Eastside Distilling, Inc. (EAST) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Eastside Distilling Third Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation there will be opportunity to ask question. Please note, this event is being recorded. I would now like to turn the conference over to Amy Brassard, Corporate Secretary. Please go ahead.
Amy Brassard: Thank you. Good afternoon, everyone, and thank you for joining us today to discuss Eastside Distilling's financial results for the third quarter 2021. I'm Amy Brassard with Eastside Distilling, and I'll be your moderator for today's call. Earlier, Eastside issued third quarter 2021 financial results in a press release. Joining us on today's call to discuss these results are Mr. Paul Block, the company's Chairman and Chief Executive Officer; and Mr. Geoffrey Gwin, Eastside's Chief Financial Officer. Following their remarks, we will open the call to your questions. Before we begin with prepared remarks, we submit for the record the following statements. Certain matters discussed on this conference call by the management of Eastside Distilling may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements describe future expectations, plans, results or strategies that are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements. Such matters involve risks and uncertainties that may cause actual results to differ materially include, but are not limited to, the company's acceptance and the company's products in the market, success in obtaining new customers, success in product development, ability to execute the business model and strategic plans, success in integrating acquired entities and assets, ability to obtain capital, ability to continue its going concern 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 pertaining to the company's annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission. Now with that said, I'd like to turn the call over to Paul Block. Paul, please proceed.
Paul Block: Thank you, Amy, and I'd like to thank all of our participants for joining the Q3 earnings call today. Certainly appreciate your continued interest in Eastside Distilling and your support as we strive to fix, build and grow the company. Now despite all the obstacles of the marketplace and this turnaround, we continue to make significant progress, especially on the balance sheet. I must say, for the first time in over a year, it's nice to have adequate cash and liquidity to run the operations of the company for today, tomorrow and throughout the year. We can now fund changes in working capital to grow our canned inventory for craft. We can fund investment capital needed to build new revenue streams like digital canned printing, and we can increase much needed discretionary spend for spirits to fuel sales and marketing. As you know, the company is broadly underinvested in its spirits brands for years and has significantly curtailed many growth initiatives due to balance sheet and cash burn issues. In addition to liquidity, we've made significant progress in the debt stack and structure. The company continues to extinguish maturing notes and loans, substituting them with much improved loan terms and strategic partners. As good stewards of your capital, we continue to work diligently to accelerate value. Geoff Gwin, our CFO, will give more detail on the balance sheet in his overview. So what I'd like to do now is move on to the operational progress and performance for Q3. We remain on track to deliver the 3-year strategic growth outlined in our plan. Unfortunately, the Q3 2021 consolidated revenue was a bit softer than we forecasted, down 23%, primarily due to our craft canning and bottling division. We did believe in the short term, we could ride on the coattails of COVID a bit longer as we serviced craft beer filling and craft beer raw material purchases. Q3 2020 was the peak of the COVID lift for craft as the pandemic was just emerging and summer was driving seasonal production demand. Therefore, we're experiencing a bigger year-on-year decrease for craft in Q3 2021, down 32%. Despite the near-term softness in the mobile revenue stream, we have accelerated our fixed facility initiative, and the first facility with pasteurization capability will be up and running in 2 weeks from today, and a second similar fixed facility will be operational by Q2 2022. In addition to the fixed facilities, we're in the final stages of closing a canned purchase agreement with G3. G3 is a supply chain subsidiary of Gallo with significant scale. If you recall, aluminum canned shortages also caused many issues for us at craft throughout this year. We now have guaranteed adequate supply of cann’s at an agreed-upon price throughout 2022. This is an absolutely critical component as we receive our digital canned printer in Q1 and bring it operational in Q2. We also have a new 50,000-square-foot facility that we will secure for craft as of December 1, 2021, with rent abated until April 1, 2022. This facility will house the first printer, the small fixed line -- or another small fixed line and the Portland craft operation. The facility has the ability to accommodate a second printer that we plan to purchase and receive later in 2022. Now for those of you who recall the mix of growth in the craft 3-year plan, the mobile business unit growth was relatively flat with fixed facilities and digital printing leading the charge. As mentioned, to offset the short-term softness in the mobile business unit, we're accelerating the start-up of the fixed