Reed’s, Inc. (NASDAQ: REED) (“Reed’s” or the “Company”), owner of
the nation’s leading portfolio of handcrafted, all-natural ginger
beverages, is reporting financial results for the three months
ended March 31, 2022.
Q1 2022 Financial Highlights (vs. Q1 2021):
- Net revenue increased to $12.2 million compared to $12.1
million.
- Gross profit was $2.9 million compared to $3.9 million, with
gross margin of 24.1% compared to 31.7%.
- Operating expenses were reduced to $7.1 million compared to
$8.1 million.
- Operating loss was $(4.2) million compared to $(4.3)
million.
- Modified EBITDA was $(3.8) million compared to $(3.4)
million.
Management Commentary
“As highlighted on our last quarterly report on March 31, we
faced continued supply chain challenges at the start of the year
that carried over from 2021,” said Norman E. Snyder, CEO of Reed’s.
“While demand for our products remained robust as demonstrated by
20% order volume growth for the quarter, we adopted a more measured
approach to better manage cash burn and growth. As we stand at
mid-May, we have returned to strong growth in Q2 and have
successfully worked through the impediments we faced during the
first quarter and continue to forecast more than 20% net sales
growth for the year. Gross margins have also significantly improved
from Q4 2021 and will continue to increase throughout the year.
“During the first quarter, we executed on multiple growth and
cost saving initiatives. We have significantly reduced our
warehouse and transportation costs by eliminating out of network
shipments and increasing payloads, as well as organically
increasing the sale of cans over bottles. We have also placed a
heavy focus on ingredient and label optimization to reduce input
costs wherever possible, in addition to reducing other operating
costs across the board.
“Looking to the rest of 2022, we remain on track to deliver a
strong year of growth and improved profitability, highlighted by
the ramp up of newer products such as our Ginger Ale, the new and
improved sleek Virgil’s zero sugar cans, Classic Mule and the
imminent launch of Hard Ginger Ale. Our supply chain initiatives
are taking hold, input costs are stabilizing, and with the
financing we completed last week, we now have the capital and
runway we need to execute our plan and turn cash flow positive next
year.”
First Quarter 2022 Financial Results
During the first quarter of 2022, net revenue was $12.2 million
compared to $12.1 million in the prior year. The Company
experienced sustained demand across the Reed’s product portfolio,
as reflected by a 20% increase in order volumes. However, the
Company determined it was beneficial, without compromising retail
availability, to not ship orders that were out of network to fully
satisfy order demand due to adopting a more disciplined management
of freight lanes in addition to residual supply chain challenges,
which have since been resolved.
Gross profit during the first quarter of 2022 was $2.9 million
compared to $3.9 million for the same period in 2021. Gross margin
was 24.1% compared to 31.7% in the first quarter of 2021,
reflecting increased supply chain, input and inflationary
costs.
Delivery and handling costs decreased 14% to $2.8 million during
the first quarter of 2022 compared to $3.3 million in the first
quarter of 2021. The year-over-year decrease was driven by the
implementation of lower contracted freight lanes and a more
disciplined approach to shipment scheduling by reducing
out-of-network shipments. Delivery and handling costs decreased to
23% of net sales and $3.90 per case, compared to 27% of net sales
and $4.43 per case during the same period last year.
Selling and marketing costs of $2.2 million during the first
quarter of 2022 were in-line with the first quarter of 2021.
General and administrative expenses (G&A) decreased 19% to
$2.1 million during the first quarter of 2022 compared to $2.6
million in the prior year period. The decrease was driven by lower
stock compensation and legal settlements.
Operating loss during the first quarter of 2022 was $4.2 million
or $(0.04) per share, compared to operating loss of $4.3 million or
$(0.05) per share in the first quarter of 2021.
Modified EBITDA was $(3.8) million in the first quarter of 2022
compared to $(3.4) million in the first quarter of 2021.
Liquidity and Cash Flow
For the first quarter of 2022, the Company used approximately
$2.2 million of cash in operating activities compared to $5.1
million of cash used for the same period in 2021.
As of March 31, 2022, the Company had approximately $122,000 of
cash and $5.1 million of additional borrowing capacity on its
revolving line of credit. The total facility has a borrowing
capacity of $13.0 million with a $7.9 million outstanding
balance.
Subsequent to quarter end, the Company completed a private
placement of senior secured convertible notes in the aggregate
principal amount of $11.3 million. More information can be found in
the Company’s press release and Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 10, 2022.
FY 2022 Financial Guidance and Outlook
Reed’s continues to expect 2022 net sales to range between
approximately $59-62 million, reflecting growth of approximately
20-25% from 2021. The Company also continues to estimate gross
margin in 2022 to be approximately 30% compared to 27.4% in
2021.
