Zevia PBC Price & Performance (ZVIA)

Refer to today's press release and other filings with the SEC for a detailed discussion of the risks, that could cause actual results differ materially from those expressed or implied in any forward looking statements made today. During the call, we will use some non GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, presentation slides that accompany today's today's comments and reconciliations of the non GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investors.zvia.com. And now, I'd like to turn the call over to Amy Taylor. Thanks for joining us for our fourth quarter and full year 2024 We are pleased to have ended the year on a strong note with a return to top line growth, and progress toward our goal of achieving profitability. We elevated our brand identity advanced our three strategic growth pillars and continued to lay the foundation for our plans for sustainable long term growth and crop I want to thank the Xevia team for their commitment and dedication to executing on these priorities. I am as confident as I have been since joining Xevia about our long term opportunity.

Our optimism in the future is based on three factors. First, the better for you soda category is in the nascent stages We believe there's tremendous growth opportunity as more consumers move towards healthier for you options. Natural soda is growing six times faster than conventional soda, which comprises 25% of all soda growth. And Mintel projects natural soda will more than double the growth of conventional diet and zero soda in the next five years. This shift is further evidenced by the fact that large retailers are dedicating prime real estate to this emerging category. Walmart's launch of the modern soda set and Albertsons' recent launch of a renovated better for you soda set are great examples of the speed and scale of this change. Second, we believe we are uniquely positioned within this fast growing and dynamic category as the only brand that combines great taste zero sugar and naturally sweetened soda at an accessible price point. We have seen that once consumers try Zevia, they are highly engaged. So our focus is on amplifying our brand and our clear points of differentiation on taste, and ingredients [indiscernible] and continue to grow the base. And finally, we believe that the foundation for long term success lies in creating a brand, that consumers love and delivering great products along with an exciting pipeline of innovation.

The work we have done to sharpen CVS brand identity as well as to elevate our products setting is up to deliver on both. While we recognize that discovery and trial happen over time, we're excited about the green shoots we're seeing and our positioning for the future. We have advanced our strategic growth pillars of amplified marketing, product innovation, and focused distribution expansion while maintaining agility within this rapidly changing So briefly highlighting our results, which we pre announced in mid January. We returned to growth in the fourth quarter with sales increase of over 4%. We grew in volume and in dollars, which is also reflected in our scan data. And adjusted EBITDA improved by $3,000,000 as compared to the fourth quarter of last to negative $3,900,000 through the savings we achieved from our productivity initiative. We invested in brand building initiatives weighted in the back half of twenty twenty four while also flowing a portion of the savings to the bottom line. We see additional cost savings opportunities and we remain confident that we will achieve positive adjusted EBITDA within 2026. Girish will speak to this in more detail shortly. Now I'd like to provide an update on the progress we've made across our strategic growth pillars.

Starting with marketing, we believe that the work we have done to sharpen our brand voice is cutting through and resonating with the consumer. We made strides in elevating our brand identity across mediums as reflected in our Break from the Artificial holiday campaign. Which delivered a lighthearted parody of the artificiality [indiscernible] and in beverages. This campaign went viral in December and served the brand very well to communicate our positioning as the real zero sugar soda in a world of washes sake. Its performance merited incremental investments and we took it from digital to linear TV. We will scale the success of our break from the artificial [indiscernible] Into a comprehensive brand platform with additional campaigns that engage a broader audience with compelling content that clearly communicates the benefits of Zevia in a fun and memorable way. As we said, our marketing spend is largely focused on driving awareness and trial, CVS consumer is highly engaged in the brand exemplified by a repeat rate of over 40% and an average brand spend per household, which is an impressive 38 percentage points higher So the average beverage shopper. However, with household penetration in only the mid single digit range, we have a lot of room to grow.

