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Edited Transcript of JSDA earnings conference call or presentation 24-Mar-20 8:30pm GMT

Q4 2019 Jones Soda Co Earnings Call

SEATTLE Mar 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Jones Soda Co earnings conference call or presentation Tuesday, March 24, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jennifer L. Cue

Jones Soda Co. - President, CEO, Acting CFO & Director

* Joe Culp

Jones Soda Co. - Controller

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Presentation

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Operator [1]

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Good afternoon, everyone. And 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, 2019.

Before we begin, let me remind everyone of the company's safe harbor disclaimers. Certain portions of our comments today will concern future expectations, plans and prospects of the company that constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all the statements contained in verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts and will, may, will, may, continue, project or target and the 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 or quarter 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. The most directly comparable GAAP measures and reconciliations for the non-GAAP measures are available in the earnings release and other documents posted on the company's website under Investor Relations.

I would like to remind everyone that this call will be available for replay through March 31, 2020, 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.

Now I would like to turn the call over to CEO of Jones Soda, Jennifer Cue.

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Jennifer L. Cue, Jones Soda Co. - President, CEO, Acting CFO & Director [2]

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Thank you, Shelly, And good afternoon, everyone. First, I wanted to address the rescheduling of this earnings call. Although we did not anticipate this happening, the additional time allowed us to complete the final stages of our year-end audit with our accounting firm and was not a result of any material impact to our financial position.

Now I'd like to start by providing some high-level commentary on our quarterly performance across all business segments, then provide my thoughts on the progress we've made in 2019 despite facing some unique challenges and setbacks.

Beginning with our core bottled soda business, our core soda business, which represents approximately 80% of our total business, returned to 3% growth in the fourth quarter, behind continued strength in Canada and the first signs of the impact of investing in new talent and brand building and as demand for craft soda in North America continues to grow.

Our 7-Select business had the most negative impact on our revenues during the quarter and, quite frankly, overshadowed the growth of our core business. It will likely continue to be an issue into Q2, but we are working hard with the customer to reinvigorate the business in the second half of this year.

Our fountain business experienced a modest decline due to a tough comparable period in the prior year quarter that included several limited time offerings. We continue to be positive on our fountain business with key customers further expanding their Jones' fountain offerings and additional new chains on the horizon, subject, of course, to the potential delays and other negative impacts that may arise from the COVID-19 pandemic.

Finally, although very small, our Lemoncocco business was also down, but we are pleased by the recovery from the production issues earlier in the year and expect it to return to growth in 2020.

Looking at the whole year, 2019 proved to be a transformative year despite some of the issues we faced as we had an important infusion of strategic capital through the Heavenly Rx financing. With this, we were able to continue building out our sales and marketing leadership and teams, and we remain fully committed to investing in these areas to ensure they have the necessary resources to meet their goals.

Our entire team here at Jones did an excellent job addressing and responding to the issues we faced, and I firmly believe we are a better company today than we were 1 year ago. Aside from the extenuating circumstances surrounding the uncertainty of the current COVID crisis, we believe we have much to be optimistic about going forward, and our entire team is diligently working to execute on the various initiatives we laid out to grow sales and expand our margins.

I will discuss these momentarily, but first, I'd like to pass the call over to Joe Culp, Jones Soda's Controller, to provide a review of our fourth quarter financial results. Joe?

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Joe Culp, Jones Soda Co. - Controller [3]

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Thank you, Jennifer, and good afternoon, everyone. Total revenue for the fourth quarter was $2.2 million compared to $2.3 million in the same quarter a year ago, a decrease of 6%. As Jennifer mentioned, our core bottled business grew 3%. However, this was offset primarily due to a decrease in 7-Select revenue as 7-Eleven stores count continue to decline.

Promotional allowances on our core soda line decreased 25% to $285,000 from $382,000 in the fourth quarter of 2018 due to timing of the [lot]. As a reminder, the accounting impact on this promotional allowances is a direct offset to revenue.

Breaking out our revenue further by product line. Fountain revenue decreased 9% in the fourth quarter versus the same period a year ago, and it was approximately 10% of our overall business for the fourth quarter of 2019 as compared to 12% in the prior year period. The decline was primarily the result of several limited time offerings for customer chains in 2018 that did not repeat in 2019.

While still a small part of our business at 2% of sales, Lemoncocco revenue decreased 21% from the prior year period due primarily to production capacity issues during 2019. Although these have been fully resolved and Lemoncocco is getting back on store shelves, this segment was not able to return to growth in the fourth quarter as we originally anticipated. However, we are seeing much better sales since the start of 2020 and do expect to return to growth in this part of business for the first quarter of 2020.

