Reed's, Inc. (REED) Earnings Call Transcript

Good morning. And welcome to REIT's second quarter 2026 earnings conference call for the three months ended June 30, 2026. My name is Mark, and I will be your conference call operator for today. Thank you. Today's call will include prepared remarks from Neil Cohen, REIT's Interim Chief Executive Officer, and Douglas McCurdy, REIT's Chief Financial Officer. Following the remarks, we will open the call for 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 strategy, growth initiatives, financial projections, operational improvements, the impact of corrective efforts, financing plans, and liquidity. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. forward-looking statements inherently involve risks and uncertainties and only reflect management's view. As of today, August 12, 2026. breathes its room no obligation and does not intend to update these forward-looking statements except as required by law. For more information, please refer to the Risk Factors section of the company's annual report filed with the Securities and Exchange Commission on March 25, 2026, and in other filings that the company makes from time to time with SEC. When discussing results, the presenters may refer to non-GAAP measures which exclude certain items from reported results. Please refer to REIT's second quarter 2026 earnings release on REIT's investor website at investor.reitsinc.com. and the company's quarterly report on Form 10-Q for the quarter ended June 30, 2026. Expected to be available on the website soon. Four definitions and reconsolations of non-GAAP measures and additional information regarding results. including a discussion of factors that could cause actual results to materially differ from. forward-looking statements. While we believe the non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAP. I will now turn the call over to Mr. Cohan. Please, go ahead. Thanks, Mark, and good morning, everyone.

We're now halfway through 2026, and I want to speak very plainly about where we stand. The second quarter results reflect early progress from corrective actions initiated earlier this year. Net sales increased 5% compared to the first quarter. Gross margin expanded as well, and we expect continued expansion in the mid-30% area over time. Selling general administrative costs decreased 18% compared to the first quarter, and we will continue to better balance these expenses. Net loss decreased, and we are focused on achieving profitable growth. While these results represent improvement from the first quarter, the work is not finished, and the results are not where we want them to be. We need to continue improving sales execution, retail placement. and operating efficiency. Let me give you some context on the key areas of progress during the second quarter. The first area is inventory. In the first quarter, inventory write-offs had significant impact on our margins. In the second quarter, those write-offs declined materially as we substantially completed the portfolio rationalization work. We have liquidated underperforming and non-strategic SKUs, and we are now operating with a leaner more focused inventory position. Overall, we reduced inventory to $7 million and improved our cash convergence cycle. The second area is commercial execution. We regained shelf space and grew doors by reengaging national and regional retail accounts and restored our heritage glass bottle packaging. We We have also invested in our national broker partner, which now has more than 75 sales professionals partnering with us to achieve success across key channels by increasing retail coverage and improving in-market execution. The third area is cost structure. We have taken action to better align SG&A with the current size of the business and improve trade spend efficiency, which is contributing to higher gross margins. We will continue to review the cross structure and prioritize spending that supports commercial execution. On the product side, we have several initiatives building for the second half of the year. Our new mixer line is just about ready to hit the streets, and many retailers across the country are clearing space for our new four-pack, 7.5-ounce mini cans of tonic, club, and grapefruit mixers. All have a hint of ginger. Our top selling ginger ale and cans will soon be available in glass bottles. We expect this to be one of the most successful SKUs in our portfolio. We're also currently working on the most unique line of premium ginger beer in several unique exotic flavors. Moving on to the op side of the business. Damien Warshall, our Chief Operating Officer, has now completed his first full quarter with Reed's. His initial focus was on inventory control, supply chain management, vendor relationships, and production efficiency. During this time, we launched a comprehensive review of our contract manufacturing manufacturing network, consolidating production to align each item with the optimal facility and region. We believe that work is already producing results. We rationalized two co-manufacturers in our legacy network whose combined production and outbound logistics costs were running well above the benchmarks we were achieving elsewhere, tightening our cost structure and reinforcing our foundation. as we scale. We've also deployed new operations software that we believe meaningfully strengthens how we forecast and manage raw material purchasing on a national basis, enabling us to operate leaner, reducing the aggregate inventory we carry ahead of production while preserving our ability to serve demand. Stepping back, the second quarter demonstrated sequential progress in gross margin, inventory management and overall operating performance, but we recognize that substantial work remains. As we move through the second half of the year, we are focused on disciplined commercial execution, continued margin improvement and positioning REITs for profitable and sustainable growth. In the third quarter, we see continued opportunity to bring national inventory levels down further as we make efforts to build out our inventory planning and management capabilities. All this work is expected to free up working capital and improve the efficiency of our production footprint. Over the past two months, our team has taken the initiative to develop an in-house proprietary sales and demand planning tool purposely built for how this organization plans, tracking the baseline needs of our customers while dynamically accounting for seasonality and the distribution gains we expect to capture through the annual sales cycle. We've We believe this positions us for continued working capital gains as we keep optimizing inventory across the network. Finally, we are also evaluating financing alternatives to support our growth going forward. With that, I'll turn the call over to Doug, our CFO, who will discuss the second quarter results in greater detail. Doug?.

