Eastside Distilling, Inc.

Good day and welcome to the Eastside Distilling Report's fourth quarter and year-end 2020 financial results. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star then one. Please note that this event is being recorded. I would now like to turn the conference over to Amy Broussard, Corporate Affairs Director. Please go ahead.

Thank you so much. Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the fourth quarter and year-end 2020. I'm Amy Broussard with Eastside Distilling, and I'll be your moderator for today's call. Earlier, Eastside issued their fourth quarter and year-end 2020 financial results in a press release, and the company filed its 2020 Form 10-K. Joining us on today's call To discuss these results are Mr. Paul Block, the company's chairman and chief executive officer, and Mr. Jeffrey Gwynn, Eastside's chief financial officer. Following their remarks, we will open the call to your questions. 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 that are generally preceded by words such as May, future, plan, or planned, will or should, expected, anticipated, 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 plan, success in integrating acquired entities and assets, ability to obtain capital, ability to invest, continue its going concerns, and all the risks and related information described from time to time in the company's filing 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, 2019, filed with the Securities and Exchange Commission. Now, with that said, I'd like to turn the call over to Jeffrey Gwynn. Jeffrey, please proceed.

Thank you, Amy. I'm pleased to report we continue to make significant progress in improving the operating performance of Eastside during both the fourth quarter and the first few months of 2021. In February, we closed the Redneck Riviera Termination and Asset Sale Agreement. While we continued to manufacture some Redneck products in Q1 of this year, we are now wholly focused on those brands we own and our craft canning divisions. That transaction was one of the many steps we have taken to significantly improve our balance sheet and liquidity position. We have made progress across a number of fronts, which Paul will elaborate on shortly. However, first, let's review the fourth quarter and fiscal year-end results. Please note, we have presented Redneck Riviera as discontinued operations in our 10-K for FASB ASC 205-20. This should make comparing our reported results through 2021 much easier. Gross sales for the year ending December 31, 2020 increased 21% to $14.8 million from $12.2 million in the prior year. This was primarily due to the Zunia acquisition and an increase in sales at Kraft. Gross profit increased 12% to $4.6 million compared to $4.1 million in line with the increase in sales. Total operating expenses in 2020 declined 9.1% to $12.7 million from $14 million in the prior year. This reduction was due to lower compensation and benefits, reduced legal and professional fees, and lower rent and insurance expenses, partially offset by higher non-pass depreciation and amortization expenses. As we have stated over the prior two quarters, we have begun a restructuring of the company's operations that has led to significant reductions in overhead. You can see the beginnings of the impact of this destruction in this report. However, you should see more evidence of this as we get into our seasonally strongest part of the year. The net loss, including discontinued operations in 2020, was a loss of $9.9 million or a loss of $0.98 per share. This compares to a loss of $16.9 million or $1.82 a share in the prior year. In the fourth quarter, the company delivered 9,180 cases of spirits, excluding Redneck Riviera. Of that total, Portland Potato Vodka represented about 5,000 cases and continues to expand as we continue to expand the distribution of this brand outside of Oregon. The company shipped 2,553 cases and 1,171 cases of Azunia and Burnside, respectively, in the quarter. As you all are aware, a number of states, including California, reinstated a shutdown of on-premise dining, which affected Azunia and Birthright in the Quarter. On a consolidated basis, excluding Redneck, we generated $3.5 million in fourth quarter gross sales on a 20% increase over the same period in 2019. Gross profit grew significantly over the prior year to $1 million. The company generated a net loss per share of a loss of 24 cents compared to a loss in the prior year of 82 cents. During the fourth quarter, we wrote off $408,000 of brand-related assets and paid $425,000 in stock-based compensation. Adjusted EBITDA was $1.1 million lost for the quarter. That EBITDA number includes some one-time-in-nature items such as professional fees. Given the environment in our key markets during the quarter, we are pleased with this performance. Now, turning to the cash flow and the balance sheet, the company ended the year with $836,000 in cash and had $6.4 million outstanding under the Live Oak ABL facility. I'd like to draw your attention to the $15.4 million deferred consideration for the Zunia acquisition. In the first quarter of this year, we issued 1.2 million shares at a weighted average price of $4.67. This reduces that liability and the remaining purchase consideration will be determined shortly. The company will issue to intersect both shares and a three-year 6% subordinated note with a bullet maturity. As I suggested earlier, we've made meaningful progress on improving our balance sheet and liquidity in the first month of the year. Since the close of the redneck termination agreement, we have reduced our outstanding balance with LIVO to only 2.9 million dollars. We have also received full forgiveness on our $1.6 million in PPP loans in the first quarter. We have made good progress on refinancing all our maturities for 2021, and we'll have more to report there during our first quarter conference call in May. Before wrapping up my comments, I'd like to take a moment and update you on our restructuring action. As we've described in the prior two calls, we've been actively integrating three companies. Now that we're looking into 2021, we can see that we have made significant progress charting our course and have built a robust plan that, if executed, will keep the company on the path of growth and eventually profitability. This has included a complete transformation of large parts of the company internally. You should expect better results, a stronger balance sheet, and clear growth opportunities this year. We continue to reshape the company with our focus on building a professional platform, integrating systems and processes, a transformation that is touching all areas of the company. Now, I'd like to turn it over to Paul, who can share more of the exciting developments here at the company and then update you on our operating plans for 2021. Paul? All right.