Greetings and welcome to the Zevia PBC Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reed Anderson, Managing Director of ICR. Thank you. You may begin..

Thank you and welcome to Zevia’s fourth quarter and full-year 2022 earnings conference call and webcast. On today’s call are Amy Taylor, President and Chief Executive Officer; and Denise Beckles, Chief Financial Officer.

By now, everyone should have access to the company’s fourth quarter and full-year 2022 earnings press release and investor presentation filed this morning. This information is available on the Investor Relations section of Zevia’s website at investors.zevia.com.

Before we begin, please note that all the financial information presented on today’s call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act 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 would like to turn the call over to Amy Taylor..

Thanks Reed, and good morning everyone. Welcome to the Q4 and full-year 2022 earnings call for Zevia PBC.

Zevia continues to expand our user base and demonstrate strong brand momentum across channels adding 1.4 million new households in 2022 on a 12-month rolling basis with equivalent momentum in Q4 and yet continues to increase average household spend.

We are realizing price in the market and materially reducing cost in our business, resulting in continued recovery of our gross margin, Q4 saw the highest gross margin of the year. And critically, we continue to manage cash effectively, and drive improvement on the adjusted EBITDA line indicating a more rapid path to profitability.

The strategic shifts we made at the halfway mark in 2022 are paying off. And the evolved more efficient team is executing with excellence and the brand continues to demonstrate exciting momentum.

We continue to advance the Zevia mission with a focus on global health for people and planet, removing another [2.6000] [ph] metric tons of sugar from the diets of the communities we serve and replacing 39 million plastic bottles in our markets in the quarter.

Zevia remains more affordable than 63%% of non-alcoholic beverages in America even as we realize price in keeping with the market and we continue to focus on taking better better-for-you beverages mainstream, making them available and affordable for consumers across the income levels.

In Q4, we delivered net sales of just over $35 million, ahead of guidance resulting in 3.5% revenue growth over prior year and an 8.7% decline in volume as we cycled the one-time pipeline sales in the warehouse club channel from Q4 of 2021.

Looking at growth through syndicated data as a measure of sell-through, volume includes 13.5% for the fourth quarter according to IRI [and] [ph] sales remained strong through the ups and downs of retailer and e-commerce operator inventory management fluctuations, Zevia posted double-digit growth year-over-year for all months in 2022.

Gross margins are returning to historical mid-40s levels and we are paving the path to profitability with a very strong run rate of improvement on the adjusted EBITDA line.

Cost controls, disciplined adaptations of our promotional strategy, strong price increase implementations, and a demonstrated ability to improve cost containment show new precedents set for Zevia with a focus on quality growth. I'll go into more detail now with a focus on our consumer based evolution and our learnings from syndicated and panel data.

Zevia’s household penetration for 2022 was 6.4% for the full-year adding 1.4 million more households to the brand versus last year. Zevia households increased their brand spend annually 12% in 2022 versus 2021, driven by increases in spend per trip with consistent purchase frequency rates across the larger brand buying base.

It's noteworthy that we're maintaining purchase frequency and increasing average spend per household even as we add new consumers to the brand. Following the material price increase, these are very strong indicators of the health of our brand and of our user base across heavy, medium or even new and light users.

As mentioned, total Zevia grew 13.5% in measured scan dollar sales for the quarter and grew EQ case volume in the same period, while non-alcoholic and carbonated soft drinks declined at 2%. Same store sales remained robust, driven by a healthy mix of volume and price.

The Zevia shopper is a highly desirable shopper, less price sensitive at all income levels, who demonstrates resilience in a fluctuating economy. We remain a home stocking brand, which continues to fare well from a consumer and brand health perspective.

Zevia consumers prove valuable to retail buyers with 65% higher overall basket spend versus non-alcoholic beverage consumers and Zevia consumers spend 29% more, and make 26% more trips to stores to purchase total beverages in 2022 versus the average beverage shopper.

