Suja Life, Inc. (SUJA) Earnings Call Transcript

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mike Mudge, Head of Investor Relations. Please.

Good afternoon and welcome to Suja Life's third quarter 2026 earnings call. Joining me today are Maria Stipp, Chief Executive Officer and Jeff Pedersen, Chief Financial Officer. Our earnings press release was published this afternoon and can be found on our Investor Relations website. Today's call is being webcast live as well, and a replay will be made available shortly after the call. Before we begin, a reminder that today's discussion will include forward-looking statements. These statements reflect our current expectations and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They're subject to risks and uncertainties that could cause actual results to differ materially. For more on those risks, please see today's press release and our most recent SEC filing. We assume no obligation to update these statements. We'll also refer to certain non-GAAP financial measures. You'll find reconciliations to most comparable GAAP measures in today's press release and our SEC filings. We're unable to reconcile forward-looking non-GAAP measures without unreasonable effort. With that, I'll turn the call over to Maria.

Thank you, Mike, and good afternoon, everyone. The third quarter showed what this business can do in an environment where consumers remain under pressure. Net sales grew 3% to 76.4 million ahead of our outlook we gave you in August. That includes approximately 2 million of shipments that moved from the fourth quarter into the third. Adjusted EBITDA was 10.5 million, a 9.6 million increase versus last year. Three things stand out to me this quarter. First, consumers are choosing our brands. We're continuing to gain share again this quarter, and our newer lines, like our refreshers, are leading the way. Second, we're winning where shoppers are going, with strong growth in club and convenience, And third, we're managing the business for profitability. We expect adjusted EBITDA to grow roughly 70% this year, with margin expanding about seven points to nearly 20% while investing deliberately behind our brands. That discipline is especially important given the continued pressure in grocery, which is shaping our near-term expectations. I'll walk through each of these and how we're adapting our plans in response. Jeff will then take you through the numbers and our updated financial outlook. Let me start with share. In the third quarter, our share of natural healthy beverage rose approximately 30 basis points to just over 9% according to Nielsen. Year to date, we're up more than a full point. And in the quarter, among the category's five largest manufacturers, Suja was the only one to gain share. Those gains came amid increased promotional activity across the category and pressure on household budgets. In grocery, the percentage of natural healthy beverage dollars sold on promotion in the quarter increased more than six percentage points versus a year ago. Despite that increase, the added promotion didn't translate into overall category growth. We chose carefully where to put our promotional dollars. We stepped up support behind our shots and refreshers, but we didn't chase the deepest discounts in grocery where they weren't paying back, and our share gains show that consumers are still choosing our brands, even with more promotion in the market. Second, shoppers continue to seek better-for-you products. They're buying them in different places, and we're following them. In the third quarter, our Nielsen measured sales in club grew nearly 20%. In convenience, they grew more than 40% from a small base. And in mass, they grew about 6%. 6% with more room ahead. In August I told you we'd expand our programs in club and mass. Club is our clearest win so far, driven by incremental programming on Suja organic green juices and wellness shots. We also said we'd work arm in arm with our retail partners, and we did, through top-to-top sessions with several of our largest customers. Those conversations have helped secure meaningful new distribution for our brands. distribution with more reset meetings still to come. And we keep investing in our brands. Marketing was 10.5% of net sales in the quarter, weighted toward bottom of funnel programs that helped drive purchases at shelf. Where we have the most work to do is conventional grocery, our largest channel. Weaker store traffic across the industry continues to weigh on our sales velocities. Despite that headwind, we grew distribution nearly 10% in the quarter, which tells you retailers continue to want our brands on their shelves. But each of those placements is selling less on average than a year ago. Some are newer items that can take time to build, and some are core single serve items in grocery. Distribution only creates value when it turns. So our focus is on both, continuing to earn new distribution and making every point work harder through better placement, sharper price pack architecture, and marketing that converts at the shelf. When we spoke in August, we expected a stronger fourth quarter, driven by new distribution, seasonal programs, and our commercial actions. Those actions are in place, and the fourth quarter is historically our strongest season for wellness shots. But the grocery pressure that began in July has intensified. Store traffic is softer, retailers are cutting prices more deeply, and promotions are delivering lower returns. As a result, we no longer expect the fourth quarter step-up we planned for, and