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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/10/22 Zevia PBC 10-Q 9/30/22 76:10M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 3.40M 2: EX-31.1 Certification -- §302 - SOA'02 HTML 31K 3: EX-31.2 Certification -- §302 - SOA'02 HTML 31K 4: EX-32 Certification -- §906 - SOA'02 HTML 27K 10: R1 Cover Page HTML 82K 11: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 128K 12: R3 Condensed Consolidated Balance Sheets HTML 42K (Parenthetical) (Unaudited) 13: R4 Condensed Consolidated Statements of Operations HTML 113K and Comprehensive Income (Loss) (Unaudited) 14: R5 Consolidated Statements of Changes in Redeemable HTML 186K Convertible Preferred Units and Equity (Deficit) 15: R6 Condensed Consolidated Statements of Cash Flows HTML 123K (Unaudited) 16: R7 Condensed Consolidated Statements of Cash Flows HTML 25K (Parenthetical) (Unaudited) 17: R8 Description of Business and Basis of Presentation HTML 33K 18: R9 Summary of Significant Accounting Policies HTML 115K 19: R10 Revenues HTML 96K 20: R11 Inventories HTML 40K 21: R12 Property and Equipment, Net HTML 76K 22: R13 Intangible Assets, Net HTML 67K 23: R14 Debt HTML 38K 24: R15 Leases HTML 76K 25: R16 Commitments And Contingencies HTML 27K 26: R17 Balance Sheet Components HTML 48K 27: R18 Equity-Based Compensation HTML 161K 28: R19 Redeemable Convertible Preferred Units HTML 25K 29: R20 Segment Reporting HTML 29K 30: R21 Major Customers, Accounts Receivable and Vendor HTML 119K Concentration 31: R22 Loss Per Share HTML 174K 32: R23 Income Taxes And Tax Receivable Agreement HTML 40K 33: R24 Summary of Significant Accounting Policies HTML 124K (Policies) 34: R25 Summary of Significant Accounting Policies HTML 95K (Tables) 35: R26 Revenues (Tables) HTML 90K 36: R27 Inventories (Tables) HTML 41K 37: R28 Property and Equipment, Net (Tables) HTML 71K 38: R29 Intangible Assets, Net (Tables) HTML 65K 39: R30 Leases (Tables) HTML 77K 40: R31 Balance Sheet Components (Tables) HTML 47K 41: R32 Equity Based Compensation (Tables) HTML 146K 42: R33 Major Customers, Accounts Receivable and Vendor HTML 128K Concentration (Tables) 43: R34 Loss Per Share (Tables) HTML 172K 44: R35 Description of Business and Basis of Presentation HTML 43K - Additional Information (Detail) 45: R36 Summary of Significant Accounting Policies - HTML 38K Summary of Reclassification Adjustments on Cost of Goods Sold, Gross Profit, and Selling and Marketing Expenses of Condensed Consolidated Statements of Operations and Comprehensive Loss (Detail) 46: R37 Summary of Significant Accounting Policies - HTML 24K Additional Information (Details) 47: R38 Summary of Significant Accounting Policies - HTML 40K Summary of Reclassifications of Consolidated Statement of Cash Flows (Detail) 48: R39 Revenues - Summary of Disaggregation of Revenue HTML 37K (Detail) 49: R40 Revenues - Additional Information (Detail) HTML 24K 50: R41 Inventories - Summary of Inventories (Detail) HTML 29K 51: R42 Property and Equipment, Net - Summary of Property HTML 48K and Equipment (Detail) 52: R43 Property and Equipment, Net - Additional HTML 25K Information (Detail) 53: R44 Intangible Assets, Net - Summary of Intangible HTML 37K Assets (Detail) 54: R45 Intangible Assets, Net - Summary of Expected HTML 33K Amortization Expense for Intangible Assets with Definite Lives (Detail) 55: R46 Intangible Assets, Net - Additional Information HTML 28K (Detail) 56: R47 Debt - Additional Information (Detail) HTML 45K 57: R48 Leases - Additional Information (Detail) HTML 27K 58: R49 Leases - Summary of Lease Costs As Follows HTML 32K (Detail) 59: R50 Leases - Summary of Maturities of Lease Payments HTML 32K Under Non Cancellable Leases Were As Follows (Detail) 60: R51 Balance Sheet Components - Summary of Accrued HTML 32K Expenses and Other Current Liabilities (Details) 61: R52 Equity-Based Compensation - Additional Information HTML 57K (Detail) 62: R53 Equity Based Compensation - Fair Value of Stock HTML 41K Options Granted Estimated on the Date of Grant Using the Black-Scholes Option (Details) 63: R54 Equity Based Compensation - Summary of Stock HTML 68K Option Activity (Details) 64: R55 Equity Based Compensation - Summary of Restricted HTML 54K Stock Unit Activity (Details) 65: R56 Equity-Based Compensation - Summary of Restricted HTML 24K Stock Unit Activity (Parenthetical) (Details) 66: R57 Redeemable Convertible Preferred Units - HTML 24K Additional Information (Details) 67: R58 Major Customers, Accounts Receivable And Vendor HTML 58K Concentration - Summary Sales to Significant Customers (Detail) 68: R59 Major Customers, Accounts Receivable And Vendor HTML 38K Concentration - Additional Information (Detail) 69: R60 Loss Per Share - Summary of Computation of Basic HTML 79K and Diluted Earnings per Share (Detail) 70: R61 Loss Per Share - Summary of Antidilutive HTML 35K Securities Excluded From Computation of Earnings Per Share (Detail) 71: R62 Income Taxes And Tax Receivable Agreement HTML 38K (Additional Information) (Details) 74: XML IDEA XML File -- Filing Summary XML 139K 72: XML XBRL Instance -- zvia-20220930_htm XML 2.39M 73: EXCEL IDEA Workbook of Financial Reports XLSX 130K 6: EX-101.CAL XBRL Calculations -- zvia-20220930_cal XML 136K 5: EX-101.DEF XBRL Definitions -- zvia-20220930_def XML 750K 9: EX-101.LAB XBRL Labels -- zvia-20220930_lab XML 1.26M 7: EX-101.PRE XBRL Presentations -- zvia-20220930_pre XML 975K 8: EX-101.SCH XBRL Schema -- zvia-20220930 XSD 169K 75: JSON XBRL Instance as JSON Data -- MetaLinks 374± 607K 76: ZIP XBRL Zipped Folder -- 0000950170-22-024519-xbrl Zip 327K
10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, i 2022 /
OR
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: i 001-40630
i Zevia PBC
(Exact Name of Registrant as Specified in its Charter)
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i Delaware |
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i 86-2862492 |
(State or Other Jurisdiction of |
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(I.R.S. Employer Identification Number) |
i 15821 Ventura Blvd., i Suite 145
( i 855) i 469-3842
(Address including zip code, and telephone number including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
i Class A common stock, par value $0.001 per |
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i ZVIA |
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i New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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i Non-accelerated filer |
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☒ |
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Smaller reporting company |
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i ☒ |
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Emerging growth company |
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i ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO i ☒
As of November 1, 2022, there were i 44,865,807 shares and i 24,010,216 shares outstanding of the Registrant’s Class A and Class B common stock, respectively, $0.001 par value per share.
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Page |
PART I |
4 |
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Item 1. |
4 |
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4 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
5 |
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6 |
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8 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 3. |
28 |
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Item 4. |
29 |
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Part II. |
30 |
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Item 1. |
30 |
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Item 1A. |
30 |
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Item 2. |
30 |
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Item 3. |
30 |
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Item 4. |
30 |
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Item 5. |
30 |
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Item 6. |
31 |
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32 |
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended September 30, 2022 ("Quarterly Report") contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “consider,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC") on March 11, 2022 for the period ended December 31, 2021 ("Annual Report"), as well as our subsequent filings with the SEC. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report, including, but not limited to, the following:
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report, and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ZEVIA PBC
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share and per share amounts) |
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ASSETS |
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|
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Current assets: |
|
|
|
|
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|
||
Cash and cash equivalents |
|
$ |
i 49,236 |
|
|
$ |
i 43,110 |
|
Short-term investments |
|
|
i — |
|
|
|
i 30,000 |
|
Accounts receivable, net |
|
|
i 13,538 |
|
|
|
i 9,047 |
|
Inventories |
|
|
i 37,283 |
|
|
|
i 31,501 |
|
Prepaid expenses and other current assets |
|
|
i 3,356 |
|
|
|
i 3,421 |
|
Total current assets |
|
|
i 103,413 |
|
|
|
i 117,079 |
|
Property and equipment, net |
|
|
i 4,933 |
|
|
|
i 3,664 |
|
Right-of-use assets under operating leases, net |
|
|
i 878 |
|
|
|
i 211 |
|
Intangible assets, net |
|
|
i 3,588 |
|
|
|
i 3,738 |
|
Other non-current assets |
|
|
i 558 |
|
|
|
i 301 |
|
Total assets |
|
$ |
i 113,370 |
|
|
$ |
i 124,993 |
|
LIABILITIES AND EQUITY |
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||
Current liabilities: |
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|
||
Accounts payable |
|
$ |
i 19,685 |
|
|
$ |
i 13,492 |
|
Accrued expenses and other current liabilities |
|
|
i 7,950 |
|
|
|
i 6,705 |
|
Current portion of operating lease liabilities |
|
|
i 698 |
|
|
|
i 236 |
|
Total current liabilities |
|
|
i 28,333 |
|
|
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i 20,433 |
|
Operating lease liabilities, net of current portion |
|
|
i 186 |
|
|
|
i 1 |
|
Total liabilities |
|
|
i 28,519 |
|
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i 20,434 |
|
Commitments and contingencies (Note 9) |
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Stockholders' equity |
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Preferred Stock, $ i i 0.001 / par value. i i 10,000,000 / shares authorized, i i i i no / / / shares issued and outstanding as of September 30, 2022 and December 31, 2021. |
|
|
i — |
|
|
|
i — |
|
Class A common stock, $ i i 0.001 / par value. i i 550,000,000 / shares authorized, i i 44,794,236 / and i i 34,463,417 / shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. |
|
|
i 45 |
|
|
|
i 34 |
|
Class B common stock, $ i i 0.001 / par value. i i 250,000,000 / shares authorized, i i 24,010,216 / and i i 30,113,152 / shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. |
|
|
i 24 |
|
|
|
i 30 |
|
Additional paid-in capital |
|
|
i 189,426 |
|
|
|
i 174,404 |
|
Accumulated deficit |
|
|
( i 75,458 |
) |
|
|
( i 45,986 |
) |
Total Zevia PBC stockholder's equity |
|
|
i 114,037 |
|
|
|
i 128,482 |
|
Noncontrolling interests |
|
|
( i 29,186 |
) |
|
|
( i 23,923 |
) |
Total equity |
|
|
i 84,851 |
|
|
|
i 104,559 |
|
Total liabilities and equity |
|
$ |
i 113,370 |
|
|
$ |
i 124,993 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ZEVIA PBC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
|
|
Three Months Ended September 30, |
|
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Nine Months Ended September 30, |
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||||||||||
(in thousands, except share and per share amounts) |
|
2022 |
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2021 |
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2022 |
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2021 |
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||||
Net sales |
|
$ |
i 44,239 |
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$ |
i 38,956 |
|
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$ |
i 127,815 |
|
|
$ |
i 104,002 |
|
|
Cost of goods sold |
|
|
i 25,071 |
|
|
|
i 21,189 |
|
|
|
i 73,445 |
|
|
|
i 54,858 |
|
|
Gross profit |
|
|
i 19,168 |
|
|
|
i 17,767 |
|
|
|
i 54,370 |
|
|
|
i 49,144 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
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|
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Selling and marketing |
|
|
i 12,916 |
|
|
|
i 13,597 |
|
|
|
i 42,845 |
|
|
|
i 33,237 |
|
|
General and administrative |
|
|
i 8,310 |
|
|
|
i 7,698 |
|
|
|
i 28,257 |
|
|
|
i 19,352 |
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|
Equity-based compensation |
|
|
i 6,837 |
|
|
|
i 45,731 |
|
|
|
i 23,781 |
|
|
|
i 45,804 |
|
|
Depreciation and amortization |
|
|
i 326 |
|
|
|
i 239 |
|
|
|
i 1,005 |
|
|
|
i 713 |
|
|
Total operating expenses |
|
|
i 28,389 |
|
|
|
i 67,265 |
|
|
|
i 95,888 |
|
|
|
i 99,106 |
|
|
Loss from operations |
|
|
( i 9,221 |
) |
|
|
( i 49,498 |
) |
|
|
( i 41,518 |
) |
|
|
( i 49,962 |
) |
|
Other (expense) income, net |
|
|
i 26 |
|
|
|
( i 213 |
) |
|
|
i 64 |
|
|
|
( i 251 |
) |
|
Loss before income taxes |
|
|
( i 9,195 |
) |
|
|
( i 49,711 |
) |
|
|
( i 41,454 |
) |
|
|
( i 50,213 |
) |
|
Provision for income taxes |
|
|
( i 1 |
) |
|
|
( i 50 |
) |
|
|
( i 23 |
) |
|
|
( i 50 |
) |
|
Net loss and comprehensive loss |
|
|
( i 9,196 |
) |
|
|
( i 49,761 |
) |
|
|
( i 41,477 |
) |
|
|
( i 50,263 |
) |
|
Net loss attributable to Zevia LLC prior to the Reorganization Transactions |
|
|
i — |
|
|
|
i 1,411 |
|
|
|
i — |
|
|
|
i 1,913 |
|
|
Loss attributable to noncontrolling interest |
|
|
i 1,712 |
|
|
|
i 22,527 |
|
|
|
i 12,005 |
|
|
|
i 22,527 |
|
|
Net loss attributable to Zevia PBC |
|
$ |
( i 7,484 |
) |
|
$ |
( i 25,823 |
) |
|
$ |
( i 29,472 |
) |
|
$ |
( i 25,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
||||
Net loss per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( i 0.17 |
) |
|
$ |
( i 0.75 |
) |
(1) |
$ |
( i 0.73 |
) |
|
$ |
( i 0.75 |
) |
(1) |
Diluted |
|
$ |
( i 0.17 |
) |
|
$ |
( i 0.75 |
) |
(1) |
$ |
( i 0.73 |
) |
|
$ |
( i 0.75 |
) |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 44,072,985 |
|
|
|
i 34,440,982 |
|
|
|
i 40,393,978 |
|
|
|
i 34,440,982 |
|
|
Diluted |
|
|
i 44,072,985 |
|
|
|
i 34,440,982 |
|
|
|
i 40,393,978 |
|
|
|
i 34,440,982 |
|
|
(1) Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from July 22,2021 through September 30, 2021, the period following the Reorganization Transactions and IPO (see Note 15).
