Chris Reed Resigns as CEO of Reed’s After 2016 Earnings Drop

Reed’s Inc. is shifting gears following a disappointing financial performance in fiscal year 2016, as the company announced today the resignation and reassignment of founder and CEO Chris Reed. Industry veteran and Reed’s director Stefan Freeman has taken the reins as interim CEO while Reed assumed the newly created role of Chief Innovation Officer (CIO).

Reed’s, a publicly traded company with a brand portfolio that includes Reed’s Ginger Beer and Virgil’s, announced the move on the same day as an earnings call in which it revealed a 7.6 percent drop in annual revenue, which fell from $45.9 million in 2015 to $42.4 million last year.

The company also announced the closing of a $3.4 million private placement in the form of the sale and issuance of convertible note and warrant to purchase of 1.4 million shares of common stock. Interest on the note is 12 percent per year and the warrants are for a five-year term.

As described in a press release, Reed will focus on new product development in his new position as CIO. He will retain his seat as a non-independent director on the company’s board of directors.

“Reed’s has never had a more impressive portfolio of new products waiting to launch in the history of the Company,” said Reed in a press release. “My transition from CEO to Chief Innovation Officer allows me to focus my full energies to bringing these exciting new products to fruition.”

Reed also highlighted the company’s line of natural soda fountain products, currently on trial at a large national fast-casual restaurant chain, and development of low-calorie offerings as examples of its strategy for opening new markets and strengthening brand equity.

Chris Reed, founder and Chief Innovation Officer, Reed’s Inc.

Freeman, a former regional vice president at Coke, thanked Reed in the release, while pointedly noting the company is “going through a critical transition.” He added, “We are targeting greater operational efficiencies and better margins and we believe that will translate into more profitability and accelerated marketing programs. I am excited to be here and look forward to reporting our progress and enhancing shareholder value.”

John Bello, Chairman of the Board of Directors, thanked Reed for his “extensive contributions” and for “pioneering the craft soda revolution,” while praising Freeman’s 25 years of experience in the beverage industry and ability to lead the company through “this transitional phase.”

“When the shareholders elected this board they strengthened the Company with a great team of experienced and capable executives,” he said in the release. “We will all be working together to drive growth under the leadership of Stefan while we search for the permanent CEO who will lead this Company through the next stages of growth.”

The company will look to Freeman to help it rebound from a year in which supply chain issues spurred a loss of shelf space at retailers, according to a statement from Chief Financial Officer Dan Miles. In an interview with BevNET last October, Reed said that those issues resulted in the company losing somewhere between 15 to 20 percent of its distribution in the marketplace, about a quarter of which had been recovered at the time.

As it recalibrated its supply chain, Miles said the brand initially prioritized the Reed’s Ginger Brew product line, which saw gross sales grow 2 percent for the year, followed by the Virgil’s line, which was down by around 10 percent. Reed’s Culture Club Kombucha suffered the heaviest losses, as product went out of stock for up to six months, fueling a 54 percent drop in 2016. That drop. Miles said, “caused the most sales impact in our year-over-year comparison.” He also noted the company was hampered by idle plant costs due to lower sales of Culture Club Kombucha, produced exclusively at the company’s Los Angeles production facility, as well as other products manufactured there.

“Our current plans to improve margins in 2017 include a combination of plant projects coming online, better packaging, pricing, and innovations, and better sourcing to save on raw materials,” he said in a separate press release.“The $3.4 million financing transaction announced today strengthens our financial position significantly and will help us achieve our objectives. I look forward to working under the leadership of Stefan Freeman, our new Interim CEO, who has extensive operational experience to support our sales recovery.”

So far, preliminary revenue from Q1 of this year stands at $8.3 million, compared to $10 million in the same period of 2016. Shares were down by about 21 percent on the NASDAQ exchange at the time of publication.