Reed’s, Inc. Announces Third Quarter Results

Supply Chain Restraints Impacted Record Demand

Now Resolved with Four Plants Producing Products

LOS ANGELES, Nov. 12, 2015 (GLOBE NEWSWIRE) — Reed’s, Inc. (NYSE MKT:REED), maker of the top-selling sodas in natural food stores nationwide, today announced the financial results for its fiscal third quarter ended September 30, 2015.

Sales and Marketing Overview:

  • The Reed’s brands grew at +37% for the latest 52 weeks ending 10/4/15 according to the most recent SPINS syndicated scan data from national conventional supermarkets
  • According to the SPINS syndicated scan data, Reed’s & Virgil’s combined grew 27%, making Reed’s, Inc. the fastest growing beverage brand out of the Top 50 carbonated soft drink brands in supermarkets
  • Direct-Store-Delivery (DSD) distributors volume grew at +27% for the latest 52 weeks ending 11/4/15
  • DSD distributors account base grew 43% for the latest 52 weeks
  • Year to date, Reed’s Ginger Brews have posted 20% revenue growth while Virgil’s brands have declined 7% due to temporary product shortages that have now been resolved
  • Kombucha sales decreased 14% in the nine months ended September 30, 2015, as compared to 2014
  • Bar Business Magazine –July issue cover story touting the resurgence of the Moscow Mule focused on Reed’s Stronger Ginger Brew
  • Progressive Grocer Magazine – 2015 Editors Pick “Reed’s Stronger Ginger Brew” – Represented only beverage selected
  • Beverage World Magazine – 2015 Liquid Refreshment Power Players of the Year – Reed’s selected as one of the top five movers and shakers in the market
  • Bar Biz Spirits 2015 Competition – Reed’s wins best carbonated mixer

Financial Overview:

For the third quarter 2015 compared to the third quarter 2014:

  • Due to temporary supply constraints, net revenue decreased 13% to $10.7 million
  • Gross profit margins decreased from 32% to 15% due to onetime charges of 7% for co-packer quality related issues, 4% for the disposal of dated product and 2% for product mix – Without these adjustments gross profit would have been 28%. The Company expects gross margins to return to normalized levels beginning in the current quarter
  • Idle capacity expenses decreased 9% to $384,000 in the three months ended September 30, 2015 from $424,000 in 2014 due to west coast plant efficiencies
  • Net loss was $2.1 million or $0.19 per share

For the first nine months of 2015 compared to the first nine months of 2014: 

  • Sales for the first nine months in 2015 increased 3.4% to $33.6 million, as compared to $32.5 million in the first nine months of 2014
  • Gross Profit for the first nine months of 2015 was $8.5 million, as compared to $10.5 million in the first nine months of 2014. This was directly due to sales demand exceeding our supply on hand
  • Net loss per diluted share for the nine months ended September 30, 2015 was $(0.26) versus a gain of $0.04 per diluted share for the nine months ended September 30, 2014

Financing activity:

  • Company obtained a new Term Loan B for $1,500,000 in the third quarter
  • Subsequent to the quarter close, the company successfully restructured the new Term Loan B and the existing Term Loan A for a total of $3,000,000 to mature in 2017 and enable the Company to accumulate cash
  • Cash at the end of the third quarter was $1.2 million vs $215,000 at the end of the second quarter
  • Total inventory decreased by $1.6 million versus the previous quarter. The Company anticipates further inventory reductions of almost $1.0 million more in the fourth quarter

Chris Reed, Founder and CEO of Reed’s, Inc. stated, “We continued to see strong demand for our natural and craft beverages in the third quarter and estimate that the demand was there for at least an additional $5 million in sales.  Unfortunately, our supply chain could not keep pace.  We believe that with four plants now producing our products, our capacity constraint issues are behind us.  In October, we had the best month in the Company’s history with sales that exceeded $5 million.  We expect that not only will we be able to keep up with demand, but also significantly reduce shipping costs.  It took longer than we expected, but now that we have increased our production capabilities, we will be able to keep up with the accelerated demand for our beverages.”

Reed continued, “After 26 years in the bottled premium soda business, we are expanding our scope to include soda fountain products.  Although we are only at the early stages of this very exciting development, we believe that the time is right for an all-natural soda fountain alternative to the chemically-laced soda fountain products that are currently in the market.  More and more fast-casual chains are looking at healthier alternatives for their customers and we believe that this new product offering we are currently developing will be a perfect pairing for their menu items. Our first test installations are going online this year,” Reed concluded.

