REED - Earnings call transcript Q4 2019

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Operator

Good afternoon and welcome to Reed’s Fourth Quarter and Fiscal 2019 Earnings Conference Call for the period ending on December 31, 2019. My name is Rob and I will be your conference call operator today.

Today’s call is limited to one hour and we will have prepared remarks from John Bello, Reed’s Chairman; Norm Snyder, Reed’s Chief Executive Officer; and Tom Spisak, 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 Reed's 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

anticipated statements achievements unknown uncertainties our to different and actual be only to may of levels those factors risks, predictions are materially and and Forward-looking subject by are activity, known results, that other such statements. cause current performance from or

ability are Exchange demand environment, These distributors, growth, limited with dependence not to factors information United company’s developmental in manage the access Securities debt the reduction on but other filings and for the States detailed meet and competitive Commission. include, capital changes in and manage time-to-time to, from our products, and to third-party goals, manufacturers our in

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

projections as change. these performance the as to future update as to projections company’s March In assume obligation We conditions market today, addition, XXXX. future of any no the estimates in management’s represents XX,

Additionally, comparable please the in posted financial our financial note press this filed the GAAP materials and website release supplemental measures investor.reedsinc.com. SEC reconciled to and referenced call with during are non-GAAP as at their on measures

of and items as indicative believe across investors basis by Non-GAAP We assists consistent present purposes. comparative do substitute that core reporting financial because is for believe operating periods is we not for not it informational and a comparing included a modified information in meant GAAP solely excluding performance. our are on results, but we analysts EBITDA, performance

Mr. the sir. go turn ahead, Please now Bello. will call over to I

John Bello

call with few to today XXXX. activities It our to begin plans Interim today Thank over wanted recent discuss But is the thoughts. everyone. the business Norm a I Reed's. a afternoon former you will a in I to join turn to and moment you pleasure CEO of and as good for

XXXX the is Reed's. now It is we have a first momentum was in with the believed for train on a and a Reed's. I've and I back tracks experienced the now year XXXX. We with mirror. team at feel And quarter win that people. now you growth through solid rearview the tumultuous expected tight, in cohesive year always feel building

with their I'm and since appointments excited us new CFO the Tom. the about plagued that immersed in quickly all the themselves and have leadership as Both in CEO moved rectifying XXXX. having nearly issues business Norm

Reed the importantly, capability realized and has As have they team and in area the talent, that was skill that underutilized supply place at especially production in the chain. of

who clear December his Tom with It broad our the financials, the us controls. in COO. is experience, his fixing and our time for been successful systems as in as as given right our position our is CEO CFO has a guy efforts issues beverage based and that production in just Norm joined productive

our plans broaden the shareholders. inherent innovation, for and stay and all, with involved years have improvement flawless we and distribution, our and as the build margin in and to execute I Sale, past above the develop we as working save and life, business intend visibility cash out our execution. is breakeven visibility, timely towards mantra significant flow look with I so and success to with at Norm Reed's in actively NFL, in simplify, value

and via canned licensing will and delivering innovations, you meals are product all of Crystallized and with full Ginger Chew repackage process new Shots, Reed's Wellness in introducing sale. the a Ginger and we on As arrangement hear including restage

new Sugar space, significantly, dominated varieties in Ginger White Really margin. by and with producing We growing promise regular Real Cloth. improved packers the believe on Ale Reed's significantly and in most and And time Reed's speak delivering our mills and that will large compete are Zero seltzer we effectively new as Truly, we alcoholic

has retailer reception. Ale enthusiastic Ginger and met Real distributor Really with

and specific Ginger retail with and supporting Real Ale are repeat efficient adoption. programs effective and to We consumer targeted drive build trial, awareness

brand clear the competitive is the for positioning objective Reed's corporate growth Healthy ginger rise driver. our and refreshment real above to our Virgil's benefits. and and health is everything health with superfood as key umbrella clutter is ultimate the wellness Ginger within substantial

name based Ginger Shots Reed's our Ale, With innovation our and a a is Ginger package continue the Beers with We full success line to chews to necessary as we plan build so Wellness steady Mules, beverages. in of exciting on with first of ginger Ginger in Ginger ginger. Reed's that and stream

and also as Zero will futures innovation focus a Sugars on direction And priority. a strategic

have Sugar has consumer Zero XXXX. Zero Virgil's for blend growth an Virgil's positive line to incredibly response propelled special in Sugars. entire received We digit the double our

