The Vita Coco Company, Inc.

Good day and welcome to the Vitacoco Company first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Mr. John Mills, Managing Partner at ICR. Please go ahead.

Thank you, and welcome to the Vitacoco Company First Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kerbin, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's first 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 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 our business performance. Our 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 is my pleasure to turn the call over to Mike Kerbin, our co-founder and executive chairman.

Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our first quarter financial results and our expectations for the balance of 2025. I want to start by thanking all of our colleagues across the globe for our continued strong performance and for their commitment to the Vitacruco Company and to our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. As we start a new year, I thought I would reiterate our priorities for delivering long-term shareholder growth. built on the foundation of Vitacoco, our leading coconut water brand, and a strong diversified supply chain that has consistently supported our long-term growth even in the face of a pandemic and transportation disruptions. Our growth strategy has been and continues to be consistently built on four core pillars. First, we plan to grow our Vitacoco brand by growing the coconut water category and gaining share in our core markets. Second, We will innovate around our core vitacoco coconut water offerings to increase the occasions and appeal of our beverages beyond pure coconut water. Vitacoco pressed coconut water, vitacoco coconut juice, vitacoco farmers organic, vitacoco coconut milk, and vitacoco treats are several recent successful examples of this strategy. Third, we strive to grow internationally in markets where we believe that we can build a winning vitacoco presence by investing in our brand and driving coconut water category growth. Our best example of this is Germany, who doubled their volume sold relative to the same quarter last year. I believe that we have a long runway for growth by successfully executing these strategies. Finally, we will continue to explore innovation in adjacent categories to coconut water with a long-term view to building additional branded platforms and also look at M&A opportunities where we can add significant value and attractive returns for our shareholders. Against these priorities, we're seeing terrific returns on our efforts. Coconut water remains one of the fastest-growing beverage categories in the beverage aisle, growing 23% in the U.S. and 19% in the U.K. in Q1, based on Cercana data. This, coupled with the acceleration of the emerging German market, has resulted in very strong global net sales performance for our first quarter and, similarly, strong reported gross profit, net income, and adjusted EBITDA. In the first quarter of 2025, according to Cercana, Vitacoco Coconut Water grew 20% in retail dollars in the US and grew 21% in the UK. This strong momentum and a much stronger inventory position than we had last year leads me to be very optimistic about our branded coconut water growth in 2025. In addition to the very healthy Vitacoco coconut water retail growth, we've seen strong scan growth for private label coconut water, which resulted in growth in our private label coconut water net sales, even with the initial impact of lost regions for private label coconut water that we talked about last quarter. I believe that our private label business remains a strategically important pillar of our business from a supply chain perspective, and that allows us to benefit more fully from our category growth initiatives. We continue to get asked to bid on business for private label coconut water and coconut oil, and expect that we will win new business in this portion of the category. Although private label is a strategically important part of our business, it can be more vulnerable to fluctuations than our branded business. I will reiterate what we've been saying for years, which is that as we continue to grow our business, we expect our branded sales to be the largest contributor to that growth long-term. In 2025, our commercial initiatives include emphasis on Vitacoco Multipacks, Vitacoco Farmers Organic, and Vitacoco Juice, the expansion of our SKUs in convenience stores, continued investment in our food service efforts, and the launch of Vitacoco Treats on a national basis. We're excited about the initial reception for Vitacoco Treats, and for the future of innovative coconut milk based beverages, which creates an indulgent occasion that could offer us yet another path for long term growth. We continue to develop our food service capabilities as an underdeveloped channel for us in the US. By working with food service broad line distributors, we're seeing some great wins across food service in hotels, restaurants and corporate accounts. We've secured partnerships for this spring with Joe's Coffee, who's featuring a Vitacoco orange and cream coconut latte and offering Vitacoco treats and Vitacoco pressed coconut water in their grab-and-go coolers. And also with Pete's Coffee, who's featuring a coconut water cold brew and a coconut water matcha, both made with Vitacoco pressed coconut water. These are just two examples of showcasing coconut water's versatility, creating opportunities for consumers to try coconut water in their beverages and building our brand as the category leader. Our international business is very healthy with strong performance in Europe, led by the UK and Germany. This year, we're stepping up our investments in the UK, Germany, and other European markets. And over time, we believe international, will become a larger part of our growth story as these markets are significantly underdeveloped relative to the U.S. I believe that the coconut water category is still developing