Jones Soda (NASDAQ:JSDA)
Q1 2013 Earnings Call
May 09, 2013 4:30 pm ET
Carrie L. Traner - Principal Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary
Jennifer L. Cue - Chief Executive Officer, President and Director
Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Jones Soda Company First Quarter 2013 Earnings Conference. [Operator Instructions] I would like to remind everyone that this conference is being recorded. I would now like to turn the conference over to Carrie Traner, VP of Finance of Jones Soda. Please go ahead.
Carrie L. Traner
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 purposes of the Safe Harbor provisions 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, project 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 statement. 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, 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 to Jennifer Cue, Chief Executive Officer of Jones Soda.
Jennifer L. Cue
Good afternoon, everyone, and thank you for joining us today. We are now 9 months into the turnaround of Jones Soda and happy to report steady progress reflected in our bottom -- in our improved bottomline results. And our objective remains the same since I first returned to the company in late June of last year, and that was to be a highly innovative company that celebrates the engaging distinctive character of the Jones Soda brand and in a profitable way.
Our progress continues to be evident. During the past 9 months, we have focused on a turnaround and the creation of an operating plant that will take us back to growth and profitable growth in the longer-term. I want to reiterate again the components of our turnaround strategy and the 2013 operating plan and report on our progress to date on each component of our strategy.
First, we needed to align our operating expenses to the company's capital resources. As I reported back in March on our Q4 call, I am comfortable that this has been achieved with the elimination of top-heavy corporate overhead along with marketing expenditures that did not fit our brand image.
Next, we focused on hiring and retaining a team of employees who are highly entrepreneurial and aligned with our turnaround strategy and long-term growth strategy. We added 5 new sales positions during the first quarter while making consolidations in the sales leadership structure. We also, in May, just hired a full-time summer sampling team for the state of California.
Third, we are focusing our efforts on certain core geographic marker -- markets, distributor partners and product lines where we can achieve profitable long-term growth while maintaining a highly efficient, streamlined operating structure. This entailed refocusing on our core geographic markets, including the West Coast, Midwest and Canada. We are also redirecting resources to support our distributor networks through increased promotion allowances at retail, emphasizing promotions during the months that generate the best return, our busy summer selling season.
The fourth pillar of our strategy is redeploying our marketing resources to initiatives that more directly drive sales growth while reinvigorating the Jones Soda brand with an emphasis on marketing initiatives that are viewed by our consumers as highly creative, unique and fun, and precisely how our brand originated in the first place. I will share with you some details later in the call with a perfect example of this.
Finally, while working on our turnaround, we further refined and launched a lower-calorie yet full-flavor and good-tasting product that answers the growing consumer and health care industry demand for more healthful beverage options. Last week, we announced the focused launch of Natural Jones Soda in California, which I will also discuss later in the call. The ultimate goal, of course, is on a turnaround strategy that will bring this company back to profitable operations with a future of continued growth.
I will now turn the call over to Carrie to review the first quarter results, and then I will follow this with an update on the business and some of this year's exciting new programs.
Carrie L. Traner
Thanks, Jennifer. Revenue in the first quarter decreased 20% to $3.1 million from $3.9 million in the prior year period. Revenue declined as we reallocated resources from certain markets while focusing on key core markets in conjunction with our turnaround strategy. We did invest more in promotion allowances and slotting fees on a per-case basis, although the overall decrease in promotion allowances did decline $24,000 to $394,000 for the quarter.
Partially offsetting the decrease in case sales was an August 2012 increase in price. Our strategy is focused on generating the highest return within our available resources through increased promotional allowances at retail, particularly during our upcoming busier summer selling season, which we believe, over time, will reposition our brand for growth.
Gross profit margin this quarter decreased to 24% from 27% in the first quarter of 2012 and was affected by a combination of product mix and production cycle.
We also had the opportunity in the first quarter to do an in-and-out program in a Costco division in the Southwest, which, at a higher cost per case, negatively impacted the margins. As this was a onetime promotion, we anticipate the remainder of the year to return a normalized gross profit margin.
Operating expenses in the first quarter decreased 57% to $1.1 million from $2.7 million in the prior year period, reflecting a 65% decrease in promotion and selling expenses and a 49% decrease in general and administrative expenses. This improvement was due to our turnaround strategy and realigned cost structure, which included personnel reductions for comparable quarters.
