Zevia PBC (ZVIA) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges and ...
Net Sales: $38.8 million, down 10.4% year-over-year.
Gross Margin: 45.7%, down 0.8 percentage points from the previous year.
Net Loss: $7.2 million, increased by $4.3 million from last year.
Adjusted EBITDA Loss: $5.5 million, compared to a loss of $0.5 million in the prior year.
Cash and Short-term Investments: Approximately $28.7 million.
Total Liquidity: Approximately $50 million, including a $20 million revolving credit line.
Productivity Initiatives Savings: Expected to deliver $8 million to $12 million in annualized savings starting Q3 2024.
Full Year 2024 Net Sales Guidance: Expected to be between $158 million and $166 million.
Q2 2024 Net Sales Guidance: Expected to be between $38 million and $40 million.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Zevia PBC has successfully launched a new brand visual ID and initiated regional direct store distribution, which is expected to enhance market penetration and brand visibility.
The company has reported a strong consumer demand and an increase in velocity, with sales per point of distribution growing consistently since the start of the year.
Zevia PBC has implemented a price increase on soda multipacks which, along with stable customer fulfillment, supports stronger unit economics.
The introduction of a comprehensive productivity initiative is projected to deliver significant annualized savings, enhancing long-term growth and profitability.
Zevia PBC's gross margins are strong and improving sequentially, providing a solid foundation for future investments and operational enhancements.
Negative Points
Net sales for Q1 2024 declined by 10.4% year-over-year, primarily due to distribution setbacks and a delay in the recovery of SKU-level distribution at retailers.
The company experienced a significant increase in net loss, from $2.9 million in Q1 2023 to $7.2 million in Q1 2024, indicating challenges in maintaining profitability.
Despite the launch of productivity initiatives, Zevia PBC forecasts a gradual path to profitability, with sustainable adjusted EBITDA profitability not expected until 2026.
The company faces ongoing challenges with SKU-level distribution recovery, which has impacted volume and revenue in the short term.
There are risks associated with the increased marketing and promotional investments, particularly if these efforts do not yield the expected lift in sales.
Q & A Highlights
Q: What are the key drivers for the expected growth in the second half of the year, and what gives you confidence in this outlook? A: Amy Taylor, President and CEO of Zevia PBC, highlighted that scan data shows Zevia accelerating period over period, with soda growth over 9% in April and 23% in the food channel. The company expects better reflection of these results in shipments and net sales in the latter half of the year due to SKU-level distribution gains, category seasonality, and momentum from marketing investments. Girish Satya, CFO, added that a robust promotional calendar and improved in-stock levels would support this growth.
Q: How will the productivity initiative impact profitability and what are the expected savings? A: Girish Satya explained that the productivity initiative aims to enhance long-term growth and profitability, projecting $8 million to $12 million in annualized savings starting in Q3 2024. The initiative focuses on brand maximization, margin enhancement, and operational discipline, with savings expected to materialize over the next four to six quarters.
Q: Can you discuss the challenges from SKU-level distribution delays at retailers and its impact on strategies? A: Amy Taylor stated that while customer fulfillment levels have returned to baseline, the volume impact of temporarily lost distribution was underestimated. This does not alter the company's strategic focus but impacts the full-year outlook, with a softer first half expected. The focus remains on productivity initiatives and marketing investments.
Q: What are the plans for expanding Direct Store Distribution (DSD) and its expected impact? A: Amy Taylor discussed the initial rollout of DSD in the Pacific Northwest, aiming to enable single distribution and improve in-store presence. Success in these areas is expected to attract additional DSD partners and influence retailer decisions on space allocation. The company plans regional rollouts, prioritizing areas where the brand is more developed.
Q: How does the DSD model affect the economics of your business? A: Amy Taylor explained that the solid gross margin allows for investment in DSD, indicating it requires gross margin points investment. The focus is on increasing in-store presence and marketing efficacy rather than increasing overall spending. DSD acts as both a distribution and marketing enabler.
Q: What is the path to profitability and why is there a long runway despite the productivity program? A: Girish Satya addressed that achieving profitability by 2026 involves balancing top-line growth and profitability improvements. The company plans to ensure adequate resources for market evolution and singles and convenience store penetration, which requires a careful management of investments and cost savings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
