The Vita Coco Company, Inc. (COCO) Q3 2026 Earnings Call Transcript

Operator: Hello, and welcome to The Vita Coco Company's Third Quarter 2026 Earnings conference call. My name is Michelle. 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 like now to hand the call over to John Mills with ICR. Please go ahead.

John Mills: Thank you, and welcome to The Vita Coco Company third quarter 2026 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. 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 Vita Coco Company's website at investors.thevitacococompany.com. Accompanying the press release is a presentation covering our commercial and financial performance results, also available on the website. 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. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, we will reference certain 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 these non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. With that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

Mike Kirban: Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results. We had another very strong quarter with the demand acceleration we saw in the first half continuing through the third quarter across all of our major markets. What is most encouraging is the strength we are seeing across both the coconut water category and the Vita Coco brand. Consumer demand remains strong, and our teams have done a great job executing in what continues to be a dynamic supply environment. The coconut water category remains incredibly healthy and continues to be one of the fastest-growing categories in the beverage aisle. According to our retail scan data, year to date category retail dollar sales grew 28% in the U.S. and 66% in our measured European markets. Vita Coco coconut water, excluding coconut milk-based products like Treats, also grew 27% year to date in retail dollars in the U.S. and 54% in our measured European markets. These results reinforce our belief that coconut water is still in the early stages of achieving mainstream appeal. Household penetration remains meaningfully below mainstream juices, sport drinks, and other functional beverage categories across our major markets, which we believe provides a long runway for our growth. Our strategy is straightforward: grow the coconut water category while expanding our share through strong brand performance and strategic private label relationships. We are focused on recruiting new households, increasing consumption occasions, and reinforcing coconut water's functional benefits. We believe the growth we are seeing today is evidence that this strategy is working. As we think beyond this quarter and continue to plan for what we believe will be many years of continued growth, we are very focused on enhancing and expanding our supply chain, which we believe is one of our greatest competitive advantages. We are investing in our long-term supply capabilities, adding new factory partnerships, and supporting existing partners as they expand capacity. While it is too early to provide financial guidance for 2027, based on the capacity we have today and the additional capacity we expect to bring online in the near term, we expect our supply will be able to support a continuation of current volume growth trends into next year and beyond. As we discussed in July, the Copra acquisition gives us a meaningful position in the super premium Thai Nam Hom segment of coconut water, an attractive part of the category where we previously didn't play. We estimate the super premium chilled segment represents approximately 13% of U.S. coconut water sales and is growing faster than the overall category year to date, with retail price points nearly double those of shelf-stable coconut water. The Copra business has operated smoothly since closing in late July, and our progress on integration has exceeded our expectations. I want to thank everyone involved for the work they have done to bring the two businesses together as one high-performing coconut water company. As we look to 2027, we plan to continue using innovation to create new occasions, reach new customers, and expand where and how coconut water is consumed. Over the next couple of months in the U.S., we will be launching Vita Coco in what we are calling our sports-inspired flavors, including lemon lime, blue raspberry, and fruit punch. It's the coconut water consumers already know and love from Vita Coco with flavors designed to appeal to the growing number of younger consumers looking for alternatives to traditional sport drinks. We'll also be launching Vita Coco Kids, a six-pack, 8-ounce Vita Coco pure coconut water designed specifically for younger children and families. Additionally, we're planning the introduction of a new 310 ml slim can primarily targeted toward food service accounts, giving us another format to expand into new channels and new occasions. We're continuing to build out the Vita Coco Treats lineup with a new Piña Colada flavor. Taken together, Copra and these innovations are great examples of how we're thinking about the opportunity ahead of us, playing more fully across the coconut water category, bringing new consumers into it, and creating more occasions and channels for them to enjoy our products. We've spent years building this category, our brand, and our supply chain. I believe coconut water will become a major global beverage category over time, and that Vita Coco is well-positioned to be the leading brand. I'll turn the call over to our Chief Executive Officer, Martin Roper.

