Good afternoon, and welcome to the Reed's Second Quarter 2022 Earnings Conference Call for the period ending June 30, 2020. My name is Sarah, and I will be your conference call operator for today. We will have prepared remarks from Norman Schneider, Reed's Chief Executive Officer; and Tom Spisak, Reed's Chief Financial Officer.

Following their remarks, we will take your questions. I would like to remind listeners that this conference call will include forward-looking statements.

Forward-looking statements are only current predictions and are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels or activity, performance or achievements to be materially different from those anticipated by such statements.

These factors include, but are not limited to, Reed's ability to manage growth, manage debt and meet development goals, Reed's ability to protect its supply chain in light of disruption caused by elevated freight costs and other impediments, the availability and cost of capital to finance our working capital needs and growth plans; reduction in demand for products; dependence on third-party manufacturers and distributors; changes in the competitive environment; future business outlook, including the potential impact of COVID-19 on Reed’s business and results of operations; and other information detailed from time to time in Reed’s filings with the United States Securities and Exchange Commission.

These statements, including financial guidance, involve risks and uncertainties that may cause actual results or trends to differ materially from the company’s forecast.

The achievement or success of the matters covered by such forward-looking statements, including future financial guidance, involves risks, uncertainties and assumptions, many of which involve factors or circumstances that are beyond Reed’s control.

Fiscal 2022 guidance reflects year-to-date business trends, including the ongoing operating environment related to COVID-19.

The COVID-19 pandemic and its related impacts could continue to create many incremental potential business risks, including potential impacts to Reed’s ability to access raw materials, production, transportation and/or other logistics needs, as well as potential inflation related to all aspects of supply chain and logistics, which cannot be reasonably estimated and may not be completely factored into current fiscal 2022 guidance.

Gross margin guidance assumes our known pricing for ingredients, packaging and production costs, each of which has been and could continue to be impacted by factors related to COVID-19. Financial guidance should not be viewed as a substitute for full financial statements prepared in accordance with GAAP.

For more information, please refer to the risk factors discussed in Reed’s most recently filed Annual Report on Form 10-K and the Form 10-Q to be filed with the SEC today.

Although management believes that the expectations reflected in forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. In addition, any projections as to the company’s future performance represents management’s estimates as of today, August 11, 2022.

Reed’s assumes no obligation to update any forward-looking statements or information, which speaks as of their respective dates.

Additionally, please note non-GAAP financial measures referenced during the call are reconciled to the comparable GAAP financial measures in the press release and supplemental materials filed with the SEC and is posted on Reed’s investor website at investor.reedsinc.com.

Modified EBITDA is presented because management believes it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of core operating performance.

The performance of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP. And Reed’s non-GAAP measures may be different from non-GAAP measures used by other companies.

Reconciliations of non-GAAP measures to GAAP measures, as well as the definition of each measure, their limitations and our rationale for using them can be found in this afternoon’s press release and in Reed’s SEC filings. I will now turn the call over to Mr. Snyder. Please go ahead..

Thank you, and good afternoon, everyone. We appreciate you joining us today to discuss our second quarter 2022 results. During the second quarter, we returned to more than 20% revenue growth, driven by strong demand across our product portfolio, specifically Reed’s Ginger Beer, Reed’s Ginger Ale, Reeds Classic Mule and our Virgil Zero Sugar line.

While net sales were generally in line with our expectations, the effects of various unprecedented supply chain headwinds that began during the latter half of 2021 and continued into 2022, resulted in onetime elevated cost of goods sold and transportation expenses, offsetting the benefit of our cost-saving initiatives implemented earlier this year.

We believe that we have strategically navigated through these turbulent times and during the second half of 2022, we anticipate lower cost of goods, resulting in improved gross margin and lower freight expenditures.

We will also continue to tightly control sales and marketing and general and administrative costs, resulting in improved operating results and positive cash flow. We'll have more to discuss on the supply chain and the key factors driving margin and cash flow for the second half of the year, but let's first take a closer look at our product portfolio.

Core Ginger Beer sales continued to perform well during the quarter and were up nearly 15% year-over-year, led by 113% growth in Ginger Beer cans as contained in year-to-date multi-outlet and convenience or MULO retail scan data. MULO contains the following channels, food, grocery, drug, mass, Walmart, Club, dollar stores and military.

