Earnings Call Transcript - ZVIA Q2 2023

Operator, Operator

Good day, and welcome to the Zevia Second Quarter 2023 Earnings Conference Call. Please also note today’s event is being recorded. I would now like to turn the conference over to Reed Anderson with ICR. Please go ahead. Thank you, and welcome to Zevia’s Second Quarter 2023 Earnings Conference Call and Webcast. On today’s call are Amy Taylor, President and Chief Executive Officer; and Denise Beckles, Chief Financial Officer. By now, everyone should have access to the company’s second quarter 2023 earnings press release and investor presentation filed this morning. This information is available on the Investor Relations section of Zevia’s website at investors.zevia.com. Before we begin, please note that all the financial information presented on today’s call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today’s press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release and presentation slides that accompany today’s comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investors.zevia.com. And now I’d like to turn the call over to Amy Taylor.

Amy Taylor, CEO

Thanks, Reed, and good morning, everyone. Welcome to the Q2 2023 earnings call for Zevia PBC. Before we address the supply chain disruptions, I’d like to provide an update on the fundamentals of the Zevia business. Zevia’s brand remains healthy. Demand is strong and accelerating as the brand refresh rolls out and velocity continues to grow at double-digit rates. Our price increase has been well received, reinforcing our premium but accessible positioning and supporting our gross margin improvement. We remain in a strong cash position, even while investing in initiatives to strengthen the brand and the operations for the future. Consumer spending on the brand is up for household and trip, and our order book reflects demand in keeping with our expectations. As we preannounced, our net sales for Q2 were materially impacted by interruptions to our customer fulfillment. These interruptions are short-term in nature and are the result of missteps in our supply chain transformation efforts. The transformation of Zevia’s supply chain is a critical initiative to support our continued growth, enhance our customer service, and drive efficiency, ultimately materially reducing costs as we scale. But that said, we experienced some pain points in the transition from old to new, which I will detail here today with a focus on the actions we are taking to course correct them and the expectations going forward. The main message that I would like for you to take away from today’s call is that Zevia has significant long-term potential, and the broader value proposition remains one of the most relevant in all of beverage, a very exciting category. Zevia’s demand reflected in velocity data via scan, which measured over 21% for the quarter, demonstrates that the brand and the product portfolio meet the needs of today’s and tomorrow’s consumers. The steps we are taking continue to bolster margins and improve profitability, reflecting the exciting potential in the years to come. Customer fulfillment challenges in the short term and the supply chain will be stabilized by year-end and optimized for 2024. Zevia’s mission focuses on global health for people and the planet. In Q2, we removed another 3,100 metric tons of sugar from consumers’ diets and have never sold a plastic bottle. Zevia is more affordable than 65% of nonalcoholic beverages in North America, even as we realize price in keeping with the market. Our continued focus is taking better-for-you beverages mainstream, making them available and affordable for consumers across all income levels. I will walk us through the second quarter results and then speak to our focus now and going forward. We delivered net sales of $42.2 million, which was below expectations for the quarter. Velocities were strong, bolstered by the brand refresh, and double-digit retail sales growth was sustained where service levels were not interrupted, as is clear in select customers and across the market in our scan data. Our order book was at or above expectations throughout the quarter. Gross margins continue to improve. We have demonstrated strong cash management, disciplined adaptations to our promotional strategy, and price increase implementation with a strengthened key accounts team as we have moved from a field sales model to a national account focus this year. We have realized immediate benefit from the strong brand refresh, and we believe collectively that these initiatives will help reinforce our foundation and position us to deliver on our ambition of sustainable profitable growth. I’ll speak to our consumer base evolution and retail indicators via panel and scan data insights and then walk you through the measures we are putting in place to address customer fulfillment. Zevia’s household penetration remained above 6%, and Zevia’s households increased their brand spend by 6% once again, driven by another 9% increase in spend per trip with consistent purchase frequency rates. These are strong indicators of the health of our brand and our user base. We also saw strong new item performance in the form of vanilla cola single can soda sales and 12 packs. The