Earnings Call Transcript - ZVIA Q3 2025

Operator, Operator

Greetings, and welcome to the Zevia PBC Q3 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Mcguinness, Investor Relations. Thank you. You may begin.

Anne Mcguinness, Investor Relations

Thank you, and welcome to Zevia's third quarter 2025 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 third quarter 2025 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia's website at investors.zevia.com. Before we begin, please note that all financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are also available on our website at investors.zevia.com. And now I'd like to turn the call over to Amy Taylor.

Amy Taylor, President and CEO

Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results reflect strong progress and provide clear signs that our strategy is taking effect. Our initiatives are positioning us for durable growth and profitability over time. Our third quarter results exceeded our expectations with net sales growth of 12% to $40.8 million and adjusted EBITDA loss of $1.7 million. Based on our better-than-expected performance and the continued progress across our strategic growth pillars, we are raising our full year net sales and adjusted EBITDA guidance, which Girish will speak to shortly. I'll share the progress we've made across our 3 strategic growth pillars of high-impact brand marketing, accelerated product innovation, and expanded distribution. Beginning with marketing, our brand-building initiatives are resonating with consumers and gaining traction against our key priority of expanding our user base. Strong third quarter results reflect in part the success of our summer campaign, the launch of Strawberry Lemon Burst and the playful summer break sweepstakes, which were activated on social and received favorable editorial media coverage, extending reach and driving engagement. Media has a great story to tell as the consumer moves away from the artificial and seeks better-for-you products from brands that they trust. We are Soda Made Better, and our new brand messaging, design, and tone of voice are resonating across media channels and in-store. Based on proprietary survey data, while early, brand consideration and purchase intent have made double-digit gains this year, and social media engagement rates continue to build to levels well above channel benchmarks. As the broad cultural conversation continues to focus on health and ingredients, major food and beverage companies scramble to remove artificial ingredients and colors. Zevia has and will continue to be ahead of this movement with a clean label clear soda with natural flavors and sweeteners and is telling its story through cross-channel brand campaigns and high-reach influencer activations. Our humorous engaging campaign supporting Amazon-exclusive Peaches & Cream is a great example, giving the flavor a hot start and the brand a strong halo via virality on Instagram and TikTok. In addition, Zevia competitions featuring user-generated content have been fruitful in driving awareness and trial, especially when activated with a focus on specific customers ranging from Albertsons, Kroger, and Walmart to Costco. On the ground, we continue in-market activations at events like gaming 100 Thieves Block Party in July; Diplo's Run Club across August, September, and October; and periodic joint efforts with well-aligned partners such as Life Time Fitness at running, cycling, and mountain biking events. These events are equal parts brand building and sampling opportunities focused on winning new users, which remains our top priority. Turning to innovation, the performance of our recent product launches offers strong proof points that our portfolio evolution is driving brand momentum. New flavor profiles and a more sugar-like taste experience, along with delicious-looking new packaging and dynamic marketing, continue to support velocity and drive trial. Our portfolio evolution this year is working. Exciting new flavors launched nationwide received strong consumer acceptance and retailer exclusive or limited-time-offer flavors brought brand heat. The debut of Strawberry Lemon Burst nationwide, Orange Creamsicle in the natural channel, and fruity variety pack initially at Walmart demonstrate that we are on point in flavor trends. Each are showing promising results and have been drivers of increased Zevia space at retail and of accelerating velocities. Peaches & Cream and Salted Caramel provided new news this quarter as exclusives or limited-time offers, respectively, and Strawberries & Cream is doing the same in selected retailers here in Q4. Each is off to a good start and will inform the portfolio evolution for 2026 and beyond. Peaches & Cream has been the fastest-selling new Zevia item ever on Amazon, while Strawberries & Cream was immediately a top 3 velocity driver at Kroger. Our fruity variety pack has quickly become the number one Zevia SKU at Walmart. We remain the only better-for-you brand offering multipacks and variety packs at accessible price points. And finally, we're very pleased with the positive response to our refreshed packaging. Featuring Soda Made Better, our strong brand block will highlight zero sugar, no artificial colors, and no artificial sweeteners. Our proprietary research indicates a meaningful increase in purchase intent versus the prior design and versus competition. We are on track to roll new packaging out to legacy flavors as well in early 2026 in parallel with the introduction of a new more sugar-like taste experience across legacy and new flavors alike. Moving on to distribution, a key component of our strategic growth plan. We both regained and opened new points of distribution over the past nine months. We attribute this expansion to strong product innovation as well as brand momentum delivered by marketing. Our national Walmart distribution continues to drive new-to-brand consumers. We're also pleased to share that following a successful pilot at the start of this year, we'll be expanding into more than half of Walmart's Canadian stores going forward. Distribution gains at grocery were also a key driver of our growth year-to-date with innovation in flavor and in packs supporting increased space gains. In the club channel, increasing sales velocity drove additional regional rotations, reflecting in part the impact of our new packaging. The positive reception has exceeded our expectations. And then in convenience, we're seeing some encouraging early indicators even as the rollout in the channel for brand and for category remains in the early stages of development. Performance is tracking in line with broader natural soda category trends, providing a good selling story as we continue to thoughtfully expand our regional footprint in 2026. In closing, with our strategy firmly in place and with strong execution, we are reshaping the business and paving the way to capitalize on the changing consumer landscape and category tailwinds. We see evidence that we are growing market relevance and are on track to thoughtfully scale the business quarter-by-quarter and year-over-year. And so with that, I'll turn the call over to Girish.