Martin Roper: Thanks, Mike. Good morning, everyone. I'm pleased to share details on Vita Coco's robust third quarter performance. Our net sales in the quarter were up 34%, driven by the strong growth of Vita Coco coconut water of 15% and private label growth of 152%. The coconut water category and our brand trends are very strong across all our major markets. I am particularly encouraged by the exceptional growth rates being delivered by our European teams. In the U.S., as we analyze the source of our accelerated demand, we estimate that just over half of our U.S. Vita Coco branded business growth year to date is attributable to increased household penetration, with the remaining coming from velocity growth per household, a pattern that signals strong brand momentum and potential. Our private label shipment growth for the quarter reflects the addition of the Copra private label business since late July, multiple private label distribution gains, and the underlying category growth. With respect to service levels, demand year to date for both brand and private label product continued to exceed our projections. Within the quarter, our supply chain became tighter, resulting in reduced service levels and our shipments lagged our continued strong retail scan growth. Additionally, in the most recent weeks, we have seen instances of retail out of stocks slightly depressing our scan growth. While production levels are sufficient to meet demand, container availability during the quarter was challenging, with inventory building at suppliers. In October, we made progress, and we expect our service levels to improve during the fourth quarter. We expect to see strong shipment growth through year end, rebuilding inventory throughout the system and preparing for another strong year in 2027. As we think about inflation and pricing moving forward, we are seeing higher ocean freight costs, elevated domestic transportation costs and inefficiencies, and increases in packaging costs. As we communicated last quarter, we chose to apply our tariff refunds against our cost increases rather than taking pricing this year in order to support our consumers and retail partners while we assessed which affects our long-term structural cost increases. Starting in May, we saw ocean freight spike. While our contracts provided a degree of protection in negotiations with carriers, many of the increases were positioned as fuel or demand surcharges on top of contract rates. Accompanying these cost increases were some service disruptions that impacted timely arrival of containers to the selling markets in the third quarter and delayed our ability to rebuild our inventories. To secure containers to meet our demand, we have purchased spot rate containers and paid significant surcharges over contract rates with our contract carriers. We view current ocean freight costs as unusual and likely temporary and have seen rates to Europe ease from their July peak. We expect other lanes to also normalize over time. The ocean freight cost increases, along with the other inflationary effects previously mentioned, will impact our fourth quarter gross margins and are reflected in our updated guidance. We have communicated to our distributor and retail partners our intent to implement pricing adjustments in early 2027 to compensate for the cost increases that we view as structural. While the specific price increases vary by product and market, our objective with these adjustments is to meet our branded and private label gross margin targets, assuming some easing in current ocean freight costs. I am pleased to say that the Copra integration is proceeding smoothly. I recently had the pleasure of visiting the Copra facility located in Ratchaburi Province, Thailand, an ideal location for sourcing Nam Hom coconuts. I was impressed by our local team, the capabilities they have built, and the quality of the operations. We believe that we produce the best quality product in the super premium segment due to our integrated coconut water extraction and packaging model, which we intend to preserve and scale. As we look to the remainder of 2026, we are raising our full year guidance to reflect the continued momentum of our core business and the early performance of the Copra acquisition. We expect that our capacity utilization will remain high early in 2027 before expected new capacity starts to provide relief. Further out, we are pleased that our work on capacity additions appears on track to support a continuation of current volume trends and should allow us to operate under our preferred 85% utilization model in 2028 based on our current assumptions of growth trends and capacity timing. To summarize, our category is very healthy. Our brands are performing well, and our team is executing at a high level. We are confident in our team's ability to finish 2026 strong and are enthusiastic about the plans we have in place for 2027. Our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Corey Baker: Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2026 financial results and our outlook for the full year. For the quarter, net sales increased $62 million, or 34% year-over-year to $244 million, driven by strong Vita Coco coconut water net sales growth of 15% and private label growth of 152%. Organic growth for the quarter was 18%, with Copra contributing $29 million in the Americas. We are reporting Copra's private label business in our private label category, and Copra's branded and commodity business reported in our other product category. On a segment basis within the Americas, net sales grew 31% to $199 million, led by Vita Coco coconut water that grew net sales by 8% to $143 million. This was driven by a 9% volume increase and a slight net price mix decline. Private label increased net sales 224% to $46 million, driven by 110% increase in volume and a price mix increase of 54%, reflecting the benefits of approximately 10 weeks of Copra volume and the benefit of Copra's premium price point. Throughout the year, the accelerated retail growth in Europe and in the U.S. for both branded and private label SKUs tightened our available inventory, and in the U.S., reduced inventory at our distributors. This has resulted in intermittent service issues across most of our markets on some SKUs. The potential lost shipments from reduced inventory this quarter, combined with strong U.S. shipments in Q3 of last year, which built distributor inventory for the Q4 Walmart reset, resulted in our U.S. Q3 Vita Coco shipment growth lagging another strong quarter of U.S. retail scan performance of 23%. We expect to see U.S. shipment growth exceed scan growth over the coming months as we rebuild system inventory and are better able to meet demand. The expectation is embedded in our updated guidance. Our international segment net sales were up 48%, where we continue to see exceptional net sales growth across branded and private label coconut water. Vita Coco coconut water net sales grew 57%, and private label increased 27%. For the quarter, consolidated gross profit was $93 million, an increase of $24 million versus the prior year. Gross margins finished at 38% for the quarter, broadly in line with last year. Gross margins benefited from minimal tariffs this year as compared to last year, which is mostly offset by higher domestic logistics costs and the mix impact of Copra. Moving on to operating expenses. SG&A increased $6 million to $47 million, driven by acquisition-related costs, increased investments in personnel supporting our growth, the inclusion of Copra, as well as higher sales-related expenses. Net income attributable to shareholders for the quarter was $35 million, or $0.58 per diluted share, compared to $24 million or $0.40 per diluted share in the prior year. The $11 million increase in net income was primarily driven by the increase in gross profit from our strong core business growth, plus the benefits of Copra, partially offset by higher SG&A investment, increased income tax expenses, and unrealized derivative losses this year versus gains last year. Our effective tax rate for Q3 was 20% versus 22% last year. This brings the effective tax rate to 21% on a year-to-date basis, in line with our expectations for the year. Q3 adjusted EBITDA was $53 million, or 22% of net sales, up from $32 million or 18% of net sales in Q3 2025. The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow. As of September 30, 2026, our balance sheet remained very strong, with total cash on hand of $152 million and no debt under our revolving credit facility. Year to date, through September, we reduced our net cash by $45 million, driven by the net investment of $139 million to acquire Copra and a return of cash to shareholders through our share repurchases of $62 million. Our underlying cash generation remained very healthy, driven by $115 million of net income and a $33 million reduction in inventory, partially offset by a net working capital outflow of $4 million, reflecting a higher accounts receivable, partially offset by an increase in accounts payable. During the quarter, we repurchased approximately $42 million of our shares under our current $105 million authorization. Since the end of the quarter, we have purchased an additional $8 million for a cumulative year-to-date purchase of $70 million, leaving us with $11 million remaining under the total $105 million authorized. As it relates to guidance, we have continued to experience exceptional category trends in our major markets and have very strong confidence in our team and our Vita Coco brand. As a result, we are raising our full year expectations for both net sales and adjusted EBITDA. We now expect net sales between $810 million and $820 million, with expected gross margins for the full year of approximately 40%, delivering adjusted EBITDA of $170 million to $175 million. Our expectations for the strong net sales growth is built on our assumptions for the U.S. category growing in the mid-20s on a percentage basis, and our international business led by the U.K. and Germany maintaining very healthy growth rates. We now expect consolidated Vita Coco coconut water net sales growth of approximately low 20%, with our U.S. Vita Coco net sales growing in the high teens. Due to the strong U.S. category growth, increased distribution, and the inclusion of Copra, we now expect full year private label net sales growth of 110%-120% in the U.S. Full year gross margin expectations remain unchanged at approximately 40%. While some of the inflationary cost of good effects were visible in this quarter's results, the full impact of increases in early summer will primarily hit in Q4. As a result of our mix shift and these higher cost of goods factors, we expect gross margins in Q4 to be approximately 33%. As we indicated previously, we deferred raising prices this year until we understood the permanence of the cost increases. To return our gross margins to our targeted range, we have communicated to retailers pricing increases to take effect in Q1 of 2027. While we may experience gross margin variability in the short term due to ocean freight rates and product mix, our long term gross margin aspirations remain unchanged in the high 30s, approaching 40%. From an SG&A perspective, we continue to invest in our brand and supply chain in a disciplined way to support long-term growth related to integrating Copra with less spend to date than expected. We expect to deliver SG&A leverage of approximately 1.5 points as a percentage of sales for 2026. As we exit 2026, we are excited about the momentum going into 2027 of the category and our brand. We remain excited about the opportunity to grow both our branded and private label business next year. With that, I'd like to turn the call back to Martin for his closing remarks.

