Jones Soda Company (NASDAQ:JSDA)
Q1 2014 Earnings Conference Call
May 8, 2014 4:30 PM ET
Carrie Traner - VP of Finance and Principal Financial Officer
Jennifer Cue – CEO
Good afternoon, ladies and gentlemen and thank you for standing-by. Welcome to the Jones Soda Company First Quarter 2014 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.
I will now 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 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 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. As many of you know, over the year-and-a-half, we have been operating under our turnaround plan which began with the realignment of our overhead structure and the refocusing of our lean resources into certain core geographic markets.
We have also continued our innovation efforts to test them on various product offerings. Executing on both of these fronts can be difficult. However I am convinced that we need to cultivate innovation to be a successful brand in the beverage industry at the future.
I am sure that many of you may be tiring of the amount of time it takes to successfully turnaround a company. However we have achieved some solid progress as a lean team in these past seven quarters. We remain committed to a path towards long-term financial stability and sustainability and having unique healthy and fun beverage options in this very large industry.
To recap briefly for those of you who are new to our story, we began a turnaround of our business in the second half of 2012. This turnaround centered around the following five principles. One, maintain an overhead level commensurate with our company size.
Fortunately, we’ve been able to successfully decrease our annual SG&A spend from approximately $11 million to $5 million and it is important for us to maintain this level.
Two, we are focusing our efforts on certain core geographic markets, the West Coast, the Midwest and Canada and concentrating our resources on distributor partners and product lines where we believe we can achieve profitable long-term growth.
Three, we are maintaining a team of employees who are entrepreneurial and align with our turnaround plan and long-term growth strategy. Today, we are an efficient team of approximately 26 people compared to 50 people at the end of 2011.
Four, we are deploying our marketing resources to cost-effective extremely unique initiatives that are in alignment with our brand.
And five, we are cultivating new innovative opportunities with a focused and measured approach.
With regards to our 2014 first quarter results, we have continued the trend towards stabilization. The first quarter of 2014 have several regions of softness, primarily Canada and the U.S. Midwest and east regions of the U.S. and similar to others in the industry, we believe weather was a contributing factor.
Even though our case volume for the first quarter was down 5% from a year ago, I feel that we are still trending in the right direction with decreasing declines over the last seven quarters and solid results getting us even closer to stabilization. Year-over-year decline is not where the company is headed.
From the back-office to the sales team to our distributors to our board, we and our partners are committed to a plan that will return this company to a path of top-line growth, but importantly with profitability. We are confident that our company is on the right path.
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 closing remarks.
Thanks, Jennifer. Revenue in the first quarter of 2014 decreased $206,000 or 7% to $2.9 million primarily due to softer sales in several markets affected in part by adverse winter weather, which resulted in decreased case volume of 5%.
Promotional allowances decreased $113,000 to $281,000 for the quarter due primarily to the timing of promotional programming. The accounting impact of these promotional allowances is a direct offset to gross revenues.
Gross profit margin in the first quarter remained relatively flat at 24.0% compared to 24.5% in the first quarter of 2013. Operating expenses in the first quarter slightly increased by $55,000 or 5% to $1.2 million from $1.1 million in the prior year period reflecting a 4% increase in general and administrative expenses and a 5% increase in selling and marketing expenses.
Operating expenses as a percentage of revenue increased to 42% for the quarter from 37% in 2013. Net loss for the quarter ended March 31 2014 increased 35% to a loss of $539,000 or $0.01 per share from a loss of $399,000 or $0.01 per share a year ago. This is a result of a small decrease in revenue combined with a small increase in operating expenses.
Results were included non-cash expenses, depreciation and amortization and stock-based compensation totaling $140,000 compared to $130,000 last year.
Turning to our balance sheet, as of March 31, 2014, we have working capital of $2.9 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 through the years.
Cash used in operations during the three months ended March 31, 2014 was $264,000 compared to $415,000 in the prior year. We also have our asset-based credit facility available for working capital needs. To-date, we have not drawn down on this credit facility.
I will now turn the call back to Jennifer to give an update on our sales and marketing highlights for the quarter.