And so as such, we're increasing our marketing investments in 2025 leveraging the learnings of last year. We are still in the early stages of this journey we expect these actions to build momentum over time. Turning now to product innovation, our second pillar. We have two key drivers of growth in the 2025 pipeline. One is a breakthrough we've had in a more sugar like taste experience. Which will be introduced in our new flavor launch Strawberry Lemon Burst this spring. This enhanced flavor profile will also be applied to other key under leveraged flavors within our portfolio. And then secondly, we have a more robust product innovation pipeline coming into 2025. So in addition to Strawberry and Lemon Burst, which will be nationally distributed across channels, We're also launching retailer exclusive such as Orange Creamsicle at Sprouts And then finally, we'll launch limited edition seasonal flavors building on the success of the outperforming Salted Caramel flavor, in 2024. In addition to flavors, we'll be scaling multiple variety pack offerings for the first time at retail. To support efforts in driving trial and expanding the base.

We recently launched our first retail variety pack at Walmart as an eight pack.

Which is our top velocity SKU within that set. Building on our success there, we are rolling out 12 pack variety packs of across the grocery and natural channels currently and we will continue to test additional configurations. Not only can these variety packs drive incremental velocity, but they can also convert shoppers to their favorite higher margin straight flavor pack. So moving us along to our third pillar, distribution expansion. In parallel to top of funnel marketing investments, we're also focused on growing awareness, accessibility, trial and repeat through expanded distribution. We recently expanded our presence from 800 to more than 4,300 Walmart doors in The U. S. In a precedent setting move within the category, Walmart recently introduced a new set called Modern Soda featuring a selection of leading low and no sugar brands with better for you positioning. And for the Xevia Zevia. And it helps to drive market penetration, particularly in fast growing geographies like Southeast In grocery, we continue to see strong results as evidenced by scan data. And we believe that there remains ample opportunity to increase penetration. Albertsons, one of our key partners, has created its own better for you set where Xevia will have a strong brand lock at eye level, in a vertical shelf set.

Lastly, we continue to see progress in our direct store delivery or DSD regional pilot. Grocery is outperforming rest of market in the Northwest where our DSD initiative has been deployed for several months. And now we plan to expand into the Southwest starting with Crescent Crown in Arizona with neighboring states to follow. We believe our DSD initiative will improve in store presence and enable single distribution across key channels over time. Big picture, VIVIA remains focused on being the better for you soda with an authentic brand connection with great tasting product at accessible price points, with nothing artificial in our ingredients or in our claims. We are more excited than ever about our future. We have a clear brand voice and are making increased investments in marketing to drive We're also gaining distribution with recent and with upcoming shelf resets And then lastly, we have strong innovation in the pipeline. With a clear path forward and strong momentum behind the category better for you soda, We expect these initiatives to pay off in the back half of this year and going forward. And so with that, I'll turn the call over to Girish. Thank you, Amy.

Good morning, everyone, and thanks for joining our call today. Looking back at 2024, we laid the groundwork for future growth and strengthened our financial position largely through the successful execution of the productivity initiative we commenced in March. Have reinvested the majority of these cost savings thus far into our enhanced promotional strategy and building brand awareness. While also flowing through a portion of the bottom line. Turning to our fourth quarter financial results. We delivered net sales of 39,500,000.0 an increase of 4.4% as compared to the fourth quarter of last year. This was driven by increased volumes as we expanded from 800 Walmart locations to more than 4,300 in late November. The improvement in net sales during the period was driven by 11.6% increase in cases sold, on an equivalized basis. Partially offsetting this was a decision to increase promotions with select new and existing retailers. Overall, we continue to hone in on the optimal mix of frequency, depth and breadth to drive volume. While protecting margin. Gross margin was a record high an increase of eight fifty basis points from 40.7% in the fourth quarter of last year. This improvement reflects the cycling of inventory write downs in the prior year associated with our improved inventory management.

Additionally, gross margin continues to benefit from our productivity initiatives. These improvements were partially offset by the aforementioned increase promotional activities during the period. Selling and marketing expenses were $16,500,000 or 41.7% of net sales in the fourth quarter of twenty twenty four. Compared to 13,800,000.0 or 36.6% of net sales in the fourth quarter of twenty twenty three. The increase was primarily due to the incremental investment in advertising associated with the viral holiday campaign that Amy discussed earlier. This was partially offset by a reduction in warehousing and freight transfer costs associated with our Protein Beauty initiative. General and administrative expenses were $6,800,000 or 17.3% of net sales in the fourth quarter of twenty twenty four, compared to $8,400,000 or 22.2% of net sales in the fourth quarter of twenty twenty three, largely driven by cost savings initiatives. As a result, net loss 6,800,000.0 compared to a net loss of $9,200,000 last year.

