Q4 2022 Zevia PBC Earnings Call
Speaker 1: For.
Speaker 1: And.
Speaker 1: ouration that.
Speaker 1: That BAS.
Speaker 1: So C.
Speaker 2: Greetings and welcome to ZVIA BBC Fourth Quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on the telephone keypad.
Speaker 2: As a reminder, this concert is being recorded. It is now my pleasure to introduce your host, Reed Anderson, Managing Director of ICR. Thank you. You may begin. Thank you, and welcome to ZVIA's fourth quarter and full year 2022 earnings conference call and webcast.
Speaker 2: On today's call are Amy Taylor, President and Chief Executive Officer, and Denise Beckles, Chief Financial Officer. By now, everyone should have access to the company's fourth quarter and full year 2022 earnings press release and earnings investor presentation filed this morning.
Speaker 2: This information is available on the investor relations section of ZVIA's website at investors.zvia.com. Before we begin, please note that all the financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act.
Speaker 2: Today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures.
Speaker 2: that we describe business performance. The SEC filings as well as the earnings press release, presentation slides that the company today has comments and reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures are also available on our website at investors.zvia.com.
Speaker 3: And now I would like to turn the call over to Amy Taylor. Thanks, Reed, and good morning, everyone. Welcome to the Q4 and full year 2022 earnings call for ZVF-PBC. ZVF continues to expand our user base and demonstrates strong grand momentum across channels, adding 1.4 million new households in 2022 on a 12 month growing basis.
Speaker 3: with equivalent momentum in Q4 and yet continues to increase average house sales spend. We are realizing price in the market and materially reducing cost in our business, resulting in continued recovery of our gross margin, Q4 saw the highest gross margin of the year. And critically, we continue to manage cash effectively and drive improvement on the adjusted EBITDA line.
Speaker 3: indicating a more rapid path to profitability. The strategic shifts we made at the halfway mark in 2022 are paying off, and the evolved more efficient team is executing with experts, and the brand continues to demonstrate exciting momentum.
Speaker 3: We continue to advance the ZD omissions with a focus on global health for people and planet, removing another 2.6 thousand metric tons of sugar from the diet so the community is reserved, and replacing 39 million plastic bottles in our markets in the quarter.
Speaker 3: DVR remains more affordable than 63% of non-apaholic beverages in America, even as we realize price in keeping with the market. And we continue to focus on taking better for you beverages, mainstream, making them available and affordable for consumers across income levels. In Q4, we delivered net sales of just over $35 million.
Speaker 3: Ahead of guidance, resulting in 3.5 percent revenue growth over a prior year, and an 8.7 percent decline in volume as we cycle the one-time pipeline field to the warehouse club channel of Q4 of 21. Looking at growth through syndicated data as the measure of sell-through, volume grew 13.5 percent for the fourth quarter according to IRI. GAN sales remain strong through the ups and downs of retailer and e-commerce operator inventory management fluctuations. TV have posted double
Speaker 3: I'll go into more detail now with a focus on our consumer-based evolution and our learning through syndicated and paneled data.
Speaker 3: Ziva's household penetration for 2022 was 6.4% for the full year, adding 1.4 million more households to the brand versus last year. Ziva households increased their brand spend annually 12% in 2022 versus 2021, driven by increases in spend per trip.
Speaker 3: with consistent purchase frequency rates across the larger brand buying base. It's noteworthy that we're maintaining purchase frequency and increasing average spend per household, even as we add new consumers to the brand.
Speaker 3: Following the material price increase, these are very strong indicators of the health of our brand and of our user base across heavy medium or even new and light users. As mentioned, total VVG grew 13.5% in measured scanned dollar sales for the quarter and grew EQ case volume in the same period while non-alcoholic and carbonated soft drinks declined at 2%. Same-store sales remain robust driven by healthy mix of volume and price.
Speaker 3: The ZV shoppers are highly desirable shoppers, less price sensitive at all income levels, who demonstrate resilience in a fluctuating economy. We remain a home stocking brand, which continues to fare well from a consumer and grant health perspective. VIA consumers pre-valuable to retail partners with 65% higher overall basket spend versus non-alcoholic beverage consumers. And ZVIA consumers spend 29% more and make 26% more trips to stores to purchase total beverages in 2022 versus the average beverage shopper.
