Reed's, Inc. 2026 Q2 Earnings Call

Please go ahead. Thanks, Mark, and good morning, everyone.

We're now halfway through 2026, and I want to speak very plainly about where we stand. The second quarter results reflect early progress from corrective actions initiated earlier this year. Net sales increased 5% compared to the first quarter. Gross margin expanded as well, and we expect continued expansion in the mid 30% area over time. Selling, general, administrative costs decreased 18% compared to the first quarter, and we will continue to better balance these expenses. Net loss decreased, and we are focused on achieving profitable growth. While these results represent improvement from the first quarter, the work is not finished, and the results are not where we want them to be. We need continued improving sales execution, retail placement, and operating efficiency. Let me give you some context on the key areas of progress during the second quarter. The first area is inventory.

In the first quarter, inventory write-offs had significant impact on our margins. In the second quarter, those write-offs declined materially as we substantially completed the portfolio rationalization work. We have liquidated underperforming and non-strategic SKUs, and we are now operating with a leaner, more focused inventory position. Overall, we reduced inventory to $7 million and improved our cash conversion cycle. The second area is commercial execution. We regained shelf space and grew doors by re-engaging national and regional retail accounts and restored our heritage glass bottle packaging. We have also invested in our national broker partner, which now has more than 75 sales professionals partnering with us to achieve success across key channels by increasing retail coverage and improving in-market execution. The third area is cost structure.

We have taken action to better align SG&A with the current size of the business and improve trade spend efficiency, which is contributing to higher gross margins. We will continue to review the cost structure and prioritize spending that supports commercial execution. On the product side, we have several initiatives building for the second half of the year. Our new mixer line is just about ready to hit the streets, and many retailers across the country are clearing space for our new four-pack 7.5-ounce mini cans of tonic, club, and grapefruit mixers. All have a hint of ginger. Our top-selling ginger ale in cans will soon be available in glass bottles. We expect this to be one of the most successful SKUs in our portfolio. We are also currently working on the most unique line of premium ginger beer in several unique exotic flavors.

Moving on to the ops side of the business. Damian Warshall, our Chief Operating Officer, has now completed his first full quarter with Reed's. His initial focus was on inventory control, supply chain management, vendor relationships, and production efficiency. During this time, we launched a comprehensive review of our contract manufacturing network, consolidating production to align each item with the optimal facility and region. We believe that work is already producing results. We rationalized two co-manufacturers in our legacy network whose combined production and outbound logistics costs were running well above the benchmarks we are achieving elsewhere, tightening our cost structure and reinforcing our foundation as we scale. We have also deployed new operation software that we believe meaningfully strengthens how we forecast and manage raw material purchasing on national basis, enabling us to operate leaner, reducing the aggregate inventory we carry ahead of production while preserving our ability to serve demand.

Stepping back, the second quarter demonstrated sequential progress in gross margin, inventory management, and overall operating performance. We recognize that substantial work remains. As we move through the second half of the year, we are focused on disciplined commercial execution, continued margin improvement, and positioning Reed's for profitable and sustainable growth. In the third quarter, we see continued opportunity to bring national inventory levels down further as we make efforts to build out our inventory planning and management capabilities. All this work is expected to free up working capital and improve the efficiency of our production footprint.

Over the past two months, our team has taken the initiative to develop an in-house proprietary sales and demand planning tool purposely built for how this organization plans, tracking the baseline needs of our customers while dynamically accounting for seasonality and the distribution gains we expect to capture through the annual sales cycle. We believe this positions us for continued working capital gains as we keep optimizing inventory across the network. Finally, we are also evaluating financing alternatives to support our growth going forward. With that, I'll turn the call over to Doug, our CFO, who will discuss the second quarter results in greater detail.

Doug? Thank you, Neal. Turning to our results for the second quarter of 2026.

All variance commentary is on a year-over-year basis unless otherwise noted. Net sales for the second quarter of 2026 were $7.5 million, compared to $9.5 million in the prior year period. The decrease was primarily driven by lower volumes with recurring national customers. On a sequential basis, net sales increased 5% from the first quarter of 2026, reflecting early progress with our profitable growth initiatives. Gross profit for the second quarter increased to $1.8 million, compared to $0.8 million in the prior year period. Gross margin increased to 24%, compared to 8% in the prior year period. The improvement was primarily driven by lower inventory write-offs, which declined to $0.1 million from $1.6 million in the prior year period.

Delivery and handling costs decreased 30% to $1.1 million during the second quarter of 2026, compared to $1.6 million in the second quarter of 2025, primarily driven by continued improvements in logistics efficiency and freight optimization. Delivery and handling costs were 15% of net sales, or $2.54 per case, compared to 17% of net sales, or $2.95 per case during the same period last year. Selling general and administrative expenses decreased 6% to $4.7 million, compared to $5.0 million in the prior year period. The decrease was primarily driven by lower legal settlements and continuing efforts to optimize selling general and administrative expenses, offset by investment in personnel and related services to support our Asia growth initiative.

Net loss during the second quarter of 2026 decreased 29% to $4.3 million, or negative $0.36 per share, compared to a net loss of $6.0 million, or negative $0.78 per share in the prior year period. EBITDA loss decreased 30% to $4.0 million in the second quarter of 2026, compared to $5.7 million in the year-ago period. Cash used in operations decreased to $2.2 million in the second quarter of 2026, compared to cash used in operations of $5.0 million in the year-ago period. As of June 30, 2026, Reed's had $2.4 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. As Neal noted, we are evaluating financing alternatives to support the business going forward. This concludes our prepared remarks.