Greetings and welcome to ZVIA PPC first quarter 2026 earnings conference 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 zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Jean Fontana, Investor Relations. Thank you, Ms. Fontana. you may begin.

Thank you, and welcome to Zivia's first quarter 2026 earnings conference call. 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 first quarter 2026 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zivia's website and investors.zvia.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 lists 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 have 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.dia.com. And now I'd like to turn the call over to Amy Taylor.

Thank you, Jean. Good afternoon, everyone, and thanks for joining our first quarter 2026 earnings conference call. We're off to a strong start to the year, with record sales growth of 21% and adjusted EBITDA of approximately $1 million, both exceeding our expectations for quarter. This is clear evidence that our strategy is gaining meaningful traction. Across channels, we're seeing encouraging momentum spanning from consumers discovering Zevia for the first time to long-time Zevia drinkers enjoying our new flavors. Importantly, this performance reflects the deliberate actions we've taken over the past several quarters to right-size our cost structure and reinvest in marketing, sharpening our innovation pipeline, and driving new distribution. Taken together, these efforts are translating into a strong setup for the remainder of the year. The momentum we're seeing today reinforces our confidence that we are on the path to long-term growth and profitability. Now I'd like to walk through our progress across our core pillars, starting with marketing, continuing through product innovation, and rounding out with distribution updates. On the marketing front, we deliver two engaging brand campaigns to start the year as we bring to life Xevia's distinction as the radically real people's champion. First, our Zetox campaign in January invited consumers to detox from artificial soda with a simple swab, choose a zero artificial, better for you alternative. The campaign came to life through experiential marketing, sampling, and digital and influencer activations and helped kick off a strong start to the year. Second, our timely and shareable Real Soda for Real Humans campaign ran in March and April, making it clear that only robots should drink chemical cola and that Xevia is the soda for humans. Paid advertising across digital platforms and live TV, including March Madness Games, was the primary driver of reach. Pop-ups at high-profile events like South by Southwest, where consumers had to prove they were humans to get Xevia swag, further amplified the campaign. Sweet Stakes, activated on social, generated thousands of entrants and engaged new consumers. We believe our mix of advertising and grassroots marketing, and more than ever our differentiated brand voice, is proving efficient and effective in building awareness, trial, and ultimately demand for Xevia. In March, we announced Xevia's biggest marketing news to date, a partnership with Grammy and Billboard Music Award-winning artist Cardi B. She, like Xevia, is a champion for the radically real. Famous for her humor, honesty, and openness, she has the 25th most followed Instagram account with over 200 million social media followers in total spanning across demographics and interests. Cardi B joins us at the perfect time as we roll out our new packaging in-store, our 2026 innovation with spring reset, and our improved taste across most of the portfolio. This will be a step change in reach and awareness for media, supporting our objective to expand the user base between cardi b and other marketing programs during the month of march zivia saw its highest ever organic social media reach and the highest level of social media engagement of any month since the brand's launch the partnership announcement alone generated 152 million editorial impressions in just the first week to kick things off zivia was a key sponsor of the little miss drama tour with a superfan giveaway and a brand presence at each stop We plan to fully activate this