Q1 2024 Zevia PBC Earnings Call
Good day, ladies and gentlemen, and welcome to Ziv, yet P. B C Q1, 324 earnings call.
Operator: Good day, ladies and gentlemen, and welcome to the Zevia Pbc Q1 2024 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I now turn the conference over to Reed Anderson of ICR. Please go ahead.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please.
Speaker Change: Space still zero.
Telephone keypad.
Speaker Change: Please note that this conference is being recorded.
Speaker Change: I'll now turn the conference over to Reed Anderson of IC are please go ahead.
Yeah.
Reed Anderson: Thank you and welcome to <unk> first quarter 2024 earnings conference call and webcast on today's call are Amy Taylor, President and Chief Executive Officer, Dr Sofia, Chief Financial Officer.
Reed Anderson: Thank you, and welcome to Zevia's first quarter 2024 earnings conference call and webcast. On today's call are Amy Taylor, President and Chief Executive Officer, and Girish Satya, Chief Financial Officer. By now, everyone should have access to the company's first quarter 2024 earnings press release and investor presentation made available this morning. This information is available on the Investor Relations section of Zevia's website at investors.zevia.com.
Reed Anderson: By now everyone should have access to the company's first quarter 2024 earnings press release and Investor presentation made available this morning.
Speaker Change: This information is available on the Investor Relations section of <unk> website at investors does deviate dotcom.
Reed Anderson: Before we begin, please note that all the financial information presented on today's call is unaudited. Additionally, certain comments made on this call include forward-looking statements that are subject to the safe harbor provisions, the private securities litigation reform act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.
Speaker Change: Before we begin please note that all the financial information presented on today's call is unaudited.
Speaker Change: Certain comments made on this call include forward looking statements to subject to the Safe Harbor provisions the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Reed Anderson: Please refer to 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 as we describe business performance. The SEC filings, as well as the earnings press release presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures, are all available on our website at investors.zevia.com.
Speaker Change: Please refer to 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 as we describe business performance the SEC filings as well as the earnings press release presentation.
Speaker Change: Slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investors <unk> Dot com now I would like to turn the call over to Amy Taylor.
Reed Anderson: Now, I'd like to turn the call over to Amy Taylor.
Amy E. Taylor: Thanks, Ryan and good morning, everyone welcome to the Q1 'twenty 'twenty four earnings call.
Amy E. Taylor: See you.
Amy E. Taylor: Thanks, Reed, and good morning, everyone. Welcome to the Q1 2024 Earnings Call for Zevia Pbc. I'll start by grounding us in our mission and position, then cover first quarter results at a high level. But most importantly, though, today we will discuss Zevia's critical inflection point. The business is now ready and able to change its route to market, starting regionally, and to invest in marketing to build the brand and grow the base. Recall that the new brand Visual ID is in the market.
Amy E. Taylor: I'll start by grounding us in our mission and position, let me cover first quarter results at a high level. Most importantly, though today, we will cover as many of you as critical inflection point.
Amy E. Taylor: The business is now ready enable to change its route to market, starting regionally and to invest in marketing to build the brand and grow the base.
Amy E. Taylor: The portfolio has evolved to focus on soda and to drive channel differentiation. Customer fulfillment is stable, and price increases, including one effective this week, have supported stronger unit economics. We are now launching regional direct store distribution here in May, and following positive indicators from early testing, we are scaling marketing through the summer and beyond. With leadership from our new CFO, Girish Satya, we will also share a critical new productivity initiative today, enabling these turning points and allowing greater visibility for the first time into Zevia's path to profitability. As a pioneer and the consumer's number one choice in natural sodas, Zevia's focus remains on better-for-you beverages. Moreover, our mission focuses on global health for people and the planet.
Amy E. Taylor: Recall that the new brand Eagle <unk>.
Amy E. Taylor: He isn't market the portfolio has evolved to focus on soda and to drive channel differentiation customer fulfillment is stable and price increases, including one effective this week.
Amy E. Taylor: Supported stronger unit economics, we are now launching regional direct store distribution here in May and following positive indicators from early testing, we are scaling marketing through the summer and beyond.
Amy E. Taylor: With leadership from our new CFO gears thoughts yet we will also share a critical new productivity initiatives today, enabling these turning points.
Amy E. Taylor: Allowing greater visibility for the first time in <unk> path to profitability.
Amy E. Taylor: As a pioneer in the consumers' number one choice in natural soda media focus remain taking better for you beverages mainstream our mission focuses on global health for people and the planet and in Q1, we removed another 2.8 thousand metric tons of sugar from consumers diet never having sold a plastic bottle.
Amy E. Taylor: And in Q1, we removed another 2.8 thousand metric tons of sugar from consumers' diets, never having sold a plastic bottle. Zevia is more affordable than 64% of non-alcoholic beverages in North America and more accessible than recent functional entrants in adjacent carbonated beverage categories. In Q1, net sales were within previously communicated expectations. Volume and revenue at the start of the year were impacted by skewed distribution setbacks with two key customers, following the challenges we encountered with our supply chain transition in 2023 and in transition in our portfolio, as we focus on the fastest growing and highest potential portions of our soda portfolio.
Amy E. Taylor: Media is more affordable than 64% of non alcoholic beverages in North America, and more accessible than recent functional entrant and adjacent carbonated beverage category.
Amy E. Taylor: In Q1 net sales were within our previously communicated expectations.
Amy E. Taylor: Volume and revenue, which started the year were impacted by skewed distribution of setbacks with two key customers. Following the challenges we encountered with our supply chain transition in 2023, and then transition in our portfolio as we drive focus on the fastest growing and highest potential portion of our soda portfolio.
Amy E. Taylor: Consumer demand remains strong, despite revenue results. Velocity, which is a measure of sales per point of distribution, has improved every four-week period since the start of the year and grew at 9% versus the prior year for the past four weeks ending April 21st, and an impressive 21% in the Food Channel, which is our largest. Scam sales are also accelerating overall, leading the carbonated soft drink and the diet zero soda category in dollar and in unit gross.
Amy E. Taylor: Consumer demand remains strong despite revenue result, velocity, which is a measure of sales per point of distribution has improved every four week period since the start of the year and grew at 9% versus prior year. The past four weeks ending April 21st and an impressive 21% in the food channel, which.
Amy E. Taylor: Our largest channel scan sales are also accelerating overall, leading the carbonated soft drink and the diet soda category in dollar and in unit growth.
Amy E. Taylor: Zevia grew at 9.4% in the latest read, 23% in food, and double digits across all top food accounts. We expect net sales to accelerate in the back half of the year given these trends and following recent spring resets. Our performance in key strategic channels and customers has been strong, which I will cover shortly. We've communicated a 4.5% price increase, effective May 6th, on Soda Multipay, and our growth margins are strong and improving sequentially.
