Zevia PBC (NYSE:ZVIA) Q4 2023 Earnings Call Transcript
Zevia PBC (NYSE:ZVIA) Q4 2023 Earnings Call Transcript February 27, 2024
Zevia PBC misses on earnings expectations. Reported EPS is $-0.14 EPS, expectations were $-0.13. Zevia PBC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good morning. And welcome to the Zevia PBC Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reed Anderson, Managing Director, Investor Relations. Please go ahead.
Reed Anderson: Thank you. And welcome to Zevia’s fourth quarter 2023 earnings conference call and webcast. On today’s call are Amy Taylor, President and Chief Executive Officer; Girish Satya, Chief Financial Officer; and Florence Neubauer, SVP, Finance and Business Transformation. By now everyone should have access to the company’s fourth quarter 2023 earnings press release and investor presentation made available this morning. This information is available on the investor relations section of Zevia’s website at investors.zevia.com. Before we begin, please note that all financial information presented on today’s call is unaudited. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management’s current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today’s press release and other filings with the SEC for a detailed discussion the risks that could cause actual results to 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 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.zevia.com.
And now, I’d like to turn the call over to Amy Taylor.
Amy Taylor: Thanks, Reed, and good morning, everyone. Welcome to the Q4 2023 earnings call for Zevia PBC. Before I walk us through fourth quarter results, I’d like to introduce our new Chief Financial Officer, Girish Satya. Girish is a 20-year veteran of high-growth consumer businesses and brings a varied skill set across finance, operations, technology and strategic planning. His track record of success in driving growth and profitability will make him an excellent partner for me and for our leadership team and our board as we chart the course to the future. I’m also thrilled that Florence Neubauer who has served as our interim CFO will continue in a key leadership role at Zevia now as SVP, Finance and Business Transformation.
The entire Zevia organization and the Board joined me in thanking her for a remarkable contribution overall, but especially in these last several months. And now on to cover fourth quarter results and to provide an update on foundational initiatives that set us up for accelerating growth during exciting times for better-for-you beverages. I’m pleased to announce that Zevia returned to volume growth and net sales growth in the fourth quarter as the remediation of customer fulfillment issues in the midst of a supply chain transformation was implemented on time and as the brand refresh came to life on shelf. I’m grateful for the remarkable effort put forth from veteran and new Zevia team members in 2023 and I’m proud of their well-executed initiatives not only to restore service levels, but also to ensure supply chain scalability for the future.
Zevia’s business has growing tailwinds as consumers across demographics continue to move away from sugar and increasingly toward clean label products. Diet and zero-calorie carbonated soft drinks continue to lead the growth in the broader soda category and natural sodas outpace even further. Zevia is the number one consumer choice in natural soda. Consumer spending on the brand is up per household and per trip, and over the past 18 months we have increased price with strong consumer acceptance. This demonstrates brand strength and supports unit economics and a strong gross margin which enable our ability to invest in growth going forward. Our brand refresh improves on-shelf visibility and continues to position Zevia as the beacon for this growing category within CSD.
Zevia is the natural soda brand with a strong foundation at scale at center store across natural and conventional grocery with a loyal consumer base and now we have the opportunity to expand our base through a launch into immediate consumption and cold single distribution in new and existing channels. Zevia’s focus remains taking our better-for-you beverages mainstream, our competitive advantages include great taste, limitless enjoyment across usage occasions, our zero sugar clean label and our affordability relative to other better-for-you beverages. Our mission focuses on global health for people on the planet and in Q4 we removed another 2.7,000 metric tons of sugar from consumers’ diets, never having sold a plastic bottle. Zevia is more affordable than 64% of non-alcoholic beverages in North America and more accessible than recent functional entrants in adjacent carbonated beverage categories.
