ZVIA - NYSE

Ladies and gentlemen, good morning. And welcome to the

Thank you. And welcome to

Thanks, Reed, and good morning, everyone. Welcome to the Q4 2023 earnings call for

Good morning and thanks for joining the call today. I will now provide an overview of our fourth quarter and full year financial results, discuss guidance and then pass it back to Amy for final remarks. In the fourth quarter of 2023, we deliver net sales of $37.8 million up 6.9% versus same time prior year. We saw positive impacts from a price increase mid-year which deliver a sizable impact of $1.5 million, as well as an increase in volumes of 3.7% or $0.9 million reflecting a return to volume growth after previous quarters were impacted by short-term supply chain fulfillment challenges. Gross margin was 40.7% down 3.6 percentage points versus the same quarter a year ago. The decrease was driven by the decision to accelerate our supply chain transition which included the write-off of some legacy branded material, discontinuation of long-tail SKUs as we focus on our highest potential products and the write-off of some raw materials as we transition our supply chain to a new model. All of this temporary inventory losses had a 4-percentage-point impact to the quarter. Selling and marketing expenses increased by $38.1 million to $13.8 million entirely due to freight and warehouse expenses. Given a supply chain logistic challenges which are now remediated freight to customers and freight transfer costs were temporarily elevated as expected but translated into a lower impact compared to the previous quarter. Our increased inventory level also impacted our warehouses cost as we continue to manage our inventory back to optimal level. G&A expenses were $8.4 million or 22.2% of net sales, which is essentially flat compared to $8.5 million or 24.1% of net sales versus same time prior year. Stock-based compensation, a non-cash expense, was $1.7 million, as compared to $3.1 million same period in the prior year. Net loss was $9.2 million, compared to a net loss of $6.2 million last year, a decline of $3 million or 48.3% primarily driven by the supply chain logistic challenges and inventory losses. Loss per share was $0.14 per diluted share to

Thank you, Florence. Before we wrap, I’d like to introduce Girish and have him speak about his view and the

Thanks Amy for the kind words. I’m really excited to join the

Thanks, Girish, and welcome. We are excited to have you join and we look forward to the impact you will make here at

Thank you. [Operator Instructions] Our first question is from Bonnie Herzog with Goldman Sachs. Please go ahead.

Hi. Good morning. This is Ethan Huntley for Bonnie. Thanks for taking our questions. I guess my first one here would be sort of your thoughts on not providing full year guidance. I recognize you’re going to provide it on Q1 and then also sort of the Q1 guidance being a bit softer than expected. I guess we’re just trying to -- any color you can provide on sort of full year sales, recognizing things should return to growth in the spring and summer, but just maybe any sort of qualitative commentary you can provide on how we should be thinking about net sales growth for the full year here.

Sure. Thanks, Ethan. You’re right. We expect a return to growth in the spring and summer, given our healthy velocities. As an example, we’re exceeding the category here at the start of the year versus CSD in the food channel, which is obviously massive for us and reflective of our potential and collectively our performance in mainstream channels. And as we return to full presence on shelf, we can also return to more competitive promotional levels, promotional investments in display. So add that to the impact of our brand refresh, our fast-growing innovation and forthcoming investments in marketing, we look to the spring reset as being a trigger to the return to growth at more expected levels. In short, our Q1 was softer in shipments than we expected. As we’re getting back to health on shelf at brick-and-mortar retailers, ensuring that the retailer merchandising is actually reflective of the space dedicated to

Got it. That’s helpful. And then maybe just as a follow-up, maybe sticking with gross margins, we’re under a bit of pressure here in Q4, as you mentioned. Any sort of color on how we should be thinking about gross margins for the year? Are any sort of headwinds related to the inventory losses and your supply chain transitions? Are those sort of all behind you at the moment or might that bleed into Q1? And maybe should gross margins expand this year from an improved cost environment? Any sort of guardrails you can provide on gross margins for the year would be helpful. Thank you.

