Hello, and welcome to The Vita Coco Company’s Third Quarter 2023 Earnings Conference Call. My name is Deedee, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'll now hand the call over to Clay Crumbliss with ICR.

Thank you and welcome to the Vita Coco Company's third quarter 2023 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. Also, on the website there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and the filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it's my pleasure to turn the call over to Mike Kirban, our Co-founder and Executive Chairman. Mike?

Thanks, Clay, and good morning, everyone. Thank you for joining us today to discuss our third quarter 2023 financial results and our current expectations for full-year 2023 performance. I want to start by thanking all of our colleagues across the globe for their continued commitment to the Vita Coco company. We recently received recognition as one of Fast Company's brands that matter for 2023. This is a testament to the incredible work by the entire team and their dedication to our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Before addressing our performance and expectations, I want to reiterate that we believe we have a strong strategic position enabled by our category leadership in coconut water within the better-for-you functional beverage category, which in America's track channels is in excess of $30 billion, according to Circana. We continue to be very happy with our performance in 2023. We believe that our strategy of delivering coconut water growth through increased usage occasions is working, and I'm excited about the progress we're making with both our commercial initiatives and our marketing efforts. In the third quarter, we saw consolidated 11% net sales growth against prior year, bringing our year-to-date net sales growth to 15%. We remain very bullish on the coconut water category in the United States, where according to Circana, the category is posting one of the healthiest growth trends in beverages, outperforming major categories like energy, CFDs, sports drinks and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price. For the quarter, our Vita Coco coconut water brand is leading the coconut water category growth with U.S. retail dollar sales up 23% with our market share improving to 51% versus the same period last year, while the category is growing 19%. We believe we're benefiting from the success of our multipack focus and our marketing initiatives that are supporting coconut water growth. Our brand has never been stronger, and our focus on consumer expansion via occasion-based initiatives has continued throughout the summer. In the quarter, we built on our extremely successful Roblox activation, the Coconut Grove, an immersive experience on Roblox where consumers can farm and harvest virtual coconuts. Over 26 million people visited us in the metaverse, driving over 94 million impressions to date and introducing a new generation of consumers to our brand. We also targeted the core hydration occasion this quarter at the U.S. Open, partnering with American Tennis Superstar Chris Eubanks and other players generating over 2.5 million targeted impressions at this prestigious event. Our summer cocktail initiative was very successful in continuing to cement Vita Coco's role as a mixer. We saw over 300 million impressions through PR and social as a result of our outstanding execution with several high-profile Hamptons locations. To capture those who may have enjoyed too many cocktails, we amplified our hangover occasion over Labor Day with a broad influencer activation delivering over 14.6 million impressions of authentic content. Finally, we announced our partnership with Mexican-American award-winning singer, songwriter, actress, and activist, Becky G. Becky's community-first approach aligns perfectly with our brand values. She has 116 million combined followers on social channels and Spotify and recently completed her first national Mi Casa, Tu Casa Tour. We could not be more excited to partner with this incredible artist to grow our brand. Before handing the call to Martin, I'd like to provide an update on our private label business. As we indicated during our second quarter earnings call, we had expected to cease supplying a major customer on private label coconut water and private label coconut oil, with the transition potentially happening as early as the fourth quarter of 2023. We also indicated that this customer is important for our branded products, and we expressed our commitment to support a smooth transition. Since our last update, this customer has requested that we continue our partnership, and we now expect to continue supplying a significant portion of their private label coconut water needs, a decision that we believe is reflective of their valuing our supply chain for its outstanding reliability and quality. This is a significant change to our prior expectations for the private label business with this key customer, and we are excited to continue this partnership and explore ways to further expand it over time. As further evidence that our private label supply chain is one of the best in the world, all of our private label revenue growth in the third quarter versus the same period last year came from accounts outside of this major customer, including the benefits of new retailer relationships around the globe. Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024. We're stepping up investments in our brands and in the long-term health of the business. We believe that we are uniquely positioned as one of the few fast-growing profitable beverage companies of our size with the talent and commercial capabilities to maintain growth, execute on new opportunities, and act as an acquirer of complementary beverage brands that could benefit significantly from our relationships, capabilities, and financial resources. And now I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. For the third quarter of 2023, we achieved net sales growth of 11% driven by strong Vita Coco coconut water growth of 8%. This performance was achieved against a very strong third quarter last year where Vita Coco coconut water net sales grew 14%. Our strong execution and our consumer engagement efforts continue to produce strong results at retail with a 23% dollar growth rate of Vita Coco coconut water in third quarter 2023 in the U.S. Circana scan data and a 17% volume growth rate. The strong performance is across all track channels as shown in our investor deck with strength in underdeveloped regions that we believe is indicative of future growth potential. As shown in our investor deck, the growth is built on a healthy balance of velocity growth, pricing, and distribution gains. Internationally, we are seeing strong growth in private label net revenue and continued Vita Coco net revenue growth resulting in 14% international net sales growth for the quarter. We continue to see strong Vita Coco coconut water growth at retail, and according to Circana U.K., our retail dollar share of the total coconut water category has risen to over 81% in the most recent four-week period. Turning to margins, in the third quarter of 2023, our gross margin was 41%, which represents a significant improvement over the 26% reported in the third quarter last year and an improvement over the 37% in the second quarter of 2023. This increase over last year was driven primarily by reduced transportation costs and improved Vita Coco branded pricing offset slightly by private label mix and pricing. The increase over the second quarter was due to lower cost of goods with current more normal transportation costs that started earlier this year now fully reflected in this quarter's reported cost of goods along with seasonally higher Vita Coco coconut water pricing. After the significant decrease in spot ocean freight rates in the second half of last year, and in the first quarter of this year, we have seen a more stable environment for the last six months. At the end of the third quarter, spot rates for most lanes were close to historic pre-COVID levels. Turning to our outlook, building on the very strong year-to-date results, we are raising our 2023 full-year guidance for the third time this year. Based on our expectations for the fourth quarter, which includes the retention of the private label coconut water business that Mike mentioned, the retail scans for Vita Coco being very healthy, and strong private label trends. We are raising our full-year revenue guidance to growth of 13% to 15% over prior year and adjusted EBITDA to $64 million to $67 million. Kori will provide more details on our outlook. We're really happy with our current performance and excited for our long-term future. 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 some additional details on the third quarter financial results and the drivers of our improved outlook for the 2023 full-year. Starting with revenue, we continue to see strong performance in the third quarter with net sales of $138 million, representing an increase of $14 million, or 11% year-over-year. This was driven by Vita Coco coconut water growth of 8% and private label growth of 18%. Within the America segment, Vita Coco coconut water's strong retail performance resulted in $90 million of net sales, an increase of $7 million over the prior year period, while private label increased $3 million to $28 million. The growth of Vita Coco coconut water in the quarter continued to be volume-led, with 7% volume growth and 2% net price mix benefit. Vita Coco coconut water benefited from strong consumer demand, which is reflected in the 23% retail dollar growth for the quarter. Private label experienced a strong quarter, driving 14% net sales growth on volume growth of 36%. Private label benefited from a combination of new strategic customer wins, expanded distribution, and velocity gains in existing stores, with approximately 80% of the volume growth and 100% of the revenue growth in private label occurring outside our largest U.S. customer. Where the strength of our supply chain and quality of our product and service have over the last two years generated new customer wins and expanded distribution opportunities, which are now visible in our reported shipments. We saw underlying private label performance at retail that reflected strong consumer demand for the category and normal elasticity of retail price reductions year-on-year for private label. We believe that America's net sales performance in the quarter was negatively impacted by the timing of customer orders and shifts in inventory levels out of our distributors. We believe that year-to-date performance remains a better proxy of our underlying consumer trends for both our branded and private label businesses. Year-to-date net sales of our branded portfolio has grown 16%, versus private label growth