PORTLAND, Ore.--(BUSINESS WIRE)--Eastside Distilling, Inc. (NASDAQ: EAST), a producer of craft spirits, reported fourth quarter and year-end 2017 financial results. Management also addressed trends in Eastside’s business as of the end of Q1 2018.
2017 Financial Results:
- Gross sales for the year ended December 31, 2017 were of $3,791,382, an increase of 25% compared to $3,042,527 in 2016, led by record sales of our Portland Potato Vodka, which increased around 250% during the year.
- Total shipments increased to 23,471 cases during 2017 (19,567 for branded products and 3,904 for private label) from 15,596 cases in 2016, an increase of 50.5%
- Adjusted EBITDA improved to $(3,370,320) compared to $(3,656,196) in 2016.
- Our net loss of $5.3 million in 2017 was similar to the $5.3 million in 2016.
The Company believes its new business strategies started in 2017 have laid the foundation for accelerated growth in 2018. During 2017, the Burnside product line, which accounted for 40% of 2016 revenue, was discontinued and rebranded into the new Burnside product line, and was introduced in the last quarter of 2017. Despite this interruption and transition of a major part of our product offering, and unexpected shortfalls related to the Motherlode acquisition, our business maintained growth during 2017.
Key Operational Highlights from 2017:
- Working closely with Sandstrom Partners, a spirits branding powerhouse, we completed the rebranding of our flagship product, Burnside, in Q4 2017;
- We negotiated an agreement with country music star John Rich for a new whiskey product under the brand “Redneck Riviera,” which we began shipping in Q1 2018;
- We consolidated our production facilities and made significant investments to expand production, including adding the new “slim line” canning capability;
- We completed a public offering of $6.2 million in gross proceeds and “up-listed” to NASDAQ;
- The December 2017 tax legislation, which went into effect Jan 1 of this year, is expected to add more than ten points to gross profit margins during in 2018;
- The new product pipeline with Sandstrom remains strong, with several new product launches expected in 2018; and
- We added industry veteran Tom Wood as VP of Production to further professionalize our Motherlode canning operations and assist with spirit production.
We exited Q1 2018 with strong and building momentum in all of our major strategic initiatives—the Redneck Riviera brand, the new Sandstrom branding and wine canning. We expect Q1 2018 to be a record sales quarter for the Company, driven by:
- Eastside shipped over 2,800 9L cases of Redneck Riviera Whiskey during Q1 2018;
- Rebranded Burnside product lineup continues to gain momentum in our home state of Oregon, as well as other key markets; and
- Our wine canning business launched in March 2018 with production for our first two Pacific Northwest wineries.
Redneck Riviera Whiskey Launch Highlights Since January 2018:
- Signed distribution agreement with the country’s two largest spirit distributors, including Republic National Distributing Company (“RNDC”), to distribute Redneck Riviera Whiskey throughout the Gulf Coast, upper Midwest and California.
- Redneck Riviera Whiskey is currently distributed in 14 states, including Texas, California, Louisiana, Alabama, Georgia, Mississippi, Florida, North Carolina, North and South Dakota, Oregon, Tennessee, Oklahoma and Nebraska.
- Strong promotional support has been provided for Redneck Riviera Whiskey since its launch, with John Rich making appearances on national TV shows, including Today Show with Megyn Kelly; local TV shows, including NBC, ABC and Fox affiliates; in-store appearances to support retailers; performances at numerous events, including the ROTH Capital Partners 2018 Conference; participation in the Nasdaq Closing Bell ceremony; as well as distributor and customer events.
- Significant retailer adoption, including authorization by Walmart in Florida, Louisiana and California; the largest liquor retailer in Texas, Spec’s; as well as one of the largest independent supermarkets in the Gulf Coast, Rouses.
Grover Wickersham, CEO of Eastside Distilling, commented, “Our hard work in 2017 set the stage for accelerated growth in 2018 – our Sandstrom rebranded products, our deal with John Rich, our increased spirit production and canning capability, our uplisting to the Nasdaq, and hiring of key new people in sales, marketing and operations. These investments are all paying off in 2018.”
“We are extremely excited by how well our Redneck Riviera Whiskey launch is going. Our partnering with John Rich to offer a high-quality American blended whiskey to compete against imported whiskey at an attractive price point, looks to be a home run. We are gearing up to meet customer demand by ramping up our production capabilities. 2018 is off to a great start, and we believe it will only get better each quarter.”
“We discontinued our flagship Burnside product line through much of 2017 and sold through in-store inventory. Obviously, this killed growth of Burnside in Oregon and we also stopped our out of state effort. Now our rebranded Burnside Bourbon lineup is once again seeing its growth accelerate.”
