Why did the company still post a net loss of $0.7 million despite improved margins, and is this gap expected to close in future quarters?

Why Zevia still posted a net loss of $0.7 million despite the margin improvement

1. Higher gross profitability is only one piece of the profit‑and‑loss puzzle

   • Gross‑profit margin rose to 48.7 %, up 6.8 percentage points versus the prior year. This shows that the core product mix and cost‑of‑goods‑sold (COGS) are getting more efficient.
     
   • However, net loss is calculated after subtracting all other operating costs (selling‑, general‑ and administrative (SG&A) expenses, marketing, R&D, distribution, interest, taxes, etc.) and non‑cash items. The press release does not break out those line‑items, but the fact that a $0.7 million loss persisted tells us that total operating expenses still exceeded the incremental profit generated by the higher gross margin.

2. Equity‑based compensation is a material non‑cash charge

   • The company explicitly notes that the loss includes a $1.0 million non‑cash equity‑based compensation expense.
     
   • If we strip out that non‑cash charge, the “cash‑adjusted” loss would be roughly $0.7 M – $1.0 M = ‑$0.3 M, i.e., a small net profit on a cash‑basis.
     
   • The equity‑based expense is recorded because the company granted stock options or other equity awards to employees or executives. While it reduces the GAAP net income, it does not affect cash flow.

3. Other cost‑structure factors

   • Zevia is still a relatively small, growth‑stage consumer‑goods business. It likely continues to invest heavily in marketing, distribution expansion, and brand building to gain shelf‑space and consumer awareness. Those outlays can be sizable relative to current sales levels.
     
   • Fixed overhead (rent, corporate staff, logistics) and interest or depreciation can also keep the bottom line negative even when the gross margin improves.

Is the gap expected to close in future quarters?

• Positive signals from the quarter

  • Net‑sales growth of 10.1 % to $44.5 million shows top‑line momentum.
    
  • Gross‑margin expansion of 6.8 pp indicates that the product mix and cost efficiencies are moving in the right direction.
    
  • The $1.0 million equity‑comp expense is a non‑cash item; the company highlighted that the loss would have been $0.3 million on a cash‑adjusted basis, effectively a modest profit.

• Management’s likely outlook

  • As the company scales, fixed costs (marketing, SG&A) will be spread over a larger sales base, improving the expense‑to‑revenue ratio.
    
  • Continued gross‑margin improvement (through better sourcing, pricing power, or higher‑margin product introductions) will further narrow the gap.
    
  • The non‑cash equity expense is expected to remain a GAAP drag but does not affect cash generation; analysts often look at “adjusted EBITDA” or “cash‑net income” to gauge underlying profitability.

• Bottom‑line expectation

  • Given the double‑digit sales growth, margin expansion, and the fact that the current loss is largely driven by a non‑cash charge, the gap between revenue and net income is likely to shrink in the coming quarters.
    
  • If Zevia can sustain or accelerate sales growth while keeping SG&A and marketing spend at a reasonable proportion of sales, the company could turn GAAP net income positive within the next 1‑2 quarters, or at least achieve a cash‑adjusted profit earlier.

Take‑away

• The $0.7 million net loss is not a sign of deteriorating profitability; it reflects a combination of ongoing growth‑stage expenses and a sizable non‑cash equity‑compensation charge.
  
• Margins are improving, and the cash‑adjusted picture already shows a modest profit.
  
• With continued sales momentum, further margin gains, and the dilution of fixed costs over a larger revenue base, the net‑loss gap is expected to narrow and could be eliminated in upcoming quarters.