Reed's US. retail the which production retailers partner entire for other growth our experienced it and single our extra to due as distribution as around Zero last have we year, Sugar, at seen delayed spur can largest issues shown platform Reed's

Ale Zero accelerate growth. Sugar Ginger will also

across and We Virgil's for broad Zero footprint expanding to and Sugars aggressively based are rapidly distribution have by Reed's our distribution expect quarter. second both and distribution our

Despite the category heightened results growth competition improve specialty this year. in expect the substantial and ginger ale we category in

team We have our shareholders beyond. on and and XXXX products, leading tuned. trend to Stay and portfolio build brand success and strong a in the a talented dedicated for

corona Norm. will to of impact briefly Reed's. the the on I over virus handing address Before

supply any delays this have virtually all are at experienced So materials in anticipate may sourced US. in or the disruption our point we interruptions far, change. We in chain production. not, as That a not do

sales from have in Day as man samples the to a to and our periods. This said, consumer future approach better From conversations is with get we especially have in All pitches. sales the of unknown, a was as had that that impact long especially we front converted and can fact consumption as cancellations face in high phone perspective, perspective, face meetings been buyers. we summer Memorial retailers

business as the With usual. norm Norm, will in monitor everyone and it's metal takeover. We and pedal keep will But Tom now for apprised. that to elaborate.

Norm Snyder

last much And lot in quarter, reflected pleased of fourth over challenging several months a am put Thanks with of very the I together John. we've and not is robust financial which far come. XXXX. We the a the how yet. We statements agenda accomplished during

made have short of period improvements We a significant time. very in

We five have production. redundancies network, copackers increasing operational We throughput copacker our now coastal both the each and types including quality. by have of for solidified packaging and

our the capacity Today, volume, near an to current additional in the we the has West copacker three network copacker plan times our term. handle on and Coast

completed have consecutive last we the of uninterrupted our service shortfall. customers, noted, since months John As production and improvement illustrating to four summer's

place supply have than signed can with ginger control Reed's recently in our have agreement they We in ensure a Peru new quality position along and supply instituted chain say confidently with history. protected have in enhancements. a supplier to broad protocols also now anytime that an we are better I

new our the We're several on identify fourth had quarter, making costs achievements organization have to tighten also across strides cost on belt And chain. the and during croft reduce organization. reducing the opportunities across supply

we and a achieve and production savings optimization with ingredient From formula costs leveraging our power perspective, through gross partners. purchasing packaging margin

party In reducing addition, the organization we same any headcount have while on restructured reliance without functional roles time addition, providers. third efficiency to our within at improve

ROI to We an driven modified while more in be spent. focus have our retail reducing improved also the overall marketing resulting

daily we as remain We cost execution. our enhance focused further on will

accelerate volume fourth Reed's have coming to copacking Reed’s we're a distribution. growth Virgil's Sugar, distribution positioned volume. cans, is capacity decline broadening reflecting both the quarters. gross support our to the of and for growth over We delivering quarter, offset at core network in in brand the sales flat With our were which the Zero broader During bottles by now X% reflected prior year

Albertsons, Northern locations. We Northwest are H-E-B, Harris into now Hy-Vee. Teeter California Sugar and and Zero Winn shipping Dixie, Vadmo, Reed's Pacific

new We retailer continue to for both product innovation. demand see distribution and strong broader our

position Ale, happy and Real production that today, Ginger also Reed's We're land. to I'm any to without a launch announce glitches on began in

with also Ginger have response very to exhaustive of seen the agreeing product. retailers offering retailer take We new an list to strong a Ale

are on Giant Meijer, and exchange, Food Southwest a Shop, Shaw's, Sprouts, to that Ginger the Stop Deca, and Com, which Hagen, Albertsons the Line, months Rallies. Walmart, Next Retailers navy and take Eagle, commissary, Northwest defense coming include Winco Ale over track is

We expect by over coming of first and building the first further shipments to end quarter see our the the quarters.

