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, 2020.
Highlights for the First Quarter of
2020
- Net sales increased 13% to $9.5 million in the first quarter
compared to $8.4 million in the prior year. The increase compared
to the prior year reflects increased sales of both the Reed’s® and
Virgil’s® brands, including the launch of significant new Reed’s®
brand innovation;
- Core brand gross sales increased 12% versus prior year period
primarily driven by strong 21% volume growth of the Reed’s®
brand;
- Gross profit increased 15% to $2.9 million compared to $2.5
million in the prior year period. Gross margin increased 50 basis
points to 30.1%;
- Operating loss narrowed to $2.3 million compared to $2.9
million in the first quarter of 2019; and
- Net loss was $2.6 million, or $0.05 per share, compared to $3.3
million, or $0.11 per share, in the prior year period; and
- Non-GAAP Modified EBITDA loss improved to $1.4 million in the
first quarter of 2020 compared to a Modified EBITDA loss of $2.3
million in the prior year.
Management Commentary
“We are very pleased with our results in the
first quarter achieving 13% net sales growth driven by 21% volume
growth of the Reed’s® brand. We are seeing strong consumer
take-away of both the Reed’s® and Virgil’s® brands, with
accelerating growth in March and April. According to IRI data,
during the most recent 4-week period ended April 19th, dollar sales
of Reed’s® increased 32% and Virgil’s® increased 25%. Our recent
innovations, including Reed’s® Real Ginger Ale™, Reed’s® Extra Zero
Sugar and Reed’s® Wellness Ginger Shots, are all contributing to
growth and we are seeing a strong response from retailers and
consumers. We are particularly excited with the broad-based
retailer interest in Reed’s® Real Ginger Ale™, allowing us to
capitalize on the fast growing $1.2 billion ginger ale market,”
stated Norman E. Snyder, Chief Executive Officer of Reed’s, Inc.
“We have strengthened our supply chain and co-packer network, are
driving costs out the business and are laser focused on progressing
toward cash flow break-even. We recently strengthened our balance
sheet with a successful equity offering, all of our innovations are
now in place and we have significantly expanded our market
opportunity with the launch of Reed’s® Real Ginger Ale™. The entire
Reed’s® team and partners are delivering a high level of execution
supporting growth and efficiencies. We have also successfully
adapted to the current environment associated with the COVID-19
pandemic, and are delivering our customers uninterrupted service. I
am extremely appreciative of the efforts of all of our employees
and partners amid these recent challenges.”
Financial Overview for the First Quarter
of 2020 Compared to the First Quarter of 2019
During the first quarter of 2020, net sales
increased 13% to $9.5 million compared with $8.4 million in the
prior year. Core brand gross sales increased 12% compared to the
same period in 2019, driven by 21% volume growth of the Reed’s®
brand primarily as a result of new products introduced in the
quarter. This increase was partially offset by residual sales of
discontinued and private label, which are no longer part of our
portfolio as a result of the sale of the private label business at
end of fiscal 2018 and planned discontinued sales of exited and
non-core products.
Gross profit during the first quarter of 2020
increased 15% to $2.9 million compared to the same period in 2019.
The increase in gross profit reflects increased revenue during the
quarter driven by strong volume growth of the Reed’s® brand. Gross
margin increased 50 basis points to 30.1% from 29.6% in the prior
year period.
Delivery and handling costs increased 23% to
$1.3 million during the first quarter of 2020 compared to the same
period in 2019. As a percentage of net sales, delivery and handling
costs increased 110 basis points compared to the prior year,
reflecting increased volumes and elevated costs due to market
forces impacted by COVID-19.
Selling and marketing costs decreased 4% to $1.9
million during the first quarter of 2020. As a percentage of net
sales, selling and marketing costs decreased to 20% from 24% in the
prior year period. The decrease was primarily a result of programs
offered in the first quarter of 2019 that were not implemented in
the first quarter of 2020.
General and administrative expenses (G&A)
decreased to $1.9 million during the first quarter of 2020 compared
to $2.4 million in the prior year period. The decrease in general
and administrative expenses compared to the prior year period was
largely driven by the exit of the Los Angeles facility and
reduction of temporary staff.
Operating loss during the first quarter of 2020
narrowed to $2.3 million from $2.9 million in the prior year
period.
Interest expense of $0.3 million during the
first quarter of 2020 was consistent with the first quarter of
2019.
Net loss during the first quarter of 2020 was
$2.6 million, or $0.05 per share, compared to $3.3 million, or
$0.11 per share in the first quarter of 2019.
Modified EBITDA loss was $1.4 million in the
first quarter of 2020 compared to a loss of $2.3 million in the
first quarter of 2019.
