy Lancer, Eastside’s Chief Commercial Officer. Joining us on today’s call to discuss these results are Mr. Geoffrey Gwin, the Company’s Chief Executive Officer and Chief Financial Officer; Ms. Tiffany Milton, Eastside’s Controller; and Mr. Bruce Wells, Craft’s Controller. Following their remarks, we will open the call to your questions. Now, before we begin with prepared remarks, we submit for the record, the following statements. 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 words such as may, future, plan or plans, 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-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission.
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Now with that said, I’d like to turn the call over to Geoffrey Gwin. Geoffrey, please proceed.
Geoffrey Gwin: Thank you all for joining the first quarter call today. I’m pleased to announce we made great progress during the first quarter. Let’s talk about our two businesses’ individual performances and then look at the consolidated results and finally, review the guidance we gave just a few weeks ago on the year-end call. As you will see from our 10-Q, we are now breaking out segment information on craft, spirits and corporate results in the MD&A section of the 10-Q. So if you have the Q in front of you, turn with me to the segment information section and then we can get started. Craft, which is our digital printing and mobile canning businesses, reported strong growth in the quarter. That business saw revenue up more than 35% year-over-year as digital printing sales have increased significantly.
However, what’s encouraging beyond the strong top line is that we achieved these results despite the slow start after the holidays. We had strong sequential growth each month of the quarter. In fact, March’s printing sales were twice that of January. As we discussed on the call a few weeks ago, we have undergone some restructuring actions across all businesses, including craft, and those weighed on results in mobile. Now craft’s gross profit performance reported for the quarter does not reflect where we expect to be in the current quarter, quarter two. In March, we saw strong improvements in gross margins, driven by higher utilization and lower scrap rates. In summary, our digital can printing business has significantly improved its rate of production and efficiency.
We expect strong sales growth throughout the year. Now for Q2, we are maintaining our guidance that craft will report positive EBITDA. Now let’s talk about the spirits business. Spirits sales were $1.3 million lower year-over-year, but largely because we sold over 500 barrels more of inventory last year than we did in the first quarter of this year. The gross margins were abnormally high this quarter due to the bulk barrel sales. And this reflects the value of our barrel inventory, which we’ve talked about quite a bit over the last number of quarters. And we generated net income in spirits because of these bulk sales. Volumes are lower year-over-year in the wholesale cases that we sold, but we kept gross margins flat year-over-year. Now, it’s important to remember, and we’ve said this over the last number of calls, we have taken price increases across the entire portfolio of brands and we’ve also exited unprofitable distribution channels.
Now, those are significant headwinds. And they affected us all last year, but we’ve made progress. During the quarter, we took restructuring actions to lower our production and sales costs and expect to make incremental improvements there throughout the year. So for Q2, for spirits, this will be an important quarter as we’re moving into our promotional calendar, and we expect to see volume improvements. And we’ll have more report on that for our second quarter call. Lastly, we made progress cutting our corporate operating expenses by a third 3 over last year. So in summary, we are improving our cost position across the board. Craft, spirits, the corporate overhead of a public company, all improving. These cost improvements helped us set a foundation for growth, which will lead us eventually to consolidate performance where we can generate positive EBITDA.
That’s a milestone for the Company we’ve all been long waiting for. And I expect that this will happen later in the year. So Q2 is off to a good start, although it’s early, and we’re fighting against a weaker economic environment, but I am optimistic. Now, Tiffany will take you through the Company’s performance in some more detail, but I’d like to leave you with a few more thoughts. With the improvement in the statement of operations, we have a real opportunity to invest and accelerate growth. The Board has determined that it is critical for us to remain a NASDAQ-listed company. In our 10-K, we’ve highlighted a number of risks associated with this, and this is one specific risk we called out. We are out of compliance for two specific issues with that: share price and tangible net worth.
Last week we announced that the Board had approved a reverse stock split that will allow us to take care of the first issue. We are actively working on addressing the second issue of tangible net worth prior to the NASDAQ deadline. I’ll be happy to answer your questions after Tiffany gives us more details on the quarter. But now, let’s turn it over to Tiffany and get some specifics. Tiffany?
Tiffany Milton: Thank you, Jeff, and thank you all again for joining our call today. Let’s review the first quarter. On a consolidated basis, our gross sales were $2.9 million for the first quarter of ‘23 compared to $3.8 million for the first quarter of ‘22, primarily due to barrel sales, which totaled $600,000 in ’23 versus $1.6 million in ’22. Craft sales were $1.5 million for ’23 and $1.1 million for ’22 as we are finally seeing traction in digital can printing as it continues to gain capacity. Spirits sales, excluding bulk were $700,000 for ’23 compared to $1.1 million for ’22 due to initial orders from multiple distributor changes last year. Our consolidated gross profit was $600,000 for Q1 ’23 compared to $900,000 for Q1 2022.
Our consolidated gross margins were 22% for ’23 and 25% for 2022. Craft had margins of negative 7% for 2023 and negative 3% for 2022. Craft margins on a consolidated basis sequentially improved through Q1 as we continued to build volume of printed cans. Spirits margins were 54% for ’23 and 37% for ’22. Excluding barrel sales, spirits margins were 32% for ’23 and 33% for 2022. Adjusted EBITDA was negative $700,000 for ’23 and negative $1 million for 2022, primarily due to decreased operating expenses. Our results have sequentially improved on a quarterly basis since Q1 of 2022 as we have significantly reduced operating expenses and are beginning to see the strength of the digital can printer, which we are excited to see as continued growth for the remainder of the year.
We are also beginning to see better results for our Q1 2023 restructuring of both businesses, and this will become more apparent in the coming quarters. We will now open the floor for questions. Operator?
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