7-Select revenue decreased 51% in the fourth quarter of 2019 and accounted for 8% of our business, down from 17% in the fourth quarter of 2018. The decrease was primarily due to the continued decline in 7-Eleven store counts and promotional -- and promotions compared to 2018. Gross profit as a percentage of sales was 17.2% compared to 17.9% in the prior year period. The decrease in the quarter was primarily due to onetime spend by our Jones Soda co-packer that will not recur, along with increased raw material costs of natural ingredients as the company transitioned the majority of its portfolio to natural colors and flavors during 2019.

Operating expenses in the fourth quarter increased slightly to $1.2 million compared to the same year ago quarter. The small increase in expenses is due in part to the investment in product development of a new CBD-infused products for Jones Soda. Although we remain committed to prudently managing expenses through our variable cost sales structure, we anticipate making investments in sales and marketing throughout 2020, which may cause an increase in our operating expenses. However, we will be monitoring this very closely given the current COVID-19 situation and making adjustments if necessary.

Net loss was $930,000 or negative $0.02 per share for the fourth quarter compared to a net loss of $822,000 or negative $0.02 per share for the prior year period, and adjusted EBITDA in the fourth quarter was negative $828,000 compared to a negative $674,000 in the year ago quarter.

Moving on to the balance sheet. At December 31, 2019, cash and cash equivalents totaled approximately $6 million compared to $1 million at December 31, 2018, the increase was a result of our strategic financing with Heavenly Rx, which closed on July 11, 2019. We allowed our line of credit to expire in accordance with the terms at the end of the fourth quarter 2019 to eliminate minimum interest payment requirements, and we are actively evaluating our options given a new line of credit in place in anticipation for 2021.

Lastly, working capital increased to $8.4 million compared to $1.8 million at the end of 2018 as a result of the aforementioned strategic financing. I will now turn the call back over to Jennifer for additional commentary on our 2020 growth initiative.

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Jennifer L. Cue, Jones Soda Co. - President, CEO, Acting CFO & Director [4]

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Thanks, Joe. I'd now like to expand upon my opening remarks and discuss some of the initiatives we have on tap for 2020 and beyond. But first, I would like to start out by addressing the COVID-19 virus pandemic and how it affects Jones Soda and our partners. During this time of uncertainty and concern, our steadfast commitment is to do what's right for the public, our consumers, our shareholders and of course, our employees and partners. Here in Seattle, we are obviously on a work from home format. Our distributor and retail partners have requested only telephone meetings, which we are able to carry out quite well, while at the same time limiting our team's exposure to travel. We have completed the requisite communication and remain in constant contact with our partners to confirm all aspects of the business.

Our business model is skewed heavily towards the grocery and convenience channel, where people are still able to shop for essentials at this time. The food service channel, which we believe to be the most negatively impacted during this crisis, only represents about 5% of our total sales. Although early days, we believe that we have not experienced any significant impact to our sales or constraints to our supply chain at this time, and we are diligently monitoring the situation with all of our retail and distribution partners on a daily basis. Given these unprecedented circumstances and a dynamic environment that seems to shift daily, our go-forward sales trajectory in the near-term may be affected. However, we have many exciting initiatives in the pipeline that I'd like to address, which positions Jones for success over the long term.

Shifting gears to the various new leadership additions we made across the organization. Since we last spoke, we added a new head of U.S. sales, Joe Jankowski, who has already played an instrumental role in progressing talks with large potential customers, landing key accounts and expanding our distribution network. Joe brings nearly 2 decades of experience from notable CPG brands with an exceptional track record of broker and effective communication between customers, retail outlets, sales teams and senior management. He was also instrumental in developing and leading various strategies to launch and grow Zenabis Global's CBD product sales across grocery, drug and club retail channels. We believe he will play an integral role in developing relationships with large retailers across the U.S., along with putting together the necessary sales team to support the company's initiatives.

Our new VP of Marketing, Maisie Antoniello, who I introduced on our last call, has also continued to make excellent progress leading our marketing department. She brings a unique perspective to Jones, having held various senior-level leadership positions for several global CPG brands, including Starbucks and Frito-Lay. Maisie has already executed on several initiatives within our rebound strategy and continues to build out her team as well, and we look forward to her significantly expanding our brand's presence across North America through unique and innovative marketing campaigns.

