Jones Soda Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

There are 5 speakers on the call.

Operator

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Jones Soda's financial results for the 3rd quarter ended September 30, 2023. Before we begin, let me remind everyone of the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans and prospects of the company that constitute forward looking statements for purposes of the Safe Harbor provision under the Private Securities Legislation Reform Act of 1995. Forward looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects or targets and negatives of these words and similar words of expression.

Operator

Forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward looking statements. Factors that could affect our actual results include, among others, those that are discussed under the heading of Risk Factors in our most recent filed reports with the SEC. Including our annual reports on Form 10 ks, our quarterly report on Form 10 Q and our current report on Form 8 ks. In addition, this call includes discussions of certain non GAAP financial measures, including adjusted EBITDA, the most directly comparable GAAP measures and reconciliations of non GAAP measures are available in the earnings release and other documents posted on the company's website under Investor Relations. This call will be available for Telco replay through November 16 starting at 7:30 pm A.

Operator

T. Tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website. Now I would like to turn the call over to the President and CEO of Jones Soda, David Knight. You may begin.

Speaker 1

Thank you, Renju, and thank you everyone for tuning in today. Since joining the company 4 months ago, I've been able to fully integrate into the operations and I'm confident in the future of Jones Soda. We have some really exciting stuff in the works that I can't wait to share with Paul. Before we get into that, I wanted to briefly recap the quarter. The Q3 was more challenging than anticipated.

Speaker 1

Sales velocity within our most important bottled soda channel grocery has taken longer than expected to rebound. And we did have a few unexpected headwinds in our foodservice channel. However, the initiatives we've implemented to improve efficiency across our supply chain, coupled with strategic pricing adjustments, allowed us to expand our gross margin by 600 basis points to 32.9%. We are marching closer to our goal of consistently reporting a gross margin of around 35%. While continuing to move closer towards breakeven on the bottom line with most of our one time operational costs to establish the foundation of Mary Jones now behind us.

Speaker 1

As I discussed last call, my two key areas of focus are delivering great taste and growth through both innovation and marketing. We have really only begun to scratch the surface in both of those categories. And I firmly believe we are setting the stage for some exciting growth opportunities in the coming quarters. I'll dive into a few of these initiatives later on during the call. But I'd first like to pass the call over to Joe to discuss our Q3 financial results in greater detail.

Speaker 1

Joe?

Speaker 2

Thank you, David, and good afternoon, everyone. Net revenue in the 3rd quarter was compared to $4,800,000 in the Q3 of 2022. The decrease was primarily due to a decline in the company's foodservice channel along with the decline in sales velocity within the grocery channel compared to the Q3 of last year. Our cannabis related business generated approximately $220,000 in the 3rd quarter, which represents 93% increase year over year. David will be providing more detail of our Mary Jones revenue to give you more insight into the success our brand has seen.

Speaker 2

Gross profit as a percentage of revenue increased 600 basis points to 32.9% compared to 26.9 percent in the prior year period. This increase was primarily due to continued enhancements in our supply chain to better manage costs along with continued strategic pricing adjustments. Operating expenses in the 3rd quarter improved to $2,400,000 compared to $3,000,000 in the same year ago quarter. This decrease was due to lower marketing and G and A costs, mostly as a result of lower start up costs associated with the development of our Berry Jones brand. Net loss in 3rd quarter improved to $900,000 or negative 0.01 dollars per share compared to a net loss of $1,700,000 or negative $0.02 per share for the same year ago quarter.

Speaker 2

Adjusted EBITDA in the 3rd quarter improved to a negative $862,000 compared to a negative $980,000 in the year ago quarter. The improvement in our bottom line was primarily driven by the expansion in gross profit and a decrease in total operating expenses. Now moving on to the balance sheet. As of September 30, 2023, cash and cash equivalents were $5,200,000 compared to $5,100,000 at June 30, 2023, and $8,000,000 at December 31, 2022. Working capital was $8,800,000 at September 30, 2023 compared to $11,600,000 on December 31, 2022.

Speaker 2

Now I'll turn the call back over to David, who will provide further insights into the various growth initiatives we have planned and overall progress being made throughout the organization. David, back to you.

Speaker 1

Hey, thanks Joe. Let's jump back into it, starting with our sales performance. As mentioned at the start of this call, lower sales velocity in our grocery channel has been a headwind on our core bottled soda business for the past two quarters. In addition, during Q3, we lost one of our major legacy customers within our foodservice channel that further contributed to the negative impact. Although we are certainly disappointed by these short term hiccups, we are still very confident in our core soda strategy and continue to take steps towards long term solutions that we believe will further solidify our position in the craft soda market.

