Zevia PBC

Ladies and gentlemen, good morning and welcome to the Xebia PBC fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reed Anderson, Managing Director, Investor Relations. Please go ahead.

Thank you, and welcome to Xebia's fourth quarter 2023 earnings conference call and webcast. On today's call are Amy Taylor, President and Chief Executive Officer, Girish Satya, Chief Financial Officer, and Florence Neubauer, SVP Finance and Business Transformations. By now, everyone should have access to the company's fourth quarter 2023 earnings press release and investor presentation made available 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, Reed, and good morning, everyone. Welcome to the Q4 2023 earnings call for Xevia PBC. Before I walk us through fourth quarter results, I'd like to introduce our new Chief Financial Officer, Girish Satya. Girish is a 20-year veteran of high-growth consumer businesses and brings a varied skill set across finance, operations, technology, and strategic planning. His track record of success in driving growth and profitability will make him an excellent partner for me and for our leadership team and our board as we chart the course to the future. I'm also thrilled that Florence Neubauer, who has served as our interim CFO, will continue in a key leadership role at Xevia, now as SVP Finance and Business Transformation. The entire Xevia organization and the board joined me in thanking her for a remarkable contribution overall, but especially in these last several months. And now on to cover fourth quarter results and to provide an update on foundational initiatives that set us up for accelerating growth during exciting times for Better For You Beverages. I'm pleased to announce that Xevia returned to volume growth and net sales growth in the fourth quarter as the remediation of customer fulfillment issues in the midst of a supply chain transformation was implemented on time and as the brand refresh came to life on shelf. I'm grateful for the remarkable effort put forth from veteran and new Xevia team members in 2023, and I'm proud of their well-executed initiatives, not only to restore service levels, but also to ensure supply chain scalability for the future. Zevia's business has growing tailwinds as consumers across demographics continue to move away from sugar and increasingly toward clean label products. Diet and zero-calorie carbonated soft drinks continue to lead the growth in the broader soda category, and natural sodas outpace even further. Zevia is the number one consumer choice in natural soda. Consumer spending on the brand is up per household and per trip, and over the past 18 months, we have increased price with strong consumer acceptance. This demonstrates brand strength and supports unit economics and a strong gross margin, which enable our ability to invest in growth going forward. Our brand refresh improves on-shelf visibility and continues to position Zevia as the beacon for this growing category within CSD. Zevia is the natural soda brand with a strong foundation at scale at Center Store across natural and conventional groceries. with a loyal consumer base. And now, we have the opportunity to expand our base through a launch into immediate consumption and cold singles distribution in new and existing channels. CJA's focus remains taking our better-for-you beverages mainstream. Our competitive advantages include great taste, limitless enjoyment across usage occasions, our zero sugar clean label, and our affordability relative to other better-for-you beverages. Our mission focuses on global health for people on the planet, and in Q4, we removed another 2.7 thousand metric tons of sugar from consumers' diets, never having sold a plastic bottle. Vivia is more affordable than 64% of non-alcoholic beverages in North America, and more accessible than recent functional entrants in adjacent carbonated beverage categories. I'll share a few important shopper metrics. Vivia households increased their annual brand spend by 9%, and their spend per trip by 7% over the past 12 months as of the fourth quarter. We are a home stocking brand and are relevant across all youth educations and day parks. Devious shoppers spend 39% more on beverages versus total non-alcoholic beverage shoppers and make 32% more trips to stores to purchase beverages. Devious shoppers continue to differentiate themselves even further from average beverage shoppers year over year and versus prior periods. as they continue to spend more on the brand and overall. I'll provide a few channel and category insights before moving on to address some of our new initiatives here at the start of the year. Our growth for the quarter was led by continued exciting progress at the world's largest retailer, who doubled Vivia's space in 2023, as mentioned last quarter, and is testing the brand in the mainstream carbonated soft drink aisle. The test continues to outperform expectations. Zevia Soda is up 94% in same-store sales. This evolution is one of the few examples of our opportunity to lead the exciting growth that mainstream, better-for-you soda represents. Similarly, one of the three national drug chains took Zevia to the mainstream CSD aisle across 100% of its stores in Q4, posting double-digit growth. Zevia Soda delivered growth in the food channel in the quarter, outpacing the category in food here at the start of the year. Our newest flavors, Creamy Root Beer and Vanilla Cola, continue as number one and number two in Zevia dollar growth across the quarter, and both have ample room to expand distribution further, as we expect their performance to support increased brand presence in upcoming spring resets at retail. Each new soda item we introduce into our portfolio performs better than the last. And in e-commerce, Zevia returned to growth in the quarter. Our top e-commerce customer posted 30% growth in December, indicative of supply chain recovery and continued demand in one of our strongest channels. I'll provide some insights on Q1. We are experiencing a delay in the recovery of on-shelf stock levels at retail, a lag effect of last year's customer fulfillment issues amid supply chain transition, and thus some initial volume softness. We expect a recovery in Xevious points of distribution, and the return to normal promotional support at retail following spring resets, and thus a return to growth through spring and summer. Media turns the corner into 2024 with a sharp brand refresh in market, a stable and scalable supply chain, momentum in critical new market segments, and strong pricing. These factors underscore brand strength and bolster gross margins, indicating the ability to invest in accelerating growth going forward. On that foundation, we are focused on the following initiatives. Firstly, we are prepared to launch a regional approach to direct store delivery or DSD, which we believe will present an excellent case study of what DSD can do for our well-established high potential brand in our current distribution footprint and in yet unpenetrated market segments. Secondly, we have gained distribution in a limited number of regional convenience chains in the U.S. and in Canada, to test and learn the right assortment, merchandising, price points, and service levels for Zevia to be successful in this critical immediate consumption trial-driving channel. Thirdly, we have stabilized and strengthened our supply chain in the following manner. We have shifted contract manufacturers' ownership over raw materials such that we manage only finished goods, and we have outsourced freight to an excellent partner who will help reduce costs and deliver efficiency as we ready Zevia to scale. And finally, we're introducing marketing beyond retail now that the brand refresh is fully in market, ramping up after spring reset season with a nationwide focus on the spring and summer beverage season. In short, it is critical we invest in consumer marketing outside the store and in route to market to drive growth in 2024 and beyond with a focus on the long-term opportunity. Following the broader category, we've also announced a price increase effective May 1st, between 4.5% and 5% across selected packages as Zevia continues to demonstrate brand strength and as we maintain the same relative price position as premium to mainstream soda, but materially more accessible and affordable than other natural and better-for-you beverages on a unit and per ounce basis. I'll turn it over to Florence for additional color on our financial results. and I'll come back to speak about our broader opportunity, especially in light of the addition of an experienced strategic CFO to our leadership team.