Next, I wanted to highlight some of the initiatives we are working on for 2020 that we believe will propel our growth, including the 2 announcements we made at the beginning of the year. Beginning with our Vans partnership, the skateboarding community epitomizes the type of consumer that Jones' unique brand resonates with. So we decided to partner with the most iconic and well-known brand in the industry to become the official craft soda of the Vans Park Series, which is the premier park terrain skateboarding competition platform in the world. As of now, we plan on showcasing some Jones Soda through experiential on-site sampling and branding at each tour event planned, right now, in July and August. We understand that this is a fluid situation, and these dates are subject to change.

In conjunction with this partnership, we also relieved a special edition skateboard label on our top-selling flavor, Berry Lemonade, which is now available at Jones retailers across North America. We are incredibly excited to expand our presence in the skateboarding community and look forward to working with a brand that shares the same dedication to authenticity and uniqueness.

Several weeks ago, we also announced the addition of Watermelon to our extensive bottled soda flavor lineup. We originally launched this flavor as an exclusive limited release at 7-Eleven Canada last summer, which generated a great deal of excitement and positive feedback from customers both in-store and across social media. This new flavor that was introduced has our new go-forward product price profile, which includes a lower calorie count of 120 calories per bottle and all-natural flavors and color. As a result of the positive consumer reaction throughout Canada in 2019, we decided to expand this offering across North America, and we expect it to hit shelves beginning April 2020. This new flavor launch will be supported by various promotional and marketing activities throughout the balance of the year.

Next, I wanted to speak to the progress we have made with some of our retail partners. I am pleased to announce that we are planning on expanding our presence in Walmart by adding another bottled soda flavor, which is Strawberry Lime, to store shelves. This rollout is currently on schedule to begin in April 2020, but we remain in close discussions with Walmart to monitor progress as the COVID-19 situation evolves. This expansion will be rolled out initially in 500 stores across the U.S., bringing our total flavors sold at Walmart to 4 from 3. We continue to see an increase in demand for our sodas at Walmart and look forward to further expanding our product offerings at one of the largest retailers in the world.

It is also worth noting that Jones generates approximately 50% of sales from our grocery retail channel, and we have seen an uptick in demand over the past few weeks from our partners in this category, including our largest grocery partner, Kroger. We believe that this channel could remain strong for us even during this crisis as people are allowed to continue shopping at grocery stores.

Finally, as announced today as well, we have secured distribution of an exclusive flavor of Jones Soda in over 600 Cracker Barrel stores across the nation. This new flavor of Jones Soda was codeveloped with the WARHEAD candy brand and is an extreme sour Black Cherry flavor with all-natural colors and flavors and only 120 calories in the bottle. This is the soda version of their #1 selling candy item and will complement Cracker Barrel's candy-themed retail stores. In addition, we are just rolling out a new variety pack of Jones Soda into the Southeast division of Costco, the first shipment into Costco that we've had in the past several years. This further emphasized the interest in the craft soda segment.

Finally, we were also expecting to announce on this call some other new exciting relationships that are close to coming together, but given the current situation with COVID-19, we are unfortunately and understandably on hold. I also wanted to touch base on the progress we have made with our CBD-infused products. I'm pleased to report that we completed the initial development and testing phases of the process and received excellent feedback from our test consumers. However, we are still waiting on guidance from the FDA before we are able to bring these products to market, and we do not have any further insight into their timing. As always, we will be sure to keep the market updated on this initiative, but we are encouraged by the progress we have made so far.

Overall, despite the challenges, we are energized and excited here at Jones, given the progress we have made since introducing our rebound strategy and the current growth prospects in our pipeline. While some initiatives and plans may be unfortunately delayed by factors beyond our control, we remain confident that once we are able to return to more normal operations, we will be able to pick up where we left off. In the meantime, we will continue to do all we can to support and market to the channels that are strong and doing well in the current environment. We look forward to continuing to introduce our unique and authentic brand to more consumers across North America and will keep the market updated on the progress we make.

I will now turn it back to the operator to open the call up for questions.

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Operator [5]

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(Operator Instructions) At this time, I'll turn the call back over to Ms. Cue for closing remarks. Please go ahead.

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Jennifer L. Cue, Jones Soda Co. - President, CEO, Acting CFO & Director [6]

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Okay. Well, thank you, Shelly. And just on closing, we'd just like to thank everyone for listening to today's call, and we look forward to speaking to you with -- when we report our first quarter results in early May. Thanks again for joining us.

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Operator [7]

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