Martin Roper: Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of The Vita Coco Company, our ability to build a better beverage platform, and the strength of our Vita Coco brand, uniqueness of our supply chain that now includes Copra's super-premium capabilities, and in the growth potential of the coconut water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth. Thank you for joining us today, and thank you for your interest in The Vita Coco Company. That concludes our third quarter 2026 prepared remarks, and we will now take your questions.

Operator: Thank you. To ask a question, please press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again. Our first question comes from Bonnie Herzog with Goldman Sachs. Your line's open.

Ethan Huntley: Hi. Good morning. This is Ethan Huntley on for Bonnie. Thanks for taking our questions. I guess my first one here is on margin and sort of your margin trajectory from here, which I know remains sort of a big area of focus. Obviously, you have some margin pressures in Q4 and there's a lot to unpack there, but could you maybe just talk about your margin trajectory beyond this year? Are there any levers you can pull beyond pricing to help offset any of these pressures? So maybe just a high-level question here on your margin profile heading into next year, recognizing your confidence in the high 30% range over time.

Martin Roper: Yeah. Thanks, Ethan. The current margin pressures are primarily being driven by transportation, ocean freight, domestic logistics type issues. There is some underlying inflation at the factories and in packaging, which is more permanent. Our goal in the pricing that we have and are communicating to retailers and partners to take effect in early 2027 is to cover the costs that we think are pretty permanent, but it will not fully cover the current transportation peak that we are in. We have sort of reconciled ourselves to the belief that, one, that is a peak that will subside, and two, if it does not subside, we would need to take further pricing in order to meet our gross margin goals. So next year's gross margin could be a pretty wide range based on what happens to ocean freight. But in the long term, we are very comfortable taking pricing if we need to, if these costs are permanent.

Ethan Huntley: Very helpful. Then maybe just a quick follow-up here on sort of your international strength. Obviously impressive volumes. I think they are up 42% in the quarter. I know international has been an area of focus for you recently, so if you could maybe just outline some of the key drivers of this strength, how sustainable this strength is over the next couple of quarters and into next year. So maybe just sort of a high level question here on international, the key growth drivers and the sustainability of growth into next year. Thank you.

Martin Roper: Sure. Well, I think you know we have had a very nice U.K. business for quite a while now, and it has reached the point where we break it out in our 10-K. But our European team, which is based in London, has done a really nice job getting some other markets moving. I think the primary one we have called out is Germany. That is moving very strongly, showing growth rates over 100%, and that is obviously pulling the total international volume along very strongly. That said, I think the U.K. growth was in the 30s on a scan basis. I hope I have that right. So it is very, very healthy. When we saw the acceleration of demand that we have referred to in the U.S. that happened earlier this year, very late last year, it also impacted our international business, and that has accelerated beyond our expectations, too. Looking to the future, the per capita consumption rates in the U.K. are still order of magnitude, a third of the U.S. In Germany, it's a sixth of the U.S. And the U.S. is like 66% of Australia. There's a lot of upside in the U.S. still, but in Europe, there's still a lot of upside if we can get those markets to current U.S. penetration. That's how we think about it. We certainly expect next year for the international growth to continue on a very solid base. Obviously, it won't compound at the high, I think you said 80, but it won't compound at those rates because the base is getting bigger. But the business is very healthy, and we're very positive.

Ethan Huntley: I appreciate the color. I'll pass it along. Thank you.

Operator: Thank you. The next question will come from Christian Junquera, Bank of America. Your line's open.

Christian Junquera: Good morning, everyone. You have Christian on for Pete. Thanks for taking our question. Can you help quantify the impact of out of stocks during the quarter? Presumably, if you had more inventory available, sales would have been higher this quarter. Am I right in thinking that? As you're rebuilding inventories using containers at spot rates, should we think about that as primarily a 4Q gross margin headwind, or does that potentially leak into the first quarter of next year also? Thank you.

