The Vita Coco Company, Inc.

Thank you, and welcome to the Vitacoco Company second quarter 2022 earnings results conference call. Today's call is being recorded. With us are Mr. Michael Curbin, Executive Chairman, Martin Roper, Chief Executive Officer, and Kevin Benmusa, Chief Financial Officer of the Vitacoco Company. By now, everyone should have access to the company's second quarter earnings release issued earlier today. This information is available on the investor relations section of the Vitacoco Company's website. at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also during the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release and supplementary earnings presentation, providing reconciliations of the non-GAAP financial measures for the most directly comparable GAAP measures, are available on our website as well. And with that, it is my pleasure to turn the call over to Mike Kerbin, our co-founder and executive chairman. Mike?

Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our second quarter 2022 financial results and full-year guidance. I'll begin my remarks with a brief overview of our performance this quarter. I'll then reiterate our long-term growth strategy as we continue being a driving force in healthy beverages. Martin Roper, our CEO, will then discuss the details of our top-line growth drivers, including our recent and upcoming pricing initiatives, and will provide an update on the supply chain and cost environment. Kevin Ben-Moussa, our CFO, will provide a more detailed discussion on the second quarter results and our outlook for the year. I want to start by taking all of our colleagues across the globe for their continued commitment to the Vitacoco Company and their dedication to our mission, creating ethical, sustainable, better for you beverages that uplift our communities and do right by our planet. The second quarter punctuates a strong first half of the year and reinforces that our strategy and commercial execution are working. Net sales grew 13% year over year to $115 million, with our flagship Vitacoco Coconut Water brand remaining the main driver of growth, increasing 21% over the year-ago period. The Coconut Water category remains healthy, increasing at a 12% pace in IRI measured channels for the last 52 weeks, while Vitacoco grew 29% over the same period. We're pleased that Vitacoco Coconut Water remains the primary driver of retail category expansion, and the brand continues to gain incremental share of the category. Today, We enjoy undisputed category leadership with 51% value share, which is up 7% from a year ago, according to IRI-measured tract channels, MULOC. We're encouraged by the continued strong growth we're seeing this year, and we remain committed to our long-term plan to deepen our household penetration, increase category share, and expand usage occasions to drive velocity of our products. We're pleased to have numerous tailwinds working in our favor, including increasing consumption of coconut beverages, driven in large part by demand from multicultural consumers and by growing consumer preference for natural and functional beverages. Over the years, we've found that our Vitacoco products actively source from the $10 billion isotonic category and from the $11 billion juice category. Our ability to source consumption across beverage categories and occasions is a primary driver of our growing household penetration, and according to Numerator, Vitacoco household penetration currently stands at 11.4% on a 52-week rolling basis. That's up approximately 170 basis points over the last year, meaning that we've added about 2.3 million households versus the prior year. We're extremely proud of this progress, but we're not stopping here. We believe our coconut beverages are still in the early days of becoming a household staple, and there's plenty of runway to add new households and introduce consumption occasions. As a beverage pioneer, we plan to take a leading role in driving innovation in the coconut water and coconut water adjacent categories. Along those lines, we're pleased to enter into a collaboration with Diageo to introduce Vita Coco Spiked in early 2023. It's a delicious ready-to-drink cocktail made with their flagship Captain Morgan rum brand. We think it's not only another way to increase our brand awareness across the beverage landscape, now including alcoholic beverages, but also to increase consumption occasions for coconut water through educating consumers on the great taste of coconut water cocktails. We think it's a natural combination. If it isn't obvious, I'm particularly excited about the future of our business. Vitacoco is one of the most recognized healthy beverage brands in the world, and we're optimistic that we have essentially unlimited headroom to continue translating these many opportunities into category growth, market share gains, and increased household penetration. In summary, we remain confident in our ability to deliver on our long-term algorithm of mid-teens net sales growth. Additionally, we remain committed to our goal of being the industry's better beverage company. one which focuses on providing healthier alternatives as compared to conventional beverages and one that strives to do better for the world in which we live. Before I turn it over to Martin, I want to briefly express my appreciation to our CFO, Kevin Ben Moussa, who will be leaving Vitacoco at the end of this month to pursue an outside opportunity. Kevin has been an excellent business partner and a great friend over the years. I'm especially grateful for his dedication and contribution to our company And we wish you all the best, Kevin. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. We are very happy with our strong first-half performance in 2022, which resulted in a first-half net sales increase of 19% as compared to the prior year period, driven by continued strong consumer demand for our products, namely Vita-Coco coconut oil. In addition, as we will discuss in more detail later, we saw an improvement in the first quarter in our gross margins, reflecting the initial effects of our pricing actions and a stabilization of key transportation costs, partially as a result of our mitigation efforts. In the second quarter of 2022, we increased global net sales by 13% to $150 million, compared to net sales of $102 million in the second quarter of 2021. The growth versus last year was driven by 21% net sales growth of vitacoca coconut water, offset by private label and others. Net sales in the Americas, which comprised 87% of total net sales in the second quarter of 2022, increased 17% to $100 million, compared to $86 million last year. Net sales for our international segment, which comprises the remaining 13% of total net sales, We're down 5% compared to the same year-ago period, primarily driven by a negative lap of opportunistic commodity sales last year, combined with a negative impact of foreign exchange rates caused by the strengthening of the dollar relative to currency in our European markets. Supporting our volume growth within the Americas, year-to-date, we believe that we've gained approximately 11,000 incremental net points of retail distribution provided COCO in the United States. over the second quarter last year, as more set modifications were rolled out and executed against. We were hampered slightly by inventory availability on certain SKUs, but assuming inventory conditions improve, we believe we remain on track to reach our goal of 25,000 net new points of distribution by the end of the year. As we previewed last quarter, we took our planned first phase of frontline price increases during the second quarter. And we have now also communicated to our retail partners our price increases planned to take effect during the fourth quarter of this year. I can confirm what we stated last quarter, that we expect our planned pricing actions, once fully realized on an annual basis in 2023, to offset the current level of elevated costs on a dollar basis. On a consolidated basis, our second quarter benefited from a 3% price mix split, largely driven by a 6% benefit in the Americas, and partially offset by international, where price increases were offset by a negative foreign exchange impact. The price mix benefit in the Americas segment was mainly driven by reduced promotional investment and frontline price increases in our vitacoco coconut water, and price improvements implemented on private label products. while we saw negative impact internationally, mostly driven by lower commodities, opportunistic sales, and foreign exchange impact. To date, as it pertains to demand elasticity, we're not seeing a material negative impact on our volumes, resulting from higher pricing. We are seeing higher growth rates for our larger pack sizes that realize lower net revenue per case equivalent, and this mixed impact has reduced our reported net revenue per case equivalent gains. Going forward, as we expect our net sales mix to move towards larger format SKUs and multi-packs over time, we anticipate some negative mix effect on net pricing for cases of lump from this mix shift, which could partially offset the otherwise positive impacts of our pricing actions in America. We believe this trend on larger packs and formats is indicative of a healthy brand and should result in increased overall consumption as consumers have more coconut water available in their homes. For modeling purposes, we expect a more moderate impact from price mix for the remainder of the year due to timing of our increases and promotional activity, especially in the Americas, where we will lack lower-branded promotional activity. This had a disproportionate impact during the third quarter last year, producing higher reported net revenue per case, which makes for a tougher comparison this year when our promotional cadence is more normalized. We're pleased with our multi-pack initiatives on Vitacoco, as demonstrated by the American SCAM data, and while it is still early in the testing of our Vitacoco juice can offering, the reaction from C-Store retail test partners has been very positive. We expect to roll the canned juice product to more retailers and markets next year. We remain excited about our innovation pipeline for vitacoco coconut water and associated vitacoco