Mark Beaton, Chief Operating Officer of Reed’s, Inc. stated, “Demand completely outpaced supply in the third quarter resulting in severe out-of-stocks.  We accelerated our expansion plans, and early in the fourth quarter, we increased our production partnerships in both the mid-west and on the east coast.  We began the fourth quarter with four production facilities, two of which are new partnerships. As a result, production output was at record levels for the month of October.  Focus is now shifting towards our West Coast Plant upgrade and we are now positioned to meet the accelerated demand our brands are experiencing throughout the country.”

Dan Miles, Chief Financial Officer of Reed’s Inc., stated, “We have increased our production capacity, mitigated our production risk and significantly cleaned up our balance sheet. Just this week we completed a restructuring of our debt that will enable us to accumulate more cash for investment opportunities.  Stringent focus on inventory enabled the company to decrease our total inventory by $1.6 million. As a result, the Company ended the quarter with approximately $1 million more in cash than what we started the quarter with and accomplished that in spite of the supply chain interruption.  We are excited about the opportunities ahead for Reed’s and our all natural product offerings.”

The Company will conduct a conference call at 4:30PM EST today, November 12 to discuss its 2015 third quarter results. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (800) 954-1053. International callers should dial +1 (212) 231-2905.

A replay of the call will be available on the Reed’s website at www.reedsinc.com in the “Investors” section following the earnings call within a day.

About Reed’s, Inc.

Reed’s, Inc. makes the top-selling natural sodas in the natural foods industry, which are sold in over 15,000 natural and mainstream supermarkets nationwide. In addition, Reed’s products are sold through specialty gourmet, natural food stores, retail stores, convenience stores and restaurants nationwide and select international markets. Its seven award-winning non-alcoholic Ginger Brews are unique in the beverage industry, being brewed, not manufactured and using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. The Company owns the top-selling root beer line in natural foods, the Virgil’s Root Beer product line, and a top-selling cola line in natural foods, the China Cola product line. In 2012, the Company launched its Reed’s Culture Club Kombucha line of organic live beverages. Other product lines include Reed’s Ginger Candies and Reed’s Ginger Ice Creams. The company celebrated 25 years of hand crafting the best sodas in the world, naturally, in 2014.

For more information about Reed’s, please visit the Company’s website at: http://www.reedsinc.com or call 800-99-REEDS.

Follow Reed’s on InstagramTwitter and Facebook.

Reed’s Facebook Fan Page at https://www.facebook.com/ReedsGingerBrew

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 and a discussion of these and other risks and uncertainties, 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.

   
REED’S, INC.
CONDENSED BALANCE SHEETS
 
    September 30, 2015     December 31, 2014  
    (Unaudited)        
ASSETS                
Current assets:                
Cash   $   1,203,000       $ 959,000  
Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $416,000 and $253,000, respectively       3,744,000         2,500,000  
Inventory, net of reserve for obsolescence of $526,000 and $90,000, respectively       7,900,000         6,306,000  
Prepaid inventory       690,000         1,287,000  
Prepaid and other current assets       314,000         447,000  
Total Current Assets       13,851,000         11,499,000  
                 
Property and equipment, net of accumulated depreciation of $4,008,000 and $3,405,000, respectively       5,282,000         4,572,000  
Brand names       1,029,000         1,029,000  
Total assets   $   20,162,000       $ 17,100,000  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
Accounts payable   $   7,710,000       $ 5,894,000  
Accrued expenses       151,000         130,000  
Line of credit       4,329,000         3,009,000  
Current portion of long term financing obligation       154,000         134,000  
Current portion of capital leases payable       127,000         125,000  
Term loans payable       1,841,000          
               
Total current liabilities       14,312,000         9,292,000  
                 
Long term financing obligation, less current portion, net of discount of $962,000 and $1,031,000, respectively       1,459,000         1,508,000  
Capital leases payable, less current portion       383,000         476,000  
Term loans payable       2,990,000         2,172,000  
                 
Total Liabilities       19,144,000         13,448,000  
                 
Stockholders’ equity:                
Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 shares issued and outstanding       94,000         94,000  
Common stock, $.0001 par value, 19,500,000 shares authorized, 13,147,815 and 13,068,058 shares issued and outstanding, respectively       1,000         1,000  
Additional paid in capital       27,094,000         26,300,000  
Accumulated deficit       (26,171,000 )       (22,743,000 )
Total stockholders’ equity       1,018,000         3,652,000  
Total liabilities and stockholders’ equity   $   20,162,000       $ 17,100,000  

