_ Greetings, and welcome to the Zevia PBC Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Mcguinness, Investor Relations. Thank you. You may begin.

Thank you, and welcome to Zevia's third quarter 2025 earnings conference call. On today's call are Amy Taylor, President and Chief Executive Officer; and Girish Satya, Chief Financial Officer and Principal Accounting Officer. By now, everyone should have access to the company's third quarter 2025 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia'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 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 also available on our website at investors.zevia.com. And now I'd like to turn the call over to Amy Taylor.

Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results reflect strong progress and provide clear signs that our strategy is taking effect. Our initiatives are positioning us for durable growth and profitability over time. Our third quarter results exceeded our expectations with net sales growth of 12% to $40.8 million and adjusted EBITDA loss of $1.7 million. Based on our better-than-expected performance and the continued progress across our strategic growth pillars, we are raising our full year net sales and adjusted EBITDA guidance, which Girish will speak to shortly. I'll share the progress we've made across our 3 strategic growth pillars of high-impact brand marketing, accelerated product innovation and expanded distribution. Beginning with marketing, our brand-building initiatives are resonating with consumers and gaining traction against our key priority of expanding our user base. Strong third quarter results reflect in part the success of our summer campaign, the launch of Strawberry Lemon Burst and the playful summer break sweepstakes, which were activated on social and received favorable editorial media coverage, extending reach and driving engagement. Media has a great story to tell as the consumer moves away from the artificial and seeks better-for-you products from brands that they trust. We are Soda Made Better and our new brand messaging, design and tone of voice are resonating across media channels and in-store. Based on proprietary survey data, while early, brand consideration and purchase intent have made double-digit gains this year, and social media engagement rates continue to build to levels well above channel benchmarks. As the broad cultural conversation continues to focus on health and ingredients, major food and beverage companies scramble to remove artificial ingredients and colors. Zevia has and will continue to be ahead of this movement with a clean…

Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our third quarter results reflect strong execution of our strategic plan with both revenue and adjusted EBITDA exceeding expectations. Over the past 18 months, the savings from our productivity initiatives have enabled us to invest meaningfully while strengthening Zevia's market position within the better-for-you soda category. Importantly, the work we have done has created a solid foundation for sustained growth and profitability. In light of our strong third quarter performance, we are raising our full year 2025 net sales and adjusted EBITDA guidance, which I'll address shortly. Turning to our results. Net sales in the third quarter increased 12% to $40.8 million. The increase versus the prior year was primarily due to expanded distribution at Walmart and incremental regional rotations at the club channel. Gross margin reached 45.6%, a 350 basis point decline from 49.1% in the third quarter of last year, reflecting the $0.8 million in inventory obsolescence associated with the packaging refresh and the full realization of aluminum tariffs, which we discussed previously. As we mentioned earlier, we invested in a package redesign that brought to life our new flavor profile and better communicated the benefits of the Zevia value proposition. Selling and marketing expenses were $12.7 million or 31% of net sales in the third quarter of 2025 compared to $12 million or 33% of net sales in the third quarter of 2024. Breaking it down, selling expense was $7.7 million or 18.9% of net sales in the third quarter of 2025 compared to $8.5 million or 23.3% of net sales in the third quarter of 2024. The improvement was largely a result of lower warehousing and freight transfer costs as we continue to benefit from our productivity initiative. Marketing expense was $4.9 million…

The first question is from Jim Salera from Stephens Inc.

I wanted to start off with, obviously, the positive news around expanding distribution with Walmart in Canada. Can you just maybe help size that up for us? Is that the primary contributor of the raised sales outlook? Or should we expect that to be more kind of a '26 event? And if you could just kind of size up how many stores that would be and any other color you could provide on how we should think about that uplift.

Sure, Jim. Yes, that's -- we are excited about expanding with Walmart in Canada just because of the indicator of future opportunity for continued distribution expansion in Canada overall. It's also just a good, I think, reflection of the velocity coming out of the customer in the initial pilot. So it was fairly small out of the gate. We were less than 100 stores. And we're now in just over half of Canada's Walmart stores, which is just over 400 stores in total. So to answer your question directly, that is not the major driver of lift in growth. There are many other things driving growth through the quarter, but it is a good indicator of the health of the brand in Canada and opportunity to follow.

Great. And then I was looking through the deck you guys put out, I really like the new packaging. Can you just give us some color around how distributed is that? And maybe what type of timing we should think about between switching over from the old packaging to the new packaging until we kind of see that across all of your distribution points in the U.S.?

