Reed's Inc. Investor Presentation - M2 Compliance
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Reed’s Inc. Investor Presentation
FORWARD LOOKING STATEMENTS
Forward Looking Statements
This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, in addition to
historical information. All statements that are not statements of historical fact, including those that relate to matters such as our industry,
business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity,
capital resources, future growth and other financial and operating information, are forward-looking statements. We may use the words
“anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,”
“target” and similar terms and phrases to identify forward-looking statements in this presentation.
The forward-looking statements contained in this presentation are based on management’s current expectations and are subject to uncertainty
and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Actual results
may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market,
regulatory and other factors, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any
of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.
For further information regarding risks and uncertainties associated with our business, please refer to the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and “Risk Factors” sections of our filings with the SEC, including our Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 and our subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting
our website at http://reedsinc.com/.
Any forward-looking statement made by us in this presentation speaks only as of the date of this presentation. Factors or events that could cause
our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to
publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be
required by any applicable securities laws.
2
DISRUPTING CATEGORIES
April 2018 Beverage Industry Articles Confirm Our Opportunity
Ginger provides value-added benefits to beverages 2018 Soft Drink Report: Carbonated soft drink
Clean-label association helps ingredient work in alcohol, manufacturers adapt to formulation, engagement trends
non-alcohol products Millennials, iGeneration could offer potential to category
Alternative sweetener solutions could help the CSD market offset declines in
The health-and-wellness movement is driving usage for the spicy, zesty taste of
other segments of the category, analysts note. (Image courtesy of Reed’s Inc.)
ginger in functional beverages, Imbibe’s Holly McHugh says. (Image courtesy of
Imbibe) “The most widelyAprilcited innovation sought by consumers is ‘healthy options,’ followed by
11, 2018
“Ginger is showing up more and more in beverages, and it’s not going to lose Jessica Jacobsen
April 23, 2018
momentum any time soon” ‘natural ingredients,’” the report states.
Barbara Harfmann
When it comes to consumer penetration, carbonated soft drinks (CSDs) still are a
Cultivated as a spice since ancient times, ginger has become well-known for behemoth within the U.S. beverage market. In its April 2017 report titled “Carbonated
“There itsare manyhealth
medicinal health benefits
benefits associated
and ability withhealth,
to boost bone ginger,” she continues.
strengthen the “….aiding
Soft Drinks – US,” Chicago-based Mintel notes that the category has a penetration of
with digestion and alleviating nausea, but it also has anti-inflammatory
immune system and aid in digestion, according to experts. Derived from the properties about 90 percent. Yet, with declining sales, analysts suggest that more innovation is
that can
rootprovide relief
of the ginger plantfor issues
Zingiber like muscle
officinale, ginger cansoreness
be consumedand arthritis pain. Other
fresh, According to Mintel’s
needed report, consumers
to help the are showing
mature beverage category. an interest in innovative products
powdered,
suggested dried,ofin ginger
benefits oil form or as a juice,
include giving the cholesterol,
lowering science-backedblood sugar and risk of within CSDs, particularly those that are positioned as healthier.
ingredient added versatility to impact consumers’ bodies and brains, experts
heart disease.”
say.
3
DISRUPTING CATEGORIES
Vision – Become the Sam Adams of Craft CSD’s
Mission – Disrupt the Ginger Beverage and Craft Soda Categories
Reed’s is the #1 Selling Ginger Beer*
Virgil’s is the #1 All-Natural Full Line Craft Soda**
Mainstream CSD Craft Specialty CSD
Total CSDs Up Diet CSDs Still Ginger Ale Craft Specialty CSDs Craft Specialty Non Ginger Beer
Slightly Declining Up Flat Sugar Growing Growing
0.3% 6.1% 0% 15.5% 15.6%
-0.3%
* Based on Spins MULO/Natural sales latest 52 weeks ended 5/20/18
** Not Aligned with Coca-Cola or Dr. Pepper Snapple, SPINS sales 52 weeks ending 5/20/18
4
PRODUCT LEADERSHIP
A Market Leader in Natural Specialty Beverage
Only Real & Natural Ingredients
We use only Fresh Organic Ginger Root
Real Fruits & Spices, Cane Sugar & Honey
NO Artificial Colors, Flavors or Preservatives
Over 500 million bottles sold since 1987
5
PRODUCT LEADERSHIP
We Are Simply The Best
Brewed from Fresh Organic Peruvian Ginger Made of The Highest Quality Natural Ingredients
6
DISTRIBUTION
Broad Distribution Across Channels
Distributed in nearly 30,000 doors nationally
7
CONSUMER TREND FOR CRAFT
Powerful Consumer Trends Driving Craft Beverage Growth
Consumer trends that will drive continued
On-Trend with Craft soda segment
Consumer underdeveloped vs. accelerated growth for Ginger Beer and Craft Sodas
Preferences mainstream CSD
• Authentic/Distinct Brands – Broad, cross-
Moving to craft Craft can revitalize generational appeal Boomers/Millennials gravitate to
premium, bold declining CSD’s brands with founding authentic story, proprietary
flavors processes, unique packaging.
