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Edited Transcript of JSDA earnings conference call or presentation 4-May-17 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Jones Soda Co Earnings Call

SEATTLE May 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Jones Soda Co earnings conference call or presentation Thursday, May 4, 2017 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. - CEO, President and Director

* Max Schroedl

Jones Soda Co. - CFO

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Conference Call Participants

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* Mayur Kenia

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Jones Soda Co. first quarter earnings call. (Operator Instructions) I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Max Schroedl, Chief Financial Officer. Please go ahead.

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Max Schroedl, Jones Soda Co. - CFO [2]

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Thank you and good afternoon, ladies and gentlemen. 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 the 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 headings 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. Listeners are cautioned not to place undue reliance upon these forward-looking statements that speak only as to the date of this earnings call. Except as required by law, we do not assume any obligation to update the forward-looking statements we make today.

I'll now turn the call over to Jennifer Cue, Chief Executive Officer of Jones Soda.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [3]

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Thank you, Max, and good afternoon, everyone. Our first quarter of 2017 was in line with our expectations. And as a reminder to everyone, last year's first quarter contained a very large load-in of our first product line at 7-Eleven USA and into approximately 7,000 locations in that first quarter. If we look beyond the large load-in during the first quarter of 2016, our first quarter of 2017 would have been the strongest first quarter since I've returned to Jones Soda.

First and fourth quarters have historically been the company's slowest selling periods, in part because they occur during the colder seasons of the year. During the first quarter of 2017, we saw the velocity or take rates of 7-Select by Jones at a much higher rate than the original PET version. We attribute the much stronger acceptance of this second iteration of Jones to the premium glass bottle as well as to having more Jones-like flavors.

In addition, one of the 4 flavors in the lineup is Sour Patch Watermelon, which has quickly become one of the top-selling flavors in the lineup, just behind Jones' top seller, Berry Lemonade. We are pleased that 7-Eleven and our sales were able to pivot within 1 year to a product line that is more appealing to our consumers' expectations. We are currently working toward adding new flavors to the 7-Select by Jones lineup and are planning new promotions for the lineup in the summer of 2017 and out to 2018.

In addition to the glass lineup at 7-Eleven, we just announced the launch of one of our flavors, Green Apple, on Fountain in 7-Eleven's 400 Pacific Northwest locations, and we look forward to continuing to build upon our partnership there with this product and potential follow-along products.

Aside from our 7-Eleven partnership business, in the first quarter of 2017 there were a few other items, such as timing of promotions or launching of SKUs, that also impacted our first quarter 2017 results. We remain steadfast in our excitement about our future growth through new corporate, retail and distributor partnerships coming onboard, our initiatives of Fountain in Lemoncocco as well as our continued focus on developing unique and innovative new product, which I will describe after Max now goes over the numbers in more detail.

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Max Schroedl, Jones Soda Co. - CFO [4]

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Thanks, Jennifer. Revenue in the first quarter of 2017 decreased 17% to $3.5 million from $4.3 million in the comparable period. The primary driver of the decrease was timing and price differences between the initial product launch of our co-branded 7-Eleven PET product and the relaunch of the co-branded 7-Eleven glass product. The current co-branded glass product was launched during the fourth quarter of 2016 and the first quarter of 2017 as compared to the significant pipeline fill of the PET co-branded product, primarily in the first quarter of 2016. Other onetime factors, including timing and SKU selection, contributed to a lesser extent.

Promotional allowances decreased $225,000 or 42% to $309,000 for the first quarter of 2017, primarily due to onetime programs that were completed in 2016. The accounting impact of these promotional allowances is a direct offset to gross revenues.

Gross profit margin in the first quarter of 2017 decreased 24% from 27% in the first quarter of 2016, primarily due to changes in the 7-Select program. The new offering is in our iconic glass bottle, which has a slightly higher cost than the previous product. Additionally, the purchase price point to 7-Eleven is slightly lower to support this program even further.

Total operating expenses in the first quarter decreased to $1 million from $1.1 million in the prior year period. Operating expenses also included noncash expenses, depreciation and amortization and stock-based compensation totaling $45,000 compared to $33,000 last year. Operating expenses increased as a percentage of revenue to 29% for the first quarter of 2017 from 26% during the same period in 2016.

Loss from operations for the first quarter of 2017 was $174,000 compared to income from operations of $66,000 in the first quarter of 2016, again largely driven by loaded differences in our co-branded 7-Select product line. Adjusted EBITDA for the first quarter of 2017 was negative $130,000 compared to $111,000 in the first quarter of 2016, again primarily due to revenue decrease related to the factors we've discussed.

