Everyone, and welcome to the Eastside Distilling Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Amy Brassard, Corporate Secretary. Please go ahead.
Thank you. Good afternoon, everyone, thank you for joining us today to discuss Eastside Distilling's financial results for the fourth quarter and year-end 2022. I'm Amy Brassard, Eastside's Corporate Secretary, and I'll be your moderator for today's call. Joining us on today's call to discuss these results are Mr. Geoffrey Gwin, the company's Chief Executive Officer and Chief Financial Officer, Ms. Amy Lancer, Eastside's Chief Commercial Officer, Ms. Tiffany Milton, Eastside's Controller, and Mr. Bruce Wells, Craft's Controller. Following their remarks, we will open the call to your questions. Before we begin with prepared remarks, we submit for the record the following statement.
Certain matters discussed on the conference call today 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 and are generally preceded by the 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 of 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 31st, 2022, filed with the Securities and Exchange Commission. Now, with that said, I'd like to turn the call over to Geoffrey Gwin. Geoffrey, please proceed.
Welcome to Eastside's fourth quarter 2022 earnings conference call. I'm Geoffrey Gwin, the Interim CEO and CFO, and appreciate your interest in our company. 2022 was a transformational year for Eastside Distilling. The business we have today is very different from that of last year or the year prior. The most obvious change is at Craft, our beverage services business. Last year, we built out and began operating a state-of-the-art digital can printing plant in Portland, Oregon. To remind everyone on the call, this is the only digital direct-to-can decorating operation in the Pacific Northwest. This new facility allows us to create extraordinary can design for the Craft beverage segment that is 100% recyclable and doesn't use plastic shrink sleeves or sticker labels. The cans we are now producing are important marketing tools for our customers.
I've been stating this for the past three quarters of this technology I believe will transform the Craft beverage space. It's a critical tool for them, and I believe we are seeing that proof now. We have converted nearly all of our existing customer base to this 100% recyclable product, and we've won many new customers. Moreover, we've watched as a number of our customers have really fully embraced the capabilities of this new technology, and they're using it successfully at retail. If you've followed the company over the past few quarters and the past year, getting this investment at Craft up and running has been a huge challenge. I mean, think about it. It's a brand-new product. It's new technology. It's a new market for us. We've had to build a new plant, install a new team, build new processes.
It's been a huge undertaking. Initially, we had projected a faster ramp-up to full capacity, but we faced a steep learning curve that impacted our ability to get to scale through last year. Now, while printing performance has improved in 2022, the fourth quarter was particularly challenging as we had to address debottlenecking among many other issues that were inhibiting our ability to achieve that full capacity that we're looking for. Seasonal slowness in the beer category, a core part of our current customer set in the fourth quarter, gave us a chance to improve our processes in printing, it meant not achieving that full capacity in the quarter. That had a negative impact on the gross margin in the quarter, and you can see that in the numbers.
Each challenge we faced, though, during the year, we sorted out a solution to the credit of the team. We improved our processes, and always, we always served our customers. We did the same thing in the fourth quarter. Now, as we sit here now on the last day of the first quarter of 2023, I can say our performance this quarter will be much better. Although coming out of the year, we started January very low. We've seen sequential improvement in January, February, and March. In March, we printed well over 1 million cans alone this month, a record for us. In mobile, we've also made a number of improvements in the fourth quarter and the first part of this year, and we expect better performance there as well. Now let me turn to our spirits business.
Like Craft had its own challenges. In 2022, we made a very hard decision to reposition our Azuñia Tequila brand in retail channels where we would be able to make an adequate return on all the investment spending. This meant exiting a number of distribution deals where we were effectively losing money. Each quarter of last year, we saw volumes decline, and they continued doing that in Q4. At the same time, we are working on improving our distribution partnerships in all our focus states. Walking away from this volume is hard to do, but it was critical for the long-term success of the company. We have completed that, this realignment of investment in Azuñia with restructuring actions that took place in Q1 of this year.
This completes a big shift from an overinvestment in Azuñia to a more balanced approach that allows to leverage the opportunity in both Portland Potato Vodka and Burnside, our other portfolio brands. In addition, you'll see that we've written down a large portion of the goodwill associated with the Azuñia acquisition. We continue to look across our brand portfolio and target the most attractive segments to invest our scarce capital. Given our high cost of capital, this is exactly the disciplined approach we have lacked in the past. We're gonna stay at it. Overinvestment in Azuñia has meant an underinvestment in the Oregon brand. That underinvestment is reflected in their volume performance in the fourth quarter. Rest assured, we will be increasing our investment there in the Oregon portfolio in 2023, and we expect to see significant improvements.
