# Vita Coco Company, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Vita Coco Company, Inc.](/companies/coco.md) (CIK 1482981)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 09:51 ET
- Period: 2023-09-30
- Accession: 0001482981-23-000106
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1482981/000148298123000106/coco-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1482981/000148298123000106/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $138.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $387.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $81.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $246.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $56.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $140.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $32.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $89.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $23.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $51.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $1.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $31.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $4.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $10.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $15.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $39.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.68 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.27 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.71 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 59,271,757 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 58,494,045 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $70.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $533.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $94.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $247.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $268.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $74.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $75.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $192.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,630 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2022 and filed with the Securities and Exchange Commission ("SEC") on March 14, 2023 (the “Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part I, Item 1A, “Risk Factors” of the Form 10-K and other factors set forth in the Form 10-K and Quarterly Reports on Form 10-Q.*

### Overview

The Vita Coco Company is a leading platform for brands in the functional beverage category. We pioneered packaged coconut water in 2004 and have extended our business into other healthy hydration categories. Our mission is to deliver great tasting, natural and nutritious products that we believe are better for consumers and better for the world. We are one of the largest brands globally in the coconut and other plant waters category, and a large supplier of private label coconut water.

Our branded portfolio is led by our *Vita Coco* brand, which is the leader in the coconut water category in the United States, and also includes coconut oil, juice, hydration mix and milk offerings. Our other brands include *Runa*, a plant-based energy drink inspired from the Guayusa plant native to Ecuador, *Ever & Ever*, a sustainably packaged water, and *PWR LIFT*, a protein-infused fitness drink. We also supply private label products to key retailers in both the coconut water and coconut oil categories. We also conduct other revenue transactions such as bulk product sales to beverage and food companies.

We source our coconut water from a diversified global network of 14 factories across six countries supported by thousands of coconut farmers. As we do not own any of these factories, our supply chain is a fixed asset-lite model designed to better react to changes in the market or consumer preferences. We also work with co-packers in America and Europe to support local packaging and repacking of our products to better service our customers’ needs.

*Vita Coco* is available in over 30 countries, with our primary markets in North America, the United Kingdom and China. Our primary markets for private label are North America and Europe. Our products are distributed primarily through club, food, drug, mass, convenience, e-commerce and food service channels. We are also available in a variety of on-premise locations such as corporate offices, fitness clubs, airports and educational institutions.

### Key Factors Affecting Our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us. Just prior to our second quarter earnings release, we reached agreement with one of our major customers to start to discontinue the private label coconut water and coconut oil supply relationship as the terms required to retain the business were contrary to the Company's long term margin targets. At the request of this private label customer, the Company now expects to continue the supply relationship through 2024 for a significant portion of their private label coconut water needs (as disclosed in Note 7). Other than this change in business and the changes noted below in "Impact of Global Events Causing Macroeconomic Uncertainty," there have been no material changes to such factors from those described in the Form 10-K under the heading “Key Factors Affecting our Performance.” Those factors also pose risks and challenges, including those discussed in Part I, Item 1A. “Risk Factors” of the Form 10-K.

### Impact of Global Events Causing Macroeconomic Uncertainty

Uncertainty in the macroeconomic environment resulting from current geopolitical and economic instability (including the effects of current wars and other international conflicts) and the high interest rate and inflationary cost environment may affect our business. It is not currently possible to ascertain the overall impact of these macroeconomic uncertainties on the Company’s business, results of operations, financial condition or liquidity. Future events and effects related to these macroeconomic uncertainties cannot be determined with precision and actual results could significantly differ from estimates or forecasts. For a further discussion of the risks and challenges posed by these events, please see Part I, Item 1A. “Risk Factors” in our Form 10-K.

### Components of Our Results of Operations

### Net Sales

We generate revenue through the sale of our *Vita Coco* branded coconut water, private label and Other products in the Americas and International segments. Our sales are predominantly made to distributors or to retailers for final sale to consumers through retail channels, which includes sales to traditional brick and mortar retailers, who may also resell our products through their own online platforms. Our revenue is recognized net of allowances for returns, discounts, credits, and any taxes collected from consumers.

### Cost of Goods Sold

Cost of goods sold includes the costs of the products sold to customers, inbound and outbound shipping and handling costs, freight and duties, shipping and packaging supplies, and warehouse fulfillment costs.

