Beeline Holdings, Inc. (BLNE) Q4 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Eastside Distilling Reports Fourth Quarter and Year-End 2020 Financial Results. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note that, this event is being recorded. I would now like to turn the conference over to Amy Brassard, 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 Brassard 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. Geoffrey Gwin, 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 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 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 Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission. Now with that said, I would like to turn the call over to Geoffrey Gwin. Geoffrey, 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 – I'm sorry, 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 fully focused on those brands we own in our Craft Canning division. 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 Azuñia acquisition, and an increase in sales at Craft. 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-cash 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 restructuring 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 Azuñia 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 Azuñia and Burnside 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 $0.24 compared to a loss in the prior year of $0.82. 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 loss 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. 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 Azuñia 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 Live Oak to only $2.9 million. 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 actions. As we've described in the prior two calls, we have 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 a focus on building a professional platform, integrating the systems and processes, a transformation that is touching all areas of the company. Now, I'd like to turn it over to Paul, who could share more of the exciting developments here at the company and update you on our operating plan for 2021. Paul?

All right. Thank you, Geoff and thank you all for taking the time to join our earnings call this afternoon. I mean, Eastside has made great progress since our last call and I'm excited to share the details today. I have to say our biggest news to date is the addition of Liz Levy-Navarro to the company's Board of Directors. Ms. Levy-Navarro has been appointed as Chair of the Compensation Committee and will also serve on the Audit and Nomination Committee for the company. Ms. Levy-Navarro is an experienced CEO, public and private company board director and consumer product practice leader. I have to say what's particularly relevant is Liz currently serves as a Board Director for Burke Beverage, one of the country's larger wine and spirits distributors. So in addition to her extensive Board experience, Liz is very familiar with the alcohol beverage industry and 3-tier distribution. So welcome aboard Liz. What is also exciting is the progress Eastside is making to fix, build and grow the overall Eastside company. We're one of the only publicly listed craft spirits company in a category that is about to return to a 30%-plus compounded annual growth rate. I can assure you that consumer demand for craft spirits has not diminished and continues to be as robust as ever. We anticipate the category will pick up speed, as markets open up over the summer. We'll articulate today exactly how Eastside will capitalize on the category growth and how we will achieve our goals and objectives in 2021. First, before I do that, I want to report on the progress we're making to fix, build and grow the overall – so look first at what we're fixing and how we have progressed. Number one, we're fixing the balance sheet, liquidity and overall debt structure. To this end we've divested Redneck Riviera, as Geoff mentioned, which significantly decreases our secured debt, significantly decreases our illiquid working capital and significantly increases our cash balance and overall liquidity. Again, as Geoff mentioned, we're progressing with the financial transactions that will allow us to potentially pay off our subordinated notes and add an additional $1 million of cash to the balance sheet. The next step is to build investment capital to fuel growth for all of our opportunities. Now secondly, we're fixing the margin issue we have historically had within the spirits division. Last year in 2020 our Craft C&B division gross margin was 43%. However, the spirits division was only 23% with Azuñia core product well below 20%. We're now repositioning and repricing all of our spirits brands and we're now focusing on our highest-margin brands like the new Eastside brand with a 74% gross margin and our Portland Potato Vodka brand with a 44% gross margin. At the same time we're working to improve Azuñia and Burnside margins as well. The overall plan for 2021 is to increase the total spirits division margin from 23% gross margin in 2020 to 37% gross margin in 2021 and we are well on our way to accomplish this objective. And third we're fixing the company's systems and control. With the addition of two seasoned CPAs, one as the Controller and one as the VP of FP&A, the company has the benefit of deeper and faster fact-based data to evaluate efficiencies and to plan for optimal effectiveness. Now in addition to improving company controls, we're using these resources to fix our pricing, promotion and discretionary spend systems and to deploy resources against the highest ROI opportunities. So now what are we building and how have we progressed? First, we continue to build a professional platform with our most important asset our people. I've mentioned the two new additions to our executive finance team to support our CFO, Geoff Gwin which is Tiffany Milton, our new CPA Controller; and Amy Lancer, our new CPA FP&A Leader. We're also fortunate to secure an exceptional executive to lead the Craft C&B business, Michael Karstadt. Michael is also overseeing all spirit supply chain and bringing best practice spirit supply chain and has created an overall operators center of excellence for Eastside. So in addition to Craft C&B, Michael is busy helping us with all of our spirits supply. And by now many of you know about our new Chief Branding Officer, Janet Oak. You'll be seeing much of Janet's work as she launches the new Eastside brand, builds a new identity to the Eastside company and repositions Portland Potato Vodka, Burnside Whiskey and Azuñia Tequila. In a short period of time Janet's efforts have contributed to explosive growth over her tenure and in the last few months. Just this week, we've recruited a world-class SVP of Sales for the Spirits division Ray Wexler [ph]. Ray is a seasoned beverage sales executive with experience at Diageo, Red Bull and Jay Lauren] [ph]. The addition of Ray brings Eastside a well-balanced sales leader that understands how to build brands through a profitable, focused and strategic sales approach. Secondly, under building we're focused on building the Craft C&B business. With Michael in place and up to speed, we're building a solid platform for Craft C&B that has expansion opportunity. Michael is focused on the total alcoholic beverage contract manufacturing category as our competitive set. And this means the size of the prize