Zevia(ZVIA) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $36.4 million for Q3 2024, a 15.6% decline compared to the previous year, primarily due to reduced distribution in club channels and the exit from Kids and Mixers categories [9][24] - Adjusted EBITDA loss improved to$ 1.5 million from $9.1 million in the prior year, reflecting successful productivity initiatives [8][28] - Gross margin increased to 49.1%, up 370 basis points year-over-year, driven by productivity initiatives and improved inventory management [26][28] Business Line Data and Key Metrics Changes - The company experienced a 16% decline in net sales, attributed to reduced club distribution and strategic exits from certain product lines [9][24] - Strong sell-through was noted in key strategic channels, with grocery channel scan data showing dollar growth of 8% and unit growth of 9% [10][12] Market Data and Key Metrics Changes - The Pacific Northwest market showed stronger performance due to enhanced service levels and merchandising, outperforming other markets [11][51] - The company is expanding its presence in Walmart, rolling out to over 4,300 locations, which is expected to significantly increase brand awareness [17][33] Company Strategy and Development Direction - The company aims to capitalize on the growing demand for healthier soda alternatives through robust brand marketing, distribution expansion, and product innovation [7][14] - A focus on building brand marketing capabilities and leveraging digital platforms is central to the company's strategy [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to growth in Q4, supported by strong velocity performance and the Walmart rollout [6][20] - The company anticipates gradual growth as it builds sustainable momentum and aims for positive adjusted EBITDA by 2026 [30][31] Other Important Information - The company expects annual cost savings of$ 15 million, an increase from the previous estimate of $12 million, due to productivity initiatives [8][23] - The company ended the quarter with approximately$ 32 million in cash and cash equivalents, along with an undrawn revolving credit line of $20 million [29] Q&A Session Summary Question: Impact of lost distribution in club and mass channels - Management noted that the softness in sales was due to volume impacts from reduced store selling in club channels and promotional timing variances, but velocity remains strong across channels [32][33] Question: Marketing spend as a percentage of sales and profitability outlook - Management emphasized the importance of balancing marketing investments with profitability goals, aiming for profitability by 2026 while continuing to invest in brand building [36][37][38] Question: Insights on gross margins and structural improvements - Management attributed improved gross margins to better inventory management and renegotiated input costs, indicating a reset at a higher margin level [40][41] Question: Promotional strategies and their effectiveness - Management discussed testing various promotional strategies and noted a significant increase in sales lift from new approaches, with plans to finalize strategies by Q1 2025 [42][44] Question: Performance of Salted Caramel flavor and digital advertising engagement - Management indicated that the Salted Caramel flavor is driving both trial and engagement, with digital marketing initiatives showing promising results [48][49]