Martin Roper: Very difficult to quantify completely lost sales, right? Until maybe you have moved past the event and can go look at it in totality. Our supply constraints started to tighten during the quarter and were quite tight at the end of the quarter, and there is no doubt that we haven't shipped from our warehouses what our customers fully wanted in the quarter. So there is definitely deferred sales. How much of that is lost is open. I think the scan data was still very strong. Some signs the last couple of weeks that maybe a little bit of weakness that we would ascribe to potential inventory issues, which might be lost consumer consumption, but that is sort of been in the last couple of weeks. And currently, we are not happy with our service. It is complicated in that we have been able to get containers, but the containers have been taking longer to get to us. There has been some port congestion, particularly in the transshipment ports in China, that has delayed containers. So this has been very hard to predict. We are pretty comfortable that in the last couple of weeks, we have started to see more containers being offered to us at very high rates. But the availability is significantly improving at our shipping ports, and that inventory should arrive as those containers are supplied to us. It is sort of in the December time period, and whether that will impact Q4 in the inventory recovery in the system or Q1 is certainly debatable, and we could see either occur, depending on how things flow. Very difficult to do, but certainly our shipments and reported net revenue was a little depressed in the quarter because we were not able to fulfill demand across branded and private label SKUs. Q4 recovery should be good, but how good is, again, difficult to predict given exactly how those containers would flow.

Christian Junquera: Perfect. A quick follow-up. Very helpful, the comment on the latest scan data, like showing this development. Going to the scan data, is there anything in the year ago period that we should be cognizant of? Like any sort of promotion that retailers you did or anything? Just if I remember correctly, the scan data in September, October was very strong in the year ago period. That will be it for me. Thanks, guys.

Martin Roper: Do you want to

Corey Baker: Yeah. Nothing particular in the scan data this year. I think last year you were cycling the out of stocks in 2024 and the addition of an MVM back into the cycle. But this year-on-year, it's pretty stable. There's always items moving around, but nothing that we would call out as a huge driver.

Martin Roper: Not promotional related, so not directly answering your question, but in mid, late November last year, the Walmart resets took place, and that quickly became visible in a slight jump in the scan trends. So we're going to roll that. And while we expect to roll it pretty positively, how positively? Obviously, we don't have the data on to see how that rolls.

Christian Junquera: Perfect. Thanks, guys.

Operator: Thank you. The next question is going to come from Eric Serotta with Morgan Stanley. Your line's open.

Eric Serotta: Great. Thanks so much. Couple of follow-up questions here. One, in terms of the scan data and your guide, looks like both the recent growth of your branded in-scan and your branded guide versus the category shows some market share losses. Could you help us unpack that? Do you think that these supply issues are impacting you guys more than competitors for some reason, maybe relating to sourcing countries? Or is this really another dynamic going on? Then on the Copra side, the sales came in a bit better than I think we in the market had expected in the quarter. I know you didn't have a ton of visibility going back to July when you announced the deal, but you mentioned Copra costs or integration is coming in better. Is the top line and your guidance for Copra top line coming in higher than expected? I think you were talking something like $80 million for the balance of the year, or for the second half when you announced the deal. Thank you.

Corey Baker: So Eric, there's a few things in there. Let me talk about Copra. We are just getting to know the business and the shipment timing. The quarter was a bit stronger. We account for private label based on orders and inventory, so it's a bit of movement there. We had indicated approximately $40 million for the ownership time we had within the year. I would say overall, Copra is an element of a really strong category, and so it is overall, we're seeing the category remain quite strong and Copra is benefiting from that and gaining share.

Martin Roper: But Copra's also operating at capacity. Right now the upside is a little limited. I think we could probably sell more if we had it, but we don't and we won't probably till mid next year when our capacity additions potentially give us some ability to sell more. I'd say we're very happy with the integration. We're very happy with the team. Yeah, net revenue may be slightly ahead, but to Corey's point, some of that might be accounting or just timing. It's still too early for us to significantly change expectations, which are currently constrained by capacity anyway.

Eric Serotta: Great. Then the branded market share trends or growth that you're seeing and expecting versus the category, how is the supply issues playing into that? Can you unpack that more broadly? Do you think your supply situation is different from competitors?

Martin Roper: I'd start off by saying the brand growth is very healthy. It might be lagging the category a little bit in the most recent data, which is certainly partially due to supply constraints. But within the category, certainly private label is performing pretty strongly. That's taking a little bit of share from everybody. I don't think that's particularly a long-term issue, but I think we mentioned that a major retailer was adding a private label and that's why it's a short-term issue when that sort of happens. Then as it relates to what we see on the shelf relative to others, I'd say the demand for the category is very healthy. I think everybody has similar issues. Everyone's issues are a little different. Most of our competitors source from Vietnam and Thailand, which have direct shipping available, so they don't have to deal with the transshipping issues that we have coming out of the Philippines and some of our other countries that go through China or Singapore, depending on the routing. So they have different issues. They're still exposed to the same ocean freight peaks, et cetera. Even those countries I think have reported increased exports. So the demand on the shipping is probably pretty similar to what we're seeing. That being said, we do have some private label customers where they are sourcing some of the business from a competitor, and as far as we can see, we are performing better than those.

Eric Serotta: Got it. Thanks so much.

Operator: Thank you. The next question is going to come from Michael Lavery with Piper Sandler. Your line's open.

Michael Lavery: Thank you. Good morning. Just wanted to come back to the capacity color that you had mentioned. Within that, for next year, could you give any sense of if there's considerations we should keep in mind between private label and branded, or is there flexibility between the two? How does the capacity trickle down, just in those buckets?

