Reed's, Inc. (REED) Q1 2026 Earnings Call Transcript

Good morning, and welcome to Reed's First Quarter 2026 Earnings Conference Call for the three months ended March 31, 2026. My name is Joelle, and I will be your conference call operator for today. Today's call will include prepared remarks from Neil Cohane, Reed's Interim Chief Executive Officer, and Doug McCurdy, Reed's Chief Financial Officer. Following their remarks, we will open the call for questions. Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reid's business plan, growth initiatives, operational improvements, including the companies believe that its first quarter results are not indicative of future performance and the impact of its corrective efforts. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements inherently involves risks and uncertainties and only reflect management's view as of today, May 13, 2026. Reid assumes no obligation and does not intend to update these forward-looking statements, except as required by law. For more information, please refer to the Risk Factor section of the company's annual report filed with the Securities and Exchange Commission on March 25, 2026, and in other filings that the company makes from time to time with SEC. 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 2026 earnings release on Reed's Investor website at investor.reedsinc.com and the company's quarterly report on Form 10-Q for the quarter end of March 31, 2026. Expected to be available on the website soon for definitions and cancellations 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. While we believe the non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with the GAAP. I will now turn the call over to Mr. Kohane.

Thanks, Joelle, and good morning, everyone. I first would like to say the company's operating performance in Q1 should not be viewed as indicative of our expanded performance for the balance of the year. Several factors contributed to the quarter's results, many which we believe are transitional and are already being addressed through corrective actions initiated early in 2026. We see five factors that impacted our performance in Q1. They are as follows. Number one, inventory liquidation and write-offs. The company incurred significant charges related to liquidation of underperforming discontinued and age SKUs, as well as write-offs associated with excess raw material inventory. We have since completed comprehensive physical inventory counts and implemented enhanced inventory controls designed to minimize the likelihood of similar charges recurring. Number two, elevated SG&A expenses. SG&A expenses were not appropriately aligned with the size and current priorities of the business. We have taken action to right-size the cost structure, and we remain focused on rebuilding trust with retail and distributive partners while re-engaging consumers and supporting brand growth initiatives. Third, sales execution challenges. Q1 sales performance was negatively impacted by several operational commercial factors, including the discontinuation of our heritage glass bottle packaging. The execution, two, the execution challenges associated with the transition from sleek cans to standard cans. Three, we had limited promotional trade activity during the quarter. Four, underperformance and evolving strategic focus behind Virgil's zero platform, which is currently being restaged for future relaunch and growth. Five, we missed category review windows that resulted in reduced shelf placement for certain reads and virtual SKUs at key retail accounts. The fourth, gross margin pressure. Gross margins were negatively affected by rising input costs and wholesale selling costs on certain packages that were insufficient to optimize margin contribution. fifth distributor and retail partner engagement the company experienced inconsistent engagement with certain distributor and retail partners which contributed to weakened communication reduced alignment top-line pressures across portions of the business all right so beginning in early q1 in 2026 management initiated a series of corrective actions intended to stabilize the business improve execution and position the company for profit profitable growth in the future first thing we did was we re-engaged with our retail and distributor partners nationwide to strengthen relationships secure new SKU placements and develop promotional plans for the remainder of 2026 on the product side of things we cancelled the planned elimination of the reeds and Virgil's Heritage glass bottles and Virgil's zero sugar cans. Consumer and retail partner demand contributed to our decision to reverse course on those discontinuations. We also expanded our retail media and e-commerce support. The company launched sponsored product and retail media initiatives across key e-commerce platforms, including Instacart, Walmart.com, Albertsons.com, and Kroger.com, among others. We also initiated cost reduction. We implemented meaningful reductions in headcount and marketing-related SG&A expenses and postponed a planned brand restage initiative until the business demonstrates sustained growth and momentum. We also, to expand our retail and consumer reach, we retained one of the nation's largest commission-based sales agencies to present the REEDS portfolio brands across all channels of business in the U.S. This partnership immediately expanded our retail coverage and field presence with more than 80 sales professionals working alongside REEDS sales management. We liquidated tens of thousands of cases of low margin and non-strategic inventory to improve working capital efficiency and streamline portfolio. We also restructured Amazon. We exited a third-party Amazon fulfillment warehouse arrangement that had been generating approximately $1 million in annual losses and simultaneously partnered with a leading Amazon marketplace operator focused on driving profitable growth. On the gross margin improvement, management conducted a comprehensive review of cost of goods and portfolio-level gross profit margins. Following our analysis, we began implementing strategic pricing actions designed to improve profitability and support long-term financial performance finally to support the execution of the above initiatives we've recently appointed Damian Warshall as chief operating officer Damian has a history with reads and we believe his operational experience positions him well to lead this next phase of improved operating performance the team's immediate priority has been and destabilize the business, improve execution, and rebuild confidence across all aspects of the organization. While our first quarter results clearly fell short of expectations, we have moved quickly and decisively to address operational inefficiencies, strengthen customer and distributor relationships, streamline our cost structure, and refocus the company down the path of profitability. Reed's and Virgil's remain highly recognized highly recognizable brands with strong consumer awareness and significant untapped potential in both retail and e-commerce channels. We believe the actions taken over the past several months are laying the foundation for improved execution, stronger margins, and renewed top line momentum as we move through 2026. Although there is still substantial work ahead, I am encouraged by the early progress we are seeing across the business, and remain confident in our ability to reposition the company for long-term sustainable growth and shareholder value creation. Thanks to all today. Appreciate your time. Our CFO, Doug, will now cover the financial highlights for the quarter in more detail. Doug?

