Vita Coco Company, Inc. 10-Q

Item 1. Financial Statements. 4 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data) September 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 35,910 $ 72,181 Accounts receivable, net of allowance of $ 1,263 at September 30, 2021, and $ 1,211 at December 31, 2020 57,172 30,504 Inventory 47,185 31,967 Supplier advances 1,262 1,190 Derivative assets 156 200 Prepaid expenses and other current assets 36,435 23,105 Total current assets 178,120 159,147 Property and equipment, net 2,274 2,880 Goodwill 7,791 7,791 Intangible assets, net 8,239 9,154 Supplier advances 2,650 2,925 Other assets 1,900 1,964 Total assets $ 200,974 $ 183,861 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 12,976 $ 15,837 Accrued expenses 51,436 34,482 Notes payable, current 4,316 22 Derivative liabilities 4,069 5,364 Total current liabilities 72,797 55,705 Credit facility 7,500 25,000 Notes payable 25,769 34 Deferred tax liability 344 342 Other long-term liabilities 287 481 Total liabilities 106,697 81,562 Commitments and contingencies (Note 7) Stockholders’ equity: Common stock, $ 0.01 par value; 455,000,000 shares authorized; 59,215,520 and 59,200,050 shares issued at September 30, 2021 and December 31, 2020, respectively 53,009,320 and 58,185,855 shares outstanding at September 30, 2021 and December 31, 2020, respectively 592 592 Additional paid-in capital 102,626 100,849 Loan to stockholder — ( 17,700 ) Retained earnings 50,786 28,354 Accumulated other comprehensive loss ( 822 ) ( 949 ) Treasury stock, 6,206,200 shares at cost as of September 30, 2021, and 1,014,195 shares at cost as of December 31, 2020 ( 58,928 ) ( 8,925 ) Total stockholders’ equity attributable to The Vita Coco Company, Inc. 94,254 102,221 Noncontrolling interests 23 78 Total stockholders’ equity 94,277 102,299 Total liabilities and stockholders’ equity $ 200,974 $ 183,861 See accompanying notes to the condensed consolidated financial statements. 5 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except for share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net sales $ 115,669 $ 87,321 $ 292,929 $ 241,127 Cost of goods sold 77,168 57,941 201,368 158,813 Gross profit 38,501 29,380 91,561 82,314 Operating expenses Selling, general and administrative 20,675 19,060 61,897 55,462 Income from operations 17,826 10,320 29,664 26,852 Other income (expense) Unrealized gain/(loss) on derivative instruments ( 1,964 ) 167 1,250 ( 7,229 ) Foreign currency gain/(loss) ( 483 ) 756 ( 2,013 ) 1,118 Interest income 31 61 104 244 Interest expense ( 127 ) ( 24 ) ( 319 ) ( 776 ) Total other income (expense) ( 2,543 ) 960 ( 978 ) ( 6,643 ) Income before income taxes 15,283 11,280 28,686 20,209 Income tax expense ( 2,296 ) ( 2,263 ) ( 6,277 ) ( 4,615 ) Net income $ 12,987 $ 9,017 $ 22,409 $ 15,594 Net income/(loss) attributable to noncontrolling interest ( 3 ) 10 ( 23 ) 21 Net income attributable to The Vita Coco Company, Inc. $ 12,990 $ 9,007 $ 22,432 $ 15,573 Net income attributable to The Vita Coco Company, Inc. per common share Basic $ 0.25 $ 0.15 $ 0.42 $ 0.27 Diluted $ 0.24 $ 0.15 $ 0.42 $ 0.27 Weighted-average number of common shares outstanding Basic 53,006,746 58,495,156 53,266,209 58,560,306 Diluted 53,780,060 58,590,672 53,742,048 58,675,205 See accompanying notes to the condensed consolidated financial statements. 6 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income 12,987 9,017 22,409 15,594 Other comprehensive income: Foreign currency translation adjustment ( 185 ) 626 131 ( 219 ) Total comprehensive income including noncontrolling interest 12,802 9,643 22,540 15,375 Net income (loss) attributable to noncontrolling interest ( 3 ) 10 ( 23 ) 21 Foreign currency translation adjustment attributable to noncontrolling interest — 1 4 3 Total comprehensive income (loss) attributable to noncontrolling interest ( 3 ) 11 ( 19 ) 24 Total comprehensive income attributable to The Vita Coco Company, Inc. $ 12,805 $ 9,632 $ 22,559 $ 15,351 See accompanying notes to the condensed consolidated financial statements. 7 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY (UNAUDITED) (Amounts in thousands) Common Stock Common Stock with Exit Warrants Total Common Stock Additional Paid-In Loan to Retained Earnings (Accumulated Accumulated Other Comprehensive Treasury Stock Total Shareholders’ Equity Attributable to The Vita Coco Non- controlling Interest in Total Shareholders’ Shares $ Amount Shares $ Amount Shares $ Amount Capital Shareholder Deficit) Income / (Loss) Shares Amount Company, Inc. Subsidiary Equity Balance at December 31, 2019 50,793,470 $ 508 8,113,105 $ 81 58,906,575 $ 589 $ 98,450 ( 17,700 ) $ ( 4,306 ) $ ( 1,295 ) 211,575 $ ( 1,985 ) $ 73,753 $ 46 $ 73,799 Net income — — — — — — — — 5,728 — — — 5,728 3 5,731 Purchase of treasury stock — — — — — — — — — — 479,570 ( 4,239 ) ( 4,239 ) — ( 4,239 ) Loan to Shareholder — — — — — — — ( 79 ) — — — — ( 79 ) — ( 79 ) Stock-based compensation expense — — — — — — 353 — — — — — 353 — 353 Exercise of stock options 163,800 2 — — 163,800 2 822 — — — — — 824 — 824 Exercise of service warrants 116,025 1 — — 116,025 1 — — — — — — 1 — 1 Foreign currency translation adjustment — — — — — — — — — ( 495 ) — — ( 495 ) 1 ( 494 ) Balance at March 30, 2020 51,073,295 $ 511 8,113,105 $ 81 59,186,400 $ 592 $ 99,625 ( 17,779 ) $ 1,422 $ ( 1,790 ) 691,145 $ ( 6,224 ) $ 75,846 $ 50 $ 75,896 Net income — — — — — — — — 839 — — — 839 8 847 Loan to Shareholder — — — — — — — ( 54 ) — — — — ( 54 ) — ( 54 ) Stock-based compensation expense — — — — — — 474 — — — — — 474 — 474 Foreign currency translation adjustment — — — — — — — — — ( 352 ) — — ( 352 ) 1 ( 351 ) Balance at June 30, 2020 51,073,295 $ 511 8,113,105 $ 81 59,186,400 $ 592 $ 100,099 ( 17,833 ) $ 2,261 $ ( 2,142 ) 691,145 $ ( 6,224 ) $ 76,753 $ 59 $ 76,812 Net income — — — — — — — — 9,007 — — — 9,007 10 9,017 Purchase of treasury stock — — — — — — — — — — 125,125 ( 1,018 ) ( 1,018 ) — ( 1,018 ) Loan to Shareholder — — — — — — — ( 26 ) — — — — ( 26 ) — ( 26 ) Stock-based compensation expense — — — — — — 411 — — — — — 411 — 411 Foreign currency translation adjustment — — — — — — — — — 625 — — 625 1 626 Balance at September 30, 2020 51,073,295 $ 511 8,113,105 $ 81 59,186,400 $ 592 $ 100,510 $ ( 17,859 ) $ 11,268 $ ( 1,517 ) 816,270 $ ( 7,242 ) $ 85,752 $ 70 $ 85,822 8 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY (UNAUDITED) (Amounts in thousands) Common Stock Common Stock with Exit Warrants Total Common Stock Additional Paid-In Loan to Retained Earnings (Accumulated Accumulated Other Comprehensive Treasury Stock Total Shareholders’ Equity Attributable to The Vita Coco Non- controlling Interest in Total Shareholders’ Shares $ Amount Shares $ Amount Shares $ Amount Capital Shareholder Deficit) Income / (Loss) Shares Amount Company, Inc. Subsidiary Equity Balance at December 31, 2020 51,086,945 $ 511 8,113,105 $ 81 59,200,050 $ 592 $ 100,849 $ ( 17,700 ) $ 28,354 $ ( 949 ) 1,014,195 $ ( 8,925 ) $ 102,221 $ 78 $ 102,299 Net income — — — — — — — — 1,645 — — — 1,645 ( 5 ) 1,640 Purchase of treasury stock — — — — — — — — — — 5,192,005 ( 50,003 ) ( 50,003 ) — ( 50,003 ) Loan to Shareholder — — — — — — — ( 26 ) — — — — ( 26 ) — ( 26 ) Stock-based compensation expense — — — — — — 487 — — — — — 487 — 487 Exercise of stock options 1,365 — — — 1,365 — 9 — — — — — 9 — 9 Foreign currency translation adjustment — — — — — — — — — 17 — — 17 — 17 Balance at March 30, 2021 51,088,310 $ 511 8,113,105 $ 81 59,201,415 $ 592 $ 101,345 $ ( 17,726 ) $ 29,999 $ ( 932 ) 6,206,200 $ ( 58,928 ) $ 54,350 $ 73 $ 54,423 Net income — — — — — — — — 7,797 — — — 7,797 ( 15 ) 7,782 Loan to Shareholder — — — — — — — ( 25 ) — — — — ( 25 ) — ( 25 ) Stock-based compensation expense — — — — — — 525 — — — — — 525 — 525 Exercise of stock options 910 — — — 910 — 10 — — — — — 10 — 10 Foreign currency translation adjustment — — — — — — — — — 295 — — 295 4 299 Balance at June 30, 2021 51,089,220 $ 511 8,113,105 $ 81 59,202,325 $ 592 $ 