Eastside Distilling Q4 2023 Earnings Call Transcript

There are 5 speakers on the call.

Operator

Good day, and welcome to the Eastside Distilling Reports 4th Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. Please note this 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 morning, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the Q4 of 2023. 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. Now before we begin with prepared remarks, we submit for the record the following statement.

Speaker 1

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 growing 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 the 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 Gwynn. Jeffrey, please proceed.

Speaker 2

Thanks, Tiffany. I'd like to add my welcome and thank you all for joining us for our 2023 year end conference call. Here we are already in April and well into 2024. However, I think it's important to pause not only look at last year, but also last 2 years and reflect on the change and then look forward. This company has gone through a significant transformation.

Speaker 2

When I joined in 2020, its focus was clearly spirits with a small mobile canning operation that it picked up in an acquisition a year earlier. Today, the company is on a path to be a leading innovator in the exciting consumer beverage packaging space. Meanwhile, we've unlocked asset value and funded a long turnaround in the midst of COVID. We raised capital for growth and this year, continued a balance sheet restructuring. And I'm encouraged by what the team has accomplished over this period, but even more excited about what's ahead.

Speaker 2

Now let's review the results for the last year about business segment and let's start with the spirits business. In 2022, we substantially reduced our bulk inventory spirits to 2 years ago in 2022, primarily selling bourbon. We sold over $4,400,000 of our barrel inventory. In 2022, we saw bourbon prices at very high levels and began to reduce that excess inventory, take advantage of the market. Last year, we sold a lot less of bourbon in bulk form, only 800,000.

Speaker 2

And in hindsight, the timing was outstanding because we've recently seen bourbon prices, specifically bulk spirits values drop through the fall and into 2024. Currently, we have 1,000 barrels of Volksprits and again, it's primarily bourbon, but it ranges in age from 4 plus years to 17 years. So we don't have much new sales. Given these activities, sales is a great metric to look at our progress in spirits. A better place to consider what we've accomplished is the operating performance line and cash flow.

Speaker 2

As we said all last year, our goal was to get spirits to EBITDA positive, not as a stretch goal. And we would do it even if we had to shrink sales of unprofitable volume. For 2 years, we've been moving that way, moving away from unprofitable sales and investments in states where the return on investment is very low in spirits. I'm pleased to announce in the Q4 of last year, in 2023, we had a spirits net operating loss of only $114,000 That's a 78 percent improvement from the prior year's loss of $433,000 And this is before we took an impairment charge, which we call out in financials in light of running down a small portion of the value of our tequila business. We're getting closer to breakeven on a cash basis in the Spirit segment and we expect to make more progress in 2024 on this goal.

Speaker 2

Now looking at spirits in the Q1 through February, 9 liter shipments is tracking flat to last year on an overall basis. However, our Portland based brands were up significantly. The Portland based brands were up as much as 15% and they're offset obviously by lower tequila sales outside of Portland and Pacific Northwest. Plus revenues are lower in the Q1 due to higher proportion of lower priced spirits compared to last year. So we're selling more vodka than we are tequila.

Speaker 2

However, I will caution you from drawing assumptions on a couple of months. The longer term trend is really what's important as orders can slide from month to month. And also it's important to note that shipments is distinctly different from retail sell through. Now with that said, let's turn on and talk about the other business that Eastside undistilled in, which is our craft services business. Specifically, our craft digital printing business had an outstanding year in 2023, printing a total of 14,100,000 cans in the year, substantially more than the 4,800,000 cans that printed in the prior year.

Speaker 2

Throughout 2023, we improved our processes and won new customers. As we filled up our production schedules each month, we saw margins improve and we expect to see a substantial operating improvement this year with Craft. In fact, we are preannouncing can volumes for the Q1 of 2024 and expect to print over 4,700,000 cans in the Q1. That's an 88% increase over the Q1 of last year. We are achieving this through improved processes, higher throughput and an expanded schedule.