### Gross Profit and Gross Margin

Gross profit is net sales less cost of goods sold, and gross margin is gross profit as a percentage of net sales. Gross profit has been, and will continue to be, affected by various factors, including the mix of products we sell, the channels through which we sell our products, the promotional environment in the marketplace, manufacturing costs, commodity prices, warehouse costs, and transportation rates. We expect that our gross margin will fluctuate from period to period depending on the interplay of these variables.

Management believes gross margin provides investors with useful information related to the profitability of our business prior to considering the operating costs incurred. Management uses gross profit and gross margin as key measures in making financial, operating, and planning decisions and in evaluating our performance.

### Operating Expenses

### Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") include marketing expenses, sales promotion expenses, and general and administrative expenses. Marketing and sales promotion expenses consist primarily of costs incurred promoting and marketing our products and are primarily driven by investments to grow our business and retain customers. We expect SG&A to increase in absolute dollars and to vary from period to period as a percentage of net sales for the foreseeable future. General and administrative expenses include payroll, employee benefits, stock-based compensation, broker commissions and other headcount-related expenses associated with supply chain & operations, finance, information technology, human resources and other administrative-related personnel, as well as general overhead costs of the business, including research and development for new innovations, rent and related facilities and maintenance costs, depreciation and amortization, and legal, accounting, and professional fees. We expense all SG&A as incurred.

### Other Income (Expense), Net

### Unrealized Gain/(Loss) on Derivative Instruments

We are subject to foreign currency risks as a result of our inventory purchases and intercompany transactions. In order to mitigate the foreign currency risks, we and our subsidiaries enter into foreign currency exchange contracts which are recorded at fair value. Unrealized gain/(loss) on derivative instruments consists of gains or losses on such foreign currency exchange contracts which are unsettled as of period end. See Part I, Item 3 “Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Risk” for further information.

### Foreign Currency Gain/(Loss)

Our reporting currency is the U.S. dollar. We maintain the financial statements of each entity within the group in its local currency, which is also the entity’s functional currency. Foreign currency gain/(loss) represents the transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency. See “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Risk” for further information.

### Interest Income

Interest income consists of interest income earned on our cash and cash equivalents, and money market funds.

### Interest Expense

Interest expense consists of interest payable on our credit facilities and vehicle loans.

### Income Tax Expense

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions in which we operate. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

### Operating Segments

We operate in two reporting segments:

- ***Americas—***The Americas segment is comprised of our operations in the Americas region, primarily in the United States and Canada.
- ***International—***The International segment is comprised of our operations primarily in Europe, the Middle East, and the Asia Pacific regions.

Each segment derives its revenues from the following product categories:

- ***Vita Coco Coconut Water—***This product category consists of all branded coconut water product offerings under the *Vita Coco* labels, where the majority ingredient is coconut water. For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue.
- ***Private Label —***This product category consists of all private label product offerings, which includes coconut water and oil. The Company determined the production and distribution of private label products represents a distinct performance obligation. Since there is no alternative use for these products and the Company has the right to payment for performance completed to date, the Company recognizes the revenue for the production of these private label products over time as the production for open purchase orders occurs, which may be prior to any shipment.
- ***Other—***This product category consists of all other products, which includes *Runa, Ever & Ever* and *PWR LIFT* product offerings, *Vita Coco* product extensions beyond coconut water, coconut milk products, and other revenue transactions (e.g., bulk product sales). For these products, control is transferred upon customer receipt, at which point the Company recognizes the transaction price for the product as revenue.

### Results of Operations

### Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three and nine months ended September 30, 2023 and 2022, respectively:

*(in thousands)*

| 2023 | Three Months Ended September 30, 2022 | 2023 | Nine Months Ended September 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $138,064 | $124,043 | $387,468 | $335,796 |
| Cost of goods sold | 81,893 | 91,467 | 246,542 | 254,868 |
| Gross profit | 56,171 | 32,576 | 140,926 | 80,928 |
| Operating expenses |  |  |  |  |
| Selling, general, and administrative | 32,649 | 23,960 | 89,855 | 73,018 |
| Income (loss) from operations | 23,522 | 8,616 | 51,071 | 7,910 |
| Other income (expense) |  |  |  |  |
| Unrealized gain/(loss) on derivative instrument | (3,959) | 952 | (1,758) | 6,416 |
| Foreign currency gain/(loss) | (1,211) | (364) | (430) | (508) |
| Interest income | 824 | 20 | 1,105 | 30 |
| Interest expense | (1) | (130) | (31) | (213) |
| Total other income (expense) | (4,347) | 478 | (1,114) | 5,725 |
| Income before income taxes | 19,175 | 9,094 | 49,957 | 13,635 |
| Income tax expense | (4,011) | (1,836) | (10,101) | (3,011) |
| Net income | $15,164 | $7,258 | $39,856 | $10,624 |

