Zevia PBC Q1 FY2023 Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Zevia PBC Q1 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Thank you, and welcome to Zevia's First Quarter 2023 Earnings Conference Call and Webcast. On today's call are Amy Taylor, President and Chief Executive Officer; and Denise Beckles, Chief Financial Officer. By now, everyone should have access to the company's first quarter 2023 earnings press release and investor presentation filed 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 of 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.

Thanks, Reed, and good morning, everyone. Welcome to the Q1 2023 earnings call for Zevia PBC. Zevia had a strong quarter as we continue our progress toward profitability and drive our focus on distribution and trial. We are demonstrating strong momentum across channels, continuing to increase average spend per household even as we gain new households with increased distribution. We're seeing strong growth in our new singles business even before we enter traditional immediate consumption channels. We're realizing price in the market and materially reducing cost in our business, resulting in a continuing recovery of our gross margin. Q1 saw the strongest gross margin of any quarter to date as a public company and a 470 basis point improvement over prior year. And critically, we continue to manage cash effectively, driving improvement on the adjusted EBITDA line. The strategic shift we made at the halfway mark in 2022 to focus on profitable growth is paying off. The team is executing the plan and the brand continues to demonstrate exciting momentum. 2023 is a transformational year for Zevia, and we're pleased to walk through the results and their indications this morning. Zevia's mission focuses on global health for people and the planet. And in Q1, we removed another 3,200 metric tons of sugar from the diets of the communities we serve and replaced 47 million plastic bottles in our markets. Zevia is more affordable than 64% of nonalcoholic beverages in North America, even as we realize pricing in line with the market and continue to focus on taking our better-for-you beverages mainstream, making them available and affordable for consumers across all income levels. In Q1 2023, we delivered net sales of $43.3 million, just ahead of our expectations, resulting in a 13.8% revenue growth over the prior year and a 2.7% decline in volume. We realized growth from price and new distribution. We are pleased with the team's execution and continued retailer and consumer acceptance of our price increases, and we've communicated another price increase of 5% here in Q2. We're seeing strong growth from new item distribution in both new and legacy customers, and we enter the spring and summer beverage season from a position of strength. Gross margins continue to improve to mid-40 levels in keeping with our expectations. We've demonstrated strong cash management and have delivered a very strong run rate of improvement on the adjusted EBITDA line. Cost controls, disciplined adaptations to our promotional strategies and strong price increase implementation set new precedents for Zevia with a focus on quality growth. While we've made progress and our brand and unit economics are strong, we do not expect our path to profitability to be entirely linear. We plan to make investments throughout this year in marketing and supply chain to support our brand refresh, service levels, and ultimately to support growth. I'll go in more detail now with a focus on our consumer base evolution and our learnings from syndicated and panel data from Q1. Zevia's household penetration is 6.4%, and Zevia's households increased their brand spend by over 12% in the past 12 months, driven by increases in spend per trip with consistent purchase frequency rates among the larger brand buying base. We maintained purchase frequency and increased average spend per household even as we added new consumers for the brand. Following the material price increase, these are strong indicators of the health of our brand and our user base across heavy, medium, and new light users bolstered by strong new item performance. Zevia grew 7% in Scan dollar sales for the quarter as we cycled last year's New Year Live Your Best program in favor of this year's focus on spring and summer. In retail dollar sell-through, Zevia delivered its highest Q1 on record. The same is true in e-commerce. Same-store sales remained robust through a healthy mix of volume and price, and we anticipate continued progress in quality growth driven by the brand refresh, marketing support and strategic retail programming in the coming months. Data continues to demonstrate that the Zevia shopper is a highly desirable brand, less price-sensitive at all income levels. We remain a home stocking brand, which is a competitive advantage as we simultaneously build a singles business and grow Cola availability. Zevia shoppers proved valuable to retail partners with a remarkable 40% higher beverage spend versus total nonalcoholic beverage shoppers. Our shoppers also make 30% more trips to stores to purchase beverages compared to the average shopper. We see similar dynamics in e-commerce where we are the #1 carbonated soft drink and where we continue to grow at pace with retail. As mentioned, the first quarter of 2023 marks a promotional calendar shift for Zevia versus years past, based on the strategic changes we made as a new leadership team for this annual operating plan, focusing less on Q1 and more on peak beverage season in retail activity. Q1 results were driven largely through new items and new store distribution, which accounted for 78% of our growth, while organic velocity growth accounted for the remaining 22%. We expect this will balance closer to 60-40 in the coming months based on calendar shifts and our focus on the brand refresh. Distribution growth in the quarter was rooted in new packages, our 12-ounce sleek single soda can, our 8 packs in mass and our 12 packs in food. The single can continues to grow in units per store per week doubled when merchandised cold. Singles are becoming a major driver of our business with key natural channel customers. New stores also bolstered distribution growth as we close gaps in the food channel and gain new stores selling and warehouse clubs. We gained 2,700 new stores selling soda in the quarter. As we cycle our first year in distribution and warehouse clubs, we are pleased to see that 64% of shoppers who bought Zevia in club stores were new to the brand, and half of those new shoppers also bought Zevia in additional channels, spending 67% more on Zevia than the average Zevia shopper. This demonstrates the power of the Zevia brand discovery in club as it spurs trips and spending in traditional retail channels. We have further opportunities to expand in club region selling, and we will be able to share more updates on this in the coming months. Moving on to velocity. The consumer shift to larger pack sizes continued. Shoppers' options are driving growth category-wide and also for Zevia as Apex and larger now account for more than 50% of our business in measured channels. Velocity growth is driven in part by consumer trade-up as retailers switched from the 10-pack to a more profitable 12-pack, but also by our expansion in the mass channel and the broader trend of home stocking and consumption at home in nonalcoholic beverages. This is a competitive strength for the Zevia brand through food, warehouse clubs, and in e-commerce. E-commerce, some natural channel players, and much of warehouse club sit outside of measured channels. We are beginning to make fundamental changes in our supply chain that are expected to contribute to cost reductions, efficiencies and process improvements over time. We also continue to work on reducing selling costs to improve agility and to reduce store level out of stocks for our customers. These changes will occur in parallel with the brand refresh and will require continued focus. I'll wrap with the big picture and turn it over to Denise. Zevia has a very healthy business and continues to experience strong consumer demand, growing the consumer base and simultaneously increasing spend per household on the brand. We are realizing price in the market having announced another 5% increase effective in Q2 and are reducing costs in our business. In the first quarter, we delivered the strongest gross margin ever since becoming a public company in 2021. Critically, we continue to manage cash effectively and drive improvement on the adjusted EBITDA line. We're headed into the summer from a position of strength. We expect continued double-digit growth on the year, bolstered by an exciting brand refresh and supply chain transformation. Zevia's brand refresh brings a sharp new logo and brand identity, new modernized and differentiated pack design and radically improved on-shelf visibility, but most of all, increased resonance with new consumers, incremental to our highly engaged base. Thank you, and I'll hand it over to Denise.