Martin Roper: I think you're asking about how do we think about supplying brand and private label and prioritization. I think that's what you're asking. One, we have great private label relationships and we ask them for projections and then we commit to trying to meet those projections, right? Similarly, on our brand team, we ask them for projections and we try to meet those projections. I think it's fair to say that our brand team is a little more optimistic in their projections than maybe our private label customers are in theirs, so that creates a little bit of a challenge when it comes to fulfilling if the demand remains very strong. The demand has been very strong. We have exceeded our commitments to our private labels and customers this year. We've allocated inventory, we think very fairly. These are long-term relationships. We view it as long-term important to us to maintain them in the business. I think we have talked about this, that we try to invest in the category and grow the category and benefit from our share of the brand and then our share from private label. What we ask is for good forecasts and then we commit to do everything we can to try and meet those. If demand exceeds those, there is certainly some allocation, but we try to meet it fairly. Some of it is difficult, like not all of our factories produce all SKUs. Maybe we have not ordered enough packaging material for that private label customer. There are other factors that go into this. What we really need is great forecasts, and then we commit to trying to deliver them, and I think we have done a really good job of doing that.

Michael Lavery: Okay, that is helpful. Just on the innovation for next year, the sports drinks flavors, can you just elaborate on some of the consumer insights or research there, and maybe what some of your incrementality expectations are for that?

Mike Kirban: Yeah. I think we have been talking about a year and a half now about leaning harder into sports hydration. From a communication standpoint, we have been doing that, and it has been working really well. I think quite a bit of the demand increases that we have seen are related to that communication, related to bringing in consumers for that occasion. As we think about that, we still see that one of the barriers to adoption in the category is taste or perception of taste. We have done a lot of work on this, and we think as we continue to communicate that Vita Coco coconut water has 3.5x the electrolytes of a sport drink and comes from nature and it comes from a tree, adding flavors that are more recognizable, especially to young consumers who drink sport drinks, whether they be blue, green, or red, we think is going to give us the ability to bring in more young consumers whose families are looking for healthier hydration.

Michael Lavery: Okay, great. Thanks. I will pass it on.

Operator: Thank you. The next question will come from Eric Des Lauriers with Craig-Hallum. Your line is open.

Eric Des Lauriers: Great. Thank you for taking my questions. My first one here is actually a bit of a follow-up on that last question. Younger consumers seem to be an increasingly significant portion of your demand growth. I think Treats were an initial attempt to appeal to younger consumers. We obviously have another Treats product announced here, Vita Coco Kids, and obviously the sports-inspired flavors that you just mentioned. Can you just kind of talk about your positioning with the younger demographic compared to competitors, what you are seeing from that demographic, and how much we should be looking at these new products broadly as incremental opportunities versus perhaps some cannibalization risk? I just want to get a better sense of how you are viewing that younger demographic.

Mike Kirban: Yeah. When you think about it is pretty impressive. A 20-something-year-old brand that continues to age down has been, I think something that has helped us a lot. We have been really successful with it. We continue to be. Treats has really worked from that perspective. We have brought in quite a few new consumers to the brand that have never drank the brand before. That has worked really well, and we think part of not only driving Treats, but driving the success of the brand and of the category in general. We think this can do the same. We have talked about our partnerships in youth soccer and youth sports and going deeper into that. To go deeper into that with not only the messaging around 3.5x the electrolytes of a sport drink, but now flavors that are more recognizable to these consumers, these young consumers, we think will add a lot of benefit and bring in a lot of new consumption, new consumers, new households.

Eric Des Lauriers: That's great to hear. My other question, you've discussed some of your supply chain investments. Do you expect these investments that you're making now to be able to maintain volume growth? Obviously, it's been quite robust, so that's certainly very encouraging to hear. Just curious if any of these investments or plans that you're making can also potentially address any of the supply chain disruption risks that we've seen here and there over the last several years. Maybe just help shed some light on what, if anything, else is going on at the supply chain level beyond capacity increases. Thanks.

Martin Roper: Sure. We're always endeavoring to diversify our supplier base, both for geographic reasons that could deal with political or environmental factors. I think we sort of indicated that the Philippines is our largest supply country. Brazil is second, and Brazil and the Philippines supply the majority of our product, but we have reasonable share elsewhere. When we're looking for new partnerships, we're always balancing those issues. Unfortunately, everywhere we source coconuts from requires ocean freight. So we haven't yet been able to create a meaningful way to sort of dilute our reliance on that beyond some of our sort of more mixed products do use concentrate, and we are able to produce them a little more locally. But that currently it's not insignificant in our product portfolio, but since most of our product portfolio is Vita Coco branded, it's not a significant effect, but we have made progress in that area to try and de-risk those things.

Eric Des Lauriers: That is helpful. Thank you for taking my questions. Congrats again.

Martin Roper: Thanks.

Operator: Thank you. The next question will come from Jim Salera with Stephens. Your line is open.

Jim Salera: Hey, guys. Good morning. Thanks for taking our question. Martin, I wanted to expand on something you just said in answer to that last question. If I look at your deck, it looks like the new sports-inspired flavors are from concentrate. I wonder if we see success there, which I anticipate given the consumer engagement with that occasion, is that much easier to scale than the traditional not from concentrate blue bottle product?

Mike Kirban: That is part of Sorry, I am just going to. Sorry about that. On that topic, that is part of the objective, right? Sport is from concentrate, so are quite a few of the flavors now. That gives us not only the ability to potentially scale, but also the ability to potentially produce in different places, produce in-country. That is clearly a benefit of the formulation.