product format extensions, as well as for our developing brands. And our intent is that all these initiatives will contribute more to our portfolio in the future. In U.S. scan data for the second quarter, we see private label coconut water growing, but slower than both the category and vitacoco branded revenues. Our private label volumes and net revenue are growing year-to-date despite weakness in the reported second quarter shipments. We expect four-year American private label shipments and net revenue to track our year-to-date trends with the benefits of price increases and new business offsetting some reductions in demand from other customers. Regarding the cost environment, as I alluded earlier, we saw during this quarter a stabilization of the transportation cost increases experienced in prior quarters, as well as some improvement in our own ability to mitigate unplanned expenses, such as detention and demurrage. These improvements showed up in better cost of goods per case equivalent and better margins for the second quarter than our first quarter, and we believe that our total transportation costs peaked during Q4 and Q1. We maintain our supply chain as one of our key competitive advantages. It has continued to perform well with the unprecedented supply chain challenges the world is facing, particularly the unpredictability of ocean shipping container availability and rates, ocean shipping reliability, and challenges at ports with detention and demurrage. During the quarter, our supply chain supported record quarter volumes, but we still experienced out-of-stocks on certain SKUs in certain locations, as achieving balanced inventory across our warehouses continues to be challenging with strong demand and unplanned transit and port delays or skipped sailings affecting our service levels. On ocean container availability, we recently began to be offered additional capacity on certain routes beyond our contracted agreements, but at spot prices typically at or higher than our contracts. We're taking advantage of the best offers to improve our inventory positions in market. Assuming this continues, this should help resolve our inventory challenges by the end of the third quarter. We also believe these offers are a sign of ocean container demand weakening. In transit times remain higher than normal, and at the end of the quarter, approximately half of our finished goods inventory remained in transit prior to receipt in country. On ocean freight costs, as we indicated last quarter, we have tried to limit our entry into new contracts, except where we have to obtain guarantees on capacity to secure our service book. As we near the end of the year, much of our container needs are secured and already in transit. Based on savings to date and our current contractual commitments, only approximately 25% of our ocean freight container capacity needs for the rest of the year are reliant on spot markets. As we negotiate new ocean freight contracts for lanes whose contracts are expiring, we are seeing proposals that still represent an increase in our old contract rates from the prior year contracts. Please see the graphic presented in our investor deck for visualization of this effect. For each proposal, we evaluate whether to enter into a capacity and price contract or to operate past fund needs uncontracted relative to price. We are also evaluating the possibility of shorter duration contracts, given our expectation that rates are more likely to soften than to increase. Currently, we are contracted for approximately 30% of our 2023 container needs, mainly due to the multi-year agreement we entered into last year that expires during 2024. Our financial outlook for 2022 assumes the balance of our needs are priced at the current rates we are being offered. Our primary commercial focus for the balance of the year is navigating the challenging supply chain logistics environment, particularly some challenges in obtaining certain ingredients for our flavored Vita Cocoa Coconut Water SKUs, where we expect some out-of-stocks during the third quarter. Despite this, we are still confident that strong consumer demand, our expected improvements to overall inventory availability, and our planned fourth quarter frontline price increases will help drive top-line growth, and we are maintaining our full-year net revenue outlook. More importantly, as discussed prior, we anticipate that all the pricing action we will take this year will offset the higher costs we are currently experiencing. and even absent any cost improvements are the first step to returning our business closer to our long-term financial algorithm of gross margins approaching 40% and EBITDA margins in the high teens. Next, based on our current assumptions, we remain confident in our ability to achieve our financial targets for 2022. Based on everything we see in the market currently, the worst may be behind us from a margin deterioration perspective. And today we are reaffirming our previous Net Sales and Adjusted EBITDA Guidance, which Kevin will detail for you shortly. With that, I will turn the call over to Kevin Ben-Moussa, our Chief Financial Officer.