Hello, and welcome to today's Zevia’s Q4 2021 Earnings Call. My name is Elliot and I will be coordinating your calls today. [Operator Instructions] I would now like to hand over to our host, Reed Anderson. Please go ahead.

Thank you. And welcome to Zevia's Fourth Quarter and Full-Year 2021 Earnings Conference Call and Webcast. On today's call are Paddy Spence, Chair and Chief Executive Officer, Amy Taylor, President, and Bill Beech, Chief Financial Officer. By now, everyone should have access to the company's fourth-quarter and full-year earnings press release and investor presentation filed this morning. 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 in 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 non - GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website @ investors.zevia.com. And now I'd like to turn the call over to Padraic Spence, Chair and Chief Executive Officer.

Thanks, Reed. Good morning. And welcome to the fourth quarter and full-year FY2021 earnings call for Zevia PBC. I'd like to begin by discussing our performance in the fourth quarter of 2021, as well as full-year 2021, in light of the extraordinary year we had completing our IPO and operating amidst the ongoing challenges of the COVID-19 pandemic. Zevia market's great tasting, zero sugar, zero calorie beverages with simple, plant-based ingredients. We are focused on reducing global sugar consumption by offering our products in sustainable packaging at an affordable price. In the fourth quarter of 2021, we continue to transform our organization, adding key executives, expanding our distribution into new channels, introducing value-added new additions to the Zevia line, and removing costs from our supply chain as we scale. Management's priority is executing our long-term strategic plan, and later on today's call, our President, Amy Taylor, will provide additional detail on our long-term initiative. The Zevia brand continues to grow rapidly, and in 2021 we added $1 million new households to our consumer base, according to consumer panel data for numerator. Our consumer metrics show continued progress in attracting new consumers, retaining existing Zevia consumers, and increasing per household spending. All key indicators of our brand's health. At the same time, the Zevia management team is focused on enhancing unit economics. As we are experiencing inflationary pressures on input costs, like many consumer packaged goods companies, through a combination of pricing actions, mix shifts, scale benefits, and cost optimization programs, we're confident in our ability to mitigate the impact of these cost headwinds. In the fourth quarter of 2021, Zevia continued to double-digit net sales growth we've achieved for the past decade. We delivered net sales of $34.2 million, representing 23% growth versus the fourth quarter of 2020. This was…

Thanks, Paddy. We focused on implementing our long-term strategic plan crafted at the end of last year as a newly public company. The plan was framed and continued to be built by a combination of veterans and new key talent in senior roles and critical functions who have been and will be key to our expansion, continued growth, and margin realization. One fundamental focus area is unit economics. We've implemented a price increase across packages, categories, and channels, an average of 6% across our soda lines in retail and e-commerce in the U.S. and Canada, and an 8% increase in energy drinks and tea, again, across channels. Price realization will begin at the end of Q1. We believe we have additional pricing headroom based on our relative affordability versus peers, retailer acceptance of recent pricing actions, upcoming product and package launches, and the strength of consumer loyalty to the Zevia brand. I'll revisit price again when we speak about innovation in a moment. Unit economics going forward will be further supported by comps and supply chain savings realized through collaboration with co-pack partners, freight efficiencies, and continued improvement in efficiency with variety of repacking. New initiatives included number, 1. Increasing the number of locations where we produced ten pack soda lime. Our key lines, and our kids slides as we grow distribution of those items, optimizing freight route, 2. Additional repacking and distribution centers show the reducing freight for fast-growing e-commerce and club business. There are a number of other scale benefits we will continue to realize as we grow, including Canadian freight efficiencies increased full truck utilization, and reduced inventory levels. The second area of focus in strategic planning is product innovation and marketing with a focus on expanding the Zevia consumer base. In late December through February, saw…

