Q4 2023 Reed's Inc Earnings Call
And I will be your conference call operator for today.
Speaker Change: We will have prepared remarks from Norman Snyder, Reed's, Chief Executive Officer, and Joe antenna, Lee Reed's Chief Financial Officer.
Norman Snyder: Following their remarks, they will take your questions.
Speaker Change: 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 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.
Speaker Change: <unk>.
Speaker Change: These factors include but are not limited to the companys ability to manage growth manage debt and meet development goals the company's ability to protect its supply chain in light of disruption caused by elevated freight costs and other impediments.
Speaker Change: [noise] availability and cost of capital to finance working capital needs and growth plans. The company's dependence on third party manufacturers and distributors changes in the competitive environment, the economic impact of the wars in Ukraine, and Israel and other information detailed from time to time in <unk> filings with the United States Securities and exchange.
Speaker Change: <unk> Commission.
Speaker Change: These statements, including financial guidance involve risks and uncertainties that may cause actual results or trends to differ materially from the company's forecast.
Speaker Change: The achievement or success of the matters covered by such forward looking statements, including future financial guidance involve risks uncertainties and assumptions many of which involve factors or circumstances that are beyond the company's control.
Speaker Change: <unk> 2024 guidance reflects year to date, and our expectation that inflationary trends in supply chain pressure will continue throughout 2024.
Speaker Change: However, new supply chain challenges that may develop and factors that could exacerbate inflation cannot be reasonably estimated and are not factored into current fiscal 'twenty 'twenty four guidance.
Speaker Change: These risks would materially impact our ability to access raw material production transportation and or other logistics needs.
Speaker Change: Gross margin guidance assumes our known pricing for ingredients packaging and production costs, each of which has been and could continue to be impacted financial.
Reed: 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 Reed's annual report on Form 10-K for the 2023 fiscal year to be filed with the SEC on or before April one 2024.
Speaker Change: 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 companys future performance represent managements estimates as of today March 28 2024.
Speaker Change: <unk> assumes no obligation to update any forward looking statements or information, which speaks as of their respective dates.
Speaker Change: Modified EBITDA is presented because management believes it assist investors and analysts and comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative.
Speaker Change: Decode of of core operating performance.
Speaker Change: The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute.
Speaker Change: For or superior to the financial information prepared and presented in accordance with GAAP.
Speaker Change: And reads 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 morning's press release inwards reads SEC filings and posted on reeds investor.
Speaker Change: Website at Investor Dot Reeds, Inc. Dot Com as a reminder, this conference is being recorded I will now turn the call over to Mr. Sneider. Please go ahead.
Mr. Sneider: Thank you Gary and good afternoon, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2023.
Mr. Sneider: I am proud of our team's hard work this past year as they successfully executed our strategic initiatives to optimize our cost structure.
Bind efforts materialize in our bottom line as we turned a $3 $9 million modified EBITDA loss during the first half of the year into a $200000 modified EBITDA gain in the second half of the year.
A $4 $1 million turnaround.
Our ability to turn modified EBITDA profitable was a result of our efforts in the back half of 2023.
Cost of goods driving higher gross profit lower delivering handling cost to decrease SG&A costs compared with the first half of the year.
Speaker Change: Further with respect to gross margin in the fourth quarter, we implemented a onetime change to our policy for discounts related to trade spend which lowered net.
Speaker Change: Net sales by approximately $800000 for the quarter and we also recognize noncash inventory adjustments further impacted gross margin in the fourth quarter.
And we utilize the updated trade spend discount policy throughout the year, rather than recognizing the full year adjustment in the fourth quarter. Our second half 2023, adjusted gross margin would've been approximately 1000 basis points higher than the first half of 2023.
Speaker Change: This improvement reflects the work we have put in to reduce our input cost implement consistent pricing applications across all channels and increase the mix of cans versus bottles.
Speaker Change: We expect to utilize this new discount policy for trade spend each quarter moving forward.
Speaker Change: Looking at our topline.
Speaker Change: Sales were softer than anticipated in 2023, however, we have implemented a sales strategy to return to growth in 2024 for both reads and Virgil.
Speaker Change: Our challenges from last year were almost entirely supply driven as we experienced solid order volumes across our retail channels throughout the year.
We recently added two new co Packers to increase capacity and we are actively building finished goods inventory to reduce short order shipments, which offset net sales by approximately $5 million in 2023.