Amy E. Taylor: <unk> grew at nine 4% in the latest read 23% in food and double digits across all top food accounts, we expect net sales to accelerate in the back half of the year given these trends and following recent spring reset our performance and key strategic channels and customers have been strong, which I will cover shortly.
Amy E. Taylor: We've communicated a four 5% price increase effective may six onset of multi packs and our gross margins are strong and improving sequentially.
Amy E. Taylor: Do you get much needed a route to market evolution is underway as we launch direct store delivery in Pacific Northwest.
Amy E. Taylor: Zevia's much-needed route-to-market evolution is underway as we launch direct store delivery in the Pacific Northwest. Recall that Zevia has grown for over a decade, featuring only multi-packs and selling to a loyal base in the natural channel and in natural sections in food. The launch of DSD will enable single distribution and channel expansion, plus improve in-store presence and promotional effectiveness in our existing distribution footprint. This move to broad availability of a trial package supported by brand marketing is key to accelerating market penetration.
Amy E. Taylor: Call that Cvs has grown for over a decade, featuring only multi packs and selling to a loyal base in the natural channel and a natural sections and food.
Amy E. Taylor: The launch of D. S. D will enable singles distribution and channel expansion plus improved in store presence and promotional effectiveness and our existing distribution footprint.
Amy E. Taylor: Move to broad availability of the trial package supported by brand marketing is key to accelerating market penetration.
Amy E. Taylor: The first launches in our direct store delivery network include Columbia Distributing and Hayden Beverage Company this week, and we are, in parallel, setting up our first regional convenience store partner. This is a critical evolution for Zevia, building now on a stable Sunday. With the new Visual ID brand fully in market, and our first omnichannel marketing efforts underway as of April, including new advertising campaigns in key metros across the U.S., we are seeing early signs of an immediate positive impact on scan data performance in those markets versus the rest of the market.
Amy E. Taylor: The first launches in our direct store delivery network include Columbia distributing in Hayden beverage company launching this week and we are in parallel setting our first regional convenience store partners. This is a critical evolution presume you're building out on a stable foundation.
Amy E. Taylor: With new brand visual idea fully in market and our first omni channel marketing efforts underway as of April, including new advertising campaigns in key metros across the U S. We are seeing early signs of the immediate positive impact in scanner data performance in those markets versus the rest of the market.
Amy E. Taylor: The Zevia product portfolio has always been a rational solution for the tension between health and taste and soda, but now it finds its personality, bringing a differentiated brand identity through digital and in-market marketing activation. We'll share more strategically and creatively after the next earnings call. But look for Zevia in the market in a new way this summer. These marketing and DSD efforts, along with the productivity initiative that Girish will detail, are fundamental to Zevia's long-term growth plan and our vision to build an iconic brand.
Amy E. Taylor: Xavier product portfolio has always been a rational solution for the tension between health and taste and soda.
Amy E. Taylor: But now it finds its personality, bringing a differentiated brand identity through digital and in market marketing activation.
Amy E. Taylor: Well share more strategically and creatively after the next earnings call.
Amy E. Taylor: But look first media in the market in a new way through the summer these marketing and D. S. D efforts, along with the productivity initiatives like Girish will detail our fundamentals as easy as long term growth plan and our vision to build an iconic brand.
Amy E. Taylor: I'll turn it over to Girish to go through our productivity initiative, provide an overview of Q1 financial results, and to speak to guidance. I'll be back to speak to channel and customer performance, brand health indicators, and then to share closing thoughts.
Amy E. Taylor: I'll turn it over to Gary to step through our productivity initiatives to provide an overview of Q1 financial results and speak to guidance.
Gary: Back to speak to channel and customer performance.
Gary: Brand health indicators, and then to share closing thoughts.
Girish Satya: Thank you, Amy. Good morning, everyone, and thanks for joining the call today. Before discussing our Q1 results, I wanted to take an opportunity to speak about some of our strategic priorities and how we will be evolving our approach to the business in the short and medium term. I will first start with an overview of my first 60 days, how that has shifted our focus slightly, and provide an overview of our first quarter financial results, including providing full year guidance, and then pass it back to Amy.
Gary: Thank you Amy good morning, everyone and thanks for joining the call today.
Gary: Before discussing our Q1 results I wanted to take an opportunity to speak about some of our strategic priorities and how it will be evolving our approach to the business in the short and medium term.
Speaker Change: I will first start with an overview of my first 60 days.
Speaker Change: It has shifted our focus slightly and provide an overview of our first quarter financial results, including providing full year guidance and then pass it back to Amy.
Girish Satya: I was drawn to Zevia by its history of innovation and its strong consumer value proposition as the first mover in the better-for-you soda space, which has seen tremendous growth over the past several years. I spent my first 60 days at Zevia getting up to speed not only on the category but also on understanding the business at a granular level.
Speaker Change: I was drawn to the DVA by its history of innovation and its strong consumer value proposition as the first mover in the better for you so to space.
Speaker Change: Which has seen tremendous growth over the past several years.
Speaker Change: I spent my first 60 days of G D of getting up to speed not only on the category, but also on understanding the business at a granular level.
Girish Satya: What I uncovered during this time was that Zevia does indeed have a very unique product and consumer value proposition, as I originally expected, but it was being held back by a cost structure that is inefficient and hampering our ability to invest in it. Specifically, there is a significant opportunity to reduce the cost of our product while maintaining or increasing its quality, as well as decrease the cost of fulfillment in order to fund greater investment in the brand and changes in the route to market.
Speaker Change: What I didn't cover during this time with a D D. It doesn't need to have a very unique product and consumer value proposition as I originally expected, but was being held back by a cost structure doesn't inefficient and hampering our ability to invest in growth.
Speaker Change: Specifically.
Speaker Change: Second opportunity to reduce the cost of our product, while maintaining or increasing its quality as well as decreasing the cost of fulfillment in order to fund greater investment in the brand and changes in the route to market.
Speaker Change: The changes in route to market should accelerate top line growth by taking advantage of the opportunity in the convenience channel as well as singles distribution, where we under index versus the competitive set.
Girish Satya: The changes in Routes to Market should accelerate top-line growth by taking advantage of the opportunity in the convenience channel, as well as singles distribution, where we under-index versus the competitive set. Today, we are announcing a productivity initiative that is intended to advance our long-term growth and profitability ambitions while increasing shareholder value. The company-wide initiative is focused on allowing us to quickly evolve our route to market strategy and improve operating margins, while also protecting and increasing our investments in marketing and promotion. This productivity initiative encompasses three pellets.
Speaker Change: Today, we are announcing a productivity initiative that is intended to advance our long term growth and profitability ambitions, while increasing shareholder value.