In the quarter, consumer retail spending was driven by a mix of organic velocity growth and continued increases in new store and new item distribution growth paired with the accelerating consumer household base expansion. Velocity was the primary driver in the quarter.

Retail sales growth was split between 63% from Velocity and 37% from new distribution and new items. Speaking of distribution, distribution growth in the quarter was rooted in new packages. Our 12 ounce sleek single soda can, our 8-packs in mass, and our 12-packs in food.

The sleek can is delivering impressive units per store per week, doubled when merchandise cold. Cold sales will be a key strategic driver going forward, as they are now 16% of our business and a major national chain in the national channel as an example.

New stores also bolster distribution growth as we closed distribution gaps in food and gained new store selling in the Warehouse Club. Now, with the full-year of sales in the channel, 75% of buyers of Zevia and [Club] [ph] in 20 22 were new to the Zevia brand.

[Thus] [ph] proved to be a major driver of step change household penetration growth and scanned data sales in its first year of selling the Zevia brand. Moving on to Velocity, the consumer shift to larger packages continues.

Stock up options are driving growth category-wide and also for Zevia as APACs and larger now account for more than 50% of our business in measured channels. Velocity growth is driven in-part by consumer trade-outs from 6-pack to 8-packs and as retailers switch from 10-packs to the more profitable 12-packs.

But also by the broader trend of home stocking consumption at home and not house beverages, a competitive strength for the Zevia brand through food, warehouse club, and in e-commerce, which is of course outside of measured channels and where we remain the number 1 carbonated soft drink brand.

I'll wrap with a big picture and then turn it over to Denise. Zevia has a very healthy business and continues to experience strong consumer demand, growing the consumer base in every period, and simultaneously increasing spend per household on the brand. We are realizing price in the market and we are materially reducing costs in our business.

We delivered the highest gross margin of the year in the fourth quarter, reflective of sequential improvement in each quarter in 2022. Critically, we continue to manage our cash position and drive improvement on the adjusted EBITDA line. The team is operating well in our new leadership and continues to set expectations we aim to beat.

Zevia demonstrated brand strength and executional excellence in the back half of 2022 as our new leadership team shifted to an evolved strategy focused on quality growth, and a speedier path to profitability.

We have our sights set on these same things going into 2023 bolstered by an exciting brand refresh, which brings a sharp new logo, new brand identity, brand new modernized and differentiated pack designs, and radically improves on shelf visibility who look forward to sharing this at trade shows in the coming weeks and with the consumer and peak beverage season in-store this summer.

Thank you, and I'll hand it over to Denise..

Thank you, Amy, and good morning everyone. I will begin with an overview of fourth quarter financial results and then speak to full-year performance. We will then open the call for your questions. In the fourth quarter of 2022, we delivered net sales of 35.4 million [growing] [ph] 3.5% versus same time prior year.

Volume was down 8.7% on an equivalized case basis to 2.7 million in the period. However, we benefited from higher price realization and mix.

Our gross margin continued to show sequential improvements in the year with our strongest margins yet at 44.3% for the fourth quarter of 2022, 1 point above same quarter a year ago, primarily due to the impact of pricing, offset by slightly higher manufacturing costs. Gross margin also improved sequentially by 1 point versus Q3 2022.

Gross profit delivered in the period was 15.7 million, up $0.9 million or 5.8% versus year ago, reflecting growth in net sales and a small improvement in cost of goods sold in the quarter.

Selling and marketing expenses decreased 15.7% to 10 million, reflecting lower freight and warehousing costs of $0.9 million, driven by improved freight pricing and efficiencies and a reduction of non-working marketing costs of 1 million.

G&A expense was 8.5 million or 24.1% of net sales in the fourth quarter of 2022, compared to 8.2 million or 23.9% of net sales in the fourth quarter of 2021. A slight increase of 20 basis points as a percent of net sales. The year-on-year dollar increase is attributable to higher employee costs and support growth.

