Reed's, Inc. (REED) Earnings Call Transcript & Summary

Good day, and welcome to the Reed's Inc. Annual Meeting of Stockholders Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Norman Snyder. Please go ahead.

Good morning, ladies and gentlemen. Will the meeting please come to order? I would like to welcome all of you to the 2020 Annual Meeting of the Stockholders of Reed's, Inc. My name is Norman Snyder, Chief Executive Officer, and I will be presiding at this meeting. This annual meeting will be a completely virtual meeting in response to the COVID-19 pandemic. Also present in the meeting today are Board of Directors, Chairman, John Bello, Daniel Doherty, Christopher J. Reed, Lou Jaffe, Scott Grossman, James Bass and Louis Imbrogno. In addition, our Chief Financial Officer, Tom Spisak; our Chief Revenue Officer; Neal Cohane; our Vice President of Marketing, Lindsay Martin; our Vice President, Controller; Joann Tinnelly Tinley; and our Vice President of Operations, Rich Hubli. Mr. Spisak, our Chief Financial Officer, will act as Secretary of the meeting. Chuck Garske, a representative of Okapi Partners, has been appointed to act as Inspector of Election. Shares represented by proxy will be voted during this meeting and may be revoked at any time prior to the time at which voting closes during the meeting by voting online. Please note that attending the meeting without casting a vote will not revoke any previously submitted vote or proxy. An agenda and a list of rules of conduct for the annual meeting have been posted on the Okapi site with the other meeting materials. We expect you abide by these rules to be fair to the other stockholders present and so that we can conduct an orderly meeting. Stockholders should not address the meeting until recognized. If you want to ask your question or speak during the meeting, please wait for the appropriate time in the agenda. After you are recognized, first identify yourself, your status as a stockholder or representative of a stockholder, then make your comment or ask your question. We ask that your restrict your remarks or questions to 2 minutes and that they pertain to the items under discussion in the agenda. Thank you for your cooperation with these rules. The Secretary has delivered an affidavit of mailing establishing the notice of the meeting. The notice of this meeting was duly given in accordance with our bylaws. A copy of the meeting was mailed to all stockholders of record as of the close of business November 25, 2020. A copy of the notice of the meeting and the affidavit of mailing will be incorporated into the minutes of the meeting. All stockholders of record at the close of business on November 16, 2020, are entitled to vote at this meeting. Our first order of business is to determine whether the shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for the purpose of transacting business. Tom, do you have a report on quorum?

Yes. The certified stockholders list shows that holders of 63,412,310 shares of common stock of the company are entitled to vote at this meeting. We are informed by Chuck Garske that there are represented in person or by proxy 48,354,174 shares of common stock or approximately 76.25% of all the shares entitled to vote at this meeting. Therefore, we have a quorum.

Thank you. Because holders of the majority of the shares entitled to vote at this meeting are present in person or by proxy, I declare this meeting to be duly convened for purposes of transacting such business as may properly come before it. In proceeding with the meeting, we will introduce all proposals. After the proposals have been presented, we will open the floor to questions on specific proposals. I ask that you hold all questions on our agenda items until we actually open the floor, and please direct your questions only to me. The next order of business is a description of the matters to be voted on in today's meeting. The first proposal to be voted upon is the election of 8 directors to serve a 1-year term until their respective successors are duly elected and qualified or until their death, resignation, removal or disqualification. The nominees' qualifications are described in this year's proxy statement. Based on the recommendation of the Governance Committee, the Board has nominated for election the following eight persons as directors of the company. John J. Bello, Norman E. Snyder, Jr, Daniel J. Dougherty, III, Christopher J. Reed, Lewis Jaffe, Scott R. Grossman, James C. Bass, Louis Imbrogno, Jr. The second proposal to be voted on is the adoption of Reed's Inc. 2020 Equity Incentive Plan. Our Board recommends a vote for the adoption of the plan. The third proposal is the amendment of Reed's Inc. Certification of Incorporation to increase the authorized shares of common stock from 100 million to 120 million shares. Our Board recommends a vote for the amendment. The fourth proposal is the ratification of the appointment of Weinberg & Company, P.A., as our independent registered public accounting firm for the fiscal year ending December 31, 2021. Our Board recommends a vote for this proposal. Are there any questions or comments? I now declare the polls open. Please remember that if you've already sent in your proxy card or voted by Internet or telephone, your shares have been voted accordingly. You do not need to vote today unless you are voting for the first time or want to change your previous vote. The ballots and proxies will be held in Tom's possession and by our Inspector of Election. This is consistent with the State Law and our corporation bylaws. The list of the stockholders known to and are entitled to notice to this meeting is available for inspection. [Voting]

