Reed's (NYSE: REED) reported Q2 EPS of ($0.13), $0.07 worse than the analyst estimate of ($0.06). Revenue for the quarter came in at $9.39 million versus the consensus estimate of $9.21 million.

• Net Sales increased 6% to $9.4 million from $8.9 million in the prior year, core brand gross sales increased 13%;
• Gross margin increased 1340 basis points to 32% from 19% in the prior year period. Sequentially, gross margin increased 460 basis points from the first quarter of 2018. Gross profit increased 81% to $3.0 million from $1.7 million in the prior year period;
• Operating loss was $2.8 million compared to $1.2 million in the prior year period. The year over year variance was primarily driven by non-cash stock compensation, accruals for bonuses and one-time severance accruals related to the Company’s planned corporate relocation;
• Net loss was $3.4 million or $0.13 per share compared to net income of $0.2 million or $0.01 per share in the prior year period. Prior year results benefitted from a $3.3 million non-cash change in the fair value of warrant liability;
• Modified EBITDA loss was $1.1 million compared to $0.8 million in the prior year period.

“We generated solid sales growth driven by double-digit core brand gross sales growth, which included the successful launch of Virgil’s Zero Sugar in May. Our transformation efforts drove incremental gross margin improvement as gross profit nearly doubled over the prior year and we achieved our initial target of a gross margin above 30%. Considerable opportunities still exist to further expand margin and accelerate sales growth,” stated Val Stalowir CEO of Reed’s, Inc. “We continue to progress with repositioning our company as an asset-light sales and marketing focused organization. We recently announced the relocation of our corporate office to Norwalk, CT, which will complete the people portion of the transition. We have also executed a term sheet for a new secured revolving line of credit with improved terms and significantly reduced annual debt service. We anticipate that this refinancing will be completed prior to October 2018. We remain in negotiations with a potential buyer for our Los Angeles manufacturing facility and plan to exit the facility by year-end, which will conclude the key elements of the company’s transformation.”

“I am very encouraged by the organizational improvements happening across the Company. We recently announced several significant additions to our management team that are already having a positive impact on the organization. We are enhancing the leadership, processes and systems that will drive further improvements across each function of the business. Our sales and marketing efforts are starting to ramp up, including early benefits from our new broker relationships and our expanding distribution of Virgil’s Zero Sugar. The Virgil’s brand refresh is complete, the website and social media platforms are up and running and we are excited to add Jeopardy champion, Austin Rogers, as our first genius brand ambassador. The refresh, the Zero products and marketing initiatives are starting to build momentum and should continue to drive increased sales and distribution. A similar brand refresh and new Zero Sugar offerings are in the late stages of development for our flagship Reed’s brand. Each of these enhancements, accomplishments and milestones are a reflection of the continued success of our plan to transform the company’s business model and position Reed’s for continued growth.” Stalowir concluded.

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