Ladies and gentlemen, greetings and welcome to the ZVIA PBC Q4 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference has been recorded. It is now my pleasure to introduce your host, Alex Liskin from ICER, please go ahead.

Thank you and welcome to Xevia's fourth 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 and Principal Accounting Officer. By now, everyone should have access to the company's fourth quarter 2024 earnings press release and investor presentation made available this morning. This information is available on the Investor Relations section of Xebia's website at investors.xebia.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 accompanies 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 for joining us for our fourth quarter and full year 2024 conference call. We are pleased to have ended the year on a strong note with a return to top-line growth and progress toward our goal of achieving profitability. We elevated our brand identity, advanced our three strategic growth pillars, and continued to lay the foundation for our plans for sustainable long-term growth and profitability. I want to thank the Xebia team for their commitment and dedication to executing on these priorities. I am as confident as I have been since joining Xebia about our long-term opportunities. Our optimism in the future is based on three factors. First, the Better For You Soda category is in the nascent stages, and we believe there's tremendous growth opportunity as more consumers move toward healthier-for-you options. Natural soda is growing six times faster than conventional soda, which comprises 25% of all soda growth, and Mintel projects natural soda will more than double the growth of conventional diet and zero soda in the next five years. This shift is further evidenced by the fact that large retailers are dedicating prime real estate to this emerging category. Walmart's launch of the modern soda set and Albertson's recent launch of a renovated better-for-you soda set are great examples of the speed and scale of this change. Second, we believe we are uniquely positioned within this fast-growing and dynamic category as the only brand that combines great taste, zero sugar, and naturally sweetened soda at an accessible price point. We have seen that once consumers try Zevia, they are highly engaged. So our focus is on amplifying our brand and our clear points of differentiation on taste and ingredients to drive trial and continue to grow the base. And finally, we believe that the foundation for long-term success lies in creating a brand that consumers love and delivering great products along with an exciting pipeline of innovation. The work we have done to sharpen Sevia's brand identity, as well as to elevate our products, are setting us up to deliver on both. While we recognize that discovery and trial happen over time, we're excited about the green shoots we're seeing and our positioning for the future. We have advanced our strategic growth pillars of amplified marketing, product innovation, and focused distribution expansion while maintaining agility within this rapidly changing category. So briefly highlighting our results, which we pre-announced in mid-January, we returned to growth in the fourth quarter with sales increase of over 4%. We grew in volume and in dollars, which is also reflected in our scan data, and adjusted EBITDA improved by $3 million as compared to the fourth quarter of last year to negative $3.9 million through the savings we achieved from our productivity initiative. We invested in brand-building initiatives weighted in the back half of 2024, while also flowing a portion of the savings to the bottom line. We see additional cost savings opportunities, and we remain confident that we will achieve positive adjusted EBITDA within 2026. Geras will speak to this in more detail shortly. Now I'd like to provide an update on the progress we've made across our strategic growth pillars. Starting with marketing, we believe that the work we have done to sharpen our brand voice is cutting through and resonating with the consumer. We made strides in elevating our brand identity across mediums, as reflected in our Break from the Artificial Holiday campaign, which delivered a lighthearted parody of the artificiality, content, and in beverages. This campaign went viral in December and served the brand very well to communicate our positioning as the real zero sugar soda in a world awash of fake. Its performance merited incremental