Hello, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Conference Call. My name is Daniel, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'll now hand the call over to John Mills with ICR.

Thank you, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's third quarter earnings release issued earlier today. This information is available on the Investor Relations section of The Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman.

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

Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's continued strong performance in the third quarter. Net sales in the quarter were up 37%, driven by growth of Vita Coco Coconut Water of 42%, benefiting from strong growth in the coconut water category and improvements in our available inventory and service levels. Our branded scan results in the United States were very strong, even with a slight drag in our scans created by the changes in the Walmart set late last year, which we estimated was a mid-single-digit drag to our total U.S. branded scans in the third quarter. We are benefiting from strong volume growth and the impact of the 2 price increases taken in the U.S. this year, the first in mid-May to cover our normal inflationary cost of goods increase and the second in mid-July to cover the dollar impact of the 10% baseline tariffs announced in April. The cumulative effect of these price increases on shelf in the U.S. is best viewed on a 2-year basis, which is showing as approximately 7% in the last quarter according to Circana. To date, we think the price elasticity impacts from these increases are within expectations. but we need more time to understand the impact of the July increase and to see competitor moves before thinking about any further price increases to cover the additional tariffs announced in August. Since November last year, we have been in the juice set at Walmart with significantly reduced assortment. We currently expect this juice set to be reset in mid-November. We've been told that our current total points of distribution will grow significantly compared to the current sets and also above levels we had before the move to the juice aisle. We are optimistic that we don't have complete…

Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2025 financial results and our outlook for the full year. Net sales were very strong for the third quarter, increasing $49 million or 37% year-over-year to $182 million. Vita Coco Coconut Water grew 42% and private label grew 6%. Our quarterly results benefited from the continued strong category growth, the restoration of a key club retailer promotion in the U.S. as well as the depressed third quarter reported last year when we were significantly inventory challenged. Please note that the key retailer promotion that ran in late Q3 and early Q4 this year has created unusually healthy scan trends in the U.S., and I would suggest that you look at a 2-year growth rate for an appropriate reading on the underlying momentum. On a segment basis, within the Americas, Vita Coco Coconut Water increased net sales 41% to $132 million and private label decreased 13% to $14 million. Vita Coco Coconut Water saw a 30% volume increase and a price/mix benefit of 8%. The branded price/mix benefit was driven by the cumulative effect of our 2 price increases in 2025. Our other product category grew 182%, primarily reflecting the national launch of Vita Coco Treats. Our international segment continued to deliver exceptionally strong results in the third quarter with net sales up 48% and Vita Coco Coconut Water growing 47%, driven by strong growth across our major markets. Private label sales increased 70% due to strong sales of private label coconut water within our current customer base. For the quarter, consolidated gross profit was $69 million, an increase of $17 million versus the prior year. On a percentage basis, gross margins finished at 38% for the quarter. This was down approximately…

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 and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. Thank you for joining us today, and thank you for your interest in The Vita Coco Company. That concludes our third quarter 2025 prepared remarks, and we will now take your questions.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs, your line is open.

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

So from a top-line perspective, as we've talked about, we've been focused on the full year. And the quarters, especially around Q3, Q4 are quite hard to tell. We would ask you to take a look at the 2-year stack, which in the underlying base business is still very, very strong. Half 2 and quarter-on-quarter is showing double-digit growth on a 2-year CAGR in the underlying business. And we do have the current trends of the private label business, which as we talked about in Q2, I believe Q2 was down in the mid-30s. We would expect that trend to continue. Martin referenced new private label business starting in 2026. At this point, we don't expect any impact from that, but we may get some -- as you know, the timing of private label is quite challenging, so at the midpoint, we feel there's still a strong underlying growth trends embedded in there, offset with the private label. And then from an EBITDA perspective, we've embedded the tariffs at the 23%. We currently see inbounding to the country. Those will gradually increase through the quarter, peaking at that 23% roughly at the end of the quarter. And then it's the current level of pricing.

Okay. And just want to verify, there's nothing that we should think about as it relates to inventory levels in terms of Q3 versus Q4? Nothing to call out there?

Yes, it's quite hard for us. We don't have complete visibility to inventory, which is why we stay focused on the full year. Q3 had the large retailer promotion. So the timing of that may have been a little heavier in Q3. And as we've talked about, we expect improved distribution at Walmart, how that shifts to distributors and exactly when that inventory will pull is hard to call as well. So I would stay focused on the 2-year second half trends, maybe and you'll see a very strong growth. I would just add that I think we think distributor inventories at the end of the quarter were healthy and sort of ready to support the Walmart set process. And obviously, how those adjust through the end of the year, as you know, can produce a little bit of noise at the end of the year, but we currently think inventory levels are appropriate based on the activity we see in Q4.