facility business unit. As planned, we will be using the printer and canned supply to attract customers to mobile and to drive the overall craft revenue forward. In an effort to accommodate the shift in market demand, we'll further boost mobile revenue for craft by adding 2 small mobile lines that will serve new small customers and current customers wanting smaller runs. One of the larger lines, mobile lines, will be used to -- will be used for the new Spokane market, and the second line will be moved to the fixed facility in Milwaukee. We continue to be agile and respond to market conditions, with the need for speed of execution to build a reoccurring stream of revenue that meets our strategic operational objectives. To fuel the new printer, the new lines and the new market for mobile, we plan to add 22 additional full-time employees for craft by Q1 of 2022. Now turning to the Spirits division, the opportunity for growth has not changed just the headwinds and speed of execution. For those that remember, they reviewed the Q3 results, the Spirits 9-liter EQ case volume is down 7%. However, when normalized for discontinued products and the 2020 onetime sell-in with no sellout of Portland Potato Vodka in California, volume is actually up 8% for the third quarter of 2021 year-on-year. Now of course, our goal is to achieve a much higher rate of growth than 8%, and the Q3 spirits volume would have been even more robust, if not for the issues on the Azunia supply chain and the slower conversion of our wholesale distributors in priority states. For Azunia, we unfortunately experienced lingering periods of out of stock due to limited company liquidity throughout the year. In addition to our out-of-stocks, our Mexican bottle supplier informed us in the summer of 2021, that our bottle is no longer available due to the high demand of big players and COVID-19 issues. We're currently finalizing a 5-year agreement with OI Packaging Solutions a leading supplier of glass bottles to supply the full portfolio of Eastside, and we now have a short- and long-term bottle solution for Azunia. We continue to work with our distiller in Mexico to optimize production, increase supply and reduce costs, and we'll have more information on our discussion and success going forward relative to our Mexican supply. In terms of our wholesale distributors, our goal has been to convert our large mega distributors where we are small fish to craft-focused distributors where we are a big fish. We've made the change in Texas from R&DC to green light, as I mentioned before, and we've just recently made the change in Colorado from R&DC to Classic, which will be effective January 1. Our focus now has shifted to Azunia -- I'm sorry, to Arizona, which is targeted to change in February 2022, and then to California, which is targeted to change in April of 2022. Although I have reported the new Texas distributor change in the last conference call, the additional products from Eastside portfolio are just now hitting the streets with Burnside Bourbon and Portland Potato Vodka. We've continued to focus on point of purchase, micro event sponsorship and targeted digital marketing. To this end, we just announced our sponsorship with the Portland Trail Blazers, which will give us tremendous brand visibility in product sampling, product sales opportunity in our logic market. In addition, we anticipate these product sales at the Moda Center for both basketball games and music concerts. Our spirits brand strategy continues to connect with consumers directly on an experiential level with local events that correlate with the target consumers' lifestyle. Equally important, is the opportunity for consumers to simultaneously sample products and enjoy the distinct features of handcrafted Eastside Spirits. And most important of all, is the opportunity we have to reconnect with this consumers at the point of purchase with point of sale. We are pursuing and securing other event sponsorship tie to the sales promotion and retail merchandising like Heal the Bay beach cleanup in California, Hood to Coast run in Oregon and Cinco de Mayo across all priority markets. We will continue to announce our biggest sponsorships and events as they come to fruition. While our plan is to stay focused on Azunia, Burnside and Portland Potato spirit brands, we're now finalizing Burnside ready-to-drink cocktails like bourbon and cola and honey and lemonade, both with a very distinct product attribute of 12% alcohol by volume. We will also be launching the Eastside Cherry and the Eastside Cranberry Whiskey in Q1 2022, and we continue to develop our Azunia Organic Margarita ready-to-drink cocktail. With all of these accomplishments in place or spirits, returning our focus and increasing our focus to a more methodical approach of concentrating on 3 primary brands in our top 6 priority states. We are targeting markets, setting objectives for physical and effective distribution measuring lift from our promotions and accelerating velocity per point of distribution. Again, the most critical element of success for Eastside overall is adequate liquidity. With liquidity now in place and our strategy is established, it's now time to thrive and kick in execution. With a balance sheet that's now fully supports the operating plan, we can move forward in a more deliberate manner to purchase product, build programs and execute plans. Now before we open the line for questions, let's first hear from Geoff Gwin, our CFO, who will review the quarter and specific performance year-to-date.
