Good day ladies and gentlemen and welcome to Zevia PBC Q1 2024 Earnings Call. Please note that this conference is being recorded. I'll now turn the conference over to Reed Anderson of ICR. Please go ahead. Thank you and welcome to Zevia's first quarter 2024 earnings conference call and webcast. On today's call are Amy Taylor, President and Chief Executive Officer; and Girish Satya, Chief Financial Officer. By now, everyone should have access to the company's first quarter 2024 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 the 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. Now, I'd like to turn the call over to Amy Taylor.

Thanks, Reed and good morning, everyone. Welcome to the Q1 2024 earnings call for Zevia PBC. I'll start by grounding us in our mission and position then cover first quarter results at a high level. Most importantly, though, today, we will cover Zevia's critical inflection point. The business is now ready and able to change its route to market starting regionally and to invest in marketing to build the brand and grow the base. Recall that the new brand visual ID is in market, the portfolio has evolved to focus on soda and to drive channel differentiation, customer fulfillment is stable and price increases, including one effective this week, have supported stronger unit economics. We are now launching regional direct-store distribution here in May. And following positive indicators from early testing, we are scaling marketing through the summer and beyond. With leadership from our new CFO, Girish Satya, we will also share a critical new productivity initiative today, enabling these turning points and allowing greater visibility for the first time in Zevia's path to profitability. As a pioneer in the consumer's number one choice in natural soda, Zevia's focus remains taking better-for-you beverages mainstream. Our mission focuses on global health for people and the planet. And in Q1, we removed another 2,800 metric tons of sugar from consumers' diets, never having sold a plastic bottle. Zevia is more affordable than 64% of nonalcoholic beverages in North America and more accessible than recent functional entrants in adjacent carbonated beverage category. In Q1, net sales were within previously communicated expectations. Volume and revenue at the start of the year were impacted by SKU distribution setbacks with two key customers following the challenges we encountered with our supply chain transition in 2023 and in transition in our portfolio as we drive focus on the fastest-growing and highest potential portion of our soda portfolio. Consumer demand remained strong despite revenue results. Velocity, which is a measure of sales per point of distribution, has improved every four-week period since the start of the year and grew at 9% versus prior year, the past four weeks ending April 21st. And an impressive 21% in the food channel which is our largest channel. Scan sales are also accelerating overall, leading the carbonated soft drink and the diet zero soda category in dollar and in unit growth. Zevia grew at 9.4% in the latest read, 23% in food and double digits across all top food accounts. We expect net sales to accelerate in the back half of the year given these trends and following recent spring resets. Our performance in key strategic channels and customers have been strong which I will cover shortly. We've communicated a 4.5% price increase effective May 6 on soda multipacks and our gross margins are strong and improving sequentially. Zevia's much-needed route to market evolution is underway as we launch direct store delivery in the Pacific Northwest. Recall that Zevia has grown for over a decade, featuring only multipack and selling to a loyal base in the natural channel and in natural sections in food. The launch of DSD will enable singles distribution and channel expansion, plus improved in-store presence and promotional effectiveness in our existing distribution footprint. This move to broad availability of a trial package supported by brand marketing is key to accelerating market penetration. The first launches in our direct store delivery network include Columbia Distributing and Hayden Beverage Company launching this week and we are in parallel setting our first regional convenience store partners. This is a critical evolution for Zevia, building out on a stable foundation. With new brand Visual ID fully in market and our first omnichannel marketing efforts underway as of April, including new advertising campaigns in key metros across the U.S., we are seeing early signs of immediate positive impact in scan data performance in those markets versus rest of market. The Zevia product portfolio has always been a rational solution for the tension between health and taste and soda but now it finds its personality, bringing a differentiated brand identity through digital and end-market marketing activation. We'll share more strategically and creatively after the next earnings call but look for Zevia in the market in a new way through the summer. These marketing and DSD efforts along with the productivity initiative that Girish will detail, are fundamental to Zevia's long-term growth plan and our vision to build an iconic brand. I'll turn it over to Girish to step through our productivity initiatives to provide an overview of Q1 financial results and speak to guidance. I'll be back to speak to channel and customer performance, brand health indicators and then to share closing thoughts.