partnership through social media, event activation, sampling, paid media campaigns, and at retail, including potential new product innovation in the future. We look forward to sharing more on our broadest reaching brand campaign plan yet, debuting in the next couple of months. Turning to product innovation, we're pleased with the overall response to our on-trend fruit flavors as they continue to roll out nationally. While still early, initial reads show that our new items are outperforming median velocities for our broader portfolio. At two top national retailers, for example, these items are driving incrementality of 38% and 53%, respectively. Orange Creamsicle, Fruit Punch, and Peaches and Cream launched with spring resets at the end of the first quarter. These flavors are on shelves now, attracting new consumers and providing variety for our loyal base. Package design is our most efficient communication vehicle and a key driver of trial. Our new, more vibrant designs look delicious and bring to life our points of difference as a clean label, great tasting soda with zero sugar and zero fake ingredients. Along with our innovation and our enhanced taste profile in stores as of Q2, this refresh has supported space gains as it bolsters retailer confidence in ZV's ability to bring in even more new valuable shoppers and to drive repeat purchases and finally to deliver incrementality. Looking ahead, we'll continue to surprise and delight consumers with seasonal offerings such as a forthcoming holiday limited edition pack, but more to come on that in the future. So now let's move to our third growth pillar, distribution. We're pleased with our results across channels, especially our same store distribution gains in existing channels such as grocery, and our new activity in the club channel. The club channel is expected to help accelerate household penetration and growth. In the first quarter, we executed a successful national Costco rotation, broadening our reach to new consumers in emerging markets where we see potential for year-round distribution or additional rotations. In our more penetrated permanent markets, we saw strong velocities continue. In the mass channel, we saw an acceleration in velocity with notable outperformance in sales through digital platforms, a key priority for Walmart. Additionally, we are pleased with the expansion into Canadian Walmart stores, and momentum in Walmart chain-wide bodes well for feature opportunities with other customers in the mass channel. In grocery, spring resets are underway, and Zevia has made some strong space gains. Kroger has expanded our in-store distribution, adding incremental flavors and boosting Zevia's visibility. The brand made similar gains through new item distribution and improved shelf sets at major regional players, such as HEB and Publix. These developments help the brand drive market penetration nationally and in underdeveloped regions, such as the South and the East Coast. And finally, Xevia's e-commerce business continues to grow at an impressive rate, outperforming expectations. The introduction of smaller packs across multiple flavors has helped to drive trial and it fits the strategy of major e-commerce operators as they seek to compete with grocery en masse. We also see strong performance from our existing 24-pack and variety pack offerings, with our subscription business super serving a heavy user. As the only zero-sugar, clean-label offering at an accessible price point, Xevia plays a unique role in modern soda. We're positioned to win as young consumers increasingly reject conventional carbonated soft drinks and choose better-for-you options. In closing, we've made tremendous strides in advancing our strategic growth pillars and strengthening Xevia's financial position. While we see uncertainty in the macro, we're focused on what we can control, and that is capitalizing on the opportunity to leverage ZVIA's distinct market position as a great-tasting, zero-sugar, clean label, and affordable, better-for-you option. As we continue to execute across marketing, product, and distribution, we are confident in our ability to deliver sustainable, profitable growth over the long term. And so with that, I'll turn it over to Girish.

Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our strong first quarter performance underscores the tangible progress we're making against our strategic priorities. The reinvestments we've made across product, packaging, and marketing, enabled by our productivity initiative, led to a return to growth in 2025 and fueled first quarter growth of 21%, our highest growth rate since becoming a public company. In addition to accelerated top-line growth, we drove vast improvement in our adjusted EBITDA. We are proud of what we've accomplished as we believe that ZBA has tremendous long-term growth opportunity. With that, let's turn to our results and an updated outlook for 2026. For the first quarter, net sales grew 21.2% to 46.1 million. The increase versus the prior year was primarily due to expanded distribution in the club channel and higher volume gains in the mass and e-commerce channels. Gross margin was 48.4 percent, a 170 basis point decline from a record high of 50.1 percent in the first quarter of last year. The decline reflects the impact of higher aluminum costs and to a lesser degree the higher mix of club sales. This was partially offset by higher average selling price related to a shift in promotional timing as well as higher price realization selling and marketing expenses were 14.5 million for 31.5 percent of net sales in the first quarter of 2026 compared to 15.3 million for 40.3 percent of net sales in the first quarter of 2025. breaking it down selling expense was 9.4 million or 20.4 percent of net sales in the first quarter of 2026 compared to 9.1 million or 24.1 percent of net sales in the first quarter of 2025. The 370 basis points improvement was due to better warehousing and efficiency gains from automation. Marketing expense was 5.2 million, or 11.2% of net sales in the first quarter of 2026, compared to 6.2 million, or 16.2% of net sales in the first quarter of 2025. The lower marketing expense of the percentage of sales was due to a shift in timing of our national campaign relative to last year. We continue to balance brand and performance marketing with the objective of driving more awareness for zevia general and administrative expenses were 9.1 million or 19.7 percent of net sales in the first quarter of 2026 compared to 7 million or 18.4 percent of net sales in the first quarter of 2025. this includes 2.3 million or 490 basis points in litigation expenses in the first quarter of 2026 adjusted EBITDA was approximately 0.9 million compared to an adjusted EBITDA loss of 3.3 million in the prior year period turning to our balance sheet we ended the quarter with approximately 26.6 million in cash and cash equivalents and have an undrawn revolving credit line of 20 million looking ahead we will continue to build upon the strong progress we have made our car search strategic pillars our revised outlook reflects the record performance in the first quarter balanced with the ongoing uncertainty in the macro environment. In addition, our guidance reflects the different cost pressures associated primarily with higher fuel prices, as well as additional increases in aluminum costs. Now, turning to our outlook. Based on our first quarter results and incorporating increasing macro uncertainty, we're raising our full-year net sales guidance to between $170 to $175 million, reflecting 7% growth at the midpoint of the range. As a reminder, our net sales outlook reflects the planned discontinuation of our t-line which we expect to impact growth by one to one and a half points we continue to expect the first and third quarters to deliver the biggest growth of the year due to timing of promotional and marketing investments turning to profitability we now expect full year adjusted ebitda in the range of negative 2 million to negative 4 million this incorporates an incremental 6 million in cost two-thirds of which are related to the surge in fuel prices, and the remainder of which are related to higher fuel-related aluminum costs. This is on top of the $5 million in incremental costs related to aluminum prices that we outlined on our previous earnings call, so combined an $11 million headwind of profitability. This guidance assumes gross margin will be roughly in line with our Q1 gross margin rate, with slight pressure in the back half. The aforementioned fuel charges outside of aluminum costs will impact selling expense worth mentioning if you back out the 11 million of incremental costs our adjusted EBITDA outlook would have been 7 to 9 million for 2026 roughly a mid single digit margin rate while we expect these elevated prices to come down over time we're also taking proactive steps to offset these higher costs we have already taken 20 million of costs out of the business over the last two years and while we see additional savings opportunities these will take time to realize and won't be taken at the expense of growth turning to our outlook for the second quarter of 2026 we expect net sales of between 43 to 45 million once again this guidance reflects the planned discontinuation of our tea offering the lapping of sell-ins to walgreens and albersons in the second quarter of last year as well as a shift in marketing and promotional dollar spend from q2 to q3 in addition we continue to expect to realize the impact of planned price increases we expect adjusted EBITDA loss of between negative 0.5 million and negative 1 million, reflecting a gross margin rate similar to the first quarter. In addition to higher fuel costs, we also expect to incur approximately 1 million in restructuring costs related to the relocation of one of our distribution centers. In closing, we are very pleased with the overall momentum of our business, which demonstrates strong execution against our strategic growth pillars. Early reads on our enhanced product portfolio, incorporating new fruity flavors, is resonating with consumers, and we look forward to the rollout of our enhanced classic flavors and new packaging in the second quarter. This coupled with intentional investments in marketing, through which we are amplifying brand awareness and driving trial, position us well to unlock future growth. As we move past these cost pressures over time, we are confident in our ability to drive healthy profitability for this business. I will now turn it over to the operator to begin Q&A. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 1. One moment please while we poll for questions. The first question comes from the line of Sarangvura with TAG. Please go ahead.

