Participants
Cyril Wallace; Chief Executive Officer and Director; Reed's Inc
Douglas Mccurdy; Chief Financial Officer; Reed's Inc
Sean McGowan; Analyst; Roth Capital Partners LLC
Will Bendigo
Presentation
Operator
Good morning and welcome to Reed's first quarter 2025 earnings conference call for the three months ended March 31, 2025. My name is Angeline, and I will be your conference call operator for today. We have prepared remarks from Cyril Wallace, Reed's Chief Executive Officer, and Douglas Mccurdy, Reed's Chief Financial Officer. Following the remarks. They will take your 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 plans, forward-looking statements inherently involve risks and uncertainties, and only reflect management's view as of today, May 14, 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 from reported results.
Please refer to Reed's first quarter 2025 earnings released on Reed's investor website at ww.investor.reedsinc.com and its quarterly report on form sent you for the period ended. March 31, 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. Please go ahead.
Cyril Wallace
Thank you, operator, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2025 results. I would like to begin by expressing how honored I am to address our shareholders and perspective investors for the first time as the new CEO of Reed's.
While I'm still early in the stages of shaping our long-term strategy and vision. I've been incredibly encouraged by what I've seen so far. I'm excited to collaborate closely with Doug and the rest of the leadership team as we work to drive sustainable growth and profitability. I would also like to take this opportunity to personally thank Norman for his years of leadership. His efforts have laid the foundation for the improvements we're building upon today.
During the during the first quarter, we began to make meaningful progress across key operational areas driven by the strategic initiatives implemented over the past year as well as the recent strengthening of our balance sheet.
In December, we closed the 10 million private placements which has provided the necessary capital to execute our plans. We began deploying these funds in mid-January to improve our inventory position, reinvest in personnel, double down on our sales and marketing efforts. Inventory constraints have been limiting our ability to fully meet retail demand on for some time now. However, this capital infusion has enabled us to invest in inventory and materially improve fulfillment rates.
As a result, short shipments, which were approximately 20% at the start of the quarter, were reduced to under 2% by April. This operational progress goes beyond improved inventory levels. It reflects a fundamental shift in how we operate. For the first time in years, production is keeping pace with sales, enabling us to proactively meet demand rather than react to it. These fulfillment improvements have also been supported by better cross-functional collaboration among sales and operations teams, tighter forecasting, and more deliberate planning. These foundational improvements enhance our ability to serve customers and meet growing retail demand, laying the groundwork for expanded distribution and sustained growth.
Subsequent to Quarter in, we appointed Rod Baker to our board of directors. Rod brings more than 25 years of global leadership experience across the beverage industry, including senior roles at Red Bull, Diageo, and Heineken. He has led market expansion efforts, brand revitalization initiatives, and innovation strategies across both emerging and developed markets. We believe his expertise will enhance our ability to create value for both shareholders and customers going forward.
In addition to our operational leadership updates, we expanded our portfolio with the launch of a new multi-functional soda line. This innovative line of combined read signature bowl flavors with functional ingredients such as organic ginger, prebiotic fiber, and adaptogenic mushrooms. Varieties include berry bubbly, strawberry vanilla, lemongrass ginger, and a functional root beer. It represents a natural extension of our Better for you portfolio and positions us at the forefront of the evolving beverage market. We've secured national distribution in Sprouts farmers market and are actively executing resets for all four Reed's functional skews across several major retailers, including Kroger, John Carlisle, Hannaford, and Duane Reed.
While we are excited about the early traction of our new functional soda line, we are taking a thoughtful, measured approach to innovation, one that prioritizes our deep heritage and better for you beverages with a strong brand credibility with our retail partners. We view functional beverages, including those formulated with probiotics as a longer term growth driver. Several initiatives are already underway, but broader rollout and retail traction for these newer formulations will ramp gradually.
Turning to our core product sales, we expanded our presence at Alverson Safeway for Res Ginger Ale, adding over 1,100 new points of distribution. In addition, we successfully launched a national offshore program with Flying Cauldron and Albertsons. The program not only exceeded our internal projections, but also outperformed retailer expectations.
Based on this strong initial feedback, we believe we will be included in additional secondary merchandizing events later this year.
At Sprouts Farmers Market, we executed national display programs across our core Reed's and Virgil product lines, further strengthening our visibility. With the addition of five new skews this year, Sprout continues to play a pivotal role in the evolution of our brand and is a key partner in our broader growth strategy.
We also launched a classic mule in Costco locations across California and Hawaii. Early results have been encouraging, and we believe Costco will continue to expand the reeds portfolio over the course of the year.
For our Virgil's line, we've added three new skews of our fan favorite handcrafted cans to Giant Carlisle. Additionally, we gained distribution in three states at Trader Joe's for our classic new alcohol products.
These distribution gains reflect the growing demand across our core functional and alcohol portfolios, and we believe they will contribute meaningfully to our top line performance in the quarters ahead.
Now turning to our first quarter operational highlights. Throughout the quarter, we remain focused on executing targeted supply chain optimization initiatives which are now delivering measurable benefits across the business. These efforts included more accurate forecasting, deepened co-packing partnerships, improved input pricing and a more efficient distribution model. We maintain gross margins in the mid 30% range during the quarter driven by improvements in our ginger beer formulation, more favorable pricing on key ingredients, and ongoing supply chain efficiencies.
While we have had minimal direct exposure to tariffs, we continue to monitor the evolving trade dynamics closely, particularly regarding ginger and packaging materials. To date, the impact from tariffs on our supply chain has been limited, as most of our sourcing is diversified across Central America and other regions outside of China. However, given the volatility in the global trade policy, we're actively evaluating alternative suppliers and sourcing strategy to mitigate potential disruptions or cost pressures.
Additionally, our ongoing transition from glass bottles to cans across both Reed's and Virgil's portfolios remains on track and has been well received by both retailers and consumers. This packaging shift enhances our cost structure and supports a more scalable and efficient go to market strategy.
In the second quarter, we do expect some modest growth margin pressure due to seasonal promotion activity and higher trade span, particularly tied to the launch of the functional beverage line. However, these investments are aligned with our broader growth strategy and will remain focused on generating strong margins in the back half of the year. With this improved foundation in place, we are well positioned to drive stronger sales performance in the second quarter. Our enhanced inventory levels are enabling us to consistently meet customer demand, support improved service levels and reduce freight inefficiencies.
In addition, better in-stock availability is allowing us to execute more effective promotional programs and regain shelf space and accounts impacted by last year's supply constraints.
Looking ahead, I'm excited by the opportunity to lead Re at such a pivotal moment. We are laying the groundwork for sustainable growth backed by a more reliable supply chain, improved fulfillment rates, and a sharpened focus on our core business. While we continue to refine our long-term strategy, our immediate priority is execution. I'm confident that our commitment to delivering premium, better for you beverages will continue to resonate with consumers and drive long-term value for our shareholders.
Before wrapping up with closing remarks, our CFO, Doug will cover financial highlights for the quarter in more detail. Doug, over to you.