most important scan metric of the quarter is velocity, sales per point of distribution. Zevia grew velocity by 21.3% in the quarter, demonstrating that when in stock, Zevia remains a double-digit growth brand. The Zevia shopper is a highly desirable one, less price sensitive at all income levels. We remain a home stocking brand, which is a key competitive advantage as we simultaneously build our singles business and grow cold availability, which are key to driving brand trial. Zevia shoppers spend 40% more on beverage versus total nonalcoholic beverage shoppers. Our shoppers also make 32% more trips to stores to purchase beverages. Zevia shoppers continue to differentiate themselves even further from average beverage shoppers as they continue to spend more on the brand and overall. Our promotional effectiveness continues to increase, which supports profitability but also informs our retail strategies going forward. We had 25% fewer dollars sold on promotion in the second quarter versus the prior year and continued to improve lift. In other words, we sell more Zevia on the merits of the brand to new and existing consumers. We continue to grow in legacy natural channel retailers and expand in mainstream channels. We’ve established incremental whole distribution with our single sodas across natural, now our fastest-growing pack format there, growing trial with new shoppers. We’re gaining single soda distribution in conventional grocery as well. And we have new energy drink distribution in West, Midwest, and East regional chains. One of the country’s top three drug chains is moving Zevia to the carbonated soft drink aisle nationwide starting in September. Finally, we have very strong performance in the carbonated soft drink aisle in test stores in the world’s largest retailer, and we anticipate continued expansion in that chain with resets in 2024. Zevia has performed at or above expectations with each expansion into mainstream channels, which bodes well for future customer and channel expansion. Now I will direct our attention to our broader operational efforts and address customer fulfillment. In the past year, we have redefined the Zevia brand through new positioning and packaging. We’ve entered the new singles business, expanded distribution, launched top-performing flavors and formats, built a professionalized key accounts team, and successfully taken three price increases in keeping with the category while also making significant strides in cost management and cash management. At the end of Q1, we also initiated a supply chain transformation to deliver a streamlined, efficient, and effective supply chain built for scale. This is the right initiative for Zevia, and we will deliver strong results once it is complete. We have experienced short-term missteps in its execution, however, with material impacts on net sales for Q2, which we expect to continue in Q3. As we consolidate our warehouse network from 27 locations to 7, partnering with two capable and proven partners, we encountered challenges, impacting inventory management at a SKU level, inventory transfers, and accuracy and timeliness of customer deliveries, and we have taken the following steps to course correct. Firstly, we have hired a new Senior Vice President of Operations and Chief Supply Chain Officer in Bill Williamson, who joined us in July from Monster Energy. Bill has already hired three new experienced supply chain manager-level contributors to enhance in-house operations. Secondly, we have rephased transition plans for our warehouse network, leveraging legacy providers for support during the transition with ample days of supply across all SKUs. Thirdly, we established new practices for customer mapping and ordering to support fulfillment effectiveness and efficiency. Fourthly, we adjusted our approach to freight to improve service levels and reduce costs. Finally, we sold our company-owned warehouse to divest of the mix model and embrace our efficient third-party network. This transaction closed in early Q3. As evidenced in our velocity data via scan, demand remains strong. Our raw materials and finished goods supply and forecasting capabilities are robust. The short-term issues center around logistics and customer fulfillment, and the steps required to fix them are clear and in place. We have a long history of strong customer fulfillment with our retail partners and are providing a high level of transparency through this transition to them, protecting distribution and supporting future expansion with our retail partners. I’ll wrap up with the big picture and turn it over to Denise. Zevia has a very healthy brand and business model and continues to experience strong consumer demand, with increasing spending from households on the brand. We are realizing price in the market with strong consumer acceptance, and we continue to grow velocity with legacy retail partners and in new distribution. We are delivering strong and improving gross margins, and our number one priority in the meantime is to stabilize our supply chain, return to our best-in-class service levels, and get the network transformation back on track so it delivers our long-term goals of driving sustainable, profitable growth. Thank you, and I’ll hand it over to Denise.