Speaker 1

While the broader environment has seen a slowdown in discretionary spending. We are seeing growth return to craft sodas and specifically a return to natural cane sugar beverages. And I believe Jones Soda offers a higher quality and indulgent beverage for consumers looking for an enjoyable treat during these challenging economic times. We continue to be recognized as having the best tasting craft soda in the market. Given this, we are continuing to make important adjustments across our key accounts and aggressively pursuing incremental growth opportunities with a few new channel leaders in place.

Speaker 1

We are seeing steady progress in Kroger with 1,000 proofing in both stores and units. The team continues to execute temporary price reduction feature programs with $2 for $3 combined with a dollar digital coupon during key holiday periods to drive sales. In Costco Canada, we implemented a 12 ounce bottle variety pack with strong initial orders as we enter the holiday season. In Q3, the team secured national listing at Ace Hardware and attended their national trade show. We have secured over 280 new accounts and so far have sold 99 pallets with more expected to come in Q4.

Speaker 1

Sales team continues to increase distribution by both securing new DSD distributors and ranging in some key regional grocery chains. In the Midwest, we picked up the Spartan Group with over 200 stores. On the West Coast, we have picked up SF Naturals and JK Distributors and in the Northeast Thunderstone Distributors and Pembia. We welcome these new distributors as they drive Jones Soda through their direct store distribution capability. In Q3, we also started selling Jones through Amazon Fresh.

Speaker 1

We are now on our 4th order and look forward to growing this direct to consumer opportunity. Now, Jones Root Beer and Kroger is also off to a fast start and we are now on shelf in 1560 Kroger stores with sales increasing and it is now ranked as our number 6 SKU and climbing. Within foodservice, we are making notable progress with a new sales leader we have put on for this channel. We remain very bullish on the opportunities at hand to increase sales on our fountain offerings, which is our highest margin soda product through a more aggressive and tactical approach. We are very excited with our recent partnership with The ONE Group Hospitality.

Speaker 1

What started as a test placement of our top 5 craft sodas into Kona Grill in Salt Lake City has now expanded to 6 flavors being offered at all Kona Grill locations nationwide. So far our relationship with 1 Group has been a huge success and we are now expecting Q1 2024 to be selling our products in both Kona Grill and the STK Steak Houses nationwide. Jones Soda is proving to be a high margin offering in the fine dining channel with more to come as we build on The ONE Group's success. Now I'd like to dive into our core soda marketing efforts. As you all know, the pillars that we are most proud of at Jones is our special release flavor.

Speaker 1

I believe our team knocked it out of the park once again with the latest special release we announced in October, Orange Chocolate Flavor. As such result, they have a pairing that has come to be associated with special occasions and holidays. This classic combo has never been celebrated as a soda. I'm very proud to say that Jones Soda is the 1st beverage company to create a cane sugar sweetened carbonated version of this iconic flavor combo that we believe is sure to be reminiscent of your favorite fall and winter holiday memories. Not only is this a great treat to enjoy on its own, but we've had great feedback on its ability to be a tasty option for cocktails and floats at holiday gatherings.

Speaker 1

This was our 3rd special release introduced this year and we already have some amazing things in the works for 2024 that we look forward to announcing soon. In Q3, we also developed and tested a new version of Jones with caffeine called Jones Plus Energy Soda. We believe the combination of natural cane sugar and 160 milligrams of natural caffeine from green coffee beans with our core flavors blueberry lemonade, green apple, MF grape and cola in a 16 ounce can is a great way to start your day. We're excited about the early results and the opportunities ahead for 2024. Now moving to operation.

Speaker 1

We continue to increase our gross margin towards our target profile of 35%. While we have absolutely benefited from pricing adjustments, I want to be really clear that the work we've done to shore up our supply chain and create more predictable and manageable raw material and break costs has been the main driver behind this. This is an important distinction to make because it means we have a good insight into our cost of goods sold that we believe will allow us to manage the business accordingly and ultimately achieving our target goal. Our SG and A also continued to decline year over year due to fewer expenses in 2023 associated with building the foundation for Mary Jones. We have a much more efficient expense structure in place that I believe allows us to appropriately fund our growth initiatives without having to cut into our bottom line.

Speaker 1

With an ever improving margin profile and healthy overall cost structure, we remain confident that we are positioned to capture revenue growth and more profitability going forward. With that, let's turn to Mary Jones. 1st and foremost, I want to address our geographic expansion. We're incredibly excited to have launched into Washington State at the end of the quarter. We strongly believe that having our cannabis presence in our home state and a state that was at the forefront of cannabis legislation will be incredibly valuable for our long term growth potential.