Our inventory levels are improving and we are back on track to dramatically reduce our radar short shipments in 2024.
Speaker Change: Fourth quarter sales were also adversely affected by the timing of customer orders that impacted volume in packaging challenges with our seasonal swing that program products, which have since been addressed we expect a more robust and timely our seasonal program in 2024 and have initiated the program much earlier this year.
Speaker Change: Although there is much work to be done we believe we have built a solid foundation to move the company forward on a profitable basis and are on track to eliminate the cash burn.
Speaker Change: As I touched on earlier, we have consistently reduced input costs and optimize our operations are.
Speaker Change: Our combined efforts resulted in more than $6 billion in expense reduction in 2023, and then material improvement to our bottom line.
Speaker Change: The fourth quarter marked our sixth consecutive period of year over year operating expense and profitability improvement leading to our second quarter, a modified EBITDA profitability since 2016.
Speaker Change: Turning to a few updates on our key product categories reached.
<unk> Ginger ale sales for the full year 2020 through three grew 15% year over year with our zero sugar Ginger ale, increasing 19% for the same period the.
Speaker Change: The overall Ginger ale category experienced 7% growth for 2023 compared to the prior year.
Speaker Change: Ginger beer can sales grew over 170% compared to the full year 2022 with zero sugar cans, increasing nearly <unk> in 2023.
Speaker Change: The growth was offset by lower bottle sales in both categories as we worked to transition from bottles to cans.
The overall Ginger beer category declined approximately 3% during the same period.
Speaker Change: Within our virtual craft soda portfolio full sugar <unk> gained strong momentum over the past year and continue to become a larger contributed contributor to our top line.
Speaker Change: For our ready to drink alcohol portfolio, we experienced a 35% increase in close to 20% increase in our Ginger ale and ginger meal in 2023, respectively.
Speaker Change: We're ready to drink category continues to be a compelling growth opportunity for rates and we look forward to launching our new products, increasing our distribution within this growing category.
Speaker Change: On the topic of new product launches, we are in the process of formulating new products that leverage fresh organic ginger do create a portfolio of beverages targeting the better for you lifestyle category.
Ginger, which is plant based has been an ingredient used for centuries throughout the world, where its many benefits and we intend to leverage this aspect in our rates portfolio.
Speaker Change: We are excited to continue growing our reach in this segment and look forward to unveiling these products in the back half of the year with a soft launch during Q4.
Speaker Change: As a reminder, we do not utilize any preservatives and our products nor any other artificial ingredients are full sugar beverages, our Sweden with cane sugar, while our zero sugar beverages are sweetened with stevia and monk fruit.
Speaker Change: We believe this is a major point of differentiation for our brand and look forward to adding additional sales channels and points of distribution to our fan favorite product catalog.
Speaker Change: Throughout the quarter, we continue to make solid progress on our cost cutting and optimization initiatives.
Speaker Change: These efforts would have led to a gross margin expansion in the fourth quarter. However, the quarter was impacted by onetime noncash inventory adjustments of $3 1 million. In addition to the trade spend discount policy that I referenced earlier.
Speaker Change: Excluding these adjustments gross margin would have increased by 1200 basis points to 34, 9% in the fourth quarter.
Speaker Change: These savings were driven by consistent effort to lower input cost implement consistent pricing applications across all channels and increase the mix of cans versus bottles.
Speaker Change: We have also worked through most of our higher cost inventory that resulted from prior elevated supply chain cost.
Speaker Change: In the fourth quarter, we reduced delivery and handling costs by 32% year over year to $2 82 per case compared to $3 44.
Speaker Change: Per case previously.
Speaker Change: Consistent with prior quarters, we made further improvements to our freight contracts throughput and efficiencies related to our streamline distribution model.
Speaker Change: We've effectively brought down delivery and handling costs were approximately 16% of net sales as of Q4 and will continue to identify aspects to reduce costs on a per case basis.
Speaker Change: Building on this we finalized an agreement with Battle co packing, our new co packing partner in the southeast and kicked off operations in the first quarter.
Speaker Change: This new relationship expands our product our production for both bottles and cans and will allow us to better serve our southeast and south central customers.
Speaker Change: We expect to generate further freight and handling savings from this engagement and are excited to build a mutually beneficial partnership with battle as we grow our sales in the region and lastly, with respect to cost cutting we reduced selling and marketing expenses in Q4 by 23% compared to the year ago period by creating a more focused marketing strategy and the streamlined there.
