UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212022
OR
☐ | 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: 001-40630
Zevia PBC
(Exact Name of Registrant as Specified in its Charter)
Delaware |
| 86-2862492 |
(State or Other Jurisdiction of |
| (I.R.S. Employer Identification Number) |
15821 Ventura Blvd., Suite 145
Encino, CA 91436
(855) 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:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Class A common stock, par value $0.001 per |
| ZVIA |
| New York Stock Exchange |
Indicate by check mark whether the registrantregistrant: (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 registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes YES☒ No 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). YesYES ☒ No NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerateda 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.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
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Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
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Emerging growth company |
| ☒ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes YES ☐ No NO ☒
The numberAs of shares outstanding of registrant’s common stock, as of the last practicable dateNovember 1, 2022, there were 34,456,46344,865,807 shares and 30,113,15224,010,216 sharesshares outstanding of the registrant’sRegistrant’s Class A and Class B common stock, respectively, $0.001 par value per share, as of November 8, 2021.share.
Table of Contents
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PART | 4 | |||||
Item |
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| 4 | |||||
| Condensed Consolidated Statements of Operations and Comprehensive | 5 | ||||
| 6 | |||||
| 8 | |||||
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| 9 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
Item 3. | 28 | |||||
Item 4. | 29 | |||||
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Part II. |
| 30 | ||||
Item 1. | 30 | |||||
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 |
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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” (withinwithin 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”)"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, on Form 10-Q 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 on Form 10-Q 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, on Form 10-Q 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 on Form 10-Q.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, on Form 10-Q 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 on Form 10-Q 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 on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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 unit and per share amounts) |
| September 30, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ | 78,720 |
|
| $ | 14,936 |
|
Accounts receivable, net |
|
| 14,507 |
|
|
| 6,944 |
|
Inventories |
|
| 24,927 |
|
|
| 20,800 |
|
Prepaid expenses and other current assets |
|
| 5,101 |
|
|
| 1,492 |
|
Total current assets |
|
| 123,255 |
|
|
| 44,172 |
|
Property and equipment, net |
|
| 2,740 |
|
|
| 991 |
|
Right-of-use assets under operating leases, net |
|
| 356 |
|
|
| 773 |
|
Intangible assets, net |
|
| 3,788 |
|
|
| 3,939 |
|
Other non-current assets |
|
| 3 |
|
|
| 81 |
|
Total assets |
| $ | 130,142 |
|
| $ | 49,956 |
|
LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED UNITS |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 11,925 |
|
|
| 7,770 |
|
Accrued expenses |
|
| 4,454 |
|
|
| 3,429 |
|
Operating lease liabilities |
|
| 396 |
|
|
| 623 |
|
Other current liabilities |
|
| 2,991 |
|
|
| 2,251 |
|
Total current liabilities |
|
| 19,766 |
|
|
| 14,073 |
|
Operating lease liabilities, net of current portion |
|
| 4 |
|
|
| 238 |
|
Total liabilities |
|
| 19,770 |
|
|
| 14,311 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
| ||
Redeemable convertible preferred units: |
|
|
|
|
|
| ||
NaN par values. NaN authorized and outstanding as of September 30, 2021. Authorized units of 34,410,379, 26,322,803 units issued and outstanding as of December 31, 2020; and aggregate liquidation preference $329,753 as of December 31, 2020. |
|
| 0 |
|
|
| 232,457 |
|
Permanent Equity (Deficit) |
|
|
|
|
|
| ||
Members’ deficit |
|
| 0 |
|
|
| (196,812 | ) |
Preferred Stock, $0.001 par value. 10,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2021. NaN shares authorized, issued and outstanding as of December 31, 2020. |
|
| 0 |
|
|
| 0 |
|
Class A common stock, $0.001 par value. 550,000,000 shares authorized, 34,453,247 shares issued and outstanding as of September 30, 2021. NaN shares authorized, issued and outstanding as of December 31, 2020. |
|
| 34 |
|
|
| 0 |
|
Class B common stock, $0.001 par value. 250,000,000 shares authorized, 30,113,152 shares issued and outstanding as of September 30, 2021. NaN shares authorized, issued and outstanding as of December 31, 2020. |
|
| 30 |
|
|
| 0 |
|
Additional paid-in capital |
|
| 142,813 |
|
|
| 0 |
|
Accumulated deficit |
|
| (25,823 | ) |
|
| 0 |
|
Total Zevia’s Equity / members’ (deficit) |
|
| 117,054 |
|
|
| (196,812 | ) |
Noncontrolling Interests |
|
| (6,682 | ) |
|
| 0 |
|
Total Equity |
|
| 110,372 |
|
|
| (196,812 | ) |
Total liabilities, redeemable convertible preferred units and equity |
| $ | 130,142 |
|
| $ | 49,956 |
|
(in thousands, except share and per share amounts) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 49,236 |
|
| $ | 43,110 |
|
Short-term investments |
|
| — |
|
|
| 30,000 |
|
Accounts receivable, net |
|
| 13,538 |
|
|
| 9,047 |
|
Inventories |
|
| 37,283 |
|
|
| 31,501 |
|
Prepaid expenses and other current assets |
|
| 3,356 |
|
|
| 3,421 |
|
Total current assets |
|
| 103,413 |
|
|
| 117,079 |
|
Property and equipment, net |
|
| 4,933 |
|
|
| 3,664 |
|
Right-of-use assets under operating leases, net |
|
| 878 |
|
|
| 211 |
|
Intangible assets, net |
|
| 3,588 |
|
|
| 3,738 |
|
Other non-current assets |
|
| 558 |
|
|
| 301 |
|
Total assets |
| $ | 113,370 |
|
| $ | 124,993 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 19,685 |
|
| $ | 13,492 |
|
Accrued expenses and other current liabilities |
|
| 7,950 |
|
|
| 6,705 |
|
Current portion of operating lease liabilities |
|
| 698 |
|
|
| 236 |
|
Total current liabilities |
|
| 28,333 |
|
|
| 20,433 |
|
Operating lease liabilities, net of current portion |
|
| 186 |
|
|
| 1 |
|
Total liabilities |
|
| 28,519 |
|
|
| 20,434 |
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
| ||
Stockholders' equity |
|
|
|
|
|
| ||
Preferred Stock, $0.001 par value. 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021. |
|
| — |
|
|
| — |
|
Class A common stock, $0.001 par value. 550,000,000 shares authorized, 44,794,236 and 34,463,417 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. |
|
| 45 |
|
|
| 34 |
|
Class B common stock, $0.001 par value. 250,000,000 shares authorized, 24,010,216 and 30,113,152 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. |
|
| 24 |
|
|
| 30 |
|
Additional paid-in capital |
|
| 189,426 |
|
|
| 174,404 |
|
Accumulated deficit |
|
| (75,458 | ) |
|
| (45,986 | ) |
Total Zevia PBC stockholder's equity |
|
| 114,037 |
|
|
| 128,482 |
|
Noncontrolling interests |
|
| (29,186 | ) |
|
| (23,923 | ) |
Total equity |
|
| 84,851 |
|
|
| 104,559 |
|
Total liabilities and equity |
| $ | 113,370 |
|
| $ | 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 INCOME (LOSS)LOSS (Unaudited)
|
| For the Three Months Ended September 30, |
|
| For the Nine Months September 30, |
| ||||||||||
(in thousands, except for share amounts) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales |
| $ | 38,956 |
|
| $ | 32,035 |
|
| $ | 104,002 |
|
| $ | 82,202 |
|
Cost of goods sold |
|
| 21,952 |
|
|
| 17,109 |
|
|
| 56,570 |
|
|
| 44,409 |
|
Gross profit |
|
| 17,004 |
|
|
| 14,926 |
|
|
| 47,432 |
|
|
| 37,793 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling and marketing expenses |
|
| 12,834 |
|
|
| 6,973 |
|
|
| 31,525 |
|
|
| 19,611 |
|
General and administrative expenses |
|
| 7,698 |
|
|
| 4,935 |
|
|
| 19,352 |
|
|
| 13,853 |
|
Equity-based compensation |
|
| 45,731 |
|
|
| 28 |
|
|
| 45,804 |
|
|
| 86 |
|
Depreciation and amortization |
|
| 239 |
|
|
| 256 |
|
|
| 713 |
|
|
| 729 |
|
Total operating expenses |
|
| 66,502 |
|
|
| 12,192 |
|
|
| 97,394 |
|
|
| 34,279 |
|
Income (loss) from operations |
|
| (49,498 | ) |
|
| 2,734 |
|
|
| (49,962 | ) |
|
| 3,514 |
|
Other expense, net |
|
| (213 | ) |
|
| (276 | ) |
|
| (251 | ) |
|
| (543 | ) |
Income (loss) before Income Taxes |
|
| (49,711 | ) |
|
| 2,458 |
|
|
| (50,213 | ) |
|
| 2,971 |
|
Provision for income taxes |
|
| (50 | ) |
|
| 0 |
|
|
| (50 | ) |
|
| — |
|
Net Income (loss) and Comprehensive Income (loss) |
|
| (49,761 | ) |
|
| 2,458 |
|
|
| (50,263 | ) |
|
| 2,971 |
|
Net income (loss) attributable to Zevia LLC prior to the Reorganization Transactions |
|
| (1,411 | ) |
|
| 2,458 |
|
|
| (1,913 | ) |
|
| 2,971 |
|
Loss attributable to noncontrolling interest |
|
| 22,527 |
|
|
| 0 |
|
|
| 22,527 |
|
|
| 0 |
|
Net loss attributable to Zevia PBC |
| $ | (25,823 | ) |
| $ | 0 |
|
| $ | (25,823 | ) |
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per share attributable to common stockholders (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.75 | ) |
| N/A |
|
| $ | (0.75 | ) |
| N/A |
| ||
Diluted |
| $ | (0.75 | ) |
| N/A |
|
| $ | (0.75 | ) |
| N/A |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 34,440,982 |
|
| N/A |
|
|
| 34,440,982 |
|
| N/A |
| ||
Diluted |
|
| 34,440,982 |
|
| N/A |
|
|
| 34,440,982 |
|
| N/A |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| ||||||||||
(in thousands, except share and per share amounts) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 44,072,985 |
|
|
| 34,440,982 |
|
|
| 40,393,978 |
|
|
| 34,440,982 |
|
|
Diluted |
|
| 44,072,985 |
|
|
| 34,440,982 |
|
|
| 40,393,978 |
|
|
| 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 transactionsReorganization Transactions and initial public offeringIPO (see Note 14)
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 |
|
| Additional |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
(in thousands, except for share amounts) |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Paid in |
|
| Accumulated |
|
| Noncontrolling interest |
|
| Total |
| ||||||||
Balance at January 1, 2022 |
|
| 34,463,417 |
|
| $ | 34 |
|
|
| 30,113,152 |
|
| $ | 30 |
|
| $ | 174,404 |
|
| $ | (45,986 | ) |
| $ | (23,923 | ) |
| $ | 104,559 |
|
Vesting and release of common stock under equity incentive plans, net |
|
| 2,298,547 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| (2,133 | ) |
|
| — |
|
|
| — |
|
|
| (2,130 | ) |
Exchange of Class B common stock for Class A common stock |
|
| 1,970,802 |
|
|
| 2 |
|
|
| (1,970,802 | ) |
|
| (2 | ) |
|
| (1,929 | ) |
|
| — |
|
|
| 1,929 |
|
|
| — |
|
Exercise of stock options |
|
| 56,659 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,901 |
|
|
| — |
|
|
| — |
|
|
| 8,901 |
|
Net loss post-Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,898 | ) |
|
| (6,587 | ) |
|
| (17,485 | ) |
Balance at March 31, 2022 |
|
| 38,789,425 |
|
| $ | 39 |
|
|
| 28,142,350 |
|
| $ | 28 |
|
| $ | 179,259 |
|
| $ | (56,884 | ) |
| $ | (28,581 | ) |
| $ | 93,861 |
|
Vesting and release of common stock under equity incentive plans, net |
|
| 917,664 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Exchange of Class B common stock for Class A common stock |
|
| 3,580,288 |
|
|
| 3 |
|
|
| (3,580,288 | ) |
|
| (3 | ) |
|
| (4,153 | ) |
|
| — |
|
|
| 4,153 |
|
|
| — |
|
Exercise of stock options |
|
| 119,381 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,043 |
|
|
| — |
|
|
| — |
|
|
| 8,043 |
|
Net loss post-Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,090 | ) |
|
| (3,706 | ) |
|
| (14,796 | ) |
Balance at June 30, 2022 |
|
| 43,406,758 |
|
| $ | 43 |
|
|
| 24,562,062 |
|
| $ | 25 |
|
| $ | 183,239 |
|
| $ | (67,974 | ) |
| $ | (28,134 | ) |
| $ | 87,199 |
|
Vesting and release of common stock under equity incentive plans, net |
|
| 822,113 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Exchange of Class B common stock for Class A common stock |
|
| 551,846 |
|
|
| 1 |
|
|
| (551,846 | ) |
|
| (1 | ) |
|
| (660 | ) |
|
| — |
|
|
| 660 |
|
|
| — |
|
Exercise of stock options |
|
| 13,519 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,837 |
|
|
| — |
|
|
| — |
|
|
| 6,837 |
|
Net loss post-Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,484 | ) |
|
| (1,712 | ) |
|
| (9,196 | ) |
Balance at September 30, 2022 |
|
| 44,794,236 |
|
| $ | 45 |
|
|
| 24,010,216 |
|
| $ | 24 |
|
| $ | 189,426 |
|
| $ | (75,458 | ) |
| $ | (29,186 | ) |
| $ | 84,851 |
|
6
|
| Redeemable Convertible Preferred Units |
|
|
|
|
| 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 |
|
| 26,322,803 |
|
| $ | 232,457 |
|
| $ | (196,812 | ) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (196,812 | ) |
Exercise of Common units |
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
Net income |
|
|
|
|
|
|
|
| 247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 247 |
| |||||||||
Balance at March 31, 2021 |
|
| 26,322,803 |
|
|
| 232,457 |
|
|
| (196,518 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (196,518 | ) |
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Net loss |
|
|
|
|
|
|
|
| (749 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (749 | ) | |||||||||
Distributions to unitholders for tax payments |
|
| — |
|
|
| — |
|
|
