Reed’s, Inc. (OTCQX: REED) (“Reed’s” or the “Company”), owner of
the nation’s leading portfolio of handcrafted, natural ginger
beverages, is reporting financial results for the three months
ended March 31, 2023.
Q1 2023 Financial Highlights (vs. Q1 2022):
- Net sales were $11.2 million compared to $12.2 million.
- Gross profit was $2.7 million compared to $2.9 million, with
gross margin of 24.2% compared to 24.1%.
- Delivery and handling costs declined 25% to $3.46 per
case.
- Selling, general and administrative expenses declined 27% to
$3.2 million.
- Operating loss improved to $(2.6) million compared to $(4.2)
million.
- Modified EBITDA loss improved to $(2.3) million compared to
$(3.8) million.
Management Commentary
“Q1 marked our third consecutive quarter of year-over-year
operating expense and modified EBITDA improvements, driven by the
implementation of various cost-cutting and optimization initiatives
throughout 2022,” said Norman E. Snyder, CEO of Reed’s. “We
continued to see solid order demand from our retail partners,
however we were unable to fulfill orders due to tightened credit
terms from several suppliers that impacted our ability to purchase
inventory, which resulted in an inflated rate of short order
shipments. We believe this offset net sales by more than $1.6
million during the first quarter.
“As announced earlier this week, we recently secured $5.6
million in financing from our top shareholders, a new strategic
partner in Hong Kong and our secured lender. The combined funding
will dramatically improve our working capital and enable us to
appropriately build inventory levels to fulfill the ongoing demand
for our products. In addition, the strategic partnership will
enable us to import innovative beverage products into the US
market, as well as export Reed’s robust portfolio of better-for-you
products into Asia.
“Looking ahead, we are reiterating our profitability targets for
2023 as we continue to expect gross margin to improve and turn
modified EBITDA and cash flow positive. However, we are adjusting
our net sales outlook for 2023 given the inventory challenges in
the first half of the year. With our strengthened working capital
position, optimized cost structure, and continued demand for Reed’s
products, we believe we are reaching an inflection point for our
business and look forward to executing on our objectives in the
second half of the year.”
Recent Financing
As announced on May 31, 2023, Reed’s completed a $4.1 million
strategic PIPE investment from D&D Source of Life Holding LTD
(“D&D”), a Hong Kong based investment company with several
investments in consumer product companies, and our top
shareholders.
The purchase price per share was $2.585, which is based on a
premium of 10% to the average of the bid and ask prices on May 19,
2023. In addition, the Company issued warrants to purchase one
share of common stock for every five shares subscribed. The
warrants have an exercise price of $2.50 and a term of three
years.
In addition, the holders of Reed’s secured convertible notes
augmented their current bridge note by $1.5 million and extended
the repayment date to September 29, 2023, subject to certain
conditions.
Reed’s plans to use the aggregate gross proceeds of
approximately $5.6 million, before deducting fees associated with
the offering payable by Reed’s, for building inventory, general
corporate and working capital purposes.
This press release is neither an offer to purchase or sell nor a
solicitation of an offer to sell or buy the shares, warrants or any
other securities of the Company, nor shall there be any sale of the
securities in any state in which such offer, solicitation or sale
would be unlawful prior to the registration or qualification under
the securities laws of such state.
First Quarter 2023 Financial Results
During the first quarter of 2023, net sales were $11.2 million
compared to $12.2 million in the prior year. The decrease was
primarily driven by tightened credit terms from several suppliers
that impacted the Company’s ability to purchase inventory, which
offset net sales by more than $1.6 million.
Gross profit for the first quarter of 2023 was $2.7 million
compared to $2.9 million in the same period in 2022. Gross margin
was relatively flat at 24.2% compared to 24.1% in the year-ago
quarter, however gross margin sequentially improved approximately
130 and 410 basis points compared to Q4 and Q3 of 2022,
respectively.
Delivery and handling costs were reduced by 25% to $2.1 million
during the first quarter of 2023 compared to $2.8 million in the
first quarter of 2022. The decrease was primarily driven by
renegotiated freight contracts, improved throughput, as well as the
Company’s streamlined distribution orbit model. Delivery and
handling costs were reduced to 19% of net sales or $3.46 per case,
compared to 23% of net sales or $3.90 per case during the same
period last year.
Selling, general and administrative costs declined by 27% to
$3.2 million during the first quarter of 2023 compared to $4.3
million in the year-ago quarter. As a percentage of net sales,
selling, general and administrative costs were reduced to 28%
compared to 35%.