### Net Sales

The following table provides a comparative summary of net sales by operating segment and product category:

*(in thousands)*

| 2023 Americas segment | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Vita Coco Coconut Water | $89,683 | $82,643 | $7,040 | 8.5% | $253,825 | $217,934 | $35,891 | 16.5% |
| Private Label | 28,257 | 24,786 | 3,471 | 14.0% | 77,366 | 68,413 | 8,953 | 13.1% |
| Other | 2,706 | 1,367 | 1,339 | 98.0% | 7,490 | 7,553 | (63) | (0.8%) |
| Subtotal | 120,646 | 108,796 | 11,850 | 10.9% | 338,681 | 293,900 | 44,781 | 15.2% |
| **International segment** |  |  |  |  |  |  |  |  |
| Vita Coco Coconut Water | 11,350 | 10,637 | $714 | 6.7% | 33,628 | 30,110 | $3,518 | 11.7% |
| Private Label | 5,421 | 3,810 | 1,612 | 42.3% | 13,140 | 9,521 | 3,619 | 38.0% |
| Other | 647 | 800 | (153) | (19.1)% | 2,019 | 2,265 | (246) | (10.9)% |
| Subtotal | $17,418 | $15,247 | $2,171 | 14.2% | $48,787 | $41,896 | $6,891 | 16.4% |
| Total net sales | $138,064 | $124,043 | $14,021 | 11.3% | $387,468 | $335,796 | $51,672 | 15.4% |

For the three months ended September 30, 2023, the primary driver of the consolidated net sales increase of 11.3% was increased case equivalents ("CE") volume growth of 12.2%, which was partially offset by decreased price/mix of private label products. For the nine months ended September 30, 2023, the net sales increase of 15.4%, was driven by increased case equivalents ("CE") volume growth of 12.9% coupled with net pricing actions on branded net sales, which were partially offset by price/mix of private label products.

#### Volume in Case Equivalent

The following table provides a comparative summary of our volume in CE, by operating segment and product category:

*(in thousands)*

| 2023 Americas segment | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Vita Coco Coconut Water | 9,234 | 8,670 | 564 | 6.5% | 26,511 | 23,269 | 3,242 | 13.9% |
| Private Label | 3,185 | 2,346 | 839 | 35.8% | 8,454 | 7,213 | 1,241 | 17.2% |
| Other | 265 | 200 | 65 | 32.5% | 714 | 1,092 | (378) | (34.6)% |
| Subtotal | 12,684 | 11,216 | 1,468 | 13.1% | 35,679 | 31,574 | 4,105 | 13.0% |
| **International segment\*** |  |  |  |  |  |  |  |  |
| Vita Coco Coconut Water | 1,504 | 1,581 | (77) | (4.9)% | 4,665 | 4,412 | 253 | 5.7% |
| Private Label | 725 | 492 | 233 | 47.3% | 1,766 | 1,326 | 440 | 33.2% |
| Other | 10 | 13 | (3) | (23.5%) | 46 | 38 | 8 | 20.9% |
| Subtotal | 2,239 | 2,086 | 153 | 7.3% | 6,477 | 5,776 | 701 | 12.1% |
| Total volume (CE) | 14,923 | 13,302 | 1,621 | 12.2% | 42,156 | 37,350 | 4,806 | 12.9% |

*Note: A CE is a standard volume measure used by management, which is defined as a case of 12 bottles of 330ml liquid beverages or the same liter volume of oil.*

\* International, Other excludes minor volume that is treated as zero CE.