Sure. So we're excited about the new packaging, too. We did some -- as I said in the prepared remarks, we did some initial proprietary research that indicated a significant increase in purchase intent with the new packaging relative to our previous packaging and relative to competition. And we believe that, that is because of the insights-based changes that we made to the messaging, which very clearly state Zevia's value proposition, talking zero sugar, zero fake color, zero fake sweetener then looking delicious, carrying the line Soda Made Better. So we're really bullish on the packaging. We do have some early indicators of how it supports the business, both from the standpoint of driving trial to new-to-brand users and driving velocity. And that's because one of our Q4 limited-time-offer flavors in Strawberries & Cream is already in the market in the new package. The rest of the portfolio will reflect the new packaging in early 2026, so mid-Q1 or late Q1 2026, and then we'll do a rolling rollout from there, not a hard cutover, but a rolling launch of the new packaging from there into the second quarter.

The next question is from Sarang Vora from Telsey Advisory Group.

Congratulations on a great quarter and good to see the healthy momentum in the business. My question is about when you look at the underlying metrics that drive growth, which is increase in household penetration, dollars per household, increase in frequency, can you remind us who are some of the new customers that are coming to the brand that weren't there before? And just from a broader standpoint, like how is the penetration for better-for-you products in general and versus your like a little north of 5%. So how big is the runway for you to catch up from a household penetration standpoint, just so that we can size the total addressable market as you keep moving on this path of expansion?

Yes. Thanks, Sarang. That's a very good way to frame the opportunity and sort of the runway ahead. So we're really pleased to see movement in household penetration over the last 12 months. This last read being improved over the prior, and we are now back over that 5 million household -- 5% points of household penetration, excuse me. And so the major drivers of that are new consumers coming to the brand, yes, in part through marketing. So we're winning new consumers. It continues to be oftentimes a slightly higher-income millennial often with kids in the household, bringing Zevia soda home as a trusted brand stock in the fridge for all usage occasions and all family members, right? So it continues to be relevant across generations, but our sweet spot is the millennial and oftentimes the millennial household with children. Part of what's driving our gains in household penetration, though, is increased distribution. So we get support there from the Walmart expansion where especially with the introduction of new flavors, we're seeing very high percentage of new-to-brand users buying Zevia for the first time at Walmart. And there are other examples of that, expanded same-store sales and other major grocery outlets, expansion into the drug channel, et cetera. All of those are supporting household penetration growth. But to help you to size this, we see the category right now operating around 20 percentage points of household penetration. So there's a lot of ground to be gained for Zevia. And as we talk about very frequently, we see all of these category tailwinds as a net positive to Zevia. So there's tremendous opportunity ahead as the world continues to move away from sugar and towards clean label products, and we are the great-tasting, truly zero sugar and also affordable better-for-you products. So we see a lot of household penetration opportunities ahead.

That's awesome. I have a second question. Soda business is clearly gaining momentum as we see in all these numbers. But one thing we don't talk much about is the energy business, energy drinks business. And my understanding that -- how should we think actually about energy drinks as you look at '26 and '27? Is there a thought to revive that category as well?

We agree there's really tremendous opportunity ahead in energy. Right now, we have a really small energy drink business relative to the rest of the category. It is healthy and growing in the natural channel and in e-commerce where people know and trust the Zevia brand and continue to stock energy drink options in addition to soda. But right now, our focus is really on soda. We just talked household penetration, right? And it just outlines how much work there is still to do to realize our full opportunity in soda. So once I believe we are famous for being Soda Made Better and under that kind of halo of brand trust, we think there's a significant opportunity to turn our attention to the energy drinks category, which is still growing and will be for a long time. And we believe there's a consumer that wants a clean label energy drink and that our brand has permission to bring that to the market. So we'll continue to focus on the healthy growth that we see out of energy drinks in natural and in e-commerce. And at the right time, we'll think about channel and thus marketing and consumer expansion on a strong foundation of a healthy soda business.

The next question is from Andrew Strelzik from BMO Capital Markets.

With all the marketing that you've been doing and some of the momentum that you cited from that, the brand buck, et cetera, do you have any kind of awareness stats, brand-level awareness statistics or anything like that, that you can share to support beyond what you've talked about from a purchase intent perspective?

Andrew, we haven't reported on awareness levels, but what I can share that kind of doubled down on the prepared remarks is that with our proprietary research, we saw double-digit increases not only in purchase intent, but also consideration. So we still have a way to go to grow brand awareness, and distribution, strong packaging design and marketing are all parts of that equation. But what I was really pleased to see this year is, again, double-digit growth in consideration. So now on that foundation, we know our messaging is working, right? Marketing and packaging is inviting trial. And then the product is satisfying the consumer, so we're getting strong repeat. That's a great formula upon or foundation upon which to now invest in expanding awareness. So we still got a ways to go, and I think that's reflected in our small household penetration. And our #1 objective is to expand that base, which is going to be a combination of awareness, trial and then building on that strong consideration metric.

Okay. That's helpful. And my other question, if I remember correctly, just seasonally, you would normally see a bigger step down from 3Q to 4Q than the guidance suggests pretty marginal step down from what you did in 3Q from a revenue perspective to the midpoint of the guidance. And so I guess I'm curious, do you think you're seeing less seasonality in your business? Or should we read that maybe as a higher baseline from 4Q into next year? How -- what's driving that? Or how should we interpret that kind of as we think about next year?

