What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-03-06 · 97 added, 72 removed, 284 unchanged (37% of the section changed)

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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 consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report.

The following discussion of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and the related notes and other financial information included elsewhere in this Annual 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 I, Item 1A.

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Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

We are a growth beverage company that develops, markets, sells, and distributes great tasting, zero sugar beverages made with simple, plant-based ingredients.

We are a better-for-you beverage company that develops, markets, sells, and distributes naturally delicious, zero sugar beverages.

We are a Delaware public benefit corporation and have been designated as a “Certified B Corporation,” and are focused on addressing the global health challenges resulting from excess sugar consumption by offering a broad portfolio of zero sugar, zero calorie, naturally sweetened beverages.

All Zevia® beverages are Non-GMO Project verified, gluten-free, Kosher, vegan and zero sodium and include a variety of flavors across Soda, Energy Drinks, Organic Tea, and Kids drinks.

All Zevia® beverages are made with a handful of simple, plant-based ingredients, contain no artificial sweeteners, and are Non-GMO Project verified, gluten-free, Kosher, and vegan, and include a variety of flavors across Soda, Energy Drinks, and Organic Tea drinks.

Our products are distributed and sold principally across the U.S.

and Canada through a diverse network of major retailers in the food, drug, warehouse club, mass, natural and e-commerce channels and in grocery and natural product stores and specialty outlets.

We believe that consumers increasingly select beverage products based on taste, ingredients and fit with today’s consumer preferences, which has benefited the Zevia® brand and resulted in over 1.9 billion cans of Zevia sold to date.

and Canada through a wide-ranging network of major retailers in the grocery, drug, warehouse club, mass, natural, convenience and e-commerce channels and in natural product stores and specialty outlets.

The Company’s products are manufactured and maintained at third-party beverage production and warehousing facilities located in both the U.S.

Key Events During 2024

During 2023, we implemented certain initiatives designed to transform our operations in order to help support our continued growth, enhance our customer service, and drive efficiencies.

During the second, third, and fourth quarters, in connection with those initiatives, we faced short-term supply chain logistics challenges which hindered fulfillment and adversely impacted net sales results and selling and marketing expenses in these quarters, specifically freight and warehousing costs as a result of increased inventory production levels, leading to higher storage and production costs.

We implemented measures that addressed these challenges and restored service levels to previous levels, including changes in the supply chain organization and leadership, pausing certain actions of our supply chain transition, and further automation of inventory reporting and processing for greater visibility.

We also introduced a brand refresh during the year, bringing a new logo and brand identity, in order to improve on-shelf visibility and continue to support our growth.

This initiative included the optimization of the brand portfolio and the discontinuation of selected SKUs as we continue to drive focus on our highest potential products.

During the fourth quarter of 2023, we made a strategic change in how our products are manufactured.

Beginning in the first quarter of 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods.

We believe this change should allow us to leverage the purchasing power of our contract manufacturers and further diversify, as well as enable us with the flexibility to scale the business.

We also onboarded a new global transportation management company in the first quarter of 2024 to support the optimization of the procurement of freight and associated freight management activities to improve our cost management.

We believe both of these changes will better optimize our supply chain in order to help support future growth and drive increasing returns as we scale the business.

Productivity Initiative

In the second quarter of 2024, we began executing a multi-year, broad-based Productivity Initiative designed to realign our cost structure in order to accelerate our route-to-market evolution and continue to build the Zevia Brand.

This Productivity Initiative is designed to focus on our most critical initiatives including driving growth and innovation in our highest margin carbonated better-for-you beverages, re-align our cost structure to support greater investments in the Zevia Brand and improve operational excellence while simplifying processes across the organization.

The Productivity Initiative has resulted in the following:

• Costs associated with the Productivity Initiative, including restructuring costs, were $2.1 million in 2024, which primarily includes employee related severance costs, restructuring consulting services, impairment loss of certain assets as a result of sublease agreement and costs related to exiting two of our third-party warehouse and distribution facilities.

• The Productivity Initiative is expected to result in estimated annualized benefits of approximately $15.0 million, and we began seeing these benefits in the second half of 2024, and expect the savings to be more fully realized over the next year.

These benefits include reduction in costs of goods sold and reduction in operating expenses, including due to the recent reduction in workforce in January.

We have reinvested the majority of these costs savings thus far into brand marketing and promotional activity to drive future growth.

