Good afternoon, and welcome to Reed's first quarter fiscal 2020 earnings conference call for the period ending on March 31, 2020. My name is Taylor, and I'll be your conference call operator today. Today's call is limited to 1 hour, and we will have prepared remarks from Norm Snyder, Reed's Chief Executive Officer; and Tom Spisak, Reed's Chief Financial Officer. Following management's remarks, they will take your questions. Before we begin today's call, I have a safe harbor statement to read our listeners. I would like to remind our listeners that during this call, management remarks may contain forward-looking statements and that management may make additional forward-looking statements in response to your questions. Forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievements to be materially different from those anticipated by such statements. These factors include, but are not limited to, the company's ability to manage growth, manage debt and meet development goals, reduction in demand for our products, dependence on third-party manufacturers and distributors, changes in the competitive environment, access to capital and other detailed from time to time in our filings with the United States Securities and Exchange Commission. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. In addition, any projections as to the company's future performance represent management's estimates as of today, May 11, 2020. We assume no obligation to update these projections in the future as the market conditions change. Additionally, please note non-GAAP financial measures referenced during this call are reconciled to our comparable GAAP financial measures in the press release and supplemental materials filed with the SEC and is posted on our website at investor.reedsinc.com. Non-GAAP financial information is not meant as a substitute for GAAP results but is included solely for informational and comparative purposes. We present modified EBITDA because we believe 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. I would now like to turn the call over to Mr. Snyder. Please go ahead, sir.

Thank you, and good afternoon, everyone. It's a pleasure to join you today. We had a strong first quarter, generating 13% net sales growth and volume gains in both the Reed's and Virgil's brands. We narrowed our first quarter net loss compared to the prior year as a result of continued focus on brand growth and SG&A reductions and gross profit improvement. We have established a strong production network with bicoastal capabilities and redundancies to improve significant capacity to support growth. We strengthened our balance sheet with a successful recent capital raise, and we continue to deliver exciting new product innovation. We have positioned ourselves to capitalize on the large and growing ginger ale market, which is 10x the size of the Ginger Beer category, and we have seen an overwhelmingly positive response to the launch. The introduction of Ginger Ale is on pace to be our most successful launch to date and has already seen 3x the initial placement of our Virgil's Zero Sugar launch. Our team is quickly and effectively adapted to the challenging COVID-19 environment, and we are delivering uninterrupted service to all of our customers. We are bullish about our prospects for 2020 and beyond and are delivering against each of our core objectives and are laser-focused on reaching cash flow breakeven. Let me run through our first quarter accomplishments and our current business trends. As I noted, we produced volume growth in both the Reed's and Virgil's brands. The growth was led by Reed's, where volume increased 21%, driven by the continued growth of Reed's Extra Zero Sugar during the quarter. We are seeing a broad-based positive response to our Zero Sugar innovation with distribution and velocities accelerating. We have significant incremental opportunity as we achieved 1/3 of the penetration of our existing distribution at…

Thank you very much, Norm. It's a pleasure to speak with everyone today. Let me echo Norm's comments that we feel very good about where the business is today, the strength of our innovation and the ability to drive growth in both sales and profit. We are delivering on our strategy to sell, save and simplify and are seeing strong execution as a result. First quarter net sales increased 13% to $9.5 million compared with $8.4 million in the prior year. Core brand gross sales increased 12% over the prior year. As a result, 11% core volume growth, including 21% case growth for the Reed's brand and 2% case growth for the Virgil's brand. Gross profit dollars increased 15% to $2.9 million compared to $2.5 million in the prior year, and gross margin increased 50 basis points to 30.1%. Delivery and handling costs increased 23% to $1.3 million during the first quarter of 2020 compared to the prior year, driven by the volume growth and short-term market forces associated with COVID-19. As Norm mentioned, we are positioned for more favorable delivery and handling costs beyond the near-term COVID impact as a result of our expanded co-packer production capabilities on both coasts. Selling and marketing costs decreased 4% to $1.9 million during the first quarter and as a percentage of net sales decreased to 20% from 24% in the prior year. The decrease reflects our ongoing cost control and reduced marketing programs compared to the prior year. Our more targeted marketing efforts are also delivering improved ROI on our spend. General and administrative expenses decreased 19% to $1.9 million in the first quarter compared to $2.4 million in the prior year period. The year-over-year decrease largely reflects last year's onetime costs associated with the 2018 sale of our Los Angeles facility…

