Zevia PBC

I will now turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Thank you, and welcome to Xebia's first 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 first quarter 2023 earnings press release and investor presentation filed this morning. This information is available on the investor relations section of Xebia's website at investors.xebia.com. Before we begin, please note that all financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release presentation slides that 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.xevia.com. And now I'd like to turn the call over to Amy Taylor.

Thanks, Ray, and good morning, everyone. Welcome to the Q1 2023 earnings call for XeviaPBC. CVIA had a strong quarter as we continue our progress toward profitability and drive our focus on distribution and trial. We are demonstrating strong momentum across channels, continuing to increase average spend per household, even as we gain new households with increased distribution. We're seeing strong growth in our new singles business, even before we enter traditional immediate consumption channels. We're realizing price in the market and materially reducing costs in our business, resulting in continuing recovery of our gross margin. Q1 saw the strongest gross margin of any quarter to date as a public company and a 470 basis point improvement over prior years. And critically, we continue to manage cash effectively, driving improvement on the adjusted EBITDA line. The strategic shifts we made at the halfway mark in 2022 to focus on profitable growth are paying off. The team is executing the plan, and the brand continues to demonstrate exciting momentum. 2023 is a transformational year for ZBS, and we're pleased to walk through the results and their indications this morning. CVEA's mission focuses on global health for people and planet. In a Q1, we removed another 3.2 thousand metric tons of sugar from the diets of the communities we serve and replaced 47 million plastic bottles in our markets. CVEA is more affordable than 64% of non-alcoholic beverages in North America, even as we realize price in keeping with the market and continue to focus on taking our better for you beverages mainstream, making them available and affordable for consumers across income levels. In Q1 2023, we delivered net sales of $43.3 million just ahead of our expectations, resulting in a 13.8% revenue growth over prior year and a 2.7% decline in volume. We realized growth from price and new distribution. We are pleased with the team's execution and continued retailer and consumer acceptance of our price increases, and we've communicated another price increase of 5% here in Q2. We're seeing strong growth from new item distribution in new and legacy customers, and we go into the spring and summer beverage season from a position of strength. Close margins continue to improve to mid-40s levels in keeping with our expectations. We've demonstrated strong cash management and have delivered a very strong run rate of improvement on the adjusted EBITDA line. Cost controls, disciplined adaptations to our promotional strategies, and strong price increase implementation, so new precedents for ZVS, with a focus on quality growth. While we've made progress and our brand and unit economics are strong, we do not expect our path to profitability to be entirely linear. We plan to make investments throughout this year in marketing and supply chain to support our brand refresh, to support service levels, and ultimately to support growth. I'll go into more detail now with a focus on our consumer-based evolution and our learnings from syndicated and panel data from Q1. ZVS household penetration is 6.4%. and Xevia's households increased their brand spend by over 12% in the past 12 months, driven by increases in spend per trip with consistent purchase frequency rates among the larger brand buying base. We maintained purchase frequency and increased average spend per household, even as we added new consumers for the brand. Following a material price increase, these are strong indicators of the health of our brand and our user base across heavy, medium, and new light users, bolstered by strong new item performance. ZVIA grew 7% in scan dollar sales for the quarter as we cycled last year's New Year Live Your Best program in favor of this year's focus on spring and summer. In retail dollar sell-through, ZVIA delivered its highest Q1 on record, The same is true in e-commerce. Same-store sales remain robust through a healthy mix of volume and price, and we anticipate continued progress in quality growth driven by the brand refresh, marketing support, and strategic retail programming in the coming months. And data continues to demonstrate that the Zevia shopper is a highly desirable one, less price sensitive at all income levels. We remain a home stocking brand, which remains a competitive advantage. as we simultaneously build a singles business and grow cold availability. CVS shoppers proved valuable to retail partners with a remarkable 40% higher beverage spend versus total non-alcoholic beverage shoppers. Our shoppers also make 30% more trips to stores to purchase beverages versus the average shopper. We see similar dynamics in e-commerce where we are the number one carbonated soft drink and where we continue to grow at pace with retail. As mentioned, the first quarter of 2023 marks a promotional calendar shift for Xebia versus years past based on the strategic changes we made as a new leadership team for this annual operating plan, focusing less on Q1 and more on peak beverage season in retail activity. Q1 results were driven largely through new items and new store distribution, which accounted for 78% of our growth, while organic velocity growth accounted for the remaining 22%. We expect this will balance closer to 60-40 in the coming months based on calendar shifts and our focus on the brand refresh. Distribution growth in the quarter was rooted in new packages, our 12-ounce sleek single soda can, our 8-packs in mass, and our 12-packs in food. The single can continues to grow in units per store per week, doubled when merchandise cold. Singles are becoming a major driver of our business with key natural channel customers. New stores also bolstered distribution growth as we closed gaps in the food channel and gained new stores selling in Warehouse Club. We gained 2,700 new stores selling soda in the quarter. As we cycle our first year in distribution in Warehouse Club, we are pleased to see that 64% of shoppers who bought Zevia in club stores were new to brand, and half of those new shoppers also bought Zevia in additional channels, spending 67% more on Zevia than the average Zevia shopper. This demonstrates the power of the Xevia brand discovery in-club, as it spurs trips and spending in traditional retail channels. We have further opportunities to expand in-club region selling, and we will be able to share more updates on this in the coming months. Moving on to velocity, the consumer shift to larger pack sizes continues. Jock-up options are driving growth category-wide and also for Xevia, as 8-packs and larger now account for more than 50% of our business in measured channels. Velocity growth is driven in part by consumer trade-up, as retailers switch from the 10-pack to a more profitable 12-pack, but also by our expansion in the mass channel and the broader trend of home stocking and consumption at home in non-alcoholic beverages. This is a competitive strength for the Zubia brand through food, warehouse club, and in e-commerce. E-commerce, some natural channel players, and much of warehouse club sit outside of measured channels. Operationally, we're beginning to make fundamental changes in our supply chain that are expected to contribute to cost reductions, efficiencies, and process improvements over time. We also continue to work on reducing selling costs to improve agility and to reduce store-level out-of-stocks for our customers. These changes will be happening in parallel with the brand refresh and will require continued focus. I'll wrap with a big picture and turn it over to Denise. Divya has a very healthy business and continues to experience strong consumer demand, growing the consumer base and simultaneously increasing spend per household on the brand. We are realizing price in the market, having announced another 5% increase effective in Q2, and are reducing costs in our business. In the first quarter, we delivered the strongest gross margin ever since becoming a public company in 2021. Critically, we continue to manage cash effectively and drive improvement on the adjusted EBITDA line. We're headed into the summer from a position of strength. We expect continued double-digit growth on the year, bolstered by an exciting brand refresh and a supply chain in transformation. CVS brand refresh brings a sharp new logo and brand identity, new modernized and differentiated pack design, and radically improved on-shelf visibility, but most of all, increased resonance with new consumers incremental to our highly engaged base. Thank you, and I'll hand it over to Denise.