Net loss for the quarter ended Mach 31, 2017, was $197,000, or $0.00 per share, whereas the first quarter for 2016, we had net income of $49,000 or $0.00 per share.

Turning now to our balance sheet. As of March 31, 2017, we had working capital of $1.6 million and cash and cash equivalents of $554,000 as compared to working capital of $1.8 million and cash and cash equivalents of approximately $699,000 as of March 31, 2016. At this time, we believe that our current cash and cash equivalents, combined with our loan facility and anticipated cash from operations, will be sufficient to meet our anticipated cash needs through the end of 2017. We may seek alternate forms of financing to fund new initiatives or accelerate growth of current initiatives.

Cash provided by operations during the first quarter of 2017 was $371,000 compared to cash used in operations of $67,000 in Q1 '16. The increase in cash from operations was driven by the timing of production and certain receivables. During both years, we utilized our asset-based loan facility for working capital needs.

At March 31, 2017, our eligible borrowing base was approximately $1.9 million, of which we had drawn down $634,000. Comparatively, at December 31, 2016, we had drawn down $1.2 million on the loan facility, and on March 31, 2016, we had drawn down $902,000. Our current maximum aggregate amount available for borrowing under the loan facility is $3.2 million.

I'll now turn the call back over to Jennifer for final wrap-up.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [5]

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Thanks, Max. To reiterate, our plan for the future includes 3 initiatives: Jones, Lemoncocco and innovation. With regards to Jones, we are seeing interest in premium sodas over mainstream brands. In conjunction with this, our Fountain initiative remains a pivotable area -- a pivotal area for growth within the Jones Soda umbrella.

As demonstrated by our Orange & Cream flavor, which debuted in November on Slurpee in the Pacific Northwest 7-Elevens, and the current launch of our Green Apple flavor on Fountain in Pacific Northwest 7-Elevens, we are excited by the opportunity of seeing Jones products on Fountain at convenience.

In addition, we are landing and garnering ever-increasing interest from independent and regional restaurant chains. With this in mind, we will be profiling again our Fountain program at the upcoming National Restaurant Association show in Chicago this month as well as the National Association of Convenience Stores show, in Chicago as well, in October.

Our second and increasingly exciting brand initiative is Lemoncocco. Lemoncocco is an all-natural brand that was inspired by my own experiences in Rome, Italy. Lemoncocco is one SKU at this point and is a noncarbonated brand made with the cream of a coconut and Sicilian lemons. It is a great hydration beverage, food-pairing beverage and is quickly becoming a great cocktail mixer.

Lemoncocco is currently being rolled out beyond our initial launch markets of 2016, which were the Pacific Northwest, California and select markets such as Montreal, Canada, Chicago and Boston. We are in the process of launching Lemoncocco into new states, such as Utah, Colorado and Arizona in the West. Additionally, we are in the process of setting up a network of distributors for the New York-New Jersey market and just in time for the warm summer months.

And finally, we are excited to have Lassonde Industries, our long-standing Canadian partner and single largest distributor of Jones Soda in our network, become our master distributor for Lemoncocco in Canada.

With our network growing, we are also in the process of introducing the product to more retailers across North America. While still a small part of our business, every day we are seeing great signs of where the Lemoncocco brand can go. SPINS data, which is the all-natural channel equivalent of Nielsen data, just showed Lemoncocco growing in our original market of northern California at a rate in excess of 200% for the prior 12-month period. We are using this exciting data to secure retail partners for Lemoncocco.

And finally, we look to product innovation as another avenue for growth. For 2017 and for our 21st year in business, we are appropriately going to be launching an alcoholic brand in our home market in the upcoming weeks. We are excited to be launching our first-ever alcoholic brand as we turn 21, and appropriately named Spiked Jones. Spiked Jones will be the first-ever hard cider soda. After 21 years on the market, we want to offer our original Jones fans, who grew up on the soda and are now in their late 20s and 30s, an alcoholic version of the brand they loved growing up.

We will launch Spiked Jones with our long-time partner in our home market of the Pacific Northwest, Columbia Distributing. Columbia is one of the nation's largest alcoholic beverage distributors and has managed our Jones Soda brands since 2000. We trust their knowledge of this business and will be very glad to work with them to manage the rollout in this new category for our company.

We will be launching Spiked Jones specifically in our home market of the Pacific Northwest in 2017 for our 21st birthday, and we will gauge the success of this rollout into the alcoholic category along the way, preparing a more broad-scale launch in the future. Look for more product information and an official release from us soon.

