Eastside Distilling, Inc.

Good day and welcome to the Eastside Distilling Report's fourth quarter 2023 financial results 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 a touch-tone phone. 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 Tiffany Milton, Controller. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the fourth quarter 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. 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 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 the Form 10-K for the year ended December 31st, 2023, 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.

Thanks, Tiffany. I'd like to add my welcome and thank you all for joining us for our 2023 year in 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 the last two years and reflect on the change and then look forward. This company has gone through a significant transformation. When I joined in 2020, its focus was clearly spirits with a small mobile canning operation that I 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 acid dyes and funded a long turnaround in the midst of COVID. We've raised capital for growth and this year completed a balance sheet restructuring. Now, I'm encouraged by what the team has accomplished over this period, but even more so about what's ahead. Now, let's review the results for last year by business segment, and let's start with the spirits business. In 2022, we substantially reduced our bulk inventory of spirits, so two years ago in 2022, primarily selling bourbon. We sold over $4.4 million of our barrel inventory. In 2022, we saw bourbon prices at very high levels and began to reduce that excess inventory, taking advantage of the market. Last year, we sold a lot less of bourbon than in the bulk form, only 800,000. 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 bulk spirits And again, it's primarily bourbon, but it ranges in age from four plus years to 17 years. So we don't have much new fill. Given these activities, sales isn't 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 flows. As we said all last year, our goal was to get spirits to EBITDA positive. That was a stretch goal. And we would do it even if we had to shrink sales of unprofitable volume. For two 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 fourth quarter of last year, in 2023, we had a spirits net operating loss of only $114,000. That's a 78% 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, and it relates to writing down a small portion of the value of our tequila business. And we're getting closer to breaking even on a cash basis in this beer segment. And we expect to make more progress in 2024 on this goal. Now, looking at spirits in the first quarter through February, nine-liter shipments is tracking flat to last year on an overall basis. However, our Portland-based brands are up significantly. The Portland-based brands are 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 first quarter through February due to the higher proportion of lower-priced spirits compared to last year. So we're selling more vodka than we are tequila. However, I will caution you from drawing assumptions on a couple 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 and Distilling owns, which is our craft services business. Specifically, our craft digital printing business had an outstanding year in 2023, printing a total of 14.1 million cans in the year, substantially more than the 4.8 million cans that printed in the prior year. 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 pre-announcing can volumes for the first quarter of 2024 and expect to print over 4.7 million cans in the first quarter. That's an 88% increase over the first quarter of last year. We are achieving this through improved processes higher throughput and an expanded schedule. 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 had moved to purchase, fill and decorate their own cans with shrink sleeves or labels. Recently, We have one 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 graphic digital can printing offers. Every can we print has our logo on it. And those cans are going places. Recent ones include 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 spiked 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 has and consumer beverage is changing. 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 where your product faces the customer. Historically, you could get away with cheap plastic wrap cans or larger customers could get away with 19th century printing 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 builds brand equity quickly. Do the research yourself. Walk the bare island. Study the cold case in your local supermarket. Ask yourself, who's positioned here? Who's in there? And you will see extraordinary packaging. But most of it is unrecyclable. Digital printing is coming. We've seen customers change their product set to use digital printing to expand offerings, seasonal SKUs, special releases. The 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 that's happening before our eyes in the craft beverage space. Digital printing 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, Kraft is the best at it. We are the best digital printer in North America. Kraft is winning customers that see the difference in execution, customer service, and quality. So with that said, it's easy for me to state emphatically, I think we're off to a fabulous start for 2024. Now, beyond the operational results for spirits and craft, we had a number of other changes that happened last year, including balance sheet changes. We lowered outstanding debt, and it's important to note that we're currently in discussions with key lenders to extend district payments, maturity payments, and increase liquidity. We're not there yet, but we're still working on it, and we have progress to make there. We also are working on remaining NASDAQ compliant. 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?

Thank you, Jeffrey, and thank you all again for joining our call today. Let's review the fourth quarter. On a consolidated basis, our gross sales were $2.1 million for the fourth quarter of 23 and $2.4 million for Q4-22, primarily due to seasonality in printing, lower mobile canning, and spirit sales. Craft sales were $1.2 million for both 23 and 22, even though we continue to improve our printed can production. Spirit sales were 900,000 for 23 and 1.1 million for 22. Our consolidated gross profit was flat at negative 100,000 for both Q4 23 and 2022. Our consolidated gross margins were negative 6% for both 23 and 22. Kraft margins had margins of negative 26% for 2023 and negative 23% for 2022. Spirits margins were 21% for 23 and 13% for 2022. Adjusted EBITDA was negative 1.3 million for 23 and negative 1.6 million for 2022, primarily due to decreased operating expenses. In addition, we recorded an impairment loss to our Azunia brand of 400,000 for 2023 and 7.5 million 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. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jay Huber, a private investor. Please go ahead.

