Eastside Distilling, Inc. (NASDAQ:EAST) Q3 2023 Earnings Name Transcript November 18, 2023
Operator: Good afternoon, and welcome to the Eastside Distilling Third Quarter 2023 Monetary Outcomes Convention Name. All contributors can be in listen-only mode. [Operator Instructions] After at the moment’s presentation there can be a possibility to ask query. [Operator Instructions] Please word, this occasion is being recorded. I might now like to show the convention over to Tiffany Milton, Controller. Please go forward.
Tiffany Milton: Thanks. Good afternoon, everybody, and thanks for becoming a member of us at the moment to debate Eastside Distilling’s monetary outcomes for the third quarter of 2023. I am Tiffany Milton, Eastside’s Controller. And becoming a member of us on at the moment’s name to debate these outcomes are Geoffrey Gwin, the corporate’s Chief Government Officer; and Bruce Wells, Craft Controller. Following our remarks, we’ll open the decision to your questions. Now earlier than we start with ready remarks, we submit for the document the next assertion. Sure issues mentioned on this convention name by the administration of Eastside Distilling could also be forward-looking statements inside the that means of Part 27A of the Securities Act of 1933, as amended, and Part 21E of the Securities Change Act of 1934, as amended, and such forward-looking statements are made pursuant to the protected harbor provision of the Personal Securities Litigation Reform Act of 1995.
A closeup shot of a beer faucet pouring a golden lager.
The forward-looking statements describe future expectations, plans, outcomes or methods and are typically preceded by phrases equivalent to could, future, plan or deliberate, will or ought to, anticipated, anticipates, draft, ultimately or projected. Listeners are cautioned that such statements are topic to a mess of dangers and uncertainties that would trigger future circumstances, occasions or outcomes to vary materially from these projected within the forward-looking statements. Such issues contain dangers and uncertainties which will trigger precise outcomes to vary materially embody, however will not be restricted to, the corporate’s acceptance and the corporate’s merchandise available in the market, success in acquiring new clients, success in product growth, means to execute the enterprise mannequin and strategic plans, success in integrating acquired entities and property, means to acquire capital, means to proceed its going concern and all of the dangers and associated data described sometimes within the firm’s filings with the Securities and Change Fee, together with the monetary statements and associated data pertaining to the corporate’s annual report on Kind 10-Ok for the 12 months ended December 31, 2022, filed with the Securities and Change Fee.
Now with that mentioned, I would like to show the decision over to Geoffrey Gwin. Geoffrey, please proceed.
Geoffrey Gwin: Thanks, Tiffany, and welcome, everybody, to the third quarter earnings convention name. I recognize the chance to debate our efficiency and outlook with you. Whereas we have made strides in the direction of our aim of attaining optimistic working money circulate, each within the Craft digital canning enterprise and our spirits enterprise, there are challenges we have to handle. All 12 months lengthy, I’ve spoken in regards to the collective objectives I’ve laid out for each craft and spirits segments to generate EBITDA and, importantly, web revenue that not solely permits us to put money into development but additionally to deleverage and to offset the general public firm prices. And whereas we have made progress in the direction of these objectives, it is clear that we nonetheless have work to do. One vital problem we’re dealing with is the rising financial headwinds in each the craft beverage and spirits classes.
Sadly, these headwinds have intensified in the direction of the top of the third quarter and into the autumn. The exterior financial surroundings performs a vital position in our means to attain our monetary aims. Understanding and navigating these challenges can be key to reaching our targets. Now within the Craft digital printing section, the quarter showcased optimistic developments with notable wins in our new digital printing clients, equivalent to [ Ford Percy ] within the water class who, by the best way, is on the forefront of utilizing digital printing to market to shoppers. Craft’s record-breaking quarter with 4.8 million digital can orders demonstrates continued demand for our providers. Whereas we confronted challenges within the cellular canning enterprise, enhancements in scrap and utilization offset a few of these points.
As we method the fourth quarter, we anticipate seasonal softness, a pattern noticed in the identical interval final 12 months. Now shifting on to spirits. We skilled a notable enchancment with spirits EBITDA lack of solely $70,000 within the quarter, a major discount in comparison with the earlier 12 months. Regardless of an total decline within the high line, Portland Potato Vodka carried out effectively, and we noticed softness in numerous spirit classes, together with tequila class, which has traditionally been a really robust performer. Regardless of these challenges, we managed to mitigate the affect by implementing profitable pricing methods in key markets. Whereas Burnside and Azunia require extra consideration to the underinvestment, our strategic deal with profitable territories, rightsizing manufacturing and bettering the provision chain is yielding optimistic outcomes, as mirrored in improved EBITDA efficiency.
Company and G&A bills stay a problem for our firm our measurement, however we have made progress in decreasing prices. And Tiffany will present some particulars on the onetime loss related to the finished debt for fairness swap. So should you exclude these losses, our adjusted EBITDA exhibits significant progress within the quarter. As we finish the fourth quarter, we acknowledge the necessity for additional enhancements throughout all property of the enterprise to attain optimistic money circulate and web revenue. Our ongoing efforts to handle challenges improve operational effectivity and capitalize on alternatives that place us for fulfillment. We stay dedicated to our objectives and are optimistic in regards to the future. Now I am going to flip it over to Tiffany to offer extra insights into our financials and the finished debt for fairness swap.
Tiffany, please go forward.
Tiffany Milton: Thanks, Geoffrey, and thanks all once more for becoming a member of our name at the moment. Let’s evaluation the third quarter. On a consolidated foundation, our product sales have been $3.1 million for each the third quarter of 2023 and 2022, primarily attributable to development in digital can printing offset by decrease cellular canning and spirits gross sales. Craft gross sales have been $2.2 million for 2023 and $1.9 million for 2022 as we proceed to enhance our printed can manufacturing. Spirits gross sales have been $850,000 for 2023 in comparison with $1.2 million for 2022, primarily attributable to bulk spirits gross sales of $244,000 in Q3 of 2022. Our consolidated gross revenue was $500,000 for Q3 2023 in comparison with $200,000 for Q3 of 2022 attributable to Craft enchancment from digital can printing. Our consolidated gross margins have been 17% for 2023 and 6% for 2022.
Craft had margins of 16% for 2023 and damaging 7% for 2022. Spirits margins have been 21% for 2023 and 29% for 2022. Excluding barrel gross sales, spirits margins have been 27% for each 2023 and 2022. Adjusted EBITDA was damaging $430,000 for 2023 and damaging $1.4 million for 2022, primarily attributable to decreased working bills. Throughout Q3 2023, we recorded a loss on the conversion of debt to fairness of $1.3 million, which is excluded from adjusted EBITDA. Craft printing operations have but to achieve a turning level, demonstrating its full potential and delivering optimistic EBITDA within the quarter. Nevertheless, we proceed to achieve momentum within the printing sector and are exploring avenues to streamline working prices. These cost-cutting measures are set to be expanded all through the rest of the 12 months.
We are going to now open the ground for questions. Operator?
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