Thanks, Tom. Let me conclude with our confidence in our business outlook and our ability to drive growth and progress towards cash flow breakeven. The entire organization is focused on continuing to execute effectively and efficiently, controlling costs, improving gross margin and leveraging our significant innovation and strong brands. We had a strong first quarter and are bullish on our 2020 outlook. We are seeing stronger momentum at retail, have a significant opportunity with the recent launch of Reed's Real Ginger Ale and growing our accounts and our footprint within our customers. We have significantly enhanced our supply chain and co-packer network, have strengthened our balance sheet and have the team in place to deliver an exceptional execution. We look forward to further growth and driving improved profitability. I will now hand the call over to the operator to begin the queue for the question-and-answer session.

[Operator Instructions]. Your first question comes from David Bain from Roth Capital.

I guess, Norm, since Ginger Ale was essentially introduced at the end of the first quarter, if we look at the 4-week IRI data ended April 19 for Reed's and assuming Reed's core sales are continuing at kind of that 20% with no pricing increases, is the remainder of the uplift to the 31%, is that mainly Ginger Ale?

No, David. Actually, Ginger Ale still really early to judge. And it's really - I'm happy to say the Reed's portfolio is performing very well across the board. And it's really - it's the lift of our existing brands with a very small impact from Ginger Ale.

Okay. Great. And just going a little bit deeper with that with the mix trends with Virgil's and Reed's. I mean I can assume cans and Zero are, I don't know, I mean, 25% of Virgil's at this point. Where do you see that going as we more deeply enter additional channels like C-stores? And have you seen any cannibalization to the bottles?

No, not really. In terms of the cannibalization, I mean, I think there are 2 different drinkers, clearly. We've done a lot of research to prove that out. Obviously, people, particularly now, are more concerned about health and better-for-you products. I think that plays into that space well. I think the Zero Sugar entries are going to really be catalysts for a lot of our growth, both on the Reed's and Virgil's side.

Right. Okay. Perfect. And then I guess last one. Tom, could you give us a sense as to kind of the total current liquidity with the PPP loans? And any opportunities to augment your credit lines?

So as far as augmenting the credit line, that's something we're going to continue negotiations on. So we're not in that stage right now. As part of the raise, we had $5.8 million that we netted plus PPV of $770,000. So in addition to that, we have approximately $2.5 million on the revolver right now in addition to those 2 other pieces. So the $5.8 million, the PPP loan, and then we have additional $2.5 million on the liquidity. Revolving...

Your next question comes from Anthony Vendetti from Maxim Group.

Just wanted to talk a little bit about some of the wins maybe this quarter. Any big distribution wins or customer wins that you signed this quarter?

I'm going to let Neal Cohane answer that question, Anthony.