Girish Satya, CFO

Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our third quarter results reflect strong execution of our strategic plan with both revenue and adjusted EBITDA exceeding expectations. Over the past 18 months, the savings from our productivity initiatives have enabled us to invest meaningfully while strengthening Zevia's market position within the better-for-you soda category. Importantly, the work we have done has created a solid foundation for sustained growth and profitability. In light of our strong third quarter performance, we are raising our full year 2025 net sales and adjusted EBITDA guidance, which I'll address shortly. Turning to our results. Net sales in the third quarter increased 12% to $40.8 million. The increase versus the prior year was primarily due to expanded distribution at Walmart and incremental regional rotations at the club channel. Gross margin reached 45.6%, a 350 basis point decline from 49.1% in the third quarter of last year, reflecting the $0.8 million in inventory obsolescence associated with the packaging refresh and the full realization of aluminum tariffs, which we discussed previously. As we mentioned earlier, we invested in a package redesign that brought to life our new flavor profile and better communicated the benefits of the Zevia value proposition. Selling and marketing expenses were $12.7 million or 31% of net sales in the third quarter of 2025 compared to $12 million or 33% of net sales in the third quarter of 2024. Breaking it down, selling expense was $7.7 million or 18.9% of net sales in the third quarter of 2025 compared to $8.5 million or 23.3% of net sales in the third quarter of 2024. The improvement was largely a result of lower warehousing and freight transfer costs as we continue to benefit from our productivity initiative. Marketing expense was $4.9 million or 12.1% compared to $3.5 million or 9.7% of net sales in the third quarter of 2024. The increase was primarily due to increased investments in brand marketing. General and administrative expenses were $7.7 million or 18.8% of net sales in the third quarter of 2025 compared to $7.4 million or 20.3% of net sales in the third quarter of 2024. The increase was primarily driven by higher accrued variable compensation expense. As a result of the aforementioned factors, net loss was $2.8 million, unchanged from the prior year. Adjusted EBITDA loss was $1.7 million compared to an adjusted EBITDA loss of $1.5 million in the prior year period. The decrease was due to costs associated with inventory losses related to packaging refresh and higher brand marketing spend, partially offset by strong sales growth and operating efficiencies. Turning to our balance sheet. We ended the quarter with approximately $26 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. Now turning to our outlook. Based on our strong third quarter results, we are raising our full year net sales guidance to the range of $162 million to $164 million versus prior guidance of $158 million to $163 million. We now expect our adjusted EBITDA loss for the full year to range from $5 million to $5.5 million versus prior guidance of $7 million to $9 million. Our 2025 adjusted EBITDA outlook represents a $9 million improvement versus prior year despite tariffs, ongoing marketing investments, and a packaging refresh. Turning to the fourth quarter, we expect net sales of between $39 million to $41 million and adjusted EBITDA loss to be between $0.25 million and $0.75 million. As a reminder, the 350 basis points impact from inventory losses associated with the packaging redesign was largely captured in the third quarter. In closing, our third quarter results reflect the traction we are gaining towards building a solid foundation from which to deliver sustainable growth and profitability. These efforts not only reinforce our operational momentum but also lay a strong foundation for sustained profitability as we move forward. I will now turn it over to the operator to begin Q&A.