investments, and we took it from digital to linear TV. We will scale the success of our break from the artificial campaign into a comprehensive brand platform with additional campaigns that engage a broader audience with compelling content that clearly communicates the benefits of Xevia in a fun and memorable way. As we've said, our marketing spend is largely focused on driving awareness and trial. Bevious consumer is highly engaged in the brand, exemplified by a repeat rate of over 40%, and an average brand spend per household, which is an impressive 38 percentage points higher than the average beverage shopper. However, with household penetration in only the mid-single digit range, we have a lot of room to grow. And so as such, we're increasing our marketing investments in 2025, leveraging the learnings of last year. We are still in the early stages of this journey, and we expect these actions to build momentum over time. Turning now to product innovation, our second pillar, we have two key drivers of growth in the 2025 pipeline. One is a breakthrough we've had in a more sugar-like taste experience, which will be introduced in our new flavor launch, Strawberry Lemon Burst, this spring. This enhanced flavor profile will also be applied to other key under-leveraged flavors within our portfolio. And then secondly, we have a more robust product innovation pipeline coming into 2025. So in addition to Strawberry Lemon Burst, which will be nationally distributed across channels, we're also launching retailer exclusives, such as Orange Creamsicle at Sprout. And then finally, we'll launch limited edition seasonal flavors, building on the success of the outperforming salted caramel flavor in 2024. In addition to flavors, we'll be scaling multiple variety pack offerings for the first time at retail to support efforts in driving trial and expanding the base. We recently launched our first retail variety pack at Walmart as an eight pack, which is our top velocity skewed within that set. Building on our success there, we are rolling out 12-pack variety packs across the grocery and natural channels currently, and we will continue to test additional configurations. Not only can these variety packs drive incremental velocity, but they can also convert shoppers to their favorite higher-margin straight flavor packs. So moving us along to our third pillar, distribution expansion. In parallel to top of funnel marketing investments, we're also focused on growing awareness, accessibility, trial, and repeat through expanded distribution. We recently expanded our presence from 800 to more than 4,300 Walmart doors in the U.S. In a precedent-setting move within the category, Walmart recently introduced a new set called Modern Soda, featuring a selection of leading low and no-sugar brands with Better For You positioning. This should raise awareness both for Better For You Soda and for the Zevia brand, and it helps to drive market penetration, particularly in fast-growing geographies like the Southeast. In grocery, we continue to see strong results, as evidenced by scan data, and we believe that there remains ample opportunity to increase penetration. Albertsons, one of our key partners, has created its own Better For You set where Zevia will have a strong brand block at eye level in a vertical shelf set. Lastly, we continue to see progress in our direct store delivery or DSD regional pilot. Grocery is outperforming rest of market in the Northwest, where our DSD initiative has been deployed for several months. And now we plan to expand into the Southwest, starting with Crescent Crown in Arizona with neighboring states to follow. We believe our DSD initiative will improve in-store presence and enable singles distribution across key channels over time. Big picture, VVIA remains focused on being the better-for-you soda with an authentic brand connection with great-tasting products at accessible price points with nothing artificial in our ingredients or in our claims. We are more excited than ever about our future. We have a clear brand voice and are making increased investments in marketing to drive growth. We're also gaining distribution with recent and with upcoming shelf recess. And then lastly, we have strong innovation in the pipeline. With a clear path forward and strong momentum behind the category Better for Youth Voda, we expect these initiatives to pay off in the back half of this year and going forward. And so with that, I'll turn the call over to Girish.