I’ll share a few important shopper metrics. Zevia households increase their annual brand spend by 9% and their spend per trip by 7% over the past 12 months as of the fourth quarter. We are a home stocking brand and are relevant across all usage occasions and day bars. Zevia shoppers spend 39% more on beverages versus total non-alcoholic beverage shoppers and make 32% more trips to stores to purchase beverages. Zevia shoppers continue to differentiate themselves even further from average beverage shoppers’ year-over-year and versus prior period as they continue to spend more on the brand and overall. I’ll provide a few channel and category insights before moving on to address some of our new initiatives here at the start of the year. Our growth for the quarter was led by continued exciting progress at the world’s largest retailer who doubled Zevia’s space in 2023, as mentioned last quarter and is testing the brand in the mainstream carbonated soft drink aisle.
The test continues to outperform expectations. Zevia soda is up 94% in same-store sales. This evolution is one of the few examples of our opportunity to lead the exciting growth that mainstream better-for-you soda represents. Similarly, one of the three national drug chains took Zevia to the mainstream CSD aisle across 100% of its stores in Q4, hosting double-digit growth. Zevia soda delivered growth in the food channel in the quarter, outpacing the category in food here at the start of the year. Our newest flavors, Creamy Root Beer and Vanilla Cola, continue as number one and number two in Zevia dollar growth across the quarter, and both have ample room to expand distribution further as we expect their performance to support increased brand presence in upcoming spring resets at retail.
Each new soda item we introduce into our portfolio performs better than the last. And in e-commerce, Zevia returned to growth in the quarter. Our top e-commerce customer posted 30% growth in December, indicative of supply chain recovery and continued demand in one of our strongest channels. I’ll provide some insights on Q1. We are experiencing a delay in the recovery of on-shelf stock levels at retail, a lag effect of last year’s customer fulfillment issues amid supply chain transition, and thus some initial volume softness. We expect a recovery in Zevia’s points of distribution and the return to normal promotional support at retail following spring resets and thus a return to growth through spring and summer. Zevia turns the corner into 2024 with a sharp brand refresh in market, a stable and scalable supply chain, momentum in critical new market segments and strong pricing.
These factors underscore brand strength and bolster gross margin, indicating the ability to invest in accelerating growth going forward. On that foundation, we are focused on the following initiatives. Firstly, we are prepared to launch a regional approach to direct store delivery or DSD, which we believe will present an excellent case study of what DSD can do for our well-established high potential brand in our current distribution footprint and in yet unpenetrated market segments. Secondly, we have gained distribution in a limited number of regional convenience chains in the U.S. and in Canada to test and learn the right assortment, merchandising, price points and service levels for Zevia to be successful in this critical immediate consumption trial driving channel.
Thirdly, we have stabilized and strengthened our supply chain in the following manner. We have shifted contract manufacturers’ ownership over raw materials such that we manage only finished goods and we have outsourced freight to an excellent partner who will help reduce costs and deliver efficiency as we ready Zevia to scale. And finally, we are introducing marketing beyond retail now that the brand refresh is fully in market, ramping up after spring reset season with a nationwide focus on the spring and summer beverage season. In short, it is critical we invest in consumer marketing outside the store and in route-to-market to drive growth in 2024 and beyond with a focus on the long-term opportunity. Following the broader category, we’ve announced a price increase effective May 1st between 4.5% and 5% across selected packages as Zevia continues to demonstrate brand strength and as we maintain the same relative price position as premium to mainstream soda but materially more accessible and affordable than other natural and better free beverages on a unit and per ounce basis.
I’ll turn it over to Florence for additional color on our financial results and I’ll come back to speak about our broader opportunity especially in light of the addition of an experienced strategic CFO to our leadership team.
Florence Neubauer: Good morning and thanks for joining the call today. I will now provide an overview of our fourth quarter and full year financial results, discuss guidance and then pass it back to Amy for final remarks. In the fourth quarter of 2023, we deliver net sales of $37.8 million up 6.9% versus same time prior year. We saw positive impacts from a price increase mid-year which deliver a sizable impact of $1.5 million, as well as an increase in volumes of 3.7% or $0.9 million reflecting a return to volume growth after previous quarters were impacted by short-term supply chain fulfillment challenges. Gross margin was 40.7% down 3.6 percentage points versus the same quarter a year ago. The decrease was driven by the decision to accelerate our supply chain transition which included the write-off of some legacy branded material, discontinuation of long-tail SKUs as we focus on our highest potential products and the write-off of some raw materials as we transition our supply chain to a new model.
