ZVIA

Business Context and Reporting Period

Zevia PBC, a Delaware public benefit corporation and Certified B Corporation, manufactures and distributes zero-sugar, naturally sweetened beverages (Soda, Energy Drinks, Organic Tea). The company operates as a holding company with its primary asset being a controlling interest in Zevia LLC. This Form 10-Q covers the quarterly period ended March 31, 2025.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Net sales decreased 2.0% to $38.0 million. The decline was driven by a $2.5 million increase in allowances for incentives and discounts due to higher promotional activity, partially offset by $1.6 million in pricing increases and a slight volume increase.
• Cost of Goods Sold (COGS): COGS decreased 9.9% to $19.0 million, driven by favorable unit costs ($1.7 million) from the "Productivity Initiative" and lower inventory write-downs ($0.4 million).
• Gross Margin: Improved to 50.1% from 45.7% due to cost efficiencies and pricing, despite higher promotional spend.
• Operating Expenses: Total operating expenses increased slightly to $25.4 million. This included a new $2.1 million restructuring charge related to workforce reductions. Selling and marketing expenses rose 1.7% due to a 125.6% increase in marketing spend, while selling expenses dropped 25.8% due to logistics efficiencies.
• Equity-Based Compensation: Decreased 50.9% to $0.7 million as the service period for certain IPO-related awards was completed.

Guidance, Outlook, and Risks

• Productivity Initiative: The company is executing a multi-year cost-reduction plan. Q1 2025 incurred $2.1 million in restructuring costs. Management expects annualized benefits of approximately $15.0 million, with the initiative substantially completed by the first half of 2025. Savings are being reinvested into brand marketing.
• Tariff and Inflation Risks: The filing highlights significant risks from new U.S. tariffs, including a 25% import tax on steel and aluminum and a 10% tariff on imports from many countries. These are expected to increase COGS and create supply chain volatility.
• Liquidity: The company holds $27.7 million in cash and has a $20 million revolving credit facility (currently $0 outstanding). Management believes this is sufficient for operations beyond the next 12 months.
• Tax Receivable Agreement (TRA): A potential liability of $58.2 million exists under the TRA if tax benefits are realized. Currently, no liability is recorded as realization is not "more likely than not."
• Outlook: Management expects continued seasonality with higher demand in Q2 and Q3. They anticipate balancing reinvestment of cost savings into growth with plans to achieve profitability.

Investor Verification Checklist

• Tariff Impact: Verify the actual pass-through of the 25% steel/aluminum tariff to COGS in upcoming quarters and the potential for volume decline due to price increases.
• Productivity Initiative Savings: Monitor whether the projected $15.0 million in annualized savings materializes and if the restructuring costs are fully recognized.
• Marketing ROI: Assess if the significant increase in marketing spend ($6.2M vs $2.7M prior year) drives sufficient volume growth to offset the revenue decline from lost distribution in club and mass channels.
• TRA Liability: Watch for changes in the "more likely than not" assessment regarding the realization of deferred tax assets, which could trigger a significant non-cash expense and cash outflow.
• Cash Burn: Track operating cash flow trends to ensure the $27.7 million cash balance remains adequate given the ongoing net losses and potential capital needs.