Jones Soda Co. (PNK:JSDA) Q4 2023 Earnings Call Transcript

Jones Soda Co. (PNK:JSDA) Q4 2023 Earnings Call Transcript March 14, 2024

Jones Soda Co. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone. Thank you for participating in today’s conference call to discuss Jones Soda’s Financial Results for the Fourth Quarter and Full Year ended December 31, 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 or 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 report on Form 10-K, our quarterly reports on Form 10-Q and our current reports 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 for 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 March, starting at 7.30 p.m. Eastern Time 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. And now, I would like to turn the call over to the President and CEO of Jones Soda, Mr. David Knight.

David Knight: Hey thanks, John and thank you, everyone for joining. As I continue to become further ingrained in the operations of Jones Soda and see the opportunities at hand, I have become more and more confident in our ability to take this company to new heights. My main focus areas from day one have been delivering great taste and growth through both innovation and marketing. I strongly believe that we are setting the stage to do that on a larger scale than Jones Soda has ever achieved before with unique and compelling product offerings across a multitude of channels and categories. As you have most likely read recently, there was a new buzz around the craft soda category with continued innovation and product news. Jones was well primed to capture these opportunities and will be a leader in sodas and beyond.

When looking at our fourth quarter results, we obviously didn’t close out the year where we would have liked to. We were still dealing with headwinds in our grocery channel, as a result of decreasing sales velocities, in addition to our foodservice channel, still struggling during the quarter. We did however see some bright spots as our Mary Jones business continued its expansion and delivered strong results. In fact, looking at the entire year, our Mary Jones business delivered over $1 million in revenue for 2023. And we are really only just getting started. We also maintained a strict cost discipline to make progress towards achieving bottom line profitability. And despite a onetime impact on our gross margins in the fourth quarter, we remain on track to achieve our goal of consistently reporting, gross margins in the mid 30s.

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Q&A Session

For this to be said, 2023 is behind us and I remain highly focused on the future. It’s been encouraging to see many new initiatives take hold in early 2024, including a new foot foodservice division, further Mary Jones geographic expansion, the introduction of product lines in completely new categories and much, much more. I firmly believe that these initiatives will set us up for improved results throughout the year and beyond and are excited to share more details here today. But first, I’d like to pass the call over to Joe to discuss our fourth quarter and full year financial results in greater detail. Then, I’ll return to talk about the exciting growth opportunities that we’re working on for 2024 and beyond. So, Joe, over to you.

Joe Culp: Thank you, David, and good afternoon everyone. Net revenue in the fourth quarter was $3.5 million compared to $3.7 million in the fourth quarter of 2022. The decrease was primarily due to a decline in sales across our food service and grocery channels compared to the fourth quarter of last year. Our licensed cannabis business generated approximately $438,000 in the fourth quarter of 2023, which represents a 99% increase over the same quarter in 2022. Gross profit as a percentage of revenue was 19.5% compared to 24.8% in the prior year period. This decrease was primarily due to a one-time inventory write-off associated with our Lemoncocco product line. If we remove the one-time write off of $212,000, our margin would be approximately 25.5% and above last year.

Despite this we continue to strive to hit our goal of consistently reporting margins in the mid-30s. Operating expenses in the fourth quarter improved to $2.2 million compared to $2.6 million in the same year ago quarter. This decrease was due to lower marketing and G&A costs, mostly as a result of lower business start-up costs associated with the development of the Mary Jones brand. Net loss in the fourth quarter improved to $1.5 million or negative $0.02 per share compared to a net loss of $1.6 million or negative $0.02 per share for the same quarter of 2022. Adjusted EBITDA in the fourth quarter was negative $1.4 million compared to negative $1.3 million in the same year ago quarter. Quickly running through our full year results, our revenue in 2023 was $16.7 million compared to $19.1 million in 2022.