Thank you. Great quarter, guys. Congratulations. You know, I wanted to start with the new brand ambassador Cardi B relationship. Can you talk a little bit about, you know, how you figured out the brand ambassador as well as how does it change your marketing approach as you go in the second half of the year? You know, are we expecting a little bit the guidance?

Does it include a little bit uptick in marketing as well um you know with all the plans that you talked about uh just a little bit on marketing and you know the brand evolution would be helpful thank you sure thanks sir so cardi b uh came on board as a part of our broader plan for 2026 so therefore within planned budgets and um as we may as you may have noted in our prepared remarks we talked a little bit about shifting promo dollars at retail out of Q1 this year to focus on the summer. And so if you think about our focus at retail, the timing of the rollout of our new packaging, the new flavors in market with spring resets, the improved taste profile across our core, all of that with the tailwind that Party will provide through increased awareness and through the engagement that she'll bring. It's all timed very nicely. So what you should expect from the partnership is an always on social media approach from both sides. Not only does Cardi have a really strong reach, but she's highly engaged in social. And then her fan base is very engaged with her. So we'll find her to be very supportive of product messaging in a really organic and authentic way. But we're also going to overlay a campaign spend against the partnership right out of the gates. So you'll see a campaign, and advertising campaign this summer, inclusive of traditional and over-the-top streaming television and digital that we're really excited about that will really help step change our reach and support our number one priority, which is expanding the base. So there's a lot more to the partnership that'll be within grassroots and driving trial and at retail, but we're excited immediately out of the gates about the always-on social media nature of this partnership, given her engagement, and then the big summer advertising campaign that comes just at the right time for the business.

And just one quick question. I know there's a lot of cost pressures you've talked about, especially tariffs and, you know, the fuel prices and stuff. Can you talk about the pricing approach to it? Is there a thought to raise prices in the back half of the year to mitigate some of these costs? Is that baked in your guidance as well? Thank you.

Yeah, so from a pricing perspective, as a reminder, you know, we passed through a price increase in the first quarter. We've been pleased with the uptick in higher price realization. We are focused on ensuring we can balance value to the consumer and the P&L as well. We're unlikely to be passing through incremental pricing in the back half of the year. We do believe that the cost pressures although are immediate in 2026, they will subside over time and we're proactively addressing it via other levers within the business.

Mr. Voro, are you done with the question? Thank you. Yeah.

Thanks, Jerome.

Thank you. Next question comes from the line of Eric Taylor with Craig Hullum Capital Group. Please go back.

Great, thank you for taking my questions, and congrats on a very strong quarter here and a very strong outlook, you know, factoring in the significant cost pressure that you guys are facing. I mean, very impressive outlook, and nice job done. Thanks, Eric. My first question, just kind of trying to level set or just understand where we are in the overall rollout of the new packaging and new flavors. You know, certainly nice progress and some nice, you know, call outs in the prepared remarks and in the presentation. But I'm just wondering if you could sort of give us, you know, an overall sort of standing of, you know, what ending we're in and how long we should look for the rollout of new packaging and new flavors to continue before we've sort of, you know, effectively reached full nationwide distribution.

Sure. Sure. So as we sit here today in May, I would say we're in the second inning. The Q1 result was pregame as it relates to the rollout of new packaging. And what I mean by that is by the end of the second quarter, you should find shelves are stocked with almost all new packaging. So we've got some early green shoots, you know, we've got some accelerating velocities and some nice results at retail that it's too early to attribute those directly to the new packaging, but qualitatively and anecdotally, both in feedback from consumers and retailers, the new packaging performs very well for us in terms of communicating the Xevia points of distinction and being very clear about our positioning, which is a step change over the packaging of the past, as well as pops well on shelves and kind of does justice to the variety. and deliciousness of all of our flavor options. So it's early going, but we will be all the way to bright going into the back half of the year. And so that's partially baked into our presumptions of some acceleration of velocity in the back half.