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ZEVIA PBC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED UNITS AND EQUITY (DEFICIT) (Unaudited)
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
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Additional |
|
|
|
|
|
|
|
|
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(in thousands, except for share amounts) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid in |
|
|
Accumulated |
|
|
Noncontrolling interest |
|
|
Total |
|
||||||||
Balance at January 1, 2022 |
|
|
i 34,463,417 |
|
|
$ |
i 34 |
|
|
|
i 30,113,152 |
|
|
$ |
i 30 |
|
|
$ |
i 174,404 |
|
|
$ |
( i 45,986 |
) |
|
$ |
( i 23,923 |
) |
|
$ |
i 104,559 |
|
Vesting and release of common stock under equity incentive plans, net |
|
|
i 2,298,547 |
|
|
|
i 3 |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,133 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 2,130 |
) |
Exchange of Class B common stock for Class A common stock |
|
|
i 1,970,802 |
|
|
|
i 2 |
|
|
|
( i 1,970,802 |
) |
|
|
( i 2 |
) |
|
|
( i 1,929 |
) |
|
|
— |
|
|
|
i 1,929 |
|
|
|
— |
|
Exercise of stock options |
|
|
i 56,659 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 16 |
|
|
|
— |
|
|
|
— |
|
|
|
i 16 |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,901 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,901 |
|
Net loss post-Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 10,898 |
) |
|
|
( i 6,587 |
) |
|
|
( i 17,485 |
) |
Balance at March 31, 2022 |
|
|
i 38,789,425 |
|
|
$ |
i 39 |
|
|
|
i 28,142,350 |
|
|
$ |
i 28 |
|
|
$ |
i 179,259 |
|
|
$ |
( i 56,884 |
) |
|
$ |
( i 28,581 |
) |
|
$ |
i 93,861 |
|
Vesting and release of common stock under equity incentive plans, net |
|
|
i 917,664 |
|
|
|
i 1 |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exchange of Class B common stock for Class A common stock |
|
|
i 3,580,288 |
|
|
|
i 3 |
|
|
|
( i 3,580,288 |
) |
|
|
( i 3 |
) |
|
|
( i 4,153 |
) |
|
|
— |
|
|
|
i 4,153 |
|
|
|
— |
|
Exercise of stock options |
|
|
i 119,381 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 91 |
|
|
|
— |
|
|
|
— |
|
|
|
i 91 |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,043 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,043 |
|
Net loss post-Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 11,090 |
) |
|
|
( i 3,706 |
) |
|
|
( i 14,796 |
) |
Balance at June 30, 2022 |
|
|
i 43,406,758 |
|
|
$ |
i 43 |
|
|
|
i 24,562,062 |
|
|
$ |
i 25 |
|
|
$ |
i 183,239 |
|
|
$ |
( i 67,974 |
) |
|
$ |
( i 28,134 |
) |
|
$ |
i 87,199 |
|
Vesting and release of common stock under equity incentive plans, net |
|
|
i 822,113 |
|
|
|
i 1 |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exchange of Class B common stock for Class A common stock |
|
|
i 551,846 |
|
|
|
i 1 |
|
|
|
( i 551,846 |
) |
|
|
( i 1 |
) |
|
|
( i 660 |
) |
|
|
— |
|
|
|
i 660 |
|
|
|
— |
|
Exercise of stock options |
|
|
i 13,519 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 11 |
|
|
|
— |
|
|
|
— |
|
|
|
i 11 |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 6,837 |
|
|
|
— |
|
|
|
— |
|
|
|
i 6,837 |
|
Net loss post-Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 7,484 |
) |
|
|
( i 1,712 |
) |
|
|
( i 9,196 |
) |
Balance at September 30, 2022 |
|
|
i 44,794,236 |
|
|
$ |
i 45 |
|
|
|
i 24,010,216 |
|
|
$ |
i 24 |
|
|
$ |
i 189,426 |
|
|
$ |
( i 75,458 |
) |
|
$ |
( i 29,186 |
) |
|
$ |
i 84,851 |
|
6
|
|
Redeemable Convertible Preferred Units and Members' Deficit |
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
(in thousands, except for share amounts) |
|
Units |
|
|
Amount |
|
|
Members' |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid in |
|
|
Accumulated |
|
|
Noncontrolling interest |
|
|
Total |
|
|||||||||||
Balance at January 1, 2021 |
|
|
i 26,322,803 |
|
|
$ |
i 232,457 |
|
|
$ |
( i 196,812 |
) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( i 196,812 |
) |
Exercise of common units prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
i 10 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 10 |
|
Equity-based compensation prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
i 37 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 37 |
|
Net income prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
i 247 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 247 |
|
Balance at March 31, 2021 |
|
|
i 26,322,803 |
|
|
|
i 232,457 |
|
|
|
( i 196,518 |
) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( i 196,518 |
) |
Equity-based compensation prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
i 36 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 36 |
|
Net loss prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
( i 749 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 749 |
) |
Distributions to unitholders for tax payments |
|
|
— |
|
|
|
— |
|
|
|
( i 2,669 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,669 |
) |
Balance at June 30, 2021 |
|
|
i 26,322,803 |
|
|
|
i 232,457 |
|
|
|
( i 199,900 |
) |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( i 199,900 |
) |
Net loss prior to the Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
( i 1,411 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1,411 |
) |
Impact of Reorganization Transactions and IPO |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Effect of the Reorganization Transactions |
|
|
( i 26,322,803 |
) |
|
|
( i 232,457 |
) |
|
|
i 219,633 |
|
|
|
i 23,716,450 |
|
|
|
i 24 |
|
|
|
— |
|
|
|
— |
|
|
|
i 12,800 |
|
|
|
— |
|
|
|
— |
|
|
|
i 232,457 |
|
Issuance of Class A common stock in IPO, net of commission |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 6,900,000 |
|
|
|
i 7 |
|
|
|
— |
|
|
|
— |
|
|
|
i 90,073 |
|
|
|
— |
|
|
|
— |
|
|
|
i 90,080 |
|
Issuance of Class B units to Zevia LLC unitholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 30,114,488 |
|
|
|
i 30 |
|
|
|
( i 30 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchases of Zevia LLC units in connection with IPO |
|
|
— |
|
|
|
— |
|
|
|
( i 2,037 |
) |
|
|
i 3,767,440 |
|
|
|
i 3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,034 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cancellation of options in connection with IPO |
|
|
— |
|
|
|
— |
|
|
|
( i 423 |
) |
|
|
i 32,560 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 425 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2 |
|
Cancellation of options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 4 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 4 |
) |
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 8,101 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 8,101 |
) |
Repurchase and cancellation of Zevia LLC units |
|
|
— |
|
|
|
— |
|
|
|
( i 17 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 1,336 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 17 |
) |
Allocation of equity to noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
( i 15,845 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15,845 |
|
|
|
i — |
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 36,797 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 115 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 115 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 45,731 |
|
|
|
— |
|
|
|
— |
|
|
|
i 45,731 |
|
Net loss post-Reorganization Transactions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 25,823 |
) |
|
|
( i 22,527 |
) |
|
|
( i 48,350 |
) |
Balance at September 30, 2021 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
i 34,453,247 |
|
|
$ |
i 34 |
|
|
|
i 30,113,152 |
|
|
$ |
i 30 |
|
|
$ |
i 142,813 |
|
|
$ |
( i 25,823 |
) |
|
$ |
( i 6,682 |
) |
|
$ |
i 110,372 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ZEVIA PBC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( i 41,477 |
) |
|
$ |
( i 50,263 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
i 483 |
|
|
|
i 417 |
|
Depreciation and amortization |
|
|
i 1,005 |
|
|
|
i 713 |
|
Loss on sale of equipment |
|
|
i 3 |
|
|
|
i 9 |
|
Amortization of debt issuance cost |
|
|
i 45 |
|
|
|
i 94 |
|
Equity-based compensation |
|
|
i 23,781 |
|
|
|
i 45,804 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( i 4,491 |
) |
|
|
( i 7,563 |
) |
Inventories |
|
|
( i 5,782 |
) |
|
|
( i 4,127 |
) |
Prepaid expenses and other assets |
|
|
i 97 |
|
|
|
( i 3,637 |
) |
Accounts payable |
|
|
i 6,248 |
|
|
|
i 4,010 |
|
Accrued expenses and other current liabilities |
|
|
i 1,245 |
|
|
|
i 1,910 |
|
Operating lease liabilities |
|
|
( i 503 |
) |
|
|
( i 461 |
) |
Net cash used in operating activities |
|
|
( i 19,346 |
) |
|
|
( i 13,094 |
) |
Investing activities: |
|
|
|
|
|
|
||
Proceeds from maturities of securities |
|
|
i 30,000 |
|
|
|
i — |
|
Purchases of property and equipment |
|
|
( i 2,182 |
) |
|
|
( i 2,308 |
) |
Net cash provided by (used in) investing activities |
|
|
i 27,818 |
|
|
|
( i 2,308 |
) |
Financing activities: |
|
|
|
|
|
|
||
Proceeds from revolving line of credit (1) |
|
|
i — |
|
|
|
i 74,721 |
|
Repayment of revolving line of credit (1) |
|
|
i — |
|
|
|
( i 74,721 |
) |
Payment of debt issuance costs |
|
|
( i 334 |
) |
|
|
i — |
|
Minimum tax withholding paid on behalf of employees for net share settlement |
|
|
( i 2,130 |
) |
|
|
i — |
|
Proceeds from exercise of stock options |
|
|
i 118 |
|
|
|
i — |
|
Proceeds from exercise of common units |
|
|
i — |
|
|
|
i 10 |
|
Exercise of stock options |
|
|
i — |
|
|
|
( i 115 |
) |
Repurchase of Zevia LLC units |
|
|
i — |
|
|
|
( i 17 |
) |
Distribution to unitholders for tax payments |
|
|
i — |
|
|
|
( i 2,669 |
) |
Proceeds from issuance of Class A common stock sold in IPO, net of underwriting discounts and commissions |
|
|
i — |
|
|
|
i 139,689 |
|
Use of proceeds from issuance of Class A common stock to purchase Zevia LLC Units |
|
|
i — |
|
|
|
( i 49,609 |
) |
Cancellation of options in IPO |
|
|
i — |
|
|
|
i 2 |
|
Cancellation of options |
|
|
i — |
|
|
|
( i 4 |
) |
Payment of IPO costs |
|
|
i — |
|
|
|
( i 8,101 |
) |
Net cash (used in) provided by financing activities |
|
|
( i 2,346 |
) |
|
|
i 79,186 |
|
Net change from operating, investing, and financing activities |
|
|
i 6,126 |
|
|
|
i 63,784 |
|
Cash and cash equivalents at beginning of period |
|
|
i 43,110 |
|
|
|
i 14,936 |
|
Cash and cash equivalents at end of period |
|
$ |
i 49,236 |
|
|
$ |
i 78,720 |
|
|
|
|
|
|
|
|
||
Non-cash investing and financing activities |
|
|
|
|
|
|
||
Capital expenditures included in accounts payable |
|
$ |
i 70 |
|
|
$ |
i — |
|
Conversion of Class B common stock to Class A common stock |
|
$ |
i 6,742 |
|
|
$ |
i — |
|
Operating lease right-of-use assets obtained in exchange for lease liabilities |
|
$ |
i 1,150 |
|
|
$ |
i — |
|
|
|
|
|
|
|
|
||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
i — |
|
|
$ |
i 148 |
|
(1) Zevia PBC’s revolving line of credit provides for daily drawdowns and repayments of amounts outstanding. As of September 30, 2022, no amounts were drawn under the new Secured Revolving Line of Credit (as defined in the Notes to Condensed Consolidated Financial Statements (Unaudited), Note 7 “Debt,” and i no amounts were outstanding as a result of the termination of the Stonegate line of credit in July 2021. Consistent with the provisions of ASC Topic 230, Statement of Cash Flows, Zevia PBC has presented daily draw-downs and repayments under its revolving line of credit with its lender on a gross basis in the statement of cash flows for the period ended September 30, 2021.