Speaker 2

Now the other driver here is new customers. Last year, we converted most all of our existing mobile customers to digital printing and we began to make inroads winning back formal mobile customers that have moved to purchase, fill and decorate their own cans with shrink sleeves or labels. Recently, we have won much larger customers all over the West Coast. Many of these customers are launching SKUs, converting away from non recyclable labels and others just want the incredible flexibility and graphics digital can printing offers. Every can we print has our logo on it And those cans are going places.

Speaker 2

Recently, it includes a beer can served at the Dodger Stadium, a large consumer product company launching a new product, regional RTD brands. Now these products cover beer, waters and Steich seltzers, hard seltzers. Having said this, I think there are other reasons why we are seeing customers hand over a critical component of their supply chain to us. That has everything to do with the consumer. The consumer has changed and marketing and consumer beverage is changing.

Speaker 2

Packaging has never been more important, driven by the fact that to be successful in this rapidly changing space, you have to invest in marketing through your product spaces to customer. Historically, you could get away with cheap plastic wrap cans or larger customers could get away with 19th century print technology that only uses a couple of colors on the cans. But today, brands that are winning are doing it with creative marketing on their hands, marketing that draws in consumers and build brand equity quickly. Now do the research yourself and walk the day out and study the cold case in your local supermarket. Ask yourself who is positioned here, who is in there and you will see extraordinary packaging, but most of it is unrecyclable.

Speaker 2

Digital printing is coming. We've seen customers change their product set to use digital printing to expand offerings, seasonal SKUs, special releases, but packaging and design strategies have been unleashed with digital packaging. We have seen new customers build entire marketing platforms off the package itself, a completely new business model. These changes are the paradigm shift that I've been referring to over the last year. It's happened before I was in the craft beverage space.

Speaker 2

Digital cream is making this happen. And one last comment here is, as I think it's important for us to say, and this is what I believe, Craft is the best at it. We are the best visual printer in North America. Craft is winning customers that see the difference in execution, customer service and quality. So with that said, it's easy for me to just state emphatically, I think we're off to a fabulous start for 2024.

Speaker 2

Now beyond the operational results for Spirit and Craft, we had a number of other changes that happened last year, including balance sheet changes, reloaded outstanding debt. And it's important to note that we're currently in discussions with key lenders to extend issued payments, maturity payments and increase liquidity. We're not there yet. We're still working on it and we have progress to make there. We also are working on remaining NASDAQ compliant.

Speaker 2

That has been a challenge and will continue to be a challenge. Now with that said, I'm going to save some time for questions and turn the call back over to Tiffany. Tiffany?

Speaker 1

Thank you, Jeffrey, and thank you all again for joining our call today. Let's review the Q4. On a consolidated basis, our gross sales were $2,100,000 for the Q4 of 2023 $2,400,000 for Q4 2022, primarily due to seasonality in printing, lower mobile canning and spirit sales. Craft sales were $1,200,000 for both 2023 and 20 22 even though we continue to improve our printed can production. Spirit sales were $900,000 for $2023,000,000 $1,100,000 for 20 22.

Speaker 1

Our consolidated gross profit was flat at negative $100,000 for both Q4, 2023 and 2022. Our consolidated gross margins were negative 6% for both 2023 and 2022. Craft margins had margins of negative 26% for 2023 and negative 23% for 2022. Spirits margins were 21% for 20 23% 13% for 2022. Adjusted EBITDA was negative $1,300,000 for 2023 and negative $1,600,000 for 2022, primarily due to decreased operating expenses.

Speaker 1

In addition, we recorded an impairment loss related to our Rezunia brand of $400,000 for 2023 $7,500,000 for 2022. Craft printing operations continue to improve and are expected to deliver positive EBITDA in the upcoming quarters. We continue to gain momentum in the printing sales and increasing capacity and exploring avenues to streamline operating costs. We expect continual improvement throughout the year. We will now open the floor for questions.

