Hello and welcome to the Vita Coco Company's third quarter 2026 earnings conference call. My name is Michelle. 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 like now to hand the call over to John Mills with ICR. Please go ahead.

Thank you and welcome to the Vita Coco Company third quarter 2026 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's 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.inc. TheVitaCocoCompany.com. Accompanying the press release is a presentation covering our commercial and financial performance results, also available on the website. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events, and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, and Mike Curbin, our co-founder and executive chairman.

Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results. We had another very strong quarter with the demand acceleration we saw in the first half continuing through the third quarter across all of our major markets. What's most encouraging is the strength we're seeing across both the coconut water category and the Vitacoco brand. Consumer demand remains strong, and our teams have done a great job executing in what continues to be a dynamic supply environment. The coconut water category remains incredibly healthy and continues to be one of the fastest-growing categories in the beverage aisle. According to our retail scan data, year-to-date category retail dollar sales grew 28% in the US and 66% in our measured European markets. Vita Coco coconut water, excluding coconut milk-based products like treats, also grew 27% year-to-date in retail dollars in the US and 54% in our measured European markets. These results reinforce our belief that coconut water is still in the early stages of achieving mainstream appeal. Household penetration remains meaningfully below mainstream juices, sport drinks, and other functional beverage categories across our major markets, which we believe provides a long runway for our growth. Our strategy is straightforward. Grow the coconut water category while expanding our share through strong brand performance and strategic private label relationships. We're focused on recruiting new households, increasing consumption occasions, and reinforcing Coconut Water's functional benefits. We believe the growth we're seeing today is evidence that this strategy is working. As we think beyond this quarter and continue to plan for what we believe will be many years of continued growth, we're very focused on enhancing and expanding our supply chain, which we believe is one of our greatest competitive advantages. We're investing in our long-term supply capabilities, adding new factory partnerships, and supporting existing partners as they expand capacity. While it's too early to provide financial guidance for 2027, based on the capacity we have today and the additional capacity we expect to bring online in the near term, we expect our supply will be able to support a continuation of current volume growth trends into next year and beyond. As we discussed in July, the COPR acquisition gives us a meaningful position in the super premium Thai Nam Hom segment of coconut water, an attractive part of the category where we previously didn't play. We estimate the super premium chilled segment represents approximately 13% of U.S. coconut water sales and is growing faster than the overall category year to date, with retail price points nearly double those of shelf-stable coconut water. The Coper business has operated smoothly since closing in late July, and our progress on integration has exceeded our expectations. I want to thank everyone involved for the work they've done to bring the two businesses together as one high performing coconut water company. As we look to 2027, we plan to continue using innovation to create new occasions, reach new customers, and expand where and how coconut water is consumed. Over the next couple of months in the U.S., we'll be launching Vita Coco in what we're calling our sports-inspired flavors, including Lemon Lime, Blue Raspberry, and Fruit Punch. It's the coconut water consumers already know and love from Vita Coco with flavors designed to appeal to the growing number of younger consumers looking for alternatives to traditional sports drinks. We'll also be launching Vita Coco Kids, a six-pack, eight-ounce Vita Coco pure coconut water designed specifically for younger children and families. Additionally, we're planning the introduction of a new 310-milliliter slim can, primarily targeted toward food service accounts, giving us another format to expand into new channels and new occasions. And we're continuing to build out the Vita Coco Treats lineup with a new piña colada flavor. Taken together, Copra and these innovations are great examples of how we're thinking about the opportunity ahead of us playing more fully across the coconut water category, bringing new consumers into it and creating more occasions and channels for them to enjoy our products. We spent years building this category, our brand and our supply chain. I believe coconut water will become a major global beverage category over time and that Vita Coco is well positioned to be the leading brand. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike. Good morning, everyone. I'm pleased to share details on Vita Coco's robust third quarter performance. Our net sales in the quarter were up 34%, driven by the strong growth of Vita Coco coconut water of 15% and private label growth of 152%. The coconut water category and our brand trends are very strong across all our major markets. I am particularly encouraged by the exceptional growth rates being delivered by our European teams. In the U.S., as we analyze the source of our accelerated demand, we estimate that just over half of our U.S. Vita Coco branded business growth year to date is attributable to increased household penetration, with the remaining coming from velocity growth per household, a pattern that signals strong brand momentum and potential. Our private label shipment growth for the quarter reflects the addition of the Copra private label business since late July. multiple private label distribution gains, and the underlying category growth. With respect to service levels, demand year-to-date for both brand and private label product continued to exceed our projections. Within the quarter, our supply chain became tighter, resulting in reduced service levels, and our shipments lagged our continued strong retail scan growth. Additionally, in the most recent weeks, we have seen instances of retail out-of-stocks slightly depressing our scan growth. While production levels are sufficient to meet demand, container availability during the quarter was challenging, with inventory building at suppliers. In October, we made progress, and we expect our service levels to improve during the fourth quarter. We expect to see strong shipment growth through year end, rebuilding inventory throughout the system, and preparing for another strong year in 2027. As we think about inflation and pricing moving forward, we are seeing higher ocean freight costs and many more. As we communicated last quarter, we chose to apply our tariff refunds against our cost increases rather than taking pricing this year in order to support our consumers and retail partners while we assessed which affects our long-term structural cost increases. Starting in May, we saw ocean freight spike while our contracts provided a degree of protection in negotiations with carriers Many of the increases were positioned as fuel or demand surcharges on top of contract rates. Accompanying these cost increases were some service disruptions that impacted timely arrival of containers to the selling markets in the third quarter and delayed our ability to rebuild our inventories. To secure containers to meet our demand, we have purchased spot rate containers and paid significant surcharges over contract rates with our contract carriers. We view current ocean freight costs as unusual and likely temporary, and have seen rates to Europe ease from the July peak. We expect other lanes to also normalize over time. The ocean freight cost increases along with the other inflationary effects previously mentioned will impact our fourth quarter gross margins on our reflected and our updated guidance. We have communicated to our distributor and retail partners our intent to implement pricing adjustments in early 2027 to compensate for the cost increases