Q2 2024 Reed's Inc Earnings Call - Q&A
Speaker Change: Good afternoon and welcome to REIT's second quarter 2024 earnings conference call for the three months ended June 30, 2024.
Operator: conference call for the three months ended June 30, 2024. My name is Emery, and I will be your conference call operator for today. You will have prepared remarks from Norman E. Snyder, Reed's Chief Executive Officer, and Joann Tinnelly, Reed's Chief Financial Officer. Following the remarks, they will take your questions.
Emery: My name is Emery and I will be your conference call operator for today. We will have prepared remarks from Norman E. Snyder, Reed's Chief Executive Officer, and Joann Tinnelly, Reed's Chief Financial Officer. Following their remarks, they will take your questions.
Operator: Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reed's business plans and 2024 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, August 13, 2024, and the company is under no obligation to update them. When discussing results, the presenters may refer to non-GAAP measures, which include certain items from reported results. Please refer to Reed's second quarter 2024 earnings release on Reed's investor website at investor.reedsinc.com and its second quarter 2024 form, 10-Q, expected to be available on the website on August 14, 2024, for definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of I will now turn the call over to Mr. Snyder. Please proceed.
Emery: Before we begin, please take note of the company's cautionary statement.
Emery: Today's call will include forward-looking statements, including statements about READS business plans and 2024 Guidelines.
Emery: Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, August 13, 2024, and the company is under no obligation to update them.
Emery: When discussing results, the presenters may refer to non-GAAP measures, which include certain items from reported results.
Emery: Please refer to ReEDS second quarter 2024 earnings release on ReEDS investor website at investor.reedsinc.com and its second quarter 2024 form 10-Q.
Emery: expected to be available on the website on August 14, 2024 for definitions and reconciliations of non-GAAP measures.
Emery: and additional information regarding results, including a discussion of factors that could cause actual resorts to materially differ from forward-looking statements.
Emery: I will now turn the call over to Mr. Snyder, please proceed.
Norman E. Snyder: Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss our second quarter 2024 results. We continued to execute on our growth and optimization initiatives in the second quarter as we generated double-digit net sales growth, Material Gross Margin Expansion, and positive Modified EBITDA. I'd like to thank the entire Reed's team for the consistent hard work and dedication in achieving these solid results. As discussed on prior calls, our sales were previously impacted by an inflated rate of short order shipments. We have since implemented certain measures to strengthen our inventory position and increase capacity through new co-packing partnerships. These actions have significantly reduced the rate of short shipments to a more normalized level.
Mr. Snyder: Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss our second quarter 2024 results.
Mr. Snyder: We continue to execute on our growth and optimization initiatives in the second quarter as we generated double-digit net sales growth, material gross margin expansion, and positive modified EBITDA.
Speaker Change: I'd like to thank the entire READS team for the consistent hard work and dedication in achieving these solid results.
Speaker Change: As discussed on prior calls, our sales were previously impacted by an inflated rate of short order shipments.
Speaker Change: We have since implemented certain measures to strengthen our inventory position and increase capacity through new co-packing partnerships.
Speaker Change: These actions have significantly reduced the rate of short shipments to a more normalized level.
Norman E. Snyder: Turning to a few recent updates on our key product categories based on unit sales, Ginger Beer sales were up 70% year-over-year in the second quarter. However, our ginger ale sales were flat year-over-year in Q2.
Speaker Change: Turning to a few recent updates on our key product categories based on unit sales.
Speaker Change: Wee's ginger beer sales were up 70% year-over-year in the second quarter.
Norman E. Snyder: However, year-to-date Moot Loaf scan sales were up 13% compared to the same period last year. For Virgils, we generated a 26% increase in sales for Q2 compared to the year-ago period. Alcohol sales were flat for the quarter versus Q2 of 2023, but depletions in the category were up 16% over the same period.
Speaker Change: Our ginger ale sales were flat year-over-year in Q2. However, year-to-date Mootloaf scan sales were up 13% compared to the same period last year.
Speaker Change: For Virgils, we generated a 26% increase in sales for Q2 compared to the year ago period.
Speaker Change: Reed's alcohol sales were flat for the quarter versus Q2 of 2023, but depletions in the category were up 16% over the same period.
Norman E. Snyder: During the quarter, we made solid progress on our cost-cutting and optimization initiatives, reflected by a 720 basis point increase in gross margin and a 460 basis point decrease in OPEX margin compared to the year-ago quarter. Our gross margin expansion was driven by our consistent efforts to reduce input costs, shift our product mix from bottles to cans, and apply more consistent pricing across various channels. For delivery handling expenses, we experienced a 60% reduction in the quarter to $2.18 per case compared to $3.05 per case in Q2 of 2023.
Speaker Change: During the quarter, we made solid progress on our cost-cutting and optimization initiatives, reflected by a 720 basis point increase in gross margin and a 460 basis point decrease in OPEX margin compared to the year-ago quarter.
Speaker Change: Our gross margin expansion was driven by our consistent efforts to reduce input cost, shift our product mix from bottles to cans, and apply more consistent pricing across various channels.
Speaker Change: For delivering handling expenses, we experienced a 60% reduction in the quarter to $2.18 per case compared to $3.05 per case in Q2 of 2023.
Norman E. Snyder: We drove these savings by renegotiating freight rates for heavily trafficked lanes, improving throughput, and generating efficiencies from our streamlined distribution model and new co-packing partners. We've effectively brought down delivery and handling costs to approximately 12% of net sales compared to 17% in the year-ago period. And lastly, with respect to cost cutting, we reduced selling and marketing expenses in Q2 by 13% year-over-year by creating a more focused marketing strategy and streamlining our sales process.