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ZEVIA PBC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Organization and operations
Zevia PBC (the "Company") develops, markets, sells, and distributes a wide variety of zero sugar, zero calorie, non-GMO Project verified, gluten-free, Kosher, vegan, zero sodium carbonated and non-carbonated beverages under the Zevia® brand name that include a broad assortment of flavors across Soda, Energy Drinks, Organic Teas, Mixers, Kidz drinks, and Sparkling Water. Zevia PBC’s products are distributed and sold principally across the United States of America ("U.S.") and Canada through a diverse network of retailers (both brick-and-mortar and e-commerce), including grocery stores, natural products stores, warehouse clubs, and specialty outlets. Zevia PBC’s products are manufactured and generally maintained at third-party beverage production and warehousing facilities located in both the United States and Canada.
Initial Public Offering
On July 21, 2021, the SEC declared effective the Company's registration statement on Form S-1 for the initial public offering ("IPO") of its Class A common stock. On July 22, 2021, the Company’s Class A common stock began trading on the New York Stock Exchange under the ticker symbol “ZVIA”. The Company completed the IPO of i 10,700,000 shares of its Class A common stock at an offering price of $ i 14.00 per share on July 26, 2021. The Company received aggregate net proceeds of approximately $ i 139.7 million after deducting underwriting discounts and commissions of $ i 10.1 million.
Immediately following the closing of the IPO on July 26, 2021, Zevia LLC became the predecessor of the Company for financial reporting purposes. The Company is a holding company, and its sole material asset is its controlling equity interest in Zevia LLC. As the sole managing member of Zevia LLC, the Company operates and controls all of the business and affairs of Zevia LLC. This reorganization is accounted for as a reorganization of entities under common control. As a result, the condensed consolidated financial statements of the Company recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Zevia LLC. The Company has consolidated Zevia LLC in its financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheets and statement of operations. As of September 30, 2022, the Company holds an economic interest of i 65.1% in Zevia LLC and the remaining i 34.9% represents the non-controlling interest.
/2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP") for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by US GAAP for complete financial statements and are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022, or for any other interim period or any other future fiscal year. The balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date but does not include all disclosures, including certain notes, required by US GAAP that are required on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been omitted pursuant to such rules and regulations. Therefore, these interim financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2021 and accompanying notes included in the Annual Report. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the condensed consolidated financial statements for the periods presented have been reflected.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Zevia LLC, that it controls due to ownership of a majority voting interest. All intercompany transactions and balances have been eliminated in consolidation.
The Company owns a majority economic interest in, and operates and controls all of the business and affairs of, Zevia LLC. Accordingly, the Company has prepared these condensed consolidated financial statements in accordance with Accounting Standards Codification ("ASC") Topic 810, Consolidation.
In connection with the IPO, the Company completed certain reorganization transactions (the “Reorganization Transactions") described in the Annual Report, which were accounted for consistent with a combination of entities under common control. As a result, the financial reports filed with the SEC by the Company subsequent to the Reorganization Transactions are prepared “as if” Zevia LLC is the accounting predecessor of the Company. The historical operations of Zevia LLC are deemed to be those of the Company. Thus, the condensed consolidated financial statements included in this Quarterly Report reflect (i) the historical operating results and financial position of Zevia LLC prior to the Reorganization Transactions; (ii) the condensed consolidated results of operations and financial position of the Company and Zevia LLC following the Reorganization Transactions; and (iii) the Company's equity structure for all periods presented. No step-up basis of intangible assets or goodwill was recorded.
On January 1, 2022, Zevia PBC and Zevia LLC entered into a service agreement to transfer the services of all employees of Zevia PBC to Zevia LLC. Under terms of the service agreement between the entities, the payroll costs of employees are borne by Zevia LLC while certain other non-payroll costs, in particular associated with stock compensation arrangements, remain with Zevia PBC. This arrangement resulted in lower losses by Zevia LLC and lower losses attributable to noncontrolling interest for the three and nine-months ended September 30, 2022.
Reclassifications
Certain amounts from prior periods have been reclassified in the condensed consolidated statements of operations and comprehensive loss and condensed consolidated statement of cash flows to conform to the current period presentation.
9
Condensed Consolidated Statements of Operations and Comprehensive Loss:
The following table presents the reclassifications made to the Condensed Consolidated Statements of Operations and Comprehensive Loss in order to reclassify repackaging and handling costs from cost of goods sold to selling and marketing expenses. The Company believes this classification change better portrays the financial impacts of the fulfillment activities conducted by the Company. The Company made this change in classification during the third quarter of 2022 as a result of an increasing trend in the occurrence of such fulfillment costs in the business.
The following table presents the impact of the reclassification adjustments on Cost of goods sold, Gross profit, and Selling and marketing expenses of the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021:
(in thousands) |
|
Three Months Ended September 30, 2021 |
|
Reclassification |
|
Three Months Ended September 30, 2021 (adjusted) |
|
|
Nine Months Ended September 30, 2021 |
|
Reclassification |
|
Nine Months Ended September 30, 2021 (adjusted) |
|
||||||
Cost of goods sold |
|
$ |
i 21,952 |
|
$ |
( i 763 |
) |
$ |
i 21,189 |
|
|
$ |
i 56,570 |
|
$ |
( i 1,712 |
) |
$ |
i 54,858 |
|
Gross profit |
|
|
i 17,004 |
|
|
i 763 |
|
|
i 17,767 |
|
|
|
i 47,432 |
|
|
i 1,712 |
|
|
i 49,144 |
|
Selling and marketing expenses |
|
|
i 12,834 |
|
|
i 763 |
|
|
i 13,597 |
|
|
|
i 31,525 |
|
|
i 1,712 |
|
|
i 33,237 |
|
Included in the accompanying results for the nine months ended September 31, 2022 are $ i 3.2 million of expenses previously recorded as cost of goods sold during the six months ended June 30, 2022 that the Company has reclassified to selling and marketing expenses to conform to the current presentation.
Condensed Consolidated Statements of Cash Flows:
The following table presents the reclassifications made to the Condensed Consolidated Statement of Cash Flows:
(in thousands) |
|
Nine Months Ended September 30, 2021 |
|
Reclassification |
|
Nine Months Ended September 30, 2021 (adjusted) |
|
|||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|||
Prepaid expenses and other assets |
|
|
( i 3,609 |
) |
|
( i 28 |
) |
|
( i 3,637 |
) |
Other non-current assets |
|
|
( i 28 |
) |
|
i 28 |
|
|
i — |
|
Accounts payable |
|
|
i 4,155 |
|
|
( i 145 |
) |
|
i 4,010 |
|
Accrued expenses and other current liabilities |
|
|
i 1,025 |
|
|
i 885 |
|
|
i 1,910 |
|
Other current liabilities |
|
|
i 740 |
|
|
( i 740 |
) |
|
i — |
|
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amount of net sales and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by the Company relate to: net sales and associated cost recognition; the useful lives assigned to and the recoverability of property and equipment; reserves recorded for inventory obsolescence; the incremental borrowing rate for lease liabilities; allowance for doubtful accounts; recoverability of intangible assets; realization of deferred tax assets; and the determination of the fair value of equity instruments, including redeemable convertible preferred and common units, restricted unit awards, and equity-based compensation awards. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of its assets and liabilities.
As of September 30, 2022, the Company’s operations continue to be impacted by the effects of the COVID-19 pandemic including the emergence of new variants, with respect to broad-based inflation in input costs, logistics, manufacturing and labor costs. During the three and nine months ended September 30, 2022, the Company experienced significant inflationary impact, which has created headwinds that the Company expects to continue through the end of 2022 and into 2023. The effects of the COVID-19 pandemic continues to impact global economies, and the Company will continue to monitor the situation and the effects on its business and operations, particularly if the COVID-19 pandemic including the emergence of new variants, continues for an extended period of time.
Recent accounting pronouncements
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act ("JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Issued Accounting Pronouncements – Recently Adopted
In April 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-04, which included Topic 260, Earnings Per Share and Topic 718, Compensation - Stock Compensation. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2021-04 as of January 1, 2022. The adoption of ASU 2021-04 did not have a significant impact on the Company's financial statements as the Company does not have freestanding equity-classified written call options.
10
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. This ASU improves areas of US GAAP and reduces cost and complexity while maintaining usefulness. The main provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This ASU is effective for private companies for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company adopted ASU 2019-12 as of January 1, 2022. The adoption of ASU 2019-12 did not have a significant impact on the Company’s financial statements.
Recently Issued Accounting Pronouncements – Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU provides for a new impairment model that requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for private companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements as it does not have a history of material credit losses.
Any other recently issued accounting pronouncements are neither relevant, nor expected to have a material impact on the Company’s financial statements.
3. REVENUES
Disaggregation of Revenue
The Company's products are distributed and sold principally across the U.S. and Canada through a diverse network of major retailers, including: grocery stores, natural products stores, specialty outlets, and warehouse clubs; and through online/e-commerce channels. i The following table disaggregates the Company’s sales by channel:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Retail sales |
|
$ |
i 39,287 |
|
|
$ |
i 33,728 |
|
|
$ |
i 113,047 |
|
|
$ |
i 90,561 |
|
Online/e-commerce |
|
|
i 4,952 |
|
|
|
i 5,228 |
|
|
$ |
i 14,768 |
|
|
|
i 13,441 |
|
Net sales |
|
$ |
i 44,239 |
|
|
$ |
i 38,956 |
|
|
$ |
i 127,815 |
|
|
$ |
i 104,002 |
|
The following table disaggregates the Company’s sales by geographic location of the respective customers:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
i 39,385 |
|
|
$ |
i 35,952 |
|
|
$ |
i 113,696 |
|
|
$ |
i 94,073 |
|
Canada |
|
|
i 4,854 |
|
|
|
i 3,004 |
|
|
|
i 14,119 |
|
|
|
i 9,929 |
|
Net sales |
|
$ |
i 44,239 |
|
|
$ |
i 38,956 |
|
|
$ |
i 127,815 |
|
|
$ |
i 104,002 |
|
Contract liabilities
The Company did i i no / t have any material unsatisfied performance obligations as of September 30, 2022 or December 31, 2021.
