Beeline Holdings, Inc. (BLNE) Q2 2023 Earnings Report, Transcript and Summary

Good afternoon, everyone and welcome to the Eastside Distilling Reports Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Tiffany Milton, Controller. Ma’am, please go ahead.

Thank you. Good afternoon, everyone and thank you for joining us today to discuss Eastside Distilling’s financial results for the second quarter of 2023. I am Tiffany Milton, Eastside’s Controller. And joining us on today’s call to discuss these results are Geoffrey Gwen, the company’s Chief Executive Officer; and Bruce Wells, Craft Controller. Following their 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 maybe 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 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, 2022 filed with the Securities and Exchange Commission. Now with that said, I’d like to turn the call over to Geoffrey Gwin. Geoffrey, please proceed.

Okay, great. Thank you, Tiffany and welcome to our second quarter 2023 conference call. We have a lot to discuss this quarter and I’d like to encourage you to follow along with me as I reference a few slides about the business and our progress this quarter. As Tiffany said, you can download these slides from our website under the Investor Relations tab. Now, if you are new to the company, we operate two distinctly unique businesses, including a craft beverage services business, which we refer to as Craft Canning + Printing and we also have a spirits business, which sells a number of great brands, including Burnside Whiskies, Portland Potato Vodka and Azuñia Tequila. But I want to start today with a little background on Craft, because, in my opinion, it’s probably the one segment of our business that is not widely appreciated nor do people understand that really the potential here. Now, Craft is poised to carve out a unique position in a fast growing segment of the Craft Beverage Packaging segment. It is in a lead position to be the preeminent provider of digitally printed aluminum cans for Craft beverage companies in the Pacific Northwest. And so I want to start our conversation on perhaps by turning to Slide 3 and we want to talk about that opportunity. So digital can printing is revolutionary. That’s a bold statement. But after watching this opportunity to develop, I’m confident in that statement. The Craft beverage category, and I’m included in this, the beyond beer category is one of the most dynamic and competitive spaces there is. And you have seen brands come out of literally nowhere, and this large legacy brands a seat that you would have predicted. Brands that don’t connect and evolve immediately lose distribution. Now here on the slide on the left, you can see there are a number of benefits of digital can printing. But probably the most important is what is listed below here. And that it’s a technology that helps brands win and win big. It allows marketers to elevate their marketing. It’s a critical tool that allows you to win in the marketplace. Now, let’s look at this in a bit more detail on the next slide. This is Slide 4. But first this technology allows for design work that is extraordinary. Take a look at the pictures on the left. The ability this machine has to print is perfect for storytelling. It also allows for new packaging elements crossing into sensory elements that you just don’t have in aluminum cans with texture printing. And if you have ever held the can that has texture printing on it, it’s pretty impactful. But the two elements that are right are the critical ones that I want to focus on for a minute and that’s the ability to use digital printing to shorten new product introductions. Now a concept you have got to get your head around is historically brands were developed with huge investments, very long lead times with consumer research and testing. You had one shot to get it right and you needed a large pile of money. Now with digital packaging investment that’s low like ours, you are allowed to approach it with a different strategy, more of a point and shoot redirect approach. This adjusts and repeatability allows you to be a brand creator that improves their chances of success. Lastly, I want you to consider the statement and I am going to quote here, which probably no one should ever quote, but I think it proves my point. When many years ago, they said everything in the entire world is collectible. Yes, that’s proven to be true. Think on it. We’ve moved from not just trading cards to clothing, to shoes, and yes, even beverage cans, artwork, can be elevated by limited quantities, high differentiation and become collectible. Digital can printing facilitates that. So the design proliferation we are seeing at craft is just stunning, and we are seeing winners emerge using our technology. Now let’s turn to Slide 5, and let’s address the question are consumers adopting this technology. And the simple answer to that is yes. We printed over 12 million cans since we started this operation and the chart here shows the ramp-up by month, and we’re just getting started here. We still have a long way to go on volume, but we are getting better daily. Now it’s important to remember, when we win a customer, we are winning their supply chain. It’s a huge commitment and a show of trust to give us that supply chain. As you can see in Q4 of last year, we realized that we needed to make some incremental investments in our printing plant. We made those to ensure we can meet our obligations to customers, and we had volumes decline as we prepared for this year. Now we’re at a much higher utilization levels. Now this next slide shows the magnitude of the EBITDA improvement on top of perhaps 43% increase in sales. So we expect to see even more improvement in the third quarter. Craft is on its way to generating cash, and we plan to grow it through the year and into next year. Now let’s turn for a minute and talk about spirits on the next slide. This is Slide 7. And I’d like to start my comments by saying this turnaround has been a challenge, but the rewards for getting this right are significant. And in this quarter, we made progress. Backing up for a minute, for those that haven’t enjoyed this long painful turn, I’d say in summary, the company has had a poor history of investment in large-scale branding, sales and distribution. But to summarize it in a slide, when I first joined the company, we lacked focus, we lacked financial resources and a tested vision to win in a very competitive business. We were a national company, and we had very little cash to support that size business. When I became a CEO, I pulled out an unpopular play from the playbook, and that is to shrink the money-losing activities and focus in investment areas where we can win at our scale. So you have seen volumes decline there, but you’ve seen performance improve. So let’s turn to the next slide and talk about that improvement. So on this slide, you can see the EBITDA improvement on lower volume over last year, and I’m happy to go into this in more detail in the question-and-answer section, but I believe we can see even more progress in the back half of this year. So here are my three goals for spirits. I want to invest in marketing that has been tested and works. We want to improve our cost position, and we’ve gone a long way to doing that already, and I want to drive this thing to become EBITDA positive. And from this level, achieving these goals, we can start to grow again, but we’re going to grow wisely with adequate marketing, sales and distribution. Okay. So my last slide before I turn it over to Tiffany is to summarize our consolidated results. So on top of craft and spirits, we have a small corporate segment, which we used to – we call out so you can see really the profitability of the two businesses. And when we consolidate all three entities together, we report those results and we’ve had significant progress in that as well this quarter. If you take out the bulk inventory sales we did last year, the same period for spirits, those comparable numbers look much better. And we did grow, and we did see meaningful improvements in EBITDA year-over-year, again, ex bulk sales by over $1.2 million. G&A cash expenses have sequentially declined each quarter since I was elevated to this role. That’s 18 months of declines. This quarter and in July, we also improved liquidity, raising a total of $1.3 million in equity through the ATM facility that we have, and we continue to work on our debt for equity swap. We’ve made good progress, but we are not at the finish line yet. So the way I would characterize it is we’re halfway through a big year for the company, and I have high expectations for our team and the results for the back half of the year. Happy to take more questions on any of this material. And for now, I’m going to turn it over to Tiffany. Tiffany?