with low household penetration in major markets relative to other juices. That suggests that the category is still in its early days. In fact, in the U.S., we think we can at least double the category in the coming years through increased household penetration and increased velocity per household. I believe that coconut water is becoming a household staple across the globe, and we're very excited and proud to be the leading brand in our primary markets and to help drive this growth. Longer term, I expect our European operations to be as large as our American businesses today. In summary, the acceleration of the category that we saw in late 2024 has continued and even accelerated through the first quarter of 2025 and with our significantly stronger inventory position. strong retail programming and innovation and additional production capacity, I believe that we are well positioned to continue our growth and I'm excited for a strong 2025. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I'm pleased to report a strong quarter to start the year. Net sales in the quarter were up 17%, driven by growth of VitaCoco coconut water of 25%, benefiting from an acceleration of growth in the coconut water category and improvement in available inventory. We also saw 84% growth in our other product category, representing positive impact from VitaCoco treats. Our scan results in the United States were very strong. although slightly behind category growth due to the drag in our scans created by the changes in the Walmart set that we talked about last quarter. This has also caused the reported ACV distribution declines on key packages as shown on page eight of our investor deck. Our Walmart trends have improved slightly as our teams have focused on improving in-store presence of our brand and customers find our new location. but we are still down high single to low double digits, creating an estimated mid-single-digit drag on our total scan trends. Although we have fewer SKUs at Walmart than we previously had, the velocity of our remaining items has increased significantly. We are confident that we will improve our current Walmart trends, and we believe we will see this customer return as a growth engine for our brand once we re-win our lost points of distribution. From a gross margin perspective, our margins were down relative to last year due to the higher ocean freight rates experienced in the second half of last year. While there have been some declines year to date in ocean freight rates, we believe rates have still elevated relative to historical levels. And we continue to operate mainly on spot rates with some fixed price arrangements on certain lanes to secure capacity. With U.S. tariff outcomes uncertain, we expect some volatility in ocean freight rates in the coming months. We believe, however, that there is the potential for rates to decline significantly through the balance of the year. If we see competitive fixed-rate offers for long-term contracts that make sense to us, we would be willing to enter into more expansive fixed-rate agreements to cover more lanes. As we enter the summer, we have significantly more vitacoco coconut water inventory than at this time last year, so we feel good about our potential to drive growth, particularly in the third quarter, when we lack major service issues from last year. We will be looking for opportunities in the second half to leverage our improved inventory position to drive consumer trial. We believe that the strong category growth is a positive indicator and supportive of our long-term algorithm for branding growth. In anticipation of such growth, we have secured production capacity for 2025 and 2026, which should provide greater supply chain flexibility than we had in 2024. Recently, a series of potential tariffs and reciprocal tariffs were announced which could be applied to our imports into the U.S. Subsequently, the reciprocal tariffs were paused for 90 days, but a baseline tariff of 10% on most imports took effect in early April. In 2025, we expect the cost basis on which imports into the U.S. will be subject to the current tariffs to represent approximately 60% of our global cost of goods sold. To address the current impact of tariffs, which we assume to be the 10% baseline tariff on all countries other than Mexico and Canada, we are working on further cost of goods savings initiatives. We are discussing with the suppliers the potential to share the tariff pressures, and we are planning to take branded and private label pricing this summer to offset the expected impact on an ongoing basis of the cost that we are unable to offset in other ways. We are confident that we can take price as we believe the category and our brand are very healthy. We assume competitors will also take price to cover the increased costs associated with tariffs and therefore expect that any price elasticity effects will be manageable. We believe that we are well positioned to navigate any potential reciprocal tariffs as we have one of the most diversified sourcing strategies in the industry. sourcing primarily from the Philippines and Brazil, with some additional sourcing from Thailand, Vietnam, Sri Lanka, and Malaysia. We have a global diversified supply chain which should allow us to adjust sourcing more efficiently than competitors in reaction to tariffs. Long-term, we are confident we can adjust our supply chain to optimize our competitive advantage. We also believe that long-term we will benefit when ocean freight rates return to their historical levels. We are confident in the strength of our brand and our ability to manage the business in this uncertain environment. To summarize, our category is very healthy, our brand is performing, and our supply chain is supporting growth and provides us with flexibility to mitigate the potential tariffs impact long term. We are confident in our team's ability to execute and deliver on our plans, and for the full year 2025, our confidence in the category and