Reeds Inc

Good morning, and welcome to REIT's second quarter 2025 earnings conference call for the three and six months ended June 30th, 2025. My name is Anas, and I'll be your conference call operator for today. We will have prepared remarks from Sir Wallace, REIT's chief executive officer, and Doug McCurdy, REIT's chief financial officer. Following their remarks, they will take your questions. Before we begin, please take notes of the company cautionary statement. Today's call will include forward-looking statements, including statements about REIT's business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, August 13, 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 for reporting results. These refer to REIT's second quarter 2025 earnings released on the REIT's investor website at investor.reitsinc.com, and its quarterly report on Form 10-Q for the period ended June 30, 2025. Expected to be available on the website soon for definitions and reconciliations of non-GAAP measures and additional information regarding results, including discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Wallace.

Thank you, Anis. And good morning, everyone. We appreciate you joining us today to discuss our second quarter 2025 results. We are in the early stages of strengthening our commercial execution. and better positioning REITs for long-term growth and profitability. Although we saw softer order volumes during the quarter, we are making meaningful progress in streamlining operations, refining our marketing approach, and investing in channel development initiatives. We believe these efforts will help restore key placements and open new growth avenues in under-penetrated channels, such as convenience and food service. In Q2, we began to see downstream effects of last year's supply chain disruptions, which impacted order volumes during the quarter. To mitigate further disruptions, we are investigating and sales personnel to rebuild key relationships and have taken steps to rebalance manufacturing to better align with updated demand forecasts. We believe these actions will better position us to recapture loss placements as retailers enter formal reset periods in the fall and spring. At the same time, internal execution is improving and we're actively pursuing new distribution opportunities to diversify our channel mix and support long-term growth. To support this initiative in July, we appointed Rachel Fox Greenwood as Vice President of On-Premise Sales to lead our expansion into food service and convenience channels. Rachel is a seasoned commercial executive with a proven track record of driving market expansion, forging strategic partnerships and building scalable programs across the beverage industry. She has held leadership roles at French Bloom, Catalina Wines, and empire merchants where she consistently delivered strong results in both on-premise and retail environments. Her expertise will be instrumental as we broaden our reach, strengthen channel execution, and further elevate the Reed's brand. Our growth strategy pairs channel expansion with ongoing product innovation. Our new Reed's functional soda has been well received within the grocery and natural channel. Velocity is steadily ramping, and the most recent data has shown encouraging signs of acceleration. Consumer feedback also has led us to believe that our functional soda line will be successful in the months and years to come. Since launching in April, our team has amassed more than 9,000 points of distribution, including national distribution of sprouts and placement at retailers such as Kroger, Don Carlisle, Hannaford, Duane Reade. In addition, Harris Cedar added all four of our functional SKUs chain-wide, while National Co-op Grocers, or NCG, incorporated the full lineup into its core assortment. Our formulations combine Reed's signature bold flavors with functional wellness ingredients, including organic beer, prebiotic fiber, and adaptogenic mushrooms. So far, we've seen encouraging traction on our root beer and berry bubbly SKUs. We're currently working through our initial inventory as we prepare to roll out updated formulations later this year, incorporating feedback from both retailers and consumers. This measured approach reflects our focus on rebuilding sustained velocity in a competitive category. Our goal is to deliver a product that aligns with evolving better-for-you trends while staying true to Reed's uncompromised committed to quality. We view the functional space as long-term opportunity and we'll continue to invest in the vertical as it grows. Turning to our core product sales. During the quarter, our sales team continued to deliver a solid commercial win and build momentum across both new and existing retail partners. I'd like to highlight some of these wins. First, we reached a key milestone at Costco, securing approval for our Reed's Winter Ginger Ale variety bags. Based on current commitments, we anticipate product sales in the second half of 2025 to reach the seven-figure range, a meaningful achievement for the brand. At Safeway, we've both done the success of our Q1 secondary display program with expanded commitments for the second half of the year. Our sales team has secured over 25,000 cases of pre-committed secondary displays scheduled to land in late Q3 and early Q4. This program spans both seasonal and everyday items and will be launching more than 500 stores. We also completed a shipper program at Kroger, placing over 500 displays across our legacy ginger beer and new functional SKUs. The program spanned five divisions and concluded in late Q2. We're encouraged by the results and we look forward to expanding our presence across the broader Kroger footprint. At Whole Foods Market, we're preparing to execute our third consecutive year of national secondary displays. Set for September, the program will support our alcohol portfolio and reflects a strong long-term partnership and consistent performance within the chain. Beyond these major retailers, we significantly grew our secondary distribution, securing meaningful displays at Sprouts, National Grocers, MyVitamin Cottage, and NCG, further reinforcing our presence in key natural and grocery channels. Finally, our direct-to-consumer channel advanced with the launch of our new website aimed at enhancing the user experience deepening engagement with our customer base, and driving steady subscription-based revenue growth. While this sales channel represents a small portion of business today, we will continue to invest, and it has become a larger contributor in the future. Now to dive into our second quarter operational highlights. During the quarter, we remain focused on executing the functional initiatives established earlier this year while adapting to evolving demand trends. Our priorities continue to center on improving execution, enhancing commercial capabilities, and driving efficiency across the organization. As a part of our efforts to align operations with current demand trends, we evaluated inventory and determined that 1.6 million of write-offs were necessary based on product portfolio optimization. Although it's impacted gross margin for the quarter, we believe it was an important step to improve inventory management and working capital efficiency. and to ensure our manufacturing and supply chain resources are focused on high-demand, actively supported SKUs. On the logistics and supply chain front, we rebalanced inventory across regions to improve delivery efficiency and minimize out-of-stocks in key markets. While this led to elevated delivery and handling costs for the quarter, these investments are already enhancing service levels and better positioning us to support retail partners ahead of the fall reset period. We also continue to advance our transition from glass to cans across both Reed's and Virgil's portfolios. This initiative is driving greater savings through reduced freight costs and is receiving positive feedback from both retailers and consumers. Looking ahead, our focus is on driving sales growth within our core Reed's, Virgil's, and portfolios, improving margins and positioning Reed's for sustained growth and profitability. Rebuilding key relationships takes time, but we're encouraged by the foundation we've established and believe we're on the right path to drive sustained improvement in long-term growth. Before wrapping up with closing remarks, our CFO, Doug, will cover financial highlights for the quarter in more detail. Doug, over to you.

