Zevia PBC - Earnings Call - Q2 2025

Executive Summary

• Zevia delivered Q2 2025 net sales of $44.5M (+10.1% YoY) and its first positive adjusted EBITDA ($0.2M), materially beating its own Q2 guidance for both net sales ($40.5–$42.5M) and adjusted EBITDA loss ($2.2–$2.9M). This outperformance was driven by distribution gains (Walmart and drug channel), successful new flavors, and lower product costs.
• Gross margin printed 48.7% (up 680 bps YoY; down 140 bps sequentially), with tariffs having an insignificant impact in Q2 due to timing; management reiterated a ~200 bps tariff headwind to gross margins starting in Q3.
• FY 2025 net sales guidance was maintained at $158–$163M, while FY adjusted EBITDA loss guidance was improved to $7–$9M from $8–$11M; Q3 outlook: net sales $38–$40M and adjusted EBITDA loss $3.4–$3.9M including a $0.5M packaging redesign charge.
• Catalysts: positive Q2 execution, improved FY adjusted EBITDA outlook, expanding distribution, and resonant marketing support set a constructive narrative; near-term watch items are tariff headwinds, increased Q3 marketing spend, and lapping Q4 2024 Walmart pipeline fill.

What Went Well and What Went Wrong

What Went Well

• First positive adjusted EBITDA as a public company ($0.2M), aided by productivity initiatives and the timing shift of marketing spend; management identified an incremental $5M of savings in COGS and selling expenses, taking total identified savings to $20M by 2026.
• Distribution surpassed historical peak levels, with strong performance across Walmart (variety packs performing best), grocery, club (Costco rotations with record same-store sales), and drug channels; early convenience tests showed performance on par with larger peers.
• Marketing and innovation resonated: the “Get the Fake Outta Here” campaign delivered record earned impressions; new flavors (Strawberry Lemon Burst, Orange Creamsicle) achieved top velocities; refreshed packaging improved in-store communication and shelf impact.
  • “We are soda made better…Our distinctive marketing is driving engagement…our productivity initiative yielded $15,000,000 in annualized savings…” — Amy Taylor, CEO.

What Went Wrong

• Sequential gross margin compression to 48.7% (from 50.1% in Q1) and tariff headwinds expected to reduce gross margin by ~200 bps in Q3–Q4; Q3 includes a $0.5M one-time packaging redesign charge in COGS.
• Management set cautious Q4 expectations (flattish) due to lapping last year’s substantial Walmart pipeline fill, and noted an uncertain macro environment despite distribution gains.
• Selling and marketing remained high ($13.4M; 30.0% of net sales), with elevated marketing investments necessary to build brand awareness; G&A rose to $8.1M on variable compensation and outside services.

Transcript

Speaker 0

Good day, everyone, and welcome to today's Zevia PBC second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star one on your touch-tone phone. You may withdraw yourself from the queue by pressing star two. Please note this call may be recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the conference over to Jean Fontana of ADO Investor Relations.

Thank you, and welcome to Zevia PBC's second quarter 2025 earnings conference call. On today's call are Amy Taylor, President and Chief Executive Officer, and Girish Satya, Chief Financial Officer and Principal Accounting Officer. By now, everyone should have access to the company's second quarter 2025 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia PBC's website at investors.zevia.com. Before we begin, please note that all 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 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. 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. Now I'd like to turn the call over to Amy Taylor.

Speaker 2

Thank you, Jean. Good afternoon, everyone, and thank you for joining our second quarter 2025 earnings conference call. We are very pleased with our performance in the second quarter. Net sales and adjusted EBITDA exceeded our outlook, and we made notable progress across our strategic initiatives. Over the last year, we've executed against our three strategic growth pillars to sharpen the Zevia brand and lay the foundation for growth. Zevia's position as the radically real option is clear: we are tough to make better. Our distinctive marketing is driving engagement. Product innovation is resonating both with new and existing consumers, and we are expanding our distribution with strong sell-through across channels. All of this is in part fueled by our productivity initiative that yielded $15 million in annualized savings, with more to come. I'm incredibly proud of what the team has accomplished over the last year.

