REED - Earnings call transcript Q1 2019

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Operator

Good afternoon and welcome to Reed's First Quarter 2019 Earnings Conference Call for the period ending on March 31, 2019. My name is Jesse and I will be your conference call operator today. Today's call is limited to one hour and we'll have prepared remarks from Val Stalowir, Reed's Chief Executive Officer; and Iris Snyder, Reed's Chief Financial Officer.

Following management's remarks, they will take your questions.

Before we begin today's call, I have a Safe Harbor statement to read to our listeners. response remind contain that management forward-looking additional statements to management's this may like forward-looking may questions. remarks statements in would our during listeners call, make I your to and that

company's are manage anticipated the statements factors achievements unknown reduction uncertainties, information distributors, limited our to different other access and to not actual States be only United third-party to products, may growth, ability of environment, meet manage include, Exchange and with and level those factors development in dependence risks, detailed predictions are materially Securities and and Forward-looking subject and debt, from by are goals, the changes manufacturers activity, our competitive These capital, known and in results, that but time-to-time the demand other Commission. in for such statements. to cause filings current on to, our performance, from or

statements expectations achievements. Although we the or we future believe performance, cannot that our reflected are levels activity, guarantee reasonable, results, of forward-looking in

any projections as of the performance as as in estimates XXXX; these change. addition, May conditions update company's the market XX, to management's assume today, represent we future future projections no for obligation In

call on of operating our not to that investors Mr. Please present performance sir. because believe by excluding do the and information is are and non-GAAP posted referenced comparing items note with for and on over Stalowir. in not informational now release performance. included financial results, solely measures website it a as Additionally, is please are but We in believe press basis meant for EBITDA SEC assists GAAP their during and our reconciled investor.reedsinc.com. purposes. indicative turn will core modified this consistent measures comparable comparative call across go-ahead, I to our the financial a filed financial reporting periods is Non-GAAP GAAP supplemental the we substitute analysts we at materials

Val Stalowir

good you and and everyone. our pleasure speak my continued with XXXX you performance you Thank progress. update to our discuss to quarter afternoon today on is It first

As XXXX, XXXX. began step first to of completing first key last final margins se you and We in our of XX% organization. the our compared gross to end transition of the transition the an benefits quarter with of will recall, transformation asset-light marketing we to at and year both of for sales completed our quarter quarter the in improved XX%, fourth the

of Zero the Sugar volume up investments Virgil’s Additionally, in brand, which our QX, line. during the and growth Yet the quarter marketing increases has coming begun. reflecting and the is to innovation on core brand growth accelerating, is sales the gross growth of launch in impressive of an now this launch REED’s continued XX% prior just benefit and sales sales XX% and posted momentum the

organizational is Our opening now sales plans, on incremental our retail zeroed on completely innovation growth. and building focus in our brands, outlets, accelerating executing

our our growth, We with efforts and Virgil’s now have executing of incremental sales the drive can innovation plans. marketing that innovation and REED’s demonstrated and acceleration we’re