Thank you, Cyril. All variance commentary is on a year-over-year basis unless otherwise noted. Net sales for the second quarter of 2025 were $9.5 million. compared to $11.9 million in the year-ago quarter. The decrease was primarily driven by lower volumes with recurring national customers. Gross profit for the second quarter of 2025 was $0.8 million compared to $3.8 million in the year-ago period. Gross margin was 8% compared to 32% in the year-ago quarter. The decrease in gross margin was primarily driven by 1.6 million of inventory write-offs related to changes in product portfolio optimization made by new management. Excluding these inventory write-offs, gross profit for the second quarter of 2025 was 2.4 million, or 25% of net sales. Delivery and handling costs were 1.6 million during the second quarter of 2025, compared to 1.4 million in the second quarter of 2024. Delivery and handling costs were 17% of net sales, or $2.83 per case, compared to 12% of net sales, or $2.18 per case, during the same period last year. Selling general and administrative expenses were 5.0 million during the second quarter of 2025, compared to 3.1 million in the year-ago quarter. The increase in SG&A was primarily driven by contract proceeding costs and our investments in personnel, marketing, and related services to support growth initiatives. Altogether, operating expenses were 6.6 million compared to 4.5 million in the year-ago period. Net loss during the second quarter of 2025 was 6.0 million, or negative 13 cents per share compared to 3.2 million or negative 77 cents per share in the second quarter of 2024. Modified EBITDA was negative 2.9 million in the second quarter of 2025 compared to $45,000 in the second quarter of 2024. For the second quarter of 2025, we used approximately 5.0 million of cash from operating activities compared to cash used of $0.9 million for the same period in 2024. As of June 30, 2025, we had $2.7 million of cash and $9.7 million of total debt net of deferred financing fees. This compares to $10.4 million of cash and $9.6 million of total debt net of deferred financing fees at December 31, 2024. I will now turn the call back to Cyril for closing remarks.