The Vita Coco Company Aktie

Hello, and welcome to the Vita Coco Company Second Quarter 2026 Earnings Conference Call. My name is Liz, and I will be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'd now like to hand the call over to John Mills with ICR.

Thank you, and welcome to the Vita Coco Company's Second Quarter 2026 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's second quarter earnings release issued earlier today. This information is available on the Investor Relations section of the Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results.

Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to now turn the call over to Mr. Mike Kirban, our Co-Founder and Executive Chairman.

Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our second quarter financial results and our expectations for our full year 2026 performance. I want to start by thanking all of our colleagues across the globe for our strong operational execution year-to-date and particularly in fueling and supporting the acceleration of our growth rate this year. I'm thrilled that the growth trends of the first quarter have continued through the second quarter. Our strong inventory position at the start of the year and the quick reaction time of our teams to the higher demand have enabled us to support our retailers' increased needs and have delivered very strong second quarter results in global net sales, gross profit, net income and adjusted EBITDA.

Coconut water remains one of the fastest-growing categories in the beverage aisle according to our retail scan data with year-to-date retail dollar growth of 29% in the U.S. and 65% in our measured European markets. Vita Coco Coconut Water, excluding our coconut milk-based products like treats, also grew 29% year-to-date in retail dollars in the U.S., and we also saw 57% retail dollar growth in our measured European markets, gaining branded share across our major markets.

In addition to our incredible financial results year-to-date, I'm pleased to announce the acquisition of Copra Inc. Aside from Vita Coco, I really believe that Copra is one of the greatest success stories in coconut water and one of the other major drivers of the category's growth over the past couple of years. I'm very excited for Copra's founders, Ben and Chai and their team to join us in developing the coconut water category into a major global beverage category over the coming years. Copra competes in the super premium Thai Nam Hom segment of coconut water. The product is sold chilled and has a sweet aromatic flavor and a slightly pink color.

We estimate that this super premium cold segment represents approximately 13% of U.S. coconut water sales and is growing slightly faster than the rest of the category year-to-date. The largest branded player in this segment is Harmless Harvest. But more recently, the segment has seen most of its growth come from private label introductions across many major retailers, the majority of which Copra supplies. The Copra team have built a great business based on strong integrated Nam Hom sourcing and packaging operations in Thailand and are the leading supplier of private label products for this segment, and they've launched their own Copra brand in the U.S., producing some of the highest quality product that we've seen in the segment.

As we've demonstrated with Vita Coco, investing in and mastering the supply chain in this category is key to being a market leader. Acquiring Copra today gives Vita Coco greater access to this unique coconut water sourcing area and will allow us to compete long term in the super premium cold segment with both private label and branded products. I'm very pleased to welcome Ben and Chai and their team to the Vita Coco family and look forward to helping them achieve their long-term vision. We believe this is an attractively valued asset that will enhance our ability to deliver on our long-term goals.

As we think about our brands and the category's tremendous growth opportunities, we will continue to scale active hydration efforts across our markets as a key driver of consumer growth, positioning our brands as the natural choice for everyday performance, sport and recovery. With 3.5x the electrolytes of the leading sport drink and clean ingredients, we believe that we are well positioned to continue to recruit new consumers, increase usage frequency and unlock the next phase of sustained growth. We believe that coconut water is in the early stages of gaining mainstream appeal, a belief that is supported by the growth trends we are seeing.

We believe that we are very well positioned to benefit from these trends, and we're confident that coconut water will grow to be a major category in the beverage aisle across the globe. We'll continue to build capacity and grow our organizational capabilities to take advantage of that growth. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's robust second quarter performance. Our net sales in the quarter were up 28%, driven by the strong growth of Vita Coco Coconut Water of 21% and growth in private label of 83%. The coconut water category and our brand trends are very healthy in all our major markets. In the United States, Vita Coco Coconut Water shipment growth was strong despite a negative impact from the shifting of a major club promotion into Q1 this year.

We believe that our U.S. Vita Coco branded business growth is coming approximately 2/3 from increased household penetration and 1/3 from velocity household growth, which is indicative of very strong brand momentum. Our U.S. scan results were also benefiting from the November reset at Walmart, which has added approximately 5% to our retail dollar scan growth rate on a year-to-date basis. Our private label shipment growth for the quarter reflects distribution gains, specifically the regain regions at major retailers that started shipping during the first quarter and the first shipments for a new private label account in the U.S. that started this quarter.

We are seeing cost of goods year-to-date in 2026 benefit from refunds of tariffs paid last year and from lower ocean freight costs year-to-date compared with the full year 2025 levels with those partially -- those benefits partially offset by increased domestic logistics and higher finished goods costs. During the quarter, we entered into some additional ocean freight contracts on an April through March next year basis to secure containers at fixed rates, subject to adjustments for fuel and other surcharges. These provide us with approximately 50% coverage for our needs for the balance of the year.

During the second quarter, surcharges related to seasonal demand patterns and fuel costs were announced, and it is unclear how long these will remain effective. We are also experiencing some cost of goods increases, primarily in packaging materials, domestic logistics costs and increased energy costs affecting our suppliers. Most of these increases will start impacting our gross margin mid-third quarter as inventory flow through to customers. The tariff refund allows us to mitigate any impact on our consumers from these cost increases for a while. But if these costs continue, we may consider price increases early in 2027.

From a supply perspective, I'd like to acknowledge the devastating earthquake that hit near General Santos in the Philippines. Our thoughts remain with all those affected. The factory there, where our products are made, suffered damage to warehouses and other structures, resulting in loss of finished goods and a temporary shutdown to allow cleanup and ensure operations could restart safely. We lost several weeks of production and a couple of weeks of inventory at this factory, representing approximately 1% of our full network annual production.

As we look to the balance of 2026, we expect full year healthy growth as we benefit from strong brand trends and the tailwinds of our private label business, benefiting from the distribution gains referenced earlier. We are raising our full year guidance both to reflect our increased expectations for our core business and to account for the addition of the Copra business. Based on the strength of coconut water growth trends year-to-date, we have increased our targets for our 2028 capacity needs. We are currently working with multiple partners to secure this long-term capacity to operate efficiently and to support our growing coconut water business, and we'll invest in additional technical resources to support this.

I also want to welcome Copra to the Vita Coco family. I believe that we can add significant value to Copra through our excellence in engineering, quality, processing, supply chain and commercial and marketing capabilities, building on their leadership and Nam Hom sourcing knowledge. It is a low-risk acquisition in our wheelhouse and a great first step for us as we build our M&A capabilities. Copra's business is primarily in the Nam Hom coconut water products, representing approximately 90% of their net sales. And they also have other branded coconut products such as young Thai coconut meat, nectar, puree and ready-to-drink coconut smoothies.

Their business is growing strongly faster than Vita Coco, primarily driven by significant gains in the private label business, coupled with recent success in the U.S. with their own Copra branded products up 42% year-to-date across both foodservice and select retailers such as H-E-B and O-Onne and key regional chains. Although the Copra brand is small today, it is showing great growth and is a nice platform for us to build a branded competitor with the ambition to eventually be the largest brand in the segment of the category. The Thailand facility is located in the Ratchaburi province, which is ideally situated for sourcing Nam Hom coconuts. The addition of this factory enhances our supply chain, adding capabilities and relationships to our current network.

We are excited to bring our coconut water expertise to help scale the capacity to meet our growth aspirations. We are looking forward to having Ben and Chai and their teams join us as we build an integrated organization and grow the Coco brand over time. To summarize, our category is very healthy. Our brands and our private label business are strong. We are confident in our team's ability to execute and deliver on our plans for 2026, and our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the second quarter 2026 financial results and our outlook for the full year. For the second quarter, net sales increased $47 million or 28% year-over-year to $216 million, driven by strong Vita Coco Coconut Water net sales growth of 21% and private label growth of 83%. On a segment basis, within the Americas, net sales grew 21% to $172 million, led by Vita Coco Coconut Water that grew net sales by 15% to $138 million. This was driven by a 7% volume increase and a 7% net price/mix benefit.

Private label increased net sales 83% to $27 million, driven by an 82% increase in volume and a net price/mix increase of 1%. Our International segment net sales were up 63%, where we saw continued exceptional net sales growth across branded and private label coconut water. Vita Coco Coconut Water net sales grew 60% and private label increased 82%. For the quarter, consolidated gross profit was $105 million, an increase of $44 million versus the prior year. Gross margins finished at 49% for the quarter, up approximately 1,200 basis points from the 36% reported in Q2 last year. Tariff refunds improved gross margin within the quarter by approximately 700 basis points. The remaining increase in gross margin resulted from better coconut water pricing, lower ocean freight and lower finished goods, partially offset by higher domestic logistics costs.

Moving on to operating expenses. SG&A costs increased $6 million to $42 million, driven by increased investments in personnel focused on driving future growth, including higher incentive compensation, increased marketing spend and higher sales-related expenses. Net income attributable to shareholders for the quarter was $49 million or $0.82 per diluted share compared to $23 million or $0.38 per diluted share in the prior year. The $27 million increase in net income was primarily driven by the increase in gross profit, partially offset by higher SG&A investment, increased income tax expenses and a foreign currency loss this year versus a gain last year.

Our effective tax rate for Q2 was 23% versus 19% last year. The increase in the effective tax rate is largely driven by the timing of tax credit recognition. This brings the effective tax rate to 21% on a year-to-date basis, in line with our expectations for the year. Q2 2026 adjusted EBITDA was $67 million or 31% of net sales, up from $29 million or 17% of net sales in Q2 2025. The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses.

Turning to our balance sheet and cash flow. As of June 30, 2026, our balance sheet remained very strong with total cash on hand of $279 million and no debt under our revolving credit facility. Year-to-date, we generated $82 million of cash, driven by strong net income and a $28 million reduction in inventory, partially offset by share repurchases of $20 million and net working capital outflow of $11 million, reflecting higher accounts receivable, partially offset by an increase in accounts payable. In July, our Board approved a $40 million increase in our stock buyback authorization. We now have $61 million remaining under the total $105 million authorized.

Moving to Copra. The purchase price consists of 2 pieces. The first payment of $175 million is subject to customary closing adjustments that was made consisting of approximately 80% cash and 20% stock. Additional consideration is to be paid in 2029 based on 2028 gross profit generated and has a floor of $45 million and a cap of $100 million. Copra projects their full year calendar net sales for 2026 to be above $100 million. We expect the acquisition to be accretive to our adjusted EBITDA margins post full integration. We believe our primary synergies will be driven by operational improvements in their Thailand factory and through leveraging our retail relationships to accelerate Copra's growth.

We are planning on retaining all key employees and maintaining operations in Thailand and expect very limited SG&A cost synergies as we focus on the growth ahead of us. We estimate that we will quickly invest approximately $11 million in CapEx to double extraction output and improve efficiency to unlock capacity to support our growth plans. As it relates to guidance, in addition to the inclusion of Copra's expected performance, we have continued to experience exceptional category trends in our major markets and confidence in our team and our Vita Coco brand. As a result, after a very strong first half, we are raising our full year expectations for both net sales and adjusted EBITDA.

We now expect net sales between $790 million and $805 million. We expect gross margin for the full year of approximately 40%, delivering adjusted EBITDA of $154 million to $161 million. Our expectations for the strong net sales growth is built on our assumptions for the U.S. category growing approximately 20% and our international business, led by the U.K. and Germany maintained very healthy growth rates. We now expect consolidated growth of Vita Coco Coconut Water net sales of high teens to 20% with our U.S. Vita Coco net sales growing mid- to high teens due to the stronger U.S. category growth, increased distribution, improved visibility to our private label trends and the inclusion of Copra, we now expect full year private label net sales growth of 90% to 100% in the U.S.

We expect 2026 gross margins to improve from 2025 levels as we benefit from the removal and now refund of tariffs, the branded pricing taken in 2025 and favorable full year ocean freight rates partially offset by impacts from cost of goods inflation and adverse product mix. We expect full year branded price increases of low single digits, assuming no further price actions with a higher mix of private label volume, resulting in minimal consolidated net pricing growth. As a result of this mix shift and the higher cost of goods, we expect lower gross margin in the second half than we saw in the first half.

We expect to deliver SG&A leverage of approximately 1 point as a percentage of sales versus 2025 as we continue to deliver strong growth with disciplined investments while managing the Copra integration. Finally, we believe that the acquisition of Copra does not change our long-term financial algorithm of branded net sales growth in the mid-teens and adjusted EBITDA in the high teens. And with that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco Company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the Coconut Water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth. Thank you for joining us today, and thank you for your interest in the Vita Coco Company. That concludes our second quarter 2026 prepared remarks, and we will now take your questions.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs.

I had a question on your guidance. Given the robust growth in your business and then your acquisition, you're able to raise your full year guidance yet again this year, which is impressive. But your guidance, I guess, ex Copra implies a deceleration on the top line in the second half, I believe. So I wanted to understand the drivers of that, maybe how conservative that is. And then your guidance also implies a fair amount of deleverage in the back half. So Corey, I think you just touched on this, but just trying to understand how much of that is due to higher freight maybe versus stepped-up investments. If you could maybe help quantify some of these impacts in the back half, that would help.

Sure, Bonnie. Maybe there's an element that's similar to last quarter. We have -- so we're raising the back half from our previous guidance. So there is stronger trends coming into the back half. But we do run into the inventory builds at distributor, Walmart load-in, those items that we've previously talked about. We do see the category continuing to hold up in the 20s, low 20s. So it's a stronger growth, but there is that kind of headwind we're facing from a top line. We do see the category continuing to be strong. So the potential upside there if that continues for the full year.

The inflation is starting to hit Q3, Q4 from a freight perspective as well as the finished goods increases we've talked about. So those are driving the margin, which the underlying margin is again stronger than we indicated last quarter. So we're getting a bit more visibility into the outlook, but there is the inflation coming balance of the year. And then from a leverage to EBITDA, it is really about Copra, and it's quite new. It just kind of closed yesterday. So we are cautious in trying to understand the integration costs, the SG&A to support the movements and make sure we execute this well. And so that's how we thought about the guidance with some -- I'd say, a bit of conservativeness on the SG&A to make sure we have everything captured properly as best we can.

Our next question comes from Peter Galbo with Bank of America.

Congrats on the acquisition. I actually just, Mike, wanted to ask a broader question about Copra and some of the capacity plans that you have. I think you mentioned securing additional capacity for brand Vita Coco for 2028. You're going to be making some investments for Copra to expand capacity there. Is there any ability, I know it's early days, but for overlap potential going forward as you expand capacity at Copra, can you, I don't know, grow different types of coconuts to actually help out on the Vita Coco side? Is there going to be any way to use some of that expanded capacity for brand Vita Coco? Or is it kind of siloed to the Copra brand at this point?

Yes. I think as we think about capacity, the category is growing really fast. The brand, Vita Coco is growing really fast. Copra is growing really fast. And so adding capacity is critical. If we think about Copra specifically, it is a factory and a manufacturing structure in a specific region of Thailand where this very specific coconut grows that is this kind of sweeter, more aromatic, nuttier, slightly pink coconut water. So it's a different actual liquid than what is in Vita Coco. So the 2 capacity builds are -- they're separate and they're independent of one another, but both need to be built and continue to be built as the category continues to grow at these type of rates.

Got it. Okay. And Corey, this is maybe a bit more of a nitpicking type question, but just the Americas branded business in the quarter, I think, actually ran a bit behind the scanner data. I think consumption would have implied something in the low 20s. And I think the Americas branded business was kind of shipped in the mid- to high teens rate. So I just wanted to understand the gap in the data. Maybe there was a shipment timing, maybe it had to do with Q1 and the MBM that was moved, but just wanted to help understand kind of the gap specific to Q2.

Yes. And Peter, the big items are, as we talked about, we have the MBM Q1, Q2 and then MBM Q2, Q3. So that's the biggest item that makes the quarters in the scanner tough to call. It should, over the course of the year, equal out that you've got some elements always of distributor shipment timing. So it's just a shipment timing item, primarily with the MBM battling from scanner to shipments.

Our next question comes from Chris Carey with Wells Fargo.

Just first one, can you expand a bit on your assumptions for category growth into the back half of the year that you're embedding into the guidance?

So Chris, we're basing the guidance on the 20s, low 20s. We'll see how it holds up. Year-to-date, it's currently above that. But how we thought about guidance was 20s.

And when you say 20s, is that overall category? Is that the branded category?

The overall category. Currently, we're just right in line with the category. And we expect -- it's been a little behind the category the last few weeks, but we expect to be close to the category for the full year.

Okay. And just a follow-up on Copra. How should we think about the commercialization of this? Is Copra really right now predominantly a private label play? It sounds like that's a big piece of the business. Is there going to be a super premium Vita Coco offering? Are you planning to grow the Copra brand and that's going to be the angle? Just how should we think about -- when you think about capitalizing on this super premium, how are you going to be leveraging this portfolio from a, I guess, brand versus private label perspective? And what are the implications of Copra as it pertains to gross margins? I know you said EBITDA margins were accretive, but is it gross margin accretive given it's more premium? Just a bit more context there.

Think big picture, as we think about the category and we think about the growth of the category and the early stages of the category is in and the position of super premium within the category being about 13% of the category today, we see an opportunity for that to grow. And we believe that this gives us the opportunity to be a real player in that segment of the category and eventually be the largest player in that segment of the category. And that will be through mostly brand as we continue to build this piece of the business.

Today, Copra is a lot of private label, but just like Vita Coco, it all starts with manufacturing. And we think that in coconut water specifically, really investing and developing the manufacturing side of the business creates a moat and gives us a real competitive advantage, and we think we have that with Copra on the super premium side. So we will now be building brand or brands off of it as we think that over time, brand can be just like with Vita Coco, a much larger component of that segment of the category and our part of the category. You want to talk a little bit about the margin question.

Yes, we haven't disclosed the margins, but it's operating with a large percentage of private label, which, as you know, is lighter touch from an SG&A perspective, but lower gross margin perspective. And as we kind of integrate and operate it more effectively, we're very comfortable with the outlook, but it is predominantly private label today.

Okay. And I apologize, but just as a follow-up to this, and then I'm done. Is Copra expected to be profitable in your guidance for this year? I know you said it should be margin accretive once fully integrated.

The guidance raise, does that include positive EBITDA contribution from Copra -- because I mean, if you take the tariff of Copra, it kind of implies there's no EBITDA guidance raised today. So I just want to confirm that.

No, it's a profitable business, and it's included.

Yes.

And to get to your point, right, we've raised core business revenue. We are seeing a little bit more cost inflation, particularly on the ocean freight side, which may or may not be permanent. And it's now starting to soften, but it certainly impacts us this year.

And that's sort of the major changes on the -- and then we've increased some SG&A spend. So the 3 changes in the core business as it relates to EBITDA are those, and then you have a little bit of contribution from copper.

Our next question comes from Jon Andersen with William Blair.

On the acquisition. Let's see. I guess I did want to ask a little bit about your private label business. It was particularly strong in the quarter. I think -- I'm not sure -- I think it might have been a little bit maybe stronger than even you anticipated.

But could you help us understand the growth there in the quarter and your expectations for the full year? And how much of that is kind of related to the regain of distribution in some regions and this new account? And maybe kind of more importantly, how to kind of think about kind of run rate growth for that private label portion of your business on an ongoing basis?

I'll take a crack at it and then Corey can fill in. I think when you break down our private label business in the quarter, in the U.S., we benefited from [ regain ] regions and the new tetra customer in the U.S., and that resulted in sizable growth in Q2 -- over Q2 last year and then also over Q1 this year. In addition to the distribution gains, private label trends are largely tracking the category, if not a little bit of ahead. So you also have sort of category growth rate going on, on a per point of distribution basis.

The other part of the private label story is Europe where private label is doing really well. I don't think any major distribution trends. We just have a category, particularly in Germany that is exploding. And I think as we indicated, growing in the 100% range or higher and private label in that market and the other markets is tracking with the category growth, and that sort of explains the sort of international growth on private label. And then as we look out, I think we expect those trends to largely continue Q3, Q4. I think we did talk about how full year growth in the U.S. might be 90% to 100%, but that is partially due to the addition of the Copra business balance of the year.

And then also, Jon, on the launch, you get somewhat of a distribution pipeline fill and the accounting benefit of the purchase order. So you kind of get a little bit extra.

Super helpful. And coming back to an earlier question, just on the guidance, the EBITDA raise was, I think, at the midpoint is $22.5 million. And I'm just trying to make sure I understand, is $15 million of that related to the tax -- excuse me, the tariff refund. I can't quite recall whether that was fully out of the guidance last time and now fully in. And then I guess there'd be another positive contribution from COPRA there, right, as well?

Correct. So as we just covered, the tariffs were not in previously, they're now in. That's a clear add. As Martin referenced, a bit of inflation, Copra and then some SG&A as we talked about just until we better understand how it all comes together in the accounting of the cost we've incurred, but those are the building blocks.

Our next question comes from Eric Sarda with Morgan Stanley.

Great. Bigger picture on Copra. Could you just give some color as to why now, maybe as simple as the asset was available now, but why does it make sense at this moment versus sometime prior to this or maybe sometime in the future with respect to the development of the category and the development of your business? I would love to get your perspective on that, Mike.

Yes. I think if we think about the category and the growth of the category, being the fastest-growing category in the beverage aisle and one of the more expensive categories in the beverage aisle and then seeing that consumers are digging deep and investing in not only obviously, Vita Coco as the premium option in the category and private label as the value option in the category, but also the super premium segment, which is priced significantly higher than Vita Coco.

And there's growth in that segment of the category that is slightly even greater than the category and greater than our own growth. And so we see this category really sticking around and really being an important part of the category as the category continues to mainstream. So we felt that we should play in this segment, and there was an opportunity to acquire a brand and a business, but most importantly, a really incredible manufacturing opportunity and a supply chain opportunity in this segment of the category that will enable us to really take advantage of that to be, we think, the largest player in that segment of the category and therefore, gain share across the category.

This gives us an opportunity to take a really nice chunk of that what is 13% could easily be 15%, 16%, 17% of the category and therefore, gain share in total as a company within coconut water as coconut water grows.

Great. And Martin, I would love to get your perspective in terms of ocean freight rates. We've seen a fairly sizable increase over the past few months. Just wondering your perspective as to the timing of that flowing to your cost of goods given the typical lags of, call it, 6 months or so as well as sort of your best view as to the supply-demand balances for ocean freight on your key lanes?