material over but on fresh Mom” the have enhanced material Fooled bold real and tasting and REED’s ginger centers our programs, ales. you benefit. to our and the trend developed and be Extract. ginger partnerships ginger REAL believe the test beers accelerated of leading launched San the on Beer REED’s social excellent READY in instore on enjoy large launching use As Your City, our quarter, Peru There sampling from and in is line markets of display on hand core a function. Hemp NASDAQ the coupon of last real lots ads REED’s weeks. and FOR and the to and was to on able Ginger line stomachs. actually The no happening lit-up We hand children fresh New support first cans Angeles, excitement pilot bell. that products tag to execute Square. to of other and Ginger today’s fast-growing with amount side, no second a team nausea Virgil’s displays, ginger on closing need Reed’s key events, outside. trend PR. are ginger media is Square organic family amount our ginger but big margin to began busting to sugar of advertising, radio ready-to-drink the of “They with Mules an if five in first of has XXX-degree products programs, focused and the marketing ginger of in Wellness It the that ongoing Friday, and currently Times tasting spoke, a was We material Diego. benefits, the exciting these campaign celebrate growth beginning. in choice myth brand first upset health, noted, Los our in quarter it. end XX% ring zero we’ll that many the is GINGER?’ digestive sure higher Both It are ginger in their digital, our time campaign we’ve line At we includes category REED’s be Times team, the great ale including make ale have a Boston, is know the launching categories be place our To just bottles The to ginger plans. is the outdoor, and to our few York mission consumers campaign, print, marketing Seattle, was last inside We time we us there was introducing ale for the their both the or food give on would Friday, members that consumers fresh full Mom’s date ginger in they shipping ale should real that want should amount everywhere what capital, inflammation, at soothe cans programs health with beverage REED. mainstream great to Last turn efforts only REED’s ginger come REED’s program to ginger is the listing brands was our stomach. successfully and is super look and our reduce NASDAQ with soothe

As I Mule Northwest Beer the includes our noted test call, with in in the the REED’s for for test the Extract. and initial Southern an Pacific Ginger Pacific fourth California initial quarter Hemp Northwest and the

of the line we core grow daily wellness our the with Distribution stages Additionally, product final look continues in to our and added function year. are launch in the brands. across formulation ginger later shorts to

craft successes You set. on X,XXX REED’s world The our two are also regions. almost the distribution packs offerings and largest stores. Ingles. distribution included XX Further shelf new now and month, retailer include shipping initial Harmon's the and including our of can find to the Costco a at This we Virgil's new Lawson's, our in product retail in Walmart chains, offerings core REED's Virgil's specialty and Gelson's, Bashas',

Zero of with into Sugar authorization Reed's distributors, and We all Zero also gain offerings continue up network cans. picking our our KeHE new new line Virgil's, Reed's Sugar natural distribution to our of innovation

and following upgrade currently Central, mainstream contract geographies to nonalcoholic Southeast; some our and several Canada, in international new with continue talks in regions: distributor are and Midwest; and DSD We in South fill markets. the beer network void distributors

competing markets. on offerings the ginger locations Chicago, Northern to Northwest California, continue beer also We in with replace premise Southern Greater Across California, REED’s. Pacific

Our nightclub on-premise channel efforts doors than year-to-date. delivered are restaurant bar more and and up ramping XXX new

a for exciting entire an I to the on noted, of and reflection trading model. our began we day structure accomplishment Friday is was This capital As business family enhancements as the REED’s NASDAQ.

our plan. last conference ago, We’re Since rising doubled X. the call also appreciative interest publishing of has on and brands business and just our investor X our of to reflecting number confidence analysts the stock research support in weeks

investor to and compelling all we’ll tell we’re committed visibility story remain shareholder to increase long-term driving value and investor able We establishing investors. our developments, relationships be have reach. our confident with We company's of recent these the to expand with a

hard our to Thank build plans We are this you brands. in for are endeavor. confident us joining our and on pushing

Now, results. first let me call the the quarter through to turn Iris run to over Iris?

Iris Snyder

afternoon and morning very Thank good much you Val everyone.

starting accelerate asset marketing position continue sales we to company like business and and Val growth to our in to XXXX. are benefit from As the model mentioned,

Let me run through the financial results.

with First compared quarter sales million, $X.X the net in prior to year. million $X.X X% increased

price While per growth Sugar volume brand, core case. performance growth includes increased in growth Virgil's volume strong year. a of XX%, the of sales brand compared the Virgil’s The to The brand of by offering. core continued increase the including X% momentum Zero and XX% driven was growth prior our XX%

in business exited of partially including As the anticipated, products, the offset private-label the of sale sales of with brand by end core at the was growth non-core the plant sale and lower conjunction XXXX.

