Reed's, Inc. Announces Record Third Quarter Results

Raises EBITDA Outlook for 2014

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LOS ANGELES, CA--(Marketwired - Nov 13, 2014) - 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, 2014.

Financial Highlights:

  • Modified EBITDA, a non-GAAP measurement was up 28% for the third quarter and was up 637% year to date. EBITDA was $1,880,000 for the first nine months of 2014 as compared to $255,000 for the first nine months of 2013*
  • Net revenue increased 22% to a record $12.3 million for the third quarter 2014 from $10.1 million in the third quarter 2013.
  • Gross profit increased 22% to $3.9 million
  • Operating Income increased 15% to $246,000 from $214,000 in the third quarter last year
  • Plant Idle Capacity costs improved from 5% of net sales to 4%
  • Sales for the first nine months in 2014 increased 17% to $32.5 million, as compared to $27.7 million in the first nine months of 2013;
  • Gross Profit for the first nine months of 2014 increased 28% to $10.5 million, as compared to $8.2 million in the first nine months of 2013.
  • Working capital was $1,999,000 at September 30, 2014 and was $1,347,000 at December 31, 2013
  • Earnings per diluted share for the third quarter was flat and $0.03 per share for the nine months ended September 30, 2014 versus a loss of ($0.07) per diluted share for the nine months ended September 30, 2013
    *(See EBITDA table at end of this release for further non-GAAP information).

Operational Highlights:

  • Reed's Top Selling Ginger Brew brands grew 16% led by Extra Ginger Brew that grew 26 % for the third quarter 2014 versus same quarter last year
  • YTD Reed's #1 sku (Reed's Extra Ginger Brew) posted 31% growth
  • Virgil's full line of beverages grew at 18% for the third quarter
  • Dr. Better soda sales increased 414% for quarter and could surpass $1 million by year end
  • Kombucha sales increased by 19% in the third quarter, and increased 51% in the nine months ended September 30, 2014, as compared to 2013
  • Private label brands sales increased 37% in the third quarter
  • Los Angeles plant upgrades designed to triple capacity and increase efficiency and margins continue
  • Reed's first-ever national television ad campaign launches on Food Network, HGTV, etc.
  • Biography Channel's Food Factory show highlights the brewing and bottling process of Virgil's Root Beer featuring Chris Reed
  • Launched our 25th Anniversary Sweepstakes and have received over 500,000 entries to date
  • Began production of coffee flavored Reed's Culture Club Kombucha; we now offer nine great tasting flavors
  • Sponsorship of the VANS International Surf Event at Huntington Beach with over 750,000 attendees
  • Established distribution partnership with RC Asheville in North Carolina
  • Reed's Extra 7 ounce pony bottles authorized at distributors around the U.S. for bar and restaurant sales
  • Received Kosher Certification on all Reed's Inc branded products
  • Reed's & Virgil's are authorized at Lowes Foods Supermarkets of North Carolina
  • BJ's Wholesale Club Stores authorize 3 pack Virgil's Root Beer and Virgil's Root Beer 5 Liter party kegs
  • Gained distribution of Culture Club Kombucha into HyVee grocery stores.

Chris Reed, Founder and CEO of Reed's, Inc., stated, "Consumers are reevaluating their commitment to the status quo, high-tech, chemically-laden sodas. As sales of mainstream sodas continue their year-over-year drop, consumers are increasingly migrating to Reed's for a new alternative. A recent analysis of soda sales at one of our largest retail customers found that Reed's products, with their higher margins, are generating more gross profits per shelf placement than most of the soft drinks on their shelves. We are seeing increased interest from retailers in multiple sales channels who are reaching out to us to provide them with the next generation of soft drinks -- the craft soda revolution has begun."

"Our first national TV commercial launched during the third quarter on channels that included the Food Network and HGTV. As we become more profitable, we foresee an acceleration of marketing programs that will drive more volume and awareness in the future."

"During the third quarter, we added new innovation to our kombucha line called Reed's Culture Club Coffee Kombucha. The first $5 billion of kombucha category market sales have been traditionally fermented and grown using a tea base. Reed's newest innovation is grown and fermented in a coffee base. Sales will begin on December 1st, and we already have significant commitments for this new product."

"We are currently focused on two projects that we anticipate will ultimately improve gross margins significantly in the back half of 2015. These projects are the renovation and tripling of the west coast plant's line speed, and a new streamlined 'Brewed Soda' production technique that will cut production costs significantly. Both projects are expected to be online by mid-2015," Reed concluded.

Larry Tomsic, Interim CFO at Reed's, Inc., commented, "Reed's has delivered their twentieth consecutive quarter of successful growth. Third Quarter Net Sales and Gross Profit for 2014 both Increased 22% compared to the same quarter in 2013. Net Income for the nine months ended September 30, 2014 was $461,000 which is a $1,329,000 improvement over the nine months ended September 30, 2013 which posted a $863,000 loss."