101,880 $ ( 17,751 ) $ 37,796 $ ( 637 ) 6,206,200 $ ( 58,928 ) $ 62,952 $ 62 $ 63,014 Net income — — — — — — — — 12,990 — — — 12,990 ( 3 ) 12,987 Loan to Shareholder — — — — — — — 17,751 — — — — 17,751 — 17,751 Stock-based compensation expense — — — — — — 629 — — — — — 629 — 629 Exercise of stock options 13,195 — — — 13,195 — 135 — — — — — 135 — 135 Acquisition of portion of non-controlling interest — — — — — — ( 18 ) — — — — — ( 18 ) ( 36 ) ( 54 ) Foreign currency translation adjustment — — — — — — — — — ( 185 ) — — ( 185 ) — ( 185 ) Balance at September 30, 2021 51,102,415 $ 511 8,113,105 $ 81 59,215,520 $ 592 $ 102,626 $ — $ 50,786 $ ( 822 ) 6,206,200 $ ( 58,928 ) $ 94,254 $ 23 $ 94,277 9 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net income 22,409 15,594 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,557 1,559 (Gain)/loss on disposal of equipment 89 ( 14 ) Bad debt expense 20 135 Unrealized (gain)/loss on derivative instruments ( 1,250 ) 7,229 Stock-based compensation 1,641 1,238 Impairment of intangible assets — 90 Changes in operating assets and liabilities: Accounts receivable ( 26,940 ) ( 18,964 ) Inventory ( 15,362 ) 11,487 Prepaid expenses and other assets ( 12,974 ) ( 5,732 ) Accounts payable, accrued expenses, and other long-term liabilities 14,251 22,402 Net advances to suppliers 208 ( 3,437 ) Net cash provided by (used in) operating activities ( 16,351 ) 31,587 Cash flows from investing activities: Cash paid for property and equipment ( 127 ) ( 223 ) Proceeds from sale of property and equipment — 14 Net cash used in investing activities ( 127 ) ( 209 ) Cash flows from financing activities: Proceeds from exercise of stock options/warrants 153 825 Borrowings on credit facility 16,500 15,952 Repayments of borrowings on credit facility ( 34,000 ) ( 15,952 ) Proceeds from settlement of loan to stockholder 17,700 — Cash received (paid) on notes payable 30,028 ( 16,890 ) Cash paid to acquire treasury stock ( 50,003 ) ( 5,257 ) Cash paid to acquire portion of non-controlling interest ( 54 ) — Net cash used in financing activities ( 19,676 ) ( 21,322 ) Effects of exchange rate changes on cash and cash equivalents ( 117 ) ( 5 ) Net decrease in cash and cash equivalents ( 36,271 ) 10,051 Cash and cash equivalents at beginning of the period 72,181 36,740 Cash and cash equivalents at end of the period $ 35,910 46,791 Supplemental disclosures of cash flow information: Cash paid for income taxes 1,130 $ 6,649 Cash paid for interest 164 $ 781 See accompanying notes to the condensed consolidated financial statements. 10 Table of Contents THE VITA COCO COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Amounts in thousands, except share and per share amounts) 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION The Vita Coco Company, Inc. and subsidiaries (formerly known as All Market Inc.) (the “Company”) develops, markets, and distributes various coconut water products under the brand name Vita Coco and for Retailers own brands, predominantly in the United States. Other products include coconut oil, coconut milk, coconut as a commodity, natural energy drinks (under the brand name, Runa ), water (under the brand name, Ever & Ever ) and protein infused fitness drinks (under the brand name PWR LIFT) . The Company was incorporated in Delaware on January 17, 2007 . In 2018, the Company purchased certain assets and liabilities of Runa , which is marketed and distributed primarily in the United States. Effective as of September 9, 2021, the name of the Company was changed from All Market Inc. to The Vita Coco Company, Inc. We are a public benefit corporation under Section 362 of the Delaware General Corporation Law. As a public benefit corporation, our board of directors is required by the Delaware General Corporation Law to manage or direct our business and affairs in a manner that balances the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct, and the specific public benefits identified in our certificate of incorporation. The Company has nine wholly-owned subsidiaries including four wholly-owned Asian subsidiaries established between fiscal 2012 and 2015, one North American subsidiary established in 2015, as well as majority ownership in All Market Europe, Ltd. (AME) in the United Kingdom. AME was established in fiscal 2009 and has 100 % ownership in two European subsidiaries established in 2015. The noncontrolling interest in AME represents minority stockholders’ proportionate share ( 0.71 %) of the equity in AME. The noncontrolling interest is presented in the equity section of the Company’s condensed consolidated balance sheets. One of the wholly-owned Asian subsidiaries, All Market Singapore Pte Ltd (AMS), has 100% ownership in one subsidiary, established in 2018 in Ecuador. Initial Public Offering (“IPO”) The Company’s registration statement on Form S-1, as amended, was declared effective by the SEC on October 20, 2021 related to the IPO of its common stock in the prospectus dated October 20, 2021, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b)(4) of the Securities Act on October 22, 2021 (the “Prospectus”). On October 21, 2021, the Company’s shares began trading on the NASDAQ under the ticker symbol “COCO”. On October 25, 2021, we completed our initial public offering (“IPO”) by issuing 2,500,000 shares of our common stock, $ 0.01 par value per share, at a price to the public of $ 15 per share, resulting in net proceeds to us of approximately $ 30 million, after deducting the underwriting discount and commissions of approximately $ 2 million and offering expenses of approximately $ 5 million. Additionally, certain selling stockholders sold an aggregate of 9,000,000 shares. On October, 27, 2021, the Company used the net proceeds from the IPO to repay the outstanding balance on the 2021 Term Loan. Concurrent with the IPO, various agreement were amended or newly effective, which are further described in our Prospectus, which include: • The Registration Rights agreement • The Investor Rights agreement • Amendments to the employment agreements for the co-CEOs, Mike Kirban and Martin Roper; • Adoption of the new 2021 Stock Incentive Award Plan and new grants of awards to employees and directors, which was effective in connection with the IPO; and • Adoption of a new 2021 Employee Stock Purchase Plan, which was effective in connection with the IPO. 11 Table of Contents Stock Split and Authorized Shares On October 11, 2021, the Company’s Board of Directors and stockholders approved an amended and restated certificate of incorporation of the Company effecting a 455 -for-1 stock split of the Company’s issued and outstanding shares of common stock, and an increase to the authorized shares of our common stock to 500,000,000 shares. The split was effected on October 11, 2021 and without any change in the par value per share. All information related to the Company’s common stock and stock awards has been retrospectively adjusted to the first day of each period presented to give effect to the 455-for-1 stock split, without any change in the par value per share. Impact of the Covid-19 Pandemic On March 11, 2020, the World Health Organization declared the recent novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the outbreak many jurisdictions, including those in which the Company has locations, have implemented measures to combat the outbreak, such as travel restrictions and shelter in place orders. The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s cash flow, business, financial condition, results of operations and prospects will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), impact of the new COVID-19 variants and the rollout of COVID-19 vaccines, and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. The Company has experienced some impacts on inventory availability and delivery capacity since the outbreak which have impacted, at times, the Company’s ability to fully service its customers, including temporary facility shutdowns, local transportation interruptions, and general pressure on global shipping lines. The Company has taken measures to bolster key aspects of its supply chain and the Company continues to work with its supply chain partners to try to ensure its ability to service its customers. The Company has also seen significant cost inflation to global shipping costs and some inflationary pressures on other cost elements, only some of which have been covered by pricing actions to date. The Company is continuing to monitor the situation carefully to understand any future potential impact on its people and business. The Company is taking all necessary steps to protect its people and mitigate any risk to its business. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business, results of operations, financial condition or liquidity. Future events and effects related to COVID-19 cannot be determined with precision and actual results could significantly differ from estimates or forecasts. Unaudited interim financial information The Company’s condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and Article 10 of the Securities and Exchange Commission’s, Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company’s financial information for the interim period presented. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year. The condensed consolidated balance sheet as of September 30, 2021 is unaudited and should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2020. During the nine months ended September 30, 2021, there were no significant changes to the Company’s significant accounting policies as described in the Company’s audited consolidated financial statement as of and for the year ended December 31, 2020. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements are presented in accordance with U.S. GAAP. 12 Table of Contents Principles of Consolidation The condensed consolidated financial statements include all the accounts of the wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation; the noncontrolling interest in consolidated subsidiaries presented in the accompanying condensed consolidated financial statements represents the portion of AME stockholders’ equity, which is not directly owned by the Company. Use of Estimates Preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the condensed consolidated financial statements relate to share-based compensation, assessing long-lived assets for impairment, estimating the net realizable value of inventories, the determination of accounts receivables reserve, assessing goodwill for impairment, the determination of the value of trade promotions and assessing the realizability of deferred income taxes. Actual results could differ from those estimates. Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. If an in-process equity financing is abandoned, the deferred offering costs will be expensed immediately as a charge to expenses in the condensed consolidated statements of operations. As of September 30, 2021, there was $ 3,310 of deferred offering costs capitalized and included in other current assets in the condensed consolidated balance sheets. As a result of the completion of the IPO on October 25, 2021 as described in Note 1, such deferred offering costs will be netted against the proceeds of the offering and reflected as a component of additional paid-in-capital in the quarter ended December 31, 2021. There were no deferred offering costs capitalized as of December 31, 2020. Concentration of Credit Risk The Company’s cash and accounts receivable are subject to concentrations of credit risk. The Company’s cash balances are primarily on deposit with banks in the U.S. which are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $ 250 . At times, such cash may be in excess of the FDIC insurance limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions and any excess cash above a certain minimum balance may be invested in overnight money market treasury deposits in widely diversified accounts. Substantially all of the Company’s customers are either wholesalers or retailers of beverages. A material default in payment, a material reduction in purchases from these or any large customers, or the loss of a large customer or customer groups could have a material adverse impact on the Company’s financial condition, results of operations, and liquidity. The Company is exposed to concentration of credit risk from its major customers for which two customers in aggregate represented 55 % and 54 % of total net sales for the nine months ended September 30, 2021 and 2020, respectively. In addition, the two customers in aggregate also accounted for 33 % and 38 % of total accounts receivable as of September 30, 2021 and December 31, 2020, respectively. The Company has not experienced credit issues with these customers. 13 Table of Contents Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). The update is associated with customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update require that a customer in a hosting arrangement that is a service contract follow the guidance in Subtopic 350-40 to determine which implementation costs should be capitalized as an asset and which costs should be expensed and states that any capitalized implementation costs should be expensed over the term of the hosting arrangement. The guidance is effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The Company adopted the guidance in this amendment using a prospective approach effective January 1, 2021 for the fiscal year ending December 31, 2021. The impact to the nine months ended September 30, 2021 was not material. Recently Issued Accounting Pronouncements As a company with less than $1.07 billion of revenue during the last fiscal year, the Company qualifies as an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act. This classification allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. 3. REVENUE RECOGNITION Revenues are accounted for in accordance with ASC 606. The Company disaggregates revenue into 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 and Vita Coco product extensions beyond coconut water, such as Vita Coco Sparkling , 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. The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. 14 Table of Contents Disaggregation of Revenue The following table disaggregates net revenue by product type and reportable segment: Three Months Ended September 30, 2021 Americas International Consolidated Vita Coco Coconut Water $ 71,825 $ 10,093 $ 81,918 Private Label 25,973 4,117 30,090 Other 3,135 526 3,661 Total $ 100,933 $ 14,736 $ 115,669 Three Months Ended September 30, 2020 Americas International Consolidated Vita Coco Coconut Water $ 50,891 $ 8,024 $ 58,915 Private Label 20,227 3,093 23,320 Other 3,404 1,682 5,086 Total $ 74,522 $ 12,799 $ 87,321 Nine Months Ended September 30, 2021 Americas International Consolidated Vita Coco Coconut Water $ 176,229 $ 26,445 $ 202,674 Private Label 66,457 9,648 76,105 Other 8,246 5,904 14,150 Total $ 250,932 $ 41,997 $ 292,929 Nine Months Ended September 30, 2020 Americas International Consolidated Vita Coco Coconut Water $ 130,953 $ 21,387 $ 152,340 Private Label 62,391 9,472 71,863 Other 11,277 5,647 16,924 Total $ 204,621 $ 36,506 $ 241,127 4. INVENTORY Inventory consists of the following: September 30, 2021 December 31, 2020 Raw materials and packaging $ 4,874 $ 2,771 Finished goods $ 42,311 $ 29,196 Inventory $ 47,185 $ 31,967 15 Table of Contents 5. GOODWILL AND INTANGIBLE ASSETS Goodwill and Intangible Assets, net consist of the following: September 30, 2021 December 31, 2020 Goodwill $ 7,791 $ 7,791 All of the Company’s goodwill is associated with the acquisition of Runa , which was acquired in June 2018. The goodwill is allocated to the Americas reporting unit and is tax deductible. September 30, 2021 December 31, 2020 Gross Gross Carrying Amount Accumulated Amortization Net Carrying Amount Accumulated Amortization