Zevia PBC

Greetings and welcome to the Xevia PBC Q3 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Thank you, and welcome to ZVIA'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 ZVIA's website at investors.zvia.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.gbs.com. And now, I'd like to turn the call over to Amy Taylor.

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 three 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 a 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 and 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, Xevious competitions featuring UGC or 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's 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 Lifetime 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 offer 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 Zvia space at retail and of accelerating velocities. Peaches and Cream and Salted Caramel provided new news this quarter as exclusives or limited time offers respectively, and Strawberries and 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 and Cream has been the fastest selling new Zevia item ever on Amazon, while Strawberries and Cream was immediately a top three 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 multi-packs 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 a 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.

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, savings from our productivity initiatives have enabled us to invest meaningfully while strengthening Xevia's market position within the better for you SOTA 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 Zvia 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 for 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 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?

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 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. One moment please while we poll for questions. The first question is from Jim Solera from Stevens Inc. Please go ahead.

Good afternoon. Thanks for taking our question. 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 kind 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.

Sure, Jim. Yeah, 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, I think, reflection of the velocities coming out of the customer in the initial pilot. So it was fairly small out of the gates. We were in 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 lifting 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.

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.?

Sure. So we're excited about the new packaging, too. We did some, as I said in the prepared remarks, we did some initial testing. 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 that is because of the insights-based changes that we made to the messaging, which very clearly state Xebia's value proposition. They're talking zero sugar, zero fake colors, zero fake sweeteners, and 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 and 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. And then we'll do a rolling rollout from there, not a hard cut over, but a rolling launch of the new packaging from there into the second quarter.

Okay, great. I appreciate the comments. I'll hop back in the queue.

Thanks, Jim.

The next question is from Sarong Vora from Telsey Advisory Group. Please go ahead.

Great. Congratulations on a great quarter. and good to see the healthy momentum in the business. You know, my question is about, you know, when you look at the underlying matrix that drive growth, which is increasing household penetration, dollars per household, increasing frequency, can you remind us who are some of the new customers that are coming to the brand that, you know, you weren't there before? And just from a broader standpoint, like, you know, how is the penetration for Better For You products in general and versus your 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?

Yeah, thanks, Sarang. That's a very good way to frame the opportunity and sort of the runway ahead. So we're really pleased to see movement in household penetration over the last 12 months. This last read being improved over the prior, and we are now back over that five million household points five percent points of household penetration. Excuse me. And so they're the major drivers of that. Our new consumers coming to the brand yes, in part through marketing. So we're running new consumers. It continues to be oftentimes a slightly higher income millennial often with kids in the household. bringing Zevia Soda home as a trusted brand stock in the fridge for all youth educations and all family members, right? So it continues to be relevant across generations, but our sweet spot is the millennial and oftentimes the millennial household with children. Part of what's driving our gains in household penetration though is increased distribution. So we get support there from the Walmart expansion where, especially with the introduction of new flavors, we're seeing very high percentage of new to brand users Uh, buying buying for the 1st time at Walmart, and there are other examples of that expanded same store sales and other major grocery outlets expansion into the drug channel, et cetera. All of those are supporting council penetration growth. But to help you to size this, you know, we see the category right now operating around 20 points percentage points of household penetration. So there's a lot of ground to be gained for media. And as we talk about very frequently, we see all of these category tailwinds as a net positive to Zevia. So there's tremendous opportunity ahead as the world continues to move away from sugar and toward clean label products. And we are the great tasting, truly zero sugar and also affordable, better for you product. So we see a lot of household penetration opportunities ahead.

That's awesome. You know, I have a second question. You know, soda business is clearly gaining momentum, as we see in all these numbers. But one thing we don't talk much about is the energy business, energy drinks business. And, you know, my my understanding that my how should we think actually about energy drinks as you look at 26 and 27? Is there a thought to revive that category as well?

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 talk healthful 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.

That's great. Good luck ahead.

Thank you, Sam.

The next question is from Andrew Strelczyk from BMO Capital Markets. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. With all the marketing that you've been doing and some of the momentum that you cited from that, the brand block, et cetera, 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?