Our gross profit as a percentage of revenue increased 220 basis points to 29.1% in 2023 compared to 26.9% in 2022. Total operating expenses declined to $9.7 million in 2023 compared to $11.2 million in 2022. Net loss for 2023 improved to $4.9 million or negative $0.05 per share compared to a net loss of $6.4 million or negative $0.07 per share in 2022. And lastly, adjusted EBITDA improved to negative $4.1 million in 2023 compared to a negative $4.6 million in 2022. And moving onto the balance sheet. As of December 31st, 2023, cash and cash equivalents were $3.9 million compared to $5.2 million at September 30th, 2023 and $8 million at December 31st, 2022. Working capital was $7.2 million at December 31st, 2023 compared to $11.6 million in December 31st, 2022.

Now, I’ll turn the call back over to David who will provide further insights into 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. I have now been at Jones Soda for eight months and as we talked about on our last call, I am focusing on innovation that will drive both Jones Soda and Mary Jones and highlighting our significant cost advantage. The team has been hard at work developing new initiatives in marketing and product development and if you’ve been tracking our press releases, we are bringing to market a significant amount of new news and revenue opportunities for 2024. As I’m sure many of you have seen, we have introduced a new Foodservice division. I believe this channel within our core soda business hasn’t had the proper resources allocated capture the growth opportunities at hand. So, we’ve changed that.

We’re expanding our sales efforts beyond being so highly focused on the traditional grocery channel to bars, restaurants hotels, and other quick-service eating and drinking organizations. We brought on an industry veteran Victor Petrone and to lead this division as well as signing partnerships with Dot Foods, Green Nature Marketing, Ignite Brand Advisors, and more recently and in Dot Foods, Canada and North South Management to ensure we have the necessary resources and foundation to make inroads in this channel in both the U.S. and now in Canada. This initiative has already paid off as we announced in February that we are now on the menu nationwide at both STK Steakhouse and Kona Grill. The initial feedback from our partners has been excellent with one owner of both restaurant brands stating Jones Soda has been one of the top product integrations that they have launched.

We’re not stopping there and have plenty of more foodservice customers to announce in the coming months. We were attending the Pizza Expo next week and we’ll put Jones Foodservice on the map with all pizza operators nationally, mapping data with a fine pizza than Jones Soda, especially our Root Beer. Now let’s move to our core soda marketing efforts. In the first quarter of 2024, we began to implement our 2024 innovation and channel development plan. During the quarter, we launched Nuka-Cola Victory, a collaboration with Amazon Prime Video Kilter Films, and Bethesda Game Studio. Nuka Cola Victory is from the universe of the video game Fallout, and the product supports the streaming series launching in early April on Prime Video. Bottle caps are the currency in the post-apocalyptic wasteland, and our unique bottle caps on Nuka Cola Victory can be traded for gear in our Caps for Gear website.

The product sold out at both Amazon and our company’s e-com platform within 15 minutes of its initial release, and a restock also sold out immediately. As this is one of our rotational flavors in our special release program, we are focusing on distributing this product in our key retailers around the country. As we look for other growth categories with the Jones brand can compete, we’re excited to announce our launch of Spiked Jones. We have partnered with local side up and developed a great tasting product in our core flavors with a fermented apples mold alcohol has been an exciting response to this new launch and we have secured distribution with key retailers in Washington. The first production is expected to roll off the line next week in 12 ounce and 19 to point out scans with the variety pack as well.

The product certainly delivers on the company’s promise of great taste. Our launch will provide us with key data, as we expand the footprint across the country. In Canada, we have restructured our go-to-market strategy that has the potential to both double our rent revenue and double our margins. Lower PMI has been promoted to General Manager Canada and is leading our new growth strategy in that country. We have transitioned into a new broker system with north south and dog foods Canada as our product delivery pipeline. We are also focusing on foodservice and replicating the model we have kicked off in the US. More to come on that. Now moving to operations. In recent news Eric Chastain, our veteran COO with 22 years of service has decided to step aside and take a well-deserved break.

