Q3 2024 Reed's Inc Earnings Call - Q&A
Good morning, and welcome to Reeds third quarter 'twenty 'twenty four earnings conference call for the three months ended September 30, 'twenty 'twenty four my name is Angelina 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 Julian generally leads the Chief Financial Officer following their remarks, they will take your questions. Before we begin please take note of the company's cautionary statement. Today's call will include forward looking statements, including statements about Reed's business plans and 'twenty 'twenty four guiding.
Forward looking statements inherently involve risks and uncertainties and only reflect management's view as of today November four at the in 'twenty 'twenty four and the company's under no obligation to update them when discussing our results. The presenters may refer to non-GAAP measures, which is.
Food certain items from reported results. Please refer it to reeds third quarter 'twenty 'twenty four earnings release under reads Investor website at Investor Dot Reeds, Inc. Dot com and its the third quarter 'twenty 'twenty four Form 10-Q expected to be available on the website soon for a definition.
Speaker Change: And reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements I will now turn the call over to Mr. Snyder.
Mr. Snyder: Thank you operator, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2024 results.
Mr. Snyder: We experienced strong order demand from our retail partners in the third quarter, However, production limitations and short shipments impacted net sales by more than $4 million.
Mr. Snyder: These persistent inventory challenges, although materially reduced during the second quarter reemerge in Q3 due to restricted working capital.
Mr. Snyder: More specifically, our reduced collateral base limited, our liquidity and affected our ability to purchase inventory.
Mr. Snyder: Our internal modeling projected an asset backed line utilization of over $8 million, however, because of collateral restraints or borrowing with catheter approximately $5 million.
Mr. Snyder: In response to this limitation, we intend to close on a one year revolving credit facility today with one of our trusted long term partners White box for an aggregate principal amount of $10 million.
Mr. Snyder: This capital offers more favorable and flexible terms that align with the needs of our business.
We intend to use this capital pay off the balance of our existing revolving line of credit and to build our finished goods inventory levels to reduce short shipments and alleviate production challenges.
Mr. Snyder: We've struggled with our balance sheet and building inventory for an extended period, while we fully recognize the repetitive message of short shipments and production challenges. The reality is that we now truly have a deleveraged balance sheet and the funding that we need in a structure that allows us to properly utilize the capital in a way it was intended and as a result.
Mr. Snyder: We can finally build inventory back to up to appropriate level to meet our retail order demand.
Mr. Snyder: Now, let's dive into the quarter.
Mr. Snyder: We have made progress in our new line of better for you beverages, featuring organic ginger adaptogen, lower calorie and sugar content.
These products are in the final phases of development and have already been presented to key retailers.
Mr. Snyder: The feedback has been positive and we have incorporated much of this feedback into the final product by.
Mr. Snyder: By using premium natural ingredients, we plan to deliver the bold taste. Our brand is known for while expanded into this innovative high growth refreshment category.
Its functional beverage lineup will complement our core products anchors and contribute to a return to growth we.
Mr. Snyder: We expect to launch the finer products to select customers early next year.
Mr. Snyder: And anticipated reaction is why enter a relatively new category when youre struggling to meet current demand with our existing portfolio.
Mr. Snyder: Over the past year, we have closely collaborated with our key retail partners many of whom have shared plans.
Mr. Snyder: Typically expand shelf space for the functional and better for you segments.
Mr. Snyder: Ginger based product line aligns perfectly with this growing category offering plant based ingredients proven benefits, great taste and a healthier profile.
We expect to secure multiple authorizations for 2025 soon.
Mr. Snyder: Turning to our third quarter and recent sales and operational highlights.
Mr. Snyder: Q3 and into early Q4, our sales team has been successfully expanding our sourcing our assortment throughout the retail landscape.
Mr. Snyder: Safeway Albertsons as authorized flank all direct costs across its own banners and its approved a national secondary display on the item beginning in February 2025, with expected new points of distribution exceeding 2800.
Mr. Snyder: Giant Eagle is looked at seven new items, bringing over 11 1100, new points of distribution with resets happening in stores now.
Mr. Snyder: National groceries, vitamin cottages have added five new skus, adding over 800, new points of distribution beginning in February 2025.
Mr. Snyder: Harris Teeter has authorized two new items from our virtual <unk> portfolio, delivering 500, new points of distribution with resets in progress now.
Mr. Snyder: Cracker barrel has approved our extra ginger beer in our half liter swing that format, bringing over 500, new points of distribution with distribution going live now.
Giant foods at Lowe's at both authorized our classic meal and distribution is already active.
Mr. Snyder: In aggregate the team has amassed over 5000 new points of distribution.
Mr. Snyder: Will help propel us into 2025.
Mr. Snyder: To enhance our logistical efficiency and provide consumers with our products at the most affordable price. Our sales team has secured both national and regional approvals to transition from <unk> to four pack cans across both the Reed's and virtual portfolio.
Mr. Snyder: Key authorizations include national acceptance by whole foods, <unk> root beer, but I look cream and Safeway Albertsons approval of group Virgil root beer cans nationally.
