The Vita Coco Company, Inc. Common Stock Q2 2026 Earnings Call

Hello, and welcome to The Vita Coco Company's second quarter 2026 earnings conference call. My name is Liz, and I will be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'd now like to hand the call over to John Mills with ICR.

Thank you, and welcome to The Vita Coco Company's second quarter 2026 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kermin, Executive Chairman, Martin Roper, Chief Executive Officer, and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's second 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 other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. 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. With that, it is my pleasure to now turn the call over to Mr. Mike Kermin, our Co-founder and Executive Chairman.

Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our second quarter financial results and our expectations for our full year 2026 performance. I want to start by thanking all of our colleagues across the globe for our strong operational execution year to date, and particularly in fueling and supporting the acceleration of our growth rate this year. I'm thrilled that the growth trends of the first quarter have continued through the second quarter. Our strong inventory position at the start of the year and the quick reaction time of our teams to the higher demand have enabled us to support our retailers' increased needs and have delivered very strong second quarter results in global net sales, gross profit, net income and adjusted EBITDA.

Coconut water remains one of the fastest growing categories in the beverage aisle, according to our retail scan data, with year to date retail dollar growth of 29% in the U.S. and 65% in our measured European markets. Vita Coco coconut water, excluding our coconut milk based products like Treats, also grew 29% year to date in retail dollars in the U.S. We also saw 57% retail dollar growth in our measured European markets, gaining branded share across our major markets. In addition to our incredible financial results year to date, I'm pleased to announce the acquisition of Copra Inc. Aside from Vita Coco, I really believe that Copra is one of the greatest success stories in coconut water and one of the other major drivers of the category's growth over the past couple of years.

I'm very excited for Copra's founders, Ben and Chai, and their team to join us in developing the coconut water category into a major global beverage category over the coming years. Copra competes in the super premium Thai Nam Hom segment of coconut water. The product is sold chilled and has a sweet, aromatic flavor and a slightly pink color. We estimate that this super premium cold segment represents approximately 13% of U.S. coconut water sales and is growing slightly faster than the rest of the category year to date. The largest branded player in this segment is Harmless Harvest. More recently, the segment has seen most of its growth come from private label introductions across many major retailers, the majority of which Copra supplies.

The Copra team have built a great business based on strong integrated Nam Hom sourcing and packaging operations in Thailand, are the leading supplier of private label products for this segment, and they've launched their own Copra brand in the U.S., producing some of the highest quality product that we've seen in the segment. As we've demonstrated with Vita Coco, investing in and mastering the supply chain in this category is key to being a market leader. Acquiring Copra today gives Vita Coco greater access to this unique coconut water sourcing area and will allow us to compete long term in the super premium cold segment with both private label and branded products. I'm very pleased to welcome Ben and Chai and their team to the Vita Coco family and look forward to helping them achieve their long term vision.

We believe this is an attractively valued asset that will enhance our ability to deliver on our long term goals. As we think about our brands and the category's tremendous growth opportunities, we will continue to scale active hydration efforts across our markets as a key driver of consumer growth, positioning our brands as the natural choice for everyday performance, sport and recovery. With three and a half times the electrolytes of the leading sport drink and clean ingredients, we believe that we are well positioned to continue to recruit new consumers, increase usage frequency, and unlock the next phase of sustained growth. We believe that coconut water is in the early stages of gaining mainstream appeal, a belief that is supported by the growth trends we are seeing.

We believe that we are very well positioned to benefit from these trends, and we're confident that coconut water will grow to be a major category in the beverage aisle across the globe. We'll continue to build capacity and grow our organizational capabilities to take advantage of that growth. 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 Vita Coco's robust second quarter performance. Our net sales in the quarter were up 28%, driven by the strong growth of Vita Coco Coconut Water of 21% and growth in private label of 83%. The coconut water category and our brand trends are very healthy in all our major markets. In the United States, Vita Coco Coconut Water shipment growth was strong despite the negative impact from the shifting of a major club promotion into Q1 this year. We believe that our U.S. Vita Coco branded business growth is coming approximately 2/3 from increased household penetration and 1/3 from velocity per household growth, which is indicative of very strong brand momentum. Our U.S. scan results are also benefiting from the November reset at Walmart, which has added approximately 5% to our retail dollar scan growth rate on a year-to-date basis.

