By now, everyone should have access to the company's fourth quarter 2024 earnings press release and investor presentation made available this morning. This information is available on the investor relations section of Zevia PBC's website at investors.zevia.com. Before we begin, please note that all 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 this as performing. 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. And now, I'd like to turn the call over to Amy Taylor.

Thanks for joining us for our fourth quarter and full year 2024 conference call. We are pleased to have ended the year on a strong note with a return to top-line growth and progress toward our goal of achieving profitability. We elevated our brand identity, advanced our three strategic growth pillars, and continued to lay the foundation for our plans for sustainable long-term growth. I want to thank the Zevia PBC team for their commitment and dedication to executing on these priorities. I am as confident as I have been since joining Zevia PBC about our long-term opportunity. Our optimism in the future is based on three factors. First, the better-for-you soda category is in the nascent stages, and we believe there's tremendous growth opportunity as more consumers move towards healthier options. Natural soda is growing six times faster than conventional soda, which comprises 25% of all soda growth. Mintel projects natural soda will more than double the growth of conventional diet and zero soda in the next five years. This shift is further evidenced by the fact that large retailers are dedicating prime real estate to this emerging category. Walmart's launch of the modern soda set and Albertsons' recent launch of a renovated better-for-you soda set are great examples of the speed and scale of this change. Second, we believe we are uniquely positioned within this fast-growing and dynamic category as the only brand that combines great taste, zero sugar, and naturally sweetened soda at an accessible price point. We have seen that once consumers try Zevia PBC, they are highly engaged. So our focus is on amplifying our brand and our clear points of differentiation on taste and ingredients to drive trial and continue to grow the base. Finally, we believe that the foundation for long-term success lies…

Thank you, Amy. Good morning, everyone, and thanks for joining our call today. Looking back at 2024, we laid the groundwork for future growth and strengthened our financial position largely through the successful execution of the productivity initiative we commenced in March. We have reinvested the majority of these cost savings thus far into our enhanced promotional strategy and building brand awareness while also flowing through a portion to the bottom line. Turning to our fourth quarter financial results, we delivered net sales of $39.5 million, an increase of 4.4% as compared to the fourth quarter of last year. This was driven by increased volumes as we expanded from 800 Walmart locations to more than 4,300 in late November. The improvement in net sales during the period was driven by an 11.6% increase in cases sold on an equivalized basis. Partially offsetting this was a decision to increase promotion with select new and existing retailers. Overall, we continue to hone in on the optimal mix of frequency, depth, and breadth to drive volume while protecting margin. Gross margin was a record high 49.2%, an increase of 850 basis points from 40.7% in the fourth quarter of last year. This improvement reflects the cycling of inventory write-downs in the prior year associated with our improved inventory management. Additionally, gross margin continues to benefit from our productivity initiatives. These improvements were partially offset by the aforementioned increase in promotional activities during the period. Selling and marketing expenses were $16.5 million or 41.7% of net sales in the fourth quarter of 2024, compared to $13.8 million or 36.6% of net sales in the fourth quarter of 2023. The increase was primarily due to the incremental investment in advertising associated with the viral holiday campaign that Amy discussed earlier. This was partially offset by…

Ladies and gentlemen, we would now be conducting a question and answer session.

If you would like to ask a question, please press a confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Jim Salera with Stephens Inc. Please go ahead. Hi. Good morning, guys. Thanks for taking my question.

Amy, I wanted to maybe start with some thoughts around the new customers you've been interacting with at Walmart and just any trends you can speak of kind of engagement, repeat rates, once they become introduced to the Zevia PBC product? Especially with kind of all the new news about incremental entrance, two new brands entering the category. Just thoughts on how you feel Zevia PBC holds the new It's saying Page West.

Yeah. Thanks, Jim. We are really excited about moving from 800 Walmarts selling Zevia PBC to 4,300 now, and it does a tremendous job for us to step change household penetration. As I mentioned in the prepared remarks, especially across the southeast, which is the highest engaged region in soda, and now the fastest growing for us based on the penetration opportunity. Another comment I can share about our early stage performance at Walmart is that the variety pack from Zevia PBC is our fastest selling SKU, the strongest velocity. What we know about variety packs from the past, both in e-commerce and now in early days in retail, because it's new at retail, is that not only does that drive trial folks trying Zevia PBC for the first time, but it also leads to the purchase of incremental straight flavor packs when people find their favorite flavors, which also happen to be higher margin. So we have a great sort of virtuous circle going in the early days with Walmart, which is step change household penetration, trial with new users, and strong initial repeat. The other exciting thing, Jim, just to mention is this is somewhat of a precedent setter as retailers figure out how to frame this exciting and increasingly competitive category. We see Walmart and Albertsons and others starting to frame it together as a better-for-you destination within the store. It's a rising tide that lifts all boats. It's a very competitive environment, but for us, our greatest opportunity is to grow the size of the base. Once a consumer enters Zevia PBC through trial, they repeat. We know this to be the case. So the example that you serve up here in Walmart helps us to step change awareness, trial, and household penetration, which is really our top priority.

Okay. Great. And then, Girish, maybe one question on just expectations around gross margin in 2025. How should we think about balancing driving excitement around expanded distribution and getting that initial trial with, obviously, maintaining the gross margin gains you guys have won over the past couple of years?