| (2,669 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,669 | ) |
Balance at June 30, 2021 |
|
| 26,322,803 |
|
|
| 232,457 |
|
|
| (199,900 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (199,900 | ) |
Net loss prior to reorganization |
|
| — |
|
|
| — |
|
|
| (1,411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,411 | ) |
Impact of Reorganization and Initial Public Offering ("IPO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||||||
Effect of the reorganization |
|
| (26,322,803 | ) |
|
| (232,457 | ) |
|
| 219,633 |
|
|
| 23,716,450 |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| 12,800 |
|
|
| — |
|
|
| — |
|
|
| 232,457 |
|
Issuance of Class A common stock in IPO, net of commission |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,900,000 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 90,073 |
|
|
| — |
|
|
| — |
|
|
| 90,080 |
|
Issuance of Class B units Zevia LLC unitholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,114,488 |
|
|
| 30 |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Purchases of Zevia LLC units in connection with IPO |
|
| — |
|
|
| — |
|
|
| (2,037 | ) |
|
| 3,767,440 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 2,034 |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Cancellation of options in connection with IPO |
|
| — |
|
|
| — |
|
|
| (423 | ) |
|
| 32,560 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 425 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Cancellation of options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| (4 | ) |
Offering Costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,101 | ) |
|
| — |
|
|
| — |
|
|
| (8,101 | ) |
Repurchase and cancellation of Zevia LLC units in connection with the Reorganization and IPO transaction |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| (1,336 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
Allocation of equity to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| (15,845 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,845 |
|
|
| 0 |
|
Exercise of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,797 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (115 | ) |
|
| — |
|
|
| — |
|
|
| (115 | ) |
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 45,731 |
|
|
| — |
|
|
| — |
|
|
| 45,731 |
|
Net loss post reorganization |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,823 | ) |
|
| (22,527 | ) |
|
| (48,350 | ) |
Balance at September 30, 2021 |
|
| — |
|
| $ | — |
|
| $ | — |
|
|
| 34,453,247 |
|
| $ | 34 |
|
|
| 30,113,152 |
|
| $ | 30 |
|
| $ | 142,813 |
|
| $ | (25,823 | ) |
| $ | (6,682 | ) |
| $ | 110,372 |
|
|
| 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 |
|
| 26,322,803 |
|
| $ | 232,457 |
|
| $ | (196,812 | ) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (196,812 | ) |
Exercise of common units prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
Equity-based compensation prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
Net income prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| 247 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 247 |
|
Balance at March 31, 2021 |
|
| 26,322,803 |
|
|
| 232,457 |
|
|
| (196,518 | ) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (196,518 | ) |
Equity-based compensation prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36 |
|
Net loss prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| (749 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (749 | ) |
Distributions to unitholders for tax payments |
|
| — |
|
|
| — |
|
|
| (2,669 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,669 | ) |
Balance at June 30, 2021 |
|
| 26,322,803 |
|
|
| 232,457 |
|
|
| (199,900 | ) |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (199,900 | ) |
Net loss prior to the Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| (1,411 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,411 | ) |
Impact of Reorganization Transactions and IPO |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Effect of the Reorganization Transactions |
|
| (26,322,803 | ) |
|
| (232,457 | ) |
|
| 219,633 |
|
|
| 23,716,450 |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| 12,800 |
|
|
| — |
|
|
| — |
|
|
| 232,457 |
|
Issuance of Class A common stock in IPO, net of commission |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,900,000 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 90,073 |
|
|
| — |
|
|
| — |
|
|
| 90,080 |
|
Issuance of Class B units to Zevia LLC unitholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,114,488 |
|
|
| 30 |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Purchases of Zevia LLC units in connection with IPO |
|
| — |
|
|
| — |
|
|
| (2,037 | ) |
|
| 3,767,440 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 2,034 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cancellation of options in connection with IPO |
|
| — |
|
|
| — |
|
|
| (423 | ) |
|
| 32,560 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 425 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Cancellation of options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| (4 | ) |
Offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,101 | ) |
|
| — |
|
|
| — |
|
|
| (8,101 | ) |
Repurchase and cancellation of Zevia LLC units |
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| (1,336 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
Allocation of equity to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| (15,845 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,845 |
|
|
| — |
|
Exercise of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,797 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (115 | ) |
|
| — |
|
|
| — |
|
|
| (115 | ) |
Equity-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 45,731 |
|
|
| — |
|
|
| — |
|
|
| 45,731 |
|
Net loss post-Reorganization Transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,823 | ) |
|
| (22,527 | ) |
|
| (48,350 | ) |
Balance at September 30, 2021 |
|
| — |
|
| $ | — |
|
| $ | — |
|
|
| 34,453,247 |
|
| $ | 34 |
|
|
| 30,113,152 |
|
| $ | 30 |
|
| $ | 142,813 |
|
| $ | (25,823 | ) |
| $ | (6,682 | ) |
| $ | 110,372 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ZEVIA PBC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Unaudited)
|
| Redeemable Convertible Preferred Units |
|
| Members’ |
| ||||||
(in thousands, except unit amounts) |
| Units |
|
| Amount |
|
| Amount |
| |||
Balance at January 1, 2020 |
|
| 22,558,386 |
|
| $ | 58,037 |
|
| $ | (39,969 | ) |
Exercise of common units |
|
| — |
|
|
| — |
|
|
| 5 |
|
Unit-based compensation expense |
|
| — |
|
|
| — |
|
|
| 29 |
|
Net Loss |
|
| — |
|
|
| — |
|
|
| (2,594 | ) |
Balance at March 31, 2020 |
|
| 22,558,386 |
|
|
| 58,037 |
|
|
| (42,529 | ) |
Unit-based compensation expense |
|
| — |
|
|
| — |
|
|
| 29 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| 3,107 |
|
Balance at June 30, 2020 |
|
| 22,558,386 |
|
|
| 58,037 |
|
|
| (39,393 | ) |
Series E Preferred units issuance cost |
|
| — |
|
|
| (85 | ) |
|
| — |
|
Exercise of common units |
|
| — |
|
|
| — |
|
|
| 11 |
|
Unit-based compensation expense |
|
| — |
|
|
| — |
|
|
| 28 |
|
Net Income |
|
| — |
|
|
| — |
|
|
| 2,458 |
|
Balance at September 30, 2020 |
|
| 22,558,386 |
|
| $ | 57,952 |
|
| $ | (36,896 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ZEVIA PBC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| For the Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | (50,263 | ) |
| $ | 2,971 |
| ||||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
| ||||||||||
Net loss |
| $ | (41,477 | ) |
| $ | (50,263 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||||||||||
Non-cash lease expense |
| 417 |
| 389 |
|
|
| 483 |
|
|
| 417 |
| |||
Depreciation and amortization |
| 713 |
| 703 |
|
|
| 1,005 |
|
|
| 713 |
| |||
Loss on sale of equipment |
| 9 |
| 0 |
|
|
| 3 |
|
|
| 9 |
| |||
Amortization of debt issuance cost |
| 94 |
| 39 |
|
|
| 45 |
|
|
| 94 |
| |||
Equity-based compensation |
| 45,804 |
| 86 |
|
|
| 23,781 |
|
|
| 45,804 |
| |||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable, net |
| (7,563 | ) |
| (3,428 | ) |
|
| (4,491 | ) |
|
| (7,563 | ) | ||
Inventories |
| (4,127 | ) |
| (9,688 | ) |
|
| (5,782 | ) |
|
| (4,127 | ) | ||
Prepaid expenses and other current assets |
| (3,609 | ) |
| (237 | ) | ||||||||||
Other non-current assets |
| (28 | ) |
| (22 | ) | ||||||||||
Prepaid expenses and other assets |
|
| 97 |
|
|
| (3,637 | ) | ||||||||
Accounts payable |
| 4,155 |
| 3,901 |
|
|
| 6,248 |
|
|
| 4,010 |
| |||
Accrued expenses |
| 1,025 |
| 1,575 |
| |||||||||||
Accrued expenses and other current liabilities |
|
| 1,245 |
|
|
| 1,910 |
| ||||||||
Operating lease liabilities |
| (461 | ) |
| (284 | ) |
|
| (503 | ) |
|
| (461 | ) | ||
Other current liabilities |
|
| 740 |
|
| 1,874 |
| |||||||||
Net cash used in operating activities |
|
| (13,094 | ) |
|
| (2,121 | ) |
|
| (19,346 | ) |
|
| (13,094 | ) |
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from maturities of securities |
|
| 30,000 |
|
|
| — |
| ||||||||
Purchases of property and equipment |
|
| (2,308 | ) |
|
| (781 | ) |
|
| (2,182 | ) |
|
| (2,308 | ) |
Net cash used in investing activities |
|
| (2,308 | ) |
|
| (781 | ) | ||||||||
Net cash provided by (used in) investing activities |
|
| 27,818 |
|
|
| (2,308 | ) | ||||||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from revolving line of credit (1) |
| 74,721 |
|
|
| 82,989 |
|
|
| — |
|
|
| 74,721 |
| |
Repayment of revolving line of credit (1) |
| (74,721 | ) |
|
| (80,207 | ) |
|
| — |
|
|
| (74,721 | ) | |
Proceeds from Paycheck Protection Program Loan |
| - |
|
|
| 1,429 |
| |||||||||
Payment of debt issuance costs |
|
| (334 | ) |
|
| — |
| ||||||||
Minimum tax withholding paid on behalf of employees for net share settlement |
|
| (2,130 | ) |
|
| — |
| ||||||||
Proceeds from exercise of stock options |
|
| 118 |
|
|
| — |
| ||||||||
Proceeds from exercise of common units |
|
| — |
|
|
| 10 |
| ||||||||
Exercise of stock options |
|
| — |
|
|
| (115 | ) | ||||||||
Repurchase of Zevia LLC units |
|
| — |
|
|
| (17 | ) | ||||||||
Distribution to unitholders for tax payments |
| (2,669 | ) |
|
| 0 |
|
|
| — |
|
|
| (2,669 | ) | |
Equity financing cost |
| 0 |
|
|
| (85 | ) | |||||||||
Proceeds from exercise of common units |
| 10 |
|
|
| 16 |
| |||||||||
Proceeds from issuance of Class A common stock sold in initial public offering, net of underwriting discounts and commissions |
|
| 139,689 |
|
|
| 0 |
| ||||||||
Proceeds from issuance of Class A common stock sold in IPO, net of underwriting discounts and commissions |
|
| — |
|
|
| 139,689 |
| ||||||||
Use of proceeds from issuance of Class A common stock to purchase Zevia LLC Units |
| (49,609 | ) |
|
| 0 |
|
|
| — |
|
|
| (49,609 | ) | |
Proceeds from the cancellation of options in IPO |
| 2 |
|
|
| 0 |
| |||||||||
Payment for cancellation of options |
| (4 | ) |
|
| 0 |
| |||||||||
Payment of Offering Costs |
| (8,101 | ) |
|
| 0 |
| |||||||||
Repurchase of Zevia LLC units |
| (17 | ) |
|
| 0 |
| |||||||||
Exercise of stock options |
|
| (115 | ) |
|
| 0 |
| ||||||||
Net cash provided by financing activities |
|
| 79,186 |
|
|
| 4,142 |
| ||||||||
Cancellation of options in IPO |
|
| — |
|
|
| 2 |
| ||||||||
Cancellation of options |
|
| — |
|
|
| (4 | ) | ||||||||
Payment of IPO costs |
|
| — |
|
|
| (8,101 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (2,346 | ) |
|
| 79,186 |
| ||||||||
Net change from operating, investing, and financing activities |
| 63,784 |
|
|
| 1,240 |
|
|
| 6,126 |
|
|
| 63,784 |
| |
Cash at beginning of period |
| 14,936 |
|
|
| 3,243 |
| |||||||||
Cash at end of period |
| $ | 78,720 |
|
| $ | 4,483 |
| ||||||||
Cash and cash equivalents at beginning of period |
|
| 43,110 |
|
|
| 14,936 |
| ||||||||
Cash and cash equivalents at end of period |
| $ | 49,236 |
|
| $ | 78,720 |
| ||||||||
|
|
|
|
|
| |||||||||||
Non-cash investing and financing activities |
|
|
|
|
| |||||||||||
Capital expenditures included in accounts payable |
| $ | 70 |
|
| $ | — |
| ||||||||
Conversion of Class B common stock to Class A common stock |
| $ | 6,742 |
|
| $ | — |
| ||||||||
Operating lease right-of-use assets obtained in exchange for lease liabilities |
| $ | 1,150 |
|
| $ | — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 148 |
|
| $ | 201 |
|
| $ | — |
|
| $ | 148 |
|
(1)
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ZEVIA PBC
NOTES TO CONDENSED UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Organization and operations
Zevia PBC (the "Company") was incorporated as a Delaware public benefit corporation on March 23, 2021, and prior to the consummation of the reorganization described herein and our initial public offering (“IPO”), did not conduct any activities other than those incidental to our formation and the IPO. In connection with the completion of the IPO on July 26, 2021, the Company became a holding company, and its sole material asset is a controlling equity interest in Zevia LLC, a Delaware limited liability company (“Zevia LLC”). As the sole managing member of Zevia LLC, the Company operates and controls all of the business and affairs of Zevia LLC and, through Zevia LLC, conducts its business. Subsequent to July 26, 2021, the Company consolidates the results of Zevia LLC with a non-controlling interest reflected for the portion of Zevia LLC not owned by the Company. For more information about our holding company reorganization, see the section titled “Organizational Structure—The Reorganization” in the prospectus dated July 21, 2021 and filed with the SEC on July 23, 2021.