In addition, management is continuing to execute on a series of
cost saving initiatives to offset higher freight costs such as
prioritizing direct shipments, selling a greater mix of cans as
opposed to bottles, establishing minimum order quantities,
restructuring third-party logistics agreements, and optimizing
distribution center locations. These cost saving initiatives are
calculated to result in improved modified EBITDA in fiscal
2022.
Conference Call
The Company will conduct a conference call today, May 16, 2022,
at 5:00 p.m. Eastern time to discuss its results for the first
quarter ended March 31, 2022.
Reed’s management will host the conference call, followed by a
question-and-answer period.
Date: Monday, May 16, 2022Time: 5:00 p.m. Eastern timeToll-free
dial-in number: (844) 850-0544International dial-in number: (412)
542-4115Conference ID: 10166575Webcast: Reed’s Q1 2022 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 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 all-natural,
ginger-based beverages. Crafted using real ginger and premium
ingredients, the Reed’s portfolio includes ginger beers, ginger
ales, ready-to-drink ginger mules, ginger shots, and ginger
candies. The brand has recently successfully expanded into the
zero-sugar segment with its proprietary, all-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
all-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,” “forecast,” "guidance,"
"intend," “calculated,” "likely," "financial outlook," "plan,
"potential," "predict," "probable," "project," "seek," "should,"
"will," and similar expressions. These forward-looking statements
are based on current expectations and include our, management’s
expectations and guidance for fiscal year 2022 under the heading
“FY 2022 Financial Guidance and 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 2022 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
2022 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, 2022.
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 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
war, 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 April 15, 2022 and subsequent reports
filed with the Securities and Exchange Commission, including Reed’s
Quarterly Report on Form 10-Q expected to be filed on or about May
16, 2022, 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, 2022 and
2021 |
(Unaudited) |
(Amounts in thousands, except share and per share
amounts) |
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
$ |
12,182 |
|
|
$ |
12,146 |
|
Cost of goods sold |
|
9,250 |
|
|
|
8,293 |
|
Gross
profit |
|
2,932 |
|
|
|
3,853 |
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
Delivery and handling
expense |
|
2,812 |
|
|
|
3,286 |
|
Selling and marketing
expense |
|
2,178 |
|
|
|
2,215 |
|
General and administrative
expense |
|
2,121 |
|
|
|
2,603 |
|
Total operating
expenses |
|
7,111 |
|
|
|
8,104 |
|
|
|
|
|
|
|
Loss from
operations |
|
(4,179 |
) |
|
|
(4,251 |
) |
|
|
|
|
|
|
Interest expense |
|
(801 |
) |
|
|
(256 |
) |
|
|
|
|
|
|
Net loss |
$ |
(4,980 |
) |
|
$ |
(4,507 |
) |
|
|
|
|
|
|
Net loss per common
share - basic and diluted |
$ |
(0.05 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
Basic and Diluted |
|
97,377,408 |
|
|
|
86,631,304 |
|
|
|
|
|
|
|
|
|
REED'S INC. |
CONDENSED BALANCE SHEETS |
(Amounts in thousands, except share amounts) |
|
|
|
|
|
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
(Unaudited) |
|
|
|
ASSETS |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
Cash |
$ |
122 |
|
|
$ |
49 |
|
Accounts receivable |
|
5,161 |
|
|
|
5,183 |
|
Inventories |
|
20,848 |
|
|
|
17,049 |
|
Receivable from related
party |
|
1,135 |
|
|
|
933 |
|
Prepaid expenses and other
current assets |
|
1,561 |
|
|
|
1,491 |
|
Total current
assets |
|
28,827 |
|
|
|
24,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
940 |
|
|
|
992 |
|
Intangible assets |
|
624 |
|
|
|
624 |
|
Total
assets |
$ |
30,391 |
|
|
$ |
26,321 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
Accounts payable |
$ |
16,359 |
|
|
$ |
10,434 |
