Jones Soda Co

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Jones Soto's financial results for the fourth quarter and full year ended December 31st, 2021. 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 the SEC, including our annual report on the Form 10-K, our quarterly reports on the Form 10-Q, and our current reports on Form 8-K. In addition, this call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA. The most directly comparable gap measures and reconciliations for non-gap measures are available in the earnings release and other documents posted on the company's website under investor relations. I would like to remind everyone that this call will be available for replay through March 17, 2022, starting at 7.30 p.m. Eastern Time tonight. A webcast replay will also be made available via the link provided in today's press release, as well as on the company's website. And now I'd like to turn the call over to President and CEO of Jones Soda, Mark Murray, please go ahead.

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

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

Thank you, Joe, for sharing our strong financial results. As mentioned before, It has been a team effort, and I want to thank all of our employees for their hard work in leading us to our sixth consecutive quarter of revenue growth and putting us on a path of profitability. So let me jump into our sales performance. Throughout the year, our sales team continued to strengthen relationships across the U.S. and Canada with existing key national and regional accounts like Kroger, Albertson Safeway, Walmart, Publix, Loblaws, and Zobies. Working closely with our retail and distribution partners to ensure our products are promoted and displayed effectively at retail, our core bottled soda business continues to be one of our key growth drivers across all channels. Beyond the success with these established relationships, I am pleased to announce that after a five-year hiatus, Jones products have returned to Meijer stores in six Midwest states, including Michigan, one of our largest and strongest markets. A variety of Jones products, including our special release flavors, are stocked at over 200 Meijer stores, and the partnership is already exceeding our expectations. Other new partnerships in the grocery channel include Save Mart, Lucky, Food City, in Pitco Foods. We believe these new partnerships will further increase Jones brand awareness across the nation as we continue to expand our national retail footprint across North America. Moving to the Club Channel. We are pleased to announce a recent win with Costco. In February, Costco Business Centers began selling Jones root beer in its wholesale fountain format, making it available to food service customers across the country. We've successfully worked with Costco in the past, including most recently a special red, white, and blue 12-pack in the summer of 2021. But this represents our first national listing for our popular fountain products within the Costco system. We look forward to continuing to build our relationship with Costco as our sales grow through this channel. We continue to see our food service business grow as the industry recovers from the impacts of the pandemic. Our food service offerings include a unique and diverse portfolio of innovative products that include our packaged beverages, fountain beverages, and frozen dispensed products. There's often a strategic overlap between food service and convenience. In inconvenience, we are excited to share more details about our partnership with the Icy Company. Starting in May of 2022, consumers will be able to enjoy a new Jones Mango Melon-flavored Icy within a network of thousands of corporate and independent convenience stores across the U.S., as well as select number of Meijer stores. Additionally, as part of this strategic partnership, we are selling a new co-branded bottled craft soda product featuring Icy's top two signature flavors, Cherry and Blue Raspberry. These innovative products will be available through September of 2022. You will also be able to find new bottled sour mango melon soda in all Canadian 7-Eleven and Circle K convenience stores, as well as Loblaws Real Canadian wholesale clubs. In addition, we are in the process of launching Jones Soda watermelon and pineapple cream slush flavors through Cormark Canada that will be in the market in Q2 of 2022. In the past couple quarters, we mentioned the growth of Jones and alternative channels such as Cost Plus World Market, home goods, and Dollar Tree stores in Canada. We have continued working on expanding this business to drive sales and improve our brand recognition. I am happy to say that we recently expanded our distribution to thousands of Dollar Tree stores in the United States. Next, I am excited to announce that as of Q1 of 2022, we will be expanding into TJ Maxx and Marshall stores nationwide. These are big wins for us, and we will continue to assess ways in which we can grow the alternative channel further. As you can see, we continue to build on our base business across all channels, Our growing, more diversified base makes for a much stable, sustainable business. And I'd like to thank our sales team for a tremendous job. Now, an update on the marketing activities. There's no better place to start than with a recap of turkey and gravy. The soda was a huge hit during the fourth quarter holiday season. The reintroduction of turkey and gravy soda after a 10-year break garnered a tremendous $7. million in ad value for the company. We had nearly 100 TV placements, including the Today Show, the Wendy Williams Show, Access Hollywood, and the Drew Barrymore Show. Between organic engagement with fans and social media influencers, We generated 1.3 billion online impressions based around the Daring Hashtag Turkey Gravy Challenge. The excitement around the flavor during the quarter exceeded expectations, further increasing brand awareness, improving the continued relevance of our growing brand. As shown with turkey and gravy, innovation is part of our DNA. Our team has done an incredible job driving new, innovative products. Since the end of last quarter, we announced the launch of our first ever nootropic supplement in partnership with celebrity Mike Tyson and Wasana Health. This distinct line of beverage supplements was developed in collaboration with Wasana Health's science team, featuring ingredients linked to promoting focus, clarity, and brain health. The launch of these first-of-their-kind supplements combined our passion for unique beverages with Wassan and Mike Tyson's commitment to revolutionizing the treatment of mental health. The supplement will be available in two flavors, Tyson's Punch and Tiger's Blood, beginning the first quarter of 2022. In addition to Mike Tyson, we announced another celebrity partnership with UFC champion Julianna Pena. And finally, we are excited to announce our partnership in the NTT Indy Racing Series with the