Speaker Change: We drove these savings by renegotiating freight rates for heavily trafficked lanes, improving throughput, and generating efficiencies from our streamlined distribution model and new co-packing partnerships.
Speaker Change: We've effectively brought down delivery and handling costs to approximately 12% of net sales compared to 17% in the year-ago period, and will continue to identify opportunities to reduce costs on a per-case basis.
Speaker Change: And lastly, with respect to cost-cutting, we reduced selling and marketing expenses in Q2 by 13% year-over-year by creating a more focused marketing strategy and a streamlining our sales process.
Norman E. Snyder: We are progressing with our new product roadmap by leveraging fresh organic ginger to create a portfolio of beverages in the Better For You lifestyle category that contain lower calories and levels of sugar. Our commitment to using the highest quality natural ingredients has been the cornerstone of our brand, ensuring a bold, premium taste for our consumers.
Speaker Change: We are progressing with our new product roadmap by leveraging fresh organic ginger to create a portfolio of beverages in the Better For You lifestyle category that contains lower calories and levels of sugar.
Speaker Change: Our commitment to using the highest quality natural ingredients has been the cornerstone of our brand, ensuring a bold premium taste for our consumers.
Norman E. Snyder: Although we're in the early stages of the development cycle, we've received positive feedback from several key retailers across different channels on our new product profile. We will offer this line to select customers and expect to launch it in early 2025. We are excited to introduce these innovative products to the market and look forward to offering our customers an exciting new portfolio of beverages that will enable the Reed's brand to expand into a high-growth category while allowing consumers to experience a natural plant-based functional refresher.
Speaker Change: Although we're in the early stages of development cycle, we've received positive feedback from several key retailers across different channels on our new product profiles.
Speaker Change: We will offer this line to select customers and expect to launch in early 2025.
Speaker Change: We are excited to introduce these innovative products to the market and look forward to offering our customers an exciting new portfolio of beverages that will enable the Reeds brand to expand into a high-growth category while allowing consumers to experience a natural plant-based functional refreshment.
Norman E. Snyder: While we believe that our core assortment will continue to drive stable short and long-term growth opportunities, we also believe that this innovation will add to our yearly growth potential. Turning to our second quarter and recent sales and operational highlights, good to see you.
Speaker Change: While we believe that our core assortment will continue to drive stable short and long-term growth opportunities, we also believe that this innovation will add to our yearly growth potential.
Speaker Change: Turning to our second quarter and recent sales and operational highlights.
Norman E. Snyder: To start, we have successfully completed an enterprise-wide price repositioning process to drive margin expansion, optimize pricing for consumers, and enhance our ability to execute a robust promotional campaign. In the second quarter, we built solid momentum with this renewed strategy, strengthening our ability to meet our 2024 net sales guide. As we move into the third and fourth quarters, we anticipate realizing the annualized impact of our enterprise price repositioning efforts, which have been successfully completed.
Speaker Change: To start, we have successfully completed an enterprise-wide price repositioning process to drive margin expansion, optimize pricing for consumers, and enhance our ability to execute a robust promotional campaign.
Speaker Change: In the second quarter, we built solid momentum with this renewed strategy to strengthen our ability to meet our 2024 Net Sales Guidance.
Speaker Change: As we move into the third and fourth quarters, we anticipate realizing the annualized impact of our enterprise price repositioning efforts, which have been successfully completed to date.
Norman E. Snyder: Next, we completed several promotions with some of our most impactful natural and grocery channel retail customers. Whole Foods, Sprouts, Publix, and Kroger, amongst several others, participated in our promotional offering in the second quarter. In the Glove Channel, we launched Virgil's handcrafted variety packs in Costco's Bay Area and Midwest regions and our new 12-ounce standard can form.
Speaker Change: Next, we completed several promotions with some of our most impactful natural and grocery channel retail customers, Whole Foods, Sprouts, Publix, and Kroger, among several others, participated in our promotional offering in the second quarter.
Speaker Change: In the Glove Channel, we launch Virgil's handcrafted variety packs in Costco's Bay Area and Midwest regions in our new 12-ounce standard can format.
Norman E. Snyder: We also have plans to launch our new ginger ale winter variety pack in Q4 as we look to further expand our product assortment and enhance our partnership with Costco. At Stop and Shop, we added more than 900 new points of distribution during the second quarter for our Reed's and Virgil's product portfolio. We also launched our 12-ounce ready-to-drape classic mule in Walmart locations across California.
Speaker Change: We also have plans to launch our new ginger ale winter variety pack in Q4 as we look to further expand our product assortment and enhance our partnership with Costco.
Speaker Change: With Stop and Shop, we added more than 900 new points of distribution during the second quarter for our Reeds and Virgil's product portfolios.
Speaker Change: We also launched our 12-ounce ready-to-drink classic mule in Walmart locations across California.
Norman E. Snyder: While we are cautiously optimistic that our performance in California could lead to further expansion in the adult beverage category with Walmart, additionally, we added just over 1,000 new points of distribution to Cracker Barrel, one of our longtime customers. Cracker Barrel has historically leaned into our unique and seasonal portfolio offerings. However, we have now expanded into our core assortment with gingerbread. Looking at broader channel opportunities, we have begun our initial rollout of our new 7.5 ounce ginger beer cans into the on-premise channel and select geographic territories.
Speaker Change: While we are cautiously optimistic that our performance in California could lead to further expansion in the adult beverage category with Walmart.
Speaker Change: Additionally, we added just over a thousand new points of distribution to Cracker Barrel, one of our longtime customers.
Speaker Change: Cracker Barrel has historically leaned into our unique and seasonal portfolio offerings, however we have now expanded into our core assortment with ginger beer.