Mr. Wickersham concluded, “Our strategy of creating a ‘brand factory’ at Eastside Distilling is going according to plan. In addition to our Redneck Riviera Whiskey and Burnside products, the rebranding of our coffee rum product to Hue-Hue Cold Brew Coffee Rum in early 2018 was also met with tremendous reviews. The branding by Sandstrom Partners highlights Hue-Hue’s full flavor cold brew coffee, without the syrupy sweetness of coffee liqueurs. Hue-Hue sales should grow in 2018 and other new products will follow. Sandstrom has many more innovations in the works. By leveraging our successes to date, we hope to create greater shareholder value in 2018.”
For the year ended December 31, 2017, Eastside Distilling reported record gross sales of $3,791,382, an increase of 25% compared to $3,042,527 in 2016. As previously discussed, sales growth was driven by increased wholesale sales traction within the Pacific Northwest, especially with our Vodka product, as we strategically invested in programs to promote the Vodka product while waiting for our new Burnside Bourbon branding launch. With the launch of Redneck Riviera Whiskey, introduction of our wine canning operations and re-introduction of our Burnside product lineup in earnest occurring subsequent to the end of the year, we anticipate growth increasing significantly during 2018.
Gross profit margins (as a percent of Net Sales) were 37% during 2017 compared to 39% during 2016. As previously discussed, gross profit margins in 2018 will benefit by the Craft Modernization and Tax Reform Act of 2017 (the “Tax Act”) enacted by Congress as part of the 2017 tax legislation package. The Tax Act reduced the Federal Excise Tax (“FET”) from $13.50 to $2.70 per gallon for the first 100,000 proof gallons per year, an 80% tax reduction. In the event that Eastside’s production reaches the 100,000 proof gallons per annum needed to fully utilize the tax benefits of the Tax Act, annual savings will exceed $1 million. The Tax Act expires in two years unless renewed. In addition to benefits to gross profit margins by the Tax Act, Eastside is focused on other operational and purchasing initiatives to improve margins.
Advertising, promotional and selling expenses increased to $2,219,168 in 2017 from $1,244,152 in 2016, however, general and administrative expense decreased to $3,546,659 during 2017 compared to $3,881,771 in 2016, as the Company focused on driving sales growth, while tightening cost controls.
Adjusted EBITDA during 2017 was $(3,370,320), which compared to $(3,656,196) in 2016.
Net loss attributable to common shareholders was $(5,277,316), or $(1.42) per basic and diluted share for 2017, compared $(5,251,293), or $(1.40) per basic and diluted share in the year ago period.
The company ended the year with $2.6 million in cash and inventories of $4.1 million. The inventory balance was an increase of $3.3 million compared to the year ago period as the company purchased bulk spirits to meet the anticipated demand of its newly launched Redneck Riviera Whiskey.
Recent Securities Issuances and Additions to Liquidity
Subsequent to the end of the 2017 fiscal year, the Company issued $2.2 million of principal amount of 5% Notes maturing May 1, 2021, accompanied by approximately 135,000 callable Common Stock Purchase Warrants with an exercise price of $5.40 per share. Additionally, we received approximately $680,400 from the early exercise of our publicly traded $5.40 warrants that were part of the August 2017 “uplisting” public offering.
The Company will hold a conference call today to discuss these results.
Date and Time: 4:30 p.m. ET on Monday, April 2, 2018
Call-in Information: Interested parties can access the conference call by dialing (844) 889-4332 or (412) 717-9595.
Live Webcast Information: Interested parties can access the conference call via a live Internet webcast, which is available in the Investor Relations section of the Company's website at https://www.eastsidedistilling.com/investors/.
To Ask a Question: The conference call will be moderated by Lytham Partners, an investor relations firm. There will be three options to ask a question during the call:
- Questions can be asked live during the call-in portion of the conference call.
- The live webcast will feature an option to submit questions in writing during the event.
- If you are unable to attend the event, you can submit a question in advance to EAST@lythampartners.com.
Replay: A teleconference replay of the call will be available for three days at (877) 344-7529 or (412) 317-0088, confirmation # 10118603. A webcast replay will be available in the Investor Relations section of the Company's website at https://www.eastsidedistilling.com/investors for 90 days.
About Eastside Distilling
Eastside Distilling, Inc. (NASDAQ: EAST) has been producing high-quality, award-winning craft spirits in Portland, Oregon since 2008. The company is distinguished by its highly decorated product lineup that includes Burnside Bourbon, West End American Whiskey, Goose Hollow Reserve, Below Deck Rums, Portland Potato Vodka, Hue-Hue Coffee Rum and a distinctive line of fruit infused spirits. Eastside Distilling is majority owner of Big Bottom Distilling (makers of The Ninety One Gin, Navy Strength Gin and Delta Rye whiskey) and the Redneck Riviera Whiskey Co. All Eastside and Big Bottom spirits are crafted from natural ingredients for quality and taste. Eastside’s MotherLode Bottling subsidiary is one of the Northwest’s leading independent spirit bottlers and ready-to-drink canners. For more information visit: www.eastsidedistilling.com or follow the company on Twitter and Facebook.