Thank you, Geoffrey, and thank you all again for joining our call today. Let’s review the second quarter. On a consolidated basis, our gross sales were $2.8 million for the second quarter of ‘23 compared to $5.1 million for the second quarter of ‘22 primarily due to barrel sales of $2.6 million in Q2 of ‘22. Excluding bulk spirit sales, gross sales increased $200,000 from the prior year quarter. Craft sales were $1.9 million for ‘23 and $1.4 million for ‘22 as we sequentially improved our printed can production each month during the second quarter, as Geoffrey referenced in Slide 5. Spirit sales, excluding bulk were $800,000 for ‘23 compared to $1.1 million for ‘22 due to lower distributor sales. Our consolidated gross profit was $26,000 for Q2 ‘23 compared to $1.5 million for Q2 2022. Excluding bulk spirit sales, gross profit increased $200,000 from the prior year quarter. Our consolidated gross margins were 1% for ‘23 and 30% for 2022. Craft had margins of negative 3% for 2023 and negative 28% for 2022. Craft margins on a monthly basis sequentially improved through Q2 as we continue to build volume of printed cans. Spirits margins were 12% for ‘23 and 52% for 2022. Excluding barrel sales, spirits’ margins were 12% for ‘23 and 23% for ‘22. Adjusted EBITDA was negative $1 million for ‘23 and negative $350,000 for 2022, primarily due to decreased operating expenses. Excluding bulk spirits net income of $1.6 million for Q2 2022, adjusted EBITDA improved $1 million from the prior year quarter. Printing and craft is finally reaching its potential in driving results, achieving positive EBITDA in June. We continue to build momentum in printing and look for ways to reduce operating costs, which will be further implemented during Q3 and become more apparent in the last half of the year. We will now open the floor for questions. Operator?

