Zevia PBC — Q3 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Zevia sells zero-calorie, naturally sweetened beverages, principally in the United States and Canada, through retail and online channels. It completed its IPO on July 26, 2021 and became the holding company for Zevia LLC; at quarter-end, it held a 53.3% economic interest in Zevia LLC, with 46.7% reported as noncontrolling interest.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $39.0 million | $32.0 million | $104.0 million | $82.2 million |
| Gross profit / margin | $17.0 million / 44% | $14.9 million / 47% | $47.4 million / 46% | $37.8 million / 46% |
| Operating loss | $49.5 million | Operating income $2.7 million | $50.0 million | Operating income $3.5 million |
| Consolidated net income (loss) | ($49.8 million) | $2.5 million | ($50.3 million) | $3.0 million |
| Adjusted EBITDA (non-GAAP) | ($3.5 million) | $3.0 million | ($3.4 million) | $4.3 million |
| Operating cash flow | Not separately presented for the quarter | ($13.1 million) | ($2.1 million) |
Q3 sales rose 22%; management attributed growth to approximately 26% more equivalized cases sold, partly offset by a 4% decline in average net price per case. Nine-month sales rose 27%, driven by approximately 26% more cases, with average net price essentially flat. Retail sales were $33.7 million and online/e-commerce sales $5.2 million in Q3.
Q3 gross margin declined three percentage points, which management attributed primarily to trade promotions and lower price realization. Selling and marketing expense rose 84% to $12.8 million, including $2.7 million of additional marketing spend and higher freight costs. General and administrative expense rose 56% to $7.7 million, reflecting public-company costs and higher staffing.
Equity-based compensation was $45.7 million in Q3 and $45.8 million for the nine months, compared with $28,000 and $86,000, respectively, in 2020. This IPO-related expense was the principal driver of reported losses; excluding it, adjusted net loss was $4.0 million for Q3 and $4.5 million for the nine months. Net loss attributable to Zevia PBC was $25.8 million, and reported loss per Class A share was $0.75; the per-share calculation covers the post-reorganization period beginning July 22, 2021.
Financial position and liquidity
- At September 30, cash was $78.7 million, current assets $123.3 million, current liabilities $19.8 million, and total liabilities $19.8 million. Total assets were $130.1 million.
- Cash increased from $14.9 million at December 31, 2020. Nine-month operating cash use was $13.1 million and capital expenditures were $2.3 million, including purchase of an Indiana warehouse facility.
- Net financing cash inflow was $79.2 million, principally reflecting IPO proceeds and related transactions. The IPO sold 10.7 million shares at $14 per share and generated $139.7 million after underwriting discounts and commissions; the company reported retaining $82.0 million after IPO offering costs for working capital and general corporate purposes.
- The $12 million revolving credit facility was terminated in July 2021; no balance was outstanding at September 30. The filing reports no other debt outstanding.
- Management stated that cash on hand and operating activities were expected to fund operations, planned capital expenditures and other investments for at least the next 12 months.
Outlook, risks, contingencies, and unusual items
- No specific revenue, earnings, or margin guidance was provided. Management expects growth from distribution expansion, retailer relationships, brand investment and product innovation, and anticipates seasonal sales strength in the second and third quarters. It expects gross margin to improve over time through scale, direct-to-retailer distribution and supply-chain improvements.
- Management cited supply-chain uncertainty, higher freight costs and a global aluminum-can shortage. Contracts cover only some expected can requirements; a hypothetical 10% aluminum-cost change would have affected nine-month cost of goods sold by approximately $0.8 million. The company also identified raw-material availability, customer concentration, competition, consumer preferences and COVID-19-related disruption as risks.
- Four customers represented 59% of Q3 net sales; one raw-material vendor represented 37% of Q3 raw-material purchases. This concentration increases exposure to changes in customer relationships and supplier availability.
- The Tax Receivable Agreement could require payments to specified holders equal to 85% of certain realized or deemed tax benefits. The company reported an unrecorded estimated TRA liability of approximately $46.2 million at September 30, 2021; actual payments depend on future taxable income and other factors.
- Management concluded disclosure controls and procedures were not effective at September 30 due to previously identified material weaknesses involving accounting resources, segregation of duties and review of promotional-activity classification and equity transactions. Remediation was underway and had not yet been demonstrated effective over a sustained period.
- Management reported no material legal proceedings or material supplier purchase commitments. Subsequent to quarter-end, the board approved retirement-related amendments that could accelerate vesting of certain executives’ unvested options and RSUs, subject to specified conditions.
Most important facts for investors to verify
- Whether volume growth can continue without trade promotions eroding net price and gross margin.
- How much of the reported loss and future expense reflects IPO-related equity awards, and the timing and potential dilution from outstanding options and RSUs.
- Whether cash generation improves as working-capital needs, freight costs and growth investments evolve.
- Exposure to major customers and concentrated raw-material suppliers, especially aluminum-can availability and pricing.
- Potential TRA payments and whether Zevia LLC generates sufficient taxable income to realize the related tax benefits.
- Progress in remediating material weaknesses and restoring effective disclosure controls.