Thanks, Carrie. One of our key initiatives for 2014 is to focus on growing our DSD business by rebuilding sales of the Jones Pure Cane Soda brand in core markets. Our plan is to gain new distribution by selling voids, executing well on our chain accounts and working with our distributors to grow new independent accounts.
With respect to distribution void, as we mentioned last quarter, we now have coverage to the State of Texas and are working on a few other states. We continue to work with our large retailer partners to ensure the right product offerings in their stores.
For example, in Wal-Mart, throughout the fourth quarter and the first quarter we moved from selling the Jones Soda variety pack to selling our four packs of Jones Pure Cane Soda throughout the approximately 1000 Wal-Mart stores we are authorized in and at a great price of $3.98 a four pack.
In April 2014, we were granted an additional 500 plus Wal-Mart stores and we will work diligently to activate these stores with our DSD partners.
Another key initiative for 2014 have been to focus on growing our direct to retail business and successive to the first quarter included our securing another program with the Southwest division of Costco for our unique jump with the variety pack for the second year in a row.
This was an in and out program beginning March and allowed us to offer a new set of flavors including our green apple, orange and cream, root beer and Berry Lemonade through 53 Costco club stores in three of the southwestern U.S. states.
Also, we are excited to see the buildup of two international markets, Ireland and Costa Rica that we have been slowly cultivating over the past 18 months. While we are certainly been focused on our core North American markets, we have also recognized the opportunities with these two international markets and have devoted some resources there as well.
Our innovation initiative that we are focusing on this year features the rollout of Jones Stripped, our natural line of Jones Soda. Stripped to the bare essentials, it’s how we describe our Natural soda.
After our initial soft launch in 2013 in a test market in California, we made some packaging and product changes based on feedback and monitoring and are already rolling out to expanded markets beginning in the second quarter.
With Jones Stripped in 2014, we are looking to offer this natural soda line throughout the west and Canada with the right retail partners. We again have the support for our new Jones Stripped line from Whole Foods in Northern California who are currently underway doing shelf resets in the Northern California region.
Furthermore, as we expand the launch of this new natural line into our home market of the Pacific Northwest, we have secured Whole Foods Northwest which will include Jones Stripped on its shelves during the resets that are also occurring now. Other chains that have been added for our new Jones Stripped include ATB which is at 135 locations in the State of Texas.
With regard to our marketing, our annual Caps for Gear consumer program is showing more excitement than ever this year with its new eye catching – with its point of sale and also now we have included the GoPro camera as one of the identification with the submission of Jones Caps.
Beginning next week, we will be launching our first ever schools out for summer campaign on social media and with our distributor partners. This program runs from May 15, through July 1st and features the reintroduction of Jones stands favorite Crush Melon Jones Soda which was voted back into out line up from a contest we conducted on social media in December.
During this program, we will give weekly prizes of Jones Soda beach in a pack with the grand prize getting a Go Pro camera on top of this. Throughout the summer months, we look forward to announcing additional unique marketing programs.
In conclusion, as we gear up for 2014 and beyond, we are pleased to see continued improvement in our business model. We have accomplished a very difficult path to reducing expenses by over 50%. We went from a company spending $11 million a year to once spending $5 million per year and let’s put this perspective, this is a jolt for the system.
However, I am confident we now have the right overhead structure in place to build this business and benefit from operating efficiencies in the future. Second, we are seeing the stabilization of the decline in sales that have occurred over the last 18 months and which occurred due to the dramatic reduction of our spending as well as the decision to focus on only core geographic markets.
We are being diligent as well in our long-term growth focus avoiding excessive trade spend and slotting at the expense of profitable growth. And finally, along with path to stabilization, we have nurtured our brand which is our most valuable asset.
We have just built our product line offering through a well balanced portfolio of beverages within the Jones brand. We have our Jones Pure Cane Soda which is a treat for our consumers.
In addition, we offer our Jones Zilch our zero calorie option and in line with trends in the industry, we are now rolling out our natural line of sodas Jones Stripped. Natural with just eight grams of sugar and only 30 calories and we continue to innovate product offerings for the future.
As we move forward, we are excited to leverage our well balanced portfolio of products within the unique Jones brand across the broader consumer demographic.