that we view as structural. while the specific price increases vary by product to market, our objective with these adjustments is to meet our branded and private label gross margin targets, assuming some easing in current ocean freight costs. I'm pleased to say that the COPRA integration is proceeding smoothly. I recently had the pleasure of visiting the COPRA facility located in Ratchaburi Province, Thailand, an ideal location for sourcing Nam Hum coconuts. I was impressed by our local team the capabilities they've built and the quality of the operations. We believe that we produce the best quality product in the super premium segment due to our integrated coconut water extraction and packaging model, which we intend to preserve and scale. As we look to the remainder of 2026, we are raising our four-year guidance to reflect the continued momentum of our core business and the early performance of the corporate acquisition. We expect that our capacity utilization will remain high early in 2027 before expecting new capacity starts to provide relief. Further out, we are pleased that our work on capacity additions appears on track to support a continuation of current volume trends and should allow us to operate under our preferred 85% utilization model in 2028 based on our current assumptions of growth trends and capacity timing. To summarize, our category is very healthy. Our brands are performing well and our team is executing at a high level. We are confident in our team's ability to finish 2026 strong and are enthusiastic about the plans we have in place for 2027. Our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2026 financial results and our outlook for the full year. For the quarter, net sales increased $62 million, or 34% year-over-year, to $244 million. Driven by strong Vita Coco coconut water, net sales growth of 15% and private label growth of 152%. Organic growth for the quarter was 18%, with Copra contributing $29 million in the Americas. We were reporting Copra's private label business in our private label category and Copra's branded and commodity business reported in our other product category. On a segment basis within the Americas, net sales grew 31% to $199 million, led by Vita Coco coconut water that grew net sales by 8% to $143 million. This was driven by a 9% volume increase and a slight net price mix decline. Private label increased net sales 224% to $46 million, driven by 110% increase in volume and a price mix increase of 54%, reflecting the benefits of approximately 10 weeks of Copra volume and the benefit of Copra's premium price point. Throughout the year, the accelerated retail growth in Europe and in the U.S. for both branded and private label SKUs tightened our available inventories. and in the U.S., reduced inventory at our distributors. This has resulted in intermittent service issues across most of our markets on some SKUs. The potential lost shipments from reduced inventory this quarter, combined with strong U.S. shipments in Q3 of last year, which built distributor inventory for the Q4 Walmart reset, resulted in our U.S. Q3 Vita Coco shipment growth lagging another strong quarter of U.S. retail scan performance of 23%. We expect to see U.S. shipment growth exceed scan growth over the coming months as we rebuild system inventory and are better able to meet demand. The expectation is embedded in our updated guidance. Our international segment net sales were up 48%, where we continue to see exceptional net sales growth across branded and private label coconut water. Vita Coco coconut water net sales grew 57%, and private label increased 27%. For the quarter, consolidated gross profit was $93 million, an increase of $24 million versus the prior year. Gross margins finished at 38% for the quarter, broadly in line with last year. Gross margins benefited from minimal tariffs this year as compared to last year, which is mostly offset by higher domestic logistics costs and the mixed impact of COBRA. Moving on to operating expenses. SG&A increased $6 million to $47 million, driven by acquisition-related costs, increased investments in personnel supporting our growth, the inclusion of COBRA, as well as higher sales-related expenses. Net income attributable to shareholders for the quarter was $35 million, or $0.58 per diluted share, compared to $24 million, or $0.40 per diluted share in the prior year. The $11 million increase in net income was primarily driven by the increase in gross profit from our strong core business growth, plus the benefits of COPRA, partially offset by higher SC&A investment, increased income tax expenses, and unrealized derivative losses this year versus gains last year. Our effective tax rate for Q3 was 20% versus 22% last year. This brings the effective tax rate to 21% on a year-to-date basis in line with our expectations for the year. Q3 adjusted EBITDA was $53 million or 22% of net sales, up from $32 million or 18% of net sales in Q3 2025. The increase was primarily due to the increased gross profit partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow, as of September 30th, 2026, our balance sheet remained very strong, with total cash on the hand of $152 million and no debt under our revolving credit facility. Year to date, through September, we reduced our net cash by $45 million, driven by the net investment of $139 million to acquire Cobra and a return of cash to shareholders through our share repurchases of $62 million. Our underlying cash generation remained very healthy, driven by $115 million of net income and a $33 million reduction in inventory, partially offset by a net working capital outflow of $4 million, reflecting a higher accounts receivable, partially offset by an increase in accounts payable. During the quarter, we repurchased approximately $42 million of our shares under our current $105 million authorization. Since the end of the quarter, we have purchased an additional $8 million for a cumulative year-to-date purchase of $70 million, leaving us with $11 million remaining under the total $105 million authorized. As it relates to guidance, we have continued to experience exceptional category trends in our major markets and have very strong confidence in our team and our Vita Coco brand. As a result, we are raising our full-year expectations for both net sales and Adjusted EBITDA. We now expect net sales between $810 and $820 million with expected gross margins for the full year of approximately 40%, delivering Adjusted EBITDA of $170 to $175 million. Our expectations for the strong net sales growth is built on our assumptions for the U.S. category growing in the mid-20s on a percentage basis and our international business led by the UK and Germany, maintaining very healthy growth rates. We now expect consolidated Vita Coco coconut water net sales growth of approximately low 20%, with our U.S. Vita Coco net sales growing in the high teens. Due to the strong U.S. category growth, increased distribution, and the inclusion of copra, we now expect full-year private label net sales growth of 110% to 120% in the U.S. Full year gross margin expectations remain unchanged at approximately 40%. While some of the inflationary cost of good effects were visible in this quarter's results, the full impact of increases in Curlson early summer will primarily hit in Q4. As a result of our mixed shift in these higher cost of goods factors, we expect gross margins in Q4 to be approximately 33%. As we indicated previously, we deferred raising prices this year until we understood the permanence of the cost increases, To return our gross margins to our targeted range, we have communicated to retailers pricing increases to take effect in Q1 of 2027. While we may experience gross margin variability in the short term due to ocean freight rates and product mix, our long-term gross margin aspirations remain unchanged and the high 30s approaching 40%. From an SG&A perspective, we continue to invest in our brand and supply chain in a disciplined way to support long-term growth while integrating Copra with less spent to date than expected. We expect to deliver SC&A leverage of approximately one and a half points as a percentage of sales for 2025. As we exit 2026, we are excited about the momentum going into 2027 of the category in our brand. We remain excited about the opportunity to grow both our branded and private label business next year. And with that, I'd like to turn the call back to Martin for his closing remarks.