Speaker 1

Operator?

Operator

We will now begin the question and answer session. The first question today comes from Jay Huber, a Private Investor. Please go ahead.

Speaker 2

Hey Jay. How are you?

Speaker 3

How's it going?

Speaker 2

Good. How are you? Good.

Speaker 3

Got a couple of questions. First on at the money, what was the average sale price of the 300 ish 1,000 that you sold?

Speaker 2

That's a good question. I don't know if I have that here in front of me. I'll ask Tiffany, our controller is online. She can look that up. If not, we can I'm happy to take a call later and we can give you that number.

Speaker 3

Sure. No worries. 2nd, what is your canning capacity? And basically, what percent of capacity are you

Speaker 2

at? That's a great question. So just to be clear, we do tanning, right? We do fill for people in Portland. We still have a mobile operation there, although that's one of the things that affected the Q4 as we've been reducing our exposure beyond Portland and Mobile.

Speaker 2

Our focus is in digital printing. So when you refer to cans, I'm assuming you're referring to digital printing. That's the decoration of aluminum cans that are going all over the West now. And just to clarify, that's the new technology that I'm referring to where we digitally print, we could do photo realistic graphics to crazy different label types. We can do 1, we can do 1,000,000, we can do a lot of flexibility there.

Speaker 2

And that capacity right now is expected 1 machine. So we have 1 Hentekoff D240 and we do expect that we're going to get a second machine this year and that will double our installed capacity in Portland. And the capacity of that machine depends on how many cans you run through it, how what kind of graphics you're printing, how many changeovers you have. So with the second machine, our throughput will simply increase because of the fewer changeovers and it will grow. So I would suggest that you just think in your head that one machine is 25,000,000 cans a year, 2 machines is 50,000,000 cans a year, so on and so forth.

Speaker 3

Okay, great. So if you're running if you're expecting to do 4,700,000 cans, that leaves a huge amount of room.

Speaker 2

Plenty of room. Yes. We're not in a what's impressive about Jay about the Q1 is you're coming out of your December quarter where there's just not as much production in beverage, right? A lot of people have already kind of produced what they need for the Q4 and people are all on vacations and out of the office. So the production side, the filling side is not at full steam yet.

Speaker 2

And so we're coming out of the Q4. And in the Q1, we've printed a tremendous number of cans. So our challenge over the next two quarters is going to be printing full and we will hit capacity at some point here in the next two quarters and managing that until we can get our next machine online.

Speaker 3

Okay. And also how about the mobile canning? What percentage capacity?

Speaker 2

That's more of a flexible business. We have a lot of excess equipment. So mobile canning is just to describe it actually you can credit Craft with the genesis of this business. I would say it goes way back, but the team there has perfected the art of getting mobile equipment on a mobile platform of trucks and being able to go to numerous customers all over the Pacific Northwest and filter them. So our flexibility there or the capacity is constrained by people, right?

Speaker 2

It's a technical job. It's really requires somebody who understands what our customers need. Not every product goes in a can the same way. Some product needs certain conditions. And so oftentimes, we almost like a consultant.

Speaker 2

A lot of new beverages want us to help get that product in a can, but they've never put in a can before. So it's not an easy role to fill. So we have a long training program at Craft. So that business is gated by people. So if you were to ask me today what that number is, I wouldn't be able to tell you right off the bat, but there's a lot of capacity still left.

Speaker 2

It's untapped here given our current staffing and our equipment.

Speaker 3

So I'm not holding you to this, but what are you running at like 30% capacity?

Speaker 2

Yes, I would say we're north of that. On the mobile side, we're north of 50%, but there's plenty of excess capacity. We could probably add some as we get into the peak season.

Speaker 3

Okay. So now here's just kind of a thought. Why wouldn't you take your current brands such as like, you mentioned your Portland Potato brand, create a hard sell. You have access

Speaker 2

to that. Right.

