Reeds Inc

Good morning and welcome to Reed's fourth quarter and full year 2024 earnings conference call for the three and 12 months ended December 31st, 2024. My name is Joelle and I will be your conference call operator for today. We will have prepared remarks from Norman E. Schneider, Reed's chief executive officer and Doug McCurdy, Reed's chief financial officer. Following their remarks, they will take your questions. Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reid's business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, March 26, 2025, and the company is under no obligation to update them. When discussing results, the presenters may refer to non-GAAP measures, which exclude certain items from reported results. Please refer to REIT's fourth quarter 2024 earnings release on REIT's investor website at investor.reitsinc.com and its annual report on Form 10-K for the 2024 fiscal year expected to be available on the website soon. For definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Schneider.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2024 results. Throughout this past year, we implemented strategic initiatives to strengthen our financial and operational foundation to position REITs for long-term success. We reinforced our balance sheet, streamlined operations, and enhanced efficiencies laying the groundwork for sustained growth and profitability. While net sales declined in 2024 due to inventory production constraints, vendor credit limits, and short order shipments, our disciplined approach to operations, new product launches, and targeted investments have set the stage for a return to growth, gross margin enhancements, and shareholder value creation in 2025. Turning to the fourth quarter, A key milestone for us was the completion of a $10 million private placement, which closed on December 30, 2024. We have begun to deploy the funds this year to both build inventory levels, enhance personnel, and sales and marketing resources. As previously discussed, inventory constraints have posed challenges in fully meeting customer demand, particularly during the second half of 2024. However, with the completion of our private placement and strategic debt restructuring, We now have a delevered balance sheet and enhanced financial flexibility. This capital infusion will enable us to maintain inventory at optimal levels, ensuring consistent order fulfillment rates and reducing the short order shipments that previously hindered our growth. As we move into 2025, although the process to rebuild inventory can take approximately 60 to 90 days, today I am pleased to share that we are well positioned to capitalize on increased retail demand drive greater operational efficiency, and expand our presence across key distribution channels to build sales momentum as we progress throughout the year. Another important development, which took place after year end, was the appointment of Douglas McCurdy as Chief Financial Officer and Salvatore Vassello as Vice President of Operations. Doug brings extensive experience in finance, corporate strategy, and capital markets, having served as both the chief financial officer and chief operating officer for multiple early stage growth companies. His expertise in financial management, operational scaling, and strategic capital allocation will be invaluable in optimizing our cost structure and driving sustained profitability. Sal joins us with a deep background in inventory management, strategic sourcing, and supply chain optimization with leadership experience at Boiling Bottling Company, Ferrero, Snapple Beverages, and Henkel. His proven ability to enhance procurement strategies and strengthen distribution networks will be an asset to Reed's. Together, Doug and Sal will play instrumental roles in driving operational excellence, maximizing profitability, and advancing the company's growth objectives. In addition to reinforcing our leadership team this year, we are also expanding our product portfolio with the launch of our new multifunctional soda line. This innovative lineup is formulated with organic ginger, complex adaptogen mushroom extracts, and prebiotic fiber. Each serving contains only five grams of sugar, approximately 30 to 45 calories, 500 milligrams of adaptogens, and 2,000 to 5,000 milligrams of organic ginger. The flavor profile includes berry bubbly, strawberry vanilla, lemongrass ginger, and root beer. These beverages cater to the rising demand for health-conscious functional refreshment options and position us at the forefront of the evolving beverage market. This launch is a natural extension of our legacy, leveraging Reed's expertise in natural plant-based ingredients to create better-for-you beverages that deliver both great taste and functional benefits. The early response from retailers has been overwhelmingly positive, reinforced by their expansion of shelf space dedicated to the functional and better-for-you beverage category. We have already secured over 8,000 points of distribution for this new product line, which is expected to hit the shelves between April and August 2025 across key national retailers, including Sprouts, Kroger, Walgreens, Duane Reade, Hannaford, Stop and Shop, and National Co-op Grocers. Looking ahead, we expect strong momentum as we roll out this product line throughout 2025. Now turning to our fourth quarter sales and operational highlights. We experienced solid retail gains during the fourth quarter with new points of distribution secured across major retailers. We gained over 1,100 new placements across Albertson Safeway for Reed's Ginger Ale, Virgil's Root Beer, and Vanilla Cream Cans. Additionally, Flying Cauldron is now part of the National Display Program where sales have exceeded expectations. As we head into the summer selling season, we anticipate continued momentum. Our four-pack Reed's ginger ale is now the number one ranked SKU in dollar sales within the expanded natural channel over the latest 52 weeks ending February 23, 2025, generating $1.9 million in sales. With a 6% market share in this category, we see substantial opportunities for further growth. Virgil's handcrafted cans have been added to NCG, Infra, Smart & Final, Harris Teeter, Giant Eagle, Stop & Shop, with an expanded sorbent launching in sprouts after a strong 2024. This expansion brings an