Our relatively new Ginger Ale business was also up as sales increased 60% from the year ago quarter. In addition, as reflected in MULO scan data, our Ginger Ale is up 57% year-to-date and 48% in the four weeks ending at the close of Q2, reflecting the consistently growing demand for this new product line.

As a reminder, the Ginger Ale category in measured sales is approximately $1.2 billion and growing, which represents a significant opportunity for REITs to capture additional market share. We have also made significant headway in our RTD alcohol portfolio, both from a sales and product development perspective.

I'm happy to share that as of last month, we are now registered to sell our alcohol portfolio in 46 states with the remaining four states coming online shortly. During the second quarter, our Classic Mule sales were up 5x compared to the prior year and up more than 60% sequentially from Q1, 2022.

Over the last eight months, we added an estimated 3,300 doors that purchased Reed's Classic Mule and more recently Stormy Mule.

We are currently identifying the doors that are generating the highest velocity per week and we are developing more localized marketing plans with our distributors to broaden our reach through retail post off, sales incentives and in store consumer demos.

Some chains where you will find our new meals include Whole Foods, Total Wine, Sprouts, Smart and Final, Food City, Railings [ph] and Natural Groceries, just to name a few with many more to follow. We are currently meeting jointly with our distributors with many national and retail chains. We head into category review season in the fall.

The RTD Cocktail and Heartfelter categories and measured sales is approximately $7 billion plus and growing, which also represents a significant opportunity for Reeds. At the end of the second quarter.

As planned, we launched our new Hard Ginger Ale with several of our distribution partners in California, Florida, New York, Massachusetts and many other states.

Although shipments were minimal as expected, we planned to further increase distribution in the second half of the year with our Reed Tar Ginger Ale gains entry into national and regional chains.

Our consumer research indicates that Reed Tar Ginger Ale has high purchase intent with both RTD factor and current Ginger Ale drinkers that use it as a mixer, and the early sell through data for July is very encouraging.

In addition to our Hard Ginger Ale, we also released our new Stormy Mule and issued a press release earlier today, which is our take on the iconic Dark and Stormy Cocktail. The initial launch included over 180 Safeway, Albertsons and Sprouts locations across the west coast. As with our Hard Ginger Ale, sales for the quarter were also minimal.

We plan to expand distribution of the Stormy Mule with our regional partners into new regions with our channel partners into new regions throughout the second half of 2022. Moving on to Virgil.

Our sales were up more than 20% on both a year over year and quarter over quarter basis, in large part due to the launch of our new zero sugar sweet cans that were rolled out in Sprouts in April.

Spence Natural and Enhanced Category scan data reflects a year-to-date increase of 140% and nearly 150% increase during the four-week period ending at the close of Q2. The Natural and Enhanced Category covers supermarkets with at least 2 million in annual sales and at least 50% of sales from natural organic products, excluding Whole Foods.

We look forward to more shelf space for the rebranded sleek cans with our various channel partners in the coming months that presently include in addition to Sprouts, HEB, Stop and Shop and Ingles among others. We are excited about the new look as we conducted extensive research on positioning and consumer purchasing tab.

The success we have had with our Sleek Ginger Ale cans and the initial pull we are experiencing at Sprouts. Subsequent to the quarter, we announced the launch of Virgil's Bavarian Nutmeg Roof Beer and our Flying Baldwin Butterscotch Beer and Swing lit [ph] bottles and all 667 Cracker Barrel corporate locations which spans across 42 states.

These Swing Lit bottles are marginal creative to our overall portfolio, so we are thrilled to be serving these beverages year round at Cracker Barrel [ph]. In addition to the Cracker Barrel relationship, we have grown our seasonal Swing lit program from 20,000 cases in 2020 to over 200,000 forecasted cases this year.

During the second half of the year, we plan to launch a Virgil's variety pack on e-commerce an additional swing-lid flavor, Harvest white apple cider and our popular Cranberry Ginger just in time for the holidays.

Returning to our supply chain, as I mentioned earlier, we experienced heightened fuel and transportation costs during the second quarter, which offset our cost-saving initiatives implemented earlier this year.

Transportation fuel cost, although our team has done exceptional work to implement lower contracted freight lanes and reduce out-of-network shipments, there was simply no way to avoid the rising fuel cost during the second quarter which we have all seen firsthand at the gas pump this year.

