Zevia PBC — Q1 2023 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Zevia develops and sells zero-sugar beverages, primarily in the U.S. and Canada, through retail and online channels.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $43.3 million | $38.0 million |
| Gross profit / margin | $20.1 million / 46.4% | $15.9 million / 41.7% |
| Operating loss | $3.3 million | $17.6 million |
| Consolidated net loss | $2.9 million | $17.5 million |
| Net loss attributable to Zevia PBC | $2.1 million | $10.9 million |
| Adjusted EBITDA, non-GAAP | $(0.5) million | $(8.3) million |
| Operating cash flow | $9.4 million | $(11.4) million |
- Sales rose 13.8%; management attributed approximately $5.0 million of growth to pricing increases, partly offset by lower volume. Equivalized cases declined from 3.4 million to 3.3 million.
- Online/e-commerce sales increased to $6.4 million from $3.9 million; retail sales were $36.9 million versus $34.2 million.
- Gross margin improved 4.7 percentage points, mainly from prior-year pricing increases, partly offset by inflation-related manufacturing costs. Cost of goods sold increased 4.7%.
- Selling and marketing expense fell 15.2% to $11.9 million, and general and administrative expense fell 14.7% to $8.6 million. Equity-based compensation declined to $2.4 million from $8.9 million, a major contributor to lower operating losses.
- Operating cash flow improved substantially, but benefited from working-capital timing, including a $14.6 million increase in accounts payable. Investing cash outflow was $0.9 million; financing cash inflow was $0.02 million.
Liquidity, debt and balance sheet
At March 31, 2023, cash and cash equivalents were $56.0 million, versus $47.4 million at December 31, 2022. Current assets were $103.4 million and current liabilities $30.1 million. The company reported no borrowings under its revolving credit facility. The facility has a $20 million commitment, subject to its borrowing base, matures in 2027, and is secured by substantially all company assets. Zevia reported compliance with its $7 million liquidity covenant; management said available cash, operating activities and borrowing capacity should cover operations and planned investments beyond the next 12 months.
Total liabilities were $31.9 million, including operating lease liabilities; the filing reports no drawn debt. Accounts payable rose to $22.2 million from $8.0 million. The company classified its Evansville, Indiana warehouse assets ($2.2 million) as held for sale and expects to complete a sale within 12 months; any gain would be recognized upon closing.
Changes, outlook and risks
- Management is implementing cost-reduction measures and shifting toward an asset-light supply-chain footprint, including marketing the Evansville warehouse for sale.
- Management expects elevated logistics, manufacturing and labor costs to continue through 2023 and says these pressures may weigh on margins and results. Pricing increases may reduce future volumes. Sales are generally seasonal, with higher demand expected in the second and third quarters.
- No specific revenue, earnings or margin guidance was provided. Management cited distribution expansion, organic sales growth, pricing and product innovation as potential sales drivers.
- A two-year stevia supply agreement expires May 30, 2023. The company was discussing an extension and onboarding alternative suppliers; renewal on less favorable terms or supply disruption could adversely affect results. Major raw-material suppliers represented significant shares of purchases.
- Inflation, commodity costs (including aluminum), competitive pressure, customer concentration, consumer preferences, reliance on third-party manufacturing and distribution, and broader macroeconomic conditions are notable risks. A hypothetical 10% change in aluminum costs would change quarterly cost of goods sold by approximately $0.3 million.
- The potential Tax Receivable Agreement liability was not recorded because realization of the related deferred tax assets was not considered more likely than not. If fully realizable, the disclosed liability would be $56.4 million; actual payments depend on future taxable income and other factors.
- The filing reports no material legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective as of March 31, 2023.
Important facts for investors to verify
- Whether sales growth can persist without further volume declines, given that pricing drove most Q1 growth.
- Whether gross-margin gains and operating-cost reductions are sustainable amid continued inflation and supply-chain costs.
- How much Q1 operating cash generation reflected temporary payable and purchasing timing, and whether cash conversion normalizes.
- Outcome of the stevia supply agreement discussions and readiness of alternative sources.
- Timing and proceeds from the warehouse sale, and any effects on distribution costs or operations.
- Future borrowing-base availability and covenant compliance, plus the potential timing and amount of any Tax Receivable Agreement payments.