Jones Soda Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 4 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 Q1 ended March 31, 2023. Before we begin, let me remind everyone on the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans and prospects of the company that field forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 19,995. Forward looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, the beliefs, intents, plans, projects, will, may, continue, projects or targets the negatives of these words and similar words or expressions.

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 Risk Factors in our most recently filed reports with the SEC, including our annual report on Form 10 ks, our quarterly reports on Form 10 Q and our current reports on Form 8 ks. Financial results. 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.

Operator

I would like to remind everyone that this call will be available for play through May 11, 2023, starting at 7:30 pm ET tonight. The 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'll turn the call over to the President and CEO of Jones Soda, Mark Murray.

Speaker 1

Fiscal year. Thank you, operator, and thank you, everyone, for joining us today. As we entered 2023, chasing our

Speaker 2

fiscal year. In our 11th

Speaker 1

consecutive quarter of year over year revenue growth, we knew we had our work cut out for us given how well we quarter performed in Q1 of last year. If you recall, revenue in Q1 of 2022 fiscal year. We grew 58 percent to $4,500,000 aided the While we certainly like to set our aspirations high here at Jones Soda, this was a challenging quarter to compare against fiscal year 2019 and we weren't able to show year over year revenue growth. However, we are by no means disappointed in the quarter's results. In fact, we still experienced sequential revenue growth from Q4 with continued positive momentum fiscal year 2019 across all channels while delivering improvements to our margin profile and bottom line.

Speaker 1

We are proud to report a 200 basis point year over year improvement in our gross margin for Q1 fiscal year 2019 and a total increase of 10.40 basis points over the last 11 quarters. The Furthermore, we made strides in optimizing our operations, leading to a decline in operating expenses fiscal year 2019 and a bottom line that is getting closer to breakeven. Now I want to address pricing right off the bat. Throughout the quarter, pricing in our core bottled soda business remained top of mind across all our accounts fiscal year. Given the persistent inflationary environment that we continue to operate in, we have strategically implemented price increases fiscal year.

Speaker 1

Absolutely necessary to offset costs and maintain margins. We are acutely aware that persistently high prices fiscal year 2019 and have a negative impact on our customer demand in the long run. Later on the call, I'll dive into great things we are doing to keep our consumers engaged across all channels. But I want to reiterate that we plan to continue to strategically managed pricing, promotions and trade spend to ensure our efforts and dollars align with our sales velocity objectives, fiscal year 2019 as well as maintaining an increasing margin. Overall, we are pleased with the progress we made in expanding our business fiscal year 2019 with new

Speaker 2

and existing

Speaker 1

customers during the Q1. Despite today's market challenges and the uncertainties around the current economic outlook, fiscal year. We remain confident that we are continuing to position Jones Soda and Mary Jones for long term health. During this call, we will provide a detailed update on our sales performance, financial results for the fiscal year 2019 initiatives, supply chain and operations. We will also provide an update fiscal year 2019 and the exciting development with the expansion of our cannabis business.

Speaker 1

Finally, we will address the questions submitted by shareholders over the past few weeks. Before I dive in, I'd like to hand the call over to Joe to discuss our financial results for the Q1 in more detail. Joe?

Speaker 3

Thank you, Mark, and good afternoon, everyone. Fiscal year. Net revenue in the Q1 was $3,900,000 compared to $4,500,000 in the Q1 of 2022. Fiscal year. As Mark mentioned earlier, the decrease was largely due to one time inventory stocking event with one of our largest customers during the Q1 of 2022.

Speaker 3

The fiscal year. The decrease in net revenue was partially offset by the continued expansion of our cannabis business, which generated approximately $200,000 in revenue during the Q1. Gross profit as a percentage of revenue increased 200 basis points 29.3% compared to 27.3% in the prior year period. The increase was primarily due strategic pricing adjustments across our portfolio and lower freight costs during the quarter. Fiscal year.