Our private label shipment growth for the quarter reflects distribution gains, specifically the regained regions at major retailers that started shipping during the first quarter, and the first shipments for a new private label account in the U.S. that started this quarter. We are seeing cost of goods year-to-date in 2026 benefit from refunds of tariffs paid last year and from lower ocean freight costs year-to-date compared with the full year 2025 levels. With those benefits partially offset by increased domestic logistics and higher finished goods costs. During the quarter, we entered into some additional ocean freight contracts on an April through March next year basis to secure containers at fixed rates, subject to adjustments for freight, fuel, and other surcharges. These provide us with approximately 50% coverage for our needs for the balance of the year.

During the second quarter, surcharges related to seasonal demand patterns and fuel costs were announced, and it is unclear how long these will remain effective. We are also experiencing some cost of goods increases, primarily in packaging materials, domestic logistics costs, and increased energy costs affecting our suppliers. Most of these increases will start impacting our gross margin mid-third quarter as inventory flow through to customers. The tariff refund allows us to mitigate any impact on our consumers from these cost increases for a while, but if these costs continue, we may consider price increases early in 2027. From a supply perspective, I'd like to acknowledge the devastating earthquake that hit near General Santos in the Philippines. Our thoughts remain with all those affected.

The factory there, where our products are made, suffered damage to warehouses and other structures, resulting in loss of finished goods and a temporary shutdown to allow cleanup and ensure operations could restart safely. We lost several weeks of production and a couple of weeks of inventory at this factory, representing approximately 1% of our full network annual production. As we look to the balance of 2026, we expect full-year healthy growth as we benefit from strong brand trends and the tailwinds of our private label business, benefiting from the distribution gains referenced earlier. We are raising our full year guidance both to reflect our increased expectations for our core business and to account for the addition of the Copra business. Based on the strength of coconut water growth trends year to date, we have increased our targets for our 2028 capacity needs.

We are currently working with multiple partners to secure this long-term capacity to operate efficiently and to support our growing coconut water business, and will invest in additional technical resources to support this. I also want to welcome Copra to The Vita Coco family. I believe that we can add significant value to Copra through our excellence in engineering, quality, processing, supply chain, and commercial marketing capabilities, building on their leadership and Nam Hom sourcing knowledge. It is a low-risk acquisition in our wheelhouse and a great first step for us as we build our M&A capabilities. Copra's business is primarily in the Nam Hom coconut water products, representing approximately 90% of their net sales, and they also have other branded coconut products such as young Thai coconut meat, nectar, puree, and ready-to-drink coconut smoothies.

Their business is growing strongly, faster than Vita Coco's, primarily driven by significant gains in their private label business, coupled with recent success in the U.S. with their own Copra branded product, up 42% year to date across both food service and select retailers such as H-E-B, O-Onne, and key regional chains. Although the Copra brand is small today, it is showing great growth and is a nice platform for us to build a branded competitor with the ambition to eventually be the largest brand in the segment of the category. The Thailand facility is located in the Ratchaburi province, which is ideally situated for sourcing Nam Hom coconuts. The addition of this factory enhances our supply chain, adding capabilities and relationships to our current network. We are excited to bring our coconut water expertise to help scale the capacity to meet our growth aspirations.

We are looking forward to having Ben and Chai and their teams join us as we build an integrated organization and grow the Copra brand over time. To summarize, our category is very healthy. Our brand and our private label business are strong. We are confident in our team's ability to execute and deliver on our plans for 2026, and our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer.

Thanks, Martin. Good morning, everyone. I will now provide you with some additional details on the second quarter 2026 financial results and our outlook for the full year. For the second quarter, net sales increased $47 million, or 28% year-over-year to $216 million, driven by strong Vita Coco Coconut Water net sales growth of 21% and private label growth of 83%. On a segment basis within the Americas, net sales grew 21% to $172 million, led by Vita Coco Coconut Water that grew net sales by 15% to $138 million. This was driven by a 7% volume increase and a 7% net price mix benefit. Private label increased net sales 83% to $27 million, driven by an 82% increase in volume and a net price mix increase of 1%.

