Carrie L. Traner - Principal Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary
Jennifer L. Cue - Chief Executive Officer, President and Director
Jones Soda (JSDA.OB) Q4 2012 Earnings Call March 7, 2013 4:30 PM ET
Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Jones Soda Co. Fourth Quarter and Fiscal Year End 2012 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded. I will now turn the conference over to Carrie Traner, Vice President of Finance. Please go ahead, ma'am.
Carrie L. Traner
Thank you, Amber, 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 purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all passages 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 report with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and 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 will now turn the call over the Jennifer Cue, Chief Executive Officer of Jones Soda.
Jennifer L. Cue
Good afternoon, everyone, and thank you for joining us today. I would like to begin by letting you know how excited I am to see the clear results of a turnaround here at Jones Soda. We have stabilized the company and are now in a position to reinvest in our sales infrastructure and distributor support and move forward in the right direction for 2013 and beyond.
So let's get right into the report of our results and the progress we have made.
My focus since coming in as CEO at the end of June 2012, was on a turnaround strategy that would bring this company to sustainability and eventual profitability. During the second half of 2012, I set out to create a strategic plan for the company that incorporated these sound business principles and then back to building and growing this brand, which I believe is the right way for the future.
I believe that we are on the right trajectory now and with the fourth quarter results reflecting the hard work and dedication of every employee here at Jones Soda toward this goal.
I would like to briefly outline some of the key components of the turnaround strategy and the 2013 operating plan.
Firstly, during the latter part of 2012, we needed to align our operating expenses to the company's capital resources and the size of its current business. We eliminated top-heavy corporate overhead along with marketing expenditures that did not fit our brand image. I feel comfortable that this has been achieved.
Second, while working on our turnaround, we further refined and prepared to launch a lower-calorie, yet full-flavor and good-tasting product, that answers the growing consumer on health care industry demand for more healthful beverage options.
Thirdly, we have focused our efforts on certain core geographic markets and distributor partners, as well as product lines where we can achieve profitable long-term growth while maintaining a highly efficient, streamlined operating structure.
Fourth, we have been hiring in the first couple of months of 2013 and have a team of employees who are highly entrepreneurial and aligned with the company's turnaround strategy and long-term growth strategy.
Finally, and in my opinion, absolutely central to this plan, is that we have reinvigorated the Jones Soda brand with an emphasis on marketing initiatives and distributor support viewed by our customers as unique, edgy and fun, and precisely how our brand originated in the first place.
I will now turn the call over to Carrie to review the numbers, and then I will follow this up with an update on some exciting new things coming down the pipe for Jones Soda.
Carrie L. Traner
Thanks, Jennifer. Revenue in the fourth quarter decreased 10% to $3.1 million from $3.4 million in the prior year period. Revenue declined as we pulled resources from some markets to concentrate on core markets in conjunction with the implementation of our turnaround strategy in the second half of 2012. Our turnaround strategy refocuses resources to markets that we believe will generate the highest return within our available resources. This also resulted in the decrease in promotional allowances, which decreased $119,000 to $284,000 for the quarter.
Partially offsetting the decrease in case sales was an August 2012 increase in price. As Jennifer mentioned, as part of our 2013 operating plan, we intend to redirect resources to support our distributor network, through increased promotional allowances at retail, which we believe will reposition our brand for growth.
Despite the revenue decline for the quarter, and with our turnaround efforts, gross profit was slightly up, with our gross profit margin this quarter improving to 23% from 20% in the fourth quarter of 2011.
Operating expenses for the fourth quarter decreased 59% to $1.1 million from $2.7 million in the prior year period, reflecting a 68% decrease in promotion and selling expenses and a 47% decrease in general and administrative expenses.
This improvement was due to our turnaround strategy and realigned cost structure, which included personnel reduction.
Operating expenses, as a percentage of revenue, decreased to 37% for the quarter from 80% in 2011. Net loss for the quarter ended December 31, 2012, improved 77% to a loss of $448,000 or a loss of $0.01 per share, from a loss of $2.0 million or a loss of $0.06 per share a year ago.
For the full year of 2012, revenue decreased 6% to $16.4 million from $17.4 million in the prior year and reflected the efforts of our turnaround strategy discussed earlier.