Operating loss during the first quarter of 2023 improved to $2.6
million or $(1.01) per share, compared to $4.2 million or $(2.15)
per share in the first quarter of 2022.
Modified EBITDA loss improved to $2.3 million in the first
quarter of 2023 compared to a loss of $3.8 million in the first
quarter of 2022.
Liquidity and Cash Flow
For the first quarter of 2023, the Company generated
approximately $1.1 million of cash from operating activities
compared to $2.2 million of cash used for the same period in 2022.
The increase was primarily driven by lower inventory purchases.
As of May 31, 2023, the Company has replenished its inventory
and now has approximately $2.3 million of cash and $22.4 million of
total debt net of capitalized financing fees. This includes $16.1
million from a convertible note and $6.3 million from the Company’s
revolving line of credit, which has $6.7 million of additional
borrowing capacity.
FY 2023 Financial Outlook
The Company currently expects net sales growth for the full year
2023, gross margin to surpass 30%, $6 million of operating expense
reductions and modified EBITDA to turn profitable by the second
half of 2023. The Company also expects to turn cash flow positive
in the second half of 2023.
Conference Call
The Company will conduct a conference call today, June 1, 2023,
at 8:30 a.m. Eastern time to discuss its results for the three
months ended March 31, 2023.
Reed’s management will host the conference call, followed by a
question-and-answer period.
Date: Thursday, June 1, 2023Time: 8:30 a.m.
Eastern timeToll-free dial-in number: (844) 850-0544International
dial-in number: (412) 542-4115Conference ID: 10179440Webcast:
Reed’s Q1 2023 Conference Call
Please dial into the conference call 5-10 minutes prior to the
start time. An operator will register your name and organization.
If you have any difficulty connecting with the conference call,
please contact the company’s investor relations team at (720)
330-2829.
The conference call will also be broadcast live and available
for replay on the investor relations section of the Company’s
website at https://investor.reedsinc.com.
About Reed's, Inc.
Reed’s is an innovative company and category leader that
provides the world with high quality, premium and naturally bold™
better-for-you beverages. Established in 1989, Reed's is a leader
in craft beverages under the Reed’s®, Virgil’s® and Flying
Cauldron® brand names. The Company’s beverages are now sold in over
45,000 stores nationwide.
Reed’s is known as America's #1 name in natural, ginger-based
beverages. Crafted using real ginger and premium ingredients,
Reed’s portfolio includes ginger beers, ginger ales, ready-to-drink
ginger mules and hard ginger ales. The brand has recently
successfully expanded into the zero-sugar segment with its
proprietary, natural sweetener system.
Virgil's® is an award-winning line of craft sodas, made with the
finest natural ingredients and without GMOs or artificial
preservatives. The brand offers an array of great tasting, bold
flavored sodas including Root Beer, Vanilla Cream, Black Cherry,
Orange Cream, and more. These flavors are also available in nine
zero sugar varieties which are naturally sweetened and certified
ketogenic.
Flying Cauldron® is a non-alcoholic butterscotch beer prized for
its creamy vanilla and butterscotch flavors. Sought after by
beverage aficionados, Flying Cauldron is made with natural
ingredients and no artificial flavors, sweeteners, preservatives,
gluten, caffeine, or GMOs.
For more information,
visit drinkreeds.com, virgils.com and flyingcauldron.com.
Forward-Looking Statements
Statements in this release that are not historical are
forward-looking statements made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are typically identified
by terms such as "estimate," "expect,” "guidance," "intend,"
"financial outlook," "potential," “look forward,” “believe,”
"project," "should," "will," “plan,” and similar expressions. These
forward-looking statements are based on current expectations and
include our management’s expectations and guidance for fiscal year
2023 under the heading “FY 2023 Financial Outlook”. The achievement
or success of the matters covered by such forward-looking
statements involves risks, uncertainties, and assumptions, many of
which involve factors or circumstances that are beyond our control.
Reed‘s 2023 guidance reflects year-to-date and expected future
business trends and includes impacts of COVID-19 on the supply
chain and logistics as of the date hereof. New supply chain
challenges that may develop and further potential 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.
Financial guidance should not be viewed as a substitute for full
financial statements prepared in accordance with GAAP.
If any such risks or uncertainties materialize or if any of the
assumptions prove incorrect, Reed’s actual results could differ
materially from the results expressed or implied by the
forward-looking statements we make, including our ability to
achieve our targets for the fiscal year ending December 31, 2023.
