Jones Soda Co

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Jones-Sota's financial results for the first quarter ended March 31st, 2024. 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 risk 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 their 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 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 GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on the company's website under Investor Relations. This call will be available for telco replay May 16th, starting at 730 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website. Now, I would like to turn the call over to the President and CEO of Joan Soda, David Knight.

Thank you, Diego, and thank you everybody for joining. As you'll notice, I'm on video this quarter. I felt it was time to put a face to the voice on our quarterly conference calls as part of our broader effort to increase transparency with our shareholder base. I'm also going to be showing slides for the first time as I unveil some of the exciting programs we have been working on to drive growth in 2024 and beyond. I plan on engaging with you in this format going forward, so I hope you enjoy the new style and welcome any feedback as always. Great, so let's get started. So I've been the CEO of Jones for almost 10 months, and I wanted to give you some context of the journey we have been on and the growth strategy we have embarked on. In my first 90 days, I implemented the three Cs across the organization, a focus on culture, culture, customers, and costs, with a mission to create dramatically improved shareholder value through accelerated top-line revenue growth. This was the start of the transition of Jones from a craft soda company trapped in cane sugar, 12 ounce glass bottles, to being an innovative beverage company with a sense of urgency and a focus on growth opportunities. Through the process, we developed our 10 strategic imperatives for Jones to execute in 2024, starting with the brand. The Jones brand has an incredible legacy formed over the last 27 years. It's iconic, well-remembered and liked, and brings smiles to people's faces as they remember the first time they drank a Jones soda. We need to harness the power of this brand, bring it into the modern age while maintaining its key attributes, and then drive it across a broader beverage portfolio. Jones is known for a lot of things, but the most powerful attribute is its great taste. Powered by natural cane sugar versus high fructose corn syrup with a passion for wonderful and unique flavors. Going forward, we are going to bring the Jones great taste promise to everything we do, identifying new beverage opportunities where Jones can deliver a competitive advantage and a point of difference in taste. Next, we need to recruit the next Jones generation and take back the streets through our heritage and action sports and getting Jones flavors and formats back into the convenience channel where 45% of beverage sales are made. We have made innovation as the number one priority of the company. We have started the journey on a three-year innovation plan, and I'm looking forward to showing you some of the ideas we have for 2024. We have started to invest in data and insights to understand our consumers and our customers in more depth, to ensure we are focusing our growth initiatives on the right consumers and channels to increase our success profile. Our transition to hyper growth is fueled by our focus on our growth drivers, such as Mary Jones, Delta 9, and food service and an increase in marketing effectiveness. Today, you will see the results of our ninth imperative and one of the most important focus areas, which is increasing profitability. We have taken strategic pricing, improved our cost of goods, and our margin mix is more favorable. We have been finding better ways and more profitable ways to go to market with the transition to dot foods in Canada as a great example. Finally, we've implemented EOS, the entrepreneurial operating system, to develop a high performance culture with a focus and sense of ownership and urgency to execute upon our strategy. Now that I've shared with you our strategic growth template, we can now see the results of our execution along this path. So let's take a look at the trends over the past years. With many of our initiatives gaining traction, I'm proud to say that we reported a 15-year record on our best results for the first quarter since 2009 in both revenue and gross margin. We're seeing sales growth across the board while simultaneously improving our pricing dynamics with distributors, being more efficient with our selling and marketing expenses and driving higher margin products, which is leading to the improved profitability profile of the overall business. While we take pride in the momentum achieved thus far, we recognize that we're just scratching the surface of our potential. We are still in the early stages of our journey with ample runway ahead. However, we're highly encouraged by the myriad of growth opportunities awaiting us in 2024. Within our soda division, we have exciting plans to introduce innovative extensions of our product offerings accompanied by fresh labels and packaging designs. This will position us favorably against industry giants. Similarly, with Mary Jones, we're making strides in geographic expansion and product diversification. In fact, our recently launched hemp Delta 9 products have garnered exceptional reception, and we believe this line will serve us as a key growth catalyst for this side of our business moving forward. Overall, the first quarter of 2024 has set a promising tone for the year ahead. We remain steadfast in our commitment to drive sustainable, profitable growth and delivering long-term value to our shareholders. And I look forward to discussing some exciting initiatives we have in store. Now, for those of you who have read the earnings release from today and pored over the financial results for Q1, let's dig into a few more highlights of the quarter. Net revenue in the first quarter increased 29% to 5 million compared to 3.9 million in the first quarter of 2023. This increase was primarily attributable to increased sales of our soda products, particularly with the food service segment, along with continued growth in Mary Jones branded products. Our cannabis business generated approximately $600,000 in the first quarter of 2024, which represents a 200% increase year over year. Gross profit as a percentage of revenue increased 850 basis points to .8% compared to .3% in the prior year period. This increase is primarily due to better pricing for soda products with our new distributor in Canada, DOT Foods, along with the growth in sales of our higher margin products, such as Mary Jones Food Service and our Canadian business. Net loss in the first quarter improved to 1.2 million or negative 1 cent per share, compared to a net loss of 1.4 million or negative 1 cent per share for the same quarter of 2023. Adjusted EBITDA in the