We would like to thank Eric for his commitment to the company and the legacy that he’s built over this long tenure. That said, we welcome Eric Bittner to the team as our new COO. He is a seasoned beverage operator with time at PepsiCo, Keurig Dr Pepper, Niagara Bottling and Fever-Tree. I’m excited to have him onboard to help drive growth into new categories, gain scale and improve margins. Mary Money has also joined the team as the Director of New Product Development and Commercialization. Both a seasoned executives with deep beverage and consumer packaged goods experience. With that let’s now turn to Mary Jones. I’m very proud to say that as of February, we’ve officially launched our 10 milligram THC service in Ontario Canada, meeting our promise of launching it into Canadian market by Q1 this year.

As previously discussed, we are using Tilray brands, one of the leading cannabis companies worldwide, as a manufacturing and distribution partner for the Canadian market. We also partnered with Grain Hedge a leading cannabis sales and distribution company based in Canada to further support our sales and field marketing for Mary Jones. THC infused beverages are growing at a rapid pace in Canada and around the world, as more and more consumers are shifting over from alcohol. We believe this creates a highly lucrative opportunity for our Marie Johns craft sodas and syrups, especially given Jones was originally founded in Canada and has significant brand power in this geography. We’ve received positive initial feedback and look forward to expanding our product offerings and provinces in this international market.

To recap where Mary Jones sits today from a geographic perspective, we are currently the number one ranked seller in the cannabis-infused carbonated beverage format in California, where our products are carried in more have more than 350 dispensaries with many more on slate for 2024. We launched this week our line of Mary Jones fizzy tabs that are hitting the shelves in dispensaries with three of our core flavors. A great brand representation with 40 fizzy tabs of 2.5 milligram THC in a child proof container. We also recently launched in the state of Washington. And within five months our Berry Lemonade and rupia beverage are ranked number one and number two in beverage sales. We continually assess the next horizons for the regulated market and will continue to expand as we find the right partners.

In addition to our geographic expansion, we’re also very excited about our expansion into hemp-derived craft sodas with our new Hemp Delta 9, or as we call it HD9. The new Mary Jones HD9 infused craft sodas are created with the exact same formulation of Jones Soda adapted for HD9 with high quality lab tested THC derived from hemp. The sodas are sold in 12 ounce cans with either 2.55 or 10 milligrams of low dose and THC. We’re starting off in four classic Jones flavors, including rupia, Orange and Cream, Green Apple, and Mary Jones award-winning Berry Lemonade. We also plan on introducing new and special release flavors in 2024, as well as other HD9 infused edibles and shots. Additionally we launched a direct-to-consumer e-commerce store for Mary Jones HD9.

products, shipping to all states with the exception of Alaska, Hawaii, Colorado, Idaho and Oregon due to state regulations. HD9 for Mary Jones is also currently available in fixed retail markets, including Massachusetts, Florida, Ohio, Minnesota, Alabama and Southern California with many more to come. We believe there’s a great evolution happening among today’s consumers and retailers. As you’re seeing more people adapt to legal cannabis and THC products with a low-dose hemp-derived Delta 9, or traditional higher dose, THC options via state regulated markets. Mary Jones now sits squarely in this trajectory with low dose HD9 and traditional cannabis products that meet the demand. Overall, I continue to be very excited about Mary Jones. In Q4, we grew our cannabis related revenue 99% year-over-year and 100% sequentially.

But we are still just getting started. To give a better perspective on the success our brand is having as we continue to scale our operations, our agreements are set up for us to get a bigger piece of the pie as our system-wide sales numbers continue to grow. Overall, Mary Jones remains our top priority within the growth opportunities we’ve identified. We are still in the early days given it’s only been less than a year and a half since launching in California and have already managed to become a leading brand in the industry. With this momentum and profit strategy in place to scale the business, we remain highly confident that Mary Jones will be a major contributor to the overall revenue growth of the company. So in summary this is an exciting time at Jones and the team is delivering unprecedented innovation across Jones Soda and Mary Jones.

I am personally excited at the opportunity ahead and the team I am building. We are evolving rapidly from a 12 ounce glass bottles soda line to a multi-format beverage company. 2024 is off to a great start. And the fun is just beginning; delivering shareholder value is our number one corporate objective. And I look forward to engaging with our shareholders to get their feedback and answer any questions they may have. With that, I’ll pass the call back over to John to see if there are any questions from our listeners today. John, over to you.