The risks and uncertainties referred to above include, but are not
limited to: risks associated with current economic uncertainties
tied to the COVID-19 pandemic, including but not limited to its
effect on customer demand for the our products and services and the
impact of potential delays in supply of product inputs and customer
payments; risks associated with new product releases; the impacts
of further inflation; risks that customer demand may fluctuate or
decrease; risks that we are unable to collect unbilled contractual
commitments, particularly in the current economic environment; our
ability to compete successfully and manage growth; our significant
debt obligations; our ability to develop and expand strategic and
third party distribution channels; our dependence on third party
suppliers, brewers and distributors; third parties meeting
contractual commitments; risks related to our international
operations; our ability to continue to innovate; our strategy of
making investments in sales to drive growth; increasing costs of
fuel and freight, protection of intellectual property; competition;
general political or destabilizing events, including the war in
Ukraine, conflict or acts of terrorism; the effect of evolving
domestic and foreign government regulations, including those
addressing data privacy and cross-border data transfers; and other
risks detailed from time to time in Reed’s public filings,
including Reed’s annual report on Form 10-K filed on May 15, 2023,
which are available on the Securities and Exchange Commission’s web
site at www.sec.gov. These forward-looking statements are
based on current expectations and speak only as of the date hereof.
Reed’s assumes no obligation and does not intend to update these
forward-looking statements, except as required by law.
Investor Relations Contact
Sean Mansouri, CFAElevate IRir@reedsinc.com (720) 330-2829
REED’S, INC. |
CONDENSED STATEMENTS OF OPERATIONS |
For the Three Months Ended March 31, 2023 and
2022 |
(Unaudited) |
(Amounts in thousands, except share and per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
Net
Sales |
|
$ |
11,157 |
|
|
$ |
12,182 |
|
Cost of goods sold |
|
|
8,459 |
|
|
|
9,250 |
|
Gross
profit |
|
|
2,698 |
|
|
|
2,932 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Delivery and handling
expense |
|
|
2,120 |
|
|
|
2,812 |
|
Selling and marketing
expense |
|
|
1,447 |
|
|
|
2,178 |
|
General and administrative
expense |
|
|
1,709 |
|
|
|
2,121 |
|
Total operating
expenses |
|
|
5,276 |
|
|
|
7,111 |
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(2,578 |
) |
|
|
(4,179 |
) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,779 |
) |
|
|
(801 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,357 |
) |
|
$ |
(4,980 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share –
basic and diluted |
|
$ |
(1.70 |
) |
|
$ |
(2.56 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of
shares outstanding – basic and diluted |
|
|
2,559,855 |
|
|
|
1,947,548 |
|
|
|
REED’S, INC, |
CONDENSED BALANCE SHEETS |
(Amounts in thousands, except share amounts) |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
2023 |
2022 |
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
467 |
|
|
$ |
533 |
|
Accounts receivable, net of
allowance of $213 and $252, respectively |
|
|
4,665 |
|
|
|
5,671 |
|
Inventory, net |
|
|
15,301 |
|
|
|
16,175 |
|
Receivable from former related
party |
|
|
777 |
|
|
|
777 |
|
Prepaid expenses and other
current assets |
|
|
601 |
|
|
|
939 |
|
Total current assets |
|
|
21,811 |
|
|
|
24,095 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of
accumulated depreciation of $867 and $787, respectively |
|
|
686 |
|
|
|
766 |
|
Intangible assets |
|
|
626 |
|
|
|
626 |
|
Total
assets |
|
$ |
23,123 |
|
|
$ |
25,487 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
11,165 |
|
|
$ |
9,805 |
|
Accrued expenses |
|
|
467 |
|
|
|
233 |
|
Revolving line of credit, net
of capitalized financing costs of $322 and $363, respectively |
|
|
7,593 |
|
|
|
10,974 |
|
Payable to former related
party |
|
|
1,859 |
|
|
|
2,025 |
|