Net Intangible assets, net Trade names $ 6,200 $ ( 2,032 ) $ 4,168 $ 6,200 $ ( 1,567 ) $ 4,633 Distributor relationships 6,000 ( 1,967 ) $ 4,033 6,000 ( 1,517 ) $ 4,483 Other 38 — $ 38 38 — $ 38 Total intangible assets subject to amortization $ 12,238 $ ( 3,999 ) $ 8,239 $ 12,238 $ ( 3,084 ) $ 9,154 All the intangible assets, net as of September 30, 2021 and December 31, 2020 were associated with the acquisition of Runa , which was acquired in June 2018. Amortization expense of $ 915 was recorded for both the nine months ended September 30, 2021 and 2020, and $ 305 for both the three months ended September 30, 2021 and 2020, which were included in selling, general and administrative expenses on the condensed consolidated statements of operations. As of September 30, 2021, the estimated future expense fo r amortizable intangible assets is as follows: Year ending December 31, 2021 (excluding the nine months ended September 30, 2021) $ 309 2022 1,224 2023 1,224 2024 1,224 2025 1,224 Thereafter 3,034 $ 8,239 16 Table of Contents 6. DEBT The table below details the outstanding balances on the Company’s credit facility and notes payable as of September 30, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 2020 Credit facility $ 7,500 $ 25,000 Notes payable 2021 Term Loan $ 30,000 $ — Vehicle loans 85 56 $ 30,085 $ 56 Current 4,316 22 Non-current $ 25,769 34 2020 Credit Facility In May 2020, the Company entered into a five-year credit facility (“2020 Credit Facility”) with Wells Fargo consisting of a revolving line of credit. The 2020 Credit Facility was further amended in May 2021 and currently provides committed borrowings of $ 60 million. Borrowings on the 2020 Credit Facility bear interest at rates based on either London InterBank Offered Rate (LIBOR) or a specified base rate, as selected periodically by the Company. The LIBOR-based loans bear interest at LIBOR plus a spread ranging from 1.00 % to 1.75 % per annum, with the spread in each case being based on the Company’s leverage ratio (as defined in the credit agreement). In addition, the Company is subject to an unused commitment fee ranging from 0.05 % and 0.15 % on the unused amount of the line of credit, with the rate being based on the Company’s leverage ratio (as defined in the credit agreement). The maturity date on the 2020 Credit Facility is May 21, 2026 . In December 2020, the Company drew down $ 25,000 on the 2020 Credit Facility. As of December 31, 2020, the Company had $ 25,000 outstanding, $ 25,000 undrawn and available as well as a $ 10,000 non-committed accordion feature under its 2020 Credit Facility. As of September 30, 2021, $ 7,500 was outstanding, $ 52,500 undrawn and available under its amended 2020 Credit Facility. Interest expense and unused commitment fee for the 2020 Credit Facility amounted to $ 44 and $ 23 for the three months ended September 30, 2021 and 2020, respectively, and $ 197 and $ 50 for the nine months ended September 30, 2021 and 2020, respectively. The 2020 Credit Facility is collateralized by substantially all the Company’s assets. The 2020 Credit Facility contains certain affirmative and negative covenants that, among other things, limit the Company’s ability to, subject to various exceptions and qualifications: (i) incur liens; (ii) incur additional debt; (iii) sell, transfer or dispose of assets; (iv) merge with or acquire other companies, (v) make loans, advances or guarantees; (vi) make investments; (vii) make dividends and distributions on, or repurchases of, equity; and (viii) enter into certain transactions with affiliates. The 2020 Credit Facility also requires the Company to maintain certain financial covenants including a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum asset coverage ratio. As of September 30, 2021, the Company was compliant with all financial covenants. 2021 Term Loan In May 2021, the Company entered into a Term Commitment Note with Wells Fargo (“2021 Term Loan”) pursuant to the terms of the credit agreement entered into in connection with the 2020 Credit Facility. The 2021 Term Loan provides the Company with borrowings up to $ 30,000 . The Company bears interest on the 2021 Term Loan at the same rate as the 2020 Credit Facility. The Company is required to repay the principal on the 2021 Term Loan in quarterly installments commencing on October 1, 2021 through the maturity date of May 21, 2026 . 17 Table of Contents The 2021 Term Loan is subject to the same affirmative, negative and financial covenants as the 2020 Credit Facility. As of September 30, 2021, the Company was compliant with all financial covenants. Subsequent to September 30, 2021, the Company repaid the outstanding balance on the 2021 Term Loan using the net proceeds from the IPO as discussed in Note 1. Prior to entering into the 2021 Term Loan, the Company held two other Term Loans : • 2016 Term Loan—On August 9, 2016, the Company entered into a five-year term loan with JPMorgan Chase, N.A. (“2016 Term Loan”). The total amount of the term loan was $ 10,000 which matured in August 2021 . Principal payments were based on an increasing percentage of the initial loan amount varying from 2.5 % to 5 % and were made at the end of each quarter . • 2017 Term Loan—On April 25, 2017, the Company entered into a five-year term loan with JPMorgan Chase, N.A. (“2017 Term Loan”). The total amount of the term loan was $ 15,000 which matured in April 2022 . Principal payments were based on an increasing percentage of the initial loan amount varying from 2.5 % to 5 % and made at the end of each quarter . The 2016 Term Loan and the 2017 Term Loan bear interest at LIBOR plus 1.50 % and were collateralized by substantially all of the Company’s assets . The 2016 Term Loan and 2017 Term Loan contained certain affirmative and negative covenants that, among other things, limited the Company’s ability to, subject to various exceptions and qualifications: (i) incur liens; (ii) incur additional debt; (iii) sell, transfer or dispose of assets; (iv) merge with or acquire other companies, (v) make loans, advances or guarantees; (vi) make investments; and (vii) enter into certain transactions with affiliates. The 2016 Term Loan and Term Loan 2017 also required the Company to maintain certain financial covenants including a maximum leverage ratio and a minimum fixed charge coverage ratio. In May 2020, the Company paid off its 2016 Term Loan and the 2017 Term Loan in connection with entering into the 2020 Credit Facility. Interest expense related to the 2016 Term Loan and 2017 Term Loan amounted to $ 188 for the nine months ended September 30, 2020. Vehicle Loans The Company periodically enters into vehicle loans. Interest rate on these vehicle loans range from 4.56 % to 5.68 %. The Company is required to make principal payments of $ 2 on a monthly basis. Aggregate Principal Payments Aggregate principal payments on the total notes payable for the next five years are as follows: 2021, three months remaining 1,087 2022 4,313 2023 4,307 2024 4,297 2025 4,295 2026 11,786 Total notes payable 30,085 18 Table of Contents 7. COMMITMENTS AND CONTINGENCIES Operating Leases — The aggregate minimum commitments for renting the office spaces under non-cancellable operating leases as of September 30, 2021 are as follows: Years Ending December 31, 2021, three months remaining $ 287 2022 1,078 2023 219 2024 147 2025 48 $ 1,779 Rent expense on the leases included above amounted to $ 287 and $ 275 for the three months ended September 30, 2021 and 2020, respectively, and $ 833 and $ 845 for the nine months ended September 30, 2021 and 2020, respectively, and is recorded within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Contingencies: Litigation —The Company may engage in various litigation matters in the ordinary course of business. The Company intends to vigorously defend itself in such matters, based upon the advice of legal counsel, and is of the opinion that the resolution of these matters will not have a material effect on the condensed consolidated financial statements. For any cases for which management believes that it is more likely than not that it will lose the case, a provision for legal settlements has been recorded. As of September 30, 2021 and December 31, 2020, the Company has no t recorded any liabilities relating to legal settlements. Business Risk —The Company imports finished goods predominantly from manufacturers located in South American and Southeast Asian countries. The Company may be subject to certain business risks due to potential instability in these regions . 