of 13%. Our international segment continued to perform very well. Reported net sales were up 14%. Growth was led by private label up 42%, with growth led by new distribution with strategic retailers in Western Europe. Vita Coco coconut water also had a strong quarter growing net sales 7%, led by strength in the U.K., where, as Martin mentioned, we continue to gain share at retail. For the third quarter, consolidated gross profit was $56 million, up $24 million versus the prior year quarter, and gross margin was 41%, up from 26% in the prior year, as our pricing remains strong and our global supply chain continued to operate at a high level of efficiency and benefit from transportation cost improvements relative to the unusual spike of the last two years. Moving on to operating expenses, third quarter 2023 SG&A costs increased by $9 million over the prior year to $33 million, which reflects investments in marketing and increased people costs. As previously indicated, our full-year plan includes an expected increase in marketing and sales execution investments as we invest versus the lower spending in 2022, when we were margin pressured. In the third quarter, we have begun to see an acceleration of expenses as our initiatives land in the market with the year-to-date SG&A spending now slightly ahead of revenue. We are very pleased with the consumer response to our investments, which we plan to continue through the balance of the year. We expect to see a continued elevated rate of spending relative to our growth in net sales in Q4 as we complete our planned marketing and organizational investments. Net income attributable to shareholders for the third quarter of 2023 was $15 million, or $0.26 per diluted share, compared to $7 million, or $0.13 per diluted share for the prior year period. Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously, partially offset by increased SG&A costs and a net $5 million unrealized loss related to derivative instruments, and an increase in tax of $2 million reflecting an effective tax rate of 20.9% for the quarter. Non-GAAP adjusted EBITDA in Q3 2023 was $27 million, up from $12 million in Q3 2022. The $15 million increase was primarily due to a year-over-year reduction in the cost of goods per case equivalent and increased volume growth and pricing, partially offset by increased SG&A spending. Turning to our balance sheet and cash flow, as of September 30, 2023, our strong operating performance year-to-date has led to an improvement in cash flow, resulting in total cash on hand of $95 million, compared to $20 million on hand as of December 31, 2022. The increase in net cash was driven by net income and reductions in inventory. Working capital year-to-date has provided $19 million of cash as inventory decreases of $34 million and accounts payable increases of $18 million were offset by a $37 million increase in accounts receivable, due to the timing of customer payments and the normal seasonality of our business. The inventory decrease was the result of sales volume growth, coupled with a normalization of the global supply chain, allowing us to more efficiently manage our days on hand and reduce overall inventory. Our inventory ended Q3 at the low end of our targeted range. We expect inventory days on hand to increase by the end of the year. Looking now to the balance of 2023, despite more difficult multi-year comps, we remain confident in our business, which is allowing us to raise our full-year net sales guidance to growth of plus 13% to plus 15% based on our expectation of continued strong consumer demand for our branded business leading to full-year mid-teen branded growth and their current expectation of our private label business, which, as we have said, is benefiting from new relationships and the change in plans for the transition that we disclosed last quarter. Our gross margin guidance for the full-year remains unchanged at 35% to 37%. The retention of the private label relationship and its mixed impact on our business is expected to reduce Q4 margins sequentially from the Q3 peak. Our revised non-GAAP adjusted EBITDA guidance is $64 million to $67 million. This reflects continued prudent investment in SG&A, leading to full-year adjusted EBITDA growth above our net sales growth. As we look forward to 2024, we remain confident in the strength of our business and remain excited by our business momentum and the growth prospects for our brand. While still very early in our 2024 planning with lots of moving pieces, we want to update the estimated negative net revenue impact of the private label transition that we talked about last quarter. In our preliminary modeling, we now believe that 2024 net revenue should grow low-single-digit percentages, with gross margin percentage expected to be approximately flat versus full-year 2023, which collectively should produce mid-teens growth of adjusted EBITDA over our current 2023 guidance. As we have done in the past, we will provide our first full-year 2024 guidance when we report our full-year 2023 numbers. Finally, as noted in our earnings release, on October 30, 2023, the company's board of directors approved a share repurchase program authorizing the company to repurchase up to $40 million of the company's common stock. The authorization gives us increased flexibility to strategically deploy capital on behalf of our shareholders. I will now turn it over to Martin for his closing remarks.