Okay. Super helpful. And if I may just squeeze in a quick question on private label because it certainly has been a focus, and you touched on this, hoping for maybe just a little bit more color on what you touched on the recent private label customer wins. How do we think about these wins, meaning offsetting some of the prior losses, if at all? And then as you think about your private label business, how do you believe it's advantaged maybe versus peers? And how do we think about your approach to private label next year and beyond? Is this something you're going to aggressively pursue?

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

Our next question comes from Chris Carey with Wells Fargo Securities, your line is open.

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

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

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

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

And then, Chris, relative to your pricing question, we took pricing in July to mitigate the 10% baseline tariff from April on a dollar basis, right? And I think we indicated in the call that, that was showing up as like a 7% pricing on Circana on a 2-year basis comparison to 2 years ago is how it's showing up. And that would, I suppose, also include the May. So that's the impact of both pricing. We're still monitoring the impact. There's certainly been a slight volume decline with the pricing, but in line with our expectations, but we want to monitor it. We're also monitoring competitive actions and movements on private label pricing, where we expect private label pricing to follow the tariffs rate because it's a cost-plus business model for our retailers. And so we're monitoring that to see what happens. We don't feel in a rush to sort of mitigate further the tariffs while we wait for that. We're also working on the mitigation strategies, particularly as it relates to Brazil, which is the outlier in our tariff environment at 50%. And those mitigation activities revolve around taking Brazil production to other countries other than the U.S. it's not as simple as just a switch because you have to get packaging in place, you have to get approvals in place. So we're working to be able to do that over the next few months and certainly complete that if the Brazil tariffs stay in place by the end of next year. So we want to see how those mitigation efforts go. You said the tariffs is very fluid. It is obviously very fluid. We don't want to take price if we effectively have to give it back. So we're thinking we'll make pricing decisions in Q1 that might take effect Q2 based on our view on where tariffs are and mitigation actions are in Q1. We're reserving the right to take pricing or not take pricing based on what we see in the marketplace and what we think is right for the brand long-term.

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

Yes. Let's start with the capacity. As we sort of have talked about for like the last 18 months, we started adding capacity because we saw the category accelerating both in the U.S. and in our core markets internationally. And so we've been adding capacity to support growth rates in the mid-teens or a little bit higher, and that is progressing well. It's a lot of work and a big shout out to the team involved. We're adding 1 to 2 or more factories a year. And it's -- there's a lot of hard work going on in that. So we don't see a capacity issue in supporting this over the next few years. And then as it relates to your international question, we view category development in our core markets internationally, which we would describe as the U.K. and Germany as being underdeveloped versus the U.S. And I would refer you to our investor presentation from June, where we provided an estimate of consumption per population, right, by different countries. So you'll see there that the U.K. is about 1/3 of the U.S. Germany is like 10% of the U.S. So it's pretty early. And obviously, the U.S. is still growing. So we see it as early innings. And I think big picture, longer-term, the way we think about it in our 5-, 10-, 15-year planning, I suppose I do 10-year planning, Mike does 5-year planning. We want Europe to be as large as the U.S., right? So is it possible that, that could happen? Absolutely. Populations are good, demographics, income levels, health orientation are all good. So we think coconut water is still in early innings in Europe.

Our next question comes from Robert Ottenstein with Evercore ISI.

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

Yes, sure. I'll try and get to all of these. Let's see, international is very exciting. International for us is sort of largely Europe. That's where the strength is. It's led by the U.K., which was launched about 11, 12 years ago, probably a little bit off on that, but effectively 10 years behind the U.S. in its launch trajectory. In the U.K., there is a healthy category, but our brand has over 80% share of it. It is largely cold in the stores, which is a difference to obviously the U.S. where we're warm shelf. And the competitive players sort of really don't -- aren't that strong because with over 80% share, there's not -- no one really talk about. About 5 years ago, Innocent juice had a coconut water brand that probably had 10%, 15%, 20% share, but that has largely been squeezed down to low single digits. And so we have a very strong position, and we're focused on growing the category and then obviously maintaining our share of the category. As the category growth continues, obviously, retailers get excited and they introduce new brands, et cetera, but it's largely small stuff, and I don't think we see any impact from that. But would I expect the competitive environment to continue to be active? Yes, of course. The rest of Europe, for the most part, has been small for us up until about 2 years ago. We put a commercial leader into Germany to try and open up the private label business. In a lot of the rest of Europe, private label is actually a very big player in coconut water, whereas in the U.K., it isn't as big a player. And in many of those countries, private label is the largest sort of nonbrand brand, but…

Yes. Just was there anything in this quarter on the international that flattered results in any way?