we're lowering our full-year outlook, which assumes today's grocery conditions hold through year-end. We will discuss this more in a moment. Turning to our brands, Suja Organic Cold Pressed Juice continues to lead our growth, reflecting the work we did in 2023 and 2024 to reposition the brand around functional benefits. Our refreshers platform grew more than 40% in Nielsen-measured dollars in the third quarter, velocity still rising as we added distribution. Our boosted juice grew more than 18 percent, and our larger multi-serve formats continue to build in the quarter. Green Juice, the platform that started this brand, softened in grocery in the quarter, even as it helped drive our club growth. Reinvigorating it is a priority. Wellness shots remain one of the fastest growing segments in beverage up double digits this quarter. Our multipacks continue to grow with some consumers shifting from single serve to multipacks as shots become a part of their daily routines. Our single serve shots were softer in the quarter. That brings me to Vive Organic. Vive pioneered this category and it remains one of our top priorities. Part of running a portfolio of brands is giving each one what it needs at its stage of growth. For Vive, over the coming quarters, that means working working on sharper single serve price pack architecture and promotion, leading with multi-packs, and exploring innovation built around ingredient forward benefits. It's the same playbook that's driving growth in Suja Organic Juice today. Finally, slice. Year to date, slice net sales are up 31%. And emerging brands adjusted EBITDA loss narrowed by 9.1 million versus last year's third quarter. In the quarter, growth slowed to 3% as a better for you soda growth moderated and new distribution turned more slowly than expected. We're resetting expectations and looking to concentrate slice where it's working. That brings me to the third point, how we're managing the business. Stepping back, this has been a year of real change for Suja. We became a public company, our category tightened, and we've streamlined how we operate. I think about Suja's history in three chapters. The first was proving we could build these brands. The second was proving that we could make them last. This next chapter is about scaling with intention, and that means making choices. We brought our marketing, sales, and innovation teams together into one commercial organization so we can plan further ahead, move faster with our retail partners, and We're directing investment into channels and platforms and programs with the clearest returns. Owning our production gives us more control over our costs and our supply, and that's what creates room to make choices. It doesn't make us immune to inflation, particularly in fuel, packaging, and other inputs, but it helps us. absorb these pressures and keep investing to grow our brands while expanding profitability this year. Our priorities ahead are clear. First, building velocities across our portfolio, including in our core greens juices, single serve shots, and Vibe, As part of that, we expect to launch a new marketing model in the first quarter of 2027. It's full funnel and it's social first. It puts more of our spend behind what's already working and it reaches consumers where they spend their time. Most consumers discover us at the shelf or through word of mouth. And so that's where we're focused, the experience at the shelf and what people hear about us from their friends, family, and trusted sources. Having marketing sales and innovation in one commercial organization is what makes that possible. Second, deepening our penetration in existing accounts and capturing white space in channels where we're underdeveloped. We're in the selling season for 2027 placements and we're encouraged by the early progress. Third, innovating to capture new consumer opportunities with new formats and adjacent categories that build on our platform. grow profitably through scale. These priorities will take time to show up in our results, so I want to be clear about how we see the next several quarters. We expect net sales to grow by roughly 8% this year, but we'll exit 2026 at a softer run rate. Looking beyond 2026, We expect continued pressure in grocery and difficult comparisons in the first half of 2027, particularly in the first quarter. Our new programs and innovation are expected to reach shelves over the course of the year with their contribution building progressively. So we expect a slower start to 2027, with top line growth improving as the year progresses. Through this period, we expect to continue gaining share, and when the category picks back up, we believe we'll be in a strong position to benefit. We'll provide our formal outlook on our fourth quarter call in March. That said, our conviction in the long-term opportunity hasn't changed. We're not just taking share in an existing category. We're helping build a new segment of the beverage aisle. Household penetration rose to 11.2% from 9.6% a year ago and spend per buyer grew to nearly $31. Even so, only about 11% of US households buy our brands today, which leaves substantial room to grow. Consumers continue to look for beverages that do more for them and taste great, and that's exactly where our brands compete. We have leading brands, a vertically integrated platform built over a decade, and retail partners who rely on us to grow the category. Our focus now is on turning those strengths into more consistent, profitable growth. We have work to do, and I'm confident in our ability to deliver.

