Jones Soda Company (NASDAQ:JSDA)
Q4 2013 Earnings Conference Call
March 6, 2014 4:30 PM ET
Carrie Traner - VP of Finance and Principal Financial Officer
Jennifer Cue - CEO
Good day, ladies and gentlemen and thank you for standing-by. Welcome to the Jones Soda Company Fourth Quarter and Year End 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions. (Operator Instructions) I would now like to remind everyone that this conference is being recorded.
And now we’ll turn the call over to Carrie Traner, Principal Financial Officer and Vice President of Finance. Please go ahead.
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 aim, 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 reports with 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.
Good afternoon everyone and thank you for joining us today. This call today marks the sixth quarter into our turnaround plan and the end of our first full fiscal year on our new top towards long-term financial stability and future profitability. For those of you who are new to our story, we began a turnaround of our business in the second half of 2012. Briefly this turnaround is centered around the following five pillars.
First, we reduced our overhead to a level commensurate with our Company size and aligned our operating expenses to the Company’s capital resources. This resulted in decreasing our annual operating expenses from approximately $11 million to $5 million.
Second, we focused our efforts on certain core geographic markets, distributor partners and product lines where we believed we have long-term growth potential. This entailed refocusing on core geographic markets including the West Coast to Midwest in Canada. Our geographic footprint was reduced as we have focused resources and consequently our sales have decreased. We also continue to redirect resources to support our distributor network through increased promotional allowances out retail which are direct offset to revenue.
Third, we focused on retaining a team of employees who are entrepreneurial and aligned with our turnaround and long-term growth strategy. Today we are a lien team of approximately 27 people compared to 50 people the same time two years ago. In scaling back we feel that we have the right size of administrative team so that we may focus future additions to our sales team.
The fourth pillar of our strategy is redeploying our marketing resources to be cost effective but more importantly extremely unique with initiatives that are in line with the Jones brand. In 2013 campaigns like Pure Cane Soda, Jonesin for a Fiat and Made in Michigan were successful and very cost effective and we will again have interesting low cost marketing initiatives like these in 2014 which I will outline on future calls.
Our fifth pillar involves innovation. We are in a constantly evolving industry that requires us to evaluate new interesting product opportunities. So while we focus on execution of our core brand it is still imperative that we look at new innovative opportunities in a focused and measured approach.
While I have been pleased with the results for the overall 18 month period, we have definitely been faced with some challenges along the way. Given the nature of a turnaround this is completely expected given the amount of recalibration that has gone on as we have stabilized the business. The softness in sales during 2013 was challenging for us and was attributable in part to the implementation of our turnaround plan with the refocusing of our resources to core markets and distributor partners.
Another factor impacting our fourth quarter results was the reduction to our revenues, due to a trade spend associated with the seasonal Halloween program. After several years of not running any seasonal Halloween programs, we partnered with a handful of retailers. Our fourth quarter results included some trade spend leading up to the Halloween period as well as trade spend following the holiday with respect to the remaining inventory. The program though costly to our top-line in the fourth quarter set the stage for us doing another Halloween program in 2014 and we anticipate less of a trade spend impact with our retail partners.
In addition as others in the industry experienced the fourth quarter for us turned out to be particularly challenging. We experienced general softness in the fourth quarter primarily in our U.S. market due to the combination of the effects of the turnaround that I just mentioned as well as CSD headwinds. I believe that the headwind facing us in the CSD category create a unique opportunity for the Jones brand as consumers shift to healthier options. We have a complete product portfolio of options available from our Jones Soda made with pure cane sugar, our sugar free Zilch soda made with sucralose and our new Natural line with only 30 calories and naturally sweetened and with just 8 grams of sugar. With the healthier Jones product line up and the power of the brand that resonates across demographics and the geographies, we believe we have tremendous growth opportunities.
Additionally we faced challenges with our glass supplier in the fourth quarter who did not deliver glass up to our technical standards. This caused us to delay previously planned production in the fourth quarter to the beginning of the year. We have rectified this issue but it was a contributing factor to our challenging quarter.
So while the fourth quarter was challenging, we believe that it was a bump in the road and not indicative of a trend. There are bound to be challenges along the way as we try to balance our five pillars of the turnaround. However, importantly because our overhead structure is manageable within our existing working capital resources, we are nimble and able to adapt along the way. As I mentioned before from my past experience to my earlier years at the Company when I did a turnaround very similar to the one we’re currently undertaking, it did take time before the Company reached profitable growth. I believe we’re on the right path towards this ultimate goal. Of course I can’t say exactly when that will be, but 2014 will be an important year for us in moving another step closer.