Our international segment net sales were up 63%, where we saw continued exceptional net sales growth across branded and private label coconut water. Vita Coco Coconut Water net sales grew 60%, and private label increased 82%. For the quarter, consolidated gross profit was $105 million, an increase of $44 million versus the prior year. Gross margins finished at 49% for the quarter, up approximately 1,200 basis points from the 36% reported in Q2 last year. Tariff refunds improved gross margin within the quarter by approximately 700 basis points. The remaining increase in gross margin resulted from better coconut water pricing, lower ocean freight, and lower finished goods, partially offset by higher domestic logistics costs. Moving on to operating expenses. SG&A costs increased $6 million to $42 million, driven by increased investments in personnel focused on driving future growth, including higher incentive compensation, increased marketing spend, and higher sales-related expenses.

Net income attributable to shareholders for the quarter was $49 million, or $0.82 per diluted share, compared to $23 million or $0.38 per diluted share in the prior year. The $27 million increase in net income was primarily driven by the increase in gross profit, partially offset by higher SG&A investment, increased income tax expenses, and a foreign currency loss this year versus gain last year. Our effective tax rate for Q2 was 23% versus 19% last year. The increase in the effective tax rate is largely driven by the timing of tax credit recognition. This brings the effective tax rate to 21% on a year-to-date basis, in line with our expectations for the year. Q2 2026 adjusted EBITDA was $67 million, or 31% of net sales, up from $29 million or 17% of net sales in Q2 2025.

The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow. As of June 30th, 2026, our balance sheet remained very strong, with total cash on hand of $279 million and no debt under our revolving credit facility. Year to date, we generated $82 million of cash, driven by strong net income and a $28 million reduction in inventory, partially offset by share repurchases of $20 million and net working capital outflow of $11 million, reflecting higher accounts receivable, partially offset by an increase in accounts payable. In July, our board approved a $40 million increase in our stock buyback authorization. We now have $61 million remaining under the total $105 million authorization. Moving to Copra. The purchase price consists of two pieces. The first payment of $175 million is subject to customary closing adjustments.

It was made consisting of approximately 80% cash and 20% stock. Additional consideration is to be paid in 2029 based on 2028 gross profit generated and has a floor of $45 million and a cap of $100 million. Copra projects their full-year calendar net sales for 2026 to be above $100 million. We expect the acquisition to be accretive to our adjusted EBITDA margins post full integration. We believe our primary synergies will be driven by operational improvements in their Thailand factory and through leveraging our retail relationships to accelerate Copra's growth. We are planning on retaining all key employees and maintaining operations in Thailand and expect very limited SG&A cost synergies as we focus on the growth ahead of us. We estimate that we will quickly invest approximately $11 million in CapEx to double extraction output and improve efficiency to unlock capacity to support our growth plans.

As it relates to guidance, in addition to the inclusion of Copra's expected performance, we have continued to experience exceptional category trends in our major markets and confidence in our team and our Vita Coco brand. As a result, after a very strong first half, we are raising our full-year expectations for both net sales and adjusted EBITDA. We now expect net sales between $790 million-$805 million. We expect gross margins for the full year of approximately 40%, delivering adjusted EBITDA of $154 million-$161 million. Our expectations for the strong net sales growth is built on our assumptions for the U.S. category growing approximately 20%, and our international business, led by the U.K. and Germany, maintaining very healthy growth rates.

We now expect consolidated growth of Vita Coco Coconut Water net sales of high teens to 20%, with our U.S. Vita Coco net sales growing mid to high teens. Due to the stronger U.S. category growth, increased distribution, improved visibility to our private label trends, and the inclusion of Copra, we now expect full-year private label net sales growth of 90%-100% in the U.S. We expect 2026 gross margins to improve from 2025 levels as we benefit from the removal and now refund of tariffs, the branded price taken in 2025, and favorable full-year ocean freight rates, partially offset by impacts from cost of goods inflation and adverse product mix. We expect full-year branded price increases of low single digits, assuming no further price actions, with a higher mix of private label volume, resulting in minimal consolidated net pricing growth.

As a result of this mix shift and the higher cost of goods, we expect lower gross margin in the second half than we saw in the first half. We expect to deliver SG&A leverage of approximately 1 point as a percentage of sales versus 2025 as we continue to deliver strong growth with disciplined investments while managing the Copra integration. Finally, we believe that the acquisition of Copra does not change our long-term financial algorithm of branded net sales growth in the mid-teens and adjusted EBITDA in the high teens. With that, I'd like to turn the call back to Martin for his closing remarks.

Thank you, Kari. 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 and the coconut water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth. Thank you for joining us today, and thank you for your interest in The Vita Coco Company. That concludes our second quarter 2026 prepared remarks, and we will now take your questions.