Speaker 3: In the quarter, consumer retail spending was driven by a mix of organic velocity growth and continued increases in new store and new item distribution growth, paired with the accelerating consumer household-based expansion. Velocity was the primary driver in the quarter, retailed sales growth was split between 63 percent from velocity and 37 percent from new distribution and new items. Speaking of distribution, distribution growth in the quarter was rooted in new packages.
Speaker 3: Our 12-ounce sleek single soda can, our eight packs in math, and our 12 packs in food. The sleek can is delivering impressive units per short per week, doubled when merchandise cold. Cold singles will be a key strategic driver going forward, as they are now 16% of our business in a major national chain in the natural channel as an example.
Speaker 3: New stores also bolster distribution growth as we close distribution gaps in food and gained new stores selling in the warehouse club. Now with a full year of sales in the channel, 75% of buyers of ZVIA in club in 2022 were new to the ZVIA brand. So I've proved to be a major driver of step change household penetration growth and scanned data sales in its first year of selling the ZVIA brand.
Speaker 3: Moving on to velocity, the consumer shift to larger packages continues. Stock up options are driving growth category wide and also for Zivia, as 8 packs and larger now account for more than 50% of our business in measured channels. Velocity grows is driven in parts by consumer trade-outs from 6 pack to 8 packs and as retailers switch from 10 pack to the more profitable 12 pack. But also by the broader trend of home stocking consumption at home and not out beverages, a competitive strength for the Zivia brand through food, warehouse club and any commerce.
Speaker 3: which is of course outside of Measure Channel and where we remain the number one carbonated software in brand. I'll wrap up the big picture and then turn it over to Denise. DBA has a very healthy business and continues to experience strong consumer demand, growing the consumer base in every period, and simultaneously increasing spend per household on the brand. We are realizing price in the market. provide a Islam to not
Speaker 3: and we are materially reducing costs in our business. We deliver the highest gross margin of the year and fourth quarter, reflective of sequential improvement in each quarter in 2022. Critically, we continue to manage our cash position and drive improvement on the adjusted EVID align. The team is operating well in our new leadership and continues to set expectations we need to beat.
Speaker 3: Media demonstrated brand strength and execution excellence in the back half of 2022 as our new leadership team shifted to an evolved strategy focused on quality growth and a speedier path to profitability. We have our site set on the same thing going into 2023, bolstered by an exciting brand refresh which brings a sharp new logo new brand identity.
Speaker 3: for a new modernized and differentiated pack designs and radically improved on shelf visibility. We look forward to sharing this at trade shows in the coming weeks and with the consumer in peak beverage season in store this summer. Thank you and I'll hand it over to Denise. Thank you, Amy and good morning everyone. I will begin with a note review of the Fourth Quarter Financial Result and then speak to full year performance. We will then open the call for your questions. In the fourth quarter of 2022 we delivered net sales of 35.4 million throwing 3.5 percent versus same time prior year.
Speaker 3: 22. Growth profit delivered in the state in the period was 15.7 million, up 0.9 million or 5.8% per year ago, reflecting growth in that sales in a small improvement in cost of goods sold in quarter.
Speaker 3: Felling and marketing expenses decreased 15.7% to 10 million, reflecting lower freight and warehousing costs of 0.9 million, driven by improved freight pricing and efficient fees, and a reduction of non-working marketing costs of 1 million.
Speaker 3: GNA expense was 8.5 million or 24.1% of net sales in the fourth quarter of 2022 compared to 8.2 million or 23.9% of net sales in the fourth quarter of 2021. A slight increase of 22 basis points is a percent of net sales.
Speaker 3: The year on year dollar increases as for the double-tooth higher employee costs to support growth. The base compensation and non-cash expense was $3.1 million in the fourth quarter of 2022 as compared to $31.9 million in the same quarter last year. Net loss was $6.2 million compared to a net loss of $37.4 million in the fourth quarter of 2021, an improvement of $31.3 million or $83.6% as compared to the fourth quarter of last year. Loss of share with 10 cents for diluted share of media class A common stock.
