Business Overview and History
Eastside Distilling Inc. (EAST) is a diversified holding company that has undergone a significant transformation in recent years. Formerly focused primarily on the craft spirits industry, the company has now expanded its portfolio to include a pioneering mortgage technology business through the acquisition of Beeline Financial Holdings, Inc.
Eastside Distilling was incorporated in 2004 under the name Eurocan Holdings, Ltd. In December 2014, the company changed its name to Eastside Distilling, Inc. to reflect the acquisition of Eastside Distilling, LLC. Over the years, Eastside has developed and acquired a portfolio of award-winning spirits brands, evolving to meet the growing demand for quality products and services in the craft and premium beverage trade.
In 2019, Eastside Distilling expanded its portfolio by purchasing the Azuñia brand, along with its direct sales team, existing product inventory, supply chain relationships, and contractual agreements from Intersect Beverage, LLC. However, in December 2023, the company found the Azuñia brand to be impaired and reduced its carrying cost by $0.4 million.
The company has faced various challenges in recent years. In 2022, Eastside incurred a net loss of $16.3 million, primarily due to $7.5 million in unusual items and expenses. In response, the company initiated a restructuring of its spirits division to achieve profitability.
In September 2024, following a comprehensive two-year review of its business portfolio, Eastside entered into an Agreement and Plan of Merger and Reorganization with Beeline Financial Holdings, Inc., a privately-held pioneering mortgage technology company. This strategic move marked a significant corporate transformation for Eastside, as it pivoted from its core spirits business to also include a fintech mortgage platform. The merger was accompanied by a debt restructuring and the sale of the company’s Craft Canning + Printing subsidiary, further refining its focus on spirits and fintech mortgage services.
Beeline operates an end-to-end, all-digital, AI-enhanced platform for homeowners and property investors, addressing the needs of the rapidly growing millennial and Gen Z mortgage market. The company’s innovative approach to mortgage origination and technology aligns well with Eastside’s mission to deliver value to its shareholders and enhance its spirits portfolio through increased scale and collaboration.
Financial Performance and Ratios
Eastside’s financial performance has been mixed in recent years, as the company has navigated the challenges of the craft spirits industry and undertaken its strategic transformation.
For the fiscal year ended December 31, 2023, Eastside reported net sales of $10.50 million, a decrease from $13.88 million in the prior year. The company’s net loss for the year was $7.54 million, compared to a net loss of $16.27 million in 2022. Operating cash flow for 2023 was negative $1.84 million, while free cash flow was negative $2.03 million.
The company’s liquidity position has been a concern, with a current ratio of 1.08 as of December 31, 2023, down from 0.51 in the prior year. Eastside’s debt-to-equity ratio stood at -10.76 as of the end of 2023, indicating a highly leveraged capital structure.
Key Ratios as of December 31, 2023: – Current Ratio: 1.08 – Quick Ratio: 0.32 – Debt-to-Equity Ratio: -10.76 – Gross Profit Margin: 10.10% – Operating Profit Margin: -49.33% – Net Profit Margin: -71.86% – Return on Assets: -43.18% – Return on Equity: 495.46%
Quarterly Performance and Outlook
In the third quarter of 2024, Eastside reported sales of $760,000, a decrease of 5.7% from $849,000 in the prior-year period. The company’s net loss for the quarter was $1.36 million, a 36.8% increase compared to Q3 2023. Operating cash flow was negative $466,000, and free cash flow was negative $464,000. The decreases were primarily due to lower spirits sales and increased corporate expenses related to the merger transaction.
Eastside’s spirits division, operating under the Bridgetown segment, generated $46,000 in positive EBITDA before corporate expenses in Q3 2024, a notable improvement from the prior-year loss. This highlights the progress made in restructuring the spirits business, despite ongoing challenges in the broader spirits market.
For the nine months ended September 30, 2024, Bridgetown generated net sales of $1.98 million, down from $2.94 million in the prior year period. This decrease was primarily driven by lower sales of tequila and bourbon. Gross profit for Bridgetown was $501,000, with a gross margin of 25%. Operating expenses for the segment were $698,000, resulting in net income of $162,000.
The Corporate segment, which consists of key executive and accounting personnel as well as general corporate expenses, had total operating expenses of $1.15 million and a net loss of $2.11 million for the nine months ended September 30, 2024, largely due to $965,000 in interest expense.
Eastside’s recent acquisition of Beeline Financial Holdings is expected to have a significant impact on the company’s future performance. Beeline’s innovative mortgage technology platform, coupled with favorable market conditions such as lower interest rates and increased mortgage application volumes, presents a compelling growth opportunity for the combined entity.
The company has not provided specific financial guidance, but has indicated that it plans to outline its plans for the upcoming year, including Beeline’s contributions, at the appropriate time. The CEO stated that it would be premature to provide incomplete information about Beeline until the consolidation is complete, and that EAST intends to file additional information concerning Beeline in the future, including audited financial statements, which will be included in a future SEC filing.
Liquidity and Capital Resources
As of September 30, 2024, Eastside’s liquidity position remained challenging. The company reported:
Eastside does not have any available credit lines as of September 30, 2024. The negative working capital and high debt burden highlight the company’s ongoing financial challenges.
Segment Performance
Eastside Distilling operates in two main segments: Bridgetown and Corporate.
The Bridgetown segment encompasses Eastside’s spirits portfolio, which spans several alcoholic beverage categories including whiskey, vodka, rum, and tequila. Key brands in the Bridgetown portfolio include:
The Corporate segment consists of key executive and accounting personnel as well as general corporate expenses such as public company and board costs, and interest on debt.
Geographic Markets
Eastside Distilling primarily operates in the U.S. Pacific Northwest region. The company does not have significant sales in international markets.
Recent Corporate Actions
On September 4, 2024, Eastside and its subsidiary Craft Canning + Printing entered into a Debt Exchange Agreement with certain creditors, which resulted in Craft CP being merged into a limited liability company owned by the creditors. This transaction has been classified as a discontinued operation.
Legal Challenges
Eastside has faced some legal challenges in recent years. In 2023, Sandstrom Partners filed a complaint alleging unpaid services, which was settled in October 2024 for an immaterial amount. The company also settled a lawsuit filed by its former CEO Grover Wickersham in June 2024.
Risks and Challenges
Eastside Distilling faces several risks and challenges as it navigates its transformation into a diversified holding company. The craft spirits industry remains highly competitive, with significant pricing pressures and regulatory challenges. The company’s ability to successfully integrate and scale the Beeline mortgage technology business will be crucial to its long-term success.
Additionally, Eastside’s leverage and liquidity concerns will need to be addressed, as the company works to strengthen its balance sheet and improve its financial flexibility. The company’s reliance on a limited number of distributors and customers in its spirits business also presents a concentration risk.
Conclusion
Eastside Distilling’s strategic pivot from its core spirits business into the fintech mortgage industry represents a bold and potentially transformative move. The company’s acquisition of Beeline Financial Holdings presents a significant growth opportunity, as it taps into the rapidly evolving mortgage origination market.
However, Eastside must successfully navigate the integration and scaling of the Beeline business, while also addressing the ongoing challenges in its spirits segment. The company’s financial performance and liquidity position will be critical factors in determining its long-term success. Investors should closely monitor Eastside’s progress as it executes on its strategic transformation, particularly as more detailed information about the Beeline acquisition becomes available in future SEC filings.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.