An improvement of $2,400,000 Adjusted EBITDA loss was $3,900,000 compared to an adjusted EBITDA loss of $6,900,000 in the prior year period. Turning to our balance sheet. We continue to enhance our liquidity position. We ended the quarter with approximately $30,700,000 in cash and cash equivalents and have an undrawn revolving credit line of $20,000,000 For the full year, fiscal year twenty twenty four, this represents an improvement in operating cash flows of $15,000,000 Moving to our full year results. For the full year 2024, Zvi achieved net sales of $155,100,000 a decrease of 6.8%. The decline was driven by lost distribution in select channels, and increased promotional spend, partially offset by increased pricing. We realized healthy gross margins of 46.4% versus 44.9% in 2023, as we more effectively manage our inventory. Net loss was $23,800,000 as compared to a net loss of $28,300,000 in 2023 and adjusted EBITDA loss was $15,200,000 for the year compared to an adjusted EBITDA loss of $19,100,000 for the full year of 2023. Now turning to our outlook for fiscal twenty twenty five. We see additional cost saving opportunities of approximately $2,000,000 which is expected to bring us This target is inclusive of the recent reduction in workforce OEX 20 which is expected to result in an additional $1,700,000 in savings.

Continue to see additional areas of efficiency largely in COGS and selling expenses that we expect to realize in 2025 and into 2026 as we focus on further optimizing our product portfolio. Looking to the future, we intend to balance reinvesting those savings into driving revenue growth while remaining committed to reaching positive adjusted EBITDA in 2026. Turning to 2025 guidance. We estimate net sales in the range of $158,000,000 to $163,000,000 This reflects the previously discussed gains in distribution, Amy mentioned earlier. And offset by the Lapping and Loss distribution at one customer in the mass channel and in the club channel as well as the discontinuation of kids and mixers lives. For which we expect the majority of impact to occur in the first half of the year. Looking at the quarterly cadence, Please note The second quarter and third quarter are historically the highest volume quarters of the year due to seasonality. We expect an adjusted EBITDA loss in the range of $8,000,000 to $11,000,000 for 2025. This assumes gross margins in the high 40% range as well as other expense reductions as part of our cost savings initiatives. We plan to increase marketing investments primarily in the first and third quarters in order to capture the strong momentum in the better for you soda category.

For the first quarter, we expect net sales of between $36,000,000 to 38,000,000 the aforementioned distribution losses related to the club channel and one of our mass retailers. As well as more cautious consumer behavior. Partially offset by the extended distribution at Walmart. While these impacts will continue into Q2, we also expect to regain some distribution and therefore anticipate a return to growth for the full year. We expect Q1 adjusted EBITDA loss to be between $5,600,000.06000000 dollars reflective of the increased marketing investment in Q1 as well as higher promotions I noted earlier. While this does not impact adjusted EBITDA, please note that in conjunction with our workforce we will recognize approximately $1,600,000 in severance and restructuring expenses in Q1 twenty twenty five. By the end of Q1, we expect to have also concluded the vast majority of our restructuring activities and expect only de minimis restructuring expenses for the remainder of the year. In closing, we believe that the work we've done over the last year combined with our unique market position will enable us to capitalize on the enormous tailwinds within the natural soda and better for you beverage I will now turn it over to the operator to begin Q and A. Operator?

Thank you. Ladies and gentlemen, we would now be conducting a question and answer session. For participants using speaker equipment, it may be necessary The first question comes from Jim Salera with Stephens Inc. Please go ahead.