Speaker 3: Our balance sheet remains strong with 47.4 million cash and cash equivalent and no outstanding debt as of the end of 2022 as well as an on-use credit line of 20 million.
Speaker 3: We effectively manage our cash in the period, though face-and-cut line headwind, maintaining a healthy working capital for the period of 71.5 million. Our cash flow from operating activities for the 12 months and the December 31, 2022 was a use of 20.8 million compared to 17.8 million same-time loss here. During the fourth quarter of 2022, net cash use in all-
Speaker 3: 46.3% in 2021 and that losses of 47.6 million compared to that losses of 87.7 million in 2021.
Speaker 3: Adjusted EBITDA law was 19.6 million per year of which 14.7 million was in the first half of the year, as compared to adjusted EBITDA law of 8.7 million sort of full year of 2021. Turning to guidance. We anticipate that the brand refreshed, philosophy driving initiative and new distribution.
Speaker 3: We'll support our growth ambitions this year. Our 2023 annual net sales are expected to be in the range of 180 to 190 million, an increase of 10.3% to 16.4% over 2022. Our net sales expected for Q1 2023 are expected to be in the range of 40 to 43 million. While we will not be providing guidance and profitability over the course of 2023, we expect to continue improvements in growth margins and adjusted EBITDA as we focus on driving and delivering profitable growth. We are truly excited for the year ahead. This includes our prepared remarks. We will not open the call for your questions.
Speaker 4: Maybe just a question here on your long term growth algorithm. It currently sits at about 30% sales growth. Obviously, your 22 guidance calls are 10 to 16%. And that's where it's 18% that we saw in 2022. So I'm just trying to gain a better understanding of what the right number in terms of sales growth might be moving forward. You know, I'm just trying to get a better understanding of what the right number is.
Speaker 5: and we have a lot of energy behind that. And then our recent trajectory shows our commitment to a faster path to profitability. So I think it's important to acknowledge that we have had a strategic shift over this past year and specifically at the midpoint of 2022 with new leadership coming into play to get to a faster path to profitability where a premium but accessible brand.
Speaker 5: and we're really proud of this notion going forward of double digit annual growth, but a faster path to profitability, and that's reflected in our strategy. Does that answer your question, or are any sort of more specific follow-up there? No, I think that answers it, and that's helpful. Thank you very much.
Speaker 4: All right, thanks for the question. Our next question comes from Brian Spill. Maybe we'll take a good America. Please go see it. Thanks operator. Good morning guys. Hey Brian , good morning. Morning Brian . So couple of questions I guess. First, brand refresh. Just is the timing changed at all and also just kind of the approach you're going to take in terms of, if I remember correctly, we'd have both the new and the existing packaging sort of in the market at the same time. So just want to get an update on how we should be thinking about the brand refresh and how you're going to lay it into the market. Yeah, Brian , thank you. You know, I'm passionate about this and really excited to see this roll out the.
Speaker 4: minimizing write-offs as well as an eye on sustainability, minimizing, I mean, to pull or destroy any product, we are executing a rolling launch just as you describe. Okay. And then will the refresh include some different product formulations? So is there any update on either flavors or taste? Is it just packaging or are there also reformulations?
Speaker 5: to our core consumer with whom early testing would indicate purchase intent increases materially just from the new design. So we're really, really confident about the on shelf as well as consumer impact. Stay in for your question. We will be rolling out a new product, vanilla cola. We also have...
Speaker 4: two new energy drink flavors rolling out later in the summer and a new tea flavor. And we continue to iterate improvement on taste profile for the product. That's sort of an ongoing process, but there's not a new and improved announcement across the portfolio. So to recap, the Milicola, two new energy drink flavors and a new tea flavor and then continued improvements on just baseline taste for our baseline sweetener, which is always our mandate. Okay. And then in terms of household penetration, right? I think you, you know, it was up again nicely in in 22. Where, where is Zivia sourcing new consumers from? Right? Currently. And with the refresh, would you expect that to change?