Speaker Change: Our sales process.
Speaker Change: Turning to our fourth quarter and recent channel sales and operational highlights.
Speaker Change: We secured a major secondary promotions within the whole foods network in 2023.
Speaker Change: Our performance in branch ranked pulp foods has opted to authorize additional secondary promotions across our portfolio. In 2024. They have also decided to add over 100, new points of distribution for our hard Ginger ale.
Speaker Change: Since converting publics to a direct customer in July of 2023 unit volumes have increased 80% year over year as a result of the growth. We have partnered with publics to increase our promotional activity and have finalized several seasonal secondary.
Speaker Change: Secondary placements for 2024.
Speaker Change: And throughout we've received authorizations for virtually full sugar cans, which will launch in may of 2024 and be followed by timely off shelf offshore promotions. Additionally, our hard ginger ale and classic meal or added to 82 additional points of distribution, bringing the total store count to 370 <unk> across our alcohol port.
<unk>.
Speaker Change: We are thrilled with the relationship we have with us relative to look forward to building on our partnership in the future.
Speaker Change: Walmart has authorized our ready to drink classic build to 240 stores in California.
Speaker Change: We believe that our ongoing relationship with our wholesale partners are in D C and breakthrough beverage as well as our unique brand proposition will enable us to grow our points of distribution and expand our alcohol portfolio within the Walmart system.
Speaker Change: And Costco, we have finalized rotations for our seven five ounce ginger beer cans virtual.
Speaker Change: Virgil zero sugar can variety pack and are working towards finalizing our virtual full sugar camp variety pack and multiple regions. We are actively working to add additional regions to these rotations to expand the distribution of these exciting beverages.
Speaker Change: In November we relaunched our e-commerce platform to include a recurring subscription model as we mentioned before E. Commerce sales represent a small portion of our business today, but we are taking the appropriate steps to build this channel and we will invest more resources as it grows.
Speaker Change: As I mentioned earlier, we have added two new co Packers in favorable geographic locations to have to increase capacity, while driving further reductions in our cost of goods sold as well as transportation costs.
Speaker Change: We will continue to evaluate all aspects of our logistics and supply chain to ensure we are running as efficiently as possible.
Speaker Change: Across our nationwide network.
Speaker Change: Lastly, we have continued to build our customer base in the UK and Europe as a result of adding local production capabilities.
Speaker Change: Which enables us to deliver products more efficiently with lower cost with lower associated costs.
We kicked off with one customer in May and now have five active customers with four additional pending we're excited with the early momentum and look forward to expanding our reach in the European region.
Over the past year, we've built a solid foundation and efficient operating model, which we believe will enable us to generate net sales growth gross margin expansion and to achieve modified EBITDA profitability for the full year of 2024.
Speaker Change: We also expect to generate positive cash flow from operations for the full year 2024.
Speaker Change: Looking ahead I want to reiterate that we have several key initiatives that drive this growth and profitability as.
Speaker Change: As we've reduced short order shipments, we expect to return to growth through all of our key product categories. We will also continue to seek out additional cost saving opportunities to ensure we are running as efficiently as possible. These initiatives, coupled with our optimized cost structure and strong demand for Reed's products.
Speaker Change: It will enable us to deliver on our growth and profitability in 2024.
Speaker Change: Before wrapping up with closing remarks, Joanne will cover our financial highlights for the quarter in more detail Joanna over to you. Thanks norm.
Joanne: Living into our resolve all variance commentary is on a year over year basis, unless otherwise noted.
Joanna: Net sales for Q4, 2023 were $11 7 million compared to $15 million in the year ago quarter. The decrease was primarily driven by shorts.
Joanna: Shipment and lower sales of seasonal program due to timing of customer orders impacting volume.
Speaker Change: Third party manufacturing deficiencies.
Speaker Change: Two our thing with product.
Speaker Change: We expect to receive an insurance claim to cover the cost of these products.
Speaker Change: As I mentioned earlier, we also implemented a one time change the policy discounts related to trade spend that offset net.
$800 a quarter.
Speaker Change: Gross profit for the fourth quarter three was at five 1 million compared to $4 million in the same period of 2022.
Speaker Change: Gross margin was 4% compared to $22 nine in the year ago quarter. The decrease was primarily driven by a onetime noncash packaging inventory valuation adjustment of $1 8 million or.
A one time provision for product holds related to our Zwingli program $1 3 million as well as the aforementioned onetime update policy for discount.