#### Americas Segment

Americas net sales increased by $11.9 million, or 10.9%, to $120.6 million for the three months ended September 30, 2023 from $108.8 million for the three months ended September 30, 2022. The increase is primarily driven by CE volume growth of 13.1%, which was partially offset by private label price/mix. Americas net sales increased by $44.8 million, or 15.2%, to $338.7 million for the nine months ended September 30, 2023 from $293.9 million for the nine months ended September 30, 2022. The increase is primarily driven by CE volume growth of 13.0%, benefiting from an additional promotional period at a key retailer for Vita Coco Coconut Water products, along with benefits from branded pricing actions which were partially offset by private label price/mix.

Vita Coco Coconut Water net sales increased by $7.0 million, or 8.5%, to $89.7 million for the three months ended September 30, 2023, from $82.6 million for the three months ended September 30, 2022. The increase was primarily driven by CE volume growth of 6.5%, alongside benefits from pricing actions. Vita Coco Coconut Water net sales increased by $35.9 million, or 16.5%, to $253.8 million for the nine months ended September 30, 2023, from $217.9 million for the nine months ended September 30, 2022. The increase was primarily driven by CE volume growth of 13.9%, which included an additional promotional period at a key retailer, with pricing actions also contributing to growth.

Private label net sales increased $3.5 million, or 14.0%, to $28.3 million for the three months ended September 30, 2023, from $24.8 million for the three months ended September 30, 2022, mostly driven by CE volume growth of 35.8%, which was partially offset by product price/mix. Private label net sales increased $9.0 million, or 13.1%, to $77.4 million for the nine months ended September 30, 2023, from $68.4 million for the nine months ended September 30, 2022, mostly driven by CE volume growth of 17.2% in addition to the aforementioned price/mix impacts.

Net sales from Other products increased by $1.3 million, or 98.0%, to $2.7 million for the three months ended September 30, 2023 from $1.4 million for the three months ended September 30, 2022, driven in part by CE volume growth of 32.5% coupled with price/mix benefits. Net sales from Other products decreased by $0.1 million, or 0.8%, to $7.5 million for the nine months ended September 30, 2023 from $7.6 million for the nine months ended September 30, 2022.

#### International Segment

International net sales increased by $2.2 million, or 14.2%, to $17.4 million for the three months ended September 30, 2023, from $15.2 million for the three months ended September 30, 2022. The increase is primarily driven by CE volume growth of 7.3% coupled with some benefits from pricing actions. International net sales increased by $6.9 million, or 16.4%, to $48.8 million for the nine months ended September 30, 2023, from $41.9 million for the nine months ended September 30, 2022. The increase is primarily driven by higher CE volume growth of 12.1% with some benefits from pricing actions.

Vita Coco Coconut Water net sales increased by $0.7 million, or 6.7%, to $11.3 million for the three months ended September 30, 2023, from $10.6 million for the three months ended September 30, 2022. The increase was driven by strong volume performance in Europe, coupled with more favorable year over year foreign exchange rates, which were partly offset by reduced volume in the Asia Pacific region. Vita Coco Coconut Water net sales increased by $3.5 million, or 11.7%, to $33.6 million for the nine months ended September 30, 2023, from $30.1 million for the nine months ended September 30, 2022. The increase was due to CE volume growth of 5.7%, primarily driven by the European region, alongside more favorable year over year foreign exchange rates and some benefits from pricing actions.

Private label net sales increased by $1.6 million, or 42.3%, to $5.4 million for the three months ended September 30, 2023 from $3.8 million for the three months ended September 30, 2022. The increase was driven primarily by CE volume growth in Europe from new distribution. Private label net sales increased by $3.6 million or 38.0%, to $13.1 million for the nine months ended September 30, 2023, from $9.5 million for the nine months ended September 30, 2022. The increase was driven primarily by CE volume growth in Europe.

Net sales from Other products was relatively flat on a dollar basis for the three and nine months ended September 30, 2023 compared to the prior year periods.

