Eastside Reports Second Quarter 2017 Financial Results

Eastside Distilling, Inc.

Companies Mentioned:

Primary Exchange: NASDAQ
Under the Symbol: ESDI

Eastside Reports Second Quarter 2017 Financial Results

Monday, August 14, 2017 4:01 PM

Company Reports 41% Revenue Growth for the Second Quarter;
Case Sales Increase 46% from 3,374 in Q2 2016 to 4,928 in Q2 2017

PORTLAND, OR / ACCESSWIRE / August 14, 2017 / Eastside Distilling, Inc. (NASDAQ: ESDI), a producer of award-winning craft spirits, reported second quarter 2017 financial results. We made significant business progress as we continued the transition to our new marketing model of relying on Sandstrom Partners for spirits branding expertise.

Q2 2017 Financial Highlights:

  • Gross revenues were $883,522, an increase of 41% over the $627,464 reported in Q2 2016, resulting primarily from increased wholesale and retail sales in our Pacific Northwest core market;
  • Case volume of 4,928 in Q2, represented an increase of 46% from the previous year's shipments of 3,374 cases, led by record sales of our Portland Potato Vodka;
  • General and administrative expenses decreased 5% from Q2 2016, as we continue to seek improved efficiencies; and
  • Adjusted EBITDA improved to $(771,402), compared to $(1,022,248) in the year ago quarter.

Recent Operational Highlights:

  • We acquired Big Bottom Distilling during Q2 and successfully launched their products into Eastside's Tasting Rooms, doubling case volume in the first 30 days;
  • Portland Potato Vodka won awards in spirits industry competitions including being awarded "Best in Category" for potato vodkas, a gold medal and a 91 rating at the Los Angeles International Spirits Competition (LAISC);
  • Began producing Troika Spirits famous Kachka Horseradish Vodka as a private label;
  • Voted Best Distillery in the Best of Portland Readers' Poll 2017 by the Willamette Week; and
  • Motherlode, Eastside's bottling subsidiary, became one of the only Pacific Northwest firms to offer "slim line" cans of ready-to-drink ("RTD”) wine and cocktails.

Recent Developments

  • The Company completed a follow-on public offering of common stock and warrants with gross proceeds of approximately $5.4 million on August 10, 2017 with commensurate uplisting to Nasdaq Capital Market exchange; and
  • Industry veteran and acknowledged expert on brand launches, Jarrett Catalani, joined us as Senior Vice President of Sales, in preparation for the renaissance of our Burnside Bourbon brand.

Management Commentary

Grover Wickersham, Executive Chairman of Eastside Distilling, commented, "I am proud of the sustained progress made during a quarter where we implemented two acquisitions, moved our entire manufacturing operation, put finishing touches on what is a major renaissance of our branding, and did the groundwork for the successful uplist of our shares on the NASDAQ market. We increased gross sales by 41% and case shipments by 46%, driven mostly by organic growth of our legacy products. We achieved this despite pulling back on the sales effort of our flagship Burnside Bourbon, which is undergoing a major upgrade to branding and packaging. Our innovative efforts to increase sales of our Vodka products were successful, so we maintained our growth."

Mr. Wickersham continued, "As we look to the back half of the year, we hope to see a major impact from branding developed by our partner, Sandstrom, a leading spirit branding firm. We will also benefit from our strategic decision to consolidate our manufacturing into Motherlode, and benefit from cost-lowering efficiencies of scale, such as combined purchasing of bottling materials and more intensive equipment usage."

Steve Shum, Chief Financial Officer of Eastside Distilling, commented, "We grew both wholesale and retail during the quarter compared to last year, and continued to benefit from our private label business. We incurred costs during the quarter as part of consolidating our manufacturing operations at the Mother Lode facility. We also had one-time adjustments related to our two acquisitions. From an operational standpoint, margins were partially impacted by our very successful effort to gain Vodka market share by a strategic price drop at a time when our competition made a seasonal increase. We believe that our strategy to grow margins over the near and medium term remains fully intact, but we will take advantage of 'common sense' opportunities to grow share when we can."

Mr. Wickersham concluded, "Some of Eastside Distilling's shareholders may have been disappointed by the share price discount of our offering to uplist on NASDAQ, a sentiment that is not lost on management and the board. However, our team is optimistic and excited because of the opportunities to create shareholder value that lay directly ahead of us in 2017."

Financial Results

For the quarter ended June 30, 2017, Eastside Distilling reported record gross sales of $883,522, an increase of 41%. Sales growth was driven by increased wholesale sales traction within the Pacific Northwest, acquisitions of MotherLode and Big Bottom Distilling, the expansion of the Company's private label business, and an increase in retail sales.

Total shipments increased to 4,928 cases during the second quarter of 2017 from 3,374 cases in the year ago period, an increase of 46%.