Speaker Change: Looking at broader channel opportunities, we have begun our initial rollout of our new 7.5 ounce ginger beer cans into the on-premise channel and select geographic territories.
Norman E. Snyder: The initial reception has been very promising. As a result, we have onboarded two National Food Service Broadline distributors to enhance the geographic reach of our new and existing DSD partners, enabling us to more effectively serve the on-premise channel on a national scale.
Speaker Change: The initial reception has been very promising. As a result, we have onboarded two National Food Service Broadline distributors to enhance the geographic reach of our new and existing DSD partners, enabling us to more effectively serve the on-premise channel on a national scale.
Norman E. Snyder: We will continue to evaluate opportunities in both the traditional on-premise and food service in the coming year. Subsequent to quarter end, we gained several authorizations for our branded CSO product. First, we will be launching our new 750 milliliter Harbors Spice Cider and Sprite. Next, we will offer our Bavarian Nutmeg Root Bearer to our shared customer base in Holton.
Speaker Change: We will continue to evaluate opportunities in both the traditional on-premise and food service in the coming new year.
Speaker Change: Subsequent to quarter yet, quarter end, we gained several authorizations for our branded seasonal products.
Speaker Change: First, we will be launching our new 750 milliliter Harbors Spice Cider and Sprouts.
Speaker Change: Next, we will offer our Bavarian nutmeg root beer to our shared customer base in Whole Foods.
Norman E. Snyder: We will also offer butterscotch beer, Bavarian nutmeg root beer, and harvest cider with key regional partners such as Kroger, Bosch's, HEB, Wegmans, Hannaford, and Ames. And finally, we were awarded a seasonal test with Walmart to showcase our branded seasonal product. We expect this year's seasonal product execution to be a material contributor to our Q3 and Q4 results. In Whole Foods, we secured a second national authorization for our alcohol assortments due to our strong performance in last year's national off-the-shelf program. In June, we launched our hard ginger and ginger mule beverages across Whole Foods nationwide locations.
Speaker Change: We will also offer butterscotch beer, Bavarian nutmeg root beer, and harvest cider with with key regional partners such as Kroger, Bosch's, HEB, Wegmans, Hannaford, and Ingalls.
Speaker Change: And finally, we were awarded a seasonal test with Walmart to showcase our branded seasonal products.
Speaker Change: We expect this year's seasonal product execution to be a material contributor to our Q3 and Q4 results.
Speaker Change: At Whole Foods, we secured a second national authorization for our alcohol assortments due to our strong performance in last year's national off-the-shelf program.
Speaker Change: In June, we launched our hard ginger and ginger mule beverages across Whole Foods nationwide locations.
Norman E. Snyder: We're pleased to offer these premium ball-tasting, ready-to-drink beverages to Whole Foods customers and look forward to deepening our alcohol offerings within the channel. Quickly touching on our co-packer partner, Battle Co-Packing. We kicked off our partnership with Battle in Q1 of this year, bolstering our production capabilities for both bottles and cans in the Southeast region. We've already realized operating efficiencies and cost savings from this partnership in Q2 and have since expanded our scope with that on this.
Speaker Change: We're pleased to offer these premium, bold-tasting, ready-to-drink beverages to Whole Foods customers, and look forward to deepening our alcohol offerings within the channel.
Speaker Change: Quickly touching on our co-packer partner, Battle Co-Packing, we kicked off our partnership with Battle in Q1 of this year, bolstering our production capabilities for both bottles and cans in the Southeast region.
Speaker Change: We've already realized operating efficiencies and cost savings from this partnership in Q2 and have since expanded our scope with BATO in the southeast.
Norman E. Snyder: We're pleased with the progress thus far and look forward to further building our partnership with. We've made solid progress on our optimization initiatives thus far, but we remain committed to uncovering additional areas in our business to drive further savings. For example, during the quarter, we began working with Unix, a premier California-based co-packer, to drive efficiencies and cost savings in our packaging operations. Shortly after the quarter, we kicked off our partnership with GreatPak, a state-of-the-art robotics contract manufacturer for alcoholic and non-alcoholic canned beverages, providing full-service support for procurement, batching, processing, packaging, and distribution. Drink PAC will supplement our Club PAC initiative, and we expect to realize the benefits from this partnership in the back half of this year.
Speaker Change: We're pleased with the progress thus far and look forward to further building our partnership with BATL.
Speaker Change: We've made solid progress on our optimization initiatives thus far. However, we remain committed to uncovering additional areas in our business to drive further savings.
Speaker Change: For example, during the quarter, we began working with Unix, a premier California-based co-packer, to drive efficiencies and cost savings in our packaging operations.
Speaker Change: Shortly after the quarter, we kicked off our partnership with Great PAC.
Speaker Change: a state-of-the-art robotics contract manufacturer for alcoholic and non-alcoholic canned beverages, providing full-service support for procurement, batching, processing, packaging, and distribution.
Speaker Change: DrinkPak will supplement our ClubPak initiative and we expect to realize the benefits from this partnership in the back half of this year.
Norman E. Snyder: In our e-commerce business, we launched our new virtual scans on both Shopify and Amazon in June. The early results are promising, as we are seeing consistent month-over-month volume in sales. While this channel currently accounts for a small part of our business today, we are encouraged by its progress and plan to invest in more resources as it grows into a larger revenue contributor. Looking ahead, we are reaffirming our financial targets for 2024 as we continue to expect net sales growth, gross margin expansion, and modified EBITDA profitability while generating positive cash flow from operations for the full year.
Speaker Change: In our e-commerce business, we launched our new virtual scans on both Shopify and Amazon in June.
