Zevia PBC (ZVIA) Q3 2026 Earnings Call Transcript

Additional capital, we believe we have the potential to triple the size of our business over time. Going forward, we intend to be more proactive and faster in bringing complementary products and brands to market, leveraging the learnings from Zidia Reboot, our existing distribution network, and scalable supply chain infrastructure. At the same time, we will continue to strengthen our core Better for You Soda offering. Taken together, we believe these initiatives can meaningfully broaden our addressable market. Diversify our growth drivers and position us to respond more quickly to evolving consumer demand. Second, scale a digital-first consumer ecosystem. Supplementing branded levels, investments, and new product offerings, we will build a target digital marketing plan to drive consumer engagement and demand creation across the portfolio. We plan to prioritize spending lower and mid-front digital channels where we believe we can gain greater efficiencies and strong ROI. This includes increased use of creators and micro-influencers to reach target audience. Through deeper cultural relevance and expanding our share of conversation, we believe we can drive engagement across a broader consumer set, particularly among younger consumers. By pairing a strong innovation pipeline with a more effective demand generation, we believe we can accelerate awareness and trial, deepen engagement, and create a more powerful platform for long-term growth. Third, execute a hybrid go-to-market model. We believe sustainable growth requires greater visibility, broader distribution, and easier purchase occasions. Building on my comments earlier, we will leverage our distribution network to build our market presence in new products. This includes continuing investment in our proven West Coast DSD infrastructure, strategic merchandise support in no DSD markets, expanded e-commerce and food service capabilities, and a scale singles strategy designed to drive discovery, trial, and repeat purchase. In closing, we believe Ziva's entry is an exciting new chapter. We have strained our foundation, begun to see encouraging early proof points across our focus areas, and now have additional capital and strategic support to accelerate our ambitions. Our vision is simple, to make our portfolio the most relevant and accessible Better For You beverage brand for the next generation of consumers, and maximize values to check holders. As we move into 2027, our focus will shift from simply being available to become impossible to ignore through differentiated innovation, superior taste, stronger cultural relevance, and the best-in-class retail execution. We look forward to updating you on our progress in the months ahead. With that, I will turn the call over to Girish.

