The Vita Coco Company, Inc.

Hello, and welcome to the Vita Cocoa Company's third quarter 2022 earnings conference call. My name is Gigi, and 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 now hand the call over to Clay Crumbless with ICR.

Thank you, and welcome to the Vita Cocoa Company third quarter 2022 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kerbin, co-founder and executive chairman, Martin Roper, chief executive officer, and Rowena Ricaldi, interim chief financial officer of the Vitacoco Company. 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 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, provide reconciliations of the non-GAAP financial measures to the most directly comparable gap measures and are all available on our website as well. And with that, it's my pleasure to turn the call over to Mike Curbin, our co-founder and executive chairman.

Mike? Thanks, Clay, and good morning, everyone. Thank you for joining us today to discuss our third quarter 2022 financial results, our expectations for the remainder of the year, and our commercial plans for 2023. I want to start by thanking all of our colleagues across the globe for their continued commitment to the Vitacoco Company and their dedication to our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Our continued robust net sales growth confirms that our strategy and commercial execution are working, despite a very challenging environment. Year-to-date 2022 consolidated net sales are up 15% year-over-year to $336 million, with our flagship Vitacoco coconut water brand remaining the main driver of growth, increasing an impressive 22% over the previous year-to-date period. Underlining demand for our flagship Vitacoco coconut water brand remained strong during the third quarter, with net revenue growing 14%, even against a very strong year-ago comparison, despite our third quarter consolidated sales being impacted by out-of-stock, uncertain branded coconut water SKUs. Furthermore, the US retail coconut water category remains healthy, increasing at a 12% pace in IRI measured channels for the last 52 weeks, primarily due to Vitacoco's growth of 21%. And we remain the undisputed category leader with approximately half of the value share. Our strategy has not changed and we remain committed to our longer term plan to grow the coconut water category and increase household penetration, increase our category share, and expand usage occasions to drive velocity of our products while also innovating in other adjacent categories. For coconut water, we believe that our ability to source consumption from multiple beverage categories and occasions will be the primary driver of future household penetration increases. According to Numerator, Vitacoco's household penetration currently stands at 11.1%. That's up approximately 70 basis points over the last year. So we believe that we have plenty of room to grow. We're prepared to invest in marketing and sales execution to achieve this as inventory and supply chains recover. Furthermore, our innovations such as Vitacoco Pressed, Vitacoco Milk, Power Lift, and other exciting initiatives expand the categories that we can source from, giving us further growth potential. We also have opportunities internationally where we have seen strong growth in European coconut water volume despite supply chain and foreign exchange challenges. These opportunities, along with our ability to add new consumers and new usage occasions for coconut water, give us confidence in our belief that we are on track to achieve mid-teens growth on Vitacoco coconut water net sales in 2023. Additionally, the softening ocean freight market gives us confidence that supply chains will normalize and that 2023 will be a solid step towards our long-term goal to return to gross margins approaching 40% and adjusted EBITDA margins in the high teens. We are extremely proud of this progress, and we firmly believe our coconut beverages are still in the early days of becoming a household staple, and there's plenty of runway ahead as we execute our commercial priorities for 2023. We've been presenting our 2023 commercial initiatives to retailers and distributors to positive reactions. Briefly summarizing the top initiatives, first, We have opportunities with the expansion of our multi-pack strategy as we attempt to gain share of shelf space, own the multi-pack coconut water business in the food and mass channels, and increase basket size for our retailers. Multi-packs in coconut water are underdeveloped versus other categories, and as the largest brand in the category, we firmly believe we are uniquely positioned to seize this opportunity. Second, we're optimistic about the broader national rollout of Vitacoco Farmer's Organic. which is priced at a premium to our regular SKUs and offers organic coconut water in an attractive shelf-stable package. Organic coconut water is growing faster than non-organic, and our ACV is only approximately 17% year-to-date as it was just launched nationally this year. Farmer's Organic allows us to trade up consumers in price and product specification, yet keep them in our brand family and supports our suppliers' development of best-in-class organic agricultural practices, in their farmer communities. Additionally, I'm very excited about the rollout of Vitacoco coconut juice in a can that performed very well in tests this year. As of the third quarter, canned coconut water represents about 30% of the category, and our share of this segment prior to our test this year was zero. In our test convenience accounts, we saw accelerated Vitacoco brand growth and no meaningful signs of cannibalization. We're expanding nationally in the convenience channel in 2023. And we believe that this should provide incremental distribution and consumption opportunities with new consumers who prefer a sweeter tasting canned coconut water with pulp. I'm particularly excited about bringing coconut water to consumers as a mixer in alcoholic beverages. This initiative will kick off with our planned Q1 launch of Vita Coco Spiked, a collaboration with Diageo. Vita Coco Spiked is a delicious ready-to-drink cocktail made with Diageo's flagship Captain Morgan rum brand. And in parallel, we're developing plans and partnerships to build on the excitement that this launch should generate and to build opportunities for Vitacoco Coconut Water as a mixer in alcohol consumption occasions in on-premise channels. If successful, long-term, this will add more distribution and occasions to the consumption of coconut water, both on-premise and at home, and will introduce more drinkers to our brand. As the category leader, we have a responsibility to expand the category and, therefore, to focus on educating consumers on new consumption occasions and to increase the availability of coconut water to all hydration occasions. Longer term, we have a big opportunity within broader food service, which, although growing rapidly currently, only represents less than 3% of our business, and we believe it should be significantly larger and offers a large distribution opportunity for us long term. We're also building our team's capability, both as a new public company and also to support our growth and innovation efforts, improve our revenue management, forecast, and planning system, and to support our ESG initiative. This will strengthen our commercial capabilities and should drive future cost efficiencies, flexibility, and ESG benefits. We expect to issue our second annual social impact report in 2023, and based on our work to date, we hope to announce our 2030 environmental and sustainability goals in the second quarter of 23. In closing, I'm really excited about 2023 and beyond. We remain confident in our ability to deliver on our long-term goal of mid-teens net sales growth, and we're steadfast in our vision of being the industry's better beverage company, one which focuses on providing healthier alternatives as compared to conventional beverage brands, and one that strives to do better for the world in which we live. And now, I'll turn the call over to our Chief Executive Officer, Martin Roper.