NORWALK, Conn., June 01, 2023 (GLOBE NEWSWIRE) — Reed’s, Inc. (OTCQX: REED), 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.
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.