you to ginger as a opposed that have great slice virtually refreshing to and ale ginger billion promised ales the leading Ale none. $X.X an more capture market a tasty opportunity real with have has Ginger that the of We ginger

quarter the fourth we are which Wellness also the introduced retailer first Shots. Shot, During was the Ginger Shots, Sprouts Reed's adding take retailers. to now

seeing retailers. independent interest We are across natural

stores provide significant a also Wellness convenience promising with a well opportunity opportunity. Shots e Our as as commerce being positioned well to are

also and to to up We e offering follow our up Ginger fill Chews we'll beverages and platform Shot line commerce cans. Wellness begun an our have and reuse

This to Amazon. for through be These awareness enhance website believe our and demand shown brands channel has for will shortly online available food on competitive strength categories. and we the as available surprisingly will market beverages trends and we products and all are

also that H-E-B partner California Hagen Craft Foods, Texas. is Whole Natural Ginger now Safeway, to is Pantry, Mules and testing I'm our Jackson Rayless, in Brewing Foods Pacific pleased notably northern ready-to-drink Full at announce with in Stores, Sail Albertsons in Northwest, most a and the our which Plant Grocer,

some Ale Ginger significant Wellness innovation XXXX, and rolling are out in We Mules, the early Craft Shots. including

retail. to that supply our Let in note, us at execute methodical allowing and is better and targeted both me innovation chain

our to Turning marketing efforts.

grassroots to target campaign brands. consumers more higher we We by opposed marketing past be advertising to retail will on as ROI broad anticipate support utilizing campaign. programs and be to our focusing continuing based a generating We our will

packaging our most will enhance also continue products. We with recently across portfolio, to our candy

Tom let the fourth turn discuss to quarter over results. the Now Spisak financial me to call Tom?

Tom Spisak

very and conference out excited opportunities on but It's at today to first our and brands, call. only speak pleasure of profitability. grow to Thank the considerable take Reed’s much, here see everyone to you I'm Norm. system drive to gains sustainable not costs and be with a my

financials. through our run me Let fourth quarter

Fourth quarter $X.X million in the million to XX% $X.X year. prior net compared with decreased sales

last exited the $X.X the know of of net sales business collectively in I of aware, As and products at we label primary are drivers and our the gross end contributed you reported decline. which other year non-core sales all million prior year, private

the Core gross X% shipments. case case by with were on margin year. Gross with a the prior decline the sales result to from Reed's flat profit in of the decreased prior X% as year brand $XXX,XXX a the gross XX% to for million dollars falling brand period, $X.X Virgil's prior in from offset growth

during fourth quarter several the comparison. gross However, there affecting discrete items the the year-over-year are margin and

down pool First, $XXX,XXX wrote fourth and we during our increased the obsolescence by of inventory quarter, $XXX,XXX. inventory for

Each accounts, a in over reversal ourselves our the that and for true to better reflection the change a future. up margin accrual year the of prior trajectory inventory position reflects our Note, effort in clean obsolescence was a inventory estimate. reflecting

during XX% fourth net for the handling approximately Excluding these XX% decreased cost percentage quarter points basis been the the margin $X.X items, Delivery gross XXX and million, would have to as full of year. and increasing while sales. a

shipping support a products freight favorably expanded We limited a shipments of result new impact to co-packer The higher innovation required of to costs increase was rebalance coast forward. on distribution. going locations, less additional produced and is production than truckload expected full inventory, proportion retail in to both transportation capabilities

and marketing and quarter, a and fourth initiatives. investment increased to Selling The sales the marketing net and of costs of XX% percentage $X.X during the increased increase XX%. reflects million infrastructure sales growth as

and our and strategy launch of outlets with drive packaging, and sales support new and products our refresh are the These new of the marketing awareness, drive open increases brands. consistent were retail core in brands, growth expected to

office to General year's the and Los year-over-year the prior in Angeles $X.X administrative facility compared reduction period. XX% largely in million of decrease to expenses. million decreased The last quarter, sale fourth other the reflects and of expenses $X

increased period $X.XX in $X.X share $X.X or loss the The XXXX fourth last million last loss million quarter the decreased million or from per share $X.X same to in Interest year. And to year. was $X.X of the a fourth time year. quarter prior $XXX,XXX $X.XX compared to operating million the expense of $XXX,XXX from loss net per in

credit. on a cash $XXX,XXX cash and $X.X fiscal ended line million XXXX of of Moving to revolving flows. sheet availability and with balance the We in