On a positive note, we have seen fuel costs come down over the past two months, which makes us optimistic that we can get our overall transportation costs back down to lower levels in Q3 and Q4. We have also recently negotiated lower contracted rates for many of our freight lines.

Further, given the strong order demand we experienced earlier this year, our supply chain is encountering fewer delays and more available lime time at co-packers. We made the strategic decision to buildup our inventory of finished goods, so that we can effectively satisfy that demand moving forward.

This was also a large contributor [Technical Difficulty] we were not positioned to fulfill the retail demand in a cost-effective manner.

Now that we're a flush with inventory, we can ship more products in Q3 and Q4 without incurring those deliveries and handling costs again, which will improve operating margin and enable us to generate positive cash flow over the next two quarters.

Outside of transportation and fuel, we have continued to see benefits of our purchasing efficiencies, ingredient and label optimization, reduced tolling fees in inbound freight, as a result of better economies of scale.

However, to meet tight deadlines with our various new product launches, we produced and utilize sleeves and digitally printed cans in our initial production runs, which are more expensive than painted cans and consequently impacted gross margins.

That will no longer be repeated as we now have cycled through the majority of that inventory and have an ample supply of lower cost, painted cans and are presently using them. We also use an alternative supplier to supplement our inventory needs during the second quarter, which resulted in higher costs and the incremental delivery charges.

We have also cycled through that higher cost inventory, which will result in lower cost of goods through the balance of the year. We are also starting to see better rates with co-packers and various surcharges are being reduced and/or eliminated.

Further, the price increase we implemented earlier this year will also take effect in the coming quarter as planned, which will provide an additional sales and market lift going forward. In summary, we continue to face residual turbulence from the supply chain headwinds for the second quarter and really the first half of the year.

However, input costs and product availability appear to be normalizing, and we are optimistic that the worst is behind us. Demands for our products remain strong and we are finally stockpiled with enough finished goods to fulfill that demand at a much higher margin.

We look forward to delivering on our growth and profitability objectives in the second half of the year, while generating meaningful cash from operations. With that, I'll pass the call to Tom, to walk through our financial results before returning for closing remarks..

Thanks, Norman. Turning to our results, all variances referenced year-over-year basis unless otherwise noted. Net revenue for Q2 increased 22% to $13.7 million, compared to $11.3 million in the year ago quarter.

Double-digit increase -- that double-digit increase was due to strong demand across our Reed branded products, more specifically, Reed's Ginger Beer, Reed Ginger Ale, Reed's Classic Mule, as well as our Virgil Zero Sugar line. Gross profit during the second quarter of 2022 remained flat at $3.3 million.

Gross margin was 24% compared to 29% in the second quarter of 2021. As Norm mentioned, our second quarter margin was impacted by higher costs related to one-time material sourcing and production. When excluding these one-time costs, Q2 gross margins would have been approximately 32% for the quarter.

Delivery and handling fees in Q2 were $3.8 million compared to $2.5 million in the year ago period, driven by higher volume, freight rates, and fuel costs and increased finished goods production.

Delivery and handling expenses were approximately 28% of net sales or $5 per case compared to 22% of net sales or $3.53 per case in the second quarter last year. As Norm mentioned, the second quarter included additional expenses to building up inventory and extra $325,000 or $0.45 per case.

Since these costs were recognized in Q2, we will save on delivery and handling in the back half of the year. Outside of delivery and handling, the rest of our operating costs were managed very well. Selling and marketing costs were reduced by 16% to $2.2 million compared to $2.6 million in the second quarter of 2021.

As a percentage of revenue, selling and marketing costs were 16% compared to 23% in the year ago period. Our general and administrative expenses during the second quarter were also slightly lower at $1.8 million. compared to the prior year.

Total operating expenses were $7.8 million or 57% of net sales compared to $7 million or 62% of net sales in the year ago quarter. Operating costs, excluding freight, were $4 million, which is approximately $0.5 million lower than prior year.

Operating loss during the quarter was $4.5 million or $0.04 per share compared to $3.7 million or $0.04 per share. And modified EBITDA in Q2 was $4.4 million compared to $3.1 million in the year ago quarter.

Turning to our balance sheet and liquidity, cash used in operating activities was approximately $14.1 million for the second quarter of 2022 compared to $5.3 million for the same period in 2021. As of June 30th, we had approximately $280,000 of cash and $969,000 worth of current availability.