Speaker 3

Operating expenses in the Q1 were $2,500,000 compared to $2,700,000 in the same quarter a year ago. Fiscal year. The decrease was primarily due to lower marketing and general and administrative costs. Driving this decrease was our continued progress Net loss in the Q1 was $1,400,000 or negative $0.01 per share compared to a net loss of $1,700,000

Speaker 2

fiscal year 2019 or negative $0.02 per share for the

Speaker 3

same quarter of 2022. The improvement in net loss was primarily driven by increased gross profit margin and decrease in total operating expenses. Adjusted EBITDA in the first quarter fiscal year was negative $1,000,000 compared to negative $1,100,000 in the year ago quarter. The improvement in adjusted EBITDA fiscal year 2019 was primarily due to the previously mentioned improvement in gross profit margin and lower total operating expenses during the period that mostly offset reduced revenues. The Now moving on to the balance sheet.

Speaker 3

As of March 31, 2023, cash and cash equivalents were $6,400,000 quarter compared to $8,000,000 at December 31, 2022. Working capital was $10,500,000 at March 31, 2023, fiscal year 2019 compared to $11,600,000 on December 31, 2022. Now I'll turn the call over to Mark, who will give further detail into the factors that contributed to these results and the overall progress we are achieving at Jones. Mark, back to you.

Speaker 1

Thank you, Joe, for providing a recap of our Q1 financial results. Now let's turn our attention to our sales performance. Fiscal year. While facing a challenging year over year top line comparison, we remain confident in our ability to drive long term sales growth fiscal year. We are proud to announce that we achieved a pivotal milestone during the quarter by following our first national listing with our root beer flavor, which will be available in over 2,000 Kroger locations full year.

Speaker 1

To align with changing consumer demand, Kroger has moved back to offering our products in singles instead of multipacks, allowing consumers to access our products at a lower price point and adapt to a weaker consumer spending environment in the category. During the quarter, grocery sets were reconfigured to support these changes, which included our placement back into coolers at over 800 Kroger locations. Lastly, details were finalized to roll out a robust promotional plan for the year, which leans into our popular 2 3 strategy to boost volume and increase velocity. Moving on from Kroger. Fiscal year.

Speaker 1

We are pleased to see expansions and pickups across several new and existing customers throughout the quarter. At Target, we continue to expand our store count to nearly 1100 locations, carrying 4 flavors, fiscal year, including our special release. We believe this will drive incremental excitement in store with the goal of increasing sales for both Target and Jones Soda. We continued to make strides with Walmart where we picked up additional stores We were also strongly encouraged by our sales momentum at Meijer, where we significantly full year. We secured sales volume commitments from Dollar Tree fiscal year 2019 and 711 Canada through Q3 and the end of 2023, respectively, and it's encouraging to have these commitments already in the books.

Speaker 1

Now turning to some of our new customer relationships. Fiscal year. We are making progress launching a large customer, SpartanNash, which we expect to add a meaningful number of stores full year with a target of 145 stores and 5 items to our overall distribution network. We were also approved by Wakefern Foods Corporation, the largest retailer owned cooperative the 5 supermarkets in the United States for the placement of 5 SKUs in their deli as well as our Lemoncocco branded products 4th consecutive quarter in conventional grocery. We are pleased with the performance of Lemoncocco, which we continue to believe has the potential to become full year.

Speaker 1

With our growing momentum in the Canadian market, we were able to secure 3 new key customers in Canada through a new distributor adding more than 2 70 stores to our distribution. The fiscal year. We recently featured Lemoncocco and Jones Soda at several national trade shows that fiscal year. We secured several 100 leads from these shows that we believe will drive short term and long term growth fiscal 2020 2020 2020 4. Attending these trade shows has proven to be a valuable investment in our time fiscal year 2019 and we strive to capture niche markets and explore alternative channels for growth.

Speaker 1

I believe our tenets fiscal year. These selective events is crucial in expanding our reach and enhancing our presence in previously untapped markets. The fiscal year. Now let's talk about our latest marketing initiatives. During the past quarter, we remain committed to streamlining our marketing initiatives in house fiscal year 2019 as we aim to decrease our overall operating costs and reallocate dollars to working for the brand.