Hi, good morning guys. Thanks for taking my question. Amy, I wanted to maybe start with some some thoughts around the new customers you've been interacting with at Walmart and just any trends you can speak of kind of engagement, repeat rates, once they become introduced to the Xevia product? Especially with kind of all the new news about incremental entrance new brands entering the category. Just thoughts on how you feel holds the new Yes. Thanks, Jim. We are really excited about moving from 800 Walmarts selling Xevia to 4,300 now. And it does a tremendous job for us to step change household penetration. And as I mentioned in the prepared remarks, especially across Southeast, which is the highest engaged region in soda, and now the fastest growing for us based on the penetration opportunity. I guess another comment I can share about our early stage performance at Walmart the variety pack from Xevia is our fastest selling SKU, the strongest velocity. And what we know about variety packs from the past, both in e commerce, and now in early days in [indiscernible] because it's new at retail is that not only does that drive trial folks trying Zevia for the first time, but it also leads to the purchase of incremental straight flavor packs when people find their favorite flavors, which also happen to be higher margin.

So we have a great sort of virtuous circle going in the early days with Walmart, which is step change household penetration. Trial with new users and strong initial repeat. The other exciting thing, Jim, just to mention is this is somewhat of a precedent setter as retailers figure out how to frame this exciting and increasingly competitive [indiscernible] and we see Walmart and Albert Foods and others starting to frame it together as a better for you destination within store. It's a rising tide that floats all boats. It's a very competitive environment But for us, our greatest opportunity is to grow the size of the base. Once a consumer enters, Xevia through trial, They repeat. We know this to be the case. So the example that you serve up here in Walmart helps us to step change where to trial and household penetration, which is really our top priority. Okay, great. And then Girish, maybe one question on just expectations around gross margin in 2025. How should we think about kind of balancing driving excitement around expanded distribution and getting that initial trial obviously maintaining the gross margin gains that you guys have won over the past couple of years?

Yes. No, thanks, Jim. Part of the gross margin gains have also come at or have also reflective of increased promotional spend. So I think in from that standpoint, believe we can maintain gross margins in the high 40s give or take. While also investing appropriately to drive trial and and effectively drive the business. So I think we've loaded the appropriate amount of promotion into the P and L and now I think it's really about ensuring that we're driving the correct depth breadth and frequency of promotion. Thanks.

The next question comes from Andrew Schreierczuk with BMO. Please go ahead. Hi, good morning. This is Daniel Gold on for Andrew Schulteck. Thanks for taking my question.

Good morning.

Would you expect good morning. What do you expect will be the cadence of sales growth through the year given the implied 4.6% decline in 1Q and 3.5% growth for the full year. And why that deceleration from 4Q particularly given that elevated marketing spend, is that really just a function of lapping the step up Yes. So we're excited about Q4 and returning to volume driven growth primarily driven by the pipeline sell at Walmart. In Q1 and we're very confident about the distribution gains that we've secured for the full year, which is what is really going to drive our growth for 2025. I think Q1 is probably the most challenging comp partly because the impact of loss distribution from one mass customer as well as the lapping loss distribution at club. And so really when you think about as well as the discontinuation of the kids and mixtures lines. And so when you think about cadence of growth from a modeling perspective, we expect Q1 to be as noted, slightly down to flat. With Q2 and Q3 being the [indiscernible] highest volume quarters. And then to address your point, think your second question in there was about marketing spend.

And I think really Q1 is reflective of higher marketing spend driven primarily by what I'd call non working marketing, which is really production expenses, which we expect to benefit us later in in Q2 and primary link in Q3 as well.

And Dan, just to build on that really quick, I think gears did a great job of talking to the phasing of the timing of our expectations for the year and our return to growth on the full year, which we're excited about. I'll mention that scan data has accelerated the last five four week periods showing double digit growth in the last two. We're really pleased with the trajectory. We're performing well at Walmart. We've talked about that despite really heavy and increasing competition. So when we look at things like grocery shelf reset at Albertsons forthcoming in March, specifically contributing to accelerating growth the balance of the year. And then you add to that innovation, also launching this spring. And then increased investment in really compelling marketing. We're bullish about the trajectory and we're cautious on the unknowns given the macro and increasingly competitive environment.

That's really helpful. Thank you. Thank you. The next question comes from Sarang Bhora with Telsey Advisory Group.

