Eastside Distilling, Inc.

Good evening and welcome to the Eastside Distilling first quarter 2024 financial results conference call. All participants will be in 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. 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 evening, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the first quarter of 2024. 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 and Connor Kilkenny, Craft CEO. 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 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 Jeffrey Gwynn. Jeffrey, please proceed.

Okay, great. Thank you, Tiffany, and welcome to our first quarter 2024 conference call. We have a lot to discuss this quarter. In addition to Tiffany, I'm excited to have Connor Kilkenny join us today. Connor joined Eastside in January as the CEO of Kraft and comes to us with an extensive background in manufacturing. Connor will share some of his first impressions of Kraft's business and outlook in a moment. Now, if you're new to the company, we operate two distinctly unique businesses, including a craft beverage services business, which we refer to as craft. And we also have a spirits business, which sells a number of great brands, including Burnside Whiskeys, Portland Potato Vodka, and Amazon, I'm sorry, Azunia Tequila, primarily in the Pacific Northwest, as well as other regional markets. Now, one particular highlight in our company is the investment we made at craft and digital can printing a couple of years ago. This is a very new technology that allows us to decorate 100% recyclable aluminum cans for the craft beverage segment. This is a very exciting business opportunity for us as one of the most dynamic and competitive spaces in consumer packaging. Now, new entrants in this category are faced with tough decisions as they chart a route out to market. It's a crowded space and extremely expensive to launch a new beverage brand. Think about it. How many new products have you come across in your daily life over the last year? Now, I'd be surprised if you actually guessed that number correctly. I'd suspect you'd be way off on that number. But the reality is many new products are simply go unnoticed. They simply show up. You may notice them briefly, but they fade away in the morass of all the new ideas and concepts we see daily. Now, for a startup reaching you, a potential consumer, Just getting your attention, let alone actually building brand equity with you, is a huge challenge. Now, there are many paths you can take to try to build your brand. Take, for example, the influencer space, which at times feels like a tsunami for me. People fill up my inboxes daily, suggesting that they can introduce us to influencers in the spirit side. Now, there is an unknowable army of people claiming to have access to this social media platform. large segment of promoters who can get your product in front of large numbers of eyeballs. For many brands, navigating that road is fraught with challenges. Now, why is this important for us? It's important because marketing around your product has changed. When I say around the product where I'm talking about, where it's sold on the shelf, the point of purchase, the moment a consumer makes a choice, that moment is huge. It's the moment of opportunity. Unlike a consumer connecting online, we have to see it, seek it out, find it, purchase it, have intent. On the shelf at retail, you're at the moment of opportunity as the consumer rolls by. They're there to buy something. So a new brand has a huge opportunity to win a customer. And I've said this repeatedly in the past, in the craft beverage space, the great equalizer here at the moment of opportunity is is the packaging opportunity. You can go like Bud Light with old, boring cans and old technology, or you can pick something that speaks to the consumer. Consumer beverage marketing has changed, and we deliver the opportunity to run circles around national brands. To see this opportunity, you need to start by wandering through the craft beer space in your grocery store. There you will see great marketing, local brands fighting successfully for shelf space. We see them win daily with data. Craft beer is not struggling. Those brands that embrace their advantage are winning. In that aisle of the grocery store, you will see can decoration in many forms. Old school, screen printed, limited colors, same, seen it there always, same design. You'll see paper labels, not recyclable. Shrink-wrapped plastic labels, not recyclable. The lighter two are difficult because they require high volumes and a lot of working capital. And in our market, you'll see a new type of digital packaging, digitally printed cans. These cans are extraordinary. They are the digital billboard that can change after 15 minutes when you drive by the stadium on the way home from a concert or a show. They can be unique. Unique for a season, for a day, for a week. They can be a special beer, unexpected, hard to get seasonal. The opportunities are endless here. Average manufacturers embracing this technology are just getting started. I started talking about this adoption two years ago. We've only seen it gain momentum. But now we finally have seen data that shows that these digital print cans are driving incremental sales for our customers. We saw the adoption expanding again this quarter. In fact, I would say the adoption is accelerating for us. In the quarter, Kraft produced a record number of cans. Connor will talk about that in a moment. Now, while gross margins were impacted by a number of factors, including transitioning to a lower-priced can contract, expensing new parts, and a price investment for a large volume, we are pleased with the performance. We expect improved margins in Q2, but most importantly, We see this business growing and evolving very quickly. Now, I'm going to let Connor talk in more detail about digital printing and craft, but I want to talk for a minute about Spirits and its performance for the quarter. Spirits had a great quarter, producing the best operating result without bulk sales we've seen in some time. EBITDA for that segment was only a $56,000 loss for the quarter, for the entire quarter. Importantly, volumes in Oregon were in line with what our expectations were, despite the clear trend of consumers trading down at retail. Now, this consumer shift has been ongoing for a few quarters now, and we've seen it across multiple categories. Also, it's important to keep an eye on agave prices. We're seeing tequila prices come off, input prices come off all-time highs, and we expect to see savings in the oncoming quarters there. That said, the tequila market is clearly facing strong near-term headwinds as consumers trade down there as well. We've barked on a multi-year effort to refocus our spirits investment in profitable segments and regions, and we will have more to report on that progress in the coming quarters. But suffice it to say, for Q1, I'm really pleased with the results. Now, I want to pause there and introduce Connor, our CEO at Kraft. And he could take you through his thoughts on the progress there and a little bit more about his background. Welcome, Connor.