Speaker Change: The early results are promising as we are seeing consistent month-over-month volume in sales grow. While this channel currently accounts for a small part of our business today, we are encouraged by its progress and plan to invest in more resources as it grows into a larger revenue contributor in the future.
Speaker Change: Looking ahead, we are reaffirming our financial targets for 2024 as we continue to expect net sales growth, gross margin expansion, and modified EBITDA profitability while generating positive cash flow from operations for the full year.
Norman E. Snyder: Our strategic initiatives are bearing fruit, setting the stage for further growth and improved profitability, with a strengthened inventory position, optimized cost structure, and continued demand for Reed's profit. We believe we are well positioned to deliver on our goals in the back half. Before wrapping up with closing remarks, Joann will cover our financial highlights for the quarter. Joanne, over to you.
Speaker Change: Our strategic initiatives are bearing fruit, setting the stage for further growth and improved profitability. With a strengthened inventory position, optimized cost structure, and continued demand for REITs products, we believe we are well positioned to deliver on our goals in the back half of the year.
Speaker Change: Before wrapping up with closing remarks, Joann will cover our financial highlights for the quarter in more detail.
Joann Tinnelly: Thanks, Norm. Diving into our results, all variance commentary is on a year-over-year basis unless otherwise noted. Net sales for Q2 2024 increased 19% to $11.9 million compared to $10 million in the year-ago quarter. The increase was primarily driven by strong demand for Reed's products, increased promotional activity, expanded product authorizations, and a reduction in short order shipments compared to the year-ago period. Gross profit for the second quarter of 2024 increased 53% to $3.8 million compared to $2.5 million in the same period of 2023. Gross Margin increased 720 basis points to 32.3% compared to 25.1% in the year-ago quarter.
Joann Tinnelly: Joann, over to you.
Joann Tinnelly: Thanks, Norm. Diving into our results, all variance commentary is on a year-over-year basis unless otherwise noted.
Joann Tinnelly: The increase is primarily driven by higher net sales and lower supply chain and input costs. Delivery and handling costs were reduced by 16% to $1.4 million during the second quarter of 2024, compared to $1.7 million in the second quarter of 2023. The decrease was primarily driven by renegotiated freight rates for heavily trafficked lanes, improved throughput, as well as efficiencies generated from our streamlined distribution model and new co-packing facility. Delivery and handling costs were reduced to 12% of net sales, or $2.18 per case, compared to 17% of net sales, or $3.05 per case, during the same period last year. Selling, General, and Administrative costs were $3.1 million during the second quarter of 2024, compared to $2.6 million in the year-ago quarter. As a percentage of net sales, Selling, General, and Administrative costs remained flat at $25.
Joann Tinnelly: Net sales for Q2 2024 increased 19% to $11.9 million compared to $10 million in the year-ago quarter. The increase was primarily driven by strong demand for REITs products, increased promotional activity, expanded product authorizations, and a reduction in short order shipments compared to the year-ago period.
Joann Tinnelly: Gross profit for the second quarter of 2024 increased 53% to $3.8 million compared to $2.5 million in the same period of 2023.
Joann Tinnelly: Gross margin increased 720 basis points to 32.3% compared to 25.1% in the year-ago quarter. The increase was primarily driven by higher net sales and lower supply chain and input costs.
Joann Tinnelly: Delivery and handling costs were reduced by 16% to $1.4 million during the second quarter of 2024, compared to $1.7 million in the second quarter of 2023.
Joann Tinnelly: The decrease was primarily driven by renegotiated freight rates for heavily trafficked lanes, improved throughput, as well as efficiencies generated from our streamlined distribution model and new co-packing partnership.
Joann Tinnelly: Delivery and handling costs were reduced to 12% of net sales, or $2.18 per case, compared to 17% of net sales, or $3.05 per case, during the same period last year.
Joann Tinnelly: Selling, general, and administrative costs were $3.1 million during the second quarter of 2024, compared to $2.6 million in the year-ago quarter. As a percentage of net sales, selling, general, and administrative costs remain flat at 26 percent.
Joann Tinnelly: All together, operating expenses were $4.5 million, or 38% of net sales, compared to $4.3 million, or 43% of net sales in the year-ago period. The improvement in off X margin reflects our consistent efforts to optimize our cost structure. Operating losses during the second quarter of 2024 improved to a loss of $0.7 million or $0.16 per share compared to a loss of $1.7 million or $0.55 per share in the second quarter of 2023.
Joann Tinnelly: I'll be right back to you, Joann Tinnelly.
Joann Tinnelly: Operating loss during the second quarter of 2024 improved to a loss of $0.7 million, or $0.16 per share, compared to a loss of $1.7 million, or $0.55 per share, in the second quarter of 2023.
Joann Tinnelly: Modified EBITDA improved to $45,000 in the second quarter of 2024 compared to a loss of $1.6 million in the second quarter of 2023. For the second quarter of 2024, cash used in operations was $0.9 million compared to $3.4 million for the same period in 2023. The decrease in cash used was primarily driven by lower inventory purchases compared to the year-ago period.
Joann Tinnelly: Modified EBITDA improved to $45,000 in the second quarter of 2024 compared to a loss of $1.6 million in the second quarter of 2023.
Joann Tinnelly: For the second quarter of 2024, cash used in operations was $0.9 million compared to $3.4 million for the same period in 2023. The decrease in cash used was primarily driven by lower inventory purchases compared to the year-ago period.
Joann Tinnelly: As of June 30, 2024, we had approximately $0.3 million of cash and $27.4 million in total debt net of capitalized financing. This includes $18.4 million from our convertible note and $9 million from our revolving line of credit, which has $3.8 million of additional borrowing capacity. Last week, we announced the close of a bridge financing, a process that does not include the next phase of financing. I will now turn the call back to Norman for a closed one.