is significant, we can build a plan that offers high margin, high growth and accretive investments. The resources we invest in Craft have and will offer a positive ROI and a high conversion to free cash flow. For 2021, we have two to three opportunities ready to go pending investment capital allocation. And third, we're focused on building our spirits brand portfolio. When we deliver our 2021 plan for the Eastside brands we'll not only achieve a 74% gross margin as mentioned, but also over $600,000 in gross profit. And we will have created a valuable brand and a flagship for Eastside Distilling. Just this last week, we've shipped over 100 cases of our new Eastside Lion's Rye Whiskey to the distribution centers in Oregon. So we're up and running and well on our way with the Eastside branded product. Now in addition to the Eastside branded products, we're focused on Portland Potato Vodka. Currently, this brand is growing double-digits with a gross margin of 44% as I mentioned. This brand merits focus and investment. Four times distilled in our new forte cork bottle, the product is a hit with craft-oriented consumers and we believe can be our first brand made $10 million in revenue. Now for Azuñia, it's important to increase our gross margin on Blanco, Añejo and Reposado from below 20% to above 30%. The Azuñia Black product on the other hand is a fantastic handcrafted tequila with a gross margin over 50% and will be the near-term focus in 2021. The tequila space is very competitive, but the category is growing rapidly. We need to get ourselves in a position of profitable growth with a concentrated geographic focus to win with tequila. We'll have more on our overall tequila plan at our next earnings call. And last, but certainly not least, for the Burnside brand of whiskey products, we'll focus on Black and Blue Label. Janet Oak along with our head distiller created a new Black Label that is a bourbon cask double-barrel rye whiskey. It's just delicious. In addition, we'll be offering a barrel-strength tucked in reserve 10-year bourbon. The focus on the premium label to shift our gross margins on Burnside from 26% to over 30% and eventually over 40%. Now let's look at how we're going to grow in terms of our objectives and strategies. And with that let's look at our revenue growth objectives for 2021. For the overall company, our plan is to grow revenue plus 22% year-on-year. Now this is without the Redneck Riviera brand. The spirits revenue portion of the 2021 growth plan is plus 30% year-on-year, which exceeds our craft spirits category growth forecast projection of 15%. The primary revenue drivers for this growth will be the new Eastside brands, Portland Potato Vodka and Azuñia. Now for the other division, the craft revenue portion of growth for the 2021 plan is 17% year-on-year, which is the beverage manufacturing category growth forecast is projected at 8% to 9%. The primary revenue drivers for Craft will be the two new truck lines added in late 2020 and the new customers that will onboard in Q1 and Q2. Looking to gross profit, our growth objective for 2021 is planned to be plus 53% year-on-year, again without Redneck Riviera. The spirit gross profit plan for 2021 is plus 213% year-on-year, driven by the addition of the new high-margin Eastside branded portfolio and our efforts to reduce deep price discounts across the board. The Craft gross profit plan is plus 19%, which correlates to a 20% increase in revenue. And then looking at SG&A, our growth objective for 2021 is planned to be actually a decrease of 23% year-on-year. The spirits’ SG&A plan for 2021 is planned to be down 31% and that's driven by operational efficiency, with a reduction of overhead and the reduction of endowment and professional fees and, of course, all the good work Michael is doing with his center of excellence and integrating spirits into the Craft C&B business. And then the SG&A for Craft for 2021 is flat year-on-year. So very compelling growth objective. The overall growth strategy to support this plan will be all about concentration of resource. For Craft, we'll concentrate our efforts in Oregon, Washington and Colorado. These three states equal 100% of the Craft gross profit. For spirit, we'll concentrate our efforts in five states: Washington, Oregon, California, Texas and Colorado. And these five states equal 82% of the spirits gross profit. Now in addition to the fix, build, grow action plan, I want to briefly share our five value pillars that will drive our strategic path forward and create extraordinary value for you, our shareholders. The first value creation pillar is focus; first locally, then concentrically, to ensure we build a sustainable foundation of our business and a consistent stream of earnings for our shareholders. We've learned that a solid craft-oriented business is not built in a rapid national burst to gain distribution in any cost. So we'll focus on a core set of states and a core set of consumers, as we concentrate our limited resources. The second value creation pillar is proficiency. Combining the Craft C&B division with the spirit supply chain, to create an operational center of excellence. The competency of Craft C&B operations can bring effective and efficient supply chain execution to the spirits division, as we buy, make and distribute. This not only works as we focus into 2021, but it also work as we expand in 2022. In addition to our operations center of excellence, we've also created a combined planning center of excellence, for finance, sales and marketing, spearheaded by our FP&A VP. This area of excellence is focused on forecasting production planning, cash requirements and inventory management. The third value creation pillar is accretive growth that includes those initiatives that optimize our investment capital with the highest return and cash flow. Craft C&B is one of those opportunities offering high-margin, high-growth and high-cash conversion. The second opportunity is with premium high-margin spirits brands like the Eastside brand with a gross profit of 74% and Portland Potato Vodka with a gross profit of 44%. The fourth value creation pillar is brand differentiation that will propel us to develop a unique identity for each of our brands. We seek to connect our brands with our consumers in experiential manner. Janet Oak, our Chief Brand Officer will be sending you -- each of you our updated brand book for our spirits portfolio that will highlight our progress in this area. I have to say this is one of the most exciting areas of progress we've made to-date. And finally the fifth value creation pillar is product innovation. We will consistently focus improve and/or create products that offer farm-to-flask ingredient, handcrafted production and a premium taste experience. Although unique brand identity for spirits is vital, corresponding unique premium product is equally as important. So in summary, we're fixing, we're building and we're growing Eastside Distilling with focus proficiency, accretive growth, brand differentiation and product innovation. Our plan this year is clear. It's to achieve plus 22% revenue growth, plus 53% gross profit and decrease SG&A 23%. We're very excited about the future and we thank you for your time today, your interest and your investment in Eastside. We'll now open up the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Harold Weber with Aegis Capital. Please go ahead.

