Eastside Distilling, Inc.

Good day and welcome to the Eastside Distilling Business Update conference call. 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 star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Tiffany Milton. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling's business update. I'm Tiffany Milton with Eastside Distilling, and I'll be your moderator for today's call. Joining us on today's call to discuss updates to the business are Mr. Jeffrey Gwynn, the company's interim chief executive officer and chief financial officer, and Ms. Amy Lancer, the company's chief commercial officer of spirits. 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, and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipate, 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 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 31st, 2020, filed with the Securities and Exchange Commission. Now, with that said, I'd like to turn the call over to Jeffrey Gwinn. Jeffrey, please proceed.

Thank you, Tiffany. And let me add my welcome to Eastside and Stillands Update call. I am Jeffrey Gwynn, the CEO, and I'd like to share some thoughts on recent news and then have Amy Lancer update you on Spirits volume results for the fourth quarter and the year. Amy joined us last year from Heineken, but has had a number of roles with Spirits companies over the years, including Diageo and Bacardi. And we are fortunate to have a seasoned executive like her on the team. I'm excited for you to get to know Amy over the coming quarters. Now let's discuss some of the recent Eastside news. As you all are aware, Paul Block resigned from his position as the CEO and Chairman at the end of January. Paul had a significant impact on Eastside and was instrumental in building our three-year plan. We thank Paul for his efforts and his leadership. It's important for you to know that we are not deviating from the strategy we communicated last year. Eastside is unusual in that we have two extraordinary businesses in dynamic and fast-growing industries. Last summer, we laid out a multi-year plan for both businesses, Spirits and Craft Canning, that if successfully executed would drive long-term profitable growth. To launch this strategy, we had to first repair the balance sheet, and on that score, we made a lot of progress. Now, I won't go into all the elements of the financing strategy as I spoke about them at length on the last conference call for the third quarter. Now, I have to say that in other areas, we did fall short and executed poorly in 2021. Our launch of the east side rare and hard to get limited edition products did not meet our expectations. We also executed poorly at Kraft Canning with poor performance in both sales and margins. And finally, we did not fully realize objectives for improving key spirit margins. And we spoke about some of these challenges on the third quarter. And we'll detail more about the performance when we deliver annual results in March. But I would like to call out some successes that I feel are critical to understand. Despite the performance in 2021, we have succeeded in repositioning craft to dramatically benefit what I would call a paradigm shift in marketing, merchandising, and craft beverage. Now, how this fits into a larger east side with its spirits division will become more clear in the future. But for now, I'd like to point out that Kraft's business model is dramatically changing over the next few months. Last week, we made two very important announcements. First, we announced we are entering a digital can printing landscape and have partnered with Pentacoff and Canadian Canning to deliver nearly a $25 million run rate of decorated cans by the year end And this will come out of our recently built out Portland Argyle facility. This brand new 50,000 square foot facility will be fully operational by the beginning of next quarter. We will serve all our existing mobile canning customers as well as new digital printing customers from this facility. Now to date, we have largely just served the micro beer space. but this investment drives us much wider into other categories, and it also drives us deeper vertically with our customer. Now, critical to the success of this strategy is canned supply, a challenge that you've heard us talk about all year. Last week, we announced we have entered into a supply agreement with Canadian Canning. Some of the terms of that partnership we won't discuss, but suffice it to say that this relationship will be an important competitive advantage for Kraft Cannings. Now, on the spirits side, we announced the sale yesterday of 798 barrels of rye whiskey. Now, this sale represents excess barrels that are not in our five-year product plan and leaves us with more than 2,400 barrels of whiskey that we own. Now, a few years ago, we bought large quantities of high-quality bourbon and laid up these barrels, and they significantly increased in value. Eastside continues to own a very viable, difficult-to-replace asset, I have said in the past we are committed to monetize this asset by building outstanding products such as the Burnside bourbon and finding new committed fans for those products. However, we simply do not have the ability to fully utilize all the raw material we own. The barrel sale transaction resulted in $1.5 million in cash, of which $856,000 was used to repay a portion of the live-up loans. And as of today, the outstanding balance of that loan is only $1.9 million. That's nearly a $5 million reduction from the same time last year. Now, our near-term challenge is to execute our sales plans and spirits. I believe we have everything we need to make this business grow profitably and unlock shareholder value. We need to invest in our brands. We need to invest in our distribution partners. and we need to make wise capital allocation choices. I believe Amy will do an excellent job working with our sales team to drive results. And you'll hear more about the SPIRIT strategy on the coming calls this year, but for now, I'd like to introduce you to Amy Lancer and have her take us through results, after which we will take some of your questions.