Sure. I think in the overall picture, we still view that there is excess capacity versus demand on ocean freight generally and particularly on our lanes. So that's how we think about it. So we expect at some point in time, the rates to fall back to the rates we were seeing maybe 5, 6 months ago. The -- since we last spoke, yes, there has been a spike in the reported rates on the indices. These are being driven by fuel surcharges, but maybe more importantly, demand surcharges that the carriers have applied.

And in some ways, they might be creating artificial supply constraints to push those up and benefit from those for the holiday shipping season. So we think that's what we're seeing. We continue to ship because we need the product even with those surcharges. That would typically take about 3 months to flow through to our P&L if you assume a month of inventory and 2 months on the water.

And so we would expect those increases that you've seen on the indexes that started maybe in March to flow into the P&L in Q3 and probably more importantly, in Q4, which leads to how we're thinking about gross margin for the balance of the year. And as it relates to our visibility, I think we have pretty good visibility on '26. If you think about it as of today, sort of 3 quarters of the way through July, we have production that will sell maybe over 70%, maybe over 80% this year that's already on the water, and we know the rates.

So this year, probably less variability and uncertainty. And as we think about next year, as we sort of said, we want to be patient on taking price. We want to see whether any of these effects are permanent. Some of the inflationary effects like that we've seen on packaging, we are pretty sure are permanent, but the ocean freight things we feel are temporary. So we will weather the storm, so to speak, this year and see where we are sort of in the October time period and make decisions around pricing next year to cover whatever costs we think are permanent.

Our next question comes from Eric Des Lauriers with Craig-Hallum...

Congrats on another impressive quarter here and this acquisition.

My questions are mostly around the acquisition. So on the private label side, first, should we think about pricing for Copra's private label business has driven in the same manner as legacy cocoa on the sort of based on overall costs? And then just on the private label dynamics more broadly for this super premium portion, could you just kind of give us some, I suppose, competitive dynamics sort of between super premium and more traditional private label coconut water?

Are you seeing retailers typically replace one for the other or provide both offerings? If you could just kind of provide a bit of the sort of dynamics that you're seeing on the private label side of that super premium category as well would be helpful.

And the last part of the question, they're providing both. If you look at the retailers that do a significant amount of private label, they typically will have Vita Coco. They'll have a Tetra Pak coconut water in the coconut water set, private label. And then they will have a branded and/or just a private label super premium, which sits in a different area of the store.

So if you see Copra or you see Harmless Harvest or you see a private label Nam Hom Thai coconut water, it's typically in the refrigerated set separate from the general coconut water set. So they typically would have both. And they're both doing really well. If you look at the retailers that are successful in private label, both Tetra Pak and the super premium segment, private label are growing really fast and doing quite well.

And then, Eric, on the sort of pricing side, the first point, I think, is this type of product typically we sell at 2x what Vita Coco does on a per liter basis. So that will also show up in our private label sort of revenue per case equivalent in your modeling for the cooker business, which will be higher than what we get on the private label shelf stable side. And yes, it's typically -- we think it's going to be sort of on a cost-plus basis.

We need to work out the full competitive dynamics. As Mike said, we think this factory and the process and the team is a competitive advantage, and we will look at that to understand what the pricing should be to be fair to our retailers and also to ensure that we maintain their business.

Very helpful. And then my last question is sort of touching on that last part here on the manufacturing outlook. So certainly a bit more of a vertically integrated structure than the legacy cocoa business. You already mentioned expanding capacity there in Thailand.

Do you see yourselves sort of expanding any vertical integration across the rest of your supply chain? Is this something that's sort of unique to this coconut, this region, this category? Or is this something that we could potentially look for you to expand across your footprint over the coming years?

Yes, great question. As Mike indicated, this is a pretty unique asset and a pretty unique growing area with relationships for sourcing Nam Hom coconuts that are very, very unique. We're very happy with the model and the rest of our system.

As you know, it sort of varies as to how we support those partners adding capacity, but it's been asset-light for a long time. And I think we see that model supporting our growth for at least the next couple of years. We do look at alternative models maybe on the 5-year horizon, but nothing is committed to yet, and we will keep running the current model for as long as we think it will support the business while having plans to support the business in other ways if that model ceases to be able to.

Our next question comes from James Salera with Stephens.

I wanted to start on the capacity utilization side. In the 1Q call, when you guys raised your guidance for the first time, you had mentioned you kind of moved above your target capacity of 80% to 85% up to 85% to 90%.

If I do some back of the envelope math, I come up with something like $750 million to $760 million of core Vita Coco sales implied in today's updated guidance. Should we think about that as like the absolute maximum that you can do this year just from a committed capacity standpoint and what you have on the water?

I can't verify your back of the envelope math, but I certainly applaud the approach, and it's not a crazy way to think about it. We are currently running closer to 95% capacity right now and have, therefore, limited ability to go beyond what our capacity is.

Our guidance is based on what we think we're going to do, which assumes that not everything is perfect, right? Because we're not going to provide guidance based on perfect supply chain performance. We have a very complicated supply chain and stuff happens much -- we alluded to on the call, the earthquake General Santos that for us impacted about 1% of our annual full capacity lost, right? So those things can happen.

Our guidance is based on what we think we can do. It's also hard because the guidance looks -- is obviously based on what inventory we have and what SKUs. We currently have some more inventory on some SKUs than others, and we're trying to push those and offer those to retailers if there are challenges. Obviously, demand is ahead of what we anticipated, and it's uncomfortable running at the capacity we're doing. But the capacity we've put in place for '27, we think will help us and allow us to maintain the momentum. And I think as we alluded to on the call, we're now working very hard on '28 to basically maintain these growth rates.

And Martin, you almost anticipated my next question, which is if we think about '27, I can appreciate all the incremental work on '28 and very high-quality problem to have to expand capacity there. Is there any flex in FY '27 at this point in the planning cycle where maybe you can pick up some incremental capacity in 2H '27, given any kind of moving pieces that you might have there?

Yes, there always is, and we're talking. And I wouldn't say that we're only working on '28. I think in the past, we've said adding a TETRA line is 9- to 12-month sort of time line and all those discussions are going on where we see the coconut water being available, adding partnerships is more 18 to 24 months. And so obviously, those are things that we're looking at for '28.

Our next question comes from Kaumil Gajrawala with Jefferies.

Congrats, exciting morning with Copra. I guess a lot of questions on the manufacturing. One of the things I guess I want to understand is this particular type of coconut, like is there a ceiling to how big it can be? It sounds like this was a purchase for branding, for scaling, for capacity for a mix of things. But is there a limit? Is there -- are we anywhere near sort of a ceiling where we should only ever think of it as somewhat niche in terms of how much this thing can scale?

There's a limit at any given time, but there's a lot of planting and a lot of investing going on in the region in planting. So the sourcing opportunity -- the ability to grow from a sourcing opportunity is there and continues to develop and continue to grow. And so we think the opportunity for us to develop this segment of the category, grow the brand and brands and grow the super premium space will be supported as growing continues.

Today, it's nowhere near capacity. They're not picking that last coconut in that province of Thailand. It's nothing like that. There is capacity to be had today, significant capacity. But yes, growing and investing needs to continue, and it is happening. And so we feel really good about continuing to grow this segment of the category potentially faster than the total category over the next couple of years or several years.

Okay. Got it. And then just to make sure I understand the supply chain. Does this need to ship refrigerated? Does it go through different means of distribution? Does it need to take cold throughout the process? You had mentioned and harmless harvest is usually sold in coolers and fridges. Can this push through the normal Vita Coco system? Or do you need an entirely separate supply chain to build it out?

It ships chilled and stays chilled all the way through the supply chain. So it's not going DSD, for example, through our typical DSD system. It goes more direct to retail through the produce supply chain. A lot of direct business, some broadline business will be seen, food service business will be seen, but it is cold chain.

[Operator Instructions] Our next question comes from Robert Ottenstein with Evercore ISI.

Great. A few more questions on the acquisition and just sort of kind of the business model and the outlook for that. So let me just start off. For the super -- in the super premium segment, can you talk first a little bit about the demographics of that segment, how it differs from the Vita Coco demographics? Is it typically -- what is the route to purchase in terms of do people start kind of at the Vita Coco level? And then -- and is this a trade-up? Or is it a separate purchase? Is it a separate demographic? And then given the price point, how big do you think this can actually be in terms of sales? I understand that it's growing very fast and faster than the overall market, but from a smaller base.

So maybe that's one sort of group of questions related. And then the other side of that is maybe if you can also help us understand why private label is so prominent a player in this. I mean, typically, private label is the more lower-priced products. And here, private label is very material for a super premium product. So maybe help us understand why that's the case. So there are 2 different sorts of questions there.

Yes, sure, Ron. So when we look at the household data, it's pretty similar to Vita Coco, maybe a little higher income and a little older, but otherwise, pretty similar. The household penetration number is order of magnitude, 60% of Vita Coco, so lower household penetration. And we just -- as it relates to your second question, we don't see any reason why it can't grow with the category. And whether it grows share of the category, we think it can.

There are some -- there's retail distribution opportunities for it as it establishes a larger base, it can be survived in more retail locations. So we do think there's an opportunity to increase share of the category. And I don't think it's incredibly fast growth, but over 5, 10 years, we certainly think we can grow share there. And then as it relates to your question around why is private label so strong, that's partially related to Costco.

Costco for years only carried Harmless Harvest. And Harmless Harvest, we believe, had a very nice business there. And then starting about 2, 3 years ago, Costco started to roll out a private label option, and that has been rolled out through distribution through Costco, and that has sort of reduced Harmless's share of that category. And some of that is evidenced in Slide 5 of our copra acquisition deck. And so some of this is a retailer, and I think the Costco shopper is an ideal shopper from a demographics perspective and income perspective for a product like this, even though the price point is obviously significantly higher than shelf-stable coconut water.

And certainly, in household I visit, you will see the super premium product in the refridge alongside the shelf-stable product in the fridge and household. So we think there's a strong overlap. It's a slightly different taste profile, slightly different sweetness level that appeals to certain people, but perhaps not the product you would drop into smoothies and other sorts of things.

And who supplies the Costco private label? And is that something that you'll be competing for?

So we would never comment publicly on who provides private label of a customer of ours or a retailer because we think that's their business to share and not ours.

That concludes today's question-and-answer session. I'd like to turn the call back to Martin Roper for closing remarks.

Thanks, everybody, for joining us. Needless to say, we're very excited. We're very excited about the underlying category growth. We're committed to growing the coconut water category, and we're excited to welcome the employees and founders of Copra to our project to make this the next -- or one of the largest beverages categories in the world, and we think that the addition of Copra can help us do that. So very excited and look forward to talking to everybody again in October. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. Good morning, everyone. Thanks again for joining us today. It's a pleasure to introduce our next speaker. With us today is Vita Coco's Co-Founder and Executive Chairman, Mike Kirban; as well as Chief Financial Officer, Corey Baker. Mike has served as Executive Chairman since May '22 and as Chairman of the Board since 2004. Mike also previously served as Chief Executive Officer and Co-Chief Executive Officer of the company. Corey has served as Vita Coco's CFO since 2023, where he joined following a very successful career at PepsiCo.

So Vita Coco was founded back in 2004, and they are the market leader in the attractive and fast-growing coconut water category. They have a full pipeline of products that fuse functional benefits with authentic and better-for-you ingredients and just recently posted a very strong Q1 beat and raise, which helped drive the stock over 25% higher. So thank you both for joining today.

Thanks for having us.

Yes, I still can't get over the Q1 results. But let's maybe start with the health of the consumer recently. From your vantage point, I imagine your consumer remains pretty healthy as evidenced again by the strong top line growth in the quarter. But maybe talk through for us why does the coconut water consumer seem to be so strong? And does it ultimately skew higher income?

I mean, clearly, the consumer is strong. I think year-to-date scans are up almost 30%. So there's a lot of growth there. And -- but if you think about where consumers are spending today, there's not a lot of growth in consumer goods. There's not a lot of growth in beverage. What's growing is in beverage specifically, the only things growing are protein, energy and coconut water being the fastest-growing category in beverage. These are some of the most expensive beverages. So consumers are, I think, whether higher income or not, they're digging deeper than ever before for functionality, for wellness, for things that actually make a difference as opposed to just general refreshment.

Yes. And you checked the box on the functionality. I think about what's -- why consumers are gravitating. But one thing I wanted to check on as I think about the consumer of your products, you over-index, I believe, to the Hispanic consumer. And there have been a lot of headline concerns about that cohort. So how are you seeing whether it's elasticities of that consumer holding up as it relates to your product?

So I think we've always said we -- as of the last several years, at least, we're growing across all demographics, across all regions, specifically in the U.S. We have said historically that we over-index with ethnically diverse consumers, specifically Hispanic, Asian and black consumers. With this type of growth, it's hard to point to one specific segment of our consumer base that is maybe buying less, because we're growing in all channels also. I mean C-store is growing tremendously. So across all channels. So again, maybe as Hispanic consumers are potentially spending less, maybe ours is higher income, but we can't really point to anything specific that's dragging the growth that we're experiencing.

And let's talk a little bit about the category itself because it's been so strong. It's one of the fastest-growing categories within the beverage aisle. So you are the category leader. So I want to understand the steps you're taking to ensure the category stays healthy and strong. And then ultimately, where is this category sourcing from, do you believe?

So historically, the category has sourced from 3 large categories: sources from conventional juice, sources from premium enhanced water, and it sources from sport drinks. Together, that's a $125 billion global category. So we're not just another juice or playing in a specific category like energy. We're used across all of these consumer occasions, and therefore, we're pulling from all of these 3 categories.

As of late, we've seen an acceleration of pull from sport drinks. We think there's really something happening within the consumer globally around everyday hydration. And coconut water has 3.5x the electrolytes of a sports drink and it comes from a tree, super simple, clean ingredients, everything else. So we think that there's really, really something there, and that's where it's pulling from.

Now we continue to grow the category through education, why, when, how to drink coconut water, whether it is for that hydration occasion, whether it is mixing it with your cocktails or mixing it with your green powders or in your smoothies or after a workout, whatever it might be. And this, we believe, brings in more and more members of the household as we're gaining household penetration.

So increasing also consumption occasions. And I think you mentioned that the household penetration is low teens. Is that correct for your...

So we used to quote Numerator data, and it was something like that. It was brand was low teens, category was 20%, roughly 20%, low 20s. The data set has changed over the past year or so. So we're not really quoting any specific data. But household penetration on coconut water is still very early. It's very low as you compare it to even if you just look at juices, cranberry juice at 50, orange juice in the 80s to 90. So a long runway of continued growth in terms of household penetration.

And you still, I believe, expect the category to double. I think you had said last year, maybe in the next few years. But given the growth that we've seen, that might happen sooner.

Yes, it's on course. Potentially happen sooner.

Yes. And then in terms of your results, you just reported again, very strong Q1 results. 37% top line growth. You raised your full year growth guidance to 18% to 21%, including mid- to high-teen growth for Vita Coconut Water versus, I think it was -- prior was low teens. So again, an acceleration. So curious to, again, understand the building blocks or drivers of that growth and how you expect to hit that guidance range for the full year.

Well, I mean, obviously, we came out really strong. We think that we're looking at the category growing roughly 20% from a scan perspective for the year. We used to talk about the category growing high single digits to low teens. Over the last year, we started talking about mid-teens, and now it's accelerating even further. So with that acceleration, we feel confident in the guide that we've given.

And we think that, that is -- if we look at what's happening in the U.S. and the growth in households and the consumption per household growth and then also what we're experiencing on the international front with our European markets and now looking at other opportunities around the world, a lot of opportunity to continue to grow the category and therefore, the brand.

And then context to this, thinking about pricing, I know you took 2 rounds of pricing last year, again, to kind of cover some of the inflationary COGS pressure and tariffs. I think it seems like you've held on to a lot of that pricing, right? But help us understand this year, maybe some of the mitigation or where you expect your pricing to go and then maybe your promotional levels.

Yes. We've talked about for this full year in the U.S., low single digits branded pricing. So we're coming into the year with quite a bit high single digits. We expect that we'll have some increased promotional activity in the back half, which will offset some of the tariff pricing taken last year. And then as we talked about in our guidance, we're expecting a bit more inflation exiting the year, and we'll look at potential price adjustments exiting this year and next year if that maintains.

So to be clear, yes, you did touch on that, it'd be later this year, maybe more price or heading into next year before you.

Heading into next year.

Okay. I did want to also ask a little bit about treats because I think of that being also one of the -- you have it. Great. It's been around for a couple of years now. And the brand really has performed pretty well relative to, I think, your internal expectations. And it's bringing in my assumption is incremental growth. So how do you see that brand moving forward within your broader portfolio? Should we expect to see more innovation?

We like treats. Treats is something that we recognize this trend of consumers using coconut milk as a base for kind of refreshment indulgent beverages. We saw this in Asia, and then we -- you see things like Starbucks Pink Drink and things like that. working here. So we launched this 2 years ago and then last year, launched it nationally. And it's done well. I think we said it's adding roughly 3% to our scan growth on top of our coconut water scan growth. So it's growing nicely.

This year, we added 2 new flavors, the frosted lemonade on a national distribution and an exclusive with a specific retailer, also a different one. And it's bringing in a younger consumer, even younger than we might have seen historically and a more rural consumer from what we're seeing. So it's -- we think it's -- and it's bringing in a consumer that wasn't in the family before. So we think it's an opportunity to bring more people into the family -- into the brand family and continue to see them start using coconut water for hydration and everything else.

How do they interact with some of the other brands in your portfolio? Are you seeing that already at the treats?

We haven't really -- we haven't seen the data yet, but we believe that that's happening. Once they're coming in and they're drinking Vita Coco, they're...

I wanted to ask about Walmart, always front of mind, especially considering you've recovered and then some, the previously lost distribution. So could you outline for everyone why you got moved out of the modern soda aisle and then into the conventional shelf-stable juice set and then ultimately, why that has been a positive?

Yes. Okay. So for years at Walmart, we were off to the side in a really weird place in the store, not even necessarily always in a beverage aisle. Sometimes it was next to like gravy and cooking products and stuff like that. And we didn't like it. And we wanted to move. And so for years, we've been trying to get into a more -- a higher foot traffic beverage aisle, more mainstream beverage aisle.

And the buyers came to us 2 years ago now and said, look, we're going to build a modern soda set for like Poppi, OLIPOP, these type of things. And we're going to use that little weird set that you're in today, and that's going to become the modern soda set. So we need to move you somewhere, and we said juice is ideal for us at Walmart. Walmart gets -- that juice aisle gets a ton of traffic. We felt we could bring in new customers, everything else by going into the juice aisle.

So during this kind of really fast-moving thing, they moved us to the juice aisle, but they took most of our SKUs out. They gave us a small amount of placement in the juice aisle, took all of our singles out, took a lot of our 12 packs out, these type of things. And so we had very limited distribution throughout the whole course of 2025. But we went to Walmart and we explained, look, this is an aisle that gets a lot of foot traffic. It's not a high-growth aisle. And we think there's a really big opportunity for us to be a growth driver for the juice aisle.

And that was a long conversation, and it came to fruition in the November resets, where now coconut water has a nice size billboard in the highly foot trafficked juice aisle at Walmart, which we think is adding households. We think people are discovering it, walking down the aisle, which is a really good thing for us.

I think that's always underestimated. The distribution placement into your...

And I think we've said it's adding 5%. It's roughly 5% of our scan growth. Adding 5% of scan growth.

Okay. And then just in terms of the inventory fill that took place, I guess, at Walmart. I just want to make sure I understand about it from a sequencing of top line growth this year. Refresh my memory of how that should transpire.

Do you want to talk a little bit about the timing?

Sure. So Walmart reset occurred in November. So we were shipping in distributors in Q3, early Q4. So there's some timing there through the balance of the year. The more impactful we talked about is at the end of the year, we saw distributor inventory grow worth about $7 million. So on a full year basis, it's not a huge impact. But on the Q4 and the second half, it has a bit more impact than the U.S. growth.

Okay. And then it sounds like, again, you're happy with the new placement at Walmart. You see further expansion opportunities within Walmart? You had a conversation already that...

Obviously, we have an innovation pipeline. So we're constantly sharing that with retailers, an opportunity to continue to bring in new consumers. And -- but we also -- we believe that the Walmart set -- I was talking about this back at the IPO 5 years ago. I was talking about the fact that Vita Coco had at the time, 2 or 3 or 4 facings in a grocery aisle and cranberry juice and apple juice have these massive sets.

And that's where we wanted to be one day. That's what we were looking to achieve. And now you're starting to see that. And you're seeing it play out not at just any old retailer, you're seeing it play out at the largest retailer. And so we think that's an opportunity to take that visual and bring it to other retailers and see that type of distribution -- those type of distribution gains over time.

And then I suppose success you've had within Walmart, you can -- like you kind of touched on, show other retailers that highlight, look, what you can do for yourself and for us. So I assume that's happening.

Exactly. It can bring growth to the beverage.

Even in Walmart, there's still -- there's a very big set they carry. There's still thousands of stores that can move to that set.

So to that point, Corey, what percentage then of Walmart did you say? Have you...

Less than half have this -- some of the same where we see 20 SKUs of Vita Coco. I think we're averaging probably sub-10. So there's -- you could still double at Walmart.

Okay. You touched on innovation. So I'd love to hear a little bit more on your innovation and how that plays a role in your growth playbook over the medium to long term. Honestly, as I think about it relative to maybe some energy drink category with like just nonstop innovation, you've done some, but maybe not as much as I would expect. But help me understand that. Is that because you still see so much upside from distribution gains, et cetera? How do you think about innovation?

So we've always innovated. We've always brought new flavors, new products and so on. But if you think about energy, it's a really good example. Think about the 20, 30 years that Red Bull built the category with like 2 SKUs. Building a category, you want to bring people into the category, and we have a power SKU. It's the blue one, right? And it comes in multiple flavor -- I'm sorry, multiple sizes and multiple pack formats, but that is the general driver of growth.