Thank you, Norm. I'm looking -- I'm looking, I don't see any questions out there, so we'll continue. So for the time -- so thank you for taking the time to share with us your votes. The poll for voting on the matters before this meeting are hereby closed. We have been informed by the Inspector of Election that the proxies and ballots have been counted. Based upon the preliminary vote totals, all nominees for election to the Board of Directors have been elected. The 2020 Equity Incentive Plan has been approved. The amendment of our Certification of Incorporation has been approved, and the auditors have been ratified. The final vote will be reported on Form 8-K.

We have concluded the business part of the annual meeting, which is officially adjourned. We'll now have a brief question-and-answer period. Does anyone have any questions?

[Operator Instructions] And our first question will come from Joseph Kowalski.

A couple of things. First, I want to thank Chris Reed for his brilliance over the years in developing products, having been out to the plant a couple of times. It was fascinating. And I want to thank current management for expanding sales, which I think has been a -- really appreciated that as well. I'm a shareholder. I've been a shareholder for many years, and I have about 50 clients, roughly 50 clients, who are also shareholders. And we're concerned -- we're all concerned about the expiring warrants today, and we're wondering why the company decided not to extend the warrants. I understand not readjusting them. They're way out of the money, but it would be something that I've seen in a number of companies in the past where they simply extended the warrants to a later date.

Well, this is the first time this question has been posed to me. So I don't really -- I don't really have a response.

If I may, I'm sorry for interrupting, but I actually posed it to your IR person, who said he was asking the CFO, and I wasn't sure -- I'm not sure who's talking right now [indiscernible] about last week.

So this is the question, I guess, that had come from to [indiscernible] Winkel, part of our IRC team. So these warrants that were set to expire that are significantly out of the money, the organization has just decided that it's a step for us to continue to move forward. I know there's more warrants that we also have out as an organization that are out for, I think, another 2 years almost to 2022. So we've just decided it's time to put that in the past and move forward with the organization's performance and focus on the growth of this to increase the value for our shareholders.

I certainly appreciate that. We certainly do want increased appreciation of the shares, but I would encourage you to reconsider this, especially for those long-term shareholders that have been standing by this company for many years in the past. I do have 2 other questions with regard to product. I wondered about if you've if you are considering reintroducing Kombucha and how those sales are just in general in the United States? Because I know at 1 time, that was a huge market. And the second is, is there any consideration for the future, and obviously, not now, but for the future in terms of consolidating other types of ginger products like -- from here in Detroit Vernors, which is a unique product in the ginger market into perhaps an expanded Reed's to gain more of a corner on that market?

Well, let me answer your first question. With respect to Kombucha, the answer is no. We don't have the bandwidth to manufacture and manage that at the present time. And we have -- and we believe there's tremendous upside with our current portfolio, which we remain very focused on. Your second question, I'm not sure where you're going. I'm familiar with Vernors, which is, I guess, a Michigan-based ginger ale. When you say consolidation, I'm not following what your question is.

Well, given that you have the ginger beer, which is -- and now you've expanded into more of a ginger ale as well. There are other ginger products, which are similar, but not identical. And I wondered if the company, on a longer-term view, might be thinking about consolidating the entire ginger market. That is you have a number of different types of ginger products that would all come out of Reed's.

Right. Well, Vernors is a ginger ale, and it's owned by Dr. Pepper or the current Dr. Pepper Group.

Currently it is, yes.

Yes, currently. So when you mean consolidate...

But it's not just the ginger ale. I mean it's aged in oak barrels. It's unusual. It's not a common -- and those types of things is what I'm looking at.

I question that. I think it just is a ginger ale. I have been to their production facilities. I don't -- I've never seen oak barrels in their production facility.

Really? Until recently, they always said that on the bottles, and I haven't looked at them lately. So it's possible they've changed it since Dr. Pepper took over.

Yes.

But that's the type of product anyway that I'm thinking about, whether Vernors does or not. But if there are other products like that out there, is that something that the company is considering over the longer period?