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

Thank you. And to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. And our first question comes from Bonnie Herzog with Goldman Sachs. Your line's open.

Hi, good morning. This is Ethan Huntley on for Bonnie. Thanks for taking our questions. I guess my first one here is on margin and sort of your margin trajectory from here, which I know remains sort of a big area of focus. Obviously, you know, you have some margin pressures in Q4 and there's a lot to unpack there. But, you know, could you maybe just talk about your margin trajectory beyond this year? Are there any levers you can pull, you know, beyond pricing to help offset any of these pressures? So maybe just a high-level question here on your margin profile heading into next year, you know, recognizing your confidence in the high 30% range over time.

Yeah, thanks, Ethan.

So the current margin pressures are primarily being driven by transportation, ocean freight domestic logistics type issues, there's some underlying inflation at the factories and in packaging, which is more permanent. And so our goal in the pricing that we have and are communicating to retailers and partners to take effect in early 27 is to cover the costs that we think are pretty permanent but it won't fully cover like the current transportation peak that we're in. And we sort of reconciled ourselves to the belief that one, that's a peak that will subside and two, if it doesn't subside, we would need to take further pricing in order to meet our gross margin goals. So, you know, next year's gross margin, you know, could be a pretty wide range based on what happens to ocean freight. But in the long term, you know, we're very comfortable taking pricing if we need to if these costs are permanent.

Very helpful. And then maybe just a quick follow-up here on sort of your international strength. Obviously, impressive volumes. I think they're up 42% in the quarter. I know international has been an area of focus for you recently. So if you could maybe just outline some of the key drivers of this strength, how sustainable this strength is over the next couple quarters and into next year. So maybe just sort of a high-level question here on international, the key growth drivers and the sustainability of growth into next year. Thank you.

Sure. Well, I think you know we've had a very nice UK business for quite a while now, and it's reached the point where we break it out in our 10K. But our European team, which is based in London, has done a really nice job getting some other markets moving. I think the primary one we've called out is Germany, that is moving very strongly, showing growth rates over 100%. and that's obviously pulling the total international volume along very strongly. You know, that said, I think the UK growth was in the 30s on a scan basis. I hope I have that right. So it's very, very healthy. When we saw the acceleration of demand that we've referred to in the US that happened earlier this year, very late last year, it also impacted our international business and that has accelerated beyond our expectations too. Looking to the future, the per capita consumption rates in the UK are still order of magnitude a third of the US. In Germany, it's a sixth of the US. And the US is like 66% of Australia. So there's a lot of upside in the US still. But in Europe, there's still a lot of upside if we can get those markets to current US penetration. That's how we think about it. We certainly expect next year for the international growth to continue on a very solid base. Obviously, it won't compound at the high. I kind of think you said 80, but it won't compound at those rates because it's the base is getting bigger. But the business is very healthy and we're very positive.

I appreciate the color. I'll pass along. Thank you.

Thank you. And the next question will come from Christian Junkware, Bank of America. Your line's open.

Good morning, everyone. You have Christian on for Pete. Thanks for taking our question. Can you help quantify the impact of out-of-stocks during the quarter? And presumably, if you had more inventory available, sales would have been higher this quarter. Am I right in thinking that? And as you're rebuilding inventories using containers at spot rates, should we think about that as primarily... 4Q Gross Margin Headwind, or does that potentially leak into the first quarter of next year also? Thank you.