Please go ahead. Great. Thank you, guys. My question is on the DSD model. I feel like it's been couple of quarters that you have rolled it out in Pacific Northwest, parts of Arizona. Can you share some of the key observations from the model and how it has transformed your business in those parts of the of the region. [indiscernible] Sure, Sean. No problem. So speaking about direct store delivery or DSD We've piloted this hybrid route to market in the Northwest And the DSD operators there across force tapes have enabled outsized growth in grocery relative to the rest of the market. How are they doing that? By addressing out of stocks through increased merchandising, by activating our programming that Girish was speaking about earlier as we rightsized promotional activity, the DSD operator is able to drive display and greater in store visibility in a more competitive manner. And so we see outsized growth in grocery in the DSD footprint relative to the rest of the market. Then the other thing that DSD does for us is enables singles merchandising and thus new singles distribution, which is critical for trial. We're building that over time. It will take time.

But what's exciting about this immediate next several months is that as retailers are resetting shelves, we will pilot into a number of regional convenience stores to develop some learnings there and some initial proof points that category is in its very nascent stages in convenience. In terms of next steps, we are now moving into the Southwest. This is not to indicate a rapid national rollout, rather an expansion of a second region to continue to learnings, again, about a hybrid route to market, some channels being addressed through DSD. And it's a worthwhile investment, we believe, based on what it enables the way I walked through that in grocery and then in the opportunity with singles inclusive of convenience. We're bullish on what DSD can do for us, but we're also really thoughtful about our pace and we're capturing learnings now in one and then over the next several months to broader and very competitive and [indiscernible] That's great. And I just have one one quick follow-up on the marketing. It seems like since holiday marketing has really stepped up, there are lot of buzz in social media on your marketing. How should we think about like the role of marketing in 2025?

Like it seems like you're stepping up the investment. Does it correlate to like have you seen any correlation in terms of like sales in markets like LA where you have really stepped up a lot more than others. So I'm curious to know how you think of marketing, what's new coming up in 2025? Anything different? And then in general, like how much is an increase in spend on marketing you're thinking for '25 relatively?

Thank you.

Saram, you're hitting on my favorite topic, so thank you. We are very excited. About the marketing that we have in the market and our confidence in the quality of the creative and the strategic nature of the mix. Are exactly why we're increasing our investment because we really believe in what we're doing and we have tremendous proof points starting with the campaigns, as you mentioned, that resonated with the consumer so well in December, and we know that through for example, 82% positive sentiment from social commentary, very rare these days if you think about what social commentary normally sounds like. So as I've stated in the past, we've historically underinvested in marketing for a growing beverage brand and especially now if you look at the competitive environment. So we expect to increase marketing spend to do what we really believe is the right strategic thing for the brand and that's focused on awareness and to be specific, we're thinking about and planning for, let's call it, low double digits in percentage of sales as a marketing investment, which has materially increased from the past, but also funded through our productivity initiatives. Specifically, we're learning a lot about marketing in some of our key accounts.

We are able to report on internally anyway marketing attribution, meaning what portion of the volume increase is attributable to marketing. So we study that at a key account level and scan what works. We also have a brand health tracker in the market where we can measure all the way down the funnel awareness trial conversion that gives us directional confidence in efficacy of marketing and then we'll be putting some incremental modeling into the market something called a marketing mix model to continue to fine tune tactics and weighted investments going forward. And then we always do concept and copy testing with our creative. We know we had light went viral. We're building on that now with our continuing break from artificial campaign And I'm excited about what's coming in March as we elevate that campaign and bring it to more people with some familiar faces behind the brand. So thanks for asking about marketing. It is a fundamental reason why we believe in our long term Great.

Thank you. Good luck ahead.

Hey, Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Amy Taylor for closing comments. Thank you very much, Tico.

Folks, thanks for joining today. We are obviously really excited about what's ahead for Xevia Zevia. It's an exciting time to follow the story, so we thank you for following along. We No. The trend toward better free products and toward health is here to stay, but we also know that people love So as a soda brand that has zero sugar natural ingredients, and importantly in this moment, is priced excessively for your average American household, we're really bullish in our ability to compete in an increasingly competitive environment. We are excited about our key strategic pillars And just to reiterate those, we're amplifying marketing, we're moving at a faster pace in product innovation with great tasting products in on trend and relevant flavors And then finally, we're driving and sustaining distribution with really meaningful strategic partners with early green shoot indicators for that. So as I mentioned, it's an exciting time to be following the Xevia story and we thank you for your attention today.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.