Martin Roper: Producing from concentrate gives us some flexibility, particularly to avoid ocean freight. But if these products do scale, we might still choose to produce them in the tropics because the production cost of doing so, if ocean freight is at normal historical levels, remains very attractive and we can fill out capacity that our suppliers have put in with catch lines, et cetera, to do it. I think the benefit of being from concentrate, particularly on new items, is it allows us to produce much closer to the market and respond to demand quicker on the innovation side. But the economics long term could be much better if ocean freight returns to historical levels by producing in the tropics. So it is very dependent on where ocean freight is.

Jim Salera: If you are able to give any context, is the initial run of the sports-inspired flavor going to be produced domestically or near domestically. And can you give us a sense for the margin of that product relative to the core lineup.

Martin Roper: Most of our innovation that uses concentrate, we try to produce in locations that do not involve ocean freight, but maybe not domestic, but maybe across the border. And margins on that tend to be lower than our long-term goals, like you would expect in innovation, right. But in the innovation, when we look at it, we try to design innovation so that if the volume comes, it meets our long-term goals.

Jim Salera: Great. And if you do not mind, if I sneak just one other quick one on capacity. I just want to make sure as we think about the front half of next year, it seeming like it is going to be a little bit more capacity constrained. Is the right way to think about that, the sort of the upper bound of sales in any given quarter is sort of where the 3Q number came in that kind of $240 million-$250 million range. Or is it just we have a trickle of capacity in the first half, and then the back half of the year, we have a wider capacity coming online.

Martin Roper: I think what we have indicated is the capacity that we have, we think supports continuation of current volume trends through next year. Certainly, the first half of next year, we expect to be pretty tight. There are capacity additions coming on mid and next year that help us in the back half and give us further upside and frankly, prepare us for a continuation of those trends in 2028. Planning capacity, we are having to make these decisions 12, 18, 24 months out. The capacity we have today was called for 18 months ago, when we were thinking that growth rates were in the mid-teens. It is obviously not what we are experiencing. That is why we are tight, but we see a light at the end of the tunnel, but we certainly have some constraints in the first half of next year as to what the max could be. Those constraints sort of fall away a little bit, certainly by Q4 of next year. Our business has seasonality, so the Q1 is typically not a particularly large season. I am not sure we could hit record numbers in it anyway, because that is not how we plan for it, and we want inventory for Q2 when there is a lot of summer promotional stuff. Q2 would probably be the max next year before the capacity comes in.

Mike Kirban: If I could just add, I think Martin mentioned in the prepared remarks that we have the supply to meet the current demand, and we are building inventory, but it happens to be more on the water and in the production countries. It is getting the product here fast enough that has been the challenge as of late. I think that is just important to recognize is that we have the product to meet the demand, but just getting it in country has been a challenge as of late.

Jim Salera: Great. I appreciate the thoughts, guys. I will pass it along. What is up, man? You doing all right?

Mike Kirban: Yeah.

Jim Salera: Good.

Operator: Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. Your line is open.

Rupesh Parikh: Good morning, and thanks for taking my questions. As we look towards FY 2027, just curious if you have any early reads on distribution opportunities. Earlier in the prepared comments, you discussed a number of some of your innovation plans for next year. Just curious whether you expect the innovation for FY 2027 to maybe be more impactful than versus what you saw in FY 2026. Thank you.

Martin Roper: On the innovation question, I think you can see from the investor deck where our ACV is. I think we expect to make some progress next year. Obviously, we haven't been communicated set changes yet for the April, May sort of time period. We are expecting Walmart to update their set in the next four weeks. Certainly, our expectations based on the success of what they did last year is to sort of improve the set. What that exactly means, we're not in a position to talk about right now. That's sort of the thing in the short term, and then the sets for next spring, obviously, no one's really talking about. We are presenting the innovation. We are presenting our strategic initiatives. They've been well-received. Obviously, the category is on fire. Our U.K. team refers to it as stonking. Our German team says it's bananas. In that environment, the retailers are likely to give us more space, maybe bring in multipacks and that sort of thing. We're hopeful, but until it happens, we're not really in a position to confirm or know, and we don't really know, obviously, because sometimes retailers say they do something, and then unfortunately they forget the conversation, which is understandable. They're busy people. We don't have anything to share other than we feel optimistic and we think that it's in a good place and that the innovation discussions that we've talked about and you'll see in the deck, there's a major mass retailer taking one of them this quarter, which is ahead of schedule. Call out to our supply team for being ahead of schedule. Our hope is that some of the innovations retailers will dive in on and give us early jump balls to create a differentiation in the category for them. You never know, and those calls tend to happen late.

Rupesh Parikh: Great. My follow-up question, just on the Copra acquisition, so strong start so far. Just curious in the couple of months you've owned it, any surprises, positive or negative, in terms of what you're seeing there?

Martin Roper: I'd say we've been pleasantly surprised. A couple of things. One, it's our first major acquisition. Two, we've been very pleased with how our team has leaned in and welcomed the Copra team and dealt with the acquisition. Particular call-out to the accounting finance team for completing the close process on time, and allowing us to do this on the planned date. As it relates to the acquisition, I think we're been pleased that what we now own is what we thought we were buying, which is a very high quality Nam Hom premium production capability with strong retailer relationships and a lot of potential. As I mentioned in our prepared remarks, I was in Thailand just about 2 weeks ago, had the opportunity to meet. The team was fantastic, and they're excited to be part of the largest Vita Coco coconut water branded business in the world and to form one great coconut water selling team. So far so good, but obviously the proof will be in the numbers as we deliver them, hopefully over the next 12 months.