Hi, guys. How’re you doing? One of the questions I had wanted to ask you was, if you could give an idea of the -- you talked about some of it about the brands that we're going to focus on as far as expansion the whole stable that we have. Obviously, you're going to focus on a number of them. And the other ones, I don't know exactly what it will be? So I was hoping you could clarify that a little bit and as far as how we're making out rolling this stuff out of East Coast?

I guess, I can take that, Harold. Thank you. Well, I mean the one brand I didn't mention and that's conspicuously absent is Hue-Hue. It doesn't mean that we're not going to keep Hue-Hue. But that usage occasion in coffee liqueur or coffee rum is fairly minimal and small relative to some of the other bigger growth areas like whiskey and tequila and vodka and so on. So yes, we're going to focus on vodka, tequila and whiskey. And those have been typically, the three biggest growth categories and the three brands Azuñia, Burnside and Portland Potato Vodka. And the reason, I spoke more about concentration is because we have very limited resource. We're a small company. We can dream about expansion, but we also have to maintain velocity per point of distribution. And that's been a significant issue. And we've chased distribution with a lot of money, which caused significant cash burn and a high net operating loss. So that strategy didn't work. And now we're employing a strategy that's a bit more focused and concentrated, that will get gain and keep distribution and it will attempt to bring in loyal consumers and build relationships with them in a specific area before we move on. So that seems to be more in the West right now. We're not going to give up any distribution in the Midwest or East. That's going to be more of our venture area for the time being. So we'll continue to leverage our distributor relationships, our key account relationships. And we'll continue to look to gain distribution, but not in the same focused and rapid manner that we were in the West.