Thank you, Amy. Good morning, everyone and thanks for joining the call today. Before discussing our Q1 results, I wanted to take an opportunity to speak about some of our strategic priorities and how we will be evolving our approach to the business in the short and medium term. I will first start with an overview of my first 60 days, how that has shifted our focus slightly and provide an overview of our first quarter financial results, including providing full year guidance and then pass it back to Amy. I was drawn to Zevia by its history of innovation and its strong consumer value proposition as the first mover in the better for you space which has seen tremendous growth over the past several years. I spent my first 60 days at Zevia getting up to speed not only on the category but also in understanding the business at a granular level. What I uncovered during this time was that Zevia does indeed have a very unique product and consumer value proposition as I originally expected but was being held back by a cost structure that was inefficient and hampering our ability to invest in growth. Specifically, there is a significant opportunity to reduce the cost of our product while maintaining or increasing its quality, as well as decreasing the cost of fulfillment in order to fund greater investment in the brand and changes in the route to market. The changes in route market should accelerate top line growth by taking advantage of the opportunity in the convenience channel as well as singles distribution where we under-index versus the competitive set. Today, we are announcing a productivity initiative that is intended to advance our long-term growth and profitability ambitions, while increasing shareholder value. The company-wide initiative is focused on allowing us to quickly evolve our route-to-market strategy and improve operating margins while also protecting and increasing our investments in marketing and promotions. This productivity initiative encompasses 3 pillars: brand maximization, margin enhancement and improving operational discipline and we expect these initiatives will deliver between $8 million and $12 million in annualized savings which we estimate will start to be realized in Q3 2024. We anticipate that we will realize these annualized savings targets over the next 4 to 6 quarters. First, from a brand maximization standpoint, we will look to accelerate our rollout of DSD partners, increasing our investment in digital channels and brand activation while increasing the frequency and efficacy of our product innovation pipeline. Secondly, in order to support margin growth, we are focusing our resources on accelerating cost savings including optimization of our contract manufacturing strategies, reduced shipping logistic costs and product costs. Lastly, we will look to build a culture that emphasizes the returns across growth initiatives while also managing working capital, including the reduction of inventory. We are also announcing today that we have completed a full-scale organizational review with the goal of reducing redundancies and removing excess management layers as a part of an effort to streamline our operations. This is expected to result in a restructuring charge of between $500,000 to $800,000 to be recognized in Q2 2024 and primarily consists of employee severance costs and we expect the annualized benefit of this action will result in approximately $2.5 million in savings as a part of the broader productivity initiative. I will now discuss our first quarter results. It's important to understand that performance in the prior period, Q1 of 2023 benefited from a number of decisions around promotion and supply chain that resulted in short-term positive impact on profitability but these negatively impacted performance in subsequent quarters. In the first quarter of 2024, we delivered net sales of $38.8 million, down 10.4% versus same time prior year. We saw a decrease in volumes of 10.4% or $4.9 million, reflecting a delay in the recovery of SKU level distribution at retailers. This was partially offset by a positive effect from our price increase last year which contributed $0.4 million. Gross margin was 45.7%, returning to historical levels and up 5 percentage points on a sequential basis but down 0.8 percentage points versus the same quarter a year ago. The decrease from prior year was driven by investments in an enhanced Visual ID to improve on-shelf visibility but offset by a favorable pack mix impact on COGS as we adapt our portfolio productivity. Net loss was $7.2 million compared to a net loss of $2.9 million last year, an increase of $4.3 million. Adjusted EBITDA loss was $5.5 million compared to an adjusted EBITDA loss of $0.5 million same time prior year. We ended the quarter with approximately $28.7 million of cash and short-term investments on our balance sheet. And don't forget that we also have a revolving credit line for an additional $20 million. So as of the end of the quarter, we had approximately $50 million in total liquidity. The productivity initiative is intended to help us get closer to a position where we are sustainably generating cash which is very important to us. That being said, it won't happen overnight as we look to balance returning the organization to growth. We are aiming to make steady progress over the coming quarters in terms of reducing our losses which we expect to begin to show up in the financials in Q3 2024 with the goal of achieving sustainable adjusted EBITDA profitability on a quarterly basis in 2026, depending on how quickly we accelerate our rollout of a national DSD footprint. Turning to guidance. As previously articulated, it has taken longer than anticipated to recover points of distribution post our supply chain challenges. As a part of the broader productivity initiative, we've considered the steps necessary in order to alter the trajectory of the business and reset the foundation for growth. We're encouraged by the increasing product velocities across recent time periods and believe that this is a signal of healthy underlying demand for the brand. Now that our supply chain is both stable and scalable, we are focused on rebuilding the base CSD business while simultaneously evolving our route to market and portfolio to include single distribution. We expect net sales for the full year of 2024 to be in the range of $158 million to $166 million and our net sales expectations for Q2 2024 in the range of $38 million to $40 million, reflecting both the delay in recovery of SKU level distribution at the start of the year and the expected improvement in the back half of the year as we begin to realize the benefits of our increased investment in promotion, our price increase, marketing and our DSD launch. While we do not provide formal guidance on gross margin and adjusted EBITDA, we do expect gross margins to remain in the mid-40s and expect sequential improvement in the back half of the year in adjusted EBITDA as we begin to realize some of the savings from the productivity initiative. I'll turn it back to Amy.

