After the abrupt departure of its CEO and CFO in the last month, Jones Soda reported third-quarter earnings that “did not meet expectations.”
“We had unexpected softness in sales volume, a one-time growth profit impact and higher than planned operating expense,” said Paul Norman, Jones chairman of the board and interim chief executive and financial officer. “I, along with the rest of the board, are disappointed in these results and have taken corrective actions to improve the financial performance.”
Net revenue was $4.2 million in Q3, compared to $4.5 million in the prior-year period. Gross margin fell to 21.2%, versus 32.9% in Q3 2023. Net loss ticked up as well to $2.6 million.
Norman started the call by addressing the departure of CEO David Knight which was announced on October 28. Knight took over the leadership role in June 2023. No details were given about the terms of Knight’s departure.
In comparison, the loss of former director of finance and interim CFO Joe Culp was described by Norman as a “planned transition.” Neither role has been filled but the search for permanent replacements is ongoing.
The underperforming Q3 numbers were attributed to a loss of a key “discount retailer,” a continued disruption in its Canadian distribution and a slow ramp-up of hemp-derived THC drinks, Norman said.
The third-quarter results stand in contrast to Jones’ second-quarter earnings call when then-CEO Knight took an optimistic tone pertaining to the beverage company’s growth outlook. Knight described how the impending portfolio expansion into new categories was part of his long-term vision to transition Jones from a craft soda business to a beverage company.
Yet, this ambitious slate of new products seems to have been part of the problem.
“While we have a robust innovation pipeline, we actually have more in it than we can execute in the near term. We have shifted to a more focused approach over the past couple of weeks,” said Norman. “We are over budget on our expenditures for the year-to-date. We don’t view this as acceptable.”
The company’s expansion into hemp-derived THC drinks has “taken longer than expected” though it remains a priority. The Mary Jones delta 9 line generated about $800,000 in revenue in Q3, representing a 263% increase year-over-year, Norman reported.
Jones Soda is also betting heavily on its c-store positioned Fiesta Jones line and its move into prebiotic, “modern sodas” with Pop Jones. The drink company is preparing to ship its first orders of Pop Jones into Hy-Vee and Albertsons locations in Q4 and Q1 2025.
Norman reported that Jones Soda has either “pushed out or cancelled” innovations in powders, mixers and waters as the company “focuses on what we believe will be the biggest difference makers.”
Company leadership warned investors that expenses will stretch into the fourth quarter as the business cuts costs and lines up new management.
“I will also be hyper-focused on returning Jones to a state of operational excellence and ensuring that our future investments in innovation and development,” Norman said. “We are diligently working on improving the overall cost structure and re-establishing an appropriate foundation to generate profitable growth as we move into 2025.”