/4. INVENTORIES
Inventories consist of the following as of:
(in thousands) |
|
|
|
|
||||
Raw materials |
|
$ |
i 10,645 |
|
|
$ |
i 10,193 |
|
Finished goods |
|
|
i 26,638 |
|
|
|
i 21,308 |
|
Inventories |
|
$ |
i 37,283 |
|
|
$ |
i 31,501 |
|
11
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following as of:
(in thousands) |
|
|
|
|
||||
Land |
|
$ |
i 336 |
|
|
$ |
i 336 |
|
Leasehold improvements |
|
|
i 463 |
|
|
|
i 463 |
|
Computer equipment and software |
|
|
i 3,067 |
|
|
|
i 2,254 |
|
Furniture and equipment |
|
|
i 544 |
|
|
|
i 521 |
|
Vehicles |
|
|
i 177 |
|
|
|
i 38 |
|
Quality control and marketing equipment |
|
|
i 1,269 |
|
|
|
i 532 |
|
Buildings and improvements |
|
|
i 1,603 |
|
|
|
i 1,443 |
|
Assets not yet placed in service |
|
|
i 680 |
|
|
|
i 456 |
|
|
|
|
i 8,139 |
|
|
|
i 6,043 |
|
Less accumulated depreciation |
|
|
( i 3,206 |
) |
|
|
( i 2,379 |
) |
Property and equipment, net |
|
$ |
i 4,933 |
|
|
$ |
i 3,664 |
|
For the three months ended September 30, 2022 and 2021, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $ i 0.3 million and $ i 0.2 million, respectively. For the nine months ended September 30, 2022 and 2021, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $ i 0.9 million and $ i 0.5 million, respectively. These amounts are included under depreciation and amortization in the accompanying condensed consolidated statements of operations and comprehensive loss.
/6. INTANGIBLE ASSETS, NET
The following table provides information pertaining to the Company’s intangible assets as of:
|
|
|
|
|
|
|
||
(in thousands) |
|
|
|
|
||||
Customer relationships |
|
$ |
i 3,007 |
|
|
$ |
i 3,007 |
|
Accumulated amortization |
|
|
( i 2,419 |
) |
|
|
( i 2,269 |
) |
|
|
|
i 588 |
|
|
|
i 738 |
|
Trademarks |
|
|
i 3,000 |
|
|
|
i 3,000 |
|
Intangible assets, net |
|
$ |
i 3,588 |
|
|
$ |
i 3,738 |
|
For the three months ended September 30, 2022 and 2021, total amortization expense amounted to $ i 0.1 million and $ i 0.1 million, respectively. For the nine months ended September 30, 2022 and 2021, total amortization expense amounted to $ i 0.2 million and $ i 0.2 million, respectively. i i i i No / / / impairment losses have been recorded on any of the Company’s intangible assets for the three and nine months ended September 30, 2022 and 2021, respectively.
Amortization expense for intangible assets with definite lives is expected to be as follows:
(in thousands) |
|
|
|
Remainder of 2022 |
$ |
i 50 |
|
2023 |
|
i 200 |
|
2024 |
|
i 200 |
|
2025 |
|
i 138 |
|
Expected amortization expense for intangible assets with definite lives |
$ |
i 588 |
|
7. DEBT
ABL Credit Facility
On February 22, 2022, Zevia LLC (the "Borrower") obtained a revolving credit facility (the “Secured Revolving Line of Credit") by entering into a Loan and Security Agreement with Bank of America, N.A. (the "Loan and Security Agreement"). The Borrower may draw funds under the Secured Revolving Line of Credit up to an amount not to exceed the lesser of (i) a $ i 20 million revolving commitment and (ii) a borrowing base which is comprised of inventory and receivables. Up to $ i 2 million of the Secured Revolving Line of Credit may be used for letter of credit issuances and the Borrower has the
12
option to increase the commitment under the Secured Revolving Line of Credit by up to $ i 10 million, subject to certain conditions. The Secured Revolving Line of Credit matures on February 22, 2027. There have been no amounts drawn under the Secured Revolving Line of Credit.
Loans under the Secured Revolving Line of Credit bear interest based on either, at the Borrower’s option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between i 1.50% to i 2.00% or the Base Rate (customarily defined) plus an applicable margin between i 0.50% to i 1.00% with margin, in each case, determined by the average daily availability under the Secured Revolving Line of Credit.
The Borrower is required under the Secured Revolving Line of Credit to comply with certain covenants, including, among others, by maintaining Liquidity (as defined therein) of $ i 7 million at all times until December 31, 2023. i Thereafter, the Borrower must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $ i 3 million and i 17.5% of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days. As of September 30, 2022, the Company was in compliance with its liquidity covenant.
/8. LEASES
The Company leases office space and vehicles. The leases have remaining lease terms of one to 15 months. On March 25, 2022, the Company entered into an amendment to the lease for its corporate headquarters offices to extend the term through December 31, 2023, and to expand the total square footage from i 17,923 square feet to i 20,185 square feet commencing on May 1, 2022. The Company’s recognized lease costs include:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost(1) |
|
$ |
i 190 |
|
|
$ |
i 151 |
|
|
$ |
i 519 |
|
|
$ |
i 454 |
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2021 |
|
|||
Weighted-average remaining lease term (months) |
|
i 15.0 |
|
|
|
i 7.5 |
|
Weighted-average discount rate |
|
i 7.6 |
% |
|
|
i 7.6 |
% |
The Company’s variable lease costs and short-term lease costs were not material.
The Company is obligated under various non-cancellable lease agreements providing for office space and vehicles that expire at various dates through 2023. i Maturities of lease payments under non-cancellable leases were as follows:
(in thousands) |
|
|
||
Remainder of 2022 |
|
$ |
i 186 |
|
2023 |
|
|
i 744 |
|
Total lease payments |
|
|
i 930 |
|
Less Imputed Interest |
|
|
( i 46 |
) |
Present value of lease liabilities |
|
$ |
i 884 |
|
9. COMMITMENTS AND CONTINGENCIES
Purchase commitments
As of September 30, 2022, the Company does not have any material agreements with suppliers for the purchase of raw material with minimum purchase quantities.
Legal proceedings
The Company is involved from time to time in various claims, proceedings, and litigation. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has not identified any material legal matters where it believes an unfavorable material outcome is reasonably possible and/or for which an estimate of possible losses can be made. Management does not believe that the resolution of these matters would have a material impact on the condensed consolidated financial statements.
13
10. BALANCE SHEET COMPONENTS
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of:
(in thousands) |
|
|
|
|
||||
Accrued employee compensation benefits |
|
$ |
i 3,043 |
|
|
$ |
i 3,032 |
|
Accrued direct selling costs |
|
|
i 2,310 |
|
|
|
i 1,011 |
|
Accrued customer paid bottle deposits |
|
|
i 1,132 |
|
|
|
i 774 |
|
Accrued other |
|
|
i 1,465 |
|
|
|
i 1,888 |
|
Total |
|
$ |
i 7,950 |
|
|
$ |
i 6,705 |
|
11. EQUITY-BASED COMPENSATION
In connection with the IPO, the Company assumed all outstanding equity awards of Zevia LLC on a one-to-two basis and assumed all equity incentive plans and related award agreements from Zevia LLC.
In July 2021, prior to the IPO, the Company adopted the Zevia PBC 2021 Equity Incentive Plan (the “2021 Plan") under which the Company may grant options, stock appreciation rights, restricted stock units ("RSUs"), restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of the Company and its affiliates.
The number of shares available for issuance under the 2021 Plan is increased on January 1 of each year beginning in 2022 and ending with a final increase in 2031 in an amount equal to the lesser of: (i) i 5% of the total number of shares of Class A common stock outstanding on the preceding December 31, and (ii) a smaller number of shares determined by the Company's Board of Directors.
In October and November 2021, the Company amended outstanding RSU awards and outstanding stock options held by certain employees, in each case, to provide for accelerated vesting upon the holder’s retirement on or after January 17, 2022. For this purpose, “retirement” generally includes a resignation after the holder has reached 50 years of age with at least 10 years of service to the Company, so long as the holder provides advance notice of such retirement.
As of September 30, 2022, the 2021 Plan provides for future grants and/or issuances of up to approximately i 2.5 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.
Stock Options
The Company uses a Black-Scholes valuation model to measure stock option expense as of each respective grant date. Generally, stock option grants vest ratably over four years, have a ten-year term, and have an exercise price equal to the fair market value as of the grant date. The fair value of stock options is amortized to expense over the vesting period.
The fair value of stock option awards granted during the period was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
||
Stock price |
|
$ |
i 3.37 |
|
Exercise Price |
|
$ |
i 3.91 |
|
Expected term (years)(1) |
|
|
i 6.25 |
|
Expected volatility (2) |
|
|
i 62.5 |
% |
Risk-Free interest rate (3) |
|
|
i 2.7 |
% |
Dividend yield (4) |
|
|
i 0.0 |
% |
(1) Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.
(2) Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.
(3) The risk-free interest rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.
(4) We have assumed a dividend yield of zero as we have no plans to declare dividends in the foreseeable future.
The weighted average grant date fair value for stock options granted for the nine months ended September 30, 2022 was $ i 1.95.
/The following is a summary of stock option activity for the nine months ended September 30, 2022:
|
Shares |
|
|
Weighted average exercise price |
|
|
Weighted average remaining life |
|
|
Intrinsic value |
|
||||
Outstanding Balance as of January 1, 2022 |
|
i 1,409,693 |
|
|
$ |
i 2.30 |
|
|
|
|
|
|
|
||
Granted |
|
i 1,681,560 |
|
|
$ |
i 3.91 |
|
|
|
|
|
|
|
||
Exercised |
|
( i 189,559 |
) |
|
$ |
i 0.62 |
|
|
|
|
|
|
|
||
Forfeited and expired |
|
( i 78,897 |
) |
|
$ |
i 3.73 |
|
|
|
|
|
|
|
||
Balance as of September 30, 2022 |
|
i 2,822,797 |
|
|
$ |
i 3.32 |
|
|
|
i 8.1 |
|
|
$ |
i 5,245 |
|
Exercisable at the end of the period |
|
i 967,780 |
|
|
$ |
i 1.24 |
|
|
|
i 5.5 |
|
|
$ |
i 3,619 |
|
Vested and expected to vest |
|
i 2,822,797 |
|
|
$ |
i 3.32 |
|
|
|
i 8.1 |
|
|
$ |
i 5,245 |
|
14
/
The total intrinsic values of stock options exercised during the nine months ended September 30, 2022 was $ i 0.7 million.
As of September 30, 2022, total unrecognized compensation expense related to unvested stock options was $ i 3.7 million, which is expected to be recognized over a weighted-average period of i 3.4 years.
Restricted Phantom Units and Restricted Stock Units
In July 2021, the Company’s Board of Directors approved an amendment to i 2,422,644 restricted phantom units (the "Restricted Phantom Units") previously granted by Zevia LLC (the “Phantom Unit Amendment"). The Phantom Unit Amendment changed the settlement feature of all outstanding Restricted Phantom Units so that following vesting, each award Restricted Phantom Units would be settled in shares of Class A common stock having a fair market value equal to (i) the number of Restricted Phantom Units subject to such award, multiplied by (ii) the difference between the fair market value of a share of Class A common stock and the grant date price per Restricted Phantom Unit. All other terms related to the Restricted Phantom Units remained unchanged. As a result of the Phantom Unit Amendment, the estimated fair value of the modified awards was $ i 33.9 million and was recognized as an expense over the vesting period through January 2022 subsequent to the performance condition being met.
In March 2021, the Company's Board of Directors approved an amendment to the RSUs granted in August 2020 ("the RSU Amendment"). The RSU Amendment changed the vesting of such RSUs to occur as follows: (i) in the event of a change of control, the RSUs shall vest effective as of such change of control or (ii) in the event of an IPO, the RSUs shall vest in equal monthly installments over a i 36-month period following the termination of any lockup period and shall be subject to the participant’s continued employment through such vesting date. Additionally, settlement shall occur within i 30 days following the vesting of the RSUs and the participant shall be entitled to receive one share of Class A common stock for each vested RSU. All other terms remained unchanged. As a result of the RSU Amendment, the estimated fair value of the modified awards was $ i 48.9 million and are being recognized as expense over the vesting period subsequent to the performance condition being met.
In November 2021, the Company's Board of Directors approved an amendment to its share-based compensation plans for certain employees to allow immediate vesting upon retirement of all outstanding RSUs and stock options, and to extend the exercisability of outstanding stock options up to five years after retirement, if they meet certain conditions, including length of service and age, and they provide advance notice to the Board of Directors. During the nine months ended September 30, 2022, three employees retired from the Company and all outstanding awards and related stock compensation expense was accelerated through their retirement date.