*$107 Billion **$81 Billion • Affordable Indulgence – Consumers indulging
Retail Beer Sales Retail CSD Sales themselves with affordable everyday premium
refreshment beverages.
1%
• Trading Up to Premium/Craft – Strong growth in
22% the craft soda and premium mixer segments.
78% Consumers looking for small batch, handcrafted, higher
99% quality, authentic bold flavors.
• Craft Soda Category Under Developed – Under-
penetrated segment relative to other super-premium
food/beverage categories such as craft beer, currently
less than 1% of CSD category.
*Brewers Association 2016 **Beverage Digest 2016
8
MACRO CONSUMER TRENDS – HEALTH, REDUCED SUGAR, COCKTAILS
Favorable Macro Consumer Trends Better-for-You/Healthier Products
• Natural/Organic products growing ~10% a year and 4X-5X faster than
mainstream counterparts.
• Consumers want clean labels with simple, natural ingredients without
artificial colors, ingredients and preservatives.
• Consumers are looking for beverages with function and ginger is a
superfood with several health benefits.
• Studies have show that ginger helps with digestion, may reduce
nausea, may fight the flu and common cold, may reduce muscle
pain and soreness, its anti-inflammatory effects can help with
osteoarthritis, may lower blood sugars and improve heart disease
risk factors, may significantly reduce menstrual pain, may lower
cholesterol levels, may improve brain function and protect against
Alzheimer's disease.
• Reduced Sugar – Consumers moving away from high sugar beverages
as well as artificially sweetened products for health reasons.
• Demand for Premium Mixed Drinks Growing – Premium alcohol and
cocktail consumption is growing as well as demand for bold new mixed
drinks such as the Moscow Mule grew 29.8% in on-premise sales in
2017%*
9
VALUE CREATION
Significant Value Creation Opportunity
Replicate the disruptive success of Craft Beer in the CSD category
We have brand leadership positions in on-trend and growing beverage categories
Business model optimization almost complete
Right team in place
Focusing on core brands
Improved balance sheet
Moving to asset light sales and marketing model
Restructuring the debt
Delivering significant margin improvement to re-invest in growth
Refreshing both brands and launching innovative Zero Sugar products and can package
Significant upside in expanding distribution in current and new channels
10BUSINESS TRANSFORMATION
Consistent Sales Growth Through 2015
May 2015
$45.9 Operational Challenges &
$43.4 $42.5 Significant Out of Stocks
$37.3 $37.7
• Millions Invested in Production Capacity
$30.0 • Too Many SKU’s in Too Many Categories
$25.0
$20.4
• Inferior Gross Margins
$15.3 $15.2 • Sub-optimal Operations
$13.0
$10.5
• Profit Suffered and Debt Increased
• Sales & Marketing Investment Declined
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 • Growth Suffered
In $millions
In 2015 - Business Model Broke Down and Management Pushed Beyond Capabilities
2017 - Business Transformation and Value Creation Plan Initiated
11BUSINESS TRANSFORMATION
Business Transformation and Value Creation Plan
New Leadership
New Leadership
New Leadership
New Leadership
New Leadership
New Optimized Enhanced Investment
New
Strategic Business Capital in Sales &
Leadership
Focus Model Structure Branding
Phase I Phase I Phase II
12BUSINESS TRANSFORMATION - LEADERSHIP
New Leadership
• New professional and experienced board, Chaired
by John Bello SoBe/Izze beverage veteran
• New CEO and COO with deep beverage experience
driving brand growth and profitability
New Leadership • Leveraging Founder’s product development skills in
New new role as CIO
Leadership
• Added new sales, marketing and on-premise talent
to the team, along with experienced marketing &
PR agencies
13BUSINESS TRANSFORMATION – STRATEGIC FOCUS
New Strategic Focus
• Directing 100% of all resources to grow Reed’s and Virgil’s
beverage brands, reduced efforts against private label
• Streamlined product categories and product line up by reducing
SKUs from 111 to 28 and reduce working capital needs and
operational efficiencies
New Leadership • In 2016 top 5 SKUs accounted for 31% of total sales
New
Strategic • YTD 2018 top 5 SKUs were approximately 73% of total sales
Focus
• Focus on higher margin products and packages
• Took pricing up on core products first time in 7 years
• Now shipping higher margin Virgil’s Zero Line in cans
14BUSINESS TRANSFORMATION – BUSINESS MODEL
Optimized Business Model
• Shifting from a capital intensive self-production model to an