Speaker 1

As part of this plan, we enacted all of our staffing changes that we have discussed on previous calls, fiscal year, including winding down agreements with several agencies. This not only shows our focus on prioritizing cost efficiency that demonstrates our team's ability and commitment to execute large scale market initiatives with a much more efficient use of our capital. As always, our special release program was a catalyst for growth and excitement at Jones Soda. With our marketing team continues to find fun and creative ways to support. In addition to our key lime pie flavor, which has been actively circulated in the market.

Speaker 1

Our upcoming special release Hatch Chile Lime has already started to generate buzz for the brand. As the first special release offering to feature our augmented reality technology on the labels, we look forward to continued engagement around this unique flavor, which is just hitting the stores now. Our marketing ecosystem company. It's always been a vital part of the Jones story, and we continue to focus on innovative tactics for delivering best in class experiences full year to our customers. The strength of the Jones brand and the cultural significance that it carries with our customers remains strong, the speak for themselves and create their own news as our social media presence and online communities continue to grow organically.

Speaker 1

Fiscal year. Overall, we are encouraged by our marketing team's ability to garner long term support from the Jones community and first half of twenty nineteen. Successfully strengthen our brand equity in ways that are mindful of our ongoing need to manage budgets and reduce costs. Fiscal year. We are excited to see what our marketing team has in store for the future and we are confident that their passion and expertise fiscal year.

Speaker 1

We'll continue to fuel our growth and success. Now let's shift our focus to our operations. The I am very pleased to report that we achieved a remarkable fill rate of 98.5% during the quarter, fiscal year 2019, demonstrating our ability to deliver the products that our customers eagerly anticipate promptly and consistently. Fiscal year. As always, we continue to closely monitor our supply chain, and we are pleased to see that it is starting to normalize in some areas, fiscal year, including providing some relief in freight costs.

Speaker 1

However, we are not immune to period economic pressures faced in the entire industry, and we do still face challenges with increasing ingredient, fiscal year 2019. We expect the lingering impacts of the global pandemic fiscal year 2019. We do sense that our supply chain is starting to move back for the state of normalcy. Fiscal year. Even so, we continue to be vigilant in our ongoing efforts to manage costs and improve margins, fiscal year 2019 and we continue to utilize strategic pricing adjustments across our product portfolio.

Speaker 1

All in all, it's clear fiscal year 2019 that are success wise in meeting the demands of our customers with timely and reliable product delivery, and we are proud to deliver strong results fiscal year. Now let's dive into the cannabis business. As mentioned on our last call, we decided to enter the cannabis market for several reasons, fiscal year 2019 such as leveraging our brand equity and flavors in adjacent channels, diversifying our product portfolio, fiscal year. We are now entering into high growth category and offering high margin products. On this note, we remain company.

Speaker 1

I'm confident that we made the right decision and we have an exceptional team in place to continue to expand the Mary Jones brand. The During the quarter, our cannabis business continued to gain momentum in California, where we are the top performing beverage in sales the 10 and 100 milligram format. Our California distribution now covers over 300 stores fiscal year 2019, and we are surpassing both industry benchmarks and our internal projections. Moreover, We are expanding our core flavor portfolio to 6 unique items with grape and cola joining our lineup,

Speaker 2

full year, both slated to hit the shelves in June.

Speaker 1

As we grow our Mary Jones offering, it's worth noting that these new flavors will be available in additional states as we expand our reach. During the quarter, We were encouraged to see many of our locations in Northern California reporting increased volume and demand. The Because of this, we have decided to increase our resources to support a more high touch retail approach within these locations. This is a primary example of our proactive management style, film with our core bottled soda business during the fourtwenty holiday, offering both our cannabis infused and regular sodas at a discount for those purchasing pre rolled joints at dispensaries. This creative promotion, usually most directly associated with smoking cannabis served as a fun reminder to our customers that Jones Soda is an excellent complement free rolling joints found at dispensary.