Speaker 5: But you know, in terms of, you know, kind of where you'll be sourcing consumption from? Yeah, great question. I would say one of the strongest storylines in 2022 is gaining 1.4 million more households and as those households go up, those households are spending more on average. So we saw a 12% lift and spend per household and they're spending more per trip. So we saw a dollar increase from about $9 to about $10 per trip spent from every shop and so that's pretty unusual to see household growth.
and have on average some spending more. Normally as you gain medium and light users, you of course, you see your average go down. So this we're really proud of. And this comes largely, if I can simplify who our user base is today, it's Millennial Families with Money. So at or a little bit above average household income, Millennial Shoppers. And oftentimes, Millennial Shoppers with kids. And as we continue to expand distribution, I would expect that that's continued, that's who will continue to come on board. But one really interesting dynamic from the year which we expect to accelerate is our fastest-growing pack as the singles. And I think this speaks to the power of packaging.
All we did in single-soda was move out of the traditional squatty can in 12 hours into a sleek can and put that on the shelf cold with better merchandising. And in one particular national customer, we saw a 72% higher take rate here to date on that product at a 63% higher price point in one particular customer where we had proper merchandising of our cold can.
So I think that what that tells you is, while most of our household penetration growth comes from the young millennial shopper with families who are buying trade-ups, right? They're buying multi-package stocking at home. We have tremendous opportunity with our single can to break into new sort of psychographic and demographic shoppers by driving cold availability for singles for impulse purchases.
Okay, thank you for all that. Look forward to tracking the, in watching the progress on the refresh this year. Yeah, looking forward to it. And we look forward to sharing by the way the design in literally the coming days and weeks at forthcoming trade shows, which are really relevant for the industry and with the consumer in the next couple months. So thanks a lot, Brian . Yep, you're welcome. Thanks. The next question comes on Ben, the Invenomance with Stevens. Please proceed.
Hey guys, Jim Sleron for Ben. I was in Furning. I was asked on the selling and marketing costs. Can you guys break out since you can't like some of the richest cars coming down. Did you guys increase marketing spend or if you can actually provide us the dollar for marketing spend in the quarter, that would be great. Yes, actually we did spend a bit more in marketing, but we focused primarily on working dollars. So you see that we actually explained that we had synergies in marketing.
or is there kind of a thought process to wait until you don't have the mix packaging and it's all the new brand we first got to drink.
I'll show you, yes, we will invest in marketing. We plan to invest, you know, to draw the consumer at shelf. So we will invest more this year in marketing to, you know, really attract consumers to the brand and to make sure we protect our consumer base. This is something that's core to our strategy with the brand's refresh coming this year. I think just to add to that briefly, sorry, you'll see a little bit of it.
timing variance in our investment this year versus prior year. Zivia has historically come out of the gates at the start of the year with a program called New Year New Year with a little bit more than let's say at shelf and in store activation in the start of the year. And this year with the brand refresh, fresh forth coming, you'll see that focus more on the peak beverage month. So we'll see a time shift in our investments in that area. And I think note where the is that the number one driver of awareness for Zivia and we know this through our brand tracker which is survey data.
is by far in store twice that of any other driver. And so in store visibility remains our number one driver of a marketing. And then we make incremental investments ramped up in the way that Denise describes for poll tactics in the marketplace where consumers live work and play. OK, great. Is it possible for you guys to give us maybe a guide rail around how much marketing spending might increase dollar percentage wise, just kind of as the as you bring refreshables out? I don't think you're going to see a spike in the P&L from standpoint, you just met marketing spend. This is the year for us to do that. We'll really focus on efficient and profitable growth. What we will see and I talked about this for several months now. And it's a continued shift as we continue to invest less in push and more in poll. And so I don't think you're going to see your lawyers. You're thinking about modeling. We're not seeing any spikes in marketing spend. It's really an evolution of focusing on consumer poll.
and establishing the right price points for this premium but accessible brand. We know that there's continued upside on prices. We continue to earn the right to do that with a consumer and follow the trend of the broader category. Okay. Great. And then, maybe, I could ask one of the question on sales side of things. Amy, you mentioned switching to the slim cam and just being an immediate improvement and velocity from that. Can you maybe give us an update on the NCAP course that you guys have been working with some of your retail customers and how that's progressing? Have you seen that expand or kind of where that's at? Sure. Very early days. I'll give you two anecdotal examples. We have one major natural national player and one regional conventional grocer who chose to merchandise single-ZVIA, soda, energy drink and tea.
