Reed’s, Inc. Announces Third Quarter 2018 Financial Results

Net sales decline 1% while core brand gross sales increased 3%

Gross profit increased 30% with gross margin of 25%, or 29% excluding one-time adjustments

Virgil’ s Zero Sugar sales continue to ramp, adding 1,100 new doors; introduction of Reed’s brand refresh, Zero Sugar offerings and new Can packages has begun

NORWALK, CT, November 13, 2018 (GLOBE NEWSWIRE) — Reed’s Inc. (NYSE American:REED), owner of the nation’s leading portfolio of handcrafted, all-natural beverages, today announced financial results for the fiscal third quarter 2018 ended September 30, 2018.

Financial Highlights for the Third Quarter of 2018

Management Commentary

“We are pleased with our progress on our transformation initiatives to improve our business and financial model. We generated continued core brand gross sales growth reflecting our enhanced focus on our core brands and transformation efforts over the last year,” stated Val Stalowir CEO of Reed’s, Inc. “We are very pleased with the retailer and consumer response to the Virgil’s brand refresh and launch of Zero Sugar and velocities on the Zero line are approaching levels of our more established SKU’s. We have laid the groundwork for the new branding of Reed’s and have begun sell-in of the new Zero Sugar offerings and can packages. We have accelerated the Virgil’s brand to double digit growth and we look forward to a similar impact on our flagship Reed’s brand when our new high impact packaging and new products hit the shelves in 2019. We have seen a material increase in our gross margins since the beginning of our transformation and margins are now at a level that can support continued investment in our brands. We are optimistic margins will further improve over time, and we have identified additional gross margin enhancements, including capturing scale efficiencies related to the recent introduction of cans and exiting the LA production facility by year end. As we near the completion of repositioning our company to an “asset-light” sales and marketing focused organization, we have begun to accelerate our sales and brand building efforts.”

Financial Overview for the Third Quarter of 2018 Compared to the Third Quarter of 2017

During the third quarter of 2018, net sales declined 1% to $10.8 million, while core brand gross sales increased 3% compared to the same period in 2017.

Gross profit during the third quarter of 2018 increased 30% to $2.7 million compared to the same period in 2017. Gross margin was 25% of net sales during the third quarter of 2018 compared to 19% of net sales in the same period in 2017. Included in the third quarter costs of goods sold were $0.5 million of discrete accruals and inventory revaluation related to the planned exit of the company’s manufacturing operations. Excluding these items, the gross margin would have increased to 29%. Additionally, the third quarter gross margin was negatively impacted by a 160 basis point increased investment in slotting, related to the launch of Virgil’s Zero Sugar. The 590 basis point year over year improvement in gross margin as reported, or 1,200 basis point improvement excluding the discrete items and increase in slotting, was primarily driven by the benefits of the new glass supplier contract with Owens-Illinois, higher average selling prices and the benefits of SKU rationalization.

Delivery and handling costs increased 25% to $1.4 million during the third quarter of 2018 compared to the same period in 2017. As a percentage of net sales, delivery and handling costs increased 260 basis points compared to the prior year, primarily as a result of an industry wide increase in freight rates, transition charges from and to new warehouse partners and the effects of new ramp-up production costs of cans on the East Coast. Selling and marketing costs increased 66% to $1.4 million during the third quarter of 2018. As a percentage of net sales, selling and marketing costs increased 520 basis points to 13%. The increased investment in sales and marketing is consistent with the Company’s strategy to refresh the brands, launch new products and packaging into the market, and lay the ground work to re-accelerate growth of the core brands. Marketing as a percentage of net sales was approximately 5% in the third quarter of 2018. General and administrative expenses increased to $2.0 million during the third quarter of 2018 compared to $1.1 million in the prior year period, primarily as a result of non-cash stock option expense ($0.4 million), transition expenses associated with the Company’s corporate relocation to Norwalk, CT ($0.3 million) and bonus accruals ($0.1 million).

Operating loss during the third quarter of 2018 narrowed to $2.1 million from $3.0 million in the prior year period. Operating loss included $0.5 million of discrete accruals and inventory revaluation also related to the planned facility exit.

Interest expense decreased to $0.6 million during the third quarter of 2018 from $0.8 million during the third quarter of 2017. During the third quarter of 2018, the Company recorded a benefit of $0.03 million related to the change in fair value of warrant liability, compared to total costs of $1.9 million in the prior year period related to financing and warrant modification costs and the change in fair value of warrant liability.

Net loss during the third quarter of 2018 was $2.7 million, or $0.10 per share, compared to $5.6 million, or $0.37 per share in the third quarter of 2017.