Thank you, Amy. Good morning, everyone, and thanks for joining our call today. Looking back at 2024, we laid the groundwork for future growth and strengthened our financial position, largely through the successful execution of the productivity initiative we commenced in March. We have reinvested the majority of these cost savings thus far into our enhanced promotional strategy and building brand awareness, while also flowing through a portion of the bottom Turning to our fourth quarter financial results, we delivered net sales of $39.5 million, an increase of 4.4% as compared to the fourth quarter of last year. This was driven by increased volumes as we expanded from 800 Walmart locations to more than 4,300 in late November. The improvement in net sales during the period was driven by an 11.6% increase in cases sold on an equivalized basis. Partially offsetting this was the decision to increase promotion would select new and existing retailers. Overall, we continue to hone in on the optimal mix of frequency, depth, and breadth to drive volume while protecting margin. Gross margin was a record high of 49.2%, an increase of 850 basis points from 40.7% in the fourth quarter of last year. This improvement reflects the cycling of inventory write-downs in a prior year associated with our improved inventory management. Additionally, gross margin continues to benefit from our productivity initiatives. These improvements were partially upset by the aforementioned increase in promotional activities during a period. Selling and marketing expenses were $16.5 million for 41.7% of net sales in the fourth quarter of 2024, compared to $13.8 million for 36.6% of net sales in the fourth quarter of 2023. The increase was primarily due to the incremental investment in advertising associated with a viral holiday campaign that Amy discussed earlier. This was partially offset by a reduction in warehousing and freight transfer costs associated with our productivity initiative. General administrative expenses were $6.8 million, or 17.3% of net sales in the fourth quarter of 2024, compared to $8.4 million, or 22.2% of net sales in the fourth quarter of 2023, largely driven by cost savings initiatives. As a result, net loss was $6.8 million compared to a net loss of $9.2 million last year, an improvement of $2.4 million. Adjusted EBITDA loss was $3.9 million compared to an adjusted EBITDA loss of $6.9 million in the prior year period. Turning to our balance sheet, we continue to enhance our liquidity position. We ended the quarter with approximately $30.7 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. For the full year, fiscal year 2024, this represents an improvement in operating cash flows of $15 million. Moving to our full year results, for the full year 2024, ZVIA achieved net sales of $155.1 million, a decrease of 6.8%. The decline was driven by loss distribution in select channels and increased promotional spend, partially offset by increased pricing. We realized healthy growth margins of 46.4% versus 44.9% in 2023 as we more effectively manage our inventory. Net loss was $23.8 million as compared to a net loss of $28.3 million in 2023. An adjusted EBITDA loss was $15.2 million for the year compared to an adjusted EBITDA loss of $19.1 million for the full year of 2023. Now turning to our outlook for principle 25. We see additional cost saving opportunities of approximately 2 million, which is expected to bring us to a total of 15 million in annualized savings from our productivity initiative. This target is inclusive of the recent reduction in workforce that we executed on February 7th, which is expected to result in an additional 1.7 million in savings. This most recent action completes the organizational redesign we began in Q2 2024. We continue to see additional areas of efficiency largely in cause of selling expenses that we expect to realize in 2025 and into 2026 as we focus on further optimizing our product portfolio. Looking to the future, we intend to balance reinvesting those savings into driving revenue growth while remaining committed to reaching positive adjusted EBITDA in 2026. Turning to 2025 guidance, we estimate net sales in the range of $158 million to $153 million. This reflects the previously discussed gains in distribution Amy mentioned earlier, an offset by the lapping and loss distribution at one customer in the mass channel and in the club channel, as well as the discontinuation of kids and mixers lines, for which we expect the majority of impact to occur in the first half of the year. Looking at the quarterly cadence, please note that the second quarter and third quarter are historically the highest-long quarters of the year due to season analysis. We expect an adjusted EBITDA loss in the range of $8 million to $11 million for 2025. This assumes gross margins in the high 40% range, as well as other expense reductions as part of our cost savings initiatives. We plan to increase marketing investments, primarily in the first and third quarters, in order to capture the strong momentum in the Better for You Soda category. For the first quarter, we expect net sales of between $36 million to $38 million. This guidance reflect the aforementioned distribution losses related to the club channel and one of our mass retailers, as well as more cautious consumer behavior, partially offset by the extended distribution at Walmart. While these impacts will continue into Q2, we also expect to regain some distribution and therefore anticipate a return to growth for the full year. We expect Q1 adjusted EBITDA loss to be between $5.6 million and $6 million, reflective of the increased marketing investing in Q1, as well as higher promotions I noted earlier. While this does not impact the depth of EBITDA, please note that in conjunction with our workforce reduction, we will recognize approximately $1.6 million in severance and restructuring expenses in Q1 2025. By the end of Q1, we expect to have also concluded the vast majority of our restructuring activities and expect only de minimis restructuring expenses for the remainder of the year. In closing, we believe that the work we've done over the last year, combined with our unique market position will enable us to capitalize on the enormous tailwinds within the natural soda and better for you beverage category. I will now turn it over to the operator to begin Q&A. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Jim Salera with Stephen Sink. Please go ahead.

