Zevia Drops Guidance On Supply Chain Logistics Issues

A Quick Take On Zevia

Zevia PBC (NYSE:ZVIA) went public in July 2022, raising approximately $150 million in gross proceeds from an IPO that priced at $14.00 per share.

The firm sells a range of canned beverages with no sugar or calories and sweetened by the stevia plant extract.

I previously wrote about Zevia in September 2022 with a Hold outlook.

The company has recently announced supply chain logistics issues that will slow revenue growth and has reduced its forward revenue guidance.

I’m Neutral [Hold] on Zevia until we learn more details about the impact of these challenges and management’s response.

Zevia Overview And Market

Encino, California-based Zevia was founded to design and market consumer beverages that have no sugar and are naturally sweetened by the stevia plant.

Management is headed by President and Chief Executive Officer Amy Taylor, who has been with the firm since March 2021 and was previously president and Chief Marketing Officer at Red Bull.

The company’s primary offerings include:

• Sodas

• Energy drinks

• Teas

• Mixers

• Kidz

The company distributes its products via distributors across the United States and Canada.

According to a 2021 market research report by Market Research Future, the global non-alcoholic beverages market is forecast to reach $1.07 trillion by the end of 2024.

This represents a forecast CAGR of 4.61% from 2021 to 2024.

The main drivers for this expected growth are the growing popularity of energy/sports drinks and increasing consumer demand for product choice.

Also, the market is segmented by packaging type, product type, distribution channel and region.

Major competitive or other industry participants include:

• The Coca-Cola Company (KO)

• Keurig Dr Pepper (KDP)

• PepsiCo (PEP)

• National Beverage (FIZZ)

• Monster (MNST)

• Red Bull

• Emerging brands

Zevia’s Recent Financial Trends

• Total revenue by quarter has produced the following trajectory; Operating losses have made significant progress toward breakeven.

• Gross profit margin by quarter has trended higher recently; Selling, G&A expenses as a percentage of total revenue by quarter have moved lower in recent quarters.

• Earnings per share (Diluted) have remained negative but have made progress toward breakeven in recent quarters.

(All data in the above charts is GAAP)

In the past 12 months, ZVIA’s stock price has fallen 21.69% vs. that of National Beverage’s (FIZZ) drop of 3.05%, as the chart indicates below.

For the balance sheet, the firm ended the quarter with $56.0 million in cash and equivalents and no debt.

Over the trailing twelve months, free cash used was $2.9 million, during which capital expenditures were $2.9 million. The company paid $20.4 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Zevia

Below is a table of relevant capitalization and valuation figures for the company.

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be National Beverage (FIZZ); shown below is a comparison of their primary valuation metrics.

(Source - Seeking Alpha)

Commentary On Zevia

In its last earnings call (Source - Seeking Alpha), covering Q1 2023’s results, management highlighted the growth in its gross margin by ‘realizing price in the market and materially reducing cost in our business.’

Apparently, those positive trends were subsequently reversed in a company outlook after the earnings call that noted supply chain logistics problems resulting in reduced fulfillment and subsequent revenue shortfalls.

Management said they expect the supply chain issues to be resolved by ‘the end of 2023.’

Total revenue for Q1 2023 rose 13.9% year-over-year and gross profit margin increased by 4.6%.

Selling, G&A expenses as a percentage of revenue fell by 34.2% year-over-year, indicating sharply improved efficiency, while operating losses dropped by 81.3%.

The company's financial position is solid, with ample liquidity, no debt and a small use of free cash in the past 12 months.

As a result of the supply chain issues, management reduced revenue guidance to $165.5 million for the full year of 2023, or year-over-year revenue growth of only 1.5%.

If achieved, this would represent a sharp drop in revenue growth versus 2022’s growth rate of 17.9% over 2021.

From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below.

I’m most interested in the frequency of potentially negative terms, so management or analyst questions cited ‘Challeng[es][ing]’ once and ‘Macro’ once.

Regarding valuation, in the past twelve months, the firm's EV/Sales valuation multiple has been flat, bookended by a valuation bump at the beginning of the period and a sharp drop at the end of the period, as the chart from Seeking Alpha shows below.

A potential upside catalyst to the stock could include faster-than-expected supply chain logistics improvements.

However, until we learn more about the challenges facing the company, and management’s specific corrective measures, I’m Neutral [Hold] on ZVIA.

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