19 Table of Contents Major Customers — The Company’s customers that accounted for 10 % or more of total net sales and total accounts receivable were as follows: Net sales Accounts receivable Nine Months Ended September 30, September 30, December 31, 2021 2020 2021 2020 Customer A 33 % 35 % 17 % 22 % Customer B 22 % 19 % 16 % 16 % One of the customers acquired less than 5 % ownership in the Company upon consummation of the IPO, as discussed in Note 15. Major Suppliers — The Company’s suppliers that accounted for 10 % or more of the Company’s purchases were as follows: Nine Months Ended September 30, 2021 2020 Supplier A 19 % 26 % Supplier B 14 % 18 % Supplier C 6 % 11 % 8. DERIVATIVE INSTRUMENTS The Company accounts for derivative instruments in accordance with the ASC Topic 815, Derivatives and Hedging (ASC 815). These principles require that all derivative instruments be recognized at fair value on each balance sheet date unless they qualify for a scope exclusion as a normal purchases or sales transaction, which is accounted for under the accrual method of accounting. In addition, these principles permit derivative instruments that qualify for hedge accounting to reflect the changes in the fair value of the derivative instruments through earnings or stockholders’ equity as other comprehensive income on a net basis until the hedged item is settled and recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of a derivative instrument’s change in fair value is immediately recognized in earnings. As of September 30, 2021 and December 31, 2020, the Company did not have any derivative instruments that it had designated as fair value or cash flow hedges. The Company is subject to the following currency risks: Inventory Purchases from Brazilian, Malaysian and Thai Manufacturers —In order to mitigate the currency risk on inventory purchases from its Brazilian, Malaysian and Thai manufacturers, which are settled in Brazilian Real (BRL), Malaysian Ringgit (MYR) and Thai Bhatt (THB), the AMS subsidiary enters a series of forward currency swaps to buy BRL, MYR and THB. Intercompany Transactions Between AME and AMS —In order to mitigate the currency risk on intercompany transactions between AME and AMS, AMS enters into foreign currency swaps to sell British Pounds (GBP). Intercompany Transactions with Canadian Customer and Vendors —In order to mitigate the currency risk on transactions with Canadian customer and vendors, AMI enters into foreign currency swaps to sell Canadian Dollars (CAD). 20 Table of Contents The Company was also subject to interest rate risk on its variable interest rate over the Term Loan 2017. On October 29, 2018, the Company entered into a swap agreement (ISDA) with JPMorgan Chase, N.A. to hedge part of its variable interest rate over the Term Loan 2017 listed in Note 6. The Company terminated the swap agreement in May 2020, in connection with the repayment of the outstanding Term Loan 2017 balance. The Company recorded $ 512 interest expense for the nine months ended September 30, 2020 related to this swap agreement. The notional amount and fair value of all outstanding derivative instruments in the condensed consolidated balance sheets consist of the following at: September 30, 2021 Derivatives not designated as hedging instruments under ASC 815-20 Notional Amount Fair Value Balance Sheet Location Assets Foreign currency exchange contracts Receive USD/pay GBP 19,622 156 Derivative assets Liabilities Foreign currency exchange contracts Receive THB/sell USD $ 17,726 $ ( 1,155 ) Derivative liabilities Receive BRL/sell USD 41,261 ( 2,754 ) Derivative liabilities Receive USD/pay CAD 5,505 ( 156 ) Derivative liabilities Receive MYR/sell USD 392 ( 4 ) Derivative liabilities December 31, 2020 Derivatives not designated as hedging instruments under ASC 815-20 Notional Amount Fair Value Balance Sheet Location Assets Foreign currency exchange contracts Receive THB/sell USD $ 8,730 $ 200 Derivative assets Liabilities Foreign currency exchange contracts Receive BRL/sell USD $ 29,329 $ ( 3,817 ) Derivative liabilities Receive USD/pay GBP 15,298 ( 1,120 ) Derivative liabilities Receive USD/pay CAD 9,006 ( 427 ) Derivative liabilities The amount of realized and unrealized gains and losses and condensed consolidated statements of operations and comprehensive income location of the derivative instruments for the three and nine months ended September 30, 2021 and 2020 are as follows:​​​​​​​ 21 Table of Contents Three Months Ended September 30, 2021 2020 Unrealized gain/(loss) on derivative instruments $ ( 1,964 ) $ 167 Location Unrealized gain/(loss) on derivative instruments Unrealized gain/(loss) on derivative instruments Foreign currency gain / (loss) $ ( 483 ) $ 756 Location Foreign currency gain/(loss) Foreign currency gain/(loss) Nine Months Ended September 30, 2021 2020 Unrealized gain/(loss) on derivative instruments $ 1,250 $ ( 7,229 ) Location Unrealized gain/(loss) on derivative instruments Unrealized gain/(loss) on derivative instruments Foreign currency gain / (loss) $ ( 2,013 ) $ 1,118 Location Foreign currency gain/(loss) Foreign currency gain/(loss) The Company applies recurring fair value measurements to its derivative instruments in accordance with ASC Topic 820, Fair Value Measurements (ASC 820). In determining fair value, the Company used a market approach and incorporates the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable internally developed inputs. 9. FAIR VALUE MEASUREMENTS ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observability of the inputs used in valuation techniques, the Company’s assets and liabilities are classified as follows: Level 1 —Quoted market prices in active markets for identical assets or liabilities. Level 2 —Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. 22 Table of Contents Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes internally developed models and methodologies utilizing significant unobservable inputs. Forward Currency Swap Contracts —The Company’s valuation methodology for forward currency swap contracts is based upon third-party institution data. Contingent Consideration Liability —The Company utilized a probability weighted scenario-based model to determine the fair value of the contingent consideration. The Company’s fair value hierarchy for those assets (liabilities) measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020, is as follows: Level 1 Level 2 Level 3 Total Forward Currency Swaps/Contracts Contingent consideration liability September 30, 2021 $ — $ ( 3,913 ) $ — $ ( 3,913 ) December 31, 2020 $ — $ ( 5,164 ) $ — $ ( 5,164 ) In connection with the Company’s acquisition of the entity currently known as AMI Runa USA LLC (“Runa”), the Company was obligated to pay contingent payments to Runa’s former shareholders only if a certain revenue growth rate is achieved. Assuming the revenue growth is achieved, the former shareholders could elect for payment to be calculated based on quarterly data available between December 2021 and December 2022, as follows: 49 % of the product of (a) the net revenue for the trailing 12 calendar months and (b) a specified multiple, which is contingent on the revenue growth achieved since December 31, 2017. Per the acquisition agreement, the contingent payment cannot exceed $ 51,500 . If a certain revenue growth rate is not achieved, the Company is not required to pay any