Speaker 1

So we are live in Washington and we're expected to launch in Michigan this month with our core range of cannabis infused sodas.

Speaker 3

We are

Speaker 1

working hard on our next large market, which is the province of Ontario in Canada scheduled for Q1 2024. We have signed our agreement with Tilray as our strategic licensing partner for Canada and are looking forward to seeing Mary Jones on shelves in dispensaries as we plan to expand across all of Canada in 2024. Overall, I remain very excited about Mary Jones. And from a sales perspective, we grew our cannabis related revenue 93% year over year to approximately $220,000 in Q3. In the meantime, we are continuing to create momentum with our product and marketing initiatives.

Speaker 1

In terms of new categories and progress with current formats, I believe we are seeing sustained success. We also continue to make progress with our category expansion this quarter. Overall, I continue to be impressed with what we've been able to accomplish in Mary Jones. This business started from scratch a little over a year ago and has already risen to one of the top cannabis infused soda brands in California. We firmly believe we've captured lightning in a bottle.

Speaker 1

Now we need to scale the business. As we continue to expand our geographic and category presence. We are highly confident that Mary Jones will be a major contributor to the overall revenue growth of the company. And finally on the growth front, we're excited to announce a new member of the team, Jerry Goldner. He has started with the team as our Chief Growth Officer to lead our key growth initiatives for 2024.

Speaker 1

Jerry has worked in sales and marketing for Kellogg's as well as several CPG startups and is a consummate sales professional. He will be leading our key growth teams being food service, convenience channel and Mary Jones. We're excited to have him on board as we develop our growth plans for 2024 and beyond. With that, I'll pass the call over to the operators to see if there are any questions from our listeners today. Ranju, over to you.

Operator

Thank you. We will now be conducting a question and answer If you would like to remove your questions from the queue. Before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Daniel Thiele, a Private Investor.

Operator

Please go ahead.

Speaker 3

Hi, David. I'd first like to state that I appreciate you taking live Q and A. That means a lot to us. Given your background in alcohol, I was curious if Jones Soda is exploring an entry into that space.

Speaker 1

Hey, Daniel. Look, firstly, I'm really excited about opening the communication channel to our investors and really appreciate your Yes. So I'm a beverage guy. I'm really excited at the brand that we have. I think it resonates and plays in that over 21 category.

Speaker 1

So for instance, Mary Jones is a perfect play to really engage consumers that are looking for the next functional beverages. The team previously has scouted out Spike Jones as an opportunity. It's currently on the radar as we build our innovation, but no firm plans yet for next year and beyond. But I do think it's space that we should play in.

Speaker 3

Okay. Thank you. I appreciate that, David. And can you share any more insight into, a, very excited about the entry into Canada. Could you share any more insight into further state Expansion here in the U.

Speaker 3

S. For Mary Jones?

Speaker 1

Yes, absolutely. We're excited about Canada too. As we look through the of regulated markets, we're really doing kind of a ground up assessment of what it takes, what it costs and what our capabilities are. As you're aware, some of the start up costs in the States are quite expensive depending on the market. And so we're doing a ground up evaluation, no decisions made yet, but really focusing on Canada as our first kind of launch for Q1 next year.

Speaker 1

I would also say that now that we're in California and we're in Washington and Michigan will be launched this month, but we're excited about moving beyond just beverages. So the team is innovating into edibles as well. So currently the strategy is to go very deep in the markets that we're in, expand in Canada and then do a state by state evaluation of which states will add to the agenda for next year.

Speaker 3

Okay. Thank you. That makes sense. That's exciting to hear that we're getting into edibles and the like. Would you be able to clarify any expectations for a timeline getting into edibles and anything additional to Mary Jones?

Speaker 1

We're fast tracking it, Daniel. I would think that by Q1, we should be starting to roll out some of our edibles. So we're looking at the basics, right? So gummies as a starting point and some other kind of We're doing the candy in Q1 as well. So trust me, we're fast tracking it.

Speaker 1

Again, it's finding the right partners in each state to produce and we're excited about the conversations we're having. So It's a target right now. We'll firm it up in our next investor call.

Speaker 3

Okay, great. Thank you. And then last question I have, sorry to hog your I noticed in the interview previously, Bob Blair, who I know who is no longer with the company, Had mentioned a licensing deal to get into the sparkling water space, leveraging Jones brand and flavor portfolio. Is that something the company is still pursuing?

Speaker 1

Absolutely. We're excited about the progress that we're making. We're going into concept testing in this quarter just to ensure that we have, 1, the right to succeed there. So the Jones Soda brand, which we're pretty confident we can. We're developing a 0 calorie sparkling water And we're excited about some of the strategic partnership conversations that we're having.