We are energized by a strong start to the summer, and I'm more excited than ever about our future. Briefly highlighting our financial results, for the second quarter, net sales grew 10.1% to $44.5 million. Adjusted EBITDA improved by $4.6 million to $0.2 million, marking our first profitable quarter as a public company. Turning to highlights on our progress across each of our strategic growth pillars from the quarter, let's start with our first one, marketing. Our distinctive brand was brought to life through our national campaign, "Get the Fake Outta Here" in SeedGuru, featuring household name crossover artist Kelly Wall. The campaign delivered record earnings impressions and the most shared and engaging content in Zevia's history, which contributed to double-digit growth in the quarter.

Over Memorial Day weekend, we launched "Get the Fake Outta Summer," showcasing one of our newest flavors, Strawberry Lemon Burst, and our playful summer break sweepstakes. The summertime refreshment campaign features social and editorial media activation in conjunction with mega-influencer postings and consumer contest. Strawberry Lemon Burst is the hero flavor of the summer and a great demonstration of the more sugar-like taste experience that Zevia is delivering in our new flavors. This is a good segue into our second strategic growth pillar, product innovation. Our new flavor launches, featuring our enhanced taste profile, are generating excitement and engagement and are delivering top-performing velocities. We are complementing our legacy classic soda flavors and more nostalgic launches with new on-trend fruity flavors. Strawberry Lemon Burst and Orange Creamsicle have been our most successful launches to date.

On the heels of these best-ever innovation launches for our brand, we have expanded our pipeline with the launches of Teachers in Cream online and a second exclusive at retail, plus the return of our highly popular Salted Caramel flavor across channels. Our fruitier and on-trend flavors provide an opportunity to appeal to a broader audience as we continue to focus on driving churn. With the launch of these new products, we have refreshed Zevia's packaging to bring distinctive flavors and great tastes to life and to communicate our better-for-you positioning. "Those who Made Better" is communicated on pack, along with several of the reasons to believe in Zevia's unique position in the category: zero sugar, zero fake colors, and zero fake sweeteners.

Finally, regarding the portfolio, we rolled out a 12-count variety pack across the majority of our grocery and natural channel stores over the second quarter spring resale period, which is also a great start at a very early stage. In July, we introduced the new fruity variety pack, featuring Zevia's new Fruit Punch flavor, among others at Walmart. We continue to surprise and delight new modern soda shoppers and loyal Zevia consumers alike with this accelerated pace of innovation. Lastly, our third strategic growth pillar is distribution. We've surpassed our historical peak distribution levels at retail, a significant milestone that underscores the impact of our efforts over the past year. We are pleased with the results of the spring retail resale, and top accounts are performing at or above expectations. Improved shelf presence and new products drove sell-through, yielding double-digit velocities on the quarter.

As we gain distribution, it supports our top priority broadening our user base. Turning to channel-specific updates, we continue to perform well at Walmart. Our first variety pack is the top-selling Zevia SKU, and the new fruity variety pack is off to a great start in its first few weeks of summer. In the grocery channel, we're encouraged by strong scan data and positive indicators across key retailers in terms of space gain and new SKU performance. In club, we're back on rotation in key Costco regions, and performance has exceeded expectations. Zevia generated record same-store sales in every region on an apples-to-apples basis during the quarter, which we attribute in part to the positive response to our new, more dynamic packaging design, which stands out in store and better communicates Zevia's positioning.

In the drug channel, recent distribution gains make Zevia available in all three national chains, with one partner testing cold singles in 750 stores. In convenience, we're pleased with the initial response across a growing network of regional chains and with regional tests at national players. It's still very early, but recent scan data indicates our performance is on par with larger and more established peers, which is encouraging and also an indicator of Zevia's potential in impulse channels. We will continue to be measured in our approach to convenience, working towards sustained success as we build our brand and our distribution network. There remains considerable opportunity to expand in-store distribution through legacy channels and, of course, new store distribution across mass, club, and impulse channels.

In closing, we're energized by the strong momentum across our brand and business and pleased to share that we are executing with focus and precision. Our marketing and product innovation efforts are delivering meaningful results, amplifying brand awareness, winning on taste, driving trial and repeat, and supporting the accelerated distribution gains. With clear growth drivers in place and solid execution across the board, we believe we're well-positioned to capitalize on the strong momentum in the better-for-you soda category. With that, I'll turn the call over to Girish.

Speaker 3

Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our second quarter results clearly demonstrate the significant progress we've made over the past year. Fueled by strong execution, we delivered meaningful advancements across each of our strategic growth pillars. In addition to delivering double-digit top-line growth, we've taken important steps to drive enhanced and enduring profitability. In addition to the $15 million in annual cost savings we have discussed, we have identified an incremental $5 million in cost savings in COGS and selling expenses, which we expect to begin realizing in 2026, bringing the total to $20 million. Turning now to our second quarter results. During the second quarter, we delivered net sales of $44.5 million, an increase of 10.1% as compared to the second quarter of last year.