contingent payment . The fair value of contingent consideration of $ 15,700 determined on the acquisition date in 2018 was initially recognized as a liability and then subsequently remeasured to fair value at each reporting date with changes in fair value recognized as a component of operating expenses in the accompanying condensed consolidated statements of operations. The contingent consideration liability related to the acquisition of Runa was considered a Level 3 liability, as the fair value was determined based on significant inputs not observable in the market, and recorded within other long-term liabilities in the accompanying condensed consolidated balance sheets. The Company estimated the fair value of the contingent consideration liability based on a probability-weighted present value of various future cash payment outcomes. The technique considered the following unobservable inputs as of each valuation date: • The probability and timing of achieving the specified milestones, • Revenue performance expectations, and • Market-based discount rates Based on updated revenue performance expectations during the earn-out period for Runa, the Company remeasured the contingent consideration as $ 16,400 as of September 30, 2020 and subsequently to zero at September 30, 2021 and at December 31, 2020. 23 Table of Contents The following table presents the change in contingent consideration liability during the nine months ended September 30, 2021 and 2020: 2021 2020 Balance at January 1, $ — $ ( 16,400 ) Change in fair value of contingent consideration — — Balance at September 30, $ — $ ( 16,400 ) There were no transfers between an y levels of the fair value hierarchy for any of the Company’s fair value measurements . 10. STOCKHOLDERS’ EQUITY Common and Treasury Stock —Each share of common stock entitles its holder to one vote on matters required to be voted on by the stockholders of the Company and to receive dividends, when and if declared by the Company’s Board of Directors. As of September 30, 2021 and December 31, 2020, the Company held 6,206,200 and 1,014,195 shares, respectively, in treasury stock and had 4,228,315 and 3,883,425 shares, respectively, of common stock reserved for issuance upon the conversion of outstanding warrants and stock options. In January 2021, the Company entered into a Stock Purchase Agreement with RW VC S.a.r.l, f/k/ a Vita Coco S.a.r.l (the “Seller”). The Company repurchased 5,192,005 shares of its own common stock from the Seller at a purchase price of $ 9.63 per share, or an aggregate purchase price of approximately $ 50,000 . The purchase price per share approximated the most recent third-party common stock valuation prepared in conjunction with the accounting of stock-based compensation discussed within this Note. Non-controlling Interest —On August 17, 2021, the Company’s ownership interest in AME increased as a result of the subsidiary AME repurchasing AME shares from certain minority stockholders. As a result, the noncontrolling interest in AME representing minority stockholders’ proportionate share of the equity in AME was reduced from 1.3 % to 0.71 %. Since the Company continued to retain a controlling financial interest in AME, the change in ownership interest was accounted for as an equity transaction. Warrants —The following table summarizes warrant activity f o r the nine months ended September 30, 2021: Exit Warrants (a) Service Warrants (b) Total Warrants Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in Years) Outstanding—December 31, 2020 28,665 — 28,665 $ 0.000022 0.75 Granted — — — — — Exercised — — — — — Expired ( 28,665 ) — ( 28,665 ) — — Outstanding—September 30, 2021 — — — Exercisable—September 30, 2021 — — — — — (a) As of September 30, 2021 and December 31, 2020, the Company has exit warrants to purchase zero and 28,665 shares of common stock, respectively, at a weighted-average exercise price of $ 0.000022 per share outstanding to certain investors. These exit warrants, expire upon the earlier of 10 years from the date of grant or the occurrence of a liquidity event, as defined in the warrant agreements. The warrants, which were issued in connection with the sale of common stock, only vest when proceeds from a liquidity event provide an annual internal rate of return of less than 30 %. The remaining exit warrants expired as of September 30, 2021. 24 Table of Contents (b) As of September 30, 2021 and December 31, 2020, the Company did no t have any warrants outstanding to individuals for the performance of certain marketing services. Stock Options —The stockholders of the Company approved the adoption of the Company’s 2014 Stock Option and Restricted Stock Plan (the “Stock Option Plan”). The Stock Option Plan allowed for a maximum of 8 % of the sum of the Available Equity defined as the sum of (i) the total then outstanding shares of common shares and (ii) all available stock option (i.e., granted and outstanding stock options and stock options not yet granted). Under the terms of the Stock Option Plan, the Company may grant employees, directors, and consultants stock options and restricted stock awards and has the authority to establish the specific terms of each award, including exercise price, expiration, and vesting. Generally, stock options issued pursuant to the Stock Option Plan must contain exercise prices no less than the fair value of the Company’s common stock on the date of grant and have ten-year contractual term. As of September 30, 2021 and December 31, 2020, there were 484,315 and 545,545 shares, respectively, of common stock reserved for future issuance pursuant to the Stock Option Plan. All shares awarded due to exercise of stock options are newly issued. Subsequent to September 30, 2021, the stockholders of the Company approved the adoption of the 2021 Incentive Award Plan, which was effective after the closing of the initial public offering discussed in Note 1. On and after closing of the offering and the effectiveness of the 2021 Incentive Award Plan, no further grants will be made under the 2014 Stock Option and Restricted Stock Plan. The Company recognized stock-based compensation expense of $ 1,641 and $ 1,238 for the nine months ended September 30, 2021 and 2020, respectively, in selling, general, and administrative expenses. The Company recognized stock-based compensation expense of $ 629 and $ 411 for the three months ended September 30, 2021 and 2020, respectively. Awards with Service-based Vesting Conditions Most of stock option awards granted under the 2014 Stock Option Plan vest based on continuous service. Generally, 50 % of the stock options granted vest two years after the grant date and 50 % of the stock options granted vest four years after the grant date. The following table summarizes the service-based stock option activity during the nine months ended September 30, 2021: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding—December 31, 2020 3,206,840 $ 10.05 Granted 347,620 $ 10.18 Exercised 15,470 $ 9.67 Forfeited or expired 221,585 $ 10.78 Outstanding—September 30, 2021 3,317,405 $ 10.02 7.8 16,534 Exercisable—September 30, 2021 1,829,100 $ 9.88 7.2 9,358 The weighted average grant-date fair value of the service-based stock option awards granted during the nine months ended September 30, 2021 and 2020 was $ 4.66 per option and $ 3.54 per option, respectively. The aggregate intrinsic value of service-based stock options exercised was $ 82 and $ 102 for the nine months ended September 30, 2021 and 2020, respectively. The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for all stock options that had exercise prices lower than the fair value of the Company’s common stock. 