8-K: Zevia Reports Q1 2024 Results, Launches Direct-Store-Delivery Initiative and Productivity Program

Zevia's first quarter 2024 results show a decrease in net sales and unit volume, but the company is launching a direct-store-delivery program and a productivity initiative to improve future performance.

Summary

• Zevia's net sales decreased by 10.4% year-over-year to $38.8 million in the first quarter of 2024, primarily due to distribution challenges and fulfillment issues from 2023.
• Unit volume also decreased by 10.4% year-over-year to 3.0 million equivalized cases.
• Gross profit margin was 45.7%, a decrease of 0.8 percentage points year-over-year, but an increase of 5.0 percentage points from the previous quarter.
• The company reported a net loss of $7.2 million, which includes $1.5 million in non-cash equity-based compensation expense.
• Adjusted EBITDA loss was $5.5 million.
• Zevia is launching a direct-store-delivery (DSD) program in the Pacific Northwest to improve convenience channel presence and single-serve distribution.
• A productivity initiative is expected to yield annualized cost benefits of $8 million to $12 million.
• Full-year 2024 net sales are projected to be between $158 million and $166 million, with second-quarter sales expected to be between $38 million and $40 million.

Sentiment

Score: 4

Explanation: The document presents mixed results with a significant decrease in sales and a large EBITDA loss, but there are positive initiatives like the DSD launch and productivity program. The overall sentiment is cautiously optimistic but with clear concerns about current performance.

Positives

• Gross profit margin increased by 5.0 percentage points from the previous quarter, indicating improved profitability.
• Zevia is launching a direct-store-delivery program to expand its reach and improve distribution.
• The company has initiated a productivity program expected to reduce costs by $8 million to $12 million annually.
• Scan data shows Zevia is now leading the soda category in growth in recent periods.
• The company has a strong balance sheet with $28.7 million in cash and no outstanding debt, plus an unused $20 million credit line.

Negatives

• Net sales decreased by 10.4% year-over-year.
• Unit volume decreased by 10.4% year-over-year.
• Gross profit margin decreased by 0.8 percentage points year-over-year.
• The company reported a net loss of $7.2 million.
• Adjusted EBITDA loss was $5.5 million, significantly worse than the $0.5 million loss in the same quarter last year.
• Selling and marketing expenses increased significantly due to higher freight and warehousing costs.

Risks

• The company is still facing top-line headwinds from fulfillment challenges experienced in 2023.
• There is a risk that the direct-store-delivery program may not be successful.
• The productivity initiative may not achieve the expected cost savings.
• The company is exposed to risks related to supply chain disruptions, changes in consumer preferences, and competitive pressures.
• The company is exposed to risks related to inflation, increased commodity, packaging, transportation and freight, warehouse, labor and other input costs and other economic conditions.

Future Outlook

The company expects full-year 2024 net sales to be in the range of $158 million to $166 million and second-quarter net sales to be in the range of $38 million to $40 million. They anticipate re-energized growth in the back half of the year and are driving towards profitability.

Management Comments

• First quarter results were in line with our expectations as we continued to encounter top-line headwinds stemming from the fulfillment challenges we faced in 2023.
• Demand is healthy as velocity is growing and accelerating each period.
• Our business fundamentals are improving based upon strong gross margins and a successful implementation of a price increase in Q2.
• We are launching in a strong Zevia market in the Pacific Northwest this week with best-in-class partners.
• Coupled with broader productivity initiatives, as well as our scalable supply chain and strong balance sheet, we are well positioned to re-energize growth in the back half of the year, and drive towards profitability.

Industry Context

The announcement comes as the beverage industry is seeing increased demand for healthier, zero-sugar options. Zevia's focus on natural, zero-sugar beverages aligns with this trend, but the company faces competition from established players and emerging brands. The direct-store-delivery initiative is a strategic move to improve distribution and compete more effectively in the convenience channel.

Comparison to Industry Standards

• Zevia's 10.4% decrease in net sales contrasts with some larger beverage companies that have reported modest growth in the same period, such as Coca-Cola and PepsiCo, which have seen growth in the low single digits.
• The gross profit margin of 45.7% is within the range of other beverage companies, but the year-over-year decrease indicates challenges in cost management.
• The adjusted EBITDA loss of $5.5 million is a significant concern, as many established beverage companies report positive EBITDA.
• The launch of a direct-store-delivery program is a common strategy in the beverage industry, similar to initiatives by companies like Keurig Dr Pepper, which have their own DSD networks.

Stakeholder Impact

• Shareholders may be concerned about the decrease in sales and the net loss.
• Employees may be affected by the productivity initiative, which could involve changes in roles or responsibilities.
• Customers may benefit from the direct-store-delivery program, which could improve product availability.
• Suppliers may be impacted by changes in the company's supply chain and cost structure.

Next Steps

• The company will continue to roll out its direct-store-delivery program.
• The company will execute its productivity initiative to reduce costs.
• The company will focus on re-energizing growth in the back half of the year.
• The company will host a conference call to discuss the earnings release.

Key Dates

Keywords

Zevia, beverages, zero sugar, direct-store-delivery, productivity initiative, net sales, gross profit, EBITDA, financial results, Q1 2024