Jones Soda - Q2 2024

Executive Summary

• Revenue grew 49% year over year to $7.16M, the highest Q2 since 2009; gross margin expanded 340 bps to 35.8%. Bottom-line loss widened on elevated innovation spend, with Adjusted EBITDA at $(1.08)M.
• Mary Jones revenue accelerated to $1.20M (+100% sequential; +200% YoY), aiding mix-driven margin gains; Nuka-Cola special release generated $0.93M in Q2 sales and ~$0.40M DTC, reinforcing the DTC and retail partnership flywheel.
• Liquidity: cash was $1.46M at quarter-end; subsequently the company raised ~$3.2M via oversubscribed private placement and has a $2.0M revolver, supporting H2 innovation and inventory builds.
• No formal numerical guidance provided; management emphasized continued gross margin improvement into Q3, five H2 product launches (cola/zero cola, Pop Jones, Fiesta Jones, premium craft mixers, cannabis extensions), and broader retail activation as catalysts.
• Estimates context: S&P Global consensus was unavailable; results cannot be benchmarked to Street for Q2 2024. Consider near-term narrative-driven moves around new product rollouts and Mary Jones geographic expansion while estimate visibility remains limited.

What Went Well and What Went Wrong

What Went Well

• Record second-quarter revenue since 2009 as net revenue rose 49% YoY to $7.16M; management highlighted “very strong first half” and accelerating growth in Q1 and Q2.
• Margin expansion: gross margin rose 340 bps to 35.8% on higher-margin mix (Mary Jones) and pricing actions, particularly in Canada after shifting to Dot Foods; management reiterated focus on margin improvements in H2.
• Mary Jones momentum: cannabis revenue reached $1.20M (+100% QoQ; +200% YoY) with HD9 products, California rebound, and Canada success; CEO said Mary Jones revenue carries “nearly 100% gross margin” structurally (royalty nature).

Quoted management highlights:

• “We just finished a very strong first half… Q2 net revenue increased to 49% growth… $7.2 million”.
• “Gross profit as a percentage of revenue increased 340 basis points to 35.8%…”.
• “Our cannabis business generated approximately $1.2 million… nearly 100% gross margin”.

What Went Wrong

• Operating expenses increased to $4.15M (58.2% of revenue), driving a wider net loss of $(1.57)M and deeper Adjusted EBITDA at $(1.08)M; management attributed this to onetime, front-loaded innovation investments and higher legal spend around Mary Jones.
• Cash declined to $1.46M at quarter-end and inventory rose to support growth; while subsequent financing mitigates runway risk, near-term cash generation remains a focus point.
• Variance in reported Walmart mini-can footprint (700 vs. 732 stores) indicates execution details still being standardized across communications; either way, mini-cans are early but promising.

Transcript

Operator (participant)

...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 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 those 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 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 recent filing 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 through August 27th, starting at 7:30 P.M. tonight, Eastern Time. 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'd like to turn the call over to President and CEO of Jones Soda, David Knight.

David Knight (President and CEO)

Thank you, Kevin, and thank you everyone for joining. As we introduced last call, we're now hosting these in a video format going forward. It was really great being able to visually showcase all the exciting initiatives we are working on, as well as letting you see me in real time. One note on format, this will be the last quarter that we include traditional telco dial-ins for the call. We plan to host our quarterly conference calls completely virtually through the Zoom video format from here on out, so please don't hesitate to reach out if you have an issue with this approach. With that, I'm gonna start the slideshow and jump into an update on all our progress. Okay. Let me walk through our Q2 financial results, then I'll jump into the wins from the quarter and our exciting initiatives for the remainder of the year and beyond.

So let's dive in. We've just finished a very strong first half with Q1—sorry. Since coming on board a year ago, I knew that Jones was destined for greatness, and it's proving to be true. What drives our success is something I've shared in the past, our three Cs: culture, customers, and costs. We implemented the three Cs across our organization to dramatically improve shareholder value and accelerate top-line growth. Simultaneously, we are driving margin expansion and profitability. After a full year under my belt, we've made good initial progress on all of these goals. Our share price and market cap has more than doubled since my appointment in June 2023. Let me walk you through our Q2 financial results, then I'll jump into the wins from the quarter and our exciting initiatives for the remainder of the year and beyond. So let's dive in.