Thank you, Neil. Turning to our results, all variance commentary is on a year-over-year basis, unless otherwise noted. Net sales for the first quarter of 2026 were $7.1 million, compared to $10.0 million in the prior year period. The decrease was primarily driven by lower volumes with recurring national customers and higher promotional and other allowances. Gross profit for the first quarter of 2026 was $0.7 million, compared to $3.4 million in the prior year period. Gross margin was 10% compared to 34% in the prior year period. The decrease in gross margin was primarily driven by liquidation of select slow-moving product and inventory write-offs related to changes in product portfolio optimization. Delivery and handling costs decreased by 31% to $1.1 million during the first quarter of 2026, compared to $1.6 million in the first quarter of 2025, primarily driven by continued improvements in logistics efficiency and freight optimization. Delivery and handling costs were 16% of net sales, or $2.57 per case, compared to 16% of net sales, or $3.17 per case, during the same period last year. Selling general and administrative expenses were $5.8 million, compared to $3.5 million in the prior year period. The increase was primarily driven by investments in personnel, marketing, and related services to support our Asia growth initiative. Net loss during the first quarter of 2026 was $6.5 million, or negative $0.55 per share, compared to a net loss of $2.0 million, or negative $0.27 per share, in the prior year period. EBITDA was negative $6.2 million in the first quarter of 2026, compared to negative $1.7 million in the year-ago period. For the first quarter of 2026, cash used in operations was $5.8 million, compared to cash used of $5.4 million in the year-ago period. As of March 31, 2026, REEDS had approximately $4.6 million of cash and $9.2 million of total debt net of deferred financing fees. This compares to $10.4 million of cash and $9.2 million of total debt net of deferred financing fees at December 31, 2025. I will now turn the call back to Neal for closing remarks.

Obviously, Q1 was challenging, and our results reflect that. But it was also a real important quarter, one in which we made deliberate investments in building a stronger foundation for the business. We believe that the work will serve us well as we move through the year. We look forward to showing you that progress in the quarters ahead. So with that, operator, we're ready to open the call for some 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 touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift your hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Aaron Gray with Alliance Global Partners. Your line is now open.

Hi, good morning, and thank you for the questions. First question for me, just, I guess, how do we think, you talked some of the remedies before, how do we think about the progress and how long it'll take for the remediation to take force? And are you already seeing some improvement in 2Q about halfway through the quarter? Any type of KPIs that you can help provide us to show there's been some progress in that?

Aaron, thanks for the question. Yeah, we absolutely – we get on this very early in Q1. So we've been working on all those fronts that I just went through and covered. So we – obviously, we've reduced and restructured our inventory and got, you know, the majority of the inventory situation cleaned up. we're seeing margin improvement immediately and early and we are we we did a very deep analysis and what we were charging customers what we were charging our distributors for our for you know wholesale costs they were we needed to right-size that so we've taken the immediate action on that we're starting to see early some early syndicated data that says some of our We'll call it Instacart and Walmart.com and places where we're investing. We're starting to see a good return on ad spend on that, and that's reflecting in some of the syndicated data. But on all fronts, we're making very quick, swift progress. It's going to take a little while, but it's not going to take, you know, by the end of this quarter we're in, we will have gotten ourselves back on the right track.

Yeah, Aaron, just a couple of quick notes. Obviously, first quarter was a transition quarter. As we get into and continue through second quarter, our expectation is that we'll get back on the path of sequential improvement quarter to quarter, and we expect to see that in net sales, gross margin, and net loss.

Okay, I appreciate that.

More specifically, just on the missed category review windows with some of the national retailers, I know shelf resets, you know, are very important. So given that window was missed, like how hard is it to get back that shelf space that might have been lost? Do you need to wait another year or two? Fall shelf reset? Just give us some color in terms of the progress and how potentially you went back to the shelf space with those national retailers.

Yeah, so, Aaron, we're going back, and I have a longstanding relationship with lots of retailers, lots of distributors. We're going back immediately to where we can, where we can affect change. That's the first places we're going to now, where we can affect change now, and we're having success. But the other really good point that has happened is – We've kind of unleashed a large national sales broker agency with, you know, as I said in the script, the 80 people, and they're all engaging right now. So we're going for the low-hanging fruit now. There are some that are, you know, there are some retailers that are dead set on their category reviews happening at a certain period of time. But we're already speaking with them. It doesn't hold us up from speaking with them about the future and upcoming, you know, new business.

So we're moving forward on it.

Okay, great. That's helpful. And my third question was to be on that in terms of the new commission-based sales force that you brought online. So first quick question. So the 80, how does that compare to the number that you guys had internally? And then secondly, do you feel like the inventory is in the right position to kind of, as you said, unleash this type of sales force and that you have the product available to complement, you know, the answer, you know, gunpowder, if you will, of the aid and increased sales force base?

Inventory, we're very confident that we're going to be secure in inventory. So that is not a worry of mine at this moment. As far as where we were, we were, you know, when I came into the company in January, it was probably about 12 sales, field sales folks, and now we have what I call them, I call them, we have field sales generals out there now that are aligned and attached to the hip. with our field brokers. So it's the only thing we're doing right now, Aaron, is we're creating KPIs, right, key performance indicators for all in the company, for our broker partner, so that we're hitting milestones and we're measuring success and fixing things that we need to fix as we move along.

Yeah, Aaron, just a note on the inventory piece and having product available to support. We continue to have short shifts be essentially zero, and we're managing inventory probably more efficiently than the company has managed in many years, but we have the inventory to support the growth.

Okay, thanks. I'll go ahead and jump back in the queue.

I don't know for the questions at this time. I will now turn the call over to Neal for closing remarks.

Thank you. Thank you for joining us today. We appreciate everybody's continued support, right? We look forward to updating you on our progress. We'll be completely transparent as we move forward, but we're looking forward to nothing but success in the future, so thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.