Looking forward, we intend to balance reinvesting savings to help drive revenue growth with our plans for achieving profitability.

Additional restructuring charges or cash expenditures may be incurred as the Company makes further progress on this Productivity Initiative, which we expect to be substantially completed by the first half of 2025.

Factors Affecting Our Performance

Macroeconomic Environment

In addition to the supply chain challenges discussed above, a number of external factors, including the global economy, global health emergencies, inflationary pressures, relatively high interest rates, volatility in the financial markets, recession fears, financial institution instability, any potential shutdown of the U.S.

government, global hostilities, including the military conflicts in Ukraine and Israel and the surrounding areas, and political tensions between the U.S.

A number of external factors, including the global economy, global health emergencies, inflationary pressures, relatively high interest rates, volatility in the financial markets, tariff threats, recession fears, financial institution instability, any potential shutdown of the U.S.

government, changes in U.S.

foreign trade policies, global hostilities, including the military conflicts in Ukraine and Israel and the surrounding areas, and political tensions between the U.S.

and China, have impacted and may continue to impact transportation, labor, and commodity costs.

During the year ended December 31, 2023, we continued to experience slightly higher operating costs, including logistics, manufacturing and labor costs, which we expect to continue into 2024.

These pressures have and are expected to continue to impact our margins and operating results.

These pressures have impacted, and are expected to continue to impact our margins and operating results.

We, along with our competitors, have increased pricing on a number of products in response to widespread inflation.

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Components of Our Results of Operations

We generate net sales from the sales of our products, including Soda, Energy Drinks, Organic Tea, and Kids drinks, to our customers, which include grocery distributors, national retailers, natural products retailers, warehouse club retailers and retailers with e-commerce channels, in the U.S.

We generate net sales from the sales of our products, including Soda, Energy Drinks, and Organic Tea drinks, to our customers, which include grocery distributors, national retailers, convenience retailers, natural products retailers, warehouse club retailers and retailers with e-commerce channels, in the U.S.

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.

These incentives and discounts include cash discounts, price allowances, volume-based rebates, product placement fees and certain other financial support for items such as trade promotions, displays, new products, consumer incentives and advertising assistance.

The amounts for these incentives are deducted from gross sales to arrive at our net sales.

The following factors and trends in our business have driven net sales over the past two years and are expected to continue to be key drivers of our net sales for the foreseeable future:

The following factors and trends in our business are expected to be key drivers of our net sales for the foreseeable future:

• leveraging our platform and mission to grow brand awareness, increase velocity and expand our consumer base;

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• continuous innovation efforts, enhancement of existing products, and introduction of additional flavors within existing categories, as well as entering into new categories.

We expect both new distribution and increased organic sales from existing outlets and pricing strategies to contribute to our future growth;

We expect our future growth to be driven by a combination of new distribution, increased organic sales from existing outlets, package and product innovation, and continued pricing strength;

however, sales levels in any given period may continue to be impacted by seasonality, increased level of competition, customers’ efforts to manage inventory, and our ability to fulfill customer demands.

During 2024, we experienced reduced sales volumes, primarily due to lost distribution at certain retailers, largely in the club channel and one customer in the mass channel, and to a lesser degree as a result of a strategic decision we made to exit our Kids and Mixers product categories to focus on soda, and we expect these distribution losses to impact net sales in the first half of 2025.

We also increased our spend on promotional activity at key accounts, returning back to historical promotion levels, in order to drive velocity, which we expect to continue in 2025.

We also increased promotions in order to liquidate excess and obsolete inventory, which was temporary and largely complete by the end of 2024.

We are focused on building distribution in our key accounts and concurrently evolving our route-to-market;

however, we expect it will take time to regain lost distribution in an increasingly competitive environment.

We sell our products in the U.S.

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Cost of Goods Sold

Cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees.

Historically, cost of goods sold consists of all costs to acquire and manufacture our products, including the cost of ingredients, raw materials, packaging, in-bound freight and logistics and third-party production fees.

Beginning in 2024, our contract manufacturers are responsible for the procurement of raw materials to produce our products, which are then sold to us as finished goods;

therefore, cost of goods sold for the year ended December 31, 2024 consists of all costs to purchase our product from our contract manufacturers as a finished good.

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.

Due to the recent implementation of a 25% import tax on all steel and aluminum entering the U.S., we could see an increase in our cost of goods.

