Reeds Inc

Good afternoon, and welcome to Reed's fourth quarter and full year 2021 earnings conference call for the period ending December 31st, 2021. My name is Tom, and I will be your conference call operator for today. We will have prepared remarks from Norman Snyder, Reed's chief executive officer, and Tom Spizak, Reed's chief financial officer. Following their remarks, they will take your questions. I would like to remind listeners that this conference call will include forward-looking statements. Forward-looking statements are only current predictions and are subject to known risks and unknown risks, uncertainties, and other factors that may cause actual results, levels or activity, performance, or achievements to be materially different from those anticipated by such statements. These factors include, but are not limited to, greed's ability to manage growth, manage debt, and meet development goals, Reed's ability to protect its supply chain in light of disruption caused by elevated freight costs and other impediments, the availability and cost of capital to finance our working capital needs and growth plans, reduction in demand for products, dependence on third-party manufacturers and distributors, changes in the competitive environment, future business outlook, including the potential impact of COVID-19 on Reed's business and results of operation, and other information detailed from time to time in REITs filings with the United States Securities and Exchange Commission. These statements, including financial guidance, involve risks and uncertainties that may cause actual results or trends to differ materially from the company's forecast. The achievement or success of the matters covered by such forward-looking statements, including future financial guidance, involves risks, uncertainties, and assumptions, many of which involve factors or circumstances that are beyond REITs control. Fiscal 2022 guidance reflects year-to-date business trends, including the ongoing operating environment related to COVID-19. The COVID-19 pandemic and its related impacts could continue to create many incremental potential business risks, including the potential impacts to REIT's ability to access raw materials, production, transportation, and or other logistics needs, as well as potential inflation-related material inflation related to all aspects of supply chain and logistics, which cannot be reasonably estimated and may not be completely factored into current fiscal 2022 guidance. Gross margin guidance assumes our known pricing for ingredients, packaging, and production costs, each of which has been and could continue to be impacted by factors related to COVID-19. Financial guidance should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. For more information, please refer to the risk factors discussed in READS Form 10-K and Form 10-Q to be filed with the SEC today. Although management believes that the expectations reflected in forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance, or achievements. In addition, any projections as to the company's future performance represents management's estimates as of today, March 31st, 2022. READS assumes no obligation to update any forward-looking statements or information which speaks as of their respective dates. Additionally, please note non-GAAP financial measures referenced during the call are reconciled to the comparable GAAP financial measures in the press release and supplemental materials filed with the SEC, and it's posted on Reed's investor website at investor.reedinc.com. Modified EBITDA is presented because management believes it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding them with what we do not believe are indicative of core operating performance. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with GAAP. And Reed's non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to GAAP measures, as well as the definition of each measure, their limitations, And our rationale for using them can be found in this afternoon's press release and in Reid's SEC filings. And I will now turn the call over to Mr. Snyder.

Thank you, and good afternoon, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2021 results. 2021 was another year of solid growth and execution. We faced many obstacles with our supply chain and logistics, but we persevered. I would also like to note that several improvements we made in 2020 and 2021 offset many of the supply chain impediments that we encountered last year, lessening the potential impact. We are continuing to strategically reduce the cost of our products to recover from the margin growth we experienced during 2020. We had two primary goals last year to drive our growth, distribution expansion and brand launches through innovation with an emphasis on new, larger, and faster growing categories. Regarding distribution, we increased our retail coverage footprint by 10% from the prior year with Reed's products sold in over 45,000 retail locations nationwide. Specifically, this increase was driven by ACV growth, or all comedy volume, a measure of distribution based on total store sales. That was up 5% over last year, while velocity increased by 11% for the 52 weeks ending December 26, 2021. The same measures increased even further as ACV grew 14% and velocity was up 5% in the latest four-week period, according to IRI MULO scan data. During the year, we continued to build out our direct store distribution, or DSD network, by adding 30 new distributors in Florida, Texas, Ohio, Colorado, New Mexico, Oklahoma, Minnesota, and Pennsylvania. Overall case volume through our DSD network increased 60%, during 2021. We plan to continue to augment our DSD network during 2022 and are rapidly closing existing white space. Let's turn to our second goal for last year, brand launches. When I joined Reed's in 2019, it was clear that we had significant brand heritage and brand equity. However, the majority of sales were driven by ginger beer, which in our opinion is too narrow of a category for such a strong brand. While we have not seeded any market share, we are critically focused on innovation to meet our goals within our established timeframe. Shortly thereafter, we launched our first ginger ale, which stands in a category 10 times the size of ginger beer. In 2021, we are proud to say that ginger ale sales were up 150% year over year in the significantly larger category, with ACV increasing 102% and Velocity up 34%. It is still early for Reed's Ginger Ale, and we are intently focused on further growing velocity in our distribution network to keep the momentum going. We also soft-launched our Ginger Ale mocktails in securing 1,000 doors last year, which has increased to 5,000 doors so far in 2022, with multiple new flavor offerings in our portfolio. We look forward to bolstering Ginger Ale mocktail distribution with the addition of drug and convenience stores. Another notable category expansion was our entrance into the ready-to-drink, or RTD, and flavored malt beverage, or FMB, category in 2020. The RTD and FMB category are the fastest-growing verticals in the beverage industry and already five times the size of ginger ale. Our first product launch was our Reed's Classic Mule in 2020, and in 2021, we reacquired the distribution rights. In the RTD segment of our business, we initially converted 42 distributors on the eastern half of the United States and are in the process of converting an additional 10 in the east and are adding 12 in the west coast. We anticipate increasing doors that carry our alcohol lines by approximately tenfold during 2022 by leveraging our DSD network, which we will discuss later in the call, along with our upcoming launch of hard ginger ale.

Overall,