Geoff Gwin: Thank you, Paul, and let me add my welcome to our third quarter call. You have heard us repeat all year, fix, build and grow, and I'd like to take the liberty to start my discussion of our results with the balance sheet and address how we have fixed it and prepared for growth. When we finished our 2020 fiscal year-end, our cash balances were depleted Moreover, if you recall in our 10-K reported current liabilities of $30 million with cash of less than $1 million to address those liabilities. Now with a business that was still consuming cash, we have more time to deploy our business plans. Among these current liabilities, we face an imminent maturity of our ABL facility as well as upcoming unsecured notes maturing in the second quarter. So in the first quarter, we engaged a broad range of stakeholders and we began working through an initial financing plan. One critical component was completed with the R&R deal, which included a sale of unproductive inventory and closing that money-losing business. The successful completion of that deal injected much needed liquidity into the company, giving us cash to pay down debt and address the upcoming note maturities. That hard work in the first quarter led to a successful private placement of convertible notes which we reported in the second quarter. So I'm happy to report that in the third quarter, we continued to achieve more milestones, probably the most significant of which was the finalization and Board approval of the 3-year strategic plan an exhaustive effort to blueprint the growth that we have been referring to since we started last year. In August, shareholders embraced that plan and voted to increase the share count. That's a huge vote of confidence in management, which Paul and I appreciate. Since then, we have seen a number of strategic large investors recognize the plan and invest in the company. And I'd like to take a moment to thank these stakeholders for their confidence in the team and the strategy. Those partnerships have allowed us to immediately go to work on improving the company's balance sheet, liquidity and begin investing in the future. So I'll summarize the 3 -- some of the third quarter successes, starting with the fact that early in the quarter, we see an opportunity to accelerate our business transformation plan at craft with the purchase of a key cann printing equipment that Paul referred to from a partner hedge cost. This is the single largest investment we have made since the Redneck Riviera deal. The header cards investment was funded by $2.4 million in equity warrant proceeds we pulled forward. Second, rather than do a dilutive and likely disruptive equity placement, we engaged B. Riley and launched an ATM. The ATM had immediate success, and we placed 2 significant blocks of stock with institutional investors via reverse inquiry and continue the ATM through the quarter. This program allows us to raise equity at very low transactional costs, limiting dilution. In total, we've raised over $3 million in equity from the ATM. In addition, we successfully placed another $2.5 million in a private Series B preferred transaction was another important stakeholder. In total, in Q3 and subsequent to the close of the quarter, we have raised nearly $8 million of equity in preferred, which I consider it's a huge success given where we started with the $1 million in cash and maturing debt. We have carefully managed the increases in our share count. And just like many of you who are focused on keeping share issuance to a minimum and as of today, I can report that our shares outstanding totaled 15.5 million. Now we have reduced short-term debt by $23.7 million, either refinancing it out longer or paying it down since we started the year. Looking out next year, we see even more progress there. And today, we announced more news as we're in the final stages of closing a senior loan with Lending Group, which is a $9.6 million ABL facility backed by our assets, including our valuable whiskey. That line, along with cash on hand, will finish off the repayment of and add to liquidity and provide more growth capital. We are through due diligence there and in documentation, expect the loan to close late November, probably more likely early December. Now where does all this activity leave the company today? As of today, we have $3.5 million or more in cash and largely prepaid for our first digital printer. Once we see the ABL line is closed, our liquidity will expand to over $13 million, assuming the full use of the ABL line. For those that like ratios, our current ratio at December was, as I mentioned, 4.2. That's $12.8 million of current assets over $30 million of liabilities. That's a distant memory, and we now stand at 1.8. Our net current debt, that's debt due in less than a year, less cash on hand is $1.1 million, a significant improvement. And assuming our stock stays around the price -- this price or higher, and the CN ABL is closed, our next meaningful maturity which