Speaker 1

So yes, it's probably on the of the list of our innovation agenda for 2024, 2025.

Speaker 3

Fantastic. Thank you, David. I appreciate your time and Appreciate the energy that you're bringing to the company.

Speaker 1

Hey, Daniel, really appreciate you. And yes, I look forward to getting more questions. The reason that we're opening up the mic Doing these things live is that I want to be as transparent as I can with the exciting plans that we have going forward. So Appreciate you and your support for the team and the company.

Operator

Thank you. Next question comes from the line of Pat Lazur, a private investor. Please go ahead.

Speaker 4

Hi, David. This is Pat Lejuez. Thanks for taking my call and really appreciate you guys taking calls in general once again. Excited about Mary Jones and we've been told that there's been a well, obviously, there's been an effort to grow that. Can you speak a little bit to the quarter over quarter 45% drop in sales, If I've got that number right, going from about $400,000 in sales last quarter to $220,000 in the most recent quarter?

Speaker 1

Yes. So let me do a reality check with Joe. Joe, can you just confirm what the overlap on Mary Jones is?

Speaker 2

Yes. So thanks for the question, Pat. Yes. So that's from he's comparing the Q2 number in comparison to Q3 in the California market that did in fact come down to 220,000 from 400,000 In Q2 for California.

Speaker 1

Okay. Hey, Pat, firstly, thanks for the question. California is a key market for us, obviously. And we're dealing with a little bit of pipeline load in Q2, But we've got some exciting plans for California as we add to the line, as I mentioned earlier, with edibles, etcetera. And we have also kind of moved our production facility from Tinley over to Ilkana.

Speaker 1

So there are some changes in terms of what we're doing in Yes. But again, we've got some significant growth opportunity there that we need to focus on. So Appreciate the question.

Operator

Mr. Lauzer, are you done with your question?

Speaker 4

Yes. Thank you.

Speaker 1

Thank you. Thanks, Matt.

Operator

The next question comes from the line of Oleg Gal, a Private Investor. Please go ahead.

Speaker 4

Thank you, David. Appreciate you doing this live now. Very, very transparent. I know the group appreciates as well. Just And if there's any comments in regard to the cash balance, I know that it says $5,200,000 with all the initiatives being spoken about, I don't come from the beverage industry, but it seems like there is going to be some investments required to open up Canada.

Speaker 4

I'm very excited about the pillory partnership to go into the sparkling water business. I'm just curious in regards to the cash balance and how you guys are feeling about that?

Speaker 1

Hey, Joe, that sounds like a question to you and then I'll comment at the end.

Speaker 2

Yes, yes, For sure. Yes, thanks for the question. That is absolutely constantly on our minds as balancing working capital We and our cash balance. We are evaluating everything right now as we put together the growth plan for 2024. And that does include discussions with Possible line of credit or any other sort of raise that maybe needs to happen.

Speaker 2

But At this point, there's no further information that we're ready to give, but it is certainly top of mind as As we're putting together our plans for the future.

Speaker 1

Yes, I would just add on to that. I mean, the cash Position that we have is probably the number one priority and the number one discussion we have with the Board. So we're confident where we're at today. We do feel that there may be an opportunity in the future as we understand the opportunity behind Mary Jones and maybe some other kind of new categories that we enter into. As we test and learn, our ideal scenario would be as we see progress and excitement and profitability and revenue growth that we may come back to the market with a requirement for investment.

Speaker 1

So Again, from my standpoint, it's a very disciplined approach to innovation, understanding what the opportunity is and then scoping out what do we need to be super successful in those categories. So as Joe said, no plans yet, but it's on our radar screen to see if we've got a tiger by the tail. So Ali, thank you for the question. Any more?

Speaker 4

Awesome. Thank you. That's pretty straightforward. And I look Look forward to what's coming up in the next quarter. It sounds very exciting.

Speaker 1

Thanks, Ali. Thank

Operator

you. Next question comes from the line of Daniel Kiel, a Private Investor. Please go ahead.

Speaker 3

David, I'm back. Sorry, I lied to you about my previous question being the last. I know Jones Previously attempted a merger with Simply Better Brands, probably over a year ago at this point. Is any sort of merger Sale or acquisition, something that Jones is currently exploring?

Speaker 1

Daniel, nothing on the horizon. I was aware of the Simply Best Brands discussions. But right now, nothing on the radar. What we are focusing on is innovation to find channels, segments and opportunities in different categories that the brand can resonate in, but No mergers acquisitions on the radar right now.