Thank you, Alexandre. Good afternoon, everyone, and thanks for joining our call today. Our strong third quarter results reflect growing momentum across the business and meaningful progress against our key priorities, with both net sales and adjusted EBITDA exceeding our expectations. As a result of the momentum in our business and the progress we are making on strengthening our foundation, in addition to lower than previously expected fuel costs, we are raising our full year net sales and adjusted EBITDA guidance, which I will speak to in more detail shortly. This stronger foundation, combined with the equity investment in our business, It's expected to help us accelerate investment behind our next phase of growth. The additional resources position us to more intentionally accelerate product innovation with a focus on the functional beverage space, scale our digital-first ecosystem, and execute a hybrid go-to-market strategy. Turning to our financial results in more detail, third quarter net sales increased 18.4% to $48.3 million, primarily driven by our national rotation in the club channel and strength in our e-commerce channels. We are also pleased to see higher net average selling price, reflecting acceptance of pricing actions taken last quarter. As expected, the reset of our club business created some fluctuations in growth over the past several quarters. However, with those transitions largely behind us, we expect the club channel to contribute more consistently going forward. Gross margin was 46.4%, an 80 basis point increase from 45.6% in the prior year quarter. As a reminder, in last year's third quarter, we recorded an $800,000 write-down related to obsolete inventory associated with the package redesign. In our third quarter of 2026, we were impacted by higher aluminum costs as previously expected. Selling and marketing expenses were $15.1 million, or 31.3% of net sales, in the third quarter of 2026, compared to $12.7 million, or 31% of net sales, in the third quarter of 2025. Breaking it down, selling expense was $8 million, or 16.5% of net sales, in the third quarter of 2026, compared to $7.7 million, or 18.9% of net sales, in the third quarter of 2025. The increase was largely given by higher freight expense related to increased volumes and elevated fuel costs, partially offset by savings from warehousing efficiencies. Fuel costs were lower than initially expected by approximately $900,000. Marketing expense was 7.2 million, or 14.8% of net sales in the third quarter of 2026, compared to 4.9 million, or 12.1% of net sales in the third quarter of 2025. As anticipated, marketing expense of the percentage of sales increased year over year, reflecting targeted investments to broaden brand reach and elevate consumer awareness, particularly through the launch of our Cardi B campaign. As Alessandre mentioned, we are seeing strong engagement and an increase in brand awareness. Which bodes well for our future revenue opportunity. General and administrative expenses were 8.3 million or 17.1% in net sales in the third quarter of 2026, compared to 7.7 million or 18.8% in net sales in the third quarter of 2025. The increase was driven largely by higher compensation related expenses, including higher accrued variable compensation, partially offset by lower professional services costs. For the third quarter, adjusted EBITDA loss was $900,000 compared to an adjusted EBITDA loss of $1.7 million in the prior year period. Turning to our balance sheet, we ended the quarter with approximately $29.5 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. Subsequent to the third quarter, we closed the GP equity investment and we'll have cash on hand of approximately $50 million. Now turning to our outlook. For the full year, we are raising our 2026 net sales guidance to a range of $177 to $179 million, reflecting approximately 10% growth at the midpoint of the range. As a reminder, the discontinuation of T impacted our net sales outlook by approximately 2%. During the profitability, we are advising our full year 2026 adjusted EBITDA outlook to a range of break-even to negative $400,000. This outlook now reflects approximately $8.5 million in incremental costs related to the surge in fuel prices and higher aluminum-related costs versus our prior expectation of $11 million. We remain on track to achieve $3 to $5 million in additional cost savings beginning in Q1, 2027 that we plan to reinvest in our strategic reset. Turning to the fourth quarter, we expect net sales of between $37.5 million to $39.5 million, reflecting approximately 2% growth at the midpoint of the range. The fourth quarter is typically the season low for the business, and our guidance reflects the potential impact of retailer adjustments to the timing of shipments and inventory levels. We expect fourth quarter adjusted EBITDA loss to be between $0.5 million and $0.9 million. This assumes gross margin remains approximately flat to last year. In closing, we believe this is a pivotal moment for the company. We delivered a strong quarter, raised our outlook, and announced a growth equity investment that enhances our ability to accelerate the execution of our strategic reset. With a stronger foundation and additional liquidity, we believe we are well-positioned to capture the opportunities that lie ahead and create sustainable long-term value. 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 that your line is in the question queue. You may press star 2 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. We ask that analysts limit themselves to one question and a follow-up so that others have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Jim Solera with Stevens. Please proceed with your question.

Hey, guys. Good afternoon. Thanks for taking our question. Now, Sandra, I wanted to ask about some of the innovation you highlighted, because if I'm looking in the deck here, you guys seem like you've talked to a much larger TAM than maybe the company has spoken to in the past, and maybe some hints at, obviously, innovation outside of traditional soda. I know in the past, obviously, you had the T lineup, and you still have a relatively small energy business. Can you just walk us through the thoughts on, you know, how much we should anticipate the innovation to be outside of traditional CSD, and what that might look like, and just any, you know, guardrails you can give us on the timeframe? Like, is that a 2027 event, or is this just more setting the stage for that this is optional in the future?

Super, super. Thanks, Jim, for the question. Of course, I can clarify that. First of all, I think the approach of innovation for us is going to be much more consumer-led. I think developing products that can address these needs of taste, functionality, and the different occasions. In general, we do believe that consumers doesn't buy functionality, right? But they buy the occasions. And that's why I think that we have to diversify a little bit more. I think taking advantage as well in terms of our brand and the clear grant ingredients that we have, we are growing a digital engagement, expanding distribution, and paired with this new innovation, we can make some kind of acceleration in the growth. And that's one part. In the second part, what we can expect from next year, what we are doing is we're bringing between two and three new products. We are planning to launch in second half of a 2027 in a digital sphere first, and then a full rollout will be in 2028.

Just to be clear, those would be not two new flavor extensions or something, but something outside of traditional CSD? That's correct. Okay. Great. And then just as one of the follow-up, encouraging to hear about re-entering Target and the rotation at SAMS. Could you just help us size up the opportunities? You spent a lot of time talking about singles, but maybe the balance of growth between singles and what I assume at Target and SAMS would be more kind of the traditional multipack offering.

