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Reed’s Inc. announces 2013 results

Natural beverage company reports growth of kombucha line last year

March 26, 2014

Los Angeles-based Reed’s Inc., the owner of natural beverage brands such as Culture Club Kombucha and Virgil’s Soda, announced the financial results for its fiscal year ending Dec. 31, 2013.

Gross revenues increased $42.2 million in 2013, which is up 28 percent compared with 2012, the company reports. Net revenues increased 24 percent to $37.3 million, and gross profit increased 18 percent to $10.8 million, it says. However, earnings before non-cash items and finance costs (modified earnings before interest, taxes, depreciation and amortization) decreased $1 million during 2013 to $13,000. Additionally, net loss for the 2013 fiscal year was more than $1.5 million, compared with a loss of $524,000 a year earlier.

Last year also marked substantial growth for its Culture Club Kombucha line. The company began production and shipment of four new flavors — Coconut Water Lime, Cabernet Grape, Pomegranate Ginger and Mango Passion Ginger — during the year and opened up kombucha markets with mainstream direct-store-delivery distributors in the Midwest, New York Metro, Maryland, San Francisco, Pacific Northwest and Southeast markets. In addition, the company gained kombucha distribution in Kroger, Wegmans, Fresh Market, Giant Eagle and Jewel Osco supermarket chains.

The following are additional operational highlights for the year: establishing a distribution relationship with Lassonde, one of Canada’s largest food companies; moving to the New York Stock Exchange from NASDAQ; continuing to upgrade its Los Angeles plant to increase capacity and efficiency; expanding distribution into WinCo Foods locations; partnering with Life is Good as a sponsor of its annual fundraising concert series; and promoting its Reed’s Ginger Brews line through MindGardens, an organic gardening for inner city youth project spearheaded by rapper Snoop Lion, formerly known as Snoop Dogg. In addition, Reed’s also announced in 2013 that all of its products are GMO free.

“Another solid year of growth here at Reed’s,” said Chris Reed, founder and chief executive officer of Reed’s Inc., in a statement. “Our Reed’s Culture Club Kombucha became the No. 2 kombucha line in the country in its first full year, and we launched four more flavors to great response. We also expanded sales and distribution channels for our Reed’s Ginger Brew and Virgil’s branded products. We continue to fine tune our production model for our products, which should continue to improve the economics of making our products. We have initiated programs to evaluate the performance of our different marketing efforts and expect to see smarter, more focused marketing spends with less top-line discounting. We expect 2014 to be another great year.”

David Williams, interim chief financial officer, added: “We are focused on driving improved results in key areas. Our beverage products continued to achieve strong organic growth rates and led to an 18 percent increase in gross margin dollars. During 2013, our direct gross margin percentage, before promotional discounts, improved by an average of 150 basis points. Driven by economies of scale, general and administrative costs were 9.4 percent of net revenue — a 140 basis point improvement from 10.8 percent in the prior year. Sales and marketing costs in 2013 were approximately 11.2 percent of net revenues, an increase from 10.5 percent in 2012 as we focused on additional distribution channels and increased distribution of our Kombucha product line. Our organizational structure is healthy, and we have excellent brands that we are promoting in effective ways.

“Working capital was $1,347,000 at year-end, a decrease of nearly $1 million from 2012,” he continued. “This decrease in working capital is attributable to net losses, paydowns on long-term debt and increases to our inventory levels. Currently, we have ample capital for operations. Our forecasts show that, by the end of the year, we will have significantly replenished our working capital. Another important way we are increasing our working capital is by reducing the trade spend that erodes our top line. In 2013, nearly $5 million was spent out of gross sales for trade discounts in the aggressive launch of our new Kombucha line. In 2014, we are focusing on reducing this spend and evaluating which programs are more effective at building our brands and stimulating growth. We made significant advances to reduce our production costs by 2 percent in 2013, which offset our 3 percent top-line margin erosion and resulted in a 1 percent gross margin loss over 2012. Through managing inventory levels and marketing discounts, we believe the business will achieve an increase to its working capital of over $2 million in 2014. We believe there is no current necessity to approach the capital markets to improve our liquidity.”

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