Operator, Operator

The first question is from Jim Salera from Stephens Inc.

James Salera, Analyst

I wanted to start off with, obviously, the positive news around expanding distribution with Walmart in Canada. Can you just maybe help size that up for us? Is that the primary contributor of the raised sales outlook? Or should we expect that to be more of a '26 event? And if you could just kind of size up how many stores that would be and any other color you could provide on how we should think about that uplift.

Amy Taylor, President and CEO

Sure, Jim. Yes, we are excited about expanding with Walmart in Canada just because of the indicator of future opportunity for continued distribution expansion in Canada overall. It's also just a good reflection of the velocity coming out of the customer in the initial pilot. So it was fairly small out of the gate. We were less than 100 stores, and we're now in just over half of Canada's Walmart stores, which is just over 400 stores in total. So to answer your question directly, that is not the major driver of lift in growth. There are many other things driving growth through the quarter, but it is a good indicator of the health of the brand in Canada and opportunity to follow.

James Salera, Analyst

Great. And then I was looking through the deck you guys put out, I really like the new packaging. Can you just give us some color around how distributed is that? And maybe what type of timing we should think about between switching over from the old packaging to the new packaging until we kind of see that across all of your distribution points in the U.S.?

Amy Taylor, President and CEO

Sure. So we're excited about the new packaging, too. We did some initial proprietary research that indicated a significant increase in purchase intent with the new packaging relative to our previous packaging and relative to competition. And we believe that this is because of the insights-based changes that we made to the messaging, which very clearly state Zevia's value proposition, talking zero sugar, zero fake color, zero fake sweetener, then looking delicious, carrying the line Soda Made Better. So we're really bullish on the packaging. We do have some early indicators of how it supports the business, both from the standpoint of driving trial to new-to-brand users and driving velocity. And that's because one of our Q4 limited-time-offer flavors in Strawberries & Cream is already in the market in the new package. The rest of the portfolio will reflect the new packaging in early 2026, so mid-Q1 or late Q1 2026, and then we'll do a rolling rollout from there, not a hard cutover, but a rolling launch of the new packaging from there into the second quarter.

Operator, Operator

The next question is from Sarang Vora from Telsey Advisory Group.

Sarang Vora, Analyst

Congratulations on a great quarter and good to see the healthy momentum in the business. My question is about when you look at the underlying metrics that drive growth, which is an increase in household penetration, dollars per household, increase in frequency, can you remind us who are some of the new customers that are coming to the brand that weren't there before? And just from a broader standpoint, how is the penetration for better-for-you products in general versus yours at a little north of 5%. So how big is the runway for you to catch up from a household penetration standpoint, just so that we can size the total addressable market as you keep moving on this path of expansion?

