Hello, and welcome to the VitaCoco Company's Third Quarter 2025 Earnings Conference Call. My name is Daniel. 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 John Mills with ICR.

Thank you, and welcome to the VitaCoco Company's Third Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kerman, 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 in the Investor Relations section of the Vitococo Company's website at investors.thevitocococompanie.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's provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to turn the call over to Mike Kerman, our co-founder and executive chairman.

Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results and our expectations for the balance of 2025. I want to start by thanking all of our colleagues across the globe for our continued strong performance, particularly in a very fluid environment, and for their commitment to the Viacoco company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Although I'm incredibly pleased with our third quarter performance, I'm even more excited by the underlying momentum in our category and our very high execution levels, which bodes well for our future. Coconut water remains one of the fastest-growing categories in the beverage aisle, growing 22% year-to-date in the U.S. and 32% in the U.K. based on Sarkana data and over 100% in Germany based on Nielsen data. This, coupled with our significantly improved inventory position versus last year, has resulted in very strong retail growth for our brand. Year-to-date, according to our retail data, Vitacoco coconut water, excluding our coconut milk-based products like treats, is growing 21% in retail dollars in the U.S., 32% in the U.K., and over 200% in Germany. This has led to similarly strong global net sales, gross profit, net income, and adjusted EBITDA performance for our third quarter. Year-to-date, our international business is accelerating, driven by strong performance in Europe. Our increased investment this year in the UK, Germany, and other select European markets is paying off with healthy growth and brand share wins. The acceleration of the category that we saw in late 2024 has continued through 2025, which combined with improved inventory and strong execution is producing exceptional year-to-date results. Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets And our asset light model and strong cash generation position us well to take advantage of the opportunities ahead. Big picture, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water looks to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we can continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major beverage categories across the beverage aisle. And now, I'll turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning, everyone. I'm pleased to report Phytococo's continued strong performance in the third quarter. Net sales in the quarter were up 37%, driven by growth of Phytococo coconut water of 42%, benefiting from strong growth in the coconut water category and improvement in our available inventory and service levels. Our branded scam results in the United States were very strong, even with a slight drag in our scams created by the changes in the warm-up set late last year, which we estimated was a mid-single-digit drag to our total U.S.-branded scams in the third quarter. We are benefiting from strong volume growth and the impact of the two price increases taken in the U.S. this year, the first in mid-May to cover our normal inflationary cost of goods increase, and the second in mid-July to cover the dollar impact of the 10% baseline tariffs announced in April. The cumulative effect of these price increases on the shelf in the U.S. is best viewed on a two-year basis, which is showing as approximately 7% in the last quarter, according to Sukana. To date, we think the price elasticity impacts from these increases are within expectations, but we need more time to understand the impact of the July increase and to see competitor moves before thinking about any further price increases to cover the additional tariffs announced in August. Since November last year, we have been in the juice set at Walmart with significantly reduced assortment. We currently expect this juice set to be reset in mid-November. We've been told that our current total points of distribution will grow significantly compared to the current sets and also above levels we had before the move to the juice aisle. We are optimistic that we don't have complete visibility to understand the competitive dynamics of the new set and the actual shelf space allocated for our SKUs beyond the expected distribution gains. The private-led business remains strategically important to us. with greater uncertainty on costs, particularly due to the announced tariffs and some intermittent service issues from some of our competitors as the category accelerates, there have been more inquiries than normal about our private label services. In addition to the new U.S. private label relationship announced last quarter, we now expect to regain in early 2026 some private label service regions with key retailers that we had previously lost. We viewed this as a positive signal on our quality, service, and pricing, and reinforces our belief in the competitive advantage of our supply chain. Other than increasing tariffs and slightly softer ocean freight, our cost of goods has been pretty stable since we last spoke to you. We believe ocean freight rates during the quarter were still elevated relative to historical levels, but we saw rates soften through the quarter and since quarter end. We are operating primarily on spot rates with some fixed price arrangements on certain lanes to secure capacity which allow any lower rates to benefit our pml probably early next year depending on the timing of inventory flows cori will cover our outlook for the balance of year for 2026 the most difficult element to predict is the applicable u.s tariffs will be operating under during the quarter there were signals that the administration is willing to offer exemptions for products related to natural resources not available at scale domestically to meet U.S. demand, which gives us more optimism that coconut water could potentially receive waivers. If we do not receive any waivers and tariffs are uphold, we will continue our mitigation efforts and ultimately, if significant tariffs remain and other offsets like ocean freight are not sufficient, we will evaluate the potential to take more pricing next year to further mitigate the impact of tariffs. We have a global diversified supply chain which positions us well to deal with a dynamic u.s tariff situation the majority of our supply comes from the philippines and brazil with the remainder principally coming from thailand vietnam malaysia and sri lanka our current weighted average tariff rate on coconut water shipping to the u.s from source country at the end of the quarter is estimated at a blended rate of approximately 23 percent which is before any significant moves to mitigate the 50 percent tariffs on coconut water from brazil we are currently seeing tariffs into the u.s applied to approximately 60 of our global cost of goods and believe that this is a good approximation for the cost of goods that u.s tariffs are applied to we are developing and executing plans to avert some of our brazil production to canada and europe and to cover u.s demand more completely from asia which could help further mitigate our average tariff rate we have started preparations for this diversion but made choose for service and responsiveness reasons to source some production from the u.s from brazil on an ongoing basis as the applicable tariffs change in the future we will adapt our plans to summarize our category is very healthy our brand is performing well and our supply chain is supporting very strong growth and together with potential future pricing we believe that we'll be able to mitigate the potential tariff impact long term and to remain very competitive in our markets. We are confident in our team's ability to execute and deliver our plans for the balance of 2025 and 2026, and our confidence in the category and Vitacoco brand trends remains very high. Long term, we believe that we will benefit when ocean freight rates return to historical levels, and that when all of our tariff mitigation efforts are in place, this should allow us to achieve or beat our long-term financial targets. With that, I will turn the call over to Cory Baker, our Chief Financial Officer.