And finally, before opening the call up for questions, I would like to thank Mills Brown, one of our board members. Mills' last board meeting was this past Tuesday, and on behalf of all shareholders, I would like to thank him for all of his contributions over the past 8 years. He was a key reason why -- for why I returned to the company, and I know Mills will still play a key role as a very active shareholder moving forward. We are currently evaluating new potential board members, and we will look to add someone in the next year.

I will now open the call up for questions.

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Questions and Answers

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Operator [1]

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[Operator Instructions.] We'll go now to [Gary Getz] who's a private investor.

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Unidentified Shareholder, [2]

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Looking at the results, I guess what impressed me more about the call was the looking forward, and I did 2 things. While you were talking, I went to the 7-Eleven website, and they're featuring the new product on their website under Thirsty and 7-Select beverages, and the graphics look really good.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [3]

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Great.

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Unidentified Shareholder, [4]

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So hopefully, there's potential there, and I've got to give you credit for trying. And what was...

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [5]

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Yes. I mean, we have -- just to follow along with that, [Gary], we have definitely, with the rollout of the second version, it definitely has -- it hits the velocity requirements of 7-Eleven, and they consider it a success, so they're really jumping in and promoting it in a large way, so we're excited by the enthusiasm from 7-Eleven on this Jones 2.0 version.

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Unidentified Shareholder, [6]

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That's good. And hopefully, we'll see products filling and even refilling in Q2 and Q3. And what really caught me by surprise, and I'm sure what caught most investors by surprise, was the Spiked Jones.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [7]

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Yes.

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Unidentified Shareholder, [8]

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And I want to give you a lot of credit for the innovation and for pursuing that market. I think there's a lot of potential there in the alcohol beverage market.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [9]

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Yes. And I mean, [Gary], I give you some credit, too, actually. You've said along the last few years, you've asked me about different iterations of Jones, and so I was biting my tongue because I really -- we trademarked Spiked Jones in 1997. We always thought we wanted to do this. And as we're turning 21, it just makes the most sense. It allows us to try to take this amazing brand and put it into a category that could deliver us a lot more potential than even, say, a premium soda category. So we -- I'm looking at the design of everything. I can't wait to show it to you, and we can't wait to roll it out in our home market. And already, we're talking about beyond our home market. So yes, we're really excited, and I could not be more proud of what we have created.

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Unidentified Shareholder, [10]

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Super, super. Also, with Lemoncocco, I've noticed that it's spreading in the Northeast, in the New England area, and wanted to give you credit on that.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [11]

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Yes, thank you again, [Gary]. Yes, we're really making some headway, and we're really excited about what we're doing in New England for the summer as well as the New York-New Jersey market. So it's -- 2016, we launched Lemoncocco. It was really a year where we really, we could witness it, "Yes, this is connecting with consumers." And we made a couple of tweaks to the packaging and the formulation, and we are going out hard this year, and super excited by the mass appeal of this brand. It goes from age 5 to 95. It's a mass appeal brand. So yes, we're very excited with Lemoncocco.

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Unidentified Shareholder, [12]

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Great. Well, congratulations on, hopefully, a good future, and as an investor, I wanted to thank you very much.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [13]

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Okay, well, thank you, [Gary], for being a very, very patient shareholder, and I'm making this work for you, Gary .

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Operator [14]

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(Operator Instructions) We'll go next to Mayur Kenia with IWD Capital Management.

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Mayur Kenia, [15]

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I just had a question. Could you give us the case sales data for Q1 2017 and also Q4 2016? I wasn't able to find it in the press release.

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Max Schroedl, Jones Soda Co. - CFO [16]

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As we shifted product size from the previous iteration of 7-Select and now as we're going into Fountain and Lemoncocco and our margins are changing, we really felt that the case data was less meaningful. So at this time, we're not providing case data.

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Operator [17]

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[Operator Instructions.] And it appears there are no further questions at this time. Mr. Schroedl, I'd like to turn the conference back to you for any additional or closing remarks.

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Jennifer L. Cue, Jones Soda Co. - CEO, President and Director [18]

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Yes, and I'm going to jump in there for Max, but we'd like to just thank everyone again for your interest in Jones Soda Co.

And just as a reminder, we will be speaking -- we will be having our Annual Shareholder Meeting next Wednesday, May 10, at 2 p.m. And if not there, we will definitely be speaking with you in early August when we announce our second quarter results. Thank you.

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Operator [19]

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This concludes today's call. Thank you for your participation. You may now disconnect.