With that, I'll turn it over to Jeff. Thank you, Maria, and good afternoon, everyone. I'll start with detail on our third quarter results and then walk through our updated outlook for the full year. Net sales for the third quarter ended September 28th, 2026, increased 3.3% to $76.4 million, compared to 74 million in the prior year period. As Maria mentioned, that was ahead of the approximately 71 million estimate we shared in August. Growth was primarily driven by volume gains across key products and new distribution, partially offset by higher trade investment in wellness shots, where our cost position allows us to stay competitive in a more promotion-driven environment. Third quarter net sales also benefited from approximately $2 million of shipments that we had expected in the fourth quarter. Looking at our segments, SujaCore net sales increased 3% to 74.8 million, reflecting three dynamics. First, cold press juice continued to grow, led by our refreshers, the largest contributor to SujaCore's growth year to date. Second, wellness shot multipacks continued to grow while single serve shots were softer. And third, the higher trade investment I mentioned weighed on net sales growth. In emerging brands, slice net sales increased 3% to 2.7 million. That said, growth in better-for-you soda has slowed this year, and new distribution has built more slowly than we expected. Gross profit was 33.5 million, or 43.9% of net sales. compared to 34.3 million or 46.3% in the prior year period. That was below the approximately 47.8% we estimated in August. Historically, the third quarter has been our lowest gross margin quarter, given a lower mix of wellness shots. Three factors drove the decline. First, higher promotional investment in a more competitive environment. Second, unfavorable fixed cost absorption in our supply chain as category softness reduced production volumes. And third, higher inbound freight and packaging costs, both tied to higher oil prices. Ongoing efficiency improvements across our operations, along with favorable purchase prices on key produce inputs, are partially offsetting these pressures. We expect gross margin to improve sequentially in the fourth quarter as production volumes rise seasonally and these efforts continue. SG&A expenses were 36.5 million, or 47.8% of net sales, compared to 41.4 million, or 56% in the prior year period. Three items stand out. Marketing was 8 million or 10.5% of net sales compared to 17.1 million or 23.2% last year. The decrease primarily reflects lapping in one-time launch investment behind Slice in the third quarter of 2025. Freight costs increased, driven by higher carrier rates as fuel prices and labor availability pushed transportation costs up. Additionally, we recognize one-time costs, including 1.5 million in organizational restructuring, which are excluded from adjusted EBITDA. Net loss was 8.3 million compared to a net loss of 14.6 million in the prior year period. This quarter's net loss included about 6.7 million of one-time items, including a 1.8 million loss on debt extinguishment related to the refinancing and 1.5 million of restructuring costs. Adjusted EBITDA increased 9.6 million to 10.5 million, or 13.8% of net sales, compared to 1 million, or 1.4% last year. In dollars, this was slightly below what we expected in August. The margin came in below our estimate of approximately 15.2%, reflecting the gross margin pressure I described. The year-over-year increase primarily reflects lower marketing expense as we lapped last year's slice launch, partially offset by lower gross profit and higher freight costs. On a segment basis, SujaCorp adjusted EBITDA increased 4% to 13 million. Emerging Brands adjusted EBITDA was a loss of 2.4 million, an improvement of 9.1 million compared to the third quarter of 2025. Now to the balance sheet. In August, we completed the refinancing we mentioned on our last call. It includes a new $165 million term loan that matures in 2031. We also increased our revolving credit facility and our delayed draw term loan to 50 million each. Both remain undrawn. Our effective interest rate is now 5.6%. 7% compared to 9.7% at the end of last year. As we said at the time, this was a cost of capital transaction, and we did not add leverage. Interest expense in the quarter was 3.3 million compared to 7.6 million a year ago. In connection with the refinancing, we recognized a $1.8 million loss on debt extinguishment, which is excluded from adjusted EBITDA. As of September 28th, 2026, we had cash of 15.5 million and total debt of 163 million, with 100 million of undrawn capacity under our revolving and delayed draw facilities. Capital expenditures were 18.6 million year-to-date as we continue to expand our capacity, adding our sixth HPP machine in our Oceanside, California campus by year-end. Turning to our outlook, as Maria noted, we're lowering our full-year outlook to reflect continued pressure in grocery. full year ending December 28, 2026, we now expect net sales of 351 million to 354 million and adjusted EBITDA of 68 million to 70 million. We continue to expect net interest expense of approximately 18 million, as previously communicated in our our August refinancing announcement and a base tax rate of 26.1%. To help with your modeling, our outlook implies fourth quarter net sales of 83.7 million to 86.7 million and adjusted EBITDA of 17.8 million to 19.8 million. A few things shape the fourth quarter. About 2 million of shipments moved into the third quarter. We expect trade investment to stay well above last year's level in a highly promotional environment, which weighs on both net sales and gross margin. And our outlook assumes today's grocery conditions hold through year end, against a fourth quarter last year that benefited from stronger velocities. We also expect marketing to be lower as a percentage of net sales in the fourth quarter, as we redeploy upper funnel marketing dollars into trade programs to stay competitive in a heavily promoted category. As we outlined in August, we've been shifting investment from upper funnel marketing into trade. Because trade is recorded as a reduction of net sales, while marketing sits in SG&A, this shift reduces reported net sales and gross margin, but is largely neutral to adjusted EBITDA. Together with cost actions across the company, including freight optimization and tighter management of operating expenses, that supports adjusted EBITDA margin expansion despite lower gross margin. As Maria mentioned, we'll provide our formal 2027 outlook on our fourth quarter call in March. To help frame how we're thinking about next year, I'd point to a few considerations. First, the first quarter of 2026 benefited from favorable shipment timing and the timing of promotional activity, which we discussed in our first quarter call. So it's a demanding comparison. Second, our planning assumes continued pressure in grocery. Third, the contribution from new innovation and programs will build through the year rather than arrive at the start. Next slide. Fourth, we expect promotional intensity to remain elevated and our planning doesn't assume a near-term recovery. And fifth, we'll be lapping a significant customer program that we don't expect to repeat. Taken together, we expect 2027 to start slower, with growth improving as the year progresses, and to come in below our long-term algorithm. In closing, the third quarter showed the strength of our brands and the durability of our business model in a demanding environment. We've lowered our cost of capital, we're managing the business for profitability, and we're focused on the actions Maria described to rebuild velocity and position Suja for consistent long-term success. term top line growth. With that, I'll turn it over to the operator for Q&A.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Bonnie Herzog with Goldman Sachs. Please go ahead. All right. Thank you. Hi, everyone. So I think I understand the pressure in the grocery channel, given the macro environment. But I guess I'm trying to understand why you're not seeing enough of your core customers still purchase your brands, even if it's in other channels. I guess have they left the category entirely or are you possibly losing share? Rhea, I know you mentioned you're taking share, but I guess I am trying to understand if this is ultimately a channel issue or more of a brand issue. And then in thinking about that, what is your strategy with promotions? I guess how willing are you to ramp promo spend even further to potentially drive volume? Thanks.