Speaker 3

And then, that's it.

Speaker 2

That was the genius of the initial management team. That was one of the reasons why Carrotters acquired was they were going to be a 4 runner in the RTD space. And the challenge, Jay, I think is the is what the company has faced for the last number of years, which is there's just so many opportunities, right? There's opportunities for us to grow our spirits business selectively outside of the Pacific Northwest. There's opportunities now in tequila because tequila margins have improved.

Speaker 2

There's opportunities for us, as you said, to go into RTD space. But the company just doesn't have the capital, right, to feed all these opportunities. Now RTD is a high working capital space. So let's just think about that concept for a second. When you go into the grocery store and you buy a hard seltzer, the price points there are lower than they historically you would capture in the spirits in bottled spirits, right, particularly in case of Oregon, which is a controlled state.

Speaker 2

So we really have to be careful about pulling the company in new directions. They're just going to see more capital, more working capital, more complexity. Now having said that, we have customers that are launching products constantly. And so the concept that I would just go back to and point you to is a number of years ago when I was on your side of the table during investing, one of the companies that amazes me just through history is Levi Strauss. Levi Strauss today has gone through a lot of transformation, but it's a legacy and the discipline staying focused on just serving a booming market, which was genes in the 19th century when people were all running for the hills in San Francisco for gold, turned out to be such a strategic important move and the legacy that the company is built on.

Speaker 2

So I would argue that right now if you were to look across our landscape, we have a business in craft and digital printing. It's got a huge moat. I mean, it's huge competitive barriers to entry. You can't go and find a can that's densely printed just anywhere. I mean, there's a handful of people that do it.

Speaker 2

Basically now we only have one technology that can do it, right, which is the Henter Cost technology and those have been kind of sold into different markets. So if you want a digital print, you're going to CAM Works down in Texas. If you want to do it on the East Coast, you're going to Hart. If you want to do it in St. Louis, it's DigiCan.

Speaker 2

If you want to do it in the Pacific Northwest, hardest place to get product up into, given the shipping line, you have to work with us. Otherwise, you're going to use plastic heaters and labels around the can and eventually particularly the people in the Pacific Northwest are not going to put up with the fact that they're non recyclable and they're basically going to landfills. So I think that that business, this business, it's clear and you can probably see over the last year or so, it's been the focus of the company to get this to scale and become such a critical component of our customer supply chain. We can let others go, right, RTDs. And we're going to be the guys that are efficiently supporting them and helping them build their product line.

Speaker 2

In fact, I think we're seeing some outstanding new brands and we're not the one who has to bet on one concept. We're basically have multiple opportunities to see them explode. And they won't be able to go to ball or crown to have their cans made because they're made bespokely, uniquely, they're collectible. There's a handful of them and they're gone,

Speaker 3

right? Okay. So it's not as simple as, oh, we have the Portland Potato Vodka, we have the can, all we have to do is add the seltzer. You're saying that the cost price of these hard seltzers are so low that

Speaker 2

You do a tremendous amount of volume. Yes, a tremendous amount of volume and it'd be a really small margins. And one of the things on the operations side that's critical, and we learned this in spirit because you have to be focused new and your first question speaks to this. You can't run plants with low capacity utilization, you're just not cost competitive, right? This company did that a lot when it years ago when we were working with the Nectar Riviera, that brand, we basically bought whiskey all the way to the Pacific Northwest.

Speaker 2

We bottled it and we shipped it back east and we were not in a cost competitive position for where the price point was for this for that brand. So you look at our balance sheet, you can see the impact that had on the company. There's a tremendous whole of wealth value. So right now, we're laser focused on Yes, I remember that. We're laser focused on That's

Speaker 3

where it got too expensive because you were triple shipping and

Speaker 2

Yes, right. But think about this. If you were to walk into our office earlier today and you walk in and sit down with the team, Connor, Bill, Mike, and others, Jay, who is involved with ARC, and you were going to just sit there and stare at the sample cans that this team has, it covers a wall. Think about it, 100 of brands, right? So you're asking why don't we bet on 1 or 2 brands that we concept and we roll out.