Joann Tinnelly: As of June 30, 2024, we had approximately $0.3 million of cash and $27.4 million in total debt net of capitalized financing fees.
Joann Tinnelly: This includes $18.4 million from our convertible note and $9 million from our revolving line of credit, which has $3.8 million of additional borrowing capacity.
Joann Tinnelly: Last week, we announced the close of a bridge financing...
Joann Tinnelly: [inaudible]
Joann Tinnelly: [inaudible]
Speaker Change: with Wealth of a Profitable Wealth does not include the net fees from finance.
Joann Tinnelly: Thank you, Joann. As I mentioned earlier, strategic initiatives are bearing fruit and have set the stage for further growth and profitability in the back half of the year. Between our healthy inventory levels and strong demand for Reed's products, we believe we are well positioned to successfully execute our goals. Operator, we will now open the call for questions and answers. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: I will now turn the call back to you for a close mark.
Speaker Change: Thank you, Joann. As I mentioned earlier, strategic initiatives are bearing fruit and have been set on the stage for further growth and profitability in the back half of the year.
Speaker Change: between our healthy inventory levels and strong demand reach products we believe we are well positioned to successfully execute our goals ahead. Operator we will now open the calls for questions and answers.
Speaker Change: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one in your touchtone phone. You will then hear a prompt that your hand has been raised.
Joann Tinnelly: Should you have a question, please press the star followed by the one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any key.
Speaker Change: Should you wish to decline from the polling process, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Operator: One moment, please, for your first question. Our first question comes from the line of Mr. Sean McGowan from Ross Capital Park. Please go ahead. Good afternoon, guys. How are you?
Speaker Change: One moment, please, for your first question.
Speaker Change: Our first question comes from the line of Mr. Sean McGowan from Ross Capital Partners.
Sean McGowan: Good, good. Yeah, I'm sure Sean Mansour missed the earthquake, so we're surviving. It's all fine. The question is on a close margin. Do you think that, did this quarter come in kind of as expected, or a little softer or a little stronger? And do you think that there's room for improvement from here? It came in as we expected, Sean, and we do believe there's room for additional improvements. We continually search for ways to reduce costs and are implementing some additional measures during the current quarter. Okay, so those freight lane reductions, you guys, we haven't seen the full benefit of that yet.
Speaker Change: Please go ahead.
Sean McGowan: Good afternoon, guys, how are you?
Speaker Change: Good, Sean. How are you? Good, good.
Sean Mansour: I'm sure Sean Mansour misses the earthquake, so we're surviving. It's all fine. Question on gross margin. Do you think that... Did this quarter come in kind of as expected or a little softer or a little stronger? And do you think that there's room for improvement from here?
Speaker Change: It came in as we expected, Sean, and we do believe there's room for additional improvements. We continually search.
Speaker Change: for ways to reduce cost and are implementing some additional measures during the current quarter.
Speaker Change: Thank you very much for watching this video and I hope you enjoyed this video.
Speaker Change: Okay, so those freight lane reductions, you guys, we haven't seen the full benefit of that yet?
Norman E. Snyder: We're seeing part of it, and we'll continue to; we tend to negotiate freight rates in six-month increments. So we're seeing part of it. As we mentioned earlier, the introduction of battle co-packing in the Southeast really helped lower freight costs to get to our larger customers in the Southeast, in Texas, so we'll see more of that play out in the latter half of the year as well. GNA was a little higher than we would have thought.
Speaker Change: We're seeing part of it, we'll continue to, we tend to negotiate freight rates in six month increments.
Speaker Change: So, you know, we're seeing part of it, you know, as also we mentioned earlier the bringing on battle Copacking in the southeast really helps
Speaker Change: reduce further freight costs to get to our larger customers in the southeast in Texas. So we'll see more of that play out in the latter half of the year as well.
Speaker Change: Okay, G&A was a little higher than we would have thought. Is there anything in there that you think drove it up unusually or should we expect it to sustain at this level?
Norman E. Snyder: Is there anything in there that you think drove it up unusually, or should we expect it to sustain at this level? Now, there were a couple of non-recurring items that you'll see in the EBITDA, the Modified EBITDA Reconciliation, that drove it up a little bit higher. But if you remove those, okay, you know, there were where we thought they would come out. Okay, yeah, I thought that, you know, there was... Like that severance, would that be in GNA? Yeah, that would be in it. There were some legal costs, some other professional costs that were involved as well.
Speaker Change: There were a couple of non-recurring items that you'll see in
Speaker Change: You'll see in the EBITDA, Modified EBITDA Reconciliation, that drove it up a little bit higher, but if you if you remove those Okay, you know they're there they were where we thought they would come out
Speaker Change: Okay, yeah, I thought that, yeah, there was.
Speaker Change: Like that severance, would that be in GNA?
Speaker Change: yeah that would be in it there was some legal costs some other professional costs and that were in there as well okay
Sean McGowan: All right. Perfect. Thank you. And then there is one last question. Cole's breaking up a little bit at times, and I kind of missed what you said about products launching in early 2025. I'm wondering if you could give us, if you could repeat what you said and give us a little bit more color on that. Yeah, I mean, look at... Ginger. There's been a lot of parents of plant-based food and beverages over the last, you know, five years, ten years, and, you know, ginger. We were, we really believe we were the first ones at the party. I mean, obviously, ginger is a plant-based item that has tremendous efficacy.
Speaker Change: All right, perfect, thank you. And then last question, the call is breaking up a little bit at times and I kind of missed what you said about products launching in early 2025. I'm wondering if you could give us, if you could repeat what they were and give us a little bit more color on that.
Speaker Change: Yeah, I mean, look at...
