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RI

REED'S, INC. (REED)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $9.73M, down 17% YoY but above Wall Street consensus; gross margin improved sharply to 30.0% from 4.0% due to prior-year one-time charges, while operating loss improved to $3.66M .
  • Bold surprise: Revenue beat vs consensus by ~$1.05M; EPS missed (SPGI “Primary EPS” actual -$0.88 vs -$0.66 est), reflecting mix and higher SG&A related to contract proceedings correction; GAAP diluted loss per share was -$0.28 *.
  • Balance sheet strengthened: cash $10.4M and total debt ~$9.6M at 12/31/24 following $10M PIPE and debt restructuring, de-leveraging from $27.4M debt at YE23; liquidity supports inventory rebuild and distribution expansion .
  • Management set near-term catalysts: functional “multi‑functional soda” launch (>8,000 points of distribution), shift from glass to cans to lower D&H costs, and retail wins (Costco, Walmart mini cans, Kroger, Sprouts), with guidance color pointing to top-line growth and margin expansion in 2025 .

* Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion to 30.0% (vs. 4.0% YoY) as prior-year charges rolled off and supply chain optimization took hold; QTD margins low-to-mid 30% per call commentary .
  • Distribution momentum and format transition: >1,100 new placements across Albertsons/Safeway; Walmart placement for 7.5oz mini cans; Costco variety packs rotation and expansion commitments .
  • Strategic financing and leadership: $10M PIPE closed Dec 30, 2024; onboarding CFO Doug McCurdy and VP Ops Sal Vassallo to drive cost structure and scalability .

What Went Wrong

  • Net sales declined 17% YoY to $9.7M on short shipments from inventory constraints; SG&A rose to $4.8M (vs. $3.0M) after a $0.75M contract proceedings provision correction, press-release restatement increased operating loss to $3.7M .
  • Cash from operations used ~$3.9M in Q4 due to higher inventory purchases; Modified EBITDA negative (-$0.7M) in Q4 (vs. ~$43k prior-year) .
  • Alcohol portfolio traction slowed in H2 due to inventory/billings; management focusing depth over breadth and reigniting interest with seasonal rotations (Costco LA/Hawaii) .

Financial Results

Sequential Performance (Q2 → Q3 → Q4 2024)

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD)$11.874M $6.752M $9.733M
Gross Margin (%)32.3% 18.0% 30.0%
Operating Loss ($USD)$(0.669)M $(3.138)M $(3.659)M
GAAP Diluted EPS ($USD)$(0.77) $(0.82) $(0.28)
Modified EBITDA ($USD)$45,000 $(2.998)M $(0.748)M
Delivery & Handling Cost per Case ($USD)$2.18 $2.99 $3.00

YoY Q4 Comparison

MetricQ4 2023Q4 2024
Net Sales ($USD)$11.693M $9.733M
Gross Margin (%)4.0% 30.0%
Operating Loss ($USD)$(4.949)M $(3.659)M
GAAP Diluted EPS ($USD)$(2.07) $(0.28)
Modified EBITDA ($USD)$43,000 $(0.748)M

Actuals vs. SPGI Consensus (Q2–Q4 2024)

MetricQ2 2024 Estimate*Q2 2024 Actual*Q3 2024 Estimate*Q3 2024 Actual*Q4 2024 Estimate*Q4 2024 Actual*
Revenue ($USD)$11.467M$11.874M$13.781M$6.752M$8.683M$9.733M
Primary EPS ($USD)-$0.90-$1.8468-$1.20N/A-$0.66-$0.8826

* Values retrieved from S&P Global.

KPIs

KPIQ2 2024Q3 2024Q4 2024
Delivery & Handling (% of Net Sales)12% 19% 17%
Cash ($USD, period-end)$0.326M $0.306M $10.391M
Total Debt (net of financing fees)$27.4M $27.1M $9.6M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FY Net Sales GrowthFY 2024Reaffirmed (growth, margin expansion, mod. EBITDA profitability) as of Q2 Withdrawn as of Q3 Lowered/Withdrawn
Modified EBITDA ProfitabilityFY 2024Reaffirmed in Q2 Withdrawn in Q3 Lowered/Withdrawn
2025 Revenue/MarginsFY 2025N/AManagement expects top-line growth, margin enhancement; formal guidance to come next quarter Qualitative only

