COCO - NASDAQ

Hello and welcome to the Vita Coco Company's Second Quarter 2023 Earnings Conference Call. My name is Crystal Love. I'll be coordinating your call today. Following the prepared remarks we will open the call to your questions with written instructions to be given at that time. Please stand by.

Thank you and welcome to the Vita Coco Company's second quarter 2023 earnings results conference call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's 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 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. Also, during the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release and supplementary earnings presentation, provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it's my pleasure to turn the call over to Mike Kirban, our Co-founder and Executive Chairman. Mike.

Thanks, Clay, and good morning everyone. Thank you for joining us today to discuss our second quarter 2023 financial results and our current expectations for full-year 2023 performance and long-term growth. I want to start by thanking all of our colleagues across the globe for their continued commitment to the Vita Coco Company and their dedication to our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Before addressing our performance and expectations, I want to reiterate that we believe we have a strong strategic position enabled by our category leadership in coconut water in the better-for-you functional beverage category, which, in Americas tracked channels is in excess of $30 billion. We're very happy with our performance in the first half of 2023 among our growth strategies, delivering coconut water growth through increased usage occasions remains the highest priority and I'm excited about the progress we're making with both our commercial initiatives and our marketing efforts. In the second quarter, we saw consolidated 21% net sales growth, bringing our year-to-date net sales growth to 18%. We remain very bullish on the coconut water category in the United States where according to Circana, the coconut water category is posting one of the healthiest growth trends, outperforming major categories like energy, CSDs, sports drinks, and bottled water in dollar growth rates, while also being one of the few categories growing in volume and price. For the quarter, our Vita Coco coconut water brand is leading the coconut water category growth with US retail dollar sales up 18% and our market share improving to 51.9% while the category is growing 15%. Our brand has never been stronger and our focus on consumer expansion via occasion-based initiatives is highlighted in our marketing efforts in the second quarter. I'll highlight four examples from the quarter that we're super excited about. Firstly, we launched The Coconut Grove, an immersive experience on Roblox, where consumers can farm and harvest virtual coconuts. Over 22 million people visit us in the metaverse driving over 75 million impressions to-date and introducing a new generation of consumers to our brand. Secondly, we collaborated with Bluestone Lane to launch a Coconut Water Cold Brew exclusively at their cafes across the US, blending their signature Cold Brew with the refreshing taste of Vita Coco original coconut water for a perfect summer drink that is already a top-three iced beverage in their locations. This is another initiative that demonstrates the versatility of coconut water and the appeal of our Vita Coco brand to food service partners. To demonstrate the opportunities in the away-from-home channel across all dayparts, we have partnered with on-premise locations in key summer destinations with a focus on alcoholic cocktails mixed with Vita Coco and are seeing great adoption in the bars with incredible social media amplification. We also launched a pop-up club on London, Southbank where consumers have the opportunity to sample our custom cocktails all summer long. Finally, our collaboration with Bloom, a leader in the greens nutrition market highlights the benefit of Vita Coco Coconut Water as a liquid base for powdered products, which is generating amazing organic social media content with 34 million impressions online. These initiatives build on our previously announced collaboration with Diageo. Vita Coco spiked with Captain Morgan is seeing significant marketing activity during the key summer selling season with an estimated 750 million media impressions in H1 alone and 1.1 billion PR impressions and counting from the start of our tropical takeover tour. Our PWR LIFT launched in Southern Texas continues to build momentum and supports our learnings on how to succeed in the enhanced isotonic category. We have focused investments and dedicated market development teams working with our DSD partner KDP as we endeavor to achieve success in this market. It is early, but we're excited by our learnings and the progress we're making. We've consistently talked about the goal of growing our branded business as our priority and our desire to reduce our reliance on our private label business, which is typically lower priced and lower margins. In recent negotiations with our largest private-label customer, the proposed terms required to maintain the business were contrary to our margin targets and long-term goals. We have therefore jointly made the decision to transition the supply relationship at this time. We greatly value our long-term partnership with this customer who remains a key retailer for our branded products. We are more enthusiastic than ever about the strength of our core business and are especially excited by our branded initiatives where we see opportunities for even faster growth. However, it is unlikely that these initiatives will fully offset the net revenue lost from this large private-label customer in the immediate term. As this decision was reached very recently, we're still developing the transition plans and building our 2024 commercial initiatives. But based on information, we believe that we can deliver mid-teens adjusted EBITDA growth in 2024 over the adjusted EBITDA communicated in our updated 2023 guidance with improved gross margins over 2023 levels and we can accelerate our trajectory towards our long-term EBITDA margin targets. While the timing and magnitude of the impact on net sales is hard to quantify, we estimate that we will see some impact starting in Q4 and that our 2024 net sales could decline as much as mid-single digits. This preliminary estimate captures our current assumption on the timing of this transition and the current assessment of the offsetting impact of successfully implementing our 2024 growth initiatives. We will update our view on the impact of this decision with our next earnings release. By then, we expect to have a better understanding of the transition timing and better visibility of the speed and size of our 2024 growth initiatives. As demonstrated by our track record, we're confident that our continued prioritization of margin accretive growth over margin dilutive growth can only strengthen our business going forward. Finally, I'd like to reiterate my excitement for our accomplishments this year and our momentum for the balance of the year and into 2024. We're stepping up investments in our brands and in the long-term health of the business by continued focus on branded growth. We believe that we are uniquely positioned as one of the few fast-growing profitable beverage companies of our size with the talent and commercial capabilities to maintain growth, to innovate new opportunities, and to act as an acquirer of complementary beverage brands that can benefit significantly from our relationships, capabilities, and financial resources. And now I will turn the call over to our Chief Executive Officer, Martin Roper.