And we think that for the next many years to come, as the category goes from really niche to mainstream, which we're starting to see that take place, not only in the U.S. but globally, the pure coconut water will be the driver of that. Over time, all sorts of additional innovation will start to play a role. I mean, our pineapple, we've always said, is kind of like the gateway drug. It's like what people start with because they don't -- they're afraid of the flavor of coconut water. And then they eventually graduate to the blue one. And so -- and this one is a really good example of the extra coconut, another example of that.

But as we think about the near term from an innovation perspective, think about pack format and also flavors as it relates to bringing people into the category. I think probably the biggest barrier to consumers coming into the category is still taste or even perception of taste, and that's something that we continually try to overcome. And it's overcome through innovation, flavors, flavor innovation and time. Building a category from scratch, especially something so new to the consumer and a new taste profile and everything else just takes time, and it's been a generation already. I mean it's like a new generation of consumer whose parents started maybe like learning about coconut water in a yoga studio 20 years ago are now buying it.

True. And then you touched on the packaging. How do you see that evolving? And specifically, I know we've talked about this before, but also in the convenience store, how will your package innovation evolve?

So in convenience, it's really funny. We thought we needed different packaging to really work in convenience. And we way over-indexed -- in convenience, we weigh -- our ACV was always lower in convenience than, for example, large format. Over the last year or 2, we've taken, I think, our ACV in convenience from mid-50s to mid-60s. We think that we can easily get this to mid-80s over time.

However, what we've seen is that what really works for us is the tetra pack. We have cans that work okay. They do fine, and they've expanded our shelf space. We tried a PET that we're no longer doing because we thought that was the way to break through a C-store, but it's just a matter of building the category and creating that demand and our C-store business is on fire. And it's tetra pack that's driving it.

And remind me what percentage of the C-stores you're currently in? We think about the 152,000 -- 60,000 now?

Yes. The absolute number is probably a little because we're in the -- we're very well at the chain. It's that long tail of independent.

Yes, that's hard too.

80,000, 90,000.

Okay. And then thinking about channels, distribution gains, shelf space, maybe a little more color on where you're gaining distribution. I know we talked about Walmart, but other channels that you can touch on, whether it's C-stores, et cetera? And how do these distribution gains compare to kind of previous years? It feels like it's been elevated.

Yes. So talking again, just about the U.S. for a second. And as we think about the opportunity from a distribution perspective, we feel that there's not only a ton of white space when you think about food service and all of the opportunity that exists there. And you feel -- you think about the fact that we're in 65 ACV in C-store and should be like most beverages, 85. We think there's also a lot of room for point of distribution gain. And we're seeing that at C-store play out from where, 2 years ago, we had one facing in most C-stores, sometimes 2. Now we have a full shelf. And we continue to build on that over time is the distribution opportunity.

Grocery, what we've seen at Walmart, like Corey was mentioning, we can continue to expand that at Walmart, but then taking the Walmart success and bringing it to large-format grocery and other mass. So there's a big distribution opportunity. But the #1 thing that will -- we believe will continue to drive this business is household penetration. Getting new consumers into the category. We're seeing it. They're coming in at a really fast pace. We think we can continue that for a long time to come. And so that is -- that comes with distribution as we continue to build.

And in terms of your distribution, you're still happy with your distribution partner and getting you into some of these new channels, et cetera, or further?

Yes. So we have a partnership with KDP. We have -- about half of our business is direct, half of our business is DSD. Of the DSD, KDP is our largest. And they've been a great partner for us for many years now. They are, I think, doing a better job this year and over the last year of driving some of those distribution opportunities, specifically at C-store. They get there. They're there. And now we're becoming part of their CMA programs and all these other things starting to gain more of those independent C-store chains.

So as you think about the resets that happened, some are still going on. But have you quantified what percentage increase you might have gained?

We haven't. Because when we did a few years ago, every call, you would ask, you get your number.

Classic. So let me ask it differently. Did it meet your internal expectations? Or did it...

As you know, most of the resets across food and drug and C-store happen around this time of year, so like April, May, and we're seeing some really nice gains of multipacks still have a long way to go from a distribution perspective. And so we're seeing some really nice gains. And one liter in C-store is becoming a single serve, which is really interesting.

It's a tweener apparently, I've been told. Go figure out. But right. Yes. Okay. So you've been pleased and that's exceeded or happy with the space gains. Switching gears to private label. I feel like ups and downs, you've lost some private label business on a few occasions and subsequently won some of it back. Maybe help us understand why a particular retailer would opt to kind of leave or take that business away and then kind of come back. Where does that business, that private label business stand for you? And how do you think about it as a strategic priority?

We've always talked about private label as -- the private label business as being somewhat lumpy. I think private label retailers bid out the private label regularly, specifically when there's disruption in supply chain or so on, whether it be pricing, whether it be tariffs, whether it be ocean freight, whatever it is. We believe that we have the best supply chain for coconut water. We believe it is our biggest competitive advantage. We have a diversified -- geographically diverse supply chain that offers the best all around pricing, the most scale, quality. And so we think that even as somebody might come in cheaper sometimes, we think we eventually get the business back because we continue to be consistent and are able to deliver what we say we're going to deliver.

So do you think about that still as a big growth driver for your business? You're going to continue to push forward on private label? Help me -- so yes, there's growth but then the margin differential. How do you manage?

So we like private label when it works within our business model. We like private label when it's with large private label customers. We're not going to do private label for a small regional grocery chain that might not be worth it. And we think it grows over a period of time as the category grows, but there's a limit to how much private label. I mean if you think about some of the grocery retailers and things that do private label, it's like, call it, 15% of the category.

In general, overall, it's low 20s percent of the category. Most of the large retailers that do private label are now in it or will be by the end of this year throughout the course of this year. And so over time, the brand will grow faster than private label for sure.

But if you want to talk a little bit about how we think about the margins, even though we don't discuss the actual margins.

Yes. As we said, they're lower than branded. But because of the supply chain advantages, the difficulty of the category compared to what you might see as other private label, they're advantaged, we would say. And there's little complexity to it for us. We ship direct to retailers. It's more of a supply chain-led business. So it works quite nicely within our algorithm.

And so Mike, did you just allude to that there's some customers or retailers that are going to move more into private label this year that you're signing up?

Yes. So we announced last year that there's a large U.S. retailer that will be starting doing private label that we're going to be doing their private label for them. And I think that starts to flow through this quarter.

It should be this quarter. As you know, the accounting is a little tricky, but it should be in Q2.

Okay. All right. Maybe I want to switch back to sports and hydration because you touched on that. And you do, I believe, have plans to expand more into that area, especially as customers or your sourcing customers from sports drink. So can you maybe provide a little bit more color on how you plan to expand more meaningfully into sports and hydration category?

Yes. So the big thing is the messaging. We started -- we did the work, and we got the data and coconut water has 3.5x the electrolytes of a sports drink. And being able to say that and have that as part of our messaging, it's everywhere. It's in our point-of-sale material. It's in our displays. It's in all of our communication and digital and social. And that is translating to real growth in that hydration segment for us.

We're doing a lot of programs with youth sports, partnerships with all sorts of smaller leagues, not really focused on -- we're not going after the NFL. Gatorade can have it. That's their thing. But what we're recognizing is that consumers in general want everyday hydration, not only when they're on the field, when they're working out, when they're -- they want to stay hydrated. They're drinking more water. They understand the benefit of daily hydration, and we think we play really well into that.

Should we expect to see more innovation as well?

Potentially.

This year?

We're working on that.

Okay. All right. Makes sense. Listening to you. Yes, all right. So I definitely want to touch on international. But maybe before we go there, let's talk about never-ending COGS pressures that all companies are facing. However, your Q1 gross margins were much better than expected, I assume, given the leverage that you guys had from the impressive top line growth. But despite that, you did maintain your margin guidance -- gross margin guidance for the year. So can you talk through some of the puts and takes of the gross margins and the phasing for the rest of the year that we should expect?

Sure. So we were 40% in Q1. We've indicated Q2 should be similar to Q1. Our full year guidance is 38%. So we are -- there's 2 factors. Coming into the year, we took pricing for tariffs. The tariffs have gone away. That was a big -- a fairly big number. So that supporting margins, and we have not adjusted pricing at this point. That will happen later in the year.

We do see some level of inflation impacting the business in the back half through the impacts of energy. The biggest one being packaging costs are increasing through tetra, plastic caps, corrugated factory energy use and very, very, very manageable. And then domestic logistics and fuel-related distribution expenses are increasing.

So we see that pressure impacting the back half of the year. That combines with what we talked about a stronger private label growth, having some mix impact, stronger international growth having some mix impact. And as we've said, we're -- we'll evaluate how long this is sustained, and we'll manage pricing accordingly exiting the year into next year if we see margin pressures.

Okay. And I don't know if you haven't necessarily touched on this, but understand short term. But how should we think about your gross margins maybe over the long term? I mean, you've already kind of reached that upper 30 percentage that you talked about so many years ago. So...

It's where we like to be. I think right now, our focus is growth. And as we continue to expand, Corey touched on some of the international markets are slightly lower gross margins. As those markets grow, there's a mix effect. But that kind of approaching 40% is where we like to operate the business, and we think we will continue to operate the business. We do feel, however, that as we continue to grow, we'll continue to see leverage on the bottom line and potentially EBITDA over time becomes a larger percentage of net sales.

And then before we move off of gross, I just want to touch on the ocean freight because you touched on this a couple of weeks ago on your Q1 call that base rates really haven't moved all that much. I want to maybe understand that. And is there a risk that given the situation that they could increase? Or do you feel pretty good about visibility?

Ocean freight, they go up when there's a spike in consumer demand and when there's less availability and capacity. There's a lot of capacity right now. There's not a huge increase in demand in markets like the U.S. and in Europe and so on. So ocean freight rates are at more historical norms. We've been doing this now for 22 years. They're now at the norm that they've been, call it, 20 of those 22 years.

We saw a couple of years of crazy spikes when -- with COVID creating incredible consumer demand, there wasn't enough inventory and capacity on the ocean freight side. So we feel quite confident that this is where ocean freight rates are and will remain. The fuel surcharges are quite manageable as it relates to the big picture of our cost of goods.

I guess that's encouraging. All right. So I want to touch on international because you mentioned a couple of weeks ago that growth internationally has exceeded your expectations. And you did reiterate your goal of having international be as large as your U.S. segment. When? I know. Is that -- help us understand sort of the building blocks again and the growth drivers of your international business and where you see the most upside?

Yes. So big picture, it's super early days of the development of the international business. If you think about the category in the U.K., which I think is growing 60% or something like that in...

The U.K., high 30s.

High 30s. Scans in the quarter were significantly higher than that. But as the U.K. business is growing and doing so well and so on, consumption per capita is still 1/3 of that of the U.S. Germany is our second fastest-growing market and consumption per capita is 10% of the U.S. So there's a long runway in the few markets that we're already developing that are becoming more meaningful to our P&L. So I think those markets continue to develop and continue to grow faster than our U.S. business.

At the same time, we're starting to see signs of growth in some of the other European markets and looking at some opportunities in Latin America and in Asia, where we think we can grow the coconut water category. So something is happening where the category is working on a global level. We think somewhat the communication that we're doing, the education that we're doing through digital and social is not only seen in the U.S. It's seen on a global level, and we think that the category has a real opportunity to be a major category globally.

And so as you think about that a lot to unpack because would it be a priority then to go deeper in some of the existing markets you're in or -- and/or are you expecting to kind of open new markets? And just help me understand your infrastructure to do this.

So I think a little bit of both. We are -- as you know, we took our Chief Sales Officer from the U.S. and made him -- gave him a global role, and he's now on an airplane nonstop. And he's doing both, working with the teams in the markets that we're already in, figuring out how to gain distribution because we're still very limited distribution in these markets with great velocities and how to double down on those while looking at new distribution partnership opportunities and all of these other things in other markets.

It's just very early. Okay. Maybe one final question topic. I have many others, but I did want to ask you about M&A because you do have quite a bit of cash on your balance sheet to fund potential M&A. And I know we've talked about this over the years. But is M&A still a priority for you? And if so, what are some of the potential targets? Would it be capabilities? Would it be another platform within beverages? How do you think about potential M&A?

So yes, I mean, we're generating a lot of cash with our asset-light model. We have no debt on the business, $200-something million in cash. So M&A feels like an obvious, right? We look at a lot of things. We want to stay within products that we think -- or brands that we think we could really add value to, whether there are synergies on the sales side or on the supply chain side or whatever it is, as close to what we do as possible would be good, whether that's shelf-stable beverages that play in health and wellness and functionality, I think where we could really add value.

So we look at things all the time. We have conversations with entrepreneurs who are in the beverage space. We're being very patient. There's no reason to rush. We have a core business that is growing really well that we want to continue to invest again -- against. We don't want to be distracted. So I don't think you're going to see us do anything transformational, but the objective is to continue to add on to the business things that we think we can really drive value.

Okay. That all makes sense. Well, thank you so much for your time. I appreciate it for having you here again.

Awesome. Appreciate it.

Thank you.

Hello, and welcome to -- the Vita Coco Company's First Quarter 2026 Earnings Conference Call. My name is Howard, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions and time. I'd now like to turn the conference over to John Mills with ICR.

Thank you, and welcome to -- the Vita Coco Company First Quarter 2026 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's first quarter earnings release issued earlier today. This information is available on the Investor Relations section of the Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations and beliefs Concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe our business performance.

Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our first quarter financial results and our expectations for our full year 2026 performance.

I want to start by thanking all of our colleagues across the globe for our strong operational and financial start to the year while also staying committed to -- the Vita Coco Company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet.

I'm thrilled with our momentum and by the acceleration we have seen in the quarter. Our strong inventory position and quick reaction to higher demand have enabled us to deliver very strong first quarter results in global net sales, gross profit, net income and adjusted EBITDA. Coconut Water remains one of the fastest-growing categories in the beverage aisle according to our retail data for the first quarter 2026.

Growing 31% in the U.S. and 63% in our measured European markets year-over-year. For the quarter, Vita Coco Coconut Water, excluding our coconut milk-based products like treats, grew 40% in retail dollars in the U.S.

I'm very excited about our international business, which continues to grow even faster than our Americas business, driven primarily by our strong performance in Europe, where our organizational and marketing investments are paying off.

We saw 57% retail dollar growth this quarter in our measured European markets, gaining branded share across all our major markets. We continue to explore opportunities in international markets where we believe that we are well positioned to enter and drive profitable growth long term.

Looking forward, this summer, we will continue to double down on active hydration across our markets as a driver of consumer growth, positioning Vita Coco as the natural choice for performance-minded consumers while expanding more deliberately into sport and recovery. With 3.5x the electrolytes of the leading sport drinks and clean ingredients, we believe that Vita Coco is uniquely positioned to recruit new consumers, increase usage frequency and further unlock the next phase of sustained consumer growth.

We expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and develop and nurture new markets. Our asset-light model, leading market share and strong cash generation positions us well to take advantage of the opportunities ahead. As I've said before, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level.

Coconut water appears to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major categories in the beverage aisle, which bodes well for our future.

We are focused on building the capacity and organizational capabilities to take advantage of this opportunity. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's robust first quarter performance. Our net sales were up 37%, driven by the strong growth of Vita Coco Coconut Water of 42%.

Our brand trends are very healthy in all our major markets and the acceleration in retail scans that we saw this quarter contributed to our ability to deliver net sales ahead of our expectations.

We believe that our U.S. Vita Coco branded business is benefiting from both increased household penetration and healthy velocity per household growth, which is combining to produce volume growth in U.S. retail scans of 36% in the 13 weeks through March 29, 2026, with the positive net impact of the 2 price increases taken in the U.S. last year, contributing an additional 3% to our retail dollar sales growth.

Our year-to-date branded scan results in the United States accelerated even before accounting for the impact of the earlier major club promotion this year versus last year. We estimate based on underlying trends that through the end of April, which will account for a like-for-like view of key promotions that our Vita Coco brand will have grown 30% in U.S. retail dollars.

This includes a positive impact from the Walmart reset, which we estimate to be approximately 5% to our year-to-date results.

As Mike noted, the retail scan performance in all our major markets was strong and has accelerated during the quarter. I will refer you to Page 7 of our quarterly investor deck for the numbers and source of this data.

Please note that we are now using Nielsen data for all European markets while continuing to use Circana for U.S. retail scan reporting. In our focus European markets, Nielsen covers a broader range of retailers, including more private label-focused channels, giving us a better view of market size, share and our potential than we previously had shared.

Our total reported Americas shipments were very strong with branded shipments benefiting from a shift in timing related to a club promotion, which fell more heavily in April last year versus March this year.

While the change in timing of the shipments for this promotion means this quarter's growth rate should not be used to project full year trends, the underlying acceleration in demand across our business ahead of our expectations is exciting and has caused us to raise our full year net sales outlook.

We are seeing cost of goods year-to-date in 2026 benefit from the reversal of tariffs and from the Lower ocean freight costs than the full year 2025 levels, with those benefits partially offset by increased finished goods costs driven by inflationary pressure, combined with some weakness in the U.S. dollar and increased domestic logistics costs.

Our observed impact to date from the recent events in the Middle East is seen mostly in inflationary factors at our manufacturing partners, particularly packaging costs and energy and in minor fuel surcharges on ocean freight with some further increased domestic transportation costs due to fuel price increases.

We believe these cost increases are manageable and are incorporated into our guidance. We are in discussions to enter into fixed rate agreements with several ocean freight carriers, but have not yet increased our coverage beyond the agreements that we disclosed in February that covers approximately 25% of our expected 2026 ocean shipping requirements.

As we look to the balance of 2026, we expect full year healthy brand growth in our focus markets and accelerating growth in private label, benefiting from the regained business referenced earlier and the start of shipments for the new business.

We believe that we are currently well positioned with our current inventory and supply capability for the planned demand. We now expect to operate the year at between 85% and 90% of committed capacity, supporting our higher-than-planned growth through increased capacity utilization.

We are working to expand capacity again for 2027 and beyond to meet our expectations for continued healthy coconut water growth in our major markets as well as the potential for growth in our smaller markets and our aspirations to enter into new markets.

To summarize, our category is very healthy. Our brand and private label business are strong. Our supply chain is performing well and anticipated to support our expected growth.

We are confident in our team's ability to execute and deliver on our plans for 2026 and our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the first quarter 2026 financial results and our outlook for the full year. For the first quarter, net sales increased $49 million or 37% year-over-year to $180 million, driven by strong Vita Coco Coconut Water net sales growth of 42% and private label growth of 28%. Our private label shipment trends for the quarter represent very strong international private label shipments and a return to growth in the Americas.

The Americas private label shipments do not yet reflect the new U.S. account announced last year where a major retailer is launching Tetra Pak private label for the first time as shipments are expected to begin in the second quarter.

On a segment basis, within the Americas, net sales grew 32% to $148 million, led by Vita Coco Coconut Water that grew net sales by 37% to $118 million. This was driven by a 29% volume increase and a 6% net price/mix benefit. Private label increased net sales 15% to $24 million, driven by an 18% increase in volume and a price/mix decrease of 2%.

Our International segment net sales were up 72%, where we saw continued exceptional net sales growth across branded and private label coconut water. Vita Coco Coconut Water net sales grew 71% and private label increased 86%.

Consolidated gross profit was $72 million, an increase of $24 million versus the prior year. Gross margin finished at 40% for the quarter. This is up approximately 320 basis points from the 37% reported in Q1 of last year. The increase in gross margin resulted from better coconut water pricing and lower ocean freight, partially offset by increased finished goods, the impact of tariffs and slightly higher domestic logistics costs.

The remaining $2 million of tariffs capitalized in inventory at the end of 2025 fully flowed through our P&L in Q1. Moving on to operating expenses.

SG&A costs increased $9 million to $38 million, driven by increased investments in people resources focused on driving future growth, including increased performance-based stock comp expense, increased marketing spend and higher distributor-related expenses.

Net income attributable to shareholders was $30 million or $0.50 per diluted share compared to $19 million or $0.31 per diluted share. The $12 million increase in net income was primarily driven by the increase in gross profit, partially offset by higher SG&A investments, increased income tax expenses and a foreign currency loss this year versus a gain last year.

Our effective tax rate for Q1 was 18.6% versus 22.5% last year. The decrease in the effective tax rate is largely driven by more favorable discrete tax items. Adjusted EBITDA was $39 million or 22% of net sales, up from $23 million or 17% of net sales in Q1 2025. The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow. As of March 31, 2026, our balance sheet remained very strong with total cash on hand of $202 million and no debt under our revolving credit facility.

For the quarter, we generated $5 million of cash driven by strong net income, partially offset by increases in working capital, driven primarily by a $39 million increase in accounts receivable, partially offset by a $25 million reduction in inventory, both driven by very strong sales in March. The operating cash improvement was mostly offset by share repurchases of $12 million within the quarter.

We have started 2026 with exceptional category trends in our major markets, healthy inventory levels and confidence in our team and our Vita Coco brand. As a result, we are raising our full year expectations for both net sales and adjusted EBITDA. We now expect net sales between $720 million and $735 million, with expected gross margins for the full year of approximately 38%, delivering adjusted EBITDA of $132 million to $138 million. Our expectation for the strong net sales growth is built on our assumptions for the U.S. category growing approximately 20% and our international business led by the U.K. and Germany, maintaining very healthy growth rates.

We now expect consolidated growth of Vita Coco Coconut Water net sales mid- to high teens with our U.S. Vita Coco net sales growing low to mid-teens due to the impact from the strong year-end 2025 shipments to our DSD partners, investments in distributor incentives to deliver growth, which slightly compresses revenue per case and the anticipated impact from the launch of private label at a large U.S. retailer.

Due to the stronger U.S. category growth and our regaining of some previously lost private label business, we now expect increased private label net sales growth of 35% to 40% in the U.S. We expect 2026 gross margins to improve from 2025 levels as we benefit from the branded pricing taken in 2025, the removal of tariffs and favorable ocean freight rates, partially offset by impacts from the inflation and fuel surcharges Martin referenced previously.

We expect full year branded price increase of low single digits, assuming no further price actions with a higher mix of private label resulting in minimal consolidated net pricing growth. We expect Q2 2026 gross margins similar to Q1 before seeing slightly lower margins in the second half due to the current inflationary factors and planned price promotion cadence.

If inflationary factors related to the current conflict in Iran appear permanent, we will explore potential price increases later this year or in 2027. We expect SG&A to increase high single digits as a percentage of net sales as we increase investment in marketing and key personnel areas to deliver the expected 2026 results and invest for long-term growth.