As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from Bonnie Herzog with Goldman Sachs.

Thank you. Good morning, everyone.

Good morning. Hi. I had a question on your guidance.

Given the robust growth in your business and your acquisition, you're able to raise your full-year guidance yet again this year, which is impressive. Your guidance, I guess, ex Copra, implies a deceleration on the top line in the second half, I believe. Wanted to understand the drivers of that, maybe how conservative that is. Your guidance also implies a fair amount of deleverage in the back half. Kari, I think you just touched on this, but just trying to understand how much of that is due to higher freight, maybe versus stepped up investments. If you could maybe help quantify some of these impacts in the back half, that would help. Thank you. Sure, Bonnie. There's an element that's similar to last quarter.

We're raising the back half from our previous guidance. There is stronger trends coming into the back half. We do run into the inventory builds at distributor, the Walmart load-in, those items that we previously talked about. We do see the category continuing to hold up in the 20s%, low 20s%. It's a stronger growth, but there is that kind of headwinds we're facing from a top line. We do see the category continuing to be strong, so the potential upside there, if that continues for the full year. The inflation is starting to hit Q3, Q4 from a freight perspective, as well as the finished goods increases we've talked about.

Those are driving the margin, which the underlying margin is, again, stronger than we indicated last quarter, so we're getting a bit more visibility into the outlook. There's the inflation coming balance of the year. From a leverage to EBITDA, it is really about Copra, and it's quite new. It just kind of closed yesterday. We are cautious in trying to understand the integration cost, the SG&A to support the movements and make sure we execute this well. That's how we thought about the guidance with, say, a bit of conservativeness on the SG&A to make sure we have everything captured properly or as best we can.

Okay. That makes sense and very helpful. I'll pass it on. Thank you.

Thanks. Our next question comes from Peter Galbo with Bank of America.

Hey, guys. Good morning. Thanks for the question and congrats on the acquisition. I actually just, Mike, wanted to ask a broader question about Copra and some of the capacity plans that you have. I think you mentioned securing additional capacity for brand Vita Coco for 2028. You're going to be making some investments for Copra to expand capacity there. Is there any ability, I know it's early days, but for overlap potential going forward, as you expand capacity at Copra, can you, I don't know, grow different types of coconuts to actually help out on the Vita Coco side? Is there going to be any way to use some of that expanded capacity for brand Vita Coco, or is it kind of siloed to the Copra brand at this point?

Yeah, I think, as we think about capacity, the category is growing really fast. The brand Vita Coco is growing really fast. Copra is growing really fast. Adding capacity is critical. If we think about Copra specifically, it is a factory and a manufacturing structure in a specific region of Thailand where this very specific coconut grows that is this kind of sweeter, more aromatic, nuttier, slightly pink coconut water. It's a different actual liquid than what is in Vita Coco. The two capacity builds, they're separate, and they're independent of one another, but both need to be built and continue to be built as the category continues to grow at these type of rates.

Got it. Okay, thanks for that additional detail. Corey, this is maybe a bit more of a nitpicking type question, but just the Americas branded business in the quarter, I think, actually ran a bit behind the scanner data. I think consumption would have implied something in the low 20s, and I think the Americas branded business was kind of shipped in the mid to high teens rate. Just wanted to understand the gap in the data. Maybe there was a shipment timing, maybe it had to do with Q1 and the MBM that was moved, but just wanted to help understand kind of the gap specific to Q2. Thanks very much. Yeah. Peter, the big items are, as you talked about, we had the MBM Q1, Q2, and an MBM Q2, Q3.

That's the biggest item that makes the quarters and the scanner tough to call. It should, over the course of the year, equal out. You've got some elements always of distributor shipment timing. It's just a shipment timing item primarily with the MBM battling from scanner to shipments.

Got it. All right. Okay, great. I'll pass it off. Thanks.

Our next question comes from Chris Carey with Wells Fargo.

Hey, good morning. Just first one, can you expand a bit on your assumptions for category growth into the back half of the year that you're embedding into the guidance?

Chris, we're basing the guidance on the 20s, so the low 20s. We'll see how it holds up. Year to date, it's currently above that. How we thought about guidance was 20s.

When you say 20s, is that overall category? Is that the branded category?