The total facility has a borrowing capacity of $13 million with $11.5 million outstanding on June 30th. You may recall from our Q1 conference call that we closed a private placement of convertible notes that resulted in approximately $10 million of net proceeds.

Nearly all of these proceeds were used to pay down our revolver, which we drew down against to help us stockpile the inventory as previously discussed. With ample finished goods in place, we expect to generate meaningful cash flow over the next two quarters and strengthen our cash position once again.

Looking to our guidance for 2022, we continue to expect net sales to range between approximately $59 million and $62 million, reflecting growth of approximately 20% to 25% from 2021. We also continue to expect gross margin for 2022 to be approximately 30% compared to 27.4% in 2021.

And finally, we expect modified EBITDA to improve in 2022 as a result of our revenue growth, margin expansion and cost savings initiatives. I will now turn the call back to Norm for closing remarks..

Thanks, Tom. During the first half of the year, we continue to face unprecedented inflation in supply chain bottlenecks. Despite these challenges, we continue to drive top line growth, implement a price increase, hold the line on promotional costs and reduce non-transportation-related operating costs.

Looking ahead, we have several key initiatives on track to hit our growth and profitability targets, including the nationwide launch of our swing-lid bottles at Cracker Barrel, continued growth of our overall swing-lid program, ramping up of our newly released RTD alcohol products, our relaunch Virgil zero sugar portfolio, and the continued growth of our flagship Reed’s Ginger Beer and Virgil's Root Beer.

We anticipate meaningful gross margin growth and lower transportation costs, both areas that significantly impacted our results during the first half of the year. Additionally, we will deplete a significant amount of finished goods inventory on our balance sheet, convert to fast into cash.

We remain steadfast with our continued cost-saving initiatives and look forward to delivering on our goals in 2022. Operator, we will now open the call for Q&A..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Sean McGowan with ROTH Capital Partners. Please go ahead..

Hi, guys.

How are you?.

Good, Sean. How are you.

You can hear me okay, I got a couple of calls going on some on a headphone..

Yes..

Okay. I want to get a little bit more color on the inventory, because I thought that this would be the quarter where we might see that come down.

How much of the inventory is in not only finished goods, but like new products that wouldn't have even been there last year, like some of these new product launches that you got in just at the end of the quarter, how much inventory is that? And kind of more specifically, should we expect it to be down at the end of Q3?.

Well, I'm going to answer those questions in reverse order, Sean. Yes, we expect it to be down. And for our new products, the bulk is really going to be in Virgil's sleek cans for the rebranded Zero Sugar. Our -- the Hard Ginger Ale is minimal.

The mule is -- the procurement of raw materials is really by our co-packers, so we don't really hold any non-finished good inventory that we purchased. But the bulk was really Virgil Zero Sugar, as I said.

And what really, I think, created the growth in inventory was, as you recall, during the year, beginning of the year, Paul instituted a minimum five truckload per SKU order requirements. And we look closely at our forecast, and believe that, we could cycle through that – through those cans.

However, we had to make a commitment early on or we wouldn't – we risk losing those cans. So the big commitment and the jump on non-finished good inventory is going to be primarily due to the Virgil Zero Sugar. But obviously, we're producing finished goods, so we're using it up and then we're selling off finished goods.

So across the board, we'll see both finished goods and non-finished good inventory come down in both the third and fourth quarter..

Okay. Well, I'm glad you brought up Paul, because I think it was last week, they said, they were seeing some slackening demand and they were closing a couple of plants, and commenting on how maybe some pricing action taken by some customers leading to lower demand.

Have you seen any indication from them that they might kind of ease up on either the higher prices or on this minimum quantity commitment?.

Well, I've heard the minimum quality commitment is coming down now. So that's something that, obviously, we want to take advantage in the future. And I am hearing rumblings across the board about can prices coming down as well, waiting to see that. I think our RDOF [ph] taken some pricing down. And I think Paul has been talking about it.

We also buy cans from Crown and we've had conversations there. So, both pricing and minimum quantities, the demand that everybody forecasted, obviously didn't come to fruition. Now, I can't comment on why Paul’s closing facilities. But obviously, the demand has not panned out as everyone has expected.

And like I'm seeing across the board, we're feeling much better about our overall supply chain and our ability to get items and then not that I want to jinx myself, but I haven't had a price increase on any components in a while. And it seems like they were popping up every week. So it does seem like things appear to be normalizing a bit.