Vitacoco 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 first quarter 2025 financial results and our outlook for the full year. For the first quarter of 2025, net sales increased $19 million, or 17% year-over-year, to $131 million. Driven by Vitacoco Coconut Water net sales growth of 25%, partially offset by private label declines of 12%, where private label water growth of 10% was offset by our final quarter of private label coconut oil transition. On a segment basis within the Americas, vitacoco coconut water increased net sales by 24% to $86 million, and private label decreased 13% to $21 million. Vitacoco coconut water saw a 23% volume increase and a slight net price mix benefit, while private label sales decreased 13%, driven by a 2% decrease in volume and an 11% price mix reduction due to the impact of the transition out of private label coconut oil. For the first quarter of 2025, our international segment continued to deliver strong results, where net sales were up 17%, with Vitacoco coconut water growing 36%, driven by strong growth across all our major markets. Private label sales decreased 8% as strong sales of private label coconut water was offset by the transition out of private label coconut oil. For the quarter, consolidated gross profit was $48 million, an increase of $1 million versus the prior year. On a percentage basis, gross margins finished at 37% for the quarter, This was down approximately 550 basis points from the 42% reported in Q1 2024. The decrease in gross margins resulted from higher year-on-year ocean freight rates and finished good product costs, partially offset by branded coconut water pricing and favorable product mix. Moving on to operating expenses, 2025 SG&A costs increased slightly to $29 million, driven by increased investments in people resources focused on driving future growth and expanding our supply chain footprint, which was mostly offset by selling related expenses. Net income attributable to shareholders for the quarter was $19 million, or 31 cents per diluted share, compared to $14 million, or 24 cents per diluted share for the prior year. Net income benefited from higher gross profit and a larger unrealized gain on derivatives, partially offset by higher year-on-year taxes, our effective tax rate for Q1 2025 was 22.5% versus 21% last year, which was primarily driven by the increase in pre-tax profits in jurisdictions outside the U.S. with higher statutory tax rates. 2025 adjusted EBITDA was $23 million, or 17% of net sales, compared to $21 million, or 19% of net sales, in 2024. The increase in adjusted EBITDA was primarily due to the higher year-on-year gross profit. Turning to our balance sheet and cash flows, as of March 31, 2025, our balance sheet remained very strong with total cash on hand of $154 million and no debt under a revolving credit facility. Our accounts receivable increased by $13 million first December 31, 2024 due to the increase in net sales And we continue to invest in inventory as we prepare for the summer season, which is evident in our inventory increases of $5 million during the quarter. Let me turn to our share repurchases. Year to date through April 29, 2025, we repurchased 333,701 shares for a total of $10 million. Subsequent to quarter end, the company's board approved an additional $25 million to the repurchase program. Increasing to $65 million, the authorization for the company to repurchase the company's common stock. To date, under the $65 million repurchase program, we have purchased approximately $23 million of shares. We exit at Q1 with a very strong category, healthy inventory levels, exciting innovation, and confidence in our team and our Vitacoco brand. We are excited about our ability to continue to deliver strong performance. Therefore, we are reaffirming our full-year guidance. We expect net sales between $555 and $570 million, with expected gross margins for the full year of 35% to 37%, delivering adjusted EBITDA of $86 to $92 million. We are expecting VitaCoco coconut water sales to grow in the mid to high teens, with incremental growth coming from VitaCoco treats. As we indicated last quarter, we expect some reduction in private label coconut water resulting from the loss of certain regions, which we expect will become more visible in Q2 and will partially offset the expected brand performance. We expect gross margins to be relatively flat through the year, with the second half being stronger than Q2 due to our planned pricing increases and expected lower ocean freight rates in the second half. with incremental pricing offsetting the expected unmitigated impact of the 10% baseline tariffs. We expect SG&A to increase low to mid-single digits as we increase our marketing spend, invest in our team, support our continued production capacity expansion, and invest in our businesses outside of the U.S. This guidance assumes 10% baseline tariffs in the U.S., but does not include the impact of the potential reciprocal tariffs It also reflects our current best assumptions on the marketplace trends, competitive price actions, and our expected price elasticity in this environment, and an assumption that ocean freight rates will soften in the second half. And with that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Cori. To close, I'd like to reiterate our confidence in the long-term potential of the Vitacoco Company, our ability to build a better beverage platform, and the strength of our Vitacoco brand and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have strong brands and a solid balance sheet, and we are well-positioned to drive category and brand growth both domestically and internationally. Thank you for joining us today, and thank you for your interest in the Vitacoco Company. That concludes our first quarter 2025 prepared remarks, and we will now take your questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. And our first question will come from the line of Bonnie Herzog with Goldman Sachs. Your line is open.