 
REED’S, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2015 and 2014
(Unaudited)
 
    Three months ended 

September 30

    Nine months ended September 30
    2015     2014     2015     2014  
                         
Sales, net   $   10,713,000       $   12,319,000       $   33,561,000       $   32,456,000    
Cost of goods sold       9,153,000           8,434,000           25,104,000           21,962,000    
                                 
Gross profit       1,560,000           3,885,000           8,457,000           10,494,000    
                                 
Operating expenses:                                
Delivery and handling expenses       1,354,000           1,310,000           3,952,000           3,131,000    
Selling and marketing expense       1,242,000           1,480,000           3,770,000           3,604,000    
General and administrative expense       1,108,000           849,000           3,332,000           2,730,000    
Total operating expenses       3,704,000           3,639,000           11,054,000           9,465,000    
                                 
Income (loss) from operations       (2,144,000 )         246,000           (2,597,000 )         1,029,000    
                                 
Interest expense       (321,000 )         (195,000 )         (826,000 )         (560,000 )  
                                 
Income (loss) before income taxes       (2,465,000 )         51,000           (3,423,000 )         469,000    
Income Tax                 (3,000 )                   (3,000 )  
Net income (loss)       (2,465,000 )         48,000           (3,423,000 )         466,000    
Preferred stock dividends                           (5,000 )         (5,000 )  
                                 
Net income (loss) attributable to common stockholders   $   (2,465,000 )     $   48,000           (3,428,000 )         461,000    
                                 
Income (loss) per share available to common stockholders, basic   $   (.19 )     $   0.00           (.26 )         .04    
Weighted average number of shares outstanding – basic       13,133,424           13,053,627           13,102,614           13,034,707    
Income (loss) per share available to common stockholders, diluted   $   (.19 )         0.00           (.26 )         .04    
Weighted average number of shares outstanding – diluted       13,133,424           13,135,317           13,102,614           13,291,536    

   
REED’S, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
 
   
    Nine Months Ended September 30,  
    2015     2014  
Cash flows from operating activities:                
Net Income (loss)   $   (3,423,000 )     $ 466,000  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Depreciation and amortization       683,000         536,000  
Fair value of stock options issued to employees         715,000         308,000  
Fair value of common stock issued for services and bonus             10,000  
(Decrease) increase in allowance for doubtful accounts       163,000         90,000  
Changes in assets and liabilities:                
Accounts receivable       (1,090,000 )       (1,706,000 )
Inventory       (1,594,000 )       309,000  
Prepaid Inventory       597,000         (644,000 )
Prepaid expenses and other current assets       66,000            
Accounts payable       1,816,000         2,177,000  
Accrued expenses       21,000         11,000  
Net cash provided by (used in) operating activities       (2,046,000 )       1,557,000  
Cash flows from investing activities:                
Purchase of property and equipment       (415,000 )       (355,000 )
Net cash used in investing activities       (415,000 )       (355,000 )
Cash flows from financing activities:                
Proceeds from stock option and warrant exercises       74,000         26,000  
Proceeds from short term borrowing       1,500,000            
Principal repayments on long term financing obligation       (97,000 )       (81,000 )
Principal repayments on capital lease obligation       (91,000 )       52,000  
Principal repayments on term loan             (129,000 )
Net draw down (repayment) on line of credit       1,319,000         (365,000
Net cash (used in) provided by financing activities       2,705,000         (601,000 )
Net increase in cash       244,000         601,000  
Cash at beginning of period       959,000         1,104,000  
Cash at end of period   $   1,203,000       $ 1,705,000  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period for:                
Interest   $   826,000       $ 560,000  
Non Cash Investing and Financing Activities                
Property and equipment acquired through capital expansion loan   $   819,000       $ 475,000  
Other current assets acquired through capital expansion loan       341,000          
Dividends Payable in common stock       5,000         5,000  

   
MODIFIED EBITDA SCHEDULE  
   
    Three Months Ended September 30,  
    2015     2014  
Net Income (loss)   $ (2,465,000 )   $ 48,000  
                 
Modified EBITDA adjustments:                
Depreciation and amortization     235,000       144,000  
Interest expense     321,000       195,000  
Stock option compensation     156,000       90,000  
Other stock compensation for services              
Total EBITDA adjustments     712,000       429,000  
                 
Modified EBITDA income from operations   $ (1,753,000 )   $ 477,000  

CONTACT: Reed's, Inc. Investor Relations (310) 217-9400 ext. 18 Email: ir@reedsinc.com www.reedsinc.com