Good morning and welcome to Reed's third quarter 2025 earnings conference call for the three and nine months ended September 30, 2025. My name is Leli and I will be your conference call operator for today. We will have the prepared remarks from Cyril Wallace, Reed's Chief Executive Officer, and Doug 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 statements. Today's call will include forward-looking statements, including statements about Reed's business plans. Forward- looking statements inherently involve risk and uncertainty, and only reflect management's view as of today, November 4, 2025, and the company is not under obligation to update them. When discussing results, the presenter may refer to Nangup measures, which exclude certain items from the reported results. Please refer to Reed's Investor's website at investors.reedsinc.com and its quarterly report on Form 10-Q for the period ended September 30, 2025. This should be expected to be available on the website soon. For definitions and reconciliations of NAN-GUP 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.
Thank you, Operator, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Q3 marked another period of steady operational progress as we continued executing our plan to strengthen our foundation for sustainable long-term growth and profitability. We advanced our manufacturing initiatives to better align production capacity and capabilities with current demand, enabling us to meet customer needs more efficiently while maintaining a strong focus on quality and operational discipline. At the same time, we're identifying additional opportunities to streamline processes, enhance scalability, and drive further improvements in overall performance. During this quarter, we saw higher than anticipated trade spin as we leaned on two large distributors to help fulfill order volume and ensure on-time delivery to key customers following prior supply chain challenges. This approach enabled us to maintain strong customer relationship and service levels. However, it did not yield the expected efficiencies, and we have since begun redefining our approach with these distributors. We're evaluating our strategies to move away from short-term, three-month promotions to a fully integrated 52-week strategy that aligns more closely with retailer planning cycles and supports stronger year-round execution. With a more disciplined approach, we expect greater predictability and control over trade spend. We're already seeing early signs of improvement in Q4, and as we transition away from legacy distributor arrangements, we believe these actions will support continued growth margin expansion going forward. From a production standpoint, we are working to drive greater efficiency and cost reduction through enhanced manufacturing processes, tighter operational controls, and improved sourcing discipline. We are actively identifying new opportunities to lower unit costs and enhance overall performance across the supply chain. Turning to our core product sales, during the third quarter, our sales team continued to execute against our refined commercial strategy, driving meaningful wins across both new and existing retail partners. These successes reflect stronger alignment between our sales, marketing, and operation teams and demonstrate the progress we're making in rebuilding placements and expanding distribution within key national and regional accounts. We achieved notable retail gains this quarter, highlighted by our partnership with Costco to develop a winter ginger ale variety pack, expanding seasonal innovation opportunities. Core distribution grew 4% year-over-year across top accounts, including Kroger Sprouts, Ajo Del Haze, reinforcing momentum within our core ginger ale, ginger beer, and Virgil's portfolio. A successful Walgreens test further validated consumer demand and merchandising performance, paving the way to broader expansion discussions and priority small-format channels such as drug and convenience. Additionally, we remain focused on regaining lost distribution with key regional wins at Harman's, Bashes, and Festival Foods. Looking ahead, we're focused on expanding our presence in underrepresented channels, and particularly food service and convenience, which represent meaningful long-term opportunities to expand the reach and visibility of Reed's brand. I'd like to share a few updates on our product portfolio, starting with our core categories. We're reinvigorating the ginger core with full packaging and brand restage across Reed's ginger beer and ginger ale, launching July 2026. The update introduces new ginger ale flavors, cranberry, blackberry, and reformulated zero-sugar offerings, plus new club soda and tonic mixers. Together, these moves simplify our lineup, sharpen shelf presence, and strengthen Reed's leadership in authentic craft ginger beverages across retail and on-premise channels. A complete re-stage of our functional soda line, also slated for July 2026, will re-establish reeds as a category disruptor. Designed to leapfrog the modern service space, the new platform delivers wellness-forward proposition with purposeful ingredients, elevated design, and a bold innovation pipeline targeting incremental consumption occasions. We're optimizing Virgil's and Flying Cauldron, transitioning from glass to cans with full restate that's slated for 2027 and reformulating our RTD range, Reed's Mules and Hard's Ginger Ale to enhance quality, flavor, and consistency. Internationally, Reed's launches its Ginger Core in Greater China and Japan, followed by broader Asia in 2026. To support our next phase of growth and brand evolution, we've strengthened our leadership team with several key additions who bring deep expertise across marketing, commercial execution, and governance. In early September, we appointed Tina Reed-Singani as Chief Marketing Officer. Tina brings over two decades of global marketing leadership across lifestyle, spirits, and consumer packaged goods. She has built the scaled, iconic brands at Unilever, Pernard Ricard, and Remy Contro, delivering double-digit growth award-winning campaigns across multiple