Speaker 1

Touching on one of our newer cannabis products, our syrups, which we launched last quarter, have been performing particularly well on the premise applications and is currently a featured mixer at Woody Harrelson's consumption lounge, The Woods in LA. The Our customized, drivable electric coolers continue to be popular feature at the cannabis consumer events. These have been painted by notable graffiti artists and designers throughout California and the colors of our delicious sodas They're used to pass out samples and have fun throughout the market. We're also making steady progress in the early stages full year of the edible products and expect to have them on shelves beginning in Q3. Now I'd like to give an update on the regional expansion plans that we have previously announced.

Speaker 1

Our progress outside of California has been very promising as we are nearing the finish line and preparing for production in our home state. Washington has been at the forefront of legalization since 2012 the In Michigan, we are following all necessary regulatory processes to the latter. And our Mary Jones products are officially under review in accordance with their recently revised regulatory process. Fiscal year. We believe by adhering to the strict regulatory standards of California and Washington,

Speaker 2

fiscal year.

Speaker 1

We are well positioned to navigate Michigan's regulatory process. Our products are designed to meet the strict regulatory standards, fiscal year 2019, which we believe well positions us to enter into different markets and demonstrates our mature approach to strategic expansion. Fiscal year. We also believe we are approximately 6 weeks away from manufacturing readiness in Nevada. Fiscal year.

Speaker 1

While we are already seeing encouraging results in California and we believe our potential for growth in new states is robust, fiscal year. We are confident that we are on the cusp of expanding the footprint of Mary Jones into several more territories. We are optimistic fiscal year 2020. We remain confident that our decision to pivot into this space and leverage our brand equity. It's proven to be the right choice and we believe it will be instrumental in the future growth of the organization.

Speaker 1

As we look towards the next chapter of Jones Soda, our focus remains on leveraging our brand equity to drive revenue growth and profitability fiscal year 2019 and high growth in lucrative channels. While our cannabis business may not have resulted in material revenue growth as fast fiscal year 2019. We are still pleased with our decision to enter the space and eagerly anticipate the impact fiscal year. We expect it will have on the organization in the second half of the year. However, we're not content to stop there.

Speaker 1

Fiscal year. We are actively developing several work streams to expand our reach in alternative channels. Although it is still too early the fiscal year. To share any details on this call, I'm excited to share more on this in the upcoming quarters. Let me recap the call.

Speaker 1

1, fiscal year. Our core bottled business continued to generate momentum as we expanded partnerships, added new points of distribution across all channels national listing through Kroger for our root beer flavor to be sold in more than 2,000 stores. 3, our marketing team continues to be proactive in finding creative ways to maximize the impact of our marketing spend. The Additionally, we successfully executed our previously laid out in house initiatives, leading to ongoing cost savings. The fiscal year.

Speaker 1

4, we continue to closely monitor our supply chain and delivered a fill rate of 98.5% during the quarter, fiscal year, ensuring we are serving and meeting the demands of our customers. 5, we believe we are gaining momentum in the cannabis business fiscal year 2019 and planning to expand into 3 additional markets. Based on our current success in California and the strong foundation we have built, fiscal year 2019. We are confident that we will replicate the success in these new markets. 6th, fiscal year.

Speaker 1

We are actively developing several work streams to expand our reach into alternative hydro channels.

Speaker 2

Fiscal year.

Speaker 1

With a talented team and a solid strategy, fiscal year. We are confident in our ability to continue delivering results and unlocking the full potential of Jones Soda. Fiscal year. Our focus is on achieving long term success, and we are fully committed to executing upon the benefit for our shareholders. Quarter.

Speaker 1

By continuing to innovate and drive growth in the core bottle business, expanding our footprint in the cannabis industry, we believe we are well positioned future to capture high growth opportunities and drive shareholder value. With that, I'll turn the call over to Joe for prepared Q and A.

Speaker 3

The Yes. Before wrapping up the call, Mark and I would like to address some of the questions we've received from investors via e mail over the past few weeks. The We have selected what we believe to be the most important and relevant questions to answer. So starting with the first question, the quarter. What trends are you observing in the broader macro climate with regard to inflationary pressures and suppressed customer spending power and how do you anticipate these will affect the company in the short term?

