Jones Soda Co

Good morning, everyone. Thank you for participating in today's conference call to discuss Jones Soda's financial results for the fourth quarter and full year ended December 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 the purposes of 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 in 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 headings 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. A telco replay will be available after the call through April 15, 2025, and a webcast replay of today's webinar will will also be available for one year via the link provided in today's press release, as well as the company's website. Now, I would like to turn the call over to Jones Soda CEO, Scott Harvey.

Thank you, Christine. Good morning, everyone, and thank you for joining. Before jumping into the full year 2024 results and progress of our strategic growth objectives, I want to take a moment to introduce myself. I'm Scott Harvey, and I'm incredibly excited to step into the role of CEO at Jones Soda. and lead the company through this evolution from a pure play craft soda brand to a high growth beverage company. My 40 plus year career in CPG restaurants and manufacturing world has led me to top executive positions at renowned companies such as Black Rifle Coffee Company, Nathan's Famous, Einstein Noah Restaurant Group, Golden Crust Caribbean Bakery, and most recently as president of Dunn Brothers Coffee. What excites me most about Jones Soda is not just the company's rich legacy, but its incredible potential to grow and innovate with dynamic and multi-billion dollar beverage industry. With such passionate customer base and brand that speaks to creativity and authenticity, I see countless opportunities for Jones to expand and elevate its impact, and I look forward to being part of its journey and working alongside the team to take the company to new heights. Now shifting to the business. While Jones Soda started the year on a strong note, several operational challenges, along with poor financial discipline in the back half of the year, hindered our growth and tested the company's resilience. As our Chairman Paul Norman discussed at length during the last quarterly update, immediate action has been taken to correct the company's trajectory and get us back on track towards capitalizing on the immense growth opportunities at hand. While Paul and the board have brought me and our CFO, Brian Meadows, on board to lead this next chapter of growth, we're not deviating from the overarching strategy that Paul laid out a few months ago. In addition to the operational refinements that Brian will walk through in a few minutes, we have been hard at work putting in place to accelerate growth behind our focused strategy and capitalize on our three major channels of focus, core soda, modern soda, and adult beverage. While the beverage industry provides immense growth potential, It takes strong operational rigor combined with leading product innovation and marketing tactics to keep up with the constantly evolving consumer habits and preferences. We believe within each of our three key areas of strategic focus, we will lead the way with an authentic brand that has stood the test of time and best-in-class flavor profiles that consistently outperform our competitors. I firmly believe that Jones Soda has not even come close to unlocking its true potential, and I look forward to delivering predictable and profitable growth while providing durable shareholder value for the years to come. I'll dive into our strategic growth objectives and recent progress later during this call, but first I'd like to pass our call to our new CFO, Brian Meadows, to introduce himself and to speak on some of the operational and financial initiatives that we've been working on. Brian, over to you.