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Inventory & Short ShipmentsReduced short shipments via co-packers; inventory strengthening Short shipments re-emerged due to restricted liquidity, offset ~$4.4M in sales Inventory rebuild underway; cadence expected to normalize; Q1 orders ahead YoY Improving into 2025
Co-packing & Supply ChainBattle & DrinkPAK partnerships to lower costs Liquidity actions (Whitebox/D&D) to support production Battle/DrinkPAK support bottles/cans; freight/logistics savings; D&H down 10% in Q4 Structural cost progress
Format Shift (Glass→Cans)Price repositioning and mix shift —Transition accelerating at Whole Foods, H-E-B; Walmart mini cans Expanding
Functional Product InnovationEarly 2025 launch planned; positive retailer feedback —Multi-functional soda line with adaptogens/prebiotics; >8,000 points of distribution Major launch Q2–Q3 2025
Liquidity & DeleveragingHigh debt; working capital tight New $10M revolver; notes assumed/extended $10M PIPE closed; YE24 cash $10.4M; debt ~$9.6M Balance sheet strengthened
Macro/Channel CommentaryStrong promotions (Whole Foods, Sprouts, Kroger) Withdrew outlook amid constraints Costco rotations; Publix BOGO; SPINS data: natural channel +8% $ +13% units Retail momentum building

Management Commentary

  • “We are encouraged by the meaningful progress we made in 2024 as we implemented significant steps to strengthen our balance sheet, streamline operations, and drive efficiencies... We believe we are well positioned to deliver meaningful growth and profitability in 2025.” — CEO Norman Snyder .
  • “This capital infusion will enable us to maintain inventory at optimal levels, ensuring consistent order fulfillment rates and reducing the short order shipments that previously hindered our growth.” — CEO Norman Snyder .
  • “Turning to our results… Delivery and handling costs were reduced by 10%… Operating loss improved to $3.7M… As of December 31, 2024, the company had approximately $10.4M of cash and $9.6M of total debt.” — CFO Douglas McCurdy .

Q&A Highlights

  • Functional product strategy: Reed’s positioning as plant-based, multi-dimensional (ginger + adaptogens + prebiotic fiber) to target fastest-growing “modern beverage” category and Millennial/Gen Z consumers .
  • Alcohol portfolio: Slowed in H2 due to inventory challenges; focus on key retail partners; Costco rotation in LA/Hawaii expected to help .
  • Demand vs. supply: Management attributes ~two-year revenue decline primarily to cash/inventory constraints; strong scan data when replenished; promotions were deferred to avoid penalties .
  • Guidance cadence: Formal revenue targets to be provided next quarter; focus on reducing short shipments and raising OTIF rates; expect top-line growth, margin enhancement, and lower freight/logistics costs .
  • Uplisting pathway: Target major exchange after “a couple of sustained quarters” of operating performance and meeting criteria; stock price threshold remains a gating item .
  • SG&A drivers: Noncash accounting reserves (e.g., co-packer equipment reverse amortization) cited as main contributors to Q4 increase; reflected in Modified EBITDA reconciliation .

Estimates Context

  • Q4 2024: Revenue beat ($9.73M actual vs $8.68M est); EPS miss (Primary EPS -$0.88 actual vs -$0.66 est). Beat driven by distribution gains and inventory rebuild beginning, but YoY sales declined on short shipments; EPS pressured by higher SG&A and noncash items corrected in PR *.
  • Q3 2024: Significant revenue miss ($6.75M actual vs $13.78M est), largely due to constrained liquidity impacting raw material purchases and short shipments *.
  • Q2 2024: Revenue beat ($11.87M actual vs $11.47M est) and positive Modified EBITDA; driven by demand, promotions, reduced short shipments and cost optimization *.

* Values retrieved from S&P Global.

Key Takeaways for Investors

  • Revenue quality vs. consensus is improving; Q4 delivered a revenue beat despite YoY decline, indicating the demand backdrop remains intact as inventory constraints ease *.
  • Margin trajectory is favorable, with structural supply chain changes and format shifts likely to sustain gross margins in low-to-mid 30% range as per management, a key driver of earnings power .
  • De-leveraging and liquidity (PIPE, debt reduction) materially reduce financial risk and enable inventory normalization—a prerequisite for sales recovery and promotion cadence .
  • Near-term catalysts: functional beverage launch (>8,000 points of distribution), Costco rotations, Walmart mini cans, Kroger programs; these should support volume/mix and brand velocity in 2H 2025 .
  • Watch Modified EBITDA normalization: non-GAAP adjustments (contract proceedings, professional fees, reserves) have been elevated; as these subside and freight/logistics decline, EBITDA should inflect .
  • Risk monitoring: sustained OTIF improvement, co-packer execution, and maintaining retailer confidence are critical to avoid recurrence of short shipments (key swing factor for sales) .
  • Tactical implication: Bias to positive estimate revisions on revenue as supply normalizes, with EPS lagging near term given SG&A and ramp costs; stock reaction tied to delivery of 2–3 quarters of execution and formal guidance initiation *.

Notes on Non-GAAP and Correction:

  • The March 27 corrected press release added a $750k provision related to contract proceedings, increasing SG&A and worsening operating loss vs the initial March 25 release; Modified EBITDA reconciliation reflects higher “contract proceedings” adjustments ($1.423M) .
  • Modified EBITDA is management-defined and excludes multiple noncash and nonrecurring items; investors should weigh sustainability of the adjustments and trajectory of core operations .