Jones Soda Co. (PNK:JSDA) Q3 2023 Earnings Call Transcript

Jones Soda Co. (PNK:JSDA) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good afternoon, everyone. Thank you for participating in today’s conference call to discuss Jones Soda’s financial results for the third 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 provisions under the Private Securities Litigation 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 expressions.

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 Risk Factors in our most recently filed reports with the SEC, including our annual reports on Form 10-K, our quarterly report on Form 10-Q and our current report on Form 8-K. 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 p.m. ET 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.

David Knight: Thank you, Ranju and thank you, everyone, for tuning in today. Since joining the company four 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 all. Before we get into that, I wanted to briefly recap the quarter. The third quarter was more challenging than anticipated. Sales velocity within our most important bottled soda channel grocery has taken longer than expected to read out. 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 onetime operational costs to establish the foundation of Mary Jones now behind us. 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 third quarter financial results in greater detail.

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Q&A Session

Joe?

Joe Culp: Thank you, David and good afternoon, everyone. Net revenue in the third quarter was $4.5 million compared to $4.8 million in the third quarter 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 third quarter of last year. Our cannabis-related business generated approximately $220,000 in the third 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. Gross profit as a percentage of revenue increased 600 basis points to 32.9% compared to 26.9% 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 third quarter improved to $2.4 million compared to $3 million in the same year ago quarter. This decrease was due to lower marketing and G&A costs, mostly as a result of lower startup costs associated with the development of our Mary Jones brand. Net loss in the third quarter improved to $900,000 or negative $0.01 per share compared to a net loss of $1.7 million or negative $0.02 per share for the same year ago quarter. Adjusted EBITDA in the third 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 $5.2 million compared to $5.1 million at June 30, 2023, and $8 million at December 31, 2022.

Working capital was $8.8 million at September 30, 2023, compared to $11.6 million on December 31, 2022. 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.

David Knight: Hey, thanks, Joe. Let’s jump back into it, starting with our sales performance. As I 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. While the broader consumer 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 the 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. We are seeing steady progress in Kroger with sales improving in both [Technical Difficulty] and unit. The team continues to execute temporary price reduction feature programs with $2 to $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. 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 Featherstone Distributors and [indiscernible]. 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 branch. We are now on our fourth quarter and report of growing this direct-to-consumer opportunities.

For Jones Root Beer and Kroger is also off to a fast start and we are now on stock in 2,560 Kroger stores with sales increasing and it is now ranked as our number six SKU and climbing. Within foodservice, we are making notable progress with the new sales leader we have brought 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. What started as a test placement of our top five 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 One Group has been a huge success and we are now expecting in Q1 2024 to be selling our products in both Kona Grill and the STK steakhouses nationwide.