Mr. Snyder: Next week, we are introducing our new Ginger ale winter variety pack into Costco.
Mr. Snyder: This exclusive pack features a trio of flavors are classic Ginger ale, along with Cranberry and Blackberry flavor Ginger ales.
Mr. Snyder: The seasonal pack is perfectly time for the holidays, giving costco shoppers more faster choices and Ginger ale beverages.
Speaker Change: We are pleased to offer these additions I look forward to further expanding our product lines and strengthening our collaboration with Costco.
Speaker Change: Okay.
Speaker Change: As described briefly on our last call. Our team has been busy landing in executing placements on our half liter glass seasonal items.
Speaker Change: Retailers that authorize these items include whole foods Kroger wegmans with other previously mentioned retailers have an active distribution as we hit peak seasonality.
Speaker Change: We are gaining momentum in our e-commerce channel with bumpy sales exceeding $70000 for the past two months.
Speaker Change: This growth reflects our targeted digital strategies and the increasing consumer demand for convenient online purchasing option.
Based on these trends, we projected e-commerce will generate over $1 billion in sales in 2025.
Speaker Change: This represents a small portion of our business today, we are optimistic about its progress and will continue to invest resources as it becomes a larger revenue contributor in the future.
Speaker Change: Our co Packer network is now solidified in geographic locations that are conducive to optimizing network freight efficiency.
Speaker Change: With the activation of better co packing in the southeast for bottles and cans and drink pack in Socal for cadence. We now have full coverage for both bottles and cans for 2025.
Speaker Change: Turning to our recent strategic update we are encouraged by the decisive steps, we've taken to improve our balance sheet and liquidity position on.
Speaker Change: On October 20, <unk>, our largest shareholder Dandy source of life purchase from White box all of our outstanding secured debt.
Speaker Change: This investment paired with the additional funding from our long term partner White box is a strong vote of confidence in our business and its potential.
Speaker Change: To complement these strategic actions, we've appointed Sam Vanda, our board bring extensive expertise that will enhance our ability to create value for both shareholders and customers.
SaaS background and capital markets business development and regulatory compliance includes leadership roles at the New York Stock Exchange.
Speaker Change: <unk>, a global markets Advisory group.
Speaker Change: Throughout his career he has facilitated over 100 company listings on U S exchanges and has served on the boards of Phoenix Motor right realm insurance and Dell Tech investment advisor.
Speaker Change: We're excited to welcome Sam to our board and look forward to his contributions to our team.
Speaker Change: Following <unk> appointment, we announced the departure of three board members, John Bello, lower broaden out and Tom call Sir.
Speaker Change: Like to extend my gratitude to each of them for their dedicated service rates throughout their respective terms and wish him all the best in their future endeavors.
As a result of the inventory challenges face year to date, we are withdrawing our previously issued full year 2024 outlook. However, with this recent capital infusion and de Levered balance sheet, where we are now better positioned to build back inventory levels fulfill demand and drive towards our goal of sustained growth and profitability.
Speaker Change: Before wrapping up closing remarks, Joanne will cover the financial highlights for the quarter in more detail Joanna over to you. Thanks norm.
Joanne: Into our results all various commentary is on a year over year basis, unless otherwise noted net sales for Q3 2024 were $6 8 million compared to $11 9 million in the year ago quarter. The decrease was primarily driven by tightened credit terms from several suppliers coupled with the reduced collateral base that restricted liquidity.
It has impacted our ability to purchase raw materials, which offset net sales by approximately $4 4 million in the third quarter of 2024.
Joanne: Gross profit for Q3 2024, it was $1 2 million compared to $4 million in the year ago quarter, the gross margin of 18% versus 34% in the year ago quarter.
Joanne: The decrease was primarily driven by higher trade spend contributing to lower net sales as well as increased cost of goods sold as a percentage of net sales.
Delivery and handling costs reduced to $1 3 million during the third quarter 2024, compared to one 9 million in the third quarter of 2023.
Delivery and handling costs were 19% of net sales for $2 99 per case compared to 16% of net sales or $2 98 per case during the year ago period.
Joanne: This increase in the cost per case spend was driven by out of network shipments due to inventory availability.
Joanne: Selling general and administrative costs were $3 1 million during the third quarter of 2024 compared to $2 3 million in the year ago quarter.
Joanne: Altogether operating expenses were $4 4 million compared to $4 2 million in the year ago period.
Operating loss during the third quarter of 2024 was $3 1 million or <unk> 62 per share compared to $1 million or <unk> <unk> per share in the third quarter of 2023.
Joanne: Modified EBITDA was a loss of $3 million in Q3, 2024 compared to <unk> 2 million in the year ago period.
Joanne: For the third quarter of 2024, we generated approximately $1 1 million of cash from operating activities compared to cash used of $1 8 million for the same period in 2023. The increase was primarily driven by lower inventory purchases compared to the year ago period.