Speaker Change: The company wide initiative is focused on allowing us to quickly evolve our route to market strategy and improve operating margins, while also protecting and increasing our investments in marketing and promotion.
Speaker Change: Productivity initiatives encompasses three pillars.
Girish Satya: Brand Maximization, Margin Enhancement, and Improving Operational Disability. Additionally, we expect these initiatives will deliver between $8 million and $12 million in annual life savings, which we estimate will start to be realized in Q3 2024. We anticipate that we will realize these annualized savings targets over the next four to six quarters. First, from a brand maximization standpoint, we will look to accelerate our rollout of DST parts, increasing our investment in digital channels and brand activation while increasing the frequency and efficacy of our product innovation pipeline.
Speaker Change: Brand maximization.
Speaker Change: <unk> enhancement and improving operational discipline and.
Speaker Change: And we expect these initiatives will deliver between 8 million and $12 million in annualized savings, which we estimate will start to be realized in Q3 2024.
Speaker Change: We anticipate that we will realize these annualized savings targets over the next four to six quarters.
Speaker Change: First from a brand maximization standpoint, we will look to accelerate our rollout of DSD Partners Inc.
Speaker Change: Increasing our investment in digital channels and brand activation, while increasing the frequency of efficacy of our product innovation pipeline.
Girish Satya: Secondly, in order to support margin growth, we're focusing our resources on accelerating cost savings, including optimization of our contract manufacturing strategy to reduce shipping, logistics costs, and product costs. Lastly, we will look to build a culture that emphasizes returns across growth initiatives while also managing working capital, including the reduction of inventory. We are also announcing today that we have completed a full-scale organizational review with the goal of reducing redundancies and removing excess management layers as a part of an effort to streamline our operations.
Speaker Change: Secondly in order to support margin growth, we are focusing our resources on accelerating cost savings, including optimization of our contract manufacturing strategies.
Speaker Change: Reduced shipping and logistic costs and product costs.
Speaker Change: Lastly, we will look to build a culture that emphasizes return across growth initiatives, while also managing working capital, including the reduction of inventory.
Speaker Change: We are also announcing today that we have completed a full scale organizational review with the goal of reducing redundancies and removing excess management layers as a part of an effort to streamline our operations.
Girish Satya: This is expected to result in a restructuring charge of between $500,000 to $800,000 to be recognized in Q2 2024 and primarily consists of employee severance costs, and we expect the annualized benefit of this action will result in approximately $2.5 million in savings as a part of the broader productivity initiative. I will now discuss our first quarter results. It's important to understand that performance in the prior period, Q1 of 2023, benefited from a number of decisions around promotion and supply chain that resulted in short-term positive impacts on profitability, but these negatively impacted performance in subsequent quarters.
Speaker Change: This is expected to result in a restructuring charge of between 500000 to 800000 to be recognized in Q2, 2024, and primarily consist of employee severance cost and we expect the annualized benefit of this action will result in approximately $2 5 million in savings that would be part of the broader productivity.
Speaker Change: <unk> initiative.
Speaker Change: Yeah.
Speaker Change: I will now discuss our first quarter results.
Speaker Change: It's important to understand that performance in the prior year period Q1 of 2023 benefited from a number of decisions around promotion and supply chain that resulted in short term positive impact on profitability, but these negatively impacted performance in subsequent quarters.
Girish Satya: In the first quarter of 2024, we delivered net sales of $38.8 million, down 10.4% versus the same time last year; we saw a decrease in volumes of 10.4% or 4.9%, reflecting a delay in their recovery of skew-level distribution at retailers. This was partially offset by a positive effect from our price increase last year, which contributed 0.4%. Gross margin was 45.7%, returning to historical levels and up 5 percentage points on a sequential basis, but down 0.8 percentage points versus the same quarter a year ago.
Speaker Change: In the first quarter of 2024, we delivered net sales of $38 8 million down 10, 4% versus same time prior year.
Speaker Change: We saw a decrease in volumes at 10, 4% or $4 9 million, reflecting a delay in the recovery of SKU level of distribution and retailers.
Speaker Change: This was partially offset by a positive effect from our price increase last year, which contributed $4 million.
Speaker Change: Gross margin was 45, 7% returning to historical levels and up five percentage points on a sequential basis.
Speaker Change: Down <unk> eight percentage points versus the same quarter a year ago the.
Girish Satya: The decrease from the prior year was driven by investment in an enhanced visual ID to improve on-shell visibility but offset by a favorable pack mix impact on COGS as we adapt our portfolio productivity. Net loss was $7.2 million compared to a net loss of $2.9 million last year, an increase of $4.3 million. Adjusted EBIT dollar loss was $5.5 million compared to an adjusted EBIT dollar loss of $0.5 million same time last year.
Speaker Change: The decrease from prior year was driven by investments in enhanced visual I D to improve on shelf visibility, but offset by a favorable mix impact on Cogs as we adapt our portfolio productivity.
Speaker Change: Net loss was $7 2 million compared to a net loss of $2 9 million last year, an increase of $4 3 million.
Speaker Change: Adjusted EBITDA loss was $5 5 million compared to an adjusted EBITDA loss of point 5 million same time prior year.
Girish Satya: We ended the quarter with approximately $28.7 million of cash in short-term investments on our balance. And don't forget that we also have a revolving credit line for an additional $20 million. So, as of the end of the quarter, we had approximately $50 million in total liquidity.
Speaker Change: We ended the quarter with approximately $28 7 million of cash and short term investments on our balance sheet.
Speaker Change: Don't forget that we also have a revolving credit line for an additional $20 million.
Speaker Change: So as of the end of the quarter, we had approximately $50 million in total liquidity.
Girish Satya: The Productivity Initiative is intended to help us get closer to a position where we are sustainably generating cash, which is very important to us. That being said, it won't happen overnight as we look to balance returning the organization to growth. We are aiming to make steady progress over the coming quarters in terms of reducing our losses, which we expect to begin to show up in the financials in Q3 2024, with the goal of achieving sustainable adjusted EBITDA profitability on a quarterly basis in 2026, depending on how quickly we accelerate our rollout of a national DST foot. Turning to guidance.
Speaker Change: The productivity initiative is intended to help us get closer to a position, where we are sustainably generating cash which is very important to us.
Speaker Change: That being said it wont happen overnight as we look to balance returning the organization to growth we.
Speaker Change: We are aiming to make steady progress over the coming quarters in terms of reducing our losses, which we expect to begin to show up in the financials in Q3 2024 with a goal of achieving sustainable adjusted EBITDA profitability on a quarterly basis in 2026 pending how quickly we accelerated our rollout of a national DSD footprint.
Speaker Change: Turning to guidance.