Liquidity and Cash Flow
During the first three months of 2020, the
Company used $2.4 million of cash in operating activities compared
to $8.8 million of cash used in operating activities in the prior
year period. The decrease in cash used in operating activities
during the first quarter of 2020 relates primarily to a lower net
loss and a decrease in finished goods inventory. As of March 31,
2020, the Company had $3.0 million of available borrowing capacity
on its revolving line of credit.
Follow-on Offering
On April 20, 2020, the Company closed an
underwritten public offering of 15.3 million shares of common
stock, at a public offering price of $0.375 per share. The gross
proceeds to the Company from this offering were approximately $5.8
million, before deducting commissions and other offering
expenses.
Full Year 2020 Guidance
The Company is reaffirming its fiscal 2020
outlook. The Company continues to expect to generate core brand
growth of approximately 10% and continues to anticipate a gross
margin of 32% or greater for the full year 2020. Fiscal 2020
guidance reflects year-to-date business trends, including the
current operating environment related to COVID-19. The COVID-19
pandemic and its related impacts create many incremental potential
business risks, including potential impacts to the Company’s
ability to access raw materials, production, transportation and/or
other logistics needs, which cannot be reasonably estimated and are
not factored into current fiscal 2020 guidance.
First Quarter 2020 Earnings Call
Details
The Company will conduct a conference call at
4:30 pm Eastern Time today, May 11, 2020 to discuss its first
quarter 2020 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=139524. 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 fifteen
minutes before the start of the conference call due to increased
demand for conference calls.
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
REED’S, INC.CONDENSED
STATEMENTS OF OPERATIONSFor the Three months Ended
March 31, 2020 and
2019(Unaudited)(Amounts in
thousands, except share and per share amounts)
|
|
Three Months Ended |
|
|
|
2020 |
|
|
2019 |
|
Net
Sales |
|
$ |
9,523 |
|
|
$ |
8,449 |
|
Cost of goods sold |
|
|
6,653 |
|
|
|
5,945 |
|
Gross
profit |
|
|
2,870 |
|
|
|
2,504 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Delivery and handling
expense |
|
|
1,263 |
|
|
|
1,030 |
|
Selling and marketing
expense |
|
|
1,925 |
|
|
|
2,015 |
|
General and administrative
expense |
|
|
1,932 |
|
|
|
2,371 |
|
Gain on sale of assets |
|
|
- |
|
|
|
(30 |
) |
Total operating
expenses |
|
|
5,120 |
|
|
|
5,386 |
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
|
(2,250 |
) |
|
|
(2,882 |
) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(336 |
) |
|
|
(335 |
) |
Change in fair value of
warrant liability |
|
|
6 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,580 |
) |
|
$ |
(3,264 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share –
basic and diluted |
|
$ |
(0.05 |
) |
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of
shares outstanding – basic and diluted |
|
|
47,595,206 |
|
|
|
29,103,645 |
|
REED’S INC.CONDENSED
BALANCE SHEETS(Amounts in thousands, except share
amounts)
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
28 |
|
|
$ |
913 |
|
Accounts receivable, net of
allowance for doubtful accounts and returns and discounts of $282
and $375, respectively |
|
|
4,018 |
|
|
|
2,099 |
|
Receivable from related
party |
|
|
230 |
|
|
|
356 |
|
Inventory, net of reserve for
obsolescence of $262 and $646, respectively |
|
|
7,990 |
|
|
|
10,508 |
|
Prepaid expenses and other
current assets |
|
|
911 |
|
|
|
420 |
|
Total current assets |
|
|
13,177 |
|
|
|
14,296 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of
accumulated depreciation of $520 and $482, respectively |
|
|
1,026 |
|
|
|
1,053 |
|
Equipment held for sale, net
of impairment reserves of $96 and $96, respectively |
|
|
67 |
|
|
|
67 |
|
Intangible assets |
|
|
576 |
|
|
|
576 |
|
Total
assets |
|
$ |
14,846 |
|
|
$ |
15,992 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,500 |
|
|
$ |
5,539 |
|