Okay. How is -- what's the reception been on the new what you call small batch premium Eastside products?

Well as I said we just got 100 cases of the new Eastside rye. We're hoping to give you all samples of that at some point, so you can try it. But anybody who've tasted our sherry cast that's aged in 70-year-old sherry cast barrels that will retail for $148. They just are overwhelmed with the product quality. The single...

How much capability do we have of supplying?

Well as I told you we have -- we did have 8000 barrels. Now we're down to 4000 barrels. So some of the more aged whiskey is not as prevalent but we have significant supply 4000 barrels and a significant part of that is the aged whiskey. And I don't have an exact number for you...

No I don't want an exact number Paul. So the bottom line is that, if we have plenty of demand we can supply it? We can fulfill them?

You got it. You got it. And the idea is, it's limited edition now. and we're making one batch but that doesn't mean we can't make another batch. And that doesn't mean as things grow we can't make it a permanent product.

That's right.

That -- what's in the back of our mind. So as you think about this business forward, you should think about a brand. And the products we're focused on are the three whiskey the single-malt sherry cask, the bourbon and the rye. And those are the highest margins and those are the products we in the back of our head would like to continue.

Good is -- what I see on my end over here is a giant demand for that stuff if we can get it out there. So as long as we can supply it I think it would be very successful.

And we're not saying we won't go to specific areas in the East or the East Coast or the Midwest but we just want to be focused.

Okay. And I am assuming the same thing goes for the substantial rollout it sounds like the Potato Vodka? Is that right?

Yes. Well the Portland Potato Vodka is we have -- if you recall, I mentioned that we had shifted the packaging into the forte bottle which is the same bottle as Burnside. We put a cork on it because it had a screw top and we just didn't feel the screw top reflected the high-quality distillation and ingredients that we put into PPV. And things have been as I said double-digit and really over 30%. It doesn't stay that way every week, but the demand has been significant. And the more we focus on the craft nature of that product the faster growth. Now what Janet's done is she's come up with a whole identity which you'll see when you get the brand book around the breadth of fresh air and around the coastal communities. So we'll be launching in California immediately as we speak into some of the surfing communities and building distribution there testing our positioning our pricing. We're also trying to improve margins on that brand. And as we see success then we can roll.

And our next question will come from Ross Taylor with ARS Investment Partners. Please go ahead.

Thank you very much. Some of my questions were just answered, but I wanted to get I haven't had a chance to go through the K yet. But can you talk about the Canning business as a separate business what kind of revenues, what kind of operating margin, what kind of free cash flow it generates? It really looks to me like you've got two different arms to this company and that eventually the Canning business while it offers some really interesting growth opportunities will become -- could become a sort of a bank to finance the expansion of the brand business. So I'd love to get a better understanding of the economics of the Canning business.

Geoff do you want to try that?

Sure. Thanks Ross. Yes the Canning business is just -- is a phenomenal business when you look at it on a cash flow return on capital basis. I mean think about business has very little CapEx. It's got some working capital, but mainly it's in the form of building receivables the seasonal business follow the seasonality arguably could be less so when you completely want and pull out. We just got out of the weakest season of the year so it wasn't really a big driver in the first quarter. But I mean Paul spoke to it in the script. I mean we see strong gross margins above 40% when this thing is fully going. And we're already into a season where we're picking up here where we have almost full utilization of the equipment. And we're going into the year with two more production packages than we had last year two more lines. The Craft Canning business is misunderstood by the market, I think because people think about co-packing think about low margins. But we're serving a customer that is in desperate need of what we offer. I mean think about a small brewer, who starts brewing in his backyard or his garage and you make a business out of it. And he gets to the point where he realizes that he has a route to market. He has a fan base and all he's been using is the routes to market through barrels and on-premise through kegs. And then, we get -- he gets to a critical mass breaking when he can start to can. Well, his choices in canning are limited. He can't really deliver his product to a large co-packing facility to produce because he's not producing enough. He just can't afford a canning line. And so, there's a space there on the smaller side, where there's really outstanding margins and that's where we're attacking. And the customer growth has been phenomenal this year. It was phenomenal last year. One of the things that we're going to do better this year is managing the life of that customer. I mean, Craft literally had no salespeople basically. And we can do a better job of growing with our customers, offering them more product, helping them along. And we've already started with some partnerships with some of our key customers. And you'll see that show up with Craft's numbers. So we're excited about Craft.