Operating expenses as a percentage of revenue decreased to 37% for the quarter from 70% in 2012. Net loss for the quarter ended March 31, 2013, improved 76% to a loss of $399,000 or a loss of $0.01 per share from a loss of $1.7 million or a loss of $0.05 per share a year ago.
Turning to our balance sheet. As of March 31, 2013, we had working capital of $3.8 million and cash and cash equivalents of approximately $1.2 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 of reducing operating expenses and slowing our cash burn in conjunction with our turnaround strategy. Cash used by operations during the 3 months ended March 31, 2013, was $415,000 compared to $1.3 million in the prior year.
We also have our asset-based 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.
With 3 quarters since we embarked on the turnaround strategy and now as we approach the busier summer selling month, we are eager to continue executing our plan with focus and discipline, which we believe will drive us to 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 share some of the updates on the sales and marketing front that illustrate the engaging, distinctive character of the Jones Soda brand that was alluded to at the start of today's call. In late April, we announced the launch of Natural Jones Soda as an initially targeted product into the state of California in 2013. As part of this launch, Natural Jones Soda went onto shelves in mid-April in select Northern California Whole Foods locations, and you will find product on shelves in Albertsons in Southern California in June.
In addition, during late March and April, our team has worked hard at opening up our California distributor network to Natural Jones, as well -- as well, we have hired -- as well as working on opening up new accounts for our brands.
Additionally, and beginning in May, we have hired a seasonal sampling team that will be based throughout the state and will be there to open accounts and do samplings. We also plan to roll out interesting marketing campaigns on top of this to assist in bringing additional awareness to this new and on-trend Jones brand.
The launch of Natural Jones Soda is being done in a very focused and disciplined way during 2013 solely into the one state of California so that we can dedicate resources around this launch for its success before rolling out to other markets in 2014.
On April 30, we also announced an exclusive and very limited edition flavor in Canada, poutine-flavored Jones Soda. This limited edition soda is based on the quintessential Canadian dish made with french fries, cheese curds and brown gravy, and reflects our proud Canadian heritage and also our history of fun and unique flavors. As Canada represents our largest market on a per capita basis, the fun buzz created in Canada goes a long way. Since we launched this unique flavor last week, the press we received from this has been incredible, over 50 mentions on television, another 10 on radio stations across the country, and then numerous websites have profiled Canadian consumers challenging themselves to drink this unusual Jones Soda flavor. And when chased with one of our great-tasting sodas, as seen in many of the television mentions, we have achieved what we set out to do with this fun marketing campaign. This marketing program is a classic example of how Jones Soda has returned to its entrepreneurial roots of doing fun, interesting and very inexpensive marketing programs.
Our programming calendar with our distributors is about to go into full swing. We chose to initiate our programming calendar with our distributor network to be during our busier summer selling months so that we can focus on promotions in our higher selling season.
We have a renewed vigor and dedication to bringing the focus back to our independent base of accounts for Jones Soda while also ensuring that we offer promotions at our grocery and convenience chains.
In addition, we have our unique consumer contest, Caps for Gear, that will run the entire year in our focus markets and further promote our Jones Soda line.
We continue to be very excited with the future for Jones Soda Co. Having accomplished already in the first 9 months much of what we outlined in our turnaround plan, I believe the proper foundation is in place now to help us achieve longer-term revenue growth in a profitable way. We must continue to stay focused with our eye on the long-term horizon. The entire team is committed to the future success of our phenomenal Jones Soda brand.
We thank you for your continued support and look forward to updating you on our progress in our upcoming calls. I will now open the call up for questions.
[Operator Instructions] And we'll take our first question from Gary Getz.
It's Gary Getz. Jennifer and Carrie, I wanted to see if we could get any more color on revenue growth. As Q1 -- I guess there was some expectation from investors of Q1, at least, being a little higher than Q4. And then, what can we expect to see, at least qualitatively, with the peak summer season?
Jennifer L. Cue
Okay, in terms of qualitative, what are you implying, Gary?