Yes. Thanks, Andrew. So as a reminder, we were comping the Walmart load from last year this Q4. So that was a substantial amount of revenue, which was going to always be a challenging comp for the quarter. I think largely what you're seeing is a reflection of the distribution gains that we've made throughout the year as well as some incremental regional rotations in the club channel, which is really what's driving a lot of the positivity in Q4. So I think it's a little bit of both improved baseline as well as some incremental opportunistic club rotations.

The next question is from Eric Serotta from Morgan Stanley.

Great. Can you start by reflecting a bit in terms of shelf space expectations for next year? I guess with Walmart, we're just about a year -- or almost exactly a year into the rollout of their modern service set. What are you guys seeing in terms of what they're doing as the largest retailer, largest brick-and-mortar retailer as we look to next year? And then sort of outside of Walmart, what are your expectations in terms of shelf space?

Sure. Let me start with Walmart, and then I can go to the outlook as it relates to distribution. So Walmart is developing nicely, bolstered by the introduction of a number of new items. Some of those are swap-outs and some are purely incremental new items that is helping us in the back half of this year and going into next year. We are one of the primary brands in that very sort of influential modern service set in Walmart, and that continues to be the case. Strategically, Walmart works hard for us because, as I mentioned before, it drives a lot of new-to-brand users. And so I think it's a great story to say, "Hey, when we have ample brand blocks, strong visibility, right price, right flavor mix, it's working hard for the brand.: And that's a story that we can take elsewhere. We've had other expansions, as I've mentioned on prior calls, such as a step change in shelf presence at big retailers in grocery like Albertsons in 2025. And again, that has contributed to some of our growth in the back half of the year. So when we look ahead, we -- this year, we surpassed our historical peak distribution levels at retail. And so we're not relying on new distribution for growth looking ahead. We're really focused on driving velocity, and that's why you hear us talk about the brand marketing and innovation priorities that we have. But we do see opportunity for new distribution. In terms of new stores, that would be in club, it would be in mass and it would be in the value and dollar channel and then long term in convenience and foodservice. And then in existing stores, there is still more opportunity to expand same-store distribution and to improve shelf. So there are major operators in the grocery channel, for example, where we still have, let's say, a lesser presence on the bottom shelf and an opportunity to build up to high level to gain space through innovation and to leverage all the strong data of 2025 to make those changes. So we're bullish both on accelerating velocity as well as continuing to increase distribution next year, be it in same-store or through new channels. Walmart should continue to perform for us next year. Costco offers opportunities for incremental rotations, and there are other green shoots in the club channel outside of Costco. As I mentioned, grocery offers opportunity in same-store distribution as well as new items and set improvements and then the long-term sort of slow but steady and strategic need to drive singles through convenience. So hopefully, that paints the picture a little bit about where we see our growth coming from, our bullishness on same-store distribution increases and then our greatest channel opportunities for next year.

Great. And then one question in terms of profitability. Any -- I know you're not going to give us 2026 guidance yet, but any color as to how you're thinking about achievability of EBITDA profitability next year, puts and takes? It seems like, well, certainly, your top line is scaling. You're seeing some nice operating leverage there. Some of the costs with the new packaging shouldn't -- and inventory obsolescence shouldn't repeat, but then things like aluminum and Midwest premium keep moving higher. So any color on how you're thinking about profitability for next year would be helpful.

Yes, of course. So I think we continue to point towards being positive adjusted EBITDA in 2026. As noted, we're going to bias towards investing in the business. So don't expect a ton of flow-through because we do believe that right now, the time to sort of invest in customer acquisition. From a puts and takes standpoint, obviously, there's a huge headwind, which is aluminum tariffs, as you've articulated earlier, and we began to see that in Q3. As you also mentioned, we will largely see $15 million of the $20 million of our previously announced productivity initiative savings in this year, i.e., 2025. There's an incremental $5 million that we will begin to realize starting in sort of mid-Q1 of 2026. And so as we look towards flipping from negative adjusted EBITDA to positive, I think ultimately, the incremental savings along with scale and some pricing opportunities will allow us to flip that script into positive adjusted EBITDA while continuing to create opportunities for us to invest to grow the top line.

There are no further questions at this time. I would like to turn the floor back over to Amy Taylor for closing comments.

All right. Thanks so much for joining us. I am pleased with the progress this quarter, and I'm really proud of the team for the broader progress that we made across our 3 strategic growth pillars: so high-impact remarketing, accelerated product innovation and expanded distribution. Our soda portfolio is uniquely anchored by great taste, truly zero sugar and accessible price points. So the brand is starting to resonate with consumers, and all of this positions us well to capture the continued tailwinds in this better-for-you category. It's an exciting time to be at Zevia. So thanks again for your engagement, and we will see you next quarter.