Reed’s Inc. (Nasdaq:REED), owner of the nation’s leading portfolio
of handcrafted, all-natural beverages, today announced financial
results for the fiscal first quarter ended March 31, 2019.
Highlights for the First Quarter of
2019
- Net Sales were $8.4 million in the first quarter, a 2% increase
compared with the prior year, while core brand gross sales
increased 15% driven by strong volume growth of the Virgil’s brand,
which increased 46%;
- Gross profit increased 9% to $2.5 million from $2.3 million in
the prior year period. Gross margin increased 185 basis points to
30% from 28% in the prior year period;
- Operating loss was $2.9 million compared with $1.1 million in
the first quarter of 2018. First quarter 2019 operating loss
included $1.0 million of incremental investment in sales and
marketing to support new product launches and future accelerated
sales growth;
- Net loss was $3.3 million or $0.11 per share compared to $1.6
million or $0.06 per share in the prior year period; and
- Modified EBITDA was a loss of $2.3 million compared to a loss
of $0.7 million in the prior year period.
Management Commentary
“We continued to generate strong core brand
gross sales growth during the first quarter, with improved gross
margins. The Virgil’s brand accelerated to 46% volume growth during
the quarter, illustrating the type of positive impact our current
launch of Reed’s new Zero Sugar line and Reed’s 12oz cans can have
on the brand,” stated Val Stalowir CEO of Reed’s, Inc. “We are now
beginning to see the benefit of our asset-light sales and marketing
business model, as we have all but eliminated idle plant costs and
are directing all of our attention and capital toward growing our
category leading brands. We have a busy second quarter planned with
significant new innovation hitting for the Reed’s brand. Reed’s
Zero Sugar and Reed’s cans will be hitting shelves during the
quarter and we will begin the pilot tests of Reed’s ready-to-drink
Mules and Reed’s Wellness Ginger Beer with Hemp Extract at the end
of the quarter. We have also now launched our first ever 360-degree
consumer marketing campaign on Reed’s, focused on five key
markets. The key communication point centers on busting the
long-held myth of ginger ale being able to soothe upset stomachs
and the clear choice for consumers looking for the benefits of real
fresh ginger is Reed’s Ginger Beer. With our new innovation and
increased sales and marketing investments, we are positioned to
further accelerate our growth throughout the year and continue to
forecast 20% to 30% sales growth of our core brands during
2019.”
Mr. Stalowir continued “We are also pleased with
another recent milestone for the Company, we listed on the Nasdaq
Capital Market last week. This listing reflects our improved
financial position, increased share price and the quality
improvements we have made across every aspect of our organization.
We will continue to focus our efforts on building our brands,
increasing the company’s visibility and driving sustained
shareholder value.”
Financial Overview for the First Quarter
of 2019 Compared to the First Quarter of 2018
During the first quarter of 2019, net sales
increased 2% to $8.4 million compared with $8.3 million in the
prior year, while core brand gross sales increased 15% compared to
the same period in 2018. The core brand growth was driven by 46%
volume growth of the Virgil’s brand, including continued momentum
of the Virgil’s Zero Sugar offering. The core brand growth was
offset by lower sales of exited and non-core products and private
label.
Gross profit during the first quarter of 2019
increased 9% to $2.5 million compared to the same period in 2018.
Gross margin was 30% of net sales during the first quarter of 2019
compared to 28% of net sales in the same period in 2018. The 185
basis point year over year improvement in gross margin was
primarily driven by price restructuring along with reduction of
idle plant costs as a result of the plant sale.
Delivery and handling costs increased 8% to $1.0
million during the first quarter of 2019 compared to the same
period in 2018. As a percentage of net sales, delivery and handling
costs increased 65 basis points compared to the prior year,
primarily as a result of a pre-build of innovation inventory and
the positioning of that inventory to the required geographic
distribution centers to prepare for the sales launch of the new
products.