Hi, good morning. This is Ethan Huntley on for Bonnie Herzog. Thank you for taking our questions. I guess I just wanted to start on your guidance for the year. You maintain your guidance for engines for the year, which I think was broadly expected given all the uncertainty. You know, obviously your guidance now takes into account, you know, the applicable tariffs as well as your mitigation efforts. Curious if we could just elaborate a little bit more on your mitigation efforts. You know, what exactly is being done to offset these tariffs? You know, did you maybe front run some inventory ahead of the tariffs that are currently in place? You know, any broader color on the tariffs and your efforts to sort of offset that would be helpful. Thank you.

Sure. So, We obviously entered the year with very healthy inventory, and so I wouldn't say that was planned because obviously the tariffs were unknown, but we're in a healthy inventory position. So that certainly helps us as we go into the summer, both from supporting business growth, but also from delaying, I suppose, in some ways, the impacts of the tariffs for a few months. Mitigation efforts have involved, you know, obviously continuous cost of goods improvement, trying to understand if we can get any support from suppliers or, you know, the governments in those countries to offset the tariffs. All of that is in early stages. And, you know, beyond the cost of goods efforts, and some shifting of sourcing, although in the short term, shifting of sourcing leads to some improvement, not drastic improvement, but obviously we look at all those things and optimize our supply chain planning for what we understand the current tariff environment to be. And then beyond that, our expectation is we will take pricing. We've communicated the intent to take some pricing to cover the unmitigated costs of the current 10% baseline tariffs. And those discussions are, you know, very early stages. Obviously, there's a delay in when that pricing would get passed through. Obviously, a lot can happen in that period of time. But if the baseline tariffs stick, we would expect to take pricing to offset on an ongoing basis the unmitigated tariff costs. And since we're talking about the tariffs, you know, our guidance includes the assumption that the 10% baseline tariff stays in effect that was announced early April. It does not assume any assumption on the potential reciprocal tariffs. Because we source, you know, primarily from the Philippines and Brazil, that's the majority of our sourcing, over 50%, and then from other countries, The reciprocal tariff rates that were proposed obviously has a bigger impact on us than the 10%, but if you were to model it, you'd come up with, you know, potential tariff impacts in the low 20s. Obviously, that's highly, you know, hypothetical, and we don't know what will happen. It also is applied to our U.S. cost of goods at source, and in the script, you would have heard us refer to that number as 60% of our global COGS. So that would allow you to estimate the range of the current baseline tariff and then also what the reciprocal tariffs, if they went into effect at what had been talked about, would impact us. So on the reciprocal side, obviously, we will face that when it happens. Highly hypothetical, but it gives you a sense. And obviously, from a financial perspective, very strong balance sheet. strong business, strong category. We're in a very good position to weather whatever might happen, plus also to deliver on our guidance, even with the 10% tariff baselines.

Got it. That's a very helpful color. And then maybe just as a follow-up, you slightly raised your SG&A growth guidance from low singles to, I think, low to mid single-digit percent range. If you could just walk us through that decision and You know, certainly your Q1 results were very strong. So did that just allow for maybe some extra reinvestment this year? I guess, where are your marketing dollars going? And maybe how do you measure the return on your investment? And thank you very much.

Good morning. So the guidance is just a function of looking at our outlook for the year and where we expect our SC&A spending, the ranges it might be in. Obviously, a lot of uncertainty there. but we thought it was a bit wider range on the year with variability in the other inputs into the outlook. And then marketing return on investment is quite hard mathematically to get at. We look, we do lots of different things. We look at the return, we look at the impact, any KPI and metrics we see, and we're constantly adjusting how we leverage our dollars against the different brands and different geographies and adjust as we go, but we don't have specific ROI metrics.

Got it. Thank you very much.

Thank you. One moment for our next question. And that will come from the line of Kamil Garjawala with Jefferies. Your line is open.

