Eastside Reports Second Quarter 2018 Financial Results

Gross Sales increase 90% driven by strong Redneck Riviera shipments

PORTLAND, Ore.--()--Eastside Distilling, Inc. (NASDAQ: EAST), a producer of craft spirits, reported second quarter 2018 financial results.

Financial Highlights for Q2 2018 ended June 30, 2018:

  • Gross sales for Q2 2018 were $1,675,067, an increase of 90% compared to $883,522 in the Q2 2017, led by the continued launch of Redneck Riviera Whiskey, sales from our private label and wine canning operations, as well as resumption of growth within the Pacific Northwest of our rebranded Burnside lineup.
  • Total shipments increased to 18,401 cases during Q2 2018 from 4,928 cases in Q2 2017, an increase of 273%.
  • Branded product shipments increased 70% to 7,445 cases in Q2 2018 compared to 4,384 in the year ago quarter.
  • Case shipments of Redneck Riviera Whiskey were approximately the same in Q2 2018 compared to the very strong Q1 initial launch shipments and we have already received orders in excess of this figure in the first 5 weeks of Q3 2018, reflecting an acceleration beginning to occur as a result of new states and strong reorders from many of the Q1-Q2 2018 initial launch states.
  • Gross margins improved to 49.9% during Q2 2018 compared to 34.8% during Q2 2017.
  • EBITDA during Q2 2018 was $(1,250,729), which compared to $(771,402) in Q2 2017 as the company continued to invest in laying the foundation for sustainable growth in the Redneck Riviera Whiskey brand.

Recent Operational Highlights:

  • Redneck Riviera Whiskey is now distributed in 28 states, with 14 states added since the end of he first quarter. Redneck Riviera Whiskey is now available in Texas, California, Louisiana, Alabama, Georgia, Mississippi, Florida, North Carolina, South Carolina, North Dakota, South Dakota, Oregon, Tennessee, Oklahoma, Nebraska, Kentucky, Missouri, Washington, Iowa, Minnesota, Wisconsin, Alaska, Illinois, Michigan, Kansas, Colorado, Nevada and Arizona.
  • The company continues to add new distribution partners across the U.S., with Redneck Riviera Whiskey now distributed by Republic National Distributing Company (RNDC), Southern Glazer’s Wine & Spirits, Breakthru Beverage Group, Lipman Brothers, West Tennessee Crown Distributing Co., Lohr Distributing Company, Johnson Brothers Liquor Company, and Worldwide Beverage Group.
  • An impressive line up of retailers now carry Redneck Riviera Whiskey, including Walmart, ABC Fine Wine & Spirits (Florida), Rouses (Louisiana), Spec’s (Texas), Total Wine & More, Albertsons, and Safeway.
  • Gretchen Wilson, Granger Smith and Colt Ford joined the Redneck Riviera Whiskey team as Brand Ambassadors, adding to the strong promotional support from John Rich.
  • Eastside introduced its first American Single Malt Whiskey in limited release which saw immediate success with two very prestigious craft spirits industry awards, a Gold Medal from the 2018 Francisco World Spirits Competition and Best of Category (with 93 points) from the 2018 Los Angeles International Spirits Competition.
  • The company won 21 medals at the 2018 Los Angeles World Spirits Competition, of these 21 medals, 14 were won by Eastside directly and 7 in the Big Bottom Distilling division, while at the San Francisco World Spirits Competition, Eastside won an impressive 14 medals, with 5 of those won by its Big Bottom Distilling division.
  • The company completed its first full quarter of wine canning operations.

Management Commentary

Grover Wickersham, Chairman and CEO of Eastside Distilling, commented, “I am pleased with the second quarter results and excited by the opportunities in our immediate future. The quarter was highlighted by the expanding footprint of Redneck Riviera Whiskey, growth of our wine canning operations, and the continuing relaunch of our Burnside family of whiskeys. During Q2 and extending to Q3 we invested heavily in laying the foundation for sustainable growth in the Redneck Riviera Whiskey brand, and this is reflected in our EBITDA. Brand investment included hiring a sales team capable of creating a national brand, promotional budgets for supporting distributors as we opened up new states, spending on point of sale and sales promotions as key retailers began carrying product on their shelves, ramping production, and supporting the brand with marketing. These activities carry a major upfront cost, but we believe they will maximize the performance of the brand.

Redneck Riviera Whiskey is off to a strong start and is accelerating, with shipments during Q3 2018 being particularly encouraging. We are constantly told that the rapid and accelerating adoption of the brand is highly unusual in the industry. This is a testament to the value of our partnership with John Rich and the capabilities of the entire Eastside team. We are excited by the prospects of having strong second half of the year,” concluded Wickersham.