Girish Satya: As previously articulated, it has taken longer than anticipated to recover points of distribution post our supply chain challenge. As a part of the broader productivity initiative, we've considered the steps necessary in order to alter the trajectory of the business and reset the foundation for growth. We're encouraged by the increasing product velocities across recent time periods and believe that this is a signal of healthy underlying demand for the brand. Now that our supply chain is both stable and scalable, we are focused on rebuilding the base CSB business while simultaneously evolving our route to market and portfolio to include singles distribution.
Speaker Change: As previously articulated is taking longer than anticipated to recover points of distribution post our supply chain challenges.
Speaker Change: As a part of the broader productivity initiatives, we've considered the steps necessary in order to alter the trajectory of the business and reset the foundation for growth.
Speaker Change: We're encouraged by the increasing product velocities across recent time periods and believe that this is a signal of healthy underlying demand for the brand.
Speaker Change: Now that our supply chain. So it's stable and scalable we are focused on rebuilding the base DSD business, while simultaneously evolving our route to market and portfolio to include singles distributions.
Speaker Change: We expect net sales for the full year of 2020 for it to be in the range of $158 million to $166 million.
Girish Satya: We expect net sales for the full year of 2024 to be in the range of $158 million to $166 million and our net sales expectations for Q2 2024 to be in the range of $38 to $40 million, reflecting both the delay in recovery of skew-level distribution at the start of the year and the expected improvement in the back half of the year as we begin to realize the benefits of our increased investment in promotion, our price increase, marketing, and our DSD While we do not provide formal guidance on gross margin in Adjusted EBITDA, we do expect gross margins to remain in the mid-40s and expect sequential improvement in the back half of the year in Adjusted EBITDA as we begin to realize some of the savings from the Productivity Initiative.
Speaker Change: Our net sales expectations for Q2 2024 in the range of $38 million to $40 million, reflecting both the delay in recovery of SKU level of distribution at the start of the year and the expected improvement in the back half of the year as we began to realize the benefits of our increased investment in promotion or price increase marketing and our DSD lunch.
Speaker Change: Yeah.
Speaker Change: While we do not provide formal guidance on gross margin and adjusted EBITDA. We do expect gross margins to remain in the mid Forty's and expect sequential improvement in the back half of the year and adjusted EBITDA as we began to realize some of the savings from our productivity initiatives.
Speaker Change: I'll turn it back to Amy.
Amy E. Taylor: Thanks, Gary I'll put our guidance in context of our longer term outlook with a focus on brand health indicators recent retail highlights and the opportunity ahead.
Amy E. Taylor: Thanks, Girish. I'll put our guidance in context of our longer-term outlook with a focus on brand health indicators, recent retail highlights, and the opportunity. While the full year 2024 guide is not reflective of the brand's overall momentum, given the soft start, the brand's velocity is now growing 9% year over year and 21% in the food channel, as mentioned, improving sequentially each read this year. Zevia grew 67% at the world's largest retailer in the first quarter versus the prior year and accelerated again in this past four-week period to 98%.
Amy E. Taylor: While the full year 2024 guide is not reflective of the brand's overall momentum given the soft start the brand's velocity is now growing 9% year over year and 21% in the food channel as mentioned.
Amy E. Taylor: Improving sequentially each read this year.
Amy E. Taylor: <unk> grew 67% at the world's largest retailer in the first quarter versus prior year and accelerated again in this past four week period to 98%.
Amy E. Taylor: Zevia led the CSD category growth in food in dollars and units through Q1, and logged 23% dollar growth there in the last four-week period ending April 21st. This past four-week total market scan read is encouraging as Zevia Soda grew 9.4% across all channels in dollars and 7% in units, leading CSD and the Diet Zero Soda categories, with all conventional grocery and key natural customers growing at double digits. For numerator panel data, consumer spending on Zevia is up once again in the past 12-month period, for household by 9%, per trip by 4%, and in purchase frequency by 6%, outspending average beverage shoppers by 41%.
Amy E. Taylor: <unk> led the CSD category growth in food and dollars, Andy and it's through Q1.
Amy E. Taylor: Logged 23% dollar growth there in the last four week period ending April 21st.
Amy E. Taylor: This past week total market scan rate is encouraging and media soda grew nine 4% across all channels in dollars and 7% in units, leading CSD and the diet zero so to categories with all conventional grocery and key natural customers.
Amy E. Taylor: Growing at double digits.
Amy E. Taylor: Her numerator panel data consumer spending on CBS is once again in the past 12 month period.
Amy E. Taylor: For household by 9% per trip by 4% and in purchase frequency by 6% out.
Amy E. Taylor: We expect these trends to continue. Zevia's brand strength, along with the productivity initiative Girish has outlined, give us confidence in our ability to expand our reach, grow the base, and build towards profitability going forward. Early indicators on the impact of now ramping out of store marketing are positive. Along with a price increase, a strong balance sheet, and route to market changes, we believe our productivity plan demonstrates how the business is ready to scale. We're bullish on the years ahead. Thank you for your time this morning, and we're prepared to take your questions. Operator?
Amy E. Taylor: Outspending average beverage shoppers by 41%, we expect these trends to continue.
Amy E. Taylor: This is brand strength, along with our productivity initiatives Girish as outlined give us confidence in our ability to expand reach for the base and build towards profitability going forward.
Amy E. Taylor: Early indicators on the impact of now ramping out of store marketing are positive along with a price increase strong balance sheet and route to market changes, we believe our productivity plan demonstrates how the business is ready to scale.
Amy E. Taylor: We're bullish on the years ahead.
Speaker Change: Thank you for the time this morning, who are prepared to take your questions operator.
Speaker Change: Thank you, ladies and gentlemen, we will not be conducting a question and answer session.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate Petralani is in the question queue. You may press star 2 to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.
Speaker Change: Got half a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate petrol on easy the question queue.
Speaker Change: You May press star two to leave the question queue.
Speaker Change: For participants, making use of speak equipment, it may be necessary to pick up the handset.
Speaker Change: Before pressing the star keys.
Speaker Change: Our first question comes from Bonnie Herzog.
Bonnie Lee Herzog: Of Goldman Sachs. Please go ahead.
Bonnie Lee Herzog: Alright, Thank you good morning.
Bonnie Lee Herzog: All right. Thank you. Good morning. Good morning.
Speaker Change: I see.
Bonnie Lee Herzog: I actually have a question on your sales guidance for Q2 and then the year. I guess, first for Q2, I'm trying to understand why sales will be down so much and, you know, really why you're still facing such issues from, you know, the supply chain challenges. And then second, your guidance implies that your growth will accelerate and turn positive in the second half. You touched on this, but I was just hoping you could outline, you know, again, or just stress the key drivers of this expected growth and ultimately what gives you the confidence or really visibility that growth will step up in the back half of the year.