Denise Beckles, CFO

Thank you, Amy, and good morning, everyone. I will begin with an overview of our second quarter financial results, discuss guidance, and then open the call for your questions. In the second quarter of 2023, we delivered net sales of $42.2 million, down 7.2% versus the same time last year. We did see a positive impact from our strong implementation of our price increase in the quarter, coupled with our price increase from August 2022, which delivered a positive impact of $3.6 million, offset by a decline in volumes of 16.8% or $6.9 million due to the supply chain disruption and lower order fulfillment. But the key fundamentals of our business remain strong, as shown in our gross margins, adjusted EBITDA, and cash management in the period, which I will discuss next. Our gross margins continued sequential improvement, with our strongest margins yet as a public company at 46.6% for the second quarter of 2023, 4.2 points above the same quarter a year ago, primarily due to the impact of price increases and tailwinds from lower aluminum costs, offset by lower volumes and slightly higher manufacturing costs associated with higher fees due to inflationary pressures and labor rates. Gross margin also improved sequentially by 20 basis points versus Q1 2023. Gross profit delivered in the period was $19.7 million, up $0.4 million or 1.9% versus a year ago. Selling and marketing expenses increased 1.4% to $16.1 million, reflecting increases in freight and warehousing rates of $0.69 per unit sold, a 20.8% year-on-year increase in cost primarily due to the supply chain transformation initiative and disruption, along with an additional investment in marketing in the period of $0.2 million. General and administrative expenses were $6.2 million or 14.7% of net sales in the second period of 2023 compared to $9.8 million or 21.6% of net sales in the second quarter of 2022, a decrease of 6.9 points as a percent of net sales. The year-on-year dollar decrease was attributable to lower employee costs, discretionary spending, and public company costs. Stock-based compensation, a non-cash expense, was $2.4 million in the second quarter of 2023, compared to $8 million the same time last year. Net loss was $3.9 million compared to a net loss of $11.1 million in the second quarter of 2022, an improvement of $7.2 million or 64.6% compared to the second quarter of last year. Loss per share was $0.08 per diluted share of Zevia Class A common shareholders compared to a loss per share of $0.27 in the second quarter of 2022. Adjusted EBITDA loss was $2.6 million compared to an adjusted EBITDA loss of $6.4 million in the second quarter of 2022, a year-on-year improvement of $3.8 million or 59%. Our balance sheet remains healthy with $47 million in cash and cash equivalents and no outstanding debt as of the end of the second quarter of 2023, as well as an unused credit line of $20 million. Working capital at the end of the period was $70.4 million. Turning to guidance, our 2023 annual net sales guidance is $163 million to $168 million, including $38 million to $41 million in Q3 of 2023, which reflects our expectations that the supply chain logistic challenges will continue to have a material impact on Q3. While we do not provide guidance on gross margins and adjusted EBITDA, we do expect costs associated with the supply chain transformation and current supply chain disruptions to negatively impact both our gross margins and adjusted EBITDA for the remainder of the year as we invest to complete the transformation and take corrective actions to resolve the disruption. That concludes our prepared remarks. We will now open the call for your questions.

Operator, Operator

Today’s first question comes from Bonnie Herzog with Goldman Sachs.

Bonnie Herzog, Analyst

All right. I had a quick question first on the underlying demand, Amy, that you mentioned for your products. Just wanted to confirm that you saw demand actually accelerate month-to-month in Q2? Or should we think about it more broadly as remaining pretty strong or consistent? And then just curious how demand has trended in July and the early days of August so far? And if you could share?

