Reed's Inc. (OTC:REED), the maker of craft sodas, reported a turnaround from a $3.9 million loss in the first half of 2023 to a $200,000 gain in the second half of the year during their fourth quarter and full-year 2023 earnings call. Despite softer sales due to supply chain challenges, the company has implemented strategies aimed at returning to growth in 2024, including new product launches and expansion of distribution channels. With a focus on cost-cutting and optimization, Reed's has improved its gross margin and expects to achieve positive cash flow from operations and modified EBITDA profitability in the coming year.
Key Takeaways
- Reed's overcame a $3.9 million loss to report a $200,000 gain in the latter half of 2023.
- Sales challenges were attributed to supply chain issues and short order shipments.
- Strategies for growth include new product launches and sales strategy optimization.
- The company saw growth in Ginger Ale and Ginger Beer, especially Zero Sugar variants.
- Reed's expanded distribution with partners such as Whole Foods, Publix, Sprouts, Walmart (NYSE:WMT), and Costco (NASDAQ:COST).
- The e-commerce platform was relaunched, with an expanded customer base in the UK and Europe.
- Reed's expects double-digit sales growth and profitability in 2024.
Company Outlook
- Reed's is optimistic about returning to growth and profitability in 2024.
- The company plans to introduce new premium products and focus on reducing short order shipments.
- Expansion into the UK and European markets is underway, leveraging a concentrate model for exports.
Bearish Highlights
- The company faced a decrease in net sales and gross margin in Q4 2023.
- Supply chain challenges and short order shipments negatively impacted sales.
Bullish Highlights
- Reed's secured major promotions and increased sales with key retailers.
- New product launches are expected to drive growth, particularly in healthier beverage options.
- The relaunch of the e-commerce platform is set to contribute to sales expansion.
Misses
- Despite cost-cutting measures, the company reported an increased operating loss in Q4 due to write-offs and adjustments.
Q&A Highlights
- CEO Norman Snyder addressed concerns over the Q4 operating loss, attributing it to non-cash adjustments and write-offs.
- Reed's raised up to $6 million through a financing agreement, which is expected to support inventory reserves and reduce short shipments.
- The company is exploring opportunities in the Asian market and has no ongoing litigation.
- The addition of a new board member is under consideration, with no updates provided during the call.
In summary, Reed's Inc. is positioning itself for a stronger financial performance in 2024, capitalizing on strategic partnerships, product innovation, and market expansion. The company remains confident in its ability to navigate supply chain challenges and achieve its sales and profitability targets.
InvestingPro Insights
Reed's Inc. (REED) has been navigating a challenging financial landscape, as reflected by the real-time data from InvestingPro. The company's market capitalization stands at a modest $6.83 million, indicating a smaller player in the industry. Notably, the negative P/E ratio of -0.56 for the last twelve months as of Q4 2023 suggests that the company has been operating at a loss, which aligns with the operational challenges highlighted in the article.
InvestingPro Data metrics reveal a -15.7% revenue decline over the last twelve months as of Q4 2023, further illustrating the sales challenges faced by the company. However, the gross profit margin remains relatively healthy at 30.38%, indicating that Reed's is still able to maintain a decent level of profitability on its products despite the revenue downturn.
InvestingPro Tips provide additional context for investors considering Reed's stock. One tip is to closely monitor the company's next earnings date on May 16, 2024, which could provide insights into whether Reed's strategic initiatives are translating into financial improvements. Another tip is to consider the analyst's fair value target of $5 USD, which significantly exceeds the current price of $1.69 USD, suggesting potential upside if the company can execute its turnaround plan effectively.
