Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reed's Inc (REED, Financial) reported a significant improvement in gross margin, increasing by more than 1,000 basis points year-over-year.
- Operating expenses were reduced by 23% compared to the same period last year, reflecting effective cost management.
- Sales of key products like Reed's Ginger Beer and Ginger Ale showed solid growth, with increases of 8% and 9% respectively.
- The company successfully renegotiated freight contracts, leading to a 29% reduction in delivery and handling expenses and over $1 million in annualized cost savings.
- Reed's Inc (REED) has expanded distribution and product offerings, including new partnerships with Sprouts and Whole Foods, and launched new products in the ready-to-drink alcohol category.
Negative Points
- Net sales for Q1 2024 were down to $9.6 million from $11.2 million in the previous year, primarily due to tightened credit terms impacting raw material purchases.
- The company experienced an inflated rate of short order shipments due to supply chain constraints.
- Cash used in operations increased to $2.4 million, compared to a positive cash flow from operations of $1.1 million in the same period last year.
- Reed's Inc (REED) is carrying a significant debt load with $26 million in total debt, which includes a convertible note and revolving line of credit.
- Despite improvements, the company still reported an operating loss of $2.6 million for the quarter, although this was an improvement over the previous year.
Q & A Highlights
Q: How sustainable is the gross margin recovery, and what impact does product mix have on it?
A: Norman Snyder, CEO of Reed's Inc., explained that the improvement in gross margins is sustainable and primarily driven by significant cost reductions across various elements of their cost of goods sold (COGS). The shift from bottles to cans has been favorable and is expected to continue, positively influencing the product mix.
Q: Are there any trends in the ready-to-drink (RTD) alcohol category that might impact Reed's sales?
A: CEO Norman Snyder noted that while some larger players in the RTD alcohol market have seen a pullback, the category continues to grow. Consumers are increasingly looking for premium, 'better-for-you' products, which aligns with Reed's offerings and should support continued growth.
Q: Can you provide details on the equity offering mentioned in the balance sheet?
A: CEO Norman Snyder confirmed that the equity offering would convert to equity in the second quarter, with the majority of the cash raised in the latter part of the first quarter and some in the second quarter.
Q: What is the strategy behind the safe offering and its impact on share price and debt?
A: The CEO mentioned that the conversion price for the safe offering is yet to be determined, with a floor set at $1.50. The offering aims to manage debt effectively while preventing excessive dilution, as there is a cap on the percentage of ownership by debt holders.
Q: When do you anticipate Reed's Inc. will become cash flow positive from operations and debt?
A: Norman Snyder expressed confidence that by the latter part of the year, Reed's would generate sufficient cash to cover both operational costs and debt service requirements, thanks to improvements in gross margins, transportation costs, and SG&A expenses.
Q: What are the plans for expanding product distribution and launching new products?
A: The CEO discussed ongoing efforts to expand distribution, particularly in national chains like Whole Foods and Sprouts, and to introduce new products such as hard ginger ale. These initiatives are part of a broader strategy to leverage strong brand recognition and consumer following in key retail outlets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