We've just finished a very strong first half, with Q1 and Q2 being the two largest revenue growth quarters we've had since 2009. For reference, net revenue in Q1 increased 29% versus Q1 2023. For Q2, our net revenue increased to 49% growth, with a net revenue of $7.2 million, compared to $4.8 million in the second quarter of 2023, showing that our growth rate is accelerating. We've steadily expanded our gross margin profile to be consistently in the mid-30s. We're still in the early stages of our strategic roadmap and frankly, barely scratched the surface. We're unlocking the true potential of Jones, and I'm proud of the initial progress we've experienced so far this year.

During H1 of 2024, we've been highly focused on building on our foundation of the best-tasting beverages in the industry by innovating and developing new products, transforming Jones from a craft soda company into a high-growth beverage company. Although this was the second consecutive quarter of our strongest revenue performance since 2009, we did so with limited rollout of our innovative expansion. In 2025, our focus is on activating our innovation, leaving ample room for upside opportunity in revenue and margin growth. We are really just starting our innovation roadmap. Gross profit as a percentage of revenue increased 340 basis points to 35.8%, compared to 32.4% in the year period.

This improvement was primarily due to the growth in sales of high-margin products and included some pricing adjustments in Canada due to our shift to Dot Foods. Mary Jones has kicked off our e-commerce with the addition of shots and gummies. ... This will continue to deliver improvements on Mary Jones margins, which will become one of the larger contributions to our total company mix. Finally, as part of our 2025 planning, we've kicked off a company-wide initiative on improving margins across all functions and all channels, and our new innovations are focused on higher-margin beverage categories. Our growth and future are clear. We're making investments for the future. Net loss in the second quarter was $1.6 million, or -$0.02 per share, compared to a net loss of $1 million, or -$0.01 per share, for the same quarter of 2023.

Adjusted EBITDA in the second quarter was negative $1.1 million, compared to negative $0.7 million in the year-ago quarter. The decline in bottom-line performance was primarily a result of our strategic investments in our innovations, where we have fully developed eight new lines of business, from concept to market ready. We will go through the exciting five key launches we have planned for the second half shortly. The increase in SG&A associated with our investments in product innovation is more of a one-time cost and sets us up for future revenue growth. As these take hold and we scale our new product offerings, we do expect our bottom line to continue to improve. We're very committed to being good stewards of capital and have intentionally ramped up our investments in the short term to accelerate growth and increase profitability over the long term.

Looking at our growth over the first half of 2024, we continue to build momentum on Q1, with April, May, and June delivering significant growth month-on-month versus 2023. Our gross profit margin continues to be ahead of last year, with improvements in June that would expect to continue into Q3. These results confirm our strategy of driving the top line, improving margins, and getting to profitability. For the first time, we are seeing growth across all lines of our business. Core is up 8.4% due to the rebound in grocery, as we've exchanged 4 packs back to singles and have launched mini cans into our major retail partners.

Nuka-Cola, our partnership with Amazon Prime and their hot series, Fallout, has also been a big hit, driving performance of our special release, as well as being a key driver of our direct-to-consumer business, which is nearly up 2.5x. It continues to be a popular item. This increase was primarily due to sales of our Nuka-Cola product. Our food service business has more than doubled, and we are making great progress with our team and infrastructure that we have built, including Dot Foods and our food service brokers in the U.S. and Canada. Mary Jones, as our second growth driver, is picking up momentum. In fact, our cannabis business generated approximately $1.2 million in the second quarter of 2024, which represents a 100% increase compared to last quarter and a 200% increase year-over-year.