Selling and marketing costs increased 99% to
$2.0 million during the first quarter of 2019. As a percentage of
net sales, selling and marketing costs increased to 24%. The
increase was driven by investment in sales and marketing
initiatives and infrastructure, consistent with the Company’s
strategy to refresh the brands, launch new products into the
market, open new retail outlets and channels and lay the ground
work to re-accelerate growth of the core brands. Reed’s just
launched its first ever, fully integrated marketing campaign which
will reach consumers at multiple touchpoints via social media,
streaming video, in-store, radio, sampling and out-of-home
advertising. The bold “They Fooled Your Mom” campaign officially
kicked off Friday, May 10th with a Times Square New York City
takeover and will roll out to other top metro markets including
Boston, Los Angeles, San Diego and Seattle.
General and administrative expenses increased to
$2.4 million during the first quarter of 2019 compared to $1.4
million in the prior year period. The increase in general and
administrative expenses compared to the prior year period was
largely driven by non-cash performance-based equity awards and
bonus accruals, along with final transition costs relating to the
plant sale.
Operating loss during the first quarter of 2019
increased to $2.9 million from $1.1 million in the prior year
period.
Interest and other expense decreased to $0.4
million during the first quarter of 2019 from $0.5 million during
the first quarter of 2018.
Net loss during the first quarter of 2019 was
$3.3 million, or $0.11 per share, compared to $1.6 million, or
$0.06 per share in the first quarter of 2018.
Modified EBITDA loss was $2.3 million in the
second quarter of 2018 compared to a loss $0.7 million in the
second quarter of 2017.
Liquidity and Cash Flow
During the first quarter of 2019, the Company
used $8.8 million of cash in operating activities compared to $4.6
million of cash used in operating activities in the prior year
period. The increase in cash used in operating activities the first
quarter 2019 related primarily to significant investments in
inventory in preparation of product launches in the second quarter
of 2019 and increased sales and marketing investments. As of March
31, 2019, the Company had cash of $2.7 million and $6.8 million of
available borrowing capacity on its revolving line of credit.
Full Year 2019 Guidance
The Company is reiterating the annual guidance
previously stated in the prospectus supplement released in
conjunction with the Company’s secondary offering filed on February
19, 2019. The Company expects to generate revenue in the range of
$42 million to $44 million for the full year 2019 and anticipates
year-over-year core brand growth of 20% to 30%. The Company
anticipates a gross margin of between 28% to 32% for the first half
of 2019 and a gross margin of 32% or greater for the second half of
2019.
First Quarter 2019 Earnings Call
Details
The Company will conduct a conference call at
4:30 pm Eastern Time today, May 14, 2019 to discuss its first
quarter 2019 results. This conference call can be accessed via a
link on Reed's investor website at http://investor.reedsinc.com/
under the "Events & Presentations" section or directly at
http://public.viavid.com/index.php?id=134390. To listen to the live
call over the Internet, please go to Reed's website at least
fifteen minutes early to register, download and install any
necessary audio software. Additionally, the call may be accessed
with the toll-free dial-in number, 1-(877) 425-9470 (U.S.); or
1-(201) 389-0878 (International). Please dial in at least five
minutes before the start of the conference call.
A replay of the webcast will be archived on the
Company’s website at http://investor.reedsinc.com/ under the
"Events & Presentations" section for approximately 90 days.
About Reed’s, Inc.
Established in 1989, Reed's is America's
best-selling Ginger Beer brand and has been the leader and
innovator in the ginger beer category for decades. Virgil's is
America's best-selling independent, full line of natural craft
sodas. The Reed's Inc. portfolio is sold in over 35,000 retail
doors nationwide. Reed's Ginger Beers are unique due to the
proprietary process of using fresh ginger root combined with a
Jamaican inspired recipe of natural spices and fruit juices. The
Company uses this same handcrafted approach in its award-winning
Virgil's line of great tasting, bold flavored craft sodas.
For more information about Reed’s, please visit
the Company’s website at: http://www.drinkreeds.com or call
800-99-REEDS. Follow Reed’s on Twitter, Instagram, and Facebook
@drinkreeds.
For more information about Virgil’s please visit
Virgil’s website at: http://www.virgils.com. Follow Virgil’s on
Twitter and Instagram @drinkvirgils and on Facebook
@drinkvirgilssoda.