Can you talk about what is the revenue potential if you're running full out? And what is the revenue add, you would expect from a potential add from the two new lines you're bringing on? Are all lines created equal?

It's a great question. But think about it and we spoke to some investors about this at the ROTH conference and I think, we've talked about it in the past as well is one of the ways that this business becomes more profitable is the efficiency. And imagine, we're bringing production to the customer, right? So we're moving to the customer. And if we have a long route to the customer and then we service them and then we come back, we have to manage the turnaround and do it again the next day to a new customer. And so, the -- part of the way that this business becomes more profitable is by efficiency, right is by really doing a better job planning position assets. So one of the strategies that we're employing this year is building around this hub-and-spoke system and moving assets around -- I mentioned the partnerships in the last response to just about some of our customers and being able to actually partner with people and move our assets further into the field, so we don't have these tremendously long unproductive transit times for the teams. But to answer your question, specifically no, they're not created differently. There are some investments we can make this year to dramatically grow. It's not built into the plan or the numbers that Paul talked about. And that's something that we're opportunistically going to try to attack. And that's the incremental services that we could offer that have very high margins, the customers will find very important and attractive. And this business has a number of different directions we could grow. Volume, price/mix, it's really a fabulous asset to own. And the team is outstanding.

Well, actually I can answer that specifically. The current -- well I mean, just in terms of your question about, what is the output, the output of the assets that we currently have could do $15.6 million, if they ran at 100% utilization every month of the year. But the issue with that is this year, we're at $10.2 million, because as Geoff said, we're on a bell curve and we have the shoulder periods. And the thing that really restricts us is, it's mobile, so it's got proximity constraints. But if this business were to operate at 100% utilization, it would deliver $15.6 million. So, the thought is, it's hard because you have to be able to expand these mobile trucks into different markets or take more market share in your current market. So -- but the big opportunity, I think, you hit it right on the head is, this is a gem and we didn't really talk about the business model or the investment thesis overall. But if we had some time and I won't take a lot of time on the call maybe separately, I think the business model works extremely well with Craft. One, you mentioned one point. It can really fuel free cash flow that can fund spirits and not create a big cash burn for the enterprise. And second, I think it looks different. It is different. You're absolutely right. But what if we start getting in the RTD market and we have a canned production division? And what if we do premium RTDs? And what if we could an organic Azuñia margarita? I mean, already the sales team on please get us that. And we have a number of other ideas. So I think, as we look at the longer-term strategy which we're going to be coming to you in the summer, a five-year view and a three-year plan and how can we really rev up the engine here, I will be looking at that exactly what you said. What is the complementary compatibility of these two? Where do they diverge? Where do they merge? And how do we leverage them to accelerate growth?

Thank you. And a second question. In the past, the bottling and production was perhaps I'll say kindly less than efficient. So where do we stand? And what steps are we taking? What steps don't need to be taken to get that to where you think that it's operating at full effective efficiency?

Yes. We're well on our way. I mean, the first thing we did was take out all of the Redneck Riviera inventory that we had. We had bottles. We had barrels. We had a lot of space that wasn't really utilized. So we're going to cut our footprint more than in half, number one. We're going to be as I said it's by make and distribute. So we're concentrating our buying and our sourcing into one area, because there's obviously more efficiency and scale. And we're putting more policies in place three-bid systems and more things that will create lower cost on the purchasing side of raw material. And then in the manufacturing side, we're going to be actually closing down the Milwaukee facility eventually in three months, four months and we're going to integrate it with Craft and Craft can actually start to become a contract manufacturer for bottling spirit, which is in high demand. So we can fill out our capacity and utilize our full capacity if we need be, which will drive down fixed overhead allocation. So I'd pay to give you -- I think we're like maybe 50%, 60% where we want to be once we close Milwaukee and we automate the bottling line, we'll be pretty close to 100% where we want to be. And there was a big discussion on outsourcing. Personally, I think we have a lot more flexibility if we want to be innovators and we want to be fast to market and we want to be creative by producing our own product. We just have to be efficient. So I'd say we're 60%, 70%. And maybe by the next earnings call, we'll have some more news.

Well, that's a pretty exciting progress. Thank you very much. You guys are doing -- it's been I know a hard road, but you've earned many accolades you get for us.