Speaker 1

This is a great question and we started fielding similar questions a year ago. Fiscal year. There is no denying that inflation is real and consumers are being asked to spend more on goods and services. It could also be said that craft soda does not typically fall under the necessity bucket. So how will these macroeconomic factors impact our business moving forward.

Speaker 1

Although we do not have the luxury of buying a large amount of syndicated data, fiscal year. We are able to get some very good insights from our partners. We meet with our key customers every month the fiscal year. In Q2 of last year, we started to see velocity slowing down at the store level. Overall, the organization was still showing very good growth because we were adding new customers and new points of distribution fiscal year 2019.

Speaker 1

To offset the impact of lower velocity at certain retailers, although the decrease was not across the board, fiscal year. It's fair to say there was an inflationary impact. At the end of the year, our revenue at some of our key retailers was the fiscal year. Although we're still outpacing the category, we needed to get very strategic and aggressive with our promotional activity to maintain velocities and protect share, and we did. Fiscal year.

Speaker 1

By the end of the year, it was starting to feel like things were normalizing and velocities were starting to level off. Fiscal year. As we moved into Q1, volume relative to units was still a little soft. This goes back to a comment I made earlier in the prepared remarks. Fiscal year.

Speaker 1

We will monitor volumes at the customer level and make sure we are strategically spending on marketing and promotional programs Drive Velocity and Awareness. We are very engaged with our key customers and we are prepared to do what it takes to keep the business growing.

Speaker 3

Okay. Question number 2. Can you provide any detail

Speaker 1

future. Sure. First, I'd like to express my gratitude to Jamie for his dedication to the company and his efforts in elevating Jones Soda during the last three years. Jamie was instrumental in helping turn Jones Soda around. Fiscal year.

Speaker 1

Jamie has a lot going on. So after 3 years, he wanted to free up some time for other opportunities. Fiscal year. We are thankful for all his efforts and great work, and I wish him the best as he pursues other opportunities. The fiscal year.

Speaker 1

As far as the Board composition, we currently have 5 members on the Board, which includes me. We are very happy the fiscal year. With a number of Board members and their diversified skill set. However, we are talking to several candidates that have a strong financial background 2nd Chair, our Audit Committee.

Speaker 3

Okay. Question 3. How do you expect industry pricing trends to impact your bottom line over the course of the

Speaker 1

year? Fiscal year. As I mentioned earlier, we anticipate some tailwinds from broader pricing trends in the back half of the year, fiscal year, which should provide some support to our margin. Whether this comes to fruition largely depends on what happens with cost for the balance of the year and how much we'll need to spend back to maintain our velocities off the shelf. Fiscal year.

Speaker 1

As we discussed with regards to inflation, the consumer's wallet has been under pressure. And until we observe how the macro landscape continues to develop. It's challenging to predict how this will impact our bottom line moving forward.

Speaker 3

The Okay. Question 4. Taking into account the progress you've made in broadening the Canvas portfolio and points of distribution. Could you provide some insights into when cannabis revenue will become a more meaningful contributor to your financials?

Speaker 1

Well, you're right in acknowledging that we've been actively expanding our cannabis business to encompass a wide range of products. We've been increasing the footprint of our cannabis brand, Mary Jones. Every time we add a state or expand the portfolio, fiscal year. The business is 100% incremental from a revenue and profitability perspective. Fiscal year.

Speaker 1

So as you look out over the balance of the year, each month gets better, each quarter gets better fiscal year 2019. And we are excited about the run rates we see through the end of the year. As we said, it is coming slower than what we wanted,

Speaker 3

fiscal year. But it is coming and it

Speaker 1

is real and it will have a major impact on the organization in the future.

Speaker 3

The All right. Thanks, Mark. This concludes our Q and A session. Fiscal year. We'd like to thank everyone for listening to today's call and we look forward to speaking with you when we report our Q2 of 2023 results.

Speaker 3

Thanks again for joining us.

Operator

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 Q1 2023
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