Reeds Inc

Good morning and welcome to REIT's third quarter 2025 earnings conference call for the three and nine months ended September 30, 2025. My name is Lily and I will be your conference call operator for today. We will have the prepared remarks from Sarah Wallace, REIT's chief executive officer, and Douglas Curdy, REIT's chief financial officer. Following the 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 READ's business plan. Forward-looking statements inherently involve risks and uncertainties, and only reflect management's view as of today, November 4, 2025. And the company is not under obligation to update them. When discussing results, the presenter may refer to NANGOP measures, which exclude certain items from the reported results. Please refer to READ's Investors website at investors.readsinc.com and its quarterly report on Form 10-Q for the period ended September 30, 2025. This should be expected to be available on the website soon. For definitions and reconciliations of man-goth 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. Wallace.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Q3 marked another period of steady operational progress as we continued executing our plan to strengthen our foundation for sustainable long-term growth and profitability. We advanced our manufacturing initiatives to better align production capacity and capabilities with current demand, enabling us to meet customer needs more efficiently while maintaining a strong focus on quality and operational discipline. At the same time, we're identifying additional opportunities to streamline processes, enhance scalability, and drive further improvements in overall performance. During this quarter, we saw higher than anticipated trade spin as we leaned on two large distributors to help fulfill order volume and ensure on-time delivery to key customers following prior supply chain challenges. This approach enabled us to maintain strong customer relationship and service levels. However, It did not yield the expected efficiencies, and we have since begun redefining our approach with these distributors. We're evaluating our strategies to move away from short-term, three-month promotions to a fully integrated 52-week strategy that aligns more closely with retailer planning cycles and supports stronger year-round execution. With a more disciplined approach, we expect greater predictability and control over trade spend. We're already seeing early signs of improvement in Q4. And as we transition away from legacy distributor arrangements, we believe these actions will support continued growth margin expansion going forward. From a production standpoint, we are working to drive greater efficiency and cost reduction through enhanced manufacturing processes, tighter operational controls, and improved sourcing discipline. We are actively identifying new opportunities to lower unit costs and enhance overall performance across the supply chain. Turning to our core product sales, during the third quarter, our sales team continued to execute against our refined commercial strategy, driving meaningful wins across both new and existing retail partners. These successes reflect stronger alignment between our sales, marketing, and operation teams and demonstrate the progress we're making in rebuilding placements and expanding distribution within key national and regional accounts. We achieved notable retail gains this quarter, highlighted by our partnership with Costco to develop a winter ginger ale variety pack, expanding seasonal innovation opportunities. Core distribution grew 4% year-over-year across top accounts, including Kroger Sprouts Ajo Delhaize, reinforcing momentum within our core ginger ale, ginger beer, and Virgil's portfolio. A successful Walgreens test further validated consumer demand and merchandising performance paving the way to broader expansion discussions and priority small format channels such as drug and convenience. Additionally, we remain focused on regaining loss distribution with key regional wins at Harman's, Bash's, and Festival Foods. Looking ahead, we're focused on expanding our presence in underrepresented channels and particularly food service and convenience, which represent meaningful long-term opportunities to expand the reach and visibility of Reed's brand. I'd like to share a few updates on our product portfolio, starting with our core categories. We're reinvigorating the ginger core with full packaging and brand restage across Reed's Ginger Beer and Ginger Ale, launching July 2026. The update introduces new ginger ale flavors, cranberry, blackberry, and reformulated zero sugar offerings, plus new club soda and tonic mixers. Together, these moves simplify our lineup, sharpen shelf presence, and strengthen Reed's leadership and authentic Kraft ginger beverages across retail and on-premise channels. A complete restage of our functional soda line, also slated for July 2026, will reestablish Reed's as a category disruptor. Designed to leapfrog the modern service space, the new platform delivers wellness for proposition with purposeful ingredients, elevated design, and a bold innovation pipeline targeting incremental consumption occasions. We're optimizing Virgil's and Flying Cauldron, transitioning from glass to cans with full restates slated for 2027, and reformulating our RTD range, Reed's, Mule's, and Hard's ginger ale to enhance quality, flavor, and consistency. Internationally, Reed's launches its ginger core in Greater China and Japan, followed by broader Asia in 2026. To support our next phase of growth and brand evolution, we've strengthened our leadership team with several key additions, who bring deep expertise across marketing, commercial execution, and governance. In early September, we appointed Tina Reed-Singani as Chief Marketing Officer. Tina brings over two decades of global marketing leadership across lifestyle, spirits, and consumer packaged goods. She has built a scaled, iconic brand at Unilever, Pernod Ricard, and Remy