Hey, Jay.

Oh, how are you?

Good, good. How are you? Good, good.

Got a couple questions. First on the act of money. What was the average sale price of the 300-ish thousand that you sold?

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, I'm happy to take a call later and we can give you that number.

Sure, no worries. Second, what is your canning capacity? And basically, what percent of capacity are you running?

That's a great question. So just to be clear, We do canning, 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 fourth quarter is we've been reducing our exposure beyond Portland and mobile. Our focus is in digital printing. So when you refer to canning, 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, you know, digitally print, you know, we can do, you know, photo, you know, realistic graphics to crazy, um, you know, different label types, you know, we can do one, we can do a million, we can do a lot of flexibility there. Um, and that capacity, Right now it's the capacity of one machine. So we have one Hinterkopf 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, what kind of graphics you're printing, how many changeovers you have. So with the second machine, our throughput will simply increase because of fewer changeovers and will grow. So I would suggest that you just think in your head that one machine is 25 million cans a year, two machines is 50 million cans a year, so on and so forth.

Okay, great. So if you're expecting to do 4.7 million cans, that leaves...

Plenty of room. What's impressive, Jay, about the first quarter is you're coming out of your December quarter where there's just not as much production and beverage. A lot of people have already produced what they need for the fourth quarter. People are all on vacations and out of the office. The production side, the filling side of is not at full steam yet. And so we're coming out of the fourth quarter. And in the first quarter, 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.

Okay, and also how about the mobile canning? What percentage capacity?

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 Kraft 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, a truck, and being able to go to numerous customers all over the Pacific Northwest and filter them. Our flexibility there or the capacity is constrained by people. It's a technical job. It really requires somebody who understands what our customers need. Not every product goes in a can the same way. Some product needs certain conditions. Oftentimes, we are almost like a consultant. A lot of new beverages want us to help get that product in a can, but they've never put it in a can before. It's not an easy role to fill. We have a long training program at Kraft. That business is gated by people. If you were to ask me today what that number is, I wouldn't be able to tell you right off the bat, but it would There's a lot of capacity still left that's untapped here, given our current staffing and our equipment.

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

Yeah, 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.

Okay, so now here's just kind of a thought. Why wouldn't you take your current brand, such as, like, imagine your Portland Potato brand, create a hard seltzer? You have access to that. Yeah.

That was the genius of the initial management team. That was one of the reasons Black Croft was acquired, was they were going to be a forerunner in the RTD space. And the challenge, Jay, I think, is, is what the company's 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. 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, RTDs, 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 know, you would capture in a bottle of spirits, right? Particularly in the case of Oregon, which is a control state. So we really have to be careful about you know, pointing the company in new directions that just consume 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, you know, a number of years ago when I was on your side of the table doing investing, one of the, you know, the companies that, you know, amazed me just through history is Levi Strauss. You know, Levi Strauss, you know, today has gone through a lot of transformation, but its legacy and the discipline staying focused on just serving, you know, a booming market, which was, you know, jeans that, you know, in the 19th century when people were all running for the hills in San Francisco for gold, you know, turned out to be, you know, such a strategic, you know, important move. And it was the legacy that the company was built on. So I would argue that right now, if you were to, look across our landscape. We have a business in craft digital printing that's got a huge moat. I mean, it's huge competitive barriers to entry. You can't go and find a can that's digitally printed just anywhere. I mean, there's a handful of people that do it. Basically, now we only have one technology that can do it. Right. Which is the, 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 can works down in, you know, in Texas. If you want to do it on the, on the East coast, you're going to, you know, hearts. If you want to do it, St. Louis, it's DigiCAN. Do you want to do it in the Pacific Northwest? Hardest place to get product up into given the shipping lines, you're gonna have to work with us. Otherwise you're going to use plastic heated labels around a can and eventually particularly the people in the Pacific Northwest are not going to put up with the, you know, the fact that they're non-recyclable and they're basically going to landfills. So, you know, I think that business, this business, you know, it's clear and you can probably see it over the last year or so has been the focus of the company to get this to scale and become such a critical part of our customer supply chain. We can let others build great RTVs and we're going to be the guys that are, you know, that are efficiently supporting them and, you know, helping them build their product line. In fact, I think we're seeing some outstanding new brands, and we're not the one that has to bet on one concept. We're basically, you know, have multiple opportunities to see them explode. And they won't be able to go to, you know, Ball or Crown to have their cans made because they're made they're uniquely, they're collectible. There's a handful of them and they're gone, right?