Before Carrie jumps into the detailed financial review, the one area that I would like to particularly acknowledge for 2013 is our balance sheet management. We have a very disciplined and effective management of our assets. We had on-hand cash at the end of 2013 of $1.5 million, a reduction of only $200,000 from the previous year-end. In other words despite a net loss for the year of 1.9 million which did include some non-cash items, we only used about $200,000 in cash and without going to the market for additional financing or going into our line of credit, that’s impressive. This has been accomplished through a very disciplined accounts receivable and inventory management as well as converting some of our long-term assets to cash.
I will now turn the call over to Carrie to review the fourth quarter and year-end results and then I will follow this with an update on the business and closing remarks.
Thanks, Jennifer. For the year ended 2013 revenue decreased 16% to $13.7 million from $16.4 million in the prior year, on a case sales decline of 13% due to the implementation of our turnaround plan and the refocusing of our resources to markets where we believe we have longer term growth potential. In 2013, we invested $2.1 million in promotional allowances, an increase of $594,000 from the prior year, partially offsetting the decrease in the case sales with the August 2012 price increase. Gross profit margin for the year decreased to 23.8% from 27.4% due primarily to the case sales decline and increased promotional allowances and trade spend strategies primarily due to seasonal program.
Operating expenses decreased 30% to $5.1 million from $7.3 million in 2013, reflecting a 31% decrease in promotional and selling expenses and a 29% decrease in general and administrative expenses. This improvement was due to our turnaround plan and realigned cost structure which included personnel reductions and more variable compensation. Operating expenses as a percentage of revenue decreased to 37% for the period from 45% in 2012. Net loss for 2013 improved 35%, to a loss of $1.9 million or a loss of $0.05 per share from the loss of $2.9 million or a loss of $0.08 per share a year ago. This included non-cash expenses depreciation and amortization and stock-based compensation totaling $578,000 compared to $760,000 last year.
For the comparative quarter, revenue in the fourth quarter of 2013 decreased $1 million or 32% to $2.1 million, primarily due to our turnaround plan and refocusing of our resources as I mentioned earlier and softer sales in core markets which resulted in the decreased case volume of 21%. In addition, the results for the fourth quarter of 2012 were favorably impacted by sales of seasonal holiday pack. Promotional allowances increased $340,000 to $624,000 for the quarter due in part to trade spend for the Halloween seasonal program as well as our focus on traditional trade spend strategy. The accounting impact of these promotional allowances is a direct offset to gross revenue.
Gross profit margin for the fourth quarter decreased to 12.2% from 22.9% in the fourth quarter of 2012, due to the increase in promotional allowances for this Halloween program and our traditional trade spend strategy. Operating expenses in the fourth quarter increased 15% to $1.3 million from $1.1 million in the prior year period, reflecting a 17% increase in general and administrative expenses and a 14% increase in promotional and selling expenses. Operating expenses as a percentage of revenue increased to 62% for the quarter from 37% in 2012. Net loss for the quarter ended December 31, 2013 increased 139%, to a loss of $1.1 million or $0.03 per share from the loss of $448,000 or $0.01 per share a year ago. This included non-cash expenses totaling $155,000 compared to $147,000 last year.
Turning to our balance sheet. As of December 31, 2013, we had cash and cash equivalents of approximately $1.5 million. This compares to cash of $1.7 million at the end of 2012. Cash used by operations during the year ended December 31, 2013 was $317,000 compared to $2.9 million in the prior year. Cash provided by operations during the three months ended December 31, 2013 was $306,000, compared to $247,000 in the prior year period.
At this time, we believe that our current cash and cash equivalent would be sufficient to meet our anticipated cash needs through 2014, given our progress made in reducing operating expenses and pulling our cash burn, in conjunction with our turnaround plan. We also have our asset-based credit facility available for our working capital needs. On December 27th we entered into a new $2 million facility with a new vendor on improved terms. To-date, we have not drawn down on this credit facility, however, with the seasonality of our business this facility is available to support our working capital needs, should the need arise.
I will now turn the call back to, Jennifer to give an update on our sales and marketing initiatives.
Thanks, Carrie. Sitting here with a brand new year, our team is geared up to deliver. As we embark on our plan for 2014 I feel strong in our vigor to build our sales in our focused regions, look to providing some resources to our East Coast market, continue without low cost and effective marketing strategies and continue to innovate and offer unique and better for your products in this changing industry. Recognizing shift in the online grocery business, during this first quarter we have been making some changes to our website and online sales strategy. The most important has been a review and reduction in prices of our Jones beverage product to our consumers.
Currently Amazon.com sells our glass bottles for about $4.15 per bottle delivered to your home. We are now offering Jones Soda shipped to your door for $1.69 per bottle. As well we are now offering our Jones Soda cans at a $1.40 million per can shipped to your door. Both of these offerings are in a 12 pack format. We undertook a complete review of pricing to ensure the consumer can now much more easily and affordably purchase Jones Soda product online. We have some exciting new programs coming up for 2014 that I would like to share with you.
