Company Overview
Zevia PBC, a Delaware public benefit corporation, is pioneering the natural soda revolution with its portfolio of zero sugar, clean-label beverages. Founded in 2007, Zevia has emerged as a trailblazer in the better-for-you beverage industry, offering a distinctive blend of great taste, plant-based sweeteners, and exceptional value to health-conscious consumers.
History and Growth
The company’s inception can be traced back to 2007 when Founder and CEO, Paddy Spence, sought to develop a naturally sweetened soda that could cater to the growing consumer demand for healthier alternatives to traditional sugary sodas. Recognizing the need for a zero-calorie, zero-sugar option that still delivered on taste, Spence formulated Zevia’s first product using stevia, a natural plant-based sweetener.
Since its humble beginnings, Zevia has undergone a remarkable transformation, evolving from a niche player to an industry leader in the natural soda category. The company’s commitment to innovation, coupled with its focus on clean ingredients and sustainable practices, has propelled it to the forefront of the better-for-you beverage landscape. Zevia’s mission to address global health challenges resulting from excess sugar consumption has been a driving force behind its development of a diverse portfolio of zero sugar, zero calorie, naturally sweetened beverages made with simple, plant-based ingredients. All Zevia products are Non-GMO Project verified, gluten-free, Kosher, and vegan, catering to a wide range of dietary preferences and restrictions.
In its early years, Zevia faced significant challenges breaking into the highly competitive carbonated soft drink market, which was dominated by major established brands. However, the company’s unique positioning as a better-for-you soda alternative began to resonate with health-conscious consumers, leading to increased distribution in natural grocery stores and gradual expansion into mainstream retailers. This growth trajectory culminated in a significant milestone for the company in 2021 when Zevia completed its initial public offering, raising funds to further invest in brand building, innovation, and distribution expansion.
Throughout its history, Zevia has successfully built a loyal consumer base and established itself as the leading brand in the naturally sweetened zero sugar soda category. The company has diversified its product offerings beyond carbonated sodas to include energy drinks, organic teas, and kids beverages, demonstrating its ability to innovate and adapt to changing consumer preferences. Today, Zevia’s products are distributed across the United States and Canada through a diverse network of major retailers, reflecting the company’s growth and increasing market penetration.
Financials
Zevia’s financial performance has shown mixed results in recent years. In fiscal year 2023, the company reported net sales of $166.4 million, up from $163.2 million in 2022, reflecting a 2% year-over-year increase. However, the company’s profitability remains a challenge, with a net loss of $21.5 million in 2023, compared to a net loss of $33.9 million in 2022.
The most recent quarter (Q3 2024) saw a decline in revenue to $36.37 million, down 15.6% year-over-year. This decrease was primarily due to lost distribution in the club channel and at one mass customer, as well as the exit from the Kids and Mixers product categories. Despite the revenue decline, Zevia improved its net loss to $2.53 million from $8.22 million in Q3 2023. Operating cash flow (OCF) improved to $3.89 million from $1.42 million, and free cash flow (FCF) increased to $3.75 million from $1.28 million in the same period last year.
For the full year 2024, Zevia expects net sales in the range of $154 million to $156 million and an adjusted EBITDA loss of approximately $13 million. Looking ahead to Q4 2024, the company anticipates net sales between $38 million to $40 million, reflecting approximately 3% growth at the midpoint compared to Q4 2023. The adjusted EBITDA loss for Q4 2024 is expected to be between $1.8 million to $2.2 million, an improvement from the $6.2 million loss in Q4 2023.
Liquidity
Zevia’s balance sheet remains relatively healthy, with $32.69 million in cash and cash equivalents as of September 30, 2024. The company’s long-term debt stands at $1.37 million, resulting in a debt-to-equity ratio of just 0.02, suggesting a low level of leverage. The current ratio of 2.85 and quick ratio of 1.96 indicate a strong liquidity position. Additionally, Zevia has access to a $20 million secured revolving credit facility, which had no outstanding balance as of the end of the third quarter of 2024.
Operational Performance
Zevia’s operational performance has been marked by a focus on improving its supply chain and manufacturing efficiency. In the second quarter of 2024, the company initiated a multi-year Productivity Initiative aimed at realigning its cost structure, driving growth, and enhancing operational excellence. This initiative has already yielded tangible results, with the company reporting a significant improvement in its adjusted EBITDA loss, which narrowed from $9.1 million in the third quarter of 2023 to $1.5 million in the third quarter of 2024.
The Productivity Initiative is expected to generate annualized benefits of approximately $15 million, with the majority of these savings to be reinvested in brand marketing and the company’s Direct Store Delivery strategy to drive future growth. During the third quarter of 2024, the initiative resulted in $0.11 million of restructuring costs, primarily related to employee severance and the exit of two third-party warehouse and distribution facilities.
Strategic Priorities
Distribution Expansion
One of Zevia’s key strategic priorities is to expand its distribution and broaden its consumer reach. In the third quarter of 2024, the company announced the expansion of its Walmart distribution from 800 stores to over 4,300 locations nationwide, a move that is expected to significantly increase brand awareness and drive future growth.
Direct-to-Store Delivery Strategy
Additionally, Zevia has been investing in its direct-to-store delivery (DSD) strategy, focusing on the Pacific Northwest region. The improved service levels and enhanced merchandising in this market have resulted in stronger velocity and performance compared to the rest of the company’s footprint.
Marketing Initiatives
On the marketing front, Zevia has been sharpening its brand identity and storytelling to resonate more effectively with health-conscious consumers. The company’s recent campaigns have emphasized its distinctive position as a great-tasting, zero-sugar, clean-label soda in an industry dominated by artificial and synthetic alternatives. These efforts have yielded encouraging results, with the 10 key markets where the new campaigns were tested seeing an average growth of 5 percentage points higher than control markets.
Future Outlook
Looking ahead, Zevia remains optimistic about its long-term growth prospects, driven by the expanding demand for natural and better-for-you beverage options. The company is confident in its ability to capitalize on this trend through its robust brand-building initiatives, innovative product pipeline, and strategic distribution partnerships.
Zevia expects gross margins to remain in the mid- to upper-40% range over the next several quarters. Looking beyond 2024, the company anticipates modest growth in 2025 as they focus on building brand momentum and expanding distribution. Zevia aims to achieve positive adjusted EBITDA in 2026.
The better-for-you beverage category, in which Zevia operates, is expected to grow three times faster than the traditional carbonated soft drink (CSD) market over the next five years, providing a favorable industry backdrop for the company’s growth strategies.
Challenges and Risks
However, Zevia is not without its challenges. The company operates in a highly competitive landscape, facing stiff competition from established players in the soda and energy drink categories, as well as newer entrants offering alternative natural and functional beverages. Additionally, the company’s profitability remains a concern, with the need to balance investment in growth initiatives with achieving sustainable profitability.
Furthermore, Zevia is exposed to various external risks, including fluctuations in the prices of key raw materials, such as stevia and aluminum, as well as potential supply chain disruptions and macroeconomic headwinds that could impact consumer demand. The recent loss of distribution in the club channel and with one customer in the mass channel highlights the potential volatility in the company’s distribution network.
Despite these challenges, Zevia’s unique positioning, commitment to innovation, and focus on operational efficiency position the company well to navigate the evolving beverage landscape. As the natural soda category continues to gain traction, Zevia’s ability to maintain its competitive edge and execute on its strategic priorities will be crucial in determining its long-term success.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.