Amy Taylor, CEO

Sure. So we saw strong demand growth year-over-year year-to-date throughout the first half of 2023. Then in July, we witnessed acceleration, and as promotional dollar investment has decreased, our lift has improved, and our velocity has accelerated. Looking at July data—scan data through July 17—we saw, for example, seven out of our top ten retailers posting improvements versus the prior period and soda scan sales on materially reduced promotional dollars, all posting accelerated dollar growth. So hopefully, that answers your question, Bonnie.

Bonnie Herzog, Analyst

Yes. No, that was helpful color. And then my second question, I guess, is on your full year guidance, which now calls for quite a bit of top line improvement in Q4 just based on what you kind of shared regarding Q3. I was hoping to better understand the visibility and confidence you have that you’ll see this type of improvement in Q4. I recognize it’s early, but just any thoughts on your top-line growth and the acceleration next year and beyond, considering everything you’ve been working on, whether it’s the brand refresh, the investments you’ve made, etc.

Amy Taylor, CEO

Sure. The fundamentals are obviously in place, and we can see in velocity that brand health is strong and that the brand refresh is already having an impact, whether or not we have incremental marketing dollars being spent, simply driving on-shelf visibility and trial for new consumers. Demand throughout the year has remained strong. We haven’t experienced any loss of space at retail with our recent customer fulfillment challenges. So our return to growth is simply a matter of how quickly we can return to normal customer fulfillment levels. That explains our optimism for Q4, as we hope to actually realize the impact on net sales of consumer demand. Our outlook for the future remains bullish. We are a double-digit growth brand, as evident in our velocity, and we expect that to return in scan sales, and of course, in our shipments and net sales. We also expect distribution expansion to support the growth in 2024, balancing between velocity and distribution growth. We’ve had a strong response to the price increases we've put into the market, indicating that we have further room for prices as well. So in 2024, we expect both price growth and a nice mix between velocity and distribution expansion.

Bonnie Herzog, Analyst

Okay. Just maybe I would like to confirm something, and then I’ll pass it on. So to be clear, that’s super helpful. And thinking about the supply chain disruption and the work you’re doing to resolve it, we should assume that will be fixed throughout Q3, and that’s really where you’re going to face still some impact. But then by the time we hit Q4, things will accelerate, given the underlying demand, etc.

Amy Taylor, CEO

You’re definitely right about the acceleration in Q4. Just to clarify regarding the timeline on recovering the supply chain back to fully optimal and really best-in-class fulfillment levels that we’ve sustained in the past, including through COVID and the aluminum can prices—we’ve always been quite competitive and reliable there. We expect the timeline, as we’ve stated, to be by or before year-end, so definitely impacting Q3. It will take months, not weeks, to fix, but we do expect to be in good shape by or before year-end, Bonnie.

Operator, Operator

And our next question comes from Christian Junquera with Bank of America.

Christian Junquera, Analyst

You have Christian on for Bryan. Denise, I believe at the end of your prepared remarks, you mentioned how the supply chain transition will negatively impact gross margins and operating expenses for the third quarter. Can you share the magnitude of that impact? Should we expect gross margins to decelerate this upcoming quarter? They’ve been trending in that mid-40% and just the magnitude of the impact on selling and marketing expenses. For instance, it came in higher than we anticipated this quarter. I don’t know if there was a one-time cost this quarter that you could share with us?

Denise Beckles, CFO

Sure. On gross margins, we expect them to continue to be in the mid-40s. Though we expect to see pressure, we anticipate remaining in the mid-40s. On adjusted EBITDA, we expect it to be lumpy. Costs are going to increase selling costs primarily in the third and fourth quarters. We anticipate that will happen through the rest of the year, mainly related to what’s happening with the supply chain. So we do not expect it to be at the levels we see in Q1 and Q2. However, we do expect to see some normalization late in the fourth quarter. Does that help answer your question?