For those looking to delve deeper into Reed's financial health and prospects, InvestingPro offers 15+ additional tips, providing a comprehensive analysis that can inform investment decisions. Interested readers can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Reeds BATS (REED) Q4 2023:
Operator: Good afternoon. and welcome to Reed's Fourth Quarter and Full Year 2023 Earnings Conference Call for the Three and 12 months ended December 31st, 2023. My name is Gary and I will be your conference call operator for today. 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 wars in Ukraine and Israel; and other information detailed from time-to-time in Reed's filings with the United States Securities and Exchange Commission. 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 involve risks, uncertainties, and assumptions, many of which involve factors or circumstances that are beyond the company's control. Reed's 2024 guidance reflects year-to-date and our expectation that inflationary trends and supply chain pressure will continue throughout 2024. 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 2024 guidance. These risks could materially impact our ability to access raw material, 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 for full financial statements prepared in accordance with GAAP. For more information, please refer to the risk factors discussed in Reed's annual report on Form 10-K for the 2023 fiscal year to be filed with the SEC on or before April 1st, 2024. Although management believes that the expectations reflected in forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance, or achievements. In addition, any projections as to the company's future performance represent management's estimates as of today, March 28, 2024. Reed's assumes no obligation to update any forward-looking statements or information, which speaks as of their respective dates. Modified EBITDA is presented because management believes it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of core operating performance. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP and Reed's non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliations of non-GAAP measures to GAAP measures as well as the definition of each measure, their limitations and/or rationale for using them can be found in this morning's press release and Reed's SEC filings and posted on Reed's investor website at investor.reedsinc.com. As a reminder, this conference is being recorded. I will now turn the call over to Mr. Snyder. Please go ahead.
Norman Snyder: Thank you, Gary and good afternoon everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2023 results. I'm proud of our team's hard work this past year as they successfully executed our strategic initiatives to optimize our cost structure. Our combined efforts materialize in our bottom-line as we turned a $3.9 million modified EBITDA loss during the first half of the year into a $200,000 modified EBITDA gain in the second half of the year, a $4.1 million turnaround. Our ability to turn modified EBITDA profitable was a result of our efforts in the back half of 2023 to reduce cost of goods, driving higher gross profit, lower delivery handling costs, and to decrease SG&A costs compared with the first half of the year. Further, with respect to gross margin, in the fourth quarter, we implemented a one-time change to our policy for discounts related to trade spend, which lowered net sales by approximately $800,000 for the quarter and we also recognized non-cash inventory adjustments that further impacted gross margin in the fourth quarter. Had we utilized the updated trade spend discount policy throughout the year rather than recognizing the full year adjustment in the fourth quarter, our second half 2023 adjusted gross margin would have been approximately 1,000 basis points higher than the first half of 2023. This improvement reflects the work we have put in to reduce our input costs, implement consistent pricing applications across all channels, and increase the mix of cans versus bottles. We expect to utilize this new discount policy for trade spend each quarter moving forward. Looking at our top line, sales were softer than anticipated in 2023. However, we have implemented a sales strategy to return to growth in 2024 for both Reed's and Virgil's. Our challenges from last year were almost entirely supply-driven as we experienced solid order volumes across our retail channels throughout the year. We recently added two new co-packers to increase capacity, and we are actively building finished goods inventory to reduce short order shipments, which offset net sales by approximately $5 million in 2023. Our inventory levels are improving and we are back on track to dramatically reduce our rate of short shipments in 2024. Fourth quarter sales were also adversely affected by the timing of customer orders that impacted volume and packaging challenges with our seasonal swing-lid program -- products, which have since been addressed. We expect a more robust and timelier swing-lid program in 2024 and have