Yeah, we're not in a condition now to give any kind of a guide, but I'm going to picture what we have so far. First of all, we are going to start the rollout of the singles in the first quarter. We do have the confirmation of one more rotation in Costco. We have a test that we're going to run in Suns Club in the first quarter as well. Also, we have a limited time offering that we're going to launch in Target. That's in terms of expanding distribution. In terms of innovation, in the beginning of the year, we're going to have the launch of the collaboration with the Card B, which will allow us a lot of execution and also execution of singles. I think if you come back to the earnings call, the last earnings call that we said in terms of the four priorities, we are walking the talk of what we say, and that we are creating this kind of a very, very strong foundation for 2027. And in 2027, to be very transparent, we will grow the core mainly.

I appreciate the thought so thank you. Thank you.

Our next question comes from Andrews from BMO Capital Markets. Please proceed with your question.

Hey, thanks for taking the questions. My first one, I wanted to ask about the marketing strategy and better understand how that's evolving. So the company has been pursuing, you know, some more high profile tie-ins and things like that to grow awareness. And now you're talking about the lower to middle part of the funnel. Should we think about that in addition to what has already kind of been going on? One is that in some ways replacing it and more broadly how you think about the right level of marketing spend for the business over the next. You know, 12 to 24 months.

Yes, Andrew, let me explain in terms of the strategy first. If you go back in terms of a Cardi B, we said that we're going to use this project in order to generate more awareness in which we are delivering, right, in terms of putting pressures and increasing our user activity in Ziva.com, more email signups, and everything is coming together. And now it's time to drive this kind of awareness into the funnel. For us, we'll be a little bit in terms of the new product that we're going to launch with her, and also the investment in a digital ecosystem that we are calling, because we need to involve much more creators and influencers in order to bring new consumers into the brand. This is how we are planning in terms of 2027.

Okay. And more broadly, across the kind of holistic plan that is going to be funded by the strategic investment, how should we think about the margin implications, kind of over the near term, but also more importantly, kind of over the medium term? It's just directionally, how should we think about that? Thanks.

Yeah, absolutely. And I think if you zoom out for a second, what we've really been focused on is driving improved unit economics in the business. And I think as we look at innovation in the future. The new innovation will be accretive from a unit economics perspective, i.e. gross margins will be accretive to our current gross margins. But of course, part of the reason we raised the capital was in order to set these new product families up for success, we need to invest behind them. So what you'll see in the short run is really more spend on marketing and support for these product launches. And in the long run, that will be accretive to margins as we will be launching slightly more premium product families.

Okay, thank you very much.

Our next question comes from Eric DeLores with Craig Hallam. Please proceed with your question.

Great. Thank you for taking my question. I wanted to just drill in a bit more on singles, so I appreciate the thought of launching more singles in Q1. Just wondering if you feel like you sort of have all the capabilities operationally that you need to sort of get singles to where you want them to be, or what kind of investment or sort of change in operations is required for you to get singles capabilities to where you want it?

No, that's a great question. I think in terms of singles, as we mentioned before, singles is the entry point for new consumers into the brand. And we were a brand that we launched products with a multi-tax since the beginning, but we didn't have the opportunity to have a singles. We define a big number of activities in how to put this into place. One of those, it is category management, right? Showing that what a volume we are losing not having those products on the shelf. I think we are getting some very, very good strikes in general. We have some confirmations already for 2027, but it still is not 100% there. 2027 is going to be the year that we're going to prove the singles in order to roll up a little bit faster. And of course, I think I mentioned before, the size of the opportunity. When you compare a place that we have a singles and multi-pack, we have a better share than a place that we have a just multi-pack. I think that's our main motivation, and this is the approach that we are taking in convincing retailers that we must have a singles on the shelf.

All right, that's helpful. And then just on the hybrid go-to-market strategy, So you mentioned, you know, continued investment behind the West Coast DSD operations, and then utilizing some third-party merchandising partners. Just wondering if you could expand on both of those a bit. Like, what is changing here compared to what you guys have articulated in the past? Is this essentially just, you know, more dollars behind DSD and, you know, casting a wider net with these third-party merchandising partners? I guess if you could just kind of add a bit more color to that strategy and what's new, that would be helpful. Thank you.