Speaker 2

But effectively, we look at 100 of brands, some of the most creative and talented people all over the West Coast with new concepts, right, that are coming to market. Some of them have done astronomically well in the last year watching the volumes of these new brands come to market has been an eye opening experience for me. But to predict which one it is, which brand is going to work is really difficult. And that speaks also to the advantage of this technology. In the past, you'd spend 2 years perfecting the brand and the concept and you have one shot with all the money that you dumped into packaging and the supply chain to get it right now.

Speaker 2

A brand will come to us, we'll bill them the product, they'll go out, realize it's not exactly resonating and then there's a change and we're getting new version, right? So I like this segment. I think this is one where we can win. We're not going to have to fight all the way down to every little penny to compete in 1 market share. This would be a successful segment that's going to have some longevity with margin.

Speaker 3

So over the next couple of quarters, what kind of growth do you see in the digital printing there?

Speaker 2

Just like I said, we reported that we're substantially above what we did last year and we'll do it and I think we'll have some success in Send Cold. Frankly, I mean, our biggest risk, Jay, is working capital. This company is consuming working capital, particularly cans, at an ever greater rate, right? So as we grow so dramatically and bring in cans, we have to be able to generate cash and grow that investment working capital. And so we still have, like I said, 1,000 barrels of bourbon, right?

Speaker 2

And a lot of this bourbon is bourbon. We don't we can't actually use. It's over aged for our product set. Like we don't have a product that takes 17 year bourbon. So one challenge that we have is to redeploy assets where we can, right, raise liquidity where we can to invest in working capital.

Speaker 2

So to your question on the Q2, the biggest risk that I see is not having the cash to keep the growth at this clip, right? Being slowed down because of our inability to get the cans quickly enough.

Speaker 3

And where do you see breakeven? How many cans a quarter do you see?

Speaker 2

That's another good question. Yes. So when I think about breakeven, it's a function of what our can costs are, what are the margin is on the cans, which I'm not going to go into much on can margin. But the other aspect of it is scrap and managing the process. So if you think about it when you're doing one of the concepts that you had to think about is as you move a lot of cans through this machine, you can hold aluminum can and they're very fragile.

Speaker 2

You can feel them kind of squishing your hands if you just particularly when they're empty. And so we have to manage our scrap down to a very low level. We have put in place processes. The team has done a great job last year and putting processes to minimize the scrap into the machine. Then we have to minimize the scrap out, which is making sure the cans that come out are perfect.

Speaker 2

We have a really high threshold for perfection there, low tolerance for any mistakes on the can. So we manage that process lower and the scrap comes down. So when I think about breakeven, we based on the production that we had this quarter, in the Q1, the company should be close to breakeven, but on EBITDA, if not generating cash. There might be more issues like scrap and stuff that pull us negative. But by the time we get into the middle of summer, the volumes that we're expecting, assuming we have the can to get through that peak capacity.

Speaker 2

This company is generating a lot of cash in the form of EBITDA. And I should also mention the other operating business, Spirits, is really close. I mean, in the Q4, it generated we talk about the EBITDA, but sometimes our EBITDA calculation is going to add back all the non cash items in the income statement. And that business also was close to breaking even. I mentioned the operating number, but if you were to look at the EBITDA number in the Q4, spirits only last $75,000 of EBITDA.

Speaker 2

And the free cash flow in spirits is a lower number because we're not rebuying bourbon. So that number is even lower if you add back the fact that we're not repurchasing bourbon. So the 2 businesses are on course to get to that point where they're generating cash. And then the question is, do we have enough cash to support corporate, the cost of being a public company and the interest costs of what's left after the debt exchange.