the company would have to repay in cash, is out over 2 years. So in summary, the balance sheet has been fixed and rebuilt. And most importantly, it's been loaded for investment growth. Now let's turn to the income statement and cash flow. The third quarter sales were down to $3.3 million compared to $4.2 million in the prior year. And as Paul said, the majority of that decline is from our craft canning division due to lower demand for our filling services and cans recycled to hit pandemic last year. Spirit net sales were $1.4 million, flat to the prior year. Remember, net sales of spirits includes commissions, discounts and excise taxes. If you adjust for the PTV sell-in last year, as Paul stated, we'd be positive. We reported the quarter volumes in the press release. However, I'd like to point your attention to our brand performance, particularly on a gross margin on a gross margin basis. Now we don't normally go into specifics here on margins by brand, but I want to make a very important point and share a new milestone. Burnside gross margin -- gross profit margin was better year-over-year despite the lower case sales due to price increases and our focus on higher-margin SKUs like foreside black and reserve. In the category, premium spirit brands have all faced out-of-stock stock and supply shortages, and we are in an enviable position with over 3,000 barrels of brown spirits, raw material stock that we pull from to build our products. And in Azunia, we saw the reverse, an increase in volume and lower profitability. The lower profitability was due to a shift in selling more lower priced gave serve and the 1 liter SKUs due to the fact that we were out of stock for much of the quarter and the 750 higher-value SKUs. Again, as a reminder, Azunia is imported, and we have less control over that supply chain, but we're working on that. So on a consolidated basis, even though we had a reduction in gross revenues, we largely made up for the craft gross margin shortfall in spirits with a reduction in discounts, improved position. So here's the milestone. I will venture to say spirits is successfully being repositioned at higher gross margin levels. We just need to sell more. Now moving down the income statement. We had better performance in OpEx with meaningful expense improvements in SG&A. Our loss from operations was $1.5 million better than last year's $1.6 million, and adjusted EBITDA was a loss of $611,000, a 16% improvement over the prior year. And we have provided a reconciliation of EBITDA and adjusted EBITDA in the press release. So please refer to that for more details. Our net loss per share was $0.32 versus $0.17 last year. And I want to call out the fact that the GAAP treatment of the warrant pull forward that occurred in the quarter required we treat the exercise as a deemed dividend and was recorded as a loss attributable to common shareholders pushing up EPS losses for the quarter. You can refer to the -- the income statement for the details on that. On balance, looking across our financial report this quarter, we've made substantial progress. While we'd like to see more volume growth in spirits and the immediate impact of our pivot in craft canning, we are on track with our fixed build growth thesis and believe we will see more tangible progress in the quarters ahead. Now with all that said, let's turn this over to you for questions. Operator?
Operator: Our first question comes from Kelvin Seetoh with Slingshot Capital. Please go ahead.
Kelvin Seetoh: It's fantastic to hear from you again. I got a lot ever done. Great execution. I think your earnings call is always informative and educational. It's something I appreciate, and I think it differentiates the quality of the team. So I'll start off by asking which stage of our turnaround are we at currently?
Paul Block: This is Paul. Yes, I think we're at the -- as I said in the last call, we're towards the back end. It's just been a year of mitigating risks and taking care of all the skeletons in the closet. I would say there's 1 or 2 other issues that are on our list of things to do. But other than that, we pretty much have most of it behind us. I mean, the biggest part of the turnaround is in the balance sheet, honestly, and to get in a position now where we just have some cash and also due to you and your team and your investment has been great. So I'd say we're in the back 25%. We've got 80% to 90% of it complete now.
Kelvin Seetoh: Also, given where we are right now, we have fixed the balance sheet and our Branding Officer, General, I think, signed an incredible deal with the Poland Trail Blazers. But in kudos to and the team, there are 2 parts to my question. Number one, it seems that we are more willing to spend on marketing dollars right now. Is that the right way to think about it? And second, would you elaborate more on this deal? For example, what are some potential outcomes we ar seeking from it? And are we going to bring this excitement to the social media as well?