Safe Harbor Statement
Some portions of this press release,
particularly those describing Reed’s goals and strategies, contain
“forward-looking statements.” These forward-looking statements can
generally be identified as such because the context of the
statement will include words, such as “expects,” “should,”
“believes,” “anticipates” or words of similar import. Similarly,
statements that describe future plans, objectives or goals are also
forward-looking statements. While Reed’s is working to achieve
those goals and strategies, actual results could differ materially
from those projected in the forward-looking statements as a result
of a number of risks and uncertainties. These risks and
uncertainties include difficulty in marketing its products and
services, maintaining and protecting brand recognition, the need
for significant capital, dependence on third party distributors,
dependence on third party brewers, increasing costs of fuel and
freight, protection of intellectual property, competition and other
factors, any of which could have an adverse effect on the business
plans of Reed’s, its reputation in the industry or its expected
financial return from operations and results of operations. In
light of significant risks and uncertainties inherent in
forward-looking statements included herein, the inclusion of such
statements should not be regarded as a representation by Reed’s
that they will achieve such forward-looking statements. For further
details, please see our most recent reports on Form 10-K and Form
10-Q, as filed with the Securities and Exchange Commission, as they
may be amended from time to time. Reed’s undertakes no obligation
to publicly update any forward-looking statement, whether as a
result of new information, future events, or otherwise.
CONTACTS:
Investor RelationsScott Van Winkle, ICR(800) 997-3337 Ext 6Or
(617) 956-6736Email: ir@reedsinc.comwww.reedsinc.com
Public Relations and MediaCarina Troy, 360PR+(347)
763-6555Email: ctroy@360pr.plus
REED’S, INC.CONDENSED
STATEMENTS OF OPERATIONSFor the Three Months Ended
March 31, 2019 and
2018(Unaudited)(Amounts in
thousands, except share and per share amounts)
|
Three Months Ended |
|
2019 |
|
2018 |
Net Sales |
$ |
8,449 |
|
|
$ |
8,288 |
|
Cost of goods sold |
|
5,945 |
|
|
|
5,985 |
|
Gross
profit |
|
2,504 |
|
|
|
2,303 |
|
|
|
|
|
Operating
expenses: |
|
|
|
Delivery and handling
expense |
|
1,030 |
|
|
|
956 |
|
Selling and marketing
expense |
|
2,015 |
|
|
|
1,013 |
|
General and administrative
expense |
|
2,371 |
|
|
|
1,433 |
|
(Gain)/Loss on sale of
assets |
|
(30 |
) |
|
|
26 |
|
Total operating
expenses |
|
5,386 |
|
|
|
3,428 |
|
|
|
|
|
Loss from
operations |
|
(2,882 |
) |
|
|
(1,125 |
) |
|
|
|
|
Interest expense |
|
(335 |
) |
|
|
(485 |
) |
Change in fair value of
warrant liability |
|
(47 |
) |
|
|
(5 |
) |
|
|
|
|
Net loss |
$ |
(3,264 |
) |
|
$ |
(1,615 |
) |
|
|
|
|
Loss per share – basic
and diluted |
$ |
(0.11 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
Weighted average number of
shares outstanding – basic and diluted |
|
29,103,645 |
|
|
|
24,989,863 |
|
|
|
|
|
|
|
|
|
REED’S, INC.BALANCE
SHEETSAs of March 31, 2019 and December 31,
2018(Amounts in thousands)
|
|
March 31, 2019 |
|
December 31, 2018 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
|
$ |
2,650 |
|
|
$ |
624 |
|
Accounts receivable, net of
allowance for doubtful accounts and returns and discounts of $447
and $623, respectively |
|
|
3,451 |
|
|
|
2,608 |
|
Receivable from related
party |
|
|
- |
|
|
|
195 |
|
Inventory, net of reserve for
obsolescence of $113 and $197, respectively |
|
|
10,732 |
|
|
|
7,380 |
|
Prepaid expenses and other
current assets |
|
|
445 |
|
|
|
131 |
|
Total Current Assets |
|
|
17,278 |
|
|
|
10,938 |
|
|
|
|
|
|
Property and equipment, net of