The overall category. Currently, we're right in line with the category. We expect, it's been a little behind the category last few weeks, we expect to be close to the category for the full year.

Okay. Just a follow-up on Copra. How should we think about the commercialization of this? Is Copra really right now predominantly a private label play? It sounds like that's a big piece of the business. Is there going to be a super premium Vita Coco offering? Are you planning to grow the Copra brand, and that's going to be the angle? Just how should we think about when you think about capitalizing on this super premium, how are you going to be leveraging this portfolio from a, I guess, brand versus private label perspective? What are the implications of Copra as it pertains to gross margins versus, I know you said EBITDA margins were accretive, but is the gross margin accretive given it's more premium? Just a bit more context there.

I think big picture, as we think about the category and we think about the growth of the category and the early stages the category is in, and the position of super premium within the category being about 13% of the category today, we see an opportunity for that to grow. We believe that this gives us the opportunity to be a real player in that segment of the category and eventually be the largest player in that segment of the category. That'll be through mostly brand as we continue to build this piece of the business. Today, Copra is a lot of private label, but just like Vita Coco, it all starts with manufacturing.

We think that in coconut water specifically, really investing and developing the manufacturing side of the business creates a moat and gives us a real competitive advantage, and we think we have that with Copra on the super premium side. We will now be building brand or brands off of it, as we think that over time, brand can be, just like with Vita Coco, a much larger component of that segment of the category and our part of the category. You want to talk a little bit about the margin question?

Yeah. We haven't disclosed the margins, but it's operating with a large percentage of private label, which as you know, is lighter touch from an SG&A perspective, but lower gross margin perspective. As we kind of integrate and operate it more effectively, we're very comfortable with the outlook, but it is predominantly private label today.

Okay. I apologize, but just as a follow-up to this, then I'm done. Is Copra expected to be profitable in your guidance for this year? I know you said it should be margin accretive once fully integrated. The guidance raise, does that include positive EBITDA contribution from Copra? I mean, if you take the tariff and Copra, it kind of implies there's no EBITDA guidance raise today. Just want to confirm that.

No, it's a profitable business and it's included.

Yeah. Yep. Yeah. To get to your point, right?

We've raised core business revenue. We are seeing a little bit more cost inflation, particularly on the ocean freight side, which may or may not be permanent. It's now starting to soften, but it certainly impacts us this year. That's sort of the major changes on the EBITDA. Oh, then we've increased some SG&A spend. The three changes in the core business as it relates to EBITDA are those, then you have a little bit of contribution from Copra.

Okay. Thank you very much. Thank you. Our next question comes from Jon Andersen with William Blair.

Good morning, everybody. Congrats on the acquisition.

John. Good morning. Let's see.

I guess, I did want to ask a little bit about your private label business. It was particularly strong in the quarter. I'm not sure. I think it might have been a little bit maybe stronger than even you anticipated, but could you help us understand the growth there in the quarter and your expectations for the full year, and how much of that is kind of related to the regain of distribution in some regions and this new account and maybe more importantly, how to kind of think about run rate growth for that private label portion of your business on an ongoing basis?

I'll take a crack at it and then Corey can fill in. I think when you break down our private label business in the quarter, in the U.S., we benefited from regained regions and the new Tetra customer in the U.S., and that resulted in sizable growth over Q2 last year, and then also over Q1 this year. In addition to the distribution gains, private label trends are largely tracking the category, if not a little bit of ahead. You also have sort of category growth rate going on a per-point distribution basis. The other part of the private label story is Europe, where private label is doing really well. I don't think any major distribution trends, we just have a category, particularly in Germany, that is exploding.

I think as we indicated, growing in the 100% range or higher and private label, in that market and the other markets is tracking with the category growth and that sort of explains the sort of international growth on private label. As we look out, I think we expect those trends to largely continue Q3, Q4. I think we did talk about how full year growth in the U.S. might be 90%-100%, but that is partially due to the addition of the Copra business balance of year.

Also, John, on the launch, you get somewhat of a distribution pipeline fill in the accounting benefit of the purchase order. You kind of get a little bit extra.

Right. Super helpful. Thank you. Coming back to an earlier question, just on the guidance. The EBITDA raise was, I think at the midpoints, $22.5 million. I'm just trying to make sure I understand. Is $15 million of that related to the tariff refund? I can't quite recall whether that was fully out of the guidance last time and now fully in. I guess there'd be another positive contribution from Copra there, right as well? Thanks. Correct. As we just covered, the tariffs were not in previously, they're now in, that's a clear add.