Thanks, Girish. I'll put our guidance in context of our longer-term outlook with a focus on brand health indicators, recent retail highlights and the opportunity ahead. While the full year 2024 guide is not reflective of the brand's overall momentum given the soft start, the brand velocity is now growing 9% year-over-year and 21% in the food channel, as mentioned, improving sequentially each read this year. Zevia grew 67% of the world's largest retailer in the first quarter versus prior year and accelerated again in this past four-week period to 98%. Zevia led the CSD category growth in food, in dollars and units through Q1 and logged 23% dollar growth there in the last four-week period ending April 21st. This past four-week total market scan rate is encouraging as Zevia soda grew 9.4% across all channels in dollars and 7% in units, leading CSD and the diet zero soda categories, with all conventional grocery and key natural customers growing at double digits. For numerator panel data, consumer spending on Zevia is up once again in the past 12-month period, per household by 9%, per trip by 4% and in purchase frequency by 6%, outstanding average beverage shoppers by 41%. We expect these trends to continue. Zevia's brand strength, along with the productivity initiative Girish has outlined, give us confidence in our ability to expand reach, grow the base and build towards profitability going forward. Early indicators on the impact of now ramping out of store marketing are positive. Along with the price increase, strong balance sheet and route to market changes, we believe our productivity plan demonstrates how the business is ready to scale. We're bullish on the years ahead. Thank you for the time this morning and we're prepared to take your questions.

Our first question comes from Bonnie Herzog of Goldman Sachs.

All right. I actually have a question on your sales guidance for Q2 and then the year. I guess, first, on Q2, I'm trying to understand why sales will be down so much and really why you're still facing such issues from the supply chain challenges? And then second, your guidance implies that your growth will accelerate and turn positive in the second half. And you touched on this but just hoping you could outline again or just stress the key drivers of this expected growth. And ultimately, what gives you the confidence or really visibility that growth will step up in the back half of the year?

Sure. Thanks, Bonnie. I think most importantly, notably, our scan data shows Zevia accelerating period-over-period. Returning to growth in March and then leading category growth in the most recent read. So Zevia soda grew just over 9% in April. And if you take food, our largest channel, grew at 23% in the latest four-week read. And each of these figures have accelerated each four-week period in the year. And concurrently, Velocity, as you know, sales per point of distribution is also growing both year-on-year and incrementally each period. So December was our low point in Velocity. And this year, we continue to improve as we go. So we expect these results to be better reflected in shipments and thus, net sales in the back half of the year, given the SKU level distribution gains following spring resets, given category seasonality, the current category tailwinds and then our recent and continuing momentum and then also, of course, in light of our forthcoming marketing investments. Backward looking, the volume impact on Q1 and early Q2 and thus the Q2 guide, really came from short-term distribution losses that were greater than we anticipated having greater impact on volume than anticipated. I don't know, Girish, if you have any incremental comments on the guide.

Yes, I think we're generally encouraged by the Velocity data. Additionally, we have a much stronger promotional calendar with our key accounts starting this quarter and continuing for the rest of the year. Our in-stock levels are significantly higher than last year in those key accounts. Furthermore, we are optimistic about the current velocity trend and believe that achieving our goals for the second half is feasible. In fact, our guidance for the latter part of the year is attainable.

Okay. And then maybe just a second question before I pass it on. I just thinking about your profitability, you mentioned you plan to step up marketing spend heading into the summer. So I guess I'm trying to understand the risk there might be to EBITDA. I guess if you don't see the expected lift on the top line, trying to understand how you're going to manage that? Or I guess, how much you're going to prioritize growth versus profitability?