Well, last year, Q2, we saw $5 million in sales. I mean, that may be a difficult-to-attain target, but I think qualitatively -- first of all, the investment community has a lot of confidence in you, as you can see by the growth in the stock price between last quarter and this quarter, and you all deserve a lot of credit for that. So congratulations on that. But you're talking about profitable growth, and I'm very confident in the cost control part of it. I'd like to see more on the growth part of it.
Jennifer L. Cue
Right. And I hear what you're saying, Gary. From my experience, in turnaround situations, these turnarounds can take several quarters. We're looking at a company that has taken our resources from about $11 million down to $5 million or less on an annual basis. You're looking at a company also that has pulled its resources out of certain markets, international markets that weren't returning profitable sales and maybe even on the East Coast, which got a -- we're focusing our resources on a smaller geographic base than we were in the first quarter of 2012, and the second quarter of 2012 too. So you've got a different comparison number there. But again, and we are -- have created this operating plan that really focuses on spending our resources and trades them [ph] with our focused distributors, our focused markets and building this brand in the right way again in my -- in the more entrepreneurial and -- support with our distributors. Again, as we try to balance with what we have in terms of our capital, we have to focus those resources. And I'm a big believer in focusing those resources on some core markets, building up back up on the right way, so that then I'm building up back to growth in our focus markets so that we can then also have the cash flow to go and expand into more markets starting next year. But again -- and then again, too, I felt that it was very, very important to still launch Natural Jones soda, which was very important from a health plan, everything, health care industry perspective, in a focused way that will, I believe, allow us for growth in the much longer term. So again, it's a combination of taking this company from a position of spending $11 million a year down to about $5 million a year, you're going to have -- that's going to make an impact, but then now starting to build back up those expenses, especially in our busier summer selling months and building it up in what we believe to be the right way, with feet on the street, opening accounts and having a sales team that's really entrepreneurial and compensated more on a variable basis. So again, I hear what you're saying. Our goal is for longer-term profitable growth. And I am very excited for that day to come.
Okay, but do you at least to see -- expect to see significant sequential growth between the current quarter and the peak summer selling season?
Jennifer L. Cue
Yes, the first quarter of the year is -- we still have snow in some parts of the country. And we're a beverage, a cold beverage, which is much -- most beverage companies sell -- a large percentage of their sales come from 6 months, I'd say close to 65% to 70% of their sales are the 6 months of the summer selling season. So yes, definitely. Oh yes, we will be definitely moving forward from Q1.
Okay, good, good. Because what sort of created a question in my mind is I think people expected to see at least some sequential growth between Q4 and Q1. That wasn't there. But it's encouraging to hear you say that you do expect to see some significant growth between now and Q2 and Q3. And just one other question. How does the peak summer selling season, how does that overlap Q2 and Q3? How would you -- which months would you define as the peak summer season?
Jennifer L. Cue
Yes. The summer selling season, depending on how the weather holds up, but generally, I would say, it's April through the end of September.
Okay, so Q2 and Q3.
Jennifer L. Cue
[Operator Instructions] We'll hear next from RJ Prossner.
A couple of real quick questions. First, Jennifer, you mentioned the fun and interesting and cost-effective marketing. Can I ask what type of marketing are you guys doing from a like social media perspective out there on the Internet? You guys have initiatives going there? Do you see that driving revenue in the future?
Jennifer L. Cue
Yes. We are in a very unique position to have over 1 million Facebook fans. And we're just building up our Twitter fans, and we've just also -- it's pretty -- it would be common sense that we also have Instagram as well, given that we're a photo, really, a beverage brand that really utilizes photos. But yes, we have a plan in place for that. We utilize our -- because of the demographics of our regular line, Jones Soda, we use our Facebook fans constantly. We do contests on our -- with our Facebook fans, we do -- when we open a new account somewhere in the country, we do targeted releases to Facebook fans in certain regions of the country, which you can do. So we have got a fantastic social media manager in our team who is -- he's on top of it, and he's creating a lot of buzz that way. And we look forward, actually, with our Natural Jones line as well to increase on Twitter and Instagram, and we will be doing that in the summer months as we continue to build Natural Jones Soda, which has a little bit of an older demographic.