Okay, great. That's super helpful. And just to, I guess, clarify there, and also I think it informs my next question here, but did you say that you expected to be largely complete sort of entering the back half of the year? And then I think this, okay. All right, great. So then this, I assume is the answer to my next question here. I'm just, there was comments on the sort of pace of revenue growth throughout the year. I think it was especially strong in Q1, of course, that you called out Q3. Could you just kind of help close the loop there on what's driving that acceleration in Q3? Is it just kind of stepping on the gas on this distribution rollout, or is there any other forces at play, shelf resets, et cetera, that we should be aware of?

So, I think there's several things that are factored into sort of the, you know, growth rates being higher in Q1 and Q3. In Q3, you know, we are shifting not only promotional dollars, but also marketing dollars into Q3 to sort of coincide with the peak. The peak that Amy alluded to, the packaging will be fully rolled out by the end of Q2. And so we're expecting a bit of an acceleration given all those three factors in Q3, which is why we've been calling out Q1 and Q3 as the sort of higher growth quarters for the year.

Awesome. Those are all my questions. Congrats again on the very strong quarter and strong outlook here, including the cost. Thank you very much. Thank you, Eric.

Thank you. Next question comes from the line of Jim Saler with Steve and Nick. Please go ahead.

Hi, Mihaly Gersh. Thanks for taking our question. I want to start maybe some discussion around club. You mentioned you just completed the rotation at Costco. Kind of completed in your outlook for the rest of the year, is there any incremental club rotations in the back half of the year or anything that we should be thinking about in terms of visibility there? And maybe as a second part to that question, can you talk about the incrementality of the rotation in Costco and how many either new households or maybe lapsed users, did that help you engage? Sure.

Well, it's early to quantify the household penetration impact of the Costco national rotation in Q1, but it certainly was additive to the quarter, incremental and reflected in our growth. The advantage of the national rotation does a couple things. Number one is it strengthens our velocities based on increased presence in store in the markets in which we have permanent distribution, as well as helps to spur discussions about future rotations for the regions in which we have rotational distribution, And then opens up a conversation about, you know, two things, increased permanent distribution and or future national rotation. So those are all on the table and represent upside to the plan. You know, when we perform well in existing markets, it helps us to move from rotation to permanent and it helps to infuse what we're working on right now. The hope is that we would get another national rotation balance of the year. So all of that is promising and largely incremental. But as I mentioned, it does represent upside in the plan. So right now, we're not making a whole lot of assumptions in the back half of the year around incremental distribution at CLUB beyond where we are today.

Great. So I would just ask a follow-up on the DSD network.

Just any updates there and how that's trending, and maybe as we have some of this new packaging that should improve on-shelf visibility, how you anticipate that impacting, you know, the kind of west coast portion of your business that's supported by the dsd network yeah i think we're really bullish on this summer window for the market with dsd for our ability to drive incremental displays in this critical window we're focused on getting singles in front of the consumer on display we're focused on leveraging the new excitement around car eb as being part of the reason why against that as well as as we mentioned before we focus promotional dollars for the summer so dsd will have a role in outperforming display execution versus the rest of market there, and we're happy with their ability to do that so far. But in terms of an outlook on DSD, we're just really focused on execution in our what I'll call regional pilots today, which is, as you mentioned, in the northwest and the southwest, so focused on the west coast. We're a little bit more developed, and we don't have any more plans to expand DSD outside of the existing footprint, but we are bullish on their ability to help us open up new channels and specifically convenience over time. And we've talked about this before, but both the category and the brand are still in very early days in convenience. So, we'll pace ourselves there and focus more on same-store penetration and growth in independent channels in the meantime.

I appreciate the thoughts. I'll hop back in the queue.

Thanks, Jim.

Thank you. Next question comes from the line of Anto Strelzik with BMO Capital Markets.

Please Hey, good afternoon. Thanks for taking the questions. First one I wanted to ask on the quarter, you know, obviously a nice upside to your expectations, your guidance for sales and EBITDA in the first quarter. So I was hoping you could maybe talk about what played out more favorably than you initially expected.