References in this Form 10-Q to “Zevia PBC” refer to Zevia PBC and not to any of its subsidiaries unless the context indicates otherwise. References in this Form 10-Q 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. 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 soft drinksbeverages under the Zevia® Zevia® brand name. Zevia’sname 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 inacross the United States of America ("U.S.") and Canada through various retailer channels,a diverse network of retailers (both brick-and-mortar and e-commerce), including grocery stores, natural products stores, warehouse stores,clubs, and specialty outlets. Zevia'sZevia 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 and Reorganization Transactions
On July 21, 2021, the SEC declared effective the Company's registration statement on Form S-1 of Zevia PBC was declared effective byfor the SEC related to the IPOinitial 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 10,700,000 shares of its Class A common stock at an offering price of $14.00 per share on July 26, 2021. The Company received aggregate net proceeds of approximately $139.7 million after deducting underwriting discounts and commissions of $10.1 million. The underwriters did not exercise their option to purchase 1,605,000 additional shares of Class A common stock and that option expired on August 20, 2021.
In connection with the IPO, the Company completed the following transactions (“Reorganization Transactions”):
9
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 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. The Company has consolidated Zevia LLC in its financial statements and recordrecords a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheetsheets and statement of operations. TheAs of September 30, 2022, the Company holds an economic interest of 53.365.1% in Zevia LLC and the remaining 46.734.9% represents the non-controlling interest.
2. Summary of Significant Accounting PoliciesSUMMARY 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 informationreporting and with the instructions to ItemForm 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, 2021,2022, or for any other interim period or any other future fiscal year. The balance sheet as of December 31, 2020,2021 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 or 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, 20202021 and relatedaccompanying notes included in the Company's Registration Statement on Form S-1, as amended.Annual Report. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the results of operations,condensed consolidated financial position and cash flowsstatements for the periods presented have been reflected. The Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Zevia PBCthe 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.
Zevia PBCThe Company owns a minoritymajority economic interest in, and operates and controls all of the businessesbusiness and affairs of, Zevia LLC. Accordingly, Zevia PBCthe Company has prepared these condensed consolidated financial statements in accordance with Accounting Standards Codification (“ASC”("ASC") Topic 810, Consolidation.Consolidation.
The Reorganization TransactionsIn 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 reportQuarterly 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 Zevia PBCthe Company and Zevia LLC following the Reorganization Transactions; and (iii) Zevia PBC'sthe 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 has been determinedentered into a service agreement to be our predecessor for accounting purposes and, accordingly,transfer the consolidated financial statements for periods prior the Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes. The Company’s financial position, performance and cash flows effectively represent thoseservices of all employees of Zevia PBC asto 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 all periods presented.the three and nine-months ended September 30, 2022.
Reclassifications
For the activityCertain amounts from prior periods have been reclassified in the periods prior to the IPO and Reorganization Transactions, common unit, additional paid-in capital, and accumulated deficit information has been combined and presented as member’s deficit in the accompanying condensed consolidated balance sheets and condensed consolidated statements of changesoperations 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 equity (deficit).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 |
| $ | 21,952 |
| $ | (763 | ) | $ | 21,189 |
|
| $ | 56,570 |
| $ | (1,712 | ) | $ | 54,858 |
|
Gross profit |
|
| 17,004 |
|
| 763 |
|
| 17,767 |
|
|
| 47,432 |
|
| 1,712 |
|
| 49,144 |
|
Selling and marketing expenses |
|
| 12,834 |
|
| 763 |
|
| 13,597 |
|
|
| 31,525 |
|
| 1,712 |
|
| 33,237 |
|
Included in the accompanying results for the nine months ended September 31, 2022 are $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 |
|
| (3,609 | ) |
| (28 | ) |
| (3,637 | ) |
Other non-current assets |
|
| (28 | ) |
| 28 |
|
| — |
|
Accounts payable |
|
| 4,155 |
|
| (145 | ) |
| 4,010 |
|
Accrued expenses and other current liabilities |
|
| 1,025 |
|
| 885 |
|
| 1,910 |
|
Other current liabilities |
|
| 740 |
|
| (740 | ) |
| — |
|
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 toto: 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.
10
As of September 30, 2021,2022, the Company’s operations have not been adverselycontinue to be impacted by the effects of the COVID-19 pandemic including the emergence of new variants, with respect to abroad-based inflation in input costs, logistics, manufacturing and labor costs. During the three and nine months ended September 30, 2022, the Company experienced significant extent.inflationary impact, which has created headwinds that the Company expects to continue through the end of 2022 and into 2023. The global impacteffects of the COVID-19 pandemic continues to rapidly evolve,impact global economies, and Zeviathe 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 and persists for an extended period of time.
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. 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 corporation and pays corporate federal, state and local taxes with respect to income allocated from Zevia LLC based on Zevia PBC's 53.3% economic interest in Zevia LLC.
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740, Income Taxes on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
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 June 2016,April 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.2016-13,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.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal use software. This ASU is effective for private companies for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The Company currently does not expect this guidance to have a significant impact on the Company's financial statements as the Company does not currently have material cloud computing software.
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance and requires the application of the if-converted method for calculating diluted earnings per share, with the treasury stock method no longer permissible. The ASU is applicable to the Company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted the ASU as of January 1, 2021 and has applied the accounting standard update in computing diluted earnings per share for its redeemable convertible preferred units. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements.
In April 2021, the FASB issued 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 is currently evaluating the impact of adopting ASU No. 2021-04 on its financial statements. The Company currently does not expect this guidance to have a significant impact on the Company’s financial statements as the Company does not have freestanding equity-classified written call options.
11
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. 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 |
| $ | 39,287 |
|
| $ | 33,728 |
|
| $ | 113,047 |
|
| $ | 90,561 |
|
Online/e-commerce |
|
| 4,952 |
|
|
| 5,228 |
|
| $ | 14,768 |
|
|
| 13,441 |
|
Net sales |
| $ | 44,239 |
|
| $ | 38,956 |
|
| $ | 127,815 |
|
| $ | 104,002 |
|
The following table disaggregates the Company’s sales by geographic location of the respective customers:
|
| For the Three Months |
|
| For the Nine Months |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Retail sales |
| $ | 33,728 |
| $ | 28,169 |
| $ | 90,561 |
| $ | 71,573 |
| |||||||||||||||||||
Online/ecommerce |
|
| 5,228 |
|
| 3,866 |
|
| 13,441 |
|
| 10,629 |
| |||||||||||||||||||
United States |
| $ | 39,385 |
|
| $ | 35,952 |
|
| $ | 113,696 |
|
| $ | 94,073 |
| ||||||||||||||||
Canada |
|
| 4,854 |
|
|
| 3,004 |
|
|
| 14,119 |
|
|
| 9,929 |
| ||||||||||||||||
Net sales |
| $ | 38,956 |
| $ | 32,035 |
| $ | 104,002 |
| $ | 82,202 |
|
| $ | 44,239 |
|
| $ | 38,956 |
|
| $ | 127,815 |
|
| $ | 104,002 |
|
Contract liabilities
The Company did 0not have any material unsatisfied performance obligations as of September 30, 2021 and2022 or December 31, 2020, respectively.2021.
4. INVENTORIES
Inventories consist of the following as of:
(in thousands) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Raw materials |
| $ | 10,645 |
|
| $ | 10,193 |
|
Finished goods |
|
| 26,638 |
|
|
| 21,308 |
|
Inventories |
| $ | 37,283 |
|
| $ | 31,501 |
|
(in thousands) |
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Raw materials |
| $ | 8,931 |
|
| $ | 8,155 |
|
Finished goods |
|
| 15,996 |
|
|
| 12,645 |
|
Inventories |
| $ | 24,927 |
|
| $ | 20,800 |
|
11
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following as of:
(in thousands) |
| Useful Life |
| September 30, 2021 |
|
| December 31, 2020 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||
Land |
| N/A |
| $ | 336 |
| $ | — |
|
| $ | 336 |
|
| $ | 336 |
| |
Leasehold improvements |
| 1-2 |
| 463 |
| 468 |
|
|
| 463 |
|
|
| 463 |
| |||
Computer equipment and software |
| 3 |
| 1,800 |
| 1,454 |
|
|
| 3,067 |
|
|
| 2,254 |
| |||
Furniture and equipment |
| 3-6 |
| 517 |
| 473 |
|
|
| 544 |
|
|
| 521 |
| |||
Vehicle Purchases |
| 8 |
| 38 |
| 0 |
| |||||||||||
Quality control equipment |
| 6 |
| 385 |
| 340 |
| |||||||||||
Building |
| 30 |
|
| 1,347 |
|
| — |
| |||||||||
Vehicles |
|
| 177 |
|
|
| 38 |
| ||||||||||
Quality control and marketing equipment |
|
| 1,269 |
|
|
| 532 |
| ||||||||||
Buildings and improvements |
|
| 1,603 |
|
|
| 1,443 |
| ||||||||||
Assets not yet placed in service |
|
| 680 |
|
|
| 456 |
| ||||||||||
|
|
|
| 4,886 |
| 2,735 |
|
|
| 8,139 |
|
|
| 6,043 |
| |||
Less accumulated depreciation |
|
|
|
| (2,146 | ) |
|
| (1,744 | ) |
|
| (3,206 | ) |
|
| (2,379 | ) |
Property and equipment, net |
|
|
| $ | 2,740 |
| $ | 991 |
|
| $ | 4,933 |
|
| $ | 3,664 |
|
During the nine months ended September 30, 2021 the Company purchased a warehouse facility in Evansville, Indiana for a total purchase price of $1.7 million. For the three months ended September 30, 20212022 and 2020,2021, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $0.20.3 million and $0.2 million, respectively. For the nine months ended September 30, 20212022 and 2020,2021, depreciation expense, including the amortization of leasehold improvements, amounted to approximately $0.50.9 million and $0.60.5 million, respectively. These amounts are included under depreciation and amortization in the accompanying condensed consolidated statements of operations and comprehensive income (loss).loss.