Thanks, Mike, and good morning everyone. For the second quarter of 2023, we achieved net sales growth of 21% driven by strong Vita Coco Coconut Water growth of 23%. This performance was achieved against a very strong second quarter last year where the Vita Coco Coconut Water net sales grew 21%. In the Americas, our Vita Coco Coconut Water net sales grew 24% for the quarter, including 21% volume growth, reflecting the continued success of our commercial initiatives, such as the additional promotional activity mentioned in our Q1 earnings call coupled with a single-digit contribution from price increases. Our strong execution at retail and our consumer engagement efforts continue to produce strong results in retail with an 18% dollar growth rate of Vita Coco Coconut Water in Q2 2023 in the US Circana scan data at a 14% volume growth rate. The strong performances across all tracked channels is shown in our investor deck and with strengths in under-developed regions that we believe is indicative of future growth potential. As shown in our investor deck, the growth is built on a healthy balance of velocity, growth, pricing, and distribution gains. Internationally, we are seeing similar strengths of Vita Coco coconut water with 8% volume growth for the quarter. Strong performance at retail has driven retail dollar share of the total coconut water category to over 80% in the most recent four-week period for the first time ever according to Circana UK. Turning to margins, in the second quarter of 2023, our gross margin was 37%, which represents a significant improvement over the 25% reported in the second quarter last year and an improvement over the 31% in the first quarter. This increase was primarily driven by more favorable ocean freight costs and improvements in domestic transportation costs, plus the benefit of branded pricing taken in the fourth quarter and middle of the second quarter of last year. During the quarter, strong volume performance and optimized inventory levels allowed us to operate our supply chain more effectively and efficiently than in prior quarters, which benefited our domestic logistics costs in addition to year-on-year rate improvements. After the significant decrease in spot ocean freight rates in the second half of last year, we saw continued declines in rates in the first quarter and then a more stable environment during the second quarter. At the end of the second quarter, spot rates for most lanes were close to historic pre-COVID levels. As we've discussed in previous quarters, we remain selective in entering into ocean transportation contracts except where we need to guarantee capacity and expect to return to our historic approach of contracting for some of our needs once the contract offers are more competitive with spot prices than they are today. The strong volume performance of the business in the first half allowed the benefits of the ocean freight improvement to flow through our P&L faster than expected with an improvement in supply chain efficiencies also happening more quickly than anticipated. Turning to our outlook, we remain confident in the strength of our core business and excited by our branded initiatives and new and developing private-label relationships. We continue to believe that our supply chain is a competitive advantage and provides the unique combination of service, reliability, flexibility, and cost. We intend to continue to seek and support private-label supply arrangements that are mutually beneficial, but our priority remains our branded growth initiatives, which should make us stronger and more resilient with less dependent on private-label demand in the future. In line with our emphasis on prioritization of branded growth, we are updating our long-term financial algorithm to mid-teen branded growth, which we define as consolidated net sales of minus private label net sales and adjusted EBITDA margins to high-teens, which will benefit from a greater mix of brand sales, gross margin, and SG&A leverage improvements. We're really happy with our current performance. Our second quarter results and our increased full-year guidance that Corey will explain, reflects the strength of our core business as the brand volume, net sales, gross margin, and adjusted EBITDA are all growing. With that, I will turn the call over to Corey, our Chief Financial Officer.