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. Thank you for joining us today and thank you for your interest in the Vita Coco Company. That concludes our third quarter prepared remarks and we will now take questions.

Thank you. Management will now take questions from research analysts. Our first question comes from Jon Andersen of William Blair.

Hey, good morning, everybody.

Good morning, Jon.

Good morning.

I wanted to start by asking just about the variance between the consumption growth in measured channels in the 20s and the America's branded growth of 8%. I think you kind of referenced it in the prepared comments, I was wondering if you could provide a little bit more color around the timing difference there that caused that and what your expectations are as we look into the fourth quarter and beyond relative to shipments and consumption? Thanks.

Yes, Jon, good morning. We did reference it in the prepared script. We saw a couple of things, a bit of timing on the consumption and scan channels where we saw shipments slip into Q2 that ultimately scanned out in Q3. And then we do have the non-measured channel performance, which combined impacted the overall performance on the quarter. And then on the full-year, we provided the guidance of where we think we'll land on the full-year. We expect and we continue to see strong scanner growth through this latest week. We expect to see strong retail consumption through the balance of the year.

I'm looking at slide 10 in your investor presentation for the quarter, and you continue to make good progress on ACV, particularly in the multi-pack offerings, especially the 330 milliliters, which saw significant growth this quarter compared to last year. Regarding the multi-pack, which has been the largest contributor to revenue growth this year, how should we view the natural or steady state level of ACV distribution for multipacks? Are they more limited compared to the single count core or flagship items? Or do you anticipate further improvement as we go through the rest of this year and into 2024?

Well I think if you look at the ACV that's on that same slide I think you see there's a lot of room for continued distribution growth. That item should be in most places within MULO that have the one count. So, there's opportunity to continue to grow distribution on that item, and that item is continuing to grow per point distribution. So we think there's quite a bit of room there.

Okay, if I could squeeze one more in quickly. The gross margin performance in the quarter, obviously strong, is 41%, you know, is that a peak from a seasonal perspective? You referred to some pricing impacts, seasonally high pricing, and also mentioned that costs have largely normalized. So, you know, could you update us on your thinking around longer-term gross margin rate, particularly in the context of retaining that private label business with that key customer? Thank you.

Yes, I think we allude that to a little bit when we talk about our modeling for 2024. Certainly the quarter was very strong, benefiting from a number of elements, including seasonal pricing, timing of pricing across our portfolio, and sort of some very efficient supply chain. I think as we look forward, you know, we've sort of indicated, you know, that we're thinking high-30s is where we'll be. So, and I think we've said that Q4 could be below Q3, because of those timing issues. So, yes, I think it's a little bit unusual outlier, obviously, you know, very happy with how everything flowed through the P&L, but I don't think we think it is reflective of our future business mix.

Great, thanks and congrats.

Thanks, Jon.

And our next question comes from Bonnie Herzog of Goldman Sachs.

Thank you. Good morning everyone. Hi, I had a question about your private label business. First, congrats on reaching an agreement with the key customer to retain this business. I guess, but I was hoping I guess for a little bit more color on this decision and, you know, the cost associated with retaining this business. You know, and then also I couldn't help but notice your comments about, you know, expanding distribution of private label with new and existing customers. So, you know, trying to understand the magnitude of this? And I guess trying to reconcile this with your strategy to de-emphasize private label. You know, just trying to understand maybe what has changed with your strategy?

I think big picture, like we mentioned last time, we love private label when it works within our margin structure and in our business model. And I think this is an example of, you know, I mean, over time, we may have some competition in private label and supply chain in general. We may lose some business, we may gain some new business, and we continue to gain new business. But I think this decision of this major customer, we believe shows that we have a significant supply chain advantage, the most scale, reliability, and quality. And so again, we like private label. We will continue to grow private label. We will continue to bid on and get new business we believe, but it has to work within our business model. And I think this is an example of us continuing to just prove our supply chain advantage, which we're excited about.