additional 3,000 points of distribution in 2025. We continue to transition from glass bottles to cans at key retail partners, including Whole Foods and HEB. The strategic shift underscores our efforts to improve delivery and handling costs on a per-case basis and lower price points for consumers. Our team successfully rotated our winter variety pack at Costco in Q4 2024 and secured commitments to expand our assortment into 2025. The winter variety pack includes ginger ale, cranberry ginger ale, and our new blackberry ginger ale. This expanded lineup features our ready-to-drink classic mule set to launch in Costco clubs across Los Angeles and Hawaii starting in late April 2025. We secured placement at Walmart for our new 7.5 ounce mini eight-pack cans for both ginger beer and ginger ale, marking the first major retailer to take our new mini can format. In early 2025, secondary placement surged with a successful off-shelf completed at Sprouts, an upcoming shipper program with Kroger, and a BOGO promotion at Publix, both set to launch in the second quarter of 2025. These placements are a testament to the strength of our brand and the growing demand for our premium craft beverages. As we continue to expand our distribution footprint, we are focused on ensuring that we can meet demand with improved inventory management and production efficiency. Throughout the year, we continue to take proactive measures to streamline our distribution network, reduce input costs, and improve our supply chain. These efforts have resulted in continued gross margin improvement that is currently in the low to mid 30% range quarter to date. driven by the optimization of our ginger beer formulation, better pricing on key materials, and supply chain improvements. Our co-packing partnerships with Battle Co-Packing and Drink Pack have strengthened our production capabilities for both bottles and cans, ensuring consistent supply and mitigating freight inefficiencies. With these improvements in place, we expect to generate meaningful savings in delivery and handling costs, which have already been reduced by 10% in Q4. Additionally, Our transition from glass bottles to cans across Reed's and Virgil's portfolio has been well received by both our retail partners and consumers, enabling us to offer more cost-effective format. We have successfully built our finished goods inventory during the current quarter and will be in a position to drive sales growth beginning in the second quarter. This increase in inventory will also contribute to improved service levels and to lower freight logistic costs, improved gross margin, sales velocity, and promotional sales performance. Q1 customer orders are steady and are trending ahead of last year. During the four weeks ending February 23, 2025, the U.S. natural expanded channel, as reported by SPNS, contained 8% dollar sales and 13% unit sales growth, while IRI MULA data, which is defined as multi-outlet, including grocery, convenience, drug, mass, Club, Dollar Stores, Military, and Walmart had mixed results, although there were several positive trends as we continue to see momentum in ginger ale as well as benefits from our continued transition from glass to cans with ginger beer. The sales velocity for Virgil's is lagging as we are still working through the glass to can transition for our full sugar line. Looking ahead, our continued execution of strategic initiatives enhancing distribution, refining our cost structure, and launching innovative functional products provides a solid framework for success in the evolving beverage market. We remain committed to delivering premium, better-for-you beverages that resonate with consumers while driving value to our shareholders. Before wrapping up closing remarks, our new CFO, Doug McCurdy, will cover the financial highlights for the quarter in more detail. Doug, over to you.

Thank you, Norman. I'm pleased to address our shareholders and prospective investors for the first time as Reed's due CFO. I was drawn to Reed's for its incredible brand heritage and the opportunity to return the company to sustainable growth and profitability. I'm very much looking forward to partnering with Norman and the entire Reed team in the journey ahead. Turning to our results, all variance commentary is on a year-over-year basis unless otherwise noted. Net sales for the fourth quarter of 2024 were 9.7 million compared to 11.7 million in the year-ago quarter. This decrease was primarily driven by short-order shipments due to prior inventory constraints. Gross profit for Q4 2024 increased to 2.9 million compared to 0.5 million for the same period in 2023. Gross margin was 30% compared to 4% in the year-ago quarter. The increase was driven by one-time charges in the prior year period, including a $1.8 million non-cash packaging inventory valuation adjustment and a $1.3 million provision for product holds related to the company's swing lid program. Delivery and handling costs were reduced by 10% to $1.7 million during the fourth quarter of 2024, compared to $1.8 million in the fourth quarter of 2023. Delivery and handling costs were 17% of net sales or $3 per case compared to 16% of net sales or $2.82 per case during the same period last year. Selling general and administrative costs were $4.8 million during the fourth quarter of 2024 compared to $3.0 million in the year-ago quarter. Altogether, Operating expenses were 6.6 million compared to 5.4 million in the year-ago period. Operating loss during the fourth quarter improved to 3.7 million or negative 25 cents per share compared to a loss of 5.0 million or negative $1.55 per share in the fourth quarter of 2023. Modified EBITDA was negative 0.7 million in Q4 2024 compared to positive 43,000 in the year-ago period. For the fourth quarter of 2024, the company used approximately 3.9 million of cash from operating activities compared to cash use of 0.2 million for the same period in 2023. This was primarily driven by higher inventory purchases compared to the year-ago period. As of December 31, 2024, the company had approximately $10.4 million of cash and $9.6 million of total debt net of capitalized financing fees. This compares to $0.6 million of cash and $27.4 million of total debt net of capitalized financing fees at December 31, 2023. I will now turn the call back to Norman for closing remarks.