"We are also very pleased to announce the EBITDA for the nine months ended September 30, 2014 was $1,880,000 versus $255,000 for the same period in 2013. The EBITDA improvement year over year was a $1,625,000 (637%) improvement. Additionally, the company is currently in discussions with financial institutions to negotiate new loan agreements that we anticipate will reduce the company's effective borrowing costs by more than 50% annually. The continued plant upgrades to significantly increase our production capacity, along with streamlining our brewing techniques will dramatically improve our efficiencies, leading to much improved margins in 2015. We are pleased to report the third quarter results and look forward to a strong fourth quarter."

2014 Outlook

The Company expects revenue growth of 15-20% in fiscal 2014. Core brands (Reed's & Virgil's) are expected to grow 15-20%; Kombucha is expected to grow 35 to 40%; and our other product categories, that includes private label, candy and non-core beverage assortments, is expected to be approximately flat. The Company is raising its EBITDA expectations and now expects EBITDA to range between $2.0 and $2.50 million for the year.

The Company will conduct a conference call @ 4:30PM EST today, November 13th, to discuss its 2014 third quarter results and outlook for the future. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (800) 758-5606. International callers should dial +1 (212) 231-2939.

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 and is 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 six 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 Reed's Culture Club Kombucha line of organic live beverages. Other product lines include: Reed's Ginger Candies and Reed's Ginger Ice Creams. In 2009, Reed's started producing private label natural beverages for select national chains. The company is celebrating 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 Instagram, Twitter 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,
2014
    December 31,
2013
 
ASSETS   (unaudited)        
Current assets:                
  Cash   $ 1,705,000     $ 1,104,000  
  Inventory     5,983,000       6,293,000  
  Trade accounts receivable, net of allowance for doubtful accounts and returns and discounts of $414,000 and $324,000, respectively    
3,759,000
     
2,143,000
 
  Prepaid inventory     787,000       256,000  
  Prepaid and other current assets     290,000       178,000  
    Total Current Assets     12,524,000       9,974,000  
                 
Property and equipment, net of accumulated depreciation of $3,243,000 and $2,796,000, respectively    
4,069,000
     
3,686,000
 
Brand names     1,029,000       1,029,000  
Deferred financing fees, net of amortization of $90,000 and $40,000, respectively     17,000       60,000  
    Total assets   $ 17,639,000     $ 14,749,000  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities:                
  Accounts payable   $ 5,788,000     $ 3,612,000  
  Accrued expenses     147,000       136,000  
  Dividends payable     -       -  
  Line of credit     4,159,000       4,524,000  
  Current portion of long term financing obligation     128,000       111,000  
  Current portion of capital leases payable     119,000       79,000  
  Current portion of term loan     184,000       165,000  
    Total current liabilities     10,525,000       8,627,000  
                 
Long term financing obligation, less current portion, net of discount of $488,000 and $576,000, respectively    
2,087,000
     
2,147,000
 
Capital leases payable, less current portion     489,000       106,000  
Term loan, less current portion     341,000       482,000  
    Total Liabilities     13,442,000       11,362,000  
                 
Commitments and contingencies                
                 
Stockholders' equity:                
                 
  Series A Convertible Preferred stock, $10 par value, 500,000 shares authorized, 9,411 and 9,411 shares issued and outstanding, respectively    
94,000
     
94,000
 
                   
  Common stock, $.0001 par value, 19,500,000 shares authorized, 13,060,971 and 12,922,832 shares issued and outstanding, respectively     1,000       1,000  
                   
  Additional paid in capital     25,625,000       25,276,000  
  Accumulated deficit     (21,523,000 )     (21,984,000 )
    Total stockholders' equity     4,197,000       3,387,000  
    Total liabilities and stockholders' equity   $ 17,639,000     $ 14,749,000  
                 
                 
                 
REED'S, INC.  
CONDENSED STATEMENTS OF OPERATIONS  
For the Three and Nine months Ended September 30, 2014 and 2013  
(Unaudited)  
   
  Three months ended September 30,     Nine months ended September 30,  
  2014     2013     2014     2013  
Sales $ 12,319,000     $ 10,076,000     $ 32,456,000     $ 27,721,000  
Cost of tangible goods sold   8,010,000       6,399,000       20,616,000       18,028,000  
Cost of goods sold - idle capacity   424,000       501,000       1,346,000       1,525,000  
                               
    Gross profit   3,885,000       3,176,000       10,494,000       8,168,000  
                               
Operating expenses:                              
Delivery and handling expenses   1,310,000       1,040,000       3,131,000       2,900,000  
Selling and marketing expense   1,480,000       1,159,000       3,604,000       2,999,000  
General and administrative expense   849,000       763,000       2,730,000       2,663,000  
  Total operating expenses   3,639,000       2,962,000       9,465,000       8,562,000  
                               
    Income (loss) from operations   246,000       214,000       1,029,000       (394,000 )
                               
Interest expense   (195,000 )     (180,000 )     (560,000 )     (469,000 )
Income taxes   (3,000 )     0       (3,000 )     (469,000 )
                               
Net income (loss)   48,000       34,000       466,000       (863,000 )
                               
Preferred stock dividends   -       -       (5,000 )     (5,000 )
Net income (loss) attributable to common stockholders $ 48,000     $ 34,000     $ 461,000     $ (868,000 )
                               
Income (loss) per share available to common stockholders, basic   -       -     $ 0.04     $ (0.07 )
Weighted average number of shares outstanding - basic   13,073,627       12,627,864       13,034,707       12,498,935  
Income (loss) per share available to common stockholders, diluted   -       -     $ 0.03     $ (0.07 )
Weighted average number of shares outstanding - diluted   13,135,317       13,496,714       13,291,536       12,498,935  
                               
                               
                               

Results of Operations

The following table sets forth key statistics for the three and nine months ended September 30, 2014 and 2013, respectively.