Now the good news is, we've kind of hedged ourselves against inflation, because we do have so much inventory. So, we feel good from that perspective..

Okay. I'm glad that's a good segue into my next question that, when you put the price increases into place and/or at least announced them and thinking about them. You must have had some expectations about where you would see costs over the course of the balance of the year. And it sounds like in some cases, maybe they're higher.

But based on more recently, do you think that the price increases that you can count on, a, can you count on them, and, b, will they kind of match up with what your expectations were vis-à-vis costing?.

You mean from a purchasing raw materials and ingredients..

Yeah. Yeah. I mean, you're kind of guessing at the point you put in a price increase or announce it, and how much is going to cover those cost increases.

How has that played out versus your expectations?.

I think we've – it played out as we thought. And – but I don't have a crystal ball, and I don't know what's going to happen down the road. I know that we – look, we're continuing to look to take out cost.

And we never stopped because you can't stop and you don't know what the future is going to bring, but one of the things that we're looking forward to next year is, we've developed with one of our suppliers, some new technology to bring down cost of our Ginger, for example.

So that's an area where we continually seek without sacrificing quality, the ability to bring costs down. So we try to -- look, we're trying to do both things. One was continuing look to bring costs down to build in where we thought costs were going to be when we took our pricing, right? And it seems like we were there in certain circumstances.

And actually, other things have subsided. So that's a benefit to us. But look, I don't -- like I said, I don't have a crystal ball and there's many geopolitical issues out there that have impacted the whole world, not just Reed's, but us as individuals. And I'm not going to give an attempt to try to predict that or quantify what's going to happen.

I'm just -- I'm hoping for the best, and we continue to look to improve things the best we can..

Okay. That's helpful. And then the last question I had was, yes, I think the math works out that we would see significantly higher gross margins in the second half, of course, you reiterating that guidance.

Are we going to see that in the third quarter, or do we have to wait until the fourth quarter to see a big increase from the comparative gross margin?.

You'll see it in both quarters..

Okay.

And do you think you can get back to where you were like two years ago, or could it even be higher?.

It's going to be higher. It has to be higher..

Than two years ago?.

Yes. Remember, we were in the low-30s, and we need to exceed that. Like I said, that's why I made that reference earlier about working with partners on new technology to bring costs down.

And that's going to be -- for us, the highest priced products we have are Ginger line and to be able to work on that to bring a pretty significant cost on like that is going to really pay off.

And we're -- like I said, we're looking at everything that we can do and we never stop and we never give up, looking for opportunities to bring costs back in line..

Okay, great. Thanks a lot..

The goal is to be at 40%. I mean that's really what we're working towards. So, we're not going to stop in the low-30s or mid-30s but continue to drive that number..

That’d be great. Thank you..

You're welcome..

Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead..

Thank you. Yes, I guess first on the revenue line, and then I have a question on the cost to deliver per case.

So on revenues, obviously, your core brands drive the bulk of your revenues, out of some of the new products you've announced, which ones do you think either for the rest of this year, or as we move into 2023, which ones do you believe will be able to contribute the most in terms of absolute dollars to the top line?.

Well, Ginger Beer, obviously, continues to grow and is really working it up to the top of the heap. So, I think that's going to be a big piece. I'm really optimistic on the hardline as well. The profit and the dollar per case in terms of revenue is higher, and the velocities are also higher.

Look at what we are truly trying to establish this thing and go a mile deep and an inch wide as opposed to saying that and going a mile wide and an inch deep, and really focus on some key areas to drive velocity, gain market understanding. And initially, what we're seeing has been really positive. So that's the approach we're going to take.

I believe those are going to be big contributors in the latter half of this year, but more importantly, in 2023. And our Swing Led program that I've mentioned, it's gone -- in three years, it's grown 10x. And those are hiring high margin products that continue to contribute.

When I saw -- just to give you a little back story how that came back, there were so many consumer inquiries like, where did this go? I can't get it. It was my favorite. And I'll tell you, the best part about it is we're sold out before we're done making it, right? So that's a big contributor. And that's always the second half of the year.

I mean, granted there will be some contribution from Cracker Barrel because it's going to be a full year program, but the bulk of it is second half. We also have success with our Cranberry Ginger Ale around the holidays. So that's, obviously, part of the Ginger Ale category.