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2025 financial results and our outlook for the full year. Net sales were very strong for the third quarter, increasing $49 million, or 37% year-over-year, to $182 million. Lidococo coconut water grew 42%, and private label grew 6%. Our quarterly results benefited from the continued strong category growth, the restoration of a key club retailer promotion in the U.S., as well as a depressed third quarter reported last year when we were significantly inventory challenged. Please note that the key retailer promotion that ran in late Q3 and early Q4 this year has created unusually healthy stand trends in the U.S., and I would suggest that you look at a two-year growth rate for an appropriate reading on the underlying momentum. On a segment basis, within the Americas, Vitacoco coconut water increased net sales 41% to $132 million and private label decreased 13% to $14 million. Vitacoco coconut water saw a 30% volume increase and a price mix benefit of 8%. The branded price mix benefit was driven by the cumulative effect of our two price increases in 2025. Our other product category grew 182%, primarily reflecting the national launch of Vitacoco Treats. Our international segment continued to deliver exceptionally strong results in the third quarter, with net sales up 48%, and Vitacoco coconut water growing 47%, driven by strong growth across our major markets. Private label sales increased 70% due to strong sales of private label coconut water within our current customer base. For the quarter, consolidate gross profit was $69 million, an increase of $17 million versus the prior year. On a percentage basis, gross margins finished at 38% for the quarter. This was down approximately 110 basis points from the 39% reported in the third quarter of 2024. This decrease in gross margin resulted from higher year-on-year finished goods, product costs, and the baseline 10% import tariffs announced in April, plus a very minor impact from the August tariffs that collectively created a $6 million tariff impact in the quarter. This was partially offset by our combined pricing actions and lower year-on-year ocean freight expense, as well as the recovery of a reserve for private label packaging. Moving on to operating expenses, SG&A costs increased $10 million to $41 million within the quarter, driven primarily by higher people-related costs and increased marketing expenses. Net income attributable to shareholders for the quarter was $24 million for $0.40 per diluted share, compared to $19 million for $0.32 per diluted share for the prior year. Net income benefited from higher gross profit and a lower year-on-year tax rate, partially offset by higher SG&A spending and the lower gain on derivatives than in the prior year. Our effective tax rate for the third quarter of 2025 was 22% or 25% last year, which is primarily driven by discrete tax benefits and a favorable geographic mix of pre-tax profits. Third quarter 2025 adjusted EBITDA was $32 million or 18% of net sales compared to $23 million or 17% of net sales in 2024. The increase in adjusted EBITDA was primarily due to higher net sales and gross profit, partially offset by higher SG&A expenses. Turning to our balance sheet and cash flow, as of September 30th, 2025, our balance sheet remained very strong, with total cash on hand of $204 million and no debt under our revolving credit facility. We have generated $39 million of cash year-to-date, driven by our strong net income partially offset by increases in working capital, primarily due to increased accounts receivable. Our updated guidance reflects our current best assumptions on Marketplace 10s and timing of our shipments, as well as the continuation of the U.S. tariff levels announced in August. Based on our current trends, we are raising our full-year net sales guidance to between $580 to $595 million, we expect full-year gross margins of approximately 36%, with higher finished goods costs, including tariffs, relative to last year being partially offset by our increased pricing and slightly lower logistics costs. The impact of U.S. tariffs announced in April and August has increased through the year. For the full year, we expect to see an increase in our cost of goods of between $14 million and $16 million versus the prior year. We expect our average tariff rate on imported U.S. goods to peak at the previously mentioned rate of 23%, and this should start hitting our P&L late in the fourth quarter, depending on actual sales and inventory usage. Our sales expectation is based on a tougher Q4 net sales comparable to last year when we benefited from distributor and retail inventory rebuild. We expect full-year SG&A expenses to increase high single-digit versus 2024. This combined with our expected higher net sales is resulting in a higher adjusted EBITDA guidance of $90 to $95 million. Our full-year SG&A increase is due to increased people investments, including increased incentive and stock compensation and higher year-on-year sales and marketing expenses and other focused investments to support the delivery of our growth objectives as we aim to maintain a strong brand of growth momentum into 2026. We look forward to providing additional updates and formal 2026 guidance on our next earnings call. And with that, I'd like to turn the call back to Martin for his closing remarks. Thanks. Thank you, Kari.

To close, I'd like to reiterate our confidence in the long-term potential of the Vitacoco company, our ability to build a better beverage platform, and the strength of our Vitacoco brand and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have strong brand and a solid balance sheet and believe that we are well-positioned to drive category and brand growth both domestically and internationally thank you for joining us today and thank you for your interest in the vitacoco company that concludes our third quarter 2025 prepared remarks and we will now take your questions 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 in the interest of time we ask that you please lend yourself to one question and one follow-up.