15
The following is a summary of RSU activity for the nine months ended September 30, 2022:
|
Shares |
|
|
|
Weighted average grant date fair value |
|
|
Aggregate Intrinsic Value |
|
|||
Balance unvested shares at January 1, 2022 |
|
i 7,981,444 |
|
|
|
$ |
i 5.33 |
|
|
|
|
|
Granted |
|
i 1,071,397 |
|
|
|
$ |
i 3.37 |
|
|
|
|
|
Vested |
|
( i 6,259,440 |
) |
* |
|
$ |
i 5.62 |
|
|
|
|
|
Forfeited |
|
( i 38,814 |
) |
|
|
$ |
i 6.58 |
|
|
|
|
|
Balance unvested at September 30, 2022 |
|
i 2,754,587 |
|
|
|
$ |
i 3.91 |
|
|
|
i 11,597 |
|
Expected to vest at September 30, 2022 |
|
i 2,754,587 |
|
|
|
$ |
i 3.91 |
|
|
|
i 11,597 |
|
*Shares vested includes i 1,864,300 of RSUs which vested but are subject to a deferred settlement provision over the next three years.
/As of September 30, 2022, total unrecognized compensation expense related to unvested RSUs was $ i 12.3 million, which is expected to be recognized over a weighted-average period of i 2.5 years.
/12. REDEEMABLE CONVERTIBLE PREFERRED UNITS
Prior to the IPO and the Reorganization Transactions, Zevia LLC had various classes of redeemable convertible preferred units ("preferred units") outstanding that were issued at various times since inception.
In connection with the IPO and the Reorganization Transactions, all outstanding preferred units were reclassified into a single class of common units and each common unit outstanding after giving effect thereto was reclassified as two Class B units on a one-to-two basis.
13. SEGMENT REPORTING
The Company has one operating and reporting segment, which operates as a product portfolio with a single business platform. In reaching this conclusion, management considered the definition of the Chief Operating Decision Maker ("CODM"); how the business is defined by the CODM; the nature of the information provided to the CODM and how that information is used to make operating decisions; and how resources and performance are accessed. The Company’s CODM is the Chief Executive Officer. The results of the operations are provided to and analyzed by the CODM at the Company's level and accordingly, key resource decisions and assessment of performance are performed at the Company's level. The Company has a common management team across all product lines and does not manage these products as individual businesses and as a result, cash flows are not distinct.
14. MAJOR CUSTOMERS, ACCOUNTS RECEIVABLE AND VENDOR CONCENTRATION
The table below represents the Company’s major customers which accounted for more than i i i i 10 / / / % of total net sales for the following periods:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Customer A |
|
|
i 15 |
% |
|
|
i 20 |
% |
|
|
i 16 |
% |
|
|
i 19 |
% |
Customer B |
|
* |
|
|
|
i 17 |
% |
|
|
i 10 |
% |
|
|
i 17 |
% |
|
Customer C |
|
* |
|
|
|
i 12 |
% |
|
* |
|
|
|
i 11 |
% |
||
Customer D |
|
* |
|
|
|
i 10 |
% |
|
* |
|
|
|
i 11 |
% |
The table below represents the Company’s customers which accounted for more than i i 10 / % of total accounts receivable, net as of:
|
|
|
|
|
||||
Customer B |
|
* |
|
|
|
i 13 |
% |
|
Customer D |
|
|
i 18 |
% |
|
|
i 15 |
% |
Customer E |
|
|
i 12 |
% |
|
|
i 11 |
% |
Customer F |
|
* |
|
|
|
i 12 |
% |
|
Customer H |
|
|
i 14 |
% |
|
* |
|
The table below represents raw material vendors that accounted for more than i i i i 10 / / / % of all raw material purchases for the following periods:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Vendor A |
|
|
i 27 |
% |
|
|
i 37 |
% |
|
|
i 28 |
% |
|
|
i 34 |
% |
Vendor B |
|
|
i 25 |
% |
|
|
i 18 |
% |
|
|
i 16 |
% |
|
|
i 21 |
% |
Vendor C |
|
|
i 15 |
% |
|
|
i 12 |
% |
|
|
i 13 |
% |
|
|
i 13 |
% |
* Less than i i i i 10 / / / % of total net sales, accounts receivable, net or raw material purchases.
/15. LOSS PER SHARE
Basic earnings per share of Class A common stock is computed by dividing net loss attributable to the Company for the period by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is computed by dividing net loss attributable to the Company by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. There were no shares of Class A or Class B common stock outstanding prior to July 22, 2021, and therefore, no earnings per share information has been presented for any period prior to that date.
16
Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to Zevia PBC and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Shares of the Company’s Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related Zevia LLC Class B Common Units, are exchangeable into shares of Class A common stock on a one-for-one basis.
Prior to the IPO, the Zevia LLC membership structure included various classes of preferred units. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, earnings per share information has not been presented for any period prior to the IPO.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|||||
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss and comprehensive loss |
|
$ |
( i 9,196 |
) |
|
$ |
( i 49,761 |
) |
|
$ |
( i 41,477 |
) |
|
$ |
( i 50,263 |
) |
|
Less: net loss attributable to Zevia LLC prior to the Reorganization Transactions |
|
|
i — |
|
|
$ |
i 1,411 |
|
|
|
i — |
|
|
$ |
i 1,913 |
|
|
Less: net loss attributable to non-controlling interests |
|
|
i 1,712 |
|
|
|
i 22,527 |
|
|
|
i 12,005 |
|
|
|
i 22,527 |
|
|
Net loss to Zevia PBC |
|
$ |
( i 7,484 |
) |
|
$ |
( i 25,823 |
) |
|
$ |
( i 29,472 |
) |
|
$ |
( i 25,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares of Class A common stock outstanding – basic |
|
|
i 44,072,985 |
|
|
|
i 34,440,982 |
|
|
|
i 40,393,978 |
|
|
|
i 34,440,982 |
|
|
Weighted-average shares of Class A common stock outstanding – diluted |
|
|
i 44,072,985 |
|
|
|
i 34,440,982 |
|
|
|
i 40,393,978 |
|
|
|
i 34,440,982 |
|
|
Loss per share of Class A common stock – basic |
|
$ |
( i 0.17 |
) |
|
$ |
( i 0.75 |
) |
(1) |
$ |
( i 0.73 |
) |
|
$ |
( i 0.75 |
) |
(1) |
Loss per share of Class A common stock – diluted |
|
$ |
( i 0.17 |
) |
|
$ |
( i 0.75 |
) |
(1) |
$ |
( i 0.73 |
) |
|
$ |
( i 0.75 |
) |
(1) |
(1) Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from July 22,2021 through September 30, 2021, the period following the Reorganization Transactions and IPO.
/Zevia LLC Class B Common Units, stock options and restricted stock units were evaluated under the treasury stock method for potential dilutive effects and were determined to be anti-dilutive. i The following weighted average outstanding shares were excluded from the computation of diluted net loss per share available to common stockholders:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Zevia LLC Class B Common Units exchangeable to shares of Class A common Stock |
|
|
i 24,394,109 |
|
|
|
i 30,113,152 |
|
|
|
i 26,936,871 |
|
|
|
i 30,113,152 |
|
Stock Options |
|
|
i 2,637,539 |
|
|
|
i 1,433,264 |
|
|
|
i 2,044,472 |
|
|
|
i 1,433,264 |
|
Restricted stock units |
|
|
i 2,911,356 |
|
|
|
i 7,993,444 |
|
|
|
i 3,742,307 |
|
|
|
i 7,993,444 |
|
Restricted stock units vested but unsettled |
|
|
i 1,865,507 |
|
|
|
i — |
|
|
|
i 1,761,485 |
|
|
|
i — |
|
17
16. INCOME TAXES AND TAX RECEIVABLE AGREEMENT
Income Taxes
The Company is the managing member of Zevia LLC and as a result, consolidates the financial results of Zevia LLC in the unaudited condensed consolidated financial statements of Zevia PBC. Zevia LLC is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following the Reorganization Transactions effected in connection with the IPO. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the Company. The Company is taxed as a C corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on Zevia PBC's economic interest in Zevia LLC, which was i 65.1% as of September 30, 2022.
The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate of i 21% to income before provision of income taxes due to Zevia LLC’s pass-through structure for U.S. income tax purposes, pass-through permanent differences, state franchise taxes, tax effects of stock-based compensation, and the valuation allowance against the deferred tax assets. Except for state franchise taxes, Zevia PBC did not recognize an income tax expense (benefit) on its share of pre-tax book loss, exclusive of the noncontrolling interest of i 34.9%, due to the full valuation allowance against its deferred tax assets.
Tax Receivable Agreement
The Company expects to obtain an increase in its share of tax basis in the net assets of Zevia LLC when Class B units are exchanged by the holders of Class B units for shares of Class A common stock of the Company and upon other qualifying transactions. Each change in outstanding shares of Class A common stock of the Company results in a corresponding increase or decrease in the Company's ownership of Class A units of Zevia LLC. The Company intends to treat any exchanges of Class B units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Zevia PBC would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
In connection with the IPO, the Company entered into the Tax Receivable Agreement ("TRA") with continuing members of Zevia LLC and the shareholders of blocker companies of certain pre-IPO institutional investors (the "Direct Zevia Stockholders"). In the event that such parties exchange any or all of their Class B units for Class A common stock, the TRA requires the Company to make payments to such holders for i 85% of the tax benefits realized, or in some cases deemed to be realized, by the Company by such exchange as a result of (i) certain favorable tax attributes acquired from the blocker companies in the course of mergers related to the IPO (including net operating losses and the blocker companies’ allocable share of existing tax basis), (ii) increases in tax basis resulting from Zevia PBC's acquisition of continuing members' Zevia LLC units in connection with the IPO and in future exchanges and, (iii) tax basis increases attributable to payments made under the TRA (including tax benefits related to imputed interest). The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in Zevia LLC or the Company. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.
The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an assumption related to the fair market value of assets. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of the Secured Overnight Financing Rate plus 300 basis points from the due date (without extensions) of such tax return.
The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur; (ii) there is a material uncured breach of any obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any Class B units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination.
As of September 30, 2022, management believes based on applicable accounting standards and the weight of all available evidence, it is not more likely than not that the Company will generate sufficient taxable income to realize the Company's deferred tax assets ("DTAs") including the difference in the Company's tax basis in excess of the financial reporting value for the Company's investment in Zevia LLC. Consequently, management has established a full valuation allowance against the Company's DTAs as of September 30, 2022 and determined that it was more likely than not that its DTAs subject to the TRA would not be realized as of September 30, 2022. The Company has not recognized a liability related to the tax savings it may realize from utilization of such DTAs. As of September 30, 2022, the total unrecorded TRA liability is approximately $ i 55.3 million. If utilization of the DTAs subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA, to the extent probable at that time, which will be recognized as an expense within its condensed consolidated statements of operations and comprehensive loss.
/18
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion contains forward-looking statements that involve risks and uncertainties. The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” and other sections of this Quarterly Report and our consolidated financial statements and notes thereto included in our Annual Report. The financial data discussed below reflects the historical results of operations and financial position of the Company. References in this Quarterly Report to “Zevia,” the “Company,” “we,” “us,” and “our” refer (1) prior to the consummation of the Reorganization Transactions, to Zevia LLC, and (2) after the consummation of the Reorganization Transactions, to Zevia PBC and its consolidated subsidiaries unless the context indicates otherwise. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
We are a high-growth beverage company that develops, markets, sells, and distributes great tasting, zero sugar beverages made with simple, plant-based ingredients. We are a Delaware public benefit corporation designated as a “Certified B Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by offering a broad portfolio of zero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and zero sodium and include a variety of flavors across Soda, Energy Drinks, Organic Tea, Mixers, Kidz drinks and Sparkling Water. Our products are distributed across the U.S. and Canada through a diverse network of major retailers in the food, drug, warehouse club, mass, natural and e-commerce channels. We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the Zevia® brand and resulted in over one billion cans of Zevia sold to date.
Consumers can purchase our products in both brick-and-mortar and e-commerce channels. Zevia was initially distributed in the U.S. natural products retail channel, where we still maintain the leading position. Fueled by a loyal and growing consumer base, we expanded our presence online and into conventional food, drug, warehouse club and mass retailers. In the third quarter of 2022, Zevia continued as the highest selling carbonated soft drink brand on Amazon according to 1010data, which we believe is representative of an online product discovery and education-oriented purchasing process that is gaining traction among shoppers.
IPO and Reorganization Transactions
On July 26, 2021, we completed our IPO of Class A common stock, in which we sold 10,700,000 shares to the underwriters. Shares of Class A common stock began trading on the New York Stock Exchange under the ticker symbol “ZVIA” on July 22, 2021. These shares were sold at an IPO price of $14.00 per share for net proceeds of approximately $139.7 million, after deducting underwriting discounts and commissions of $10.1 million.
