Reed's, Inc.
Q4 2020 Earnings Call Transcript

Published: 30 Mar 2021

[Operator:]

Good afternoon and welcome to Reed's Fourth Quarter and Full Year Fiscal 2020 Earnings Conference Call for the period ending on December 31, 2020. My name is Hilary, and I will be your conference call operator today. Today's call is limited to one hour, and will have prepared remarks from Norm Snyder, Reed's Chief Executive Officer; and Tom Spisak, Reed's Chief Financial Officer. Following management remarks, they will take your questions. Before we begin today's call, I have a Safe Harbor statement to read to our listeners. I would like to remind our listeners that during this call, management's remarks may contain forward-looking statements, and that management may make additional forward-looking statements in response to your questions. Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from those anticipated by such statements.

[Norman Snyder:]

Thank you and good afternoon everyone. We appreciate you joining us today. We hope you are well and remain safe. I'm very pleased to discuss our fourth quarter results which exceeded guidance for the fourth consecutive quarter. The senior management team and I will continue to be transparent with you as we achieve our growth plans and profitability goals and are excited about Reed's future. Let me begin by sharing five key highlights from the fourth quarter. First, we delivered strong sales growth at higher margins as demand for our core products accelerated further, and we continue to focus on driving operational excellence, across the entire organization. Second, we had impactful product launches in 2020 that contributed to our success and put us at a solid position entering 2021. Quality, innovation, authenticity and on-trend are key attributes for the Reed's brands and the introduction of our Reed's Real Ginger Ale in April 2020 exemplifies these qualities.

[Tom Spisak:]

Thank you very much, Norm, and it's a pleasure to speak with everyone today. As Norm discussed the fourth quarter was another successful quarter for Reed's. We continue to add to the momentum that has been building the past few quarters. We are seeing broad acceptance of our new innovation, as well as continued growth across each of our core brand products. Fourth quarter net sales increased 49% to $10.7 million compared with $7.2 million in the prior year. Core brand gross sales increased 38% year-over-year driven by a 43% increase in volume. The volume growth was driven by 49% case growth for the Reed's brand and 38% case growth for the Virgil's brand. Volume growth coupled with lower discounts, reflecting higher retail pricing drove overall net sales growth in the fourth quarter. Gross profit dollars increased 490 basis points to 3.5 million compared to 600,000 in the prior year, reflecting sales growth and improved expense control, as well as the impact of several discreet items on the year-earlier period. Gross margin was 33% in the first quarter of 2020, an increase of approximately 700 basis points versus normalized results in the fourth quarter of 2019. On a reported basis, gross margin in the fourth quarter of 2019 was 8%. Delivery and handling costs increased 17% to $1.9 million during the fourth quarter of 2020 compared to the prior year, driven by volume growth. Delivery and handling costs were 18% of net sales and $2.99 per case compared to a 23% of net sales and $3.55 per case during the same period last year. This improvement was driven by improved staging of inventory, partially offset by increased distribution costs associated with COVID-19.

[Norman Snyder:]

Thanks, Tom. Before I turn the call back to the operator for questions, I want to reiterate my confidence in our business as we continue to position the company for long-term growth. We are seeing significant momentum across both of our core brands, and our Reed's innovations are resonating with consumers. We also remain focused on controlling costs, improving gross margin and enhancing our supply chain. We have built an extensive national co-packer network to support our growth, and have significant opportunity to improve margin. Our entry into the larger Ginger Ale category with our Reeds Real Ginger Ale, is contributing to our growth yet we still have considerable opportunity to fill out our distribution for this promising new product. We remain flexible and prudent as we navigate the current environment and we will continue to make any necessary changes to keep our employees and partners safe and our inventory on shelf. We are confident in delivering our near term and long-term outlook. I will now hand the call over to the operator and begin the question-and-answer session.

[Operator:]

Our first question is from . Please state your question.

[Unidentified Analyst:]

Hi. First, I just wanted to congratulate you on the rollout of the Real Ginger Ale products. Personally I think the flavors that clear step-up of the competition. My question is regarding e-commerce, I've noticed Amazon has been ranking Virgil's best selling soft drinks. Do you have specific plans to use e-commerce as a catalyst to continue to drive growth?