Rupesh Parikh: Great. Thank you, I'll pass along.

Operator: Thank you. The next question is going to come from Jon Andersen with William Blair. Your line's open.

Jon Andersen: Good morning. Thank you for the questions. I guess the demand side here has been covered well with the questions so far, so a couple on costs and margins. You mentioned that you're going to be taking price in the first quarter, and that's focused on recouping structural cost increases. Could you talk about what some of the structural or the cost increases you perceive now as structural, excuse me, versus those you see as temporary? Then just to follow up to that, SG&A you see more leverage now than you did a quarter ago, for 2026. Yet I would think costs are going up there too, like logistics, outbound freight. So what is giving you the stronger leverage? Is it just more top line, or are there some other things happening within that line? Thank you.

Martin Roper: Sure. On the cost side, obviously there's a range from permanent to temporary, and it's a little gray. So just working along the range, underlying packaging cost increases certainly are at the much more permanent end of the range. Some inflationary factors at factories, including minimum wage type rules and other things are on the more permanent end of the range. Then as you move up, you get to some domestic transportation costs, which may be permanent, maybe temporary. Some of that's fuel, some of it's availability of drivers, related to what's going on in the U.S., it's those sorts of things. Port charges are probably a little bit more permanent if those increase. Then you get to ocean freight, which is perhaps the biggest variable. There, talking about what's permanent and what's temporary is really hard to do. If you asked me 18 months ago, I would have said that the boats going around South Africa would now be back through the Suez and they are not. So, 12 months later, what I thought was temporary is still temporary. That is really hard to predict. Our pricing is certainly designed to cover a fair number of the costs that we think we are going to have to bear next year, but not all the costs that we are currently bearing today. As we certainly think ocean freight should recede from its current peak issues. Obviously, that could be wrong and we are reserving the right to take more pricing next year if we need to. I would say our pricing is fair. The conversations have been good. We currently think we are going to be able to take it, so we are not running into some of the problems that some other CPG companies have run in because we are not at that level. But if ocean freight stayed high, we might need to revisit that sometime next year.

Corey Baker: Jon, maybe to take the SG&A. First, as just a definition, our outbound logistics warehouse, et cetera, are all in gross margin. I know that can vary by company. From a leverage perspective, we are seeing better top line. The other bigger item that is delivering the leverage is coming out of last quarter when we did Copra, we were conservative on the SG&A that we might need to accomplish the integration, and that is coming in at a lower cost and more smoothly than we prepared in the previous guidance. That combination is delivering the leverage while we continue to invest in additional headcount to support the growth in marketing. It is really a function of the additional growth and a fairly smooth integration of Copra.

Jon Andersen: Really helpful. Thank you.

Operator: Thank you. The next question is going to come from Gerald Pascarelli with Needham & Company. Your line's open.

Gerald Pascarelli: Great. Thanks very much for the question. I just have one. I wanted to follow up on gross margin and specifically the Q4 gross margin outlook of 33%. I understand it reflects rising costs, but Q4 is almost always your lowest margin quarter. I assume there's a seasonality component there. In this instance, you're also going to have negative mix shift from triple digit private label sales. I think year-over-year, your gross margin's expected to be down about 200 basis points. Just, I guess given all of the moving parts, is there a way for you to unpack how much of this impact is specifically due to rising cost of goods? I guess I'm trying to get a baseline on what the margin impact would be if the costs remain elevated, excluding any mitigating like pricing factors. Any color there would be great. Thank you.

Corey Baker: I understand your question, Gerald. I think the cost, to your point, Q4 is always structurally lower. We are. It's kept quite a few moving pieces in the quarter, as with the current supply of which products come in and what our mix looks like. Pricing is such a major driver of the underlying gross margin. Once that price starts to roll in in Q4, it becomes a very different equation.

Martin Roper: Q1.

Corey Baker: Sorry, Q1.

Martin Roper: Q1.

Corey Baker: Q1. Sorry. Thank you. As the price rolls into Q1, that becomes a very different equation. Today, there are mix impacts the seasonality, but the bigger driver is that cost increase. Against last year we had tariffs, right? So there is a little bit of price change from the prior year, the inflation and then some mix factors. It is hard to. We are not giving 2027 guidance to trend that out because pricing is such an important factor.

Martin Roper: Just building on what Corey said, I would say that most of the gross margin impact that you are seeing, and we have indicated in Q4, relates to the ocean freight increases that started to be visible in, I do not know, July maybe, and then continued to grow into August. Given how ocean freight flows, that flows through into the P&L three to four months later. We are not taking pricing on that until next year. That is the biggest driver of the depression.

Gerald Pascarelli: Got it. I understand. Thanks so much.

Martin Roper: We view those as temporary, but obviously, we've been wrong before on those, but that's how we think about them.

Gerald Pascarelli: Thank you.

Operator: Thank you. The next question comes from Chris Carey with Wells Fargo. Your line is open.

Chris Carey: Hey, guys.

Martin Roper: Hey, Chris.

Chris Carey: Yeah. Hey, I wanted to ask about the America's branded delivery versus the consumption data. I realize it was asked earlier. I slightly missed it. But the supply issues that you saw in Q3, just to confirm, are you expecting those to come back in Q4 such that you should be shipping ahead of your America's Vita Coco branded consumption in calendar Q4? Martin, you made a statement or a comment that you should be able to maintain current volume levels into next year. Does that imply you don't expect much growth into the front half of the year? Or you're just saying, we have an ability

Corey Baker: Volume trend

Chris Carey: to continue to meet demand? Yeah, volume trend. I understand. Okay. Thank you. Anyway, just those two things, then I have a follow-up.