Stock-based compensation and non-cash expense was 3.1 million in the fourth quarter of 2022 as compared to 31.9 million in the same quarter last year. Net loss was 6.2 million, compared to a net loss of 37.4 million in the fourth quarter of 2021, an improvement of 31.3 million or 83.6% as compared to the fourth quarter of last year.

Loss per share was $0.10 per diluted share of Zevia’s Class A common stockholders, compared to a loss per share of $0.59 in the fourth quarter of 2021. Loss per share has improved sequentially each quarter in 2022 from a loss of $0.30 to a loss of $0.10.

Adjusted EBITDA loss was 2.9 million, compared to an adjusted EBITDA loss of 5.3 million in the fourth quarter of 2021, a year-on-year improvement of 2.4 million or 44.7%, showing continued progress managing towards profitability and generating cash flows from operations.

Our balance sheet remains strong with 47.4 million in cash and cash equivalents and no outstanding debt as of the end of 2022, as well as an unused credit line of 20 million. We effectively managed our cash in the period, though facing top line headwinds, maintaining a healthy working capital for the period of 71.5 million.

Our cash flow from operating activities for the 12 months ended December 31, 2022 was a use of 20.8 million compared to 17.8 million same time last year. During the fourth quarter of 2022, net cash used in operating activities was 1.4 million, compared to cash used in operating activities of 4.7 million same time last year.

For full-year 2022, Zevia achieved net sales of 163.2 million, an increase of 18.1% versus 2021. Gross margin was 42.9% versus 46.3% in 2021, and net losses of 47.6 million, compared to net losses of 87.7 million in 2021. Adjusted EBITDA loss was 19.6 million for the year of which 14.7 million was in the first half of the year.

As compared to adjusted EBITDA loss of 8.7 million for the full-year of 2021. Turning to guidance. We anticipate that the brand refresh, Velocity driving initiatives in new distribution will support our growth ambition this year.

Our 2023 annual net sales are expected to be in the range of 180 million to 190 million, an increase of 10.3% to 16.4% over 2022. Annual net sales expected for Q1 2023 are expected to be in the range of 40 million to 43 million.

While we will not be providing guidance on profitability over the course of 2023, we expect to continue improvements in gross margin and adjusted EBITDA as we focus on driving and delivering profitable growth. We are truly excited for the year ahead. This concludes our prepared remarks. We will now open the call for your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs. Please proceed..

Hi. Good morning. This is Ethan Huntley on for Bonnie Herzog. Maybe just a question here on your long-term growth algorithm. It currently sits at about 30% sales growth. Obviously, your 2022 guidance calls were 10% to 16% and that's versus an 18% that we saw in 2022.

So, I'm just trying to gain a better understanding of what the right number in terms of sales and growth might be moving forward, particularly as you emphasize profitable growth. So, any color you had there would be helpful. Thank you..

Right. Of course. Hi, it's Amy. Good morning. I appreciate the question and I think it's astute for the message that we're sending, which is obviously our guidance shows confidence in continued double-digit growth for the brand and we have a lot of energy behind that. And then our recent trajectory shows our commitment to a faster path profitability.

So, I think it's important to acknowledge that we have had a strategic shift over this past year and specifically at the midpoint 2022 with new leadership coming into play to get to a faster path to profitability. We're a premium, but accessible brand.

And we're really proud of this notion going forward of double-digit annual growth, but a faster path to profitability and that's reflected in our strategy.

Does that answer your question or any, sort of more specific follow-up there?.

No. I think that answers it and that's helpful. Thank you very much..

All right. Thanks for the question..

Our next question comes from Bryan Spillane with Bank of America. Please proceed. .

Thanks, operator. Good morning, guys..

Hey, Brian. Good morning..

So, couple of questions I guess. First, brand refresh, just – is the timing changed at all and also just, kind of the approach you're going to take in terms of – I think if I remember correctly, we'd have both the new and the existing packaging, sort of in the market at the same time.

So, just want to get an update on how we should be thinking about the brand refresh and how you're going to lay it into the market?.