Thank you, Amy, and good morning, everyone. I will begin with an overview of our first quarter financial results. We will then open the call for your questions. In the first quarter of 2023, we delivered net sales of $43.3 million, growing 13.8% versus the same time prior year. Growth was driven by higher price realization as volume was down 2.7% on an equivalized basis to $3.3 million in the period. Our gross margin continued sequential improvement with our strongest margin yet as a public company at 46.4% for the first quarter of 2023, 4.7 points above the same quarter a year ago, primarily due to the impact of pricing, offset by slightly higher manufacturing costs. Gross margin also improved sequentially by 2.1 points versus Q4 2022. Gross profit delivered in the period was $20.1 million, up $4.2 million to 26.6% versus a year ago, reflecting growth in net sales, driven by pricing and lower promotional spend. Selling and marketing expenses decreased 15.2% to $11.9 million, reflecting lower freight and warehousing costs of $1.3 million, driven primarily by improved freight pricing and efficiencies and a reduction of nonworking marketing costs of $0.9 million. G&A expenses were $8.6 million or 20% of net sales in the first quarter of 2023 compared to $10.1 million or 26.6% of net sales in the first quarter of 2022, a decrease of 6.6 points as a percent of net sales. The year-on-year dollar decrease was attributed to lower employee costs and lower public company expenses. Stock-based compensation and noncash expense was $2.4 million in the first quarter of 2023 compared to $8.9 million in the same quarter last year. Net loss was $2.9 million compared to a net loss of $17.5 million in the first quarter of 2022, an improvement of $14.6 million or 83.3% compared to the first quarter of last year. Loss per share was $0.04 per diluted share for Zevia Class A common stockholders compared to $0.28 in the first quarter of 2022. Adjusted EBITDA loss was $0.5 million compared to an adjusted EBITDA loss of $8.3 million in the first quarter of 2022, a year-on-year improvement of $7.9 million or 94.6%, showing continued progress managing towards profitability and generating cash flow from operations. Our balance sheet remains strong with $56 million in cash and cash equivalents and no outstanding debt as of the end of the first quarter of 2023, as well as our new credit line of $20 million. We maintained a healthy working capital for the period of $73.3 million. Turning to guidance. Based on our results and strong consumer metrics, we are reaffirming our 2023 annual net sales guidance of $180 million to $190 million, an increase of 10% to 16% over 2022, including $48 million to $51 million, an increase of 5% to 12% in Q2 of this year. In anticipation of the brand refresh, which is being launched in late Q2 and phased through the rest of the year, we plan to invest in marketing to support our brand ambitions and continue to anticipate that the brand refresh velocity driving initiatives and our new distribution will support our growth ambitions this year. That concludes our prepared remarks. We will now open the call for your questions.