first quarter improved to negative 1 million, compared to negative 1.1 million in the year ago quarter. The improvement in the bottom line was primarily attributable to the increase in revenue and gross profit as a percentage of revenue. What I'm most excited about is the continuous improvement in financial performance since the start of the year. From the start of January, month over month, we're seeing our growth trajectory versus last year increase while simultaneously improving our gross margins. As you can see from our results, we have a lot of momentum behind our business right now. We're enhancing our legacy portfolio while introducing innovative product offerings and new channels, and it's beginning to resonate with consumers in a meaningful way. So let's highlight and celebrate a few of our big wins in quarter one, starting with Nuka Cola. We launched our Nuka Cola victory, timed with the premiere of the Fallout series on Amazon Prime Video, and the results have been nothing short of phenomenal. If you haven't watched Fallout, you should. And according to Nielsen, it's the most streamed title on Amazon Prime of all time, clocking in at over 65 million views in its first 16 days. Nuka Cola is featured in the franchise, and our Nuka Cola victory has also been achieving records. It helped drive our DTC website sales to over $500,000 so far this year. And that online volume is a small fraction of the total footprint, because victory is going on shelves nationally as our rotational special release flavor. Even for those not familiar with Fallout, the peach mango flavor of victory is the perfect summer taste. We're excited that Prime Video has recently confirmed Fallout's renewal for a second season. Spike Jones hit the shelves in the Washington and the Pac Northwest in March, with our test market in over 350 stores in Albertson's Safeway. The product has been well received, and we've been able to achieve incremental displays with our variety pack of cans. Great learning for us as achieving incremental displays with glass bottles has been historically challenging. We will start expanding into the next set of strategic markets in Q2 and Q3. We are getting Jones back into the convenience channel. And with much work and leveraging relationships, we have secured a test to get Jones 12 ounce bottles and our Jones Plus soda with 160 milligrams of caffeine back into this important channel. We're in two divisions with 550 stores and a merchandising Jones in the open cooler at the front of the store next to the grab and go food. Already we are seeing velocities approaching four units per skew per week. This test will provide the learning and results for a big push into convenience for 2025, with 45% of all beverages are sold. Our food service continues to go from strength to strength with some significant changes in our capability. Led by our GM, Victor Patrone, we now have the full Jones range across bottles, cans, bibs, and concentrate in the DOT system. Our newly appointed food service broker, Green Nature, are getting Jones in front of the key decision makers as we ramp up distribution into restaurants, colleges, offices, and other channels. The food service division is a powerful extension of our soda business. And it's a move that just makes sense for Jones and our customers. We had great success at the pizza expo a few months ago and just attended the DOT show in Denver during April. Both of these events provided us with plenty of tangible leads to continue expanding growth opportunities for this channel. Our new machine finance and placement program for Fountain and Slush is gaining headway. And every machine we place secures continuous revenue streams for our high margin bibs and concentrate businesses. As an example, Sam's Pizzeria in Daytona, Florida has 24 Jones flavors on Fountain. And they're adding slush machines for the summer. Sam is excited at the point of difference of selling Jones versus Pepsi and Coke and has improved his margins in beverages. As we continue to grow this channel, we'll continue to see significant gross margin benefits which align well with our broader long-term profitability goals for the company. Moving to Mary Jones, let's start with the great progress on our MJ hemp-derived THC beverage. As a reminder, HD9 is low dose THC derived from hemp that is available to regular channels in most states. This means we can sell the HD9 products direct to consumer through brick and mortar stores, like liquor stores, tobacco retailers, grocery stores, and more. Along with our e-commerce store which ships to all states except Alaska, Hawaii, Colorado, Idaho, and Oregon. We now have 16 distributors in 14 states as we ramp expansion and secure new distributors to get Mary Jones into channels and outlets where beer and wine are sold. As you can see, Total Wine and Spirits are committed to this new category and Mary Jones has secured great placement in their stores in California. We're also co-funding new fridges with our HD9 beverages to secure incremental cold placement in stores to drive the category. We are now expanding our line offering on Mary Jones HD9 with our launch of Gummies and Shots coming soon. This is another great revenue and margin opportunity and unlocks our online sales as Gummies and Shots have a huge online appetite and are much more economical to ship. Please go to the website and buy some Mary Jones Gummies today. Our partnership with Tilray in Canada is off to a great start as Mary Jones is quickly becoming the number one cannabis beverage brand in Ontario. We're expanding the line as well as entering British Columbia and Alberta next. California and Washington continue to do well and are now over $3 million in total system wide sales. We are scoping out our next dispensary market to deploy in the balance of 2024 and into 2025. Overall, we're very pleased with the trajectory of our Mary Jones business and given the royalty nature of this business, our revenue is generated with a nearly 100% gross margin which should provide a substantial lift to our overall gross margin profiles as we continue to scale the business and it becomes a larger percentage of our total revenue. As you may have just seen, we announced our multi-year sponsorship of Thrill One, getting Jones and Mary Jones into both Street League Skate or SLS and Nitro Cross. This relationship will continue to grow and gets us back into action sports. Our first event with SLS in San Diego on 420 featuring Mary Jones was a great highlight for the brand with more events coming up in May and August and with the Nitro Cross season kicking off in Q3. Working with the team that Dana White and the Fertitta family has assembled in Las Vegas provides us a great platform to reach our target audience with the new innovations coming out. So in Q1, we have started to execute the strategy I outlined and the best is yet to come. So what is next for Jones? We have started the journey to become the Jones Beverage Company, breaking out of 12 ounce glass bottle craft