Okay, so it's not as simple as, oh, we have the, you know, 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... You do a tremendous amount of volume.

Yeah, you'd have to do it. you'd have to do a tremendous amount of volume and, and, and it'd be a really small margins. And one of the things on the operation side that's critical, uh, and we learned this in spirit is you have to be focused and you, and your first question speaks to this. You can't run plants with low, uh, capacity utilization. There's not cost competitive, right? This company did that a lot, you know, when it went, you know, years ago when we were working with Redneck Riviera, that brand, we, We basically brought, you know, whiskey all the way to the Pacific Northwest. 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, you know, for that brand. So, you look at our balance sheet, you can see the impact that had on the company. It dug a tremendous hole and lost value. So, right now, we're laser-focused on... Yeah, I remember that.

We're laser-focused on... I remember that, where it got too expensive because you were...

triple shipping and yeah right but think about this uh if you were to walk into our golf facility today and you walk in and you know sit down with the team you know connor bill mike gilgore and others jay and our you know who's involved with art um and you were to just sit there and you know stare at the sample cans that this team has it covers a wall Think about it. Hundreds of brands, right? So you're asking, why don't we bet on one or two brands that we concept and we roll out? But effectively, we're betting on hundreds of brands, some of the most creative and talented people all over the West Coast with new concepts that come into market. Some of them have done astronomically well in the last year. Watching the volumes of these new brands come to market has been, you know, an eye-opening experience for me. But to predict which one it is, which brand's going to work, you know, is really difficult. And that speaks also to the advantage of this technology. You know, in the past, you'd spend two years perfecting a brand and a concept, and you had one shot with all the money that you dumped into packaging and the supply chain to get it right now. You know, a brand will come to us We'll build them a product. They'll go out, realize it's not exactly resonating, and then there's a change. We get a new version. 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 to win market share. This will be a successful segment that's going to have some longevity with margins.

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

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 the second quarter. Frankly, I mean, our biggest risk, Jay, is working capitals. This company is consuming working capital, particularly cans, you know, at a, at a ever greater rate. Right. So as we grow so dramatically and, um, and, and bring in cans, we have to be able to generate cash and, um, and grow that investment working capital. And so we still have, as I said, a thousand barrels of bourbon, right. And a lot of this bourbon is bourbon we can't actually use. It's over-aged for our product set. We don't have a product that takes 17-year bourbon. So one challenge that we have is to redeploy assets where we can, raise liquidity where we can to invest more in capital. So to your question on the second quarter, 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.

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

That's another good question. Yeah. So when I think about breakeven, it's a function of what our can costs are, what our the margin is on the cans which i'm i'm not going to go into much on on on can margin but the other aspect of it is scrap and managing the process so if you think about it when you're you know doing you know uh you know one of the the the concepts that you have to think about is as you move a lot of cans through this machine, you can hold an aluminum can and they're very fragile. You can feel them kind of, you know, squish in your hands if you just, you know, 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's done a great job last year and putting in 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 and 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, you know, we, based on the production that we had this quarter, in the first quarter, the company should be close to breakeven, but on even value, if not generating cash. Now there might be, more issues like scrap and stuff that pull us negative. But by the time we get into the middle of the summer, at the volumes that we're expecting, assuming we have the cans to get through that peak capacity, the 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 fourth quarter, it generated... I mean, we... 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 fourth quarter, Spears only lost $75,000 of EBITDA. And the free cash flow in Spears 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 two 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?

Okay, and last question. I've taken a lot of your time. I'm sorry. Yeah. So now you shift the direction of the company. How is the board supposed to shift to get some outside knowledge?

Right, right. So we've had, yes, I got a little bit of a question. I broke it up there. Your question is, how's the board supporting this transition of the company, and does the 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 Levy Navarro is an example of someone who came and selflessly, you know, really gave to help us push the company in a good direction. And then, you know, 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. 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 was looking at who can, who can really drive the company. And we've already actually done that day inside the company. We added a, a CEO of Kraft. He started in January. 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 first quarter, 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.