### Gross Profit

*(in thousands)*

| 2023 Cost of goods sold | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Americas segment | $70,437 | $78,516 | $(8,079) | (10.3)% | $214,214 | $220,615 | $(6,401) | (2.9)% |
| International segment | 11,456 | 12,951 | (1,495) | (11.5)% | 32,328 | 34,253 | (1,925) | (5.6)% |
| Total cost of goods sold | $81,893 | $91,467 | $(9,574) | (10.5)% | $246,542 | $254,868 | $(8,326) | (3.3)% |
| **Gross profit** |  |  |  |  |  |  |  |  |
| Americas segment | $50,208 | $30,279 | $19,929 | 65.8% | $124,466 | $73,285 | $51,181 | 69.8% |
| International segment | 5,963 | 2,297 | 3,666 | 159.6% | 16,460 | 7,643 | 8,817 | 115.4% |
| Total gross profit | $56,171 | $32,576 | $23,595 | 72.4% | $140,926 | $80,928 | $59,998 | 74.1% |
| **Gross margin** |  |  |  |  |  |  |  |  |
| Americas segment | 41.6% | 27.8% |  | 13.8% | 36.8% | 24.9% |  | 11.9% |
| International segment | 34.2% | 15.1% |  | 19.2% | 33.7% | 18.2% |  | 15.5% |
| Consolidated | 40.7% | 26.3% |  | 14.4% | 36.4% | 24.1% |  | 12.3% |

On a consolidated basis, cost of goods sold decreased $9.6 million, or 10.5%, to $81.9 million for the three months ended September 30, 2023, from $91.5 million for the three months ended September 30, 2022. Cost of goods sold decreased $8.3 million, or 3.3%, to $246.5 million for the nine months ended September 30, 2023, from $254.9 million for the nine months ended September 30, 2022. On a consolidated and segment basis, the decreases in both periods were primarily driven by significantly lower transportation costs, relating to ocean freight and domestic logistics, which were partly offset by higher CE volume.

On a consolidated basis, gross profit increased $23.6 million, or 72.4%, to $56.2 million for the three months ended September 30, 2023, from $32.6 million for the three months ended September 30, 2022. Gross profit increased $60.0 million, or 74.1%, to $140.9 million for the nine months ended September 30, 2023, from $80.9 million for the nine months ended September 30, 2022. This was a result of strong CE volume growth, benefits from branded pricing actions and decreased transportation costs. As a result, gross margin increased approximately 14.4% percentage points to 40.7% for the three months ended September 30, 2023, as compared to 26.3% for the three months ended September 30, 2022, and increased by approximately 12.3% percentage points to 36.4% for the nine months ended September 30, 2023, as compared to 24.1% for the nine months ended September 30, 2022.

### Operating Expenses

*(in thousands)*

| 2023 | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Selling, general, and administrative | $32,649 | $23,960 | $8,689 | 36.3% | 89,855 | 73,018 | 16,837 | 23.1% |

#### Selling, General and Administrative Expenses

During the three months ended September 30, 2023, SG&A increased by $8.7 million, or 36.3%, versus the three months ended September 30, 2022. The increase was primarily driven by an increase of $5 million in personnel related expenses and a $4 million increase in marketing expenses. During the nine months ended September 30, 2023, SG&A increased by $16.8 million, or 23.1%, versus the nine months ended September 30, 2022. The increase was primarily driven by an increase of $9 million in personnel related expenses and an increase of $7 million in marketing expenses, along with an increase of $1 million in professional fees due to costs related to the Offering which closed on May 26, 2023 (refer to Note 10, Shareholder's Equity).

#### Other Income (Expense), Net

*(in thousands)*

| 2023 | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Unrealized gain/(loss) on derivative instruments | $(3,959) | $952 | $(4,911) | n/m | $(1,758) | $6,416 | $(8,174) | n/m |
| Foreign currency gain/(loss) | (1,211) | (364) | (847) | n/m | $(430) | (508) | 78 | n/m |
| Interest income | 824 | 20 | 804 | n/m | $1,105 | 30 | 1,075 | n/m |
| Interest expense | (1) | (130) | 129 | 99.2% | $(31) | (213) | 182 | (85.4%) |
|  | $(4,347) | $478 | $(4,825) | 1009.4% | $(1,114) | $5,725 | $(6,839) | (119.5%) |

n/m—represents percentage calculated not being meaningful

#### Unrealized Gain/(Loss) on Derivative Instruments

For the three months ended September 30, 2023 and 2022, we recorded losses of $4.0 million and gains of $1.0 million, respectively, for the mark-to-market changes in fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the three months ended September 30, 2023 related to the contracts hedging the British pound and Brazilian real. During the nine months ended September 30, 2023 and 2022, we recorded losses of $1.8 million and gains of $6.4 million, respectively, for the mark-to-market changes in fair value on the outstanding derivative instruments for forward foreign currency exchange contracts, with the largest loss for the nine months ended September 30, 2023 related to the contracts hedging the British pound and Brazilian real. All forward foreign currency exchange contracts were entered into to hedge some of our exposures to the British pound, Canadian dollar, Brazilian real, Malaysian ringgit, European euro and Thai baht.