So very difficult to quantify completely lost sales, right? And so maybe you've moved past the event and can go look at it in totality. Our supply constraints started to tighten during the quarter and were quite tight at the end of the quarter. And there's no doubt that we haven't shipped from our warehouses what our customers, you know, fully wanted in the quarter. So there's definitely deferred sales. How much of that is lost is open. I think the scan data was still very strong. some signs last couple of weeks that maybe a little bit of weakness that we would ascribe to potential inventory issues, which might be lost consumer consumption, but that's sort of been in the last couple of weeks. And currently, we're not happy with our service It's complicated in that we have been able to get containers, but the containers have been taking longer to get to us. There's been some port congestion, particularly in the trans-shipment ports in China that has delayed containers. So this has been very hard to predict. We're pretty comfortable that in the last couple of weeks, we've started to see more containers being offered to us at very high rates, but the availability is significantly improving at our shipping ports. and that inventory should arrive if those containers are supplied to us, you know, it's sort of in the December time period and whether that will impact Q4 in the inventory recovery in the system or Q1 is certainly debatable and we could see either occur depending on how things flow. So very difficult to do, but certainly our shipments and reported net revenue was a little depressed in the quarter because we weren't able to fulfill demand across branded and private label SKUs. and Q4 Recovery should be good, but how good is, again, difficult to predict given exactly how those containers would flow.

Perfect. And a quick follow-up, very helpful, the comment on, you know, the latest scanner data, like showing this development and going to the scanner data, is there... Anything in the year-ago period that we should be cognizant of, like any sort of promotion that retailers you did or anything? If I remember correctly, the scanner data in September, October was very strong in the year-ago period. And that will be it for me.

Thanks, guys. Nothing particular in the scanner data this year. I think last year you were... Cycling, the out-of-stocks in 2024 and the addition of an MVM back into the cycle. But this year, year-on-year, it's pretty stable. There's always items moving around, but nothing that we would call out as a huge driver.

And not promotional-related, so not directly answering your question, but in mid-late November last year, the Walmart resets took place. and that quickly became visible in a slight jump in the scan trends. So, we're going to roll that and while we expect to roll it pretty positively, how positively, obviously we don't have the data on to see how that rolls.

Perfect. Thanks, guys.

Thank you. And the next question is going to come from Eric Serrata with Morgan Stanley. Your line's open.

Great. Thanks so much. A couple of follow-up questions here. One, in terms of the scanner data and your guide, looks like both the recent growth of your branded-in scanner and your branded guide versus the category shows some market share losses. Could you help us unpack that? Do you think that these supply issues are impacting you guys more than competitors for some reason, maybe relating to sourcing countries, or is this really another dynamic going on? and then on the COPRA side, the sales came in a bit better than I think we and the market had expected in the quarter. I know you didn't have a ton of visibility going back to July when you announced the deal, but you mentioned COPRA costs or integration is coming in better. Is the top line and your guidance for COPRA top line coming in higher than expected? I think you were talking something like 80 million for the balance of the year or for the second half when you announced the deal. Thank you.

So, Eric, there's a few things in there. Let me talk about COPRA. We are just getting to kind of know the business and the shipment timing. The quarter was a bit stronger. We also, you know, we account for private label based on orders and inventory. So it's a bit of movement there. We had indicated approximately 40 million for the time, the ownership time we had within the year. And I would say overall, Cobra is an element of a really strong category. And so it is Overall, we're seeing the category remain quite strong and Cobra is benefiting for that and gaining share.

But Cobra is also operating at capacity. So, you know, right now the upside is a little limited. I think we could probably sell more if we had it, but we don't and we won't probably until mid next year when our capacity additions potentially give us some ability to sell more. So I'd say we're very happy with the integration. We're very happy with the team. And yeah, net revenue may be slightly ahead. But to Corey's point, some of that might be accounting and or just timing. And it's still too early for us to significantly change expectations, which are currently constrained by capacity anyway.

Great. And then the branded market share trends or growth that you're seeing and expecting versus the category. How's the supply issues playing into that? Can you unpack that more broadly? And do you think your supply situation is different from competitors?

So I'd start off by saying, you know, the brand growth is very healthy. It might be lacking the category a little bit in the most recent data, which is certainly partially due to, you know, supply constraints. But, you know, within the category, certainly private label is performing pretty strongly. So, you know, that's taking a little bit of share from everybody. As it relates, and I don't think that's particularly a long-term issue, but I think we mentioned that a major retailer was adding a private label, and that's why it's a short-term issue when that sort of happens. And then as it relates to what we see on the shelf relative to others, I'd say the demand for the category is very healthy. I think everybody has similar issues. Everyone's issues are a little different. Most of our competitors source from Vietnam and Thailand, which have direct shipping available. So they don't have to deal with the trans shipping issues that we have coming out of the Philippines and some of our other countries that go through China or Singapore, depending on the routing. So they have sort of different issues. They're still exposed to the same ocean freight peaks, et cetera. And even those countries, I think, have reported increased exports. So the demand on the shipping is probably pretty similar to what we're seeing. But again, we don't track that particularly closely. That being said, we do have some private label customers where they are sourcing from some of the business from a competitor. And as far as we can see, we are performing better than those.

Got it. Thanks so much.

Thank you. And the next question is going to come from Michael Lavery with Piper Sandler. Your line's open.

Thank you. Good morning.