Current portion of convertible
notes payable, net of debt discount of $670 and $414,
respectively |
|
|
5,485 |
|
|
|
2,434 |
|
Current portion of lease
liabilities |
|
|
194 |
|
|
|
187 |
|
Total current liabilities |
|
|
26,763 |
|
|
|
25,658 |
|
|
|
|
|
|
|
|
|
|
Convertible note payable, net
of debt discount of $484 and $562, respectively, less current
portion |
|
|
8,526 |
|
|
|
8,092 |
|
Lease liabilities, less
current portion |
|
|
156 |
|
|
|
207 |
|
Total
liabilities |
|
|
35,445 |
|
|
|
33,957 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
|
|
|
|
|
Series A Convertible Preferred
stock, $10 par value, 500,000 shares authorized, 9,411 shares
issued and outstanding |
|
|
94 |
|
|
|
94 |
|
Common stock, $.0001 par
value, 180,000,000 shares authorized; 2,602,399 and 2,519,485
shares issued and outstanding, respectively |
|
|
- |
|
|
|
- |
|
Additional paid in
capital |
|
|
115,140 |
|
|
|
114,635 |
|
Accumulated deficit |
|
|
(127,556 |
) |
|
|
(123,199 |
) |
Total stockholders’
deficit |
|
|
(12,322 |
) |
|
|
(8,470 |
) |
Total liabilities and
stockholders’ deficit |
|
$ |
23,123 |
|
|
$ |
25,487 |
|
|
|
|
|
|
|
|
|
|
REED’S, INC. |
CONDENSED STATEMENTS OF CASH FLOWS |
For the Three Months Ended March 31, 2023 and
2022 |
(Unaudited) |
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,357 |
) |
|
$ |
(4,980 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
47 |
|
|
|
25 |
|
Amortization of debt discount |
|
|
281 |
|
|
|
65 |
|
Amortization of prepaid financing costs |
|
|
- |
|
|
|
431 |
|
Fair value of vested options |
|
|
229 |
|
|
|
225 |
|
Fair value of vested restricted shares granted to officers |
|
|
4 |
|
|
|
66 |
|
Fair value of common shares issued as financing costs |
|
|
- |
|
|
|
37 |
|
Change in allowance for doubtful accounts |
|
|
(39 |
) |
|
|
62 |
|
Inventory write-downs |
|
|
(228 |
) |
|
|
10 |
|
Accrued interest |
|
|
1,113 |
|
|
|
- |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,044 |
|
|
|
(40 |
) |
Inventory |
|
|
1,102 |
|
|
|
(3,810 |
) |
Prepaid expenses and other assets |
|
|
338 |
|
|
|
(617 |
) |
Decrease in right of use assets |
|
|
32 |
|
|
|
27 |
|
Accounts payable |
|
|
1,360 |
|
|
|
5,926 |
|
Accrued expenses |
|
|
235 |
|
|
|
403 |
|
Lease liabilities |
|
|
(44 |
) |
|
|
(37 |
) |
Net cash provided by
(used in) operating activities |
|
|
1,117 |
|
|
|
(2,207 |
) |
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Net cash used in
investing activities |
|
|
- |
|
|
|
- |
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
|
8,699 |
|
|
|
14,508 |
|
Payments on line of credit |
|
|
(12,120 |
) |
|
|
(17,212 |
) |
Proceeds from convertible note payable, net of expenses |
|
|
2,405 |
|
|
|
- |
|
Proceeds from sale of common stock |
|
|
- |
|
|
|
5,067 |
|
Repurchase of common stock |
|
|
(1 |
) |
|
|
(2 |
) |
Amounts from former related party, net |
|
|
(166 |
) |
|
|
(81 |
) |
Net cash provided by
(used in) financing activities |
|
|
(1,183 |
) |
|
|
2,280 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash |
|
|
(66 |
) |
|
|
73 |
|
Cash at beginning of
period |
|
|
533 |
|
|
|
49 |
|
Cash at end of period |
|
$ |
467 |
|
|
$ |
122 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
390 |
|
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
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 during 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, 2023, and 2022
(unaudited; in thousands):
|
|
Three Months Ended |
|
March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
Net loss |
|
$ |
(4,357 |
) |
|
$ |
(4,980 |
) |
|
|
|
|
|
|
|
|
|
Modified EBITDA
adjustments: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
80 |
|
|
|
52 |
|
Interest expense |
|
|
1,779 |
|
|
|
801 |
|
Stock option and other noncash
compensation |
|
|
233 |
|
|
|
291 |
|
Total EBITDA adjustments |
|
$ |
2,092 |
|
|
$ |
1,144 |
|
|
|
|
|
|
|
|
|
|
Modified EBITDA |
|
$ |
(2,265 |
) |
|
$ |
(3,836 |
) |
|
|
|
|
|
|
|
|
|
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; 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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