Thank you, Scott, and good morning, everyone. As a new CFO at Jones Soda, I'm excited to join a company with such a rich history of innovation and creativity. With over 25 years of experience as a CFO and senior financial executive across CPG, food ingredients, telecommunication, and other industries, including several small caps public companies, I've developed deep expertise in managing and financially supporting growth, managing cash flow, and driving process-driven operational efficiencies. Most recently, I served as the CFO of Simply Better Brands Corporation, where I drilled the financial and operational strategies for a high-growth brand accelerator and health-focused protein-based nutrition category. Now I look forward to contributing to Jones Soda's success, collaborating with this incredible team and ensuring we maintain strong financial discipline to create lasting value for all our stakeholders. Before diving into the priorities that Scott and I have been focusing on since stepping into our new roles, let's review our 2024 financials. Net revenue increased 15 percent to $19.1 million in 2024, compared to $16.7 million in the prior year. Full year 2024, net revenues included approximately $17.8 million from the company's beverage segment, compared to approximately $15.4 million in 2023, or 15.6 percent growth over the prior period. The beverages segment saw strong growth from its hemp-derived HD9 products here in 2024, as such products generated $1.7 million in net revenues during the year compared to nil in 2023. The company has generated $1.3 million in revenue from its cannabis THC segment compared to approximately $1.2 million in 2023, mostly driven by THC sales in Canada. First profit as a percentage of revenue was 21.3% compared to 29.1% in the prior period. The decrease was primarily driven by a $1.2 million one-time inventory impairment charge in the fourth quarter of 2024, along with the continued overhang of the distributor transition in Canada, which we now put behind us. Both of these issues were one-time in nature and we expect an improving gross margin in the coming quarters. Total operating expenses were $14 million in 2024 compared to $9.7 in 2023. The increase is primarily due to increased selling and marketing expenses in 2024. 2024's selling and marketing expenses were $6.8 million compared to $3.7 million in 2023. A $3.1 million increase was related to one-time product development innovation expenses, increases in marketing, specifically sponsorships and trade shows, and advertising and promotions. However, the marketing initiatives will not be repeated in 2025, and a careful review of our spend is underway under Scott and my watch already. We'll be looking at it for a clear ROI on the spend in 2025. Additionally, general and admin expenses increased from $5.3 million in 2023 to $5.9 million in 2024, or a $0.6 million increase. This increase is probably due to increased legal expenses totaling approximately $1 million in 2024 over the prior year. The amount of the drugless expense in 2024 has been settled in February of 2025 and is also one time in nature. Scott and I have also changed the internal process for contract review and approval, and only Scott and I are approving contracts after legal review. Our net loss for 2024 increased to $9.9 million, more than $0.09 a share, compared to a net loss of $4.9 million or $0.05 a share in 2023. The $5 million increase in net loss in 2024 was driven by three main issues, the write-down of inventory of $1.2 million, one-time litigation expenses of $1 million, increase in product innovation, advertising, and promotion, including sponsorships of $3.1 million. These issues are one time in nature, and we are razor focused on ensuring they do not repeat in 2025. Jones does have the right products now to focus on. Our contract review process is buttoned down. Marketing spend is only approved with clear ROI. Scott and I are very focused on working with the team on improved supply chain management processes and inventory management. Lastly, adjusted EBITDA was negative $8.7 million compared to negative $4.6 million. For the year 2024, adjusted EBITDA included an aggregate of approximately $2 billion in litigation costs, inventory write-downs, which are one-time expenses, along with the aforementioned sales and marketing increase of $3.1 million. For those interested in our fourth quarter financial performance, you can view a breakdown of those financials in the press release we issued earlier today. Stepping back and looking at the bigger picture, our focus is razor sharp on operational discipline, strong cash management, and ROI-driven strategic investments in high-impact growth opportunities. Through this focus, we are committed to maintaining a lean approach, avoiding over-investment inventory while strengthening our supply chain management to improve go-to-market timelines, customer responsiveness, while simultaneously focusing on reducing our cost of goods sold. Furthermore, we are reviewing all aspects of our manufacturing partner base with the focus of enhancing overall efficiency and maximizing our margins to position us for long-term sustainable growth. Lastly, I wanted to touch on our balance sheet. Our cash at the end of 2024 totaled $1.5 million. And as you may have seen, subsequent to the end of 2024, we entered into a new $5 million revolving credit facility. Overall, I believe we are making the right moves to turn our business around and position Jones for sustained growth in years ahead. for shareholder value being at the top of our priority list. With that, I'll turn the call back over to Scott to share an update on our key initiatives and growth strategy. Scott.

