PR Newswire | Aug 13, 2020 04:06PM EDT

08/13 15:05 CDT

Eastside Reports Second Quarter 2020 Financial ResultsCompany to Host Conference Call at 4:30pm ET Today PORTLAND, Ore., Aug. 13, 2020

PORTLAND, Ore., Aug. 13, 2020 /PRNewswire/ -- Eastside Distilling, Inc. (NASDAQ: EAST) ("Eastside" or the "Company"), a consumer focused beverage company that builds craft inspired experiential brands and high quality artisan products around premium spirits and ready-to-drink "RTD" craft cocktails, reported second quarter 2020 financial results for the period ended June 30, 2020.

"I am excited about the next phase of Eastside's evolution as we focus our resources on generating value in our Company-owned brands, while taking advantage of the tremendous opportunity ahead of us in our canning and bottling operations," commented Paul Block, Chairman and CEO of Eastside Distilling.

Business Highlights

* Gross sales for the second quarter of 2020 were $4.3 million compared to $4.0 million for the second quarter of 2019, led by contributions from Azuia Tequila and growth in mobile canning operations. * Net loss was $(2.2) million for the second quarter of 2020, compared to $(2.9) million in the second quarter of 2019. * Delivered another quarter of sequential improvement in adjusted EBITDA, with adjusted EBITDA of $(0.951) million compared to $(1.849) million in the year ago quarter. * The Company is announcing a restructuring that will reduce operating expenses by at least $2 million annually with most of the actions already taken in the third quarter.

Financial Results

Gross sales for the second quarter of 2020 were $4.3 million compared to $4.0 million for the second quarter of 2019, an increase of 7%. The increase in gross sales is primarily attributable to contributions from the Azuia Tequila brand which was acquired in September 2019 and growth in mobile canning services offset by a decrease in sales of Redneck Riviera Whiskey products and mobile bottling services. As previously reported on the first quarter conference call, the Company experienced a significant slowdown in sell-through as a result of COVID-19. The Company's Craft Canning operation is experiencing strong demand from the craft beer industry as brewers have shifted to canned beer instead of kegs as the on-premise market is not likely to return to normal operations soon. These factors have pushed demand towards the Company's mobile canning business. Gross sales exclude retail tasting room sales that have been classified as discontinued operations.

Amount shown in thousands

Q2 2020 Q1 2020 % Change Q2 2020 Q2 2019 % Change

Craft mobile canning $ 2,498 1,298 92% $ 2,498 1,589 57%sales

Craft mobile bottling 56 102 -45% 56 231 -76%sales

Redneck Riviera sales 456 616 -26% 456 650 -30%

Azu?ia Tequila sales 529 991 -47% 529

Burnside Whiskey sales 200 199 1% 200 192 4%

Portland Potato Vodka 386 352 10% 386 328 18%sales

Note:Craft mobile canning and bottling sales include services and materials (cans, bottles, lids, ends, etc.). Retail tasting room sales of spirit finished goods are excluded as discontinued operations.

Gross margins on net sales were 39% for the second quarter of 2020, compared to 38% during the second quarter of 2019. The increase in gross margins year over year is primarily attributable to a change in product and services mix. The Company is focused on improving overall gross margins by evaluating outsourced production as a means to lower cost of goods sold and increasing efficiency while reducing overhead of its production facilities.

Operating expenses were $3.4 million for the second quarter of 2020, which included $0.9 million of non-cash expenses, compared to $4.1 million, which included $0.9 million of non-cash expenses for the second quarter of 2019. The change in operating expenses consisted of a $0.5 million reduction of general and administrative expenses and a $0.2 million reduction of sales and marketing expenses.

During the first six months of 2020, the Company focused its sales and marketing efforts on the distribution of its brands through the national platform, resulting in the decision to close all four of its retail tasting rooms in Portland, Oregon by March 31, 2020. This decision meets the criteria for reporting the retail operations as discontinued operations in the accompanying unaudited condensed consolidated financial statements. In the current year, the income, expense and cash flows from retail operations during the period they were consolidated have been classified as discontinued operations. For comparative purposes amounts in the prior periods have been reclassified to conform to current year presentation. Additionally, the assets and liabilities from retail operations are shown on the balance sheet as assets and liabilities for discontinued operations.