Well, thank you so much. We're working for you guys, so you provide the capital we get returns.

Thanks. Thanks a lot.

And our next question will come from Matt Campbell with Lorde Capital [ph]. Please go ahead.

Hi, great job. And I just want to support what the previous questioner said. You guys are doing a really good job of streamlining -- rightsizing the balance sheet, streamlining the business, focusing on the profitable business opportunities and really bringing on very, very complementary people. It's great to see you bringing on people that have phenomenal industry experience as well as this new Board member. I just want to congratulate you guys on a lot of heavy lifting and really excited about what you guys are doing, because I'm starting to see a real turn here and I'm excited. So keep up the great work.

Thanks Matt. And I know you were -- when we talked before you were interested in sales leadership. So we've checked that box and we're really -- that's going to be -- I don't think we realize how that can accelerate overall growth.

No, I'd say you guys are doing all the right things. And again really excited to see that we've done a good job of taking -- Redneck was exciting to look at, but it wasn't profitable for investors. And by getting that off of our -- out of our business and by focusing and streamlining and cutting the balance sheet that so much it's exciting to see where we're going. So I applaud what you're doing and keep your heads down and good things will come.

Thanks, Matt. Just as a quick follow-up to that for investors that are on the call, the 10-K that we're releasing has a tremendous amount of detail in it. I mean, the management team has gone to great lengths to try to exhaustively give you information to help you follow this transformation. And it's hard to see. Midway and I think it's page 50 or so, you'll see we've pulled out the Redneck Riviera income statement and balance sheet and you can literally see for yourself, how effectively unprofitable it was. But the other aspect about it was how much capital has been used. And so I think it's important for you to take some time and think about that and think about how the company is going to operate without that. The other thing that I did want to call out is we did say that we've made sequential improvement in the company's performance and it's hard to see that in our weakest quarter in Craft and it's hard to see that at year-end when we have a lot of -- what I like to think of as a one-time item. So while we've reported a negative EBITDA number of $1.1 million, which seems like it's worse sequentially it's actually not that far off in the sense that we had a number of professional fees. We had fees around closing the Redneck deal. We also cleaned up inventory at year-end. As you can imagine exiting a number of SKUs preparing for all these new products we did quite a bit there. There was some compensation adjustments also some settlements that we took care to being cleaned up on the balance sheet and a TTB item, which is a subsequent event I believe. That total there is over $650,000 that I would consider would be reoccurring necessarily in expenses. So, the company is starting to reflect the performance and all the work has been done over the last year and into the fall. And as I said in my script, when volume picks up in this company with the new products higher-margin dollars there and Craft really starting to run, you're going to see really improved performance and it's going to be easier to see.

And our next question will come from Ross Taylor with ARS Investment Partners. Please go ahead.

I thought I'd break mine into two pieces not one. Thank you, Geoff. You actually just answered a number of the questions I wanted to ask about the nature of the one-time items and the like, and kind of gave us an idea what run rate could be. We can figure it out. It sounds like if we back step out that's in the K. Also, will you walk us through what brought you to the idea of coming out with this kind of premium prestige brand? And, you talked about very high margins. Are those margins sustainable if you decide to make this an ongoing product, or how much of the margin is, because you basically have some really valuable brown liquor in barrels places that's just not being kept on the books at anywhere near what it actually is worth when you mix it and bottle it? And how much is, because you can get out there and you're selling at radically different price point?

Great. Actually Paul, let me take a stab at this. Paul really answers this question better than I could, but I secretly love to jump in there with my thoughts on how this product came to being. And I think it's a great segue way into how this company is changing. And that is early on when Paul joined the company, both he and I went out the Portland. We spent time with the team. We were all over the business. And Paul took a question-and-answer period in the barrel room. So, if you've ever been to visit us, we had barrels -- we have barrels everywhere, barrels that have just been sitting there for what seemingly forever in Milwaukee. And after that time, we went through and we were working with the production staff, and we started pacing some of the one-off products that had been there for a while and just had been forgotten, literally forgotten by the company. And the reason why they were forgotten is because the company spent so much time trying to keep Redneck going at the velocity across the entire company, and they were trying to figure out what's happening with Azuñia and why the margin's affected. And so, what was fascinating is literally under our noses were gin and you start tasting these things and you realize this stuff is, as Paul said, delicious. It's incredible. And then you begin to realize, wait a second, Eastside builds amazing product. But as we all know, and the investor community fairly enough thinks of Eastside as something that's bumbling along here for the past few years. And it became clear, at least to me, that this was an opportunity for us to really show the market that we have to build. We have the people, we have the asset, and we have the knowledge to really build phenomenal product. And I think it's been great having Paul join and with his experience in spirits the team that he's built, they begin to kind of open the rest of the team's eyes to what we have and what our path to success could be. So, it's a great story. And I think you'll really appreciate it when you taste it. Paul?