We expect to deliver full year SG&A leverage of about 1 point over 2025 as we continue to deliver strong growth with disciplined investments. Finally, we have submitted refund claims through the CBP ACE portal for $15.6 million of IEEPA tariff paid last year.

There is no guarantee that we will receive any of this refund and a successful refund is not contemplated in our current guidance. And with that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco Company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category.

We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth.

Thank you for joining us today, and thank you for your interest in the Vita Coco Company. That concludes our first quarter 2026 prepared remarks, and we will now take your questions.

[Operator Instructions] Our first question or comment comes from the line of Bonnie Herzog from Goldman Sachs.

I have a question on your strong and impressive sales in the quarter. I guess hoping for a little bit more color on the drivers behind this. You touched on this, but could you provide a little more color on any distribution and space gains this year? I guess I'm trying to understand if there was any pull forward volume in Q1.

And then your new guidance implies about 15% top line growth through year-end, which is good. But just trying to reconcile the very strong Q1 growth and I guess, some implied or expected slowdown through year-end.

Okay. Bonnie, I'll take the first part and then maybe Corey can take the full year guidance part. As it relates to the first quarter, we obviously benefited from a pull forward of a major club promotion into the March period from April period, which would have significantly increased shipments in the quarter. We tried to provide some sense of the scale of that by indicating that we expect U.S. retail scans through the end of April, which would basically negate the movement of that MVM in that time period because it remains in that time period to be approximately plus 30%.

As we look at what is going on, first of all, our international business is very healthy and is growing ahead of our expectations. Secondly, we feel that we saw an acceleration above our expectations in Q1 in the U.S. business.

And yes, the U.S. business obviously has benefited from increased distribution at Walmart through the resets that occurred in November. We've estimated that, that is potentially or possibly a 5% benefit to our U.S. scan data.

But even if you strip that effect out and if you normalize for the movement of the club promotion, the business in the U.S. in the first quarter was very healthy and ahead of our expectations. When we look at what is driving it, it doesn't appear to be driven by incremental distribution.

Spring resets are currently happening. So that's not driving the scan data. And our shipments are sort of pretty broadly tracking the scan data. So there's not anything weird to call out as it relates to inventory or loading.

So just overall, we're very pleased. We're adjusting our guidance up to -- as the first quarter has exceeded our expectations. Obviously, we don't know whether it's a permanent or a temporary blip, but we're excited, and we're prepared to deliver on the year as we've outlined.

And I'll just let Corey talk about the assumptions that went into our current guidance.

Bonnie, just to build on that, we saw, I think, exceptional category growth in Q1 and the brand through the end of April will be, I think, slightly above the category. We're estimating the guidance built on the U.S. category growing in the range of 20% through the first quarter, it's stronger than that. But we do see just above our expectations in the first quarter.

And then as we get into the back half of the year, some of the things we talked about entering the year, the distributor inventory build, the Walmart load, we're just kind of watching those things, and they have some timing impact on shipments in Q3, Q4. That is why you see a much stronger Q1 than we'll get to through the back half of the year. And how that falls Q2, Q3 is hard to call.

But we do expect that this -- the category remains quite healthy at plus 20%, but not as healthy as it is. And then just some timing on that distributor inventory and the Walmart load in through the back half.

All right. That was helpful. And maybe just a quick follow-up. Thinking about your innovation pipeline, any color that you can provide to us on any upcoming innovation or new packaging that you plan to be rolling out either still in the first half or maybe in the second half of this year?

There's nothing significant. I think since we last talked, Lemonade Treats is out there, and there's another treats on an exclusive with a major retailer. But treats shows up in coconut milk as a scan data and the incremental effect of treats to our U.S. scans is 2%, 3%, I think, order of magnitude. So that's exciting, but the health of our business is being driven by coconut water.

So we're executing all the major packs as hard as we can. We're still trying to add multi-packs as we've talked about, still trying to add 1 liter to convenience store, but we're basically driving the core and the growth is coming from the core. to convenience store, but we're basically driving the core and the growth is coming from the core.

Our next question or comment comes from the line of Peter Galbo from Bank of America.

Martin, maybe just to put a finer point on Bonnie's question around the top line and maybe a little bit more specific to 2Q. I mean, so is it fair to kind of think, again, if we average the growth rate over the first half, given the shift in the MVM that we should be kind of landing in that 30% range based on what you know today, just as a clarification point.

That sounds like a guidance question. So I'm going to pump that to Core, and we typically don't break guidance down by quarter, Peter, but thank you for the question anyway.

Peter, I maybe not follow the 30% through April on shipments. Is that?

Correct. Correct.

Well, the 30% April number is a retail scan number.

Yes. And our shipments to date have been tracking close to retail. So I think that's a fair assumption on the U.S. branded shipments. But there's always timing and inventory impact, but we're not seeing anything in the beginning of the year that's driving shipments different than retail scans. And then the volume is a bit different, right?

And one additional point, May, June, July, August are typically peak season. The volumes are a little bigger. First quarter is predicted normally a slow quarter. So how to extrapolate these trends to the peak summer is hard. Obviously, we're planning for the optimistic scenarios from an inventory perspective and execution perspective, but it's pretty hard to project a Q1 increase for the full summer. Obviously, that would be terrific.

Right. Okay. No, that's clear. And Corey, maybe just as a follow-up on the gross margins. I mean, obviously, the performance in Q1 in spite of the MVM very impressive. You're kind of calling for similar Q2 and yet you left the unchanged.

I know there's some factors in the back half, but maybe you can just unpack a little bit. It would imply a pretty material sequential step down in the second half. So I just want to maybe press on that a bit more and see how much of that is what you have foresight into versus maybe conservatism on the gross margin line.

So I think Peter, 2 things have happened to gross margin in the last quarter. One, the branded growth is stronger than expected in guidance, and that helps push margins up. And then we are starting to see or are feeling some pressures from the conflict in Iran through domestic logistics, fuel costs, packaging materials, factory energy.

So we are embedding some estimates of what that will impact through the -- it will begin later in the year. And then as we said, we'll evaluate pricing as we get closer and we see how everything unfolds.

Our next question or comment comes from the line of Chris Carey from Wells Fargo Securities.

Just one clarification. I believe it was Corey commenting on just considerations for revenue phasing. So are you saying that in the back half of the year, you could see revenue slowing a bit versus the front half because you're going to be comparing against some distribution expansion associated with early shipments at Walmart.

Can you just expand on that comment a bit, what you meant there? And then regarding these MVMs or promotions, what are the kind of key considerations that we should be thinking about as you see them today? I know they're not all predictable, but just as you think about kind of quarterly phasing over the course of this year?

So, To clarify, Chris, the quarters are hard, especially Q2, Q3. But as we get into the back half, if you remember, in Q4 of last year, we saw shipments above our expectations with a chunk of that going into the distributor inventory. And then we also had the Walmart overlap that will be coming up to, and that does result in our estimates that our shipment growth will slow for sure, from Q1, how Q2, Q3 fall is a little bit harder to call. But the balance of the year will be, as you would expect, slower than plus 37%...

And then as it relates to -- I think you were asking about cadence of major promotions, and I assume you're referring to the major club promotion that moved from April last year into May. Last year, we ran one in July and one in October, which was similar. At this point in time, we're not aware of any sort of changes to that proposed cadence. But until the actual orders come in, we can't guarantee that business is there. Our guidance is based on what we currently know.

Okay. A follow-up on international. Is there a way to frame, I guess, where you are in the international growth trajectory? I mean it appears that a lot of this is being driven by just several countries how long could these countries continue to deliver the types of growth rates that we're seeing? What's the penetration rate potential? And then just your ability or capacity or willingness to expand to other markets. Can you just maybe contextualize the international runway for us a bit more between current drivers and where you think the business is going?

Sure. I think we've said that our goal is for our international businesses to be as large as our Americas businesses today. In the investor deck on Slide 7, we provided a little bit of context on market size data. I would note, as we said in our remarks, that we are now using Nielsen for our European retail data and the Nielsen covers a broader range of retailers and is capturing more private label retailers. So the category to us now looks larger as we use Nielsen data, while maybe our reported share is lower, not reflecting any change in the market conditions. But in that, you'll see that the U.K. has an estimated market size of about USD 130 million. We're doing the dollar conversion. Germany is only at USD 53 million.

We've previously shared that on a consumption per head basis, the U.K. is behind the U.S. and then obviously, Germany is behind the U.K. So I think there is great evidence that there's huge opportunity in Europe to bring the consumption per head up to what we are seeing in the U.S. levels and to do it across markets. And different markets are at different stages of development. If you had gone into Germany 4 years ago, for instance, you'd have seen a couple of small brands and some very dominant private label. When a market has very dominant private label, no one is investing in the market for education and growing and promotion. And so our belief is those markets are lagging the other markets where brands have been able to play. So there's a long runway here.

We're very optimistic on international. We're obviously talking about it more on these calls and trying to share information. Exactly how it happens is obviously yet to be determined, but we are trying to drive it and trying to focus on large markets that are willing to adopt coconut water as their favorite beverage where we can play and be a major player. So we prioritize the markets, and we're sequencing it. We're not trying to take on too much, but we're certainly trying to take on more than we have historically.

Our next question or comment comes from the line of Eric Serotta from Morgan Stanley.

Last quarter, you were fairly explicit in terms of the promotional plans for the second half and essentially giving back some of last year's tariff-driven pricing.

Can you give us a little bit of an update there? Are you still looking at pricing potentially being negative in the second -- in the third quarter or second half based on your current promo fund?

So Eric, it's amazing how different the world is from last quarter. So we are currently working through the second half retail plans. It's a different inflationary environment than it was in the second half. So the teams are now working on those plans, and we don't have any changes at this point to our kind of outlook. And our pricing guidance is the same as it was, but we'll, as we said, continue to evaluate as we move through the year.

And I think certainly, if the current inflation looks permanent, right, we will take -- we will have to take pricing, which is not where we were in February.

Great. And then just in terms of what you're seeing in terms of inflation on your freight lanes. Obviously, you're not shipping coconut water through the street. But what have you seen in terms of rates on your key lanes from Asia to the U.S. and Brazil to U.S. and Europe? And you mentioned looking to contract more, which would imply that the rates are still pretty attractive. But any color there would be helpful.

Yes. So base rates sort of have held pretty firm where they were when we last spoke to you. And they are pretty attractive, obviously, relative to the last 3, 4 years, still not at long-term averages, but they're at rates that we have considered sort of locking in some percentage of our business.

What we've seen since the recent Middle East escalation has largely been the carriers asking for fuel surcharges, which is on top of the base rates. We haven't seen the base rates move that much, but there have been requests for surcharges, which is pretty normal. It reflects maybe a much more normal shipping environment as existed pre-COVID that there would be fuel surcharges when fuel sort of moved around. Those surcharges are several hundred dollars depending on the lanes. It's manageable within our guidance, and it's not the material shift in ocean costs that we saw like in '22 when those changes were pretty material. So we're pretty comfortable or very comfortable with our gross margin guidance.

The inflationary factors that are perhaps more significant than that are in energy costs and gasoline costs in our supplying countries, which is affecting their energy costs, their production costs, their workers' costs and et cetera. There's certainly scarcity of fuel in some of those markets.

We haven't seen that affect production yet, but it's something we're monitoring. And then we're also seeing domestic transportation cost increases, right? So at this point -- and then on the packaging side, we've seen packaging inflation cost increases taken by the packaging suppliers in response to the cost inflation they're seeing. And certainly, we use TETRA a lot, and that has a relatively high shipping cost component for the inbound. So that's sort of what's going on. And that's the bigger driver of the underlying inflation we see. That tends to be a little bit more sticky than energy inflation. So that's why we're watching it closely.

Our next question or comment comes from the line of Eric Des Lauriers from Craig-Hallum Capital Market Group.

Congrats on a very impressive quarter here. On the supply side of things, I know sourcing coconuts and coconut water has never really been a constraint for you guys. But volumes do keep surprising to the upside. There is accelerating demand sort of above your internal expectations. Could you just give us a bit more color on current outlook for matching inventory supply with the accelerating demand? Is this anything that should be on our radar at this point now?

So we're obviously very comfortable with our guidance from a supply perspective. We're comfortable with some potential increase on that from a supply side. I think we indicated in our prepared remarks that we're sort of operating the balance of the year closer to 85%, 90% of available capacity.

We would typically try and operate 80% to 85%. So that reflects a step-up in utilization of the capacity. We've also pulled the inventory down a little bit in the first quarter, also reflecting that supported that surge, so to speak. And we think with inventory and our current committed capacity, we're in pretty good shape for what we expect to happen on the balance of the year.

But if that were to accelerate significantly, then obviously, that would be challenging. As it relates to the long term, we're looking at this and going, okay, what does this mean for '27 and '28 how do we plan for it. Those discussions have been happening a long time ago, and we're tweaking up our sort of commitments and/or plans to support what we could expect if the category continues at this rate.

All right. That's very helpful. I appreciate that. And then on the private label side of things, so very encouraging to see this improved outlook. Could you just kind of give us an update on the landscape for private label in the U.S.? Are there other kind of large retailers still remaining that could be significant wins or I guess, significant contributors to the private label revenues? And can you just give us an update on the sort of competition or competitive environment for bidding on these private label contracts?

Yes, there is still some -- I would describe as major retailers, but they're not maybe in the top 4 retailers that don't have private label. So there are still some options in the U.S. and there's still opportunity for private label sort of retail space to be created. The -- internationally, most of our markets, there's already strong private label presence with a strong private label share, maybe with the exception of the U.K. major grocery where private label isn't as visible, but private label obviously exists in some of -- in the discount channels there, which have relatively significant volume.

The environment on the contract side continues to be dynamic. As we said before, when there are disturbances to the cost system and the supply system and/or the demand, frankly, you tend to have retailers responding to those disturbances to see if there's a better deal to be had and a better deal might be price or service, particularly if the demand is accelerated and the service levels have been poor.

So that continues to be a pretty dynamic environment. We're excited with the business that we've won to date. And I think we're more positive that there's potential to diversify our retailer group going forward so that we diminish our reliance on 1 or 2 key retailers there. But I would say the outlook looks very positive. And then on the demand side, private label is growing faster than the category in the U.S. in Europe, it's sort of growing with the category, maybe a little slower because we're gaining some share from quite a small share base, right? So -- but from a demand side, this appears at least in the U.S. to be strong interest in private label, and that is driving both our sort of share stability even with our great trends and also providing consumers, I would guess, the option for coconut water where they're choosing to shop. So I think it's more of them choosing to shop in certain channels than anything else. We're not really -- in retailers that have brand and private label sites side year round, we're not really seeing that effect.

Our next question or comment comes from the line of Kaumil Gajrawala from Jefferies.

I guess maybe just digging in a little bit to this acceleration in growth. It's not that small of a category, and it's putting up, in dollar terms, like very, very substantial rates of growth. Is there something that maybe more specific that's changing? Are there entirely new customers that are coming in? Is it something marketing related? Like if we could just get a few building blocks on what's sort of what was already a healthy growth rate now accelerating quite substantially. Just trying to understand it a little bit better would be, I think, helpful.

I think it's clearly a hydration thing, a need for hydration, a want for hydration from consumers, everyday hydration. It's something we've been talking about. And we've talked about for a while how we pull pretty equally from -- or historically have pulled pretty equally from sport drinks, premium bottled water and conventional juices. We're seeing an acceleration specifically of how we're pulling from sport drinks. So hydration is clearly, I think, one of the drivers of the acceleration of growth that we've been seeing in the last couple of quarters, but specifically this quarter.

And we seem to be aging down. Younger consumers coming into the category. Some of the marketing, I think, that we're doing and some of the things that are happening organically in social media is driving that. And it comes back to the functionality. It's potassium, it's hydration. It's 3.5x the electrolytes of leading sport drink. We think that all of these things are driving a lot of the acceleration we're seeing specifically with young consumers.

Okay. Got it. And maybe just following up on that supply question prior. How are you thinking about the setup for supply for '27, '28? Have you sort of maybe fundamentally changed how you're thinking about how much you'll need? Because I guess if things continue at this rate, they're presumably growing at a faster pace than you will have expected. So is it early enough to start making those decisions? Or is it something you're just going to sort of wait out a little longer?

So I think we've talked about previously how it takes 12 to 18 months to put new capacity in an existing facility. A new facility might take 18 months to 2 years if they haven't done coconut water before. So that's sort of our planning horizon. We run a 3- to 5-year sort of outlook based on our assumptions on growth, and then we try and plan capacity for the next 2 years to give us a range of outcomes around that while working on the longer-range projects so that they fit in. Projects that come in at a certain capacity and can expand are ideal, so we work on those. So that's how we do the sort of capacity planning.

We are also trying to plan that the available capacity is 80% to 85% of what we think the demand is. So that gives us some flexibility to deal with underestimating what demand would be. When we see a demand, let's say, surge, that immediately goes into those plans and adjust those efforts. You'll see we've talked about increased personnel costs. We've increased investments in our Singapore team to add capacity more aggressively. This started last year, if not before. And we are comfortable that we can meet the demands that we know about today for '27. Obviously, '28, we're working on. So as we said before, there are plenty of coconuts involved. And so coconut availability is not an issue. And we're investing in our supply chain to meet this exciting demand we're seeing, and we are comfortable we'll be able to do so.

Our next question or comment comes from the line of Mike Lavery from Piper Sandler.

Just wanted to come back. You mentioned the distributor incentives as a little bit of a headwind to price realization. And I don't feel like it comes up very often. Could you just maybe elaborate a little bit on that dynamic? And is it something new? Or what's changed there?

Sure. Yes, with certain distributors at appropriate times, there are good conversations about how do we move the business forward and close distribution gaps and align incentives across our organizations. And we've had some of those conversations over the last 3, 4 years. And with the acceleration of growth, those incentives are starting to sort of play out a little bit, and we're just taking that into account in our revenue planning. But we're very pleased with the distribution. That's great gains that are happening, where we fit in our distributors' sort of priorities and how they're responding to those incentives. And so it's all good, and it's basically making sure that we're aligned across all organizations.

Okay. That's helpful. And just you've obviously flagged your balance sheet strength and the cash build. Just any thoughts on priorities for how to go spend the money?

Well, I think as we said before, our #1 priority is supporting the growth, whether that be marketing investments, creating organizational capabilities to support these new markets or investing in the long-term supply chain capability, whether that be our own capability or potentially partnering with suppliers on investments and/or underwriting them in some way, right? So that's the #1 priority.

Second priority would be sort of innovation. And at this point in time, with the strength of the business, perhaps our innovation push is maybe not as strong as it was prior because of all the opportunities we have ahead of us, but we still are investing in R&D and product development work and testing on a range of things so that we can take advantage of opportunities if the occasion was right.

I think we said our third priority is M&A and looking for something that would add significant value to our long-term shareholders. And we continue to do that. Obviously, it's a patient look, and we've come close a couple of times, but -- so we are serious about it, but we haven't pulled the trigger on the final structures, et cetera, for a number of reasons. So we continue to do that.

And then based on all those things, and I would add sort of inventory management to that as well, given how inventory can help us deal with seasonality, both on the production side and the demand side.

And then finally, we sit down and we look at all those factors based on what we think is happening, both on what we expect our cash generation to be over the coming months, and then we make decisions as to buyback jointly with the Board. You have seen, year-to-date, we purchased $20 million of shares. We still have $21 million remaining under the authorization. So that what the fourth priority is one that we're active on when the other activities are well funded.

Our next question or comment comes from the line of Robert Ottenstein from Evercore.

A couple of follow-ups, if I may. You mentioned that traditionally, you pulled equally from sports drinks and juices, and that now, kind of, the sports hydration need is becoming more prominent. So I'm just wondering, one, does that change how you and retailers are looking at shelf space and positioning? Two, does that help perhaps on convenience stores? And maybe talk a little bit about how you are doing on convenience stores?

And then my second question is, I understand that there's plenty of coconuts. Your supply chain is looking good if the demand is higher than expected during the peak seasons. The other side of that is your service levels and your ability to keep the product on the shelf. So I was wondering if you can address that as well if this demand keeps surging during the high season, your ability to prevent out of stocks.

I think on the first couple of questions, position in the store, regardless, I think, of whether we feel we're pulling more from juice, premium bottled water or sport drinks, we don't like moving around in the store. You've seen how that's created a problem for us. Historically, we are in different areas of the store. Some stores, we're in the sport drink set. Some stores, we're in the enhanced water set. Some stores, we're in the juice set. But moving around creates temporary issues. So we like where we're at. Relationships with retailers are very strong as we're, again, fastest-growing category in beverage aisle. And so we don't want to move. And we think we're well positioned and well placed in the store. We want to continue to gain space, expand that billboard at retail, which we've been doing and continue to do.

As you think about C-store, yes, we see our C-store business growing really nicely, not only in terms of velocity, but also in terms of actual ACV. If you look at Slide 10 in the investor deck, over the past year, we've grown from 55% ACV to 59% ACV on our core item in C-store. And we want to keep that growing. We think one day, there's no reason we shouldn't be in the 80s in C-store. So continuing to grow distribution as more and more consumers are buying the product on the go at C-store for hydration specifically. And then as it relates to the supply chain piece and not running out of stock, Martin, do you want to...

Sure. Yes, yes. So obviously, our intention is to never run out of stock. Obviously, that intention is not always fulfilled when demand drastically increases above our expectations. By design, we entered the year with, I think, over $100 million of inventory sort of in our position on the water, which was unusually high. That allowed us to support the first 3, 4 months surge that we've seen, including the movement forward of the major club promotion. But you'll see at the end of the quarter that our inventory was down. That partially reflects the very large March that we had. It also partially reflects a little bit of delay in getting some product out of some ports, which is currently manageable. And the product is there, and the ships are coming. There was just a backlog.

So as we look at the summer, obviously, I can't tell you there won't be service issues because if demand greatly accelerated, there would be, frankly, for everybody in the category. Also, with this sort of surge, I think you tend to see other suppliers and even some private label businesses running out of stock and then you get customers moving to the brands that have stock. So it can be something that you don't cause, but it happens because other people are having problems.