Contreau, delivering double-digit growth, award-winning campaigns across multiple categories. Her expertise in brand storytelling, innovation, and premium positioning will be instrumental as we modernize and elevate Reed's Inc. portfolio on its path to becoming a high-growth beverage powerhouse. Next, we welcome Keith Johnson as Reed's Chief Go-To-Market and Customer Officer. Keith has almost 30 years of CPG beverage experience, spanning sales, distributor operations, marketing, and revenue growth. He spent 21 years in leadership positions at Coca-Cola, building high-performing collaborative teams Over the past 10 years, Keith led national and regional customer teams at Molson Coors and most recently served as VP of Strategic Regional Accounts and Military at Diageo, driving channel strategy, joint customer supply growth, and talent development. We believe he is well-positioned to lead our channel development strategy and go-to-market execution. Lastly, we appointed Michael Tu to our Board of Directors. Michael brings nearly three decades of experience in corporate governance and securities law advising and representing boards, committees, and executives at numerous public and private companies. His deep understanding of regulatory framework, compliance, and board governance will help guide our long-term strategy and ensure we continue to build a strong, transparent foundation of sustainable value creation. Now let's dive into our third quarter operational highlights. Similar to Q2, we completed another review of our finished goods inventory and wrote down approximately 114,000 of obsolete products. This initiative is part of our broader effort to rationalize SKUs and sharpen our focus on high-velocity items that align with current demand and support a more efficient, profitable portfolio. By streamlining our product mix, we can better concentrate resources on core SKUs that drive volume and margin expansion. On the logistics and supply chain front, we continued executing the rebalancing plan initiated last quarter to optimize inventory placement across regions. These actions are designed to improve delivery efficiency, reduce freight distances, and minimize out-of-stocks in key markets. We're beginning to see tangible benefits. Delivery and handling expenses declined 14% year-over-year in Q3, reflecting early progress from these operational improvements. We remain focused on refining our logistic network to further drive efficiency and reduce costs over time. We are advancing our transition from glass to cans across both Reed's and Virgil's portfolio, an initiative aimed at improving cost efficiency, sustainability, and operational flexibility. We expect this transition to strengthen margins while supporting continued consumer and retail adoption across our core brands. We also continue to strengthen our balance sheet through our recent financing repayment of approximately $650,000 of debt and the refinancing of our credit facility. These actions improved our liquidity and provided additional flexibility to execute on our core growth plan. From a capital markets perspective, we're preparing for an uplift to a major exchange. We view this as an important milestone that will enhance visibility, improve liquidity, and broaden our access to institutional capital as we enter our next phase of growth. As part of this process, we implemented a one-for-six reverse stock split effective October 31st. Looking ahead, our priorities are clear. Improve margins, optimize operations, and drive sales growth within our core REITs and Virgil's portfolios. The investments we're making today, coupled with our recently fortified balance sheet, will accelerate our progress towards sustainable, profitable growth ahead. Before wrapping up and closing remarks, our CFO, Doug, will cover financial highlights for the third quarter in more detail. Doug, over to you.

Thank you, Cyril. Turning to our results, all variance commentary is on a year-over-year basis unless otherwise noted. As Cyril mentioned, we affected a one-for-six reverse stock split, and all per share data is on a post-split basis. Net sales for the third quarter of 2025 increased 4% to $7.0 million compared to $6.8 million in the year-ago quarter. The increase was primarily driven by higher volumes of Reed's branded products with recurring national customers. Gross profit for Q3 2025 remained flat at $1.2 million. Gross margin was 17% compared to 18% in the year-ago quarter. The year-over-year decrease in gross margin was primarily driven by $0.1 million of inventory write-offs related to product portfolio optimization. Excluding these inventory write-offs, gross profit for the third quarter of 2025 was 1.3 million, or 19% of net sales. Delivery and handling costs were reduced by 14% to 1.1 million during the third quarter of 2025, compared to 1.3 million in the third quarter of 2024, primarily driven by lower transportation costs. Delivery and handling costs were 16% of net sales, or $2.50 per case compared to 19% of net sales or $2.99 per case during the same period last year. Selling general and administrative costs were $4.2 million during the third quarter of 2025 compared to $3.1 million in the year-ago quarter. The increase in SG&A was primarily driven by investments in personnel, marketing, and related services to support growth initiatives. Total operating expenses were $5.3 million compared to $4.4 million in the year-ago period. Net loss during the third quarter of 2025 improved to $4.0 million or negative 48 cents per share compared to $4.2 million or negative $4.91 per share in the third quarter of 2024. Modified EBITDA loss was $3.9 million in the third quarter of 2025 compared to $3.0 million in the third quarter of 2024. For the third quarter of 2025, we used $2.8 million of cash from operating activities compared to $1.1 million of cash provided by operating activities for the same period in 2024. As of September 30, 2025, we had $4.1 million of cash and $9.2 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.