Good afternoon and welcome to Reed's Second Quarter 2024 Earnings Conference Call for the Three Months Ended June 30, 2024. My name is Emery and I will be your conference call operator for today. You will have prepared remarks from Norman E. Snyder, Reed's Chief Executive Officer, and Joann Tinnelly, Reed's Chief Financial Officer. Following their remarks, they will take your questions. Before we begin, please take note of the company's cautionary statement. Today's call will include forward-looking statements, including statements about Reed's business plans and 2024 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, August 13, 2024, and the company is under no obligation to update them. When discussing results, the presenters may refer to non-GAAP measures, which includes certain items from reported results. Please refer to Reed's second quarter 2024 earnings release on Reed's investor website at investor.reedsinc.com and its second quarter 2024 form, 10-Q, expected to be available on the website on August 14, 2024 for definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Snyder. Please proceed.

Thank you, operator, and good afternoon, everyone. We appreciate you joining us today to discuss our second quarter 2024 results. We continue to execute on our growth and optimization initiatives in the second quarter as we generated double-digit net sales growth, material gross margin expansion, and positive modified EBITDA. I'd like to thank the entire Reeds team for the consistent hard work and dedication in achieving these solid results. As discussed on prior calls, our sales were previously impacted by an inflated rate of short-order shipments. We have since implemented certain measures to strengthen our inventory position and increase capacity through new co-packing partnerships. These actions have significantly reduced the rate of short shipments to a more normalized level. Turning to a few recent updates on our key product categories based on unit sales, Reed's ginger beer sales were up 70% year-over-year in the second quarter. Our ginger ale sales were flat year over year in Q2. However, year-to-date [indiscernible] cans sales were up 13%, compared to the same period last year. For Virgil's, we generated a 26% increase in sales for Q2 compared to the year-ago period. Reed's alcohol sales were flat for the quarter versus Q2 of 2023, but depletions in the category were up 16% over the same period. During the quarter, we made solid progress on our cost-cutting and optimization initiatives, reflected by a 720 basis point increase in gross margin and a 460 basis point decrease in OpEx margin compared to the year-ago quarter. Our gross margin expansion was driven by our consistent efforts to reduce input costs, shift our product mix from bottles to cans, and apply more consistent pricing across various channels. For delivering handling expenses, we experienced a 16% reduction in the quarter to a $2.18 per case, compared to $3.05 per…

Thanks, Norm. Diving into our results, all variance commentary is on a year-over-year basis unless otherwise noted. Net sales for Q2 2024 increased 19% to $11.9 million, compared to $10 million in the year-ago quarter. The increase was primarily driven by strong demand for Reeds products, increased promotional activity, expanded product authorizations, and a reduction in short order shipments compared to the year-ago period. Gross profit for the second quarter of 2024 increased 53% to $3.8 million, compared to $2.5 million in the same period of 2023. Gross margin increased 720 basis points to 32.3%, compared to 25.1% in the year-ago quarter. The increase was primarily driven by higher net sales and lower supply chain and input costs. Delivery and handling costs were reduced by 16% to $1.4 million during the second quarter of 2024, compared to $1.7 million in the second quarter of 2023. The decrease was primarily driven by renegotiated freight rates for heavily trafficked lanes, improved throughput, as well as efficiencies generated from our streamlined distribution model, and new co-packing partnerships. Delivery and handling costs were reduced to 12% of net sales or $2.18 per case, compared to 17% of net sales or $3.05 per case during the same period as last year. Selling general and administrative costs were $3.1 million during the second quarter of 2024, compared to $2.6 million in the year-ago quarter. As a percentage of net sales, selling general and administrative costs remained flat at 26%. Altogether, operating expenses were $4.5 million or 38% of net sales, compared to $4.3 million or 43% of net sales in the year-ago period. The improvement in OpEx margin reflects our consistent efforts to optimize our cost structure. Operating loss during the second quarter of 2024 improved to a loss of $0.7 million or $0.16 per share compared to a loss of $1.7 million or $0.55 per share in the second quarter of 2023. Modified EBITDA improved to $45,000 in the second quarter of 2024, compared to a loss of $1.6 million in the second quarter of 2023. For the second quarter of 2024, cash used in operations was $0.9 million, compared to $3.4 million for the same period in 2023. The decrease in cash used was primarily driven by lower inventory purchases, compared to the year-ago period. As of June 30, 2024, we had approximately $0.3 million of cash and $27.4 million in total debt net of capitalized financing fees. This includes $18.4 million from our convertible notes and $9 million from our revolving line of credit, which has $3.8 million of additional borrowing capacity. Last week, we announced the close of a Bridge Financing [Technical Difficulty] with one piece of a profit that does not include the net piece of finance. I will now turn the call back over to Norman for closing remarks.