25 Table of Contents The fair value of the service-based stock options granted during the nine months ended September 30, 2021 and 2020 pursuant to the Stock Option Plan was estimated on the grant date using the Black- Scholes option-pricing model. The weighted average assumptions used in the Black-Scholes option-pricing model were as follows: September 30, 2021 September 30, 2020 Weighted average expected term 6.4 5.6 Weighted average expected volatility 38 % 40 % Weighted average risk-free interest rate 0.80 % 0.45 % Weighted average expected dividend yield 0 % 0 % Expected Term: Represents the period that the stock-based awards are expected to be outstanding based on a contractual term and service conditions specified for the awards. The Company estimated the expected term of the options with service conditions in accordance with the “simplified” method as defined in ASC 718, which enables the use of a practical expedient for “plain vanilla” share options. Expected Volatility: The Company has historically been a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, the Company estimated volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the expected term of the options. Risk-free Interest Rate: The risk-free interest rate was based on the yield, as of the option valuation date, by reference to the U.S. Treasury yield curve in effect at the time of the grant or the modification of the award for time periods equal to the expected term of the award. Dividend Yield —The Company does not anticipate declaring a dividend over the expected term. As such, the dividend yield has been estimated to be zero. Fair Value of Common Stock —Because there has been no public market for the Company’s common stock as of September 30, 2021, the board of directors has determined the estimated fair value of the common stock at the time of grant of options by considering valuations performed by an independent third-party valuation specialist, which considers a number of objective and subjective factors including valuations of comparable companies, operating and financial performance, the lack of liquidity of capital stock, the likelihood of achieving an initial public offering and general and industry specific economic outlook. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held- Company Equity Securities Issued as Compensation. The third-party common stock valuations were prepared using a combination of the income approach and market approach. After October 21, 2021, public trading market for our common stock has been established in connection with the completion of the initial public offering, and therefore, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock observable in the public market. 26 Table of Contents As of September 30, 2021, there was $ 2,706 of total unrecognized compensation cost related to unvested service-based stock options, which is expected to be recognized over a weighted-average service period of 1.9 years. Awards with Performance and Market-based Vesting Conditions During the nine months ended September 30, 2021, the Company awarded options to purchase 262,990 shares of common stock of the Company containing performance-based vesting conditions, subject to achievement of various performance goals by the end of 2021, including revenue, Adjusted EBITDA, and other operational targets. During the year ended December 31, 2020, the Company awarded options to purchase 68,250 shares of common stock of the Company containing performance-based vesting conditions, subject to achievement of various performance goals by the end of 2025, including revenue and gross margin targets. In addition, during the year ended December 31, 2019, the Company awarded options to purchase 579,670 shares of common stock of the Company containing performance and market vesting conditions, such as option vesting upon occurrence of an initial public offering (“IPO”) or other qualifying liquidity event and upon achieving predetermined equity value of the Company at a time of the IPO or other qualifying liquidity event. The following table summarizes the performance and market-based stock option activity during the nine months ended September 30, 2021: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding—December 31, 2020 647,920 10.18 Granted 262,990 10.62 Exercised — — Forfeited or expired — — Outstanding—September 30, 2021 910,910 10.30 8.3 4,155 None of the stock options included in the table above are exercisable at September 30, 2021. The fair value of the awards with performance-based vesting condition was estimated using the Black-Scholes option-pricing model used for the Company’s service-based stock options and assumed that performance goals will be achieved. If such performance conditions are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The weighted average grant-date fair value of the stock options with performance-based vesting condition granted during the nine months ended September 30, 2021 and 2020 was $ 4.38 and $ 4.56 per option, respectively. As of September 30, 2021, the unrecognized stock-based compensation cost related to the stock options for which performance-based vesting conditions are probable of being achieved was $ 798 , expected to be recognized over the period of approximately 3.0 years. As of September 30, 2021, total unrecognized compensation cost related to the unvested 579,670 stock option awards containing performance and market vesting conditions was $ 1,225 , which will be recognized when attainment of the performance and market vesting conditions becomes probable. 11. INCOME TAXES For the nine months ended September 30, 2021 and 2020, the Company recorded $ 6,277 and $ 4,615 , respectively, in income tax expense in its condensed consolidated statements of operations. 27 Table of Contents In assessing the recoverability of its deferred tax assets, the Company continually evaluates all available positive and negative evidence to assess the amount of deferred tax assets for which it is more likely than not to realize a benefit. For any deferred tax asset in excess of the amount for which it is more likely than not that the Company will realize a benefit, the Company establishes a valuation allowance. As of September 30, 2021 and December 31, 2020, there were no liabilities for income tax uncertainties. The Company is subject to income tax examinations by IRS and various state and location jurisdictions for the open tax years between December 31, 2017 to December 31, 2020. 12. EARNINGS PER SHARE Basic and diluted earnings per share were calculated as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Numerator: Net income income attributable to The Vita Coco Company, Inc. $ 12,990 $ 9,007 $ 22,432 $ 15,573 Denominator: Weighted-average number of common shares used in earnings per share—basic 53,006,746 58,495,156 53,266,209 58,560,306 Effect of conversion of stock options 773,314 95,516 475,839 114,899 Weighted-average number of common shares used in earnings per share—diluted 53,780,060 58,590,672 53,742,048 58,675,205 Earnings per share—basic $ 0.25 $ 0.15 $ 0.42 $ 0.27 Earnings per share—diluted $ 0.24 $ 0.15 $ 0.42 $ 0.27 The vested service warrants are exercisable for little consideration and all necessary conditions have been satisfied. Accordingly, the calculation of weighted average common shares outstanding includes vested service warrants, exercisable for a value of $ 0.000022 , which consisted of zero and 5,922 weighted average service warrants as of September 30, 2021 and 2020, respectively. The exit warrants, which expire upon a liquidity event and only vest when proceeds from a liquidity event provide an annual internal rate of return of less than 30 %, were not considered in the basic and diluted earnings per share, as the contingency of a liquidity event had not occurred during the nine months ended September 30, 2021 and 2020. The following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average number of common shares outstanding, as they would be anti-dilutive: 28 Table of Contents Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Options to purchase common stock 116,322 3,627,839 1,198,005 3,512,961 13. SEGMENT REPORTING The Company has two operating and reportable segments: • Americas—The Americas segment is