Business Context and Reporting Period
This Form 8-K was filed by REED's, INC. on February 14, 2019, to disclose preliminary financial results and guidance in connection with a public offering. The company is the leading seller of ginger beer in the US (estimated 25% dollar share) and operates the Virgil's brand, the leading independent all-natural full-line craft soda. The report covers historical data through December 31, 2018, and provides forward-looking guidance for 2019.
Key Financial Metrics
- Net Sales (Historical): $37.7 million for the year ended December 31, 2017 (down from $42.5 million in 2016).
- Net Sales (Estimated 2018): $38.0 million to $38.3 million for the full year; $9.5 million to $9.8 million for the quarter ended December 31, 2018.
- Net Sales (January 2019 Estimate): $2.8 million to $3.0 million.
- Gross Margin: 25% in Q3 2018; 13% in Q1 2017. Forecasted to be 28% to 32% in H1 2019 and 32% or greater in H2 2019.
- Product Mix (2018): 48% Reed's, 38% Virgil's, 14% Private Label/Discontinued SKUs.
- Distribution: Approximately 30,000 doors as of December 31, 2018, out of an estimated universe of 980,400.
- Debt and Liquidity: The filing text does not provide specific values for debt, cash flow, or liquidity positions.
Material Changes and Outlook
Management forecasts a significant recovery and growth trajectory for 2019, projecting annual net sales of $42 million to $44 million, representing 20% to 30% year-over-year core brand growth. This contrasts with the slight decline in 2017 and the estimated flat-to-slight growth in 2018. Gross margins are expected to expand significantly, rising from 25% in late 2018 to over 32% in the second half of 2019.
Strategic shifts include a projected change in product mix for 2019 to 58% Reed's and 41% Virgil's, with Private Label/Discontinued SKUs dropping to 1%. The company plans to increase distribution doors by 5,000 to 10,000 in 2019 through investments in brokers, sales resources, and trade spend.
Guidance, New Products, and Risks
- New Product Launches:
- Wellness Ginger Beer with Hemp Extract: Pilot test planned for Q2 2019 in the Pacific Northwest. Target SRP is $3.99/can.
- Ready to Drink Mule: Pilot test planned for Q2 2019 in Southern California and the Pacific Northwest. Target SRP is $9.99 for a 4-pack.
- Market Context: The company cites a $30 billion US functional beverages market and a projected $2 billion Hemp/CBD market by 2020. The Ready to Drink Mule targets a $3 billion craft alcoholic beverage category.
- Risks and Contingencies: The filing contains standard forward-looking statement disclaimers, noting that estimates are subject to audit and customary closing procedures. Full GAAP financial statements for 2018 are not yet filed. The company explicitly states it undertakes no obligation to update forward-looking statements.
Investor Verification Checklist
- Verify the final audited financial statements for the year ended December 31, 2018, once filed, to confirm the estimated net sales of $38.0M-$38.3M.
- Monitor the Q2 2019 launch execution and initial sales performance of the Hemp Extract Ginger Beer and Ready to Drink Mule.
- Track the actual gross margin performance in H1 2019 against the 28%-32% forecast to validate the margin expansion thesis.
- Confirm the actual increase in distribution doors (target: +5,000 to +10,000) in the 2019 annual report.
- Review the final prospectus for details on capital raised and specific debt or liquidity covenants not detailed in this 8-K.