Immediately following the closing of the IPO on July 26, 2021, Zevia LLC became the predecessor of Zevia PBC for financial reporting purposes. Zevia PBC is a holding company, and its sole material asset is its controlling equity interest in Zevia LLC. As the sole managing member of Zevia LLC, Zevia PBC operates and controls all of the business and affairs of Zevia LLC. This reorganization is accounted for as a reorganization of entities under common control. As a result, the condensed consolidated financial statements of Zevia PBC will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical financial statements of Zevia LLC. Zevia PBC has consolidated Zevia LLC in its financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheet and statement of operations. As of September 30, 2022, Zevia PBC holds an economic interest of 65.1% in Zevia LLC and the remaining 34.9% represents the non-controlling interest.
19
Factors Affecting the Comparability of Our Results of Operations
As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
Impact of the Reorganization Transactions
The Company is classified as a corporation for U.S. federal and state income tax purposes. Our accounting predecessor, Zevia LLC, was and is a flow-through entity for U.S. federal and most applicable state and local income tax purposes. As an entity classified as a partnership for tax purposes, Zevia LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Zevia LLC is passed through to its members, including the Company. Zevia PBC is taxed as a C corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on the Company's economic ownership interest in Zevia LLC, which was 65.1% as of September 30, 2022. Accordingly, the historical results of operations and other financial information set forth in this Quarterly Report do not include a provision for U.S. federal income taxes. Following the completion of the Reorganization Transactions, the Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on the Company's 65.1% economic interest in Zevia LLC.
Zevia LLC is the predecessor of the Company for financial reporting purposes. As a result, the condensed consolidated financial statements of the Company recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical condensed consolidated financial statements of Zevia LLC, the accounting predecessor.
In addition, in connection with the Reorganization Transactions and the IPO, we entered into the tax receivable agreement described in Note 16, - Income Taxes and Tax Receivable Agreement in the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Initial Public Offering
In July 2021, the Company completed its IPO, which significantly impacted our cash, debt, and equity balances. Concurrent with the IPO, the Company also terminated its previous credit facility, which reduced our outstanding debt to zero, and our interest expense was significantly reduced in the second half of 2021 and in 2022 relative to historical results.
Equity-Based Compensation
In March 2021, Zevia LLC modified certain outstanding RSU awards originally granted in August 2020 to provide for vesting as follows: (i) in the event of a change of control, the RSUs shall vest effective as of such change of control, or (ii) in the event of an IPO, the RSUs shall vest in equal monthly installments over a 36-month period following the termination of any lockup period and shall be subject to the participant’s continued employment through such vesting date. In July 2021, Zevia modified all outstanding restricted phantom unit awards to permit settlement into shares, eliminating the existing cash-settlement provision. These modifications resulted in the revaluation of the awards in accordance with US GAAP. No equity-based compensation had been recognized for all of the RSUs and restricted phantom awards as the qualifying vesting event (i.e., the IPO) was not probable. From completion of the IPO through September 30, 2022, the Company recognized $100.0 million of compensation expense attributable to these RSUs and restricted phantom unit awards, as well as other outstanding RSUs issued prior to the IPO. The remaining unamortized fair value of the RSU awards will be recognized as equity-based compensation over the remaining service period of the awards, which vest over a 36-month period following the termination of the lockup period in January 2022. Refer to Note 11 - Equity-based Compensation in the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for unamortized equity-based compensation costs related to each type of equity-based incentive award.
Other Factors Affecting Our Performance
COVID-19 UPDATE
The ongoing COVID-19 pandemic, including the emergence of new variants and its resulting impacts on the global economy, including supply chain challenges and labor shortages, have led to broad-based inflation in input costs, logistics, manufacturing and labor costs. During the nine months ended September 30, 2022, we have experienced supply chain constraints and a significant inflationary impact compared to the prior year. These impacts have created headwinds for our products that we expect to continue through the rest of 2022 and into 2023. These inflationary pressures have and are expected to continue to impact our margins and operating results. We, along with our competitors, have increased pricing on a number of products in response to widespread inflation. These pricing increases may result in future reductions in volume.
The following summarizes the components of our results of operations for the three and nine months ended September 30, 2022 and 2021, respectively.
Components of Our Results of Operations
Net Sales
We generate net sales from sales of our products, including Soda, Energy Drinks, Organic Tea, Mixers, Kidz beverages and Sparkling Water, to our customers, which include grocery distributors, national retailers, natural products retailers, warehouse club and e-commerce channels, in the U.S. and Canada.
We offer our customers sales incentives that are designed to support the distribution of our products to consumers. These incentives include discounts, trade promotions, price allowances and product placement fees. The amounts for these incentives are deducted from gross sales to arrive at our net sales.
20
We have experienced substantial growth in net sales in the past three years. The following factors and trends in our business have driven net sales growth over this period and are expected to continue to be key drivers of our net sales growth for the foreseeable future:
We expect both new distribution and increased organic sales from existing outlets and pricing strategies to contribute to our growth going forward, however sales levels in any given period may be impacted by seasonality and customers efforts to manage inventory.
We sell our products in the U.S. and Canada, direct to retailers and also through distributors. We do not have short- or long- term sales commitments with our customers.
Cost of Goods Sold
Cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees. Our cost of goods sold is subject to price fluctuations in the marketplace, particularly in the price of aluminum and other raw materials, as well as in the cost of production, packaging, in-bound freight and logistics. Our results of operations depend on our ability to arrange for the purchase of raw materials and the production of our products in sufficient quantities at competitive prices. We have long-term contracts with certain suppliers of stevia and aluminum cans. We expect over the long term that, as the scale of our business increases, we will purchase a greater percentage of our aluminum cans directly rather than through third-party manufacturers. We have long-term contracts with certain manufacturers governing pricing and other terms and minimum commitments on our part, but these contracts generally do not guarantee any minimum production volumes on the part of the manufacturers.
We expect our cost of goods sold to increase in absolute dollars as our volume increases.
We elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in our condensed consolidated statements of operations and comprehensive loss. As a result, our gross profit and profit margin may not be comparable to other entities that present shipping and handling costs as a component of cost of goods sold.
Gross Profit
Gross profit consists of our net sales less costs of goods sold. Our gross profit and gross margin are affected by the mix of distribution channels of our net sales in each period, as well as the level of discounts and promotions offered during the period. Gross profit may be favorably impacted by leveraging our asset-light business model and through increased distribution direct to retailers, the increased scale of our business and our continued focus on cost improvements, particularly in our supply chain.
Operating Expenses
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of warehousing and distribution costs and advertising and marketing expenses. Warehousing and distribution costs include storage, transfer, repacking and handling fees and out-bound freight and delivery charges. Advertising and marketing expenses consist of variable costs associated with production and media buying of marketing programs and trade events. Selling and marketing expenses also includes the incremental costs of obtaining contracts, such as sales commissions.
Our selling and marketing expenses are expected to increase in absolute dollars, both as a result of the increased warehousing and distribution costs resulting from increased net sales, which we expect to be partially offset by our continued focus on cost improvements in our supply chain, and as a result of increased focus on marketing programs/spend.
General and Administrative Expenses
Administrative expenses include all salary and other personnel expenses (other than equity-based compensation expense) for our employees, including employees related to management, marketing, sales, product development, quality control, accounting, information technology and other functions. Our general and administrative expenses are expected to grow at a lower percentage of net sales over time.
Equity-Based Compensation Expense
Equity-based compensation expense consists of the recorded expense of equity-based compensation for our employees and for certain consultants and service providers who are non-employees. We record equity-based compensation expense for employee grants using grant date fair value for RSUs or a Black-Scholes valuation model to calculate the fair value of stock options by date granted. Equity-based compensation cost for RSU awards is measured based on the closing fair market value of the Zevia LLC Class B unit or the Zevia PBC Class A common stock, as applicable, on the date of grant. Over time, we expect our equity-based compensation expense to significantly decrease compared to the year ended December 31, 2021 as a result of the expiration of the lockup period in January 2022, which coincided with the end of the vesting period for the majority of the awards and acceleration of expense in connection with the retirement of certain employees.
21
Depreciation and Amortization
Depreciation is primarily related to building and related improvements, software applications, computer equipment, quality control and marketing equipment, and leasehold improvements. Intangible assets subject to amortization consist of customer relationships. Non-amortizable intangible assets consist of trademarks, which represents the Company’s exclusive ownership of the Zevia® brand used in connection with the manufacturing, marketing, and distribution of its beverages. We also own several other trademarks in both the U.S. and in foreign countries. Depreciation and amortization expense is expected to increase in-line with ongoing capital expenditures as our business grows.
Other (expense) income, net
Other (expense) income, net consists primarily of interest (expense) income, and foreign currency (loss) gains.
Results of Operations
The following table sets forth selected items in our condensed consolidated statements of operations and comprehensive loss for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|||||
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
||||||||||
Net sales |
|
$ |
44,239 |
|
|
$ |
38,956 |
|
|
$ |
127,815 |
|
|
$ |
104,002 |
|
|
Cost of goods sold |
|
|
25,071 |
|
|
|
21,189 |
|
|
|
73,445 |
|
|
|
54,858 |
|
|
Gross profit |
|
|
19,168 |
|
|
|
17,767 |
|
|
|
54,370 |
|
|
|
49,144 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
12,916 |
|
|
|
13,597 |
|
|
|
42,845 |
|
|
|
33,237 |
|
|
General and administrative |
|
|
8,310 |
|
|
|
7,698 |
|
|
|
28,257 |
|
|
|
19,352 |
|
|
Equity-based compensation |
|
|
6,837 |
|
|
|
45,731 |
|
|
|
23,781 |
|
|
|
45,804 |
|
|
Depreciation and amortization |
|
|
326 |
|
|
|
239 |
|
|
|
1,005 |
|
|
|
713 |
|
|
Total operating expenses |
|
|
28,389 |
|
|
|
67,265 |
|
|
|
95,888 |
|
|
|
99,106 |
|
|
Loss from operations |
|
|
(9,221 |
) |
|
|
(49,498 |
) |
|
|
(41,518 |
) |
|
|
(49,962 |
) |
|
Other (expense) income, net |
|
|
26 |
|
|
|
(213 |
) |
|
|
64 |
|
|
|
(251 |
) |
|
Loss before income taxes |
|
|
(9,195 |
) |
|
|
(49,711 |
) |
|
|
(41,454 |
) |
|
|
(50,213 |
) |
|
Provision for income taxes |
|
|
(1 |
) |
|
|
(50 |
) |
|
|
(23 |
) |
|
|
(50 |
) |
|
Net loss and comprehensive loss |
|
|
(9,196 |
) |
|
|
(49,761 |
) |
|
|
(41,477 |
) |
|
|
(50,263 |
) |
|
Net loss attributable to Zevia LLC prior to the Reorganization Transactions |
|
|
— |
|
|
|
1,411 |
|
|
|
— |
|
|
|
1,913 |
|
|
Loss attributable to noncontrolling interest |
|
|
1,712 |
|
|
|
22,527 |
|
|
|
12,005 |
|
|
|
22,527 |
|
|
Net loss attributable to Zevia PBC |
|
$ |
(7,484 |
) |
|
$ |
(25,823 |
) |
|
$ |
(29,472 |
) |
|
$ |
(25,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.17 |
) |
|
$ |
(0.75 |
) |
(1) |
$ |
(0.73 |
) |
|
$ |
(0.75 |
) |
(1) |
Diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.75 |
) |
(1) |
$ |
(0.73 |
) |
|
$ |
(0.75 |
) |
(1) |
(1) Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from July 22,2021 through September 30, 2021, the period following the Reorganization Transactions and IPO.