Gross profit margins (as a percent of Net Sales) were 35% during the second quarter of 2017, compared to 46% in the second quarter of the previous year. Gross margins during the period were impacted by one-time adjustments related to the acquisitions, a vodka price heavily discounted to gain share, and a higher mix of retail sales as our wholesale activities were affected by the planned transition to the new bourbon launch. Excluding those factors, margins would have been consistent with the first quarter.

Advertising, promotional and selling expenses increased by $138,362, however general and administrative expense decreased by approximately $43,125 as the Company focused on driving sales growth, while tightening cost controls.

Adjusted EBITDA during the second quarter of 2017 was $(771,402), which compared to $(1,022,248) in the year ago quarter. Sequentially from the first quarter of 2017, the EBITDA loss was higher. However, we incurred unusual costs associated with the production consolidation into Motherlode. Excluding those, along with added expenses associated with funding activities, we estimate EBITDA would have been consistent with the first quarter.

Net loss attributable to common shareholders was $(1,287,651), or $(0.40) per basic and diluted share for the second quarter of 2017, compared $(1,327,259), or $(1.39) per basic and diluted share in the year ago period.

The company ended the second quarter with $1.3 million in cash, and raised an additional $5.4 million in gross proceeds from a follow-on public offering during August 2017.

Conference Call

The Company will hold a conference call today, Monday, August 14, 2017, at 4:30 p.m. Eastern time to discuss these results.

  • Date: Monday, August 14, 2017
  • Time: 4:30 p.m. Eastern time (1:30 a.m. Pacific time)
  • Toll-free dial-in number: (844) 889-4332
  • International dial-in number: (412) 717-9595

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Lytham Partners at (602) 889-9700.

A webcast replay will be available in the Investor Relations section of the Company's website at http://www.eastsidedistilling.com/conference-calls or https://www.webcaster4.com/Webcast/Page/1518/22311

A telephone replay of the call will be available for three days:

  • Toll-free replay number: (877) 344-7529
  • International replay number: (412) 317-0088
  • Replay ID: 10111518

About Eastside Distilling

Eastside Distilling, Inc. (NASDAQ: ESDI) is located in Southeast Portland's Distillery Row and has been producing high-quality, master-crafted spirits since 2008. Makers of award winning spirits, the Company is unique in the marketplace and distinguished by its highly decorated product line-up that includes Barrel Hitch American Whiskies, Burnside Bourbon, Below Deck Rums, Portland Potato Vodka, and a distinctive line of infused whiskeys. All Eastside spirits are master crafted from natural ingredients for unparalleled quality and taste. The Company is publicly traded under the symbol NASDAQ: ESDI. For more information, visit: www.eastsidedistilling.com

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.

Company Contact:
Eastside Distilling
[email protected]

Investors:
Robert Blum, Joe Diaz or Joe Dorame
Lytham Partners, LLC
(602) 889-9700
[email protected]

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.

Second Quarter 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 August 14, 2017 on Form 10-Q for the period ended June 30, 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
For the three and six months ended June 30, 2017 and 2016
(unaudited)
Three Months Ended
Six Months Ended
June 30, 2017
June 30, 2016
June 30, 2017
June 30, 2016
Sales
$ 883,522 $ 627,464 $ 1,713,191 $ 1,249,346
Less excise taxes, customer programs and incentives
278,492 133,682 495,680 300,802
Net sales
605,030 493,782 1,217,511 948,544
Cost of sales
394,625 268,216 717,538 524,385
Gross profit
210,405 225,566 499,973 424,159
Operating expenses:
Advertising, promotional and selling expenses
549,865 411,503 935,997 578,235
General and administrative expenses
848,472 891,597 1,574,868 1,767,079
Loss on disposal of property and equipment
5,441 - 40,975 -
Total operating expenses
1,403,778 1,303,100 2,551,840 2,345,314
Loss from operations
(1,193,373 ) (1,077,534 ) (2,051,867 ) (1,921,155 )
Other income (expense), net
Interest expense
(95,753 ) (230,210 ) (143,562 ) (401,264 )
Other income (expense)
- (1,756 ) 4,485 (1,760 )
Total other expense, net
(95,753 ) (231,966 ) (139,077 ) (403,024 )
Loss before income taxes
(1,289,126 ) (1,309,500 ) (2,190,944 ) (2,324,179 )
Provision for income taxes
- - - -
Net loss
(1,289,126 ) (1,309,500 ) (2,190,944 ) (2,324,179 )
Dividends on convertible preferred stock
- 17,759 5,037 17,759
Loss attributable to noncontrolling interests
(1,475 ) - (1,475 ) -
Net loss attributable to Eastside Distilling, Inc. common shareholders
$ (1,287,651 ) $ (1,327,259 ) $ (2,194,506 ) $ (2,341,938 )
Basic and diluted net loss per common share
$ (0.40 ) $ (1.39 ) $ (0.75 ) $ (2.71 )
Basic and diluted weighted average common shares outstanding
3,253,246 951,692 2,935,551 863,965

