ZVIA

Business Context and Reporting Period

Company: Zevia PBC (Ticker: ZVIA)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2024
Business Overview: Zevia is a Delaware public benefit corporation and Certified B Corporation developing, marketing, and selling zero-sugar, naturally sweetened beverages (Soda, Energy, Organic Tea). The company operates as a holding company with its primary asset being a controlling interest in Zevia LLC. Products are distributed across the U.S. and Canada via retail, e-commerce, and specialty channels.

Key Financial Metrics

Note: The company maintains a $20 million secured revolving line of credit with no outstanding balance as of December 31, 2024.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 6.8% to $155.0 million. This was driven by a 4.8% decrease in equivalized cases sold (12.1 million vs. 12.7 million) due to lost distribution in the club channel and one mass channel customer, as well as the strategic discontinuation of Kids and Mixers product lines. Increased promotional activity to liquidate excess inventory also reduced net sales by $1.6 million.
• Cost of Goods Sold (COGS): COGS decreased 9.3% to $83.1 million. The reduction was primarily due to lower inventory write-downs ($4.6 million decrease) and lower volumes, partially offset by unfavorable unit costs related to enhanced packaging designs.
• Gross Margin Expansion: Gross margin improved to 46.4% from 44.9%, driven by lower inventory write-downs and favorable product mix, despite higher promotional spend and unit costs.
• Operating Expenses: Total operating expenses decreased 7.9% to $95.6 million. Selling and marketing expenses dropped 8.3% due to reduced freight and warehousing costs from supply chain efficiencies, though marketing spend increased by $6.5 million. General and administrative expenses fell 4.7% due to the Productivity Initiative. Equity-based compensation decreased 40.1% to $5.0 million.
• Restructuring: The company incurred $2.1 million in restructuring expenses in 2024 (none in 2023) related to the "Productivity Initiative," including severance, consulting, and asset impairments.

Guidance, Outlook, and Risks

• Productivity Initiative: Launched in Q2 2024 to realign cost structure. The initiative incurred $2.1 million in costs in 2024 and is expected to yield approximately $15.0 million in annualized benefits, with savings realized in the second half of 2024 and expected to be fully realized over the next year. Additional restructuring costs of approximately $1.5 million are expected in Q1 2025.
• Strategic Focus: Management is reinvesting cost savings into brand marketing and promotional activity to drive growth. The company expects to significantly increase marketing investment in 2025, particularly in Q1 and Q3.
• Supply Chain Changes: In 2024, the company transitioned to a model where contract manufacturers procure raw materials, selling finished goods to Zevia. This aims to leverage supplier purchasing power and improve scalability.
• Key Risks:
  • Customer Concentration: The top 10 customers represented 71% of net sales in 2024. The largest customer accounted for 13%.
  • Profitability: The company has a history of losses and may not achieve profitability in the future.
  • Regulatory & Tariffs: Potential impact of new U.S. tariffs on steel and aluminum (25% import tax) and trade policies affecting supply chain costs.
  • Stock Listing: The company previously received notice of non-compliance with NYSE minimum stock price standards but regained compliance in October 2024. Continued compliance is not guaranteed.
  • Tax Receivable Agreement (TRA): The company has a TRA obligation to pay 85% of tax savings from basis step-ups to pre-IPO investors. Potential future payments are estimated at $56.5 million, contingent on future taxable income.

Investor Verification Checklist

• Revenue Recovery: Verify if the company can regain lost distribution in the club and mass channels to reverse the 6.8% sales decline.
• Productivity Initiative ROI: Monitor the realization of the projected $15.0 million in annualized cost savings and the impact of additional Q1 2025 restructuring costs.
• Inventory Management: Assess inventory levels ($18.6 million) relative to sales velocity to ensure write-downs do not recur.
• Tariff Impact: Evaluate the financial impact of the 25% import tax on steel and aluminum on future COGS and gross margins.
• Liquidity Position: Confirm the ability to fund operations and the TRA obligations with current cash ($30.7 million) and the $20 million credit facility.
• NYSE Compliance: Monitor stock price performance to ensure continued compliance with NYSE listing standards.