soda into new categories and formats where Jones can bring its powerful brand recognition and great taste. We have started what we call our Bevolution and over the next three years, we'll be bringing innovation and new Jones formats and flavors to the market. We will expand our portfolio and optimize and enter new channels. We have made great strides in innovation and are looking at nine adjacent beverage categories where we believe Jones can play. Now, let me be clear, we are not planning on launching all nine, however, we are doing the due diligence and looking for anchor retailers who will support these new Jones products. We are currently in what we call 2D phase where we are developing concepts, packaging designs and bench top samples. Exciting work and we have a great new team working on our innovation. We recently fielded some consumer research on the Jones brand and tested some new concepts for Jones to enter the flavored sparkling water space against LaCoury, Bubbly, A-ha and others. The results were phenomenal and confirmed that we have a very strong brand in Jones that people trust and are excited about, especially about the flavors that we can bring. We achieved a 67% top two box of people saying they would definitely or probably try a Jones flavored sparkling water, even at a premium price. We know we will get trial and our great flavors will get repeat. Jones has an extensive playground in beverages as we define our company to be a full beverage company. As we look at the fastest growing and large beverage segments, we can certainly see Jones compete and participate in rapid revenue growth. Let me highlight a couple of categories we see as opportunities to explore in 2024, starting with premium mixes. The mixer category is worth $19 billion in the US with a significant shift to premium mixes driven by the growth of premium spirits. Consumers are seeking great taste at a premium price to mix with their $50 plus bottles of vodka, gin and tequila. We have developed a range of premium mixes with great tasting products to present to retail. Early days, however, we are excited at the revenue opportunity this presents for Jones. The new graphics are fun, bright and colorful and will be available in seven and a half ounce mini cans in four packs. We have also developed a range of spirit theme variety packs for the top four spirits in the country, vodka, tequila, rum and gin. I am looking forward to seeing these in the stores as the Jones design and our new spirit theme variety packs will certainly stand out on shelves and secure product trial. Switching to the north of the border, we're developing a range of spirit-based ready to drink cocktails and we'll launch a gin and tequila based cocktail in the back half of the year in a test market in Ontario. Jones has an even higher awareness and brand affinity in Canada. So again, we will get trial as we launch in the on and off premise and the learnings will shape our expansion strategies across Canada and into the US for 2025. As you can see, we've been having a lot of fun and been very busy on the innovation front as we gear up for accelerated growth and margins. Hopefully by now, you can see the future growth potential for Jones as we transition from a soda company to a beverage company. As part of this transformation, we're taking the opportunity to refresh the brand both in our base craft soda bottles but also design a new look and feel for our cans and our brand extensions, including Mary Jones. Our mission is to bring Jones into the future and preserve some of the great legacy of the brand. Starting with our glass bottles, we have cleaned up the look, made our Jones logo more prominent in our memorable white and black block, highlighting our colorful liquid and flavor cues and celebrating our 27 years of history since 1997 and our real cane sugar formula. This new look we believe is gonna bounce off the shelves. We have moved our consumer generated photos to the inside of the back label. This surprise and delight feature creates some fun expectations as the photo is revealed as you drink the product and discover the fun photo. These also become collectible as they can be removed from the back of the bottle and saved. As we take the design into cans, we have maintained the vivid colors, the iconic brand structure, and now have a full range of exciting flavors to bring to the market, ideally suited for food service, convenience and grocery. The background of the cans feature our glass bottle heritage and we will have our photos on the back of the can with our augmented reality technology to turn these photos into videos. We are also launching our best taste guarantee and on every can to ensure people are motivated to try Germans and start a dialogue on taste superiority across our range. We are upgrading our Jones cola graphics and have redeveloped our formulations to deliver a great tasting cola so we can be a fourth alternative to Coke, Pepsi and Dr. Pepper. And as you see, our photos will now be on the back of the cans to continue that Jones legacy. We're investigating zero diet and regular cola and are again confident we will secure trial of these exciting new products. This leads our way into lower calorie and zero calorie formulas that Jones consumers have been asking from us for a while now. And we'll be doing it in the biggest beverage category, colas. Our cans will be available in eight packs which now gives us the perfect format to gain incremental displays in all retail channels. So stack them high and watch them fly. Last but not least, we are taking these new graphics across our Mary Jones lineup. These cans clearly communicate Mary Jones as an adult beverage with strong call outs on over 21 consumption and the milligram dosage of the THC amount in each beverage. Responding to consumer demand, we are also launching a range of zero and low calorie versions of Mary Jones that will be available in Q3. These are exciting times for Mary Jones as we continue to grow and expand and emerge as one of the top brands in the category. Well, we've covered a lot today and I thank you for your time and patience. I will end where I started and that is the three Cs. We are very passionate about our culture, our consumers and costs and are obsessed with growth through innovation and execution to deliver shareholder value. You have seen the Q1 results and I look forward to presenting our Q2 achievements as we execute the winning growth strategy we are on. This is just the beginning. In fact, for the April and May periods, we're off to a great start already with further improved gross margins, which puts us on track for Q2 24 being the best quarter in Jones history. I look forward to continuing our dialogue through the year and keeping you all updated on our progress. I do wanna finish by thanking the Jones team. Great job done by all and your passion and hard work is much appreciated. With that, I'll pass the call over to the operator to see if there are any questions from all of you. Over to you.