Yes, Bryan, thank you. You know, I'm passionate about this and really excited to see this rollout this year. So, it is indeed a rolling launch. And we have an eye on the P&L, as well as the planet. We think about avoiding write-offs and destroying products. So, we would rather see the product roll-out into the market versus hard cutovers.

So, there will be some overlap of old look and feel Zevia with new look and feel Zevia, but the timing for that is the peak beverage season of spring and summer. So, we'll be fully [indiscernible] by the summer. The vast majority of our distribution, but you'll see that start to roll-out in May.

And there's really only one or two big national customers where you see more of a hard cutover and see the full brand look and feel on shelf by June.

So again, with an eye on profitability and minimizing write-offs, as well as an eye on sustainability, minimizing, I mean, to pull or destroy any product, we are executing a rolling launch just as you described..

Okay.

And then will the refresh include some different product formulations? So, is there any update on either flavors or paste? Is it just packaging or are there also reformulations as a part of the refresh?.

Yes. So, the packaging overhaul is pretty radical. And I would call this somewhere between a refresh and a relaunch from a look and feel perspective. The impact from visual identity and from an on-shelf visibility is pretty radical.

So, we'll need to continue to drive communication through our core consumer with whom early testing would indicate purchase intent increases materially just from the new design. So, we're really, really confident about the on-shelf, as well as consumer impact. To answer your question, we will be rolling out a new product, [vanilla cola] [ph].

We also have two new energy drink flavors rolling out later in the summer, and a new tea flavor. And we continue to iterate improvement on taste profile for the product, that's sort of an ongoing process, but there's not a new and improved announcement across the full portfolio.

So to recap, vanilla cola, two new energy drink flavors and a new tea flavor and then continued improvements on just baseline taste for our baseline sweetener, which is always our mandate..

Okay. And then in terms of household penetration, right, I think it was up again nicely in 2022.

Where is Zevia sourcing new consumers from, right, currently? And with the refresh, would you expect that to change in terms of, kind of where you'll be sourcing consumption from?.

Yes. Great question. I would say one of the strongest story lines from 2022 is gaining 1.4 million more households. And as those households go up, those households are spending more on average. So, we saw a 12% lift in spend per household, and they're spending more per trip.

So, we saw a $1 increase from about $9 to about $10 per trip spent from every shopper. And so, that's pretty unusual to see household growth and have, on average, them spending more normally as you gain medium and light users, of course, you see your average go down. So, this we're really proud of.

And this comes largely, if I can simplify who our user base is today, it's millennial families with money. So, at or a little bit above average household income, millennial shoppers and oftentimes millennial shoppers with kids. And as we continue to expand distribution, I would expect that, that's continued – that will continue to come on board.

But one really interesting dynamic from the year, which we expect to accelerate is our fastest-growing pack as the singles. And I think this speaks to the power of packaging. All we did in single soda was moved out of the traditional [indiscernible] can in 12-ounce into a sleek can and put that on the shelf cold with better merchandising.

And in one particular national customer, we saw a 72% higher take rate year-to-date on that product at a 63% higher price point in one particular customer where we had proper merchandising of our cold can.

So, I think that what’s that tells you is, while most of our household penetration growth comes from the young millennial shopper with families who are buying trade-ups, right? They're buying multipacks and stocking at home.

We have tremendous opportunity with our single can to break into new sort of psychographic and demographic shoppers by driving cold availability for singles for impulse purchases..

Okay, thank you for all that. Look forward to tracking the – and watching the progress on the refresh this year..

Yes, looking forward to it, and we look forward to sharing, by the way, the design in literally the coming days and weeks at forthcoming trade shows, which are really relevant for the industry and with the consumer in the next couple of months. So, thanks a lot, Bryan..

You’re welcome. Thanks..

The next question comes from Ben Bienvenu with Stephens. Please proceed..

Hi, guys. Jim Salera on for Ben. I wanted to ask on the selling and marketing costs.

Can you guys break-out since it sounds like some of the logistics costs came down, did you guys increase marketing spend or if you can actually provide us the dollar for marketing spend in the quarter, that would be great?.