initiated the program much earlier this year. Although there is much work to be done, we believe we have built a solid foundation to move the company forward on a profitable basis. We are on track to eliminate the cash burn. As I touched on earlier, we have consistently reduced input costs and optimize our operations. Our combined efforts resulted in more than $6 million in expense reductions in 2023 and a material improvement to our bottom-line. The fourth quarter marked our sixth consecutive period of year-over-year operating expense and profitability improvements, leading to our second quarter of modified EBITDA profitability since 2016. Turning to a few updates on our key product categories. Reed's Ginger Ale sales for the full year 2023 grew 15% year-over-year with our Zero Sugar Ginger Ale increasing 19% for the same period. The overall Ginger Ale category experienced 7% growth for 2023 compared to the prior year. Ginger Beer can sales grew over 170% compared to the full year 2022 and with Zero Sugar cans increasing nearly 4x in 2023. The growth was offset by lower bottle sales in both categories as we work to transition from bottles to cans. The overall Ginger Beer category declined approximately 3% during the same period. Within our Virgil's craft soda portfolio, full sugar cans gained strong momentum over the past year and continue to become a larger contributor to our top line. For our ready-to-drink alcohol portfolio, we experienced a 35% increase and close to 20% increase in hard Ginger Ale and Ginger Mule in 2023, respectively. The ready-to-drink category continues to be a compelling growth opportunity for Reed's and we look forward to launching our new products, increasing our distribution within this growing category. On the topic of new product launches, we're in the process of formulating new products that leverage fresh organic ginger to create a portfolio of beverages targeting the better-for-you lifestyle category. Ginger, which is plant-based has been an ingredient used for centuries throughout the world for its many benefits and we intend to leverage this aspect in our Reed's portfolio. We are excited to continue growing our reach in this segment and look forward to unveiling these products in the back half of the year with a soft launch during Q4. As a reminder, we do not utilize any preservatives in our products nor any other artificial ingredients. Our full sugar beverages are sweetened with cane sugar, while our zero sugar beverages are sweetened with Stevia and Monk Fruit. We believe this is a major point of differentiation for our brand and look forward to adding additional sales channels and points of distribution to our fan favorite product catalog. Throughout the quarter, we continue to make solid progress in our cost cutting and optimization initiatives. These efforts would have led to gross margin expansion in the fourth quarter. However, the quarter was impacted by one-time non-cash inventory adjustments of $3.1 million in addition to the trade spend discount policy that I referenced earlier. Excluding these adjustments, gross margin would have increased by 1,200 basis points to 34.9% in the fourth quarter. These savings were driven by consistent effort to lower input costs, implement consistent pricing applications across all channels, and increase the mix of cans versus bottles. We have also worked through most of our higher cost inventory that resulted from prior elevated supply chain costs. In the fourth quarter, we reduced delivery handling costs by 32% year-over-year to $2.82 per case compared to $3.44 per case previously. Consistent with prior quarters, we made further improvements to our freight contracts, throughput, and efficiencies related to our streamlined distribution model. We've effectively brought down delivery handling cost to approximately 16% of net sales as of Q4 and we'll continue to identify aspects to reduce cost on a per case basis. Building on this, we finalized an agreement with [Indiscernible] Copacking, our new co-packing partner in the Southeast and kicked off operations in the first quarter. This new relationship expands our product -- our production for both bottles and cans and will allow us to better serve our Southeast and South Central customers. We expect to generate further freight and handling savings from this engagement and are excited to build a mutually beneficial partnership with [Indiscernible] as we grow our sales in the region. And lastly, with respect to cost cutting, we reduced selling and marketing expenses in Q4 by 23% compared to the year ago period by creating a more focused marketing strategy and streamlined our sales process. Turning to our fourth quarter and recent channel sales and operational highlights. To start, we secured major secondary promotions within the Whole Foods network in 2023. Due to our performance and brand strength, Whole Foods has opted to authorize additional secondary promotions across our portfolio in 2024. They have also decided to add over 100 new points of distribution for our Hard Ginger Ale. Since