This strong growth was primarily driven by our expanded breadth and depth of distribution across channels, partially offset by increased promotional activity. As we continue to monitor the consumer and competitive environment, we remain agile in our promotional programming. Gross margin was 48.7%, which reflects an increase of 680 basis points compared to 41.9% in the second quarter of last year. This improvement reflects lower product costs and improved inventory management, partially offset by higher promotional activity and channel mix. The impacts of tariffs were below where we expected and had an insignificant impact in the second quarter due to timing. Selling and marketing expenses were $13.4 million, or 30% of net sales in the second quarter of 2025, compared to $13.6 million, or 33.7% of net sales in the second quarter of 2024.

Selling expense was $8.7 million, or 19.4% of net sales, compared to $9.3 million, or 23% of net sales in the second quarter of 2024, a decrease of 7.1% while maintaining best-in-class customer fulfillment rates during the quarter. Marketing expense was $4.7 million, or 10.6%, compared to $4.3 million, or 10.7% of net sales in the second quarter of 2024. The increase was primarily due to investments to drive brand awareness. We did shift some of these marketing dollars from the second quarter to the back half of the year, which contributed to our better-than-expected adjusted EBITDA performance. General and administrative expenses were $8.1 million, or 18.2% of net sales in the second quarter of 2025, compared to $7.7 million, or 19% of net sales in the second quarter of 2024.

The increase was primarily due to higher variable compensation expenses and outside services, partially offset by our efforts to right-size the business and focus on growth-driving initiatives. As a result of the aforementioned factors, net loss was $0.7 million compared to a net loss of $7 million last year, an improvement of $6.3 million over the prior year. Adjusted EBITDA was $0.2 million compared to an adjusted EBITDA loss of $4.4 million in the prior year period. The $4.6 million improvement reflects accelerated savings from our productivity initiative and a shift in the timing of marketing investments. As Amy noted, this was the first positive adjusted EBITDA quarter since we IPO'd. Turning to our balance sheet, we ended the quarter with approximately $26.3 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million.

Now turning to our outlook, we continue to execute our strategic initiatives and feel good about the momentum in our business. That said, we're operating in an uncertain macro environment and remain prudent in our outlook. In addition, this outlook assumes that the current tariffs of 50% on aluminum remain unchanged. However, should tariff costs rise, this would potentially impact our COGS in 2026. As such, we are maintaining our full-year net sales guidance in the range of $158 million to $163 million. Based on the additional benefit of cost savings in our productivity initiative, we now expect our adjusted EBITDA loss to range from $7 million to $9 million versus prior guidance of $8 million to $11 million. Turning to the third quarter, we expect net sales between $38 million and $40 million.

We expect Q3 adjusted EBITDA loss to be between $3.4 million and $3.9 million, reflective of increased marketing investments and higher promotions, in addition to the higher tariff-related costs. Note that our third quarter adjusted EBITDA guidance includes a $500,000 one-time charge within COGS related to the package redesign that Amy mentioned earlier. The cost of the repackaging design will largely be realized in the third quarter. We believe this packaging is more reflective of our new flavors and taste profile, as well as our brand narrative, and have been very pleased with the positive response to the new design. In closing, with a more efficient operating structure resulting from our productivity initiative, we are enabling reinvestment into growth. Echoing Amy's comments, we believe the work we have done over the last year sets us up to capitalize on a growing better-for-you beverage category and deliver long-term profitable growth.

I will now turn it over to the operator to begin Q&A. Operator?

Speaker 0

Thank you. At this time, we will open the floor for questions. If you'd like to ask a question, you may press star one on your touch phone. If you would like to remove yourself from the queue, you may press star two. Again, that is star one to ask a question. We'll take our first question from Sarang Vora with Telsey Group.

Speaker 1

Great. Congratulations on a great quarter. Good to see positive EBITDA as well. My first question is on the sales driver. Can you give a little bit more color? There were a lot of positives in the quarter. Can you give a little bit more color on what drove the strong sales, like channel fill-in versus existing channel growth across existing channel? Also, can you share the contribution of new flavors that played in the sales growth? Thank you.