First, in January 2014, we kicked off the latest installment of our year long consumer program Caps for Gear, with a new look and new partners and new POS. Like last year we are offering our consumers an opportunity to redeem their Jones Soda caps for various prices that we still feel suit our consumer’s pay. We have been able to renew our partnerships with some great brands for this program, including Diamondback BMX bikes and Lib Tech skateboards. In addition we are excited to announce the addition of GoPro cameras to our 2014 featured partner line up. It’s obvious that Jones would partner with a camera company, given our brand’s relationship with consumer submitted photos, and I could not think of a better aligned brand to ours than GoPro. GoPro will be a part of our Caps for Gear program and we will look forward to doing some other promotions this year with this unique camera company.
Second, we continue to work on rebuilding sales of the Jones Pure Cane Soda brand in core markets. One of our core markets has been in the State of Michigan which became a focus again in 2013 to some great results. We are pleased to announce that Jones Soda was just voted the Best Soda of Detroit in the best of 2014 issue of Real Detroit weekly which pulled over 250,000 readers to rank their favorite things. We are excited and proud of this best soda accolade to our brand. With the success of our made in Michigan campaign last year we will be doing another made in Michigan program this year. These bottles will again be produced in the Detroit plant by our distributor and will feature new Michigan-only theme labels this time sent in from the employees of Michigan distributor partners and representative of images throughout the state. This program is a great example of how we can connect locally with our consumers and we will evaluate other regions for opportunities in the future.
We also have worked hard to fill various distribution voids in our core markets and I am excited to announce that we recently succeeded in finding a motivated and strong distributor for the great State of Texas. In all of my history with the brand, our new relationship with the Republic National Distributing Company represents our first strong foray into the state. We are very pleased to have this partner who understands our brand and we’ll do the things that we have wanted to do for so long in the State of Texas. While Texas has been in our core market, we have lacked distribution support and we look forward to finally bring our brand to consumers in this great State.
For our line of Jones Soda we look to continue to ensure our product is placed in the right channel for this brand with the full understanding of where our consumer goes to find it. Another successful 2014 that we have had includes securing another program with the Southwest division of Costco with our unique variety pack for the second year in a row. We are excited to offer a new set of flavors for the members of the Costco Southwest division and look forward to another successful program here. In addition we are also looking to build our sales with the Wal-Mart chain by increasing the number of stores that we that we will be able to distribute to over the course of the year.
Finally let’s talk about our focus on innovation. In 2013 we launched a new natural line of our Jones Soda in California as a test market. Along with this launch we had a very unique campaign called "Jonesin" for a Fiat, where we got to handover a set of keys for a brand new FIAT-500E to the winner of the photo contest. We are very proud with our partnership with Fiat, given the alignment of our two brands and look forward to our continued partnership with Fiat in 2014.
With feedback and monitoring and before rolling out to expanded markets in 2014, we recently made some tweaks to our Natural line, while still remaining at 30 calories our Natural line will be more appropriately a more Jones like called Jones Stripped, Stripped to the bare essentials, it’s how we will be describing our Natural line that has sweetened the blend of three natural sweeteners and has just eight grams of sugar and 30 calories. We have enhanced the color on the labels to ensure better standard on the shelves as well as included a sticker on the neck of the bottle which prominently highlights a 30 calories.
We have also added two new fun flavors Huckleberry and Chipotle Pineapple both not only natural but also in line with the fun kinds of flavors that Jones is known for. As we go to our expanded markets in 2014 with this new and improved Natural Jones line we are excited to have the support from Whole Foods Northern California who will begin stocking shelves in the Northern California region in April with our new Jones Stripped. Furthermore as we launched this new Natural line into the Pacific Northwest our home market, we have secured Whole Foods Northwest which will includes Jones Stripped on its shelves during the recess that will occur in April 2014.
Other chains that have been added will include the ATB chain of stores based in Texas that will sell our Natural line beginning in April as well. And I cannot forget Canada, Canada is where Jones Soda was launched back in 1995 and we’re excited to work with our strong distributor partner in Canada to launch Jones Stripped to our Canadian consumers. For our Jones Stripped line and once on to shelves in our expanded markets of the U.S. Western Canada, we will follow this along with a unique marketing campaign as we did with the Natural line in California in 2013.
In conclusion I am very pleased with our accomplishments this past year, including the improvement to our overall operations, our excellent balance sheet and cash management as well as our reduced cash needed for operations based on our appropriate overhead structure for the size of this Company. With the right business model along with the right product line up and our unique marketing initiatives and our nimbleness, we see much opportunity for the future of this brand and are optimistic that we will make significant strides this year. 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.