Please stand by while we compile the Q&A roster. Our first question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

All right. Thank you. Good morning, everyone. Good morning. I had a couple of questions on your guidance. First, you raised your top-line growth guidance, but it does imply a sharp decline of about 15% in Q4 at the midpoint. So I understand you've got a tough comp in the prior year to lap, but I guess I wanted to better understand this expectation. You know, was there a pull forward of shipments from Q4 to Q3, for instance? Is there anything, I guess, in particular expected in Q4 as it relates to private label? And then on EBITDA, your new guidance implies a big ramp in growth in Q4. So could you give us some more color on the drivers of that expected acceleration? Thanks.

Good morning, Bonnie. So, from a top-line perspective, as we've talked about, we've been focused on the full year, and the quarters, especially around Q3, Q4, are quite hard to tell. We would ask you to take a look at the two-year stack, which in the underlying base business is still very, very strong. Half two and quarter-on-quarter is showing double-digit growth on a two-year CAGR and the underlying business. And we do have the current trends of the private label business, which, as we talked about in Q2, I believe Q2 is down in the mid-30s. We would expect that trend to continue. Martin referenced new private label business starting in 2026. At this point, we don't expect any impact from that, but we may get some, as you know, the timing of private label is quite challenging. So, at the midpoint, we feel there's still a strong underlying growth trend embedded in there, offset with the private label. And then from an EBITDA perspective, we've embedded the tariffs at the 23%. We currently see inbounding to the country. Those will gradually increase through the quarter, peaking at that 23% roughly at the end of the quarter um and then it's the current level of pricing okay thank you and just want to verify there's nothing that we should think about as it relates to inventory levels you know it's the you know in terms of q3 versus q4 nothing to call out there yeah it's quite hard for us we don't have complete visibility to inventory which is why we you know stay focused on the full year q3 Q3 had the large retailer promotion, so the timing of that may have been a little heavier in Q3, and as, you know, we've talked about, we expect improved distribution at Walmart. How that shifts to distributors and exactly when that inventory will pull is hard to call as well.

So I would stay focused on the two-year, second-half trends maybe, and you'll see a very strong I would just add that I think we think distributor inventories at the end of the quarter were healthy and were sort of ready to support the warm-up set process and obviously how those adjust through the end of the year, as you know, can produce a little bit of noise at the end of the year, but we currently think inventory levels are appropriate based on the activity we see in Q4.

Okay, super helpful. If I may just squeeze in a quick question on private label, because it certainly has been a focus, and you touched on this, you know, hoping for, you know, maybe just a little bit more color on you know what you you touched on the recent private label customer wins you know how do we think about these wins meaning offsetting some of the prior losses if at all and then you know as you think about your private label business you know how do you believe it's advantaged maybe versus peers and how do we think about your approach to private label you know next year and beyond is this something you're going to aggressively pursue thanks yeah i think as As we've said all along, Bonnie, we view the private label business as one that's complementary

to our brand on a number of factors, both on the supply chain side and the retailer relationship side. And so we intend to continue to seek private label business or regain private label business and be competitive in it. As it relates to how we think about our competitive position, we believe that we are uniquely placed to provide large private label programs with diversified supply of private label across multiple countries, multiple factories, and we also believe that some of our sourcing leads to a cost advantage and a service advantage and a quality advantage. Now, that doesn't always play out in how those, you know, bids are awarded, and so, you know, it hasn't all been wins, but we certainly believe that we are strategically well positioned to compete going forward. As it relates your question, we're obviously not providing any sort of 26 guidance here. What I would say is that we recovered some of the regions that we lost, but not all of them. So we still have some headwinds next year, which may or may not be offset by some of the wins on the new customer front. But it's sort of, you know, to us, we lost regions early in the year, and we're regaining some of them. To us, that shows that our sort of supply position is competitive on a quality service and price perspective. And it gives us hope that we can recover more, but obviously there are no guarantees and nor have anything been announced or, you know, those are more expectations and hopes over, let's say, a multiple year period as opposed to a single year period. So I think, you know, next year private label probably will still be a slight drag for us, but obviously the category on a lost business basis, but the category is very healthy. It's growing. The private label business that is retained is growing because the private label business is healthy too, similar to the category. So, again, I would just say we're optimistic for a good 26, but we're not in a position to provide guidance.

Okay, super helpful. I'll pass it on. Thank you.

Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.

Hey, good morning, everyone.

Hey, Chris.

The implied Q4 gross margin, a couple of questions there. So the first is just the Brazil tariffs. Is it reasonable to assume that Q3 did not include much of those and those will be heavily concentrated in Q4? And so I'd love some perspective on that because Q4 has some seasonality that is lower than Q3, but there's also this new cost factor. So I'd love maybe a bit more detail on how you see that impact. The second thing is, you know, how are you thinking about some of the headlines around, you know, tariff? What are some of the, you know, key markers that you're looking for as it pertains to Brazil? The reason I ask is because, you know, at what point do we start thinking that, you know, you may need to take some pricing going into the front half of next year? How long will you assess the tariff backdrop before making that decision?