Just strong demand.

Yes.

Our next question comes from Christian Junquera with Bank of America.

Just 2 questions. A quick clarification question. Just the tariff impact for 2025, did you guys say $14 million to $16 million? And if so, that implies a blended tariff rate for this year about like 6% to 7%. And then the expectation or what you guys are expecting is it jumps to 23% in 2026. Did we catch that correctly?

The $14 million to $16 million, Christian, is correct. The percentage, the 23% is of the applicable finished goods amount, which we've quantified as approximately 60% of our global cost of goods. So I'm not sure of your -- the math you have on, 6%.

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

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

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

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

Our next question comes from Jon Andersen with William Blair.

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

So one way to think about that is we've indicated that the tariffs applied to 60% of our global cost structure. If you apply 23% to that, you get -- come out at like 13% of our revenue is tariffs. That's a huge number, right? And the last time ocean freight spiked, which was '22, really spiked. We talked about a total transportation impact of $65 million, which included domestic transportation, and we said 2/3 of it was ocean. So the ocean freight, you can extrapolate an ocean freight number from that $65 million, and you can get back into -- that was when rates were $10,000, $12,000, $14,000, right? So ocean freight is an important part of our cost structure, but I would caution you not to overestimate it and to use those data points that we've provided. And I'm going to say, Corey, did we provide a percentage of transportation costs in one of our investor presentations.

A few times in the years, we have in the range of 1/3, but it varies up and down and...

Up and down based on ocean freight...

Yes. We haven't quantified the tariffs, obviously change that equation.

Yes. So I think, Mike, said earlier that ocean freight is an important opportunity for mitigation. And obviously, we're not actually doing anything. We're benefiting from market changes. So it's a benefit from market change that can be an offset. But the tariff impact, if it were to stay, is pretty significant. You mentioned what's going on with ocean freight. If you look back a year on the indexes, the indexes were in the low 3,000s, and they're currently sort of -- I'm looking at the global index, it's currently in the low 2,000s. So it's down 33%, but it went up last year and had a couple of peaks that cost us, right? So yes, current ocean rates are lower than they've been for at least a year, but the change is perhaps not as big as the 50% as you were talking about, like it's not down 50% versus a year ago.

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

I believe that number is transportation and logistics. So it's warehousing, drayage, ocean freight, internal transportation, distribution, et cetera., ocean freight is a subset of that number.

A component of that 1/3 of COGS or so. Okay. The other question I had was just on the guidance. I haven't -- I guess the guidance implies 4Q sales of around $105 million, which looking at what you did in Q3, $182 million, it's like a 42%, 43% sequential decline in sales from Q3 to Q4. We haven't seen anywhere near that kind of a seasonality or change in the past. I know there's a little bit of seasonality, but again, a 45% decline is big. Any -- I just want to make sure I understand what's causing that.

Jon, I don't see those levels of declines year-on-year, but maybe we're...

No, sequentially, sequentially.

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

And it erodes from the out of stock.

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

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

Yes.

Our next question comes from Michael Lavery with Piper Sandler.

Just wanted to touch on capital allocation. You mentioned now your cash balance over $200 million. I know in almost the same breath, you point out the share buyback authorization, though it's a small piece of that even if, of course, you always reauthorize more. But what's the expectations for use of cash? I know you've always had M&A on your kind of to-do list, but it hasn't been a big factor ostensibly because there hasn't been something interesting or at the right price. But how do we think about what the cash is meant to go for?

So I think our priorities haven't really changed. And the first one is growth of the core business. I would say that with the growth we're seeing and our planning for next year, we'll probably be building inventory as we finish this year into next year. And obviously, we're a pretty inventory-intensive business given so much of it sits on the water. And so I would just draw your attention to that, while also recognizing that $200 million is a very healthy cash balance for a company of our size. So our next sort of priority is innovation and supporting our innovation efforts. Third priority is M&A for something that will deliver value to our shareholders. And I think we've talked about M&A a lot in the 3, 4 years we've been public and obviously haven't done anything. So we're prudent, and we're not looking to do M&A for M&A's sake. That's certainly not part of our mission statement. And then as we look at what's going on in all those 3 areas; growth, innovation and M&A, if we believe we have excess cash, then our intentions would be to apply it to share buyback at stock prices that we think are fair for our long-term shareholders. So that's how we think about it. And I don't think anything has really changed. And certainly, as the cash builds, it becomes more of a conversation, but I don't expect us to change our approach to it.