I just wanted to come back to the capacity color that you had mentioned. And within that for next year, could you give any sense of if there's considerations we should keep in mind between I think you're asking about how do we think about supplying brand and private label and prioritization.

I think that's what you're asking.

One, we have great private label relationships, and we ask them for projections, and then we commit to trying to meet those projections. Similarly, on our brand team, we ask them for projections, and we try to meet those projections. I think it's fair to say that our brand team is a little more optimistic in their projections than maybe our private label customers are in theirs, so that creates a little bit of a challenge when it comes to fulfilling if the demand remains very strong. The demand has been very strong. We have exceeded our commitments to our private labels and customers this year. And we've allocated inventory, we think, very fairly. These are long-term relationships. We view it as long-term important to us to maintain them in the business. And I think we've talked about this, that we try to invest in the category and grow the category and benefit from our share of the brand and then our share in private labels. What we ask is for good forecasts, and then we commit to do everything we can to try and meet those, and if demand exceeds those, there's certainly some allocation, but we try to meet it fairly. Some of it's difficult, like not all of our factories produce all SKUs. Maybe we haven't ordered enough packaging material for that private label customer, so there are other factors that go into this, but what we really need is great forecasts, and then we commit to trying to deliver them, and I think we've done a really good job of doing that.

Okay, that's helpful. And just on the innovation for next year, the sports drink flavors, can you just elaborate on some of the consumer insights or research there and maybe what some of your incrementality expectations are for that?

Yeah, I think, you know, we've been talking about a year and a half now about leaning harder into sports hydration.

From a communication standpoint, we've been doing that and it's been working really well. I think quite a bit of the demand increases that we've seen are related to that communication, related to bringing in consumers for that occasion. And so as we think about that, we still see that one of the barriers to adoption in the category is taste or perception of taste. So, you know, we've done a lot of work on this and we think as we continue to communicate that coconut water has three and a half times the electrolytes of a sport drink and comes from nature and it comes from a tree, adding flavors that are more recognizable, especially to young consumers who drink sport drinks, whether they be blue, green, or red, we think is going to give us the ability to bring in more young consumers who whose families are looking for healthier hydration.

Okay, great. Thanks. I'll pass it on.

Thank you. And the next question will come from Eric Delorius with Craig Hallam. Your line's open.

Great. Thank you for taking my questions. My first one here is actually a bit of a follow-up on that last question. So younger consumers, you know, seem to be an increasingly significant portion of your demand growth. I think Treats were an initial attempt to appeal to younger consumers. We obviously have another Treats product announced here, Vita Coco Kids, and obviously the sports-inspired flavors that you just mentioned. Can you just kind of talk about your positioning with the younger demographic compared to competitors, what you're seeing from that demographic, and how much we should be looking at these new products broadly as sort of incremental opportunities versus perhaps some cannibalization risk? Just want to get a better sense of kind of how you're viewing that younger demographic.

When you think about it, it's pretty impressive. A 20-something-year-old brand that continues to age down has been something that's helped us a lot. We've been really successful with it, and we continue to be. Treats has really worked from that perspective. We've brought in quite a few new consumers to the brand that have never drank the brand before. and that's worked really well and we think part of not only driving treats but driving the success of the brand and of the category in general. We think this can do the same. We've talked about our partnerships in youth soccer and youth sports and going deeper into that. to go deeper into that with not only the messaging around three and a half times the electrolytes of a sport drink, but now flavors that are more recognizable to these consumers, these young consumers, we think will add a lot of benefit and bring in a lot of new consumption, new consumers, new households.

That's great to hear.

And then my other question, so you've discussed some of your supply chain investments. Do you expect these investments that you're making now to Be able to maintain volume growth. Obviously, it's been quite robust, so certainly very encouraging to hear. Just curious if any of these investments or plans that you're making can also potentially address any of the supply chain disruption risks that we've seen here and there over the last several years. Maybe just help shed some light on what, if anything else, is going on at the supply chain level beyond capacity increases. Thanks.

Sure. Well, we're always endeavoring to diversify our supplier base, both for geographic reasons that could deal with then political or environmental factors. I think we sort of indicated that the Philippines is our largest supply country, Brazil is second, and Brazil and the Philippines supply the majority of our product, but we have reasonable share elsewhere. and so when we're looking for new partnerships, we're always balancing those issues. Unfortunately, everywhere we source coconuts from requires ocean freight. So we haven't yet been able to create a meaningful way to sort of dilute our reliance on that beyond some of our sort of more mixed products do use concentrate and we are able to produce them a little more locally. But that currently is, you know, it's not insignificant in our product portfolio, but since most of our product portfolio is Vita Coco Blue, it's not a significant effect, but we, you know, have made progress in that area to try and de-risk those things.

That's helpful. Thank you for taking my questions. Congrats again.

Thanks.

Thank you. And the next question will come from Jim Solera with Stevens. Your line's open.

Hey guys, good morning. Thanks for taking our question. Martin, I wanted to expand on something you just said and answer that last question. If I look at your deck, it looks like the new sports-inspired flavors are from Concentrate. And so I wonder if we see success there, which I anticipate given the consumer engagement with that occasion, is that much easier to scale than the traditional, you know, not from Concentrate blue bottle product?