Our results of operations depend on our contract manufacturers’ ability to arrange for the purchase of raw materials and the production of our products in sufficient quantities at competitive prices.

We have long-term contracts with certain suppliers of stevia and certain third-party contract manufacturers governing quality control, regulatory compliance, pricing and other terms, but these contracts generally do not guarantee any minimum purchase commitments to our third-party contract manufacturers.

Beginning the first quarter of 2024, our third-party contract manufacturers procure packaging and ingredient materials to manufacture our products according to our submitted rolling forecasts, with the initial three months of each forecast generally constituting our purchase commitment.

We expect our cost of goods sold to increase in absolute dollars as our volume increases.

We elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in our consolidated statements of operations and comprehensive loss.

Our third-party contract manufacturers procure packaging and ingredient materials to manufacture our products according to our submitted rolling forecasts, with the initial three months of each forecast generally constituting our purchase commitment.

We expect our cost of goods sold to increase in absolute dollars as our volume increases, but decrease over time as a percentage of net sales as a result of the Productivity Initiative, our continued focus on cost and efficiency improvements, and as we realize the benefit of scale.

We elected to classify shipping and handling costs for salable product outside of cost of goods sold, in selling and marketing expenses in our accompanying consolidated statements of operations and comprehensive loss.

As a result, our gross profit and profit margin may not be comparable to other entities that present shipping and handling costs as a component of cost of goods sold.

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Our gross profit and gross margin are affected by the mix of distribution channels of our net sales in each period, as well as the level of discounts and promotions offered during the period.

Gross profit may be favorably impacted by leveraging our asset-light business model and through increased distribution direct to retailers, the increased scale of our business and our continued focus on cost and efficiency improvements.

Gross profit may be favorably impacted by leveraging our asset-light business model and through increased distribution direct to retailers, the increased scale of our business, our Productivity Initiative, and our continued focus on cost and efficiency improvements.

Operating Expenses

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Advertising and marketing expenses consist of variable costs associated with production and media buying of marketing programs and trade events, as well as sampling and in-store demonstration costs.

Selling and marketing expenses also includes the incremental costs of obtaining contracts, such as sales commissions.

Our selling and marketing expenses are expected to increase in absolute dollars in the long-term, both as a result of the increased warehousing and distribution costs resulting from increased net sales and as a result of increased focus on marketing programs/spend, which we expect to be partially offset by our continued focus on cost improvements in our supply chain.

Our selling expenses are expected to decrease in the short-term compared to the prior year as a result of the historical supply chain logistics challenges encountered during 2023 – refer to the Key Events During 2023 section above for additional information.

Selling and marketing expenses also include the incremental costs of obtaining contracts, such as sales commissions.

Our selling expenses are expected to decrease as a percentage of sales over time as a result of our Productivity Initiative and our continued focus on cost improvements in our supply chain.

Our selling expenses are expected to decrease from the prior year in the short-term, largely due the Productivity Initiative.

Marketing expenses are expected to increase as we invest in brand awareness, which are expected to be partially funded by the Productivity Initiative.

In particular, we expect to significantly increase our investment in marketing in 2025, primarily in the first and third quarters, to help build our brand, with a focus on driving trial and customer conversions.

General and Administrative Expenses

General and administrative expenses include all salary and other personnel expenses (other than equity-based compensation expense) for our employees, including employees related to management, marketing, sales, product development, quality control, accounting, information technology and other functions.

Our general and administrative expenses are expected to grow in absolute dollars but decline as a percentage of net sales over time.

Equity-Based Compensation Expense

Our ongoing general and administrative expenses are expected to remain relatively flat as a percentage of net sales over time.

Equity-Based Compensation Expenses

Equity-based compensation expense consists of the recorded expense of equity-based compensation for our employees and, if any, for certain consultants and service providers who are non-employees.

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Depreciation and amortization expense is expected to increase in-line with ongoing capital expenditures as our business grows.

Other income, net

Other income, net consists primarily of interest income (expense), and foreign currency (loss) gains.

Restructuring Expenses

Restructuring expenses include employee severance and benefit costs to terminate a specified number of employees as well as costs for restructuring consulting services, impairment loss of certain assets, contract termination costs and other related charges designed to reduce costs and improve efficiency while continuing to invest in our brand and related initiatives.