accumulated depreciation of $378 and $342, respectively |
|
|
912 |
|
|
|
896 |
|
Equipment held for sale, net
of impairment reserves of $118 and $118, respectively |
|
|
82 |
|
|
|
82 |
|
Intangible assets |
|
|
576 |
|
|
|
576 |
|
Total
Assets |
|
$ |
18,848 |
|
|
$ |
12,492 |
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
Current Liabilities: |
|
|
|
|
Accounts payable |
|
$ |
4,262 |
|
|
$ |
5,721 |
|
Accrued expenses |
|
|
1,103 |
|
|
|
1,483 |
|
Revolving line of credit |
|
|
2,759 |
|
|
|
6,980 |
|
Current portion of leases
payable |
|
|
53 |
|
|
|
51 |
|
Total Current Liabilities |
|
|
8,177 |
|
|
|
14,235 |
|
|
|
|
|
|
Leases payable, less current
portion |
|
|
787 |
|
|
|
801 |
|
Convertible note to a related
party |
|
|
4,287 |
|
|
|
4,161 |
|
Warrant liability |
|
|
85 |
|
|
|
38 |
|
Total
Liabilities |
|
|
13,336 |
|
|
|
19,235 |
|
|
|
|
|
|
Stockholders’ equity
(deficit): |
|
|
|
|
Series A Convertible Preferred
stock, $10 par value, 500,000 shares authorized, 9,412 shares
issued and outstanding |
|
|
94 |
|
|
|
94 |
|
Common stock, $.0001 par
value, 70,000,000 and 40,000,000 shares authorized, 33,513,947 and
25,729,461 shares issued and outstanding, respectively |
|
|
3 |
|
|
|
3 |
|
Additional paid in
capital |
|
|
69,110 |
|
|
|
53,591 |
|
Accumulated deficit |
|
|
(63,695 |
) |
|
|
(60,431 |
) |
Total stockholders’
equity (deficit) |
|
|
5,512 |
|
|
|
(6,743 |
) |
Total liabilities and
stockholders’ equity |
|
$ |
18,848 |
|
|
$ |
12,492 |
|
|
|
|
|
|
|
|
|
|
REED’S, INC.CONDENSED
STATEMENTS OF CASH FLOWSFor the Three Months Ended
March 31, 2019 and
2018(Unaudited)(Amounts in
thousands)
|
March 31, 2019 |
|
March 31, 2018 |
Cash flows from operating
activities: |
|
|
|
Net loss |
$ |
(3,264 |
) |
|
$ |
(1,615 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
Depreciation |
|
13 |
|
|
|
177 |
|
(Gain)/loss on sale of property & equipment |
|
(30 |
) |
|
|
26 |
|
Amortization of debt discount |
|
75 |
|
|
|
28 |
|
Amortization of right of use assets |
|
23 |
|
|
|
- |
|
Stock options issued to employees for services |
|
412 |
|
|
|
161 |
|
Common stock issued for services |
|
194 |
|
|
|
113 |
|
Decrease in allowance for doubtful accounts |
|
(175 |
) |
|
|
(32 |
) |
Decrease in inventory reserve |
|
(84 |
) |
|
|
(58 |
) |
Increase in fair value of warrant liability |
|
47 |
|
|
|
5 |
|
Accrual of interest on convertible note to a related party |
|
126 |
|
|
|
112 |
|
Lease Liability |
|
(4 |
) |
|
|
- |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
(668 |
) |
|
|
259 |
|
Inventory |
|
(3,268 |
) |
|
|
(846 |
) |
Prepaid expenses and other assets |
|
(314 |
) |
|
|
(117 |
) |
Accounts payable |
|
(1,459 |
) |
|
|
(2,829 |
) |
Accrued expenses |
|
(380 |
) |
|
|
(13 |
) |
Other long term obligations |
|
- |
|
|
|
(7 |
) |
Net cash used in operating
activities |
|
(8,756 |
) |
|
|
(4,636 |
) |
Cash flows from investing activities: |
|
|
|
Proceeds from sale of property and equipment |
|
30 |
|
|
|
69 |
|
Purchase of property and equipment |
|
(52 |
) |
|
|
- |
|
Net cash provided by (used in) investing
activities |
|
(22 |
) |
|
|
69 |
|
Cash flows from financing activities: |
|
|
|
Borrowings on line of credit |
|
18,696 |
|
|
|
5,187 |
|
Repayments of line of credit |
|
(22,992 |
) |
|
|
(8,488 |
) |
Principal repayments on capital expansion loan |
|
- |
|
|
|
(507 |
) |
Principal repayments on long term financial obligation |
|
- |
|
|
|
(50 |
) |
Repayment of amounts due to/from officers |
|
195 |
|
|
|
(277 |
) |
Principal repayments on capital lease obligation |
|
(8 |
) |
|
|
(49 |
) |
Exercise of warrants |
|
46 |
|
|
|
- |
|
Proceeds from sale of common stock |
|
14,867 |
|
|
|
- |
|
Net cash provided by (used in) financing
activities |
|
10,804 |
|
|
|
(4,184 |
) |
|
|
|
|
Net increase/(decrease) in cash |
|
2,026 |
|
|
|