That's part of the objective, right? So sport is from concentrate, so are quite a few of the flavors now. So that gives us not only the ability to potentially scale, but also the ability to potentially produce in different places, produce in country. And so that is clearly a benefit of the formulation.

and I would say that producing from concentrate gives us some flexibility, particularly to avoid ocean freight. But if these products do scale, we might still choose to produce them in the tropics because the production cost of doing so, if ocean freight is at normal historical levels, remains very attractive and we can fill out, you know, capacity that our suppliers have put in, you know, with tetra lines, et cetera. to do it. So I think the benefit of being from concentrate, particularly on new items, is it allows us to produce much closer to the market and respond to demand quicker on the innovation side. But the economics long-term could be much better if ocean freight returns to historical levels by producing in the tropics. So it's very dependent on where ocean freight is.

If you're able to give any context, is the initial run of the sports-inspired flavor going to be produced domestically or near domestically? And can you give us a sense for the margin of that product relative to the core lineup?

So most of our innovation that uses concentrate we try to produce on sort of in locations that don't involve ocean freight, but maybe not domestic, but maybe across the border. and margins on that tend to be lower than our long-term goals, like you'd expect in innovation, right? But in the innovation, when we look at it, we try to design innovation so that if the volume comes, it meets our long-term goals. Great.

If you don't mind, if I sneak just one other quick one on capacity. I just want to make sure we think about the front half of next year. It's seeming like it's gonna be a little bit more capacity constrained. Is the right way to think about that? That sort of the upper bound of sales in any given quarter is sort of where the three Q number came in in that kind of $240, $250 million range? Or is it just we have like a trickle of capacity in the first half and in the back half of the year we have a wider capacity coming online?

I think what we've indicated is the capacity that we have, we think, supports continuation of current volume trends through next year. Certainly, the first half of next year, we expect to be pretty tight, and there are capacity additions coming on mid and next year that help us in the back half and give us sort of further upside and, frankly, prepare us for a continuation of those trends in 2018. You know, planning capacity, we're having to make these decisions 12, 18, 24 months out. So the capacity we have today was cool for, you know, 18 months ago when we were thinking that growth rates, you know, were in the mid-teens. It's obviously not what we're experiencing. So that's why we're tight. But we see a light at the end of the tunnel, but we certainly have some constraints in the first half of next year as to what the max could be. And those constraints sort of fall away a little bit, certainly by Q4 of next year. And our business has seasonality, so the Q1 is typically not a particularly large season. and I'm not sure we could hit record numbers in any way because that's not how we sort of plan for it and we want inventory for Q2 when there's a lot of summer promotional stuff. So Q2 would probably be the max next year before the capacity comes in.

If I could just add, I think Martin mentioned in the prepared remarks that we have the supply to meet the current demand and we're building inventory but it happens to be more on the water and in the production countries. It's getting the product here fast enough that has been the challenge as of late. And I think that's just important to recognize is that we have the product to meet the demand, but just getting it in country has been a challenge as of late. Great. I appreciate the thoughts, guys. I'll pass it along.

What's up, man? You doing all right? Yeah.

Thanks. Thank you. And our next question comes from Rupesh Parikh with Oppenheimer. Your line is open.

Good morning, and thanks for taking my questions. So as we look towards FY27, just curious if you have any early reads on distribution opportunities. And then earlier in the prepared comments, you discussed a number of some of your innovation plans for next year. So just curious whether you expect the innovation for FY27 to maybe be more impactful versus what you saw in FY26. Thank you.

So on the innovation question, You know, I think you can see from the investor deck where our ACV is. And I think we expect, you know, to make some progress next year. Obviously, we don't know, we haven't been communicated set changes yet for the April, you know, May sort of time period. We are expecting Walmart to update their set in the next four weeks. certainly, you know, our expectations based on, you know, the success of what they did last year is to sort of improve the set. What that exactly means, we're not in a position to talk about right now, but that's sort of the thing in the short term, and then the sets for Next spring, obviously, no one's really talking about. We are presenting the innovation. We are presenting our strategic initiatives. We are, you know, they've been well received. Obviously, the category is, you know, kind of on fire. Our UK team refers to it as stonking. Our German team says it's bananas. But, you know, in that environment, the retailers are likely to give us more space, maybe bring in multi-packs and that sort of thing. So we're hopeful, but until it happens, we're not really in a position to confirm and or know. And we don't really know, obviously, because sometimes retailers say they do something and then unfortunately they forget the conversation, but which is understandable. They're busy people. But yeah, we don't have anything to share other than we feel optimistic and we think that it's in a good place and that the innovation discussions that we've talked about and you'll see in the deck There's a major mass retailer taking one of them this quarter, which is ahead of schedule. So call out to our supply team for being ahead of schedule. And, you know, our hope is that some of the innovations retailers will dive in on and give us early jump calls to create, you know, a differentiation in the category for them. And so you never know. And those calls tend to happen late.

Great. And then my follow-up question, just on the corporate acquisition. So strong start so far. So just curious, in the couple of months you've owned it, any surprises, positive or negative, in terms of what you're seeing there?

I'd say we've been pleasantly surprised. A couple of things. One, it's our first major acquisition. Two, we've been very pleased with how our team has leaned in and welcomed the corporate team and dealt with the acquisition, particular call out to the accounting finance team for completing the close process on time and allowing us to do this on the planned date. Then as it relates to the acquisition, I think we've been pleased that what we now own is what we thought we were buying, which is a very high-quality, nom-hom premium production capability with strong retailer relationships and a lot of potential. As I mentioned in our prepared remarks, I was in Thailand just about two weeks ago, had the opportunity to meet. The team was fantastic, and they're excited to be part of the largest coconut water branded, you know, business in the world and to form one, you know, great coconut water selling team. So, so far so good, but obviously the proof will be in the numbers as we deliver them hopefully over the next 12 months.