Okay, that's helpful. And then I did want to ask about your Vita Coco water sales or branded sales growth in the quarter. It was, I guess, a little bit more muted than I expected and decelerated sequentially. So hoping for a little more color on this, especially thinking about it, you know, Q3 as a peak summer quarter. But I know you mentioned an impact in inventory shifts. And then thinking about your new top line growth guidance for this year, it does imply I think just around 9% sales growth in Q4, and then you're talking about low-single-digit top line growth next year. So just trying to understand maybe why you're looking for a little bit more of a slowdown or is this just some level of conservatism? Thanks.

So Bonnie, there's lots of moving pieces. We talked earlier about the current quarter timing. As you see in the scanner growth, our scans remain very healthy, and we expect that to continue. In balance of year, we do still have the impact of the price mix and private label, and that flows into next year, which is what's driving some of the changes, and also we're providing guidance that we believe we can hit in the balance of year, but we expect to continue to see strong branded growth throughout the year and into next year.

So, but in the context of that, if I may, just the expectation for low-single-digit sales growth, you know, I assume pricing will be more muted, but is there essentially an expectation of a category slowdown?

No, we're expecting in our kind of a base assumption expecting the category volumetrically to perform in line with how it has historically. And then we have the price mix impact of the private label versus the branded heading into next year.

Sure. All right. Thank you.

Thanks, Bonnie.

And our next question comes from Eric Serotta of Morgan Stanley.

Great, thanks. I'm hoping you could just give us some additional color in terms of your long-term adjusted EBITDA margin target? How has that been impacted by the changed business mix with you now holding onto a greater portion of that customer's private label business and also growing very nicely in private label elsewhere? Last quarter, I think you took up your long-term targets from the mid to high-teens, the high-teens because of the expectation that private label would be a smaller piece. This quarter it looks like you left it at high-teens, just wondering what the moving pieces are below the surface?

Yes, I think we're still comfortable with that sort of long-term outlook. I think this quarter is an example of what we can achieve right now in, you know, obviously it's a seasonal month and it's a peak month, but it shows that, that outcome is possible. So we believe that long-term model is still achievable. The other moving piece is the branded business remains very strong. As Mike alluded to, we are winning private label new private label business, and some of the growth in private label is reflective of that, but the business we're winning we think still supports that long-term financial algorithm.

Great and then hoping you could give a little color in terms of innovation and particularly the C-Store channel. It looks like you had some modest sequential improvement in the juice product in convenience store ACV in the quarter, but can you talk a little bit more broadly in terms of your expectations for the C-Store channel? How the juice product is performing in terms of getting you additional placements in shelf space?

Yes, I think we're pleased with how it's performing. We're spending a fair amount of marketing sales, executional support in Q3 to sort of drive it and produce the velocities that will support additional distribution discussions. So at this point in time, again, we're happy. Obviously, we always would like distribution to go faster, and we tell ourselves guys that and challenge them to go faster. But it's building nicely, and we think it's a good source of long-term growth opportunity for us.

Great, thanks, I'll pass it on.

Thanks, Eric.

Thank you. Our next question comes from Jim Salera of Stephens.

Hi, good morning everyone. Thanks for taking our question. I want to revisit the key private label customer. If my notes are correct, in the second quarter you mentioned that the long-term contract wasn't in line with your long-term margin targets. I was wondering if, when they came back or if you reached out to them, we can assume that the offer now aligns with the long-term margin expectations you had in the second quarter. Has your perspective on that changed, or could you provide any additional information?

Yes, our thinking around it has not changed. If we're going to do private label it has to fit within our business model, and we continue to believe that.

No, no, go ahead.

No, to answer your question, you know, in the end, this partnership will continue under, you know, terms that work for both of us, but work within our business model.

That's insightful. To follow up, could we discuss the strength of your supply chain and your consistent delivery ability? When this customer explored the market, they found there were no alternatives that could match the quality and consistency of your private label offering. This is why we observed such a rapid turnaround from the third quarter, which is favorable for you. I am just seeking context on what led to this quick change.

