Eastside Reports Third Quarter 2018 Financial Results

Gross Sales increase 90% driven by accelerating Redneck Riviera shipments

PORTLAND, Ore.--(BUSINESS WIRE)--Eastside Distilling, Inc. (NASDAQ: EAST), a producer of craft spirits, reported third quarter 2018 financial results.

Financial Highlights for Q3 2018 ended September 30, 2018:

• Gross sales for Q3 2018 were $1,698,848, an increase of 90% compared to $895,182 in Q3 2017, led by the continued launch of Redneck Riviera Whiskey (“RRW”), sales from the Company’s private label and wine canning operations, as well as growth within the Pacific Northwest.
• Total shipments increased to 13,275 cases (8,991 for branded products and 4,284 for private label) during Q3 2018 from 6,162 cases in Q3 (5,462 for branded products and 700 for private label) cases in Q3 2017, an increase of 115%.
• Branded product shipments increased 65% to 8,991 cases in Q3 2018 compared to 5,462 in the year ago quarter.
• Q3 2018 case shipments of Redneck Riviera Whiskey were approximately 4,000, and momentum continues to build in Q4 2018.
• EBITDA during Q3 2018 was $(1,388,078), which compared to $(1,062,977) in Q3 2017 as the company continued to invest in accelerating growth of the Redneck Riviera Whiskey via marketing and sales spending.
• Eastside Distilling has incurred (through the end of September 2018) cumulative sales and marketing expenses to support the rollout of Redneck Riviera Whiskey of over $800,000, of which Eastside will be reimbursed 50% in the event the brand is sold. In addition, beginning October 1^st, the Company will be allowed to include a large amount of expenses not previously included in this reimbursable tracking.
• Received $6.1 million in cash and $2.7 million in debt reduction during the third quarter through calling of the publicly-traded Warrants and exercise of the underwriter units.

Recent Operational Highlights:

• Redneck Riviera Whiskey is now distributed in 30 states, though 8 different major distributors.
• Redneck Riviera Whiskey continues to see strong adoption amongst key retailers, including new Q3 2018 authorizations and launches at Albertsons, Safeway, Walmart, Winn-Dixie, Jewel-Osco, Binny’s, and others.
• Redneck Riviera Whiskey is currently located in 4,395 points of distribution (684 on-premise and 3,711 off-premise accounts, which also now include over 1,100 chain-account locations). In addition, already approved authorizations scheduled for rollout in Q1 2019 will substantially add to points of distribution for the chain accounts (with over 1,800 currently planned).
• Costco ordered Redneck Riviera Whiskey for a “road show” test run in two Florida locations in November.
• Formed an LLC in Kentucky as the preliminary step in a partnership with an affiliate of established agricultural company, Caudill Seed, to produce high-grade CBD hemp oil as an ingredient. This is the first step in Eastside developing a U.S. sourced CBD for use in beverages.
• Received TTB approval for the company’s first line of ready-to-drink (RTD) products, “Portland Mule,” based upon Eastside’s award-winning vodka. This will be our Eastside’s first proprietary RTD.
• Took delivery of, and are commissioning, a new 500-gallon still which will enable Eastside to ramp up production of our great gold medal single malt and other products.
• Start of marketing campaign in Oregon to help fuel further growth in Burnside Bourbon case sales.
• Rebranding of the PPV line and release of Marionberry Vodka brand extension.
• The Company celebrated its 10-year anniversary by introducing Burnside Buckman RSV 10-year aged bourbon
• Elected spirits-industry innovator and developer of the Spiked Seltzer Brand, which was sold to ABInbev in 2016, David Holmes to its board of directors. David is currently the CEO of Plant, a company engaged in developing and marketing a beverage based upon hemp derived CBD, a compound that is found in both cannabis and hemp, but that is non-psychoactive.
• Elected Pat Crowley, Hollywood producer of the Bourne films, Jurassic World, and numerous other hit movies to the board of directors to lend his experience with the Company’s celebrity endorsement and co-ownership strategy.

Management Commentary

Grover Wickersham, Chairman and CEO of Eastside Distilling, commented, “We continued to make strong progress with the roll-out of our Redneck Riviera Whiskey product, with year-to-date results significantly surpassing our original expectations. During the quarter, we made strong headway with a number of chain accounts, including new authorizations or launches in key stores, including Walmart, Winn-Dixie, Albertsons, Safeway, Jewel-Osco, and Binny’s, amongst others. We anticipate a significant jump in our points of distribution in early 2019 with these chain accounts based on approved authorizations and the various planned rollout schedules. We also will be running our first test with Costco planned for this month. In addition to the continued adoption of the product in key retailers, we are in the process of opening up the Northeast U.S. market during this 4^th quarter, the last major geographic territory for the product. We couldn’t be more pleased with the marketing support of John Rich, who continues to bring awareness to the product through television, radio, social media, in-store bottle signings, personal outreach, and concerts. All told, we are on pace to do something very few, if any other, spirit brands have ever done in their first twelve months on the market. This is a great testament to everyone involved.”