This was primarily driven by the success of our HD9 products, a rebound in our California regulated products, and success in Canada. For further context, this performance equates to a total of over $5 million in revenue from a system-wide sales metric. The regulatory environment is highly complex for this side of our business, but we are continuing to generate demand and deliver highly sought after, great-tasting products. We have successfully navigated through our Mary Jones HD9 issue in California and are regaining our distribution and will be back on shelves in Total Wine shortly. Our strategic partnership with Tilray in Ontario, Canada, is also overperforming. Our Mary Jones expansion into British Columbia and Alberta will be our next market. We're also expanding our Mary Jones product range there with some zero-sugar beverages and a new line of gummies. Finally, I wanted to touch on our balance sheet.

Our cash balance at the end of June did decline to $1.5 million. However, since then, we have raised approximately $3.2 million in an oversubscribed private placement to further support our growth and expanding initiatives and strengthen our balance sheet. Thank you to our current investors, and we welcome new investors who participated and are excited about the growth trajectory of Jones and our team, who are bringing back energy and performance to this great brand. We also have access to a $2 million revolving credit facility for working capital needs, so I'm very comfortable with our liquidity position today. We have increased our inventory levels to service our accelerating base business growth, as well as Mary Jones HD9, and with the new product lines we plan to launch in the coming months. More on those initiatives in a few minutes.

We also have done a good job of collecting against receivables and expect to see this improve through the rest of the year. If it's not already evident, I continue to be highly encouraged by the improvements in our financial performance throughout the first half of 2024 and remain highly confident in our current growth trajectory. We're consistently building off our legacy portfolio, and the initial success of our early innovations gives us plenty to be excited about for the future. With that, let's highlight some of our big wins from the second quarter. I'm going to start with our Jones beverage products first, then I'll provide an update on our Mary Jones portfolio. As I mentioned earlier, Nuka-Cola was a major sales driver during Q2.

We rolled this special release flavor out in conjunction with the Fallout series premiere on Amazon Prime Video, and have experienced a very positive response from our customers, both Jones loyalists and new customers who are fans of the show. In fact, it has now driven a total of $400,000 in direct-to-consumer website sales in Q2, and has performed well in our national rollout to store shelves, with total Nuka-Cola sales in Q2 reaching $930,000. Nuka has been one of our highest revenue performing special releases to date. It has also been an effective door opener as we have secured new retailers and distribution with Nuka and the popularity of the Fallout series. More partnerships with other high-profile properties will be in our future that we'll share with you in Q3.

Our next special release is a great new s'mores flavor, a fun and tasty combination of chocolate, marshmallow, and graham crackers with a fireside smoky element. These are hitting the shelves now in time for fall. Towards the end of May, we became the first national craft soda brand to launch 7.5 ounce mini cans, starting in 732 Walmart stores across the U.S. We're currently offering our four top-selling flavors: root beer, orange and cream, berry lemonade, and cream soda. The mini cans are caffeine-free and ideal for school lunches or any occasions where glass bottles are not permitted. Mini cans are a format which has been expanding in the grocery and club channels, and we're ensuring we're staying on the forefront of this growth trend.

As we're testing the product, we implemented pallet displays showcasing our mini cans across certain grocery stores, which resulted in a 35x lift in sales, going from an average of selling two SKUs per week to selling 77 SKUs per week. We're incredibly pleased with the performance and will look to leverage similar marketing success with displays across all products and categories. Given the success of our initial launch, we plan on expanding flavor selections and adding Canadian distribution in the coming months. We look forward to providing more updates on this initiative. Our test market of Spiked Jones in Safeway, Albertsons in Washington State has been a great success. We achieved a top 10 brand in a crowded, ready-to-drink space, and our variety pack is ranked at number seven as we are ready to expand.

We have already received commitments for another 436 grocery stores in Washington, California, Oregon, and Alaska, and our distributors that have the ability to distribute alcohol will be taking Spiked Jones as we start to expand nationally. Again, much of our success has been delivered by our 12-pack variety pack and the in-store displays we have secured, proving that Jones branded products in cans are easy to display and drive incremental sales off the shelf. Our Jones Plus soda, with 160 milligrams of caffeine, continues to do well. We announced recently our strategic partnership with Folds of Honor, a great charity that raises money for the families of our fallen soldiers and emergency services folks, and provides scholarships for college education for their families.

