0:06 Good afternoon and welcome to Reed’s Fourth Quarter and Full Year 2021 Earnings Conference Call for the period ending on December 31, 2021. My name is Tom, and I will be your conference call operator for today. We will have prepared remarks from Norman Snyder, Reed’s Chief Executive Officer; and Tom Spisak, Reed’s Chief Financial Officer. Following their remarks, they will take your questions. 0:31 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 risks and unknown risks, 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. 0:52 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. 1:33 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. 1:56 Fiscal 2022 guidance reflects year-to-date business trends, including the ongoing operating environment related to COVID-19. The COVID-19…

4:45 Thank you, and good afternoon, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2021 results. 2021 was another year of solid growth and execution. We faced many obstacles with our supply chain and logistics, but we persevered. I would also like to note that several improvements we made in 2020 and 2021 offset many of the supply chain impediments that we encountered last year, lessening the potential impact. We are continuing to strategically reduce the cost of our products to recover the margin growth we experienced during 2020. 5:21 We had two primary goals last year to drive our growth: distribution expansion and brand launches through innovation, with an emphasis on new, larger and faster-growing categories. Regarding distribution, we increased our retail coverage footprint by 10% from the prior year with Reed's products sold in over 45,000 retail locations nationwide. Specifically, this increase was driven by ACV growth, or all-commodity volume, a measure of distribution based on total store sales. That was up 5% over last year, while velocity increased by 11% for the 52 weeks ending December 26, 2021. The same measures increased even further as ACV grew 14%, and velocity was up 5% in the latest 4-week period according to IRI MULO scan data. 6:11 During the year, we continued to build out our direct store distribution or DSD network by adding 30 new distributors in Florida, Texas, Ohio, Colorado, New Mexico, Oklahoma, Minnesota and Pennsylvania. Overall case volume through our DSD network increased 60% during 2021. We plan to continue to augment our DSD network during 2022 and are rapidly closing existing white space. 6:39 Let's turn to our second goal for last year, brand launches. When I joined Reed's in 2019, it was clear that we had significant…

12:57 Thanks, Norm. Jumping right into our results. All variances referenced are on a year-over-year basis, unless otherwise noted. Net revenue for Q4 was up 20% to $12.8 million, driven by continued strong demand across our portfolio of products. As Norm mentioned, gross margins were down from 32.7% to 20.4% due to an increase in supply chain costs. We expect gross margins to improve in Q1 and thereafter as we progress through the year. Delivery and handling fees in Q4 increased to $3.1 million from $1.9 million, driven by volume growth and increased fulfillment and freight costs. Delivery and handling costs were approximately 24% of net sales or $3.94 per case compared to 18% of net sales or $2.99 per case in the year ago quarter. 13:57 Selling and marketing costs increased to $2.2 million compared to $2.1 million. As a percentage of revenue, selling and marketing costs were 17%, down three points from 2020. Our general and administrative expenses decreased year-on-year to $1.7 million from $2.1 million as we've been relentlessly focused on managing our overhead. 14:22 Operating loss during the quarter was $4.4 million or $0.05 per share compared to net loss of $2.7 million or $0.04 per share from the prior year's quarter. And modified EBITDA was $3.9 million loss compared to a $2 million loss in the year ago quarter. Given the demonstrable cost increases across our supply chain, including a 60% increase in delivery and handling, we are proud of the hard work our team has put in to mitigate and offset the operating losses where possible. 15:00 Turning to our balance sheet and liquidity. Cash used in operating activities was approximately $17.6 million for 2021 compared to $9.5 million in 2020, with the increase driven by greater net loss and additional investment in inventory to mitigate supply chain bottlenecks. As of December 31, 2021, we had approximately $49,000 of cash and $109,000 available on our revolving line of credit. Total facility has a borrowing capacity of $13 million with $10.2 million loan balance. Subsequent to the year-end, we closed a $5.4 million private placement with officers and directors of the company purchasing approximately $1.1 million of the security in the offering. 15:52 Looking to our outlook for the year, we remain committed to improving profitability in 2022 as we now have a solid handle on the supply chain and the rate of cost increases have decelerated. We expect to improve modified EBITDA in calendar 2022 compared to 2021 and also expect to deliver gross margins of approximately 30% on a full year basis. Lastly, we expect to continue delivering on the top line with net sales ranging between $59 million and $62 million in 2022, reflecting more than 20% growth at the midpoint. 16:29 I will now turn the call back to Norman for closing remarks.