Our first question is from Bonnie Herzog with Goldman Sachs.

I just had a few questions on the brand refresh. I just wanted to clarify something. Did you ship any of it during Q1? Is it all expected to be starting to ship now in Q2? And that's why you have some visibility so far?

Sure. So it is shipping now, Bonnie. We have some products in store right now and specifically our innovation. So creamy root beer, the six pack is in market for the first time, having been sold in 12 packs and 10 packs only previously. And then our new flavor of vanilla cola is also rolling out with the new brand ID and then the existing portfolio follows.

Okay. So that's helpful. And then just thinking about that in the context of your Q2 guidance, I know you're lapping a tough volume comp in Q2, but in light of the refresh that is rolling, should we expect some volume growth in Q2 on your top line? Or will it continue to be all price-driven?

I would anticipate it largely price driven, and the brand refresh will start to impact the business in late Q2 and then through the summer into Q3 as it's fully derived on shelf. So when we look at guidance, we think about the brand refresh as a tailwind, the forthcoming price increase. And then we also have in mind some of our supply chain transitions because all of this is taking place and flowing through at one time. They are all factors in our guidance, both timing and confirming the full year. So yes, I think we've got a lot of tailwinds coming from the brand refresh. And then the other, I think, worth mentioning that we talked about in the prepared remarks as well, is that we will increase our investment in marketing in parallel with the brand refresh. And we think about Memorial Day and following, so the obvious peak beverage consumption months as being a tailwind and good support for the new look and feel as well.

Next question and final and then I'll pass it on. Just hoping you could touch a bit on any shelf space gains you might have received especially in light of the brand refresh during the spring resets. And then just exactly what you mentioned about the stepped-up or incremental A&M spend. Any more color on that? And maybe the supply chain changes that you highlighted, just thinking about the ultimate impact on your profitability, especially in the next couple of quarters.

Sure. Let me talk a little bit about the step change in-store presence and shelf set, and then I'll turn it over to Denise to answer the balance of your question and talk a little bit about the outlook on profitability and touch on supply chain. So we've had some really nice gains at spring resets. Those are taking place now and some customers in late February, others rolling into May. In the natural channel, we have really beautiful, full brand blocks, so top to bottom shelf, 4 to 8 feet depending on the store format with our full line represented. And as the brand refresh rolls out, including 6-pack cardboard overwraps, we have a great billboard effect in our home natural channel where the origins of our brand lie. We've had some gains in conventional grocery as well in some gains and then some test stores for further gains in mass, which represent significant upside for us in distribution. So when you think about a brand with 6.4% household penetration and a lot of ground still to gain, channels like mass and the value channel and drug are still upside for us as we continue to chip away at distribution. Some of that will follow in 2024. But in 2023, we had nice gains both at shelf and in other portions of the store such as cold availability in conventional grocery and now increasingly through test stores through the year in the mass channel. And in a couple of instances, we've gained some new regions within clubs. So that's all forthcoming. I will turn it over to Denise just to comment on supply chain and the outlook on profitability.

Thank you, Amy. What I would say is that we expect a key onetime payments or associated costs with transitioning our supply chain. And that's primarily the change in the network in terms of our coverage with distribution. So our 3PL partnerships and going from a large number of 3PL partners to smaller groups. And also, as we look at our co-manufacturing arrangements, we expect there are going to be a few one-time costs that we have to incur that will impact it. In addition to that, we are going to invest heavily in marketing to support the brand refresh each quarter for the remainder of the year. So those costs will impact our adjusted EBITDA margins through the rest of this year. Hopefully, that answers your question.