Thanks, Amy. We continued our strong top line growth in the fourth quarter of 2021 with net sales of $34.2 million, an increase of 23% over the fourth quarter of 2020. Our two-year growth rate from Q4 2019 to Q4 2021 was 52%. And on a full-year 2021 basis, net sales were up 26% over prior year. Our net sales growth was primarily for the unit volume which increased 22% in Q4 and 25% on a full-year basis. We announced pricing actions in the fourth quarter, and we'll begin achieving price realization from these actions at the end of the first quarter of 2022. Cost of goods sold per equivalent case in the fourth-quarter of 2021 increased by 3.5% versus the same period last year, and increased 2% on a full-year basis versus 2021. We believe this reflects a lower exposure to inflationary headwinds on commodity ingredients. Zevia, as a brand that uses simple plant based ingredients, contracts for most of our inputs, and as such, is less subject to price swings for commodity costs. One area of our cost of goods sold that has been impacted by a combination of inflationary headwinds and supply tightness is aluminum cans. And we remain confident in our opportunity to continue to mitigate these headwinds. Fourth quarter gross margin was 40.3%, compared with 42.1% in the fourth quarter of 2020, reflecting mixed spend inflation factors. On a full-year basis, gross margin was 44.3% in 2021 compared with 45.0% in 2020. Turning to operating costs, selling, and marketing expenses in the quarter were $3.2 million higher than in prior-year. Zevia experience $1.4 million of increased transportation costs due to overall net sales growth and higher freight rates, and the challenging transportation market in the U.S. and Canada. Marketing expense increased by 1.1 million, reflecting…

Thank you. [Operator Instructions] When preparing to ask your question, please ensure your mic is unmuted locally.

Hey, thanks. Good morning, everyone.

Good morning, Ben. Thanks for joining.

I want to ask about the roll out of your products at club channel. And you talked about the introduction of picking up a lot of new households. Can you talk a little about the behaviors you're seeing with respect to repurchase rates, overall spending levels, and the buy rate? And what you think that pertains for continued expansion in that channel and then the read through kind of halo effect to other channels.

Absolutely. And I think it's a great question. When we think about the Club channel ban, it's channel expansion that is fueling not only profitable transactions, but actually trial activity in new shoppers for the Zevia brand. In the Club channel, over 65% of our purchasers are new to the Zevia brand, so it's highly incremental for us. As you know, we're selling Variety Packs in that channel. And as we've seen in e-commerce, Variety Pack purchases then generate single flavor purchases in multi-packs, both in brick-and-mortar and in e-commerce. In the e-commerce channel, literally 50% of our purchasers online also purchase our brand in brick-and-mortar. They spend an average of three times with the brick-and-mortar buyers spends. So it's still early days in the club channel, having just entered there, but we are seeing, as I mentioned, very strong incrementality in terms of the Zevia's brand were 65% of those consumer is new to the brand. And then on the flip side, what's really fascinating about this merchandising is that we're actually bringing new shoppers to soft drinks in Warehouse Club. So literally greater than 75% of the purchasers in the club channel are making there first soft drink purchase in that club outlet. It's fantastic for our brand in terms of incrementality. Again, early days, but we think that it's going to lead to single-flavor purchases across other brick-and-mortar channels. And then, it's also highly incremental for those club retailers as we're bringing new shoppers with a value-added brand and simple, plant-based ingredients. So hope that's helpful.

Yes, it is. Thank you. And then, Amy, I was intrigued by your commentary of placement of product of singled-serve immediate purchase, grab-and-go format. As you implement and monitor the progress of that occasion, how leverageable is that as an insight as you look to apply that both to other channels, thinking specifically like convenient stores as you try to market that product to perhaps distributors to immediate consumption channels, and can you talk a little bit about the rationale thought process behind making that move.

Thanks for the question. I think the answer in short, it's quite leverageable and you're reading the tea leaves in terms of our rationale. So previously, a shopper had to pay, let's call it $5 to enter the Zevia world for a soda, right? And now, a shopper can try a flavor for $2 and therefore part with $6 or less to try three flavors. And so we're -- we have the opportunity not only to get in the perimeter of the store to show up cold with single-serve, plant-based, zero-sugar soda for the first time in an attractive package, but also to do so with multiple flavors with it an easy trial package. And so in doing that, we can test out merchandising, pricing and availability in natural channel and in food, cold and take those learning's both in terms of pricing, merchandising, marketing, and get some, shopper data. That's all leverageable to go into immediate consumption more traditional media consumption channels, including convenience, that's exactly the idea. So we see this as a win for us with immediately in terms of velocity, shopper insight and volume with our heaviest shopper and natural and where we have proof points and food and that's very leverageable for our expansion plans into convenience and beyond. Does that answer your question?