But we're waiting for the relaunch Virgil Zero Sugar also kick in to high gear as well. So I mean I think there's three or four platforms to Ginger Ale Hard, our Swing Led, and our Virgil Zero Sugar, and ironically, our flagship brands keep growing, our Root Beer and our Ginger Beer.

Our Ginger Beer we put into cans, both the extra and the zero extra and Kansas become a very popular package and are growing strongly. So those are the four pillars that -- and I think you're going to continue to see growth.

They're in big categories that are growing and -- we -- one of the things that I really like is that Reed's has strong brand recognition. And particularly when we get into categories like Hard Ginger Ale or the MULO or the classic or the Stormy Mule, these are synonymous with our name and what we represent.

So there's not like a whole new consumer education. People are using our ginger bread to make their dark and stormy, to make their mule. I know I did. So, now I have the option of taking them in a ready-to-drink format. But I think those are the pillars that you'll see.

The other thing, too, is, and I should have incorporated this into my remarks, but I wait for the question Reed’s might called it above outpacing the growth that we're seeing in the CSD category. Virgil's will catch up as a result of both the Swing Led program, but also as we get to Virgil Zero Sugar out more.

So we have three brand portfolios that are hitting on all cylinders. But the four pillars that I talked about, I think you'll see a really strong growth into the future..

Okay. Great. And then the last question has to do with costs. Obviously, inflation is big across ingredients and shipping, handling, transportation. I was a little bit done by how much it was per case, up over 40%. Last year, it was $3.53 per case to deliver, now it's $5 a case. Hopefully, that's the high watermark.

I think you did mention that, that should start to go down.

Where do you think that could normalize at, and how soon do you think that will start to go down?.

Well, as we said earlier, that $5 is really artificially high because there's at least $0.45 in what I'll call prepaid freight because as we -- as you build in. But generally, we're making it -- we're shipping it to our distribution center, shipping it out to our customers.

So it kind of flows through the current period because we've built up inventory, we shipped a lot into our distribution centers. So I went almost -- in my mind, I call that prepaid freight. So we're really at 4.55 a case to 5. Yes, I think it's the high watermark. We're seeing rates come down.

We just recently renegotiated contracted rates and expect to see a pretty big savings there. Plus, as I talked about last quarter, we're in the process of restructuring our distribution centers to eliminate a lot of that transfer rate, which is what we need to do.

So I think both -- obviously, there's things that are not in our control of petroleum prices go back through the roof. I mean, look, we're all seeing it now when we go to the gas station that we're paying less for gas, and we're seeing the same thing. It seems like because volumes with -- volumes are down across the board and a lot of goods.

There are more trucks available -- and it's the old supply versus demand. So we're seeing organically the fuel prices coming down and supply and demand also forcing pricing naturally down, and then we're going to get better in terms of where our mix of cans or bottles is increasing. So payloads are getting bigger. We do have inventory where we need it.

So we're not shipping out of network. So we're being more efficient. We're going to restructure those distribution centers in the second half of the year. So we'll take a lot of savings out of that. So it's just not relying on market forces, we want to take advantage of that, but we're doing a lot more behind the scenes to really drive those costs down.

And I do hope that this is the high watermark. I mean, I'm seeing the last two months that it's definitely moving in the right direction and that we will continue to see it head downwards..

Okay. Great. Thanks for that color. I'll hope back in the queue. I appreciate it..

Thanks, Anthony..

Our next question comes from Wale Jamal, Private Investor. Please go ahead..

Hello, gentlemen.

How are you doing?.

Good.

Wally, how are you?.

I'm doing well. Just have three questions for you. One is about the Virgil's Zero Sugar sling cans.

Do you feel -- or is there an opportunity coming up for C-stores as offered as one-offs to customers? Do we have the ability to ship the 24 or 36 can cases to C-stores -- or are we working on something like that?.

Yes and yes. There seems to be some interest in the C cans and yes, we can do that. In fact, I would welcome that because that's a much cheaper package than what we presently have. But yes, we can satisfy C-stores with those cans..

Because especially though the lemon lime and the Grapefruit, I feel like it's for superior part with the sparkling filtered flavored water is offering right now, I felt we have opportunity to capture sales there.

