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Tuesday, May 02, 2006

Jones Soda (JSDA) 10-K

JSDA (sec) Jones Soda. These guys are getting some shelf space at boutique coffee shops including Starbucks, Panera Bread, and Barnes & Noble. I'm sure it's very tasty. Stock continues climbing to over $9.00. Worthless news item.

10-K: (very brief look)
Starbucks increased from 2 flavors to 3 flavors in 2006 (won't show up in these results).
The goal is to price our unique products at a premium to other premium sodas and New Age beverages.
$1.60 up to $1.95. Sure, why not. Lots of point-of-sale stuff, sponsoring alternative sports athletes, leased RVs and vans with painted Jones stuff on them (think promotional costs).

52 employees.
We also pay lump sum slotting fees to certain of our retailers for shelf space in their stores. These slotting fees have been recorded as a reduction of revenue of approximately $293,000 for the twelve-month period ended December 31, 2005 compared to a reduction in revenue of approximately $361,000 for the twelve-month period ended December 31, 2004. We amortize lump sum payments over a 1-year period, which is based on current data of product maintenance on retail shelves for that period of time.
So this is a one-time charge? That's good if it is.

$5 million NOLs.

Big increase in licensing revenue due to Target (it's all outsourced).

KPMG auditors. Unqualified opinion.

Year ending Dec 31, 2005. 22 million shares on March 24, 2006. 1.8 million options at year end (weighted ave exercise price is $1.83!) Assume 26 million totally diluted shares. Balance sheet is good and about what I'd expect (yeah, talk about glossing over a big item, so sue me).

Revenue is actually down from Q3, although it's up 22% over the prior year. 35% gross margins (unchanged from last year). Very high promotion costs (they're obviously trying to get the brand established with the customer base, but will they be able to stop?) and the promotional costs increased 29% over prior year, seems to be scaling with revenue, unfortunately.

3.9% operating margins and roughly similar net margins. Very low taxes. 6 cents per diluted share for the year, but if they expensed stock options, it would be 2 cents! 5 cents per totally diluted share. Probably more like 4 cents fully taxed. If you chop the promotion and selling costs in half (probably a bit optimistic), then I figure they might earn 12 taxed cents per totally diluted share.

Cash flow from ops is somewhat weak due to inventories and AR. Capex is way below depreciation. Cash from stock option exercise (is big) was used to pay down debt.

So are they worth $9.00? Are they worth $2.00? If you doubled their revenue and kept margins the same, would they be worth more than $6.35? Do I care? Do Motley Fool types care? Seems like a good business, but geez, I'd sure hate to pay so much when there's the risk of going out-of-favor sometime in the distant future.

Comments:
Man, I looked at Jones Soda forever ago. Like all niche consumer brands, I discounted the hell out of future growth to accomodate the "fashion risk" that has obviously as of yet failed to take place.

Small-batch sodas have taken off in the same way that small-batch breweries did in the late 1980's and early to mid-1990's. There will be some companies that succeed or are bought out. There will be plenty more that flame out or remain tiny. My ability to forecast which is which is indistinguishable from blind luck.
 
Yeah, I agree with the fashion flame out thing. If you can buy something like that extremely cheap, then maybe.
 
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