[Norman Snyder:]

First of all, thank you. The answer is yes. What we see, e-commerce, particularly as we, you know continue to rollout packages that are favorable to ship involve aluminum and PET. It's a great way to obviously to provide access to our consumers that one product that either can't find it or want to try something new. We started if you recall, we started last year with no e-commerce activity and now we're running well over a $1 million run rate. So we see a lot of growth opportunities and plan on doing and expanding in that area.

[Operator:]

Our next question is from Anthony Vendetti of Maxim Group. Please state your question.

[Anthony Vendetti:]

Sure. Thanks. Can you just talk a little bit about the conversion for some of your distribution to DSD. And then I just have some questions on product reset.

[Norman Snyder:]

Anthony, hi, this is Norm. I'm not sure if I follow when you say, if you could be a little bit more specific in talking about conversion.

[Anthony Vendetti:]

Yes, are you trying to convert some of your wholesale distribution to direct store delivery?

[Norman Snyder:]

Well, I think it's a combination as we gain new distribution. We're able to bring in the new DSD partners, and obviously you can see that from our ACV growth that I talked about and we are expanding - we're going to be expanding into or planned expand in the convenience channel this year. So obviously that's going to be a key component of that. So a lot of it spent by expansion. So it's not necessarily just conversion from old to new. Neal, do you want to add anything there?

[Neal Cohane:]

Yes, hi Anthony this is Neal. Just real quick, let me closer to the phone. Yes what we're finding is, it's the new DSD network is helping us get into multiple channels other channels of business. On top of we have converted some large retail partners to DSD network. It affords us to start putting up displays where we would not necessarily get those displays. When we go direct through a, you know regular national chain so it's a combination of more channels and better execution at store level. So I think it's going to be nothing but a plus with our new partners.

[Anthony Vendetti:]

Okay, great. And then in terms of the channels is the convenience channel, the biggest opportunity for you in 2021 or are there other channels where you see significant growth opportunities?

[Norman Snyder:]

Well, I think there is growth in all channels. I mean, if we take sort of our core grocery and natural to get increased SKU count, which we're doing every day. So there is a big opportunity there. Obviously Reed's and Virgil's not really played in the convenience channel for beverage that's huge. There is over 150,000 stores in the United States. So we see that as a big opportunity; we want to continue in club stores, we want to continue with foodservice; we're able - we have a lot of opportunities with hospitals and universities. Obviously e-coms of the prior question, we're looking to grow. So it's not just to focus on one. There is so much opportunity across the board, you know that we're looking to grow and aggressively attacking and obviously convenience is a new frontier for us that's a rather large frontier also where I didn't mentioned we're expanding our coverage in drugstores. So it's really across the board.

[Anthony Vendetti:]

Okay. And then in terms of the product resets, I know some of them were delayed due to COVID-19. Are all the product resets on schedule now, and are there any major ones coming up where you see SKU expansion in the near term?

[Norman Snyder:]

I think they are there - it really impacted us more Ginger Ale and a lot of got pushed off into the fourth quarter last year. I think they've come back to be more on schedule, we're not seeing delays. We do have some new authorizations that I don't think we can really talk about today but they're going to be pretty significant forthcoming later while there's only one day left in this quarter in the Q2. So we do have some real positive - real positive news there with some major expansion.

[Anthony Vendetti:]

Okay, great. And then just lastly on e-commerce side. What percent of sales was that in the fourth quarter and what was the growth rate year-over-year for e-commerce?

[Norman Snyder:]

Well, you know as a percentage it's still relatively small, I think it's under 5%, and year-over-year it's tough to measure. So when you go to zero till whatever you can't - I know that in the fourth quarter - the third quarter, we grew 100% over the second quarter. The fourth quarter, we grew 43% over the third quarter, and first quarter we're still seeing continued growth.

[Anthony Vendetti:]

Excellent, thank you guys. I'll hop back in the queue. Appreciate it.

[Norman Snyder:]

Okay. We have some time for some remaining questions if anyone would like to ask a question.

[Operator:]

There are no more questions at this time. We have reached the end of the question-and-answer session. And I will now turn the call over to Norm Snyder for closing remarks.

[Norman Snyder:]

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

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.