Yes. Actually, we did spend a bit more in marketing, but we focus primarily on working dollars. So, you will see that we actually explained that we had synergies in marketing with a focus really on dollars that really impact the consumer, but we actually did see savings from a selling perspective on some of our selling costs..

Okay. And then as you get closer to the brand refresh, and obviously, I shared some [indiscernible] to see what the cans look like, and I'll be looking for them in my area, so you have to tell me when they hit Ohio.

Do you guys plan to ramp marketing spend to, kind of support that as it rolls out or is there, kind of a thought process to wait until you don't have the mix packaging and it's all the new brand reverse packaging?.

Actually, yes, we will invest in marketing. We plan to invest to draw the consumer at shelf. So, we will invest more this year in marketing to really attract consumers and brands and to make sure we protect our consumer base. This is something that's core to our strategy with the brand refresh coming this year..

I think, just to add to that briefly, sorry, you'll see a little bit of a timing variance in our investments this year versus prior years. Zevia has historically come out of the gates at the start of the year with a program called New Year New You. It's a little bit more spending, let's say, at shelf and in-store activation in the start of the year.

And this year with the brand refresh forthcoming, you'll see that focus more on the peak beverage month. So we'll see a timing shift in our investments in that area.

And I think noteworthy is that the number 1 driver of awareness for Zevia, and we know this through our brand tracker, which is survey data is by far in-store, twice that of any other driver. And so, in-store visibility remains our number 1 driver of what we call marketing.

And then we make incremental investments ramped up in the way that Denise described for pull tactics in the marketplace where consumers live, work, and play..

Okay, great.

Is it possible for you guys to give us maybe like a guide rail around how much marketing spending might increase dollar percentage-wise, just kind of as the brand refresh rolls-out?.

I don't think you're going to see a spike in the P&L from a standpoint of just net marketing spend. This is not the year for us to do that. We're really focused on efficient and profitable growth. What you will see, and I've talked about this for several months now, and it's a continued shift as we continue to invest less in push and more in pull.

And so, I don't think you – as you're thinking about modeling, we're not seeing any spikes in marketing spend. It's really an evolution of focusing on consumer pull and establishing the right price points for this premium, but accessible brand.

And we know that there's continued upside on price as we continue to kind of earn the right to do that with the consumer and follow the trend of the broader category..

Okay, great. And then maybe if I can ask one other question on the sales side of things. Amy, you mentioned switching to the [slim can] [ph] and just kind of seeing an immediate improvement in velocity from that.

Can you maybe give us an update on end cap coolers that you guys have been working with some of your retail customers and how that's progressing? Have you seen that expand or kind of where that's at?.

Sure. Very early days. I'll give you two anecdotal examples. We have one major natural national player and one regional conventional grocer, who chose to merchandise single Zevia soda, energy drink and tea at the register in dedicated brand coolers. And for us, this is a massive step forward.

And as we look together, scan data, reflective of the results of that type of step forward in those two chains, we'll leverage that in the selling store with other customers. So, early days, those stores were reset here in the last 4 to 6 weeks and are still – a few more still forthcoming.

And these are hundreds, not thousands of stores, so hundreds of stores, but from that case study, if you will, yields a great selling story across the retail footprint, and I experienced the same, kind of breakthrough in my previous job.

And as we say in sales, when it's cold, it's sold and certainly closer to the register for immediate consumption is really critical. So, we'll keep you posted as we learn from those results..

Awesome. Thanks guys. I’ll pass it on..

Thanks. Your next question comes from Andrew Strelzik with BMO. Please proceed..

Hey, good morning everyone. My first question is on the sales guidance. I'm curious how you kind of build up to that number for the year.

Can you talk about the growth buckets that you've talked about in the past and contribution there? And then how much are you assuming from either inventory management that you mentioned previously or abnormal type things that are meeting the growth? I'm just trying to get a sense for, kind of a more normal sales growth run rate and what that might look like?.