Thanks, Martin and good morning everyone. Let me provide you with some additional details on the second quarter financial results and the drivers of our improved outlook for the 2023 full year. Starting with revenue, we continue to see strong performance in the second quarter with net sales of $140 million, an increase of $24 million or 21% year-over-year. This was driven by Vita Coco Coconut Water growth of 23% and private label growth of 24%. Within the Americas segment, Vita Coco Coconut Water's strong retail performance resulted in $95 million of net sales, an increase of $19 million over the prior year period, while private-label increased $4 million to $24 million. The growth of Vita Coco Coconut Water continued to be volume-led with 21% volume growth and 2% net price mix benefit. Vita Coco Coconut Water benefited from strong retail sales and incremental promotional activity. Private label experienced a strong quarter, driving 17% net sales growth on volume growth of 22%. Private label benefited from a combination of velocity gains in existing stores and increased store count at strategic retailers in the US and Canada, which more than offset the loss stores disclosed in Q3 of last year. Our International segment had a very strong second quarter as well. Reported net sales were up 24%, growth was led by the private label up 72%, where we gained new distribution with strategic retailers in Western Europe. Vita Coco Coconut Water also had a strong quarter growing net sales 14% led by strength in the UK. Total international volume growth was 18% with Vita Coco Coconut Water delivered 8% volume growth and private label volume growing 54%. For the second quarter, consolidated gross profit was $51 million, up $22 million versus the prior year quarter and gross margin was 37% up from 25% in the prior year. Gross margin exceeded our expectations as volume strength accelerated the flow of global transportation savings through our P&L and our supply chain operated very efficiently with lower inventory levels, which led to savings within our domestic logistics costs. Moving onto operating expenses, second quarter 2023 SG&A costs increased by $6 million to $30 million, which reflects investments in incremental resources to support the growth of the company, including increased people costs, investments in sales and marketing, and costs associated with the secondary stock offering in the quarter. As previously indicated, our full-year plan includes an expected increase in marketing and sales execution investments, some of which represent a catch-up from the low levels of last year. Year-to-date, we were not able to execute all planned marketing and organizational investments resulting in benefits in SG&A spending versus our expectations. We plan to invest in a disciplined manner with incremental spending planned over the second half of the year. Net income attributable to shareholders for the second quarter of 2023 was $18 million or $0.31 per diluted share compared to $1 million or $0.02 per diluted share for the prior year. Net income for the quarter benefited from positive net sales and gross margin improvements discussed previously, partially offset by increased SG&A costs. In addition, the quarter benefited from a $4 million increase in the unrealized gain related to derivative instruments, which was offset by an increase in tax of $4 million reflecting an ETR of 19.2% on the quarter. Non-GAAP adjusted EBITDA in Q2 2023 was $24 million, up from $7 million in Q2 2022. The $17 million increase was primarily due to the significant cost of goods per case equivalent decreases and increased volume growth and pricing, partially offset by increased SG&A spending. Turning to our balance sheet and cash flow, as of June 30, 2023, our first-half strong operating performance led to an improvement in cash flow, resulting in total cash on hand of $48 million compared to $20 million on hand as of December 31, 2022. The increase in net cash was primarily driven by net income. Working capital year-to-date has used $2 million of cash as inventory decreased to $27 million and accounts payable increases of $15 million were offset by a $47 million increase in accounts receivable due to the timing of customer payments and the seasonality of the business. The inventory decrease was the result of sales volume growth coupled with the normalization of the global supply chain allowing us to more efficiently manage our days on hand and reduce overall inventory. We ended Q2 with inventory in the low-end of our targeted range, we expect inventory to return to more normal levels in terms of days on hand as we progress through the balance of the year. Let me touch on a couple of small items before turning to our outlook. In May, we completed a successful secondary offering for Verlinvest Beverages SA, an investor in the company for over 15 years. We are delighted that Verlinvest remains a significant shareholder and is continuing their representation on our Board of Directors. We are also pleased on behalf of the Company that this offering has diversified our investors and increased our publicly available flow. As a result of this offering and our strong stock performance, we will now be treated as a large accelerated filer starting with our Form 10-K for 2023 at the end of this year. This is a change we expected and are well prepared for. As we look to the balance of 2023, despite some uncertainty on private label transition, our branded business remains very healthy with strong consumer demand for our products, which is allowing us to raise our full-year net sales guidance to 10% to 12% based on mid-teen branded growth offset by private label weakness in Q4 from that transition previously discussed. Our expectation for gross margins for the balance of the year has also improved as our transportation costs remained stable, our supply chain operates efficiently and our branded products are expected to represent our largest share of our business. As a result, we expect gross margins in the second half to improve slightly over Q2 and be between 35% and 37% for the full year. Our revised non-GAAP adjusted EBITDA guidance is $56 million to $60 million. This reflects continued prudent investment in SG&A, which we expect to grow at a rate higher than our expected net sales growth on a full-year basis. I will now turn it over to Martin for his closing remarks.

Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco Company, our ability to build a better beverage platform, and the strength of our Vita Coco brand. We have just completed the best quarter in our history and we have plans to both expand gross margins and grow adjusted EBITDA in 2024. We believe that exiting next year we will have an even stronger business with higher quality growth and a more favorable margin profile. Thank you for joining us today and thank you for your interest in the Vita Coco Company. That concludes our first quarter prepared remarks and we will now take your questions.

Thank you. We will now conduct the question and answer session. [Operator Instructions] Our first question comes from the line of Bonnie Herzog of Goldman Sachs. You may now ask your question.

All right, thank you. Good morning, everyone. [Multiple Speakers] Good morning. I guess my first question, I just wanted to better understand the decision to transition away from a private label customer. You mentioned you're going to be less dependent on private label moving forward, which I think makes sense, but could you give us a sense of what percentage of your private label business this customer represents? And then if I heard you correctly you're expecting a short-term impact primarily on your topline that's going to impact I guess 2024 results, but you do expect to deliver upside to your mid-teen EBITDA growth targets, albeit I assume your EBITDA base is going to be lower moving forward. So just maybe walk through that for us again, please. Thank you.

Yeah, thanks, Bonnie. Couple of things, we're not going to break out what percentage of our business this customer is. So, I just want to be upfront with that, for competitive reasons, et cetera, et cetera. What we are acknowledging is that they are one of our two largest customers, they are a very significant private label customer, but they also have a very significant branded business. The second thing I want to say is, this is very recent news and we're still processing it, so we don't want to have all the answers today, but we did try to give some guidance for everybody for modeling purposes, as to what we think an outcome in 2024 could be and again that's an initial assessment. We're not providing guidance but we wanted people to have an idea of what we thought and complete information on the transition and timing, speed of it, et cetera is still developing. So we're in the middle of dealing with that. Having said all that, one private label business is typically lower margin than branded business. So we expect our margins to improve next year, because our mix of business will be significantly lower on the branded side and from a growth perspective on net sales, we provided mid-single-digits down because it is a significant piece of business, but we do believe we can grow EBITDA through a combination of both our branded growth initiatives, improving gross margins, and so we wanted to provide visibility to that. So, obviously -- well, and then let me also add, we do like private label business that fits our model. We continue to bid on private label business and win. So, we're still pretty comfortable that we're very competitive in that arena and we would continue to do so. I think with this particular customer, we would be happy to service them again in the future under mutually agreeable terms that fit our model and our supply chain. And so we remain open to that and so that's how we're thinking about it right, so...

Okay, no that's helpful. I understand. But I think I guess the...

