Reed's Inc (REED) Q1 2025 Earnings Call Highlights: Navigating Challenges with Strategic Investments

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Thu, May 15, 2025, 1:11 AM 4 min read

Net Sales: Increased 4.5% to $10 million compared to $9.6 million in the year-ago quarter.
Gross Profit: Flat at $3.4 million compared to the year-ago period.
Gross Margin: 33.9% compared to 35.6% in the year-ago quarter.
Delivery and Handling Costs: $1.6 million, 16.2% of net sales, or $3.13 per case.
Selling, General and Administrative Costs: $3.5 million compared to $2.6 million in the year-ago quarter.
Operating Expenses: $5.1 million compared to $4.1 million in the year-ago period.
Operating Loss: $1.7 million or negative $0.04 per share compared to $0.7 million or negative $0.16 per share in the year-ago quarter.
Modified EBITDA Loss: $1.6 million compared to $0.4 million in the year-ago quarter.
Cash Used in Operating Activities: Approximately $5.4 million compared to $2.4 million in the year-ago period.
Cash Position: $4.9 million as of March 31, 2025.
Total Debt: $9.6 million net of capitalized financing fees.

Warning! GuruFocus has detected 8 Warning Signs with REED.

Release Date: May 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Reed's Inc (REED) successfully reduced short shipments from approximately 20% to under 2% by April, indicating improved operational efficiency.
The company secured a $10 million private placement, providing necessary capital to enhance inventory, personnel, and marketing efforts.
Reed's Inc (REED) launched a new multi-functional soda line with national distribution in Sprouts Farmers Market and other major retailers.
The company expanded its distribution network, adding over 1,100 new points of distribution for Reed's Ginger Ale and launching new programs with Albertsons and Costco.
Reed's Inc (REED) maintained gross margins in the mid-30% range, driven by supply chain efficiencies and favorable pricing on key ingredients.

Negative Points

Reed's Inc (REED) reported an operating loss of $1.7 million for the first quarter of 2025, compared to $0.7 million in the same period last year.
Gross margin decreased to 33.9% from 35.6% in the year-ago quarter, primarily due to higher costs of goods sold.
Selling, general, and administrative costs increased to $3.5 million from $2.6 million in the previous year, driven by investments in personnel and marketing.
The company used approximately $5.4 million of cash from operating activities, up from $2.4 million in the same period in 2024, due to higher inventory purchases.
Reed's Inc (REED) did not provide revenue guidance or a timeline for relisting on a major stock exchange, which may concern investors seeking clarity on future performance.

Q & A Highlights

Q: Operating expenses were higher than expected, particularly in delivery and sales and marketing. What should we expect from these expense lines going forward? A: (Douglas Mccurdy, CFO) The increase in SG&A is due to upfront investments in personnel and marketing to support strategic initiatives. We believe these steps will improve cash flow performance in the second half of 2025. We aim to remain disciplined in managing these expenses moving forward.

Q: Regarding second-quarter gross margins, do you expect them to be down year-over-year or just not as high as they might otherwise be? A: (Douglas Mccurdy, CFO) We anticipate some seasonal compression in gross margins due to trade discounts and additional investments in the functional beverage launch. This is part of ordinary seasonality and strategic investment.

Q: Can you provide any revenue guidance for the year, and is there a timeline for relisting the stock on a major exchange? A: (Cyril Wallace, CEO) We do not provide revenue guidance. Regarding stock relisting, there is no comment on a timeline for listing on the New York Stock Exchange. Our focus remains on growth and operating efficiency.

Q: What are the main drivers behind the increased cash usage this quarter? A: (Douglas Mccurdy, CFO) The increased cash usage was primarily due to deliberate investments in inventory to support improved fulfillment rates and anticipated demand. This is part of our strategy to enhance cash flow performance in the latter half of the year.

Q: How are you managing potential impacts from global trade dynamics, particularly tariffs? A: (Cyril Wallace, CEO) We have minimal direct exposure to tariffs, as our sourcing is diversified across Central America and other regions outside of China. We are actively evaluating alternative suppliers to mitigate potential disruptions or cost pressures.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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