I will now open the call up for questions.
(Operator Instructions) Our first question comes from Gary Guilds, a private investor.
Yes, hi, Carrie and Jennifer. I wanted to congratulate you on the quarter. First of all the lack of negative surprises. I know, I had asked about this during the last conference call and you had indicated that Q4 was an anomaly and based on these results, it looked like it indeed was an anomaly and it looks like we are getting back on track and I wanted to congratulate you for that.
Thank you, Gary.
Thank you, Gary.
Okay, and also the focus on the distribution channels, that’s very encouraging to hear. It looks like you are on the right track there. With respect to innovation, are there any products under development that are not now being marketed and can you talk about that?
Well, the one that we are really right now focused on launching is our natural line of soda, Jones Stripped and we really don’t want to talk about anything right now that’s currently under development. We’ve definitely got some ideas and something circulating, but it’s just definitely too premature to talk about anything at this point in time.
Okay, okay. Thanks and again I wanted to congratulate you on getting back on track and hopefully we could see some encouraging returns during the peak selling season.
Yes, I agree, Gary. We are working towards that for sure, believe in me.
Great, thanks a lot. Appreciate it.
Okay, you are welcome.
(Operator Instructions) Next question comes from Anthony Sanderson, a private investor.
Hey there. I just got a quick question here. I was taking a look at the 2013 annual report here and on page 41 the quarterly financial info, when you compare the fiscal quarter starting when the turnaround plan was implemented say, quarter two 2012 to quarter one 2013, do you see a net loss of about $1,600,000.
The next year that is – kind of quarter two 2013 to today’s quarter one 2014, you see a net loss of $2 million. Basically, it seems since the turnaround plan is kind of implemented here, you’ve seen a larger net loss there. Can you give some insight on why we think the plan is still viable and also why variable cost, especially, general and administrative have been cut more aggressively?
We are just trying to locate where you were, we’re on page on 41 of the annual report and it might be easier to take this offline with the specifics. But, you were trying to identify the second quarter?
I am trying to identify the year-over-year, if you would like to talk about this offline here, that’s fine as well as you are open to that but, yes I was just wondering if you look at the years since the turnaround plan has been implemented, since quarter two 2012 to quarter one 2013 and then quarter two 2013 to quarter one 2014 you see things aren’t really getting better.
You are actually deteriorating a little bit and I was just wondering do you think the plan is still viable and why haven’t variable costs like general and administrative and cut a little more aggressively?
Well, we always do look at what is needed in G&A for sure as a first target and we have done a lot in that area. And as I mentioned we have brought out overall spend from $11 million to $5 million which is significant that was in G&A and sales and marketing.
And with regards to your review on the turnaround, I mean, overall, if I look at year-over-year, I think you have to look at the fiscal years, because if you are going to select certain quarters that are some are seasonally high months, I mean, the beverage industry is very high in the summer months and low in the Q4 and Q1 periods of the year.
So, I’d like to make sure - direct you to look at that. If I look at year-over-year and look at where we are 2013 compared to 2012, our sales declined by about 15%, 16% overall. Our loss went from $2.9 million to $1.9 million. So, we definitely have – and then prior to that, we had losses of about $7 million to $8 million.
So, I actually do, I am convinced that the turnaround is an effective turnaround and if you look at the annual numbers, I think you will be able to assess that in a better light. And I am definitely willing to walk you through that offline.
Yes, I’d appreciate that. That’d be great actually.
Okay, great. Okay, you are welcome.
Thanks for that.
(Operator Instructions) Next question comes from Jeremy Kenzie, a private investor.
Hey guys. I was kind of curious how is the online sales going? I noticed you started the app Jones Soda App and I’ve ordered that myself and I just want to see how that’s going?
Well, we’ve implemented a few changes, that is mostly in the end of the first quarter, but we are definitely seeing, we are going to be some advertising on various social media and Facebook and Twitter.
But we are definitely seeing the excitement by some of our consumers being able to access Jones Soda online at a reasonable price. So, we can’t give out any specific details, but we definitely see an excitement and we are able to get our new product line that we offer like Crush Melon. It takes a while to get through our distributor partners.