Hey, guys. Good morning. Good morning, Kamil. Good morning. Mike, you opened up with – I guess a series of different things about the long term, including some bold statements on doubling the business and size of international and such. Can you maybe talk about supply and, you know, to what degree is supply available to achieve some of those goals and at what sort of rate can you do that?

Supply? Is that what the question was? Yeah.

Yeah.

So I think we talked about longer term. Yeah. Yeah. I think we've talked about this before. The main thing with supply is there are plenty of coconuts. The coconuts are not the issue. The planning is the issue and the timing is the issue. And so it's adding lines, it's adding facilities in the coconut farming communities. So we've been doing that the last year or so at an accelerated pace. We've talked about also the fact that it's not a business, because of the supply chain, it's not a business that we could double overnight, right? We can't double it in a year. We can't grow 60% a year without planning significantly in advance for that type of growth. So we talk about believing that we could grow the Vitacoco brand mid-teens in the long term. That's the objective. Could we accelerate that with you know, some of the international markets growing faster potentially. And so we're building out the supply chain and planning the supply chain for that type of growth. And we feel quite confident that we can achieve that.

Okay, great. And then on the price increases, it's always a careful balance. The category and your brands have so much top line momentum that I'm sure you want to be very careful not to derail that. Just given how fast you're growing, what is the right balance between how much pricing to take from a consumer perspective as opposed to thinking about it from a passing on of incremental cost perspective?

You know, we have a premium product. It's a premium category. It does have a relatively significant private label component, particularly in certain channels, that sort of anchors the price point, right? And I think we said in the past that our pricing will tend to move with COGS because of that, because of the price gap to private label. And also, you know, when we see what we would describe as temporary pricing, COGS increases our biases to not take price because, you know, if those are temporary, when the COGS go back down, the private label goes back down, right? And yo-yoing branded pricing is not something we're that excited about. So we tend to look at what is the underlying long-term cost impact. When we take price, certainly, you know, the tariff situation is a highly uncertain environment, but I think our current read is the 10% is potentially here to stay, and so that's how we're thinking about it.

That makes sense. Thank you.

Thank you. One moment for our next question. And that will come from the line of Eric Serrata with Morgan Stanley. Your line is open.

Great. A couple of kind of cleanup questions here. First, the press release mentioned higher finished goods costs. Wondering what the drivers there were. I know it's certainly a mixed bag with commodities, but there are also lags. So what drove the higher finished goods costs? And then in terms of the guidance, understand it includes the 10% baseline tariffs, but not the reciprocal tariffs. Still a pretty wide 200 basis point range. Could you talk a bit about what the key variables here in terms of getting to the upper or lower end of the range? Is it mainly ocean freight or are there other drivers that we should think of? And then lastly, in terms of pricing, you talked about taking pricing in the second half. If I remember correctly, you were talking about that last quarter as well before, you know, we quite knew what the tariff situation would be. So are you planning greater or sooner pricing than you were back in February? Or, you know, is sort of order of magnitude and timing fairly similar, but now it's really the offset tariffs rather than, you know, sort of incremental on your margin? Thank you.

Sure. Maybe I'll take them in reversal order. Eric, we had planned a general price increase in America's taking effect this quarter prior to the tariffs situation. If the you know, baseline tariffs stay in place, our expectation is we would take incremental pricing on top of the base pricing that is taking effect in Q2 due to, you know, the cadence of when that pricing could take effect and the requirement to communicate it to everyone, all of our partners, you know, the adjustment for the 10% tariffs wouldn't take effect until early Q3. And so that's, I think, answers the pricing question. On the guidance, the range on gross margin is still a little wide. There's a fair amount of uncertainty on where ocean freight will end up. I think early in the year we saw some softness in ocean freight. I think we would have expected to see further softness with the tariffs given the shutdown of, you know, China to U.S., you know, traffic. Well, not shutdown, but significant reduction. We would have expected to see more softness. We haven't yet seen that. In fact, the ocean freight rates have been a little volatile over the last four or five weeks, bouncing up and down. And so there's, you know, a fair amount of uncertainty as to when they start that downward trend again, given the overall supply-demand picture. But our expectation is they're still on a downward track. So it's sort of primarily driven by the timing of those types of things. And then against the finished goods cost, there's a number of drivers, but the biggest impact is probably adding new factories and new capacity. When you add new factories, they tend to start up, you know, maybe at less scale than the existing ones. And there's maybe some investment in, you know, lines and or startup that we help the suppliers with, you know, on a pricing basis. So, what tends to happen is that, you know, with a new factory, you know, there's pricing that's in place initially. And then as the factory reaches maturity, our cost of goods improve. And so, it's those sorts of impacts There is the impact of ocean freight this year versus last year. You know, the rates that were built into our inventory as we started the year and that we were paying early this year were significantly higher than the comparable rates for the same quarter last year. And so, you know, that's another reason why, you know, this year we're going to carry, we believe, full-year ocean freight costs that are still higher than last year's ocean freight costs that flowed through our P&L. So that's another aspect of it.