It does. Thanks. And just one quick one for me on the aluminum costs. How impactful do you expect that to be? Obviously, if we look at the commodity markets, they're exceptionally inflationary even more so today with energy, a political conflict escalating. So to the extent you could talk about the sensitivity to that dynamic, would be helpful. Thank you.

Yes, absolutely. I can speak to that, Ben. I think clearly we're seeing continued turbulence in the can market. I would say we are seeing a loosening in terms of availability. And so if you think back over the last 18 months, availability was a real challenge and so Zevia as well as many of our peers were sourcing cans from around the world and with pretty significant freight costs associated with bringing those cans to the U.S. market. So we are seeing a loosening there. We're able to source U.S. manufactured cans without freight. So notwithstanding the elevated aluminum market, we're seeing some tailwinds from a cost perspective. We do continue to hold empty can inventory because availability and safety stock is really key. And so then as we start to burn down that inventory through the course of this year, we will see some tailwinds from reduced inventory levels. So we're continuing to monitor inflation and commodity costs relative to aluminum. As noted we did announce pricing actions in Q4, we're going to see that realization, and we're confident that we have the ability to continue to take price as conditions merit. So we'll continue to monitor aluminum, but I think we're feeling good, certainly from an availability standpoint, and we're seeing some future tailwinds in terms of costs.

Okay, thanks so much. Best of luck.

Absolutely. Thank you.

Our next question comes from Alton Stump from Loop Capital. Your line is open.

Good morning. Congrats on the results. So I just wanted to ask you about and I apologize. I had to hop on maybe late here. But as mentioned, pricing action in the fourth quarter, any kind of [Indiscernible] through yet, and if you're seeing any push back or if your point is there just a lot more customer's willingness to pay higher prices given that cost are absolutely going up for pretty much everybody right now.

Yeah, Alton. So we have communicated -- so the only pricing action that is in the market in the fourth quarter was around our 10-pack and we did not have any push back on that, neither from retailer nor from consumer. And so that supported our price slope as we continue to trade consumers up with advantageous pricing with larger packages. And then in the fourth quarter, we communicated pricing action that's forthcoming and going into the market really now at the end of this first quarter. And again, great receptivity from the retailer as, of course, competition continues to margin up and take price all around this. So we're able to maintain our affordability, which we mentioned earlier is in the 36 percentile among all non-alcoholic beverages, and then continue to improve profitability as the market moves. And so you'll see pricing on a consumer level, we'll gain insights on the results of those actions in the second quarter and beyond, and we do believe there's headroom for further pricing action through the year. So great receptivity from a retailer standpoint, and not surprised there because the pricing action we're taking is consistent with the market and consistent with I think consumer expectations from a premium brand as well.

Good. Makes sense. And then just one follow-up and then I'll hop back in the queue here. But just update on your online platform, which you guys talked in past about Amazon, you being the best selling drink in that market. Any update there on growth potential moving over the rest of 2022 and beyond?

Sure. Yeah, we remain the number one carbonated soft drink on Amazon, not just in 0 calorie space, but across the board. And we continue to grow there and introduce new packs there. Amazon was the first to take our two new energy drink flavors and we continue to experiment with different combinations on Variety Packs. And Paddy mentioned earlier the performance that Amazon offers as a trial driver for us as we see the trial on Amazon translates into increased purchases not only on that form, but a platform in brick-and-mortar as well. Another big opportunity for us in growth is on the second biggest.com player which is walmart.com and then brickandmortar.com as well, so the brick and click pickup business for us with our traditional retailers. As we grow more sophisticated as selling organizations, we can unlock a lot of growth by taking our Amazon and Walmart.com learning and applying those across other traditional retailers in their.com business. So fast growth still an e-commerce, we anticipate it continues to hold it’s portion of our mix, if not greater. And there's a lot of organic growth to be had there as we learn about the right pack mix and pricing in those spaces.

