Business Overview

Zevia PBC is a growth beverage company that develops, markets, sells, and distributes great-tasting, zero-sugar beverages made with simple, plant-based ingredients. The company is a Delaware public benefit corporation and has been designated as a "Certified B Corporation," focusing on addressing the global health challenges resulting from excess sugar consumption. Zevia's portfolio includes a variety of flavors across Soda, Energy Drinks, Organic Tea, and Kids drinks, all of which are Non-GMO Project verified, gluten-free, Kosher, vegan, and zero sodium.

The company's products are distributed and sold principally across the United States and Canada through a diverse network of major retailers in the food, drug, warehouse club, mass, natural, and e-commerce channels, as well as in grocery and natural product stores and specialty outlets. Zevia's asset-light business model and focus on cost and efficiency improvements have enabled the company to maintain a strong gross margin profile, which stood at 45.7% in the first quarter of 2024.

Financial Performance

In the first quarter of 2024, Zevia reported net sales of $38.8 million, a 10.4% decrease compared to the same period in the prior year. This decline was primarily driven by a 10.4% decrease in the shipment of equivalized cases, resulting in $4.9 million lower net sales, partially offset by pricing increases of $0.4 million. The company's gross profit for the quarter was $17.7 million, with a gross margin of 45.7%, down 0.8 percentage points from the prior-year period.

The company's net loss for the first quarter of 2024 was $7.2 million, compared to a net loss of $2.9 million in the same period of 2023. This increase in net loss was primarily due to lower sales volumes and higher selling and marketing expenses, partially offset by a decrease in general and administrative expenses and equity-based compensation. Zevia's adjusted EBITDA loss for the quarter was $5.5 million, compared to an adjusted EBITDA loss of $0.5 million in the prior-year period.

Liquidity

As of March 31, 2024, Zevia had $28.7 million in cash and cash equivalents, and an additional $20 million available under its revolving credit facility, providing the company with ample liquidity to fund its operations and strategic initiatives. The company's cash flow from operations was negative $3.2 million in the first quarter of 2024, primarily due to the net loss and changes in working capital.

Productivity Initiative and Outlook

In the second quarter of 2024, Zevia announced a multi-year, broad-based Productivity Initiative designed to realign the company's cost structure and accelerate its route-to-market evolution, while also building the Zevia brand. This initiative is expected to result in annualized savings of $8 million to $12 million, with the first benefits to be realized in the third quarter of 2024.

The Productivity Initiative focuses on three key pillars: brand maximization, margin enhancement, and improving operational discipline. As part of this initiative, Zevia expects to incur restructuring charges of $0.5 million to $0.8 million in the second quarter of 2024, primarily related to employee severance costs.

For the full year of 2024, Zevia expects net sales to be in the range of $158 million to $166 million, with net sales for the second quarter of 2024 expected to be between $38 million and $40 million. The company anticipates that gross margins will remain in the mid-40s and that sequential improvement in adjusted EBITDA will be seen in the back half of the year as the benefits of the Productivity Initiative are realized.

Operational Highlights and Brand Momentum

Despite the softer start to the year, Zevia's brand momentum remains strong, as evidenced by the company's improving velocity and scan data performance. In the latest 4-week period ending April 21st, Zevia soda grew 9.4% across all channels in dollars and 7% in units, leading the carbonated soft drink (CSD) and diet zero soda categories. The company's performance in key strategic channels and customers has also been impressive, with Zevia growing 67% at the world's largest retailer in the first quarter and accelerating to 98% growth in the most recent 4-week period.

Zevia's consumer demand remains robust, with household spending on the brand up 9% in the past 12-month period, trip spending up 4%, and purchase frequency up 6% compared to the average beverage shopper. The company's brand strength, coupled with the Productivity Initiative and the launch of its direct-store delivery (DSD) network, positions Zevia for accelerated growth in the coming quarters.

Risks and Challenges

While Zevia has demonstrated its resilience and growth potential, the company faces several risks and challenges that investors should be aware of. These include the highly competitive nature of the beverage industry, potential supply chain disruptions, commodity price fluctuations, and the ability to maintain its brand image and appeal to evolving consumer preferences. Additionally, the company's reliance on a limited number of large customers and suppliers presents concentration risks that could impact its financial performance.

Conclusion

Zevia PBC has established itself as a pioneer in the natural soda revolution, offering a compelling value proposition to health-conscious consumers. Despite the challenges faced in the first quarter of 2024, the company's robust brand momentum, innovative product portfolio, and transformative Productivity Initiative position it for a strong recovery in the coming quarters. With a focus on cost optimization, route-to-market evolution, and strategic brand investments, Zevia is well-positioned to capitalize on the growing demand for better-for-you beverage options and deliver long-term value for its shareholders.