6. INTANGIBLE ASSETS, NET
The following table provides information pertaining to the Company’s intangible assetassets as of:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(in thousands) |
| Useful lives |
| September 30, 2021 |
|
| December 31, 2020 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||
Customer relationships |
| 15 years |
| $ | 3,007 |
| $ | 3,007 |
|
| $ | 3,007 |
|
| $ | 3,007 |
| |
Accumulated amortization |
|
|
|
| (2,219 | ) |
|
| (2,068 | ) |
|
| (2,419 | ) |
|
| (2,269 | ) |
|
|
|
| 788 |
| 939 |
|
|
| 588 |
|
|
| 738 |
| |||
Trademarks |
| Indefinite |
|
| 3,000 |
|
| 3,000 |
|
|
| 3,000 |
|
|
| 3,000 |
| |
|
|
|
| $ | 3,788 |
| $ | 3,939 |
| |||||||||
Intangible assets, net |
| $ | 3,588 |
|
| $ | 3,738 |
|
12
For the three months ended September 30, 20212022 and 2020,2021, total amortization expense amounted to approximately $50,0000.1 for each of the periods then ended.million and $0.1 million, respectively. For the nine months ended September 30, 20212022 and 2020,2021, total amortization expense amounted to $0.2 million for each of the periods then ended. and $NaN0.2 million, respectively. 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, and 2020.respectively.
Amortization expense for intangible assets with definite lives is expected to be as follows:
(in thousands) |
|
|
|
| ||
Remainder of 2021 | $ | 51 |
| |||
2022 | 200 |
| ||||
Remainder of 2022 | $ | 50 |
| |||
2023 | 200 |
|
| 200 |
| |
2024 | 200 |
|
| 200 |
| |
2025 | 134 |
|
| 138 |
| |
Thereafter | 3 |
| ||||
Expected amortization expense for intangible assets with definite lives | $ | 788 |
| $ | 588 |
|
7. DEBT
ABL Credit Facility
In 2019,On February 22, 2022, Zevia enteredLLC (the "Borrower") obtained a revolving credit facility (the “Secured Revolving Line of Credit") by entering into a loan agreement providing forLoan 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 $9.020 million revolving linecommitment 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 (the “Credit Facility”) with Stonegate Asset Company II, LLC (“Stonegate”), with a maturity date in issuances and the Borrower has the
12
April 2022
. Borrowingsoption to increase the commitment under the revolving line were securedSecured Revolving Line of Credit by accounts receivable and inventory. In June 2020, Zevia amended the Credit Facility and increased itup to $12.010 million.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 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.
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 $7 million at all times until December 31, 2023. 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 $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. As of December 31, 2020,September 30, 2022, the revolving line interest rateCompany was 7.5% annual percentage rate and there was 0 outstanding balance. On June 1, 2021, Zevia extended the Credit Facility through April 2023 and there were no other modifications made to the terms and conditions. In July 2021 and subsequent to the IPO, Zevia terminated the Credit Facility. Early-termination fees were not material and were included in interest expense within other expenses, net in the accompanying condensed statements of operations and comprehensive income (loss).compliance with its liquidity covenant.
8. LEASES
The Company leases office space vehicles and equipment.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 17,923 square feet to 20,185 square feet commencing on May 1, 2022. The Company’s recognized lease costs include:
| Three Months Ended |
|
| For the Nine Months |
| ||||||||||
(in thousands) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Income Statement |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease cost(1) | $ | 151 |
|
| $ | 151 |
|
| $ | 454 |
|
| $ | 453 |
|
Lease income related to operating leases(2) |
| 96 |
|
|
| 0 |
|
|
| 128 |
|
|
| 0 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Income Statement |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease cost(1) |
| $ | 190 |
|
| $ | 151 |
|
| $ | 519 |
|
| $ | 454 |
|
| Nine Months Ended September 30, |
| |||||
| 2022 |
|
| 2021 |
| ||
Weighted-average remaining lease term (months) |
| 15.0 |
|
|
| 7.5 |
|
Weighted-average discount rate |
| 7.6 | % |
|
| 7.6 | % |
| For the Nine Months |
| |||||
| 2021 |
|
| 2020 |
| ||
Weighted-average remaining lease term (months) |
| 7.5 |
|
|
| 19.3 |
|
Weighted-average discount rate |
| 7.6 |
|
|
| 7.6 |
|
The Company’s variable lease costs and short-term lease costs were inconsequential.
Maturities of lease payments under non-cancellable leases were as follows:not material.
(in thousands) |
| September 30, 2021 |
| |
Remainder of 2021 |
| $ | 169 |
|
2022 |
|
| 240 |
|
2023 |
|
| 1 |
|
Total lease payments |
|
| 410 |
|
Less Imputed Interest |
|
| (10 | ) |
Present value of lease liabilities |
| $ | 400 |
|
13
9. COMMITMENTS AND CONTINGENCIES
ZeviaThe Company is obligated under various non-cancellable lease agreements providing for office space vehicles and equipmentvehicles that expire at various dates through 2023. Refer to Note 8 LeasesMaturities of lease payments under non-cancellable leases were as follows:.
(in thousands) |
| September 30, 2022 |
| |
Remainder of 2022 |
| $ | 186 |
|
2023 |
|
| 744 |
|
Total lease payments |
|
| 930 |
|
Less Imputed Interest |
|
| (46 | ) |
Present value of lease liabilities |
| $ | 884 |
|
9. COMMITMENTS AND CONTINGENCIES
Purchase commitments
As of September 30, 2021 Zevia2022, 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. ZeviaThe 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. ManagementThe 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
Accrued expenses and other current liabilities consisted of the following as of:
(in thousands) |
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Accrued customer paid bottle deposits |
| $ | 801 |
|
| $ | 563 |
|
Accrued incentive compensation |
|
| 1,875 |
|
|
| 2,826 |
|
Accrued other |
|
| 1,778 |
|
|
| 40 |
|
Total |
| $ | 4,454 |
|
| $ | 3,429 |
|
Other Current Liabilities
Other current liabilities consisted of the following:
(in thousands) |
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Accrued vacation liability |
| $ | 873 |
|
| $ | 728 |
|
Accrued purchases |
|
| 1,087 |
|
|
| 1,201 |
|
Other current liabilities |
|
| 1,031 |
|
|
| 322 |
|
Total |
| $ | 2,991 |
|
| $ | 2,251 |
|
(in thousands) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Accrued employee compensation benefits |
| $ | 3,043 |
|
| $ | 3,032 |
|
Accrued direct selling costs |
|
| 2,310 |
|
|
| 1,011 |
|
Accrued customer paid bottle deposits |
|
| 1,132 |
|
|
| 774 |
|
Accrued other |
|
| 1,465 |
|
|
| 1,888 |
|
Total |
| $ | 7,950 |
|
| $ | 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”Plan") under which the Company may grant options, stock appreciation rights, restricted stock units (RSUs)("RSUs"), restricted stock awards, other equity-based awards and incentive bonuses to employees, officers, non-employee directors and other service providers of Zevia PBCthe 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) 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 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. In determining the fair value of the Company’s stock options, management has made certain assumptions in calculating the various elements used in the option valuation model, including the expected term and volatility.
In July 2021 immediately following the effectiveness of the Company’s registration statement on the Form S-1, the Company’s Board of Directors approved the issuance of 186,000 stock options under the 2021 Plan to certain employees and non-employee directors.The fair value of stock option
14
awards granted during the three and nine months ended September 30, 2021period was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:
Stock price |
| $ | 14 |
|
Exercise Price |
| $ | 14 |
|
Expected term (years)(1) |
|
| 6.06 |
|
Expected volatility (2) |
|
| 47.5 | % |
Risk-Free interest rate (3) |
|
| 0.9 | % |
Dividend yield (4) |
|
| 0.0 | % |
|
| Nine Months Ended September 30, |
| |
|
| 2022 |
| |
Stock price |
| $ | 3.37 |
|
Exercise Price |
| $ | 3.91 |
|
Expected term (years)(1) |
|
| 6.25 |
|
Expected volatility (2) |
|
| 62.5 | % |
Risk-Free interest rate (3) |
|
| 2.7 | % |
Dividend yield (4) |
|
| 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 $1.95.
AThe following is a summary of stock option activity for the three and nine months ended September 30, 2021:2022:
| Shares |
|
| Weighted average exercise price |
|
| Weighted average remaining life |
|
| Intrinsic value |
| ||||
Outstanding Balance as of January 1, 2022 |
| 1,409,693 |
|
| $ | 2.30 |
|
|
|
|
|
|
| ||
Granted |
| 1,681,560 |
|
| $ | 3.91 |
|
|
|
|
|
|
| ||
Exercised |
| (189,559 | ) |
| $ | 0.62 |
|
|
|
|
|
|
| ||
Forfeited and expired |
| (78,897 | ) |
| $ | 3.73 |
|
|
|
|
|
|
| ||
Balance as of September 30, 2022 |
| 2,822,797 |
|
| $ | 3.32 |
|
|
| 8.1 |
|
| $ | 5,245 |
|
Exercisable at the end of the period |
| 967,780 |
|
| $ | 1.24 |
|
|
| 5.5 |
|
| $ | 3,619 |
|
Vested and expected to vest |
| 2,822,797 |
|
| $ | 3.32 |
|
|
| 8.1 |
|
| $ | 5,245 |
|
| Shares |
|
| Weighted average exercise price |
|
| Weighted average remaining life |
|
| Intrinsic value |
| ||||
Outstanding Balance as of January 1, 2021 |
| 1,404,516 |
|
| $ | 0.49 |
|
|
|
|
|
|
| ||
Granted |
| 186,000 |
|
| $ | 14.00 |
|
|
|
|
|
|
| ||
Exercised (1) |
| 123,254 |
|
| $ | 0.13 |
|
|
|
|
|
|
| ||
Cancelled in the IPO |
| 32,560 |
|
| $ | 0.05 |
|
|
|
|
|
|
| ||
Forfeited and cancelled |
| 1,438 |
|
| $ | 0.01 |
|
|
|
|
|
|
| ||
Balance as of September 30, 2021 |
| 1,433,264 |
|
| $ | 2.28 |
|
|
| 6.9 |
|
| $ | 13,695 |
|
Exercisable at the end of the period |
| 851,465 |
|
| $ | 0.38 |
|
|
| 6.3 |
|
| $ | 10,085 |
|
Vested and expected to vest |
| 1,433,264 |
|
| $ | 2.28 |
|
|
| 7.1 |
|
| $ | 14,292 |
|
(1) Includes 14
75,148
The total intrinsic values of stock options exercised prior toduring the IPO and Reorganization Transactions and included in member's deficitnine months ended September 30, 2022 was $
0.7 million.
As of September 30, 2021,2022, total unrecognized compensation expense related to unvested stock options was $1.53.7 million, which is expected to be recognized over a weighted-average period of 2.743.4 years.
Restricted Phantom Units and Restricted Stock Units
In July 2021, the Company’s Board of Directors approved an amendment to 2,422,644 restricted phantom units (the “Restricted"Restricted Phantom Units”Units") previously granted by Zevia LLC (the “Phantom Unit Amendment”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.Unit. All other terms related to the Restricted Phantom Units remained unchanged. As a result of the change inPhantom Unit Amendment, the settlement provision,estimated fair value of the Company will recognize a charge of approximatelymodified awards was $33.9 million and was recognized as an expense over the vesting period through January 2022 subsequent to the performance condition being met, resulting from the fair value of the awards as remeasured at the amendment date.met.
In March 2021, the Company's Board of Directors also approved an amendment to the RSUs granted in August 2020 (“("the RSU Amendment”Amendment"). The RSU Amendment changeschanged 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 units granted in August 2020 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. Additionally, settlement shall occur within 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 modification of the RSU Amendment, the Company will recognize an incremental chargeestimated fair value of approximatelythe modified awards was $48.9 million and are being recognized as expense over the vesting period subsequent to the performance condition being met.