Our new Jones Plus camo cans have received an overwhelming reaction from our retail partners in grocery and convenience stores that is leading to increased distribution and displays. A great start to a long-term partnership. As you may have read this morning, Mary Jones is launching 100 milligrams shooter in California and 100 milligrams syrup in Michigan. These 2 ounce small bottles are easy to carry and easy to share. They are also great to mix in your favorite sodas, so think Jones Soda and/or mocktails. Yes, I said Michigan, as we have finally found our right strategic partner, and these syrups are a start for Mary Jones to enter the highest per capita market for cannabis.

We will be launching beverages and gummies in the back half of the year as we get through the required testing and processes for launching these packaging formats. Overall, we remain incredibly excited about the trajectory of Mary Jones products. On the success of Ontario, we have launched in British Columbia, with Alberta next. We will also be extending the product line, so stay tuned. As I mentioned earlier, we are really hitting our stride from a financial perspective, hitting the $1.2 million mark in revenue this quarter and nearly 100% gross margin. Momentum continues to build on this front, and we're excited about these high-margin products becoming a bigger piece of our revenue split. This was just about everything notable we are doing in Q2.

So what are we up to in the remainder of the year? Well, we have five new product lines that we're getting ready to launch in the back half of the year. We've invested almost $600,000 into these innovation initiatives and have fast-tracked the development in under six months. Our teams have been traveling to get in front of customers, and our R&D team was working extensively with flavor houses and consultants to get the taste and ingredients exactly right. And operations in QC, bringing on board new co-man partners that are geared up to produce in the next 60 days. Not to mention all the logistics that come with upgrading all our branding and marketing assets. It's been a heavy lift, but our team has responded well and is setting us up for robust growth in the quarters to come.

This past weekend, we started our teaser campaign with Nitrocross, where our new Jones Nitrocross Cola and Zero Cola were featured during the NASCAR event at Richmond Raceway. A Jones Zero Cola wrapped Nitrocross electric powered racing car was the centerpiece of the Nitrocross announcement. We certainly created a buzz amongst the 80,000 folks attending the event. Our collaborative partnership with Thrill One and Nitrocross Motorsports is developing rapidly, and we are launching our new Cola and Zero Cola cans with our new great taste. Jones Craft Cola, made with natural cane sugar, and Jones Zero Cola, serving consumers preferring no-calorie beverages, will be elevating cola taste to a new level. Our Cola products build on our nearly three-decade reputation as flavor experts and innovators to deliver new options that redefine the concept of quality colas.

The new canned colas will debut September 6th-7th at the first adrenaline-pumping Nitrocross race of the season in Richmond, Virginia. The products also will be sold on premise at other Nitrocross races, joining signage and other activations, and soon to be available for purchase nationwide. Our Thrill One partnership, including SLS Skate League, will immediately raise the visibility of our products with a generation of passionate fans who are open to new experiences of all kinds. We look forward to bringing a new great taste to the cola category and reigniting the cola taste challenge that began in the mid-1970s. Second, we'll be rolling out our newly developed Pop Jones products in early September across 280 stores at a major U.S. retailer in the Midwest and South. Pop Jones is a healthier soda alternative with a focus on gut health.

Similar products in the category include OLIPOP and Poppi. As popularity for these new sodas continues to grow among consumers, we knew we had to be in this high-growth category. We have also had a significant number of food service and DSD distributors reaching out with interest in this product. While we plan our initial rollout in September, we expect a more national rollout in Q1 and Q2 of 2025. These slim cans look amazing, and we're looking forward to seeing them on shelf. Let's take another look. Third, we're launching Fiesta Jones, a lower-calorie fruit-flavored beverage product that comes in a 16 ounce resealable aluminum can. The flavors will be tropical fruit-inspired, which has been a growing flavor trend in the broader consumer environment for both food and beverages.

