Zevia PBC — Q2 2021 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. The operating results and balance-sheet data are for Zevia LLC, the predecessor business; Zevia PBC was formed in March 2021 and had only $1 of assets at June 30. The interim financial statements are unaudited. Zevia PBC completed its IPO and holding-company reorganization after quarter-end, on July 26, 2021.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $34.4 million | $27.7 million | $65.0 million | $50.2 million |
| Gross profit / margin | $16.2 million / 47% | $13.8 million / 50% | $30.4 million / 47% | $22.9 million / 46% |
| Operating income (loss) | ($0.7 million) | $3.2 million | ($0.5 million) | $0.8 million |
| Net income (loss) | ($0.7 million) | $3.1 million | ($0.5 million) | $0.5 million |
| Adjusted EBITDA (non-GAAP) | ($0.4 million) | $3.5 million | $0.1 million | $1.3 million |
- Q2 sales grew 24%; equivalized-case volume rose about 29%, while net average price per case fell 4%, primarily due to higher trade discounts. Online sales were temporarily affected by outbound-shipment disruptions.
- First-half sales grew 30%, reflecting 26% higher volume and a 3% increase in net average price per case.
- Q2 gross margin fell three percentage points, mainly from weaker price realization and higher trade discounts. First-half margin improved one point, supported by price realization and product mix, partly offset by higher product costs.
- Q2 selling and marketing expense rose 87% to $10.7 million, including higher freight and about $2.0 million of additional marketing spend compared with pandemic-reduced spending in 2020. General and administrative expense rose 30% to $6.0 million, primarily due to staffing and public-company preparation costs.
Financial position, cash flow and liquidity
- At June 30, Zevia LLC had $6.4 million in cash, $44.3 million in current assets and $18.8 million in current liabilities. Total assets were $51.4 million; total liabilities were $18.8 million. Members’ deficit was $199.9 million, and redeemable preferred units were reported separately at $232.5 million.
- Operating cash flow was a $0.04 million use in the first half, versus a $2.7 million use in 2020. Investing cash flow was a $2.0 million use, mainly for a warehouse facility; financing cash flow was a $6.5 million use, including $2.7 million of tax distributions and $3.8 million of deferred IPO costs. Cash declined $8.6 million to $6.4 million.
- No borrowings were outstanding on the $12 million revolving credit facility at June 30. It was extended to April 2023 in June and terminated in July 2021 without material termination fees. The filing reports no other outstanding debt balance.
- After the IPO, the company reported approximately $139.7 million of net proceeds before offering expenses. Proceeds were used for purchases of LLC units, option cash-outs and blocker-company merger consideration; approximately $90.1 million was used to acquire newly issued Zevia LLC units. Management said cash, operating cash flows and IPO proceeds were expected to support operations and planned capital needs for at least 12 months.
Outlook, material events and risks
- No quantified revenue or earnings guidance is provided. Management expects sales to remain seasonal, typically stronger in the second and third quarters, and anticipates growth from wider distribution, brand awareness and product innovation. It expects longer-term gross-margin improvement from scale, direct retail distribution and supply-chain efficiencies, while selling and marketing expense is expected to rise with growth and marketing investment.
- The IPO and reorganization made Zevia PBC a holding company that controls Zevia LLC. The LLC remains a pass-through entity for tax purposes. The filing describes a tax receivable agreement under which PBC generally pays beneficiaries 85% of specified realized or deemed tax savings; it estimates aggregate payments of about $64.2 million through 2036 under stated assumptions. Actual timing and amounts are uncertain, and certain events may accelerate payments.
- Post-IPO compensation is a potentially significant unusual item: the company expected to recognize about $57.5 million of equity-based compensation ratably through December 31, 2021, related to awards vesting after the IPO and lockup period. A July amendment to certain phantom awards was expected to generate an additional approximately $33.9 million charge over the vesting period after the performance condition is met.
- Key operating risks include dependence on a single stevia supplier, a global aluminum-can shortage and incomplete coverage of future can needs under supplier contracts, reliance on third-party manufacturers and distributors, and customer concentration. Four customers each accounted for more than 10% of first-half 2021 sales; the largest represented 18%. Management noted that COVID-19 had not materially impaired operations or demand to date, but supply-chain and economic effects remained uncertain.
- Disclosure controls and procedures were deemed ineffective at quarter-end due to material weaknesses involving insufficient accounting resources, segregation of duties and IT access, and review of promotional-activity and equity accounting. Remediation was underway, but not yet complete. The company reported no material legal proceedings and no material supplier purchase commitments.
Important facts for investors to verify
- Whether sales growth and volume gains persist without heavier discounts, and whether gross margin recovers as freight, aluminum and other input costs evolve.
- The timing and cash impact of the expected $57.5 million equity-compensation expense and the potential $33.9 million phantom-award charge.
- Progress in remediating internal-control weaknesses and whether subsequent public-company reporting is reliable and timely.
- Availability and pricing of cans and stevia, supplier and co-manufacturer continuity, and exposure to concentrated customers and distribution channels.
- The actual ownership split following the reorganization: the filing cites both 53.5% and 53.3% for PBC’s economic interest in Zevia LLC in different passages, with 46.7% reported as noncontrolling interest. Verify the definitive figure and related share/unit counts.
- Actual tax receivable agreement obligations and distributions from Zevia LLC needed to fund PBC taxes, overhead and any agreement payments.