Any further color on that one?

Just no. I just try to understand that in the context. I mean, you're guiding top line, just trying to think through the phasing of EBITDA. So we should expect a little bit more pressure on EBITDA this year you're expecting behind driving top line, but ultimately, you're expecting more profitable growth moving forward?

Yes. And I would say Q1 is indicative of our capabilities, but we'll make choices through the balance of the year to support the brand refresh as your only new ones. So that's sort of our outlook, some investments in marketing and then some transitional costs and supply chain, which will ultimately benefit our unit economics and profitability materially going forward.

Our next question is from Christian Ocera with Bank of America.

You have Christian on for Brian. So according to your financial outlook, you guys are expecting Q2 sales to grow 5% to 12% year-over-year. Can you discuss what needs to transpire for you guys to hit the higher end of your sales range? And also just according to Nielsen, retail sales for April were up 4% year-over-year. Is this accurate? Or is Nielsen not accurately capturing the underlying performance of your business?

Thank you for the question, Christian. I appreciate your understanding of how some of this operates. The scan data does not fully reflect our internal results as it represents only a portion of our business. It's not a perfect comparison. Some of the figures you're seeing are due to cycling our initial launch in clubs and our past strategy of heavily investing at the beginning of the year. This year, we reduced promotional support in the first few months to focus on our brand refresh and the peak summer beverage season. As a result, the scan data will eventually align with our reported results over the summer. Regarding the guidance and what is necessary to reach the upper end, we have a diverse portfolio that includes soda, energy drinks, tea, and more, and we will be implementing our brand refresh in phases, keeping an eye on both profitability and sustainability. We won’t be making a drastic change all at once; instead, we will be rolling it out gradually. This, along with the supply chain transition mentioned earlier, will be important for our Q2 guidance. To achieve the higher end of that guidance, everything needs to go smoothly. We must manage stock levels effectively since we are a high-velocity brand, and we need to secure more in-store space to ensure we meet demand. Additionally, we need to transition our supply chain effectively as we implement significant efficiencies with our current changes for long-term benefits. However, we expect to encounter some challenges in the coming months as we move to fewer but more efficient warehouses and diversify our co-manufacturers. To reach the top end of our guidance, we require ongoing consumer demand, growth in our customer base, and increased spending per household, all of which we have experienced quarter-over-quarter. With the brand refresh, I anticipate stronger momentum, but we also need these products to flow through operationally without issues and to navigate this supply chain transition smoothly. I hope that addresses your question, Christian.

Our next question is from Jim Salera with Stephens.

To ask, not surprising, dozen taking price. You see a little bit of demand elasticity. But given the kind of traditional Zevia consumer buys beverage at a higher rate, does the time that it takes for them to readjust to that shelf price become shorter because they're more frequently buying beverages? So can you kind of recoup some of those volume losses faster because they're coming back to us a little more often?

Jim, I think that's a very astute question about our brand because you're right that we have still a relatively small and highly engaged base. I would say the answer to your question is probably. And the reason I say probably and not definitively is because we are still new in the game in taking price increases. Our first material price increase as a company was on August 1. Prior to that, we had done an increase on the 6-pack only. But the full portfolio, we took a price increase on August 1; we are lapping those lower price points and deeper promotions right now. And we will have the tailwind going forward of an additional price increase as well as a full lap of the pricing actions that we took last year. Early indicators are that, yes, indeed, the shopper adjusts to the new price point because our price increases have been simply in line with the market, not ahead of it. We anticipate that the consumer adjusts to new price points pretty quickly and early indicators would say that's true. But it is early days for us out of the gates given our pricing history as a company. Does that answer your question?

Yes. That's great. And maybe I can ask a follow-up on the broader advertising strategy. You met only launch once you guys have put a lot into kind of this brand refresh and having much more visibility at shelf level from the consumer. What channels are you going to use in terms of advertising? And what's kind of the message you want to drive to bring consumers into the brand that might not be familiar with?