Yes. We look forward to normal and you nailed with your question. So, let me speak to that and just see if Denise would like to add anything. So, generally speaking, as we look at scan data, 63% of our growth is coming from velocity and 37% from new distribution. And over the past six months or so, that's been pretty steady.

So, we expect that, that would continue, meaning the majority of our growth would come from – a narrow majority of our growth would come from velocity and the rest from new distribution. And we think that, that's very healthy because we don't – we're not seeking leaps and bounds of new distribution growth.

We're looking for healthy same-store growth, which then gets strong growth – profitable growth in new channels rather than pushing distribution and over investing to get there.

And so, as we look forward, velocity continues to account for more of our growth in new distribution with same-store sales growing in legacy and new channels and trade-up, price and consumer base growth all support that continued momentum.

And speaking briefly to the inventory issues, customers are managing inventories more conservatively now than they did, let's say, in the historical aggregate, but the start impact that we saw from inventory management in the back half of last year largely has course corrected.

Does that answer your question?.

Yes, it does. Thank you for that color. That's helpful. And then the other question is just on the gross margin improvement that you spoke to, recognizing you don't want to – you don't commit to a number of guidance. I'm just curious on the drivers there.

And in particular, how you think about the productivity agenda for 2023? You talked about the pivot, kind of middle of the year. You're talking a lot about profitable growth.

So, are there more opportunities incrementally within your control there that you're looking at? And how would that contribute to either general margin improvement, gross margin improvement in 2023? Thanks..

Hi Andrew, and just really quickly to answer that question. So, we expect it to come from a combination of price and optimization initiatives in the supply chain. That will happen throughout the year. So we expect – if you think about when we took the price increase last year, we took it in August.

So, that price increase will actually cycle through the first half of the year versus not having a price increase only in market for the first half of the year of last year. And then on top of that, we have a bunch of initiatives we're running in the supply chain where we expect to capture significant optimization.

So, those productivity savings and price are going to be two of the big drivers that's helping us recover some of the margin that we had lost in the previous year.

Is that answering your question?.

Yes, it does. It absolutely does. Thank you..

You’re welcome..

Our next question comes from Chris Carey with Wells Fargo. Please proceed..

Amy, just probably the inventory normalizing comment that you just made, when do you expect the scanner data to maybe better approximate what you're actually going to be reporting or would you expect this inventory disconnect to last? I appreciate there's always going to be disconnect. But certainly, it's very wide right now.

And I'm just wondering when you see the relationship between consumption and shipments normalizing?.

Sure. I think there's a number of things that explain a gap between shipments and scan and inventory is one, but not the only one.

I would say that was the most stark input for the back half of last year because as we saw the economy changing in a pretty rapid rate, we saw some of our key customers maybe over [steer] [ph] and as a brand who has 10% or more of its business in e-commerce, which was a much less predictable sort of order rate, if you will, I think we, as well as being a brand that's not DSD, we're a little sort of had outsized impact on that dynamic.

Going forward, I would expect scan and shipments to normalize a little bit. The caveat that I would add to that is that the timing variances since that I spoke about earlier as it relates to promotions will impact the way that scan data shows up for the year. So, we are cycling a heavy Q1 investment for 2022.

In 2023, we are focused more on the brand refresh in the summer selling months.

So, while our shipments will be fairly steady, we expect and in keeping with or hopefully above the guidance that we provide today, scan will be a little bit of up and down as we cycle the launch of Club and as we have a little bit of timing variances within our retail promotions.

Does that answer the question, Chris or can I detail that gap any further for you?.

No, I think that's right. So, expect some volatility between the relationship, but a bit more. And maybe just confirming that, did you see more of the inventory lightning in online versus in-store? Just any comments there, then I have one more question..

Sure. The dynamics that we saw at the end of last year were limited to just a single-digit number of customers and it was at play both at retail and e-commerce. I would say that retail is largely steadied out, whereas in e-commerce ordering patterns are just less predictable. And we still have a very robust e-commerce business.