converting Publix to a direct customer in July of 2023, units of sales [ph] have increased 80% year-over-year. As a result of the growth, we have partnered with Publix to increase our promotional activity and have finalized several seasonal secondary placements for 2024. In Sprouts, we received authorizations for Virgil's Full Sugar cans, which will launch in May of 2024 and be followed by timely off-shelf promotions. Additionally, our Hard Ginger Ale and Classic Mule were added to 82 additional points of distribution, bringing the total Sprouts store count to 370 across our alcohol portfolio. We are thrilled with the relationship we have with Sprouts and look forward to building on our partnership in the future. Walmart has authorized our ready-to-drink Classic Mule to 240 stores in California. We believe that our ongoing relationship with our wholesale partners, our NDC, and breakthrough beverage, as well as our unique brand proposition will enable us to grow our points of distribution and expand our alcohol portfolio within the Walmart system. In Costco, we have finalized rotations for our 7.5-ounce ginger beer cans, Virgil's Zero Sugar can variety pack, and are working towards finalizing our Virgil's Full Sugar can variety pack in multiple regions. We are actively working to add additional regions to these rotations to expand the distribution of these exciting beverages. In November, we relaunched our e-commerce platform to include a recurring subscription model. As we mentioned before, e-commerce sales represent a small portion of our business today, but we are taking the appropriate steps to build this channel and will invest more resources as it grows. As I mentioned earlier, we have added two new co-packers in favorable geographic locations to increase capacity while driving further reductions in our cost of goods sold as well as transportation costs. We will continue to evaluate all aspects of our logistics and supply chain to ensure we are running as efficiently as possible across our nationwide network. Lastly, we have continued to build our customer base in the U.K. and Europe as a result of adding local production capabilities, which enables us to deliver products more efficiently with lower associated costs. We kicked off with one customer in May and now have five active customers with four additional pending. We're excited with the early momentum and look forward to expanding our reach in the European region. Over the past year, we've built a solid foundation and efficient operating model, which we believe will enable us to generate net sales growth, gross margin expansion, and to achieve modified EBITDA profitability for the full year of 2024. We also expect to generate positive cash flow from operations for the full year 2024. Looking ahead, I want to reiterate that we have several key initiatives that drive this growth and profitability. As we reduce short order shipments, we expect to return to growth through all our key product categories. We will also continue to seek out additional cost saving opportunities to ensure we are running as efficiently as possible. These initiatives, coupled with our optimized cost structure and strong demand for Reed's products will enable us to deliver on our growth and profitability in 2024. Before wrapping up with closing remarks, Joann will cover our financial highlights for the quarter in more detail. Joann, over to you.
Joann Tinnelly: Thanks Norm. Driving into our results, all variance commentary is on a year-over-year basis unless otherwise noted. Net sales for Q4 2023 were $11.7 million compared to $15 million in the year ago quarter. The decrease was primarily driven by short order shipments and lower sales from seasonal programs due to timing of customer orders impacting volume and to third-party manufacturing deficiencies, both related to swing-lid products. We expect to receive an insurance claim to cover the cost of these products. As Norm mentioned earlier, we also implemented a one-time change to policy discounts related to trade spend that offset net sales by $800,000 a quarter. Gross profit for the fourth quarter of 2023 was $0.5 million compared to $3.4 million in the same period of 2022. Gross margin was 4% compared to 22.9% in the year-ago quarter. The decrease was primarily driven by a one-time non-cash packaging inventory valuation adjustment of $1.8 million, a one-time provision for product holds related to our swing-lid, as well as the aforementioned one-time update policy for discounts. Adjusted gross profit, which excludes these non-cash items for the fourth quarter of 2023 was $4.3 million or 34.9% of revenue. Delivery and handling costs were reduced by 32% to $1.8 million during the fourth quarter of 2023 compared to $2.7 million in the fourth quarter of 2022. The decrease was primarily driven by continued reductions in freight rates and improved throughput and efficiencies related to our streamlined distribution model. As Norm mentioned earlier, delivery and handling costs were reduced to 16% of net sales or $2.80 per case compared to 