               
  Three Months Ended       Nine Months Ended    
  September 30,   Pct.   September 30,   Pct.
  2014     2013   Change   2014     2013   Change
Gross sales, net of discounts & returns * 13,590,000     11,501,000   18%   36,036,000     31,290,000   15%
Less: Promotional and other allowances** 1,271,000     1,425,000   -11%   3,580,000     3,569,000   1%
Net sales 12,319,000     10,076,000   22%   32,456,000     27,721,000   17%
Cost of tangible goods sold 8,010,000     6,399,000   29%   20,616,000     18,028,000   14%
  As a percentage of:                          
  Gross sales 59 %   56 %     57 %   58 %  
  Net sales 65 %   64 %     64 %   65 %  
Cost of goods sold - idle capacity 424,000     501,000   -15%   1,346,000     1,525,000   -12%
  As a percentage of net sales 3 %   5 %     4 %   6 %  
Gross profit 3,885,000     3,176,000   22%   10,494,000     8,168,000   28%
Gross profit margin as a percentage of net sales 32 %   32 %     32 %   29 %  
                           

* Gross sales is used internally by management as an indicator of and to monitor operating performance, including sales performance of particular products, salesperson performance, product growth or declines and overall Company performance. The use of gross sales allows evaluation of sales performance before the effect of any promotional items, which can mask certain performance issues. We therefore believe that the presentation of gross sales provides a useful measure of our operating performance. Gross sales is not a measure that is recognized under GAAP and should not be considered as an alternative to net sales, which is determined in accordance with GAAP, and should not be used alone as an indicator of operating performance in place of net sales. Additionally, gross sales may not be comparable to similarly titled measures used by other companies, as gross sales has been defined by our internal reporting practices. In addition, gross sales may not be realized in the form of cash receipts as promotional payments and allowances may be deducted from payments received from certain customers.

** Although the expenditures described in this line item are determined in accordance with GAAP and meet GAAP requirements, the disclosure thereof does not conform with GAAP presentation requirements. Additionally, our definition of promotional and other allowances may not be comparable to similar items presented by other companies. Promotional and other allowances primarily include consideration given to the Company's distributors or retail customers including, but not limited to the following: (i) reimbursements given to the Company's distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; (ii) the Company's agreed share of fees given to distributors and/or directly to retailers for in-store marketing and promotional activities; (iii) the Company's agreed share of slotting, shelf space allowances and other fees given directly to retailers; (iv) incentives given to the Company's distributors and/or retailers for achieving or exceeding certain predetermined sales goals; and (v) discounted or free products. The presentation of promotional and other allowances facilitates an evaluation of their impact on the determination of net sales and the spending levels incurred or correlated with such sales. Promotional and other allowances constitute a material portion of our marketing activities. The Company's promotional allowance programs with its numerous distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year.

Modified EBITDA

The Company defines modified EBITDA (a non-GAAP measurement) as net loss before interest, taxes, depreciation and amortization, and non-cash expense for securities. Other companies may calculate modified EBITDA differently. Management believes that the presentation of modified EBITDA provides a measure of performance that approximates cash flow before interest expense, and is meaningful to investors.

 
MODIFIED EBITDA SCHEDULE
 
    Three Months Ended September 30,
    2014   2013
Net income (loss)   $ 48,000   $ 34,000
             
Modified EBITDA adjustments:            
Depreciation and amortization     144,000     89,000
Interest expense     195,000     180,000
Stock option compensation     90,000     69,000
Other stock compensation for services     -     -
  Total EBITDA adjustments     429,000     338,000
             
Modified EBITDA income from operations   $ 477,000   $ 372,000
             

Modified EBITDA

The Company defines modified EBITDA (a non-GAAP measurement) as net loss before interest, taxes, depreciation and amortization, and non-cash expense for securities. Other companies may calculate modified EBITDA differently. Management believes that the presentation of modified EBITDA provides a measure of performance that approximates cash flow before interest expense, and is meaningful to investors.

   
MODIFIED EBITDA SCHEDULE  
   
    Nine Months Ended September 30,  
    2014   2013  
Net (loss) income   $ 466,000   $ (863,000 )
               
Modified EBITDA adjustments:              
Depreciation and amortization     536,000     387,000  
Interest expense     560,000     469,000  
Stock option compensation     308,000     257,000  
Other stock compensation for services     10,000     5,000  
  Total EBITDA adjustments     1,414,000     1,118,000  
               
Modified EBITDA income from operations   $ 1,880,000   $ 255,000