Important Cautions Regarding Forward-Looking Statements
Certain matters discussed in this press release may be forward-looking statements. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; the Company's ability to continue as a going concern; acceptance of the Company's products in the market; the Company's success in obtaining new customers; the Company's ability to obtain additional capital, the Company's success in product development; the Company's ability to execute its business model and strategic plans; the Company's success in integrating acquired entities and assets, 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 contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 31, 2017. Examples of forward-looking statements in this release may include statements related to our strategic focus, product verticals, anticipated revenue and profitability. Further, such forward looking statements in this press release include but are not limited to: that the Company's growth will continue on its current trajectory; the stage is set for significant growth and improved bottom line performance ahead and beyond; that the second half is traditionally our busiest of the year, when the Company typically generates close to 70% of its annual business. The Company assumes no obligation to update the cautionary information in this release.
Use of Non-GAAP Measures
Eastside Distilling's management evaluates and makes operating decisions using various financial metrics. In addition to the Company's GAAP results, management also considers the non-GAAP measure of adjusted EBITDA. Management believes this non-GAAP measure provides useful information about the Company's operating results.
The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock based compensation and gain on spin-off. The table below provides a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.
2017 Financial Summary Tables
The following financial information should be read in conjunction with the audited financial statements and accompanying notes filed by the Company with the Securities and Exchange Commission on April 2, 2018 on Form 10-K for the period ended December 31, 2017, and which can be viewed at www.sec.gov and in the investor relations section of the company’s website at www.eastsidedistilling.com.
|Eastside Distilling, Inc. and Subsidiaries|
|Consolidated Statements of Operations|
|Years ended December 31, 2017 and 2016|
|Less excise taxes, customer programs and incentives||1,180,386||934,221|
|Cost of sales||1,634,069||1,280,344|
|Advertising, promotional and selling expenses||2,219,168||1,244,152|
|General and administrative expenses||3,546,659||3,881,771|
|Loss on disposal of property and equipment||40,975||-|
|Total operating expenses||5,806,802||5,125,923|
|Loss from operations||(4,829,875||)||(4,297,961||)|
|Other income (expense), net|
|Other income (expense)||(212,989||)||(39,190||)|
|Total other expense, net||(448,042||)||(901,658||)|
|Loss before income taxes||(5,277,917||)||(5,199,619||)|
|Provision for income taxes||-||-|
|Dividends on convertible preferred stock||-||(51,674||)|
|Income (loss) attributable to noncontrolling interests||601||-|
|Net loss attributable to Eastside Distilling, Inc. common shareholders||$||(5,277,316||)||$||(5,251,293||)|
|Basic and diluted net loss per common share||$||(1.42||)||$||(4.21||)|
|Basic and diluted weighted average common shares outstanding||3,717,956||1,247,281|
|Eastside Distilling, Inc. and Subsidiaries|
|Consolidated Balance Sheets|
|December 31, 2017 and 2016|
|Prepaid expenses and current assets||649,749||187,714|
|Total current assets||7,602,667||2,400,772|
|Property and equipment, net||728,506||99,216|
|Intangible assets, net||325,668||-|
|Liabilities and Stockholders' Equity|
|Current portion of notes payable||293,726||4,537|
|Total current liabilities||1,718,657||987,399|
|Notes payable - less current portion and debt discount||2,161,760||427,756|
|Commitments and contingencies (Note 10)|
|Series A convertible preferred stock, $0.0001 par value; 3,000|
|shares authorized; 0 and 300 shares issued and outstanding at|
|December 31, 2017 and 2016, respectively (liquidation|
|values of $0 and $750,000, respectively)||-||245,838|
|Common stock, $0.0001 par value; 15,000,000 shares authorized;|
|4,889,745 and 2,542,504 shares issued and outstanding at|
|December 31, 2017 and 2016, respectively||489||254|
|Additional paid-in capital||23,223,435||13,699,785|
|Total Eastside Distilling, Inc. Stockholders' Equity||5,132,963||1,132,833|
|Total Stockholders' Equity||5,148,548||1,132,833|
|Total Liabilities and Stockholders' Equity||$||9,028,965||$||2,547,988|
|Three Months Ended||Fiscal Year End|
|December 31||December 31|
|Loss on disposal of property and equipment||40,975||-||40,975||-|
|Provision for Income taxes||-||-||-||-|
|Purchase accounting adjustments||-||-||23,358||-|
|Impairment of intangible assets||218,374||-||218,374||-|
|Stock issued for services||228,373||65,307||642,309||284,277|
|Depreciation and amortization||130,402||5,412||184,172||21,991|