Yeah. No. Thanks, Jim. Part of the gross margin gains have also come at or are also reflective of increased promotional spend. So I think from that standpoint, we believe we can maintain gross margins in the high forties, give or take, while also investing appropriately to drive trial and effectively drive the business. So I think we've loaded the appropriate amount of promotion into the P&L, and now I think it's really about ensuring that we're driving the correct depth, breadth, and frequency of promotion.

Okay. Appreciate the color, guys. I'll hop in the queue.

Thanks.

The next question comes from Andrew Strelzik with BMO. Please go ahead.

Hi. Good morning. This is Daniel Gold on for Andrew. Thanks for taking my question.

Good morning.

Good morning.

What do you expect to be the cadence of sales growth through the year given the implied 4.6% decline in Q1 and a half percent growth for the full year? And why that deceleration from Q4, particularly given that elevated marketing spend? Is that really just a function of lapping the step-off?

Yeah. So we're excited about Q4 and returning to volume-driven growth, primarily driven by the pipeline sale at Walmart. In Q1, we're very confident about the distribution gains that we've secured for the full year, which is what is really going to drive our growth for 2025. I think Q1 is probably the most challenging comp partly because of the impact of lost distribution from one mass customer as well as a lapping of lost distribution at club. So really, when you think about it, as well as the discontinuation of the kids and mixers lines. When you think about the cadence of growth from a modeling perspective, we expect Q1 to be, as noted, slightly down to flat with Q2 and Q3 being the highest volume quarters. To address your point, I think your second question in there was about marketing spend, and I think really Q1 is reflective of higher marketing spend driven primarily by what I'd call non-working marketing, which is really production expenses, which we expect to benefit us later in Q2 and primarily in Q3 as well.

And, Dan, just to build on that really quick, I think Girish did a great job of talking to the phasing, the timing of our expectations for the year and our return to growth on the full year, which we're excited about. I'll mention that scan data has accelerated the last five four-week periods showing double-digit growth in the two. We're really pleased with the trajectory. We're performing well at Walmart. We talked about that despite really heavy and increasing competition. So when we look at things like a grocery shelf reset at Albertsons forthcoming in March, specifically contributing to accelerating growth the balance of the year. Then you add to that innovation, also launching this spring, and then increased investment in really compelling marketing. We're bullish about the trajectory and we're cautious on the unknowns given the macro and increasingly competitive environment.

That's really helpful. Thank you.

The next question comes from Sarang Vora with Telsey Advisory Group. Please go ahead.

Great. Thank you, guys. My question is on the DSP model. I feel like it's been a couple of quarters that you have rolled it out in the Pacific Northwest parts of Arizona. Can you share some of the key observations from the model and how it has transformed your business in those parts of the region?

Sure. Sure, Sarang. No problem. Speaking about direct store delivery or DSD, we are very excited about the marketing that we have in the market and our confidence in the quality of the creative and the strategic nature of the mix. Are exactly why we're increasing our investment because we really believe in what we're doing, and we have tremendous proof points starting with the campaigns. As you mentioned, that resonated with the consumer so well in December, and we know that through, for example, 82% positive sentiment from social commentary. Very rare these days. If you think about what social commentary normally sounds like. As I've stated in the past, we've historically underinvested in marketing for a growing beverage brand. Especially now, if you look at the competitive environment, we expect to increase marketing spend to do what we really believe is the right strategic thing for the brand, and that's focused on awareness. To be specific, we're thinking about and planning for, let's call it, low double digits in percentage of sales as a marketing investment, which is materially increased from the past, but also funded through our productivity initiatives. Specifically, we're learning a lot about marketing in some of our key accounts. We are able to report on internally anyway marketing attribution, meaning what portion of the volume increase is attributable to marketing. So we study that at a key account level and scan what works. We also have a brand health tracker in the market we can measure all the way down the funnel awareness trial conversion that gives us directional confidence in the efficacy of marketing, and then we'll be putting some incremental modeling into the market something called a marketing mix model to continue to fine-tune tactics. And weighted investments going forward. Then we always do concept and copy testing with our creative. We know we had lightning in a bottle in this December with the campaign that went viral. We're building on that now with our continuing from our official campaign, and I'm excited about what's coming in March as we elevate that campaign and bring it to more people with some familiar faces behind the brand. So thanks for asking about marketing. It is a fundamental reason why we believe in our long-term opportunity and one of our top priorities for the year.

Great. Thank you. Good luck ahead.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Amy Taylor for closing comments.

Thank you very much, Tico. Folks, thanks for joining today. We are obviously really excited about what's ahead for Zevia PBC. It's an exciting time to follow the story, so we thank you for following along. We know that the trend toward better-for-you products and toward health is here to stay, but we also know that people love soda. So as a soda brand that has zero sugar, natural ingredients, and importantly in this moment, is priced accessibly for your average American household, we're really bullish on our ability to compete in an increasingly competitive environment. We are excited about our key strategic pillars. Just to reiterate those, we're amplifying marketing, we're moving at a faster pace in product innovation with great tasting products in on-trend and relevant flavors, and then finally, we're driving and sustaining distribution with really meaningful strategic partners. With early green shoot indicators for that. As I mentioned, it's an exciting time to be following the Zevia PBC story, and we thank you for your attention today.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.