Q3 2023 The Vita Coco Co Inc Earnings Call

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Okay.

Hello, and welcome to the Vita Coco Company's third quarter 2023 earnings Conference call. My name is J D 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 clay Crum Blessed with ICR.

Yeah.

Thank you and welcome to the Vita Coco Company third quarter 2023 earnings results Conference call today's call is being recorded.

With us are Mr. Mike carbon 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.

Information is available on the Investor Relations section of the Vita Coco companies' website at investors <unk> Vita Coco company Dot 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.

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 the 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 business performance.

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 all available on our website as well.

And with that it's my pleasure to turn the call over to Mike carbon our co founder and executive Chairman Mike.

Thanks, Clay and good morning, everyone. Thank you for joining us today to discuss our third quarter 2023 financial results and our current expectations for full year 2023 performance I want to start by thanking all of our colleagues across the globe for their continued commitment to the vertical company. We recently received recognition as one of SaaS companies.

Brands that matter for 2023. This is a testament to the incredible work by the entire team and their dedication to our mission of creating ethical sustainable better for you beverages that uplift our communities and do right by our planet.

Before addressing our performance and expectations I want to reiterate that we believe we have a strong strategic position enabled by our category leadership in coconut water within the better for you functional beverage category, which in Americas tracked channels is in excess of $30 billion. According to sarcoma.

We continue to be very happy with our performance in 2023.

We believe that our strategy of delivering coconut water growth through increased usage occasions is working and I'm excited about the progress, we're making with both our commercial initiatives and our marketing efforts.

In the third quarter, we saw consolidated 11% net sales growth against prior year, bringing our year to date net sales growth to 15%.

We remain very bullish on the coconut water category in the United States, where according to Circon as a category is posting one of the healthiest growth trends in beverages outperforming major categories like energy CSD sports drinks and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price.

For the quarter, our Vita Coco coconut water brand is leading the coconut water category growth with U S. Retail dollar sales up 23% with our market share improving to 51% versus the same period last year, while the category is growing 19%.

We believe we're benefiting from the success of our multi pack focus and our marketing initiatives that are supporting coconut water growth.

Our brand has never been stronger and our focus on consumer expansion via occasion based initiatives has continued throughout the summer.

In the quarter, we built on our extremely successful roadblocks activation, the coconut Grove and immersive experience on roadblocks, where consumers can farm and harvest virtual coconuts over 26 million people visit us in the meta versus driving over 94 million impressions to date and introducing a new generation of consumers to our brand.

We also targeted the core hydration occasion this quarter at the US open partnering with American tenor superstar, Chris Eubanks and other players generating over $2 5 million targeted impressions at this prestigious event.

Our summer cocktail initiative was very successful in continuing to cement <unk> role as a mixer, we saw over 300 million impressions through through PR and social as a result of our outstanding execution with several high profile Hamptons locations.

BD: Hello, and welcome to the Vita Coco company's third quarter 2023 earnings conference call. My name is BD. I'll be coordinating your call today.

To capture those that may be enjoyed too many cocktail, we amplified our hangover occasion over labor day with a broad influencer activation delivering over $14 6 million impressions authentic content.

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

Clay Crumbliss: I'll now hand the call over to Clay Crumbliss with ICR. Thank you. And welcome to the Vita Coco company, third quarter.

Finally, we announced our partnership with Mexican American Award, winning singer songwriter actress and activist Becky G that give community first approach aligns perfectly with our brand values shares.

Clay Crumbliss: Thank you for a 2023 earnings results conference call. Today's call is being recorded with us and Mr. Mike Kerbin, 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. The Vita Coco company dot com. Also on the website, there is an accompanying presentation of our commercial and financial performance results.

116 million combined followers on social channels, and Spotify and recently came off her first national Mikasa to concert tour, we cannot be more excited to partner with this incredible artist to grow our brand.

Before handing the call to Martin I would like to provide an update on our private label business.

As we indicated during our second quarter earnings call, we had expected to cease to supply a major customer on private label coconut water and private label coconut oil with the transition potentially happening as early as the fourth quarter of 2023.

Clay Crumbliss: Certainly 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 the 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.

We also indicated that this customer is important for our branded products and we expressed our commitment to support the smooth transition.

Since our last update this customer has requested that we continue our partnership and we now expect to continue supplying a significant portion of their private label coconut water needs. A decision that we believe is reflective of their valuing our supply chain for its outstanding reliability and quality.

This is a significant change to our prior expectations for the private label business with this key customer and we're excited to continue this partnership and explore ways to further expand it over time.

Clay Crumbliss: Also during the call, we will use some non-gap financial measures as we describe business performance. The SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliation with the non-gap financial measures to the most directly comparable gap measures and are all available on our website as well.

As further evidence that our private label supply chain is one of the best in the World All of our private label revenue growth in the third quarter versus the same period last year came from accounts outside of this major customer, including the benefits of new retailer relationships around the globe.

Mike Kerbin: And with that, it's my pleasure to turn the call over to Mike Kerbin, our co-founder and executive chairman, Mike. Thanks, Clay, and good morning, everyone. Thank you for joining us today to discuss our third quarter, 2023 financial results and our current expectations for full year 2023 performance.

Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024, we're stepping up investments in our brands and in the long term health of the business.

Mike Kerbin: I want to start by taking all of our colleagues across the globe for their continued commitment to the viticoca company. We recently received recognition as one of fast companies brands that matter for 2023. This is a testament to the incredible work by the entire team and their dedication to our mission of creating ethical, sustainable, better for you beverages that uplift our communities and do right by our planet. Before addressing our performance and expectations, I want to reiterate that we believe we have a strong strategic position enabled by our category and leadership in coconut water within the better for you functional beverage category, which in America's track channels in excess of $30 billion according to Serkana.

We believe that we are uniquely positioned as one of the few fast growing profitable beverage companies of our size with the talent and commercial capabilities to maintain growth to execute on new opportunities and to act as an acquirer of complimentary beverage brands that could benefit significantly from our relationships capabilities and financial resources.

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

Thanks, Mike and good morning, everyone.

For the third quarter of 2023, we achieved net sales growth of 11% driven by strong quite a cocoa coconut water growth of 8%.

Mike Kerbin: We continue to be very happy with our performance in 2023. We believe that our strategy of delivering coconut water growth through increased use of locations is working and I'm excited about the progress we're making with both our commercial initiatives and our marketing efforts. In the third quarter, we saw consolidated 11% net sales growth against prior year, bringing our year to date net sales growth to 15%. We remain very bullish on the coconut water category in the United States, where according to Serotta, the category is posting one of the healthiest growth trends and beverages, outperforming major categories like energy, CSEs, sports drinks, and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price.

This performance was achieved against a very strong third quarter last year.

By the Coco coconut water net sales grew 14%.

Our strong execution in our consumer engagement efforts continue to produce strong results at retail with a 23% dollar growth rate took quite a cocoa coconut water is third quarter 2023 in the U S to kind of scan data at.

17% volume growth rate.

The strong performance across all track channels as shown in our investor deck.

Frank underdeveloped regions that we believe is indicative of future growth potential.

As shown in our investor deck. The growth is built on a healthy balance of velocity growth pricing and distribution gains.

Internationally, we are seeing strong growth in private label net revenue and continued quite a cocoa net revenue growth, resulting in 14% international net sales growth for the quarter.

Mike Kerbin: For the quarter, our Vita Coco coconut water brand is leading the coconut water category growth with US retail dollar sales, up 23 percent, with our market share improving to 51 percent versus the same period last year, while the category is growing 19 percent. We believe we're benefiting from the success of our multi pack focus and our marketing initiatives that are supporting coconut water growth. Our brand has never been stronger, and our focus on consumer expansion via occasion based initiatives has continued throughout the summer.

We continue to see strong refinery coker Coca order growth at retail and according to <unk> UK are retail dollar share of the total coconut water category has risen to over 81% in the most recent four week period.

Turning to margins as the third quarter of 2023 gross margin was 41%, which represents a significant improvement over the 26% reported in third quarter last year and an improvement over the 37% in the second quarter of 2023.

Mike Kerbin: In the quarter, we built on our extremely successful roadblocks activation, the coconut growth, an immersive experience on roadblocks, where consumers can farm and harvest virtual coconuts. Over 26 million people visit us in the metaverse, driving over 94 million impressions to date, and introducing a new generation of consumers to our brand. We also targeted the core hydration occasion this quarter at the US Open, partnering with American tennis superstar Chris U-Banks and other players generating over two and a half million targeted impressions at this prestigious event.

This increase over last year was driven primarily by reduced transportation cost and improved by the cocoa branded pricing offset slightly by private label mix and pricing.

The increase over the second quarter was due to lower cost of goods with current more normal transportation costs that started earlier. This year now fully reflected in this quarter's reported cost of goods, along with seasonally higher cocoa coconut water pricing.

After the significant decrease in spot Ocean freight rates in the second half of last year and in the first quarter of this year, we have seen a more stable environment for the last six months at the end of the third quarter spot rates for most lines were close to historic pre COVID-19 levels.

Mike Kerbin: Our summer cocktail initiative was very successful and continuing to cement Vita Coco's role as a mixer. We saw over 300 million impressions through PR and social as a result of our outstanding execution with several high profile hand invocations. To capture those that may be enjoyed too many cocktails, we amplified our hangover occasion over Labor Day with a broad influence activation delivering over 14.6 million impressions of authentic content. Finally, we announced our partnership with Mexican American award winning singer, songwriter, actress and activist Becky G. Becky's community first approach aligns perfectly with our brand values. She has 116 million combined followers on social channels and Spotify and recently came off her first national Mekasa 2 Casa tour. We cannot be more excited to partner with this incredible artist to grow our brand.

Turning to our outlook building on the very strong year to date results, we are raising our 2023% full year guidance for the third time this year.

Based on our expectations for the fourth quarter, which includes the retention of the private label coconut water business that Mike mentioned.

The retail scans.

We're being very healthy.

Your own private label trends, we are raising our full year revenue guidance to growth of 13% to 50% over prior year and adjusted EBITDA.

<unk> $64 million to $67 million.

Cory will provide more details on our outlook.

We're really happy with our performance and excited for our long term future.

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

Mike Kerbin: Before handing the call to Martin, I'd like to provide an update on our private label business. As we indicated during our second quarter earnings call, we had expected to cease to supply a major customer on private label coconut water and private label coconut oil with the transition potentially happening as early as the fourth quarter of 2023. We also indicated that this customer is important for our branded products and we expressed our commitment to support smooth transition.

Thanks, Martin and good morning, everyone I will now provide some additional details on the third quarter financial results and the drivers of our improved outlook for the 2023 full year.

Starting with revenue we continue to see strong performance in the third quarter with net sales.

$138 million.

Representing an increase of $14 million or 11% year over year.

This was driven by Vita Coco coconut water growth of 8% and private label growth of 18%.

Mike Kerbin: Since our last update, this customer has requested that we continue our partnership and we now expect to continue supplying a significant portion of their private label coconut water needs. A decision that we believe is reflective of their valuing our supply chain for its outstanding reliability and quality.

Within the Americas segment Vita Coco coconut water strong retail performance resulted in $90 million of net sales an increase of $7 million over the prior year period, while private label increased 3 million to $28 million.

Mike Kerbin: This is a significant change to our prior expectations for the private label business with this key customer and we are excited to continue this partnership and explore ways to further expand it over time. As further evidence that our private label supply chain is one of the best in the world, all of our private label revenue growth in the third quarter versus the same period last year came from accounts outside of this major customer, including the benefits of new retail relationships around the globe.

The growth of Vita Coco coconut water on the quarter continued to be volume led with 7% volume growth and 2% price mix benefit.

I know Coco coconut water benefited from strong consumer demand, which is reflected in the 23% retail dollar growth for the quarter.

Private label experienced a strong quarter driving 14% net sales growth on volume growth of 36%.

Private label benefited from a combination of new strategic customer wins expanded distribution and velocity gains in existing stores with approximately 80% of the volume gorilla.

Mike Kerbin: Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024. We're stepping up investments in our brands. And in a long term health of the business, we believe that we are uniquely positioned as one of the few fast growing profitable beverage companies of our size with the talent and commercial capabilities to maintain growth to execute on new opportunities and to act as an acquirer of complimentary beverage brands that could benefit significantly from our relationships capabilities and financial resources.

100% of the revenue growth in private label occurring outside our largest U S customer.

Where the strength of our supply chain and quality of our product and service is over the last two years generated new customer wins and expanded distribution opportunities, which are now visible in our reported shipments.

We saw underlying private label requirements at retail that reflected strong consumer demand for the category and normal elasticity of retail price reductions year on year for private label.

Martin Roper: And now I'll turn the call over to our chief executive officer, Martin Roper. Thanks Mike and good morning everyone. For the third quarter of 2023 we achieved net sales growth of 11% driven by strong by the coconut water growth of 8%. This performance was achieved against a very strong third quarter last year, where by the coconut coconut water net sales grew 14%. Our strongly execution and our consumer engagement engagement efforts continued to produce strong results retail with a 23% dollar growth rate of by the coconut water in third quarter 2023 in the US, the kind of scan data and a 17% volume growth rate.

Do you believe that America's net sales performance in the quarter was negatively impacted by timing of customer orders and shifts in inventory levels at our distributors.

We believe that year to date performance remains a better proxy of our underlying consumer trends for both our branded and private label businesses year to date net sales of our branded portfolio has grown 16%.

Private label growth of 13%.

Our international segment continued to perform very well reported net sales were up 14% growth was led by private label up 42% with growth led by new distribution with strategic retailers in Western Europe.

Martin Roper: The strong performance is across all track channels as shown in our invested deck, the strength and underdeveloped regions that we believe is indicative of future growth potential. As shown in our invested deck, the growth is built on a healthy balance of velocity growth pricing and distribution gains. Internationally, we are seeing strong growth in private label net revenue and continued fighter coconut revenue growth resulting in 14% international net sales growth for the quarter.

I had a cocoa coconut water also had a strong quarter growing net sales, 7% led by strength in the U K, whereas Martin mentioned, we continue to gain share in retail.

For the third quarter consolidated gross profit was $56 million up $24 million versus the prior year quarter and gross margin was 41% up from 26% in prior year as our pricing remains strong and our global supply chain continued to operate at a high level of efficiency.

Martin Roper: We continue to see strong by the coconut coconut water growth retail and according to Scott UK, our retail dollar share of the total coconut water category has risen to over 81% in the most recent four week period. Turning to margins in the third quarter of 2023, our gross margin was 41%, which represent significant improvement over the 26% reported in third quarter last year. And an improvement over the 37% in the second quarter of 2023.

And benefit from transportation cost improvements relative to the unusual spike over the last two years.

Moving on to operating expenses third quarter, 2023, SG&A costs increased by $9 million over the prior year to $33 million, which reflects investments in marketing and increased people cost as.

As previously indicated our full year plan includes an expected increase in marketing and sales execution investments as we invest versus to lower spending in 2022, when we have our margin pressures.

Martin Roper: This increase over last year was driven primarily by reduced transportation costs and improved fighter cocoa branded pricing offset slightly by private label mix and pricing. The increase over the second quarter was due to lower cost of goods with current more normal transportation costs that started earlier this year, now fully reflected in this quarter's reported cost of goods along with seasonally higher fighter coconut water pricing. After the significant decrease in spot ocean freight rates in the second half of last year, and in the first quarter of this year, we have seen a more stable environment for the last six months.

In the third quarter, we have begun to see an acceleration of expenses as our initiatives planned in the market with year to date SG&A spending.

Now slightly ahead of revenue we are very pleased with the consumer response to our investments, which we plan to continue through the balance of the year.

We expect to see a continued elevated rate of spending relative to our growth in net sales in Q4, as we complete our planned marketing and an organizational investments.

Martin Roper: At the end of the third quarter spot rates for most lanes were close to historic pre-covid levels. Turning to our outlook, building on the very strongly as deck results, we are raising our 2023 four year guidance for the third time this year, this year. Based on our expectations for the fourth quarter, which includes the retention of the private label coconut water business that might mention, the retail scams from side of coca being very healthy and strong private label trends. We are raising our four year revenue guidance to growth of 13 to 15% for prior year and adjusted even to 64 to 67 million dollars.

Net income attributable to shareholders for the third quarter of 2023 was $15 million 26 per diluted share compared to $7 million or <unk> 13 per diluted share for the prior year period.

Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously.

Partially offset by increased SG&A cost and a net $5 million unrealized loss related to derivative instruments.

And an increase in tax of $2 million, reflecting an ETR of 29% on the quarter.

Martin Roper: Cari will provide more details on our outlook. We're really happy with our current performance and excited for our long term future.

non-GAAP adjusted EBITDA in Q3, 2023 was $27 million up from $12 million in Q3 2022.

Corey Baker: 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 some additional details on the third quarter financial results and the drivers of our improved outlook to the 2023 full year. Starting with revenue, we continue to see strong performance in the third quarter with net sales of 138 million dollars, representing an increase of 14 million dollars or 11% year over year.

The $15 million increase was primarily due to a year over year reduction in the cost of goods per case equivalent and increased volume growth and pricing, partially offset by increased SG&A spending.

Turning to our balance sheet and cash flow as of September 32023, our strong operating performance year to date has led to an improvement in cash flow.

<unk> and total cash on hand up $95 million compared to $20 million on hand as of December 31, 2022.

Corey Baker: This was driven by Vita Coco coconut water growth of 8% and private label growth of 18%. Within the America segment, Vita Coco coconut water strong retail performance resulted in 90 million dollars of net sales, an increase of $7 million over the prior year period, while private label increased $3 million to $28 million. The growth of Vita Coco coconut water on the quarter continued to be volume land with 7% volume growth and 2% net price mixed benefit.

The increase in net cash was driven by net income and reductions in inventory.

Working capital year to date in total has provided $19 million of cash as inventory decreases of $34 million and accounts payable increases of $18 million.

Offset by a $37 million increase in accounts receivable due to timing of customer payments and the normal seasonality of our business.

The inventory decrease was the result of sales volume growth coupled with the normalization of the global supply chain, allowing us to more efficiently manage our days on hand, and reduce overall inventory.

Corey Baker: Vita Coco coconut water benefited from strong consumer demand, which is reflected in the 23% retail dollar growth for the quarter. Private label experiences strong quarter driving 14% net sales growth on volume growth 36%. Private label benefited from a combination of new strategic customer wins, expanded distribution and philosophy gains and existing stores with approximately 80% of the volume growth and 100% of the revenue growth in private label are occurring outside our largest US customer.

Our inventory ended Q3 at the low end of our targeted range, we expect inventory days on hand to increase by the end of the year.

Looking now to the balance of 2023, despite more difficult multiyear comps, we remain confident in our business, which is allowing us to raise our full year net sales guidance to growth of plus 13 to plus 15% based on our expectation of continued strong consumer demand for our branded business, leading to full year mid teen brand and grow.

Corey Baker: Where the strength of our supply chain and quality of our product and service has over the last two years generated new customer wins and expanded distribution opportunities which are now visible in our reported shipments. We saw underlying private label performance and retail that reflected strong consumer demand for the category and normal elasticity of retail price reductions year on year for private label. We believe that America's net sales performance on the quarter was negatively impacted by timing of customer orders and shifts in inventory levels out of our distributors.

And the current expectation of our private label business, which as we have said is benefiting from new relationships and the change in plans for the transition that we disclosed last quarter.

Our gross margin guidance for the full year remains unchanged at 35% to 37%.

Retention of the private label relationship and its mix impact on our business is expected to reduce Q4 margins sequentially from the Q3 peak.

Corey Baker: We believe that year-to-date performance remains a better proxy of our underlying consumer trends for both our branded and private label businesses. Year-to-date net sales of our branded portfolio has grown 16% for its private label growth of 13%. Our international segment continued to perform very well reported net sales were up 40% growth was led by private label up 42% with growth led by new distribution with strategic retailers in Western Europe. We also added a strong quarter growing net sales 7% that by strength in the UK, whereas Martin mentioned we continue to gain share and reach, for the third quarter consolidated gross profit with $56 million up $24 million versus the prior year quarter and gross margin was 41% up from 26% in prior year as our pricing remains strong and our global supply chain continued to operate at a high level of efficiency and benefit from transportation cost improvements relative to the unusual spike of the last two years.

Our revised non-GAAP, adjusted EBITDA guidance of $64 million to $67 million. This.

Next continued prudent investment in SG&A, leading to full year adjusted EBITDA growth above our net sales growth.

As we look forward to 2024, we remain confident in the strength of our business and remain excited by our business momentum and the growth prospects for our brands.

While still very early in our 2020 for planning with lots of moving pieces, we want to update the estimated negative net revenue impact on the private label transition that we talked about last quarter and our.

Our preliminary modeling we now believe that 2024 net revenue should grow low single digit percentages with gross margin percent is expected to be approximately flat versus full year 2023.

Which collectively should produce mid teens growth of adjusted EBITDA over our current 2023 guidance.

As we have done in the past we will provide our first full year 2024 guidance. When we report our full year 2023 numbers.

Corey Baker: Moving on to operating expenses, third quarter, 2023 SGNA cost increased by $9 million over the prior year to $33 million which reflects investments in marketing and increased people cost as previously indicated our full year plan includes an expected increase in marketing and sales execution investments as we invest versus the lower spending in 2022 when we were margin pressured. In the third quarter, we have begun to see an acceleration of expenses as our initials land in the market with the year-to-date SGNA spending.

Finally, as noted in our earnings release.

On October 32023, the company's board of directors approved a share repurchase program authorizing the company to repurchase up to $40 million of the company's common stock.

The authorization gives us increased flexibility to strategically deploy capital on behalf of our shareholders.

I will now turn it over 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 bite of cocoa company, our ability to build a better beverage platform and the strength of our buy to cocoa brand.

Corey Baker: Now slightly ahead of revenue, we are very pleased with the consumer response to our investments which we plan to continue through the balance of year we expect to see a continued elevated rate of spending relative to our growth and net sales in Q4 as we complete our planned marketing and an organizational investments. Net income attributable to shareholders for the third quarter of 2023 was $15 million or 26 cents per diluted share compared to $7 million or 13 cents per diluted share for the prior year period.

Thank you for joining us today and thank you for your interest in the Vita Coco company.

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

Thank you management will now take questions from research analysts, we ask that you. Please limit yourself to one question and one follow up.

If you have additional questions. Please reenter the queue and we will take the most time allows.

To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Corey Baker: Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously, partially offset by increased SGNA cost and a net $5 million unrealized loss related to derivative instruments. In an increase in tax of $2 million, reflecting an ETR of 20.9% on the quarter. Non-depth adjusted EBITDA on Q3 2023 was $27 million up from $12 million in Q3 2022. The $15 million increase was primarily due to a year over year reduction in the cost of goods per case equivalent in increased volume growth and pricing, partially offset by increased SGNA spending.

One moment, while we compile the Q&A roster.

And one moment for our first question.

Our first question comes from Jon Andersen of William Blair.

Hey, good morning, everybody.

Good morning, John.

Good morning.

I wanted to start by asking just.

About the.

Variance between the consumption growth in measured channels in the twenties.

The Americas branded growth of 8%.

Kind of referenced it in the prepared comments I was wondering if you could provide a little bit more color.

Corey Baker: Turning to our balance sheet and cash flow as of September 30th 2023 are strong operating performance year-to-date as led to an improvement in cash flow resulting in total cash on hand of $95 million compared to $20 million on hand as of December 31st 2022. The increase in net cash was driven by net income and reductions in inventory work in capital year-to-date and total has provided $19 million of cash as inventory decreases of $34 million and accounts payable increases of $18 million were offset by a $37 million increase and accounts receivable to the timing of customer payments and the normal seasonality of our business.

Around the timing.

<unk>, there that that caused that and what your expectations are.

We look into the fourth quarter and beyond.

Relative to shipments and consumption.

Yes, John Good morning, we did reference it in the prepared script, we saw a couple of things a bit of timing on the consumption and scan channels, where we saw shipments slip into Q2 that ultimately scanned out in Q3.

And then we do have the non measured channel performance, which combined impacted the overall performance on the quarter.

And then on the full year, we provided the guidance of where.

Corey Baker: The inventory decrease was the result of sales volume growth coupled with the normalization of the global supply chain allowing us to more efficiently manage our days on hand and reduce overall image, and Victoria. Our inventory ended Q3 at the low end of our targeted range. We expect inventory days on hand to increase by the end of the year.

Where we think we'll land on a full year.

We expect and we continue to see strong scanner growth.

Through this latest week, we expect to see strong.

Retail consumption through balance of year.

Okay.

And then I'm.

Corey Baker: Looking now to the balance of 2023, despite more difficult, multi-year comms, remain confident in our business, which is allowing us to raise our full-year net sales guidance to grow up to plus 13 to plus 15 percent. Based on our expectation of continued strong consumer demand for our brand of business, leading to a full-year mid-teen brand and growth in the current expectation of our private label business, which as we have said, is benefiting from new relationships and the change in plans for the transition that we disclose last quarter.

I'm looking at slide 10 in your Investor presentation for the quarter and you continue to make good progress.

On AC.

For instance in the.

The multipack offerings, particularly the 330 milliliter.

Was up quite a bit this quarter relative to last year I'm wondering on the multi pack because it's been.

I think the largest portion of the revenue growth this year.

What is the right way to think about.

Corey Baker: Our growth margin guidance for the full-year remains unchanged at 35 percent to 37 percent. The retention of the private label relationship and its risk impact on our business is expected to reduce Q4 margins sequentially from the Q3 peak. Our revised non-gap adjustment Vita guidance is $64 million to $67 million. This reflects continued prudent investment in SG&A, leading to full-year adjusted EBITDA growth above our net sales growth. As we look forward to 2024, we remain confident in the strength of our business and remain excited by our business momentum and growth prospects for our brand.

Natural or steady state level of HCV distribution for multi packs I mean.

Are those.

More limited than the one count kind of the core flagship item.

Or do you expect further improvement as you move through the balance of this year and two.

<unk> 2024.

Well I think if you look at the ACB. That's on that same slide I think you see theres a lot of room for continued distribution growth.

That item should be in most places within Mueller co that half the one count.

So there is opportunity to continue to grow distribution on that item and that item is continuing to grow per point of distribution. So.

Corey Baker: While still very early in our 2024 planning with lots of moving pieces, we want to update the estimated negative net revenue impact of the private label transition that we talked about last quarter. In our preliminary modeling, we now believe that 2024 net revenue should grow low single-digit percentages with growth margin percentage expected to be approximately flat versus full-year 2023, which collectively should produce mid-teens growth of adjusted EBITDA over our current 2023 guidance.

There's quite a bit of room there.

Okay, if I could squeeze one more in quickly.

The gross gross margin performance in the quarter, obviously strong.

It's 41%.

Is that a peak for.

A seasonal perspective, you referred to some pricing impacts seasonally high pricing.

It also mentioned that cost of largely normalized.

So.

Corey Baker: As we have done in the past, we will provide our first full-year 2024 guidance when we report our full-year 2023 numbers.

Could you update us on your thinking around around.

Longer term gross margin rate, particularly in the context of retaining that private label business with a key customer. Thank you.

Corey Baker: Finally, has noted in our earnings release, on October 30, 2023, the company's Board of Directors approved a share repurchase program authorizing the company to repurchase up to $40 million of the company's common stock.

Yes, I think we alluded that to a little bit when we talk about our modeling for 2020 for certainly the quarter was very strong benefiting from a number of elements includes including seasonal pricing timing of pricing across our portfolio.

Corey Baker: The authorization gives us increased flexibility to strategically deploy capital on behalf of our shareholders.

And sort of some very efficient supply chain and I think as we look forward.

Martin Roper: I will now turn it over to Martin for his closing remarks. Thank you, Gary. To close, I'd like to reiterate our confidence in the long-term potential of the WITACoco company, our ability to build a better beverage platform, and the strength of our WITACoco brand.

We sort of indicated.

We're thinking high Thirty's.

Is where we'll be.

So and I think we've said that Q4 could be below Q3, because of those timing issues. So yes, I think it's a little of an unusual outlier, obviously very happy with how everything flowed through the P&L, but I don't think we think it is reflective of our future business mix.

BD: Thank you for joining us today, and thank you for your interest in the WITACoco company. That concludes our quarter of prepared remarks, and we will now take questions. Thank you. Management will now take questions from research analysts. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please re-enter the queue, and we will take the most time allows. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. One moment while we compile the Q&A roster. And one moment for our first question.

Yes.

Great Thanks and congrats.

Thanks, Josh.

Thank you one moment for our next question.

And our next question comes from Bonnie Herzog of Goldman Sachs.

Thank you good morning, everyone.

Good morning.

Hi, I had a question about your private label business first congrats on reaching an agreement with the key customer to retain this business I guess.

Jon Andersen: Our first question comes from Don Anderson of William Blair.

But I was hoping I guess for a little bit more color on this decision and the cost associated with retaining that business and then also I couldn't help but notice your comments about expanding distribution of private label with new and existing customers. So.

Jon Andersen: Hey good morning everybody. Morning, Jon. I wanted to start by asking just about the. Variance between the consumption growth in measured channels in the 20s and the America's branded growth of 8%. You kind of referenced it in the prepared comments. I was wondering if you could provide a little bit more color around the the tiny difference there that that caused that and what your expectations are as we look into the, you know, fourth quarter and in beyond relative to shipments and consumption.

Trying to understand the magnitude of this and I guess trying to reconcile this with your strategy to de emphasize private label just trying to understand maybe what has changed with your strategy.

I think big picture like we mentioned last time, we love private label when it works within our margin structure and in our business model.

And I think this is an example.

<unk>.

I mean over time, we may have some competition in private label in supply chain in general we may lose some business. We may gain some new business, we continue to gain new business.

Jon Andersen: Yeah, Jon, good morning. We did reference it in the prepared script. We saw, you know, a couple things a bit of timing on the consumption and scan channels where we saw shipments slip into Q2 that ultimately scanned out in Q3. And then we do have the non measured channel performance, which combined impact to the overall performance on the quarter. And then on the full year we provided the guidance of where. Where we think will land on the full year. We expect and we continue to see strong scanner growth through this latest week. We expect to see strong retail consumption through balance of year. Okay.

But I think this decision of this major customer.

We believe shows that we have a significant supply chain advantage, the most scale reliability and quality.

And so again, we like private label, we will continue to grow private label, we will continue to bid on and get new business, we believe but.

It has to work within our business model and I think this is an example of US continuing to just prove our supply chain advantage, which we're excited about.

Okay. That's helpful. And then I did want to ask about your.

Vita Coco water sales or branded sales growth in the quarter. It was I guess a little bit.

Jon Andersen: And then I'm looking at slide 10 in your your investor presentation for the quarter. And you continue to make good progress on AC for instance in the multi pack offerings, particularly the 330 milliliter was off quite a bit this this quarter relative to last year. I'm wondering on the multi pack because it's been I think the largest portion of the revenue growth this year. What is the right way to think about the kind of natural or steady state level of ACV distribution for multi packs.

More muted than I expected and decelerated sequentially, so hoping for a little more color on this especially thinking about at Q3 is our peak summer quarter, but I know you mentioned.

Impact and inventory shifts and then thinking about your new topline growth guidance for this year. It does imply I think just around 9% sales growth in Q4, and then you're talking about low single digit top line growth next year. So just trying to understand maybe.

Why you're looking for a little bit more of a slowdown or is this just some level of conservatism. Thanks.

Jon Andersen: I mean, are those more more limited than the one count kind of the core flagship item. Or do you expect further improvement as you move through the balance of this year and in 2024. Well, I think if you look at the ACV that's on that same slide, I think you see there's a lot of room for continued distribution growth. You know, that item should be in most places within Mulo that have the one count. So there's opportunity to continue to grow distribution on that item and that item is continuing to grow per point distribution. So we think there's quite a bit of room there.

So there's lots of moving pieces.

Talked earlier about.

The current quarter timing as you say on the scanner growth our scans remain very healthy and we expect that to continue in.

And balance of year, we do still have the impact of the price mix in private label.

That flows into next year.

Which.

Is what's driving some of the changes and also we are providing guidance that we believe we can hit and the balance of year, but we expect to continue to see strong branded growth through balance of year and enter into next year.

Jon Andersen: Okay, I can squeeze one more in quickly. The gross gross margin performance in the quarter. Obviously strong. Is 41% you know, is that a for a seasonal perspective. You referred to some pricing impacts, seasonally high pricing. It also mentioned that cost of largely normalized. So, you know, could you update us on your thinking around, around longer term gross margin rate, particularly in the context of retaining that private label business with that key customer.

So but in the context of that if I may just the expectation for low single digit sales growth.

I assume pricing will be more muted, but is there essentially an expectation of a category slowdown.

No.

That thing.

And then kind of a base assumption expecting that category volumetric Lee to perform in line with how it has historically.

And then we have the price mix impact.

The private label versus the branded heading into next year.

Alright, thank you.

Jon Andersen: Thank you. Yeah, I think we allude that to a little bit. When we talk about our modeling for. For 2024, certainly the quarter was very strong benefiting from a number of elements, including seasonal pricing, timing of pricing across our portfolio and sort of some very efficient supply chain. I think as we look forward. But you know, we said have indicated that we're thinking high 30s is where we'll be. So, and I think we've said that Q4 could be below Q3 because of those those timing issues. So yeah, I think it's a little of an unusual outlier. Obviously, you know, very happy with how everything flowed through the PNL, but I don't think we think it is reflective of our future business mix.

Thanks Brandon.

Jon Andersen: Great, thanks and congrats. Thanks, John.

BD: Thank you, one moment for our next question.

Thank you one moment for our next question.

And our next question comes from Eric Serrano of Morgan Stanley.

Great. Thanks.

Hoping you can just give us some additional color in terms of your long term adjusted EBITDA margin target.

How has that been impacted by the changed business mix would be now holding onto a greater portion of.

That customer is private label business and also growing very nicely and private label elsewhere.

Last quarter I think you took up your long term targets from that mid to high teens or high teens because.

The expectation that private label would be a smaller piece this quarter. It looks like you left it at high teens, just wondering what the moving pieces <unk> surplus.

Bonnie Herzog: And our next question comes from Bonnie Herzog of Golden Facts.

Yes, I think we're still comfortable with that sort of long term outlook. I think this quarter is an example of what we can achieve right now.

Bonnie Herzog: Thank you, good morning, everyone. I had a question about your private label business. You know, first congrats on reaching an agreement with the key customer to retain this business. I guess, but I was hoping I guess for a little bit more color on this decision and, you know, the cost associated with retaining this business. And then also I couldn't help but notice your comments about, you know, expanding distribution of private label with new and existing customers.

Obviously, it's a seasonal months and it's a peak months, but it shows that outcome as possible.

So we believe that.

That long term model is still achievable, yes, there are moving pieces. The branded business remains very strong as Mike alluded to we are winning private label.

New private label business and some of the growth in private label is reflective of that but the business. We are winning we think still supports that long term financial algorithm.

Bonnie Herzog: So, you know, trying to understand the magnitude of this and I guess trying to reconcile this with your strategy to deemphasize private label. You know, just trying to understand maybe what has changed with your strategy. I think big picture, like we mentioned last time, we love private label when it works within our market structure and in our business model. And I think this is an example of, you know, you know, I mean, over time, we may have some competition in private label and supply chain in general, we may lose some business, we may gain some new business and we continue to gain new business.

Great and then.

Hoping you could give a little color in terms of innovation.

Bonnie Herzog: But I think this decision of this major customer, we believe shows that we have a significant supply chain advantage, the most scale reliability and quality. And so again, we like private label, we will continue to grow private label, we will continue to bid on and get new business, we believe, but it has to work within our business model. And I think this is an example of us continuing to just prove our supply chain advantage with what's said about.

Particularly the C store channel.

Sure.

It looks like you had some.

The modest sequential improvement in the juice product.

<unk> store ACD in the quarter, but can you talk a little bit more broadly in terms of your expectations for the C store channel how did.

<unk> product is performing in terms of getting new additional placements and shelf space.

Yes, I think we're pleased with how it's performing where it spending a fair amount of.

Marketing sales execution will support in Q3 to sort of drive it and produce the velocities that will support additional distribution discussions. So at this point in time again, we're happy obviously, we always would like distribution to go faster and we tell our sales guys back.

Bonnie Herzog: Okay, that's helpful. And then I did want to ask about your, you know, viticoca water cells or branded cells growth in the quarter. I guess a little bit more muted than I expected and to celebrate sequentially. So hoping for a little more color on this, especially thinking about it, you know, Q3 as a peak summer quarter, but I know you mentioned an impact in inventory shifts. And then thinking about your new top line growth guidance for this year, it does imply, I think just around 9% cells growth in Q4, and then you're talking about low single digit top line growth next year. So just trying to understand maybe why you're looking for a little bit more of a slowdown or is this just some level of conservatism.

And challenge them to go faster, but it is building nicely and we think it's a good source of long term growth opportunity for us.

Great. Thanks, I'll pass it on.

Thanks Sarah.

Thank you one moment for our next question.

Okay.

Okay.

And our next question comes from Jim <unk> of Stephens.

Hi, good morning, everyone. Thanks for taking our question.

I would suggest to me.

Me dig back in on the key private label customer because if my notes serve me correct in the second quarter you guys had mentioned.

Basically that the long term contract.

Bonnie Herzog: Thanks. So, Bonnie, there's lots of moving pieces. We talked earlier about the current quarter timing. As you see in the scanner growth, our scans remain very healthy and we expect that to continue. In balance a year, we do still have the impact of the price mix and private label. And that flows into next year, which is what's driving some of the changes. And also we're providing guidance that we believe we can hit in the balance of year, but we expect to continue to see strong, branded growth through balance a year and into next year.

Wasn't in line with your kind of long term margin targets. So I was just wondering if.

When they came back or if you went back to them can we assume that the offer is now in line with kind of the long term margin expectations. You had in <unk> or has your thinking around that changed or just any color. You can provide on that I think will be helpful.

Yes, our thinking around it has not changed.

If we're going to do private label it has to fit within our business model and we continue to believe that.

Okay.

Yes, yes.

No no go ahead.

Bonnie Herzog: So, but in the context of that, if I may, just the expectation for low single digit sales growth, you know, I assume pricing will be more muted, but is there essentially an expectation of a category slowdown? No, we are expecting in our, in a kind of a base assumption, expecting the category volumetrically to perform in line with how it has historically. And then we have the price mix impact of the private label versus the branded heading into next year.

No to answer your question.

In the end this this.

<unk> will continue.

Under.

Terms that work for both of us, but work within our business model.

Okay. That's helpful.

Bonnie Herzog: All right.

Maybe to follow on that.

Can we think about it as you guys mentioned.

Length of your supply chain and your debility to deliver kind of consistently win this customer went out into the market is it that they really found that there wasn't another alternative that could deliver kind of the same quality and consistency that you could on this private label offering and so that's why we just.

BD: Thank you. One moment for our next question.

Candidly, it's a pretty fast turnaround from Q3 Q2 to see this reverse obviously incrementally positive for you, but just trying to get some context around.

What caused that to happen so quickly.

Yes, obviously, it's hard to know because the customer is just not always tell you exactly what's going on I think we would conclude and obviously, we announced with Q2 that we.

Eric Sarada: And our next question comes from Eric Sarada of Morgan Stanley. Great. Thanks.

Eric Sarada: Hoping you could just give us some additional color in terms of your long term, just be the dot margin target. How has that been impacted by the changed business mix with you now holding on to a greater portion of that customer's private label business and also growing very nicely in private label elsewhere. Last quarter, I think you took up your long term target from the mid to high teams, the high teams because of the expectation that private label would be a smaller piece.

We had reached an understanding that that business was transitioning.

Both the oil on the water business.

And then subsequently obviously, we're still in a relationship.

So our conclusion would be that they concluded that whatever.

Well, we're not going to work, but obviously, we don't really know exactly what went on in the background. What we can tell you is we're comfortable with the.

Continuing to supply a portion of the business and under terms that as Mike said meet our models and obviously, we're happy with the partnership and and.

Eric Sarada: This quarter, it looks like you rested at high teams, just wondering what's moving pieces are below the surface. Yeah, I think we're still comfortable with that sort of long term outlook. I think you know, this quarter is an example of what we can achieve right now in, you know, obviously it's the seasonal months and it's the peak months, but it shows that that outcome is possible. So we believe, you know, that at that long term model is still achievable.

As we said at the Q2 this retailer it's important to assume we're here to support them in any way, we can under terms that work for us.

Okay, Great. That's all very helpful. And then maybe if I can sneak in one more question on <unk> on slide seven.

I'd just look you guys have the dollar per ounce percentage change and it looks like you're running ahead of kind of the broader.

Coconut water category year to date is there.

Relative price gap that you think you guys can maintain relative to the category or is there kind of an upper bound that we should think of in terms of your pricing relative to the category.

Eric Sarada: The other moving pieces, the branded business remains very strong as Mike alluded to, we are winning private label, new private label business and some of the growth and private label is reflective of that. But the business for winning, we think still supports that long term financial algorithm.

I think we like our current position relative to the category I think if you look over a two to three years most of the rest of beverage has taken very significant pricing increases relative to what coconut water took partly because of the economics of those businesses.

Eric Sarada: Great, and then I'm hoping you give a little color in terms of innovation and particularly the sea store channel. It looks like you had some modest sequential improvement in the juice product and convenience store ACV in the quarter, but can you talk a little bit more broadly in terms of your expectations for the sea store chat. I know how the juice product is performing in terms of getting you additional placements in shelf space.

Relative to how our supply chain has performed absent the ocean freight increases right. So we actually like the fact that perhaps today, we're more affordable than we were three years ago and the relative beverage category. Obviously, you were going to monitor that we have as we stated one of the few categories in beverage and non alcoholic beverage.

That is growing volume.

And.

And price so we're going to continue to fuel that buy.

Eric Sarada: Yeah, I think we're pleased with how it's performing, we're spending a fair amount of marketing sales, executional support in Q3 to sort of drive it and produce the velocities that will support additional distribution discussions. So at this point in time again, we're happy. Obviously we always would like distribution to go faster and we tell ourselves guys that and challenge them to go faster, but it's building nicely. And we think it's a good source of long-term growth opportunity for us.

Maintaining the current pricing price gaps and obviously well monitor what's going on on the competitive environment basis to see if any changes to that unnecessary.

Okay, great very helpful. Thanks, guys I'll pass it along.

Eric Sarada: Great. Thanks.

BD: I'll pass it on. Thank you.

Thank you. Thank you.

Thank you one moment for our next question.

Jim Salera: Thank you one moment for a next question.

And our next question comes from Michael Lavery of Piper Sandler.

Thank you and good morning.

Morning, Michael.

Just wanted to follow up on Bonnie's question, where you've given us a little peak into 2024.

Jim Salera: And our next question comes from Jim Salera of Stevens.

If I'm.

Im catching it all correctly.

Jim Salera: Hi, good morning, everyone. Thanks for taking our question. If you want to help me dig back in on the key private label customer, because if my notes serve me correct in the second quarter, you guys had mentioned the basically that the long term contract wasn't in line with your kind of long term margin targets. So I was just wondering if when they came back or if you went back to them, can we assume that the offer is now in line with kind of the long term margin expectations you had in two queue or has your thinking around that change or just any color you could provide on there, I think will be helpful.

A bit of the thinking is that mix drag from.

Strong private label growth.

Can you just touch on what the branded Vita Coco coconut water.

Segment by itself might look like in terms of how youre thinking about the momentum there on the top line.

Yes, obviously, we're not trying to provide sort of guidance. We're just trying to think about modeling if I had to model. This I'd be modeling.

Coconut water category volume growth.

Similar to what you've seen in the last two three years, which in the scan data I think is high single digit sort of mid to high single digit mid single digits.

Some gaining share right, obviously when Mike.

Jim Salera: Yeah, our thinking around it has not changed. If we're going to do private label, it has to fit within our business model and we continue to believe that. Okay, answer your question. No, no, go ahead. No, to answer your question, you know, in the end, this, this partnership will, will continue under, you know, terms that work for, for both of us, but work within our business model.

Asked me to set goals for the year. He tells me I have got to grow share.

So that.

I would think about it I think as Gary alluded to there's lots of moving pieces here. We've got some changes in the private label relationship that we've talked about.

Mix.

Price.

Changes in the private label business, which obviously provides a headwind in net revenue next year.

But we feel very good about branded growth obviously, the scan data continues to be very strong for scan channels, obviously, we need to grow the other channels as effectively as scan is growing so that's the challenge for our sales force, but that's the challenge was signing up for.

Jim Salera: Okay, that's helpful. And maybe the follow on that. Can we think about it as you guys mentioned, you know, the strength of your supply chain and your ability to deliver kind of consistently. When this customer went out into the market, is it's a very really found that there wasn't another alternative that could deliver kind of the same quality and consistency that you could on this private label offering. And so that's why we could just candidly, it's a pretty fast turnaround from to see this revered, obviously, you know, incrementally positive for you, just trying to get some context around what caused it to happen so quickly.

Okay. That's helpful.

It doesn't get touched on too much but I actually wanted to pivot over to the other segment.

And just bare.

Very small obviously, but.

Can you update us growth there sequentially and year over year, even the tiny in absolute numbers was robust.

Just maybe help us understand how to think about.

Jim Salera: Yeah, you know, obviously it's hard to know because the customer is just not always tell you exactly what's going on. I think we would conclude. And obviously we announced, you know, with Q2 that we had reached an understanding that the business was transitioning, you know, both the oil and the water business. And then subsequently, obviously, we're still in a relationship. So our conclusion would be that they concluded that whatever their plans were, we're not going to work, but obviously we don't really know exactly what went on in the background, what we can tell you is what comfortable with the, you know, continuing to supply a portion of the business.

Power lift or some of what else might be going on there I think there has been.

Pretty small geographically limited.

Yes.

Is that alone moving the needle on this or how do we think about maybe how that segment could evolve.

That test is going well.

In that segment, obviously, there is a variety of items that don't fall into the two main segments.

What I would say is we continue from a business priority perspective to prioritize coconut water growth and growth of Vita Coco related branded activities.

The innovation is sort of a secondary priority and the innovation efforts, obviously fall into that other as long as as long as well as commodities and some other stuff. So it's a little bit noisy I think what youre seeing in there is some slight volume growth that reflects our investments in power left I think we're.

Jim Salera: And under terms that is Mike said meet our models and obviously we're happy with the partnership and. You know, as we said in the Q2, this retailer is important to us and we're here to support them in any way we can on the terms that work for us.

Very happy with it I think we believe power lift over indexes with our investors, which is sort of interesting based on the conversations we have and our analysts actually so we know we have something there and we're trying to make it work out how to make it make it.

Jim Salera: Okay, great, that's all very helpful and then maybe if I can sneak in one more question on on slide seven, if I just look you guys have the dollar per ounce percentage change and it looks like you're running ahead of kind of the broader coconut water category year to date is there. There are relative price gap that you think you guys can maintain relative to the category or is there kind of an upper bound that we should think of in terms of your pricing relative to the category.

Work at retail obviously, its a very competitive segment.

But we're happy with the progress.

As we look to next year, we're hoping to add some additional geographies, perhaps that where we can influence the distribution a little stronger.

To get it on shelf in a cost effective way, because obviously thats whats required to make something like this successful is to get drive it to shelf. So look we have some opportunities, but we're also pretty pleased with it as a brand initiative as part of our portfolio of innovation and.

Jim Salera: You know, I think we like our current position are relative to the category. I think if you look over two to three years, most of the rest of beverage has taken very significant pricing increases relative to what coconut water took partly because of the economics of those businesses relative to how our supply chain has performed absolutely ocean freight increases right. So we actually like the fact that perhaps today we're more affordable than we were three years ago in the relative beverage category obviously we're going to monitor that we have as we stated one of the few categories in beverage in an alcoholic beverage that is growing volume and price.

When I say portfolio of innovation that our other efforts that we're not ready to talk about yet, but we're doing that hopefully will help in that other category as well.

Okay, great. Thanks, so much.

Thank you one moment our next question.

Yeah.

Yeah.

And our next question comes from Chris Carey of Wells Fargo Securities.

Jim Salera: So we're going to you know continue to feel that by you know maintaining the price price gaps and obviously one monitor what's going on on the competitive environment basis to see if any changes to that unnecessary.

Hi, good morning.

Hi, Chris It's Chris.

One quick follow up so you are rolling back pricing on private label, but you don't intend to do that on the branded business can I just confirm that.

Jim Salera: Okay, very helpful. Thank you.

BD: Thank you one moment for our next question.

Okay.

I don't think Chris we've said that we're rolling back private label, we've been very careful to just talk about mix in private label effects that affect our business.

Hi.

Private naval tracks costs, but we've been very careful side I don't want to confirm question.

Michael Lavery: And our next question comes from Michael Lavery of Piper Sandler.

As a fact, okay, yes that makes sense, how do you feel about.

Michael Lavery: Thank you the morning. Michael, I just wanted to follow up on Bonnie's question where you've given a little peek into 2024 and if I'm catching it all correctly. Actually a bit of the thinking is the mix drag from a strong private label growth, can you just touch on what the branded fight of coconut coconut water segment by itself might look like in terms of how you're thinking about the momentum there on the top line.

Overall pricing in the category currently.

You said.

Any plans to maintain certain levels going forward.

Just in general how you feel about price gaps relative strong consumption that you continue to see.

So we've sort of talked about how we feel relative to the rest of the beverage category already referenced to a prior question I think relative to private label, that's obviously retailer specific.

Private label as we sort of said is concentrated in a few major retailers in the U S and.

Michael Lavery: Yeah, you know obviously we're not trying to you know provide sort of guidance we're just trying to think about modeling if I you know had to model this I'd be modeling you know coconut water category volume growth. You know pretty similar to what you've seen the last two three years which in the scan data I think is high single digits. But I think I think the digits plus some gain of share right obviously you know when Mike you know asked me to set goals for the year he tells me I've got to grow share.

The situations, where our brand six next to private label or.

Sort of few relative to the total retailer universe right. So so if we look at it.

What kind of specific obviously, well monitor that if those suppliers should thus retailers should reduce debt.

Shelf price on private label, we will monitor the trends I think right now we believe the branded and private label co exist nicely on the shelf that complementary.

Michael Lavery: So that's you know how it's I would think about it I think you know as curry alluded to you know there's lots of moving pieces here we've got you know some changes in the private label relationship that we've talked about this mix price changes in the private label business which obviously provides a headwind in. That revenue next year but we feel very good about you know branded growth obviously the scan data, continues to be very strong for scan channels. Obviously, we need to grow the other channels as effectively as scan is growing. So that's a challenge for our sales force, but that's the challenge we're signing up for.

Brand ascribes value to private label, obviously by anchoring the category in most retailers the velocity is good.

And that's something we'll monitor as it goes on but right now I think as we think about plans for 'twenty four offer branded pricing.

We're sort of looking to optimize revenue.

I suppose revenue conflict with what is now its while its revenue optimization I scores across our portfolio of Skus.

How we're thinking about and trying to take pricing next year as opposed to moving price.

Okay, one final follow up.

Michael Lavery: Okay, that's helpful and it doesn't get touched on too much, but I actually want to give it over to the other segment and just, you know, a very, very small obviously, but can you update us, you know, that the growth there is sequentially in your year, even though tiny and absolute numbers was robust. It just maybe help us understand how to think about, you know, power lift or some of what else might be going on there.

I know you said that the Q3 gross margin was probably a typically high.

Just trying to understand that comment because pricing will remain.

Cost.

Relief seems to remain so as the key difference mix in Q4.

What got sequentially worse into Q4 and into next year. Thanks, So much.

Yes, there's a little bit of kind of mix seasonally the price the absolute price of coconut water Vita Coco coconut water in the quarter was higher.

Michael Lavery: I think there's been, you know, a pretty small geographically limited test, you know, is that alone moving the needle on this or, you know, how do we think about maybe how that segment could evolve if that test is going well. Well, you know, in that segment, you know, obviously there's a variety of items that don't fall into the two main segments. What I would say is we continue, you know, from a business priority perspective to prioritize coconut water growth and growth of Vita Coco related branded activities. With the innovation, you know, as sort of a secondary priority and the innovation efforts obviously fall into that other along as long as, as well as commodities and some other stuff.

And then the.

Efficiency of the supply chain as inventory is low drove advantaged cogs, so that combined with a different price mix on private label as well.

What makes the quarter seasonally high.

Okay. Thanks, so much.

Thank you one moment for our next question.

Yes.

And our next question comes from Eric <unk> of Craig Hallum Capital Group.

Michael Lavery: So it's a little bit noisy. I think what you're seeing in there is some slight volume growth that reflects our investment in power lift. I think we're, you know, very happy with it. I think we believe power lift over indexes with our investors, which is sort of interesting based on the conversation we have and our analysts actually. So we know we have something there and we're trying to make it work out how to make it make it work at retail, obviously, it's a very competitive segment.

Thank you for taking my questions and congrats on another strong quarter here.

So profitability and cash flow, obviously, a big standout this quarter, presumably that helped lead to the share repurchase authorization.

With that share repurchase so I'm wondering should we take this as an indication that perhaps the M&A opportunities have gotten maybe less attractive over the last call. It 612 months.

Maybe just give us an update on the sort of opportunity you see in categories beyond coconut water and if this is just more of a build versus buy at this point. Thank you.

Michael Lavery: But we're, you know, happy with the progress. And as we look to next year, we're hoping to add some additional geographies, perhaps that where we can influence distribution a little stronger to, you know, get it on shelf in a cost effective way. Because obviously that's what's required to make something like this successful is to get private to shelf. So, but we have some opportunities, but we're also, you know, pretty pleased with it as a brand initiative as part of our portfolio of innovation. And, you know, when I say portfolio of innovation, there are other efforts that we're not ready to talk about yet that we're doing that hopefully will help in that other category as well.

Michael Lavery: Okay, great. Thanks so much.

Yes, I think.

The way I would think about the buyback authorization is.

Primarily in the company sort of basically creating optionality and flexibility for use of its cash obviously without a buyback authorization that wouldnt be an option.

I think our cash balance at the end of the quarter is obviously very healthy part of that is due.

Due to inventory being a little low.

For the quarter and as we've indicated inventory is going to build we certainly model out our cash needs over the next 12 months.

Look at what's possible and certainly believe we could support a buyback if that was something we wanted to do but that said obviously, it's one option for use of capital and there are other options for usage cap of capital.

Chris Kerry: Thank you one moment for our next question. And our next question comes from Chris Kerry of Wells Fargo Securities. Hi, good morning. One quick follow up. So you're rolling back pricing on private label, but you don't intend to do that on the branded business. Can I just confirm that?

The M&A environment I think continues as we've previously talked about there are some opportunities there all interesting in their own right, whether the valuations makes sense. So it looks it makes sense depend on the specific situation and we.

Obviously, you look at things as they become available and explore them.

But there is nothing sort of currently imminent, but obviously that could change so again coming back to the buyback aspect of this I think it just creates flexibility for us if you take the models out there and as you know M&A then you would probably be asking us why we are we sitting on the cash balances you project. So this gives us some optionality.

Chris Kerry: I don't think Chris, we have said that we're rolling back private label. We've been very careful to just talk about mix and private label effects that affect our business. I think so. Private label tracks costs, but we've been very careful. So I just don't want to confirm, as a fact. Okay, yeah, that makes sense. How do you feel about, you know, overall price gaps in the category currently where you sit and, you know, any, you know, plans to maintain certain levels going forward?

I think we said in the release it was approved yesterday.

And so obviously, we're early in the process of deciding what to do.

That's very helpful.

And then last question for me is just on marketing spend so much of the spend so far has been on driving new use occasions that certainly makes sense.

Chris Kerry: Just in general, how do you feel about price gaps for all of the strong consumption that you can see? So we've sort of talked about how we feel relative to the rest of the beverage category already in reference to a prior question. I think relative to private label, that's obviously retailer-specific. As, you know, private label, as we sort of said, is, you know, concentrated in a few major retailers in the US and, you know, the situations where our brand sticks next to private label are, you know, sort of few relative to the total retailer universe, right?

A number of examples of that over the summer at various cocktail partnerships and pop up bar as it seems to me that there might be some seasonality in that kind of driving new use occasions spend the same time, you're obviously, increasing marketing spend into the winter months can you just give us a bit more color on where those incremental marketing dollars are being spent thank you.

Okay.

But I think you highlighted a number of those I think also during the quarter, we announced the <unk> relationship and for Us that's.

Chris Kerry: So, so we look at it, we don't tell a specific, obviously we're monitor that if those suppliers should, those retailers should reduce their shelf price on private label, we will monitor the trends. I think right now, we believe the branded and private label coexist nicely on the shelf. Their complementary are brand-inscribed values to private label obviously by anchoring the category. In most retailers, you know, the blocks are good.

A great opportunity to increase our brand saliency among our core demographic that we think is a long term opportunity for us.

So some of the timing of that is affecting the timing of the spend in Q3 and Q4.

To acknowledge that our business has some seasonality to it typically.

Typically most marketing would be driven Q2 Q3, but this year.

Chris Kerry: And, you know, that's something we're monitor as it goes on, but right now, I think, as we think about plans for 24, for branded pricing, we're sort of looking to optimize revenue, sort of, optimize, I suppose, revenue, I can't think what the word is now, but as well as revenue optimization, I suppose, across our portfolio of SKUs is how we're thinking about trying to take pricing next year as opposed to, you know, moving price. Okay, one final follow-up.

We got a little bit delayed obviously, a relationship like relationship with Becky G takes a little bit better time to put together and so some of the timing. It's perhaps off this year plus we have some catch up that we're doing in September the sales execution and driving distribution that we have pulled back on prior years that we've amplified. This year. So this year is a little abnormal to what.

You might see going forward.

That's very helpful. Thank you.

Yeah.

Thank you one moment for our next question.

Chris Kerry: I know you said that the Q3 gross margin was probably a typically high. I'm just trying to understand that comment because, you know, pricing will remain, cost relief seems to remain. So, is the key difference mix in Q4? What gets sequentially worse than the Q4 and into next year? Thanks so much. Yeah, there's a little bit of kind of mix seasonally, the price, the absolute price of coconut water, vodka, coconut water in the quarter was higher.

Okay.

And our next question comes from Bryan Spillane of Bank of America.

Thanks, Operator, hey, good morning, everyone.

Thank you Brian.

I have one question related to the 24 commentary or the color you've given on $44.

I think at the midpoint.

The ranges, we're adding about $50 million back to revenue and 24 versus at.

Chris Kerry: And then the efficiency of the supply chain as inventory is low, drove advantage cogs. So, that combined with a different price mix on private label is what makes the Q4 seasonally high. Okay, thanks so much. Thank you, one moment for our next question.

At least kind of where I guess, where we were and then we'll go back to when you. Originally talked about 24 I think we are I think we took 80 million outlook, but I'm not entirely sure that was too much or not but anyway. My point is as we look at 'twenty four now or are we just adding back the business you thought you would lose.

Like has anything else changed underlying in terms of the way Youre looking at 2004 now versus the way you were looking at 'twenty four back in August.

Eric DeLaurier: And our next question comes from Eric DeLaurier of Craig Hallum Capital Group. Thank you for taking my questions and congrats on another strong quarter here. So, profitability and cash will obviously a big stand out this quarter, presumably that helped lead to the share repurchase authorization. With that share repurchase, so I'm wondering, should we take this as an indication that perhaps the M&A opportunities have gotten maybe less attractive over the last, call it six, twelve months. Maybe just give us an update on this sort of opportunity you see in categories beyond coconut water.

Yes, I think we are.

Adding back a piece of the business that we thought we were losing.

And under sort of.

<unk>.

Agreeable to us right so I.

I think thats the difference we still think.

The branded business is healthy.

Certainly with additional.

Private label business, we can fund more investments in growing the category.

And.

One of the reasons, we like growing the category as we have share of the category both on the branded and the private label side.

Eric DeLaurier: And if this is just more of a build versus buy at this point, thank you. Yeah, I think, you know, the way I would think about the buyback authorization is primarily in the company, sort of basically creating optionality and flexibility for use of its cash, obviously without a buyback authorization, you know, that wouldn't be an option. I think our cash balance at the end of quarter is obviously very healthy. Part of that is due to inventory being a little low for the quarter.

So just adding back the business is purely margin accretive accretive might not be how we sort of view.

Because we just we view certainly in North America, the investments to grow the category have higher return when we have more of the business.

Alright, yes, so simplistically if we're just looking at our models. What we're doing is really adding back that portion that now youre going to retain everything most everything else in the model seems like it's been washed out right in terms of again revenue expectations for 'twenty four relative to where you were in August.

Eric DeLaurier: And as we've indicated, inventory is going to build. We certainly model out our cash needs over the next 12 months to, you know, look at what's possible and certainly believe we could support a buyback if that was something we wanted to do. But that said, obviously it's one option for use of capital and there are other options for use as capital. Of capital, the MNA environment, I think, continues as we've previously talked about, there are some opportunities, they're all interesting in their own right, whether, you know, the valuations make sense or the fit makes sense to depend on the specific situation.

Yes, again, we're trying very hard not to provide guidance for next year, while supporting your modeling.

Modeling, including our own rate.

So I don't think Thats unreasonable.

The way to think about it.

But I would say.

Say that based on where we were in August.

With the significant hit the people assumed based on what we said came up with we probably would have squeezed SG&A a little bit.

Year, whereas.

Eric DeLaurier: And we, you know, obviously look at things as they become available and explore them. But there is nothing sort of currently imminent, but obviously that could change. So again, I coming back to the buyback aspect of this, I think it just creates flexibility for us if you take the models out and assume no MNA, then you would probably be asking us why are we sitting on the cash balances you project. So this gives us some optionality. And as I think we said in the release, it was approved yesterday. And so obviously we're only in the process of deciding, you know, what to do.

Now we can go okay. Let's go got it got it got it no. That's really helpful. And then just one last follow up.

Eric DeLaurier: Sorry helpful.

In terms of having retained or one.

Private label business with some additional customers does that open up the door for more.

Like merchandising and shelf space for those customers I remember Michael talking about previously about.

The logic part of the benefit of having a private label business in Costco as it encourages them to sort of allocate more shelf space to the category. So I'm just curious if it.

Eric DeLaurier: And then last question for me is on marketing spend. So much of the spend so far has been on driving new use occasions that certainly make sense. And we saw a number of examples of that over the summer, you know, various cocktail partnerships and pop-up bars. Seems to me that there might be, you know, some seasonality and that kind of, you know, driving new use occasion spend. But at the same time, you know, you're obviously increasing marketing spend into the winter months.

As we look forward does it open the door to actually have more space dedicated to the category.

Yes, I think not only does it allow us to have more or less.

The category to have more space, but I think Mike like you just mentioned and we talked about this before in.

In several parts of the world and in Western Europe, specifically, where we're winning a lot of private label business.

Eric DeLaurier: Can you just give us a bit more color on, you know, where those incremental marketing dollars are being spent. Thank you. I think you highlighted a number of those. I think also during the quarter, we announced the debt EG relationship. And for us, that's a great opportunity to increase our brand saliency among core demographic that we think is a long term opportunity for us. And so some of the timing of that is affecting the timing of the spending Q3 and Q4.

We have the benefit of getting in front of these retailers now and having conversations about the category and together building the category and maybe starting with private label and then bringing the branded.

Vita Coco branded items in next to the private label.

Which is a real benefit to obviously not only the category, but also to the vertical co brand long term as we build.

Build out the brand globally.

Alright, Thanks, guys I appreciate it.

Thanks, Brian Thanks, Brian.

I'm showing no further questions at this time I would now like to turn it back to the CEO Martin Roper for closing remarks.

Eric DeLaurier: I do acknowledge that our business has some seasonality to it. The typically most marketing would be driven Q2, Q3. But this year, I think we got a little bit delayed, obviously a relationship like the relationship with that EG takes a little bit of time to put together. And so some of the timing is perhaps off this year. Plus we have some, you know, catch up that we're doing in terms of sales execution and driving distribution that we have pulled back on on prior years that we've amplified this year. So this year is a little abnormal to what you might see going forward. That's very helpful. Thank you.

BD: One moment for our next question.

Thanks for hosting the meeting thanks, everybody and we appreciate your interest and we look forward to talking to you again, when we have full year results.

During February or March of next year.

Hope everyone has a great Halloween.

Yes.

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

Okay.

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Brian Spillane: Our next question comes from Brian Spleen of Bank of America. Thanks, operator. Hey, good morning, everyone. I just have one question related to the 24 commentary, or the code is getting on 24. And it's just, I think if the midpoint of the ranges were adding about $50 million back to revenue in 24 versus at least kind of where I guess where we were. And then, go back to the, when you originally talk about 24, I think we were, I think we took 80 million hours, but I'm not entirely sure if that was too much or not.

Yes.

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Brian Spillane: But anyway, my point is, as we look at 24 now, are we just adding back the business you thought you lose? Like, is anything else changed underlying in terms of, you know, the way you're looking at 24 now versus the way we're looking at 24 back and on it? Yeah, I think, you know, we're adding back a piece of the business that we thought we were losing and under sort of, you know, terms that are available to us, right?

Yes.

Brian Spillane: So, I think that's the difference. We still think that the branded business is healthy. We, you know, certainly with additional private label business, we can fund, you know, more investment in growing the category. And, you know, one of the reasons we like it, growing the categories, we have share of the category, both on the brand and the private label side. So, so just adding back the business is purely image and the creative, the creative might not be how we sort of, you know, view it because we just, we view, certainly in North America, that investments to grow the category have higher return when we have more of the business.

Brian Spillane: All right, yeah, so simplistically, if we're just looking at our models, what we're doing is really adding back that portion that now you're going to retain it and everything most, everything else, the model seems like it's washed out, right? In terms of, again, revenue expectations for 24 relative to where you weren't honest. Yeah, again, we're trying very hard not to provide guns for next year while supporting your, everyone's modeling, including our own, right?

Brian Spillane: So, I don't think that's an unreasonable, you know, a way to think about it. But I would, you know, perhaps say that based on where we were in August, you know, with the significant hit that people assumed, you know, based on what we said came up with, we probably would have squeezed S&A a little bit next year. Or as, now we can go, okay, let's go. Got it, got it, got it, now that's really helpful.

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Brian Spillane: And then, and then just one, one last follow up. In terms of having retained or, or, or one, you know, private label business with some additional customers, does that open up the door for more. Like merchandising in shelf space for those customers, I remember Michael talking about previously about, you know, the logic part of the benefit of having a private label business in Costco, it encourages them to sort of, you know, allocate more shelf space to the categories.

Okay.

Yes.

Brian Spillane: So I'm just curious if it, you know, as we look forward, does it open the door to actually, you know, have more space dedicated to the categories? Yeah, I think not only does it allow us to have more or allow the category to have more space, but I think like, like you just mentioned, and we talked about this before in several parts of the world in Western Europe specifically where we're winning a lot of private label business.

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Brian Spillane: We have the benefit of getting in front of these retailers now and having conversations about the category and together building the category and maybe starting with private label and then bringing the branded, Vita Coco brand items in next to the private label, which is a real benefit to obviously not only the category, but also to the Vita Coco brand long term as we build, build out the brand globally. Alright, thanks guys, appreciate it. Thanks Brian. I'm showing no further questions at this time.

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Martin Roper: I would now like to turn it back to the CEO, Martin Roper, for closing remarks. Thank you for hosting the meeting. Thanks everybody and we appreciate your interest and we look forward to talking to you again when we have four year results, sort of during February or March of next year. Hope everyone has a great Halloween.

BD: This concludes today's conference call. Thank you for participating and you may now disconnect. Thank you.

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