All of this temporary inventory losses had a 4-percentage-point impact to the quarter. Selling and marketing expenses increased by $38.1 million to $13.8 million entirely due to freight and warehouse expenses. Given a supply chain logistic challenges which are now remediated freight to customers and freight transfer costs were temporarily elevated as expected but translated into a lower impact compared to the previous quarter. Our increased inventory level also impacted our warehouses cost as we continue to manage our inventory back to optimal level. G&A expenses were $8.4 million or 22.2% of net sales, which is essentially flat compared to $8.5 million or 24.1% of net sales versus same time prior year. Stock-based compensation, a non-cash expense, was $1.7 million, as compared to $3.1 million same period in the prior year.
Net loss was $9.2 million, compared to a net loss of $6.2 million last year, a decline of $3 million or 48.3% primarily driven by the supply chain logistic challenges and inventory losses. Loss per share was $0.14 per diluted share to Zevia’s Class A common shareholders compared to $0.09 same time prior year. Adjusted EBITDA loss was $6.8 million, compared to an adjusted EBITDA loss of $2.9 million same time prior year, due to continued expenses from short-term supply chain recovery efforts through the back half of the year as expected. More than half of the losses are attributed to this recovery effort which was better mitigated than in the previous quarter and stabilized going forward. Our balance sheet remains strong with $32 million in cash and cash equivalents and no outstanding debt as of the end of the fourth quarter of 2023, as well as an unused credit line of $20 million.
Full year results. For full year 2023, Zevia achieved net sales of $166.4 million, an increase of 2% versus 2022. Our effective price increase during the year resulted in $11.5 million higher net sales, which mitigated the volume loss from short-term supply chain disruptions. We realized healthy growth margins of 44.9% versus 42.9% in 2022 indicating strength in our business model which allows us to invest in future growth. Net losses were $28.3 million, as compared to net losses of $47.6 million in 2022. And adjusted EBITDA loss was $19 million for the year, compared to an adjusted EBITDA losses of $19.6 million for the full year of 2022. Turning to guidance. The company expects net sales for the first quarter of 2024 to be in the range of $38 million to $40 million, reflecting a delay in the recovery of on-shelf stock level and display activity at retail at the start of the year.
Given the current transition in financial leadership and as we look ahead to spring reset along with our overall route-to-market evolution we are delaying providing full year guidance until a Q1 earnings call under Girish’s leadership. Turning the call back to Amy.
Amy Taylor: Thank you, Florence. Before we wrap, I’d like to introduce Girish and have him speak about his view and the Zevia brand and the opportunity ahead here in his first full week.
Girish Satya: Thanks Amy for the kind words. I’m really excited to join the Zevia team. Zevia’s strong consumer value proposition and leading brand position are incredibly well positioned to take advantage of the accelerating tailwinds in the natural soda category. I look forward to partnering with you and the rest of the executive team to help unbox the brand’s true potential and accelerate this next phase of growth. Lastly, I’d like to thank Florence for her efforts over the last few months and I look forward to partnering with her in her new role.
Amy Taylor: Thanks, Girish, and welcome. We are excited to have you join and we look forward to the impact you will make here at Zevia. These are exciting times and better-for-you beverages. Zevia is the number one consumer choice in natural soda and Zevia is accelerating initiatives to expand into new market segments with a category captain’s mindset in a growing portion of a massive category. Our business can deliver mid-40s gross margins which allow us to invest in growth. We launch marketing out of store this spring and summer, and we are evolving our route-to-market with an advantage in taste across the usage occasion with proven broad distribution and in relative affordability. We aim to step up as the beacon brand in the category that we pioneered.
We continue to have strong demand and now we have new scalability in our supply chain pricing upside and a step change organizational capability amid a rising tide of excitement around natural soda and a seismic consumer shift away from sugar. We spent a few years building a strong foundation and this business is now ready to scale. We are bullish on the years ahead. Thank you for your time this morning and we are prepared to take your questions. Operator?
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