The Vita Coco Company, Inc.

Hello, and welcome to the Vitacoco Company's second quarter 2023 earnings conference call. My name is Crystal Love. I'll be coordinating your call today. Following the prepared remarks, we will open the call to your questions with written instructions to be given at that time. Please stand by.

Thank you, and welcome to the Vitacoco Company Second Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Pervin, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's second quarter earnings release issued earlier today. This information is available in the Investor Relations section of the Vitacoco Company's website at investors.divitacococompany.com. Also on the website 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 GAAP measures and are 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 second quarter 2023 financial results and our current expectations for full-year 2023 performance and long-term growth. I want to start by thanking all of our colleagues across the globe for their continued commitment to the Vitacruco 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. Before addressing our performance and expectations, I want to reiterate that we believe we have a strong strategic position enabled by our category leadership in coconut water in the better for you functional beverage category, which in America's tract channels is in excess of $30 billion. We're very happy with our performance in the first half of 2023. Among our growth strategies, delivering coconut water growth through increased usage occasions remains the highest priority, and I'm excited about the progress we're making with both our commercial initiatives and our marketing efforts. In the second quarter, we saw consolidated 21% net sales growth, bringing our year-to-date net sales growth to 18%. We remain very bullish on the coconut water category in the United States, where according to Cercana, the coconut water category is posting one of the healthiest growth trends, outperforming major categories like energy, CSDs, sport drinks, and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price. For the quarter, our Vitacoco coconut water brand is leading the coconut water category growth with U.S. retail dollar sales up 18%, and our market share improving to 51.9%, while the category is growing 15%. Our brand has never been stronger, and our focus on consumer expansion via occasion-based initiatives is highlighted in our marketing efforts in the second quarter. I'll highlight four examples from the quarter that we're super excited about. Firstly, we launched the Coconut Grove, an immersive experience on roadblocks where consumers can farm and harvest virtual coconuts. Over 22 million people visit us in the metaverse, driving over 75 million impressions to date and introducing a new generation of consumers to our brand. Secondly, we collaborated with Bluestone Lane to launch a coconut water cold brew exclusively at their cafes across the U.S., blending their signature cold brew with the refreshing taste of Vitacoco original coconut water for a perfect summer drink that is already a top three iced beverage in their locations. This is another initiative that demonstrates the versatility of coconut water and the appeal of our Vitacoco brand to food service partners. To demonstrate the opportunities in the Away From Home channel across all day parks, we have partnered with on-premise locations in key summer destinations with a focus on alcoholic cocktails mixed with Vitacoco and are seeing great adoption in the bars with incredible social media amplification. We also launched a pop-up pub on London's South Bank where consumers have the opportunity to sample our custom cocktails all summer long. Finally, our collaboration with Bloom, a leader in the greens nutrition market, highlights the benefit of vitacoco coconut water as a liquid base for powdered products, which is generating amazing organic social media content with 34 million impressions online. These initiatives build on our previously announced collaboration with Diageo. Vitacoco Spiked with Captain Morgan is seeing significant marketing activity during the key summer selling season with an estimated 750 million media impressions in H1 alone and 1.1 billion PR impressions and counting from the start of our tropical takeover tour. Our power lift launch in southern Texas continues to build momentum and supports our learnings on how to succeed in the enhanced isotonic category. We have focused investments and dedicated market development teams working with our DSD partner, KDP, as we endeavor to achieve success in this market. It is early, but we're excited by our learnings and the progress we're making. We have consistently talked about the goal of growing our branded business as our priority and our desire to reduce our reliance on our private label business, which is typically lower priced and lower margin. In recent negotiations with our largest private label customer, The proposed terms required to maintain the business were contrary to our margin targets and long-term goals. We have therefore jointly made the decision to transition the supply relationship at this time. We greatly value our long-term partnership with this customer, who remains a key retailer for our branded products. We're more enthusiastic than ever about the strength of our core business and are especially excited by our branded initiatives where we see opportunities for even faster growth. However, it is unlikely that these initiatives will fully offset the net revenue loss from this large private label customer in the immediate term. As this decision was reached very recently, we're still developing the transition plans and building our 2024 commercial initiatives. But based on information, we believe that we can deliver mid-teens adjusted EBITDA growth in 2024 over the adjusted EBITDA communicated in our updated 2023 guidance with improved gross margins over 2023 levels, and we can accelerate our trajectory towards our long-term EBITDA margin targets. While the timing and magnitude of the impact on net sales is hard to quantify, we estimate that we will see some impact starting in Q4 and that our 2024 net sales could decline as much as mid-single digits. This preliminary estimate captures our current assumption on the timing of this transition and the current assessment of the offsetting impact of successfully implementing our 2024 growth initiatives. We'll update our view on the impact of this decision with our next earnings release. By then, we expect to have a better understanding of the transition timing and better visibility to the speed and size of our 2024 growth initiatives. As demonstrated by our track record, we're confident that our continued prioritization of margin accretive growth over margin dilutive growth can only strengthen our business going forward. Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024. We're stepping up investments in our brands and in the long-term health of the business by continued focus on branded growth. We believe that we are uniquely positioned as one of the few fast-grilling, profitable beverage companies of our size, with the talent and commercial capabilities to maintain growth, to innovate new opportunities, and to act as an acquirer of complementary beverage brands that could benefit significantly from our relationships, capabilities, and financial resources. And now, I'll turn the call over to our Chief Executive Officer, Martin Roper.