Yes. I'll say right now, we're seeing a very early and good acceptance of our brands. So specifically for Zero Sugar Extra, which is in the glass bottle, and our Zero Sugar Reed's, both Extra and Zero Extra cans, along with the Ginger Ale. Ginger Ale is being picked up by almost - and I will say everybody we've come in contact with so far. We are seeing Walmart right now is loading in. You'll start seeing them load in. You might even see it off shelf, our 8-pack Ginger Ale, Zero Ginger Ale at Walmart. You're going to see it very shortly at Kroger. You're going to - national chain, 1,700-plus locations. Just about every single Albertsons division has accepted, and we're just waiting for on shelf for those accounts. Food Lion, we're doing a complete focus, really deep dive focus at Food Lion. And you're talking over 1,000 stores. We partnered up with and added some strong marketing to kind of separate ourselves versus the mainstream, mainstage ginger ales. You're going to start seeing us go on end caps and new item end caps in all food lines shortly. That's just a few of the wins. I could really go on and on, on that. On top of - we have been hitting the phones hard, Anthony. I think there's a lot of detail - I think there's a new paradigm being broken here, which is tele-sell, telemarketing is going to be kind of the wave of the immediate future. We've had some very good success connecting with all buyers. But we're really on a deep dive into liquor stores and trying to get our new cans, our new Reed's Zero cans, Reed's Ginger Beer cans, Extra Reed's and Zero Extra. So we're opening up liquor stores across the country. We're targeting Southern California, Pac Northwest, the Northeast. And we're starting to make a real impact on probably upwards to 500 liquor stores over the last, call it, 2, 3 months, just dropping product on the floor and having our distributors taking orders on the phone and having our distributors follow up and deliver. So good news on that front.

That sounds great. So it sounds like there hasn't been, based on this call, any negative repercussions from COVID-19 in terms of your business. And it sounds like you've been able to, whether it's remotely or through telemarketing or your own teleconference calls or virtual calls, being able to sign up new customers. Has there been any other benefit from customers increasing purchases of certain products? Can you comment a little bit on your Wellness Ginger Shots? Have you seen any uptick there or any other positive impact on your business from the COVID-19 pandemic?

Well, most of the impact on the shots we've seen at - through our e-commerce online platforms. I mean it's still early in the bricks-and-mortar stores to really make a judgment. But the reaction online, which - similar to a lot of other brands and companies as online activities picked up, and we've had a real, I'd say, brisk start to that. But I also want to - I also want to mention that we have had some COVID-19 impact on our sales. I mean there's been some delays of resets. Luckily, our initial resets were done. And some of them were done early, others on time and slight delays. So we're navigating that. We haven't seen anything develop that's material. So we remain optimistic that we'll stay on schedule, but that's something that we're going to keep a real keen eye on to make sure that we're not delayed. We have the authorizations. And now it's getting on the shelf.

Okay. That's helpful. But nothing material so far, correct?

No, nothing there.

Your next question comes from Dan Joseph from Corridor Ventures.

Congratulations on a great quarter. That's terrific news, especially all that distribution and sell-through. It sounds like you guys have really turned things around. Can you elaborate, if you will, on the ginger strategy, which appears to be the leading focus for the business now? And if so, what's the strategic direction in the plan for Virgil's?

Yes. Okay. So there's really - there's two parts to that. So I'm going to break that down in the ginger strategy. Ginger is a well-known super food. It's a plant-based item, which is very popular and a growing trend. Obviously, there are several identified benefits to ginger. And as I said earlier, consumers are looking for better-for-you type products. And there's nothing better than ginger, obviously. And we use - but we're very unique and we use fresh ginger in all of our products. There's no extracts. It's Peruvian ginger. And obviously, the health benefit. So to the extent we can make that known without overstepping our bounds and making claims, I mean, we obviously do that. There's a lot of precedent that are doing a good job for us telling consumers. But I think people are just more keen to products that are better for you. And it's a trend that's been going on for the last 5 to 10 years. Obviously, it's been accelerated, I think, because of the environment that we're in. And we want to take full advantage of that. So obviously, we are using that angle, both the benefits of ginger and the fact that we have fresh ginger in our product. Now obviously, as it relates to Virgil's, you don't have - don't use fresh ginger. But again, it's a better-for-you product, and it fits within what we believe our corporate mission is. It's a pretty substantial piece of revenue and profitability for us and margin. So it contributes to what we're doing. So that remains a very prominent piece of our strategy. And obviously, we're seeing growth, particularly with our Zero Sugar line, and believe there is a lot more opportunity out there to take advantage of.