core sales result products percentage gross and Delivering The to by largely the quarter, to increases quarter, year XXX million performance-based basis gross and plant was of driven equity lay General increased increases products growth outlets the during a year driven sale and points as XX% X% infrastructure inventory packaging idle centers launch The prebuild net prior prior-year and point profit to brands. to appropriate in new investments are second $X work reduction X,XXX-basis increased million margin to the sale. the as prior final expected first administrative the sales compared and restructuring quarter. year-over-year XX as These Selling X%, with the in of XX% our strategy as awards increase of sales first of volume during and by margin costs prepare reaccelerate in and the XX%. with million price over market, distribution of of increased percentage basis of into by our and transition largely expenses of rationalization channels, positioning a the to $X sales primarily net gross and to the non-cash and increased the driven new year-over-year The ground to marketing were quarter, the increased sale. the innovation sales to open consistent the accruals, marketing year in in the a of and initiatives. and the For that versus inventory plant SKU bonus refresh brand, a by compared new handling $X.X $X.X prior launch period. increases. retail along improvement to points percent the plant million, The the reflects marketing cost to of and reflects a growth was costs for quarter. in relating costs increase net

$X.X $X.X to per The the million million decreased share to of XXXX. expense other loss or and the $X.X $X.XX $X.XX in or $X.X in quarter Interest loss quarter, million increased year. last million Net first million in first million last share year. year. compared operating compared to $X.X period first from was prior in $X.X per This is quarter same the the

balance sheet Moving of $X.X with and $X.X million to XXXX million line revolving cash entered availability. flow, $X.X the credit quarter the we million of in with in of cash and first

completed significant over-allotment at price borrowings a X.X As beyond. net on February offering million XXXX previously to this offering including and growth million. reduce our for execute and share. were shares stock, approximately common per pursuant provide announced, X facility our we availability proceeds our to $XX.X utilized public an offering credit million on of company $X.XX underwritten the shares from the still of of The The were public plans to proceeds XX, capital to

operating million, cash period. used preparation in increased primarily During XXXX, million compared in already of in XXXX, marketing discussed. sales inventory of we’ve second The to as the the relates as for in well quarter in product investments use activities first to $X.X year increase cash and launches we the in prior quarter investments in significant $X.X of

for are reiterating we guidance, and we outlook the are February to the XX. guidance in the Turning initially XXXX filed confident provided on prospective supplement in

Association year-over-year also our with for generate XX% full-year to we Note growth sold sales $XX our core XX%. the in of private and XXXX million $XX label the to Angeles plant, anticipate sale that We the Los of expect to brand million net business. in range of

growth associated XXXX. revenue While million we sales elimination will a net and approximately of in label will $X private discontinued future, with private receive the small label reflect sales of these in royalty brand the reported

half half Additionally, greater first gross XX% and gross XX% the margin of XXXX of second we XX% a a margin the anticipate between or for XXXX. to for of

to sales guidance the are and our for mix the Ready margin impacts but opportunities these REED's way our reflects, positive growth not in Mules incremental As incremental with We about improvements pilots the have material potential XXXX a upcoming via ahead Extract, guidance. that remain Beer lie we XXXX Drink Hemp and of in confident potential drive growth. in our Wellness excited included in to Ginger and we

call to question-and-answer the turn me operator the let back Operator? Now, the to begin session.

Operator

Thank question. comes line the question [Operator first Bain your proceed Our of with you. with Capital Partners. ROTH from Instructions] David Please

David Bain

and your in and internal you to is the XXX order nice Thank prepared quarter. XQ than the Great. was remarks, initial just that initial Walmart over want order impacts itself mentioned I expected that stores, – you we in anticipated, was I hoping much stronger order your plan? confirm

Val Stalowir

On the Walmart?

David Bain

Yes.

Val Stalowir

than expected. Yes. we That more was

David Bain

that And impacts XQ, Okay. correct?

Val Stalowir

Yes.