Great. Thanks so much.

Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Chris, your line is now open. We move onto Sarang Vora from Ballsy. Please go ahead.

Good morning, guys. Very lots of initiatives going into 2022, lot of things going on. So my question is, when you look at your traditional algorithm, which just 10% velocity, 5% distribution, 15% new wide opportunity. How does all these initiated pit in your algorithm does it seem the composition of algorithm in 22 ' compared to 21 ' or your broader outlook?

Happy -- happy to share how we think about that. And it's clear for us when we think about velocity, we expect velocity to accelerate with enhanced merchandising in 2022. And by enhanced merchandising, we're talking about the expansion in in-store presence, new products, and new packages in new parts of the store. And then the placement of about a thousand pieces of point-of-sale. So racks and coolers across especially natural and food channels. And then velocity is also supported by low cost grassroots marketing efforts, like the brand level campaign that we have coming this summer. It's similar to -- in terms of tactics, the campaign that we ran at the start of the year called, Live your Best. And this summer campaign, well-timed with our first time -- limited time offer, summer flavor six packs is all around enhanced merchandising and increased presence in store. And so that that supports the top of the algorithm we talked about 10% going into that 5% that we look to come from new distribution and with existing customers, we think about increasing our space at fit by 50% with one of the top two mass retailers that's a great example of what we mean when we say gaining expansion or new distribution within existing customers. And so at one of the two major mass retailers we've moved from 5 flavors to 12 flavors, and we've moved from 6 pack to 8 pack. And then in the other math operator, we're introducing our kids’ line into an entirely new portion of the store in almost 2000 stores. So those are great examples of what we mean by fill in distribution or expansion. And then finally, just to speak to an example of the 15%, we talk about new channel distribution. This is the final piece of the puzzle that supports velocity, and we expect strong results to continue to come from Club. This is business, we talked about Sam's going national right at the end of Q4. So we'll realize those results as we build that out and build velocity and tremendous incrementality. As Sam's just spoke to earlier, there's more opportunity within drug, there's opportunity ahead in the value channel, and then at the right time, as we discussed earlier, the immediate consumption channel, both regionally and then eventually nationally. So that's just a way of how we think about breaking down the 10% from velocity, the 5% from what we call still-in-distribution with existing customers, and then the 15% from expansion with new distribution in a new channel.

That's great. Thank you so much. And I'll ask one question on the gross margin outlook in 2022. I mean, I would love to know what is the wild card ingrained into. It seems like there's a lot of initiatives to help price action mix shift to energy, or some of the logistic initiatives that you mentioned. And probably the offset or I don't know, the aluminum can deal when -- in the backup versus the headwind in the fall stuff. So can you help us frame how we should think about the gross margin outlook in 2022 or what is the wild card in 2022 as it relates to gross margin?

Yes, absolutely. So as we noted in the prepared remarks, we're going to see price realization take hold starting in early Q2. And we took a 6% increase on soda, 8% on energy and tea. And we certainly feel we have the flexibility for additional pricing actions as conditions merit. So you're going to see those pricing -- price realization take hold through the course of the year in Q2, Q3 and Q4. And then simultaneously we continue to receive both scale and cost optimization benefits through course of the year. So that's full truck utilization for as many of our customers as we scale with customers, we can start selling full trucks versus partial trucks. Materially reducing our freight cost and then we're really focused not on rate so much because we can't control freight rates, what we can control though, is how many miles were trucking product. And so establishing incremental repack as well as production locations, gets us closer to our customers, remove freight miles from the system and that's costs from the supply chain. So similarly, those cost optimization efforts are taking hold through the course of the year as we add repack and manufacturing locations. And so you're going to see that margin progression through that combination of pricing realization, cost optimization through the course of the year. I hope that's helpful directionally.

That's great. Thank you so much.

Our next question comes from Chris Carey from Wells Fargo. Please go ahead.

Hi. Good morning and apologies about the technical issues.