Financial Results

For the quarter ended June 30, 2018, Eastside Distilling reported record gross sales of $1,675,067, an increase of 90% compared to $883,522 in the second quarter of 2017. The increase in sales is primarily attributable to: the newly launched Redneck Riviera Whiskey product, increased wholesale sales traction within the Pacific Northwest due to the rebranding of our Burnside family of products, strong continuing vodka sales, our acquisitions of MotherLode and BBD and related expansion of our private label business and canning abilities, offset by a reduction in retail due to store relocations.

Total shipments increased to 18,401 cases during Q2 2018 (7,445 for branded products and 10,957 for private label which now includes wine canning) from 4,928 cases in Q2 2017 (4,384 for branded products and 544 for private label which excludes any wine canning), an increase of 273% overall and 70% in branded products.

Gross profit margins (as a percent of Net Sales) were 49.9% during Q2 2018 compared to 34.8% during Q2 2017 and approximately 37% overall in fiscal 2017. The improvement in gross profit margins is primarily due to the combination of our new products which have higher margins than prior legacy products as well as the new, lower federal excise tax. While our goal is to ultimately improve our overall gross margin, it may fluctuate around the current level due to the impact of two key factors: product sales mix and the related customer programs and incentives, both of which are subject to seasonal fluctuations and the competitive environment.

Advertising, promotional and selling expenses during Q2 2018 increased slightly as a percent of sales to 63.7% of sales compared to 62.2% during Q2 2017 primarily due to our efforts to expand our product sales both regionally in the Pacific Northwest as well as target national markets, particularly with the new RRW product launch. General and administrative expenses decreased slightly as a percent of sales, but up on a dollar basis primarily due to increased headcount to support the Redneck Riviera and wine canning launches, as well as higher stock-based compensation.

EBITDA during Q2 2018 was $(1,250,729), which compared to $(771,402) in Q2 2017.

Net loss attributable to common shareholders was $(1,906,625), or $(0.37) per basic and diluted share for Q2 2018, compared $(1,287,651), or $(0.40) per basic and diluted share in the year ago period.

The company ended the quarter with $2.4 million in cash and inventories of $7.9 million (at cost) consisting primarily of barrels of light whiskey, bourbon whiskey and rye whiskey stored in third party warehouses. The inventory balance reflects an increase of $2.6 million compared to three months ago as the company continued to purchase multi-year supplies of bulk spirits in advance of anticipated demand for Redneck Riviera Whiskey and our other products. Supplies of aged spirits remain tight and can command significant premiums from vendors and on the secondary market, as well as suffering from a lack of availability. Bulk spirit prices have in recent history increased at double digit rates. By adding strategically to inventories of younger spirits and buying newly filled barrels, the company seeks to reduce the cost of goods sold (“COGs”) of Redneck Riviera Whiskey, Burnside Bourbon and its other whiskey-based products.

On August 3, 2018, the Company called for redemption of the warrants to purchase shares of common stock, that were sold in its public unit offering in August 2017 and the warrants sold in the note offering between March and June 2018 (collectively, the "Common Stock Purchase Warrants"). The Common Stock Purchase Warrants are currently exercisable for an aggregate of 1,509,162 shares of common stock. If all such currently outstanding warrants are exercised within the call exercise period, then the Company will issue an aggregate of 1,509,162 shares of common stock at $5.40 per share and receive gross exercise proceeds of approximately $8,149,475. On the other hand, if all such Common Stock Purchase Warrants are redeemed by Eastside Distilling, Inc. pursuant to the notice of redemption, then the Company will pay to the registered holders of such Common Stock Purchase Warrants an aggregate of approximately $226,374. Since the end of the second quarter, the company has received exercises totaling 984,087 shares or $5,314,069, with the majority of those occurring since the call was announced on August 3.

Conference Call

The Company will hold a conference call today to discuss these results.

Date and Time: 11:30 am ET (8:30 am PT) on Monday, August 13, 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:

  1. Questions can be asked live during the call-in portion of the conference call.
  2. The live webcast will feature an option to submit questions in writing during the event.
  3. 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 # 10123140. 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; acceptance of the Company's products in the market; the Company's success in obtaining new customers; 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 ("SEC"), including the financial statements and related information contained in the Company's Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q. Examples of forward-looking statements in this release may include statements related to our strategic focus, product verticals, anticipated revenue, and profitability. 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.