Net loss was $(2.2) million for the second quarter of 2020, compared to $(2.9) million in the second quarter of 2019.

Adjusted EBITDA was $(0.951) million for the second quarter of 2020, compared to $(1.849) million in the second quarter of 2019. Adjusted EBITDA is a non-GAAP figure and is explained and reconciled below.

Case Volume (9-Liter Equivalent)

Amount shown in thousands 9L Cases

Q2 2020 Q1 2020 % Change Q2 2020 Q2 2019 % Change

Redneck Riviera case volume 3.7 5.1 -27% 3.7 4.6 -20%

Azunia Tequila case volume 1.7 3.3 -48% 1.7

Burnside Whiskey case volume 1.0 1.2 -17% 1.0 1.1 -9%

Portland Potato Vodka case volume 4.9 4.5 9% 4.9 4.3 14%

All other case volume 0.8 0.7 14% 0.8 1.0 -20%

Total cases 12.1 14.8 -18% 12.1 11.0 10%

Note: Retail tasting room sales of spirit finished goods are excluded as discontinued operations.

COVID-19 Impact to Q2 2020

As previously reported on the first quarter conference call, the company experienced a significant slowdown in sell-through as a result of COVID-19. Additionally, the off-premise retailers delayed the commencement of the planned Azuia Tequila, Burnside Whiskeys and Hue-Hue Coffee Rum expansion into new territories as a result of COVID-19.

The Company enacted a series of initiatives to improve sell-through, including offering promotional discounts on Redneck Riviera Whiskey and Azuia Tequila, as well as a focus towards online sales. Further, with the shutdown of on-premise accounts throughout much of the country, Eastside began ramping up support efforts for local off-premise independent stores and wholesalers by creating several programs aimed to energize the local marketplace. Likewise, as the shutdowns diminish, Eastside plans to expand upon these programs to support its off-premise accounts.

The Company's Craft Canning operation is experiencing strong demand from the craft beer industry as brewers have shifted to canned beer instead of kegs as the on-premise market is not likely to return to normal operations soon. These factors have pushed demand towards the Company's mobile canning business.

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 as a supplement to GAAP results. Management believes this non-GAAP measure provides useful information about the Company's operating results and assists investors in comparing the Company's performance across reporting periods on a consistent basis by excluding items that it does not believe are indicative of its core operating performance.

The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation and the newly implemented lease accounting. The table below provides a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.

Conference Call

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

Date and Time: Thursday, August 13, 2020 at 4:30pm ET

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/.

Replay: A teleconference replay of the call will be available for three days at (877) 344-7529 or (412) 317-0088, confirmation #10147164. 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 Redneck Riviera Whiskey, newly acquired Azuia Tequilas, Burnside Whiskeys, Hue-Hue Coffee Rum, and Portland Potato Vodkas. All Eastside spirits are crafted from natural ingredients for quality and taste. Eastside's Craft Bottling + Canning 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 impact of COVID-19 and related business disruption, the Company's ongoing financing requirements and ability to achieve any financing, 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, our ability to reduce operating or other expenses, the anticipated demand from the craft beer industry, the effects of COVID-19, including the impact on sales, and the success of initiatives implemented to address the business disruption resulting from COVID-19 and earnings guidance for the second quarter of 2020. The Company assumes no obligation to update the cautionary information in this release.

Financial Summary TablesThe following financial information should be read in conjunction with the unaudited financial statements and accompanying notes filed by the Company with the Securities and Exchange Commission on Form 10-Q for the period ended June 30, 2020, 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 Balance Sheets

June 30, 2020 and December 31, 2019

June 30, 2020 December 31, 2019

Assets

Current assets:

Cash $ 1,915,138 $ 342,678

Trade receivables 1,165,021 1,324,333

Inventories 10,749,107 12,331,133

Prepaid expenses and current assets 479,857 397,083

Current assets from discontinued operations - 74,892

Total current assets 14,309,123 14,470,119

Property and equipment, net 3,642,236 4,687,469

Right of use asset 317,887 577,856

Intangible assets, net 14,430,298 14,674,790

Goodwill 28,182 28,182

Other assets 913,271 1,165,581

Non-current assets from discontinued 113,787 261,866operations

Total Assets $ 33,754,784 $ 35,865,863

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 2,120,345 $ 2,881,185

Accrued liabilities 998,583 888,296

Deferred revenue 223,804 -

Secured trade credit facility, net of debt 6,318,964 -issuance costs

Current portion of notes payable 3,912,668 1,819,172

Current portion of lease liability 280,993 423,671

Current liabilities of discontinued 24,206 125,278operations

Total current liabilities 13,879,563 6,137,602

Lease Liability - less current portion 92,527 274,863

Secured trade credit facility, net of debt - 2,961,566issuance costs

Deferred Consideration for Azunia 15,451,500 15,451,500acquisition (Long Term)

Notes payable - less current portion and debt 1,800,749 3,594,254discount

Non-current liabilities of discontinued 86,397 112,760operations

Total liabilities 31,310,736 28,532,545

Commitments and contingencies (Note 12)

Stockholders' equity:

Common stock, $0.0001 par value; 15,000,000shares authorized; 10,017,038 and 9,675,028 1,001 967shares issued and outstanding at June 30,2020 and December 31, 2019, respectively

Additional paid-in capital 52,372,098 51,566,438

Accumulated deficit (49,929,051) (44,234,087)

Total Stockholders' Equity 2,444,048 7,333,318

Total Liabilities and Stockholders' Equity $ 33,754,784 $ 35,865,863

Eastside Distilling, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2020 and 2019

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Sales $ 4,290,620 $ 4,003,013 $ 8,036,571 $ 7,463,792

Less excisetaxes,customer 277,152 263,745 639,539 368,814programs andincentives

Net sales 4,013,468 3,739,268 7,397,032 7,094,978

Cost of sales 2,447,876 2,337,515 4,956,674 4,592,241

Gross profit 1,565,592 1,401,753 2,440,358 2,502,737

Operatingexpenses:

Advertising,promotional 1,145,014 1,334,053 2,843,775 2,553,229and sellingexpenses

General andadministrative 2,300,507 2,774,777 4,485,270 5,371,013expenses

Loss ondisposal of (20,357) - (19,136) -property andequipment

Totaloperating 3,425,164 4,108,830 7,309,909 7,924,242expenses

Loss from (1,859,572) (2,707,077) (4,869,551) (5,421,505)operations

Other income(expense), net

Interest (323,780) (117,902) (627,375) (225,312)expense

Other income - 794 - 794(expense)

Total other (323,780) (117,108) (627,375) (224,518)expense, net

Loss before (2,183,352) (2,824,185) (5,496,926) (5,646,023)income taxes

Provision for - - -income taxes

Loss fromcontinuing (2,183,352) (2,824,185) (5,496,926) (5,646,023)operations

Loss fromDiscontinued (3,063) (124,302) (198,038) (245,903)operations

Net lossattributableto Eastside $(2,186,415) $(2,948,487) $(5,694,964) $(5,891,926)Distilling,Inc. commonshareholders

Basic anddiluted net $ (0.22) $ (0.32) $ (0.58) $ (0.65)loss percommon share

Basic anddilutedweighted 9,983,564 9,143,755 9,868,708 9,104,593average commonsharesoutstanding

Three Months Ended Six Months Ended

June 30 June 30

2020 2019 2020 2019

Net Loss $(2,186,415) $(2,948,487) $(5,694,964) $(5,891,926)

Add:

Interest Expense 323,780 117,902 627,375 225,312

Loss (gain) on disposal of property (20,357) - (19,136) - and equipment

Loss from discontinued 3,063 124,302 198,038 245,903 operations

Stock-based 304,320 521,339 801,919 767,115 compensation

Depreciation and 624,956 336,374 1,270,232 658,994 amortization

Adjusted EBITDA $ (950,653) $(1,848,570) $(2,816,536) $(3,994,602)

View original content: http://www.prnewswire.com/news-releases/eastside-reports-second-quarter-2020-financial-results-301112098.html

SOURCE Eastside Distilling, Inc.