And I think I may have missed that, we expect the business mix to be lower private label. So if I misstated, I do apologize.

I guess I'm not sure, but that's what I would assume. So thanks for the color. And then I guess...

I think your assumption would be right, but I just got corrected in the room.

Okay, so alright, well that's helpful. And then I guess the positive here is like you alluded to is, it really does allow you to improve your gross margins moving forward. There may be some choppiness here but thinking about that in the context of your long-term gross margin target of high 30%, love to hear maybe what you think is a realistic timeframe of when you might be able to reach those margins and maybe just this announcement today, does that accelerate the opportunity and thinking about any other cost efficiency initiatives you have in place to accelerate the timeline.

Yeah, I think, so our gross margin for the quarter was 37%. So depending on definition that could already be perceived as high 2030’s right? But let's assume that by definition it isn't right, we expect the product mix to move over the next 12 months to more branded, that will enhance the margin. We still have a little bit of cost to come through, I think we said in our prepared remarks that some of those costs had accelerated into Q2 right, benefits. So, we still have some of that. So I think we're pretty comfortable that gross margins in the high 2030’s is achievable and potentially it could go a little higher depending on exactly what happens with the product mix. Again because this is relatively developing news, we haven't done sophisticated modeling and we don't really fully understand exactly the transition schedule, so how fast that could happen. So we just again try to provide an adjusted EBITDA guidance to help everybody on the modeling.

Okay, that's helpful. And I have many other questions, but I'm going to pass it on. I'll get out of the queue.

Sure, thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jim Salera of Stephens. Your line is now open.

Hi guys, thanks for taking my question. Maybe just talk a little bit on the -- on the marketing side, you know, you have this nice step up in profitability, it should free up some resources for you, you kind of got a lot of balls in the air with different product launches and different partnerships. Could you maybe just give us some idea of maybe rank order the priority of marketing spend, and which one of these initiatives, you want to support and how that looks?

Yeah, I would say the number one thing that we're investing against and focusing on is driving new usage occasions for our core Vita Coco Coconut Water. We have other initiatives, all are going well, all are getting investments, but this is the primary objective. We think the category can be a very large category. We think it could be a very mainstream category and for us, it's about demonstrating to consumers all the different usage occasions and that's what we're investing the most heavily against.

Yeah, and just building on that, what Mike said, we've got a category that's growing volume and revenue, we're gaining share in it. So we see that as the best use of our sort of best prioritization of our investments.

Okay, great. And maybe if I could drill down specifically on PWR LIFT, anecdotally lot of people that consumed it, loved the product. I know that kind of limited availability, and most of the people I talked to buy it on Amazon, but can you give us any steps, kind of what the ramp is there, especially because that sports drink category is so expansive and I think you had a really differentiated product offering there?

Yeah. We love it too and we're actually -- we just upped investments on Amazon specifically because we think it's a good place to really get trial and understand consumer feedback and all of these types of things. So that's an area we're investing, we're also investing quite heavily in Texas through our test launch there with KDP. And then we'll continue to expand it from there into next year. But the investment for where it's at, we believe is quite significant today because we're really trying to get learnings talking to consumers, getting feedback, executing against that feedback such as packaging changes and things like that. And then when it's ready, we believe we could invest heavily -- more heavily against it and expanded on a more national level.

Should we think about that expansion as a kind of tangent geography from Texas? So you go, Texas and then one state over or is it more retailer X and then once we get into retailer Y and kind of springboards out into a much larger geography?

I think it's likely to be more retailers specific and I say likely just, you know, these plans are still being developed in partnership with the retailer discussions and distributor discussions but I think it's more likely to be retailer focused, to continue to build the brand that retailers that have a drink that's looking for that post-workout recovery and also retailers that are willing to sort of give us permanent shelf space. So, I think it's more likely to be retailer initially and then as we prove the model, we think there's some really interesting green shoots there, then it will be a lot easier to go broader.

Okay, great. Thanks for the time, guys. I will pass on.

Thank you.

Thank you. Please stand by. Our next question comes from the line of Christian Junquera of Bank of America. Your line is now open.