Thank you, David. We will now conduct our question and answer session. To ask a question via the conference call, press star one on your telephone keypad. Confirmation tone will indicate that your line is in the question queue. You can press star two to remove yourself from the queue. To ask your question via the Zoom audio, click raise hand on your screen and then unmute yourself to ask your question. One moment please while we poll for questions. Once again, to ask a question on the conference call, press star one. To ask a question via Zoom, click the conference, click the raise hand on your screen. Standby as we poll for questions, thank you. Our first question comes from Zoom and that question comes from Daniel Teal. Please go ahead and unmute yourself.

Hey David, can you hear me? Hey Daniel, how are you? You're fantastic, how about yourself? Great, thank you. Good. Well hey, thank you again for taking these live calls. It means a lot to us. I wanna kick off by saying this was my favorite quarterly call of the last five years. So absolutely fantastic, appreciate the new format, the transparency and everything today. So thank you. Love to hear also that you guys are switching to using EOS. I've been a part of a company for four years now that's used EOS and we've grown about 400%. So it seems effective and I'm excited to hear Jones is using it. With that, with all these exciting things that you laid out for us today, the one kind of glaring question that comes to mind for me is how are we gonna finance all of this growth? So I saw we got access to a $2 million line of credit. Do you think that's sufficient to carry us through to profitability or is the team still exploring additional capital raises?

Daniel, great question. And yes, we believe we have with the line of credit and the cashflow that's coming in, we have enough to get these products into the market. As I said, we're not doing all nine. We're gonna really focus on the ones that one, we get an anchor customer. That means we'll be cashflow positive from day one. And secondly, as we achieve the growth targets that we've set and start to exceed them, there is a chance that we will need to go back to the capital markets just to get more fuel for the fire. But right now with the line of credit and the cash on hand, we were able to get to profitability.

That's fantastic to hear. Thanks, David. You mentioned that Spike Jones has had good initial reception as looking towards additional markets. Is there specific markets or distribution or manufacturing partners that you're targeting? Or can you give us any more detail to that?