RSU activity duringIn November 2021, the threeCompany'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, 20212022, three employees retired from the Company and all outstanding awards and related stock compensation expense was as follows:accelerated through their retirement date.
| Shares |
|
| Weighted average grant date fair value |
|
| Aggregate Intrinsic Value |
| |||
Balance nonvested shares at January 1, 2021 |
| 6,002,644 |
|
| $ | 2.58 |
|
|
|
| |
Granted |
| 2,017,300 |
|
| $ | 13.70 |
|
|
|
| |
Vested |
| — |
|
| $ | — |
|
|
|
| |
Forfeited |
| (26,500 | ) |
| $ | 13.65 |
|
|
|
| |
Balance non vested at September 30, 2021 |
| 7,993,444 |
|
| $ | 5.35 |
|
|
| 92,005 |
|
Vested and expected to vest at September 30, 2021 |
| 7,993,444 |
|
| $ | 5.35 |
|
|
| 92,005 |
|
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 |
| 7,981,444 |
|
|
| $ | 5.33 |
|
|
|
| |
Granted |
| 1,071,397 |
|
|
| $ | 3.37 |
|
|
|
| |
Vested |
| (6,259,440 | ) | * |
| $ | 5.62 |
|
|
|
| |
Forfeited |
| (38,814 | ) |
|
| $ | 6.58 |
|
|
|
| |
Balance unvested at September 30, 2022 |
| 2,754,587 |
|
|
| $ | 3.91 |
|
|
| 11,597 |
|
Expected to vest at September 30, 2022 |
| 2,754,587 |
|
|
| $ | 3.91 |
|
|
| 11,597 |
|
*Shares vested includes 1,864,300 of RSUs which vested but are subject to a deferred settlement provision over the next three years.
As of September 30, 2021,2022, total unrecognized compensation expense related to unvested RSUs was $64.412.3 million, which is expected to be recognized over a weighted-average period of 1.972.5 years.
Equity-Based Compensation Expense
Equity-based compensation expense related to all employee and, where applicable, non-employee equity-based awards was $45.7 million for the three months ended September 30, 2021 and $45.8 for the nine months ended September 30, 2021.
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
ZeviaThe 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”("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 Zevia PBCCompany's level and accordingly, key resource decisions and assessment of performance are performed at Zevia PBCthe Company's level. ZeviaThe Company has a common management team across all product lines and Zevia does not manage these products as individual businesses and as a result, cash flows are not distinct.
13.14. MAJOR CUSTOMERS, ACCOUNTS RECEIVABLE AND VENDOR CONCENTRATION
The table below represents the Company’s major customers andwhich accounted for more than 10% of total net sales for the following periods:
|
| For the Three Months |
|
| For the Nine Months |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Customer A |
| 20 | % |
| 18 | % |
| 19 | % |
| 19 | % |
|
| 15 | % |
|
| 20 | % |
|
| 16 | % |
|
| 19 | % | ||||
Customer B |
| 17 | % |
| 14 | % |
| 17 | % |
| 16 | % |
| * |
|
|
| 17 | % |
|
| 10 | % |
|
| 17 | % | |||||
Customer C |
| 12 | % |
| 11 | % |
| 11 | % |
| 12 | % |
| * |
|
|
| 12 | % |
| * |
|
|
| 11 | % | ||||||
Customer D |
| 10 | % |
| 12 | % |
| 11 | % |
| 13 | % |
| * |
|
|
| 10 | % |
| * |
|
|
| 11 | % |
The table below represents the Company’s customers which accounted for more than 10% of total accounts receivable, net as of:
|
| September 30, 2021 |
|
| December 31, 2020 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||
Customer A |
| 17 | % |
| 11 | % | ||||||||||
Customer B |
| 22 | % |
| 17 | % |
| * |
|
|
| 13 | % | |||
Customer D |
| 11 | % |
| 9 | % |
|
| 18 | % |
|
| 15 | % | ||
Customer E |
| 5 | % |
| 14 | % |
|
| 12 | % |
|
| 11 | % | ||
Customer G |
| 4 | % |
| 12 | % | ||||||||||
Customer F |
| * |
|
|
| 12 | % | |||||||||
Customer H |
| 10 | % |
| — |
|
|
| 14 | % |
| * |
|
The table below represents raw material vendors that accounted for more than 10% of all raw material purchases for the following periods:
|
| For the Three Months |
|
| For the Nine Months |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Vendor A |
| 37 | % |
| 28 | % |
| 34 | % |
| 31 | % |
|
| 27 | % |
|
| 37 | % |
|
| 28 | % |
|
| 34 | % | ||||
Vendor B |
| 18 | % |
| 30 | % |
| 21 | % |
| 25 | % |
|
| 25 | % |
|
| 18 | % |
|
| 16 | % |
|
| 21 | % | ||||
Vendor C |
| 12 | % |
| 13 | % |
| 13 | % |
| 11 | % |
|
| 15 | % |
|
| 12 | % |
|
| 13 | % |
|
| 13 | % |
* Less than 10% of total net sales, accounts receivable, net or raw material purchases.
14.15. LOSS PER SHARE
Basic earnings per share of Class A common stock is computed by dividing net incomeloss attributable to Zevia PBCthe Company for the period from July 22, 2021 through September 30, 2021, the period following the Reorganization Transactions and IPO, 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 incomeloss attributable to Zevia PBCthe 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 and Commonpreferred 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 unauditedcondensed consolidated financial statements. Therefore, earnings per share information has not been presented for any period prior to the three and nine months ended September 30, 2020.IPO.
16
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, |
|
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss and comprehensive loss |
| $ | (9,196 | ) |
| $ | (49,761 | ) |
| $ | (41,477 | ) |
| $ | (50,263 | ) |
|
Less: net loss attributable to Zevia LLC prior to the Reorganization Transactions |
|
| — |
|
| $ | 1,411 |
|
|
| — |
|
| $ | 1,913 |
|
|
Less: net loss attributable to non-controlling interests |
|
| 1,712 |
|
|
| 22,527 |
|
|
| 12,005 |
|
|
| 22,527 |
|
|
Net loss to Zevia PBC |
| $ | (7,484 | ) |
| $ | (25,823 | ) |
| $ | (29,472 | ) |
| $ | (25,823 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted-average shares of Class A common stock outstanding – basic |
|
| 44,072,985 |
|
|
| 34,440,982 |
|
|
| 40,393,978 |
|
|
| 34,440,982 |
|
|
Weighted-average shares of Class A common stock outstanding – diluted |
|
| 44,072,985 |
|
|
| 34,440,982 |
|
|
| 40,393,978 |
|
|
| 34,440,982 |
|
|
Loss per share of Class A common stock – basic |
| $ | (0.17 | ) |
| $ | (0.75 | ) | (1) | $ | (0.73 | ) |
| $ | (0.75 | ) | (1) |
Loss per share of Class A common stock – 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. |
| |||
| ||||
| ||||
| ||||
|
|
|
| |
|
| |||
|
|
|
| |
| ||||
|
| |||
|
| |||
|
|
|
| |
|
|
|
|
StockZevia 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.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, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Zevia LLC Class B Common Units exchangeable to shares of Class A common Stock |
|
| 24,394,109 |
|
|
| 30,113,152 |
|
|
| 26,936,871 |
|
|
| 30,113,152 |
|
Stock Options |
|
| 2,637,539 |
|
|
| 1,433,264 |
|
|
| 2,044,472 |
|
|
| 1,433,264 |
|
Restricted stock units |
|
| 2,911,356 |
|
|
| 7,993,444 |
|
|
| 3,742,307 |
|
|
| 7,993,444 |
|
Restricted stock units vested but unsettled |
|
| 1,865,507 |
|
|
| — |
|
|
| 1,761,485 |
|
|
| — |
|
17
15.16. 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 our initial public offering.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 us.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 53.3% economic interest in Zevia LLC.LLC, which was 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 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/expense (benefit) on its share of pre-tax book income (loss),loss, exclusive of the noncontrolling interest of 46.734.9%, due to the full valuation allowance against its deferred tax assets.
As of September 30, 2021, management believes based on applicable accounting standards and the weight of all available evidence, it is not more likely than not ("MLTN") that the Company will generate sufficient taxable income to realize our DTAs including the difference in our tax basis in excess of the financial reporting value for our investment in Zevia LLC. Consequently, we have established a full valuation allowance against our deferred tax assets as of September 30, 2021 and determined that it was MLTN that its deferred tax assets subject to the Tax Receivable Agreement ("TRA") would not be realized as of September 30, 2021. The Company has not recognized a liability related to the tax savings it may realize from utilization of such DTAs. As of September 30, 2021, the total unrecorded TRA liability is approximately $46.2 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.
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 athe Tax Receivable Agreement (“TRA”("TRA") with continuing members of Zevia LLC and the holdersshareholders of Class B unitsblocker companies of certain pre-IPO institutional investors (the "Direct Zevia LLC (the “Members”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 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 the Company’s tax basis resulting from Zevia PBC's acquisition of its ownership interest in the net assets ofcontinuing members' Zevia LLC resulting from any redemptions
17
orunits in connection with the IPO and in future exchanges of noncontrolling interest, (ii)and, (iii) tax basis increases attributable to payments made under the TRA and (iii) deductions attributable(including tax benefits related to imputed interest pursuant to the TRA (the “TRA Payments”)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 Paymentspayments 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. The payment obligations under the TRA are obligations of Zevia PBC and not of Zevia LLC. Payments are generally due under the TRA within a specified period of time following the filing of Zevia PBC’sthe 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 (“SOFR”) 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,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.
16. SUBSEQUENT EVENTS
On November 10, 2021,As of September 30, 2022, management believes based on applicable accounting standards and the Company’s Boardweight of Directors approved (i) an amendmentall 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 outstanding stock option awards held by Robert Gay and Harry “Hank” Margolis and (ii) an amendmentTRA would not be realized as of September 30, 2022. The Company has not recognized a liability related to the RSUs granted to Messrs. Gay and Margolis in August 2020 (items (i) and (ii) collectively, the “Retirement Amendments”). The Retirement Amendments provide that upon the holder’s “retirement” on or after January 17,tax savings it may realize from utilization of such DTAs. As of September 30, 2022, the unvested stock options and RSUs will become fully vested. As usedtotal unrecorded TRA liability is approximately $55.3 million. If utilization of the DTAs subject to the TRA becomes more likely than not in the Retirement Amendments, “retirement” generally includesfuture, the Company will record a resignation after the holder has reached 50 years of age with at least 10 years of serviceliability related to the Company, so longTRA, to the extent probable at that time, which will be recognized as the holder provides one year advance noticean expense within its condensed consolidated statements of such retirement unless waived by the Company.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 “Note Regarding Forward-Looking Statements” included elsewhere inother sections of this report. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and the related notes and other financial information included elsewhere in this quarterly reportQuarterly Report and our auditedconsolidated financial statements and notes thereto included in our prospectus dated July 21, 2021 (the “Prospectus”) as filed with the SEC on July 23, 2021.Annual Report. The financial data discussed below reflectreflects the historical results of operations and financial position of the Company. References in this Form 10-QQuarterly 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 is disrupting the liquid refreshment beverage industry through deliciousdevelops, markets, sells, and refreshing, zero calorie,distributes great tasting, zero sugar naturally sweetened beverages that are all Non-GMO Project Verified.made with simple, plant-based ingredients. We are a pioneering beverage brand,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 platformbroad portfolio of products thatzero sugar, zero calorie, naturally sweetened beverages. All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and zero sodium and include a broad variety of flavors across Soda, Energy Drinks, Organic Tea, Mixers, Kidz drinks and Sparkling Water. All of our beverages are made with only a handful of plant-based ingredients that most consumers can easily pronounce. 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 ecommercee-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 ZeviaZevia® brand and resulted in over one billion cans of Zevia sold to date.
Consumers can purchase our products in both brickbrick-and-mortar and mortar and ecommercee-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 2020,the third quarter of 2022, Zevia wascontinued as the highest selling carbonated soft drink brand on Amazon according to Stackline,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.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. Upon
Immediately following the closing of the IPO we used (i) $25.5 millionon 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 purchasethe Class B units and corresponding shares ofheld by the Class B common stockstockholders 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 certain Zevia LLC’s unitholders, including certain membersperiod 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 senior management,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 a per-unit price equal totheir historical carrying amounts, as reflected in the per-share price paid byhistorical condensed consolidated financial statements of Zevia LLC, the underwriters for shares of Class A common stock, (ii) $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) $23.7 million to pay the cash consideration to certain pre-IPO institutional investorsaccounting predecessor.