categories. Her expertise in brand storytelling, innovation, and premium positioning will be instrumental as we modernize and elevate Reed's Inc. Portfolio on its path to becoming a high-growth beverage powerhouse. Next, we welcome Keith Johnson as Reed's Chief Go-To-Market and Customer Officer. Keith has almost 30 years of CPG beverage experience, spanning sales, distributor operations, marketing, and revenue growth. He spent 21 years in leadership positions at Coca-Cola, building high-performing collaborative teams. Over the past 10 years, Keith led national and regional customer teams at Molson Coors and most recently served as VP of Strategic Regional Accounts and Military at Diageo, driving channel strategy, joint customer supply growth, and talent development. We believe he is well positioned to lead our channel development strategy and go-to-market execution. Lastly, we appointed Michael Tu to our board of directors. Michael brings nearly three decades of experience in corporate governance and securities law, advising and representing boards, committees, and executives at numerous public and private companies. His deep understanding of regulatory framework, compliance, and board governance will help guide our long-term strategy and ensure we continue to build a strong, transparent foundation of sustainable value creation. Now let's dive into our third quarter operational highlights. Similar to Q2, we completed another review of our finished goods inventory and wrote down approximately 114,000 of obsolete product. This initiative is part of our broader effort to rationalize SKUs and sharpen our focus on high-velocity items that align with current demand and support a more efficient, profitable portfolio. By streamlining our product mix, we can better concentrate resources on core SKUs that drive volume and margin expansion. On the logistics and supply chain front, we continued executing the rebalancing plan initiated last quarter to optimize inventory placement across regions. These actions are designed to improve, deliver efficiency, reduce freight distances, and minimize out-of-stocks in key markets. We're beginning to see tangible benefits, delivering and handling expenses declined 14% year-over-year in Q3, reflecting early progress from these operational improvements. We remain focused on refining our logistic network to further drive efficiency and reduce costs over time. We are advancing our transition from glass to cans across both Reed's and Virgil's portfolio, an initiative aimed at improving cost efficiency, sustainability, and operational flexibility. We expect this transition to strengthen margins while supporting continued consumer and retail adoption across our core brands. We also continue to strengthen our balance sheet through our recent financing repayment of approximately $650,000 of debt and the refinancing of our credit facility. These actions improved our liquidity and provided additional flexibility to execute on our core growth plan. From a capital markets perspective, we're preparing for an uplift to a major exchange. We view this as an important milestone that will enhance visibility, improve liquidity, and broaden our access to institutional capital as we enter our next phase of growth. As part of this process, we implemented a one-for-six reverse stock split effective October 31st. Looking ahead, our priorities are clear. Improve margins, optimize operations, and drive sales growth within our core reads and Virgil's portfolios. The investments we're making today, coupled with our recently fortified balance sheet, will accelerate our progress towards sustainable, profitable growth ahead. Before wrapping up and closing remarks, our CFO, Doug, will cover financial highlights for the third quarter in more detail. Doug, over to you.
Thank you, Cyril. Now, turning to our results, all variance commentary is on a year-over-year basis, unless otherwise noted. As Cyril mentioned, we effected a one-for-six reverse stock split, and all per-share data is on a post-split basis. Net sales for the third quarter of 2025 increased 4% to $7.0 million compared to $6.8 million in the year-ago quarter. The increase was primarily driven by higher volumes of Reed's branded products with recurring national customers. Gross profit for Q3 2025 remained flat at $1.2 million. Gross margin was 17% compared to 18% in the year-ago quarter. The year-over-year decrease in gross margin was primarily driven by $0.1 million of inventory write-offs related to product portfolio optimization. Excluding these inventory write-offs, gross profit for the third quarter of 2025 was $1.3 million, or 19% of net sales. Delivery and handling costs were reduced by 14% to $1.1 million during the third quarter of 2025, compared to $1.3 million in the third quarter of 2024, primarily driven by lower transportation costs. Delivery and handling costs were 16% of net sales, or $2.50 per case, compared to 19% of net sales, or $2.99 per case during the same period last year. Selling general and administrative costs were $4.2 million during the third quarter of 2025, compared to $3.1 million in the year-ago quarter. The increase in SG&A was primarily driven by investments in personnel, marketing, and related services to support growth initiatives. Total operating expenses were $5.3 million compared to $4.4 million in the year-ago period. Net loss during the third quarter of 2025 improved to $4.0 million or negative $0.48 per share compared to $4.2 million or negative $4.91 per share in the third quarter of 2024. Modified EBITDA loss was $3.9 million in the third quarter of 2025, compared to $3.0 million in the third quarter of 2024 For the third quarter of 2025, we used $2.8 million of cash from operating activities, compared to $1.1 million of cash provided by operating activities for the same period in 2024 As of September 30, 2025, we had $4.1 million of cash and $9.2 million of total debt net of deferred financing fees. This compares to $10.4 million of cash and $9.6 million of total debt net of deferred financing fees at December 31, 2024. I will now turn the call back to Cyril for closing remarks.