We can offer it online and we got – we’ve already sold out of our Crush Melon here in Seattle based on our ability to ship it online. So we are very excited with what’s going on with our online business and we are continuing to evaluate and market and build it up.
Okay, thanks. Thank you guys for doing an excellent job.
(Operator Instructions) The next question comes from (inaudible) a private investor.
Hi ladies, it’s Ted here. I am calling from Ontario Canada. I’ve been almost like – I’ve called on many times. I haven’t really asked a lot of questions. But I’ve been an investor with Jones for a very long time.
Some of your highest entry to restructuring and I think quite a roller coaster ride for me as an investor and also supporter of the brand and what you guys do – but you guys have done a really great job moving forward with this restructuring and come back plan.
But for me in Canada being in the sales industry, being in promotions as well, the brand is still unaware. Even to the average consumer here that I talk to through my circles of friends and their circles of friends, I mean, they’ve heard of it they haven’t seen too much of it.
I go looking for the brand, I mean sometimes maybe in Costco, sometimes maybe in Giant Tigers sometimes maybe in the odd locations that you wouldn’t think it’s certain center or even in local hop shops, grocery chains, or even gas stations.
It’s not really a well-known brand anymore and it concerns me that if people aren’t talking about it, they don’t see it, they are not buying it, they are not asking for it and people really not believing it.
So get this thing turnaround much more successfully, the word of mouth what Jones had in the past has what led to the success of the brand, that everyone talked about, everyone is – people were looking to where they can buy it.
And that’s kind of (inaudible) little bit at least here at Central and Southern Ontario, a pretty big market for Canada as you know. What’s happening in Canada? Who is driving the brand here? Because, I mean, and so I pick up the phone saying do you need some help, because as an investor and a supporter, it’s nowhere, I guess, apparently it’s nowhere.
Well, I mean, Canada is a big market for us. We had a pretty big partner in Canada, in your market Lassonde Industries is our distributor. They are a large, large company. They have a network of sub-distributors that they utilize and we are working with them.
We’ve targeted Canada as one market that we want to focus on and do some specific marketing things that we’ve done cooking soda last year which was a unique thing that was only in Canada.
We are going to be launching a few things in the Ontario market actually we targeted Toronto Canada specifically this year with some interesting marketing initiatives in the summer which are going to be – we will announcing on those but, Toronto has to have our highest number of Facebook fans.
So we are launching something unique to Jones in Toronto this year. And just continuing to work with our distributor partner to ensure that they are putting our – the Jones product in the right locations as well too. We need Jones Soda on the independent shelves, because that’s where our consumers goes a lot and that’s what we are…
Yes, exactly. So that’s a big initiative in mind and getting our product to independent accounts and that’s what we are working with Lassonde on doing.
Do you have a sales force here in Ontario? Do you have like a regional or account executive like you used to do in the past to help drive that business working together with your distributors?
Yes, we have three sales people in Canada, one in Ontario right now that manages Ontario and oversees the rest of Canada. We’re looking to hire – we are actually hiring somebody for the summer period to build it up. We are bringing up – we are going to have another van up in the Ontario market.
We have a van in Quebec right now. I mean, Canada is very near and dear to my heart. That’s where we started this brand in 1995 and I have a very big focus on Canada. We’ve been nurturing the new markets with Lassonde in the regions of Quebec and the Atlantic provinces and those particular regions are very focused on – Quebec is a very new market for Jones.
So we are focused on again to build up that. Although it’s small compared to the volume say, across Western Canada, and in Ontario, right now, it’s being built up in really the right way, the way we launched Jones in 1995 through independent accounts and we are seeing growth in Quebec and growth in Canada and for this summer, our focus is Ontario. So, I will be out there. We have our team there. We are going to have a blip thing going on there. Ontario is a big focus for the summer.
Perfect, thank you.
Okay, you are welcome.
And at this time, there are no further questions. I’ll now turn the conference back over to you for any additional or closing remarks.
Okay, I just want to thank everyone again for your interest in Jones Soda and we look forward to speaking with you again on our second quarter results in August.
Well, thank you. And that does conclude today’s conference. We do thank you for your participation today.
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