As Martin referenced, a bit of inflation, Copra and then some SG&A as we talked about, just until we better understand how it all comes together and the accounting of the cost we've incurred. Those are the building blocks.

Okay, thanks so much. Appreciate it.

Our next question comes from Erik Serota with Morgan Stanley.

Great. Bigger picture on Copra. Could you just give some color as to why now? It may be as simple as the asset was available now, but why does it make sense at this moment versus sometime prior to this or maybe sometime in the future with respect to the development of the category and the development of your business? Would love to get your perspective on that, Mike.

Yeah. I think if we think about the category and the growth of the category, being the fastest growing category in the beverage aisle and one of the more expensive categories in the beverage aisle. Seeing that consumers are digging deep and investing in not only obviously Vita Coco as the premium option in the category and private label as the value option in the category, but also this super premium segment, which is priced significantly higher than Vita Coco. There's growth in that segment of the category that is slightly even greater than the category and greater than our own growth. We see this category really sticking around and really being an important part of the category as the category continues to mainstream.

We felt that we should play in this segment, and there was an opportunity to acquire a brand and a business, but most importantly, a really incredible manufacturing opportunity and a supply chain opportunity in this segment of the category that will Enable us to really take advantage of that to be, we think, the largest player in that segment of the category, and therefore gain share across the category.

This gives us an opportunity to take a really nice chunk of that, what is 13% could easily be 15%, 16%, 17% of the category, and therefore gain share in total as a company within coconut water, as coconut water grows.

Great. Thanks. Martin, would love to get your perspective in terms of ocean freight rates. We've seen a fairly sizable increase over the past few months. Just wondering your perspective as to the timing of that flowing to your cost of goods given the typical lags of, call it, six months or so, as well as your best view as to the supply-demand balances for ocean freight on your key lanes.

Sure. I would think in the overall picture, we still view that there is excess capacity versus a demand on ocean freight generally, and particularly on our lanes. That's how we think about it. We expect, at some point in time, the rates to fall back to the rates we were seeing maybe five, six months ago. Since we last spoke, yeah, there has been a spike in the reported rates on the indices. These are being driven by fuel surcharges, but maybe more importantly, demand surcharges that the carriers have applied, and in some ways they might be creating artificial supply constraints to push those up and benefit from those for the holiday shipping seasons. We think that's what we're seeing. We continue to ship because we need the product, even with those surcharges.

That would typically take about 3 months to flow through to our P&L, if you assume a month of inventory and 2 months on the water. We would expect those increases that you've seen on the indexes that started maybe in March to flow into the P&L in Q3 and probably more importantly in Q4, which leads to how we're thinking about gross margin for the balance of the year. As it relates to our visibility, I think we have pretty good visibility on 2026. If you think about it as of today, sort of 3 quarters of the way through July, we have production that will sell maybe over 70%, maybe over 80% this year, that's already on the water and we know the rates. This year, probably less variability and uncertainty.

As we think about next year, as we've sort of said, we want to be patient on taking price. We want to see whether any of these effects are permanent. Some of the inflationary effects like that we've seen on packaging, we are pretty sure are permanent. The ocean freight things we feel are temporary. We will weather the storm, so to speak, this year and see where we are sort of in the October time period and make decisions around pricing next year to cover whatever costs we think are permanent.

Great. Thanks so much. I'll pass it on.

Our next question comes from Eric Des Lauriers with Craig-Hallum.

Great. Thanks for taking my questions. Congrats on another impressive quarter here and this acquisition. My questions are mostly around the acquisition. On the private label side, first, should we think about pricing for Copra's private label business as driven in the same manner as legacy Coco on the sort of based on overall costs? Just on the private label dynamics more broadly for this super premium portion, could you just kind of give us some, I suppose, competitive dynamics sort of between super premium and more traditional private label coconut water? Are you seeing retailers typically replace one for the other or provide both offerings? If you could just kind of provide a bit of the sort of dynamics that you're seeing on the private label side, super premium category as well would be helpful.