You know, Andrew, we haven't reported on awareness levels, but what I can share that kind of doubles down on the prepared remarks was 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, 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 is inviting trial. And then the product is satisfying the consumer. So we're getting strong repeat. That's a great formula upon our foundation 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.

Okay, that's helpful. And my other question, if I remember correctly, just seasonally, you would normally see, you know, a bigger step down from 3Q to 4Q than the guidance suggests, pretty marginal step down from what you did in 3Q from a revenue perspective to the midpoint of the guidance. And so I guess I'm curious, do you think you're seeing less seasonality in your business or should we read that maybe as a higher baseline from 4Q into next year? What's driving that or how should we interpret that kind of as we think about next year? Thanks.

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

Okay, great. Thank you.

As a reminder, to ask a question, please press star one. The next question is from Eric Sirota from Morgan Stanley. Please go ahead.

Great. Can you start by reflecting a bit in terms of shelf space expectations for next year? I guess, you know, with Walmart, we're just about a year in, or almost exactly a year into the roll out of their modern soda set um what are you guys seeing in terms of what they're doing is the largest retailer uh you know we're just looking more to retailer as we look next year and then uh you know sort of outside of walmart what are your expectations in terms of shelf space

Sure, let me start with Walmart and then I can go to the outlook as it relates to distribution. So Walmart is developing nicely bolstered by the introduction of a number of new items. Some of those are swap outs and some are purely incremental new items that is helping us in the back half of this year and going into next year. We are one of the primary brands in that very sort of influential modern soda set in Walmart and that continues to be the case. Strategically, Walmart works hard for us because, as I mentioned before, drives a lot of new to brand users. And so I think it's a great story to say, hey, when we have ample brand blocks, strong visibility, right price, right flavor mix, it's working hard for the brand. And that's a story that we can take elsewhere. We've had other expansions, as I've mentioned on prior calls, such as a step change in shelf presence at big retailers in grocery like Albertsons in 2025. And again, that has contributed to some of our growth in the back half of the year. So, when we look ahead, this year, we surpass our historical peak distribution levels at retail. And so we're not relying on new distribution for growth looking ahead. We're really focused on driving velocity. And that's why you hear us talk about the brand marketing and innovation priorities that we have. But we do see opportunity for new distribution in terms of new stores that would be in club. It would be in mass. And it would be in the value and dollar channel, and then long term inconvenience and food service. And then in existing stores, there is still more opportunity to expand same store distribution and to improve shelf. So there are major operators in the grocery channel, for example, where we still have, let's say, a lesser presence on the bottom shelf. And an opportunity to build up to I level to gain space through innovation and to leverage all the strong data of 2025 to make those changes. So we're bullish both on accelerating velocity as well as continuing to increase distribution next year. Be it in same store or through new channel. Walmart should continue to perform for us next year. Costco offers opportunities for incremental rotations and there are other green shoots in the club channel outside of Costco. As I mentioned, grocery offers opportunity in same-store distribution as well as new items and set improvements and then the long-term sort of slow but steady and strategic need to drive singles through convenience. So hopefully that paints a picture a little bit about where we see our growth coming from, our bullishness on same-store distribution increases, and then our greatest channel opportunities for next year.

Great. And then one question in terms of profitability, you know, any, I realize you're not going to give us 2026 guidance yet, but any color as to how you're thinking about achievability of EBITDA profitability next year, puts and takes, it seems like, well, certainly your top line is scaling. You're seeing some nice operating leverage there. Some of the costs with the new packaging and inventory obsolescence shouldn't repeat, but then things like aluminum and Midwest premium keep moving higher. So any color into how you're thinking about profitability for next year would be helpful.

Yeah, 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, you know, don't expect a ton of flow through because we do believe that right now is 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. You also mentioned we will largely see 15 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.

Great. Thanks so much. I'll pass it on.

Thanks, Eric.

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

All right. Thanks so much for joining us. You know, 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 three 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 Zedia. So thanks again for your engagement and we will see you next quarter.

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