Great. And then just one follow-up, Corey, you made some comments in terms of, you know, general cadence with the price increase benefiting the second half and, you know, hopefully lower ocean freight. Could you talk specifically to the gross margin cadence? Should that follow a similar pattern of kind of gross margin pressure in the second quarter and then some relief in the second half.

Yeah, it's, I think I said in the script, Eric, it's relatively flat. It's a hard, you know, a point of growth margin on the quarter for us is not too big of a number. So we do expect the pricing to be more impactful in the second half. You also have the tariffs coming mostly in the second half and then ocean freight So a few moving pieces. So we don't see a huge difference quarter to quarter in the outlook. And again, we try to stay away from quarters because it's just quite hard to get it in a tight range, depending on the timing of our shipment. But not a huge difference, we would think, through the balance of the year.

Got it. Thanks so much. I'll pass it on, guys.

Thank you. One moment for our next question. And that will come from the line of Jim Solera with Stevens. Your line is open.

Hey, guys. Good morning. Thanks for taking our question. Hey, Jim. Hey, Jim. I wanted to dig in a little bit on the sales growth by unit type. And on slide eight, you know, the biggest driver of sales growth was multipacks, which I think is interesting given the, you know, some of the shifts on Shelf and the ACV step back that that actually was a big leader. And so I wanted to get a sense, do you know if customers were kind of pulling forward demand and trying to make sure that they have, you know, fully stocked cabinets with Vitacoco in case there would be any disruptions with tariffs or ocean freight, you know, just from like a consumer perspective? Or is that really just pure kind of existing customers buying more product absent any of the headline noise going on right now?

So, I don't think we have, you know, particularly good data on short-term consumer, you know, cabinet stocking patents. What I would say is that our growth over the last two years has had a similar pattern. And I think, you know, two years ago, we launched a series of multi-packs into different channels, and that has fueled our growth and category growth, at least we believe it has. You know, we are one of the largest brands, and therefore we can support multi-packs, so we sort of have an advantage in that perspective. And that just appears to be continuing, giving, you know, our customers the opportunity to buy a pack that's, you know, easy to shop, it's easy to put in the cart, it's easy to take home, or it's easy to be delivered, right, appears to potentially be increasing, you know, velocity at home. With that said, the multi-packs are also a little bit of a discount. When we launched them, the discount was much bigger than it is today on a per-unit basis. And so, but that discount still exists slightly. It's not, again, as I said, nearly as big as it was when we launched. We've actually closed it nicely and not seen any decrease in, you know, the velocity or acceleration of the packs. But there is a possibility that what you're seeing is maybe some consumer, you know, smart shopping on value. The Mardi Paks also in the new data, which now includes, you know, some significant club customers, have a more, you know, a bigger presence in the data set of the Sakana Plus data set. So with all those caveats, I think we're just, you know, feel very good that the base business is growing, right? The core base business is growing. The multi-pack business is growing. The innovation is growing. And all of this, even with the, you know, ACV loss that shows up on the packs from the Walmart pizza, right? So we feel very, very good about category and the brand health. And yeah, and are obviously, you know, optimistic.

And Jim, I would add, if you follow the measured sales, it's been very steadily growing. and strong week on week versus a reaction towards the end based on tariffs.

That's helpful. And then if we think about, you know, the demand generation side, particularly over the summer, it sounds like the net pricing wouldn't really come into impact until 3Q. Would we see kind of promo as a key lever on demand generation over the summer? Or is it going to be marketing? Is it going to be focusing on, like you mentioned, some of the food service relationships you guys have rolling out? Just how you're thinking about demand generation and the key levers there and what that should look like over the summer.