I think for starters, the headlines are interesting and definitely worth looking into. I mean, the numbers that we've given in terms of what tariffs look like for us as of the end of the quarter could change. And this is what we're dealing with is the uncertainty around it. I mean, if you look at the headlines over the weekend, obviously, Trump and Brazil's President Lula had a good meeting and committed to getting a trade deal done. And Brazil has asked for relief on the 40 percent reciprocal tariff. It hasn't been denied, hasn't yet been approved. But we are, you know, we're hopeful that we'll see some some changes on a positive level as it relates to Brazil. And then even as you look at some of the other, you know, trade deals that are getting done, if you even look at Cambodia and Malaysia, which happened this weekend, coconuts are listed as excluded from the tariffs in those trade deals. Coconut water is not yet. This is something obviously we're hopeful for and working on, but I think it's pretty clear that the administration is looking, you know, to exclude unavailable natural resources. We've just got to make sure that coconut water is recognized. And so as these trade deals continue to get done with different countries which we source from, we're hopeful that we'll see some improvement to the tariff numbers that we've talked about. But as of now, that's where we stand.

And Chris, going back to the start of your question, which was, you know, did the increased tariffs from early August hit Q2 P&L? Maybe, Corey, you could take that.

Yeah, Chris, it was a small amount. If we think of the tariffs of April and August, the August tariffs had very little impact on Q3, you know, a slight bit at the end, and that'll ramp up towards that 23% rate. And we anticipate that would hit late in the quarter, November, December timeframe, and then be at that steady rate through next year, you know, barring any of these changes we're hopeful for.

And then, Chris, relative to your pricing question, you know, we took pricing in July to mitigate the 10% baseline tariff from April on a dollar basis, right? And I think we indicated in the call that that was showing up as like a 7% pricing on Sukana on a two-year basis. Comparisons two years ago is how it's showing up. And that would, I suppose, also include the May. So that's the impact of both pricing. We're still monitoring the impact. There's certainly been a slight volume decline with the pricing, but in line with our expectations. But we really want to monitor it. We're also monitoring competitive actions and movements on private label pricing, where we expect private label pricing to follow the tariffs rate, because it's a cost-plus business model for our retailers. And so we're monitoring that to see what happens. We don't feel in a rush to sort of mitigate further the tariffs while we wait for that. We're also working on the mitigation strategies, particularly as it relates to Brazil, which is the outlier in our tariff environment at 50%. And those mitigation activities, you know, revolve around taking Brazil production to other countries other than the U.S. It's not as simple as just a switch because you have to get packaging in place, you have to get approvals in place. So we're working to be able to do that over the next few months and certainly complete that if the Brazil tariffs stay in place by the end of next year.

So we want to see how those mitigation efforts go.

You said the tariffs is very fluid. It is obviously very fluid. We don't want to take price if we effectively have to give it back. So we're thinking we'll make pricing decisions in Q1 that might take effect, Q2, based on our view on where tariffs are and mitigation actions are in Q1. We're reserving the right to take pricing or not take pricing based on what we see in the marketplace and what we think is right for the brand long term.

A quick follow-up, or perhaps not, but international. Just give us a sense of where we are in the international journey. I suppose you're going to say early, but it's really starting to come through. How are you thinking about the growth runway? international. And, you know, just remind us on your capacity to service that international market given your supply. Thanks so much.

Yeah, let's start with the capacity. As we sort of have talked about for like the last 18 months, we started adding capacity because we saw the category accelerating both in the U.S. and in our core markets internationally. And so we've been adding, capacity to support growth rates in the mid-teens or a little bit higher, and that is progressing well. It's a lot of work, and a big shout out to the team involved. We're adding one to two or more factories a year, and there's a lot of hard work going on in that. So we don't see a capacity issue in supporting this over the next few years. And then as it relates to your international question, we view category development in our core markets internationally, which we would describe as, you know, the UK and Germany as being underdeveloped versus the US. And I would refer you to our investor presentation from June, where we provided an estimate of consumption per population rate by different countries. So, you'll see that the UK is about a third of the US, Germany is like 10% of the US. So it's pretty early. And obviously, the US is still growing. So we see it as early innings, and I think big picture, longer term, the way we think about it in our five, 10, 15-year planning, I suppose I do 10-year planning, Mike does five-year planning, we want Europe to be as large as the US, right? So is it possible that that could happen? Absolutely. Populations are good. Demographics, income levels, health orientation are all good. So we think coconut water is still in early innings in Europe.

Thanks so much, guys. Thank you. Our next question comes from Robert Ottenstein with Evercourt ISI. Your line is open.

Great. Thank you very much. And congratulations on another terrific quarter. I want to kind of double or triple click down on international, which which just seems super exciting. So just to help us get a little bit more granularity on the business, can you give us a sense based on what you've learned today, how the international market in terms of Europe, is there significant difference in terms of the consumer occasions and how they look at the category? How would you compare the competitive intensity in Europe versus the U.S.? Margin profile, and then just in terms of this quarter, was there anything unusual that perhaps flattered the results? Thank you.