Good morning, yes, Christian on for Bryan. Thanks for taking our question. It would be helpful if we could spend some time on gross margins, how much of a drag were promotions to gross margins this quarter. And do you guys continue -- do you guys plan on promoting at the same level in the third quarter and fourth quarter, and it would also be helpful if we can spend some time on cadence and you guys guided for sequential improvement for the third quarter, which is really helpful. But my question is more on the fourth quarter. If I look at the business's performance over the years, it looks like gross margins always declined sequentially in the fourth quarter versus the third quarter, should we expect that to transpire this year and thank you for taking our question.

Thanks, Christian. There was a few things in there, but I'll start with gross margin in the quarter as we called out in Q1, there was an incremental retailer promotion that straddled a bit Q1 and Q2, and that did suppress margins slightly, but for the most part, our promotional activity outside of that one unique event was consistent year-on-year with increased price points to deliver the pricing you see coming through. And then for balance of the year, we've provided in the guidance increased margins above Q2. The quarter-on-quarter cadence is a bit hard to call, especially with the transition, but we're comfortable that through the balance of the year, you'll see hard margins higher than the 37% we delivered in Q2.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Jon Andersen of William Blair. Your line is now open.

Hi, good morning, everybody.

Good morning, John.

Two questions and then I'll step back and listen. On the private label news today, I know in the past you've talked about importance of private label or the rationale for being in private label in the sense that it was important in developing the relationship with the retailer and gave you some additional influence with respect to kind of the category and price tiering. So, how are you in light of today's news, how are you thinking about that, does this kind of change the dynamic at all with this large retailer? And then the second question is kind of putting the mix implications aside from a gross margin standpoint, do you have more benefit to go moving forward based on incremental ocean freight and domestic transport savings? Again putting mix aside, just on the freight and the domestic transport side, are there -- is there more benefit to come there driving the gross margin rate higher. Thank you.

Yeah, let me answer a couple of your questions and then, maybe I'll just refer to Mike to talk about the relationship with the retailer, which I believe remains very strong. First of all, private label, I think historically has helped us build scale in our supply chain. Obviously, we're much bigger and had multiple years of double-digit growth. So our supply chain is very robust and where the branded side seeing that growth continue. So, we're in, I think, pretty good shape. We continue to bid on private label relationships that fit our capabilities and are seeing, again some green shoots there particularly in Europe where they're opening up doors for the branded business and particularly in Germany. So, we like it, and we will continue to like it. Obviously, it needs to work for both parties and that isn't always certain that's going to be the outcome of those processes, but obviously, we engaged in those processes under terms that we think we can fit our model and as we win business, we're obviously happy about it and when we lose business, we're obviously unhappy about it. But that is somewhat the nature of the business. So, I think from a supply chain perspective, we're in pretty good shape and we -- our growth sort of reassures us that we can utilize the relationships we have and continue to grow. On the margin question the -- we saw more benefit in Q2 than we perhaps we had anticipated from the transportation cost sort of recovery to more normal historic levels, ocean freight spot rates are now close to historical levels. So I think we've seen the most of that, we haven't yet, as we said on the call -- in our prepared remarks, started entering into contracts to lock that in because the contract rates are still above spot rates and we're basically playing the spot market except where we need to secure capacity for service reasons. In the other transportation bucket, which for us includes domestic transportation, ports fees, warehousing inbound and outbound logistics, those costs have not fully returned to historical levels and -- but we did see a pretty significant improvement in our efficiencies related to those costs like how full the trucks were, how small detention and demurrage costs were, et cetera, et cetera. As the supply chain flowed and as our inventory levels came down, some of those costs sort of improved in Q2 and our hope would be that we can maintain those gains. On some of those costs, it's unclear if they do return to historical levels, you know, diesel is still high, truck drivers' wages are still high, port fees went up, warehousing costs went up. Ultimately, I think the stuff will return to norm, but it may take a little longer than the sort of very significant acceleration and will return to historical levels that we saw in ocean freight. So I think there's a little bit of upside there, but we certainly have seen most of the upside so far. And then I'll just turn it over maybe to Mike just, who can comment on the retailer relationship, which I think he would describe as strong.