Yeah. So, I mentioned before that we have the ability to deliver gross margins in the mid-40s and that was reflected in the first three quarters of 2023. Obviously, Q4 was the exception, given the choice to invest in some of the inventory write-offs that really helped us start the year 2024 clean from the standpoint of legacy branded materials or raw materials through our supply chain transition. So let’s call Q4 the anomaly. We have an outlook with the ability to deliver mid-40s gross margins, but we will also take the opportunity to invest. We don’t provide guidance on gross margins, but we expect a lagging impact of inventory into Q1 on some of our costs, but generally speaking, expect a return to the strong gross margins that we’ve had historically.

Got it. Helpful. Thank you very much for taking our questions.

Thank you.

Thank you. Our next question is from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Hey. Good morning. Thanks for taking the questions. My first one, I guess, is just about the visibility that you have to get it to that restocking timeline with the delays that you’re seeing right now, and maybe just more broadly from a volume perspective and a distributions gain perspective. Can you talk about the visibility you have to returning to that growth in the spring and summer, and kind of some of the underpinnings of that bullishness?

Sure. So we saw the softness coming kind of mid-quarter this first quarter here after a first round of scan data in late January and with January shipments, and we can share that that is already improving. I mentioned one bullet point as to reasons to believe a faster recovery being the fact that we are leading CSD growth in the food channel, and while our dynamics vary channel-by-channel, some of the biggest ones, including food and strong e-commerce business, et cetera, are reflective of demand but also a faster clip to recovery. Spring resets are obviously a moment in time, varying between February, March and April, depending on the retailer, and we know that some of the degradation of our presence on shelf is really just in-store merchandising rather than true dedication of space to

Okay. That’s helpful. Thank you. And then, maybe I’ll take the crack on the cost side as well, and I guess, you talked about a couple different pieces, some benefits on the supply chain side that you have in place now, but then you’ve got the route-to-market stuff and the marketing pieces as well. Is there any way to kind of frame the various pieces in terms of pluses and minuses through the year on an annual basis? I’m just trying to get a sense for how to handicap each of the various pieces as that kind of comes into place? Thank you.

Yeah. Let me ask Florence to speak to that through the lens of 2023 and then we’ll do our best to give you a look forward as well.

Yeah. So, as you remember, Q3 was heavily impacted by selling costs, right? We still have some lingering selling costs in Q4, but as far as supply chain remediation, we are definitely now in a better position for 2024 on the selling cost side. As far as route-to-market, Amy, that’s more of us going forward?

Sure. So, with route-to-market, we’re excited that, we’ve talked about before, what would it require for

Yeah. I mean, I guess, I’m trying to get a sense of magnitudes of the various pieces, but I also understand that you probably want to hold off on some of that until the next call. But the color is helpful. Thank you.

Yeah. Both qualitatively and numerically, as we provide a full-year outlook in net sales with our new CFO in seat, with 90 days under the belt, then we can also provide color on structure and margins at that time.

Great. Perfect. Thank you.

Thank you. Our next question is from Sarang Vora with Telsey Advisory Group. Please go ahead.

Thank you. I’ll continue the follow-up on the prior question. Can you help us understand the economics of the DSD model compared to your model? Just at a high level, how does it impact your gross margin versus the cost? And then -- and I know you will share details ahead, but any thought on like, as you expand, do you expand with a customer nationally? Do you go region-by-region, product-by-product? Just any early thoughts you can share on the expansion of DSD or…

Sure. Absolutely.

Yes.

Absolutely. So, first of all, this will be a rolling launch, so that we will be nowhere close to nationally distributed in DSD anytime soon. We have a regional rollout, which will give us great intel as to the case study for DSD support for this brand, the impact that it will make. So, to answer your last question first, this will be regional based on geography, not nationally based on customer and that allows us to gain the full benefit of DSD across channel, which brings me to my next point. How does DSD impact the business, as well as the P&L? The way it impacts the business is in our existing footprint. It step changes our ability to compete in-store through merchandising. That means fewer out-of-stocks. That means more displays. That means the ability to commit to certain programs that some retailers hold for only DSD brands, whether that be incremental cold availability, then merchandise by your DSD provider rather than retail staff or whether that be incremental coolers and permanency around the store. So those are some examples of how DSD helps you in your existing footprint. Now, for