Bonnie Lee Herzog: Good morning, I actually have a question on your sales guidance for Q2, and then a year I guess first on Q2 I'm trying to understand why sales will be down so much and you know really why you're still facing such issues from you know the supply chain challenges and then second your guidance implies that your your growth.
Bonnie Lee Herzog: We will accelerate and turn positive in the second half and.
Bonnie Lee Herzog: You touched on this but just hoping you could outline you know again or just stress that the key drivers of this expected growth and ultimately what gives you the confidence or really visibility of that growth will step up in the back half of the year.
Amy E. Taylor: Sure. Thanks, Bonnie.
Speaker Change: Sure. Thanks, Bonnie I think most importantly, notably our scan data shows is even accelerating period over period.
Amy E. Taylor: I think most importantly, notably, our scan data shows Zevia accelerating period over period, returning to growth in March and then leading category growth in the most recent read. So Zevia Soda grew just over 9% in April, and if you take food, our largest channel, it grew at 23% in the latest four-week read. And each of these figures has accelerated during each four-week period in the year. And concurrently, velocity, as you know, sales per point of distribution are also growing both year on year and incrementally each period.
Speaker Change: Returning to growth in March and then leading category growth in the most recent reads as Evs. So to grow grew just over 9% in April and if you take food our largest channel grew at 23% in the latest four week read in each of these figures have accelerated each four week period in the year and concur.
Bonnie Lee Herzog: Currently velocity as you know sales per point of distribution is also growing both year on year.
Bonnie Lee Herzog: And incrementally each period. So December was our low point in velocity and this year, we continue to improve as we go do we expect these results to be better reflected in shipments and thus net sales in the back half of the year given the skew level distribution game Halloween spring resets given you know.
Amy E. Taylor: So December was our low point in velocity, and this year we continue to improve as we go. So we expect these results to be better reflected in shipments and thus net sales in the back half of the year, given the skew-level distribution gains following spring resets, given, you know, category seasonality, the current category tailwinds, and then our recent and continuing momentum, and then also, of course, in light of our forthcoming marketing investments. Backward-looking, the volume impact on Q1 and early Q2 and thus the Q2 guide really I don't know, Girish, if you have any additional comments on the guide. Yeah, I mean I.
Bonnie Lee Herzog: Category seasonality current category tailwind and then our recent and continuing momentum and then also of course in light of our forthcoming marketing investments.
Bonnie Lee Herzog: Backward looking the volume impact on Q1, and early Q2 and does the Q2 guide really came from short term distribution losses that were greater than we anticipated having greater impact on volume than anticipated I don't know Gary if you have any incremental comments on the guy Yeah, I mean, I think generally speaking.
Girish Satya: Yeah, I mean, generally speaking, we're encouraged by the velocity data. But, separate and apart from that, we have a much more robust promotional calendar with our key accounts, starting really this quarter and for the remainder of the year, our in-stock levels are substantially higher than they were last year in those key accounts. And beyond that, you know, we are sort of encouraged by what we're seeing on the current velocity trend. So we do believe that there is, you know, the back half is achievable. That back half guidance is achievable.
Gary: We're encouraged by the philosophy that I think is separate and apart from that we have a much more robust promotional calendar with our key accounts.
Gary: Really in this quarter and for the remainder of the year our in stock levels are substantially higher than they were last year in those key accounts and.
Bonnie Lee Herzog: Beyond that.
Bonnie Lee Herzog: We do we are encouraged by what we're seeing on the current philosophy trend. So we do believe that there is.
Bonnie Lee Herzog: The back half is is achievable that back half guidance is achievable.
Speaker Change: Okay. Thank you for that and then maybe just a second question before I pass it on I. Just you know thinking about your profitability. You know you mentioned you plan to step up marketing spend heading into the summer. So I guess I'm trying.
Bonnie Lee Herzog: Okay, thank you for that. Then, maybe just a second question before I pass it on.
Bonnie Lee Herzog: I'm just, you know, thinking about your profitability, you mentioned you plan to step up marketing spend heading into the summer. So I guess I'm trying to understand the risk there might be to EBITDA. I guess if you don't see the expected lift on the top line, you know, trying to understand how you're going to manage that or, I guess, you know, how much you're going to prioritize growth versus profitability.
Speaker Change: To understand the risk there might be to EBITDA I guess, if you don't see the expected lift on the top line you know trying to understand how you're going to manage that or I guess, you know how much you're going to prioritize growth versus profitability.
Bonnie Lee Herzog: Thanks.
Speaker Change: Yeah, No. That's a great question, Bonnie things and I think ultimately part of what we're trying to do with this productivity initiative is to reallocate our resources and re Orient our cost structure towards growth and so we're really focused on eliminating.
Girish Satya: Yeah, no, that's a great question, Bonnie. Thanks. And, you know, I think ultimately, part of what we're trying to do with this productivity initiative is to reallocate, you know, our resources and reorient our cost structure towards growth. And so, you know, we're really focused on eliminating a lot of the expenses, both from COGS or selling and fulfillment, or even SG&A, to ensure that we have the appropriate investment in both marketing and promotion.
Bonnie Lee Herzog: A lot of a.
Speaker Change: A lot of the expenses both from a you know whether its cogs or selling your fulfillment.
Bonnie Lee Herzog: Even SG&A to ensure that we have the appropriate investments in both marketing and promotion and so it's really.
Girish Satya: And so, the goal is to, you know, ensure that we have the resources for growth and eliminate, you know, any of the other expenses that aren't supportive of that. And so, I think we're going to continue to balance it. And I think, based on what we announced and the opportunities we see, we think we'll be able to effectively do both.
Bonnie Lee Herzog: The goal is to ensure that we're have the resources for growth and eliminating any of the other expenses that.
Bonnie Lee Herzog: Aren't supportive of that and so I think we're going to continue to balance it and I think based on what we announced.
Bonnie Lee Herzog: The opportunities we see we think we'll be able to effectively do both.
Speaker Change: Alright, Thank you I'll pass it on.
Bonnie Lee Herzog: All right. Thank you. I'll pass it on.
Speaker Change: Thank you.
Speaker Change: The next question comes from Jim Sullivan of Stephens, Inc. Please go ahead.
Operator: The next question comes from James Salera of Stevens Inc. Please go ahead.
James Ronald Salera: Hi, good morning guys. I wanted to maybe start off by asking you a question on the earnings deck. I think it's slide 14 where you have, you know, some of these kind of in-store activation examples for the DSD launch. Are these, you know, the coolers and the end cap displays, are these actually something that are going to be in the market, or is this just illustrative of what might be in the market and just the capabilities that DSD brings?