#### Foreign Currency Gain/(Loss)

For the three months ended September 30, 2023, the change in foreign currency loss was $847 as compared to September 30, 2022. Foreign currency loss was $0.4 million for the nine months ended September 30, 2023, as compared to $0.5 million loss for the nine months ended September 30, 2022. The change in all periods was a result of movements in various foreign currency exchange rates related to transactions denominated in currencies other than the functional currency.

#### Interest Income

The increase in interest income for the three and nine months ended September 30, 2023 compared to the same prior year period was primarily related to interest income on cash invested with financial institutions, reflecting improved cash balances and interest rates versus prior periods.

#### Interest Expense

Interest expense decreased for the three and nine months ended September 30, 2023 compared to the same prior year period, which was driven by the decreased borrowings on the 2020 Credit Facility.

#### Income Tax Expense

*(in thousands)*

| 2023 | Three Months Ended September 30, 2022 | Amount | Change Percentage | 2023 | Nine Months Ended September 30, 2022 | Amount | Change Percentage |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | (4,011) | (1,836) | $(2,175) | 118.5% | $(10,101) | $(3,011) | $(7,090) | 235.5% |
| Tax rate | 20.9% | 20.2% |  |  | 20.2% | 22.1% |  |  |

Our quarterly income tax provision is based on an estimated annual effective tax rate applied to our consolidated year-to-date pre-tax income or loss. The effective income tax rate is based upon the estimated income for the year, the composition of that income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

For the three months ended September 30, 2023 and 2022 our effective tax rate was 20.9% and 20.2%. respectively. For the nine months ending September 30, 2023, and September 30, 2022, our effective tax rate was 20.2% and 22.1%, respectively. The effective tax rate for the current period is lower than the U.S. statutory rate of 21% primarily as a result of lower statutory tax rates in countries outside the U.S. that the Company operates in and the corresponding credits available from those taxing jurisdictions to offset U.S. income tax. The effective tax rate for the same period in the prior year is higher than the U.S. statutory rate of 21% primarily as a result of state income taxes for the U.S. operations of the Company and other nondeductible expenses for tax purposes, and is partially offset by lower statutory tax rates in countries outside the U.S. that the Company operates in. The change in effective tax rates between the periods is primarily driven by the jurisdictional mix of the Company’s pre-tax profits and the relative impact of other non-deductible expense in relation to the pre-tax profits.

### Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and external users of our financial statements, such as industry analysts, investors and lenders. These non-GAAP measures should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

These non-GAAP measures are a key metric used by management and our Board of Director to assess our financial performance. We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.

We define EBITDA as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA with adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance.

A reconciliation from net income to EBITDA and Adjusted EBITDA is set forth below:

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | 15,164 | 7,258 | 39,856 | 10,624 |
| Depreciation and amortization | 163 | 497 | 503 | 1,442 |
| Interest income | (824) | (20) | (1,105) | (30) |
| Interest expense | 1 | 130 | 31 | 213 |
| Income tax expense | 4,011 | 1,836 | 10,101 | 3,011 |
| **EBITDA** | 18,515 | 9,701 | 49,386 | 15,260 |
| Stock-based compensation (a) | 2,862 | 1,457 | 7,126 | 5,657 |
| Unrealized (gain)/loss on derivative instruments (b) | 3,959 | (952) | 1,758 | (6,416) |
| Foreign currency (gain)/loss (b) | 1,211 | 364 | 430 | 508 |
| Secondary Offering Costs (c) | — | — | 856 | — |
| Other adjustments (d) | 329 | 1,240 | 329 | 1,240 |
| **Adjusted EBITDA** | $26,876 | $11,810 | 59,885 | $16,249 |

(a) Non-cash charges related to stock-based compensation, which vary from period to period depending on volume and vesting timing of awards. We adjusted for these charges to facilitate comparison from period to period.