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

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

And just a couple of comments on how Treats gets reported. On a shipment basis, it's reported in other -- so the coconut water reporting on a shipment basis does not include treats, right, and it's indicative again of the health of the category. On a Nielsen, Circana basis, Treats gets reported sort of not necessarily in coconut water, but it might get reported in sort of milk-based products because it's a coconut milk-based products. And so I would just caution you to work out if it is being reported or not in our Circana data, it's not in the coconut water definition that we buy. And it was order of magnitude, I'm looking, Corey, would have added an incremental 4 percentage points to our Circana growth rate. But indeed, we reported in our investor deck because our investor deck reports coconut water growth rates that don't include Treats.

Our next question comes from Eric Serotta with Morgan Stanley.

Great. First question would be in terms of pricing. I know you said that you're waiting on further pricing to see what the competitive environment looks like. What are you seeing in terms of -- have competitors moved on pricing in as we sit here today at the end of October, you guys moved early August. I know that some competitors were on a different kind of pricing cadence over the past few years. So what are you seeing in terms of pricing from your competitors today? I know you can't speculate about the future there. And then just to follow up briefly on Treats. What does the repeat purchase look like on that? And was -- it looks like it was nicely incremental to this year. Do you see it building next year? Or is that, in some ways, going to be a tougher comparison with the launch this year?

Let me take the pricing, Eric, and then Martin can talk to the Treats performance. I'd say on pricing, and we tend to use Circana as a measure of what we're seeing in the market. We're seeing a few different things. Some competitors took pricing early and quite a bit and have maintained at that level and not moved incrementally in response to tariffs. Others have moved 1 or 2 times, and we're seeing some moves in some private label more recently up on a second tariff move. And then others have not moved at all. So there seems to be a differing strategies across the market. Obviously, we lead the market by a wide margin, and we've moved. So we'll see -- continue to monitor closely on additional moves.

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

That's quite hard.

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

Our next question comes from Jim Salera with Stephens.

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

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

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

That sounds like '26 guidance, Jim.

It was a good try.

It was good try.

Jim, I wish the same I think we're covered by very smart analysts with very smart support team.

[Operator Instructions] Our next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

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

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

That's great. And then just a question on the marketing spend outlook. Just overall, should we expect a general increase in marketing spend as a percentage of sales going forward given balance sheet strength, investments in Treats, consumer education efforts. Should we expect a general increase as a percentage of sales? Or do we have enough kind of robust top-line growth that sort of this current level of marketing spend as a percentage of sales is a good guide going forward?

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

Our next question comes from Gerald Pascarelli with Needham & Company.

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

Yes. So to reroute, we need to develop packaging that the factory and the new market it's going to be servicing. And we also need to get any validations for that factory in that country or with that retailer that are required. So those processes might take 3 months, could take 9. So it's a moving target. We've started working on those things back in August, September. But equally, the urgency on working on them, while it's urgent, we're also sensitive that once we start buying that materials, if Brazil tariffs go away, then we've got this packaging in the wrong location for a non-optimized supply chain because Brazil is optimized to supply to the U.S. So answer to your question is we're working on it. We're pulling triggers that we think are appropriate given the uncertainty around the 50% tariffs from Brazil. And if the 50% were to stay in place, our hope would be to have our weighted average tariff rate down from 23% to closer to 20% by the end of the year. We may still choose to source some items from Brazil for certain markets and/or customers and/or for strategic reasons because it's got a much shorter lead time in servicing the East Coast of the U.S. So we may not fully exit Brazil as it relates to U.S. demand, but that's where we would think we could get to by the end of the year -- end of next year.

That's very helpful. And then I guess just going back to the prior question, in your trade discussions, are you hearing anything that maybe makes you more optimistic on the potential for a lower negotiated rate from the 50%, specifically based on the significant inflation that the U.S. is seeing from Brazil coffee. Is that playing a factor? Do you think that will play a factor as we look out over the near term here?

Yes. I think it's also -- it's things that we're hearing in meetings, but we're also hearing publicly discussed from both sides. And they're looking to make progress in the very near term. So we're hopeful that something happens in the near-term, specifically as it relates -- most specifically as it relates to this 40% reciprocal tariff hopefully being relieved, but we will see how that plays out.

This concludes the question-and-answer session. I would now like to turn it back to Martin Roper for closing remarks.

Thank you, everyone, for joining the call today, and we very much appreciate your interest in The Vita Coco Company, and we look forward to talking to you again in 2026. Cheers.

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