James Ronald Salera: Hi, good morning, guys.
James Ronald Salera: Wanted to maybe start off asking you a question on.
James Ronald Salera: The earnings deck I think it's slide 14, where you have you know some of these kind of in store activation examples.
James Ronald Salera: For the DSD launch.
James Ronald Salera: These you know the coolers in the end cap displays or these actually something that are going to be in market or is this just illustrated.
James Ronald Salera: What might be in market and just the capabilities with DST brings.
Amy E. Taylor: No, those are literally items, and they are just a sample of items that we will equip our DSD partners with in order to increase our in-store penetration. Critically, what DSD does for us, in addition to enabling a launch of singles to be able to be merchandised in convenience stores and beyond, is that DSD also enables us to increase space in our existing footprint. So our variability to place equipment, like you see, company-owned equipment, as well as to increase space around the footprint of the store, such as end caps or what we call side-wing racks, and critically, cold singles availability within channels like grocery, all this follows the high-touch service levels that DSD enables.
James Ronald Salera: I know those are literally items and they are just a sample of items that we will equip our DSD partners with in order to increase our in store penetration critically what DSD does for US in addition to enabling a launch of singles to be able to merchandise be able to be merchandised.
James Ronald Salera: Minions and beyond is the DSD also enables us to increase space in existing footprint. So our variability to place equipment like you see company old company owned equipment as well as to increase space around the footprint of the store such as end caps or what we call side wing rack.
James Ronald Salera: And critically cold singles availability within channels like grocery all this follows.
James Ronald Salera: The high touch service levels that DSD enabled so as we launch our first five states.
Amy E. Taylor: So as we launch our first five states with DSD partners, we kicked off literally Monday, we're really bullish on not only remaining in stock for our high-velocity items, protecting and increasing space on the shelf, but also penetrating multiple parts of the store, leveraging the equipment that you see, that equipment, and more. Those are just some of the tools of the trade of DSD, and we're really bullish on increasing brand visibility and thus trial, accelerating velocity, and penetrating new channels with DSD.
James Ronald Salera: With DSD partners, we kicked off literally Monday, we're really bullish on not only remaining in stock for our high velocity items, increasing of protecting and increasing space on shelf, but also penetrating multiple parts of the store leveraging the equipment that you see that equipment and more because those are just some of the tools of the trade of <unk>.
James Ronald Salera: D and we're really bullish on increasing brand visibility and thus trial accelerating velocity and penetrating new channels with DST.
Speaker Change: Great. That's helpful. And then if we think about you.
James Ronald Salera: Right, that's helpful. And then if we think about, you know, expanding DSD outside of the Pacific Northwest, what type of learnings or results would you need to see to convince other independent DSD operators to bring Zevia into their portfolios? And should we think of it as kind of like crawling east? So, you know, the Pacific Northwest, maybe down into California, or can you patchwork and pick, you know, different markets across the country that don't necessarily have continuity with the back Northwest? Sure. But first of all, what indicators are we looking for?
Speaker Change: Expanding DSD outside of.
Speaker Change: The Pacific Northwest what type of.
DST: Learnings or results would you need to see to convince.
DST: Independent DSD operators to bring <unk> into their portfolio and should we think of it as kind of like crawling east So Pacific northwest, maybe down into California, or can you patch work in.
DST: Different markets across the country, they don't need to necessarily have continuity with tobaccos west.
Amy E. Taylor: Sure, so first of all, what indicators are we looking for? I mean, we expect that success in the footprint where we have DSD will enable singles distribution and thus trials, so expanding the base, as well as accelerate velocity in our existing footprint. And we have our eye on our largest channel, which is food, and a real opportunity to step change growth in that footprint. That's what we expect out of DSD. We also think that would be attractive to future DSD partners, and it could also impact the way retailers think about opening opportunities for incremental space dedicated to Zevia.
Speaker Change: Sure. So first of all what indicators are we looking for I mean, we expect that success in the footprint, where we have DSD will enable singles distribution and thus trials so expanding the base.
Speaker Change: As well as accelerate velocity in our existing footprint and we have our eye on our largest channel, which is food and a real opportunity to step change growth in that footprint. That's what we expect out of DSD. We also think that would be then attractive to future DSD partners and it could also impact the way retailers think about <unk>.
Speaker Change: Turning opportunities for incremental.
Speaker Change: Rental space dedicated to Zambia, So when we think about how to roll from here, we do expect regional rollout and as you indicate.
Amy E. Taylor: So when we think about how to roll from here, we do expect regional rollout, and as you indicate, our brand development index is one of the top considerations of when we move to DSD or a hybrid setup in a given footprint. So your assumptions are smart in the sense that we are more developed in the West and in the Midwest and down through the middle of the country. Those are some more likely targets for us going forward. We will ultimately seek to enable much of our conventional business through DSD across the country.
Speaker Change: Our brand development Index is one of the top consideration of when we move.
Speaker Change: DSD or a hybrid setup in a given footprint. So your assumptions are smart in the sense that we are more developed in the west and in the Midwest and down through the middle of the country. Those are some more likely targets for us going forward.
Speaker Change: We will ultimately.
Speaker Change: Seek to enable much of our conventional business through DSD across the country.
Speaker Change: Okay, great. Thank you I'll pass it on I think Jim.
Speaker Change: The next question comes from Andrew <unk> of Bank of Montreal. Please go ahead.
Operator: The next question comes from Andrew Strelzik, a banker in Montreal. Please go ahead.
Daniel Alonquer: Hello, this is Daniel Alonquer and Andrew Strelzik. Hi, how are you? Can you discuss how the delay in recovery of skew level distribution at retailers is evolving? And, if at all, how that's impacting strategies to drive sales?
Speaker Change: So this is Daniel on for Andrew Schlossberg.
Daniel: Uh huh.
Speaker Change: Hi, how are you can you discuss how the delay and recovery of SKU level distribution at retailers and it's evolving and.
Daniel: If at all that's impacting the strategies to drive ourselves.
Speaker Change: Sure I would say the we have returned to customer fulfillment levels that are sort of our baseline or historical customer fulfillment level. So we are pleased with the stability of our supply chain and we are delivering excellent service to our customers what we.
Amy E. Taylor: Sure, I would say that we have returned to customer fulfillment levels that are sort of our baseline or historical customer fulfillment levels. So we are pleased with the stability of our supply chain, and we are delivering excellent service to our customers.
Amy E. Taylor: What we underestimated was the volume impact of skew level distribution in stores of temporarily lost distribution because of last year's service level gap. And so, while this impact does not impact our strategy, our focus, and our strategy remains the same, it does impact the full-year outlook in the sense that the first half of the year is much softer than brand demand would indicate, and the second half of the year is more reflective of demand and our accelerating growth expectations.