16:35 Thanks, Tom. I would like to thank the team at Reed's for their dedication and perseverance throughout this unfavorable economic environment. I'm optimistic that we have turned the corner from the macro challenges we've faced in 2021. We now have the right people and systems in place, having turned over nearly 60% of the management team and 100% of the finance and our operations team since I joined Reed's two years ago. Between the pandemic in 2020 and the supply chain inflation in 2021, we have learned to adapt and respond to whatever the world throws at us. I firmly believe the best days for Reed's are ahead. 17:10 Operator, we will now open the call for Q&A.

17:17 We will now begin the question and answer session. [Operator Instructions] And the first question comes from Sean McGowan with ROTH capital, please go ahead.

17:47 Hi, guys, thanks for taking call. A couple of questions. Norm, can you just repeat the -- there's a lot I want you to repeat, but just this one thing. The Ginger Ale increase, I think you said it was over 100%, but I didn't get the exact number?

18:07 150%

18:08 150%. Okay. 150, great. And Tom, is this -- the level of interest that you see in the quarter that you're showing for the fourth quarter, is that what we should expect kind of on an ongoing basis? Or would you expect it to be higher over the next several quarters?

18:30 When you say interest, you referring to sales interest?

18:34 Interest expense.

18:35 Interest expense. Yes, I would say that's gonna be level with -- we've just switched to a new ABL provider. So I would expect it to be, yes.

18:46 Okay.

18:47 In the neighborhood of that.

18:50 And given the financing that you announced during the quarter, can you help us with what the share count is like to date, at the end of the last day of the first quarter? And what the average would wind up being for the first quarter?

19:09 I can tell you, the count is [Indiscernible], but I don't have the average off the top of my head.

19:19 I could work on that. And then back to the comment on -- that Norm made on price increases. The 8% price increase, I think you said, should provide a 4% to 5% margin benefit. I assume that's before the effects of any inflation, not on a net basis. You're not saying you're expecting gross margins to go up by 500 basis points, are you?

19:47 Now, that -- that includes after -- after inflation, what the impact on margin?

19:53 So, so we actually see an increase. Okay. I want to be clear on that. All right, great. I'll probably have some others as I'm a little all a bit here, but I'll pass it on. Thanks.

20:06 You're welcome.

20:14 The next question comes from Anthony Vendetti with Maxim Group. Please go ahead.

20:21 Hi, this is Matt, on for Anthony. I was hoping you could talk about the reception thus far of the Reed's Zero Classics -- the Reed's Zero Sugar Classic Mule at Costco. And then if you could remind us what percent of revenue as of right now the ready-to-drink or mocktails make up of your revenue, and what we can expect over the next few years as you kind of drive that store count up. Thanks.

20:46 Well, right now, it's still fairly early. We took over the distribution footprint from Full Sail. We converted to a whole new distribution network outside of what they've done. So we're working on -- they were basically -- and I want to say a few chains like Whole Foods, they had some -- we had some sporadic Costco distribution, I think, at Sprouts, and we were able to assume those and then get into additional chains to our network. So it's really early. Right now, it's minimal, but we expect it to be roughly, I want to say, between 4% and 5%, and we're being really, really conservative, 4% to 5% of total revenue for 2022

21:53 Got it. Helpful. And then you made a lot of progress transitioning your distribution network over to DSD. I'm curious if you can comment a little bit on the velocities you're seeing at the locations that are serviced by DSD versus the rest of your network.

22:08 Yes. It really -- it differs by geographic. I'll say this, we just recently completed a real big promotion at Publix, where we've worked through our DSD networks. And we have like a 7x lift, which we're really happy with. Part of it, obviously, is showing them the power of this brand and what it can do when you get behind it. I think that was a great first start and probably the first major promotion we've done through our new DSD network. So that spreads, obviously, and we can use those actual sales results when we go into other DSD distributors to create expectations. So we're really pleased with the initial start.

23:04 Understood, thanks. And then apologies if I missed this, but when did that 8% price increase across your portfolio take effect in store or has that yet to happen?

23:15 It's been submitted. The majority of retailers have accepted it. So we're looking at the latter part of – met the latter part of the second quarter.

23:27 Got it. Thank you. I'll pass it on.

23:38 It appears we have no further questions. So this concludes our question-and-answer session. And I'll turn the conference back over to Norman Snyder for any closing remarks.

23:51 Thank you. We thank everyone for joining and your continued support. We look forward to sharing our progress in a couple of months when we report our Q1 results. Everyone, have a wonderful day. Thanks for joining us.

24:14 The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.