Yes, I think, obviously, it's hard to know because the customer does not always tell you exactly what's going on. I think we would conclude, and obviously we announced with Q2 that we had reached an understanding that the business was transitioning, you know, both the oil and the water business. And then, subsequently, obviously, we're still in a relationship. So our conclusion would be that they concluded that whatever their plans were were not going to work. But obviously, we don't really know exactly what went on in the background. What we can tell you is we're comfortable with continuing to supply a portion of the business and under terms that, as Mike said, meet our models. And obviously, we're happy with the partnership and, as we said at Q2, this retailer is important to us and we're here to support them in any way we can under terms that work for us.

Okay great, that's all very helpful. Then maybe if I can sneak in one more question on slide seven, if I just look, you guys have the dollar per ounce percentage change, and it looks like you're running ahead of, kind of, the broader coconut water category year-to-date. Is there a relative price gap that you think you guys can maintain relative to the category, or is there kind of an upper bound that we should think of in terms of your pricing relative to the category?

We are pleased with our current standing in the beverage category. Over the past two to three years, most beverages have experienced substantial price increases compared to coconut water, partly due to the unique economics of those businesses and how our supply chain has managed without significant ocean freight increases. This puts us in a position where we are actually more affordable today than we were three years ago within the beverage category. We will continue to monitor this situation. We are among the few non-alcoholic beverage categories that are growing in both volume and price. Thus, we intend to maintain our current price gaps while keeping an eye on the competitive landscape to determine if any adjustments are needed.

Okay, great. Very helpful. Thanks, guys. I'll pass it along.

Thank you.

Thank you.

Thank you. And our next question comes from Michael Lavery of Piper Sandler.

Thank you. Good morning.

Good morning, Michael.

I just wanted to follow-up on Bonnie's question where you've given us a little peek into 2024. And if I'm catching it all correctly, a bit of the thinking is the mixed drag from strong private label growth. Can you just touch on what the branded Vita Coco coconut water segment by itself might look like in terms of how you're thinking about the momentum there on the top line?

Yes, obviously we're not trying to provide sort of guidance, we're just trying to think about modeling. If I had to model this, I'd be modeling coconut water category, volume growth, pretty similar to what you've seen in the last two, three years, which in the scan data I think is high-single-digits…

Sort of high-single-digits.

High-single-digits plus some gain of share, right? Obviously, when Mike asked me to set goals for the year, he tells me I've got to grow share. So that's how I would think about it. I think as Corey alluded to, there's lots of moving pieces here. We've got some changes in the private label relationship that we've talked about, those mixed price changes in the private label business, which obviously provides a headwind in net revenue next year. But we feel very good about branded growth. Obviously, the scan data continues to be very strong for scan channels. Obviously, we need to grow the other channels as effectively as scan is growing. So that's a challenge for our sales force, but that's the challenge we're signing up for.

Okay that's helpful. And it doesn't get touched on too much, but I actually want to put over to the other segment and just, you know, very, very small obviously. But can you update us, you know, the growth there sequentially in year-over-year, even the tiny and absolute numbers was robust? Just maybe help us understand how to think about, you know, PWR LIFT or some of what else might be going on there. I think there's been a pretty small, geographically limited test. Is that alone moving the needle on this? Or how do we think about maybe how that segment could evolve if that test is going well?

In that segment, there are various items that don't fit into the two main categories. We remain focused on prioritizing the growth of coconut water and Vita Coco branded activities, with innovation being a secondary priority. These innovation efforts fall into the "other" category along with commodities and some additional items. It's somewhat complex, but we are observing slight volume growth that reflects our investment in PWR LIFT, and we are pleased with this development. We believe PWR LIFT is appealing to our investors based on discussions with them and our analysts. We're working on strategies to make it successful in retail, which is a highly competitive market. For next year, we aim to expand into additional geographies to strengthen distribution and make the product available on shelves effectively. This is crucial for the success of products like this. Although there are opportunities ahead, we are satisfied with PWR LIFT as part of our innovative portfolio. Additionally, we are pursuing other initiatives that we are not yet ready to discuss, which we hope will also enhance the "other" category.