That said, very comfortable we can support our guidance, comfortable we could support some volume above our guidance. There's obviously a limit to that. But we're in a very good shape, and we're certainly in much better shape today than we were 2 years ago when, if you remember, we entered Q4 -- 3 with a big inventory constraint and had major service issues in Q3. So I don't expect that currently based on what we see, but obviously, I can't say never.

Congratulations.

Thanks.

Our next question or comment comes from the line of Jim Salera from Stephens.

Martin, I actually wanted to ask a follow-up on your previous answer that you just gave. If we see the demand continue to be as robust as it's been in 1Q, is there any toggle on the promotional timing such that you might not need them and that could potentially be a net benefit to gross margin in kind of the back half of the summer, back half of the year?

Yes. Difficult one. Obviously, there is. But obviously, if you've made a commitment to a retailer pulling that commitment back, it is a very awkward conversation, particularly if they feel that you're not pulling back from other retailers, right? So yes, generally, you can. Yes, you can moderate entering into new agreements, but commitments that have been made, which tend to be made 3, 4 months out, right, at least, you sort of have to offer to continue to fulfill unless there's a major, major issue that everyone in the industry recognizes and a major promotion.

So as an example, in our history, there was one major club promotion that we just said, look, you can run it, but it's going to be horrible. And we think we're better off not running it. And frankly, the retailer is grateful for that input. But that isn't always how the conversations go, particularly when they believe that other people might be getting price support. So difficult conversations can be had. It depends on what's going on in the industry. It's certainly a lever that we would explore to see if it made sense for us and our retail partners.

Great. I appreciate the thoughts there. And then I wanted to ask on the Treats platform. Since that's kind of a unique item that doesn't really neatly fit into a specific category or subcategory, can you just help us frame up how you think about the potential size of that as part of your portfolio? And if you could offer any thoughts on where that is right now and how you expect the incremental flavor launches to contribute to the year?

So it's classified as a coconut milk. It's a coconut milk ready-to-drink. There are some other beverages in that sort of space, Starbucks Pink ready-to-drink being one. It's currently contributing, I think I said 3 percentage points to our retail. That scans in the U.S., that's pretty good. I think it's fair to say, we launched it in an international market and it didn't stick. So it's not a proven success in every market. And this goes to how every market is different, and we can talk about that at great length, like what's working in Germany isn't the same as what's working in the U.K. from a flavor perspective, for instance.

But I think Treats is interesting. It's currently working to where I think it has a good long-term future within our portfolio. We think we need to have flavor innovation to bring new news to it and find the right flavor additions. I'm not sure we found the right flavor portfolio yet. So that will be incremental. But I think that's pretty normal in a flavor-driven category that you work out what works and what doesn't work. So our intention is to do that, and it certainly sits nicely in our space. And I think the retailers that have added the extra SKU and supported it are happy.

Our next question or comment comes from the line of Jon Andersen from William Blair.

This is Glenn West on for Jon Andersen. We hit on a lot, so maybe a quick one. Corey, I know you mentioned the potential for like a $15 million refund from CBP. Do you have any idea on the time line of those claims or any idea when you expect kind of a decision on that?

We're not 100% sure, but the news would indicate 60, 90, 120 days, let's say. So we'll see how the process runs. We've submitted through to the systems and followed the rules, and we'll see how fast it gets processed and if it's accepted, all those things.

And if it isn't challenged, et cetera. So we're in the fight, and we'll see what happens.

Our next question or comment comes from the line of Gerald Pascarelli from Needham & Company.

I just had a quick follow-up on capacity utilization. So like in the scenario that demand continues to surge, just thinking about this in the context of your private label business, right? Like you're regaining new business this year that you previously lost. So just again, if demand continued to surge, how would you think about balancing the split between servicing your branded products and private label this year specifically? I think any color on that would be great.

Yes. It's a good question, Gerry, but I think we've said this historically that our goal is to try and provide equal service to everybody, including our brand. Obviously, if we were talking about commitments and bids, let's say, '27 business or '28 business, we'd take all of these factors into account, and we try not to commit to business that we feel we're not going to be able to provide a fair level of service to.

And then our -- these retail relationships and the private label, they're long-term relationships. They need to be treated as partnerships. We need to treat them fairly. We do everything we can to produce to their forecast. It's fair to say that forecasts aren't always accurate and you can then run into some difficulties. But we have -- we keep track of that stuff. And we go, this is what was committed to and this is what we committed to and all that sort of stuff. But if there's an opportunity to take care of key customers, we will.

We do have a pretty long supply chain. So I would just remind everybody that what is currently on the water will get sold in July, August or what's being produced. Let's say, next month will be sold in August, September. So for most of this year, we're sort of almost locked, right? We've still got a few months we can influence. And so we will do the best we can, and we will try and service every customer in the way that we think is fair to them based on the commitments they've made to us.

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Martin Roper for any closing remarks.

Thanks, Howard. No closing remarks. Thanks, everybody, for joining us for the quarter. We look forward to chatting to you at various events during this quarter and then obviously doing this again, hopefully, in 3 months' time. Everyone, have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Hello, everyone. It's a pleasure to welcome Vita Coco to the CAGNY stage. We're especially pleased as this is Vita Coco's inaugural CAGNY presentation. And so it's my honor to introduce Co-Founder and Executive Chairman, Mike Kirban; CEO, Martin Roper; CFO, Core Baker; and Chief Operating Officer, Jonathan Burth.

Now for some of you that aren't aware, Vita Coco is the global leader in the fast-growing coconut water market. The company is an innovator within CPG universe, especially as the company has scaled the coconut water category in the U.S., developing a rich pipeline of coconut water products that fuse functional benefits with authentic better-for-you ingredients while cultivating a loyal base of young urban consumers. It's likely going to be another exciting year for Vita Coco. And with that, I'm going to turn it over to Mike and team to hear more about their efforts. Thanks.

[Presentation]

Thank you, Bonnie, for the intro. Thank you, CAGNY, for having us. It's an honor to be here. Speaking in front of a room filled with some of the most sophisticated investors in our space and following companies like L'Oreal and Colgate, massive multinationals was not my destiny, I promise. I am a dyslexic college dropout who 22 years ago, started a business. And when I started that business, I had no business plan, and I had no consumer goods experience whatsoever. But what I did have was a willingness to work hard, a deep competitive spirit. But most importantly, a product that was so popular in so many parts of the world, so highly consumed and just wasn't yet put in a package. That is a rare thing. So it wasn't yet put in a package and wasn't yet brought to the rest of the world.

So as we get going -- this is really exciting. If anybody wants to read the disclaimer, I don't know what any of that means. As we get going here, you saw in the video, and I want to talk a little bit further about where this product comes from. Coconut water is so highly consumed in so much of the world. When I went to Brazil back in 2003, 2004, I saw it everywhere, and people were drinking it on the beach and they were buying it at the stands. And it was literally everywhere people were using it for so many things, but it wasn't just on the street. It wasn't just on the beach. Somebody had developed a way to package it. And it was now being sold in stores, and it was flying off store shelves. It was only 1 or 2 years into packaged coconut water really existing.

And we saw this opportunity. And then we quickly learned that not only is coconut water so massively popular in Brazil, it's popular all over the tropical world. Massive populations like India, Indonesia, the entire -- most of Latin America, Southeast Asia, most of Africa, people consume coconut water every day in large quantities. And so we had this incredibly popular product that now all we needed to do was package it and bring it to the rest of the world. So as we started doing that, we realized that the #1 reason -- the underlying reason why people in the tropics were drinking coconut water was not only that it tasted great and it was great as a base for all sorts of things, and it was always part of their day. The underlying reason was the functionality. Coconut water has 3.5x the electrolytes of the leading sport drink, and it comes from a tree. That's the beauty of the product that we're dealing with here.

So as we -- as we started to think about it and we started to see what was working around the world and then what was working at home, we realized that it's not just meant to be drink because it has 3.5x the electrolytes of a sport drink. It's not just meant to be drink when you get out of the gym or when you're working out. It's incredibly useful as a tool for other products, whether you're making smoothies, obviously, during the workout. It makes great with cocktails. And obviously, it's great for a hangover because of the electrolytes. So all of these things coming together gives coconut water such an opportunity to be in the household for so many different occasions.

And because of that, we pull consumers pretty equally, about 1/3 from each flavored water, sport drinks and juice. Together, that's a $125 billion global category from which we pull. And our goal over the next many years is to continue to build on the education, continue to teach consumers about why and when to drink coconut water and take our fair share of that $125 billion category. And this takes time. Like I said, it's been 22 years. Over these 22 years, we've grown double digits. I believe 20 of these 22 years. So it's been a great growth story year after year after year, but it takes time. You're building a category from scratch, something nobody has ever heard of.

When we started in 2004, 2005, nobody knew what coconut water was. They didn't know it actually came from a coconut. They didn't know it was functional. They didn't know when to use it or how to use it in their day-to-day. So it's been a long journey of educating consumers outside of the tropical world when and how to drink coconut water. We built a buzz machine using celebrity and using social media to help get that word out there and help educate consumers. We've had to build distribution, and we're in the very early days of doing that. Finally, Martin will talk a little bit today about Walmart. We're finally getting our fair share of space, we believe, in large retailers like Walmart, but we have a long way to go to build out distribution. We used to joke when we started this business, being my co-founder, a, we used to joke, one day, you're going to walk into a bar or a restaurant in L.A. or New York or London or wherever, and the waiter is going to say, would you like still sparkling or cocoa? I really believe that, that day will happen. That's how popular this beverage will become, and that's how -- to me, that just feels obvious. But this takes generations.

This is actually a picture of me and my kids at one of our factories. And when my kids were -- when we started, people back then didn't know what coconut water was. My kids and their generation, they at least have heard of it. They know it's good for something. They might know it has potassium. They might know that it's great. They learn in college that it was great for a hangover. This is a multigenerational process that takes time, building a new taste, a new product in markets from scratch. But we think that the opportunity is there, and we think that it's really early days of building this category for the long term.

So as the category continues to grow, we are confident that we are the ones that will capitalize the most on the long-term success of the coconut water category. And the reasons are we have a great brand. People seem to love our brand. The packaging is, I think, quite telegraphic of the liquid inside. It's natural, it's clean, it's simple, it's tropical. We also have an incredibly passionate team. And I know not to knock anybody else, the L'Oreal that they have a passionate team too. This team runs through walls. It's a team that is based on this entrepreneurial spirit of trying to show people new things and trying to teach people something new and build a category from scratch and that passionate team is an important part of our culture and what drives the success of this business.

But I believe that the biggest reason why we will capitalize on the long-term success of coconut water is our supply chain. Jonathan is going to talk about it a little bit more today, but we have built an incredibly advantaged supply chain that we believe creates a moat around our business and creates massive barriers to scalability as this category grows, and we'll talk about that a little bit more as we go on. Now I would like to introduce my -- our CEO, my partner in crime, somebody I met 6 years ago when the business was doing great, and I felt I needed an adult in the room. And we found an incredible adult with incredible experience actually running a public company, and that's where Martin comes in. Thank you.

Thanks, Mike. Jesus, if I'm the adult in the room, God help us. Yes. I was blessed to meet Mike after I retired from Boston Beer, where I spent 24 years basically drinking and obviously building a wonderful business there. When I look at my career, I've been blessed to work for 2 great founders with 2 great brands in 2 very unique categories. And that's why I get up every morning. It's really been fantastic. When I met Mike and the team back in 2019, I saw similarities to Boston Beer, both in terms of what the potential was for the business, the culture of the business, the entrepreneurial, the street fighting, the sales execution elements of it. And I knew this was a company that I wanted to join.

I had been looking for a healthy, better-for-you beverage company with a purpose to sort of make up for my drinking alcohol for 24 years. And that's what I found. I wanted to work with a visionary founder and execute and deliver on that vision, and that's what we've done the last 6 years. And 6 years in, I can truly say that Vita Coco is a very special company. It's special on a number of dimensions, not just the product and the purpose that we live by, we're a public benefit corporation and B Corp certified, but also for what is the infrastructure of the company. We are uniquely positioned in nonalcoholic beverages today for continued success for long-term growth. And there's absolutely no reason that this business can't double or triple from its current size, if not more. It may take a little bit of time, as Mike talked about, multigenerational, but that's the path we're on, and that's the company that we're building.

We're blessed with a very experienced team. We're category leaders in our developed markets with a market share that's significantly higher than the next largest player. We -- it's a relatively young category, and I have some slides on that as to where it is in its development from a household penetration perspective. And we have a very attractive consumer profile. They're health oriented, they're younger, they're ethnic. They like to buy better-for-you beverages, and that population is just going to continue to grow. So as I think about this business, we're one of the unique beverages companies that has a clear path to growth through its own actions just in developing the category, and that's obviously what we're trying to do.

I am very blessed to work with a very strong team. I was surprised at the strength of the team when I joined Vita Coco. It exceeded my expectations. And with the addition of Corey Baker, our CFO, we've been able to strengthen it. It's a unique team combining years of experience in beverage with years of experience in coconut water and years of experience at mature companies. So we're operating -- we've operated incredibly well as a public company, and it's a true blessing to have this team. We're -- when people ask me about it, we're entrepreneurial, obviously. We're highly competitive. We're driven to win through execution and things that we control, and we tend to drive through the things we can't control. And we do it with a sense of purpose and a preference for giving back to the communities that we operate in.

So this team has navigated the disruptions of COVID, which with our global supply chain that you'll learn a little bit about, you can imagine, was very challenging. We navigated tariffs last year. That's all in the rearview mirror. We just put our heads down and we execute and we execute on what we promise both to our shareholders, our Board and in our guidance. So -- and that sort of attitude flows into the teams that we have. Mike mentioned it, we have a very passionate team of 330, 340 people who are out trying to build this category and trying to win in coconut water. And so net-net, 6 years in, I could not be happier.

When you think about us, we are the market leader in our major markets with a very significant share, multitudes of magnitude larger than the next largest share. In the U.S., we're at 42% share. That is a growing category, growing 22% of organic growth going on. And there's absolutely no reason that, that can't double, and I'll talk about that when we talk about households. We are -- have 80% share in the U.K., where we have a European team based there that built the U.K. business. That market is growing even faster than the U.S. right now, but it lags behind on household penetration, and I have a slide on that. And then Germany, which is our other emerging major market, we have 40% share from nothing, no share about 3 years ago. That market is growing 126% with the brand growing 200%.

We intend to continue to drive the category as the market leader and then maintain or try and grow share in these markets while developing the next markets to come along. We talk about the category being young and in household penetration terms in the U.S., we're half the household penetration of Cranberry Juice and maybe 1/3 of what orange juice is. So there's a lot of room still for household penetration growth. Our growth in the U.S. comes from a combination of growing households and velocity. It's been consistent for the last 5, 6 years that both metrics have been growing, which to me is very unusual in the consumer goods space to see velocity growing and households growing. And so the U.S. still has a long runway to run, and it's certainly feasible to think about the U.S. Americas business doubling in the next 5 to 7 years, and that's certainly what we're trying to execute.

What I'm sharing here is per capita consumption data for the other markets, and you'll see that they all lag behind where the U.S. is. We launched in the U.S. in 2004. That's where we've been the longest. We launched in the U.K. around 2013. So we're sort of 10 years behind. We launched in Germany seriously in 2022. So again, that is 10 years behind. There's no reason to believe structural or economic or taste profile that these markets can't match the per capita consumption of the U.S. So when we think about it, not only are we trying to double the U.S. or more, but we're trying to get the U.K. and Germany and other markets to the U.S. penetration levels. And that's an opportunity for Europe as a whole to be as large as our Americas business is today, if not larger.

We currently have teams, obviously, in the U.S. and Canada, U.K., Germany and Spain. And we will add teams in other markets as we sequence them for slow, steady profitable growth, which is one of our criteria. I mentioned that we have a very young multicultural consumer. A lot of consumers in the U.S. find us as a Sunday cure to their ailments from Saturday night at college. That is an entry point if you aren't introduced to coconut water by your parents that continues to feed our adult base with new 20-year-old consumers. And we over-index to Gen Z and millennials, but we're holding them as consumers for lifetime value. So again, a solid reason to believe that our U.S. business can double. We're very multicultural. We certainly have opportunities to increase our consumption among nonethnic groups and sort of like the Midwest, the flyover states are opportunities for us where we need to penetrate. But we do have the tailwinds from an ethnic population over-index.

We drive trial and adoption through retail execution, social media events and messaging focused on product benefits and occasions and by retail promotions to get impulse purchase and impulse trial, and that seems to work really well for us in driving these numbers. We've also had a history in the category of being a leading innovator from the introduction of Vita Coco just in 500 ml Tetra to adding new flavors like Peach Mango and extra coconut to adding more innovative products like our juice product, which is in cans, our milk product and more recently, our Treats product, which is an indulgent coconut milk-based beverages.

We also have a track record of adding pack sizes, adding 1 liter, 330 ml and multipacks, which has increased our shelf space visibility and also increased the ease of shopping of this pack for take home. We use innovation to sort of attract new drinkers, new occasions and also create new news to create interest in our category and get people back to retry it again or try it for the first time.

More recently, the most exciting thing in our -- certainly in our America universe is that Walmart in November reset where coconut sat in their juice aisle and added significant space and allocation of inventory holding capacity to the coconut water set. This is, I think, one a big win for us this year as Walmart is adding around 6% to our scan data as Walmart gains share of coconut water, and we benefit from it being the largest player. But I think more importantly, it added inventory holding capacity and visibility within Walmart, which is going to help us sort of continue to serve their customers in a very reliable way because we do need inventory carrying capacity as this brand continues to grow. We personally think that this leading indicator from Walmart of their interest in the coconut water category will result in other retailers following maybe in this upcoming sets, maybe next year, but they will follow because they will see that Walmart is gaining share. So that's very exciting.

So sort of in summary, we're in a unique place with a lot of opportunity for growth, and I believe we're going to deliver on that for years to come. Our growth pillars are expanding households and occasions, improving visibility and availability and sort of innovation in the coconut water space to drive the marketing message with a very effective marketing machine around that. That's primarily in the U.S. Internationally, there's the opportunity for international to grow very significantly over the next 5, 10 years and be a much larger part of our business. We are the market leader in those major markets we talked about, and we're driving that category development. I think Germany is the best example of that.

Outside of that, we do have the ability to innovate outside of coconut water, and we're open to that, and we do pursue opportunities there. Nothing major to talk about at this meeting, but we're open to it, and we continue to see if we can basically copy the Boston Beer playbook through the innovation of Twisted Tea, Angry Orchard and Truly that I was involved in. Can we do that in the nonalcoholic beverage space. So that's -- we do spend time on it. And when we have something exciting to talk about, we'll share. And then we're also open to M&A in the beverage space, the warm beverage space to where we can create value for our long-term shareholders. So we've been very disciplined. We haven't executed anything in the last 7 years. And we are always looking, and that is our filter of can we do create long-term value for our shareholders.

And with that said, it's my pleasure to pass over to Jonathan, who will talk a little bit about the supply chain, which provides us with a cost competitive sourcing and is a competitive moat for us, and he'll talk a little bit about that. Jonathan?

Thanks, Martin. Hello, everyone. Excited to be here. I'm Jonathan. I'm the COO of the company and really excited to tell you a little bit more about the supply chain and the competitive advantage that it has developed into that Mike referenced earlier. When I started 19 years ago, we didn't really have much of a supply chain. We were buying a container here and there. We were figuring out ocean freight on the fly. We learned how to produce coconut water in Brazil on the ground. You see coconut water is a fairly delicate liquid. It's low acid, low pH. So it means it goes bad rather quickly when you extract it from the coconut. So you have to process it quickly, bottle it in a Tetra Pack or another container in order to make it shelf stable. The closest comparison is probably milk.

So we realized early on in order to scale this business, we had to invest in the infrastructure ourselves and spend time on the ground. And the key to accomplishing that we're building long-term partnerships and convincing these partners that we found overseas to invest in a business model that is very sustainable, turning a waste product into something value add like coconut water in a packaged format. And then we've done this, we've built as over the last 20 years to scale, which really no other company has done. And to give you a little bit of a taste on what that source looks like, we have a video here that I'll show you which will really show you the scale and the human element involved in our supply chain.

[presentation]

So 2 things to take away maybe from this video. Maybe first, you see how fast we're moving in the earlier video that Mike has shown, which is a few years old, we were talking about 2.5 million coconuts a day. Now it's already at 4 million. Maybe another one at Corey wouldn't release the funds to rerecord the voice over, so it shows our financial discipline in the company. But more importantly, as you see that footage, right, I think it's important to picture the person climbing the tree harvesting coconuts and picture that on a daily basis across thousands of small family farms in the context of 4 million coconuts a day, right, very manual labor, 4 million coconuts a day. That gives you a real feel for the advantage that Vita Coco and its supply chain have.

So fast forward to today, our supply chain is the most unique as it lets us scale very efficiently. It provides huge barriers for anyone to follow, and it derisks our business because it's well diversified, right? We don't just buy a coconut water. We manage a gold standard process from tree to factory to ocean to shelf, defining our quality and our standards. So it doesn't start in a high-tech lab like some other beverages. It starts on those farms with the 4 million coconuts sourced from thousands of family farms. And as we visited those regions the first time, we realized something that completely changed our perspective.

See there were already like coconut processors out there in these coconut growing regions. And these are factories that were producing other coconut products such as coconut milk or desiccated coconut that you would find in cereal. So we reached out to them and got into conversations. We're a coconut water company. And finally, we arranged a trip out there to the Philippines to meet with one of the largest coconut processors there. So we went out there, we met with the owners. They invited us to visit the factory, which was another flight down south. So it took a total of 2 days to get to the factory. But it was totally worth it when we walked this factory, first, we saw hundreds of thousands of coconuts at the gate, right? That was already pretty exciting.

But as we walked through the factory, we saw this huge river in the middle running through with a waterfall at the end. So we were walking, the owners looked at us and said, well, you know what this is. We were just shaking our heads, not really some kind of wastewater maybe. And they were like, well, this is what you came here for. This is coconut water. We have tons of it. We just don't know what to do with it. We try to process it, but it goes bad quickly. So that was our aha moment. What a huge opportunity to turn a waste product into something value-added and working with them to produce this into our Vita Coco brand, right? Immediately, it would make them more efficient and more profitable, something we're very proud of today to have brought that to our partners overseas.

