Reed's Inc (NASDAQ:REED) Q2 2020 Earnings Conference Call - Final Transcript

Aug 10, 2020 • 04:30 pm ET

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Reed's Inc (NASDAQ:REED) Q2 2020 Earnings Conference Call - Final Transcript

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Executive
Norman Snyder

product launches have only commenced rollout to retail. Finally, we are tightly controlling spending by removing significant costs from our system, improving our cash flow profile and remaining focused on driving enhanced profitability. I am proud of the entire team's effort to build and optimize Reed's while quickly adapting to broader challenges from the global pandemic.

Now I will discuss our second quarter. We had a strong quarter, delivering 14% net sales growth, driven by 19% volume growth of the Reed's brand, reflecting strong demand across all Reed's SKUS, including the incremental growth from recent launches of new innovation as well as 4% volume growth of the Virgil's brand. We are seeing strong demand at retail, which is evident in the most recent syndicated data. For the most recent four weeks ended July 12, Reed's was up 37.5% in dollar sales, and Virgil's was up 25.2%. This was partially offset by lower non measured channel sales, which are running down over 20% this year, directly related to the impacts of COVID-19. We made improvements on margins, with gross margin increasing 350 basis points versus the prior year, reflecting our strong growth and supply chain initiatives. Our supply chain and co-packer redundancy has proved to be invaluable as the industry faced increased production demands, while supply capacities across the industry have been negatively impacted by COVID-19 challenges. Additionally, our efforts to build out co-packer network has allowed us not only to overcome the challenges of the environment, but to ensure that we have the right products in the right place with improved staging of inventories to help combat elevated shipping and handling costs, also a result of COVID-19.

In the quarter, we saw a positive response to new product launches, including Reed's Really Ginger Ale, Reed's Extra Zero Sugar and Reed's Wellness Ginger Shots as well as an encouraging initial response to our new ultimate ready-to-drink Mule with a real ginger kick, which launched late in the second quarter. Most notably was the launch of Reed's Real Ginger Ale, providing entry into a $1.2 billion category with an 8% compound annual growth rate over the last four years. The challenges presented by COVID-19 delayed many retailers plans to execute resets, which has impacted the pace of filling new distribution. But we saw solid demand from retailers and significant authorizations for new retail space that will materialize as the retail environment begins to normalize.

Our enhanced focus on the e-commerce channel is also performing very well, including both sales on our branded websites, as well as significant growth on Amazon. We launched with a select product offering that included canned beverages, Flying Cauldron, a butterscotch cream soda; Reed's Ginger Shots and Reed's ginger candies. We saw a positive response and accelerated growth throughout the quarter.

As I touched on briefly a moment ago, as we continue to grow volumes, redundancies in our supply chain and co-packer network become increasingly more valuable. This was certainly the case in this quarter, especially as the