(b) Unrealized gains or losses on derivative instruments and foreign currency gains or losses are not considered in our evaluation of our ongoing performance.

(c) Reflects other non-recurring expenses related to costs associated with the secondary offering in which Verlinvest Beverages SA sold shares of the Company in an underwritten public offering, which closed on May 26, 2023. The Company did not receive any proceeds from the sale of the shares.

(d) Reflects other charges primarily related to the impairment loss related to assets held for sale in both periods and other non-recurring expenses.

### Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through cash generated from our business operations and proceeds on borrowings through our credit facilities and term loans. We had $94.9 million and $19.6 million of cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively. From time to time, we supplement our liquidity needs with incremental borrowing capacity under the 2020 Credit Facility.

Considering recent market conditions and our business assumptions, we have reevaluated our operating cash flows and cash requirements and believe that current cash, cash equivalents, future cash flows from operating activities and cash available under our 2020 Credit Facility will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the condensed consolidated financial statements included herein and the foreseeable future.

Our future capital requirements will depend on many factors, including our revenue growth rate, our working capital needs primarily for inventory build, our global footprint, the expansion of our marketing activities, the timing and extent of spending to support product development efforts, the introduction of new and enhanced products and the continued market consumption of our products, as well as any shareholder distribution either through equity buybacks or dividends. Our asset-lite operating model has historically provided us with a low cost nimble, and scalable supply chain, which allows us to adapt to changes in the market or consumer preferences while also efficiently introducing new products across our platform. We may seek additional equity or debt financing in the future in order to acquire or invest in complementary businesses, products and/or new IT infrastructures. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

### Cash Flows

The following tables summarize our sources and uses of cash:

*(in thousands)*

| Cash flows provided by (used in): | Nine Months Ended September 30, 2023 | 2022 | Change Amount | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Operating activities | $70,003 | $(18,181) | $88,184 | n/m |
| Investing activities | (528) | (907) | 379 | 41.8% |
| Financing activities | 5,897 | 12,153 | (6,256) | (51.5%) |
| Effects of exchange rate changes on cash and cash equivalents | 212 | (544) | 756 | (139.0%) |
| Net (decrease)/increase in cash and cash equivalents | $75,584 | $(7,479) | $83,063 | 1110.6% |

n/m—represents percentage calculated not being meaningful

### Operating Activities

Our main source of operating cash is payments received from our customers. Our primary use of cash in operating activities are for cost of goods sold and SG&A expenses.

During the nine months ended September 30, 2023, $88.2 million more net cash was generated by operating activities compared to the nine months ended September 30, 2022. The higher cash generation was driven by the increase in net income after adjusting for non-cash items, primarily reflecting higher sales and improvements in working capital.

### Investing Activities

During the nine months ended September 30, 2023 as compared to nine months ended September 30, 2022, cash used in investing activities decreased driven by cash paid for property and equipment.

### Financing Activities

During the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, net cash provided by financing activities was $6.3 million lower primarily driven by lower borrowings on the 2020 Credit Facility during 2023 compared to 2022.

### Debt

We had an immaterial amount of debt outstanding as of September 30, 2023 and December 31, 2022, which was related to vehicle loans.

### 2020 Credit Facility

The 2020 Credit Facility currently provides for committed borrowings of $60.0 million. We may repay outstanding balances under the 2020 Credit Facility at any time without premium or penalty. In December 2022, the Company amended the 2020 Credit Facility to transition the interest rate from reference to LIBOR to SOFR. Borrowings on the 2020 Credit Facility bear interest at rates based on either: 1) a fluctuating rate per annum determined to be the sum of Daily Simple SOFR plus a spread defined in the credit agreement the Spread; or 2) a fixed rate per annum determined to be the sum of the Term SOFR plus the Spread. The Spread ranges from 1.00% to 1.75%, which is based on the Company’s leverage ratio (as defined in the credit agreement) for the immediately preceding fiscal quarter as defined in the credit agreement. In addition, the Company is currently subject to an unused commitment fee ranging from 0.10% and 0.20% on the unused amount of the line of credit, with the rate being based on the Company’s leverage ratio. The maturity date on the 2020 Credit Facility is May 12, 2026.