Wickersham continued, “While our focus is clearly on the continued rapid adoption of Redneck Riviera Whiskey, we also have an eye towards the future. In that regard, we have strengthened our board of directors with a focus on a few key areas: additional celebrity-endorsed or co-owned products, as well as ready-to-drink and “evolved” and/or “cannabis derived” beverages. The addition of movie producer, Pat Crowley, and spirit-industry innovator, David Holmes, to our board of directors will be instrumental as we continue to evaluate these options.”

“The fourth quarter is always our seasonally highest quarter of the year. I expect us to further accelerate our growth rates in the coming quarter as Redneck Riviera Whiskey benefits from the launch of our holiday ‘Git Down Pack,’ continued adoption by retailers who are placing initial orders, as well as reorders by our early adopters. We are seeing increased momentum in Oregon as a result of initiatives taken within our Burnside and Portland Potato Vodka lines. We look forward to a strong finish to the year, and stage set for an even better 2019,” concluded Wickersham.

Financial Results

For the third quarter ended September 30, 2018, Eastside Distilling reported record gross sales of $1,698,848, an increase of 90% compared to $895,182 in Q3 2017. The increase in sales is primarily attributable to: the newly launched Redneck Riviera Whiskey product, increased wholesale sales traction within the Pacific Northwest, our acquisitions of MotherLode and BBD and related expansion of our private label business and canning abilities, offset by a reduction in retail due to store relocations.

Total shipments increased to 13,275 cases during Q3 2018 (8,991 for branded products and 4,284 for private label which includes wine canning and bulk spirit sales) from 6,162 cases in Q3 2017 (5,462 for branded products and 700 for private label which excludes any wine canning), an increase of 115% overall and 65% in branded products.

Gross profit margins (as a percent of Net Sales) were 40.4% during Q3 2018 compared to 37.9% during Q3 2017 and approximately 37% overall in fiscal 2017. The change in gross profit margins is primarily due to the change in revenue mix and the lower federal excise tax in 2018. Our Q3 2018 margins, however, were lower than what we experienced in the first and second quarters of 2018, entirely due to lower margins in our private label business. Our branded product margins were consistent in the quarter at over 50%.

Advertising, promotional and selling expenses during Q3 2018 to $1,128,593 compared to $563,754 during Q3 2017. This increase is primarily due to our efforts to expand our product sales both regionally in the Pacific Northwest as well as target national markets, particularly with the new Redneck Riviera Whiskey product launch. For the three months ended September 30, 2018, $465,778 in advertising, promotional and selling expenses is attributable to the Redneck Riviera Whiskey marketing and expansion efforts.

General and administrative expenses during Q3 2018 increased to $1,559,833 compared to $1,040,942 during Q3 2017. This increase is primarily due to increased headcount and the associated compensation and benefits in addition to higher stock-based compensation expense in 2018.

Total other expense, net was $540,250 during Q3 2018 compared to $40,536 during Q3 2017, an increase of $499,714. This increase was primarily due to the recognition of $332,483 of debt discount related to the principal paydown of outstanding notes as a result of the exercise of the warrants attached to those notes in addition to higher interest expense on notes payable in 2018.

EBITDA during Q3 2018 was $(1,388,078), which compared to $(1,062,977) in Q3 2017.

Net loss attributable to common shareholders was $(2,626,991), or $(0.42) per basic and diluted share for Q3 2018, compared $(1,411,461), or $(0.34) per basic and diluted share in the year ago period.

The company ended the quarter with $4.9 million in cash compared to $2.4 million at the conclusion of the preceding quarter. The company ended with inventories of $10.2 million (at cost) consisting primarily of barrels of light whiskey, bourbon whiskey and rye whiskey stored in third party warehouses, compared to $7.9 million (at cost) at the conclusion of the preceding quarter.

Conference Call

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

Date and Time: 11:30 am ET (8:30 am PT) on Wednesday, November 14, 2018

Call-in Information: Interested parties can access the conference call by dialing [phone] or [phone].