Okay, great. Thanks so much.

Thank you. And our next question comes from Chris Carey of Wells Fargo Securities.

Hi, good morning.

Good morning, Chris.

One quick follow-up. So you're rolling back pricing on private label, but you don't intend to do that on the branded business. Can I just confirm that?

I don't think, Chris, we have said that we're rolling back private label. We've been very careful to just talk about mix and private label effects that affect our business. And long-term private label tracks costs, but we've been very careful so I just don't want to confirm the question as a fact.

Okay, yes, that makes sense. How do you feel about, you know, overall price gaps in the category currently where you sit and, you know, any, you know, plans to maintain certain levels going forward. Just in general, how you feel about price gaps relative to the strong consumption that you can see?

We have discussed our position within the beverage category in response to earlier questions. Regarding private label, it varies by retailer. Private label is mainly found in a few large retailers in the U.S., and the instances where our brand is placed beside private label products are limited compared to the overall retail landscape. Therefore, we take a retail-specific approach. We will keep an eye on the situation. If those retailers lower their shelf prices for private label, we will observe the trends. Currently, we believe that branded products and private label can coexist well on the shelf; they complement each other. Our brand adds value to private label by helping define the category in most retailers, boosting velocity. We will continue to monitor this situation. As we prepare for 2024, our focus is on optimizing revenue across our portfolio of SKUs when considering pricing strategies for the coming year, rather than just increasing prices.

Okay, one final follow-up. I know you said that the Q3 gross margin was probably atypically high. I'm just trying to understand that comment because pricing will remain, cost relief seems to remain. So is the key difference mixed in Q4? What gets sequentially worse into Q4 and into next year? Thanks so much.

Yes, there was a seasonal mix in the price. The price of Vita Coco coconut water during the quarter was higher, and the efficiency of the supply chain, along with low inventory, contributed to a favorable cost of goods sold. This, combined with a different pricing mix on private label products, resulted in a seasonally high quarter.

Okay. Thanks so much.

Thank you. And our next question comes from Eric Des Lauriers of Craig Hallum Capital Group.

Thank you for taking my questions and congrats on another strong quarter here. So profitability and cash flow, obviously a big standout this quarter, presumably that helped lead to the share repurchase authorization. With that share repurchase, so I'm wondering, should we take this as an indication that perhaps the M&A opportunities have gotten maybe less attractive over the last, call it, six, 12 months? Maybe just give us an update on the sort of opportunity you see in categories beyond coconut water, and this is just more of a build versus buy at this point? Thank you.

Yes, I think the way I would think about the buyback authorization is primarily in the company, sort of, basically creating optionality and flexibility for use of its cash. Obviously without a buyback authorization, that wouldn't be an option. I think our cash balance at the end of the quarter is obviously very healthy. Part of that is due to inventory being a little low for the quarter. And as we've indicated, inventory is going to build. We certainly model out our cash needs over the next 12 months to look at what's possible and certainly believe we could support a buyback if that was something we wanted to do. But that said, obviously it's one option for use of capital and there are other options for use of capital. The M&A environment, I think continues as we previously talked about. There are some opportunities; they're all interesting in their own right, whether the valuations make sense or the fit makes sense depend on the specific situation. And we obviously look at things as they become available and explore them. But there is nothing, sort of, currently imminent, but obviously that could change. So again, coming back to the buyback aspect of this, I think it just creates flexibility for us. If you take the models out and assume no M&A, then you would probably be asking us why are we sitting on the cash balances you project. So this gives us some optionality, and as I think we said in the release, it was approved yesterday. And so obviously we're only in the process of deciding what to do.