Not at the moment. We've just recently introduced our ginger ale. And obviously, want to see how that performs in the market and evaluate opportunities, but it's not something that's on the immediate horizon.

This is John Bello. Can I jump in and just kind of elaborate a little bit. Our go-forward strategy is to really emphasize [indiscernible] and real ginger. And we want to be everything ginger, which is why we've expanded in the ginger ale category and our unique selling proposition as we really have ginger in the product. Note that we've come out with shots and we've come out with revised and refreshed look on our ginger candy, and we're going to put focus on that. We also have in the mill canned Moscow Mule, which has real ginger in it as well. So we really think [Technical Difficulty]

I'm sorry, I lost you. Are you still there, sir?

We are really, at this point, except for some very minor players, the only real ginger or -- ginger beer or ginger ale, that has real ginger in it. So that's our go forward. We think that's where that's going to get us to the top of the mountain.

[Operator Instructions] And our next question will come from Kevin Coswood. Please go ahead.

I had a question of, are you guys going to be pushing the Virgil soda into the market more?

Yes. We're actually on 2 fronts, both our full sugar sodas, and we've seen a lot of growth this past year with our Zero sugar Virgil Soda. So we're going to be pushing both of those, but with a really an emphasis on the Zero sugar soda because that aspect of the category is growing the fastest, and we saw and experienced a lot of growth in that portion of our portfolio as well.

Okay, which is great, because I absolutely love this Virgil soda. My other question about the Virgil is in my store, it is stocked in the specialty gluten section, not near any of like the other sodas that are like predominantly in like the major aisle for everyone to see. So I was wondering if there's going to be some type of push to push them like in a more in-your-face type thing?

Yes. Let me ask you, where -- what store you are referring to? And where are you located? And where you normally shop?

I'm in Connecticut.

Where in Connecticut?

I live in Guilford.

Okay.

So I shop at the North Branford 1. And as soon I invested in you guys, I went overnight -- I found your product, and I fell in love with it, but the problem with love is I had to search it, and find it. So I was just wondering, as I see all the other brands that are specialist sodas that just kind of been sitting there on the shelves, not really moving. So I was wondering if there's a way to get your product over there. Actually...

Are you referring to a Stop and Shop?

No, actually, Big Y.

Big Y.

Yes. Big -- you want me to jump in?

Yes, go ahead.

Yes, Big Y right now. We have plans to expand. This is Neal by the way. We have plans to expand with Big Y in 2021. But they've been 1 of the more difficult partners of ours. So what we're trying to do is we're trying to expand and show them that they've made a mistake. They've left us in that section, and I know exactly where that section is. It is...

I have actually gone up.

It's a tough area, and we are trying to move into the main beverage aisle, because we outsell -- we outsell those brands that are sitting in the main beverage aisle. We did not want to do it this past year. So we're expanding in Stop & Shop. We're going to start proving them wrong. So...

Because I've actually gone up to the customer service and asked for your products, and they've said, yes, and they've never made any change. So just to let you guys know.

That helps a lot, by the way, and I appreciate you doing that. But but you're going to see -- you'll see us improve. And I'm going to share this conversation with the buyer on our next call.

This is John Bello jumping in again. Part of our whole ginger ale strategy, which is a $1.2 billion market versus $100 million just for ginger beers, which is a specialty item, is to, in fact, create opportunity for us to migrate into the broad-based beverage aisle. And in some accounts, we've actually done that. And we think that will give us a better opportunity. And in the future, we plan to increase larger packages, which will get us -- which will make that happen for us. We just need to be careful about the price differential versus the raw cut ginger ales that are out there. So that's a -- you bring up a good point, and that's where we want to be. We're also going to expand our presence in retail by getting our products in the mixer sets as well. And we've been successful in doing that in some places. That helps us compete with a line of products with Fever-Tree and Q that are in the mixer set with ginger beers and ginger ales where we belong as well in addition to the specialty. And we also want to get our products [indiscernible], so we're going to have multiple locations within stores, and we're working very hard to make that happen. Neal has had some success in doing that.

[Operator Instructions]

Thank you. If there are no further questions, the 2020 Annual Meeting of the Reed's Inc. stockholders is closed. I would like to express my sincere appreciation to the stockholders who attended this meeting as well as those, who submitted their proxies, but were not able to be present in person. Thank you, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.