Ginger: Ginger you know there's been a there's been a lot of
Ginger: parents of
Ginger: plant-based food and beverages over the last, you know, five years, decade, and you know, ginger, we were, we really believe we were the first ones at the party. I mean, obviously, ginger is a plant-based
Norman E. Snyder: And just looking at the current trends that have recently appeared, I mean, lower calories and lower sugar levels have really taken a dominant position in the beverage space. And obviously, we believe that our junior products, coupled with lower levels of sugar and calories, would do very well. And we've shared some of those ideas with some key retailers and have received really positive feedback on our positioning. And both are, you know, the taste and the efficacy and other things.
Ginger: item that has tremendous efficacy and just looking at the current trends that are that are
Ginger: that have recently appeared. I mean, lower
Ginger: have really taken a dominant position in the beverage space.
Ginger: And obviously, we believe that our junior products...
Ginger: coupled with lower levels of sugar and calories.
Ginger: Would would do very well, and we've shared Some of those ideas with some key retailers and have received really positive feedback On our positioning and and and both are you know the the
Norman E. Snyder: So we're really excited about, you know, look at Reed's. We're really about Ginger and have been a leader in that category and look forward to continuing to lead into the future with our innovation. Okay, thank you. Thank you, Mr. McGowan, at this time. There are no more questions. This includes our question and answer session. I would now like to turn the call back over to Mr. Snyder for closing remarks. Thank you.
Ginger: taste and the efficacy and other things. So we're really excited about, you know, look at ReEDS. We're really about Ginger and have been a leader in that category and look forward to continue leading into the future with our innovation.
Speaker Change: Okay, thank you.
Speaker Change: Thank you, Mr. McGowan.
Speaker Change: But this time
Speaker Change: There are no more questions. This includes our question and answer session. I would now like to turn the call back over to Mr. Snyder for closing remarks.
Norman E. Snyder: I'd like to thank everyone for participating in today's earnings call, as well as our employees, customers, and, of course, our shareholders. We appreciate everyone's support. We'll continue to make solid progress on our 2024 initiatives and look forward to providing an update when we report third-quarter results later this year. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day!
Mr. Snyder: Thank you. I'd like to thank everyone for participating in today's earnings call, as well as our employees, customers, and of course our shareholders.
Mr. Snyder: We appreciate everyone's support. We'll continue to make solid progress on our 2024 initiatives and look forward to providing an update when we report third quarter results later this year.
Mr. Snyder: [inaudible]
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.
Operator: Conference Call for the three months and the June 30, 2024. My name is Emory and I will be your conference call operator for today.
Operator: We will have prepared remarks from Norman East Snyder, Reed's Chief Executive Officer and Joann Tinnelly, Reed's Chief Financial Officer. Following the remarks, they will take your questions.
Operator: Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reed's business plans and 2024 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today. August 13, 2024, and the company is under no obligation to update them. When discussing results, their presenters may refer to non-JAP measures, which include certain items from reported results.
Operator: Please refer to Reed's second quarter, 2024 earnings release, on Reed's Investor website investor.readsinc.com, and its second quarter, 2024 form, 10Q, expected to be available on the website on August 14, 2024, for definitions and reconfiliations of non-JAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.
Operator: I will now turn the call over to Mr. Snyder. Please proceed.
Norman Snyder: Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss our second quarter, 2024 results. We continue to execute on our growth and optimization initiatives in the second quarter as we generated double-digit net sales growth, material growth margin expansion, and positive modified EBITDA.
Norman Snyder: I'd like to thank the entire Reed's team for the consistent hard work and dedication in achieving these other results. As discussed, on prior calls, our sales were previously impacted by an inflated rate of short-order shipments. We have since implemented certain measures to strengthen our inventory position and increase capacity through new co-packing partnerships. These actions have significantly reduced the rate of short-shipments to a more normalized level. Turning to a few recent updates on our key product categories based on unit sales, these ginger beer sales were up 70 percent year over year in the second quarter.
Norman Snyder: Our ginger ale sales were flat year over year in Q2, however, year-to-date mood-low scan sales were up 13 percent compared to the same period last year. For Virgils, we generated a 26 percent increase in sales for Q2 compared to the year-agole period. Reed's alcohol sales were flat for the quarter versus Q2 of 2023, but depletions in the category were up 16 percent over the same period. During the quarter, we made solid progress in our cost cost-cutting and optimization initiatives.
Norman Snyder: We reflected by 720 basis point increase in gross margin and a 460 basis point decrease in hot-packs margin compared to the year-agole Director. Our gross margin expansion was driven by our consistent efforts to reduce input cost, shift our product mix from bottles to cans, and apply more consistent pricing across various channels. For delivering handling expenses, we experienced a 60% reduction in the quarter to a $2.18 per case compared to $3.57 per case in Q2 of 2023.
Norman Snyder: We drove these savings by renegotiating freight rates for heavily traffic lanes, improving throughput, and generating efficiencies from our streamline distribution model and new co-packing partnerships. We've effectively brought down delivering handling costs to approximately 12% of net sales compared to 17% in the year ago period, and will continue to identify opportunities to reduce costs on a per case basis. And lastly, with respect to cost cutting, we reduced selling and marketing expenses in Q2 by 13% year-over-year by creating a more focused marketing strategy and a streamlining in our sales process.
Norman Snyder: We are progressing with our new product roadmap by leveraging fresh organic ginger to create a portfolio of beverages in the better for you lifestyle category that contains lower calories and levels of sugar. Our commitment to using the highest quality natural ingredients has been the cornerstone of our brand ensuring a bold premium taste for our consumers. Although we're in the early stages of development cycle, we've received positive feedback from several key retailers across different channels on our new product profiles.
