Earnings call: Eastside Distilling reports mixed Q2 2024 results

Eastside Distilling , Inc. (EAST) has announced its financial results for the second quarter of 2024, revealing an 11% increase in consolidated sales, a significant improvement in gross margin, and a record number of printed cans sold through its Craft division. Despite these positive developments, the company experienced a decrease in spirit sales and recorded a net loss of $1.5 million for the quarter. CEO Geoffrey Gwin expressed optimism for the company’s progress and outlined plans to address challenges in the latter half of the year.

Key Takeaways

• Consolidated sales increased by 11% in Q2 2024.
• Craft division’s digital printing revenue saw nearly a 50% increase.
• Spirit sales decreased due to a reset of the tequila go-to-market strategy.
• Consolidated gross profit improved significantly, from $26,000 in Q2 2023 to $200,000 in Q2 2024.
• Operating expenses decreased, reflecting successful restructuring efforts.
• The company closed on a $1.1 million debt facility for working capital.

Company Outlook

• Eastside Distilling plans to boost digital can printing capacity to meet demand.
• Expectations for improvements in gross margins and operating cash flow in the second half of the year.
• Anticipation of positive cash flow generation from the spirits business.

Bearish Highlights

• Case sales for spirits were down 12%.
• The net loss for Q2 2024 was $1.5 million, although this was a slight improvement from Q2 2023’s $1.6 million loss.
• Adjusted EBITDA remained flat at about negative $900,000 for both periods.

Bullish Highlights

• Craft division set a new record with 6 million cans printed in Q2 2024.
• Gross margins for spirits increased to 26% in Q2 2024, up from 12% in Q2 2023.
• Corporate expenses have been reduced consistently quarter-over-quarter for the past two years.

Misses

• Despite the increase in sales, the company did not sell any substantial barrels in the quarter.
• Craft division reported no profit margin for 2024 and had a negative margin in 2023.

Q&A Highlights

• The Q&A session provided an opportunity for further clarification on the company’s performance and future plans.

Eastside Distilling’s second quarter of 2024 showcased a mix of challenges and achievements. The company’s Craft division demonstrated strong performance in digital printing, contributing to an overall increase in sales. However, the spirits division struggled with lower volumes, primarily in tequila, due to strategic shifts in the market. Despite a net loss and flat EBITDA, the company is making strides in reducing operating expenses and improving gross margins, signaling a commitment to building a sustainable and growing business. With plans to enhance capacity and address key issues, Eastside Distilling remains focused on advancing its operations in the latter half of the year.

InvestingPro Insights

Eastside Distilling, Inc. (EAST) has shown mixed financial signals in its recent performance, with some positive sales growth but continuing challenges in profitability and market valuation. Here are key insights based on real-time data from InvestingPro and InvestingPro Tips:

InvestingPro Data:

• The company’s market capitalization currently stands at a modest $1.23 million, indicating a relatively small size in the financial markets.

• Revenue for the last twelve months as of Q1 2024 was reported at $10.06 million, although there was a noticeable decline in revenue growth by 22.61%.

• Gross profit margin has been weak at 6.03%, reflecting the challenges the company faces in converting sales into gross profit.

InvestingPro Tips:

• Eastside Distilling operates with a significant debt burden and may have trouble making interest payments on debt, which is a critical factor to consider for investors looking at the company’s financial health.

• The stock price has been quite volatile, and analysts do not anticipate the company will be profitable this year, which may concern investors seeking stability and near-term profitability.

For those considering an investment in Eastside Distilling, or for current stakeholders evaluating their positions, these InvestingPro Tips are invaluable. It should be noted that there are over 10 additional tips available on InvestingPro for EAST, which can provide further insights into the company’s financials and stock performance. These additional tips can be found at offering a comprehensive analysis that could inform investment decisions.

Full transcript – Eastside Distilling Inc (NASDAQ:) Q2 2024:

Operator: Good day, and welcome to the Eastside Distilling Second Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Tiffany Milton, Controller. Please go ahead. Thank you.

Tiffany Milton: Thank you. Good evening, everyone, and thank you for joining us today to discuss Eastside Distilling’s financial results for the second quarter of 2024. I’m Tiffany Milton, Eastside’s Controller. And joining us on today’s call to discuss these results is Geoffrey Gwin, the company’s Chief Executive Officer. 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 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, including, but 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, 2023, 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.

Geoffrey Gwin: Thank you, Tiffany, and welcome everyone. I’m glad you can join us today. As we reach the midpoint of 2024, it’s a good time to reflect on our progress. We’ve 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. 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. Craft, for example, saw a nearly 50% increase in digital printing revenue. I mean, they’re setting records pretty much quarterly for can sales, and our order books are full. We’re addressing the challenge of scaling up our digital can printing capacity. 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. The digital can printing 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. 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 funds were in fact down 12%. 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. Our [PPV] performance in Oregon has been outstanding, and I think we’ll have some good numbers to report for the back half of the year across the entire portfolio. Despite the lower sales and the fact that we didn’t sell any 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. Finally, our corporate expenses have decreased yet again, quarter-over-quarter, and we’ve done that pretty much every quarter for the last two 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 she can present the numbers and after that, we’ll take some questions.

Tiffany Milton: Thank you, Geoffrey. I’ll summarize the financial results for the quarter, and then we will take questions. On a consolidated basis, our gross sales were $3.1 million for the second quarter of ’24, and $2.8 million for Q2 ’23, primarily due to an increase in printed can sales. Craft sales were $2.4 million for ’24, and $1.9 million for ’23, as our printing operation improved sales and production throughput. Craft printed a record 6 million cans in Q2 of ’24. Spirit sales were $700,000 for ’24, and $800,000 for ’23, 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 ’24, and $26,000 for 2023, primarily due to our printed can sales. Our consolidated gross margins were 5% for ’24, and 1% for ’23. Craft had no reportable profit margin for 2024, and negative 3% for 2023. Spirit’s margins were 26% for ’24, and 12% for 2023. Operating expenses were $1.3 million for Q2 ’24, and $1.4 million for Q2 ’23. Our lowered expenses reflect the success of our continued restructuring efforts throughout 2024. Our net loss was $1.5 million for Q2 ’24, and $1.6 million for Q2 ’23, and our adjusted EBITDA was flat at about negative $900,000 for both periods. During Q2, we closed on a $1.1 million debt facility for working capital. We will now open the floor for questions. Operator?

Operator:

Geoffrey Gwin: Great. Thank you, Rocco. Thank you for the opportunity to share these results with you for the second quarter, and we’ll look forward to talking to you soon for the third quarter. 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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