18% of net sales or $3.44 per case during the same period last year. Selling, general, and administrative costs decreased 23% to $3 million during the fourth quarter of 2023 compared to $3.9 million in the year ago quarter. As a percentage of net sales, selling, general, and administrative costs remained flat at 26%. Although operating expenses were $5.4 million or 46% of net sales compared to $7.1 million or 47% of net sales in the year ago period. This reflects our relentless efforts to right-size our cost structure and consistently find ways to optimize our business. Operating loss during the fourth quarter of 2023 was $5 million or a loss of $1.55 per share compared to a loss of $3.7 million or a loss of $1.54 per share in the fourth quarter of 2022. Modified EBITDA improved positive $43,000 in the fourth quarter of 2023 compared to a loss of $2.8 million in the fourth quarter of 2022. This represents our second consecutive quarter of generating positive modified EBITDA. For the fourth quarter of 2023, cash used in operations was approximately $200,000 compared to cash flow from operations of $1 million for the same period in 2022. The decrease in operating cash flow was primarily driven by higher inventory purchases compared to the year ago period. As of December 31st, 2023, we had approximately $0.6 million of cash and $27.4 million of total debt, net of capitalized financing fees. This includes $17.6 million from a convertible note and $9.8 million from our revolving line of credit, which has $3 million of additional borrowing capacity. During the first quarter of 2024, we closed on a $4.1 million safe simple agreement for future equity agreement as part of our planned $6 million financing. We plan to utilize the funds to build our finished goods inventory reserves and to reduce short shipments in 2024. Please note, the cash balance I mentioned earlier does not include the $4.1 million of safe proceeds. I will now turn the call back to Norm for his closing remarks.
Norman Snyder: Thank you, Joann. I'd like to extend my gratitude to the Reed's team for their consistent hard work and determination to build a solid foundation for our business. With a combination of our optimized operating model, ongoing efforts to reduce short order shipments and the continued demand for our robust product portfolio, we are well-positioned to deliver on our goals. Operator, we'll now open the call for questions-and-answers.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question today is from Sean McGowan with ROTH MKM. Please go ahead.
Sean McGowan: Thank you. Good afternoon. I have a couple of questions centered around the outlook and guidance. So, on sales, when you say you expect sales to increase, are you talking about increasing from the reported levels or from the levels that you might have achieved had you not had those short shipments?
Norman Snyder: Sean, from the reported levels.
Sean McGowan: Okay. That's what I figured. But then similar question on gross margin because you've got a couple of quarters here with an exceptionally low gross margin because of one-time issues. So, when you say expanded gross margin, are you talking about off of reported levels or kind of off of adjusted levels?
Norman Snyder: Of adjusted levels.
Sean McGowan: Okay, that's helpful. And then looking at the G&A number in the fourth quarter, do you think that's a good number to use kind of as a quarterly run rate? Or were there some things in the quarter that might not recur? Could the actual ongoing number be lower or should we expect it to be higher than that?
Norman Snyder: I think it's going to stay the status quo for a while. We have a pretty lean but effective team here that's highly productive and efficient and works well together. I think as we generate more cash going forward, we'd like to reinvest it towards marketing and product development. And then as growth requires to add people, so I don't really see any sort of material changes other than some discretionary spending as we have the cash -- the available cash to spend to invest back into our brands.
Sean McGowan: Okay. And I think you mentioned in the press release that you had -- I think it was like $3 million of additional capacity on the credit line. Is that $3 million -- provided at the assets are lined up the right way, inventories, receivables? Or is that just $3 million open?
Norman Snyder: No, it's the former provided that the assets line up. But we've made -- subsequent year-end, we've made great progress paying down that line. So, there's -- it's created a lot more availability. And then obviously, as we grow receivables and inventory will grow which will provide additional collateral to drive that number up further.
Sean McGowan: Okay. And then the last question for me for now is on new products, when you talk about some new stuff you're working on, should we assume that any new products that are introduced are going to be at or above the kind of targeted gross margin levels that you have? Or are you contemplating some new introductions that might be dilutive?
