Reed’s, Inc. (OTC:REED) Q2 2025 Earnings Call Transcript

Reed’s, Inc. (OTC:REED) Q2 2025 Earnings Call Transcript August 13, 2025

Operator: Good morning, and welcome to Reed’s Second Quarter 2025 Earnings Conference Call for the 3 and 6 months ended June 30, 2025. My name is Annis, and I’ll be your conference call operator for today. We will have prepared remarks from Cyril Wallace, Reed’s Chief Executive Officer; and Doug McCurdy, Reed’s Chief Financial Officer. Following their remarks, they will take your questions. Before we begin, please take note of the company cautionary statement. Today’s call will include forward-looking statements, including statements about Reed’s business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management’s view as of today, August 13, 2025, and the company is under no obligation to update them.

When discussing results, the presenters may refer to non-GAAP measures, which exclude certain items for operating results. Please refer to Reed’s second quarter 2025 earnings release on Reed’s investor website at investor.reedsinc.com. And its quarterly report on Form 10-Q for the period ended June 30, 2025, expected to be available on the website soon. for definitions and reconciliations 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. I will now turn the call over to Mr. Wallace.

Cyril Wallace: Thank you, Annis, and good morning, everyone. We appreciate you joining us today to discuss our second quarter 2025 results. We are in the early stages of strengthening our commercial execution and better positioning Reed’s for long-term growth and profitability. Although we saw softer order volumes during the quarter, we are making meaningful progress in streamlining operations, refining our marketing approach and investing in channel development initiatives. We believe these efforts will help restore key placements and open new growth avenues in underpenetrated channels such as convenience and food service. In Q2, we began to see downstream effects of last year’s supply chain disruptions, which impacted order volumes during the quarter.

To mitigate further disruptions, we are investigating in sales personnel to rebuild key relationships and have taken steps to rebalance manufacturing to better align with the demand forecast. We believe these actions will better position us to recapture loss placements as retailers enter formal reset periods in the fall and spring. At the same time, internal execution is improving, and we’re actively pursuing new distribution opportunities to diversify our channel mix and support long-term growth. To support this initiative in July, we appointed Rachel Fox-Greenwood as Vice President of On-Premise Sales to lead our expansion into food service and convenience channels. Rachel is a seasoned commercial executive with a proven track record of driving market expansion, forging strategic partnerships and building scalable programs across the beverage industry.

She has held leadership roles at French Bloom, Catalina Wines and Empire Merchants where she consistently delivering results in both honors and retail environments. Her expertise will be instrumental as we broaden our reach, strengthened channel execution and further elevate the Reed’s brand. Our growth strategy pairs channel expansion with ongoing product innovation. Our new Reed’s functional soda has been well received within the grocery and natural channel. Velocity is steadily ramping and the most recent data has shown encouraging signs of acceleration. Consumer feedback also has led us to believe that our functional soda line will be successful in the months and years to come. Since launching in April, our team has amassed more than 9,000 points of distribution, including national distribution of Spouts and placement at retailers such as Kroger, Giant Carlisle, Hannaford, Duane Reade.

In addition, Harris Teeter added all 4 of our functional SKUs chain-wide, while National Co+op Grocers or NCG, incorporated the full lineup into its core assortment. Our formulations combine Reed’s signature bold flavors with functional wellness ingredients, including organic beer, prebiotic fiber and adaptogenic mushrooms. So far, we’ve seen encouraging traction on our Root Beer and Berry Bubbly SKUs. We’re only working through our initial inventory as we prepare to roll out updated formulations later this year, incorporating feedback from both retailers and consumers. This measured approach reflects our focus on rebuilding sustained velocity in a competitive category. Our goal is to deliver our product that aligns with evolving better-for-you trends while staying true to Reed’s uncompromised committed to quality.

We view the functional space as a long-term opportunity, and we’ll continue to invest in the vertical as it grows. Turning to our core product sales. For the quarter, our sales team continued to deliver a solid commercial wins and build momentum across both new and existing retail partners. I’d like to highlight some of these wins. First, we reached a key milestone at Costco securing approval for our Reed’s Winter Ginger Ale Variety Pack. Based on current commitments, we anticipate product sales in the second half of 2025 to reach the 7-figure range, a meaningful achievement for the brand. At Safeway, we built on the success of our Q1 secondary display program with expanded commitments for the second half of the year. Our sales team has secured over 25,000 cases of pre-committed secondary displays, scheduled to land in Q3 and early Q4.