asset light sales and marketing driven business model
• Currently negotiating documents for the sale of the
beverage plant, related assets and the private label
business
New Leadership
• Negotiated new strategic co-packing partnerships on both
Optimized
Business coasts for bottles and cans
Phase I
Model • New OI & RC Moore partnerships have improved gross margins
• Continue to identify new COGS suppliers and negotiate higher
quality and improved terms
15
15BUSINESS TRANSFORMATION – CAPITAL STRUCTURE
Enhanced Capital Structure
• December 2017 Rights Offering raised capital to:
• Enhance our financial flexibility
• Pay down stretched payables
• Pay down high interest rate ABL
New Leadership
• Secure improved commercial terms with all key vendors
Enhanced • Fund idle plant costs during the transformation phase
Capital
Phase I
Structure • Currently negotiating new ABL and term loan at improved rates
and terms
• Pay off Capex loan
• Reduce cash outflow to support debt by $1MM annually
16
16BUSINESS TRANSFORMATION - SALES AND MARKETING
Transformation Will Fund Greater Investment in Sales & Brands
And Drive Growth
• Adding marketing, sales and agency resources to develop
and execute sales driving brand building programs
• Opening new retailer doors via investment in new broker
partners, slotting, shippers and in-store trade programs
• Driving increased sell through velocity via digital pull and
in-store programs, couponing, sampling, etc.
• Launching brand refresh on Reed’s and Virgil’s – packaging,
website, social media platforms, etc.
New Leadership
Investment
in Sales &
Branding
• Launching new Zero Sugar products for Virgil’s and Reed’s
• Launching new can packaging for both brands
• Adding programs and licensed distributor partners to
expand presence in the on-premise channel
17SALES AND MARKETING
Now Shipping Virgil’s Zero Sugar To A Store Near You!
18SALES AND MARKETING
100% Retailer & Distributor Acceptance Rate to Date on Virgil’s Zero Sugar Phase II
Secured National Launch Commitments from Target and Kroger
Processing orders from UNFI and Kehe – Natural/Specialty Channel
Natural Specialty Mainstream
19SALES AND MARKETING
20SALES AND MARKETING
Full Line Virgil’s Cans Phase II
21SALES AND MARKETING
12 Pack Can Package Phase II
22SALES AND MARKETING
Field Support Phase II
23SALES AND MARKETING
Refreshed Virgil’s Website Phase II
Genius PR Campaign
www.virgils.com
24SALES AND MARKETING
Refreshed Virgil’s Social Media Phase II
https://www.instagram.com/drinkvirgils/
25PHASE 1 AND PHASE 2
Business Model Improvements Driven by Transformation
Post
2017 Q1 2018 Transformation
Net Sales 11% Decline Flat Positive
Growth
1 18% 28% >30%
Gross Margin
(vs. 13% PY)
2 Negative Negative $1.1MM Cash flow
Cash Flow $3.4MM positive
(vs. negative $1.7MM PY)
$2.9MM Paid Down Stretched < $1.7MM
Financial Position (Debt Service)
Payables & Expensive (Debt Service)
14% Interest Rate ABL; Negotiated
< 10% Interest Rate
Improved Vendor Terms
1
Gross margin includes idle plant charges
2
Cash flow is defined as cash from operating activities excluding changes in working capital and financing charges part of the capital structure and not operations
26VALUE CREATION
Significant Value Creation Opportunity
Now we have the right board, the right team and the right partners to deliver success
Brand leadership positions in on-trend and growing beverage categories
Ability to disrupt the multi-billion dollar “Ginger” category and the $80B CSD category
Clear and defensible product superiority with strong macro consumer tailwinds
Business transformation nearly complete and will drive increased investment in sales & marketing
New strategic focus on core brands, streamlined category and product line up
Improved margins through new supplier relationships and upgraded operations oversight
Moving to an asset light sales and marketing branded business model will eliminate idle plant
charges, improve margins and reduce working capital needs
Opportunity to significantly lower financing cost by reduced and restructured debt
Drive revenue growth via increased distribution in current and new channels and increased sell
through velocity via investment in sales and marketing programs
Drive increased brand value and revenue through investment in brand refresh and innovation
New Zero Sugar product lines and the addition of convenient, higher margin can packaging
2713000 S. Spring Street
LA, CA 90061
800-99-REEDS
www.reedsinc.com
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