Yes, I think, Martin mentioned, I mean, private label historically was a way for us to gain scale and quickly grow our supply chain and also build relationships with these key retailers. This retailer specific -- specifically remains an important customer for us on the branded side. Our branded business has been growing with them significantly over the years and including this year, and we actually believe that branded growth will even accelerate. At the same time, with their private label team, it's a great relationship and we're going to help them transition and see -- help them do as best as they can in that transition. So, the relationship is strong and it's an important customer and will remain so.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Michael Lavery of Piper Sandler. Your line is now open.

Thank you. Good morning.

Good morning, Michael.

I just wanted to check in on the cans, the juice launch, which I know what's kind of primarily focused in C-store. It looks like on, I suppose its slide 10, that ACV is around 19% now. Do you have a sense of how that compares to the trajectory you might have expected and also just where, you know, kind of what headroom is there, is that something that could still be double or triple that or is it kind of in the range you might expect, where do we just -- how should we think about where it goes from here.

That will be double or triple of that.

Yeah, we're joking, because we set challenging targets for our sales force that tries to go out and deliver. So look, I think, 19% is a good accomplishment, but it doesn't meet our expectations. I think in the same slide, we put in where the Tetra 500 ML is in that class of trade, which is at 54 and I think that...

Cans should get there over time.

So, cans should get there over time, and Mike will tell you that we're not going fast enough or not, Mike and the team is working really hard at it and then, then we'll arm-wrestle about it and have a good [indiscernible], right? So, the convenience, the class of trade for a company like ours, going through a DSD network, it's a slow build, there's lots of core points, it's lots of incremental distribution to get and then you need to make sure it gets serviced right and particularly with the new item like this, we're also supporting it with trial on tastings, features to get adoption, right, because it is a new product at least obviously for our brand and then within this class of trade it's also opening some doors. So, I think we're pretty encouraged, I think we're seeing, if you look at weekly data, the velocity is improving. It's still probably lower than we would like, but it's improving week by week. So we're encouraged. So I think that gives us optimism that as part of a multi-year plan, we can try and close that gap to the 500 ML tetra distribution.

Okay, that's helpful. And maybe just checking in on spiked as well. I know it's quite new, if I understand it correctly, technically, that's Diageo's product. So, you have some limitations and how much control you have obviously but you're working together with them, can you just give a sense of how that's unfolding and kind of what momentum you're seeing there?

Yes, I think, like you said, it is Diageo's and we don't get a ton of data, but what I will tell you is the marketing cover that we're getting from them is so significant and we think it's been quite beneficial in driving the awareness around this specific usage occasion of cocktails mixed with coconut -- using coconut water as a mixer and we think it's actually adding a lot of benefits. I think I talked about in the script, something like 750 million media impressions, 1 billion PR impressions. So it's been really helpful. In terms of volume and sales, we don't get a ton of data on it. I think it's doing well. I'm seeing anecdotally -- anecdotally, I'm seeing it out there, others are seeing it out there. It seems to be moving but the amount of media coverage has been tremendous, I think for our brand and I think it's been quite helpful for that occasion specifically, it was part of the objective.

Okay, thanks so much.

Thank you. Please standby for our next question. Our next question comes from the line of Chris Carey of Wells Fargo Securities. Your line is now open.

Hi, everyone. Just -- just one quick question from me, I guess on the private label piece, it's been sort of well covered at this point, but it's just going to be like a multi-year headwind, you know, as you continue to scale your branded offerings and you look at the margin structure of the private label more closely going forward, just thinking about resetting the long-term sales algorithm to focus only on branded and I just wonder, is this retailer dynamic a one-off or -- and I know you said that there continued to be interesting private label opportunities, but I just wonder if this is multiyear worked down as you -- as you grow branded. So just any thoughts on the long-term nature of private-label versus branded? Thank you.

No, we don't believe it is a multiyear worked down. We're actually really excited about private label. Some of our private label business, we've won some significant private label business as of recently. When private label works within our margin structure, it works -- it works well, obviously not as overwhelming percentage of our business, we want branded to continue to outpace the growth of private label, which it is doing. But when private label works within our margin structure, it works well, and we continue to win private label business and go after private label business, both in the US and as you see in the international results, also international.

Okay, thanks so much.

