Jones Soda Co.
Q4 2021 Earnings Call Transcript

Published: 10 Mar 2022

[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, 2021. Before we begin, let me remind you -- excuse me, 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, that are discussed under the heading Risk Factors in our most recently filed reports with the SEC, including our annual report on the Form 10-K, our quarterly reports on the 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. 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. I'd like to remind everyone that this call will be available for replay through March 17, 2022, starting at 7

[Mark Murray:]

Thank you, Cody and thank you, everyone, for joining us today. I'm pleased to say, we finished the year strong with a great fourth quarter. Revenue for the quarter increased 18% to $2.9 million, marking our sixth consecutive quarter of revenue growth. 2021 marked the first full year of our three year turnaround strategy and as our results show, our team is doing a phenomenal job. For the year, we grew net revenue by 24%. We increased gross margins by 720 basis points and we improved our adjusted EBITDA by $1.3 million which includes an approximately $0.4 million in cannabis-related expenses that hit the fourth quarter of 2021. I want to thank our dedicated, talented employees as they navigate these very difficult times but continued to deliver exceptional results. I'm very proud and grateful for a great team. 2021 was truly a transformational year for the organization. As we think about 2022 and beyond, the combination of continued momentum within our Beverage division, our growing roster of strategic partnerships and our upcoming expected entry into the cannabis sector, we believe we are well positioned for increasing growth and a bright future. On the call today, I'll provide an update on our sales performance, marketing initiatives, operations and discuss the launch of our cannabis products. We will then end with a Q&A session. Before I dive into those topics, I'd like to hand the call over to Joe to discuss our strong financial results for the quarter. Joe?

[Joe Culp:]

Thank you, Mark and good afternoon, everyone. Net revenue in the fourth quarter increased 18% to $2.9 million compared to $2.5 million in the fourth quarter of 2020. This increase was primarily due to continued sales momentum of the company's core bottled soda products and the growth across our channels. Gross profit as a percentage of revenue increased 260 basis points to 26.5% compared to 23.9% in the prior year period. The improvement was a result of the continued shift to a more favorable product mix which includes the recovery of our food service business. Operating expenses in the fourth quarter were $2 million compared to $1.4 million in the same year ago quarter. The uptick in expenses for the fourth quarter of 2021 was primarily due to the $400,000 of additional costs related to the company's expected strategic entry into the cannabis sector. Net loss in the fourth quarter was negative $1.3 million or negative $0.02 per share compared to a net loss of negative $900,000 or negative $0.01 per share for the prior year period. The decrease in net loss was driven by the aforementioned expenses associated with the company's expected entry into the cannabis sector. Adjusted EBITDA in the fourth quarter was a negative $1.2 million compared to a negative $800,000 in the year ago quarter. Now moving on to the balance sheet. At December 31, 2021, cash and cash equivalents were $4.7 million compared to $4.6 million on December 31, 2020. Working capital was $6 million at December 31, 2021 compared to $5.8 million at December 31, 2020. The only debt we carry are our outstanding convertible debt instruments. After year-end, we closed on the acquisition of Pinestar Gold in conjunction with the company's planned strategic entry into the cannabis sector. As a part of the deal, the company raised $11 million in concurrent financing and also received final approval for the listing of Jones' shares on the Canadian Securities Exchange which began trading on February 18, 2022. We believe this development increases the liquidity of our shares and enables the company to appeal to a broader group of investors. Now, I'll hand the call back over to Mark for his remarks.

[Mark Murray:]

