Eastside Distilling (NASDAQ: <a href="https://finance.yahoo.com/quote/EAST?p=EAST" alt="Eastside Distilling Stock">EAST</a>), a small-cap beverage company based in Portland, Oregon, might not be a household name yet. But if you've sipped a craft beer at Dodger Stadium, enjoyed a new RTD beverage from a major consumer product company, or marveled at the vibrant, photorealistic graphics on a regional hard seltzer can, you've likely interacted with their work. Behind the scenes, Eastside Distilling's Craft services business, with its cutting-edge digital can printing technology, is quietly revolutionizing the beverage packaging landscape.

While many analysts have focused on the company's efforts to reach profitability in its spirits segment, a closer look at the <a href="https://seekingalpha.com/symbol/EAST" alt="Q1 2024 Earnings Call Transcript">Q1 2024 earnings call transcript</a> reveals a remarkable trend. Eastside Distilling's digital can printing segment isn't just surviving, it's thriving. It's experiencing an unseen tsunami of growth, and the implications for the company's future are immense.

The Q1 transcript paints a picture of a business reaching an inflection point. Can production soared to a record high, more than tripling compared to the same period last year. The company pre-announced can volumes for Q1 2024 at over 4.7 million cans, an 88% year-over-year increase. This growth isn't driven solely by existing mobile canning clients converting to digital printing. Eastside Distilling is winning over former mobile customers who had opted for in-house production using less sustainable shrink-sleeve labels. More importantly, they're attracting large-scale customers across the West Coast, securing contracts with high-profile brands and products.

The secret sauce? Eastside Distilling is riding the wave of a fundamental shift in consumer beverage marketing. Packaging, particularly in the craft beverage space, is no longer an afterthought. It's become a critical battlefield where brands vie for consumer attention and loyalty. Consumers are increasingly drawn to products with eye-catching, unique, and sustainable packaging. This is where Eastside Distilling's digital can printing technology shines. It offers a level of flexibility and customization that traditional printing methods simply can't match.

Consider this: Craft breweries are thriving, even in the face of competition from major players. Their secret weapon? Stunning can designs that draw consumers in. And who's quietly supplying them with those show-stopping cans? Eastside Distilling. They're empowering these smaller brands to compete on an even playing field with industry giants, offering a platform for creative expression and rapid brand building.

This shift towards digital printing isn't just about aesthetics. It's also about sustainability. Consumers are increasingly concerned about the environmental impact of their choices. Eastside Distilling's 100% recyclable aluminum cans, free from wasteful sticker labels and plastic wraps, are a perfect fit for this environmentally conscious market.

Can Production Growth

Eastside Distilling's can production has exploded in recent quarters, driven by the adoption of its digital printing technology.

Financial Projections

Eastside Distilling estimates that one digital can printing machine can produce 25 million cans a year. With the company on track to acquire a second machine in 2024, their potential output doubles to 50 million cans. Based on current growth trajectories, it's reasonable to assume that both machines could be operating at full capacity within the next year.

This raises a crucial question: What does this mean for Eastside Distilling's bottom line? The CEO hinted at the answer during the Q1 call, highlighting the immense leverage that comes with adding a second machine. Fixed costs, such as rent, labor, and overhead, are already absorbed by the existing operation. The second machine adds significant incremental revenue while barely touching these fixed costs, translating to dramatically higher profitability.

Considering their current operating expenses, reaching the projected gross profit with two machines could potentially swing the entire company to profitability. However, there's a bottleneck. The company's explosive growth is straining working capital. They're consuming aluminum cans at a rapid pace, and financing this growth is a pressing challenge. The CEO acknowledged this during the call, highlighting the need to redeploy assets, secure financing, and optimize the balance sheet to keep pace with burgeoning demand.

Q1 2024 Earnings Call Transcript

"Fun Fact: The standard 12oz aluminum beverage can is designed to withstand over 90 pounds of pressure per square inch. That's more than three times the pressure found in a typical car tire!"