Speaker Change: Adjusted gross profit, which excludes these noncash items for the fourth quarter of 2023 was $4 3 million or 34, 9% of revenue deliver.
Speaker Change: Delivery and handling costs were reduced by 32% to $1 8 million during the fourth quarter of 2023 compared to $2 7 million in the fourth quarter of 2020 to.
Speaker Change: The decrease is primarily driven by continued reductions in freight rates and improved throughput and efficiencies related to our streamlined distribution model.
Speaker Change: I mentioned earlier delivery and handling costs were reduced to 16% of net sales or <unk> $82 80 per day compared to 18% of net sales or $3 44 per case during the same period last year.
Speaker Change: Selling general and administrative costs decreased 23% to $3 million during the fourth quarter of 2023 compared to $3 9 million in the year ago quarter as a percentage of net sales selling general and administrative costs remained flat at 26%.
Speaker Change: Although operating expenses were $5 4 million or 46% of net sales compared to $7 1 million or 47% of net sales in the year ago period. This reflects alright relentless effort to rightsize, our cost structure and consistently find ways to optimize our business.
Speaker Change: Operating loss during the fourth quarter of 2023 was $5 million or a loss of $1 55 per share compared to a loss of $3 $7 million or a loss of $1 54 per share in the fourth quarter of 2022.
Speaker Change: Modified EBITDA improved positive $43000 in the fourth quarter of 2023 compared to a loss of $2 8 million in the fourth quarter of 2022. This represents our second consecutive quarter of generating positive modified EBITDA.
Speaker Change: For the fourth quarter of 2023 cash was used in operations cash used in operations was approximately $200000 compared to cash flow from operations of $1 million for the same period in 2022.
Speaker Change: The decrease in operating cash flow was primarily driven by higher inventory purchases compared to the year ago period.
Speaker Change: As of December 31, 2023, we had approximately $8 6 million of cash and $27 4 million of total debt net of capitalized financing fees. This includes $17 6 million from our convertible note and $9 $8 million from our revolving line of credit, which has $3 million of additional borrowing capacity.
Speaker Change: During the first quarter of 2024, we closed on a $4 1 million safe simple agreement for future equity agreement as part of our planned 6 million dollar financing we plan to utilize the funds to build our finished goods inventory reserves and to reduce short shipments in 2024. Please note the cash balance I mentioned.
Speaker Change: Earlier does not include the $4 1 million a safe proceed.
Norm: I will now turn the call back to norm for closing remarks.
Norm: Thank you Joanne.
Joanne: I'd like to extend my gratitude to the <unk> team for their consistent hard work and determination to build a solid foundation for our business with.
Speaker Change: With the combination of our optimized operating model ongoing efforts to reduce short order shipments and the continued demand for our robust product portfolio.
Speaker Change: We are well positioned to deliver on our goals.
Operator, we will now open the call for questions and answers.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Hum.
Speaker Change: Our first question today is from Sean Mcgowan with Roth <unk>. Please go ahead.
Sean McGowan: Thank you and good afternoon.
Sean McGowan: I have a couple of questions to center around.
Speaker Change: The outlook guidance when so on sales when you say.
Do you expect sales to increase are you talking about increasing from the reported levels or from the levels that you might've achieved how did you not.
Speaker Change: Had those short shipments.
Speaker Change: John from the reported levels.
Speaker Change: Okay.
I figured but then similar question on gross margin because you've got a couple of.
Speaker Change: Quarters here with an exceptionally low gross margin because of one time issues. So when you say expanded gross margin are you talking about off of reported levels or kind of a walk from adjusted levels.
Speaker Change: Adjusted levels.
Speaker Change: Okay. That's helpful.
Speaker Change: And then.
Speaker Change: Looking at the G&A.
Speaker Change: Number in the fourth quarter.
Speaker Change: That's a good number to use kind of as a quarterly run rate or were there some things in the quarter.
Not recur.
Speaker Change: Actual ongoing number would be lower or should we expect it to be higher than that.
Speaker Change: I think it's going to stay that status quo for a while we have a pretty lean but effective team here that's <unk>.
Speaker Change: Hi, Lee productive and efficient and works well together.
Speaker Change #100: I think as we generate more cash going forward, we'd like to reinvest it towards.
Speaker Change #101: <unk> and product development.
Speaker Change #101: And then as to grow as growth requires to add people. So I don't really see any sort of material changes other than some discretionary spending.