|
Accounts payable to related
party |
|
735 |
|
|
|
614 |
|
Accrued expenses |
|
689 |
|
|
|
286 |
|
Revolving line of credit |
|
7,475 |
|
|
|
10,229 |
|
Current portion of leases
payable |
|
167 |
|
|
|
161 |
|
Total current
liabilities |
|
25,425 |
|
|
|
21,724 |
|
|
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
Lease payable, net of current
portion |
|
350 |
|
|
|
394 |
|
Total
liabilities |
|
25,775 |
|
|
|
22,118 |
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
Series A Convertible Preferred
Stock, $10 par value, 500,000 shares authorized, 9411 shares issued
and outstanding |
|
94 |
|
|
|
94 |
|
Common Stock, $0001 par value,
180,000,000 shares authorized |
|
|
|
|
|
112,551,890 and 93,733,975
shares issued and outstanding, respectively |
|
11 |
|
|
|
9 |
|
Additional paid-in
capital |
|
112,628 |
|
|
|
107,237 |
|
Accumulated deficit |
|
(108,117 |
) |
|
|
(103,137 |
) |
Total stockholders'
equity |
|
4,616 |
|
|
|
4,203 |
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity |
$ |
30,391 |
|
|
$ |
26,321 |
|
|
|
|
|
|
|
|
|
REEDS, INC. |
CONDENSED STATEMENTS OF CASH FLOWS |
For the Three Months Ended March 31, 2022 and
2021 |
(Unaudited) |
(Amounts in Thousands) |
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities: |
|
|
|
|
|
Net Loss |
$ |
(4,980 |
) |
|
$ |
(4,507 |
) |
Adjustments to reconcile net
loss to cash used in operating activities: |
|
|
|
|
|
Depreciation |
|
25 |
|
|
|
32 |
|
Amortization of debt discount |
|
65 |
|
|
|
162 |
|
Amortization of prepaid financing costs |
|
431 |
|
|
|
25 |
|
Fair value of vested options |
|
225 |
|
|
|
292 |
|
Fair value of vested restricted shares granted to officers |
|
66 |
|
|
|
106 |
|
Fair value of common shares issued as financing costs |
|
37 |
|
|
|
|
Change in allowance for doubtful accounts |
|
62 |
|
|
|
(69 |
) |
Inventory write-downs |
|
10 |
|
|
|
(20 |
) |
Gain on termination of leases |
|
- |
|
|
|
(3 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
|
(40 |
) |
|
|
(244 |
) |
Inventory |
|
(3,810 |
) |
|
|
(1,306 |
) |
Prepaid expenses and other assets |
|
(617 |
) |
|
|
(484 |
) |
Decrease in right of use assets |
|
27 |
|
|
|
24 |
|
Accounts payable |
|
5,926 |
|
|
|
1,387 |
|
Accrued expenses |
|
403 |
|
|
|
(446 |
) |
Lease Liability |
|
(37 |
) |
|
|
(8 |
) |
Net cash used in
operating activities |
|
(2,207 |
) |
|
|
(5,059 |
) |
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
Patent cost |
|
0 |
|
|
|
(2 |
) |
Purchase of property and equipment |
|
- |
|
|
|
(95 |
) |
Net cash used in
investing activities |
|
0 |
|
|
|
(97 |
) |
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
Proceeds from line of credit |
|
14,508 |
|
|
|
16,154 |
|
Payments on line of credit |
|
(17,212 |
) |
|
|
(11,898 |
) |
Proceeds from sale of common stock |
|
5,067 |
|
|
|
- |
|
Repurchase of common stock |
|
(2 |
) |
|
|
- |
|
Amounts from related party, net |
|
(81 |
) |
|
|
459 |
|
Payments on capital lease obligation |
|
- |
|
|
|
(2 |
) |
Proceeds from exercise of options |
|
- |
|
|
|
3 |
|
Net cash provided by
financing activities |
|
2,280 |
|
|
|
4,716 |
|
|
|
|
|
|
|
Net increase/(decrease) in
cash |
|
73 |
|
|
|
(440 |
) |
Cash at beginning of
period |
|
49 |
|
|
|
595 |
|
Cash at end of period |
$ |
122 |
|
|
$ |
155 |
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
|
Cash paid for interest |
$ |
256 |
|
|
$ |
70 |
|
|
|
|
|
|
|
|
|
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, 2022 and 2021
(unaudited; in thousands):
|
Three Months Ended March 31, |
|
|
2022 |
|
|
|
2021 |
|
Net loss |
$ |
(4,980 |
) |
|
$ |
(4,507 |
) |
|
|
|
|
Modified EBITDA
adjustments: |
|
|
|
Depreciation and
amortization |
|
52 |
|
|
|
56 |
|
Interest expense |
|
801 |
|
|
|
256 |
|
Stock option and other noncash
compensation |
|
291 |
|
|
|
398 |
|
Legal settlements |
|
0 |
|
|
|
353 |
|
Total EBITDA adjustments |
$ |
1,144 |
|
|
$ |
1,063 |
|
|
|
|
|
Modified
EBITDA |
$ |
(3,836 |
) |
|
$ |
(3,444 |
) |
|
|
|
|
|
|
|
|
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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