Norman Snyder: We will offer the slides as select customers and expect to launch in early 2025. We are excited to introduce these innovative products to the market and look forward to offering our customers an exciting new portfolio of beverages that will enable the READS brand to expand into a high-growth category while allowing consumers to experience a natural plant-based functionality refreshment. While we believe that our core assortment will continue to drive stable short and long-term growth opportunities, we also believe that this innovation will add to our yearly growth potential.
Norman Snyder: Turning to our second quarter in recent sales and operational highlights. To start, we successfully completed an enterprise-wide price repositioning process to drive margin expansion, optimize pricing for consumers and enhance our ability to execute a robust promotional campaign. In the second quarter, we built solid momentum with this renewed strategy, strength in our ability to meet our 2024 net sales guidance. As we move into the third and fourth quarters, we anticipate realizing the annualized impact of our enterprise price repositioning efforts, which have been successfully completed today.
Norman Snyder: Next, we completed several promotions with some of our most impactful natural and grocery-channel retail customers. Whole foods, sprouts, products, and program amongst several others participated in our promotional offering in the second quarter. In the club channel, we launched Virgil's hand-crafted variety packs in Costco's Bay Area and Midwest regions and our new 12-out standard can format. We also have plans to launch our new ginger ale winter variety pack in Q4, as we look to further expand our product assortment and enhance our partnership with Disco.
Norman Snyder: With Stop and Shop, we added more than 900 new points of distribution during the second quarter for our reads and Virgil's product portfolios. We also launched our 12-ounce ready-to-drain classic peel in Walmart locations across California. While we are cautiously optimistic that our performance in California could lead to further expansion in the adult beverage category with Walmart. Additionally, we added just over 1,000 new points of distribution cracker barrel, one of our long-time customers.
Norman Snyder: Cracker barrel has historically lean into our unique and seasonal portfolio offerings. However, we have now expanded into our core storming with Ginger Beer. Looking at broader channel opportunities, we have begun our initial roll-out of our new 7.5-ounce Ginger Beer cans into the on-premise channel and select geographic territories. The initial reception has been very promising. As a result, we have onboarded two national food service broadline distributors to enhance the geographic reach of our new and existing DSD partners, enabling us to more effectively serve the on-premise channel on a national scale. We will continue to evaluate opportunities in both the traditional on-premise and food service in the coming new year.
Norman Snyder: Subsequent to we will be launching our new 750-millimeter Harvest Spice Sider in Sprouts. Next, we will offer our Bavarian Nutmeg Root Barrier to our shared customer base in Whole Foods. We will also offer butterscotch beer, the Varian Nutmeg Root Barrier and Harvest Sider with key regional partners such as Kroger, Bosch's, HEB, Wegmans, Hanifert, and Ingalls.
Norman Snyder: And finally, we were awarded a seasonal test with Walmart to showcase our branded seasonal products. We expect this year's seasonal product execution to be a material contributor to our Q3 and Q4 results. In Whole Foods, we secured a second national authorization for our alcohol assortments due to our strong performance in last year's national off-the-shelf program. In June, we launched our hard ginger and ginger mule beverages across Whole Foods nationwide locations. We're pleased to offer these premium ball tasting ready-to-drink beverages to Whole Foods customers and look forward to deepening our alcohol offerings within the channel.
Norman Snyder: Quickly touching in our co-packer partner, Battle Co-packing, we kicked off our partnership with Battle and Q1 of this year, ballstrain our production capabilities for both bottles and cans in the South East region. We've already realized operating efficiencies and cost savings from this partnership in Q2 and have since expanded our scope and battle in the Southeast. We're pleased with the progress thus far and look forward to further building our partnership with Battle. We've made solid progress on our optimization initiatives thus far. However, we remain committed to uncovering additional areas in our business to drive further savings.
Norman Snyder: For example, during the quarter, we began working with UNIX, a premier California-based co-packer to drive efficiencies and cost savings in our packaging operations.
Norman Snyder: Shortly after the quarter, we kicked off our partnership with GreatPak, a state-of-the-art robotics contract manufacturer for alcoholic and non-alcoholic canned beverages providing full-service support for procurement, batching, processing, packaging, and distribution.
Norman Snyder: Corporation. Drake Pack will supplement our Club Pack initiative, and we expect to realize the benefits from this partnership in the back half of this year.
Norman Snyder: In our e-commerce business, we launched our new virtual scans on both Shopify and Amazon and June. The early results are promising, as we are seeing, consistent month-over-month volume in sales growth. While this channel currently accounts for a small part of our business today, we are encouraged by its progress and plan to invest in more resources as it grows into a larger revenue contributor in the future.
Norman Snyder: Looking ahead, we are reaffirming our financial targets for 2024 as we continue to expect net sales growth, growth margin expansion, and modified EBITDA profitability while generating positive cash from operations for the whole year. Our strategic initiatives are bearing through setting the stage for further growth and improved profitability, where they strengthen inventory position, optimize cost structure, and continue demand for each product. We believe we are a well-positioned to deliver our goals in the back half of the year.
Norman Snyder: Before wrapping up with closing remarks, Joann will cover our financial highlights for the quarter in more detail.
Joann Tinnelly: Joann, over to you.
Joann Tinnelly: Thanks, Norm. Starting into our results, all variance commentary is on a year-over-year basis unless otherwise noted. Net sales for Q2 2024 increased 19 percent to 11.9 million compared to 10 million in the year-ago quarter. The increase was primarily driven by strong demand for reeds products, increased promotional activity, expanded product authorizations, and a reduction in short-order shipments compared to the year-ago period. Growth profit for the second quarter of 2024 increased 53 percent to 3.8 million compared to 2.5 million in the same period of 2023.