So we added that discovery to our playbook. And it's really a 3-step strategy, which sounds simple, but it's very difficult to execute at scale. So first, we identify large-scale coconut processors like the one we visited, right? There were many more of those. So we identified those. Second, we didn't just buy coconut water. We taught them what to do with it, right? We shared best practices, how to achieve our gold standard, how do you deal with quality and consistency across all these different sourcing regions. How do you process coconut water, what equipment do you need to use? So we provided all of that. And then finally, we secured long-term agreements, multi-decades in sometimes exclusive in exchange for that, right? So we provided the know-how. They gave us the long-term commitments. And this put us in a really good place because it was a true win-win where the factories became more profitable and more sustainable because they were now selling something that they were throwing away before.

And for us, it was a way to lock in high-quality, multi-decade supply without any of the CapEx or without owning any of the plantations of factories, right? So it was -- it worked well because both parties basically benefit. Indeed, it worked so well that some of our partners took this and bought another factory and to replicate it, right? And that's exactly what we did. We replicated this model over and over. And today, we have 16 factories in 6 countries, which you can see here, well-diversified network. We believe it's the most diversified in the industry. And the diversification is a big benefit for us relative to our competitors. Some of our competitors tend to source only from one country, sometimes even just one factory.

And what happens when multiple companies go and compete for the same coconuts, well, they -- prices go up, right? And it puts supply at risk because if something goes wrong, let's say, a typhoon or flood, their supply is at risk. With 16 factories, we ideally run our network at about 80% capacity to remain flexible to be able to react to those risks, right? What can we do if something goes wrong in, let's say, Southeast Asia, while we can move it over to Brazil. What if it happens in Brazil, while we move it back, right? So that is a really big benefit of our network. And how do we manage that network? Well, it takes a team of 70 supply chain professionals across 5 offices. Approximately half of them are based in Singapore.

And so what they are really doing is, I already mentioned the technical services we provide to the factories, but we have quality professionals. We brought in supply planning, demand planning in-house. We basically brought all the major or critical supply chain functions in-house to make sure our supply chain runs on a day-to-day basis. So we are asset-light, but we are control heavy, right? It's very important because we keep control about our quality, our service and process improvements that way. And this service, right? So this scale and service that we can provide this way is also the reason why we're being a partner of choice with our large retail partners, particularly when it comes to our private label business.

So to summarize, 4 million coconuts a day, it seems like a lot, and it really is. But we believe only 20% of the coconuts available today are making it into the food processing supply chain. So there's plenty more runway for us to get more coconuts. And we don't think that coconut trees today are a bottleneck to grow this business further, right? Our supply chain is built on 2 decades of hard work of our team, our partners and their communities. And therefore, we believe it's very, very hard to duplicate it because it took a long time to get there and the playbook is very scalable. And with that, I'll pass it on to Corey, our CFO.

Thanks, Jonathan. Good morning, everyone. I'm Corey, the CFO, the new guy on the team. This is me at one of our schools in Sri Lanka. So it's amazing to see the work we do out in the field and the good we provide to the communities. I spent many years at was affectionately referred to in the video today as one of the sugar water overloads. So I'm thinking about rerecording that video maybe for next year.

And I'm excited to cover a bit first, to start with 2025. You've heard all week, this is a tough time for CPG, and we are performing incredibly well. In the year, we delivered 18% overall net sales growth, led by the brand, which grew 26% globally. And within that growth, the international business grew almost 40% and delivered 25% of the overall growth of the company. And this gives us a lot of excitement about the impact the international business can have as we look forward. And then at the bottom line, despite absorbing $14 million of tariffs in the year, we were able to deliver EPS growth of 27%, resulting in EBITDA just under $100 million, which is really strong performance and something we're really happy with despite all the volatility we saw this year.

And then this isn't a 1-year phenomenon. If you look back since IPO in 2021, we've delivered net sales growth at a 13% CAGR, most of that growth coming out of our branded business. And due to what you heard today with our disciplined spending and our focused investments, we've been able to deliver the growth and then grow our adjusted EBITDA at 2x our rate of sales. This has resulted in EBITDA just under $100 million or 2.5x what we were at when we went public in '21.

And when we kind of combine this to what you've heard from Jonathan and the team, we have what we think is a very nice balance sheet. We've ended the year with $197 million of cash. We have no debt, and we are very asset light. From a property, plant and equipment, we're sub-$10 million. It's really kind of irrelevant to the business. Our real investment we make is in our supply chain. We're carrying about $100 million of inventory and supporting those coconuts from the farm to the shelf is our core capital investment, but that turns rather quickly. So this allows us to deliver a very nice return on invested capital to our shareholders at approximately 50% over the last year.

And then this cash is growing. We have started to return cash to shareholders through repurchases. We've authorized $65 million with the Board. We've executed $24 million. And we will continue to look at the market quarterly, work with a subset of our Board and continue to return cash through share repurchases. And then we balance that with M&A. As Martin talked about, we think we have the organization and the culture and the team to bring and benefit smaller brands and bring them to the portfolio or to leverage our global supply chain and expand our footprint, leveraging the coconut and the strength of Jonathan's team.

As we look forward, we're expecting another record year in 2026. From a net sales perspective, we're guiding to low to mid-teens growth on the top line. And then as tariffs have subsided and went away for us, we believe we can return gross margins to the targeted range of high 30s, approaching 40s. We'll deliver continued SG&A leverage of about 1 point, resulting in EBITDA around $125 million at the midpoint. This is built on a few key assumptions. One, the U.S. category continuing to grow mid-teens. Year-to-date, as many of you know, we're growing in the low 20s. So this makes us very comfortable with our full year target of mid-teens. The Vita Coco brand growing low to mid-teens and then within the U.S., delivering low single-digit pricing. And finally, private label, which was a headwind for us in '25 will become a tailwind and we will grow the U.S. private label business 20% to 25% to support the overall P&L.

If we combine that with what we're trying to deliver long term, our target is to deliver branded net sales growth of mid-teens and adjusted EBITDA margins of the high teens. If we look at the results we've driven from '21 through '26, we're delivering on these objectives. The branded business has grown at a 15% CAGR over the 5 years. And based on the midpoint of our '26 guidance, we're delivering an 18% EBITDA margin. It might be time to think about a new target. So we're delivering very, very well on our long-term objectives.

So to wrap up, you've heard today from the team, this is a really special company. It's built on an exceptional brand with strong share across the market. We've got a scrappy entrepreneurial team, a truly advantaged supply chain that is a competitive advantage and a moat for our business. A nascent category, but one that is growing quite quickly, which has multigenerational macro and demographic trends as tailwinds. And then combined with our solid financial performance, this is why we believe the future is very, very bright.

And with that, I thank you for your time. We are tighter on time, so we'll probably move to Q&A in the breakout room and take any questions there. Thank you.

Hello, and welcome to the Vita Coco Company's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Liz. I'll be coordinating your call today.

[Operator Instructions]

Following prepared remarks, we will open the call to your questions, and instructions will be given at that time.

I'd now hand the call over to John Mills with ICR.

Thank you, and welcome to the Vita Coco Company Fourth Quarter 2025 and Full Year Earnings Results Conference Call. Today's call is being recorded.

With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer.

By now, everyone should have access to the company's fourth quarter earnings release issued earlier today. This information is available on the Investor Relations section of the Vito Cocoa Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results.

Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on the website as well.

And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2025 financial results and our expectations for our performance in 2026. I want to start by thanking all of our colleagues across the globe for our continued strong performance and overcoming the unusual challenges of 2025 to deliver a record year, while also staying committed to the Vita Coco company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet.

I'm incredibly pleased with our 2025 full year performance and yet even more excited about the opportunities for our category, our current momentum and our ability to deliver very high execution levels, which all bodes well for our future. Coconut Water remains one of the fastest-growing categories in the beverage aisle according to our retail data for 2025 growing 22% in the U.S., 32% in the U.K. and over 100% in Germany. For the full year, Vita Coco coconut water, excluding our coconut milk products like treats, grew 21% in retail dollars in the U.S., 32% in the U.K. and over 200% in Germany. This helped drive our strong full year growth in global net sales, gross profit, net income and adjusted EBITDA.

Our international business is accelerating, driven by strong performance in Europe. Our increased investment in the U.K., Germany and other select European markets is paying off with healthy growth and brand share wins such that the International segment growth contributed 29% of the 2025 total company net sales growth. We will continue to invest in these core markets while exploring opportunities in additional international markets where we are well positioned to enter or drive profitable growth long term.

Our recent appointment of Charles van Es as as Chief Commercial Officer with global responsibility is indicative of our focus on international business and our commitment to strategically invest in this long-term opportunity. Charles has been with Vita Coco almost 10 years, most recently leading our U.S. sales team, which has delivered years of strong growth as we built our sales and category management capabilities. I'm excited that he is taking on this larger role as I believe that our international business could eventually be as large as our U.S. business is today.

In 2026, we will continue to double down on active hydration across markets as a driver of consumer growth, positioning Vita Coco as the natural choice for performance-minded consumers. Building on our strong occasion-based marketing framework, we'll be expanding more deliberately into sport and recovery. We'll endeavor to leverage professional athletes and partnerships to authentically demonstrate the role Vita Coco plays in real performance and recovery moments. With 3.5x the electrolyte of the leading sport drinks, and clean ingredients. We believe that Vita Coco is uniquely positioned to recruit new consumers, increase usage frequency and even further unlock the next phase of sustained consumer growth.

The acceleration of the category that we saw in late 2024 continued through 2025, which combined with improved inventory and strong execution produced our excellent full year results. Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and develop and nurture new markets. Our asset-light model, leading market share and strong cash generation positions us well to take advantage of the opportunities ahead.

As I've said before, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut Water appears to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we continue the household penetration and consumption gains that we're seeing, I'm confident that Coconut Water will one day be as large as some of the major categories across the beverage aisle.

And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I am pleased to report Vita Coco's record performance in 2025. We finished with net sales up 18%, driven by full year growth of Vita Coco Coconut Water of 26%. Our brand trends are very healthy and driving the company growth. Our recent private label trends represent the previously discussed net effects of lost and gain business with some business wins expected to start in 2026, which will improve these trends. Our Q4 branded scan results in the United States continue to be very strong with a small benefit at the end of the quarter from the Walmart reset that took place mid-November, which we recovered most of the distribution loss at the end of 2024 and improved our total distribution and space allocation from 2024 levels now in what we believe is a higher traffic aisle.

We show some photos of a range of the septum Walmart in our investor deck to demonstrate the improvement. Our U.S. Vita Coco branded business is benefiting from strong volume growth and also the net impact of the 2 price increases taken in the U.S. last year. In November, it was announced that going forward, most coconut water products would be exempt from the tariffs announced earlier in 2025. These changes are applicable to most of our products sold in the U.S. but did not materially affect our fourth quarter results as we continue to sell inventory, which has been imported subject to tariffs in place before these changes.

We expect cost of goods in 2026, the benefit from the tariff exemptions for coconut water and from lower full year average ocean freight costs with those benefits partially offset by increased finished goods costs driven by normal inflationary pressures and some weakness in the U.S. dollar and increased domestic logistics costs. We believe average ocean freight rates during the quarter were still slightly elevated relative to historical levels, even as we saw rates soften through the quarter. We operated the quarter primarily on spot rates with some fixed price arrangements on certain lanes to secure capacity.

At the end of the quarter, we started exploring medium-term fixed price commitments as we received offers closer to spot. We have made some commitments as of today that would cover approximately 25% of our expected 2026 ocean shipping requirements. This will allow us to reduce volatility in 2026 from potential fluctuations in ocean freight rates. As we look to 2026, we expect healthy brand growth in our focus markets and positive growth in private label after the first quarter, benefiting from the new and regained business referenced earlier. We have secured capacity to support our expected growth and are well positioned with inventory and supply capability. We are excited by our start to the year, particularly the Scana U.S. trends of 24% growth for both the coconut water category and the provided Cocoa coconut water through February 8, '26, where we have benefited from some favorable timing of promotional activity early in the year and the impact of the improved distribution at Walmart, which we estimated is adding approximately 6% to the year-to-date brand trends.

While we expect to hold most of our pricing taken in 2025 to cover our inflationary cost of goods pressures, we do anticipate some increase in promotional initiatives so that we remain competitive. We still have the residual impact of the 2025 tariffs in our inventory, which means we will not see the long-term cost of goods representative of our ongoing business until Q2. From an investment perspective, we are endeavoring to deliver leverage on our SG&A spend, even as with the strong momentum for the category and our brand, we plan to increase investments in marketing and sales to secure long-term brand growth opportunities. To summarize, our category is very healthy. Our brand is performing well, and we are turning around our private label trends. We expect our international business to continue to grow at strong rates of a larger revenue base, which should contribute more meaningfully to our total growth.

Our supply chain is performing well and capable of supporting continued strong growth. We are confident in our team's ability to execute and deliver on our plans for 2026, and our confidence in the category and Vita Coco brand trends remains very high.

With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the full year 2025 financial results and our outlook for 2026. For 2025, net sales increased $94 million or 18% year-over-year to $610 million, driven by strong Vita Coco Coconut Water net sales growth of 6%, partially offset by private label declines of 19%. On a segment basis, within the Americas, net sales grew 15% to $509 million led by Vita Coco coconut water that grew net sales by 24% to $424 million. That was partially offset by private label, which decreased 30% to $63 million.

Vita Coco coconut water saw a 9% volume increase and a 4% net price/mix benefit. Our Q4 shipments benefited from stronger-than-expected shipments at the end of the year, which resulted in higher distributor inventory than we had anticipated. We estimate that this inflated our fourth quarter net sales by approximately $7 million. Private label sales decreased 30% driven by a 26% decrease in volume and price mix decrease of 5%. The weakness in private label Americas shipments was due to the loss of regions of key retailers that started early in Q2.

Our international net sales were up 37%, where we saw continued strong net sales growth across branded and private label coconut water. Vita Coconut Water net sales grew 43% and and private label increased 34%. Consolidated gross profit was $223 million, an increase of $24 million versus the prior year. On a percentage basis, gross margins finished at 37% for the year. This was down approximately 200 basis points from the 39% reported in 2024. The decrease in gross margins resulted from higher product costs and the impact of tariffs, partially offset by branded coconut water pricing and favorable product mix.

Within the year, we expensed $14 million of the $160 million in tariffs repaid, representing about 2 points of gross margin impact on the year. The remaining $2 million of tariffs capitalized in inventory will flow through our P&L in early 2026.

Moving on to operating expenses. SG&A costs increased to $140 million driven by increased investments in people resources focused on driving future growth and adding supply capacity in addition to increased marketing spend. Net income attributable to shareholders was $71 million or $1.19 per diluted share compared to $56 million or $0.94 per diluted share, the 27% increase in net income was primarily driven by the increase in gross profit and a gain on the fair value adjustments to FX derivatives in the current year versus a loss in the prior year, partially offset by higher SG&A investment and increased income tax expenses. Our effective tax rate for 2025 was 23% versus 21% last year. increase in the effective tax rate is largely driven by the mix of discrete tax items recognized during the year, which were less favorable than in the prior year.

Adjusted EBITDA was $98 million or 16% of net sales, up from $84 million or 16% of net sales in 2024. The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses.

Turning to our balance sheet and cash flow. As of December 31, 2025, our balance sheet remained very strong, with total cash on hand of $197 million and no debt under our revolving credit facility. For the full year, we generated $32 million of cash driven by strong net income, partially offset by increase in the working capital, mostly due to our $27 million investment in inventory to support service levels and expected growth in 2026. Share repurchases of $11 million and $8 million of capital investments, primarily related to our new office spaces, which is significantly above our normal CapEx levels.

We started 2026 with very strong category trends in our major markets, healthy inventory levels and confidence in our team and our Vita Coco brand. We're excited about our ability to continue to deliver strong results. We expect net sales between $680 million and $700 million, with expected gross margin for the full year of approximately 38%, delivering adjusted EBITDA of $122 million to $128 million.

We are planning strong net sales growth based on the U.S. category growing mid-teens and our international business, led by the U.K. and Germany, maintaining their healthy growth rates. We expect consolidated growth of Vita Coco Cocoa water of low to mid-teens with our U.S. Vita Coco net sales slightly lagging the category due to impact from the strong year-end 2025 shipments to our DSD partners mentioned above as well as investments in distributor incentives to deliver growth and the anticipated impact from the launch of private label at a large U.S. retailer.

We expect strong private label net sales growth of 20% to 25% in the U.S. as we regain some geographic regions of multiple resellers and launch a new one, as previously discussed. From a phasing perspective, we expect the Vita Coco promotion at a major U.S. retailer to move forward by 1 month. While this will result in consistent major promotions over the first half, we expect the shift of a portion of our net sales from Q2 to Q1 provide coconut water.

We expect 2026 gross margins to improve from 2025 levels as we benefit from the branded pricing taking in 2025, the removal of tariffs and favorable ocean freight rates, offset by the aforementioned promotional and incentive impact. We expect to invest a portion of the pricing we took in 2025 into incremental U.S. branded promotions. We expect that this will result in full year brand pricing increases of low single digits with a higher mix of private label resulting in consolidated net price realization growing slightly.

The phasing of branded pricing actions implemented in Q2 and early Q3 of 2025 will result in stronger net pricing early in the year and potentially declining net pricing starting in Q3 due to the promotional investments. We expect SG&A to increase mid- to high single digits as a percentage of net sales as we increase investments in marketing in key personnel areas to deliver the expected 2026 results and invest for long-term growth. These investments will be partially offset by a planned reduction in incentive compensation. We expect to deliver SG&A leverage of about 1 point over 2025 as we continue to deliver strong growth with disciplined investments.

And with that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth.

Thank you for joining us today, and thank you for your interest in the Vita Coco Company. That concludes our fourth quarter 2025 prepared remarks, and we will now take your questions.

[Operator Instructions]

Our first question comes from Eric Des Lauriers with Craig-Hallum.

Congrats on another very strong quarter. My first question is on private label. So there's certainly been a lot of movement in recent years. Nice to see the regained regions and some new additional wins. Could you give us a bit more of a sense of the cadence of growth expected throughout the year? I think you said you expect it to improve after Q1. And then just in general, with all the movement in recent years, how should we think about the white space opportunity in private label in the Americas, just from here on out?

So Eric, as we've talked about the phasing of the private label is quite hard. We have a difficult lap in Q1 as we still retain many regions. And then post Q1, we should start to see that new business impact the P&L. What is still hard to call because of the way we account for it is when new customers will come on board. So you should see that full year growth, 20% to 25% in Americas, starting in Q2, but somewhat of a ramp towards the back half.

Okay. That's helpful. And then...

I would just add, the private label business is much more diversified than it would have been in the past, both new retailers that have been added or being added in the U.S., but also internationally.

Okay. Great. And then just in terms of like the white space opportunity in private label, should we think of there as being considerable more opportunities for you guys to win in the Americas? Or are you sort of -- look, you mentioned your diversified, you have a solid chunk like should we not look for that as being a major growth driver in the U.S. going forward? Again, just trying to get a better sense of the white space opportunity after you've won all these new regions.

Yes. In the U.S., private label is a little bit dominated by one major club player and just putting that player aside for a bit in the remaining private label universe in the U.S., we aren't supplying at all. There are still some retailers there that we would look at that business and say it was attractive. And so there's still opportunities to win that business or parts of that business with some retailers that we currently do service. As it relates to the major player we have serviced that player sort of pretty consistently but reduced regions over time.

And we remain open to adding more regions or I suppose, they could take reasons away. It's the nature of the business, right? We've described it as lumpy. But given their size, their decisions are significant decisions to our business.

Yes. No, that all makes sense. And then just last one for me, just looking to drill down a little more into international, certainly very encouraging results there. I think we've talked previously about -- I think this was sort of specific to Germany about the need to sort of get in via private label first and it's sort of a crawl, walk, run type ramping. Just wondering if you could provide a bit more kind of qualitative assessment of international as we kind of look at it right now. Are we sort of poised to see continued acceleration in growth here? Are we still in the sort of building out phase? Just a bit more color on the international opportunity would be great.

Sure. I think you can see in our reported numbers, international sales, I think, grew 37%, which is an acceleration on the growth of the prior year. And now off a larger base, right? And so I think we've said all along that, over time, international will become a larger part of our business, so it should grow faster than our overall business. And as it does so, we'll add more incremental growth to our business over our base domestic business. We still look at Europe as a developing market. Obviously, the -- within that, there are different countries that are different be developed.

If you look at our investor deck from June last year, you'll see some capita consumption numbers by country, which give you a sense for at least where those countries were. I think that data is 2024, where those countries were in their development. And so I think we've talked about how the U.K. is 5 to 10 years behind the U.S. in development, and then you've got -- our next largest market, which we talked about, is Germany, which is at least 5 to 10 years behind the U.K. So there's a long ramp there. I think if you imagine that Europe could have the same per capita consumption is the U.S., then there's no reason to believe that Europe and therefore, our international markets couldn't be as large as our American business today.

But our American business today is still growing sort of double digits, right? So that's a moving target. And so we aim to close that gap in market development, but we know it will take time and we're doing it one market at a time as we see the opportunities as we put people into that market to sort of seed it and then get it going and then make sure we can ramp it up from a supply perspective. It's going really well. The European team is doing a great job, and we look forward to hopefully many years of ongoing growth. Obviously, as the base gets larger, the growth rates will come down. But our plan is for international to continue to provide a significant part of our total growth for the foreseeable future.

Our next question comes from Jim Salera with Stephens.

I Wanted to start off, maybe you could give us some detail around the Walmart placement given the step-up visibility there. Is there any characteristics of the consumers that are coming to the product via that channel that you might be able to share the primarily new to the brand, if there's any, like I said, age or kind of demographic characteristics you could share given the significant increase in visibility being in that new set?

So I think it's too early for any information on that buyer changing buyer or the impact of new set to show up in our consumer data, right? It's 2, 3 months old. I think what we would say is we are very happy with the outcome of the set process if you've had an opportunity to go into Walmart, depending on the type of Walmart you're in, you'll see a slightly different set ranging from absolutely huge.

