Zevia PBC — Q2 2023 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. Zevia develops and sells zero-sugar beverages, principally in the U.S. and Canada, using third-party manufacturers and distribution providers. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $42.2 | $45.5 | $85.5 | $83.6 |
| Gross profit | $19.7 | $19.3 | $39.8 | $35.2 |
| Gross margin | 46.6% | 42.4% | 46.5% | 42.1% |
| Operating loss | $(5.4) | $(14.7) | $(8.6) | $(32.3) |
| Net loss | $(5.0) | $(14.8) | $(7.9) | $(32.3) |
| Net loss attributable to Zevia PBC | $(3.9) | $(11.1) | $(6.0) | $(22.0) |
| Adjusted EBITDA (non-GAAP) | $(2.6) | $(6.4) | $(3.1) | $(14.7) |
- Q2 sales declined 7.2%; equivalized cases fell to 3.3 million from 3.9 million. Management attributed the volume shortfall mainly to supply-chain logistics and fulfillment challenges. Pricing added $3.6 million to Q2 sales, partly offsetting an estimated $6.9 million sales impact from lower case volume.
- First-half sales increased 2.4% despite cases declining to 6.6 million from 7.3 million. Pricing added $8.8 million, partly offset by an estimated $6.8 million reduction related to lower case volume.
- Gross margin improved in both periods, primarily from pricing increases, partly offset by higher manufacturing costs and lower volume. Q2 operating expenses fell, notably because equity compensation and G&A were lower than in 2022; selling and marketing expense was slightly higher in Q2.
Cash, liquidity and debt
- Cash and cash equivalents were $47.0 million at June 30, 2023, versus $47.4 million at December 31, 2022. Current assets were $105.7 million and current liabilities $35.3 million, implying working capital of approximately $70.4 million.
- Six-month operating cash flow was positive $1.1 million, compared with negative $19.6 million in 2022. The 2023 result included a substantial accounts-payable increase, alongside increased receivables and inventory; management cited purchase timing and inventory buildup. Investing cash outflow was $1.5 million; financing cash inflow was negligible.
- No borrowings were outstanding under the revolving credit facility. The facility has a $20 million commitment, subject to its inventory-and-receivables borrowing base, and matures in 2027. Zevia reported compliance with its $7 million minimum-liquidity covenant at quarter-end. Management said existing cash, operations and available borrowing capacity should fund operations and planned expenditures beyond 12 months.
- Total liabilities were $36.9 million at June 30, up from $17.1 million at year-end, principally reflecting accounts payable of $27.7 million versus $8.0 million. The company reported no material long-term inventory purchase commitments.
Outlook, risks and notable items
- Management said measures to address fulfillment problems included supply-chain leadership changes and pausing certain transition actions; it expected the challenges to be resolved by the end of 2023. No numerical full-year revenue or earnings guidance is provided in the supplied filing text.
- Management expected higher logistics, manufacturing and labor costs to continue through 2023 and said inflationary pressures could affect margins. Pricing increases may also reduce sales volume. Seasonal demand is generally higher in the second and third quarters.
- The stevia supply agreement, which had fixed pricing, expired May 30, 2023 and was extended through September 15, 2023. The company was negotiating a new agreement and seeking alternative suppliers; renewal or replacement on unfavorable terms could affect operations.
- Customers and suppliers are concentrated: three customers each represented more than 10% of first-half sales, and three raw-material vendors each represented more than 10% of first-half purchases. The filing also highlights dependence on third-party manufacturers, warehouses and fulfillment providers.
- The company’s tax receivable agreement could require payments equal to 85% of certain realized tax benefits. No liability was recorded because realization of the related deferred tax assets was not considered more likely than not; the potential liability if fully realizable was $56.8 million at June 30, 2023.
- After quarter-end, Zevia sold its Evansville warehouse for net cash proceeds of $2.2 million; the gain was not material. Its COO was scheduled to leave employment effective August 4, 2023, with severance payments of $196,500, limited benefit reimbursement and accelerated vesting of 18,285 RSUs.
- The filing reports no material legal proceedings and states that disclosure controls were effective at the reasonable-assurance level as of June 30, 2023.
Important facts for investors to verify
- Whether fulfillment and supply-chain service levels recovered as expected by year-end, and whether that recovery translated into case-volume growth.
- Whether the stevia supply arrangement was renewed or alternative supply secured, and on what pricing and availability terms.
- How much of positive operating cash flow reflected sustainable operations versus payment timing, and whether elevated inventory and accounts payable subsequently normalized.
- Whether pricing, input-cost trends and promotional activity supported gross margin without further weakening demand.
- Available borrowing capacity under the borrowing-base formula and continued compliance with credit-facility liquidity requirements.
- Potential future dilution from outstanding options and RSUs, and the timing and realization assumptions behind the tax receivable agreement.