Yeah, so just starting on the pricing, as I sort of alluded in my answer to Eric, there was a planned pricing, which is taking effect Q2. And then we have communicated intent and we're currently in discussions on probably early Q3 pricing against the 10% tariff baseline if that's what we need to do. So that's the pricing environment. I think the most important thing for us as we look at the summer is we're entering the summer with much more inventory. And, you know, that's going to allow us to execute a normal promotional cadence through the summer and into the fall. The biggest impact on that will probably be Q3 from a scan perspective, because Q3 was the quarter last year where we had the biggest inventory issues. But we're expecting a pretty normal, you know, price promotional cadence, potentially off a higher front line. That is what we have planned for the summer. That's great. Back in two.

Thank you. One moment for our next question. And that will come from the line of Eric DeLaurier with Craig Hallam. Your line is open.

Great. Thank you for taking my questions and congrats on another strong quarter here. First one for me, a bit of a follow-up on that last question. So, Martin, in your prepared remarks, you commented for expectations for these price increases to be tolerated by consumers. Could you just expand on what you're seeing in the market from a price elasticity perspective?

So, you know, we haven't taken any price in the last 12 months. So, you know, any experience we have is quite old and obviously in a completely different environment than we're operating in. So, I think, you know, what we look at, and I come back again to an earlier comment, right? The The category pricing is somewhat anchored around where private label assets, private label will have, you know, similar or bigger COGS increases than we have given where they source from, probably significantly bigger if reciprocal tariffs come in. and So we'll watch that and see but you know that I think if the whole category is taking price I think the price elasticity question at least within the category is significantly less this is still a very affordable beverage a premium functional beverage and so we have confidence that the consumers will be okay and against historical sort of get price gaps to other beverages and the category is so much more affordable today than it was pre-COVID because the category has not taken that much price in that time period. So obviously we will see and we will react accordingly and it's very hard to predict, but that's how we're thinking about it.

That's helpful. That makes a lot of sense. And then just a follow-up question on the international market. I wonder if we could expand on the comments to step up investments in international markets. Should we think of this as more kind of marketing? Is this more sort of boots on the ground supply chain investments? And then maybe just from a higher level, kind of touch on the current competitive environment and your ability to accelerate any category or market share growth there. Thank you.

Yeah, I would say it's both boots on the ground and marketing. You know, Some of the markets that we're going into that are newer markets, you need to put people in the street. You need to put people in stores to open up buying groups of large retailers and all of these type of things. And it's almost a manual process. So it includes adding people to be able to do that. It includes adding marketing teams. And it includes spending more on marketing that we might have historically.

Great. Thank you for taking my questions.

Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1. One moment for our next question. And that will come from the line of Michael Lavery with Piper Sandler. Your line is open.

Thank you. Good morning. Hey, Michael. Hey, Michael. Hey, just going back to some of the planning and ways you talked about growing capacity, maybe just with tariffs in mind, if the reciprocal tariffs kick in and you have variations across places of origin, how flexible or nimble can you be and how much time would it take maybe to rearrange some of where you source from?

Sure. Great question. You know, I think we sort of stated that we believe that we're, you know, competitively well positioned relative to the potential tariffs given our, you know, expertise in sourcing from Brazil and Philippines, which in those reciprocal tariffs were the lowest, you know, tariff rates of the coconut water supplying countries by a significant margin, right? And that leads you to, you know, to model, you know, an effective tariff rate in the low 20s, as I sort of stated to Bonnie's question. if those tariffs were to go into effect against our current supply chain. We are actively adding factories. We have another new contract in Philippines that's coming on board and exploring ways to, you know, basically take advantage of the fact that we are diversified, particularly outside of Vietnam and Thailand, where our competitors are mainly focused on sourcing. And again, those were the countries that had the highest proposed reciprocal tariff rates. To start up extra capacity in an existing factory is typically around 12 months to add a tetraline as sort of the lead time. To start up a new factory or a new relationship might be 12 to 18 months unless they're already producing a fair amount of coconut water and we can just step in and maybe take someone else's capacity, but that's a little quicker. I think we're a very attractive customer to suppliers because We have, you know, an interest in buying just coconut water for brand and we take the volume that we commit to. So we're not, we're not, we don't switch with these are very long-term relationships built by Mike and the team over, you know, decades. Um, and so we're a very, very good partner with one of our partners. We're helping them start up a new factory and have agreed to take, take that coconut water. And there are similar conversations like that going on. But, um, to adapt to, let's say, potential tariffs that might come in. It is a 12 to 24-month exercise, and it would not happen quickly. And if, you know, hypothetically we said we needed to move everything to the Philippines, that might take even longer, right? So it's that sort of lead times, but we're better positioned than anyone else to do that.