Speaker 3

Okay. And last question, I've taken a lot of your time, I'm sorry. But so now you shift the direction of the company. How is the Board's should you shift to get some outside knowledge and somebody

Speaker 2

Right. Right. So we've had Yes. I got a little bit of your question, you broke up there. Your question is, how is the Board supporting this transition of the company?

Speaker 2

And does Board need more resources to kind of help us in the direction that we're heading? Those are great questions. And I'll say that I have to say that we've been blessed with a really talented group of people that have shepherded this company through a really difficult period. I mean, Liz living Navarro is an example of someone who came in, Sophosy, really gave to help us push the company in a good direction. And then just because of the amount of time it took and the constraints that she has on her time, wasn't able to continue with us as a Chairman.

Speaker 2

But I think you're right. I think we need to continue to bring in some talented people who understand manufacturing, understand marketing and marketing platforms like this that we're looking at who can really drive the company. And we've already actually done that, Jay, inside the company. We added a CEO of Craft. He started in January.

Speaker 2

And the gentleman by name is Conoco. I mean, he comes to us with an extensive background in manufacturing, having worked with a very large consulting firm that consults with some of the largest manufacturers, high-tech manufacturers in North America. And just in the Q1, he's had a tremendous impact on the efficiency of the company. So I think you're right, we need to bring more resources in to support this kind of growth. And as I said, if we double capacity with more machines and maybe even another location eventually, we'll need that expertise.

Speaker 3

Just a follow-up. You're talking about adding machine. Is that going to be are you going to get the funds for that through growth? Or are you going to have to go?

Speaker 2

Yes. We've been working on a financing package that we think is will take care of. It's an important operating lease. Okay. Again, thank you.

Speaker 2

I appreciate it. Yes, absolutely. Thanks, Joe, for your time.

Operator

The next question comes from Matthew Campbell with Laraday Capital. Please go ahead.

Speaker 4

Hey, Jeff. I'll be quick here. Good morning. You guys have done a lot of restructuring work and it's apparent that the business is stronger today than it's ever been. But when you look at the income statement, you see the numbers the way they are, it tells a different story.

Speaker 4

So just really quick, tequila, the spirits business has been not growing, but tequila has been a big weight. That acquisition done 2 or 3 years ago, a big weight on the business. Have we seen a bottoming of the spirit side? I know you said Portland Potato Rocket is really starting to grow in your markets now that you're focused on. I'd like to just get a better handle of that.

Speaker 4

And the loss that you reported in Q4, are you starting to see it get closer to breakeven on the Spirit side?

Speaker 2

Yes. Like I was saying, thanks, Matt, for those questions. Like I said, on the Spirit side, I mean, last year, I was optimistic that we were going to be able to actually hit EBITDA maybe in the Q4. That was kind of my own personal stretch goal of seeing that happened. And our adjusted EBITDA for the Q4 in Sprint was $75,000 loss.

Speaker 2

Now to your question, a lot of things are working in spirits. We've got Portland Potato vodka down to a price point where it moves and moves well. We still need to lower some of our overhead costs, but that expanding that margin will help push us closer to the EBITDA number that I'm talking about because Boston is such a big piece of our business. The burn side has not really grown because we just don't have the money to invest in marketing with that product right now. And then the last piece that you referred to is your life and tequila acquisition really was a hard since we acquired it.

Speaker 2

We didn't have the capital to continue to push and grow volume at such wages and margins where agave was at peak price points, but agave has come down dramatically. And so we moved our price points in tequila up dramatically to try to right size that business. And with that, alienated, obviously, a lot of distribution because they were seeing volumes come down. Distribution and spirits is in a different game. They're

Speaker 4

not motivated the

Speaker 2

same way we are. That's a huge challenge for any spirits brand unless you're a major. So that's been one of the hard things that we've had to stuck with is we're not going to sell spirits. We're not going to incentivize distribution for us to lose money. And that has not been well received by them.