Speaker Change: Tomato was the volume impact of SKU level distribution in store of temporarily lost distribution because of last year's service level gaps.
Speaker Change: And so while this impact does not impact our strategy our focus on our strategy remains the same it does impact the full year outlook in the sense that the first half of the year is much softer than brand demand would indicate and the second half of the year more reflective of demand in our accelerate.
Speaker Change: <unk> growth expectation so.
Amy E. Taylor: So, strategically, we remain very focused on the productivity initiative that Girish walked us through, on investing in marketing, and we see positive early indicators of those investments, on the regional phase rollout of DSD, and on the accelerating growth of the brand as we focus on soda and optimize our portfolio.
Speaker Change: Strategically we remain very focused on the productivity initiatives that you just walked us through on investing in marketing and we see positive early indicators of those investments on the regional phase rollout of D. S D and on the accelerated growth of the brand as we focus on soda and optimize our portfolio.
Speaker Change: Okay, great and a follow up to that can you frame what do you expect the cadence of the cost saves are and and how that will show up in the P&L.
Amy E. Taylor: Okay, great. And a follow-up to that, can you explain what the expected cadence of the call saves is and how that will show up in the P&L? Yeah, I mean, I think, as I noted,
Speaker Change: Yeah, I mean, I think I think noted you'll begin to start seeing it in in Q3 and I think.
Girish Satya: Yeah, I mean, as I noted, you'll begin to start seeing it in Q3, and I think you'll start seeing it, you know, sort of, you know, over the next four to six quarters thereafter. And, and I think largely, it'll be sort of a third, a third, a third between COGS selling and warehousing expenses and SG&A.
Speaker Change: Start seeing it.
Speaker Change: Sort of you know over the next four to six quarters thereafter.
Speaker Change: And I think largely it'll be sort of a third a third a third between Cogs.
Speaker Change: Selling and warehousing expenses and SG&A.
Speaker Change: Great I'll pass on alright.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Speaker Change: The next question comes from Eric Sriracha off Morgan Stanley.
Operator: The next question comes from Eric Sirota of Morgan Stanley.
Eric Sirota: Yeah, hi, thanks for the question. I'm hoping you could provide a little bit more color in terms of the path to profitability. Your quarterly adjusted EBITDA loss isn't that far from break-even in terms of dollars. You're talking about not reaching profitability until 2026 despite the productivity program ramping up, so I guess I guess, why the long run way? What does that imply that you're assuming for reinvestment, DSD investment, and, you know, potential hiccups along the way? Thanks.
Eric Sriracha: Yeah, Hi, thanks for the question.
Eric Sriracha: I'm, hoping you could provide a little bit more.
Eric Sriracha: Color in terms of the path to profitability your quarterly adjusted EBITDA loss isn't that far from a breakeven in terms of.
Eric Sriracha: In terms of dollars, you're talking about not reaching profitability until 2026, despite the productivity program ramping up so I guess.
Eric Sriracha: I guess why the long runway, what does that imply that you're assuming for reinvestment DSD investment and a potential hiccups along the way.
Girish Satya: Now, I appreciate the question, and I think, you know, ultimately, there is a bit of a balancing act. We are trying to ensure that we can have the appropriate resources to really focus on driving top line and evolving our route to market, particularly as we discussed, from sort of west to east and further accelerating singles and convenience store penetration. It is that balancing act, and so we are giving ourselves enough time to ensure that we can revitalize the top line while also having sort of a smoother path to profitability. So I think that's sort of how I would think about it.
Speaker Change: No I appreciate the question I think.
Speaker Change: Ultimately there is a bit of a balancing act we are trying to ensure that we can.
Speaker Change: How the appropriate resources to really focus on driving top line.
Speaker Change: Evolving our route to market.
Speaker Change: Particularly as we discussed.
Speaker Change: Sort of west to east and I'm further accelerating singles and convenience store penetration so.
Speaker Change: It is that balancing act and so we are giving ourselves enough.
Speaker Change: Time to ensure that we can.
Speaker Change: Revitalize the topline.
Speaker Change: I'll also.
Speaker Change: <unk>.
Speaker Change: Having sort of a smoother path to profitability. So I think we'd say it.
Speaker Change: That's sort of how I would think about it.
Speaker Change: Great and then a shorter term question.
Eric Sirota: Great, and then a shorter-term question, you know. I assume that the second half top line recovery depends in part on regaining space in the spring resets. But we've heard from players and other categories that these resets are a bit later than expected, a bit later than typical years. I'm wondering if you have any early reads with customers who have reset already and, you know, what you're generally expecting in terms of regained shelf space in the spring into summer.
Speaker Change: I assume that the second half.
Speaker Change: Topline recovery depends in part on.
Speaker Change: Regaining space in the spring resets, we've heard from players in other categories that these resets are a bit later than expected a bit later than typical years.
Speaker Change: Wondering if you have any early reads with customers, who have reset already and you know what you're generally expecting in terms of regaining.
Speaker Change: Regained shelf space are the spring into summer.
Amy E. Taylor: You're right. We're seeing the same things. Resets are a little bit later; not really sure exactly why.
Amy E. Taylor: You're right. We're seeing the same thing. Resets are a little bit later.
Speaker Change: You're right, we're seeing the same things resets are a little bit later.
Speaker Change: Not really sure exactly tactically why it could be as simple as operational but when we look at our 23% growth in the latest read in the food channel, which is our largest channel.
Speaker Change: We look at our top two grocery operators they grew it at 20% and 15% nationally our top regional grew at 40%. We grew at 98% in the world's largest retailer the reason I share these with you.
Amy E. Taylor: It could be as simple as operations. But when we look at our 23% growth in the latest read in the food channel, which is our largest channel, we look at our top two grocery operators, they grew at 20 and 15% nationally. Our top regional grew at 40%. We grew at 98% in the world's largest retailer.
Speaker Change: Is to say that when Veeva is in stock and properly supported its really growing. So we are bullish on the rolling impact of the reset in the spring and you see that in the difference between our second half guide versus our expected first half results.
Speaker Change:
Speaker Change: Inch per inch I can't tell you exactly what we expect in terms of space gain but we do expect accelerated recovery on just flavors and SKU availability on our existing footprint, where we already had space dedicated and then we continue to grow our <unk>.
Speaker Change: Penetration in what I'll call conventional channels, we're back to growth in natural and we're continuing to increase space in conventional channels almost across the board, which you see again reflected in the second half. So we're bullish on resets, but we're also bullish on continuing to impact in store presence through the balance of the year.
Amy E. Taylor: The reason I share these with you is to say that when Zevia is in stock and properly supported, it's really growing. So we are bullish on the rolling impact of the resets in the spring. And you see that in the difference between our second half guide versus our expected first half results.