No problem. Good morning, Chris.

I just wanted to -- good morning. I just wanted to follow-up on that line around margin progression. So a couple of questions around that. First, how is the pricing being received at -- you talked about potential taking incremental pricing gives you confidence in the ability for the portfolio to do that. The second thing is just this dynamic between pricing and scale benefits into the back half of the year. How do you see the relative contribution, and how important is the scale benefits to your budget into the back half of the year on margin. And then just connected to all that. Why not provide a profit outlook and only focus on revenue? Is that because of the volatility in the environment, or is this more standard practice? Thanks so much.

Absolutely. So why don't I start with the second part of your question first, which is around profitability and guidance or the lack thereof there. I think Chris, we're focused on growth and having said that, we're starting with a very strong gross margin profile. So the combination of pricing actions and cost optimization is continuing to enhance unit economics. And we believe that sets the stage for strong profitability in the future, but in 2022, we believe we are going to really drive value by continuing to scale this brand and drive growth. So kind of that's answering your question hopefully around kind of profitability and how we think about that. In terms of the price increases and pricing action, we've received, as Amy noted, strong receptivity. We're not seeing pushback and I think in part, it starts with our affordability profile. We are at the 36 percentile of all non-alcoholic liquid refreshment beverages to 64% of products, including bulk Stillwater. In that product set are more expensive than Zevia. In addition, what we found is that the category leaders have continued to take price over a multiyear period. And so we've narrowed that price gap materially. What we're finding today in the consumer environment is consumers are looking for value-added products at a reasonable price. And so simple plant based ingredients with zero sugar and zero calories is really compelling. The consumer is willing to pay a slight premium for that. And as category leaders have taken price, that premium for Zevia has reduced to what I would call slight, today. So we believe in an inflationary environment, you know, we're focused on cost optimization, absent inflation. And I think the inflationary environment is what's causing us to monitor future pricing actions. And we believe we can stay ahead of inflation with additional pricing actions should conditions merit through the course of 2022. So hope that answers your question. Happy to take any follow-ups.

No. That's helpful. I'll jump back in the queue. Thanks, Paddy.

Excellent. Thanks, Chris.

Our next question comes from Andrew Strelzik from BMO Capital Markets. Please go ahead.

Hi, thanks for taking the question. This is Daniel Belton for Andrew shelf that. Zevia IRI data has been somewhat weaker in the energy drink category. Can you discuss how you see your positioning there? And if you have a new strategies to improve performance?

Sure. So we're fairly new in the energy game, and I think there is tremendous opportunity, our energy business on a relative basis is quite small. And what we have the opportunity to do is get really clear on our positioning. And for the consumer that knows Zevia loves the Zevia energy drink. What we need to do here is build a marketing story and drive awareness in trial. And so where we thrive is in the natural channel and where we have the opportunity to introduce ourselves as into conventional listen marketing and trial and sampling activity. And so that's our plan looking into 2022 and going forward is to take what is a really excellent flavor profile and to get that into the hands of consumers. And that's both through retail programming, as well as out of the market where consumers live, work, and play. And then in the future, and I've mentioned this on past calls. We have the opportunity to do an end-to-end Zevia re-brand for the full portfolio. And we think this will really support our energy portfolio as well. When we bring a new look at deal from a design perspective to the full portfolio to energy category within our business will really benefit from this as well. Because we take the strength of the mother brand and parlay that into our energy category so that that beacon of the energy of the Zevia brand will bring the Zevia shopper [Indiscernible] to the energy category, even if that product is in a different part of the store. So there's a lot of both tactical and strategic opportunities to better support our energy business, to build a better presence for it in the marketplace. And then to drive trial and put cans in hands and the right usage occasions out in the marketplace. It's a massively under leveraged part of our portfolio and it's obviously one I'm very passionate about. And a big opportunity and I think -- most of all, and this is a competitive advantages relative to a number of competitors. We had a tremendous taste profile in that category, so to encourage everyone to try the product. So thanks for the question.

There are no additional questions. So this concludes today's call. Thank you for joining. You may now disconnect.