David Bain

to makes of, growth I’m sense. then, more bit get rate in to in And hoping able in of Zero speak quarter-over-quarter brokers, on year-over-year data Sugar pull acceleration you're is Virgil's I or is know color new use kind marketing to little acceleration result you from impact? a true channels, Okay. ahead could at that combination a the of any potential basis of but way, sales of the this terms just now a around increase understand, if everything terms through you the leading

Val Stalowir

Yes. the Yes, the and growth zeros. piece of…? – full working the baseline on was the is zeros, both but up incremental from the the was glass coming The news what the base, is mostly

Iris Snyder

digits It well. double as up was

Val Stalowir

well. Yes. as That was double up digits

The of investment of doors doors well doors know, hasn't we’ve really the current been, now, been but there to new you So, new not before, in really piece we base has date. had it’s only that combination as that not a significant cycling as the marketing added.

kind IRI is, the increasing, increases the working continued multiple across really the it’s the of to month-to-month So, show from velocity on through, and so velocities data pull that continue opportunities. of from perspective

David Bain

Okay, just And great. could. if one last I

to extensions helpful. sugar-free or well Just That perhaps the growth or as to and has new be new wondering terms ginger entrants of craft your beer that in speak even speak from in broad-based? soda, in seeing been if you or anything competitors craft diet just category could sales and then field would pricing

Val Stalowir

Yes.

of lot IRI, of space I in digits. holding to zero craft The double the growing terms category craft the steady ginger naturals front kind continues of on beer lot but category, without are grow in in is In me, the not of the and both of pretty changes. figures pricing, low-single-digits. movement healthy don't soda There’s pricing a have the a major

invest some know, Fever-Tree significantly new brands Bundaberg You like and doors. the in continue distribution to of

a So, ginger has still perception it. actually is that it from this consumer of the than having XX% and we because mainstream that it’s as category, in ginger real taking thousand we has ale then single that definitely ginger of it. soda pointed over because saying seen movement in ginger And ale healthier lot consumers ginger survey, we’ve a of beverage did high impacted of that in growing were the a advantage of When healthier terms but category. That’s a been pricing out really beer at standpoint, not digits. in

up, that is over, without significantly ginger is would the soda about diet which that Coke some Coke to that the be with category I the soda even multiples ale and category where think And of down has extension. is, the still flat. So, brought innovation

is ginger healthy Anything ginger craft So, from categories Zero and Sugar in general. are more side doing with that both the the soda so on perspective, on well.

David Bain

Thanks Okay. again. Great.

Val Stalowir

Thanks David.

Operator

Thank you.

comes proceed with question question. with R.F. of next Lafferty from Duan Our your line Co. the Roger &

Roger Duan

Hi, Iris, are hi doing? how Val, you

Val Stalowir

well. All

Iris Snyder

Thanks Great. Roger.

Roger Duan

Hi.

related sale? the a G&A to First How a of $X in million the all, question. much increase plant of quick was

Iris Snyder

was charges final one-time There of XXX,XXX.

Roger Duan

great. XXX,XXX, Okay,

Iris Snyder

bonus about equity XXX. option XXX and is was Our then accruals stock incremental

G&A pieces year-on-year. were there the increase three XX% of of of the about So,

Roger Duan

Okay.

question cans. first Zero some and the stronger a is has and Zero on From Virgil to a whether orders REED’s launch my here you of impressively, cans to just trajectory the discussions Virgil’s. with REED’s going will to I’m the distributors, for trying be can been maybe gross zero Obviously, on sense REED have give get compared sense and can. a So, and us growing

Val Stalowir

selling had it’s and We platform too in of the whole of time a the of launched say. Yes, XXXX, beginning Zero end probably May. then launches. started to early Virgil in We we on that Sugar XXXX, of the lot end