Yeah, sure. I'll try and get to all of these. Let's see. International is very exciting. International for us is sort of largely Europe. That's where the, you know, strength is. It's led by the UK, which was launched about 11, 12 years ago. I'm probably a little bit off on that. But effectively 10 years behind the US in its launch trajectory. In the UK, there is a healthy category, but our brand has over 80% share of it. It is largely cold in the stores, which is a difference to obviously the US where we're warm shelf. And the competitive players, you know, sort of really don't, you know, aren't that strong because with over 80% share, there's not no one really talk about. About five years ago, Innocent Juice had a coconut water brand that probably had 10, 15, 20% share, but that has largely been squeezed down to low single digits. And so we have a very strong position, and we're focused on growing the category and then obviously maintaining our share of the category. As the category growth continues, obviously retailers get excited, and they could introduce new brands, et cetera, but it's largely small stuff, and I don't think we see any impact from that. But would I expect the competitive environment to, you know, continue to be active? Yes, of course. The rest of Europe, for the most part, has been small for us up until about two years We put a commercial leader into Germany to try and open up the private label business. In a lot of the rest of Europe, private label was actually a very big player in coconut water, whereas in the UK, it isn't as big a player. And in many of those countries, private label is the largest sort of non-brand, but obviously it's across multiple retailers, but it's very significant. So we led with developing retail relationships with private label, and that then allowed us, as coconut water growth started to take off, we were asked whether we'd bring the brand in, and we were able to do so. We're in very early innings in Germany. We have national authorizations. Germany retail is interesting in that national authorization doesn't result in distribution in many of the retailers you have to then go get a regional approval and then actually go store or store collective to get to build that out so we're in pretty early innings there and you know as I look at the next two years the blocking and tackling is actually delivering on the national distribution that we've been awarded by selling it at the regional and the local level. And that's probably a multi-year task. Interestingly, as we launched Vitacoco into Germany, we saw the category growth accelerate. I think that's partly because there aren't strong brands there that are investing and have good brand recognition. And we've been able to gain a very significant piece of that growth. So we've gone from effectively 0% branded share to, you know, a healthy brand share by grabbing that growth. That said, the private label business has also accelerated. So it's been good for the category. And obviously, we try and compete in that. So we're trying to take some of the learnings from these markets that are different than each other, right? And they're different both on where the category is and the retail environment and think very carefully about which markets to prioritize next, obviously with a weight on maybe the larger markets like France and Spain, but we're also, you know, testing different routes to market in more fragmented markets like the Benelux, which is currently growing very healthily for us through a partnership with a distributor there. So we have different models that are working, and I think we're happy to be patient, and we're not trying to blast it out and overstretch ourselves. We're trying to build it from the ground up and we feel pretty good about healthy international trends for the next few years based on that European business. You asked about margin. We mostly do not use distributors. We do have some reps. There are some distributors for small markets. So there isn't a distribution layer, it's direct to retail, so pricing in the market is lower in the U.S., pricing to consumer because of that, and margins are good. It benefits from lower ocean freight costs from Asia to Europe mostly, so that can support a lower price structure, but the margins are perhaps, you know, maybe on a branded side a little less than they are in the U.S., but they're still, you know, very nice and appealing, and I think I've touched on every one of your questions, but if I miss one, please re-ask.

Jess, was there anything in this quarter on the international that flattered results in any way?

Just strong demand.

Good enough. Thank you very much.

Thanks, Roy.

Thank you. Our next question comes from Christian Junkera with Bank of America. Your line is open.

Hey, guys. Thanks for the question. Uh, just two questions, a quick clarification question, just the tariff impact for 2025, did you guys say 14 to 16 million? And if so, that implies a blended tariff rate for this year, about like six to 7%. And then the expectation, well, what you guys are expecting is it jumps to 23% in 2026. Did we catch that correctly?

The 14 to 16 question is correct. The percentage, the 23% is of the applicable finished goods amount, which we've quantified as approximately 60% of our global cost of goods. So I'm not sure of the math you have on six.

So you have to remember that the tariffs were imposed initially in April, first week of April, at a 10% rate. And what hits our P&L is delayed by when those tariffs flow through on April 7th to a container leaving Asia, wouldn't arrive in the U.S. until maybe early June, and then wouldn't get sold out of our inventory probably until July. So our tariff impact in Q2 didn't really merit talking about, so we didn't talk about it in Q2 as a dollar amount. We talked about 6 million impact in Q3, which would largely reflect the 10% baseline tariff imposed in April, because that would be the inventory flowing through our P&L in Q3. And as Corey indicated, the blended tariff rate based on our current sourcing at the end of the quarter is 23% of containers shipping at the end of the quarter from, you know, source. That rate, which is the rate that effectively was put in place in early August, flows into our PNIL in mid-late Q4, but is the rate that is applicable for next year. So that's the reason that the $14-16 million looks small to you, because effectively it's on half a year, and effectively at least half of that year is only at 10%. Sorry, half of that six months is only at 10%. Does that make sense?

Yeah, yeah. That's very, very helpful. Thank you for the clarification. And then if we just can go into, you know, you've talked about it, but just the levers to offset, you know, the higher tariff rate for next year, right? You guys have the higher pricing that you took this year that's going to carry over and, I mean, potentially lower ocean freight. I mean, you know, looking at the chart, it looks like rates keep going down or, you know, do you have any expectations for ocean freight next year? I don't know if I'm missing anything else, any other levers at your disposal. Thank you.

I mean, that's the biggest benefit. That is the biggest benefit for the offset.