The decrease in case sales was offset partially by an August 2012 price increase.
Also evident seeing the turnaround was the increase in gross profit margins for the period, which increased to 27% from 25%. Though our gross profit margin improved overall, it was impacted somewhat by increased materials costs with respect to last. Though our sales decreased year-over-year, gross profit levels have increased to $4.5 million from $4.3 million in the prior year period.
Operating expenses decreased 37% to $7.3 million from $11.5 million in the prior year, reflecting a 47% decrease in promotion and selling expenses and a 25% decrease in general and administrative expenses. Again, this improvement was due to our turnaround strategy and a realigned cost structure, which included personnel reductions. Additionally, the promotion and selling expense decrease was primarily due to a reduction in sponsorship costs.
General and administrative expenses also declined due to decreases in professional fees and bad debt expense. Net loss for 2012 improved by 59% to a loss of $2.9 million or a loss of $0.08 per share from the loss of $7.2 million or a loss of $0.22 per share a year ago.
Turning to our balance sheet. As of December 31, 2012, we had working capital of $4.1 million, and cash and cash equivalents of approximately $1.7 million. At this time, we believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for 2013, given our progress made in reducing operating expenses and slowing our cash burn in conjunction with our turnaround strategy.
During the fourth quarter, we had positive cash provided by operating activities totaling $247,000. Given our seasonal business, this would not be expected, but we believe it is another indication of the turnaround results we are seeing. We also have our asset base credit facility authorized up to $2 million available for working capital needs. To date, we have not drawn down and we do not currently anticipate the need to draw down on this during 2013.
We have made so much progress in the last half of the year with our turnaround strategy, and we are really eager to be underway in executing our 2013 operating plan so we can realize the full year effects of the cost reduction. We will continue to focus on top line growth by supporting our distributor network and retailers through trade spend and promotion allowances. We believe it is with this focus that will help us achieve our goal of profitable future growth. I'll now turn the call back to Jennifer to give an overview of some of our sales and marketing initiatives for 2013.
Jennifer L. Cue
Thanks, again, Carrie. I would now like to highlight some of the exciting sales and marketing initiatives that our team has been working on to create a very exciting year for Jones Soda. First, in January, we launched our 2013 Caps for Gear contest. With this contest, we have partnered with like-minded other companies to offer great Jones gear to our consumers. Consumers are invited to collect caps from their Jones soda bottles and submit them to win prices based on the number of caps collected, such as the Jones Diamondback BMX bike, a Jones Lib Tech skate deck, Jones Sol Republic headsets, a Rockwell watch or other Jones branded wearables, including trucker hats, backpacks and t-shirts.
Combined with all of the right POS material and promotion of this contest, we believe we have a great consumer incentive for our Jones demographic this year.
Second, we created a very exciting calendar of programming and support to our distributor network for 2013. Included with our programming calendar are support and incentives for our distributor network to focus on building back our independent base of accounts for Jones Soda, while ensuring that we offer all of the right promotions at our grocery and convenience chains.
Third, and as part of this plan, we are building up our sales force again. We have focused on hiring energetic, passionate and very entrepreneurial people to be a part of our sales, marketing and operating teams moving forward and have expanded our sales team in our focus markets. Our team is a core group of dedicated and passionate people that embody the brand and the culture of Jones Soda. A year ago, we had approximately 50 employees here at Jones and at year-end 2012 we had 26, yet we were still able to achieve amazing results over the last half of 2012 on half of the employee base.
We are now building up the team again with a more variable compensation structure for the sales force, and currently, we have 30 employees. I firmly believe that the team we have in place are a group of dedicated and passionate people that are excited to build our brand in the grassroots way that we always operate best.
And finally, as I alluded to earlier in the call, while we have worked on reorganizing the cost structure of the business, we did not take our eye off the ball with respect to product development. In this regard, on February 1, 2013, we launched a truly unique new offering, Natural Jones Soda.
