Zevia PBC 2023 Form 10-K Summary
Business context and reporting period
Zevia develops and sells zero-sugar, zero-calorie beverages sweetened with stevia, principally in the U.S. and Canada. Its portfolio includes soda, energy drinks, organic tea and kids’ drinks; soda generated approximately 91% of 2023 net sales. This Form 10-K covers the fiscal year ended December 31, 2023, and includes unaudited fourth-quarter results. The financial statements were audited by Deloitte & Touche LLP.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $166.4 million | $163.2 million |
| Gross profit / gross margin | $74.8 million / 44.9% | $70.0 million / 42.9% |
| Operating loss | $28.9 million | $47.9 million |
| Net loss, consolidated | $28.3 million | $47.6 million |
| Net loss attributable to Zevia PBC | $21.5 million | $33.9 million |
| Adjusted EBITDA (non-GAAP) | $(19.0) million | $(19.6) million |
| Cash used in operating activities | $16.3 million | $20.8 million |
Net sales rose 2.0%, while equivalized cases sold fell to 12.7 million from 13.6 million. Management attributed the net sales increase primarily to $11.5 million from pricing, partly offset by an $8.3 million sales impact from lower case volume. Gross margin improved mainly on pricing, partly offset by inventory losses. Selling and marketing expense increased 17.9% to $62.3 million, including higher freight-transfer and warehousing costs; general and administrative expense declined 14.4% to $31.5 million. Equity-based compensation expense fell to $8.3 million from $26.9 million, substantially affecting the year-over-year improvement in reported losses.
At year-end, cash and cash equivalents were $32.0 million, down from $47.4 million. Current assets were $82.7 million and current liabilities $27.7 million. Inventory increased to $34.6 million from $27.6 million. The company had no borrowings under its $20 million asset-based revolving facility, which matures in February 2027; borrowing availability is subject to a borrowing-base calculation. Total liabilities were $29.1 million, primarily current liabilities and operating lease liabilities. The company reported compliance with its liquidity covenant at December 31, 2023.
Fourth-quarter net sales were $37.8 million versus $35.4 million in Q4 2022; gross profit was $15.4 million versus $15.7 million, and operating loss was $8.9 million versus $6.3 million. Management cited lower volumes, supply-chain-related fulfillment impacts and higher inventory losses.
Material changes, outlook and risks
- During Q2–Q4 2023, supply-chain logistics challenges hindered fulfillment and raised freight, warehousing, storage and production costs. Management said service levels were restored after corrective actions in Q4. The company temporarily lost some retail distribution and expects to regain it in 2024.
- Inventory losses were $5.3 million higher year over year, which management linked mainly to brand-refresh timing, discontinued SKUs and changes to procurement. The company also refreshed its brand and optimized its product portfolio.
- Beginning in Q1 2024, contract manufacturers were to procure raw materials and sell finished goods to Zevia. The company also onboarded a transportation management company. Management expects these changes to improve purchasing leverage, supply-chain flexibility and cost management; results remain to be demonstrated.
- Management expects elevated operating costs, including logistics, manufacturing and labor, to continue into 2024, with potential pressure on margins. It expects selling expenses to decrease in the short term compared with 2023 as the exceptional supply-chain challenges abate, while also planning increased out-of-store marketing investment in 2024. The filing provides no quantified revenue, earnings or margin guidance.
- Key risks include continued losses, price-sensitive consumers and competitive pressure, reliance on major retailers (the largest customer represented 13% and the second-largest 10% of 2023 sales; the top ten represented 73%), and supply concentration. A majority of stevia extract is sourced from one supplier, although a second source was approved and the primary supplier agreement has fixed pricing for two years beginning October 15, 2023.
- The company reported $75.5 million of deferred tax assets fully offset by a valuation allowance. It has not recorded a TRA liability because realization of the related tax assets was not considered more likely than not; the potential liability if benefits were fully realizable was $56.2 million. The TRA generally provides eligible holders 85% of specified tax savings and could create significant cash obligations.
- No material legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation because Zevia is an emerging growth company.
Important facts for investors to verify
- Whether case volumes and retail distribution recover in 2024, and whether price increases can support growth without further weakening volumes.
- Whether supply-chain changes reduce freight, warehousing and inventory costs, and whether further inventory write-downs or fulfillment issues arise.
- Cash burn, inventory levels and borrowing-base availability under the revolving facility; cash declined by $15.4 million during 2023.
- Progress toward profitability, considering continued GAAP and adjusted losses and the impact of equity-based compensation on comparisons.
- Exposure to major retail customers and concentrated sourcing, including actual diversification of stevia and other key inputs.
- Potential timing and amount of future Tax Receivable Agreement payments, which depend on taxable income and utilization of tax benefits.