Paul Block: Yes. Okay. Well, I think marketing is the right spend in the markets where we have distribution. Now that's why you see us thinking about Oregon. We have over 280 points of distribution in Oregon, which is great, but we probably can double it. I mean, even though Oregon's our top market, there's a lot of room for growth. And I think by spending in a market where we have a lot of visibility, distribution base, and we can build on that is the right way to go. The Trailblazers will give us tremendous awareness, hopefully, more unaided awareness. And the cost per point of contact is very cost-effective, and we'll be able to sample and engage our consumers. So I think marketing spend is the right way to go in the market.
Kelvin Seetoh: For mobile canning and with the digital canned printing and pasteurizer coming in together with the partnership with G3, could you share with us how this will help to generate more sales and capture more margin for craft canning?
Paul Block: Yes. Well, first of all, when you think of mobile, the mobile canning throughout the United States has been focused on craft beer only. And I think as Kevin just said, there's an enormous beverage market that's growing, Kombucha, energy drinks, coffee, teas, RTDs, alcoholic beverages. So mobile has only served one small segment of beverage that's been the craft beer segment. And the craft beer segment overall, forget about the pandemic has really been giving up share of stomach to craft spirits and to wine. And so just by its very nature, it had a great heyday and it's rescinded. What the pandemic did is kind of just dialed it up a little bit more in the near term. What we're doing now is we're pivoting quickly from just craft beer with the mobile business unit operation to being able to service the entire beverage business. Now we're not going to service the big guys, like Anheuser-Busch or Monster or some of the others, but we're going to service the smaller players. And when you have pasteurization, you can do a lot more. And when you have different type of fillers, we can certainly service higher carbonated pasteurized beverages like Kombuchas. We can do cold filling and cold storage, so we can start to look at coffee and tea. And we can move beyond other types of just malt beverages and even into RTDs. So there -- in the fixed facility with pasteurization opens up a different marketplace and a marketplace that is growing significantly, and some of it is underserved. Now when you overlay the printing, the digital printing, it really creates a technological innovation because a lot of these smaller beverages are not using silk screening to print their cans. They're using either plastic sleeves or paper wraps. In the case of plastic sleeve, they're not biodegradable. They go into landfill. And with many paper wraps, depending on the ink they use, those, too, are not biodegradable. So when you overlay an opportunity to target an expanded market with digital printing, you now have the idea to move into something that's user friendly, environmentally friendly, still the same cost and now service a bigger mark. For the mobile market, this will -- the digital printing will also be an innovation. It will allow our canned lines to move faster because we won't be putting labels and applying paper labels on the line that have already been printed. And so the efficiency will increase in the mobile line, and the cost will come down for users that want to use the mobile lines. It will also give us a competitive advantage against other mobile purveyors in the market because they won't have digital printing. So in the near term, it will be a tremendous competitive advantage. So again, while we're not ecstatic about our short-term softness, our focus is clearly on exponential and accelerated growth and leaning into markets that are growing, that are underserved, and we know we can have a point of difference. So hopefully, that answers your question, not too long winded.
Geoff Gwin: One if I can just throw in one other just tackle in on the end of this is Kelvin was out mentioning Hansens and the evolution into Monster beverage and one of the things about that story and the history of that company that always -- that I'm reminded of is how underappreciated they were when they made their pivot. And when they are focusing on a category that was not appreciated, the energy drink market was in infancy. And one part that we're still trying to understand how significant it is, is the marketing advantage of working with the digital printing machine for cann’s as opposed to the long supply chain for the other forms of packaging that the current craft market uses. I mean this is a market with the consumer product and the marketing attack points and at point of sale are tremendous. I mean they're basically creating new forms of advertising by season with what they put on cann’s. It's unlike anything else in the grocery store, I would argue. And this is a machine that's going to allow us to let them do something even more fantastic. So what does that mean for us? I think it's really hard to quantify, but I think it's the tip of a spear. And craft is going to look completely different next year than this year.
Kelvin Seetoh: And I think what you both described itself is exciting, bringing up new markets. So I'll just go one last question. For the customers that craft canning is currently serving, could you share with us some feedback that you've gotten on the ground like how are they navigating and adapting to the shift? And also to squeeze another thought that I have, one of the thoughts on the digital printing and pasteurized value-add that Eastside can provide to them?