The product tastes amazing and has half the calories of regular Jones Soda at 80 calories for a 16 ounce serving. This will be sold in the convenience channel, mass, grocery, food service, will be whole food compliant and sold in the natural channel. We have a major grocery chain in the South and Midwest, putting these on shelves in Q4 this year. Again, our new design jumps off the shelf and will look great in fridges and open-air coolers. Let's spin them again. Piggybacking on the demand we're starting to generate in the alcoholic beverage category, we're ready to launch into the $19 billion craft mixer category with new Jones Premium Craft Mixers. Utilizing the same raw packaging from our mini cans I discussed earlier, the new Jones Premium Craft Mixers feature 7.5 ounce single-size mixers sold in four packs with six different flavors.

Each Jones Premium Craft Mixer takes the hassle out of making a great cocktail. Carefully balanced with the finest ingredients, just add premium spirits and you're ready to rock. We will also be launching themed variety packs, offering the top three mixes for your favorite vodka, tequila, rum and gin cocktails, a well-received innovation by our retail partners. Our new Cola and Zero Cola formulations taste so great, we are extending them into our Mary Jones lineup. They will be available in both 5 milligram and 10 milligram servings and hitting the shelves in September. We are asked frequently about offering zero-calorie versions of Mary Jones, and we will be launching a Zero Berry Lemonade and a Zero Root Beer this year to satisfy that demand.

All our new products for 2024 are rolling off the line in the next 90 days, and we are sending out samples to all our retailer and distributor partners. I would like to send you some, too. If you are interested, please email me your shipping details, and for the first 20 I receive, we will add you to the list. I'm very excited to get these to you and importantly, get your feedback. Overall, I'm incredibly pleased with how we closed out the first half of the year. We're passionate about culture, consumers, and costs, driving the innovation and growth you see today. Our strategy is working with accelerating revenue and improving margins.

We are on track for a banner year here at Jones, and I remain highly confident in our ability to deliver upon our strategic growth plan. We have invested in Q2 innovation in Q2 to launch in the second half. I want to thank you all for your continued support and constant dialogue as we embrace this next growth phase. We are ready for game time. I want to finish by thanking you all for attending our Q2 earnings call and for supporting me and the Jones team on our mission for growth and profitability. We are building a rocket ship in the beverage category and welcome you all on board. With that, I'll pass the call over to the operator to see if there are any questions from all of you. Kevin, over to you.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you're dialed in on the phone and would like to ask a question, please press star one on your telephone keypad. For participants over Zoom, you can use your Raise Your Hand function to verbally ask a question, or you can type your question into the Q&A pod on the bottom of your screen. Once again, if you'd like to ask a question today, please use the Raise Your Hand function if you're on the Zoom to verbally ask your question, or if you want to, please, press star one to verbally ask your question over the phone. One moment, please, while we poll for questions. Once again, please use the Raise Your Hand function to verbally ask a question, or you can type your question into the Q&A pod.

David, your Q&A is gonna be on top of your screen since you are sharing your screen. There is, there's one question that did come over under the pod.

David Knight (President and CEO)

Right. What is that, Kevin?

Operator (participant)

If you don't mind, it just says, "How do I email for the mixers?

David Knight (President and CEO)

Yeah. So, for samples, email me at [email protected]. Again, that's [email protected].

Operator (participant)

Thank you. Any other questions today, please use the Raise Your Hand function on the Zoom to verbally ask your question, or you can type your question into the Q&A pod located on the bottom of your screen. One moment, please, while we poll for questions. And David, there are no questions at this time. Do you have any further closing comments?

David Knight (President and CEO)

Certainly. Firstly, again, thank you for all the support and I'm excited about the progress we made in the first half. Delivering nearly 50% growth is a great way to end Q3. We have a lot of innovation coming that we have strategically targeted our growth segments and where we believe that both the Jones taste, preference, and brand can play. So look forward to our call in November with our Q3 results. Everybody, have a great day, and appreciate you all.

Operator (participant)

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.