The last part of the question, they're providing both. If you look at the retailers that do significant amount of private label, they typically will have Vita Coco, they'll have a Tetra Pak coconut water in the coconut water set, private label, and then they will have a branded and/or just a private label, super premium, which sits in a different area of the store. If you see Copra or you see Harmless Harvest or you see a private label, Nam Hom Thai coconut water, it's typically in the refrigerated set, separate from the general coconut water set. They typically would have both. They're both doing really well. If you look at the retailers that are successful in private label, both Tetra Pak and the super premium segment, private label are growing really fast and doing quite well.

Eric, on the sort of pricing side, the first point I think is this type of product typically retails at 2x what Vita Coco does on a per liter basis. That will also show up in our private label sort of revenue per case equivalent in your modeling for the Copra business, which will be higher than what we get on the private label shelf stable side. Yes, it's typically, we think it's going to be sort of on a cost plus basis. We need to work out the full competitive dynamics. As Mike said, we think this factory and the process and the team is a competitive advantage and we will look at that to understand what the pricing should be to be fair to our retailers, and also to ensure that we maintain their business.

That is very helpful. My last question is sort of touching on that last part here on the manufacturing outlook. Certainly a bit more of a vertically integrated structure than the legacy Coco business. You already mentioned expanding capacity there in Thailand. Do you see yourselves sort of expanding any vertical integration across the rest of your supply chain? Is this something that's sort of unique to this coconut, this region, this category? Or is this something that we could potentially look for you to expand across your footprint over the coming years?

Yeah. Great question. As Mike indicated, this is a pretty unique asset and a pretty unique growing area with relationships for sourcing Nam Hom coconuts that are very unique. We are very happy with the model and the rest of our system. As you know, it sort of varies as to how we support those partners adding capacity, but it has been asset light for a long time. I think we see that model supporting our growth for at least the next couple of years. We do look at alternative models maybe on the five-year horizon, but nothing is committed to yet, and we will keep running the current model for as long as we think it will support the business while having plans to support the business in other ways if that model ceases to be able to.

That is very helpful. Thank you for taking my questions, and congrats again.

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

Hey, guys. Good morning. Thanks for taking our question.

Yep. I wanted to start on the capacity utilization side.

In the 1Q call, when you guys raised your guidance for the first time, you had mentioned you'd kind of moved above your target capacity of 80%-85% up to 85%-90%. If I do some back of the envelope math, I come up with something like $750 million-$760 million of core Vita Coco sales implied in today's updated guidance. Should we think about that as the absolute maximum that you can do this year just from a committed capacity standpoint and what you have on the water?

Can't verify your back of the envelope math, but I certainly applaud the approach and it's not a crazy way to think about it. We are currently running closer to 95% capacity right now, and have therefore limited ability to go beyond what our capacity is. Our guidance is based on what we think we're going to do, which assumes that not everything is perfect, right? Because we're not going to provide guidance based on perfect supply chain performance. We have a very complicated supply chain and stuff happens. We alluded to on the call, the earthquake, General Santos that, for us, impacted about 1% of annual full capacity lost, right? Those things can happen. Our guidance is based on what we think we can do. It's also hard because the guidance is obviously based on what inventory we have of what SKUs.

We currently have some more inventory on some SKUs than others, and we're trying to push those and offer those to retailers if there are challenges. Obviously, demand is ahead of what we anticipated and it's uncomfortable running at the capacity we're doing. The capacity we've put in place for 2027 we think will help us and allow us to maintain the momentum. I think as we alluded to on the call, we're now working very hard on 2028 to basically maintain these growth rates.

Great. Martin, you almost anticipated my next question, which is, if we think about 2027, I can appreciate all the incremental work on 2028 and very high-quality problem to have to expand capacity there. Is there any flex in FY 2027 at this point in the planning cycle where maybe you can pick up some incremental capacity in 2H 2027 given any kind of moving pieces that you might have that?

Yes. There always is, we're talking and I wouldn't say that we're only working on 2028. I think in the past we've said adding a Tetra line is 9-12 month sort of timeline and all those discussions are going on where we see the coconut water being available. Adding partnerships is more 18-24 months, obviously those are things that we're looking at for 2028.

Great. I appreciate the color. I'll hop back in queue.

Thanks. Our next question comes from Kaumil Gajrawala with Jefferies.

Hey, guys. Good morning. Congrats. Exciting morning with Copra. I guess a lot of questions on the manufacturing. One of the things I guess I want to understand is this particular type of coconut, is there a ceiling to how big it can be? It sounds like this was a purchase for branding, for scaling, for capacity, for manufacture. There's a mix of things. Is there a limit? Are we anywhere near sort of a ceiling where we should only ever think of it as somewhat niche in terms of how much this thing can scale?