But just to add, to reallocate supply to other places, for example, we support the European business, we support the Canadian business, to reallocate supply from high U.S. tariff countries to some of those markets and then reallocate the lower tariff countries to U.S. is more a matter of ordering tetra paper and setting up the supply chain to do it, and that's more in the magnitude of four to six months. So that would be part of the mitigation efforts should reciprocal tariffs come into play, and should they be differentiated by, country and managing that whole process.

Yeah, that's right. We obviously wouldn't take any action until we knew the tariffs were semi-permanent because there's a fair amount of disruption in that. So right now, we're adding capacity for growth because that we have firm sight to, and then preparing the teams to be very nimble and agile.

And just want to apologize if you're hearing a lot of background noise. There's a construction project going on on the street below us, so apologies.

No background noise we can hear, so you're good, but thanks. That's great color on sourcing. Just on Walmart, you gave some helpful color on what you're seeing there. Given, I think the recess they had were November, and now we're coming into mid-year again. Any sense of would it be reasonable to assume at this point that there wouldn't be any changes until the November resets again? Or do you have a sense of anything that could come sooner? And I know until it's final, you probably don't want to give too much about how those discussions might look. But is sort of restoring some of the lost SKUs nearly a given? Or what's your expectations on how that might look?

I would say that as we come into the summer, we have a big effort against display building activity, off-shelf programming, these type of things that are supported by Walmart that we're doing. We've seen the declines improve significantly as compared to Q4 of last year when the change happened. And so that is a positive. We hope to continue to see the declines lesson and improve as the rest of this year moves on. And we have a good level of confidence just through conversations with Walmart that we will restore a large part of our distribution, both in terms of SKUs and points of distribution. that will benefit us being also in, as we've talked about, a much higher foot traffic aisle than where we were before. So we're excited about actually where we stand with Walmart, and we really believe that Walmart becomes a growth engine for us.

Okay, thanks so much.

Thank you. One moment for our next question. And that will come from the line of Robert Ottenstein with Evercore ISI. Your line is open.

Yeah, this is Gregory on for Robert. I've got a quick question, maybe following up on what you mentioned before, but putting aside the Walmart situation, you know, given that your inventory position is now better, you know, demand looks awesome. How are you guys thinking about shelf space for the remainder of the year, both with respect to the category and then your products and then kind of within your portfolio? Like, where do you see the key, you know, wins, I guess, on shelf space? Are there certain, you know, products that are taking more or kind of how are you guys thinking about that? Thank you.

So, we obviously entered the summer with much better inventory than last year. So, just, you know, based on that, we expect our shelves to look much better in, you know, Q3 than they looked in Q3 last year. As it relates to points of distribution, I think we said last quarter that even with the Walmart losses, we expect to gain net points of distribution for the full year. That's driven by, you know, a number of things happening. Like, we indicated one liter of Hidacoco was successful in C-stores, so it's rolling out to more C-stores based on the learnings from last year. Treats has been very well received in terms of retailer shelf sort of approvals, so that's going to drive a nice win. Multipacks and Farmer's Organic continue to gain sort of points of distribution. Obviously, they've been out for a while, so the distribution gains are a little less than they were in the first two years, but it's all very healthy. So generally, we expect our shelf to improve this year, even with the negative impact of the lost SKUs at Walmart.

Ian, do you see that shelf space, I guess, coming from other competitors within this space, or is it coming from adjacent categories?

It's a little bit of both, but it's mostly from adjacent categories, as we are the clear largest share, both in share, but also in share of space. Taking further from other categories is mostly what we see as the coconut water category is, we've talked about it, the fastest growing category in the beverage aisle. It's obvious that we continue to gain expansion in the aisle. Awesome, thanks.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr. Martin Roper for any closing remarks.

Thank you, everybody. Thanks for the questions. I'd like to reiterate that we're currently operating in a very healthy category. Our brand trends are also very healthy, and our inventory position sets us up well to have a great summer. And I look forward to talking to you next quarter.

This concludes today's program. Thank you all for participating. You may now disconnect.