Speaker 2

And in some markets, they've backed off of pushing our brand, right? And I think that's fair to say. But at this point, with the margins that you now have to feel, Agave, the prices that it is now, this brand makes money. And it could be on course to be one of the more profitable brands, believe it or not. So I think the things that I would say in spirit is staying disciplined and not letting this side of the house consume so much capital that we can't see that.

Speaker 2

Until people see the growth opportunity that's in this company, we have to be on a capital guide. We have to you look at the stock price and we look at it together. And she's got 2 businesses that I think are outstanding. I think the digital campaign business is unique. And as people wake up to what's happening in the marketplace, it's going to be a very valuable business.

Speaker 2

And I also think that spirits our spirits business, particularly a profitable spirit business is going to prove to be a lot more value. We attempted to sell 1 or more brands over a year ago. And there was, I think, reluctance because of where we are in profitability, right? So let's see where we go from here.

Speaker 4

Okay. Thank you. And then on mobile canning, is that business, in your view, has that hit a low? Or is that still going to be a headwind when

Speaker 2

we look at the canning side of the business? No. It's been a drag. Yes. So we so it feels like every corner of this company had problems.

Speaker 2

Mobile canning was coming through COVID and then it had the structural problem because some of the customers start to in source their own production capability. There's a number of challenges and inflation in there, labor inflation in others. There's challenges across the board that we talked about in Oil and Gas Spirits. So what we've done in mobile is to pull back from places where we know that we aren't getting the return on capital that we're looking for. Seattle was 1, Denver was another.

Speaker 2

But Portland, we have such a strong embedded customer base there. It's a place where we learn about our customers. It's I think it's instrumental in the DNA of the craft for now. But for now, it's a profitable segment of the company. It's going to continue to contribute cash.

Speaker 2

And I think that's an important part of who Craft is. So in the Q4 last year, we had some costs associated with closing elements of that business and we still have some lingering costs like at least it's here or there that we have to work out of. But once that's cleaned up and we get ourselves organized for the folks that we're working with, then I don't appreciate it as a headwind going forward. The bigger opportunity, Matt, as we talked about is getting a second printer online because the important thing that people have to understand about digital printing is one machine is carrying the weight of that whole facility, rent, operating labor, overhead, finance function, so on and so forth. And when you have the 2nd machine, every dollar of revenue added by that second machine is leveraging all that fixed costs.

Speaker 2

And so the profitability of Machine 2 is twice that of Machine 1. So it's a really significant step. It's critical for the company to make to really show people how profitable this vehicle can be.

Speaker 4

When do you think you'll get that second printers?

Speaker 2

This is on top of the priority other than enough cans to go to the machine for working capital in Q2. So we're working on it. Everybody wants these machines now, obviously, because they're seeing it happen. I mean, PGAs printing with digital printing, Budweiser did it, has been doing it, it's kind of flying on the radar screen. But as some of these small brands start to eat other people's lunch, everybody thinks you're scrambling and trying to get into schedule.

Speaker 4

Thank you. Good work. One of these days, it will be apparent and we'll start to

Speaker 2

all be able to celebrate. Thanks for the hard work and appreciate it. Those are my questions. Thanks Matt.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jeffrey Gwynn for any closing remarks.

Speaker 2

Yes. Thank you. I appreciate it. Thank you, everyone, for the time today. I know we're again sitting here in April talking about last year, but I think the story here and the progress report is that we're still seeing good growth in this new technology, great adoption and good things ahead.

Speaker 2

We need to put a few more pieces in place for people to get super excited about it and see it really frankly on paper. And I think we're going to do that this year. So please feel free to reach out to us, myself and certainly others in the organization and we'd be happy to keep you abreast of our developments. And then if not, if you don't see it from you between now and then, we'll be reporting here shortly on the Q1 soon. So thanks.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Earnings Conference Call
Eastside Distilling Q4 2023
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