Reed's (REED) Reports FY16 Results

Reed’s, Inc. (NYSE: REED) announced the financial results for its fiscal full-year ended December 31, 2016. In addition to the earnings results the Company announced today in a separate press release the appointment of Stefan Freeman as Interim Chief Executive Officer and Founder and former Chief Executive Officer Chris Reed to the newly created position of Founder and Chief Innovation Officer. The Company also issued a separate press release today announcing the closing of a $3.4 million private placement transaction.

Chris Reed, Founder and Chief Innovation Officer commented, “Reed’s has never had a more impressive portfolio of new products waiting to launch in the history of the Company. My transition from CEO to Chief Innovation Officer allows me to focus my full energies to bringing these exciting new products to fruition. We have developed the first natural soda fountain products and have it in trial at a large national fast casual restaurant chain. These soda fountain versions of our popular natural sodas allow restaurants and other fountain concessions to buy our products for significantly less than the full packaged bottled price and at competitive prices to other fountain products. This supports our strategy for opening up new markets and strengthening our brand equity. In addition, we have developed a compelling line of full flavor, all natural, low calorie sodas that we believe taste identical or better than their full calorie counterparts. I believe that these new product ideas have such significant potential that we will be reaching out to form strategic partnerships, including with larger beverage companies, to help with their implementation.”

Interim Chief Executive Officer, Stefan Freeman commented, “The Company is going through a critical transition. I would like to thank Chris Reed who did a phenomenal job building this business from scratch and is truly a pioneer in the craft soda industry. We are excited about his new role as Chief Innovation Officer and his exclusive focus on product development. We have the best craft sodas in the marketplace and we intend to be the growth leader in this space. We are targeting greater operational efficiencies and better margins and we believe that will translate into more profitability and accelerated marketing programs. I am excited to be here and look forward to reporting our progress and enhancing shareholder value.”

The 2016 audited financial results for the Company were as follows:

For the full year 2016 compared to the full year 2015:

• Net sales were $42.5 million versus $45.9 million
• Gross margin decreased to 21.1% from 25.3%
• Delivery and handling costs decreased 24% to $3.9 million
• Selling and marketing costs decreased 24% to $3.7 million
• General and administrative expenses increased 1.5% to $4.4 million
• Operating loss increased to ($3.1 million) from ($2.7 million)
• Interest expense increased to $2.0 million from $1.2 million
• Modified EBITDA was a loss of ($1.6 million) as compared to a loss of ($1.0 million) in the prior year period
• Net loss increased to a loss of ($0.36) per share from a loss of ($0.30) per share in the prior year period

Operational Highlights

• Reed’s branded product gross sales grew 2.0% driven by the growth of Reed’s Stronger Ginger Brew that grew 685%
• Virgil’s branded product gross sales declined -9.8% although Virgil’s Root Beer grew 1%
• Butterscotch Beer gross revenues grew more than 40% to $1.7MM
• Private label sales grew 3.6%
• Reed’s Ginger Brews are now available at more the 1,300 Target stores
• Reed’s and Virgil’s are now authorized and available in 1,135 CVS pharmacies throughout the country
• Reed’s partners with Barone Distribution headquartered in Reno, Nevada
• Reed’s expands distribution footprint in Southern California with John Lenore & Company
• Reed’s expands distribution in New England with Dari Farms Distribution
• Stronger Ginger available at Kroger and Kroger banners across the US
• Reed’s and Virgil’s available at Shopko Stores
• Reed’s and Virgil’s available at all Stater Bros stores in Southern Cal
• Reed’s started trial of its all natural fountain beverages product at a large national fast casual restaurant
• Two East coast back up plants on-board resulting in 95% of product in stock in 2016

Dan Miles, Chief Financial Officer of Reed’s, Inc. commented, “The supply chain issues in the third quarter of 2015 created residual and significant issues entering 2016 primarily related to lost shelf space at our retailers. Our supply chain recovered in 2016 and we shipped at 95% of orders, a significant year over year improvement. We focused our initial priority on our Reed’s Ginger Brew product line and it drove slight growth for the year. The Virgil’s product line was our next priority and was down about 10% for the year. Our Reed’s Culture Club Kombucha was hit the hardest and has taken longer to get back in stock and on the shelves. Gross sales of Kombucha were down 54% in 2016 and caused the most sales impact in our year over year comparison. A primary impact to gross margins in 2016 were packaging and ingredient costs that were not offset by price increases and by idle plant costs due to lower sales volumes of Kombucha produced exclusively at the LA plant as well as other products manufactured at the LA facility. Our current plans to improve margins in 2017 include a combination of plant projects coming online, better packaging pricing and innovations and better sourcing to save on raw materials. The $3.4 million financing transaction announced today strengthens our financial position significantly and will help us achieve our objectives. I look forward to working under the leadership of Stefan Freeman, our new Interim CEO, who has extensive operational experience to support our sales recovery.”

Preliminary First Quarter 2017 Results:

The Company expects to report revenues for the first quarter of 2017 ended March 31, 2017 of approximately $8.3 million versus $10.0 million in the prior year period. The lower sales volume will have an impact on both gross margins and operating margins.

Conference Call Details

The Company will conduct a conference call at 10:30 am pacific time today, April 24, 2017 to discuss its 2016 results. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (800) 683-3233. International callers should dial +1 (303) 223-2692.

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