All right, that's very helpful. And then last question for me is on marketing spend. So much of the spend so far has been on driving new use occasions, it certainly makes sense. And we saw a number of examples of that over the summer, various cocktail partnerships and pop-up bars. It seems to me that there might be some seasonality in that kind of driving new use occasion spend, but at the same time, you're obviously increasing marketing spending into the winter months. Can you just give us a bit more color on where those incremental marketing dollars are being spent? Thank you.

I think you highlighted a number of those. I think also during the quarter, we announced the Becky G relationship and for us that's a great opportunity to increase our brand saliency among our core demographic that we think is a long-term opportunity for us. And so some of the timing of that is affecting the timing of the spending, Q3 and Q4. I do acknowledge that our business has some seasonality to it, that typically most marketing would be driven Q2, Q3. But this year, I think we got a little bit delayed. Obviously, a relationship like the relationship with Becky G takes a little bit of time to put together. And so some of the timing is perhaps off this year, plus we have some catch-up that we're doing in terms of sales execution and driving distribution that we have pulled back on, on prior years that we've amplified this year. So this year is a little abnormal to what you might see going forward.

That's very helpful. Thank you.

Thank you. And our next question comes from Bryan Spillane of Bank of America.

Thanks, Operator. Hey, good morning, everyone.

Hey, Brian.

I just have one question related to the ‘24 commentary or the color you've given on ‘24. And it's just, I think if at the midpoint of the ranges, we're adding about $50 million back to revenue in ‘24 versus at least kind of where, I guess, where we were. And then to go back to when you originally talked about ‘24, I think we took $80 million hours, but I'm not entirely sure if that was too much or not. But anyway, my point is, as we look at ‘24 now, are we just adding back the business you thought you'd lose? Like, has anything else changed underlying in terms of, you know, the way you're looking at ‘24 now versus the way you were looking at ‘24 back in August?

Yes, I think, you know, we're adding back a piece of the business that we thought we were losing and under, sort of, terms that are agreeable to us, right. So I think that's the difference. We still think that the branded business is healthy, you know, certainly with additional private label business we can fund, you know, more investment in growing the category and, you know, one of the reasons we like it growing the category is we have share of the category both on the branded and the private label side. So just adding back this business is purely margin-accretive might not be how we, sort of, view it because we view certainly in North America that investments to grow the category have higher return when we have more of the business.

All right, so if we simplify it, we're looking at our models and essentially adding back that portion that you will retain. Most other elements in the model appear to be neutralized regarding revenue expectations for 2024 compared to where you were in August.

Yes, again, we're trying very hard not to provide guidance for next year while supporting everyone's modeling, including our own, right? So I don't think that's an unreasonable way to think about it, but I would perhaps say that based on where we were in August, with the significant hit that people assumed, based on what we said came up with, we probably would have squeezed SG&A a little bit next year, whereas now we can go, okay, let's go.

Got it, got it, got it. Now that's really helpful. And then just one last follow-up. In terms of having retained or one private label business with some additional customers, does that open up the door for more like merchandising and shelf space for those customers? I remember Michael talking about, previously about the logic part of the benefit of having a private label business in Costco is it encourages them to sort of allocate more shelf space to the category. So I'm just curious if it, you know, as we look forward, does it open the door to actually, you know, have more space dedicated to the category?

Yes, I think not only does it allow us to have more, or allow the category to have more space, but I think, like you just mentioned, and we talked about this before, in several parts of the world, in Western Europe specifically where we're winning a lot of private label business. We have the benefit of getting in front of these retailers now and having conversations about the category and together building the category and maybe starting with private label and then bringing the branded Vita Coco branded items in next to the private label, which is a real benefit to obviously not only the category, but also to the Vita Coco brand long-term as we build out the brand globally.

Cool, all right. Thanks, guys. Appreciate it.

Thanks, Brian.

Thanks, Brian.

I'm showing no further questions at this time. I would now like to turn it back to the CEO, Martin Roper, for closing remarks.

Thanks, Deedee, for hosting the meeting. Thanks, everybody, and we appreciate your interest, and we look forward to talking to you again when we have full-year results, sort of, during February or March of next year. I hope everyone has a great Halloween.

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