Reed’s, Inc. — Q1 2024 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Reed’s sells branded beverages, including Reed’s and Virgil’s products, and uses third-party co-packers for all production. Unless otherwise noted, financial amounts below are in thousands of dollars.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Gross billings | $10,379 | $12,453; down 17% |
| Net sales | $9,595 | $11,157; down 14% |
| Gross profit / margin | $3,413 / 36% | $2,698 / 24% |
| Operating expenses | $4,063 | $5,276; down 23% |
| Operating loss | $(650) | $(2,578) |
| Interest expense | $1,023 | $1,779 |
| Net loss / loss per share | $(1,673) / $(0.40) | $(4,357) / $(1.70) |
| Modified EBITDA (non-GAAP) | $(370) | $(2,265) |
| Cash from operating activities | $(2,395) | $1,117 |
At March 31, cash was $314, inventory $12,017, total assets $19,250, and total liabilities $39,975. Current liabilities of $25,025 exceeded current assets of $18,178, a working-capital deficit of $6,847. Stockholders’ deficit was $20,725. The company reported approximately $8.0 million outstanding on its asset-based credit line and approximately $18.7 million of secured convertible-note obligations. The credit line carries rates of approximately 13.25%–18.00%; the notes bear 10% interest. Noteholders had waived certain amortization payments and defaults subject to negotiated terms.
Material changes and management commentary
- Sales volume fell 19% overall: Reed’s cases declined 6% and Virgil’s 37%. Core-brand price per case rose 3%, while promotional allowances fell 40%, partially offsetting lower billings.
- Cost of goods sold per case declined to $12.39 from $13.80, and cost of goods sold fell 27%. Management cited margin initiatives, including outsourced manufacturing, product-line simplification, vendor negotiations, pricing changes, and cost controls.
- Delivery and handling expense declined 29%; freight and handling averaged $3.01 per case versus $3.46. Selling and marketing expense fell 24%, and general and administrative expense fell 14%.
- Despite improved gross margin and lower operating costs, operating cash use was $2,395, compared with cash generation of $1,117 in Q1 2023.
- The company received $4.1 million from three significant stockholders through SAFE agreements, recorded as a liability until conversion in a future equity financing. The SAFE terms provide conversion at the lesser of $1.50 per share or the next financing’s per-share price.
Outlook, risks, and contingencies
Management stated it expects available cash and expected operating cash flows to support its current plan for at least 12 months from issuance of the financial statements. It is also evaluating financing alternatives; additional financing is not assured. No quantified revenue or earnings guidance was provided. Management expects inflation moderation to continue through 2024 but cautioned that supply-chain, labor, raw-material, logistics, freight, and port-congestion pressures remain risks.
The company’s proposed equity financing, with a stated minimum of $3 million and conversion of approximately $4.1 million of SAFE investments, was delayed while it evaluated longer-term financing options. On May 17, 2024, noteholders agreed to temporary waivers of specified defaults and Excess ABL fees through June 10, and amortization payments through June 30; payments were scheduled to resume July 1. The company reported paying $40 of interest and certain fees. Its notes are secured by substantially all assets; failure to obtain further accommodations or repay debt could lead to acceleration, enforcement remedies, or bankruptcy.
Other disclosed matters include a $452 demand from former related-party co-packer California Custom Beverage; management considers a loss remote and recorded no additional accrual. An investment-banking engagement may involve up to $1.2 million of fees, payable only if a transaction is finalized.
Important facts for investors to verify
- Whether the proposed equity financing is completed, on what terms, and whether SAFE investments and note interest or fees convert into equity.
- Current cash runway, operating cash needs, and ability to fund the plan without additional financing.
- Compliance with note and credit-facility terms after the temporary waivers, including the scheduled resumption of amortization payments.
- The filing gives inconsistent credit-line availability information: it says there was “no remaining availability” and also reports $4,995 of borrowing capacity available. Confirm the actual availability and applicable borrowing limits.
- Whether lower sales volumes, customer concentration, and reliance on third-party co-packers affect future revenue, margins, and product supply.