During million activities in $XXX,XXX invested and in operating XXXX, we expenditures. cash fiscal capital used of $XX.X

Turning XX plus to outlook, anticipate growth our over core brand fiscal XXXX XXXX. we generating

for greater We also or full anticipate XX% year. a gross margin of the

a Peru, sourced raw domestically, we of of from the vast Asia. couple do and ginger majority ingredients While small source our from organic we materials

a with our not well availability, ample with challenges we and are as currently positioned we coronavirus. supply supply do While of chain anticipate result

the Our guidance assume to not from impact does which global pandemic, current clearly a forecast. is material difficult

me concluding let for turn Now back to the call John remarks. some

John Bello

Thanks, Tom.

quarter. fourth see, As the during we significant progress you can made

that months improvement. experienced the is We team to focused a have last continued committed assembled driving over leadership several operationally and

the confidence retail Ginger Norm Reed's expand performance. Once be on role Mule, our again, his will of online operational our I am exciting have we and an abilities. pleased as Reed's and focus XXXX Real Ale, improved and roll taken leadership year out in significant Wellness CEO on Shots Ginger that growth has driving drive

We Ginger trend super when have acceptance on popularity as is powerful at are awareness strong, consumption. and food. a brands and consumer wellness the health are growing that and and interest, in ultimate demand driving growing time

is Reed's in ginger is name ginger. everything to focus the our strategic and first be

will We go positioning. that about

the and the motivation leader the refreshment. have team be We brand, in plan, to the the resources healthy

to to much. and call you Operator? the you I begin question-and-answer Thank very the back operator the Thank will session. now turn

Operator

this Thank question-and-answer be time, a Instructions]. [Operator you. we will At conducting session.

Partners. proceed Capital ROTH with your Bain David from comes question question. Please with first Our

David Bain

John, initial Walmart. first, those initial Ginger the congratulations, way, us give of you distribution Can you some acceptance plan? as Ale, within I to sense the guess Norm, thank Great, large or mentioned a deeper including some depth - by you.

in? that multiple flavors then thing Is back depth, is pathway have that there offerings? jurisdictional the And Ginger a a mentioned visibility are also mean you And there of already or Ale, a going in towards a customers with there accepting those is you national? visibility to I like thing regional

John Bello

think we in flavors. we'll ultimately, Well, multiple be

with Zero we going the two going our distrait Ale and out our marketplace. ginger of are ale initially skews that Sugar Ginger We into so have formulation

much ginger to dry into that in candy consumer in larger the no play brands. perspective other consumption with will ginger ginger beers we us our of and ginger will category Hopefully, traditional space there's recognition and Ales broader much, anticipate beer offerings ale hey, large this from Ginger ale ale get a and a really that

generate ale. we're our have broader has But with our marketing among of is hopefully a set. and this We ginger to consumers the been seen that ginger awareness that in ale placement some still, efforts new

put set can in experience into an from migrate to We've Safeway. here specialty into mixer actually the the us our we We're hopefully had And multiple recently set. with location. going sets

start more time get So as space the for is and the bigger product to we’ll goes and we're consumption, going with awareness Hopefully in generated playing on, players. areas. those

David Bain

sorry. I’m ahead. Go

Norm Snyder

pre-sale add XXXX forward and just accounts. is initially the fairly across When we we a me approximately XXXX Zero are the Ginger terms initial Ale And Let so we launched of with from country. distribution broad in Extra, the a also, step started about reception. accounts, perspective, launching big with

David Bain

That's great.