Yeah, sure. The nice thing is when the press release went out, a number of our anchor Jones Soda distributors were like, hey, we need that, right? And so we already have our current distributors lined up for Jones Soda. So that's markets like California, Minneapolis, Colorado, Georgia. So there's a real appetite for it. We're being prudent in terms of just making sure the product is right, the packaging is right, and the reception is really positive. So it's early days, velocity in this category is much higher than craft soda. So initial reaction's really, really strong, but literally we've been in the market, I think eight weeks. So expansion will come and it'll come pretty rapidly once we're confident that we have the right product and the right packaging.

Fantastic, thanks, David. On the previous call, you had mentioned that you thought as far as Mary Jones full launch DHC products in Michigan would be in the second half of the year. Are you still anticipating that?

Yeah, we are. Actually, we're not far away from Michigan. We're gonna lead with 10 milligram shots and maybe 100 milligram, maybe it's 100 milligram shots, but we will have shots out in Michigan probably definitely this quarter.

That's great news. Any other states on the agenda coming up soon?

Yeah, we're looking at Illinois and Missouri. They seem to be markets that we can move fairly quickly. So we're still in the due diligence phase, but they look like being the next two markets that we'll get into this year.

Okay, fantastic. I think that's all I have, David. Again, just love the direction you're heading. Love the energy that you've brought. I think a lot of what you're doing right now is a lot of things we've all been hoping for years that would be done and the potential you've seen in Jones, you seem to be unlocking. So generally appreciate your efforts and the team that you have there.

Well, appreciate you and the support from our shareholders, right? We're excited about the mission that we're on. We're confident that the strategy is right and it comes down to execution. So, I've got a great team and we're doing amazing things.

Thanks, David.

Thanks, Daniel.

Thank you. And our next question comes from Michael Verold. Please go ahead and unmute yourself.

Hello, can you hear me?

Hey, Michael.

Hi, thanks for taking my question. There's been, you've released different special, like limited time offers of different flavors. Some of those flavors have been actually like some of the best flavors that I've tasted of yours. Would you, what's your decision? Like, how do you decide whether you're going to, instead of just making a limited time offer, actually make it part of your permanent products instead?

So Michael, which ones did you like?

Specifically, I just looked at your website and you had the pineapple specifically. I liked to, I liked mixing that with alcoholic beverages.

Yeah, it goes well with rum and you picked the right one because

pineapple

cream is now part of our regular lineup. So it made the grade. So we're now presenting that to, you know, a lot of our distributors. It's a key plank for our food service business. So yeah, we look at special release in several ways. One is like Nuka Cola, you know, it's a chance to get a new flavor out, but it's a chance to really connect with a new audience. Things like pineapple cream. It's like, if it becomes an MVP, then it's a great way to test new flavors to join the full lineup. So pineapple cream made the grade. So that's great news.

Sweet, thanks.

Thanks, Michael.

Thank you. And a reminder to the audience, to ask a question via the conference call, press star one on your telephone keypad. To ask a question via the Zoom module, click raise hand on your screen. We'll pause while we pull for questions. Thank you. And our next question from the Zoom audio comes from Sam Tadros. Please go ahead and unmute yourself.

Good afternoon. Hey, Sam. How are you, sir? Great, thank you. I had a question. Are you thinking of bringing in a brand ambassador? I'm thinking of bringing in a brand ambassador. I seen with example, High Noon, they brought in Dave Fortnoy, and their sales shot up 1200% when they brought him in, just because he has such a large reach. Is Jones thinking of bringing in an ambassador?

Yeah, look, I mean, Sam, it's a great question. It's one of these powerful marketing tools. And so it's down to like finding the right person and making sure it's a win-win situation in terms of deliverables and costs. So yeah, we're continually looking for the right person. No one comes to mind right now, but yeah, we're looking at that as part of our marketing strategy going forward, especially as we develop some of these sub-brands like mixers and flavored soda water, which would do really well with an ambassador. But we're on the lookout and always open to ideas. So if you think of somebody, ping me with a name.

Thank you.

Thanks, Sam.

Thank

you.

Thank you. And at this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Knight for closing remarks.

Great, thanks, Diego. Well, another great call. I just wanna again, thank the team. There's a lot going on at Jones. I really appreciate the support from our investors. And as I've said, you guys know how to access me. So if you have thoughts or concerns, then let's keep the conversation going. I'm really excited this new format. Welcome to more feedback and just really looking forward to executing May and June and getting back on this call with our Q2 performance. So again, thanks everybody and look forward to continuing the dialogue and the success at Jones.

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