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 [phone] or [phone], confirmation #10126311. 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 Burnside Bourbon, West End American Whiskey, Goose Hollow Reserve, Below Deck Rums, Portland Potato Vodka, Hue-Hue Coffee Rum and a distinctive line of fruit infused spirits. Eastside Distilling is majority owner of Big Bottom Distilling (makers of The Ninety One Gin, Navy Strength Gin and Delta Rye whiskey) and the Redneck Riviera Whiskey Co. All Eastside and Big Bottom spirits are crafted from natural ingredients for quality and taste. Eastside’s MotherLode Bottling 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; 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. The Company assumes no obligation to update the cautionary information in this release.

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.

Q3 2018 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 November 14, 2018 on Form 10-Q for the period ended September 30, 2018, 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
September 30, 2018 and December 31, 2017
	September 30, 2018			December 31, 2017
Assets
Current assets:
Cash	$	4,856,389		$	2,586,315
Trade receivables		725,091			315,321
Inventories		10,175,031			4,051,282
Prepaid expenses and current assets		475,716			649,749
Total current assets		16,232,227			7,602,667
Property and equipment, net		1,482,313			728,506
Intangible assets, net		298,227			325,668
Goodwill		28,182			28,182
Other assets		453,820			343,942
Total Assets	$	18,494,769		$	9,028,965
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,306,873		$	1,267,189
Accrued liabilities		185,299			156,163
Deferred revenue		980			1,579
Current portion of notes payable		169,005			293,726
Total current liabilities		1,662,157			1,718,657
Secured trade credit facility, net of debt issuance costs		1,948,108			-
Notes payable - less current portion and debt discount		2,300,000			2,161,760
Total liabilities		5,910,265			3,880,417
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $0.0001 par value; 15,000,000 shares authorized;
7,202,648 and 4,889,745 shares issued and outstanding at
September 30, 2018 and December 31, 2017, respectively		720			489
Additional paid-in capital		36,511,301			23,223,435
Accumulated deficit		(23,942,464	)		(18,090,961	)
Total Eastside Distilling, Inc. Stockholders' Equity		12,569,557			5,132,963
Noncontrolling interests		14,947			15,585
Total Stockholders' Equity		12,584,504			5,148,548
Total Liabilities and Stockholders' Equity	$	18,494,769		$	9,028,965

Eastside Distilling, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2018 and 2017
	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Sales	$	1,698,848		$	895,182		$	4,787,097		$	2,608,373
Less excise taxes, customer programs and incentives		209,801			276,845			553,030			772,525
Net sales		1,489,047			618,337			4,234,067			1,835,848
Cost of sales		886,828			384,265			2,278,119			1,101,803
Gross profit		602,219			234,072			1,955,948			734,045
Operating expenses:
Advertising, promotional and selling expenses		1,128,593			563,754			2,838,417			1,499,751
General and administrative expenses		1,559,833			1,040,942			4,267,831			2,615,810
Loss on disposal of property and equipment		-			-			-			40,975
Total operating expenses		2,688,426			1,604,696			7,106,248			4,156,536
Loss from operations		(2,086,207	)		(1,370,624	)		(5,150,300	)		(3,422,491	)
Other income (expense), net
Interest expense		(540,250	)		(41,436	)		(703,903	)		(184,998	)
Other income (expense)		-			900			2,700			5,385
Total other expense, net		(540,250	)		(40,536	)		(701,203	)		(179,613	)
Loss before income taxes		(2,626,457	)		(1,411,160	)		(5,851,503	)		(3,602,104	)
Provision for income taxes		-			-			-			-
Net loss		(2,626,457	)		(1,411,160	)		(5,851,503	)		(3,602,104	)
Dividends on convertible preferred stock		-			-			-			5,037
Income (loss) attributable to noncontrolling interests		(534	)		301			(637	)		(1,174	)
Net loss attributable to Eastside Distilling, Inc. common shareholders	$	(2,626,991	)	$	(1,411,461	)	$	(5,852,140	)	$	(3,605,967	)
Basic and diluted net loss per common share	$	(0.42	)	$	(0.34	)	$	(1.07	)	$	(1.08	)
Basic and diluted weighted average common shares outstanding		6,256,459			4,142,632			5,462,070			3,342,332

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
		2018			2017			2018			2017
Net Loss	$	(2,626,457	)	$	(1,411,160	)	$	(5,851,503	)	$	(3,602,104	)
Add:
Interest Expense		540,250			41,436			703,903			184,998
Loss on disposal of property and equipment		-			-			-			40,975
Provision for Income taxes		-			-			-			-
Purchase accounting adjustments		-			1,933			-			23,358
Stock-based compensation		334,913			206,872			986,193			486,194
Stock issued for services		259,993			74,216			456,071			413,936
Depreciation and amortization		103,223			23,726			262,168			53,770
Adjusted EBITDA	$	(1,388,078	)	$	(1,062,977	)	$	(3,443,168	)	$	(2,398,873	)