All right. Good morning, guys.

Thanks for taking our questions.

Amy, I wanted to maybe start with some thoughts around the new customers you've been interacting with at Walmart and just any trends you can speak of, kind of engagement, repeat rates once they become introduced to the Zevia product, especially with kind of all the new news about, you know, incremental entrance to new brands entering the category. Just thoughts on how you feel, you know, Zevia holds the new ones they engage with.

Yeah, thanks, Jim. We are really excited about moving from 800 Walmarts selling Zevia to 4,300 now. And it does a tremendous job for us to step change household penetration. And as I mentioned in the prepared remarks, especially across the southeast, which is the highest engaged region in Soda, and now the fastest growing for us based on the penetration opportunity. I guess another comment I can share about our early stage performance at Walmart, the variety pack from Zevia is our fastest selling skew, the strongest velocity. And what we know about variety packs from the past, both in e-commerce and now in early days in retail, because it's new at retail, is that not only does that drive trial folks trying Zevia for the first time, But it also leads to the purchase of incremental straight flavor packs when people find their favorite flavors, which also happen to be, you know, higher margin. So we have a great sort of virtuous circle going in the early days with Walmart, which is step change household penetration, trial with new users, and strong initial repeat. You know, the other exciting thing, Jim, just to mention is this is somewhat of a precedent setter as retailers figure out how to frame this exciting and increasingly competitive category. And we see Walmart and Albertsons and others starting to frame it together as a better-for-you destination within store. It's a rising tide that floats all boats. It's a very competitive environment. But for us, our greatest opportunity is to grow the size of the base. Once a consumer enters ZVS through trial, they repeat. We know this to be the case.

So the example that you serve up here in Walmart helps us to step change awareness, trial and household penetration, which is really our top priority. okay great and then gears maybe one question on just expectations around gross margin in 25 how should we think about you know kind of balancing uh driving excitement around you know expanded distribution and getting that initial trial with obviously maintaining the you know the gross margin gains that you guys have uh won over the past couple years yeah no No, thanks, Jim.

You know, part of the gross margin gains have also come at or have also reflective of increased promotional spend. So I think in, you know, from that standpoint, where we believe we can maintain, you know, gross margins in the in the high 40s, give or take, while also investing appropriately to drive trial and, you know, effectively drive the business. So I think we've loaded the appropriate amount of promotion into the P&L, and now I think it's really about ensuring that we're driving the correct depth, breadth, and frequency of promotion.

Okay, great. Appreciate the call, guys. I'll hop in with you.

Thank you. The next question comes from Andrew Strzelzik with BMO. Please go ahead.

Hi, good morning. This is Daniel Gold on for Andrew Strzelzik. Thanks for taking my question. Good morning. Good morning. What do you expect will be the cadence of sales growth through the year, given the implied 4.6% decline in 1Q and 3.5% growth for the full year? And why that deceleration from 4Q, particularly given the elevated marketing spend? Is that really just a function of lapping the step up?

Yeah. So we're excited about Q4 and returning to volume-driven growth, primarily driven by the pipeline sale at Walmart. I think Q1 is – and, you know, we're very confident about the distribution gains that we've secured for the full year, which is what is really going to drive, you know, our growth for 2025. I think Q1 is probably the most challenging comp, partly because of the impact of loss distribution from one math customer, as well as the lapping of loss distribution and club. And so really when you think about as well as the discontinuation of the kids and mixers lines. And so when you think about cadence of growth from a modeling perspective, we expect Q1 to be, you know, as noted, slightly down the flat with Q2 and Q3 being the highest volume quarters. And then to address your point, I think your second question in there was about marketing spend. And I think really Q1 is reflective of higher marketing spend, driven primarily by what I'd call non-working marketing, which is really production expenses, which we expect to benefit us later in Q2 and primarily in Q3 as well.

And Dan, just to build on that really quick, I think Gears did a great job of talking to the phasing of the timing of our expectations for the year and our return to growth on the full year, which we're excited about. I'll mention that scan data has accelerated the last five, four-week periods, showing double-digit growth in the last two. We're really pleased with the trajectory. We're performing well at Walmart. We've talked about that, despite really heavy and increasing competition. So when we look at things like a grocery shelf reset at Albertsons forthcoming in March, specifically, contributing to accelerating growth, the balance of the year, and then you add to that innovation, also launching this spring, and then increased investment in really compelling marketing. We're bullish about the trajectory, and we're cautious on the unknowns, given the macro and increasingly competitive environment.

That's really helpful. Thank you.

Thank you. The next question comes from Sarangvura with Telsey Advisory Group. Please go ahead.

Great. Thank you, guys. You know, my question is on the DSD model. I feel like it's been a couple of quarters that you have rolled it out in Pacific Northwest, parts of, you know, Arizona. Can you share some of the key observations from the model and, you know, how it has transformed your business in those parts of the region? Thanks.