An exciting extension of our Jones Soda line, Natural Jones Soda is a new offering to our original Jones consumers who have been fans for some 15-plus years. Packaged in the same 12-ounce, longneck glass bottle and with our bold Jones image with colorful labels and the use of our consumer-submitted photos, Natural Jones Soda, as we say, offers all of the fun of regular Jones Soda with only 30 calories per bottle. Targeting a much broader demographic, we are offering Natural Jones Soda in 4 great-tasting flavors: cherry, green apple, orange mango and lemon lime. This is a truly refreshing soda, sweetened with a blend of ingredients, including pure cane sugar, agave syrup, and stevia, that contains only 30 calories per bottle, 5 grams of fiber and 5 grams of sugar and with no preservatives.
For 2013, we are launching this product with a very focused and disciplined approach and only in the California marketplace. And with this initial launch of our new Natural Jones line, we are excited to announce that we have secured 2 fantastic authorizations.
First, we will begin to sell all 4 of our Natural Jones Soda flavors beginning April, 2013 with select Whole Foods stores in the Northern California divisions and representing about 25 of those 38 stores. As of this week, we have also secured a listing of 3 flavors of our Natural Jones soda line in approximately 50 of the Albertsons Southern California division in their Natural Foods section. We will be building our Natural Jones Soda line in California with these 2 key accounts as anchors and we'll supplement this with a full-on launch of the line to our DST partners in California, along with a Jones -- a strong Jones street payment will focus on the independent channels and sampling of this great new line.
We are very excited with the future for Jones Soda Co. We have turned the company around in a way that will help us achieve longer-term revenue growth in a profitable way. We have, as always, a great brand in Jones Soda with all of our fun marketing that goes along with it. Thank you for your patience and understanding through this turnaround process, and I look forward to updating you on our progress in our upcoming calls.
I will now open the call for questions.
[Operator Instructions] And we'll go to Gary Getz [ph], private investor.
Jennifer and Carrie, first, I wanted to congratulate you on the great performance of Jones. It looks like you're really turning things around. And I, too, as a large investor in the company, am very excited about the future. A couple of questions. First, on the gross margin. I noticed that while it is up compared to the Q4 of last year, it is down compared to Q3. Could you comment on that? And that's the first question. And the second question, any preliminary feedback on how the Caps for Gear program is working?
Carrie L. Traner
Well, first of all, Gary, thank you very much for the congratulations. We are excited as well, and it's nice to be able to talk about a good quarter. To answer -- I'll answer the first question and then turn it over to Jennifer to talk about Caps for Gear. So with respect to the gross profit percentage for the quarter compared to the third quarter, from time to time, obviously, there are review of the product lineup and sometimes some obsolescence and things like that. So there was a little bit of that in Q4 compared to Q3. But that's really kind of the biggest thing I would point out to that, and it wouldn't be unusual for our fourth quarter to review the product lineup and evaluating inventory.
Jennifer L. Cue
And further, to your question on the Caps for Gear. Well, we just have really announced it to our distributor network in January. We have shipped out all of our POS to our distributor network. It's on our website. And while we didn't think anything was going to come so quickly, we've already had kids walking up to our door -- our office door in Seattle, bringing bags of caps to collect a BMX bike, which was 250 caps, and then somebody already came in with a -- for the backpack, with 50 caps. We have about 5 redemptions already with really -- we haven't even been able to put all the POS up out in the marketplace. So we're pretty excited by the response so far on the Caps for Gear.
Good. Getting back to the gross margin. Is some of the erosion compared to Q3 a result of perhaps, amortizing or depreciating the equipment over a lesser volume?
Carrie L. Traner
No. Well, we don't have a lot of production equipment because we outsource our manufacturing. So that really, it wouldn't be a driver.
Jennifer L. Cue
But you're correct in stating about the smaller volume. Any one thing, that if we had to put anything through obsolescence, it would have more of an impact on the fourth quarter, which does have a smaller volume due to seasonality. So that is definitely a point well-taken.
[Operator Instructions] And we'll go next to Kyle Krueger with Apollo Capital.
I would echo Gary's congratulations on the significant progress that you've made. Looking forward to resumption of revenue growth now that you've rightsized the company and are optimistic, Jennifer, about the future. But my question is, what is the breakeven level of sales at this point, given the dramatic change in the cost structure that you've made? And your comments that the cost structure, going forward, is much more variable?