Speaker 3

Okay. I'm glad to hear that. I feel like the Jones Soda Brands stands alone very well. Yes, apologies. In the past, Jones hasn't provided forward looking forecast at all.

Speaker 3

Is there anything you guys are willing to share as far as forecast or goals looking towards Q4 or 2024?

Speaker 1

I wrestle with this every day, Daniel. It's a great question and it gives me the opportunity to discuss it. I'm not a believer in forward projections. They are are precarious in terms of setting a commitment on a destiny. We are walking into categories that have High potential and moderate risk.

Speaker 1

So I think what we're best to do is share what we're looking at in terms of innovation, channels, ideas, but not prepared as the leader of the organization to get into forward looking statements. I don't think it sets us up for a good conversation and certainly doesn't set us up for success.

Speaker 3

Understood. Well, I appreciate the thought. My last question for real this time. You mentioned that a large core bottle customer in Q1 or in Q3 have fallen off. Would you be able to share who that is?

Speaker 1

Unfortunately not. It was a large food service account. We're on the non disclosure agreements with that team, but I would say we're aggressively trying to get that business back.

Speaker 3

Okay. Well, thank you again, David. I appreciate the time.

Speaker 1

Thanks, Daniel. Appreciate you.

Operator

Thank you. Next question comes from the line of Oleg Gal, a Private Investor. Please go ahead.

Speaker 4

Yes, David. Similar to Daniel, I also lied. You can see how excited we are to have this platform being live. Just to vary, if you don't mind sharing your brief thoughts on your U. S.

Speaker 4

Legalization with cannabis and the other has been some movement recently with The suggestion coming out of HSS and just your thoughts overall in the market, if you could comment on that. And if it does go to the next level of rescheduling Level 3, is there kind of a plan to speed up the across state, I guess, expansion of Mary Jones. I'm assuming that's where you guys are kind of being a little bit more cautious right now because the climate is not very stable in Canada

Speaker 1

Yes. Look, Ali, it's a great question. It's something we really struggle with. As we enter these categories that are kind of at the whim of legislation. We need to be cautious and prudent Yes, take bets, right?

Speaker 1

I mean, I think we're confident as we see more states moving forward at the state level. The federal side, again, the scheduling in this political climate, pros and cons. It's a lot wrapped around the 2024 election, I would think. But we also have our eye on Hemp derived THC Beverages, I think we think it also is an interesting space to potentially play in. And therefore, we're very attuned to what's going on with the farmer bill or the farm bill.

Speaker 1

And it sounds like that's also being kicked down the track. So again, we're the Mary Jones team is looking at this every day. We think there's a huge opportunity for Mary For Mary Jones, it's one of our key growth drivers for the next several years and beyond. We are like we're very special. I think we all need to be very proud of what Jones Soda has.

Speaker 1

So We're a publicly traded company, point 1. Point 2 is we have a very solid soda business that is We're going to be ignited to grow through innovation. We are the only brand to my knowledge that's publicly traded in the soda business that Step into the regulated cannabis market, the adoption and attraction by consumers in California and now Washington show that we have a huge brand power behind Jones and Mary Jones and it gives us a lot of synergy in terms of what we can do a marketing standpoint. So eyes and ears to the ground. We see it as a state by state opportunity.

Speaker 1

We need to assess the cost of entry versus the return. But the good news is we're nimble and agile. We performed with the best tasting beverage. So our core flavors, green apple, blueberry lemonade, cola, root beer, Orange and Cream, you name it, they play so well in the cannabis market because they taste great. It's a consumer that's not necessarily calorie conscious, especially in the mode of consuming either a THC tea or an alcohol beverage.

Speaker 1

So lots of opportunity. Trust me, we are on it. We are focusing on it. We have The right team, we have the right product. It's really state by state opportunity and keeping an eye on both the federal and state regulations.

Speaker 1

So hopefully that answered your question, Oli.

Speaker 4

It does. Thank you very much. Really do appreciate it.

Speaker 1

Yes.

Operator

Thank you. This concludes today's question and answer session. I would now like to turn the call back over to David Knight for closing comments.

Speaker 1

Firstly, thank you, Renju, for navigating the call today. And I do want to really thank everybody that asked questions today and I would encourage more going forward. I would just say I'm excited about leading this team. I'm excited about the opportunity ahead and just wanted to thank everybody for taking their time today to listen. We obviously look forward to speaking with you and to report our 4th quarter and full year results in March.

Speaker 1

We have a lot of great stuff that we're working on and I would just say, hey, I am proud and humbled to be leading this great team with such a great brand and such opportunity ahead. So Thanks everybody again. Have a great day and speak to you next time.

Operator

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Jones Soda Q3 2023
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