Q2 2018 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 August 13, 2018 on Form 10-Q for the period ended June 30, 2018, 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
For the Three and Six Months Ended June 30, 2018 and 2017
Three Months Ended Six Months Ended
June 30, 2018 June 30, 2017 June 30, 2018   June 30, 2017
Sales $ 1,675,067 $ 883,522 $ 3,088,249 $ 1,713,191
Less excise taxes, customer programs and incentives   150,380     278,492     343,229     495,680  
Net sales 1,524,687 605,030 2,745,020 1,217,511
Cost of sales   763,768     394,625     1,391,291     717,538  
Gross profit   760,919     210,405     1,353,729     499,973  
Operating expenses:
Advertising, promotional and selling expenses 1,066,847 549,865 1,709,824 935,997
General and administrative expenses 1,495,486 848,472 2,707,998 1,574,868
Loss on disposal of property and equipment   -     5,441     -     40,975  
Total operating expenses   2,562,333     1,403,778     4,417,822     2,551,840  
Loss from operations   (1,801,414 )   (1,193,373 )   (3,064,093 )   (2,051,867 )
Other income (expense), net
Interest expense (107,015 ) (95,753 ) (163,653 ) (143,562 )
Other income (expense)   2,500     -     2,700     4,485  
Total other expense, net   (104,515 )   (95,753 )   (160,953 )   (139,077 )
Loss before income taxes (1,905,929 ) (1,289,126 ) (3,225,046 ) (2,190,944 )
Provision for income taxes   -     -     -     -  
Net loss   (1,905,929 )   (1,289,126 )   (3,225,046 )   (2,190,944 )
Dividends on convertible preferred stock - - - 5,037
Income (loss) attributable to noncontrolling interests   (696 )   (1,475 )   (103 )   (1,475 )
Net loss attributable to Eastside Distilling, Inc. common shareholders $ (1,906,625 ) $ (1,287,651 ) $ (3,225,149 ) $ (2,194,506 )
Basic and diluted net loss per common share $ (0.37 ) $ (0.40 ) $ (0.64 ) $ (0.75 )
Basic and diluted weighted average common shares outstanding   5,194,538     3,253,246     5,058,293     2,935,551  
Eastside Distilling, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2018 and December 31, 2017
June 30, 2018 December 31, 2017
Current assets:
Cash $ 2,352,658 $ 2,586,315
Trade receivables 580,978 315,321
Inventories 7,891,154 4,051,282
Prepaid expenses and current assets   637,298     649,749  
Total current assets 11,462,088 7,602,667
Property and equipment, net 1,312,043 728,506
Intangible assets, net 310,778 325,668
Goodwill 28,182 28,182
Other assets   407,571     343,942  
Total Assets $ 13,520,662   $ 9,028,965  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 720,583 $ 1,267,189
Accrued liabilities 334,663 156,163
Deferred revenue 986 1,579
Current portion of notes payable   437,539     293,726  
Total current liabilities 1,493,771 1,718,657
Secured trade credit facility, net of debt issuance costs 1,957,432 -
Notes payable - less current portion and debt discount   5,205,693     2,161,760  
Total liabilities   8,656,896     3,880,417  
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 3,000 shares
authorized; 0 shares issued and outstanding at June 30, 2018
and December 31, 2017 - -
Common stock, $0.0001 par value; 15,000,000 shares authorized;
5,225,775 and 4,889,745 shares issued and outstanding at
June 30, 2018 and December 31, 2017, respectively 522 489
Additional paid-in capital 25,865,248 23,223,435
Stock payable 298,522 -
Accumulated deficit   (21,316,007 )   (18,090,961 )
Total Eastside Distilling, Inc. Stockholders' Equity 4,848,285 5,132,963
Noncontrolling interests   15,481     15,585  
Total Stockholders' Equity 4,863,766 5,148,548
Total Liabilities and Stockholders' Equity $ 13,520,662   $ 9,028,965  
Three Months Ended Six Months Ended
June 30 June 30
2018 2017 2018 2017
Net Loss $ (1,905,929 ) $ (1,289,126 ) $ (3,225,046 ) $ (2,190,944 )
Interest Expense 107,015 95,753 163,653 143,562
Loss on disposal of property and equipment - 5,441 - 40,975
Provision for Income taxes - - - -
Purchase accounting adjustments - 21,425 - 21,425
Stock-based compensation 386,026 120,664 651,280 279,322
Stock issued for services 71,050 253,403 196,078 339,720
Depreciation and amortization   91,109     21,038     158,945     30,044  
Adjusted EBITDA $ (1,250,729 ) $ (771,402 ) $ (2,055,090 ) $ (1,335,896 )


Company Contact:
Eastside Distilling
Steve Shum, CFO
(971) 888-4264
Investor Relations Contact:
Lytham Partners, LLC
Robert Blum, Joe Diaz or Joe Dorame
(602) 889-9700



Company Contact:
Eastside Distilling
Steve Shum, CFO
(971) 888-4264
Investor Relations Contact:
Lytham Partners, LLC
Robert Blum, Joe Diaz or Joe Dorame
(602) 889-9700