Christian Junquera, Analyst

Perfect. Yes, that’s very helpful. And then just one quick follow-up for me. Are there any early reads from the brand refresh? What are retailers and consumers saying? What are some of the internal metrics you guys are using to gauge the success of the brand refresh?

Amy Taylor, CEO

Sure. Yes. Over time, the brand refresh's job is to expand our household penetration, win new consumers, and build brand equity through image, brand love, and loyalty. It’s far too early to measure success based on this. However, early indicators are that our retailers are engaging, seeing the in-store visibility improvement that comes from the brand refresh, which merits increased space, increased frequency of display, and engagement in a category where we’re still fairly new, such as energy. Based on those anecdotes, we’re very happy with the brand refresh. It has driven a lot of engagement as both retailers and consumers consider the new look and feel to present a premium but accessible brand and, most of all, a relevant brand. Anecdotally, from consumers—whether it’s on social media or reposts or influencers posting Zevia—we see a lot of positive feedback. But again, it's early days, and this is quite anecdotal. One more important anecdote to share is from one particular top retailer where we have been able to maintain in-stock levels for the period due to ample shelf holding power, off-shelf displays, and strong execution. In this particular retailer, growth has been consistent since the beginning of the year but accelerated to 22% for the period ending July 16 with the brand refresh in-store. During the same period of time, we’re reducing our promotional spend by 20%. I highlight this just to say we believe we are selling more Zevia based on the merits of the brand post-refresh, and that will continue. We’re very optimistic about the brand refresh driving trial, expanding consumer base, increasing in-store presence, and ultimately helping to improve lift, efficiency, and growth on brand merits. Thanks for the question, Christian.

Christian Junquera, Analyst

I’ll pass it along.

Operator, Operator

And our next question comes from Jim Salera with Stephens.

Jim Salera, Analyst

Amy, I wanted to ask about the acceleration once the supply chain is kind of reoriented. Will that come from better in-aisle fill rates, having all products on the shelf and having several SKUs deep? Or will it allow for displays and gap displays to be more visible to consumers outside of the traditional in-aisle product offering?

Amy Taylor, CEO

Jim, you’re doing a great job of breaking down both reasons. Effectively, we know the demand is there. If I may provide a little more color, if we had filled our on-shelf and display gaps for the quarter, that fill rate would have bolstered our scan sales by about $4 million and would have reflected growth rates from a scan perspective of 17%, thus meeting our expectations. To answer your question, the return to growth—meaning for our net sales to reflect actual demand—will be a product of both factors that you mentioned: filling the depth of shelf to avoid individual flavor and SKU out of stocks as well as the return to executing display activity and driving incremental promotions to interrupt new shoppers at multiple parts in the store. Currently, we’re having to back off of that to some extent due to our customer fulfillment issues. Once we’re able to fulfill the demand, we can also drive in-store presence. So yes, both shelf and display will return to doing their job at Zevia when customer fulfillment comes back online, and we expect that to further accelerate, given the brand refresh positive early indicators. Does that help, Jim?

Jim Salera, Analyst

Yes. Yes, that’s great. And then maybe if I can ask a question on club, too. I know, at least in my area, we have the tea offering in club along with the 30 pack for the SKU. Is there any opportunity for energy in a club like a multipack for energy or to get tea more broadly distributed? I’m not sure how representative my area is relative to the broader club distribution. But do you think you could run with a soft drink SKU, energy SKU, and a tea SKU across club?

Amy Taylor, CEO

We absolutely believe that we can, Jim, and that is our intent. Soda has positively surprised every regional buyer in club that has chosen to double down on Zevia soda. We’re in the early days of tea rotations, as you've observed, and again sometimes exceeding expectations. We’re in the very early stage of our energy drinks business. We are aiming to drive energy drinks starting now, based on the brand refresh. We wanted the new look and feel, Zevia Energy, to be in front of the consumer in broader visibility compared to the old look and feel. We believe the new design represents our position as a clean and pure energy option at a premium but accessible price with great taste. That’s the feedback we're receiving. So we see club distribution as an exciting way to continue to reach more consumers with the energy proposition. Yes, to both the future of tea and club, and yes again to the future of energy and club as an opportunity.