Yes. I mean I'm not going to repeat it all, but it really gets exciting because Geoff's right. It was basically a tactical response to a problem, because we had all these barrels and all these bottles. And we said, well, how are we going to move them out fast enough? And we said, well, we got to create a new brand. And that led -- sometimes the biggest setback fleet to the biggest breakthroughs and that led to the biggest aha, which was we need to re-brand our company. And we're always apologetic about Portland and our origin, and everyone's like, oh, Portland sucked. And then they found out Portland is powerful in the Craft business. It's like a god. And so, wait until you see our new website, and wait until you see the new brand book, and give me a ring, because it is so different. You won't even recognize the company or these brands. And so, what the Eastside brand did was inspire us to look at the business model differently than what we were doing and actually how powerful it is. Because we're not distillers, but you know what we're doing that's just phenomenal is we're buying great product. We're getting great barrels and we're aging and blending the product to perfection. And that allows much more scale than a traditional craft company. So I'm not going to go into all that now, but Geoff's absolutely right. We went from tactical, let's get the barrels and bottles out to a strategic platform of branding, to an aha of a business model that we can grow, because craft is usually very local, right? They have tasting rooms. They have a little distillery. But just imagine if you can bring farm-to-flask ingredients that are local and indigenous with big national brands. So you don't give up the artists, you don't give up batch produced, you don't give up craft, but you could do it with a national brand. Nobody has done any of it. So, this is for another day, but we really could enter into a proprietary space that is between a Diageo whoever else, I mean Bacardi, all those guys that are doing stuff on big scale and little small craft distilleries and go in between and push out geographically to Harold's point. But that might involve a little more investment capital. But this thing has really inspired us to a whole new level of action.

Well, and that would be capital would either be coming on success or could be funded depending on how the Canning business plays out? I do want to say -- I have one more question, but I do want to say I'm from Seattle and Portland does suck, but California sucks more. So, the last question I would ask speaking of California is tequila. And kind of walk us through the agave market. Things have gotten kind of crazy it seems like in there. A lot of agricultural crops in Mexico seem to have shot through the roof. I saw even this last in March I guess avocado prices nearly doubled and coming out of Mexico and the like. But that's obviously been an impact I would think in that business particularly when you have brands that service flow and high-end agave costs seem to have gone up a lot. Can you walk us through that? And does it not kind of how -- what the game plan is going forward?

Yes, I don't know-- Geoff do you want to start?

Yes, I'll start with agave and then Paul can really talk about the other piece of the problem. I mean it really is a cost too -- or a product cost too much as it's structured now and we don't sell it right. And Paul can really answer the -- don't sell it right question much better than I can. But that's one of the things we're working on immediately is understanding and charting a path forward where we can get the margins right in the business. Now, you can do that in a number of ways. You can do that by raising revenues, right, raising the price point and you can do that by pushing on expenses. And we're going to attack both sides of the problem and we're going to figure it out. I still think that this is -- I still think and I think everybody in the company thinks that's looked at it this is an outstanding opportunity. And it gets to the core of what you start turning the pays and doing which is making great products. Our partners down there are phenomenal at what they do. They really are. If you've tasted the Azuñia Black which competes right out there with Don Julio, highest SKU, I mean it is literally better than Don Julio in my opinion. I mean it's a tequila if you haven't tasted it almost tastes like a bourbon. And the problem is we haven't been able to get people to taste it and we haven't got -- taken into the market in the right way. But on the cost side, we're going to -- our team is working on lowering the cost and not relying on agave moving down. All tequila companies have this challenge. We have it specifically with our partners because the tequila that we're using is super-premium agave. It's a seven-year agave. It's aged and black. It's extraordinary and it serves a super-premium market. But -- and here's a teaser probably part of Paul's response as well we don't treat it that way when we get in our hands, right? We don't take it to the market with the same focus of what we have in hand and we've been selling it as a well drink.

