Zevia PBC Q3 FY2024 earnings call

• Q3 adjusted EBITDA improved, with adjusted EBITDA loss at $1.5 million compared to $9.1 million in Q3 of the prior year, driven by productivity initiatives. - Net sales in Q3 were slightly below expectations, but Q4 is expected to see growth due to expansion in Walmart stores. - Grocery channel scan data showed positive growth, and DSD initiative in the Pacific Northwest is making progress with stronger performance in that market. - Brand marketing campaigns tested in select metros showed positive results, with 10 key markets having growth 5 percentage points higher than control markets over 20 weeks. - New Zevia flavors like Creamy Root Beer, Vanilla Cola, Cran-Raspberry, and Salted Caramel have performed well, with Salted Caramel tracking to sell out ahead of expectations.

In Q3 2024, net sales were $36.4 million, a 16% decline compared to Q3 of the previous year. This was largely due to expected reductions in club distribution and at one mass customer, as well as the strategic decision to exit the Kids and Mixers categories. In the grocery channel, scan data for Q3 showed dollar growth of 8% and unit growth of 9%, and for the four weeks ending October 6th, dollar growth accelerated to 14% and unit growth to 17%. There is no specific revenue contribution percentage provided for product segments beyond the overall net sales figures.

• Q4 net sales expected to be between $38 million to $40 million, reflecting approximately 3% growth midpoint compared to Q4 of the prior year, driven by Walmart pipeline fill and effective promotional programming. - Q4 adjusted EBITDA expected in the range of negative $1.8 million to negative $2.2 million. - Full-year 2024 net sales outlook is $154 million to $156 million, with adjusted EBITDA loss of approximately $13 million. - 2025 expects modest growth while balancing growth and profitability, aiming for positive adjusted EBITDA in 2026.

• Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. - Channel-specific distribution challenges impact sales performance. - Supply chain logistics challenges and competition in the natural soda category pose risks.

Q: Bonnie Herzog from Goldman Sachs asked about the lost distribution in the club channel and mass customer, and the expanded distribution into Walmart, and how it relates to the sales outlook.

A: Amy Taylor mentioned the softness in the quarter was due to volume impact from reduced store selling in club and promotional timing variances, but velocity remains strong. Girish Satya added the change in outlook was driven by distribution at club and one mass customer, and the bottom line change in EBITDA is from incremental marketing investments.

Q: Andrew Strelzik of BMO Capital Markets asked about gross margins being stronger than anticipated and margin potential.

A: Girish Satya said improved inventory management and renegotiating core input costs were big drivers, and there's opportunity to enhance gross margin with variability based on DSD mix.

Q: Jim Salera of Stephens Inc. asked about the Salted Caramel LTO and DSD network in the Pacific Northwest.

A: Amy Taylor said it's too early to disaggregate if Salted Caramel is driving frequency or trial, but marketing initiatives are outperforming past ones. On DSD, service levels in the Pacific Northwest have led to grocery outperforming in that footprint, and they're expanding DSD into the Southwest with Crescent Crown in Arizona.