Thank you. Please standby for our next question. Our next question comes from the line of Eric Des Lauriers of Craig-Hallum Capital Group. Your line is now open.

Great, thank you for taking my questions and congrats on the very impressive quarter here. [Multiple Speakers] So, you've previously stated that you'd remain flexible on price increases going forward. And as you're looking into the back half of this year and into 2024, I'm just wondering if you could kind of walk us through some of those puts and takes here and as you're looking at the results at the retail level and then of course, with this news of the transition of private label, on one hand, the brand is continuing to benefit from this improved affordability relative to adjacent categories. On the other hand, you obviously have room to continue increasing, so just kind of wondering if you see a strategic opportunity to sort of continue sourcing market share by taking less share than peers, or is this kind of like, hey, we've realized this strong benefited over the last, call it six to 12 months and now you're kind of more than happy to take price in line with other categories. Just wondering how you're thinking about it. Thanks.

Yes, I think we're pretty happy with how everything has reacted to our pricing that we took last year, both Q2 and Q4. And we continue to monitor it and then there may be some opportunities certainly in pricing between mixed packs and singles and stuff to optimize but we currently don't have any sort of formal plans for pricing. Well -- certainly we will monitor what is going on in other categories where I think we're seeing pricing activity slow with some significant retailer push-back, because our pricing hasn't changed that much and really just covers our inflationary costs, we're not expecting retail push-back, I think what we might see is some private label pricing decreases just as their cost improve. And so we're going to monitor -- we'll monitor it, monitor the gaps. We don't see a lot of interaction between our brand and private label where they exist and so we're pretty comfortable with that, but we'll just monitor the gaps and stay on top of it and if we see opportunities, we'll take them.

Okay, great. That makes sense. And then just my last question, just wondering how you're thinking about working capital into the second half, if there's anything to call out from a modeling perspective, and I think you mentioned that you're looking to get inventories back to a more historical level, but just kind of given the significant private label transition. I'm just wondering if there's anything else that you guys are foreseeing that's worth calling out here. Thank you.

Yes. I call. I think you touched on one, we do expect inventory to return to more normal levels as we -- as we balance customer service with a low level in Q2. Also accounts receivable, which has a little bit with the payables is a bit high right now that's timing of specific customer payments and then finally on the private label transition, it's too early to tell the timing around year-end and the cut-offs, but we do expect maybe a more normal view to our working capital except for that as we end the year.

Great, thank you. Congrats again.

Thanks, Eric.

Thank you. Please standby for our last question. Our last question comes from the line of Robert Ottenstein of Evercore ISI. Your line is now open.

Great, thank you. Thank you very much. A couple of cleanup questions I guess, love to get your views through the eyes of your business on the state of the consumer, the competitive environment and what levers you believe you have to adjust to actual current or potential changes in either of those factors? Thank you.

I think based on the fact that volume growth is I think the highest amongst pretty much any other beverage category right now. The consumer seems quite healthy and so we're excited about that. Coconut water is growing faster than water, energy, sparkling, pretty much anything right now and Vita Coco is leading that. So, I think consumer seems quite healthy and that's even with some price that we've taken over the past year. So, we feel good, it doesn't seem to be -- it doesn't seem to be slowing down, it seems to be...

Yes, I think, I mean, in our category we're obviously not seeing anything yet. I think as we've talked about in prior quarters we're giving our consumer with the multipacks sort of a value option if they're willing to upsize and I think you can see from the slides in the investor deck, we continue to see that strategy paying dividends in terms of growth of multipacks. So to date, we haven't seen anything and I think we've also said historically that we think that coconut water as part of people's -- our consumer's lifestyles and it is certainly affordable, so I think we see, we expect to have some insulation, but obviously, we haven't seen anything yet. And nor have we been through a cycle like this, whatever the cycle is going to be, right, so, we'll see.

Terrific, and congratulations on the continued great results. Thank you.

Thanks, Robert.

Thank you. I will now turn the call back over to Mr. Martin Roper for closing remarks.

Thanks, everybody. Thanks for joining us and for your continued coverage and interest in our company, and we look forward to talking to you again after Q3. Everyone have a great day.

Thank you.

Thank you.