Yes, that's a great question and the thing that I'm probably the most excited about. So to answer your question on channel, Zevia has historically supported what I'll call push marketing, so retail marketing at the point of purchase, and we'll continue that tactical support of the business to drive velocity. What's new, however, is that we seek to support the new brand refresh and look and feel and really a new brand identity and voice with some tactics we haven't employed in the past. So broader end-market sampling, in-market brand building, engaging with consumers, complementary social media activity, digital advertising, and then some additional advertising tactics on a spot geographical basis based on what we know about, let's call it, low BDI and CDI markets where we have opportunity. Most of these rollout after Memorial Day, some of it in the late summer. Our goal is to reach, as you say, new consumers. And you ask, what's the message? I would say we've got great feel-good flavor. We are all about driving trial and having people experience Zevia. When a consumer tries the product, conversion rates are very high. So we know that sampling initiatives are a very high ROI attractive for us, and we'll continue to invest in building awareness and trial, so top of funnel, especially in the back half of the year and then full 2024 when the brand refresh is fully on the shelf. So we're excited about inviting more consumers into the franchise and then maintaining them once they taste the product and realize they can have 0 sugar and clean ingredients and still have a product taste great.

Okay. Awesome. Maybe if I could just squeeze in one more question. Going into the summer, do you guys have any thoughts on or if you can provide any detail on kind of LTO offerings, especially with the kind of noncore CSD, the energy and teas to bring them into the mix and maybe get some either cross-sell or to kind of a core soda buyer or bring somebody in who is unaware that Zevia has an energy or a tea offering?

Yes, you mentioned a tremendous opportunity for us, which is driving awareness and trial of our categories beyond soda. We've been in soda for over 10 years and really set the pace for a Zero Sugar product in that space. We have big upside for energy and tea. The most important thing for us to do is to build cold availability for those products, in-store visibility and trial. To directly answer your question, we don't have any limited-time offers in the summer. We do have some new flavors in the pipeline. In soda, we have vanilla cola. We have two new energy drink flavors that are coming out alongside our brand refresh and a radically different look and feel on cans for energy drinks with a drive to support cold singles availability to drive trial and visibility and drive the business there. We have one new flavor coming out in tea and are anticipating some increased distribution for tea. Our limited-time offers will likely follow in the winter, so holiday time, featuring some variety packs, which is also a great tactic for us to drive in-store visibility. But for the most part, it's our existing portfolio and new permanent flavors that will help bolster displays and drive visibility in the way you're describing.

Our next question is from Andrew Strelzik with BMO.

I guess I was hoping you could start by talking about the cost environment. Obviously, the company is doing a very good job controlling internally the costs that it's seeing. But then more broadly, externally, what do you see from a cost environment perspective? How does that contribute to the gross margin outlook? And are you still expecting kind of mid-40s? Is that still the right way to think about gross margins for the balance of the year?

Yes, actually, I will think of margins being in the mid-40s for the rest of the year. We are still seeing some inflation from a cost perspective but lots of the rates that we saw last year. But we are anticipating with our pricing and promotion strategy and looking at what we expect in the supply chain to be in the mid-40s for the rest of the year. Hopefully, that answers your question.

That's helpful. I just wanted to confirm the mix headwind mentioned in the press release. Is it solely related to single serve? Are there other factors at play with channels or pack sizes? Could you discuss the mix side of the business and how consumers are responding to different areas?

Sure. I think mix for us is an upside just in the sense that we are now seeing more than 50% of our volume coming through packs of 8-packs and larger, so for us, that has been a positive. And then the other opportunity is to continue to drive singles Cola availability. Singles are performing very well, where they're sold Cola and exceptionally well in the natural channel where consumers know the brand, but what's exciting for us is building out single distribution in conventional to win new consumers. Generally speaking, we see a positive mix benefit as consumers continue to trade up. We remain a home stocking brand, which for us is really a strategic advantage relative to the rest of the category. Andrew, does that answer your question? I wasn't sure what you were asking with regard to the headwind.

In the press release, there was a reference that I believe was mentioned last quarter as a benefit. I wanted to confirm if there was any effect on consumers, such as a shift in purchasing behavior or changes in the sales channels. I may have misunderstood, but I thought that was addressed in the release, which is what I wanted to clarify.

Got it. Okay. We anticipate that the mix continues to be supportive, both from a margin and a volume perspective. And then I think what we're most focused on as we roll out the brand refresh is in gaining new consumers. So we're seeking to drive trade-ups with our heaviest users and also to adapt our portfolio based on profitability metrics by channel and then drive Cola availability and singles, and that's what we should expect will be a tailwind for us going forward.

Our next question is from Chris Carey with Wells Fargo.