Okay, two great. And just quick ones, if could. I

assume XXXX spoke bifurcate I brand XX% given core could with just Ale you it expected of If growth Ginger more of split? introduction is of kind or you plus? led evenly the to what that, Reed’s

Norm Snyder

you're and of evenly Sugar, Well, it, the Virgil's. Zero our the I because focus think and are think the both I reception split the driving products see Reed’s between going on

David Bain

us in XXXX. you And sense significant of give a I were what the the or the when pruned And reduction be items model? great. in sort we will that could numbers? supply made reflected Okay, chain of see change to then just in you've a be costs, to know in that cadence SG&A see But and that'll lastly, as

Norm Snyder

did from a first a getting. our and how operating perspective, there, account across it we're very we've and - the look say in see Well, and the spending point to quarter, by been And what going sort an was to to there's big while account of started nothing we cost you're one at board. ROI reduction area methodical we've that's

commenced we've you'll immediately. and already that So that see

products standpoint, some margin into there'll and were rolling XXXX that obviously, in commitments. other some From produced a XXXX be

you'll through up purchasing. with earlier better will use through also that we of part to margin see optimization too. So materials we it, see And thing have increased been that, growth. mentioned same that'll formula staged before benefits And it's obviously the the in quarter, existing each be of I but

slate very we're to have a with portfolio. be the some we’re remaining Ginger we products rolling one strong some have margins. then So starting just will obviously, where migrated clean first through And that, Ale the and

and So every see that'll little more be of bump. a bit staged, a a you'll quarter,

David Bain

Thank forward looking XXXX. you. right, to All Great.

John Bello

you. Thank

Operator

Chris with question next Our Capital Please Street Lake from comes proceed question. your with Markets. Krueger

Chris Krueger

afternoon. good Hi,

John Bello

Chris. afternoon, Good

Chris Krueger

up To get co-packers now? would speed the full supply they're chain, to in new the you say

Norm Snyder

face say do continue second this XX% XX% in. have to and is would complete it. improvement some room in quarter I we're continued to that quarter anticipate margin because we to more we to you there And and I don't impact the through adverse But see of that. any will as what

Chris Krueger

Okay. fourth And sales were some all to have during had you in hand the you that you orders cancellations? did able quarter or have fill to

Norm Snyder

consecutive of we're and pleased months with four going all bar set of orders, high delivering really the had high. that. of We've to it keep I'm And XXX% we've our and

Chris Krueger

said that of And hear then tariff Ginger begin Reed's today. I on [ph] it's Did month? end Real shipping production to the - you Really Ale, today the correctly the by a you going

Norm Snyder

start Actually, only of some the of orders. end up starting for to Yeah. towards the But the and we'll March - pick week. next shipping balance

Chris Krueger

Okay. All right. Thank That's all you. I got.

John Bello

you. Thank

Norm Snyder

you. Thank

Operator

Our question with proceed Group. your with Maxim Vendetti question. comes next Anthony from Please

Anthony Vendetti

Yes. Thanks.

So I I just on wanted you the to COVID-XX. start, coronavirus, know touched

impact things obviously going affected seeing You're be not forward. any now could but

ingredients not bit little sourced sales perspective? Can some though, talk from You lot Asia. you mentioned the I a a from are guess but

on brand, reiterating for but guidance or the is or that this COVID-XX the that the to I on not you this point Is know it brands, not just providing now around at due point. plus something guidance mentioning that just uncertainty year, solely overall to collaborate like you're looks XX% correct? at the right is It's you're on? the the want

Norm Snyder

and forecasts had this the absorb it's our And planning, of situation development. all And all fluid a to and we this with say impact. every full time a recent circumstances obviously, I'll changing of haven't the day. is latter. the obviously, we of our More

So to do it'd any future. on we best on remiss I of comments We make to don't any that. for stay be visibility top obviously anybody the me trying of to it. think to else, like sort the really are have But

prefer on to would not comment I So that.

Anthony Vendetti

to the But XXXX brand - brand on in talk Okay. feel XX% confident correct? you enough to of plus, about side, growth

Norm Snyder

Yes.

Anthony Vendetti

as are on Reed's, brands. you product Energy, the Virgil's and I where growth at obviously seeing the products? newer portfolio, specifically know you you've just was Ginger in And that at then things point? talk Ginger some Shots where could if you wondering are also, core that's look Reed's your or product about this little the your new of the core And Chews? about X most of your But a talked Mules I or bit CBD,

Norm Snyder

work Well, me obviously in backwards. CBD and reformulating eye regulatory keeping of we're keen the a very on the process environment. let

So a things rush resolved. the very until And to be going that. don't have confident want to we adequately reintroducing - very feel a take of process lot into that we're of been issues methodical

the positioning that's on So CBD.