Well, you know, we're talking to suppliers and trying to work out things that we can do. But, you know, this isn't a particularly large margin business for them. Obviously, we're asking whether their governments can help as well, right? We're trying to optimize our sourcing to, you know, take advantage of the different tariff rates. but really that means trying to avoid Brazil if we can, right? And the base pricing we took in July that was, again, incremental to our May pricing was designed to cover the dollar impact of the 10% baseline. Obviously, we're evaluating the impact of that. And, you know, if we think we'd have to take more pricing and it's prudent, given the competitive environment and our brand trends and everything else and all our mitigation efforts, then we will consider it. But we're a little reluctant to rush into pricing if, indeed, some of these tariffs may, you know, be waived under the trade agreements that Mike was talking about. We obviously have the Supreme Court case coming up next week, which may or may not also, you know, declare that the tariffs don't apply. So we're a little reluctant to rush into pricing until we get a better feel for all these impacts.

Perfect. Thank you. Thank you. Our next question comes from John Anderson with William Blair. Your line is open. Hey, good morning, everybody.

Hey, John.

A couple questions. We talked a lot on the call about headwinds from ocean freight, not ocean freight tariffs, I'm sorry. But I did want to ask a little bit more about ocean freight because, you know, the rates look like they've been cut in half year over year. And that started happening earlier this year, the decline year over year and down 50 percent starting in the mid-year. And I think you're operating off of, as you pointed out, a lot of spot situations right now. So, and again, I don't know the exact kind of composition of your cost of goods, but the freight piece seems like a big piece of the cost of goods. And if that's come down to that degree, it seems like that would be much more impactful than the tariff piece here. So, we'd be looking at a pretty good margin outlook, gross margin outlook for 26. How do you kind of think about that?

So, you know, one way to think about that is we've indicated that, you know, the tariff supply to 60% of our, you know, global cost structure, if you apply 23% to that, you get come out at like 13%, you know, percent of our revenue is tariffs. That's a huge number, right? And, you know, the last time ocean freight spiked, which was 22, you know, really spiked, we talked about a total transportation impact of 65 million, which included domestic transportation, and we said two-thirds of it was ocean. So the ocean freight, you can extrapolate an ocean freight number from that 65 million, and you can get back into, you know, that was when rates were 10, 12, 14,000, right? So ocean freight is an important part of our cost structure, but I would caution you not to overestimate it and to use those data points that we've provided. And I'm going to say, Corey, did we provide a percentage of transportation costs in one of our investor presentations?

Yeah, a few times in the years we have in the range of a third, but it varies up and down. Up and down based on ocean freight. We haven't quantified that tariffs, obviously. Change that equation.

Yeah, so I said earlier that ocean freight is an important opportunity for mitigation. Obviously, you know, we're not actually doing anything. We're benefiting from market changes. So it's a benefit from market change that can be an offset. But the tariff impact, if it were to stay, is pretty significant. You mentioned what's going on with ocean freight. If you look back a year on the indexes, you know, the indexes were in the lows 3,000s. And they're currently sort of – I'm looking at the global index. It's currently in the low 2000s, so it's down 33%. But it went up last year, and it had a couple of peaks that, you know, cost us, right? So, yes, current ocean rates are lower than they've been for at least a year. But the change is perhaps not as big as the 50% as you were talking about. Like, it's not down 50% versus a year ago.

And what…I think I have in my notes that ocean…well, freight in aggregate in COGS is 30, 35 percent. Is that…with the balance being finished goods, is that a reasonable way to think about it?

I believe that number is transportation… It's transportation. …and logistics. So it's warehousing, drayage, ocean freight, internal transportation, distribution, et cetera. So ocean freight is a subset of that. a component of that third of COGS or so.

Okay. Um, the other question I had was just on sale on the guidance. Um, you know, I haven't, I guess the, the guidance implies four Q sales of around 105 million, which, you know, looking at what you did in Q3, 182, um, that's like a 42, 43% sequential decline in sales from Q3 to Q4. We haven't seen anywhere near that kind of a seasonality or change in the past. I know there's a little bit of seasonality, but again, a 45% decline is big. I just want to make sure I understand what's causing that. Thanks.

John, I don't see those levels of declines year on year, but maybe we're... No, sequentially.

So Q3 was very big. We benefited from the major promotion that we skipped last year, right?

And the growth from the out-of-stock.

So I would just, you know, obviously there's lots of moving pieces here, but on Branded, you know, maybe you look at, you know, decline in 23, which would have been a comparable year on a promotional side, and then obviously we have the private label decline that we've referred to you to look at in Q2 rather than the Q3 number. So, it's tough modeling Q4 for us, and, you know, we're providing the best view that we can, and again, we have some uncertainty on exactly how the private label is. will fold through the end of the year and into next year. So that's one of the reasons for me taking the ranges.

Makes sense. Okay, thanks, guys.

That feels like maybe the bottom or below the guidance range, so we can follow up.

Thank you. Our next question comes from Michael Lavery with Piper Sandler. Your line is open.

Thank you. Hey, Michael. Michael? I just wanted to touch on capital allocation. You mentioned now your cash balance over $200 million. I know in almost the same breath, you point out the share buyback authorization, though it's a small piece of that, even if, of course, you always reauthorize more.

But what's the expectations for use of cash?

I know you've always had M&A on your kind of to-do list, but it hasn't been a big factor ostensibly because there hasn't been something interesting or at the right price. But how do we think about what the cash is meant to go for?