Yeah, I can talk about the sales side and then just quickly turn it over to Girish. But, you know, I think the key point here is that our base business is and was strong in Q1. And as mentioned, we shifted promo out of the quarter to focus on the summer and yet retail sales came back stronger than anticipated. So we saw some good velocity acceleration, even as we lapped new distribution, so across grocery, Whole Foods, and a few other accounts where we're actually gaining share as well. And then in some other cases, there was contribution to the queue from new distribution, be it that Costco national rotation or a few other same-store expansions within grocery. And then we're pleased to see price increase more fully realized and then realized faster than anticipated. So on the net sales side, those were the major drivers, and maybe Gears could round us out.

Yeah, and I think the other two factors were, you know, the Costco rotation was less dilutive than we had anticipated. As Amy alluded to, we also saw higher price realization, which obviously helps flow through the rest of the P&L. And we've just continued to ratchet down expenses that are not consumer-facing and continue to drive, you know, cost discipline throughout the organization. So I think you see all of that sort of playing out in Q1 results.

Okay, great. And maybe, you know, building on that, you guys beat your 1Q guidance by, you know, call it $5 million and only raised the revenue outlook for the year by one to two. Are you seeing anything that's making you more cautious about the outlook? Is there anything from your internal plans that's changing? Maybe it's just conservatism. I just want to take your temperature on the floor.

Yeah, thanks for that. And look, we're really pleased with the outperformance thus far, and there's really nothing in the business itself that makes us more cautious. As a reminder, we have a very broad demographic base, and we're simply seeing sort of the K-shaped economy that all others are, and the value consumer is getting squeezed. And so really out of an abundance of caution, you know, we didn't pass through all of it and, you know, we're still early in the year and we'll we have a lot of exciting new initiatives that are in front of us, which gives us a lot of positivity heading into the rest of the year. However, as noted, the macro continues to give us a little bit of pause.

So really, we're we're trying to be prudent in our outlook. okay if i can maybe squeeze one more in on the the six million dollars of cost um is that ratable through the year across the the three remaining quarters and in the past you guys have you know done a nice job finding incremental cost saves to offset that i know you said that those will take some time to to to play out i guess how long do you think it will take before you start to maybe realize some of those potential offsets? Thanks.

Absolutely. So, yes, we've already begun to see the impact of the increased fuel expenses, primarily, as noted in our freight expenses. We started to see that in the back half of March, more fully in April and May. And so, you'll begin to see that impact in Q2. And as noted, it'll be radically throughout the year. Of course, to the extent that there is a ceasefire and diesel prices come down, you know, you will take 90 to 120 days to really see the full offset of that come back into the P&L. That being said, as a reminder, you know, we've taken $20 million of cost out of the business. We see an incremental opportunity for three to five that probably won't begin to flow into the P&L till Q4, but really most likely Q1 of next year. And so, you know, we'll continue to look for opportunities, but we're not going to, we're not going to do it at the expense of growth. And as just a reminder, you know, on a trailing 12 month basis, you know, we're basically break even from an adjusted EBITDA standpoint, you know, despite all the cost pressures. And so we do believe in the long run this can be a very solidly profitable business, especially as we sort of lap some of these more macro cost shocks that are out of our control. Absolutely. That makes sense. Thank you very much.

Thank you.

A reminder to all the participants that you may press star and one to ask a question. Once again, a reminder to all the participants that you may press star and one to ask a question. Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Amy Traylor for closing comments.

Sir, thank you. Just very briefly, thanks for joining us, everyone. I'll just reiterate, you know, we're really encouraged about the progress we're making across our strategic growth pillars. And I'm really proud of this team, you know, the leadership on down. And 2026 will be a pivotal year for Xevia as we introduce exciting new product innovation, powerful marketing campaigns, and then package design evolutions, all of which really support our unique positioning within Better4U beverage. And while we're, as Girish mentioned, navigating macro-related cost pressures and some uncertainty, we really believe we have laid the groundwork for long-term future growth and profitability, and Q1 seems to be a reflection of that. Excited about the future. Thanks very much.

Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.