The borrowings made before the December 2022 amendment bore interest at rates based on either: 1) LIBOR; or 2) a specified base rate (determined by reference to the greatest of the prime rate published by Wells Fargo, the federal funds effective rate plus 1.5% and one-month LIBOR plus 1.5%), as selected periodically by the Company. The LIBOR-based loans bore interest at LIBOR plus the Spread. The unused commitment fee prior to amendment was the same.

The outstanding balance on the 2020 Credit Facility was zero as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, we were compliant with all financial covenants.

### Vehicle Loans

We periodically enter into vehicle loans. Interest rates on these vehicle loans range from 4.56% to 5.68%. The outstanding balance on the vehicle loans as of September 30, 2023 was less than $0.1 million.

For additional information, see Note 6, *Debt*, in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

### Contractual Obligations and Commitments

There have been no material changes to our contractual obligations from those described in the Form 10-K.

### Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in the Form 10-K and the notes to the unaudited condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2023, there were no material changes to our critical accounting policies from those discussed in the Form 10-K.

### Recent Accounting Pronouncements

A description of recently adopted and issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, *Summary of Significant Accounting Policies*, to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 3,883 characters.

### Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities.

As of September 30, 2023 and December 31, 2022 , the outstanding amounts related to our 2020 Credit Facility incur interest fees at variable interest rates and are affected by changes in the general level of market interest rates. However, there was zero outstanding balance on the 2020 Credit Facility as of September 30, 2023 and December 31, 2022.

### Foreign Currency Exchange Risk

We transact business globally in multiple currencies and hence have foreign currency risks related to our net sales, cost of goods sold and operating expenses. We use derivative financial instruments to reduce our net exposure to foreign currency fluctuations. Our objective in managing exposure to foreign currency fluctuations is to reduce the volatility caused by foreign exchange rate changes on the earnings, cash flows and financial position of our international operations. We generally target to hedge a majority of our forecasted yearly foreign currency exchange exposure through a 24-month rolling layered approach and leave a portion of our currency forecast floating at spot rate. Our currency forecast and hedge positions are reviewed quarterly. The gains and losses on the forward contracts associated with our balance sheet positions are recorded in ‘‘Other income (expense), net” in the condensed consolidated statements of operations appearing elsewhere in this Quarterly Report on Form 10-Q.

The total notional values of our forward exchange contracts were $111.2 million and $97.4 million as of September 30, 2023 and December 31, 2022, respectively. The derivatives on the forward exchange contracts resulted in an unrealized loss of $(1.8) million for the nine months ended September 30, 2023, and we estimate that a 10% strengthening or weakening of the U.S. dollar would have resulted in an approximately $4.6 million gain or loss.

A portion of our cash and cash equivalents are denominated in foreign currencies. As of September 30, 2023, a 1% change in the value of the U.S. dollar compared to foreign currencies would have caused our cash and cash equivalents to decrease or increase by $0.1 million. As of December 31, 2022, a 1% change in the value of the U.S. dollar compared to foreign currencies would have caused our cash and cash equivalents to decrease or increase by $0.1 million.

### Inflation Risk

Inflation generally affects us by increasing our cost of transportation, labor and manufacturing costs. We have seen significant inflation on transportation costs compared to 2020 levels caused by COVID-19 related global supply chain disruptions and more general inflation effects, which put pressure on our costs and margins related to economic and geopolitical instability. More specifically, we source a large amount of our finished goods from international countries, which exposes us to international supply chain inflation, particularly ocean freight. In the nine months ended September 30, 2023, we have experienced a reduction in transportation rates from their recent peaks, but general inflationary pressures continue to increase the other elements of our cost of goods and operating expenses.

### Credit Risk

We are exposed to concentration of credit risk from our major customers. In the nine months ended September 30, 2023, sales to two customers represented approximately 51% of our consolidated net sales. We have not experienced credit issues with these customers. We maintain provisions for potential credit losses and evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts and customer credits need to be recorded. Significant economic disruptions or a slowdown in the economy could result in significant additional charges.

## Controls and procedures

As filed, 1,528 characters.

### Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

### Evaluation of disclosure controls and procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 354 characters.

Please refer to Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a description of certain significant risks and uncertainties to which our business, financial condition and results of operations are subject. There have been no material changes to these risk factors as of September 30, 2023.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001482981-23-000106. Last ingested by Listed: Nov 5, 2026, 16:46 ET. No prices; not investment advice.