So I think our priorities haven't really changed. And the first one is growth of the core business. I would say that with the growth we're seeing and our planning for next year, we'll probably be building inventory as we finish this year into next year. and obviously we're a pretty inventory-intensive business given so much of it sits on the water. And so I would just draw your attention to that while also recognizing that, you know, $200 million is a very healthy cash balance for a company of our size. So our next sort of priority is innovation and it's supporting our innovation efforts. Third priority is M&A for something that will deliver value to our shareholders. And I think we've talked about M&A a lot in the three, four years we've been public and obviously haven't done anything. So we're prudent and we're not looking to do M&A for M&A's sake. That's certainly not part of our mission statement. And then as we, you know, look at what's going on in all those three areas, you know, growth, innovation, and M&A, if we believe we have excess cash, then our intentions would be to apply it to share buyback at stock prices that we think are fair for our long-term shareholders. So that's how we think about it, and I don't think anything has really changed, and certainly as the cash builds, it becomes more of a conversation, but I don't expect us to change our approach to it.

Okay, thanks. And just on Treat's follow-up there, it seems like it would be a pretty nicely incremental part of the portfolio. Is that a fair characterization? And even if so, do you find it can be sort of a gateway to the coconut water part of the portfolio too? Or are you seeing any interplay there that it might be attracting new users who then also switch to the coconut water side of the business?

Yeah, I mean, we're seeing a lot of consumers coming into the brand through treats, which is really nice to see. So exactly what you mentioned, they're coming into the family. And then kind of like what we've seen over the years with our pineapple flavor and our extra coconut flavor, those are kind of the entries for the category. And then the hope is that they stay within the brand. And you see a lot of people then move to the original pure coconut water, the blue one. So treats, it's early, but we aren't seeing cannibalization. We are seeing a lot of new consumers coming into the brand through treats. So that is the idea. Hopefully they stay with coconut water and drink it for different occasions in different flavors and formats.

And just a couple of comments on how treats gets reported. On a shipment basis, it's reported in other. So the coconut water reporting on a shipment basis does not include treats, right? And it's indicative, again, of the health of the category. On a Nielsen-Sikata basis, treats gets reported sort of not necessarily in coconut water, but it might get reported in sort of milk-based products because it's a coconut milk-based products. And so, I would just caution you to work out if it is being reported or not. In our Sakana data, it's not in the coconut water definition that we buy, and it was order of magnitude I'm looking for. Corey would have added an incremental four percentage points to our Sakana growth rates that indeed we reported in our Investor Deck, because our Investor Deck reports coconut water growth rates that don't include trees.

Got it. Yep. Thank you.

Thank you. Our next question comes from Eric Serrato with Morgan Stanley. Your line is open.

Great. Thank you. First question would be in terms of pricing. I know you said that you're waiting on further pricing to see what the competitive environment looks like. What are you seeing in terms of, you know, have competitors moved on pricing in, you know, as we sit here today at the end of October, you guys moved early August, I know that some competitors were on a different kind of pricing cadence over the past few years. So what are you seeing in terms of pricing from your competitors today? No, you can't speculate about the future there. And then just to follow up briefly on treats, what does the repeat purchase look like on that? And, you know, it looks like it was nicely incremental to this year. Do you see it, you know, building next year or is that, you know, in some ways going to be a tougher comparison with the launch this year?

Thanks. let me take the the pricing eric good morning and then uh martin can talk to the treats performance i would say for pricing and we tend to use cercana as our as a measure of what we're seeing in the market we're seeing a few different things some competitors took pricing early and and quite a bit and have maintained at that level have not moved incrementally in response to tariffs. Others have moved one or two times, and we're seeing some moves in some private label more recently up on a second tariff move, and then others have not moved at all. So, there seems to be a differing strategies across the market. Obviously, we lead the market by a wide margin, and we've moved, so we'll continue to monitor closely on additional moves.

Yeah, I think we're also monitoring, you know, the tariff, what tariffs actually could end up being. I think there's still so many moving parts between, you know, Brazil and trade deals getting done. I think there's a lot of questions to be answered. That's quite hard.

Yeah, and because of the timing of the August tariffs, I'm not sure we've seen anyone moving relative to that, but obviously we would expect people to have to move, particularly on the private label side. So that's a good reason to sort of wait. With regards to treats, I think, as Mike said, it's providing a different gateway for consumers to come into the brand. That's good. I would say we're seeing acceptable repeat rates, if not, you know, positive repeat rates and our challenges to drive more trials, so more visibility of the brand. And so that, you know, probably requires a little bit more investment, et cetera. And so that's what we're planning for next year. I think, you know, you asked about next year, obviously it's very difficult to sort of project next year. We do think that we will get some treats distribution gains. While we did very well on treats this year, we didn't, for instance, get it into Walmart, and I think our expectation is that we would get it into Walmart in the resets and some other places as well on sets next year. So I think we still have another year of growth for treats just based on the launch before getting distribution growth before sort of, you know, and then obviously we are trying to drive adoption on top of that. But it certainly should be a positive next year.

Thanks so much.

Thank you. Our next question comes from Jim Solera with Stevens. Your line is open.