Chews not those. respect we've and with the Now, crystallized beverage had to believe dissimilar to supply in and had That we've marketplace the ginger. We our there's for worked positive issues. that Obviously, through brands been reaction. the some while have a

in are process, we've the packaging consumer. And think made product to that we today's and changes relevant more improvements

to that going broader working to we'll to able to products into just that. online do confident working back obviously and we're also back get So - we're are and distribution be - those we're

ginger are about brand focused. our approach John everything product. The are Obviously, being and Wellness mentioned Shots new a

of we ginger. into organic packed the who XXXX with Shots And are. So, that milligrams fits are

and growth. and stores the can that natural again wants product for online the the efficacy that's channel start understands a product. So ginger, there great consumer to convenience and then of where into going the expand get that through we We're obviously

John Bello

go what products. Candy. Yeah, up Those me market Amazon. beverage very they're on profitable. an commerce allied do reinstituting business, said, and just up are be Shots differently They to we're than the That we're we our elaborate e with to and brands, expect the with let opening and

to ginger to that our invest back success. ginger will channel. and products, ale those bottom the and to beverage very the think platform, we And pathway our very, some line. money hopefully beer And future that's particularly and because into the pathway that's contribute products well And us huge in give our to do the

We nicely wave think as with very, And we go ginger us is the for and at very other the are this for the And future particularly forward. we of opportunities well has done looking brand. Virgil's Zeros.

growth earlier, ginger our of steady is will success As the key and ultimately. I to a get is success and we said us in the category. stream But to innovation beverage bank key to think

just So reinforces. that's our focus. These other are brands

are We our that and brand ginger. deliver made are one number of reinforces brand This as imagery. products the

Anthony Vendetti

Sure.

so you And is need Norm kind Interim maybe CEO, sampling the John intend spend of Can took you awareness. money where and or about, to increase brand? to talk is to little So and you in that you were intend what much spending at John, talk and to bit a one taking the and brand first do over and of that when the about do do as or things you said advertising how program steps you forth. build you to XXXX

John Bello

to intend Ginger with Ginger doing on retailers, much. create that so spend excitement programs taken channels We way those have really in retailers, consumer for example, a Ale. within or some we awareness those We're drive within not can our around targeted Ale. Well,

sell fell but our of found And marketing products, on we find more, a quarter cetera. the people in empty couldn't save Our spent really that was only lot last et more. posture shelves, to to money not first on we year,

time. over in that is media, action we'll on ways and basics is done social So do terms of in sampling And as and time that we goes to on, flexibility which the promotional the once marketing all evaluate availability, driving we selective advertising, support where ramp really have continue there's up more very these days. and and will and distribution and focus that

brand some for And name. we dusty. a Ale. new need do Ginger excitement and musty brand going with we're to We've consumers. around for been think and we're build awareness over, brush And now the and with and the create we But that something trying we're that to And of time, to different. products off long exciting, our kind Reed’s

Norm Snyder

add… to just Yeah,

John Bello

The ahead, We'll time money over more will time. tell. spend Norm. Go

Norm Snyder

it's to a And be that we and targeted very successful. what paid major really in media, to bus attend ties And drive said, marketing where sample with products really our going social three been tour and to our retail program. Just well then and to events buckets, trial sampling social add consumption. whole we John have targeted - media

So we a and exposure of lot get a lot trial there. of

Anthony Vendetti

great. Okay, All back thanks. queue. hop I'll the in right,

Norm Snyder

Okay, thank you.

Operator

the We have question-and-answer this turn to session. to At the time, I'd of like reached Snyder Norm for end the call back over comments. closing

Norm Snyder

your coming Thank and on forward today's our and opportunity call. participating support our with strong positioning over day. a and We and We operational confident to seeing remain progress Have Thank wonderful you for continued the brands years. highly sharing months you. execution. are look

John Bello

all. Thank you

Operator

today's This concludes conference.

this lines you and your at disconnect time your thank participation. may we You for

Reed's (REED) 12 Mar 202019 Q4 Earnings call transcript