Thank you, Neil. Turning to our results for the second quarter of 2026. Variance Commentary is on a year-over-year basis unless otherwise noted. Net sales for the second quarter of 2026 were $7.5 million, compared to 9.5 million in the prior year period. The decrease was primarily driven by lower volumes with recurring national customers. ON A SEQUENTIAL BASIS, NET SALES INCREASED 5% FROM THE FIRST QUARTER OF 2026, GROWING reflecting early progress with our profitable growth initiatives. Gross profit for the second quarter increased to $1.8 million, compared to $0.8 million in the prior year period. Gross margin increased to 24% compared to 8% in the prior year period. The improvement was primarily driven by lower inventory write-offs, which declined to $0.1 million from $1.6 million in the prior year period. Delivery and handling costs decreased 30% to $1.1 million during the second quarter of 2026, compared to $1.6 million in the second quarter of 2025, primarily driven by continued improvements in logistics efficiency and freight optimization. Delivery and handling costs were 15% of net sales or $2.54 per case compared to 17% of net sales or $2.95 per case during the same period last year. Selling general and administrative expenses decreased 6% to $4.7 million, compared to $5.0 million in the prior year period. The decrease was primarily driven by lower legal settlements and continuing efforts to optimize selling general and administrative expenses. offset by investment in personnel and related services to support our Asia Growth Initiative. Net loss during the second quarter of 2026 decreased 29% to $4.3 million, or negative $0.36 per share, compared to a net loss of $6.0 million, or negative $0.78 per share, prior year period. EBITDA loss decreased 30% to 4.0 million in the second quarter of 2026, compared to 5.7 million in the year-ago period. Cash used in operations decreased to 2.2 million, in the second quarter of 2026 compared to cash used in operations of 5.0 million in the year ago period. AS OF JUNE 30, 2026, REEDS HAD $2.4 MILLION OF CASH AND 9.2 million of total debt, net of deferred financing fees. This compares to $10.4 million of cash and $9.2 million of total debt, of deferred financing fees at December 31, 2025. As Neil noted, we are evaluating financing alternatives to support the business going forward. This concludes our prepared remarks. Operator, you may open the line for questions.

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 1 or your touch-tone phone. You will hear a pump that your hand has been raised. Did 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 keys. One moment please for your first question. Your first question comes from Aaron Gray from Alliance Global Partners. Please, go ahead.

Good morning and thank you very much for the questions. I guess first one for me, Regarding some of the vendor relationships that you referred to, maybe talk about where those stand. I know there's been some changes, probably some disruption. Yes. So how did some of those key relationships stand today in terms of retaining or maybe gaining back some shelf space for some of those key partners? Thank you.

Yes, Aaron, this is Neil. That's a great question. And I have to tell you, We reduced the size of our sales team because we now have a broker partner. I can tell you I've got the four best salespeople in the country today. I would match them up to any other small beverage company like ourselves. We've touched almost every one of our big customers, not completed yet, some are still ready to go, but touched and spoken with and myself personally involved Food Lion, Publix, Sprouts, Kroger, Wegmans, Ingalls, Harris Teeter, Albertsons, across the country, we've talked to everybody. Everybody loves the brand. Everybody wanted to make sure we were, A, staying in stock and we could handle their business. Two, some want the glass bottle back, so we're bringing glass bottles back into some locations, which will be extremely helpful. I think it was very, very tough. This brand was born on glass bottles back in 1986, 87. It was our legacy, was the glass bottle. and it was eliminated overnight, which hurt us and impacted our business significantly at places like Whole Foods, just one of our largest volume for outlet customers, completely hurt us there. We have a meeting coming up with Whole Foods in October, personally with the buyer. And I can tell you, I believe that's going to be a very, very effective meeting. We have a lot to talk about. So, long answer to a short question. Yes, our relationships are very much intact and our business is only going to get better. And we're seeing the results right now. we're getting commitments now we'll start seeing those commitments come to fruition sometime around the end of this third mid third to going into first quarter of next year.

Okay, great. Really appreciate that, Kyle, and glad to hear in terms of some of that progress there. I guess, you know, it's assuming that we get some of these, you know, accounts back and get some shelf space. How should we think about then ensuring that you're properly inventoried and capitalized on those growth opportunities, particularly as we think about, you know, where the balance sheet stands today and there might be some constraints? Thanks. Yes.