Corey Baker: Yeah, Chris, I can try because to your point, the Q3 branded growth in the U.S. and the year to date really is lagging the consumption data. There is a bit of inventory move, but we do expect to ship ahead of scans in Q4. I think Martin referenced it. The degree to which we do that is dependent on supply and timing. But we do recognize that scans remain quite healthy. The category remains quite healthy. So that will start to appear in Q4 shipments, but it's hard to quantify the exact amounts until we kind of get there.

Martin Roper: Relative to sort of capacity and ability to support demand, we have the committed capacity for next year to support growth equivalent to this year's volume growth on this year's volume, right? So that's a compounded acceleration, and so we feel good about that. In the first 6 months, that capacity is just sufficient to do that, and we're running at 95% utilization. But as a result of some decisions that we made back in January, February this year, there's more capacity coming on in the back half of next year that will alleviate those constraints and put us in good shape for 2028, for a continuation of these trends. So it's growth trends, and so in absolute volume we're able to support growth next year. How that actually works, obviously, is a little bit of a function of how the whole supply chain flows, particularly on the ocean freight side. As we sort of talked about, there have been some sort of delays in the last 8-12 weeks in that area that seem to us to be being driven by demand out of Asia into the U.S. and prioritization of the transshipment ports for how that flows. But it looks like that's starting to ease. Now, if that eases, we're in great shape. If it stays tight, we're in tight shape. So that's how we think about it, and that's somewhat of an uncontrollable, but we are very comfortable we have the production.

Chris Carey: Okay, great. From a market share perspective, are your competitors seeing the same supply constraints? I realize you kind of said it's tough to say how the competitive dynamic goes with just less ability to supply at the levels that you would like. So just maybe give me a sense of near term, are you at risk of losing any shelves to competitors? Is this going to be a dynamic going into the front half of the year? Or is the ability to catch up in Q4 going to overwhelm some of that relative dynamic to the peer set?

Martin Roper: Given everyone has the same sort of supply chain issues, we think everyone is experiencing the same sort of things. Again, I said in an earlier answer that it's a little different for someone who sources directly from one country in Vietnam or Thailand, reliant on one route. Maybe both of those countries have direct routes to the U.S. We, on our product out of the Philippines, are transshipping in China or Singapore, for instance, so we have a slightly more complicated structure, and there are different effects. There are actually also different effects in country. When China demand on coconuts goes crazy, they come down into Thailand and then into Vietnam, and that affects those suppliers, but it doesn't affect the Philippine supply so much. Everyone's supply chain is a little sort of different. I think that talks to the diversification that we have, that we can sort of weather these issues. But we are sort of somewhat overexposed to product from the Philippines and Brazil, and if there are issues in those supply chains, then perhaps we are overexposed relative to our competitors. I think what I said earlier is, on the shelf, it's really hard to tell. The category's doing really well. You go in a store on Sunday and it's out of inventory, and you wish we had more shelf space for inventory carrying over the weekend, right? That's a conversation you have with retailers. It's hard to tell exactly who's having different issues, but we do have some anecdotal data from our private label relationships where we've been asked to cover for other suppliers' shortfalls and/or offered product opportunity in those regions that we don't serve to cover. We do know that other people are having similar issues. As it relates to retailer decisions, I think the retailers are concerned, rightly, because we aren't meeting their full demand, which frankly, was way greater than anyone forecasted. But we're having great conversations with them, and I think our relationships are good. But obviously we need to solve those issues, which is why we're increasing the investment in our supply chain teams to add capacity for 2028 and 2029 and beyond. We're telling the retailers that this is a multi-year process and we're out ahead of it, and we have the best people in the business doing it.

Chris Carey: Thanks, guys. One final one, Copra. This is giving you new capacity in a very premium price point. Can this be, not a greater lever, because I'm sure you have all sorts of different scenario planning for next year, but can you lean on the Copra capacity more going into next year, the price mix premiumization of that capacity and maybe push a bit harder and quicker on a branded offering there? That is it for me. Thanks.

Martin Roper: I think as we said, Copra is currently capacity constrained, and we are prioritizing existing relationships. It has a nice brand, but has a very significant private label business, some with customers that we have relationships with, some with new customers, and we are being very clear that we are going to prioritize their supply, and that we are frankly going to invest in expanding capacity to support it. When that capacity comes on board, which will be mid-late next year, we will be in a better position to invest in the brand. What we are doing right now on the brand is testing what works, what does not work. We have got a couple of markets where we are doing that, trying to learn, trying to understand what the actual demand here could be if we get it right, and how to get it right. When the capacity comes online late next year for the brand, by the time it reaches the country, we will be in a position to invest it. I think the way to think about Copra is its upside for next year is a little constrained by capacity, that it will continue to be primarily a private label business because we are going to meet those commitments because we want these relationships long-term. As you start to think about 2028 and 2029, we will try to build a super premium Nam Hom cold chain product to basically have a branded share in that segment, which is growing in line or faster than the category, is at attractive price points, and is the flagship within the coconut water category.

Chris Carey: Okay. All right, great. Thanks for entertaining all that.

Martin Roper: Thanks, Chris.

Chris Carey: Thank you.

Operator: Thank you. I show no further questions in the queue. I will now turn the call back to Martin Roper for closing remarks.

Martin Roper: Great. Well, really appreciate everyone joining us for the quarter. We are going to go back to finding coconut water and getting it in the country to service the unbelievable demand that we are having. We look forward to talking to you next quarter. Thank you.

Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.