Liquidity and Cash Flow

During the first nine months of 2018, the Company used $10.5 million of cash in operating activities compared to $4.7 million of cash used in operating activities in the prior year period. The increase in cash used in operating activities primarily relates to cash used to pay down stretched payables during the first quarter of 2018, finished goods build-up to support anticipated LA plant transition and the launch of the new Virgil’s Zero Sugar line during the second quarter of 2018. On October 9, 2018, the Company announced it had successfully refinanced its outstanding credit facilities. The refinancing, led by Rosenthal & Rosenthal, strengthens the Company’s financial profile, significantly reducing debt service and borrowing costs. The $13 million asset based loan replaces the Company’s existing credit agreements with PMC. Based on current interest rates, the Company’s annual debt service is expected to be reduced by approximately $1.5 million.

Third Quarter 2018 Earnings Call Details

The Company will conduct a conference call at 1:30 pm Pacific Time (4:30 pm Eastern Time) today, November 13, 2018 to discuss its third quarter 2018 results. This conference call can be accessed via a link on Reed’s website at www.reedsinc.com under the “Investors” section or directly at http://public.viavid.com/index.php?id=131876. To listen to the live call over the Internet, please go to Reed’s website at least 15 minutes early to register, download and install any necessary audio software. Additionally, the call may be accessed with the toll-free dial-in number, 1-(877) 425-9470 (U.S.); or 1-(201) 389-0878 (International). Please dial in at least five minutes before the start of the conference call.

A replay of the webcast will be archived on the Company’s website under the “Investors” section at www.reedsinc.com for approximately 90 days.

About Reed’s, Inc.:

Established in 1989, Reed’s is America’s best-selling Ginger Beer brand and has been the leader and innovator in the ginger beer category for decades. Virgil’s is America’s best-selling independent, full line of natural craft sodas. The Reed’s Inc. portfolio is sold in over 30,000 retail doors nationwide. Reed’s Ginger Beers are unique due to the proprietary process of using fresh ginger root combined with a Jamaican inspired recipe of natural spices and fruit juices. The Company uses this same handcrafted approach in its award-winning Virgil’s line of great tasting, bold flavored craft sodas.

For more information about Reed’s, please visit the Company’s website at: http://www.reedsinc.com or call 800-99-REEDS. Follow Reed’s on Twitter, Instagram, and Facebook @drinkreeds.

For more information about Virgil’s please visit Virgil’s website at: http://www.virgils.com. Follow Virgil’s on Twitter and Instagram @drinkvirgils and on Facebook @drinkvirgilssoda.

Safe Harbor Statement

Some portions of this press release, particularly those describing Reed’s goals and strategies, contain “forward-looking statements.” These forward-looking statements can generally be identified as such because the context of the statement will include words, such as “expects,” “should,” “believes,” “anticipates” or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. While Reed’s is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include difficulty in marketing its products and services, maintaining and protecting brand recognition, the need for significant capital, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed’s, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant risks and uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed’s that they will achieve such forward-looking statements. For further details, please see our most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Reed’s undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

CONTACT:

Investor Relations

Scott Van Winkle, ICR

(800) 997-3337 Ext 6

Or (617) 956-6736

Email: ir@reedsinc.com

www.reedsinc.com

www.reedsinc.com

REED’S, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(Amounts in thousands, except share and per share amounts)

REED’S, INC.

BALANCE SHEETS

As of September 30, 2018 and December 31, 2017

(Amounts in thousands)

REED’S, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(Amounts in thousands)

REED’S INC.

NON-GAAP FINANCIAL MEASURE

EBITDA RECONCILIATION

In addition to our GAAP results, the Company presents Modified EBITDA as a supplemental measure of its performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. The Company defines Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, changes in fair value of warrant expense, and one-time employee severance costs.

Management considers the Company’s core operating performance to be that which its managers can affect in any particular period through their management of the resources that affect the Company’s underlying revenue and profit generating operations that period. Non-GAAP adjustments to the Company’s results prepared in accordance with GAAP are itemized below. Readers are encouraged to evaluate these adjustments and the reasons the Company’s considers them appropriate for supplemental analysis. In evaluating Modified EBITDA, the reader should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of Modified EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.

Set forth below is a reconciliation of net income (loss) to Modified EBITDA for the three months ended September 30, 2018 and 2017 (unaudited; in thousands):

The Company presents Modified EBITDA because its believes it assists investors and analysts in comparing the Company’s performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of core operating performance. In addition, the Company uses Modified EBITDA in developing its internal budgets, forecasts and strategic plan; in analyzing the effectiveness of the Company’s business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with the Company’s board of directors concerning its financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

Set forth below is a reconciliation of net income (loss) to Modified EBITDA for the nine months ended September 30, 2018 and 2017 (unaudited; in thousands):