Thanks, Doug. Our third quarter reflects continued progress in strengthening Reed's operational foundation and advancing the key initiatives that will drive long-term growth and profitability. While there's still work to do, I'm encouraged by our team's focus and execution to build a strong foundation and position Reed's for accelerated organic growth in 2026 and beyond. With that, operator, we're ready to open up the line for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the hand tip before pressing any key. One moment for the first question. Your first question comes from Aaron Green from Alliance Global Partners. Please go ahead.
Hi, good morning, and thank you very much for the questions. First one for me, I just want to get in better color in terms of, you know, expectations for distribution gains and how best to think about, you know, how shelf resets, you know, might come into play and opportunities that might differ between Reed's traditional and Reed's functional beverages there? Thank you.
Yeah, it's a good question. Listen, I mean, within the changes that we just recently made within the organization, we essentially restructured our entire sales team and added key positions so that we could focus on channels and customers and retailers that we're currently not focused on today. So I think what you'll see here, coupled with focusing on and making sure that we understand the timelines in which recess and some of these key customers take place, we're in the process right now of building those relationships, building out that network to ensure that, one, that we're focused on the right timeline and also have the right product mix to go after these customers with our core business and also, you know, a modern soda Now, as we, you know, as I discussed earlier, we are looking to take our current modern soda line and restage it, reformulate it, retool it, and relaunch it to be in-store July of 2026. So within that, right, that would, you know, constitute us to have to focus on for that particular line for fall resets. So think, you know, core, you know, ginger ale, our two new flavors will come out in Q1 of this year. The broader restage of our core functional reads will take place in the second half of next year. Along with that, you know, is the restage of our modern soda line. So most of that will come into play within our fall resets on both our existing customers and also new customers where it makes sense that we're targeting.
Thanks for that color. That's helpful. On the switching right from bottles to cans across the portfolio, just help us understand and try and get maybe, are there some near-term kind of costs, obviously long-term cost savings you're expecting. So just as we think about the P&L potential impacts, you know, potential on the near-term charges and how much benefits we should expect and when that kind of flows through the P&L.
Yeah, sure. Aaron, good morning. So, for bottles to cans, it's a conversion that I think first is kind of in line with the trending of the industry as a whole. I think it's an opportunity to give the consumer a packaging set that they're interested in and, you know, is better for them in addition to better for you. And then as we think about some of the efficiencies directly to the P&L, what we see is simply, you know, the cost of bottles versus the cost of cans is a nice shift improvement. And there's a benefit in margin as well. So we would anticipate that as we move forward with the transition, you know, the transition will happen, you know, over some period of time that's measured in months and quarters. But we would imagine that as we enter into first quarter, you know, we'll be moving along smartly, you know, to affect that transition. And I would imagine that by the end of the second half, by the end of the first half of 2026, we should be well into it. And some of the considerations are we want to be mindful of the customer set and making sure that we're making that transition in partnership with our customer set and making sure that, you know, one, the customers are pleased with the approach and invested in the approach. And two, we want to make sure that there's no disruption to, you know, know, the shelf space that we have and, you know, the P&L benefit that we're going to gain from it.
Appreciate that. Last one for me, if I could. As you think about marketing, obviously beverages remains a competitive category. You guys, you know, have a focus on profitability. How best to think about the marketing spend line and what levers you think are best available the best bang for your buck to build up brand equity as you look to expand these different brands and product portfolios. Thank you.
Yeah, we want to be very targeted and strategic around how we're spending dollars on marketing. Now, understand that from where we are today to where we're headed tomorrow, it'll be an exponential shift in the strategy and also investment in terms of how we're thinking about marketing our core brand restage in the middle part of next year, along with our functional line, along with this new mixer line as well. So, you know, I think what we're focused on is grassroots marketing campaign and building from there, right? So it'll be very targeted. It'll be very specific. but it will be certainly exponential in terms of what we're spending today. And we feel like, you know, just given where we are, we've got a great opportunity to kind of build out this campaign, given the, you know, already our high consumer appeal amongst consumers who've tried our product and repeat purchasers as well. So I think there's a story that we have to tell there, but we'll be very targeted and specific as how we use those dollars, which is a new area for us in terms of investing in marketing, but we'll do it grassroots, and it'll be very targeted.