Okay, great. Thanks. And next question, switching gears a little bit. The models that you guys have put together, I guess, it's always a question back and forth with my friends and I, what sort of revenues are you guys actually looking at from a quantifiable standpoint to get to that proverbial breakeven or to get to that 0 cash burn position? You guys have that number identified? Or is that still a moving target for you guys?
Jennifer L. Cue
Yes, I appreciate you qualifying that. It's a hard target. I mean, don't -- we cannot give guidance. But as I said on the previous conference call, we've taken this company from a breakeven revenue company of about $50 million down to approximately $20 million, and we're constantly still evaluating various G&A expenses that we can streamline. But now we're focused on building again in the sales -- mostly sales and in a very unique marketing way, sales and the marketing side of the business. So again, that being said, we've taken our breakeven down to approximately $20 million in revenue, and that's really all I can say about it at this point in time.
Our next question comes from Kevin Saxer from KJS Investment Corporation.
My question has to deal with how you guys are experiencing your sales cycle with regards to pulling back some inventory from -- in different products and now you're going back into some of the same retailers. What are you guys experiencing on your sales cycle to get those accounts back up to where they're now profitable accounts again?
Jennifer L. Cue
Well, it varies depending on the region. We're presenting to new accounts in existing chains constantly. In terms of -- we're doing the unique programs with a lot of our distributors to build up our independent accounts, and we're doing our -- independent accounts really need a certain kind of programming that's different than the chain business, so that's a whole different model as well. But it's a combination depending on what type of retail channel we use. It's different for convenience chains, different for grocery, different for independents and then different, say, for our Costco model. And again, each region is unique. All of our sales team has to go in and evaluate basically each -- their own market and go in and present something that satisfies each of those retail -- retailer partners.
Now, does your sales department, do they have a -- not a hard number, but a time frame that they'd like to see from when they start initial consultation to when they get products on the shelves? Or does it -- are you finding that takes about 1 month's worth of time, 2 months? Is it something that's building a relationship or maybe a little bit...
Jennifer L. Cue
Yes. It depends. It depends on each chain, on -- we have regional managers throughout our focus markets that have good relationships with our chains and our distributors, so it can be relatively quick to go in and present to a retail chain, get a great program going. Larger accounts have a lot longer time -- longer time cycles, like a national account would be a much longer time cycle. But within our regions and the team that we've hired that have those relationships, it's not as long as a national account, for sure.
Okay, and with that being said, obviously, you guys are looking at your plan going forward. Do you see the sales? Because that's really what's going to drive this company, are the salesmen that are out there. How has their success ratio been with regards to presenting the product and getting customers?
Jennifer L. Cue
Well, as I mentioned to you in a conference call, we've spent the first -- during the first quarter, we have started to bring on a sales -- a bit -- a changed-up sales team which I believe is a very good team. We have a new head of sales that's running the team in the U.S., 1 in Canada, too. I have the utmost in confidence that we're doing just the basics, the blocking and tackling and the building, and that's what will get us there. Even just getting back into the independents, which is where Jones Soda sold so well, that's a big push on our operating plan this year, is -- and then the larger chains come because that's where this brand sells the best, is our independent accounts. So it's going back in...
And do you see them coming on at a pretty good clip?
Jennifer L. Cue
Well, the independents are -- they're small accounts. They can -- as an example, we've set up a Blitz program within our Seattle headquarters. We have our team in Seattle that goes on to the Blitz every month now and opens up accounts. You can open up an account when you go into an independent account that day and then get your distributor to service that account. So yes, it's those types of accounts. They're smaller, but they're more valuable to the Jones Soda brand, in my opinion, because that's where our consumers shop. But the convenience and the grocery store are important too, once you have secured that consumer in the independent account and he wants to come back and buy multiple units of Jones soda.
And you feel, with that model, that you can get the profitability?
Jennifer L. Cue
And we currently have no further questions in the queue. So I'd like to turn the conference back over to Jennifer Cue for any additional or closing remarks.
Jennifer L. Cue
Okay, great. Well, thank you again for your interest in Jones Soda, and we will speak with you at our -- or actually, we're going to speak at our annual shareholder meeting that's going to be held on May 22, and then, again, we will report our second quarter results in August. Thanks a lot.
Once again, this does conclude today's conference. We thank you all for your participation.
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