Also, do you know if any of large grocery stores are asking for end caps -- or have they asked for end caps Virgil's Zero Sugar slim can to offer in the one-off offerings?.

You mean single serve. I think you're going to find that mostly in coolers, where you'll find single serve. Yes.

And we're working on that several retailers to not just -- it's not really an end cap, it's to get into the single-serve cooler and we're working on getting that done as well, yes, because obviously, that's a great sampling opportunity and a great way to expand your presence in retail locations..

Okay. Thank you.

And second question is regards to the Reed's hard launch, of that guidance for the year, of the $59 million to $65 million, has any Reed’s hard baked into those numbers?.

Very little..

Very low.

If you have to approximate that, what would you put that at?.

It's single-digit percent. I mean it's not enough to make a difference, and that's why we're optimistic about its contribution going forward. Just when you come out with a new product, you never really know until you get it out and you get it done. So we didn't really put a lot of that into our numbers..

Okay. And my third question, we haven't seen any type of changes or updates in regarding to the NASDAQ listing income base.

Can you provide some insights to what's happening regarding that data?.

We are in the process of organizing a shareholder meeting, and we'll provide updates and information at that point..

I see. Have you heard that from the NASDAQ regarding compiles state [ph]..

No..

No. Okay. I'm just noting that. Okay. I appreciate it gentleman. Thanks for all the hard work. Keep up with good work. It looks like we're going to have a killer here..

Thanks, Wally..

Thank you..

Our next question comes from Jack Hare, [ph] Retail. Please go ahead..

Hey, guys.

How are you doing?.

Good.

How are you?.

I am not bad. A question for you about the cash flow.

So going cash flow positive in Q3 and Q4 is that going to be something that we can expect to stick around thereafter, or is it just anticipated for these upcoming two quarters?.

Well, obviously, our – we've been talking about hitting cash flow positive in 2023. So -- we don't really provide guidance on cash flow. But I'll say this, this is really driven by the fact that we don't have to spend a lot of money on inventory in COGS. So it's -- I'm using this term prepaid again, kind of, like we've already paid for it.

So as it flows through, we don't have to produce and buy those goods. But I'll just go back to what we've been talking about in our plan is to get to cash flow positive in 2023..

Sure. So -- and then along the lines of having all of that prepaid inventory, you've got a couple of hundred k of cash on hand.

You guys aren't foreseeing like any need for surplus cash like within the next two quarters, we have enough to get in terms of inventory to get us throughout the rest of the year?.

I'm sorry, could you repeat that?.

So in terms of cash itself, like the couple of hundred K we have on hand, that in sort of concert with the prepaid inventory that we've already got, like we're kind of set for the next two quarters..

Yes..

Okay. And then last thing, one-off. And I'm sure that there will be more sort of coming down the road in terms of the NASDAQ stuff. But Jeff, for maybe the uninitiated on the call, we have had two extensions like issued via NASDAQ at this point.

Is that correct?.

Yes..

And so like with the upcoming date, do you guys know -- I'm not asking you to say not necessarily what will happen, but in terms of the options, can you go back to NASDAQ? And asked for a hearing. I've kind of looked at their website and try to do some reading about it.

I think we're a little bit of an interesting sort of case given how many companies are growing 20% year-over-year and having the, sort of, share price issues that we are, but in terms of like what your options are with NASDAQ, let's ignore the reverse stock split, let's ignore delisting, like what are the options with actually interacting with NASDAQ itself?.

We're working with our corporate counsel and NASDAQ. And I think you illuminated on one of the options. So we're going to explore and be as proactive as possible working with our counsel with them to -- because I think you make a great point to be proactive in managing this..

Okay. I guess.

Sorry, Jeff. Go ahead. I am sorry….

No, no. You take the....

No, go ahead. You were your view over the question.

I mean just look for more information as it becomes available, not going to press you guys too much for it other than, I guess, to say don't be afraid to tell the boys over legal [indiscernible]. So if any delisting notices come our way, they get lost in the mail. But I appreciate all else hard work. I know you do a great job and.

Thanks, Jack. No, we're going to look -- we're going to do everything we can do to do what's best for the company and our shareholders, and work through our legal counsel with NASDAQ to try to get the best outcome possible. And I'm with you. I'm very subjective on this.

And I agree with the comments that you made, but we're not sitting idly and waiting for that loss fail to show up. We are actually being more -- we're being proactive. And again, that's why we're going to work, we're organizing our shareholder meeting and more information is forthcoming..

Okay. Great to hear. All right. I appreciate it..

You're welcome. Good talking to you..

Our next question comes from Gary Greenberg, private investor. Please, go ahead..

Hi, gentlemen.

How’re doing? How’s everybody doing?.

Good.

Gary, how are you?.

We’re good..

Good, good. I had some questions on the new drink now.

How are you going to distribute that? You mentioned it, but are you going to just go into stores? Are you going to try to get a distributor to get into bars or get it into liquor stores or -- ?.

Are you referring to the alcohol drink?.

Yes. .

Yes. So by law, we have to use a three-tier distribution network. So we have to go through a distributor to go to any retailer. We cannot go directly to any retailer..

Okay..

It has to be a licensed distributor. And we're using both, alcohol and beer distributors to fill that capacity..

Okay. All right. So it wouldn't be like a national distributor, you're more going to go into the states and look for the distributors in those states..

Yes. Look, I say this, tongue in cheek, for this great country we live in, we operate like 50 countries when it comes to alcohol..

Right, I know. They all have their own boards and different regulations. So it's not easy. I had a few questions on the stock. Of course, as a long-term investor, I'm disappointed in the price of it, it's $0.20. And I know that you keep saying in these quarterly meetings that you have -- what you want to do and the way you want to do it.

Now you're saying you're going to have a meeting, but what specifics are you going to do to get this stock up? I mean, I'm a firm believer in getting, sometimes getting a fresh start, and that's not to criticize anybody on this currently working, but Reed’s in the past has -- and basically that's the reason the stock is down.

Wall Street has been disappointed so many times even before you guys got there.

Have you looked at changing the name now that you're going into a new line of product away from the soda more and you're going to keep this sort of more an alcohol, maybe possibly a name change to more fit the company, something to really get away from the past failures and a fresh start? That's what I wanted to ask you..

I think you raised some, some good points. We believe we're significantly undervalued. And obviously, the markets have been hit hard. The micro cap markets have hit even harder. If you look at most of our peers. We're all facing a similar thing.

I think the only thing we could do is, continue to deliver results that are positive, we will evaluate some of the suggestions that you have mentioned. I can't make any commitments, obviously, but we're very optimistic. I mean, look, we believe we're poised to turn the corner.

I mean, we're a small company, this economic storm that we just endured, it's like literally driving down the throughway and having a torrential rain storm you can't see in front of you. And you slow down, you turn on your winter wipers on eye and you get through it.

And I think we've come through it -- and now the sun is out, and we're over focused on cash flow breakeven. And we think we continue to drive top line growth and get the cash flow breakeven, that's the story to tell. And that's going to -- that's really going to be, I think, what really turns us around. I mean -- and that's what we're focused on.

We're focused on bringing out transportation, getting margin and continue to drive the top line. And now that a lot of the pain and noise is behind us, we can continue to implement the things that we've been doing over the last 1.5 years. And I'm confident that those are going to turn the corner.

And as we set our goal is to get to cash flow breakeven in 2023 and despite all the headwinds that we've endured, we're confident we're going to get there.

I mean we -- if you look at -- I mean, well, if you look at historically like go back and look at Celsius has gone through way back when they were losing money, and they looked a lot like what we look like today and look where they are today. So I think -- that's really what we want to do.

We want -- it's not spoken mirrors, but it drive the top line and get this profitable..

Okay. You have a great product, and that's why I've owned the stock, it's been up and down. I stayed with it and that's why I stayed with it. And now on the -- you said that you're going to have with shareholders, meeting is that going to be the regular meeting in December.

Yes, regular. The annual meeting is getting moved up, which.

Could.

Which I think everyone will welcome..

Yes, it was -- it's hard to get interested in meeting in late December.

Yes. So.

I'm glad you're doing that. That's a good move. All right. You answered all my questions. I appreciate it, and I look forward to following your story and I hope you -- one of the things I always thought that could be done better is to sell the story to the Wall Street crowd investors. And I hope you take it on the road and sell your story..

We appreciate it. Thank you, Gary..

Sure. Take care. Bye..

All right. That's it for questions. I want to thank everybody for participating in today's call. Again, I want to reiterate our confidence for the balance of the year and into 2023, and we appreciate everyone's support, and wish you have a good day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..