Thank you, Joann. I mentioned earlier, strategic initiatives are bearing fruit and have been set to the stage for further growth and profitability in the back half of the year. Between our safe, healthy inventory levels and strong demand to Reed's products, we believe we are well positioned to successfully execute our goals ahead. Operator, we will now open the call for questions-and-answers.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Mr. Sean McGowan from ROTH Capital Partners. Please go ahead.

Good afternoon, guys. How are you?

Good, Sean. How are you?

Good. Good. Yeah, I'm sure Sean [ph] mentioned this is the earthquake, so we're surviving. It's all fine. Question on gross margin. Do you think that did this quarter come in kind of as expected or a little softer or a little stronger? And do you think that there's room for improvement from here?

It came in as we expected, Sean, and we do believe there's room for additional improvements. You know, we continually search for ways to reduce costs and are implementing some additional measures during the current quarter.

Okay. So those freight lane reductions, you guys, we haven't seen the full benefit of that yet?

Well, we're seeing part of it. We'll continue to. We tend to negotiate freight rates in six-month increments. So, you know, we're seeing part of it. As also we mentioned earlier, the bringing on battle copacking in the southeast really helps reduce further freight costs to get to our larger customers in the southeast in Texas. So we'll see more of that play out in the latter half of the year as well.

Okay. And G&A was a little higher than we would have thought. Is there anything in there that you think drove it up unusually or should we expect it to sustain at this level?

No, there were a couple of non-recurring items that you'll see in the EBITDA, modified EBITDA reconciliation that drove it up a little bit higher. But if you remove those...

Okay.

You know, they're where we thought they would come out.

Okay. Yeah. I thought that, there was like that severance. Would that be in G&A?

Yeah, that would be in it. There was some legal costs, some other professional costs that were in there as well.

Okay. All right. Perfect. Thank you. And then last question. The cost is breaking up a little bit at times, and I kind of missed what you said about products launching in early 2025. I'm wondering if you could give us, if you could repeat what they were and give us a little bit more color on that.

Yeah. I mean, look at Ginger, you know, there's been a lot of parents of plant-based food and beverages over the last five years, decade. And Ginger, we really believe we were the first ones in the party. I mean, obviously, Ginger is a plant-based item that has tremendous efficacy. And just looking at the current trends that have recently appeared, I mean, lower calorie and lower sugar levels have really taken a very dominant position in the beverage space. And obviously, we believe that our Ginger products coupled with lower levels of sugar and calories would do very well. And we've shared some of those ideas with some key retailers and have received really positive feedback on our positioning and both the taste and the efficacy and other things. So, we're really excited about, look at Reed is we're really about Ginger and have been a leader in that category and look forward to continue leading into the future with our innovation.

Okay. Thank you.

Thank you, Mr. McGowan. At this time, there are no more questions. This concludes our question-and-answer session. I would now like to turn the call back over to Mr. Snyder for closing remarks.

Thank you. I'd like to thank everyone for participating in today's earnings call, as well as our employees, customers, and, of course, our shareholders. We appreciate everyone's support. We'll continue to make solid progress on our 2024 initiatives and look forward to providing an update when we report third quarter results later this year.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.