Thank you, Joe, for sharing our strong financial results. As mentioned before, it has been a team effort and I want to thank all of our employees for their hard work and leading us to our sixth consecutive quarter of revenue growth and putting us on a path of profitability. So let me jump into our sales performance. Throughout the year, our sales team continue to strengthen relationships across the U.S. and Canada with existing key national and regional accounts like Kroger, Albertson-Safeway, Walmart, Publix, Loblaws and Sobeys. Working closely with our retail and distribution partners to ensure our products are promoted, displayed effectively at retail, core bottled soda business continue to be one of our key growth drivers across all channels. Beyond the success with these established relationships, I am pleased to announce that after a five year hiatus, Jones products have returned to Meijer stores in six Midwest states, including Michigan, one of our largest and strongest markets. A variety of Jones products, including our special release flavors, are stacked at over 200 Meijer stores and the partnership is already exceeding our expectations. Other new partnerships in the grocery channel includes Save Mart, Lucky, Food City and Pitco Foods. We believe these new partnerships will further increase Jones brand awareness across the nation as we continue to expand our national retail footprint across North America. Moving to the club channel. We are pleased to announce a recent win with Costco. In February, Costco business centers began selling Jones Root Beer in it’s wholesale fountain format, making it available to food service customers across the country. We've successfully worked with Costco in the past, including most recently, a special red, white and blue 12 pack in the summer of 2021. But this represents our first national listing for our popular fountain products within the Costco system. We look forward to continuing to build our relationship with Costco as our sales grow through this channel. We continue to see our food service business grow as the industry recovers from the impacts of the pandemic. Our food service offerings include a unique and diverse portfolio of innovative products that include our packaged beverages, fountain beverages and frozen dispensed products. There's often a strategic overlap between food service and convenience. And in convenience, we are excited to share more details about our partnership with the ICEE company. Starting in May of 2022, consumers will be able to enjoy a new Jones mango melon flavored ICEE within a network of thousands of corporate and independent convenience stores across the U.S. as well as select number of Meijer stores. Additionally, as part of this strategic partnership, we are selling a new co-branded bolted craft soda product, featuring ICEE's top two signature flavors, Cherry and Blue Raspberry. These innovative products will be available through September of 2022. We will also be able to find new bottled sour mango melon soda and all Canadian 7-Eleven and Circle K convenience stores as well as Loblaws real Canadian wholesale clubs. In addition, we are in the process of launching Jones Soda Watermelon and Pineapple Cream slush flavors through Core-Mark Canada that will be in the market in Q2 of 2022. In the past couple of quarters, we mentioned the growth of Jones and alternative channels such as Cost Plus World Market, HomeGoods and Dollar Tree stores in Canada. We have continued working on expanding this business to drive sales and improve our brand recognition. And I am happy to say that we recently expanded our distribution to thousands of Dollar Tree stores in the United States. Next, I'm excited to announce that as of Q1 of 2022, we will be expanding into T.J. Maxx and Marshalls stores nationwide. These are big wins for us and we will continue to assess ways in which we can grow the alternative channel further. As you can see, we continue to build on our base business across all channels, our growing, more diversified base makes for a much stable, sustainable business and I'd like to thank our sales team for a tremendous job. Now an update on the marketing activities. There's no better place to start than with the recap of Turkey and Gravy. The soda was a huge hit during the fourth quarter holiday season. The reintroduction of Turkey and Gravy soda after a 10-year break garnered a tremendous $7 million in add value for the company. We had nearly 100 TV placements, including the Today Show, the Wendy Williams Show, Access Hollywood and the Drew Barrymore Show. Between organic engagement with Sam's and social media influencers, we generated 1.3 billion online impressions based around the during hashtag Turkey Gravy Challenge. The excitement around the flavor during the quarter exceeded expectations, further increasing brand awareness, improving the continued relevance of our growing brand. As shown with Turkey and Gravy, innovation is part of our DNA. Our team has done an incredible job driving new innovative products. And since the end of last quarter, we announced the launch of our first ever neurotropic supplement in partnership with celebrity Mike Tyson and Wesana Health. This distinct line of beverage supplements was developed in collaboration with the Wesana Health science team, feature an ingredients linked to promoting focus, clarity and brain health. The launch of these first-of-their-kind supplements combine our passion for unique beverages with Wesana and Mike Tyson's commitment to revolutionize the treatment of mental health. The supplement will be available in two flavors

[A - Joe Culp:]

Yes. Thanks, Mark. Before wrapping up the call, Mark and I would like to address some of the questions that we have received from investors via e-mail over the last few weeks. We have selected what we believe to be the most important and relevant questions to answer. So starting with the first question. Given the buzz around Turkey and Gravy this year, do you plan to have it as a part of your product portfolio in 2022?

[Mark Murray:]

Yes. The answer to that is, absolutely. As noted earlier, Turkey Gravy exceeded our expectations and we are already booking orders for this holiday season. Also, last year, we featured Turkey and Gravy as part of our Special Release program and had a limited production run. This year, based on demand, we'll be offering to all of our customers. So we're excited to see the impact of this holiday season.

[Joe Culp:]

All right. Question number two. For the cannabis launch, last quarter, you mentioned that you're targeting multiple markets. Are you able to discuss which markets you are targeting to launch in? And then additionally, how are you handling the manufacturing of the products given the strict regulations in the industry?

[Mark Murray:]

Yes. Okay, so part one of the question, what markets are we targeting? For the launch, we will be in California. This is a very mature market and we have a great manufacturing partner and we are excited to get our portfolio into the marketplace. Where we go next will be dictated by finalizing some of the partnerships we're currently working on. Part two of the question is, how are we handling manufacturing? This is a good question. As you may know, you cannot have a manufacturing facility in one state and ship products across state lines. You need to have a separate manufacturing facility in each state you plan to do business in. This is a challenge and this is why selecting the correct strategic partners moving forward is going to be so important.

[Joe Culp:]

All right, question three. Do you have any visibility in terms of how long the supply chain constraints are going to last? Do you anticipate this affecting the cannabis side of your business in 2022 as well?

[Mark Murray:]

So when we built our 2022 plan back in November, we were hoping that things would start to normalize in the back half of 2022. Although we did not build this into the plan, we were hoping as the supply chain improved, we would have an opportunity to capture some upside to our plan in the back half. Of course, at that time, we were not dealing with the situation in Ukraine. But today, the environment is even harder to navigate than anticipated and I could not predict how long it will last. B) do you anticipate this effect in the cannabis business? The answer is, yes. We use a lot of the same raw materials and packaging for both businesses. However, the cannabis business is much smaller, margins will be a little bit higher. So I think we're going to be in good shape.

[Joe Culp:]

All right. Last question. Within your transformation plan, what are the key performance metrics that you are focused on in order to gauge success for the company as a whole?

[Mark Murray:]

Yes. So the matrix when you talk about the company as a whole, there's basically three for us right now. It's net revenue, gross profit margin as a percent of and our EBITDA. And I would also call out that we will be folding in cannabis targets as part of the overall company objectives.

[Joe Culp:]

All right. And this concludes our Q&A session. We'd like to thank everyone for listening to today's call and we look forward to speaking with you when we report our first quarter of 2022 results. Thanks again for joining us.

[Mark Murray:]

Thank you.

[Operator:]

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