Appreciate that detail, and I'll go ahead and jump back to the queue.
Last question comes from Shane McGowan from Rod Capital Partners.
Thank you. Actually, two questions. One quick housekeeping. Doug, do you have a sense of what the timing could be on the up list and whether those steps need to be taken to satisfy all those requirements. And then more broadly, on the last call, we talked about maybe having lost some listings or some outlets. What progress have you made on kind of reestablishing some of the existing customer base that you had and getting back some listings that you may have lost?
Yeah, thanks, Sean, and good morning. Nice to hear your voice. So in terms of timing for, you know, all things uplifting and related, you know, I think, you know, the first kind of milestone that we were able to achieve to move forward with that was affecting the one for six reverse stock split. So, you know, on Friday at 5 p.m., we were able to get ourselves in a place where we could affect that. Our stock began trading under the ticker RED with an extra D, two Ds, which signifies corporate action, that there's a split. But we began trading yesterday morning at the open on a split-adjusted basis. So, you know, we'll kind of watch that settle out. you know, we'll monitor, you know, the market and, you know, where we are in terms of some of the other preparation considerations. But, you know, in an ideal world, we would be able to move forward prudently, but, you know, get to the point where we could uplist to the major exchange, you know, sooner rather than later, because we think that there's nice value for our existing investor base and a nice opportunity for potential new investors as well.
And then, Sean, to answer your question around, you know, loss distribution, yes, we're doing some work to build that into our AOP for next year, and it's certainly a focal point for What I'm excited about is that, you know, we are starting to see some of that business come back, which I highlighted in my earlier comments around, you know, key regional wins at Harman's, Bashes, and Festival Foods. There are some obviously larger, you know, more strategic retailers that were focused on, you know, regaining some of that loss distribution or also getting back in. And I think, you know, Keith and the team are really going to be focused on that in the first quarter of next year. And I think the story, the tale, which is where we saw successes already with winning back some of these regional accounts is we got to do what we say we're going to do, right? You know, build, you know, leveraging the relationships, but also telling the story of how the team has done a nice job of kind of rebalancing and re-centering ourselves around our operational efficiency. and maintaining that quarter over quarter and being able to prove it out to show the customer that they can count on us from an in-stock perspective, that along with just continuing to rebuild these relationships, I think will allow us to be able to get back in to some of these retailers. Not only that, but I would also highlight we're now talking and moving in a position where we're building our innovation pipeline so that will get customers and retailers excited about leaning in as well. And then, you know, this whole notion of this core restage of our REEDS functional line and also our core products is something that also that we're leaning on. So, I think, you know, we continue the course, you know, stay focused on operational efficiency, you know, continue to maintain that.
We'll be able to, you know, continue to regain, you know, some of these lost customers that we lost. okay thanks if i could follow that up uh you know the risk of of sounding maybe a little in politics do you think that the experience that some of these guys have had with you know the past couple years of some you know being late or not delivering on time and it's not going to make it harder to launch a new product or are they willing to give you kind of a fresh look no i think um i mean obviously you know i can't speak for retailers and put words in their mouth But I think any time, you know, a CPG company goes to a buyer with a new proposition, right, they've got to make sure that it makes sense for the category, make sure it makes sense for the set, right?
What is it? What is the innovation? Is it a, you know, and one type innovation? Or, you know, how does it separate itself from anything else that we're currently selling? And so I think there's always a story to tell as it relates to trying to, you know, sell innovation or a new item or even, you know, your core flavor extension in where there may be already a flavor that exists today. So there's certainly work to be done to go tell that story. I don't think it makes it any easier or harder. I do believe that, you know, given our recent history, you know, building that confidence in terms of operational stability helps us to kind of tell that story and show up that end of the equation. The other thing is just in terms of which is normal for any type of CPG that's going in, talking to a buyer around innovation. How does this innovation work for me? How does it drive consumer engagement and appeal? And does it make sense for our sets?
Okay. Thanks a lot. Thank you.
No further questions at this time. I will now turn over the calls to Mr. Wallace. Please continue.
Thank you, Operator, and thank you for joining us today. I want to express our appreciation to our employees, customers, and shareholders for their continuous support. We're excited about the opportunities ahead, and we believe we are well positioned to execute on our 2026 plan. Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.