Paul Block: Well, I can respond -- take a shot at that. Geoff, can chime in, if you like. But I think what's been interesting, one of the things that has been an unintended consequence in the mobile market space with the small craft brewers has been these PPV loans. So the government has given out a lot of loans to small purveyors. And a lot of them have used those loans to buy their own equipment. So that's something that was an unintended consequence that nobody really could foresee. So a lot of them have shifted over to their -- not a lot, but a significant amount has really just invested in their own equipment. Secondly, certainly, with the on-premise opening up, they can go back to keg business and forgo their can business. So what's happened across the United States is a lot of that small brewers are running shorter runs, smaller runs, which obviously are less efficient. And the third thing, I think that's really shifted has been their ability to purchase raw material. When COVID first started, there was no cann availability. There were no corrugated, no pack tack for the holders that go on top. And so everybody just bought from us because we had a supply. And actually, we really didn't have a supply because it was touch and go on the cans and corrugated impact deck. So they just looked to us for all their supply. Now they're buying a lot more on their own as the supply loosens up a bit. And as I said, we now have all our cans locked and loaded for 2022, both quantity and price. Same with our bottles. That's very different. So I think a lot has changed over the years and I think they're shifting more towards buying their own material. They're shifting more towards using their own equipment and they're shifting more towards servicing a different type of package now that on-premise is opened up. So those are all trends that have changed. Our pivot is timely. I mean we put it in place 4 or 5 months ago when we did the 3-year plan. It's just that the market has -- the trend that we're going against are -- have been a little bit different. Q3 trend was significantly accelerated last year. If you look at our Q3, we've been pretty flat ever since Q2 are -- you'll look at our trend, if you trend out craft, it's had a small increase over the summer, and it's pretty flat now in Q3 and will be flat in Q4. So really, the biggest variation has been the lift that's occurred. And I think that's the same for all mobile scanners throughout the country. So the shift will occur in that brewers will take on more of the responsibility through kegs to raw material purchase and through their own equipment. And I think craft -- those that pivot the quickest will be the winners.
Kelvin Seetoh: I think that's all I have. I think following how Eastside has faced and built the business from where it is, is amazing and exciting. And I'm looking forward to the growth plan ahead.
Paul Block: Well, thank you. And sometimes internally, I know we are doing some good things like Geoff said, margins up 50% on spirits, operating expenses down 27%. We're getting quality distribution, not quantity. But sometimes inside, it's just relentless, knocking out the issues one after another. And I think we've got 8 out of 10 of the issues behind us, 1 or 2 more. So we appreciate the external view and your encouragement. So thank you.
Operator: The next question is from Kelvin Seetoh with GIM and Partners. Please go ahead.
Kelvin Seetoh: First of all, I'd like to say that I'm happy to see that our company has sort of stabilized itself. I think the turnaround is more or less done. And kudos to Paul and Geoffrey. And it's testament to show that the effort that you guys have put in in terms of stabilizing our gross margins. Even though the revenues have come down a little bit, but our gross profits remain strong and the operating losses did not actually widen. So I think we are in a very good shape now to really pursue the growth verticals that we want to go after. I have two questions on my end. First of all, even though we have kept our losses tight this quarter, it seems that our spirits business is affected badly by our distribution strategy. So could you give us more color on what happened to the distributors, whether is this a onetime event so that we can understand and make an accurate assessment about the spirits trajectory going forward?