As we have the cash.
Speaker Change #102: Available cash spend to invest back into our brands.
Speaker Change #102: Okay.
Speaker Change #103: I think you mentioned in the press release that you had.
Speaker Change #104: Thanks, and it was like $3 million of additional capacity.
Speaker Change #105: On the credit line is that 3 million.
Speaker Change #106: Provided that the.
Speaker Change #107: Assets are lined up the right way you know inventories receivables or is that just $3 million open.
Speaker Change #107: No.
Speaker Change #108: It's still at the former provided that the asset sinopec.
Speaker Change #108:
We've made.
Speaker Change #109: Subsequent year, and we've made great progress paying down that line. So there is it's created a lot more availability and then obviously as we grow receivables and inventory will grow which will provide additional collateral to drive that number up further.
Speaker Change #110: Okay and then last question for me for now.
Speaker Change #111: On new products when you talk about some new stuff you're working on should we assume that any new products that you introduced are going to be at or above the.
Speaker Change #111: Kind of targeted gross margin levels that your job.
Speaker Change #111: Or are you contemplating some new introductions that might be dilutive.
Speaker Change #112: No I think there'll be accretive theyre going to be premium based products.
Speaker Change #113: Functional really really leveraging.
Speaker Change #114: The benefits of Ginger look you know what.
Speaker Change #115: One of my one of my pet Peeves as that.
Speaker Change #116: The popularity of <unk>.
Speaker Change #117: Plant based food and beverages and the functionality of it.
Speaker Change #118: Because <unk> was one of the first ones to be there.
Speaker Change #119: Producing and selling plant based products with a high degree of efficacy.
Speaker Change #120: We don't get a lot of credit we were at the party person in the party happened after we after we arrived.
Speaker Change #121: So we really want to we really want to go back and leverage that asset, which we think is.
Speaker Change #122: Something very unique to Reed's ginger is organic imported from the Amazons.
Speaker Change #123: In Peru, it's.
Speaker Change #124: It's very it's got a high degree of efficacy.
Speaker Change #125: Which is why people throughout the world have been using ginger for century. So it's a more conservative effort to really broadcast that message.
And if product that.
Speaker Change #126: Is that resonates with with today's consumer.
Speaker Change #126: Great I just remembered one other that I wanted to some clarity on I think you and I have talked about this before so you mentioned that some of those short sale.
Speaker Change #127: Impacts were in the swing line is it something about the spring line is just coincidentally.
Speaker Change #128: I was going with it.
Speaker Change #129: Is there something about that particular packaging that resulted in this problem or is it just a coincidence that it's that line.
Speaker Change #129: No it's a coincidence.
Speaker Change #130: There was an issue with the seal on our on our closure.
Speaker Change #130: <unk>.
Speaker Change #131: We're very we're very quality driven.
Speaker Change #132: And did not want to put out inferior product.
Speaker Change #133: Or product that potentially.
Speaker Change #133: Could be could be dangerous to consumers. So that was one part of it. Another aspect was that we were late with.
Speaker Change #134: Some other customers in the season, which cut down the size of the program.
Speaker Change #135: Right. So you are not backing away from that packaging no no not at all.
Speaker Change #135: Alright, Thank you very much and I'll talk to you later, alright, Sean nice talking to you.
Speaker Change #135: Yeah.
Speaker Change #136: The next question is from will <unk> with private Investor. Please go ahead.
Norm: Hey, norm. Thanks for taking my questions I'll try to keep it quick I'm really just regarding sales.
will <unk>: I mean, we're already pretty much through Q1 can you let us know how that's looking and then do you kind of have a range of what you're estimating total revenue for 2024.
will <unk>: Yeah.
Speaker Change #138: Yes, well you're welcome.
Speaker Change #139: Look at theirs.
Speaker Change #140: The short shipments did continue over into the first quarter. So there is some impact.
Speaker Change #140: But we've worked through that and we're heading into the second quarter well positioned to really reduce those.
Speaker Change #141: We also had some programs that we thought we could be ready for the first quarter, which we did which will.
Speaker Change #142: We pushed it in the second quarter. So there'll be some continued softness that goes into the into Q1, but we really think we'll come out strong in Q2.
Speaker Change #142: In terms of the range, we're still fine tuning that looked at obviously, we believe we can deliver double digit growth.
Speaker Change #142: Yeah.
Speaker Change #142: But we're still finalizing a couple of things.