There's a limit at any given time. There's a lot of planting and a lot of investing going on in the region, in planting. The Sourcing opportunity, the ability to grow from a sourcing opportunity is there and continues to develop and continue to grow.

We think the opportunity for us to develop this segment of the category, grow the brand and brands and grow this super premium space will be supported as growing continues. Today, it's nowhere near capacity. You're not picking that last coconut in that province of Thailand. It's nothing like that. There is capacity to be had today, significant capacity. Yes, growing and investing needs to continue, and it is happening. We feel really good about continuing to grow this segment of the category, potentially faster than the total category over the next couple of years or several years.

Okay, got it. Just to make sure I understand the supply chain, does this need to ship refrigerated? Does it go through different means of distribution? Does it need to stay cold throughout the process? You had mentioned Harmless Harvest is usually sold in coolers and fridges. Can this push through the normal Vita Coco system, or do you need an entirely separate supply chain to build it out?

It ships chilled and stays chilled all the way through the supply chain. It's not going DSD, for example, through our typical DSD system. It goes more direct to retail through the produce supply chain. A lot of direct business, some broad line business will be seen, food service business will be seen, but it is cold chain.

Got it. Thank you, guys.

As a reminder, if you'd like to ask a question at this time, please press star one one on your touchtone phone. Our next question comes from Robert Ottenstein with Evercore ISI.

Great. Thank you very much. A few more questions on the acquisition and just sort of the kind of the business model and the outlook for that. Let me just start off. For the super and the super premium segment, can you talk first a little bit about the demographics of that segment, how it differs from the Vita Coco demographics? Is it typically, what is the route to purchase in terms of, do people start kind of at the Vita Coco level, and is this a trade-up or is it a separate purchase? Is it a separate demographic? And then, given the price point, how big do you think this can actually be in terms of sales? I understand that it's growing very fast and faster than the overall market, but from a smaller base. Maybe that's one sort of group of questions related.

The other side of that is maybe if you can also help us understand why private label is so prominent a player in this. I mean, typically private label is the more lower priced products, and here private label is very material for a super premium product. Maybe help us understand why that's the case. The two different sorts of questions there. Thank you. Yeah, sure, Robert.

When we look at the household dem data, it's pretty similar to Vita Coco, maybe a little higher income and a little older, but otherwise pretty similar. The household penetration number is order of magnitude 60% of Vita Coco, so lower household penetration. We just, as it relates to your second question, we don't see any reason why it can't grow with the category. Whether it grows share of the category, we think it can. There's retail distribution opportunities for it as it establishes a larger base, it can survive in more retail locations. We do think there's an opportunity to increase share of the category. I don't think it's incredibly fast growth, but over five, 10 years, we certainly think we can grow share there.

As it relates to your question around why is private label so strong, that's partially related to Costco. Costco for years only carried Harmless Harvest. Harmless Harvest, we believe, had a very nice business there. Starting about two, three years ago, Costco started to roll out a private label option, and that has been rolled out through distribution through Costco, and that has sort of reduced Harmless' share of that category. Some of that is evidenced in slide five of our Copra acquisition deck. Some of this is retailer, and I think the Costco shopper is an ideal shopper from a demographics perspective and income perspective for a product like this, even though the price point is obviously significantly higher than shelf-stable coconut water.

Certainly in household dive, you will see the super premium product in the fridge alongside the shelf-stable product in the fridge and household. We think there's strong overlap. It's a slightly different taste profile, slightly different sweetness level that appeals to certain people, but perhaps not the product you would drop into smoothies and other sorts of things.

Who supplies the Costco private label, and is that something that you'll be competing for?

We would never comment publicly on who provides private label of a customer of ours or a retailer, because we think that's their business to share and not ours.

All right. Thank you very much.

Thanks. That concludes today's question and answer session.

I'd like to turn the call back to Martin Roper for closing remarks.

Thanks everybody for joining us. Needless to say, we're very excited. We're very excited about the underlying category growth. We're committed to growing the coconut water category, and we're excited to welcome the employees and founders of Copra to our project to make this the next, one of the largest beverages categories in the world, and we think that the addition of Copra can help us do that. Very excited and look forward to talking to everybody again in October. Have a great day. This concludes today's conference call.

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