Paul Block: Yes. Well, it's just been a little bit slower in terms of engaging our bigger distributors or transitioning from our bigger distributors. So I would say that as a onetime event, it's basically a onetime pivot, so to speak, in terms of our strategic focus. And I was talking to the Board about this the other day that when we were pricing our products lower and targeting national on- and off-premise chain accounts, to just get distribution, large distributors made a lot of sense because we were out getting the distribution mostly through lower price, which, as we talked about in prior calls, we believe that's unsustainable because that's a race to the bottom. We -- and actually, over time, I think even our past forward realized that we're getting a lot of distribution, but we weren't getting a lot of velocity. So we've completely changed our strategy to be more special, to be more premium, to be more craft-oriented. And what that means is shifting our focus from large chains on and off-premise large distributors going up and down the street, being focused and engaging our -- not only our retailers but our consumers. And that means that sometimes the bigger distributors -- or most of the time really aren't the right distributors because they're really good at taking orders, but they're not really good at working out in the market. And let me just give one example. I was talking to our salesperson in Texas, where we changed our distributor. And he told me that his sales, just on Azunia because the distributor hadn't brought in Burnside or PPV yet. That month-on-month from September to October, these sales were up 20%, and because that distributor was working with him in the street, they were targeting accounts, the distributor was more open to his engagement and the engagement was more frequent. So the way you should think about this is by Q2 of next year, we'll have either engaged our big distributors or converted our big distributors to marry our operating strategy for spirits. Now it's -- these things always take longer or have unintended consequences? And when we talked about Portland Potato Vodka, selling in and not selling through. One of our old team members have put 1,000 cases of Portland Potato Vodka into one of our very large distributors in California. And I always joke that it was like the Raiders of the Lost Ark. It went into the distributor and until there was a personnel change, we didn't even know it was there until we started to try and sell more Portland Potato Vodka based on new promotions in California. So the smaller distributors are going to be more nimble, they're going to be more agile, and they're going to work with us much more closely. So the way to think about this is a comprehensive strategic pivot from on-premise low price, low margin to really being a special craft-oriented company. And I'll give one more short anecdotal story. I was interviewing an on-premise person for Oregon the other day. And she said, I said, "Why do you want to work at Eastside? I said, what really attracts you to Eastside, but you can work anywhere. You're working for some big folks now. You can work for another big suppliers because I want to work for a company that makes special products and is pride in their products and just doesn't want to sell quantity alone quality. And I said perfect. This is the right place. So that's where we want to go and bringing our distribution network is going to take a couple more months. And by Q2, I feel like we'll be well on our way.
Kelvin Seetoh: Right. That's awesome to hear. It seems that opportunity ahead is really tremendous because we are making this onetime shift to distributors that are more aligned with us and are more incentivized is to grow into our 3-year plan together with us. So that's great hearing from you, Paul. My last question would be regarding the filing that we have done. We have actually announced a partnership with Frito-Lay. And in the recent years, we've seen companies like Coca-Cola and PepsiCo entering the alcoholic space. And Frito-Lay has a revenue run rate of over $18 billion and its parent company, PepsiCo is worth more than $200 billion. So it's are really well known and sold all across the world. And earlier this year, PepsiCo announced a partnership with Boston Beer Company to create an offering. So are we doing a similar model here? And I was just wondering how do we land this partnership with Frito-Lay, what makes them decide to work with us a $50 million market caned craft distiller, what do they see enough for us to have this booking partnerships with them? .
Paul Block: Well, I think it comes down to one word, that I would use, which is craftsmanship. That's the first word I would use. And the other word, I think, and again, you'd have to ask them. This is just my interpretation is our micro marketing ability. And those 2 things are what they're focused on is they want to build a very unique product that has a very special flavor profile and it's handcrafted, and they want to do it in a very kind of discovery, targeted micro marketing manner. And I think in that regard, the 2 of us share those to kind of strategies and capabilities and are working together. In regard to what's possible, Well, I think it's a tremendous complement that they would want to work with us. And I think it says something about who we are and why they would choose us. And it makes me feel like maybe we are special. I know you guys keep saying we're very special, and we really appreciate that, but it's always nice to have somebody like Frito-Lay come to us and choose us. And we're going to deliver for them on every on every measure with the product and with the micro marketing approach, now they're spending a little bit of their money on that. And as to what's next and what's possible that's the next chapter. But we need to do this and we need to execute it well. We're close with them and then perhaps we can look at other possibilities. .
Kelvin Seetoh: Well, it looks like the future for our company is really getting more and more exciting when you have such a large partner that has this alignment of values and you can actually pursue the market and grow together with them. So yes, I'll be excited to look forward to the next earnings call.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul Block for any closing remarks. .
Paul Block: Well, thank you all very much. We appreciate your time, your interest and most importantly, your support as shareholders. And Geoff and I will be continuing to work diligently to be good stewards of your capital. I think one of the things that we said really stood out is that -- and I appreciate you seeing that is that we're really trying to curtail the operating loss. If we can drive revenue over time and maintain a reasonable operating loss I think we do have an exciting business model. We'll have much more to report to you during the next annual earnings call. So have a great holiday season, and we look forward to talking with you then. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