Good morning. Thanks for squeezing us in. I first wanted to ask on just the kind of composition of the growth this year. If I look at the slide deck, it looks like multipacks have been kind of the biggest incremental driver, which I would kind of read as a proxy for increased purchase with existing households. Please correct me if you think that that's a wrong lead there. But with the inclusion and modern hydration upcoming, do you view that as an opportunity to really introduce the brand to new households if it's more visible on shelf? Or is that a way to maybe pick up some lapsed opportunity with people that were buying it, but then, you know, it gets shuffled around in the store and they kind of lose track of it and don't fall over it?

So we view the multipack strategy as a way of increasing value to our customer while also increasing velocity and potentially putting more product in their pantries, right, which potentially increases their own consumption. And I think that's what we're seeing. Some of the multipack strength is also a little bit driven by multipacks are much more predominant in club-type environments. And so if club is strong as a channel, which it obviously is in the current economic environment, you are seeing some growth from multipacks from that point to side. As it relates to how is that all, you know, filling into total growth, we still see our growth as a nice balance of new households and increasing velocity per household. Our, you know, rough approximation is half of the growth is coming from new households and half is coming from increased consumption of households. And so that's what we think is currently going on. Obviously, numbers in this area are available but messy.

And then I appreciate all the color around COGS and kind of the moving pieces next year. And you guys still have some stuff that you want to look at before you give 26 guidance. But if I just take the 4Q exit rate on tariffs coupled with kind of running forward the ocean freight rate through into 26 and blend that together, it would imply FY26 gross margins are kind of flat to down modestly. Is that a fair way to characterize it just as worth thinking about? And I appreciate, obviously, just plenty of moving piece on tariffs, but assuming no changes there, gross margins would be kind of down modestly next year.

That sounds like 26 guidance, Jim.

It was a good try.

Jim, I would say we think we're covered by very smart analysts with very smart support teams.

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our next question comes from Eric DeLaRae with Craig Hallam, Capital Group. Your line is open.

Great. Thank you for taking my questions, and congrats on a really impressive quarter. My question is on tariffs. You've outlined several levers you can pull to offset the impact of tariffs, but I'm wondering sort of what levers you have to pull or what's in your power to do in terms of, you know, lobbying for coconut water to be excluded from tariffs like other coconut products are. Do you have any levers to pull here? Is there anything from a lobbying or even import classification perspective that you're able to do?

Yeah, it's what we're working on. I've been spending time in D.C. and doing exactly that and working from both the angle of the producing countries in their negotiations and discussions and also on the U.S. administration side. So we're making every effort that we can. That's great.

And then just a question on the marketing spend outlook. Just overall, should we expect a general increase in marketing spend as a percentage of sales going forward given balance sheet strengths, investments in treats, consumer education efforts?

Should we expect a general increase as a percentage of sales or do we have enough robust top line growth that this current level of marketing spend as a percentage of sales is a good guide going forward?

Yeah, as we think about the long term, and there's variability year to year, but broadly we would expect sales and marketing expenses to track net sales or branded net sales over the long term.

All right, if that's helpful, thanks for taking my questions and congrats again.

Thanks.

Thank you. Our next question comes from Gerald Pascarelli with Needham & Company. Your line is open.

Great. Great. Thanks very much. I just had a, going back to tariffs, if they remain in place as is, can you just speak about how long the process is, should you choose to reroute shipments from Brazil to international markets? And then I guess, based on your current sourcing, is it possible to reroute all shipments from Brazil to international markets? Or is that just, not practical based on your supply chain? I guess any color that would be helpful.

Yeah, so to reroute, we need to develop packaging, the factory and the new market it's going to be servicing, and we also need to get any validations for that factory in that country or with that retailer that are required. So those processes might take three months, could take nine. So it's a moving target. We started working on those things back in August, September. But equally, the urgency on working on them, while it's urgent, we're also sensitive that once we start buying that materials, if Brazil tariffs go away, then we've got this packaging in the wrong location for a non-optimized supply chain. because Brazil is optimized to supply to the U.S. So the answer to your question is we're working on it. We're pulling triggers that we think are appropriate given the uncertainty around the 50% tariffs from Brazil. And, you know, if the 50% were to stay in place, our hope would be to have our weighted average tariff rate down from 23 to close to 20 by the end of the year. We may still choose to source some items from Brazil for certain markets and or customers and or for strategic reasons, because it's got a much shorter lead time in servicing the East Coast of the U.S. So we may not fully exit Brazil as it relates to U.S. demand, but that's where we would think we could get to by the end of the year and end of next year.

That's very helpful. Thank you. And then I guess just going back to the prior question, in your trade discussions, are you hearing anything that maybe makes you more optimistic on the potential for a lower negotiated rate from the 50 percent, specifically based on the significant inflation that the U.S. is seeing from Brazil coffee? Is that playing a factor?

Do you think that will play a factor as we look out over the near term here? yeah I think it's also it's things that we're hearing in meetings but we're also hearing publicly discussed from both sides and they're looking to make progress in the in the very near term so we're hopeful that something happens in the near term specifically as it relates most specifically as it relates to this 40% reciprocal tariff hopefully being being relieved but we will see how that plays out.

Got it.

Thank you very much. Thanks. Thank you. This concludes the question and answer session. I would now like to turn it back to Martin Roper for closing remarks.

Thank you, everyone, for joining the call today. And we very much appreciate your interest in the Vitacoco company. And we look forward to talking to you again in 2026. Cheers.

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