Executive Summary / Key Takeaways

• Zevia PBC is strategically leveraging cost savings from its multi-year Productivity Initiative to fund increased investments in brand marketing, product innovation, and distribution expansion, aiming to capitalize on the growing better-for-you beverage market.
• Recent financial results show progress, with Q1 2025 gross margin reaching a record 50.1% and Adjusted EBITDA loss improving to $3.3 million, driven by favorable unit costs and operational efficiencies despite a slight net sales decline.
• Significant distribution gains, including national rollout at Walmart and expansion in Albertsons (ACI) and Walgreens (WBA), coupled with a regional Direct Store Delivery (DSD) pilot, are key to expanding household penetration and offsetting prior distribution losses.
• The company's unique positioning with naturally sweetened, zero-sugar, clean-label products at an accessible price point provides a competitive edge against both large incumbents and higher-priced new entrants in the dynamic beverage landscape.
• Management maintains its full-year 2025 guidance for net sales of $158 million to $163 million and Adjusted EBITDA loss of $8 million to $11 million, signaling confidence in returning to growth and progressing towards the goal of achieving positive Adjusted EBITDA in 2026.

The Natural Evolution of Soda: Zevia's Strategic Play

Zevia PBC operates at the forefront of a significant shift in consumer preferences, targeting the burgeoning market for better-for-you beverages. As a Delaware public benefit corporation and Certified B Corporation, Zevia's mission is rooted in addressing global health challenges by offering naturally delicious, zero sugar, zero calorie drinks. The company's core strength lies in its product formulation – utilizing stevia and other plant-based ingredients to create a clean-label alternative to traditional sugary and artificially sweetened sodas, energy drinks, and teas. This differentiated approach provides a tangible benefit to consumers seeking healthier options without compromising on taste, positioning Zevia uniquely against both the scaled offerings of beverage giants and the often higher-priced functional beverages entering the market.

The company's journey began over a decade ago, building a loyal customer base primarily through multipacks in the natural channel and grocery aisles. This asset-light model, relying on third-party manufacturers and distributors, allowed for initial growth. However, recent years presented challenges, including supply chain disruptions in 2023 and significant distribution setbacks in 2024, notably in the club channel and with a major mass retailer. In response, and to sharpen its focus on its most competitive segment, Zevia made the strategic decision to exit the Kids and Mixers product lines.

Facing these headwinds and operating in an intensely competitive and rapidly changing environment, Zevia embarked on a multi-year, broad-based Productivity Initiative in the second quarter of 2024. This initiative is designed to fundamentally realign the cost structure, enhance operational efficiency, and improve unit economics. The estimated annualized benefits of this program are approximately $15 million, and these savings are not merely flowing to the bottom line but are strategically reinvested into key growth drivers: amplified brand marketing, accelerated product innovation, and focused distribution expansion. This strategic pivot is central to Zevia's plan to reignite growth, expand its user base, and pave a clear path towards profitability.

Competitive Terrain and Differentiated Technology

The beverage industry is dominated by titans like Coca-Cola (KO), PepsiCo (PEP), and Keurig Dr Pepper (KDP), who possess immense scale, vast distribution networks, and formidable marketing budgets. Alongside these, faster-growing players like Celsius Holdings (CELH) are rapidly carving out space in functional segments. Zevia competes directly in overlapping categories like zero-sugar sodas and energy drinks.

While lacking the sheer scale of the incumbents, Zevia's competitive moat is built on its core product technology: the formulation of naturally sweetened, zero-sugar beverages using stevia and other plant-based ingredients. This provides a clean-label advantage that resonates strongly with health-conscious consumers. Unlike competitors who may rely on artificial sweeteners or blends, Zevia's commitment to natural ingredients is a key differentiator. While specific quantitative performance metrics comparing Zevia's formulation technology to rivals (e.g., cost per unit of sweetness, stability over time) are not detailed, the company's R&D efforts are focused on enhancing the taste experience of this natural formulation. Recent innovation around a "more sugar-like taste" and the development of new flavors like Strawberry Lemon Burst (which achieved the highest purchase intent score in testing) and Orange Creamsicle highlight this focus on improving the core product's appeal while maintaining its clean-label integrity. This ongoing product innovation is critical to attracting new consumers and retaining existing ones in a market where taste is paramount.

Financially, Zevia's smaller scale is reflected in its metrics compared to the giants. For instance, ZVIA's TTM gross profit margin of 47.48% trails KO's 61%, PEP's 55%, and KDP's 56%, though it is competitive with CELH's 50%. However, Zevia's Q1 2025 gross margin hit a record 50.1%, demonstrating the impact of its productivity initiatives on unit costs and inventory management. Zevia's TTM operating profit margin of -14.75% and net profit margin of -12.58% highlight its current unprofitability, starkly contrasting with the significant positive margins of its larger competitors. This underscores the critical need for Zevia to achieve greater scale and leverage its cost structure to reach profitability.

Zevia's strategic positioning also leverages its price point. While priced slightly above conventional sodas, it is often significantly more affordable than many newer functional beverages, making it an accessible option for consumers seeking healthier choices without a premium price tag. This value proposition is particularly relevant in the current macroeconomic environment characterized by inflationary pressures and cautious consumer spending.