Great. Thank you, Apostle.

Thank you. And the next question is going to come from John Anderson with William Blair. Your line's open.

Good morning. Thank you for the questions. I guess the demand side here has been covered well with the questions so far, so a couple on costs and margins. You mentioned that you're going to be taking price in the first quarter, and that's focused on recouping structural cost increases. Could you talk about what some of the structural or the cost increases you perceive now as structural versus those you see as temporary? And then just to follow up to that, SG&A, you see more leverage now than you did a quarter ago for 2026. And yet I would think like costs are going up there too, like logistics, outbound freight. So what is giving you the stronger leverage? Is it just kind of more top line or are there some other things happening within that line? Thank you.

Sure. On the cost side, you know, obviously there's a range from, you know, permanent to temporary, and it's a little gray. So just working along the range, you know, underlying packaging cost increases certainly are at the much more permanent end of the range. Some inflationary factors at factories, including minimum wage type rules and other things. are on the more permanent end of the range. And then as you move up, you get to some domestic transportation costs, which may be permanent, may be temporary. Some of that's fuel, some of it's availability of drivers related to what's going on in the US, those sorts of things. Port charges are probably a little bit more permanent if those increase. And then you get to ocean freight, which is perhaps the biggest variable. And they're talking about what's permanent and what's temporary is really hard to do. If you'd asked me 18 months ago, I'd have said that the boats going around South Africa would now be back through the sewers and the knot. So 12 months later, what I thought was temporary is sort of still temporary. And so that's really hard to predict. Our pricing is certainly designed to cover a fair number of the costs that we think we're going to have to bear next year, but not all the costs that we're currently bearing today, as we certainly think ocean freight should recede from its current sort of peak issues. Obviously, that could be wrong, and we're reserving the right to take more pricing next year if we need to. I'd say our pricing is fair. The conversations have been good. We currently think we are going to be able to take it, so we aren't running into some of the problems that some other CPG companies have run in because we're not at that level. But if ocean freight stayed high, we might need to revisit that sometime next year.

John, maybe to take the SG&A. First, as just a definition, our outbound logistics, warehouse, et cetera, are all in growth margin. So I know that can vary by company. And then from a leverage perspective, we are seeing better top line. The other bigger item that's delivering the leverage is coming out of last quarter when we did COBRA, we were conservative on the SG&A that we might need to accomplish the integration, and that is coming in at a lower cost and more smoothly than we prepared in the previous guidance. So that combination is delivering the leverage while we continue to invest in additional headcount to support the growth in marketing. So it is really a function of the additional growth and then a fairly smooth integration of COBRA. Really helpful. Thank you.

Thank you. And the next question is going to come from Gerald Pasquarelli with Needham & Company. Your line's open.

Great. Thanks very much for the question. I just have one. I wanted to follow up on gross margin and specifically the 4Q gross margin outlook of 33%. I understand it reflects rising costs, but 4Q is almost always your lowest margin quarter. I assume there's a seasonality component there. And in this instance, you're also going to have negative mix shift from triple digit private label sales. I think year over year, your gross margin is expected to be down about 200 basis points. So just, I guess, given all of the moving parts, is there a way for you to unpack how much of this impact is specifically due to rising cost of goods? I guess I'm trying to get a baseline on what the margin impact would be if the costs remain elevated, excluding any mitigating like pricing factors. So any color there would be great.

Thank you.

I understand your question. I think the cost, to your point, Q4 is always structurally lower. We are, you know, have quite a few moving pieces in the quarter as, you know, with the current supply of which products come in and what our mix looks like. Pricing is such a major driver of the underlying growth margins. Once that price starts to roll in in Q4, it becomes a very different equation. Sorry, Q1. Q1, sorry, thank you. As the price rolls in in Q1, that becomes a very different equation. Today, there are mixed impacts, the seasonality, but the bigger driver is that cost increase. Against last year, we had tariffs, right? So there's a little bit of price change from the prior year. the inflation and then some mixed factors. So it's hard to, you know, we're not giving 27 guidance to trend that out because pricing is such an important factor.

And sort of just building on what Corey said, I would say that most of the gross margin impact that you're seeing and we've indicated in Q4 relates to the ocean freight increases that started to take, you know, be visible sort of in, I don't know, July maybe. and then continue to grow into August, given how ocean freight flows that flow through into the P&L three to four months later. And, you know, there are no, we're not taking pricing on that until next year. And so that's the biggest driver of the depression.

Got it. I understand. Thanks so much.

We view those as temporary, but obviously, you know, we've been wrong before on those, but that's how we think about them.

Thank you.

Thank you. And the next question comes from Chris Carey with Wells Fargo. Your line is open.

Hey, guys. I wanted to ask about the Americas branded delivery versus the consumption data. I realized it was asked earlier. I thought we missed it. But the supply issues that you saw in Q3, just confirm, are you expecting those to come back in Q4 such that you should be shipping ahead of your America's Vita Coco branded consumption in calendar Q4? And then Martin, you made a statement or a comment that you should be able to maintain current volume levels into next year. Does that imply you don't expect much growth into the front half of the year, or you're just saying, you know, we we have an ability to continue to meet demand? Yeah, one trend. I understand. OK, thank you. So anyway, this is those two things that I follow up.