Operator, Operator

And our next question comes from Sarang Vora with Telsey Advisory Group.

Sarang Vora, Analyst

Great. Sarang Vora for Dana Telsey. My first question is on the supply chain. It seems like, based on your comments, certain customers had strong sales, while certain did not. Can you provide a deeper dive—was this supply chain impact regional? Did it impact certain customers, specifically brands like tea or cola? Just curious to understand a little more about how it impacted the current trends.

Amy Taylor, CEO

Yes, Sarang, thank you for the question. I would say, unfortunately, the customer fulfillment dynamic was pretty even across the country from a geographic perspective. While it did not have an outsized impact on individual customers more than others, in some instances, customers that had ordered higher-level stocks in the past remained in stock further into our challenge period than others, resulting in better performance. In some instances, we were able to support promotions, ensuring that retailers with promotions remained largely in stock, but that was challenging across the country. So I think the simplest way to answer your question is through the lens of customer category and geography: the impact was relatively equal across the country. We’re taking swift action, as I’ve mentioned in our prepared remarks, to fix that. Bill Williamson, who started with us in mid-July and was full time by the end of July, has brought on three new people in key functional areas to drive improvement. He’s standing up tools and processes necessary for the team to function during this transition. He’s made swift decisions with confidence, leading the team, and understanding their daily tasks as well as slowly exiting from some legacy warehouse providers to support our service levels during these transitions. He’s operating with tremendous energy and impact with our team and our third-party partners from the start. Thus, we’re optimistic about returning across geography, customer, and category to best-in-class service levels.

Sarang Vora, Analyst

That's great. On the brand refresh, has the packaging and labeling been done across all of your profiles? Is everyone rebranded? Now, the next step is just marketing and distribution. Is that a fair way to think about the brand refresh steps?

Amy Taylor, CEO

That’s right, Sarang. Everything coming off the line now features the new Zevia brand. We’ve fully transitioned from a production standpoint, the old look and feel. At retail, the sell-through rate will vary as some customer locations will feature both the new and old Zevia products for the next several months as old stock sells through. We don’t have any shelf life issues and can manage that transition until year-end. By the end of the year, we expect to be fully on brand. However, in many individual customers and in some geographies with faster volume turnover, we already are fully brand locked with the new look.

Operator, Operator

And our next question today comes from Chris Carey with Wells Fargo Securities.

Chris Carey, Analyst

It seems that the supply chain issues are not impacting the support you’re getting at retail. Typically, in such situations, you could be put in the penalty box for a certain period while you work your way back in. What I’m hearing is a lot of optimism that, once the supply chain headwinds ease, there won’t be any downside for Zevia, and that you’re actually receiving even more support. Is that a fair characterization? If so, why do you think that is? Is it just that the brand has performed well once it’s on shelf? Any perspective would be helpful.

Amy Taylor, CEO

Yes. Thanks, Chris. I fully understand your question. It wouldn’t be accurate to say this misstep is without any impact, right? There are two factors that help us sustain relationships and drive initiatives with retailers with minimal interruption. One is that we have a legacy of best-in-class service. As I mentioned before, throughout COVID and through the aluminum can crisis, our fulfillment rates were virtually uninterrupted. I think we have some credibility in terms of calling the ball on that and charting a course to sustain best-in-class service as soon as we stabilize. Secondly, we’ve been very transparent, regularly updating retailers on our outlook, providing them with PO-level information, and doing our best to maintain open lines of communication regarding when and how we can deliver for them. So we’re working to be good partners and collaborate with retailers on mitigation plans for the short-term disruption while also standing on the credibility we've had in the past. It wouldn’t be accurate to claim we’re without impact, but I anticipate we’re not losing space. Protecting our space during this period of time is the most important thing. We plan to return to expansion, display activity, and in-store activation once we stabilize. Hopefully, that addresses your question, Chris.