Additional restructuring charges or cash expenditures may be incurred as the Company makes further progress on the Productivity Initiative, which we expect to be substantially completed by the first half of 2025.

Other (expense) income, net

Other (expense) income, net consists primarily of interest income (expense), and foreign currency (loss) gains.

Results of Operations

The following table sets forth selected items in our consolidated statements of operations and comprehensive loss for the periods presented:

The following table sets forth selected items in our accompanying consolidated statements of operations and comprehensive loss for the periods presented:

Year Ended December 31,

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Depreciation and amortization

Restructuring

Total operating expenses

Loss from operations

Other income, net

Other (expense) income, net

Loss before income taxes

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Net loss per share attributable to common stockholders

The following table presents selected items in our consolidated statements of operations and comprehensive loss as a percentage of net sales for the respective periods presented.

The following table presents selected items in our accompanying consolidated statements of operations and comprehensive loss as a percentage of net sales for the respective periods presented.

Percentages may not sum due to rounding:

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Depreciation and amortization

Restructuring

Total operating expenses

Loss from operations

Other income, net

Other (expense) income, net

Loss before income taxes

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Equivalized cases sold were 12.1 million for the year ended December 31, 2024 as compared to 12.7 million for the year ended December 31, 2023.

Net sales growth was primarily driven by pricing increases of $11.5 million, partially offset by a decrease in the number of equivalized cases sold that resulted in $8.3 million lower net sales, which was mainly caused by short-term supply chain logistics challenges hindering fulfillment discussed in the Key Events During 2023 section above.

The decrease in net sales was primarily due to a decrease in the number of equivalized cases sold, which resulted in $9.8 million lower net sales and was largely caused by lost distribution in our club channel and one customer in our mass channel, as well as the discontinuation of Kids and Mixers product lines, partially offset by expanded distribution at one customer in the mass channel, and a decrease in net sales of $1.6 million resulting from greater promotional levels at retailers as well as increased promotions in order to liquidate excess and obsolete inventory.

We define an equivalized case as a 288 fluid ounce case.

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Cost of goods sold was $83.1 million for the year ended December 31, 2024 as compared to $91.7 million for the year ended December 31, 2023.

The decrease of $1.5 million, or 1.6%, was primarily due to a 6.9%, or $6.4 million decrease in the shipment of equivalized cases and $0.4 million lower cost of goods sold as a result of product mix and manufacturing costs, partially offset by higher inventory losses of $5.3 million generally related to raw materials as a result of the brand refresh rollout timing, discontinuation of certain SKUs as a result of portfolio management optimization, and the procurement change with our contract manufacturers discussed in the Key Events During 2023 section above.

The decrease of $8.5 million, or 9.3% was primarily due to lower write-downs related to excess and obsolete inventory of $4.6 million, a 4.8% decrease in the shipment of equivalized cases, resulting in $4.1 million lower costs of goods sold, and favorable product mix of $2.7 million, partially offset by unfavorable unit costs of $2.9 million primarily due to investments in enhanced package-specific designs to improve on-shelf visibility and drive brand awareness.

Gross Profit and Gross Margin

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Gross profit was $71.9 million for the year ended December 31, 2024 as compared to $74.8 million for the year ended December 31, 2023.

The increase in gross profit of $4.7 million, or 6.8%, was primarily driven by pricing increases taken in 2022 and 2023, partially offset by lower volumes and higher inventory losses.

The decrease in gross profit of $2.8 million, or 3.8%, was primarily due to lower volumes, unfavorable unit costs, and increased spend on promotional activity, partially offset by lower inventory write-downs and favorable product mix.

Gross margin for the year ended December 31, 2024 improved to 46.4% from 44.9% in the prior-year period.

The improvement was primarily due to pricing increases taken in 2022 and 2023, partially offset by higher inventory losses.

The increase was primarily due to lower inventory write-downs and favorable product mix, partially offset by unfavorable unit costs and increased spend on promotional activity.

Selling and Marketing Expenses

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Selling and marketing expenses were $57.1 million for the year ended December 31, 2024 as compared to $62.3 million for the year ended December 31, 2023.

