Zevia PBC — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; comparisons are with Q1 2021. Zevia develops and sells zero-calorie, naturally sweetened beverages in the U.S. and Canada. Zevia PBC owns a 58% economic interest in Zevia LLC; the remaining 42% is noncontrolling interest.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $38.0 million | $30.7 million |
| Gross profit / margin | $14.6 million / 38% | $14.2 million / 46% |
| Operating income (loss) | $(17.6) million | $0.2 million |
| Consolidated net income (loss) | $(17.5) million | $0.2 million |
| Net loss attributable to Zevia PBC | $(10.9) million | $0.0 million reported |
| Adjusted EBITDA | $(8.3) million | $0.5 million |
| Operating cash flow | $(11.4) million | $(2.3) million |
Net sales grew 24%, with equivalized cases sold up approximately 21%, attributed to expanded distribution and consumer demand. Retail sales rose to $34.2 million from $25.9 million, while online/e-commerce sales declined to $3.9 million from $4.8 million amid temporary ordering disruptions. Cost of goods sold increased 42%, reflecting higher volume, approximately 12% inflation in product costs, and mix. Gross profit rose only 3% as margin fell eight percentage points.
Selling and marketing expense increased 60% to $12.8 million, primarily from freight and warehousing costs and higher marketing spend. General and administrative expense increased 78% to $10.1 million, including higher headcount and public-company costs. Equity-based compensation was $8.9 million versus $0.04 million, including $3.1 million related to awards vesting after the IPO lock-up expired. Q1 basic and diluted loss per share was $0.30.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $28.8 million and short-term investments were $30.0 million at March 31, 2022, totaling $58.8 million in reported cash and short-term investments.
- Cash declined $14.3 million during the quarter. Operating cash use was $11.4 million; investing cash use was $0.6 million, principally capital expenditures; financing cash use was $2.3 million, mainly employee tax withholding on net share settlements.
- Total current assets were $107.1 million, including inventory of $32.4 million and net accounts receivable of $13.4 million. Current liabilities were $22.1 million.
- No borrowings were outstanding. A new Bank of America secured revolving facility, entered into February 22, 2022, provides up to $20 million subject to a borrowing base, with a possible $10 million increase subject to conditions. It matures in February 2027. A $7 million minimum liquidity covenant applies through December 31, 2023.
- Management stated that cash, short-term investments, operating activities and available facility borrowings should fund operations and planned expenditures beyond the next 12 months.
Outlook, risks and unusual items
- Management expects inflationary, supply-chain, logistics, manufacturing and labor-cost pressures to continue through 2022. It said recent and future pricing actions are expected to support gross-margin improvement in future quarters, while acknowledging higher prices may reduce volume.
- Demand is generally stronger in the second and third quarters. The company expects operating and capital expenditures to increase as it expands, and does not provide quantified revenue or earnings guidance in the provided filing text.
- Management cited aluminum-can shortages and exposure to aluminum, diesel fuel, cartons and corrugate costs. A hypothetical 10% aluminum-cost change would affect quarterly cost of goods sold by approximately $0.4 million. Four vendors each accounted for at least 10% of raw-material purchases in Q1; one accounted for 27%.
- Customer concentration is notable: one customer represented 19% of Q1 sales; another represented 10%. The filing identifies risks including competition, consumer preferences, retailer relationships, supplier dependence, product quality and safety, COVID-19 impacts, inflation, and the company’s history of losses.
- The company recorded a full valuation allowance against deferred tax assets and no TRA liability. The unrecorded potential tax receivable agreement liability was approximately $49.3 million as of March 31, 2022; payments depend on future tax benefits and taxable income.
- After quarter-end, the COO notified the company of plans to retire effective June 24, 2022. Accelerated vesting is expected to result in $3.8 million of equity-based compensation in Q2 2022. The company also amended its office lease, extending it through 2023 and expanding the premises effective May 1, 2022.
- No material legal proceedings were reported. Management said disclosure controls and procedures were effective as of March 31, 2022.
Most important facts for investors to verify
- Whether pricing actions and supply-chain improvements can recover the eight-point gross-margin decline without materially weakening demand.
- Cash consumption and working-capital trends, particularly receivables, inventory and the availability of the borrowing-base revolver.
- The scale and timing of ongoing equity compensation, including the disclosed $3.8 million Q2 charge related to the COO’s retirement.
- Customer and raw-material supplier concentration, aluminum availability, and the extent to which inflation continues to affect costs.
- Future taxable income and potential TRA payments; the $49.3 million figure is unrecorded and contingent on realizing tax benefits.