Customer dynamics show a highly engaged existing user base with strong repeat rates and higher average spend per household compared to the average beverage shopper. The challenge and opportunity lie in expanding this base. Supplier dynamics involve reliance on a limited number of third-party suppliers for key ingredients like stevia and aluminum cans, exposing the company to potential price volatility and supply chain disruptions, risks that larger competitors with more diversified sourcing may be better equipped to manage. The recent 25% import tax on steel and aluminum is noted as a potential headwind to operating costs.

Performance, Strategy in Action, and Outlook

Zevia's recent financial performance reflects a business in transition, actively implementing its strategic response. For the three months ended March 31, 2025, net sales were $38.0 million, a 2% decrease compared to $38.8 million in the prior-year period. This decline was primarily attributed to increased promotional activity, partially offset by pricing increases and a slight increase in equivalized cases sold. The volume increase was driven by expanded distribution at one mass customer, counteracting losses in the club channel and another mass customer experienced in 2024.

Despite the slight top-line dip, the impact of the Productivity Initiative was evident in profitability metrics. Cost of goods sold decreased by 9.9%, leading to a significant improvement in gross profit, which rose 7.4% to $19.0 million. This resulted in a record gross margin of 50.1% for the quarter, up from 45.7% in Q1 2024. Management believes gross margins in the upper 40s are sustainable, reflecting favorable unit costs and improved inventory management.

Operating expenses saw strategic reallocation. Selling and marketing expenses increased slightly overall, but marketing expenses surged by 125.6% to $6.2 million, funded by a 25.8% decrease in direct selling expenses (warehousing, freight, repackaging) due to the Productivity Initiative. General and administrative expenses also decreased by 14% to $7.0 million, reflecting lower employee costs from the workforce reduction component of the initiative. Restructuring expenses of $2.1 million were incurred in Q1 2025, primarily for employee severance, with the initiative expected to be substantially completed by the first half of 2025.

The net result of these changes was an improved net loss of $6.4 million in Q1 2025, compared to $7.2 million in Q1 2024. Adjusted EBITDA loss also narrowed significantly to $3.3 million, an improvement of $2.2 million from the $5.5 million loss in the prior-year period, demonstrating the impact of cost savings despite the net sales decrease.

Liquidity remains a key focus. As of March 31, 2025, Zevia held $27.7 million in cash and cash equivalents and had access to an undrawn $20 million Secured Revolving Line of Credit. Management believes this provides adequate liquidity for operations and planned investments over the next 12 months. The company's structure as a holding company dependent on distributions from Zevia LLC, and the potential future obligations under the Tax Receivable Agreement (estimated at $58.2 million if tax benefits are fully realized, though not yet recognized as a liability), highlight the importance of achieving sustained profitability and positive cash flow generation.

Looking ahead, management maintains its full-year 2025 guidance, projecting net sales between $158 million and $163 million. This implies a return to growth for the full year, driven by the momentum from strategic distribution gains offsetting the lingering impact of prior losses and portfolio rationalization. For the second quarter of 2025, net sales are guided between $40.5 million and $42.5 million, reflecting historical seasonality (Q2 and Q3 are typically the strongest quarters) and increased investment. The full-year Adjusted EBITDA loss is expected to be between $8 million and $11 million. This guidance incorporates increased marketing investments and the impact of higher tariffs, which the company is actively working to mitigate through further cost efficiencies. The stated goal of achieving positive Adjusted EBITDA in 2026 provides a clear target for the trajectory of the business.

Risks and Challenges

Despite the strategic initiatives and positive indicators, Zevia faces notable risks. The macroeconomic environment, including potential recession, inflation, and high interest rates, could dampen consumer spending on discretionary items, impacting sales volume. The volatile trade policy landscape and recently imposed tariffs, particularly on aluminum, pose a direct threat to operating costs and margins. Competition remains fierce, with larger players capable of aggressive pricing and promotional activity, and fast-growing niche brands vying for shelf space and consumer attention. Regaining lost distribution and securing new placements in a competitive retail environment requires sustained effort and investment. Dependence on third-party manufacturing and a limited supplier base introduces supply chain risks. Finally, the company's history of losses means the path to profitability is not guaranteed and depends on successful execution of its growth and efficiency strategies.

Conclusion

Zevia is executing a focused strategy to leverage its differentiated product offering and capitalize on the secular trend towards healthier beverages. The Productivity Initiative is proving instrumental, freeing up resources to fuel critical investments in brand building, innovation, and distribution expansion. While recent financial performance reflects the impact of past distribution losses and strategic portfolio adjustments, the significant improvement in gross margin and Adjusted EBITDA loss in Q1 2025, coupled with encouraging signs from new distribution partnerships and marketing efforts, signal positive momentum. The company's unique positioning as an affordable, naturally sweetened, zero-sugar option provides a compelling value proposition in a competitive market. Achieving the stated goal of positive Adjusted EBITDA in 2026 will depend on successfully translating strategic investments into sustained top-line growth and continued operational efficiency gains, navigating macroeconomic uncertainties and competitive pressures along the way. For investors, the story is one of a company actively reshaping its future, aiming to unlock the potential of its brand and product in a growing market.