Sure. When we say the hybrid now, it is, yes, we have to have a better capability in terms of a Western DSD network that we have, and that's going to come from within. We have to have people to manage those DSDs. I think we invest a little bit more, nothing huge, but a little bit more in terms of giving more guidance and training those teams in Western. When we say in place that we don't have our distributors, it is important to have an execution store because in the end of the day, we need to have a more visibility in store. And then we are partnering with those third-part agencies in order to help us on that. And then this is an extra investment that we're going to do in 2027. And third, I think that we cannot lose sight of that. It is in terms of e-commerce. I think everything that we are doing in the last quarter, we did a lot in terms of e-commerce. It's working very, very well from the awareness to conversion, to have people trying. And then all the indicators are very, very positive in terms of retention and a very good ROI. So if you take those three levers, this is how we are thinking in terms of a hybrid go-to-market moving forward.

Very helpful. Thanks for taking my questions.

Our next question comes from Eric Serrata with Morgan's Family. Please proceed with your question.

Great. Thanks for the question. First, Alessandre, could you talk a bit about parameters or criteria as you evaluate adjacent categories to enter? You know, better for you beverages could encompass a lot of different things. How are you thinking about where Azevia has the right to win from a capabilities standpoint? What You know, what are some of the characteristics of categories that you would find attractive? And then to Girish, can you talk a bit about the sales upside in the quarter? I know you talked about strong performance from the club rotator, you know, e-com pricing. How would you sort of rank those, the club rotation, you know, having that, you know, I presume was in the guidance. So I guess what what. One of those factors really was the upside surprise on the top line in the quarter. Thank you.

Yes, sure. Let me start with the first one, and then Gius takes the second one. I think in terms of the category, how we are evaluating, I think, as I said, we are going to take the approach much more led by consumer. I think we want to develop products that can address specific needs in terms of a taste, functionality, and occasion. As we speak, we are testing one or two products already to try to understand how big will be this opportunity And how can we address everything, right? We are taking the approach much more, I would say, practical. We will test, we measure, we iterate, and we scale. And of course, if the product's not going through the gates, we are not going to launch. It's going to be much more of a data-driven approach. That's what we are looking for. In terms of the consumers, which kind of category we choose or not, I think consumers, as I said, they shop beverage by occasions, right? Not by category. So we see a lot of opportunity for you in terms of a functional and a wellness beverage. And then combining all together in terms of the brand, clean ingredients, or growing digital engagement as we're doing right now, we have this platform of distribution available, and having those innovations driven by discipline can position us to deliver a real, real relevant and differentiated product. I think that's the approach that we are taking in terms of the innovation. But we are testing already the products.

Great. And then Eric, in terms of the fourth, or excuse me, the third quarter, you know, if you break down the 18 points of growth, you know, 14 points of that's related to volume, four points of that's related to price. As we think about what was sort of the upside surprise, I'd say two things on the volume side were, one, you know, we actually saw stronger sell-through on the rotation than we had planned, which is a positive sign for the future. Two, you know, we saw continued strength and more so than we thought on our digital channels. And then, of course, pricing did play a factor. We had anticipated having to get a little bit more promotional, and that did not come to pass. And so, we were able to hold back some dry powder for that. So, I'd say it was uniformly a strong quarter from a top line perspective.

Terrific. I'll pass it on. Thank you.

Take care.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Alessandra for closing comments.

Yeah, thanks. Thanks, operator. I think, first of all, many thanks for joining us today. I think that we are trying to take you to this journey. If we step back a little bit, thinking about 24, 25 was the year that we set up the foundation in terms of financial operational transformation, the way that we build with this very, very well set up foundation. I think 2026 now, we are setting up the company for the growth, the foundation for the growth. When we're talking about hybrid go-to-market strategy, we're sharpening the current Zivia brand with strong financial operation discipline as well, and then this performance-driven culture, and now the new capital, I think we're setting up this foundation. For 2027, I think in terms of title, we're going to say a solid growth and product innovation. Everything that we are seeding this year, we are going to harvest next year, and plus, we will test out those innovations, the new customer demand that we're calling generation engine in a digital, and also the go-to-mart. And then I think this is going to be setting us up for tripling this business, because this is what we think that's possible in the coming years. Again, thanks for joining us today. It is exciting times for us in here, and I'm looking forward to updating you on our progress in the next couple of months. Thank you.

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