Now, over the course of the year, I've heard from many of you expressing a general frustration of the performance of our stock, and I too share that frustration. Now, I bought a lot myself early last year, and I know many of you want an immediate solution that will unlock the value that we all believe is in this company for all stakeholders. In December, the board, along those lines, instructed the company and me to consider the potential sale of Spirit brands, one or all, and we've put every option on the table and gone through a process that's not complete to date. We do anticipate that we will be wrapping that process up shortly.
While I'm not in a position to answer any questions on that topic today, I can assure you that we will be updating you all once the process has been completed. Tiffany will take you through our year-end results in a moment, but I first would like to give you some rough guidance on what to expect from us this year. We have set a goal to be even or positive for both Craft and Spirits in the Spirits business by the third quarter. Crafts will likely hit that mark sooner than Spirits. We expect improving trends in Spirits volumes and strong growth at Craft due to our digital printing investment. These goals will not be easy to achieve, but I believe we have put a thorough plan together and we have it in place.
The board has approved it, and if we execute it, we will achieve these goals. With that said, I'll turn the call over to Tiffany, who will cover more details, and then we can get into some questions.
Thank you, Jeff. Thank you all again for joining our call today. Let's review the fourth quarter. On a consolidated basis, our gross sales were over $2 million for the fourth quarter of 2022, compared to almost $3 million for the fourth quarter of 2021. Spirit sales were $1.1 million for 2022, compared to $1.4 million for 2021 due to volume softness in Azuñia as we reduced discounting and had soft holiday sales. Craft sales were $1.2 million for 2022 and $1.4 million for 2021, reflecting our continued challenges in mobile canning, and we experienced some unexpected seasonality in can printing during the holidays. Our consolidated gross profit was negative $148,000 for Q4 2022, compared to positive $598,000 for Q4 2021.
Our consolidated gross margins were -6% for 2022 and +23% for 2021. Spirits margins were 13% for 2022 and 38% for 2021. Craft had margins of -23% for 2022 and +10% for 2021. Craft margins are expected to continue to improve as we build volume of printed cans, as Jeff mentioned earlier. Adjusted EBITDA was -$1.6 million for 2022 and -$1.5 million for 2021 due to the continued softness in both businesses. In addition, we recorded an impairment loss related to our Azuñia brand of $seven and a half million.
Turning to the balance sheet, we raised a net of almost $2 million during the fourth quarter of 2022, ending with cash of $700,000 as we continued to pay down debt, which we've fully repaid all loans at Craft. These financial results were not what we expected to deliver. We believe we are now better positioned in spirit as we've eliminated unprofitable volume and reestablished ourselves with our distributors. At Craft, we printed 1 million cans during March. We are focusing only on profitable mobile customers. We are excited about the outstanding growth of the printer for the remainder of the year. As Jeff said, we are also expecting better results from the continued restructuring of both businesses, which will be more apparent in coming quarters. We will now open the floor for questions. Operator?
Thank you. We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from James Watson, a private investor. Please go ahead.
Hi, Geoffrey.
Hey.
Everything. I was looking at full years Adjusted EBITDA margin. It's roughly negative of 30%. If I heard you correctly, we are targeting a positive EBITDA by quarter three, if I'm not wrong. The swing would be quite a big one, you know, to be a break-even level. What gives us the confidence that we will reach there?
Sure. The way I think you need to look at this business is I re-referenced in my remarks, is it's really a completely different business than what you've seen before the company. I mean, in the past we've had a mobile canning operation, which for the people that are new on the call, that's a business where you basically take a small mini canning line to a brewery and you fill cans there. We've transitioned to a big plant that does high quality, super high-end digital graphic printing. Then we can also do the mobile filling too.
The point there is that, you know, in the fourth quarter you saw a pretty big gross margin, you know, miss by Craft, and that's a function of the fact that we didn't get enough, you know, ramp up of cans in the fourth quarter. You know, we went from not having any digital printing to having the only plant in the Pacific Northwest in, you know, less than a year. We converted 100% of our customers in less than a year. Now, beyond that, you have to ramp up and add a lot more customers. We're going from, you know, buying a few million cans a year to now we're in a, you know, a different game. We're in a game where we're buying, you know, 20-plus million cans a year.