Just to follow up, you're talking about adding a 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?

Yeah. We've We've been working on a financing package that we think will take care of this and inform an operating lease.

Again, thank you. I appreciate it.

Yeah, absolutely. Thanks, Jay, for your time.

As a reminder, if you have a question, please press star then 1 to enter the question queue. The next question comes from Matthew Campbell with Laraday Capital. Please go ahead.

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. So Just really quick, tequila, the spirits business has been not growing, but tequila has been a big weight. That acquisition done two or three years ago, a big weight on the business. Have we seen a bottoming of the spirit side? I know you said Portland Potato Vodka 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. And the loss that you reported Q4, are you starting to see it get closer to break even on the spirit side?

Yeah, 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 even maybe in the fourth quarter. That was kind of my own personal stretch goal of seeing that happen. And, you know, our adjusted EBITDA for the fourth quarter experience was $75,000 loss. Now, to your question, a lot of things are working in spirits. We've got Portland Potato Vodka down to the price point where it moves and moves well. We still need to lower some of our overhead costs, but expanding that margin will help. uh, pushes closer to the, to the number that I'm talking about, because block is such a big piece of a business. You know, the, the burn side is not really grown because we just don't have the money to invest in marketing with that product right now. And then the last, you know, piece that you've referred to is you're right. The tequila acquisition really was a hard, um, go, you know, since we acquired it, um, we didn't have the capital. We continue to push and grow volume at such raises 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 than we are. They're not motivated the same way we are. That's a huge challenge for any spirits brand unless they're a major. 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. That has not been you know, well-received by them. And in some markets, they've backed off of pushing our brand, right? And I think that's fair to say. But, you know, at this point, with the margins that we now have, particularly with Agave, the prices that it is now, this brand makes money. And it could be, of course, to be one of the more profitable brands, believe it or not. So I think the thing that I would say in spirits is, is staying disciplined and not letting this side of the house consume so much capital that, you know, that, that, that we can't feed it, you know, until people still see the growth opportunity that's in this company, we have to be on a, you know, on a, on a capital diet. You know, we have to, you know, you look at the stock price and we look at it together and, you know, we've got two businesses that I think are, outstanding. I think the digital campaign businesses is unique. And as people wake up to what's happening in the marketplace, it's going to be a very valuable business. And I also think that spirits are spirits business, particularly a profitable spirit business is going to, you know, prove to be a lot more valuable, we attempted to sell the, you know, one 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.

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 we look at the canning side of the business?

It's been a drag. Yeah. So it feels like every corner of this company had a problem. Mobile canning It was coming through COVID, and it has a structural problem because some of the customers start to insource their own production capability. You know, there's a number of challenges, inflation in there, labor inflation and others. There's challenges, you know, across the board. We talked about them already in 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 one. Denver was another. But Portland, we have such a strong embedded customer base there. It's a place where we learn about our customers. I think it's instrumental in the DNA of Kraft for now. But for now, it's a profitable segment of the company. It's going to continue to to contribute cash. And, um, I, you know, I think that's a important part of, of who craft is. So in the fourth quarter and last year, we had some, you know, costs associated with closing, you know, the elements of that business. And we still have some lingering costs, like leases here or there that we have to work out of. Uh, but once that's cleaned up, you know, and we, and we get ourselves organized for the foot that we're working with, then I don't foresee it as a headwind. Um, and going forward. The bigger opportunity, Matt, as we talked about, is getting the 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 second machine, every dollar of revenue added by that second machine is leveraging all that fixed cost. And so the profitability of machine two is twice that of machine one. So it's a really significant step. It's critical for the company to make to really show people how profitable this business can be.

And when do you think you'll get that second printer?

This is on top of the priority list. 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, PGA's printing, you know, with digital printing. Budweiser did it. has been doing it, you know, it's kind of flying on the radar screen. But as some of these small brands start to, you know, eat other people's lunch, everybody seems to be scrambling and trying to get in the schedule.

Thank you. Good work. You know, one of these days it will be apparent and we'll start to all be able to celebrate. But thanks for the hard work and appreciate it. Those are my questions.

Thanks, Matt.

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

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 private reporters is that we're still seeing good growth in this new technology, great adoption, and good things ahead. 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 if not, if we don't see you between now and then, we'll be reporting here shortly on the first quarter soon. All right, so thanks.

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