The increase of $9.4 million, or 17.9%, was primarily due to $6.0 million of higher freight transfer costs related to short-term supply chain logistics challenges hindering fulfillment discussed in the Key Events During 2023 section above, and $5.3 million higher warehousing costs resulting from increased level of handling and storage costs which were driven by higher levels of inventory production, partially offset by a decrease in freight out of $1.3 million that resulted from lower shipments of equivalized cases and a reduction of non-working marketing costs offset by higher spend related to the brand-refresh rollout of $0.6 million.

The decrease of $5.2 million, or 8.3% was primarily due to a decrease in freight transfer costs of $5.4 million as a result of the impact of supply chain logistics challenges in the prior year and efficiencies related to the Productivity Initiative, a decrease in warehousing costs of $2.8 million due to efficiencies related to the Productivity Initiative and lower inventory levels, a decrease in repackaging costs of $2.0 million due to the automation of certain processes, and a decreases in freight costs of $0.8 million due to improved rates and $0.7 million due to lower volumes.

These decreases were partially offset by higher marketing expenses of $6.5 million as a result of investments made to drive brand awareness.

General and Administrative Expenses

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General and administrative expenses were $30.0 million for the year ended December 31, 2024 as compared to $31.5 million for the year ended December 31, 2023.

The decrease of $5.3 million, or 14.4%, was primarily driven by a $2.6 million decrease in employee related costs, and $2.8 million decrease driven by cost productivity initiatives.

The decrease of $1.5 million, or 4.7%, was primarily a result of our Productivity Initiative discussed above.

Equity-Based Compensation Expense

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(in thousands)

Equity-based compensation

Equity-based compensation expenses

Equity-based compensation expense was $5.0 million for the year ended December 31, 2024 as compared to $8.3 million for the year ended December 31, 2023 primarily related to outstanding equity-based awards being recognized over the remaining service periods of the awards.

The decrease of $18.6 million was primarily driven by $11.2 million of lower equity-based compensation expense due to the acceleration of vesting of RSU awards upon retirement of senior management employees during 2022, $5.9 million of expense related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, and $2.7 million related to RSU and restricted phantom stock awards that vested over six months following the IPO in the prior year, partially offset by $1.2 million of equity-based compensation expense related to new equity awards granted.

The decrease of $3.3 million was primarily due to a $3.7 million decrease related to the accelerated method of expense recognition on certain equity awards issued in connection with the Company’s IPO in 2021, partially offset by equity-based compensation expenses related to new equity awards granted.

Restructuring Expenses

Year Ended December 31,

(in thousands)

Restructuring expenses

Restructuring expenses were $2.1 million for the year ended December 31, 2024, which primarily includes employee related severance costs, restructuring consulting services, impairment loss of certain assets as a result of sublease agreement and costs to exit two of our third-party warehouse and distribution facilities.

Generally, we experience greater demand for our products during the second and third fiscal quarters, which correspond to the warmer months of the year in our major markets.

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Additional funds may not be available on terms favorable to us or at all.

Also, we will continue to assess our liquidity needs in light of current and future global health emergencies, inflationary pressures, relatively high interest rates, volatility in the financial markets, recession fears, financial institution instability, any potential shutdown of the U.S.

Also, we will continue to assess our liquidity needs in light of current and future global health emergencies, inflationary pressures, changes in tariff or U.S.

foreign trade policies, relatively high interest rates, volatility in the financial markets, recession fears, financial institution instability, any potential shutdown of the U.S.

government, current and future global hostilities, and political tensions between the U.S.

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The Secured Revolving Line of Credit matures on February 22, 2027.

As of December 31, 2023, no amounts were drawn under the Secured Revolving Line of Credit.

During the first quarter of 2024, the Company drew $8 million on the Secured Revolving Line of Credit which was subsequently repaid in the same period.

As of December 31, 2024, there was no amount outstanding on the Secured Revolving Line of Credit.

The Secured Revolving Line of Credit is secured by a first priority security interest in substantially all of the Company’s assets.

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.

Under the Secured Revolving Line of Credit, we are required to comply with certain covenants, including, among others, by maintaining Liquidity (as defined therein) of $7 million at all times until December 31, 2023.

Thereafter, we must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days.

As of December 31, 2023, the Company was in compliance with its liquidity covenant.

The following table presents the major components of net cash flows from and used in operating, investing and financing activities for the periods indicated.

The Loan and Security Agreement was amended on September 30, 2024 to replace the Bloomberg Short-Term Bank Yield Index, which was discontinued on November 15, 2024, with the Term Secured Overnight Financing rate, effective November 20, 2024.