Zeros, out had Virgil’s really just to a coming cans new lot of Virgil’s, had the pre-orders a we that from new and customers lot launch I stronger in six it probably the a in to had So, we given so of were was and because comparison time, think cycle we that of standpoint, a On Pos and trajectory wait be We’ve similar news of land able terms now, tell on work terms sort started is what in. taking you’ve Virgil’s. to REED’s got early orders prep actual in until we there of of flavors. just REED’s, little cans then and come exactly versus launch sort the lot it’s have but too of will a a

a couple doors is see with month trajectory actual we to cans. we’re Virgil’s what happy Zero far, shipping to or have we secured of any say so really then official be REED’s pretty that PO’s first started We the of starting those And related coming are in we’ve but going able and really is following be what months the versus the May May, POs to Reed’s to more need bottles and that in

Roger Duan

just is Okay at that us too share it surrounding great. know launched is that there your also? data I its early marketing point, with can guys early, you super this you any points campaign, or

Val Stalowir

last officially of is it Yes, Friday. launched kind

awareness, purchase we run the actually has we pre really we’ve enough. so to will have be be going So, campaign able impact and up done and for of to a this going to of we to other sort so intent, be measure five terms measure digital the the another to criteria launch We’ve measure several heavy liking, and terms beer of campaign. feedback month how and are after measuring we there but favorabilities, two competitors And be is four of of all ways this already of REED’s, or not to ginger so are engagement, months, and in days able we’re the that, pre national moved. post, done will definitely in markets in need our a top the measuring

Roger Duan

drug last brokers about you Okay in the understood. sign little Do channel. on have channel more to guys your additional talk can segment? question, a to target that you expansion any My maybe plans bit

Val Stalowir

do Neal, handle want you that? Hi to

Neal Cohane

are we talking I don’t drug Yes, a we'll couple big had information, with leading but some to the call actively of chains. we’re we’ve these to about them any different calling guys. the and biggest X, of give them, with good one discussions want programs

to on So, come there’s more that.

We’re hoping later, sooner doing. than interested but what something in to they’re very hear we’re

Roger Duan

Perfect.

all that’s thank Okay, the me, guys. you from on Congrats quarter.

Val Stalowir

Thanks.

Iris Snyder

you. Thank

Operator

with [Operator proceed Street from Lake line comes Instructions] with question of Markets. Our next your Krueger Capital Chris question. the Please

Chris Krueger

call. taking Thanks Hi, good afternoon. for my

Val Stalowir

Hi, Chris.

Iris Snyder

Hi, Chris.

Chris Krueger

repeat questions but my been answered, at many Walmart are of and SKUs Costco? Most many have how are can at how you

Val Stalowir

Yes. Beer we is Zero mix. Root then we At the Black and the have then Zero and we cans. the we and Sugar Costco X Extra, actually have have interesting SKUs, an three Walmart of have Extra Cherry Virgil’s Full

cans REED’s got have extra. in Reed’s We XX-ounce

Beer. We Sugar have Virgil’s Root Full

on of shows the are both sides regions so Virgil’s, road we in are REED’s and launching brand. actually have interest both on We getting the now that multiple

Chris Krueger

potential pretty the early next next plant right expect even ahead looking product have year now, that development of next know to year? product do I Good. in but year kind to tracking And and the bigger launches it’s you right now, then, year

Val Stalowir

well in doors we’ve communicate got on growing work it’s to we XXXX we to maybe of X,XXX development got a XX, Virgil executing are and X,XXX as we cans, probably with and of five X,XXX the Zero in we Sugars we’ve as what and matter against still think and on a developed the Virgil’s consumers and footprint product did years’ starting expanding so of I have worth and really and do there. more have zero

we the One if so of There’s to going months going zero still. XX that everywhere innovation the opportunity well, XX the year to year. require cans, this of to Ready a and to just of next work into works the with the REED’s, advantage the that’s that new needs effort this is So, does three Mule. lot obviously And to of lines that channel, started the and bottles on flavored new year. launching new are Drink support malt this over That’s core, and sugars take and expand done. into it pilot, hopefully full can end month and plan months the really at lot focus going opportunity in be that next categories there. a we in beverage to then, the but both

will distributors So, we've now and and Hemp, focus retailers. that from from rave take The support. gotten reviews

and we is but that to then that a in and launching the category. So, in and execute standpoint of functions. force sales I in mean daily invest is lot and fully plenty, going that plus pilot, advantage incremental communicate be of with I other the to an upside later to take pull a focus consumer functional support new And to POS will we’re year, dose, again business opportunities. has ginger really think this these shot from of really, innovation have

let’s new point. say just this So, XXXX see, category at entries don’t I

of more properly if tens moving supported millions of all forward. are not significant could think I these be of Each categories. if dollars

new So, now where is we’ve say new in significant execution market. of and I’d yes think improve what we’re margin will is you the to focus is from I a the and the think and XXXX, is in that in going market opposed perspective that entering mix come driving the majority news of a role growth incremental and from got as the growth play know against to hopefully currently lot really I mean, new executing news. products I

Chris Krueger

was lot. helpful. Thanks that a Alright,

Val Stalowir

Chris. Thanks,

Operator

you. Thank

with question your line Aaron Grey Alliance next the Our of from Global question. with Partners. comes proceed Please

Aaron Grey

question. the for Thanks

on little a bit deeper taking just So, hemp.

what might retailers question look look there, color given terms then color terms of of its area might initial because there the And helpful. know to you color him well on enter might you. While ask ingestibles, early just work you it still what to to this Thank grey day, regulator you I can there markets in you need I provide some just will in. be in any the any appreciate

Val Stalowir

parts. a Yes. with of moving lot This is an emerging category

see think FDA We’re to or and new gives The we really, out the and federally and are start waiting meantime, now CBD commissioner learn comes guidance what in to I are only and the we guardrails that to but water in know swimming. way jump starting. hemp on, legal, is to swim the

those So, into more, that we innovation it who probably said, from distributors their stores. willing now in are forward-looking of in would are perspective, take but with move retailers like on aggressive trying terms smaller discussing are and say, say to I to let’s scale, you

So, that they our now. state this I and see to the going the feedback category. starting that wait good We’ve there’s except see and or have a inside have see you reaction those consumer FDA, pretty much to are is reaction to got And with we’re what whether not fluid is give from can and what very gotten offerings. just regulation products we’re is regulators retailer great and

once on slide the in a and more of back. we and are I of are kind other three then some that why put and this say It couple doors mean saying or I opening a there you I it and, XXXX a two updates happen making of where of to is actually have regions. firm activity currently sort would volume of get of more a daily watches just is still commitment cutting we legal seems a that’s in edge legal regions because and to lot actions against they haven’t view in tell that and uncertainties. the their are like this this closing from there regulations effort terms FDA starts a a lot certain support day-to-day. of know And is on So, that’s and because in a really going target it, their category, moving in lot it role us see rules what would

is, develops. it be terms category week-to-week it going in to month-to-month how really So, this is of

Aaron Grey

for all Thanks That’s great. the Okay, me. color. from

Val Stalowir

Alright. Thanks Aaron.

Operator

Thank It questions we have time. appears additional you. at this no

to like or to the additional floor management any I’d over back comments. for turn concluding So,

Val Stalowir

Thank you you’ve we a new a to for for call. our solid bold today’s to and had marketing your participating see and campaign. on chance XXXX continued support start is off hope

Our materially soft drink and communication efforts, offerings product mission compelling and are with ale consumer starting mainstream is the multi-billion-dollar ginger to roll-out. disrupt and superior package now categories to our which

We significant our you look forward great value revenue I and year, this shareholder and are Thanks drive well-positioned updating day. to growth on to and progress. again have a

Operator

Ladies does at we Again, today’s may lines thank you teleconference. participation your conclude and gentlemen, and this your this time. for disconnect you

Reed's (REED) 14 May 192019 Q1 Earnings call transcript