Yes. That's a great question, Bonnie, thank you. Ultimately, part of our productivity initiative is to reallocate our resources and adjust our cost structure to focus on growth. We're concentrating on reducing various expenses, whether it's COGS or selling, fulfillment, or even SG&A, to ensure we allocate the right investment in marketing and promotion. The goal is to have the necessary resources for growth while cutting any expenses that don't contribute to that. We plan to continue balancing these efforts, and based on our announcements and the opportunities we recognize, we believe we can effectively accomplish both.

The next question comes from Jim Salera of Stephens Inc.

I wanted to maybe start off, ask you a question on the earnings deck. I think it's Slide 14 where you have some of the kind of in-store activation examples for the DSD launch. Are these the coolers and the endcap displays, are these actually something that are going to be in market? Or is this just illustrative of what might be in market and just the capabilities that DSD brings?

No, those are items that we will provide to our DSD partners to enhance our presence in stores. Importantly, DSD not only helps us launch individual products for merchandising in convenience stores and beyond, but it also allows us to utilize additional space in our current locations. This flexibility enables us to place both company-owned equipment and increase our presence in stores through endcaps and side wing racks, as well as enhance the availability of cold singles in channels like grocery. All of this is supported by the high-touch service levels that DSD brings. As we begin our initial launch in five states with DSD partners, which started this Monday, we are optimistic about maintaining stock for our high-velocity items, securing and expanding shelf space, and penetrating various areas of the store with the equipment we have. These are just some of the advantages DSD offers, and we are eager to boost brand visibility and trial, driving velocity and entering new channels with DSD.

Great. That's helpful. And then if we think about expanding DSD outside of the Pacific Northwest, what type of learnings or results would you need to see to convince other independent DSD operators to bring Zevia into their portfolio? And should we think of it as kind of like crawling East? So Pacific Northwest maybe down into California? Or can you pass work and pick different markets across the country that don't need to necessarily have continuity with the Northwest?

Sure. So first of all, what indicators are we looking for? I mean we expect that success in the footprint where we have DSD will enable singles distribution and thus trial, so expanding the base, as well as accelerate velocity in our existing footprint and we have our eye on our largest channel which is food and a real opportunity to step change growth in that footprint. That's what we expect of DSD. We also think that would be then attractive to future DSD partners and it could also impact the way retailers think about opening opportunities for incremental space dedicated to Zevia. So when we think about how to roll from here, we do expect regional rollout. And as you indicate, our brand development index is one of the top considerations of when we move to DSD or a hybrid set up in a given footprint. So your assumptions are smart in the sense that we are more developed in the West and in the Midwest and down through the middle of the country, those are more likely targets for us going forward. We will ultimately seek to enable much of our conventional business through DSD across the country.

The next question comes from Andrew Strelzik of Bank of Montreal.

This is Daniel on for Andrew Strelzik. Can you discuss how the delay in recovery of SKU level distribution at retailers is evolving? And if at all, that's impacting strategies to drive sales?

Sure. We have returned to our baseline customer fulfillment levels, and we are pleased with the stability of our supply chain, allowing us to deliver excellent service to our customers. However, we underestimated the impact that the volume of SKU level distribution in-store had due to temporarily lost distribution from last year's service level gaps. While this situation does not alter our strategy or focus, it does affect our full year outlook, as the first half of the year has been softer than brand demand would suggest, while the second half is expected to better reflect demand and our growth expectations. We remain focused on the productivity initiatives that Girish discussed, particularly in investing in marketing, and we are seeing positive early signs from these investments in the regional rollout of DSD, as well as in the accelerating growth of the brand as we concentrate on soda and optimize our portfolio.

Okay. Great. And a follow-up to that, can you frame what the expected cadence of the cost saves are and how that will show up in the P&L?

Yes. I mean I think as I noted, you'll begin to start seeing it in Q3 and I think you'll start seeing it sort of over the next 4 to 6 quarters thereafter. And I think largely, it will be sort of 1/3, 1/3, 1/3 between COGS selling and warehousing expenses and SG&A.

The next question comes from Eric Serotta of Morgan Stanley.