Joanne: As of September 32024, we had approximately <unk> 3 million of cash and $27 1 million of total debt net of capitalized financing fees. The debt includes $21 8 million from the convertible note and $5 $4 million from our revolving line of credit, which has $7 5 million of additional borrowing capacity.
These figures do not reflect the subsequent transactions related to white box and DMD, which was discussed like norm.
Speaker Change: I'll now turn the call back to norm for closing remarks.
Norm: Thanks Joanne.
Norm: Over the past year, we have worked diligently to optimize our cost structure and build a solid foundation to support our future growth.
With our new $10 million revolving credit facility. The purchase of all the secured notes held by white box by our largest shareholder and the continued strong demand for <unk> products. We believe we now have the capital and runway we need to properly execute on our 2025.
Speaker Change: Operator, we will now open the calls for Q&A.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your Touchtone filing you will hear from that your hand has been erased should you wish to decline from the polling process. Please press the star followed by the number too.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: Your first question comes from Sean Mcmillan from Roth Capital Partners. Please go ahead.
Sean Mcmillan: Good morning, Thank you.
Speaker Change: I have a couple of questions norm, how quickly would you be able to access.
Speaker Change: This new line of capital.
Speaker Change: How quickly would it be able to actually translate into additional revenue.
Speaker Change: Good morning, Sean, we'll actually have access to that today.
Speaker Change: Yes.
Speaker Change: We finalized all the documentation.
Yesterday afternoon into the evening and expect to close shortly after this call.
Speaker Change: One of the I think one of the anticipation of this we've worked hard with our.
Speaker Change: Key vendors and retailers to try to get the process started.
Speaker Change: We have begun.
Speaker Change: <unk> and shipping inventory and it's not going to happen over night, but I see and the real goal is to be fully stocked.
By the end of this year. So we start 2025 with a full assortment on inventory on both coasts. So we can we can meet order demand.
Speaker Change: And ship it within the established shipping orbits.
Speaker Change: Yes.
Okay.
Speaker Change: How confident are you then that you'd be able to hold onto the listings that you currently have.
Speaker Change: Okay.
Speaker Change: That's something that we've worked really hard.
Behind the scenes communicating with key retailers and.
Speaker Change: Being really transparent about our situations so I believe.
Speaker Change: We will be able to hold onto it I mean, obviously we are.
Speaker Change: Expanding current authorizations with retailers.
I think we have a very short leash and we have to.
Speaker Change: We have to deliver but I'm confident we've done that like I've said, we've been proactive.
In terms of communication and then how.
Speaker Change: Rick.
Speaker Change: Distributed short shipments in terms of managing that.
Speaker Change: We've protected certain customers around promotional periods.
And I guess I don't know if share the wealth is a good term, but we've kind of spread our shared the pain.
Speaker Change: And so it's not it's not a constant.
Speaker Change: For one or several retailers really tried to manage the process and like I said been very transparent and communicated our plan in <unk>.
Speaker Change: What we expect for 2025.
Speaker Change: Okay.
Speaker Change: You may have said it I missed it in the prepared remarks, but how is the RTD product doing the alcohol.
Speaker Change: So we.
Speaker Change: Early last year, we scaled back our distribution to retailers where that that consumers know the rights.
Speaker Change: Portfolio and really focus on that and growing that we've had success in those locations and as a result of the success. We continue to build distribution and I think I just mentioned too in my remarks Loews and.
Speaker Change: And.
Speaker Change: There was one other we just picked up that distribution, but.
Speaker Change: We've continually to add are with existing retailers that obviously have had success with with reeds.
Speaker Change: We are building on that so it's a slow build.
Speaker Change: We want to we don't want to expand too quickly.
Speaker Change: And.
Speaker Change: And use success to build on success giant foods with the other one and I have seen progress that way. So it's been it's been a slow build not a a big rollout, but we think it's the prudent way to do it.
<unk>.
Speaker Change: We're managing our resources well, but also <unk>.
Speaker Change: <unk> success, which we can build.
Speaker Change: Okay. A question for Joanne just the G&A line in this quarter include.
And it expenses that are kind of onetime or not likely to recur.
Speaker Change: This quarter no.
Speaker Change: Okay.
Speaker Change: I was little surprised to see it go up as much as it did what drove that increase.
Speaker Change: Just some general expenses and the additional consultants for.
Speaker Change: Sure Shaun the other thing is last quarter.
Speaker Change: We reversed out some accruals, which drove that a little bit lower so it's not it's not truly an apples to apples.
Speaker Change: Comparison, okay.
Speaker Change: If you take those adjustments so youll see that our trends of our costs continue to come down.
Okay Alright. Thank you that's helpful.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: There are no questions.
Speaker Change: This time I will now turn the call over to Mr. Schneider for closing remarks.
Speaker Change: Thank you I'd like to thank everyone for participating in this morning's earnings call as well as our employees customers and of course, our shareholders. We appreciate everyone's support we look forward to providing an update when we report our fourth quarter and full year 2024 results early next year have a good day.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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