(8,751 |
) |
Cash at beginning of period |
|
624 |
|
|
|
12,127 |
|
Cash at end of period |
$ |
2,650 |
|
|
$ |
3,376 |
|
|
|
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
Cash paid for interest |
$ |
135 |
|
|
$ |
334 |
|
Non Cash Investing and Financing
Activities |
|
|
|
Property and equipment acquired through capital lease |
$ |
- |
|
|
$ |
44 |
|
Vendor credits issued for fixed asset purchases |
$ |
- |
|
|
$ |
108 |
|
Assets sold to third parties at cost |
$ |
- |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
|
Modified EBITDA
In addition to our GAAP results, we present
Modified EBITDA as a supplemental measure of our performance.
However, Modified EBITDA is not a recognized measurement under GAAP
and should not be considered as an alternative to net income,
income from operations or any other performance measure derived in
accordance with GAAP, or as an alternative to cash flow from
operating activities as a measure of liquidity. We define Modified
EBITDA as net income (loss), plus interest expense, depreciation
and amortization, stock-based compensation, changes in fair value
of warrant expense, and one-time restructuring-related costs
including employee severance and asset impairment.
Management considers our core operating
performance to be that which our managers can affect in any
particular period through their management of the resources that
affect our underlying revenue and profit generating operations that
period. Non-GAAP adjustments to our results prepared in accordance
with GAAP are itemized below. You are encouraged to evaluate these
adjustments and the reasons we consider them appropriate for
supplemental analysis. In evaluating Modified EBITDA, you should be
aware that in the future we may incur expenses that are the same as
or similar to some of the adjustments in this presentation. Our
presentation of Modified EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or
non-recurring items.
Set forth below is a reconciliation of net loss
to Modified EBITDA for the three months ended March 31, 2019 and
2018 (unaudited; in thousands):
|
Three Months Ended March 31 |
|
2019 |
|
2018 |
Net loss |
$ |
(3,264 |
) |
|
$ |
(1,615 |
) |
|
|
|
|
Modified EBITDA adjustments: |
|
|
|
Depreciation and amortization |
|
13 |
|
|
|
177 |
|
Interest expense |
|
335 |
|
|
|
485 |
|
Stock option and other noncash compensation |
|
606 |
|
|
|
274 |
|
Change in fair value of warrant liability |
|
(47 |
) |
|
|
(5 |
) |
Severance |
|
33 |
|
|
|
0 |
|
Total EBITDA adjustments |
$ |
940 |
|
|
$ |
931 |
|
|
|
|
|
Modified EBITDA |
$ |
(2,324 |
) |
|
$ |
(684 |
) |
|
|
|
|
|
|
|
|
We present Modified EBITDA because we believe 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 our core operating performance. In
addition, we use Modified EBITDA in developing our internal
budgets, forecasts and strategic plan; in analyzing the
effectiveness of our business strategies in evaluating potential
acquisitions; and in making compensation decisions and in
communications with our board of directors concerning our financial
performance. Modified EBITDA has limitations as an analytical tool,
which includes, among others, the following:
|
● |
Modified EBITDA does not reflect our cash expenditures, or future
requirements, for capital expenditures or contractual
commitments; |
|
|
|
|
● |
Modified EBITDA does not reflect changes in, or cash requirements
for, our working capital needs; |
|
|
|
|
● |
Modified EBITDA does not reflect future interest expense, or the
cash requirements necessary to service interest or principal
payments, on our debts; and |
|
|
|
|
● |
Although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and Modified EBITDA does not reflect any
cash requirements for such replacements. |
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