Eastside Distilling, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2017 and December 31, 2016
June 30, 2017 (unaudited)
December 31, 2016
Assets
Current assets:
Cash
$ 1,297,245 $ 1,088,066
Trade receivables
246,762 344,955
Inventories
1,526,026 780,037
Prepaid expenses and current assets
352,322 187,714
Total current assets
3,422,355 2,400,772
Property and equipment, net
250,251 99,216
Intangible assets, net
385,950 -
Goodwill
221,556 -
Other assets
229,400 48,000
Total Assets
$ 4,509,512 $ 2,547,988
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 387,977 $ 457,034
Accrued liabilities
136,448 523,702
Deferred revenue
1,132 2,126
Current portion of notes payable
40,337 4,537
Total current liabilities
565,894 987,399
Notes payable - less current portion and debt discount
1,886,608 427,756
Total liabilities
2,452,502 1,415,155
Commitments and contingencies (Note 10)
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 3,000
shares authorized; 0 and 300 shares issued and outstanding at
June 30, 2017 and December 31, 2016, respectively (liquidation
values of $0 and $750,000, respectively)
- 245,838
Common stock, $0.0001 par value; 15,000,000 shares authorized;
3,341,687 and 2,542,504 shares issued and outstanding at
June 30, 2017 and December 31, 2016, respectively
334 254
Additional paid-in capital
17,050,717 13,699,785
Accumulated deficit
(15,007,550 ) (12,813,044 )
Total Eastside Distilling, Inc. Stockholders' Equity
2,043,501 1,132,833
Noncontrolling interests
13,509 -
Total Stockholders' Equity
2,057,010 1,132,833
Total Liabilities and Stockholders' Equity
$ 4,509,512 $ 2,547,988

Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30, 2017 and 2016
(unaudited)
Six Months Ended
June 30, 2017
June 30, 2016
Cash Flows From Operating Activities:
Net loss
$ (2,190,944 ) $ (2,324,179 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
30,044 11,047
Loss on disposal of property and equipment
40,975 -
Amortization of debt issuance costs
52,657 116,750
Amortization of beneficial conversion feature
- 228,550
Issuance of common stock in exchange for services
339,720 89,100
Stock-based compensation
279,322 157,408
Changes in operating assets and liabilities:
Trade receivables
104,417 (124,008 )
Inventories
(512,579 ) (94,702 )
Prepaid expenses and other assets
(201,008 ) 97,875
Accounts payable
(74,236 ) (155,881 )
Accrued liabilities
(619,329 ) 435,799
Deferred revenue
(994 ) 2,467
Net cash used in operating activities
(2,751,955 ) (1,559,774 )
Cash Flows From Investing Activities:
Cash acquired in acquisition
4,541 -
Purchases of property and equipment
(152,532 ) (7,052 )
Net cash used in investing activities
(147,991 ) (7,052 )
Cash Flows From Financing Activities:
Stock issuance cost related to acquisitions
(19,980 ) -
Stock issuance cost related to common shares issued for preferred conversion
(15,000 ) -
Proceeds from common stock, net of issuance costs of $6,033, with detachable warrants
1,612,467 -
Proceeds from warrant exercise
159,250 -
Payments of principal on notes payable
(27,612 ) (408,975 )
Proceeds from convertible notes payable, net of issuance costs
1,400,000 185,000
Proceeds from notes payable, warrants issued
- 200,000
Proceeds from preferred stock, net of issuance costs of $35,920, with warrants
- 463,080
Proceeds from common stock with detachable warrants
- 2,000,000
Net cash provided by financing activities
3,109,125 2,439,105
Net increase in cash
209,179 872,279
Cash - beginning of period
1,088,066 141,317
Cash - end of period
$ 1,297,245 $ 1,013,596
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest
$ 81,529 $ 219,976
Supplemental Disclosure of Non-Cash Financing Activity
Issuance of common stock for the acquisition of MotherLode Craft Distillery, LLC
$ 377,000 $ -
Issuance of common stock for the acquisition of Big Bottom Distilling, LLC
$ 134,858 $ -
Note payable issued in exchange of accounts payable
$ 60,000 $ -
Common stock issued in exchange of notes payable
$ 87,500 $ -
Issuance of common stock in exchange for services recorded as other assets
$ 145,000 $ -
Dividends paid in common stock
$ - $ 17,759
Stock issued in lieu of accrued compensation
$ - $ 423,000
Stock issued to retire notes and accrued interest
$ - $ 246,330

Three Months Ended
Six Months Ended
June 30
June 30
2017
2016
2017
2016
Net Loss
$ (1,289,126 ) $ (1,309,500 ) $ (2,190,944 ) $ (2,324,179 )
Add:
Interest Expense
95,753 230,210 143,562 401,264
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
120,664 51,569 279,322 157,408
Stock issued for services
253,403 - 339,720 89,100
Depreciation and amortization
21,038 5,473 30,044 11,047
Adjusted EBITDA
$ (771,402 ) $ (1,022,248 ) $ (1,335,896 ) $ (1,665,360 )

SOURCE: Eastside Distilling, Inc.


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