Andretti Steinbrenner Autosports Team. These partnerships are part of our marketing strategy to raise our brand profile through influencer relationships. Our investment in social media and our influencers have been part of our larger investments in our digital capabilities, which included revamping our website and our e-commerce platforms. As a reminder, during 2021, we made our website more user-friendly and functional, along with making it easier for customers to submit photos to our popular photo gallery and find Jones products using the store locator. The updates we made to our e-commerce site, along with the success of Turkey and Gravy, helped drive strong holiday sales in the fourth quarter. The last point I'd like to share on marketing is that we continue to innovate through our labels. Last quarter, we talked about our exciting Zoltar labels, which were part of our augmented reality program called Real Labels. The labels were a hit. just like our original real label series that featured extreme athletes and artists, which we introduced earlier in 2021. The program resonates with customers and consumers, and in 2022, we will continue to feature new real label content on our packaging to further engage fans. We look forward to sharing more information about future real label releases soon, which will feature fresh new content creators who will continue to tell the brand's narrative. It's the people's craft soda. Now, moving to operations. Operationally, we are experiencing intense inflationary pressures and supply chain challenges. Despite the headwind, our team continues to do an excellent job meeting demand in delivering superior customer service. We work closely with our supply chain partners to manage our costs. We've been able to increase price to offset some of the cost impacts. This year was more challenging than anyone could have expected. In 2022, we expect continued cost pressures from rising commodity costs, and anticipate that we will remain affected by sourcing challenges, transportation, and elevated cost of goods. We will continue to work with our partners to mitigate these challenges. To round out operations, we are excited to share that we promoted longtime executive team member Eric Chastain to serve as our president of the New Jones Soda Beverage Division. As we begin our entry into the cannabis sector, we are confident that the Jones Soda Beverage Division will thrive under Eric's leadership. Eric has been with Jones for over 20 years and will be responsible for continuing to drive the growth of the core Jones Soda Beverage portfolio. Eric brings years of experience and knowledge to the new division. We are thrilled to see what he will accomplish. Congratulations, Eric. Lastly, let's discuss our cannabis initiatives. As Joe mentioned in his remarks, we recently closed the deal with Pinestar, marking a significant step in our expected entry into the cannabis sector. Our team, including our new Chief Marketing Officer, Bob Blair, have been hard at work developing our product portfolio, and preparing us for our upcoming launch. Our first market will be California, and we are on track to launch at the end of this month. Trademarked under the brand name Mary Jones, we plan to release a variety of products that, in addition to a number of cannabis-infused beverages in several sizes and formats, also includes edibles, free rolls, and fun, unique accessories that could only come from Jones. The products look great and taste great, and we are excited to leverage our strong brand equity in this complimentary channel. Additionally, as shared last quarter, we are in conversations with several companies about partnerships and licensing opportunities, and we expect many more to come. Overall, we've had such great momentum in the past year from our core bottled soda business. We've grown sales across all channels, and we don't see the momentum slowing down anytime soon. Before recapping the call and jumping into Q&A, I want to echo that the health and safety of our employees, supply chain partners, distributors, and all stakeholders remains Our top priority is the world still deals with the impacts of COVID. Let me recap the highlights of the call. One, we reported our sixth consecutive quarter of year-over-year top and bottom line growth. And we are reporting a gross margin increase of 260 basis points compared to prior year fourth quarter. Two, For 2021, we grew revenue 24%, gross profit margin 720 basis points, and improved our adjusted EBITDA by $1.3 million. Again, this accounts for $400,000 of cannabis-related expenses in the fourth quarter. Three, we continue to grow sales across all channels, And they have dramatically grown a base that is much bigger, diverse, and sustainable. Four, on the marketing side, turkey and gravy soda created huge buzz and generated 1.3 billion online impressions and $7.5 million in ad value. We are also investing in new partnerships with celebrities and sports personalities like Mike Tyson, Julianna Pena, as well as our new areas like IndyCar racing. We believe these strategic partnerships will continue to increase our brand awareness across both our current growing consumer base, as well as with new audiences who are being introduced to the Jones brand. Buy operationally. we are taking steps to mitigate the impact of the supply chain headwinds and will continue to work to supply our partners with best-in-class service. Sixth, we finalized our deal with Pine Star and recently announced the launch of our cannabis business line. With a nationally recognized, edgy brand like Jones entering the growing cannabis market, we expect our entry into this exciting space to be transformational for the company. We continue to build the organization, the product portfolio, and our go-to-market strategy. Mary Jones is coming. Seven, and most importantly, the safety of our employees, supply chain partners, distributors, and all stakeholders remain our top priority, and we will continue to listen to the advice of health experts. Overall, I am very proud of the progress we made in the fourth quarter and the full year. The first year in our three-year turnaround plan exceeded our expectations. Going forward, we remain committed to providing best-in-class products and service to our customers and partners, and I thank our team, our partners, and our loyal consumers for their continued support. With that, I'll turn the call back over to Joe for Q&A.

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

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

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

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

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

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

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

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

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

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