Good morning, and welcome to Reed's Third Quarter 2023 Earnings Conference Call for the Three Months Ending September 30, 2023. My name is Drew, and I will be your conference operator for today. [Operator Instructions] Please note, this event is being recorded. We will have prepared remarks from Norman Snyder, Reed's Chief Executive Officer; and Joann Tinnelly, Reed's Chief Financial Officer. Following their remarks, they 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, 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, the company's ability to manage growth, manage debt and meet development goals, the company'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 working capital needs and growth plans, the company's dependence on third-party manufacturers and distributors, changes in the competitive environment, the economic impact of the war in Ukraine, and other information detailed from time to time in Reed's filings with the United States Securities and Exchange Commission. These statements include 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 involve risks, uncertainties and assumptions, many of which involve factors or circumstances that are beyond the company's control. Reed's 2023 guidance reflects year-to-date and our expectation that inflationary trends and supply chain pressure will continue throughout 2023. However, new supply chain challenges that may develop and factors that could exacerbate inflation cannot be reasonably estimated and are not factored into current fiscal 2023 guidance. These risks could materially impact our ability to access raw materials, production, transportation and/or other logistics needs. Gross margin guidance assumes our known pricing for ingredients, packaging and production costs, each of which has been and could continue to be impacted. Financial guidance should not be viewed as a substitute…

Thank you, Drew, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2023 results. I am pleased with the progress our team has made during the third quarter as we continue to lower input costs and operating expenses across the board, enabling us to materially expand gross margin and achieve our guidance of turning modified EBITDA profitable. We also hit our target of realizing $6 million in annual operating expense reductions, reflecting our prudent cost management of the business. We still see additional savings opportunities in the near term and now expect to save over $8 million for the full year. Although we made strong improvements to our profitability, net sales were impacted by a delay in our seasonal programs and, although declining, short order shipments. We expect to capture the delayed seasonal sales in Q4 and have resumed shipments of these products in October. To further mitigate the impact from short order shipments, we have been taking the appropriate steps to build up inventory levels. With consumer demand for Reed's products remaining strong, our ongoing efforts to augment inventory levels to reduce the rate of short order shipments and with our improved profitability, we believe we are well positioned to more effectively fulfill demand and return to growth in 2024. Turning to a few updates on our key product categories based on MULO scan data, which is defined as multi-outlet and convenience in the food, grocery, drug, mass, Walmart, club, dollar stores and military channels and VIP data, which is a tracking software for distributor-based shipments. Ginger Ale sales have increased 13% year-to-date and 15% for the four weeks ending October 8, compared to the same periods last year. Ginger Beer can sales grew 56% year-to-date and 104% for the four weeks ending…

Thanks, Norm. Diving into our results, all variance commentary is on a year-over-year basis, unless otherwise noted. Net sales for Q3 2023 were $11.9 million, compared to $12.1 million in the year-ago quarter. As Norm mentioned, the decrease was primarily driven by delayed seasonal shipments and, to a lesser extent, short order shipments. We expect to recognize the delayed shipments in the fourth quarter of 2023. Gross profit for the third quarter of 2023 increased 66% to $4 million, compared to $2.4 million in the same period in 2022. Gross margin increased 1,390 basis points to 34%, compared to 20.1% in the year-ago quarter. The increase was primarily driven by lower supply chain and input costs. As Norm briefly mentioned, we are expecting a onetime noncash inventory valuation adjustment of approximately $625,000 in the fourth quarter, which will impact our gross margin for the period. Delivery and handling costs were reduced by 15% to $1.9 million during the third quarter of 2023, compared to $2.2 million in the third quarter of 2022. The decrease was primarily driven by renegotiated freight contracts, improved throughput, and our streamlined orbit distribution model. Delivering and handling costs were reduced to 16% of net sales or $2.98 per case compared to 19% of net sales or $3.38 per case during the same period last year. Selling, general and administrative costs decreased 14% to $2.3 million during the third quarter of 2023, compared to $2.6 million in the year-ago quarter. As a percentage of net sales, selling, general and administrative costs were reduced to 19%, compared to 22%. Altogether, operating expenses were $4.2 million or 35% of net sales compared to $4.9 million or 40% of net sales in the year-ago period. This reflects our relentless work to right-size our cost structure and consistently find ways to optimize our business. Operating loss in the third quarter of 2023 improved to $0.1 million or a loss of $0.03 per share, compared to an operating loss of $2.5 million or a loss of $1.09 per share in the third quarter of 2022. Modified EBITDA improved to positive $0.2 million in the third quarter of 2023, compared to a loss of $2.2 million in the third quarter of 2022. This represents our first quarter of generating positive modified EBITDA since 2016. For the third quarter of 2023, cash used in operations was approximately $1.8 million, compared to $0.2 million for the same period in 2022. The increase in cash used was primarily driven by higher inventory purchases compared to the year-ago period. As of September 30, 2023, we had approximately $1 million of cash and $26.8 million of total debt, net of capitalized financing fees. This includes $17.1 million from a convertible note and $9.7 million from our revolving line of credit which had $3.1 million of additional borrowing capacity. I will now turn the call back to Norm for closing remarks.

Thank you, Joann. I'm grateful for the hard work the Reed's team has put in this year, and I'm excited to build on this foundation in 2024 as we return to sales growth, expand margins further, and improve our bottom line. With ongoing efforts to bolster inventory levels and optimize cost structure and continued strong demand for our robust product portfolio, we are well positioned to deliver on these objectives.

I want to thank everyone for participating in this morning's call, as well as our employees, customers and, of course, our shareholders. We appreciate everyone's support. We have made significant progress on our 2023 initiatives and look forward to closing out the year on a strong note.

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