Norman Snyder: No, I think they'll be accretive. They're going to be premium-based products, functional really leveraging the benefits of Ginger. Look, one of my -- one of my pet peeves is that the popularity of -- now of plant-based food and beverages and the functionality of it and because Reed's was one of the first ones to be there, producing and selling plant-based products with a high degree of efficacy, we don't get a lot of credit. We're at the party first and then the party happened after we arrived. So, we really want to go back and leverage that asset, which we think is something very unique to Reed's. Our ginger is organic, imported from the Amazons and Peru. It's got -- it's got a high degree of efficacy, which is why people throughout the world has been using ginger for centuries. So, it's a more conservative effort to really broadcast that message and a product that resonates with today's consumer.
Sean McGowan: Great. And I just remembered one other that I wanted some clarity on. I think you and I have talked about this before. So you mentioned that some of those short sale impacts were in the swing line, is it something about the swing line just coincidentally that -- or swing-lid, I mean -- is there something about that particular packaging that results in this problem? Or is it just a coincidence that it's that line?
Norman Snyder: No, it's a coincidence. There was an issue with the seal and our closure and we're very quality-driven and did not want to put out inferior product or a product that potentially could be dangerous to consumers. So, that was one part of it and another aspect was that we were late with some other customers in the season, which cut down the size of the program.
Sean McGowan: Right. So, you're not backing away from that packaging?
Norman Snyder: No. No, Not at all.
Sean McGowan: All right. Thank you very much and I'll talk to you later.
Norman Snyder: All right, Sean, nice talking to you.
Operator: The next question is from Will [Indiscernible], a Private Investor. Please go ahead.
Unidentified Analyst: Hey Norm. Thanks for taking my questions. I'll try to keep it quick. Really just regarding sales. I mean we're already pretty much through Q1. Can you let us know how that's looking and then do you kind of have a range of what you're estimating total revenue for 2024?
Norman Snyder: Yes. Well, you're welcome. Look, the short shipments did continue over into the first quarter. So, there is some impact, but we've worked through that and we're heading into the second quarter well-positioned to really reduce those. We also had some programs that we thought we could be ready for in the first quarter, which we did -- which will be pushed in the second quarter. So, there'll be some continued softness that goes into Q1, but we really think will come out strong in Q2. In terms of the range, we're still fine-tuning that. I mean, look, obviously, we believe we can deliver double-digit growth, but we're still finalizing a couple of things to see how far that we can push that number. But look, we feel real confident about year-over-year growth. Sean asked a question about it as it reported or where we thought we would be. Look, it's going to definitely be over reported, and my goal is to have growth over where we thought we could have ended up this year.
Unidentified Analyst: Okay. Thanks. And then last question kind of regarding the safe and then raise. Is there going to be any additional capital need to be raised in the interim? Or do you think that will carry you guys for the year?
Norman Snyder: Our belief is that will carry us through the year. I mean, obviously, the burn has been really minimized to almost eliminate it, and that's the goal there. So, the cash needs are really exclusively to build inventory and just to have enough inventory to be able to respond and drive up our on-time and in full delivery percentage is north of 95%.
Unidentified Analyst: Okay, great. Awesome. That's all I've got. I'll hop back in the queue.
Norman Snyder: You're welcome, Will.
Operator: The next question is from Gary Getz [ph], a private investor. Please go ahead.
Unidentified Analyst: Yes, hi Norm. Thanks for taking the call and it looks like we're on the right track. Most of my questions have been answered. I just wanted to make a comment about the ginger and wanted to reinforce what you're doing about developing new ginger products. It has great health benefits, and I commend you on doing what you're doing.
Norman Snyder: Thank you. Gary, I know you were, I think, unable to attend the last earnings call because you had a commitment, but I think it wouldn't be an earnings call if you didn't come on the line and ask a question. So, I always look forward to hearing from you.
Unidentified Analyst: Thank you very much and I enjoy listening to you Norm.
Norman Snyder: Thanks.
Operator: This concludes our question-and-answer session.
Norman Snyder: No, we have one additional question.
Operator: Okay. And that question comes from Jack [Indiscernible] another private investor. Please go ahead.
Unidentified Analyst: Yes. Hi. Can you guys hear me?