Hoping you could provide a little bit more color in terms of the path to profitability. Your quarterly adjusted EBITDA loss? Is it that far from breakeven in terms of dollars? You're talking about not reaching profitability until 2026, despite the productivity program ramping up. So I guess why the long runway, what does that imply that you're assuming for reinvestment, DSD investment and potential hiccups along the way?

No, I appreciate the question. And I think ultimately, there is a bit of a balancing act. We are trying to ensure that we can have the appropriate resources to really focus on driving top line and evolving our route to market, particularly as we discussed from sort of West to East and further accelerating singles and convenience store penetration. So it is that balancing act and so we are giving ourselves enough time to ensure that we can revitalize the top line while also having sort of a smoother path to profitability. So I think we'd say that's sort of how I would think about it.

Great. And then a shorter-term question. I assume that the second half top line recovery depends in part on regaining space in the spring resets. We've heard from players in other categories of these resets are a bit later than expected, a bit later than typical years. Wondering if you have any early reads with customers who have reset already and what you're generally expecting in terms of regained shelf space this spring into summer?

You're right. We're seeing the same things. Resets are a little bit later, not really sure exactly tactically why it could be as simple as operational. But when we look at our 23% growth in the latest read in the food channel which is our largest channel, we look at our top two grocery operators. They grew at 20% and 15% nationally. Our top regional grew at 40%. We grew at 98% in the world's largest retailer. The reason I share these with you is to say that when Zevia is in stock and properly supported, it's really growing. So we are bullish on the rolling impact of the reset in the spring and you see that in the difference between our second half guide versus our expected first half results. Inch per inch, I can't tell you exactly what we expect in terms of space gains but we do expect accelerated recovery on just flavors and SKU availability on our existing footprint where we already had space dedicated and then we continue to grow our penetration in what I'll call conventional channels. We're back to growth in natural and we're continuing to increase space in conventional channels almost across the board which you see again reflected in the second half. So we're bullish on resets but we're also bullish on continuing to impact in-store presence through the balance of the year, be it as being justified through our velocity or as we roll out regional DSD support to implement that.

Our next question comes from Sarang Vora of Telsey Group.

I have a quick question on the DSD distribution. Can you share how the economics of DSD would work for you? Couple of, one, how the economics work? Second is, will the DSD partners also cater your existing customers as you look at the route-to-market and then obviously, the new channels, can you share like which new channels beyond convenience you are looking to grow on the DSD side?

Sure. Yes, sure. I think we've been talking for a while now about the opportunity with DSD. We've been focused on placing branded company equipment and talked about coolers. We've talked about cold penetration. And these are some examples of what we expect from DSD. I'll answer your second question first and then go back to economics. In terms of the impact that we expected the primary new channel penetration we look forward to as a result of the introduction of DSD in the limited footprint within the country that we have DSD today, is convenience. But there's also opportunity with what we call the independent channel. So independent individual grocery stores throughout the footprint that we may or may not call on a headquarter based on the size of our organization. DSD expands your reach. We also expect significant impact on our existing footprint and we turn our attention first to the food channel, so conventional grocery where we believe the DSD operators will have the greatest immediate impact. So that's how I would have you think about where to look for that impact, albeit over a ramp-up period and just regional today. In terms of the economics, one of the reasons we're pleased with a strong foundation of a solid gross margin which is sequentially improving, is that, that allows us to invest in DSD. So that would indicate that it is gross margin points investment that is required in order to continue to drive DSD. The rest of the investments, if you think about selling and marketing expenses has just become more effective. So it's not going DSD requires us to spend more per se. We spend differently in a very laser-focused way to enable increased in-store presence and efficacy of retail. So recall that the number one driver of awareness for Zevia as for most beverage is in store. So the DSD is both the distribution arm as well as a marketing enabler.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now hand over to Amy Taylor for closing remarks.

Thank you very much, everyone. Zevia's brand strength is reflected in our recent scan data. And importantly, that scan data is the growth is accelerating every period this year and take this along with the productivity initiative that Girish outlined and I'm so pleased to have Girish along for the ride with us gives us confidence in our ability to grow the base and build toward profitability. So we are bullish on our marketing plans. Early indicators are that they have a strong impact on our ability to grow and we're excited about our phased rollout of DSD and increased presence to drive trial and expand the base. So we focus on execution, and we thank you for your time this morning.

Thank you, ma'am. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your lines.