Eastside Distilling, Inc. (NASDAQ:EAST) is a diversified beverage company that operates in two distinct segments - Craft Canning + Printing (Craft C+P) and Spirits. The company's Craft C+P business provides digital can printing and co-packing services to the craft beverage industry, while its Spirits segment manufactures, blends, bottles, markets, and sells a portfolio of award-winning spirits brands.

Business Overview

Eastside Distilling's Craft C+P segment operates an innovative digital can printing facility that allows it to digitally print high-quality graphics on aluminum beverage cans. This technology offers greater flexibility than traditional decoration methods and has been a key driver of growth, as smaller craft beverage manufacturers seek custom graphics for limited releases, vintages, partnerships, and special events. In addition to digital printing, Craft C+P also offers mobile canning services and a co-packing facility in Portland, Oregon.

The company's Spirits segment includes a portfolio of well-recognized brands spanning several alcoholic beverage categories, such as whiskey, vodka, rum, and tequila. These brands, which include Burnside Whiskey, Portland Potato Vodka, Hue-Hue Coffee Rum, and Azuñia Tequilas, are sold on a wholesale basis to distributors in open states and through brokers in control states.

Financials

For the full year 2023, Eastside Distilling reported annual revenue of $10.5 million, a decrease of 6% compared to the prior year. This decline was primarily driven by a reduction in bulk spirits sales, which offset growth in the Craft C+P segment. The company's annual net loss was $7.5 million, and annual operating cash flow and free cash flow were -$1.8 million and -$2.0 million, respectively.

In the first quarter of 2024, the company continued to see strong performance in its Craft C+P business, with sales increasing 27% year-over-year to $1.8 million. This growth was driven by increased digital can printing volumes, which reached a record 4.8 million cans in the quarter, up from 2.5 million cans in the prior-year period. However, the Spirits segment experienced a 4% decline in volume, leading to a 15% decrease in net sales to $0.6 million.

Consolidated gross profit for the first quarter of 2024 was $0.2 million, with a gross margin of 8%, compared to $0.6 million and a 22% gross margin in the prior-year period. The decline in gross margin was primarily due to the absence of high-margin bulk spirits sales in the current quarter, as well as increased costs related to the Craft C+P business, including investments in spare parts and higher can prices.

Liquidity

As of March 31, 2024, Eastside Distilling had $0.3 million in cash and a working capital deficit of $11.2 million. The company has been dependent on raising capital from debt and equity financing to meet its operating needs, and it had an accumulated deficit of $84.0 million as of the end of the first quarter.

Management has stated that the company's ability to meet its ongoing operating cash needs over the next 12 months depends on asset sales, external financing, and improving operating results. The availability of external financing will be largely dependent on improvements in the company's performance, including higher digital can printing revenues and improved gross margins at Craft C+P, as well as operational improvements in the Spirits segment.

Risks and Challenges

Eastside Distilling faces several risks, including its ability to continue as a going concern, its compliance with Nasdaq listing requirements, and the potential for further declines in the Spirits segment due to macroeconomic headwinds and input cost pressures. However, the company is actively working to address these challenges, including through debt restructuring, cost-cutting measures, and strategic initiatives to drive growth in its Craft C+P business.

Outlook

In the Craft C+P segment, the company is focused on expanding its digital printing capacity and customer base, leveraging its unique capabilities to capture market share in the rapidly growing craft beverage packaging market. In the Spirits segment, management is pursuing partnerships and operational improvements to enhance profitability and position the business for long-term success.

Conclusion

Overall, Eastside Distilling's diversified business model, with exposure to both the dynamic craft beverage packaging market and the regional spirits industry, presents opportunities for growth, though the company will need to continue executing on its strategic initiatives to address its liquidity and profitability challenges. Investors should closely monitor the company's progress in the coming quarters as it works to stabilize its financial position and capitalize on the potential of its Craft C+P and Spirits segments.