at the register in dedicated brand coolers. And for us, this is a massive step forward. And as we look to gather, scan data, what's left of the results of that type of step forward in those two chains, we'll leverage that in the selling store with other customers. So early days, those stores were reset here in the last four to six weeks and are still, few more still forthcoming. And these are hundreds, not thousands of stores. So hundreds of stores, but from that case study, if you will, yield a great selling story across the retail foot brand. And I experience the same kind of breakthrough in my previous job.
And as we say, it fails when it's cold, it's sold, and certainly closer to the register for immediate consumption is really critical. So we'll keep you posted as we learn from those results. Awesome. Thank you. I'll pass one. Thanks. The next question comes from Andrew Straubic. Would be a moral. Please proceed. Yeah, good morning, everyone. My first question is on the sales guidance. I'm curious how you kind of built up to that number for the year. Can you talk about the growth buckets that you talked about in the past and contribution there? And then how much are you assuming from either inventory management that you mentioned previously or abnormal type things that are meeting the growth.
because we're not seeking leaps and bounds of new distribution growth. We're looking for healthy, same-store growth, which then forgets strong growth, profitable growth in new channels, rather than pushing distribution and over-investing to get there. And so, as we look forward, velocity continues to account for more of our growth in new distribution with the same-store growth.
inventory management in the back half of last year largely has course corrected. Does that answer your question? Yes, it does. Thank you for that color. That's helpful. And then the other question is just on the progress margin improvement that you spoke to recognizing you don't want to commit to a number of guidance. I'm just curious on the drivers there in the particular.
You know, how you think about the productivity agenda for 2023, you talked about the pivot kind of middle of the year, you're talking a lot about profitable growth. So, are there more opportunities incrementally within your control there that you're looking at, and how would that contribute to either general margin improvement, growth margin improvement, in 2020. Great. Thanks. Hi, Andrew. Just really quickly to answer that question. So, we expected to come from a combination of price.
and optimization initiatives in the supply chain. That will happen throughout the year. So we expect, you know, if you think about when we took the price increase last year, we took it in August . So that price increase will actually, you know, cycle through the first half of the year. First, we've not having a price increase early in market for the first half of the year of last year. And then on top of that, we have a bunch of initiatives we're running into the supply chain where we expect to capture significant optimization. So those productivity savings and price are going to be two of the big drivers of helping us recover some of the margins that we had lost in the previous year. Thank you.
initiative in the supply chain. That will happen throughout the year. So we expect, you know, if you think about when we took the price increase last year, we took it in August . So that price increase will actually, you know, cycle through the first half of the year. First, we've not having a price increase early in market for the first half of the year of last year. And then on top of that, we have a bunch of initiatives we're running in the supply chain, where we expect to capture significant optimization. So those productivity savings and price are going to be two of the big drivers of helping us recover some of the margins that we had lost in the previous year. Is that on the other side? Thank you. Yes, it does. It actually does. Thank you.
You're welcome. Thank you, Andrew. Our next question comes from Chris Carrey with Wales Park. Please proceed. Hey, good morning. Hey, Chris. Hey, Amy. It's just funny the inventory normalizing comment that you just made. When would you expect the scanner data to maybe better approximate what you're actually going to be reporting? What would you expect this inventory disconnect a lot? I appreciate there's always going to be disconnect, but certainly it's very wide right now. I'm just wondering when you see the relationship between consumption and shouldn't it normalizing? Sure. I think there's a number of things that.