Amy Taylor, President and CEO

Thank you, Sarang. It's a great way to frame the opportunity and the path ahead. We're excited to see the increase in household penetration over the past year, with the latest figures showing an improvement. We're now above the five million households, or 5 percentage points of household penetration. The main drivers for this growth include new consumers joining the brand, partly due to marketing efforts. We're attracting new consumers, particularly higher-income millennials with children, who are stocking Zevia soda at home as a trusted option for the entire family. Our appeal spans generations, but we find that our primary demographic is millennials, particularly those with kids. Additionally, our gains in household penetration are supported by expanded distribution, especially through Walmart's expansion and the introduction of new flavors. We're seeing a significant proportion of first-time buyers at Walmart. Other factors include increased same-store sales at major grocery chains and entry into drugstore channels, all contributing to our household penetration growth. Currently, we estimate that the category operates around 20 percentage points of household penetration, indicating significant potential for Zevia. As we've noted, the category trends are favorable for us as consumers shift away from sugar toward clean label products, and we offer great-tasting, truly zero-sugar, and affordable better-for-you options. We see plenty of opportunities for increased household penetration moving forward.

Sarang Vora, Analyst

That's great. I have another question. The soda business is clearly gaining momentum as reflected in all these numbers. However, one area we don't often discuss is the energy drink business. I'm curious about how we should view energy drinks looking ahead to 2026 and 2027. Is there a plan to revive that category as well?

Amy Taylor, President and CEO

We agree there's really tremendous opportunity ahead in energy. Right now, we have a really small energy drink business relative to the rest of the category. It is healthy and growing in the natural channel and in e-commerce where people know and trust the Zevia brand and continue to stock energy drink options in addition to soda. But right now, our focus is really on soda. We just talked household penetration, right? And it just outlines how much work there is still to do to realize our full opportunity in soda. So once I believe we are famous for being Soda Made Better and under that kind of halo of brand trust, we think there's a significant opportunity to turn our attention to the energy drinks category, which is still growing and will be for a long time. And we believe there's a consumer that wants a clean label energy drink and that our brand has permission to bring that to the market. So we'll continue to focus on the healthy growth that we see out of energy drinks in natural and in e-commerce. And at the right time, we'll think about channel and thus marketing and consumer expansion on a strong foundation of a healthy soda business.

Operator, Operator

The next question is from Andrew Strelzik from BMO Capital Markets.

Andrew Strelzik, Analyst

With all the marketing that you've been doing and some of the momentum that you cited from that, the brand book, etc., do you have any kind of awareness stats, brand-level awareness statistics or anything like that, that you can share to support beyond what you've talked about from a purchase intent perspective?

Amy Taylor, President and CEO

Andrew, we haven't reported on awareness levels, but what I can share that kind of doubles down on the prepared remarks is that with our proprietary research, we saw double-digit increases not only in purchase intent but also consideration. So we still have a way to go to grow brand awareness, and distribution, strong packaging design, and marketing are all parts of that equation. But what I was really pleased to see this year is, again, double-digit growth in consideration. So now on that foundation, we know our messaging is working, right? Marketing and packaging are inviting trial. And then the product is satisfying the consumer, so we're getting strong repeat. That's a great formula upon which to now invest in expanding awareness. So we still got a ways to go, and I think that's reflected in our small household penetration. And our number one objective is to expand that base, which is going to be a combination of awareness, trial, and then building on that strong consideration metric.

Andrew Strelzik, Analyst

That's helpful. My other question relates to the typical seasonal trend where we usually see a more significant drop from Q3 to Q4 than the guidance indicates. The decrease from Q3 revenue to the midpoint of the guidance seems minor. I'm wondering if you're experiencing less seasonality in your business, or if we should interpret this as a higher baseline for Q4 going into next year. What is driving this change, and how should we view it as we plan for the upcoming year?

Girish Satya, CFO

Yes, thanks, Andrew. So as a reminder, we were comping the Walmart load from last year this Q4. So that was a substantial amount of revenue, which was going to always be a challenging comp for the quarter. I think largely what you're seeing is a reflection of the distribution gains that we've made throughout the year as well as some incremental regional rotations in the club channel, which is really what's driving a lot of the positivity in Q4. So I think it's a little bit of both improved baseline as well as some incremental opportunistic club rotations.

Operator, Operator

The next question is from Eric Serotta from Morgan Stanley.