Norman Snyder: I can.
Unidentified Analyst: Okay. Awesome. Yes. Sorry, not last but not least. I just wanted to touch on the two sort of one-off having senses the non-cash packaging inventory valuation adjustment of $1.8 million and then the provision on the -- what was it, the product hold related to the swing-lid program for $1.3 million. Can you add any like insights to like specifically what those -- what happened under these circumstances?
Norman Snyder: Well, let me address the swing-lid issue because that's a little bit simpler. As we talked about, we had a malfunction with our closure so we pulled that product and didn't sell it. We have product, packaging insurance, function insurance that we have filed a claim, but the auditors required us to reserve for that. So, until we collect those insurance proceeds, we had to put a reserve up. And then conversely, when we do receive insurance proceeds, that will be a game and we'll have the flip. And unfortunately, because the two events straddle the fiscal year, you'll have a charge in one year and then a pickup in the subsequent year.
Unidentified Analyst: Okay. Okay, I'm tracking.
Norman Snyder: All right. Now, for the inventory, we've had a lot of different -- it's primarily packaging materials that we thought we could use for limited time offers and special additions and had -- and we've done that on a limited basis, but two things. One, since we were experiencing a higher-than-normal level of short shipments, the reality of the matter is, when are we going to have time to do these and execute on these programs. And since there's a cost associated with storing materials, my logistics team convinced me that the benefit of holding them to do these programs later was not in our best interest, so we decided that we would write those down. Now, some items we are going to -- we retain and will use and some of this also was formulation changes and labeling requirements, it was labels, it was wraps, carriers. But some items we're still going to use. So, again, similar to the swing-lid thing, there will be a pickup in the year that we actually use those. And then another piece was related to our candy business where we've gone into a license agreement and we're in the process of transitioning that inventory over, but we had to take -- the auditors required us to take a reserve on that. It's still good inventory. And again, as we transition that over just like the swing-lid, there'll be a pickup there.
Unidentified Analyst: Okay. And I want--
Norman Snyder: Jack, one thing I want to emphasize, all of these are non-cash related adjustments. So, there was no cash hit. It's really an accounting reserve driven, which obviously depresses results, and that's why we included in adjustments to modified EBITDA to show what things are on a normalized basis. But look, we just thought it was prudent to do it. It made sense. As I said earlier, we have a really strong team here. We're making better decisions. We're driving more efficiencies. You can see what we've done. Our margins a year ago were in the low 20s. We've driven up into the mid-30s and really believe that's sustainable with continued improvement. We brought our logistics cost down. They will continue to go down, and we've really held our SG&A in check, in fact, lowered it over the prior year. And I think until we're in a position to generate more cash that we can invest from a marketing side and reinvest in our brand, we've really accomplished a lot.
Unidentified Analyst: Yes. No, that all makes perfect sense. So, I guess, the sort of tangent that I would have resulting from what you said would be -- of those two items, and again, I'm not going to hold you to the number, but I would be curious, like do you have any idea like it sounds like they're sort of gone but not forgotten. And if we were to recoup whether it be from insurance or the ability to actually use some of the packaging and whatnot that was written off, like do you guys have an estimate of like what we might be able to recruit from that or an expectation or anything along that lines?
Norman Snyder: Well, I mean, the only thing I can really comment is the insurance claim is in the neighborhood of $1 million. So, that's what we're discussing with the insurance company. The other -- the candy is like about $250,000 range. And the other items, look, if my view is -- we're going to be opportunistic if we can get another $250,000 out of that too, I think that's a positive thing. Obviously, we're going to push it as far as we can. But it's going to be coupled with what opportunities are there today, keeping our current products in stock. And again, we'll be opportunistic where we can but I don't really want to make promises because those -- it's really going to be almost a game time call when we have the availability to do that. But look, there's expectation that some of that money is going to come back in 2024 and it should be impactful.