explain a gap between shipments and scan and inventory is one but not the only one I would say that was the most stark input The back half of last year because as we saw the economy changing at a pretty rapid rate We saw some of our key customers maybe oversteer and as a brand who has 10% or more of its business and e-commerce Which I'm with a much less predictable sort of order rate if you will I think we as well as being a brand that's not DSD We were little sort of had outside impact on that dynamic going forward I would expect scan and shipments to normalize a little bit The caveat that I would add to that is that the timing variances that I spoke about earlier as it relates to promotions Will impact the way that scanned data shows up for the year so we are cycling heavy Q1 investment for 2022
In 2023, we are focused more on the brand refresh and the summer selling month. So while our shipments will be fairly steady, we expect. And in keeping with or hopefully above the guidance that we provide today, scan will be a little bit up and down as we cycle the launch of club and as we have a little bit of timing variances within our retail promotions. Does that answer the question, Chris, or can I detail that gap any further for you? No, I think that's right. So expect the volatility between the relationship, but a bit more. And maybe just confirming that, did you see more of the inventory lightning in online versus in store? Just any comments there that I have one more question. Sure. The dynamics that we saw at the end of last year were limited to just a single digit number of customers. And it was at play both at retail and e-commerce.
I would say that retailers largely steadied out, whereas in e-commerce ordering patterns are just less predictable. And we still have a very robust e-commerce business. We're growing quickly in e-commerce. It's just a little bit more difficult to forecast. And I think in the review mirror, we'll be able to talk about that in Q1 a little bit more. So, yes, steadying retail inventories and less erratic ordering, therefore, hopefully a less of a gap between scan and shipment. And I'm sorry, what was the second part of your question? I think that's good. I appreciate, so proving margins and you want to hold off on giving some margin guys, potentially, to tell you a bit more comfortable how it's still going to shake out. But, just, is there any help that you can give on, cadence to the year you've got some launch activity, where that will there be certain quarters with more, you know, SGA investment or, you know, from a gross margin standpoint, do we just expect kind of every quarter to be up year-beer and pull year-up year-beer, right?
If you can repeat it. Yeah, no, I think that's okay. That's good to know that's important. So, thanks so much.
Thank you. The next question comes from Quick Vener for the Enders. We'll see you by the end of the week. Good morning. I'm Tully and Tudana today. We have two questions. The first one is, if you look at me, the distribution opportunities for 2023. Any call out by the end of the week.
by channel or what to be our performers for the year. Sure, I, you know, every time we talk about new distribution, I really emphasize that we're focused on quality growth, so that informs the pace at which we expand distribution, whether that's geographically or our channel. And it's really going to be the new brand look and feel that will help to drive us into our greatest upside opportunity, which is immediate consumption. So in the meantime.
We are closing gaps in food distribution. We still have upside in the mass channel. We are chipping away at food service opportunities, which are generally low volume per outlet, but big footprint and an exciting opportunity to sell single-serve beverages cold in an impulse environment or immediate consumption environment. We have upside in the value channel, which we are opening and testing regionally and continue to increase based on short-term performance. There are a number of regions in one of the two major club channels that we have yet to tackle with incremental rotations that we expect to come online within the summer, which is exciting to get in front of those consumers. That is a highly incremental channel. And then finally, the obvious sort of big next step is convenience, which will require an evolution in our route to market. And here we're focused on doing this right and profitably with the right partners rather than fast. And so we have great early results in our single-can- business and existing channels.
And that's a strong selling story to take us into that convenience greenfield. And a second question would be on pricing. Are there any more pricing increases, contemplated for this year following or in conjunction with the brand refresh? You know, we believe that there is upside in price, so pricing power yet for ZVH to realize. And it would make sense to consider pricing action given the investment we're making in the brand refresh, so not only end to end new look and feel on every can and every multi pack. But we will now be wrapping our six packs in a recyclable cardboard overlap, which will, that's an investment for us. But it also creates a lot of money. It creates a tremendous billboard on shelf six packs are close to 40% of our business. And so with that, we do continue to take price with the market. And in light of increasing cost in the instance in which those exist.
and we do see upside in price for the year and we would take that strategically if and when it makes sense. Denise, any more comment on price? No, any nothing to add. So should we assume that that is in the guidance or that would be sort of an addition to the, you know, updated to the guidance as the year goes on, if and when you decide to take those price increases? Well, as we're not providing guidance on profitability, I would say that what you're hearing from us as we got on top line for the quarter and for the year takes all of our plans into account if that answers your question. Okay. Yeah. Thank you. Ladies and gentlemen, thank you. At concludes our call. You may now disconnect your lines. Have a great day. Thank you.