In addition, in connection with the mergerReorganization 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 blocker corporations into the Zevia PBCawards in accordance with the Zevia PBC surviving. Accordingly, we have not retained any of those portionsUS GAAP. No equity-based compensation had been recognized for all of the proceeds. The remaining net proceedsRSUs 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 $90.1 million were usedcompensation expense attributable to acquire 6,900,000 newlythese RSUs and restricted phantom unit awards, as well as other outstanding RSUs issued Class A units of Zevia LLC at a per-unit price equalprior to the per-share price paid by the underwriters for shares of Class A common stock in the IPO. The Company retained $82.0 millionremaining unamortized fair value of the total IPO proceeds afterRSU awards will be recognized as equity-based compensation over the paymentremaining service period of $8.1 millionthe 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 the IPO offering costs. The retained proceeds will ultimately be used by the Company for working capital and other general corporate purposes.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, continued to have significant adverse impacts on the national and global economy during the third quarter of 2021. From the beginning of the COVID-19 pandemic, we have remained committed to making the health and wellness of our employees and customers a priority. Based upon the guidance of the U.S. Centers for Disease Control (“CDC”) and local health authorities, we maintain appropriate measures to help reduce the spread of infection to our employees, suppliers and customers, including the institutionemergence of social distancing protocolsnew variants and increased frequency of cleaning and sanitizing in our third-party facilities. Our corporate headquarters remains closed and most of our employees continue to work from home.
Although we encountered closures and delays at some of our third-party facilities due to confirmed cases in the workforce or due to government mandate during the course of the pandemic, these closures and delays did not have a material impact on our operations or our ability to serve customer needs. While at this time we are working to manage and mitigate potential disruptions to our supply chain, and we have not experienced decreases in demand or material financialits resulting impacts as compared to prior periods, the fluid nature of the COVID-19 pandemic and uncertainties regarding the related economic impact are likely to result in sustained market turmoil with continued supply chain risk. The impact of COVID-19 on any of our suppliers, third-party manufacturers, distributors or transportation or logistics providers may negatively affect the price and availability of our ingredients and/or packaging materials and impact our supply chain. Our operational and financial performance is dependent on future developments, including the duration of the pandemic, variants of mutations of the virus, actions that may be taken by governmental authorities, the speed at which effective vaccines will continue to be administered to a sufficient number of people to enable cessation of the virus and the related length of its impact on the global economy, allincluding 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 which2022 and into 2023. These inflationary pressures have and are uncertainexpected to continue to impact our margins and difficultoperating results. We, along with our competitors, have increased pricing on a number of products in response to predict at this time.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, and 2020, respectively.
19
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:
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We also expect expansion ofboth new distribution into new channelsand 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 a key driver of our future sales growth. We expect that our sales directlyimpacted by seasonality and customers efforts to retailers will increase as a percentage of our net sales over time.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-termlong- 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 the various ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees. Our cost of goods sold also includes other costs incurred to bring the product to saleable condition. 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 cost of goods sold is generally higher for products sold through our ecommerce channel than through our retail store channel due to additional packaging requirements. 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 termlong-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.manufacturers. We have long termlong-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 increasesincreases.
We elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in our mix shiftscondensed consolidated statements of operations and comprehensive loss. As a result, our gross profit and profit margin may not be comparable to higher selling priceother entities that present shipping and high margin products.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. We expect our gross margin to improve over time as we continue to leverageGross profit may be favorably impacted by leveraging our asset-light business model and realize margin expansion 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 both in absolute dollars, and as a percentage of net sales, 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.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, ITinformation technology and other functions. Our general and administrative expenses are expected to increase in absolute dollars, but to decrease asgrow at a lower percentage of net sales over time as we increase our headcount to support our growth and as we increase personnel in legal, accounting, IT and compliance-related expenses to support our obligations as a public company.time.
20
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 Restricted Stock Units ("RSUs")RSUs or a Black-Scholes-Merton option pricingBlack-Scholes valuation model to calculate the fair value of stock options by date granted. We record compensation expense for non-employee stock options based on the estimated fair value of the options as of the earlier of (1) the date at which a commitment for performance by the non-employee to earn the stock option is reached or (2) the date at which the non-employee’s performance is complete, using the Black-Scholes Merton option pricing model. Equity-based compensation cost for restricted unitRSU awards is measured based on the closing fair market value of ourthe Zevia LLC Class B unit or the Zevia PBC Class A common unit atstock, as applicable, on the date of grant. IfOver time, we have the option and intent to settle a restricted unit award in cash, the award is classified as a liability and revalued at each balance sheet date. We expect our equity-based compensation expense to significantly decrease aftercompared to the year ended December 31, 2021 as a result of the expiration of the lockup period as defined below, in absolute dollars
InJanuary 2022, which coincided with the end of the vesting period for the majority of the awards and acceleration of expense in connection with the IPO 4,413,444retirement of our RSUs and phantom stock units will vest over the 180 days following the IPO (the lockup period). As a result, we are recognizing approximately $61.1 million of equity-based compensation ratably through December 31, 2021.certain employees.
In connection with the closing of our Series E Financing in December 2020, Zevia LLC used approximately $175 million of the proceeds to repurchase outstanding preferred and common units. The majority of the units repurchased were units that had been purchased by the holders in connection with financing transactions, and a minority of units purchased were units that holders owned as a result of equity awards granted by us.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 representrepresents the Company’s exclusive ownership of the ZeviaZevia® brand used in connection with the manufacture,manufacturing, marketing, and distribution of its carbonated 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, which we do not expect to be material, given our asset-light business model.grows.
Other Income (Expense),(expense) income, net
Other (expense) income, (expense), net consists primarily of interest expense(expense) income, and foreign currency transaction gains and losses.(loss) gains.
Results of Operations
The following table sets forth selected items in our condensed consolidated statements of operations and comprehensive income (loss)loss for the periods presented:
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
(in thousands, except for per share amounts) |
|
|
| |||||||||||||
Net sales |
| $ | 38,956 |
|
| $ | 32,035 |
|
| $ | 104,002 |
|
| $ | 82,202 |
|
Cost of goods sold |
|
| 21,952 |
|
|
| 17,109 |
|
|
| 56,570 |
|
|
| 44,409 |
|
Gross profit |
|
| 17,004 |
|
|
| 14,926 |
|
|
| 47,432 |
|
|
| 37,793 |
|
Selling and marketing expenses |
|
| 12,834 |
|
|
| 6,973 |
|
|
| 31,525 |
|
|
| 19,611 |
|
General and administrative expenses |
|
| 7,698 |
|
|
| 4,935 |
|
|
| 19,352 |
|
|
| 13,853 |
|
Equity-based compensation |
|
| 45,731 |
|
|
| 28 |
|
|
| 45,804 |
|
|
| 86 |
|
Depreciation and amortization |
|
| 239 |
|
|
| 256 |
|
|
| 713 |
|
|
| 729 |
|
Total operating expenses |
|
| 66,502 |
|
|
| 12,192 |
|
|
| 97,394 |
|
|
| 34,279 |
|
Income (loss) from operations |
|
| (49,498 | ) |
|
| 2,734 |
|
|
| (49,962 | ) |
|
| 3,514 |
|
Other expense, net |
|
| (213 | ) |
|
| (276 | ) |
|
| (251 | ) |
|
| (543 | ) |
Income (loss) before Income Taxes |
|
| (49,711 | ) |
|
| 2,458 |
|
|
| (50,213 | ) |
|
| 2,971 |
|
Provision for income taxes |
|
| (50 | ) |
|
| — |
|
|
| (50 | ) |
|
| — |
|
Net Income (loss) and Comprehensive Income (loss) |
|
| (49,761 | ) |
|
| 2,458 |
|
|
| (50,263 | ) |
|
| 2,971 |
|
Net income (loss) attributable to Zevia LLC prior to the Reorganization Transactions |
|
| (1,411 | ) |
|
| 2,458 |
|
|
| (1,913 | ) |
|
| 2,971 |
|
Loss attributable to noncontrolling interest |
|
| 22,527 |
|
|
| — |
|
|
| 22,527 |
|
|
| — |
|
Net loss attributable to Zevia PBC |
| $ | (25,823 | ) |
| $ | — |
|
| $ | (25,823 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per share attributable to common stockholders (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.75 | ) |
| N/A |
|
| $ | (0.75 | ) |
| N/A |
| ||
Diluted |
| $ | (0.75 | ) |
| N/A |
|
| $ | (0.75 | ) |
| N/A |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
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| ||||||||||
|
| 2022 |
|
| 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 transactionsReorganization Transactions and initial public offering (see Note 14)
21
IPO.
The following table presents selected items in our condensed consolidated statements of operations and comprehensive income (loss)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, |
| ||||||||||
|
| 2022 |
|
| 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 | )% |
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
Cost of goods sold |
|
| 56 | % |
|
| 53 | % |
|
| 54 | % |
|
| 54 | % |
Gross profit |
|
| 44 | % |
|
| 47 | % |
|
| 46 | % |
|
| 46 | % |
Selling and marketing expenses |
|
| 33 | % |
|
| 22 | % |
|
| 30 | % |
|
| 24 | % |
General and administrative expenses |
|
| 20 | % |
|
| 15 | % |
|
| 19 | % |
|
| 17 | % |
Equity-based compensation |
|
| 117 | % |
|
| 0 | % |
|
| 44 | % |
|
| 0 | % |
Depreciation and amortization |
|
| 1 | % |
|
| 1 | % |
|
| 1 | % |
|
| 1 | % |
Total operating expenses |
|
| 171 | % |
|
| 38 | % |
|
| 94 | % |
|
| 42 | % |
Income (loss) from operations |
|
| (127 | )% |
|
| 9 | % |
|
| (48 | )% |
|
| 4 | % |
Other expense, net |
|
| (1 | )% |
|
| (1 | )% |
|
| (0 | )% |
|
| (1 | )% |
Income (loss) before Income Taxes |
|
| (128 | )% |
|
| 8 | % |
|
| (48 | )% |
|
| 4 | % |
Provision for income taxes |
|
| (0 | )% |
|
| 0 | % |
|
| (0 | )% |
|
| 0 | % |
Net Income (loss) and Comprehensive Income (loss) |
|
| (128 | )% |
|
| 8 | % |
|
| (48 | )% |
|
| 4 | % |
Net income (loss) attributable to Zevia LLC prior to the Reorganization Transactions |
|
| (4 | )% |
|
| 8 | % |
|
| (2 | )% |
|
| 4 | % |
Loss attributable to noncontrolling interest |
|
| 58 | % |
|
| 0 | % |
|
| 22 | % |
|
| 0 | % |
Net loss attributable to Zevia PBC |
|
| (66 | )% |
|
| 0 | % |
|
| (25 | )% |
|
| 0 | % |
22
Three Months Ended September 30, 20212022 Compared to Three Months Ended September 30, 20202021
Net salesSales
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Net sales |
| $ | 38,956 |
|
| $ | 32,035 |
|
| $ | 6,921 |
|
|
| 22 | % |
|
| 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 as compared to $32.02021. Equivalized cases sold were 3.6 million for the three months ended September 30, 2020.2022 as compared to 3.5 million for the three months ended September 30, 2021. Net sales increased due to an approximately 26%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 3.5 million cases, partially offset by a 4% decrease inhigher net average price per equivalized case due to trade promotions to drive consumer trial and repeat purchasing during the three months ended September 30, 2021.sales of $2.2 million. We define an equivalized case as a 288 fluid ounce case.
Cost of Goods Sold
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Cost of goods sold |
| $ | 21,952 |
|
| $ | 17,109 |
|
| $ | 4,843 |
|
|
| 28 | % |
|
| 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 $22.0$25.1 million for the three months ended September 30, 20212022 as compared to $17.1$21.2 million for the three months ended September 30, 2020.2021. The increase of $4.8$3.9 million or 28%18.3%, was primarily due to volume increases.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
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Gross profit |
| $ | 17,004 |
|
| $ | 14,926 |
|
| $ | 2,078 |
|
|
| 14 | % |
Gross margin |
|
| 44 | % |
|
| 47 | % |
|
|
|
|
|
|
|
| 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 $17.0$19.2 million for the three months ended September 30, 20212022 as compared to $14.9$17.8 million for the three months ended September 30, 2020.2021. The increase in gross profit of $2.1$1.4 million, or 14%7.9%, was primarily driven by higher net sales.