We're growing quickly in e-commerce. It's just a little bit more difficult to forecast. And I think in the review, we'll be able to talk about that in Q1 a little bit more. So yes, steadying retail inventories and less erratic ordering therefore, hopefully, less of a gap between scan and shipments.

And I'm sorry, what was the second part of your question?.

I think that that's good. Just I appreciate improving margins and you want to hold off on giving some margin guidance potentially I'd tell you are a bit more comfortable how this is all going to shake out.

But just – is there any help that you can give on cadence through the year, you've got some launch activity, where will there be certain quarters with more SG&A investment or from a gross margin standpoint, do we just expect kind of every quarter to be up year-over-year and full-year up year-over-year, right? So, I think high level, the question is, just I appreciate the concept of improving margins, but I wonder if you could just provide any more detail as it pertains to the trajectory through the year, whether on gross or operating or EBITDA margin? So, thanks a lot..

Hi, it's Denise. Just really quick. I think it's fair to say that we expect to see margins continue at least in the 40 range through this year. So, for us, we expect to recapture our margins throughout the year. It would be that we will invest more in the last part – the latter part of the year, especially given the brand refresh.

So, you'll see some additional investment go out during second, third, and fourth quarter, more so than first quarter. But in fact, we expect to see just normalized margin improvement throughout the year is the way I would describe it. Hopefully, that will give you some indication. I think you asked another question. I think you asked another question.

If you can repeat it, please?.

Yes. No, again, I think that's okay. [Indiscernible] So, thanks so much and good luck..

You’re welcome..

The next question comes from Cristina Fernandez with Telsey Advisory Group. Please proceed..

Good morning. I’m joining in for Dana today. We have two questions.

The first one is, if you look at the new distribution opportunities for 2023, any callouts by channel on what were to be our performers for the year?.

Sure. We're – every time we talk about new distribution, I really emphasize that we're focused on quality growth. So that informs the pace at which we expand distribution, whether that's geographically our channel.

And it's really going to be the new brand look and feel that will help to drive us into our greatest upside opportunity, which is immediate consumption. So, in the meantime, we are closing gaps in food distribution. We still have upside in the mass channel.

We are chipping away at food service opportunities, which are generally low volume per outlet, but big footprint and an exciting opportunity to sell single-serve beverages cold in an impulse environment or immediate consumption environment.

We have upside in the value channel, which we are opening and testing regionally and continue to increase based on short-term performance.

There are a number of regions in one of the two major club channels that we have yet to tackle with incremental rotations that we expect to come online within the summer, which is exciting to get in front of those consumers that is a highly incremental channel.

And then finally, the obvious, sort of big next step is convenience, which will require an evolution in our route to market. And here, we're focused on doing this right and profitably with the right partners rather than fast.

And so, we have great early results in our single can business in existing channels, and that's a strong selling story to take us into that convenience greenfield..

And a second question would be on pricing.

Are there any more price increases contemplated for this year following – or in conjunction with the brand refresh?.

We believe that there is upside in price, so pricing power yet for Zevia to realize, and it would make sense to consider pricing action given the investment we're making in the brand refresh.

So, not only end-to-end new look and feel on every can and every multipack, but we will now be wrapping our six packs in a recyclable cardboard overwrap, which will – that's an investment for us, but it also creates a tremendous billboard on shelf. Six-packs are close to 40% of our business.

And so with that, we do continue to take price with the market and in light of increasing costs in the instance in which those exist, and we do see upside in price for the year and would take that strategically if and when it makes sense.

Denise, any more comment on price?.

No, I mean, nothing to add..

So, should we assume that, that is in the guidance or that would be, sort of in addition to – update it to the guidance as the year goes on, if and when you decide to take those price increases?.

Well, as we're not providing guidance on profitability, I would say that what you're hearing from us as we guide on top line for the quarter and for the year takes all of our plans into account, if that answers your question..

Okay. Yes, thank you..

Ladies and gentlemen, thank you. That concludes our call. You may now disconnect your lines. Have a great day..

Thank you. Have a great week..

Thank you..