That’s -- thanks for the color. And I have one big picture question. Can you help us understand how the competitive landscape is right now for

Sure. It’s a very dynamic environment right now in carbonated soft drinks. The driver of growth is diet and zero, as has been the case over the last few years. And then what’s accelerating even faster is the subset of a category we refer to as natural soda, and of course, that’s a space where we are the pioneer and have the largest consumer base, have sold by far the most cans. So we are the number one consumer choice as it relates to natural soda. And what’s been exciting is that, now there’s a number of new brands in adjacent functional spaces making significant investments to seed with the consumer the idea that soda can be better-for-you. And as that idea is seeded with the consumer and they come to the shelf, they find when properly merchandised,

That’s great. Thank you.

Thanks, Sarang.

Thank you. Our next question is from the line of Jim Salera with Stephens. Please go ahead.

Hi. Good morning, guys.

Hi, Jim.

I wanted to maybe start off by -- hi, Amy. I wanted to start off by maybe just closing the loop on the gross margin. For the fourth quarter, that impact is primarily just flushing the remainder of the packaging out of the system. Is that the right way to think about that?

Yeah. It is that plus some raw materials write-off as we transition our supply chain, our contract manufacturers to manage raw materials from this point forward, while we as suppliers manage only the finished goods. So it is those two factors together.

Okay. And I think in Florence’s prepared remark, she said it was like a 4-percentage-point impact. So if we back that out, that’s 4Q gross margins are just under 45%. Is that kind of a fair number to think about on a go-forward basis, maybe a little bit of headwind from the DSD? But moving forward, that’s kind of in the ballpark of what we should think about?

Yeah. Absolutely, Jim, you have it.

Okay. Great. And then, if I can maybe drill down on some of the C-store opportunity, can you just give some color around which SKUs you guys have in the C-stores? Are there any branded fridges? And if possible, if you could kind of size up, maybe store counts or give us a range of what you think that opportunity is right now?

Jim, I can’t size it up quite yet. More color on that in the next quarter. But I can share with you that in each instance, in the limited number of regional players with whom we are launching in the coming months, we’re featuring

Okay. Great. And should we think about the C-store opportunity as being kind of the full complement of

Ladies and gentlemen, we have lost the line of the management. Please stay connected. Ladies and gentlemen, we have the management connected with us. Jim, you can proceed with your question.

Jim, I’m so sorry. We’re having some technical difficulties. Can you repeat your question and we’ll pick right back up?

Yeah. No problem. I was just asking, is there a particular SKU that you lead with, whether it’s traditional soda offering, like citrus offering and what do you lead with into C-stores and then what does that look like as you expand the portfolio you offer?

Yeah. So C -- soda is by far our number one priority and so featuring our Hero SKUs, our strongest flavors in the soda line is our top priority. But we all know that energy drinks is obviously a very relevant category within energy -- within a convenience as well. So in a couple instances, we’re testing energy drinks across four key flavors. Does that answer your question?

Yeah. That’s great. Thanks, guys. I’ll hop back in the queue.

Thank you.

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Amy Taylor for her closing comments. Amy?

Yeah. Thank you and thanks for dialing in this morning, everyone. Apologies for the delay in communication given our technical difficulties. We are excited to continue to accelerate topline growth for the full year 2024 through a mix of volume and price. We talked about a price increase effective May 1st. We’ve had strong consumer acceptance of that. We continue to drive gains in household penetration and execute the key initiatives we discussed this morning, whether that be investing in marketing or step changing our route-to-market. So with this route-to-market evolution and initial expansion into convenience and for the first time out of store marketing, we head into spring and summer beverage season very bullish. We have strong growth margins indicative of our ability to invest and we’re excited to have Girish in seat as our new CFO. So we’re excited about the future and we appreciate your time this morning.

Thank you. The conference of