22
sales, offset by higher cost of goods sold.
Gross margin infor the three months ended September 30, 20212022 declined to 44%43.3% from 47%45.6% in the prior-year period. The decline was primarily due to lower netthe impact of inflationary pressures partially offset by price realization as a result of trade promotions to drive consumer trial and repeat purchasing in 2021.
As disclosed in Note 2, Basis Of Presentation And Summary Of Significant Accounting Policies, in the Notes to Audited Financial Statements for the years ended December 31, 2020 and 2019 included in the Prospectus, we elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in the accompanying condensed statements of operations and comprehensive income (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.
Operating Expensesincreases.
Selling and Marketing Expenses
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Selling and marketing expenses |
| $ | 12,834 |
|
| $ | 6,973 |
|
| $ | 5,861 |
|
|
| 84 | % |
|
| 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 $12.8$12.9 million for the three months ended September 30, 20212022 as compared to $7.0$13.6 million for the three months ended September 30, 2020.2021. The increasedecrease of $5.9$0.7 million, or 84%5.0%, was primarily due to overall net sales growthlower freight and higher freightwarehousing costs amidstof $0.2 million driven by pricing and efficiencies and a challenging transportation market in the US and Canada as well as $2.7 millionreduction of increasednon-working marketing spend to continue to invest and grow the Zevia brand.costs of $0.5 million.
General and Administrative Expenses
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
General and administrative expenses |
| $ | 7,698 |
|
| $ | 4,935 |
|
| $ | 2,763 |
|
|
| 56 | % |
|
| 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, 20212021. The increase of $0.6 million, or 8.0%, was primarily driven by a $1.1 million increase in headcount and $4.9personnel 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, 2020. The increase2022, of $2.8which $3.8 million or 56%, was driven by $1.7 million increase in costs related to beingRSU awards that were accelerated upon retirement of a public company including insurance, accounting, legallegacy senior management employee, and other professional fees and other costs including thosethe remaining $3.0 million related to legal matters and $1.1 million in employee salary and related costs primarily due to an overall increase in employee headcount to support our growth.
Equity-Based Compensation Expenses
|
| For the Three Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Equity-Based Compensation |
| $ | 45,731 |
|
| $ | 28 |
|
| $ | 45,703 |
|
|
| 163225 | % |
Equity-based compensation expense was $45.7 million foroutstanding equity-based awards being recognized over the three months ended September 30, 2021 and $28,000 forremaining service periods of the three months ended September 30, 2020.awards. The increasedecrease of $45.7$38.9 million was primarily driven by new RSU awards and RSU and restricted phantom stock awards previously granted by Zevia LLC, modified in March and July 2021, that generally vestvested over six months following the IPO.IPO in the prior year.
First23
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021 Compared to First Nine Months Ended September 30, 2020
Net salesSales
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Net sales |
| $ | 104,002 |
|
| $ | 82,202 |
|
| $ | 21,800 |
|
|
| 27 | % |
|
| 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 as compared to $82.22021. Equivalized cases sold were 10.9 million for the nine months ended September 30, 2020.2022 as compared to 9.3 million for the nine months ended September 30, 2021. Net sales increased due to an approximately 26%growth was driven by the 16.9% increase in the number of equivalized cases sold, as net average price per equivalized case was essentially flat on a per case basis.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
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Cost of goods sold |
| $ | 56,570 |
|
| $ | 44,409 |
|
| $ | 12,161 |
|
|
| 27 | % |
23
|
| 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 $56.6$73.4 million for the nine months ended September 30, 20212022 as compared to $44.4$54.9 million for the nine months ended September 30, 2020.2021. The increase of $12.2$18.6 million, or 27%33.9%, was primarily due to volume increases.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
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Gross profit |
| $ | 47,432 |
|
| $ | 37,793 |
|
| $ | 9,639 |
|
|
| 26 | % |
Gross margin |
|
| 46 | % |
|
| 46 | % |
|
|
|
|
|
|
|
| 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 $47.4$54.4 million for the nine months ended September 30, 20212022 as compared to $37.8$49.1 million for the nine months ended September 30, 2020.2021. The increase in gross profit of $9.6$5.2 million, or 26%10.6%, was primarily driven by higher net sales.sales, partially offset by higher cost of goods sold.
Gross margin infor the nine months ended September 30, 2021 remained flat at 46%2022 declined to 42.5% from 47.3% in the prior-year period.
As disclosed in Note 2, Basis Of Presentation And Summary Of Significant Accounting Policies, in The decline was primarily due to the Notes to Audited Financial Statements for the years ended December 31, 2020 and 2019 included in the Prospectus, we elected to classify shipping and handling costs for salable product outsideimpact of cost of goods sold, in selling and marketing expenses in the accompanying condensed statements of operations and comprehensive income (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.inflationary pressures partially offset by price increases.
Selling and Marketing Expenses
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Selling and marketing expenses |
| $ | 31,525 |
|
| $ | 19,611 |
|
| $ | 11,914 |
|
|
| 61 | % |
|
| 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 $31.5$42.8 million for the nine months ended September 30, 20212022 as compared to $19.6$33.2 million for the nine months ended September 30, 2020.2021. The increase of $11.9$9.6 million or 61%28.9%, was primarilylargely due to due to overall net sales growth$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 amidst a challenging transportation market in the US and Canada as well as $4.7amounting to $3.7 million of increased marketing spenddue to continue to invest and grow the Zevia brand.inflation.
General and Administrative Expenses
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
General and administrative expenses |
| $ | 19,352 |
|
| $ | 13,853 |
|
| $ | 5,499 |
|
|
| 40 | % |
|
| 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 and $13.9 million for the nine months ended September 30, 2020.2021. The increase of $5.5$8.9 million, or 40%46.0%, was primarily driven by $2.7a $6.4 million in employee salary and related costs primarily due to an overall increase in employee headcount and personnel costs to support our growth, and $2.5a $2.6 million increase in costs related to being a public company, including insurance, accounting, and legal and other professional fees and other costs including those related to legal matters.fees.
Equity-Based Compensation ExpensesExpense
|
| Nine Months Ended September 30, |
|
| Change | |||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percentage | |||
Equity-based compensation |
| $ | 23,781 |
|
| $ | 45,804 |
|
| $ | (22,023 | ) |
| N/M |
|
| For the Nine Months |
|
| Change |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| Amount |
|
| Percentage |
| ||||
Equity-Based Compensation |
| $ | 45,804 |
|
| $ | 86 |
|
| $ | 45,718 |
|
|
| 53160 | % |
24
Equity-based compensation expense was $45.8$23.8 million for the nine months ended September 30, 2021 and $0.12022, of which $3.1 million for the nine months ended September 30, 2020. The increase of $45.7 million was primarily driven by newrelated to RSU awards and RSU andrestricted phantom stock awards previously granted by Zevia LLC, modifiedthat vested as of the expiration of the IPO lock-up period in MarchJanuary 2022, $7.8 million related to RSU awards that were accelerated upon retirement of certain senior management employees, and July 2021, that generally vestthe remaining $12.9 million related to outstanding equity-based awards being recognized over six months following the IPO.remaining service periods of the awards.
24
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 havehad 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, the Companywe incurred and paid $8.1$8.4 million of offering costs in connection with the IPO.
As of September 30, 2021, we had $78.7 million in cash. We believe that our cash and cash equivalents as of September 30, 2021, together with our operating activities will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments for at least the next 12 months.
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. To the extent that existing capital resources and sales growth are not sufficient to fund future activities, we will need to raise capital through additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we 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.
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 Tax Receivable AgreementTRA 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 Tax Receivable Agreement.TRA. The amount payable under the Tax Receivable AgreementTRA 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 our Prospectusthe 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 Tax Receivable AgreementTRA 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 Tax Receivable Agreement,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 $54.4$65.1 million through 2036.2037. 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 $46.2$55.3 million through 2036.2037.
The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreementTRA payments by us will be calculated using prevailing tax rates applicable to us over the life of the Tax Receivable AgreementsTRA and will be dependent on us generating sufficient future taxable income to realize the benefit.
We cannot reasonably estimate future annual payments under the Tax Receivable AgreementTRA 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 Tax Receivable AgreementTRA payment requirement.
However, a significant portion of any potential future payments under the Tax Receivable AgreementTRA 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 Tax Receivable AgreementTRA 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 Tax Receivable AgreementTRA for the factors discussed above, we anticipate funding payments from the Tax Receivable AgreementTRA from cash flows generated from operations.
Credit Facility25
Credit Facility
In 2019,ABL Credit Facility
On February 22, 2022, we enteredobtained a revolving credit facility (the “Secured Revolving Line of Credit") by entering into a loan agreement providing forLoan 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 $9.0$20 million revolving linecommitment 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 (the “Credit Facility”)issuances with Stonegate, with a maturity date in April 2022. Borrowingsthe option to increase the commitment under the revolving line are securedSecured Revolving Line of Credit by accounts receivable and inventory. In June 2020, we amendedup 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 Credit Facility and increased it to $12.0 million. AsSecured Revolving Line of June 30, 2021 and December 31, 2020, the revolving line interest rate was 7.5% annual percentage rate and there was no outstanding balance. On June 1, 2021, we extended the Credit Facility through April 2023 and there were no other modifications made to theCredit.
25
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.
terms and conditions. In July 2021 and subsequentWe 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 IPO, Zevia terminatedlast day of any fiscal quarter following the Credit Facility. There were no material early-termination feesoccurrence of certain events of default that are continuing or any other penalties associated withday on which availability under the terminationSecured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the Credit Facility.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.
|
| For the Nine Months |
| |||||
(in thousands) |
| 2021 |
|
| 2020 |
| ||
Cash (used in) provided by: |
|
|
|
|
|
| ||
Operating activities |
| $ | (13,094 | ) |
| $ | (2,121 | ) |
Investing activities |
| $ | (2,308 | ) |
| $ | (781 | ) |
Financing activities |
| $ | 79,186 |
|
| $ | 4,142 |
|
|
| Nine Months Ended September 30, |
| |||||
(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 a 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 wereprimarily consisted of a $7.6 million increase in accounts receivable due to increasesincrease in net sales, and anticipated future growtha $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 expenses as a result of becoming a public company.
Net cash used in operating activities of $2.1 million for the nine months ended September 30, 2020 was primarily driven by a net decrease in cash related to changes in operating assets and liabilities of $6.3 million partiallycompany, offset by a net income of $3.0 million and non-cash expenses of $1.2 million primarily related to depreciation and amortization. Changes in cash flows related to operating assets and liabilities primarily consisted of a $9.7 million increase in inventories as a precaution to ensure bolster supplies in the midst of a pandemic and $3.4 million in accounts receivable due to increases in net sales, partially offset by a $7.4$5.9 million increase in accounts payable, accrued expenses and other current liabilities.liabilities due to our overall growth.
Net Cash UsedProvided 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 Investing Activitiesongoing 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 investingfinancing activities of $0.8$2.3 million for the nine months ended September 30, 20202022 was primarily due to purchasesminimum tax withholdings paid on behalf of software applicationsemployees for net share settlements of $2.1 million and computer equipment usedpayment of debt issuance costs of $0.3 million in ongoing operations.connection with the Secured Revolving Line of Credit.
Net Cash Provided by Financing Activities26
Net cash provided byused 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 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 forreceived net proceeds of $139.7 million, after deducting underwriting discounts and commissions of $10.1 million but beforemillion. We paid offering expenses ofrelated 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 surviving.continuing as the surviving entity. The IPO related amounts were partially offset by distribution to unitholders for tax payments of $2.7 million.
Net cash provided by financing activities of $4.1 million in the nine months ended September 30, 2020 was due to borrowings net of repayments under the Company’s Credit Facility and the Paycheck Protection Program.
Non-GAAP Financial Measures
We report our financial results in accordance with US GAAP. However, management believes that Adjusted EBITDA, and Adjusted Net Income (Loss),a non-GAAP financial measures, providemeasure, provides investors with additional useful information in evaluating our operating performance.