Yes, so great question. First off, I mean, I think let's talk about the channels. We in Nielsen for Q3, we were down in the food channel by 1.7% and we were up significantly in Mass Club and C-stores, which tells you we are translating our trade support where consumers are going. So I think that's part of your question. And so while we are raising our promo support in grocery to match our competitors, we are also very well aware of the channel shifting that we're seeing as consumers are looking for those promo dollars and our retailers are telling us that in many cases, consumers are just chasing price. And so we are seeing channel shifting happen and we are adjusting our plans to go after that business. Second to that, when you asked about, you know, increasing our promo, we definitely have. So, we have increased our promo dollars quarter to quarter and year over year in order to compete. We did make a decision and followed through with it. our higher level marketing dollars, where we were using campaigns as an example, and really went right after price and promotion at retail. And that has worked for us. We've been able to maintain and grow share, albeit 0.9% according to Nielsen in Q3, which one, could say is on the lower side, but we're proud of that given that the category is down. So it's a very competitive environment for sure, but we continue to take share. And, you know, we're always focused on really grabbing new distribution, growing our innovation, and really continuing to fuel that pipeline of growth.

Yes, I would piggyback on that, Bonnie, and say that the other thing is we're looking at our business and across all of these channels, significant growth is going to happen. coming for us in our multi-packs. And I think that's a good sign of consumers really looking for value as you see some of this channel shifting. But that's also helping to support a lot of the transition to routinization that we're seeing from a lot of our consumers as well.