This program spans both seasonal and everyday items and will be launched in more than 500 stores. We also completed a shipper gram at Kroger placing over 500 displays across our legacy Ginger beer and new functional SKUs. The program spanned 5 divisions and concluded in late Q2. We’re encouraged by the results, and we look forward to expanding our presence across the broader footprint. At Whole Foods market, we’re preparing to execute our third consecutive year of national secondary displays. Set for September, the program will support our alcohol portfolio and reflects a strong long-term partnership and consistent performance within the chain. Beyond these major retailers, we significantly grew our secondary distribution securing meaningful displays at Sprouts, National Grocers by Vitamin Cottage and NCG, further reinforcing our presence in key natural and grocery channels.

Finally, our direct-to-consumer channel advanced with the launch of our new website aimed at enhancing the user experience, deepening engagement with our customer base and driving steady subscription-based revenue growth. While their sales channel represents a small portion of business today, we will continue to invest, and it has become a larger contributor in the future. Now to dive into our second quarter operational highlights. During the quarter, we remained focused on executing the functional initiatives established earlier this year while adapting to evolving demand trends. Our priorities continue to center on improving execution, enhancing commercial capabilities and driving efficiency across the organization. As a part of our efforts to align operations with current demand trends, we evaluated inventory and determined that $1.6 million of write-offs were necessary based on product portfolio optimization.

Although it’s impacted gross margin for the quarter, we believe it was an important step to improve inventory management and working capital efficiency, and to ensure our manufacturing and supply chain resources our focus on high- demand actively supported SKUs. On the logistics and supply chain front, we rebalanced inventory across regions to improve delivery efficiency and minimize out of stocks in key markets. While this led to elevated delivery and handling costs for the quarter, these investments are already enhancing service levels and better positioning us to support retail partners ahead of the fall reset period. We also continue to advance our transition from glass to cans across both Reed’s and Virgil’s portfolios. This initiative is driving greater savings through reduced freight costs and is receiving positive feedback from both retailers and consumers.

Looking ahead, our focus is on driving sales growth within our core Reed’s, Virgil’s and portfolios, improving margins and positioning Reed’s for sustained growth and profitability. Rebuilding key relationships takes time, but we’re encouraged by the foundation we’ve established and believe we’re on the right path to drive sustained improvement in long-term growth. Before wrapping up with closing remarks, our CFO, Doug will cover financial highlights for the quarter in more detail. Doug, over to you.

Douglas W. McCurdy: Thank you, Cyril. All variance commentary is on a year-over-year basis, unless otherwise noted. Net sales for the second quarter of 2025 were $9.5 million compared to $11.9 million in the year ago quarter. The decrease was primarily driven by lower volumes with recurring national customers. Gross profit for the second quarter of 2025 was $0.8 million compared to $3.8 million in the year ago period. Gross margin was 8% compared to 32% in the year ago quarter. The decrease in gross margin was primarily driven by $1.6 million of inventory write-offs related to changes in product portfolio optimization made by new management. Excluding these inventory write-offs, gross profit for the second quarter of 2025 was $2.4 million or 25% of net sales.

Delivery and handling costs were $1.6 million during the second quarter of 2025 compared to $1.4 million in the second quarter of 2024. Delivery and handling costs were 17% of net sales or $2.83 per case compared to 12% of net sales or $2.18 per case during the period last year. Selling, general and administrative expenses were $5.0 million during the second quarter of 2025 compared to $3.1 million in the year ago quarter. The increase in SG&A was primarily driven by contract proceeding costs and our investments in personnel, marketing and related services to support growth initiatives. Altogether, operating expenses were $6.6 million compared to $4.5 million in the year ago period. Net loss during the second quarter of 2025 was $6.0 million or negative $0.13 per share compared to $3.2 million or negative $0.77 per share in the second quarter of 2024.

Modified EBITDA was negative $2.9 million in the second quarter of 2025 compared to $45,000 in the second quarter of 2024. For the second quarter of 2025, we used approximately $5.0 million of cash from operating activity compared to cash used of $0.9 million for the same period in 2024. As of June 30, 2025, we had $2.7 million of cash and $9.7 million of total debt net of deferred financing fees. This compares to $10.4 million of cash and $9.6 million of total debt net of deferred financing fees at December 31, 2024. I will now turn the call back to Cyril for closing remarks.

Cyril Wallace: Thanks, Doug. While Q2 results were challenged, they highlight the important work underway to rebuild our foundation for sustainable long-term growth and profitability. I’m encouraged by the alignment across our organization and believe we are well positioned to execute on our goals ahead. I look forward to sharing our continued progress later this year. With that, Annis, we’re ready to open up the line for questions.

Q&A Session

Operator: [Operator Instructions] The first question comes from Sean McGowan with ROTH Capital Partners.

Sean Patrick McGowan: I want to start with questions about revenue. I feel like this is the first time in many quarters where you — the story isn’t, hey, we could have done better if we add money and if we had inventory, you had the money, you had the inventory and yet not only are sales down, but you’re actually calling out losses of placement and declining orders at national REIT. So what changed? What — I guess, was it not really the money in the inventory? Like what has changed on the revenue side?

Cyril Wallace: Yes. Sean, I think, first of all, I appreciate the question. It’s a great question. I think what you’re seeing with retailers, right, we had some challenges, call it, in 2024. And I think this is just building, right, where we had operational challenges and we lost placements and sets in stores. And I think you’re seeing the continuation of that being put in the penalty box, so to speak, in which we’ve lost distribution and facings across some key retailers and which that is what you’re seeing. And so I think the steady — the decline you saw in Q2 represents that impact from our operational challenges that maybe started back in 2024. Now the team is working to close down those voids. And we’ve had some promising conversations with some retailers.

But one of the things that I’ll highlight is that it’s very difficult, right? I think we all know like when you lose placements, you don’t just go back in just because we improved on our operational efficiencies overnight. That takes time, right, to rebuild. And also, there’s a window in period in which retailers will allow you to go back in to earn your way back into the space that generally happen in the spring and the fall. So I would say that we’re pushing towards trying to reclose those voids, but it’s certainly an area that, in the short term, has impacted our revenue.

Sean Patrick McGowan: Okay. And Cyril, I understand a lot of what the commentary in the past predates your tenure. But I don’t remember any of these calls, somebody saying we lost placements. In fact, it was the opposite. It was despite not having the inventory and despite the sales decline and being late or whatever, we kept the placements. So this is the first, I think, I’m hearing that you loss placements, which is just — so what visibility do you have on when we could actually expect the sales recovery?

Cyril Wallace: Yes. I mean, like I said, I think these are ongoing conversations that we’re having with retailers. And there’s a period in which you can regain these placements and sets. They happen in the spring and the fall, right? And so our teams are working hard in order to reclaim those placements and also get new placements as well, too, with our new functional lines. So it’s ongoing, Sean. I couldn’t really give you a time period in terms of which it will take place, but we’re seeing and having some positive conversation with retailers.

Sean Patrick McGowan: Okay. Looking at gross margin, even if you exclude the write-off, the margin was below a year ago and below, I think, what you’d like to see it at. So what else is going on, on the gross margin line?

Cyril Wallace: Doug, do you want to tackle that one?

Douglas W. McCurdy: Absolutely. Sean, I think the key driver for gross margin being down, obviously, was the inventory write-off. And as you point out, Sean, excluding inventory write-off, we’re probably, I don’t know, 8 or 10 points below where we would like to be in the mid-30s. The primary driver of being down was trade spend being higher than expected, higher than budgeted. And we’re managing that as we came out of second quarter. We put a little bit tighter rein on trade spend and managing that going forward. So I would anticipate that you’ll see us move forward now that we’ve done some of the housekeeping with inventory, and we’re focused on trade spend and certainly cost of goods sold and the production side as well. But I would imagine that you’ll see us get back to the 30s here.

Sean Patrick McGowan: Okay. That’s helpful. And then my last question is maybe you could give more color on how delivery costs could be up so much when revenue is down. What’s the spending going on there?

Cyril Wallace: Yes. I think it ties directly to some of the work that the team is doing to ensure that we’re on time and full across all of our customers and the operations team has done a phenomenal job in making sure that we’re working directly with our sales team to pair our manufacturing costs with actual forecast and demand. I think some of the challenges that you saw in Q2 is just with moving inventory from one part of the country to the other to ensure that we remain in on-time and full. And so as we continue to optimize our forecast, Sean, for East Coast and West Coast, I think those costs will continue to come down, right? Just making sure that we’re being very timeful in where we’re placing manufacturing based on where the forecast is so that you don’t see that increase in enhanced shipping costs from one end of the country to the other.

Sean Patrick McGowan: So we should expect that this is not indicative of the percent of revenue that we would see on that line going forward?

Cyril Wallace: That’s correct, Sean.

Sean Patrick McGowan: Okay. I guess another way to look at it is, in the past, I think the company kind of declined to make some shipments rather than make shipments that might be less profitable. And now in an order to keep in stock, you’re making decisions that might be suboptimal at the moment, but are better for satisfying customers. Is that the right way to look at it?

Cyril Wallace: That’s right. I think that and I think that mindset along with just ensuring that your manufacturing product based on where the demand is so that you can minimize your shipping cost. But yes, there is a full court press to ensure that we’re ensuring that we remain on time in full with our customers.

Operator: [Operator Instructions] There are no further questions at this time. I will turn it back to Mr. Wallace for some closing remarks.

Cyril Wallace: Okay. Thank you, operator. Thank you for joining this morning’s earnings call. On behalf of the entire team, I want to extend our sincere appreciation to our employees, customers and shareholders for their continued support. We value your partnership and wish you all a great day. Thank you.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.