Thank you. (Operator Instructions) We’ll go first to Bret Mole.
Yes how are you ladies? I am pretty pleased with the year results. My question is about the natural line, I know it’s probably, it seems to be more healthier and that’s kind of the trend now. Do you plan on kind of pushing distribution out of California? I know it’s -- I think it’s at least just in California now; do you plan on pushing that out more?
Absolutely, we specifically are focused on California to do a test of this new line up. And as I mentioned we based on the consumer feedback and our monitoring although we may have made some tweaks that we feel are important before pushing into new markets. As I said we’re going to be pushing into the Northwest of the U.S. as well as Texas with ATB and them some of the other Southwestern states. And then as Canada is such a large market for us, we will be offering this in Canada. We will continue to monitor how it goes in these markets and we are looking forward to one day bring it across all of North America. But we do want to do it in a progressive staged approach so that we can support it with the appropriate amount of marketing as well.
Alright, that sounds great. And then your website, I was on there recently and I saw that you guys now have different prices and have free shipping which I think is a great idea. Have you seen increased sales on the website? I know it has been long but is that the mission there or what?
That is the mission Bret and I appreciate you have this call in our third quarter. We did a complete revamp of our online business and we -- while we’re still definitely making money we revised our pricing so that consumers who cannot find our products can get Jones Soda at a reasonable price shipped to their door, also given all of the trends toward online sales too. So we’ll continue to make tweaks, we’re excited with what we have done so far and we’re excited with the response so far too. So that’s just by changing the price to what we have done, we’ve definitely seen a pick up. And we will be doing more and more of these kinds of things online including exciting other items too.
Yes I love it, I think it’s a great idea, I would hope it’s going to bring good results. And my last question is Texas, what are the plans ultimately with the new distributor over there?
Well as I mentioned we have a partner in Texas now that is a large distributor, however they don’t have a lot of non-alcoholic brands, so we’re their soda. So we’re very fortunate on to have this focused distributor, they have very good coverage of the entire state. And so while they’re basically starting to launch our product in the month of March and we will be supporting them with the breakthroughs, the opening of new accounts. But they have a very large sales force; this one distributor definitely gets our brand. So we’re looking forward to working with them over the course of this year and that’s our plan and when we launch a distributor we support it with Blitzle, TLS and all of that needed to launch our product in that state.
Alright, great. Good progress so far ladies. Thank you.
Okay. Thank you very much, Bret.
And next we will move on to Victor Wetzel.
Yes, hi, how are you? Thank you for the call. What’s the plan and where are you currently in distribution on the East Coast?
Well, Victor, when I came back to the Company, we actually decided to focus on some core markets and we did pull our sales personnel out of those region we are servicing the distributors in those markets. And we do have, we are able to with our Head of Sales manage the Northeastern and Southeastern market. We have had some success along the way with the Stop & Shop chain up in that area. And we are as I mentioned looking to add back sales personnel this year to management the network and make sure we hold onto what we have and then anticipate moving forward and building a backup for the future.
And I assume that you are open to new relationships for the East Coast in terms of helping sales there in the Northeast and the Southeast?
In terms of distributor partners, Victor?
We are of course, of course.
Okay, great. Okay. I would love to talk to you about that, that’s what our group does. Okay, great.
Okay, great. Thank you.
And next we will hear from Gary Guilds.
Yes. Hi, Jennifer and Carrie. On your marketing programs they sound impressive and I hope they are successful. Again on the fourth quarter, if I heard correctly you view this as an anomaly is that correct?
That is correct Gary. Our fourth quarter, we -- our fourth quarter we were -- the trend spend on our Halloween program cycling against Christmas program that we had in 2012 as well some softness in the industry. However, again as I mentioned we do believe that this was a bump and we are looking our overall annual progress and we are forging and plowing forward and focused on our strategy as we have always talked about.
Good, good. Well, I believe in you and I think you are going to succeed. Now, tomorrow given the results, the share price is most likely going to take pretty big hit and it seems that investors look at when this occurs is insider buying. And I am not going to detail on that but I think people will be looking at any investments that you carry or any of the insiders make in light of tomorrow’s most likely downturn in the stock. It would be an indication of your confidence in the future. I am confident in the future, I will probably be buying tomorrow and I’d like to invite you.
Was that probably was your last comment Gary?
I didn’t hear the last comment.
I said I will probably be buying tomorrow and I would like to invite you to join me in that.
Okay. Thank you very much for the invitation.
(Operator Instructions) Ladies no further questions at this time. (Operator Instructions)
Okay. I just wanted to again say thank you for your interest in Jones Soda. We really appreciate the support and we will speak again next when we will report our first quarter results in May. Thank you.
Ladies and gentlemen that does conclude today’s conference. Thank you for joining.
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