Yeah, Chris, I can try because to your point, the Q3 brand and growth in the U.S. and the year to date really is is lagging the consumption data. There is a bit of inventory move, but we do expect to ship ahead of scans in Q4. I think Martin referenced that the degree to which we do that is dependent on supply and timing, but we do recognize that scans remain quite healthy. The category remains quite healthy, so that will start to appear in Q4 shipments, but it's hard to quantify the exact amounts until we kind of get there.

and then relative to sort of capacity and ability to support demand, we have the committed capacity for next year to support growth equivalent to this year's volume growth on this year's volume, right? So that's a compounded acceleration. And so we feel good about that. In the first six months, that capacity is, just sufficient to do that. And we're running at 95% utilization. But as a result of some decisions that we made back in January, February this year, there's more capacity coming on in the back half of next year that will alleviate those constraints and put us in good shape for 28 for a continuation of these trends. And so it's growth trends. And so in absolute volume, we're able to support growth next year. How that actually works, obviously, is a little bit of a function of how the whole supply chain flows, particularly on the ocean freight side. And as we sort of talked about, there have been some sort of delays sort of in the last eight, 12 weeks in that area that seem to us to be, you know, being driven by demand out of Asia into the U.S. and prioritization of the transshipment ports for how that flows. but it looks like that's starting to ease. Now, if that eases, we're in great shape. If it stays tight, we're in tight shape. And so that's how we think about it. And that's somewhat of an uncontrollable, but we are very comfortable we have the production.

Okay, great. And from a market share perspective, are your competitors seeing the same supply constraints? I realize you kind of said it's tough to say how the competitive dynamic goes with just less ability to supply at the levels that you would like. So just maybe give me a sense of near-term, are you at risk of losing any shelves to competitors? Is this going to be a dynamic going into the front half of the year, or is the ability to catch up in Q4 going to overwhelm some of that relative dynamic to the peer sets?

So given everyone has sort of the same sort of supply chain issues that we think everyone is experiencing the same sort of things now, you know, again, I said in an earlier answer that it's a little different for someone who sources directly from one country in Vietnam or Thailand reliant on one route. Maybe both of those countries have direct routes to the U.S. We, on our product out of the Philippines, are transshipping in China or Singapore, for instance, so we have a slightly more complicated structure. and there are different effects. There are actually also different effects in country. So when China demand on coconuts goes crazy, they come down into Thailand and then into Vietnam and that affects those suppliers, but it doesn't affect the Philippine suppliers so much. So everyone's supply chain is a little bit sort of different. I think that talks to the diversification that we have, that we can sort of weather these issues, but we are sort of somewhat over Exposed to product from the Philippines and Brazil, and if there are issues in those supply chains, then perhaps we are overexposed relative to our competitors. I think what I said earlier is on the shelf, it's really hard to tell. The category's doing really well. You go in a store on Sunday, and it's out of inventory, and you wish we had more shelf space for inventory carrying over the weekend, right? So that's the conversation you have with the retailers. and so it's hard to tell exactly who's having different issues but we do have some anecdotal data from our private label relationships where we've been asked to cover for other suppliers shortfalls and or offered product opportunity in those regions that we don't serve to cover and so we do know that the people are having similar issues. As it relates to retailer decisions, I think the retailers are concerned, rightly, because we aren't meeting their full demand, which, frankly, was way greater than anyone forecasted. But we're having great conversations with them, and I think our relationships are good. But obviously, we need to solve those issues, which is why we're increasing the investment in our supply chain teams to add capacity for 28 and 29 and beyond. And we're telling the retailers that this is a multi-year process, and we're out ahead of it. and we have the best people in the business doing it.

Thanks guys. One final one. Copra, this is giving you new capacity in a very premium price point. Can this be not a greater lever because I'm sure you have all sorts of different and others. So, I think as we sort of said, COPRA is currently capacity constrained and we are prioritizing existing relationships.

has a nice brand but has a very significant private label business, some with customers that we have relationships with, some with new customers. And we're being very clear that we're going to prioritize their supply and that we're frankly going to invest in expanding capacity to support it. When that capacity comes on board, which will be mid-late next year, we'll be in a better position to invest in the brand. So what we're doing right now in the brand is testing what works, what doesn't work. We've got a couple of markets where we're doing that, trying to learn, trying to understand what the actual demand here could be if we get it right and how to get it right. And then when the capacity comes online sort of late next year for the brand, by the time it reaches the country, we'll be in a position to invest it. So I think the way to think about Copra is It's upside for next year is a little constrained by capacity that it will continue to be primarily a private label business because we're going to meet those commitments because we want these relationships long term. And then as you start to think about 28 and 29, we will try to build a super premium num hum cold chain product. to basically have a branded share in that segment, which is growing in line or faster than the category, is at attractive price points, and is sort of the flagship within the coconut wood category.

Okay. All right, great. Thanks for entertaining all that. Thank you.

Thank you, and I show no further questions in the queue. I will now turn the call back to Martin Roper for closing remarks.

Great. Well, really appreciate everyone joining us for the quarter, and we're going to go back to finding coconut water and getting it in the country to service the unbelievable demand that we're having, and we look forward to talking to you next quarter. Thank you.

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