Can you just comment on the logistical barriers or opportunities from expanding single-serve? Obviously, your distribution network has been less geared toward that kind of offering or are things changing or the supply chain initiatives that you're going to put in place over the course of the rest of the year going to give you a greater opportunity to go after that market, that specific SKU?

Sure. I can touch on the distribution component, as you say, of the logistics with a focus on singles, and then I'll turn it over to Denise to just touch on supply chain, if there are any follow-up questions. We are not DSD, right? So direct store delivery, and that is inherently a hindrance in in-store merchandising as it relates to Cola availability across multiple channels. We are fortunate that we are a high-velocity, exciting, and leading item in natural. So we are able to get solid merchandising from our retail partners in that environment. Once we have great pull-through data, we then get greater interest from conventional despite our lack of direct store distribution and delivery in the other channels. So right now, we are driving maximum single distribution within the capabilities of our route to market as well as studying an evolution of our route to market to accommodate opportunities like drug in the cold box and most of all, convenience. So that will be a next step for us, Chris. We want to do it right and not fast, especially through the lens of profitability and unit economics, so we could sign up with potential DSD partners or a partner to expand our immediate consumption footprint efficiently and also in a way that supports profitable growth. But we're not quite there yet and more news to come on that in the following quarters. We don't really have any true logistical barriers to growing our immediate consumption business within the channels where we play today, but route to market is central in our expansion in the convenience, as you know. Does that answer your question? Or do you have any other follow-ups to that on supply chain where Denise and I could dig in?

Yes. No, that's exactly what I'm getting at, just the ultimate opportunity to expand into some of these high velocity, higher-margin single-serve channels. It sounds like this is the other foundation to start that kind of journey.

Our next question is from Joe Feldman with Telsey.

Wanted to ask about the club channel because I know you have some maturity there. And just what you're seeing how the performance has been in your most mature clubs. It sounds like it's continuing to grow. And I thought I heard you say you're getting even more club distribution. So maybe you could just share a little more color around that.

Sure. Thanks, Joe. Yes, we're lapping our launch in the club. 2022 saw the benefits of the pipeline fill in our first full year in Club, but we are not yet entirely nationally distributed, so we still have some regions to gain and more updates coming on that in the following quarters as we head toward Memorial Day in the summer. We're getting good results and we get even better results when we support the club business with sampling. So 64% of consumers that buy Zevia in Club over these past 12 months are buying it for the first time. We also can track those shoppers back to incremental channels. So adjacent channels like grocery, where they continue to spend more than the average Zevia shopper. The net learning there is a Zevia shopper at Club is a very valuable shopper, both for the club outlet as well as for our brand as they tend to stick with us and spend more. I think what's next in Club is to finish out national distribution and then to increase rotations in tea and energy drinks, whereas maybe Club wouldn't normally be considered a trial driving environment because it is a high price point purchase. We are a flavor and variety brand, and in an important better-for-you space, which is getting a lot of press and attention at the moment, so it's exciting for shoppers to discover Zevia tea or Zevia energy during a club environment. That's starting to prove fruitful, and we anticipate being able to sell multiple categories in Club as these rotational tests are successful and as we can look to drive increased distribution there.

Got it. No, that's great. There's a lot of opportunity for sure. Where do you think the share gains you're experiencing are coming from? Is it primarily from the major players like trigger drinks, or are you seeing contributions from smaller companies entering this category?

Sure. Yes. So we have really interesting and varied share of stomach data, meaning that we draw share from diet, zero sodas. We draw a share from sugary traditional sodas from the mainstream players, from isotonics and functional beverages. We also draw volume from sparkling water drinkers who have flavor fatigue, from who really sort of want a satisfying soda. We offer many different usage occasions that we have quite a broad base of what we call share of stomach. As more and more better-for-you products come online, we're also finding increased interest in Zevia. So in the notion that a rising tide floats all boats, this macro trend and seeking out better-for-you products is very much a benefit to us given we sit again at 6.4% household penetration and have a lot of upside. As we get off the bottom shelf or distributed at eye level, start to drive Cola availability, and now this summer, turn on a marketing machine, there's a lot of upside for us in this rising tide. I believe we will continue to draw a source of volume from the big mainstream players, but also just an increased interest in those that may have otherwise rejected the soda category altogether.

Ladies and gentlemen, we have reached the end of the question-and-answer session and are out of time for today's call. Zevia thanks you for your time and participation. You may disconnect your lines at this time.

Thanks, everyone.