Thank you, Brian. As we look forward to the rest of 2025 and beyond, we remain committed to driving growth across our key focus areas, core soda, modern soda, and the adult beverage category. Within CoreSoda, we continue to expand our presence by securing more distribution partners. Over the past year, we have increased our distribution network to 81 partners, driving penetration in key national and regional retailers, including Kroger, Albertson Safeway, Meijer, Ivy, Market Basket, Wakefern ShopRite, and others across 37 states. Looking ahead, we also remain committed to increasing our customer base through the rollout of limited edition products. For example, we recently signed an exclusive agreement with Crayola, to launch an exciting custom pack with Jones core soda flavors that mimic the strong and vibrant color palette of the Crayola Pack of Crayons. This initiative is set to hit shelves later this year as we look to capitalize on the back-to-school timeframe. We're also very excited to introduce our Zero Colas, adapting the brand to one of our most beloved core flavors to meet evolving consumer preferences. The new Zero Colas will cater to a variety of needs, offering a healthier option for soda lovers. You can already find the zero colas that has exceeded our expectations in 10,000 plus national and regional grocery stores with plans to introduce additional zero-calorie flavors, including Jones Zero Root Beer and Zero Dr. Jones later in 2025. Additionally, we have introduced mini-size versions of these drinks, further enhancing the consumer experience by meeting their desire for a smaller quantity of soda. Moving to the rapidly growing modern soda category, we continue to execute our focus strategy to innovate and invest in this up-to-date coming billion-dollar industry. The category is headlined by two of our new products, Pop Jones and Fiesta Jones. Pop Jones is now available in five Jones original flavors with just 30 calories per 12-ounce can, and through a rigorous blind taste testing, consistently performs better than any comparable product. It contains only four grams of sugar and only two grams of added sugar. And this is only one-twelfth that of a standard soda. In addition, Pop Jones provides fiber and immune support with a blend of apple cider vinegar, agave inulin, and 20% of recommended daily intake of zinc. Overall, we are incredibly bullish on the future of the functional soda segment, as it has experienced explosive growth in capturing significant consumer attention and market share. Brands like Alipop and Poppy have surged in popularity, driven by increasing demand for health-focused, functional beverages. Retailers are responding with expanded shelf space, reinforcing the category's momentum. Within modern sodas, we also have Fiesta Jones, a line crafted specifically for convenience stores, featuring Latin-inspired flavors like watermelon strawberry, mango passion fruit, coconut lime, and guava berry, all in resealable aluminum bottles. Each flavor contains just 80 calories and 19 grams of sugar per bottle with no artificial colors or caffeine. It's now available in over 2,000 convenience stores. Fiesta Jones reflects our commitment to meeting the evolving consumer preferences in this growing market. As the consumer interest continues to rise, modern soda remains a key focus for our team, and we are committed to seizing the opportunity and driving growth in this dynamic billion-dollar industry. Now onto our third focus, adult beverage. This encompasses our Mary Jones brand, including regulated cannabis infused products and our HD9 products, as well as our alcoholic beverage brand, Spike Jones. Since the launch of Mary Jones Hemp Delta 9 line in January, 2024, we've signed 32 distribution partners, including four in the first quarter of 2025 to expand into two new states. We also introduced HD9 Cola and Zero Cola in September, 24, bringing the world's favorite soft drink flavor to the cannabis category in 12-ounce cans with either a 5-milligram or 10-milligram of infused THC. As Brian mentioned earlier, our Mary Jones business has seen a nearly 150% year-over-year growth, further validating the potential for Jones to expand its footprints in cannabis and hemp-derived beverage industry. This is particularly exciting, given the trend that shows over the next three years, $1 every $5 spent within the beverage category will be spent on alternative products like Mary Jones, serving as substitutes for traditional adult beverages like beer and wine. To continue capitalizing on the momentum, we're proud to have expanded into the country's fifth largest legal cannabis market, the state of Missouri, through a manufacturing distribution partnership with Kansas City-based Clover. As of January 14th, Mary Jones products, starting with our 100 milligram THC infused sodas, have been available at dispensaries across the state. We have additional plans to roll out our 20 milligram THC infused sodas and 100 milligram THC zero sugar infused sodas as we look to capitalize on our product portfolio in this large and growing regulated cannabis market. Partnering with Clover ensures that our products will be manufactured to the highest standards and proactively marketed to local dispensaries. helping us take full advantage of the growing interest in alcohol alternatives in new cannabis consumption formats along the state's consumers. Lastly, with Spike Jones, our alcohol beverage brand is available in both 12-ounce and 19.2-ounce slimline cans with flavors such as strawberry, berry, lemonade, grape, and orange and cream. Spike Jones brings consumers the delicious classic taste of Jones Craft soda with a spike of 8.4% alcohol by volume. We are thrilled to announce in Q2 it will be available in additional states on a national convenience store chain. Overall, we are highly optimistic about the future of Jones. We are diligently working to optimize and enhance our operations across the business to drive growth of our three key areas of focus. Jones is a storied brand that has been a staple in the soda industry for years. Our strong and brand equity and rich history uniquely position us to capitalize on rapid growth of the evolving beverage industry, presenting an exciting opportunity for our customers and shareholders. I'm eager to see what the future holds as we continue refining our operations, investing in areas that will drive long-term profitable growth for our stakeholders. Lastly, I'd like to recognize and thank everyone at the company for their unwavering commitment to Jones and to each other every day. There's certainly been a lot of challenges as we've navigated this management transition, but our team has remained steadfast in delivering exceptional beverages to our customers, and I'm excited to see what the future brings. With that, we're going to finish the call by addressing some of the questions we received from our stakeholders via email recently. We have selected what we believe to be the most important and relevant questions to answer. I'll pass it back to Brian to start out with the first question. Brian?

Thanks, Scott. This question is, With broader concerns about a slowdown in the economy, do you think you'll be able to accomplish your growth objectives if consumer spending continues to slow down or things get worse?

Yeah, we completely understand the concerns around the broader economy, but to date, we have not seen the material slowdown in the categories we are operating in. In fact, with the channel and categories I just walked through, we're seeing demand growth, especially within our initiatives outside of Core Soda. In addition, we're being confident in our future growth opportunities, and we are actively looking to improve our cost basis and supply chain to improve overall margin profile and better manage the P&L going forward.

Thanks, Scott. The next question is, how does Jones intend to navigate the shifting landscape of the HD9 playing field with many state attorney generals and congressional bodies taking steps to address this growing category?