Speaker Change #142: To see how far that we can push that number but we look at we feel real confident about.
Speaker Change #142: Year over year growth.
Speaker Change #142: Sean.
Sean: I asked the question about is it reported or where we thought we would be look it's going to definitely be over reported and my goal is to have growth over where we thought we could have ended up this year.
Sean: Got it thanks.
Speaker Change #144: And then last question kind of regarding the safe and then raise is there going to be any additional capital needed to be raised in the interim or do you think that will carry you guys for the year.
Speaker Change #144: Our belief is that will carry us through the year.
Obviously.
Speaker Change #145: The burn has been really minimized to almost eliminated and that's the goal there. So the cash the cash needs are really exclusively to build inventory in just to have enough inventory to be able to respond and drive up our.
Speaker Change #146: On time and in full.
Speaker Change #147: Delivery percentages north of 95%.
Speaker Change #148: Okay, Great awesome. Thanks, that's all I've got and I'll hop back in the queue.
Speaker Change #149: Youre welcome well.
Speaker Change #149: The next question is from Gary gets a private investor. Please go ahead.
Gary: Yes, hi, norm, thanks for taking the call and.
Gary: It looks like we're on.
Gary: On the right track most of my questions have been answered I just wanted to make a comment about.
Speaker Change #151: The ginger.
Speaker Change #152: Ginger and wanted to reinforce.
What you're doing about developing new ginger products.
Speaker Change #153: <unk> had some great health benefits and I commend you on doing what you're doing.
Speaker Change #154: Thank you.
Speaker Change #155: I know you were I think unable to attend in the last earnings.
Speaker Change #156: Earnings call, because you had a commitment but I think it wouldn't be an earnings call. If you didnt come on line and ask a question through ours.
Speaker Change #157: I always look forward to hearing from you.
Speaker Change #158: Thank you very much.
Speaker Change #159: And I enjoy listening to you and norm.
Speaker Change #158: Thanks.
Speaker Change #158: Yeah.
Speaker Change #158: This.
Speaker Change #158: Our question and answer session.
Speaker Change #160: No we have one we have one additional.
Speaker Change #161: A question.
Jack: Okay and that question comes from Jack hire another private Investor. Please go ahead.
Jack: Yes, Hi can you guys hear me.
Speaker Change #163: I can.
Speaker Change #164: Okay awesome.
Speaker Change #165: Sorry, not last but not least.
Jack: I just wanted to touch on.
Speaker Change #166: The two.
Sort of one off half incentive.
Speaker Change #166: Noncash.
Speaker Change #167: <unk> inventory valuation adjustment, one eight and then that provision.
Speaker Change #168: On the what was it the product hall and related to that swing line program for one three can you add any insight as to like specifically.
Speaker Change #169: What does what.
Speaker Change #169: What happened in under these circumstances.
Speaker Change #170: Well, let me let me let me.
Address the swing with led issue because thats a little bit simpler.
Speaker Change #171: We talked about we had a malfunction with our closure so we.
Speaker Change #172: We pulled that product didn't sell it we have.
Speaker Change #172: We have.
Speaker Change #173: Product or packaging insurance.
Speaker Change #173: Constant insurance and we have filed a claim.
Speaker Change #174: But the auditors required us to reserve for that so until we collect.
Speaker Change #174: Those insurance proceeds we had to put a reserve up and then.
Speaker Change #175: Conversely, when we do receive insurance proceeds that'll be that'll be gains. So we'll have the we'll have the flip and unfortunately, because the two events straddle a fiscal year youll have a charge in one year and then a pickup in the subsequent year.
Speaker Change #175: Okay, Okay I'm tracking.
Speaker Change #176: Right now for the inventory.
Speaker Change #176: <unk>.
Speaker Change #177: We've had a lot of different.
Speaker Change #177: Yeah.
Speaker Change #178: It's primarily packaging and materials that we thought we could use for.
Speaker Change #177:
Speaker Change #179: Limited time offers and special editions.
Speaker Change #179: And had and we've done that.
On a limited basis, but.
Speaker Change #180: Two things one Vince.
Speaker Change #181: Since we were experiencing.
Speaker Change #182: Higher than normal level of short shipments.
Speaker Change #183: The reality of the matter is when are we going to have time to do these and execute on these programs.
Speaker Change #183: And.
Speaker Change #184: Since there is a cost associated with storing materials.