So, this is true sipping tequila that you've been basically has been marketed as just some place in the lower end of the shelf?

Right.

Yes, there's a couple of issues, but I was in the coffee business and coffee is up there with pork belly and orange juice like in that remember that Trading Places movie. But agave nectar -- agave should be right there with it because as supply increases then cost comes down and as demand decreases, the price comes down and supply decreases, and price goes back up. So, the agave market to me looked like the coffee bean market. But so that's number one. So, there's a lot of fluctuation in the cost of agave. The second issue is just that we have an ultra-premium product. It's not an issue. It's really unbelievable. I mean I haven't -- it's been COVID, so I've been a little restricted, but anybody I would talk to has tasted Azuñia is just like, man this is great. But we're not marketing that product. We're basically putting it in the well and trying to price promote it and sell it. And so we're making these depressed margins. So, what we have to figure out is how do we make a better margin? And that's really a positioning, a branding, and a marketing challenge and we're on some with the sales force the other day and we're thinking of ideas. We have this really cool agave syrup. And somehow you've got to start bundling things or packaging things or offering different products in a way that allows you to drive your margin up and to present the product in a different way. Look tequila is all about -- it's a different usage occasion a different mindset, right? If you're sipping bourbon by the fireplace that's very different, if you're doing shots of tequila at the bar. And so we have to capture a specific identity that resonates with consumers and tie in that premium product in a way that can command a higher price. There's the gold. I mean on the manufacturing side, it is what it is. Nectar is going to go up and down and we're going to squeeze them as hard as we can and find ways to be more efficient and effective. And we will. But we also have to look at the branding and the packaging and start enjoying -- excuse me some of explosive growth.

It sounds like social media is going to have a big role to play in this place so you can get it out in front of people who might be sort of influencers who can bring people to the brand. I would agree the hardest thing about spending big money for liquors. If you don't like it, you're into it for a lot. And so obviously, it seems that that would help a great deal of getting people -- getting things out there where you get actually free marketing or nearly free marketing by getting it in front of people. If it's that good I think that perhaps once things start to open up and go you can take it around some places in la-la land and find people who might actually drink it, like it and say they like it.

That's correct. And one thing that I think will resonate with all the investors have been around a lot longer than I have is one of the reasons that I've been told that we acquired Azuñia and Azuñia was happy to come to Eastside was to piggyback on the back of Redneck Riviera. Well if you think about it, Redneck's strategy was that national burst into off-premise chain account that are very expensive and very competitive. And Azuñia wanted to piggyback on that and they have to a certain extent, but except on-prem. So they've been going to on-premise change in the well that are very competitive and very expensive. So that's why I said in my script, our strategy is up and down the street which is trade jargon for local liquor stores and local on-premise accounts. There's an extraordinary amount of revenue there for the taking. So it's not that we're going to cut off our nose here. I mean, there's revenue for us. It's just how we want to achieve it. And my message is and the strategy we're going to employ is, is spending our dollars that bring us the return. So just to get a product into an account at a low price is not sustainable. I've been in marketing for 40 years. Price, if you're going to compete on price then you better be the lowest. I mean that's what the Northwestern business call it. There's differentiation and then it is price advantaged. So if you're really going to compete on price, then you need to be the lowest-priced product and just increase volume and go through scale and efficiency. So -- but that's not who we are. So we really need to think about up and down the street concentration of efforts and the brand will grow. Tequila is on fire. We just need to be relevant and we need to have the right margins and then we can invest.

Well I will say my parting comment will be it's refreshing to see. You're right this company has kind of almost been like a blind man wandering around in the room, a dark room and something that we [Indiscernible]. But it seems at this point, we might actually finally have taken off the blindfold and started to run this business like a [Indiscernible] real professional company. So I appreciate that effort.

Thanks Ross. We're very excited about the year. Yes.

Thank you.

Yeah.

And this will conclude the question-and-answer session. I'd like to turn the conference over to Mr. Block for any closing remarks.

Well I'd just like to say thank you. And now it's time for us to get back to work and deliver results. So cheers to everyone. Appreciate you joining and thank you for your interest. And we can continue the conversation at another time. So cheers.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.