Under the Secured Revolving Line of Credit we must satisfy a financial covenant requiring a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of any fiscal quarter following the occurrence of certain events of default that are continuing or any day on which availability under the Secured Revolving Line of Credit is less than the greater of $3 million and 17.5% of the borrowing base, and must again satisfy such financial covenant as of the last day of each fiscal quarter thereafter until such time as there are no events of default and availability has been above such threshold for 30 consecutive days.

As of December 31, 2024, the Company was in compliance with its financial covenant.

The following table presents the major components of net cash flows provided by and used in operating, investing and financing activities for the periods indicated.

Twelve Months Ended December 31,

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Net cash used in operating activities of $1.0 million for the year ended December 31, 2024 was primarily driven by a net loss of $23.8 million, partially offset by non-cash expenses of $7.4 million primarily related to equity-based compensation and depreciation and amortization expense and a net increase in cash related to changes in operating assets and liabilities of $15.4 million.

Changes in cash flows related to operating assets and liabilities were primarily due to a net increase of $11.2 million in accounts payable, accrued expenses and other current liabilities due to timing of purchases/payments and increased production of inventory, partially offset by an increase in inventories of $7.0 million due to increased production of inventory as a result of the supply chain logistics challenges discussed in the Key Events During 2023, and an increase in prepaid expenses and other assets of $2.6 million, primarily due to an increase in prepaid deposits related to the sale of raw materials.

Net cash used in operating activities of $20.8 million for the year ended December 31, 2022 was primarily driven by a net loss of $47.6 million and by a net decrease in cash related to changes in operating assets and liabilities of $2.1 million, partially offset by non-cash expenses of $28.9 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 $2.0 million due to increases in net sales and a decrease in accounts in accounts payable and accrued expenses and other current liabilities of $4.1 million, primarily due to timing of inventory purchases, partially offset by decrease in inventories of $3.9 million due to timing of inventory purchases and a $0.8 million decrease in prepaid expenses and other assets, primarily insurance expenses as a result of becoming a public company.

Net Cash Provided by Investing Activities

Changes in cash flows related to operating assets and liabilities were primarily due to a decrease in inventories of $15.9 million due to decreased production of inventory as inventory levels are managed and the sale of raw materials to contract manufacturers, decreased prepaid expenses and other assets of $3.2 million largely due to a decrease in receivables related to the sale of raw materials, and a decrease in accounts receivable of $0.3 million due to timing of payments, partially offset by a net decrease in accounts payable, accrued expenses and other current liabilities of $3.5 million due to timing of purchases and decreased production of inventory, and decreased operating lease liabilities of $0.6 million due to payments made.

Net cash used in operating activities of $16.3 million for the year ended December 31, 2023 was primarily driven by a net loss of $28.3 million, partially offset by non-cash expenses of $11.0 million primarily related to equity-based compensation and depreciation and amortization expense and a net increase in cash related to changes in operating assets and liabilities of $1.0 million.

Changes in cash flows related to operating assets and liabilities were primarily due to a net increase of $11.2 million in accounts payable, accrued expenses and other current liabilities due to timing of purchases/payments and increased production of inventory, partially offset by an increase in inventories of $7.0 million due to increased production of inventory as a result of the supply chain logistics challenges in 2023, an increase in prepaid expenses and other assets of $2.6 million, primarily due to an increase in receivables related to the sale of raw materials, and decreased operating lease liabilities of $0.6 million due to payments made.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities of $0.3 million for the year ended December 31, 2024 was primarily due to purchase of property, equipment, and software of $0.3 million for leasehold improvements, computer equipment, furniture and equipment, software applications, and marketing equipment for use in ongoing operations.

Net cash provided by investing activities of $0.8 million for the year ended December 31, 2023 was due to proceeds from sales of property, equipment, and software of $2.4 million, primarily the sale of our warehouse and related assets for $2.3 million, partially offset by capital expenditures of $1.6 million for the purchase of marketing fixtures, software applications and computer equipment used in ongoing operations.

Net cash provided by investing activities of $27.4 million for the year ended December 31, 2022 was due to proceeds from maturities of short-term investments of $30.0 million, offset by capital expenditures of $2.6 million for the purchase of marketing fixtures, software applications and computer equipment used in ongoing operations.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities of $25 thousand for the year ended December 31, 2023 was due to proceeds from the exercise of stock options.