Great. And how about - just one follow-up question on the financing front going forward. How long is your cash runway? And what are your financing plans going forward? How are you going to approach that?

Well, as we said when we raised the money, these funds will last us through this year and well into 2021. And we'll make a determination at that point strategically in which way we want to move forward. I mean one of the benefits, and I feel a little conflicted here using the term benefits in this current environment, but we have saved a significant amount of cash in that trade spend is dramatically down because retailers just can't manage that and keep their shelves stocked. Our marketing is down to what we can do digitally and very cost effectively. And our travel has been shut down. So that with growing gross margin contributes more cash to the kitty. Obviously, as these restrictions start to lift, and we feel that we can safely conduct ourselves, we will do so. But we're spending less money than we originally anticipated, and that money will obviously extend the runway that we have now. So too early to make a decision. We'll do that, like I said, probably sometime middle of next - middle to latter part of next year but feel really good about the position we're in presently.

Your next question comes from Leon Zaltzman from Union Square Park Capital.

Congratulations on what appears to be a very successful launch for the Ginger Ale offerings. I was wanting to ask, have you seen any cannibalization on these bigger accounts when they place orders for the Ginger Ale? Are they placing less orders for the Ginger Beer? Is it incremental? Any color that you can provide there would be helpful. Maybe Neal can do that. And then for Tom, is it possible maybe to spend just a little bit of time walking - talking about our path to cash flow breakeven? What do we need to do? And what is a reasonable expectation on attaining that?

You know what, let me start with those. The Ginger Ale and Ginger Beer are 2 totally different consumers. There's not a lot of overlap. So what we're seeing is really incremental ordering. And if you look - particularly, if you look at the scan data where we're seeing really nice growth with our Ginger Beer, our Extra, our Zero Extra, our margin are stronger and original. So obviously, there's no impact for Ginger Ale cannibalizing that category. And again, we did a lot of research to identify who those drinkers are, and they are 2 totally different consumers. So we look this to all be incremental growth for us and then for our retail partners. And let me start on the breakeven thing, too. So what we've looked at is when we achieve gross revenue between $60 million and $65 million, and our margins continue to get stronger, we'll be in a position to really move closer to breakeven. We have really detailed plans on how we're going to get both our margin growth and our revenue and product growth, which we're working through. And obviously, a key leg of that is the Ginger Ale play in that $1.2 billion category. Another piece of it is our Zero Sugar Reed's lines, Zero Extra. Another component is the Zero Sugar Virgil's line, where we're seeing a lot of growth. And then we have - if we tap into some of our existing brands, there's opportunities to continue to grow them. So we think the stable is there. It's really just executing our plan to drive that growth as well as drive margin improvements.

Yes. This is John Bello. I want to weigh in on the Ginger Ale side of this. From what we've seen, and I think Walmart is a good example, all the distribution that we gained on Ginger Ale has been incremental to our base brands. So we think that's just broadened our base and it's broadened our distribution footprint. And that just reflects what Norm said that it's a different consumer. The products are fundamentally different. They all have ginger. We're all building on the everything ginger platform, which we think will be appealing to strategic somewhere down the line and to consumers. So I think that just really underscores that this is broadening our presence at retail incremental to what we already have. Neal, you can jump in on that if you want to underscore that.

Yes. No. I mean everything I'm seeing right now as far as Ginger Ale versus Ginger Beer, it is all incremental. I'll certainly back that up. It's what makes it very exciting right now. But the other nice thing is the - it could potentially be margin - if there were some trading, it could be margin-enhancing for us, which makes it even better. I have seen companies introduce cans and didn't do their homework properly and started trading high profitable bottles for lower-margin cans. We did not do that. We went in with eyes wide open, and it's going to be nothing but a positive for us.