Speaker Change: As being justified through our velocity or as we rollout regional DSD support to implement that.
Speaker Change: Great. Thanks again.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Steven for it all the Telsey group. Please go ahead.
Steven: Okay. Thank you guys good morning.
Steven: I have a quick question on the distribution well.
Steven: Can you share how the economics of a DSD.
Speaker Change: The woodwork for you.
Speaker Change: Couple of one you know how the economics works that good news.
Speaker Change: The DSD partners also cater your existing customers.
Speaker Change: If you look at the route to market and then obviously the new channels, new shared like rich new channels.
Speaker Change: Beyond convenience youre looking to grow in the DSP site. Thank you sure Yeah sure sure I think we've been talking for a while now about the opportunity with DSD, we've been focused on placing branded company equipment and.
Amy E. Taylor: You know, inch per inch, I can't tell you exactly what we expect in terms of space gained, but we do expect accelerated recovery on just flavors and skew availability on our existing footprint where we already have space dedicated. And then we continue to grow our penetration in what I'll call conventional channels. We're back to growth in natural, and we're continuing to increase space in conventional channels almost across the board, which you see, again, reflected in the second half.
Speaker Change: Talking about coolers, you talked about cold penetration and these are some examples of what we expect from DST I'll answer. Your second question first and then go back to economics in terms of the impact that we expect that the primary new channel penetration. We look forward to as a result of the introduction of DST in the limited footprint within the country that we have.
Speaker Change: DSD today is convenience, but there's also opportunity with what we call the independent channel So independent individual grocery stores throughout the footprint that we may or may not calling a headquarter based on the size of our organization DSD expands your reach we also expect significant impact our existing.
Speaker Change: Footprint, and we turn our attention first to the food channels. So conventional grocery where we believe that the DSD operators will have the greatest immediate impact. So that's how I would have you think about where to look for that impact, albeit over a ramp up period and just regional today in terms of the economics you know one of the reasons we're pleased with.
Speaker Change: Our strong foundation of.
Speaker Change: Of a solid gross margin, which is sequentially improving is it that allows us to invest in DSD. So that would indicate that it is gross margin points investment that is required in order to continue to drive D. S D. The.
Speaker Change: The rest of the investments if you think about selling and marketing expenses has just become more effective so it's not that it's going.
Speaker Change: Going DSD requires us to spend more per se, we spend differently in a very laser focused way to enable increase in store presence and efficacy of retail so recall that the number one driver of awareness for <unk> as for most beverage is in stores. So the DSD is both a distribution arm as well as a marketing enabler.
Speaker Change: Thank you good luck.
Speaker Change: Alright, Thanks, Ron.
Speaker Change: Thank you ladies and gentlemen, we have reached the end of the question and answer session.
Speaker Change: And I'll hand over to Amy Taylor for closing remarks.
Amy E. Taylor: Thank you very much everyone. ZB is brand strength is reflected in our recent scan data and importantly that scan data is the growth is accelerating every period this year and take this along with the productivity initiative figure has outlined and I'm. So pleased to have girish along for the ride with us gives us confidence in our ability to.
Amy E. Taylor: So we're bullish on resets, but we're also bullish on continuing to impact in-store presence through the balance of the year, be it as justified through our velocity or as we roll out regional DSD support to implement that.
Speaker Change: Grow the base and build toward profitability. So we are bullish on our marketing plans early indicators are that they have a strong impact on our ability to grow and we're excited about our phased rollout of DSD and increased presence to drive trial and expand the base. So we focus on execution and we thank you for your time this morning.
Operator: Our next question comes from Sarang Vora of the Telsey Group. Please go ahead.
Speaker Change: Thank you ma'am, ladies and gentlemen that concludes todays event.
Sarang Vora: Okay. Thank you, guys. Good morning.
Sarang Vora: You know, I have a quick question on the DSD distribution. Can you share how the economics of DSD would work for you? You know, a couple of things – one, you know, how the economics work.
Operator: Thank you, ma'am. Ladies and gentlemen, that concludes today's event. Thank you for attending. And you may now disconnect your line.
Sarang Vora: Second, will the DSD partners also cater to your existing customers as you look at the route to market? And then, obviously, you know, new channels. Can you share, like, which new channels beyond convenience you're looking to grow on the DSD site?
Sarang Vora: Thank you. Sure. Yeah, sure, Sarang.
Amy E. Taylor: Sure. Yeah, sure, Sarang. Thanks.
Speaker Change: Thank you for attending and you may now disconnect.
Amy E. Taylor: You know, we've been talking for a while now about the opportunity with DSD. We've been focused on placing branded company equipment and talking about coolers. We've talked about cold penetration, and these are some examples of what we expect from DSD. I'll answer your second question first and then go back to economics.
Amy E. Taylor: In terms of the impact that we expect, the primary new channel penetration we look forward to as a result of the introduction of DSD in the limited footprint within the country that we have DSD today is convenient. But there's also opportunity with what we'll call the independent channel, so independent individual grocery stores throughout the footprint that we may or may not call on a headquarters based on the size of our organization.
Amy E. Taylor: DSD expands your reach. We also expect a significant impact on our existing footprint, and we turn our attention first to the food channel, so conventional grocery, where we believe that DSD operators will have the greatest immediate impact. So that's how I would have you think about where to look for that impact, albeit, you know, over a ramp-up period and just regional today.
Amy E. Taylor: In terms of the economics, you know, one of the reasons we're pleased with a strong foundation of a solid gross margin, which is sequentially improving, is that that allows us to invest in DSD. So that would indicate that it is gross margin points investment that is required in order to continue to drive DSD. The rest of the investments, if you think about selling and marketing expenses, those just become more effective. So it's not that going DSD requires us to spend more, per se.
Amy E. Taylor: We spend differently in a very laser-focused way to enable an increase in in-store presence and efficacy of retail. So recall that, you know, the number one driver of awareness for Zevia, as for most beverages, is in-store. So the DSD is both a distribution arm as well as a marketing enabler.
Sarang Vora: That's cool. Thank you. Good luck.
Operator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now hand over to Amy Taylor for closing remarks.
Amy E. Taylor: Thank you very much, everyone. You know, Zevia's brand strength is reflected in our recent scan data. And importantly, that scan data shows that growth is accelerating every period this year. And this, along with the productivity initiative that Girish outlined, and I'm so pleased to have Girish along for the ride with us, gives us confidence in our ability to grow the base and build toward profitability. So we are bullish on our marketing plans; early indicators are that they have a strong impact on our ability to grow. And we're excited about our phased rollout of DSD and increased presence to drive trial and expand the base. So we focus on execution, and we thank you for your time this morning.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Yes.