We calculate Adjusted EBITDA as net (loss) incomeloss adjusted to exclude: (1) income tax expense, (2) depreciation and amortization, (3) 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) interest expense, and (5) equity-based compensation expense.compensation. Adjusted EBITDA may in the future also be adjusted for amounts impacting net income related to the Tax Receivable AgreementTRA liability and other infrequent and unusual transactions. We calculate Adjusted Net Income (Loss) as net (loss) income adjusted to exclude equity-based compensation expense.
Adjusted EBITDA and Adjusted Net Income (Loss) areis a financial measuresmeasure that areis not required by, or presented in accordance with US GAAP. We believe that Adjusted EBITDA, and Adjusted Net Income (Loss), when taken together with our financial results presented in accordance with US GAAP,
26
provide 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 and Adjusted Net Income (Loss) areis helpful to our investors as they are measuresit 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 and Adjusted Net Income (Loss) areis presented for supplemental informational purposes only, havehas limitations as an analytical toolstool 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 expense. A limitation(income) expense, foreign currency (gains)/losses and (gains)/losses on disposal of Adjusted Net Income (Loss) is that it does not consider the impact of equity-based compensation expense, including the potential dilutive impact thereof.fixed assets. In addition, our use of Adjusted EBITDA and Adjusted Net Income (Loss) may not be comparable to similarly titledsimilarly-titled measures of other companies because they may not calculate Adjusted EBITDA or Adjusted Net Income (Loss) in the same manner, limiting theirits usefulness as a comparative measures.measure. Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA and Adjusted Net Income (Loss) alongside other financial measures, including our net loss or income (loss) and other results stated in accordance with US GAAP.
The following table presents a reconciliation of net income (loss),loss, the most directly comparable financial measure stated in accordance with US GAAP, to adjustedAdjusted EBITDA for the periods presented:
|
| Three Months Ended September 30, |
|
| 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 | ) |
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income (loss) and comprehensive income (loss) |
| $ | (49,761 | ) |
| $ | 2,458 |
|
| $ | (50,263 | ) |
| $ | 2,971 |
|
Income tax expense (benefit) |
|
| 50 |
|
|
| — |
|
|
| 50 |
|
|
| — |
|
Depreciation and amortization |
|
| 239 |
|
|
| 256 |
|
|
| 713 |
|
|
| 729 |
|
Other expense, net |
|
| 213 |
|
|
| 276 |
|
|
| 251 |
|
|
| 543 |
|
Equity-based compensation expense |
|
| 45,731 |
|
|
| 28 |
|
|
| 45,804 |
|
|
| 86 |
|
Adjusted EBITDA |
| $ | (3,528 | ) |
| $ | 3,018 |
|
| $ | (3,445 | ) |
| $ | 4,329 |
|
The following table presents a reconciliation* Includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of net income (loss), the most directly comparable financial measure stated in accordance with US GAAP, to adjusted net income (loss) for the periods presented:
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income (loss) and comprehensive income (loss) |
| $ | (49,761 | ) |
| $ | 2,458 |
|
| $ | (50,263 | ) |
| $ | 2,971 |
|
Equity-based compensation expense |
|
| 45,731 |
|
|
| 28 |
|
|
| 45,804 |
|
|
| 86 |
|
Adjusted net income (loss) |
| $ | (4,030 | ) |
| $ | 2,486 |
|
| $ | (4,459 | ) |
| $ | 3,057 |
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any holdings in variable interest entities.fixed assets.
Commitments
There have been no significant changes during the three months endedOur 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, 20212022, 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 contractual obligations disclosedlease 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 Management’s Discussionnature and Analysishave ordinary commercial terms. We did not have any material long-term inventory purchase commitments as of Financial Condition and Results of Operations set forth in the Prospectus.September 30, 2022.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q 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.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus and the notes to the audited financial statements appearing elsewhere in the Prospectus. During the three and nine months ended September 30, 2021, there were27
There have been no material changes to our critical accounting policies from those discussed in our Prospectus.Annual Report.
27
Recent Accounting Pronouncements
Refer to Note 2, to our Summary of Significant Accounting Policies, included in the condensed consolidated financial statements included inof this Quarterly Report on Form 10-Q 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 Form10-K)Form 10-K) or (iii) we issue more than $1.0 billion of non-convertible debt securities over a three- year period.
Use of Proceeds
On July 26, 2021, we completed our IPO, pursuant to which we issued and sold an aggregate of 10,700,000 shares of Class A common stock at the IPO price of $14.00 per share. The aggregate gross proceeds to the Company from our IPO were $149.8 million and the net proceeds were $139.7 million after deducting underwriting discounts and commissions of $10.1 million. The offer and sale of the shares of Class A common stock in the IPO were registered pursuant to registration statements on Form S-1 (File No. 333-257378), which the SEC declared effective on July 21, 2021. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10% or more of any class of our equity securities or to any other affiliates. The underwriters for our IPO were Goldman Sachs & Co. LLC, BofA Securities, Inc., Morgan Stanley & Co. LLC, Stephens Inc., BMO Capital Markets Corp., Wells Fargo Securities, LLC, Telsey Advisory Group LLC, Loop Capital Markets LLC, Academy Securities, Inc., AmeriVet Securities, Inc. and Samuel A. Ramirez & Company, Inc.
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 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 of Zevia LLC’s 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 the Company. Accordingly, we have not retained any of those portions of the proceeds. The Company used the remaining net proceeds of $90.1 million to acquire newly issued Class A units of Zevia LLC at a per-unit price equal to the per-share price paid by the underwriters for shares of Class A common stock which was retained by the Company before the payment of $8.1 million for the IPO offering costs. The net retained proceeds of $82.0 million will ultimately be used by the Company for working capital and other general corporate purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.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 recently signedhave a new 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 Agreementagreement 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 marketingmarket conditions, climate change, supply chain challenges, and adverse weather conditions.
The price for aluminum cans also fluctuates depending on market conditions. There is currently a globalan 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, 2021,2022, a hypothetical 10% increase or 10% decrease in the weighted average cost of aluminum would have resulted in an increase of approximately $0.8$1.2 million or a decrease of $0.8$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 United StatesU.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 United
28
StatesU.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 do not believe that inflation has had a material effect on our business, results of operations, orand 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.CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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 as of September 30, 2021. Based on the foregoing evaluation, and in light of the material weaknesses in internal controls described below, our Chief Executive Officer and our Chief Financial Officer concludeddetermined that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures were not effective in timely alerting them to material information to be included in our reports filed or submitted underat the Exchange Act.
In lightreasonable assurance level as of the material weaknesses described below, we performed additional analyses and other procedures to ensure that our condensed financial statements included in this Quarterly Report were prepared in accordance with US GAAP. These measures included, among other things, expansion of our quarter-end closing procedures, including the dedication of significant internal resources and external consultants to scrutinize account analyses, reserve estimates, asset valuations, proper accounting treatment for revenues and expenses and account reconciliations at a detailed level.
As previously disclosed in the section titled “Risk Factors” in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended June 30, 2021 as filed with the SEC on August 13, 2021 and “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, we previously identified material weaknesses in our internal control over financial reporting that we are currently working to remediate, which relate to (a) a lack of sufficient accounting resources, (b) inadequate segregation of duties, including access security to our IT systems, related to the preparation, review and posting of journal entries, and (c) the sufficiency of review over accounting analyses used in the classification of promotional activities and the accounting for equity transactions. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. These deficiencies could result in additional material misstatements to our financial statements that could not be prevented or detected on a timely basis.
Our management has concluded that these material weaknesses in our internal control over financial reporting were due to the fact that we were a private company with limited resources and did not have the necessary business processes and related internal controls formally designed and implemented coupled with the appropriate resources and personnel with the appropriate level of experience and technical expertise to oversee our business processes and controls.
Remediation Plans
We have commenced measures to remediate the identified material weaknesses. These measures included adding additional accounting and financial personnel with industry experience during the quarter ended June 30, 2021, including a Chief Accounting Officer to oversee internal controls and procedures and implement a formal closing process. In addition, we hired a Director of Financial Planning and Analysis, and Director of Tax. We also engaged a nationally recognized accounting firm to work with us to establish, document and test our key internal controls in order for management to effectively assess the internal control environment and all its related aspects and significant processes.During the quarter ended September 30, 2021, we implemented a formal journal entry approval workflow process, the review and approval of monthly accounts reconciliations with support to validate account balances, quarterly reviews by chief accounting officer or controller of the Company’s trial balance, dual authorization for wire transfers, tightened security around IT systems and established a whistleblower hotline for internal and external parties to anonymously report potential misconduct or other non-compliance with laws, formal accounting policies and memos.We intend to continue to take steps to remediate the material weaknesses described above and further evolving our accounting processes. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.
While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.
We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in2022.
29
our internal control over financial reporting. The Company will continue its efforts to strengthen its accounting and finance departments and aggressively pursue remediationManagement determined that as of all material weaknesses.
Changes in Internal Control over Financial Reporting.
There wereSeptember 30, 2022, no changes in our internal control over financial reporting had occurred during the fiscal quarter then ended September 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
30
29
PART II—II - OTHER INFORMATION
Item 1. Legal Proceedings.Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims and litigation arising in the ordinary course of our business. We are not currently partysubject to any material legal proceedings. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no assurances that favorable outcomes will be obtained. Although the outcome of these and other claims cannot be predicted with certainty, we do not believe the ultimate resolution of the current matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors.
Factors
Our business is subject to various risks, including those described in the section titled “Risk Factors” in Part II,I, Item 1A of our quarterly report on Form 10-Q for the quarter ended June 30, 2021 as filed with the SEC on August 13, 2021.Annual Report. There have been no material changes from the risk factors disclosed in Item 1A of our quarterly report on Form 10-Q for the quarter ended June 30, 2021.Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of ProceedsNone.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.Information
Stockholder ProposalsNone.
As provided in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), stockholders may present proper proposals for inclusion in our proxy statement and form of proxy and for consideration at next year's annual meeting of stockholders by submitting their proposals in writing to our Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for the 2022 annual meeting of stockholders, our Secretary must receive the written proposal at our principal executive offices, 15821 Ventura Blvd., Suite 145, Encino, CA 91436,not later than December 17, 2021, which the Company believes to be a reasonable time before it expects to begin to print and send its proxy materials for the 2022 annual meeting. Any proposal received after such date will be considered untimely. All Rule 14a-8 proposals must be in compliance with applicable laws and regulations in order to be considered for inclusion in the Company’s proxy materials for the 2022 annual meeting.
Amendment to Outstanding Equity Awards
On November 10, 2021, the Company’s Board of Directors approved (i) an amendment to the outstanding stock option awards held by Robert Gay and Harry “Hank” Margolis and (ii) an amendment to the RSUs granted to Messrs. Gay and Margolis in August 2020 (items (i) and (ii) collectively, the “Retirement Amendments”). The Retirement Amendments provide that upon the holder’s “retirement” on or after January 17, 2022, the unvested stock options and RSUs will become fully vested. As used in the Retirement Amendments, “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 one year advance notice of such retirement unless waived by the Company.
3130
EXHIBIT INDEX
Exhibit No. |
| Description of Exhibit |
3.1 |
| |
3.2 |
| |
| ||
| ||
| ||
|
| |
| ||
|
| |
| ||
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| |
| ||
| ||
| ||
| ||
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| |
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| |
| ||
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31.1* |
|
32
31.2* |
| |
32** |
| |
101.INS* |
| Inline XBRL Instance Document |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith. |
# | Management contract or compensatory plan or arrangement. |
3331
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportQuarterly Report to be signed on its behalf by the undersigned hereuntothereunto duly authorized.
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| Zevia PBC | ||||||||||
| By: |
| /s/ | |||||||||
Name: |
| Amy E. Taylor | ||||||||||
Title: |
| President and Chief Executive Officer | ||||||||||
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| (Principal Executive Officer) | ||||||||||
Date: | November 10, 2022 |
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: |
| /s/ | ||||
Amy E. Taylor |
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Name: |
| Amy E. Taylor |
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Title: |
| President and Chief Executive Officer |
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| (Principal | ||||||
Date: | November 10, 2022 |
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| By: |
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Denise D. Beckles |
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Name: |
| Denise D. Beckles | ||||||
Title: | Chief Financial Officer | |||||||
(Principal Financial Officer) | ||||||||
Date: | November 10, 2022 |
By: | /s/ Hany Mikhail | |||||||
Name: |
| Hany Mikhail | ||||||
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| Title: |
| Chief Accounting Officer | ||||
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| (Principal Accounting Officer) | |||||
Date: | November 10, 2022 |
3432