NORWALK, Conn., May 16, 2022 (GLOBE NEWSWIRE) -- 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.