The following table presents selected items in our condensed consolidated statements of operations and comprehensive loss as a percentage of net sales for the respective periods presented. Percentages may not sum due to rounding:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Net sales |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of goods sold |
|
|
57 |
% |
|
|
54 |
% |
|
|
57 |
% |
|
|
53 |
% |
Gross profit |
|
|
43 |
% |
|
|
46 |
% |
|
|
43 |
% |
|
|
47 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and marketing |
|
|
29 |
% |
|
|
35 |
% |
|
|
34 |
% |
|
|
32 |
% |
General and administrative |
|
|
19 |
% |
|
|
20 |
% |
|
|
22 |
% |
|
|
19 |
% |
Equity-based compensation |
|
|
15 |
% |
|
|
117 |
% |
|
|
19 |
% |
|
|
44 |
% |
Depreciation and amortization |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Total operating expenses |
|
|
64 |
% |
|
|
173 |
% |
|
|
75 |
% |
|
|
95 |
% |
Loss from operations |
|
|
(21 |
)% |
|
|
(127 |
)% |
|
|
(32 |
)% |
|
|
(48 |
)% |
Other (expense) income, net |
|
|
0 |
% |
|
|
(1 |
)% |
|
|
0 |
% |
|
|
(0 |
)% |
Loss before income taxes |
|
|
(21 |
)% |
|
|
(128 |
)% |
|
|
(32 |
)% |
|
|
(48 |
)% |
Provision for income taxes |
|
|
(0 |
)% |
|
|
(0 |
) |
|
|
(0 |
)% |
|
|
(0 |
) |
Net loss and comprehensive loss |
|
|
(21 |
)% |
|
|
(128 |
)% |
|
|
(32 |
)% |
|
|
(48 |
)% |
Net loss attributable to Zevia LLC prior to the Reorganization Transactions |
|
|
0 |
% |
|
|
4 |
% |
|
|
0 |
% |
|
|
2 |
% |
Loss attributable to noncontrolling interest |
|
|
4 |
% |
|
|
58 |
% |
|
|
9 |
% |
|
|
22 |
% |
Net loss attributable to Zevia PBC |
|
|
(17 |
)% |
|
|
(66 |
)% |
|
|
(23 |
)% |
|
|
(25 |
)% |
22
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net Sales
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Net sales |
|
$ |
44,239 |
|
|
$ |
38,956 |
|
|
$ |
5,283 |
|
|
|
13.6 |
% |
Net sales were $44.2 million for the three months ended September 30, 2022 as compared to $39.0 million for the three months ended September 30, 2021. Equivalized cases sold were 3.6 million for the three months ended September 30, 2022 as compared to 3.5 million for the three months ended September 30, 2021. Net sales growth was driven by the 2.3% increase in the number of equivalized cases sold and the impact of product mix resulting in $3.1 million higher net sales. Pricing increases also contributed to higher net sales of $2.2 million. We define an equivalized case as a 288 fluid ounce case.
Cost of Goods Sold
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Cost of goods sold |
|
$ |
25,071 |
|
|
$ |
21,189 |
|
|
$ |
3,882 |
|
|
|
18.3 |
% |
Cost of goods sold was $25.1 million for the three months ended September 30, 2022 as compared to $21.2 million for the three months ended September 30, 2021. The increase of $3.9 million or 18.3%, was primarily due to a 2.3% increase in the shipment of equivalized cases resulting in $0.5 million higher costs of goods sold, and $3.4 million higher cost of goods sold due to broad-based inflation.
Gross Profit and Gross Margin
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Gross profit |
|
$ |
19,168 |
|
|
$ |
17,767 |
|
|
$ |
1,401 |
|
|
|
7.9 |
% |
Gross margin |
|
|
43.3 |
% |
|
|
45.6 |
% |
|
|
|
|
|
|
Gross profit was $19.2 million for the three months ended September 30, 2022 as compared to $17.8 million for the three months ended September 30, 2021. The increase in gross profit of $1.4 million, or 7.9%, was primarily driven by higher net sales, offset by higher cost of goods sold.
Gross margin for the three months ended September 30, 2022 declined to 43.3% from 45.6% in the prior-year period. The decline was primarily due to the impact of inflationary pressures partially offset by price increases.
Selling and Marketing Expenses
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Selling and marketing expenses |
|
$ |
12,916 |
|
|
$ |
13,597 |
|
|
$ |
(681 |
) |
|
|
(5.0 |
)% |
Selling and marketing expenses were $12.9 million for the three months ended September 30, 2022 as compared to $13.6 million for the three months ended September 30, 2021. The decrease of $0.7 million, or 5.0%, was primarily due to lower freight and warehousing costs of $0.2 million driven by pricing and efficiencies and a reduction of non-working marketing costs of $0.5 million.
General and Administrative Expenses
|
|
Three Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
General and administrative expenses |
|
$ |
8,310 |
|
|
$ |
7,698 |
|
|
$ |
612 |
|
|
|
8.0 |
% |
General and administrative expenses were $8.3 million for the three months ended September 30, 2022 as compared to $7.7 million for the three months ended September 30, 2021. The increase of $0.6 million, or 8.0%, was primarily driven by a $1.1 million increase in headcount and personnel costs to support our growth, partially offset by a $0.5 million decrease in public company costs due to expense optimization initiatives.
Equity-Based Compensation Expenses
|
|
Three Months Ended September 30, |
|
|
Change |
|||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|||
Equity-based compensation |
|
$ |
6,837 |
|
|
$ |
45,731 |
|
|
$ |
(38,894 |
) |
|
N/M |
Equity-based compensation expense was $6.8 million for the three months ended September 30, 2022, of which $3.8 million related to RSU awards that were accelerated upon retirement of a legacy senior management employee, and the remaining $3.0 million related to outstanding equity-based awards being recognized over the remaining service periods of the awards. The decrease of $38.9 million was primarily driven by RSU and restricted phantom stock awards that vested over six months following the IPO in the prior year.
23
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
Net Sales
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Net sales |
|
$ |
127,815 |
|
|
$ |
104,002 |
|
|
$ |
23,813 |
|
|
|
22.9 |
% |
Net sales were $127.8 million for the nine months ended September 30, 2022 as compared to $104.0 million for the nine months ended September 30, 2021. Equivalized cases sold were 10.9 million for the nine months ended September 30, 2022 as compared to 9.3 million for the nine months ended September 30, 2021. Net sales growth was driven by the 16.9% increase in the number of equivalized cases sold, primarily from distribution expansion of $14.1 million, and $9.7 million from organic growth, product mix, and pricing increases. We define an equivalized case as a 288 fluid ounce case.
Cost of Goods Sold
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Cost of goods sold |
|
$ |
73,445 |
|
|
$ |
54,858 |
|
|
$ |
18,587 |
|
|
|
33.9 |
% |
Cost of goods sold was $73.4 million for the nine months ended September 30, 2022 as compared to $54.9 million for the nine months ended September 30, 2021. The increase of $18.6 million, or 33.9%, was primarily due to a 16.9% increase in the shipment of equivalized cases resulting in $9.3 million higher cost of goods sold, and $9.3 million higher cost of goods sold primarily due to broad-based inflation.
Gross Profit and Gross Margin
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Gross profit |
|
$ |
54,370 |
|
|
$ |
49,144 |
|
|
$ |
5,226 |
|
|
|
10.6 |
% |
Gross margin |
|
|
42.5 |
% |
|
|
47.3 |
% |
|
|
|
|
|
|
Gross profit was $54.4 million for the nine months ended September 30, 2022 as compared to $49.1 million for the nine months ended September 30, 2021. The increase in gross profit of $5.2 million, or 10.6%, was primarily driven by higher net sales, partially offset by higher cost of goods sold.
Gross margin for the nine months ended September 30, 2022 declined to 42.5% from 47.3% in the prior-year period. The decline was primarily due to the impact of inflationary pressures partially offset by price increases.
Selling and Marketing Expenses
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
Selling and marketing expenses |
|
$ |
42,845 |
|
|
$ |
33,237 |
|
|
$ |
9,608 |
|
|
|
28.9 |
% |
Selling and marketing expenses were $42.8 million for the nine months ended September 30, 2022 as compared to $33.2 million for the nine months ended September 30, 2021. The increase of $9.6 million or 28.9%, was largely due to $3.5 million higher freight and warehousing costs as a result of increases in equivalized cases produced and sold, increases in repacking fees of $2.6 million, and higher freight costs amounting to $3.7 million due to inflation.
General and Administrative Expenses
|
|
Nine Months Ended September 30, |
|
|
Change |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|
||||
General and administrative expenses |
|
$ |
28,257 |
|
|
$ |
19,352 |
|
|
$ |
8,905 |
|
|
|
46.0 |
% |
General and administrative expenses were $28.3 million for the nine months ended September 30, 2022 as compared to $19.4 million for the nine months ended September 30, 2021. The increase of $8.9 million, or 46.0%, was primarily driven by a $6.4 million increase in headcount and personnel costs to support our growth, and a $2.6 million increase in costs related to being a public company, including insurance, accounting, and legal and other professional fees.
Equity-Based Compensation Expense
|
|
Nine Months Ended September 30, |
|
|
Change |
|||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
Percentage |
|||
Equity-based compensation |
|
$ |
23,781 |
|
|
$ |
45,804 |
|
|
$ |
(22,023 |
) |
|
N/M |
24
Equity-based compensation expense was $23.8 million for the nine months ended September 30, 2022, of which $3.1 million related to RSU awards and restricted phantom stock awards that vested as of the expiration of the IPO lock-up period in January 2022, $7.8 million related to RSU awards that were accelerated upon retirement of certain senior management employees, and the remaining $12.9 million related to outstanding equity-based awards being recognized over the remaining service periods of the awards.
Seasonality
Generally, we experience greater demand for our products during the second and third fiscal quarters of the year, which correspond to the warmer months of the year in our major markets. As our business continues to grow, we expect to see continued seasonality effects, with net sales tending to be greater in the second and third quarters of the year.
Liquidity and Capital Resources
Liquidity and Capital Resources
As of September 30, 2022, we had $49.2 million in cash and cash equivalents. We believe that our cash and cash equivalents as of September 30, 2022, together with our operating activities and available borrowings under the Secured Revolving Line of Credit, will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments beyond the next 12 months.
Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from sales of our products, and borrowing capacity currently available under our Secured Revolving Line of Credit. Our primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in our business.
Future capital requirements will depend on many factors, including our rate of revenue growth, gross margin and the level of expenditures in all areas of the Company. We expect operating and capital expenditures to increase in the future as we expand business activities and increase headcount to promote growth. To the extent that existing capital resources and sales growth are not sufficient to fund future activities, we may seek alternative financing through additional equity or debt transactions. Additional funds may not be available on terms favorable to us or at all. Also, we will continue to assess our liquidity needs as the effects of the COVID-19 pandemic, global health emergencies, inflationary pressures, and the hostilities in Eastern Europe continue to disrupt and impact the global and national economies and global financial markets. If the disruption continues into the future, we may not be able to access the financial markets and could experience an inability to access additional capital, which could negatively affect our operations in the future. Failure to raise additional capital, if and when needed, could have a material adverse effect on our financial position, results of operations, and cash flows.
Prior to our IPO, we had financed our operations through private sales of equity securities and through sales of our products. In connection with our IPO, which was completed on July 26, 2021, we sold an aggregate of 10,700,000 shares of our Class A common stock at an IPO price of $14.00 per share and retained approximately $90.1 million in net proceeds, after deducting underwriting discounts and commissions and giving effect to the use of proceeds thereto. In addition, we incurred $8.4 million of offering costs in connection with the IPO. Upon consummation of the IPO, the Company became a holding company with no operations of its own. Accordingly, the Company will be dependent on distributions from Zevia LLC to pay its taxes, its obligations under the TRA and other expenses. Any future credit facilities may impose limitations on the ability of Zevia LLC to pay dividends to the Company.
In connection with the IPO and the Reorganization Transactions, the Direct Zevia Stockholders and certain continuing members of Zevia LLC received the right to receive future payments pursuant to the TRA. The amount payable under the TRA will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of certain pre-IPO tax attributes and tax benefits resulting from sales and exchanges by continuing members of Zevia LLC. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” included in the prospectus dated July 21, 2021 and filed with the SEC on July 23, 2021. We expect that the payments that we may be required to make under the TRA may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $65.1 million through 2037. Under such scenario we would be required to pay the Direct Zevia Stockholders and certain continuing members of Zevia LLC 85% of such amount, or $55.3 million through 2037.
The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and TRA payments by us will be calculated using prevailing tax rates applicable to us over the life of the TRA and will be dependent on us generating sufficient future taxable income to realize the benefit.
We cannot reasonably estimate future annual payments under the TRA given the difficulty in determining those estimates as they are dependent on a number of factors, including the extent of exchanges by continuing Zevia LLC unitholders, the associated fair value of the underlying Zevia LLC units at the time of those exchanges, the tax rates applicable, our future income, and the associated tax benefits that might be realized that would trigger a TRA payment requirement.
However, a significant portion of any potential future payments under the TRA is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by us, assuming Zevia LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by Zevia LLC, the associated taxable income of Zevia will be impacted and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated TRA payments to be made. Given the length of time over which payments would be payable, the impact to liquidity in any single year is greatly reduced.
Although the timing and extent of future payments could vary significantly under the TRA for the factors discussed above, we anticipate funding payments from the TRA from cash flows generated from operations.