Speaker Change #184: Mike, Let's just my logistics team convinced me that the benefit of holding them to do these programs later.
Mike: With that in our best interest.
Mike: So we decided that we would.
Mike: Write those down now some items, we are going to we have retained and will use.
Mike: <unk>.
Speaker Change #186: And and some of this also with formulation changes in labeling requirements.
Speaker Change #186: With labels. It was it was raft carriers, but some items, we're still going to use so again similar to the.
Speaker Change #187: Similar to the swing lid thing there'll be a pickup in the year that we actually use those and.
Speaker Change #188: And then another piece was related to our candy business, where.
Speaker Change #189: We've gone into a licensing agreement and we're in the process of transitioning that inventory.
Speaker Change #189: Over.
Speaker Change #189: But we had to take the auditors required us to take a reserve on that it's still good inventory and again as we transition to that Oliver just like the swing where there'll be a pickup there.
Speaker Change #189: Okay.
Speaker Change #190: And I want to comment.
Speaker Change #191: One thing I want to emphasize all of these are non cash related adjustments. So.
Speaker Change #192: There was no cash hit it's really it's really an accounting reserve driven which obviously depresses resolved and that's why we included an adjustments to modified EBITDA to show what things are on a normalized basis, but look I. We just thought it was prudent to do it.
Speaker Change #192: It made sense.
Speaker Change #193: As I said earlier, we have a really strong team here.
Speaker Change #194: We're making better decisions.
Speaker Change #194: We're driving more efficiencies you can see what we've done our margins a year ago. We're in the low twenties, we've driven up into the mid <unk> and really believe that sustainable with with continued improvement we brought our logistics cost down. They will continue to go down and we really held our SG&A in check in fact.
Speaker Change #195: <unk> over the prior year and I think.
Speaker Change #196: Until we're in the position to generate more cash that we can invest.
Speaker Change #197: From a marketing side and reinvestment in our brand we've really accomplished a lot.
Speaker Change #197: Yes no.
Speaker Change #198: That all.
Makes perfect sense I guess.
Speaker Change #198: Okay.
Speaker Change #199: That I would have resulting from from what you said would be.
Speaker Change #199: Those two items and again I'm not going to hold you to the number but I would be curious like do you have any idea like it sounds like they're sort of gone, but not forgotten and if we were to recoup.
Speaker Change #199: Whether it be from insurance or the ability to actually use some of the.
Packaging and whatnot that was written off like do you guys have an estimate of like what we might be able to recoup from that.
Speaker Change #199: Or an expectation or anything along that line.
Speaker Change #200: Well I mean, the only thing I can really comment of the insurance claim is in the neighborhood of $1 million.
Speaker Change #200: So that's what we're discussing with the insurance company.
Speaker Change #201: The other.
Speaker Change #201: <unk>.
Speaker Change #202: That kandi is like.
Speaker Change #203: About $250000 range.
Speaker Change #203: And the other items.
Speaker Change #204: Look at if we can if my view is we're going to be opportunistic if we can get another 250 out of that too.
I think thats a positive thing obviously, we're going to we're going to push it as far as we can but.
Speaker Change #204: It's going to be coupled with what opportunities are there today, keeping our current products in stock.
Speaker Change #204: And again, we'll be opportunistic where we can.
Speaker Change #205: But I don't really want to make promises because.
Speaker Change #205: Those.
Speaker Change #205: It's really going to be almost a game time call. When we have the availability to do that but look at there is expectation that some of that money is going to come back in 2024.
Speaker Change #205: And.
Speaker Change #205: Okay.
Speaker Change #206: It should be impactful.
Speaker Change #206: Okay. So just kind of hope for the best expect the worst situation and if we get them back.
Speaker Change #206: Good and if not we've already written it off and.
Speaker Change #207: Yes, there are no push forward.
Speaker Change #208: But look we're going to we're going to we're going to remain opportunistic and do as much as we can when we can do it.
Speaker Change #208: Okay.
Speaker Change #209: And my last question.
Speaker Change #209: So just looking at the Q4 numbers.
Speaker Change #209: Admit that I haven't had a chance to actually go through all of them, but just from a top level looking down.
Speaker Change #210: 1000 foot deal.
Speaker Change #210: Delivery.
Speaker Change #211: And handling costs were reduced by 32% or around like 900000 quarter over quarter SG&A.
Speaker Change #212: 23% and also in the 900 ballpark range. So that's about a million in.
Speaker Change #213: One eight.