Net cash used in financing activities of $2.3 million for the year ended December 31, 2022 was primarily due to minimum tax withholdings paid on behalf of employees for net share settlements of $2.1 million and payment of debt issuance costs of $0.3 million in connection with the Secured Revolving Line of Credit.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of less than $0.1 million for the year ended December 31, 2024 was due to proceeds from the Secured Revolving Line of Credit of $8 million which was repaid in the same period, and proceeds from the exercise of stock options.

Net cash provided by financing activities of less than $0.1 million for the year ended December 31, 2023 was primarily due to proceeds from the exercise of stock options.

Non-GAAP Financial Measures

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We calculate Adjusted EBITDA as net loss adjusted to exclude:

(1) other income (expense), net, which includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets, (2) provision (benefit) for income taxes, (3) depreciation and amortization, and (4) equity-based compensation.

(1) other income (expense), net, which includes interest (income) expense and foreign currency (gains) losses, (2) (benefit) provision for income taxes, (3) depreciation and amortization, (4) equity-based compensation, and (5) restructuring expenses.

Also, Adjusted EBITDA may in the future be adjusted for amounts impacting net income related to the TRA liability and other infrequent and unusual transactions.

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Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S.

Some of the limitations of Adjusted EBITDA include that (1) it does not properly reflect capital commitments to be paid in the future, (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures, (3) it does not consider the impact of equity-based compensation expense, including the potential dilutive impact thereof, and (4) it does not reflect other non-operating expenses, including interest (income) expense, foreign currency (gains)/losses and (gains)/losses on disposal of fixed assets.

In addition, our use of Adjusted EBITDA may not be comparable to similarly-titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure.

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Net loss and comprehensive loss

Other income, net*

Other expense (income), net*

Provision for income taxes

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Equity-based compensation

Restructuring

Adjusted EBITDA

* Includes interest (income) expense, foreign currency (gains) losses, and (gains) losses on disposal of fixed assets.

* Includes interest (income) expense and foreign currency (gains) losses.

Effective March 2022, the Company entered into an amendment to the lease for its corporate headquarters offices to extend the lease term through December 31, 2023 and expand the total square footage from 17,923 square feet to 20,185 square feet which commenced on May 1, 2022.

In January 2023, the Company further extended the lease term through December 31, 2026.

In January 2023, the Company entered into another amendment to the lease and further extended the lease term through December 31, 2026.

In September 2024, the Company entered into a sublease agreement related to 8,468 square feet of its corporate office, which commenced on October 8, 2024 and ends on December 31, 2026.

The following table summarizes our significant contractual obligations as of December 31, 2024:

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(1) Real estate lease payments

Our leases generally consist of long-term operating leases, which are payable monthly and relate to our office space.

For a further discussion on our debt and operating lease commitments as of December 31, 2024, see the sections above as well as Note 7 - Debt , and Note 8 - Leases , in the accompanying Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

Our inventory purchase commitments are generally short-term in nature and have ordinary commercial terms.

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Our forecasts provided to our contract manufacturers are short term in nature and at no time extend beyond a year.

Our leases generally consist of long-term operating leases, which are payable monthly and relate to our office space.

For a further discussion on our debt and operating lease commitments as of December 31, 2023, see the sections above as well as Note 7 - Debt , and Note 8 - Leases , in the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

We expect to satisfy these commitments through a combination of cash on hand and cash generated from sales of our products.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with U.S.

Our accompanying consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with U.S.

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.

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Critical accounting estimates are those that we consider the most important to the portrayal of our financial condition and operating results because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Summary of Significant Accounting Policies , in the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for information about these policies as well as a description of our other accounting policies.

Summary of Significant Accounting Policies , in the accompanying Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, for information about these policies as well as a description of our other accounting policies.

Our critical accounting estimates are described below.

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Recent Accounting Pronouncements

Refer to Note 2 - Summary of Significant Accounting Policies in the Notes to our Consolidated Financial Statements included in this Annual Report for a discussion of recently issued accounting pronouncements not yet adopted.

Refer to Note 2 - Summary of Significant Accounting Policies in the accompanying Notes to our Consolidated Financial Statements included in this Annual Report for a discussion of recently issued accounting pronouncements not yet adopted.

Emerging Growth Company Status

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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 may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of the IPO which is December 31, 2026 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:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis