Q1 2024 The Vita Coco Company Inc Earnings Call

May 1, 2024

Stephen: Hello and welcome to the Vita Coco Company's first quarter 2024 earnings conference call. My name is Stephen. 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'd now like to hand the call over to John Mills with ICR.

Hello, and welcome to the Vita Coco companies' first quarter 2024 earnings Conference call. My name is Stephen 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'd now like to hand, the call over to John Mills with ICR.

John Mills: Thank you, and welcome to the Vita Coco Company first quarter 2024 earnings results conference. This call is being recorded.

John Mills: Thank you and welcome to the bite of Cocoa Company first quarter 2024 earnings results Conference call today's call is being recorded.

John Mills: With us are Mr. Mike Kirban, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's first quarter earnings release issued earlier today. This information is available in the Investor Relations section of the Vita Coco Company's website at investors.thevitacococompany.com.

John Mills: With us are Mr. Mike Hartmann Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer.

John Mills: By now everyone should have access to the company's first quarter earnings release issued earlier today.

John Mills: This information is available on the Investor Relations section of the biodiesel companies website at investors Dot the bite of cocoa company Dot com.

John Mills: Also on the website, there's an accompanying presentation of our commercial and financial performance results. Certain comments made on the call include forward-looking statements, which are subject to the State Department provisions of the Private Securities Litigation Reform Act of 1995. These four legal 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.

Also on the website there is an accompanying presentation of our commercial and financial performance results certain comments made on the call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

John Mills: These forward looking statements are based on management's current expectations and beliefs.

John Mills: 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.

John Mills: Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we'll be using non-GAAP financial measures as we describe our business performance. The SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it's my pleasure to now turn the call over to Mike Kirban, our co-founder and executive.

John Mills: As well as the earnings press release, and supplementary earnings presentation provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well and with that it's my pleasure to now turn the call over to Mike Urban our co founder and executive Chairman.

Michael Kirban: Thanks, Jon. And good morning, everyone. Thank you for joining us today to discuss our first quarter 2024 financial results and our commercial plans and improved performance expectations for 2024. I want to start by thanking all of our colleagues across the globe for our continued incredible performance and for their commitment to the Vita Coco Company and to our mission of creating ethical, sustainable, better for you beverages that uplift our communities and do right by our planet.

Thanks, John and good morning, everyone. Thank you for joining us today to discuss our first quarter 2024 financial results and our commercial plans and improved performance expectations for 2024, I want to start by thanking all of our colleagues across the globe for our continued incredible performance and for their commitment to the vertical company.

John Mills: And to our mission of creating ethical sustainable better for you beverages that uplift our communities and do right by our planet.

Michael Kirban: Our first quarter results reflect that our strategies are working and that our customer relationships are as strong as ever. Our priorities of driving growth in the coconut water category and initiatives to grow our share of the category are visible in the healthy retail scans in our major markets. In the first quarter, according to Circona, the Vita Coco brand grew 9% in the US, and in the UK, it grew 16%.

John Mills: Our first quarter results reflect that our strategies are working and that our customer relationships are as strong as ever our.

Our priorities are driving growth in the coconut water category and initiatives to grow our share of the category are visible in the healthy retail scans are major markets.

John Mills: In the first quarter accordionist Arcana, the vertical brands grew 9% in the U S and in the U K the vertical co brand grew 16%.

Michael Kirban: In addition to strong branded retail growth, we're experiencing strong growth in private label coconut water volume, which validates our strategy and private label and allows us to play in the value space, as well as our dominant position in premium coconut water. Our first quarter net sales were in line with our expectations, with the gap between branded shipments and scans due to the timing of promotions and the cycling of opportunistic promotional activity in 2023, which Martin will comment more fully. Our priorities for 2024 remain the same as those we communicated in our year-end results.

John Mills: In addition to strong branded retail growth, we're experiencing strong growth in private label coconut water volume, which validates our strategy and private label and allows us to play in the value space as well as our dominant position in premium coconut water.

John Mills: Our first quarter net sales were in line with our expectations with the gap of branded shipments to scans due to the timing of promotions and cycling of opportunistic promotional activity in 2023, which Martin will comment more fully.

John Mills: Our priorities for 2024 remains the same as those we communicated in our year end results.

Michael Kirban: We aim for our coconut water business to grow volume in line with the category growth of mid to high single digits with the continuing transit transition out of a key private label oil relationship, providing a headwind, offsetting expected strong coconut water demand. Our commercial initiatives around Vita Coco Multipax, Vita Coco Farmers Organic, and Vita Coco Juice continue to perform very well, as seen in U.S. Circona scans that we highlighted in our We have also invested in growing our core business in a way from home, which is an under-penetrated channel for us.

John Mills: We aim for our coconut water business to grow volume in line with the category growth of mid to high single digits with the continuing trenches transition out of a key private label oil relationship providing a headwind offsetting expected strong coconut water growth our commercial.

John Mills: Initiatives around Vita Coco multi packs Vita Coco farmers organic and Vita Coco choose continued to perform very well as seen in U S or kind of scans that we highlighted in our investor deck, which was posted to our Investor Relations web site today.

John Mills: We have also invested in growing our core business in away from home, which is an underpenetrated channel for US. We've recently assembled a larger more experienced foodservice team, which we hope will allow us to deliver greater penetration in this channel.

Michael Kirban: We've recently assembled a larger, more experienced food service team, which we hope will allow us to deliver greater penetration in this channel. I'm excited about the progress we're making in new areas to grow our business over the long term. We recently launched PowerLift in the New York City area and are happy to see it in our local bodegas and to be able to sample and promote it in our home market. This is back to my roots of hustling on the streets, and I'm reminded of not only how hard it is but how fun it is, and how successful we have been historically with this approach.

John Mills: I'm excited about the progress, we're making in new areas to grow our business over the long term we.

John Mills: We recently launched power lift in the New York City area and are happy to see it in our local bodegas and to be able to sample and promoted in our home market.

John Mills: This is back to my roots of hustling, the streets and I'm reminded of not only how hard it is but how fun. It is and how successful we have been historically with this approach.

Michael Kirban: Our New York team is certainly having fun building this brand the old-fashioned way. We also recently launched Vita Coco Treats, a delicious and refreshing beverage that is a further exploration of where our brand can go. The launch is initially exclusive to Target, and although it is too early to tell what Velocity will be, we're very excited with the early scan results.

John Mills: Our New York team is certainly having fun building this brand the old fashion way. We also very recently launched Vita Coco treats a delicious refreshing beverage that is a further exploration of where our brand can go the launch initial exclusive to target and although it is too early to tell what philosophy will be we're very excited with the early scan.

Michael Kirban: While these two initiatives are not expected to be material to our 2024 results, the results to date give us confidence that our innovation approach should help us meet our long-term growth algorithm for branded net sales in the mid-teens percentages, building on the long-term health of the coconut water category. Our international business remains healthy, with strong performance in Europe, led by the UK, offset by weaker shipments in Asia, as in-market inventory levels are drawn down. We intend to increase our investment in Europe, particularly in Germany and the Benelux regions, to gain a share of the category there and to help expand the category growth, which is still in its early stages of development.

John Mills: Results.

John Mills: While these two initiatives are not expected to be material to our 2024 results. The results to date give us confidence that our innovation approach should help us meet our long term growth algorithm for branded net sales mid teens percentages building on the long term health of the coconut water category.

John Mills: Our international business remains healthy with strong performance in Europe led by the UK offset by weaker shipments in Asia as in market inventory levels were drawn down we intend to increase our investment in Europe, particularly Germany, and Benelux regions to gain share of the category there and to help expand the category growth which is.

John Mills: Still in its early stages of development.

Michael Kirban: On top of the strong business performance, we just released our third impact report, which we believe does a terrific job of laying out where we are and what we're focused on from a sustainability and social impact perspective. I'm really happy that we are maintaining our momentum and that, with the creation of the Vita Coco Community Foundation, announced last week, we'll be able to solicit support from our customers and suppliers to potentially further our efforts in these areas.

John Mills: On top of the strong business performance, we just released our third impact report, which we believe does a terrific job of laying out where we are and what we're focused on from a sustainability and social impact perspective.

John Mills: I'm really happy that we are maintaining our momentum.

With the creation of provider Coker Community Foundation announced last week, we will be able to solicit support from our customers and suppliers to potentially further our efforts in these areas.

Michael Kirban: 20 years after launching Vita Coco, coconut water remains one of the fastest growing beverage categories, both in the US and the UK, and Vita Coco is the number one brand. We are well positioned to lead and grow the category in these markets and to grow our share further through a combination of branded and private label growth. This is in addition to the opportunities that we see in less developed markets that have populations that match our consumer profile. I believe that we are in a stronger position than we've ever been to accelerate our growth. Now, I'll turn the call over to our chief executive officer, Martin Roper. Thanks, Mike. And good morning, everyone.

John Mills: 20 years after launching greater cocoa coconut water remains one of the fastest growing beverage categories. Both in the U S and the U K and Vita Coco is the number one brand we are well positioned to lead and grow the category in these markets and to grow our share further through a combination of branded and private label growth.

John Mills: In addition to the opportunities that we see in less developed markets that have populations that match, our consumer profile I believe that we are in a stronger position than we've ever been to accelerate our growth and now I will turn the call over to our Chief Executive Officer Martin Roper.

Martin F. Roper: Thanks, Mike, and good morning, everyone. We are very pleased with our strong start to 2024. We achieved net sales growth of 2% in the first quarter of 2024, driven by both Vita Coco Coconut Water and Private Label Coconut Water growth. This growth was achieved on top of the first quarter Vita Coco Coconut Water sales growth of 17% reported in 2023, which benefited from some opportunistic brand promotion. Importantly, the net sales results are in line with our expectations when we laid out our four-year guidance.

Martin F. Roper: Thanks, Mike and good morning, everyone. We are very pleased with our strong start to 2024, we achieved net sales growth 2% in the first quarter of 2024, driven by both Vita Coco coconut water and private label order growth.

This growth was achieved on top of the first quarter by the Coco coconut water sales growth up 17% reported in 2023, which benefited from some opportunistic brand promotional events.

Martin F. Roper: Importantly, the net sales results are in line with our expectations when we laid out our full year guidance.

Martin F. Roper: Our first quarter gross margins were exceptional, benefiting from lower transportation costs and branded pricing effects where promotional cadence was reduced relative to the prior year. Gross margins also benefited from the decline in the importance of the private labor oil business, which traditionally operated on significantly lower margins. As expected, our net sales performance was hampered slightly as increased transit times for ocean lanes going around Africa, delayed product arrivals, and servicing persistent strong private label coconut water demand ahead of retailer forecasts were challenging. Both these effects have resulted in lower than optimum inventory levels and less than perfect services.

Martin F. Roper: Our first quarter gross margins were exceptional benefiting from lower transportation costs and branded pricing effects, where promotional cadence was reduced relative to prior years.

Martin F. Roper: Gross margins also benefited from a decline in the importance of the private label oil business, which traditionally operated on significantly lower margins.

Martin F. Roper: As expected our net sales performance was hampered slightly as increased transit times Ocean lens going around Africa delayed product arrivals and servicing systems strong private label coconut water demand ahead of we kind of forecast has been challenging.

Martin F. Roper: Both of these effects that resulted in lower than optimal inventory levels and less than perfect service levels.

Martin F. Roper: We are working to rebuild our inventory and market to more normal levels, but given the length of our supply chain. This will not occur until later this year.

Martin F. Roper: We are working to rebuild our inventory in the market to more normal levels, but given the length of our supply chain, this will not occur until later this year. The strong private label coconut water demand that we are seeing is, we believe, partially driven by the slightly larger price gaps to be branded than at this time last year and by consumers shifting to channels with a higher penetration of private label coconut water availability.

Martin F. Roper: The strong private label coconut water demand that we have seen.

Martin F. Roper: We believe partially driven by the slightly larger price gaps to branded and at this time last year.

Martin F. Roper: And by consumers shifting to channels with a higher penetration of private label coconut water availability.

Martin F. Roper: From a cost side, our finished goods are in line with expectations, but we have seen elevated ocean freight rates ahead of 2023 levels, mainly due to the diversion of shipping away from the Gulf. These costs started in ocean shipments early this year but appear to have already peaked and now be in slow decline. The rates we are seeing today remain within the underlying assumptions provided in our guidance. Our current approach to ocean freight is to negotiate spot rates monthly on most routes, with limited commitments to longer-term contracts where we need to guarantee capacity on certain routes.

Martin F. Roper: From a cost side. Our finished goods are in line with expectations, but we have seen elevated ocean freight rates ahead of 2023 levels, mainly due to the devotion of shifting away from the Gulf.

Martin F. Roper: These cost started in ocean shipments early this year, but appear to have already peaked and now be in slow decline.

Martin F. Roper: The rates, we are seeing today remain within the underlying assumptions provided in our guidance.

Martin F. Roper: Our current approach to ocean freight is to negotiate spot rates monthly on most routes with limited commitments to longer term contracts, where we need to guarantee capacity on certain lanes.

Martin F. Roper: We are prepared to enter into longer-term ocean freight agreements if we see competitive offers. We have entered into new supply contracts and extensions of existing contracts to support our growing capacity needs and our plans for 2025, and are in discussions on potential additional supply as we remain positive about the long-term growth that is in front of us. With that, I will turn the call over to Corey Baker, the Chief Financial Officer.

Martin F. Roper: We are prepared to enter into longer term ocean freight premiums, if we keep competitive offerings.

Martin F. Roper: We have entered into new supply contracts and extensions of existing contracts to support our growing capacity needs and our plans for 2025.

Martin F. Roper: And are in discussions on potential additional supply as we remain positive about the long term growth that is in front of us.

Martin F. Roper: With that I will turn the call Robert Coury, Baker, our Chief Financial Officer.

Corey Baker: Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the first quarter 2024 financial results. I will then discuss the drivers of our improved outlook for the 2024 full fiscal year. For the first quarter of 2024, net sales increased $2 million or 2% year over year to $112 million, driven by Vita Coco coconut water growth of 1% and net sales and private label growth of 6%.

Robert Coury: Thanks, Martin and good morning, everyone. I will now provide you with some additional details on the first quarter of 2020 for our financial results. I will then discuss the drivers of our improved outlook for the 2020 for full fiscal year.

Robert Coury: For the first quarter of 2024, net sales increased $2 million or 2% year over year to $112 million.

Driven by Vita Coco coconut water growth of 1% and net sales of private label growth of 6%.

Corey Baker: On a segment basis within the Americas, Vita Coco Coconut Water increased net sales by 1% to $70 million, while private label decreased 3% to $24 million, as we have started to see the impact of the transition to private label oil. Vita Coco Coconut Water saw a negative 3% volume decline, offset by a 4% net price mix benefit, while private label increased 4% in volume, which was partially offset by price mix changes, driving year-to-date net sales decline of 3%.

Robert Coury: On a segment basis within the Americas Vita Coco coconut water increased net sales by 1% to $70 million, while private label decreased 3% to $24 million.

Robert Coury: As we have started to see the impacts of the transition of private label oil.

Robert Coury: Coco coconut water saw negative, 3% volume decline offset by 4% net price mix benefit.

Robert Coury: But label increased 4% in volume, which was partially offset by price mix changes driving year to date net sales decline of 3%.

Corey Baker: Our America's Vita Coco Coconut Water scan trends remain very healthy, and we believe our shipments in the quarter reflect the absence of some promotional activity and untracked channels relative to the 2023 same-time period, a decrease in DSD inventory levels during the quarter, and timing of shipments to key retailers. For the first quarter of 2024, our international segment net sales were up 20%, with Vita Coco coconut water growth of 1% percent, where strong growth in Europe was partially offset by volume softness. Private Label revenue grew 93%, which continues to benefit from new business gains at large European retailers.

Robert Coury: Are Americans Vita Coco coconut water and trends remained very healthy and we believe our shipments in the quarter reflect the absence of some promotional activity in untracked channels relative to 2023 same time period, a decrease in DSD inventory levels during the quarter and timing of shipments to key retailers.

Robert Coury: For the first quarter of 2020 for our International segment net sales were up 20% with Vita Coco coconut water growth of 1% our strong growth in Europe was partially offset by volume softness in Asia.

Robert Coury: Private label revenue grew 93%, which continues to benefit from new business gains at large European retailer.

Corey Baker: On a quarterly basis, Consolidated Gross Profit was $47 million, up $14 million versus the prior year period. On a percentage basis, gross margins were a very strong 42% in the quarter, an improvement of approximately 1200 basis points over the 31% reported in Q1 2023. These increases resulted from branded pricing, mixed effects within private label products, and decreased global transportation.

Robert Coury: On a quarterly basis consolidated gross profit was $47 million.

Robert Coury: $14 million versus the prior year period.

On a percentage basis gross margins were very strong 42% in the quarter, an improvement of approximately 200 basis points over the 31% reported in Q1 2023.

These increases resulted from branded pricing mix effects within private label products and decreased global transportation cost.

Corey Baker: Moving on to operating expenses, first quarter 2024 SG&A costs increased 5% to $28 million, primarily reflecting increased people. Net income attributable to shareholders for the first quarter 2024 was $14 million or 24 cents per diluted share compared to $7 million or 12 cents per diluted share for the prior year. Net income for the quarter benefited from increased gross profit, partially offset by increased S&A costs, a lower year-on-year First Quarter 2024 Adjusted EBITDA, our non-GAAP measure, which is defined and reconciled in our press release, was $21 million, or 19% of net sales, up from $9 million, or 8.2% of net sales, in 2023.

Robert Coury: Moving on to operating expenses first quarter 2020 for SG&A costs increased 5% to $28 million.

Robert Coury: Primarily reflecting increased <unk> expenses.

Robert Coury: Net income attributable to shareholders for the first quarter of 2024 was $14 million or 24 cents per diluted share compared to $7 million or <unk> 12 per diluted share for the prior year net.

Robert Coury: Net income for the quarter benefited from increased gross profit, partially offset by increased SG&A costs are lower year on year impact from unrealized FX derivatives and higher year on year tax expense, our effective tax rate for the first quarter 2024 was 21% which was flat to the prior year.

Corey Baker: The increase was primarily due to the gross profit improvements previously discussed. Turning to our balance sheet and cash flow, as of March 31st, 2024, we had total cash on hand of $123 million in no debt under our revolving credit facility, compared to $133 million of cash and no debt as of December 31st, 2024. The decrease in the cash position was due to the net increase of working capital of $20 million and the purchase of treasury shares of $10 million, partially offset by strong netting working capital was driven by an $8 million increase in accounts receivable, as well as a $4 million decrease in accounts payable and accrued expenses, both are due to the seasonality of customer and vendor, Inventory increased by $6 million as the inventory delays discussed earlier have resulted in higher inventory in transit to our market.

Robert Coury: First quarter 2020 for adjusted EBITDA, Our non-GAAP measure, which is defined and reconciled in our press release was $21 million or 19% of net sales up from $9 million or eight 2% of net sales in 2023. The increase was primarily due to the gross profit improvements previously disk.

Robert Coury: Scott.

Robert Coury: Turning to our balance sheet and cash flow.

Robert Coury: As of March 31, 2024, we had total cash on hand of $123 million and no debt under our revolving credit facility compared to $133 million of cash and no debt as of December 31 2023.

Robert Coury: The decrease in the cash position was due to the net increase of working capital of $20 million and the purchase of Treasury shares of $10 million, partially offset by strong net income.

Robert Coury: Working capital was driven by an $8 million increase in accounts receivable as well as a $4 million decrease in accounts payable and accrued expenses, both 30 due to the seasonality of customer and vendor payments.

Robert Coury: Inventory increased by $6 million is the inventory delays discussed earlier have resulted in higher inventory in transit to our market.

Martin F. Roper: Based on our year-to-date performance and our confidence in the health of the category and our Vita Coco brand, we are raising our full-year guidance. We now expect net sales between $500 and $510 million, with expected gross margins for the full year of 37 to 39 percent, delivering adjusted EBITDA of $76 to $82 million. The guidance reflects our current best assumptions about the marketplace and our global supply chain costs. While we are confident in the underlying strength of our business, we are providing a wider range on EBITDA to reflect some uncertainty about transportation costs.

Robert Coury: Based on our year to date performance and our confidence in the health of the category and our Vita Coco Brandon we are raising our full year guidance. We now expect net sales between 500 and $510 million.

Robert Coury: With expected gross margin for the full year, 37% to 39% delivering adjusted EBITDA of $76 million to $82 million.

<unk> reflects our current best assumptions of the marketplace and our global supply chain costs, while we are confident the underlying strength of our business.

Robert Coury: Riding a wider range on EBITDA to reflect some uncertainty on the transportation cost.

Martin F. Roper: We will actively manage our promotional activity to balance our product supply and our pricing, which will allow us to deliver the gross margin guidance while absorbing higher ocean freight costs, which will begin impacting our P&L in Q2. We expect disciplined SG&A spending throughout 2024 with full-year SG&A flat to slightly increasing year-on-year. We may adjust our SG&A spending if we see improvements in OCHRA freight quicker than expected or if we see productive investment opportunities to strengthen the business for the long term.

Robert Coury: We will actively manage our promotional activity to balance our product supply and our pricing, which will allow us to deliver the gross margin guidance, while absorbing higher ocean freight cost, which will begin impacting our P&L in Q2.

Robert Coury: We expect disciplined SG&A spending throughout 2024 with full year SG&A flat to slightly increasing year on year.

Robert Coury: We may adjust our SG&A spending if we see improvements notes trade quicker than expected or if we see productive investment opportunities to strengthen the business for the long term.

Martin F. Roper: We anticipate our cash balance will remain healthy through the year, allowing us to fund any potential M&A opportunities that emerge, support further share buyback activity, and continue to invest in our business for long-term growth. And with that, I'd like to turn the call back to Martin for his closing remarks.

Robert Coury: We anticipate our cash balance will remain healthy through the year, allowing us to fund any potential M&A opportunities that emerge support further share buyback activity and continue to invest in our business for long term growth.

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

Martin F. Roper: Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco company, our ability to build a better beverage platform, and the strength of our Vita Coco brand. We are confident in our ability to navigate the current environment and excited about our key initiatives to drive growth. We have strong brands and a solid balance sheet. And we are well positioned to compete domestically and internationally. Thank you for joining us today and thank you for your interest in Vita Coco Co. That concludes our first quarter for Pagermarks, and we will now take your questions.

Martin F. Roper: Thank you Corey to close I'd like to reiterate our confidence in the long term potential divided cocoa comfortable our ability to build a better beverage platform and the strength of our bite of cocoa Brian.

Speaker Change: We're confident in our ability to navigate the current environment and excited about our key initiatives to drive growth.

Speaker Change: We have strong brands and a solid balance sheet, and we are well positioned to meet compete domestically and internationally.

Speaker Change: Thank you for joining us today and thank you for your interest in Nevada Cocoa company that concludes our first quarter prepared remarks, and we will now take your questions.

Operator: Thank you. At this time, we will conduct a question and answer session. To ask a question, you will need to press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bonnie Herzog of

Speaker Change: Thank you at this time, we will conduct a question and answer session.

Speaker Change: To ask a question you will need to press star one on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Bonnie Herzog of Goldman Sachs. Your line is now open.

Bonnie Lee Herzog: All right. Thank you. Good morning, everyone.

Bonnie Lee Herzog: Great. Thank you good morning, everyone.

Bonnie Lee Herzog: Hi, I had a question on your guidance. You just highlighted some timing impacts in the quarter on your Vita Coco, you know, the coconut water. So I guess I wanted to first understand if all of these impacts should unwind in Q2. And then for your full year guidance, you know, what does that imply for Vita Coco water? I think, you know, you mentioned you're growing in line with the category or, hopefully, above. So does your guidance imply high single-digit growth for your branded coconut water for the year?

Bonnie Lee Herzog: Hey, Bonnie Bonnie Hi, I had a question on your guidance.

Bonnie Lee Herzog: You just highlighted some timing impacts in the quarter on your Vita Coco coconut water. So I guess I wanted to first understand if all of these impacts should unwind in Q2, and then for your full year guidance, what does that imply for Vita Coco water I think you mentioned you're growing in.

Bonnie Lee Herzog: In line with the category or hopefully above so does your guidance imply high single digit growth for your branded coconut water for the year.

Martin F. Roper: Yeah, hi Bonnie. Great question. Yes, I think we expect the category to grow in high single digits, and we would certainly hope that the brand would match category growth, you know, very closely. In the first quarter, there are difficult comparisons to last year on branded shipments and sales, and those largely relate to some promotional activity last year that was opportunistic. If we had inventory, retailers had space, and we took it, and that did not happen this year.

Speaker Change: Yeah, Hi, Bonnie.

Bonnie Lee Herzog: Great question, Yes, I think we expect the category to grow high single digits, and we would certainly hope that the brand would match category growth.

Speaker Change: Very closely.

Speaker Change: First quarter of difficult comparisons to last year on branded <unk>.

Speaker Change: Shipments and sales and that's largely relates to some.

Speaker Change: Promotional activity last year that was opportunistic we had inventory retailers that space and we took it and that did not reoccur this year.

Martin F. Roper: And then a little bit just related to timing of shipments to where we're in a retailer direct shipment environment to there. And then also a little bit to, we believe the inventory in the US probably was flat down during the quarter, which typically would build. So a couple of different difficult comparisons. And that sort of explains, in our view, the shipment growth number for branded versus the scan growth, which remains very healthy.

Speaker Change: And then a little bit just related to timing of shipments to where we're in a retail or direct shipment environment.

Speaker Change: <unk>.

Speaker Change: And then also a little bit too, we believe DSD inventory in the U S.

Speaker Change: <unk> was flat to down during the quarter, where it typically would build so a couple of different.

Speaker Change: <unk> comparisons and that sort of explains.

Speaker Change: The shipment growth number on branded versus.

Speaker Change: Growth, which remains very healthy.

Bonnie Lee Herzog: Right, so again, just to clarify, so that sounds good. So then, are you already starting to see that improve? You know, now we're in, I guess, a month into Q2, so you're feeling good about the full year and kind of starting to see shipments more or less match what you're seeing in the scanner data moving forward?

Speaker Change: Right. So I guess just to clarify so that sounds. Good. So then maybe are you already starting to see that.

Speaker Change: Improve.

Speaker Change: I guess a month into Q2, so you're feeling good about the full year and kind of starting to see shipments more or less match. What you are seeing in the scanner data.

Martin F. Roper: Yeah, what I would say is that in how we've described the update to our guidance, it's based on our year-to-date knowledge.

Speaker Change: Yes.

Speaker Change: I would say is.

Speaker Change: And how we would describe the update of our guidance is based on our technology.

Bonnie Lee Herzog: Okay, all right. And then maybe a second question for me on gross margins, which were obviously very strong in Q1. And, of course, you mentioned Q2 is expected to be dragged by some of the recent increases in ocean freight, etc. So curious if you could maybe just provide a little bit more color in terms of the magnitude of the headwind.

Speaker Change: Okay, Alright, and then just maybe a second question from me on gross margins.

Speaker Change: Obviously very strong in Q1 and of course, you mentioned Q2 is expected to be dragged by some of the recent increases in our ocean freight et cetera. So curious if you could maybe just provide a little bit more color in terms of the magnitude of the headwind I mean, I'm just trying to think about Q2 in the context of maybe even last year should we assume gross.

Bonnie Lee Herzog: I mean, I'm just trying to think about Q2 in the context of maybe even last year. Should we assume gross margins, you know, in the second quarter? Will they be below last year's gross margin? Or is it just kind of a step back from the really high margins you saw in Q1?

Bonnie Lee Herzog: Thanks.

Speaker Change: Margins.

Speaker Change: In the second quarter will they be below last year's gross margin or is it just kind of a step back from that really high margins you saw in Q1.

Martin F. Roper: Yeah Bonnie, it's again hard to call quarter to quarter. We updated the full year guidance on what we expect Q1 to be abnormally high with the combination of low ocean freight with no impact yet higher branded price. So we will see that start to step back in the quarter with the highest ocean freight in the quarter, but the kind of detail quarter to quarter is harder to call. And then we land in that range for the full year, from 37 to 39.

Speaker Change: <unk>.

Speaker Change: Yes, Bonnie it's again, it's hard to call quarter to quarter, we updated our full year guidance on.

Speaker Change: While we expect Q1 was abnormally high with the combination of low ocean freight no impact yet higher branded pricing.

Speaker Change: So we will see that start to step back in the quarter with the highest ocean freight in the quarter, but that kind of detail quarter to quarter, it's harder to call.

Speaker Change: Okay, and then with land in that range for the full year of <unk> 37 to 39.

Bonnie Lee Herzog: All right. Thank you. I'll pass it on.

Speaker Change: Alright, Thank you I'll pass it on.

Operator: Alright, thank you. One moment for our next question. The next question comes from the line of Christian Junquera of Bank of America. Please go ahead.

Speaker Change: Alright. Thank you one moment for our next question.

Christian Junquera: Good morning, everyone. You have Christian on for Bryan.

Speaker Change: The next question comes from the line of Christian <unk> of Bank of America. Please go ahead.

Christian Junquera: Thanks for taking our question. US retail sales for the coconut water category are up 9%, which is, you know, very strong. You know, any details on what you guys are doing to support this type of growth, increased advertisements? Is it, you know, benefiting from all the work you've put into the category already, like introducing multi-packs, or you guys sourcing share from other hydration options of any color you could provide would be helpful. Thank you.

Speaker Change: Good morning, everyone you have Christian on for Brian Thanks for taking our question.

Christian: U S retail sales for the retail.

Christian: Retail sales for the coconut water category are up 9%, which is very strong.

Christian: Any details on like what are you guys doing to support this type of growth increased advertisements.

Christian: Benefiting from all the work you've put into the category already like introducing multi packs are you guys sourcing share from other hydration options just any color you could provide would be helpful. Thank you.

Martin F. Roper: Yeah, I think we've spoken about before how we source from multiple categories, right? And that continues as we source from juice, we source from sports drinks, and we source from enhanced waters pretty equally. We see that, you know, continuing, and demand is there. We've talked about the fact that coconut water is really mainstreaming and becoming a mainstream category. And we think that that, you know, is playing out, and that's what we're seeing happening as the category continues to grow, and coconut water continues to be the fastest growing category in beverages.

Speaker Change: Yes, I think we've spoken about before we source from multiple categories right and that continues as we source from juice, we source from sports drinks can be sourced from enhanced water is pretty equally.

Speaker Change: That continues we see that continuing and demand is there.

Christian: We've talked about the fact that coconut water is really mainstreaming and becoming a mainstream category and we think that that.

Christian: Is playing out and that's what we're seeing happening as the category continues to grow and coconut water continues to be the fastest growing category in the beverage aisle right now.

Martin F. Roper: Yeah, I would also add that I think we're seeing, you know, a healthy category in most of the major markets that we play in. Yeah, so the UK is growing, we see growth happening from a smaller base in other countries in Europe. So there's certainly, from our perspective, something going on globally in coconut water in mature, you know, economies.

Speaker Change: Yes, yes.

Speaker Change: I would also add I think we're seeing a healthy category and most of the major markets that we play and so the U K is growing we see growth happening from a smaller base and other countries in Europe.

Speaker Change: Certainly from our perspective, something going on globally.

Christian: Order in mature economic economy.

Martin F. Roper: So that's going on; obviously, our goal is to gain share and accelerate that growth. And that's how we invest our money. We're very focused on driving new trial education of consumers and new occasions to sort of both increase household penetration and also increase buy rates. And I think all of those efforts, you know, sort of show up in our household data as the, you know, the results that we want to show up there, right? Increasing households and increased consumption rates. So we're just going to keep driving that, and hopefully, that maintains this great momentum.

Christian: So thats going on obviously, our goal is to gain share.

Christian: And just to accelerate that growth and that's how we invest that money.

Christian: We're very focused on driving new trial education of consumers and new occasions to sort of both increased household penetration and also increased by rate and I think all of those efforts.

Christian: Sort of show up in your household data.

Christian: The results that we want to shoring up their rate increased households increased consumption rates. So we're just going to keep driving that.

Christian: Hopefully that maintain this.

Christian: Yes.

Christian Junquera: Very helpful. Thanks, guys.

Speaker Change: Very helpful. Thanks, guys.

Operator: All right. Thank you. One moment for our next question. Our next question comes from the line of Jim Salera of Stevens. Please go ahead.

Speaker Change: Alright. Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Jim <unk> Stephens. Please go ahead.

James Ronald Salera: Hi guys, thanks for taking our question. I wanted to first ask about some of the flex on marketing because I think if I think about the biggest driver of incremental sales, it probably has to come from increased communication of use occasions. And it sounds like the extended shipping times and the lower inventory levels maybe limit what you guys can do with the incremental ad spend. Should we think about, you know, getting inventories refilled first before you can turn up the volume a little bit more on advertising?

Jim Stephens: Hi, guys. Thanks for taking my question.

Jim Stephens: I wanted to first ask about some of the flex on marketing because I think if.

Jim Stephens: Do you think about the biggest driver of incremental sales it probably has to come from.

Jim Stephens: Greece communication of use occasions, and it sounds like the extended shipping times is the lower inventory levels, maybe limits, which you guys can do on the incremental AD spend should we think about.

Jim Stephens: Getting inventories refilled first before you can turn up the volume a little bit more on advertising.

Martin F. Roper: Demand is there, and right now, it's about building it back up and being able to support the event.

Jim Stephens: Yes.

Jim Stephens: Demand is there and.

Jim Stephens: Yes.

Jim Stephens: Right now it's about building inventory.

Martin F. Roper: Yeah, Jim, as we think about the full year, we're going to modulate both our pricing promotional cadence, certainly maybe a little bit of marketing spend on channels that directly generate demand, right, like maybe the e-commerce channels and stuff like that, based on what inventory we have available, either promoting items that we have in stock or pulling back a little bit. But that is certainly something we're monitoring, and our expectation is that, you know, supply sort of constraints will ease sort of towards the middle end of the year. But this is something we're watching closely.

Speaker Change: And being able to support the demand, yes, Jim as we think about the full year like we're going to modulate both pricing promotional cadence.

Speaker Change: Certainly maybe a little bit of marketing spend on.

Speaker Change: Channel, which directly generate demand.

Speaker Change: e-commerce channels and stuff like that based on what inventory, we have available either promoting items that we have in stock.

Speaker Change: Going back a little bit, but that is certainly something we're monitoring.

Speaker Change: Spectation is that.

Speaker Change: Supply sort of constraints will ease.

Speaker Change: Towards the middle end of the year, but this is something we're watching closely.

James Ronald Salera: Okay, great. And then I could ask you a question about private label. You guys mentioned, you know, seeing some consumer shift into retail formats that have more private label coconut water. Do you have a sense of if those are existing coconut water consumers that are just buying private label in a format with more private label? Or are they shopping for a value concept, but they're actually new to the private label category as a whole? And that, you know, when economic conditions normalize, that might be an opportunity to get a trade up from private label to brands.

Speaker Change: Okay, Great and then if I can ask a question on private label.

Speaker Change: As mentioned seen some consumer shift into retail formats that have more private label coconut water do you have a sense of if those are existing coconut water consumers that are just buying private label in a format with more private label or are they shopping in a value concept, but they are actually new to the private label category as a whole.

Speaker Change: We'll in that.

Speaker Change: Economic conditions normalize that might be an opportunity to get a trade up from private label and the branded.

Martin F. Roper: I think our belief is that, you know, those sorts of channels where you're typically buying a multi-pack tend to lend themselves to consumers who are already familiar with the category. And because it's a multi-pack purchase, we certainly believe that you can trade consumers up from private label to branded.

Speaker Change: Hello.

Speaker Change: I think I think our belief is that those sorts of channels, where you're typically buying of multi pack.

Speaker Change: Tend to lend themselves to consumers, who are already familiar with the category.

Speaker Change: Yes, because because it's a multi pack purchase we certainly believe that you can trade consumers up from private label to branded.

Martin F. Roper: And, you know, we look at that as an opportunity, and we think that we monitor the price gaps carefully. In the long term, we just think it's indicative of the, you know, the health of the category. Private label in our shipments is sort of, you know, helped by both our inventory position relative to other suppliers and the addition of new accounts, particularly on the international side, that are generating very strong growth. We certainly recognize that private label volume growth is ahead of branded growth, partially because it's operating at slightly lower price points than this time last year. But it's very healthy, and we just view it as part of a very healthy category and are very happy we're playing on both sides.

Speaker Change: And we look at that as an opportunity and we think that we monitor the price gaps carefully.

Speaker Change: Long term, we just think it's indicative of.

Speaker Change: The health of the category private label in our shipments is sort of helped by both our inventory position relative to other suppliers and the addition of new accounts, particularly on the international side that are generating very strong growth. We certainly recognize that private label volume growth is ahead of <unk>.

Speaker Change: Branded growth, partially because it's operating at a slightly lower price points than this time last year.

Speaker Change: But it's very healthy and we just view it as part of a very healthy category.

Speaker Change: Very happy we're playing in both sides of it.

Martin F. Roper: Yeah, I was just going to add, Jim, consumers are coming into the category. So the category is increasing households, and the brands are increasing households. They're coming through multiple channels, but it's the underlying health of the category that's supporting the growth of both branded and privately. Unknown Attendee.

Speaker Change: Yes, Okay, it's going to add.

Speaker Change: Consumers are coming into the category, so the categories increasing households, and the brand is increasing household.

Speaker Change: We're coming through multiple channels.

Speaker Change: Underlying health of the category, that's supporting the growth of both.

Speaker Change: Branded and private label.

James Ronald Salera: I appreciate it, fellow guys; I'll hop back in a few minutes.

Speaker Change: Okay.

Speaker Change: Hello, guys and I'll hop back in the queue.

Operator: All right, thank you. One moment for our next question, which comes from the line of Trevor Saar of William Blair. Please go ahead.

Speaker Change: Alright. Thank you one moment for our next question.

Speaker Change: Next question comes from the line of Trevor Saar of William Blair. Please go ahead.

Trevor Saar: Hey, thanks. Trevor is on here for Jon Andersen.

Trevor Saar: Hey, Thanks cover on here for John Anderson. My question was just on the multi pack rollout wanted to hear maybe some context from you guys of performance, so far whether thats been beating expectations, we're seeing some good trends.

Trevor Saar: My question was just on the multipack rollout. Wanted to hear maybe some context from you guys of performance so far, whether that's been meeting expectations. We're seeing some good trends in the measured channel data, but wanted to kind of hear from you guys how the multipack rollout has been and any distribution gains to come through this year and next regarded with that.

Trevor Saar: Mr kind of measured channel data, but wanted to kind of hear from you guys.

Speaker Change: The multi pack rollout has been in any distribution gains to come through this year and next regarding to that.

Martin F. Roper: Yeah, I think, you know, we're very happy with the progress of the multi-packs and the impact both on our business and our share, given that we're one of the few brands that offers multi-packs in food and mass. And we've seen some very good wins, the size of those wins is sort of laid out in the investor deck. I think it's fair to say that we hope for more distribution this year. Some of the retail sets are a little delayed, so it's a little unclear when that's gonna get delivered.

Speaker Change: Yes, I think we're very happy with the progress of the multi packs and the impact on our business and I'll share given that we're one of the few brands that offer a smelter backs in food and mass.

Speaker Change: And we've seen obviously very good wins that those wins.

Speaker Change: Those were just sort of laid out in the investor deck.

Speaker Change: I think it's fair to say that we hope for more distribution. This year some of the retail sector are little delayed so it's a little unclear when that's going to get delivered.

Martin F. Roper: But we're optimistic that the velocities of those items and the profitability of those items for retailers justify closing, you know, the ATV gaps that we have on those items relative to our singles. So, we're gonna keep hammering away at that. We've obviously presented that. We do expect some wins as the resets happen. It's just too early to know exactly when those are gonna get completed.

Speaker Change: We're optimistic that the velocity of those items and the profitability of those items for retailers justify closing the ATB gaps that we have on those items relative to our singles. So what kind of can keep hammering away at that we'd obviously presented that we do expect some win at the resets happen.

Speaker Change: Too early to know exactly when they're going to get completed.

Trevor Saar: Okay, great. Thanks.

Speaker Change: Okay, great. Thanks, Scott.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Eric Serotta of Morgan Stanley. Please go ahead.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Eric <unk> of Morgan Stanley. Please go ahead.

Eric Adam Serotta: Hey, thanks, guys. I want to circle back on multi-packs. Hey, I want to circle back on multi-packs. There is a quick question here.

Eric: Hey, Thanks, guys.

Eric: Wanted to circle back on multi <unk>.

Eric: Want to circle back on multi packs.

Eric Adam Serotta: The absolute contribution in the quarter, per your slides, was a little bit less than the run rate last year. I was wondering if multi-packs in particular or as part of the broader picture were impacted by some of the promotional timing and inventory issues that you spoke about? And then on the private label side, you've spoken in the past about private label as being a door opener for your branded business. We're probably coming on a year now of pretty robust private label growth. And I was just wondering what you're seeing in terms of whether private label is, in fact, helping unlock some branded customers? Thanks.

Eric: A quick question here the absolute contribution in the quarter per your slides.

Eric: A little bit less than the run rate last year wondering where multi packs in particular.

Eric: As part of.

Eric: The broader picture.

Eric: Pet care impacted by some of the promotional timing and inventory issues that we spoke about and then on.

Eric: The private label side.

Eric: Spoken in the past about.

Eric: Private label is being.

Eric: Door opener for your branded business.

Eric: We're probably coming on a year now a pretty robust private label growth.

Eric: And just wondering what youre seeing in terms of private.

Eric: Private label is in fact, helping unlock some branded customers.

Eric: Thanks.

Martin F. Roper: Yeah. On the sort of multi-pack question, I think we're happy with the trends and the contribution that multi-packs are making to our business. We certainly have some sort of supply challenges on a couple of the multi-packs that is probably limiting retail execution. We alluded to, I think, on the call that we moved a major distributor incentive out of Q1 to later in the year. And so that would reduce retail execution and promotional activity that might help the scan numbers. So I think we look at the scan numbers, and we're not worried in any shape or form.

Eric: Yes.

Speaker Change: Let's see.

Speaker Change: Sort of a multipart question.

Eric: We are happy happy with the trends and the contribution of <unk>, having to our business. We certainly have some sort of supply challenges on a couple of them multi packs.

Eric: That is probably limiting retail execution.

Eric: We alluded to I think on the call that we move the major distribution incentive distributor incentives out of Q1.

Eric: Later in the year, and so that would reduce the retail execution and promotional activity that might help the scan numbers. So I think we look at the scan numbers and we're not we're not worried in any shape or form. It's a function of all of these things and it's reflective of a very healthy category and we think.

Martin F. Roper: It's a function of all of these things, and it's reflective of a very healthy category. And we think it's a very healthy brand, and as Corey mentioned, all the household numbers that we have show good year-on-year trends. As it relates to private label, when we talk about our private label businesses, they're very healthy. We've gained, the accounts we've gained that have opened doors for us are mostly in the European markets, and we are, you know, basically making good progress with our brand in those markets too.

Eric: Very healthy brand as Corey mentioned, all the household numbers that we have showed good year year on year trends.

Eric: As it relates to private label.

Eric: When we talk about our private label business is very healthy.

Eric: Gain accounts we've gained.

Eric: Sure.

Eric: That have opened doors for us are mostly.

Eric: European markets and we are.

Eric: Basically, making good progress with our brand in those markets too.

Martin F. Roper: And so, you know, in our remarks, we talked about Germany being an exciting opportunity beyond just the UK. I think each of these markets is at different stages of coconut water development. And so the UK is potentially ahead of where Germany, France, and Spain are. But the private label business for us in mainland Europe is opening some doors, and the branded sales trends that we're seeing as we sort of, you know, have an opportunity to participate in those markets are encouraging.

Eric: And so I.

Eric: I think in our remarks, we talked about Germany, being an exciting opportunity beyond just the U K I think each of these markets is at different stages of coconut water development and so the UK is potentially ahead of wet, Germany, France and Spain.

Eric: But we are up but the private label business for us.

Eric: Mainland Europe is opening some doors in the branded.

Eric: Sales trends that we're seeing as we sort of have an opportunity to participate in those markets are encouraging. So I think our long term goal in those markets is to build the number one premium.

Martin F. Roper: So I think our long-term goal in those markets is to build the number one premium coconut water brand in those markets from, you know, frankly, almost nothing, and, you know, grow the category to the same penetration as the UK or the US, which would mean that Europe could be as large as North America. That's the long-term goal.

Eric: Coconut water in those in those markets from frankly almost nothing.

Eric: Grow the category to the same penetration as UK or the us, which would mean that Europe could be as large as North America. That's the long term goal.

Eric Adam Serotta: Great, and then just a quick follow-up on terms of that distributor incentive that moved from the first quarter to later this year. Should we expect that in the second quarter or the third quarter? And, you know, in terms of any color, you can give us an order of magnitude in terms of the impact on your sales growth and whatever quarter that's going to fall in, so you realize it's incorporated into your guidance. But it would help us in terms of quarterly.

Speaker Change: Great and then just a quick follow up in terms of that.

Eric: Our distributor incentive that move from first quarter to later this year.

Eric: Should we expect that in the second quarter or the third quarter.

Eric: And.

Eric: In terms of.

Eric: Any color you can give us in terms of order of magnitude in terms of the impact on your <unk>.

Eric: Sales growth in whatever quarter, that's going to fall and realize thats incorporated into your guidance, but would help us in terms of quarterly cadence.

Martin F. Roper: Yeah, so I think it's currently, you know, planned for Q3, but it's subject to change based on supply chain inventory, demand, product availability, and, you know, all those sorts of factors. Really hard to quantify, you know, what the impact might have been. And so a little uncomfortable doing that.

Speaker Change: Yes, so I think it is currently.

Eric: Planned for Q3, but it's subject to move based on supply chain inventory demand product availability and all that.

Eric: All those sorts of factors really hard to quantify what the impact might have been.

Eric: And so little uncomfortable doing that it was a program with our largest distributors that wasn't a national program, but it was our.

Eric Adam Serotta: It was a program with our largest distributor. So it wasn't a national program, but it was a program with our largest distributor, which covers a significant part of our DSD business. And again, very hard to quantify the exact impact.

Eric: Our largest distributor which covers a significant part of our DSD business.

Eric: And again very hard to quantify the exact.

Eric: Act impacts.

Eric Adam Serotta: Got it. Thanks for the color, and I'll pass it on. Thank you.

Eric: Okay.

Speaker Change: Got it thanks for the color and.

Speaker Change: I'll pass it on.

Speaker Change: Yes, Thanks Ed.

Michael Scott Lavery: Thank you. One moment for our next question. The next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead.

Speaker Change: Thank you one moment for our next question.

Speaker Change: The next question comes from the line of Michael Lavery Piper Sandler. Please go ahead.

Speaker Change: <unk>.

Michael Scott Lavery: Good morning.

Michael Scott Lavery: Hey, good morning, Amy.

Michael Scott Lavery: I just wanted to follow up on the juice cans and say that, at least in convenience, the ACB build has been a little bit slower than we might have expected. Can you just give a sense of what some of the challenges are there and is there a way for it to break through, or what should we expect, kind of looking ahead a little bit?

Michael Scott Lavery: I just wanted to follow up on the juice cans that at.

Michael Scott Lavery: At least in convenience the AC.

Amy: ACB build has been a little bit slower than we might have expected.

Amy: Can you just give a sense of what some of the challenges are there and.

Amy: Is there a way for it.

Amy: Through or what should we expect kind of looking ahead a little bit.

Martin F. Roper: So, I think, as we've said before, building distribution and convenience is a long, slow, hard game. We launched nationally last year, and we made really good progress.

Amy: So I think as we've said before building distribution in convenience is a long slow hoard game.

Amy: We launched nationally last year and.

Amy: And we've made really good progress I think what.

Martin F. Roper: I think what you then have is some of that distribution doesn't stick for reasons that maybe it wasn't quality distribution or whatever. You get a little bit of churn. The fact that it's still growing, I think, is a positive for us. I certainly am impacted a little bit by the distributor incentive that I previously mentioned, because we didn't have a big push. But the actual scan data is very, very healthy. Juice cans are up thirty four percent in the quarter.

Amy: What you then have is some of that distribution doesn't stick for reasons that maybe it wasn't quality distribution or whatever if you could elaborate Sean. The fact that it is still growing I think is a positive to us are certainly impacted a little bit by the distributor incentives.

Amy: Basically mentioned, because we didn't have a big push.

Martin F. Roper: So the velocities are starting to build, and that gives us a lot of confidence, and obviously, we're going to keep pushing. So, but it, but it's gonna be a long, slow journey, and that's how we think about it.

Amy: But the actual scan data is very very healthy juice.

Amy: Juice cans up 34%.

Amy: In the quarter.

Amy: So the velocity is starting to build and that gives us a lot of confidence.

Amy: And obviously, we're going to keep pushing so, but it's going to be a long slow build.

Amy: And that's how we think about it.

Michael Scott Lavery: No, that's helpful, Culler. And just one more back on the multi-packs. We see the breakdown on slide nine, which is really helpful in showing just kind of what drove growth. But some of that, obviously, in this quarter had... some promo shifts or different things might've impacted it. Can you just give a sense from an incrementality perspective that the consumer behavior on multipax seems like it's driving more occasions? Is it that simple?

Speaker Change: No that's helpful color.

Speaker Change: Just one more back on multi packs.

Speaker Change: We see the breakdown on slide nine which is really helpful.

Speaker Change: Kind of what drove growth but.

Speaker Change: Some of that obviously in this quarter it had.

Speaker Change: Some some promo shifts or different things might have impacted it can you just give a sense for my.

Speaker Change: Incrementals perspective, the consumer behavior on multi packs it seems like it's driving more occasions as it is.

Michael Scott Lavery: How does the consumer interact, and you've got the base business obviously holding up, but where does Multipax go from here in terms of the sustainability of the kind of growth that it's been doing?

Speaker Change: Is it that simple.

Speaker Change: Does the consumer interact and you've got the base business, obviously holding up but.

Speaker Change:

Speaker Change: Where do multi pass go from here in terms of.

Speaker Change: The sustainability of the kind of growth that it's been doing.

Martin F. Roper: Yeah, I think, obviously, it's a larger purchase. And so, therefore, it sits within the more sort of high volume coconut water consumers, and it's provided them with a better shopping experience, plus, you know, a value opportunity, right? Because there is a slight discount. But when we launched them, the discount was much bigger than it is today. So we've been able to close that and still maintain these velocities. We think it helps us in growing the category and having more coconut water in people's homes because there's less chance of being out.

Speaker Change: Yes, I think obviously, it's the largest purchase and so therefore it sits within the more sort of high volume coconut water consumers.

Speaker Change: And provided them with a better shopping experience plus VAT.

Speaker Change: A value opportunity right because there is a slight discount let me when we launched them. The discount was much bigger than it is today. So we've been able to close that and still maintain these velocities.

Speaker Change: Think it helps us in growing the category and having more coconut water in People's homes.

Speaker Change: Because it's less chances of being out so so it's all good I think we've talked about before but it's probably a two year plan to close all the distribution gaps with some of the delayed resets.

Martin F. Roper: So, it's all good. I think we've talked about before that it's probably a two-year plan to close all the distribution gaps with some of the delayed resets. You know, maybe that's now going to be three years. So maybe a little slower than we anticipated, but we'll see how that goes this summer. But we feel very good and, you know, I'll read on it, you know, from a supply planning perspective, we need to expand our ability to produce them. And so we're working hard on that.

Speaker Change: Maybe that's now going to be three years, so maybe a little slower than we anticipated, but we'll see how that goes with some up but we feel very good and our read on it from a supply planning perspective is we need to expand our ability to produce them and so we're working hard on that.

Michael Scott Lavery: And the idea is that over time, there will be new multi-packs coming into the system also, different formats, different flavors, these types of things. So that will continue to build. And one other thing about behavior. We believe that it's bringing more product into the home, which is bringing more users into each home for the many different occasions that we continue to educate consumers on for using.

Speaker Change: And the idea is over time there'll be there'll be new multi packs coming into the system also.

Speaker Change: Different formats different flavors.

Speaker Change: So that will continue to build and one other thing on behavior.

Speaker Change: We believe that is bringing more product into the home, which is bringing more users in each home for the many different occasions that we continue to.

Speaker Change: Educate consumers on for using coconut water.

Michael Scott Lavery: Oh, that's helpful. Great color. Thanks so much.

Speaker Change: No that's helpful. Great color. Thanks, so much.

Operator: Thank you. One moment for our next question. The next question comes from the line of Gregory Porter of Evercore ISI; your line is now open.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Next question comes from the line of Gregory reporter of Evercore ISI. Your line is now open.

Gregory Porter: Hey guys, thank you for the for the question. I was wondering if you could maybe just provide a bit more color on the private label price gaps kind of versus your branded products and you know how you've seen that change. It's something you talked a bit about earlier on the call, but just was wondering if you could provide more color on the quantum there and you know how you plan to respond, if at all. Thanks. Sure, I think what we've said is correct.

Gregory: Hey, guys. Thank you.

Gregory: The question I was wondering if you could maybe just provide a bit more color on the private label price gaps versus versus your branded products. How you've seen that changes I mean, you talked a bit about earlier on the call. But just was wondering if you could provide more color on the <unk>.

Gregory: Jim there.

Gregory: And how you plan to respond.

Speaker Change: If at all thanks.

Martin F. Roper: Sure. I think what we've said historically is that private label pricing tends to track costs or prices, right? And so it swings as the costs move, and there's a lag on that. And so, you know, I think when we look at where we are today, the current private label to branded price gap seems to us to be appropriate and pretty much mirror where they were pre-COVID. And so we think we're back to a more normalized sort of price gap situation.

Jim Stephens: Sure I think what we've said historically is that private label pricing tends to track Cogs costs right and so it swings as the cost move and Theres a lag on that.

Jim Stephens: And so.

Speaker Change: When we look at where we are today.

Speaker Change: Private label to branded price gap seemed to us to be appropriate and pretty much mirror, where they were pre COVID-19.

Speaker Change: And so we think we're back to a more normalized sort of price gap situation. You may remember during Covid, we did not move the branded pricing that much but the private label costs would have moved quite a bit.

Martin F. Roper: You may remember during COVID, we did not move the branded pricing that much, but the private label costs would have moved quite a bit. And so we think we're back to normal. We'll start to see that, you know, we're still lapping a period last year when the gaps were a little tighter. And so probably at the end of Q2, Q3, we'll start to see where we're normalizing where the year-on-year comparisons are the same.

Speaker Change: And so we think we're back to normal will start to see that.

Speaker Change: We're still lapping a period last year and the gaps we're a little tight tighter.

Speaker Change: And so probably end of Q2 Q3, we'll start to lap where we are normalizing and the year on year comparisons with the same we think some of.

Martin F. Roper: We think, you know, some of the growth of private label is that, but some of it is also channel shifting. And then some of it is the fact that we've gained accounts, right? So it's a combination of all things. And in total, we expect long-term private label and branded sales to grow pretty soon.

Speaker Change: The growth of private label is that but some of it is also a challenge channel shifting and then some of it is the fact that we've gained accounts right. So it's a combination of all things and in total we expect long term private label and branded to grow at pretty similar rates.

Speaker Change: Great. Thanks, guys.

Speaker Change: Okay.

Operator: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from the line of Eric Diss-Lauriers of Craig Hallam Capital Group. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Minder to ask a question you will need to press star one on your telephone and wait for your name to be announced.

Speaker Change: One moment for our next question.

Eric Adam Serotta: Our next question comes from the line of Eric lawyers of <unk>.

Eric Adam Serotta: Doug Hallum Capital Group. Your line is now open.

Eric Des Lauriers: Great. Thank you for taking my questions. First, for me.

Eric Adam Serotta: Great. Thank you for taking my questions.

Eric Adam Serotta: First from me.

Eric Des Lauriers: All right, first for me on ocean freight, could you comment on your mix of spot versus futures contracts for shipments here and then maybe how you expect that to evolve for the rest of the year? And then, just kind of related, I think on the last call, you talked about sort of increasing the supply that's coming from Brazil. Obviously, that's kind of a longer-term initiative, with Brazil obviously being where ocean freight is least expensive for you guys to the U.S. Could you just provide some commentary on how that process is going? Maybe quantify that impact for us? It will be great. Thank you.

Eric Adam Serotta: Alright first for me on Ocean freight.

Eric Adam Serotta: Could you comment on your mix of spot versus futures contracts for shipments here and then maybe how you expect that to evolve for the rest of the year and then just kind of related I think last call you talked about sort of increasing.

Eric Adam Serotta: The supply that's coming from Brazil, obviously, that's kind of a longer term initiative with Brazil, obviously being where ocean freights, our least expensive for you guys to the U S.

Eric Adam Serotta: Could you just provide some commentary on how that process is going.

Eric Adam Serotta: Maybe quantify that impact for us that'd be great. Thank you.

Martin F. Roper: Sure. On the Ocean Freight side, our position as it relates to coverage on the contract on Ocean Freight remains pretty much what it was last time we spoke to you. We have not entered into what we would regard as long-term Ocean Freight contracts, which, you know, we would typically think about as 12 months. We continue to operate on what we would call spot, which, as we talked about last time, does not necessarily reflect what you're seeing on the indexes.

Speaker Change: Sure on the Ocean freight side, our position as it relates to sort of coverage on contract on Ocean freight remains pretty much what it was last time, we spoke to you.

Eric Adam Serotta: We have not entered into what we would regard as long term ocean freight contracts, which we typically if you think about it is 12 months.

Eric Adam Serotta: We continue to operate on what we call spot.

Eric Adam Serotta: But as we talked about last time does not necessarily reflect what youre seeing on the index is.

Martin F. Roper: You know, we're basically in a situation where month by month we are communicating with carriers to say, hey, we have 200 containers to go from A to B. What's your price? And we're bidding them off against each other. And that is resulting in rates that are below what are reported spots and that we think are competitive.

Eric Adam Serotta: Basically in this situation where month by month, we are communicating with carriers to say Hey, we have 200 containers to go from a to B, what's your price and we're bidding them off against each other and that is resulting in rates that are below what our reported spots and that we think are competitive.

Martin F. Roper: We have entered into shorter-term arrangements on certain lanes where we need to guarantee capacity and, particularly, guarantee that the ships stop at the ports that we need them to, but those are typically two to three months' commitments on specific lanes. So, at this point in time, we remain, you know, very under contracted on a forward basis. And the reason for that is that when we've asked for sort of long-term proposals, to us, those proposals look unreasonable as to what we think the overall price is likely to be over the next twelve months, given the excess capacity that exists in the shipping ocean business.

Eric Adam Serotta: We have entered into shorter term arrangements on certain lanes, where we need to guarantee capacity and particularly guarantee that this ship stuff out.

Eric Adam Serotta: So if we need them too, but those are typically two to three months commitments on specific lanes. So at this point in time, we remain.

Eric Adam Serotta: Very under contracted on a forward going basis.

Eric Adam Serotta: And the reason for that is that when we've asked for.

Eric Adam Serotta: Instead of long term proposals to us those proposals look unreasonable as to what we think the overall the pricing is likely to be over the next 12 months given the excess capacity that exists in the chipping Ocean business and given the consumer the demand for those containers.

Martin F. Roper: And given the demand for those containers, you know, we still believe we're in an over-capacity situation and that we are better off operating as we are than committing to long-term contracts that, you know, are being proposed at higher rates than we're currently operating at.

Eric Adam Serotta: We still believe we're in a overcapacity situation and that we are better off operating as we are committing to long term contracts that are being proposed at higher rates than what currently thanks.

Martin F. Roper: And then as it relates to increasing supply from Brazil or anywhere, our objective currently is to, you know, as we see growth continuing well into the future, increase our supply in all of our regions. You might see, for example, that we announced a couple of deals in the Philippines over the last several weeks to expand supply there, and we're looking at new supply partnerships in other places. But also as we continue to expand supply and, you know, prepare to keep up with contingent demand.

Eric Adam Serotta: And then as it relates to increasing supply from Brazil or anywhere our objectives currently as to as we see growth continuing well into the future is to increase our supply in all of our regions you might see that we announced a couple of deals in the Philippines over the last.

Eric Adam Serotta: Several weeks to expand supply there.

Eric Adam Serotta: We're looking at new supply partnerships and other places also as we continue to expand supply in.

Eric Adam Serotta: Prepare to keep up with the continued demand.

Martin F. Roper: And then this last question for me on sort of innovation and new, new uses. So you mentioned the sort of exclusive new drink at Target. I guess just first on that, I mean, is this something that you expect to remain exclusive with Target? Might this expand to other retailers or channels? You know, should we see something similar to this partnership with Target elsewhere?

Speaker Change: Okay. That's helpful.

Speaker Change: And then just last question from me on sort of innovation.

Speaker Change: New new use occasions so.

Speaker Change: You mentioned, the sort of exclusive new drink at target.

Speaker Change: I guess just first on that I mean is this something that you expect to remain exclusive with target might this expand to other retailers or our channels should we see something.

Speaker Change: Similar to this partnership with target elsewhere, and then just kind of touching on the usage occasion of coconut water as an alcohol mix. Obviously last year. There was the partnership with <unk> in Q I guess featured cocktails at some summer events.

Martin F. Roper: And then just kind of touching on the usage occasion of coconut water as an alcohol mixer. Obviously, last year, you know there was the partnership with Diageo, and a few, I guess, featured cocktails at some summer events. Can you comment on plans for this year of sort of continuing to educate the consumer on the use of coconut water as an alcohol mixer and maybe any specific comments on the Diageo partnership would be great. Thanks.

Speaker Change: Can you comment on plans for this year of sort of continuing to educate the consumer on the.

Speaker Change: Coconut water use occasion, as an alcohol mix, there and maybe any specific comments on the <unk> partnership would be great. Thanks.

Martin F. Roper: Yeah, so treats, Vita Coco treats, we're really excited about the initial results, but it's early, and it's early results. What we're doing there is, you know, looking at a new occasion for consumers, which is, you know, using basically a coconut milk beverage as kind of a, you know, mid-afternoon treat type of thing. Initial results scans at target are great, probably better than we might have expected going in.

Speaker Change: Yeah, so treats.

Speaker Change: Cocoa treats were really excited.

Speaker Change: About the initial results, but it is early in its initial results.

Speaker Change: What we're doing there is looking at a new occasion.

Speaker Change: For consumers, which is using basically a coconut milk beverage is kind of a.

Speaker Change: Mid afternoon treat type of thing.

Martin F. Roper: And so we're excited about, you know, looking at it and continuing to expand it over the course of the year and into next year. As it relates to Vita Coco as a cocktail mixer, that's something we've been working on now for going on two years. It's become a significant part of our communications, our consumer communications, and it's working. And we're putting, you know, we spoke about the fact that we're building out a bigger food service team, and part of that is, you know, making sure that as bars and restaurants and clubs start putting cocktails on the menu, which we're seeing happening everywhere, Vita Coco is the choice and is through the right distribution systems to be So it is an important occasion and a growing trend.

Speaker Change: Initial results scans at target are great.

Speaker Change: Probably better than we might have expected going in and so we're excited about looking at it and continuing to expand it over the course of the year and into next year.

Speaker Change: As it relates to.

Speaker Change: <unk> as a cocktail mixer, that's something we've been working on now for going on two years.

Speaker Change: It's become a significant part of our communications.

Speaker Change: Our consumer communications and its working and were putting.

Speaker Change: <unk> spoke about.

Speaker Change: Fact that we're building out a bigger.

Speaker Change: Yes.

Speaker Change: Foodservice team and part of that is.

Speaker Change: Making sure that as bars, and restaurants and clubs start putting cocktails on the menu, which we're seeing happening everywhere.

Speaker Change: <unk> Vita Coco as the choice and is through the right distribution systems to be able to get there and BV.

Speaker Change: Mary coconut water that's used for that occasion.

Speaker Change: So it is an important occasion, and a growing acacia with beliefs or consumers.

Eric Des Lauriers: Great, I appreciate that, Colin. Thanks for taking my questions.

Speaker Change: Okay I appreciate that color thanks for taking my questions.

Martin F. Roper: Thanks, thanks, thanks.

Speaker Change: Thanks.

Operator: Thank you. One moment for our next question. The next question comes from the line of Eric Serotta of Morgan Stanley. Your line is now open.

Speaker Change: Yes. Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Next question comes from the line of Eric <unk> of Morgan Stanley. Your line is now open.

Eric Adam Serotta: Hey, just a quick follow-up. In terms of the top line guidance increase, was that attributable just to private label or branded, or both? Any color on that would be helpful.

Eric: Hey, just a quick follow up.

Eric: In terms of the topline guidance increase.

Eric: Is that attributable just to private label or branded or.

Speaker Change: Paul.

Speaker Change: Any color on that would be helpful.

Martin F. Roper: It's both, Eric. It's just us taking a look at, you know, the underlying health of the business, the year-to-date performance, and... I'm trying to give you guys the best information we can on where we expect the year to land.

Martin F. Roper: It's It's both.

Speaker Change: Yes.

Paul: Its bulk Eric it's just us taking a look at the underlying health of the business and year to date performance.

Paul: And trying to give you guys. The best information, we can on where we expect the year to land.

Speaker Change: Got it thank you.

Martin F. Roper: Thank you. I am showing no further questions at this time. I would now like to turn it back to Martin Roper for closing remarks.

Speaker Change: Alright, Thank you I'm showing no further questions at this time I would now like to turn it back to Martin Roper for closing remarks.

Martin F. Roper: Thanks, Stephen. I'd like to thank you all for joining our Q1 earnings call, and we look forward to talking to you when we report our Q2 earnings. Thanks very much.

Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Martin F. Roper: Thanks, Stephen I'd like to thank you all for joining our Q1 earnings call and we look forward to talking to you when.

Martin F. Roper: When we report our Q2 earnings thanks, very much thanks, guys.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

Speaker Change: Okay.

Martin F. Roper: [music].

Martin F. Roper: Okay.

Martin F. Roper: [music].

Q1 2024 The Vita Coco Company Inc Earnings Call

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