[Operator Instructions] And our first question today comes from Matthew Campbell from Laridae Capital. Please go ahead with your question.

Yes. Hi, good afternoon. Good to see a lot of progress here. Specifically on the craft side of the business, how many shifts are you currently operating today? And where can you get to with this one printer?

Hey Matt. Thanks for the question. So, right now, craft is not operating on a 24/7 schedule through the week. We operate pretty much around the clock. But we are moving towards having the capability to do a 24/7 schedule around the clock. But it’s not just the number of shifts we are running. It’s also the utilization of the printer. So, we have one machine currently, as we have talked about in the past, and we have the capability to get utilization up significantly. We know there is a number of people that have operated this machine actually worldwide. And based on our partners, we think that we can get to a point where we are doing double what we are doing today, possibly a little bit less than that, but really utilizing the printer a lot more than where we are today. So, we have a lot of room to improve here.

Got it. That’s helpful. And then when we look at the spirits business, clearly, you have been calling some distributors that were not profitable for you. Where are you in this process? And when do you think you will start seeing growth on the spirits business again?

So, we are actually seeing growth in our biggest volume brand. So, the three brands we should think about are Portland Potato Vodka, Burnside and the tequila business. Historically, we have had to redirect investment from the tequila business, which is a broader distribution footprint. We have the least ability to impact the supply chain there. And the other aspect of that is we have probably the least amount of brand equity and market presence in those various markets. So, relative to the distributor, we are probably be in a weaker position. Portland, in our home market, we are extremely strong. I mean Portland Potato Vodka is the hometown vodka. Eastside Bourbons are the same hometown bourbons, and we have a lot more room. It’s also a controlled state. So, we have much more visibility into where and how the product is placed. So, when we look at those three brands, we started the year making investments immediately as we got into the kind of the consumption side of the season in Portland Potato Vodka and we have seen those volumes grow. And those have sequentially improved and picked up and gotten to a point where we are seeing strong double-digit volume increases. Tequila [ph] business, on the other hand, has not shrunk, and that’s offset the performance of the Portland Potato Vodka wins. Now, I would say the focus here is to win Oregon first, reset the Azuñia Tequila business and then grow from there. So, we are working on that. So, each of the three brands this year, we are hoping it’s going to have a meaningful change in the brand position. Azuñia probably is going to be the last one, but certainly, you will see some stuff for the Burnside here shortly and then also start catching up with Portland Potato Vodka as far as the turnaround in the volume. So, that’s our expectation for the back half of the year. Stronger results in PPV, picking up volumes with from things that we will be announcing here shortly on Burnside, and Tequila is still something that we are working on that we will come out with some more details on that in the back half of the year, hopefully. So, you should expect to see improvements as we go through the year.

Thank you. That’s helpful, Geoff. Great work, I know this has been a long turnaround, but I really appreciate all the hard work and the vision that you have had to make some hard decisions there. And it’s gratifying and see you can start to turn the corner to help drive cash flow so that you can make those investments in the spirits business. I appreciate the work.

Thanks Matt. Appreciate it.

[Operator Instructions] And at this time, I am showing no additional questions, I would like to turn the floor back over to Geoffrey for any closing remarks.

Great. Thank you, Jamie. I appreciate the time and thank you to all of you that listened to this call, and we look forward to talking to you at the end of the third quarter. Alright. Thanks.

And ladies and gentlemen, at this time, we will be concluding today’s conference call and presentation. We thank you for joining today’s conference. You may now disconnect your lines.