25
Credit Facility
ABL Credit Facility
On February 22, 2022, we obtained a revolving credit facility (the “Secured Revolving Line of Credit") by entering into a Loan and Security Agreement with Bank of America, N.A. Under the Secured Revolving Line of Credit, we may draw funds up to an amount not to exceed the lesser of (i) a $20 million revolving commitment and (ii) a borrowing base which is comprised of inventory and receivables. Up to $2 million of the Secured Revolving Line of Credit may be used for letter of credit issuances with the option to increase the commitment under the Secured Revolving Line of Credit by up to $10 million, subject to certain conditions. The Secured Revolving Line of Credit matures on February 22, 2027. There have been no amounts drawn from the Secured Revolving Line of Credit.
Loans under the Secured Revolving Line of Credit bear interest based on either, at our option, the Bloomberg Short-Term Bank Yield Index rate plus an applicable margin between 1.50% to 2.00% or the Base Rate (customarily defined) plus an applicable margin between 0.50% to 1.00% with margin, in each case, determined by the average daily availability under the Secured Revolving Line of Credit.
We are required under the Secured Revolving Line of Credit to comply with certain covenants, including, among others, by maintaining Liquidity (as defined therein) of $7 million at all times until December 31, 2023. Thereafter, we must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days.
Cash Flows
The following table presents the major components of net cash flows from and used in operating, investing and financing activities for the periods indicated.
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Nine Months Ended September 30, |
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|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(19,346 |
) |
|
$ |
(13,094 |
) |
Investing activities |
|
$ |
27,818 |
|
|
$ |
(2,308 |
) |
Financing activities |
|
$ |
(2,346 |
) |
|
$ |
79,186 |
|
Net Cash Used in Operating Activities
Our cash flows used in operating activities are primarily influenced by working capital requirements.
Net cash used in operating activities of $19.3 million for the nine months ended September 30, 2022 was primarily driven by a net loss of $41.5 million and by a net decrease in cash related to changes in operating assets and liabilities of $3.2 million, partially offset by non-cash expenses of $25.3 million primarily related to equity-based compensation and depreciation and amortization expense. Changes in cash flows related to operating assets and liabilities were primarily due to an increase in accounts receivable of $4.5 million due to increases in net sales, an increase in inventories of $5.8 million in anticipation of future sales, offset by a $0.1 million decrease in prepaid expenses and other assets, primarily due to amortization of prepaid insurance policies, and a $7.5 million increase in accounts payable, accrued expenses and other current liabilities due to our overall growth.
Net cash used in operating activities of $13.1 million for the nine months ended September 30, 2021 was primarily driven by net loss of $50.3 million and by a net decrease in cash related to changes in operating assets and liabilities of $9.9 million, partially offset by non-cash expenses of $47.0 million primarily related to equity-based compensation. Changes in cash flows related to operating assets and liabilities primarily consisted of a $7.6 million increase in accounts receivable due to increase in net sales, a $4.1 million increase in inventory due to the timing of inventory purchases, and a $3.6 million increase in prepaid expenses primarily related to prepaid insurance as a result of becoming a public company, offset by a $5.9 million increase in accounts payable, accrued expenses and other current liabilities due to our overall growth.
Net Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities of $27.8 million for the nine months ended September 30, 2022 was primarily due to proceeds from maturities of short-term investments of $30.0 million, offset by purchases of property and equipment of $2.2 million for marketing fixtures, software applications and computer equipment used in ongoing operations.
Net cash used in investing activities of $2.3 million for the nine months ended September 30, 2021 was primarily due to the purchase of a warehouse facility used in ongoing operations.
Net Cash Used in Financing Activities
Net cash used in financing activities of $2.3 million for the nine months ended September 30, 2022 was primarily due to minimum tax withholdings paid on behalf of employees for net share settlements of $2.1 million and payment of debt issuance costs of $0.3 million in connection with the Secured Revolving Line of Credit.
26
Net cash used in financing activities of $79.2 million for the nine months ended September 30, 2021 was due to our IPO of Class A common stock, in which we received net proceeds of $139.7 million, after deducting underwriting discounts and commissions of $10.1 million. We paid offering expenses related to the IPO and the Reorganization Transactions of $8.1 million. Upon the closing of the IPO, we used (i) approximately $25.5 million to purchase Class B units and corresponding shares of Class B common stock from certain Zevia LLC’s unitholders, including certain members of our senior management, at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock, (ii) approximately $0.4 million to cancel and cash-out outstanding options held by certain option holders, including certain members of our senior management, at a per-option price equal to the per-share price paid by the underwriters for shares of Class A common stock, and (iii) approximately $23.7 million to pay the cash consideration to certain pre-IPO institutional investors in connection with the merger of the blocker corporations into Zevia PBC with Zevia PBC continuing as the surviving entity. The IPO related amounts were partially offset by distribution to unitholders for tax payments of $2.7 million.
Non-GAAP Financial Measures
We report our financial results in accordance with US GAAP. However, management believes that Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our operating performance.
We calculate Adjusted EBITDA as net loss adjusted to exclude: (1) other income (expense), net, which includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets, (2) provision (benefit) for income taxes, (3) depreciation and amortization, and (4) equity-based compensation. Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the TRA liability and other infrequent and unusual transactions.
Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with US GAAP. We believe that Adjusted EBITDA, when taken together with our financial results presented in accordance with US GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of Adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.
Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with US GAAP. Some of the limitations of Adjusted EBITDA include that (1) it does not properly reflect capital commitments to be paid in the future, (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures, (3) it does not consider the impact of equity-based compensation expense, including the potential dilutive impact thereof, and (4) it does not reflect other non-operating expenses, including interest (income) expense, foreign currency (gains)/losses and (gains)/losses on disposal of fixed assets. In addition, our use of Adjusted EBITDA may not be comparable to similarly-titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial measures, including our net income (loss) and other results stated in accordance with US GAAP.
The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with US GAAP, to Adjusted EBITDA for the periods presented:
|
|
Three Months Ended September 30, |
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|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss and comprehensive loss |
|
$ |
(9,196 |
) |
|
$ |
(49,761 |
) |
|
$ |
(41,477 |
) |
|
$ |
(50,263 |
) |
Other expense (income), net* |
|
|
(26 |
) |
|
|
213 |
|
|
|
(64 |
) |
|
|
251 |
|
Provision for income taxes |
|
|
1 |
|
|
|
50 |
|
|
|
23 |
|
|
|
50 |
|
Depreciation and amortization |
|
|
326 |
|
|
|
239 |
|
|
|
1,005 |
|
|
|
713 |
|
Equity-based compensation |
|
|
6,837 |
|
|
|
45,731 |
|
|
|
23,781 |
|
|
|
45,804 |
|
Adjusted EBITDA |
|
$ |
(2,058 |
) |
|
$ |
(3,528 |
) |
|
$ |
(16,732 |
) |
|
$ |
(3,445 |
) |
* Includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets.
Commitments
Our leases generally consist of long-term operating leases, which are payable monthly and relate to our office space and vehicles. For a further discussion on our debt and operating lease commitments as of September 30, 2022, see the sections above as well as Note 7, Debt, and Note 8, Leases, included in the condensed consolidated financial statements of this Quarterly Report.
On March 25, 2022, the Company entered into an amendment to the lease for our corporate headquarters offices to extend the term through December 31, 2023 and expand the total square footage from 17,923 square feet to 20,185 square feet commencing on May 1, 2022.
Our inventory purchase commitments are generally short-term in nature and have ordinary commercial terms. We did not have any material long-term inventory purchase commitments as of September 30, 2022.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with US GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
27
There have been no material changes to our critical accounting policies from those discussed in our Annual Report.
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, included in the condensed consolidated financial statements of this Quarterly Report for a discussion of recently issued accounting pronouncements not yet adopted.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” We may take advantage of these exemptions until we are no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if any of the following events occur; (i) we have more than $1.07 billion in annual revenue, (ii) we have more than $700.0 million in market value of our Class A common stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or (iii) we issue more than $1.0 billion of non-convertible debt securities over a three- year period.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks in the ordinary course of our business. These risks primarily consist of raw material prices, foreign exchange, and inflation as follows:
Raw Material Risk
Our profitability is dependent on, among other things, our ability to anticipate and react to raw material costs. Currently, a key ingredient in our products is stevia extract. We have a two-year agreement effective June 1, 2021 with a large multi-national ingredient company for the supply of stevia on similar terms as our prior agreement with the same ingredient company, including fixed pricing for the duration of the term. The prices of stevia and other ingredients we use are subject to many factors beyond our control, such as market conditions, climate change, supply chain challenges, and adverse weather conditions.
The price for aluminum cans also fluctuates depending on market conditions. There is currently an ongoing North American shortage of aluminum cans. We have contracts with certain suppliers of aluminum cans, but such contracts do not cover all of our expected future needs for aluminum cans. We might not be able to source enough aluminum cans in the future to meet our consumers’ demand. Our ability to continue to procure enough aluminum cans at reasonable prices will depend on future developments that are highly uncertain. For the nine months ended September 30, 2022, a hypothetical 10% increase or 10% decrease in the weighted average cost of aluminum would have resulted in an increase of approximately $1.2 million or a decrease of $1.2 million, respectively, to cost of goods sold.
We are working to diversify our sources of supply and intend to enter into additional long-term contracts to better ensure stability of prices of our raw materials.
Foreign Exchange Risk
The majority of our sales and costs are denominated in U.S. dollars and are not subject to foreign exchange risk. As we source some ingredients and packaging materials from international sources, our results of operations could be impacted by changes in exchange rates. We sell and distribute our products to Canadian customers, who are invoiced and remit payment in Canadian dollars. All Canadian dollar transactions are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for sales and expenses. To the extent we increase sourcing from outside the United States or increase net sales outside of the United States that are denominated in currencies other than the U.S. dollar, the impact of changes in exchange rates on our results of operations would increase. Foreign exchange gains and losses were not material for the nine months ended September 30, 2022 and 2021.
Inflation Risk
We believe that inflation has had a material effect on our business, results of operations, and financial condition. If our costs were to become subject to further and prolonged significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations and financial condition.
Commodity Risk
We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of aluminum, diesel fuel, cartons and corrugate.
28
Item 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures and determined that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
Management determined that as of September 30, 2022, no changes in our internal control over financial reporting had occurred during the fiscal quarter then ended that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not subject to any material legal proceedings.
Item 1A. Risk Factors
Our business is subject to various risks, including those described in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None.
30
Exhibit No. |
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Description of Exhibit |
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3.1 |
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3.2 |
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4.1 |
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10.1# |
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31.1* |
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31.2* |
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32** |
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101.INS* |
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Inline XBRL Instance Document |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
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** |
Furnished herewith. |
# |
Management contract or compensatory plan or arrangement. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
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Zevia PBC |
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By: |
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/s/ Amy E. Taylor |
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Name: |
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Title: |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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By: |
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/s/ Amy E. Taylor |
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Name: |
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Title: |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: |
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By: |
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Name: |
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Title: |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Date: |
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By: |
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/s/ Hany Mikhail |
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Title: |
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Chief Accounting Officer |
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(Principal Accounting Officer) |
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Date: |
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32
This ‘10-Q’ Filing | Date | Other Filings | ||
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![]() | ||||
2/22/27 | ||||
12/31/23 | ||||
12/31/22 | ||||
12/15/22 | ||||
Filed on: | 11/10/22 | 8-K | ||
11/1/22 | ||||
For Period end: | 9/30/22 | |||
6/30/22 | 10-Q, 4 | |||
5/1/22 | ||||
3/31/22 | 10-Q | |||
3/25/22 | ||||
3/11/22 | 10-K, 4 | |||
2/22/22 | 8-K | |||
1/17/22 | ||||
1/1/22 | ||||
12/31/21 | 10-K | |||
12/15/21 | ||||
9/30/21 | 10-Q | |||
7/26/21 | 4, 8-K, S-8 | |||
7/23/21 | 4, 424B4 | |||
7/22/21 | EFFECT | |||
7/21/21 | 3, 4, 8-K, EFFECT | |||
6/30/21 | 10-Q | |||
6/1/21 | ||||
3/31/21 | ||||
1/1/21 | ||||
List all Filings |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/11/22 Zevia PBC 10-K 12/31/21 98:12M Donnelley … Solutions/FA 7/26/21 Zevia PBC S-8 7/26/21 7:277K Donnelley … Solutions/FA 7/26/21 Zevia PBC 8-K:5,9 7/21/21 3:197K Donnelley … Solutions/FA |