We're closely monitoring the evolving landscape of the HD9 category. We understand the regulating shifts being considered by the state's attorneys general and congressional bodies. We're committed to ensuring that our products remain compliant with all regulations while continuing to meet expectations of our consumers. We recognize that the regulatory environment is evolving rapidly, and it's crucial for us to stay ahead of any changes. To navigate this, we're proactively engaging with regulatory bodies, ensuring that we have a thorough understanding of potential impacts on our business. This allows us to quickly adapt our strategy and make any necessary adjustments to protect to our product offerings and marketing practices to maintain compliance.

Thanks, Scott. The next question is, what is the status of the Mary Jones launch in Michigan that was announced months ago? Are there any plans to expand into new states?

Mary Jones launched Jones Syrups in Michigan during the fourth quarter of 2024 and launched three Mary Jones sodas in the state on March 12th of this year. I'm proud to report that the launch of our sodas broke our distributor's record for all KPIs except average order value, which is tied with our Jones Syrups launch. Mary Jones is evaluating several other states and will be launching additional high-value states in 2025.

Scott? Our next question is, where do you see this company in five years and why should investors believe in this management team over the previous ones?

In five years, we see Jones evolving into a full-fledged beverage company, expanding beyond our core offerings to capture new markets and consumer segments. Our focus will be on high-growth channels, including expanding our product lines, enhancing distribution, and leveraging our brand strength to drive sustained revenue growth. What sets this management team apart from is our commitment to financial discipline and operational excellence. We are bringing a level of financial rigor that ensures smarter investments, improved margins, and long-term profitability. We're executing a clear strategic plan with measured goals, all aimed at scaling the business while maintaining the brand authenticity that makes Jones unique. Investors should believe in this team because we have the vision, the discipline, and the execution strategy to turn this vision into reality.

Hey, Scott. The next question is, what are you doing to improve shareholder value?

Yeah, we are focused on driving long-term shareholder value by executing a disciplined growth strategy, expanding our product portfolio, and optimizing financial performance. By transitioning into a full-fledged beverage company, we are unlocking new revenue streams and tapping into high-growth markets. At the same time, we're bringing financial rigor to the business, streamlining operations, improving margins, and making strategic investments that will drive profitability. We're also strengthening our distribution channels and embracing brand visibility to accelerate sales growth. Ultimately, our management team is committed to creating sustainable value for shareholders by balancing innovation with strong financial discipline, ensuring that every decision we make supports long-term growth and market leadership.

Thank you, Scott. Next question is, would you be interested in expanding outside of North America?

Absolutely. Expanding outside of North America is a key part of our long-term strategy as we solidify our foundation here We will look at international markets where there is a strong potential for growth, particularly in regions with increasing demand for unique and high-quality beverage. Our approach will be strategic, targeting markets with growing consumer appetite for innovation, premium products, and brands that offer a distinctive identity. We plan to enter into these markets gradually, focusing on building brand awareness, establishing key partnerships, and tailoring our offerings to local taste and preferences.

Thank you, Scott. Given the incredible successes of Monster, C4, Celsius, Rockstar, Red Bull, et cetera, do you foresee a time when you bring back Jones-Wipoff's energy group drink?

Yeah, thank you for the insightful question. While brands like Monster, Celsius, and Red Bull have certainly set a strong precedent for energy drink space, Our current focus is on driving growth through our core beverage channels. Specifically, we're concentrating on our traditional core beverages, as well as our modern offerings like Pop Jones and Fiesta Jones, and alternative adult beverages, including Spike Jones and Mary Jones HD9 products. These areas align with our long-term vision for the brand, and we remain committed to innovation within these channels. As of now, we don't have any plans to revisit the Whoop Bass energy drink, but we're always keeping a pulse on consumer trends and market dynamics. Did the right opportunity arise in the future? We'll definitely consider it. But for now, our focus is on continuing to grow within our established categories.

Thank you, Scott. Next question is, are you comfortable with your current liquidity position? And, Scott, I'll take this one. As I'm sure you saw, in February 2025, we secured a new $5 million credit facility to fuel our growth initiatives this year. This new facility was one of my first priorities to address as a new CFO. In order to support the higher sales we expect in 2025, We needed a larger credit facility, and I have worked successfully with Tushar's team previously to support rapid sales growth. We now have a larger and more flexible credit line that allows us to borrow off a larger base of assets, including inventory, accounts receivable, and customer purchase orders. If we continue to see significantly expanding profitable growth opportunities to capitalize on, we, of course, will look to find the best source of capital to pursue those opportunities, including expanding our borrowing capacity within the new facilities. Back to you, Scott.

With that, those are all the questions we're going to answer at this time. We'd like to thank everyone for taking the time to listen today. I would welcome further questions. We'd be happy to take one-on-one calls later this week. Please direct any inquiries to jfda at gateway-grpgroup.com. I'd be happy to address accordingly. If I don't speak to you soon, I look forward to addressing you all again when we report our first quarter results in May. Again, thanks, and have a great day. Christine, back to you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.