Zevia PBC — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; the filing also reports unaudited fourth-quarter results. Zevia sells zero-sugar, naturally sweetened beverages, primarily in the U.S. and Canada. The company completed its IPO and holding-company reorganization in July 2021; Zevia PBC held a 53.4% economic interest in Zevia LLC at year-end, with 46.6% reported as noncontrolling interest.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net sales | $138.2 million | $110.0 million | +26%; equivalized cases sold increased approximately 25% |
| Gross profit / margin | $61.2 million / 44% | $49.5 million / 45% | Profit +24%; margin down 1 percentage point, reflecting mix and inflation |
| Operating expenses | $148.6 million | $55.0 million | Includes $77.7 million of equity-based compensation in 2021 |
| Operating loss | $87.4 million | $5.5 million | 2021 loss materially elevated by IPO-related equity compensation |
| Net loss | $87.7 million | $6.1 million | Net loss attributable to Zevia PBC was $46.0 million for the post-reorganization period |
| Adjusted EBITDA | $(8.7) million | $3.3 million | Non-GAAP measure; excludes equity compensation and other specified items |
| Operating cash flow | $(17.8) million | $(3.3) million | Higher inventory and other working-capital use contributed |
At December 31, 2021, cash and cash equivalents were $43.1 million and short-term investments were $30.0 million. Total liabilities were $20.4 million, principally accounts payable, accrued liabilities and operating leases; no credit-facility borrowings were outstanding. Net cash from financing activities was $79.1 million, largely reflecting the IPO. Investing cash use was $33.1 million, including $30.0 million of short-term investment purchases and $3.1 million of capital expenditures.
For Q4 2021, net sales were $34.2 million versus $27.8 million in Q4 2020. Gross profit was $13.8 million versus $11.7 million. Q4 2021 operating loss was $37.5 million and net loss was $37.4 million, primarily reflecting $31.9 million of equity-based compensation expense associated with IPO-related awards; Q4 2020 net loss was $9.0 million, including $7.8 million of tender-offer-related equity compensation.
Material changes and unusual items
- IPO proceeds were $139.7 million net of underwriting discounts and commissions. After specified unit purchases, cash-outs, blocker-merger consideration and offering costs, $81.7 million was retained for working capital and general corporate purposes.
- FY2021 equity-based compensation expense rose to $77.7 million from $7.9 million in 2020. The company said most IPO-related awards generally vested over six months following the IPO; further unrecognized award expense remained at year-end.
- Gross margin declined from 45% to 44%. Cost of goods sold rose 27%, somewhat faster than sales, amid product mix and inflation, including higher aluminum costs. Selling and marketing expense rose 55%, including higher freight and warehousing costs and $5.8 million of additional marketing spend.
- The company terminated its prior revolving credit facility after the IPO. On February 22, 2022, it entered a new asset-based revolver with a $20 million commitment, subject to a borrowing base, and an option to increase commitment by up to $10 million.
- A full $58.9 million valuation allowance was recorded against deferred tax assets. No Tax Receivable Agreement (TRA) liability was recorded because realization was not considered more likely than not; the potential liability if related tax benefits become fully realizable was estimated at $45.6 million.
Outlook, risks and contingencies
The filing provides no specific quantified revenue, earnings or margin guidance. Management expected inflationary pressures, supply-chain disruption, and higher logistics, manufacturing and labor costs to continue into 2022. The company and competitors had increased prices; management cautioned that price increases could reduce volume. It expects continued seasonal sales concentration in the second and third quarters and anticipates higher operating and capital spending as it grows.
- Key business risks include intense competition, changing consumer preferences, the company’s history of losses, dependence on major retailers and customer concentration: the largest customer generated 17% of 2021 sales and the top ten generated 75%.
- Supply risks include reliance on a single stevia-extract supplier, overseas sourcing of stevia, and an ongoing aluminum-can shortage. The company reported mitigating can risk through supplier diversification and inventory-building, but contracts do not cover all expected needs.
- COVID-19, inflation, transportation constraints, labor shortages, and geopolitical and economic disruption could affect demand, costs, supply and access to capital. Management said 2021 COVID-related facility delays had not materially affected operations.
- The company’s TRA requires payment of 85% of specified realized or deemed tax savings to beneficiaries. Certain termination, change-of-control or breach events can accelerate payments, potentially exceeding realized tax savings; the holding company also depends on Zevia LLC distributions for taxes and other expenses.
- The new revolver requires at least $7 million of liquidity through December 31, 2023. A minimum fixed-charge coverage ratio of 1.00:1.00 may apply thereafter if specified availability or default triggers occur.
- No material legal proceedings were reported. The auditor issued an unqualified opinion on the financial statements. Management said prior material weaknesses in internal controls were remediated by year-end, but the filing did not include an auditor attestation on internal control effectiveness.
Investor verification priorities
- Verify whether sales growth and case-volume growth persist after price increases, and whether customer incentives, promotions and channel mix affect reported net sales and margins.
- Track gross-margin recovery against aluminum, freight, manufacturing and labor inflation; assess whether cost increases can be passed through without weakening volume.
- Separate underlying operating trends from IPO-related equity compensation, while checking the timing and remaining expense of unvested awards.
- Monitor cash conversion, inventory growth, working-capital needs and available borrowing-base capacity under the new revolver.
- Review retailer concentration, the single-source stevia exposure, can availability and supply-chain alternatives.
- Assess the assumptions, timing and potential cash burden of TRA payments and any future tax-asset realization.
- Confirm progress in sustaining internal controls after remediation, noting the company’s emerging-growth-company exemptions and lack of auditor ICFR attestation.