Vita Coco Company, Inc. Q4 FY2024 earnings call

• 2024 was a record year for the coconut water category and the company in terms of full-year net sales, net income, and adjusted EBITDA. - In the US, the coconut water category saw 9% growth in household adoptions and over 7% growth in household buy rate in 2024. The Vita Coco brand grew 9% in retail dollars in the US and 21% in the UK in 2024. - The company was hampered in summer 2024 by significant inventory shortages due to limited ocean container availability, which affected third - quarter shipments and service levels. Fourth - quarter and year - to - date replenishment trends and scan trends accelerated. - Private label coconut water shipment trends improved in the fourth quarter as supply chain challenges from the previous summer were overcome. - Vita Coco Juice saw 42% full - year US scan growth, outgrowing the canned segment of the category by 2x. The one - liter Vita Coco coconut water pack was successfully introduced in a key convenience store chain. - Vita Coco Treats began national roll - out with a new flavor, orange and cream. - International business is healthy, especially in Europe led by the UK and Germany. The company intends to step up investment in international markets. - The distribution agreement with Dr. Pepper was extended, leveraging KDP's strong distribution footprint in the US.

For the full year 2024, net sales increased $22 million or 5% year over year to $516 million. Within the Americas, Vita Coco Coconut Water increased net sales by 8% to $343 million, with a 5% volume increase and a 3% net price mix benefit. Private label in the Americas decreased 13% to $90 million, driven by a 2% volume decrease and an 11% price mix reduction due to the private label coconut oil transition. The international segment net sales were up 16% for the full year, with Vita Coco Coconut Water growth of 20%, and private label sales increased 3% partially offset by the transition out of private label coconut oil.

• Expect net sales between $555 million and $570 million in 2025. - Full - year gross margins are expected to be 35% to 37%, and adjusted EBITDA is projected to be $86 million to $92 million. - The category is expected to grow mid - teens, with the Vita Coco brand tracking broadly with the category. Some reduction in private label service areas will partially offset the expected mid - teens brand performance. - Gross margins are expected to be lower in the first half of 2025 due to elevated ocean freight rates, and will improve slightly in the second half as rates improve and with the impact of a US branded pricing initiative. - Tariffs' impact is not included in the guidance currently. If product import tariffs are applied for a prolonged period, pricing adjustments will be made.

• Significant inventory shortages in summer 2024 due to limited ocean container availability hampered third - quarter shipments and service levels. - Ocean freight rates remain elevated and are uncertain, which affects gross margins. - Walmart reset during the quarter moved Vita Coco's location, initially causing mid - teens declines in weekly store sales at Walmart and hurting total US scan performance in the short term. - The company currently expects to lose some regions with certain private label retailers in 2025, with the impact initially appearing in second - quarter shipments and deeper in subsequent quarters.

Q: Could you give the current state of inventories at various points in the channel, and about the US price increase?

A: Ended 2024 with very healthy inventory levels overall. A good chunk is still in transit. Pricing letters will make their way to customers through Q1, and sales teams are working with customers on market execution starting in summer. Pricing is based on higher ocean freight and other cost inflation, and the category is growing healthily so there is a good story, though there could be pushback.

Q: Could you contextualize the shape of gross margins through the year and talk about freight rate trends?

A: The first half of 2025 is affected by the carryover of higher ocean freight from last year. We expect ocean freight rates to drop through the year, improving margins but with some partial offset from less pricing and underlying inflation. We are still paying above last year's levels and expect average ocean container costs to be higher than 2024 for the full year.

Q: Could you unpack the pivoting to emphasize hydration messaging?

A: Starting to invest in marketing to position Vita Coco as a natural alternative to sport drinks, focusing on communication about its three times the electrolytes of sport drinks and natural origin. It's more about marketing communication than packaging changes.

Q: What's the color on the one - liter introduction in convenience and the ACV step - down?

A: The one - liter was an incremental point of distribution. The marginal change in ACV is more related to inventory flowing over, with inventory challenges in Q3 likely resulting in some loss of distribution execution and taking time to build back.

Q: Update on the food service channel?

A: It's been a big focus. The team is making progress in hotels, hospitals, college campuses, schools, etc., with a broad line food distributor network being developed. It's an underdeveloped area with much potential for growth in the long term.