The Vita Coco Company, Inc.

Hello and welcome to the Vitacoco Company's fourth quarter 2022 earnings conference call. My name is Catherine. I will 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 would now like to hand the call over to Clay Crumbliss with ICR. Please go ahead.

Thank you, and welcome to the Vitacoco Company fourth quarter and full year 2022 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirvan, Executive Chairman, Martin Roper, Chief Executive Officer, and Rowena Ricaldi, the current Principal Financial Officer of the Vitacoco Company. With us today is also Corey Baker, who joined the company yesterday and will be appointed its new Chief Financial Officer after the company files its 10-K. By now, everyone should have access to the company's fourth 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's 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 non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is 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 fourth quarter and full year 2022 financial results, our commercial plans for 2023, and our expectations for full year 2023 performance. I want to start by thanking all of our colleagues across the globe for their continued commitment to the 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. I would also like to welcome Corey Baker to the team. Corey joins us after 16 years with PepsiCo, bringing very relevant finance leadership experience and is especially familiar with our industry and its many intricate details. I'm confident that he will strengthen our commercial capabilities and provide important leadership and mentoring to our finance teams. We'll have him say a few words after we discuss our operating performance. Before addressing our performance and expectations, let me reiterate that we believe we have a strong strategic position in the better-for-you beverage market through our leading position in coconut water, and we believe we have the ability to source consumption from multiple beverage categories and occasions to fuel future growth. As a coconut water category leader, our goal is to grow the category by increasing household penetration and usage occasions. while continuing to grow our category share through innovations and distribution gains for our products. I think our success over the last three years is a testament to our focus on consumer conversion and retention, supported by the strength of our coconut water supply chain. In the last three years, we've grown our Vitacoco coconut water net sales 72% in total, notably much faster than our private label business, which grew 22%. Our Vitacoco Coconut Water now represents 74% of our net sales, and our private label business is now less than 25% of our net sales, a percentage that we expect to continue to decrease in future years as our branded business continues to outpace private label. I believe that our goal to build a better beverage platform and that our long-term financial goals of mid-teen net sales growth and high teens adjusted EBITDA margin remain achievable, particularly as transportation costs improve, I'm more excited than ever that we are well positioned to take advantage of category tailwinds to continue our strong growth and to improve our margins. On a full year basis, our consolidated 2022 net sales growth of 13% confirms that our strategy and commercial execution are working, despite a very challenging environment. Our flagship Vitacoco Coconut Water remains the major driver of consolidated net sales, producing 18% full year growth against the prior year, while our private label consolidated net sales grew 7%. Importantly, the consolidated growth of our vitacoco coconut water was driven by 16% full-year volume growth, demonstrating that consumer demand for our vitacoco coconut water remains very healthy. In retail-tracked channels in the United States, according to IRI, we finished the year with 50% value share on a 52-week basis. Our Vitacoco coconut water remains very healthy with Vitacoco sales increasing 9% in the fourth quarter in retail track channels and increasing 78% on a three-year stack basis over 2019. According to Numerator, we also grew Vitacoco's household penetration in the U.S. to 11.6% for the 12 months and December 2022. That's up approximately 80 basis points over the last year. We believe our sales growth is coming from a nice combination of new households and increased purchasing. And we believe that we have plenty of room to grow our households further as total household penetration for the coconut water category is currently only 23% compared to penetration, for example, of cranberry juice at 52% and over 75% for orange juice, according to numerator. We also believe that there's a significant opportunity for increased consumption occasions and for availability of our products as there remain significant distribution opportunities for us in C-Store, food service, and on-premise, in addition to our opportunity with our canned coconut juice product. Looking to 2023, our commercial initiatives this year are consistent with what we shared last quarter, and we're in the early stages of execution, as further described in the accompanying presentation on our website. First, we're driving expansion of our multi-pack strategy to gain share of shelf space 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. Year to date through February 26, 2023 in US IRI scans, our multi-packs are collectively up 53%. Second, We're focused on 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. Farmer's Organic allows us to trade up consumers in price while keeping them in our brand family. Since the introduction in 2022, we achieved US IRI ACV distribution in Mule OC of 31% for Farmer's Organic, And we believe doubling current distribution over the next two years is a very reasonable goal. Third, we're expanding Vitacoco coconut juice in cans to broader distribution after its limited test last year. In 2022, approximately 30% of the coconut water volume in the category in retail tracked channels was canned coconut water. And we believe Vitacoco coconut juice represents a significant opportunity for us to serve new consumers as it is our first broad-based offering with coconut pulp. Last year, we launched the cans regionally in sea stores and grew US IRI ACV in this channel to 15%. In 2023, we're rolling out our juice skews nationally in sea stores to positive response and expect to drive significant distribution upside in this channel. Fourth, part of our focus is on expanding occasions for coconut water. Coconut water has been used by consumers as a mixer in alcoholic drinks, as well as a remedy for recovery for a long time in tropical cultures. And we believe there's a significant opportunity to bring this consumer behavior to our major markets and unlock more commercial opportunities for coconut water. Through our previously announced collaboration with Diageo, we feel 2023 could be the first step on a path to making coconut water an essential part of cocktail mixing, as it is in many other parts of the world. Vitacoco Spiked is a delicious ready-to-drink cocktail sold by Diageo and blended with their flagship Captain Morgan rum. In parallel, we're testing how to support and promote Vitacoco coconut water as a mixture in on-premise channels, which longer term could add significantly more distribution opportunities and occasions for the consumption of coconut water and ultimately introduce more drinkers to our brand. Beyond the core commercial initiatives just mentioned, We intend to continue to promote Vitacoco pressed and Vitacoco pineapple as attractive entry points for consumers into coconut water. We also intend to expand distribution of Vitacoco coconut milk in the shelf-stable non-dairy set and to establish our quality credentials in this category with the launch of our Vitacoco Barista product. We're very excited that our first partnership for our Barista product is with Alfred Coffee on the West Coast. We continue to learn from last year's launch of PowerLift and have expanded our distribution into Texas with the support of our KDP distribution partnership. We're supporting this expansion with dedicated execution teams and marketing investment to understand the full potential of this protein infused isotonic and how best to expand it in future periods. We see 2023 as a year where our net sales growth and gross margin improvement allows us to invest more aggressively against our opportunities to secure our desired long-term growth while still delivering significant improvement in profitability. Related to our environmental and social initiatives, we expect to release our annual impact report during the first half of 2023. We've continued to see great progress in our farming communities through the Vitacoco project, which supports building schools and classrooms, training more coconut growers on sustainable practices, and investing in the distribution and planting of more coconut trees than ever before. We also believe we've made progress in our environmental initiatives. As we begin to baseline our data, we believe we are well positioned to set tangible, impactful goals for the future. We expect to communicate our environmental roadmap in more detail at a later date once we have validated our goals and timeline for achieving them. And now, I'll turn the call over to our Chief Executive Officer, Martin Roper.