And I would refer you to Slide 10 in our investor deck on the right-hand side, where you've got an example of one of the really large ones, 2 more normal, which will probably be the left-hand side and then the smaller ones is sort of the central photo, right? All of them are significant improvements over where we were before in terms of SKUs that we have in store and also shelf space and visibility. PAUSE And that is showing up in our data on Walmart as growth. I think we said in the prepared remarks, Walmart is adding 5%, 6% to our total scans right now, which is very cool. And given that growth rate, Walmart is gaining share of the coconut water category as a retailer. So that's really good. So I think that shows that the consumer is there. Obviously, the set, while it's in the same aisle, now it's a little bigger and maybe it moved a few feet.

So people need to find it. But the actual consumer won't go up as the debt is at a a few months or maybe even PAUSE -- what we would say is the Walmart consumer is showing that they're willing to buy coconut water. We don't see any reason why Walmart shouldn't be a strong coconut water destination, and certainly, that was our pitch to them, and they seem to have bought off on that and how they've used coconut water to anchor that part of the set.

On the juice aisle, and so we're excited. But in the big scheme of things, Walmart is a certain percentage of the business, and this growth helps, but it doesn't necessarily significantly move PAUSE the top line, but it's certainly very helpful. And I think we look at it and we think people -- it's more likely that other retailers will follow Walmart in allocating the space because people follow Walmart and they want to be competitive. So for us, it's a very positive leading indicator for what might happen this year or next year in the rest of...

Great. And then Michael, I wanted to follow up on some of the commentary you had around the hydration use occasion, particularly with kind of more active users as a sports drink replacement. I know there's a lot of opportunity in the different -- these different use cases, but sometimes consumers don't really know what use occasion coking at water fills -- do you have anything, whether it's on advertising campaign or in-store activation, packaging planned for this year that will really drive home that particular kind of active hydration use occasion. And if so, any thoughts on kind of how that should layer in for the year and when we should expect to see that really driving that visibility to that use occasion.

Yes. Well, being built more into our overall communication in general, the 3.5x the electrolytes of leading sports drinks and being all natural from a tree not a lab. So it's become a bigger part of our communication. We are activating in youth sports in a big way. I don't know if you've seen our partnership with Rush Soccer and getting into other youth sports programs. We have a program around some of the U.S. World Cup soccer players for World Cup activation. And so we're really focused on these type of activities.

But all in all, it is -- and we're also -- we've actually been testing some media, which some of you might have seen, TV specifically. So all in all, it is a big focus. But it is the underlying reason that coconut water has been and is becoming so successful in the category is continuing to grow is the main functionality, whether product is used in a smoothie or in a cocktail or all the other usage occasions, the hydration aspect of the electrolytes, I think, is the underlying reason that -- and the functionality that it is working so well.

[Operator Instructions]

Our next question comes from Michael Lavery with Piper Sandler.

This is Luke on for Michael. I just want to ask just wanted to ask what your expectation for cash is? You're sitting on about $195 million of cash. I know you guys have always had M&A on your to do list, but there hasn't really been something interesting or at the right price. But how do we think about what the cash is meant to go for?

Luke, you're right. The priority is to continue to grow the core brand and grow the category. And as we said, we do believe M&A will play a role at some point. It hasn't yet, and we remain active, but disciplined. We have returned some cash to shareholders through repurchases. So at this point, we'll continue to look for opportunities and continue to work with our Board and subsets of our Board on repurchases as we move along. So really no overall change in our approach at this point.

Okay. That's great. And can I just ask about innovation for 2026? Is there anything in the pipeline. And separately then what are your expectations for marketing spend in 2026?

I didn't hear the second part.

The market expand.

On the innovation side, we're continuing to push the things that we were pushing last year. Treats has performed nicely, getting additional distribution. And we expect at some point in time to add an additional flavor. And I don't think we're quite ready to announce that sort of on these airwaves right now. But that's our expectation, and it looks pretty promising. And then we obviously are continuing to push the MALDI packs and the different pack formats.

Innovation is playing a role by driving new news and sort of building our shelf space when you look at the Walmart shelves. It's obvious that we're going to need a pipeline of pack innovation to maintain that as fresh longer term. So we're working on that. And then as it relates to marketing, we are increasing marketing. We want to increase marketing maybe a little faster than net sales of the branded side. partly because we believe that those opportunities, as we've talked about in pushing the hydration message, and we're excited by some of the programs that Mike talked about coming this summer, partly also to protect the brand versus private label, the private label price gaps that are currently there may widen as the private label vendors sort of past tariff savings back and we're prepared to try and hold our price where it is and see what happens, but reserving sort of price promotional investment, which is obviously part of how we think about marketing as a way to potentially react.

And that's how we're thinking about the planned increased pricing that we -- investment that we think for the rest of the year. So we're going to watch that closely, and we will balance increased marketing versus pricing actions to try and maintain our position relative to the competitors in the marketplace as they adjust pricing or not through the year.

That concludes today's question-and-answer session. I'd like to turn the call back to Martin Roper for closing remarks.

Thanks, Liz. Thanks, everybody. We know a lot of folks are down at CAGNY, and we're looking forward to sharing a coconut water-based cocktail with folks, Friday. So I hope everyone has a good week, and thank you for your interest in Vita Coco, and we look forward to talking to everybody when we announce our Q1 results in late April. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Hello, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Conference Call. My name is Daniel, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time.

I'll now hand the call over to John Mills with ICR.

Thank you, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's third quarter earnings release issued earlier today. This information is available on the Investor Relations section of The Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results.

Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well.

And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results and our expectations for the balance of 2025.

I want to start by thanking all of our colleagues across the globe for our continued strong performance, particularly in a very fluid environment and for their commitment to The Vita Coco Company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet.

Although I'm incredibly pleased with our third quarter performance, I'm even more excited by the underlying momentum in our category and our very high execution levels, which bodes well for our future. Coconut water remains one of the fastest-growing categories in the beverage aisle, growing 22% year-to-date in the U.S. and 32% in the U.K. based on Circana data and over 100% in Germany based on Nielsen data. This, coupled with our significantly improved inventory position versus last year, has resulted in very strong retail growth for our brand.

Year-to-date, according to our retail data, Vita Coco Coconut Water, excluding our coconut milk-based products like Treats is growing 21% in retail dollars in the U.S., 32% in the U.K. and over 200% in Germany. This has led to similarly strong global net sales, gross profit, net income and adjusted EBITDA performance for our third quarter.

Year-to-date, our international business is accelerating, driven by strong performance in Europe. Our increased investment this year in the U.K., Germany and other select European markets is paying off with healthy growth and brand share wins. The acceleration of the category that we saw in late 2024 has continued through 2025, which, combined with improved inventory and strong execution is producing exceptional year-to-date results.

Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and our asset-light model and strong cash generation position us well to take advantage of the opportunities ahead.

Big picture, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water looks to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we can continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major beverage categories across the beverage aisle.

And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's continued strong performance in the third quarter. Net sales in the quarter were up 37%, driven by growth of Vita Coco Coconut Water of 42%, benefiting from strong growth in the coconut water category and improvements in our available inventory and service levels.

Our branded scan results in the United States were very strong, even with a slight drag in our scans created by the changes in the Walmart set late last year, which we estimated was a mid-single-digit drag to our total U.S. branded scans in the third quarter.

We are benefiting from strong volume growth and the impact of the 2 price increases taken in the U.S. this year, the first in mid-May to cover our normal inflationary cost of goods increase and the second in mid-July to cover the dollar impact of the 10% baseline tariffs announced in April. The cumulative effect of these price increases on shelf in the U.S. is best viewed on a 2-year basis, which is showing as approximately 7% in the last quarter according to Circana. To date, we think the price elasticity impacts from these increases are within expectations. but we need more time to understand the impact of the July increase and to see competitor moves before thinking about any further price increases to cover the additional tariffs announced in August.

Since November last year, we have been in the juice set at Walmart with significantly reduced assortment. We currently expect this juice set to be reset in mid-November. We've been told that our current total points of distribution will grow significantly compared to the current sets and also above levels we had before the move to the juice aisle. We are optimistic that we don't have complete visibility to understand the competitive dynamics of the new set and the actual shelf space allocated for our SKUs beyond the expected distribution gains.

The private label business remains strategically important to us with greater uncertainty on costs, particularly due to the announced tariffs and some intermittent service issues from some of our competitors as the category accelerates, there have been more inquiries than normal about our private label services. In addition to the new U.S. private label relationship announced last quarter, we now expect to regain in early 2026, some private label service regions with key retailers that we had previously lost. We view this as a positive signal on our quality, service and pricing and reinforces our belief in the competitive advantage of our supply chain.

Other than increasing tariffs and slightly softer ocean freight, our cost of goods has been pretty stable since we last spoke to you. We believe ocean freight rates during the quarter were still elevated relative to historical levels, but we saw rates soften through the quarter and since quarter end. We are operating primarily on spot rates with some fixed price arrangements on certain lanes to secure capacity, which allow any lower rates to benefit our P&L probably early next year, depending on the timing of inventory flows.

Corey will cover our outlook for the balance of the year. For 2026, the most difficult element to predict is the applicable U.S. tariffs we'll be operating under. During the quarter, there were signals that the administration is willing to offer exemptions for products related to natural resources not available at scale domestically to meet U.S. demand, which gives us more optimism that coconut water could potentially receive waivers. If we do not receive any waivers and tariffs are uphold, we will continue our mitigation efforts. And ultimately, if significant tariffs remain and other offsets like ocean freight are not sufficient, we will evaluate the potential to take more pricing next year to further mitigate the impact of tariffs.

We have a global diversified supply chain, which positions us well to deal with the dynamic U.S. tariff situation. The majority of our supply comes from the Philippines and Brazil, with the remainder principally coming from Thailand, Vietnam, Malaysia and Sri Lanka. Our current weighted average tariff rate on coconut water shipping to the U.S. from source country at the end of the quarter is estimated at a blended rate of approximately 23%, which is before any significant moves to mitigate the 50% tariffs on coconut water from Brazil. We are currently seeing tariffs into the U.S. applied to approximately 60% of our global cost of goods and believe that this is a good approximation for the cost of goods that U.S. tariffs are applied to.

We are developing and executing plans to avert some of our Brazil production to Canada and Europe and to cover U.S. demand more completely from Asia, which could help further mitigate our average tariff rate. We have started preparations for this diversion but may choose for service and responsiveness reasons to source some production from the U.S. from Brazil on an ongoing basis. As the applicable tariff rates change in the future, we will adapt our plans.

To summarize, our category is very healthy. Our brand is performing well, and our supply chain is supporting very strong growth and together with potential future pricing, we believe that we'll be able to mitigate the potential tariff impact long-term and to remain very competitive in our markets.

We are confident in our team's ability to execute and deliver our plans for the balance of 2025 and 2026, and our confidence in the category and Vita Coco brand trends remains very high. Longer-term, we believe that we will benefit when ocean freight rates return to historical levels and that when all of our tariff mitigation efforts are in place, this should allow us to achieve or beat our long-term financial targets.

With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2025 financial results and our outlook for the full year.

Net sales were very strong for the third quarter, increasing $49 million or 37% year-over-year to $182 million. Vita Coco Coconut Water grew 42% and private label grew 6%. Our quarterly results benefited from the continued strong category growth, the restoration of a key club retailer promotion in the U.S. as well as the depressed third quarter reported last year when we were significantly inventory challenged.

Please note that the key retailer promotion that ran in late Q3 and early Q4 this year has created unusually healthy scan trends in the U.S., and I would suggest that you look at a 2-year growth rate for an appropriate reading on the underlying momentum.

On a segment basis, within the Americas, Vita Coco Coconut Water increased net sales 41% to $132 million and private label decreased 13% to $14 million. Vita Coco Coconut Water saw a 30% volume increase and a price/mix benefit of 8%. The branded price/mix benefit was driven by the cumulative effect of our 2 price increases in 2025. Our other product category grew 182%, primarily reflecting the national launch of Vita Coco Treats.

Our international segment continued to deliver exceptionally strong results in the third quarter with net sales up 48% and Vita Coco Coconut Water growing 47%, driven by strong growth across our major markets. Private label sales increased 70% due to strong sales of private label coconut water within our current customer base.

For the quarter, consolidated gross profit was $69 million, an increase of $17 million versus the prior year. On a percentage basis, gross margins finished at 38% for the quarter. This was down approximately 110 basis points from the 39% reported in the third quarter of 2024. This decrease in gross margin resulted from higher year-on-year finished goods product costs and the baseline 10% import tariffs announced in April, plus a very minor impact from the August tariffs that collectively created a $6 million tariff impact in the quarter. This was partially offset by our combined pricing actions and lower year-on-year ocean freight expense as well as the recovery of a reserve for private label packaging.

Moving on to operating expenses. SG&A costs increased $10 million to $41 million within the quarter, driven primarily by higher people-related costs and increased marketing expenses.

Net income attributable to shareholders for the quarter was $24 million or $0.40 per diluted share compared to $19 million or $0.32 per diluted share for the prior year. Net income benefited from higher gross profit and a lower year-on-year tax rate, partially offset by higher SG&A spending and the lower gain on derivatives than in the prior year.

Our effective tax rate for the third quarter of 2025 was 22% versus 25% last year, which is primarily driven by the discrete tax benefits and a favorable geographic mix of pretax profits.

Third quarter 2025 adjusted EBITDA was $32 million or 18% of net sales compared to $23 million or 17% of net sales in 2024. The increase in adjusted EBITDA was primarily due to higher net sales and gross profit, partially offset by higher SG&A expenses.

Turning to our balance sheet and cash flow. As of September 30, 2025, our balance sheet remained very strong with total cash on hand of $204 million and no debt under our revolving credit facility. We have generated $39 million of cash year-to-date, driven by our strong net income, partially offset by increases in working capital, primarily due to increased accounts receivable.

Our updated guidance reflects our current best assumptions on marketplace trends and timing of our shipments as well as the continuation of the U.S. tariff levels announced in August. Based on our current trends, we are raising our full year net sales guidance to between $580 million and $595 million. We expect full year gross margins of approximately 36% with higher finished good costs, including tariffs relative to last year being partially offset by our increased pricing and slightly lower logistics costs.

The impact of U.S. tariffs announced in April and August has increased through the year. For the full year, we expect to see an increase in our cost of goods of between $14 million and $16 million versus the prior year. We expect our average tariff rate on imported U.S. goods to peak at the previously mentioned rate of 23%, and this should start hitting our P&L late in the fourth quarter, depending on actual sales and inventory usage. Our sales expectation is based on a tougher Q4 net sales comparable to last year when we benefited from distributor and retail inventory rebuild.

We expect full year SG&A expenses to increase high single digit versus 2024. This, combined with our expected higher net sales is resulting in a higher adjusted EBITDA guidance of $90 million to $95 million. Our full year SG&A increase is due to increased people investments, including increased incentive and stock compensation and higher year-on-year sales and marketing expenses and other focused investments to support the delivery of our growth objectives as we aim to maintain a strong branded growth momentum into 2026. We look forward to providing additional updates and formal 2026 guidance on our next earnings call.

And with that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of The Vita Coco Company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. Thank you for joining us today, and thank you for your interest in The Vita Coco Company.

That concludes our third quarter 2025 prepared remarks, and we will now take your questions.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs, your line is open.

I had a couple of questions on your guidance. First, you raised your top-line growth guidance, but it does imply a sharp decline of about 15% in Q4 at the midpoint. So I understand you've got a tough comp in the prior year to lap, but I guess I wanted to better understand this expectation. Was there a pull forward of shipments from Q4 into Q3, for instance? Is there anything, I guess, in particular, expected in Q4 as it relates to private label? And then on EBITDA, your new guidance implies a big ramp in growth in Q4. So could you give us some more colour on the drivers of that expected acceleration?

So from a top-line perspective, as we've talked about, we've been focused on the full year. And the quarters, especially around Q3, Q4 are quite hard to tell. We would ask you to take a look at the 2-year stack, which in the underlying base business is still very, very strong. Half 2 and quarter-on-quarter is showing double-digit growth on a 2-year CAGR in the underlying business. And we do have the current trends of the private label business, which as we talked about in Q2, I believe Q2 was down in the mid-30s. We would expect that trend to continue. Martin referenced new private label business starting in 2026. At this point, we don't expect any impact from that, but we may get some -- as you know, the timing of private label is quite challenging, so at the midpoint, we feel there's still a strong underlying growth trends embedded in there, offset with the private label.

And then from an EBITDA perspective, we've embedded the tariffs at the 23%. We currently see inbounding to the country. Those will gradually increase through the quarter, peaking at that 23% roughly at the end of the quarter. And then it's the current level of pricing.

Okay. And just want to verify, there's nothing that we should think about as it relates to inventory levels in terms of Q3 versus Q4? Nothing to call out there?

Yes, it's quite hard for us. We don't have complete visibility to inventory, which is why we stay focused on the full year. Q3 had the large retailer promotion. So the timing of that may have been a little heavier in Q3. And as we've talked about, we expect improved distribution at Walmart, how that shifts to distributors and exactly when that inventory will pull is hard to call as well. So I would stay focused on the 2-year second half trends, maybe and you'll see a very strong growth.

I would just add that I think we think distributor inventories at the end of the quarter were healthy and sort of ready to support the Walmart set process. And obviously, how those adjust through the end of the year, as you know, can produce a little bit of noise at the end of the year, but we currently think inventory levels are appropriate based on the activity we see in Q4.

Okay. Super helpful. And if I may just squeeze in a quick question on private label because it certainly has been a focus, and you touched on this, hoping for maybe just a little bit more color on what you touched on the recent private label customer wins. How do we think about these wins, meaning offsetting some of the prior losses, if at all? And then as you think about your private label business, how do you believe it's advantaged maybe versus peers? And how do we think about your approach to private label next year and beyond? Is this something you're going to aggressively pursue?

Yes. I think as we've said all along, Bonnie, we view the private label business as one that's complementary to our brand on a number of factors, both on the supply chain side and the retailer relationship side. And so we intend to continue to seek private label business or regain private label business and be competitive in it. As it relates to how we think about our competitive position, we believe that we are uniquely placed to provide large private label programs with diversified supply of private label across multiple countries, multiple factories. And we also believe that some of our sourcing leads to a cost advantage and a service advantage and a quality advantage. Now that doesn't always play out in how those bids are awarded. And so it hasn't all been wins, but we certainly believe that we are strategically well positioned to compete going forward.

As it relates to your question, we're obviously not providing any sort of '26 guidance here. What I would say is that we recovered some of the regions that we lost, but not all of them. So we still have some headwinds next year, which may or may not be offset by some of the wins on the new customer front. But it's sort of, you know, to us, we lost regions early in the year, and we're regaining some of them. To us, that shows that our sort of supply position is competitive on a quality service and price perspective. And it gives us hope that we can recover more, but obviously, there are no guarantees and nor have anything been announced or those are more expectations and hopes over, let's say, a multiple year period as opposed to a single year period.

So I think next year, private label probably will still be a slight drag for us, but obviously, the category on a lost business basis. But the category is very healthy. It's growing. The private label business that is retained is growing because the private label business is healthy, too, similar to the category. So again, I would just say we're optimistic for a good '26, but we're not in a position to provide guidance.

Our next question comes from Chris Carey with Wells Fargo Securities, your line is open.

The implied Q4 gross margin, a couple of questions there. So the first is just the Brazil tariffs. Is it reasonable to assume that Q3 did not include much of those and those will be heavily concentrated in Q4? And so I'd love some perspective on that because Q4 has some seasonality that is lower than Q3, but there's also this new cost factor. So I'd love maybe a bit more detail on how you see that impact.

The second thing is how are you thinking about some of the headlines around tariff? What are some of the key markers that you're looking for as it pertains to Brazil? The reason I ask is because at what point do we start thinking that you may need to take some pricing going into the front half of next year? How long will you assess the tariff backdrop before making that decision?

I think for starters, the headlines are interesting and definitely worth looking into. I mean, the numbers that we've given in terms of what tariffs look like for us as of the end of the quarter are -- could change. And this is what we're dealing with is the uncertainty around it. I mean if you look at the headlines over the weekend, obviously, Trump and Brazil's President Lu had a good meeting and have committed to getting a trade deal done and Brazil has asked for relief on the 40% reciprocal tariff. It hasn't been denied, hasn't yet been approved, but we're hopeful that we'll see some changes on a positive level as it relates to Brazil. And then even as you look at some of the other trade deals that are getting done, if you even look at Cambodia and Malaysia, which happened this weekend, coconuts are listed as excluded from the tariffs in those trade deals. Coconut water is not yet. This is something, obviously, we're hopeful for and working on. But I think it's pretty clear that the administration is looking to exclude unavailable natural resources. We've just got to make sure that coconut water is recognized. And so as these trade deals continue to get done with different countries which we source from, we're hopeful that we'll see some improvement to the tariff numbers that we've talked about. But as of now, that's where we stand.

And Chris, going back to start of your question, which was did the increased tariffs from early August hit the Q2 P&L. Maybe, Corey, you could take that.

Yes, Chris, it was a small amount. If we think of the tariffs as April and August, the August tariffs had very little impact on Q3, a slight bit at the end, and that will ramp-up towards that 23% rate. And we anticipate that would hit late in the quarter, November, December time frame and then be at that steady rate through next year, barring any of these changes we're hopeful for.

And then, Chris, relative to your pricing question, we took pricing in July to mitigate the 10% baseline tariff from April on a dollar basis, right? And I think we indicated in the call that, that was showing up as like a 7% pricing on Circana on a 2-year basis comparison to 2 years ago is how it's showing up. And that would, I suppose, also include the May. So that's the impact of both pricing. We're still monitoring the impact. There's certainly been a slight volume decline with the pricing, but in line with our expectations, but we want to monitor it. We're also monitoring competitive actions and movements on private label pricing, where we expect private label pricing to follow the tariffs rate because it's a cost-plus business model for our retailers. And so we're monitoring that to see what happens.

We don't feel in a rush to sort of mitigate further the tariffs while we wait for that. We're also working on the mitigation strategies, particularly as it relates to Brazil, which is the outlier in our tariff environment at 50%. And those mitigation activities revolve around taking Brazil production to other countries other than the U.S. it's not as simple as just a switch because you have to get packaging in place, you have to get approvals in place. So we're working to be able to do that over the next few months and certainly complete that if the Brazil tariffs stay in place by the end of next year.