Joann Tinnelly: Growth margin increased 720 basis points to 32.3 percent compared to 25.1 percent in the year-ago quarter. The increase was primarily driven by higher net sales and lower supply chain and input costs. Delivery and handling costs were reduced by 16 percent to 1.4 million during the second quarter of 2024 compared to 1.7 million in the second quarter of 2023. The decrease was primarily driven by renegotiated freight rates for heavily traffic lanes, improved throughput, as well as efficiencies generated from our streamlines and distribution model and new co-packing partnership.
Joann Tinnelly: Delivery and handling costs were reduced to 12 percent of net sales or $2.18 per case compared to 17 percent of net sales or $3.5 per case during the same period last year. Selling general and administrative costs were 3.1 million during the second quarter of 2024 compared to 2.6 million in the year-ago quarter. As the percentage of net sales selling general and administrative costs remained flat at 26 percent. Altogether operating expenses were 4.5 million or 38 percent of net sales compared to 4.3 million or 43 percent of net sales in the year-ago period.
Joann Tinnelly: The improvement in off-ex margin reflects our consistent efforts to optimize our cost structure. Operating loss during the second quarter of 2024 improved to a loss of 0.7 million dollars or 16 cents per share compared to a loss of 1.7 million dollars or 55 cents per share in the second quarter of 2023, right. Modified EBITDA improved $45,000 in the second quarter of 2024 compared to a loss of 1.6 million in the second quarter of 2023.
Joann Tinnelly: For the second quarter of 2024, cash used in operations was 0.9 million compared to 3.4 million for the same period in 2023. The decrease in cash was used, and the decrease in cash used was primarily driven by lower inventory purchases compared to the year ago period. As of June 30, 2024, we had approximately 0.3 million of cash and 27.4 million in total debt net of capitalized financing fees.
Joann Tinnelly: This includes 18.4 million from our convertible note and 9 million from our revolving line of credit, which has 3.8 million of additional bar capacity.
Joann Tinnelly: Last week, we announced the close of a bridge financing. With ways of approval, this is not smooth and that leads to finance.
Norman Snyder: I will now turn the call back to our close mark. Thank you, Joann.
Norman Snyder: I mentioned earlier, strategic initiatives are bearing through and having set the stage for further growth and profitability in the back half of the year. Between our health and inventory levels and strong demand reach products, we believe we are well positioned to successfully execute our goals ahead.
Operator: Operator, we will now open the calls for questions and answers. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the one in your touch tone phone. You will then hear a prompt that your hand has been raised. Should you issue the client from the polling process, please press the star, followed by the two. If you are using a speaker's phone, please lift the handset before pressing any keys. One moment, please, for your first question.
Sean McGowan: Our first question comes from the line of Mr. Sean McGoen from Ross Park with all partners. Please go ahead. Good afternoon, guys. How are you? Good, Sean. How are you? Good. Yeah, I'm sure Sean answered Mrs. Diazquake, so we survived it. It's all fine.
Norman Snyder: Question on close margin. Do you think that did this quarter come in kind of as expected or a little softer or a little stronger and do you think that there's room for improvement from here? It came in as we expected, Sean, and we do believe there's room for additional improvements. We continue, continually search for ways to reduce cost and are implementing some additional measures during the current quarter. Okay. So those freight lane reductions, we haven't seen the full benefit of that yet.
Norman Snyder: We're seeing part of it. We'll continue. We tended negotiate freight rates in six month increments. So we're seeing part of it. You know, as also we mentioned earlier, the brain on battle, co-packing in the southeast really helped, to reduce further freight costs to get to our larger customers in the Southeast in Texas. So we'll see more of that play out in the latter half of the year as well. Okay.
Norman Snyder: And G&A was a little higher than we would have thought. Is there anything in there that you think drove it up, you know, unusually or should we expect it to sustain at this level? No, there were a couple non-recurring items that you'll see in the EBITDA, modified EBITDA reconciliation that drove it up a little bit higher, but if you remove those, you know, there were where we thought they would come out.
Norman Snyder: Okay. Yeah. I thought that, yeah, there was like that severance, would that be in G&A? Yeah, that would be it. There was some legal costs, some other professional costs that were in there as well. Okay. All right. Perfect. Thank you.
Norman Snyder: And then last question. I called breaking up a little bit at times and I kind of missed what you said about products launching in early 2025 and wanting to give a repeat what they were and give us a little bit more color on that. Yeah. I mean, look at ginger, you know, there's been a lot of parents of plant-based food and beverages over the last, you know, five years, decade, and, you know, ginger, we were, we really believe we were the first ones in the party.
Norman Snyder: I mean, obviously, ginger is a plant-based item that has tremendous efficacy and just looking at the current trends that have recently appeared. I mean, lower calorie and lower sugar levels have really taken a veridominant position in the beverage space. And obviously, we believe that our ginger products coupled with lower levels of sugar and calories would do very well. And we've shared some of those ideas with some key retailers and have received really positive feedback on our positioning and both the case and the efficacy and other things. So we're really excited about, you know, looking at reasons we're really about ginger and have been a leader in that category and look forward to continuing leading into the future with our innovation. Okay. Thank you.
Sean McGowan: Thank you, Mr. McGoen.
Operator: At this time, there are no more questions. This includes our question and answer session.
Norman Snyder: I would now like to turn the call back over to Mr. Snyder for closing remarks. Thank you.
Norman Snyder: I'd like to thank everyone for participating in today's earnings call, as well as our employees, customers, and of course, our shareholders. We appreciate everyone's support. We'll continue to make solid progress on our 2024 initiatives and look forward to providing an update when we report third quarter results later, to share.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Have a great day.