Speaker Change #214: And reduction so I was just curious like.
Speaker Change #214: What was the main driving or driving factor or factors.
Speaker Change #214: That really hurt our operating loss Q4 in comparison to last year with those with those cost saving measures like taking effect.
Speaker Change #215: What pushed us to actually have more of a loss.
Speaker Change #216: Well it was primarily the write offs I mean, obviously there was a.
Speaker Change #217: The top line.
Speaker Change #217: Impacted it from a from a gross margin standpoint, but the real the real driving factor, where all of those adjustments.
Speaker Change #217: Okay. Okay, alright, yes. So there are there in that number that makes that makes much more and if you look at it and that's why I would I would add.
Speaker Change #217: If you go back and look at look at look at the modified EBITDA and then you can see really an apples to apples comparison with the prior year.
Speaker Change #218: Okay, Okay, Alright, awesome I appreciate the time.
Speaker Change #219: Answering all my questions keep up the good work.
Got high expectations.
Speaker Change #220: Thank you guys will deliver.
Jack: Thank you Jack.
Jack: The next question.
John: <unk> is from John fan from downtown family Office. Please go ahead.
John Fan: Yes, Thank you for taking my call.
A couple of quick questions first.
Speaker Change #223: I couldn't.
Speaker Change #223: Current cash label.
Speaker Change #224: I'm sorry.
Speaker Change #224: Okay.
Speaker Change #225: Cash naval.
Speaker Change #225: Current cash label.
Speaker Change #226: How much cash you have right now.
Speaker Change #227: Well that's.
Speaker Change #228: What we can disclose we put in the press release.
Well I mean, you do not have a similar.
Speaker Change #229: The label of your liquidity I mean.
Well like I said, what we've disclosed this past year and we're doing we're doing a <unk>.
Speaker Change #230: Financing of up to $6 million and we've raised.
Speaker Change #231: Through the safe agreement.
Speaker Change #232: At the end of the December quarter, you have however, meaning cash right.
Speaker Change #233: Yes, I mean not watching this closely.
Speaker Change #234: And so I.
Speaker Change #235: I mean are you currently looking to raise or do you have enough close road too.
Speaker Change #236: Well I think I answered that question earlier with the current financing that that will be sufficient.
Speaker Change #237: Hi, good good to hear Okay second question.
Speaker Change #238: The company have any litigation going on right now.
Speaker Change #238: No.
Speaker Change #238: No.
Speaker Change #239: Okay. Last question quick question, you have but new board member or what is that.
Speaker Change #239: Two quarters before.
Speaker Change #240: Regarding any possible Chinese Johnny.
Speaker Change #239: Tony.
Speaker Change #241: Ink company.
Speaker Change #242: What a partner or something.
Speaker Change #243: Follow up on that.
Speaker Change #243: No.
Speaker Change #244: I'm, sorry say that again.
Speaker Change #245: Okay, you have a new board member.
Speaker Change #245: Hudson.
Speaker Change #246: A couple of quarters ago, and you mentioned about possible possible partnership.
Speaker Change #247: A new.
Speaker Change #247: A new board member.
Speaker Change #247: Kind of.
Speaker Change #248: Our strategic partner or hangover.
Speaker Change #248: No.
Speaker Change #249: Yes, no I just wanted to follow.
Speaker Change #249: A follow on on that.
The business opportunity something like yes look at just like everything else.
Speaker Change #250: We've moved to a concentrate.
Speaker Change #251: Model for our exports to the UK and Europe.
Speaker Change #251: And obviously.
Speaker Change #252: Our new board member for.
Speaker Change #253: For the Hong Kong and understand the Asia markets and we are presently evaluating opportunities there and we would.
Speaker Change #253: We would mimic the concentrate model that we're using in the UK and Europe. So.
Speaker Change #254: Our cash needs would be minimal.
Speaker Change #254: To expand in that market, but we're really in the early stages and evaluating that.
Speaker Change #255: Thank you.
enormous Schneider: This concludes our question and answer session I would like to turn the conference back over to enormous Schneider for any closing remarks.
enormous Schneider: Okay.
enormous Schneider: I want to thank everyone for participating in this afternoons call as well as our employees customers and of course, our shareholders. We.
enormous Schneider: We appreciate everyone's support I am pleased with the work we've accomplished over the past year and look forward to executing on our 2024 plan in the year ahead. Thank you and have a good day.
Speaker Change #257: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.