So we want to see how those mitigation efforts go. You said the tariffs is very fluid. It is obviously very fluid. We don't want to take price if we effectively have to give it back. So we're thinking we'll make pricing decisions in Q1 that might take effect Q2 based on our view on where tariffs are and mitigation actions are in Q1. We're reserving the right to take pricing or not take pricing based on what we see in the marketplace and what we think is right for the brand long-term.

Perfect. A quick follow-up or perhaps not, but international, just give us a sense of where we are in the international journey. I suppose you're going to say early, but it's really starting to come through. So how are you thinking about the growth runway in international? And just remind us on your capacity to service that international market given your supply?

Yes. Let's start with the capacity. As we sort of have talked about for like the last 18 months, we started adding capacity because we saw the category accelerating both in the U.S. and in our core markets internationally. And so we've been adding capacity to support growth rates in the mid-teens or a little bit higher, and that is progressing well. It's a lot of work and a big shout out to the team involved. We're adding 1 to 2 or more factories a year. And it's -- there's a lot of hard work going on in that. So we don't see a capacity issue in supporting this over the next few years.

And then as it relates to your international question, we view category development in our core markets internationally, which we would describe as the U.K. and Germany as being underdeveloped versus the U.S. And I would refer you to our investor presentation from June, where we provided an estimate of consumption per population, right, by different countries. So you'll see there that the U.K. is about 1/3 of the U.S. Germany is like 10% of the U.S. So it's pretty early. And obviously, the U.S. is still growing. So we see it as early innings.

And I think big picture, longer-term, the way we think about it in our 5-, 10-, 15-year planning, I suppose I do 10-year planning, Mike does 5-year planning. We want Europe to be as large as the U.S., right? So is it possible that, that could happen? Absolutely. Populations are good, demographics, income levels, health orientation are all good. So we think coconut water is still in early innings in Europe.

Our next question comes from Robert Ottenstein with Evercore ISI.

And congratulations on another terrific quarter. I want to kind of double or triple click down on international, which just seems super exciting. So just to help us get a little bit more granularity on the business. Can you give us a sense based on what you've learned today, how the international market in terms of Europe, is there a significant difference in terms of the consumer occasions and how they look at the category? How would you compare the competitive intensity in Europe versus the U.S., margin profile? And then just in terms of this quarter, was there anything unusual that perhaps flattered the results?

Yes, sure. I'll try and get to all of these. Let's see, international is very exciting. International for us is sort of largely Europe. That's where the strength is. It's led by the U.K., which was launched about 11, 12 years ago, probably a little bit off on that, but effectively 10 years behind the U.S. in its launch trajectory.

In the U.K., there is a healthy category, but our brand has over 80% share of it. It is largely cold in the stores, which is a difference to obviously the U.S. where we're warm shelf. And the competitive players sort of really don't -- aren't that strong because with over 80% share, there's not -- no one really talk about. About 5 years ago, Innocent juice had a coconut water brand that probably had 10%, 15%, 20% share, but that has largely been squeezed down to low single digits. And so we have a very strong position, and we're focused on growing the category and then obviously maintaining our share of the category. As the category growth continues, obviously, retailers get excited and they introduce new brands, et cetera, but it's largely small stuff, and I don't think we see any impact from that. But would I expect the competitive environment to continue to be active? Yes, of course.

The rest of Europe, for the most part, has been small for us up until about 2 years ago. We put a commercial leader into Germany to try and open up the private label business. In a lot of the rest of Europe, private label is actually a very big player in coconut water, whereas in the U.K., it isn't as big a player. And in many of those countries, private label is the largest sort of nonbrand brand, but obviously, it's across multiple retailers, but it's very significant. So we led with developing retail relationships with private label, and that then allowed us as coconut water growth started to take off, we were asked whether we bring the brand in, and we were able to do so.

We're in very early innings in Germany. We have national authorizations. Germany retail is interesting in that national authorization doesn't result in distribution in many of the retailers, you have to then go get a regional approval and then actually go store or store collective to get -- to build that out. So we're in pretty early innings there. And as I look at the next 2 years, the blocking and tackling is actually delivering on the national distribution that we've been awarded by selling it at the regional and the local level. And that's probably a multiyear task.

Interestingly, as we launched Vita Coco into Germany, we saw the category growth accelerate. I think that's partly because there aren't strong brands there that are investing and have good brand recognition. And we've been able to gain a very significant piece of that growth. So we've gone from effectively 0% branded share to a healthy brand share by grabbing that growth. That said, the private label business has also accelerated. So it's been good for the category. And obviously, we try and compete in that.

So we're trying to take some of the learnings from these markets. They're different than each other, right? And they're different both on where the category is and the retail environment and think very carefully about which markets to prioritize next, obviously, with a weight on maybe the larger markets like France and Spain. But we're also testing different routes to market in more fragmented markets like the Benelux, which is currently growing very healthily for us through a partnership with the distributor there. So we have different models that are working. And I think we're happy to be patient, and we're not trying to blast it out and overstretch ourselves. We're trying to build it from the ground up, and we feel pretty good about healthy international trends for the next few years based on that European business.

You asked about margin. We mostly do not use distributors. We do have some reps. There are some distributors for small markets. So there isn't a distribution layer. It's direct to retail. So pricing in the market is lower than in the U.S., pricing to consumer because of that. And margins are good. It benefits from lower ocean freight costs from Asia to Europe mostly. So that can support a lower price structure. But the margins are perhaps maybe on a branded side, a little less than they are in the U.S., but they're still very nice and appealing. And I think I've touched on every one of your questions, but if I miss one, please re-ask.

Yes. Just was there anything in this quarter on the international that flattered results in any way?

Just strong demand.

Yes.

Our next question comes from Christian Junquera with Bank of America.

Just 2 questions. A quick clarification question. Just the tariff impact for 2025, did you guys say $14 million to $16 million? And if so, that implies a blended tariff rate for this year about like 6% to 7%. And then the expectation or what you guys are expecting is it jumps to 23% in 2026. Did we catch that correctly?

The $14 million to $16 million, Christian, is correct. The percentage, the 23% is of the applicable finished goods amount, which we've quantified as approximately 60% of our global cost of goods. So I'm not sure of your -- the math you have on, 6%.

So you have to remember that the tariffs were imposed initially in April, first week of April at a 10% rate. And what hits our P&L is delayed by when those tariffs flow through our inventory. So as an example, a 10% tariff applied on April 7 to a container leaving Asia wouldn't arrive in the U.S. until maybe early June and then wouldn't get sold out of our inventory probably until July. So our tariff impact in Q2 didn't really MERIT talking about. So we didn't talk about it in Q2 as a dollar amount. We talked about $6 million impact in Q3, which would largely reflect the 10% baseline tariff imposed in April because that would be the inventory flowing through our P&L in Q3. And as Corey indicated, the blended tariff rate based on our current sourcing at the end of the quarter is 23% of containers shipping at the end of the quarter from source. That rate will which is the rate that effectively was put in place in early August, flows into our P&L in mid-late Q4, but is the rate that is applicable for next year. So that's the reason that the $14 million, $16 million looks small to you because effectively, it's on half year and effectively, at least half of that year is only at 10% -- sorry, half of that 6 months is only at 10%. Does that make sense?

Yes. Yes. That's very, very helpful. Thank you for the clarification. And then if we just can go into -- and you've talked about it, but just the levers to offset the higher tariff rate for next year, right? You guys have the higher pricing that you took this year that's going to carry over. And I mean, potentially lower ocean freight. I mean looking at the chart, it looks like rates keep going down. Do you have any expectations for ocean freight next year? And I don't know if I'm missing anything else, any other levers at your disposal.

I mean that's the biggest benefit. That is the biggest benefit for the offset ocean freight...

We're talking to suppliers and trying to work out things that we can do, but this isn't a particularly large margin business for them. Obviously, we're asking whether their governments can help as well, right? We're trying to optimize our sourcing to take advantage of the different tariff rates. But really, that means trying to avoid Brazil, if we can, right? And the base pricing we took in July that was, again, incremental to our May pricing was designed to cover the dollar impact of the 10% baseline. Obviously, we're evaluating the impact of that. And if we think we have to take more pricing and it's prudent given the competitive environment and our brand trends and everything else and all our mitigation efforts, then we will consider it. But we're a little reluctant to rush into pricing if indeed some of these tariffs may be waived under the trade agreements that Mike was talking about. We obviously have the Supreme Court case coming up next week, which may or may not also declare that the tariffs don't apply. So we're a little reluctant to rush into pricing until we get a better feel for all these impacts.

Our next question comes from Jon Andersen with William Blair.

A couple of questions. We talked a lot on the call about headwinds from ocean freight -- ocean freight tariffs, I'm sorry. But I did want to ask a little bit more about ocean freight because the rates look like they've been cut in half year-over-year, and that started happening earlier this year, the decline year-over-year and down 50% starting in the midyear. And I think you're operating of, as you pointed out, a lot of spot situations right now. And again, I don't know the exact kind of composition of your cost of goods, but the freight piece seems like a big piece of the cost of goods. And if that's come down to that degree, it seems like that would be much more impactful than the tariff piece here. So we'd be looking at a pretty good margin outlook -- gross margin outlook for '26. How do you kind of think about that?

So one way to think about that is we've indicated that the tariffs applied to 60% of our global cost structure. If you apply 23% to that, you get -- come out at like 13% of our revenue is tariffs. That's a huge number, right? And the last time ocean freight spiked, which was '22, really spiked. We talked about a total transportation impact of $65 million, which included domestic transportation, and we said 2/3 of it was ocean. So the ocean freight, you can extrapolate an ocean freight number from that $65 million, and you can get back into -- that was when rates were $10,000, $12,000, $14,000, right? So ocean freight is an important part of our cost structure, but I would caution you not to overestimate it and to use those data points that we've provided. And I'm going to say, Corey, did we provide a percentage of transportation costs in one of our investor presentations.

A few times in the years, we have in the range of 1/3, but it varies up and down and...

Up and down based on ocean freight...

Yes. We haven't quantified the tariffs, obviously change that equation.

Yes. So I think, Mike, said earlier that ocean freight is an important opportunity for mitigation. And obviously, we're not actually doing anything. We're benefiting from market changes. So it's a benefit from market change that can be an offset. But the tariff impact, if it were to stay, is pretty significant. You mentioned what's going on with ocean freight. If you look back a year on the indexes, the indexes were in the low 3,000s, and they're currently sort of -- I'm looking at the global index, it's currently in the low 2,000s. So it's down 33%, but it went up last year and had a couple of peaks that cost us, right? So yes, current ocean rates are lower than they've been for at least a year, but the change is perhaps not as big as the 50% as you were talking about, like it's not down 50% versus a year ago.

And what -- I think I have in my notes that ocean -- well, freight in aggregate in COGS is 30%, 35%. Is that -- with the balance being finished goods? Is that a reasonable way to think about it?

I believe that number is transportation and logistics. So it's warehousing, drayage, ocean freight, internal transportation, distribution, et cetera., ocean freight is a subset of that number.

A component of that 1/3 of COGS or so. Okay. The other question I had was just on the guidance. I haven't -- I guess the guidance implies 4Q sales of around $105 million, which looking at what you did in Q3, $182 million, it's like a 42%, 43% sequential decline in sales from Q3 to Q4. We haven't seen anywhere near that kind of a seasonality or change in the past. I know there's a little bit of seasonality, but again, a 45% decline is big. Any -- I just want to make sure I understand what's causing that.

Jon, I don't see those levels of declines year-on-year, but maybe we're...

No, sequentially, sequentially.

So Q3 was very big. We benefited from the major promotion that we skipped last year, right?

And it erodes from the out of stock.

So I would just -- obviously, there's lots of moving pieces here. But on branded, maybe you look at the decline in '23, which would have been a comparable year on a promotional side. And then obviously, we have the private label decline that we prefer you to look at in Q2 rather than the Q3 number. So it's tough modelling Q4 for us and we're providing the best view that we can. And again, we have some uncertainty on exactly how the private label falls through the end of the year and into next year. So it's just -- that's one of the reasons for me taking the ranges.

That feels like maybe the bottom or below the guidance range. Is that -- so we can follow up.

Yes.

Our next question comes from Michael Lavery with Piper Sandler.

Just wanted to touch on capital allocation. You mentioned now your cash balance over $200 million. I know in almost the same breath, you point out the share buyback authorization, though it's a small piece of that even if, of course, you always reauthorize more. But what's the expectations for use of cash? I know you've always had M&A on your kind of to-do list, but it hasn't been a big factor ostensibly because there hasn't been something interesting or at the right price. But how do we think about what the cash is meant to go for?

So I think our priorities haven't really changed. And the first one is growth of the core business. I would say that with the growth we're seeing and our planning for next year, we'll probably be building inventory as we finish this year into next year. And obviously, we're a pretty inventory-intensive business given so much of it sits on the water. And so I would just draw your attention to that, while also recognizing that $200 million is a very healthy cash balance for a company of our size. So our next sort of priority is innovation and supporting our innovation efforts. Third priority is M&A for something that will deliver value to our shareholders. And I think we've talked about M&A a lot in the 3, 4 years we've been public and obviously haven't done anything. So we're prudent, and we're not looking to do M&A for M&A's sake. That's certainly not part of our mission statement.

And then as we look at what's going on in all those 3 areas; growth, innovation and M&A, if we believe we have excess cash, then our intentions would be to apply it to share buyback at stock prices that we think are fair for our long-term shareholders. So that's how we think about it. And I don't think anything has really changed. And certainly, as the cash builds, it becomes more of a conversation, but I don't expect us to change our approach to it.

Okay. And just on Treats, a follow-up there. It seems like it would be a pretty nicely incremental part of the portfolio. Is that a fair characterization? And even if so, do you find it can be sort of a gateway to the coconut water part of the portfolio, too? Or are you seeing any interplay there that it might be attracting new users who then also switch to the coconut water side of the business?

Yes. I mean we're seeing a lot of consumers coming into the brand through Treats, which is really nice to see. So exactly what you mentioned, they're coming into the family. And then kind of like what we've seen over the years with our pineapple flavor and our extra coconut flavor, those are kind of the entries for the category and then the hope is that they stay within the brand. And you see a lot of people then move to the original pure coconut water, the blue one. So Treats, it's early, but we aren't seeing cannibalization. We are seeing a lot of new consumers coming into the brand through Treats. So that is the idea. Hopefully, they stay with coconut water and drink it for different occasions in different flavors and formats.

And just a couple of comments on how Treats gets reported. On a shipment basis, it's reported in other -- so the coconut water reporting on a shipment basis does not include treats, right, and it's indicative again of the health of the category. On a Nielsen, Circana basis, Treats gets reported sort of not necessarily in coconut water, but it might get reported in sort of milk-based products because it's a coconut milk-based products. And so I would just caution you to work out if it is being reported or not in our Circana data, it's not in the coconut water definition that we buy. And it was order of magnitude, I'm looking, Corey, would have added an incremental 4 percentage points to our Circana growth rate. But indeed, we reported in our investor deck because our investor deck reports coconut water growth rates that don't include Treats.

Our next question comes from Eric Serotta with Morgan Stanley.

Great. First question would be in terms of pricing. I know you said that you're waiting on further pricing to see what the competitive environment looks like. What are you seeing in terms of -- have competitors moved on pricing in as we sit here today at the end of October, you guys moved early August. I know that some competitors were on a different kind of pricing cadence over the past few years. So what are you seeing in terms of pricing from your competitors today? I know you can't speculate about the future there.

And then just to follow up briefly on Treats. What does the repeat purchase look like on that? And was -- it looks like it was nicely incremental to this year. Do you see it building next year? Or is that, in some ways, going to be a tougher comparison with the launch this year?

Let me take the pricing, Eric, and then Martin can talk to the Treats performance. I'd say on pricing, and we tend to use Circana as a measure of what we're seeing in the market. We're seeing a few different things. Some competitors took pricing early and quite a bit and have maintained at that level and not moved incrementally in response to tariffs. Others have moved 1 or 2 times, and we're seeing some moves in some private label more recently up on a second tariff move. And then others have not moved at all. So there seems to be a differing strategies across the market. Obviously, we lead the market by a wide margin, and we've moved. So we'll see -- continue to monitor closely on additional moves.

Yes. I think we're also monitoring the tariff -- what tariffs actually could end up being. I think there's still so many moving parts between Brazil and trade deals getting done. I think there's a lot of questions to be answered.

That's quite hard.

Yes. And because of the timing of the August tariffs, I'm not sure we've seen anyone moving relative to that. But obviously, we would expect people to have to move particularly on the private label side. So that's a good reason to sort of wait. With regards to Treats, I think as Mike said, it's providing a different gateway for consumers to come into the brand. That's good. I would say we're seeing acceptable repeat rates, if not positive repeat rates and our challenge is to drive more trial, so more visibility of the brand. And so that probably requires a little bit more investment, et cetera. And so that's what we're planning for next year.

I think you asked about next year. Obviously, it's very difficult to sort of project next year, we do think that we will get some Treats distribution gains. While we did very well on Treats this year. We didn't, for instance, get it into Walmart. And I think our expectation is that we would get it into Walmart in the resets and some other places as well on sets next year. So I think we still have another year of growth for Treats just based on the launch before distribution growth before sort of -- and then obviously, we are trying to drive adoption on top of that, but it certainly should be a positive next year.

Our next question comes from Jim Salera with Stephens.

I first wanted to ask on just the kind of composition of the growth this year. If I look at the slide deck, it looks like multipacks have been kind of the biggest incremental driver, which I would kind of read as a proxy for increased purchase with existing households. Please correct me if you think that that's a wrong read there. But with the inclusion in modern hydration upcoming, do you view that as an opportunity to really introduce the brand to new households if it's more visible on shelf? Or is that a way to maybe pick up some lapse opportunity with people that were buying it, but then it gets shuffled around in the store and they kind of lose track of it and don't follow up with.

So we view the multipack strategy as a way of increasing value to our customer while also increasing velocity and potentially putting more product in their pantries, right, which potentially increases their own consumption. And I think that's what we're seeing. Some of the multipack strength is also a little bit driven by multipacks are much more predominant in club type environments. And so if club is strong as a channel, which it obviously is in the current economic environment, you are seeing some growth from multipacks from that point side.

As it relates to how is that all filling into total growth, we still see our growth as a nice balance of new households and increasing velocity per household. Our rough approximation is half of the growth is coming from new households, and half is coming from increased consumption per household. And so that's what we think is currently going on. Obviously, numbers in this area are available, but messy.

Great. And then I appreciate all the color around COGS and kind of the moving pieces next year, and you guys still have some stuff you want to look at before you give '26 guidance. But if I just take the 4Q exit rate on tariffs, coupled with kind of running forward the ocean freight rate through into '26 and blend that together, it would imply FY '26 gross margins are kind of flat to down modestly. Is that a fair way to characterize it just as we're thinking about -- and I appreciate, obviously, there's plenty of moving pieces on tariffs. But assuming no changes there, the gross margin would be kind of down modestly next year?

That sounds like '26 guidance, Jim.

It was a good try.

It was good try.

Jim, I wish the same I think we're covered by very smart analysts with very smart support team.

[Operator Instructions] Our next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

And congrats on a really impressive quarter. My question is on tariffs. So you've outlined several levers you can pull to offset the impact of tariffs. But I'm wondering sort of what levers you have to pull or what's in your power to do in terms of lobbying for coconut water to be excluded from tariffs like other coconut products are. Do you have any levers to pull here? Is there anything from a lobbying or even import classification perspective that you're able to do?

Yes, it's what we're working on. I've been spending time in D.C. and doing exactly that and working from both the angle of the producing countries in their negotiations and discussions and also on the U.S. administration side. So we're doing -- we're making every effort that we can.

That's great. And then just a question on the marketing spend outlook. Just overall, should we expect a general increase in marketing spend as a percentage of sales going forward given balance sheet strength, investments in Treats, consumer education efforts. Should we expect a general increase as a percentage of sales? Or do we have enough kind of robust top-line growth that sort of this current level of marketing spend as a percentage of sales is a good guide going forward?

Yes. As we think about the long-term, and there's variability year-to-year, but broadly, we would expect sales and marketing expenses to track net sales or branded net sales over the long-term.

Our next question comes from Gerald Pascarelli with Needham & Company.

I just had going back to tariffs. If they remain in place as is, can you just speak about how long the process is should you choose to reroute shipments from Brazil to international markets? And then I guess, based on your current sourcing, is it possible to reroute all shipments from Brazil to international markets? Or is that just not practical based on your supply chain? I guess any color there would be helpful.

Yes. So to reroute, we need to develop packaging that the factory and the new market it's going to be servicing. And we also need to get any validations for that factory in that country or with that retailer that are required. So those processes might take 3 months, could take 9. So it's a moving target. We've started working on those things back in August, September. But equally, the urgency on working on them, while it's urgent, we're also sensitive that once we start buying that materials, if Brazil tariffs go away, then we've got this packaging in the wrong location for a non-optimized supply chain because Brazil is optimized to supply to the U.S.

So answer to your question is we're working on it. We're pulling triggers that we think are appropriate given the uncertainty around the 50% tariffs from Brazil. And if the 50% were to stay in place, our hope would be to have our weighted average tariff rate down from 23% to closer to 20% by the end of the year. We may still choose to source some items from Brazil for certain markets and/or customers and/or for strategic reasons because it's got a much shorter lead time in servicing the East Coast of the U.S. So we may not fully exit Brazil as it relates to U.S. demand, but that's where we would think we could get to by the end of the year -- end of next year.

That's very helpful. And then I guess just going back to the prior question, in your trade discussions, are you hearing anything that maybe makes you more optimistic on the potential for a lower negotiated rate from the 50%, specifically based on the significant inflation that the U.S. is seeing from Brazil coffee. Is that playing a factor? Do you think that will play a factor as we look out over the near term here?

Yes. I think it's also -- it's things that we're hearing in meetings, but we're also hearing publicly discussed from both sides. And they're looking to make progress in the very near term. So we're hopeful that something happens in the near-term, specifically as it relates -- most specifically as it relates to this 40% reciprocal tariff hopefully being relieved, but we will see how that plays out.

This concludes the question-and-answer session. I would now like to turn it back to Martin Roper for closing remarks.

Thank you, everyone, for joining the call today, and we very much appreciate your interest in The Vita Coco Company, and we look forward to talking to you again in 2026. Cheers.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.