Chris Carey, Analyst

Yes, that gives me a good perspective. My only other point is that I understand there will be some trade-off as sales come back, and you’ll be investing behind the sales rather than focusing solely on gross margins. I want to confirm that as sales come back, margins will remain at this higher level. Is that accurate?

Amy Taylor, CEO

As Denise mentioned earlier, we expect margins to remain in the mid-40s. It would be inaccurate to claim that we remain unaffected by supply chain challenges, meaning there will be some costs associated with that. Adjusted EBITDA as a result will reflect increases in selling costs, causing fluctuations in our outlook for the year. It will also be incorrect to assert we’re unaffected by the costs in Q3 due to these challenges. One thing we are doing is phasing our marketing spend optimization in light of in-stock issues. We’re driving sampling locally close to the point of purchase in four markets where stock levels have generally been intact. And we have to implement creative solutions in upcoming months through geographically targeted omnichannel campaigns to support top-of-funnel and brand building. So while we will invest in the brand, stabilizing the supply chain will incur costs. Let me know if you have a follow-up question, and Denise can provide further details.

Operator, Operator

And our next question comes from Andrew Strelzik with BMO Capital Markets.

Daniel Gold, Analyst

This is Daniel Gold on for Andrew Strelzik. How are you thinking about the changes to your go-to-market strategy with the brand refresh? Is it more this year versus next year and some of that shifted? Or is it more about depleting the products with the original packaging?

Amy Taylor, CEO

The most important aspect of the brand refresh is that it fosters in-store visibility and enhances brand relevance, making it more appealing to consumers both in packaging and in store. Dollar for dollar, this is the most efficient investment a brand can make. You can only do it once, but that’s happening right now and rolling out in stores with impacts expected in 2023. The brand refresh is on schedule and will yield its impact of lift in trial, while we will start ramping up marketing investments in 2024, as I mentioned before, informed by our forthcoming omnichannel campaigns in the next few months. These are moderate investments, but we can learn from the tactics employed in these campaigns to shape our marketing plan for next year. Thus, the brand refresh is rolling out now as planned and supports the brand by driving in-store visibility, trial, and pull-through in the interim before we further elevate it with marketing activation, with light spending this year and a more substantial investment next year.

Daniel Gold, Analyst

Got it. As a follow-up to that, what are the long-term implications now that you’ve got a more favorable shelf presence with the brand refresh?

Amy Taylor, CEO

The #1 driver of awareness for beverages, in general for most brands, is in store. The biggest opportunity for Zevia is to drive awareness and trial. As we expand shelf space, we expect that visibility to improve, and that will lead to better awareness, more trial, and it takes consumers farther down the funnel to support our net sales. The expansion of shelf space within same-store sales, as well as the expansion of new store selling and new channels, will be fundamental drivers of our growth for years to come. We have much opportunity ahead to close distribution gaps in the mass channel, further expand in club, win in the dollar channel, solidify drug where we’re growing quickly, while also cracking into single-can sales and impulse purchases in convenience and food service. Thus, you can see how expanding shelf space alongside same-store selling will uphold velocity, while we have substantial potential in distribution yet to be tapped.

Operator, Operator

Ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Amy Taylor for any closing remarks.

Amy Taylor, CEO

Thanks very much, everyone. I’ll just close by reminding us all that Zevia’s brand is as healthy as ever. Our velocity is very strong, bolstered, as we’ve discussed, by an exciting brand refresh hitting the shelves now, and our gross margin expansion and strong cash position are further indicators that our fundamentals are in place. We see a clear path to returning to our best-in-class service levels in the coming months to support our sustainable and profitable growth. Thank you for spending time with us this morning.

Operator, Operator

Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.