Accrued expenses |
|
|
624 |
|
|
|
646 |
|
Revolving line of credit |
|
|
4,785 |
|
|
|
3,177 |
|
Current portion of leases
payable |
|
|
95 |
|
|
|
49 |
|
Total current liabilities |
|
|
10,004 |
|
|
|
9,411 |
|
|
|
|
|
|
|
|
|
|
Leases payable, less current
portion |
|
|
662 |
|
|
|
737 |
|
Convertible note to a related
party |
|
|
4,831 |
|
|
|
4,689 |
|
Warrant liability |
|
|
2 |
|
|
|
8 |
|
Total
liabilities |
|
|
15,499 |
|
|
|
14,845 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
(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, 100,000,000 and 100,000,000 shares authorized, respectively;
47,595,206 and 47,595,206 shares issued and outstanding,
respectively |
|
|
5 |
|
|
|
5 |
|
Common stock issuable, 350,000
shares at March 31, 2020 |
|
|
285 |
|
|
|
- |
|
Additional paid in
capital |
|
|
78,091 |
|
|
|
77,596 |
|
Accumulated deficit |
|
|
(79,128 |
) |
|
|
(76,548 |
) |
Total stockholders’
equity (deficit) |
|
|
(653 |
) |
|
|
1,147 |
|
Total liabilities and
stockholders’ equity (deficit) |
|
$ |
14,846 |
|
|
$ |
15,992 |
|
REED’S, INC.CONDENSED
STATEMENTS OF CASH FLOWSFor the Three months Ended
March 31, 2020 and
2019(Unaudited)(Amounts in
thousands)
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,580 |
) |
|
$ |
(3,264 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
12 |
|
|
|
13 |
|
Gain on sale of property & equipment |
|
|
- |
|
|
|
(30 |
) |
Amortization of debt discount |
|
|
96 |
|
|
|
75 |
|
Amortization of right of use assets |
|
|
37 |
|
|
|
23 |
|
Fair value of vested options |
|
|
495 |
|
|
|
412 |
|
Fair value of vested restricted shares granted to officers |
|
|
285 |
|
|
|
- |
|
Common stock issued for services |
|
|
- |
|
|
|
194 |
|
Decrease in allowance for doubtful accounts |
|
|
(93 |
) |
|
|
(175 |
) |
Decrease in inventory reserve |
|
|
(384 |
) |
|
|
(84 |
) |
Change in fair value of warrant liability |
|
|
(6 |
) |
|
|
47 |
|
Accrual of interest on convertible note to a related party |
|
|
142 |
|
|
|
126 |
|
Lease liability |
|
|
(7 |
) |
|
|
(4 |
) |
Changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,826 |
) |
|
|
(668 |
) |
Inventory |
|
|
2,902 |
|
|
|
(3,268 |
) |
Prepaid expenses and other assets |
|
|
(365 |
) |
|
|
(314 |
) |
Accounts payable |
|
|
(1,038 |
) |
|
|
(1,459 |
) |
Accrued expenses |
|
|
(22 |
) |
|
|
(380 |
) |
Net cash used in
operating activities |
|
|
(2,352 |
) |
|
|
(8,756 |
) |
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
- |
|
|
|
30 |
|
Purchase of property and equipment |
|
|
(22 |
) |
|
|
(52 |
) |
Net cash used in
investing activities |
|
|
(22 |
) |
|
|
(22 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Borrowings on line of credit |
|
|
9,188 |
|
|
|
18,696 |
|
Repayments of line of credit |
|
|
(7,677 |
) |
|
|
(22,992 |
) |
Repayment of amounts due to/from officers |
|
|
- |
|
|
|
195 |
|
Principal repayments on capital lease obligation |
|
|
(22 |
) |
|
|
(8 |
) |
Exercise of warrants |
|
|
- |
|
|
|
46 |
|
Proceeds from sale of common stock |
|
|
- |
|
|
|
14,867 |
|
Net cash provided by
financing activities |
|
|
1,489 |
|
|
|
10,804 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash |
|
|
(885 |
) |
|
|
2,026 |
|
Cash at beginning of
period |
|
|
913 |
|
|
|
624 |
|
Cash at end of period |
|
$ |
28 |
|
|
$ |
2,650 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
98 |
|
|
$ |
135 |
|
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, 2020 and
2019 (unaudited; in thousands):
|
|
Three Months Ended March 31 |
|
|
|
2020 |
|
|
2019 |
|
Net loss |
|
$ |
(2,580 |
) |
|
$ |
(3,264 |
) |
|
|
|
|
|
|
|
|
|
Modified EBITDA
adjustments: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
49 |
|
|
|
36 |
|
Interest expense |
|
|
336 |
|
|
|
335 |
|
Stock option and other noncash
compensation |
|
|
780 |
|
|
|
606 |
|
Change in fair value of
warrant liability |
|
|
6 |
|
|
|
(47 |
) |
Severance |
|
|
- |
|
|
|
33 |
|
Total EBITDA adjustments |
|
$ |
1,171 |
|
|
$ |
963 |
|
|
|
|
|
|
|
|
|
|
Modified EBITDA |
|
$ |
(1,409 |
) |
|
$ |
(2,301 |
) |
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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