Jennifer L. Cue
Yes. I'll take that, Kyle. I mean, I think, if you look at the sales and general and administrative expenses over the past 2 quarters, you can see where our operating cost structure on a annual basis headed towards an average. I think, we've done a phenomenal job in taking what was a company that had SG&A of approximately $11 million, which would equate to breakeven of about $50 million in revenues, to a company that can be self-sustainable at a level closer to $20 million in revenue. So I'm really excited about that. I want -- I mean, our goal is to come back to growth, but I would like for all shareholders to be able to have this growth based on a lower operating structure where we don't have to necessarily go out and finance the growth of the business.
Okay. Do you think you can get there in '13, to breakeven? Is breakeven on the horizon for us?
Jennifer L. Cue
Well, I mean, that is a goal that I'm working toward, definitely. We don't want to give guidance because we don't know what might come up in the year. But definitely, it is a big goal of ourselves, as a management team and our Board, to get there.
Yes, yes. And the other thing is, is in order to resume growth, you've got the $4.5 million of working capital, just talk me through how -- and you've been very careful and responsible to shepherd your financial resources. But just talk to me, since growth comes at a price, generally, promotions and monies related to just the rollout of the brand, how do you get there within the current resources? How do you get to breakeven within the context of the current resources, I guess, is the question.
Jennifer L. Cue
Well, it's a good question. It's a delicate balance in terms of working with our distributor network and providing them a calendar of programming that allows for promotions at various times of the year and just balancing that with the case volume that comes in. I'm a firm believer that we do have the capital resources for the growth of the brand, still. We're going to be putting a bit of gas on the engine a little bit, but not too much and just monitoring it all along the way. We've incorporated now more of a variable compensation program with our new sales team that's coming on board, so it allows us to sort of tie a bit more to the top -- the case volume. So yes, it's -- obviously, it's the monitoring of the process. We're sort of monitoring our sales ongoing with the production and determining how much of our -- how much volume to produce based on the case volume coming in. So it is sort of a -- bit of a -- art and science in terms of managing along the way, but that is what we will do and that's what we've done in the past so well, in the early days.
Yes. On the new Jones Natural Soda product, it sounds like a very exciting and timely product. And are the relationships with whole -- is the relationship with Whole Foods in Northern California and Albertsons in Southern California, do they carry the existing products or are these new relationships? What's the situation there?
Jennifer L. Cue
Yes. This is the first time we've ever been able to achieve an authorization at Whole Foods. So believe you -- me, we were ringing the bell a lot when we got that Whole Foods listing. We're really excited to have our natural line in the Whole Foods chain in northern California. Northern California is a very -- it's a market for Whole Foods where they know the consumer is very open to testing the products. And in Albertsons, our regular Jones Soda is in Albertsons. We will be putting our Natural Jones Soda in their Natural Beverage section. So there will be regular Jones Soda continuing on in Albertsons. And then now, we get to enter into their Natural Foods section. And I will reiterate that while we are launching Natural Jones in California, we are also focused on our regular Jones Soda line. We want to continue to build that line to where we think it can go as well. So we will be working with our distributors in the California market about taking on Natural Jones, but still continuing to push and sell our regular Jones line.
Yes. And my final question. Jennifer, you've talked in the past about the possibility of leveraging the Jones brand through different sorts of relationships, such as licensing and that kind of a thing. Anything that -- any substantive progress you've made there in the last quarter that you can discuss?
Jennifer L. Cue
At this point, no. We were pretty much heads down and focused on the turnaround strategy in 2012, and creating a plan where we could really work towards building back Jones Soda in our core markets, and then have this great opportunity with Natural Jones Soda in 2013 in California. So I think we need to, as part of the turnaround, we need to sort of focus our limited resources on core areas, and that's what we have focused on. We do still have one licensing program with Big Sky brands that does a candy, and we will eventually look to licensing in a bigger way. However, we need to get this brand much bigger in the North American market. And I think this is the way to go right now.
[Operator Instructions] And there are no further phone questions in the queue at this time. I will now turn the call back over to Jennifer Cue for any additional or closing remarks.
Jennifer L. Cue
Thank you, Amber, and thank you, everyone, again, for your interest in Jones Soda. We will speak with you next in our -- to review our first quarter results in early May. And again, thank you very much.
Thank you. That does conclude our conference. You may now disconnect.
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