Sure. Sure. So, no problem. So, speaking about direct store delivery, or DSD. We've piloted this hybrid route to market in the northwest, and the DSD operators there across four states have enabled outsized growth in grocery relative to the rest of the market. How are they doing that? By addressing out-of-stocks through increased merchandising. By activating our programming that Girish was speaking about earlier as we right-sized our promotional activity, the DSD operator is able to drive display and greater in-store visibility in a more competitive manner. And so we see outsized growth in grocery in the DSD footprint relative to the rest of market. Then the other thing that DSD does for us is enable singles merchandising and thus new singles distribution, which is critical for trial. We're building that over time. It will take time. But what's exciting about this immediate next several months is that as retailers are resetting shelves, we will pilot into a number of regional convenience stores to develop some learnings there and some initial proof points. The category is in its very nascent stages in convenience. In terms of next steps, we are now moving into the Southwest, and this is not to indicate a rapid national rollout, but rather an expansion of a second region to continue to capture learnings, again, about a hybrid route to market, some channels being addressed through DSD, and it's a worthwhile investment, we believe, based on what it enables, the way I walk through that in grocery and then in the opportunity with singles inclusive of convenience so we're bullish on what dsd can do for us but we're also really thoughtful about our pace and we're capturing learnings now in one and then over the next several months to broader and very competitive and important regions that's great and you know i just have one one quick follow-up on the marketing

it seems like you know since holiday marketing has really stepped up a lot of buzz um in social media on your marketing how should we think about like the role of marketing in 25 like it seems like you're stepping up the investment does it correlate to like you know have you seen any correlation in terms of like uh sales in in markets like la where you have really stepped up a lot more than others so i'm curious to know how you have you think of marketing what's new coming up um you know in 25 uh anything different and then um in general like how much is an increase in spend on marketing you're thinking for 25 relatively thank you so wrong you're hitting on

my favorite topic so thank you we are very excited about the marketing that we have in the market and our confidence in the quality of the creative and the strategic nature of the mix are exactly why we're increasing our investment because we really believe in what we're doing and we have tremendous proof points starting with the campaigns as you mentioned that resonated with the consumer so well in December, and we know that through, for example, 82% positive sentiment from social commentary. Very rare these days, if you think about what social commentary normally sounds like. So as I've stated in the past, we've historically under-invested in marketing for a growing beverage brand, and especially now if you look at the competitive environment. So we expect to increase marketing spend to do what we really believe is the right strategic thing for the brand, and that's focused on awareness. And to be specific, we're thinking about and planning for, let's call it, low double digits in percentage of sales as a marketing investment, which is materially increased from the past, but also funded through our productivity initiatives. Specifically, we're learning a lot about marketing. In some of our key accounts, we are able to report on, internally anyway, marketing attribution, meaning what portion of the volume increase is attributable to marketing. So we study that at a key account level and scan what works. We also have a brand health tracker in the market where we can measure all the way down the funnel awareness trial conversion that gives us directional confidence in efficacy of marketing and then we'll be putting some incremental modeling into the market something called a marketing mix model to continue to fine-tune tactics and and weighted investments going forward and then we always do concept and copy testing with our creative we know we had lightning in a bottle in December with a campaign that went viral. We're building on that now with our continuing break from artificial campaign. And I'm excited about what's coming in March as we elevate that campaign and bring it to more people with some familiar faces behind the brand. So, thanks for asking about marketing. It is a fundamental reason why we believe in our long-term opportunity and one of our top priorities for the year.

Great. Thank you. Good luck ahead.

Thanks.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Amy Chela for closing comments.

Thank you very much, Diko. Folks, thanks for joining today. We are obviously really excited about what's ahead for Xevia. It's an exciting time to follow the story, so we thank you for following along. we know that the trend toward better for your products and toward health is here to stay but we also know that people love soda so as a soda brand that has zero sugar natural ingredients and importantly in this moment is priced excessively for your average american household we're really bullish in our ability to compete in an increasingly competitive environment we are excited about our key strategic pillars and just to reiterate those we're amplifying marketing we're moving at a faster pace in product innovation with great tasting products in on-trend and relevant flavors and then finally we're driving and sustaining distribution with really meaningful strategic partners with early green shoot indicators for that so as i mentioned it's an exciting time to be following the xevia story and we thank you for your attention today thank you this concludes today's teleconference you may disconnect your lines at this time thank you for your participation