Unidentified Analyst: Okay. So, just kind of hope for the best, expect the worst situation and if we get some back, it's good. And if not, we've already written it off and we're going to push forward.
Norman Snyder: Yes. But look, we're going to remain opportunistic and do as much as we can when we can do it.
Unidentified Analyst: Okay. And my last question, so just looking at the Q4 numbers and I'll admit that I haven't had a chance to actually go through all of them. But just from a top -- like level looking down 1,000 foot due, if delivery and handling costs were reduced by 32% or around like $900,000 quarter-over-quarter. SG&A 23% and also in the $900,000 ballpark range. So, that's about $1.8 million in reduction. So, I was just curious like what was the main driving or driving factor or factors that really hurt our operating loss Q4 in comparison to last year. With those cost-saving measures like taking effect, what pushed us to actually have more of a loss?
Norman Snyder: Well, it was primarily the write-offs. I mean, obviously, there was -- the top line impacted it from a gross margin standpoint. But the real driving factor were all those adjustments.
Unidentified Analyst: Okay. Okay. All right. Yes. So, they are -- they're in that number. That makes that makes much more sense.
Norman Snyder: And if you look at -- that's why I would -- if you go back and look at the modified EBITDA and then you could see really that an apples-to-apples comparison in the prior year.
Unidentified Analyst: Okay. Okay. All right. Awesome. I appreciate the time answering all my questions. Keep up the good work. We've got high expectations and we think you guys will deliver.
Norman Snyder: Thank you, Jack.
Operator: The next question is from John [Indiscernible] from Downtown [Indiscernible] Office. Please go ahead.
Unidentified Analyst: Yes. Thank you for taking my call. A couple of quick questions. First, may I ask current cash label?
Norman Snyder: I'm sorry?
Unidentified Analyst: May I ask current cash label?
Norman Snyder: Current cash label?
Unidentified Analyst: Yes. How much cash you have right now?
Norman Snyder: Well, that's -- what we can disclose, we put in the press release.
Unidentified Analyst: Well, I mean, you do not have a current estimate level of your liquidity, I mean--?
Norman Snyder: Well, like I said, what we've disclosed is post year-end, we're doing a financing of up to $6 million, and we've raised through a safe agreement.
Unidentified Analyst: I mean, in end of the December quarter, you have a $1 million cash left, right?
Norman Snyder: Yes.
Unidentified Analyst: I mean that was in this cost payments. So, I mean, are you currently looking to raise or you have enough cash flow to sustain?
Norman Snyder: Well, I think I answered that question earlier with the current financing that, that will be sufficient.
Unidentified Analyst: All right. Good. Good to hear. Okay. Second question. Does the company have any litigation going on right now?
Norman Snyder: No.
Unidentified Analyst: No, very good. Last question, quick question. You have a new Board member, what is that two quarters before regarding any possible Chinese drinks company, what a partner or something? Any follow-up on that?
Norman Snyder: I'm sorry, say that again?
Unidentified Analyst: Okay. You have new Board member, as of the new year, a couple of quarters ago and you mentioned about possible partnership with that new Board member kind of a strategic partner or kind of--
Norman Snyder: No, no. Yes, no, look at--
Unidentified Analyst: Okay. I just wonder if there any follow-up on that business opportunity, something like that.
Norman Snyder: Yes. Look, just like everything else, we've moved to a concentrate model for our exports to the U.K. and Europe. And obviously, our new Board member is from Hong Kong and understand the Asian markets, and we are presently evaluating opportunities there. And we would mimic the concentrate model that we're using in the U.K. and Europe. So, our cash needs would be minimal to expand in that market. But we're really in the early stages in evaluating that.
Unidentified Analyst: All right. Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Norman Snyder for any closing remarks.
Norman Snyder: I want to thank everyone for participating in this afternoon's call as well as our employees, customers, and, of course, our shareholders. We appreciate everyone's support. I'm pleased with the work we've accomplished over the past year and look forward to executing on our 2024 plan in the year ahead. Thank you and have a good night.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.