So maybe just a quick follow-up on that. So, you know, you touched on the category is declining. So just try to understand then where are these consumers that, you know, potentially were drinking juice going? You know, where is the category they're losing share? know or two you know which yes which yes oh yes thanks yes.

Yes. So in the spirit of just understanding the natural healthy beverage category, cold pressed juice was up 1.5 share, shots were up 1.3, proteins were up 0.4, and coconut water was up 1.8. And then there are significant size categories inside of natural healthy beverage categories. that are down, kombucha is down 1.8, better for you soda is down 2.3, smoothies, so these are all share losers in the category, smoothies and pasteurized juices. So those categories are large and they drag quite heavily on the category if that helps frame it.

Okay, thank you. I'll pass it on.

Thank you. Our next question comes from Komal Gajrawala with Jefferies. Please go ahead.

Hey guys, good afternoon I guess for you guys. I guess I'm digging into the same sort of line of questions. I guess I want to understand a little bit more on the promo side. Is it that there's been increased promo activity to try to address an industry issue that perhaps hasn't been effective? Or I'm just trying to get inside of some of your commentary around, I guess, the impact of the promos are and how you're going about things maybe differently in the coming quarters.

Yes, so I'll start at a high level, which is what we have feedback from our retail partners. Number one, they need to increase their foot traffic, particularly in grocery. As I was mentioning, you have consumers moving to different channels, so grocery needs the foot traffic, and they're willing to really drive that. to get that foot traffic. And so they've been very proactive with their partners and it's not a category specific conversation. This is going on across the entire store and you're seeing it in all of the categories. If you listen to Albertsons or any of the earnings calls, I think they explain it very well. So we're not immune to that. We've had, I think, all of us step up on promo. The entire category, I think, is up almost 6% in promo versus where it was. And so it's a category-wide problem. request to try and drive consumers to the segment and continue to drive foot traffic.

Yes, and we started to invest incrementally in promo, again, to match competition. We certainly don't want to dilute the category, Kamal, but we're also continuing to invest into Q4 and invest in, in areas where we think we can drive real return. Again, this kind of goes back to what I was mentioning to Bonnie earlier, where we see some growth in multipacks and that's a great sign for consumers and routinization. So we're definitely investing in promotional activity there to help kind of drive the ring as the consumers are, Maybe making less trips to the store than they were in the past.

I think what we've seen, maybe to continue to answer the question, is when we run promotions, and I think we've seen the data across the board, it's not that people are not participating. They absolutely are participating in those promos. So that's the good sign. The bad sign is the velocity rates don't match. match what they used to be in the spirit of the pull off the shelf. And so that really is the trick and our focus in the future, which is not only to drive promos, to drive traffic, but to make it sticky and to drive those velocity rates north of where they are today.

I got it. Are retailers shifting their focus on the category in any way? Is the category itself getting maybe more shelf space, less shelf space?.

Yes, I understand that though. I think we continue to hear good, yes, no, I'd say we continue to hear very good signs. You know, we have conversations with them. It's happening right now, right? We're in the spirit of selling season. Resets happen, you know, early next year all the way through springtime. And so we've gotten great indications of continued distribution growth. continued focus on the natural healthy beverage category so that's been very positive.

Okay, got it. And then on gross margins, they came in at least below where I had expected it to be. Is there any big pieces in there that we should be aware of as we're modeling out the year?.

Specifically for Q3, Kamal, I'd say there's kind of three elements in there. The first is the shift in incremental promotion. So we redeployed some upper funnel marketing dollars that would show up below gross margin. We redeployed those up into trade, which would be a contra revenue item. So that does drive down your net revenue and your gross margin. It's largely neutral from an EBITDA perspective. That's a part of it. Another part that we saw was a little bit of negative absorption due to reduced production volumes. So we had some additional costs to deal with there. And then there were also some cost pressures largely tied to oil prices, inbound freight rate and some of the commodity inputs like our packaging were affected. As we look to Q4, we do have some initiatives around operational efficiency and freight efficiency to help offset some of this, but we are expecting continued pressures from commodities like oil that we will have to continue to deal with. Okay, got it. Thank you.