What will get us to that EBITDA positive number is three things. It's getting the mobile digital printing business to a point where we're doing over 1.5 million cans a month. Just to correct the number, which actually this month I think we're close to 1.2. That number is a kind of a, is not a, you know, a number that's written in stone because it depends on what cans and the margins and how we source cans and what customer base it's going to. Suffice it to say, we hit that number and we're moving through that number and heading north of that number. We're generating, you know, positive EBITDA at Craft. In spirits you're gonna see something else happen in there.
You'll see we've done quite a bit of restructuring in spirits. We've reduced the workforce significantly, really focused our sales on the core portfolio brands. We believe that that business with some production restructuring is gonna also turn around and generate EBITDA. Then in corporate we've shrunk our corporate headcount pretty significantly, by half, you know, and that's going to be the last piece. I have a lot of confidence we're gonna get there. You know, this is a complicated business for the size it is in the sense that it's multiple businesses. The teams are focused, the plans, you know, in place. We have a couple of things left to do in spirits and then we're fully locked in.
I'm have every confidence that we're on our way to a much better year this year.
I just wanted to do a follow-up, because if we look at the gross profit margin for Craft Canning, I think it's been a negative gross profit margin, for quarter four as well. When we talk about wanting to be break-even, right, how is that gonna happen? We're not even seeing any positive, gross margins at this point.
It's because you have a fixed expense in the Argyle facility. You have a large lease payment. You have, you know, a team that we didn't have before, a printing team, the support staff, right? The losses that you saw in the year at Craft are a function of putting that in place. Then it's a scramble to get that machine up and going, right? Get us to a point where you have enough customers on that machine that we're generating enough gross, you know, margin dollars to absorb that fixed cost. Once you sell a customer, right? He's taken his supply chain away from traditional labels, that can decoration, he's gonna come back for more unless he goes out of business, right?
You disappoint him, he goes back to the old label. We haven't had any of that happen. We're slowly building, adding customers, onboarding new customers to Craft. Just means we're loading the volume on that machine, getting the utilization up. As the gross margin dollars start to grow there, absorbs the overhead, and then you see the margin change. Looking at the margins statically in the rear, you know, window is gonna be, you know, way off where this is gonna be going forward.
Got it. I think it's a, it's a great thing to know that we are achieving EBITDA positive this year. My question is, how are we going to self-finance ourselves until we get to that level? Because assuming we are losing about $1 million-$2 million a quarter, we kind of need about $3 million-$4 million perhaps to tide us through until we, you know, we become breakeven. What are your thoughts around it?
Well, there's a couple interesting things that we have going for us. On the one hand, we, EBITDA is not the same as free cash flow. We have a large barrel inventory, and we have more barrels today than we need, you know. When we sell a bottle of vodka, we don't go. You know, we have to, you know, rebuild that raw material. In the case of bourbon, you know, we're selling it, and we're not actually replacing it. Free cash flow is a bigger number in spirits than EBITDA. Unless we turn on the spigot and spend a lot of money on CapEx, which we're not doing. That helps the company. You know, the other thing that you have to think about is the, you know, how we survived to date.
We've rationalized things that really are high value, not reflected on the balance sheet. We did that in throughout last year with taking advantage of, you know, very high whiskey prices and funded the company as we, you know, executed our build out of craft. I think those are some ways we can do it. Having said that, I'll be the first to admit last year, I was hoping that we would be in a position that we could accelerate growth, add another machine, move faster, and the equity markets obviously haven't, you know, helped us get there. You know, microcaps are not the beloved investment opportunities they once were just a few years ago. That window feels like it's closed to some degree.
You know, this is a situation where I really believe that if we perform here in the first and second quarter, and I wanna be crystal clear, the second quarter is gonna be better than the first quarter. If we perform, then I'm hopeful that we're gonna have multiple avenues to pursue growing the company.
If you have a question, please press star then one to be joined into the queue. This concludes our question and answer session. I would like to turn the conference back over to Geoffrey Gwin for any closing remarks.
Thank you. I am, you know, looking ahead and seeing both of our businesses heading in a much improved direction. I'm super excited about the team and what they've accomplished at Craft. I also am really excited to see how spirits is gonna perform this year because I think we've made a tremendous amount of investment in architecting a plan that's gonna take us to a much better place on both sides of our businesses here, both the Craft Services beverage can printing business and our spirits business in Oregon. Thank you for your time today, and we look forward to talking to you here shortly in the first quarter.
The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.