And to Neal's point there, and I mentioned it in my remarks, but I didn't want to really emphasize it. We signed a long-term supply agreement with our ginger supplier. We do not use Chinese ginger. We use organic Peruvian ginger for all of our drinks. So we believe we're covered from a supply standpoint. We also have some backup suppliers in the event of an issue, but we haven't experienced any issue. In fact, the growing season is over, and we're fully stocked in terms of ginger for the balance of the year. And as Neal said, particularly with the Ginger Ale, we're using this as a blueprint moving forward. That's been the first product where we've been able to enact some really significant savings from a margin standpoint.

Your next question comes from Michael Topout from SBY [ph].

So I wanted to - there seems to be a big theme here around cash flow and breakeven. I'd love to harken back, Norm, to your experience at SoBe in terms of whether or not there are similar patterns with Reed's versus SoBe and like how long it took for you to get it cash flow breakeven and what the main drivers were and if those things are going to recur here?

It's funny that you asked that question. Ironically, when we broke even, when we got over that threshold, we're at $65 million in sales and in the high 30s in margin. We had really turned the corner. So I think that's probably where I see the similarities. This obviously is an established brand with a lot of equity. And we're really going to tap into that and really leverage it with innovation. But if you look to - consumers will tell you what they want. And I think we're giving them what they want in terms of better-for-you, healthier products that, by the way, taste great as well. So I think there's a lot of similarities from that point of view in terms of the size, scope and the margins. And it's funny that you asked that because I was thinking about SoBe today, and it was about the same time that it was - I think it was year 3 when we moved over to SoBe. So the timing could also be somewhat parallel. We'll wait and see. But the objective is the same. We know how to do it because we've done it before. And we're going to employ the same set of learnings that we garnered for that experience, but it's about driving - we've been consistent about driving top line. Margin is critical, and we're extracting margin. And I think we're doing a good job of really watching our costs and challenging our folks to get desired ROIs before we spend dollar one.

Yes. John Bello here. I just want to emphasize that one point of the Ginger Ale category is $10 million in revenue. Last year, our focus was very much on Ginger Beer, and one point of that was nowhere near that. It was $100 million business. The Ginger Ale category is $1.2 billion. Our key competition in that category is Zevia, $10 million of their - $70 million in sales is Ginger Ale. We think we can do that because we believe there are people in that category based on our research that will pay a little more to get real ginger in their ginger ale. That's the play, and we feel good about that. Fishing in a much bigger ocean.

Your next question is a follow-up question from David Bain from Roth Capital.

Okay. Great. I don't want to get too far ahead, especially since we're beginning a major lift off with Ginger Ale, it looks like. And that's the tangible piece. But could you give us maybe a sneak peek on when or if flavored ginger ale may be added? And then maybe any other innovation that could launch before the end of the year? Are we kind of set at this point and everything else is under wraps perhaps? I'm trying to just get an idea of the road map there.

We're always thinking about that stuff. And we played with several iterations of ginger ale. So we could. We want to complete all of our research, and let's get the first product seated first before we go to the next. I'll tell you - I'll give you one snippet of something to look forward to during the year. Every morning, I look at consumer comments. And the one that I kept seeing the most was, "Do you guys still make Bavarian Nutmeg special edition root beer with the swing top to it?" And it goes back to my High Falls Brewing day where we had this product called Genesee Bock Beer. And I actually found a can stuffed away in the brewery, and I said what was this? And the folks told me the story. And I'm like we're bringing that back. And that Bock Beer, if you go on the Genesee website, it is still being made today and a very popular item that people look forward to annually. So I think based on the request for our Bavarian Nutmeg root beer, that could be one of our Genesee Bock Beer moments that - where we're responding to consumers. We listen to them. We want to be engaged with them. And that's something that's on our agenda that we look forward to doing. And I think we're going to have a few fun moments that we could relate and get back closer to our consumer base.

That is all the time that we have for questions today. I would now like to turn the floor over to Mr. Snyder for closing comments.

Thank you for your continued support and participating in today's call. We remain highly confident with our positioning, brands and opportunity, and we are seeing strong operational execution. We look forward to sharing our progress over the coming months and years. Have a great day. Thanks.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.