Eric Serotta, Analyst

Can you share your thoughts on shelf space expectations for next year? With Walmart, we are nearing a year into the implementation of their modern service set. What are your observations regarding their actions as the largest brick-and-mortar retailer as we look ahead to next year? Additionally, what are your expectations for shelf space outside of Walmart?

Amy Taylor, President and CEO

Sure. Let me start with Walmart and then move on to the outlook regarding distribution. Walmart is progressing well, supported by the launch of new items. Some of these are replacements while others are completely new additions that are benefiting us in the latter half of this year and into next year. We remain one of the key brands within Walmart's influential modern service set, which continues to hold true. Strategically, Walmart is beneficial for us as it attracts many new customers to our brand. It’s a positive narrative to share that when we have sufficient brand presence, strong visibility, competitive pricing, and the right mix of flavors, the brand performs effectively. This is a narrative we can replicate in other areas. We have also seen further expansion, as I noted in earlier calls, including a significant increase in shelf presence at major grocery retailers like Albertsons in 2025, which has contributed to our growth in the latter half of the year. Looking forward, this year we have surpassed our previous peak distribution levels at retail. Therefore, we are not depending on new distribution for future growth but are concentrating on improving sales velocity. That's why we emphasize our brand marketing and innovation efforts. Nonetheless, there are still opportunities for new distribution. This includes new stores across club, mass, and dollar channels, as well as long-term prospects in convenience and foodservice. Additionally, within existing stores, there remains significant potential to enhance same-store distribution and shelving. For instance, in the grocery sector, we have a lesser presence on lower shelves that we can improve through innovation and utilize strong data from 2025 for those enhancements. We are optimistic about increasing both sales velocity and distribution next year, whether that be in existing stores or through new channels. Walmart is expected to continue delivering results for us next year. Costco presents opportunities for more rotation, and there are emerging possibilities in the club channel beyond Costco. As mentioned, the grocery sector offers chances for same-store distribution growth, new product introductions, and set enhancements. Additionally, we have a long-term, steady, and strategic need to drive growth through convenience stores. This hopefully provides a clearer picture of our anticipated growth sources, our confidence in increasing same-store distribution, and our key channel opportunities for the upcoming year.

Eric Serotta, Analyst

Great. Can you provide any insights on your plans for achieving EBITDA profitability next year? While I understand you aren't ready to discuss guidance for 2026, it appears that your top line is growing, and you're experiencing some positive operating leverage. Additionally, some costs related to new packaging and inventory obsolescence are not expected to recur, yet factors like aluminum and Midwest premium continue to rise. Any information on your profitability outlook for next year would be appreciated.

Girish Satya, CFO

Yes, of course. So I think we continue to point towards being positive adjusted EBITDA in 2026. As noted, we're going to bias towards investing in the business. So don't expect a ton of flow-through because we do believe that right now, the time to sort of invest in customer acquisition. From a puts and takes standpoint, obviously, there's a huge headwind, which is aluminum tariffs, as you've articulated earlier, and we began to see that in Q3. As you also mentioned, we will largely see $15 million of the $20 million of our previously announced productivity initiative savings in this year, i.e., 2025. There's an incremental $5 million that we will begin to realize starting in sort of mid-Q1 of 2026. And so as we look towards flipping from negative adjusted EBITDA to positive, I think ultimately, the incremental savings along with scale and some pricing opportunities will allow us to flip that script into positive adjusted EBITDA while continuing to create opportunities for us to invest to grow the top line.

Operator, Operator

There are no further questions at this time. I would like to turn the floor back over to Amy Taylor for closing comments.

Amy Taylor, President and CEO

All right. Thanks so much for joining us. I am pleased with the progress this quarter, and I'm really proud of the team for the broader progress that we made across our 3 strategic growth pillars: so high-impact remarketing, accelerated product innovation, and expanded distribution. Our soda portfolio is uniquely anchored by great taste, truly zero sugar, and accessible price points. So the brand is starting to resonate with consumers, and all of this positions us well to capture the continued tailwinds in this better-for-you category. It's an exciting time to be at Zevia. So thanks again for your engagement, and we will see you next quarter.