ZVIA - NYSE

Good day ladies and gentlemen and welcome to

Thank you and welcome to

Thanks, Reed and good morning, everyone. Welcome to the Q1 2024 earnings call for

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. I was drawn to

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 ahead. While the full year 2024 guide is not reflective of the brand's overall momentum given the soft start. The brand velocity is now growing 9% year-over-year and 21% in the food channel, as mentioned, improving sequentially each read this year.

[Operator Instructions] Our first question comes from Bonnie Herzog of Goldman Sachs.

All right. I actually have a question on your sales guidance for Q2 and then the year. I guess, first, on Q2, I'm trying to understand why sales will be down so much and really why you're still facing such issues from the supply chain challenges? And then second, your guidance implies that your growth will accelerate and turn positive in the second half. And you touched on this but just hoping you could outline 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?

Sure. Thanks, Bonnie. I think most importantly, notably, our scan data shows

Yes. I mean, I think generally speaking, we're encouraged by the Velocity data, I think, separate and apart from that we have a much more robust promotional calendar with our key accounts starting 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 beyond that, we do -- we are sort of encouraged by what we're seeing on the current velocity trend. So we do believe that there is the back half is achievable. In fact, back half guidance is achievable.

Okay. And then maybe just a second question before I pass it on. I just 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, trying to understand how you're going to manage that? Or I guess, how much you're going to prioritize growth versus profitability?

Yes. No, that's a great question, Bonnie, thanks. And I think ultimately, part of what we're trying to do with this productivity initiative is to reallocate our resources and reorient our cost structure towards growth. And so we're really focused on eliminating a lot of the expenses, both from whether it's COGS or selling your fulfillment or even SG&A to ensure that we have the appropriate investment in both marketing and promotion. And so really -- the goal is to ensure that we have the resources for growth and eliminating 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.

The next question comes from Jim Salera of Stephens Inc.

I wanted to maybe start off, ask you a question on the earnings deck. I think it's Slide 14 where you have some of the kind of in-store activation examples for the DSD launch. Are these the coolers and the endcap displays, are these actually something that are going to be in market? Or is this just illustrative of what might be in market and just the capabilities that DSD brings?

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 merchandise -- be able remerchandise in convenience and beyond is that DSD also enables us to increase space in existing footprint. So our variability to place equipment like you see company-owned -- company-owned equipment as well as to increase space around the footprint of the stores such as endcaps 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. So as we launch our first 5 states with DSD partners, we kicked off literally Monday, we're really bullish on not only remaining in stock for our high-velocity items, increasing -- protecting and increasing space on 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.

Great. That's helpful. And then if we think about 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

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 trial, 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 of DSD. We also think that would be then attractive to future DSD partners and it could also impact the way retailers think about opening opportunities for incremental space dedicated to

The next question comes from Andrew Strelzik of Bank of Montreal.

This is Daniel [ph] on for Andrew Strelzik. Can you discuss how the delay in recovery of SKU level distribution at retailers is evolving? And if at all, that's impacting strategies to drive sales?

Sure. I would say the -- 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. What we underestimated was the volume impact of SKU level distribution in-store of temporarily lost distribution because of last years’ service level gaps. 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 more reflective of demand and our accelerating growth expectations. 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.

Okay. Great. And a follow-up to that, can you frame what the expected cadence of the cost saves are and how that will show up in the P&L?

Yes. I mean I think as I noted, you'll begin to start seeing it in Q3 and I think you'll start seeing it sort of over the next 4 to 6 quarters thereafter. And I think largely, it will be sort of 1/3, 1/3, 1/3 [ph] between COGS selling and warehousing expenses and SG&A.

The next question comes from Eric Serotta of Morgan Stanley.

Hoping you could provide a little bit more color in terms of the path to profitability. Your quarterly adjusted EBITDA loss? Is it that far from breakeven in terms of dollars. You're talking about not reaching profitability until 2026, despite the productivity program ramping up. So I guess why the long runway, what does that imply that you're assuming for reinvestment, DSD investment and potential hiccups along the way?

No, I appreciate the question. And I think 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. So 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 we'd say that's sort of how I would think about it.

Great. And then a shorter-term question. I assume that the second half top line recovery depends in part on regaining space in the spring resets. We've heard from players in other categories of these resets are a bit later than expected, a bit later than typical years. Wondering if you have any early reads with customers who have reset already and what you're generally expecting in terms of regained shelf space this spring into summer?

You're right. We're seeing the same things. Resets are a little bit later, 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, we look at our top 2 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. The reason I share these with you is to say that when

Our next question comes from Sarang Vora of Telsey Group.

I have a quick question on the DSD distribution. Can you share how the economics of DSD would work for you couple of, one, how the economics work? Second is, will the DSD partners also cater your existing customers as you look at the route-to-market and then obviously, the new channels, can you share like which new channels beyond convenience, you are looking to grow in the DSD side?

Sure. Yes, 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 talked 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. In terms of the impact that we expected 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 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 call on a headquarter based on the size of our organization. DSD expands your reach. We also expect significant impact on our existing footprint and we turn our attention first to the food channel, so conventional grocery where we believe 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, 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 has just become more effective. So it's not going DSD requires us to spend more per se. We spend differently in a very laser-focused way to enable increased in-store presence and efficacy of retail. So, recall that the number 1 driver of awareness for

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.

Thank you very much, everyone.