Speaker 2

Yeah, happy to, Sarang. Thank you. We had a really nice balanced quarter, meaning growth came from several places. We grew both in dollars and in units. Of course, our new distribution at Walmart is contributing to that, but so did positive momentum in grocery, meaning that Zevia really benefited from the spring reset. We're just two months or so into the volumetric impact of spring resets, and that will continue to pay us back through the summer. We gained space, net net, and some retailers regained 12-pack distribution, and other retailers benefited from a brand-blocked, more eye-level distribution. To your last point, new items drove incremental distribution. Distribution on the whole across major channels was a contributor to our growth. It's good to see us back at double-digit growth. Our new items are certainly contributing to growth, but it's very early days.

As I mentioned in prepared remarks, our Strawberry Lemon Burst is a top two item across the board, and our Sprouts exclusive is the number one Zevia item in Sprouts. We think that's not only contributing to some of our growth, but also indicative of the flavor evolution and increased pace of innovation within our portfolio. We think that new items will continue to contribute to growth. We have a little bit more Costco and specifically club business in the quarter than we've had in the past. We've talked about that being both regional and rotational, but that also contributed a little bit to the volume growth on the quarter.

Speaker 1

That's great. Girish, I had a question about the productivity initiative. Can you share more color on when you are seeing this incremental $5 million of productivity gains? Thank you. I'll pass it on.

Speaker 3

Absolutely. As we mentioned in prepared remarks, we continue to find efficiencies within the supply chain broadly as we continue to simplify our product portfolio and our network as well. We anticipate the incremental savings to begin to be realized to a lesser degree in Q4 this year, but really the beginning of Q1 next year, first in COGS and then in selling and warehousing expenses in the second and third quarters of 2026.

Speaker 1

Thank you.

Speaker 0

Thank you. We'll take our next question from Bonnie Herzog with Goldman Sachs.

Speaker 4

Hi, good afternoon. This is Ethan David Huntley on for Bonnie Herzog. Thank you for taking our questions. Maybe just one here on your guidance. You maintain your top-line guidance of $158 million to $163 million, but if you include your Q3 guidance, I think that actually implies Q4 might be flat to slightly down. I'm just curious if you had any more puts and takes there. I understand the macro environment is challenging, but I guess anything else that might be driving that more cautious outlook towards the back end of the year, that would be great. Thank you.

Speaker 3

Yeah, of course. Thanks, Ethan. I think it's really two things. One, as we alluded to in the earlier remarks, we continue to see, although we continue to see strength in our distribution gains and strength in some of our trends, we are a little bit cautious about the overall consumer. As we think about Q4 of this year, we are lapping a very substantial Walmart pipeline fill, which we've addressed in previous calls as well. I think really, as we think about Q4, being relatively flattish would make sense given that the substantial nature of that pipeline fill.

Speaker 4

Got it. Maybe just as a follow-up, one here on tariffs. I think you mentioned that the tariff impact was maybe below expectations in the quarter, but that seems timing related. I guess just curious how we should be thinking about tariffs moving forward. I think you mentioned previously they could be a 200 basis point impact to gross margin. Is that still a fair way to think about things? I guess any sort of color on gross margin for the rest of the year would be helpful. Thank you.

Speaker 3

Yeah, great question. Yes, we continue to see, or we continue to estimate that it'll be about a 200 basis point impact. As you noted, it is timing related. Just the way that our co-manufacturing partners operate, there's a little bit of a delay in terms of when we see the increased pricing. Starting in Q3, we will begin to see more material impacts related to tariffs, and we do anticipate that plus the one-time charge that we're taking in the quarter related to the packaging refresh will have a sort of dilutive impact on gross margin in the short run. As noted, as we sort of flip the calendar, you know, we'll be able to really offset a lot of the tariffs due to the incremental savings that we found. Although we may see some pressure on gross margins in the short run, i.e.

in Q3 and Q4, we expect to get back to that sort of mid to high 40% and eventually in the 50% in the long run.

Speaker 0

Thank you. We'll take our next question from James Ronald Salera with Stephens.

Speaker 1

Hey, Girish. Good afternoon. Thanks for taking our question. I wanted to ask some questions just around the consumer panel metrics because it looks like we saw a sequential step up both in household penetration as well as purchase frequency from 1Q to 2Q. I was hoping you could just give some color around it. Is that primarily attributable to some of the new flavor launches and bringing new people to the brand, or is it easier to find Zevia across a broader range of retailers and you're finding that people are kind of keeping their fridge in stock on a more frequent basis? Any color on that step up on the consumer metrics would be helpful.