comprised primarily of US and Canada and derives its revenues from the marketing and distribution of various coconut water and non-coconut water products (e.g., oil and milk). The Company’s Guayusa leaf products (Runa), aluminum bottle canned water (Ever and Ever), and protein infused fitness drink (PWR LIFT) are marketed only in the Americas segment. • International—The International segment is comprised primarily of Europe, Middle East, and Asia Pacific, which includes the Company’s procurement arm and derives its revenues from the marketing and distribution of various coconut water and non-coconut water products. The Company’s Co-CEOs are the chief operating decision makers and evaluate segment performance primarily based on net sales and gross profit. All intercompany transactions between the segments have been eliminated. Information about the Company’s operations by operating segment as of September 30, 2021 and 2020 and for the three and nine months ended September 30, 2021 and 2020 is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net sales $ 115,669 $ 87,321 $ 292,929 $ 241,127 Americas 100,933 74,522 250,932 204,621 International 14,736 12,799 41,997 36,506 Gross profit $ 38,501 $ 29,380 $ 91,561 $ 82,314 Americas 34,679 25,091 81,502 71,076 International 3,822 4,289 10,059 11,238 As of September 30, As of December 31, 2021 2020 Total segment assets $ 200,974 $ 183,861 Americas 153,174 139,452 International 47,800 44,409 29 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, Reconciliation 2021 2020 2021 2020 Total gross profit $ 38,501 $ 29,380 $ 91,561 $ 82,314 Less: Selling, general, and administrative expenses 20,675 19,060 61,897 55,462 Income from operations 17,826 10,320 29,664 26,852 Less: Unrealized (gain)/loss on derivative instruments 1,964 ( 167 ) ( 1,250 ) 7,229 Foreign currency (gain)/loss 483 ( 756 ) 2,013 ( 1,118 ) Interest income ( 31 ) ( 61 ) ( 104 ) ( 244 ) Interest expense 127 24 319 776 Income before income taxes 15,283 11,280 28,686 20,209 Geographic Data: The following table provides information related to the Company’s net sales by country, which is presented on the basis of the location that revenue from customers is recorded: Nine Months Ended September 30, 2021 2020 United States $ 250,933 $ 204,621 All other countries(1) 41,996 36,506 Net sales $ 292,929 $ 241,127 (1) No individual country is greater than 10% of total net sales for the nine months ended September 30, 2021 and 2020. The following table provides information related to the Company’s property and equipment, net by country: September 30, 2021 December 31, 2020 United States $ 913 $ 1,186 Ecuador 889 953 Singapore 290 445 All other countries(1) 182 296 Property and equipment, net $ 2,274 $ 2,880 (1) No individual country is greater than 10% of total property and equipment, net as of September 30, 2021 and December 31, 2020. 30 Table of Contents 14. RELATED-PARTY TRANSACTIONS Management Fees —The Company was subject to an arrangement with one of its stockholders for as long as such stockholder holds at least 5 % of the Company’s capital stock. Pursuant to the terms of the amended arrangement, the Company is required to make fixed annual management fee payments of $ 281 . On October 20, 2021, in connection with the IPO discussed in Note 1, the Stockholder’s Agreement was revised and the new Investor Rights Agreement does no t include a management fee to this stockholder. Loan to Employee —On September 18, 2019, the Company extended a five year promissory note of $ 17,700 to its current co-CEO, in order for him to buy 1,739,010 shares of The Vita Coco Company, Inc.’s common stock in conjunction with his employment agreement. The interest on the note accrued annually at a rate of 1.78 % with principal balance due at maturity. The purchase of the Company’s shares occurred simultaneously with the commencement of the loan, as a result no funds were actually disbursed by the Company. The purchased Company shares were pledged as collateral to the loan until full repayment of the principal balance. On May 18, 2020, the Company amended the interest rate on the note to 0.58 %. On September 16, 2021, Martin Roper, the co-CEO of the Company, repaid the outstanding principal balance and accrued interest in full satisfaction of the promissory note. Distribution Agreement with Shareholder —On October 1, 2019, the Company entered into a distribution agreement with one of its stockholders, which currently extends through December 31, 2021. The distribution agreement grants the stockholder the right to sell, resell and distribute designated products supplied by the Company within a specified territory. The amount of revenue recognized related to this distribution agreement was $ 1,636 and $ 1,533 for the three months ended September 30, 2021 and 2020, respectively, and $ 4,944 and $ 4,119 for the nine months ended September 30, 2021 and 2020, respectively. The amounts due from the stockholder in Accounts Receivable, net were $ 362 and $ 575 as of September 30, 2021 and December 31, 2020, respectively. Related to this distribution arrangement, the Company and the stockholder have a service agreement where the Company shares in the compensation costs of the stockholder’s employee managing the China market. The Company recorded $ 39 and $ 38 for the three months ended September 30, 2021 and 2020, respectively, and $ 119 and $ 95 for the nine months ended September 30, 2021 and 2020, respectively, in selling, general, and administrative expense for this service agreement. 31 Table of Contents 15. SUBSEQUENT EVENTS The Company evaluated its condensed consolidated financial statements for subsequent events through November 17 , 2021. Refer to Note 1 for discussion of the IPO and stock split, which occurred subsequent to September 30, 2021. On October 11, 2021, the Company’s Board of Directors approved a new bonus agreement with the co-CEO, Mike Kirban, that replaces and supersedes existing agreements. In the event an initial public offering is consummated on or prior to June 30, 2023, (i) each of Verlinvest, and RW VC S.a.r.l. (the “Bonus Stockholders”) shall pay Mr. Kirban a bonus equal to 1.4 % of the total cash consideration received by the Bonus Stockholders through the sale by the Bonus Stockholders of the Company’s securities pursuant to the IPO, as of the closing date of the IPO (the “Bonus Stockholders Proceeds”); and (ii) the Company shall pay Mr. Kirban a bonus equal to 1.4 % of the total cash consideration received by the Company through the sale of the Company’s securities pursuant to the IPO, as of the closing date of the IPO (the “Company Proceeds”). The forms of payment will be (i) for the Bonus Stockholders’ portion, cash equal to 1.4 % of the Bonus Stockholders Proceeds to be made on the closing date of the IPO; and (ii) for the Company’s portion, a number of restricted stock units pursuant to the 2021 Plan that is equal to the ratio of (x) an amount equal to 1.4 % of the Company IPO Proceeds to (y) the fair market value per share of the Company’s common stock on the date of grant, which shall vest in full on the six ( 6 ) month anniversary of the date of grant subject to Mr. Kirban’s continued employment with the Company through such vesting date. Concurrent with, and subject to, the consummation of the IPO, entities affiliated with a significant customer agreed to purchase $ 20 million of shares of common stock, at a price per share equal to the IPO price per share at which our common stock was sold to the public, from Verlinvest Beverages SA, an existing stockholder, in a private placement. The Company will no t receive any proceeds from the private placement. In addition, this customer also received $ 3 million of shares of restricted common stock, at a price per share equal to the IPO price per share, in connection with an amendment to extend the term of the existing distributor agreement between the customer and the Company to June 10, 2026 . 32 Table of Contents