Speaker 2

Yeah, thanks, Jim. Your assessment is correct, actually. We have increased visibility in the marketplace. That means both increased store selling if you think about our distribution expansion to Walmart, or increased visibility or space dedicated to the brand in traditional grocery. What supports that, of course, is innovation. We see an uptick in household penetration as well as a really healthy cut of panel data across the board in terms of spend levels with our existing user base, in part because of new-to-brand users and in part because of strong repeat. As we have our eye to the future and think about our priorities around building brand through marketing, continuing to innovate and strengthen the portfolio, and then continuing to drive distribution, this all ladders up to growing the user base for Zevia PBC. That's exactly what you're seeing in the panel data.

Speaker 1

Okay, great. Maybe just drilling down a little on club, can you give us any details on what the product rotation looks like there? You know, maybe there's opportunity to, if it's multi-packs, if there's an opportunity to get some straight flavors in there, or just any details around how we should be thinking about that going forward?

Speaker 2

Sure. Club is increasingly a discovery channel, a little bit of a treasure hunt. Variety for us is really important there as we win new users in that channel. We are seeing on the same-store basis record level of same-store sales for Zevia in the club channel, which is really helpful when we think about being distributed on a regional basis and being distributed rotationally. Our goal, of course, would be to be an everyday item, and velocity in recent weeks and months would support that idea in the future. Today, we feature a six-flavor variety pack, and we think that's really well-suited for the club member today. We also have the option, as we've done in the past, of seasonal rotations for newness, which is always really valued in that treasure hunt environment.

Given the pace of innovation and the taste and flavor profile improvements that we're driving through our portfolio, we imagine that club package could continue to evolve in 2026 and going forward, both in the everyday variety pack items as well as with some seasonal ideas to help continue to bolster those regional rotations.

Speaker 1

Great. I appreciate the thoughts. I'll hop back in the queue.

Speaker 2

Thanks, Jim.

Speaker 0

Thank you. As a quick reminder, that is star one. Our next question will come from Daniel Alan Goldman with BMO Capital Markets.

Speaker 4

Hi, thanks for taking my question. I'm for Andrew Strzelczyk. How are you weighing whether to let the EBITDA, the better EBITDA on cost saves, go to the bottom line versus reinvesting those in marketing?

Speaker 2

How are we, can you ask the question again? How are we balancing the improved adjusted EBITDA?

Speaker 4

How are you deciding whether to let the incremental EBITDA flow through to the bottom line or to reinvest in marketing?

Speaker 2

Sure.

Speaker 3

Yeah. I mean, look, we're obviously focused on the long run and trying to build a sustainable brand. In this category, we feel that brand is a real differentiator and something that we want to build as sort of a competitive moat. As we think about the year, we're sort of focused both on long-term brand building, but also on short-term velocity driving tactics. We will look to balance both driving long-term brand building or brand equity, and then in the short run, really be focused on short-term velocity driving activities. That's probably where we can continue to adjust our playbook as the environment shifts. We continue to point to 2026 as the sort of inflection point to turn positive adjusted EBITDA. In the short run, we're going to continue to bias towards investing to drive top line.

Speaker 2

Dan, within the year, you've seen us both kind of find our voice in brand marketing and thus invest more on a % of net sales basis in marketing relative to the past, yet deliver our first quarter of profitability as a public company. I think we've got, since Girish has been with us now a year, a good track record of moving toward profitability while still being able to invest in brand. That's in large part thanks to the productivity work that we've done behind the scenes.

Speaker 4

Got it. Thanks, Amy and Girish. Congrats on the quarter.

Speaker 0

Thank you. This does conclude our question and answer session. I would like to now turn it back to Amy Taylor for any additional or closing remarks.

Speaker 2

Thanks very much, and thanks everyone for joining today. As I mentioned earlier, I'm really proud of what the team has accomplished over the last year, and I'm energized by a strong start to the summer. We are laser-focused on expanding the Zevia user base, driving trial, conversion, and retention through our three strategic priorities, which are marketing, innovation, and distribution. Combined with our over-performing productivity initiative, which I just mentioned, and demonstrated by our first ever profitable quarter, we're standing on a strong foundation and accelerating toward a future of strong double-digit growth and sustainable profitability. We're hard at work delivering the back half of the year, and we have a strong plan for 2026. I look forward to seeing you all again in the next quarter. Thank you.

Speaker 0

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.